minute federal open market committee january joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday january 10:00 a.m. continue wednesday january 9:00 a.m. present jerome powell chairman john williams vice chairman michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist thomas connors rochelle edge beverly hirtle daniel sullivan christopher waller william wascher jonathan willis beth anne wilson associate economists simon potter manager system open market account lorie logan deputy manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors andreas lehnert director division financial stability board governors jennifer burns deputy director division supervision regulation board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chairman office board members board governors antulio bomfim special adviser chairman office board members board governors brian doyle joseph gruber ellen meade john roberts special advisers board office board members board governors linda robertson assistant board office board members board governors christopher erceg senior associate director division international finance board governors david lebow michael palumbo senior associate directors division research statistics board governors edward nelson robert tetlow senior advisers division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors marnie gillis deboer associate director division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors eric engstrom deputy associate director division monetary affairs adviser division research statistics board governors glenn follette norman morin assistant directors division research statistics board governors christopher gust laura lipscomb zeynep senyuz assistant directors division monetary affairs board governors dana burnett michele cavallo dan section chiefs division monetary affairs board governors sean savage senior project manager division monetary affairs board governors david small project manager division monetary affairs board governors kurt lewis principal economist division monetary affairs board governors christopher smith principal economist division research statistics board governors ayelen banegas senior economist division monetary affairs board governors luke pettit senior financial institution policy analyst division monetary affairs board governors pon sagnanert financial analyst division monetary affairs board governors yvette mcknight staff assistant office secretary board governors meredith black vice president federal reserve bank dallas david altig sylvain leduc executive vice presidents federal reserve banks atlanta san francisco respectively bruce fallick marc giannoni susan mclaughlin anna nordstrom angela o'connor keith sill mark l.j. wright senior vice presidents federal reserve banks cleveland dallas new york new york new york philadelphia minneapolis respectively roc armenter kathryn chen joe peek alexander wolman patricia zobel vice presidents federal reserve banks philadelphia new york boston richmond new york respectively samuel schulhofer wohl senior economist research advisor federal reserve bank chicago annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york michael strine vice president federal reserve bank new york alternate eric rosengren president federal reserve bank boston patrick harker president federal reserve bank philadelphia alternate charles evans president federal reserve bank chicago loretta mester president federal reserve bank cleveland alternate james bullard president federal reserve bank st. louis robert kaplan president federal reserve bank dallas alternate esther george president federal reserve bank kansas city neel kashkari president federal reserve bank minneapolis alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chairman john williams vice chairman james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael hold deputy general counsel richard ashton assistant general counsel steven kamin economist thomas laubach economist stacey tevlin economist thomas connors rochelle edge eric engen beverly hirtle daniel sullivan geoffrey tootell christopher waller william wascher jonathan willis beth anne wilson associate economists unanimous vote federal reserve bank new york select execute transaction system open market account soma unanimous vote committee select simon potter lorie logan serve pleasure committee manager deputy manager soma respectively understanding selection subject satisfactory federal reserve bank new york secretary advice subsequently receive manager deputy manager selection indicate satisfactory federal reserve bank new york unanimous vote committee approve authorization domestic open market operations revision make clear small value test rollover maturity include limit operational readiness testing program guidelines conduct system open market operations federal agency issue remain suspend authorization domestic open market operation amend effective january open market transaction federal open market committee committee authorize direct federal reserve bank select committee execute open market transaction selected bank extent necessary carry domestic policy directive adopt committee buy sell open market security direct obligation fully guarantee principal interest united states security direct obligation fully guarantee principal interest agency united states eligible purchase sale section 14(b federal reserve act eligible security system open market account soma outright operation security dealer foreign international account maintain selected bank day defer delivery basis include transaction commonly refer dollar roll coupon swap market price temporary operation day defer delivery basis purchase eligible security subject agreement resell repo transaction sell eligible security subject agreement repurchase reverse repo transaction term business day rate authorize committee determine competitive bidding apply reasonable limitation volume agreement individual counterpartie allow eligible securities soma mature replacement exchange market price connection treasury auction mature eligible securities soma treasury case eligible securities direct obligation united states fully guarantee principal interest united states exchange market price mature eligible securities soma agency united states case eligible securities direct obligation agency fully guarantee principal interest agency security lending order ensure effective conduct open market operation committee authorize selected bank operate program lend eligible securities hold soma dealer overnight basis selected bank lend eligible securities long overnight term accommodate weekend holiday similar trading convention security lending rate determine competitive bidding minimum lending fee consistent objective program iii subject reasonable limitation total specific issue eligible securities auction subject reasonable limitation eligible securities borrower borrow selected bank reject bid determine sole discretion facilitate bidder ability control single issue accept treasury security cash collateral loan security authorize paragraph iii accept agency security collateral loan agency security authorize paragraph operational readiness testing committee authorize selected bank undertake transaction type describe paragraph time time purpose test operational readiness subject following limitation transaction authorize paragraph shall conduct prior notice committee aggregate par value transaction authorize paragraph type describe paragraph 1.a.i 1.b 1.c 1.d shall exceed calendar year outstanding transaction describe paragraph 1.a.ii shall exceed give time transaction customer account order ensure effective conduct open market operation assist provision short term investment authorized service foreign international account maintain federal reserve bank foreign accounts account maintain federal reserve bank fiscal agent united states pursuant section federal reserve act foreign accounts customer accounts committee authorize following undertake term comparable available open market selected bank soma undertake reverse repo transaction eligible securities hold soma customer accounts term business day federal reserve bank maintain customer accounts customer account appropriate subject necessary authorization approval undertake repo transaction eligible securities dealer corresponding reverse repo transaction eligible securities customer accounts undertake intra day repo transaction eligible securities foreign accounts transaction undertake customer accounts provision paragraph provide service fee appropriate transaction undertake customer accounts subject authorization approval entity include board governors federal reserve system involve account maintain federal reserve bank fiscal agent united states united states department treasury additional matter committee authorize chairman committee foster committee objective period meeting committee instruct selected bank act behalf committee adjust somewhat exceptional circumstance stance monetary policy action result material change composition size asset soma undertake transaction respect eligible securities order appropriately address temporary disruption operational highly unusual nature u.s. dollar funding market adjustment describe subparagraph paragraph shall context committee decision stance policy committee long run objective foster maximum employment price stability shall base economic financial monetary development committee chairman feasible consult committee make instruction paragraph committee vote unanimously reaffirm revision authorization foreign currency operations foreign currency directive show authorization foreign currency operation reaffirm effective january general federal open market committee committee authorize federal reserve bank select committee selected bank execute open market transaction system open market account provide authorization extent necessary carry foreign currency directive committee purchase sell foreign currency know cable transfer home abroad open market include united states treasury foreign monetary authority bank international settlements entity open market authorization purchase sell foreign currency encompass purchase sale standalone spot forward transaction foreign exchange swap transaction purpose authorization foreign exchange swap transaction swap transaction united states treasury know warehousing transaction swap transaction bank reciprocal currency arrangement swap transaction bank stand dollar liquidity foreign currency liquidity swap arrangement swap transaction entity open market hold balance outstanding forward contract receive deliver foreign currency transaction foreign currency undertake pursuant paragraph shall authorize committee conduct manner consistent obligation exchange arrangement article articles agreement international monetary fund imf close continuous cooperation consultation appropriate united states treasury consultation appropriate foreign monetary authority foreign bank international monetary institution prevail market rate standalone spot forward transactions operation involve standalone spot forward transaction foreign currency approval operation require follow committee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization exceed close regular committee foreign currency subcommittee subcommittee direct selected bank advance execute operation subcommittee believe consultation committee feasible time available committee authorize subcommittee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization total close regular committee operation shall generally direct counter disorderly market condition undertake adjust system balance light probable future need currency iii conduct purpose determine committee purpose authorization volume standalone spot forward transaction foreign currency define sum disregard sign dollar value individual foreign currency purchase sell value time transaction warehousing committee authorize selected bank prior approval subcommittee request united states treasury conduct swap transaction united states exchange stabilization fund establish section gold reserve act agreement selected bank purchase foreign currency exchange stabilization fund exchange stabilization fund repurchase foreign currency selected bank later date purchase sale know warehousing reciprocal currency arrangement stand dollar foreign currency liquidity swaps committee authorize selected bank maintain reciprocal currency arrangement establish north american framework agreement stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement provide authorization extent necessary carry foreign currency directive committee reciprocal currency arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available stand dollar liquidity swap arrangement drawing approve advance chairman chairman approve schedule potential drawing delegate manager system open market account authority approve individual drawing occur accord schedule approve chairman stand foreign currency liquidity swap arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available operations involve stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement shall direct counter strain financial market united states abroad reduce risk emerge mitigate effect economic financial condition united states reciprocal currency arrangement stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement arrangement subject annual approval committee arrangement approve committee iii change term exist arrangement approve advance chairman chairman shall committee inform change term term shall consistent principle discuss guidance provide committee operation foreign currency operation foreign currency governance specify authorization foreign exchange swap transaction privateâsector counterpartie authorize direct advance committee foreign currency holdings committee authorize selected bank hold foreign currency system open market account account maintain foreign bank bank international settlements foreign institution approve board governors section regulation extent necessary carry foreign currency directive committee selected bank shall manage holding foreign currency system open market account primarily ensure sufficient liquidity enable selected bank conduct foreign currency operation direct committee secondarily maintain high degree safety iii subject paragraph 7.a.i 7.a.ii provide high rate return possible currency achieve objective authorize committee selected bank manage foreign currency holding purchasing sell obligation fully guarantee principal interest foreign government agency thereof permit foreign securities outright purchase sale purchasing permit foreign securities agreement repurchase permit foreign securities sell security agreement resale security iii manage balance time deposit account foreign institution approve board governors regulation subcommittee consultation committee provide additional instruction selected bank holding foreign currency additional matter committee authorize chairman prior approval committee enter need agreement understanding secretary united states treasury division responsibility foreign currency operation system united states treasury advise secretary united states treasury concern system foreign currency operation consult secretary policy matter relate foreign currency operation designate federal reserve system person authorize communicate united states treasury concern system open market account foreign currency operation time time transmit appropriate report information national advisory council international monetary financial policies committee authorize selected bank undertake transaction type describe authorization foreign exchange investment transaction authorize undertake time time purpose test operational readiness aggregate transaction shall exceed calendar year transaction shall conduct prior notice committee federal reserve bank shall participate foreign currency operation system open market account accordance paragraph 3g(1 board governors statement procedure respect foreign relationships federal reserve banks date january authority subcommittee pursuant authorization exercise chairman chairman believe consultation subcommittee feasible time available chairman shall promptly subcommittee action approve chairman pursuant paragraph committee authorize chairman exceptional circumstance feasible convene committee foster committee objective instruct selected bank engage foreign currency operation authorize pursuant authorization action shall context committee decision foreign currency operation chairman feasible consult committee make instruction paragraph foreign currency directive reaffirm effective january committee direct federal reserve bank select committee selected bank execute open market transaction system open market account accordance provision authorization foreign currency operations authorization subject limit directive committee direct selected bank execute warehousing transaction request united states treasury approve foreign currency subcommittee subcommittee subject limitation outstanding balance united states dollar provide united states treasury result transaction time exceed committee direct selected bank maintain system open market account reciprocal currency arrangement follow foreign bank foreign maximum million dollar equivalent bank canada bank mexico standing dollar liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank standing foreign currency liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank committee direct selected bank hold invest foreign currency portfolio accordance provision paragraph authorization committee direct selected bank committee regular committee transaction undertake pursuant paragraph authorization selected bank direct provide quarterly report committee management foreign currency holding pursuant paragraph authorization committee direct selected bank conduct testing transaction purpose operational readiness accordance provision paragraph authorization unanimous vote committee reaffirm program security fomc information committee annual reconsideration statement long run goals monetary policy strategy participant agree minor revision require update reference median fomc participant estimate long run normal rate unemployment percent percent participant support statement revision committee vote unanimously approve update statement statement long run goals monetary policy strategy amend effective january federal open market committee fomc firmly committed fulfil statutory mandate congress promote maximum employment stable price moderate long term interest rate committee seek explain monetary policy decision public clearly possible clarity facilitate inform decisionmake household business reduce economic financial uncertainty increase effectiveness monetary policy enhance transparency accountability essential democratic society inflation employment long term interest rate fluctuate time response economic financial disturbance monetary policy action tend influence economic activity price lag committee policy decision reflect long run goal medium term outlook assessment balance risk include risk financial system impede attainment committee goal inflation rate long run primarily determine monetary policy committee ability specify long run goal inflation committee reaffirm inflation rate percent measure annual change price index personal consumption expenditure consistent long run federal reserve statutory mandate committee concerned inflation run persistently objective communicate symmetric inflation goal clearly public help long term inflation expectation firmly anchor foster price stability moderate long term interest rate enhance committee ability promote maximum employment face significant economic disturbance maximum level employment determine nonmonetary factor affect structure dynamic labor market factor change time directly measurable consequently appropriate specify fix goal employment committee policy decision inform assessment maximum level employment recognize assessment necessarily uncertain subject revision committee consider wide range indicator make assessment information committee participant estimate long run normal rate output growth unemployment publish time year fomc summary economic projections example projection median fomc participant estimate long run normal rate unemployment percent set monetary policy committee seek mitigate deviation inflation long run goal deviation employment committee assessment maximum level objective complementary circumstance committee judge objective complementary follow balanced approach promote take account magnitude deviation potentially different time horizon employment inflation project return level judge consistent mandate committee intend reaffirm principle adjustment appropriate annual organizational january development financial markets open market operations deputy manager system open market account soma provide overview development u.s. global financial market financial market volatile intermeete period market participant point number factor contribute heighten volatility sustain decline risk asset price interest rate month include weak outlook great uncertainty foreign economy particularly europe china perception great policy risk partial shutdown government backdrop market participant appear interpret fomc communication time december fully appreciate tightening financial condition associated downside risk u.s. economic outlook emerge fall addition market report suggest investor perceive fomc insufficiently flexible approach adjust path fund rate process balance sheet normalization light risk deterioration risk sentiment late december reportedly amplify poor liquidity thin trading condition year end early year market sentiment improve follow communication federal reserve official emphasize committee patient consider adjustment stance policy flexible manage reduction security holding soma balance stock price finish period percent corporate risk spread narrow reverse portion change variable september fomc deputy manager report result open market desk late survey primary dealer market participant outlook policy median path fund rate respondent shift basis point relative response survey conduct ahead december average probability respondent attach increase target range policy action decline correspond probability attach possibility target range unchanged lower point year increase concern expectation fomc statement survey respondent anticipate retention language pointing likelihood gradual increase target range fund rate expect statement emphasize patience datum dependence conduct policy consistent communication fomc flexible approach balance sheet normalization survey result suggest respondent anticipate committee slow balance sheet runoff scenario involve reduction target range fund rate review money market development deputy manager note fund continue trade rate close interest excess reserve rate sign scarcity evident behavior fund rate correlation daily change balance fund rate remain close market repurchase agreement repo rate spike year end reportedly reflect strong demand financing dealer associate large treasury auction net settlement day combine cutback supply financing available bank manage size balance sheet year end report purpose deputy manager note federal reserve bank new york plan release notice early february public comment plan include datum select deposit calculation overnight funding rate obfr addition begin work aim publish series backward look average secure overnight financing rate sofr step support reference rate reform plan solicit public feedback effort later year initiate publication average half follow briefing participant raise number question market report federal reserve balance sheet runoff associate quantitative tightening important factor contribute selloff equity market closing month year respondent assess reduction security hold soma modest upward pressure treasury yield agency mortgage back security mbs yield time place little weight balance sheet reduction prime factor spur deterioration risk sentiment period investor reportedly hold firmly belief runoff federal reserve security holding factor put significant downward pressure risky asset price investment decision investor particularly thin market condition year end outsized effect market price time participant discuss hypothesis investor take signal future path fund rate base perception federal reserve unwilling adjust pace balance sheet runoff light economic financial development unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period long run monetary policy implementation frameworks committee participant resume december appropriate long run framework monetary policy implementation january provide briefing effectiveness efficiency committee operating regime option transition long run size balance sheet note committee previously indicate long run intend operate security holding necessary implement monetary policy efficiently effectively consider effectiveness operating regime observe year federal reserve able implement monetary policy environment ample reserve adjust administer rate include rate required excess balance offer rate overnight reverse repurchase agreement facility need actively manage supply reserve period effective fund rate steady level committee target range despite substantial change level reserve banking system significant change money market regulation financial institution business model addition money market rate move closely fund rate regime effective provide control policy rate ensure transmission policy stance rate broad financial market briefing include factor relevant judge level reserve support efficient implementation monetary policy suggest maintain buffer reserve minimum quantity correspond flat portion demand curve reduce size frequency open market operation need maintain good control policy rate aggregate level reserve decline peak level reach october decline stem reduction asset holding increase nonreserve liability federal reserve note circulation survey information evidence suggest reserve begin approach efficient level later year backdrop present option substantially slow decline reserve end reduction asset holding point half year hold size soma portfolio roughly constant time average level reserve fall gradual pace reflect trend growth federal reserve liability describe option communicate plan operate regime completion normalization size balance sheet committee reach decision operating regime announce decision help reduce uncertainty long run implementation framework evolution balance sheet addition committee revise previous communication clear flexible approach normalize balance sheet prepared change detail balance sheet normalization plan light economic financial development necessary support fomc broad policy goal note end asset redemption desk reinvest principal payment receive holding agency mbs treasury security direct participant note key advantage federal reserve operating regime include good control policy rate variety condition good transmission money market rate broad financial market observe regime control policy rate active management supply reserve disadvantage particular level variability demand supply large period crisis stabilize policy rate environment require large frequent open market operation participant judge light extensive previous discussion appropriate provide public certainty federal reserve use operating regime choose operating regime allow committee forward related issue include plan conclude normalization size balance sheet participant emphasize importance describe choose operating regime clear term enhance public understanding participant discuss market commentary suggest process balance sheet normalization influence financial market participant note ongoing reduction federal reserve asset holding proceed smoothly year significant effect financial market gradual reduction security holding announce advance intend proceed background fund rate remain committee primary tool adjust stance policy nonetheless investor interpret previous communication indicate high threshold meet committee willing adjust balance sheet normalization plan participant observe target range fund rate committee primary mean adjust stance policy balance sheet normalization process proceed way support achievement federal reserve dual mandate goal maximum employment stable price consistent principle participant agree important flexible manage process balance sheet normalization appropriate adjust detail balance sheet normalization plan light economic financial development necessary achieve committee macroeconomic objective participant think desirable announce long plan stop reduce federal reserve asset holding later year announcement provide certainty process complete normalization size federal reserve balance sheet substantial majority expect asset redemption end level reserve somewhat large necessary efficient effective implementation monetary policy suggest gradual decline average level reserve reflect trend growth liability federal reserve note circulation appropriate participant process allow federal reserve arrive slowly efficient level reserve maintain good control short term interest rate need engage frequent open market operation participant judge little benefit allow reserve fall end redemption approach cost undue risk volatility short term interest rate exceed benefit participant think end asset redemption federal reserve begin add asset offset growth nonreserve liability average level reserve relatively stable couple participant suggest ceiling facility mitigate temporary unexpected pressure market play useful role support policy implementation low level reserve participant comment light committee longstanding plan hold primarily treasury security long run appropriate asset redemption end reinvest principal payment receive agency mbs treasury security think continue reinvest agency mbs principal payment excess month agency mbs balance sheet normalization plan simplify communication provide helpful backstop scenario large decline long term interest rate cause agency mbs prepayment speed increase sharply judge retain cap agency mbs redemption unnecessary stage normalization process participant note consideration support include principal payment unlikely reach level cap slightly slow return portfolio primarily treasury security committee flexibility adjust detail balance sheet normalization plan light economic financial development participant comment important time develop communicate plan reinveste agency mbs principal payment expect balance sheet normalization related issue upcoming meeting follow chairman propose committee communicate intention monetary policy implementation willingness adjust detail balance sheet normalization program publish statement conclusion participant agree propose statement statement monetary policy implementation balance sheet normalization adopt january extensive deliberation thorough experience date committee judge appropriate time provide additional information plan implement monetary policy long run additionally committee revise early guidance condition adjust detail balance sheet normalization program accordingly participant agree following committee intend implement monetary policy regime ample supply reserve ensure control level fund rate short term interest rate exercise primarily setting federal reserve administer rate active management supply reserve require committee continue change target range fund rate primary mean adjust stance monetary policy committee prepared adjust detail complete balance sheet normalization light economic financial development committee prepared use range tool include alter size composition balance sheet future economic condition warrant accommodative monetary policy achieve solely reduce fund rate staff review economic situation information available january indicate labor market condition continue strengthen growth real gross domestic product gdp solid year availability datum limited usual partial government shutdown extend december january consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce bit percent november hold decline consumer energy price survey base measure long run inflation expectation little change total nonfarm payroll employment expand strongly december national unemployment rate edge low level percent labor force participation rate increase somewhat result employment population ratio remain steady december unemployment rate african americans asians hispanics december level end previous economic expansion persistent differential unemployment rate group remain share worker employ time economic reason continue close low reach late rate private sector job opening quit edge november high level initial claim unemployment insurance benefit middle january near historically low level average hourly earning employee rise percent month end december industrial production increase solidly december output gain strong manufacturing mining sector output utility decline warm usual temperature lower demand heating automaker assembly schedule suggest production light motor vehicle ease somewhat order index national regional manufacturing survey point moderate gain factory output coming month household spending look increase strongly real pce growth strong october november release retail sale december delay available indicator credit card debit card transaction datum light motor vehicle sale suggest household spending growth remain strong december key factor influence consumer spending include ongoing gain real disposable personal income elevate measure household net worth continue supportive solid real pce growth near term consumer sentiment measure university michigan surveys consumers upbeat early january year remain favorable level real residential investment appear decline reflect decrease affordability housing arise net increase mortgage interest rate past year ongoing somewhat slow house price appreciation datum start permit residential construction december available building permit issuance single family home tend good indicator underlie trend construction home move modestly previous couple month sale exist home decrease net november december datum home sale month delay growth real private expenditure business equipment intellectual property look pick solidly nominal shipment nondefense capital good exclude aircraft rise balance october november information shipment december delay available indicator transportation equipment spending strong forward look indicator business equipment spending order nondefense capital good exclude aircraft reading business sentiment point somewhat slow spending gain near term datum nominal business expenditure nonresidential structure outside drilling mining sector november available number crude oil natural gas rig operation indicator business spending structure drilling mining sector roughly flat december january total real government purchase appear increase moderately nominal defense spending october november point solid growth real purchase spend datum december delay partial government shutdown restrain real purchase somewhat significant negative effect purchase real purchase state local government look rise modestly payroll government expand bit period nominal state local construction spending rise solidly october construction datum november delay datum u.s. international trade november december delay available datum october suggest contribution change net export real gdp growth negative drag nearly percentage point total u.s. consumer price measure pce price index increase percent month end november core pce price inflation exclude change consumer food energy price percent period consumer price index cpi rise percent month end december core cpi inflation percent recent reading survey base measure long run inflation expectation include michigan survey desk survey primary dealers survey market participants little change recent datum suggest foreign economic growth subdue relative early year advanced foreign economy afes especially euro area indicator economic activity weaken remain consistent positive economic growth emerge market economy emes growth mexico brazil appear slow modest pace temporary pickup chinese economy expand slow pace early year amid notable weakness household spending chinese import emerge asian economy turn foreign inflation fall reflect low oil price inflation pressure especially afes remain muted staff review financial situation investor risk sentiment fluctuate materially intermeete period variety factor include fomc communication weak expect datum trade policy uncertainty partial government shutdown concern outlook corporate earning cite market participant contribute deterioration risk sentiment early period time broad equity index decline substantially amid sharp rise financial market volatility corporate bond spread widen notably subsequently positive signal trade policy robust economic datum release communication fomc participant lead improvement risk sentiment net s&p index rise option imply volatility vix fall treasury yield decline corporate spread narrow intermeete period despite intermeete move financial market financial condition remain notably tight september financing condition business household tighten bit intermeete period remain supportive spending december fomc communication reportedly perceive market participant fully appreciate implication tight financial condition soften global datum month u.s. economic outlook subsequent communication fomc participant interpret suggest fomc patient assess implication economic financial development market imply path fund rate little change net intermeete period investor continue expect change target range fund rate january fomc market imply path shift somewhat nominal treasury yield fluctuate substantially heighten risk aversion contribute significant decline yield early intermeete period subsequently yield rise year yield end period somewhat low net spread yield nominal 10- year treasury security little change period remain low end historical range decade near term forward spread difference imply month forward rate horizon quarter ahead derive treasury yield curve yield month treasury bill narrow net low end historical distribution year to-10 year forward inflation compensation measure base treasury inflation protect securities tips edge bit period measure significantly level prevail fall year u.s. risky asset market s&p equity index percent point period end period notably high net vix fall substantially corporate bond spread narrow bit fund rate overnight funding rate rise follow increase target range fund rate december fomc year end pressure repo market reportedly exacerbate high volume settlement treasury security backdrop large dealer inventory reduce intermediation global systemically important bank general collateral repo rate move sharply year end subsequently return normal level foreign financial market follow general pattern united states balance foreign equity price move moderately sovereign credit spread eme narrow inflow dedicated emerge market fund resume quarter outflow long term sovereign yield afes edge lower net dollar depreciate amid fall u.s. yield great investor optimism prospect eme dollar depreciate notably british pound net market participant reportedly see increase likelihood delay brexit process dollar depreciate considerably brazilian real mexican peso follow progress pension reform brazil fiscal announcement mexico perceive prudent financing condition nonfinancial firm tighten somewhat balance gross issuance corporate bond slow considerably december credit rating spectrum rebound january volume high yield bond issue nonfinancial firm remain average past year spread nonfinancial corporate bond volatile narrow bit net stay level prevail year ago credit quality nonfinancial corporation continue sign deterioration actual corporate bond default remain low institutional leveraged loan issuance slow december low level july loan spread widen substantially small business credit market condition little change credit condition municipal bond market stay accommodative net private sector analyst significantly revise projection corporate earning pace gross equity issuance initial seasoned offering sluggish december amid report firm push initial equity offering respondent january senior loan officer opinion survey bank lending practices sloos report lending standard commercial industrial c&i loan remain basically unchanged have report ease standard past quarter growth c&i loan bank balance sheet pick reflect strong origination reduced paydown loan sale commercial real estate cre sector financing condition remain accommodative commercial mortgage back security cmbs spread volatile little change net intermeete period issuance agency non agency cmbs remain strong cre loan growth bank continue expand pace comparable see course bank january sloos report demand unchanged net nonfarm nonresidential loan large cre loan category demand reportedly weak multifamily loan construction loan balance bank report tighten standard type cre loan financing condition residential mortgage market remain accommodative borrower purchase mortgage origination activity continue decline modestly november refinance activity continue mute consumer credit market financing condition tighten bit balance remain supportive growth household spending bank report sloos tighten credit card lending standard consumer asset back security market spread widen somewhat amid broad market volatility provide update view respect potential risk financial stability increase financial market volatility see fall year characterize return historically typical level follow historically low volatility environment persist increase volatility financial market december view substantial exacerbate thin year end liquidity factor staff judge asset valuation pressure equity corporate debt market abate somewhat period assessment present november financial stability staff continue monitor development leveraged loan market give sharp rise spread slowdown issuance late year build nonfinancial business debt level close historical high relative gdp view factor amplify adverse shock business sector staff continue judge risk associate household sector debt moderate risk associate financial leverage vulnerability relate maturity transformation view low time staff economic outlook u.s. economic forecast prepare january fomc revise little balance primarily reflect somewhat low project path domestic equity price foreign economic growth estimate u.s. real gdp growth solid year bolster consumer spending business investment effect partial government shutdown small real gdp growth expect slow solid half year effect partial government shutdown modestly restrain gdp growth effect reverse medium term real gdp growth forecast rate estimate potential output growth step growth rate potential output year slow pace potential output growth unemployment rate project decline somewhat estimate long run natural rate end year begin edge labor market condition judge tight continue assume project employment gain manifest small usual downward pressure unemployment rate large usual upward pressure labor force participation rate forecast inflation little revise january fomc core pce price inflation expect step percent year run level medium term total pce price inflation forecast little core inflation year reflect project decline energy price run level core inflation view uncertainty projection real gdp growth unemployment rate inflation similar average past year see risk forecast real gdp growth unemployment rate roughly balanced upside household spending business investment expand fast project support tax cut enact year downside trade policy foreign economic development direction significant negative effect u.s. economic growth risk inflation projection see balanced upside risk inflation increase expect economy project potential counterbalance downside risk long term inflation expectation low assume forecast possibility dollar appreciate foreign economic condition deteriorate participant view current conditions economic outlook participants agree intermeete period labor market continue strengthen economic activity rise solid rate job gain strong average month unemployment rate remain low household spending continue grow strongly growth business fix investment moderate rapid pace early year month basis inflation inflation item food energy remain near percent market base measure inflation compensation move lower month survey base measure long term inflation expectation little change participant continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome year participant continue expect growth rate real gdp step somewhat pace see rate close estimate long run growth participant comment wan fiscal stimulus expect contribute step participant comment nudge outlook output growth december cite softening consumer business sentiment reduction outlook foreign economic growth tightening financial condition occur month household sector participant note datum spending strong support strong job market rise income couple participant comment contact district remain optimistic consumer spending participant note softening survey consumer sentiment participant observe partial government shutdown present significant hardship family participant point continue weakness housing sector attribute concern affordability potential homebuyer participant note growth business fix investment moderate rapid pace early year participant highlight survey business sentiment district contact indicate weakening optimism confidence economic outlook available indicator suggest level business sentiment remain high concern economic outlook variously attribute uncertainty worry slow global economic growth include europe china trade policy wan fiscal policy stimulus partial government shutdown manufacture contact number district indicate factor cause delay defer capital expenditure addition participant note decline oil gasoline price damp plan capital expenditure energy sector participant observe condition agricultural sector remain difficult cite large inventory agricultural commodity uncertainty international trade policy concern low price commodity farmland participant comment business optimism increase contact district plan capital expenditure participant observe inflation inflation item food energy remain near percent month basis participant continue inflation near committee symmetric percent objective outcome participant note factor decline oil price slow growth soft inflation abroad appreciation dollar year hold inflation reading year addition participant comment upward pressure inflation appear muted appear year despite strengthen labor market condition rise input cost industry indicator inflation expectation participant note market base measure inflation compensation move lower month participant express range view interpret decline inflation compensation hand decline stem decrease expected inflation market participant case low level inflation compensation inflation expectation committee percent inflation objective hand decline inflation compensation reflect large decline risk premium increase concern downside risk outlook inflation interpretation see consistent behavior survey base measure expect inflation little change labor market participant agree condition continue strengthen estimate job gain december employment strong unemployment rate remain low labor force participation rate move participant note solid rate hire indicator tight labor market condition district participant comment indicator national district level suggest pickup wage growth pickup attribute tighten national district labor market condition gain rate productivity growth continue solid productivity growth see key factor necessary support rise real wage time participant comment number risk associate outlook economic activity labor market inflation medium term participant note risk downside increase include possibility sharp expect slowdown global economic growth particularly china europe rapid waning fiscal policy stimulus tightening financial market condition increase foreign domestic government policy uncertainty include associate brexit escalation international trade policy tension potential additional extend government shutdown cite downside risk participant express concern long run inflation expectation low level consistent committee percent inflation objective participant judge risk lead high expect inflation diminish relative downside risk potential source uncertainty abate quickly expect mention potential upside risk economic outlook financial development participant note financial market condition change net intermeete period price volatile financial condition materially tight month ago low equity price wide corporate risk spread participant note slope treasury yield curve unusually flat historical standard past associate deterioration future macroeconomic performance participant note financial asset price appear sensitive information trade policy tension domestic fiscal monetary policy global economic growth prospect couple participant note rise credit spread month persist restrain future economic activity participant agree important monitor financial market development implication development economic outlook participant comment financial stability number express concern elevated financial market volatility apparent decline investor willingness bear risk occur end year condition ease somewhat week couple participant note strain financial market persist spread occur period favorable macroeconomic condition couple participant highlight role decrease liquidity end year appear play exacerbate change financial market condition emphasize need monitor financial market structure practice contribute strained liquidity condition participant highlight importance ensure financial institution able withstand adverse financial market event instance maintain adequate level capital consideration monetary policy participant judge information receive december indicate real economic activity rise solid rate labor market condition continue strengthen inflation near committee objective participant expect economic activity expand solid pace period ahead strong labor market condition inflation near percent time december committee note monitor global economic financial development implication economic outlook participant observe economic outlook uncertain financial market volatility remain elevated intermeete period despite easing december fomc financial condition tighten september addition global economy continue record slow growth consumer business sentiment deteriorate government policy environment include trade negotiation partial government shutdown see factor contribute uncertainty economic outlook base assessment participant express appropriate committee maintain target range fund rate percent regard committee postmeete statement participant support propose change forward guidance language replace previous guidance refer gradual increase target range fund rate indication light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate participant support proposal remove statement characterization risk economic outlook roughly balanced participant point variety consideration support patient approach monetary policy juncture appropriate step manage risk uncertainty outlook regard domestic economic picture additional datum help policymaker gauge trajectory business consumer sentiment softness core total inflation inflation compensation persist effect tightening financial condition aggregate demand information arrive coming month shed light effect partial government shutdown u.s. economy result budget negotiation occur wake shutdown include possible implication path fiscal policy patient approach add benefit give policymaker opportunity judge response economic activity inflation step take normalize stance monetary policy furthermore patient posture allow time clear picture international trade policy situation state global economy emerge particular allow policymaker reach firm extent persistence economic slowdown europe china participant note maintain target range fund rate time pose risk point level fund rate low end range estimate neutral policy rate inflation pressure mute asset valuation stretched month early participant suggest clear adjustment target range fund rate appropriate later year participant argue rate increase prove necessary inflation outcome high baseline outlook participant indicate economy evolve expect appropriate raise target range fund rate later year participant observe patient posture circumstance consistent general approach set stance policy importantly guide implication incoming datum economic outlook participant note global economic financial development important factor lead patient monetary policy posture development matter affect assessment policy rate path consistent achievement committee dual mandate goal maximum employment price stability participant observe uncertainty abate committee need reassess characterization monetary policy patient use different statement language participant express concern environment increase uncertainty policy rate projection prepare summary economic projections sep accurately convey committee policy outlook participant concerned individual participant projection fund rate sep reflect individual view appropriate path policy rate conditional evolution economic outlook time public misinterpret median tendency projection represent consensus committee suggest policy preset course participant note policy rate projection sep valuable component information provide monetary policy outlook committee policy action monetary policy period ahead member judge information receive committee meet december indicate labor market continue strengthen economic activity rise solid rate job gain strong average month unemployment rate remain low household spending continue grow strongly growth business fix investment moderate rapid pace early year month basis inflation inflation item food energy remain near percent market base measure inflation compensation move lower month survey base measure long term inflation expectation little change consideration economic outlook member note financial condition tighten net september global growth moderate member observe number uncertainty include pertain evolution policy u.s. foreign government await resolution member continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome u.s. economy period ahead light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate support outcome assess condition outlook economic activity labor market inflation member decide maintain target range fund rate percent member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative committee maximum employment symmetric percent inflation objective reiterate assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member note decision near term adjustment stance monetary policy appropriately dependent evolution outlook inform incoming datum regard postmeete statement member agree change characterization growth economic activity strong solid consistent incoming information suggest pace expansion u.s. economy moderate somewhat late year description indicator inflation expectation revise recognize downward move market base measure inflation compensation occur month sustain note survey base measure long term inflation expectation little change member agree adjustment description outlook economy monetary policy statement language revise committee continue sustained expansion economic activity strong labor market condition inflation near percent outcome member agree add sentence indicate light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate support outcome sentence intend convey committee patient flexible approach appropriate time way manage risk assess incoming information bear economic outlook light range uncertainty associate global economic financial development committee decide useful time balance risk conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective january federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security mature calendar month exceed reinveste agency mortgage back security principal payment federal reserve holding agency debt agency mortgage back security receive calendar month exceed small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet december indicate labor market continue strengthen economic activity rise solid rate job gain strong average month unemployment rate remain low household spending continue grow strongly growth business fix investment moderate rapid pace early year month basis inflation inflation item food energy near percent market base measure inflation compensation move lower month survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability support goal committee decide maintain target range fund rate percent committee continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate support outcome determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance unchanged percent vote unanimously approve establishment primary credit rate exist level percent effective january agree committee hold tuesday wednesday march adjourn 10:30 a.m. january notation vote notation vote complete january committee unanimously approve minute committee hold december james clouse secretary federal open market committee reference fomc committee minute return text attend long run monetary policy implementation framework return text attend tuesday return text committee organizational document available https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text committee policy normalization principles plans adopt september available https://www.federalreserve.gov/monetarypolicy/files/fomc_policynormalization.pdf march committee adopt addendum policy normalization principles plan available https://www.federalreserve.gov/monetarypolicy/files/fomc_policynormalization.20150318.pdf june committee adopt addendum policy normalization principles plan available https://www.federalreserve.gov/monetarypolicy/files/fomc_policynormalization.20170613.pdf return text general specify article imf undertake collaborate imf member assure orderly exchange arrangement promote stable system exchange rate obligation include seek direct economic financial policy objective foster orderly economic growth reasonable price stability obligation include avoid manipulate exchange rate international monetary system way impede effective balance payment adjustment unfair competitive advantage member return text

minute federal open market committee march joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday march 10:00 a.m. continue wednesday march 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist thomas connors rochelle edge eric engen christopher waller william wascher beth anne wilson associate economists simon potter manager system open market account lorie logan deputy manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors antulio bomfim special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade john roberts special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors joshua gallin david lebow senior associate directors division research statistics board governors edward nelson senior adviser division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors marnie gillis deboer david lópez salido associate directors division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors andrew figura assistant director division research statistics board governors laura lipscomb zeynep senyuz rebecca zarutskie assistant directors division monetary affairs board governors michele cavallo section chief division monetary affairs board governors penelope beattie assistant secretary office secretary board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors martin bodenstein marcel priebsch bernd schlusche principal economists division monetary affairs board governors mary frances styczynski lead financial institution policy analyst division monetary affairs board governors achilles sangster information management analyst division monetary affairs board governors gregory stefani vice president federal reserve bank cleveland david altig kartik athreya michael dotsey glenn rudebusch ellis tallman joseph tracy executive vice presidents federal reserve banks atlanta richmond philadelphia san francisco cleveland dallas respectively antoine martin julie ann remache mark l.j. wright senior vice presidents federal reserve banks new york new york minneapolis respectively roc armenter kathryn chen hesna genay jonathan mccarthy patricia zobel vice presidents federal reserve banks philadelphia new york chicago new york new york respectively samuel schulhofer wohl senior economist research advisor federal reserve bank chicago daniel cooper senior economist policy advisor federal reserve bank boston ellen correia golay markets officer federal reserve bank new york lee smith senior economist federal reserve bank kansas city balance sheet normalization committee participant resume january option transition long run size balance sheet describe option end reduction federal reserve security holding end september potentially reduce pace redemption treasury security date reduce pace redemption end consistent previous change federal reserve balance sheet policy support gradual transition long run level reserve reinforce committee communication indicate fomc flexible plan balance sheet normalization process balance sheet normalization consistent attainment federal reserve monetary policy objective continue redemption pace september simple communicate somewhat shorten transition long run level reserve note reduce pace redemption september leave reserve balance sheet slightly large continue redemption pace september long run level reserve size balance sheet ultimately determine long term demand federal reserve liability staff projection term premium macroeconomic outcome differ substantially option describe possible interim plan reinveste principal payment receive agency debt agency mortgage back security mbs balance sheet runoff end committee decide long run composition system open market account soma portfolio consistent committee long stand aim hold primarily treasury security long run principal payment agency debt agency mbs reinveste treasury security secondary market reinvestment allocate sector treasury market roughly proportion maturity composition treasury security outstanding plan maintain exist month cap mbs redemption principal payment agency debt agency mbs month reinveste agency mbs cap limit pace federal reserve agency mbs holding decline prepayment accelerate project redemption cap agency debt agency mbs unlikely reach note balance sheet runoff end average level reserve tend decline gradually line trend growth federal reserve nonreserve liability committee choose resume growth balance sheet order maintain level reserve consistent efficient effective policy implementation participant judge end runoff security holding end september reduce uncertainty federal reserve plan security holding consistent committee decision january implement monetary policy regime ample reserve participant discuss advantage disadvantage slow balance sheet runoff september stop date slow pace redemption accord committee general practice adjust holding security smoothly predictably reduce risk market volatility arise connection conclusion runoff security holding advantage need weigh additional complexity plan end balance sheet runoff step participant reiterate support fomc intention return hold primarily treasury security long run participant judge adopt interim approach reinveste agency debt agency mbs principal payment treasury security range maturity appropriate committee continue evaluate potential long run maturity structure federal reserve portfolio treasury security participant offer preliminary view advantage disadvantage alternative composition soma portfolio participant expect long run composition portfolio upcoming meeting participant comment consideration relate allow average level reserve decline line trend growth nonreserve liability time end balance sheet runoff participant prefer stabilize average level reserve resume purchase treasury security relatively soon end runoff see little benefit decline balance think committee minimize risk interest rate volatility occur supply reserve drop point consistent efficient effective implementation policy prefer allow average level reserve decline long time balance sheet runoff end decline allow committee learn underlie demand judge process result excessive volatility money market rate judge move low level reserve consistent committee previous communication indicate hold security necessary implement monetary policy efficiently effectively participant note eventual resumption purchase security pace growth demand federal reserve liability occur normal operation maintain ample reserve monetary policy implementation regime represent change stance monetary policy participant suggest future meeting committee potential benefit cost tool reduce demand support interest rate control follow chair propose committee communicate intention balance sheet normalization publish statement conclusion participant agree appropriate issue propose statement balance sheet normalization principle plan adopt march light discussion previous meeting progress normalize size federal reserve security holding level reserve banking system participant agree appropriate time committee provide additional information plan size security holding transition long run operating regime january committee state intend implement monetary policy regime ample supply reserve ensure control level fund rate short term interest rate exercise primarily setting federal reserve administer rate active management supply reserve require statement monetary policy implementation balance sheet normalization release january principle plan list revise replace committee early policy normalization principles plan ensure smooth transition long run level reserve consistent efficient effective policy implementation committee intend slow pace decline reserve come quarter provide economy money market condition evolve expect committee intend slow reduction holding treasury security reduce cap monthly redemption level beginning committee intend conclude reduction aggregate security holding system open market account soma end september committee intend allow holding agency debt agency mortgage back security mbs decline consistent aim hold primarily treasury security long run begin october principal payment receive agency debt agency mbs reinveste treasury security subject maximum month principal payment excess maximum reinveste agency mbs principal payment agency debt agency mbs maximum initially invest treasury security range maturity roughly match maturity composition treasury security outstanding committee revisit reinvestment plan connection deliberation long run composition soma portfolio continue committee limit sale agency mbs warrant long run reduce eliminate residual holding timing pace sale communicate public advance average level reserve fomc conclude reduction aggregate security holding end september somewhat level reserve necessary efficiently effectively implement monetary policy case committee currently anticipate hold size soma portfolio roughly constant time period persistent gradual increase currency non liability accompany correspond gradual decline balance level consistent efficient effective implementation monetary policy committee judge balance decline level soma portfolio hold security necessary efficient effective policy implementation point reach committee begin increase security holding pace trend growth federal reserve non liability maintain appropriate level reserve system development financial markets open market operations manager soma discuss development global financial market intermeete period united states equity index move high credit spread tighten market participant attribute move perceive shift fomc approach policy follow communication stress committee patient assess need future adjustment target range fund rate flexible balance sheet policy europe measure announce european central bank ecb march include extension forward guidance interest rate announcement round target long term refinance operation follow decline euro area equity market particularly stock decline euro area rate market contact attribute price reaction perception measure stimulative expect give downward revision ecb growth inflation forecast china authority move easy fiscal monetary stance china aggregate credit growth rebound slightly month relative decline trend observe year shanghai composite index rise notably turn year drive fiscal monetary stimulus measure perceive progress trade negotiation development brexit remain source market uncertainty consistent ongoing investor uncertainty outcome risk reversal pound dollar currency pair continue point high demand protection pound depreciation relative dollar deputy manager provide overview money market development policy implementation intermeete period effective fund rate effr continue stable level equal interest rate excess reserve rate overnight secure market continue exhibit volatility particularly month end date market participant attribute volatility overnight secure rate persistently high net dealer inventory treasury security treasury issuance coincide month end statement date upcoming intermeete period combination change treasury balance federal reserve additional asset redemption reserve expect decline low early notable fluctuation reserve day associate tax flow deputy manager discuss transition long run regime ample reserve follow committee january announcement intend implement monetary policy regime size federal reserve balance sheet normalize open market desk point need conduct open market operation maintain level reserve banking system committee deem appropriate desk need bank demand reserve forecast federal reserve liability plan operation maintain supply reserve sufficient ensure control short term interest rate exercise primarily setting administer rate deputy manager describe possible operational approach ample reserve regime base establish minimum operating level lower bind daily level reserve assessment minimum operating level reserve base range information include survey bank market participant datum bank holding market monitoring propose approach desk plan open market operation maintain daily level reserve minimum operating level consistent committee intention maintain regime require active management supply reserve desk plan open market operation medium term horizon average level reserve medium term minimum operating level provide buffer reserve absorb daily change nonreserve liability follow manager deputy manager participant comment aspect minimum operating level approach decision far allow reserve decline need balance important tradeoff hand low minimum operating level increase risk excessive interest rate volatility hand low minimum operating level provide opportunity learn underlie demand view consistent move small security holding necessary efficient effective monetary policy implementation scope reduce level reserve end balance sheet runoff fairly limited unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available march indicate labor market condition remain strong al­though growth real gross domestic product gdp appear slow markedly year solid pace consumer price inflation measure month percentage change price index personal consumption expenditure pce somewhat percent december hold decline consumer energy price pce price inflation item food energy close percent reading pce price inflation delay early government shutdown survey base measure long run inflation expectation little change balance increase total nonfarm payroll employment remain solid average month employment rise little february expand strongly january national unemployment rate edge net past month percent february labor force participation rate employment population ratio rise slightly balance unemployment rate african americans asians hispanics february level end previous economic expansion persistent differential unemployment rate group remain share worker employ time economic reason move february low reach late rate private sector job opening january average remain elevated rate quit edge january week moving average initial claim unemployment insurance benefit early march near historically low level average hourly earning employee rise percent month end february significantly fast pace year early employment cost index private sector worker increase percent month end december somewhat fast year early total labor compensation hour business sector increase percent quarter rate year early industrial production decline january rebound somewhat february manufacture output decrease month production motor vehicle part sector contract notably january decline broad base february production mining utility sector expand net past month automaker assembly schedule suggest production light motor vehicle roughly flat near term order index national regional manufacturing survey point modest gain factory output coming month household spending look slow turn year real pce decrease markedly december solid increase previous month component nominal retail sale datum bureau economic analysis bea estimate pce rebound partially january key factor influence consumer spending include low unemployment rate ongoing gain real labor compensation elevate measure household net worth supportive pickup consumer spending solid pace near term addition consumer sentiment measure university michigan surveys consumers step february early march upbeat level real residential investment appear soften reflect decrease affordability housing arise net increase mortgage interest rate past year ongoing house price appreciation start single family home increase slightly net december january start multifamily unit decline building permit issuance single family home tend good indicator underlie trend construction home move month addition sale exist home decrease january growth real private expenditure business equipment intellectual property look slow nominal shipment nondefense capital good exclude aircraft rise december january available indicator point decrease transportation equipment spending strong gain forward look indicator business equipment spending order nondefense capital good exclude aircraft reading business sentiment point sluggish increase near term nominal business expenditure nonresidential structure outside drilling mining sector increase december january addition number crude oil natural gas rig operation indicator business spending structure drilling mining sector expand balance february middle march total real government purchase appear move sideways relatively strong increase real defense purchase roughly offset expect decline real nondefense purchase stem effect partial government shutdown real purchase state local government look rise modestly payroll government expand bit january february nominal state local construction spending rise net december january nominal u.s. international trade deficit narrow november widen december large deficit export decline november december export industrial supply automotive product fall month import decrease november partially recover december import consumer good industrial supply drive swing bea estimate change net export drag percentage point rate real gdp growth total u.s. consumer price measure pce price index increase percent month end december slightly slow year early consumer energy price decline little consumer food price rise modestly core pce price inflation exclude change consumer food energy price percent period somewhat high year early consumer price index cpi rise percent month end february core cpi inflation percent recent reading survey base measure long run inflation expectation include michigan survey blue chip economic indicators desk survey primary dealers survey market participants little change balance economic growth foreign economy slow development reflect slow canadian economy emerge market economy emes include brazil mexico continue economic weakness euro area china advanced foreign economy afes datum suggest economic activity especially manufacturing sector remain subdue year economic activity remain weak eme particularly mexico emerge asia exclude china al­though datum point modest pickup china inflation foreign economy slow early year partly reflect low retail energy price afes eme staff review financial situation investor sentiment risky asset continue improve intermeete period market participant cite accommodative monetary policy communication optimism trade deal united states china factor contribute improvement broad equity price index increase notably corporate bond spread narrow measure equity market volatility decline finance condition business household improve slightly remain supportive economic activity fomc communication issue follow january view market participant accommodative expect subsequent communication include minute january fomc chair semiannual testimony congress speech fomc participantsâwere interpret reflect patient approach monetary policy near term conclusion federal reserve balance sheet reduction end year market imply path fund rate decline slightly period investor continue expect change target range fund rate march fomc marketâimplied path fund rate shift little yield nominal treasury security decline bit treasury yield curve intermeete period communication fomc participant accommodative expect amid mute reading inflation communication major bank balance regard accommodative expect mixed economic datum release reportedly contribute decrease yield outweigh improve risk sentiment spread yield nominal 10- year treasury security little change period remain low end historical range decade measure inflation compensation derive treasury inflation protect securities increase modestly net al­though remain level see fall major u.s. equity price index increase intermeete period broadâbase gain sector improved prospect trade deal united states china accommodative monetary policy cite drive factor outweigh weak expect announcement corporate earning earning projection consistent report potential trade deal stock price firm great exposure china outperform s&p index optionâ imply volatility s&p index month horizon vix decline reach low point year spread investment- speculative grade corporate bond narrow consistent gain equity price wide level observe fall condition short term funding market remain stable intermeete period effr consistently equal rate interest excess reserve overnight reverse repurchase agreement facility remain low yield spread commercial paper negotiable certificate deposit narrow elevated year end level reflect increase investor demand short term financial asset statutory government debt ceiling reestablish march price foreign risky asset track positive move similar u.s. asset intermeete period communication major bank net accommodative expect optimism trade negotiation united states china contribute upward price move offset effect continue concern foreign economic growth particular global equity price end period higher dedicated emerge market fund continue inflow time long term afe yield decline somewhat net communication major foreign bank investor concern foreign economic growth broad dollar index appreciate slightly extension accommodative policy revise guidance major foreign bank weigh afe currency exception british pound strengthen bit dollar market participant view parliamentary vote reduce likelihood deal brexit financing condition nonfinancial business continue accommodative gross issuance investment grade high yield corporate bond strong january february recover low level observe late year issuance institutional syndicate leveraged loan market recover month year issuance february line average monthly issuance spread narrow somewhat december level credit quality nonfinancial corporation continue sign deterioration al­though actual default remain low commercial industrial lending show continued strength january february small business credit market condition little change credit condition municipal bond market stay accommodative net private sector analyst revise projection year ahead corporate earning bit pace gross equity issuance sluggish january tick february consistent uptick stock market commercial real estate cre sector financing condition continue accommodative commercial mortgage back security cmbs spread decline intermeete period triple spread move near late november level issuance non agency cmbs remain strong february cre lending bank grow strong pace february follow relatively sluggish growth january residential mortgage financing condition remain accommodative balance purchase mortgage origination activity flat december edge january mortgage rate remain low peak reach november financing condition consumer credit market little change month remain supportive household spending credit card loan growth remain strong december pace slow amid tight lending standard commercial bank auto loan growth remain steady end staff economic outlook u.s. economic projection prepare march fomc revise little balance revision reflect effect weak expect incoming datum aggregate domestic spending foreign economic growth partially offset somewhat high project path domestic equity price lower project trajectory interest rate forecast u.s. real gdp growth slow markedly reflect softening growth consumer spending business investment judge slowdown transitory real gdp growth bounce solidly medium term projection real gdp growth forecast run rate similar estimate potential output growth somewhat low trajectory net real gdp previous projection slow pace potential output growth revise slightly assumed underlying trend labor force participation rate raise level potential output bit contribute lower project path real gdp assessment resource utilization little tight previous forecast unemployment rate project decline little estimate long run natural rate end year begin edge labor market condition judge tight continue assume project employment gain manifest small usual downward pressure unemployment rate large usual upward pressure labor force participation rate forecast inflation revise slightly march fomc reflect soft expect reading consumer price core pce price inflation expect percent year edge percent remainder medium term total pce price inflation forecast run bit core inflation year reflect project decline energy price view uncertainty projection real gdp growth unemployment rate inflation similar average past year see risk forecast real gdp growth unemployment rate roughly balanced upside household spending business investment expand fast project support tax cut enact end strong labor market condition upbeat consumer sentiment addition financial condition tighten assume forecast downside softening number economic indicator harbinger substantial deterioration economic activity trade policy foreign economic development direction significant negative effect u.s. economic growth risk inflation projection see balanced upside risk inflation increase expect economy project operate notably potential extended period counterbalance downside risk longerâterm inflation expectation low assume forecast possibility dollar appreciate foreign economic condition deteriorate participant view current conditions economic outlook conjunction fomc member board governors federal reserve bank president submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection policy assessment describe summary economic projections sep addendum minute participant agree information receive january indicate labor market remain strong growth economic activity slow solid rate payroll employment little change february job gain solid average month unemployment rate remain low recent indicator point slow growth household spending business fix investment month basis inflation decline result low energy price inflation item food energy remain near percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change participant continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome year underlie economic fundamental continue support sustained expansion participant indicate expect weakness spending persist participant expect growth rate real gdp year step pace see rate modestly estimate long run growth participant cite factor contribute step include slow foreign growth wan effect fiscal stimulus number participant judge economic growth remain quarter subsequent couple year little low balance previously forecast reason cite downward revision include disappointing news global growth boost fiscal policy previously anticipate household sector participant note softness consumer spending contribute importantly project slowing economic growth participant point weakness retail sale december notable recognize datum january show partial recovery retail sale participant observe softness reflect temporary factor partial government shutdown december volatility financial market consumer sentiment recover factor recede consequently participant expect consumer spending proceed strong pace coming month support favorable underlying factor include strong labor market solid growth household income improvement financial condition household balance sheet position upbeat consumer sentiment participant note continue softness housing sector concern participant comment apparent slowing growth business fix investment factor cite consistent softness investment growth include downward revision forecast corporate earning relatively low energy price provide incentive drilling exploration flatten capital good order report contact soft export sale weak economic activity abroad elevated level uncertainty government policy include trade policy effect financial market volatility business sentiment participant point sign weakness investment abate contact manufacturing sector report business condition favorable strong demand labor business sentiment recover decline reduction mortgage interest rate provide support construction activity agricultural activity remain weak area country weakness reflect adverse effect trade policy commodity price recent widespread severe flooding adversely affect agricultural sector participant note late reading inflation somewhat soft expect participant observe reading reflect effect early decline crude oil price core inflation remain near percent participant see inflation pressure mute expect rate inflation firm somewhat near committee long run objective percent year participant indicate inflation close percent year noteworthy show great sign firm response strong labor market condition rise nominal wage growth short term upward pressure price arise tariff increase low rate price increase sector economy cyclically sensitive cite couple participant reason easing inflation participant observe pickup productivity growth year welcome development help bolster potential output damp inflationary pressure indicator inflation expectation participant note market base measure inflation compensation rise modestly intermeete period remain low couple participant stress reading survey measure inflation expectation low level participant suggest long term inflation expectation level somewhat consistent committee percent inflation objective difficult achieve objective sustained basis labor market participant cite evidence condition remain strong include low unemployment rate increase labor force participation rate low number layoff near record level job opening help want posting solid job gain average month participant observe follow strong job gain january little growth payroll february participant point february reading affect adverse weather condition couple participant note medium term ease payroll growth expect economic growth slow long run trend rate report business contact predominantly point continue strong labor demand firm offer high wage nonwage benefit attract worker economy wide wage growth see consistent rate labor productivity growth inflation percent participant cite combination muted inflation pressure expand employment possible indication slack remain labor market participant comment number risk associate outlook economic activity participant note remain high level uncertainty associate international development include ongoing trade talk brexit deliberation al­though couple participant remark risk adverse outcome somewhat low january downside risk include possibility sizable spillover great expect economic slowdown europe china persistence softness spending sharp falloff fiscal stimulus participant observe economic deterioration united states occur amplify significant debt service burden firm participant mention number upside risk outlook economic activity include outcome source uncertainty resolve favorably consumer business sentiment rebound sharply strengthening labor productivity growth signal pickup underlie trend upside risk outlook inflation include possibility wage pressure rise unexpectedly lead great expect price increase financial development participant observe good deal tightening year financial condition reverse federal reserve communication beginning year see important contributor improvement financial condition participant note asset valuation recover strongly discuss decline occur month yield long term treasury security participant express concern yield curve treasury security flat note historical evidence suggest invert yield curve portend economic weakness note unusually low level term premium long term interest rate historical relationship reliable basis assess implication behavior yield curve participant point increase debt issuance high leverage nonfinancial corporation development warrant continued monitoring monetary policy decision participant agree appropriate maintain target range fund rate percent participant judge labor market remain strong information receive intermeete period include reading household spending business fix investment point slow economic growth early year despite indication soft growth participant expect economic activity expand labor market strong inflation near percent participant note significant uncertainty surround economic outlook include relate global economic financial development light uncertainty continued evidence muted inflation pressure participant agree patient approach determine future adjustment target range fund rate remain appropriate participant observe characterization committee approach monetary policy patient need review regularly economic outlook uncertainty surround outlook evolve couple participant note patient characterization see limit committee option make policy adjustment deem appropriate regard outlook monetary policy majority participant expect evolution economic outlook risk outlook warrant leave target range unchanged remainder year participant note target range fund rate close estimate long run neutral level foresaw economic growth continue near long run trend rate forecast period participant continue emphasize decision appropriate target range fund rate come meeting depend ongoing assessment economic outlook inform wide range datum risk outlook evolve participant note view appropriate target range fund rate shift direction base incoming datum development participant indicate economy evolve currently expect economic growth long run trend rate judge appropriate raise target range fund rate modestly later year participant express concern public time misinterpret medians participant assessment appropriate level fund rate present sep represent consensus committee suggest policy preset course misinterpretation complicate committee communication appropriate monetary policy particularly circumstance future course policy unusually uncertain nonetheless participant note policy rate projection sep valuable component information provide monetary policy outlook chair note ask subcommittee communication way improve information contain sep improve communication role fund rate projection sep policy process participant discuss alternative interpretation subdue inflation pressure economic circumstance associate policy implication participant observe limited inflationary pressure period historically low unemployment sign low inflation expectation exert downward pressure inflation relative committee percent inflation target addition subdued inflation pressure tight labor market suggest common measure resource utilization consistent observation participant note indicator inflation expectation remain low end historical range participant comment recently revise estimate long run unemployment rate consistent percent inflation light consideration participant note appropriate response fund rate sign labor market tightening modest provide sign inflation pressure continue limit participant regard judgment fund rate flat trajectory reflect factor low estimate long run neutral real interest rate risk management consideration participant observe appropriate path policy insofar imply low interest rate long period time lead great financial stability risk couple participant note financial stability risk address appropriate use countercyclical macroprudential policy tool supervisory regulatory tool committee policy action monetary policy period ahead member judge information receive committee meet january indicate labor market remain strong growth economic activity slow solid rate payroll employment little change february job gain solid average month unemployment rate remain low recent indicator point slow growth household spending business fix investment month basis inflation decline result low energy price inflation item food energy remain near percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change consideration economic outlook member note financial condition improve beginning year time need indication weak economic growth persist subsequent quarter member note inflationary pressure remain muted number uncertainty bear u.s. global economic outlook await resolution member continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome u.s. economy period ahead light global economic financial development mute inflation pressure member concur committee patient determine future adjustment target range fund rate appropriate support outcome assess condition outlook economic activity labor market inflation member decide maintain target range fund rate percent member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative committee maximum employment symmetric percent inflation objective reiterate assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member note decision near term adjustment stance monetary policy appropriately dependent evolution outlook inform incoming datum regard postmeete statement member agree characterize labor market remain strong payroll employment little change february job gain solid average month unemployment rate remain low member agree growth economic activity appear slow solid rate consistent indicator household spending business fix investment description inflation revise recognize inflation decline result low energy price note inflation item food energy remain near percent conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation perâcounterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security mature calendar month exceed reinveste agency mortgage back security principal payment federal reserve holding agency debt agency mortgage back security receive calendar month exceed small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet january indicate labor market remain strong growth economic activity slow solid rate payroll employment little change february job gain solid average month unemployment rate remain low recent indicator point slow growth household spending business fix investment month basis inflation decline result low energy price inflation item food energy remain near percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability support goal committee decide maintain target range fund rate percent committee continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate support outcome determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance unchanged percent vote unanimously approve establishment primary credit rate exist level percent effective march agree committee hold tuesday wednesday april adjourn 10:00 a.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text attend tuesday return text

minute federal open market committee joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday april 10:00 a.m. continue wednesday 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge eric engen anna paulson geoffrey tootell william wascher jonathan willis beth anne wilson associate economists simon potter manager system open market account lorie logan deputy manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors antulio bomfim special adviser chair office board members board governors brian doyle wendy dunn ellen meade john roberts special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed christopher erceg senior associate directors division international finance board governors william bassett senior associate director division financial stability board governors joshua gallin david lebow senior associate directors division research statistics board governors robert tetlow senior adviser division monetary affairs board governors marnie gillis deboer associate director division monetary affairs board governors john stevens associate director division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors eric engstrom deputy associate director division monetary affairs adviser division research statistics board governors glenn follette assistant director division research statistics board governors laura lipscomb zeynep senyuz assistant directors division monetary affairs board governors dana burnett michele cavallo matthew malloy section chiefs division monetary affairs board governors penelope beattie assistant secretary office secretary board governors david small project manager division monetary affairs board governors juan londono principal economist division international finance board governors camelia minoiu bernd schlusche principal economists division monetary affairs board governors brian bonis lead financial institution policy analyst division monetary affairs board governors randall williams senior information manager division monetary affairs board governors james trevino senior technology analyst division monetary affairs board governors ron feldman vice president federal reserve bank minneapolis kartik athreya michael dotsey sylvain leduc ellis tallman executive vice presidents federal reserve banks richmond philadelphia san francisco cleveland respectively evan koenig antoine martin samuel schulhofer wohl mark l.j. wright nathaniel wuerffel senior vice presidents federal reserve banks dallas new york chicago minneapolis new york respectively david wheelock group vice president federal reserve bank st. louis patricia zobel vice president federal reserve bank new york mary amiti william riordan assistant vice presidents federal reserve banks new york new york respectively john robertson research economist senior advisor federal reserve bank atlanta justin meyer markets manager federal reserve bank new york selection committee officer unanimous vote committee select anna paulson serve associate economist effective april selection successor regularly schedule committee balance sheet normalization participants resume issue relate balance sheet normalization focus long run maturity composition system open market account soma portfolio present illustrative scenario way highlight range implication different long run target portfolio composition scenario maturity composition u.s. treasury security target portfolio similar universe currently outstanding u.s. treasury security proportional portfolio target portfolio contain short term security maturity year short maturity portfolio provide estimate capacity committee scenario provide economic stimulus maturity extension program mep provide estimate extent term premium embed long term treasury yield affect different scenario base standard modeling framework equal illustrative short maturity portfolio significant upward pressure term premium imply path fund rate need correspondingly low achieve macroeconomic outcome baseline outlook note uncertainty inherent analysis include difficulty estimate effect change soma holding long term interest rate economy presentation consider illustrative gradual accelerate transition path long run target portfolio illustrative gradual transition reinvestment mature treasury holding principal payment agency mortgage back security mbs purchase accommodate growth federal reserve liability direct treasury security maturity long run target portfolio illustrative accelerate transition reinvestment principal payment agency mbs purchase accommodate growth federal reserve liability direct treasury bill weight average maturity wam soma portfolio reach wam associate target portfolio depend combination long run target composition transition plan arrive composition report illustrative scenario year year wam soma portfolio reach long run level statement monetary policy implementation balance sheet normalization committee note prepared adjust size composition balance sheet achieve macroeconomic objective scenario fund rate constrain effective lower bind backdrop participant discuss benefit cost alternative long run target portfolio composition support use balance sheet policy scenario short maturity portfolio participant note advantage increase capacity federal reserve conduct mep helpful provide policy accommodation future economic downturn give secular decline neutral real interest rate associate reduce scope lower fund rate response negative economic shock participant view mep useful initial option address future downturn committee judge need employ balance sheet action provide appropriate policy accommodation participant acknowledge analysis suggest create space conduct mep move short maturity portfolio composition boost term premium result low path fund rate reduce capacity ease financial condition adjustment short term rate number participant note estimate effect short maturity portfolio composition long run neutral fund rate subject substantial uncertainty base number strong modeling assumption example estimate term premium effect base experience crisis overstate effect associate gradual evolution composition soma portfolio addition shift composition soma portfolio result change supply security tend offset upward pressure term premium nonetheless participant express concern potential short maturity portfolio composition result low long run neutral fund rate short maturity portfolio provide substantial capacity conduct mep participant raise question effectiveness meps policy tool relative fund rate unconventional policy tool participant note situation appropriate employ unconventional policy tool prefer employ forward guidance large scale purchase asset ahead mep participant potential benefit transition short maturity soma composition term increase ability conduct mep worth potential cost proportional portfolio composition participant observe move target soma composition expect effect estimate term premium reduce scope lower target range fund rate target response adverse economic shock result participant judge proportional target composition align committee previous statement change target range fund rate primary mean committee adjust stance monetary policy addition participant note analysis suggest proportional portfolio contain capacity conduct mep short maturity portfolio contain meaningful capacity line participant note proportional portfolio help maintain traditional separation federal reserve decision composition soma portfolio maturity composition treasury debt hold private sector number participant judge desirable structure soma portfolio way provide capacity conduct mep proportional portfolio addition couple participant note short maturity portfolio maintain narrow gap average maturity asset soma portfolio short average maturity federal reserve primary liability participant discuss financial stability implication associate alternative long run target portfolio composition couple participant note proportional portfolio imply relatively flat yield curve result great incentive reach yield behavior financial system say participant note short maturity portfolio affect financial stability risk increase incentive private sector issue short term debt couple participant judge financial market functioning adversely affect holding short maturity portfolio account large share total short maturity treasury security outstanding discuss transition desire long run soma portfolio composition participant note gradual pace transition help avoid unwanted effect financial condition participant observe gradual transition path describe presentation year complete backdrop participant discuss possibility follow type accelerated transition include sale soma residual holding agency mbs addition participant suggest committee communicate plan soma portfolio composition term desire change intermediate horizon specific long run target participant express decision long run composition portfolio need time couple participant highlight importance make decision context ongoing federal reserve monetary policy strategy tool communication practice participant note importance develop effective communication plan describe committee decision long run target composition soma portfolio transition target composition development financial markets open market operations manager soma review development financial market intermeete period united states price equity risk asset reportedly buoy perception accommodative stance monetary policy incoming economic datum pointing continue solid economic expansion sign recede downside risk global outlook treasury yield decline period add substantial drop september expect path fund rate imply future price shift market participant attribute move fomc communication indicate committee patient evaluate need adjustment target range fund rate softer incoming datum inflation contribute downward revision expect path policy nearly respondent open market desk late survey primary dealer market participant anticipate fund target range unchanged remainder year review global development manager note market price appear reflect perception improve economic prospect china investor reportedly remain concerned economic outlook europe united kingdom manager report development relate open market operation light decline interest rate november year principal payment federal reserve holding agency mbs project exceed redemption cap modest summer direct committee principal payment receive agency mbs excess cap reinveste agency mbs desk plan conduct operation purchase uniform mbs fannie mae freddie mac security consistent balance sheet normalization principles plans release follow march reinvestment mature treasury security begin base cap monthly treasury redemption billionâdown monthly redemption cap place october year deputy manager review development domestic money market reserve balance decline intermeete period reach low point april decline reserve stem reduction soma agency mbs treasury holding reduce soma portfolio shift composition liability predominantly relate increase treasury general account tga tga volatile intermeete period early april treasury reduce bill issuance allow tga balance fall anticipation individual tax receipt tax receipt arrive tax date tga rise result sharp decline reserve week april backdrop distribution rate trade volume overnight unsecured market shift higher effective fund rate effr move percent end intermeete period basis point interest excess reserve ioer rate factor appear spur upward pressure tax relate runoff deposit bank reportedly lead bank increase short term borrowing particularly federal home loan bank fhlb advance fund market bank continue hold large quantity reserve bank operate balance close low comfortable level report senior financial officer survey distribution reserve contribute somewhat sustain upward pressure fund rate experience year tax payment date addition rate treasury repurchase agreement repo push higher tax relate outflow government money market mutual fund corresponding decline repo lending fund elevated repo rate contribute upward pressure fund rate fhlb reportedly shift liquidity investment fund repo market addition market participant point heighten demand fund month end bank connection effort meet liquidity coverage ratio requirement contribute upward pressure fund rate deputy manager discuss proposal board implement basis point technical adjustment interest required reserves iorr ioer rate propose action bring rate basis point target range fund rate basis point range overnight reverse repurchase agreement rrp offer rate previous technical adjustment june december propose adjustment intend foster trading fund market target range establish fomc technical adjustment reduce spread ioer rate rrp offering rate basis point small introduction rrp facility judge narrow spread pose significant risk increase rrp facility repo rate trade rrp offer rate time appropriate future lower ioer rate note committee wish set rrp offer rate relative target range fund rate mitigate risk manager conclude briefing financial market development open market operation role stand swap line support financial stability recommend committee vote renew swap line follow usual annual schedule committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available april 30âmay indicate labor market condition remain strong real gross domestic product gdp increase solid rate household spending business fix investment rise slowly year consumer price inflation measure month percentage change price index personal consumption expenditure pce decline net month somewhat percent march survey base measure long run inflation expectation little change total nonfarm payroll employment record strong gain march unemployment rate hold steady percent labor force participation rate decline little march have rise balance previous month employment population ratio edge unemployment rate african americans asians hispanics march level end previous economic expansion persistent differential unemployment rate group remain share worker employ time economic reason edge march low reach late rate private sector job opening february decline slightly elevated level prevail past year rate quit unchanged high level week moving average initial claim unemployment insurance benefit mid april near historically low level average hourly earning employee rise percent month end march somewhat fast pace year early employment cost index private sector worker increase percent month end march year early industrial production edge march manufacture output decline moderately primarily reflect decrease output motor vehicle part outside motor vehicle part manufacturing production little change mining output decline net month end march automaker assembly schedule suggest production light motor vehicle near term order index national regional manufacturing survey point modest gain factory output coming month industry news indicate aircraft production slow consumer expenditure slow monthly datum suggest improvement end real pce increase robust pace march have unchanged february partly reflect delay tax refund february march partial government shutdown similarly sale light motor vehicle rise sharply march average pace sale slow key factor influence consumer spendingâinclude low unemployment rate ongoing gain real labor compensation elevate measure household net worthâwere supportive solid near term gain consumer expenditure addition consumer sentiment measure university michigan surveys consumers edge april upbeat report preliminary analysis level trend average household wealth racial ethnic group measure federal reserve board distributional financial accounts initiative real residential investment decline slow rate course appreciable uptick january start single family home fall february little change march start multifamily unit rise february stay level march building permit issuance single family homesâwhich tend good indicator underlie trend construction homesâdeclined little february march sale exist home increase net february march period growth real private expenditure business equipment intellectual property slow reflect slow increase transportation equipment spending strong gain decline spending type equipment outside high tech nominal shipment nondefense capital good exclude aircraft little change net february march rise forward look indicator business equipment spending point sluggish increase near term order nondefense capital good exclude aircraft increase noticeably march little level shipment reading business sentiment improve bit soft year real business expenditure nonresidential structure outside drilling mining sector increase somewhat have decline quarter investment drilling mining structure move number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâdecline net mid march late april total real government purchase increase real purchase government unchanged relatively strong increase defense purchase offset decline nondefense purchase stem effect partial government shutdown real purchase state local government increase briskly payroll government expand solidly nominal state local construction spending rise markedly nominal u.s. international trade deficit narrow significantly january touch february decline december value u.s. export rise january february average dollar value export month year slightly value import fall january edge touch high february average month decline relative bureau economic analysis estimate contribution net export real gdp growth percentage point total u.s. consumer price measure pce price index increase percent month end march increase somewhat slow year early core pce price inflation exclude change consumer food energy price slow percent consumer food price inflation bit core inflation consumer energy price little change trim mean measure pce price inflation construct federal reserve bank dallas percent 12âmonth period consumer price index cpi rise percent month end march core cpi inflation percent recent reading survey base measure long run inflation expectationsâinclude michigan survey survey professional forecasters desk survey primary dealers survey market participantsâwere little change foreign economic growth mixed emerge market economy emes real gdp contract south korea mexico activity china strengthen support tax cut easing credit condition advanced foreign economy economic indicator downbeat japan point improvement weak gdp growth rebound euro area appear pick canada united kingdom foreign inflation slow early year partly reflect low retail energy price staff review financial situation investor sentiment continue improve intermeete period broad equity price index rise notably corporate bond spread narrow amid decline market volatility financing condition business household ease market participant cite accommodative expect monetary policy communication couple strong u.s. chinese data release positive sentiment trade negotiation united states china factor contribute development communication follow march fomc view investor have accommodative tone expect market imply path fund rate shift downward modestly net result flat slightly downward sloping expect path policy rate fomc meeting market participant assign great probability low target range fund rate high meeting yield nominal treasury security decline modestly net intermeete period investor cite large expect downward revision fomc participant assessment future path policy rate summary economic projections communication suggest patient approach monetary policy weak expect euro area datum release early period factor contribute decrease factor reportedly outweigh strong expect economic datum release united states china optimism relate trade negotiation country later period measure inflation compensation base treasury inflation protected securities change little net remain early fall level major u.s. equity price index increase intermeete period s&p equity index return level reach decline follow march fomc stock price decline reportedly concern potential effect flat inverted yield curve profit stock subsequently retrace decline partly response strong earning large u.s. bank end period bit high net option imply volatility s&p 500âthe vixâdecrease low level see september yield corporate bond continue decline spread yield comparable maturity treasury security narrow condition short term funding market remain stable intermeete period effr rise basis point ioer rate income tax deadline april similar dynamic occur previous tax date magnitude change large previous year spread commercial paper negotiable certificate deposit change little maturity spectrum global sovereign yield decline u.s. treasury yield follow march fomc foreign equity price increase balance amid optimism trade negotiation united states china strong expect chinese datum accommodative communication foreign bank pronounce political policy uncertainty lead significant tightening financial condition turkey argentina less extent brazil spillover eme limited eme credit spread little change net broad dollar index increase modestly support strength u.s. economic datum relative foreign datum accommodative tone foreign bank british pound decline intermeete period amid protract discussion ahead original brexit deadline extend october financing condition nonfinancial business remain accommodative intermeete period gross issuance corporate bond strong backdrop narrow corporate spread improve risk sentiment issuance institutional leverage loan increase refinance volume low loan spread remain somewhat elevated respondent april senior loan officer opinion survey bank lending practices sloos report ease key term commercial industrial c&i loan large middle market firm instance bank report narrow loan rate spread ease loan covenant increase maximum size reduce cost credit line firm c&i loan bank balance sheet grow robust pace gross equity issuance edge later period volume corporate bond upgrade slightly outpace downgrade suggest credit quality nonfinancial corporation balance improve financing condition commercial real estate cre sector remain accommodative issuance agency non agency commercial mortgage back security grow steadily cre loan bank balance sheet continue grow albeit slow pace previous quarter bank april sloos report weak demand major type cre loan report tighten lending standard loan financing condition residential mortgage market remain supportive intermeete period home mortgage rate decrease basis point level comparable consistent low mortgage rate home purchase mortgage origination increase reverse yearlong decline consumer credit condition remain supportive growth household spending category consumer loan record steady growth accord april sloos commercial bank leave lending standard auto loan consumer loan unchanged credit card interest rate rise standard reportedly tighten borrower provide update assessment potential risk financial stability judge asset valuation pressure equity corporate debt market increase significantly year elevated level prevail year report leveraged loan market risk spread narrow nonprice term loosen build nonfinancial business debt level close historical high relative gdp view factor amplify adverse shock business sector economy continue judge risk associate household sector debt moderate risk associate financial leverage vulnerability relate maturity transformation view low time note sustained growth lending bank nonbank financial firm represent increase financial interconnectedness staff economic outlook projection u.s. economic activity prepare aprilâmay fomc revise net real gdp growth forecast slow near term solid pace sizable contribution inventory investment net export expect persist projection real gdp growth medium term revise primarily reflect lower assume path interest rate slightly high trajectory equity price somewhat appreciation broad real dollar low path interest rate reflect methodological change set assumption future path fund rate forecast real gdp forecast expand rate estimate potential output growth slow pace potential output growth unemployment rate project decline little estimate long run natural rate late labor market condition judge tight continue assume project employment gain manifest small usual downward pressure unemployment rate large usual upward pressure labor force participation rate forecast inflation revise slightly reflect soft expect reading consumer price inflation expect persist assessment level inflation tend absence resource slack supply shock bit low medium term previously assume result core pce price inflation expect near term run percent medium term total pce price inflation forecast run bit core inflation reflect project decline energy price view uncertainty projection real gdp growth unemployment rate inflation similar average past year see risk forecast real gdp growth unemployment rate roughly balanced upside household spending business investment expand fast project support tax cut enact end strong labor market condition favorable financial condition upbeat consumer sentiment downside softening economic indicator late year leading edge significant slowing pace economic growth trade policy foreign economic development direction significant negative effect u.s. economic growth risk inflation projection see balanced upside risk inflation increase expect economy project operate notably potential extended period counterbalance downside risk soft datum consumer price persist long term inflation expectation low assume forecast possibility dollar appreciate foreign economic condition deteriorate participant view current conditions economic outlook participants agree labor market remain strong intermeete period economic activity rise solid rate job gain solid average month unemployment rate stay low participant observe growth household spending business fix investment slow overall inflation inflation item food energy measure month basis decline run percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change participant continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome participant note unexpected strength gdp growth observe composition growth large contribution inventory net export modest contribution consumption investment suggest gdp growth near term moderate strong pace year year number participant mention mark projection real gdp growth reflect strong reading participant cite continue strength labor market condition improvement consumer confidence financial condition diminish downside risk domestically abroad factor support solid growth remainder year participant observe wan impetus fiscal policy past removal monetary policy accommodation expect real gdp growth slow medium term move estimate trend output growth household sector participant discuss indicator include retail sale light motor vehicle sale march rise relatively weak reading previous month take development suggest softness household spending prove temporary strong job market rise income upbeat consumer sentiment growth pce coming month expect solid participant note housing sector drag gdp growth time datum point sign stabilization mortgage rate low level year participant think residential construction begin positive contribution gdp growth near term optimistic participant note growth business fix investment moderate relative average pace record year discuss moderate growth persist number participant express optimism continue growth capital expenditure year albeit probably slow pace participant observe financial condition business sentiment continue improve consistent report business contact number district report buoyant business sentiment participant suggest concern early year downside risk slow global economic growth deterioration financial condition similar concern express business contact abate extent participant note ongoing challenge agricultural sector include associate trade uncertainty low price exacerbate severe flooding week participant observe inflation pressure remain muted datum inflation inflation item food energy come low expect softness inflation attribute idiosyncratic factor transitory effect inflation include unusually sharp decline price apparel portfolio management service research suggest idiosyncratic factor affect acylical sector economy account substantial portion fluctuation inflation past couple year consistent low inflation reading temporary number participant mention trim mean measure pce price inflation produce federal reserve bank dallas remove influence unusually large change price individual item direction participant observe trimmed mean measure stable close percent month participant continue inflation near committee symmetric percent objective outcome light soft inflation reading view downside risk inflation have increase participant express concern long term inflation expectation level consistent committee percent target risk fall level participant agree labor market condition remain strong job gain march employment solid unemployment rate remain low labor force participation rate move touch remain high relative estimate underlying demographically drive downward trend contact number district continue shortage qualified worker case induce business find novel way attract worker participant comment labor market condition district put upward pressure compensation level low wage job report broad base pickup wage growth participant note business contact express optimism despite tight labor market able find worker find technological solution labor shortage problem participant comment risk associate outlook economic activity medium term participant view risk downside real gdp growth have decrease partly prospect sharp slowdown global economic growth particularly china europe diminish improvement notwithstanding participant observe downside risk outlook growth discuss development financial market number participant note financial market condition improve follow period stress observe year volatility price financial condition subside factor think help buoy consumer business confidence mitigate short term downside risk real economy improvement financial condition regard participant provide support outlook economic growth employment participant comment financial stability highlight development relate leveraged loan corporate bond high level nonfinancial corporate indebtedness participant suggest heighten leverage associate debt burden render business sector sensitive economic downturn case couple participant suggest increase capital circumstance solid economic growth strong profit help support financial macroeconomic stability long run couple participant observe asset valuation market appear high relative fundamental participant comment positive role board semi annual financial stability report play facilitate public risk segment financial system monetary policy participant agree appropriate maintain target range fund rate percent participant judge labor market remain strong information receive intermeete period show economic activity grow solid rate inflation inflation item food energy decline run committee percent objective number participant observe risk uncertainty surround outlook early year moderate include relate global economic outlook brexit trade negotiation say source uncertainty remain light global economic financial development muted inflation pressure participant agree patient approach determine future adjustment target range fund rate remain appropriate participant note global economic financial condition continue improve patient approach warrant especially environment continue moderate economic growth mute inflation pressure participant discuss potential policy implication continue low inflation reading participant view dip pce inflation transitory participant anticipate patient approach policy adjustment consistent sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective participant judge patience adjust policy consistent committee balanced approach achieve objective circumstance resource utilization appear high inflation continue run committee symmetric percent objective participant note economy evolve expect committee need firm stance monetary policy sustain economic expansion inflation level consistent committee objective committee need attentive possibility inflation pressure build quickly environment tight resource utilization contrast participant observe subdue inflation couple real wage gain roughly line productivity growth resource utilization high low reading unemployment rate participant comment inflation sign move come quarter risk inflation expectation anchor level consistent committee symmetric percent objectiveâa development difficult achieve percent inflation objective sustainable basis long run participant emphasize monetary policy decision depend assessment economic outlook risk outlook inform wide range datum committee policy action monetary policy period ahead member judge information receive committee meet march indicate labor market remain strong economic activity rise solid rate job gain solid average month unemployment rate remain low growth household spending business fix investment slow month basis inflation inflation item food energy decline run percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change consideration economic outlook member note financial condition improve turn year uncertainty affect u.s. global economic outlook recede risk remain despite solid economic growth strong labor market inflation pressure remain muted member continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome u.s. economy light global economic financial development mute inflation pressure member concur committee patient determine future adjustment target range fund rate appropriate support outcome assess condition outlook economic activity labor market inflation member decide maintain target range fund rate percent member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative committee maximum employment symmetric percent inflation objective reiterate assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member note decision near term adjustment stance monetary policy appropriately dependent evolution outlook inform incoming datum regard postmeete statement member agree remove reference slowing pace economic growth little change payroll employment consistent strong incoming information indicator description growth household spending business fix investment revise recognize incoming datum confirm early information suggest aspect economic activity slow time member agree revise description inflation inflation item food energy decline run percent member observe patient approach determine future adjustment target range fund rate appropriate time especially environment moderate economic growth mute inflation pressure global economic financial condition continue improve conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day effective committee direct desk roll auction principal payment federal reserve holding treasury security mature calendar month exceedsâ¯$15 committee direct desk reinveste agency mortgage back security principal payment federal reserve holding agency debt agency mortgage back security receive calendar month exceed small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet march indicate labor market remain strong economic activity rise solid rate job gain solid average month unemployment rate remain low growth household spending business fix investment slow month basis inflation inflation item food energy decline run percent balance market base measure inflation compensation remain low month survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability support goal committee decide maintain target range fund rate percent committee continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome light global economic financial development mute inflation pressure committee patient determine future adjustment target range fund rate appropriate support outcome determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren vote action consistent committee decision maintain fund rate target range percent board governors vote unanimously lower interest rate required excess balance percent effective set interest rate pay required excess balance basis point target range fund rate intend foster trading fund market rate fomc target range board governors vote unanimously approve establishment primary credit rate exist level percent effective update subcommittee communications governor clarida report progress federal reserve strategic framework monetary policy fed listen event hear stakeholder view strategy tool communication well enable federal reserve meet statutory objective maximum employment price stability take place federal reserve districts numerous additional event plan include research conference schedule june federal reserve bank chicago follow public activity committee course begin deliberation strategic framework meeting half agree committee hold tuesdayâwednesday june 18â19 adjourn 9:50 a.m. notation vote notation vote complete april committee unanimously approve minute committee hold march 19â20 james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text attend wednesday return text attend opening remark tuesday return text attend tuesday return text

minute federal open market committee june joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday june 10:30 a.m. continue wednesday june 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge eric engen anna paulson christopher waller william wascher beth anne wilson associate economists lorie logan manager pro tem system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors andreas lehnert director division financial stability board governors jennifer burns deputy director division supervision regulation board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade john roberts special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors jane ihrig don kim senior advisers division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors marnie gillis deboer min wei associate directors division monetary affairs board governors christopher gust deputy associate director division monetary affairs board governors matteo iacoviello paul wood deputy associate directors division international finance board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors burcu duygan bump andrew figura glenn follette patrick mccabe paul smith assistant directors division research statistics board governors laura lipscomb zeynep senyuz rebecca zarutskie assistant directors division monetary affairs board governors steve spurry assistant director division supervision regulation board governors matthew malloy section chief division monetary affairs board governors penelope beattie assistant secretary office secretary board governors mark carlson senior economic project manager division monetary affairs board governors sean savage senior project manager division monetary affairs board governors david small project manager division monetary affairs board governors heather wiggins group manager division monetary affairs board governors maria otoo principal economist division research statistics board governors lubomir petrasek marcelo rezende francisco vazquez grande principal economists division monetary affairs board governors patrice robitaille principal economist division international finance board governors donielle winford information management analyst division monetary affairs board governors andre anderson vice president federal reserve bank atlanta david altig kartik athreya executive vice presidents federal reserve banks atlanta richmond respectively edward knotek paolo pesenti mark l.j. wright nathaniel wuerffel senior vice presidents federal reserve banks cleveland new york minneapolis new york respectively roc armenter patrick dwyer george kahn giovanni olivei rania perry benedict wensley patricia zobel vice presidents federal reserve banks philadelphia new york kansas city boston new york new york new york respectively gara afonso scott sherman assistant vice presidents federal reserve bank new york nicolas petrosky nadeau senior research advisor federal reserve bank san francisco jim dolmas senior research economist federal reserve bank dallas standing repurchase facility brief committee possible role stand fix rate repurchase agreement repo facility monetary policy implementation framework facility type allow counterpartie obtain temporary liquidity fix rate interest repurchase transaction federal reserve involve holding select security eligible open market operation presentation note facility provide backstop unusual spike fund rate money market rate provide incentive bank shift composition portfolio liquid asset away reserve high quality security key design feature facility include fix rate offer counterpartie set eligible counterpartie range security eligible place facility influence effectiveness facility achieve objective note number consideration arise set design parameter include potential repercussion unsecured secured funding market eligibility counterpartie weak financial condition potential turn facility stigmatize issue level playing field different class counterpartie participant comment number issue connection key design parameter repo facility term setting facility fix rate participant acknowledge tradeoff determine level rate relative money market rate hand establish rate narrow spread money market rate provide well interest rate control helpful avoid stigma associate use stand lending facility fix rate set level money market rate hand set rate close level money market rate result sizable federal reserve operation daily basis view disintermediate activity private entity money market consider eligible set counterpartie repo facility number participant note make facility available primary dealer imply effect facility direct repo market influence fund market indirect couple participant note particularly bank eligible counterpartie important counterpartie size access funding facility term participant note facility enhance financial stability provide mean nonbank counterpartie readily obtain liquidity high quality asset couple participant note way repo facility unintended effect financial stability example reserve help support financial stability facility significantly reduce demand reserve beneficial participant comment issue associate availability facility firm different state financial condition think guarantee access facility regardless firm financial condition number willing facility structure work effectively stressed environment high quality liquid asset collateral participant note availability facility bank period stress particularly weak financial condition important factor determine facility significantly reduce bank demand reserve normal time key objective establish repo facility participant raise question facility need ample reserve framework note ample reserve regime provide good interest rate control participant comment potential benefit facility way enhance interest rate control implementation regime means operate implementation framework significantly small quantity reserve couple participant note facility damp volatility repo rate participant note facility possibly aid multiple policy objective number participant note policy objective fix rate standing repo facility implication appropriate design facility participant recognize need carefully evaluate possible parameter setting guard unintended consequence include potential moral hazard volatile federal reserve balance sheet addition participant highlight importance evaluate tool initiative well achieve desire goal overall decision reach participant state additional work necessary clearly define objective facility evaluate potential net benefit development financial markets open market operations manager pro tem discuss development global financial market intermeete period trade relate development reportedly lead market participant pessimistic u.s. economic outlook equity price interest rate fall noticeably announcement high tariff chinese import early news tariff impose mexican import response development market appear sensitive incoming news outlook global growth inflation include datum point continue subdue inflation environment slow economic growth united states abroad treasury yield fall sharply far forward measure inflation compensation drop significantly united states abroad backdrop market participant reportedly view communication federal reserve official signal great likelihood cut target range fund rate later year expect path fund rate embed future price shift significantly period euro area far forward measure inflation compensation fall noticeably market participant reportedly increasingly come believe monetary policy accommodation need late intermeete period remark european central bank ecb president draghi interpret suggest increase odd asset purchase ecb euro area peripheral spread german equivalent move sharply low far forward inflation compensation recover modestly manager pro tem turn money market development open market desk operation money market rate stabilize modestly low level intermeete period reflect technical adjustment interest excess reserve ioer rate follow fomc sizable increase balance associate decline balance hold treasury account federal reserve market participant report see slightly pass repo rate fund rate day heighten firmness repo rate market participant attribute increase repo rate month end mid month treasury auction settlement date elevated net dealer inventory treasury security dealer finance repo market open market operation period give substantial decline mortgage rate month associate increase refinance activity principal payment federal reserve holding agency mortgage back security mbs recently move somewhat monthly redemption cap result desk begin reinvest agency mbs principal payment excess cap base market rate prepayment forecast desk expect reinvest modest amount agency mbs come month possibly particularly summer month unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available june 18â19 indicate labor market condition remain strong real gross domestic product gdp appear rise moderate rate household spending growth pick weak business fix investment soft consumer price inflation measure month percentage change price index personal consumption expenditure pce percent april survey base measure long run inflation expectation little change total nonfarm payroll employment expand solidly average april job gain slow sharply strong increase april unemployment rate decline percent april remain low level year labor force participation rate move somewhat april hold steady remain close average previous year employment population ratio stay flat april unemployment rate african americans asians hispanics decrease net april level end previous economic expansion persistent differential unemployment rate group remain average share worker employ time economic reason april continue low reach late rate private sector job opening move march hold steady april rate quit unchanged high level week moving average initial claim unemployment insurance benefit early june near historically low level average hourly earning employee rise percent month end slightly low april somewhat fast year early total labor compensation hour business sector increase percent quarter end slow year early total consumer price measure pce price index increase percent month end april increase slow year early core pce price inflation exclude change consumer food energy price move percent consumer food price inflation remain core inflation consumer energy price inflation slow considerably rate core inflation trimmed mean measure pce price inflation construct federal reserve bank dallas percent 12âmonth period consumer price index cpi rise percent month end core cpi inflation percent monthly change core pce price april estimate change mayâbase cpi datum relevant price producer price indexâwere high month low reading see january march recent survey base measure long run inflation expectation little change balance measure desk survey primary dealers survey market participants little change preliminary june read university michigan surveys consumers drop significantly range year growth real consumer expenditure appear pick solid rate weak pace component nominal retail sale datum bureau economic analysis estimate pce increase retail sale datum previous month revise notably sale light motor vehicle rise sharply step april key factor influence consumer spendingâinclude low unemployment rate gain real disposable income elevate measure household net worthâwere supportive solid real pce growth near term addition michigan survey measure consumer sentiment edge preliminary june reading upbeat level real residential investment look continue decline see early year albeit slow rate start single family home rise april fall start multifamily unit increase month building permit issuance single family homesâwhich tend good indicator underlie trend construction homesâwas roughly level average sale home fall notably april marked gain march exist home sale edge april real nonresidential private fix investment appear soft real private expenditure business equipment intellectual property look roughly flat nominal shipment nondefense capital good exclude aircraft move sideways april forward look indicator business equipment spending point possible decrease near term order nondefense capital good exclude aircraft decline notably april continue level shipment reading business sentiment deteriorate analyst expectation firm long term profit growth move sharply nominal business expenditure nonresidential structure outside drilling mining sector decrease april number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue decline midâjune industrial production move april pick leave output flat month production low beginning year manufacture output decline net april mining output expand automaker assembly schedule suggest production light motor vehicle near term order index national regional manufacturing survey point continue soft total factory output coming month industry news indicate aircraft production slow near term total real government purchase appear rise solidly federal government purchase boost strong increase defense spending return nondefense purchase typical level partial government shutdown real purchase state local government rise modestly total payroll government edge april nominal state local construction spending expand notably april net export add substantially real gdp growth export increase robustly import fall widen march nominal trade deficit narrow april export decline import decline available datum suggest net export small drag real gdp growth growth foreign economy remain subdue soft growth canadian economy weakness emerge market economy emes offset somewhat strong growth advanced foreign economy afes china economy recent indicator suggest pace economic activity pick canada slow afe economic growth appear slow china foreign inflation remain subdue rise bit low early year reflect high retail energy price economy staff review financial situation investors concern downside risk economic outlook weigh financial market intermeete period market participant cite negative news international trade tension less extent soft u.s. foreign economic datum factor contribute development nominal treasury yield post notable decline expect path policy shift considerably period equity price decline net corporate bond spread widen finance condition business household remain supportive economic growth fomc communication follow little net effect yield rise modestly follow chair press conference later period expect path policy move partly response income information pointing weak economic outlook market imply probability basis point cut target range fund rate july fomc rise percent market imply path fund rate shift markedly base overnight index swap rate investor expect fund rate decline basis point end yearâa downward revision basis point intermeete period long term treasury yield fall considerably period decline drive primarily negative headline trade tension united states major trading partner china mexico softer expect domestic economic news weak expect employment datum contribute decline spread year month treasury yield fall decile distribution measure inflation compensation derive treasury inflation protect securities decrease notably period decline oil price major u.s. equity price index decline net intermeete period equity price fall notably week period primarily response escalation trade tension china mexico firm high china exposure cyclical sectorsâsuch energy information technology industrial communication service banksâposte particularly large loss later period stock price regain significant portion loss amid easing trade tension mexico expectation accommodative stance policy month option imply volatility s&p indexâthe vixâincrease period corporate credit spread widen condition short term funding market remain stable intermeete period overnight interest rate short term funding market decline response technical adjustment reduce ioer rate basis point percent fomc average effective fund rate period basis point level fomc fomc target range rate commercial paper negotiable certificate deposit decline somewhat escalation trade tension soft economic datum weigh foreign financial market major global equity price index decline net eme sovereign spread widen modestly afes policy expectation sovereign yield decline notably reflect accommodative monetary policy communication major bank broad dollar index rise bit intermeete period japanese yen swiss franc view safe haven currency appreciate dollar british pound depreciate amid increase uncertainty brexit increase trade tension contribute depreciation chinese renminbi value mexican peso dollar fluctuate response announcement relate potential tariff import mexico end period slightly low financing condition nonfinancial business continue accommodative gross issuance corporate bond strong follow spell seasonal weakness april credit quality nonfinancial corporation remain solid volume nonfinancial corporate bond upgrade outpace downgrade issuance institutional syndicate leveraged loan market subdue april rebound reflect strong issuance associate refinance mature leveraged loan commercial industrial lending slow somewhat april period strong growth small business credit market condition little change credit condition municipal bond market stay accommodative net commercial real estate cre sector financing condition continue accommodative commercial mortgage back security cmbs spread widen slightly intermeete period remain near low end post crisis range issuance agency non agency cmbs solid cre lending bank expand april slow rate financing condition residential mortgage market remain supportive intermeete period home mortgage rate decrease basis point november mortgage rate decline percentage point contribute increase home purchase mortgage origination solid level see financing condition consumer credit market little change month remain supportive household spending supply credit consumer subprime credit score continue tight consumer credit expand moderate pace credit datum point pickup april condition consumer asset back security market remain stable intermeete period robust issuance spread little change low level staff economic outlook projection u.s. economic activity prepare june fomc revise somewhat balance real gdp growth forecast slow moderate rate modest pace half year primarily reflect downbeat near term outlook business fix investment projection real gdp growth medium term little change effect high project path broad real dollar low trajectory foreign economic growth counterbalance lower project path interest rate real gdp forecast expand rate little estimate potential output growth slow pace slightly potential output growth unemployment rate project roughly flat estimate long run natural rate labor market condition judge tight continue assume project employment gain manifest small usual downward pressure unemployment rate large usual upward pressure labor force participation rate forecast inflation little change balance forecast total pce price inflation year revise somewhat reflect low near term projection energy price core inflation forecast year unchanged level percent total core inflation project slightly year low reading early year expect transitory run percent view uncertainty projection real gdp growth unemployment rate inflation similar average past year uncertainty see increase previous forecast judge risk forecast real gdp growth tilt downside skew upside unemployment rate increase uncertainty shift downside risk projection reflect assessment international trade tension foreign economic development direction significant negative effect u.s. economy resolve favorably assume risk forecast economic activity tilt downside risk inflation projection view have downward skew participant view current conditions economic outlook participants judge uncertainty downside risk surround economic outlook increase significantly week continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome participant attach significant odd scenario favorable outcome nearly participant submission summary economic projections sep revise assessment appropriate path fund rate projection period consistent modal economic outlook participant note committee previous economy appear lose momentum point number factor support include weak indicator business confidence business spending manufacturing activity trade development sign slow global economic growth participant note view risk growth inflation projection emanating great uncertainty trade shift notably week risk weight downside participant discuss length softness indicator business fix investment incoming datum shipment order capital good look weak reading manufacturing survey drop sharply private sector analyst mark forecast long term corporate profit growth manufacturing production post decline far year addition contact report soft export sale weak economic activity abroad elevated level uncertainty global outlook weigh business sentiment lead firm reassess plan investment spending participant note comment business contact report base case assume uncertainty global outlook prominent medium term act drag investment participant note report business contact manufacturing sector suggest put capital expenditure hire plan hold reevaluate global supply chain light trade uncertainty couple participant point sign investment pick include report contact order shipment remain strong contact plan hire worker participant note ongoing challenge agricultural sector include associate increase trade uncertainty weak export market wet weather severe flooding participant remark decline energy price associate reduction activity energy sector household sector participant note available datum consumer spending solid support strong labor market rise income participant note measure consumer sentiment remain upbeat couple note business contact confirm consumer spending rebound weak patch early year participant note tariff eventually drag consumer durable spending especially additional tariff consumer good impose monitor incoming datum sign effect couple participant note continue softness housing sector concern decline mortgage rate fall expect provide strong impetus activity couple participant somewhat optimistic residential investment pick labor market participant cite evidence condition remain strong include low unemployment rate fact job gain solid average month say job gain weak expect light development participant judge important closely monitor incoming datum sign soften labor market condition report business contact point continue strong labor demand firm plan hire worker economy wide wage growth see consistent modest average rate labor productivity growth year participant note limited sign upward pressure wage inflation participant cite combination muted inflation pressure moderate wage growth expand employment possible indication slack remain labor market partly reflect combination development participant revise sep estimate long run normal rate unemployment participant note reading inflation inflation item food energy come low expect month light soft inflation reading perception downside risk growth global disinflationary pressure participant view risk outlook inflation weight downside participant indicate headline inflation close percent year noteworthy inflation soften year despite continue strong labor market condition participant note revise sep projection inflation year light datum anticipate rate inflation firm somewhat committee long run symmetric objective percent year consistent participant comment alternative measure inflation remove influence unusually large change price individual item direction run percent number participant anticipate return percent long previously project assumed path fund rate low previous projection indicator inflation expectation participant observe market base measure inflation compensation decline low level participant note reading survey measure consumer inflation expectation decline stand historically low level participant note long term inflation expectation somewhat level consistent committee percent inflation objective continue weakness inflation prompt expectation slip development difficult achieve inflation objective sustained basis participant remark inflation expectation appear level consistent committee percent inflation objective participant agree downside risk outlook economic activity rise materially particularly associate ongoing trade negotiation slow economic growth abroad downside risk cite participant include possibility budget negotiation result sharp reduction government spending negotiation raise debt limit prolong couple participant observe economic deterioration united states occur amplify significant debt burden firm participant remark upside risk outlook economic activity inflation include scenario trade negotiation resolve favorably business sentiment rebound sharply financial development participant observe increase uncertainty surround global outlook affect risk sentiment financial market financial condition remain supportive growth condition appear premise importantly expectation federal reserve ease policy near term help offset drag economic growth stem uncertainty global outlook downside risk participant discuss decline yield long term treasury security month participant note spread year month treasury yield negative note assessment risk slowing economic expansion increase base shape yield curve financial economic indicator participant point growth debt issuance nonfinancial corporation high asset valuation development warrant continued monitoring monetary policy decision participant note baseline outlook labor market strong economic activity grow moderate pace judge risk uncertainty surround outlook particularly relate global economic outlook intensify week inflation continue run committee percent objective similarly inflation item food energy remain percent addition reading inflation expectation low increase risk uncertainty surround outlook nearly participant agree appropriate maintain target range fund rate percent note important monitor implication incoming information global economic development u.s. economic outlook couple participant favor cut target range judge prolonged period inflation run percent warrant accommodative policy response firmly center inflation inflation expectation committee symmetric percent objective regard outlook monetary policy nearly participant revise assessment appropriate path fund rate projection period sep submission mark estimate long run normal level fund rate participant indicate case somewhat accommodative policy strengthen participant widely note global development lead heighten uncertainty economic outlook judge additional monetary policy accommodation warrant near term development prove sustain weigh economic outlook note additional monetary policy accommodation appropriate incoming information show deterioration outlook participant state variety reason low path fund rate participant note near term cut target range fund rate help cushion effect possible future adverse shock economy appropriate policy risk management perspective participant note continue shortfall inflation risk softening inflation expectation slow sustained return inflation committee percent objective participant point revise estimate long run normal rate unemployment result see small upward contribution inflation pressure tight resource utilization early participant concern inflation expectation move level consistent committee symmetric percent objective important provide additional accommodation near term bolster inflation expectation participant judge allow inflation run percent time help strengthen credibility committee commitment symmetric percent inflation objective participant suggest judge appropriate path fund rate follow flat trajectory previously assume strong case rate cut level prefer gather information trajectory economy conclude change policy stance warrant participant express economy favorable position term dual mandate easing policy attempt increase inflation tenth percentage point risk overheat labor market fuel financial imbalance participant observe trim mean measure pce price inflation construct federal reserve bank dallas stay near percent recently underscore low reading inflation prove transitory committee policy action monetary policy period ahead member note significant increase risk uncertainty attend economic outlook sign weakness u.s. business spending foreign economic datum disappointing raise concern strength global economic growth strong labor market rise income continue support outlook consumer spending uncertainty risk global outlook appear contribute deterioration risk sentiment financial market decline business confidence point weak outlook business investment united states inflation pressure remain mute reading inflation expectation low level nearly member agree maintain target range fund rate percent agree risk uncertainty surround economic outlook intensify judge additional policy accommodation warrant continue weigh economic outlook prefer lower target range fund rate basis point state committee ease policy center inflation inflation expectation committee symmetric percent objective member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative committee maximum employment symmetric percent inflation objective reiterate assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member note decision near term adjustment stance monetary policy appropriately dependent implication incoming information economic outlook regard postmeete statement member agree adjustment description economic situation include revision description market base measure inflation compensation recognize fall inflation compensation committee retain characterization outcome sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective add clause emphasize uncertainty outlook increase describe monetary policy outlook member agree remove patient language emphasize instead light uncertainty mute inflation pressure committee closely monitor implication incoming information economic outlook act appropriate sustain expansion strong labor market inflation near symmetric percent objective conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security mature calendar month exceed reinveste agency mortgage back security principal payment federal reserve holding agency debt agency mortgage back security receive calendar month exceed small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low growth household spending appear pick early year indicator business fix investment soft month basis inflation inflation item food energy run percent market base measure inflation compensation decline survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability support goal committee decide maintain target range fund rate percent committee continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome uncertainty outlook increase light uncertainty mute inflation pressure committee closely monitor implication incoming information economic outlook act appropriate sustain expansion strong labor market inflation near symmetric percent objective determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida charles evans esther george randal quarles eric rosengren vote action james bullard mr. bullard dissent believe stance monetary policy well position foster progress committee statutory objective maximum employment stable price particularly light persistent low reading inflation indicator inflation expectation risk u.s. outlook associate global economic development note policy rate reduction help center inflation inflation expectation level consistent committee symmetric percent inflation objective simultaneously provide insurance unexpected development slow u.s. economic growth consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance unchanged percent vote unanimously approve establishment primary credit rate exist level percent effective june update subcommittee communications governor clarida provide brief update work subcommittee communication fed listen conference conduct date view successful identify important issue strategic monetary policy strategy tool communication additional fed listen event plan remainder year committee begin internal deliberation aspect strategic come fomc meeting agree committee hold tuesdayâwednesday july 30â31 adjourn 10:05 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold april 30âmay james clouse secretary federal open market committee reference fomc committee minute return text attend tuesday return text absence manager committee rules organization provide deputy manager act manager pro tem return text attend development financial market open market operation return text conjunction fomc member board governors federal reserve bank president submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection policy assessment describe summary economic projections addendum minute return text

minute federal open market committee july 30â31 joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday july 10:00 a.m. continue wednesday july 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge beverly hirtle christopher waller william wascher beth anne wilson associate economists lorie logan manager pro tem system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors andreas lehnert director division financial stability board governors margie shanks deputy secretary office secretary board governors arthur lindo deputy director division supervision regulation board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade john roberts special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors david lebow michael palumbo senior associate directors division research statistics board governors don kim edward nelson robert tetlow senior advisers division monetary affairs board governors wayne passmore senior adviser division research statistics board governors marnie gillis deboer min wei associate directors division monetary affairs board governors elizabeth klee associate director division financial stability board governors john stevens associate director division research statistics board governors norman morin deputy associate director division research statistics board governors andrea raffo deputy associate director division international finance board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors etienne gagnon section chief division monetary affairs board governors penelope beattie assistant secretary office secretary board governors david small project manager division monetary affairs board governors alyssa anderson principal economist division monetary affairs board governors dario caldara albert queralto principal economists division international finance board governors isabel cairó senior economist division research statistics board governors randall williams senior information manager division monetary affairs board governors ellen bromagen vice president federal reserve bank chicago david altig michael dotsey jeffrey fuhrer executive vice presidents federal reserve banks atlanta philadelphia boston respectively marc giannoni spencer krane paula tkac senior vice presidents federal reserve banks dallas chicago atlanta respectively robert valletta group vice president federal reserve bank san francisco terry fitzgerald christopher neely patricia zobel vice presidents federal reserve banks minneapolis st. louis new york respectively andreas hornstein senior advisor federal reserve bank richmond karel mertens senior economic policy advisor federal reserve bank dallas joseph haubrich senior economic policy advisor federal reserve bank cleveland brent bundick research policy advisor federal reserve bank kansas city vasco curdia research advisor federal reserve bank san francisco review monetary policy strategy tools communication practices committee participant begin discussion relate ongoing federal reserve monetary policy strategy tool communication practice staff briefing provide retrospective federal reserve monetary policy action financial crisis background analysis key issue policy response recession subsequent economic recovery committee lower fund rate effective lower bind elb provide additional monetary policy accommodation forward guidance expect path policy rate balance sheet policy action ease financial condition provide substantial support economic activity figure importantly help promote recovery labor market prevent inflation fall substantially committee objective presentation note past year inflation tend run modestly committee long run goal percent indicator long run inflation expectation currently stand low level provide result model simulation illustrate possible challenge achievement committee dual mandate goal medium term challenge include proximity policy rate elb imprecise knowledge neutral value policy rate long run normal level unemployment rate diminished response inflation resource utilization uncertainty relationship inflation expectation inflation outcome participant welcome monetary policy framework note inclusion feedback public fed listen event improve transparency process enhance federal reserve public accountability provide insight positive implication strong labor market high rate employment community furthermore participant agree timely warrant light use past decade policy tool emergence change structure operation u.s. economy change include long period fund rate elb probable recurrence elb episode neutral level policy rate remain historically low level challenge policymaker face influence inflation inflation expectation response inflation resource utilization diminish participant agree committee consideration possible modification policy strategy tool communication practice time process careful deliberate patient regard monetary policy framework participant agree framework serve committee u.s. economy past decade judge forward guidance balance sheet action provide policy accommodation elb period support economic activity return strong labor market condition bring inflation close committee long run goal percent case addition participant note committee balanced approach promote dual mandate maximum employment price stability facilitate committee policy action aim support labor market economic activity time provision accommodation potentially associate risk inflation run persistently percent participant observe inflation risksâalong perceive risk provide substantial accommodation nontraditional policy tool include possible adverse implication financial stabilityâhad realize particular number participant comment potential cost committee asset purchase fail materialize federal reserve able use balance sheet tool aggressively past decade provide appropriate level accommodation participant remark considerable uncertainty remain cost efficacy asset purchase couple participant suggest take account uncertainty perceive constraint face policymaker year follow recession committee decision policy accommodation provide asset purchase appropriate policy tool participant note experience acquire committee use forward guidance asset purchase lead improved understanding tool operate result committee proceed confidently preemptively tool future economic circumstance warrant participant discuss extent forward guidance balance sheet action substitute reduction policy rate policy rate constrain elb overall participant judge federal reserve ability provide monetary policy accommodation elb use forward guidance balance sheet tool helpful mitigate effect constraint monetary policy arise lower bound eliminate risk protract period elb hinder conduct policy policymaker able provide sufficient accommodation elb use forward guidance balance sheet action constraint pose elb impediment attainment federal reserve dual mandate objective time risk anchoring inflation expectation committee long run inflation objective participant look forward detailed come meeting alternative strategy monetary policy participant offer remark general feature monetary policy strategy discuss relationship strategy framework option mention makeup strategy realization inflation percent objective rise policy action design deliver inflation objective time principle makeup strategy design promote percent inflation rate average period circumstance market expectation seek inflation shortfall follow period elb bind help ease financial condition help support economic activity elb episode participant note benefit makeup strategy support economic activity stabilize inflation depend heavily private sector understanding strategy confidence future policymaker action consistent strategy participant suggest alternative mean deliver average inflation equal committee long run objective involve aim inflation somewhat excess percent policy rate away elb recognize inflation tend lower policy rate constrain elb possibility committee inflation goal range center percent aim achieve inflation outcome upper end range period resource utilization high couple participant note adoption target range consistent practice bank participant suggest adoption range convey message small deviation inflation percent unlikely rise sizable policy response couple participant express concern policymaker regularly fail respond appropriately persistent relatively small shortfall inflation percent long run objective inflation expectation average observed inflation drift objective participant discuss committee statement long run goals monetary policy strategy participant note statement helpful articulate clarify federal reserve approach monetary policy committee release document january renew modification year basis monetary policy economic experience past decade participant cite number topic detail deliberation motivate possible modification statement topic include conduct monetary policy presence elb constraint role inflation expectation monetary policy good mean convey committee balanced approach monetary policy symmetry inflation goal relationship committee strategy decision setting policy tool implication low value neutral policy rate uncertainty value neutral policy rate long run normal rate unemployment potential benefit cost unemployment run long run normal rate condition muted inflation pressure time frame policymaker aim achieve dual mandate goal couple participant emphasize availability policymaker communication tool committee elaborate policy strategy challenge monetary policy face environment indicate committee retain flexibility optionality achieve objective participant highlight importance summary economic projections sep conveying participant modal outlook participant suggest modification sep format enhance policy communication participant comment importance consider connection monetary policy financial stability participant expect upcoming meeting deliberation federal reserve monetary policy strategy tool communication practice additional discussion topic alternative policy strategy option enhanced use exist monetary policy tool possible addition policy toolkit potential change communication practice relationship monetary policy financial stability distributional effect monetary policy development financial markets open market operations manager pro tem discuss development financial market intermeete period market participant view july fomc nearly respondent july open market desk survey dealer market participant expect basis point cut target range fund rate substantial shift june survey significant majority modal forecast change survey response suggest expectation coalesce modal forecast total basis point cut target range change year end balance sheet policy survey respondent expect rate cut evenly split committee choose end balance runoff immediately maintain exist plan halt runoff end september market participant judge month change timing end balance sheet runoff small effect path balance sheet little economic effect expectation near term domestic policy easing occur backdrop global shift accommodative monetary policy bank ease policy past month number shift ease bias market participant particularly attentive statement european central bank governing council perceive affirm expectation easing additional asset purchase change policy outlook united states number country appear play important role support financial condition offset drag growth trade tension risk somewhat reduce concern market participant important risk global outlook appear support risk asset price follow g-20 group late june few desk contact respondent desk survey expect significant escalation u.s.-china trade tension addition investor sentiment bolster news administration congress reach budget debt ceiling agreement pass remove source risk later year say contact recognize potentially sizeable downside risk remain survey respondent view u.s.-china trade risk skew downside desk contact judge risk deal brexit increase manager pro tem discuss development money market open market operation spread effective fund rate effr median eurodollar rate relative interest excess reserve ioer rate increase variable month notable pickup daily change spread late march range rate unsecured market day widen market participant point pressure repurchase agreement repo market factor contribute uptick volatility unsecured rate pressure turn stem partly elevated dealer inventory treasury security dealer associate financing need market participant point low balance factor affect rate unsecured money market rate intermeete period level reserve little change net market participant note association gradual increase unsecured rate relative ioer rate month decline level reserve system open market account soma redemption begin level reserve expect decline appreciably coming month partly reflect anticipated sizable increase treasury balance federal reserve follow agreement budget debt ceiling manager pro tem update committee desk plan resume cusip committee uniform securities identification procedures aggregation soma holding fannie mae freddie mac agency mortgage back security mbs reduce administrative cost operational complexity desk expect release statement august detail aggregation strategy unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available july 30â31 indicate labor market condition remain strong real gross domestic product gdp increase moderate rate consumer price inflation measure month percentage change price index personal consumption expenditure pce percent june survey base measure long run inflation expectation little change total nonfarm payroll employment expand solid rate average month support brisk gain june unemployment rate edge percent june historically low level labor force participation rate move somewhat close average previous year employment population ratio stay flat unemployment rate african americans asians decline june rate white unchanged rate hispanics edge unemployment rate group level end previous economic expansion persistent differential rate remain share worker employ time economic reason june continue low reach late rate private sector job opening hold steady rate quit edge high level week moving average initial claim unemployment insurance benefit mid july near historically low level average hourly earning employee rise percent month end june somewhat fast year early employment cost index private sector worker increase percent month end june year early datum compensation hour reflect annual update national income product account bureau economic analysis bea available time total consumer price measure pce price index increase percent month end june increase slow year early core pce price inflation exclude change consumer food energy price move percent consumer food price inflation remain core inflation consumer energy price decline average monthly change core pce price index fast suggest soft inflation reading early year transitory trimmed mean measure month pce price inflation construct federal reserve bank dallas remain near percent month consumer price index cpi rise percent month end june core cpi inflation percent recent survey base measure long run inflation expectation little change balance preliminary july read university michigan surveys consumers move dip june relatively low level measure desk survey primary dealers survey market participants little change real consumer expenditure rise briskly sluggish gain support robust pace light motor vehicle sale june real pce rise slowly june month year suggest deceleration consumer spending key factor influence consumer spendingâinclude low unemployment rate gain real disposable income elevated measure household net worthâwere supportive solid real pce growth near term addition preliminary july read michigan survey measure consumer sentiment remain upbeat level real residential investment decline al­though start single family home rise june average low start multifamily unit fall june rise building permit issuance single family homesâwhich tend good indicator underlie trend construction homesâwas roughly level june average net june sale home decline sale exist home rise real nonresidential private fix investment edge decline expenditure nonresidential structure offset increase expenditure business equipment intellectual property forward look indicator fix investment mixed order nondefense capital good exclude aircraft increase june measure business sentiment improve analyst expectation firm long term profit growth remain soft trade policy concern appear weigh investment number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue decrease week industrial production unchanged june decrease output utility offset increase output manufacturer mine total manufacturing output decline mining output rise notably support strong gain crude oil extraction automaker assembly schedule suggest production light motor vehicle somewhat order index national regional manufacturing survey point continue softness manufacturing production coming month total real government purchase rise solidly federal defense spending increase nondefense purchase return typical level partial government shutdown real purchase state local government rise moderately boost strong gain spending structure increase payroll government nominal u.s. international trade deficit widen relative april import increase export june preliminary datum indicate decline nominal good export import export decline particularly notable export consumer good capital good depress suspension boeing max export tell bea estimate net export add moderately gdp growth subtract similar gdp growth decline export flat import incoming datum suggest growth foreign economy remain subdue key advanced foreign economy include euro area indicator point slow economic growth amid continue weakness manufacturing persistent policy relate uncertainty similarly china real gdp growth slow notably jump contrast growth canada less extent latin america appear pick weak pace foreign inflation remain mute rise bit low early year reflect high energy price staff review financial situation intermeete period financial market development reflect noticeable shift expectation monetary policy response federal reserve communication economic datum release trade policy development federal reserve communication regard accommodative anticipate exert downward pressure measure expect path fund rate well expect economic datum release slight improvement outlook trade partially offset decline yield nominal treasury security little change net equity price increase corporate bond spread narrow inflation compensation rise modestly financing condition business household little change intermeete period remain supportive spending measure expectation near term domestic monetary policy exhibit notable shift reversal intermeete period end period little change net market participant attach high odd basis point reduction target range fund rate july fomc consistent significant variation near term expectation monetary policy market base indicator interest rate uncertainty short maturity near term remain somewhat elevated intermeete period market base expectation fund rate end year move slightly net straight read ois overnight index swap forward rate imply fund rate decline basis point basis point nominal u.s. treasury yield curve little change net intermeete period near term forward spread spread 10âyear month treasury yield decile respective distribution net week follow june fomc 5âyear to-10 year inflation compensation base treasury inflation protect securities tips move modestly accommodative expect federal reserve communication strong expect inflation datum release rise oil pricesâamid increase geopolitical tension iranâcontribute upward pressure inflation compensation broad stock price index increase net intermeete period notable increase follow june fomc communication chair july monetary policy report testimony announcement trade negotiation follow g-20 additionally slight positive reaction news agreement budget debt limit equity price increase broad base major sector technology financial communication service firm outperform broad index month option imply volatility s&p indexâthe vixâdecreased slightly net corporate credit spread narrow condition domestic short term funding market remain fairly stable overnight interest rate unsecured secured market somewhat elevated period particular repo rate elevate june end sofr secured overnight financing rate average basis point ioer rate intermeete period effr remain target range average basis point ioer rate rate commercial paper negotiable certificate deposit decline somewhat accommodative communication united states abroad ease trade tension support foreign risky asset intermeete period global equity index increase modestly emerge market sovereign spread narrow balance broad dollar index end period modestly low notably british pound depreciate significantly u.s. dollar reportedly development lead investor raise probability attach deal brexit sovereign long term bond yield edge lower net reflect firm expectation policy accommodation amid grow concern global economic outlook italian yield decline notably government pass fiscal consolidation measure european central bank leave policy rate unchanged july signal possible rate cut come meeting say explore option additional asset purchase emerge market bank include south korea turkey indonesia lower policy rate period financing condition nonfinancial business remain accommodative gross issuance corporate bond remain robust june follow typical seasonal decline july issuance institutional leverage loan increase notably june return moderate pace observe early year respondent july senior loan officer opinion survey bank lending practices sloos report net bank continue ease standard term commercial industrial loan large middle market firm cite aggressive competition reason gross equity issuance strong month credit quality nonfinancial corporation continue sign stabilization june follow deterioration early year credit condition small business municipality remain accommodative balance commercial real estate cre sector financing condition remain accommodative despite modest deceleration loan growth bank july sloos report standard unchanged net cre loan category agency non agency commercial mbs issuance strong yield spread tick financing condition residential mortgage market remain accommodative intermeete period mortgage rate little change june fomc remain percentage point late-2018 level condition support modest increase home purchase origination volume month refinance origination rise near historical low consumer credit market financing condition little change month remain supportive consumer spending growth consumer credit april bit early year pickup credit card balance bank july sloos continue tighten standard credit card provide update assessment potential risk financial stability balance continue vulnerability moderate judge asset valuation pressure notable number market support low level treasury yield assess vulnerability stem leverage household business sector note business leverage high household leverage moderate view buildup nonfinancial business sector debt factor amplify adverse shock business sector economy business debt report leveraged loan market share loan risky borrower record high credit extend private equity firm continue grow time financial institution view resilient risk associate financial leverage funding risk view low despite sign rise leverage continue inflow run prone fund separately note market liquidity good shape al­though sudden price drop frequent market staff economic outlook projection u.s. economic activity prepare july fomc revise somewhat near term upward revision household real disposable income half year lead slightly high half forecast consumer spending real gdp growth forecast rise slowly half year half primarily reflect continue soft business investment slow increase government spending projection real gdp growth medium term little strong support effect high project path equity price low trajectory interest rate real gdp forecast expand rate little estimate potential output growth slow pace slightly potential output growth unemployment rate project roughly flat estimate long run natural rate labor market condition judge tight continue assume project employment gain manifest small usual downward pressure unemployment rate large usual upward pressure labor force participation rate forecast total pce price inflation year revise touch reflect slightly high project path consumer energy price forecast core pce price inflation unrevise level percent total core inflation project slightly year low reading early year expect transitory run percent continue uncertainty projection real gdp growth unemployment rate inflation similar average past year judge risk forecast real gdp growth tilt downside corresponding skew upside unemployment rate important factor assessment international trade tension foreign economic development direction significant negative effect u.s. economy resolve favorably assume addition softness business investment manufacturing far year see point possibility substantial slowing economic growth project risk forecast economic activity tilt downside risk inflation projection view have downward skew participant view current conditions economic outlook participants agree labor market remain strong intermeete period economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though growth household spending pick early year growth business fix investment soft month basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change participant continue sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome outlook predicate financial condition accommodative early year accommodative financial condition turn partly reflect market reaction downward adjustment course year committee assessment appropriate path target range fund rate light weak global economic growth trade policy uncertainty mute inflation pressure participant note incoming datum intermeete period positive economy resilient face ongoing global development economy continue expand moderate pace participant expect gdp growth slow bit estimate potential rate half year participant observe global economic growth disappointing especially china euro area trade policy uncertainty al­though wan intermeete period remain elevated look persist furthermore inflation pressure continue mute notwithstanding firming core pce price index month end june relative early year business sector participant see uncertainty surround trade policy concern global growth continue weigh business confidence firm capital expenditure plan participant judge risk associate trade uncertainty persistent headwind outlook number participant report business contact make decision base uncertainty trade dissipate anytime soon participant observe trade uncertainty recede somewhat especially easing trade tension mexico china participant note intermeete period business sentiment improve bit comment datum capital good order improve participant express effect trade uncertainty far modest reference report business contact district investment plan continue cautious posture participant discuss development manufacturing agriculture energy sector u.s. economy manufacturing production decline far year drag weak real export ongoing global slowdown trade uncertainty participant note ongoing challenge agricultural sector include associate increase trade uncertainty weak export demand effect wet weather severe flooding couple participant comment decline energy price fall associate reduction economic activity energy sector participant comment robust pace consumer spending note important role household spending currently play support expansion participant judge household spending support strong labor market condition rise income upbeat consumer sentiment participant note continue softness residential investment concern expect boost housing activity decline mortgage rate fall materialize contrast couple participant report indicator housing activity district somewhat positive late labor market participant judge condition remain strong unemployment rate near historical low continue solid job gain average month job gain june strong expect follow weak reading look ahead participant expect labor market strong pace job gain slow year estimate necessary hold labor utilization steady report business contact point continue strong labor demand firm report difficulty find worker meet demand participant report see notable wage pressure low wage worker participant view wage growth consistent modest average rate labor productivity growth year consequently exert upward pressure inflation participant remark little sign overheat labor market cite combination muted inflation pressure moderate wage growth inflation development participant stress firming reading consumer price month core pce price inflation rate continue run committee symmetric percent objective late reading month change core pce price index percent furthermore continued weakness global economic growth ongoing trade tension potential slow u.s. economic activity delay sustained return inflation percent objective participant see inflation datum consistent low reading early year transitory note trim mean measure pce price inflation construct federal reserve bank dallas run percent participant note difference behavior measure cyclical acyclical component inflation estimate cyclical component inflation continue firm acyclical component appear influence sectoral technological change responsible low level inflation respond monetary policy action outlook inflation participant anticipate appropriate policy inflation committee percent objective medium term market base measure inflation compensation survey measure consumer inflation expectation remain low al­though move late participant remark inflation expectation appear reasonably anchor level consistent committee percent inflation objective participant stress prolong shortfall inflation long run goal cause inflation expectation drift downâa development difficult achieve committee mandate goal sustained basis especially environment global disinflationary pressure couple participant observe al­though indicator long term inflation expectation like tips base inflation compensation michigan survey measure change substantially year net notably low level year ago participant judge downside risk outlook economic activity diminish somewhat june strong june employment suggest weak payroll figure precursor material slowdown job growth agreement united states china resume negotiation appear ease trade tension somewhat addition participant note agreement debt ceiling budget appropriation substantially reduce near term fiscal policy uncertainty possibility favorable outcome trade negotiation factor provide boost economic activity future important downside risk persist particular participant mindful trade tension far settle trade uncertainty intensify continue weakness global economic growth remain significant downside risk participant note likelihood deal brexit increase financial market development participant observe financial condition remain supportive economic growth borrowing rate low stock price near time high participant observe financial condition appear premise importantly expectation federal reserve ease policy help offset drag economic growth stem weak global outlook uncertainty associate international trade provide insurance address downside risk participant discuss decline yield long term nominal treasury security month participant express concern inversion treasury yield curve evidence year yield fall month yield persist month market participant anticipate weak economic condition future federal reserve soon need lower fund rate substantially response long horizon real forward rate imply tips decline suggest long run normal level real fund rate implicit market price low participant comment financial stability highlighted credit market development elevated valuation asset market high level nonfinancial corporate indebtedness participant note high level corporate debt leveraged lending pose risk outlook participant discuss fast growth private credit marketsâa sector subject degree regulatory scrutiny requirement apply banking sectorâand comment important monitor market participant observe valuation equity corporate bond market near time high cre valuation elevate couple participant note low level treasury yieldsâa factor see support asset price range marketsâwas potential source risk yield move sharply higher participant judge near term risk small light monetary policy outlook united states abroad subdue inflation participant express concern capital ratio large bank continue fall time ideally rise capital ratio expect decline financial stability risk moderate large bank maintain substantial capital cushion light range regulatory requirement include rigorous stress test monetary policy decision participant favor reduction target range fund rate point broad category reason support action outlook remain favorable sign deceleration economic activity quarter particularly business fix investment manufacturing pronounced slowing economic growth overseas economiesâperhap relate development uncertainty surround international tradeâappeared important factor deceleration development lead participant quarter revise estimate policy rate path appropriate promote maximum employment stable price policy ease prudent step risk management perspective despite encouraging sign intermeete period risk uncertainty surround economic outlook source concern june remain elevated particularly associate global economic outlook international trade point number participant observe policy authority foreign country limit policy space support aggregate demand downside risk global economic growth realize concern outlook inflation number participant observe inflation continue run committee percent objective inflation item food energy participant comment fact wage pressure remain moderate despite low unemployment rate sign long run normal level unemployment rate appreciably low assume participant discuss indicator long term inflation expectation inflation compensation number conclude modest increase market base measure inflation compensation intermeete period reflect market participant expectation accommodative monetary policy near future observe survey measure inflation expectation little change june level expectation measure low participant judge long term inflation expectation committee percent goal decline level consistent goal continuation pattern inflation come persistently percent couple participant indicate prefer basis point cut fund rate basis point reduction favor strong action well address stubbornly low inflation rate past year recognize apparent low sensitivity inflation level resource utilization mean notably strong real economy require speed return inflation committee inflation objective participant favor maintain target range judge real economy continue good place bolster confident consumer strong job market low rate unemployment participant acknowledge linger risk uncertainty global economy general international trade particular view risk have diminish intermeete period addition view news inflation intermeete period consistent forecast inflation committee percent objective acceptable pace adjustment policy finally participant express concern monetary accommodation present risk financial stability certain sector economy reduction target range fund rate misinterpret negative signal state economy participant discuss timing end reduction committee aggregate security holding soma end reduction security holding august advantage avoid appearance inconsistency continue allow balance sheet run simultaneously lower target range fund rate end balance sheet reduction early previous plan pose risk foster erroneous impression committee view balance sheet active tool policy propose change end reduction aggregate security holding month early previously indicate policymaker conclude small difference option implication balance sheet economic effect outlook monetary policy participant favor approach policy guide incoming information implication economic outlook avoid appearance follow preset course participant view propose point policy easing recalibration stance policy mid cycle adjustment response evolution economic outlook month number participant suggest nature risk judge weigh economy absence clarity risk resolve highlight need policymaker flexible focus implication incoming datum outlook committee policy action monetary policy member note improvement economic condition intermeete period outlook remain favorable significant risk uncertainty attend outlook remain particular sluggish u.s. business fix investment spending manufacturing output linger suggest risk uncertainty associate weak global economic growth international trade weigh domestic economy strong labor market rise income continue support outlook consumer spending modest growth price wage suggest inflation pressure remain muted inflation continue run committee percent symmetric objective market base measure inflation compensation move modestly low level record june portion change reflect expectation market participant additional near term monetary accommodation survey base measure long term inflation expectation little change basis member agree lower target range fund rate percent adjustment policy member vote policy action seek well position stance policy help counter effect outlook weak global growth trade policy uncertainty insure downside risk source promote fast return inflation committee symmetric percent objective case member note action take view ongoing reassessment appropriate path fund rate begin late member prefer maintain target range fund rate explain policy view member note economic datum collect intermeete period positive anticipate continue strong labor market solid growth activity inflation gradually move committee percent target note easing policy time economy strong asset price elevate adverse implication financial stability member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative committee maximum employment symmetric percent inflation objective reiterate assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member agree important maintain optionality set future target range fund rate near term adjustment stance monetary policy appropriately dependent implication incoming information economic outlook regard postmeete statement committee implement adjustment description economic situation include revision recognize market base measure inflation compensation low committee state reduction target range fund rate support sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective remain outcome uncertainty outlook phrase committee contemplate future path target range fund rate add underscore committee intention carefully incoming information decide future policy adjustment statement note committee monitor implication incoming information economic outlook act appropriate sustain expansion strong labor market inflation near symmetric percent objective finally committee announce conclusion reduction security holding soma end runoff security holding month early initially plan see have small effect balance sheet negligible implication economic outlook helpful simplify communication usage committee policy tool conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective august federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day effective august committee direct desk roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet june indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though growth household spending pick early year growth business fix investment soft month basis inflation inflation item food energy run percent market base measure inflation compensation low survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability light implication global development economic outlook muted inflation pressure committee decide lower target range fund rate percent action support committee sustain expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome uncertainty outlook committee contemplate future path target range fund rate monitor implication incoming information economic outlook act appropriate sustain expansion strong labor market inflation near symmetric percent objective determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development committee conclude reduction aggregate security holding system open market account august month early previously indicate vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans randal quarles vote action esther george eric rosengren president george dissent believe unchanged setting policy appropriate base incoming datum outlook economic activity medium term recognize risk outlook crosscurrent emanate trade policy uncertainty weak global activity president george prepare adjust policy income datum point materially weak outlook economy president rosengren dissent clear compelling case additional accommodation time give unemployment rate stand near year low inflation rise committee percent target financial stability concern elevate indicate near record equity price corporate leverage consistent committee decision lower target range fund rate percent board governors vote unanimously lower interest rate pay required excess balance percent vote unanimously approve percentage point decrease primary credit rate percent effective august reinvestment plans manager pro tem describe desk plan reinvestment light committee decision conclude reduction aggregate security holding soma portfolio effective august accordance directive desk begin august principal payment treasury security agency debt agency mbs reinveste principal payment treasury security hold soma portfolio reinveste rollover treasury auction desk reinvest principal payment agency debt agency mbs security month treasury security manner roughly match maturity composition treasury security outstanding desk plan purchase treasury security secondary market sector different maturity security type approximately proportion month average outstanding sector relative total outstanding sector measure end july desk reinvest agency debt agency mbs principal payment excess month agency mbs give committee decision bring forward timing purchase august desk plan release operational statement provide detail plan reinvestment operation agree committee hold tuesdayâwednesday september 17â18 adjourn 11:15 a.m. july notation vote notation vote complete july committee unanimously approve minute committee hold june 18â19 james clouse secretary federal open market committee reference fomc committee minute return text attend economic development outlook return text attend monetary policy framework return text attend development financial market open market operation return text attend economic development outlook monetary policy return text attend tuesday return text take action board approve request establish rate submit board director federal reserve banks philadelphia chicago st. louis dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later august date reserve banks inform secretary board request secretary subsequently federal reserve banks boston new york cleveland richmond atlanta minneapolis kansas city inform secretary board approval establishment primary credit rate percent effective august vote board encompass approval establishment interest rate secondary seasonal credit exist formula compute rate return text

minute federal open market committee september 17â18 joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday september 10:15 a.m. continue wednesday september 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge eric engen william wascher jonathan willis beth anne wilson associate economists lorie logan manager pro tem system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade ivan vidangos special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors antulio bomfim jane ihrig edward nelson senior advisers division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors david lópez salido associate director division monetary affairs board governors john stevens associate director division research statistics board governors andrew figura john roberts deputy associate directors division research statistics board governors christopher gust deputy associate director division monetary affairs board governors matteo iacoviello andrea raffo deputy associate directors division international finance board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors zeynep senyuz assistant director division monetary affairs board governors penelope beattie assistant secretary office secretary board governors martin bodenstein section chief division international finance board governors david small project manager division monetary affairs board governors hess chung group manager division research statistics board governors jonathan goldberg edward herbst benjamin johannsen principal economists division monetary affairs board governors fabian winkler senior economist division monetary affairs board governors randall williams senior information manager division monetary affairs board governors james hebden senior technology analyst division monetary affairs board governors achilles sangster information management analyst division monetary affairs board governors kenneth montgomery vice president federal reserve bank boston david altig kartik athreya michael dotsey jeffrey fuhrer sylvain leduc simon potter ellis tallman executive vice presidents federal reserve banks atlanta richmond philadelphia boston san francisco new york cleveland respectively david andolfatto marc giannoni evan koenig paula tkac mark l.j. wright senior vice presidents federal reserve banks st. louis dallas dallas atlanta minneapolis respectively jonas fisher giovanni olivei giorgio topa patricia zobel vice presidents federal reserve banks chicago boston new york new york respectively jonas arias thorsten drautzburg leonardo melosi senior economists federal reserve banks philadelphia philadelphia chicago respectively fernando duarte financial economist federal reserve bank new york review monetary policy strategy tools communication practices committee participant continue discussion relate ongoing federal reserve monetary policy strategy tool communication practice staff briefing provide assessment risk fund rate future downturn constrain effective lower bind elb discuss option mitigate cost associate constraint analysis suggest elb bind future recession difficult fomc achieve long run objective maximum employment symmetric percent inflation discuss option mitigate elb risk include forward guidance balance sheet policy early aggressively past illustrate property makeup strategy model simulation strategy policymaker promise past inflation shortfall sustained accommodative stance policy intend generate high future inflation strategy design provide accommodation elb keep policy rate low extended period order support economic recovery property away elb makeup strategy firmly anchor inflation expectation percent policy strategy compensate past inflation miss analysis emphasize benefit makeup strategy depend importantly private sector understanding strategy confidence future policymaker follow promise policy accommodative participant agree analysis risk future elb episode increase time future elb episode reduced effect resource utilization inflation inhibit committee ability achieve employment inflation objective increase elb risk attribute structural change u.s. economy lower long run real short term interest rate neutral level policy rate context couple participant note uncertainty neutral rate especially challenge determine appropriate change framework light low neutral rate shortfall inflation percent objective year participant raise concern policy space reduce fund rate response future recession compress inflation shortfall continue lead decline inflation expectation risk discuss analysis participant point long ongoing elb spell major foreign economy suggest avoid similar circumstance united states important aggressive confront force hold inflation objective couple participant judge lack monetary policy space abroad possibility fiscal space united states limit reinforce case strengthen fomc monetary policy framework matter prudent planning regard monetary policy framework participant agree framework serve committee aftermath financial crisis number participant note committee experience forward guidance balance sheet policy allow committee deploy tool early aggressively event need indicate uncertainty effectiveness policy small uncertainty surround effectiveness makeup strategy participant agree framework serve committee provide strong commitment achieve committee maximum employment symmetric inflation objective commitment see flexible allow committee choose policy action well support objective wide array economic circumstance downside risk inflation employment associate elb participant open possibility dual mandate objective maximum employment stable price well serve strategy deliver inflation rate time average equal committee long run objective percent promote outcome require aim inflation somewhat percent policy rate away elb recognize inflation tend low percent policy rate constrain elb participant suggest alternative include strategy past inflation shortfall respond aggressively target inflation target inflation context participant suggest adoption target range inflation helpful achieve committee objective percent inflation average help communicate public period committee judge inflation moderately away percent objective appropriate couple participant suggest analyze policy target range inflation midpoint modestly high percent percent inflation floor policy enhance policymaker scope provide accommodation appropriate neutral real interest rate low ensure inflation outcome average percent time see important participant note illustrate makeup strategy deliver modest benefit model simulation modest benefit reflect responsiveness inflation resource slack diminish make difficult provide sufficient accommodation push inflation committee objective timely manner participant suggest modest effect particularly pronounce frb model indicate need robustness analysis simulation result dimension comparison alternative strategy addition participant note implementation makeup strategy form average inflation target price level target simulation tie rigidly detail particular rule advantage framework alternative approach provide committee flexibility broad range factor information choose policy action action vary depend economic circumstance order well achieve committee dual mandate similarly makeup strategy implement flexibly order deliver accommodation future downturn subsequent recovery achieve mechanical makeup rule participant discuss number challenge associate makeup strategy participant express reservation makeup strategy analyze participant raise concern effective use makeup strategy form average inflation target price level targeting rule present depend future policymaker follow commitment policy accommodative long time commitment difficult future policymaker follow especially situation labor market strong inflation target participant acknowledge credibly commit makeup strategy pose challenge point commitment bank world inflation target example similar challenge overcome couple participant raise concern keep policy rate low long time lead excessive risk taking financial market threaten financial stability couple participant judge macroprudential tool help ensure overleveraging household firm threaten financial system monetary policy need focus achieve maximum employment symmetric percent inflation participant view communication challenge associate average inflation target strategy include difficulty convey danger low inflation public great strategy use threshold base forward guidance participant note makeup strategy unduly limit policy response situation inflation run percent amid sign impending economic downturn accordingly participant favor makeup strategy reverse past inflation shortfall relative makeup strategy reverse past inflation shortfall past overrun participant continue benefit committee monetary policy framework committee statement long run goals monetary policy strategy articulate committee approach monetary policy july participant mention issue statement possibly address issue include conduct monetary policy presence elb constraint role inflation expectation committee pursuit inflation goal good mean convey committee balanced approach monetary policy symmetry inflation goal time frame committee aim achieve participant expect deliberation topic pertinent upcoming meeting agree committee consideration possible modification policy strategy tool communication practice time process careful deliberate patient development financial markets open market operations manager pro tem discuss development global financial market intermeete period global financial market volatile intermeete period market participant react incoming information u.s.âchina trade tension global growth outlook week follow july fomc u.s. yield decline sharply risk asset price fall amid spate negative news risk global economic outlook price move reverse degree september development trade economic datum turn positive net treasury yield remain substantially low s&p corporate credit spread reverse early loss end period little change partial rebound september market- survey base indicator policy rate expectation suggest investor view committee ease policy respondent desk survey primary dealers survey market participants view basis point decrease target range outcome look september survey respondent expect basis point cut year end median respondent modal forecast end point rate cut year individual forecast dispersed nearly half respondent expect additional basis point cut expect cut market participant remain attentive range global risk factor affect policy rate path include trade tension united states china development europe political tension hong kong uncertainty relate brexit escalate geopolitical tension middle east follow attack saudi oil facility manager pro tem turn money market condition money market stable period reduction interest excess reserve ioer rate follow july fomc fully pass money market rate money market highly volatile september apparently spur partly large corporate tax payment treasury settlement remain time environment great perceive uncertainty potential outflow relate corporate tax payment date typical lender money market willing accommodate increase dealer demand funding bank maintain level significantly report senior financial officer survey low comfortable level reserve lend repo market money market mutual fund reportedly hold liquidity order cushion potential outflow rate overnight treasury repurchase agreement rise percent september percent september highly elevated repo rate pass rate unsecured market federal home loan bank reportedly scale lending fund market order maintain liquidity anticipation high demand advance member shift overnight funding repo environment effective fund rate effr rise target range september following morning accordance fomc directive desk foster condition maintain effr target range desk conduct overnight repurchase operation operation rate secured unsecured market decline sharply rate secured market trade percent operation market participant reportedly expect additional temporary open market operation necessary subsequent day end reportedly expect basis point technical adjustment ioer rate unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available september 17â18 indicate labor market condition remain strong real gross domestic product gdp appear increase moderate rate consumer price inflation measure month percentage change price index personal consumption expenditure pce percent july survey base measure long run inflation expectation little change total nonfarm payroll employment expand solid pace july august al­though slow rate half year separately bureau labor statistics preliminary estimate upcoming benchmark revision payroll employment incorporate publish datum february indicate revised pace average monthly job gain april march notably slow publish datum unemployment rate remain percent august labor force participation rate employment population ratio move unemployment rate african americans hispanics decline july august rate white asians increase unemployment rate group level end previous economic expansion persistent differential rate remain average share worker employ time economic reason july august continue level late rate private sector job opening rate quit move roughly sideways june july relatively high level week moving average initial claim unemployment insurance benefit early september near historically low level total labor compensation hour business sector increase percent quarter end fast rate year early average hourly earning employee rise percent month end august pace year early total consumer price measure pce price index increase percent month end july increase slow year early core pce price inflation exclude change consumer food energy price move percent consumer food price inflation remain core inflation consumer energy price decline average monthly change core pce price month fast early year suggest soft inflation reading early period transitory trimmed mean measure month pce price inflation construct federal reserve bank dallas remain percent july consumer price index cpi rise percent month end august core cpi inflation percent recent survey base measure long run inflation expectation little change balance preliminary september reading university michigan surveys consumers dip edge august remain range measure long run inflation expectation desk survey primary dealers survey market participants little change real consumer expenditure appear rise solidly expand strongly real pce rise briskly july component nominal retail sale datum bureau economic analysis bea estimate pce flat august rate sale light motor vehicle edge suggest slow consumer spending growth strong pace key factor influence consumer spendingâinclude low unemployment rate gain real disposable income high level household net worth low borrowing ratesâwere supportive solid real pce growth near term preliminary september reading michigan survey measure consumer sentiment pick little weaken notably august al­though conference board survey measure consumer confidence similar decline august real residential investment pick little decline previous year half start single family home high july august average start multifamily unit rise august fall july building permit issuance single family homesâwhich tend good indicator underlie trend construction homesâwas high july august average sale exist home rise modestly july home sale decline follow outsized increase june real nonresidential private fix investment look decline nominal shipment nondefense capital good exclude aircraft decrease july forward look indicator point continue softness business equipment spending order nondefense capital good exclude aircraft increase june level shipment measure business sentiment deteriorate analyst expectation firm long term profit growth decline trade policy concern continue weigh firm investment decision nominal business expenditure nonresidential structure outside drilling mining sector decrease july number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue decline mid september industrial production increase modestly net july august production remain notably low beginning year automaker assembly schedule indicate production light motor vehicle roughly flat near term al­though labor strike general motors expect temporarily disrupt vehicle production order index national regional manufacturing survey persistent drag trade tariff point continue softness factory output coming month total real government purchase appear rise slow pace federal defense spending july august decelerate hiring temporary worker year decennial census modest august state local government payroll rise moderately july august nominal spending government structure july average nominal u.s. international trade deficit remain unchanged june narrow july export soft past year decline sharply june partially rebound july pattern particularly notable export non aircraft capital good consumer good import decline sharply june decline little july import oil consumer good fall june import capital good drop significantly july bea estimate change net export drag percentage point real gdp growth foreign economic growth remain subdue growth pick canada oil production rebound growth slow sharply europe amid downturn manufacturing activity persistent policy relate uncertainty growth slow china india recent indicator suggest widespread weakness manufacturing abroad service activity appear hold relatively foreign inflation rise push early increase oil price rise food price emerge economy datum foreign core consumer price show little sign underlie inflationary pressure abroad late intermeete period attack key oil facility saudi arabia disrupt saudi oil production cause initial spike price near date oil future contract staff review financial situation financial market development intermeete period drive escalation international trade tension grow concern global economic growth outlook prospect policy accommodation bank nominal treasury yield post large decline august investor react u.s. administration announcement additional tariff chinese good depreciation chinese renminbi perceive threshold renminbi u.s. dollar associated implication action global economic outlook treasury yield partially rebound follow well expect incoming economic datum united states abroad perceive reduction probability noâdeal brexit positive headline trade policy market imply path fund rate shift net broad equity price index percent early august fully recover end intermeete period spread investment grade corporate bond widen modestly speculative grade corporate bond little change net financing condition business household unaffected intermeete turbulence financial market remain supportive spending economic activity measure expectation near- medium term path fund rate particularly sensitive news u.s.âchina trade tension fomc communication modest effect market base measure policy rate expectation straight read option imply probability distribution fund rate suggest odd investor attach basis point reduction target range fund rate september fomc increase percent time july fomc percent end intermeete period respondent desk survey primary dealers survey market participants assign average similarly high odd rate decrease september fomc addition market imply expectation fund rate year end move straight read ois overnight index swap forward rate suggest investor expect fund rate decline basis point year end level nearly basis point low expect time july fomc decrease additional roughly basis point end nominal treasury yield decrease net intermeete period long term yield fall spread 10âyear month treasury yield bit negative spread year year treasury yield turn negative time fluctuate september fomc measure inflation compensation derive treasury inflation protect securities decline net broad stock price index decrease slightly net intermeete period amid heighten volatility escalation trade tension china united states weigh equity price investor expectation major bank shift accommodative monetary policy provide support equity price boost well anticipate corporate earning retail sector datum stock price firm high exposure china underperform broad market somewhat stock amid downward revision bank earning forecast conversely stock price utility real estate firm increase noticeably reportedly benefit demand investor reach cyclical higher yield asset month option imply volatility s&p indexâthe vixâwa little change net intermeete period remain low end historical distribution retrace sharp increase early august despite volatility domestic global financial market intermeete period condition domestic short term funding market remain stable monday september fomc flow associate combination corporate tax payment treasury coupon security settlement lead significant tightening condition particularly overnight funding effr rise target range september exceed basis point september funding pressure ease somewhat follow desk open market operation net effr average percent intermeete period spread ioer rate bit relative previous intermeete period early intermeete period bond yield advanced foreign economy afes plunge foreign equity decline notably follow increase u.s.âchina trade tension weakness foreign economic datum grow concern global growth prospect monetary policy accommodation abroad contribute decline yield later period afe yield partially rebound foreign equity price fully recover easing u.s.­âchina trade tension perception reduce political uncertainty united kingdom italy financial market reaction mix european central bank ecb announce package policy ease measure include rate cut deposit ecb resumption asset purchase program favorable term long term lending bank dollar appreciate emerge market currency little change balance afe currency leave broad dollar index slightly higher emerge market sovereign bond spread widen notably argentine peso depreciate sharply argentine sovereign yield soar follow defeat pro market primary election subsequent announcement plan debt restructuring imposition capital control financing condition nonfinancial business remain accommodative overall issuance corporate bond solid august drive resilient investment grade issuance speculative grade corporate bond issuance somewhat subdue august comparable see period growth commercial industrial loan bank tick drive fast growth large domestic bank initial public equity offering domestic firm august amid increase market volatility deal expect complete come month balance credit quality nonfinancial corporation weaken slightly volume nonfinancial corporate bond downgrade modestly outpace upgrade month credit condition small business municipality remain accommodative balance commercial real estate cre sector financing condition remain accommodative bank cre loan growth slow moderately drive slow growth loan secure nonfarm nonresidential property volume agency non agency commercial mortgage back security issuance slightly weak july august period year industry analyst reportedly anticipate issuance soon pick response decline interest rate financing condition residential mortgage market ease intermeete period residential mortgage rate decline long term treasury yield increase prepayment risk rise imply interest rate volatility reportedly reduce demand mortgage back security home purchase origination refinance origination rise financing condition consumer credit market remain supportive growth consumer spending al­though supply condition continue tight subprime credit card borrower consumer credit expand moderate pace credit datum point continue growth july august consumer asset back security market issuance solid spread remain relatively low level somewhat post crisis average staff economic outlook projection u.s. economic activity prepare september fomc little change near term real gdp growth forecast slow half year half attributable continue soft business investment slow increase government spending projection real gdp growth medium term bit weak previous forecast primarily reflect effect high project path foreign exchange value dollar low trajectory economic growth abroad partially offset lower assume path interest rate real gdp forecast expand rate little estimate potential output growth slow pace slightly potential output growth unemployment rate project roughly flat estimate long run natural rate revise little addition revise estimate level trend productivity year incorporate bea annual revision national income product account supply adjustment lead somewhat high project path potential output imply estimate project resource utilization tight previously assume forecast total pce price inflation year revise somewhat reflect slightly low project path consumer food energy price little low forecast core pce price core pce price inflation forecast year revise reflect datum downward revise datum early year bea annual revision total core inflation project slightly year low reading early year expect transitory inflation measure forecast run percent continue uncertainty projection real gdp growth unemployment rate inflation similar average past year judge risk forecast real gdp growth tilt downside corresponding skew upside unemployment rate important factor assessment international trade tension foreign economic development direction significant negative effect u.s. economy resolve favorably assume addition softness business investment manufacturing far year see point possibility substantial slowing economic growth project risk inflation projection view have downward skew downside risk forecast economic activity participant view current conditions economic outlook conjunction fomc member board governors federal reserve bank president submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection describe summary economic projections addendum minute participant agree labor market remain strong intermeete period economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export weaken month basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change participant view baseline economic outlook positive indicate view outcome economic activity inflation change little july participant economic outlook premise somewhat accommodative path policy july participant concerned risk associate trade tension adverse development geopolitical global economic sphere addition inflation pressure continue mute participant expect real gdp growth moderate potential rate half year participant agree consumer spending increase strong pace expect period ahead household spending firm footing support strong labor market condition rise income accommodative financial condition participant indicate housing sector start rebound stimulate significant decline mortgage rate regard contrast robust consumption growth weak investment growth participant mention uncertainty business outlook sustain weak investment eventually lead slow hiring turn damp growth income consumption business sector participant see trade tension concern global outlook main factor weigh business investment export manufacturing production participant judge trade uncertainty global development affect firm investment spending uncertainty discourage invest business couple participant note business capacity adjust ongoing uncertainty concern trade firm reconfigure supply chain make logistical arrangement contingency planning mitigate effect trade tension business participant discuss development manufacturing agricultural sector u.s. economy manufacturing production remain low beginning year indicator suggest condition unlikely improve materially near term participant see ongoing global slowdown trade uncertainty contribute importantly decline participant note ongoing challenge agricultural sector include associate tariff weak export demand intense financial burden arise increase carryover debt precede year participant comment potential disruption global oil production arise attack saudi arabia facility participant judge condition labor market remain strong unemployment rate near historical low continue solid job gain average month labor force participation rate prime age individual especially prime age woman move august continue upward trajectory unemployment rate african americans fall low rate record number participant note labor market clearly strong position preliminary benchmark revision bureau labor statistics indicate payroll employment gain momentum come year revision incorporate publish datum early year participant observe important vigilant monitor incoming datum sign soften labor market condition say report business contact district point continue strong labor demand firm report difficulty find qualified worker broaden recruiting include traditionally marginalize group district employer expand training provision nonwage benefit help sustain expansion hire background tight national labor market spur trend aggregate wage growth firm reluctant raise wage limited pricing power think wage offer line skill set worker available fill position participant view wage growth consistent modest average rate labor productivity growth year exert little upward pressure inflation couple participant note inflationary pressure remain muted wage growth moderate employment spending expand adjust downward estimate long run normal unemployment rate inflation development participant note despite firming incoming datum reading core pce inflation continue run committee symmetric percent objective furthermore light weakness global economy perception downside risk growth subdue inflation pressure participant continue risk outlook inflation weight downside participant see inflation datum consistent previous assessment weakness see early year transitory connection participant note monthly reading notably cpi inflation consistent committee long run inflation objective percent trim mean measure pce inflation construct federal reserve bank dallas remain percent july outlook inflation participant agree appropriate policy inflation committee percent objective medium term participant see inflation expectation reasonably anchor participant observe market base measure inflation compensation survey measure consumer inflation expectation historically low level participant note long term inflation expectation somewhat level consistent committee percent inflation objective continue weakness inflation prompt expectation drift low participant judge downside risk outlook economic activity increase somewhat july particularly stem trade policy uncertainty condition abroad addition al­though reading labor market economy continue strong clear picture protract weakness investment spending manufacturing production export emerge participant note continue significant probability deal brexit geopolitical tension increase hong kong middle east participant comment wake increase downside risk weakness business spending manufacturing export rise slow hiring development weigh consumption economic outlook participant note statistical model design gauge probability recession include base information yield curve suggest likelihood recession occur medium term increase notably month couple participant stress difficulty extract right signal probability model especially period unusually low level term premium regard development financial market participant note long term u.s. treasury rate volatile intermeete period net register sizable decline participant observe key source downward pressure treasury rate arise flight safety flow drive downside risk global growth escalate trade tension disappointing global datum low interest rate abroad consider important influence u.s. long term rate participant express range view implication low long term treasury rate participant judge prolonged inversion yield curve matter concern participant note equity price exhibit volatility flat balance intermeete period participant cite consideration lead concerned financial stability include low risk spread buildup corporate debt corporate stock buyback finance low cost leverage pace lending cre market point sign financial system remain resilient consideration monetary policy option participant believe reduction basis point target range fund rate appropriate discuss reason decision participant point consideration relate economic outlook risk management need center inflation inflation expectation committee long run objective percent participant note little change economic outlook july incoming datum continue pace economic expansion consistent maintenance strong labor market condition couple participant point datum revision announce month imply economy enter year somewhat momentum previously think addition datum receive july confirm weakening business fix investment export risk economy face softness record late firm capital formation manufacturing export activity spread hiring decision adverse implication household income spending participant observe eventuality embed baseline outlook couple indicate partly assume appropriate adjustment policy rate path help forestall eventuality note monetary policy action affect economic activity lag appropriate provide requisite policy accommodation support economic activity come quarter participant favor modest adjustment stance monetary policy juncture cite risk economic outlook underscore case risk highlight downside risk pronounced july trade uncertainty increase prospect global growth fragile intermeete development intensify geopolitical risk background risk management consideration imply prudent committee adopt somewhat accommodative stance policy addition number participant suggest reduction target range fund rate well align target range variety indicator appropriate policy stance include base estimate neutral interest rate participant observe consideration favor easing reinforce proximity fund rate elb policymaker provide adequate accommodation away elb course action help forestall possibility prolong elb episode participant cite level inflation inflation expectation justify reduction basis point fund rate inflation fall short committee objective year notwithstanding strong monthly reading inflation month rate percent estimate trend inflation percent participant additionally stress survey measure long term inflation expectation market base measure inflation compensation near historical low value point possibility inflation expectation level consistent percent objective soon fall level backdrop participant suggest policy easing help underline policymaker commitment symmetric percent long run objective inflation pressure mute u.s. inflation weigh global disinflationary force policymaker see little chance outsized increase inflation response additional policy accommodation argue increase occur address straightforward manner conventional monetary policy tool participant favor maintain exist target range fund rate participant suggest baseline projection economy change little committee previous state economy economic outlook justify shift away policy stance feel adequately accommodative acknowledge uncertainty currently figure importantly evaluation economic outlook contend key uncertainty unlikely resolve soon furthermore believe uncertainty derail expansion policy accommodation need time change stance policy believe instead occur macroeconomic datum readily justify move connection couple participant suggest decide provide policy accommodation juncture committee take insurance possible future shock leave monetary policy scope boost aggregate demand event shock materialize participant favor unchanged target range fund rate express concern easing monetary policy exacerbate financial imbalance couple participant indicate preference basis point cut fund rate participant suggest large policy help reduce risk economic downturn appropriately recognize important development slow job gain weakening investment continue low value market base measure inflation compensation addition participant stress need policy stanceâpossibly enhance forward guidanceâthat sufficiently accommodative unlikely united states experience protract period kind see abroad economy mired combination undesirably low inflation weak economic activity near policy rate argue desirable committee seek maintain level accommodation sufficient deliver inflation percent sustained basis policy consistent inflation exceed percent time regard monetary policy participant agree policy preset course depend implication incoming information evolution economic outlook participant judge expectation path fund rate imply price financial market currently suggest great provision accommodation come meeting see appropriate necessary committee seek well alignment market expectation policy rate path policymaker expectation path participant suggest committee postmeete statement provide clarity recalibration level policy rate response trade uncertainty come end participant discussion recent money market developments manager pro tem provide summary development money market open market operation conduct previous day help ease strain money market effr nonetheless print basis point target range significant pressure evident repo market fund market accordance fomc directive maintain fund rate target range desk conduct repo operation morning day present proposal lower ioer rate overnight reverse repurchase agreement rate basis point relative target range fund rate order foster trading fund target range participant agree development money market day imply committee soon appropriate level balance sufficient support efficient effective implementation monetary policy context ample reserve regime committee choose participant note possibility resume trend growth balance sheet help stabilize level reserve banking system participant agree committee decision trend pace balance sheet expansion necessary maintain level balance appropriate facilitate policy implementation clearly distinguish past large scale asset purchase program aim alter size composition federal reserve asset holding order provide monetary policy accommodation ease financial condition participant suggest benefit consider merit introduce stand repurchase agreement facility framework implement monetary policy committee policy action monetary policy member note information receive july indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise strong pace business fix investment export weaken outcome suggest risk uncertainty associate international trade development ongoing weakness global economic growth continue weigh domestic economy month basis inflation rate inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change light development member agree lower target range fund rate percent adjustment policy member support policy action seek stance monetary policy consistent help offset effect aggregate demand weak global growth trade policy uncertainty insure downside risk arise source geopolitical development promote rapid return inflation committee symmetric percent objective occur couple member observe monetary policy action affect aggregate spending lag appropriate occasion provide accommodation support economic activity period ahead member prefer maintain target range fund rate member note economic datum receive intermeete period positive anticipate unchanged policy stance continue strong labor market solid growth activity inflation gradually move committee percent objective member suggest provide accommodation period high economic activity elevated asset price adverse consequence financial stability prefer reduction target range basis point fund rate suggest large rate adjustment consistent achievement committee objective time particular help preclude possibility protract period inflation employment committee objective member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective agree assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development regard postmeete statement member agree update language committee description incoming datum acknowledge weakening investment spending u.s. export strong rate increase household spending conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent include overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet july indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export weaken month basis inflation inflation item food energy run percent market base measure inflation compensation low survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability light implication global development economic outlook muted inflation pressure committee decide lower target range fund rate percent action support committee sustain expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome uncertainty outlook committee contemplate future path target range fund rate monitor implication incoming information economic outlook act appropriate sustain expansion strong labor market inflation near symmetric percent objective determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida charles evans randal quarles vote action james bullard esther george eric rosengren president bullard dissent believe lower target range fund rate basis point time provide insurance decline expect inflation slow economy subject elevated downside risk addition basis point cut time help promote rapid return inflation inflation expectation target president george dissent believe unchanged setting policy appropriate base incoming datum outlook economic activity medium term recognize risk outlook effect trade policy weak global activity president george prepare adjust policy income datum point materially weak outlook economy president rosengren dissent judge monetary policy accommodative additional accommodation need economy labor market tight pose risk inflate price risky asset encourage household firm leverage consistent committee decision lower target range fund rate percent board governors vote unanimously lower interest rate pay required excess balance percent vote unanimously approve percentage point decrease primary credit rate percent effective september agree committee hold tuesdayâwednesday october 29â30 adjourn 10:40 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july 30â31 james clouse secretary federal open market committee reference fomc committee minute return text attend monetary policy framework return text attend development financial market open market operation return text attend development financial market open market operation return text attend tuesday return text attend monetary policy framework end return text attend opening remark tuesday return text

minute federal open market committee october joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday october 9:00 a.m. continue wednesday october 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge eric engen anna paulson christopher waller william wascher beth anne wilson associate economists lorie logan manager pro tem system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors andreas lehnert director division financial stability board governors jennifer burns deputy director division supervision regulation board governors daniel covitz deputy director division research statistics board governors michael kiley deputy director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade ivan vidangos special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors david lebow senior associate director division research statistics board governors antulio bomfim senior adviser division monetary affairs board governors michael hsu associate director division supervision regulation board governors david lópez salido min wei associate directors division monetary affairs board governors glenn follette deputy associate director division research statistics board governors christopher gust deputy associate director division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors paul wood deputy associate director division international finance board governors eric engstrom senior adviser division research statistics deputy associate director division monetary affairs board governors stephanie curcuru assistant director division international finance board governors giovanni favara laura lipscomb zeynep senyuz rebecca zarutskie assistant directors division monetary affairs board governors shane sherlund assistant director division research statistics board governors penelope beattie section chief office secretary board governors matthew malloy section chief division monetary affairs board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors alyssa anderson anna orlik bernd schlusche principal economists division monetary affairs board governors cristina fuentes albero christopher nekarda principal economists division research statistics board governors valerie hinojosa senior information manager division monetary affairs board governors kelly dubbert vice president federal reserve bank kansas city david altig kartik athreya jeffrey fuhrer glenn rudebusch executive vice presidents federal reserve banks atlanta richmond boston san francisco respectively angela o'connor marc giannoni paolo pesenti samuel schulhofer wohl raymond testa nathaniel wuerffel senior vice presidents federal reserve banks new york dallas new york chicago new york new york respectively satyajit chatterjee richard crump george kahn rebecca mccaughrin patricia zobel vice presidents federal reserve banks philadelphia new york kansas city new york new york respectively larry wall executive director federal reserve bank atlanta edward prescott senior economic policy advisor federal reserve bank cleveland nicolas petrosky nadeau senior research advisor federal reserve bank san francisco stefania d'amico thomas king senior economists research advisors federal reserve bank chicago alex richter senior research economist advisor federal reserve bank dallas benjamin malin senior research economist federal reserve bank minneapolis review monetary policy strategy tools communication practices committee participant continue discussion relate ongoing federal reserve monetary policy strategy tool communication practice staff briefing provide assessment range monetary policy tool committee employ provide additional economic stimulus bolster inflation outcome particularly future episode policy rate constrain effective lower bind elb discuss policy rate tool focus form forward guidanceâqualitative provide nonspecific indication expect duration accommodation date base specify date accommodation start reduce outcome base tie possible start reduction accommodation achievement certain macroeconomic outcome briefing address communication challenge associate form forward guidance include need avoid convey negative economic outlook fomc expect nonetheless suggest forward guidance effective ease financial condition stimulate economic activity circumstance policy rate elb elb briefing discuss negative interest rate policy option implement foreign bank note al­though evidence far suggest tool provide accommodation jurisdiction employ indication possible adverse effect difference u.s. financial system financial system jurisdiction suggest foreign experience provide useful guide assess negative rate effective united states briefing focus balance sheet policy tool discuss benefit cost associate large scale asset purchase program implement federal reserve financial crisis general historical experience suggest benefit large scale asset purchase program significant potential cost program identify time materialize materialize small degree initially fear addition presentation note thatâtake account investor expectation ahead announcement programâthe effect asset purchase appear diminish materially consecutive program forward policy effective long term interest rate low onset future asset purchase program financial crisis compare benefit cost associate asset purchase program fix cumulative size flow basedâwhere purchase specific pace certain macroeconomic outcome achievedâand examine potential effectiveness asset purchase place ceiling interest rate briefing discuss lending program facilitate flow credit household business participant discuss relative merit qualitative date base outcome base forward guidance number participant note form forward guidance effective provide accommodation depend circumstance away elb suggest different type forward guidance need address vary economic condition communication forward guidance need tailor explain committee evaluation economic outlook particular participant emphasize guard possibility adverse feedback loop forward guidance interpret public sign sharply deteriorate economic outlook lead household business cautious spending decision committee need clearly communicate announce policy help promote well economic outcome participant see benefit cost associate outcome base forward guidance relative form forward guidance hand relative qualitative date base forward guidance outcome base forward guidance advantage create explicit link future monetary policy action macroeconomic condition help support economic stabilization effort foster transparency accountability hand outcome base forward guidance complex difficult explain potentially effective qualitative date base forward guidance hurdle overcome participant comment outcome base forward guidance tie inflation outcome useful tool reinforce committee commitment symmetric percent objective participant discuss benefit cost different type balance sheet policy participant agree balance sheet policy implement federal reserve crisis ease financial condition contribute economic recovery tool important committee toolkit participant point research produce sizable range estimate magnitude economic effect balance sheet action addition participant note effectiveness tool diminish future long term interest rate decline low level low follow adverse shock lead resumption large scale asset purchase result limit scope balance sheet tool provide accommodation participant comment advantage disadvantage flow base asset purchase program tie achievement economic outcome hand program adjust automatically response performance economy straightforward implement communicate hand flow base asset purchase program result balance sheet rise undesirable level participant comment bar significant dislocation particular segment market restrict asset purchase treasury security avoid perception federal reserve engage credit allocation sector economy consider policy tool federal reserve past participant discuss benefit cost balance sheet tool cap rate short- long maturity treasury security open market operation necessary participant see benefit cap long term interest rate directly influence household business spending addition cap long maturity interest rate balance sheet tool judge credible market participant require small asset purchase provide similar accommodation quantity base program purchase long maturity security participant raise concern cap long term rate participant note uncertainty neutral fund rate effect rate ceiling policy future interest rate inflation difficult determine appropriate level rate ceiling ceiling remove maintain rate ceiling result elevated level federal reserve balance sheet significant volatility size maturity composition manage long term interest rate see interact debt management process contrast majority participant see great benefit balance sheet tool cap short term interest rate reinforce forward guidance near term path policy rate participant judge negative interest rate currently appear attractive monetary policy tool united states participant comment limited scope bring policy rate negative territory evidence beneficial effect negative interest rate abroad mixed unclear effect negative rate willingness financial intermediary lend spending plan household business participant note negative interest rate entail risk introduce significant complexity distortion financial system particular participant caution financial system united states considerably different country implement negative interest rate policy negative rate significant adverse effect market function financial stability abroad notwithstanding consideration participant rule possibility circumstance arise appropriate reassess potential role negative interest rate policy tool overall participant agree forward guidance balance sheet policy follow federal reserve financial crisis effective provide stimulus elb estimate equilibrium real interest rate have decline notably decade policymaker see room reduce fund rate support economy event downturn addition background inflation undershoot symmetric percent objective year participant raise concern scope reduce fund rate provide support economic activity future recession reduce inflation shortfall continue lead decline inflation expectation participant agree important committee wide range tool available employ appropriate support economy help ensure anchoring inflation expectation level consistent committee symmetric percent inflation objective participant note form policy response depend critically circumstance committee face time participant suggest communicate public clearly convincingly advance committee intend provide accommodation elb enhance public confidence support effectiveness whichever tool committee select participant think helpful committee evaluate tool utilize different economic scenario long term interest rate significantly level action well address challenge pose scenario participant note particularly monetary policy severely constrain elb expansionary fiscal policy especially important address economic downturn participant expect upcoming meeting deliberation committee monetary policy framework committee statement long run goals monetary policy strategy agree committee consideration possible modification policy strategy tool communication practice time process careful deliberate patient number participant judge complete middle development financial markets open market operations manager pro tem review development financial market intermeete period early period market participant focus sign weakness u.s. economic datum soft datum business survey view substantiate concern global headwind spill u.s. economy later period market respond news suggest favorable development brexit partial u.s.-china trade deal balance u.s. financial condition end period little change outlook u.s. monetary policy open market desk survey market base indicator point high likelihood basis point cut target range october probability survey respondent place outcome similar probability basis point cut ahead july september meeting ahead path imply medians survey respondent modal forecast fund rate remain essentially flat market imply path suggest investor expect basis point additional easing end anticipate easing manager pro tem turn money market development early october october committee announce decision maintain reserve level prevail early september program treasury bill purchase repurchase agreement repo operation announcement desk conduct regular operation offer overnight repo funding term funding operation foster condition help maintain fund rate target range channel provide funding repo market dampen repo market pressure pass fund market increase supply reserve banking system anticipation project sharp decline reserve expect rate pressure october desk announce increase size overnight repos increase size term repo operation cross october month end respect purchase treasury bill management purpose desk purchase half initial monthly october proposition operation conduct date strong respondent desk survey expect management purchase treasury bill pace time combination repo operation bill purchase lift level observe early september manager pro tem note diminish willingness dealer intermediate money market ahead year end result upward pressure short term money market rate forward measure market pricing continue expectation pressure year end desk plan close monitoring reserve money market condition dealer participation repo operation particularly give balance sheet constraint head year end desk discuss intention adjust operation year end need mitigate risk money market pressure adversely affect policy implementation maintain time level balance prevail early september manager pro tem finish note federal reserve bank new york soon release request public comment plan publish series backward look secured overnight financing rate sofr average daily sofr index support transition away instrument base libor london interbank offer rate publication series expect begin half unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period review options repo operations support control federal funds rate brief participant experience repo operation support control fund rate possibly maintain role repo operation monetary policy implementation framework long run ongoing capacity repo operation view useful ample reserve regime way provide insurance unexpected stress money market drive fund rate outside committee target range sustained period present potential approach conduct repo operation committee decide maintain ongoing role operation approach desk conduct modestly sized relatively frequent repo operation design provide high degree readiness need large operation arise approach fomc establish stand fix rate facility serve automatic money market stabilizer assess approach involve consideration include degree assurance control fund rate likelihood participation federal reserve repo operation stigmatize possibility operation encourage federal reserve counterpartie excessive liquidity risk portfolio potential disintermediation financial transaction currently undertake private counterpartie regular modestly sized repo operation pose relatively little risk stigma moral hazard provide assurance control fund rate difficult federal reserve anticipate money market pressure scale repo operation accordingly stand fix rate repo facility provide substantial assurance control fund rate use facility stigmatize particularly rate set relatively high level conversely stand facility rate set relatively low level result large frequent repo operation appropriate effectively stand ready provide form liquidity need basis facility increase risk institution undesirably high liquidity risk comment follow presentation participant emphasize importance maintain reserve level consistent committee choice ample reserve monetary policy implementation framework control level fund rate exercise primarily setting federal reserve administer rate active management supply reserve require participant indicate environment tolerance allow fund rate vary day day occasionally outside target range especially instance associate easily identifiable technical event couple participant express discomfort miss participant express range view relative merit approach describe conduct repo operation participant note ample supply reserve firmly establish little need standing repo facility frequent repo operation participant indicate basic principle implement ample reserve framework maintain reserve ongoing basis level obviate need open market operation address pressure funding market exceptional circumstance participant remark environment ample reserve standing facility serve useful backstop support control fund rate event outsized shock system participant suggest standing facility create allow bank monetize portion security holding time market stress bank possibly reduce demand reserve normal time feasible monetary policy implementation framework operate significantly small quantity reserve need couple participant point establish stand facility similar practice major bank number participant note decide implement stand repo facility additional work necessary implication different design choice stand repo facility pricing eligible counterpartie set acceptable collateral echo issue raise committee june participant comment need carefully evaluate design choice guard potential moral hazard stigma disintermediation risk excessive volatility federal reserve balance sheet couple participant suggest approach base modestly sized frequent repo operation quickly substantially ramp response emerge market pressure mitigate moral hazard disintermediation stigmatization risk associate stand repo facility participant decision long run role repo operation ample reserve regime approach conduct repo operation long run agree monitor market effect federal reserve ongoing repo operation treasury bill purchase additional analysis period money market dislocation fluctuation federal reserve non liability warrant participant call research role financial regulatory environment factor play dislocation staff review economic situation information available october 29â30 indicate labor market condition remain strong real gross domestic product gdp increase moderate rate consumer price inflation measure month percentage change price index personal consumption expenditure pce remain percent august survey base measure long run inflation expectation little change total nonfarm payroll employment expand slow pace september previous month average pace similar half year pace job gain far year slow year account anticipated effect bureau labor statistics benchmark revision payroll employment incorporate publish datum february unemployment rate move year low percent september labor force participation rate hold steady employment population ratio move unemployment rate asians hispanics white move lower september rate african americans unchanged unemployment rate group level end previous economic expansion persistent differential rate remain average share worker employ time economic reason september continue level late rate private sector job opening decline august rate quit edge reading relatively elevated level week moving average initial claim unemployment insurance benefit mid october remain near historically low level average hourly earning employee rise percent month end september roughly similar pace year early total consumer price measure pce price index increase percent month end august core pce price inflation exclude change consumer food energy price percent month period consumer food price inflation core inflation consumer energy price decline trimmed mean measure month pce price inflation construct federal reserve bank dallas remain percent august consumer price index cpi rise percent month end september core cpi inflation percent recent reading survey base measure long run inflation expectationsâinclude university michigan surveys consumers blue chip economic indicators desk survey primary dealers survey market participantsâwere little change balance al­though michigan survey measure tick low end range real pce rise solidly follow strong gain overall consumer spending rise steadily month sale light motor vehicle september maintain robust pace key factor influence consumer spendingâinclude low unemployment rate gain real disposable income high level household net worth low borrowing ratesâwere supportive solid real pce growth near term michigan survey measure consumer sentiment rise october recover august slump conference board survey measure consumer confidence remain favorable level real residential investment turn solidly follow consecutive quarter contraction upturn consistent rise single family start building permit unitsâwhich tend good indicator underlie trend construction homesâalso increase exist home sale increase net august september take datum construction sale suggest decline mortgage rate late start housing activity real nonresidential private fix investment decline nominal shipment nondefense capital good exclude aircraft decrease august september forward look indicator point continue softness business equipment spending order nondefense capital good exclude aircraft decrease month level shipment measure business sentiment deteriorate analyst expectation firm long term profit growth decline somewhat concern trade development continue weigh firm investment decision business expenditure nonresidential structure decrease markedly number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue decline mid october industrial production decline september notably low beginning year production september hold strike general motors automaker schedule indicate assembly light motor vehicle low october rebound november overall manufacturing production appear soft coming month reflect weak reading order national regional manufacturing survey decline domestic business investment weak gdp growth abroad persistent drag trade development total real government purchase rise slow pace real purchase decelerate reflect small increase defense nondefense spending federal hiring temporary worker year decennial census modest real purchase state local government rise slow pace boost fast expansion state local payroll partially offset decrease real construction spending government nominal u.s. international trade deficit widen august reflect subdue pace export growth moderate pace import growth export growth subdue lackluster export service capital good advance estimate september suggest good import fall export point narrowing monthly trade deficit bureau economic analysis estimate net export slight negative contribution real gdp growth incoming datum suggest growth foreign economy remain subpar advanced foreign economy afes indicator show continued weakness manufacturing sector especially euro area united kingdom similarly gdp growth remain subdue china emerge economy asia indicator suggest growth latin america remain weak foreign inflation appear moderate bit reflect decline energy price inflation remain relatively low foreign economy staff review financial situation investor sentiment weaken early intermeete period reflect weak expect domestic datum release later strengthen increase optimism ongoing trade negotiation united states china positive brexit news net equity price corporate bond spread little change treasury yield curve steepen bit financing condition business household remain supportive spending economic activity september fomc communication view slightly accommodative expect investor reportedly surprise summary economic projections show majority fomc participant anticipate ease year incoming datum early intermeete periodâparticularly disappointing reading business activityâprompte decline market imply path policy rate decline later partly reverse market participant apparently grow optimistic prospect u.s.âchina trade deal brexit negotiation late period quote fund future option contract indicate market participant assign high probability basis point reduction target range fund rate october fomc addition market imply expectation fund rate year end year move yield nominal u.s. treasury security move early intermeete period later retrace decline net treasury yield curve steepen bit reflect modest decline short term yield measure inflation compensation year year ahead base treasury inflation protect securities inch remain near multiyear low level broad stock price index fall percent half intermeete period recover afterward end period roughly unchanged option imply volatility s&p index decline slightly end period middle historical distribution net corporate credit spread little change domestic short term funding market volatile mid september exhibit additional albeit modest pressure september end mid october treasury settlement date pressure alleviate desk overnight term repo operation begin september smooth rate volatility period interest rate overnight unsecured secured funding decline roughly line reduction target range fund rate september fomc associate basis point decrease interest excess reserve ioer rate effective fund rate effr volatile usual intermeete period effrâioer spread range basis point basis point rate overnight commercial paper short term negotiable certificate deposit decline fairly quickly follow announcement desk operation september al­though rate remain elevate october fomc october announcement treasury bill purchase repo operation maintain reserve early september level appear improve expectation fund market condition remainder year communication reportedly materially affect yield long term treasury security financial market afe follow pattern similar see united states afe financial condition tighten early intermeete period disappointing activity datum united states abroad subsequently recover perceive well prospect trade brexit negotiation movement exchange value dollar currency relatively modest broad dollar index decline slightly relative dollar british pound appreciate brexit development argentinian peso continue depreciate amid country political development mid september increase u.s. treasury repo rate spill borrow rate international dollar funding market measure take federal reserve fund rate target range calm dollar funding condition foreign exchange swap market financing condition nonfinancial business remain accommodative intermeete period gross issuance corporate bond strong september experience typical seasonal decline october gross issuance institutional leverage loan remain solid slightly monthly average growth commercial industrial c&i loan bank modest respondent october senior loan officer opinion survey bank lending practices sloos report borrower demand weaken c&i loan lending standard loan unchanged gross equity issuance initial seasoned offering pick strong pace september moderate october credit quality nonfinancial corporation deteriorate slightly month remain solid balance credit condition small business municipality stay accommodative net commercial real estate cre sector financing condition remain accommodative volume agency non agency commercial mortgage back security issuance strong september support decline interest rate growth cre loan bank book little change bank october sloos report tight lending standard type cre loan report weak demand construction lending strong demand cre lending category financing condition residential mortgage market remain accommodative balance mortgage rate little change september fomc stay near low level mid-2016 september home purchase origination remain relatively high level see previous month refinance origination jump high level late october sloos bank leave lending standard basically unchanged residential real estate loan category subprime loan moderate net percentage bank report tighten standard financing condition consumer credit market remain supportive household spending al­though condition continue tight credit card borrower nonprime credit score interest rate auto loan fall net beginning year interest rate credit card account level august accord october sloos commercial bank tighten standard credit card consumer loan additionally bank report standard auto loan willingness consumer installment loan unchanged balance provide update assessment potential risk financial stability balance characterize financial vulnerability u.s. financial system moderate judge asset class valuation pressure ease past year appetite risk leveraged loan market remain elevated year especially lower rat loan addition cre price remain high relative rental income assess vulnerability stem borrow household business sector note household borrowing continue decline relative nominal gdp business leverage remain near record high level risk associate leverage financial institution view low time high capital ratio large bank nonetheless note resilience financial institution undermine low interest rate bank announce plan increase payout shareholder assess vulnerability stem fund risk modest addition discuss potential liquidity transformation open ended mutual fund invest loan lead market dislocation stress scenario note outflow fund associate dislocation staff economic outlook projection u.s. real gdp growth prepare october fomc revise little half year relative previous projection revision reflect estimate effect strike general motors small factor downward revision real gdp forecast rise slowly half year half continue soft business investment slow increase government spending medium term projection real gdp growth essentially unchanged revision assumption factor forecast condition financial market variable small offsetting real gdp expect decelerate modestly medium term wan boost fiscal policy output forecast expand rate little estimate potential rate growth slow pace slightly potential output growth unemployment rate project roughly flat estimate long run natural rate forecast core pce price inflation year revise little response datum year projection core inflation unrevise forecast total inflation little low downward revision project consumer energy price total inflation core inflation forecast slightly year low inflation reading early year view transitory inflation measure forecast run somewhat percent continue uncertainty projection real gdp growth unemployment rate inflation similar average past year judge risk forecast real gdp growth tilt downside corresponding skew upside unemployment rate important factor assessment international trade tension foreign economic development direction significant negative effect u.s. economy resolve favorably assume addition softness business investment manufacturing far year see point possibility substantial slowing economic growth project risk inflation projection view have downward skew downside risk forecast economic activity participant view current conditions economic outlook participants agree labor market remain strong intermeete period economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export remain weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change participant view economic outlook positive participant judge sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome indicate view outcome change little september uncertainty associate trade tension geopolitical risk ease somewhat remain elevated addition inflation pressure remain muted risk global growth slowdown weigh domestic economy remain prominent household sector participant agree consumer spending increase strong pace expect period ahead household spending firm footing support strong labor market condition rise income favorable financial condition addition survey measure consumer confidence remain high couple participant comment business contact consumer face industry report strong demand participant note component household spending think particularly sensitive interest rate improve include purchase consumer durable addition residential investment turn participant report spending household district cite favorable condition consumer spending al­though participant report mixed datum spending increase precautionary saving district discussion business sector participant see trade tension concern global growth outlook main factor contribute weak business investment export associated restraint domestic economic growth participant expect trade uncertainty sluggish global growth damp investment spending export number participant judge tight labor market condition cause firm forego investment expenditure invest automation system reduce need additional hiring business sentiment appear strong industry particularly closely connect consumer good participant discuss development manufacturing energy agricultural sector u.s. economy manufacturing production remain weak continue concern global growth trade uncertainty suggest condition unlikely improve materially near term addition labor strike general motors disrupt motor vehicle output ongoing issue boeing slow manufacture commercial aircraft industry couple participant note activity particularly weak energy industry low petroleum price addition participant note ongoing challenge agricultural sector include associate low crop yield tariff weak export demand difficult financial position farmer bright spot agricultural sector commodity price firm recently participant judge condition labor market remain strong unemployment rate near historical low continue solid job gain average addition participant comment strength improvement labor force participation nationally district pace increase employment slow net month hand slowing interpret natural consequence economy near employment hand slow job gain indicative cooling labor demand consistent observed decline rate job opening decrease measure labor market tightness participant comment preliminary benchmark revision release august bureau labor statistics indicate payroll employment gain momentum come year revision incorporate publish datum early year growth wage slow year measure consistent strong national datum labor market business contact district indicate continue strong labor demand firm report difficulty find qualified worker broaden recruiting include traditionally marginalize group inflation development participant note reading core pce inflation measure month change basis continue run committee symmetric percent objective survey base measure long term inflation expectation little change measure household inflation expectation move historically low level market base measure inflation compensation remain low long term measure near multi year low weakness global economy perception downside risk growth subdue global inflation pressure cite factor tilt inflation risk downside participant comment expect inflation run percent time participant see inflation datum consistent previous assessment weakness see early year transitory monthly reading consistent committee long run inflation objective percent couple participant note measure inflation temporarily percent early year transitory effect tariff participant discuss risk outlook economic activity remain tilt downside risk see ease bit remain elevated tentative sign trade tension ease probability deal brexit judge lessen geopolitical tension diminish participant note statistical model design gauge probability recession include base information yield curve suggest likelihood recession occur medium term fall somewhat intermeete period downside risk diminish particular sign global slowdown economic growth emerge weaken global economy restrain domestic economy risk weakness domestic business spending manufacturing export rise slow hiring weigh household spending remain prominent participant comment financial stability highlight risk associate high level corporate indebtedness elevated valuation pressure variety risky asset al­though financial stability risk see moderate participant indicate imbalance corporate debt market grow economic expansion raise concern deteriorate credit quality lead sharp increase risk spread corporate bond market development amplify effect adverse shock economy participant concern bank reduce size capital buffer time rise participant observe valuation equity bond market high historical standard cre valuation elevate couple participant indicate market participant overly optimistic pricing risk corporate debt couple participant judge monitoring financial stability vulnerability encompass risk relate climate change consideration monetary policy option participant believe reduction basis point target range fund rate appropriate discuss reason decision participant continue point global development weigh economic outlook need provide insurance potential downside risk economic outlook importance return inflation committee symmetric percent objective sustained basis couple participant supportive rate cut indicate decision reduce fund rate basis point close relative option leave fund rate unchanged participant judge additional modest easing appropriate light persistent weakness global growth elevated uncertainty trade development nonetheless participant note incoming datum continue economy prove resilient face continue headwind global development previous adjustment monetary policy help sustain economic growth addition participant suggest modest easing policy well align target range fund rate variety indicator appropriate policy stance include estimate neutral interest rate slope yield curve couple participant judge room labor market improve accordingly see accommodation well support committee dual mandate objective participant continue downside risk surround economic outlook elevated underscore case rate cut particular risk outlook associate global economic growth international trade see significant despite encouraging geopolitical trade relate development intermeete period light risk number participant concern weakness business spending manufacturing export spill labor market consumer spending threaten economic expansion participant observe consideration favor ease reinforce proximity fund rate elb provide adequate accommodation away elb well mitigate possibility costly return elb participant cite level inflation inflation expectation justify reduction basis point fund rate inflation continue run committee symmetric percent objective inflationary pressure remain muted participant raise concern measure inflation expectation remain low decline accommodative policy stance couple participant point experience japan euro area concern persistent inflation shortfall lead decline long run inflation expectation room reduce fund rate event future recession general participant justify easing base consideration relate inflation view action help inflation committee percent objective sustained basis anchor inflation expectation level consistent objective participant favor maintain exist target range fund rate participant suggest baseline projection economy remain favorable inflation expect stay near committee percent objective judge policy accommodation adequate light lag transmission monetary policy prefer time economic effect committee previous policy action ease policy participant note downside risk diminish intermeete period see little indication weakness business sentiment spill labor market consumer spending participant raise concern easing monetary policy encourage excessive risk taking exacerbate imbalance financial sector regard monetary policy participant judge stance policy basis point reduction calibrate support outlook moderate growth strong labor market inflation near committee symmetric percent objective long incoming information economy result material reassessment economic outlook participant note policy preset course monitor effect committee policy action information bear economic outlook assess appropriate path target range fund rate couple participant express committee reinforce postmeete statement additional communication indicate reduction fund rate unlikely near term incoming information consistent significant slowdown pace economic activity committee policy action monetary policy member note information receive september indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise strong pace business fix investment export remain weak softness global growth international trade development continue weigh sector month basis inflation rate inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change light implication global development economic outlook muted inflation pressure member agree lower target range fund rate percent member support action view consistent help offset effect aggregate demand weak global growth trade development insure downside risk arise source promote rapid return inflation committee symmetric percent objective member prefer maintain target range fund rate member indicate economic outlook remain positive anticipate unchanged policy stance continue strong labor market condition solid growth activity inflation gradually move committee percent objective member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective agree assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development regard postmeete statement member agree update language committee description incoming datum acknowledge investment spending u.s. export remain weak describe monetary policy outlook agree remove act appropriate language emphasize committee monitor implication incoming information economic outlook assess appropriate path target range fund rate change see consistent stance monetary policy appropriate long economy perform line committee expectation policy preset course change development emerge lead material reassessment economic outlook conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective october federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent light expect increase federal reserve non liability committee direct desk purchase treasury bill year maintain time ample balance level prevail early september committee direct desk conduct term overnight repurchase agreement operation january year ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet september indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise strong pace business fix investment export weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation low survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability light implication global development economic outlook muted inflation pressure committee decide lower target range fund rate percent action support committee sustain expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome uncertainty outlook committee monitor implication incoming information economic outlook assess appropriate path target range fund rate determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans randal quarles vote action esther george eric rosengren president george dissent believe unchanged setting monetary policy appropriate base incoming datum outlook economic activity medium term recognize risk outlook effect trade development weak global activity president george prepare adjust policy income datum point materially weak outlook economy president rosengren dissent judge monetary policy accommodative additional accommodation need economy labor market tight judge provide additional accommodation pose risk inflate price risky asset encourage household firm leverage consistent committee decision lower target range fund rate percent board governors vote unanimously lower interest rate pay required excess balance percent vote unanimously approve percentage point decrease primary credit rate percent effective october agree committee hold tuesdayâwednesday december 10â11 adjourn 9:50 a.m. october notation vote notation vote complete october committee unanimously approve minute committee hold september 17â18 videoconference october committee meet videoconference october development money market step committee facilitate efficient effective implementation monetary policy review development money market effect desk continue offering overnight term repo operation staff analysis market commentary suggest factor contribute funding stress emerge mid september particular financial institution internal risk limit balance sheet cost slow distribution liquidity system time reserve drop sharply treasury issuance elevate al­though money market condition improve market participant express uncertainty funding market condition evolve coming month especially year end april tax season associate reduction reserve time view point money market pressure emerge manager pro tem review option committee boost level reserve banking system address temporary money market pressure adversely affect monetary policy implementation option include program treasury bill purchase couple overnight term repo operation maintain reserve early september level fomc participant agree control fund rate priority money market development suggest appropriate step time maintain level reserve consistent committee choose ample reserve regime give project decline reserve year end spring judge important reach consensus soon near term plan associated communication participant express support plan purchase treasury bill conduct overnight term repo operation january year participant support conduct operation maintain balance level prevail early september suggest move high level reserve provide extra buffer great assurance control fund rate discuss pace treasury bill purchase participant support relatively rapid pace boost level quickly support moderate pace purchase participant judge treasury bill purchase associate increase reserve time result gradual reduction need repo operation participant indicate purchase treasury note bond limited remain maturity consider way boost reserve particularly federal reserve face constraint pace purchase treasury bill participant acknowledge uncertainty efficient effective level reserve note prudent monitor money market development stand ready adjust plan necessary overall participant agree pace purchase parameter repo operation technical detail monetary policy implementation intend affect stance monetary policy communicate participant prefer wait october 29â30 fomc issue public statement plan treasury bill purchase repo operation note release statement october 29â30 fomc help reinforce point action technical intend affect stance policy addition participant remark early release allow desk begin boost level reserve soon couple participant want wait october 29â30 fomc announce plan surprise market participant lead infer committee regard situation dire require immediate action chair propose have produce draft statement committee comment early following week formal approval occur notation vote anticipated release statement public october participant discuss long term issue committee want study near term plan place particular participant mention committee want previous stand repo facility long run implementation framework participant note facility option provide backstop buffer shock adversely affect policy implementation participant mention potential facility support bank liquidity risk management reduce demand reserve participant instead highlight policy implementation work large quantity reserve focus action firmly establish ample supply reserve long run number participant note broad range factor affect level volatility reserve appropriate future october committee approve notation vote follow statement outline step ensure supply reserve remain ample control level fund rate short term interest rate exercise primarily setting federal reserve administer rate active management supply reserve require statement monetary policy implementation adopt october consistent january statement monetary policy implementation balance sheet normalization committee reaffirm intention implement monetary policy regime ample supply reserve ensure control level fund rate short term interest rate exercise primarily setting federal reserve administer rate active management supply reserve require ensure supply reserve remain ample committee approve notation vote complete october follow step light expect increase federal reserve non liability federal reserve purchase treasury bill year order maintain time ample balance level prevail early september addition federal reserve conduct term overnight repurchase agreement operation january year ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation action purely technical measure support effective implementation fomc monetary policy represent change stance monetary policy committee monitor money market development assess level reserve consistent efficient effective policy implementation committee stand ready adjust detail plan necessary foster efficient effective implementation monetary policy connection plan federal open market committee vote unanimously authorize direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive effective october federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent light expect increase federal reserve non liability committee direct desk purchase treasury bill year maintain time ample balance level prevail early september committee direct desk conduct term overnight repurchase agreement operation january year ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction james clouse secretary federal open market committee reference fomc committee minute return text attend monetary policy strategy tool communication practice return text attend option repo operation support control fund rate return text attend development financial market open market operation option repo operation support control fund rate return text attend development financial market open market operation return text attend economic development outlook return text attend development financial market open market operation end return text brief committee june possible role stand repo facility monetary policy implementation framework return text

minute federal open market committee december 10â11 joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday december 10:00 a.m. continue wednesday december 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren patrick harker robert kaplan neel kashkari loretta mester michael strine alternate members federal open market committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary david skidmore assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel steven kamin economist thomas laubach economist stacey tevlin economist rochelle edge eric engen christopher waller william wascher jonathan willis beth anne wilson associate economists lorie logan manager system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors trevor reeve deputy director division monetary affairs board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors brian doyle wendy dunn joseph gruber ellen meade ivan vidangos special advisers board office board members board governors linda robertson assistant board office board members board governors shaghil ahmed senior associate director division international finance board governors diana hancock senior associate director division research statistics board governors antulio bomfim robert tetlow senior advisers division monetary affairs board governors eric engstrom senior adviser division research statistics deputy associate director division monetary affairs board governors elizabeth kiser associate director division research statistics board governors elizabeth klee associate director division financial stability board governors david lópez salido associate director division monetary affairs board governors glenn follette patrick mccabe john roberts deputy associate directors division research statistics board governors matteo iacoviello andrea raffo deputy associate directors division international finance board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors etienne gagnon assistant director division monetary affairs board governors paul lengermann assistant director division research statistics board governors penelope beattie section chief office secretary board governors seung lee section chief division international finance board governors david small project manager division monetary affairs board governors michele cavallo kurt lewis principal economists division monetary affairs board governors laura feiveson principal economist division research statistics board governors nils goernemann senior economist division international finance board governors donielle winford information management analyst division monetary affairs board governors becky bareford vice president federal reserve bank richmond david altig michael dotsey jeffrey fuhrer sylvain leduc executive vice presidents federal reserve banks atlanta philadelphia boston san francisco respectively todd clark marc giannoni spencer krane senior vice presidents federal reserve banks cleveland dallas chicago respectively jonathan mccarthy alexander wolman patricia zobel vice presidents federal reserve banks new york richmond new york respectively thomas tallarini jr. assistant vice president federal reserve bank minneapolis karel mertens senior economic policy advisor federal reserve bank dallas daniel cooper senior economist policy advisor federal reserve bank boston scott davis senior research economist advisor federal reserve bank dallas julie hotchkiss research economist senior advisor federal reserve bank atlanta review monetary policy strategy tools communication practices participants continue issue relate ongoing federal reserve monetary policy strategy tool communication practice summarize feedback receive fed listens initiative series public face event conduct country broad range individual group event engage public directly issue pertain dual mandate objective maximum employment stable price representative underserved community participate fed listen event see strong labor market provide significant benefit community notably create great opportunity individual experience difficulty find job past representative note benefit labor market condition flow people community imply national statistic express concern gain sustain event economic downturn business representative report experience challenge find qualified worker describe initiative attract retain worker include training program willingness employ individual unlikely consider favorable labor market condition inflation development elicit few comment event see pose challenge labor market condition representative retiree mention difficulty associate rise cost health care prescription drug represent low- middle income community point rise cost basic necessity housing utility food business representative emphasize importance low stable inflation planning decisionmake event participant concern rise cost living perceive low inflation desirable perspective event participant ask monetary policymaker concern inflation run persistently percent note federal reserve well communicate reason concern ask effect change interest rate representative underserved community say change little effect member community limit access credit representative retiree convey negative low interest rate give great reliance wealthy retiree interest income business representative find low interest rate environment beneficial briefing include analysis distributional consideration monetary policy consistent feedback receive fed listen event evidence review show worker young educated african american hispanic tend face great average risk lose job recession simulation specific macroeconomic model explore heterogeneity household affect transmission economic shock change monetary policy economy simulation embed assumption household limit ability borrow make household consumption spending sensitive change income result simulation downturn lead large contraction aggregate demand case household borrow support consumption spending response loss income amplification recessionary shock especially large monetary policy response constrain effective lower bind elb policy interest rate overall analysis suggest cost recession benefit economic stabilization large suggest model account difference household access credit participant agree fed listens outreach effort inform understanding goal tradeoff associate monetary policy provide highly useful input deliberation participant voice desire conversation initiate fed listen event participant share appreciation feedback receive regular basis member public include federal reserve system extensive network contact community outreach effort participant emphasize policymaker engagement public help build trust foster transparency reinforce credibility federal reserve participant see feedback fed listen event reinforce importance sustain economic expansion effect persistently strong job market reach past experience difficulty find employment participant mention sustain strong labor market condition help worker build skill cement attachment labor force manner reduce scar effect future downturn increase maximum sustainable level employment long run number participant emphasize sustain strong labor market condition helpful committee symmetric percent inflation goal participant speak challenge associate assess maximum level employment participant note aggregate statistic mask significant heterogeneity labor market outcome point continued absence significant wage price pressureâtraditionally see symptom tight labor marketâeven unemployment rate move estimate long run level participant raise possibility maximum sustainable level employment increase expansion continue draw worker labor force inflation participant recognize segment public regard fact aggregate inflation run modestly committee percent goal problem participant note public issue understandable perspective household business daily life economy low stable inflation say couple participant caution inflation emerge concern member public volatile run level substantially away committee goal participant warn macroeconomic consequence achieve percent sustained basis particular inflation run persistently committee objective long term inflation expectation drift result low actual inflation low inflation nominal interest rate low close elb result scope monetary policy support economy future downturn interest rate cut reduce situation worsen economic outcome household business light consideration participant agree need communicate clearly public rationale commitment achieve percent inflation sustained basis ensure long run inflation expectation anchor level consistent objective ensure effectiveness communication participant stress federal reserve need adapt communication audience participant emphasize communication committee resolve return inflation percent need back action result ensure public see communication credible respect role distributional consideration pursuit dual mandate objective participant note important policymaker cognizant monetary policy affect different segment population participant comment large cost recession high unemployment impose community notably vulnerable constituent stress need monetary policy seek avoid recession place reduce severity occur number participant emphasize monetary policy action different effect group monetary policy action drive pursuit maximum employment stable price ultimately benefit group participant view role monetary policy support strong stable economy benefit americans participant note monetary policy blunt instrument effect target specific community participant remark monetary policy action improve condition vulnerable community notably support strong job market action reduce inequality wealth income reason participant emphasize policy monetary policy appropriate directly address inequality addition couple participant caution maintain accommodative financial condition counterproductive fueled financial imbalance exacerbate economic downturn participant agree monetary policy strategy tool communication practice future meeting result committee reaffirm exist statement long run goals monetary policy strategy january committee plan revisit statement close conclusion middle development financial markets open market operations system open market account manager review development financial market intermeete period market price appear respond mainly sign stabilization u.s. global economy development associate trade policy market participant note risk outlook include brexit geopolitical factor expectation u.s. monetary policy open market trading desk survey market base indicator point high perceive likelihood change target range fund rate expect path fund rate imply medians survey respondent modal forecast remain essentially flat survey- market imply uncertainty near term outlook monetary policy decline market commentary attribute decrease committee october communication survey respondent place high probability reduction target range increase manager turn money market development october start update implementation committee strategy ensure ample reserve reserve management purchase treasury bill continue pace month proposition remain strong little discernible effect market functioning purchase accumulate desk continue conduct regular repurchase agreement repo operation order maintain reserve level prevail early september repos outstanding desk operation total roughly day consist overnight term operation level increase distribution reserve type comparable early september fund rate overnight money market rate fall modestly close interest excess reserve ioer rate period intraday dispersion rate low reserve similar level september addition help reserve ample repo operation reduce pressure money market dispersion money market rate respect condition year end manager note forward measure market pricing continue expectation temporary upward pressure secure rate money market rate volatile year end federal reserve operation intend eliminate year end pressure ensure supply remain ample mitigate risk pressure adversely affect implementation monetary policy desk conduct long term repo operation span year endâfor total billionâand plan announce additional long term operation increase overnight repo offer year end date manager report desk closely monitor reserve money market condition prepared adjust plan need manager discuss operational consideration policy implementation involve risk future treasury bill purchase large effect liquidity treasury bill market light expect seasonal decline bill issuance federal reserve grow ownership share outstanding bill risk materialize federal reserve expand universe security purchase management purpose include coupon bear treasury security short time maturity purchase short date security affect broad financial condition stance monetary policy manager discuss expectation gradually transition away active repo operation year treasury bill purchase supply large base reserve calendar repo operation start mid january reflect gradual reduction active repo operation manager indicate repos need april tax payment sharply reduce level reserve ample manager note appropriate point implement technical adjustment ioer rate offer rate overnight reverse repurchase rrp agreement condition warrant adjustment ioer rate close middle target range fund rate rrp rate realign target range manager note federal reserve bank new york communicate customer remuneration rate foreign repo pool revise equivalent overnight reverse repo rate action reduce activity pool extent increase level reserve unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available december 10â11 indicate labor market condition remain strong real gross domestic product gdp increase moderate rate half consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce remain percent october survey base measure long run inflation expectation little change total nonfarm payroll employment surge november boost return auto worker previously strike october average pace job gain month end november unaffected strike strong early rate increase payroll far year slow year account anticipated effect bureau labor statistics benchmark revision payroll employment incorporate publish datum february unemployment rate tick october move year low percent november labor force participation rate employment population ratio hold steady balance month unemployment rate african americans asians hispanics white little change net past month unemployment rate group level end previous economic expansion persistent differential rate remain average share worker employ time economic reason november stay level late rate private sector job opening rate quit edge september reading fairly elevated level week moving average initial claim unemployment insurance benefit late november remain near historically low level general measure nominal wage growth continue moderate total labor compensation hour business sector increase percent quarter end employment cost index private sector worker rise percent month end september average hourly earning employee increase percent month end november total consumer price measure pce price index increase percent month end october core pce price inflation exclude change consumer food energy price percent month period consumer food price inflation low core inflation consumer energy price decline trimmed mean measure month pce price inflation construct federal reserve bank dallas remain percent october consumer price index cpi rise percent month end november core cpi inflation percent recent reading survey base measure long run inflation expectationsâinclude university michigan surveys consumers survey professional forecasters survey consumer expectations federal reserve bank new york desk survey primary dealers survey market participantsâwere little change balance michigan survey measure tick early december range tick november real pce continue expand october follow strong gain sale light motor vehicle rise markedly november key factor influence consumer spendingâinclude low unemployment rate upward trend real disposable income high level household net worth low interest ratesâwere supportive solid real pce growth near term michigan survey measure consumer sentiment rise early december upbeat level recover drop august conference board survey measure consumer confidence remain favorable level november real residential investment appear increase rise solidly start building permit issuance single family home increase october start multifamily unit rise exist home sale continue increase october al­though home sale edge follow solid gain tell datum construction sale continue decline mortgage rate late boost housing activity real nonresidential private fix investment remain weak decline quarter nominal shipment order nondefense capital good exclude aircraft increase solidly october follow string decrease al­though forward look indicator point continue softness business equipment spending measure business sentiment downbeat analyst expectation firm long term profit growth edge concern trade development continue weigh firm investment decision nominal business expenditure nonresidential structure outside drilling mining sector continue decline october total number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâfell early december industrial production decrease october remain notably low beginning year production october continue hold strike general motors al­though end strike automaker schedule suggest assembly light motor vehicle rebound november overall manufacturing production appear soft coming month reflect weak reading order national regional manufacturing survey decline domestic business investment slow economic growth abroad persistent drag trade development total real government purchase increase slowly nominal defense spending october point modest rise real government purchase real purchase state local government look move roughly sideways state local payroll expand modestly net october november nominal construction spending government flat october nominal u.s. international trade deficit narrow october export fall little decline export category service industrial supply import fall decline broad base large contribution come import consumer good automotive product available trade datum suggest contribution net export real gdp growth slightly negative turn somewhat positive foreign economic growth slow amid continue weakness global manufacturing sector recent monthly indicator point stabilization pace economic growth china advanced foreign economy indicator suggest social unrest weigh heavily economic activity country notably hong kong weakness persist part latin america foreign inflation pick somewhat energy price stabilize al­though inflation remain relatively low foreign economy staff review financial situation investor sentiment fluctuate intermeete period response ongoing trade negotiation united states china net equity price increase moderately corporate bond spread narrow slightly yield nominal treasury security little change financing condition business household remain supportive spending economic activity federal reserve communication intermeete period view suggest additional near term change target range fund rate previously expect straight read probability distribution fund rate imply option price suggest investor assign high probability target range remain unchanged december fomc forward rate imply overnight index swap quote decline slightly net imply basis point decline fund rate end nominal treasury yield fluctuate intermeete period net treasury curve little change measure inflation compensation year year ahead base treasury inflation protect securities increase slightly near multiyear low level broad stock price index increase moderately intermeete period amid movement attribute trade relate development strong expect u.s. employment report option imply volatility s&p index increase modestly remain near low end historical distribution net corporate credit spread narrow slightly condition short term funding market stable intermeete period interest rate overnight secured unsecured loan fall line basis point decrease target range fund rate october fomc trading money market orderly volume normal range spread narrower relative ioer rate pressure rate october month end november mid monthâboth day sizable settlement treasury auctionsâwere mute compare treasury issuance day desk open market operation aim maintain ample reserve proceed smoothly u.s. market sentiment foreign financial market fluctuate response news u.s.âchina trade negotiation foreign equity price index long term sovereign yield germany united kingdom japan increase modestly net broad dollar index end period little change political unrest hong kong latin america garner financial market attention lead weakening latin american currency notably chilean peso imprint broad financial market limited financing condition nonfinancial business remain accommodative gross issuance corporate bond robust average october november gross issuance institutional leveraged loan remain near monthly average commercial industrial loan hold bank contract october increase modestly november credit quality nonfinancial corporation deteriorate slightly month remain solid particularly strong gross equity issuance september initial public offering decline seasoned offering remain solid october november credit condition small business municipality stay accommodative commercial real estate cre sector financing condition remain accommodative commercial mortgage back security cmbs spread widen slightly intermeete period remain near low end post crisis range agency non agency cmbs issuance increase october post crisis high cre loan growth bank increase october relative quarter financing condition residential mortgage market remain accommodative intermeete period mortgage rate little change october fomc consistent year decline mortgage rate home purchase origination refinance origination rise mortgage credit standard little change financing condition consumer credit market remain supportive growth consumer spending al­though condition continue tight nonprime borrower auto loan increase consistent significant decline auto loan interest rate year credit card debt grow solid pace interest rate credit card debt begin fall consumer assetâbacke security issuance strong october spread stabilize level somewhat post crisis average staff economic outlook projection u.s. real gdp growth prepare december fomc revise little half relative previous projection revision primarily reflect incoming datum household spending business investment somewhat strong expect upward revision real gdp forecast rise slowly half year half continue soft business investment slow increase government spending forecast real gdp growth medium term revise bit balance primarily response somewhat high project path equity price real gdp growth expect slow modestly come year fading boost fiscal policy output forecast expand rate little estimate potential rate growth slow pace slightly potential output growth unemployment rate project roughly flat level estimate long run natural rate forecast total pce price inflation revise bit downward revision core pce price response datum partly offset upward revision consumer energy price core inflation expect pace year projection revise touch slightly tight resource utilization forecast projection total inflation little low core inflation project decline consumer energy price remainder medium term projection total inflation expect core inflation al­though inflation measure forecast run bit percent continue uncertainty projection real gdp growth unemployment rate inflation similar average past year view downside risk economic activity have ease bit previous forecast judge risk forecast real gdp growth tilt downside corresponding skew upside unemployment rate important factor influence assessment international trade tension foreign economic development direction significant negative effect u.s. economy resolve favorably assume addition softness business investment manufacturing production far year see point possibility substantial slowing economic growth project risk inflation projection view have downward skew downside risk forecast economic activity participant view current conditions economic outlook conjunction fomc member board governors federal reserve bank president submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection describe summary economic projections sep addendum minute participant agree labor market remain strong intermeete period economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export remain weak month basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change participant expect sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective outcome outlook reflect support provide stance monetary policy global development relate persistent uncertainty international trade weakness economic growth abroad continue pose risk outlook inflation pressure remain muted household sector participant agree spending increase strong pace expect consumption spending firm footing support strong labor market condition rise income solid consumer confidence addition residential investment continue pick reflect effect low mortgage rate participant comment business contact consumer relate industry report strong demand contact optimistic holiday retail spending season participant observe datum retail sale motor vehicle spending decelerate slightly respect business sector participant see trade development concern global economic growth outlook main factor contribute weak business investment export participant expect factor damp business investment export express similar concern activity manufacturing industry participant note weakness capital expenditure lead slow pace productivity growth future year observe business diversify supply chain invest technology adapt persistent uncertainty international trade mitigate effect uncertainty future business spending number participant comment challenge face energy agriculture sector participant remark activity energy sector especially weak reflect low petroleum price low profitability tight financing condition energy produce firm participant note agricultural sector face number difficulty include associate trade development weak export demand challenge financial position farmer couple participant note farm subsidy government offset portion financial strain farmer participant judge condition labor market remain strong unemployment rate year low job gain remain solid measure labor force participation increase unemployment rate low forward participant remark indication strengthen labor market condition possible create undesirable pressure resource particular number participant note labor force participation rate rise measure wage growth remain moderate participant comment increase labor force moderate slack labor market diminish addition couple participant remark preliminary benchmark revision release august bureau labor statistics indicate payroll employment gain momentum come year revision incorporate publish datum early year couple participant think important well understand quality job create business contact district indicate continue strong labor demand firm report difficulty find qualified worker broaden recruiting include traditionally marginalize group number participant note wage pressure evident industry district couple participant comment firm respond pressure variety way include invest technology serve substitute labor inflation development participant note reading core pce inflation measure month change basis continue run percent survey base measure long term inflation expectation little change market base measure inflation compensation remain low participant comment factor temporarily exert upward pressure measure inflation coming month assess factor participant expect inflation return percent objective economic expansion continue resource utilization remain high weakness abroad subdue global inflation pressure cite source risk assessment participant express confidence inflation return promptly percent objective comment inflation average percent past year resource utilization increase global technology relate factor exert downward pressure inflation difficult overcome participant discuss risk outlook economic activity see risk tilt somewhat downside risk see ease month particular tentative sign trade tension china ease probability deal brexit judge lessen addition indication prospect global economic growth stabilize number participant observe domestic economy show resilience face headwind global development statistical model design gauge probability recession financial market datum include base information treasury yield curve suggest likelihood recession occur medium term fall noticeably month uncertainty emerge trade policy argentina brazil france political tension hong kong persist consideration monetary policy participant judge appropriate maintain target range fund rate percent support sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective reflect sep projection participant regard stance monetary policy appropriate time long incoming information economy remain consistent economic outlook course development emerge lead material reassessment outlook stance policy need adjust way foster committee dual mandate objective number participant agree maintain stance monetary policy committee time effect economy policy decision communication course year information bear economic outlook participant discuss maintain stance policy time helpful cushion economy global development weigh economic activity return inflation committee symmetric objective percent participant express concern inflation continue fall short percent al­though number participant note factor currently hold inflation prove transitory participant concern indicator suggest level long term inflation expectation low participant raise concern keep interest rate low long period encourage excessive risk taking exacerbate imbalance financial sector participant offer perspective relationship financial stability policy interest rate persistently low remark policy inconsistent sustain maximum employment recession severe strengthen case active use macroprudential tool guard emerge imbalance participant remark issue relate implementation monetary policy highlight topic future meeting topic mention potential role stand repo facility ample reserve regime setting administer rate composition federal reserve holding treasury security long run committee policy action monetary policy member note information receive fomc meet october indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export remain weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change member agree maintain target range fund rate percent member judge stance monetary policy appropriate support sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective concur assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development regard postmeete statement member agree state judge stance monetary policy appropriate support achievement committee policy objective member discuss option reference global development mute inflation pressure statement factor cite previous postmeeting statement rationale adjust stance policy remain salient feature outlook accordingly agree cite sentence indicate committee monitor implication incoming information economic outlook retention reference global development mute inflation pressure member agree text uncertainty outlook remove member suggest language state monetary policy support inflation near percent misinterpret suggest policymaker comfortable inflation run level prefer language refer return inflation committee symmetric percent objective member think reference near percent intend encompass modest deviation inflation percent conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent light expect increase federal reserve non liability committee direct desk purchase treasury bill maintain time ample balance level prevail early september committee direct desk conduct term overnight repurchase agreement operation january ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet october indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise strong pace business fix investment export weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation low survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability committee decide maintain target range fund rate percent committee judge stance monetary policy appropriate support sustained expansion economic activity strong labor market condition inflation near committee symmetric percent objective committee monitor implication incoming information economic outlook include global development mute inflation pressure assess appropriate path target range fund rate determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard richard clarida charles evans esther george randal quarles eric rosengren vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance unchanged percent vote unanimously approve establishment primary credit rate exist level percent effective december organizational matters unanimous vote lorie logan select serve pleasure committee manager system open market account understanding selection subject satisfactory federal reserve bank new york secretary advice subsequently receive selection ms. logan manager satisfactory federal reserve bank new york agree committee hold tuesdayâwednesday january 28â29 adjourn 10:00 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold october 29â30 james clouse secretary federal open market committee reference fomc committee minute return text committee appoint lorie logan serve manager system open market account conclusion return text attend monetary policy framework return text attend development financial market open market operation return text attend tuesday return text attend development financial market open market operation monetary policy end return text attend economic development outlook return text

minute federal open market committee january joint federal open market committee board governors hold office board governors federal reserve system washington d.c. tuesday january 10:00 a.m. continue wednesday january 9:00 a.m. present jerome powell chairman john williams vice chairman michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel thomas laubach economist stacey tevlin economist beth anne wilson economist shaghil ahmed marc giannoni joseph gruber david lebow trevor reeve ellis tallman william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors steven kamin director division international finance board governors andreas lehnert director division financial stability board governors rochelle edge deputy director division monetary affairs board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors antulio bomfim brian doyle wendy dunn ellen meade ivan vidangos special advisers board office board members board governors linda robertson david skidmore assistants board office board members board governors david bowman senior associate director division monetary affairs board governors eric engen michael palumbo senior associate directors division research statistics board governors john schindler senior associate director division financial stability board governors don kim edward nelson senior advisers division monetary affairs board governors eric engstrom senior adviser division research statistics deputy associate director division monetary affairs board governors elizabeth klee associate director division financial stability board governors christopher gust deputy associate director division monetary affairs board governors norman morin steven sharpe deputy associate directors division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors paul wood deputy associate director division international finance board governors ricardo correa stephanie curcuru assistant directors division international finance board governors giovanni favara zeynep senyuz assistant directors division monetary affairs board governors penelope beattie section chief office secretary board governors dana burnett section chief division monetary affairs board governors hess chung group manager division research statistics board governors david small project manager division monetary affairs board governors michele cavallo jonathan goldberg judit temesvary francisco vazquez grande principal economists division monetary affairs board governors daniel vine principal economist division research statistics board governors francesco ferrante senior economist division international finance board governors michael siemer senior economist division research statistics board governors manjola tase senior economist division monetary affairs board governors james hebden senior technology analyst division monetary affairs board governors mark gould vice president federal reserve bank san francisco david altig kartik athreya jeffrey fuhrer anna paulson christopher waller executive vice presidents federal reserve banks atlanta richmond boston chicago st. louis respectively julie ann remache samuel schulhofer wohl keith sill senior vice presidents federal reserve banks new york chicago philadelphia respectively jonathan mccarthy nosal matthew raskin patricia zobel vice presidents federal reserve banks new york atlanta new york new york respectively larry wall executive director federal reserve bank atlanta òscar jordà senior policy advisor federal reserve bank san francisco edward prescott senior economist policy advisor federal reserve bank cleveland brent bundick research policy advisor federal reserve bank kansas city annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york michael strine vice president federal reserve bank new york alternate patrick harker president federal reserve bank philadelphia thomas barkin president federal reserve bank richmond alternate loretta mester president federal reserve bank cleveland charles evans president federal reserve bank chicago alternate robert kaplan president federal reserve bank dallas raphael bostic president federal reserve bank atlanta alternate neel kashkari president federal reserve bank minneapolis mary daly president federal reserve bank san francisco alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chairman john williams vice chairman james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael hold deputy general counsel richard ashton assistant general counsel thomas laubach economist stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey marc giannoni joseph gruber beverly hirtle david lebow trevor reeve ellis tallman william wascher mark l.j. wright associate economists unanimous vote committee select federal reserve bank new york execute transaction system open market account soma unanimous vote committee select lorie logan serve pleasure committee manager soma understanding selection subject satisfactory federal reserve bank new york secretary federal reserve bank new york subsequently send advice manager selection indicate previously satisfactory unanimous vote committee vote reaffirm revision authorization domestic open market operations show guidelines conduct system open market operations federal agency issue remain suspend authorization domestic open market operation reaffirm effective january open market transaction federal open market committee committee authorize direct federal reserve bank select committee execute open market transaction selected bank extent necessary carry domestic policy directive adopt committee buy sell open market security direct obligation fully guarantee principal interest united states security direct obligation fully guarantee principal interest agency united states eligible purchase sale section 14(b federal reserve act eligible security system open market account soma outright operation security dealer foreign international account maintain selected bank day defer delivery basis include transaction commonly refer dollar roll coupon swap market price temporary operation day defer delivery basis purchase eligible security subject agreement resell repo transaction sell eligible security subject agreement repurchase reverse repo transaction term business day rate authorize committee determine competitive bidding apply reasonable limitation volume agreement individual counterpartie allow eligible securities soma mature replacement exchange market price connection treasury auction mature eligible securities soma treasury case eligible securities direct obligation united states fully guarantee principal interest united states exchange market price mature eligible securities soma agency united states case eligible securities direct obligation agency fully guarantee principal interest agency security lending order ensure effective conduct open market operation committee authorize selected bank operate program lend eligible securities hold soma dealer overnight basis selected bank lend eligible securities long overnight term accommodate weekend holiday similar trading convention security lending rate determine competitive bidding minimum lending fee consistent objective program iii subject reasonable limitation total specific issue eligible securities auction subject reasonable limitation eligible securities borrower borrow selected bank reject bid determine sole discretion facilitate bidder ability control single issue accept treasury security cash collateral loan security authorize paragraph iii accept agency security collateral loan agency security authorize paragraph operational readiness testing committee authorize selected bank undertake transaction type describe paragraph time time purpose test operational readiness subject following limitation transaction authorize paragraph shall conduct prior notice committee aggregate par value transaction authorize paragraph type describe paragraph 1.a.i 1.b 1.c 1.d shall exceed calendar year outstanding transaction describe paragraph 1.a.ii shall exceed give time transaction customer account order ensure effective conduct open market operation assist provision short term investment authorized service foreign international account maintain federal reserve bank foreign accounts account maintain federal reserve bank fiscal agent united states pursuant section federal reserve act foreign accounts customer accounts committee authorize following undertake term comparable available open market selected bank soma undertake reverse repo transaction eligible securities hold soma customer accounts term business day federal reserve bank maintain customer accounts customer account appropriate subject necessary authorization approval undertake repo transaction eligible securities dealer corresponding reverse repo transaction eligible securities customer accounts undertake intra day repo transaction eligible securities foreign accounts transaction undertake customer accounts provision paragraph provide service fee appropriate transaction undertake customer accounts subject authorization approval entity include board governors federal reserve system involve account maintain federal reserve bank fiscal agent united states united states department treasury additional matter committee authorize chairman committee foster committee objective period meeting committee instruct selected bank act behalf committee adjust somewhat exceptional circumstance stance monetary policy action result material change composition size asset soma undertake transaction respect eligible securities order appropriately address temporary disruption operational highly unusual nature u.s. dollar funding market adjustment describe subparagraph paragraph shall context committee decision stance policy committee long run objective foster maximum employment price stability shall base economic financial monetary development committee chairman feasible consult committee make instruction paragraph committee vote unanimously reaffirm revision authorization foreign currency operations foreign currency directive show authorization foreign currency operation reaffirm effective january general federal open market committee committee authorize federal reserve bank select committee selected bank execute open market transaction system open market account provide authorization extent necessary carry foreign currency directive committee purchase sell foreign currency know cable transfer home abroad open market include united states treasury foreign monetary authority bank international settlements entity open market authorization purchase sell foreign currency encompass purchase sale standalone spot forward transaction foreign exchange swap transaction purpose authorization foreign exchange swap transaction swap transaction united states treasury know warehousing transaction swap transaction bank reciprocal currency arrangement swap transaction bank stand dollar liquidity foreign currency liquidity swap arrangement swap transaction entity open market hold balance outstanding forward contract receive deliver foreign currency transaction foreign currency undertake pursuant paragraph shall authorize committee conduct manner consistent obligation exchange arrangement article articles agreement international monetary fund imf close continuous cooperation consultation appropriate united states treasury consultation appropriate foreign monetary authority foreign bank international monetary institution prevail market rate standalone spot forward transactions operation involve standalone spot forward transaction foreign currency approval operation require follow committee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization exceed close regular committee foreign currency subcommittee subcommittee direct selected bank advance execute operation subcommittee believe consultation committee feasible time available committee authorize subcommittee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization total close regular committee operation shall generally direct counter disorderly market condition undertake adjust system balance light probable future need currency iii conduct purpose determine committee purpose authorization volume standalone spot forward transaction foreign currency define sum disregard sign dollar value individual foreign currency purchase sell value time transaction warehousing committee authorize selected bank prior approval subcommittee request united states treasury conduct swap transaction united states exchange stabilization fund establish section gold reserve act agreement selected bank purchase foreign currency exchange stabilization fund exchange stabilization fund repurchase foreign currency selected bank later date purchase sale know warehousing reciprocal currency arrangement stand dollar foreign currency liquidity swaps committee authorize selected bank maintain reciprocal currency arrangement establish north american framework agreement stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement provide authorization extent necessary carry foreign currency directive committee reciprocal currency arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available stand dollar liquidity swap arrangement drawing approve advance chairman chairman approve schedule potential drawing delegate manager system open market account authority approve individual drawing occur accord schedule approve chairman stand foreign currency liquidity swap arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available operations involve stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement shall direct counter strain financial market united states abroad reduce risk emerge mitigate effect economic financial condition united states reciprocal currency arrangement stand dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement arrangement subject annual approval committee arrangement approve committee iii change term exist arrangement approve advance chairman chairman shall committee inform change term term shall consistent principle discuss guidance provide committee operation foreign currency operation foreign currency governance specify authorization foreign exchange swap transaction privateâsector counterpartie authorize direct advance committee foreign currency holdings committee authorize selected bank hold foreign currency system open market account account maintain foreign bank bank international settlements foreign institution approve board governors section regulation extent necessary carry foreign currency directive committee selected bank shall manage holding foreign currency system open market account primarily ensure sufficient liquidity enable selected bank conduct foreign currency operation direct committee secondarily maintain high degree safety iii subject paragraph 7.a.i 7.a.ii provide high rate return possible currency achieve objective authorize committee selected bank manage foreign currency holding purchasing sell obligation fully guarantee principal interest foreign government agency thereof permit foreign securities outright purchase sale purchasing permit foreign securities agreement repurchase permit foreign securities sell security agreement resale security iii manage balance time deposit account foreign institution approve board governors regulation subcommittee consultation committee provide additional instruction selected bank holding foreign currency additional matter committee authorize chairman prior approval committee enter need agreement understanding secretary united states treasury division responsibility foreign currency operation system united states treasury advise secretary united states treasury concern system foreign currency operation consult secretary policy matter relate foreign currency operation designate federal reserve system person authorize communicate united states treasury concern system open market account foreign currency operation time time transmit appropriate report information national advisory council international monetary financial policies committee authorize selected bank undertake transaction type describe authorization foreign exchange investment transaction authorize undertake time time purpose test operational readiness aggregate transaction shall exceed calendar year transaction shall conduct prior notice committee federal reserve bank shall participate foreign currency operation system open market account accordance paragraph 3g(1 board governors statement procedure respect foreign relationships federal reserve banks date january authority subcommittee pursuant authorization exercise chairman chairman believe consultation subcommittee feasible time available chairman shall promptly subcommittee action approve chairman pursuant paragraph committee authorize chairman exceptional circumstance feasible convene committee foster committee objective instruct selected bank engage foreign currency operation authorize pursuant authorization action shall context committee decision foreign currency operation chairman feasible consult committee make instruction paragraph foreign currency directive reaffirm effective january committee direct federal reserve bank select committee selected bank execute open market transaction system open market account accordance provision authorization foreign currency operations authorization subject limit directive committee direct selected bank execute warehousing transaction request united states treasury approve foreign currency subcommittee subcommittee subject limitation outstanding balance united states dollar provide united states treasury result transaction time exceed committee direct selected bank maintain system open market account reciprocal currency arrangement follow foreign bank foreign maximum million dollar equivalent bank canada bank mexico standing dollar liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank standing foreign currency liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank committee direct selected bank hold invest foreign currency portfolio accordance provision paragraph authorization committee direct selected bank committee regular committee transaction undertake pursuant paragraph authorization selected bank direct provide quarterly report committee management foreign currency holding pursuant paragraph authorization committee direct selected bank conduct testing transaction purpose operational readiness accordance provision paragraph authorization unanimous vote committee amend program security fomc information program set change effective february change consist update rule eligibility access fomc information reflect policy approve board addition reference exist federal reserve police help safeguard fomc information organizational technical change improve consistency accuracy program language unanimous vote committee provide approval publication federal register notice propose rulemaking seek public comment minor technical update fomc rules availability information committee freedom information act rule review monetary policy strategy tools communication practices participants continue relate ongoing federal reserve monetary policy strategy tool communication practice focus topic potential interaction monetary policy financial stability potential use inflation range committee percent inflation objective briefing topic note environment low neutral rate achieve committee dual mandate goal maximum employment price stability require low policy rate frequently regardless monetary policy strategy tool choose consequently policy strategy tool help support strong economy anchor inflation expectation level consistent committee objective low neutral rate environment help promote financial stability addition report available empirical evidence suggest effect change policy rate asset price risk premium tend modest relative historical fluctuation measure circumstance persistently accommodative policy stance consistent dual mandate goal contribute increase financial system vulnerability include increase borrowing financial leverage valuation pressure note clear communication committee ongoing assessment interaction monetary policy financial stability help avoid large interest rate surprise contribute financial vulnerability briefing conclude short bank approach issue include use financial instability escape clause provide leeway deviate usual monetary policy strategy financial vulnerability significant effect alternative monetary policy strategy tool financial stability participant note macroeconomic stability achievement committee dual mandate depend stable financial system unstable financial system amplify shock economy exacerbate increase unemployment drive inflation away committee goal respect relationship monetary policy financial stability participant note evidence link policy stance elevated financial vulnerability limited couple participant observe episode persistently low interest rate addition past episode heighten financial vulnerability associate excessive risk take behavior responsive typical change interest rate number participant judge circumstance low policy rate help foster financial stability provide need support strong economic condition price stability participant remark keep policy rate low achieve committee dual mandate objective contribute buildup financial vulnerability especially time economy employment development pose future risk economy ability committee achieve dual mandate participant discuss financial stability consideration incorporate conduct monetary policy agree supervisory regulatory macroprudential tool primary mean address financial stability risk participant comment especially case address risk associate structural feature low level neutral interest rate number participant note countercyclical macroprudential tool countercyclical capital buffer address cyclical financial stability risk participant note tool deploy proactively lean buildup financial vulnerability limitation context u.s. financial system available tool design address vulnerability outside banking sector addition tool authority committee use require coordination prudential regulator recognize limitation participant remark committee rule possibility adjust stance monetary policy mitigate financial stability risk particularly risk important implication economic outlook macroprudential tool ineffective mitigate risk participant note knowledge interaction stance monetary policy financial vulnerability imprecise warrant systematically adjust monetary policy response evolution financial stability risk result monetary policy guide primarily outlook employment inflation respond financial stability risk insofar risk significantly threaten achievement committee mandate participant observe monetary policy measure need curb financial stability risk large result effect employment inflation place high hurdle measure participant remark financial stability risk consideration achieve committee dual mandate clear communication strategy need convey committee assessment financial vulnerability potential implication monetary policy outlook participant note communication strategy include possible use financial instability escape clause help explain rationale policy action buildup financial vulnerability pose risk achievement committee goal briefing consideration use inflation range focus different concept inflation range uncertainty range communicate magnitude inherent variability inflation consistent achieve committee symmetric inflation objective operational range signal condition committee prefer inflation away long run objective time range potentially makeup policy strategy include base average inflation targeting strategy aim offset adverse effect bind effective lower bind policy rate indifference range communicate monetary policy respond deviation inflation range briefing summarize experience foreign bank use inflation range range typically place year ago conjunction adopt inflation target highlight communication challenge arise inflation range introduce time inflation run objective number year environment introduction symmetric range point objective misinterpret sign concerned inflation remain state goal situation lead inflation expectation drift low end range participant express range view potential benefit cost different type inflation range participant express concern introduce symmetric inflation range percent objective follow extended period inflation run somewhat percent misperceive signal committee comfortable continue miss symmetric inflation objective participant agree uncertainty range misinterpret indifference range lack commitment committee symmetric percent inflation objective participant suggest clear introduce range help achieve committee inflation objective note introduce range objective clear public instead establish range committee communicate inflation objective symmetric percent inflation inherently variable committee emphasize intention inflation center percent objective inherent variability inflation participant judge benefit communicate inflation objective symmetric range point target addition participant suggest inflation range convey uncertainty associate available array inflation measure committee communication explicitly reference measure inflation participant state employ asymmetric operational range timeâwith percent near low end rangeâwhile maintain long run target percent help communicate committee intend inflation average percent time turn help long run inflation expectation level consistent objective participant expect upcoming meeting deliberation committee monetary policy strategy tool communication practice participant continue anticipate complete middle year development financial markets open market operations soma manager review development financial market intermeete period period risk asset price rise market participant focus perceive reduction downside risk economic outlook favorable datum foreign economic activity expectation continue monetary policy accommodation united states major economy market participant suggest federal reserve action maintain ample level contribute degree rise equity risk asset price final day intermeete period financial market respond news spread coronavirus start china reportedly contribute downward move treasury yield less extent u.s. equity price balance u.s. financial condition accommodative intermeete period equity price rise notably despite sign reduce risk outlook stabilization economic activity abroad financial market participant view course u.s. monetary policy appear change little intermeete period market base indicator continue point expectation target range fund rate lower roughly basis point year consistent response open market desk survey continue market participant view change year target range outcome place high probability reduction target range year increase market commentary attribute stability fund rate expectation despite perceive reduction downside risk partly committee communication market participant reportedly regard communication signal relatively high bar change target range addition result desk survey suggest notwithstanding abatement risk month market participant continue risk economic outlook skewed downside manager turn money market development desk operation fund rate stable year end date remain close interest excess reserve ioer rate ongoing management purchase treasury bill desk repurchase agreement repo operation keep aggregate reserve level prevail early september contribute relatively calm money market condition year end market participant cite funding additional long term repo operation span year end increase capacity daily operation help maintain stable condition short term funding market addition market participant prepare early usual year end borrower increase term borrow private lender lender apparently expand lending capacity year end money market rate remain stable desk long term repos mature discernible effect market condition management purchase treasury bill proceed smoothly pace month estimate suggest april year desk management purchase restore permanent base reserve level prevail early september al­though reserve project april surge treasury general account balance april tax season expect briefly reduce level absence repo operation bring reserve temporarily manager discuss potential plan gradually transition operational approach design maintain ample level active use repo operation supply reserve plan repo operation maintain april ensure ample condition desk gradual reduction consolidation repo offering ahead april plan phase term repo operation april transition minimum bid rate repo operation gradually lift committee role repo operation implementation framework manager expect condition support slow pace treasury bill purchase goal eventually align growth federal reserve treasury holding trend growth liability time approach committee wish appropriate maturity composition management purchase treasury security manager note al­though pace treasury purchase rate expansion federal reserve balance sheet moderate half repo outstanding gradually reduce manager briefing address possibility small technical adjustment federal reserve administer rate light stability money market condition month adjustment board lift interest rate required excess reserve basis point fomc implement equal sized upward adjustment overnight reverse repurchase agreement offer rate technical adjustment reverse small downward adjustment administer rate september money market volatile unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period staff review economic situation information available january 28â29 indicate labor market condition remain strong real gross domestic product gdp increase moderate rate consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce remain percent november survey base measure long run inflation expectation little change total nonfarm payroll employment rise december solid pace job gain half somewhat half rate increase payroll slow account anticipated effect bureau labor statistics benchmark revision payroll employment schedule early february unemployment rate hold steady 50âyear low percent december labor force participation rate employment population ratio unchanged unemployment rate african americans asians hispanics white level end previous economic expansion persistent differential rate remain narrow expansion average share worker employ time economic reason november stay level late rate private sector job opening decline net october november fairly high level rate quit high level edge week moving average initial claim unemployment insurance benefit mid january remain near historically low level nominal wage growth moderate average hourly earning employee increase percent month end december total consumer price measure pce price index increase percent month end november core pce price inflation exclude change consumer food energy price percent month period consumer food price inflation low core inflation consumer energy price decline trimmed mean measure month pce price inflation construct federal reserve bank dallas remain percent november consumer price index cpi core cpi rise percent month end december recent reading survey base measure long run inflation expectation little change balance month university michigan surveys consumers measure year move early january have fall low value record december year ahead measure federal reserve bank new york survey consumer expectations remain near historical low december real pce appear rise slowly retail sale soft sale light motor vehicle decline december strong gain november key factor influence consumer spendingâinclude low unemployment rate upward trend real disposable income high level household net worth low interest ratesâremaine supportive solid real pce growth near term addition reading consumer confidence university michigan conference board survey strong real residential investment appear increase solidly start single family home increase sharply november december period build permit issuance home rise net start multifamily unit move exist home sale increase balance november december home sale decline tell datum residential construction sale continue decline mortgage rate late boost housing activity available datum point decline real nonresidential private fix investment contraction structure investment offset modest rise investment equipment intangible nominal shipment order nondefense capital good exclude aircraft little change measure business sentiment improve analyst expectation firm long term profit growth edge concern trade development continue weigh firm investment decision reduce delivery boeing max restrain investment nominal business expenditure nonresidential structure outside drilling mining sector continue decline november total number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâwa little change net mid january level see industrial production increase net november december partly pickup motor vehicle production follow strike general motors low year early decline manufacturing production output utility partly offset increase mining output automaker schedule suggest assembly light motor vehicle increase gain appear offset boeing curtail production max aircraft mixed reading order national regional manufacturing survey total real government purchase appear increase moderately nominal defense spending november december point moderate rise real government purchase real purchase state local government look rise little fast nominal construction spending government increase solidly november state local payroll expand modestly december real net export estimate provide substantial boost real gdp growth available monthly datum suggest import fall significantly lead decline consumer good automobile export flat incoming datum suggest foreign economic growth slow subdued pace advanced foreign economy afes growth appear remain weak manufacturing slump continue consumption tax hike japan lead sharp contraction household spending emerge economy social unrest weigh heavily economic activity hong kong chile labor strike general motors drag mexico weak economy contrast early gdp release show pickup growth china asian economy news coronavirus outbreak raise question sustainability pickup foreign inflation rise wake temporary factor india china remain soft afes reflect previous decline energy price mute core inflation pressure staff review financial situation investor sentiment improve balance intermeete period reflect progress relate phase trade deal united states china subsequent signing perception probability disorderly brexit decline sign stabilization global economic outlook reportedly continued confidence monetary policy united states major economy accommodative near term late period concern spread coronavirus uncertainty potential economic effect weigh negatively investor sentiment lead moderate decline price risky asset net equity price increase notably intermeete period corporate bond spread little changed yield nominal treasury security decline financing condition business household ease bit remain supportive spending economic activity federal reserve communication intermeete period reportedly reinforce investor belief near term change target range fund rate unlikely consistent report straight read probability distribution fund rate imply option price suggest investor assign high probability target range remain unchanged month expectation fund rate end imply overnight index swap quote move slightly net imply basis point decline fund rate level yield nominal treasury security decline net maturity spectrum intermeete period spread yield nominal 10â year treasury security little change measure inflation compensation year year ahead base treasury inflation protect securities decrease net remain october low broad stock price index increase notably balance intermeete period gain attribute improve market sentiment trade negotiation perceive low probability disorderly brexit late period equity price retrace gain concern spread coronavirus weigh negatively risk sentiment overall movement stock price vary widely economic sector stock firm information technology utility sector significantly outperform aggregate index stock price firm energy sector decline markedly option imply volatility s&p index increase bit balance corporate credit spread little change condition domestic short term funding market include secured financing stable intermeete period year end rate decline slightly reflect increase liquidity high level reserve provide desk open market operation effective fund rate remain close ioer rate spread term unsecured commercial paper negotiable certificate deposit narrow substantially particularly year end desk open market operation proceed smoothly intermeete period foreign equity price rise amid progress u.s.âchina trade negotiation favorable datum global economic activity reduced risk disorderly brexit follow u.k. general election late period concern coronavirus outbreak china weigh risk sentiment balance major foreign equity index increase modestly afe long term sovereign yield end period somewhat low u.k. canadian yield decline backdrop communication interpret increase likelihood policy easing country broad dollar index weaken slightly period predominantly emerge market currency chinese renminbi appreciate notably dollar positive trade policy development gain undo late period concern coronavirus mexican peso strengthen dollar support progress u.s.-mexico canada agreement usmca bank mexico communication perceive accommodative expect financing condition nonfinancial firm remain accommodative balance corporate borrowing cost stay near historical low intermeete period gross issuance investment grade corporate bond subdue january december surge november issuance speculative grade bond intermeete period remain line average pace december january year institutional leveraged loan issuance continue robust december reflect solid refinance activity moderate money issuance commercial industrial c&i loan bank balance sheet contract respondent january senior loan officer opinion survey bank lending practices sloos report borrower demand weaken c&i loan lending standard loan little change gross equity issuance seasoned offering remain robust december initial public offering continue light credit quality nonfinancial corporation earning outlook remain stable month credit condition small business municipality remain accommodative net commercial real estate cre sector financing condition remain accommodative volume agency non agency commercial mortgage back security issuance grow notably buoy low interest rate growth cre loan bank book pick period response january sloos suggest lending standard demand cre loan category unchanged financing condition residential mortgage market remain accommodative balance mortgage rate decrease notably intermeete period reach year low home purchase origination remain post crisis high mortgage refinancing activity continue strong pace december financing condition consumer credit market remain supportive growth consumer spending supply credit remain relatively tight nonprime borrower growth credit card balance slow accord january sloos commercial bank tighten standard credit card loan period auto loan growth maintain solid pace month amid decline interest rate year end provide update assessment potential risk financial stability balance financial vulnerability u.s. financial system characterize moderate judge asset valuation pressure increase month elevated level asset valuation pressure characterize fairly widespread number market similar situation assess vulnerability stem borrow household business sector note ratio household debt nominal gdp fairly low ratio business debt nominal gdp high historical standard time major financial institution view resilient high level capital bank nonetheless note bank announce intend allow capital ratio decline close regulatory requirement medium term vulnerability stem funding risk characterize moderate money market strain september raise question vulnerability funding market assess core financial system remain resilient vulnerability maturity liquidity transformation staff economic outlook projection u.s. real gdp growth prepare january fomc strong previous forecast datum pertain particularly import suggest output rise fast end year previously project fast pace consistent solid employment gain addition supportive financial condition anticipated effect phase trade deal united states china push gdp forecast year tell real gdp growth project slow modestly come year partly fading boost fiscal policy output forecast expand rate little estimate potential rate growth slow pace slightly potential output growth unemployment rate project decline little year low level unemployment rate anticipate estimate long run natural rate forecast period forecast total core pce price inflation 2020â22 period essentially unrevised core inflation project step little run bit percent year year total pce price inflation project little low core inflation project decline consumer energy price core inflation continue uncertainty projection real gdp growth unemployment rate inflation similar average past year view downside risk economic activity have diminish bit previous forecast judge risk forecast real gdp growth tilt downside corresponding skew upside unemployment rate important factor influence assessment foreign economic geopolitical development direction significant negative effect u.s. economy resolve favorably assume addition softness business investment manufacturing production year weakness import see point possibility substantial slowing economic growth project risk inflation projection view have downward skew downside risk forecast economic activity participant view current conditions economic outlook participants agree labor market remain strong intermeete period economic activity rise moderate rate job gain solid average month unemployment rate remain low al­though household spending rise moderate pace business fix investment export remain weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change participant judge stance monetary policy appropriate support sustained expansion economic activity strong labor market condition inflation return committee symmetric percent objective expect economic growth moderate pace support accommodative monetary financial condition addition trade uncertainty diminish recently sign stabilization global growth nonetheless uncertainty outlook remain include pose outbreak coronavirus household sector participant note spending growth moderate expect period ahead consumption spending firm footing support strong labor market condition rise income healthy household balance sheet participant note upbeat tone consumer survey comment district contact report solid retail sale holiday shopping season addition participant encourage significant pickup summer residential investment development reflect effect low mortgage rate respect business sector participant observe business investment export remain weak manufacture output decline past year look ahead participant cautiously optimistic effect business sector favorable trade development sign stabilization global growth participant express development boost business confidence raise export demand help strengthen stabilize business investment participant remark contact district note business sentiment bright company intend expand capital expenditure year participant judge effect trade agreement china relatively limited trade uncertainty elevated possibility remain emergence tension reescalation exist tension note agreement leave large portion tariff place firm make production supply chain adjustment response trade tension participant comment ongoing challenge face energy agriculture sector couple participant remark activity energy sector continue weak note financial condition agricultural sector challenge despite farm subsidy government optimism surround trade prospect participant judge condition labor market remain strong unemployment rate 50âyear low continue solid job gain average al­though upcoming annual benchmark revision expect reduce estimate payroll growth participant expect payroll employment expand healthy pace year business contact district indicate continue strong labor demand participant mention contact report difficulty find qualified worker observe wage growth currently understate degree tightness labor market number participant indicate aggregate measure nominal wage continue rise moderate pace line productivity growth rate inflation participant comment potential reason absence strong broad base wage pressure include technological change substitute labor increase willingness employee forgo wage gain great job stability adjustment nonwage portion compensation package possibility labor market tight historically low unemployment rate participant point strong performance labor force participation despite downward pressure associate age population raise possibility room labor force participation rise inflation development participant note reading core pce price inflation measure month basis continue run percent overall participant describe inflation outlook have change little december participant expect inflation close percent come month unusually low reading early drop month calculation participant expect economic expansion continue resource utilization remain high inflation return percent objective sustainable basis participant express confidence outlook inflation comment inflation average percent past year resource utilization increase point downward pressure global technology relate factor suppress inflation couple participant note alternative inflation indicator include trim mean measure suggest modest step underlie inflation underlie inflation level consistent committee goal participant see distribution risk outlook economic activity somewhat favorable previous al­though number downside risk remain prominent easing trade tension result agreement china passage usmca tentative sign stabilization global economic growth help reduce downside risk appear buoy business sentiment risk hard brexit appear recede addition statistical model design estimate probability recession financial market datum suggest likelihood recession occur year fall notably month participant expect trade relate uncertainty somewhat elevated mindful possibility tentative sign stabilization global growth fade geopolitical risk especially connection middle east remain threat coronavirus addition human toll emerge risk global growth outlook participant agree warrant close watching financial stability participant acknowledge suggest financial vulnerability remain moderate financial system remain resilient nonetheless participant observe equity corporate debt cre valuation elevate draw attention high level corporate indebtedness weak underwriting standard leveraged loan market participant express concern financial imbalancesâinclude overvaluation excessive indebtednessâcould amplify adverse shock economy condition low interest rate labor market tightness increase risk financial stability cyber attack affect u.s. financial system participant note plan increase dividend payout large bank associate decline capital buffer leave bank capacity weather adverse shocksâwhich negative implication economyâor low capital ratio associate great tail risk gdp growth hand capital level u.s. bank high relative sector financial system raise question potential migration lending activity away u.s. banking sector area outside oversight banking supervisor consideration monetary policy participant judge appropriate maintain target range fund rate percent support sustained expansion economic activity strong labor market condition inflation return committee symmetric percent objective regard monetary policy participant view stance policy appropriate time provide incoming information economy remain consistent economic outlook course development emerge lead material reassessment outlook adjustment stance monetary policy appropriate order foster achievement committee dual mandate objective comment monetary policy outlook participant concur maintain stance policy committee time full assessment ongoing effect economic activity year shift accommodative policy stance allow policymaker accumulate information bear economic outlook participant discuss maintain policy stance time helpful support u.s. economic activity employment face global development weigh spending decision regard committee price stability objective participant observe degree monetary policy accommodation useful facilitate return inflation percent participant note inflation return percent help ensure long term inflation expectation remain consistent committee long run inflation objective participant stress committee explicit need achieve inflation goal sustained basis participant suggest inflation modestly exceed percent period consistent achievement committee long run inflation objective mild overshooting underscore symmetry objective regard committee maximum employment objective participant observe actual level employment maximum employment maintain monetary policy stance allow economy achieve maximum level couple participant express concern tight labor market past associate economic financial imbalance emergence imbalance jeopardize long run attainment committee dual mandate goal participant discuss open market operation federal reserve undertake september implement monetary policy forthcoming operational measure participant agree operation undertake desk mid september effective help stabilize condition money market implementation plan committee announce october purchase treasury bill conduct repo operation proceed smoothly participant observe enactment plan succeed replenish balance level prevail early september ensure continued control fund rate participant stress reserve approach durably ample level need sizable treasury bill purchase repo operation diminish operation gradually scale phase point regular open market operation require time order accommodate trend growth federal reserve liability maintain ample level reserve participant comment desk proposal transition ample reserve regime indicate comfortable proposal remark detail committee plan adjust appropriate support effective implementation monetary policy participant note important communicate public open market operation period ahead technical operation aim achieve maintain ample reserve adjustment operation intend represent change stance monetary policy participant suggest committee resume long role repo operation play ample reserve regime include possible creation stand repo facility couple participant cite potential facility reduce banking system demand reserve long term committee policy action monetary policy member note information receive fomc meet december indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise moderate pace business fix investment export remain weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation remain low survey base measure long term inflation expectation little change member agree maintain target range fund rate percent member judge stance monetary policy appropriate support sustained expansion economic activity strong labor market condition inflation return committee symmetric percent objective member agree determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective concur assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development regard postmeete statement member agree incoming datum warrant change statement description rise household spending strong moderate agree describe monetary policy stance consistent inflation return near symmetric percent long run objective comment change wording member note language postmeete statement consistent committee outlook usefully affirm symmetry committee inflation goal policymaker satisfied inflation outcome persistently percent conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective january federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent light expect increase federal reserve non liability committee direct desk purchase treasury bill maintain time ample balance level prevail early september committee direct desk conduct term overnight repurchase agreement operation april ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 2:00 p.m. information receive federal open market committee meet december indicate labor market remain strong economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise moderate pace business fix investment export weak 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation low survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability committee decide maintain target range fund rate percent committee judge stance monetary policy appropriate support sustained expansion economic activity strong labor market condition inflation return committee symmetric percent objective committee monitor implication incoming information economic outlook include global development mute inflation pressure assess appropriate path target range fund rate determine timing size future adjustment target range fund rate committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously raise interest rate required excess balance percent set interest rate pay required excess balance basis point target range fund rate intend foster trading fund market rate fomc target range board governors vote unanimously approve establishment primary credit rate exist level percent effective january agree committee hold tuesday wednesday march adjourn 9:50 a.m. january notation vote notation vote complete january committee unanimously approve minute committee hold december james clouse secretary federal open market committee reference fomc committee minute return text attend tuesday return text attend monetary policy framework return text attend development financial market open market operation return text attend development financial market open market operation return text attend economic development outlook return text committee organizational document available https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text general specify article imf undertake collaborate imf member assure orderly exchange arrangement promote stable system exchange rate obligation include seek direct economic financial policy objective foster orderly economic growth reasonable price stability obligation include avoid manipulate exchange rate international monetary system way impede effective balance payment adjustment unfair competitive advantage member return text

minute federal open market committee march joint federal open market committee board governors hold videoconference sunday march 10:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel thomas laubach economist stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey joseph gruber beverly hirtle david lebow trevor reeve ellis tallman associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors rochelle edge deputy director division monetary affairs board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors antulio bomfim brian doyle wendy dunn ellen meade special advisers board office board members board governors linda robertson assistant board office board members board governors edward nelson senior adviser division monetary affairs board governors andrew figura john roberts deputy associate directors division research statistics board governors rebecca zarutskie assistant director division monetary affairs board governors brett berger adviser division international finance board governors randall williams senior information manager division monetary affairs board governors jose acosta senior communications analyst division information technology board governors ellen bromagen ron feldman vice presidents federal reserve banks chicago minneapolis respectively kartik athreya anna paulson daleep singh christopher waller executive vice presidents federal reserve banks richmond chicago new york st. louis respectively paula tkac robert valletta nathaniel wuerffel senior vice presidents federal reserve banks atlanta san francisco new york respectively george kahn matthew raskin patricia zobel vice presidents federal reserve banks kansas city new york new york respectively karel mertens senior economic policy advisor federal reserve bank dallas developments financial markets open market operations system open market account soma manager review development domestic global financial market financial market remain exceptionally volatile amid global spread coronavirus uncertainty effect fomc late january s&p index decline percent nominal u.s. treasury yield move basis point low market base measure inflation compensation fall basis point investment grade high yield credit spread widen basis point basis point respectively u.s. dollar appreciate notably currency exception safe haven currency crude oil price drop percent backdrop expectation path fund rate adjust sharply imply rate fund future contract suggest committee expect reduce target range percentage point upcoming schedule follow basis point reduction target range early march addition market participant reportedly anticipate committee announce additional purchase treasury security agency mortgage back security mbs trading condition range market severely strained corporate bond market trading activity liquidity low level low point reach market participant expect action take slow spread virus significant effect credit worthiness certain borrower particularly low end credit spectrum market participant increasingly point concern segment debt market securitized market include asset back security abs commercial mortgage back security cmbs primary market issuance slow secondary market trading orderly money manager sell short date liquid product meet investor redemption treasury market follow consecutive day deteriorate condition market participant report acute decline market liquidity number primary dealer find especially difficult market run treasury security report segment market cease function effectively disruption intermediation attribute sale run treasury security flight quality flow liquid run treasury security condition short term funding market deteriorate sharply amid decline market liquidity challenge dealer intermediation day premium pay obtain dollar foreign exchange swap market increase sharply volume term repurchase agreement repo market drop significantly issuance commercial paper mature week reportedly dry end week primary- secondary market liquidity financial nonfinancial describe nearly nonexistent time investor concern issuer credit risk rise manager summarize action take desk address strain financial market repo lending operation greatly expand address acute worsen term funding market operation include addition large scale one- month term repo operation despite sizable offering additional term repo offer amount little improvement treasury market functioning result chair consultation fomc instruct desk conduct purchase treasury security range maturity desk revise schedule treasury purchase announce monthly schedule purchase complete friday march purchase conduct curve market participant suggest operation helpful address funding pressure trading condition treasury mortgage credit market remain severely strained soma manager note fomc direct desk conduct additional purchase mbs treasury security desk initially conduct purchase rapid pace quickly address liquidity strain unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period staff review economic situation coronavirus outbreak disrupt economic activity country include united states time march limited available u.s. economic datum cover period intensification concern domestic effect outbreak information predate period indicate labor market condition remain strong february real gross domestic product gdp appear increase moderate pace month year consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce remain percent january survey base measure long run inflation expectation little change total nonfarm payroll employment expand strongly january february unemployment rate 50âyear low percent february labor force participation rate employment population ratio edge net initial claim unemployment insurance benefitsâa timely indicator deterioration labor market conditionsâremaine near historically low level early march economic shutdown start place united states nominal wage growth moderate balance average hourly earning employee increase percent month end february employment cost index private sector worker increase percent month end december total labor compensation hour business sectorâa highly volatile measure wage gainsârose percent quarter year total consumer price measure pce price index increase percent month end january core pce price inflation exclude change consumer food energy price percent month period trim mean measure month pce price inflation construct federal reserve bank dallas percent january consumer price index cpi rise percent month end february core cpi increase percent period recent reading survey base measure long run inflation expectation little change balance month survey professional forecasters measure year unchanged long run measure blue chip survey march university michigan surveys consumers measure year edge february remain low prevail range early march year ahead measure federal reserve bank new york survey consumer expectations edge february remain range real pce growth moderate january component nominal retail sale datum estimate pce edge february pace sale light motor vehicle january february average consumer sentiment measure michigan survey start decline notably early march daily weekly sentiment measuresâsuch bloomberg consumer comfort index morning consult confidence index rasmussen consumer indexâwere deteriorate start building permit issuance single family home increase january average start multifamily unit move new exist home sale january average level nominal shipment order nondefense capital good exclude aircraft increase solidly january anticipated resumption delivery boeing max delay later year nominal business expenditure nonresidential structure outside drilling mining sector increase january total number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâwa edge mid march show expect falloff sharp decline crude oil price available datum suggest manufacturing production move february edge january leave level factory output little change net past month output mining sectorâwhich include crude oil extractionâhad increase january available datum indicate output sector decrease february sharp decline crude oil price point reduction mining sector production near term total real government purchase appear increase moderately federal defense spending rise january february employment boost hire census state local government payroll expand strongly january february nominal construction spending government increase solidly january nominal u.s. international trade deficit narrow january steep fall import offset decline export fall import follow sizable decline lead low import industrial supply automotive product capital good decline export drive low export capital good industrial supply available indicator suggest export import decline february reflect disruption relate coronavirus outbreak pace economic growth abroad subdue outbreak advanced foreign economy afes real gdp growth slow sharply end indicator point modest pickup economic growth early year emerge market economy emes incoming datum positive indicator high tech manufacturing production asian economy outside china upbeat effect social protest chile hong kong effect general motors strike mexican economic activity fade early february coronavirus outbreak china bring economic activity part country standstill hubei province epicenter outbreak manufacture hub quarantine factory country shut foreign economic indicator period follow spread virus rest world available widespread shutdown low commodity price tight financial condition suggest activity weaken sharply foreign economy staff review financial situation concerns coronavirus outbreak dominate financial market development home abroad intermeete period equity price sovereign yield market imply expect trajectory fund rate plummet volatility asset price soar late intermeete period short term funding market show sign stress elevated demand repo funding increase short term spread trading condition treasury security mbs impaired primary issuance investment grade corporate bond sporadic speculative grade corporate bond leveraged loan virtually stop late february datum escalation coronavirus concern late february suggest financial condition nonfinancial business household remain supportive economic activity spending development late intermeete period point tighten credit condition expectation path fund rate decline sharply intermeete period end period straight read overnight index swap ois quote suggest fund rate basis point middle basis point decrease target range march price fund future option suggest investor assign significant probability target range decrease basis point schedule march yield nominal treasury security plummet maturity spectrum 10- year yield reach time low point term structure model attribute decline year yield lower expect future short term rate measure inflation compensation base treasury inflation protect securities fall sharply reach historical low to-10 year horizon late intermeete period uncertainty future interest rate increase sharply intermeete period point month ahead swaption imply volatility year swap rate surpass high level see taper tantrum episode mid-2013 treasury market functioning severely impair late intermeete period dealer reportedly unwilling market client normal linkage cash future market break market depth extremely thin bid ask spread widen sharply broad stock price index plummet flight safety amid escalate concern global economic activity decline broad base airline energy sector bad performer stock price index extremely volatile month option imply volatility s&p index soar reach level see fall corporate bond spread comparable maturity treasury yield widen significantly spread speculative grade energy bond widen especially sharply amid plunge oil price basis point decrease target range fund rate announce march pass fully overnight unsecured secured rate condition domestic short term funding market show sign funding strain late intermeete period rate unsecured negotiable certificate deposit maturity exceed month increase sharply relative ois rate pronounce effect issuer energy transportation sector overnight term repo rate elevate late intermeete period federal reserve repo operation increase substantially overnight term operation intermeete period foreign risk asset price plummet amid rapid deterioration investor sentiment global spread coronavirus major foreign equity index drop sharply intermeete period option imply volatility measure climb high level global financial crisis eme fund outflow accelerate late period emerge market bond spread widen notably afe long term sovereign yield end period notably low inflation compensation euro area reach low response economic effect virus bank cut policy rate inject liquidity broad dollar index strengthen notably period boost safe haven demand predominantly eme currency despite significant decline u.s. yield safe haven demand bolster japanese yen swiss franc policy action chinese authority support chinese renminbi depreciate percent dollar net eme currency brazilian real mexican peso depreciate sharply market participant view particularly vulnerable global economic slowdown decline commodity price oil price decline percent expectation low demand virus outbreak unexpected price cut saudi arabia amid breakdown negotiation opec russia reduce production level financing condition nonfinancial firm strain late intermeete period robust issuance early corporate bond issuance come near standstill late february midst elevated volatility follow escalation concern coronavirus outbreak later intermeete period investment grade bond issuance resume intermittently speculative grade issuance leveraged loan issuance virtually stop addition firm reportedly postpone plan public commercial industrial loan growth modest credit quality indicator nonfinancial corporation solid early deteriorate follow escalation coronavirus outbreak particularly speculative grade energy segment market measure year ahead expect default rate increase march level slightly observe oil price plunge early reflect high expect default rate speculative grade firm energy firm addition outlook corporate earning deteriorate somewhat equity analyst revise earning share estimate notch firm warn coronavirus outbreak hurt earning difficult predict supply credit small business year remain relatively accommodative loan origination tick january consistent ongoing report weak loan demand market turmoil spill municipal bond market late intermeete period spread widen substantially borrower hesitant come market credit condition municipal market accommodative early intermeete period issuance volume late february reportedly boost strong investor demand low risk asset financing condition commercial real estate cre sector worsen late intermeete period issuance cmbs slow spread widen notably level see datum escalation concern coronavirus outbreak point accommodative financing condition cre loan growth bank remain solid february cre debt outstanding increase modestly mid february accord available datum primary mortgage rate increase sharply end period mbs market liquidity deteriorate fall substantially february early march capacity constraint mortgage originator reportedly intensify borrower interest refinance increase significantly elevated level additional constraint emerge difficult conduct operation usually happen face face financing condition consumer credit market worsen late intermeete period strain begin appear consumer abs market fix income market march consumer abs spread widen sharply liquidity deteriorate issuance sporadic lender consumer credit market begin develop program assist borrower finance affect outbreak early intermeete period financing condition supportive growth credit card balance auto loan balance appear grow solidly february accord bank datum continue growth condition subprime credit card borrower remain relatively tight show sign ease staff economic outlook projection u.s. economy prepare march fomc downgrade significantly january forecast response news spread coronavirus home abroad response related substantial markdown foreign economic outlook financial market movement real gdp forecast decline unemployment rate rise net half year give downside risk elevated uncertainty economy weaken long recover provide plausible economic scenario span range possibility importantly future performance economy depend evolution virus outbreak measure undertake contain scenario economic activity start rebound half year adverse scenario economy enter recession year recovery slow hold materially way year scenario inflation project weaken reflect deterioration resource utilization sizable expect decline consumer energy price participant view current conditions economic outlook participants note coronavirus outbreak harm community disrupt economic activity country include united states global financial condition significantly affect participant express deep concern health harm observe matter public health emergency comment measuresâsuch social distancingâtaken response pandemic need contain outbreak toll u.s. economic activity near term participant note available economic datum show u.s. economy come challenging period strong footing information receive committee meet january indicate labor market remain strong february economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise moderate pace business fix investment export remain weak furthermore week energy sector come stress sharp drop oil price month basis inflation inflation item food energy run percent survey base measure long term inflation expectation little change market base measure inflation compensation decline participant view near term u.s. economic outlook have deteriorate sharply week have profoundly uncertain participant repeatedly downgrade outlook late response rapidly evolve situation see u.s. economic activity decline come view downside risk economic outlook have increase significantly participant note timing resumption growth u.s. economy depend containment measure place success measure response policy include fiscal policy regard household behavior participant note consumption spending key driver growth economic activity month year pandemic start impair consumer confidence exert adverse effect household balance sheet participant report wide range social distancing measure operation prospect district measuresâwhich include temporary closure physical location store restaurant consumer purchase good servicesâwould effect reduce person transaction household online shopping substitute activity unlikely replace fully housing market disrupt social distancing financial uncertaintyâincluding difficulty household business face mortgage rental paymentsâand volatility market mbs participant stress major downside risk spread virus intensify area country currently affected sideline u.s. worker damp purchase consumer participant express concern household low income saving buffer meet expense interruption economic activity situation household vulnerable downturn economy tend magnify reduction aggregate demand associate nation response pandemic participant relay report business sector badly hit response coronavirus outbreak sector include affect cancellation event decision firm household reduce travel government mandate reduction entry abroad cutback economic activity require person interaction firm directly affect include connect air travel cruise line hotel tourism service sport recreation entertainment hospitality restaurant past week pullback purchase retail store emergency buying reportedly intensify significantly addition energy sector come stress large decline oil price u.s. business move telework arrangement business readily shift telework status limited telework technology participant observe coronavirus outbreak inevitably hurt business confidence expect length severity restriction economic activity involve person interaction importantly affect size response investment spending situation participant express concern financial strain u.s. firm loss business extraordinary turbulence financial market regard supply chain contact report linkage china restore able draw inventory supply alternative supply chain area country construction industry report continue disruption supply chain china participant indicate disruption european economy restriction travel europe united states adversely affect u.s. economy supply chain eventuate large increase u.s. worker unavailability health reason participant emphasize concern capacity health care system situation welcome measure take prevent system capacity exceed participant note foreign economic growth half year badly hit severe disruption economic activity abroad associate response coronavirus outbreak include measure take major european country encouraging sign come china week form indication increase production purchase u.s. good regard labor market participant note firm need cut employment immediately firm look way retain employee period reduce economic activity order maintain capacity able ramp production public health crisis abate demand rebound measure reportedly help partially substitute layoff include encouragement employer voluntary leaf absence non replacement depart worker increase reliance delivery good customer place site purchase participant observe business lay worker major scale downturn economic activity come perceive protract participant comment worker severely affect situation ill low income connect hard hit sector irregular contingent employment note worker job permit work home regard inflation participant note run committee percent long run objective coronavirus outbreak remark strong dollar weak demand low oil price factor downward pressure inflation period ahead observe mean return inflation committee percent long run objective delay participant indicate implement accommodative stance monetary policy useful help offset factor time achieve percent inflation objective long run help prevent circumstance persistent resource slack lasting decline inflation expectation participant agree effect pandemic weigh economic activity near term duration period weakness uncertain concur unpredictable effect coronavirus outbreak source major downside risk economic outlook participant raise alternative scenario regard behavior economic activity half year scenario differ assumed length severity disruption economic activity participant emphasize temporary nature shock economic activity fact shock arise nonfinancial sector healthy state u.s. banking system imply situation directly comparable previous decade financial crisis need follow negative effect economic activity long lasting associate crisis participant stress measure take area health care policy fiscal policy action private sector important shape timing speed u.s. economy return normal condition participant agree federal reserve effort relieve stress financial market help limit downside near term outcome support credit flow household business accommodative monetary policy stance provide support economic activity near term downside risk year u.s. economic outlook participant prominently cite possibility virus outbreak widespread expect event lead wide range temporary shutdown adverse implication production good service aggregate demand regard financial development intermeete period participant note financial market exhibit extraordinary turbulence stress participant comment condition high volatility illiquidity characterize market u.s. treasury security especially run long term security agency mbs participant express concern disruption functioning market especially status cornerstone operation u.s. global financial system transmission monetary policy participant observe federal reserve operation day provide relief regard liquidity problem note severe illiquidity continue prevail key security market participant point dislocation funding market impede financial intermediation household business highlight acute problem firm face issue corporate bond participant note business tap backup credit line commercial bank participant discuss implication financial market turbulence money market fund government bond fund debt issuance state local government consideration monetary policy participant judge appropriate lower target range fund rate basis point percent discuss reason decision participant point decline economic activity near term relate effect coronavirus outbreak extremely large degree uncertainty long severe decline activity light sharply increase downside risk economic outlook pose global coronavirus outbreak participant note risk management consideration point forceful monetary policy response majority favor basis point cut bring target range effective lower bind elb regard monetary policy participant judge appropriate maintain target range fund rate percent policymaker confident economy weather event track achieve committee maximum employment price stability goal participant prefer basis point cut note decision provide support economic activity face anticipated effect coronavirus participant prefer wait great assurance transmission mechanism monetary policy financial market supply credit household business work effectively allow fiscal public health policy response coronavirus outbreak hold preserve ability committee lower target range close elb event deterioration economic outlook addition participant note lowering target range basis point come soon reduction basis point week early run risk send overly negative signal economic outlook participant consider open market operation purchase treasury security agency mbs support smooth functioning security market turn help support supply credit household business participant agree come month appropriate increase federal reserve holding treasury security holding agency mbs additionally principal payment federal reserve holding agency debt agency mbs reinveste agency mbs treasury agency mbs purchase addition recently expand overnight term repo operation conduct desk participant stress important communicate committee prepare increase size security purchase need basis close monitoring market condition participant note important stress communication primary purpose asset purchase support smooth functioning treasury agency mbs market provide monetary policy accommodation push long term yield couple participant note purchase long maturity purchase provide accommodation lower long term yield participant discuss possible communication challenge associate committee policy decision participant note important communicate clearly consistently rationale policy decision take participant remark committee policy action target range balance sheet interpret convey negative news economic outlook participant remark lower target range elb increase likelihood market interest rate turn negative foster investor expectation negative policy rate expectation run counter participant previously express view prefer use monetary policy tool provide accommodation elb additionally participant remark public ability committee provide monetary policy accommodation limit participant note committee able provide monetary policy accommodation lower target range fund rate elb particular forward guidance balance sheet measure introduce participant indicate strong support relate action take board governors support credit need household business lower primary credit rate basis point percent allow depository institution borrow discount window period long day order encourage active use discount window depository institution meet unexpected funding need encourage depository institution utilize intraday credit support provision liquidity household business smooth functioning payment system encourage bank use capital liquidity buffer provide loan household business affect coronavirus undertake supportive action safe sound manner reduce requirement percent light shift ample reserve regime support lending household business depository institution participants indicate support enhance coordination bank canada bank england bank japan european central bank swiss national bank provision liquidity stand u.s. dollar liquidity swap line arrangement pricing stand u.s. dollar swap arrangement lower basis point rate u.s. dollar ois rate plus basis point u.s. dollar offer foreign bank day maturity addition week maturity operation follow chair indicate change stand u.s. dollar liquidity swap line arrangement implement consistent procedure describe authorization foreign currency operations participant comment additional measure helpful support flow credit household business participant comment stigma associate discount window action relaunch term auction facility need encourage bank additional funding participant note discount window stigma concern previously particular participant cite lowering primary credit rate target range fund rate offer term funding day regulator encourage bank use discount window prudently lend household business participant comment bank discourage repurchase share pay dividend equity holder wake propose measure participant note measure support flow credit household business include rely section 13(3 federal reserve act need uncertain rapidly evolve environment prudent federal reserve develop prepared implement measure committee policy action monetary policy member note coronavirus outbreak harm community disrupt economic activity country include united states global financial condition significantly affect available economic datum show u.s. economy come challenging period strong footing strong labor market low unemployment rate moderate growth household spending business fix investment export remain weak recently energy sector come stress month basis inflation inflation item food energy run percent market base measure inflation compensation decline survey base measure long term inflation expectation little change member judge effect coronavirus weigh economic activity near term pose risk economic outlook light development member agree lower target range fund rate percent member expect target range maintain level confident economy weather event track achieve committee maximum employment price stability goal prefer lower target range basis point percent support action take promote smooth market functioning flow credit household business light anticipated effect coronavirus economic activity economic outlook participant basis point cut preserve space cut target range implement market condition improve ensure monetary policy transmission mechanism function member note monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure committee use tool act appropriate support economy member observe determine timing size future adjustment stance monetary policy committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective agree assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development member emphasize federal reserve prepared use range tool support flow credit household business promote maximum employment price stability goal support smooth functioning market treasury security agency mbs flow credit household business coming month committee agree increase holding treasury security holding agency mbs committee agree reinvest principal payment federal reserve holding agency debt mbs agency mbs addition member note desk recently expand overnight term repo operation member indicate closely monitor market condition committee prepared adjust plan appropriate conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent committee direct desk increase coming month system open market account holding treasury security agency mortgage back security mbs respectively committee instruct desk conduct purchase pace appropriate support smooth functioning market treasury security agency mbs committee direct desk conduct term overnight repurchase agreement operation ensure supply reserve remain ample support smooth functioning short term u.s. dollar funding market addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mortgage back security receive calendar month agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 5:00 p.m. coronavirus outbreak harm community disrupt economic activity country include united states global financial condition significantly affect available economic datum u.s. economy come challenging period strong footing information receive federal open market committee meet january indicate labor market remain strong february economic activity rise moderate rate job gain solid average month unemployment rate remain low household spending rise moderate pace business fix investment export remain weak recently energy sector come stress 12âmonth basis inflation inflation item food energy run percent market base measure inflation compensation decline survey base measure long term inflation expectation little change consistent statutory mandate committee seek foster maximum employment price stability effect coronavirus weigh economic activity near term pose risk economic outlook light development committee decide lower target range fund rate percent committee expect maintain target range confident economy weather event track achieve maximum employment price stability goal action help support economic activity strong labor market condition inflation return committee symmetric percent objective committee monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use tool act appropriate support economy determine timing size future adjustment stance monetary policy committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development federal reserve prepared use range tool support flow credit household business promote maximum employment price stability goal support smooth functioning market treasury security agency mortgage back security flow credit household business coming month committee increase holding treasury security holding agency mortgage back security committee reinvest principal payment federal reserve holding agency debt agency mortgage back security agency mortgage back security addition open market desk recently expand overnight term repurchase agreement operation committee closely monitor market condition prepared adjust plan appropriate vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari randal quarles vote action loretta mester president mester fully supportive action take promote smooth functioning market flow credit household business vote fomc action prefer reduce target range fund rate percent consistent committee decision lower target range fund rate percent board governors vote unanimously lower interest rate pay required excess balance percent vote unanimously approve percentage point decrease primary credit rate percent effective march board approve change allow reserve banks extend primary credit loan long day prepay renew request addition board approve reduction requirement ratio applicable net transaction deposit exemption threshold percent effective maintenance period begin march agree committee hold tuesdayâwednesday april 28â29 adjourn 2:40 p.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january 28â29 videoconference march joint federal open market committee board governors hold videoconference march 7:30 p.m. development relate outbreak coronavirus step take provide support economy background committee review development financial market provide assessment evolve risk economic outlook soma manager note mid february concern spread coronavirus china begin intensify global risk asset price sovereign yield decline sharply u.s. global equity index low time committee january imply equity market volatility rise level see deterioration risk sentiment reflect significant widening u.s. european corporate credit spread peripheral european spread amid ongoing market volatility issuance investment grade high yield corporate bond leveraged loan dry money market resilient broad financial market volatility pricing trading condition offshore u.s. dollar funding market stable market functioning remain orderly despite deterioration liquidity condition treasury equity credit market financial market participant view course u.s. monetary policy change committee january expect path fund rate embed future price shift significantly period market commentary interpret chair powell february statement indicate fomc prepared lower target range fund rate march support achievement committee maximum employment price stability goal expectation global monetary fiscal easing increase market commentary note possibility coordinated effort bank fiscal authority soma manager note situation remain highly fluid key risk include associate funding corporate borrower operational vulnerability associate transition alternative work arrangement potential impaired market function provide update condition change economic outlook fomc january available indicator china suggest spread coronavirus associate collapse economic activity spillover global economy drop chinese demand disruption supply chain tentative sign coronavirus china contain production begin resume outbreak virus foreign economy weigh consumer business sentiment depress consumption country tell foreign economic activity expect significantly weak half anticipate time january fomc note spread virus early stage united states effect visible monthly economic indicator soften daily sentiment index travel relate transaction outlook real economic activity remainder year highly uncertain depend spread virus measure take contain scenario involve great spread coronavirus severe social distancing action associate great shutdown production disruption supply chain large negative effect consumer business sentiment significant increase unemployment worsen financial condition reduction demand couple strong u.s. dollar weak commodity price expect downward pressure inflation magnitude soften core inflation depend severity situation fomc participant discuss significant outbreak coronavirus emerge recently country outside china likelihood virus spread widely world include united states economic outlook time committee january favorable potential spread virus measure need protect community represent material downside risk u.s. economy forceful monetary policy action provide clear signal public policymaker recognize potential economic significance situation willing decisively support achievement committee dual mandate goal counter tightening financial condition reduction policy rate slow spread infection remedy break supply chain help shore confidence household business financial market ease financial strain consumer firm provide meaningful support economy face large shock demand accordingly participant support reduction basis point target range fund rate march committee complete vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent light expect increase federal reserve non liability committee direct desk purchase treasury bill maintain time ample balance level prevail early september committee direct desk conduct term overnight repurchase agreement operation april ensure supply reserve remain ample period sharp increase non liability mitigate risk money market pressure adversely affect policy implementation addition committee direct desk conduct overnight reverse repurchase operation reverse repurchase operation maturity day necessary accommodate weekend holiday similar trading convention offering rate percent amount limit value treasury security hold outright system open market account available operation counterparty limit day committee direct desk roll auction principal payment federal reserve holding treasury security reinveste principal payment federal reserve holding agency debt agency mortgage back security receive calendar month principal payment agency debt agency mortgage back security month reinveste treasury security roughly match maturity composition treasury security outstanding principal payment excess month reinveste agency mortgage back security small deviation amount operational reason acceptable committee direct desk engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mortgage back security transaction vote encompass approval statement release 10:00 a.m. march fundamental u.s. economy strong coronavirus pose evolve risk economic activity light risk support achieve maximum employment price stability goal federal open market committee decide today lower target range fund rate percentage point percent committee closely monitor development implication economic outlook use tool act appropriate support economy vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles consistent committee decision lower target range fund rate percent board governors complete march unanimous vote lower interest rate pay required excess balance percent approve percentage point decrease primary credit rate percent effective march james clouse secretary federal open market committee reference fomc committee minute return text

minute federal open market committee april 28â29 joint federal open market committee board governors hold conference tuesday april 1:00 p.m. continue wednesday april 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel thomas laubach economist stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey joseph gruber david lebow trevor reeve ellis tallman william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors rochelle edge deputy director division monetary affairs board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors antulio bomfim wendy dunn ellen meade chiara scotti ivan vidangos special advisers board office board members board governors linda robertson assistant board office board members board governors brian doyle senior associate director division international finance board governors john stevens senior associate director division research statistics board governors edward nelson senior adviser division monetary affairs board governors marnie gillis deboer min wei associate directors division monetary affairs board governors glenn follette associate director division research statistics board governors eric engstrom deputy associate director division monetary affairs board governors patrick mccabe john roberts deputy associate directors division research statistics board governors andrea raffo deputy associate director division international finance board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors brian bonis rebecca zarutskie assistant directors division monetary affairs board governors ricardo correa assistant director division international finance board governors penelope beattie section chief office secretary board governors david small project manager division monetary affairs board governors michele cavallo edward herbst ander perez orive principal economists division monetary affairs board governors randall williams senior information manager division monetary affairs board governors ron feldman vice president federal reserve bank minneapolis david altig kartik athreya sylvain leduc daleep singh christopher waller executive vice presidents federal reserve banks atlanta richmond san francisco new york st. louis respectively spencer krane senior vice president federal reserve bank chicago scott frame anna kovner giovanni olivei patricia zobel vice presidents federal reserve banks dallas new york boston new york respectively lee smith research policy advisor federal reserve bank kansas city developments financial markets open market operations system open market account soma manager discuss development financial market financial condition show notable improvement week equity price index substantially low late march safe haven demand dollar recede measure realize imply volatility market diminish market participant point swift forceful action take federal reserve couple strong fiscal measure indication slowing spread coronavirus covid-19 major economy factor contribute development say market participant remain uncertain economic outlook contact highlight array remain risk include corporate credit market emerge market mortgage market corporate credit market concern potential default rise rating agency negative watch downgrade issuer emerge market steep decline commodity price exacerbate financial pressure emerge market economy emes face strain arise capital outflow reduction trade activity mortgage market increase mortgage delinquency associate forbearance police eventual rise default source concern nonbank lender open market desk survey suggest market participant anticipate sharp near term decline economic activity follow recovery later year backdrop market participant expect target range fund rate effective lower bind couple year respondent desk survey attach probability fomc implement negative policy rate survey respondent indicate expect modification committee forward guidance manager review open market operation mid march direction fomc desk purchase large quantity treasury agency mortgage back security mbs order support smooth functioning critical market desk evaluate broad array indicator market functioning indicator suggest considerable improvement market functioning desk gradually scale pace purchase accordingly market participant anticipate pace purchase slow june expect outright security holding soma portfolio expand end year soma manager expect condition continue improve pace purchase reduce somewhat consistent directive desk prepared increase purchase need market function worsen condition money market improve week intense strain range short term funding market emerge march subside expansion federal reserve repurchase agreement repo operation enhancement expansion funding available discount window swap line funding provide primary dealer credit facility pdcf money market mutual fund liquidity facility mmlf commercial paper funding facility cpff important relieve pressure range short term funding market manager note despite improvement rate term funding market remain elevated forward measure suggest upward pressure rate ease come week condition short term funding market have improve substantially repo operation long need maintain ample level manager note appropriate position federal reserve repurchase operation backstop role example minimum bid rate repo operation increase somewhat relative level interest rate excess reserve ioer rate later intermeete period short term interest rate drift lower settle near level rate appear stable manager suggest circumstance arise temporarily raise counterparty limit overnight reverse repo operation support policy implementation manager note market participant anticipate federal reserve increase ioer rate order fund rate close middle target range address market function issue arise time overnight rate low level appear limited risk fund rate target range federal home loan banksâthe dominant lender fund marketâcan earn rate balance maintain account federal reserve sign date low level overnight funding rate adversely affect market functioning trading volume remain robust soma manager note monitor development committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation coronavirus outbreak measure take protect public health severely disrupt economic activity united states abroad available information april 28â29 indicate u.s. labor market condition deteriorate substantially march april real gross domestic product gdp decline sharply year addition variety economic indicator point extraordinary contraction gdp consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce remain percent february job loss surge march drop total nonfarm payroll employment reflect change occur mid month reference period establishment survey addition unemployment rate jump percent march labor force participation rate decrease notably economic shutdown start occur widespread basis initial claim unemployment insurance benefit skyrocket half march half april development point substantial job loss april nominal wage growth remain moderate average hourly earning employee increase percent month end march total pce price inflation core pce price inflation exclude consumer food energy price increase percent month end february trimmed mean measure month pce price inflation construct federal reserve bank dallas percent february consumer price index cpi rise percent month end march core cpi increase percent period total cpi rise core cpi substantial decline consumer energy price reflect significantly low crude oil price recent reading survey base measure long run inflation expectation little change balance university michigan surveys consumers measure year edge april 3âyearâahead measure federal reserve bank new york survey consumer expectations edge march measure remain range real pce decline steeply year component nominal retail sale datum estimate pce sale light motor vehicle fall substantially march reflect effect widespread economic shutdown consumer sentiment measure michigan conference board survey deteriorate substantially march april real disposable personal income flat personal saving rate move notably decline spending contrast sector economy real residential investment expand strongly al­though housing sector activity start slow dramatically late start building permit issuance single family home start multifamily unit tumble march addition sale exist home contract sharply march survey measure builder sentiment plunge april real business fix investment slump follow moderate decline previous quarter spend business equipment fall considerably lead sharp decrease purchase transportation equipment business investment nonresidential structure drop notably coronavirus outbreak effect economic activity measure contain associate elevated level uncertainty reflect downbeat reading business sentiment national regional survey appear weigh heavily business investment addition effect substantial decline crude oil price see fall number crude oil natural gas rig operation late april indicator business spending structure drilling mining sector total industrial production fall precipitously march coronavirus outbreak lead factory close late month decline manufacturing output lead pullback production motor vehicle related part output mining sectorâwhich include crude oil extractionâalso decrease significantly wake decline crude oil price total real government purchase edge lead modest increase purchase state local purchase flat reflect effect public school closure begin mid march real export decline sharply import decline fast rate net export sizable positive contribution gdp growth quarterly decline trade volume reflect sharp drop march weak demand globally disruption relate coronavirus outbreak fall export concentrate service particularly part sector hold travel restriction foreign economic activity fall sharply year amid widespread mandatory business shutdown strict social distancing measure contain spread coronavirus outbreak china lockdown implement real gdp contract sharply canada korea singapore see substantial decline monthly indicator suggest activity plummet march april economy particularly euro area united kingdom see purchasing manager index fall record low level foreign government announce large fiscal package address sudden loss income firm household foreign bank cut policy rate initiate enhance credit facility relaxed capital requirement financial institution ramp asset purchase program alleviate liquidity concern foreign capital market foreign inflation fall steeply reflect large drop energy price relate plunge oil price core inflation pressure remain muted staff review financial situation middle march financial market experience record decline price risky asset widespread illiquidity elevated volatility uncertainty effect coronavirus outbreak global economy jump follow announcement subsequent launching number federal reserve emergency liquidity program passage cares act coronavirus aid relief economic security act early sign decline outbreak intensity united states major foreign economy extreme volatility illiquidity subside price risky asset increase notably intermeete period net s&p index rise option imply volatility fall treasury yield decline corporate bond spread widen somewhat financing condition business household state local government strain intermeete period federal reserve announcement start emergency liquidity facility appear improve condition market facility establish approval secretary treasury authority section 13(3 federal reserve act design support flow credit business household state local government treasury market experience extreme volatility mid march market liquidity substantially impair investor sell large volume medium- long term treasury security follow period extraordinarily rapid purchase treasury security agency mbs federal reserve treasury market liquidity gradually improve remainder intermeete period treasury yield volatile market depth remain exceptionally low bid ask spread run security long term run security remain elevated bid ask spread short term run security fall close level see early year yield nominal treasury security decline maturity spectrum 10- year yield end period near time low straight read market quote suggest expect fund rate basis point measure inflation compensation base treasury inflation protect securities tips end period higher net low historical standard inflation compensation fall sharply half march subsequently recover financial condition tips liquidity improve market agency mbs experience substantial stress mid march agency mbs spread treasury yield widen volatile market condition agency mbs improve significantly half march support federal reserve additional purchase security stock price index exceptionally volatile early intermeete period month option imply volatility s&p index reach record high equity market volatility move substantially remainder intermeete period remain elevated equity price retrace early decline end intermeete period notably higher broad stock price index increase intermeete period lead energy consumer discretionary basic material health care sector broad equity price index remain markedly peak register early year corporate bond spread comparable maturity treasury yield widen sharply beginning intermeete period subsequently retrace increase end somewhat high net corporate bond spread end intermeete period stand significantly level january short term funding market strain intensify mid march spread yield term money market instrument comparable maturity overnight index swap rate increase sharply issuance unsecured commercial paper negotiable certificate deposit short term municipal debt decline substantially shift short maturity institutional prime money market fund mmfs experience heavy redemption reportedly face difficulty sell asset amid impair secondary market liquidity announcement start federal reserve emergency liquidity facility half march help stabilize short term funding market end intermeete period spread narrow repo rate elevate mid march normalize follow large inflow fund government mmfs expansion federal reserve repo operation announcement pdcf effective fund rate target range day follow march fomc decline half march stay basis point april early period cascade shutdown country weigh heavily risk sentiment abroad foreign financial market experience severe illiquidity substantial volatility foreign equity index post large decline extraordinary monetary fiscal policy action united states abroad help improve market sentiment major foreign equity index subsequently rebound notably say compare early year foreign equity index stay sharply low option imply equity volatility abroad remain elevated advanced economy sovereign yield volatile sovereign yield end period somewhat low end intermeete period policy rate major advanced foreign economy afes near effective low bound mid march emerging market bond index embi spread widen sharply capital outflow emes reach record level global sentiment improve somewhat capital outflow slow embi spread partially retrace early increase strong demand dollar amid flight safety globally disruption u.s. short term funding market cause severe strain funding market dollar abroad especially early intermeete period premium pay investor borrow dollar foreign exchange swap market cost directly borrow dollar widen sharply end approach fomc action include change standing liquidity swap line temporary expansion number counterpartie announcement fima foreign international monetary authorities repo facility notably improve condition foreign exchange swap market nonetheless condition market remain strained period broad dollar index increase dollar appreciate modestly afe currency notably eme currency currency vulnerable commodity exporter mexico brazil depreciate sharply end intermeete period broad dollar index remain significantly high beginning year financing condition nonfinancial business strain march particularly lower rat firm small business federal reserve announcement facility support flow credit business household state local government appear improve financing condition market condition normalize issuance speculative grade bond leveraged loan extremely low march resume slow pace april investment grade issuance relatively slow early march robust follow federal reserve announcement late march primary market corporate credit facility secondary market corporate credit facility condition market corporate bond loan improve response federal reserve announcement april expand facility include firm recently downgrade investment grade status commercial industrial c&i lending condition somewhat tight c&i loan increase strongly increase drive firm draw exist line credit reportedly shore liquidity precautionary motif meet funding need april senior loan officer opinion survey bank lending practices sloos bank report have tighten c&i lending standard term firm size credit quality earning outlook nonfinancial corporation deteriorate substantially market analyst forecast large volume downgrade nonfinancial corporate bond include substantial volume triple speculative grade credit condition small business tight concern finance state local government contribute marked deterioration credit condition municipal bond market march strain lessen amid federal reserve announcement emergency lending facility support flow credit liquidity state local governmentsâspecifically expansion mmlf cpff establishment municipal liquidity facilityâspread remain high issuance subdue end intermeete period financing condition commercial real estate cre strain non agency commercial mortgage back security cmbs issuance shut al­though secondary market spread narrow follow extension term asset backed securities loan facility talf include non agency cmbs eligible collateral agency cmbs issuance continue support federal reserve purchase security april sloos respondent report have tighten lending standard cre loan cre loan bank book increase half march bank unable securitize nonresidential loan financing condition residential mortgage market tight low rat borrower borrower rely nonconforming mortgage mortgage originator warehouse lender announce tight underwriting standard origination despite considerable widening spread primary mortgage rate mbs yield primary mortgage interest rate low historical standard available indicator suggest refinance activity remain elevated volume mortgage rate lock home purchase loan drop materially early april reflect decline homebuyer demand disruption home search purchase process financing condition consumer credit market tighten somewhat net spread consumer asset back security jump mid march primary market issuance come halt response announcement talf diminish broad financial market uncertainty spread retrace increase early period primary market issuance resume bank april sloos report tighten standard consumer loan respondent experience weak demand consumer loan type auto loan interest rate drop sharply early april manufacturer introduce attractive financing program boost sale assess stability financial system coronavirus outbreak banking sector include large bank resilient come period bank able meet surge demand draw credit line build loan loss reserve absorb high expect default part financial system notable vulnerability identify previous financial stability assessment exacerbate financial strain march institutional prime mmfs institution rely unstable funding source face significant stress situation jeopardy orderly functioning financial market federal reserve action enhance liquidity functioning key market reduce stress notably open end mutual fund invest corporate bond loansâinstitution typically face timing mismatch investor ability redeem share fund ability sell assetsâexperienced heavy outflow liquidity strain mid march redemption later ease amid general improvement financial market business debt appear high compare fundamental coronavirus outbreak poise rise business borrow maintain capacity restart operation value cre face risk large decline response coronavirus outbreak al­though update reading available provide preliminary reading potential emerge risk financial stability aftermath coronavirus outbreak reading highlight possible vulnerability mortgage servicer insurance company large highly leverage financial intermediary staff economic outlook projection u.s. economy prepare april fomc downgrade notably march forecast response information spread coronavirus measure undertake contain home abroad u.s. real gdp forecast plummet unemployment rate soar year substantial fiscal policy measure monetary policy support place expect help mitigate deterioration economic condition help boost recovery note importantly future performance economy depend evolution coronavirus outbreak measure undertake contain baseline assumption restriction social interaction business operation ease gradually year real gdp forecast rise appreciably unemployment rate decline considerably half year al­though complete recovery expect year end inflation project weaken year reflect deterioration resource utilization sizable expect decline consumer energy price baseline assumption economic condition project improve inflation pick year observe uncertainty economic effect coronavirus outbreak extremely elevated historical behavior u.s. economy response past economic shock provide limited guidance make judgment economy evolve come quarter light significant uncertainty downside risk associate evolution coronavirus outbreak economy weaken long recover judge pessimistic projection plausible baseline forecast scenario wave coronavirus outbreak round strict restriction social interaction business operation assume begin year end induce decrease real gdp jump unemployment rate renew downward pressure inflation year compare baseline disruption economic activity severe protract scenario real gdp inflation lower unemployment rate higher end medium term projection participant view current conditions economic outlook participants note coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss weak demand significantly low oil price hold consumer price inflation disruption economic activity abroad significantly affect financial condition impair flow credit u.s. household business participant judge effect coronavirus outbreak ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term participant assess economic activity decline unprecedented rate participant relay information district burden crisis fall disproportionately vulnerable financially constrain household economy participant agree recently enact fiscal program deliver valuable direct financial aid household business community provide relief economic shutdown addition economic activity support action take federal reserve include lend facility create authority section 13(3 federal reserve act include capital allocate u.s. treasury program help maintain flow credit household business state local government support smooth functioning financial market economic activity household participant note pandemic effort mitigate spread disease have severely adverse effect aggregate household spending consumer confidence participant report consumer spending plummet part country category spending especially sharp decline expenditure category affect social distancing hotel fuel air travel restaurant theater retail product service participant note government impose social distancing restriction come end consumer spending category return quickly normal level survey base measure consumer confidence plunge development participant district contact attribute household concern risk job loss difficulty financial obligation participant note household experience job loss immediately face low total income support recently enact fiscal program case participant observe household spending hold decrease confidence increase precautionary saving participant note business activity investment spending fall dramatically previous result effort contain coronavirus outbreak manufacture output decline sharply march expect participant drop rapidly april district business force close temporarily social distancing restriction business able open degree substantially affect pandemic experience substantial drop order sale supply chain disruption widespread report district contact firm reduce payroll curtail plan investment spending industry especially hard hit include airline cruise ship restaurant tourism participant report firm seek loan payment deferral grant help address critical financial obligation paycheck protection program ppp provide valuable assistance small business respect participant note disproportionate burden particular challenge face small business challenge include low cash buffer few financing option recently tight lending standard participant express concern large number small business able endure shock long last financial effect participant concerned social distancing requirement ease business model long economically viable occur example consumer voluntarily continue avoid participate particular form economic activity addition participant express concern possibility secondary outbreak virus cause business time reluctant engage project rehire worker capital expenditure participant observe condition energy sector especially difficult sharp reduction global demand petroleum lead unused supply overwhelming storage capacity result plunge oil price participant express concern low energy price persist potential create wave bankruptcy energy sector addition agricultural sector severe stress fall price farm commodity pandemic relate disruption closing food processing plant regard labor market participant note incoming datum confirm extreme decline employment way nationally initial claim unemployment insurance benefit total mid march time participant expect unemployment rate soon reach high level postâworld war period district contact report significant portion worker able switch work remotely employer try worker payroll time condition persist begin widespread furlough layoff participant concerned temporary layoff permanent worker lose employment face loss job specific skill discouraged exit labor force participant additionally concerned employee low income severely affect job cut employ industry affect response outbreak job amenable carry remotely regard inflation participant note run committee percent long run objective coronavirus outbreak pandemic create supply constraint generate upward pressure price good pandemic reduce demand exert downward pressure price effect outbreak price see disinflationary addition strong dollar low oil price factor downward pressure inflation market base measure inflation compensation remain low participant observe return inflation committee percent long run objective delay accommodative stance monetary policy helpful achieve percent inflation objective long run participant note recently enact fiscal program crucial limit severity economic downturn particular cares act legislation represent spending total provide direct help household business community example ppp provide financial lifeline small business expansion unemployment benefit help restore lose income lay worker treasury provide necessary financial backstop federal reserve lending facility participant acknowledge great fiscal support necessary economic downturn persist participant comment addition weigh heavily economic activity near term economic effect pandemic create extraordinary uncertainty considerable risk economic activity medium term participant discuss alternative scenario regard behavior economic activity medium term equally scenario differ assumed length pandemic consequent economic disruption hand number participant judge substantial likelihood additional wave outbreak near medium term scenario believe economic disruption include additional period mandatory social distancing great supply chain dislocation substantial number business closure loss income total development lead protract period severely reduce economic activity hand economic activity recover quickly pandemic subside household business sufficiently confident relax modify social distancing behavior month consideration participant note risk foreign economy particularly eme come extreme pressure result pandemic strain spill hamper u.s. economic activity participant stress measure take area health care policy fiscal policy action private sector important shape timing speed u.s. economy return normal condition addition participant agree action take federal reserve essential help reduce downside risk economic outlook participant note risk long term economic performance pose pandemic risk worker lose employment result pandemic experience loss skill lose access adequate childcare eldercare discouraged exit labor force long term behavior firm affect wellâfor instance necessary costly transmission mitigation strategy lower firm productivity business investment shift permanently firm need adjust business model aftermath pandemic business closure particularly small firm widespread participant note high level government indebtedness exacerbate fiscal expenditure necessary combat economic effect pandemic downward pressure growth aggregate potential output development financial market participant agree ongoing action federal reserve instrumental ease strain essential financial market support flow credit action include large scale purchase treasury security agency mbs measure reduce strain global u.s. dollar funding market launch program support flow credit economy household business size state local government bank enter crisis capitalize able provide necessary credit business household number participant comment potential risk financial stability participant concern bank come great stress particularly adverse scenario spread pandemic economic activity realize sector monitor carefully participant see risk bank financial institution exacerbate high level indebtedness nonfinancial corporation prevail pandemic indebtedness increase firm risk insolvency upcoming financial stress test bank see important measure ability large bank withstand future downside scenario number participant emphasize regulator encourage bank prepare possible downside scenario limit payout shareholder preserve loss absorb capital historical loss model understate loss context participant stress activity nonbank financial institution present vulnerability financial system worsen event protract economic downturn institution activity monitor closely consideration monetary policy participant note federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal light assessment ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term participant judge appropriate maintain target range fund rate percent keep target range effective lower bind quickly reduce basis point march provide support economy promote committee maximum employment price stability goal participant judge appropriate maintain target range fund rate level policymaker confident economy weather event track achieve committee maximum employment price stability goal participant assess appropriate federal reserve purchase treasury security agency residential mortgage back security rmbs cmbs amount need support smooth market functioning open market purchase support flow credit household business foster effective transmission monetary policy broad financial condition addition desk offer large scale overnight term repo operation participant note important monitor market condition closely committee prepared adjust plan appropriate support smooth functioning market security participant comment multiple lending facility establish federal reserve authority section 13(3 federal reserve act case involve capital allocate treasury support financial market functioning flow credit household business size state local government way emergency lending facility intend help support economy pandemic relate credit market disruption abate participant comment important federal reserve ready adjust emergency lending facility appropriate base monitoring financial market functioning credit condition participant agree stance monetary policy remain appropriate note committee upcoming meeting clarify intention respect future monetary policy decision participant comment committee forward guidance path fund rate explicit example committee adopt outcome base forward guidance specify macroeconomic outcomesâsuch certain level unemployment rate inflation rateâthat achieve committee raise target range fund rate committee date base forward guidance target range raise specify time elapse participant note explicit form forward guidance help ensure public expectation future conduct monetary policy continue reflect committee intention participant observe completion later year monetary policy framework announcement conclusion arise help clarify committee intention respect future monetary policy action participant remark committee need provide clarity intention purchase treasury security agency mbs participant note communication matter uncertainty evolution federal reserve asset purchase increase time participant remark program ongoing treasury security purchase future long term yield low participant note balance sheet reinforce committee forward guidance path fund rate federal reserve purchase treasury security scale necessary treasury yield short- medium term maturity cap specify level period time committee policy action monetary policy member agree coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss consumer price inflation hold weak demand significantly low oil price disruption global economic activity significantly affect financial condition impair flow credit u.s. household business member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member concur ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable downside risk economic outlook medium term light development member decide maintain target range fund rate percent member note expect maintain target range confident economy weather event track achieve committee maximum employment price stability goal member agree monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use committee tool act appropriate support economy determine timing size future adjustment stance monetary policy member note realize expect economic condition relative committee maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business member agree appropriate federal reserve purchase treasury security agency rmbs cmbs amount need support smooth market functioning foster effective transmission monetary policy broad financial condition addition desk offer large scale overnight term repo operation member agree closely monitor market condition prepared adjust plan appropriate conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective april federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security agency mortgage back security mbs agency commercial mortgage back security cmbs amount need support smooth functioning market security conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs principal payment holding agency cmbs agency cmbs engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss weak demand significantly low oil price hold consumer price inflation disruption economic activity abroad significantly affect financial condition impair flow credit u.s. household business ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term light development committee decide maintain target range fund rate percent committee expect maintain target range confident economy weather event track achieve maximum employment price stability goal committee monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use tool act appropriate support economy determine timing size future adjustment stance monetary policy committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business federal reserve purchase treasury security agency residential commercial mortgage back security amount need support smooth market functioning foster effective transmission monetary policy broad financial condition addition open market desk offer large scale overnight term repurchase agreement operation committee closely monitor market condition prepared adjust plan appropriate vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective april agree committee hold tuesdayâwednesday june 9â10 adjourn 10:10 a.m. april notation vote address intensify strain global financial market early intermeete period committee unanimously approve follow measure help maintain flow credit u.s. household business notation vote conclude march committee approve amendment authorization foreign currency operations foreign authorization foreign currency directive foreign directive foreign authorization amendment authorize establishment temporary u.s. dollar liquidity arrangement swap line foreign directive amend direct federal reserve bank new york establish maintain temporary dollar liquidity arrangement reserve bank australia banco central brasil danmarks nationalbank denmark bank korea banco mexico reserve bank new zealand norges bank norway monetary authority singapore sveriges riksbank sweden arrangement place month like federal reserve stand u.s. dollar liquidity swap line bank canada bank england bank japan european central bank swiss national bank temporary arrangement help lessen heightened strain global u.s. dollar funding market mitigate effect strain supply credit u.s. household business notation vote conclude march committee approve statement indicate federal reserve purchase treasury security agency mbs amount need support smooth market function effective transmission monetary policy broad financial condition purchase include agency cmbs conjunction approval statement committee authorize direct federal reserve bank new york execute transaction soma accordance plan purchase previously committee announce purchase treasury security agency mbs notation vote conclude march committee amend authorization domestic open market operations authorize adopt resolution approve establishment temporary repo facility foreign international monetary authority fima repo facility facility place month allow fima account holder temporarily exchange u.s. treasury security hold federal reserve u.s. dollar available institution jurisdiction provide foreign international monetary authority alternative temporary source u.s. dollar sale security open market facility help support smooth functioning u.s. treasury market addition fima repo facility shouldâalong u.s. dollar liquidity swap line federal reserve establish banksâhelp ease strain global u.s. dollar funding market notation vote complete april committee unanimously approve minute committee hold march james clouse secretary federal open market committee reference fomc committee minute return text attend tuesday return text committee organizational document available https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text

minute federal open market committee june joint federal open market committee board governors hold videoconference tuesday june 10:00 a.m. continue wednesday june 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel thomas laubach economist stacey tevlin economist beth anne wilson economist shaghil ahmed marc giannoni trevor reeve william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors rochelle edge deputy director division monetary affairs board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair office board members board governors joshua gallin special adviser chair office board members board governors william bassett antulio bomfim wendy dunn ellen meade chiara scotti ivan vidangos special advisers board office board members board governors linda robertson assistant board office board members board governors brian doyle senior associate director division international finance board governors eric engen senior associate director division research statistics board governors edward nelson robert tetlow senior advisers division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors sally davies associate director division international finance board governors david lópez salido associate director division monetary affairs board governors burcu duygan bump andrew figura shane sherlund paul smith deputy associate directors division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors paul wood deputy associate director division international finance board governors brian bonis etienne gagnon zeynep senyuz assistant directors division monetary affairs board governors matthias paustian assistant director chief division research statistics board governors penelope beattie section chief office secretary board governors dana burnett section chief division monetary affairs board governors dario caldara section chief division international finance board governors mark carlson senior economic project manager division monetary affairs board governors canlin senior economic project manager division international finance board governors david small project manager division monetary affairs board governors hess chung group manager division research statistics board governors michele cavallo bernd schlusche mary tian principal economists division monetary affairs board governors maria otoo principal economist division research statistics board governors sriya anbil erin ferris fabian winkler senior economists division monetary affairs board governors david miller senior economist division research statistics board governors gaston navarro senior economist division international finance board governors randall williams senior information manager division monetary affairs board governors james hebden james trevino senior technology analysts division monetary affairs board governors andre anderson vice president federal reserve bank atlanta david altig joseph gruber anna paulson daleep singh christopher waller executive vice presidents federal reserve banks atlanta kansas city chicago new york st. louis respectively edward knotek paolo pesenti julie ann remache samuel schulhofer wohl robert valletta nathaniel wuerffel senior vice presidents federal reserve banks cleveland new york new york chicago san francisco new york respectively roc armenter matthew raskin patricia zobel vice presidents federal reserve banks philadelphia new york new york respectively robert lerman assistant vice president federal reserve bank new york daniel cooper john weinberg senior economists policy advisors federal reserve banks boston richmond respectively chair open acknowledgment extraordinary deeply troubling event week injustice prejudice callous disregard life lead social unrest sense despair chair note incumbent leader federal reserve system communicate force clarity federal reserve core value reaffirm unflinche commitment value pursue federal reserve mandate goal spirit chair note intend offer follow remark end postmeete press conference participant support statement affirm federal reserve core value commitment foster racial equality diversity inclusion federal reserve system society want acknowledge tragic event spotlight pain racial injustice country federal reserve serve entire nation operate community country americans grapple express issue racial equality speak colleague federal reserve system place federal reserve racism place society deserve opportunity participate fully society economy foundational principle guide monetary policy focus diversity inclusion workplace work regulate supervise bank ensure fair access credit country opportunity renew steadfast commitment principle make sure play understand work federal reserve touch community family business country service public mission committed range tool support economy help assure recovery difficult period robust possible discussion forward guidance asset purchases yield curve caps targets participants discuss tool conduct monetary policy fund rate effective lower bind elb address topic role forward guidance large scale asset purchase program support attainment committee maximum employment price stability goal light foreign historical experience approach cap target interest rate yield curve approach support forward guidance complement asset purchase program briefing topic focus outcome base forward guidance fund rateâwhich tie change target range fund rate achievement specify macroeconomic outcome reach give level unemployment rate inflationâand asset purchase program kind follow previous recession present result model simulation suggest forward guidance large scale asset purchase help support labor market recovery return inflation committee symmetric percent inflation goal simulation suggest committee maintain highly accommodative financial condition year quicken meaningfully recovery severe downturn briefing address factor alter potency forward guidance asset purchase program number consideration design action caution business household forward look assume model simulation reduce effectiveness policy predicate influence expectation path policy year future alternatively prompt forceful policy action committee help focus public expectation well outcome reduce perceive risk bad case scenario generate immediate macroeconomic benefit feature analysis briefing review yield cap target yct policy federal reserve follow world war bank japan reserve bank australia currently employ experience illustrate different type yct policy world war federal reserve cap yield curve treasury borrowing cost low stable bank japan target year yield provide accommodation limit potential excessive flattening yield curve march reserve bank australia target year yield target intend reinforce forward guidance policy rate influence funding rate australian economy note experience suggest credible yct policy control government bond yield pass private rate absence exit consideration require large purchase government debt highlight potential yct policy require purchase sizable amount government debt certain circumstancesâa potential realize u.s. experience 1940sâand possibility yct policy monetary policy goal come conflict public debt management goal pose risk independence forward guidance large scale asset purchase participant agree committee extensive experience tool effective wake previous recession key part monetary policy toolkit result important role play support attainment committee maximum employment price stability goal participant note economy need support highly accommodative monetary policy time important coming month committee provide great clarity path fund rate asset purchase participant indicate support outcome base forward guidance number participant speak favorably forward guidance tie inflation outcome possibly entail modest temporary overshooting committee long run inflation goal inflation fluctuation center percent time see form forward guidance help reinforce credibility committee symmetric percent inflation objective potentially prevent premature withdrawal monetary policy accommodation couple participant signal preference forward guidance tie unemployment rate note credible focus labor market outcome achieve past thatâgiven high unemployment rate currently isâsuch guidance clearly signal high degree accommodation extended period suggest calendar base guidanceâwhich specify date accommodation start reducedâmight effective outcome base guidance note calendar base guidance effective committee challenging provide credible outcome base guidance light substantial uncertainty surround economic outlook regardless specific form forward guidance couple participant express concern policy effectively commit committee maintain low interest rate long time ultimately pose significant risk financial stability participant agree asset purchase program promote accommodative financial condition put downward pressure term premium long term yield participant remark decline neutral rate interest term premium past decade prevail low level long term yield act constraint effectiveness asset purchase environment note constraint acute committee implement program wake global financial crisis participant note large scale asset purchase beneficial circumstance offset potential upward pressure long term yield help reinforce committee commitment maintain highly accommodative financial condition participant question desirability large scale asset purchase follow purchase support market functioning note lead considerable expansion federal reserve balance sheet potentially adverse implication financial stability foreign historical experience yct policy potential role policy united states nearly participant indicate question cost benefit approach episode discuss presentation participant see australian experience relevant circumstance united states nonetheless participant remark long committee forward guidance remain credible clear need committee reinforce forward guidance adoption yct policy addition participant raise number concern relate implementation yct policy include maintain control size composition federal reserve balance sheet particularly time exit policy near combine yct policiesâwhich australian case incorporate aspect date base forward guidanceâwith type outcome base forward guidance participant favor mitigate risk yct policy pose independence effect policy financial market functioning size composition private sector balance sheet number participant comment additional challenge associate yct policy focus long portion yield curve include policy interact large scale asset purchase program extent additional accommodation provide environment low interest rate participant note long term yield importantly influence factor long run inflation expectation long run neutral real interest rate change factor difficulty estimate result inadvertently set yield cap target inappropriate level couple participant remark appropriately design yct policy focus short medium yield curve serve powerful commitment device committee participant note market participant currently expect fund rate elb medium term introduction effective yct policy help prevent expectation change prematurelyâas happen previous recoveryâor size large scale asset purchase program pose risk independence reduce effective yct policy participant agree useful conduct analysis design implementation yct policy economic financial effect number participant emphasize assess potential role different monetary policy tool play support attainment committee goal important think policy tool coordination committee strategy achieve dual mandate objective addition participant note clear communication public efficacy policy tool committee complete monetary policy framework near term include revise statement long run goals monetary policy strategy revise statement communicate public committee view policy goal provide additional context committee policy action development financial markets open market operations system open market account soma manager discuss development financial market intermeete period risk asset price buoy optimism potential increase economic activity associate reopening part united states country relax lockdown restriction optimism reinforce high frequency datum suggest pickup economic activity market participant point suite u.s. global policy measure take mid march lay foundation improvement risk sentiment backdrop analysis suggest equity price support expectation strong rebound earning year low risk free rate positive risk sentiment despite improvement risk sentiment market participant expect weak growth elevated uncertainty outlook remain manager note prospect adverse development coronavirus covid-19 potential financial strain amplify recessionary dynamic geopolitical development include renew u.s.âchina tension present near term risk financial market market participant attentive steepening treasury yield curve note range uncertainty outlook long term rate expectation monetary policy respondent open market trading desk survey suggest market participant anticipate policy change june target range fund rate expect elb couple year survey respondent attach probability target range increase rate imply fund future contract settle year fall slightly negative level survey respondent attach little probability possibility negative policy rate manager turn federal reserve operation credit facility operational period experience modest activity light broad improvement credit market condition new usage funding operation facility decline intermeete period condition funding market improve manager note significant proportion amount outstanding u.s. dollar liquidity swap repurchase agreement repo reflect term transaction initiate period fund market strain light improvement fund market condition manager note appropriate modest adjustment minimum bid rate repo operation forthcoming calendar effectively position operation backstop role adjustment expect significant effect short term funding market finally manager discuss near term plan purchase treasury security agency mortgage back security mbs overall function market security improve substantially light improvement desk gradually reduce pace purchase intermeete period level day treasury security day agency mbs purchase amount significantly low peak pace mid march roughly correspond monthly increase soma holding approximately treasury security agency mbs continue increase holding pace help sustain improvement market functioning roughly line market expectation treasury purchase low end expectation agency mbs purchase net reinvestment addition principal payment agency debt agency mbs hold soma portfolio reinveste agency mbs weekly operation agency commercial mortgage back security cmbs conduct desk prepared increase size adjust composition treasury agency mbs agency cmbs purchase need sustain smooth market function market security unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation coronavirus outbreak measure undertake contain spread severely disrupt economic activity united states abroad available information june 9â10 suggest u.s. real gross domestic product gdp post historically large decline labor market condition improve improvement modest relative substantial deterioration see previous month consumer price inflation measure 12âmonth percentage change price index personal consumption expenditure pce slow notably april reflect effect weak aggregate demand low energy price total nonfarm payroll employment expand strongly historic job loss record april unemployment rate move percent soar percent april highlight bureau labor statistics figure understate extent unemployment account unusually large number worker report employ absent job raise unemployment rate percentage point april percentage point labor force participation rate employment population ratio increase initial claim unemployment insurance benefit decline week peak late march historically elevated level average hourly earning employee decline rise sharply april fluctuation reflect substantial change level composition employment disproportionately affect low wage worker employment cost index total labor compensation private sector increase percent month end marchâa period predate onset pandemicâand year early pace total pce price inflation percent month end april reflect weak aggregate demand month considerable drop consumer energy price price fall march april category affect social distancing measure price air travel hotel accommodation core pce price inflation exclude change consumer food energy price percent month end april contrast trim mean measure month pce price inflation construct federal reserve bank dallas percent april consumer price index cpi inch percent month end core cpi inflation percent period recent reading survey base measure long run inflation expectation little change balance university michigan surveys consumers measure year edge year ahead measure federal reserve bank new york survey consumer expectations unchanged year measure pce price inflation survey professional forecasters tick measure long run inflation expectation continue near range real pce slump april decline widespread spend category light motor vehicle sale high frequency indicator consumer spending turn level indicator level early year real disposable personal income increase significantly april marked decline wage salary income offset substantial boost government transfer payment fiscal policy support result personal saving rate soar consumer sentiment measure michigan survey conference board survey creep remain level early year real residential investment appear weaken significantly start building permit issuance single family home start multifamily unit drop sharply april sale exist home contract markedly april al­though home sale edge real business fix investment continue tumble nominal order shipment nondefense capital good exclude aircraft decrease considerably april nominal business spending nonresidential structure outside drilling mining sector fall april addition effect low crude oil price evident decline number crude oil natural gas rig operation early june indicator business spending structure drilling mining sector total industrial production plunge april factory slow suspend operation response coronavirus pandemic decline manufacturing production widespread major industry lead collapse output motor vehicle related part output mining sectorâwhich include crude oil extractionâalso decrease reflect effect low crude oil price total real government purchase appear rise moderately federal defense spending continue increase april nondefense purchase boost fiscal policy measure relate coronavirus contrast state local purchase look decline payroll government shrink april nominal state local construction expenditure decrease april nominal u.s. international trade deficit widen march april export good service plunge import fall good export broad base particularly sharp decline automotive product industrial supply capital good good import contract significantly category april near halt international travel drive steep decline export import service foreign economic activity contract country abroad introduce strict social distancing measure contain spread coronavirus end china restriction lift end datum point relatively quick rebound economic activity outside china indicator suggest foreign economic activity plummet notwithstanding sign improvement restriction start ease inflation rate fall sharply foreign economy april low level oil price relative year ago contribute month inflation rate close advanced foreign economy afes staff review financial situation intermeete period risk sentiment improve net optimism reopen economy potential coronavirus treatment unexpectedly positive employment situation indicator economic activity rebound offset concern arise dire economic datum release warning health expert opening premature renew tension united states china equity price rise corporate bond spread narrow notably treasury yield curve steepen market imply expect path fund rate decline somewhat liquidity condition continue improve general stress evident market financing condition somewhat strained lower rat borrower small business announcement implementation federal reserve facility intermeete period supportive credit flow credit quality business municipal debt weaken expect path fund rate year base straight read overnight index swap quote decline bit remain close elb late market imply forward rate refer turn slightly negative day begin market commentary suggest development reflect investor expect fomc lower fund rate target range support federal reserve communication negative interest rate appear attractive policy tool treasury yield curve steepen intermeete period year yield little change 10- year yield rise long term yield boost expectation heavy upcoming treasury security issuance unwind safe haven demand connection improve investor sentiment treasury year bond offering meet solid demand change inflation compensation base treasury inflation protect securities yield mixed year inflation compensation rise amid partial rebound crude oil price to-10 year measure edge end intermeete period measure stand roughly halfway mid march low typical level see year broad stock price index move higher month imply volatility s&p index decline somewhat stand percentile distribution spread investment- speculative grade corporate bond comparable maturity treasury yield narrow considerably remain level similar period notable economic bond market stress financial crisis level intermeete period financial market functioning appear improve general al­though progress uneven liquidity measure improve treasury market run treasury security tenor long maturity run security remain liquid onset pandemic agency mbs market functioning recover liquid part market corporate bond market liquidity improve considerably remain somewhat strained particularly speculative grade bond liquidity municipal bond market pre pandemic level condition unsecured short term funding market continue improve intermeete period spread type commercial paper negotiable certificate deposit narrow level approach pre pandemic range amid well market condition emergency liquidity facility decline substantially heavy demand treasury bill money market fund hold rate despite unprecedented pace issuance effective fund rate basis point day intermeete period secured overnight financing rate average basis point total outstanding federal reserve repos average amid improve market functioning federal reserve purchase treasury security agency mbs reduce day respectively day respectively intermeete period risk sentiment foreign financial market improve intermeete period monetary policy fiscal policy support foreign country easing coronavirus relate restriction strong expect u.s. employment outweigh concern weak global economic datum resurgence u.s.âchina tension liquidity global dollar funding market continue improve help federal reserve liquidity program price foreign risky asset increase afes option imply volatility measure decline long term sovereign bond yield rise moderately fiscal stimulus japan europe boost price respective equity market euro area peripheral bond spread narrow european commission propose european union give authority borrow assist recovery european central bank ecb increase size pandemic emergency purchase programme emerge market rise oil price late april improvement investor sentiment boost asset price coronavirus outbreak worsen country outflow emerge market fund slow turn small inflow later period improve risk sentiment support foreign currency broad dollar index fall euro appreciate notably period lift european fiscal monetary policy communication rebound oil price contribute strong appreciation canadian dollar brazilian real mexican peso financing condition nonfinancial firm ease somewhat intermeete period remain moderately strained lower rat borrower investment grade corporate bond issuance soar record level april remain robust issuer take advantage favorable market condition follow federal reserve announcement facility support corporate credit market facility secondary market corporate credit facility begin mid purchase exchange trade fund investment objective provide broad exposure market u.s. corporate bond speculative grade corporate bond issuance pick considerably end april low level slow somewhat commercial industrial loan bank book surge april drive lend paycheck protection program ppp especially small bank credit line drawdown continue april drawdown large firm slow considerably record level march credit quality nonfinancial corporation continue deteriorate sharply intermeete period volume nonfinancial corporate bond leveraged loan downgrade remain high april default corporate bond leveraged loan increase market analyst project default increase considerably remainder financing condition small business tighten amid widespread continue pandemic relate closure reduced operation small business lender indicate tighten loan standard small business loan discontinued lending borrower altogether ppp loan financing condition state local government improve moderately follow federal reserve announcement support municipal debt market condition remain somewhat strained lower rat state municipality week june state illinois use municipal liquidity facility commercial real estate cre lending condition recover somewhat intermeete period spread triple rat triple rat non agency cmbs decline remain elevated relative pandemic issuance show sign recovery late april early federal reserve purchase agency cmbs reportedly help return spread security pre pandemic level issuance market continue strong early sign credit repayment difficulty emerge cre sector volume mortgage rate lock home purchase loan pick mid follow material drop april financing condition remain tight borrower relatively low credit score seek nonconforme mortgage addition option home equity extraction continue restrict credit home equity line credit cash refinance limited servicer able handle liquidity strain impose forbearance sharp decline economic activity curtail demand consumer credit balance consumer credit financing condition appear major drag household spending issuance consumer asset back security resume mid april early remain significantly pre pandemic level staff economic outlook projection u.s. economy prepare june fomc downgrade balance compare april forecast response information spread coronavirus change measure undertake contain home abroad incoming economic datum u.s. real gdp forecast historically large decline year unemployment rate expect sharply high substantial fiscal policy measure appreciable support monetary policy federal reserve liquidity lending facility expect help mitigate deterioration economic condition help boost recovery continue judge future performance economy depend importantly evolution coronavirus outbreak measure undertake contain baseline assumption restriction social interaction business operation ease gradually year real gdp forecast rise appreciably unemployment rate decline considerably half year al­though complete recovery expect year end inflation project weaken year reflect deterioration resource utilization sizable expect decline consumer energy price baseline assumption economic condition project improve inflation pick year observe uncertainty relate economic effect coronavirus pandemic extremely elevated historical behavior u.s. economy response past economic shock provide limited guidance make judgment economy evolve future light significant uncertainty downside risk associate pandemic include economy weaken long recover judge pessimistic projection plausible baseline forecast scenario wave coronavirus outbreak round strict limitation social interaction business operation assume begin later year lead decrease real gdp jump unemployment rate renew downward pressure inflation year compare baseline disruption economic activity severe protract scenario real gdp inflation lower unemployment rate higher end medium term projection participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policyâinclude path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection describe summary economic projections addendum minute participant note coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss weak demand significantly low oil price hold consumer price inflation financial condition improve reflect policy measure support economy flow credit u.s. household business participant agree lower fund rate elb establish accommodative financial condition federal reserve ongoing purchase sizable quantity treasury security agency mbs help restore smooth market function support economy flow credit u.s. household business fiscal response economic development large timely provide need support economic activity credit flow economic activity support lending facility establish authority section 13(3 federal reserve act approval secretary treasury participant judge effect coronavirus outbreak ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term participant agree datum large decline economic activity postâworld war history base information district participant observe burden crisis fall equally americans note rise joblessness especially severe low wage worker woman african americans hispanics participant agree recently enact fiscal policy program deliver valuable direct financial aid household business community provide relief disadvantaged group household spending participant point information district contact survey consumer behavior high frequency indicatorsâsuch credit card transaction automated teller machine visit cellphone datum trackingâas suggest consumer expenditure stabilize rebound modestly limited available source standard economic datum retail purchase motor vehicle sale line impression supportive monetary policy payment household cares act coronavirus aid relief economic security act include enhanced unemployment insurance payment participant expect personal consumption expenditure grow strongly half year albeit low level recovery consumer spending expect particularly rapid year voluntary social distancing precautionary saving low level employment income restrain pace expansion medium term participant note level uncertainty risk perceive business remain high factor continue contribute restraint capital expenditure despite ease financing condition stem policy measure business contact point halting improvement consumer demand dearth public infrastructure project strained state local government budget condition decline energy price factor depress business spending participant note report firm state challenge rehire employee relate temporary enhance unemployment insurance benefit participant agree practice development public health address pandemic critical ensure strong lasting reopening business reduce likelihood outsized wave closure monetary policy especially fiscal policy play important role participant conclude voluntary social distancing structural shift stem pandemic mean proportion business close permanently note ongoing change composition production process production take place participant suggest business adaptation endure long coronavirus subside result notable dislocation sectoral reallocation firm worker industry participant note condition energy sector remain difficult amid low oil price participant anticipate continue low drilling activity excess inventory reduce later year express concern wave bankruptcy energy sector forthcoming addition agricultural sector continue stress low price farm commodity reduce ethanol production pandemic relate limitation production food processing plant regard labor market participant remark surprisingly positive news labor market emphasize nearly job lose net february participant note misclassification error current population survey official unemployment rate understate extent unemployment observe government reliance unemployment insurance vehicle income support cares act complicate interpretation datum participant note unemployment insurance claim continue run historically elevated level proportion lay worker expect recall unusually large take datum suggest april turn trough recession participant agree early draw firm conclusion prospect substantial improvement labor market see depend sustained reopening economy turn depend large efficacy health measure take limit effect coronavirus issue participant judge great deal uncertainty express concern possibility early reopening contribute significant increase infection participant regard highly accommodative monetary policy sustain support fiscal policy need facilitate durable recovery labor market condition overall participant expect recovery employment time regard inflation participant reiterate negative effect pandemic aggregate demand offset upward pressure supply constraint effect outbreak price see disinflationary consistent interpretation participant observe negative reading monthly cpi note anticipate month pce inflation measure run committee percent objective time observe inflation run somewhat committee percent long run objective coronavirus outbreak participant note risk long term inflation expectation deteriorate participant note highly accommodative stance monetary policy need time achieve percent inflation objective long run participant comment remain extraordinary uncertainty considerable risk economic outlook participant share view possible outcome reopening economy prospect effective voluntary social distancing efficacy public health initiative implication economic activity employment number participant judge substantial likelihood additional wave outbreak scenario result economic disruption possibly protract period reduce economic activity possibility include economic activity recover quickly sizable widespread outbreak avoid household business relax modify social distancing behavior source risk note participant fiscal support household business state local government prove insufficient foreign economy come great pressure anticipate result spread pandemic abroad participant stress measure take area health care policy fiscal policy action household business shape prospect prompt timely return u.s. economy normal condition addition participant agree action take federal reserve help reduce risk economic outlook discussion long run risk participant note adverse scenario business closure occur worker experience long spell unemployment lead loss skill impair employment prospect addition extent transmission mitigation procedure adopt firm reduce productivity reallocation industry output result last reduction business investment long run level potential output reduce development financial market participant agree ongoing action federal reserve include undertake collaboration treasury help ease strain financial market support flow credit household business community measure market function market treasury security agency mbs improve substantially march strain short term funding market recede volume borrow federal reserve liquidity facility move lower borrower return market source funding risk spread range fix income market narrow intense flight safety witness financial market spring ebb consideration monetary policy participant reaffirm federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal light assessment ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term participant judge appropriate maintain target range fund rate percent keep target range elb provide support economy promote committee maximum employment price stability goal participant judge appropriate maintain target range fund rate level policymaker confident economy weather event track achieve committee maximum employment price stability goal participant agree support flow credit household business coming month appropriate federal reserve increase holding treasury security agency mbs agency cmbs pace sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition desk offer large scale overnight term repo operation participant note important monitor development closely committee prepare adjust plan appropriate participant comment lending facility establish federal reserve authority section 13(3 federal reserve act support financial market functioning flow credit household business size state local government participant comment important federal reserve ready adjust emergency lending facility appropriate base monitoring financial market functioning credit condition participant agree stance monetary policy remain appropriate note committee upcoming meeting clarify intention respect future monetary policy decision economic outlook clear particular participant comment committee communicate explicit form forward guidance path fund rate provide clarity purchase treasury security agency mbs information trajectory economy available number participant judge important forward guidance asset purchase structure way provide accommodation necessary support rapid economic recovery foster durable return inflation inflation expectation level consistent committee symmetric percent objective participant remark completion monetary policy framework announcement conclusion arise release revise committee statement goal policy strategy help clarify committee intend conduct monetary policy forward committee policy action monetary policy member agree coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss consumer price inflation hold weak demand significantly low oil price financial condition improve reflect policy measure support economy flow credit u.s. household business community member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member concur ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable downside risk economic outlook medium term light development member decide maintain target range fund rate percent member note expect maintain target range confident economy weather event track achieve committee maximum employment price stability goal member agree monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use committee tool act appropriate support economy determine timing size future adjustment stance monetary policy member note realize expect economic condition relative committee maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business member agree coming month appropriate federal reserve increase holding treasury security agency mbs agency cmbs pace sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition desk offer large scale overnight term repo operation member agree closely monitor development prepared adjust plan appropriate conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security agency mortgage back security mbs agency commercial mortgage back security cmbs pace sustain smooth functioning market security foster effective transmission monetary policy broad financial condition conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs principal payment holding agency cmbs agency cmbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal coronavirus outbreak cause tremendous human economic hardship united states world virus measure take protect public health induce sharp decline economic activity surge job loss weak demand significantly low oil price hold consumer price inflation financial condition improve reflect policy measure support economy flow credit u.s. household business ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term light development committee decide maintain target range fund rate percent committee expect maintain target range confident economy weather event track achieve maximum employment price stability goal committee monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use tool act appropriate support economy determine timing size future adjustment stance monetary policy committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business come month federal reserve increase holding treasury security agency residential commercial mortgage back security pace sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition open market desk offer large scale overnight term repurchase agreement operation committee closely monitor development prepared adjust plan appropriate vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective june agree committee hold tuesdayâwednesday july 28â29 adjourn 10:05 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold april 28â29 james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text attend economic development outlook wednesday return text attend forward guidance asset purchase yield cap target return text attend economic development outlook return text attend economic development outlook end tuesday return text

minute federal open market committee july joint federal open market committee board governors hold videoconference tuesday july 10:00 a.m. continue wednesday july 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey beverly hirtle trevor reeve ellis tallman william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors eric belsky director division consumer community affairs board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors brian doyle deputy director division international finance board governors rochelle edge deputy director division monetary affairs board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn ellen meade chiara scotti ivan vidangos special advisers board division board members board governors linda robertson assistant board division board members board governors eric engen david lebow senior associate directors division research statistics board governors gretchen weinbach senior associate director division monetary affairs board governors edward nelson robert tetlow senior advisers division monetary affairs board governors david lópez salido associate director division monetary affairs board governors paul wood associate director division international finance board governors eric engstrom christopher gust deputy associate directors division monetary affairs board governors luca guerrieri deputy associate director division financial stability board governors norman morin deputy associate director division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors brian bonis etienne gagnon assistant directors division monetary affairs board governors viktors stebunovs assistant director division international finance board governors brett berger adviser division international finance board governors penelope beattie section chief office secretary board governors dana burnett section chief division monetary affairs board governors david small project manager division monetary affairs board governors michele cavallo kurt lewis principal economists division monetary affairs board governors marcelo ochoa senior economist division monetary affairs board governors randall williams senior information manager division monetary affairs board governors james narron vice president federal reserve bank philadelphia david altig kartik athreya joseph gruber daleep singh christopher waller executive vice presidents federal reserve banks atlanta richmond kansas city new york st. louis respectively michael schetzel senior vice president federal reserve bank new york eugene amromin kathryn chen matthew nemeth joe peek patricia zobel vice presidents federal reserve banks chicago new york new york boston new york respectively robert lerman assistant vice president federal reserve bank new york karel mertens senior economic policy advisor federal reserve bank dallas mark spiegel senior policy advisor federal reserve bank san francisco review monetary policy strategy tools communication practices participants continue relate ongoing federal reserve monetary policy strategy tool communication practice discuss potential change committee statement long run goals monetary policy strategy participant agree light fundamental change economy past decadeâinclude low level interest rate persistent disinflationary pressure united states abroadâand give learn monetary policy framework refine statement helpful increase transparency accountability monetary policy refinement facilitate inform decisionmake household business result well position committee meet maximum employment price stability objective participant note statement long run goals monetary policy strategy serve foundation committee policy action important finalize change statement near future development financial markets open market operations system open market account soma manager turn u.s. financial market development intermeete period financial condition ease slightly broad equity price index roughly flat concern resurgence coronavirus covid-19 united states grow time treasury yield sovereign yield decline u.s. dollar weaken overall volatility remain subdue relative period s&p index little change effect renew outbreak evident differentiate performance s&p industry sector virus sensitive sector firm weak fundamental underperformed period broad pandemic episode airline hotel share price decline sharply share price banksâwhich face earning pressure large loan loss provision compress net interest marginsâcontinue underperform soma manager highlight s&p index support significant share technology firm relatively resilient virus containment measure contrast small firm represent s&p experience great effect business virusâa possibility consistent underperformance broad russell index intermeete period market imply path fund rate shift modestly intermeete period correspond path imply response open market desk survey primary dealers survey market participants fall probability place rate hike year decline market pricing suggest fund rate expect rise target range timing consistent survey respondent expectation timing increase target range range survey response wide soma manager note survey response suggest dispersion view timing rate increase relate differ view economic condition prevail fomc lift target range survey respondent view condition disperse soma manager report market function number market segment remain stable significantly improve level treasury agency mortgage back security mbs market market function indicator return level prevail pandemic result purchase conduct minimum pace direct committee importantly condition mbs market continue stabilize primary mortgage rate fall historically low level intermeete period condition short term dollar funding market stable overnight rate close interest excess reserve ioer rate broad dollar funding market term unsecured rate foreign exchange swap spread steady federal reserve repurchase agreement repos outstanding fall intermeete period timing overnight operation have shift afternoon trading activity repo market complete minimum bid rate ioer rate repo operation effectively position backstop role time term u.s. dollar liquidity swap mature amount outstanding fall peak reach late light improve condition market federal reserve balance sheet decline intermeete period decline drive reduction repo u.s. dollar liquidity swap outstanding reduction offset ongoing purchase treasury security agency mbs manager discuss proposal extend temporary u.s. dollar liquidity swap arrangement temporary fima foreign international monetary authorities repo facility march year keep arrangement place help sustain improvement global dollar funding market support smooth functioning u.s. treasury market proposal provide committee objection chair approve extension temporary liquidity swap line follow extension swap fima repo arrangement announce follow unanimous vote committee vote approve resolution extend march expiration temporary repo facility foreign international monetary authority fima repo facility secretary chair subsequently provide approval desk follow procedure authorization foreign currency operations extend expiration temporary u.s. dollar liquidity swap line march unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation coronavirus outbreak measure undertake contain spread continue substantial effect economic activity united states abroad information available time july 28â29 suggest u.s. economic activity pick june follow sharp decline march april measure quarterly basis appear real gross domestic product gdp decrease historically rapid rate labor market condition improve considerably june improvement june modest relative substantial deterioration see march april consumer price inflationâas measure 12âmonth percentage change price index personal consumption expenditure pce mayâremaine rate prevail early year total nonfarm payroll employment expand robustly june gain month offset job lose march april unemployment rate move percent continue far level beginning year unemployment rate african americans asians hispanics decline balance past month remain national average labor force participation rate employment population ratio increase june initial claim unemployment insurance benefit continue decrease net middle july pace decline slow week addition weekly estimate private sector payroll construct board datum provide payroll processor adp high frequency measuresâsuch employment small business job postingsâsuggeste employment gain slow mid june strong total pce price inflation percent month end reflect weak aggregate demand considerable drop consumer energy price core pce price inflation exclude change consumer food energy price percent month period contrast trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent consumer price index cpi increase percent month end june core cpi inflation percent period monthly basis available datum indicate consumer pricesâas measure pce price index cpi juneâhad turn have fall march april rebound evident price category affect social distancing measure recent reading survey base measure long run inflation expectation little change balance university michigan surveys consumers measure year unchanged net early july year ahead measure federal reserve bank new york survey consumer expectations edge june remain range real pce rebound robustly particularly strong growth spending consumer good moderate gain expenditure consumer service june component retail sale bureau economic analysis estimate pce light motor vehicle sale increase overall real consumer spending remain level prevail beginning year high frequency indicator spend consumer servicesâsuch restaurant dining hotel accommodation air travelâremaine subdued real disposable personal income fall primarily reflect waning substantial boost stimulus payment provide april wage salary income increase strongly level february value unemployment insurance benefit continue substantial leave personal saving rate elevated consumer sentiment measure michigan survey conference board survey improve notably june fall somewhat july housing sector activity bounce strongly month boost effect low interest rate start building permit issuance single family home start multifamily unit increase significantly june construction measure pre pandemic level sale exist home rise substantially month home sale move net indicator business fix investment suggest investment begin recover pace decline moderate balance month nominal order shipment nondefense capital good exclude aircraft increase june remain level beginning year measure business sentiment improve nominal business spending nonresidential structure outside drilling mining sector decline number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue decrease late july industrial production expand briskly june factory reopen ramp production surge manufacturing production lead appreciable gain output motor vehicle related part follow extend automaker shutdown mid march april contrast output mining sectorâwhich include crude oil extractionâdecrease reflect effect low crude oil price total real government purchase appear increase moderately balance federal defense spending continue rise june nondefense purchase boost fiscal policy measure take response coronavirus contrast state local purchase look decline markedly payroll government shrink june nominal state local construction expenditure decrease net april nominal u.s. international trade deficit widen relative april export decrease import fall export broad base good category low import automotive product offset high import consumer good industrial supply follow april historic plunge export import service fall bit drive continued suspension international travel preliminary datum june show recovery nominal good export import altogether available datum suggest net export significant drag rate change real gdp incoming datum suggest foreign economic activity plunge result coronavirus pandemic measure undertake contain sign foreign economy start recover past month restriction gradually ease china economic activity collapse restriction roll early preliminary gdp release show economy bounce strongly euro area advanced foreign economy datum industrial production less extent consumer spending show partial recovery june continued uncertainty course virus underscore fact emerge market economy struggle control pandemic country previously contain virus experience flare infection inflation rate continue fall foreign economy june low energy price weak demand measure inflation expectation remain subdue staff review financial situation amid sizable fluctuation change asset price intermeete period mix net financial market sentiment boost well expect economic datum united states china europe boost sentiment appear offset concern domestic spread coronavirus uncertain effect future course economy balance broad equity price index roughly unchanged treasury yield decline yield curve flatten corporate municipal bond spread narrow dollar weaken somewhat liquidity condition continue normalize return pre pandemic level market intermeete period yield nominal treasury security fall yield curve flatten net yield decline somewhat start intermeete period follow accommodative expect june fomc communication decline yield occur subsequent week reflect concern surge confirm coronavirus case part united states measure inflation compensation base treasury inflation protected securities mature year continue rebound sharp drop mid march rebound reportedly drive primarily investor interpretation economic datum suggest risk deflation abate somewhat improvement market liquidity despite uptick year year measure inflation compensation remain pre pandemic level expect path fund rate base straight read overnight index swap quote decline modestly stay close effective lower bind half marketâimplie forward rate refer remain slightly negative market commentary suggest investor expect fomc lower fund target range broad stock price index fluctuate substantially reaction news pandemic economic activity end intermeete period roughly unchanged technology stock continue outperform broad market equity price energy sector fall notably period month option imply volatility s&p indexâthe vixârose markedly early period subsequently decline end period low equity market volatility remain elevated relative normal range past year spread investment- speculative grade corporate bond yield comparable maturity treasury yield narrow somewhat retrace pandemic relate surge condition short term funding market stable intermeete period spread negotiable certificate deposit type commercial paper little change net spread issuance volume type instrument reach preâpandemic level light stable market condition little activity emergency liquidity facility june fomc asset management prime money market fund mmfs little change government mmfs experience moderate outflow amid heavy issuance security treasury government mmfs continue increase holding treasury security reduce holding repos effective fund rate effr secured overnight financing rate sofr increase average basis point basis point respectively previous intermeete period effr fluctuate basis point sofr fluctuate basis point intermeete period decline total outstanding federal reserve repo operation reflect increase minimum bid rate federal reserve overnight term repo operation intermeete period federal reserve maintain purchase treasury security agency mbs pace prevail end previous intermeete period risk sentiment abroad fluctuate intermeete period market participant weigh increase coronavirus case number country improve economic datum release ongoing fiscal monetary policy support foreign equity price decline net resurgence geopolitical tension united states china weigh investor sentiment late period prompt partial retracement early gain shanghai composite index long term sovereign yield advanced foreign economy afes end period moderately lower yield spread long term italian bond german counterpart narrow reach low level march follow agreement european union recovery fund broad dollar index decline slightly net moderate depreciation afe currency recovery fund agreement support euro appreciate percent dollar intermeete period contrast brazilian real depreciate percent dollar amid continue policy rate cut central bank brazil escalate coronavirus case political turmoil brazil capital market financing condition nonfinancial firm ease somewhat intermeete period yield corporate bond remain near historical low investment grade corporate bond issuance solid june speculative grade issuance remain robust gross institutional leveraged loan issuance pick june subdue level previous month gross equity issuance hit record level june volume seasoned equity offering reach record initial public offering rebound low level previous month july senior loan officer opinion survey bank lending practices sloos bank report notable tightening lending standard commercial industrial c&i loan firm size standard report tight end range marked change year ago c&i loan bank balance sheet contract significantly june reflect paydown record draw credit line see previous month low origination credit quality nonfinancial corporation deteriorate intermeete period sizable volume speculative grade debt downgrade june default reach high single month volume june default high market indicator future default expectation deteriorate somewhat municipal market financing condition remain accommodative credit quality municipal debt continue sign weakness financing condition small business remain tight bank report july sloos level standard small business tight end range time credit need small business remain high prospect arise business have shut operation response rise coronavirus case small business loan performance deteriorate significantly short term delinquency comparable level see early amid tight lending standard high credit demand advance paycheck protection program lending facility continue grow intermeete period early july main street lending program fully operational financing condition commercial real estate cre particularly capital market recover intermeete period spread non agency commercial mortgage back security cmbs continue decline june issuance non agency cmbs continue sign moderate recovery june spread agency cmbs remain pre pandemic level agency cmbs issuance strong contrast lending standard cre loan tighten accord july sloos cre loan growth bank slow credit quality exist cre loan continue deteriorate sign repayment difficulty emerge notably lodging retail sector financing condition residential mortgage market unchanged intermeete period spread primary mortgage rate mbs yield remain wide reflect capacity constraint loan originator increase origination cost decrease value servicing right credit continue flow borrower high credit score seek mortgage meet standard conform loan criterion low mortgage interest rate support elevated refinance activity financing condition remain tight borrower relatively low credit score seek nonconforme mortgage july sloos survey mortgage market condition suggest nonbank lender tighten standard credit quality mortgage appear deteriorate period financing condition consumer credit tighten bit intermeete period credit card market lending standard commercial bank tighten accord july sloos contrast condition auto loan market appear little change balance subprime borrower remain tight condition consumer asset back security abs market stable intermeete period yield spread certain highly rat credit card auto loan abs stabilize pre pandemic level student auto loan abs issuance recover pre pandemic pace consumer credit quality remain stable partly forbearance program provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system notable note unusually high level uncertainty associate assessment judge asset valuation pressure notable particular high yield investment grade corporate bond spread historical norm commercial real estate price continue increase despite rise vacancy rate assess vulnerability nonfinancial leverage rise moderate notable reflect decline household income business profit decline imply resilient borrower expect sharp decline real gdp result rise ratio household debt nominal gdp ratio business debt nominal gdp rise level historically highâamid decline profit deteriorate credit qualityâalthough low interest rate help ease firm debt servicing burden assess vulnerability arise financial leverage increase low moderate cite uncertainty loss connect business loan bank high weight vulnerability connect leverage nonbank financial institution vulnerability associate maturity liquidity transformation characterize moderate note federal reserve facility reduce vulnerability nonbank staff economic outlook u.s. economic projection prepare july fomc estimate level real gdp mark compare june forecast reflect well expect datum june economic activity appear decline historically rapid rate project rate recovery real gdp pace decline unemployment rate half year expect somewhat robust previous forecast assume additional fiscal stimulus measure enact anticipate june forecast positive effect economic outlook outweigh somewhat assessment effect factor factor include increase spread coronavirus united states mid june reaction state locality slow scale reopening economy especially business restaurant bar provide service entail personal interaction high frequency indicator point deceleration economic activity substantial fiscal policy measuresâboth enact anticipatedâalong appreciable support monetary policy federal reserve liquidity lending facility expect bolster economic recovery complete recovery expect year end inflation project subdued year reflect substantial slack resource utilization sizable decline consumer energy price early year baseline assumption restriction social interaction business operation voluntary social distancing individual ease gradually year result rate real gdp growth project exceed potential output growth unemployment rate expect decline considerably inflation forecast pick continue observe uncertainty relate economic effect pandemic extremely elevated unusual nature pandemic relate shock assessment economy evolve future challenging usual light significant uncertainty downside risk associate course pandemic long economy recover judge pessimistic projection plausible baseline forecast alternative scenario acceleration coronavirus outbreak round strict limitation social interaction business operation assume begin later year lead decrease real gdp jump unemployment rate renew downward pressure inflation year compare baseline disruption economic activity severe protract scenario real gdp inflation lower unemployment rate higher end medium term projection participant view current conditions economic outlook participants note coronavirus pandemic cause tremendous human economic hardship united states world follow sharp decline economic activity employment pick somewhat month remain level beginning year weak demand significantly low oil price hold consumer price inflation overall financial condition improve month reflect policy measure support economy flow credit u.s. household business participant agree path economy depend course virus see highly uncertain participant note rebound consumer spending trough april particularly strong resumption economic activity payment household coronavirus aid relief economic security cares act support household income consumer expenditure participant observe rebound household spending recover half previous decline consumer purchase goodsâinclude motor vehicle durable especially good sell onlineâhad bounce purchase service air travel hotel accommodation restaurant meal disrupt significantly social distancing effect virus regard behavior household spending week participant point information district contact high frequency indicator credit debit card transaction mobility indicator base cellphone location tracking suggest increase consumer expenditure slow reaction spread virus participant note household spending discretionary servicesâsuch leisure travel hospitalityâwould subdue time factor restrain pace recovery contrast sizable rebound consumer spending participant see improvement business sector month note district business contact continue extraordinarily high level uncertainty risk participant relay example operational difficulty business contact reportedly face environment difficulty include manage disruption supply chain challenge associate closure reopening elevated employee absenteeism case furthermore participant note small business significant strain near term fiscal support uncertain participant note light condition business sector business investment spending continue subdue participant agree action consumer business take step slow spread virus development public health critical ensure durable reopening business addition monetary policy particularly fiscal policy play important role support business activity participant comment ongoing challenge face energy farm sector despite improvement energy sector challenge include low oil demand excess inventory low oil price farm sector include low price farm commodity pandemic relate disruption food processing plant significant decline demand ethanol labor market participant comment pace employment gain strong june slow increase number virus case part country lead delay business reopening reclosure pace decline initial unemployment insurance claim slow week claim remain elevated level addition participant emphasize labor market long way recovery positive june employment report report indicate june roughly loss job occur march april offset subsequent gain participant agree prospect substantial improvement labor market depend broad sustain reopen business turn reopening depend large efficacy health measure take limit spread virus participant discuss nature situation labor market note downturn employment concentrate low wage service sector worker employ industry adversely affect social distancing measure low wage service sector job disproportionately hold african americans hispanics woman portion population bear disproportionate share economic hardship cause pandemic participant note fiscal support initiate spring cares act important grant financial relief million family number participant observe provision cares act set expire shortly backdrop weak labor market additional fiscal aid important support vulnerable family economy period ahead comment inflation participant judge negative effect pandemic aggregate demand offset upward pressure price stem supply constraint high demand certain product effect pandemic price see disinflationary recent low monthly reading pce price suggest month change measure pce price inflation run committee percent objective time backdrop participant note risk long term inflation expectation level consistent committee symmetric percent objective participant note highly accommodative stance monetary policy need time support aggregate demand achieve percent inflation long run participant observe measure financial market functioning indicate improvement achieve extreme turbulence march sustain action federal reserve include emergency lending facility establish approval case financial support treasury help ease strain financial market see early year support flow credit household business community participant observe volume borrow month federal reserve liquidity facility stay low reflect improve availability funding market source participant agree federal reserve ongoing provision backstop credit form continue important sustain market improvement achieve participant observe uncertainty surround economic outlook remain elevated path economy highly dependent course virus public sector response risk outlook note include possibility additional wave virus outbreak result extend economic disruption protract period reduce economic activity scenario bank lender tighten condition credit market appreciably restrain availability credit household business risk cite include possibility fiscal support household business state local government provide sufficient relief financial strain sector foreign economy come great pressure anticipate result spread pandemic abroad participant note potential long run effect pandemic associate possible restructuring sector economy slow growth economy productive capacity time number participant comment potential risk financial stability bank financial institution come significant stress particularly adverse scenario spread virus effect economic activity realize nonfinancial corporation carry high level indebtedness pandemic increase risk insolvency concern anticipated increase treasury debt year implication market functioning general agreement institution activity market monitor closely participant note improved datum helpful participant observe federal reserve recently take step help ensure bank resilient pandemic include conduct additional sensitivity analysis conjunction stress test impose temporary restriction shareholder payout preserve bank capital couple participant note believe restriction shareholder payout extend judge step premature consideration monetary policy participant reaffirm commitment federal reserve range tool support u.s. economy challenging time promote maximum employment price stability goal note path economy depend significantly course virus ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term light assessment participant consider appropriate maintain target range fund rate percent furthermore participant continue judge appropriate maintain target range confident economy weather event track achieve committee maximum employment price stability goal participant judge order support flow credit household business appropriate coming month federal reserve increase holding treasury security agency residential mortgage back security rmbs cmbs pace action helpful sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition participant note appropriate desk offer large scale overnight term repo operation participant observe important monitor development closely committee prepare adjust plan appropriate participant discuss stance monetary policy circumstance increase monetary policy accommodation clarify intention policy participant judge committee policy action past month provide substantial accommodation observe committee asset purchase design support financial market functioning smooth flow credit provide degree policy accommodation note increase uncertainty economic outlook intermeete period participant suggest additional accommodation require promote economic recovery return inflation committee percent objective participant observe nature shock u.s. economy experience strong fiscal policy support necessary encourage expeditious improvement labor market condition regard outlook monetary policy number participant note provide great clarity path target range fund rate appropriate point concern possible form revise policy communication participant comment outcome base forward guidanceâunder committee undertake maintain target range fund rate specified economic outcome achievedâand touch calendar base forward guidanceâunder target range maintain particular calendar date context outcome base forward guidance participant mention threshold calibrate inflation outcome unemployment rate outcome combination combination calendar base guidance addition participant comment appropriate frame communication committee ongoing asset purchase term role foster accommodative financial condition support economic recovery discuss policy outlook number participant observe complete revise statement long run goals monetary policy strategy helpful provide overarching framework help guide committee future policy action communication majority participant comment yield cap targetsâapproache cap target interest rate yield curveâas monetary policy tool participant discuss option judge yield cap target provide modest benefit environment committee forward guidance path fund rate appear highly credible long term interest rate low participant point potential cost associate yield cap target cost participant note possibility excessively rapid expansion balance sheet difficulty design communication condition policy terminate especially conjunction forward guidance policy rate light concern participant judge yield cap target warrant environment option committee reassess future circumstance change markedly couple participant remark value yield cap target means reinforce forward guidance asset purchase provide insurance adverse movement market expectation path monetary policy tool help limit asset purchase committee need pursue dual mandate goal committee policy action monetary policy member agree coronavirus outbreak cause tremendous human economic hardship united states world follow sharp decline economic activity employment pick somewhat month remain level beginning year consumer price inflation hold weak demand significantly low oil price overall financial condition improve reflect policy measure support economy flow credit u.s. household business community member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member state path economy depend significantly course virus addition member agree ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term light development member decide maintain target range fund rate percent member state expect maintain target range confident economy weather event track achieve committee maximum employment price stability goal member agree monitor implication incoming information economic outlookâinclude information relate public healthâas global development mute inflation pressure use committee tool act appropriate support economy determine timing size future adjustment stance monetary policy member note realize expect economic condition relative committee maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business member agree coming month appropriate federal reserve increase holding treasury security agency rmbs cmbs pace sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition member agree desk offer large scale overnight term repo operation member note closely monitor development prepared adjust plan appropriate conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective july federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security agency mortgage back security mbs agency commercial mortgage back security cmbs pace sustain smooth functioning market security foster effective transmission monetary policy broad financial condition conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs principal payment holding agency cmbs agency cmbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal coronavirus outbreak cause tremendous human economic hardship united states world follow sharp decline economic activity employment pick somewhat month level beginning year weak demand significantly low oil price hold consumer price inflation overall financial condition improve month reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus ongoing public health crisis weigh heavily economic activity employment inflation near term pose considerable risk economic outlook medium term light development committee decide maintain target range fund rate percent committee expect maintain target range confident economy weather event track achieve maximum employment price stability goal committee monitor implication incoming information economic outlook include information relate public health global development mute inflation pressure use tool act appropriate support economy determine timing size future adjustment stance monetary policy committee realize expect economic condition relative maximum employment objective symmetric percent inflation objective assessment account wide range information include measure labor market condition indicator inflation pressure inflation expectation reading financial international development support flow credit household business come month federal reserve increase holding treasury security agency residential commercial mortgage back security pace sustain smooth market functioning foster effective transmission monetary policy broad financial condition addition open market desk offer large scale overnight term repurchase agreement operation committee closely monitor development prepared adjust plan appropriate vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective july agree committee hold tuesdayâwednesday september 15ââ16 adjourn 10:55 a.m. july notation vote notation vote complete june committee unanimously approve minute committee hold june james clouse secretary federal open market committee reference fomc committee minute return text attend economic development outlook wednesday return text attend monetary policy strategy tool communication practice return text attend development financial market open market operation return text attend economic development outlook return text attend development financial market open market operation return text attend tuesday return text approve fima desk resolution update march resolution expiration date available committee organizational document https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text

minute federal open market committee september 15â16 joint federal open market committee board governors hold videoconference tuesday september 11:00 a.m. continue wednesday september 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey marc giannoni trevor reeve ellis tallman william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors sally davies brian doyle deputy directors division international finance board governors rochelle edge deputy director division monetary affairs board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn ellen meade chiara scotti ivan vidangos special advisers board division board members board governors linda robertson assistant board division board members board governors david bowman senior associate director division monetary affairs board governors eric engen diana hancock john stevens senior associate directors division research statistics board governors jeremy rudd senior adviser division research statistics board governors glenn follette associate director division research statistics board governors david lópez salido associate director division monetary affairs board governors christopher gust deputy associate director division monetary affairs board governors john roberts deputy associate director division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors brian bonis laura lipscomb assistant directors division monetary affairs board governors penelope beattie section chief office secretary board governors dana burnett felicia ionescu section chiefs division monetary affairs board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors michele cavallo jonathan goldberg kurt lewis principal economists division monetary affairs board governors randall williams senior information manager division monetary affairs board governors meredith black vice president federal reserve bank dallas david altig kartik athreya joseph gruber sylvain leduc anna paulson daleep singh christopher waller executive vice presidents federal reserve banks atlanta richmond kansas city san francisco chicago new york st. louis respectively argia sbordone patricia zobel vice presidents federal reserve bank new york jenny tang senior economic policy advisor federal reserve bank boston opening remarks chair vice chair williams governor clarida open remark memory thomas laubach chair powell thomas unquestionably great economic mind generation research big discussion policy action past year rare underappreciated gift translate arcane academic theory real world practice ability real difference conduct communication monetary policy work balance sheet lead steering monetary policy thomas laubach intellectual fingerprint committee decision define era federal reserve thomas exceptional colleague leader friend surprised know condolence pour admiration kindness equanimity match exceed esteem intellect thomas model leadership fiercely believe team critical collective success certain know battle health problem work treatment help fight economic fallout global pandemic concern lie amid deluge emergency work fight historic downturn upending daily life thomas urge people care family testament mutual respect amity thomas team propose tealbook dedication memory friend colleague collaborator grieve loss absence leave space truly fill miss thomas laubach intellect insight importantly miss thomas laubach vice chair williams thomas start work year ago arrive board kansas city fed return stint council economic advisers truly serendipitous immediately recognize share interest figure estimate thing call natural rate interest importantly thomas expert kalman filtering race project ironically give subsequent event question time productivity boom drive high fact december memo memo board original estimate percent real nominal percent nominal day jump ahead year follow appointment director monetary affairs thomas frequently earnestly ask effective role adviser fomc remind committee time compare herd cat look way raise game hopefully help committee grapple issue decision effort lead briefing labyrinth chart figure thomas heroically try sense summary economic projections sep projection implicit policy rule embed look hard say make sense factor role trust adviser display important framework chair powell comment thomas focus make sure committee prepare good information analysis consistently move goal line engage complex range issue deal effect pandemic scrupulously play role honest broker perfect formula herd cat keen intellect dollop understate humor big helping patience perseverance governor clarida thomas laubach remarkable human happen world class economist pass week represent course incalculable loss family devastating blow feel federal reserve system major bank world frequently visit arrive board know thomas primarily research book inflation target ben bernanke rick mishkin adam posen classic reference subject work president williams thomas talent pick author thomas meet ph.d. student work book visit new york fed remember year ago strike thomas enthusiasm bring economic graduate student thomas course lose spark joy practice monetary policy fortunate iâand sure chair powell chair yellenâtruste implicitly speak seek insight advice privately office counsel big policy decision year vice chair thomas work well inspire forth good energy effort achieve large goal certainly case framework vice chair williams chair powell say thomas bring peerless leadership energy commitment entire framework simply achieve evolution framework strategy thomas insight inspiration good bring project ambitious process design work implement understand thomas day able watch chair speech jackson hole roll framework proud wall street journal call landmark change u.s. monetary policy sure speak conclude say proud privilege work thomas laubach year fed deeply miss spirit inspiration endure development financial markets open market operations system open market account soma manager discuss development financial market net financial condition ease intermeete period equity price rise broad dollar continue depreciate crisis drive peak march yield treasury inflation protect security fall long date nominal treasury yield increase modestly market participant attribute development strong economic outlook well news covid-19 trajectory well fear corporate earning report accommodative policy backdrop respondent open market desk survey primary dealers survey market participants perceive downside risk u.s. gross domestic product gdp growth year have decline notably july survey forecast growth revise significantly economic outlook brighten market participant continue significant risk ahead note concern elevated asset valuation certain sector cite geopolitical event heighten uncertainty addition forecaster assume additional pandemic relate fiscal package approve year note absent package growth decelerate fast expect pace light risk ongoing pandemic market participant continue supportive policy environment backstop market functioning remain important stabilizer release revise statement long run goals monetary policy strategy consensus statement elicit relatively modest immediate reaction market market participant view completion important milestone indicate grow expectation committee adopt flexible average inflation target regime influence asset price month particular expectation view contribute rise far forward measure inflation compensation market participant note measure somewhat low historical standard market participant continue anticipate committee update forward guidance fund rate respondent desk survey continue expect fomc adopt outcome base forward guidance link inflation note employment measure forward guidance survey respondent expectation economic condition prevail fomc lift target range shift notably previous survey respondent project somewhat high inflation low unemployment july expectation asset purchase year remain tightly center pace survey respondent revise asset purchase expect manager turn fund market condition open market operation period condition short term dollar funding market remain stable period overnight secured unsecured rate continue trade narrow range near interest excess reserve rate forward measure funding rate imply condition expect stable coming month market treasury security agency mortgage back security mbs continue function smoothly bid ask spread range indicator remain near pre pandemic level indicator function market agency commercial mortgage back security cmbs remain stable light improved condition propose desk long require increase agency cmbs holding reinvest principal payment agency cmbs time desk conduct regular agency cmbs operation maintain backstop capacity unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation covid-19 pandemic measure undertake contain spread continue affect economic activity united states abroad information available time september 15â16 suggest u.s. real gdp rebound rapid rate labor market condition continue improve markedly july august employment level beginning year consumer price inflationâas measure 12âmonth percentage change price index personal consumption expenditure pce julyâremained rate prevail early year total nonfarm payroll employment expand strongly july august al­though payroll retrace half job lose onset pandemic unemployment rate move percent august unemployment rate african americans asians hispanics decline past month remain national average labor force participation rate rise net employment population ratio increase july august initial claim unemployment insurance benefit continue net early september pace decline slow addition weekly estimate private sector payroll construct board datum provide payroll processor adp suggest employment gain solid mid august early september total pce price inflation percent month end july reflect weak aggregate demand considerable drop consumer energy price early year core pce price inflation exclude change consumer food energy price percent month period comparison trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent july consumer price index cpi increase percent month end august core cpi inflation percent period monthly basis inflation reading bolster increase durable good price reflect strong demand consumer good household purchase shift away consumer service late reading survey base measure long run inflation expectation move bit remain range year university michigan surveys consumers measure year edge july august year ahead measure federal reserve bank new york survey consumer expectations creep past month real pce expand strongly july continue bolster supportive fiscal monetary policy action august component retail sale estimate pce sale light motor vehicle increase high frequency indicator spend consumer servicesâsuch restaurant dining hotel accommodation air travelâwere subdue real disposable personal income roughly flat july primarily reflect gain wage salary income offset waning government transfer payment peak spring personal saving rate remain elevated consumer sentiment measure michigan survey edge august conference board survey measure move measure continue level beginning year housing sector activity continue expand support effect low interest rate start building permit issuance single family home start multifamily unit increase july sale exist home rise substantially measure construction sale near pre pandemic level indicator business fix investment suggest sector begin recover balance nominal order shipment nondefense capital good exclude aircraft increase july consecutive monthly increase indicator business equipment spending measure business sentiment improve somewhat july august addition number crude oil natural gas rig operation early septemberâan indicator business spending structure drilling mining sectorâhad flatten recently follow decline spring contrast nominal business spending nonresidential structure outside drilling mining sector decline june july industrial production expand july august al­though rapid pace precede month increase factory output broad base gain manufacturing industry slow gradually june production mining sectorâwhich include crude oil natural gas drilling extractionâincrease july fall august tropical storm marco hurricane laura cause sharp temporary decrease extraction drilling total real government purchase appear increase modestly balance federal defense spending continue rise august employment boost markedly temporary census relate hiring state local government payroll expand july august al­though nominal state local construction expenditure decrease june july decline sharply early year export import good service increase strongly june july net month nominal u.s. international trade deficit widen import rise export export import good rise june july major product category export import service rise modestly follow previous historic decline foreign economic activity plunge result covid-19 pandemic associated restrictive measure contain measure have roll month economic indicator point large partial rebound foreign economy recent indicator household business spending strong economy include canada euro area brazil reflect boost substantial government support program china economic indicator show continue moderate expansion sharp rebound gain consumption continue lag production export similarly mexico strong rebound manufacturing production contrast weak service activity despite widespread rebound foreign activity indicator resurgence covid-19 case part europe asia add uncertainty outlook economy recent reading headline core inflation abroad remain low particularly advanced foreign economy afes amid subdued demand pressure low energy price early year staff review financial situation financial market sentiment improve intermeete period boost decline number covid-19 case united states strong anticipate corporate earning report domestic economic datum release broad stock price index rise net despite notable decline late intermeete period inflation compensation increase reach pre pandemic level change asset price modest consistent improved sentiment treasury yield curve steepen little spread speculative grade corporate bond narrow moderately exchange value dollar depreciate modestly finance condition business access capital market household high credit score remain accommodative al­though condition remain tight borrower yield year nominal treasury security little change july fomc 10- year yield rise moderately market commentary attribute increase long term yield improve investor sentiment improve sentiment partly reflect decline covid-19 case united states strong expect economic datum al­-though market reaction economic datum release limited near date imply volatility year treasury security little change intermeete period remain near historical range measure inflation compensation base tips mature year continue increase reflect general improvement investor sentiment accompany improvement economic outlook improvement tips market liquidity high expect july cpi datum release year to-10 year measure inflation compensation close pre pandemic level low end historical range expect path fund rate year imply straight read overnight index swap quote little change net july fomc remain close effective lower bind elb half communication monetary policy intermeete period little effect treasury yield expect path fund rate market participant suggest building expectation committee form flexible average inflation target revise consensus statement factor boost tips inflation compensation month broad stock price index rise net intermeete period consistent well expect news economy corporate earning month option imply volatility s&p 500âthe vixâwa roughly unchanged net al­though measure long term downside risk equity market option imply cost insure percent decline s&p index month increase somewhat spread investment- speculative grade corporate bond yield comparable maturity treasury yield narrow somewhat remain near historical medians condition short term funding market stable intermeete period spread commercial paper negotiable certificate deposit different tenor change little net remain level observe pandemic total gross issuance remain pre pandemic normal range al­though outstanding volume nonfinancial decline moderately july fomc asset management prime government money market fund mmfs decline modestly net partly reverse change observe april july institutional government mmfs net decrease holding treasury security increase holding repurchase agreement repos august reversal drive tight spread treasury bill yield repo rate amid normalizing market condition little activity money market mutual fund liquidity facility commercial paper funding facility effective fund rate secured overnight financing rate average basis point intermeete period federal reserve repo outstanding remain intermeete period attractive rate private market federal reserve increase holding treasury security agency mbs pace previous intermeete period foreign asset price movement mute market participant weigh concern rise infection rate country prospect covid-19 vaccine emerge market economy emes asian equity market significantly outperform latin american counterpart chinese equity show particular strength afes equity index rise modestly long term sovereign yield edge higher line modest improvement risk sentiment broad dollar index decline moderately net dollar depreciate eme currency chinese renminbi boost well expect chinese economic datum notable contributor decline trade weight dollar index mexican peso afe currency euro appreciate reach high level dollar pound little change early appreciation dollar unwound amid resurgence brexit relate uncertainty financing condition capital market remain accommodative intermeete period amid historically low corporate bond yield gross issuance investment- speculative grade corporate bond strong july august issuance intend refinance exist debt gross institutional leveraged loan issuance pick slightly july remain level observe period year amid notable equity market gain august gross equity issuance robust seasoned offering strengthen double typical pace commercial industrial loan outstanding decline july august slow pace june decline large reflect continued credit line repayment credit quality nonfinancial corporation show tentative sign stabilization intermeete period dollar volume nonfinancial corporate bond downgrade continue exceed upgrade albeit modestly represent sizable reduction net downgrade spring pace nonfinancial corporate bond default july notably low april elevate relative pre pandemic level default volume fall august reach level monthly average market indicator future default expectation improve somewhat financing condition small business remain tight al­though indicator point slight improvement day delinquency rate fall modestly july remain comparable early level credit need small business remain high significant share respondent census bureau small business pulse survey report scarce cash availability anticipate need financial assistance month municipal market financing condition remain accommodative july fomc credit quality municipal debt deteriorate somewhat drive relatively large volume credit rating downgrade revenue bond financing condition commercial real estate cre intermediate capital market recover intermeete period spread triple non agency cmbs remain wide continue narrow august triple spread remain close pre pandemic level issuance non agency cmbs steady subdue relative pre pandemic level spread agency cmbs tight issuance strong set single month record july contrast cre loan growth bank weak july august partly drive recovery cmbs market delinquency rate mortgage back cmbs fall bit july remain high hotel retail sector financing condition residential mortgage market little change intermeete period mortgage rate hover near historical low spread primary mortgage rate mbs yield remain wide credit continue flow high score borrower meet standard conform loan criterion remain tight borrower low credit score nonstandard mortgage product nonetheless low mortgage rate support home purchase origination refinancing credit quality mortgage improve slightly rate transition delinquency remain near pre pandemic level forbearance continue slowly decline financing condition consumer credit market remain accommodative borrower relatively strong credit score continue tight subprime borrower auto loan balance increase solidly decline borrower low credit score credit card balance contract slow rate june july spring offer interest rate rise credit limit edge credit card nonprime borrower condition asset back security abs market stable intermeete period abs spread edge auto student loan issuance robust consumer credit performance remain stable share auto credit card balance forbearance decline staff economic outlook u.s. economic projection prepare september fomc rate real gdp growth pace decline unemployment rate fast half year july forecast primarily reflect well expect datum addition inflation forecast rest year revise slightly consumer good price strong expect inflation project subdue year reflect substantial slack resource utilization sizable decline consumer energy price early year fiscal policy measure support monetary policy federal reserve liquidity lending facility expect support half recovery al­though recovery forecast far complete year end forecast assume enactment additional fiscal policy support year additional policy action pace economic recovery slow medium term projection baseline assumption include restriction social interaction business operation voluntary social distancing individual firm ease gradually year addition projection assume monetary policy accommodative previous forecast order fully reflect revise consensus statement altogether rate real gdp growth project exceed potential output growth unemployment rate expect decline considerably inflation forecast pick accommodative monetary policy assume forecast reflect consensus statement inflation project moderately overshoot percent time year continue observe uncertainty relate course covidâ19 pandemic associated economic effect extremely elevated risk outlook tilt downside give apparent resilience u.s. economy acceleration spread pandemic summer judge significantly pessimistic economic outcome previously view plausible baseline forecast feature renew downturn economic activity baseline forecast participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policyâinclude path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy projection describe sep addendum minute participant note covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment pick month remain level beginning year weak demand significantly low oil price hold consumer price inflation overall financial condition improve month reflect policy measure support economy flow credit u.s. household business participant agree path economy depend course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economy medium term outlook participant observe incoming datum indicate economic activity recover fast expect depressed level economy shut stem spread virus particular reopening business few people withdraw social interaction consumer spending rebound sharply appear recover fourth early decline prior fiscal policy action see have support ability willingness household spend al­though participant express concern expiration enhance unemployment insurance benefit cares act coronavirus aid relief economic security act judge additional fiscal relief help sustain recovery household spending participant note economic outlook assume additional fiscal support future fiscal support significantly small arrive significantly later expect pace recovery slow anticipate participant view accommodative monetary policy contribute gain residential investment consumer purchase motor vehicle durable good participant point strength consumer purchase good especially sell online note outlay service slow recover particularly item air travel hotel accommodation restaurant meal significantly disrupt social distancing measure participant expect spending service subdued time restrain factor pace recovery participant raise possibility unwinding large pool household saving accumulate pandemic provide great anticipate momentum consumption forward couple participant judge saving reflect reduced spending person service high income consumer unlikely provide momentum future consumption participant note business investment plummet appear begin turn point datum show gain capital good order shipment improve business sentiment number participant judge low interest rate support business investment recovery view unevenly distribute industry business contact report progress adapt pandemic note industry rely person person interaction continue struggle business contact tie motor vehicle housing industry indicate increased activity close aviation hospitality nonresidential construction industry see recovery contact continue ongoing stress energy sector challenge agricultural sector crop price rise recently sale china increase al­though business contact indicate business activity strong expect remain pre pandemic level business contact point factor restrain recovery include high level uncertainty reportedly hold hiring capital spending contact report difficulty manage disruption supply chain elevated level employee absenteeism pandemic additionally district contact indicate fiscal policy help support small business aid payment help support farm income participant observe labor market condition continue improve month economy august regain roughly half job lose march april gain employment july august see large anticipate participant judge labor market long way fully recover agree prospect substantial improvement labor market depend broad sustain reopening business turn depend importantly safe individual feel reengage wide range activity participant note majority gain employment far reflect worker temporary layoff return work participant judge future job gain pace great share remain layoff permanent worker face permanent layoff see need find job different industry process time especially extent worker need retrain participant observe lower pay worker disproportionally affect economic effect pandemic worker employ service sector industry adversely affect social distancing measure disproportionate share service sector job hold african americans hispanics woman group see especially hard hit economic hardship cause pandemic participant view fiscal support cares act have important bolster financial situation million family number participant judge absence fiscal support exacerbate economic hardship minority low income community addition participant observe effect pandemic disrupt supply labor need care child attend school virtually home comment inflation participant note consumer price increase quickly expect month market base measure inflation compensation increase moderately intermeete period al­though remain low upturn consumer price primarily attribute price increase sector consumer durable demand rise experience large decline early spring inflation remain subdue participant judge effect pandemic price disinflationary outlook inflation view highly uncertain number participant project inflation run committee percent long run objective significant period move moderately percent timeâconsistent committee revise consensus statement participant note financial condition accommodative action federal reserve include establishment emergency lending facility conjunction treasury support flow credit household business community action prompt forceful monetary policy measure response pandemic view contribute accommodative financial condition participant note important difference credit quality credit availability borrower pace corporate downgrade see have decrease significantly month delinquency rate business loan rise noticeably bank contact report ample capacity lend creditworthy borrower survey credit availability indicate lending tight furthermore participant note stress small- medium sized bank face default loan small business cre property people continue withdraw travel shopping activity additionally couple participant indicate highly accommodative financial market condition lead excessive risk taking buildup financial imbalance participant continue uncertainty surround economic outlook elevated path economy highly dependent course virus individual business public official respond effectiveness public health measure address participant cite downside risk threaten recovery risk broad economic shutdown see have recede participant remain concerned possibility additional virus outbreak undermine recovery scenario result increase bankruptcy default stress financial system lead disruption flow credit household business participant raise concern fiscal support far household business state local government provide sufficient relief sector couple participant see upside risk fiscal stimulus large anticipate come later expect participant raise concern long run effect pandemic include lead restructuring sector economy slow employment growth accelerate technological disruption limit pricing power firm consideration monetary policy participant reaffirm commit federal reserve range tool order support u.s. economy challenging time promote committee statutory goal maximum employment price stability note path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term participant agree completion framework publication revise consensus statement provide strong foundation monetary policy decision communication forward accordingly participant agree appropriate incorporate key element revise consensus statement fomc statement release follow particular participant reiterate commitment achieve maximum employment inflation rate percent long run inflation run persistently long run goal participant judge appropriate aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent backdrop participant discuss range issue associate provide great clarity path fund rate year ahead participant support provide explicit outcome base forward guidance fund rate include establish criterion lift fund rate elb term path employment inflation participant favor provide explicit forward guidance couple support formulation forward guidance include language indicate appropriate maintain target range labor market condition judge consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time participant note communicate target range fund rate elb criterion achieve provide appropriately clear strong policy guidance view especially important way affirm committee commitment achieve economic outcome articulate consensus statement participant note outcome base forward guidance fund rate type unconditional commitment particular path outcome base guidance type allow public infer change committee assessment long target range fund rate setting information point weak outlook economy inflation tend lead public expectation long period setting target range information suggest strong outlook economy inflation tend lead expectation short period setting addition circumstance arise committee judge appropriate change guidance particularly risk emerge impede attainment economic objective couple participant prefer strong qualified outcome base forward guidance judge clearly convey committee commitment objective strategic approach articulate revise consensus statement particular participant prefer forward guidance target range fund rate remain elb inflation move percent time especially light lengthy period inflation run committee long run percent objective participant judge critical demonstrate committee commitment achieve outcome inflation average percent time participant note agree appropriate incorporate key element consensus statement postmeete statement prefer retain forward guidance similar provide fomc statement participant judge appropriate maintain accommodative stance policy time order foster outcome consistent committee revise consensus statement long term interest rate low appear need enhanced forward guidance juncture scope forward guidance additional downward pressure yield participant concern forward guidance involve target range fund rate remain elb employment inflation criterion achieve limit committee flexibility year furthermore influence expectation path short term interest rate guidance contribute buildup financial imbalance difficult committee achieve objective future asset purchase participant judge appropriate coming month federal reserve increase holding treasury security agency mbs pace action help sustain smooth market functioning help foster accommodative financial condition support flow credit household business participant note future meeting appropriate communicate committee asset purchase program well support achievement committee maximum employment price stability goal participant widely echo remark opening memory thomas laubach participant universally recognize great leadership intellectual contribution work committee warm generous spirit committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note economic activity employment pick month remain level beginning year weak demand significantly low oil price hold consumer price inflation overall financial condition improve month reflect policy measure support economy flow credit u.s. household business member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member state path economy depend significantly course virus addition member agree ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term member agree incorporate postmeete statement key element committee revised statement long run goals monetary policy strategy member judge action underscore committee strong commitment goal strategy articulate consensus statement pursuit committee statutory objective accordingly member agree fomc statement committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect appropriate maintain accommodative stance monetary policy outcome achieve member agree maintain target range fund rate percent member view appropriate time modify forward guidance provide great clarity future path fund rate end member agree specification outcome base forward guidance indicate committee expect appropriate maintain setting target range fund rate labor market condition reach level consistent committee assessment maximum employment inflation rise percent track run moderately excess percent time member dissent policy decision dissent member prefer committee retain great policy rate flexibility retain language forward guidance provide july postmeeting statement language note appropriate maintain target range committee confident economy weather event track achieve maximum employment price stability goal dissent prefer strong formulation forward guidanceâone committee expect maintain target range core inflation reach percent sustained basis monetary policy period ahead member agree committee policy guidance express assessment path fund rate consistent achievement committee goal unconditional commitment state appropriate rate path depend evolution economic outlook accordingly agree committee prepare adjust stance policy appropriate event risk emerge impede attainment committee goal member agree assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member note committee asset purchase help foster significant improvement market function month addition purchase security contribute accommodative financial condition way support economic recovery consistent observation member agree appropriate acknowledge postmeete statement role asset purchase support accommodative financial condition committee statement indicate coming month appropriate federal reserve increase holding treasury security agency mbs pace sustain smooth market functioning help foster accommodative financial condition support flow credit household business member consider proposal eliminate requirement directive increase holding agency cmbs soma portfolio light substantial improvement market function agency cmbs market committee judge appropriate desk purchase agency cmbs need sustain smooth market functioning seek steadily increase agency cmbs holding cease reinvestment agency cmbs principal payment member conclude light ongoing low desk repo operation necessary include sentence operation fomc statement directive adopt committee continue direct desk conduct overnight term repo operation support effective policy implementation smooth functioning short term u.s. dollar funding market conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security agency mortgage back security mbs pace increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment pick month level beginning year weak demand significantly low oil price hold consumer price inflation overall financial condition improve month reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition come month federal reserve increase holding treasury security agency mortgage back security pace sustain smooth market functioning help foster accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker loretta mester randal quarles vote action robert kaplan neel kashkari president kaplan dissent expect appropriate maintain target range committee confident economy weather event track achieve maximum employment price stability goal articulate policy strategy statement prefer committee retain great policy rate flexibility point president kashkari dissent prefer committee expect maintain target range core inflation reach percent sustained basis consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective september agree committee hold wednesdayâthursday november 4â5 adjourn 11:00 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july 28â29 notation vote complete august committee unanimously approve update statement long run goals monetary policy strategy conjunction notation vote non voting participant express support update statement james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text attend tuesday return text

minute federal open market committee november joint federal open market committee board governors hold videoconference wednesday november 9:00 a.m. continue thursday november 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans michael strine alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively ron feldman vice president federal reserve bank minneapolis james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed rochelle edge david lebow ellis tallman william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors sally davies brian doyle deputy directors division international finance board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn kurt lewis ellen meade chiara scotti special advisers board division board members board governors linda robertson assistant board division board members board governors michael palumbo senior associate director division research statistics board governors marnie gillis deboer david lópez salido min wei associate directors division monetary affairs board governors glenn follette associate director division research statistics board governors paul wood associate director division international finance board governors andrew figura deputy associate director division research statistics board governors christopher gust deputy associate director division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors brian bonis michiel pooter zeynep senyuz rebecca zarutskie assistant directors division monetary affairs board governors paul lengermann assistant director division research statistics board governors matthias paustian assistant director chief division research statistics board governors alyssa anderson benjamin johannsen matthew malloy section chiefs division monetary affairs board governors penelope beattie section chief office secretary board governors david small project manager division monetary affairs board governors michele cavallo dobrislav dobrev anna orlik judit temesvary principal economists division monetary affairs board governors arsenios skaperdas senior economist division monetary affairs board governors randall williams lead information manager division monetary affairs board governors gregory stefani vice president federal reserve bank cleveland kartik athreya joseph gruber glenn rudebusch daleep singh christopher waller executive vice presidents federal reserve banks richmond kansas city san francisco new york st. louis respectively spencer krane antoine martin paolo pesenti nathaniel wuerffel senior vice presidents federal reserve banks chicago new york new york new york respectively satyajit chatterjee mark jensen dina marchioni matthew raskin patricia zobel vice presidents federal reserve banks philadelphia atlanta new york new york new york respectively daniel cooper senior economist policy advisor federal reserve bank boston alex richter senior economist advisor federal reserve bank dallas ryan bush markets manager federal reserve bank new york developments financial markets open market operations system open market account soma manager discuss development financial market financial condition little change net intermeete period remain accommodative market participant suggest evolve expectation u.s. fiscal policy strong expect economic datum corporate earning report help support equity price later intermeete period rise covid-19 case europe united states weigh outlook equity price reverse early gain imply volatility equity market move higher intermeete period reflect uncertainty associate u.s. election future path fiscal policy concern trajectory covid-19 case market participant expectation path fund rate little change intermeete period open market desk survey primary dealers survey market participants respondent view committee start raise target range fund rate center expectation economic condition prevail fomc lift target range little change september survey respondent desk survey expect federal reserve purchase treasury security agency mortgage back security mbs pace end slow subsequent year wide range view purchase amount market participant appear increasingly focused committee communication asset purchase evolve expect communication place great emphasis foster accommodative financial condition note possibility point committee convey additional guidance future path asset purchase market participant expect committee eventually lengthen weighted average maturity federal reserve purchase treasury security manager turn financial market functioning open market operation condition short term funding market market treasury security agency mbs continue function smoothly bid ask spread range market function indicator remain near pre pandemic level weekly operation continue agency commercial mortgage back security cmbs desk purchasing modest amount short term dollar funding market continue function smoothly period forward measure funding rate consistent expectation calm condition year end federal reserve balance sheet increase modestly intermeete period growth security holding partially offset decline u.s. dollar liquidity swap outstanding outstanding balance credit liquidity facility little change manager note market participant continue facility important backstop support market functioning flow credit stress reemerge unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period discussion asset purchases participants discuss fomc asset purchase include role play support committee maximum employment price stability goal discussion participant focus objective purchase consideration assess appropriate pace composition asset purchase time communication future path asset purchase potential effect high level reserve associate ongoing expansion federal reserve asset holding bank balance sheet money market rate participant agree helpful future assessment appropriate structure committee asset purchase participant judge immediate adjustment pace composition asset purchase necessary recognize circumstance shift warrant adjustment accordingly participant see ongoing careful consideration potential step enhance committee guidance asset purchase appropriate participant precede presentation review key consideration relevant conduct asset purchase environment judge committee forward guidance fund rate expansion federal reserve security holding march expectation expansion contribute low level long term yield despite substantial treasury debt issuance note financial market participant expect committee net asset purchase pace year reduce pace subsequent year discuss change committee structure purchase include pace composition guidance committee provide public future asset purchase discuss structure asset purchase program foreign bank evolve pandemic finally evaluate high level reserve associate ongoing expansion federal reserve asset holding influence bank balance sheet money market rate discuss tool federal reserve manage money market rate environment high level reserve role committee asset purchase participant note purchase support sustain smooth market functioning help foster accommodative financial condition market functioning see have recover participant indicate role asset purchase shift foster accommodative financial condition household business support committee employment inflation goal participant judge asset purchase support smooth market functioning judge asset purchase help provide insurance risk reemerge financial market environment high uncertainty participant indicate asset purchase help guard undesirable upward pressure long term rate arise example high expect treasury debt issuance participant note possibility limit additional accommodation provide increase federal reserve asset holding light low level long term yield express concern significant expansion asset holding unintended consequence participant comment consideration relate appropriate pace composition asset purchase participant see pace composition effective foster accommodative financial condition participant note committee provide accommodation appropriate increase pace purchase shift treasury purchase long maturity increase size purchase alternatively committee provide accommodation appropriate conduct purchase pace composition long horizon point recently announce change bank canada asset purchase program participant judge committee maintain degree accommodation lengthen maturity committee treasury purchase reduce pace purchase somewhat change committee purchase structure carefully communicate public avoid misperception reduced pace purchase represent decline degree accommodation participant express concern maintain pace agency mbs purchase contribute potential valuation pressure housing market september fomc statement indicate asset purchase coming month participant view guidance asset purchase have serve committee far participant judge committee update guidance point implement qualitative outcome base guidance link horizon committee anticipate conduct asset purchase economic condition participant indicate update committee guidance asset purchase manner help market expectation future asset purchase align committee intention participant see update guidance reinforce committee commitment foster outcome consistent maximum employment inflation average percent time participant hesitant change near term guidance asset purchase point considerable uncertainty economic outlook appropriate use balance sheet policy give uncertainty participant note important committee guidance future asset purchase consistent committee forward guidance fund rate use tool coordinate term achieve committee objective participant judge guidance asset purchase imply increase committee security holding taper cease committee begin raise target range fund rate number participant highlight net purchase cease period time mature asset reinveste roughly maintain size federal reserve security holding participant comment high level reserve associate expansion federal reserve asset holding affect banking sector money market participant raise concern possibility high level reserve create pressure bank balance sheet include regulatory ratio potentially undue downward pressure money market rate participant judge federal reserve effective tool address circumstance participant note need federal reserve step manage level short term interest rate quantity reserve adjust administer rate expand overnight reverse repurchase agreement program implement maturity extension program staff review economic situation coronavirus pandemic measure undertake contain spread continue affect economic activity united states abroad information available time november 4â5 suggest u.s. real gross domestic product gdp rebound rapid rate remain level start year labor market condition improve september pace gain ease employment continue level beginning year consumer price inflationâas measure 12â­month percentage change price index personal consumption expenditure pce septemberâhad return year early pace remain noticeably rate post january february total nonfarm payroll employment expand strongly september gain markedly large increase see previous month september payroll employment retrace half decline see onset pandemic unemployment rate move percent september unemployment rate african americans asians decrease unemployment rate hispanics little change group rate remain national average addition labor force participation rate decline employment population ratio rise slightly initial claim unemployment insurance continue lower net late october weekly estimate private sector payroll construct board datum provide payroll processor adp suggest employment gain midâseptember midâoctober remain solid employment cost index eci total hourly labor compensation private sector influence hourly compensation measure concentration job loss low wage worker rise percent month end september gain little small index yearâearli 12âmonth change addition 3âmonth change eci june september noticeably average pace see period total pce price inflation percent month end september continue hold relatively weak aggregate demand decline consumer energy price see early year core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent september monthly basis inflation little low september reflect slow good price inflation late reading survey base measure long run inflation expectation move lower remain range fluctuate year october university michigan surveys consumers measure year fall level prevail early september 3âyearâahead measure federal reserve bank new york retrace august increase real pce rise strongly increase sufficient return consumer spending pre pandemic level real disposable personal income decline reflect large reduction government transfer payment result personal saving rate move sharply low elevate relative average consumer sentiment measure michigan survey conference board move higher net august index stand april trough remain level start year housing sector activity advance real residential investment home sale move firstâquarter level activity sector support low interest rate sector ability adjust business practice response social distancing pent demand follow widespread shutdown early year business fix investment expand strongly lead outsized increase equipment spending contrast spend nonresidential structure continue lower restrain firm hesitation commit project lengthy time completion uncertain future return effect low oil price drill investment growth total industrial production manufacturing output turn negative september have slow markedly august softness manufacturing production appear attributable pandemic relate delay motor vehicle industry model year changeover subdue foreign demand weak demand domestic energy producer act restrain factory output september manufacture output recover roughly third drop see early year total real government purchase decline federal nondefense purchase fall especially sharply reflect stepâdown lender processing fee associate paycheck protection program ppp addition real purchase state local government decline nominal u.s. international trade deficit narrow september widen august export import continue rebound collapse half year good import fully recover january level broad base increase august september contrast good export september recover third decline january despite brisk growth export agricultural product industrial supply service trade remain depressed drive continued suspension international travel altogether net export substantial negative contribution real gdp growth economic activity abroad rebound sharply follow rollback pandemic relate restriction gdp level remain pre pandemic peak china notable exception domestic demand support recovery asia strong rebound export especially electronic recently auto growth particularly rapid economy experience deep contraction include france italy spain advanced foreign economy afes mexico emerge market economy fall end summer country inflation rate start rise past month remain rate early year rapid increase week covidâ19 case afe especially europe prompt government reintroduce restriction rein renew wave infection late october government european countriesâincluding england france germanyâannounce nationwide restriction include closure bar restaurant case restriction mobility individual region relative spring restriction noticeably severe factory business school remain open staff review financial situation financial market sentiment little change intermeete period backdrop evolve u.s. election fiscal outlook rise covid-19 case united states europe net treasury yield curve steepen modestly corporate bond spread narrow somewhat broad equity price index increase inflation compensation increase little remain close pre pandemic level financing condition business access capital market household high credit score remain accommodative condition remain tight tighten somewhat borrower yield year nominal treasury security little change intermeete period long term yield increase modestly net reportedly reflect market participant reassessment election outcome outlook fiscal policy fomc communication macroeconomic datum release elicit material yield reaction measure inflation compensation base treasury inflation protect securities tips edge net remain close pre pandemic level development reflect recovery tips market liquidity condition stressed level spring year to-10 year measure inflation compensation remain near low end historical range expect path fund rate year imply straight read overnight index swap quote little change net september fomc remain close effective lower bind elb end survey base expectation favor increase fund rate occur broad stock price index increase balance intermeete period amid volatility associate market participant reaction news u.s. election pandemic trajectory fiscal policy outlook month option imply volatility s&p 500âthe vixâincrease net briefly rise sharply late intermeete period spread corporate bond yield comparable maturity treasury yield narrow credit spectrum stand somewhat historical median level end intermeete period condition short term funding market remain stable intermeete period spread commercial paper negotiable certificate deposit different tenor little change remain pre pandemic level outstanding level nonfinancial continue intermeete period reportedly drive issuer relatively low appetite funding light availability long term financing attractive term september end effect mute credit outstanding commercial paper funding facility end intermeete period condition money market fund mmfs calm intermeete period net yield mmfs remain stable near historical low effective fund rate stand basis point unchanged average previous intermeete period secured overnight financing rate average basis point edge previous intermeete period amid modest net decrease treasury bill issuance federal reserve repurchase agreement outstanding remain intermeete period dealer able obtain attractive rate private market federal reserve increase holding treasury security agency mbs pace previous intermeete period investor sentiment abroad turn negative intermeete period amid rise covid-19 case count newly adopt restriction aim contain spread virus indicator point slow recovery foreign economy particularly euro area uncertainty additional u.s. fiscal stimulus outcome u.s. presidential election cause asset price volatility abroad net foreign equity index decline option imply volatility euro area increase bit afe long term sovereign yield fall overall broad dollar index little change intermeete period dollar appreciate modestly afe currency japanese yen british pound asian currency include chinese renminbi south korean won taiwanese dollar appreciate u.s. dollar amid improve growth prospect low covid-19 case count latin american currency especially brazilian real turkish lira depreciate u.s. dollar concern fiscal political prospect latin america turkey financing condition capital market continue accommodative intermeete period support low interest rate high equity valuation historically low corporate bond yield gross issuance investment- speculative grade corporate bond remain solid september moderate robust reading august stay close average see year issuance reportedly intend refinance exist debt gross institutional leveraged loan issuance continue pick september remain average pace collateralized loan obligation issuance strong september support robust investor demand newly issue leveraged loan coming month credit quality nonfinancial corporation continue sign stabilization volume downgrade corporate bond leveraged loan fall pre pandemic level september corporate bond leveraged loan default low august september relative elevated reading july market indicator expect corporate bond leveraged loan default remain somewhat elevated pre pandemic level especially lower rat leveraged loan issuer commercial industrial c&i loan bank balance sheet continue decline september reflect mix weak origination activity repayment credit line draw early year october senior loan officer opinion survey bank lending practices sloos bank report standard c&i loan continue tighten few bank report tighten previous quarter addition demand c&i loan reportedly weaken financing condition small business remain tight result pandemic small business loan origination drop sharply august temporary boost ppp distribution summer time small business liquidity need high appear increase census bureau small business pulse survey point majority small business have month cash hand small business anticipate need additional financial assistance month uncertainty surround earning prospect reportedly make business owner willing debt prevail term small business loan performance deteriorate intermeete period commercial real estate cre finance capital market financing condition remain accommodative intermeete period spread agency cmbs narrow issuance strong september spread triple non agency cmbs pre pandemic range august move september early october non agency issuance remain relatively subdue september contrast cre loan growth bank decelerate standard cre loan tighten accord october sloos financing condition residential mortgage market little change intermeete period mortgage rate remain near historical low support high volume home purchase refinance origination credit continue flow high score borrower standard conform loan criterion remain tight borrower low credit score nonstandard mortgage product residential real estate loan bank balance sheet decline october sloos suggest lending standard tighten mortgage type mortgage forbearance rate continue downward trend rate delinquency remain low consumer credit market condition remain accommodative borrower relatively strong credit score continue tight borrower subprime credit score bank october sloos indicate standard tighten demand little change balance consumer loan type follow sharp contraction demand credit card balance continue decline gain balance account holder prime credit score offset decline nonprime account interest rate exist account little change remain pre crisis level interest rate account nonprime borrower remain elevated auto loan balance increase solidly prime near prime borrower decline subprime borrower auto loan interest rate increase stay pre pandemic level condition asset back security market remain stable intermeete period provide update assessment stability financial system judge account low interest rate asset valuation appear moderate measure compensation risk middle historical range uncertainty pandemic economic outlook high risk sizable decline asset price adverse shock materialize remain significant cre price start decline sector market condition include rise vacancy decline rent point risk drop especially severely affect sector assess vulnerability associate household business borrowing notable household finance weaken economic downturn household find debt level burdensome forward business debt level high pandemic ability business service obligation depend course economic recovery assess vulnerability arise financial leverage moderate banking sector resilient development bank profitability range financial institution affect future loss weakening economic outlook relative pre pandemic condition low interest rate regard funding risk highlight structural vulnerability market short term funding corporate bond remain emergency facility view critical restore market functioning continue serve important backstop summarize near term risk financial stability identify outreach public month include concern associate outlook pandemic business default staff economic outlook u.s. economic projection prepare november fomc rate real gdp growth pace decline unemployment rate half year similar september forecast despite material revision assumption influence outlook incoming datum balance well expect particular absence clear progress agreement fiscal stimulus remove assumption additional tranche fiscal policy support enact lack additional fiscal support expect cause significant hardship number household assess saving cushion accumulate household allow total consumption maintain year end september projection continue expect rapid partial rebound activity half year follow unprecedented contraction spring inflation forecast rest year revise slightly response incoming reading inflation balance high expect inflation project finish year relatively subdue level reflect substantial margin slack labor product market large decline consumer energy price see early year medium term projection assumption significant additional fiscal support enact point low trajectory aggregate demand forward datum tax receipt suggest fiscal position state locality deteriorate expect lead boost project path state local government purchase monetary policy assume highly accommodative socialâdistance measure expect ease continue project real gdp medium term outpace potential lead considerable decline unemployment rate result take­âup economic slack turn expect cause inflation increase gradually inflation rate project moderately overshoot percent time year monetary policy remain accommodative continue observe uncertainty relate future course pandemic consequence economy high continue risk economic outlook tilt downside late datum suggest increase probability resurgence disease participant view current conditions economic outlook participants note covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment continue recover remain level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant agree path economy depend course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economy medium term outlook participant observe economy register rapid incomplete rebound real gdp rise annual rate percent reflect gain consumer spending housing sector activity business equipment investment month pace improvement moderate slow growth expect participant note economic activity far recover fast expect early year household spending good especially durable good strong move pre pandemic level participant comment rebound consumer spending stimulus payment expand unemployment benefit provide essential support household participant view accommodative monetary policy contribute gain durable good residential investment surge home sale contrast participant note consumer outlay service increase slowly durable good particularly item air travel hotel accommodation restaurant meal significantly disrupt voluntary mandate social distancing measure participant expect strength household spending especially durable good residential investment participant note household balance sheet appear healthy unwinding large pool household saving accumulate pandemic provide great anticipate momentum consumer spending coming month participant express concern absence additional fiscal support lower- moderate income household need reduce spending sharply saving exhaust couple participant note report banking contact household appear rapidly exhausting fund receive fiscal relief program participant note business equipment investment pick participant expect momentum investment extend year economic recovery continue couple participant note business district defer long term commitment heighted uncertainty economic outlook recovery view unevenly distribute industry business contact particularly durable good housing industry report progress adapt pandemic improved business condition othersâespecially tie small business hospitality aviation nonresidential construction industriesâwere see difficult circumstance contact report improved condition agricultural sector boost strong demand china domestic ethanol production high crop price aid payment look ahead business contact express concern household business currently weak position weather additional economic shock beginning pandemic participant observe labor market condition continue improve month roughly half job lose march april have regain unemployment rate decline employment gain spring see large anticipate business contact couple districtsâparticularly manufacturing health care technology sectorsâreporte have trouble hire worker reason relate virus case worker need provide childcare participant note decline unemployment rate month accompany fall labor force participation rate particularly high school education low woman number worker temporary layoff fall sharply number permanent job loser continue rise participant comment pace labor market improvement moderate forward couple note business industry severely affect pandemic downsize business focus cut cost increase productivity include automation participant observe high rate job loss especially prevalent low wage worker particularly service sector woman african americans hispanics participant note trend slow reverse exacerbate racial gender social economic disparity addition slow job market recovery cause particular hardship educational attainment access childcare broadband great need retrain comment inflation participant note consumer price increase quickly expect month broad price trend soft upturn consumer price inflation primarily attribute price increase sector pandemic induce strong demand consumer durable contrast service price inflation remain soft pre pandemic rate price category affect social distancing accommodation airfare continue depressed housing service inflation moderate participant comment unusually large relative price movement cause pandemic considerable uncertainty long price change persist participant note financial condition accommodative action federal reserve include establishment emergency lending facility approval case provision equity investment treasury support flow credit household business community action view contribute accommodative financial condition participant note important difference credit availability borrower particular financing condition ease residential mortgage borrower large corporation able access capital market survey credit availability indicate lending condition tighten participant note financing condition small business especially worrisome ppp end prospect additional fiscal support remain uncertain point census bureau small business pulse survey half respondent report have month cash hand participant continue uncertainty surround economic outlook elevated path economy highly dependent course virus individual business public official respond effectiveness public health measure address participant cite downside risk threaten recovery broad economic shutdown see unlikely participant remain concerned possibility resurgence virus undermine recovery majority participant see risk expect fiscal support household business state local government sufficient sustain activity level sector participant note additional fiscal stimulus large anticipate upside risk participant comment surge virus case europe reimposition restriction lead slowdown economic activity euro area negative spillover effect u.s. recovery participant raise concern long run effect pandemic include sectoral restructuring slow employment growth acceleration technological disruption limit pricing power firm number participant comment potential risk financial stability participant note banking system show considerable resilience end observe resilience partly reflect strong expect balance sheet customer delinquency rate decline show moderate increase capital position loan loss reserve large bank high pandemic participant emphasize need ensure bank maintain strong capital level low level capital typically associate tight credit availability bank participant comment vulnerability witness march selloff treasury market substantial maturity liquidity transformation undertake nonbank financial institutionsâsuch prime mmfs corporate bond loan mutual fundsâwere discuss couple participant express concern prolonged period low interest rate highly accommodative financial market condition lead excessive risk taking turn result elevated firm bankruptcy significant employment loss economic downturn participant note climate change pose important challenge financial stability welcome analysis climate change source shock underlie vulnerability couple participant comment action take federal reserve support economy achieve mandated goal support financial stability relatedly participant emphasize important role section 13(3 facility play restore financial market confidence support financial stability note facility serve important backstop financial market participant note important extend year end consideration monetary policy participant reaffirm federal reserve commitment range tool order support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant agree path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term light assessment participant judge maintain accommodative stance monetary policy essential foster economic recovery achieve committee long run percent inflation objective participant remark committee action september provide explicit outcome base forward guidance fund rate important step affirm committee strong commitment goal strategy articulate revise statement long run goals monetary policy strategy participant note encourage evidence suggest market participant expectation economic condition prevail time liftoff consistent committee forward guidance revise consensus statement participant agree monetary policy provide substantial accommodation concur fund rate elb accommodation committee forward guidance increase security holding judge stance monetary policy remain appropriate employment inflation remain short committee goal uncertainty course virus outlook economy continue elevated participant view resurgence covid-19 case united states abroad downside risk recovery participant note diminish odd significant fiscal support increase downside risk add uncertainty economic outlook asset purchase participant judge appropriate coming month federal reserve increase holding treasury security agency mbs pace action help sustain smooth market functioning help foster accommodative financial condition support flow credit household business participant judge committee want enhance guidance asset purchase fairly soon participant favor move qualitative outcome base guidance asset purchase link horizon committee anticipate conduct asset purchase economic condition participant hesitant change near term guidance asset purchase point considerable uncertainty economic outlook appropriate use balance sheet policy give uncertainty discussion recommend changes summary economic projections participants consider recommendation subcommittee communication change summary economic projections sep enhance information provide public recommendation include accelerate release set sep exhibit week corresponding fomc minute release day policy decision add chart display time series diffusion index participant judgment uncertainty risk recommendation write summary projection include addendum minute corresponding fomc discontinue participant comment note release sep material time postmeete statement provide great context policy decision highlight risk management factor relevant decision emphasize degree uncertainty participant modal projection comment note sep serve valuable role illustrate participant policy assessment respond change economic outlook participant comment suggest useful think option refine sep participant unanimously support recommend change agree implement begin december committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note economic activity employment continue recover remain level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member state path economy depend significantly course virus addition member agree ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree maintain target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree coming month appropriate federal reserve increase holding treasury security agency mbs pace sustain smooth market functioning help foster accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member agree assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective november federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security agency mortgage back security mbs pace increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment continue recover level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition come month federal reserve increase holding treasury security agency mortgage back security pace sustain smooth market functioning help foster accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida mary daly patrick harker robert kaplan loretta mester randal quarles vote action ms. daly vote alternate consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective november agree committee hold tuesdayâwednesday december 15â16 adjourn 10:05 a.m. november notation vote notation vote complete september committee unanimously approve selection trevor reeve serve economist rochelle edge serve associate economist effective october notation vote complete october committee unanimously approve minute committee hold september â james clouse secretary federal open market committee reference fomc committee minute return text attend asset purchase return text

minute federal open market committee december joint federal open market committee board governors hold videoconference tuesday december 1:00 p.m. continue wednesday december 9:00 a.m. present jerome powell chair john williams vice chair michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles thomas barkin raphael bostic mary daly charles evans helen mucciolo alternate members federal open market committee james bullard esther george eric rosengren president federal reserve banks st. louis kansas city boston respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed michael dotsey rochelle edge marc giannoni william wascher mark l.j. wright associate economists lorie logan manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors margie shanks deputy secretary office secretary board governors sally davies brian doyle deputy directors division international finance board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn burcu duygan bump kurt lewis ellen meade chiara scotti special advisers board division board members board governors linda robertson assistant board division board members board governors eric engen john stevens senior associate directors division research statistics board governors jane ihrig don kim edward nelson senior advisers division monetary affairs board governors brett berger senior adviser division international finance board governors elizabeth kiser associate director division research statistics board governors eric engstrom deputy associate director division monetary affairs board governors norman morin karen pence john roberts deputy associate directors division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors brian bonis dan assistant directors division monetary affairs board governors penelope beattie section chief office secretary board governors lubomir petrasek section chief division monetary affairs board governors david small project manager division monetary affairs board governors heather wiggins group manager division monetary affairs board governors michele cavallo erin ferris principal economists division monetary affairs board governors kyungmin kim arsenios skaperdas senior economists division monetary affairs board governors courtney demartini lead financial institution policy analyst division monetary affairs board governors randall williams lead information manager division monetary affairs board governors becky bareford vice president federal reserve bank richmond kartik athreya joseph gruber sylvain leduc anna paulson daleep singh christopher waller executive vice presidents federal reserve banks richmond kansas city san francisco chicago new york st. louis respectively todd clark senior vice president federal reserve bank cleveland jonathan mccarthy matthew nemeth giovanni olivei rania perry matthew raskin jonathan willis patricia zobel vice presidents federal reserve banks new york new york boston new york new york atlanta new york respectively robert lerman assistant vice president federal reserve bank new york lisa stowe markets officer federal reserve bank new york developments financial markets open market operations manager system open market account soma turn financial market development market sentiment improve period reduce uncertainty relate u.s. election positive vaccine news outweigh anticipated effect ongoing surge pandemic u.s. equity price index reach time high large gain register sector underperform pandemic corporate credit spread tighten notably lower rat firm sector affect social distancing measure result pandemic long term treasury yield rise modestly drive increase inflation compensation positive vaccine news support risk sentiment abroad lead global equity price index advance u.s. dollar depreciate market participant highlight uncertainty remain high point prominent risk economic outlook risk include possibility vaccine rollout proceed smoothly anticipate potential adverse development negotiation concern united kingdom withdrawal european union potential deterioration strained sector involve small business certain segment commercial real estate cre regard market expectation concern policy outlook response open market desk survey dealer market participant suggest view timing increase target range fund rate coalesce half survey response continue median expectation headline personal consumption expenditure pce inflation percent unemployment rate percent time increase target range fund rate majority desk survey respondent indicate expect committee revise guidance asset purchase note anticipate announcement form qualitative outcome base guidance tie inflation unemployment rate median desk survey response continue expectation purchase begin slow half cease altogether size federal reserve balance sheet increase intermeete period drive growth security holding desk conduct purchase increase holding treasury security agency mortgage back security mbs minimum pace direct fomc market security continue function smoothly news cares act coronavirus aid relief economic security act funding available support activity section 13(3 facility end year modest effect financial market new activity remain limited federal reserve funding operation section 13(3 facility municipal liquidity facility main street lending program see grow usage period expect schedule year end termination manager discuss proposal extend temporary u.s. dollar liquidity swap arrangement temporary fima foreign international monetary authorities repo facility september path complete economic recovery remain uncertain globe particularly emerge market country underscore need backstop address potential market stress prevent spillover reemerge keep arrangement place contribute sustain improvement global dollar funding market continue smooth functioning u.s. treasury security market proposal provide committee objection chair approve extension temporary liquidity swap line follow extension swap fima repurchase agreement repo arrangement announce follow market participant anticipate calm money market condition year end premium pay dollar funding crossing year end observe year money market future indicate expectation short term rate move modestly coming month light anticipate increase aggregate balance moderation treasury bill supply manager anticipate administer rate overnight reverse repo program effective tool maintain control overnight money market rate unanimous vote committee vote approve resolution extend september expiration temporary repo facility foreign international monetary authority fima repo facility secretary chair subsequently provide approval desk follow procedure authorization foreign currency operations extend expiration temporary u.s. dollar liquidity swap line september unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation covid-19 pandemic measure undertake contain spread continue affect economic activity united states abroad information available time december 15â16 suggest u.s. real gross domestic product gdp continue recover moderate pace rapid rate level real gdp remain level start labor market condition improve october november employment continue level beginning year consumer price inflation octoberâas measure 12âmonth percentage change pce price indexâremained notably rate see early total nonfarm payroll employment continue increase solidly october november rate monthly job gain moderate substantial thirdâquarter pace november payroll employment regain somewhat half loss see onset pandemic unemployment rate move stand percent november unemployment rate african americans hispanics decline remain national average labor force participation rate employment population ratio november level month early week moving average initial claim unemployment insurance slightly low early december late october weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp suggest week average private employment gain early december low mid november 12âmonth change average hourly earning employee november fourâquart change total labor compensation hour business sector continue dominate change composition workforce substantial employment loss past year significant low wage workersâa situation lead outsize increase average measure earning compensation indicative tight labor market condition total pce price inflation percent month end october continue hold relatively weak aggregate demand decline consumer energy price see early core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent october november month change consumer price index cpi percent core cpi inflation percent period late reading survey base measure long run inflation expectation edge remain range fluctuate year november early december university michigan surveys consumers measure year slightly level october 3âyearâahead measure produce federal reserve bank new york rise bit november real pce rise strongly october moderate pace real disposable personal income decline october reflect large reduction government transfer payment wage salary income continue climb result personal saving rate move lower continue notably average november component nominal retail sale datum estimate pce rate light motor vehicle sale step possibly reflect effect consumer spending renew social distancing measure concern resurgent pandemic consumer sentiment measure michigan survey conference board move somewhat low net october index april trough housing sector activity advance balance october support low interest rate start construction permit single family home continue rise start multi family unit move sideways sale exist home increase solidly home sale roughly flat business fix investment appear expand net follow outsized increase nominal shipment nondefense capital good exclude aircraft rise strongly october order capital good continue advance contrast nominal spending nonresidential structure outside drilling mining sector decline october number crude oil natural gas rig operationâan indicator business spending structure drilling mining sectorâcontinue somewhat early december number rig operation subdue reflect effect low oil price drill investment industrial production rise strongly october november lead gain manufacture output production february pre pandemic level pickup production motor vehicle related part particularly strong november output mining sectorâwhich include crude oil natural gas drilling extractionâincrease net october november total real government purchase appear decline moderately balance federal defense spending continue rise october november employment decline layoff temporary census worker state local government payroll decrease october november nominal state local construction expenditure october somewhat level nominal u.s. international trade deficit widen october import export continue rebound collapse half year good import october rise january level month strong growth good export recover fourth decline january despite brisk growth agricultural export service trade remain depressed drive continued suspension international travel strong rebound foreign economic growth appear slow sharply month resurgence coronavirus infection europe canada prompt government reintroduce social distancing restriction lead fall measure mobility service activity restriction severe targeted spring hit economic activity look limited economic growth appear hold well emerge asian economy economy effective virus control support domestic demand strong external demand boost export inflationary pressure remain subdue foreign economy amid substantial economic slack staff review financial situation financial market sentiment improve intermeete period boost news forthcome covid-19 vaccine reduced uncertainty follow u.s. election outweigh concern continued rise covid-19 case potential effect ensue restriction corporate bond spread narrow major global equity price index rise net prospect additional fiscal stimulus contribute steep u.s. treasury yield curve increase inflation compensation broad dollar depreciation financing condition business able access capital market household possess high credit score remain accommodative ease bit sector condition borrower dependent financing remain tight yield year nominal treasury security little change november fomc 10- year yield rise moderately market participant attribute increase long term yield primarily great optimism economic outlook forthcoming availability effective vaccine renew fiscal stimulus negotiation near date option imply volatility year treasury future contract decline historic low rise long term treasury yield concentrate inflation compensation year to-10 year measure inflation compensation base treasury inflation protected securities rise pre pandemic level expect path fund rate base straight read overnight index swap rate remain close effective lower bind mid-2023 survey base measure indicate market expectation fund rate target range tightening broad stock price index increase intermeete period lead steep stock price gain cyclical sector buoy prospect successful vaccine low postâelection uncertainty month s&p option imply volatilityâthe vixâdeclined reverse pre election increase consistent optimism drive stock price spread corporate bond yield comparable maturity treasury yield narrow markedly credit spectrum notably debt security low credit quality firm condition short term funding market remain stable intermeete period spread commercial paper negotiable certificate deposit different tenor little change net remain pre pandemic level despite continue outflow prime money market fund mmfs come year end issuance robust intermeete period different tenor yield prime mmfs approach government mmfs asset management aum prime mmfs decline moderately aum government mmfs little change net yield prime government mmfs remain near historically low level intermeete average effective fund rate secured overnight financing rate remain unchanged previous intermeete period average basis point basis point respectively term forward repo market quote indicate mute year end funding pressure amid ample liquidity condition federal reserve maintain pace purchase treasury security agency mbs federal reserve repos outstanding remain intermeete period investor sentiment abroad improve intermeete period favorable news covid-19 vaccine resolution uncertainty u.s. election apparently outweigh concern surge covid-19 case result adoption tight social distancing restriction country balance price global risky asset increase notably imply volatility drop sharply dollar depreciate currency advanced foreign economy sovereign yield little change net policymaker country announce additional action aim maintain accommodative financial condition financing condition capital market continue accommodative support low interest rate high equity valuation historically low corporate bond yield gross issuance investment- speculative grade bond remain solid october issuance intend refinance exist debt gross institutional leveraged loan issuance increase substantially october loan refinancing seasoned equity offering october november similar typical volume observe previous year equity raise initial public offering moderate somewhat robust rate issuance september commercial industrial c&i loan outstanding bank balance sheet contract october november reflect continued paydown loan balance start paycheck protection program loan forgiveness activity credit quality nonfinancial corporation continue sign stabilization volume nonfinancial corporate bond downgrade outpace upgrade somewhat october november nonfinancial corporate bond default continue decline rate leveraged loan default unchanged october albeit somewhat elevated level market indicator future default expectation corporate bond fall slightly remain pre pandemic level municipal bond market financing condition remain accommodative issuance state local government debt moderate november time high issuance october market base measure state credit quality little change net financing condition small business remain tight indicator suggest improve bit datum provide federal reserve small business lending survey show standard small business tighten net consistent senior loan officer opinion survey bank lending practices small business loan origination tick october level near see period year shortâterm delinquency default remain relatively elevated significantly low level observe follow financial crisis light uncertain outlook small business owner assessment risk permanent closure remain elevated sector accord census small business pulse survey cre market financing condition remain accommodative net intermeete period agency commercial mortgage back security cmbs spread remain narrow amid strong issuance october non agency cmbs spread tick triple rat non agency cmbs spread come substantially high spring remain elevated relative pre pandemic level non agency issuance pick october near pre pandemic level cre loan growth october november remain weak consistent tightened lending standard residential mortgage market financing condition remain highly accommodative borrower access government back loan mortgage rate remain near historic low support robust loan origination credit continue flow high score borrower meet standard conform loan criterion remain tight low score borrower nonstandard mortgage product credit quality mortgage little change fraction mortgage forbearance hold fairly steady rate transition mortgage delinquency remain pre pandemic level financing condition consumer credit market remain accommodative borrower relatively strong credit credit card balance average credit limit exist account contract net type borrower auto loan balance continue increase high quality borrower loan rate remain pre pandemic level condition asset back security market remain stable intermeete period staff economic outlook u.s. economic projection prepare december fomc real gdp growth revise unemployment rate revise relative november forecast revision reflect incoming datum balance well expect resurgence pandemic increase social distancing restriction state locality expect weigh economic activity come month result expect real gdp growth temporarily weaken slowing see high frequency indicator spending employment appear consistent forecast inflation forecast rest revise slightly response incoming datum inflation project finish year relatively subdue level reflect substantial margin labor- product market slack economy large decline consumer energy price see early primarily response favorable news development covid-19 vaccine revise projection real gdp growth social distancing measure expect ease quickly previously assume monetary policy assume highly accommodative continue project real gdp growth medium term rate potential output growth lead considerable decline unemployment rate result takeâup labor- product market slack expect lead gradually increase inflation time year inflation project overshoot percent moderate monetary policy remain accommodative observe uncertainty relate future course pandemic measure control associate economic effect remain elevated addition continue judge risk economic outlook tilt downside sharp resurgence pandemic suggest near term risk rise favorable development vaccine point reduction downside risk medium term participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections sep release public follow conclusion participant note covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment continue recover remain level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant agree path economy depend course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term participant observe economy continue resilience face pandemic far have attain condition consistent committee dual mandate note economic recovery far strong anticipatedâsuggeste great momentum economic activity previously thoughtâbut view indicator signal pace recovery slow pandemic worsen country expansion expect slow coming month positive vaccine news receive intermeete period view favorable medium term economic outlook participant note household spending good especially durable strong participant comment rebound consumer spending fiscal program stimulus payment expand unemployment benefit measure provide essential support household support income provide fiscal program combine reduce spending household service contribute historically large increase aggregate household saving participant observe residential investment home sale remain robust accommodative monetary policy view have provide support interest rate sensitive expenditure category include residential investment consumer durable spend participant regard positive news vaccine development strengthen medium term outlook household spending participant see increase challenge economy come month ongoing surge covid-19 case related mandatory voluntary measure prompt great social distancing damp spending especially service require person contact participant point reading high frequency economic indicator individual mobility index online restaurant reservation datum register effect rise virus case participant note low income household particularly hard hit effect resurgent virus thatâwith loom expiration expand unemployment benefit eviction moratoria loan forbearance programsâtheir situation deteriorate significantly additional relief support materialize respect business sector participant observe business equipment investment pick strong reading register order shipment couple participant remark low level inventory factor support increase production demand continue recover participant note economic recovery uneven firm industry business contact particularly durable good housing sector report progress adapt pandemic improved business practice othersâespecially closely link leisure travel hospitality industriesâwere struggle problem intensify resurgence virus furthermore large firm see recover reasonably condition remain worrisome small business number participant note small business especially vulnerable position fiscal policy support help business weather ongoing surge pandemic especially come month look ahead participant observe continue positive development vaccine support business investment help reduce stress pandemic sensitive industry boost confidence participant remark labor market condition continue improve long way consistent committee maximum employment goal pace employment gain moderate month recovery employment far fast anticipate little half job lose march april have regain unemployment rate decline participant underline fact labor force participation rate remain pre pandemic levelâlikely reflect health concern additional childcare responsibility associate online schooling participant assess ongoing surge covid-19 infection particularly challenge labor market coming month indicate expect employment recover medium term participant stress burden economic downturn fall unequally different group particular high rate job loss especially prevalent low wage worker african americans hispanics participant express concern long pandemic continue lasting damage labor market note number unemployed worker permanently lay increase notably month worker historically require long time find job temporarily lay light consideration participant assess improvement labor market lag economic activity indicate revise projection labor market variable extent revision outlook economic activity comment inflation participant note increase consumer price soft late price product category affect social distancingâsuch hotel accommodation air travelâcontinue depressed increase rent remain low pattern expect near term pandemic concern intensify winter participant see downward pressure inflation start abate year widespread distribution vaccine reduce social distancing concern spur economic activity couple participant suggest result ongoing technology enable disruption business model practice last pandemic induce restraint firm pricing power downward pressure inflation persist participant note pickup market base measure inflation compensation participant expect continued monetary policy support inflation rise time sep submission participantsâfive september sepâexpected inflation committee percent long run objective participant note financial condition accommodative reflect policy measure support economy flow credit household business participant underline important difference credit availability borrower financing condition ease large corporation able access capital market equity price rise corporate credit spread continue narrow small firm household reliant lending continue face tight lending standard participant note financing condition small business especially strained participant point sizable fraction small business permanently close process transition closure couple participant observe aggregate banking datum indicate significant increase loan delinquency c&i loan far development partly cares act provision provide relief troubled borrower fact small business business declare bankruptcy default loan participant note important role play section 13(3 facility implement serve temporary backstop key credit market help restore maintain flow credit household business community participant mention announcement cares act funding support activity facility available december number note see downside risk associate development participant continue uncertainty surround economic outlook elevate path economy highly dependent course virus positive vaccine news see reduce downside risk medium term number participant see risk economic activity balanced early participant see significant uncertainty quickly deployment vaccine proceed different member public respond availability vaccine participant cite downside risk threaten economic recovery risk include possibility significant additional fiscal policy support materialize timely manner potential adverse pandemic developmentsâwhich lead stringent restriction severe business failure permanent job lossesâand chance trade negotiation united kingdom european union conclude successfully december deadline upside risk participant mention prospect release pen demand spur wide scale vaccination easing social distancing boost spending bring individual labor force quickly currently expect possibility fiscal policy development measure large expect economic impact inflation participant view risk have balanced early year view risk weight downside upside risk inflation participant note potential strong expect recovery couple possible emergence pandemic relate supply constraint boost inflation consideration monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant agree path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term participant note pandemic worsen country expansion slow coming month contrast medium term participant comment positive vaccine news improve economic outlook say participant agree path ahead remain highly uncertain economy remain far committee long run goal light assessment participant judge maintain accommodative stance monetary policy essential foster economic recovery achieve average inflation rate percent time participant support enhance committee guidance asset purchase particular adopt qualitative outcome base guidance indicate increase asset holding purchase treasury security month agency mbs month substantial progress reach committee maximum employment price stability goal discussion change participant note guidance balance sheet policy bring statement reference purchase well alignment committee outcome base guidance fund rate offer clarity role play asset purchase program provide accommodation meet committee economic goal underscore responsiveness balance sheet policy unanticipated economic development participant stress committee policy tool position respond evolution economy example progress committee goal prove slow anticipate guidance relay committee intention respond increase monetary policy accommodation maintain level target range fund rate long raise expect path federal reserve balance sheet couple participant remark background important convey public fund rate remain committee primary policy tool number participant discuss consideration relate determine eventual attainment substantial progress reach committee maximum employment price stability goal participant comment broad qualitative base specific numerical criterion threshold participant note importance committee clearly communicate assessment actual expect progress long run goal advance time judge substantial warrant change pace purchase decision pace composition committee asset purchase participant judge appropriate purchase pace nearly favor maintain composition purchase couple participant indicate open weight purchase treasury security long maturity participant judge asset purchase program structure provide significant policy accommodation participant note committee future adjustment asset purchasesâsuch increase pace security purchase weight purchase treasury security long remain maturitiesâif adjustment deem appropriate support attainment committee objective participant underline importance continue evaluate balance cost risk associate asset purchase benefit arise purchase participant share view appropriate evolution asset purchase substantial progress committee maximum employment price stability goal number participant note progress attain gradual tapering purchase begin process follow sequence similar implement large scale purchase program committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note economic activity employment continue recover remain level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member state path economy depend significantly course virus addition member agree ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree maintain target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree appropriate federal reserve increase holding treasury security month agency mbs month substantial progress committee maximum employment price stability goal judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member agree assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct term overnight repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release following statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world economic activity employment continue recover level beginning year weak demand early decline oil price hold consumer price inflation overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus ongoing public health crisis weigh economic activity employment inflation near term pose considerable risk economic outlook medium term committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition federal reserve increase holding treasury security month agency mortgage back security month substantial progress committee maximum employment price stability goal asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard richard clarida patrick harker robert kaplan neel kashkari loretta mester randal quarles vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective december agree committee hold tuesdayâwednesday january 26â27 adjourn 10:05 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold november 4â5 james clouse secretary federal open market committee reference fomc committee minute return text elect alternate federal reserve bank new york effective november return text attend tuesday return text attend development financial market open market operation return text approve fima desk resolution update july resolution expiration date available committee organizational document https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text statement approve include drafting error notation vote shortly conclude committee unanimously approve correct version statement release 2:00 p.m. return text

minute federal open market committee january joint federal open market committee board governors hold videoconference tuesday january 1:00 p.m. continue wednesday january 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george loretta mester helen mucciolo eric rosengren alternate members federal open market committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed david altig kartik athreya brian doyle rochelle edge eric engen beverly hirtle william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors sally davies deputy director division international finance board governors michael kiley deputy director division financial stability board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn burcu duygan bump jane ihrig kurt lewis chiara scotti special advisers board division board members board governors john stevens senior associate director division research statistics board governors gretchen weinbach senior associate director division monetary affairs board governors ellen meade robert tetlow senior advisers division monetary affairs board governors steven sharpe senior adviser division research statistics board governors marnie gillis deboer min wei associate directors division monetary affairs board governors andrew figura associate director division research statistics board governors eric engstrom deputy associate director division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors jennifer gallagher special assistant board division board members board governors brian bonis assistant director division monetary affairs board governors penelope beattie section chief office secretary board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors michele cavallo olesya grishchenko horacio sapriza fabian winkler principal economists division monetary affairs board governors pablo cuba borda principal economist division international finance board governors andrew paciorek principal economist division research statistics board governors randall williams lead information manager division monetary affairs board governors joseph gruber daleep singh ellis tallman executive vice presidents federal reserve banks kansas city new york cleveland respectively david andolfatto spencer krane keith sill mark l.j. wright senior vice presidents federal reserve banks st. louis chicago philadelphia minneapolis respectively joe peek vice president federal reserve bank boston james dolmas economic policy advisor senior research economist federal reserve bank dallas andrew foerster research advisor federal reserve bank san francisco annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york helen mucciolo vice president federal reserve bank new york alternate thomas barkin president federal reserve bank richmond eric rosengren president federal reserve bank boston alternate charles evans president federal reserve bank chicago loretta mester president federal reserve bank cleveland alternate raphael bostic president federal reserve bank atlanta james bullard president federal reserve bank st. louis alternate mary daly president federal reserve bank san francisco esther george president federal reserve bank kansas city alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chair john williams vice chair james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael hold deputy general counsel richard ashton assistant general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed david altig kartik athreya brian doyle rochelle edge eric engen beverly hirtle sylvain leduc anna paulson william wascher associate economists unanimous vote committee select federal reserve bank new york execute transaction system open market account soma unanimous vote committee select lorie logan patricia zobel serve pleasure committee manager deputy manager soma respectively understanding selection subject satisfactory federal reserve bank new york secretary federal reserve bank new york subsequently send advice manager deputy manager selection indicate previously satisfactory unanimous vote committee vote reaffirm revision authorization domestic open market operations authorization foreign currency operations foreign currency directive show guidelines conduct system open market operations federal agency issue remain suspend authorization domestic open market operation reaffirm effective january open market transaction federal open market committee committee authorize direct federal reserve bank select committee execute open market transaction selected bank extent necessary carry domestic policy directive adopt committee buy sell open market security direct obligation fully guarantee principal interest united states security direct obligation fully guarantee principal interest agency united states eligible purchase sale section 14(b federal reserve act eligible security system open market account soma outright operation security dealer foreign international account maintain selected bank day defer delivery basis include transaction commonly refer dollar roll coupon swap market price temporary operation day defer delivery basis purchase eligible security subject agreement resell repo transaction sell eligible security subject agreement repurchase reverse repo transaction term business day rate authorize committee determine competitive bidding apply reasonable limitation volume agreement individual counterpartie allow eligible securities soma mature replacement exchange market price connection treasury auction mature eligible securities soma treasury case eligible securities direct obligation united states fully guarantee principal interest united states exchange market price mature eligible securities soma agency united states case eligible securities direct obligation agency fully guarantee principal interest agency security lending order ensure effective conduct open market operation committee authorize selected bank operate program lend eligible securities hold soma dealer overnight basis selected bank lend eligible securities long overnight term accommodate weekend holiday similar trading convention security lending rate determine competitive bidding minimum lending fee consistent objective program iii subject reasonable limitation total specific issue eligible securities auction subject reasonable limitation eligible securities borrower borrow selected bank reject bid determine sole discretion facilitate bidder ability control single issue accept treasury security cash collateral loan security authorize paragraph iii accept agency security collateral loan agency security authorize paragraph operational readiness testing committee authorize selected bank undertake transaction type describe paragraph time time purpose test operational readiness subject following limitation transaction authorize paragraph shall conduct prior notice committee aggregate par value transaction authorize paragraph type describe paragraph 1.a.i 1.b 1.c 1.d shall exceed calendar year outstanding transaction describe paragraph 1.a.ii shall exceed give time transaction customer account order ensure effective conduct open market operation assist provision short term investment authorized service foreign international account maintain federal reserve bank foreign accounts account maintain federal reserve bank fiscal agent united states pursuant section federal reserve act foreign accounts customer accounts committee authorize following undertake term comparable available open market selected bank soma undertake reverse repo transaction eligible securities hold soma customer accounts term business day undertake repo transaction eligible securities foreign accounts federal reserve bank maintain customer accounts customer account appropriate subject necessary authorization approval undertake repo transaction eligible securities dealer corresponding reverse repo transaction eligible securities customer accounts undertake intra day repo transaction eligible securities foreign accounts transaction undertake customer accounts provision paragraph provide service fee appropriate transaction undertake customer accounts subject authorization approval entity include board governors federal reserve system involve account maintain federal reserve bank fiscal agent united states united states department treasury additional matter committee authorize chair committee foster committee objective period meeting committee instruct selected bank act behalf committee adjust somewhat exceptional circumstance stance monetary policy action result material change composition size asset soma undertake transaction respect eligible securities order appropriately address temporary disruption operational highly unusual nature u.s. dollar funding market adjustment describe subparagraph paragraph shall context committee decision stance policy committee long run objective foster maximum employment price stability shall base economic financial monetary development committee chair feasible consult committee make instruction paragraph authorization foreign currency operation reaffirm effective january general federal open market committee committee authorize federal reserve bank select committee selected bank execute open market transaction system open market account provide authorization extent necessary carry foreign currency directive committee purchase sell foreign currency know cable transfer home abroad open market include united states treasury foreign monetary authority bank international settlements entity open market authorization purchase sell foreign currency encompass purchase sale standalone spot forward transaction foreign exchange swap transaction purpose authorization foreign exchange swap transaction swap transaction united states treasury know warehousing transaction swap transaction bank reciprocal currency arrangement swap transaction bank stand dollar liquidity foreign currency liquidity swap arrangement swap transaction entity open market hold balance outstanding forward contract receive deliver foreign currency transaction foreign currency undertake pursuant paragraph shall authorize committee conduct manner consistent obligation exchange arrangement article articles agreement international monetary fund imf close continuous cooperation consultation appropriate united states treasury consultation appropriate foreign monetary authority foreign bank international monetary institution prevail market rate standalone spot forward transactions operation involve standalone spot forward transaction foreign currency approval operation require follow committee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization exceed close regular committee foreign currency subcommittee subcommittee direct selected bank advance execute operation subcommittee believe consultation committee feasible time available committee authorize subcommittee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization total close regular committee operation shall generally direct counter disorderly market condition undertake adjust system balance light probable future need currency iii conduct purpose determine committee purpose authorization volume standalone spot forward transaction foreign currency define sum disregard sign dollar value individual foreign currency purchase sell value time transaction warehousing committee authorize selected bank prior approval subcommittee request united states treasury conduct swap transaction united states exchange stabilization fund establish section gold reserve act agreement selected bank purchase foreign currency exchange stabilization fund exchange stabilization fund repurchase foreign currency selected bank later date purchase sale know warehousing reciprocal currency arrangement stand dollar foreign currency liquidity swaps committee authorize selected bank maintain reciprocal currency arrangement establish north american framework agreement stand dollar liquidity swap arrangement temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement provide authorization extent necessary carry foreign currency directive committee reciprocal currency arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available stand temporary dollar liquidity swap arrangement drawing approve advance chair chair approve schedule potential drawing delegate manager system open market account authority approve individual drawing occur accord schedule approve chair stand foreign currency liquidity swap arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available operations involve stand temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement shall direct counter strain financial market united states abroad reduce risk emerge mitigate effect economic financial condition united states reciprocal currency arrangement standing temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement arrangement subject annual approval committee arrangement approve committee iii change term exist arrangement approve advance chair chair shall committee inform change term term shall consistent principle discuss guidance provide committee operation foreign currency operation foreign currency governance specify authorization foreign exchange swap transaction privateâsector counterpartie authorize direct advance committee foreign currency holdings committee authorize selected bank hold foreign currency system open market account account maintain foreign bank bank international settlements foreign institution approve board governors section regulation extent necessary carry foreign currency directive committee selected bank shall manage holding foreign currency system open market account primarily ensure sufficient liquidity enable selected bank conduct foreign currency operation direct committee secondarily maintain high degree safety iii subject paragraph 7.a.i 7.a.ii provide high rate return possible currency achieve objective authorize committee selected bank manage foreign currency holding purchasing sell obligation fully guarantee principal interest foreign government agency thereof permit foreign securities outright purchase sale purchasing permit foreign securities agreement repurchase permit foreign securities sell security agreement resale security iii manage balance time deposit account foreign institution approve board governors regulation subcommittee consultation committee provide additional instruction selected bank holding foreign currency additional matter committee authorize chair prior approval committee enter need agreement understanding secretary united states treasury division responsibility foreign currency operation system united states treasury advise secretary united states treasury concern system foreign currency operation consult secretary policy matter relate foreign currency operation designate federal reserve system person authorize communicate united states treasury concern system open market account foreign currency operation time time transmit appropriate report information national advisory council international monetary financial policies committee authorize selected bank undertake transaction type describe authorization foreign exchange investment transaction authorize undertake time time purpose test operational readiness aggregate transaction shall exceed calendar year transaction shall conduct prior notice committee federal reserve bank shall participate foreign currency operation system open market account accordance paragraph 3g(1 board governors statement procedure respect foreign relationships federal reserve banks date january authority subcommittee pursuant authorization exercise chair chair believe consultation subcommittee feasible time available chair shall promptly subcommittee action approve chair pursuant paragraph committee authorize chair exceptional circumstance feasible convene committee foster committee objective instruct selected bank engage foreign currency operation authorize pursuant authorization action shall context committee decision foreign currency operation chair feasible consult committee make instruction paragraph foreign currency directive reaffirm effective january committee direct federal reserve bank select committee selected bank execute open market transaction system open market account accordance provision authorization foreign currency operations authorization subject limit directive committee direct selected bank execute warehousing transaction request united states treasury approve foreign currency subcommittee subcommittee subject limitation outstanding balance united states dollar provide united states treasury result transaction time exceed committee direct selected bank maintain system open market account reciprocal currency arrangement follow foreign bank foreign maximum million dollar equivalent bank canada bank mexico standing dollar liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank temporary dollar liquidity swap arrangement follow foreign bank reserve bank australia national bank denmark reserve bank new zealand bank norway bank sweden central bank brazil bank mexico bank korea monetary authority singapore standing foreign currency liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank committee direct selected bank hold invest foreign currency portfolio accordance provision paragraph authorization committee direct selected bank committee regular committee transaction undertake pursuant paragraph authorization selected bank direct provide quarterly report committee management foreign currency holding pursuant paragraph authorization committee direct selected bank conduct testing transaction purpose operational readiness accordance provision paragraph authorization unanimous vote committee reaffirm program security fomc information minor technical change committee annual reconsideration statement long run goals monetary policy strategy participant support statement write committee vote unanimously reaffirm revision statement long run goals monetary policy strategy reaffirm effective january federal open market committee fomc firmly committed fulfil statutory mandate congress promote maximum employment stable price moderate long term interest rate committee seek explain monetary policy decision public clearly possible clarity facilitate inform decisionmake household business reduce economic financial uncertainty increase effectiveness monetary policy enhance transparency accountability essential democratic society employment inflation long term interest rate fluctuate time response economic financial disturbance monetary policy play important role stabilize economy response disturbance committee primary mean adjust stance monetary policy change target range fund rate committee judge level fund rate consistent maximum employment price stability long run decline relative historical average fund rate constrain effective lower bind frequently past owe proximity interest rate effective lower bind committee judge downward risk employment inflation increase committee prepared use range tool achieve maximum employment price stability goal maximum level employment broad base inclusive goal directly measurable change time owe nonmonetary factor affect structure dynamic labor market consequently appropriate specify fix goal employment committee policy decision inform assessment shortfall employment maximum level recognize assessment necessarily uncertain subject revision committee consider wide range indicator make assessment inflation rate long run primarily determine monetary policy committee ability specify long run goal inflation committee reaffirm inflation rate percent measure annual change price index personal consumption expenditure consistent long run federal reserve statutory mandate committee judge long term inflation expectation anchor percent foster price stability moderate long term interest rate enhance committee ability promote maximum employment face significant economic disturbance order anchor long term inflation expectation level committee seek achieve inflation average percent time judge follow period inflation run persistently percent appropriate monetary policy aim achieve inflation moderately percent time monetary policy action tend influence economic activity employment price lag set monetary policy committee seek time mitigate shortfall employment committee assessment maximum level deviation inflation long run goal sustainably achieve maximum employment price stability depend stable financial system committee policy decision reflect long run goal medium term outlook assessment balance risk include risk financial system impede attainment committee goal committee employment inflation objective complementary circumstance committee judge objective complementary take account employment shortfall inflation deviation potentially different time horizon employment inflation project return level judge consistent mandate committee intend principle adjustment appropriate annual organizational january undertake roughly year thorough public monetary policy strategy tool communication practice development financial markets open market operations manager turn financial market development evolve outlook path virus fiscal policy main driver financial market intermeete period progress vaccination slow expect near term trajectory pandemic worsen weigh economic activity appearance strain virus market confidence ultimate efficacy vaccination effort high emergence narrow democratic majority senate bolster investor expectation additional fiscal stimulus prompt upward revision forecast economic growth year open market desk survey primary dealers median gross domestic product gdp growth forecast rise percentage point backdrop long term treasury yield rise notably period long date real yield lift expectation improved growth increase treasury issuance remain deeply negative measure inflation compensation increase period year year forward measure rise level percent overall financial condition ease net rally risk asset continue gain u.s. equity center cyclical sector small capitalization firm sensitive growth credit spread narrow especially risky borrower expectation path target fund rate year imply interest rate future desk survey primary dealers survey market participants relatively little change december stability near term policy rate expectation amid improve growth outlook appear consistent committee framework forward interest rate guidance al­though median desk survey respondent continue expect 12âmonth personal consumption expenditure pce inflation percent fomc lift target range median expectation unemployment rate prevail time modestly low december desk survey result indicate majority market participant anticipate pace net asset purchase stable remainder year slow manager discuss condition funding market year end overnight secured unsecured rate little change rate interest excess reserve ioer rate financial firm manage balance sheet reporting date forward reserve project rise rapidly summer reflect ongoing federal reserve asset purchase expect decline balance hold treasury general account market pricing suggest effective fund rate expect decline modestly notable downward pressure money market rate emerge manager anticipate federal reserve tool include ioer rate overnight reverse repurchase agreement facility provide effective control fund rate overnight money market rate finally manager discuss desk operation range indicator suggest fix income funding market continue function smoothly period manager note come period desk anticipate implement adjustment normalize operation give sustained stability term repurchase market desk propose discontinue weekly month term repurchase operation begin mid february addition desk plan reduce frequency agency commercial mortgage back security cmbs operation light sustained improvement market condition security unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period staff review economic situation covidâ19 pandemic measure undertake contain spread continue affect economic activity united states abroad information available time january 26â27 suggest u.s. real gdp continue advance albeit pace markedly slow rapid rate see level real gdp return level see onset pandemic labor market condition deteriorate balance december employment continue level start consumer price inflation novemberâas measure 12âmonth percentage change pce price indexâremained considerably low rate see early total nonfarm payroll employment fall december especially sharp decline leisure hospitality sector december payroll employment retrace little half loss see onset pandemic unemployment rate hold steady percent december unemployment rate african americans decline hispanic unemployment rate rise rate remain national average asian unemployment rate move national average december labor force participation rate employment population ratio unchanged december initial claim unemployment insurance mid january high early december level weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp indicate week average change private employment mid january slightly low early december week week change measure payroll highly volatile average hourly earning employee rise percent month end december gain noticeably high measure yearâearli 12âmonth change 12âmonth change average hourly earning continue dominate change composition workforce concentration job loss low wage worker pandemic period result outsize increase measure earning indicative tight labor market condition contrast measure 12âmonth change median wage derive adp dataâa measure affect change workforce compositionâwa percent december remain preâpandemic pace total pce price inflation percent month end november continue hold relatively weak aggregate demand decline consumer energy price see core pce price inflation exclude change consumer energy price consumer food price percent month end november trim mean measure 12âmonth pce inflation construct federal reserve bank dallas percent november december 12âmonth change consumer price index cpi percent core cpi inflation percent period late reading survey base measure long run inflation expectation tick higher january university michigan surveys consumers measure year move lateâsummer level december 3âyearâahead measure inflation expectation produce federal reserve bank new york move august level real pce fall november available indicatorsâinclude component nominal retail sale datum estimate pceâpointed decline december housing start construction permit move november december finish year preâpandemic level al­though home sale turn november decline appear reflect limited availability home sale weaken demand available indicator point strong increase investment equipment intangible component capital spending recover sharp decline half year likewise drilling investment appear turn sharply albeit low level oil price move higher contrast investment nonresidential structure outside drilling mining sector appear decline restrain firm continued hesitation commit project lengthy time completion uncertain future return industrial production advance lead solid gain manufacture output overtake preâpandemic level low level export demand onset pandemic continue restrain recovery manufacturing sector addition production motor vehicle part small drag manufacture output automotive producer appear difficulty get assembly fully way model year total real government purchase appear fall slow pace available datum suggest real purchase post modest gain increase defense purchase offset reduction nondefense purchase indicator real state local purchase include state local government employment point decline similar size see nominal u.s. international trade deficit widen november import export continue rebound collapse half year good import rise november level previous january gain major category al­though export grow november recover january level service trade continue gradual rise remain depressed drive continued suspension international travel take datum suggest net export significant negative contribution real gdp growth recent datum point sharp slowing foreign economic growth strong rebound amid intensification pandemic foreign government tighten social distancing restriction country emergence contagious virus strain accompany surge covid-19 case death increase virus spread restriction appear toll foreign economic activity particularly europe global slowdown notable service decline purchase manager index sector january advanced foreign economy contrast manufacture output advanced emerge foreign economy continue expand solid pace support resilient demand durable good high tech good medical supply amid weak economic situation inflationary pressure remain subdue foreign economy staff review financial situation investor sentiment improve risk asset price move higher intermeete period great prospect additional fiscal stimulus domestic foreign equity price increase notably spread corporate municipal bond narrow nominal treasury yield curve steepen partly reflect increase inflation compensation market base financing condition remain accommodative lending condition continue tight small net share bank tighten lending standard previous quarter straight read overnight index swap ois quote suggest expect path fund rate mid-2023 rise moderately intermeete period increase reportedly associate great investor optimism expect speed economic recovery ois quote suggest expect policy rate basis point little change time december yield year nominal treasury security little change intermeete period year yield rise notably steepening treasury yield curve occur follow outcome georgia runoff election reportedly bolster market participant expectation additional fiscal stimulus fomc update guidance asset purchase see line expectation elicit noticeable financial market reaction measure inflation compensation base treasury inflation protect securities increase moderately net continue upward trend observe month increase intermeete period reportedly reflect great prospect additional fiscal stimulus associated improvement long run economic outlook broad stock price index increase net intermeete period boost gain share price bank company cyclically sensitive sector reportedly reflect increase expectation fiscal stimulus month option imply volatility s&p 500âthe vixâwa little change net remain modestly elevated relative range past year consistent optimism drive stock price spread corporate bond yield comparable maturity treasury yield narrow somewhat spread municipal bond yield narrow notably january reportedly reflect increase expectation additional fiscal stimulus aid state local government condition short term funding market remain stable intermeete period include year end spread commercial paper negotiable certificate deposit tenor unchanged historically low level commercial paper outstanding decline somewhat late december quickly rebound early january level observe year end amid stable market condition commercial paper funding facility money market mutual fund liquidity facility intermeete period asset management aum government money market fund mmfs remain stable intermeete period aum prime mmfs continue decline reach low level late reflect compressed net yield advantage prime fund relative yield government fund net yield prime government mmfs remain near historically low level effective fund rate secured overnight financing rate little change average basis point basis point respectively intermeete period continue participation fed repurchase agreement repo operation participation fed reverse repo facility minimal foreign financial market prospect additional u.s. fiscal stimulus passage key risk event brexit trade agreement outweigh investor concern virus strain sluggish global vaccine rollout balance foreign equity price increase moderately notable outperformance asian index capital inflow mutual fund dedicate emerge market continue robust pace long term sovereign yield advanced foreign economy rise slightly improve investor sentiment major bank reaffirm commitment possibly expand accommodative policy broad dollar index little change net intermeete period chinese renminbi appreciate notably dollar datum show robust economic recovery china dollar funding condition stable year end financing condition capital market remain accommodative support low interest rate high equity valuation gross corporate bond issuance fairly strong november december seasoned initial public offering equity market robust gross institutional leveraged loan issuance strong december issuance volume exclude refinancing top average previous month observe period commercial industrial c&i loan balance bank continue decline december albeit slow pace fall c&i loan decline weak origination activity loan forgiveness paycheck protection program continue repayment debt january senior loan officer opinion survey bank lending practices sloos bank net report weak demand tighten lending standard c&i loan notable difference report change size large bank report have ease standard large middle market firm net bank size report have tighten standard small firm small net percentage bank tighten lending standard firm size previous quarter credit quality nonfinancial corporation remain stable month deteriorate substantially month follow onset pandemic volume nonfinancial corporate bond downgrade continue slightly outpace upgrade november december monthly volume nonfinancial corporate bond default remain relatively low market indicator future default expectation move slightly low essentially return pre pandemic level financing condition small business remain tight small business loan origination november month datum available roughly level see year early support refinancing exist loan liquidity need small business remain high business continue operate reduce capacity small business delinquency default rate little change remain elevated relative level year financing condition municipal bond market remain accommodative intermeete period credit quality municipal debt remain roughly stable commercial real estate cre finance capital market financing condition remain accommodative ease intermeete period spread agency cmbs tick net issuance remain elevate december al­though historical high october risk spread triple non agency cmbs decline spread triple non agency cmbs stay close historical low issuance non agency cmbs remain somewhat pre pandemic level cre loan growth remain weak amid depressed property transaction volume net january sloos bank report tightening lending standard weaken demand cre loan financing condition residential mortgage market little change intermeete period mortgage rate tick slightly stay near historically low level support strong loan origination activity credit remain available high score borrower seek conform mortgage tighten tight level borrower low credit score seek nonconforme mortgage january sloos suggest type residential mortgage bank lending standard remain unchanged loan demand little changed somewhat strong mortgage forbearance rate plateaue december early january have gradually decline previous month rate delinquency stay low pre pandemic level financing condition consumer credit market remain accommodative borrower strong credit score tight subprime score bank january sloos report ease standard consumer loan type experience weak demand auto loan little change demand consumer loan condition asset back security market appear supportive lending credit card balance edge prime nonprime borrower reflect weak consumer spending volume card available credit continue rise prime nonprime borrower interest rate credit card offer nonprime borrower stay elevated financing condition remain tight borrower auto loan balance continue increase solidly prime near prime borrower decline subprime borrower auto loan interest rate flat past month remain significantly pre pandemic level delinquency rate nonprime auto credit card borrower tick albeit low level provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system notable assess asset valuation pressure elevate particular corporate bond spread decline pre pandemic level low end historical distribution addition measure equity risk premium decline return pre pandemic level price industrial multifamily property continue grow pace past year price office building retail establishment start fall assess vulnerability associate household business borrowing notable reflect increase leverage decrease income revenue small business hit particularly hard judge vulnerability stem financial leverage moderate note capital ratio large hold company rise course year leverage hedge fund elevate decline spring highly leverage fund characterize vulnerability stem fund risk moderate bank continue maintain significant level high quality liquid asset stable source funding contrast money market fund open ended mutual fund characterize significant vulnerability associate liquidity transformation staff economic outlook u.s. economic projection prepare january fomc imply considerably strong outlook activity relative december forecast incoming datum weak expect january projection incorporate effect stimulus recently enact consolidated appropriations act caa assumption additional sizable tranche fiscal support place coming month take stimulus measure expect partly offset substantial drag aggregate demand result unwinding fiscal stimulus enact spring projection continue anticipate widespread vaccination allow easing social distancing boost growth reduction social distancing assume complete end gdp growth expect step remainder medium term continue project real gdp growth outpace potential period lead considerable decline unemployment rate 12âmonth change total core pce price coming month project briefly percent unusually low observation spring drop month calculation follow swing inflation expect finish year percent inflation project gradually edge percent end medium term labor product market tighten monetary policy assume accommodative inflation project moderately overshoot percent time year view possibility large anticipate fiscal package enact coming month modest upside risk baseline economic outlook rise covidâ19 case united states couple development emergence contagious strain virus united states lead judge risk baseline projection skew downside uncertainty forecast elevate participant view current conditions economic outlook participants note covid-19 pandemic cause tremendous human economic hardship united states world pace recovery economic activity employment moderate month weakness concentrate sector economy adversely affect resurgence virus great social distancing weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect federal reserve action support economy flow credit u.s. household business participant agree path economy depend significantly course virus include progress vaccination ongoing public health crisis weigh economic activity employment inflation pose considerable risk economic outlook participant observe resurgence covid-19 infection associate social distancing measure restrain activity sector particularly industry travel leisure hospitality participant expect stimulus provide passage caa december likelihood additional fiscal support anticipate continued progress vaccination lead sizable boost economic activity participant note economic activity employment currently level consistent achieve maximum employment participant comment improve prospect household spending course year reflect fiscal support see progress vaccination essential support gain aggregate consumer spending economic recovery comment datum household spending participant discuss composition expenditure strong spending good especially durable weakness spending service especially travel leisure hospitality relative strength consumer spending good support fiscal program stimulus payment expand unemployment benefit accommodative monetary policy weakness service spending attribute pandemic associate social distancing measure limit spending service depend heavily person contact increase government transfer household combine reduce outlay service contribute historically large increase aggregate household saving year participant observe residential investment home sale remain robust low interest rate view important factor support strength housing activity participant note economic downturn fall equally americans able shoulder burdenâin particular low income black hispanic householdsâhad hard hit pandemic participant stress sustained support fiscal policy help address hardship face group monetary policy help promote economy return maximum employment price stability remark business sector participant comment business equipment investment continue strength nonresidential construction remain weak participant discuss strong performance manufacturing sector discuss supply chain issue manufacturing include associate acquire material input pandemic relate worker shortage absenteeism business contact report firm good produce industry particularly large firm durable good housing sector adapt pandemic contrast small firm industry adversely affect pandemic find difficult adapt participant state business contact optimistic continue progress vaccination fiscal support result improvement business condition participant note increase agricultural crop price associated improvement farm revenue economic activity pace improvement labor market slow month payroll employment fall december continue job gain industry outweigh significant layoff industry resurgence virus weigh heavily activity labor market condition improve significantly balance spring participant note sizable number worker report have leave labor force beginning pandemic count unemployed unemployment rate substantially high participant judge low level labor force participation reflect number factor include health concern additional childcare responsibility medium term participant expect strong growth employment drive continue progress vaccination associated rebound economic activity consumer business confidence accommodative fiscal monetary policy participant observe economy far achieve committee broad base inclusive goal maximum employment brisk pace improvement labor market achieve goal time comment inflation participant note headline pce price inflation december measure month basis poise come committee percent long term objective relatively near term number participant suggest increase price good production subject supply chain constraint soon anticipate possibly abrupt return normal level activity result time increase certain price participant stress importance distinguish time change relative price change underlie trend inflation note change relative price temporarily raise measured inflation unlikely last effect participant observe month pce inflation somewhat percent brief period spring unusually low monthly observation spring roll month calculation outside near term fluctuation participant anticipate inflation trajectory consistent achieve committee objective time support strong economic activity widespread vaccination associate reduction social distancing accommodative fiscal monetary policy participant point continued increase market base measure inflation compensation low level record spring consistent inflation gradually time note survey base measure little change net year participant note financial condition remain highly accommodative reflect investor optimism economic outlook accommodative stance monetary policy expect future fiscal policy measure participant remark credit condition relatively tight borrower low credit score small medium sized business rely lending capital market meet financing need acknowledge medium term outlook real gdp growth employment improve participant continue uncertainty surround outlook elevated participant agree path economy depend significantly course virus progress vaccination participant remark pandemic continue pose considerable risk economic outlook include risk associate virus strain potential public resistance vaccination potential difficulty production distribution vaccine regard upside risk participant point possibility fiscal policy turn expansionary anticipate household display great willingness spend accumulate saving expect widespread vaccination easing social distancing result rapid boost spending employment anticipate participant view risk outlook inflation have balanced case view risk weight downside upside risk inflation participant note potential pandemic relate supply constraint affect price inflation somewhat anticipated price increase industry adversely affect pandemic pronounced project number participant comment issue relate financial stability participant note area strength example banking system show considerable resilience onset pandemic bank capital position remain solid earning strong addition result stress test indicate large bank withstand stressed economic condition say participant state important stay vigilant ensure banking system remain strong resilient addition participant note pandemic highlight structural vulnerability part financial system include run prone investment fund short term funding credit market fragility treasury market functioning stress stem vulnerability require substantial intervention federal reserve turbulent market condition onset pandemic couple participant comment important appropriate regulatory body address financial stability vulnerability asset valuation participant comment equity valuation rise initial public offering activity elevate valuation affect retail investor trade electronic platform addition risk spread corporate bond loan low corporate indebtedness have rise high level participant note cre sector directly affect pandemicâsuch involve retail establishment hotelsâface prospect fall price increase stress consideration monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant agree path economy depend significantly course virus include progress vaccination ongoing public health crisis continue weigh economic activity employment inflation participant note pandemic worsen country month pace recovery moderate weakness concentrate sector adversely affect pandemic contrast participant remark prospect effective vaccine program recently enact fiscal support potential additional fiscal action lead judge medium term outlook improve say participant agree economy remain far committee long run goal path ahead remain highly uncertain pandemic continue pose considerable risk outlook outlook monetary policy participant judge maintain highly accommodative stance policy essential foster economic recovery achieve average inflation rate percent time participant note economic condition currently far committee long run goal stance policy need accommodative goal achieve consequently participant support maintain committee setting outcome base guidance fund rate pace asset purchase participant note committee guidance suited environment describe policy respond base path economy example progress committee goal prove slow anticipate outcome base guidance convey committee intention respond increase monetary policy accommodation maintain level target range fund rate long raise expect path federal reserve balance sheet addition participant note committee outcome base guidance fund rate balance sheet appear understand public context participant emphasize important abstract temporary factor affect inflationâsuch low past level price drop measure annual price change relative price increase sector bring supply constraint disruptionsâin judge inflation track moderately exceed percent time participant note increase federal reserve balance sheet march materially ease financial condition provide substantial support economy committee guidance asset purchase indicate asset purchase pace substantial progress employment inflation goal achieve economy far goal participant judge time substantial progress achieve participant note importance committee clearly communicate assessment progress long run goal advance time judge substantial warrant change pace purchase committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note pace recovery economic activity employment moderate month weakness concentrate sector adversely affect pandemic weak demand early decline oil price hold consumer price inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member state path economy depend significantly course virus include progress vaccination addition member agree ongoing public health crisis continue weigh economic activity employment inflation pose considerable risk economic outlook member agree pandemic continue pose considerable risk outlook nonetheless light expect progress vaccination change outlook fiscal policy medium term prospect economy improve member decide reference previous post statement risk economic outlook medium term long warrant member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree maintain target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree appropriate federal reserve increase holding treasury security month agency mortgage back security month substantial progress committee maximum employment price stability goal judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member agree assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective january federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world pace recovery economic activity employment moderate month weakness concentrate sector adversely affect pandemic weak demand early decline oil price hold consumer price inflation overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus include progress vaccination ongoing public health crisis continue weigh economic activity employment inflation pose considerable risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition federal reserve increase holding treasury security month agency mortgage back security month substantial progress committee maximum employment price stability goal asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective january agree committee hold tuesdayâwednesday march 16â17 adjourn 10:25 a.m. january notation vote notation vote complete january committee unanimously approve minute committee hold december 15â16 james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text committee organizational document available www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text general specify article imf undertake collaborate imf member assure orderly exchange arrangement promote stable system exchange rate obligation include seek direct economic financial policy objective foster orderly economic growth reasonable price stability obligation include avoid manipulate exchange rate international monetary system way impede effective balance payment adjustment unfair competitive advantage member return 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minute federal open market committee march joint federal open market committee board governors hold videoconference tuesday march 11:00 a.m. continue wednesday march 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george loretta mester eric rosengren alternate members federal open market committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed kartik athreya brian doyle rochelle edge eric engen sylvain leduc anna paulson william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors margie shanks deputy secretary office secretary board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn burcu duygan bump jane ihrig kurt lewis chiara scotti special advisers board division board members board governors elizabeth klee senior associate director division financial stability board governors david lebow michael palumbo senior associate directors division research statistics board governors don kim ellen meade senior advisers division monetary affairs board governors glenn follette associate director division research statistics board governors david lópez salido associate director division monetary affairs board governors stephanie curcuru deputy associate director division international finance board governors christopher gust deputy associate director division monetary affairs board governors norman morin paul smith deputy associate directors division research statistics board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors jennifer gallagher special assistant board division board members board governors brian bonis michiel pooter zeynep senyuz assistant directors division monetary affairs board governors alyssa anderson section chief division monetary affairs board governors penelope beattie section chief office secretary board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors michele cavallo sebastian infante ander perez orive principal economists division monetary affairs board governors randall williams lead information manager division monetary affairs board governors anthony sarver senior financial institution policy analyst division monetary affairs board governors ellen bromagen vice president federal reserve bank chicago michael dotsey executive vice president federal reserve bank philadelphia anne baum edward knotek giovanni olivei paula tkac mark l.j. wright senior vice presidents federal reserve banks new york cleveland boston atlanta minneapolis respectively kathryn chen jonathan mccarthy vice presidents federal reserve bank new york brett rose assistant vice president federal reserve bank new york anthony murphy senior economic policy advisor federal reserve bank dallas brent bundick research policy advisor federal reserve bank kansas city michael koslow markets officer federal reserve bank new york fernando martin research officer federal reserve bank st. louis william o'boyle policy markets manager federal reserve bank new york michael junho lee economist federal reserve bank new york action adopt change committee rule availability information unanimous vote committee approve final rule revise rule availability information committee freedom information act foia rule revised foia rule include range minor technical update effective day forthcoming publication final rule federal register development financial markets open market operations manager turn financial market development united states trend high long term yield observe month accelerate intermeete period far forward real rate base treasury inflation protect securities tips rise considerably market participant highlight improve economic outlook bolster passage american rescue plan arp progress vaccination underlie increase yield model- survey base estimate suggest significant portion increase yield associate increase term premium high term premium reflect outlook expansive fiscal policy associate upward revision expect path treasury debt outstanding increase uncertainty outlook long term interest rate technical factor contribute rise term premium treasury market function period al­though measure market liquidity deteriorate somewhat end february condition gradually improve al­though measure market liquidity fully return early level rate imply interest rate future mature year rise notably intermeete period reportedly reflect reassessment market participant expect path target range fund rate january date increase target range fund rate imply straight read market pricing move notably early imply target rate end rise basis point response open market desk survey suggest modest change policy rate expectation probability weighted mean survey expectation target rate end rise basis point expectation economic condition time increase target range measure desk survey appear consistent committee policy framework forward guidance expectation desk survey path asset purchase little change contact note expectation hold steady policymaker communication emphasize need realize progress committee goal intent communicate advance time progress judge substantial warrant change pace purchase alongside rise u.s. yield broad u.s. equity price index increase moderately large gain cyclically sensitive sector rise u.s. yield accompany increase sovereign yield advanced economy bank respond yield increase adjustment operation suggest rise yield reflect improvement outlook deputy manager discuss evolution federal reserve balance sheet related development money market reserve balance rise net intermeete period treasury bill outstanding decrease backdrop effective fund rate soften modestly repurchase agreement repo rate decline great extent market participant project reserve grow historically rapid pace coming month reflect continued expansion federal reserve balance sheet project drawdown balance maintain treasury general account market contact suggest continue rapid expansion reserve downward pressure money market rate deputy manager note early pronounce pressure observe overnight secure financing market increase usage overnight reverse repurchase agreement rrp facility light potential expand use rrp facility conduct ensure term facility counterparty base position support effective policy implementation offer broad range money market lender outside investment option rrp facility enhance lender bargaining power negotiate rate short term private investment help establish floor overnight money market rate facility alleviate downward pressure overnight rate associate growth broaden range liability support federal reserve balance sheet expansion recommend raise rrp counterparty limit limit establish number year ago credit intermediate money market grow substantially increase limit restore capacity facility relative aggregate size money fund counterpartie roughly level place facility establish monitor money market condition ongoing basis additional adjustment need rrp facility term addition change rrp parameter deputy manager note federal reserve adjust administer rate undue downward pressure overnight rate emerge response desk survey indicate market participant anticipate adjustment interest excess reserve rate rrp rate june finally light normal condition agency commercial mortgage back security cmbs market desk plan conduct agency cmbs operation need sustain smooth market functioning cease regularly schedule cmbs operation follow desk briefing participant note rrp facility effective establish firm floor fund rate support monetary policy implementation participant comment facility important monetary policy implementation framework forward particularly come month level project rise rapidly participant support propose increase counterparty limit participant note support remove limit altogether participant suggest type dynamic differential limit consider future enable rrp facility adapt readily market development participant note concern time facility establish possible adverse effect rrp facility financial stability structure money market materialize spring facility play important role help stabilize money market condition light potential great use rrp facility forward connection expansion federal reserve balance sheet associate downward pressure overnight rate couple participant note useful lesson learn rrp facility inception follow chair note potential downward pressure money market rate suggest undue downward pressure overnight rate emerge appropriate implement adjustment administer rate upcoming meeting meeting support effective policy implementation ensure fund rate remain target range unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period staff review economic situation covidâ19 pandemic measure undertake contain spread continue affect economic activity united states abroad information available time march 16â17 suggest u.s. real gross domestic product gdp expand pace fast year al­though level real gdp return level see onset pandemic labor market condition improve january february employment level start consumer price inflation januaryâas measure 12âmonth percentage change price index personal consumption expenditure pce)âremaine percent total nonfarm payroll employment increase solidly january february soften end year february payroll employment retrace somewhat half loss see onset pandemic unemployment rate fall percent february unemployment rate hispanics asians decline balance january february unemployment rate african americans unchanged net rate african americans hispanics remain national average labor force participation rate edge employment population ratio move somewhat january february measure remain pre pandemic level initial claim unemployment insurance early march low level november year weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp indicate week average increase private employment end february middle month bureau labor statistics collect payroll employment datum average hourly earning employee rise percent month end february labor compensation hour business sector increase percent quarter gain measure continue dominate change composition workforce particular concentration job loss low wage worker early year result outsize increase average hourly earning compensation hour indicative tight labor market condition contrast employment cost index total hourly compensation private sector rise percent month year estimate 12âmonth change median wage derive adp datum percent january measure affect change workforce composition rise slowly pre pandemic pace total pce price inflation percent month end january continue hold slack resource utilization core pce price inflation exclude change consumer energy price consumer food price percent month end january trim mean measure 12âmonth pce inflation construct federal reserve bank dallas percent january february 12âmonth change consumer price index cpi percent core cpi inflation percent period late reading survey base measure long run inflation expectation little change balance early march university michigan surveys consumers preliminary measure year previous month february 3âyearâahead measure inflation expectation produce federal reserve bank new york essentially unchanged january level survey professional forecasters measure pce price inflation year edge return pre pandemic level index common inflation expectation summarize coâmovement wide variety inflation expectation measure level year consumer spending appear increase pace considerably fast balance year real pce expand strongly january decline precede month spending boost stimulus payment send early january component nominal retail sale datum bureau economic analysis estimate pce point step spending february revise datum previous month suggest strong gain january spending march expect boost additional stimulus payment arp start distribute middle month addition personal saving rate jump high level january ongoing gain labor earning fiscal support point additional increase accumulate household saving preliminary reading consumer sentiment michigan survey move notably early march high level past year reportedly reflect grow number vaccination enactment arp al­though consumer sentiment remain level onset pandemic construction single family home home sale remain pre pandemic level incoming datum sector mixed start single family home move notably january february reflect severe winter weather february start multifamily unit fall february strong increase see january construction permit single family home move net january february point slow construction coming month sale exist home increase january home price continue rise briskly business investment equipment intangible continue increase rise appreciably year nominal shipment nondefense capital good exclude aircraft expand strongly january rise order good point gain business equipment spending coming month business investment drilling mining sector appear increase turn sharply crude oil natural gas rig operationâan indicator drilling investmentâcontinue rise early march oil price move higher nominal nonresidential construction spending rise somewhat january investment nonresidential structure outside drilling mining sector look weak decline reflect continued hesitation business commit building project lengthy time completion uncertain future return industrial production continue rise solidly january fall markedly february reflect decline manufacturing mining sector output cause severe winter weather south region country middle month severe weather cutback production motor vehicle part reflect global shortage semiconductor new order index national regional manufacturing survey point solid increase factory output come month al­though report shortage material labor bottleneck transportation signal potential restraint pace manufacture recovery total real government purchase appear rise edge al­though datum february indicate defense spending move bounceback nondefense spending expect lift total purchase state local government purchase look increase payroll government expand net january february nominal state local construction spending increase solidly january additional support state local government include arp improved outlook state local tax revenue point notable increase state local purchase datum december january show narrow nominal u.s. international trade deficit november import export continue rebound collapse half year good import january high year early continue gain category nominal good export january nearly recover level year early particular strength export capital good industrial supply service import export remain depressed weigh continued suspension international travel recent datum point slowdown economic activity foreign economy turn year tight social distancing restriction impose rein wave covid-19 infection part world notably europe latin america economy appear well adapt operate restriction previous wave infection manufacturing activity continue outperform activity service sector manufacture export china asian economy remain strong especially united states inflation rebound foreign economy reflect rise energy price temporary factor underlying inflationary pressure remain subdue staff review financial situation investors appear optimistic economic outlook intermeete period backdrop progress covid-19 vaccination sign strong domestic spending additional fiscal stimulus nominal treasury yield curve steepen markedly increase long term real yield al­though measure inflation compensation increase despite spike equity market volatility early intermeete period spur heavy trading concentrate specific stock subsequent concern rapid rise long term interest rate broad equity price index rise net consistent strong outlook spread high yield corporate bond narrow financing condition business access capital market household high credit score remain accommodative condition stay tight borrower treasury yield curve steepen intermeete period year yield rise markedly measure inflation compensation increase moderately net continue trend observe month contrast month increase long term treasury yield account high tips imply real yield market participant attribute increase long term yield increase investor optimism economic outlook expectation high treasury debt issuance february yield rise especially sharply market depth thin bid ask spread widen treasury market liquidity gradually recover following day swaption imply volatility long term interest rate rise notably expect path fund rate year imply straight read overnight index swap quote rise substantially previous fomc move basis point quarter soon expect time january broad stock price index increase net intermeete period consistent increase investor optimism economic outlook enactment arp stock cyclically sensitive industry energy banking small cap record sizable gain sector experience mixed performance month option imply volatility s&p 500âthe vixâfluctuate wide range intermeete period move lower balance spread corporate bond yield comparable maturity treasury yield roughly unchanged investment grade corporate bond narrow speculative grade bond condition short term funding market remain stable intermeete period spread commercial paper negotiable certificate deposit different tenor little change remain near historically low level asset management aum government money market fund mmfs rise intermeete period aum prime mmfs decline somewhat effective fund rate secured overnight financing rate average basis point basis point respectively intermeete period decrease somewhat relative previous intermeete period average amid net decrease treasury bill issuance rise reserve continue participation federal reserve repo operation participation federal reserve rrp increase little amid stable market condition money market mutual fund liquidity facility commercial paper funding facility improved u.s. economic growth prospect optimism eventual lifting social distancing relate restriction globally major driver asset price abroad spur sizable increase sovereign yield advanced foreign economy response rise yield reserve bank australia increase bond purchase european central bank indicate increase pace bond purchase forward broad dollar index rise modestly notable appreciation currency emerge market economy emes eme sovereign spread edge flow eme bond fund fall later period amid rise yield advanced economy flow dedicated eme equity fund remain strong overall foreign equity index increase slightly major market financing condition nonfinancial business capital market remain accommodative intermeete period support low interest rate high equity valuation gross net corporate bond issuance solid january february gross issuance leveraged loan strong january drive mainly refinance activity primary market spread compress notably end year response strong investor demand loan equity raise traditional initial public offering seasoned equity offering continue strong january february initial equity offering special purpose acquisition company remain exceptionally high commercial industrial loan outstanding bank balance sheet continue decline february loan paydown persist demand credit reportedly remain subdue corporate earning continue recover credit quality nonfinancial corporation improve corporate bond default decline december january reach level substantially average addition volume nonfinancial corporate credit rating upgrade modestly outpace downgrade month market indicator future default expectation move lower financing condition small business remain tight demand loan remain depressedâand loan origination fall december year level see augustâafter spike lending associate round paycheck protection program long term delinquency remain elevated relative year level significantly experience global financial crisis municipal market financing condition stay accommodative intermeete period commercial real estate cre finance capital market financing condition remain accommodative intermeete period agency cmbs spread narrow strong issuance december january spread non agency cmbs tighten triple spread stay elevated level compare pre pandemic level issuance non agency cmbs remain weak relative pre pandemic level cre loan growth bank weak net february consistent tight lending standard financing condition residential mortgage market tighten somewhat intermeete period remain accommodative strong borrower mortgage rate borrower increase stay near historically low level support elevated refinance purchase activity january credit available high score borrower standard conform loan criterion tighten borrower low credit score share mortgage forbearance unchanged financing condition consumer credit market remain accommodative borrower strong credit score tight nonprime score auto loan balance continue grow january credit card balance decline interest rate credit card offer borrower prime credit score continue trend net december contrast offer rate nonprime borrower rise condition asset back security market stable intermeete period staff economic outlook u.s. economic projection prepare march fomc considerably strong january forecast real gdp growth appear pick beginning year expect reflect fast anticipate easing social distancing rapid response household fiscal support package enact late december size arp enact march considerably large assume january projection tell real gdp growth project substantial year unemployment rate forecast decline markedly projection continue anticipate widespread vaccination allow easing social distancing year real gdp growth expect step outpace potential period lead decline unemployment rate historically low level monetary policy assume highly accommodative incoming datum inflation little expect 12âmonth change total core pce price expect transitorily percent coming month low inflation reading spring year drop calculation window addition inflation forecast temporarily boost year expect emergence production bottleneck supply constraint follow transitory increase year inflation project run bit percent year reach percent reflect tight resource utilization product labor market continue uncertainty surround outlook elevated uncertain course pandemic particularly emergence contagious strain coronavirus united states view tilt risk economic outlook downside give resilience economy face early surge covid-19 case hospitalization death magnitude fiscal support enact downside risk economic outlook see small previous projection view risk upside inflationary pressure have increase previous forecast see risk inflation projection balanced participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion condition participant note covid-19 pandemic cause tremendous human economic hardship united states world follow moderation pace recovery indicator economic activity employment turn recently al­though sector adversely affect pandemic remain weak inflation continue run percent overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy depend significantly course virus include progress vaccination ongoing public health crisis weigh economic activity employment inflation pose considerable risk economic outlook participant observe pace economic recovery pick recently economy continue resilience face pandemic note encourage development pandemic include significant decline number case hospitalization death intermeete period pickup pace vaccination light development extent fiscal policy support participant significantly revise projection real gdp growth year compare projection submit december note economic activity employment currently level consistent maximum employment participant observe economic downturn fall equally americans low income black hispanic household disproportionately affect pandemic number participant stress recently enact fiscal support help address hardship face group monetary policy help promote economy return committee goal broad base inclusive maximum employment price stability participant observe household spending rise notably far year anticipate gain consumer spending contribute significantly economic recovery household spending service typically require close personal contact remain weak participant expect spending service improve vaccination widespread social distancing measure relax public wary close personal interaction participant anticipate consumer spending bolster recently enact fiscal stimulus package accommodative monetary policy participant point elevated level household saving judge release pen demand boost consumption growth social distancing wan participant observe residential construction continue solid home sale remain robust low interest rate low inventory view important factor support strong gain housing price respect business sector participant observe business equipment investment continue increase reading order shipment capital good remain strong district contact continue firm industry cre leisure travel hospitality struggle pandemic relate social distancing district contact report activity industry start improve participant note survey business activity pick recently district contact grow increasingly optimistic business prospect give ongoing progress vaccination participant discuss report shortage material key intermediate input labor bottleneck shipping participant note high crop price continue boost income agricultural sector participant judge support provide arp improve financial position small firm adversely affect pandemic participant observe labor market condition improve recently payroll employment register strong gain february unemployment rate fall percent payroll employment job pre pandemic level labor market condition disadvantaged community view lag household participant note employment leisure hospitality sector substantially pre pandemic level despite sharp rebound february participant expect strong job gain come month medium term support accommodative fiscal monetary policy continue progress vaccination reopen sector affect pandemic associate recovery economic activity participant note economy far achieve committee broad base inclusive goal maximum employment participant comment labor force participation continue hold worker health concern additional childcare responsibility associate virtual schooling pace recovery labor market depend importantly rapidly affect issue rejoin labor force participant note speed labor market recovery depend factor movement worker industry occupation restructure economy effect technological change demand labor participant suggest arp hasten recovery help limit long term damage labor market cause pandemic participant observe headline pce inflation continue run percent near term month change pce price expect percent low inflation reading spring year drop calculation participant point supply constraint contribute price increase good coming month economy continue reopen transitory effect factor fade participant anticipate annual inflation reading edge year subsequently participant expect inflation trajectory consistent achieve committee objective time support strong aggregate demand participant expect drive accommodative monetary fiscal policy participant discuss market- survey base measure long term inflation expectation implication inflation outlook market base measure inflation compensation year horizon continue intermeete period survey base measure inflation expectation little change balance number participant indicate increase market base measure inflation compensation low level spring consistent inflation path time consistent committee goal participant note financial condition remain highly accommodative reflect stance monetary policy participant comment notable rise long term treasury yield occur intermeete period view reflect improved economic outlook firm inflation expectation expectation increase treasury debt issuance disorderly condition treasury market persistent rise yield jeopardize progress committee goal see cause concern financial condition see accommodative number participant remark financing condition remain challenge small business couple participant express concern highly accommodative financial condition lead excessive risk taking buildup financial imbalance acknowledge medium term outlook real gdp growth employment improve participant continue uncertainty surround outlook elevated participant agree path economy depend significantly course virus include progress vaccination participant indicate pandemic continue pose considerable risk economic outlook include risk associate contagious virus strain obstacle get sufficient number public vaccinate social distancing fatigue participant point risk associate stress cre sector risk associate unwinding mortgage forbearance eviction moratorium provide household regard upside risk participant point possibility fiscal policy expansionary effect anticipate household display great expect willingness spend accumulate saving widespread vaccination easing social distancing result rapid boost spending employment anticipate participant note view risk outlook inflation balanced remark supply disruption strong demand push price inflation anticipate participant comment factor contribute low inflation previous expansion exert downward pressure inflation expect consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant note indicator economic activity employment turn recently period moderation sector adversely affect pandemic remain weak despite positive indicator improved public health situation participant agree economy remain far committee long run goal path ahead remain highly uncertain pandemic continue pose considerable risk outlook consequently participant judge stance policy policy guidance remain appropriate foster economic recovery achieve inflation average percent time long term inflation expectation anchor percent participant judge committee guidance fund rate asset purchase serve economy note benefit outcome base guidance need recalibrate response incoming datum evolve outlook participant note importance communicate public exist guidance monetary policy framework delineate revise statement long run goals monetary policy strategy mean path fund rate balance sheet depend actual progress reach committee maximum employment inflation goal particular participant note change path policy base primarily observed outcome forecast participant agree financial condition accommodative note federal reserve asset purchase march materially ease financial condition provide substantial support economy participant note time substantial progress committee maximum employment price stability goal realize consistent committee outcome base guidance asset purchase pace number participant highlight importance committee clearly communicate assessment progress long run goal advance time judge substantial warrant change pace asset purchase timing communication depend evolution economy pace progress committee goal committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note follow moderation pace recovery indicator economic activity employment turn recently sector adversely affect pandemic remain weak inflation continue run percent overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member remark path economy depend significantly course virus include progress vaccination addition member agree ongoing public health crisis continue weigh economic activity employment inflation pose considerable risk economic outlook member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree maintain target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree appropriate federal reserve increase holding treasury security month agency mortgage back security month substantial progress committee maximum employment price stability goal judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member agree assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development regard postmeete statement light notably positive tone datum member judge appropriate incorporate development description economic situation language indicator economic activity employment turn recently member determine oil price have essentially retrace pandemic relate decline appropriate remove reference oil price factor hold consumer price inflation simply state inflation continue run percent directive desk member agree directive incorporate propose increase counterparty limit rrp facility conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world follow moderation pace recovery indicator economic activity employment turn recently sector adversely affect pandemic weak inflation continue run percent overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus include progress vaccination ongoing public health crisis continue weigh economic activity employment inflation pose considerable risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time longerâterm inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition federal reserve increase holding treasury security month agency mortgageâbacked security month substantial progress committee maximum employment price stability goal asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective march agree committee hold tuesdayâwednesday april 27â28 adjourn 10:20 a.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january 26â27 james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text

minute federal open market committee april 27â28 joint federal open market committee board governors hold videoconference tuesday april 9:30 a.m. continue wednesday april 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester eric rosengren alternate members federal open market committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist david altig kartik athreya brian doyle rochelle edge eric engen anna paulson william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board governors matthew eichner director division reserve bank operations payment systems board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors sally davies deputy director division international finance board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn burcu duygan bump jane ihrig kurt lewis chiara scotti special advisers board division board members board governors carol bertaut senior associate director division international finance board governors david bowman senior associate director division monetary affairs board governors diana hancock senior associate director division research statistics board governors elizabeth klee senior associate director division financial stability board governors brett berger senior adviser division international finance board governors ellen meade senior adviser division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors marnie gillis deboer min wei associate directors division monetary affairs board governors glenn follette associate director division research statistics board governors ricardo correa stephanie curcuru deputy associate director division international finance board governors eric engstrom deputy associate director division monetary affairs board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors jennifer gallagher special assistant board division board members board governors brian bonis michiel pooter giovanni favara laura lipscomb zeynep senyuz assistant directors division monetary affairs board governors byron lutz matthias paustian assistant directors division research statistics board governors penelope beattie section chief office secretary board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors michele cavallo jonathan goldberg edward herbst krista schwarz principal economists division monetary affairs board governors randall williams lead information manager division monetary affairs board governors courtney demartini lead financial institution policy analyst division monetary affairs board governors anthony sarver senior financial institution policy analyst division monetary affairs board governors kenneth montgomery vice president federal reserve bank boston michael dotsey joseph gruber ellis tallman executive vice presidents federal reserve banks philadelphia kansas city cleveland respectively anne baum carlos garriga samuel schulhofer wohl mark l.j. wright nathaniel wuerffel senior vice presidents federal reserve banks new york st. louis chicago minneapolis new york respectively matthew nemeth pia orrenius nicolas petrosky nadeau matthew raskin vice presidents federal reserve bank new york dallas san francisco new york respectively robert lerman william riordan assistant vice presidents federal reserve banks new york new york respectively mark choi ellen correia golay markets officers federal reserve banks new york new york respectively fatih karahan jenny tang senior economists federal reserve banks new york boston respectively developments financial markets open market operations system open market account soma manager discuss development financial market intermeete period financial condition ease modestly market participant continue focus progress economic reopening supportive monetary fiscal policy equity price rise s&p index reach record high treasury yield dollar credit spread decline modestly equity gain broad base sector share small cap capture russell index decline news loss associate highly lever family investment office affect equity price large financial firm broad financial market effect appear limited rise sharply month long term treasury yield decline modestly intermeete period market expectation u.s. growth continue revise higher contact report early increase yield draw range investor include foreign institution pension fund insurance company backdrop term premium measure term structure model base estimate open market desk survey primary dealer market participant move slightly low nonetheless market participant attentive potential rise yield forward month desk survey respondent increase probability attach high yield end expectation policy outlook market- survey imply path fund rate relatively little change intermeete period modal survey path later year continue imply target range gradually increase level percent expectation path asset purchase stable market participant remain focused committee communication progress goal accord median survey response federal reserve net purchase treasury agency security expect end quarter reduction pace asset purchase increase target range fund rate expect occur quarter recent financial market development advanced economy reflect differ expectation economic growth monetary policy country expect recoup covid-19 relate output loss early see large yield increase appreciation currency month intermeete period bank canada announce reduction pace asset purchase bring forward forecast condition meet increase policy rate manager turn money market federal reserve balance sheet reserve balance increase intermeete period record level effective fund rate steady basis point amid ongoing strong demand safe short term investment reduce treasury bill supply secured overnight financing rate sofr stand basis point period overnight reverse repurchase agreement rrp facility continue effectively support policy implementation peak modest trading overnight repurchase agreement repo market occur negative rate development appear reflect technical factor soma manager note downward pressure overnight rate coming month result condition warrant consideration modest adjustment administer rate ultimately lead great share federal reserve balance sheet expansion channel rrp federal reserve liability survey respondent expect adjustment administer rate half expect adjustment end june fomc manager conclude update operational issue follow rrp facility discuss previous desk plan relax counterparty eligibility criterion money fund government sponsor enterprise order allow small counterpartie type participate desk plan modest adjustment allocation treasury outright purchase maturity range ensure purchase roughly proportional outstanding amount treasury security minor technical adjustment implication effect federal reserve asset purchase financial condition finally manager request committee vote maintain standing u.s. dollar foreign currency liquidity swap arrangement renew reciprocal currency arrangement canada mexico north american framework agreement committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period discussion repurchase agreement arrangements brief participant federal reserve experience daily repo operation primary dealer place september temporary foreign international monetary authorities fima repo facility establish march year briefing review consideration relevant policymaker judgment arrangement permanent standing facility note repo operation useful tool control fund rate add reserve ensure ample limit pressure repo market spill unsecured market march repo operation work concert measure manage shock financial market stabilize treasury market condition june rate overnight repo operation raise relative rate interest excess reserve repo operation serve backstop substantive usage consideration concern permanent stand repo facility briefing note stand repo operation view useful forestall funding strain spill overnight market limit dealer intermediation activity financial market stand repo facility see form liquidity support nonbank financial institution create incentive firm access facility liquidity risk eligible security case discuss consideration establishment stand fima repo facility note facility limit propensity foreign official institution execute large sale u.s. treasury security stress environment turn exacerbate strain broad u.s. domestic financial market briefing note potential drawback facility include transparency operation relative federal reserve facility consideration relate establishment stand repo facility committee approach policy implementation ample reserve regime substantial majority participant see potential benefit appropriately calibrate facility outweigh potential cost nearly participant comment stand repo facility act backstop help address pressure market u.s. treasury security treasury repo spill funding market impair implementation transmission monetary policy regard number participant note potential pressure short term funding market arise time time monetary policy operate ample reserve regime participant note standing facility provide timely automatic response incipient market pressure remark pressure difficult anticipate result promptly address discretionary operation participant note stand repo facility provide counterpartie additional flexibility manage composition holding high quality liquid asset potentially reduce demand reserve participant caution establish stand repo facility view way implement monetary policy ample supply reserve couple participant remark benefit stand repo facility realize federal reserve maintain readiness conduct repo operation short notice need note arrangement avoid cost stand facility participant mention stand repo facility perceive means support financing u.s. treasury permanent federal reserve liquidity backstop nondepository institution couple call risk facility crowd private market source liquidity provision participant note important carefully key design element potential stand repo facility include pricing structure counterpartie range collateral accept number participant comment counterpartie facility include depository institution participant note facility design target specifically enhance control fund rate limit volatility repo market consideration relate establishment permanent fima repo facility vast majority participant see potential benefit outweigh cost participant highlight number benefit stand fima repo facility note support smoother functioning u.s. treasury security market u.s. financial market provide foreign official holder u.s. treasury security alternative outright sale security time market stress participant note fima repo facility place march significantly damp pressure market cause abrupt need dollar funding abroad participant suggest stand fima repo facility view complement exist dollar swap line extend access dollar funding broad range bank foreign official institution participant comment potential risk stand fima repo facility include transparency connection fima repo operation relative federal reserve facility staff review economic situation covid-19 pandemic measure undertake contain spread continue affect economic activity united states abroad information available time april 27â28 suggest u.s. real gross domestic product gdp increase pace fast year return pre pandemic level labor market condition improve markedly march employment remain level start consumer price inflation februaryâas measure month percentage change price index personal consumption expenditure pce)âcontinue run percent total nonfarm payroll employment surge march notable gain leisure hospitality sector march payroll employment retrace third loss see onset pandemic unemployment rate decline percent march number worker temporary layoff continue fall number permanent layoff tick unemployment rate african americans hispanics fall rate remain national average addition asian unemployment rate move equal national average march labor force participation rate employment population ratio increase march measure remain pre pandemic level initial claim unemployment insurance move net mid march low level beginning pandemic remain exceptionally high pre pandemic standard weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp available half april suggest rate increase private employment slow somewhat relative early robust pace average hourly earning employee rise percent month end march 12âmonth change average hourly earning continue influence effect pandemic composition workforce particular concentration job loss low wage worker early year result large increase measure indicative tight labor market condition contrast measure 12âmonth change median wage derive adp datum percent march continue run pre pandemic pace measure affect shift composition workforce total pce price inflation percent month end february continue hold low rate resource utilization core pce price inflation exclude change consumer energy price consumer food price percent month end february trim mean measure month pce inflation construct federal reserve bank dallas percent february march month change consumer price index cpi percent boost increase consumer energy price core cpi inflation percent period common inflation expectation index combine information indicator inflation expectation inflation compensation return level prevail real pce decline february available indicatorsâinclude component nominal retail sale datum estimate pceâpointed large increase march stimulus payment have support march increase housing start bounce march follow weather induce decline february exist home sale fall february march decline appear reflect continue limited availability home sale weaken demand addition february drop home sale retrace march available indicator suggest equipment intangible investment increase slow pace see likewise drilling investment appear move boost high energy price investment nonresidential structure outside drilling mining sector look decline reflect ongoing uncertainty long term effect pandemic business manufacture output rebound strongly march follow weather relate disruption production february march rise factory output occur despite linger supply constraint example weather damage facility texas produce petrochemical plastic material fully repair semiconductor shortage weigh motor vehicle production total real government purchase appear move have decline half available datum suggest jump nondefense purchase offset decline defense purchase addition indicator real state local purchase point small increase datum february show wide nominal u.s. international trade deficit january import export fall january level nominal decline good import hold february weakness import automotive product consumer good remain high pre pandemic level nominal good export february weak category pre pandemic level import export service remain depressed weigh continued suspension international travel incoming datum consistent sharp slowdown foreign economic growth follow tightening social distancing restriction contain wave covid-19 infection slowdown appear severe observed decline mobility suggest underscore foreign economy continue adapt public health restriction indicator show economic activity advanced foreign economy afes resume expand end amid partial easing restriction surge infection country latin america south asia notably india underscore fragility global recovery foreign headline inflation rise considerably boost temporary factor fade effect steep price decline see early year pass price increase oil commodity underlying inflationary pressure appear remain muted staff review financial situation investor sentiment improve intermeete period reflect pickup pace vaccination prospect infrastructure spending strong expect labor market retail sale datum domestic equity price increase notably amid decline equity market volatility corporate bond spread narrow nominal treasury yield curve little change measure inflation compensation straight read overnight index swap quote suggest expect path fund rate little change intermeete period expect policy rate basis point market base financing condition remain accommodative lending condition ease markedly despite improvement lending standard commercial industrial c&i consumer loan remain tight pre pandemic level broad stock price index increase intermeete period outperformance technology stock stock sensitive consumer discretionary spending month option imply volatility s&p 500âthe vixâdecline approach median level observe decade pandemic spread yield investment- speculative grade corporate bond comparable maturity treasury yield narrow moderately spread municipal bond little change yield bond remain close low level year domestic short term funding market remain stable funding rate stay low backdrop continue paydown treasury bill substantial increase balance stem federal reserve asset purchase drawdown balance maintain treasury general account associate stimulus payment fiscal outlay asset management increase somewhat government money market fund mmfs decline slightly prime mmfs weighted average maturity government prime mmfs remain elevated effective fund rate sofr little change average basis point basis point respectively intermeete period continue participation fed repo operation participation fed reverse repo facility increase minimal level average reach end date factor stress foreign financial market early yearârise u.s. interest rate resurge covid-19 case renew lockdown number countriesâappeare concern global investor intermeete period afe equity index rise modestly afe sovereign bond yield little change emerge market economy emes market optimism temper rise covid-19 case broad eme equity price index little change credit spread widen somewhat vulnerable eme robust inflow early year flow eme dedicate fund continue moderate pace broad dollar index fall modestly financing condition nonfinancial business capital market remain highly accommodative intermeete period reflect low corporate bond yield high price earning ratio equity market gross corporate bond issuance gross leveraged loan issuance robust february march equity raise traditional initial public offering ipos season equity offering special purpose acquisition company continue substantial march c&i loan outstanding bank expand february march contract half year april senior loan officer opinion survey bank lending practices sloos bank report ease standard net c&i loan firm size bank report demand c&i loan weaken large middle market firm basically unchanged small firm credit quality nonfinancial corporation show sign improvement lower rat firm follow modest uptick february volume nonfinancial corporate bond downgrade spike march spike reflect downgrade large highly rat investment grade firm contrast speculative grade issuer volume upgrade modestly exceed downgrade february march nonfinancial corporate bond default remain low level february march market indicator future default expectation little change stay low financing condition municipal bond market remain accommodative intermeete period issuance municipal bond strong march indicator credit quality municipal debt little change february march financing condition small business appear improve demand loan remain subdue likely paycheck protection program small business loan origination rise notably february month datum available close pre pandemic level amid improve financing condition small business remain financial stress commercial real estate cre finance capital market financing condition remain accommodative intermeete period delinquency rate agency commercial mortgage back security cmbs decline past month delinquency rate hotel retail mortgage cmbs pool remain high cre loan hold bank little change march april sloos change lending standard mix cre loan category financing condition residential mortgage market little change intermeete period remain accommodative strong borrower meet standard conform loan criterion credit remain tight borrower low credit score mortgage rate borrower little change net april sloos bank report ease standard type mortgage share mortgage forbearance decline slightly march financing condition consumer credit market remain accommodative borrower strong credit score tight subprime score consumer loan grow robust pace february reflect continue expansion auto loan partial rebound credit card account balance bank april sloos report ease auto lending standard report standard remain tight compare end especially nonprime borrower bank report standard credit card ease tight pandemic interest rate offer nonprime borrower continue rise february fraction offer introductory rate continue decline provide update assessment stability financial system note corporate bond spread decline notably late year low end historical distribution addition measure equity risk premium decline nonprice measure high ipo volume indicate elevated investor appetite risk equity market valuation pressure cre remain high information relate cre continue noisy usual pandemic induce decline transaction house price growth increase house price outpace rent contrast vulnerability household business debt diminish reflect continued government support slow pace business borrowing improve business earning household business continue struggle financial leverage note capital ratio remain pre pandemic level risk remain leverage hedge fund elevate increase year highly leverage fund leverage hedge fund prime brokerage account rise notably year reflect elevated hedge fund leverage relate stock market activity highlight episode underline opacity risk exposure leverage entity regard funding risk note mmfs open end mutual fund face significant structural vulnerability associate liquidity transformation asset management mmfs decline half open end mutual fund holding corporate bond rise half year staff economic outlook u.s. economic projection prepare april fomc slightly strong march forecast real gdp growth project post substantial increase year correspondingly rapid decline unemployment rate reduction social distancing favorable financial condition expect support output growth boost growth continued reduction social distancing assume fade gdp growth expect step monetary policy assume highly accommodative continue anticipate real gdp growth outpace potential period lead decline unemployment rate historically low level outlook inflation unchanged 12âmonth change total core pce price expect percent coming month unusually low reading spring drop calculation window jump consumer energy price push total measure core inflation expect ease later year percent end boost large increase import price recovery price especially affect pandemic temporary effect supply bottleneck inflation project dip slightly percent influence transitory factor diminish return percent end support sustained tight level resource utilization labor product market continue judge risk baseline projection economic activity skewed downside uncertainty forecast elevate particular despite demonstrate resilience economy surge pandemic past year possibility covid-19 variant contagious resistant exist vaccine spread pose salient downside risk continue risk inflation projection balanced upside bottleneck supply disruption historically high rate resource utilization see potential source great expect inflationary pressure alternatively possibility inflation hold low underlie trend inflation weak expect response resource utilization see important downside risk participant view current conditions economic outlook condition participant note covid-19 pandemic cause tremendous human economic hardship united states world amid progress vaccination strong policy support indicator economic activity employment strengthen sector adversely affect pandemic remain weak show improvement inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy depend significantly course virus include progress vaccination ongoing public health crisis continue weigh economy risk economic outlook remain participant observe economic activity pick sharply year robust gain consumer spending housing sector activity business equipment investment manufacturing production note acceleration economic activity reflect positive development associate rapid pace vaccination continue support fiscal monetary policy participant note economy remain far committee maximum employment price stability goal household sector participant remark indicator consumer spending surge march expect gain spending contribute significantly economic recovery participant comment fiscal stimulus accommodative financial condition release pen demand progress widespread vaccination ongoing reduction social distancing measure important factor support spending participant note consumer spending bolster factor elevated level accumulated household saving participant observe housing market activity continue strong support low interest rate respect business sector participant note business equipment investment continue rise robust pace manufacturing activity expand strong clip say participant discuss report shortage material labor supply chain bottleneck restraint pace recovery manufacturing business sector participant note district contact report pickup activity leisure travel hospitality sector contact grow increasingly optimistic business condition give ongoing progress vaccination ease restriction person activity substantial fiscal support couple participant report improved condition agricultural sector farmer income support high crop price aid payment participant comment continue improvement labor market condition month job gain march employment strong unemployment rate fall percent participant judge economy far achieve committee broad base inclusive maximum employment goal payroll employment job pre pandemic level participant note labor market recovery continue uneven demographic income group sector participant remark business contact district report have trouble hire worker reflect factor early retirement health concern childcare responsibility expand unemployment insurance benefit participant note factor depress labor force participation rate relative pre pandemic level factor see significant pandemic relate risk persist base report business contact participant note step demand labor start upward pressure wage medium term participant expect labor market condition improve support accommodative fiscal monetary policy continue progress vaccination unwind social distancing associate recovery economic activity couple participant remark business industry severely affect pandemic downsize business focus cut cost increase productivity particularly automation comment inflation participant anticipate inflation measure month change pce price index percent near term low reading early pandemic fall calculation addition increase oil price expect pass consumer energy price participant note expect surge demand economy reopen transitory supply chain bottleneck contribute pce price inflation temporarily run somewhat percent transitory effect factor fade participant expect measured inflation ease look ahead participant expect inflation level consistent achieve committee objective time number participant remark supply chain bottleneck input shortage resolve quickly factor upward pressure price year note industry supply chain disruption appear persistent originally anticipate reportedly lead high input cost despite expect short run fluctuation measured inflation participant comment measure long term inflation expectation remain anchor level consistent achieve committee long run goal participant judge uncertainty elevate outlook highly dependent course virus amid considerable progress vaccination unwinding social distancing strong policy support participant assess risk outlook long elevate previous month participant remark pandemic continue pose downside risk economic outlook note potential uneven recovery light virus strain potential hesitancy vaccination upside risk participant mention release pen demand accumulate excess household saving rapid progress vaccination amid continue fiscal monetary support boost economic activity bring individual labor force quickly currently expect participant mention upside risk inflation outlook arise temporary factor influence inflation turn persistent expect participant comment financial stability agree financial sector show resilience pandemic large reflect strong policy support remark capital position loan loss reserve large bank remain high earning strong participant note vulnerability business household debt moderate level couple participant highlight forbearance program institute response pandemic mask vulnerability household business asset valuation participant note risk appetite capital market elevate equity valuation rise ipo activity remain high risk spread corporate bond historical distribution couple participant remark investor risk appetite fall associated drop asset price couple high business financial leverage adverse implication real economy number participant comment valuation pressure somewhat elevated housing market participant mention potential risk financial system stem activity hedge fund leveraged investor comment limited visibility activity entity prudential risk management practice dealer prime brokerage business participant highlight potential vulnerability part financial system include run prone investment fund short term funding credit market participant comment prolonged period low interest rate highly accommodative financial market condition possibility condition lead reach yield behavior raise financial stability risk consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant agree economy far committee long run goal path ahead continue depend course virus risk economic outlook remain consequently participant judge stance policy policy guidance remain appropriate foster economic recovery achieve inflation average percent time long term inflation expectation anchor percent participant judge committee guidance fund rate asset purchase serve economy participant note exist outcome base guidance imply path fund rate balance sheet depend actual progress reach committee maximum employment inflation goal particular participant emphasize important feature outcome base guidance policy set base observed progress committee goal uncertain economic forecast couple participant comment risk inflation pressure build unwelcome level sufficiently evident induce policy reaction federal reserve asset purchase participant note time economy substantial progress committee maximum employment price stability goal relative condition prevail december committee provide guidance asset purchase consistent committee outcome base guidance purchase pace time participant highlight importance committee clearly communicate assessment progress long run goal advance time judge substantial warrant change pace asset purchase timing communication depend evolution economy pace progress committee goal number participant suggest economy continue rapid progress committee goal appropriate point upcoming meeting begin discuss plan adjust pace asset purchase committee policy action monetary policy member agree covid-19 pandemic cause tremendous human economic hardship united states world note amid progress vaccination strong policy support indicator economic activity employment strengthen al­though sector adversely affect pandemic remain weak show improvement inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member remark path economy depend significantly course virus include progress vaccination addition member agree ongoing public health crisis continue weigh economy risk economic outlook remain member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree appropriate federal reserve increase holding treasury security month agency mortgage back security month substantial progress committee maximum employment price stability goal judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member agree postmeete statement acknowledge indicator economic activity employment strengthen despite show improvement sector economy affect pandemic remain weak member judge risk outlook remain continue progress vaccination accommodative monetary fiscal policy underpin gain economic activity employment limit risk outlook result agree remove characterization risk considerable fomc statement regard characterization inflation member agree statement inflation rise increase reflect transitory factor note inflation measure month change pce price index expect percent low reading early pandemic fall calculation past increase oil price pass consumer energy price expected rebound spending economy continue reopen boost inflation temporarily particularly supply bottleneck limit quickly production respond demand near term member view increase price transitory effect inflation conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective april federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal covid-19 pandemic cause tremendous human economic hardship united states world amid progress vaccination strong policy support indicator economic activity employment strengthen sector adversely affect pandemic weak show improvement inflation rise reflect transitory factor overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus include progress vaccination ongoing public health crisis continue weigh economy risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time longerâterm inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition federal reserve increase holding treasury security month agency mortgageâbacked security month substantial progress committee maximum employment price stability goal asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously leave interest rate required excess balance percent board governors vote unanimously approve establishment primary credit rate exist level percent effective april agree committee hold tuesdayâwednesday june 15â16 adjourn 10:20 a.m. april notation vote notation vote complete april committee unanimously approve minute committee hold march 16â17 james clouse secretary federal open market committee reference fomc committee minute return text attend repurchase agreement arrangement return text

minute federal open market committee joint federal open market committee board governors hold videoconference tuesday june 9:00 a.m. continue wednesday june 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester eric rosengren alternate members federal open market committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed kartik athreya rochelle edge eric engen william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board governors michael gibson director division supervision regulation board governors andreas lehnert director division financial stability board governors daniel covitz deputy director division research statistics board governors sally davies deputy director division international finance board governors jon faust senior special adviser chair division board members board governors joshua gallin special adviser chair division board members board governors william bassett antulio bomfim wendy dunn burcu duygan bump jane ihrig kurt lewis chiara scotti nitish sinha special advisers board division board members board governors carol bertaut senior associate director division international finance board governors marnie gillis deboer david lópez salido senior associate directors division monetary affairs board governors elizabeth klee senior associate director division financial stability board governors david lebow senior associate director division research statistics board governors brett berger senior adviser division international finance board governors ellen meade edward nelson senior advisers division monetary affairs board governors jeremy rudd senior adviser division research statistics board governors andrew figura associate director division research statistics board governors christopher gust associate director division monetary affairs board governors stephanie curcuru andrea raffo deputy associate directors division international finance board governors laura lipscomb deputy associate director division monetary affairs board governors steve spurry deputy associate director division supervision regulation board governors jeffrey walker deputy associate director division reserve bank operations payment systems board governors jennifer gallagher special assistant board division board members board governors brian bonis etienne gagnon dan assistant directors division monetary affairs board governors charles fleischman adviser division research statistics board governors penelope beattie section chief office secretary board governors alyssa arute manager division reserve bank operations payment systems board governors sriya anbil group manager division monetary affairs board governors mark carlson senior economic project manager division monetary affairs board governors david small project manager division monetary affairs board governors david byrne principal economist division research statistics board governors michele cavallo bernd schlusche mary tian francisco vazquez grande principal economists division monetary affairs board governors alberto queralto principal economist division international finance board governors randall williams lead information manager division monetary affairs board governors courtney demartini lead financial institution policy analyst division monetary affairs board governors anthony diercks senior economist division monetary affairs board governors joseph gruber ellis tallman executive vice presidents federal reserve banks kansas city cleveland respectively anne baum carlos garriga susan mclaughlin anna nordstrom giovanni olivei paolo pesenti julie ann remache robert valletta mark l.j. wright senior vice presidents federal reserve banks new york st. louis new york new york boston new york new york san francisco minneapolis respectively roc armenter jennifer crystal jonas fisher matthew nemeth vice presidents federal reserve banks philadelphia new york chicago new york respectively jason miu assistant vice president federal reserve bank new york karel mertens senior economic policy advisor federal reserve bank dallas kristopher gerardi financial economist senior advisor federal reserve bank atlanta haitham jendoubi policy markets analysis manager federal reserve bank new york discussion repurchase agreement arrangements participants resume april fomc consideration relate establishment domestic stand repurchase agreement repo facility srf stand foreign international monetary authorities fima repo facility build previous meeting present consideration facility design design consideration guide participant general desire facility play backstop role foster effective implementation monetary policy support smooth functioning market april participant highlight importance design facility way leave ample room private market activity minimize potential stigma promote equitable access appropriately broad set counterpartie govern fomc principle goal mind present potential term facility presentation potential design domestic srf include establish minimum bid rate basis pointsâthe target range fund rate briefing suggest counterpartie facility include primary dealer extend time include bank express interest participation presentation note facility limit u.s. treasury security accept security currently accept open market operation omos include treasury security agency security agency mortgage back security mbs briefing note hand restrict eligible collateral domestic srf u.s. treasury security mitigate concern srf encourage counterpartie great liquidity risk hand accept agency security agency mbs srf consistent structure repo operation help address great range potential repo market pressure spill fund market propose design stand fima repo facility similar structure exist temporary fima repo facility draft term range eligible counterpartie fima repo facility include foreign official institution comprise bank subject individual approval eligible collateral limit u.s. treasury security draft term envision rate fima repo facility set equal target range fund rate rate equal minimum bid rate draft term domestic srf consideration relate design domestic srf substantial majority restate convey april potential benefit facility outweigh potential cost participant support term present facility participant note importance set minimum bid rate high facility position backstop point importance set rate high usage facility stigmatize facility sufficiently contain pressure spill fund market participant note set srf rate target range fund rate consistent address pressure spill fund market remark set srf rate level primary credit rate borrow discount window promote equitable access federal reserve liquidity bank counterpartie omo participant comment appropriate adjust srf rate time base accumulate experience economic financial development participant suggest order ensure srf continue effective appropriate study cost benefit additional adjustment time move clear settlement structure participant note benefit allow bank counterpartie domestic srf include directly address liquidity pressure participant fund market promote equitable access liquidity domestic counterpartie participant judge appropriate accept set security currently accept omo participant indicate accept security domestic srf operation increase effectiveness facility limit upward pressure repo market spill fund market participant note limit acceptable security srf operation u.s. treasury security benefit include consistency regulatory distinction u.s. treasury security type security potentially limit federal reserve footprint financial market maintain consistency structure propose fima repo facility overnight reverse repo rrp facility participant caution establish backstop srf diminish importance provide sufficiently ample supply reserve ongoing basis need improve structural resiliency u.s. treasury market couple participant reiterate concern convert ongoing daily repo operation standing facility suggest way calibrate term facility mitigate concern include set relatively high minimum bid rate limit security eligible srf operation u.s. treasury security consideration relate design stand fima repo facility substantial majority support broad structure discuss presentation participant see benefit keep rate level potential domestic srf light similar nature transaction high quality collateral number participant remark rate fima repo facility set high level domestic srf set level comparable federal reserve dollar liquidity swap line couple participant comment potential reputational risk establish stand fima repo facility include associate provide liquidity standing basis wide set bank finance ministry exist swap line participant reiterate importance maintain define criterion participation facility suggest fomc receive regular report operation counterpartie approve stand fima repo facility participant agree design parameter domestic srf stand fima repo facility chair ask work specific proposal reflect view express participant development financial markets open market operations manager turn financial market development intermeete period net u.s. financial condition ease lead decline treasury yield low term premium appear significant component decline reflect low imply volatility long term interest rate equity rise slightly broad dollar weaken credit spread little change historically tight level period market participant focus datum show low employment growth high inflation reading expect median core personal consumption expenditure pce inflation forecast open market desk survey primary dealers jump nearly percentage point previous survey median forecast rise percent suggest expectation inflationary pressure subside inflation compensation measure year breakeven rate treasury inflation protect securities peak mid high level decade increase drive entirely high inflation compensation short horizon year forward inflation compensation horizon year relatively stable measure expectation federal reserve policy little change period median respondent desk survey primary dealer market participant continue expect pace federal reserve asset purchase begin decline respondent see reasonable chance decline occur early later median respondent expect purchase end desk survey measure expect path target fund rate fairly steady median respondent continue expect target rate increase occur nearly desk survey respondent anticipate summary economic projections median committee participant project increase target range percentage point increase end manager note downward pressure money market rate continue period bank continue limit growth balance sheet allow wholesale liability mature encourage customer shift nonoperational deposit money market fund supply treasury bill primary investment government money market mutual fund fall backdrop secured overnight financing rate sofr print basis point day intermeete period effective fund rate effr decrease basis point basis point amid heighten demand reduce supply short term investment rrp continue maintain floor overnight rate growth rrp nonreserve liability help expand base federal reserve liability support asset purchase damp increase reserve ease pressure balance sheet intermeete period manager anticipate increase reserve reduction bill supply additional downward pressure overnight rate modest technical adjustment administer rate warrant maintain effr target range support smooth functioning short term funding market adjustment expect raise fund rate lift overnight rate modestly respondent desk survey expect administer rate adjustment summer manager note balance rrp facility grow coming month monitor development manager note point appropriate raise counterparty limit rrp manager provide update progress wind number emergency facility establish section 13(3 federal reserve act market participant take federal reserve board announcement wind secondary market corporate credit facility smccf holding elicit little price response commencement exchange trade fund sale proceed smoothly smccf asset expect sell end year finally manager note proposal request chair approval extension temporary u.s. dollar liquidity swap arrangement december extension benefit u.s. economy help forestall potential pressure offshore dollar funding market spill u.s. financial condition global economy remain uncertain recovery path pandemic committee decide fima repo facility standing extension provide sufficient time temporary swap line bank currently enrol fima repo facility fully operational secretary chair subsequently provide approval desk follow procedure authorization foreign currency operations extend expiration temporary u.s. dollar liquidity swap line december unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time june 15â16 suggest u.s. real gross domestic product gdp expand pace fast year labor market condition improve april consumer price inflation aprilâas measure month percentage change pce price indexâhad pick notably reflect transitory factor total nonfarm payroll employment increase solidly april slow monthly pace february march total payroll employment retrace twoâthirds job loss see onset pandemic employment leisure hospitality sector education sector include public private education bounce april unemployment rate edge stand percent unemployment rate african americans asians hispanics move rate african americans hispanics remain national average labor force participation rate employment population ratio move slightly measure recover partially low pandemic initial claim regular state unemployment insurance benefit move midâapril low level beginning pandemic remain high relative pre pandemic level weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp available suggest pace private employment gain step late month pace increase measure labor compensation move month average hourly earning employee jump sizable monthly rate april large job gain leisure hospitality sectorâwhere wage tend low sectorsâlikely hold increase average hourly earning month measure 12âmonth change median wage derive adp datum step significantly april relative march employment cost index total hourly compensation private sector increase annual rate percent month end march notably fast pace previous month recent month change measure inflation pce price consumer price index cpi boost significantly base effect drop price spring roll calculation addition surge demand economy reopen combine production bottleneck supply constraint contribute large monthly price increase total pce price inflation percent month end april core pce price inflation exclude change consumer energy price consumer food price percent month end april contrast trim mean measure month pce inflation construct federal reserve bank dallas percent april month change cpi percent core cpi inflation percent period common inflation expectation index combine information indicator inflation expectation inflation compensation return level prevail time inflation modest real pce increase substantially march little change high level april component nominal retail sale datum estimate pce edge sale datum previous month revise markedly point strong real pce growth initially estimate combine reduce social distancing widespread vaccination key factor influence consumer spendingâinclude increase job gain upward trend real disposable income high level household net worth low interest ratesâpointe strong real pce growth rest year housing demand continue robust construction single family home home sale remain pre pandemic level house price rise appreciably incoming datum sector indicate residential investment spending temporarily hold material shortage limited stock home sale available indicator suggest equipment intangible investmentâparticularly high tech categoriesâwas increase solidly rise order nondefense capital good exclude aircraft run increase shipment good april point additional gain business equipment spending coming month business investment drilling mining sector appear increase crude oil natural gas rig operationâan indicator drilling investmentâcontinue rise early june oil price move higher nominal nonresidential construction spending decline april investment nonresidential structure outside drilling mining sector look weak reflect continued hesitation business commit building project lengthy time completion uncertain future return manufacture output expand solidly balance april output motor vehicle part sector rise net semiconductor shortage weigh vehicle production factory output outside motor vehicle sector increase solidly production mining sector include crude oil natural gas extraction increase april total real government purchase look flat balance datum indicate real defense spending rise slightly nondefense spending expect drop follow surge pandemic relate expenditure state local government purchase look increase significantly payroll government expand solidly april nominal state local construction spending edge april strong economic recovery lead improved outlook state local tax revenue additional support government include american rescue plan state local purchase appear increase notably rest year nominal u.s. international trade deficit widen record size march reverse widen april real good export march surpass january level time continue grow april particular strength export capital good real good import surge record high level march step modestly april bottleneck global semiconductor industry weigh export import automotive product year continue april export import service remain depressed relative pre pandemic level international travel increase slightly february recent datum point pickup foreign economic activity demand improve social distancing restriction lift united kingdom euro area follow rollout vaccine economic reopening way purchase manager index pmis manufacturing service sector strong europe april emerge market economy emes manufacture pmi export robust eme continue struggle contain virus amid slow pace vaccination particularly south america part asia consumer price inflation continue rise foreign economy primarily drive rebound energy price fading effect steep price decline see early year price increase concentrate relatively item suggest underlie inflationary pressure remain subdue amid considerable economic slack staff review financial situation overall financial condition ease intermeete period market participant appear confident economic recovery track inflation medium term stay contain monetary policy accommodative domestic equity price edge corporate bond spread narrow little yield nominal treasury security decline modestly previous fomc measure inflation compensation short horizon move somewhat net measure long term inflation compensation little change straight read overnight index swap ois quote suggest expect path fund rate move lower intermeete period expect policy rate basis point short term funding market function smoothly amid record participation rrp facility financing condition business household remain accommodative particularly large firm household high credit rating treasury yield curve flatten bit net year yield unchanged 10- year yield decline somewhat inflation compensation decline bit short horizon hold steady long horizon market expectation fund rate path medium term imply ois quote unadjuste term premium decline moderately broad stock price index increase slightly intermeete period stock cyclically sensitive sector outperform month option imply volatility s&p 500âthe vixâreache low level february remain bit middle historical distribution spread yield corporate bond comparable maturity treasury security narrow little credit rating yield municipal bond reach historical low spread roughly unchanged high credit rat bond moderately narrower low credit rat bond short term funding market continue function smoothly intermeete period shortâterm overnight rate remain near historical low overnight rate dip slightly effr nearly constant period basis point sofr remain basis point rate low net treasury bill supply contracting government money market fund time attract notable inflow limited investment option nonnegative rate result rrp fund surge push total rrp participation record level late june international financial market participant focus news inflation monetary policy communication europe strong expect reading inflation economic activity increase optimism vaccination contribute rise market base measure inflation expectation net european long term government bond yield little change u.s. yield decline broad dollar index decrease modestly emerge market credit spread narrow bit capital flow eme fund continue moderate pace equity index increase somewhat emerge advanced foreign economy financing condition nonfinancial firm capital market remain highly accommodative reflect historically low corporate bond leveraged loan yield high price earning ratio equity market gross issuance corporate bond leveraged loan solid equity raise traditional initial public offering robust april soften moderate level mid june pace seasoned equity offering modest intermeete period equity issuance special purpose acquisition company slow markedly commercial industrial c&i loan outstanding bank fall mid forgiveness paycheck protection program ppp loan continue drive balance offset volume loan origination tepid demand loan appear factor decline loan outstanding instance despite healthy growth c&i commitment large bank corresponding change utilization rate credit line credit quality large nonfinancial corporation remain stable intermeete period volume credit rating upgrade nonfinancial bond leveraged loan outpace downgrade somewhat april early june period reported corporate default april default low delinquency rate c&i loan remain low market indicator future default expectation little change remain low relative historical range municipal bond market financing condition remain accommodative intermeete period issuance municipal bond solid month indicator credit quality municipal debt show sign improvement volume bond upgrade outpace volume bond downgrade financing condition small business little change supply small business loan remain tight demand subdue outside ppp small business loan origination rise april surpass pre pandemic level loan ppp account significant portion growth loan performance indicator financial health small business improve month certain sector accommodation food service small business remain stress commercial real estate cre finance capital market financing condition remain accommodative intermeete period issuance commercial mortgage back security cmbs solid month retail hotel sector spread agency cmbs narrow pre pandemic level spread non agency triple cmbs little change accommodative level non agency triple spread remain elevated cre loan growth bank continue weak mid reflect weak demand tight underwriting standard residential mortgage market financing condition little change intermeete period remain accommodative strong borrower meet standard conform loan criterion credit continue appear tight borrower low credit score mortgage rate borrower little change net remain near historical low home purchase refinance mortgage activity continue strong pace early june share mortgage forbearance decline financing condition consumer credit remain accommodative consumer loan grow robust pace april drive rapid growth auto loan balance credit card balance bank book rise reverse april decline subprime borrower condition credit card market appear ease somewhat tight condition see onset pandemic condition asset back security market continue supportive lending intermeete period staff economic outlook u.s. economic projection prepare june fomc strong april forecast real gdp growth project increase substantially year correspondingly rapid decline unemployment rate reduction social distancing favorable financial condition expect support output growth effect fiscal stimulus economic growth start unwind boost growth continued reduction social distancing assume fade unwinding fiscal stimulus gdp growth expect step monetary policy assume highly accommodative continue anticipate real gdp growth outpace potential period lead decline unemployment rate historically low level near term outlook inflation revise markedly continue expect rise inflation year transitory 12âmonth change total core pce price move percent april incoming cpi datum suggest pce price inflation high month measure inflation boost significantly base effect drop price spring roll calculation addition surge demand economy reopen combine production bottleneck supply constraint contribute large monthly price increase expect month change pce price gradually coming month reflect importantly fading base effect small expect monthly price increase pce price inflation forecast percent end year year transitory price increase cause bottleneck supply constraint expect reverse growth demand forecast ease result inflation project slow slightly percent move bit percent support high level resource utilization continue uncertainty surround economic outlook elevate increasingly widespread vaccination ongoing policy support view help diminish uncertainty judge risk strong baseline projection economic activity tilt somewhat downside adverse alternative course pandemicâincluding possibility spread contagious vaccine resistant covid-19 variantsâseeme outcome favorable baseline forecast continue risk inflation projection roughly balanced upside bottleneck supply disruption historically high rate resource utilization see potential source great expect inflationary pressure particularly significant rise inflation expectation alter inflation dynamic downside effect supply constraint prove transitory expect inflation record past year suggest possibility low underlie trend inflation flat phillips curve cause inflation revert relatively low level despite strengthen economy participant view current economic conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion condition participant note progress vaccination reduce spread covid-19 united states amid progress strong policy support indicator economic activity employment strengthen sector adversely affect pandemic remain weak show improvement inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy depend significantly course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain participant observe economic activity expand historically rapid pace lead robust gain consumer spending vast majority participant revise projection real gdp growth year compare projection submit march cite strong consumer demand improvement vaccination rate primary reason upgrade say participant see supply disruption labor shortage constrain expansion economic activity year participant projection real gdp growth little change household sector participant remark indicator consumer spending continue surge expect gain spending contribute significantly economic recovery participant comment accommodative financial condition release pen demand progress widespread vaccination ongoing reduction social distancing measure fiscal stimulus important factor support spending participant note consumer spending bolster ongoing effect factor household elevated level accumulate saving healthy balance sheet majority participant observe housing market activity remain strong respect business sector participant note activity service industry adversely affect pandemic leisure hospitality sector rebound economy reopen number participant note business equipment investment rise strong pace growth manufacturing activity restrain production bottleneck supply constraint addition participant report hear contact broad range industry shortage material labor supply chain challenge limit ability firm demand business contact indicate respond input shortage bottleneck cancel shift raise compensation attract retain worker raise price focus cut cost increase productivity particularly automation participant comment continue improvement labor market condition month job gain april average unemployment rate edge net percent period participant point elevated number job opening high rate job switch evidence improvement labor market condition participant remark economy far achieve committee broad base inclusive maximum employment goal participant indicate job gain strong weak expect number participant note labor market recovery continue uneven demographic income group sector participant note district contact report have trouble hire worker meet demand reflect factor early retirement concern virus childcare responsibility expand unemployment insurance benefit participant remark factor make people able inclined work environment cite wage datum report business contact participant judge labor shortage put upward pressure wage lead employer provide additional financial incentive attract retain worker particularly low wage occupation participant expect labor market condition improve labor shortage expect ease summer fall progress vaccination continue social distancing unwind school reopen expand unemployment insurance benefit expire discussion inflation participant state expect inflation percent near term drop price early pandemic fall calculation past increase oil price pass consumer energy price participant remark actual rise inflation large anticipate month change pce price index reach percent april participant attribute upside surprise widespread supply constraint product labor market anticipate large expect surge consumer demand economy reopen note district contact report high input cost put upward pressure price participant observe large contributor rise measured inflation sector affect supply bottleneck sector price level rebound level depress pandemic look ahead participant expect inflation ease effect transitory factor dissipate participant remark anticipate supply chain limitation input shortage upward pressure price year participant note early month reopening uncertainty remain high accurately long inflation pressure sustain participant comment reading inflation measure exclude volatile component trim mean measure relatively stable percent comment long term inflation expectation number participant note despite increase early year measure long term inflation expectation remain range consistent committee long run inflation goal note year increase bring measure level consistent committee long run inflation goal participant note financial condition remain highly accommodative reflect stance monetary policy continue deliver appropriate support economy participant highlight low interest rate contribute elevated house price valuation pressure housing market pose financial stability risk discuss uncertainty risk associate economic outlook participant comment process reopen economy unprecedented uneven sector participant judge supply chain disruption labor shortage complicate task assess progress committee goal speed factor dissipate uncertain accordingly participant judge uncertainty economic projection elevate see risk outlook economic activity balance substantial majority participant judge risk inflation projection tilt upside concern supply disruption labor shortage linger long large persistent effect price wage currently assume participant express concern long term inflation expectation rise inappropriate level elevated inflation reading persist participant caution downside risk inflation remain temporary price pressure unwind fast currently anticipate force hold inflation inflation expectation previous economic expansion away reinforce effect unwinding temporary price pressure consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant agree economic recovery incomplete risk economic outlook remain inflation rise anticipate increase see reflect temporary factor participant expect inflation decline committee percent long run objective participant judge stance monetary policy policy guidance remain appropriate promote maximum employment achieve inflation average percent time long term inflation expectation anchor percent participant reiterate exist outcome base guidance imply path fund rate balance sheet depend actual progress reach committee maximum employment inflation goal light incoming datum implication economic outlook participant mention expect economic condition set committee forward guidance fund rate meet somewhat early project march participant emphasize uncertainty economic outlook elevate early draw firm conclusion path labor market inflation heighten uncertainty evolution economy imply significant uncertainty appropriate path fund rate participant note communication appropriate path policy focus market participant environment comment important emphasize committee reaction function commitment monetary policy framework change participant discuss federal reserve asset purchase progress committee goal december committee adopt guidance asset purchase committee standard substantial progress see have meet participant expect progress participant mention expect condition begin reduce pace asset purchase meet somewhat early anticipate previous meeting light incoming datum participant see incoming datum provide clear signal underlie economic momentum judge committee information coming month well assessment path labor market inflation result participant emphasize committee patient assess progress goal announce change plan asset purchase participant judge matter prudent planning important position reduce pace asset purchase appropriate response unexpected economic development include fast anticipate progress committee goal emergence risk impede attainment committee goal participant offer view committee agency mbs purchase participant see benefit reduce pace purchase quickly early treasury purchase light valuation pressure housing market participant comment reduce pace treasury mbs purchase commensurately preferable approach align committee previous communication purchase treasury security mbs provide accommodation influence broad financial condition coming meeting participant agree assess economy progress committee goal begin plan adjust path composition asset purchase addition participant reiterate intention provide notice advance announcement reduce pace purchase regard implementation monetary policy participant observe downward pressure money market rate intermeete period view possibility downward pressure rate near term consequently note adjustment federal reserve administer rate help fund rate target range support smooth market functioning short term funding market participant agree technical adjustment bearing appropriate path fund rate stance monetary policy committee policy action monetary policy member agree progress vaccination reduce spread covid-19 united states note amid progress strong policy support indicator economic activity employment strengthen sector adversely affect pandemic remain weak show improvement inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member agree path economy depend significantly course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation have run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition member agree appropriate federal reserve increase holding treasury security month agency mbs month substantial progress committee maximum employment price stability goal judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member judge economic outlook continue improve negative effect pandemic economy occur result agree remove reference fomc statement note virus cause tremendous human economic hardship ongoing public health crisis continue weigh economy instead agree progress vaccination reduce spread covid-19 reduce negative economic effect public health crisis conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct repurchase agreement operation support effective policy implementation smooth functioning short term u.s. dollar funding market conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal progress vaccination reduce spread covid-19 united states amid progress strong policy support indicator economic activity employment strengthen sector adversely affect pandemic weak show improvement inflation rise reflect transitory factor overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy depend significantly course virus progress vaccination reduce effect public health crisis economy risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation have run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time longerâterm inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time addition federal reserve increase holding treasury security month agency mortgageâbacked security month substantial progress committee maximum employment price stability goal asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors vote unanimously raise interest rate required excess balance percent set interest rate pay required excess balance basis point target range fund rate intend foster trading fund market rate federal open market committee target range support smooth functioning short term funding market board governors vote unanimously approve establishment primary credit rate exist level percent effective june agree committee hold tuesdayâwednesday july 27â28 adjourn 10:40 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold april 27â28 james clouse secretary federal open market committee reference fomc committee minute return text attend development financial market open market operation return text attend economic development outlook return text

minute federal open market committee july joint federal open market committee board governors federal reserve system hold videoconference tuesday july 9:00 a.m. continue wednesday july 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester eric rosengren alternate members committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed kartik athreya brian doyle rochelle edge beverly hirtle william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board jon faust joshua gallin senior special advisers chair division board members board william bassett antulio bomfim burcu duygan bump jane ihrig kurt lewis chiara scotti nitish sinha special advisers board division board members board elizabeth klee senior associate director division financial stability board david lebow michael palumbo john stevens senior associate directors division research statistics board min wei senior associate director division monetary affairs board brett berger senior adviser division international finance board ellen meade edward nelson senior advisers division monetary affairs board christopher gust associate director division monetary affairs board paul wood associate director division international finance board stephanie curcuru andrea raffo deputy associate directors division international finance board laura lipscomb zeynep senyuz deputy associate directors division monetary affairs board norman morin karen pence deputy associate directors division research statistics board jeffrey walker deputy associate director division reserve bank operations payment systems board jennifer gallagher special assistant board division board members board brian bonis etienne gagnon assistant directors division monetary affairs board alyssa anderson andrew meldrum section chiefs division monetary affairs board penelope beattie section chief office secretary board mark carlson senior economic project manager division monetary affairs board david small project manager division monetary affairs board erin ferris andrei zlate principal economists division monetary affairs board randall williams lead information manager division monetary affairs board isabel cairó senior economist division monetary affairs board james trevino senior economic modeler division monetary affairs board isaiah ahn senior staff assistant division monetary affairs board kathleen paese vice president federal reserve bank st. louis michael dotsey joseph gruber ellis tallman executive vice presidents federal reserve banks philadelphia kansas city cleveland respectively anne baum spencer krane david wheelock mark l.j. wright nathaniel wuerffel senior vice presidents federal reserve banks new york chicago st. louis minneapolis new york respectively dina marchioni thomas mertens jon willis mark wynne vice presidents federal reserve banks new york san francisco atlanta dallas respectively jeffrey moore brett rose assistant vice presidents federal reserve bank new york daniel cooper senior economist policy advisor federal reserve bank boston ellen correia golay brian greene markets officers federal reserve bank new york developments financial markets open market operations manager turn development financial market notable move asset price intermeete period financial condition end period little change historically accommodative level market participant interpret communication associate june fomc signal accommodative path monetary policy anticipate imply rate interest rate future initially rise follow subsequently retrace expectation path target fund rate year end period modestly change long term yield fall notably period decline concentrate far forward rate significant portion movement reflect change term premium market participant point number factor drive movement long term yield prominently include federal reserve policy communication investor positioning change expectation course pandemic respect path net asset purchase respondent open market desk survey primary dealer market participant expect communication asset purchase evolve gradually signal anticipate coming month committee assessment condition constitute substantial progress detail tapering plan percent respondent anticipate reduction pace net asset purchase come january average respondent place somewhat weight june survey possibility tapering begin somewhat early respect pace tapering respondent continue anticipate committee gradual approach market participant discuss possibility early fast proportional reduction pace net purchase agency mortgage back security mbs survey respondent appear expect timing pace tapering net purchase agency mbs treasury security similar manager turn development operation money market period follow june overnight rate rise line technical adjustment administer rate relatively stable remainder period overnight reverse repurchase agreement rrp jump technical adjustment take effect government sponsor enterprise move balance hold unremunerated federal reserve deposit account higher yield rrp investment government money market fund increase participation facility amid continue decline treasury bill outstanding downward pressure overnight rate overall market participant report technical adjustment smoothly overnight rate have move away concern functioning short term funding market diminish look ahead market participant begin focus potential effect change treasury general account federal reserve treasury bill issuance come month connection debt ceiling manager note number counterpartie reach counterparty limit rrp investment downward pressure overnight rate emerge appropriate lift limit establishment standing repurchase agreement facilities finally manager summarize propose term stand repurchase agreement repo facility srf foreign international monetary authorities fima repo facility question comment follow manager briefing participant express broad support establishment srf fima repo facility vast majority participant support propose term al­though participant raise question include propose aggregate cap necessary collateral eligible srf operation limit treasury security setting minimum bid rate srf operation expect evolve time relative primary credit rate interest balance rate general participant view srf fima repo facility important tool serve backstop role support effective policy implementation smooth market functioning participant anticipate committee learn facility operate time note adjust parameter facility basis experience committee vote unanimously approve establishment srf committee vote approve fima repo facility governor bowman abstain vote fima repo facility note prefer liquidity arrangement accessible foreign official institution maintain period extraordinary financial market stress stand facility standing repurchase agreement facility resolution federal open market committee committee authorize direct open market desk federal reserve bank new york selected bank system open market account soma conduct operation offer purchase security subject agreement resell repurchase agreement transaction repurchase agreement transaction authorize direct shall include u.s. treasury security agency debt security agency mortgage back security conduct open market operation primary dealer depository institution participant iii conduct minimum bid rate percent offer overnight basis open market desk selected bank extend term long overnight term accommodate weekend holiday similar trading convention subject aggregate operation limit aggregate operation limit temporarily increase discretion chair operation shall conduct open market desk selected bank direct committee standing fima repurchase agreement resolution federal open market committee committee authorize direct open market desk federal reserve bank new york selected bank system open market account soma offer purchase u.s. treasury security subject agreement resell repurchase agreement transaction foreign international account maintain federal reserve bank foreign accounts repurchase agreement transaction authorize direct shall include u.s. treasury security conduct foreign accounts approve advance foreign currency subcommittee subcommittee iii conduct offering rate percent offer overnight basis open market desk selected bank extend term long overnight term accommodate weekend holiday similar trading convention subject counterparty limit day subcommittee approve change offering rate maturity transaction eligible foreign accounts counterpartie approve remove account access counterparty limit subcommittee shall committee inform change transaction shall undertake open market desk selected bank direct committee open market desk selected bank annually committee facility usage list approve account holder unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period discussion asset purchases participants discuss aspect federal reserve asset purchase include progress committee maximum employment price stability goal adoption asset purchase guidance december consider question asset purchase adjust economic condition meet standard guidance participant agree helpful background committee future decision modify asset purchase decision future adjustment asset purchase participant precede presentation review principal channel asset purchase exert effect financial condition economy focus implication channel committee deliberation future adjustment federal reserve asset purchase presentation note standard empirical modeling framework effect asset purchase financial economic condition occur primarily influence expect path private sector holding long term asset framework large federal reserve holding asset reduce private sector holding exert downward pressure term premium consequently keep long term interest rate financial condition accommodative note plausible alternative approach tapering asset purchase lead significant difference expect path federal reserve balance sheet approach similar financial economic effect standard framework presentation highlight alternative tapering approach significant financial economic effect fully capture standard empirical framework particular change asset purchase interpret public signal shift committee economic outlook policy strategy implication expect path fund rate change flow asset purchase influence yield influence modest outside period stress financial market condition consideration relate asset purchase participant note purchase important monetary policy toolkit critical aspect federal reserve response economic effect pandemic support smooth financial market function accommodative financial condition aid flow credit household business support recovery participant discuss broad range labor market inflation indicator participant assess economy progress committee maximum employment price stability goal adoption guidance asset purchase december participant judge committee standard substantial progress maximum employment goal meet time participant remark standard achieve respect price stability goal participant note transitory nature year rise inflation decline long term yield market base measure inflation compensation cast doubt degree progress price stability goal december look ahead participant note provide economy evolve anticipate judge appropriate start reduce pace asset purchase year see committee substantial progress criterion satisfied respect price stability goal close satisfied respect maximum employment goal participant comment economic financial condition warrant reduction coming month indicate reduction pace asset purchase appropriate early year see prevailing condition labor market close committee substantial progress standard uncertainty degree progress price stability goal participant agree committee provide advance notice make change balance sheet policy participant express range view appropriate pace taper asset purchase economic condition satisfy criterion lay committee guidance participant see potential benefit pace tapering end net asset purchase condition currently specify committee forward guidance fund rate meet time participant indicate standard raise target range fund rate distinct associate taper asset purchase remark timing action depend course economy participant note early start tapering accompany gradual reduction purchase pace combination mitigate risk excessive tightening financial condition response taper announcement participant exchange view composition asset purchase tapering process participant remark see benefit reduce pace net purchase treasury security agency mbs proportionally order end set purchase time participant observe approach consistent committee understanding purchase treasury security agency mbs similar effect broad financial condition play similar role transmission monetary policy purchase intend credit allocation participant remark welcome appropriate composition asset purchase tapering process participant comment benefit see reduce agency mbs purchase quickly treasury security purchase note housing sector exceptionally strong need actual perceive support federal reserve form agency mbs purchase purchase interpret type credit allocation participant comment factor relevant consideration future adjustment pace asset purchase participant note reduction pace asset purchase appropriate important committee clearly reaffirm absence mechanical link timing tapering eventual increase target range fund rate participant suggest committee need mindful risk tapering announcement perceive premature bring question committee commitment monetary policy framework respect effect pandemic participant indicate adjust view appropriate path asset purchase economic effect strain virus turn notably bad currently anticipate significantly hinder progress committee goal staff review economic situation information available time july 27â28 suggest u.s. real gross domestic product gdp increase fast pace year indicator labor market condition mix june labor demand remain strong consumer price inflation mayâas measure month percentage change personal consumption expenditure pce price indexâhad pick notably reflect transitory factor total nonfarm payroll employment rise sharply june job gain widespread industry especially strong job growth leisure hospitality sector june total payroll employment retrace third loss see onset pandemic unemployment rate edge higher stand percent june unemployment rate african americans hispanics remain national average labor force participation rate employment population ratio unchanged june private sector job opening measure job openings labor turnover survey remain high record level survey inception initial claim regular state unemployment insurance little change net mid june weekly estimate private sector payroll construct federal reserve board datum provide payroll processor adp available july suggest pace private employment gain remain strong average hourly earning employee rise june recent monthly increase average hourly earning appear reflect combination strong labor demand increase difficulty hire offset downward pressure average earning disproportionately large employment gain low wage industry information compensation measure judge affect shift composition workforce mixed measure month change median wage derive adp datum step noticeably june relative early year contrast wage growth tracker measure construct federal reserve bank atlanta show similar pickup recent month change measure inflation pce price consumer price index cpi boost base effect extremely low inflation reading spring roll calculation addition surge demand economy reopen combine production bottleneck supply constraint push monthly price increase total pce price inflation percent month end core pce price inflation exclude change consumer energy price consumer food price percent month end contrast trim mean measure month pce inflation construct federal reserve bank dallas percent june month change cpi percent core cpi rise percent period common inflation expectation index combine information indicator inflation expectation inflation compensation reverse moderate decline record middle year return level prevail actual inflation relatively modest real pce appear rise pace similar see support previous round stimulus payment reduction social distancing consumer spending appear hold producer struggle meet demand similarly despite strong demand housing incoming datum suggest residential investment spending decline material shortage limited stock home sale temporarily restrain activity sector available indicator suggest growth business fix investment slow sharply reflect disruption motor vehicle production aircraft delivery fast rate decline nonresidential structure investment growth manufacture output pick modestly production chemical industry rebound weather relate disruption early year supply chain issue face number industry particularly motor vehicle industry continue weigh factory output total real government purchase appear move lower have rise available datum suggest nondefense purchase drop follow surge pandemic relate expenditure defense purchase little change indicator real state local purchase point modest increase component government spending nominal u.s. international trade deficit remain high real good import retrace bit april decline high level record real good export edge remain pre covid-19 level bottleneck global semiconductor industry continue weigh export import automotive product shipping congestion continue restrain trade international travel recover export import service remain depressed relative pre pandemic level incoming datum suggest weak start year foreign economic activity accelerate improvement concentrate advanced foreign economy china support vaccine rollout unwinding public health restriction economic adaptation virus reopening service sector situation different emerge market economy emes low vaccination rate leave vulnerable wave infection covid-19 case fall dramatically india surge june situation deteriorate markedly southeast asian country case death rise time high addition increase prevalence virus variant particularly delta variant underscore continued uncertainty foreign outlook inflation rise foreign economy reflect reversal price decline see spring high energy commodity price supply bottleneck staff review financial situation intermeete period fluctuation financial market appear drive accommodative expect june fomc communication reduction investor perception risk persistently high inflation increase concern rapid spread delta variant strong anticipate inflation datum long date treasury yield fall reflect decline real yield long horizon forward measure inflation compensation decline domestic equity price rise moderately corporate bond spread remain near low end historical range short term funding market stable participation rrp facility increase high level facility place market base financing condition accommodative lending standard ease loan category treasury yield curve flatten net 2âyear yield unchanged year yield decline bit 10- year yield decrease basis point decline long term treasury yield associate drop real yield imply treasury inflation protect securities tips year real yield basis point short horizon measure inflation compensation end period modestly high long term forward measure fall notably net market imply path policy rate little change horizon late shift lower horizon broad stock market price rise moderately intermeete period support strong earning report bolster investor risk sentiment price decline stock historically move closely economic conditionsâsuch stock small company firm cyclical industriesâas stock price firm sector airline hotel negatively affect pandemic bank stock price fall month option imply volatility s&p 500âthe vixâspike reach month high intermeete period vix little change net remain somewhat average pre pandemic level spread yield corporate bond comparable maturity treasury security little change spread benchmark municipal bond index increase moderately remain pre pandemic level short term funding market stable intermeete period follow action june fomc increase interest rate excess reserve rrp rate basis point effective fund rate rise basis point reach basis point secured overnight financing rate rise basis point reach basis point funding rate remain level period participation federal reserve rrp operation continue increase high level facility place average previous intermeete period average intermeete period reach june end increase participation drive large investment money market fund ongoing reduction net treasury bill issuance contribute downward pressure yield investment option available fund concern worldwide spread delta variant weigh somewhat risk sentiment global financial market intermeete period dollar appreciate long term yield major advanced foreign economy decrease notably major foreign equity index decline moderately equity market china hong kong underperform notably amid increase regulatory uncertainty china addition eme sovereign credit spread widen slightly capital flow dedicated eme fund remain modestly positive foreign bank scale asset purchase program bank canada reserve bank australia reduce pace asset purchase reserve bank new zealand unexpectedly announce halt asset purchase july emerge market bank brazil mexico raise rate order reduce inflationary pressure contrast people bank china cut broad requirement ratio bank support economic growth european central bank complete strategy adopt percent symmetric inflation target revise forward guidance policy rate financing condition face nonfinancial firm capital market continue accommodative intermeete period corporate bond spread remain near low end historical distribution gross issuance corporate bond slow brisk pace remain solid gross issuance leveraged loan robust equity raise traditional initial public offering rebound noticeably equity raise seasoned equity offering continue moderate june equity issuance special purpose acquisition company remain subdue commercial industrial c&i loan outstanding bank continue decline june forgiveness paycheck protection program loan offset volume loan origination july senior loan officer opinion survey bank lending practices sloos bank report ease standard nearly term net c&i loan july sloos indicate level standard c&i loan return easy end range prevail bank survey july sloos report demand c&i loan improve market commentary suggest demand weak credit quality large nonfinancial corporation remain stable intermeete period volume credit rating upgrade nonfinancial corporate bond leveraged loan moderately outpace downgrade june corporate bond leveraged loan default remain low financing condition municipal bond market remain accommodative intermeete period municipal bond yield edge record low issuance municipal bond solid case higher rat bond pre pandemic level speculative grade unrated security credit quality municipal debt appear stable al­though pandemic relate risk state local government finance remain financing condition face small business remain relatively tight loan demand weak july sloos bank report net easy lending standard c&i loan small firm industry commentary suggest lending standard community bank lender include sloos remain relatively tight furthermore result separate survey suggest share firm want borrow remain near time high loan performance small business continue improve delinquency rate continue decline commercial real estate cre finance capital market financing condition remain accommodative spread agency non agency commercial mortgage back security cmbs pre pandemic level issuance agency cmbs remain robust issuance non agency cmbs strengthen notably june delinquency rate mortgage cmbs pool little change continue elevate hotel retail mortgage base financing condition cre remain relatively tight cre loan growth bank remain weak comparison pre pandemic level july sloos bank report despite easing level cre lending standard tight relative midpoint range standard prevail financing condition residential real estate market remain accommodative particularly true strong borrower meet standard conform loan criterion addition accord july sloos lending standard jumbo loan ease near pre pandemic level broad financing condition low score federal housing administration borrower continue ease credit standard remain tight pandemic mortgage rate tick intermeete period line rate mbs 10âyear treasury security furthermore spread mortgage rate mbs yield close pre pandemic level have widen significantly start pandemic mortgage origination home purchase refinancing fairly robust june financing condition consumer credit remain accommodative consumer credit jump remain strong june reflect rebound credit card balance continue robust growth auto loan bank july sloos report strong demand easy standard credit card auto loan provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system notable judge asset valuation pressure elevate particular forward price earning ratio s&p index stand upper end historical distribution high yield corporate bond spread tighten near low end historical range house price continue increase rapidly leave valuation measure stretch say sign loose mortgage underwriting standard excessive credit growth potentially amplify shock arise fall house price assess vulnerability associate nonfinancial leverage low january notable household mortgage debt income ratio moderate mortgage borrowing concentrate prime borrower uncertainty remain outlook mortgage non payment status measure corporate sector leverage fall january particularly levered firm debt firm relatively low earning interest payment ratio remain high judge vulnerability arise financial leverage moderate aggregate common equity tier capital ratio large bank significantly exceed regulatory requirement available measure hedge fund leverage elevate significant datum gap continue obscure risk hedge fund nonbank financial institution vulnerability associate funding risk characterize moderate domestic bank hold significant quantity high quality liquid asset limited reliance short term wholesale funding nonetheless significant structural vulnerability remain entity prime money fund financial arrangement stablecoin appear structural maturity liquidity transformation vulnerability transparency underdeveloped regulatory framework staff economic outlook projection u.s. economic activity prepare july fomc little change balance june forecast half easing surge demand see year expect offset reduction effect supply constraint production allow real gdp growth rapid pace year real gdp project post substantial increase correspondingly large decline unemployment rate boost spend growth continued reduction social distancing assume fade unwinding effect fiscal stimulus gdp growth expect step monetary policy assume highly accommodative continue anticipate real gdp growth outpace growth potential output period lead decline unemployment rate historically low level near term outlook inflation revise response incoming datum continue expect year rise inflation prove transitory month change total core pce price percent available datum suggest pce price inflation high june continue judge surge demand result economy reopen combine production bottleneck supply constraint boost monthly inflation rate expect 12âmonth change pce price gradually reflect anticipated moderation monthly inflation rate waning base effect pce price inflation project run percent end year follow year boost consumer price cause supply issue expect partly reverse import price expect decelerate sharply result pce price inflation expect step little percent additional increase resource utilization raise percent continue judge risk baseline projection economic activity skewed downside uncertainty forecast elevate particular probability course pandemic turn adverse baseline assumption view high probability favorable outcome occur judge risk inflation projection tilt upside datum point great risk upward pressure inflation result supply relate issue unwind slowly baseline projection assume participant view current economic conditions economic outlook condition participant note progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic show improvement fully recover inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain participant observe economic activity continue expand rapid pace middle year capacity constraint restrain increase output sector economic growth expect strong half year support reopening economy accommodative financial condition easing supply constraint participant see supply disruption labor shortage persist half year household sector participant remark consumer spending continue increase rapid pace support ongoing reopening economy accommodation provide fiscal policy monetary policy addition accumulate stock saving progress vaccination cite important factor lift household spending participant note expect consumer spending bolster factor participant expect housing demand strong note construction restrain shortage material input home sale hold limited supply available home respect business sector participant observe activity service industry adversely affect pandemic leisure hospitality sector rebound economy reopen fully recover participant note growth manufacturing activity continue solid restrain production bottleneck supply constraint particularly motor vehicle sector cite report receive contact broad range industry participant indicate shortage material labor supply chain challenge remain widespread continue limit ability firm strong demand outlook demand improve business contact express uncertainty pessimism prospect easing supply constraint near term participant comment continue improvement labor market condition month drive strong demand worker monthly pace job gain pick employment expand june notable increase leisure hospitality sector household survey show unemployment rate remain elevated percent june labor force participation rate employment population ratio little change month participant indicate economy achieve committee broad base inclusive maximum employment goal participant remark labor market recovery continue uneven demographic income group sector participant note supply factor relate pandemicâsuch caregive need ongoing fear virus increase retirement expand unemployment insurance paymentsâcontinue weigh labor force participation employment growth majority participant anticipate factor ease come month note spread delta variant temporarily delay reopening economy restrain hiring labor supply participant observe wage increase moderate average district contact continue have trouble hire worker indicate difficulty put upward pressure wage sector lead employer provide additional incentive attract retain worker participant note district contact expect difficulty find worker extend fall inflation participant observe inflation rate increase notably expect elevated coming month moderate participant remark inflation increase expect year attribute increase supply constraint product labor market surge consumer demand economy reopen note district contact report high input cost put upward pressure price participant point large contributor increase measure inflation handful sector affect temporary supply bottleneck sector price level rebound depressed level economy continue reopen look ahead participant expect inflation pressure ease effect transitory factor dissipate participant remark large anticipate supply chain disruption increase input cost sustain upward pressure price comment inflation expectation participant note measure long term inflation expectation remain range view consistent committee long run inflation goal participant indicate increase survey base measure signal risk long term inflation expectation move level consistent committee goal participant point substantial decline tips base long term inflation compensation june suggest investor perceive reduce risk inflation run persistently committee percent goal couple participant note reading forward inflation compensation read suggest investor concern inflation long term run persistently committee percent inflation goal discuss uncertainty risk associate economic outlook participant remark uncertainty high slow progress vaccination development surround delta variant pose downside risk economic outlook number participant judge effect supply chain disruption labor shortage complicate task interpret incoming datum assess speed supply factor dissipate participant note upside risk inflation associate concern supply disruption labor shortage linger long currently anticipate large persistent effect price wage currently assume participant comment financial stability emphasize risk associate elevated valuation asset class participant highlight scenario prolonged period low interest rate elevated asset valuation generate imbalance increase financial stability risk participant comment housing market note ongoing rapid house price increase reflect demand supply factor participant note lack evidence deteriorate mortgage underwriting standard mitigate risk associate high housing valuation couple participant express concern home price reversal pose risk financial stability participant cite potential risk financial stability include risk associate expand use cryptocurrencie risk associate collateral liquidity counterpartie episode market stress connection set risk participant highlight fragility general lack transparency associate stablecoin importance monitor closely need develop appropriate regulatory framework address risk financial stability associate product consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant judge stance monetary policy remain appropriate promote maximum employment achieve inflation average percent time long term inflation expectation anchor percent participant reiterate exist outcome base guidance imply path fund rate balance sheet depend actual progress reach committee maximum employment inflation goal participant discuss progress committee goal december committee adopt guidance asset purchase judge committee standard substantial progress maximum employment inflation goal meet particularly respect labor market condition risk economic outlook remain participant anticipate economy progress goal provide economy evolve anticipate judge standard set committee guidance asset purchase reach year regard labor market participant note demand worker strong month level employment constrain labor supply shortage hire difficulty participant emphasize employment remain pre pandemic level robust labor market support continuation accommodative monetary policy allow progress committee broad inclusive maximum employment goal return time labor market condition strong prevail pandemic participant judge monetary policy limit ability address labor supply shortage hire difficulty currently constrain level employment participant comment pandemic cause long last change labor market pre pandemic labor market condition right benchmark committee progress maximum employment objective regard inflation participant comment inflation reading boost effect supply bottleneck labor shortage transitory participant note specific result depend period calculation measure average inflation move soon committee percent goal support strong demand tight labor market firm inflation expectation participant emphasize high inflation reading drive price increase handful category participant point evidence broad base price pressure inappropriately high long term inflation expectation participant comment price increase concentrate small number category unlikely change underlie inflation dynamic sufficiently overcome possibility persistent downward bias inflation associate effective lower bind policy rate participant remark risk management consideration contemplate change committee pace asset purchase participant suggest prudent committee prepare start reduce pace asset purchase relatively soon light risk high inflation reading prove persistent anticipate early start reduce asset purchase enable addition security holding conclude committee judge appropriate raise fund rate participant express concern maintain highly accommodative financial condition contribute buildup risk financial system impede attainment committee dual mandate goal contrast participant suggest preparation reduce pace asset purchase encompass possibility reduction occur time highlight risk rise covid-19 case associate spread delta variant cause delay return work school damp economic recovery participant remain concerned medium term outlook inflation possibility reemergence significant downward pressure inflation especially light decline long term inflation compensation addition participant emphasize considerable uncertainty resolution labor market shortage supply bottleneck influence pandemic relate development long run labor market inflation dynamic participant stress committee patient assess progress goal announce change plan asset purchase participant emphasize decision reduce committee pace asset purchase substantial progress benchmark achieve fully consistent committee monetary policy framework help foster achievement committee long run objective time couple participant note tapering asset purchase tightening stance monetary policy instead imply additional monetary accommodation provide slow rate participant emphasize announcement reduction committee pace asset purchase interpret beginning predetermined course raise fund rate level participant stress committee assessment appropriate timing increase target range fund rate separate deliberation asset purchase subject high standard lay committee outcome base guidance fund rate nonetheless couple participant caution challenge public disentangle deliberation tool decision committee asset purchase influence public understanding committee policy intention include regard future decision concern target range fund rate committee policy action monetary policy member agree progress vaccination strong policy support indicator economic activity employment continue strengthen note sector adversely affect pandemic show improvement fully recover inflation rise reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member acknowledge path economy continue depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation have run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time december committee indicate increase holding treasury security month agency mortgage back security month substantial progress maximum employment price stability goal member comment economy progress goal agree progress come meeting judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member agree postmeete statement acknowledge economy continued recovery progress committee maximum employment price stability goal set forth committee asset purchase guidance december light development member decide remove characterization sector adversely affect pandemic weak condition replace sector fully recover agree remove word significantly characterize dependence path economy course virus addition member agree insert assessment economy progress committee long run goal guidance asset purchase issue december assessment progress come meeting member agree addition language appropriate acknowledge committee ongoing deliberation assess economy progress committee goal implication pace asset purchase conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective july federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic show improvement fully recover inflation rise reflect transitory factor overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy continue depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation have run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time longerâterm inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time december committee indicate increase holding treasury security month agency mortgageâbacked security month substantial progress maximum employment price stability goal economy progress goal committee progress come meeting asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board vote unanimously establish interest rate pay balance percent effective july board vote unanimously approve establishment primary credit rate exist level percent effective july agree committee hold tuesdayâwednesday september 21â22 adjourn 10:35 a.m. july notation vote notation vote complete july committee unanimously approve minute committee hold june 15â16 james clouse secretary minute federal open market committee reference fomc committee board governors federal reserve system reference board return text attend asset purchase return text attend wednesday return text attend economic development outlook return text announce june board approve final rule effective july amend regulation eliminate reference interest require reserve iorr rate interest excess reserve ioer rate replace single interest balance iorb rate board vote rate iorb rate forward federal register notice regulation reserve requirements depository institutions available www.federalregister.gov/documents/2021/06/04/2021-11758/regulation-d-reserve-requirements-of-depository-institution return text

minute federal open market committee september 21â22 joint federal open market committee board governors federal reserve system hold videoconference tuesday september 1:00 p.m. continue wednesday september 9:00 a.m. present jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester eric rosengren alternate members committee patrick harker robert kaplan neel kashkari president federal reserve banks philadelphia dallas minneapolis respectively james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist david altig brian doyle rochelle edge sylvain leduc anna paulson william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board sally davies deputy director division international finance board jon faust joshua gallin senior special advisers chair division board members board william bassett antulio bomfim burcu duygan bump jane ihrig kurt lewis chiara scotti nitish sinha special advisers board division board members board linda robertson assistant board division board members board marnie gillis deboer senior associate director division monetary affairs board susan foley senior associate director division reserve bank operations payment systems board diana hancock david lebow senior associate directors division research statistics board don kim edward nelson annette vissing jørgensen senior advisers division monetary affairs board jeremy rudd senior adviser division research statistics board andrew figura elizabeth kiser associate directors division research statistics board paul wood associate director division international finance board eric engstrom deputy associate director division monetary affairs board patrick mccabe deputy associate director division research statistics board skander van den heuvel deputy associate director division financial stability board jeffrey walker deputy associate director division reserve bank operations payment systems board brian bonis etienne gagnon assistant directors division monetary affairs board penelope beattie section chief office secretary board deepa datta section chief division international finance board michele cavallo camelia minoiu anna orlik principal economists division monetary affairs board randall williams lead information manager division monetary affairs board david senior financial institution policy analyst division monetary affairs board meredith black vice president federal reserve bank dallas michael dotsey joseph gruber executive vice presidents federal reserve banks philadelphia kansas city respectively anne baum carlos garriga edward knotek giovanni olivei mark l.j. wright senior vice presidents federal reserve banks new york st. louis cleveland boston minneapolis respectively matthew raskin vice president federal reserve bank new york andreas hornstein senior advisor federal reserve bank richmond alex richter economic policy advisor senior economist federal reserve bank dallas keshav dogra senior economist federal reserve bank new york developments financial markets open market operations manager turn financial market development period domestic financial condition little change net remain highly accommodative spread delta variant covid-19 virus weigh near term growth outlook median respondent open market desk survey primary dealers mark projection gross domestic product gdp growth revise projection inflation year nonetheless expectation trajectory growth little change imply forward inflation compensation year ahead base treasury inflation protect securities tips increase modestly intermeete period outlook monetary policy market participant note policymaker communication suggest tapering asset purchase begin year end mid-2022 half respondent desk survey primary dealer market participant view december timing reduction net pace purchase al­though respondent attach significant probability reduction come november median expectation pace net purchase consistent gradual tapering net purchase complete july year month early previous survey expectation target fund rate base survey response interest rate future move slightly previous bank announce reduction pace asset purchase program eventual plan balance sheet asset purchase complete announcement line market participant expectation elicit modest reaction financial market latin america emerge europe bank recently tighten policy address rise inflation pressure investor remain focused vulnerability emerge market concern grow recently possible implication development china manager turn money market federal reserve operation domestic funding condition stable period fund rate edge lower amid ongoing increase reserve remain target range secured overnight financing rate sofr steady basis point participation overnight reverse repurchase agreement rrp facility increase average period drive primarily increase usage government money market fund market participant attentive period negotiation debt limit yield treasury bill mature mid october mid november modestly elevate investor reduce exposure security risk delayed payment market participant note information public domain measure federal reserve treasury debt limit event point particular october fomc minute highlight federal reserve use normal procedure operation debt limit near event delayed payment market participant focus treasury market practices group tmpg outline process delay principal payment treasury security roll forward operational maturity date order maintain ability transfer security fedwire tmpg note procedure help support ongoing functioning market security delay payment maintain eligibility open market operation normal procedure market participant emphasize procedure delayed payment create severe broad base market disruption light increase usage rrp facility potential continue downward pressure short term interest rate near term manager discuss proposal increase counterparty limit rrp facility staff analysis suggest propose increase sufficient support effective policy implementation foreseeable circumstance manager provide brief update repurchase agreement repo facility committee announce follow july desk work onboard depository institution additional counterpartie stand repo facility addition number foreign bank express intent establish access foreign international monetary authority repo facility unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time september 21â22 suggest u.s. real gdp increase slow pace year pace improvement labor market condition remain rapid july slow sharply august consumer price inflation june julyâas measure 12âmonth percentage change personal consumption expenditure pce price index elevate total nonfarm payroll employment increase sharply july rise rapidly august job gain leisure hospitality sector slow addition state local government employment report fall august abnormal seasonal swing distort reading sector august total payroll employment retrace fourth loss see onset pandemic unemployment rate decline percent june percent august unemployment rate african americans hispanics decline net period rate remain national average labor force participation rate edge net employment population epop ratio rise july august private sector job opening measure job openings labor turnover survey increase july continue labor demand extraordinarily high initial claim regular state unemployment insurance remain near pandemic period low reach early september somewhat elevated relative pre pandemic level weekly estimate private sector payroll construct board datum provide payroll processor adp available early september point modest pickup pace private employment gain relative august average hourly earning employee rise strongly july august gain widespread industry recent monthly increase average hourly earning appear reflect combination continue strong labor demand increase difficulty hire measure month change median wage derive adp datum point strong wage growth pace august growth rate see pandemic contrast wage growth tracker measure construct federal reserve bank atlanta show similar pickup employment cost index hourly compensation private sector include benefit cost rise annual rate percent month end june percentage point fast 12âmonth change post december inflation measure pce price index consumer price index cpi boost surge demand economy reopen effect production bottleneck supply constraint total pce price inflation percent month end july core pce price inflation exclude change consumer energy price consumer food price percent month end july contrast trim mean measure 12âmonth pce inflation construct federal reserve bank dallas percent july august month change cpi percent core cpi rise percent period common inflation expectation index combine information indicator inflation expectation inflation compensation little change relative near average decade pandemic real pce decline july component retail sale estimate pce rise strongly august return level see spring concern course pandemic appear weigh consumer service spending available indicator point slowing demand service sensitive social distancing addition measure consumer confidence move lower august demand housing appear remain strong incoming datum suggest material shortage lack develop lot construction restrain residential building activity available indicator suggest growth business fix investment slow somewhat supply bottlenecksâparticularly motor vehiclesâweighe business equipment spending manufacture output rise strongly july tick august august activity oil gas sector production petrochemical hold shutdown relate hurricane ida supply chain issue face number industry continue drag factory output total real government purchase appear increase have move lower available datum suggest nondefense purchase decline sharply robust gain real state local purchase offset decline u.s. international trade deficit remain high july rise june real good import fall july hold sizable decline consumer good import level consumer total good import remain pre covid-19 level real good export edge july close pre pandemic level bottleneck global semiconductor industry continue weigh export import automotive product shipping congestion continue restrain trade export import service rise july remain low relative pre pandemic level international travel depressed advanced foreign economy afes high vaccination rate increase resilience covid-19 outbreak incoming datum consistent economic growth slightly fast pace economic reopening way purchase manager index manufacturing service remain strong europe canada conversely emerge market economy emes)âespecially southeast asia vaccination rate lowerâa global resurgence covid-19 infection delta variant lead renewal public health restriction restriction weaken retail sale contribute labor shortage transportation congestion disrupt global supply chain inflation abroad elevate reflect reversal price decline early pandemic past increase energy commodity price upward pressure supply bottleneck past exchange rate depreciation eme staff review financial situation financial market price little change intermeete period concern period effect covid-19 development economic performance late period heavily indebted chinese property developer appear marginal net effect financial asset price incoming domestic economic datum view mixed yield treasury security intermediate maturity increase modestly market imply path fund rate steepen domestic equity price unchanged speculative grade corporate bond spread narrow modestly short term funding market stable market base financing condition robust credit availability improve risky borrower yield intermediate maturity treasury security increase modestly net amid mixed news economic activity pandemic slightly accommodative expect july fomc communication measure inflation compensation decline modestly net market imply level effective fund rate end rise basis point respectively broad stock market price unchanged net intermeete period early period concern delta variant headwind stock price price recover follow fda approval covid-19 vaccine sign delta variant surge start abate intermeete period spread yield speculative grade corporate bond comparable maturity treasury security narrow slightly net investment grade corporate bond spread little change net spread municipal bond index increase slightly remain pre pandemic level september stock market price fall notably speculative grade yield spread widen amid rise concern creditworthiness chinese property developer move reverse follow day particularly stock market short term funding market stable intermeete period effective fund rate decline slightly basis point beginning period basis point end sofr remain basis point period asset management aum government money market mutual fund increase modestly near time high treasury bill supply continue decline reinstatement debt ceiling high aum decline treasury bill supply lead government money market mutual fund increase participation federal reserve rrp facility participation rrp operation increase average previous intermeete period foreign asset price fluctuate moderately intermeete period market participant continue effect delta variant global growth inflation concern potential default heavily indebted chinese property developer risk downturn chinese real estate sector intensify later period effect broad financial market limited balance major foreign equity index mixed broad dollar appreciate touch sovereign yield major afes increase moderately euro area united kingdom high expect inflation datum contribute rise yield inflation compensation measure domestic credit market large nonfinancial firm ample access market base financing market participant appear confident domestic corporate credit outlook account seasonal summer lull activity gross corporate bond issuance remain solid july august leveraged loan issuance strong july august equity funding raise traditional initial public offering remain robust summer equity issuance special purpose acquisition company remain subdue level see month commercial industrial c&i loan decline notably august amid ongoing forgiveness paycheck protection program ppp loan exclude ppp loan c&i loan balance estimate unchanged june july credit quality large nonfinancial corporation remain strong positive outlook volume credit rating upgrade nonfinancial bond outpace downgrade noticeably july august trail default rate corporate bond leveraged loan remain low market indicator future default expectation municipal bond market financing condition remain accommodative issuance municipal debt strong july august indicator credit quality municipal debt remain healthy municipal bond impairmentsâthat credit event severe payment defaultsâremaine elevate august impairment concentrate retirement assisted living sector represent small fraction municipal market survey base indicator small business owner especially covid sensitive sector include lodge food service art entertainment recreation educational service pessimistic financial prospect worsening near term expectation sale general business condition small business loan origination pre pandemic level june july increase concern delta variant depressed loan demand august financing condition commercial real estate cre improve intermeete period amid increase cre property price cre loan growth bank strengthen issuance commercial mortgage back security cmbs remain robust summer spread agency cmbs pre pandemic level strong investor appetite cmbs support fall delinquency rate mortgage al­though delinquency rate remain elevated cmbs back hotel retail property financing remain limited hard hit hotel sector residential mortgage market financing condition remain accommodative particularly borrower meet standard conform loan criterion mortgage rate increase slightly intermeete period remain low historical standard credit availability continue improve especially jumbo loan low score federal housing administration borrower indicator mortgage origination home purchase refinancing solid august share mortgage forbearance decline july august financing condition consumer credit remain accommodative borrower especially strong credit score consumer credit credit card market expand strong pace june step somewhat july condition nonprime consumer credit card market ease tight level auto loan growth slow june july brisk pace condition asset back security market robust intermeete period staff economic outlook projection u.s. economic activity prepare september fomc similar july projection half supply constraint expect resolve slowly previously assume addition rise covidâ19 case view exert large restraint consumer spending hiring labor supply previously anticipate real gdp expect post sizable gain half year result correspondingly large decline unemployment rate gdp expect rise slowly solid pace support continue reopening economy easing supply constraint boost factor fade real gdp growth project step noticeably roughly equal potential output growth level real gdp expect potential projection period result decline unemployment rate historically low level near term outlook inflation revise response incoming datum continue expect year rise inflation prove transitory month change total core pce price percent july available datum suggest pce price inflation remain high august interpret inflation datum indicate supply constraint put large upward pressure price previously anticipate relative july projection supply constraint expect long resolve result 12âmonth change pce price project hold roughly steady remainder end year percent follow year boost consumer price cause supply issue expect partly reverse import price expect decelerate sharply pce price inflation expect step little percent additional increase resource utilization expect cause gradually edge higher reach percent continue judge risk baseline projection economic activity skewed downside particular future course pandemic see important source downside risk continue judge risk inflation projection tilt upside possibility severe persistent supply issue view especially salient addition point risk long run inflation expectation appreciably high lead persistently elevated inflation participant view current economic conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion condition participant note progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month rise covid-19 case slow recovery inflation elevate reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy continue depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain participant observe economic activity continue expand month rapid pace half year mark projection real gdp growth year point reassessment severity duration supply constraint effect spread delta variant economy participant foresaw rapid growth year highlight economy show resilience face wave infection household sector participant note consumer spending decelerate month expand rapid pace half year spread delta variant weigh spending consumer service low inventory high price supply constraint restrain spending good notably motor vehicle nonetheless participant expect accumulate stock saving release pen demand progress vaccination support household spending coming month participant note residential construction restrain shortage material input home sale hold limited supply available home respect business sector participant observe firm number industry face challenge keep strong demand widespread supply chain bottleneck labor shortage participant comment global wave covid-19 infection associate business shutdown exacerbate prolong problem supply chain bottleneck create challenge number manufacturer problem see especially acute motor vehicle industry shortage semiconductor chip sharply curtail production retail industry face bottleneck include stem port congestion delay ground transportation participant note district contact expect bottleneck fully resolve year later couple participant note inventory sale ratio near record low level industry need rebuild boost business investment forward participant discuss development oil gasoline agricultural sector couple participant point hurricane ida significantly affect oil gas industry curtail u.s. offshore production time low inventory couple participant note elevated crop price continue boost income agricultural sector participant note labor market condition continue improve month unemployment rate decline percent august participant note pickup month level activity indicator federal reserve bank kansas city labor market conditions indicators rapid pace month june july job gain slow august resurgence covid-19 case weigh employment high contact service sector particularly leisure hospitality sector labor force participation rate little change remain low level pre pandemic value participant note increase labor force participation expect materialize wake reopening school expiration extended unemployment benefit reflect concern resurgence virus childcare challenge uncertainty generate ongoing disruption person schooling participant expect labor market improve coming month participant indicate rise labor force participation rate lag improvement indicator unemployment rateâa pattern consistent past business cycle recovery participant express range view extent expect labor force participation rate epop ratio pre pandemic level participant suggest complete return pre pandemic condition unlikely pandemic prompt reduction workforce persist include large number retirement departure labor force number assess covid relate concern currently weigh labor force participation pass participation rate epop ratio return exceed pre pandemic level participant remark labor market recovery continue uneven demographic income group sector recovery particularly slow woman young child people low income participant note district contact report have difficulty hire worker labor shortage cause firm reduce hour scale production lead employer provide incentive attract retain worker include wage increase signing retention bonus rate nominal wage growth robust datum example average hourly earning percent annualize rate past month inflation participant observe inflation rate elevate expect come month moderate participant mark inflation projection assess supply constraint product labor market large long last previously anticipate participant express concern elevated rate inflation feed long term inflation expectation household business see inflation datum suggestive broad inflation pressure participant point large contributor elevated measure inflation handful covid relate pandemic sensitive category specific identifiable bottleneck play observation suggest upward pressure price abate covid relate demand supply imbalance subside participant note price category show sign stabilize turn late participant point owner equivalent rent component price index monitor carefully rise home price lead upward pressure rent participant note evidence robust wage growth exert upward pressure price significant degree possibility merit close monitoring comment inflation expectation participant observe measure long term inflation expectation include tips- survey base measure remain range view consistent committee long run inflation goal distribution household long term expect inflation remain stable past year participant note substantial rise one- year measure inflation expectation federal reserve bank new york survey consumer expectations year measure university michigan surveys consumers participant remark survey measure tend sensitive movement actual inflation rise consistent previous historical relationship measure actual inflation discuss uncertainty risk associate economic outlook participant note uncertainty remain high number participant judge uncertain course virus supply chain disruption labor shortage complicate task interpret incoming economic datum assess progress committee goal participant see risk outlook economic activity balanced uncertainty course virus resolution supply constraint fiscal measure cite present upside downside risk addition participant mention risk associate high asset valuation united states abroad number participant comment importance resolve issue involve government budget debt ceiling timely manner participant see inflation risk weight upside concern supply disruption labor shortage long large persistent effect price wage currently assume participant comment downside risk inflation factor hold inflation previous long expansion place consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant judge stance monetary policy remain appropriate promote maximum employment achieve inflation average percent time long term inflation expectation anchor percent participant reiterate exist outcome base guidance imply path fund rate balance sheet depend actual progress reach committee maximum employment inflation goal participant resume discussion progress committee goal december committee adopt guidance asset purchase indicate purchase pace substantial progress committee goal maximum employment price stability purchase critical federal reserve effort foster smooth financial market function accommodative financial condition support flow credit household business economic recovery participant remark standard substantial progress meet regard committee price stability goal meet soon regard committee maximum employment goal participant consider cumulative degree improvement labor market december participant cite progress record number individual series include employment population ratio unemployment rate claim unemployment insurance job opening nominal wage growth increase payroll summary measure labor situation participant observe progress labor force participation lag participant note economic recovery slow recently august increase payroll fall short expectation labor market continue improvement committee previous number participant assess standard substantial progress goal maximum employment attain economy proceed roughly anticipate soon reach basis cumulative performance labor market december number participant indicate believe test substantial progress maximum employment meet participant suggest labor supply constraint main impediment improvement labor market condition lack demand note add monetary policy accommodation time address constraint cost continue asset purchase begin exceed benefit participant agree appropriate postmeete statement relay committee progress continue expect moderation pace asset purchase soon warrant participant express view slow pace purchase proceed particular participant comment illustrative path develop reflect participant discussion committee july give speed composition associate tapering asset purchase illustrative tapering path design simple communicate entail gradual reduction pace net asset purchase begin later year lead federal reserve end purchase middle year path feature monthly reduction pace asset purchase case treasury security case agency mortgage back security mbs participant comment illustrative path provide straightforward appropriate template policymaker follow couple participant observe give advance notice general public plan line reduce risk adverse market reaction moderation asset purchase participant note keep outcome base standard initiate tapering asset purchase committee adjust pace moderation purchase economic development differ substantially expect participant indicate prefer proceed rapid moderation purchase describe illustrative example decision proceed moderation asset purchase participant assess provide economic recovery remain track gradual tapering process conclude middle year appropriate participant note decision begin taper purchase occur process tapering commence monthly purchase calendar begin mid november mid december participant remark risk management consideration way figure thinking asset purchase appropriate policy stance number downside risk economic outlook cite include potential tightening financial condition possibility rise covid-19 case slow economic recovery expect prospect fiscal policy source economic headwind effect previous support measure recede upside risk economic outlook include possibility additional expansionary fiscal action consumer spending rise expect household reduce large volume saving accumulate pandemic regard inflation upside risk cite include possibility elevated level inflation long expect especially labor supply shortage prove persistent currently anticipate long term inflation expectation level consistent committee long term inflation objective percent downside risk inflation include possibility decline inflation expectation occur public misconstrue federal reserve reaction function accommodative actually participant express concern high degree accommodation provide monetary policy include continue asset purchase increase risk financial stability participant reaffirm committee substantial progress standard asset purchase distinct criterion give forward guidance fund rate policy shift moderation asset purchase provide direct signal interest rate policy committee articulate different stringent test concern condition need meet start raise target range fund rate participant stress economic condition justify keep rate near low bind couple year addition note economy maximum employment participant suggest sustain downward pressure inflation year ahead participant state circumstance major challenge face policymakersâespecially presence effective lower bind fund rateâwa maintain policy stance sufficiently accommodative average inflation percent bolster credibility committee policy framework facilitate achievement maximum employment price stability contrast number participant raise possibility begin increase target range end year expect labor market inflation outcome specify committee guidance fund rate achieve time participant see inflation elevated risk upside committee policy action monetary policy member agree progress vaccination strong policy support indicator economic activity employment continue strengthen note sector adversely affect pandemic improve month rise covid-19 case slow recovery inflation elevate reflect transitory factor overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member acknowledge path economy continue depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook remain member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation have run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve member agree target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time december committee indicate increase holding treasury security month agency mbs month substantial progress maximum employment price stability goal member comment economy progress goal progress continue expect moderation pace asset purchase soon warrant judge asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal member concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member agree postmeete statement acknowledge slowing economic recovery indicate datum receive july ongoing elevated inflation reading light development agree committee sector economy adversely affect pandemic improve month rise covid-19 case slow recovery concur appropriate characterize inflation elevated place state inflation rise member decide add postmeete statement indication progress maximum employment price stability goal continue expect committee judge moderation pace asset purchase soon warrant member agree addition language appropriate mean acknowledge near future committee standard reduce pace net asset purchase meet regard directive desk member agree directive incorporate propose increase counterparty limit rrp facility conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent increase system open market account holding treasury security month agency mortgage back security mbs month increase holding treasury security agency mbs additional amount purchase agency commercial mortgage back security cmbs need sustain smooth functioning market security conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day per- counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month rise covid-19 case slow recovery inflation elevate reflect transitory factor overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy continue depend course virus progress vaccination reduce effect public health crisis economy risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation have run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time longerâterm inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time december committee indicate increase holding treasury security month agency mortgageâbacked security month substantial progress maximum employment price stability goal economy progress goal progress continue expect committee judge moderation pace asset purchase soon warrant asset purchase help foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board vote unanimously maintain interest rate pay balance percent effective september board vote unanimously approve establishment primary credit rate exist level percent effective september follow fomc policy vote chair emphasize maintain public trust absolutely essential work federal reserve light question financial transaction senior official chair indicate conduct thorough federal reserve rule regulation financial holding practice federal reserve official deliberate thoughtful focus strengthen federal reserve rule standard way help guard appearance conflict interest impropriety agree committee hold tuesdayâwednesday november 2â3 adjourn 10:45 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july 27â28 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation footnote correct november replace erroneous reference asset purchase return text attend tuesday return text attend economic development outlook return text

minute federal open market committee november joint federal open market committee board governors federal reserve system hold office board governors tuesday november 1:00 p.m. continue wednesday november 9:00 a.m. attendance jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester kenneth montgomery alternate members committee patrick harker neel kashkari president federal reserve banks philadelphia minneapolis respectively meredith black interim president federal reserve bank dallas james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle rochelle edge anna paulson william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board daniel covitz deputy director division research statistics board sally davies deputy director division international finance board jon faust joshua gallin senior special advisers chair division board members board william bassett antulio bomfim burcu duygan bump jane ihrig kurt lewis chiara scotti nitish sinha special advisers board division board members board linda robertson assistant board division board members board david lópez salido senior associate director division monetary affairs board edward nelson annette vissing jørgensen senior advisers division monetary affairs board jeremy rudd senior adviser division research statistics board glenn follette associate director division research statistics board christopher gust associate director division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board skander van den heuvel deputy associate director division financial stability board gianni amisano byron lutz raven molloy assistant directors division research statistics board brian bonis giovanni favara dan assistant directors division monetary affairs board penelope beattie section chief office secretary board david small project manager division monetary affairs board randall williams group manager division monetary affairs board michele cavallo principal economist division monetary affairs board callum jones arsenios skaperdas senior economists division monetary affairs board jose acosta senior communications analyst division information technology board isaiah ahn senior staff assistant division monetary affairs board ron feldman vice president federal reserve bank minneapolis joseph gruber geoffrey tootell executive vice presidents federal reserve banks kansas city boston respectively anne baum carlos garriga paolo pesenti mark l.j. wright senior vice presidents federal reserve banks new york st. louis new york minneapolis respectively satyajit chatterjee alexander wolman vice presidents federal reserve banks philadelphia richmond respectively edward prescott senior economic policy advisor federal reserve bank cleveland karel mertens senior economic policy advisor federal reserve bank dallas mark spiegel senior policy advisor federal reserve bank san francisco brent meyer policy advisor economist federal reserve bank atlanta discussion financial markets open market operations manager turn global financial market sovereign yield rise sharply advanced economy increase concentrate measure inflation compensation united states year measure inflation compensation base treasury inflation protected securities tips rise basis point far forward measure inflation compensation rise modest amount open market desk survey primary dealer market participant median forecast headline pce inflation revise notably median forecast al­though average probability report survey respondent place high inflation outcome horizon increase modestly policy sensitive rate increase advanced economy bank norway new zealand raise policy rate early period policy communication bank england bank canada point potential early policy firming expect contribute upward movement global rate reserve bank australia end yield target april government bond signal condition raise policy rate meet unlikely achieve early timeframe imply market pricing european central bank communication suggest market rate consistent outlook policy united states market imply path fund rate rise imply early date raise target range fund rate fast pace rate hike case september option imply volatility short date interest rate increase reportedly reflect great uncertainty path fund rate desk survey response indicate expectation early increase target range al­though median respondent modal expectation shift market pricing median survey respondent modal expectation fund rate end little change suggest investor revise expectation cumulative extent policy firm year expectation reduction pace net asset purchase coalesce survey respondent expect tapering asset purchase start november purchase schedule monthly reduction treasury security agency mortgage back security mbs respectively intermeete period u.s. equity index rise month option imply volatility s&p 500âthe vixâfell post pandemic low continue strong earning underpin rise equity price firm post profit near historical high despite sign robust risk appetite market participant continue prominent risk outlook include ongoing challenge chinese property sector turn desk operation manager note committee decide announce reduction pace net asset purchase desk issue monthly purchase schedule november reflect change mid december purchase schedule release fomc reflect additional reduction size treasury security agency mbs purchase sector coupon consistent practice similar reduction net purchase pace implement subsequent month system open market account soma portfolio peak june term composition treasury security agency mbs constitute roughly percent percent soma portfolio respectivelyâroughly line share treasury security agency mbs total stock security outstandingâand soma portfolio heavily weight treasury security conclusion large scale asset purchase program lsap follow global financial crisis maturity composition soma treasury coupon holding fairly close outstanding universe treasury security weighted average maturity short lsap turn money market development manager note transition away libor london interbank offer rate gain momentum pick interdealer trading volume secured overnight financing rate sofr derivative say remain complete libor transition market participant attentive temporary downward pressure sofr period softness appear result technical factor observe primarily centrally clear repurchase agreement market federal reserve administer ratesâthe interest balance rate overnight reverse repurchase agreement rrp rateâcontinue support effective interest rate control outside month- end fund rate remain stable period debt ceiling short term resolution reach october increase debt limit market participant estimate date treasury exhaust extraordinary measure cash balance wide range estimate suggest date early mid december market participant anticipate resolution debt ceiling reach delayed payment mature treasury security al­though uncertainty debt ceiling resolution remain source concern financial market unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time november 2â3 suggest u.s. real gdp growth slow markedly half rapid pace labor market condition continue improve september employment growth slow month consumer price inflation septemberâas measure month percentage change pce price indexâwa elevate growth total nonfarm payroll employment slow september hold decline state local government employment september total payroll employment retrace fourth loss see onset pandemic unemployment rate decline percent august percent september unemployment rate african americans hispanics decline period rate remain national average labor force participation rate edge lower september employment population ratio move private sector job opening measure job openings labor turnover survey step august remain pre pandemic level initial claim regular state unemployment insurance move lower late october approach level see pandemic recent weekly estimate private sector payroll construct board datum provide payroll processor adp especially volatile balance appear consistent pickup pace private employment gain relative september employment cost index hourly compensation private sector rise percent month end september gain noticeably large index year early month change fast month change total pce price inflation percent month end september core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure month pce inflation construct federal reserve bank dallas percent september common inflation expectation index combine information indicator inflation expectation inflation compensation little change relative remain high level real pce post modest increase have rise sharply half year slowdown appear reflect combination factor include wan effect previous fiscal stimulus measure surge covid-19 case summer plunge motor vehicle purchase extremely low dealer inventory constrain sale residential investment drop al­though demand housing strong shortage construction supply tight land labor market restrain residential construction activity growth business fix investment slow sharply supply bottlenecksâparticularly motor vehiclesâweighe business equipment spending limited availability construction material hold spending nonresidential structure manufacture output decline september motor vehicle output step semiconductor shortage continue restrain production addition hurricane ida result prolong plant outage petrochemical refining plastic resin industry total real government purchase post small increase have decline al­though real state local purchase increase gain offset decline defense nondefense purchase u.s. international trade deficit widen august reflect moderate pace import growth subdue pace export growth real import growth drive increase consumer good industrial supply real export growth hold decline capital good agricultural product automotive product bottleneck global semiconductor industry continue weigh export import automotive product shipping congestion continue restrain trade advance estimate september suggest good import rise good export fall point widening trade deficit bureau economic analysis estimate drop net export subtract substantially real gdp growth foreign gdp growth slow modestly supply chain disruption resurgence covid-19 weigh production particularly china emerge market economy emes eme public health restriction reinstate result factory closure chinese manufacturing output curtail rationing electricity amid coal shortage result policy low carbon emission contrast eme advanced foreign economy afes continue recover solid pace boost reopening high contact service activity partially offset drag bottleneck spread virus place labor shortage month rate inflation abroad continue rise reflect increase energy price persistent pressure supply bottleneck past exchange rate depreciation eme staff review financial situation intermeete period increase perceive inflation risk associate upward revision market imply path fund rate contribute increase treasury yield long term sovereign yield afes increase notably despite pressure broad domestic equity index increase net support strong earning report spread corporate bond little change short term funding market stable participation rrp facility increase high level facility place market base financing condition accommodative lending standard ease loan category market participant view expect path fund rate yearsâimplie straight read overnight index swap quotesârose substantially september fomc apparently response perceive risk high inflation risk contribute increase treasury yield year yield rise notably net broad equity index increase net intermeete period perception increase risk relate inflation offset short term resolution debt ceiling decrease perceive risk relate effect pandemic pace economic recovery strong expect earning vix decline notably near pre pandemic level spread corporate bond little change net intermeete period remain low level spread municipal bond narrow slightly short term funding market stable intermeete period effective fund rate remain basis point period month end sofr average basis point consistent relatively low treasury bill supply abundant liquidity participation rrp operation increase average previous intermeete period reach high september end major foreign market sovereign yield rise notably intermeete period inflation compensation market imply measure expect policy rate amid sharp increase energy price concern high inflation communication foreign bank see signal fast removal monetary policy accommodation market concern risk downturn chinese real estate sector remain elevated inflow fund invest china slow effect broad financial market limited balance major foreign equity index increase moderately broad dollar appreciate touch domestic credit market finance condition face nonfinancial firm capital market remain highly accommodative intermeete period gross corporate bond issuance stay strong september october gross leverage loan issuance decrease slightly september strong growth august equity raise traditional initial public offering remain robust september october equity issuance special purpose acquisition company remain subdue level see month commercial industrial c&i loan decline notably amid ongoing forgiveness paycheck protection program loan october senior loan officer opinion survey bank lending practices sloos bank report ease standard term net c&i loan bank report demand c&i loan unchanged strengthen previous quarter balance loan demand weak pandemic credit quality large nonfinancial corporation remain strong volume credit rating upgrade speculative grade nonfinancial corporate bond outpace downgrade september october trail default rate corporate bond leveraged loan decrease low level market indicator future expect default rate remain benign municipal bond market financing condition remain accommodative despite modest increase yield issuance municipal debt strong september october indicator credit quality municipal debt remain healthy survey base indicator suggest small business owner pessimistic financial prospect exception owner educational service sector expectation deteriorate slightly loan origination small business fall bit result october sloos suggest decline appear reflect weak demand particularly small small firm commercial real estate loan balance bank book strengthen october sloos bank report easing standard loan issuance commercial mortgage back security cmbs remain robust support spread agency cmbs pre pandemic level delinquency rate mortgage cmbs pool continue fall remain elevated cmbs back hotel retail property residential mortgage market financing condition remain accommodative particularly borrower meet standard conform loan criterion october sloos bank report ease lending standard major mortgage category mortgage rate increase modestly intermeete period rise year treasury yield indicator mortgage origination home purchase refinancing remain fairly robust share mortgage forbearance continue decline october rate transition delinquency stay low historical standard financing condition consumer credit remain accommodative borrower especially strong credit score lending standard nonprime consumer credit card market continue ease remain slightly tight pre pandemic level october sloos bank report easy standard credit card auto loan demand credit card strengthen auto loan growth slow response low dealer inventory weakening auto sale provide update indicator relate stability financial system note asset valuation remain high relative historical norm particular bond leveraged loan spread remain narrow equity price continue increase support strong earning expectation low treasury yield high risk appetite house price rise rapidly outpace rent sign loose mortgage underwriting standard excessive mortgage credit growth potentially amplify shock arise fall house price household level consumer debt unchanged inflation adjust basis delinquency return pre pandemic level nonfinancial business measure leverage corporate sector fall return pre pandemic level addition level corporate debt sustainable earning increase rate remain low financial sector note bank strongly capitalize high level stable funding high quality liquid asset mean level gross hedge fund leverage noteworthy distribution skew particularly high leverage fund decile vulnerability associate funding risk remain money fund mutual fund addition funding risk emerge concern entity issue stablecoin appear structural maturity liquidity transformation vulnerabilitie similar money fund considerably transparency underdeveloped regulatory framework note president working group financial markets engage interagency work address risk staff economic outlook projection u.s. economic activity prepare november fomc slightly weak september projection incoming datum suggest resolution supply constraint start later gradual previously assume real gdp expect post sizable gain real gdp growth expect close pace support continue reopening economy resolution supply constraint sector boost factor fade real gdp growth project step noticeably close potential output growth level real gdp expect potential projection period unemployment rate expect decline historically low level near term outlook inflation revise consumer food energy price rise fast expect production bottleneck wage gain see put somewhat great upward pressure price anticipate result month change pce price project relative september pace end year percent follow year boost consumer price cause supply issue expect partly reverse resource utilization project tighten pce price inflation expect step percent percent edge percent continue judge risk baseline projection economic activity skewed downside risk inflation projection skew upside particular possibility sizable wave covid-19 case winter see important source downside risk activity possibility severe persistent supply issue view additional downside risk activity upside risk inflation participant view current economic conditions economic outlook condition participant note progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month summer rise covid-19 case slow recovery inflation elevate reflect factor expect transitory supply demand imbalance relate pandemic reopening economy contribute sizable price increase sector overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant note path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain participant observe growth economic activity slow rate significantly robust pace see half year spread delta variant contribute slowdown growth damp household business spending hold labor supply intensify supply chain disruption participant note underlie condition support growth demand remain strong number covid-19 case remain summer level growth economic activity pickup foresaw robust growth support progress vaccination easing supply constraint household sector participant remark demand consumer good remain strong note business record robust sale despite labor shortage supply disruption prevent fully high demand product participant interpret available datum suggest spread delta variant slow shift consumer demand purchase service away spend good stretch reopening economy intensify supply demand imbalance participant observe household strong balance sheet consumer spending support accommodative financial condition number participant note drag household spending previous fiscal support fade fiscal policy provide support aggregate demand congress authorize major appropriation participant remark supply chain challenge limited labor availability continue major constraint manufacturing activity business sector bottleneck pressure face business accompany global supply chain disruption associate major backlog shipment transportation surge demand variety good shortage labor input increase cost production deplete inventory level key sector business contact experience worsening supply chain problem participant report firm respond challenge take variety action include raise price turn away customer restructure supply chain alternative high cost shipping option participant judge supply constraint long previously expect participant note datum receive intermeete period indicate labor market condition continue improve al­though september increase payroll moderate compare month unemployment rate decline previous month job growth revise participant observe september rise payroll hold shortage worker reflect ongoing effect virus labor supply decision covid-19 case expect summer level participant anticipate well payroll number month ahead participant indicate district contact continue difficulty find retain worker addition offer high wage business turn increase use automation recognize labor market condition vary significantly country participant cite number sign u.s. labor market tight include datum quit job availability strong rate nominal wage growth reflect rise employment cost index reading provide federal reserve bank kansas city labor market conditions indicators number participant observe labor force participation rate remain level reach pandemic participant judge labor force participation structurally low past participant cite high level retirement record start pandemic participant suggest labor supply currently depress pandemic relate factor disruption relate caregive arrangement note importance factor diminish economic public health condition improve participant see elevated level inflation reflect factor transitory judge inflation pressure long subside previously assess remark delta wave intensify impediment supply chain help sustain high level good demand add upward pressure price participant observe increase energy price strong rate nominal wage growth high housing rental cost force add inflation participant highlight fact price increase widespread participant expect significant inflation pressure long previously expect continue anticipate inflation rate diminish significantly supply demand imbalance abate nonetheless indicate uncertainty assessment increase participant point consideration elevated inflation prove persistent participant note average inflation exceed percent measure multiyear basis cite number factorsâsuch business enhance scope pass high cost customer possibility nominal wage growth sensitive labor market pressure accommodative financial conditionsâthat result inflation continue elevated level participant remark al­though inflationary pressure last long anticipate pressure continue reflect pandemic relate imbalance abate supply constraint ease participant note sizable price increase occur little evidence change inflation dynamicsâsuch development wageâprice spiralâthat tend prolong elevated level inflation force motion bring inflation percent medium term participant attentive sizable increase cost living take place year associate burden u.s. household particularly limit scope pay high price essential good service comment inflation expectation number participant discuss risk light elevated level inflation public long term expectation inflation increase level consistent committee long run inflation objective development hard committee achieve percent inflation long run couple participant point increase survey- market base indicator expect inflationâinclude notable rise year tips base measure inflation compensationâas possible sign inflation expectation anchor participant remark measure near- medium term inflation expectation typically sensitive movement realize inflation exhibit great sensitivity recently additionally point indicator long term inflation expectationsâinclude year year forward measure inflation compensationâcontinue display sensitivity realize inflation remain anchor level consistent committee long run percent goal participant observe uncertainty economic outlook remain high particularly stress uncertainty associate labor market include evolution labor force participation length time require resolve supply chain situation participant cite upside risk inflation include associate strong demand good tight labor market upside risk economic activity include potential near term boost aggregate demand arise drawing substantial saving accumulate household beginning pandemic participant mention upsurge covid-19 case come winter emergence virus strain possibility realize damp economic activity intensify price pressure number participant comment issue relate financial stability couple participant note factor support strength resilience u.s. financial system include solid capital liquidity condition bank fact underwriting standard residential mortgage ease substantially environment rise house price participant emphasize importance maintain strong capital position particularly large bank participant cite number factor represent potential vulnerability financial system include elevated asset valuation prevail widely asset class grow exposure bank nonbank financial firm risk sudden reduction liquidity collateral counterparty clearing settlement system area cybersecurity participant stress importance great preparedness cyberattack disrupt nation payment process financial system participant comment financial stability risksâinclude relate maturity liquidity transformationâassociated stablecoin need regulator address risk participant note importance develop systematic monitoring climate relate risk face financial system consideration stance monetary policy participant agree economy substantial progress committee goal december committee adopt guidance asset purchase unemployment rate decline percent septemberâabout percentage point low level decemberâand job opening indicator point widespread strength labor demand consistent broad improvement labor market condition consequently participant assess criterion substantial progress meet regard committee maximum employment goal addition participant judge committee criterion substantial progress clearly meet respect inflation backdrop participant judge consistent committee previous policy communication appropriate announce reduction pace net asset purchase participant support plan implement reduction pace net purchase treasury security agency mbs month respectively upcoming intermeete period judge similar reduction pace appropriate subsequent month participant prefer somewhat fast pace reduction result early conclusion net purchase participant note begin scale pace net asset purchase intend convey direct signal adjustment target range fund rate highlight stringent criterion raise target range compare criterion apply begin reduce pace asset purchase participant stress maintain flexibility implement appropriate policy adjustment basis risk management consideration guide principle conduct policy highly uncertain environment participant suggest reduce pace net asset purchase month warrant committee well position adjustment target range fund rate particularly light inflation pressure participant note committee prepare adjust pace asset purchase raise target range fund rate soon participant currently anticipate inflation continue run high level consistent committee objective time continue considerable uncertainty development supply chain production logistic course virus number participant stress patient attitude incoming datum remain appropriate allow careful evaluation evolve supply chain development implication labor market inflation say participant note committee hesitate appropriate action address inflation pressure pose risk long run price stability employment objective committee policy action monetary policy member agree progress vaccination strong policy support indicator economic activity employment continue strengthen note sector adversely affect pandemic improve month summer rise covid-19 case slow recovery inflation elevate reflect factor expect transitory remark supply demand imbalance relate pandemic reopening economy contribute sizable price increase sector overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member acknowledge path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain member agree postmeete statement acknowledge sector economy adversely affect pandemic improve month summer rise covid-19 case slow recovery concur appropriate convey certainty path inflation note factor drive elevated inflation expect transitory order provide additional information factor member decide postmeete statement supply demand imbalance relate pandemic reopening economy contribute sizable price increase sector member agree include sentence state progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm accordance committee goal achieve maximum employment inflation rate percent long run inflation have run persistently long run goal aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent member expect maintain accommodative stance monetary policy outcome achieve monetary policy period ahead member agree light substantial progress economy committee goal december committee begin slow pace asset purchase consistent approach committee decide start reduce monthly pace net asset purchase treasury security agency mbs consequently committee agree begin purchase schedule publish mid november increase holding treasury security month month increase holding agency mbs month month open market desk release monthly purchase schedule november december fomc meeting committee decide add postmeete statement indication begin december committee increase holding treasury security month agency mbs month member decide postmeete statement state committee judge similar reduction pace net asset purchase appropriate subsequent month imply increase security holding cease middle year committee outlook member note committee prepared adjust pace purchase warrant change economic outlook agree postmeete statement member agree addition language acknowledge importance maintain flexibility adjust stance policy appropriate response change committee outlook labor market inflation member agree statement committee ongoing asset purchase help foster smooth market functioning accommodative financial condition additionally member decide introduce postmeete statement reference federal reserve holding security sentence describe economic effect asset purchase addition clear net increase soma portfolio cease federal reserve elevated security holding support accommodative financial condition member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective november federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent complete increase system open market account soma holding treasury security agency mortgage back security mbs indicate monthly purchase plan release mid october increase soma holding treasury security agency mbs monthly purchase period begin mid november increase soma holding treasury security agency mbs monthly purchase period begin mid december increase holding treasury security agency mbs additional amount need sustain smooth functioning market security conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month summer rise covid-19 case slow recovery inflation elevate reflect factor expect transitory supply demand imbalance relate pandemic reopening economy contribute sizable price increase sector overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook committee seek achieve maximum employment inflation rate percent long run inflation have run persistently long run goal committee aim achieve inflation moderately percent time inflation average percent time long term inflation expectation anchor percent committee expect maintain accommodative stance monetary policy outcome achieve committee decide target range fund rate percent expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment inflation rise percent track moderately exceed percent time light substantial progress economy committee goal december committee decide begin reduce monthly pace net asset purchase treasury security agency mortgage back security begin later month committee increase holding treasury security month agency mortgage back security month begin december committee increase holding treasury security month agency mortgage back security month committee judge similar reduction pace net asset purchase appropriate month prepared adjust pace purchase warrant change economic outlook federal reserve ongoing purchase holding security foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board vote unanimously maintain interest rate pay balance percent effective november board vote unanimously approve establishment primary credit rate exist level percent effective november follow action chair comment critical importance maintain public trust confidence federal reserve institution regard chair note announcement change rule financial investment transaction federal reserve official indicate effort way implement rule expeditiously agree committee hold tuesdayâwednesday december 14â15 adjourn 10:35 a.m. november notation vote notation vote complete october committee unanimously approve minute committee hold september 21â22 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend tuesday return text

minute federal open market committee december joint federal open market committee board governors federal reserve system hold videoconference tuesday december 9:00 a.m. continue wednesday december 9:00 a.m. attendance jerome powell chair john williams vice chair thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller james bullard esther george naureen hassan loretta mester kenneth montgomery alternate members committee patrick harker neel kashkari president federal reserve banks philadelphia minneapolis respectively meredith black interim president federal reserve bank dallas james clouse secretary matthew luecke deputy secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed david altig kartik athreya brian doyle rochelle edge sylvain leduc anna paulson william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board sally davies deputy director division international finance board michael kiley deputy director division financial stability board jon faust joshua gallin senior special advisers chair division board members board william bassett antulio bomfim burcu duygan bump jane ihrig kurt lewis chiara scotti nitish sinha special advisers board division board members board linda robertson assistant board division board members board david lópez salido min wei senior associate directors division monetary affairs board john stevens senior associate director division research statistics board paul wood senior associate director division international finance board edward nelson annette vissing jørgensen senior advisers division monetary affairs board jeremy rudd senior adviser division research statistics board eric engstrom elizabeth kiser associate directors division research statistics board christopher gust associate director division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board norman morin deputy associate director division research statistics board zeynep senyuz rebecca zarutskie deputy associate directors division monetary affairs board brian bonis etienne gagnon dan assistant directors division monetary affairs board paul lengermann assistant director division research statistics board alyssa anderson section chief division monetary affairs board penelope beattie section chief office secretary board camille bryan senior project manager division monetary affairs board david small project manager division monetary affairs board randall williams group manager division monetary affairs board jonathan goldberg sebastian infante francisco vazquez grande principal economists division monetary affairs board james hebden james trevino lead technology analysts division monetary affairs board zina bushra saijid senior financial analyst division international finance board isaiah ahn information management analyst division monetary affairs board becky bareford vice president federal reserve bank richmond joseph gruber geoffrey tootell executive vice presidents federal reserve banks kansas city boston respectively david andolfatto anne baum todd clark marc giannoni mark l.j. wright nathaniel wuerffel senior vice presidents federal reserve banks st. louis new york cleveland dallas minneapolis new york respectively roc armenter kathryn chen jonathan mccarthy matthew raskin vice presidents federal reserve banks philadelphia new york new york new york respectively robert lerman jamie pfeifer assistant vice presidents federal reserve bank new york linsey molloy quantitative policy analysis manager federal reserve bank new york developments financial markets open market operations manager turn financial market development period financial market respond significant information economy monetary policy emergence omicron variant overall domestic financial condition tighten modestly remain near historically accommodative level expectation early reduction federal reserve policy accommodation lift short term interest rate support dollar price equity sensitive covid-19 risk decline significantly s&p index little change period market participant consider potential driver notable decline far forward sovereign yield united states advanced economy news omicron variant reportedly drive safe haven flow sovereign bond push term premium low significant movement far forward yield share price firm affect social distancing consistent interpretation addition effect pandemic risk sentiment discuss potential covid endemic possibly result modestly low potential growth time low long run neutral level fund rate outlook u.s. monetary policy expectation reduction policy accommodation shift forward notably respondent open market desk survey primary dealer market participant project committee quicken pace reduction federal reserve net purchase treasury security agency mortgage back security mbs median respondent project net asset purchase end march median respondent project timing increase target range fund rate move early june desk survey interest rate future indicate expectation early increase target range time november expectation fund rate long horizon appear rise addition average probability distribution fund rate report desk survey suggest considerable uncertainty path fund rate survey respondent place significant odd range outcome timing beginning removal policy accommodation consider close market participant begin balance sheet policy feature committee plan reduce accommodation warrant expectation timing decline balance sheet diffuse manager turn foreign development foreign policy sensitive rate relatively steady intermeete period bank advanced foreign economy afes signal somewhat cautious approach removal policy accommodation market participant continue focus risk relate economic financial development china near term concern moderate follow step chinese authority ease policy turn desk operation money market manager note desk reduce net purchase treasury security agency mbs accordance directive issue november overall transition slow pace purchase smoothly money market news path emerge resolution debt ceiling impasse lead yield treasury bill mature december january decline follow resolution treasury expect increase bill issuance restore treasury general account normal level market participant anticipate significant strain money market condition year end discuss recently establish backstop facility manager note continue progress expand access stand repurchase agreement repo facility srf depository institution number institution currently process srf counterpartie federal reserve continue onboard counterpartie foreign international monetary authorities repo facility customer facility represent majority foreign international monetary authority custody holding treasury security federal reserve bank new york temporary dollar liquidity swap line establish march set expire december committee foreign currency directive update january reflect expiration line finally manager provide update transition away libor london interbank offer rate overall considerable progress transition away libor secured overnight financing rate sofr cash derivative market key area work remain unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period discussion policy normalization considerations participants begin range topic associate eventual normalization stance monetary policy topic include lesson learn committee previous experience policy normalization alternative approach remove policy accommodation timing sequencing policy normalization action appropriate size composition federal reserve balance sheet long run agree helpful background committee future decision policy normalization decision committee approach participant precede presentation review previous normalization episode include committee commence normalization raise target range fund rate reduce federal reserve asset holding gradual predictable manner timing step discuss channel policy rate balance sheet action affect financial condition alternative way tool deploy reduce policy accommodation support committee macroeconomic goal presentation include assessment implication yield curve alternative setting tool relative uncertainty effect tool challenge associate conduct communicate policy multiple tool finally review experience foreign bank policy normalization participant judge aspect previous approach remain applicable environment particular note principle plan underlie policy normalization communicate advance decision action enhance public understanding effectiveness monetary policy period time participant remark previous experience highlight benefit maintain flexibility adjust detail approach normalization response economic financial development participant emphasize previous normalization episode express committee statement long run goals monetary policy strategy change target range fund rate committee primary mean adjust stance monetary policy support maximum employment price stability objective preference reflect uncertainty effect change fund rate economy effect change federal reserve balance sheet participant state fund rate familiar tool general public advantageous communication purpose participant note fund rate away effective lower bind elb committee nimbly change interest rate policy balance sheet policy response economic condition participant discuss key difference economic condition prevail previous episode remark committee difference account remove policy accommodation notably participant remark economic outlook strong high inflation tight labor market beginning previous normalization episode observe federal reserve balance sheet large dollar term relative nominal gross domestic product gdp end large scale asset purchase program late participant note weighted average maturity federal reserve treasury holding short beginning previous normalization episode observe result depend size cap pace runoff balance sheet potentially shrink fast time committee follow previous approach phase reinvestment mature treasury security principal payment agency mbs participant raise concern vulnerability treasury market vulnerability affect appropriate pace balance sheet normalization couple participant note srf help mitigate concern participant judge federal reserve well position normalization past ample reserve framework federal reserve interest rate control tool include interest balance overnight reverse repurchase agreement rrp facility place work participant judge significant balance sheet shrinkage appropriate normalization process especially light abundant liquidity money market elevated usage rrp facility participant initial appropriate condition timing start balance sheet runoff relative raise fund rate elb discuss relative timing differ previous experience balance sheet runoff commence year policy rate liftoff normalization fund rate judge way participant agree appropriate initiate balance sheet runoff point increase target range fund rate participant judge appropriate timing balance sheet runoff close policy rate liftoff committee previous experience note condition include strong economic outlook high inflation large balance sheet warrant potentially fast pace policy rate normalization emphasize decision initiate runoff datum dependent participant comment remove policy accommodation rely balance sheet reduction increase policy rate help limit yield curve flattening policy normalization participant raise concern relatively flat yield curve adversely affect interest margin financial intermediary raise financial stability risk couple participant reference analysis previous experience note factor affect long date yield make difficult judge different policy mix affect shape yield curve participant judge appropriate pace balance sheet runoff fast previous normalization episode participant judge monthly cap runoff security help ensure pace runoff measure predictable particularly give short weight average maturity federal reserve treasury security holding participant discuss consideration long run size balance sheet consistent efficient effective implementation monetary policy ample reserve regime participant note size balance sheet elevate time process normalize balance sheet way participant note level reserve ultimately need implement monetary policy effectively uncertain underlie demand reserve bank time vary light uncertainty committee previous experience couple participant express preference allow substantial buffer level reserve support interest rate control participant note important carefully monitor development money market level reserve fall help inform committee eventual assessment appropriate level balance sheet long run participant express srf help ensure interest rate control size balance sheet approach long run level participant note srf facilitate fast runoff balance sheet case participant raise possibility establishment srf reduce demand reserve long run suggest long run balance sheet small participant discuss composition federal reserve asset holding consistent previous normalization principle participant express preference federal reserve asset holding consist primarily treasury security long run achieve composition participant favor reinveste principal agency mbs treasury security relatively soon let agency mbs run balance sheet fast treasury security participant welcome additional analysis issue relate normalization agree continue deliberation upcoming meeting useful staff review economic situation information available time december 14â15 suggest u.s. real gdp growth pick have slow labor market condition continue improve october november measure compensation rise sharply far year consumer price inflation octoberâas measure month percentage change price index personal consumption expenditure pce)âremaine elevated total nonfarm payroll employment rise solidly average october november average gain see quarter unemployment rate decline percent september percent november unemployment rate african americans hispanics decline substantially period rate remain national average labor force participation rate employment population ratio move november private sector job opening measure job openings labor turnover survey remain pre pandemic level quit rate stay elevate despite edge october week moving average initial claim regular state unemployment insurance move lower early december level similar see pandemic recent weekly estimate private sector payroll construct board datum provide payroll processor adp point increase private employment early december average hourly earning rise percent month end november sizable wage gain observe sector inflation reading remain high indicator suggest inflationary pressure broaden month total pce price inflation percent month end october core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure month pce inflation construct federal reserve bank dallas percent october increase percentage point relative month early november month change consumer price index cpi percent core cpi inflation percent period survey base measure medium- long run inflation expectationsâinclude university michigan surveys consumers federal reserve bank new york survey consumer expectations survey professional forecastersâlevele have rise past year real pce growth appear pick despite upturn covid-19 case wan effect previous fiscal stimulus measure linger supply bottleneck increase consumer price particular real expenditure retail good rise solidly october outlay service strengthen november component nominal retail sale datum estimate pce step possibly reflect holiday sale have pull forward october light motor vehicle sale october november average net relative september extremely low dealer inventory continue constrain sale housing demand remain strong indicator housing sector activity include housing start home sale little change october shortage construction material appear hamper building completion limited availability lot ready construction growth business fix investment appear rise slow pace supply bottleneck continue weigh business equipment spending limited availability construction material hold spending nonresidential structure manufacture output increase october available indicator production consistent gain november motor vehicle output move october low level september assembly plant previously shutter semiconductor chip shortage reopen outside motor vehicle manufacturing production rise october partly reflect continue recovery effect hurricane ida output petrochemical refining plastic resin industry total real government purchase appear rise moderately federal defense spending rise net october november relative growth state local government purchase appear moderate payroll decrease october november nominal state local construction expenditure october little level reach record level september u.s. international trade deficit narrow october reflect large rebound export export rebound broad base sizable increase real export industrial supply capital good agricultural product consumer good export automotive product pick have low month real import little change october increase import automotive product consumer good offset decline industrial supply ship congestion bottleneck continue restrain trade good export import service edge october remain low relative pre pandemic level international travel depressed incoming datum consistent pickup foreign economic growth drive mainly reopening asian economy follow lockdown early year contain resurgence covid-19 case strong gain intra asian trade solid reading purchase manager index provide early sign production bottleneck region ease contrast introduction public health restriction europe response wave covid-19 infection appear restrain economic activity european economy recently detection rapid spread omicron variant prompt international travel restriction foreign economy inflation abroad continue rise drive increase retail energy food price addition cost pressure persistent bottleneck supply transportation reflect record high input output price component purchasing manager index staff review financial situation intermeete period rise inflation fomc communication appear substantial upward pressure shorter date treasury yield long date treasury yield decline net reflect renew concern market participant course pandemic associated safe haven flow pandemic relate fear concern inflation tight monetary policy apparently weigh risky asset price despite continue robust economic datum domestic market broad equity price index little change equity market volatility increase markedly spread corporate bond widen moderately afes sovereign yield decline major equity index edge short term funding market stable participation rrp facility increase overall finance condition business household remain accommodative small business nonprime borrower market participant view expect path fund rateâas imply straight read overnight index swap quotesâsuggeste pull forward expect rate increase compare timing anticipate time previous fomc potential accommodative policy stance year contribute notable rise two- year treasury yield net inflation compensation decline moderately november fomc heighten concern inflation outlook appear outweigh increase perceive prospect tight monetary policy fear course pandemic renew concern course pandemic contribute decline year treasury yield net intermeete period despite strong anticipate datum economic activity surprisingly high inflation broad equity index little change net previous fomc strong economic datum appear offset concern monetary policy inflation pandemic spread investment- speculative grade corporate bond widen moderately spread municipal bond little change short term funding market stable intermeete period period effective fund rate remain basis point apart brief decrease november month end sofr remain basis point participation rrp operation increase slightly average foreign asset price fluctuate intermeete period response communication headline covid relate restriction country spread omicron variant net afe sovereign yield decline major foreign equity index edge broad dollar index increase modestly emerge market economy eme sovereign spread widen capital flow eme dedicate fund turn slightly negative half november partly response concern omicron variant credit agency declare heavily indebted chinese property developer restrict default hurt asset price china real estate sector spillover broad financial market limited domestic credit market finance condition nonfinancial corporation remain accommodative gross corporate bond issuance investment- speculative grade borrower solid gross leverage loan issuance robust equity raise traditional initial public offering strong equity issuance special purpose acquisition company remain weak early year november commercial industrial c&i loan bank book grow time beginning year share paycheck protection program loan c&i loan balance bank continue fall amid ongoing forgiveness loan credit quality large nonfinancial corporation remain solid amid strong earning growth s&p firm earning report exceed analyst expectation november volume upgrade outpace downgrade investment- speculative grade nonfinancial corporate bond trail default rate corporate bond leveraged loan decline close historical low october november market indicator future default expectation remain benign municipal bond market issuance robust october november financing condition remain accommodative support low yield credit quality municipal debt continue stable number bond upgrade outpace downgrade default relatively low survey base indicator suggest credit supply condition small firm remain stable tight pandemic small business loan origination tick october reflect weak loan demand suggest survey base market indicator broad measure small business financial health improve slightly short- long term delinquency rate loan small business remain roughly line pre pandemic level financing condition commercial real estate cre market remain accommodative cre loan balance bank book continue expand solid pace october november issuance commercial mortgage back security cmbs continue strong support spread agency non agency cmbs pre pandemic level delinquency rate mortgage cmbs pool continue fall remain elevated loan back hotel retail property residential mortgage market financing condition stay accommodative particularly borrower meet standard conform loan criterion condition continue ease low score borrower remain somewhat tight pandemic mortgage origination home purchase refinance robust november amid historically low mortgage rate fraction mortgage borrower miss payment continue decline october financing condition consumer credit remain accommodative borrower especially high credit score condition nonprime consumer credit card market continue ease tight level see early pandemic growth credit card balance pick september october credit datum indicate increase november growth auto loan outstanding slow october tepid auto sale use forbearance program credit card auto loan remain low level september october staff economic outlook projection u.s. consumer price inflation prepare december fomc high november projection near term outlook revise reflect fast expect increase broad array consumer price wage supply chain bottleneck see continue upward pressure price result month change pce price project relative october pace end year percent follow year boost consumer price cause supply issue expect partly reverse energy price project decline pce price inflation expect step percent project inflation period little high previous projection supply bottleneck assume resolve gradually salience year high inflation reading assume raise underlie trend inflation relative previous forecast long run inflation assume anchored percent forecast economic activity remain strong weak net november projection aggregate demand appear rise sharply emerge surge covid-19 caseload hospitalization expect weigh economic activity winter month addition supply bottleneck expect resolve gradually previously assume tell real gdp expect post sizable gain rise bit rapidly pace growth support continue reopening economy resolution supply constraint sector boost factor fade real gdp growth project step noticeably give high forecast inflation assume monetary policy accommodative come year revise medium term forecast gdp somewhat level real gdp expect potential projection period labor market condition project tight continue judge risk baseline projection economic activity skewed downside risk inflation projection skew upside particular possibility covid-19 case rise steeply especially omicron variant prove vaccine resistant see important source downside risk activity possibility severe persistent supply issue view additional downside risk activity upside risk inflation participant view current economic conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion economic condition participant note progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month continue affect covid-19 job gain solid month unemployment rate decline substantially supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant comment path economy continue depend course virus easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain include variant virus participant observe growth economic activity appear strong have slow expect robust growth participant cite healthy household balance sheet need business rebuild inventory accommodative financial condition factor support continue robust growth couple participant comment business condition appear improve include sector provide person service retail restaurant hotel sector participant note emergence omicron variant economic outlook uncertain remark variant fundamentally alter path economic recovery united states household sector participant note demand consumer good remain strong support accommodative fiscal monetary policy increase household income people find job increase net worth household sector high level saving accumulate course pandemic participant note supply chain bottleneck labor shortage continue limit business ability meet strong demand judge challenge long widespread previously think participant expect global supply chain bottleneck persist year participant point sign incremental improvement supply chain remark business contact experience deteriorate supply condition exacerbate emergence variant virus couple participant report contact implement permanent change business model help weather future disruption include hold large inventory build domestic manufacturing capacity business contact continue experience difficulty hire worker skill level note lack qualified candidate participant note business offer high wage large bonus flexible work arrangement compete worker participant judge labor market continue strengthen unemployment rate fall rapidly payroll grow solid pace participant note decline unemployment rate african americans hispanics narrowing racial ethnic gap prime age employment population ratio suggest inclusive labor market recovery participant discuss modest increase labor force participation rate november number participant judge substantial improvement labor force participation long previously expect assess improvement labor force participation modest participant cite number pandemic economic factor depress labor force participation increase caregiving need amid shortage worker caregiving industry remain concern virus healthy balance sheet household include retire early couple participant cite factor support high labor force participation year include wan fiscal stimulus deplete saving particularly low income household historical tendency labor force participation lag improvement labor market participant point number sign u.s. labor market tight include near record rate quit job vacancy notable pickup wage growth line datum show rise employment cost index participant report district business contact plan have implement large wage increase retain employee attract worker participant note monitor incoming datum sign inflationary pressure associate increasingly tight labor market acknowledge maximum level employment consistent price stability evolve time participant see u.s. economy make rapid progress committee maximum employment goal participant view labor market condition consistent maximum employment participant remark inflation reading high persistent widespread previously anticipate participant note trim mean measure inflation reach decade high level percentage product category substantial price increase continue climb participant continue anticipate inflation decline significantly course supply constraint ease state revise forecast inflation notably discuss revision inflation outlook participant point rise housing cost rent widespread wage growth drive labor shortage prolong global supply friction exacerbate emergence omicron variant participant widely cite business contact feel confident able pass high cost labor material customer participant note continue attention public concern sizable increase cost living take place year associate burden u.s. household particularly limit scope pay high price essential good service comment inflation expectation participant discuss risk elevated level inflation increase public long term expectation inflation level consistent committee long run inflation objective note realization development hard committee achieve percent inflation long run couple participant point report high inflation expectation business increase use cost living adjustment wage negotiation early development potentially affect anchoring inflation expectation participant note long term inflation expectation remain anchored cite stable reading market base inflation compensation measure low level long term bond yield participant observe uncertainty economic outlook remain high agree risk inflation weight upside participant point possibility structural factor keep inflation low previous decade technological change demographic proximity elb environment low equilibrium interest rate reemerge effect pandemic abate couple note risk persistent real wage growth excess productivity growth trigger inflationary wageâprice dynamic participant continue stress uncertainty associate labor marketâin particular evolution labor force participationâand length time require resolve supply chain situation participant note pandemic particularly variant virus continue pose downside risk economic activity upside risk inflation consideration stance monetary policy participant reaffirm federal reserve commitment range tool support u.s. economy challenging time promote committee statutory goal maximum employment price stability participant discuss progress economy criterion committee specify forward guidance fund rate participant agree committee criterion inflation rise percent moderately exceed percent time meet participant remark inflation continue run notably percent reflect supply demand imbalance relate pandemic reopening economy respect maximum employment criterion participant note labor market make rapid progress measure variety indicator include solid job gain report month substantial decline range unemployment rate level prevail year ago labor force participation rate recently edge participant judge pace improvement continue labor market fast approach maximum employment participant remark view labor market condition consistent maximum employment support committee goal maximum employment inflation rate percent long run participant judge appropriate committee target range fund rate percent labor market condition reach level consistent committee assessment maximum employment condition participant judge meet relatively soon pace labor market improvement continue participant remark maximum employment consistent price stability evolve time improvement labor market subsequent year economy continue expand participant remark circumstance appropriate committee raise target range fund rate maximum employment fully achievedâfor example committee judge employment price stability goal complementary light economic development inflation pressure inflation expectation move materially persistently high way impede attainment committee long run goal light elevated inflation pressure strengthen labor market participant judge increase policy accommodation provide ongoing pace net asset purchase long necessary remark quick conclusion net asset purchase well position committee set policy address range plausible economic outcome participant judge appropriate double pace ongoing reduction net asset purchase change result reduce monthly pace net purchase treasury security agency mbs start january participant expect economic condition evolve manner similar reduction pace net asset purchase appropriate subsequent month result end net asset purchase mid march month soon participant anticipate november fomc addition participant remark committee prepared adjust pace purchase warrant change economic outlook participant continue stress maintain flexibility implement appropriate policy adjustment basis risk management consideration guide principle conduct policy highly uncertain environment participant note give individual outlook economy labor market inflation warrant increase fund rate soon fast pace participant early anticipate participant note appropriate begin reduce size federal reserve balance sheet relatively soon begin raise fund rate participant judge accommodative future stance policy warrant committee convey strong commitment address elevated inflation pressure participant note measured approach tighten policy help enable committee incoming datum position react range plausible economic outcome committee policy action monetary policy member agree progress vaccination strong policy support indicator economic activity employment continue strengthen note sector adversely affect pandemic improve month continue affect covid-19 job gain solid month unemployment rate decline substantially remark supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member acknowledge path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain include variant virus elevated inflation persist long previously anticipate member agree appropriate remove reference transitory factor affect inflation postmeete statement instead supply demand imbalance continue contribute elevated inflation member agree emergence omicron variant appropriate risk variant virus assessment risk economic outlook member agree federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal member reaffirm commitment seek achieve maximum employment inflation rate percent long run member agree postmeete statement update reflect committee assessment progress economy criterion specify forward guidance target range fund rate agree inflation criterion guidance meet postmeete statement inflation have exceed percent time committee expect appropriate maintain target range percent labor market condition reach level consistent committee assessment maximum employment light inflation development improvement labor market member decide reduce monthly pace federal reserve net asset purchase treasury security agency mbs specifically begin january committee increase holding treasury security month agency mbs month member agree similar reduction pace net asset purchase appropriate subsequent month imply increase federal reserve security holding cease mid march committee outlook month soon anticipate previous member note committee prepared adjust pace purchase warrant change economic outlook important maintain flexibility adjust stance policy appropriate response change committee outlook labor market inflation member note federal reserve ongoing asset purchase holding security foster smooth market functioning accommodative financial condition support flow credit member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent complete increase system open market account soma holding treasury security agency mortgage back security mbs indicate monthly purchase plan release mid december increase soma holding treasury security agency mbs monthly purchase period begin mid january increase holding treasury security agency mbs additional amount need sustain smooth functioning market security conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. federal reserve commit range tool support u.s. economy challenging time promote maximum employment price stability goal progress vaccination strong policy support indicator economic activity employment continue strengthen sector adversely affect pandemic improve month affect covid-19 job gain solid month unemployment rate decline substantially supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook include variant virus committee seek achieve maximum employment inflation rate percent long run support goal committee decide target range fund rate percent inflation have exceed percent time committee expect appropriate maintain target range labor market condition reach level consistent committee assessment maximum employment light inflation development improvement labor market committee decide reduce monthly pace net asset purchase treasury security agency mortgage back security begin january committee increase holding treasury security month agency mortgageâbacked security month committee judge similar reduction pace net asset purchase appropriate month prepared adjust pace purchase warrant change economic outlook federal reserve ongoing purchase holding security foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin raphael bostic michelle bowman lael brainard richard clarida mary daly charles evans randal quarles christopher waller vote action consistent committee decision leave target range fund rate unchanged board vote unanimously maintain interest rate pay balance percent effective december board vote unanimously approve establishment primary credit rate exist level percent effective december end chair note board substantial progress develop formal police implement tough comprehensive ethic rule senior official announce october agree committee hold tuesdayâwednesday january 25â26 adjourn 11:00 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold november 2â3 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend tuesday return text attend policy normalization consideration return text attend policy normalization consideration wednesday return text

minute federal open market committee january joint federal open market committee board governors federal reserve system hold videoconference tuesday january 9:00 a.m. continue wednesday january 9:00 a.m. attendance jerome powell chair john williams vice chair michelle bowman lael brainard james bullard esther george loretta mester christopher waller meredith black charles evans patrick harker naureen hassan neel kashkari alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively kenneth montgomery interim president federal reserve bank boston james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle carlos garriga joseph gruber david lebow ellis tallman geoffrey tootell william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board daniel covitz deputy director division research statistics board sally davies deputy director division international finance board rochelle edge deputy director division monetary affairs board michael kiley deputy director division financial stability board jon faust joshua gallin senior special advisers chair division board members board antulio bomfim jane ihrig kurt lewis nitish sinha special advisers board division board members board linda robertson assistant board division board members board michael palumbo senior associate director division research statistics board stephanie curcuru associate director division international finance board eric engstrom christopher gust associate directors division monetary affairs board glenn follette associate director division research statistics board erik heitfield deputy associate director division research statistics board laura lipscomb zeynep senyuz deputy associate directors division monetary affairs board etienne gagnon andrew meldrum assistant directors division monetary affairs board mark carlson adviser division monetary affairs board alyssa anderson valerie hinojosa section chiefs division monetary affairs board penelope beattie section chief office secretary board alyssa arute manager division reserve bank operations payment systems board camille bryan senior project manager division monetary affairs board david small project manager division monetary affairs board damjan pfajfar mary tian randall williams group managers division monetary affairs board david cashin principal economist division research statistics board erin ferris kyungmin kim bernd schlusche principal economists division monetary affairs board colin hottman principal economist division international finance board david senior financial institution policy analyst division monetary affairs board isaiah ahn information management analyst division monetary affairs board david altig kartik athreya sylvain leduc executive vice presidents federal reserve banks atlanta richmond san francisco respectively anne baum john clark spencer krane paolo pesenti julie ann remache keith sill mark l.j. wright senior vice presidents federal reserve banks new york new york chicago new york new york philadelphia minneapolis respectively deborah leonard rania perry vice presidents federal reserve bank new york james dolmas economic policy adviser senior economist federal reserve bank dallas radhika mithal markets officer federal reserve bank new york annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york naureen hassan vice president federal reserve bank new york alternate patrick harker president federal reserve bank philadelphia alternate loretta mester president federal reserve bank cleveland charles evans president federal reserve bank chicago alternate james bullard president federal reserve bank st. louis meredith black interim president federal reserve bank dallas alternate esther george president federal reserve bank kansas city neel kashkari president federal reserve bank minneapolis alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chair john williams vice chair james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel michael hold deputy general counsel richard ashton assistant general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle carlos garriga joseph gruber beverly hirtle david lebow ellis tallman geoffrey tootell william wascher associate economists unanimous vote committee select federal reserve bank new york execute transaction system open market account soma unanimous vote committee select lorie logan patricia zobel serve pleasure committee manager deputy manager soma respectively understanding selection subject satisfactory federal reserve bank new york secretary federal reserve bank new york subsequently send advice manager deputy manager selection indicate previously satisfactory unanimous vote committee vote reaffirm revision authorization domestic open market operations show unanimous vote committee vote reaffirm revision authorization foreign currency operations amend foreign currency directive remove reference temporary dollar liquidity swap arrangement foreign bank show guidelines conduct system open market operations federal agency issue remain suspend authorization domestic open market operation reaffirm effective january open market transaction federal open market committee committee authorize direct federal reserve bank select committee execute open market transaction selected bank extent necessary carry domestic policy directive adopt committee buy sell open market security direct obligation fully guarantee principal interest united states security direct obligation fully guarantee principal interest agency united states eligible purchase sale section 14(b federal reserve act eligible security system open market account soma outright operation security dealer foreign international account maintain selected bank day defer delivery basis include transaction commonly refer dollar roll coupon swap market price temporary operation day defer delivery basis purchase eligible security subject agreement resell repo transaction sell eligible security subject agreement repurchase reverse repo transaction term business day rate authorize committee determine competitive bidding apply reasonable limitation volume agreement individual counterpartie allow eligible securities soma mature replacement exchange market price connection treasury auction mature eligible securities soma treasury case eligible securities direct obligation united states fully guarantee principal interest united states exchange market price mature eligible securities soma agency united states case eligible securities direct obligation agency fully guarantee principal interest agency security lending order ensure effective conduct open market operation committee authorize selected bank operate program lend eligible securities hold soma dealer overnight basis selected bank lend eligible securities long overnight term accommodate weekend holiday similar trading convention security lending rate determine competitive bidding minimum lending fee consistent objective program iii subject reasonable limitation total specific issue eligible securities auction subject reasonable limitation eligible securities borrower borrow selected bank reject bid determine sole discretion facilitate bidder ability control single issue accept treasury security cash collateral loan security authorize paragraph iii accept agency security collateral loan agency security authorize paragraph operational readiness testing committee authorize selected bank undertake transaction type describe paragraph time time purpose test operational readiness subject following limitation transaction authorize paragraph shall conduct prior notice committee aggregate par value transaction authorize paragraph type describe paragraph 1.a.i 1.b 1.c 1.d shall exceed calendar year outstanding transaction describe paragraph 1.a.ii shall exceed give time transaction customer account order ensure effective conduct open market operation assist provision short term investment authorized service foreign international account maintain federal reserve bank foreign accounts account maintain federal reserve bank fiscal agent united states pursuant section federal reserve act foreign accounts customer accounts committee authorize following undertake term comparable available open market selected bank soma undertake reverse repo transaction eligible securities hold soma customer accounts term business day undertake repo transaction eligible securities foreign accounts federal reserve bank maintain customer accounts customer account appropriate subject necessary authorization approval undertake repo transaction eligible securities dealer corresponding reverse repo transaction eligible securities customer accounts undertake intra day repo transaction eligible securities foreign accounts transaction undertake customer accounts provision paragraph provide service fee appropriate transaction undertake customer accounts subject authorization approval entity include board governors federal reserve system involve account maintain federal reserve bank fiscal agent united states united states department treasury additional matter committee authorize chair committee foster committee objective period meeting committee instruct selected bank act behalf committee adjust somewhat exceptional circumstance stance monetary policy action result material change composition size asset soma undertake transaction respect eligible securities order appropriately address temporary disruption operational highly unusual nature u.s. dollar funding market adjustment describe subparagraph paragraph shall context committee decision stance policy committee long run objective foster maximum employment price stability shall base economic financial monetary development committee chair feasible consult committee make instruction paragraph authorization foreign currency operation reaffirm effective january general federal open market committee committee authorize federal reserve bank select committee selected bank execute open market transaction system open market account provide authorization extent necessary carry foreign currency directive committee purchase sell foreign currency know cable transfer home abroad open market include united states treasury foreign monetary authority bank international settlements entity open market authorization purchase sell foreign currency encompass purchase sale standalone spot forward transaction foreign exchange swap transaction purpose authorization foreign exchange swap transaction swap transaction united states treasury know warehousing transaction swap transaction bank reciprocal currency arrangement swap transaction bank understand dollar liquidity foreign currency liquidity swap arrangement swap transaction entity open market hold balance outstanding forward contract receive deliver foreign currency transaction foreign currency undertake pursuant paragraph shall authorize committee conduct manner consistent obligation exchange arrangement article articles agreement international monetary fund imf close continuous cooperation consultation appropriate united states treasury consultation appropriate foreign monetary authority foreign bank international monetary institution prevail market rate standalone spot forward transactions operation involve standalone spot forward transaction foreign currency approval operation require follow committee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization exceed close regular committee foreign currency subcommittee subcommittee direct selected bank advance execute operation subcommittee believe consultation committee feasible time available committee authorize subcommittee direct selected bank advance execute operation result volume standalone spot forward transaction foreign currency define paragraph 3.c authorization total close regular committee operation shall generally direct counter disorderly market condition undertake adjust system balance light probable future need currency iii conduct purpose determine committee purpose authorization volume standalone spot forward transaction foreign currency define sum disregard sign dollar value individual foreign currency purchase sell value time transaction warehousing committee authorize selected bank prior approval subcommittee request united states treasury conduct swap transaction united states exchange stabilization fund establish section gold reserve act agreement selected bank purchase foreign currency exchange stabilization fund exchange stabilization fund repurchase foreign currency selected bank later date purchase sale know warehousing reciprocal currency arrangement stand dollar foreign currency liquidity swaps committee authorize selected bank maintain reciprocal currency arrangement establish north american framework agreement stand dollar liquidity swap arrangement temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement provide authorization extent necessary carry foreign currency directive committee reciprocal currency arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available stand temporary dollar liquidity swap arrangement drawing approve advance chair chair approve schedule potential drawing delegate manager system open market account authority approve individual drawing occur accord schedule approve chair stand foreign currency liquidity swap arrangement drawing approve advance committee subcommittee subcommittee believe consultation committee feasible time available operations involve stand temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement shall direct counter strain financial market united states abroad reduce risk emerge mitigate effect economic financial condition united states reciprocal currency arrangement standing temporary dollar liquidity swap arrangement stand foreign currency liquidity swap arrangement arrangement subject annual approval committee arrangement approve committee iii change term exist arrangement approve advance chair chair shall committee inform change term term shall consistent principle discuss guidance provide committee operation foreign currency operation foreign currency governance specify authorization foreign exchange swap transaction privateâsector counterpartie authorize direct advance committee foreign currency holdings committee authorize selected bank hold foreign currency system open market account account maintain foreign bank bank international settlements foreign institution approve board governors section regulation extent necessary carry foreign currency directive committee selected bank shall manage holding foreign currency system open market account primarily ensure sufficient liquidity enable selected bank conduct foreign currency operation direct committee secondarily maintain high degree safety iii subject paragraph 7.a.i 7.a.ii provide high rate return possible currency achieve objective authorize committee selected bank manage foreign currency holding purchasing sell obligation fully guarantee principal interest foreign government agency thereof permit foreign securities outright purchase sale purchasing permit foreign securities agreement repurchase permit foreign securities sell security agreement resale security iii manage balance time deposit account foreign institution approve board governors regulation subcommittee consultation committee provide additional instruction selected bank holding foreign currency additional matter committee authorize chair prior approval committee enter need agreement understanding secretary united states treasury division responsibility foreign currency operation system united states treasury advise secretary united states treasury concern system foreign currency operation consult secretary policy matter relate foreign currency operation designate federal reserve system person authorize communicate united states treasury concern system open market account foreign currency operation time time transmit appropriate report information national advisory council international monetary financial policies committee authorize selected bank undertake transaction type describe authorization foreign exchange investment transaction authorize undertake time time purpose test operational readiness aggregate transaction shall exceed calendar year transaction shall conduct prior notice committee federal reserve bank shall participate foreign currency operation system open market account accordance paragraph 3g(1 board governors statement procedure respect foreign relationships federal reserve banks date january authority subcommittee pursuant authorization exercise chair chair believe consultation subcommittee feasible time available chair shall promptly subcommittee action approve chair pursuant paragraph committee authorize chair exceptional circumstance feasible convene committee foster committee objective instruct selected bank engage foreign currency operation authorize pursuant authorization action shall context committee decision foreign currency operation chair feasible consult committee make instruction paragraph foreign currency directive amend effective january committee direct federal reserve bank select committee selected bank execute open market transaction system open market account accordance provision authorization foreign currency operations authorization subject limit directive committee direct selected bank execute warehousing transaction request united states treasury approve foreign currency subcommittee subcommittee subject limitation outstanding balance united states dollar provide united states treasury result transaction time exceed committee direct selected bank maintain system open market account reciprocal currency arrangement follow foreign bank foreign maximum million dollar equivalent bank canada bank mexico standing dollar liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank standing foreign currency liquidity swap arrangement follow foreign bank bank canada bank england bank japan european central bank swiss national bank committee direct selected bank hold invest foreign currency portfolio accordance provision paragraph authorization committee direct selected bank committee regular committee transaction undertake pursuant paragraph authorization selected bank direct provide quarterly report committee management foreign currency holding pursuant paragraph authorization committee direct selected bank conduct testing transaction purpose operational readiness accordance provision paragraph authorization committee vote unanimously approve minor revision standing repurchase agreement facility resolution show committee vote approve minor revision standing fima repurchase agreement resolution governor bowman abstain vote standing fima repurchase agreement resolution resolution modify remove reference specific facility rate allow normal adjustment facility rate committee make change target range fund rate standing repurchase agreement facility resolution amend effective january federal open market committee committee authorize direct open market desk federal reserve bank new york selected bank system open market account soma conduct operation offer purchase security subject agreement resell repurchase agreement transaction repurchase agreement transaction authorize direct shall include u.s. treasury security agency debt security agency mortgage back security conduct open market operation primary dealer depository institution participant iii conduct minimum bid rate set level direct committee offer overnight basis open market desk selected bank extend term long overnight term accommodate weekend holiday similar trading convention subject aggregate operation limit aggregate operation limit temporarily increase discretion chair operation shall conduct open market desk selected bank direct committee standing fima repurchase agreement resolution amend effective january federal open market committee committee authorize direct open market desk federal reserve bank new york selected bank system open market account soma offer purchase u.s. treasury security subject agreement resell repurchase agreement transaction foreign international account maintain federal reserve bank foreign accounts repurchase agreement transaction authorize direct shall include u.s. treasury security conduct foreign accounts approve advance foreign currency subcommittee subcommittee iii conduct offering rate equal minimum bid rate stand repurchase agreement facility subcommittee establish different offering rate offer overnight basis open market desk selected bank extend term long overnight term accommodate weekend holiday similar trading convention subject counterparty limit day subcommittee approve change offering rate maturity transaction eligible foreign accounts counterpartie approve remove account access counterparty limit subcommittee shall committee inform change transaction shall undertake open market desk selected bank direct committee open market desk selected bank annually committee facility usage list approve account holder tough comprehensive ethic rule senior official announce october chair indicate work comment receive policymaker aim circulate draft soon note urgency bring policy completion chair propose committee vote final draft soon intermeete period possible committee annual reconsideration statement long run goals monetary policy strategy participant support statement write committee vote unanimously reaffirm revision discuss statement chair note consistent previous communication formal framework commence conclude timing allow perspective event inform consideration potential revision framework statement long run goals monetary policy strategy reaffirm effective january federal open market committee fomc firmly committed fulfil statutory mandate congress promote maximum employment stable price moderate long term interest rate committee seek explain monetary policy decision public clearly possible clarity facilitate inform decisionmake household business reduce economic financial uncertainty increase effectiveness monetary policy enhance transparency accountability essential democratic society employment inflation long term interest rate fluctuate time response economic financial disturbance monetary policy play important role stabilize economy response disturbance committee primary mean adjust stance monetary policy change target range fund rate committee judge level fund rate consistent maximum employment price stability long run decline relative historical average fund rate constrain effective lower bind frequently past owe proximity interest rate effective lower bind committee judge downward risk employment inflation increase committee prepared use range tool achieve maximum employment price stability goal maximum level employment broad base inclusive goal directly measurable change time owe nonmonetary factor affect structure dynamic labor market consequently appropriate specify fix goal employment committee policy decision inform assessment shortfall employment maximum level recognize assessment necessarily uncertain subject revision committee consider wide range indicator make assessment inflation rate long run primarily determine monetary policy committee ability specify long run goal inflation committee reaffirm inflation rate percent measure annual change price index personal consumption expenditure consistent long run federal reserve statutory mandate committee judge long term inflation expectation anchor percent foster price stability moderate long term interest rate enhance committee ability promote maximum employment face significant economic disturbance order anchor long term inflation expectation level committee seek achieve inflation average percent time judge follow period inflation run persistently percent appropriate monetary policy aim achieve inflation moderately percent time monetary policy action tend influence economic activity employment price lag set monetary policy committee seek time mitigate shortfall employment committee assessment maximum level deviation inflation long run goal sustainably achieve maximum employment price stability depend stable financial system committee policy decision reflect long run goal medium term outlook assessment balance risk include risk financial system impede attainment committee goal committee employment inflation objective complementary circumstance committee judge objective complementary take account employment shortfall inflation deviation potentially different time horizon employment inflation project return level judge consistent mandate committee intend principle adjustment appropriate annual organizational january undertake roughly year thorough public monetary policy strategy tool communication practice financial developments open market operations manager turn domestic financial market development intermeete period treasury yield rise curve lead high real yield expectation tight monetary policy ahead easing covid relate concern cite contribute increase yield s&p index decline percent sharp move end period reportedly prompt concern implication tight path monetary policy rise geopolitical risk monetary policy outlook datum show continue tightening labor market condition elevated inflationary pressure policymaker communication perceive point early fast removal accommodation market participant previously expect backdrop respondent open market desk survey primary dealer market participant uniformly project federal reserve net asset purchase end mid march median survey projection commencement balance sheet runoff shift year roughly year half soon december survey survey respondent expect portfolio decline significantly fast pace december expectation path fund rate shift early rate increase interest rate future price increase target range fund rate march fomc average respondent desk survey assign roughly percent probability increase target range march expect path fund rate desk survey derive interest rate future steepen period median survey projection level target range end percent similar december nonetheless survey respondent attach significant probability outcome target range move indicate project modal path change view path federal reserve balance sheet follow release december fomc minute affect long term yield far forward real yield move higher period increase follow release minute december fomc addition agency mortgage back security mbs spread widen notably have stable low level past year reportedly drive expectation early fast runoff agency mbs expect manager turn international financial market development sovereign yield increase advanced foreign economy afes reportedly drive recede concern omicron variant elevated inflation reading relatedly expectation bank remove policy accommodation soon expect bank conclude net asset purchase late year expect year outlook policy rate bank increase policy rate expect later year manager provide update issue relate monetary policy implementation reduction pace committee net asset purchase proceed smoothly date function treasury agency mbs market remain stable potential committee reduce system open market account soma holding future market participant anticipate soma redemption proceed smoothly somewhat fast pace previous period balance sheet reduction note soma redemption require significant adjustment private sector balance sheet investor absorb net increase treasury agency mbs issuance private sector money market transition low level liquidity adjustment time manager discuss expectation evolution federal reserve administer rate connection potential future change target range fund rate desk survey response suggest expectation administer rate raise increment target range fund rate manager note setting administer rate relative target range work anticipate support effective policy implementation follow increase target range coming month al­though adjustment warrant time unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period principle reduce size balance sheet participants continue topic associate potential adjustment committee policy tool appropriate support achievement sustained strong labor market condition return inflation level consistent committee long run percent objective wide range circumstance participant discuss high level principle release public describe committee approach reduce size federal reserve balance sheet agree principle address high level sequence adjustment interest rate balance sheet tool reduce policy accommodation committee approach balance sheet runoff intention long run size composition balance sheet participant precede presentation review key consideration raise participant december fomc examine propose set principle reflect consideration compare policy normalization principles plans issue participant reaffirm change target range fund rate committee primary mean adjust stance monetary policy note committee statement long run goals monetary policy strategy participant judge timing pace balance sheet reduction determine promote committee maximum employment price stability goal appropriate begin process reduce size balance sheet process increase target range fund rate begin participant agree detail timing pace balance sheet runoff determine upcoming meeting participant note economic financial condition warrant fast pace balance sheet runoff period balance sheet reduction participant observe light high level federal reserve security holding significant reduction size balance sheet appropriate participant note level security holding consistent implement monetary policy efficiently effectively ample reserve regime uncertain probably consequently market condition monitor closely determine appropriate long run level reserve size balance sheet participant agree committee reduce federal reserve security holding time predictable manner primarily adjust amount reinveste principal payment receive security hold soma agree soma hold primarily treasury security long run principle participant comment sale agency mbs reinveste portion principal payment receive agency mbs treasury security appropriate point future enable suitable progress long run soma portfolio composition consist primarily treasury security participant agree appropriate time committee publish high level principle reduce size federal reserve balance sheet agree important committee retain flexibility adjust detail approach light change economic financial condition participant note principle serve important guide future deliberation balance sheet reduction decision specific detail reduce size balance sheet participant agree discussion upcoming meeting follow conclusion participant support propose principle reduce size balance sheet committee vote unanimously adopt principles reduce size federal reserve balance sheet show principle reduce size federal reserve balance sheet adopt effective january federal open market committee agree appropriate time provide information plan approach significantly reduce size federal reserve balance sheet participant agree follow element committee view change target range fund rate primary mean adjust stance monetary policy committee determine timing pace reduce size federal reserve balance sheet promote maximum employment price stability goal committee expect reduce size federal reserve balance sheet commence process increase target range fund rate begin committee intend reduce federal reserve security holding time predictable manner primarily adjust amount reinveste principal payment receive security hold system open market account soma time committee intend maintain security holding amount need implement monetary policy efficiently effectively ample reserve regime long run committee intend hold primarily treasury security soma minimize effect federal reserve holding allocation credit sector economy committee prepared adjust detail approach reduce size balance sheet light economic financial development staff review economic situation information available time january 25â26 suggest u.s. real gross domestic product gdp growth pick slow labor market condition improve december indicator labor compensation continue robust increase consumer price inflation novemberâas measure month percentage change price index personal consumption expenditure pce)âremaine elevated total nonfarm payroll employment post moderate gain december unemployment rate decline percent november percent december unemployment rate african americans move higher hispanic unemployment rate decline rate remain national average labor force participation rate unchanged december employment population ratio move private sector job opening rate measure job openings labor turnover survey move november remain pre pandemic level quit rate elevate weekly estimate private sector payroll construct board datum provide payroll processor adp available half january point slow pace private employment gain relative december average hourly earning rise annual rate percent month year wage increase widespread industry particularly notable leisure hospitality sector transportation warehousing sector inflation reading remain high indicator suggest inflationary pressure broaden half total pce price inflation percent month end november core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure month pce inflation construct federal reserve bank dallas percent november percentage point high year early rate increase december month change consumer price index cpi percent core cpi inflation percent period common inflation expectation index combine information indicator inflation expectation inflation compensation level fall close average real pce unchanged november available indicatorsâinclude component nominal retail sale datum estimate pceâpointed decline december possibly reflect sharp rise covid-19 case half month holiday sale have pull forward early month housing demand remain strong available indicator suggest residential investment increase shortage construction material buildable lot input continue weigh activity sector business fix investment appear post small gain investment transportation equipment hold supply bottleneck limited supply construction material restrain nonresidential structure investment manufacture output move december advance strongly october november motor vehicle assembly reverse november increase addition manufacture production outside motor vehicle tick lower total real government purchase appear fall al­though available datum suggest real purchase rise indicator real state local government purchase point decline despite state local government extremely strong budget position widespread return person school fall u.s. international trade deficit widen end year import good rise sharply november december lead increase consumer good export good little change month net surge october shipping congestion bottleneck continue restrain level trade good service export jump november reflect sizable increase export travel service reopening u.s. border vaccinate foreign traveler early month service trade low relative pre pandemic norm level international travel remain depressed incoming datum suggest foreign economic growth pick economy emerge asia bounce lockdown induce delta variant covid-19 virus purchasing manager index pmis point improved supplier delivery time foreign vehicle production rise notably suggest supply bottleneck continue ease somewhat rapid spread omicron variant lead renew public health restriction country particularly china appear weigh activity start year inflation abroad continue rise drive increase retail energy price effect supply bottleneck emerge market economy emes rise food price say input output price component pmis provide tentative sign ease supply constraint start contribute letup inflationary pressure foreign economy staff review financial situation intermeete period ease concern economic effect omicron variant fomc communication view accommodative expect contribute increase treasury yield long term sovereign yield afes rise notably broad domestic equity index decrease markedly spread corporate bond widen modestly short term funding market stable participation overnight reverse repurchase agreement rrp facility increase market base financing condition remain accommodative lending standard ease loan category expect path fund rate yearsâimplie straight read overnight index swap quotesârose notably december fomc apparently reflect accommodative expect fomc communication easing concern economic effect omicron variant factor contribute notable rise year nominal treasury yield inflation compensation imply treasury inflation protect securities rise slightly net broad equity index decrease markedly net particularly intermeete period shift expectation pace monetary policy tightening globalâ¯inflationary pressure escalate tension russia ukraine weigh equity price month option imply volatility s&p 500âthe vixâincrease considerably net percentile historical distribution spread investment- speculative grade corporate bond widen modestly spread municipal bond roughly unchanged short term funding market stable intermeete period effective fund rate secured overnight financing rate hold steady basis point basis point respectively participation rrp operation average high previous intermeete period reach time high year end government money market fund continue receive investment inflow account majority rrp intermeete period movement foreign asset price respond wan concern omicron variant potential economic effect firm view monetary accommodation advanced economy remove fast pace previously expect market participant point rise geopolitical tension relate russia contribute move net afe sovereign yield increase notably major foreign equity index decline moderately broad dollar index decrease modestly eme sovereign spread widen capital flow eme dedicated bond fund remain slightly negative flow eme equity fund turn positive domestic credit market finance condition nonfinancial firm remain accommodative gross issuance corporate bond leveraged loan remain solid slow somewhat december reflect seasonal factor equity funding raise initial public offering continue strong pace november december equity issuance special purpose acquisition company remain muted relative early commercial industrial c&i loan expand follow year decline january senior loan officer opinion survey bank lending practices sloos bank report easy standard strong demand c&i loan credit quality large nonfinancial corporation remain strong intermeete period volume nonfinancial corporate bond leveraged loan upgrade exceed downgrade november december trail default rate nonfinancial bond edge historical low market indicator future expect default rate remain benign historically low municipal bond market financing condition remain accommodative municipal bond yield stay near historical low issuance municipal debt strong november december credit quality municipal debt remain stable volume default stay low financing condition small business ease bit intermeete period january sloos small bank report ease c&i loan standard small firm loan origination small business rise november near pre pandemic level bank january sloos report strong loan demand small firm loan demand remain weak commercial real estate cre loan balance bank book expand solid pace january sloos bank report easing standard loan amid strong demand cre loan category issuance non agency commercial mortgage back security cmbs surge issuance agency cmbs slow delinquency rate mortgage cmbs pool continue fall remain elevated hotel retail mortgage residential mortgage market financing condition remain accommodative particularly borrower meet standard conform loan criterion january sloos bank report ease lending standard mortgage category mortgage rate increase intermeete period line rate agency mbs year treasury security remain low historical standard fraction mortgage borrower miss payment continue decline november financing condition consumer credit remain accommodative borrower especially high credit score lending standard nonprime consumer credit card market continue ease tight level see early pandemic bank report january sloos demand credit card loan strengthen lending standard ease auto loan amid weakening demand sale run low constrain supply auto loan growth continue slow october november rapid pace record half year provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system notable judge asset valuation pressure remain elevated particular forward price earning ratio s&p index stand upper end historical distribution high yield corporate bond spread excess loan premium leveraged loan remain low level house price grow strongly price rent ratio elevated level note market capitalization crypto asset grow significantly past decade experience considerable volatility include sizable decline late year change assessment vulnerability associate nonfinancial leverage notable moderate note measure business leverage decline pre pandemic level household delinquency rate remain relatively low household borrowing rise concentrate prime borrower vulnerability arise financial leverage remain moderate risk base capital ratio bank remain pre pandemic level resumption shareholder payout contrast available measure hedge fund leverage continue increase important datum gap continue limit assessment vulnerability pose nonbank financial institution vulnerability associate funding risk characterize moderate prime tax exempt money fund continue structural vulnerability lead investor withdraw fund quickly stress situation potential source spillover short term funding market response securities exchange commission propose reform december fund resilient vulnerability funding market significant growth stablecoin arrangement past year increase challenge relate run risk pose additional risk potential role means payment staff economic outlook near term projection u.s. economic activity prepare january fomc weak december reflect sharp rise covid-19 infection cause rapid spread omicron variant assessment supply constraint resolve slowly previously expect real gdp appear post sizable gain output growth expect slow noticeably pick later year covid-19 case decline supply issue continue resolve boost growth reopening economy easing supply constraint expect occur real gdp growth project step roughly line potential growth level real gdp expect potential projection period labor market condition expect tight near term projection pce price inflation revise relative december response anticipated slow resolution supply issue particular continue expect monthly inflation rate lower supply constraint ease project step pronounced december forecast improvement supply condition decline consumer energy price expect slow pce price inflation percent supply condition expect normalize labor market expect tight pce price inflation project decline percent edge percent continue judge risk baseline projection economic activity skewed downside risk inflation projection skew upside particular possibility economic effect virus turn large assume baseline projection view important source downside risk activity possibility severe persistent supply issue view additional downside risk activity upside risk inflation participant view current conditions economic outlook economic condition participant note indicator economic activity employment continue strengthen sector adversely affect pandemic improve month continue affect sharp rise covid-19 case job gain solid month unemployment rate decline substantially supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business participant judge path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain include variant virus regard economic outlook participant agree omicron wave pandemic weigh economic activity sector economy particularly sensitive pandemic relate disruption include travel leisure restaurant experience sharp reduction activity result omicron wave participant comment afflict individual family virus continue cause great hardship participant concur omicron wave dissipate quickly economic activity strengthen rapidly economic growth robust participant cite strong household balance sheet rise wage effective adaptation pandemic business sector factor support outlook strong growth year number participant note risk additional variant weigh economic activity year participant note supply chain bottleneck labor shortage continue limit business ability meet strong demand challenge exacerbate emergence spread omicron variant particular omicron wave lead widespread worker absence illness virus exposure caregive need curtail activity sector include airline trucking warehousing participant report business contact hopeful effect omicron wave relatively short live participant report contact expect ongoing labor shortage supply constraint persist acute effect omicron wave wan participant contact report continue widespread input cost pressure amid robust demand report have able pass customer participant comment agricultural business experience high input cost high cost put strain finance firm experience strong demand product household sector participant note onset omicron wave damp consumer demand particularly service weakness concentrate high contact sector travel dining leisure hospitality participant anticipate household demand recover briskly omicron wave subside quickly spending support strong household balance sheet bolster high rate save early pandemic ongoing robust gain labor income participant note labor market remarkable progress recover recession associate pandemic measure strong increase employment solid month unemployment rate decline sharply reach percent december job opening quit near record high level nominal wage rise fast pace decade participant comment gain balance month broad base notable improvement low wage worker african americans hispanics backdrop strong improve labor market participant observe effect omicron variant temporarily suppress rate labor market gain labor force participation rate edge past month participant indicate expect increase pandemic ease couple participant note participation rate remain low trend level account change demographic participant note district contact report labor demand remain historically strong labor supply remain constrained result broad shortage worker part economy result widespread evidence labor market tight include near record rate quit job vacancy nominal wage growth high record decade participant report district business contact plan implement implement large wage increase year retain employee attract worker participant report contact have force reduce operating hour close business temporarily labor shortage acknowledge maximum level employment consistent price stability evolve time participant express range view assessment labor market condition relative committee goal maximum employment participant comment view labor market condition close consistent maximum employment cite indication strong labor market include low level unemployment rate elevated wage pressure near record level job opening quit broad shortage worker part economy couple participant comment economy reach maximum employment note prime age worker labor force participation rate low prevail pandemic reallocation labor sector lead high level employment time participant remark inflation reading continue significantly exceed committee long run goal elevated inflation persist long anticipate reflect supply demand imbalance relate pandemic reopening economy participant comment elevated inflation broaden sector directly affect factor bolster strong consumer demand addition participant cite development potential place additional upward pressure inflation include real wage growth excess productivity growth increase price housing service participant acknowledge elevated inflation burden u.s. household particularly able pay high price essential good service participant report business contact remain concerned persistently high inflation adjust business practice cope high input costsâfor instance raise output price utilize contract contingent cost participant expect inflation moderate course year supply demand imbalance ease monetary policy accommodation remove participant remark long term measure inflation expectation appear anchor support return inflation time level consistent committee goal risk outlook participant agree uncertainty path inflation elevate risk inflation weight upside participant cite risk include tolerance covid-19 policy china potential disrupt supply chain possibility geopolitical turmoil cause increase global energy price exacerbate global supply shortage worsening pandemic persistent real wage growth excess productivity growth trigger inflationary wageâprice dynamic possibility long term inflation expectation unanchored participant point possibility structural factor contribute low inflation previous decade technological change demographic low real interest rate environment reemerge effect pandemic abate uncertainty real activity see elevate participant note downside risk outlook include possible worsening pandemic potential escalate geopolitical tension substantial tightening financial condition participant comment issue relate financial stability cite number factor represent potential vulnerability financial system participant note asset valuation elevate range market raise concern major realignment asset price contribute future downturn couple participant judge prolong accommodative financial condition contribute financial imbalance couple participant cite reason elevated asset valuation prove threat financial stability past reversal asset price particular note relatively healthy balance sheet position household nonfinancial firm capitalize liquid banking sector fact rise housing price fuel large increase mortgage debt suggest financial system prove resilient shock participant see emerge risk financial stability associate rapid growth crypto asset decentralized finance platform participant point risk associate highly leverage nonbank financial institution potential vulnerability prime money market fund sudden withdrawal liquidity consideration stance monetary policy participant agree appropriate committee target range fund rate percent support committee objective maximum employment inflation rate percent long run anticipate soon appropriate raise target range discuss begin remove policy accommodation soon warrant participant note inflation continue run percent judge risk outlook inflation tilt upside participant assess labor market strong have substantial broad base progress past year light elevated inflation pressure strong labor market participant continue judge committee net asset purchase conclude soon participant prefer reduce committee net asset purchase accord schedule announce december bring end early march couple participant state favor end committee net asset purchase soon send strong signal committee commit bring inflation participant discuss implication economic outlook timing pace remove policy accommodation compare condition committee begin process remove monetary policy accommodation participant view strong outlook growth economic activity substantially high inflation notably tight labor market consequently participant suggest fast pace increase target range fund rate post-2015 period warrant economy evolve line committee expectation participant emphasize appropriate path policy depend economic financial development implication outlook risk outlook update assessment appropriate setting policy stance participant note removal policy accommodation circumstance depend timing pace increase target range fund rate reduction size federal reserve balance sheet context number participant comment condition warrant begin reduce size balance sheet later year outlook monetary policy participant note influence financial condition committee communication view communication helpful shift private sector expectation policy outlook well alignment committee assessment appropriate policy participant continue stress maintain flexibility implement appropriate policy adjustment basis risk management consideration guide principle conduct policy highly uncertain environment participant note inflation expect appropriate committee remove policy accommodation fast pace currently anticipate participant comment risk financial condition tighten unduly response rapid removal policy accommodation participant remark risk mitigate clear effective communication committee assessment economic outlook risk outlook appropriate path monetary policy committee policy action monetary policy member agree indicator economic activity employment continue strengthen note sector adversely affect pandemic improve month affect sharp rise covid-19 case job gain solid month unemployment rate decline substantially member remark supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition remain accommodative reflect policy measure support economy flow credit u.s. household business member acknowledge path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook remain include variant virus order support committee maximum employment price stability objective member agree target range fund rate percent inflation percent strong labor market member expect soon appropriate raise target range fund rate member agree reduce monthly pace committee net asset purchase bring end early march specifically begin february committee increase holding treasury security month agency mbs month member note federal reserve ongoing asset purchase holding security foster smooth market functioning accommodative financial condition support flow credit household business member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member agree remove opening sentence previous postmeete statement federal reserve range tool support u.s. economy language adopt height financial market turmoil march committee begin asset purchase program member acknowledge long warrant light strong economy committee announcement net asset purchase end early march member agree postmeete statement update reflect committee expectation soon appropriate raise target range fund rate light elevated inflation pressure strong labor market conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective january federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent complete increase system open market account soma holding treasury security agency mortgage back security mbs indicate monthly purchase plan release mid january increase soma holding treasury security agency mbs monthly purchase period begin mid february increase holding treasury security agency mbs additional amount need sustain smooth functioning market security conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mbs agency mbs allow modest deviation stated amount purchase reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. indicator economic activity employment continue strengthen sector adversely affect pandemic improve month affect sharp rise covid-19 case job gain solid month unemployment rate decline substantially supply demand imbalance relate pandemic reopening economy continue contribute elevated level inflation overall financial condition accommodative reflect policy measure support economy flow credit u.s. household business path economy continue depend course virus progress vaccination easing supply constraint expect support continued gain economic activity employment reduction inflation risk economic outlook include variant virus committee seek achieve maximum employment inflation rate percent long run support goal committee decide target range fund rate percent inflation percent strong labor market committee expect soon appropriate raise target range fund rate committee decide reduce monthly pace net asset purchase bring end early march begin february committee increase holding treasury security month agency mortgageâbacked security month federal reserve ongoing purchase holding security foster smooth market functioning accommodative financial condition support flow credit household business assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell chair john williams vice chair michelle bowman lael brainard james bullard esther george patrick harker loretta mester christopher waller vote action patrick harker vote alternate consistent committee decision leave target range fund rate unchanged board vote unanimously maintain interest rate pay balance percent effective january board vote unanimously approve establishment primary credit rate exist level percent agree committee hold tuesdayâwednesday march 15â16 adjourn 10:10 a.m. january notation vote notation vote complete january committee unanimously approve minute committee hold december 14â15 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend principle reduce size balance sheet return text attend tuesday return text committee organizational document available www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text general specify article imf undertake collaborate imf member assure orderly exchange arrangement promote stable system exchange rate obligation include seek direct economic financial policy objective foster orderly economic growth reasonable price stability obligation include avoid manipulate exchange rate international monetary system way impede effective balance payment adjustment unfair competitive advantage member return text

minute federal open market committee march joint federal open market committee board governors federal reserve system hold office board governors tuesday march 9:00 a.m. continue wednesday march 9:00 a.m. attendance jerome powell chair john williams vice chair michelle bowman lael brainard james bullard esther george loretta mester christopher waller meredith black charles evans patrick harker naureen hassan neel kashkari alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively kenneth montgomery interim president federal reserve bank boston james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel michael held deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle carlos garriga joseph gruber david lebow william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board daniel covitz deputy director division research statistics board sally davies deputy director division international finance board rochelle edge deputy director division monetary affairs board michael kiley deputy director division financial stability board jon faust joshua gallin senior special advisers chair division board members board antulio bomfim jane ihrig kurt lewis nitish sinha special advisers board division board members board linda robertson assistant board division board members board david bowman david lópez salido min wei senior associate directors division monetary affairs board edward nelson senior adviser division monetary affairs board jeremy rudd senior adviser division research statistics board stephanie curcuru matteo iacoviello associate directors division international finance board burcu duygan bump associate director division research statistics board jeffrey walker associate director division reserve bank operations payment systems board zeynep senyuz rebecca zarutskie deputy associate directors division monetary affairs board paul lengermann clara vega assistant directors division research statistics board dan assistant director division monetary affairs board alyssa anderson valerie hinojosa lubomir petrasek section chiefs division monetary affairs board penelope beattie section chief office secretary board logan lewis section chief division international finance board david small project manager division monetary affairs board mary tian randall williams group managers division monetary affairs board michele cavallo ander perez orive principal economists division monetary affairs board cynthia doniger david glancy senior economists division monetary affairs board david senior financial institution policy analyst division monetary affairs board jose acosta senior communications analyst division information technology board kelly dubbert vice president federal reserve bank kansas city kartik athreya michael dotsey sylvain leduc executive vice presidents federal reserve banks richmond philadelphia san francisco respectively edward knotek anna nordstrom giovanni olivei mark l.j. wright senior vice presidents federal reserve banks cleveland new york boston minneapolis respectively kathryn chen lisa chung jonas fisher mark jensen matthew raskin andrea tambalotti benedict wensley vice presidents federal reserve banks new york new york chicago atlanta new york new york new york respectively seth searls assistant vice president federal reserve bank new york karel mertens senior economic policy advisor federal reserve bank dallas justin meyer markets officer federal reserve bank new york developments financial markets open market operations manager turn global financial market development follow russian invasion ukraine subsequent imposition array sanction ruble depreciate roughly percent dollar price dollar denominate russian bond plunge percent local trading russian equity suspend precipitous decline russian stock price index global financial condition tighten reflect decline equity price increase sovereign yield credit spread andâfor united statesâan appreciation dollar price commodity russia export particularly oil natural gas soar period oil price partially retrace late period option price suggest considerable probability oil price elevated rise month ahead alongside rise commodity price measure near term inflation compensation increase sharply advanced economy eastern european country currency depreciate notably equity price decline emerge market currency outside eastern europe depreciate modestly rise sovereign spread emerge market economy emes widen move outside eastern europe relatively modest development ukraine spark liquidity strain market overnight interest rate steady period sign pressure term funding market high level reserve banking system backstop facility placeâthe repurchase agreement facility foreign international monetary authority fima repo facility stand repo facility srf stand liquidity swap line discount windowâlikely support market confidence availability liquidity help contain funding pressure amid rise market volatility trading liquidity decline number sector treasury market market depth fall price impact trade increase modestly sector overall volume typical market continue function orderly fashion notwithstanding uncertainty associate geopolitical development bank continue signal intention ahead reduce policy accommodation address elevated inflation market imply policy rate year forward rise notably advanced foreign economy afes extend increase see month united states incoming economic datum federal reserve communication lead investor expect rapid removal policy accommodation previously expect market participant universally expect basis point increase target range fund rate future price imply fund rate increase basis point year end basis point price time january similarly median projection target range fund rate open market desk survey primary dealer market participant show increase basis point year median project path target range rise basis point half level modestly median project long run level return close long run level consistent shift expectation path policy shorter date treasury yield rise notably intermeete period spread year treasury yield year treasury yield narrow market participant expect early somewhat fast reduction system open market account soma holding security january desk survey percent respondent project balance sheet runoff begin july overall survey respondent expect significant reduction balance sheet coming year high degree uncertainty magnitude total decline manager turn money market policy implementation market participant expect interest balance rate overnight reverse repurchase agreement rrp offer rate increase basis point line expect increase target range anticipate change fully pass market overnight interest rate uncertainty rrp usage evolve near term money market rate increase bank lift deposit rate increase return available alternative investment depositor shift fund alternative lead downward pressure rate increase rrp instead deposit rate move line net yield alternative investment rrp takeup relatively steady long term rrp balance expect decline federal reserve balance sheet runoff proceed gradually lift money market rate relative rrp rate turn desk operation manager note desk maintain size soma portfolio reinvestment committee direct treasury security desk follow usual practice roll principal payment auction absence regular secondary market purchase treasury security desk plan maintain operational readiness conduct small value purchase sale treasury security agency mortgage back security mbs desk plan reinvest principal payment monthly basis secondary market purchase manager discuss plan simplify administrative aspect soma holding agency mbs coming month process cusip committee uniform securities identification procedures aggregation desk undertake similar program cusip aggregation follow conclusion previous large scale asset purchase program past cusip aggregation program successful reduce cost complexity maintain agency mbs holding finally manager provide update srf desk onboarde depository institution counterpartie note number additional bank currently desk plan adjust counterparty eligibility requirement early april srf accessible broad range bank line committee intention expand eligibility time effort ensure desk counterparty policy promote fair competitive marketplace unanimous vote committee ratify desk domestic transaction intermeete period intervention operation occur foreign currency system account intermeete period plan reduce size balance sheet participants continue topic relate plan reduce size federal reserve balance sheet manner consistent approach describe principles reduce size federal reserve balance sheet committee release follow january participant precede presentation review committee 2017â19 experience balance sheet reduction present range possible option reduce federal reserve security holding time predictable manner option feature rapid pace balance sheet runoff 2017â19 episode option differ primarily respect size monthly cap security redemption soma portfolio presentation address potential implication option path balance sheet runoff presentation feature alternative approach committee respect soma holding treasury bill alternative way committee eventually slow stop balance sheet runoff size soma portfolio approach level consistent committee ample reserve framework policy implementation participant agree elevated inflation tight labor market condition warrant commencement balance sheet runoff come fast pace decline security holding 2017â19 period participant reaffirm federal reserve security holding reduce time predictable manner primarily adjust amount reinveste principal payment receive security hold soma principal payment receive security hold soma reinveste extent exceed monthly cap participant remark comfortable relatively high monthly cap cap participant note monthly cap treasury security consideration potential risk market functioning participant agree monthly cap treasury security agency mbs appropriate participant agree cap phase period month modestly long market condition warrant participant discuss approach implement cap treasury security role federal reserve holding treasury bill play committee plan reduce size balance sheet participant judge appropriate redeem coupon security cap month redeem treasury bill month treasury coupon principal payment cap approach redemption treasury bill typically bring total treasury redemption monthly cap participant remark reduce federal reserve treasury bill holding time appropriate treasury bill highly value safe liquid asset private sector treasury increase bill issuance public soma bill holding decline addition participant note maintain large holding treasury bill necessary federal reserve ample reserve operating framework previous scarce reserve regime treasury bill holding useful tool drain reserve banking system necessary control short term interest rate couple participant comment hold treasury bill appropriate federal reserve wish treasury portfolio neutral respect universe outstanding treasury security respect federal reserve agency mbs redemption participant note mbs principal prepayment run propose monthly cap range plausible interest rate scenario cap guard outsized reduction federal reserve agency mbs holding scenario especially high prepayment participant note propose approach run treasury agency security primarily adjustment reinvestment agency mbs holding sizable share federal reserve asset holding year participant agree balance sheet runoff way appropriate sale agency mbs enable suitable progress long run soma portfolio compose primarily treasury security committee decision implement program agency mbs sale announce advance participant note significant uncertainty future level reserve consistent committee ample reserve operating framework backdrop participant agree appropriate slow stop decline size balance sheet balance level committee judge consistent ample reserve allow reserve decline gradually nonreserve liability increase time participant agree lesson learn previous balance sheet reduction episode inform committee approach reach ample level close monitoring money market condition indicator near ample reserve help inform adjustment pace runoff couple participant note establishment srf exist previous runoff episode address unexpected money market pressure emerge committee adopt approach balance sheet reduction reserve decline relatively rapidly note facility intend substitute ample reserve participant agree important committee prepared adjust detail approach reduce size balance sheet light economic financial development decision committee plan reduce federal reserve balance sheet participant agree substantial progress plan committee place begin process reduce size balance sheet early conclusion upcoming staff review economic situation information available time march 15â16 suggest u.s. real gross domestic product gdp increase pace slow rapid gain post labor market condition improve january february indicator labor compensation continue robust increase consumer price inflation januaryâas measure month percentage change price index personal consumption expenditure pce)âremaine elevated total nonfarm payroll employment grow strongly january february unemployment rate edge net percent december percent february unemployment rate african americans hispanics decline period rate remain noticeably high national average labor force participation rate increase february employment population ratio private sector job opening rate january measure job openings labor turnover survey little change net november level remain pre pandemic level quit rate remain elevated average hourly earning rise percent month end february year early pace widespread increase industry consumer price continue rise rapidly total pce price inflation percent month end january core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure month pce inflation construct federal reserve bank dallas percent january percentage point high year early rate increase february month change consumer price index cpi percent core cpi inflation percent period common inflation expectation index combine information indicator inflation expectation inflation compensation level fall close average real pce appear rise fast pace social distancing unwound housing demand remain strong activity residential housing sector continue restrain shortage construction material buildable lot input available indicator suggest growth business fix investment pick growth nonresidential structure investment turn positive available datum suggest motor vehicle production decline sharply february ongoing shortage semiconductor supply chain problem continue restrain output outside motor vehicle sector manufacturing production appear move january february increase appear reflect substantial reduction supply bottleneck indicator state bottleneck show little sign improvement period particular material input electronic component aluminum remain short supply broad measure industrial input price remain elevated separately transportation distribution activity continue hold port congestion shortage truck driver available indicator suggest real government purchase little change decline real state local purchase appear rise defense purchase appear contract u.s. international trade deficit widen end year record high surpass high beginning year import good grow rapidly january lead increase consumer good export good fall slightly elevated level ship congestion bottleneck continue restrain level trade good service export import fall january relative december reflect reduction travel united states international travel remain depressed service trade low relative pre pandemic norm incoming datum suggest rapid spread omicron variant temper foreign recovery turn year purchasing manager index consistent omicron wave have notable effect service activity mute effect manufacturing activity supplier delivery time covid-19 case have fall region authority ease restriction social mobility recover china lockdown recently reimpose russian invasion ukraine constitute negative shock global economy push commodity price hurt global risk sentiment exacerbate supply bottleneck inflation abroad continue rise drive recover global demand rise retail energy food price ongoing strain global supply chain effect russian invasion contribute inflationary pressure staff review financial situation financial market highly volatile intermeete period strained liquidity market russian invasion ukraine lead period particularly elevated volatility deteriorate investor risk sentiment nominal treasury yield expect path policy rise intermeete period drive economic datum release fomc communication view imply rapid removal monetary policy accommodation previously expect domestic equity index decline modestly europe fall noticeably financing condition remain accommodative borrowing cost increase investor interpret incoming economic datum federal reserve communication imply rapid removal monetary policy accommodation previously expect net expect path fund rate imply financial market quotesâunadjuste term premiumsârose significantly yield nominal treasury security previous fomc near term inflation compensation imply treasury inflation protect securities rise sharply reflect high anticipate cpi release surge energy price follow russian invasion ukraine spread investment- speculative grade corporate bond widen noticeably previous fomc end period close medians historical distribution spread municipal bond widen significantly credit category broad equity index decline modestly net amid significant fluctuation equity price increase early period strong anticipate corporate earning economic datum release retrace gain investor risk sentiment deteriorate follow ukraine invasion month option imply volatility s&p 500âthe vixâsurge briefly immediately follow invasion end intermeete period slightly low net foreign asset price highly volatile intermeete period response geopolitical development communication rise inflation concern news relate russia invasion ukraine particular contribute decrease major foreign equity index especially europe moderate increase broad dollar index despite downward pressure geopolitical event afe sovereign yield increase notably net high expect inflation reading communication perceive accommodative expect eme sovereign spread widen eme dedicate fund experience moderate portfolio outflow increase russian invasion financial condition emesâinclude fund flow relative strength local currency outside europeâwere resilient compare past episode global turbulence reflect high commodity price monetary policy tightening eme bank liquidity condition strained financial market intermeete period market depthâa gauge ability transact large volume quote post market makersâdeteriorate u.s. treasury u.s. equity crude oil market trading volume remain normal range market increase normal level treasury market later period bidâask spread increase notably market investor report strained liquidity time amplify volatility price move contribute particularly large swing treasury yield equity price late intermeete period short term funding market stable intermeete period spread segment widen effective fund rate secured overnight financing rate hold steady basis point basis point respectively overnight rate commercial paper sector hold steady rate spread long tenor negotiable certificate deposit increase amid escalation ukraine invasion spread month forward rate agreement overnight index swap widen borrower increase precautionary issuance long tenor debt money market investor prefer short duration investment rrp little change average domestic credit market credit remain available type borrower intermeete period nonfinancial gross corporate bond issuance slow noticeably january february reflect low demand credit rise borrowing cost elevated issuance past year issuance rebound healthy level march investment grade firm high yield firm raise fund leveraged loan issuance strong january february small business loan origination december roughly match pre pandemic level share small firm actively seek financing past month report difficult acquire credit compare month early remain low household nonmortgage mortgage credit remain accommodative credit card balance increase significantly auto credit outstanding grow moderate pace december number mortgage rate lock home purchase february elevate relative pre pandemic level mortgage credit household low credit score continue ease february remain tight pandemic credit quality large nonfinancial corporation municipality remain strong intermeete period volume credit rating upgrade corporate municipal bond outpace downgrade moderately january february default rate corporate bond municipal bond leveraged loan remain low market indicator future expect default rate corporate bond leveraged loan remain low credit quality commercial real estate sector continue sign stress delinquency rate commercial mortgage back security cmbs collateralize hotel retail property continue decline january remain pre pandemic level cmbs office sector increase somewhat january remain fairly low historical standard household credit quality remain fairly healthy delinquency rate mortgage include loan forbearance loan payment continue trend december prime auto loan prime credit card borrower remain flat december nonprime borrower delinquency rate rise december remain subdue historical standard information borrowing cost february early march suggest event surround russia invasion ukraine significant effect financing condition intermeete period borrowing cost continue increase sector remain low relative historical distribution spread corporate bond municipal bond cmbs market rise somewhat pre pandemic level reflect heighten geopolitical risk uncertainty outlook monetary policy elevate financial market volatility residential mortgage rate increase result widen mbs spread market participant attribute mainly tapering federal reserve agency mbs purchase uncertainty surround market supply agency mbs accompany balance sheet runoff federal reserve interest rate credit card rise roughly pre pandemic level rate auto loan rise slightly remain significantly pre pandemic level staff economic outlook near term projection u.s. economic activity prepare march fomc weak january reflect anticipate economic effect conflict ukraine financial condition expect supportive previously assume real gdp growth project step markedly rapid pace pick slightly continue resolution supply constraint provide small boost growth real gdp growth expect slow pace line potential growth level real gdp expect potential projection period labor market condition expect tight near term projection pce price inflation revise considerably relative january upward revision reflect reaction persistently high broad base level domestic inflation import price inflation wage growth observe expectation upward pressure inflation supply demand imbalance long previously assume addition total pce price inflation revise reflect high expect path consumer energy food price tell total pce price inflation project percent pce price inflation expect slow percent percent food energy import price inflation move lower supply demand imbalance resolve continue judge risk baseline projection real activity skew downside risk inflation projection skew upside covid-19 pandemic remain source downside risk activity possibility severe persistent supply issue view pose additional downside risk activity upside risk inflation russian invasion ukraine perceive add uncertainty outlook economic activity inflation conflict carry risk exacerbate supply chain disruption put additional upward pressure inflation boost price energy food key commodity finally possibility continue high inflation cause long term inflation expectation unanchored see upside risk inflation projection participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion economic condition participant note indicator economic activity employment continue strengthen job gain strong month unemployment rate decline substantially inflation remain elevated reflect continued supply demand imbalance high energy price broad price pressure appropriate firming stance monetary policy participant expect inflation return committee percent objective time labor market strong participant recognize invasion ukraine russia cause tremendous human economic hardship ukrainian people judge implication war u.s. economy highly uncertain near term invasion related event create significant additional upward pressure inflation weigh economic activity regard economic outlook participant note real gdp growth slow rapid pace reflect weak inventory investment consumption business investment continue rise solidly omicron variant leave mild brief imprint economic datum household firm appear resilient wave virus relative december forecast participant revise projection real gdp growth year reflect factor slowdown inventory investment strong pace late year reduce fiscal monetary policy accommodation russian invasion ukraine lead high price energy commodity increase uncertainty weigh broad financial condition consumer sentiment participant judge economic fundamental remain solid expect trend growth sustain strong labor market participant comment demand labor continue substantially exceed available supply part economy business contact continue difficulty hire retain worker participant observe indicator point tight labor market employment growth remain strong omicron wave couple participant highlight annual benchmark revision establishment survey employment datum reveal strong employment growth half initially report unemployment rate fall post pandemic low quit job opening time high payroll employment remain pre pandemic level shortfall concentrate sector reflect shortage worker insufficient demand labor consistent tight labor market nominal wage rise fast pace year wage gain far strong low quartile earner production supervisory worker wage pressure begin spread income skill distribution participant comment expect labor market strong wage pressure elevated participant note sign pandemic relate factor hold labor supply abate point notable increase labor force participation rate prime age man february participant remark inflation reading continue significantly exceed committee long run goal note development associate russia invasion ukraine include related surge energy price add near term inflation pressure participant note elevated inflation continue broaden good service especially rent sector experience large price increase education apparel health care participant note number spend category experience inflation rate percent continue rise trimmed mean inflation measure federal reserve bank dallas rise high level early 1980s participant indicate business contact continue substantial increase wage input price pass high price customer significant decrease demand participant comment factor lead high inflation reading persist include strong aggregate demand significant increase energy commodity price supply chain disruption require lengthy period resolve addition participant note high inflation affect future inflation dynamic example participant comment persistently high inflation reading lead business set price attentive aggregate inflation willing raise price addition couple participant note household survey datum suggest near term consumer inflation expectation sensitive actual inflation reading beginning pandemic participant comment survey- market base measure short term inflation expectation historically high level participant note long term measure inflation expectation household professional forecaster market participant appear anchor whichâtogether appropriate monetary policy eventual easing supply constraintsâwould support return inflation time level consistent committee long run goal participant agree development surround russian invasion ukraine include result sanction add inflation pressure pose upside risk inflation outlook participant note russia ukraine major supplier commodity production energy food industrial input continued cutoff supply world market push price commodity time lead price increase downstream industry invasion exacerbate disruption supply chain participant comment lead high energy food price weigh consumer sentiment contribute tight financial condition invasion negatively affect growth outlook participant highlight additional downside risk growth associate war risk protract conflict public currently expect lead tight global financial condition disruption couple participant comment increase uncertainty lead business consumer reduce spending business contact currently see sign shift expect significant pullback demand participant judge upside risk inflation associate war appear significant downside risk growth inflation high united states relatively low level financial trade exposure russia u.s. economy positioned absorb additional adverse demand shock risk outlook participant agree uncertainty path inflation elevate risk inflation weight upside participant cite risk include ongoing supply bottleneck rise energy commodity price exacerbate russian invasion covid relate lockdown china potential disrupt supply chain possibility long run inflation expectation unanchored uncertainty real activity see elevate participant note downside risk outlook include risk associate russian invasion broad tightening global financial condition prolonged rise energy price consideration appropriate stance monetary policy participant concur u.s. economy strong extremely tight labor market inflation high committee percent inflation objective backdrop participant agree appropriate begin process remove policy accommodation raise target range fund rate judge ongoing increase target range fund rate warrant achieve committee objective participant agree reduce size federal reserve balance sheet play important role firm stance monetary policy expect appropriate begin process come possibly soon participant judge firming monetary policy alongside eventual waning supplyâdemand imbalance help long term inflation expectation anchor bring inflation time level consistent committee percent long run goal sustain strong labor market participant note thatâwith inflation committee objective inflationary risk upside fund rate participant estimate long run levelâthey prefer basis point increase target range fund rate number participant indicate light great near term uncertainty associate russia invasion ukraine judge basis point increase appropriate participant note basis point increase target range appropriate future meeting particularly inflation pressure remain elevated intensify number participant note committee previous communication contribute tightening financial condition evident notable increase long term interest rate month participant indicate strong commitment determination measure necessary restore price stability context participant judge committee approach commencing increase target range fund rate indicate ongoing increase fully warrant participant judge appropriate stance monetary policy neutral posture expeditiously note depend economic financial development tight policy stance warrant participant judge juncture significant risk face committee elevated inflation inflation expectation entrenched public begin question committee resolve adjust stance policy appropriate achieve committee percent long run objective inflation participant suggest expedite removal policy accommodation reduce risk leave committee position adjust stance policy geopolitical development lead rapid dissipation demand pressure expect participant agree economic outlook highly uncertain policy decision account state financial market economy committee need prepared adjust stance monetary policy response evolve economic outlook risk outlook regard participant note development associate russia invasion ukraine pose heighten risk united states global economy backdrop participant judge risk management important decide appropriate stance monetary policy policy need nimble respond incoming datum evolve outlook particular participant underscore need attentive risk upward pressure inflation long run inflation expectation committee policy action monetary policy member agree indicator economic activity employment continue strengthen job gain strong month unemployment rate decline substantially member agree inflation remain elevated reflect continued supply demand imbalance high energy price broad price pressure member agree geopolitical development warrant change postmeete statement concur invasion ukraine russia cause tremendous human economic hardship agree update statement recognize tragic situation member agree implication war u.s. economy highly uncertain judge near term invasion related event create additional upward pressure inflation weigh economic activity assessment monetary policy stance necessary achieve committee maximum employment price stability goal member agree appropriate firming stance monetary policy expect inflation return committee percent objective labor market strong support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate prefer raise target range fund rate percentage point percent light elevated inflation pressure regard reduce size federal reserve balance sheet member agree substantial progress arrive plan specify step committee expect depend economic financial condition begin process reduce size balance sheet appropriate come possibly early committee member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assess appropriate stance monetary policy account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security reinvest principal payment federal reserve holding agency debt agency mortgage back security mbs agency mbs allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. indicator economic activity employment continue strengthen job gain strong month unemployment rate decline substantially inflation remain elevated reflect supply demand imbalance relate pandemic high energy price broad price pressure invasion ukraine russia cause tremendous human economic hardship implication u.s. economy highly uncertain near term invasion related event create additional upward pressure inflation weigh economic activity committee seek achieve maximum employment inflation rate percent long run appropriate firming stance monetary policy committee expect inflation return percent objective labor market strong support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee expect begin reduce holding treasury security agency debt agency mortgage back security come assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard esther george patrick harker loretta mester christopher waller vote action james bullard patrick harker vote alternate president bullard prefer raise target range fund rate percentage point percent light elevated inflation pressure support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective march board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective march agree committee hold tuesdayâwednesday 3â4 adjourn 10:30 a.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january 25â26 notation vote complete february committee unanimously approve investment trading policy fomc officials related revision program security fomc information conjunction notation vote non voting participant express support policy related revision program james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend plan reduce size balance sheet return text attend economic financial situation return text attend tuesday return text take action board approve request establish rate submit board director federal reserve banks boston philadelphia cleveland richmond atlanta chicago st. louis minneapolis kansas city san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later march date reserve banks inform secretary board request secretary subsequently federal reserve banks new york dallas inform secretary board approval establishment primary credit rate percent effective march vote board encompass approval establishment interest rate secondary seasonal credit exist formula compute rate return text error date correct april shortly publication return text

minute federal open market committee 3â4 joint federal open market committee board governors federal reserve system hold office board governors tuesday 10:00 a.m. continue wednesday 9:00 a.m. attendance jerome powell chair john williams vice chair michelle bowman lael brainard james bullard esther george loretta mester christopher waller meredith black charles evans patrick harker naureen hassan neel kashkari alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively kenneth montgomery interim president federal reserve bank boston james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist carlos garriga joseph gruber beverly hirtle david lebow ellis tallman william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board sally davies deputy director division international finance board rochelle edge deputy director division monetary affairs board michael kiley deputy director division financial stability board jon faust joshua gallin senior special advisers chair division board members board antulio bomfim burcu duygan bump jane ihrig kurt lewis nitish sinha special advisers board division board members board linda robertson assistant board division board members board william bassett senior associate director division financial stability board john stevens senior associate director division research statistics board min wei senior associate director division monetary affairs board paul wood senior associate director division international finance board edward nelson annette vissing jørgensen senior advisers division monetary affairs board andrew figura glenn follette elizabeth kiser associate directors division research statistics board andrea raffo associate director division international finance board jeffrey walker associate director division reserve bank operations payment systems board norman morin deputy associate director division research statistics board zeynep senyuz deputy associate director division monetary affairs board etienne gagnon andrew meldrum assistant directors division monetary affairs board penelope beattie section chief office secretary board valerie hinojosa section chief division monetary affairs board logan lewis section chief division international finance board randall williams group manager division monetary affairs board isabel cairó michele cavallo manjola tase principal economists division monetary affairs board jose acosta senior communications analyst division information technology board david altig kartik athreya michael dotsey michelle neal anna paulson executive vice presidents federal reserve banks atlanta richmond philadelphia new york chicago respectively marc giannoni giovanni olivei mark l.j. wright senior vice presidents federal reserve banks dallas boston minneapolis respectively james bergin nicolas petrosky nadeau matthew raskin vice presidents federal reserve banks new york san francisco new york respectively developments financial markets open market operations manager turn monetary policy expectation united states federal reserve communication march fomc perceive signal rapid removal policy accommodation expect result significant shift expectation path fund rate fund future imply basis point policy rate tightening open market desk survey respondent assign average probability percent outcome median desk survey respondent project basis point increase target range follow meeting basis point increase middle year bring project midpoint target range peak percentâsubstantially high previous survey market participant continue significant uncertainty economic outlook degree policy tightening ahead uncertainty reflect dispersion survey respondent average probability distribution target range end outlook runoff federal reserve security holding market participant widely expect committee announce commencement balance sheet runoff median survey response suggest market participant anticipate maximum redemption cap month treasury security month agency mortgage back security mbs cap phase roughly month survey response continue reflect substantial dispersion view level system open market account soma holding balance sheet runoff end manager turn u.s. financial market development financial condition tighten notably period treasury yield increase curve rise primarily reflect high real interest rate long term private borrowing rate move high year fix rate mortgage rate rise percent high level decade equity index end period substantially low net index move early period connection perceive reduction tail risk stem war ukraine move lower reportedly increase caution economic outlook amid expect tightening u.s. monetary policy dollar appreciate leave broad trade weight dollar percent period view long time horizon financial condition measure financial condition index tighten historically large amount beginning year market- survey base measure u.s. inflation expectation continue project significant deceleration inflation come year nonetheless far forward inflation compensation rise period market participant remain attentive risk bring inflation percent committee need tighten currently expect global financial development advanced economy bank raise policy rate period investor increasingly come anticipate tight monetary policy ahead advanced foreign economy bank japan exception widely anticipate maintain accommodative policy yen depreciate percent dollar intermeete period weak level decade emerge market currency remain relatively resilient market participant focus spread covid-19 china effect covid policy result increasingly widespread lockdown renminbi depreciate dollar percent intermeete period manager turn development money market effective fund rate rise basis point follow increase target range march fomc remain stable period secure overnight rate rise basis point follow march modest softness emerge subsequent day market participant note ongoing uncertainty near term path federal reserve policy increase demand short date investment demand combine decline treasury bill supply contribute downward pressure secured rate rise overnight reverse repurchase agreement rrp usage manager expect rrp usage elevated coming month anticipate long term usage decline balance sheet reduction proceed manager indicate desk prepared implement committee plan balance sheet reduction event committee announce plan end desk issue statement faq provide public detail implementation plan desk closely monitor market condition update committee runoff process deputy soma manager review development concern desk operation desk plan increase publication frequency datum rrp usage additional information provide public great transparency usage rrp facility desk plan publish soma annual soon addition detailed open market operation include update illustrative projection size composition federal reserve balance sheet coming year respect operational matter desk continue work detail plan agency mbs cusip committee uniform security identification procedures aggregation anticipate process begin coming month finally deputy manager request committee vote maintain standing u.s. dollar foreign currency liquidity swap arrangement renew reciprocal currency arrangement canada mexico north american framework agreement participant widely agree stand swap line critical tool allow federal reserve address global dollar funding pressure adversely affect u.s. economy committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time 3â4 suggest u.s. real gross domestic product gdp decline growth private domestic final demand fast previous labor market condition tighten march consumer price inflation marchâas measure 12âmonth percentage change price index personal consumption expenditure pce)âremaine elevated total nonfarm payroll employment rise march unemployment rate decline percent unemployment rate african americans hispanics move lower rate remain noticeably high national average labor force participation rate increase march employment population ratio private sector job opening rate measure job openings labor turnover survey remain elevated employment cost index hourly compensation private sector rise percent month end march gain large correspond 12âmonth change post precede year large 12âmonth increase consumer price continue rise rapidly total pce price inflation percent month end march core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent march percentage point high year early rate increase version common inflation expectation index combine information indicator inflation expectation inflation compensation move upper end range value see real pce residential investment increase rate similar see business fix investment growth pick sharply spending equipment intellectual property product post large increase inventory investment move lower surge total real government purchase decline lead drop defense purchase u.s. international trade deficit widen year net export large negative contribution real u.s. gdp growth good import continue strong growth drive large increase real import consumer good capital good automotive product contrast real export good fall rise briskly late year broad base decline major category real export import service grow moderate pace hold tepid recovery international travel amid ongoing wave covid-19 data suggest foreign economic growth remain solid economy continue adaptability covid-19 wave chinese datum march april show decline manufacturing service activity worsen supply bottleneck chinese authority lock shanghai city combat spread omicron variant ongoing russian invasion ukraine leave imprint foreign economy consumer business sentiment decline europe global price range commodity continue rise foreign inflation increase significantly drive surge energy food price broadening price pressure core good service response bank world tighten monetary policy stance staff review financial situation u.s. treasury yield market imply fund rate path move substantially high intermeete period federal reserve communication domestic economic datum release perceive suggest aggressive tightening monetary policy coming month sovereign yield advanced foreign economy afes increase notably broad domestic equity price index decline net month option imply volatility s&p indexâthe vixâremained elevate short term funding market stable participation rrp facility increase amid increase treasury yield borrowing cost increase sector somewhat pre pandemic level march fomc year treasury yield increase significantly net increase nominal treasury yield primarily account rise real yield inflation compensation imply treasury inflation protect securities little change alongside move short term treasury yield expect fund rate pathâimplie straight read overnight index swap quotesârose notably march fomc broad equity index decrease intermeete period early period equity price increase support robust pace economic activity reduce market concern implication global economy russia invasion ukraine initial sharp gain stock price follow large decline later period long term interest rate rise substantially disappointing earning report end intermeete period weigh equity price vix decline substantially early period end period little change net remain elevated level similarly spread investment- speculative grade corporate bond narrow moderately early intermeete period widen end period slightly narrow net median historical distribution spread municipal bond modestly stand percentile historical distribution condition short term funding market remain stable intermeete period march increase federal reserve administer rate pass overnight money market rate secure overnight rate soften later period downward pressure rate attribute continue decline net treasury bill issuance increase activity certain segment repo market tend trade low rate money market fund continue shorten portfolio maturity amid uncertainty pace anticipate policy rate increase consistent downward pressure repo rate daily rrp facility remain elevated spread type long tenor commercial paper negotiable certificate deposit narrow reportedly reflect reduced market concern effect russia invasion ukraine spread remain slightly wide see early year intermeete period sovereign yield afe increase notably concern inflationary pressure communication perceive accommodative expect spillover rise u.s. treasury yield prospect tight monetary policy covid relate lockdown china weigh price risky asset investor concern surround economic effect war ukraine abate partially balance major foreign equity index register mixed relatively modest change u.s. dollar strengthen pronounced dollar appreciation afe currency u.s. treasury yield rise afe counterpart currency dollar appreciate significantly chinese renminbi intermeete period increase treasury yield borrowing cost increase sector somewhat pre pandemic level credit remain widely available borrower credit quality continue strong borrowing cost residential mortgage loan increase substantially year mortgage offer rate reach level see increase reflect rise year treasury yield corporate bond yield increase effect increase treasury yield partly offset narrow spread municipal bond yield increase notably bank loan rate commercial borrower increase rate large syndicate loan roughly line pre pandemic level consumer credit market rate auto loan credit card offer continue trend upward credit remain widely available type borrower line pre pandemic level gross nonfinancial corporate bond issuance rebound sharply march reflect increase investment grade issuance gross institutional leveraged loan issuance slow amid elevated geopolitical uncertainty commercial industrial c&i loan commercial real estate cre loan balance sheet grow robustly march respondent april senior loan officer opinion survey bank lending practices sloos report continue easing lend term strengthen demand c&i loan ease standard multifamily cre loan small business credit appear available business demand credit reportedly remain weak april sloos large bank report unchanged standard c&i loan small firm small bank tighten standard modestly firm consumer credit market credit card balance grow strongly amid ease standard great utilization auto credit outstanding continue grow steadily february despite vehicle production shortfall low vehicle inventory residential mortgage credit condition remain accommodative march despite increase mortgage interest rate particularly strong borrower meet standard loan criterion credit quality firm municipality household remain strong volume credit rating upgrade corporate bond outpace downgrade moderately march continue nearly yearlong pattern credit quality c&i loan bank book continue strong delinquency default rate remain low delinquency rate nonbank loan small business edge february cre sector borrower financial health continue recover household credit quality remain strong delinquency rate prime nonprime borrower continue subdue historical standard provide update assessment stability financial system judge amid substantial upward shift interest rate russia invasion ukraine ongoing disruption supply chain financial systemâoutside commodity marketsâhad resilient large prolonged disruption commodity market interfere market real activity date potential spillover appear limit note increase uncertainty ongoing volatility reduce risk appetite financial market ease price pressure valuation asset remain elevated cre valuation appear somewhat elevated sector affect pandemic residential house price rise rapidly continue key difference previous debt fuel housing boom mortgage finance reform enact limit potential significant deterioration underwriting standard mortgage debt add borrower prime credit score homeowner equity position healthy assess aggregate household business leverage moderate households debt gdp ratio remain relatively low sign increase stress low income household business debt remain elevated relative pre pandemic history interest coverage ratio high assess vulnerability arise financial leverage remain moderate balance despite market volatility banking sector continue capitalize strong liquidity note leverage key nonbank financial institution nbfis elevate lending nbfi continue increase notably relatedly nbfi reliance credit line meet unexpected liquidity need generate moderate liquidity pressure large bank time financial stress regard funding risk highlight structural vulnerability type mutual fund continue focus staff economic outlook projection u.s. economic activity prepare fomc imply trajectory real gdp similar march projection note decline real gdp drive category spending volatile past view continue strength private domestic final demand labor market industrial production provide accurate picture economy direction anticipate gdp growth rebound advance solid pace remainder year gdp growth expect slow monetary policy accommodative financial condition tighten real gdp growth expect line potential output growth level real gdp expect potential projection period labor market condition expect tight projection pce price inflation revise slightly half response slow resolution supply constraint see higher project path import price wage increase upward pressure service price previously assume tell total pce price inflation expect percent pce price inflation expect step percent percent supplyâdemand imbalance economy reduce slow aggregate demand anticipated easing supply constraint continue judge risk baseline projection real activity skew downside risk inflation projection skew upside war ukraine see possible source great upward pressure energy commodity price war adverse development associate rise covid infection china perceive increase risk supply chain disruption production constraint exacerbate united states abroad participant view current conditions economic outlook economic condition participant note economic activity edge household spending business fix investment remain strong job gain robust month unemployment rate decline substantially inflation remain elevated reflect continued supply demand imbalance high energy price broad price pressure participant recognize invasion ukraine russia cause tremendous human economic hardship ukrainian people participant judge implication u.s. economy highly uncertain invasion related event create additional upward pressure inflation weigh economic activity addition participant judge covid relate lockdown china exacerbate supply chain disruption background participant state highly attentive inflation risk participant comment rapid growth real gdp decline year net export inventory investment make large negative contribution growth note volatile component tend contain little signal subsequent growth household spending business fix investment remain strong advance tightening labor market condition judge consistent significant underlie momentum domestic economy line participant expect real gdp grow solidly economic outlook near term participant indicate expect output expand moderately year growth year near long run rate imbalance aggregate demand aggregate supply diminish time participant see appropriate firming monetary policy play role address imbalance support federal reserve goal maximum employment price stability easing supply bottleneck rise labor force participation wan effect pandemic relate fiscal policy support cite additional factor help reduce supplyâdemand imbalance economy low inflation medium term say timing magnitude effect uncertain participant recognize need adjust stance policy depend factor play time household sector participant indicate expect robust growth consumption spending point element support outlook include strong household balance sheet wide availability job u.s. economy resilience face wave virus considerable increase treasury yield maturity intermeete period associate rise interest rate face household particularly rate home mortgage couple participant report business contact continue robust housing demand elevated home price despite high mortgage interest rate respect business sector participant cite robust consumer demand healthy household balance sheet inventory rebuilding factor supportive business activity investment ability firm meet demand continue limit labor shortage supply chain bottleneck participant note business contact report easing supply constraint participant assess supply constraint significant time resolve addition invasion ukraine russia covid relate lockdown china see exacerbate supply chain disruption participant indicate business contact reportedly hesitant expand capacity postpone construction project participant comment demand labor continue outstrip available supply part economy business contact continue difficulty hire retain worker observe indicator point tight labor market employment growth continue strong pace unemployment rate fall near-50 year low quit job opening remain extremely elevated nominal wage continue rise rapidly participant note sign pandemic relate factor hold labor supply abate especially case prime age worker addition participant suggest unwelcome erosion real income high inflation contribute increase labor supply participant indicate expect labor market tight wage pressure stay elevated time participant raise possibility light exceptionally high ratio vacancy job searcher moderation labor demand serve reduce vacancy wage pressure have significant effect unemployment rate participant observe inflation continue run committee long run goal inflation pressure evident broad array good service participant remark hardship cause elevated inflation heighten inflation uncertaintyâinclude erode american family real income wealth make difficult business production investment plan point high inflation impede achievement maximum employment sustained basis participant note development associate russia invasion ukraine include surge energy commodity price add near term inflation pressure addition covid relate lockdown china disrupt global supply chain potentially add upward pressure price pay u.s. business consumer participant indicate business contact continue substantial increase wage input price pass high price customer participant add contact start high price hurt sale number participant observe monthly datum price pressure long worsen participant emphasize price pressure remain elevated early confident inflation peak participant comment measure short term inflation expectation elevate far forward measure inflation compensation near upper edge historical range participant judge measure long term inflation expectation derive survey household professional forecaster market participant appear consistent committee long run inflation objective reflect respondent confidence federal reserve action necessary return inflation percent note appropriate firming monetary policy eventual easing supply constraint anchor long term inflation expectation support return inflation level consistent committee long run goal risk outlook participant emphasize highly attentive inflation risk monitor closely inflation development inflation expectation agree risk inflation skew upside cite risk include associate ongoing supply bottleneck rise energy commodity pricesâboth exacerbate russian invasion ukraine covid relate lockdown china mention risk associate nominal wage growth continue run level consistent percent inflation time extent household high saving onset pandemic healthy balance sheet support great expect underlie momentum consumer spending contribute upside inflation pressure addition participant emphasize persistently high inflation heighten risk long term inflation expectation unanchore case task return inflation percent difficult uncertainty real activity see elevate participant note downside risk outlook include risk associate russian invasion covid relate lockdown china likelihood prolonged rise energy commodity price participant comment issue relate financial stability note tightening monetary policy interact vulnerability relate liquidity market treasury security private sector intermediation capacity couple participant point increase risk financial market link commodity follow russia invasion ukraine lead high price volatility wide range energy agricultural metal product participant observe trading risk management practice key participant commodity market fully visible regulatory authority note counterpartie ccp need capable manage risk associate heighten volatility margin requirement ccp rise significant liquidity demand large bank broker dealer client consideration appropriate stance monetary policy participant concur u.s. economy strong labor market extremely tight inflation high committee percent inflation objective backdrop participant agree appropriate raise target range fund rate basis point anticipate ongoing increase target range fund rate warrant achieve committee objective participant agree appropriate start reduce size federal reserve balance sheet june describe plan reduce size federal reserve balance sheet issue conjunction postmeete statement participant judge appropriate firming stance monetary policy eventual waning supplyâdemand imbalance help long term inflation expectation anchor bring inflation time level consistent committee percent long run goal participant reaffirm strong commitment determination measure necessary restore price stability end participant agree committee expeditiously stance monetary policy neutral posture increase target range fund rate reduction size federal reserve balance sheet participant judge basis point increase target range appropriate couple meeting participant assess committee previous communication helpful shift market expectation policy outlook well alignment committee assessment contribute tightening financial condition participant support plan reduce size balance sheet reduction start june work parallel increase target range policy rate firm stance monetary policy number participant remark balance sheet runoff way appropriate committee sale agency mbs enable suitable progress long run soma portfolio compose primarily treasury security program sale agency mbs announce advance risk relate balance sheet reduction participant note potential unanticipated effect financial market condition participant agree economic outlook highly uncertain policy decision datum dependent focus return inflation committee percent goal sustain strong labor market condition participant judge important expeditiously neutral monetary policy stance note restrictive stance policy appropriate depend evolve economic outlook risk outlook participant observe development associate russia invasion ukraine covid relate lockdown china pose heighten risk united states economy world participant comment challenge monetary policy face restore price stability maintain strong labor market condition light high degree uncertainty surround economic outlook participant judge risk management consideration important deliberation time appropriate policy stance participant judge expedite removal policy accommodation leave committee position later year effect policy firming extent economic development warrant policy adjustment committee policy action monetary policy member agree economic activity edge household spending business fix investment remain strong job gain robust month unemployment rate decline substantially member agree inflation remain elevated reflect continued supply demand imbalance high energy price broad price pressure member concur invasion ukraine russia cause tremendous human economic hardship member judge implication war u.s. economy highly uncertain member agree invasion related event create additional upward pressure inflation weigh economic activity member agree covid relate lockdown china exacerbate supply chain disruption light continue inflation risk member judge appropriate postmeete statement committee highly attentive upside risk inflation assessment monetary policy stance necessary achieve committee maximum employment price stability goal member agree appropriate firming stance monetary policy expect inflation return committee percent objective labor market strong support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee decide begin reduce holding treasury security agency debt agency mortgage back security june describe plan reduce size federal reserve balance sheet issue conjunction postmeete statement member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development follow monetary policy include consideration plan reduce size balance sheet participant indicate support propose plan reduce size balance sheet committee vote unanimously adopt plans reduce size federal reserve balance sheet show plan reduce size federal reserve balance sheet adopt effective consistent principles reduce size federal reserve balance sheet issue january committee participant agree follow plan significantly reduce federal reserve security holding committee intend reduce federal reserve security holding time predictable manner primarily adjust amount reinveste principal payment receive security hold system open market account soma begin june principal payment security hold soma reinveste extent exceed monthly cap treasury security cap initially set month month increase month decline holding treasury security monthly cap include treasury coupon security extent coupon maturity monthly cap treasury bill agency debt agency mortgage back security cap initially set month month increase month time committee intend maintain security holding amount need implement monetary policy efficiently effectively ample reserve regime ensure smooth transition committee intend slow stop decline size balance sheet balance somewhat level judge consistent ample reserve balance sheet runoff cease balance decline time reflect growth federal reserve liability committee judge balance ample level committee manage security holding need maintain ample reserve time committee prepared adjust detail approach reduce size balance sheet light economic financial development adopt plan reduce size federal reserve balance sheet committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month june exceed monthly cap redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month june exceed monthly cap allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. economic activity edge household spending business fix investment remain strong job gain robust month unemployment rate decline substantially inflation remain elevated reflect supply demand imbalance relate pandemic high energy price broad price pressure invasion ukraine russia cause tremendous human economic hardship implication u.s. economy highly uncertain invasion related event create additional upward pressure inflation weigh economic activity addition covid relate lockdown china exacerbate supply chain disruption committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run appropriate firming stance monetary policy committee expect inflation return percent objective labor market strong support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee decide begin reduce holding treasury security agency debt agency mortgage back security june describe plan reduce size federal reserve balance sheet issue conjunction statement assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard esther george patrick harker loretta mester christopher waller patrick harker vote alternate support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective agree committee hold tuesdayâwednesday june 14â15 adjourn 10:15 a.m. notation vote notation vote complete april committee unanimously approve minute committee hold march 15â16 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend tuesday return text attend economic development outlook return text take action board approve request establish rate submit boards director federal reserve banks boston new york philadelphia cleveland richmond atlanta chicago st. louis minneapolis kansas city dallas san francisco return text

minute federal open market committee june 14â15 joint federal open market committee board governors federal reserve system hold office board governors tuesday june 11:00 a.m. continue wednesday june 9:00 a.m. attendance jerome powell chair john williams vice chair michelle bowman lael brainard james bullard lisa cook esther george philip jefferson loretta mester christopher waller meredith black charles evans patrick harker naureen hassan neel kashkari alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively kenneth montgomery interim president federal reserve bank boston james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle carlos garriga joseph gruber ellis tallman william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board matthew eichner director division reserve bank operations payment systems board michael gibson director division supervision regulation board andreas lehnert director division financial stability board daniel covitz deputy director division research statistics board sally davies deputy director division international finance board rochelle edge deputy director division monetary affairs board michael kiley deputy director division financial stability board jon faust joshua gallin senior special advisers chair division board members board burcu duygan bump jane ihrig kurt lewis nitish sinha paul wood special advisers board division board members board linda robertson assistant board division board members board marnie gillis deboer david lópez salido senior associate directors division monetary affairs board diana hancock john stevens senior associate directors division research statistics board edward nelson robert tetlow senior advisers division monetary affairs board christopher gust associate director division monetary affairs board shane sherlund deputy associate director division research statistics board giovanni favara etienne gagnon assistant directors division monetary affairs board paul lengermann byron lutz assistant directors division research statistics board penelope beattie section chief office secretary board valerie hinojosa section chief division monetary affairs board alyssa arute manager division reserve bank operations payment systems board ayelen banegas anna orlik principal economists division monetary affairs board stephen lin principal economist division research statistics board giovanni nicolò arsenios skaperdas hiroatsu tanaka senior economists division monetary affairs board cisil sarisoy senior economist division international finance board achilles sangster senior information manager division monetary affairs board david senior financial institution policy analyst division monetary affairs board jose acosta senior communications analyst division information technology board kathleen paese vice president federal reserve bank st. louis david altig kartik athreya michelle neal anna paulson executive vice presidents federal reserve banks atlanta richmond new york chicago respectively james bergin marc giannoni giovanni olivei paolo pesenti robert valletta senior vice presidents federal reserve banks new york dallas boston new york san francisco respectively roc armenter vice president federal reserve bank philadelphia alisdair mckay senior research economist federal reserve bank minneapolis developments financial markets open market operations manager system open market account soma turn financial development intermeete period significant swing asset price financial condition tighten net market participant assess incoming information economy united states near term policy rate expectation shift markedly end period particularly release consumer price index cpi ahead release market expectation reflect broad consensus basis point rate increase june july fomc meeting release high expect inflation datum policy sensitive rate point instead considerable probability basis point move june july meeting market imply path fund rate move higher long horizon market participant note elevated uncertainty economic monetary policy outlook yield curve rate nominal treasury security end period significantly high primarily reflect revision outlook monetary policy associated rise real yield market base measure inflation compensation continue expectation inflation decline notably come quarter measure medium term inflation compensation fall intermeete period market participant report liquidity condition market treasury security affect elevated volatility rate large trade have increase effect pricing market functioning hold respond high interest rate concern growth outlook equity price move substantially low period manager turn development relate foreign bank major foreign bank proceed path remove policy accommodation order address elevated level inflation severalâinclude canada australia new zealandâhad raise policy rate basis point intermeete period signal potential need forceful tightening order address inflation risk european central bank ecb announce end asset purchase program signal intention lift policy rate july stance monetary policy japan expect highly accommodative upward pressure japanese government bond yield lead bank japan boj step effort defend yield curve control target balance market participant focus synchronous shift monetary policy tightening advanced economy money market development manager note basis point increase target range fomc pass effective fund rate transmit overnight rate fund rate hold steady basis point period secured overnight financing rate soften net fall fund target range later period contact attribute downward pressure secure rate high liquidity level decline treasury bill supply elevated uncertainty interest rate path increase demand short term investment environment participation overnight reverse repurchase agreement rrp facility increase great share activity overnight private repurchase agreement repo market conduct lender lack access facility manager note rrp usage continue rise appropriate point lift counterparty limit long term rrp usage expect fall reduction size federal reserve balance sheet result gradual rise money market rate relative rrp rate deputy manager turn federal reserve operation related topic accordance directive open market desk reduction soma security holding begin june initial monthly cap redemption treasury security agency debt agency mortgage back security mbs projection soma portfolio anticipate decline roughly end note soma annual report board financial statement federal reserve system soma portfolio unrealized loss reflect increase long term interest rate unrealized loss implication federal reserve income eventually fall security reach maturity project soma net income decline potentially turn negative increase target range lift interest expense liability eventuality result defer asset entry federal reserve balance sheet unrealize loss federal reserve exist security portfolio negative net income impair implementation monetary policy federal reserve ability achieve dual mandate objective operational matter deputy manager note intermeete period desk onboarde depository institution counterpartie stand repo facility srf result total depository institution approve date srf counterpartie unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time june 14â15 suggest u.s. real gross domestic product gdp rebound moderate rate increase have decline labor market remain tight sign momentum slow consumer price inflationâas measure 12âmonth percentage change price index personal consumption expenditure pce)âremaine elevate april available information suggest inflation elevate total nonfarm payroll employment rise solidly april pace increase slow unemployment rate remain unchanged percent unemployment rate african americans hispanics little change net rate remain noticeably high national average net labor force participation rate edge march employment population ratio unchanged private sector job opening rate measure job openings labor turnover survey edge lower april remain high level nominal wage growth remain elevated average hourly earning have rise percent month end increase widespread industry consumer price inflation remain elevated total pce price inflation percent month end april core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent april nearly percentage point high year early rate increase month change cpi percent core cpi inflation percent period measure inflation expectation derive survey professional forecaster consumer suggest inflation expect high short run fall level consistent long run rate percent production spending indicator mix remain strong consumer spending industrial production post sizable gain april retail sale decline datum home sale single family housing start move april indicator manufacturing activity weaken university michigan surveys consumers measure consumer sentiment decrease noticeably preliminary june reading supply disruption appear improve sector general merchandise retailer deteriorate material home construction balance available indicator suggest private domestic final purchase increase slow pace available trade datum april pointing rebound export moderation import growth gdp growth appear rebound have decline trade real import good step april exceptional strength march drive decline consumer good import contrast real good export grow march april decline previous month follow normalization category soybean pharmaceutical exhibit large idiosyncratic change export import service continue hold incomplete recovery international travel nominal u.s. international trade deficit widen record size march reverse widen april incoming datum suggest global reverberation lockdown measure deal spread covid-19 virus china russian invasion ukraine slow foreign economic growth china activity indicator point sizable restraint economic activity russian invasion ukraine continue imprint foreign activity persistent stress global commodity market decline consumer business confidence especially europe inflation abroad move higher drive increase consumer energy food price additional broadening price pressure core good service central bank world tighten monetary policy stance curb high inflation staff review financial situation intermeete period u.s. treasury yield market imply fund rate path move substantially high net broad domestic equity price index decline considerably balance amid elevated market volatility advanced foreign economy afes sovereign yield increase foreign equity price index move lower despite increase borrowing cost finance condition domestic credit market remain accommodative credit quality firm municipality household remain stable outlook credit quality begin deteriorate somewhat previous fomc year nominal treasury yield increase considerably net early intermeete period treasury yield move lower amid rise concern weaken u.s. growth outlook federal reserve communication perceive lower chance large policy rate hike upcoming meeting yield increase late period economic datum release interpret highlight possibility aggressive tightening monetary policy expected fund rate pathâimplie straight read overnight index swap quotesâalso increase notably balance real yield increase nominal counterpart inflation compensation imply treasury inflation protect securities decline broad equity price index fall sharply intermeete period net stock price decline associate mixed corporate earning news early period increase concern economic outlook amid global policy tightening month option imply volatility s&p indexâthe vixâincrease moderately balance remain elevated relative historical distribution significantly average pre pandemic level spread investment grade great extent speculative grade corporate bond widen notably net reach level comparable end widening spread associate increase concern outlook corporate credit amid monetary policy tightening previous fomc spread municipal bond narrow substantially net move near level observe year pandemic investor demand exhibit recovery period early weak level condition short term funding market remain stable intermeete period increase federal reserve administer rate pass promptly overnight money market rate spread long tenor commercial paper negotiable certificate deposit narrow moderately sign spillover stablecoin market follow collapse large algorithmic stablecoin outstanding increase slightly period money market fund mmf net yield fund type rise notably increase administer rate pass money market instrument secure overnight rate soften significantly relative rrp offering rate fomc downward pressure rate attribute continue decline net treasury bill issuance elevated demand collateral form treasury security mmf maintain short portfolio maturity amid uncertainty pace anticipate policy rate increase consistent downward pressure repo rate daily rrp facility increase sovereign yield afe rise intermeete period amid investor concern inflationary pressure major bank policy communication suggest firm stance policy interest rate volatility afes increase consistent increase uncertainty path policy rate concern global growth outlook weigh equity price broad dollar edge imply equity price volatility remain elevated level japanese yield equity price end period unchanged boj reaffirm accommodative monetary policy stance sovereign bond spread german bund yield euro area peripheral country widen move partially retrace follow unscheduled ecb june ecb indicate action address potential fragmentation risk euro area sovereign bond market outflow emerge market dedicate fund intensify early especially local currency bond fund credit spread emerge market economy widen moderately domestic credit market finance condition business household remain accommodative intermeete period credit remain widely available particularly higher rat firm consumer high credit score gross nonfinancial corporate bond issuance slow especially speculative grade issuer amid elevated market volatility high yield gross institutional leveraged loan issuance decelerate initial public offering volume remain extremely slow gross issuance municipal bond remain robust commercial industrial c&i commercial real estate cre loan bank balance sheet expand rapid pace april issuance agency non agency commercial mortgage back security cmbs step slightly strong pace early year small business loan origination april line pre pandemic level indicate credit appear available residential mortgage credit remain widely available borrower refinance volume continue trend low april amid high mortgage rate outstanding balance home equity line credit commercial bank post significant increase decade reflect substitution homeowner away cash refinance consumer credit market auto loan outstanding grow robust pace consistent rebound auto sale slow april credit card balance commercial bank rise april fast pace see decade growth slow borrowing cost continue increase sector previous fomc yield nonfinancial corporate bond remain pre pandemic level issuance spread institutional leverage loan tick bank interest rate c&i cre loan increase small business borrow regular basis share face high borrowing cost rise april borrowing cost residential mortgage loan increase significantly intermeete period line increase mbs treasury yield reach high level consumer credit market rate auto loan credit card offer continue trend upward despite historically low volume default corporate bond leveraged loan april later week intermeete period volume credit rating downgrade leverage loan exceed volume upgrade addition market indicator future default expectation business deteriorate extent investor appear mark assessment macroeconomic outlook credit quality business loan bank book remain sound c&i cre delinquency rate continue low march nonetheless bank allocate net positive loan loss provision year development reverse pattern loan loss reserve release year reflect concern credit quality outlook delinquency rate cmbs small business loan continue decline credit quality municipal security remain strong household credit quality remain solid share consumer subprime credit score near historical low addition mortgage delinquency share mortgage forbearance continue trend month nonprime auto loan delinquency rate edge touch credit card delinquency rate account holder prime credit score inch low level sizable increase credit card purchase volume march roughly offset high level credit card payment increase household borrowing slightly staff economic outlook projection u.s. economic activity prepare june fomc imply trajectory real gdp low projection continue project gdp growth rebound solid remainder year monetary policy assume accommodative previous projection prospective tightening financial condition lead reduce gdp growth forecast half level real gdp expect potential projection period gap project narrow significantly year narrow little year labor market condition expect tight albeit somewhat previous projection regard pce price inflation revise projection half response strong expect wage growth assessment boost inflation supplyâdemand imbalance economy include food energy market persistent previously assume tell total pce price inflation expect percent core inflation expect percent pce price inflation expect step percent percent energy price forecast decline supplyâdemand imbalance project diminish slow aggregate demand easing supply constraint similarly core inflation project slow percent percent continue judge risk baseline projection real activity skew downside risk inflation projection skew upside judge ongoing war ukraine remain possible source great upward pressure energy commodity price war adverse development associate china covid policy perceive increase risk supply chain disruption production constraint exacerbate united states abroad participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections sep release public follow conclusion economic condition participant note economic activity appear pick edge job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high energy price broad price pressure participant recognize invasion ukraine russia cause tremendous human economic hardship ukrainian people participant judge invasion related event create additional upward pressure inflation weigh global economic activity addition participant indicate covid relate lockdown china exacerbate supply chain disruption background participant state highly attentive inflation risk regard economic outlook participant note indicator suggest real gdp growth expand consumption spending remain strong participant judge growth business fix investment appear slow activity housing sector appear soften result sharp rise mortgage rate correspondingly participant indicate revise projection real gdp growth year consistent ongoing supply chain disruption tight financial condition participant note imbalance supply demand wide range product market contribute upward pressure inflation see appropriate firming monetary policy associate tight financial condition play role help address imbalance support federal reserve goal maximum employment price stability easing supply bottleneck rise labor force participation wan effect pandemic relate fiscal policy support cite additional factor help reduce supplyâdemand imbalance economy low inflation year say timing magnitude effect uncertain participant see little evidence date substantial improvement supply constraint judge economic effect constraint persist long previously anticipate participant stress need adjust stance policy response incoming information evolution factor household sector participant indicate consumption spending remain robust reflect strong balance sheet household sector tight labor market participant note household spending pattern appear shift away good service participant indicate contact report pace consumer spending strong begin moderate reason cite moderation purchase power household reduce high price food energy essential participant expect high mortgage interest rate contribute decline home sale couple participant note housing activity district begin slow noticeably backdrop rise borrowing cost high gasoline food price couple participant comment consumer sentiment drop notably june accord preliminary reading michigan survey respect business sector participant observe contact report sale remain strong contact indicate sale begin slow optimistic outlook industry ability firm meet demand continue limit labor shortage supply chain bottleneck firm rely international source input see encounter particularly acute supply chain disruption supply constraint labor shortage rise input cost reportedly limit energy agricultural producer ability advantage high price product invest expand production capacity similarly participant note sector economy contact report postpone investment construction project rise input financing cost supply challenge widespread contact continue supply constraint significant judge constraint persist time participant note demand labor continue outstrip available supply part economy observe indicator point tight labor market indicator include unemployment rate near year low job vacancy historical high elevate nominal wage growth additionally business contact continue persistent wage pressure difficulty hire retain worker contact report previous wage hike hiring retention improve pressure additional wage increase appear recede employment growth moderate somewhat pace early year remain robust participant observe labor force participation remain pre pandemic level unusually large number retirement pandemic judge labor force participation rate unlikely considerably near term couple participant raise possibility tight labor market spur investment automation firm boost labor productivity labor market anticipate tight near term participant expect labor demand supply come well balance time help ease upward pressure wage price case product market anticipate appropriate firming monetary policy play role help address imbalance labor market tightness labor market anticipate diminish time participant expect unemployment rate increase median projection unemployment rate june sep show gradual rise year reach percent light high level job vacancy number participant judge expect moderation labor demand relative supply primarily affect vacancy significant effect unemployment rate participant note inflation remain high observe continue run committee long run percent objective total pce price have rise percent month end april observe month change cpi come expectation participant concern cpi release indicate inflation pressure sign abating number see solidify inflation persistent previously anticipate comment hardship cause elevated inflation low- moderate income household especially affect household spend budget essential food energy housing able bear rapidly rise cost essential context participant note contact report low- moderate income consumer shift purchase low cost good participant stress persistently high inflation impede achievement maximum employment sustained basis participant judge strong aggregate demand supply constraint large long last expect continue contribute price pressure broad array good service note surge price oil commodity associate russia invasion ukraine boost gasoline food price put additional upward pressure inflation participant comment global nature inflation pressure add foreign bank firm stance monetary policy participant judge shift spending good service associate upward pressure price good sector intensification upward pressure price service sector participant revise pce inflation projection june sep submission response high expect inflation reading slow anticipate resolution supply constraint expect appropriate firming monetary policy eventual easing supply demand imbalance bring inflation level roughly consistent committee long run objective long term inflation expectation anchor participant observe measure inflation expectation move recently include index common inflation expectation expectation inflation year provide michigan survey respect market base measure participant note medium term measure inflation compensation fall intermeete period long term measure unchanged measure long term inflation expectation derive survey household professional forecaster market participant judge consistent committee long run percent inflation objective participant raise concern long run inflation expectation begin drift level inconsistent percent objective participant note inflation expectation unanchore costly bring inflation committee objective risk participant emphasize highly attentive inflation risk closely monitor development inflation inflation expectation agree risk inflation skew upside cite risk include associate ongoing supply bottleneck rise energy commodity price participant judge uncertainty economic growth couple year elevate context couple note gdp gross domestic income give conflicting signal recently pace economic growth make challenge determine economy underlie momentum participant assess risk outlook economic growth skew downside downside risk include possibility tightening financial condition large negative effect economic activity anticipate possibility russian invasion ukraine covid relate lockdown china large expect effect economic growth consideration appropriate stance monetary policy participant concur labor market tight inflation committee percent inflation objective near term inflation outlook deteriorate time backdrop participant agree appropriate raise target range fund rate basis point participant favor basis point increase target range instead basis point participant judge appropriate process reduce size federal reserve balance sheet describe plan reduce size federal reserve balance sheet committee issue light elevated inflation pressure sign deterioration measure inflation expectation participant reaffirm strong commitment return inflation committee percent objective participant observe return inflation percent objective necessary create condition conducive sustainably strong labor market time discuss potential policy action upcoming meeting participant continue anticipate ongoing increase target range fund rate appropriate achieve committee objective particular participant judge increase basis point appropriate participant concur economic outlook warrant move restrictive stance policy recognize possibility restrictive stance appropriate elevated inflation pressure persist participant note fund rate expect near estimate long run level later year committee position determine appropriate pace policy firming extent economic development warrant policy adjustment remark pace rate increase extent future policy tightening depend incoming datum evolve outlook economy participant note committee credibility regard bring inflation percent objective previous communication helpful shift market expectation future policy contribute notable tightening financial condition help reduce inflation pressure restrain aggregate demand participant recognize ongoing policy firming appropriate economic condition evolve expect juncture inflation remain committee objective participant remark move restrictive stance policy require meet committee legislative mandate promote maximum employment price stability addition stance appropriate risk management perspective committee well position implement restrictive policy inflation come high expect participant judge significant risk face committee elevated inflation entrenched public begin question resolve committee adjust stance policy warrant matter participant stress appropriate firming monetary policy clear effective communication essential restore price stability participant remark development associate russia invasion ukraine covid relate lockdown china factor restrain supply condition affect inflation outlook time inflation committee percent objective participant judge maintain strong labor market process bring inflation percent depend factor affect demand supply participant recognize policy firming slow pace economic growth time see return inflation percent critical achieve maximum employment sustained basis committee policy action monetary policy member agree economic activity appear pick edge job gain robust month unemployment rate remain low member agree inflation remain elevated reflect supply demand imbalance relate pandemic high energy price broad price pressure member concur invasion ukraine russia cause tremendous human economic hardship member agree invasion related event create additional upward pressure inflation weigh global economic activity effect invasion ukraine russia materialize member consider appropriate omit june statement sentence convey high uncertainty associate implication invasion u.s. economy member agree covid relate lockdown china exacerbate supply chain disruption light development member remark highly attentive upside risk inflation nimble respond incoming datum evolve outlook assessment monetary policy stance necessary achieve committee maximum employment price stability goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition member agree committee reduce holding treasury security agency debt agency mbs describe plan reduce size federal reserve balance sheet issue prefer raise target range fund rate basis point percent member judge high widespread inflation pressure measure long term inflation expectation move somewhat appropriate postmeete statement committee strongly commit return inflation percent objective firming policy stance result slow economic growth temper labor market condition member agree remove previous statement language indicate expectation appropriate policy result return inflation percent strong labor market member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month june july exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month june july exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. overall economic activity appear pick edge job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high energy price broad price pressure invasion ukraine russia cause tremendous human economic hardship invasion related event create additional upward pressure inflation weigh global economic activity addition covid relate lockdown china exacerbate supply chain disruption committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee reduce holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michelle bowman lael brainard james bullard lisa cook patrick harker philip jefferson loretta mester christopher waller vote action esther george patrick harker vote alternate president george dissent judge large increase target range fund rate add uncertainty policy concurrent beginning balance sheet runoff way unsettle household business adversely affect ability small bank meet credit need community support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective june board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective june agree committee hold tuesdayâwednesday july 26â27 adjourn 10:45 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold 3â4 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend tuesday return text attend economic financial situation end wednesday return text take action board approve request establish rate submit board directors federal reserve bank minneapolis vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later june date reserve banks inform secretary board request secretary subsequently federal reserve banks inform secretary board approval establishment primary credit rate percent effective june federal reserve banks boston new york philadelphia cleveland richmond chicago st. louis kansas city dallas effective june federal reserve banks atlanta san francisco return text

minute federal open market committee july joint federal open market committee board governors federal reserve system hold office board governors tuesday july 10:30 a.m. continue wednesday july 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller meredith black charles evans patrick harker neel kashkari helen mucciolo alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle joseph gruber david lebow ellis tallman william wascher associate economists lorie logan manager system open market account patricia zobel deputy manager system open market account ann misback secretary office secretary board andreas lehnert director division financial stability board jennifer burns deputy director division supervision regulation board sally davies deputy director division international finance board rochelle edge deputy director division monetary affairs board jon faust joshua gallin senior special advisers chair division board members board burcu duygan bump jane ihrig kurt lewis laura lipscomb john schindler nitish sinha paul wood rebecca zarutskie special advisers board division board members board linda robertson assistant board division board members board william bassett senior associate director division financial stability board edward nelson senior adviser division monetary affairs board jeremy rudd senior adviser division research statistics board andrew figura associate director division research statistics board christopher gust associate director division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board patrick mccabe norman morin deputy associate directors division research statistics board david arseneau assistant director division financial stability board giovanni favara etienne gagnon assistant directors division monetary affairs board penelope beattie section chief office secretary board valerie hinojosa section chief division monetary affairs board alyssa arute manager division reserve bank operations payment systems board sriya anbil group manager division monetary affairs board fabian winkler principal economist division monetary affairs board peter garavuso senior information manager division monetary affairs board david anthony sarver senior financial institution policy analyst division monetary affairs board brett takacs senior communications analyst division information technology board becky bareford vice president federal reserve bank richmond kartik athreya michael dotsey michelle neal executive vice presidents federal reserve banks richmond philadelphia new york respectively james bergin spencer krane giovanni olivei senior vice presidents federal reserve banks new york chicago boston respectively william dupor vice president federal reserve bank st. louis andrew foerster senior research advisor federal reserve bank san francisco james dolmas economic policy advisor senior economist federal reserve bank dallas nina boyarchenko department head federal reserve bank new york jonathan heathcote monetary advisor federal reserve bank minneapolis federico mandelman research economist advisor federal reserve bank atlanta developments financial markets open market operations deputy manager turn financial market development financial market intermeete period reflect elevated uncertainty outlook market participant appear moderation inflation slow positive economic growth ahead scenario investor appear increasingly attentive downside risk economy light potential shock abroad continue upside surprise inflation net financial condition ease modestly period remain substantially tight start year treasury yield fall reflect expectation slow growth decline inflation compensation respondent open market desk survey primary dealer market participant mark growth forecast attach high odd june survey possibility u.s. economy enter recession come quarter market participant perceive fall commodity pricesâparticularly oilâand fomc commitment bring inflation point lower inflation ahead market base measure near date inflation compensation decline continue inflation ease come quarter desk survey respondent expect inflation decline substantially assign meaningful probability wide range potential outcome include scenario involve continue elevated rate inflation far forward market base measure inflation compensation fall period measure continue inflation return time committee percent objective assessment policy outlook market participant expect significant policy tightening come meeting committee continue respond elevated level inflation nearly respondent desk survey anticipate basis point increase target range expect basis point increase september follow market imply path fund rate indicate peak policy rate percent significantly low time june market imply path suggest expectation policy rate fall respondent desk survey expect fund rate survey long run policy rate percent end average respondent place significant probability low rate outcome development abroad bank advanced foreign economy afes quicken pace policy tightening order address target inflation advanced economy bank raise policy rate period line similar u.s. development market imply policy rate afe fall long horizon reflect expectation policy rate reach peak level early contrast bank advanced economy bank japan confirm commitment accommodative policy environment exchange value dollar appreciate surpass march peak advanced economy currency deputy manager turn money market desk operation basis point increase target range june pass fully fund rate overnight rate downward pressure overnight secure rate persist pronounce softness observe past intermeete period abate degree overnight reverse repurchase agreement rrp facility continue support policy implementation balance remain elevated deputy manager anticipate near term evolution rrp facility depend change supply safe short term investment demand investment money market mutual fund mmmfs rrp balance expect decline time balance sheet runoff proceed deputy manager note process involve adjustment number market monitor development money market closely expectation evolution federal reserve balance sheet market participant expect committee increase monthly cap system open market account soma redemption begin september announce plan reduce size federal reserve balance sheet issue treasury coupon principal payment fall cap september remainder redemption meet maturity treasury bill paydown agency mortgage back security mbs project fall high september cap beginning september deputy manager end update soma net income staff projection suggest net income turn negative coming month development reflect temporary deferred asset reserve bank balance sheet deferred asset affect committee ability implement monetary policy deferred asset extinguish time net income turn positive later year unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time july 26â27 suggest u.s. real gross domestic product gdp decline half year labor market continue tight labor demand remain strong consumer price inflationâas measure 12âmonth percentage change price index personal consumption expenditure pce)âremaine elevate available information suggest inflation elevate june total nonfarm payroll employment post solid gain june pace similar see april unemployment rate unchanged june percent unemployment rate african americans move lower june rate hispanics unchanged rate noticeably high national average labor force participation rate employment population ratio tick june private sector job opening rate measure job openings labor turnover survey decline remain high level nominal wage growth continue rapid broad base average hourly earning have rise percent month end june real good export edge grow robustly march april real good import continue step exceptionally strong march reading drive decline import consumer good capital good export import service continue hold incomplete recovery international travel nominal u.s. international trade deficit narrow consecutive month record size march available datum net export contribute positively gdp growth consumer price inflation remain elevated total pce price inflation percent month end core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent percentage point high year early rate increase june 12âmonth change consumer price index cpi percent core cpi inflation percent period survey base measure short run inflation expectation remain elevated contrast measure long term inflation expectation move lower week available indicator suggest real pce rise modest pace business investment residential investment government purchase post decline manufacture output move lower june forward look indicator manufacturing activity weaken foreign economic growth slow notably covid-19 relate lockdown lead sharp contraction china russia war ukraine take toll foreign activity especially europe indicator june show chinese economy rebound lockdown ease global economy continue face headwind disruption supply energy elevate political uncertainty europe tight global monetary financial condition commodity price move lower elevated level week foreign consumer price inflation continue rise june reflect past increase energy food price continue broadening price pressure core good service foreign bank tighten monetary policy address high inflation staff review financial situation intermeete period nominal real treasury yield decline significantly reportedly reflect increase investor concern downside risk growth outlook decline inflation compensation sovereign yield afes decline notably market imply fund rate path meeting rise move noticeably long horizon broad equity price index high net credit spread widen major foreign equity price index edge higher net exchange value dollar continue appreciate amid decline treasury yield long term borrowing cost decline household business high credit rating credit availability remain available appear tighten business household broad equity price index high intermeete period amid heighten volatility decline interest rate support stock price period positive earning release suggest investor pessimistic corporate outlook month option imply volatility s&p indexâthe vixâdecreased remain significantly pre pandemic level yield corporate bond decline notably credit spectrum corporate bond spread end period slightly wide spread municipal bond widen slightly yield decline comparable maturity treasury security condition short term funding market stable previous fomc june increase federal reserve administer rate pass promptly overnight money market secure overnight rate remain soft relative rrp offering rate downward pressure rate attribute continue decline net treasury bill issuance elevated demand collateral form treasury security mmmf maintain short portfolio maturity amid uncertainty near term outlook policy rate increase consistent downward pressure repo rate daily rrp facility increase spread lower rat short term commercial paper narrow modestly net bank core deposit rate move little response federal reserve increase administer rate follow june fomc mmmf net yield rise reflect increase short term rate month investor concern global economic growth intensify amid weak expect datum economic activity uncertainty supply natural gas russia europe sovereign yield medium term inflation compensation measure major afe notably euro area move yield reverse sharp increase occur june fomc euro area peripheral sovereign spread little change follow widely anticipate announcement european central bank transmission protection instrument activate counter disorderly condition euro area bond market major foreign equity price index volatile edge higher net support decline sovereign yield dollar appreciate somewhat currency particularly euro yield differential united states euro area widen latin american currency depreciate dollar reflect decline global commodity price domestic credit market long term borrowing cost household business high credit rating decline intermeete period borrowing cost lower rat firm high net credit quality business municipality household remain stable credit remain available credit availability appear tighten business household borrowing cost link short term interest rate increase result expectation tight monetary policy bank interest rate commercial industrial c&i commercial real estate cre loan increase close pre pandemic level yield institutional leveraged loan newly issue commercial mortgage back security cmbs increase amid financial market volatility grow concern economic slowdown small business borrow regular basis face notably high borrowing cost june interest rate exist credit card account auto loan continue trend upward contrast borrowing rate residential mortgage rate fall june fomc line drop long term yield remain near high level credit quality nonfinancial corporation remain strong low volume default corporate bond leveraged loan june volume rating downgrade speculative grade credit corporate bond market similar upgrade june leveraged loan volume downgrade exceed volume upgrade june credit quality c&i cre loan bank book remain sound respondent july senior loan officer opinion survey bank lending practices sloos indicate increase concern credit quality near future reason expectation tightening lending standard half delinquency rate cre loan cmbs decline june delinquency rate small business loan little change credit quality municipal security remain strong credit quality household stay solid residential mortgage delinquency share mortgage forbearance trend credit card auto credit delinquency rate rise somewhat remain subdue historical standard business loan bank expand rapid pace june despite high interest rate uncertain economic outlook c&i loan bank book continue grow robustly july sloos cite reason increase demand customer finance inventory account receivable issuance agency non agency cmbs slow significantly june credit appear available small business share small firm report difficult obtain loan increase credit residential mortgage market remain widely available borrower high credit rating tight household low credit score volume home purchase mortgage origination decline mortgage refinance volume continue fall consumer credit remain available household april respondent federal reserve bank new york survey consumer expectations indicate hard credit month say auto loan outstanding continue grow robust pace april credit card balance moderate somewhat june provide update assessment stability financial system balance characterize vulnerability u.s. financial system moderate notable january equity corporate debt price decline significantly assessment reflect concern slow growth low risk appetite corporate market decline risk appetite lead sharp decline price digital asset note digital asset tend volatile highlight financial stability consideration associate rapid growth stablecoin include vulnerability run opacity aspect operation residential real estate price continue rise note valuation elevate mortgage underwriting standard strong previous house price cycle cre price continue rise valuation pressure appear increase assess household well position mid-2000 weather downturn house price note mortgage debt growth significantly lag growth house price leave household substantial equity cushion past decade mortgage debt add borrower prime credit score addition assess business leverage high business maintain ample cash hand credit quality remain strong ability firm service debt historically high level measure interest coverage ratio assess leverage financial sector remain moderate recent decline capital ratio high volatility interest rate increase loan growth recently conclude stress test suggest participate bank absorb loss severe recession breach regulatory minimum bank expect increase capital ratio later year leverage hedge fund life insurance company remain relatively high market liquidity deteriorate oil equity market january market functioning continue orderly yield offer mmmf offer bank note yield differential attract inflow mmmf note structural vulnerability associate mmmfs highlight need monitor size fragility sector progress security exchange commission recently propose reform note open end bond loan mutual fund vulnerable large scale investor withdrawal experience outflow interest rate rise outflow proceed orderly manner staff economic outlook projection u.s. economic activity prepare july fomc noticeably weak june forecast reflect economy reduce momentum prospective financial condition expect provide support aggregate demand growth result project level real gdp remain potential year gap expect close half similarly unemployment rate project start rise half reach estimate natural rate end year total pce price inflation expect percent core inflation expect percent core pce price inflation expect step percent percent project deceleration core price attributable anticipated resolution supplyâdemand imbalance labor market expect tight projection period project decline import price inflation total pce inflation expect decline percent percent reflect anticipated slowing core inflation project rapid deceleration consumer food energy price come quarter continue judge risk baseline projection real activity skew downside note supply chain bottleneck russia war ukraine weak incoming datum spending tightening financial condition start year support assessment view risk inflation projection skewed upside give persistent upward surprise see inflation datum possibility inflation expectation unanchored result large increase actual inflation past year risk supply condition improve baseline projection assume participant view current conditions economic outlook economic condition participant note indicator spending production soften nonetheless job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure participant recognize russia war ukraine cause tremendous human economic hardship participant judge war related event create additional upward pressure inflation weigh global economic activity background participant state highly attentive inflation risk regard economic activity participant note consumer expenditure housing activity business investment manufacturing production decelerate robust rate growth see labor market remain strong participant observe indicator spending production suggest year see broad base softening economic activity participant remark slowing particularly housing sector reflect emerge response aggregate demand tightening financial condition associate ongoing firming monetary policy unwinding large scale support consumer spending provide pandemic relate fiscal policy action inflation induce reduction real disposable income demand product elevated level see early stage pandemic lead slow growth household expenditure addition deterioration foreign economic outlook strong dollar contribute weakening external demand participant anticipate u.s. real gdp expand half year expect growth economic activity trend pace period ahead response aggregate demand tight financial condition strong broad base participant note period trend gdp growth help reduce inflationary pressure set stage sustained achievement committee objective maximum employment price stability household sector participant comment see sign datum hearing report business contact slow growth consumer spending aggregate balance sheet household sector strong unemployment rate low consumer sentiment deteriorate household reportedly cautious expenditure decision light uncertainty economic outlook reduction purchase power induce price rise particularly increase price essential food housing transportation participant observe housing activity weaken notably reflect impact high mortgage interest rate house price home affordability participant anticipate slowdown housing activity expect high borrowing cost lead slowing interest sensitive household expenditure purchase durable good respect business sector participant note investment spending decline addition business survey datum information receive contact indicate manufacturing order production fall district heighten uncertainty concern inflation tight financial condition cutback consumer spending lead firm downgrade economic prospect participant note contact report business process reevaluate capital expenditure plan participant state contact report degree short term momentum business activity arise exist order implementation expansion plan tightening financial condition participant indicate business contact assess demand supply begin come well balance contact area continue major supply chain disruption anticipate indicate sign improvement supply condition area participant observe labor market remain strong unemployment rate low job vacancy quit close historically high level elevated rate nominal wage growth participant note tentative sign soften outlook labor market sign include increase weekly initial unemployment insurance claim reduction quit rate vacancy slow growth payroll early year report cutback hire sector addition nominal wage growth remain strong accord wide range measure sign leveling edge district contact suggest labor demandâsupply imbalance diminish firm successful hire retain worker pressure raise wage participant note contribution increase labor supply reduce labor market imbalance limit especially scope labor force participation pick constrain ongoing movement large baby boom cohort retirement year highlight factor hold participation wane future continue pandemic relate concern participant observe tight financial condition associated moderation growth aggregate demand growth employment slow period ahead note development help bring labor demand supply well balance reduce upward pressure nominal wage growth aid return inflation percent participant observe moderation labor market condition lag slowdown economic activity participant remark moderation labor market condition involve decline number job opening moderate increase unemployment low rate couple participant indicate firm keen retain workersâa factor limit increase layoff associate slow labor market participant note indicator spending production point underlying strength economic activity suggest indicator labor market activity employment growth strong weakening spend datum imply unusually large negative reading labor productivity growth year far participant remark strength labor market suggest economic activity strong imply gdp datum participant raise possibility discrepancy ultimately resolve gdp revise upward participant observe labor market tight indicator suggest note datum provide payroll processor adp employment report household survey imply soft labor market suggest robust growth payroll employment report establishment survey participant observe inflation remain unacceptably high committee long run goal percent light high cpi read june participant note pce inflation increase month participant observe inflationary pressure broad base pattern reflect large month increase trim mean cpi core cpi measure participant remark decline gasoline price help produce low headline inflation rate short term decline price oil commodity rely provide basis sustained low inflation price quickly rebound participant note high cost living especially great burden low- middle income household participant agree little evidence date inflation pressure subside judge inflation respond monetary policy tightening associated moderation economic activity delay stay uncomfortably high time participant observe product category rate price increase pick short run sizable additional increase residential rental expense especially participant note supply bottleneck continue contribute price pressure sign gradual improvement supply situationâinclude improve availability certain key material upward pressure input price decline delivery time contact report substantial continue challenge participant judge considerable time supply constraint resolve suggest resolution supply difficulty long previously assess participant stress improvement supply helpful rely resolve supply demand imbalance economy sufficiently rapidly participant emphasize slowing aggregate demand play important role reduce inflation pressure expect appropriate firming monetary policy eventual easing supply demand imbalance bring inflation level consistent committee long run objective long term inflation expectation anchor participant discuss number factor helpful bring inflation percent addition committee ongoing policy firming anchor long term inflation expectation include competitive pressure restrain price increase apparent absence wageâprice spiral tightening monetary policy abroad impact appreciation dollar import price continue commodity price development potential source upward pressure inflation participant note expectation inflation important influence behavior actual inflation stress move appropriately restrictive stance policy essential avoid unanchoring inflation expectation unanchoring achieve committee statutory objective maximum employment price stability difficult assess state inflation expectation participant note reading market base measure inflation compensation consistent long term inflation expectation remain anchor near percent judge behavior long term inflation expectation partly actual expected firming monetary policy reflect downward revision growth aggregate demand expect coming year addition participant assess committee ongoing monetary policy tightening help alleviate concern market participant wage price setter elevated inflation entrenched participant observe reading survey measure inflation expectation consistent committee percent long run inflation objective participant note household survey indicate increase divergence view long run rate inflation risk participant emphasize highly attentive inflation risk closely monitor development inflation inflation expectation uncertainty medium term course inflation remain high balance inflation risk remain skewed upside participant highlight possibility supply shock arise commodity market participant see risk outlook real gdp growth primarily downside downside risk include possibility tightening financial condition large negative effect economic activity anticipate pandemic relate economic disruption geopolitical global economic development lead additional adverse economic financial disturbance participant comment issue relate financial stability note balance asset valuation ease elevated level month high level capital liquidity banking system healthy household balance sheet adoption strong mortgage underwriting standard follow global financial crisis cite factor foster financial stability environment participant note financial market liquidity low area market functioning nonetheless orderly participant emphasize importance avoid complacency assess financial vulnerability amid change economic financial landscape need look broad range possible outcome include scenario involve elevated inflation rise interest rate assess financial vulnerability stability participant comment financial stability challenge pose digital asset note asset include stablecoin subject vulnerabilitiesâsuch run fire sale excessive leverageâsimilar associate traditional asset turmoil digital asset market spread asset class participant see digital asset rise importance grow interconnectedness segment financial system underscore need establish robust supervisory regulatory framework industry appropriately limit potential systemic risk participant mention need strengthen oversight regulation certain type nonbank financial institution participant note capital large bank decline quarter participant emphasize important large bank strong capital position appropriate setting regulatory supervisory tool help deliver outcome couple participant highlight potential role usage countercyclical capital buffer play context consideration appropriate stance monetary policy participant concur labor market tight inflation far committee percent inflation objective participant note indicator spending production soften contrast job gain robust unemployment rate remain low backdrop participant agree appropriate raise target range fund rate basis point process reduce federal reserve security holding describe plan reduce size federal reserve balance sheet committee issue participant observe follow policy rate hike nominal fund rate range estimate long run neutral level inflation elevate expect near term participant emphasize real fund rate shorter run neutral level policy rate hike discuss potential policy action upcoming meeting participant continue anticipate ongoing increase target range fund rate appropriate achieve committee objective inflation remain committee objective participant judge move restrictive stance policy require meet committee legislative mandate promote maximum employment price stability participant concur pace policy rate increase extent future policy tightening depend implication incoming information economic outlook risk outlook participant judge stance monetary policy tighten appropriate point slow pace policy rate increase assess effect cumulative policy adjustment economic activity inflation participant indicate policy rate reach sufficiently restrictive level appropriate maintain level time ensure inflation firmly path percent participant concur expeditiously raise policy rate committee act resolve lower inflation percent anchor inflation expectation level consistent long run goal participant note committee credibility regard bring inflation percent objective forceful policy action communication contribute notable tightening financial condition help reduce inflation pressure restrain aggregate demand participant point evidence suggest policy action communication future path fund rate start affect economy visibly interest sensitive sector participant judge bulk effect real activity feel lag associate transmission monetary policy moderation economic growth support return inflation percent effect policy firming consumer price apparent datum number participant posit effect policy action communication show rapidly historically case expeditious removal policy accommodation support communication lead significant tightening financial condition light elevated inflation upside risk outlook inflation participant remark move restrictive stance policy rate near term appropriate risk management perspective well position committee raise policy rate appropriately restrictive level inflation run high expect participant judge significant risk face committee elevated inflation entrenched public begin question committee resolve adjust stance policy sufficiently risk materialize complicate task return inflation percent raise substantially economic cost participant remark constantly change nature economic environment existence long variable lag monetary policy effect economy risk committee tighten stance policy necessary restore price stability participant highlight risk underscore importance committee data dependent approach judge pace magnitude policy firm come quarter participant reaffirm strong commitment return inflation committee percent objective participant agree return inflation percent objective necessary sustain strong labor market participant remark time inflation committee objective participant add course inflation influence nonmonetary factor include development associate russia war ukraine supply chain disruption participant recognize policy firming slow pace economic growth see return inflation percent critical achieve maximum employment sustained basis committee policy action monetary policy member agree indicator spending production soften member concur nonetheless job gain robust month unemployment rate remain low member agree inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure describe source elevated inflation member judge pertinent add reference high food price statement notable rise price importance food item household budget member concur russia war ukraine cause tremendous human economic hardship agree war related event create additional upward pressure inflation weigh global economic activity member remark remain highly attentive inflation risk amid evidence covid relate lockdown china lift affect supply chain modestly member consider appropriate omit july statement sentence appear june statement indicate lockdown exacerbate supply chain disruption assessment monetary policy stance necessary achieve committee maximum employment price stability goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition member agree committee reduce federal reserve holding treasury security agency debt agency mbs describe plan reduce size federal reserve balance sheet issue member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate event risk emerge impede attainment committee goal concur assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member affirm committee strongly commit return inflation percent objective conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective july federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month july august exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap start calendar month september roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month july august exceed cap month start calendar month september reinvest agency mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator spending production soften nonetheless job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure russia war ukraine cause tremendous human economic hardship war related event create additional upward pressure inflation weigh global economic activity committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee reduce holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective july board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective july agree committee hold tuesdayâwednesday september 20â21 adjourn 10:35 a.m. july notation vote notation vote complete july committee unanimously approve minute committee hold june 14â15 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text elect alternate federal reserve bank new york effective july return text attend development financial market open market operation return text attend tuesday return text attend economic financial situation end wednesday return text take action board approve request establish rate submit board director federal reserve banks boston new york philadelphia cleveland richmond atlanta chicago dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later july date reserve banks inform secretary board request secretary subsequently federal reserve banks st. louis minneapolis kansas city inform board approval establishment primary credit rate percent effective july return text

minute federal open market committee september joint federal open market committee board governors federal reserve system hold office board governors tuesday september 1:00 p.m. continue wednesday september 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller charles evans patrick harker neel kashkari lorie logan helen mucciolo alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed joseph gruber carlos garriga william wascher associate economists patricia zobel manager pro tem system open market account jose acosta senior communications analyst division information technology board david altig executive vice president federal reserve bank atlanta kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board james bergin deputy general counsel federal reserve bank new york camille bryan senior project manager division monetary affairs board michele cavallo principal economist division monetary affairs board stephanie curcuru deputy director division international finance board marnie gillis deboer senior associate director division monetary affairs board sarah devany vice president federal reserve bank san francisco michael dotsey executive vice president federal reserve bank philadelphia burcu duygan bump special adviser board division board members board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board jon faust senior special adviser chair division board members board andrew figura associate director division research statistics board glenn follette associate director division research statistics board joshua gallin senior special adviser chair division board members board michael gibson director division supervision regulation board luca guerrieri deputy associate director division financial stability board diana hancock senior associate director division research statistics board valerie hinojosa section chief division monetary affairs board matteo iacoviello senior associate director division international finance board jane ihrig special adviser board division board members board callum jones senior economist division monetary affairs board edward knotek senior vice president federal reserve bank cleveland sylvain leduc executive vice president federal reserve bank san francisco andreas lehnert director division financial stability board paul lengermann assistant director division research statistics board kurt lewis special adviser board division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board jonathan mccarthy economic research advisor federal reserve bank new york ann misback secretary office secretary board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board giovanni olivei senior vice president federal reserve bank boston anna paulson executive vice president federal reserve bank chicago karen pence deputy associate director division research statistics board andrea raffo senior vice president federal reserve bank minneapolis linda robertson assistant board division board members board jeremy rudd senior adviser division research statistics board achilles sangster senior information manager division monetary affairs board john schindler special adviser board division board members board samuel schulhofer wohl senior vice president federal reserve bank dallas seth searls associate director federal reserve bank new york nitish sinha special adviser board division board members board john stevens senior associate director division research statistics board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board paul wood special adviser board division board members board nathaniel wuerffel head domestic markets federal reserve bank new york rebecca zarutskie special adviser board division board members board andrei zlate group manager division monetary affairs board developments financial markets open market operations manager pro tem turn financial market development intermeete period u.s. financial condition tighten period reflect upward revision investor outlook path policy rate treasury yield climb substantially upward reflect real yield equity price initially rise amid earning report well fear later retrace gain response shift policy outlook international development yield advanced foreign economy afes rise sharply number bank lift policy rate indicate communication tighten monetary policy order address inflation pressure exchange value dollar appreciate notably reach multidecade high real term market participant perceive mount economic challenge abroad market imply path fund rate shift sharply high market participant interpret federal reserve communicationsâparticularly provide jackson hole symposiumâalong incoming datum indicate restrictive path policy previously expect policy sensitive rate suggest basis point increase target range fund rate widely expect decide committee september chance basis point addition market imply path suggest reasonable odd additional basis point basis point rate increase november december meeting respectively market participant anticipate slowing pace rate increase december peak policy rate reach half period market imply path fund rate slop downward reflect downside risk policy rate path median respondent open market desk survey expect policy rate path flat peak rate reach average desk survey respondent assign percent probability decline real gross domestic product gdp nearly double probability assign july survey manager pro tem turn policy implementation balance sheet runoff continue proceed smoothly intermeete period cap redemption treasury security agency mortgage back security mbs double september pace balance sheet runoff set increase coming month market treasury security agency mbs continue function orderly manner liquidity condition market remain low reflect elevated interest rate uncertainty money market basis point increase target range july pass fully overnight rate amid strong demand short term investment overnight reverse repurchase agreement rrp facility relatively steady elevated level continue anticipate rrp decline come quarter currently elevated level money market participant respond shift condition issuance short term security increase coming period clarity emerge economic policy outlook demand short term asset moderate development ease downward pressure yield safe short term investment gradual reduction rrp balance facilitate rise competition bank seek deposit manager pro tem indicate monitor money market development closely order friction emerge process manager pro tem conclude update operational matter expect federal reserve net income turn negative september expect size associate deferred asset increase time net income turn positive year desk plan begin aggregation agency mbs hold system open market account soma eligible commingle uniform mbs specifically freddie mac mbs issue june day payment delay decision additional aggregation later date unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time september 20â21 suggest u.s. real gdp increase modest pace have decline half year labor demand remain strong labor market continue tight recent monthly reading indicate consumer price inflationâas measure month percentage change price index personal consumption expenditure pce)âremaine elevated total nonfarm payroll employment post robust gain july august average pace slightly see half year unemployment rate edge net percent june percent august unemployment rate african americans increase period rate hispanics move slightly net rate noticeably high national average labor force participation rate employment population ratio rise net june august private sector job opening rate measure job openings labor turnover survey move slightly low july remain high level nominal wage growth continue rapid broad base average hourly earning rise percent month end august employment cost index hourly compensation private sector include benefit cost rise percent month end june percentage point fast year early pace consumer price inflation remain elevated total pce price inflation percent month end july core pce price inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent july august 12âmonth change consumer price index cpi percent core cpi inflation percent period survey base measure short run inflation expectation decline week measure long term inflation expectation remain roughly stable move low available spending indicator include august retail sale suggest real pce track post modest gain late housing market datum point sharp contraction residential investment business fix investment appear rise tepid pace real good export step june rise july lead increase export industrial supply contrast real good import step june fall sharply july drive large decline consumer good import export import service continue hold incomplete recovery international travel nominal u.s. international trade deficit continue narrow june july altogether net export contribute positively gdp growth appear track positive contribution datum point weak foreign growth month weigh global reverberation russia war ukraine loss momentum chinese economy europe disruption supply energy exacerbate decline real disposable income consumer business confidence restrain economic activity china indicator partial rebound effect early severe covid-19 relate lockdown increase concern property sector weak growth china broad global economy weigh export orient emerge market economy asia consumer price inflation rise august foreign economy reflect past increase energy food price continue broadening inflationary pressure core price inflation persistently high bank continue tighten monetary policy staff review financial situation intermeete period u.s. treasury yield market imply fund rate path move higher broad domestic equity price index decrease slightly balance market volatility remain elevated credit remain widely available type borrower increase borrowing cost appear damp demand credit market month measure loan performance business household remain stable recently expectation future credit quality business deteriorate slightly delinquency rate rise type credit owe household low credit score expect path fund rateâimplie straight read financial market quotesârose period july fomc reflect restrictive expect monetary policy communication amid strong expect economic datum ongoing concern high inflation net nominal treasury yield increase significantly maturity spectrum increase nominal treasury yield primarily account rise real yield inflation compensation measure decline substantially short horizon remain relatively little change medium- long term horizon broad equity price index decrease slightly net substantial early gain arise investor improved perception inflation outlook well fear earning offset later loss arise expectation committee follow restrictive policy previously expect oneâmonth option imply volatility s&p 500âthe vixâincrease somewhat net remain elevate historical norm partly reflect investor uncertainty risk associate high inflation expect restrictive policy stance corporate bond spread narrow slightly net remain roughly midpoint historical distribution reflect increase policy rate corporate bond spread yield corporate bond rise significantly start year municipal bond spread comparable maturity treasury yield widen touch condition short term funding market remain stable intermeete period july increase federal reserve administer interest rate pass quickly money market rate secure overnight rate firm slightly later intermeete period remain soft relative rrp offer rateâa configuration market participant attribute relatively low treasury bill supply combine strong investor demand short date instrument amid uncertainty future path policy rate consistent continue softness repurchase agreement rate daily rrp facility remain elevated spread lower rat short term commercial paper change little net bank deposit rate continue increase modestly august follow lag response increase fund rate money market mutual fund net yield rise increase short term rate sovereign yield afe rise notably intermeete period major bank raise policy rate communicate tight stance future policy face persistent inflationary pressure yield japanese government security end period little change bank japan reaffirm accommodative monetary policy stance measure foreign inflation compensation volatile amid large swing european natural gas price increase moderately net u.s. dollar appreciate major currency reach multi decade high euro british pound japanese yen dollar strength reflect increase investor concern global growth outlook widen interest rate differential united states japan growth concern weigh foreign equity price decline moderately outflow fund dedicate emerge market continue modest pace credit spread emerge market economy narrow somewhat net domestic credit market borrowing cost continue rise intermeete period yield corporate bond institutional leverage loan increase bank interest rate commercial industrial c&i commercial real estate cre loan increase small business borrow regular basis share firm face high borrowing cost continue climb august municipal bond yield increase rating category borrowing cost residential mortgage loan increase reach high level interest rate credit card account continue higher line rise fund rate auto loan interest rate rise steadily august credit remain available business household high borrowing cost appear reduce demand credit result low financing volume market issuance nonfinancial corporate bond slow july weak level see rebound somewhat august far september gross institutional leveraged loan issuance increase modestly july subdued level continue weak august equity issuance remain depressed issuance municipal bond sluggish summer far september accord july senior loan officer opinion survey bank lending practices bank tighten credit standard c&i lending time year c&i loan bank balance sheet expand strong pace july august reflect strong demand nonfinancial business cre loan bank balance sheet continue grow robustly issuance commercial mortgage back security cmbs slow july strong pace early year credit availability small business appear tighten somewhat share small firm report difficult obtain loan continue upward trend august remain low historical average credit residential mortgage market remain available high credit score borrower credit availability low credit score borrower continue ease july remain modestly tightâclose pre pandemic average volume home purchase refinance mortgage origination plunge july amid rise mortgage rate consumer credit remain available household june july half respondent federal reserve bank new york survey consumer expectations indicate hard obtain credit year early expect hard year credit quality nonfinancial corporation remain strong low default rate corporate bond leveraged loan volume rating upgrade corporate bond market outpace downgrade july august far september relative volume reverse volume rating downgrade leveraged loan market continue exceed upgrade credit quality c&i cre loan bank balance sheet remain sound delinquency rate remain low level june bank increase loan loss provision somewhat delinquency rate cre loan securitize cmbs remain unchanged july delinquency rate small business loan stay low edge credit quality municipal security remain strong household credit quality stay solid continue worsen type credit owe borrower low credit score mortgage delinquency trend month share mortgage foreclosure remain low july contrast credit card auto credit delinquency rate rise particularly subprime borrower subprime auto loan delinquency rate rebound notably slightly historical average staff economic outlook projection u.s. economic activity prepare september fomc slightly weak july forecast estimate potential output history revise significantly response continue disappointing productivity growth sluggish gain labor force participation see far year low trajectory potential output expect persist forecast period result estimate output gap revise considerably year projection output gap close coming year level output expect slightly potential end likewise unemployment rate expect rise slowly july projection slightly estimate natural rate end month change basis total pce price inflation expect percent core inflation expect percent continue project core inflation step yearsâreflecte anticipated resolution supplyâdemand imbalance labor market expect tightâcore inflation revise year projection core inflation expect percent total pce price inflation expect decline percent core inflation slow energy price decline total pce inflation expect percent percent continue judge risk baseline projection real activity skewed downside addition russia war ukraine weakening activity abroad ongoing supply chain bottleneck possibility persistent reduction inflation require great assume tightening financial condition view salient downside risk forecast real activity view risk inflation projection skewed upside ground supply condition improve expect energy price rise sharply point possibility wage increase great expect upward pressure price inflation possibility inflation expectation unanchore give large rise inflation see past year additional upside risk inflation forecast participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion economic condition participant note indicator point modest growth spending production job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure participant recognize russia war ukraine cause tremendous human economic hardship participant judge war related event create additional upward pressure inflation weigh global economic activity background participant remain highly attentive inflation risk regard economic outlook participant note datum point modest growth economic activity half year participant observe indicator consumer spending business investment suggest modest increase spend category note activity interest sensitive sector weaken appreciably participant revise projection real gdp growth year projection june participant note continued strength labor market datum gross domestic income raise possibility gdp datum understate strength economic activity year participant anticipate u.s. economy grow trend pace come year labor market tight monetary policy assume restrictive stance global headwind persist participant note period trend real gdp growth help reduce inflationary pressure set stage sustained achievement committee objective maximum employment price stability household sector participant note consumer spending grow moderately reflect strength labor market elevated level household saving accumulate pandemic strong aggregate household sector balance sheet participant note spending appear hold relatively especially high income household participant note composition spending low moderate income householdsâwho affect great degree high food energy shelter pricesâwas change discretionary expenditure cut purchase shift low cost option participant observe notable slowdown residential investment interest sensitive spending continue reflect effect committee monetary policy action tight financial condition regard business sector participant observe growth investment spending appear modest participant mention manufacturing activity slow couple participant note business constrain undertake capital project face high financing cost persistent challenge associate supply bottleneck hire difficulty result continue tightness labor market participant discuss perceive challenge supply condition evolve participant remark business contact report sign relief supply bottleneck decline shipping cost delivery time rise inventory participant see little improvement supply situation participant see supply bottleneck continue long couple comment constraint production increasingly take form labor shortage part shortage participant observe labor market remain tight evidence historically low unemployment rate elevated job vacancy quit rate low pace layoff robust employment gain high nominal wage growth participant remark employer face particularly acute labor shortage associate professional occupation service industry skilled trade small firm participant note number development consistent labor market move well balance include low rate job turnover moderation employment growth increase labor force participation rate prime age worker participant assess scope improvement labor force participation limit especially sizable contribution retirement previous decline participation rate participant anticipate supply demand imbalance labor market gradually diminish unemployment rate rise somewhat importantly reflect effect tight monetary policy participant judge softening labor market need ease upward pressure wage price participant expect transition soft labor market accompany increase unemployment rate comment consider transition occur primarily reduce job vacancy slow job creation couple participant remark light challenge hire business willing reduce staffing level event weakening general economic activity participant particularly stress high uncertainty associate expect future path unemployment rate comment unemployment rate rise considerably forecast participant observe inflation remain unacceptably high committee long run goal percent participant comment inflation datum come expectation correspondingly inflation decline slowly previously anticipate price pressure remain elevated persist broad array product category energy price decline month remain considerably high upside risk energy price remain participant note continue elevated rate increase core good price participant consider development potentially indicate shift household spending good service have small effect good price expect supply bottleneck labor shortage take long resolve participant comment expect inflation pressure persist near term numerous contribute factor cite support include labor market tightness result upward pressure nominal wage continue supply chain disruption persistent nature increase service price particularly shelter price respect medium term participant judge inflation pressure gradually recede coming year factor cite contribute outcome include committee tightening policy stance gradual easing supply demand imbalance labor product market likelihood weak consumer demand result reduction business profit margin elevated level participant report business contact certain retail sectorsâsuch car apparelâwere plan cut price order help reduce inventory participant comment household income distribution burden elevated inflation low end income distribution particularly harm large share income spend housing necessity assess inflation expectation participant note long term expectation appear anchored reflect broad range survey household business forecaster measure obtain financial market participant remark committee affirmation strong commitment price stability objective forceful policy action help long run inflation expectation anchor stress prolonged period elevated inflation increase risk inflation expectation unanchore make costly bring inflation participant discuss increase dispersion long term inflation expectation respondent survey increase number respondent report relatively low expectation future inflation acknowledge key driver increase dispersion couple participant cite high inflation expectation survey respondent cause concern reason complacent long term inflation expectation remain anchor participant agree uncertainty associate economic outlook high risk inflation outlook weight upside participant note rise labor tension round global energy price increase disruption supply chain large expect pass wage increase price increase potential shock materialize compound challenge inflation problem number participant comment wageâprice spiral develop cite possible emergence risk participant judge risk real gdp growth weight downside global headwind prominently cite contribute factor global headwind include heighten risk recession europe slowdown economic activity occur china ongoing global economic implication russia war ukraine participant note monetary policy tightening way economy affect global financial market foreign real gdp growth potential spillover u.s. economy consideration appropriate stance monetary policy participant concur labor market tight inflation far committee percent inflation objective participant observe indicator production spending point modest growth job gain robust unemployment rate remain low backdrop participant agree appropriate raise target range fund rate basis point process reduce federal reserve security holding describe plan reduce size federal reserve balance sheet committee issue policymaker observe rate hike step make committee monetary policy stance sufficiently restrictive help ease supply demand imbalance bring inflation percent participant reaffirm strong commitment return inflation committee percent objective stress importance stay course labor market slow discuss potential policy action upcoming meeting participant continue anticipate ongoing increase target range fund rate appropriate achieve committee objective participant judge committee need maintain restrictive policy stance order meet committee legislative mandate promote maximum employment price stability participant note inflation committee percent objective show little sign far abating supply demand imbalance economy continue raise assessment path fund rate need achieve committee goal participant judge pace extent policy rate increase depend implication incoming information outlook economic activity inflation risk outlook participant note particularly highly uncertain global economic financial environment important calibrate pace policy tightening aim mitigate risk significant adverse effect economic outlook participant observe stance monetary policy tighten appropriate point slow pace policy rate increase assess effect cumulative policy adjustment economic activity inflation participant indicate policy rate reach sufficiently restrictive level appropriate maintain level time compelling evidence inflation course return percent objective participant note keep committee plan reduce size federal reserve balance sheet balance sheet runoff move maximum plan pace september pace observe significant reduction committee holding security progress process contribute restrictive policy stance couple participant remark process balance sheet reduction way appropriate committee sale agency mbs order enable suitable progress long run soma portfolio compose primarily treasury security assessment effect policy action communication date participant concur committee action raise expeditiously target range fund rate demonstrate resolve lower inflation percent inflation expectation anchor level consistent long run goal participant note committee commitment restore price stability purposeful policy action communication contribute notable tightening financial condition past year help reduce inflation pressure restrain aggregate demand participant observe tightening lead substantial increase real interest rate maturity spectrum participant remark al­though interest sensitive category spendingâsuch housing business fix investmentâhad start respond tightening financial condition sizable portion economic activity display response note inflation respond appreciably policy tightening significant reduction inflation lag aggregate demand participant observe period real gdp growth trend rate accompany soften labor market condition require agree move policy purposefully appropriately restrictive stance committee help ensure elevated inflation entrenched inflation expectation unanchored policy move prevent far great economic pain associate entrenched high inflation include tight policy severe restraint economic activity need restore price stability light broad base unacceptably high level inflation intermeete news high expect inflation upside risk inflation outlook participant remark purposefully move restrictive policy stance near term consistent risk management consideration participant emphasize cost take little action bring inflation outweigh cost take action participant underline need maintain restrictive stance long necessary couple participant stress historical experience demonstrate danger prematurely end period tight monetary policy design bring inflation participant observe policy move restrictive territory risk sided reflect emergence downside risk cumulative restraint aggregate demand exceed require bring inflation percent participant note possibility heighten factor committee action include tightening monetary policy stance abroad weaken global economic outlook restrain domestic economic activity period ahead committee policy action monetary policy member agree indicator point modest growth spending production member concur job gain robust month unemployment rate remain low member agree inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure member observe russia war ukraine cause tremendous human economic hardship agree war related event create additional upward pressure inflation weigh global economic activity member remark remain highly attentive inflation risk assessment monetary policy stance necessary achieve committee maximum employment price stability goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition member agree committee reduce holding treasury security agency debt agency mbs describe plan reduce size federal reserve balance sheet issue member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal note assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development member affirm committee strongly commit return inflation percent objective conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator point modest growth spending production job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure russia war ukraine cause tremendous human economic hardship war related event create additional upward pressure inflation weigh global economic activity committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent anticipate ongoing increase target range appropriate addition committee reduce holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective september board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective september agree committee hold tuesdayâwednesday november 1â2 adjourn 10:20 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july 26â27 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text absence manager committee rules organization provide deputy manager act manager pro tem return text attend tuesday return text attend development financial market open market operation return text attend economic financial situation end wednesday return text take action board approve request establish rate submit board director federal reserve banks boston philadelphia cleveland richmond atlanta chicago st. louis kansas city dallas vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later september date reserve banks inform secretary board request secretary subsequently federal reserve banks new york minneapolis san francisco inform board approval establishment primary credit rate percent effective september return text

minute federal open market committee november joint federal open market committee board governors federal reserve system hold office board governors tuesday november 10:30 a.m. continue wednesday november 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller charles evans patrick harker neel kashkari lorie logan helen mucciolo alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed brian doyle carlos garriga joseph gruber david lebow ellis tallman william wascher associate economists patricia zobel manager pro tem system open market account jose acosta senior communications analyst division information technology board gene amromin vice president federal reserve bank chicago alyssa arute manager division reserve bank operations payment systems board kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board james bergin deputy general counsel federal reserve bank new york david bowman senior associate director division monetary affairs board isabel cairó principal economist division monetary affairs board mark carlson adviser division monetary affairs board michele cavallo principal economist division monetary affairs board satyajit chatterjee vice president federal reserve bank philadelphia daniel cooper vice president federal reserve bank boston stephanie curcuru deputy director division international finance board sally davies senior adviser division international finance board burcu duygan bump special adviser board division board members board rochelle edge deputy director division monetary affairs board eric engen senior associate director division research statistics board eric engstrom associate director division monetary affairs board jon faust senior special adviser chair division board members board andrew figura associate director division research statistics board glenn follette associate director division research statistics board etienne gagnon assistant director division monetary affairs board joshua gallin senior special adviser chair division board members board michael gibson director division supervision regulation board david glancy principal economist division monetary affairs board valerie hinojosa section chief division monetary affairs board matteo iacoviello senior associate director division international finance board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board andreas lehnert director division financial stability board kurt lewis special adviser board division board members board laura lipscomb special adviser board division board members board mark meder vice president federal reserve bank cleveland ann misback secretary office secretary board fernanda nechio vice president federal reserve bank san francisco edward nelson senior adviser division monetary affairs board michael palumbo senior associate director division research statistics board andrea raffo senior vice president federal reserve bank minneapolis julie ann remache policy market monitoring head federal reserve bank new york linda robertson assistant board division board members board argia sbordone research department head federal reserve bank new york samuel schulhofer wohl senior vice president federal reserve bank dallas chiara scotti special adviser board division board members board seth searls associate director federal reserve bank new york nitish ranjan sinha special adviser board division board members board paul smith deputy associate director division research statistics board gustavo suarez assistant director division research statistics board paula tkac senior vice president federal reserve bank atlanta jeffrey walker associate director division reserve bank operations payment systems board donielle winford information manager division monetary affairs board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board committee ethics discussion chair begin ethical standard acknowledge great privilege heavy responsibility come entrust policy decision agreement federal reserve effective foundation public trust participant reaffirm importance hold staff accountable know follow high ethical standard set committee policy include financial transaction disclosure external communication development financial markets open market operations manager pro tem turn financial market development united states period financial condition tighten amid elevated volatility financial market market imply path policy rate rise median fund rate value september summary economic projections federal reserve communication view market participant indicate commitment sustain restrictive monetary policy stance datum receive period indicate high expect core inflation market participant place high odd basis point increase target range nonetheless contact increasingly focused question committee slow pace future increase light substantial tightening financial condition occur year respondent open market desk survey view basis point increase target range fund rate december outcome net nominal treasury yield end period higher reflect upward revision expect path policy rate high estimate term premium investment grade bond yield mortgage interest rate move high level year manager pro tem turn volatility global financial market september expansionary budget announce u.k. government result extraordinary rise yield gilt long date u.k. government security reduce gilt market liquidity reflect financial stability objective bank england initiate temporary gilt purchase program design address disorderly market condition purchase subsequent cancellation announce expansionary u.k. budgetary measure result retracement early increase gilt yield elevated volatility international financial market contribute volatility u.s. core fix income market market u.s. treasury security measure market imply volatility approach pandemic era level spread yield agency mortgage back security mbs yield treasury security widen sharply reflect sensitivity spread increase volatility increase volatility appear contribute decline measure market liquidity core fix income market particular period associate u.k. volatility market functioning remain orderly foreign exchange value dollar appreciate period market participant perceive asian economy engage foreign exchange market intervention response rapid depreciation local currency case advanced economy monetary policy tightening way market participant focus communication perceive signal potentially slow pace policy rate increase period ahead manager pro tem turn development money market federal reserve operation usage overnight reverse repurchase agreement rrp facility remain fairly steady period surround end period ahead relative pace decline rrp facility balance balance depend importantly shift money market condition recent development include regard relationship rrp facility balance money market rate suggest time condition evolve manner lead fall usage rrp facility manager pro tem note money market condition change somewhat quickly lead year end normal factor treasury tax payment date december increase treasury general account balance year end position adjustment prospect require money market participant responsive shift liquidity condition plan ahead come period current market quote suggest expectation limited upward pressure domestic money market rate year end offshore dollar funding market premium associate borrowing dollar modestly high similar point previous year federal reserve net income reserve banks report defer asset total late h.4.1 statistical release reflect negative net income stem rise interest expense bank face negative net income unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time november 1â2 suggest u.s. real gross domestic product gdp increase moderate pace have decline half year labor market condition remain tight consumer price inflationâas measure 12âmonth percentage change price index personal consumption expenditure pce)âremaine elevate september total nonfarm payroll employment post solid gain somewhat slow pace see month unemployment rate decline percentage point percent unemployment rate african americans decline september percentage point national average unemployment rate hispanics decline level percentage point national measure labor force participation rate edge september employment population ratio unchanged private sector job opening rate measure job openings labor turnover survey move lower net july september remain high nominal wage growth continue rapid average hourly earning rise percent month end september employment cost index eci hourly compensation private sector include benefit cost rise percent period month change eci september noticeably low average pace see half year consumer price inflation remain elevated total pce price inflation percent month end september core pce inflation exclude change consumer energy price consumer food price percent period trim mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent september common inflation expectation index combine information indicator inflation expectation inflation compensation little change remain pre pandemic level real pce rise modestly residential investment drop business fix investment growth hold decline nonresidential structure investment government purchase rise have decline half year nominal u.s. international trade deficit narrow net export contribute positively real gdp growth real export step real import decline datum point weaken foreign economic activity month weigh economic fallout russia war ukraine headwind china tight financial condition advanced foreign economy high inflation disruption energy supply contribute decline real disposable income depressed consumer business confidence response fiscal authority europe japan announce package intend ease burden high inflation consumer business china datum indicate weak momentum economic activity deterioration property market weak global demand result pronounced slowdown manufacturing weigh activity export orient emerge market economy asia consumer price inflation rise october foreign economy reflect past increase energy food price continue broadening inflationary pressure core price response high inflation bank tighten monetary policy albeit slow pace case staff review financial situation intermeete period u.s. treasury yield market imply fund rate path move substantially high broad domestic equity price little change net amid high market volatility corporate bond yield increase notably rise borrowing cost appear slow volume financing credit market credit quality remain sound al­though sign deterioration lower rat borrower expect path fund rate imply straight read financial market quote rise notably intermeete period reflect restrictive expect monetary policy communication datum release point inflation move slowly previously expect net nominal treasury yield increase maturity spectrum increase nominal yield medium- long term horizon primarily account high real yield inflation compensation measure rise broad equity price index fall significantly early intermeete period inflation news monetary policy expectation main driver stock price movement equity price later rebound end period essentially unchanged net month option imply volatility s&p 500âthe vixâdecline slightly net remain upper end range mid-2020 condition short term funding market remain stable intermeete period september increase target range fund rate associate increase federal reserve administer rate pass quickly overnight money market rate secured market money market rate remain soft relative rrp offering rate attribute subdue treasury bill supply elevated demand treasury collateral investor demand short term asset amid uncertainty pace policy rate increase daily rrp facility remain elevated amid softness repurchase agreement rate money market fund net yield rise rise administer rate retail deposit rate increase modestly balance foreign asset price volatile intermeete period investor grapple combination deteriorate global growth outlook synchronous policy tightening undertake major bank response high inflation fiscal political development united kingdom add market volatility leave little net imprint balance sovereign bond yield advanced foreign economy rise modestly equity price mixed u.s. dollar appreciate major currency drive widen yield differential united states rest world deterioration foreign growth outlook japanese yen weaken dollar net japanese authority intervene support yen chinese renminbi depreciate significantly dollar continuation covid policy increase investor concern long term growth prospect weigh currency investor continue withdraw dedicated emerge market economy european fund amid increase u.s. treasury yield concern foreign economic growth domestic credit market borrowing cost continue rise intermeete period yield corporate bond institutional leverage loan increase bank interest rate commercial industrial c&i loan continue upward trend observe rise proportion small business report face increase borrowing cost september municipal bond yield increase rating category residential mortgage rate rise period follow september fomc nearly reach high level interest rate exist credit card account continue trend upward reflect increase fund rate quickly pass prime rate credit continue available business household despite sign tighten lending standard certain segment high borrowing cost reduce demand credit market issuance corporate bond al­though strong early september slow significantly late september october gross institutional leveraged loan issuance decline september equity issuance gross issuance municipal bond remain weak september october business loan bank continue expand september slow pace observe past month october senior loan officer opinion survey bank lending practices sloos bank report have tighten c&i commercial real estate cre lending standard previous month issuance commercial mortgage back security cmbs slow amid high spread credit appear available small business share small firm report difficult obtain loan month ago continue upward trend september credit remain available residential mortgage market borrower able pay high interest rate number home purchase refinance mortgage origination flat august september significantly late year consumer credit remain available borrower july august auto credit credit card credit grow robust pace bank october sloos report approve auto credit card loan subprime near prime borrower compare early year credit quality nonfinancial corporation show sign deterioration sector remain solid volume corporate bond rating upgrade roughly par downgrade september upgrade concentrate investment grade segment speculative grade segment downgrade outpace upgrade market imply expectation default year increase markedly default rate corporate bond leveraged loan rise slightly low level credit quality c&i cre loan bank balance sheet remain sound delinquency rate cre loan non agency cmbs pool tick september indicator future payment stress delinquency rate small business loan remain low credit quality municipal security remain strong credit quality household appear solid delinquency residential mortgage loan continue trend share mortgage foreclosure august remain close pre pandemic level available datum indicate credit card auto credit delinquency rate continue rise delinquency auto loan near pre pandemic level credit card remain pre pandemic level provide update assessment stability financial system note respondent federal reserve bank new york survey near term risk judge economic financial geopolitical risk rise globe amid weak outlook high interest rate price risky asset fall real estate valuation remain elevated household borrowing moderate mortgage performance remain strong nonfinancial business leverage continue decline interest coverage ratio continue increase increase borrowing cost pose risk borrower ability service debt financial sector result year stress test demonstrate large bank resilient substantial economic downturn indicator elevated leverage hedge fund nonbank financial institution short term funding market continue structural vulnerability funding risk domestic bank remain low prime money market fund cash investment vehicle open end mutual fund stablecoin continue susceptible disruptive redemption staff economic outlook projection u.s. economic activity prepare november fomc weak september forecast broad financial condition expect considerably restrictive projection period september reflect market move upward revision assumption future course monetary policy base federal reserve communication result output expect estimate potential early potential likewise unemployment rate expect estimate natural rate 12âmonth change basis total pce price inflation expect percent core inflation expect percent raise projection core pce price inflation come quarter reflect assessment factor boost inflation middle yearâmost notably strong wage growth effect supply constraint pricesâwould persist long previously think effect supplyâdemand imbalance good market expect unwind labor product market expect tight continue project inflation decline markedly year total core pce price inflation expect percent inflation remain stubbornly high continue risk inflation projection skewed upside real activity sluggish growth real private domestic spending deteriorate global outlook tighten financial condition see salient downside risk projection real activity addition possibility persistent reduction inflation require great assume tightening financial condition see downside risk continue judge risk baseline projection real activity skew downside view possibility economy enter recession year baseline participant view current conditions economic outlook economic condition participant note indicator point modest growth spending production nonetheless job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure participant recognize russia war ukraine cause tremendous human economic hardship war related event create additional upward pressure inflation weigh global economic activity background participant continue highly attentive inflation risk regard economic activity near term outlook participant observe al­though real gdp rebound datum suggest economic activity near term appear expand pace trend growth rate participant note softening consumer business spending growth participant remark notable slowing interest rate sensitive sector particularly housing response tightening financial condition associate committee policy action inflation remain far high show sign moderate participant observe period trend real gdp growth helpful bring aggregate supply aggregate demand well balance reduce inflationary pressure set stage sustained achievement committee objective maximum employment price stability household sector participant note growth consumer spending soften recently participant remark reduction discretionary expenditure especially lower- middle income household purchase shift low cost option participant observe aggregate household sector balance sheet strong factor support consumer spending participant note household run additional saving accumulate pandemic report rise number household experience financial strain participant comment high mortgage interest rate notably restrain housing activity regard business sector participant note growth investment spending modest participant observe business investment weigh tight financial condition participant report business contact indicate investment spending resilient participant mention report receive business contact ease supply bottleneck reflect decline shipping cost delivery time report extent improvement vary contact participant remark instance supply constraint ease business contact find easy plan production diminish need maintain precautionary inventory couple participant note drought condition midwest make waterway notably mississippi river system navigable condition create supply constraint put upward pressure transportation cost price farm product participant observe inflation elevate globally bank tighten monetary policy simultaneously contribute tightening global financial condition participant note tightening global financial condition energy price headwind contribute slowdown growth rate global real gdp participant remark foreign economic slowdown combination strong u.s. dollar weigh u.s. export sector participant comment wide spillover u.s. economy participant observe labor market remain tight unemployment rate near historically low level number job vacancy high low pace layoff robust employment gain elevate nominal wage growth participant remark employer certain sector health care leisure hospitality construction face particularly acute labor shortage shortage contribute especially strong wage pressure sector participant comment labor market have remain strong date alongside slowing economic activity number participant remark business keen retain worker experience labor shortage hire challenge participant note consideration limit layoff broad economy soften behavior limit layoff aggregate economic activity soften participant note tentative sign labor market move slowly well balance supply demand sign include low rate job turnover moderation nominal wage growth participant anticipate imbalance labor market gradually diminish unemployment rate rise somewhat low level vacancy fall participant agree inflation unacceptably high committee long run goal percent participant note burden high inflation fall disproportionally low income household necessity like food energy shelter large share expenditure participant observe price pressure increase service sector historically price pressure sector persistent good sector participant note high pace nominal wage growth take low pace productivity growth sustain inconsistent achievement percent inflation objective participant comment sign moderation nominal wage growth participant agree near term inflation pressure high note low commodity price expect reduce pressure good price easing supply constraint contribute low inflation medium term participant remark rent increase lease slow month participant note time development pce inflation participant summarize report provide business contact firm ability pass high input cost customer report suggest firm continue solid pricing power case cost pass difficult participant remark measure medium- long term inflation expectation obtain survey household business financial market quote appear remain anchor couple participant observe long term inflation expectation stable measure near term inflation expectation respond realize inflation line historical pattern participant note long term inflation expectation important influence inflation behavior stress committee ongoing monetary policy tightening essential ensure expectation remain anchor participant express concern long inflation remain percent goal great risk long term inflation expectation unanchored development materialize costly bring inflation achieve committee statutory objective maximum employment price stability couple participant discuss high dispersion long term inflation expectation respondent survey participant note high dispersion signal increase uncertainty inflation outlook reason complacent long term inflation expectation remain anchor participant discuss length lag response economy monetary policy action take account historical experience estimate time relationship provide economic research high degree uncertainty involve apply evidence lag situation note monetary policy tightening typically produce rapid effect financial condition effect change financial condition aggregate spending labor market inflation take long materialize regard circumstance participant remark tightening monetary policy clearly influence financial condition notable effect interest rate sensitive sector timing effect economic activity labor market inflation uncertain extent effect realize participant observe difficulty isolate effect monetary policy change economic structure increase transparency time monetary policy decision historical record provide definitive evidence length lag addition participant note post pandemic dynamic economy differ prevail prior pandemic participant note uncertainty associate economic outlook high risk inflation outlook remain tilt upside participant observe inflation high persistent anticipate participant note risk energy price rise sharply amid geopolitical tension participant comment ongoing tightness labor market lead emergence wageâprice spiral develop number participant judge risk outlook economic activity weight downside global headwind prominently cite global headwind include slowdown economic activity occur china ongoing international economic implication russia war ukraine participant observe high inflation pressure prevail globally monetary policy tightening way economiesâa development affect foreign economic activity carry potential spillover u.s. economy issue relate financial stability participant note importance orderly functioning market u.s. treasury security transmission monetary policy financing need government operation global financial system participant observe despite elevated interest rate volatility indication strained liquidity condition functioning treasury security market orderly note value resilience market treasury security underline gilt market disruption united kingdom number participant discuss range issue consider appropriate authority market resilience include potential interaction capital liquidity regulation market activity oversight key market participant clearing settlement practice role structure federal reserve standing facility participant note importance prepared address disruption u.s. core market function way affect stance monetary policy especially episode monetary policy tightening participant note risk pose nonbank financial institution amid rapid global tightening monetary policy potential hide leverage institution amplify shock consideration appropriate monetary policy action participant concur inflation remain committee long run goal percent datum inflation provide sign inflation pressure abate economic expansion slow significantly year rapid pace indicator point modest growth spending production despite slowdown growth labor market remain extremely tight nominal wage growth remain elevated backdrop participant agree appropriate raise target range fund rate basis point process reduce federal reserve security holding describe plan reduce size federal reserve balance sheet committee issue participant observe policy rate hike step make committee monetary policy stance sufficiently restrictive help ease supply demand imbalance return inflation percent time effect monetary policy action communication date participant concur committee take forceful step moderate aggregate demand order bring well alignment aggregate supply financial condition tighten significantly response committee policy action effect clearly evident interest rate sensitive sector economy include residential investment component business investment participant comment monetary policy action communication help long term inflation expectation anchoredâa situation help facilitate return inflation committee long run goal percent realize inflation goal labor market tight participant agree ongoing increase target range fund rate appropriate help long term inflation expectation anchor participant note regard real economic activity inflation time effect monetary restraint realize lag complicate assessment effect monetary policy discuss potential policy action upcoming meeting participant reaffirm strong commitment return inflation committee percent objective continue anticipate ongoing increase target range fund rate appropriate order attain sufficiently restrictive stance policy bring inflation time participant comment significant uncertainty ultimate level fund rate need achieve committee goal assessment level depend incoming datum participant note inflation show little sign far abating supply demand imbalance economy persist assessment ultimate level fund rate necessary achieve committee goal somewhat high previously expect participant mention number consideration influence pace future increase target range fund rate consideration include cumulative tightening monetary policy date lag monetary policy action behavior economic activity inflation economic financial development number participant observe monetary policy approach stance sufficiently restrictive achieve committee goal appropriate slow pace increase target range fund rate addition substantial majority participant judge slowing pace increase soon appropriate slow pace circumstance well allow committee progress goal maximum employment price stability uncertain lag magnitude associate effect monetary policy action economic activity inflation reason cite assessment important participant comment slow pace increase reduce risk instability financial system participant note slow pace policy rate increase advantageous wait stance policy clearly restrictive territory concrete sign inflation pressure recede significantly monetary policy approach sufficiently restrictive stance participant emphasize level committee ultimately raise target range fund rate evolution policy stance important consideration achieve committee goal pace increase target range participant agree communicate distinction public important order reinforce committee strong commitment return inflation percent objective participant discuss number risk management consideration relate conduct monetary policy light continue broad base unacceptably high level inflation upside risk inflation outlook participant remark purposefully move restrictive policy stance consistent risk management consideration participant observe increase risk cumulative policy restraint exceed require bring inflation percent participant comment continue rapid policy tightening increase risk instability dislocation financial system wide agreement heighten uncertainty outlook inflation real activity underscore importance take account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development committee policy action monetary policy member agree indicator point modest growth spending production member concur job gain robust month unemployment rate remain low member agree inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure member observe russia war ukraine cause tremendous human economic hardship agree war related event create additional upward pressure inflation weigh global economic activity member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree raise target range fund rate percent member anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time member agree add language effect postmeete statement ground underscore committee sufficiently restrictive stance monetary policy need achieve dual mandate goal member agree determine pace future increase target range account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development member agree add language effect postmeete statement order convey explicitly range factor determine future monetary policy action addition member agree reduce federal reserve holding treasury security agency debt agency mbs describe plan reduce size federal reserve balance sheet issue member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective november federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator point modest growth spending production job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure russia war ukraine cause tremendous human economic hardship war related event create additional upward pressure inflation weigh global economic activity committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time determine pace future increase target range committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective november board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective november agree committee hold tuesdayâwednesday december 13â14 adjourn 10:30 a.m. november notation vote notation vote complete october committee unanimously approve minute committee hold september 20â21 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend opening remark tuesday return text take action board approve request establish rate submit boards director federal reserve banks boston cleveland richmond atlanta chicago st. louis minneapolis dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later november date reserve banks inform secretary board request secretary subsequently federal reserve banks new york philadelphia kansas city inform board approval establishment primary credit rate percent effective november return text

minute federal open market committee december 13â14 joint federal open market committee board governors federal reserve system hold office board governors tuesday december 10:00 a.m. continue wednesday december 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller charles evans patrick harker neel kashkari lorie logan helen mucciolo alternate members committee thomas barkin raphael bostic mary daly presidents federal reserve banks richmond atlanta san francisco respectively james clouse secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed carlos garriga joseph gruber william wascher associate economists patricia zobel manager pro tem system open market account jose acosta senior communications analyst division information technology board david altig executive vice president federal reserve bank atlanta roc armenter vice president federal reserve bank philadelphia kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board daniel beltran deputy associate director division international finance board ellen bromagen vice president federal reserve bank chicago jennifer burns deputy director division supervision regulation board mark carlson adviser division monetary affairs board todd clark senior vice president federal reserve bank cleveland stephanie curcuru deputy director division international finance board navtej dhillon special adviser board division board members board burcu duygan bump special adviser board division board members board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board eric engen senior associate director division research statistics board eric engstrom associate director division monetary affairs board jon faust senior special adviser chair division board members board glenn follette associate director division research statistics board joshua gallin senior special adviser chair division board members board jonathan goldberg principal economist division monetary affairs board erik heitfield deputy associate director division research statistics board valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board benjamin johannsen section chief division monetary affairs board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board elizabeth kiser associate director division research statistics board sylvain leduc executive vice president federal reserve bank san francisco andreas lehnert director division financial stability board paul lengermann assistant director division research statistics board eric lesueur policy market monitoring advisor federal reserve bank new york kurt lewis special adviser board division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board jonathan mccarthy economic research advisor federal reserve bank new york ann misback secretary office secretary board raven molloy deputy associate director division research statistics board norman morin deputy associate director division research statistics board michelle neal head markets federal reserve bank new york giovanni nicolò senior economist division monetary affairs board anna nordstrom capital markets trading head federal reserve bank new york marcelo ochoa principal economist division monetary affairs board giovanni olivei senior vice president federal reserve bank boston anna paulson executive vice president federal reserve bank chicago andrea raffo senior vice president federal reserve bank minneapolis linda robertson assistant board division board members board achilles sangster senior information manager division monetary affairs board anthony sarver senior financial institution policy analyst division monetary affairs board john schindler senior associate director division financial stability board samuel schulhofer wohl senior vice president federal reserve bank dallas seth searls policy market monitoring associate director federal reserve bank new york nitish ranjan sinha special adviser board division board members board clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board selection committee officer unanimous vote committee select richard ostrander serve deputy general counsel effective december regularly schedule committee development financial markets open market operations manager pro tem turn development financial market follow month tightening financial condition ease period investor concern global risk edge lower incoming datum show nascent sign moderation inflationary pressure central communication signal slow pace policy rate increase appear contribute improved sentiment measure imply volatility financial market decline somewhat elevated level observe october consistent decline volatility model base measure suggest drop term premium account decline treasury yield period equity market move higher equity market contact note risk growth ahead earning expectation come quarter mark foreign exchange market moderate concern potential highly elevated u.s. interest rate spur depreciation foreign exchange value dollar market development manager pro tem note failure prominent crypto asset exchange spillover situation significant crypto lender exchange collapse see pose broad market risk financial system outlook inflation united states inflation compensation imply treasury inflation protected securities decline period respond low expect consumer price index cpi datum sizable drop oil price desk survey base measure inflation expectation little change prior survey suggest fall inflation risk premium contribute move market- survey base measure continue point expectation moderation inflation come year outlook monetary policy market- desk survey base measure indicate expectation committee maintain elevated policy rate december survey median respondent modal expectation path fund rate shift higher basis point relative november survey survey base estimate expect policy path continue decline target range fund rate little change path anticipate november survey contrast market imply path fund rate shift percentage point period reflect decline risk premium manager pro tem turn operation money market assess balance sheet runoff proceed smoothly repurchase agreement repo rate firm modestly relative overnight reverse repurchase agreement rrp facility rate period balance sheet reduction reportedly contribute increase demand financing treasury security rrp balance decline net money market fund shift investment rrp facility reportedly favor high rate available repo market month bank continue increase use wholesale funding addition survey information suggest bank expect deposit rate modestly high relative target range coming month time great competition bank funding contribute drawdown rrp facility staff indicate monitor money market condition closely balance sheet reduction proceed look ahead year end market participant anticipate limited pressure manager pro tem note transitory pressure emerge money market federal reserve backstop facility available support effective policy implementation smooth market functioning unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time december 13â14 suggest u.s. real gross domestic product gdp increase modest pace expand strongly labor market condition ease somewhat october november remain tight consumer price inflationâas measure month percent change price index personal consumption expenditure pce)âsteppe october continue elevate total nonfarm payroll employment post solid gain october november slow average monthly pace see early year unemployment rate move percentage point percent october remain rate november balance unemployment rate african americans edge month unemployment rate hispanics increase slightly unemployment rate group remain national measure labor force participation rate employment population ratio decline little past month private sector job opening rate measure job openings labor turnover survey move october remain high nominal wage growth continue elevate remain pace judge consistent fomc percent inflation objective average hourly earning rise percent month end november close pace record employment cost index hourly compensation private sector month end september compensation hour cph business sector rise percent quarter end report increase understate true pace increase cph low employment datum quarterly census employment wages incorporate cph measure consumer price inflation remain elevated ease month total pce price inflation percent month end october percentage point september figure core pce price inflation exclude change consumer energy price consumer food price percent month end october percentage point september reading trimmed mean measure month pce price inflation construct federal reserve bank dallas remain percent october november month change cpi step percent core cpi inflation drop percent cpi datum producer price index point slowing pce price inflation november preliminary estimate common inflation expectation index combine information indicator inflation expectation inflation compensation edge continue pre pandemic level expand moderate pace real pce growth appear pick contrast residential investment look contract sharply growth business fix investment slow markedly tepid gain equipment intangible spending continue decline nonresidential structure investment manufacturing production increase modestly october available datum point decline november decrease factory output consistent reading national regional manufacturing survey show decline order drawdown order backlog narrow nominal u.s. international trade deficit widen october real good export fall lead decline export industrial supply consumer good real good import rise drive increase import industrial supply offset decline import capital good consumer good export service rise travel export continue recover import service little change foreign economic activity grow moderate pace datum point weakening growth weigh economic fallout russia war ukraine covid-19 relate slowdown china high inflation continue contribute decline real disposable income disruption energy supply depressed economic activity especially europe china authority begin ease social restriction covid case surge raise prospect significant disruption economic activity near term fast reopening weak global demand high interest rate weigh activity emerge market economy despite tentative sign ease foreign headline inflation core inflationary pressure remain elevated country response high inflation bank tighten monetary policy albeit slow pace case staff review financial situation intermeete period treasury yield measure inflation compensation decline net imply path fund rate end modestly low stock market index rise balance reflect reduce concern inflation outlook market volatility decline notably borrowing cost decline net intermeete period credit flow moderate bit month credit quality business household remain solid expect path fund rate imply straight read financial market quote end intermeete period lower reflect datum release point large expect moderation inflation medium long term nominal treasury yield decline substantially intermeete period drive primarily low expect inflation datum release appear prompt substantial reduction investor concern possibility inflation high long period line development inflation compensation measure base inflation swap decline notably especially short maturity broad stock price index increase reflect reduce concern inflation outlook associated implication future path policy net month option imply volatility s&p 500âthe vixâdecrease notably middle range mid-2020 line reduce investor concern inflation outlook spread interest rate corporate debt mortgage back security municipal bond comparable duration treasury yield narrow intermeete period condition short term funding market remain stable intermeete period november increase target range fund rate associate increase federal reserve administer rate pass quickly overnight money market rate secured market repo rate rrp offering rate frequently previous intermeete period daily rrp facility decline modestly consistent firming overnight repo rate net yield money market fund rise intermeete period pass increase administer rate deposit rate increase slightly october november foreign financial condition ease intermeete period drive low expect u.s. inflation datum foreign exchange value dollar depreciate foreign currency particularly advanced foreign economy reflect narrowing near term yield differential united states advanced economy investor react positively news easing covid restriction china drive risky asset price significantly higher despite near term challenge associate health policy shift emerge market fund outflow moderated turn inflow later intermeete period option imply volatility measure exchange rate benchmark foreign yield decline remain elevate historical norm amid high degree uncertainty global inflation prospect reopening chinese economy domestic credit market change borrowing cost mix intermeete period remain level observe end previous tighten cycle yield corporate bond decline borrow cost leveraged loan remain elevated level bank interest rate commercial industrial c&i loan continue trend municipal bond yield decrease rating category residential mortgage rate fall net november fomc contrast interest rate credit card offer continue increase reflect high prime rate quickly pass interest rate auto loan rise steadily november credit continue available business household high borrowing cost appear weigh finance volume market issuance investment grade corporate bond rebound somewhat late october november early subdue level speculative grade issuance remain soft new launch leveraged loan pick november particularly higher rat firm business loan origination continue expand october november slow pace observe previous month c&i loan continue grow october november decelerate relative pace moderate robust rate growth observe early year nonetheless volume c&i lending remain solid commercial real estate cre loan outstanding commercial bank continue increase october november pace somewhat low previous month addition bank increase cre origination multifamily industrial property relative office property reflect caution context rise office vacancy commercial mortgage back security cmbs issuance soften somewhat october amid elevated financing cost tight underwriting standard credit availability small business appear tighten fall share small firm report difficult obtain credit month early trend november credit readily available residential mortgage market high credit score borrower meet standard conform loan criterion credit availability household low credit score considerably tight level comparable prevail pandemic number home purchase refinance mortgage rate lock edge lower subdue level despite decline mortgage interest rate contrast home equity line credit heloc grow notably month net potentially reflect homeowner heloc preferred way extract home equity presence high mortgage rate consumer credit remain available consumer september auto loan credit card debt grow robust pace bank credit datum expansion credit card balance continue october slow early november credit quality nonfinancial corporation remain solid volume speculative grade corporate bond downgrade slightly exceed upgrade october november investment grade corporate bond volume upgrade turn positive net november leveraged loan experience net downgrade october pace net downgrade slow substantially week default rate corporate bond leveraged loan remain low level measure expect default probability corporate bond leveraged loan increase level beginning year month overall credit quality municipality remain robust amid strong revenue state local government credit quality business borrow bank remain sound balance delinquency c&i loan stay flat small business loan continue edge delinquency remain low relative historical level addition credit quality non agency cmbs loan borrower deteriorate slightly average delinquency rate tick september october drive office retail sector credit quality household remain solid delinquency conventional mortgage continue trend october federal housing administration mortgage tick bit low level contrast delinquency rate credit card auto loan continue rise delinquency rate credit card remain low relative historical range auto loan surpass pre pandemic peak staff economic outlook forecast u.s. economic activity prepare december fomc weak november projection recent datum suggest real gdp growth half strong previously expect economic growth forecast slow markedly half pace broad financial condition project somewhat restrictive previously assume effect high path equity value low path dollar offset high medium term trajectory interest rate forecast u.s. real gdp growth remain subdue slightly lower outlook potential output reflect lower expect trend labor force participation assume slow pace decline natural rate unemployment near term response estimate suggest job match efficiency improve fast previously anticipate change output expect estimate potential near end 2024âa year later previous forecastâand potential likewise unemployment rate expect estimate natural rate near end change basis total pce price inflation expect percent core inflation expect percent low november projection effect supplyâdemand imbalance good market expect unwind labor product market project tight continue forecast inflation decline markedly year core good inflation anticipate slow housing service inflation expect peak core non housing service inflation forecast wage growth ease total core pce price inflation expect near percent inflation elevate continue risk inflation projection skewed upside sluggish growth real private domestic spending expect year subdue global economic outlook persistently tight financial condition see tilt risk downside baseline projection real economic activity view possibility recession year plausible alternative baseline participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion economic condition participant note indicator point modest growth spending production nonetheless job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure participant recognize russia war ukraine cause tremendous human economic hardship war related event contribute upward pressure inflation weigh global economic activity background participant continue highly attentive inflation risk participant observe growth economic activity slow significantly previous year robust pace partly response committee policy action effect action especially notable interest sensitive sector particularly housing participant remark real gdp appear rebound moderately half decline somewhat half economic activity appear expand pace trend growth rate inflation remain unacceptably high participant expect sustained period trend real gdp growth need bring aggregate supply aggregate demand well balance reduce inflationary pressure household sector participant note growth consumer spending september october strong previously expect support strong labor market household run excess saving accumulate pandemic couple participant remark excess saving support consumption spending couple participant comment excess saving particularly low income household appear low decline rapidly previously think saving majority appear hold high income household unspent participant remark budget stretch low moderate income household consumer shift spending expensive alternative observe household increasingly credit finance spending overall participant assess considerable uncertainty consumer spending outlook participant comment high mortgage interest rate notably restrain housing activity expect housing activity weak couple participant remark anecdote concern builder contact contract cancellation purchaser long able qualify loan high interest rate regard business sector participant note growth investment spending appear modest restrain high borrowing cost outlook slow growth final demand view investment prospect vary business district base discussion district contact survey firm chief financial officer participant comment business optimistic prospect express increase concern general economic outlook participant note sign continue ease supply bottleneck couple cite district contact report decline shipping cost delivery time participant remark improvement supply chain uniform supply shortage remain type good participant discuss development energy agricultural sector participant comment see diminish risk severe disruption european union embargo group price cap russian oil export couple participant note high cost input like diesel feed fertilizer create challenge agricultural sector participant observe labor market remain tight unemployment rate near historically low level robust payroll gain high level job vacancy elevate nominal wage growth participant comment tentative sign labor market imbalance improve include decline job opening quit half report district contact see qualified job applicant open position early year participant point payroll gain remain robust slow month note measure employmentâsuch base bureau labor statistics household survey quarterly census employment wagesâsuggeste job growth weak indicate payroll employment participant conclude remain large imbalance labor supply labor demand indicate large number job opening elevated nominal wage growth participant comment labor demand remain strong date despite slowdown economic growth remarking business contact report keen retain worker face slow demand output experience labor shortage hire challenge labor force participation rate little change beginning participant comment labor supply appear constrain structural factor early retirement reduce availability increase cost childcare costly transportation reduce immigration appropriately restrictive path monetary policy participant expect labor market supply demand come well balance time ease upward pressure nominal wage price context achieve committee broad base inclusive maximum employment goal number participant comment labor market move well balance unemployment rate demographic groupsâparticularly african americans hispanicsâwould increase national average inflation committee long run goal percent participant agree inflation unacceptably high participant concur inflation datum receive october november show welcome reduction monthly pace price increase stress substantially evidence progress confident inflation sustained downward path participant note core good price decline october november cpi datum consistent ease supply bottleneck participant note measure firm markup elevate continue subdue expansion aggregate demand need reduce remain upward pressure inflation housing service inflation participant observe measure rent base lease indicate deceleration reflect measure shelter inflation lag participant note late inflation datum pace increase price core service exclude shelterâwhich represent large component core pce price inflationâwa high remark component inflation tend closely link nominal wage growth persistently elevated labor market remain tight consequently sign adverse wage price dynamic assess bring component inflation mandate consistent level require soften growth labor demand bring labor market well balance participant observe measure survey household business financial market indicate long term inflation expectation remain anchored short term inflation expectation come participant stress committee ongoing monetary policy tightening achieve stance sufficiently restrictive return inflation percent essential ensure long term expectation anchor participant comment long inflation remain percent goal great risk long term inflation expectation unanchored development materialize costly bring inflation achieve committee statutory objective maximum employment price stability participant note november financial condition ease market imply path fund rate long term yield come noticeably participant remark configuration nominal yield long term yield low short term yield historically precede recession bore watching couple note inversion yield curve reflect investor expect nominal policy rate decline fall inflation time participant note uncertainty associate economic outlook high risk inflation outlook remain tilt upside participant cite possibility price pressure prove persistent anticipate example labor market stay tight long anticipate participant see number uncertainty surround outlook inflation stem factor abroad china relaxation covid policy russia continue war ukraine effect synchronous policy firm major bank number participant judge risk outlook economic activity weight downside note source risk include potential persistent inflation induce restrictive policy response prospect unexpected negative shock tip economy recession environment subdued growth possibility household business concern outlook restrain spending sufficiently reduce aggregate output consideration appropriate monetary policy action participant concur committee significant progress past year move sufficiently restrictive stance monetary policy participant agree inflation remain committee long run goal percent labor market remain tight contribute upward pressure wage price backdrop participant agree appropriate raise target range fund rate basis point process reduce federal reserve security holding describe plan reduce size federal reserve balance sheet committee issue participant observe slowing pace rate increase well allow committee economy progress committee goal maximum employment price stability monetary policy approach stance sufficiently restrictive achieve goal discuss policy outlook participant continue anticipate ongoing increase target range fund rate appropriate achieve committee objective determine pace future increase target range participant judge appropriate account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development inflation stay persistently committee percent goal labor market remain tight participant raise assessment appropriate path fund rate relative assessment time september participant anticipate appropriate begin reduce fund rate target participant observe restrictive policy stance need maintain incoming datum provide confidence inflation sustained downward path percent time persistent unacceptably high level inflation participant comment historical experience caution prematurely loosen monetary policy light heightened uncertainty outlook inflation real economic activity participant emphasize need retain flexibility optionality move policy restrictive stance participant note committee future decision policy inform incoming datum implication outlook economic activity inflation committee decision participant reaffirm strong commitment return inflation committee percent objective number participant emphasize important clearly communicate slowing pace rate increase indication weakening committee resolve achieve price stability goal inflation persistent downward path participant note monetary policy work importantly financial market unwarranted easing financial condition especially drive misperception public committee reaction function complicate committee effort restore price stability participant comment medians participant assessment appropriate path fund rate summary economic projections track notably market base measure policy rate expectation underscore committee strong commitment return inflation percent goal participant discuss number risk management consideration relate conduct monetary policy participant highlight committee need balance risk risk insufficiently restrictive monetary policy cause inflation committee target long anticipate lead unanchored inflation expectation erode purchase power household especially face difficulty make end meet risk lag cumulative effect policy tightening end restrictive necessary bring inflation percent lead unnecessary reduction economic activity potentially place large burden vulnerable group population participant indicate upside risk inflation outlook remain key factor shape outlook policy couple participant note risk inflation outlook balanced participant observe maintain restrictive policy stance sustained period inflation clearly path percent appropriate risk management perspective committee policy action monetary policy member agree indicator point modest growth spending production member concur job gain robust month unemployment rate remain low member agree inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure member observe russia war ukraine cause tremendous human economic hardship agree war related event contribute upward pressure inflation weigh global economic activity member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree raise target range fund rate percent member anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time member agree determine pace future increase target range account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue member affirm committee strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator point modest growth spending production job gain robust month unemployment rate remain low inflation remain elevated reflect supply demand imbalance relate pandemic high food energy price broad price pressure russia war ukraine cause tremendous human economic hardship war related event contribute upward pressure inflation weigh global economic activity committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time determine pace future increase target range committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe plan reduce size federal reserve balance sheet issue committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading public health labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lael brainard james bullard susan collins lisa cook esther george philip jefferson loretta mester christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective december board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective december agree committee hold tuesdayâwednesday january 31âfebruary adjourn 10:35 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold november 1â2 james clouse secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend tuesday return text attend opening remark tuesday return text take action board approve request establish rate submit boards director federal reserve banks boston new york philadelphia cleveland richmond atlanta chicago st. louis minneapolis kansas city dallas san francisco return text

minute federal open market committee january 31âfebruary joint federal open market committee board governors federal reserve system hold office board governors tuesday january 10:00 a.m. continue wednesday february 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lael brainard lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester helen mucciolo alternate members committee james bullard susan collins president federal reserve banks st. louis boston respectively kelly dubbert interim president federal reserve bank kansas city joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed roc armenter james clouse brian doyle eric engen anna paulson andrea raffo william wascher associate economists patricia zobel manager pro tem system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior communications analyst division information technology board isaiah ahn information management analyst division monetary affairs board alyssa arute manager division reserve bank operations payment systems board kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board travis berge principal economist division research statistics board david bowman senior associate director division monetary affairs board isabel cairó principal economist division monetary affairs board prabal chakrabarti executive vice president federal reserve bank boston kathryn chen director cross portfolio policy analysis federal reserve bank new york laura choi senior vice president federal reserve bank san francisco daniel covitz deputy director division research statistics board stephanie curcuru deputy director division international finance board marnie gillis deboer senior associate director division monetary affairs board navtej dhillon special adviser board division board members board burcu duygan bump special adviser board division board members board rochelle edge deputy director division monetary affairs board charles fleischman adviser division research statistics board glenn follette associate director division research statistics board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board christine graham deputy associate director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board anna kovner director financial stability policy research federal reserve bank new york david lebow senior associate director division research statistics board sylvain leduc director research federal reserve bank san francisco andreas lehnert director division financial stability board karen leone nie vice president reserve bank atlanta kurt lewis special adviser board division board members board laura lipscomb special adviser board division board members board francesca loria senior economist division monetary affairs board andrew meldrum assistant director division monetary affairs board ann misback secretary office secretary board michelle neal head markets federal reserve bank new york giovanni olivei senior vice president federal reserve bank boston ander perez orive principal economist division monetary affairs board nellisha ramdass deputy director division monetary affairs board julie ann remache head cross market portfolio analysis federal reserve bank new york linda robertson assistant board division board members board zina bushra saijid senior financial analyst division international finance board zack saravay financial institution policy analyst division monetary affairs board samuel schulhofer wohl senior vice president federal reserve bank dallas chiara scotti deputy associate director division financial stability board nitish ranjan sinha special adviser board division board members board ellis tallman executive vice president federal reserve bank cleveland manjola tase principal economist division monetary affairs board alene tchourumoff senior vice president federal reserve bank minneapolis robert tetlow senior adviser division monetary affairs board clara vega special adviser board division board members board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board jonathan willis vice president senior economist federal reserve bank atlanta paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york helen mucciolo interim vice president federal reserve bank new york alternate patrick harker president federal reserve bank philadelphia thomas barkin president federal reserve bank richmond alternate austan goolsbee president federal reserve bank chicago loretta mester president federal reserve bank cleveland alternate lorie logan president federal reserve bank dallas raphael bostic president federal reserve bank atlanta alternate neel kashkari president federal reserve bank minneapolis mary daly president federal reserve bank san francisco alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chair john williams vice chair joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel charles gray assistant general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed roc armenter james clouse brian doyle eric engen beverly hirtle anna paulson andrea raffo chiara scotti william wascher associate economists unanimous vote committee select federal reserve bank new york execute transaction system open market account soma unanimous vote committee select patricia zobel serve pleasure committee deputy manager soma february roberto perli julie ann remache serve pleasure committee manager deputy manager soma respectively effective february understanding selection subject satisfactory federal reserve bank new york secretary federal reserve bank new york subsequently send advice selection indicate previously satisfactory annual committee governance document open market operation foreign currency transaction committee unanimously approve governance document title fomc authorizations continuing directives open market operations document include authorization previously committee authorization foreign currency operations authorization domestic open market operations continuing directive domestic open market operations combine direction desk standing repurchase agreement facility fima repurchase agreement facility resolution direction desk carry ongoing activity foreign currency directive exist document relate contingency arrangement unified document improve clarity transparency governance desk activity substantive change governance domestic policy directive release fomc modest conform change forward ahead vote policy relate information security external communication investment trading chair comment critical importance maintain public trust confidence federal reserve institution indicate policy important regard participant indicate support agree abide requirement program security fomc information program fomc policy external communications committee participants fomc policy external communications federal reserve system staff investment trading policy fomc official committee vote unanimously reaffirm policy revision committee annual organizational process participant indicate support statement long run goals monetary policy strategy committee vote unanimously reaffirm revision developments financial markets open market operations manager pro tem turn u.s. financial market development market participant expect u.s. economic growth moderate year al­though wide dispersion view extent potential slowdown market participant interpret incoming datum point moderate inflation risk backdrop market participant judge fomc slow pace rate increase respondent desk survey primary dealers survey market participants widely expect committee implement percentage point increase target range fund rate survey respondent assess uncertainty peak level policy rate narrow relative comparable result december survey average place significant probability target fund rate range close percent significant share survey respondent anticipate committee hold policy rate stable moderate inflation united states improve global growth prospect lift market sentiment desk survey respondent expect subdued growth mild recession market participant continue notable uncertainty ahead include prospect deep downturn potential persistent inflation international outlook sign fast reopening china severe downturn europe ease concern global growth contribute depreciation exchange value dollar support optimism emerge market economy narrow interest rate differential united states advanced foreign economy contribute dollar depreciation foreign communication suggest need monetary policy tightening address inflation pressure addition bank japan unexpectedly widen yield curve control band december address market function issue market japanese government bond period bank communicate near point appropriate pause policy rate increase effect cumulative policy tightening manager pro tem turn money market federal reserve operation money market rate stable period year end pass smoothly expect balance overnight reverse repurchase agreement rrp facility increase year end quickly retrace market participant expect usage rrp facility downward trend moderate decline balance federal reserve holding security run transitory pressure occur money market course year manager pro tem note stand repurchase agreement repo facility discount window available help support effective monetary policy implementation manager note coming month development affect treasury general account tga treasury financing influence money market condition increase tga balance associate april individual tax receipt result temporary decline balance subsequent month uncertainty associate debt limit important particular treasury increase bill issuance rebuild tga balance debt limit lift reduce reserve potentially lift money market rate manager pro tem note month investor rrp facility respond small increase money market rate shift balance private investment reduction rrp volume help smooth adjustment money market unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time january 31­âfebruary indicate labor market condition remain tight december unemployment rate historical low consumer price inflationâas measure month percent change price index personal consumption expenditure pce)âcontinue step november december elevate real gross domestic product gdp increase solid pace year total nonfarm payroll employment increase solidly december al­though slow pace previous month unemployment rate move percent december unemployment rate african americans unchanged unemployment rate hispanics tick unemployment rate group remain aggregate measure aggregate measure labor force participation rate employment population ratio edge private sector job opening rate measure job openings labor turnover survey flat november remain high measure nominal wage growth slow end year continue elevate month change employment cost index eci hourly compensation private sector slow percent annual rate december month change measure average hourly earning ahe employee ease annual rate percent month end december eci increase percent ahe rise percent consumer price inflation ease november december remain elevated total pce price inflation percent month end december percentage point low october figure core pce price inflation exclude change consumer energy price consumer food price percent month end december percentage point october reading trimmed mean measure month pce price inflation construct federal reserve bank dallas percent december percentage point low october late survey base reading long term inflation expectation university michigan surveys consumers federal reserve bank new york survey consumer expectations remain range value report month near term measure inflation expectation survey move actual inflation al­though real gdp expand annual rate percent real private domestic final purchase pdfp)âwhich include pce residential investment business fix investmentâincreased subdue annual rate percent real gdp growth bolster especially large gain inventory investment notable contribution net export import fall export inventory net export volatile category aggregate spending production u.s. manufacturing output decline sizably november december foreign economic growth slow weigh covid-19 relate slowdown china repercussion russia war ukraine weak global demand rebalancing good service result pronounced slowdown manufacturing weigh activity emerge asia china pivot away covid policy appear result rapid surge virus case late year rebound activity restriction rapidly remove europe slowdown economic growth temper mild winter weather prompt decline energy price decline retail energy food price contribute easing headline consumer price inflation foreign economy core inflation remain elevate amid tight labor market bank continue tighten monetary policy staff review financial situation intermeete period market imply fund rate path little change moderately move nominal treasury yield little change swap base inflation compensation measure fall notably stock market index slightly high market volatility decline remain slightly elevated business household continue face elevated borrowing cost credit quality remain strong al­though sign deterioration consumer loan market imply fund rate path little change net intermeete period fall moderately mid-2024 net nominal treasury yield roughly unchanged swap market imply inflation compensation measure fall notably broad stock price index end intermeete period slightly high despite sizable fluctuation equity price fall sharply follow december fomc statement recover remainder period response datum release vixâthe month option imply volatility s&p 500âdecreased somewhat remain slightly median range historical distribution spread investment grade high yield corporate bond narrow somewhat net intermeete period spread municipal bond narrow substantially condition short term funding market remain stable intermeete period december increase target range fund rate associate increase federal reserve administer rate pass quickly overnight money market rate secured market repo rate roughly rrp offering rate continue occasionally print slightly high day treasury bill coupon settlement daily rrp facility remain elevated reflect continue elevated asset management aum money market mutual fund mmfs ongoing uncertainty policy path limited supply alternative investment treasury bill net yield mmfs rise intermeete period pass increase administer rate bank deposit rate gradually increase continue lag cumulative increase fund rate intermeete period investor perception improved economic outlook china europe contribute increase foreign risky asset price weigh exchange value dollar global equity index rise support low european natural gas price china decision abandon covid policy sovereign yield increase notably euro area japan reflect restrictive expect communication european central bank bank japan decision widen yield curve control target band respectively contrast yield major advanced foreign economy little change net broad dollar index decline intermeete period large decline emerge market economy eme currency amid significant inflow eme focus investment fund january improved investor sentiment narrow yield differential united states advanced foreign economy contribute depreciation dollar domestic credit market business household continue face elevated borrowing cost yield corporate bond decline borrow cost leveraged loan little change elevated level bank interest rate commercial industrial c&i loan continue trend upward yield municipal bond decline intermeete period remain historical average residential mortgage rate little change intermeete period remain level previous tighten cycle notwithstanding decline peak early november interest rate exist credit card continue increase month interest rate auto loan rise mid january credit remain available business household strong credit quality remain tight lower rat borrower lending standard tighten dependent borrower issuance corporate bond subdue december pick somewhat january new launch leveraged loan notably subdue december january reflect soft investor demand high reference rate float rate loan january senior loan officer opinion survey bank lending practices sloos bank report have tighten c&i commercial real estate cre lending standard previous month al­though c&i loan bank continue expand december decelerate relative early year line tight lending standard weak demand c&i loan cre loan growth domestic bank balance sheet remain robust issuance commercial mortgage back security remain slow november december amid high base interest rate spread tighten lending condition evident small business share small firm report difficult obtain credit compare month early continue trend december credit available residential mortgage market high credit score borrower meet standard conform loan criterion credit availability household low credit score considerably tight comparable level prevail pandemic purchase mortgage application refinance application little change intermeete period home equity line credit heloc balance bank continue grow net potentially reflect homeowner heloc preferred way extract home equity presence high mortgage rate january sloos bank report tight standard consumer loan total credit card balance increase solid pace november auto loan grow modestly overall credit quality remain strong al­though deterioration credit card auto loan borrower predictor future credit quality worsen bit volume corporate bond rating downgrade outpace upgrade december al­though level downgrade remain moderate leveraged loan experience notable net rating downgrade december pace moderate january default rate corporate bond leveraged loan remain low measure expect default probability corporate bond leveraged loan remain elevated relative historical distribution credit quality business borrow bank remain sound balance al­though january sloos bank report expect deterioration quality business loan portfolio delinquency small business loan continue edge november remain low relative historical level credit quality household remain strong balance despite sign deterioration delinquency federal housing administration mortgage increase slightly mortgage delinquency rate near pre pandemic low delinquency rate credit card auto loan continue rise delinquency rate credit card relatively low auto loan rise pre pandemic level january sloos bank report expect deterioration quality household loan especially consumer loan provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system moderate judge asset valuation pressure remain notable particular note measure valuation residential commercial property market remain high potential large decline property price remain great usual addition forward price earning ratio s&p firm remain median value despite decline equity price past year assess valuation pressure ease corporate bond leveraged loan spread market increase low assess vulnerability associate household business leverage remain moderate note al­though measure business leverage near historically high level ability firm service debt keep pace rise debt load interest rate household borrowing rise borrower prime credit score decline household low credit score vulnerability associate financial leverage remain moderate particular risk base capital ratio bank increase slightly measure leverage life insurance company remain relatively flat quarter leverage private credit fund remain steady year measure hedge fund leverage decrease pandemic shock note leverage large fund track return level vulnerability associate funding risk characterize moderate rise rate environment prompt inflow prime retail mmfs aum prime institutional fund prove sensitive turmoil past grow asset open end mutual fund invest liquid instrument like loan high yield corporate bond decline notably past year response vulnerability mmfs open end mutual fund securities exchange commission propose rule fund resilient staff economic outlook forecast u.s. economy prepare fomc somewhat high path level real gdp modestly low path unemployment rate december projection reflect datum small additional boost output lower project path dollar al­though datum indicate real gdp growth strong expect real pdfp growth weak previously forecast large unexpected boost gdp growth inventory investment project persist reflect lag effect previous monetary policy tightening project real gdp growth slow markedly year labor market soften forecast continue include pickup real gdp growth start year al­though project output growth remain estimate potential output growth level real output expect estimate potential near end likewise unemployment rate project gradually estimate natural rate end change basis total pce price inflation forecast percent core inflation expect percent low december projection effect supplyâdemand imbalance good market expect unwind labor product market project tight continue forecast inflation decline change basis core good inflation project year subdued housing service inflation expect peak later year core nonhouse service inflation forecast slow nominal wage growth ease steep decline consumer energy price substantial moderation food price inflation expect year total inflation project step markedly year track core inflation follow year total core pce price inflation expect near percent sluggish growth real private domestic spending expect year persistently tight financial condition see tilt risk downside baseline projection real economic activity view possibility recession year plausible alternative baseline core pce price inflation have slow month cumulative upward revision core inflation projection past year expect soften economic growth view risk baseline forecast inflation year balanced year continue risk inflation projection skewed upside reflect concern potential persistence inflation participant view current conditions economic outlook economic condition participant note indicator point modest growth spending production nonetheless job gain robust month unemployment rate remain low inflation ease somewhat remain elevated participant recognize russia war ukraine cause tremendous human economic hardship contribute elevated global uncertainty background participant continue highly attentive inflation risk participant agree cumulative policy firming date reduce demand interest rate sensitive sector economy particularly housing participant observe growth economic activity long run trend expect real gdp growth slow real gdp growth rebound half participant note growth pdfp nearly stall inflation remain unacceptably high participant expect period trend growth real gdp need bring aggregate demand well balance aggregate supply reduce inflationary pressure participant judge economic datum signal somewhat high chance continue subdue economic growth inflation fall time committee long run goal percent al­though participant note probability economy enter recession remain elevated household sector participant observe real consumer spending decline november decemberâin reflect tightening financial condition past yearâand anticipate consumption grow subdue rate participant note excess saving accumulate pandemic continue support consumption al­though participant remark importance factor wane time excess saving continue draw erode inflation couple participant observe consumer shift spending expensive alternative participant note effect high interest cost restrain consumption inhibit ability household repay loan couple participant note inflation erode household purchasing power couple participant note state return sizable budget surplus household tax cut rebate provide support consumption participant agree activity housing market continue weaken reflect increase mortgage rate past year business sector participant observe growth business fix investment spending subdue restrain past interest rate increase number participant comment supply bottleneck continue ease al­though supply chain issue remain challenge sector participant remark strong growth inventory investment slow couple participant note business appear confident significant supply bottleneck reemerge choose hold small inventory participant comment easing covid relate lockdown restriction china strong expect growth economic activity euro area provide support final demand united states participant agree labor market remain tight assess labor demand substantially exceed supply available worker participant note unemployment rate return historically low level december job vacancy remain high wage growth remain elevated participant note reduction workforce large technology business follow large increase previous year judge reduction appear reflect widespread weakness demand labor participant remark business contact appear keen retain worker face slow demand output experience labor shortage hire challenge participant agree labor supply remain constrain structural factor effect pandemic include early retirement reduced availability increase cost childcare participant note tentative sign imbalance demand supply labor market improve job vacancy payroll gain decline somewhat high level average number hour work fall growth wage employment cost slow participant comment reduction temporary employment previously precede widespread reduction labor demand appropriate monetary policy participant expect labor market demand supply come well balance time ease upward pressure nominal wage price number participant comment importance recognize extent national unemployment increase historical evidence indicate large increase unemployment rate demographic groupsâparticularly african americans hispanicsâwould occur inflation committee long run goal percent participant agree inflation unacceptably high number participant comment cost elevated inflation particularly high low income household participant note inflation datum receive past month show welcome reduction monthly pace price increase stress substantially evidence progress broad range price require confident inflation sustained downward path participant note core good price decline notably previous month supply bottleneck ease anticipate price decline component dissipate downward pressure good price resolve supply bottleneck fade participant judge housing service inflation begin fall later year reflect continue small increase potentially decline rent lease participant agree observe evidence slowdown rate increase price core service exclude housing category account half core pce price index participant judge long labor market remain tight wage growth excess percent inflation trend productivity growth upward pressure price component couple participant observe change wage tend lag change price complicate assessment inflation pressure couple participant remark poor performance labor productivity growth year restrain aggregate supply contribute imbalance aggregate demand aggregate supply upward pressure inflation participant note possibility consumer price sensitive business accept low profit margin effort maintain market share reduce inflation temporarily participant observe indicator short term inflation expectation survey household business financial market come long term inflation expectation remain anchored number participant note importance long term inflation expectation remain anchor remark long inflation remain elevated great risk inflation expectation unanchore adverse scenario costly bring inflation achieve committee statutory objective maximum employment price stability participant observe financial condition remain tight early participant observe measure financial condition ease past month participant note increase confidence market participant inflation fall quickly appear contribute decline market expectation fund rate path near term participant note important financial condition consistent degree policy restraint committee put place order bring inflation percent goal participant observe uncertainty associate outlook economic activity labor market inflation high upside risk inflation participant cite variety factor include possibility price pressure prove persistent anticipate example labor market stay tight long anticipate participant see number upside risk surround outlook inflation stem factor abroad china relaxation covid policy russia continue war ukraine participant remark risk inflation outlook balanced participant agree risk outlook economic activity weight downside participant note source risk include prospect unexpected negative shock tip economy recession environment subdue growth effect synchronous policy firm major bank disruption financial system broad economy associate concern statutory debt limit raise timely manner issue relate financial stability participant discuss vulnerability financial system associate high interest rate include elevated valuation category asset particularly cre sector susceptibility nonbank financial institution run effect large unrealized loss bank security portfolio participant comment international stress potential transmit u.s. financial system number participant note importance orderly functioning market u.s. treasury security stress importance appropriate authority continue address issue relate resilience market al­though participant note federal reserve standing liquidity facility helpful address significant pressure funding market arise participant note challenge address potential disruption u.s. core market functioning participant remark failure company involve crypto finance limited effect broad financial system participant indicate limited effect reflect minimal extent crypto market connection banking system far consistent risk associate activity participant discuss value federal reserve take additional step understand potential risk associate climate change materiality risk context carry responsibility evaluate risk banking system broad financial system number participant stress draw period negotiation raise debt limit pose significant risk financial system broad economy consideration appropriate monetary policy action participant concur committee significant progress past year move sufficiently restrictive stance monetary policy participant agree sign cumulative effect committee tightening stance monetary policy begin moderate inflationary pressure inflation remain committee long run goal percent labor market remain tight contribute continue upward pressure wage price backdrop consideration lag monetary policy affect economic activity inflation participant agree appropriate raise target range fund rate basis point participant observe slowing pace rate increase well allow economy progress committee goal maximum employment price stability determine extent future policy tightening require attain stance sufficiently restrictive achieve goal participant state favor raise target range fund rate basis point support raise target participant favor basis point increase note large increase quickly bring target range close level believe achieve sufficiently restrictive stance take account view risk achieve price stability timely way participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet discuss policy outlook inflation committee percent goal labor market remain tight participant continue anticipate ongoing increase target range fund rate appropriate achieve committee objective participant affirm strong commitment return inflation committee percent objective determine extent future increase target range participant judge appropriate account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development participant observe restrictive policy stance need maintain incoming datum provide confidence inflation sustained downward path percent time participant discuss heightened uncertainty economic outlook number factor affect inflation real economic activity participant note committee future decision policy inform incoming datum implication outlook economic activity inflation number participant observe financial condition ease month note necessitate tight stance monetary policy participant discuss number risk management consideration relate conduct monetary policy participant observe slow pace rate increase juncture allow appropriate risk management committee assess extent tightening need meet committee goal participant observe risk economic outlook balanced inflation committee long run goal participant note upside risk inflation outlook remain key factor shape policy outlook maintain restrictive policy stance inflation clearly path percent appropriate risk management perspective number participant observe policy stance prove insufficiently restrictive halt progress moderate inflationary pressure lead inflation committee percent objective long period pose risk inflation expectation unanchore participant note runoff balance sheet proceed smoothly participant observe money market experience temporary pressure reserve decline use federal reserve rrp facility continue high note pressure occur cause upward pricing private money market rate encourage market participant reduce use facility committee policy actions monetary policy member agree indicator point modest growth spending production member concur job gain robust month unemployment rate remain low member agree inflation ease somewhat remain elevated member concur russia war ukraine cause tremendous human economic hardship contribute elevated global uncertainty member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree raise target range fund rate percent member anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time member concur determine extent future increase target range account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan committee remain strongly committed return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote authorize direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective february federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct overnight repurchase agreement operation minimum bid rate percent aggregate operation limit aggregate operation limit temporarily increase discretion chair conduct overnight reverse repurchase agreement operation offering rate percent counterparty limit day counterparty limit temporarily increase discretion chair roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator point modest growth spending production job gain robust month unemployment rate remain low inflation ease somewhat remain elevated russia war ukraine cause tremendous human economic hardship contribute elevated global uncertainty committee highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee anticipate ongoing increase target range appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time determine extent future increase target range committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lael brainard lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective february board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective february agree committee hold tuesdayâwednesday march 21â22 adjourn 10:20 a.m. february notation vote notation vote complete january committee unanimously approve minute committee hold december 13â14 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend economic financial situation return text committee organizational document available www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text chiara scotti selection set effective employment federal reserve bank dallas return text take action board approve request establish rate submit boards director federal reserve banks boston new york philadelphia richmond atlanta chicago kansas city dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later february date reserve banks inform secretary board request secretary subsequently federal reserve banks cleveland st. louis minneapolis inform board approval establishment primary credit rate percent effective february return text

minute federal open market committee march 21â22 joint federal open market committee board governors federal reserve system hold office board governors tuesday march 10:00 a.m. continue wednesday march 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester sushmita shukla alternate members committee james bullard susan collins president federal reserve banks st. louis boston respectively kelly dubbert interim president federal reserve bank kansas city joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed roc armenter james clouse brian doyle andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior communications analyst division information technology board david altig executive vice president federal reserve bank atlanta kartik athreya executive vice president federal reserve bank richmond becky bareford vice president federal reserve bank richmond penelope beattie section chief office secretary board daniel beltran deputy associate director division international finance board jennifer burns deputy director division supervision regulation board mark carlson adviser division monetary affairs board todd clark senior vice president federal reserve bank cleveland daniel cooper vice president federal reserve bank boston stephanie curcuru deputy director division international finance board wendy dunn adviser division research statistics board burcu duygan bump special adviser board division board members board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board ozge akinci emekli economic research advisor federal reserve bank new york jon faust senior special adviser chair division board members board andrew figura associate director division research statistics board glenn follette associate director division research statistics board michael gibson director division supervision regulation board christine graham special adviser board division board members board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board spencer krane senior vice president federal reserve bank chicago andreas lehnert director division financial stability board paul lengermann assistant director division research statistics board kurt lewis special adviser board division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board francesca loria senior economist division monetary affairs board byron lutz deputy associate director division research statistics board fernando martin assistant vice president federal reserve bank st. louis thomas mertens vice president federal reserve bank san francisco ann misback secretary office secretary board giovanni nicolò senior economist division monetary affairs board michael palumbo senior associate director division research statistics board marcel priebsch principal economist division monetary affairs board linda robertson assistant board division board members board achilles sangster senior information manager division monetary affairs board krista schwarz principal economist division monetary affairs board nitish ranjan sinha special adviser board division board members board yannick timmer senior economist division monetary affairs board clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board recent developments banking sector turn agenda item chair ask vice chair supervision provide update development banking sector vice chair supervision describe development include silicon valley bank signature bank credit suisse describe action take federal reserve regulatory agency response note u.s. banking system sound resilient note lead supervision regulation silicon valley bank federal reserve system apply learn strengthen supervisory regulatory practice appropriate development financial markets open market operations manager turn u.s. financial market development intermeete period early period firm expect datum policy communication push interest rate high equity price low development banking sector later period meet sharp reduction treasury yield particularly short tenor treasury market liquidity poor imply volatility high market remain functional amid substantial trading activity high treasury market volatility contribute wide spread household business borrowing financial condition tighten considerably intermeete period market contact observe development banking system result pullback lending reflect common financial condition index follow banking sector development equity price large u.s. bank underperform broad market equity price u.s. regional bank underperformed relatively outlook inflation united states market base measure inflation compensation short horizon rise period al­though compensation retrace good portion increase later period market react development banking sector forward inflation compensation measure continue long term inflation expectation remain anchor measure inflation expectation open market desk survey primary dealers survey market participants move higher short horizon little change long horizon outlook monetary policy market base measure policy expectation suggest fund rate reach peak target range lower medians respondent modal expectation fund rate desk survey decline target range end risk liquidity premium embed market price drive good difference survey market measure median respondent expect summary economic projections sep projection fund rate end shift basis point higher information gather desk survey close suggest expectation decline level comparable december sep survey response suggest modest change expectation balance sheet policy manager turn operation money market federal fund volume fall sharply day late period federal home loan banks fhlbs seek maintain liquidity order meet increase demand advance bank money market rate remain stable secured unsecured money market rate include effective fund rate trade target range use u.s. dollar liquidity swap line foreign bank minimal indicate market participant face significant difficulty obtain dollar funding private source borrow bank term funding program small relative discount window borrowing increase record level use overnight reverse repurchase agreement rrp facility fall especially money market mutual fund mmfs supply short term security attractive rate increase unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time march 21â22 indicate labor market condition remain tight january february robust job gain unemployment rate near historical low consumer price inflationâas measure month percent change price index personal consumption expenditure pce)âwas elevate january real gross domestic product gdp appear expand modest pace al­though financial market datum show reaction development banking sector late intermeete period essentially economic datum available cover period total nonfarm payroll employment increase fast monthly pace january february year unemployment rate little change stand percent february past month unemployment rate african americans unchanged net unemployment rate hispanics move unemployment rate group remain aggregate measure aggregate measure labor force participation rate employment population ratio increase slightly private sector job opening rate januaryâas measure job openings labor turnover surveyâwa little change balance november remain high recent indicator nominal wage growth slow continue elevate february month change average hourly earning employee annual rate percent slow month pace percent quarter total labor compensation hour business sectorâas measure productivity costs dataâincrease percent pace previous year consumer price inflation remain elevate early year total pce price inflation percent month end january core pce price inflationâwhich exclude change consumer energy price consumer food pricesâwa percent trim mean measure month pce price inflation construct federal reserve bank dallas percent january february month change consumer price index cpi percent core cpi inflation percent cpi datum producer price index point slow pce price inflation february late survey base measure long term inflation expectation university michigan surveys consumers survey professional forecasters federal reserve bank new york survey consumer expectations remain range value report month near term measure inflation expectation survey move real gdp growth expand modest pace gain consumer spending pick month growth business fix investment slow residential investment continue decline contract half year manufacture output expand moderately average january february near term indicatorsâsuch national regional index ordersâpointe soften factory output coming month nominal u.s. international trade deficit register record high trade deficit narrow march year resume widen december january real good import rise december january lead increase import consumer good automotive product real good export increase import indicator suggest foreign economic growth rebound china reopen rapidly covid-19 relate shutdown europe economy prove resilient energy price shock stem russia war ukraine benefit mild winter reduce energy demand manufacturing activity emerge asia show sign turnaround pronounced slowdown mid-2022 development banking sector lead tightening financial condition abroad oil price edge despite china rapid reopening implementation european union embargo russian refined oil product retail energy inflation continue slow contribute easing headline consumer price inflation advanced foreign economy afes contrast core inflation show little sign ease foreign economy amid tight labor market response foreign bank continue monetary policy tightening al­though pause indicate pause soon possible cite importance assess cumulative effect past policy rate increase staff review financial situation week intermeete period incoming economic datum fomc communication appear refocus market participant upside risk inflation policy rate market imply policy rate path steepening nominal treasury yield rise near term inflation compensation measure increase broad stock market price index decline financing condition business household municipality tighten period moderately restrictive borrowing cost increase notably expect path policy rate treasury yield lender appear tighten nonprice borrowing term nonetheless lending volume solid credit quality strong al­though worsen bit borrower expectation future credit quality continue deteriorate market pricing financial market change notably intermeete period amid development banking sector treasury yield policy rate expectation move significantly broad stock price index rise somewhat market imply policy rate path shift sizably fund rate expect peak decrease afterward ois overnight index swap quote end intermeete period indicate expect fund rate year end percent basis point low closure silicon valley bank signature bank somewhat high time february fomc treasury yield decline especially short maturity reflect downward revision policy rate expectation effect flight safety inflation compensation decline especially short maturity reflect relatively large decline risk premium nominal treasury security relative treasury inflation protect securities strong safe haven demand late intermeete period u.s. stock price decline notably regional bank unusually large reliance uninsured deposit holding security significant unrealized mark market loss experience large decline stock price broad equity price rise somewhat closure silicon valley bank signature bank reportedly drive investor reassessment outlook interest rate announcement ubs agree buy credit suisse vixâthe month option imply volatility s&p 500âincreased percent follow closure silicon valley bank signature bank subsequently decline percentâaround percentile historical distribution swaption imply volatility short term interest rate increase notably period reflect increase uncertainty interest rate outlook pricing move asset market amplify impaired liquidity condition despite deteriorate liquidity condition treasury bond equity market market functioning remain orderly intermeete period foreign financial market volatile investor focus shift resilience economic activity stubbornly high core inflation advanced economy early period stress global banking sector recently early period yield market base measure inflation expectation afe increase notably drive spillover u.s. treasury yield upside surprise economic inflation datum afes later period development banking sector lead large decline advanced economy yield net afe yield decline slightly additionally intermeete period dollar index rise moderately corporate emerge market economy sovereign credit spread widen foreign equity index move lower equity fall notably u.s. unsecured funding market show sign pressure later intermeete period issuance commercial paper negotiable certificate deposit ncd drop touch entire period fraction issuance overnight maturity increase remain normal range spread term ncd widen spread issuer low credit rating rise unsecured spread remain normal range prime mmfs experience outflow government mmfs inflow effective fund rate little change closure silicon valley bank signature bank amid development fund volume initially decline sharply fhlb reduce activity fund market order meet increase demand advance bank market volume subsequently rebound partially activity repurchase agreement market robust trading volume remain range rrp remain range borrowing cost business household municipality rise notably early intermeete period line increase fund rate treasury yield closure silicon valley bank signature bank spread corporate bond municipal bond leveraged loan rise speculative grade corporate bond spread register large move spread remain moderate level relative historical distribution investment grade corporate yield municipal yield moderately speculative grade corporate yield leveraged loan yield modestly mortgage rate unchanged amid increase mortgage back security mbs spread base datum cover period follow closure silicon valley bank signature bank nonprice term standard appear tighten somewhat number market solid funding flow firm household remain able access funding datum credit condition follow development banking sector limited closure issuance municipal bond leveraged loan sluggish gross issuance corporate bond fall near mortgage loan household remain available credit quality business household stable intermeete period measure credit performance show sign weakening leveraged loan credit quality deteriorate somewhat closure silicon valley bank signature bank credit quality residential mortgage remain unchanged staff economic outlook time forecast u.s. economy prepare feature subdue real gdp growth year soften labor market give assessment potential economic effect banking sector development projection time march include mild recession start later year recovery subsequent year real gdp growth project estimate potential output growth gdp growth expect potential resource utilization product labor market forecast tight january projection level real output project estimate potential output early year soon previous projection likewise unemployment rate project rise estimate natural rate early year change basis total pce price inflation forecast percent year core inflation percent core good inflation project year subdued housing service inflation expect peak later year core nonhouse service inflation forecast slow gradually nominal wage growth ease reflect effect project tightness product labor market core inflation forecast slow sharply year steep decline consumer energy price substantial moderation food price inflation expect year total inflation project step markedly year track core inflation follow year total core pce price inflation expect near percent judge uncertainty baseline projection great time previous forecast particular view risk baseline projection determine importantly banking condition implication financial condition effect development banking sector macroeconomic condition abate quickly risk baseline tilt upside economic activity inflation banking financial condition effect macroeconomic condition deteriorate assume baseline risk baseline skew downside economic activity inflation particularly historical recession relate financial market problem tend severe persistent average recession participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy sep release public follow conclusion economic condition participant note indicator point modest growth spending production time participant note job gain pick month run robust pace unemployment rate remain low inflation remain elevated participant agree u.s. banking system remain sound resilient comment development banking sector result tight credit condition household business weigh economic activity hiring inflation participant agree extent effect uncertain background participant continue highly attentive inflation risk assess economic outlook participant note meet february datum inflation employment economic activity come strong expect note development banking sector occur late intermeete period affect view economic policy outlook uncertainty surround outlook base incoming economic datum participant assessment effect cumulative policy firming initial view economic effect banking sector development participant expect real gdp grow year pace long run trend rate inflation remain unacceptably high participant expect period trend growth real gdp need bring aggregate demand well balance aggregate supply reduce inflationary pressure participant remark incoming datum onset banking sector stress lead appropriate path fund rate somewhat high assessment time december incorporate banking sector development participant indicate policy rate projection unchanged december participant agree action take far federal reserve coordination government agency action take foreign authority address banking financial stress outside u.s. help calm condition banking sector action participant recognize significant uncertainty condition evolve participant assess development far lead weakening credit condition bank tighten lending standard amid rise funding cost increase concern liquidity participant note early confidence magnitude effect credit tightening economic activity inflation important closely monitor development update assessment actual expect effect credit tightening participant note regional community bank small number come significant stress important small business middle market lending provide critical unique financial service community industry household sector participant note incoming datum real consumer expenditure show pickup spending january february attribute pickup strong job gain rise real disposable income household continue run excess saving accumulate pandemic note atypically warm start year challenge seasonally adjust datum contribute pickup report datum participant observe credit card delinquency particularly low income household rise face elevated inflation high nominal interest rate participant note development banking sector associated rise uncertainty weigh consumer sentiment increase caution consumer restrain spending couple participant observe high frequency measure consumer sentiment show significant change follow development banking sector al­though acknowledge situation fluid business sector participant observe growth business fix investment restrain tight financial condition reflect cumulative policy firming date participant expect tightening credit condition development banking sector weigh investment spending addition banking sector development damp business confidence increase firm caution reduce willingness hire worker participant mention nonbank business contact report banking sector development far result significant change hiring capital spending plan sale expectation contact acknowledge increase uncertainty outlook participant agree labor market remain tight job gain pick robust pace january february unemployment rate remain low participant note sign improvement imbalance demand supply labor market include decline quit rate increase labor force participation rate return prime age participation rate pre pandemic level furthermore participant observe wage growth appear slow gradually amid apparent easing labor demand increase labor supply participant assess labor demand continue substantially exceed labor supply participant point wage growth rate consistent long run percent inflation objective give estimate trend productivity growth participant expect appropriate monetary policy supply demand condition labor market come well balance time ease upward pressure wage price inflation committee long run goal percent participant agree inflation unacceptably high participant comment inflation datum indicate slow expect progress disinflation particular note revision price datum indicate disinflation end year previously report inflation elevated participant note month basis core good price inflation decline supply chain continue improve pace decline slow highlight uncertain nature disinflationary process participant expect housing service inflation begin slow coming month reflect continue small increase potentially decline rent lease price core service exclude housing participant agree little evidence point disinflation component participant judge easing labor market tightness slow nominal wage growth necessary sustained disinflation additionally participant observe indicator short term inflation expectation survey household business come long term inflation expectation remain anchored participant discuss potential effect inflation development banking sector note tightening credit condition weigh aggregate demand turn help reduce inflationary pressure participant observe size effect highly uncertain participant observe development banking sector increase high level uncertainty associate outlook economic activity labor market inflation participant see risk economic activity weight downside source downside risk activity note possibility bank reduce supply credit expect restrain economic activity significantly participant mention potential intensification russia war ukraine additional source downside risk economic outlook participant see risk inflation weight upside recognize downside risk inflation source upside risk inflation participant cite possibility persistent anticipate price pressure example surprisingly resilient labor demand source downside risk inflation participant note bank reduce supply credit expect restraint economic activity hiring additional downward pressure inflation consideration appropriate monetary policy action participant concur inflation remain committee long run goal percent datum inflation provide sign inflation pressure abate pace sufficient return inflation percent time participant note development banking sector result tight credit condition household business weigh economic activity hiring inflation extent effect highly uncertain backdrop participant agree appropriate raise target range fund rate basis point percent participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet participant note policy deliberation consider appropriate hold target range steady note allow time financial economic effect banking sector development cumulative tightening monetary policy participant observe action take federal reserve coordination government agency help calm condition banking sector lessen near term risk economic activity inflation consequently participant judge appropriate increase target range basis point elevated inflation strength economic datum commitment bring inflation committee percent long run goal participant note give persistently high inflation strength economic datum consider basis point increase target range appropriate absence development banking sector potential banking sector development tighten financial condition weigh economic activity inflation judge prudent increase target range small increment participant note allow committee time well effect banking sector development credit condition economy committee move sufficiently restrictive stance monetary policy participant observe action take federal reserve coordination government agency day precede serve calm condition banking sector participant note significant issue appear limit small number bank poor risk management practice banking system remain sound resilient participant emphasize federal reserve use liquidity lender resort tool microprudential macroprudential regulatory supervisory tool address stress banking sector mitigate future financial stability risk participant agree banking development factor committee monetary policy decision extent development affect outlook employment inflation risk surround outlook participant reaffirm strong commitment return inflation committee percent objective discuss policy outlook participant observe inflation remain high labor market remain tight result anticipate additional policy firming appropriate attain sufficiently restrictive policy stance return inflation percent time participant note effect banking sector development economic activity inflation lead lower assessment fund rate target range sufficiently restrictive compare assessment base solely economic datum determine extent future increase target range participant judge appropriate account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development light highly uncertain economic outlook participant underscore importance closely monitor incoming information assess implication future monetary policy decision participant note particularly important incoming information change credit condition credit flow broad change financial condition implication economic activity labor market inflation participant emphasize need retain flexibility optionality determine appropriate stance monetary policy give highly uncertain economic outlook participant emphasize number risk management consideration relate conduct monetary policy participant observe downside risk growth upside risk unemployment increase risk banking sector development lead tightening credit condition weigh economic activity participant note inflation committee long run goal economic datum remain strong upside risk inflation outlook remain key factor shape policy outlook maintain restrictive policy stance inflation clearly downward path percent appropriate risk management perspective participant note importance long term inflation expectation remain anchor remark long inflation remain elevated great risk inflation expectation unanchore participant agree importance closely monitor incoming information implication economic outlook prepared adjust view appropriate stance monetary policy response incoming datum emerge risk economic outlook committee policy actions monetary policy member agree indicator point modest growth spending production concur job gain pick month run robust pace unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree development result tight credit condition household business weigh economic activity hiring inflation extent effect uncertain member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree raise target range fund rate percent member agree closely monitor incoming information implication monetary policy give development member anticipate additional policy firming appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time member concur determine extent future increase target range account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mbs describe previously announce plan member affirm remain strongly committed return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator point modest growth spending production job gain pick month run robust pace unemployment rate remain low inflation remain elevated u.s. banking system sound resilient recent development result tight credit condition household business weigh economic activity hiring inflation extent effect uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee closely monitor incoming information implication monetary policy committee anticipate additional policy firming appropriate order attain stance monetary policy sufficiently restrictive return inflation percent time determine extent future increase target range committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective march board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective march agree committee hold tuesdayâwednesday 2â3 adjourn 10:15 a.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january 31âfebruary joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text elect alternate federal reserve bank new york effective march return text attend economic financial situation return text attend economic financial situation end wednesday return text attend development financial market open market operation return text take action board approve request establish rate submit boards director federal reserve banks boston new york philadelphia richmond atlanta kansas city dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later march date reserve banks inform secretary board request secretary subsequently federal reserve banks cleveland chicago st. louis minneapolis inform board approval establishment primary credit rate percent effective march return text

minute federal open market committee joint federal open market committee board governors federal reserve system hold office board governors tuesday 10:00 a.m. continue wednesday 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester sushmita shukla alternate members committee james bullard susan collins president federal reserve banks st. louis boston respectively kelly dubbert interim president federal reserve bank kansas city joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse anna paulson andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior communications analyst division information technology board andre anderson vice president federal reserve bank atlanta kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board daniel beltran deputy associate director division international finance board carol bertaut senior adviser division international finance board mark carlson adviser division monetary affairs board michele cavallo principal economist division monetary affairs board juan climent special adviser board division board members board stephanie curcuru deputy director division international finance board ahmet degerli economist division monetary affairs board john driscoll principal economist division research statistics board wendy dunn adviser division research statistics board burcu duygan bump associate director division research statistics board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board eric engstrom associate director division monetary affairs board jon faust senior special adviser chair division board members board giovanni favara assistant director division monetary affairs board glenn follette associate director division research statistics board jennifer gallagher assistant board division board members board peter garavuso senior information manager division monetary affairs board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board christine graham special adviser board division board members board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board ghada ijam system chief information officer federal reserve bank richmond michael kiley deputy director division financial stability board kyungmin kim senior economist division monetary affairs board david lebow senior associate director division research statistics board sylvain leduc director research federal reserve bank san francisco andreas lehnert director division financial stability board kurt lewis special adviser board division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board kurt lunsford senior research economist federal reserve bank cleveland patrick mccabe deputy associate director division research statistics board davide melcangi research economist federal reserve bank new york ann misback secretary office secretary board david lead financial institution policy analyst division monetary affairs board makoto nakajima vice president federal reserve bank philadelphia michelle neal head markets federal reserve bank new york giovanni olivei senior vice president federal reserve bank boston michael palumbo senior associate director division research statistics board marcel priebsch principal economist division monetary affairs board nitish ranjan sinha special adviser board division board members board john stevens senior associate director division research statistics board paula tkac senior vice president federal reserve bank atlanta clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market asset price volatile financial market condition ease somewhat intermeete period investor sentiment banking system stabilize net nominal treasury yield decline equity appreciate credit spread tighten trade weight value dollar depreciate measure imply volatility decline market policy sensitive rate fluctuate fair period particularly response economic datum market perception risk liquidity condition treasury market liquidity improve somewhat period remain challenge treasury cash future market continue function orderly manner despite low normal liquidity development late intermeete period closure acquisition republic bank see orderly investor remain focused stress banking sector addition u.s. treasury department announce able fully satisfy government obligation early june debt limit raise suspend actual date event occur come number week later yield treasury bill coupon security mature half june increase notably amid significant volatility deposit outflow small mid sized bank stop late march april al­though equity price regional bank fall period vast majority bank decline appear primarily reflect expectation low profitability solvency concern market participant remain alert possibility intensification banking stress response open market desk survey primary dealers survey market participants investor macroeconomic outlook little change march despite ongoing focus implication expect tightening credit respondent see upside inflation risk albeit march market participant expect basis point rate increase see result rate peak tighten cycle survey respondent assign high probability peak fund rate percent march respondent assign substantial probability peak rate turn percent respondent expect peak rate maintain january fomc balance sheet money market balance sheet runoff continue proceed smoothly overnight secured unsecured rate continue trade target range fund rate respondent desk survey expect overnight reverse repurchase agreement rrp balance elevated near term decline later year rrp facility continue support effective policy implementation control fund rate provide strong floor money market rate balance rrp facility remain range indicate use facility important factor drive outflow deposit banking system use rrp facility decline time intermeete period response increase rate overnight secure money market instrument short term federal home loan bank debt committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time 2âââ3 indicate real gross domestic product gdp expand modest pace labor market condition remain tight march job gain robust unemployment rate low consumer price inflationâas measure 12âmonth percent change price index personal consumption expenditure pce)âcontinue elevate march limited datum available economic activity period onset banking sector stress mid march al­though surveysâsuch senior loan officer opinion survey bank lending practices sloos april national federation independent business survey march federal reserve bank new york survey consumer expectations marchâindicated credit condition tighten pace increase total nonfarm payroll employment slow march robust unemployment rate tick percent unemployment rate african americans fall percent jobless rate hispanics drop percent aggregate measure labor force participation rate employment population ratio edge private sector job opening rateâas measure job openings labor turnover surveyâmove markedly february march remain high recent measure nominal wage growth continue ease peak record year elevate month end march average hourly earning employee rise percent peak percent year early year end march employment cost index eci private sector worker increase percent peak percent year end june year consumer price inflation remain elevate march continue slow total pce price inflation percent month end march core pce price inflationâwhich exclude change consumer energy price consumer food pricesâwa percent total inflation measure markedly level january core measure slightly low trimmed mean measure month pce price inflation construct federal reserve bank dallas percent march late survey base measure long term inflation expectation university michigan surveys consumers april federal reserve bank new york survey consumer expectations march remain range value report month near term measure inflation expectation survey move peak see year real gdp growth modest lead increase pce gain consumer spending pick drive surge january follow small net decline february march light motor vehicle sale pick notably april growth business fix investment slow order nondefense capital good exclude aircraft continue decline march point weakness capital good shipment near term residential investment decline slow pace year net export small positive contribution gdp growth export rebound strongly import decline u.s. manufacturing output fall march near term indicatorsâsuch national regional index ordersâpointe soften factory output coming month foreign economic activity rebound reflect reopening china economy covid-19 relate shutdown pickup economy canada mexico resilience europe economy energy price shock russia war ukraine mild winter help reduce energy demand europe contrast economic growth emerge asia weak mainly pronounce tech cycle slowdown oil price edge amid concern global economic outlook slowing retail energy inflation continue contribute easing headline consumer price inflation advanced foreign economy afes core inflation show sign ease foreign economy remain persistently elevate amid tight labor market accordingly foreign bank continue monetary policy tightening say bank pause policy rate increase alter forward guidance amid uncertainty global economic outlook banking sector stress signal shift data dependent approach future decision staff review financial situation market sentiment improve intermeete period concern sharp near term deceleration economic activity appear recede stress banking sector decline market imply path fund rate increase modestly period broad equity price index increase al­though equity price regional bank low equity market volatility decline financing condition continue restrictive borrowing cost remain elevated intermeete period market imply path fund rate rise modestly partially unwind sharp decline observe early march banking sector stress imply policy path base overnight index swap fluctuate amid mixed economic datum release decline slightly net yield nominal treasury security maturity great year move lower inflation compensation medium- long term horizon edge slightly measure uncertainty path interest rate decline modestly remain substantially elevate historical standard broad stock price index increase moderately vixâthe month option imply volatility s&p 500âdecreased notably intermeete period market participant remain attentive development regional bank equity price bank decline intermeete period high funding cost concern profitability possible deterioration performance commercial real estate cre loan risk sentiment foreign financial market improve net intermeete period amid reduce investor concern banking sector lead moderate increase broad equity index decline option imply measure equity volatility say equity price euro area bank decline somewhat net remain significantly low level onset banking stress early march market expectation policy rate sovereign yield little change afe rise notably u.k. high expect wage inflation datum dollar continue early depreciation differential u.s. afe sovereign yield narrow global risk sentiment improve outflow fund dedicate emerge market slow near intermeete period sovereign credit spread emerge market economy little change net u.s. market commercial paper negotiable certificate deposit ncd stabilize intermeete period spread lower rat nonfinancial spike follow silicon valley bank closure narrow significantly outstanding level ncds increase modestly intermeete period share short maturity unsecured issuance ncd fall normal level reflect net easing stress associate regional bank condition overnight funding repurchase agreement market remain stable intermeete period increase basis point federal reserve administer rate follow march fomc fully pass overnight money market rate effective fund rate print percent day period secured overnight financing rate average percentâslightly offering rate rrp facility daily rrp facility remain elevated reflect continued significant usage money market mutual fund ongoing uncertainty policy path limited supply alternative investment treasury bill domestic credit market borrowing cost business household ease modestly market remain elevated level intermeete period yield corporate bond decline moderately yield agency residential mortgage back security year conform residential mortgage rate move little low interest rate short term small business loan continue rise march reach high level global financial crisis credit flow business household slow moderately high borrowing cost market volatility amid stress banking sector appear weigh finance volume market issuance nonfinancial corporate bond leveraged loan slow notably mid march amid stress banking sector issuance normalize intermeete period stress abate later month broad market sentiment rebound april speculative grade nonfinancial bond issuance solid investment grade nonfinancial bond issuance subdue seasonal factor growth commercial industrial c&i loan bank book weak relative pace april sloos bank report tightening standard loan category past month follow widespread tightening previous quarter bank size expect lending standard tighten rest cite reason tighten c&i standard term favorable uncertain economic outlook mid sized banksâthose total consolidated asset range billionâtightene c&i standard bank additionally report deterioration expected liquidity position important reason tightening bank account bit c&i lending bank size expect tighten c&i standard remainder year small mid sized bank widely report expectation al­though cre loan growth bank balance sheet remain robust april sloos indicate loan standard cre loan category tighten report tightening standard particularly widespread mid sized bank bank report expect tighten cre standard remainder year mid sized bank report expectation commercial mortgage back security cmbs issuance slow february march amid high spread volatility tight lending standard credit remain available residential mortgage market high credit score borrower meet standard conform loan criterion credit availability household low credit score remain tight april sloos net percentage bank report tight standard consumer loan category elevate relative historical range respondent expect standard tighten remainder consumer loan grow robust pace continue strong expansion revolve credit balance overall credit quality business household remain solid deteriorate somewhat business low credit rating household low credit score credit quality c&i cre loan bank balance sheet remain sound end year april sloos bank frequently cite concern deterioration quality loan portfolio reason expect tighten standard remainder year provide update assessment stability financial system judge banking system sound resilient despite concern profitability bank judge asset valuation pressure remain moderate particular note equity risk premium corporate bond spread decline past month remain near historical medians valuation residential commercial property market remain elevated rise borrowing cost contribute moderation price pressure housing market year year house price increase decelerate note cre sector remain vulnerable large price decline possibility particularly salient office downtown retail property give shift telework industry note analysis find loss cre debt holder moderate aggregate bank cmbs market experience stress price property decline significantly assess vulnerability associate household leverage remain moderate level nonfinancial business debt relative nominal gdp decline continue near historically high level ability nonfinancial firm service debt keep pace rise debt load interest rate term financial sector leverage period stress bank size appear strong substantial loss absorb capacity measure regulatory capital ratio level prevail great recession ratio tangible common equity total tangible asset banksâexclude global systemically important banksâhad fall sharply quarter partly substantial drop value security hold portfolio majority banking system able effectively manage interest rate risk exposure failure bank result poor interest rate risk liquidity risk management stress additional bank nonbank sector leverage large hedge fund remain somewhat elevated datum senior credit officer opinion survey dealer financing terms suggest fact change regard vulnerability associate funding risk assess al­though funding strain notable bank strain remain low banking system especially light official intervention federal reserve federal deposit insurance corporation u.s. department treasury support depositor outflow fund deposit mid march concentrate limited number bank slow staff economic outlook economic forecast prepare fomc continue assume effect expect tightening credit condition amid tight financial condition lead mild recession start later year follow moderately pace recovery real gdp project decelerate quarter decline modestly year year real gdp growth project estimate potential output growth unemployment rate forecast increase year peak year start decline gradually resource utilization product labor market forecast loosen level real output move estimate potential output early unemployment rate rise estimate natural rate time core inflation forecast revise little relative previous projection recent datum core pce good price eci measure wage growthâthe importantly influence projection core nonhouse service inflationâcame expectation judge supplyâdemand imbalance good market labor market ease bit slowly anticipate change basis total pce price inflation project percent year core inflation percent core good inflation project year subdued housing service inflation expect peak rest year core nonhouse service inflation forecast slow gradually nominal wage growth ease reflect project effect tightness resource utilization core inflation forecast slow year moderately percent expect decline consumer energy price substantial moderation food price inflation total inflation project run core inflation year total core pce price inflation expect percent continue judge uncertainty baseline projection considerable view risk determine importantly implication macroeconomic condition development banking sector banking sector stress abate quickly effect macroeconomic condition assume baseline risk tilt upside economic activity inflation scenario view little baseline banking financial condition effect macroeconomic condition deteriorate assume baseline risk baseline skew downside economic activity inflation balance see risk baseline inflation forecast tilt upside upside economic scenario high inflation appear downside scenario low inflation inflation persistent expect inflation expectation unanchored long period elevated inflation participant view current conditions economic outlook economic condition participant note economic activity expand modest pace nonetheless job gain robust month unemployment rate remain low inflation remain elevated participant agree u.s. banking system sound resilient comment tight credit condition household business weigh economic activity hiring inflation participant agree extent effect remain uncertain background participant concur remain highly attentive inflation risk assess economic outlook participant note growth rate real gdp year modest despite pickup consumer spending inventory investmentâa volatile categoryâdecline substantially participant expect real gdp grow pace long run trend rate reflect effect restrictive financial condition participant assess cumulative tightening monetary policy past year contribute significantly restrictive financial condition judge banking sector stress weigh economic activity extent case remain highly uncertain inflation committee long run percent objective core inflation show sign moderation participant expect period trend growth real gdp soften labor market condition need bring aggregate supply aggregate demand well balance reduce inflationary pressure time participant note action take federal reserve government agency response development banking sector effective reduce stress note condition banking sector improve early march initial deposit outflow experience regional small bank moderate substantially subsequent week participant comment development banking sector contribute tightening lending standard occur previous quarter especially small mid sized bank participant note small business tend rely small mid sized bank primary source credit disproportionally bear effect tight lending condition participant mention access credit appear decline significantly onset stress banking sector participant judge stress banking sector come quarter induce bank tighten lending standard response high interest rate participant note early confidence magnitude persistence effect economic activity household sector participant note consumer spending show strength support gain personal disposable income remark quarterly strength drive mainly strong spending growth january real spending fall modestly february march consistent slowing participant anticipate consumer spending grow subdue rate remainder reflect large effect tightening financial condition past year participant remark high interest rate restrain interest sensitive expenditure household housing durable good participant note rise uncertainty associate development banking sector weigh consumer sentiment spending participant observe high frequency measure consumer sentiment show significant change follow banking sector development participant remark ongoing reduction consumer discretionary expenditure face elevated inflation high borrowing rate especially lower- middle income household decline reportedly drive shift purchase low cost option business sector participant observe growth business fix investment subdue reflect relatively high borrowing cost weak growth business sector output business increase concern general economic outlook participant expect tightening lending standard weigh firm capital expenditure participant note base report district contact concern relate banking sector stress add uncertainty soft economic outlook increase firm caution especially small mid sized firm rely heavily credit finance operation participant mention development banking sector appear modest effect far credit availability firm participant note labor market remain tight robust payroll gain march unemployment rate near historically low level note sign imbalance supply demand labor market ease prime age labor force participation return pre pandemic level reduction rate job opening quit addition participant note district contact report difficulty hire low turnover rate layoff participant anticipate employment growth slow reflect moderation aggregate demand come partly tight credit condition participant remark al­though nominal wage growth appear slow gradually run pace give estimate trend productivity growth consistent long run committee percent inflation objective participant anticipate appropriate monetary policy imbalance labor market gradually diminish ease pressure wage price participant agree inflation unacceptably high comment datum march indicate decline inflation particularly measure core inflation slow expect participant observe al­though core good inflation moderate middle year decelerate rapidly expect month despite report business contact supply chain constraint continue ease additionally participant emphasize core nonhouse service inflation show sign slow past month participant remark easing labor market condition need help bring inflation component housing service inflation participant observe soft reading rent lease sign tenant start feed measured inflation expect process help lead decline housing service inflation year discuss effect inflation banking sector development participant remark tight credit condition downward pressure inflation low credit availability restrain aggregate supply aggregate demand participant note long term measure inflation expectation survey household business remain anchor participant emphasize appropriate firming monetary policy anchor long term inflation expectation support return inflation committee percent long run goal participant note risk associate banking stress lead raise high assessment uncertainty economic outlook participant judge risk outlook economic activity weight downside al­though note risk side discuss source downside risk economic activity participant reference possibility cumulative tightening monetary policy affect economic activity expect strain banking sector prove substantial anticipate participant note concern statutory limit debt raise timely manner threaten significant disruption financial system tight financial condition weaken economy risk inflation participant cite possibility price pressure prove persistent anticipate example strong expect consumer spending tight labor market especially effect stress economic activity prove modest participant cite possibility tightening credit condition slow household spending reduce business investment hiring support ongoing rebalancing supply demand product labor market reduce inflation pressure financial stability participant comment development banking sector participant note banking system sound resilient action take federal reserve coordination government agency serve calm condition sector stress remain number participant note banking sector capitalize significant issue banking system appear limit small number bank poor risk management practice substantial exposure specific vulnerability vulnerability include significant unrealized loss asset result rise interest rate heavy reliance uninsured deposit strained profitability amid high funding cost participant additionally note weak fundamental cre high vacancy rate office segment high exposure asset vulnerability bank participant comment susceptibility nonbank financial institution run instability include money market fund recently experience large cash inflow hedge fund tend use substantial leverage hold concentrated position asset low margin thinly capitalize nonbank mortgage servicer digital asset entity participant mention essential debt limit raise timely manner avoid risk severely adverse dislocation financial system broad economy participant note importance orderly functioning market u.s. treasury security stress importance appropriate authority continue address issue relate resilience market number participant emphasize federal reserve maintain readiness use liquidity tool microprudential macroprudential regulatory supervisory tool mitigate future financial stability risk consideration appropriate monetary policy action participant concur inflation remain substantially elevated relative committee long run goal percent economic activity expand modest pace labor market continue tight robust job gain month unemployment rate remain low participant note development banking sector result tight credit condition household business weigh economic activity hiring inflation extent effect remain uncertain backdrop participant agree appropriate raise target range fund rate basis point percent percent participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet discuss policy outlook participant agree light lag effect cumulative tightening monetary policy potential effect economy tightening credit condition extent additional increase target range appropriate certain participant agree important closely monitor incoming information implication monetary policy determine extent additional policy firming appropriate return inflation percent time participant note specific factor bear future decision policy action factor degree timing cumulative policy tighten restrain economic activity reduced inflation participant comment see evidence past year tightening begin intended effect factor degree tight credit condition household business result event banking sector weigh activity reduce inflation participant agree uncertain additional factor include progress return inflation committee long run goal percent pace labor market condition soften economic growth slow participant discuss risk management consideration bear future policy decision assess upside risk economic growth participant comment downside risk growth upside risk unemployment increase possibility banking sector development lead tightening credit condition weigh economic activity participant state inflation committee long run goal labor market remain tight upside risk inflation outlook remain key factor shape policy outlook participant note see downside risk inflation take account consideration participant discuss view extent policy firm appropriate participant express uncertainty policy tightening appropriate participant focus need retain optionality participant comment base expectation progress return inflation percent unacceptably slow additional policy firming warrant future meeting participant note economy evolve line outlook policy firm necessary light prominent risk committee objective respect maximum employment price stability participant note importance closely monitor incoming information implication economic outlook participant discuss importance aspect clearly explain monetary policy action strategy participant reaffirm strong commitment return inflation committee percent objective time remain highly attentive inflation risk participant comment monetary policy action communication help inflation expectation anchor see important attainment committee goal participant emphasize importance communicate public data dependent approach policymaker vast majority participant comment adjusted language postmeete statement helpful respect participant stress crucial communicate language postmeete statement interpret signal decrease target range year increase target range rule committee policy actions monetary policy member agree economic activity expand modest pace concur job gain robust month unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree tight credit condition household business weigh economic activity hiring inflation extent effect uncertain member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree raise target range fund rate percent member agree closely monitor incoming information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. economic activity expand modest pace job gain robust month unemployment rate remain low inflation remain elevated u.s. banking system sound resilient tight credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee closely monitor incoming information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective agree committee hold tuesdayâwednesday june 13â14 adjourn 10:00 a.m. notation vote notation vote complete april committee unanimously approve minute committee hold march 21â22 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend tuesday return text attend development financial market open market operation return text take action board approve request establish rate submit boards director federal reserve banks boston philadelphia cleveland richmond atlanta chicago st. louis minneapolis kansas city dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve bank effective later date reserve bank inform secretary board request secretary subsequently federal reserve bank new york inform board approval establishment primary credit rate percent effective return text

minute federal open market committee june 13â14 joint federal open market committee board governors federal reserve system hold office board governors tuesday june 10:30 a.m. continue wednesday june 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester alternate members committee james bullard susan collins president federal reserve banks st. louis boston respectively kelly dubbert interim president federal reserve bank kansas city joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist roc armenter james clouse brian doyle beverly hirtle andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior communications analyst division information technology board gianni amisano assistant director division research statistics board philippe andrade senior economist policy advisor federal reserve bank boston alyssa arute manager division reserve bank operations payment systems board penelope beattie section chief office secretary board carol bertaut senior adviser division international finance board jennifer burns deputy director division supervision regulation board marco cagetti assistant director division research statistics board mark carlson adviser division monetary affairs board juan climent special adviser board division board members board daniel covitz deputy director division research statistics board stephanie curcuru deputy director division international finance board ahmet degerli economist division monetary affairs board cynthia doniger principal economist division monetary affairs board rochelle edge deputy director division monetary affairs board jon faust senior special adviser chair division board members board erin ferris principal economist division monetary affairs board jonas fisher senior vice president federal reserve bank chicago glenn follette associate director division research statistics board jennifer gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis david glancy principal economist division monetary affairs board christopher gust associate director division monetary affairs board valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board edward knotek senior vice president federal reserve bank cleveland andreas lehnert director division financial stability board paul lengermann assistant director division research statistics board kurt lewis special adviser board division board members board geng assistant director division research statistics board laura lipscomb special adviser board division board members board brent meyer assistant vice president federal reserve bank atlanta bernardo morais principal economist division international finance board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board nicolas petrosky nadeau vice president federal reserve bank san francisco achilles sangster senior information manager division monetary affairs board zeynep senyuz deputy associate director division monetary affairs board margie shanks deputy secretary office secretary board nitish ranjan sinha special adviser board division board members board lee smith senior vice president federal reserve bank kansas city hiroatsu tanaka senior economist division monetary affairs board mary tian group manager division monetary affairs board robert triplett iii vice president federal reserve bank dallas clara vega special adviser board division board members board daniel vine principal economist division research statistics board jeffrey walker associate director division reserve bank operations payment systems board fabian winkler principal economist division monetary affairs board alexander wolman vice president federal reserve bank richmond paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market policy sensitive rate increase intermeete period reflect indication continue resilience economy persistently elevated core inflation reduce downside tail risk follow resolution debt limit shift policy expectation contribute significantly high treasury yield increase nominal yield primarily reflect high real rate inflation compensation broad equity price rise al­though outperformance concentrate handful company large market capitalization cyclical sector fare well sector tend appreciate downturn suggest reduce investor concern downside risk growth investor sentiment banking sector improve perceive tail risk regional bank appear recede equity price regional bank rise intermeete period early march level financial condition index roughly unchanged high rate strong dollar offset high equity price narrow credit spread vast majority respondent open market desk surveys primary dealers market participants expect rate change median path survey point rate change early significant dispersion respondent respondent see clear probability additional tightening come meeting respondent average probability distribution level peak policy rate shift higher respondent average assign percent probability peak target range market imply path policy rate continue decline year month measure uncertainty path policy rate derive option remain elevated come intermeete period desk survey respondent see recession occur near term expect timing push later economic datum point continued resilience economic activity overall respondent continue expect downturn deep prolong regard inflation expectation respondent mark projection quarterly core personal consumption expenditure pce inflation quarter year projection later quarter little change manager turn money market development policy implementation median respondent desk survey expect month bill yield increase slightly relative similar maturity overnight index swap ois rate expectation reflect combination rise net supply bill treasury department plan rebuild treasury general account tga follow resolution debt limit expectation healthy investor demand bill overnight reverse repurchase agreement rrp facility continue support effective policy implementation control fund rate see somewhat low participation resolution debt limit consistent historical experience rrp participation typically responsive change money market condition median respondent desk survey primary dealers expect rrp participation trend lower rest year assess replenishment tga ongoing balance sheet runoff factor subtract reserve decline rrp participation add net judge reserve end year abundant uncertainty surround outlook reserve rrp participation substantial unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time june 13â14 suggest real gross domestic product gdp expand modest pace labor market condition remain tight month job gain robust unemployment rate low consumer price inflationâas measure month percent change price index pceâcontinued elevate april labor market condition remain tight april total nonfarm payroll employment increase robust pace month unemployment rate edge net low level percent balance unemployment rate african americans move percent jobless rate hispanics move percent aggregate labor force participation rate hold steady april employment population ratio tick private sector job opening rate aprilâas measure job openings labor turnover surveyâwa unchanged relatively high average low year early recent measure nominal wage growth continue elevate al­though low high year month end average hourly earning employee increase percent peak percent early year year end compensation hour business sector increase percent percent year early consumer price inflation remain elevated total pce price inflation ease middle year reflect decline consumer energy price soften consumer food price inflation reading core pce price inflationâwhich exclude change consumer energy price consumer food price usually provide well signal future inflation volatile total inflation measureâwere little change total pce price inflation percent month end april core pce price inflation percentâthe month percent change record january month change consumer price index cpi percent core cpi inflation percentâonly slightly january reading trimmed mean measure 12âmonth pce price inflation construct federal reserve bank dallas percent april survey base measure long term inflation expectation university michigan surveys consumers federal reserve bank new york survey consumer expectations remain range value report decade pandemic near term measure inflation expectation survey move continue peak see year real gdp appear increase modestly follow strong gain private domestic final purchase pdfp)âwhich include pce residential investment business fix investment provide well signal underlie economic momentum gdpâlooke expand slowly robust pace half pdfp growth resilient half year annual revision international trade statistic suggest net export contribute positively u.s. real gdp growth real export rebound strongly real import follow decline april nominal trade deficit widen notably nominal export decrease nominal import rise foreign economic growth rebound reflect reopening china economy covid-19 relate shutdown strong service sector activity asian country canada mexico euro area real gdp contract modestly consecutive amid pullback consumer spending indicator point step pace foreign economic growth impetus china reopen dissipating global manufacturing activity remain weak global price energy agricultural commodity little change net intermeete period price metal fall decline retail energy price beginning year contribute notable easing headline consumer price inflation foreign economy contrast core inflation materially decline high economy context tight labor market condition foreign bank underscore need raise policy rate hold sufficiently restrictive level bring inflation respective target position case inflation fail decline expect staff review financial situation intermeete period market participant appear interpret incoming datum signal balance resilience economic activity previously assume view communication fomc participant point tight path policy expect result treasury yield expect future path fund rate shift upward significantly broad equity price increase notably financing condition remain moderately restrictive credit availability remain solid expect path policy rate imply market quote move notably intermeete period straight read fund future rate suggest market participant expect fund rate roughly flat course rest year year end expect rate basis point high year end expectation fomc year policy rate path imply ois quote move percent end similarly nominal treasury yield rise significantly rise nominal yield reflect increase real yield measure inflation compensation little change net amid somewhat mixed news inflation measure uncertainty path interest rate remain elevated historical standard s&p stock price index increase sizably net intermeete period lead technology relate stock vixâthe month option imply volatility s&p indexâedge balance end period near percentile historical distribution bank equity price index move notably net intermeete period stock price large bank somewhat level failure silicon valley bank svb regional bank remain level early march market base policy rate expectation rise notably advanced foreign economy core inflation datum surprised upside country communication perceive point restrictive policy expect notwithstanding rise global yield foreign equity price credit spread risk sentiment foreign market little change intermeete period trade weight broad dollar index little change net exchange value dollar appreciate significantly chinese renminbi amid increase investor concern china economic growth prospect condition overnight funding repurchase agreement market remain stable intermeete period basis point increase administer rate fomc fully pass overnight money market rate spread issuance volume unsecured short term funding market stay typical range yield treasury bill mature june potentially affect debt limit rise sharply retrace increase agreement reach suspend debt limit domestic credit market borrowing cost business household municipality increase notably intermeete period interest rate newly originated loan business household rise peak previous tighten cycle yield leveraged loan rise reach level close peak onset pandemic rate move broad array fix income security include investment- speculative grade corporate bond municipal bond agency non agency commercial mortgage back security cmbs agency residential mortgage back security increase yield instrument intermeete period line change treasury benchmark small business household see continue increase borrowing cost rate year conform residential mortgage step line increase comparable duration treasury yield interest rate credit card offer continue rise april auto loan interest rate move sideways intermeete period credit card auto loan interest rate stand near high level global financial crisis bank ability fund loan business consumer appear stabilize week remain somewhat strained relative closure svb march al­though bank continue experience outflow core deposit pace outflow moderate substantially relative march suggest easing funding pressure bank continue attract inflow large time deposit reflect high interest rate certificate deposit total asset little change net intermeete period capital market funding resilient issuance nonfinancial investment grade corporate bond rise robust pace slow april partly earning blackout period speculative grade issuance increase late april remain subdue historical standard gross issuance municipal bond solid april condition leveraged loan cmbs market somewhat strained leveraged loan issuance remain subdue reflect weak investor demand amid concern credit worthiness borrower agency non agency cmbs issuance volume low relative pre pandemic level addition small business credit availability continue sign tighten credit remain easily available residential mortgage market high credit score borrower meet standard conform loan criterion borrower low score credit availability tighten slightly april remain close pre pandemic level consumer credit market condition stay accommodative credit available borrower credit quality business household remain solid market participant appear expect deterioration come quarter weaken lender balance sheet possibly weigh credit availability measure cmbs delinquency rate show basis point increase drive sharp rise delinquency rate office building staff economic outlook economic forecast prepare june fomc continue assume effect expect tightening credit condition amid tight financial condition lead mild recession start later year follow moderately pace recovery real gdp project decelerate decline modestly year year real gdp growth project estimate potential output growth unemployment rate forecast increase year peak year near level current tight resource utilization product labor market forecast ease level real output move estimate potential output unemployment rate rise estimate natural rate time inflation forecast little revised relative previous projection supplyâdemand imbalance good market labor market judge ease slowly change basis total pce price inflation project percent year core inflation percent core good inflation forecast year subdued housing service inflation consider peak expect rest year core nonhouse service inflation project slow gradually nominal wage growth ease reflect effect easing resource utilization projection core inflation forecast slow year moderately percent expect decline consumer energy price moderation food price inflation total inflation project run core inflation year total core pce price inflation expect close percent continue judge uncertainty baseline projection considerable view risk influence importantly potential macroeconomic implication banking sector development end negative assume baseline give continued strength labor market condition resilience consumer spending see possibility economy continue grow slowly avoid downturn mildârecession baseline balance see risk baseline inflation forecast tilt upside economic scenario high inflation appear scenario low inflation inflation persistent expect inflation expectation unanchored long period elevated inflation participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections sep release public follow conclusion economic condition participant note economic activity continue expand modest pace nonetheless job gain robust month unemployment rate remain low inflation remain elevated participant agree u.s. banking system sound resilient comment tight credit condition household business weigh economic activity hiring inflation participant agree extent effect remain uncertain background participant concur remain highly attentive inflation risk assess economic outlook participant note real gdp growth resilient quarter participant judge growth subdue remainder year assess cumulative tightening monetary policy past year contribute significantly restrictive financial condition low demand interest rate sensitive sector economy especially housing business investment participant acknowledge uncertainty lag monetary policy affect economy discuss extent effect monetary tightening economy realize total inflation moderate past year core inflation show sustained easing beginning year inflation committee long run percent objective participant expect period trend growth real gdp soften labor market condition need bring aggregate supply aggregate demand well balance reduce inflationary pressure sufficiently return inflation percent time participant note banking stress recede condition banking sector improve early march participant continue judge tightening credit condition spur banking sector stress early year weigh economic activity extent remain uncertain participant mention credit condition appear tighten significantly expect response monetary policy action take early year participant judge early confidence eventual effect tight credit condition economic activity note important monitor closely potential effect banking sector development credit condition economic activity household sector participant note consumer spending far year strong expect participant note aggregate household wealth remain high equity home price decline high participant mention household sector retain excess saving accumulate pandemic sign consumer face increasingly tight budget constraint give high inflation especially low income household deplete saving business sector participant say report contact mixed pointing soften economic condition indicate great expect strength participant note development banking sector appear modest effect far credit availability firm participant remark effect high interest rate housing sector appear bottom home sale builder sentiment construction have improve little start year economic activity participant point gdp reading strong expect early year gross domestic income gdi reading weak note discrepancy gdp gdi suggest economic momentum strong indicate gdp reading discuss possibility couple participant cite subdue growth aggregate hour work participant note labor market condition remain tight robust payroll gain unemployment rate near historically low level note sign supply demand labor market come well balance prime age labor force participation rate move month reduction rate job opening quit decline average weekly hour couple participant convey hear fed listens event part country lack affordable housing area prevent low income worker relocate accept job similarly participant note district contact report difficulty hire retain worker low turnover rate layoff participant point payroll gain remain robust note measure employmentâsuch base bureau labor statistics household survey quarterly census employment wages board measure private employment datum payroll processing firm adpâsuggeste job growth weak indicate payroll employment participant anticipate employment growth slow consistent projection trend economic growth participant note nominal wage growth show sign easing observe run pace give estimate trend productivity growth consistent long run committee percent inflation objective participant expect supply demand condition labor market come well balance time ease pressure wage price participant agree inflation unacceptably high note datum include cpi indicate decline inflation slow expect participant observe core good inflation moderate middle year slow rapidly expect month despite datum report business contact indicate supply chain constraint continue ease participant note moderation housing service inflation expect trend participant point upside risk outlook housing service inflation associate near record low inventory home sale solid housing demand expect deceleration recently measure rent lease sign tenant additionally participant remark core nonhouse service inflation show sign slow past month participant note long term measure inflation expectation survey household business remain anchor participant emphasize appropriate firming monetary policy anchor long term inflation expectation support return inflation committee percent long run goal time participant note high degree uncertainty cumulative effect economy enact monetary policy tightening potential additional tightening credit condition stem banking sector development participant note effect monetary tightening observe highlight possibility effect past monetary policy tightening realize downside risk economic activity participant note possibility cumulative rapid tightening monetary policy eventually affect economic activity expect additional effect tightening credit condition prove substantial anticipate risk inflation inflation remain committee long run goal participant mention possibility long term inflation expectation unanchored particularly light strong expect consumer demand tight labor market participant cite possibility delayed effect tight credit condition potentially contribute slowdown economic activity reduce inflationary pressure consideration appropriate monetary policy action participant concur inflation moderate middle remain committee long run goal percent economic activity continue expand modest pace labor market remain tight robust job gain month unemployment rate low sign supply demand labor market come well balance economy face headwind tight credit condition include high interest rate household business weigh economic activity hiring inflation al­though extent effect remain uncertain backdrop consideration significant cumulative tightening stance monetary policy lag policy affect economic activity inflation participant judge appropriate acceptable maintain target range fund rate percent participant observe leave target range unchanged allow time economy progress committee goal maximum employment price stability participant indicate favor raise target range fund rate basis point support proposal participant favor basis point increase note labor market remain tight momentum economic activity strong early anticipate clear sign inflation path return committee percent objective time participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet discuss policy outlook participant continue anticipate inflation committee percent goal labor market remain tight maintain restrictive stance monetary policy appropriate achieve committee objective participant note economic projection judge additional increase target fund rate appropriate participant observe uncertainty outlook economy inflation remain elevated additional information valuable consider appropriate stance monetary policy note rapidly tighten stance monetary policy year committee slow pace tightening moderation pace policy firming appropriate order provide additional time observe effect cumulative tightening implication policy participant agree policy decision base totality incoming information implication economic outlook balance risk emphasize importance communicate public data dependent approach participant observe postmeete communication include sep help clarify assessment stance monetary policy appropriate bring inflation percent time participant discuss risk management consideration bear future policy decision participant state inflation committee long run goal labor market remain tight upside risk inflation outlook possibility persistently high inflation cause inflation expectation unanchored remain key factor shape policy outlook economic activity resilient recently labor market remain strong participant comment continue downside risk economic growth upside risk unemployment despite receding stress banking sector participant comment important monitor development banking sector lead tightening credit condition weigh economic activity participant note concern potential risk stem weakness commercial real estate number participant observe resolution government debt limit remove source significant uncertainty economic outlook participant note upward pressure money market rate near term treasury issue bill meet expenditure return balance tga treasury preferred level participant observe upward pressure money market rate relative rate offer rrp facility lead decline usage facility committee policy actions monetary policy member agree economic activity continue expand modest pace concur job gain robust month unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree tight credit condition household business weigh economic activity hiring inflation extent effect uncertain member concur remain highly attentive inflation risk member agree committee seek achieve maximum employment inflation rate percent long run support goal member agree maintain target range fund rate percent member agree hold target range steady allow committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree committee reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand modest pace job gain robust month unemployment rate remain low inflation remain elevated u.s. banking system sound resilient tight credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide maintain target range fund rate percent hold target range steady allow committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller vote action consistent committee decision leave target range fund rate unchanged board vote unanimously maintain interest rate pay balance percent effective june board vote unanimously approve establishment primary credit rate exist level percent agree committee hold tuesdayâwednesday july 25â26 adjourn 10:20 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold 2â3 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend economic financial situation wednesday return text attend tuesday return text attend economic financial situation end tuesday return text

minute federal open market committee july joint federal open market committee board governors federal reserve system hold office board governors tuesday july 10:00 a.m. continue wednesday july 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester alternate members committee susan collins president federal reserve bank boston kelly dubbert kathleen o'neill paese interim presidents federal reserve banks kansas city st. louis respectively joshua gallin secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse eric engen anna paulson andrea raffo william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account david altig executive vice president federal reserve bank atlanta penelope beattie section chief office secretary board brent bundick senior research policy advisor federal reserve bank kansas city juan climent special adviser board division board members board stephanie curcuru deputy director division international finance board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board eric engstrom associate director division monetary affairs division research statistics board huberto ennis group vice president federal reserve bank richmond erin ferris principal economist division monetary affairs board glenn follette associate director division research statistics board jennifer gallagher assistant board division board members board peter garavuso senior information manager division monetary affairs board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board christine graham special adviser board division board members board luca guerrieri associate director division international finance board christopher gust associate director division monetary affairs board valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board callum jones senior economist division monetary affairs board michael kiley deputy director division financial stability board david lebow senior associate director division research statistics board sylvain leduc director research federal reserve bank san francisco andreas lehnert director division financial stability board kurt lewis special adviser board division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board ann misback secretary office secretary board juan morelli economist division monetary affairs board norman morin deputy associate director division research statistics board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board paolo pesenti director monetary policy research federal reserve bank new york damjan pfajar group manager division monetary affairs board samuel schulhofer wohl senior vice president federal reserve bank dallas donald keith sill senior vice president federal reserve bank philadelphia nitish ranjan sinha special adviser board division board members board dafina stewart special adviser board division board members board gustavo suarez assistant director division research statistics board brett takacs senior communications analyst division information technology board jenny tang vice president federal reserve bank boston willem van zandweghe assistant vice president federal reserve bank cleveland annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market intermeete period market participant interpret data release demonstrate economic resilience easing inflation pressure market imply peak fund rate rise response datum point robust economy retrace june consumer price index cpi release interpret market participant soft anticipate market price shift slightly restrictive expect policy path broad financial condition ease bit reflect large gain equity price tight credit spread notably share price equity appreciate intermeete period concern banking sector continue dissipate spot forward measure inflation compensation base treasury inflation protect securities little change intermeete period level consistent committee percent long run goal long term survey- market base measure continue point inflation expectation firmly anchored market imply peak policy rate advanced foreign economy afes rise period dollar depreciate modestly respondent open market desk survey primary dealers survey market participants july continue place significant probability recession occur end timing recession expect survey respondent push later probability avoid recession grow noticeably survey respondent anticipate headline core personal consumption expenditure pce inflation decline percent end strong anticipation evident market base measure response desk survey committee raise target range basis point july fomc survey respondent modal expectation july rate hike tighten cycle respondent perceive additional monetary policy tightening july fomc possible infer response survey respondent expect real rate increase half expectation long run neutral level year manager turn money market development policy implementation overnight reverse repurchase agreement rrp facility continue work intend intermeete period instrumental provide effective floor fund rate support money market rate rate remain stable period follow suspension debt ceiling early june treasury department issue security notably treasury bill replenish treasury general account tga result great availability treasury bill price rate slightly expect rrp rate induce net decline rrp balance period decline rrp balance deem probable amid sustain project treasury bill issuance reduction size federal reserve balance sheet accordance previously announce plan reduce size federal reserve balance sheet possible reduction policy uncertainty incentivize money fund extend duration portfolio july desk survey primary dealers respondent expect low rrp balance high reserve end year compare june survey unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time july 25â26 suggest real gross domestic product gdp rise moderate pace half year labor market remain tight imbalance demand supply labor market gradually diminish consumer price inflationâas measure month percent change price index pceâremained elevate available information suggest inflation decline remain elevated june total nonfarm payroll employment post slow average monthly increase recovery begin mid-2020 payroll gain remain robust compare see pandemic similarly private sector job opening rate measure job openings labor turnover survey fall low level march remain pre pandemic level unemployment rate edge percent june labor force participation rate employment population ratio unchanged unemployment rate african americans hispanics rise national average average hourly earning rise percent month end june compare year­-earli increase percent consumer price inflation continue sign easing remain elevated total pce price inflation percent month end core pce price inflation exclude change energy price consumer food price percent period trim mean measure month pce price inflation construct federal reserve bank dallas percent june 12âmonth change cpi percent core cpi inflation percent period measure short term inflation expectation move alongside actual inflation remain pre pandemic level contrast measure medium- long term inflation expectation range see decade pandemic available indicator suggest real gdp rise pace similar post private domestic final purchasesâwhich include pce residential investment business fix investment provide well signal underlie economic momentum gdpâappeare decelerate manufacture output rise support robust increase motor vehicle production fall sharply april real export good pick lead high export industrial supply automotive product real good import fall low import consumer good industrial supply offset high import capital good nominal u.s. international trade deficit narrow sharp decline nominal import good service outpace decline export available datum suggest net export subtract u.s. gdp growth indicator economic activity purchasing manager index pmis point step pace foreign growth reflect fading impetus china reopening continued anemic growth europe weakening activity canada mexico weak external demand slump high tech industry weigh asian economy incoming datum indicate global manufacturing activity remain weak intermeete period foreign headline inflation continue fall reflect pass previous decline commodity price retail energy food price core inflation edge country remain high context amid tight labor market condition afe bank raise policy rate underscore need raise rate hold sufficiently restrictive level bring inflation country target contrast bank emerge market economy remain hold indicate rate cut possible staff review financial situation intermeete period market participant interpret domestic economic datum release indicate continued resilience economic activity easing inflationary pressure view monetary policy communication point somewhat restrictive policy expect market imply path fund rate rise modestly nominal treasury yield increase somewhat short maturity broad equity price increase spread investment- speculative grade corporate bond narrow moderately financing condition continue restrictive borrowing cost remain elevated intermeete period market imply path fund rate rise modestly timing path slightly high peak move little later november year policy rate path imply overnight index swap ois quote end period modestly high yield treasury security increase modestly short maturity bit long maturity measure inflation compensation rise slightly near term long maturity measure uncertainty path policy rate derive interest rate option remain elevated historical standard broad stock price index increase spread investment- speculative grade corporate bond narrow moderately intermeete period vixâthe month option imply volatility s&p 500âedged end period near percentile historical distribution bank equity price increase outperform s&p modestly stock price large bank fully recover decline immediate wake failure silicon valley bank regional bank remain level see early march short term interest rate afe increase modestly net intermeete period foreign bank continue raise policy rate signal potential tightening increase yield temper downside surprise inflation pmis economy risk sentiment foreign market improve somewhat foreign equity index increase foreign corporate emerge market sovereign bond spread narrow trade weight broad dollar index decline moderately large move follow release weak expect u.s. labor market datum low expect u.s. inflation datum condition domestic short term funding market remain stable intermeete period spread unsecured market narrow modestly amid slight increase ois rate follow suspension debt limit treasury department partly replenish tga large net increase bill issuance auction treasury bill meet robust demand short term bill yield increase relative money market rate money market fund increase holding treasury bill reduce investment rrp facility rrp decline notablyâabout billionâover intermeete period reflect attractive rate alternative invest rrp facility despite reduce rrp money fund maintain relatively high asset allocation overnight repurchase agreement investment amid elevated uncertainty future path policy domestic credit market borrowing cost business household municipality little change intermeete period remain elevate historical standard yield agency commercial mortgage back security cmbs little change banking sector ability fund loan business consumer stable intermeete period core deposit volume large domestic bank hold steady level reach early have decline sharply march april amid banking sector turmoil bank continue attract inflow large time deposit reflect high interest rate offer certificate deposit wholesale borrowingâwhich primarily consist advance federal home loan banks loan bank term funding program credit extend federal reserveâhad fall domestic bank size partially reverse surge onset turmoil march credit availability business appear tighten somewhat month credit capital market somewhat subdued remain accessible large corporation issuance leveraged loan remain limited reflect low level leverage buyout merger acquisition activity weak investor demand municipal bond market gross issuance solid june refunding capital issuance pick somewhat subdued commercial industrial c&i loan balance contract modestly commercial real estate cre loan growth bank book continue moderate july senior loan officer opinion survey bank lending practices sloos bank report have tighten standard term c&i loan firm size cite reason tighten c&i standard term continue concern economic outlook bank report expect tighten c&i standard remainder year july sloos indicate standard cre loan category tighten bank expect tighten cre standard half year cmbs issuance pick bit tick june record low volume early year credit residential mortgage market remain available high credit score borrower meet standard conform loan criterion modest net percentage bank july sloos report tighten standard mortgage loan eligible purchase government sponsor enterprise moderate net percentage bank report expect tighten lending standard loan half year availability mortgage credit remain tight household low credit score level close prevail pandemic bank report sloos tighten standard certain category residential real estate loan hold balance sheet jumbo loan home equity line credit addition bank report expect tighten standard jumbo loan remainder condition remain accommodative consumer credit market credit available borrower credit card balance increase somewhat slow pace previous month july sloos bank report expect tighten lending standard credit card loan overall credit quality business household remain solid sign deterioration credit quality sector office segment cre delinquency rate remain near pre pandemic low credit quality c&i cre loan bank balance sheet remain sound end july sloos bank frequently cite concern credit quality cre loan reason expect tighten lending standard remainder year aggregate delinquency rate pool commercial mortgage back cmbs increase june provide update assessment stability financial system balance characterize financial vulnerability u.s. financial system notable judge asset valuation pressure remain notable particular measure valuation residential commercial property market remain high relative fundamental house price have cool early year start rise price rent ratio remain elevated level near see mid-2000 al­though commercial property price move development cre sector follow pandemic produce permanent shift away traditional work pattern fundamental sector decline notably contribute deterioration credit quality assess vulnerability associate household nonfinancial business leverage remain moderate aggregate household debt growth remain line income growth nonfinancial business remain highly leveraged vulnerable shock firm debt growth relatively subdue recently ability service debt high lower rat firm leverage financial sector characterize notable banking sector regulatory risk base capital ratio show system remain capitalize banking system retain ample loss bear capacity bank experience sizable decline fair value asset consequence rise interest rate vulnerability associate funding risk characterize notable al­though small number bank see notable outflow deposit late early deposit flow later stabilize staff economic outlook economic forecast prepare july fomc strong june projection emergence stress banking sector mid march indicator spending real activity come strong anticipate result long judge economy enter mild recession end year continue expect real gdp growth run estimate potential output growth lead small increase unemployment rate relative level continue project total core pce price inflation lower come year step core inflation expect occur half forward look indicator point slowing rate increase housing service price core nonhouse service price core good price expect decelerate remainder inflation anticipate ease demandâsupply imbalance continue resolve total pce price inflation expect percent core inflation expect percent continue judge risk baseline projection real activity tilt downside risk baseline inflation forecast see skew upside give possibility inflation dynamic prove persistent expect adverse shock supply condition occur additional monetary policy tightening necessitate high persistent inflation represent downside risk projection real activity participant view current conditions economic outlook economic condition participant note economic activity expand moderate pace job gain robust month unemployment rate remain low inflation remain elevated participant agree u.s. banking system sound resilient comment tight credit condition household business weigh economic activity hiring inflation participant agree extent effect remain uncertain background committee remain highly attentive inflation risk assess economic outlook participant note real gdp growth continue exhibit resilience half year economy show considerable momentum gradual slowdown economic activity appear progress consistent restraint place demand cumulative tightening monetary policy early year associated effect financial condition participant remark uncertainty lag effect monetary policy economy discuss extent effect economy stem tightening committee undertake materialize participant comment monetary policy tightening appear work intended continue gradual slowing real gdp growth help reduce demandâsupply imbalance economy participant assess ongoing tightening credit condition banking sector evidence survey bank weigh economic activity come quarter participant note reduction total core inflation rate stress inflation remain unacceptably high evidence require confident inflation clearly path committee percent objective participant continue period trend growth real gdp soften labor market condition need bring aggregate supply aggregate demand well balance reduce inflation pressure sufficiently return inflation percent time participant note consumer spending recently exhibit considerable resilience underpin aggregate strong household balance sheet robust job income gain low unemployment rate rise consumer confidence tight financial condition primarily reflect cumulative effect committee shift restrictive policy stance expect contribute slow growth consumption period ahead participant cite factor lead appear consistent slowdown consumption include decline stock excess saving soften labor market condition increase price sensitivity customer participant observe increase home price suggest housing sector response monetary policy restraint peak business sector participant cite improvement firm cost structure include well function supply chain low input cost increase ability hire retain worker participant discuss condition lead high economic activityâsuch lean inventory reduce expectation sharp economic slowdownâand factor lead low economic activityâsuch continue economic uncertainty vulnerability cre market ongoing weakness manufacture output participant judge come quarter firm reduce pace investment spending hire response tight financial condition slowing economic activity participant remark labor market continue tight point sign demand supply come well balance note evidence labor demand easingâinclude decline job opening low quit rate time work slow growth hour work high unemployment insurance claim moderate rate nominal wage growth addition remark indication increase labor supply include rise prime age participation rate post pandemic high participant observe growth payroll slow recently continue exceed value consistent time unchanged unemployment rate nominal wage rise rate level assess consistent sustained achievement committee percent inflation objective participant judge progress balancing demand supply labor market need expect additional soften labor market condition place time participant cite number tentative sign inflation pressure abate sign include soften core good price low online price evidence firm raise price small amount previously slow increase shelter price decline survey estimate short term inflation expectation inflation uncertainty participant discuss continued stability long term inflation expectation level consistent percent inflation time role committee policy tightening play deliver outcome nonetheless participant comment significant disinflationary pressure apparent price core service exclude housing participant observe notwithstanding favorable development inflation remain committee percent long term objective elevated inflation continue harm business householdsâlow income family particular participant stress committee need datum inflation sign aggregate demand aggregate supply move well balance confident inflation pressure abate inflation course return percent time participant note high degree uncertainty cumulative effect economy past monetary policy tightening participant cite upside risk inflation include associate scenario supply chain improvement favorable commodity price trend aggregate demand fail slow sufficient restore price stability time possibly lead persistent elevated inflation unanchoring inflation expectation discuss downside risk economic activity inflation participant consider possibility cumulative tightening monetary policy lead sharp slowdown economy expect possibility effect tightening credit condition prove substantial anticipate financial stability participant observe banking system sound resilient banking stress calm month participant note stress test result indicate large bank appear position withstand severe recession participant comment risk affect bank include unrealized loss asset result rise interest rate significant reliance uninsured deposit increase funding cost participant comment risk associate potential sharp decline cre valuation adversely affect bank financial institution insurance company heavily expose cre participant note susceptibility nonbank financial institution money market fund digital asset entity run instability addition participant emphasize need bank establish readiness use federal reserve liquidity facility federal reserve ensure readiness provide liquidity period stress consideration appropriate monetary policy action participant concur economic activity expand moderate pace labor market remain tight robust job gain month unemployment rate low continue sign supply demand labor market come well balance participant note tight credit condition face household business source headwind economy weigh economic activity hiring inflation extent effect remain uncertain inflation moderate middle year remain committee long run goal percent participant remain resolute commitment bring inflation committee percent objective amid economic condition participant judge appropriate raise target range fund rate percent participant note action stance monetary policy restrictive territory consistent reduce demandâsupply imbalance economy help restore price stability couple participant indicate favor leave target range fund rate unchanged support proposal judge maintain degree restrictiveness time result progress committee goal allow committee time evaluate progress participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet number participant note balance sheet runoff need end committee eventually begin reduce target range fund rate discuss policy outlook participant continue judge critical stance monetary policy sufficiently restrictive return inflation committee percent objective time note uncertainty economic outlook remain elevated agree policy decision future meeting depend totality incoming information implication economic outlook inflation balance risk participant expect datum arrive coming month help clarify extent disinflation process continue product labor market reach well balance demand supply information valuable determine extent additional policy firming appropriate return inflation percent time participant emphasize importance communicating clearly possible committee data dependent approach policy firm commitment bring inflation percent objective participant discuss risk management consideration bear future policy decision inflation committee long run goal labor market remain tight participant continue significant upside risk inflation require tightening monetary policy participant comment economic activity resilient labor market remain strong continue downside risk economic activity upside risk unemployment rate include possibility macroeconomic effect tightening financial condition beginning year prove substantial anticipate number participant judge stance monetary policy restrictive territory risk achievement committee goal side important committee decision balance risk inadvertent overtightening policy cost insufficient tightening committee policy actions monetary policy member agree economic activity expand moderate pace concur job gain robust month unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree tight credit condition household business weigh economic activity hiring inflation extent effect uncertain member concur remain highly attentive inflation risk support committee objective achieve maximum employment inflation rate percent long run member agree raise target range fund rate percent agree additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective july federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity expand moderate pace job gain robust month unemployment rate remain low inflation remain elevated u.s. banking system sound resilient tight credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide raise target range fund rate percent committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari lorie logan christopher waller vote action support committee decision raise target range fund rate board governors federal reserve system vote unanimously raise interest rate pay balance percent effective july board governors federal reserve system vote unanimously approve percentage point increase primary credit rate percent effective july agree committee hold tuesdayâwednesday september 19â20 adjourn 10:05 a.m. july notation vote notation vote complete july committee unanimously approve minute committee hold june 13â14 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend economic financial situation wednesday return text attend tuesday return text attend development financial market open market operation return text attend economic financial situation return text take action board approve request establish rate submit boards director federal reserve banks boston philadelphia cleveland richmond chicago st. louis minneapolis kansas city dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective later july date reserve banks inform secretary board request secretary subsequently federal reserve banks new york atlanta inform board approval establishment primary credit rate percent effective july return text

minute federal open market committee september joint federal open market committee board governors federal reserve system hold office board governors tuesday september 10:30 a.m. continue wednesday september 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester alternate members committee susan collins jeffrey schmid president federal reserve banks boston kansas city respectively kathleen o'neill paese interim president federal reserve bank st. louis joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed roc armenter james clouse brian doyle eric engen andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system administrator division information technology board andrea ajello section chief division monetary affairs board penelope beattie section chief office secretary board ellen bromagen vice president federal reserve bank chicago mark carlson adviser division monetary affairs board daniel cooper vice president federal reserve bank boston daniel covitz deputy director division research statistics board stephanie curcuru deputy director division international finance board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board eric engstrom associate director division monetary affairs board jon faust senior special adviser chair division board members board charles fleischman adviser division research statistics board glenn follette associate director division research statistics board jennifer gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board matteo iacoviello senior associate director division international finance board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board edward knotek senior vice president federal reserve bank cleveland spencer krane senior vice president federal reserve bank chicago andreas lehnert director division financial stability board paul lengermann assistant director division research statistics board kurt lewis special adviser board division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board zheng liu vice president federal reserve bank san francisco david lópez salido senior associate director division monetary affairs board jonathan mccarthy economic research advisor federal reserve bank new york ann misback secretary office secretary board raven molloy deputy associate director division research statistics board michelle neal head markets federal reserve bank new york anna orlik principal economist division monetary affairs board damjan pfajfar group manager division monetary affairs board pierre daniel sarte senior advisor federal reserve bank richmond nitish ranjan sinha special adviser board division board members board dafina stewart special adviser board division board members board clara vega special adviser board division board members board jeffrey walker associate director division reserve bank operations payment systems board min wei special adviser board division board members board jonathan willis vice president federal reserve bank atlanta donielle winford information manager division monetary affairs board paul wood special adviser board division board members board rebecca zarutskie special adviser board division board members board andrei zlate group manager division monetary affairs board developments financial markets open market operations manager turn development financial market intermeete period u.s. datum release point great economic resilience previously think reaction market pricing imply higher expect trajectory policy rate long horizon high term premium policy sensitive rate rise moderately long date forward rate display large increase year treasury yield end period basis point high broad measure equity price fall bank equity price underperformed period take somewhat long investor sentiment banking sector appear stabilize differentiation equity price movement type dollar appreciate advanced economy currency period strong u.s. datum support moderately increase yield differential economy amid perception policy rate near peak china sign strain property sector increase optimism growth diminish net broad market include global commodity market appear elevated concern china relate risk u.s. financial condition tighten high long term rate low equity price strong dollar contribute roughly equally increase financial condition index address increase nominal yield long run treasury security intermeete period manager note rise real yield exceed nominal yield period imply small decline inflation compensation inflation expectation appear anchor market participant cite factor rise long term nominal yield include strong expect economic datum possible increase neutral policy rate great economic policy uncertainty large expect borrowing treasury household corporate borrowing rate increase period rise line treasury yield market participant note household corporate borrower have limited need refinance debt near term time past monetary policy action fully pass sector expectation september fomc manager note response open market desk survey primary dealers survey market participants market pricing point virtual certainty change policy rate addition modal expectation policy rate survey target range maintain fomc compare march previous survey roughly chance basis point increase november fomc horizon middle year modal path survey notably low market imply path manager turn development money market desk operation usage overnight reverse repurchase agreement rrp facility continue decline intermeete period reflect reduced participation government prime money market fund fund continue inflow increase supply money market instrument especially treasury bill contribute slight increase money market rate appear induce money fund shift away rrp instrument rrp facility continue provide effective floor fund rate rrp balance fall federal reserve asset balance grow period reserve remain abundant september survey primary dealers respondent see low path rrp participation high path reserve compare july survey unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation datum available time september suggest real gross domestic product gdp rise solid pace labor market continue tight unemployment rate low job gain slow remain strong consumer price inflation elevate imbalance labor demand supply appear ease total nonfarm payroll employment increase slow pace july august private sector job opening rate quit rate measure job openings labor turnover survey move july july august unemployment rate edge net stand percent august labor force participation rate lfpr employment population ratio rise slightly unemployment rate african americans decline jobless rate hispanics rise rate national average easing labor market imbalance evident wage datum month change average hourly earning employment cost index change business sector compensation hour low year early level consumer price inflation remain elevated continue sign slow total price index personal consumption expenditure pce increase percent month end july core pce price inflation exclude change energy price consumer food price percent period total core pce price inflation low year early trim mean measure month pce price inflation construct federal reserve bank dallas percent july level early year august 12âmonth change consumer price index cpi percent core cpi inflation percent period total core cpi inflation year early level survey measure consumer short term inflation expectation move alongside actual inflation remain pre pandemic level contrast survey measure medium- long term inflation expectation remain range see decade pandemic available indicator suggest real gdp expand solid pace private domestic final purchasesâwhich include pce residential investment business fix investment bfi provide well signal underlie economic momentum gdpâalso look rise solidly lead gain pce bfi fall real good export increase july support high export automotive product real good import rise import consumer good capital good partially recover decline month nominal u.s. international trade deficit widen growth import good service outpace export foreign economic growth slow trouble property sector weigh economic activity china monetary policy restraint contribute slowing economic growth europe available datum purchasing manager index measure business confidence point continue subdue pace economic activity abroad foreign headline inflation continue fall remain elevated economy energy price turn context high core inflation bank advanced foreign economy afes raise policy rate despite slowdown economic activity indicate intention hold rate sufficiently restrictive level bring inflation target rate contrast bank emerge market economy remain hold begin cut rate amid ease inflationary pressure staff review financial situation intermeete period robust economic datum lead moderate increase market- imply path fund rate yield short term treasury security yield medium- long term nominal treasury security rise substantially mainly reflect high term premium high real yield stock price decline somewhat spread investment- speculative grade corporate bond little change financing condition tighten somewhat borrowing cost increase moderately market participant point range factor contribute increase long term forward rate include high term premium upward revision market view path treasury debt time real yield increase little nominal yield leave imply measure inflation compensation modestly change market imply path fund rate near term slightly july fomc expect path imply overnight index swap contract rise moderately broad equity price index decline somewhat month option imply volatility s&p index edge slightly net stand near percentile historical distribution condition domestic short term funding market remain stable intermeete period prime government money market fund experience moderate inflow july fomc backdrop heavy issuance treasury bill modest associate upward pressure treasury bill yield rrp facility continue decline period fall late period intermeete period dollar appreciate u.s. economic datum come strong expect foreign datum suggest slow economic growth abroad long term yield afe end period higher reflect spillover high u.s. yield less extent increase japanese yield follow decision bank japan effectively widen target range year japanese yield global equity price decline moderately reflect high long term yield increase concern foreign economic outlook bond equity fund focus emerge market see moderate outflow domestic credit market borrow rate business household municipality increase moderately intermeete period reflect pass high yield long maturity treasury security borrowing rate interest rate newly originated loan business household increase interest rate credit card offer increase july interest rate auto loan increase july august bank credit condition appear tighten somewhat intermeete period credit business household remain accessible commercial industrial loan balance contract outstanding commercial real estate cre loan increase july late august slow pace early year category cre loan nonfarm nonresidential loan contract summer time march bank funding condition stable core deposit decline offset inflow large time deposit credit available consumer credit card balance grow late august residential real estate borrower credit availability little change credit condition small business fairly stable paynet small business lending index indicate loan origination edge july stand median pre pandemic level credit accessible capital market issuance subdue issuance nonfinancial investment- speculative grade bond mute july pick modestly august issuance municipal bond weak july new issuance leveraged loan subdue july issuance agency non agency commercial mortgage back security cmbs soft july august credit quality deteriorate little sector month remain solid cre sector delinquency rate nonfarm nonresidential cre loan rise delinquency rate construction land development multifamily loan roughly unchanged delinquency rate loan cmbs pool increase drive office retail sector office delinquency rate rise percentage point january remain pre pandemic average delinquency rate small business loan tick june july delinquency rate credit card auto loan increase stand bit average level year lead pandemic fraction potential borrower prime credit score expand move pre pandemic level trail default rate investment- speculative grade corporate bond increase july remain historically low level trail default rate leveraged loan little change net downgrade leveraged loan surpass upgrade july august contrast type loan payment performance home mortgage improve delinquency rate federal housing administration department veterans affairs loan july low level see early year delinquency rate conventional loan remain historical low credit quality strong municipal borrower staff economic outlook economic forecast prepare september fomc strong july projection consumer business spending appear resilient tight financial condition previously expect assume gdp growth rest year damp bit autoworker strike effect unwound small boost gdp growth year size timing effect highly uncertain project real gdp growth slow average year run estimate potential output growth restrain couple year lag effect monetary policy action unemployment rate project roughly flat upward pressure potential output growth offset downward pressure improvement labor market functioning total core pce price inflation forecast percent end year inflation project lower come year demand supply product labor market continue well alignment total core pce price inflation expect close percent continue uncertainty baseline projection considerable risk inflation forecast see skew upside give possibility inflation prove persistent expect adverse shock supply condition occur upside inflation risk materialize response monetary policy couple adverse reaction financial market tilt risk forecast economic activity downside participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections sep release public follow conclusion economic outlook participant assess real gdp expand solid pace resilient expect participant note expect real gdp growth slow near term participant judge stance monetary policy restrictive appear restrain economy intend participant stress inflation remain unacceptably high acknowledge moderate somewhat past year note evidence require confident inflation clearly path committee percent objective participant continue period trend growth real gdp soften labor market condition need bring aggregate demand aggregate supply well balance reduce inflation pressure sufficiently return inflation percent time household sector participant observe aggregate consumer spending continue exhibit considerable strength support strong labor market strong household balance sheet participant remark finance household come pressure amid high inflation decline saving increase reliance credit finance expenditure addition tight credit condition wan fiscal support family resumption student loan payment view participant have potential weigh growth consumption household credit quality see strong participant note rise delinquency rate type consumer credit couple participant remark household increasingly price sensitive participant note housing demand resilient despite high interest rate home construction solid reflect limited inventory home available sale business sector participant note activity continue solid point sign soften condition participant note improve business condition increase ability hire retain worker well function supply chain reduce input cost pressure participant comment business contact report difficulty pass cost increase customer participant judge come quarter business activity restrain tight financial condition high interest rate constrain access credit participant note tightening credit condition result banking stress early year severe previously expect number participant express concern vulnerability cre sector participant comment expect autoworker strike near term result slowdown production motor vehicle part possibly upward pressure automobile price effect temporary respect agricultural sector participant note condition mixed crop price decline amid high production estimate supply demand imbalance push price type livestock hold price participant observe labor market tight supply demand condition continue come well balance participant remark range indicator labor demand easingâas see decline job opening narrowing job worker gap low quit rate reduction average weekly hour work level see pandemic participant note labor market remain tight sector economy health care service education participant observe measure labor supply especially lfpr move participant comment increase lfpr woman particularly notable express concern challenge availability childcare affect sustainability increase participation participant note immigration boost labor supply participant observe payroll growth remain strong slow month pace close consistent maintain constant unemployment rate time participant comment pace nominal wage increase moderate mention wage premium job switcher come note nominal wage rise rate level assess consistent sustained achievement committee percent inflation objective give estimate trend productivity growth participant note datum receive past month suggest inflation slow favorable development emphasize progress need inflation sustainably percent participant point softening price inflation good amid improve supply condition decline housing service inflation participant remark despite rise energy price food energy price past year contribute decline inflation participant note significant progress reduce inflation apparent price core service exclude housing participant note long term inflation expectation remain anchored short term inflation expectation move elevated level participant observe notwithstanding favorable development inflation remain committee percent long run objective elevated inflation continue harm business householdsâparticularly low income household participant stress need datum indicate inflation pressure abate confident inflation course return percent time participant note high degree uncertainty surround economic outlook source uncertainty associate autoworker strike participant observe intensification strike pose upside risk inflation downside risk activity majority participant point upside risk inflation rise energy price undo disinflation risk inflation prove persistent expect participant note downside risk economic activity include credit condition tighten expect domestic banking sector experience strain possibility economic slowdown china result drag global economic growth extended u.s. government shutdown negative albeit temporary consequence growth participant remark upside risk projection economic activity unexpected resilience economy demonstrate far persist participant comment government shutdown result delay release economic datum outcome difficult economic condition participant observe challenge assess state economy datum continue volatile subject large revision consideration appropriate monetary policy action participant concur economic activity expand solid pace resilient labor market remain tight job gain slow continue sign supply demand labor market come well balance participant note tight credit condition face household business source headwind economy weigh economic activity hiring inflation extent effect remain uncertain inflation moderate middle year remain committee long run goal percent participant remain resolute commitment bring inflation committee percent objective amid economic condition consideration significant cumulative tightening stance monetary policy lag policy affect economic activity inflation participant judge appropriate maintain target range fund rate percent participant judge maintain restrictive stance policy support progress committee goal allow committee time gather additional datum evaluate progress participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet discuss policy outlook participant continue judge critical stance monetary policy keep sufficiently restrictive return inflation committee percent objective time majority participant judge increase target fund rate future appropriate judge increase warrant participant agree committee position proceed carefully policy decision base totality incoming information implication economic outlook balance risk participant expect datum arrive coming month help clarify extent disinflation process continue labor market reach well balance demand supply information valuable determine extent additional policy firming appropriate return inflation percent time participant emphasize importance continue communicate clearly public committee data dependent approach policy firm commitment bring inflation percent participant agree policy restrictive time committee confident inflation move sustainably objective participant note pace inflation return committee percent goal influence view sufficiently restrictive level policy rate long policy restrictive participant comment policy rate near peak focus monetary policy decision communication shift high raise policy rate long hold policy rate restrictive level participant note important monitor real fund rate gauge stance monetary policy time participant observe postmeete communication include sep help clarify public participant assess evolution stance monetary policy participant observe continue process reduce size federal reserve balance sheet important approach achieve macroeconomic objective participant note process balance sheet runoff time committee begin reduce target range fund rate vast majority participant continue judge future path economy highly uncertain note datum volatility potential datum revision difficulty estimate neutral policy rate support case proceed carefully determine extent additional policy firming appropriate participant discuss risk management consideration bear future policy decision participant judge stance monetary policy restrictive territory risk achievement committee goal side inflation committee long run goal labor market remain tight participant continue upside risk inflation risk include imbalance aggregate demand supply persist long expect risk emanate global oil market potential upside shock food price effect strong housing market shelter inflation potential limited decline good price participant comment economic activity resilient labor market remain strong continue downside risk economic activity upside risk unemployment rate risk include large anticipate lag macroeconomic effect tightening financial condition effect labor union strike slow global growth continue weakness cre sector participant note important balance risk overtightene risk insufficient tightening committee policy actions monetary policy member agree economic activity expand solid pace accordingly correspond language postmeete statement change moderate solid concur job gain slow month remain strong unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree tight credit condition household business weigh economic activity hiring inflation extent effect uncertain member concur remain highly attentive inflation risk support committee objective achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent agree additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt mortgage back security describe previously announce plan member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity expand solid pace job gain slow month strong unemployment rate remain low inflation remain elevated u.s. banking system sound resilient tight credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide maintain target range fund rate percent committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective september board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective september agree committee hold tuesday wednesday october november adjourn 10:10 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend wednesday return text attend tuesday return text attend economic financial situation return text attend development financial market open market operation return text

minute federal open market committee october 31ânovember joint federal open market committee board governors federal reserve system hold office board governors tuesday october 10:00 a.m. continue wednesday november 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester sushmita shukla alternate members committee susan collins jeffrey schmid president federal reserve banks boston kansas city respectively kathleen o'neill paese interim president federal reserve bank st. louis joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse brian doyle anna paulson andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system administrator division information technology board alyssa arute manager division reserve bank operations payment systems board kartik athreya executive vice president federal reserve bank richmond penelope beattie section chief office secretary board david bowman senior associate director division monetary affairs board yao chin chao deputy associate secretary office secretary board satyajit chatterjee vice president federal reserve bank philadelphia juan climent special adviser board division board members board stephanie curcuru deputy director division international finance board ryan decker special adviser board division board members board cynthia doniger principal economist division monetary affairs board rochelle edge deputy director division monetary affairs board matthew eichner director division reserve bank operations payment systems board eric engstrom associate director division monetary affairs board jon faust senior special adviser chair division board members board ron feldman vice president federal reserve bank minneapolis andrew figura associate director division research statistics board glenn follette associate director division research statistics board jenn gallagher assistant board division board members board michael gibson director division supervision regulation board christine graham special adviser board division board members board joseph gruber executive vice president federal reserve bank kansas city michael hendley associate director federal reserve bank new york valerie hinojosa section chief division monetary affairs board matteo iacoviello senior associate director division international finance board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board christopher kurz assistant director chief division research statistics board sylvain leduc director research federal reserve bank san francisco andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board joshua louria group manager division monetary affairs board andrew meldrum assistant director division monetary affairs board kenneth montgomery vice president federal reserve bank boston norman morin deputy associate director division research statistics board michelle neal head markets federal reserve bank new york fernanda nechio vice president federal reserve bank san francisco matthias paustian assistant director division research statistics board argia sbordone research department head federal reserve bank new york nitish ranjan sinha special adviser board division board members board ellis tallman executive vice president federal reserve bank cleveland robert tetlow senior adviser division monetary affairs board skander van den heuvel associate director division financial stability board francisco vazquez grande group manager division monetary affairs board clara vega special adviser board division board members board david wheelock senior vice president federal reserve bank st. louis randall williams group manager division monetary affairs board jonathan willis vice president federal reserve bank atlanta paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board andrei zlate group manager division monetary affairs board developments financial markets open market operations manager turn development financial market intermeete period financial condition continue tighten drive high yield treasury security low equity price strong dollar partly reflect high interest rate earning expectation hold month effect high interest rate equity price take place valuation rise july yield long date nominal treasury security attributable increase real yield small increase inflation compensation level spot forward rate historical range manager note survey measure point stable inflation expectation especially long horizon inflation expectation remain anchored staff analysis response open market desk survey primary dealers survey market participants suggest bulk increase july year nominal treasury yield attribute high term premium high policy expectation long horizon play role manager note liquidity condition treasury market change materially july suggest treasury market liquidity important driver increase yield manager turn expectation monetary policy market pricing response desk survey imply market participant expect fund rate near peak hold june fomc roughly percent probability basis point increase december january fomc balance sheet policy survey show respondent push date expect balance sheet runoff stop partly response policymaker communication balance sheet runoff committee begin reduce target range fund rate manager turn development money market desk operation balance sheet runoff continue proceed smoothly intermeete period reduce holding treasury security agency debt agency mortgage back security continued repayment federal deposit insurance corporation discount window loan extend bank place receivership contribute reduce federal reserve asset liability balance sheet usage overnight reverse repurchase agreement rrp facility decline money market mutual fund continue absorb treasury bill issuance appear increase investment private market repurchase agreement repos overall reduce usage rrp facility release reserve reduction federal reserve asset increase treasury general account absorb net reserve expand period available indicator point remain abundant primary dealer indicate reserve project range quarter manager note bank addition primary dealer counterpartie stand repo facility srf onboarding process bank hold vast majority srf eligible security banking system srf addition discount window prove helpful supply liquidity banking system fund pressure emerge unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation datum available time october 31ânovember indicate u.s. real gross domestic product gdp expand strong pace labor market condition remain tight continue strong job gain low unemployment rate consumer price inflation remain elevated labor demand supply slowly move well alignment ease labor market imbalance apparent wage datum 12âmonth change average hourly earning employment cost index year early level al­though total nonfarm payroll employment rise fast pace september previous month unemployment rate unchanged percent labor force participation rate employment population ratio unchanged september unemployment rate african americans rise jobless rate hispanics decline rate high national average consumer price inflation remain elevated continue sign slow price index total personal consumption expenditure pce increase percent month end september core pce price inflation exclude change energy price consumer food price percent period total core pce price inflation year early level trimmed mean measure month pce price inflation construct federal reserve bank dallas percent september level post year ago survey measure consumer short run inflation expectation remain pre pandemic level contrast survey measure medium- long term inflation expectation remain range see decade pandemic accord advance estimate real gdp post strong gain private domestic final purchase include pce private fix investment provide well signal gdp underlie economic momentum post small solid increase real export import good service grow robust pace fall sharply reflect broad base strength category net export slightly negative contribution u.s. gdp growth nominal trade deficit narrow somewhat foreign economic growth remain subdue monetary policy restraint weigh activity abroad especially europe euro area gdp growth register small decline late european central bank lending survey point contraction credit year ago al­though gdp growth china improve support increase industrial production chinese retail sale continue hold low consumer confidence weakness residential property sector inflation abroad remain elevated core inflation continue ease amid slow aggregate demand energy price inflation increase foreign economy inflation high major foreign bank keep policy rate unchanged indicate intention hold rate sufficiently restrictive level bring inflation target rate staff review financial situation intermeete period long term treasury yield rise notably short term yield little change market imply path fund rate decline slightly increase long term treasury yield appear attributable high term premium strong expect economic datum increase uncertainty long policy rate need high equity price decrease spread investment- speculative grade corporate bond widen financing condition tighten borrowing cost continue rise market imply path fund rate decline slightly intermeete period policy rate path imply overnight index swap quote increase reflect high term premium rise long term nominal treasury yield drive real yield short term inflation compensation fluctuate notably intermeete period follow change energy price end period modestly low broad stock price index decline intermeete period equity price interest rateâsensitive sector real estate utility underperform broad market stock price bank decline broad equity index month option imply volatility s&p index increase notably intermeete period remain peak observe intermeete period foreign asset price drive spillover rise long term u.s. treasury yield long term sovereign bond yield advanced foreign economy rise foreign equity price decline foreign credit spread widen investor continue withdraw emerge market economy fund strong expect u.s. datum economic activity widen interest rate differential u.s. rest world contribute increase broad dollar index bank japan increase flexibility yield curve control framework contribute rise long term japanese government bond yield armed conflict israel hamas leave limited net imprint foreign financial market period condition short term funding market remain stable intermeete period rrp facility continue decline period decline primarily reflect money market fund reduce usage facility increase holding treasury bill private market repos response slightly attractive rate alternative investment bank total deposit level roughly unchanged intermeete period outflow core deposit offset inflow large time deposit tend expensive source funding wholesale borrowing large bank increase intermeete period domestic credit market borrowing cost business household municipality continue rise elevate level intermeete period primarily reflect increase long term treasury yield interest rate commercial industrial c&i loan small business loan increase rate loan household include year conform residential mortgage auto loan credit card rate move broad array fix income security include residential commercial mortgage back security municipal bond corporate bond yield corporate bond rise treasury yield particularly speculative grade bond credit continue available business household municipality total core loan bank book continue increase al­though slow pace early year small firm find hard obtain credit share small firm report september difficult obtain credit compare month early rise elevated level capital market financing continue available al­though issuance market typical level october senior loan officer opinion survey bank lending practices sloos bank report tighten standard term c&i loan firm size frequently cite reason tighten c&i standard term include concern economic outlook favorable uncertain economic outlook effect potential legislative change supervisory action change accounting standard bank report demand c&i loan weaken frequently cite reason decrease investment plant equipment decrease inventory financing need similarly bank indicate commercial real estate cre loan standard continue tighten demand weaken credit residential mortgage market remain easily available high credit score borrower meet standard conform loan criterion october sloos bank report tight standard weak demand category residential real estate loan consumer credit remain readily available borrower al­though sign tighten standard credit card balance grow strong pace august auto credit continue grow modest pace respondent october sloos report tight standard consumer loan category outstanding student loan balance decline significantly august drive cancellation student loan debt certain borrower credit quality business household municipality continue sign deterioration sector delinquency rate rise credit quality nonfinancial firm borrow corporate bond market remain sound albeit pocket deterioration credit quality c&i cre loan bank balance sheet remain stable august delinquency rate nonfarm nonresidential cre loan recently pick october sloos bank frequently cite concern credit quality include c&i cre loan reason tighten standard provide update assessment stability financial system balance judge financial vulnerability u.s. financial system notable characterize asset valuation pressure notable particular note valuation equity housing cre high forward price earning ratio s&p firm increase upper quartile historical distribution house price increase upper end historical range relative fundamental despite tight credit condition mortgage market cre price decline valuation remain stretch capitalization rate remain near historical low fundamental office sector remain weak give shift telework industry especially business district coastal city delinquency rate commercial mortgage back security move office retail loan performance deteriorate vulnerability associate business household debt characterize moderate leverage financial sector characterize notable banking sector holding liquid asset remain high regulatory risk base capital ratio indicate ample loss bear capacity banking system fair value bank long term fix rate asset include loan decrease long term interest rate rise hedge fund leverage remain historical average particularly large fund funding risk characterize notable reliance uninsured deposit decline aggregate remain high bank short term nondeposit funding increase staff economic outlook economic forecast prepare octoberânovember similar september projection expect gdp growth slow markedly rate tell average gdp growth half year project little fast half pace expect output temporarily restrain autoworker strike boost lose production begin size timing effect highly uncertain lag effect monetary policy action expect restrain activity real gdp project rise slowly estimate potential year rise line potential unemployment rate expect roughly flat effect potential output growth offset effect improvement labor market functioning total pce price inflation expect close percent end year core pce inflation expect percent inflation project lower come year demand supply product labor market move well alignment total core pce price inflation rate expect close percent continue uncertainty baseline projection elevated risk inflation forecast see skew upside give possibility inflation prove persistent expect additional adverse shock supply condition occur risk forecast real activity view skew downside additional monetary policy tightening necessitate high persistent inflation potential great tightening financial condition represent downside risk projection real activity participant view current conditions economic outlook participants note real gdp expand unexpectedly strong pace boost surge consumer spending participant judge aggregate demand aggregate supply continue come well balance result restrictive stance monetary policy continued normalization aggregate supply condition participant assess labor market condition remain tight ease early year partly result increase labor supply participant judge stance monetary policy restrictive put downward pressure economic activity inflation addition note financial condition tighten significantly month participant note inflation moderate past year stress inflation remain unacceptably high committee long run goal percent stress evidence require confident inflation clearly path committee percent objective participant continue period potential growth real gdp soften labor market condition need reduce inflation pressure sufficiently return inflation percent time household sector participant observe incoming datum consumer spending surprised upside support strong labor market solid household balance sheet participant remark finance householdsâespecially low- moderate income categoriesâwere increasingly come pressure amid high price food essential tight credit condition participant add delinquency auto loan credit card rise household participant comment district contact report somewhat weak picture consumer demand indicate incoming aggregate datum participant note repeat upside surprise aggregate spending datum considerable momentum sustain couple participant comment aggregate household sector financial resource previously think help account strength spending participant observe activity housing sector flatten month reflect effect increase mortgage rate elevate level business fix investment flat participant observe condition report business contact vary industry district participant note business benefit increase ability hire retain worker well function supply chain reduce input cost pressure participant comment business contact report cost increase easily pass customer participant comment apparent resolution united auto workers strike reduce business sector uncertainty participant note increase number district business report high interest rate affect business firm increasingly cut delay investment plan high borrowing cost tight lending condition participant note tight financial credit condition particularly challenge small business participant observe high interest rate affect agricultural sector contact note high financing cost weigh purchase heavy agricultural equipment energy sector participant observe energy market calm significant volatility start armed conflict israel hamas participant observe labor market remain tight payroll growth unexpectedly strong september unemployment rate remain low participant assess labor supply labor demand continue come well balance measure labor supply move labor force participation rate prime age worker rise year especially woman immigration boost labor supply participant express concern pace increase labor supply sustainable light challenge availability childcare uncertainty extent immigration boost growth labor supply labor demand measure appear easing include downward trend job opening low quit rate reduce wage premium offer job switcher consistent gradual rebalancing labor market condition participant comment pace nominal wage increase continue moderate participant note nominal wage rise rate level assess consistent sustained achievement committee percent inflation objective give estimate trend productivity growth participant observe inflation continue moderate middle year month change measure core pce price inflation come somewhat month despite favorable monthly reading september participant point softening core good price month continue gradual decline housing service inflation participant note limited progress bring inflation core service exclude housing participant note long term inflation expectation remain anchored participant observe notwithstanding moderation inflation far inflation remain committee percent long run objective elevated inflation continue harm business household particularly low income household participant stress need datum indicate inflation pressure abate confident inflation course return percent time participant note month financial condition tighten significantly substantial run long term treasury yield factor high treasury yield contribute increase year mortgage rate level see year lead high corporate borrowing rate participant observe range measure suggest rise long term yield drive primarily substantially rise term premium treasury security participant view factor fiscal outlook suggest great future supply treasury security previously think increase uncertainty economic policy outlook have contribute rise term premium participant note rise long term yield drive expectation high path fund rate light surprising resilience economy possible rise neutral policy rate participant highlight long term yield volatile factor increase persistence uncertain note source rise long term yield persistent change financial condition implication path monetary policy important monitor market development closely participant note high degree uncertainty surround economic outlook upside risk economic activity participant note factor resilience spending persist long expect downside risk participant cite possibility effect household business cumulative policy tightening tight financial condition large expect disruption potential government shutdown possibility resumption student loan repayment weigh household spending expect upside risk inflation participant cite possibility progress disinflation stall inflation reaccelerate continued momentum economic activity potential broadening armed conflict middle east see present upside risk inflation potential effect oil price downside risk economic activity financial stability participant observe banking system sound resilient banking stress subside participant comment unrealized loss asset result rise long term interest rate significant reliance bank uninsured deposit increase funding cost bank warrant monitoring participant comment risk associate potential sharp decline cre valuation adversely affect bank financial institution participant note potential cyber risk emphasize importance firm particularly provider critical infrastructure prepared recover threat participant discuss importance monitor treasury market functioning potential vulnerability pose leverage hedge fund market addition participant emphasize need bank establish readiness use federal reserve liquidity facility federal reserve ensure readiness provide liquidity period stress consideration appropriate monetary policy action participant note economic activity expand strong pace resilient labor market remain tight job gain moderate balance early year continue sign supply demand labor market come well balance inflation moderate middle year remain committee long run goal percent participant remain resolute commitment bring inflation committee percent objective participant note tight financial credit condition face household business weigh economic activity hiring inflation al­though extent effect remain uncertain participant comment significant tightening financial condition month drive high long term yield note uncertain tightening financial condition persist extent reflect expectation tight policy factor amid economic condition participant judge appropriate maintain target range fund rate percent participant judge maintain restrictive stance policy support progress committee goal allow time gather additional information evaluate progress participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet discuss policy outlook participant continue judge critical stance monetary policy keep sufficiently restrictive return inflation committee percent objective time participant agree committee position proceed carefully policy decision base totality incoming information implication economic outlook balance risk participant note tightening monetary policy appropriate incoming information indicate progress committee inflation objective insufficient participant expect datum arrive coming month help clarify extent disinflation process continue aggregate demand moderate face tight financial credit condition labor market reach well balance demand supply participant note importance continue communicate clearly committee data dependent approach firm commitment bring inflation percent participant judge appropriate policy restrictive stance time inflation clearly move sustainably committee objective participant observe continue process reduce size federal reserve balance sheet important approach achieve macroeconomic objective participant note process balance sheet runoff time committee begin reduce target range fund rate participant comment decline use rrp facility note use facility responsive market condition participant discuss risk management consideration bear future policy decision participant judge stance monetary policy restrictive territory risk achievement committee goal side inflation committee long run goal labor market remain tight participant continue upside risk inflation risk include possibility imbalance aggregate demand supply persist long expect slow progress inflation geopolitical tension risk emanate global oil market effect tight housing market shelter inflation potential limited decline good price participant comment economic activity resilient labor market continue strong downside risk economic activity remain risk include potentially large expect effect tightening financial credit condition aggregate demand business household balance sheet continue weakness cre sector potential disruption global oil market committee policy actions monetary policy member agree economic activity expand strong pace job gain moderate early year remain strong unemployment rate remain low inflation remain elevated member concur u.s. banking system sound resilient agree tight financial credit condition household business weigh economic activity hiring inflation extent effect uncertain member agree remain highly attentive inflation risk support committee objective achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent agree additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt mortgage back security describe previously announce plan member affirm strongly commit return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective november federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity expand strong pace job gain moderate early year strong unemployment rate remain low inflation remain elevated u.s. banking system sound resilient tight financial credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide maintain target range fund rate percent committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective november board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective november agree committee hold tuesdayâwednesday december 12â13 adjourn 10:05 a.m. november notation vote notation vote complete october committee unanimously approve minute committee hold september 19â20 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend wednesday return text attend development financial market open market operation return text attend economic financial situation return text

minute federal open market committee december 12â13 joint federal open market committee board governors federal reserve system hold office board governors tuesday december 10:30 a.m. continue wednesday december 9:00 a.m. attendance jerome powell chair john williams vice chair michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller thomas barkin raphael bostic mary daly loretta mester alternate members committee susan collins jeffrey schmid president federal reserve banks boston kansas city respectively kathleen o'neill paese interim president federal reserve bank st. louis joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed roc armenter james clouse eric engen anna paulson andrea raffo chiara scotti william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior system administrator division information technology board david altig executive vice president federal reserve bank atlanta alyssa arute manager division reserve bank operations payment systems board kimberly bayard section chief division research statistics board penelope beattie section chief office secretary board paola boel vice president federal reserve bank cleveland david bowman senior associate director division monetary affairs board celso brunetti assistant director division research statistics board jennifer burns deputy director division supervision regulation board juan climent special adviser board division board members board edmund crawley senior economist division monetary affairs board stephanie curcuru deputy director division international finance board ryan decker special adviser board division board members board riccardo dicecio economic policy advisor federal reserve bank st. louis cynthia doniger principal economist division monetary affairs board rochelle edge deputy director division monetary affairs board jon faust senior special adviser chair division board members board glenn follette associate director division research statistics board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board jasper hoek deputy associate director division international finance board jane ihrig special adviser board division board members board elizabeth klee senior associate director division financial stability board david lebow senior associate director division research statistics board andreas lehnert director division financial stability board eric lesueur policy market analysis advisor federal reserve bank new york kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board thomas lubik senior advisor federal reserve bank richmond byron lutz deputy associate director division research statistics board mark meder vice president federal reserve bank cleveland ann misback secretary office secretary board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board lubomir petrasek section chief division monetary affairs board achilles sangster senior information manager division monetary affairs board adam shapiro vice president federal reserve bank san francisco shane sherlund associate director division research statistics board nitish ranjan sinha special adviser board division board members board balint szoke senior economist division monetary affairs board giorgio topa economic research advisor federal reserve bank new york clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market intermeete period financial condition ease drive decline interest rate increase equity price depreciation dollar rise equity price support decline treasury yield earning growth exceed consensus expectation imply volatility equity diminish notably easing financial condition reverse tightening occur summer fall yield nominal treasury security decline sharply intermeete periodâmore long maturitiesâafter have increase notably previous intermeete period investor appear interpret incoming datum reduce risk prolonged inflation pressure addition market participant interpret communication fomc participant solidify committee policy rate peak early period market react communication treasury department indicate issuance treasury security skewed shorter date maturity previously expect model average suggest third decline long term yield treasury security period attributable reduction term premium decline expectation policy rate pricing inflation derivative intermeete period suggest investor optimistic near term outlook inflation manager turn expectation monetary policy respondent open market desk survey primary dealers survey market participants converge peak level fund rate tighten cycle reach modal path desk survey suggest reduction policy rate occur june unchanged october survey average path policy rate imply market pricing shift considerably period development money market desk operation usage overnight reverse repurchase agreement rrp facility continue fall period facility drop early june decline drive primarily low participation money market mutual fund fund find attractive invest treasury bill increasingly private market repurchase agreement repo transaction overnight repo rate continue experience modest upward pressure period reflect rise secured overnight financing rate tightening condition repo market late november early december response typical lending dynamic month end settlement large treasury issuance increase demand treasury financing market absorb episode manager expect private market repo rate rate offer rrp facility induce reduction usage facility respondent desk survey reduce expectation trajectory rrp balance correspondingly raise expectation trajectory balance aggregate reserve banking system remain abundant sign pressure evident ongoing market surveillance monitor wide range indicator money market condition include composition borrower money market borrowing demand source liquidity distribution balance financial system pricing money market investment relative federal reserve administer rate sensitivity money market rate change aggregate reserve unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation datum available time december 12â13 suggest growth u.s. real gross domestic product gdp slow strong pace labor market condition continue tight moderate strong job gain low unemployment rate consumer price inflation ease past year remain elevated labor demand supply continue gradually well alignment total nonfarm payroll employment expand slow pace balance october november average monthly rate unemployment rate little change net stand percent november average labor force participation rate essentially flat past month remain level early year employment population ratio rise slightly balance unemployment rate african americans hispanics little change rate high asians white job opening rate continue trend quit rate flat rate level early year lessening labor market imbalance apparent wage datum 12âmonth change average hourly earning employee year early level wage growth tracker construct federal reserve bank atlanta trend low year ago consumer price inflation remain elevated continue notable sign ease price index total personal consumption expenditure pce increase percent month end october core pce inflationâwhich exclude change energy price consumer food pricesâwa percent period total core pce inflation year early level month change measure total core pce inflation october percent level month early trim mean measure month pce inflation construct federal reserve bank dallas percent october level year ago november month change consumer price index cpi percent core cpi rise percent period measure year early level recent survey measure medium- long term inflation expectation range see decade pandemic contrast survey measure consumer short run inflation expectation remain pre pandemic level available indicator suggest real gdp growth slow strong pace lead sizable increase consumer spending october pce growth slow average monthly rate business investment nominal shipment nondefense capital good exclude aircraft essentially flat october al­though nonresidential construction spending business edge residential housing start move sideways home sale continue fall manufacturing production decline october factory output weak exclude decrease motor vehicle assembly cause autoworker strike nominal trade deficit widen october export decline import rise slightly foreign economic growth slow available indicator point subdue growth significant tightening monetary policy foreign bank past year repercussion year energy shock europe continue weigh foreign economic activity chinese economic indicator retail sale industrial production point economic growth remain modest contrast economic activity asia exclude china step support recovery industrial production especially high tech sector inflation elevate major economy incoming datum indicate move markedly decrease reflect notable step down energy core inflation amid slow aggregate demand decline oil price major foreign bank keep policy rate unchanged intermeete period emphasize need maintain sufficiently restrictive stance policy ensure inflation fall target staff review financial situation intermeete period soft expect datum release appear lessen perception investor policy need tighten order bring inflation percent time market participant view monetary policy communication balance point somewhat restrictive policy expect result nominal treasury yield decline significantly expect market imply path fund rate month shift downward broad equity price index boost factor lower treasury yield spread investment- speculative grade corporate bond narrow financing condition remain moderately restrictive borrowing cost remain elevate despite decline intermeete period market imply path fund rate month move notably intermeete period straight read fund future rate suggest market participant expect fund rate basis point level fomc meeting early time octoberânovember fomc policy rate path imply overnight index swap quote move basis point percent end similarly nominal treasury yield decline significantly decline nominal yield reflect decrease real yield measure inflation compensation moderately low net amid soft expect datum release measure uncertainty path interest rate decrease notably consistent tempering concern inflation remain elevate historical standard broad stock price index increase markedly intermeete period spread investment grade bond narrow moderately speculative grade corporate bond decline notably month option imply volatility s&p decrease moderately reach low level january spillover fall u.s. yield expectation reading global inflation oil price drop lead large decline foreign yield decline accompany improvement market sentiment foreign equity price increase foreign credit spread narrow outflow fund invest emerge market economy slow notably improvement sentiment decline u.s. yield contribute broad depreciation foreign exchange value dollar condition u.s. short term funding market remain stable intermeete period usage rrp facility continue decline period decline usage primarily reflect money market mutual fund reallocate asset treasury bill private market repo offer slightly attractive market rate relative rrp rate amid continue increase net treasury bill issuance federal reserve balance sheet reduction bank total deposit level roughly unchanged intermeete period outflow core deposit offset inflow large time deposit domestic credit market borrowing cost business household municipality decline intermeete period reflect low long maturity treasury yield narrow credit spread al­though borrowing cost remain significantly elevated rate loan household include year conform residential mortgage auto loan decline intermeete period interest rate commercial industrial c&i loan small business loan little change yield corporate bond fall treasury yield particularly speculative grade bond bank credit condition appear tighten somewhat intermeete period credit business household remain accessible c&i loan balance contract november balance expansion commercial real estate cre loan step appreciably category moderate pace credit remain available consumer al­though consumer credit flow soften month growth credit card balance moderate significantly november brisk pace see summer residential real estate borrower credit availability little change credit condition small business appear tighten month datum federal reserve small business lending survey show origination roughly flat mid-2022 tick credit continue accessible capital market al­though issuance slow market include corporate bond leveraged loan agency non agency commercial mortgage base security cmbs credit quality remain solid deteriorate sector month delinquency rate nonfarm nonresidential cre loan rise delinquency rate construction land development multifamily loan tick increase quarter year delinquency rate loan cmbs pool edge lower october large volume loan schedule mature quarter suggest delinquency surge delinquency rate small business loan continue tick september level observe pandemic credit card delinquency rate increase delinquency rate auto loan little change trail default rate investment- speculative grade corporate bond little change net trail default rate leveraged loan increase bit staff economic outlook economic forecast prepare december similar projection previous continue expect gdp growth slow markedly outsize rate economic growth solid lag effect early monetary policy action contribution continue tight financial credit condition expect fully restrain economic activity come year real gdp project increase slowly estimate potential year rise line potential unemployment rate expect roughly flat effect potential output growth offset effect improvement labor market functioning revise inflation forecast reflect low expect incoming dataâincluding november cpi producer price indexâand inflation persistent previous projection measure change basis total pce price inflation expect somewhat percent year core pce price inflation somewhat percent inflation project lower come year demand supply product labor market move well alignment total core pce price inflation expect close percent continue uncertainty baseline projection elevated al­though observe volatility incoming datum forecast error pronounce past year risk inflation forecast see skew upside give inflation elevate possibility inflation prove persistent expect adverse shock supply condition occur risk forecast economic activity view tilt downside particular additional monetary policy tightening place upside inflation risk materialize potential great tightening financial condition represent downside risk projection economic activity participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections sep release public follow conclusion economic condition participant observe strong expect growth real gdp indicator suggest growth economic activity slow strong job gain moderate early year unemployment rate remain low participant observe inflation ease past year remain elevated committee long run goal percent economic outlook participant judge real gdp growth cool rebalancing labor market unemployment rate rise somewhat level base well expect datum inflation participant revise inflation projection less extent subsequent year participant judge stance monetary policy restrictive appear restrain economic activity inflation light policy restraint place favorable datum inflation participant view risk inflation employment move great balance participant remain highly attentive inflation risk inflation participant observe clear progress committee percent inflation objective remain concerned elevated inflation continue harm household especially limited mean absorb high price participant observe inflation remain committee objective need evidence inflation pressure abate confident sustained return inflation percent review progress date reduce inflation participant note improvement headline core inflation discuss development component aggregate measure observe progress uneven component energy core good price fall change little recently core service price increase elevated pace participant observe ongoing rebalancing labor supply demand help reduce core service inflation participant assess housing service inflation fall time early deceleration rent lease continue pass broad rent measure participant discuss role play supply demand factor progress reduce inflation far assess contribution improve supply come supply chain normalization boost labor supply high labor force participation rate immigration well productivity growth increase domestic oil production note restrictive monetary policy help restrain growth demand particularly interest sensitive sector business fix investment housing auto durable good participant assess healing supply chain labor supply complete continue progress reduce inflation need come mainly soften product labor demand restrictive monetary policy continue play role see potential improvement supply participant note long term inflation expectation remain anchored near term inflation expectation household decline recently comment household sector participant observe consumer spending strong support healthy balance sheet household strong labor market robust income growth retail sale growth step noticeably october participant remark contact report strong sale november notably relate holiday spending participant mention factor contribute soft consumer spending include slow growth labor income diminish pandemic relate excess saving relatedly participant note increase usage credit household include credit card buy pay later borrowing payday loan increase delinquency rate type consumer loan report participant business sector contact mixed contact remain relatively optimistic expect slow growth participant observe high interest rate lead firm reassess future project contribute soft business investment hiring couple participant comment small business note business experience tight credit condition increase delinquency participant note contact manufacturing report slow growth couple participant expect low price commodity drought condition reduce agricultural income year concern cre participant note significant share property need refinance backdrop high interest rate continued weakness office sector balance sheet pressure face lender participant assess labor market remain tight continue come well balance note nominal wage growth continue slow business contact expect reduction wage growth participant observe payroll growth slow substantially beginning year participant remark contact report large applicant pool vacancy participant highlight ratio vacancy unemployed worker decline value modestly level pandemic participant view improvement labor supply easing labor demand have contribute labor market come well balance supply improve high labor force participation immigration continue solid productivity growth support productive capacity economy evidence softening growth labor demand participant note decline job opening remark low quit rate participant note risk labor demand weaken substantially labor market transition quickly gradual easing abrupt downshift condition participant perceive high degree uncertainty surround economic outlook upside risk inflation economic activity participant note momentum economic activity strong currently assess possibly account continue balance sheet strength household furthermore participant observe sharp tightening summer financial condition ease intermeete period participant remark easing financial condition appropriate difficult committee reach inflation goal participant note source upside risk inflation include possible effect global energy food price geopolitical development potential rebound core good price follow period supply chain improvement effect nearshore onshore activity labor demand inflation downside risk economic activity note participant include possibility effect past policy tightening large expect risk marked weakening household balance sheet possible negative spillover low growth foreign economy geopolitical risk linger risk tightening credit relatedly participant note weakness gross domestic income growth relative gdp growth past quarter economic momentum period strong indicate gdp reading consideration appropriate monetary policy action participant note indicator suggest growth economic activity slow strong pace job gain moderate early year remain strong unemployment rate remain low continue sign supply demand labor market come well balance inflation ease past year remain elevated participant note tight financial credit condition face household business weigh economic activity hiring inflation al­though extent effect remain uncertain participant continue resolute commitment bring inflation committee percent objective light economic condition implication outlook economic activity inflation balance risk participant judge appropriate maintain target range fund rate percent participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet participant assess maintain policy stance support intermeete datum indicate inflation continue committee percent objective labor market continue well balance judge maintain target range fund rate promote progress committee goal allow participant time gather additional information evaluate progress discuss policy outlook participant view policy rate near peak tighten cycle note actual policy path depend economy evolve participant point decline inflation see note shift month inflation reading particular grow sign demand supply come well balance product labor market inform participant remark committee past policy action have intended effect help slow growth aggregate demand cool labor market condition judge combination improvement supply situation development help bring inflation percent time participant note indicate submission sep expect committee restrictive policy stance soften household business spending help promote reduction inflation year submit projection participant indicate reflect improvement inflation outlook baseline projection imply low target range fund rate appropriate end participant note outlook associate unusually elevated degree uncertainty possible economy evolve manner increase target range appropriate observe circumstance warrant keep target range value long currently anticipate participant stress importance maintain careful data dependent approach make monetary policy decision reaffirm appropriate policy restrictive stance time inflation clearly move sustainably committee objective participant discuss risk management consideration bear future policy decision participant see upside risk inflation have diminish note inflation committee long run goal risk remain progress price stability stall number participant highlight uncertainty associate long restrictive monetary policy stance need maintain point downside risk economy associate overly restrictive stance suggest committee potentially face tradeoff dual mandate goal period ahead participant observe continue process reduce size federal reserve balance sheet important committee approach achieve macroeconomic objective balance sheet runoff far proceed smoothly participant note amid ongoing balance sheet normalization decline intermeete period use rrp facility reduced usage reflect portfolio shift money market mutual fund higher yield investment include treasury bill private market repo participant remark committee balance sheet plan indicate slow stop decline size balance sheet balance somewhat level judge consistent ample reserve participant suggest appropriate committee begin technical factor guide decision slow pace runoff decision reach order provide appropriate advance notice public committee policy actions discussion monetary policy member agree indicator suggest growth economic activity slow strong pace job gain moderate early year remain strong unemployment rate remain low inflation ease past year remain elevated member concur u.s. banking system sound resilient agree tight financial credit condition household business weigh economic activity hiring inflation extent effect uncertain member agree remain highly attentive inflation risk support committee objective achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent agree additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time member concur account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan member affirm strong commitment return inflation percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development member agree postmeete statement acknowledge slowing economic activity strong pace fact inflation ease past year remain elevated member agree modify sentence postmeete statement discuss consideration relevant future policy action committee determine extent additional policy firming appropriate return inflation percent time member view addition word sentence appropriately relay target range fund rate near peak policy tightening cycle leave open possibility increase target range warrant totality incoming datum evolve outlook balance risk conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator growth economic activity slow strong pace job gain moderate early year strong unemployment rate remain low inflation ease past year remain elevated u.s. banking system sound resilient tight financial credit condition household business weigh economic activity hiring inflation extent effect remain uncertain committee remain highly attentive inflation risk committee seek achieve maximum employment inflation rate percent long run support goal committee decide maintain target range fund rate percent committee additional information implication monetary policy determine extent additional policy firming appropriate return inflation percent time committee account cumulative tightening monetary policy lag monetary policy affect economic activity inflation economic financial development addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams michael barr michelle bowman lisa cook austan goolsbee patrick harker philip jefferson neel kashkari adriana kugler lorie logan christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective december board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective december agree committee hold tuesdayâwednesday january 30â31 adjourn 10:15 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold october 31ânovember joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend economic financial situation return text attend tuesday return text

minute federal open market committee january 30â31 joint federal open market committee board governors federal reserve system hold office board governors tuesday january 10:00 a.m. continue wednesday january 9:00 a.m. attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller susan collins austan goolsbee kathleen o'neill jeffrey schmid sushmita shukla alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse edward knotek david lebow sylvain leduc paula tkac william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system administrator division information technology board isaiah ahn information management analyst division monetary affairs board roc armenter executive vice president federal reserve bank philadelphia alyssa arute manager division reserve bank operations payment systems board penelope beattie section chief office secretary board david bowman senior associate director division monetary affairs board celso brunetti assistant director division research statistics board juan climent special adviser board division board members board daniel covitz deputy director division research statistics board jennifer crystal senior adviser division international finance board stephanie curcuru deputy director division international finance board ryan decker special adviser board division board members board sarah devany vice president federal reserve bank san francisco rochelle edge deputy director division monetary affairs board eric engstrom associate director division research statistics board jon faust senior special adviser chair division board members board jenn gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city luca guerrieri associate director division international finance board christopher gust associate director division monetary affairs board andrew haughwout acting director research federal reserve bank new york valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board kyungmin kim principal economist division monetary affairs board elizabeth kiser senior associate director division research statistics board andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board ann misback secretary office secretary board phillip monin senior economist division monetary affairs board michelle neal head markets federal reserve bank new york christopher nekarda principal economist division research statistics board anna paulson executive vice president federal reserve bank chicago eugenio pinto special adviser board division board members board andrea raffo senior vice president federal reserve bank minneapolis andres schneider principal economist division monetary affairs board samuel schulhofer wohl senior vice president federal reserve bank dallas felipe schwartzman senior economist federal reserve bank richmond chiara scotti senior vice president federal reserve bank dallas zeynep senyuz deputy associate director division monetary affairs board arsenios skaperdas senior economist division monetary affairs board balint szoke senior economist division monetary affairs board clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board fabian winkler principal economist division monetary affairs board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board annual organizational matters agenda report advice election follow member alternate member federal open market committee term begin january receive individual execute oath office elect member alternate member follow john williams president federal reserve bank new york sushmita shukla vice president federal reserve bank new york alternate thomas barkin president federal reserve bank richmond susan collins president federal reserve bank boston alternate loretta mester president federal reserve bank cleveland austan goolsbee president federal reserve bank chicago alternate raphael bostic president federal reserve bank atlanta kathleen o'neill interim president federal reserve bank st. louis alternate mary daly president federal reserve bank san francisco jeffrey schmid president federal reserve bank kansas city alternate unanimous vote follow officer committee select serve selection successor regularly schedule committee jerome powell chair john williams vice chair joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel charles gray assistant general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed kartik athreya james clouse brian doyle edward knotek david lebow sylvain leduc paula tkac william wascher alexander wolman associate economists unanimous vote committee select federal reserve bank new york execute transaction system open market account soma unanimous vote committee select roberto perli julie ann remache serve pleasure committee manager deputy manager soma respectively understanding selection subject satisfactory federal reserve bank new york secretary federal reserve bank new york subsequently send advice selection indicate previously satisfactory unanimous vote committee approve fomc authorizations continuing directives open market operations revision section continue directive domestic open market operations add standing day term option exist stand foreign international monetary authorities repurchase agreement operations ahead vote policy relate investment trading information security external communication chair comment critical importance earn keep public trust impartiality committee decisionmaking revised investment trading policy propose expand scope employee subject committee investment trading rule introduce investment restriction employee access fomc information participant indicate support agree abide fomc policy investment trading committee participants federal reserve system staff program security fomc information fomc policy external communications committee participants fomc policy external communications federal reserve system staff committee vote unanimously approve policy ahead vote statement long run goals monetary policy strategy chair indicate year statement begin half year result announce year later participant indicate support statement long run goals monetary policy strategy committee vote unanimously reaffirm revision developments financial markets open market operations manager turn development financial market intermeete period financial condition ease modestly remain tight summer tight hiking cycle begin intermeete period decline nominal treasury yield concentrate end yield curve staff model suggest decline short term yield attributable lower expect policy rate path concentrate expect real rate expect inflation little change pricing inflation derivative continue near term path inflation consistent return percent later year broad equity price reach high intermeete period drive strong gain large capitalization technology company broad measure equity valuation subdued equity appear price continue economic resilience manager turn expectation monetary policy market participant view inflation datum december summary economic projections sep increase odd rate cut start soon previously think modal path fund rate open market desk survey primary dealers survey market participants little change december show increase likelihood early rate cut modal path imply option price decline intermeete period modal path close december median sep projection average path policy rate imply future price decline substantially period future base path reflect effect investor perceive probability substantial rate cut baseline expectation communication period heighten market attention potential slowing balance sheet runoff desk survey respondent expect slowing pace start july al­though considerable uncertainty exact start date average expect timing end runoff shift slightly early portfolio size end runoff slightly high december survey development money market desk operation effective fund rate stable intermeete period secured overnight financing rate experience temporary modest upward pressure past month end include year end pattern common pandemic usage overnight reverse repurchase agreement rrp facility continue fall period balance late january june debt ceiling suspend usage rrp facility decline fast pace federal reserve security portfolio balance increase ongoing market surveillance continue monitor wide range money market indicator gauge suggest supply reserve remain abundant note rrp facility deplete stabilize low level reserve decline pace comparable runoff federal reserve security portfolio equal unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation datum available time january 30â31 indicate growth u.s. real gross domestic product gdp solid step strong pace labor market condition continue tight show sign ease consumer price inflation decline markedly course year remain percent labor demand supply continue gradually well alignment average monthly pace nonfarm payroll employment gain slow unemployment rate remain percent december average labor force participation rate move employment population ratio african american unemployment rate decline rate hispanics rise rate high asians white private sector job opening rate little change november december quit rate edge rate level start ease labor market imbalance apparent wage datum december month change employment cost index average hourly earning employee year early level consumer price inflation continue slow price index total personal consumption expenditure pce increase percent month end december core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent period total core pce price inflation year early level trimmed mean measure month pce price inflation construct federal reserve bank dallas percent december low level year early survey measure consumer short run inflation expectation move lower december survey measure medium- long term inflation expectation line level see decade pandemic accord advance estimate real gdp rise solid pace private domestic final purchasesâwhich comprise pce private fix investment provide well signal gdp underlie economic momentumâalso rise solidly slow rate real export grow robustly drive jump export industrial supply decline markedly early year contrast real import grow tepid pace gain import capital good service partially offset decline import consumer good auto tell net export contribute percentage point u.s. gdp growth make roughly neutral contribution precede quarter foreign economic growth remain subdue advanced foreign economy afes significant tightening monetary policy past year erosion real household income high inflation rate repercussion year energy shock europe continue weigh economic activity china property sector slump depressed consumer confidence continue weigh domestic demand government roll series policy measure support growth economic activity asia exclude china firm support rebound global demand high tech product foreign headline inflation continue fall pace decline vary country sector moderation good price have outpace service price major foreign bank keep policy rate unchanged intermeete period emphasize need maintain stance policy sufficiently restrictive ensure inflation fall target staff review financial situation intermeete period nominal treasury yield decline expect market imply path fund rate shift downward market participant view monetary policy communication balance point notably restrictive policy expect indicator broad financial condition ease period financial conditions impulse growth index remain restrictive similarly finance condition household business continue moderately restrictive borrowing cost remain elevated market imply path fund rate decrease intermeete period straight read fund future rate suggest market participant place high odd significant policy ease december fomc policy rate path imply overnight index swap quote decline consistent decline imply policy path short- intermediate term treasury yield decline notably real yield decline nominal yield imply somewhat high measure inflation compensation market base measure interest rate uncertainty remain highly elevated historical standard broad stock price index increase spread investment- speculative grade bond narrow modestly intermeete period month option imply volatility s&p increase somewhat period remain low historical standard movement foreign market intermeete period modest net foreign asset price exchange value dollar little change market participant consider level afe policy rate peak respective tightening cycle decline market base measure u.s. policy expectation contribute moderate step short term yield afes long term foreign yield little change major afe equity index increase slightly condition short term funding market remain stable intermeete period typical dynamic observe surround year end usage rrp facility continue decline period primarily reflect money market fund reallocate asset treasury bill private market repurchase agreement offer slightly attractive market rate relative rrp rate bank total deposit level roughly unchanged year outflow core deposit offset inflow large time deposit domestic credit market borrowing cost business household municipality decrease moderately intermeete period remain elevated rate loan household decline intermeete period remain relatively high interest rate exist credit card account little change interest rate commercial industrial c&i loan small business loan increase intermeete period yield decline broad array fix income security include investment- speculative grade corporate bond residential commercial mortgage back security cmbs municipal bond decline drive decrease treasury yield extent narrow spread credit continue available business household municipality credit availability small firm continue tighten total core loan bank increase slightly financing capital market continue available al­though issuance market remain moderate level january senior loan officer opinion survey bank lending practices sloos bank report tighten standard term c&i loan firm size commercial real estate cre bank report tighten standard loan category bank report expect lending standard unchanged c&i loan tighten standard cre loan credit residential mortgage market remain easily available high credit score borrower meet standard conform loan criterion consumer credit remain available borrower growth credit card balance strong november sloos respondent indicate standard credit card tighten expect tighten auto loan balance grow modestly november modest share bank report sloos tighten standard auto loan expect tighten credit quality business household deteriorate slightly remain solid delinquency rate sector relatively low delinquency rate conventional mortgage remain low delinquency rate credit card auto loan rise level notably pandemic credit quality nonfinancial firm borrow corporate bond leveraged loan market remain sound aggregate delinquency rate cmbs back office property continue elevate november january sloos bank report credit quality expect deteriorate somewhat loan category provide update assessment stability u.s. financial system balance characterize system financial vulnerability notable judge asset valuation pressure remain notable valuation range market appear high relative fundamental house price increase upper end historical range relative rent treasury yield underwriting standard remain restrictive cre price continue decline especially multifamily office sector low level transaction office sector indicate price fully reflect sector weak fundamental vulnerability associate business household debt characterize moderate nonfinancial business debt growth decline ability firm service debt remain high relative history leverage financial sector characterize notable banking sector regulatory risk base capital ratio continue increase indicate ample loss bear capacity banking system fair value bank long term fix rate asset include loan increase long term interest rate decrease bank remain vulnerable significant increase long term interest rate insurer increase investment risky corporate debt funding risk characterize notable uninsured deposit decline aggregate remain high bank asset prime money market mutual fund cash management vehicle continue increase staff economic outlook economic forecast prepare january slightly strong december projection upward revision gdp growth imply incoming datum boost level output projection period lag effect early monetary policy action continue contribution tight financial credit condition expect push output growth estimate potential growth output expect rise line potential project path unemployment rate revise slightly reflect upward revision level output total core pce price inflation project step demand supply product labor market move well alignment total core pce price inflation expect close percent continue uncertainty baseline projection elevated note uncertainty diminish substantially past year risk inflation forecast see tilt slightly upside al­though inflation come close expectation place weight possibility progress reduce inflation long expect risk forecast real activity view skewed downside substantial setback reduce inflation lead tightening financial condition slow pace real activity anticipate baseline forecast addition possibility large expect erosion household financial position see downside risk projection real activity participant view current conditions economic outlook economic condition participant note indicator suggest economic activity expand solid pace real gdp growth year come percent annual rate strong growth post forecaster expectation participant observe unexpected strength real gdp growth reflect strong expect net export inventory investment tend volatile carry little signal future growth consumption continue grow solid pace addition strong demand participant attribute expansion economic activity favorable supply development participant note pace job gain moderate early year remain strong unemployment rate remain low inflation ease past year remain elevated economic outlook participant judge stance monetary policy restrictive downward pressure economic activity inflation accordingly expect supply demand product labor market well balance light policy restraint place favorable inflation datum amid ongoing improvement supply condition participant view risk achieve committee employment inflation goal move well balance participant note economic outlook uncertain remain highly attentive inflation risk inflation participant observe inflation ease past year remain committee percent inflation objective remain concerned elevated inflation continue harm household especially limited mean absorb high price inflation datum indicate significant disinflation half year participant observe carefully assess incoming datum judge inflation move sustainably percent participant note improvement headline core inflation discuss underlie component series al­though total pce inflation december remain committee percent objective month basis month basis total pce inflation near percent annual rate core pce inflation percent participant judge improvement inflation reflect idiosyncratic movement series view significant progress recently inflation return committee long run goal participant indicate expect core nonhouse service inflation gradually decline labor market continue well balance wage growth moderate participant note housing service inflation fall deceleration rent lease continue pass measure inflation participant point disinflationary pressure associate improvement aggregate supplyâsuch increase labor force well productivity growthâa couple participant judge downward pressure core good price normalization supply chain moderate participant observe long term inflation expectation remain anchor level consistent committee percent inflation objective measure near term inflation expectation decline recently case range year pandemic participant point report contact firm easily pass price increase consumer make frequent price adjustment year household sector participant observe consumer spending strong expect support low unemployment solid income growth number participant judge consumption growth moderate year growth labor income expect slow pandemic relate excess saving expect diminish addition participant note sign finance householdsâespecially low- moderate income categoriesâwere increasingly come pressure participant see downside risk outlook consumption particular point increase usage credit card revolving balance buy pay later service increase delinquency rate type consumer loan report business contact cite participant vary industry district district contact report pace economic activity steady solid contact express increase optimism economic outlook prospect investment district report manufacturer mixed contact see increase activity see subdue weakening activity couple participant note al­though soft commodity price elevated borrowing cost contribute decline farm income recently agricultural land value remain resilient delinquency farm loan continue low participant remark financing credit condition particularly challenge small business participant note labor market remain tight demand supply market continue come well balance payroll growth remain strong month slow pace see year ago unemployment rate remain low participant observe ratio job opening unemployed worker decline past year remain somewhat pre pandemic level consistent reduction labor market tightness business contact district report easing wage pressure increase ability hire retain worker participant mention development boost labor supply year include high labor force participation immigration improved job matching process participant judge increase labor supply limit point instance decline labor force participation december labor market condition see strong participant note job gain concentrate sector point downside risk outlook employment participant discuss uncertainty surround economic outlook upside risk inflation economic activity participant note momentum aggregate demand strong currently assess especially light surprisingly resilient consumer spending year furthermore participant mention risk financial condition restrictive appropriate add undue momentum aggregate demand cause progress inflation stall participant note source upside risk inflation include possible disruption supply chain geopolitical development potential rebound core good price effect supply improvement dissipate possibility wage growth remain elevated downside risk inflation economic activity note participant include geopolitical risk result material pullback demand possible negative spillover low growth foreign economy risk financial condition restrictive long possibility weakening household balance sheet contribute great expect deceleration consumption participant mention possibility economic activity surprise upside inflation downside favorable expect supply development financial stability participant observe risk banking system recede notably spring note vulnerability bank assess warranted monitoring participant note potential risk bank associate increase funding cost significant reliance uninsured deposit unrealize loss asset result rise long term interest rate high cre exposure participant judge liquidity financial system remain ample discuss importance consider liquidity condition federal reserve balance sheet continue normalize participant note see sign liquidity pressure bank participant note matter prudent contingency planning bank improve readiness use federal reserve discount window federal reserve improve operational efficiency window addition participant comment difficulty associate bank rely form private wholesale funding time stress participant remark importance measure aim increase resilience treasury market participant note cyber risk importance firm able recover cyber event participant comment financial condition low- moderate income household exhaust saving importance monitor datum rise delinquency credit card auto consideration appropriate monetary policy action participant note indicator suggest economic activity expand solid pace job gain moderate early year remain strong unemployment rate remain low inflation ease past year remain elevated participant note risk achieve committee employment inflation goal move well balance committee remain highly attentive inflation risk participant continue resolute commitment bring inflation committee percent objective light economic condition implication outlook economic activity inflation balance risk participant judge appropriate maintain target range fund rate percent participant judge appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet participant view maintain stance policy appropriate give incoming datum indicate inflation continue committee percent objective demand supply labor market continue well balance participant comment maintain target range fund rate promote progress committee goal allow participant gather additional information evaluate progress discuss policy outlook participant judge policy rate peak tighten cycle point decline inflation see grow sign demand supply come well balance product labor market inform participant note expect appropriate reduce target range fund rate gain great confidence inflation move sustainably percent participant remark committee past policy action ongoing improvement supply condition work supply demand well balance participant note future path policy rate depend incoming datum evolve outlook balance risk participant emphasize importance continue communicate clearly committee data dependent approach discuss risk management consideration bear policy outlook participant remark risk achieve committee employment inflation goal move well balance remain highly attentive inflation risk particular see upside risk inflation have diminish note inflation committee long run goal participant note risk progress price stability stall particularly aggregate demand strengthen supply healing slow expect participant highlight uncertainty associate long restrictive monetary policy stance need maintain participant note risk move quickly ease stance policy emphasize importance carefully assess incoming datum judge inflation move sustainably percent couple participant point downside risk economy associate maintain overly restrictive stance long participant observe continue process reduce size federal reserve balance sheet important committee approach achieve macroeconomic objective balance sheet runoff far proceed smoothly light ongoing reduction usage rrp facility participant suggest appropriate begin depth discussion balance sheet issue committee guide eventual decision slow pace runoff participant remark give uncertainty surround estimate ample level reserve slow pace runoff help smooth transition level reserve allow committee balance sheet runoff long addition participant note process balance sheet runoff time committee begin reduce target range fund rate committee policy actions discussion monetary policy member agree economic activity expand solid pace job gain moderate early year remain strong unemployment rate remain low inflation ease past year remain elevated member judge risk achieve committee employment inflation goal move well balance member view economic outlook uncertain agree remain highly attentive inflation risk support committee goal achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent member concur consider adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree expect appropriate reduce target range gain great confidence inflation move sustainably percent addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security describe previously announce plan member affirm strong commitment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development give stress emerge bank early year subside member agree remove statement reference resilience u.s. banking system tight financial credit condition effect economic outlook member agree progress percent inflation objective resilience economic activity past year state committee judge risk achieve employment inflation goal move well balance consideration relevant future policy action member agree give assessment policy rate peak tighten cycle remove reference extent additional policy firming appropriate return inflation percent time include december statement place agree adopt phrase reference consider adjustment target range fund rate member agree statement convey committee carefully incoming datum evolve outlook balance risk expect appropriate reduce target range gain great confidence inflation move sustainably percent conclusion committee vote direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective february federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity expand solid pace job gain moderate early year strong unemployment rate remain low inflation ease past year remain elevated committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal move well balance economic outlook uncertain committee remain highly attentive inflation risk support goal committee decide maintain target range fund rate percent consider adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee expect appropriate reduce target range gain great confidence inflation move sustainably percent addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective february board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective february agree committee hold tuesdayâwednesday march 19â20 adjourn 10:25 a.m. january notation vote notation vote complete january committee unanimously approve minute committee hold december 12â13 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend economic financial situation return text attend opening remark tuesday return text attend tuesday return text committee organizational document available www.federalreserve.gov/monetarypolicy/rules_authorizations.htm return text kartik athreya selection effective employment federal reserve bank new york return text

minute federal open market committee march 19â20 joint federal open market committee board governors federal reserve system hold office board governors tuesday march 9:00 a.m. continue wednesday march 9:00 a.m. attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller susan collins austan goolsbee kathleen o'neill jeffrey schmid alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist shaghil ahmed kartik athreya james clouse edward knotek sylvain leduc william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior system administrator division information technology board oladoyin ajifowoke program management analyst division monetary affairs board david altig executive vice president federal reserve bank atlanta andre anderson vice president federal reserve bank atlanta roc armenter executive vice president federal reserve bank philadelphia alyssa arute manager division reserve bank operations payment systems board penelope beattie section chief office secretary board carol bertaut senior adviser division international finance board david bowman senior associate director division monetary affairs board ellen bromagen vice president federal reserve bank chicago isabel cairó principal economist division monetary affairs board mark carlson adviser division monetary affairs board juan climent special adviser board division board members board stephanie curcuru deputy director division international finance board ryan decker special adviser board division board members board rochelle edge deputy director division monetary affairs board eric engen senior associate director division research statistics board giovanni favara assistant director division monetary affairs board ron feldman vice president federal reserve bank minneapolis erin ferris principal economist division monetary affairs board andrew figura associate director division research statistics board charles fleischman senior adviser division research statistics board glenn follette associate director division research statistics board jenn gallagher assistant board division board members board michael gibson director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city luca guerrieri associate director division international finance board christopher gust associate director division monetary affairs board valerie hinojosa section chief division monetary affairs board jasper hoek deputy associate director division international finance board andreas hornstein senior advisor federal reserve bank richmond jane ihrig special adviser board division board members board sebastian infante section chief division monetary affairs board michael kiley deputy director division financial stability board kevin kliesen research officer federal reserve bank st. louis spencer krane senior vice president federal reserve bank chicago andreas lehnert director division financial stability board paul lengermann deputy associate director division research statistics board deborah leonard capital markets trading director federal reserve bank new york kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board joshua louria group manager division monetary affairs board byron lutz deputy associate director division research statistics board karel mertens interim director research federal reserve bank dallas ann misback secretary office secretary board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board michael palumbo senior associate director division research statistics board eugenio pinto special adviser board division board members board odelle quisumbing assistant secretary office secretary board andrea raffo senior vice president federal reserve bank minneapolis nellisha ramdass deputy director division monetary affairs board jeanne rentezelas vice president federal reserve bank philadelphia achilles sangster senior information manager division monetary affairs board bernd schlusche principal economist division monetary affairs board andres schneider principal economist division monetary affairs board zeynep senyuz deputy associate director division monetary affairs board robert tetlow senior adviser division monetary affairs board clara vega special adviser board division board members board jeffrey walker associate director division reserve bank operations payment systems board min wei senior associate director division monetary affairs board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market intermeete period u.s. financial condition ease modestly january fomc high equity price offset increase interest rate nominal treasury yield rise intermeete period short maturity increase attributable rise inflation compensation prompt indication decline inflation proceed somewhat slowly market month expect contrast long maturity increase treasury yield rise real rate reflect solid labor market reading strong expect datum economic activity manager turn policy rate expectation estimate expected fund rate path derive future price shift significantly intermeete period modal fund rate path imply option price rise substantially future imply path future imply path reflect shift expectation policy rate cut begin later year cumulate small rate reduction previously assess investor appear considerably lower perceive probability substantial rate cut baseline expectation lowering evident significantly concentrated probability distribution fund rate come quarter change policy rate expectation intermeete period occur wake strong economic datum perception disinflation proceed slowly previously think federal reserve communication median modal path fund rate obtain open market desk survey primary dealers survey market participants slightly high response indicate substantial difference survey participant assessment total rate cut occur year manager discuss expectation balance sheet policy survey response reflect judgment committee slowing balance sheet runoff begin slightly later previously expect majority survey participant expect slowing start midyear balance sheet runoff expect time survey response suggest slightly small balance sheet size end runoff respondent previously assess manager note broad equity price reach high intermeete period growth drive primarily strong increase valuation large capitalization technology company broad equity price gain measured recent equity price behavior reflect renew market attention challenge face regional banking sector particularly sector exposure commercial real estate cre global financial market expect policy rate path advanced foreign economy afes shift intermeete period end intermeete period bank japan boj announce discontinue policy negative short term interest rate yield curve control decision expect investor boj announcement limited effect global financial market condition u.s. money market stable intermeete period upward pressure repurchase agreement repo rate intermeeting period usage overnight reverse repurchase agreement rrp facility continue decline albeit somewhat slow pace see half staff projection suggest total rrp balance stabilize coming month low level assessment support information acquire desk outreach effort manager provide update indicator condition past year rate control effective effective fund rate firmly committee target range assess intermeete period fund rate continue insensitive day day change supply reserve outcome indicator condition support conclusion reserve remain abundant manager note significant uncertainty demand reserve pace runoff federal reserve security portfolio stabilization total rrp balance equal cause reserve start decline rapid rate unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period consideration slow pace balance sheet reduction participants begin relate slow pace balance sheet runoff consistent committee plan reduce size federal reserve balance sheet announce plan indicate order ensure smooth transition committee intend slow stop decline size balance sheet balance somewhat level judge consistent ample reserve balance sheet runoff begin june federal reserve total security holding decline roughly light ongoing sizable decline balance sheet prospect rapid decline balance participant agree discussion help inform committee future decision slow pace runoff decision adjust pace balance sheet runoff participant precede presentation review 2017â19 balance sheet runoff episode lesson learn experience include importance monitor money market condition light uncertainty surround level reserve consistent operate ample reserve regime present set simulation monthly pace security runoff reduce illustrate choice start slow pace runoff affect path balance sheet balance simulation show option slow pace runoff affect duration expect phase transition ample level reserve participant observe balance sheet runoff proceed smoothly take account experience end 2017â19 balance sheet runoff episode participant assess appropriate cautious approach runoff vast majority participant judge prudent begin slow pace runoff fairly soon participant note despite significant balance sheet reduction balance remain elevated decline usage rrp facility shift federal reserve liability reserve extent future decline rrp limited balance sheet runoff translate directly decline balance potentially rapid pace light uncertainty level reserve consistent operate ample reserve regime slow pace balance sheet runoff soon later help facilitate smooth transition abundant ample balance slow runoff committee time market condition balance sheet continue shrink allow bank short term funding market additional time adjust low level reserve reduce probability money market experience undue stress require early end runoff decision slow pace runoff mean balance sheet ultimately shrink slow pace runoff facilitate ongoing decline security holding consistent reach ample reserve participant indicate prefer pace balance sheet runoff market indicator begin sign reserve approach ample level participant emphasize importance communicate decision slow pace runoff implication stance monetary policy mean implement transitional step previously announce committee balance sheet plan discussion adjust pace runoff participant favor reduce monthly pace runoff roughly half pace redemption agency debt agency mortgage back security mbs expect run monthly cap participant see little need adjust cap consistent committee intention hold primarily treasury security long run accordingly participant prefer maintain exist cap agency mbs adjust redemption cap u.s. treasury security slow pace balance sheet runoff participant share initial perspective long term aspect balance sheet policy immediate issue concern slow pace runoff see level reserve abundant participant emphasize underlying uncertainty level reserve consistent operate ample reserve regime note price quantity metric see important real time indicator condition short term funding market provide signal reserve approach level somewhat ample participant mention importance discount window standing repo facility liquidity backstop reserve decline participant comment aspect composition federal reserve security holding include appropriate long run maturity composition system open market account portfolio option achieve long run portfolio consist primarily treasury security staff review economic situation information available time march 19â20 suggest u.s. real gross domestic product gdp expand solid rate slow robust pace labor market condition remain strong month consumer price inflationâas measure month change price index personal consumption expenditure pce)âcontinue trend remain percent labor demand supply appear well balance indicator mixed total nonfarm payroll employment increase fast average monthly pace january february contrast unemployment rate edge percent february labor force participation rate employment population ratio essentially unchanged unemployment rate african americans increase rate hispanics unchanged rate high asians white private sector job opening rate quit rate little change january rate far year early level month change average hourly earning employee essentially february end year remain level year ago wage growth tracker construct federal reserve bank atlanta low past month reading year consumer price inflation continue decline progress uneven total pce price increase percent month end january core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent period month measure continue trend month month reading january move trimmed mean measure month pce price inflation construct federal reserve bank dallas percent january low level year early month end february consumer price index cpi increase percent core cpi rise percent month measure year ago level month month cpi reading firm bit recent survey measure consumer inflation expectation shorter- long term horizon line level see decade pandemic recent indicator suggest real gdp increase solid pace slowly robust rate incoming datum point slow pce growth expenditure decline january component retail sale datum estimate pce soft february january reading order shipment nondefense capital good exclude aircraft nonresidential construction spending suggest deceleration business fix investment contrast start permit single family home january february point modest pickup residential investment growth real export good step january relative december follow rapid growth contrast real good import pick january high import capital good automotive product offset low import consumer good overall nominal u.s. international trade deficit widen january good service import expand export increase slightly contrast strong u.s. gdp growth economic growth foreign economy weak amid tight monetary policy erosion real household income high inflation ongoing repercussion energy shock europe recently purchase manager index europe february indicator provide tentative sign firming region economic activity china economic datum january february somewhat mixed export investment industrial production strong household demand remain depressed amid china ongoing property sector slump hand economy emerge asia perform reflect strong demand lead edge semiconductor foreign headline inflation pick early year downward pressure previous energy price decline wan emerge market economy emes experience renew food price pressure adverse weather major foreign bank keep policy rate unchanged intermeete period emphasize need great confidence inflation fall target ease policy staff review financial situation intermeete period market imply path fund rate increase markedly reverse decline occur late year consistent increase imply policy rate path intermediate- long term treasury yield move period large increase concentrate short maturity increase short term treasury yield attribute rise near term inflation compensation market base measure near term interest rate uncertainty short term yield remain elevate historical standard reflect investor continued uncertainty path policy rate despite rise interest rate broad stock price index increase notably amid upbeat corporate earning report particularly large firm yield spread investment grade corporate bond little change speculative grade bond narrow slightly month option imply volatility s&p index increase slightly period remain low historical standard change foreign financial asset price intermeete period drive spillover u.s. financial market risk appetite improve lead increase foreign equity index narrowing eme credit spread short term yield afes boost accommodative expect communication european central bank official long term afe yield broad dollar index little change net march boj exit negative interest rate policy increase overnight policy rate negative percent range percent policy rate hike boj year boj end yield curve control policy indicate bond purchase change widely expect market reaction limited condition u.s. short term funding market remain stable intermeete period usage rrp facility continue decline decline average previous period suggest rate decline slow continue decline rrp primarily reflect money market fund mmfs ongoing reallocation asset treasury bill amid continue bill issuance relatively attractive bill yield bank total deposit level edge january february reflect rise nominal income somewhat competitive deposit rate mmfs continue provide relatively attractive yield investor experience modest inflow january fomc domestic credit market intermeete period borrowing cost remain elevated rate loan household rise month include year conform residential mortgage interest rate credit card offer increase december rate auto loan remain elevate late february near high yield move higher variety fix income security include commercial mortgage back security cmbs investment- speculative grade corporate bond residential mbs yield leveraged loan link secured overnight financing rate decline somewhat line narrowing credit spread addition interest rate small business loan tick january remain elevated credit continue available business household municipality large nonfinancial corporation continue find credit accessible capital market financing robust intermeete period commercial industrial loan balance expand modestly small firm loan origination stable despite tightening credit standard credit residential mortgage market remain available mortgage origination remain subdue consumer credit remain easily available credit card balance expand robustly january february credit card limit continue increase growth auto lending finance company mute january follow robust growth year cre borrower continue find credit readily accessible period cre loan bank pick moderately january february drive growth multifamily residential loan non agency cmbs issuance volume moderate average january february credit quality large firm home mortgage borrower remain solid deteriorate sector cre credit card trail month default rate corporate borrower bond loan remain low february contrast credit rating downgrade outpace upgrade leveraged loan corporate bond january february credit quality small business deteriorate month mortgage delinquency rate conventional department veterans affairs loan unchanged december january delinquency rate federal housing administration loan pick slightly credit card delinquency rate increase bit stand level see pandemic upward trend auto delinquency rate appear stop half year delinquency rate remain little pre pandemic average delinquency rate nonfarm nonresidential loan bank increase end level see late delinquency rate office property cmbs pool continue increase january february delinquency rate high borrower loan mature year receive extension cmbs delinquency rate property type stable normal low level partly borrower able extend loan reach maturity year deterioration cre credit quality spark investor concern health small u.s. foreign bank intermeete period staff economic outlook economic projection prepare march strong january forecast upward revision forecast primarily reflect incorporation high project path population boost immigration lag effect early monetary policy action continue contribution tight financial credit condition expect hold output growth estimate potential growth policy effect wan output expect rise line potential unemployment rate forecast roughly flat year total core pce price inflation project edge end year percent demand supply product labor market continue well balance total core pce price inflation expect close percent view uncertainty baseline projection close average past year uncertainty judge diminish substantially past year risk inflation forecast see tilt slightly upside supply disruptionsâfrom development domestically abroadâor unexpectedly persistent inflation dynamic materialize risk forecast economic activity view skew little downside substantial setback reduce inflation lead tightening financial condition slow pace economic activity anticipate baseline forecast participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include path fund rate long run projection represent participant assessment rate variable expect converge time appropriate monetary policy absence shock economy summary economic projections release public follow conclusion inflation participant observe significant progress past year committee percent inflation objective monthly reading core headline inflation firm expect participant note increase inflation relatively broad base discount merely statistical aberration participant note residual seasonality affect inflation reading start year participant comment remain highly attentive inflation risk anticipate unevenness monthly inflation reading inflation return target outlook inflation participant note continue expect inflation return percent medium term remain concerned elevated inflation continue harm household especially able meet high cost essential like food housing transportation participant remark expect core nonhouse service inflation decline labor market continue well balance wage growth moderate participant discuss elevate rate housing service inflation comment uncertainty low reading rent growth lease pass category inflation participant note disinflationary pressure core good result receding supply chain bottleneck moderate factor relate aggregate supply increase labor force well productivity growth view participant support continued disinflation participant report business contact indicate able pass price increase consumer sensitive price change participant observe long term inflation expectation appear anchored reflect broad range survey household business forecaster measure financial market participant expect economic growth slow year strong pace regard household sector participant note consumption spending remain solid comment reading retail sale soft participant point strong labor market ongoing wage gain healthy household sector balance sheet support consumption participant note mixed report pace homebuilding amid elevated financing cost developer despite strong housing demand limited supply affordable housing participant note increase immigration boost growth personal consumption spending add demand housing participant point indicator high credit card balance great use buy pay later program rise delinquency rate type consumer loan evidence finance lower- moderate income household come pressure development see participant downside risk outlook consumption spending report business contact industry district convey increase optimism outlook contact couple district report steady stable pace economic activity restrictive credit condition cite participant restrain sector equipment investment residential investment participant note contact report increase investment technology business process improvement enhance productive capacity help business ameliorate effect tight labor market manufacturing activity characterize stable couple participant note high input cost low expect commodity price weigh farm income participant assess demand supply labor market continue come well balance condition remain tight participant note strong payroll growth unemployment rate remain low participant cite variety indicator suggest ease labor market condition include decline job vacancy low quit rate reduce ratio job opening unemployed worker participant indicate business contact report difficulty hire retain worker participant note well balance labor supply demand contribute easing nominal wage pressure participant observe portion labor market health care sector urban area remain tight participant note past year labor supply boost increase labor force participation immigration participant comment estimate great immigration past year increase labor supply help explain strength employment gain unemployment rate remain roughly flat wage pressure ease participant discuss uncertainty economic outlook participant note uncertainty persistence high inflation express datum increase confidence inflation move sustainably percent participant point geopolitical risk result severe supply bottleneck high shipping cost upward pressure price observe development weigh economic growth possibility geopolitical event surge domestic demand generate increase energy price see upside risk inflation participant note uncertainty restrictiveness financial condition associated risk condition restrictive desire add momentum aggregate demand upward pressure inflation participant comment increase efficiency technological innovation potential raise productivity growth allow economy grow fast raise inflation participant note downside risk economic activity include slow economic growth china deterioration condition domestic cre market potential reemergence stress banking sector possibility pickup layoff result relatively rapid rise unemployment participant point difficulty assess immigration trend influence evolution labor supply aggregate demand economic activity consideration monetary policy participant judge light economic condition outlook economic activity inflation balance risk appropriate maintain target range fund rate percent participant agree appropriate process reduce federal reserve security holding describe previously announce plan reduce size federal reserve balance sheet participant comment maintain target range fund rate support committee progress return inflation percent objective long term inflation expectation anchor discuss policy outlook participant judge policy rate peak tighten cycle participant judge appropriate policy restrictive stance point year economy evolve expect support note disinflation process continue path expect somewhat uneven point committee policy action ongoing improvement supply condition factor work supply demand well balance participant note indicator point strong economic momentum disappointing reading inflation month comment expect appropriate reduce target range fund rate gain great confidence inflation move sustainably percent participant remark consider adjustment target range fund rate future meeting carefully incoming datum evolve outlook balance risk participant note importance continue communicate clearly committee data dependent approach formulate monetary policy strong commitment achieve dual mandate objective maximum employment price stability discuss risk management consideration bear policy outlook participant judge risk achievement committee employment inflation goal move well balance remark important weigh risk maintain restrictive stance long unduly weaken economic activity employment risk ease policy quickly stall reverse progress return inflation committee percent inflation objective risk participant emphasize importance carefully assess incoming datum judge inflation move sustainably percent participant note source uncertainty associate outlook economic activity labor market inflation participant additionally mention uncertainty extent past monetary policy action stance policy weigh aggregate demand participant agree monetary policy remain position respond evolve economic condition risk outlook include possibility maintain restrictive policy stance long disinflation process slow reduce policy restraint event unexpected weakening labor market condition committee policy actions discussion monetary policy member agree economic activity expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated member judge risk achieve committee employment inflation goal move well balance member view economic outlook uncertain agree remain highly attentive inflation risk support committee goal achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent member concur consider adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree expect appropriate reduce target range gain great confidence inflation move sustainably percent addition member agree reduce federal reserve holding treasury security agency debt agency mbs describe previously announce plan member affirm strong commitment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective march federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal move well balance economic outlook uncertain committee remain highly attentive inflation risk support goal committee decide maintain target range fund rate percent consider adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee expect appropriate reduce target range gain great confidence inflation move sustainably percent addition committee reduce holding treasury security agency debt agency mortgage back security describe previously announce plan committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective march board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective march agree committee hold tuesdayâwednesday april 30âmay adjourn 9:55 a.m. march notation vote notation vote complete february committee unanimously approve minute committee hold january 30â31 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend consideration slow pace balance sheet reduction return text

minute federal open market committee april joint federal open market committee board governors federal reserve system hold office board governors tuesday april 10:00 a.m. continue wednesday 9:00 a.m. attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid sushmita shukla alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse brian doyle william wascher alexander wolman associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior system administrator division information technology board alyssa arute manager division reserve bank operations payment systems board ayelen banegas principal economist division monetary affairs board becky bareford vice president federal reserve bank richmond penelope beattie section chief office secretary board carol bertaut senior adviser division international finance board david bowman senior associate director division monetary affairs board marco cipriani research department head federal reserve bank new york todd clark senior vice president federal reserve bank cleveland juan climent special adviser board division board members board daniel covitz deputy director division research statistics board stephanie curcuru deputy director division international finance board ryan decker special adviser board division board members board wendy dunn adviser division research statistics board rochelle edge deputy director division monetary affairs board eric engstrom associate director division monetary affairs board charles fleischman senior adviser division research statistics board jenn gallagher assistant board division board members board peter garavuso lead information manager division monetary affairs board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board benjamin johannsen assistant director division monetary affairs board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board joshua louria group manager division monetary affairs board benjamin mcdonough deputy secretary ombudsman office secretary board ann misback secretary office secretary board raven molloy deputy associate director division research statistics board norman morin associate director division research statistics board makoto nakajima vice president federal reserve bank philadelphia michelle neal head markets federal reserve bank new york anna paulson executive vice president federal reserve bank chicago eugenio pinto special adviser board division board members board odelle quisumbing assistant secretary office secretary board andrea raffo senior vice president federal reserve bank minneapolis samuel schulhofer wohl senior vice president federal reserve bank dallas zeynep senyuz deputy associate director division monetary affairs board mark spiegel senior policy advisor federal reserve bank san francisco john stevens senior associate director division research statistics board balint szoke senior economist division monetary affairs board yannick timmer senior economist division monetary affairs board clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board jonathan willis vice president federal reserve bank atlanta paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market domestic data release intermeete period point inflation persistent previously expect resilient economy policy expectation shift materially response policy rate path derive future price imply few basis point rate cut year end modal path base option price flat suggest rate cut median modal path fund rate obtain open market desk survey primary dealers survey market participants indicate few cut year previously think respondent baseline expectation timing rate cutâwhich concentrate june march surveysâshifte significantly diffuse treasury yield rise materially intermeete period short maturity increase appear reflect high inflation compensation long maturity attributable high expect path real policy rate high real risk premium model estimate suggest inflation expectation rise short horizon long term inflation expectation appear anchor broad equity price fall period high interest rate weigh valuation earning report solid provide support dollar strengthen foreign bank expect start ease policy federal reserve overall high yield low equity price strong dollar result tightening financial condition period manager discuss expectation balance sheet policy respondent desk survey expect slowing pace balance sheet reduction begin soon median respondent project slowdown start june month early march survey average probability distribution size system open market account soma portfolio end runoff bit concentrated probability weighted mean slightly low march survey overall survey result suggest respondent expectation slowdown balance sheet runoff decouple expectation timing extent rate cut respondent understand slowdown pace runoff translate high terminal size portfolio manager turn money market desk operation unsecured overnight rate stable intermeete period secured funding market rate overnight repurchase agreement firm somewhat march end reporting date line history market participant report return somewhat high rate report date associate issue market functioning despite ongoing balance sheet runoff overnight reverse repurchase agreement rrp facility steady period reflect few attractive private market alternative money market fund mmfs amid reduction treasury bill outstanding decrease mmfs weighted average maturity rrp usage support typical month end dynamic respondent desk survey primary dealers expect rrp decline coming month manager provide update condition intermeete period fund market continue insensitive day day change supply reserve suggest reserve remain abundant manager discuss indicator support conclusion committee vote unanimously renew reciprocal currency arrangement bank canada bank mexico arrangement associate federal reserve participation north american framework agreement addition committee vote unanimously renew dollar foreign currency liquidity swap arrangement bank canada bank england bank japan european central bank swiss national bank vote renew federal reserve participation stand arrangement occur annually april fomc unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time april 30âmay indicate growth u.s. real gross domestic product gdp step robust pace see half labor market condition remain strong consumer price inflationâas measure 12âmonth change price index personal consumption expenditure pce)âslowe significantly past year move slightly month remain percent labor demand supply continue well balance speed realignment appear slow month total nonfarm payroll employment increase fast average monthly pace unemployment rate tick percent march labor force participation rate employment population ratio move percentage point unemployment rate african americans increase rate hispanics move rate high asians white month change employment cost index eci average hourly earning employee decline march relative year early 3âmonth change eci step noticeably average pace prevail half consumer price inflation total pce price increase percent month end march core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent period inflation measure considerably low year early level surprise upside al­though measure short term inflation expectation move long term expectation little change stand level consistent prevail pandemic accord advance estimate real gdp rise modestly private domestic final purchase pdfp)âwhich comprise pce private fix investment provide well signal gdp underlie economic momentumâposte increase similar solid gain see half real export good service grow tepid pace gain export food consumer good capital good offset decline export industrial supply contrast real import rise brisk pace boost large increase import capital good tell net export significant negative contribution u.s. gdp growth foreign gdp growth estimate pick subdued pace previous europe economic activity resume expand follow modest contraction economy amid monetary policy restraint repercussion energy shock growth step china lead strong export property sector indicator remain weak emerge asia export rebound year low lift robust global demand high tech good headline inflation ease modestly advanced foreign economy afes inch emerge market economy food price pressure cause adverse weather country major afe bank keep policy rate unchanged intermeete period reiterate policy rate cut appropriate come meeting staff review financial situation intermeete period market imply path fund rate increase markedly fund future rate suggest market participant place low odd significant policy ease march fomc consistent rise imply policy path nominal treasury yield maturity rise substantially investor appear reassess persistence inflation implication monetary policy market base measure interest rate uncertainty remain elevate historical standard broad stock price index decline moderately net intermeete period yield spread investment grade corporate bond unchanged speculative grade corporate bond increase moderately month option imply volatility s&p increase significantly period apparently reflect rise geopolitical tension remain moderate level historical standard intermeete period incoming foreign economic datum communication consistent market participant expectation afe bank lower policy rate come meeting nonetheless afe sovereign bond yield rise primarily reflect spillover high u.s. yield wide u.s.âafe yield differential less extent heighten geopolitical tension middle east contribute moderate increase broad dollar index geopolitical tension weigh risk sentiment time price foreign risky asset little change balance condition u.s. short term funding market remain stable intermeete period typical dynamic observe surround end usage rrp facility level week period primarily reflect mmfs slow allocation treasury bill domestic credit market borrowing cost rise somewhat intermeete period elevate level rate year conform residential mortgage increase remain near high level contrast interest rate credit card offer edge february interest rate small business loan increase march remain elevated level price term commercial industrial c&i loan little change net quarter tighten yield rise broad array fix income security include commercial mortgage back security cmbs investment- speculative grade corporate bond residential mortgage back security finance capital market nonbank lender readily accessible public corporation large middle market private corporation credit availability leveraged loan borrower appear improve intermeete period small firm volume loan origination tick february despite tightening credit standard c&i loan balance decline line cumulative tightening standard past year april senior loan officer opinion survey bank lending practices sloos large bank keep standard lending term c&i loan unchanged net small bank continue tighten standard term net bank report tighten standard april sloos loan category commercial real estate cre loan growth cre loan balance slow notably past year reflect tightening credit standard period growth cre loan balance pick modestly credit remain available consumer despite sign tightening residential real estate borrower conforming government back loan remain available credit card balance continue grow robust pace significant net share sloos respondent indicate lending standard credit card tighten growth auto lending moderate january february modest net share bank report sloos tighten lending standard auto loan al­though credit quality household loan remain solid balance delinquency rate credit card auto loan remain notably level pandemic residential mortgage delinquency rate loan type unchanged february credit quality nonfinancial firm borrow corporate bond leveraged loan market remain stable average delinquency rate loan cmbs pool tick march remain elevated level share nonperforme cre loan banksâdefine loan past day nonaccrual statusârose march especially loan secure office building provide update assessment stability u.s. financial system balance continue characterize system financial vulnerability notable raise assessment vulnerability asset valuation elevated valuation range market appear high relative risk adjust cash flow house price remain elevated relative fundamental rent treasury yield fraction mortgage borrower small equity position remain low cre price continue decline especially multifamily office sector vacancy rate sector remain elevated vulnerability associate business household debt characterize moderate nonfinancial business leverage high ability firm service debt remain solid partly robust earning leverage financial sector characterize notable regulatory capital ratio banking sector remain high fair value asset estimate fall reflect substantial duration risk balance sheet nonbank sector prevalence basis trade hedge fund appear decline peak remain elevate historical standard funding risk characterize notable asset prime mmfs cash management vehicle continue grow steadily assess financial stability risk associate fast grow private credit sector limit far modest leverage private debt fund business development company limited maturity mismatch funding vehicle note grow connection private credit banking sector growth form private credit fact private credit market experience severe credit downturn staff economic outlook economic forecast prepare aprilâmay similar march projection economy expect maintain high rate resource utilization year project output growth roughly similar estimate potential growth unemployment rate expect edge slightly labor market functioning improve roughly steady total core pce price inflation project lower year relative year expect pace disinflation slow march projection incoming datum point persistence inflation coming month inflation expect decline year demand supply product labor market continue well balance total core pce price inflation expect close percent continue uncertainty baseline projection close average past year risk inflation forecast see tilt upside reflect possibility supply disruption unexpectedly persistent inflation dynamic materialize risk forecast economic activity see skew downside ground persistent inflation result tight financial condition baseline projection addition deteriorate household financial position especially low income household prove large drag activity anticipate participant view current conditions economic outlook participants observe inflation ease past year month lack progress committee percent objective monthly datum show significant increase component good service price inflation particular inflation core service exclude housing move compare year price core good post month increase month addition housing service inflation slow anticipate base small increase measure market rent past year participant remark unusually large seasonal pattern contribute january large increase pce inflation participant note component typically display volatile price change boost reading participant emphasize increase inflation relatively broad base overly discount participant comment remain highly attentive inflation risk remain concerned elevated inflation continue harm purchasing power household especially able meet high cost essential like food housing transportation participant note continue expect inflation return percent medium term datum increase confidence progress percent accordingly suggest disinflation process long previously think participant discuss factor conjunction appropriately restrictive monetary policy support return inflation committee goal time reduction housing service price inflation low reading rent growth lease continue pass category inflation participant comment pass place gradually note reacceleration market rent reduce effect participant state core nonhouse service price inflation resume decline wage growth slow labor demand supply move well balance aid high labor force participation strong immigration flow addition participant comment ongoing increase productivity growth support disinflation sustain outlook productivity growth regard uncertain participant say business contact district report increase difficulty raise output price participant report continue ability firm district pass high cost consumer al­though measure short term inflation expectation survey consumer increase month medium- long term measure expect inflation remain anchor see crucial committee inflation goal sustained basis supply chain improvement support disinflation good price previous year participant comment expect gradual pace improvement slow progress inflation participant comment growth aggregate demand slow strong pace quarter inflation sustainably committee goal participant assess demand supply labor market net continue come well balance slow rate see condition have remain tight amid strong payroll growth low unemployment rate participant cite variety indicator suggest ease labor market tightness include decline job vacancy low quit rate reduce ratio job opening unemployed worker participant indicate business contact report difficulty hire retain worker al­though contact district continue tight labor condition especially health care construction sector participant comment well balance labor demand supply contribute easing nominal wage pressure number participant note measure labor cost growth include eci ease month couple participant remark negotiate compensation agreement add wage pressure district participant note past year labor supply boost increase labor force participation rate immigration participant comment estimate great immigration past year increase labor supply help explain strength employment gain unemployment rate remain roughly flat wage pressure ease participant note indicator suggest economic activity continue expand solid pace real gdp growth moderate relative half year pdfp growth maintain strong pace high interest rate appear weigh consumer durable purchase growth business fix investment remain modest despite high interest rate residential investment grow strongly modest pace half year al­though pdfp datum suggest continue strong economic momentum participant interpret datum indicate acceleration activity expect gdp growth slow year strong pace number participant comment high rate immigration support economic activity boost labor supply contribute aggregate demand participant note important influence productivity growth economic outlook participant suggest increase productivity growth persist reflect time adjustment level productivity reflect continue elevated volatility datum past year participant comment high productivity growth sustain incorporation technology artificial intelligence exist business operation high rate business formation technology sector outlook household sector participant observe consumer spending remain firm support low unemployment solid income growth number participant judge consumption growth moderate year growth labor income expect slow financial position household expect weaken participant note sign finance low- moderate income household increasingly come pressure participant see downside risk outlook consumption point increase usage credit card buy pay later service increase delinquency rate type consumer loan addition elevated housing cost add financial strain low income household couple participant note financial condition appear favorable wealthy household account large portion aggregate consumption hefty wealth gain result equity house price increase business contact district report steady stable pace economic activity contact couple district convey increase optimism outlook participant note government spending support business expansion district consistent solid outlook business couple participant note contact report increase investment technology business process improvement enhance productive capacity agricultural sector couple participant note low commodity price weigh farm income participant discuss risk uncertainty economic outlook note uncertainty persistence inflation agree datum increase confidence inflation move sustainably percent participant point geopolitical event factor result severe supply bottleneck high shipping cost upward pressure price weigh economic growth possibility geopolitical event generate commodity price increase see upside risk inflation number participant note uncertainty degree restrictiveness financial condition associated risk condition insufficiently restrictive aggregate demand inflation participant comment increase efficiency technological innovation raise productivity growth sustained basis allow economy grow fast raise inflation participant note downside risk economic activity include slow economic growth china deterioration condition domestic cre market sharp tightening financial condition financial stability participant comment note vulnerability financial system assess warranted monitoring participant discuss range risk emanate banking sector include unrealized loss asset result rise long term yield high cre exposure significant reliance bank uninsured deposit cyber threat increase financial interconnection bank participant comment rapid growth private credit market note development monitor sector interconnect part financial system associate risk apparent participant comment importance measure aim increase resilience treasury market clearing potential vulnerability pose leveraged investor treasury market couple participant comment federal reserve improve operational efficiency discount window participant note high interest rate contribute vulnerability financial system context number participant emphasize monetary policy guide outlook employment inflation tool primary mean address financial stability risk consideration monetary policy participant judge light economic condition implication outlook employment inflation balance risk appropriate maintain target range fund rate percent participant assess maintain target range fund rate support intermeete datum indicate continue solid economic growth lack progress committee percent inflation objective month participant discuss process reduce federal reserve security holding participant judge balance sheet reduction proceed smoothly participant express support decision begin slow pace decline federal reserve security holding june reduce monthly redemption cap treasury security maintain monthly redemption cap agency debt agency mortgageâbacked security mbs reinveste principal payment excess cap treasury security participant indicate support continuation pace balance sheet runoff time slightly high redemption cap treasury security decide participant emphasize decision slow pace runoff implication stance monetary policy participant emphasize slow pace balance sheet runoff mean balance sheet ultimately shrink participant comment slow pace balance sheet runoff help facilitate smooth transition abundant ample balance reduce likelihood money market experience undue stress require early end runoff participant assess important monitor indicator condition balance sheet runoff continue addition participant comment exist redemption cap agency debt agency mbs unlikely bind point come year decision reinvest principal payment cap treasury security consistent committee long run intention hold portfolio consist primarily treasury security couple participant comment useful begin discussion appropriate long run maturity composition soma portfolio discuss policy outlook participant remark future path policy rate depend incoming datum evolve outlook balance risk participant comment public appear good understanding committee data dependent approach formulate monetary policy commitment achieve dual mandate goal maximum employment price stability participant emphasize importance continue communicate message participant note disappointing reading inflation indicator point strong economic momentum assess long previously anticipate gain great confidence inflation move sustainably percent discuss risk management consideration bear policy outlook participant assess risk achievement committee employment inflation goal move well balance past year participant remain highly attentive inflation risk note uncertainty associate economic outlook al­though monetary policy see restrictive participant comment uncertainty degree restrictiveness participant see uncertainty come possibility high interest rate have small effect past long run equilibrium interest rate high previously think level potential output low estimate participant assess monetary policy remain position respond evolve economic condition risk outlook participant discuss maintain restrictive policy stance long inflation sign move sustainably percent reduce policy restraint event unexpected weakening labor market condition participant mention willingness tighten policy risk inflation materialize way action appropriate committee policy actions discussion monetary policy member agree economic activity continue expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated member concur month lack progress committee percent inflation objective agree acknowledge development postmeete statement member judge risk achieve committee employment inflation goal move well balance past year member view economic outlook uncertain agree remain highly attentive inflation risk support committee goal achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent member concur consider adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree expect appropriate reduce target range gain great confidence inflation move sustainably percent addition member agree reduce federal reserve holding treasury security agency debt agency mbs member decide begin june committee slow pace decline security holding reduce monthly redemption cap treasury security addition member decide committee maintain monthly redemption cap agency debt agency mbs begin june reinvest principal payment excess cap treasury security member affirm strong commitment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature exceed cap month begin june roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest agency mortgage back security mbs principal payment federal reserve holding agency debt agency mbs receive exceed cap month begin june reinvest principal payment federal reserve holding agency debt agency mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated month lack progress committee percent inflation objective committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal move well balance past year economic outlook uncertain committee remain highly attentive inflation risk support goal committee decide maintain target range fund rate percent consider adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee expect appropriate reduce target range gain great confidence inflation move sustainably percent addition committee reduce holding treasury security agency debt agency mortgageâbacked security begin june committee slow pace decline security holding reduce monthly redemption cap treasury security committee maintain monthly redemption cap agency debt agency mortgageâbacked security reinvest principal payment excess cap treasury security committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective agree committee hold tuesdayâwednesday june 11â12 adjourn 10:05 a.m. notation vote notation vote complete april committee unanimously approve minute committee hold march 19â20 joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend economic financial situation return text attend tuesday return text

minute federal open market committee june 11â12 joint federal open market committee board governors federal reserve system hold office board governors tuesday june 10:30 a.m. continue wednesday june 9:15 a.m. attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed kartik athreya james clouse brian doyle edward knotek david lebow paula tkac william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system administrator division information technology board roc armenter executive vice president federal reserve bank philadelphia ayelen banegas principal economist division monetary affairs board michele cavallo principal economist division monetary affairs board stephanie curcuru deputy director division international finance board stefania d'amico senior economist research advisor federal reserve bank chicago ryan decker special adviser board division board members board rochelle edge deputy director division monetary affairs board eric engen senior associate director division research statistics board michele taylor fennell deputy associate secretary office secretary board glenn follette associate director division research statistics board jenn gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board david glancy principal economist division monetary affairs board francois gourio senior economist economic advisor federal reserve bank chicago olesya grishchenko principal economist division monetary affairs board christopher gust associate director division monetary affairs board valerie hinojosa section chief division monetary affairs board jasper hoek deputy associate director division international finance board sara hogan senior financial institution policy analyst division reserve bank operations payment systems board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board andreas lehnert director division financial stability board paul lengermann deputy associate director division research statistics board kurt lewis special adviser chair division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board thomas lubik senior advisor federal reserve bank richmond benjamin malin vice president federal reserve bank minneapolis benjamin mcdonough deputy secretary ombudsman office secretary board karel mertens senior vice president federal reserve bank dallas michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board alyssa o'connor special adviser board division board members board matthias paustian assistant director division research statistics board karen pence deputy associate director division research statistics board karen pennell vice president federal reserve bank boston damjan pfajfar group manager division monetary affairs board eugenio pinto special adviser board division board members board odelle quisumbing assistant secretary office secretary board gisela rua principal economist division research statistics board achilles sangster senior information manager division monetary affairs board lee smith senior vice president federal reserve bank kansas city robert valletta senior vice president federal reserve bank san francisco francisco vazquez grande group manager division monetary affairs board clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker associate director division reserve bank operations payment systems board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board developments financial markets open market operations manager turn development financial market financial condition ease modestly intermeete period mainly high equity price take somewhat long perspective manager note financial condition change little march ease notably fall main driver easing high equity price appear respond reduction perceive odd recession consensus market participant fund rate reach peak nominal treasury yield decline moderately curve net continue sensitive income data surprise especially pertain inflation labor market net decline nominal yield period primarily low real yield inflation compensation fall somewhat especially short horizon long term inflation expectation remain anchor manager turn policy rate expectation path fund rate imply future price shift bit low intermeete period indicate half basis point cut year end shift appear reflect change perceive risk base case expectation modal path imply option virtually unchanged remain consistent cut year median modal path fund rate obtain open market desk survey primary dealers survey market participantsâtaken employment reportâwa little change manager discuss expectation balance sheet policy response desk survey show median expect timing end balance sheet runoff april month later previous survey individual respondent view exact timing remain dispersed respondent expectation size portfolio end runoff change little survey international development european central bank ecb bank canada boc initiate rate cut cycle period expect market participant reportedly expect ease cycle begin time economy appear expect advanced economy bank start ease policy month manager turn money market desk operation unsecured overnight rate stable intermeete period secured funding market repurchase agreement repo rate remain steady period firm close end month end pressure effect large settlement treasury coupon security rate firmness reporting settlement date consistent historical pattern use overnight reverse repurchase agreement rrp facility remain sensitive market rate availability alternative investment usage little change period dip late period coincident month end firming private repo rate project rrp usage decline coming month net treasury bill issuance expect turn positive private repo rate expect high relative administer rate amid large issuance treasury coupon security project reserve change near term exception end date decline line shrinking federal reserve portfolio rrp balance nearly fully drain uncertainty surround projection considerable manager discuss response desk survey question spread effective fund rate interest rate balance different level sum reserve rrp balance response indicate considerable uncertainty dispersion view spread sum decline manager observe indicator base market price activity good gauge quickly reserve transition abundant ample intermeete period fund market continue insensitive day day change supply reserve indicator suggest reserve remain abundant risk money market strain near term low unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time suggest u.s. economic activity expand solid pace far year labor market condition remain solid job gain continue strong unemployment rate edge low consumer price inflation run year early progress committee percent inflation objective modest month consumer price inflationâas measure month change price index personal consumption expenditure pce)âwa april end year month month reading pce price low early year total pce price inflation percent april core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent consumer price index cpi show month change measure total cpi inflation percent core cpi inflation percent monthly cpi reading low early year al­though survey base measure short term inflation expectation move long term expectation little change stand level consistent prevail pandemic labor demand supply continue well balance total nonfarm payroll employment increase somewhat slow average monthly pace april strong rate record recently release datum quarterly census employment wages suggest strong report rate payroll increase year overstate job gain solid unemployment rate tick percent labor force participation rate employment population ratio move little unemployment rate african americans hispanics somewhat high rate asians white ratio job vacancy unemployment decline pre pandemic level measure increase nominal wage year early continue trend include month change average hourly earning employee percent percentage point low end year real gross domestic product gdp rise modestly hold significant negative contribution inventory investment net export tend volatile component contrast private domestic final purchase pdfp)âwhich comprise pce private fix investment provide well signal gdp underlie economic momentumâincrease solid pace similar year recent spending indicator suggest gdp pdfp increase solid rate real export good edge april relative march follow tepid growth real import good jump april drive high import auto capital good overall nominal u.s. international trade deficit widen april import good service rise export foreign gdp growth firm buoyant service sector help europe recover modest contraction half year emerge market economy emes include china growth support strong external demand surge economic activity china boost policy support especially fiscal policy chinese datum especially steep drop lend household business april point considerable slowdown china economic activity headline inflation continue ease advanced foreign economy afes albeit slow pace year core inflation slow significantly core nonhouse service component remain elevated region partly reflect strong nominal wage growth inflation inch emes weather relate increase food price country riksbank boc ecb cut policy rate market participant expect amid ease inflation communication future policy decision vary focus domestic economic condition staff review financial situation intermeete period market imply path fund rate month edge option interest rate future suggest market participant place high odd policy easing early april fomc consistent slight downward shift imply policy path nominal treasury yield maturity move moderately drive primarily decline real treasury yield inflation compensation fall large decline nearer horizon market base measure interest rate uncertainty tick remain elevate historical standard broad stock price index increase substantially net amid positive investor outlook corporate profit economic activity yield spread investment- speculative grade corporate bond little change remain low decile respective historical distribution month option imply volatility s&p index remain low historical standard suggest investor perceive modest near term risk economic outlook change afe yield mixed spillover decline u.s. yield partly offset upside surprise economic datum release europe somewhat restrictive expect communication ecb dollar depreciate afe currency differential u.s. afe yield narrow nonetheless broad dollar index slightly increase dollar appreciate sharply mexican peso amid heighten policy uncertainty follow mexico presidential election result balance move foreign risky asset price mixed modest eme fund see small inflow condition u.s. short term funding market remain stable intermeete period average usage rrp facility little change primarily reflect portfolio decision money market fund amid low net treasury bill supply bank total deposit level roughly unchanged intermeete period outflow core deposit offset inflow large time deposit domestic credit market borrowing cost remain elevate despite decline modestly intermeete period rate year conform residential mortgage edge net intermeete period remain near high level interest rate credit card offer little change april high level rate auto loan interest rate commercial industrial c&i loan small business loan remain elevated yield array fix income security include commercial mortgage back security cmbs investment- speculative grade corporate bond residential mortgage back security move lower elevate level relative history financing readily accessible public corporation large middle market private corporation capital market nonbank lender credit availability leveraged loan borrower remain solid intermeete period private credit market loan issuance direct lending strong bank c&i loan balance pick april small firm volume loan origination tick april credit availability remain tight credit remain available commercial real estate cre borrower outside construction land development loan cre loan bank continue increase april drive growth multifamily nonfarm nonresidential loan agency non agency cmbs issuance rise april fall yield extend wave refinance consumer credit remain available intermeete period despite sign tighten residential mortgage market access credit little change continue depend borrower credit risk attribute credit card limit continue rise march credit card balance bank level april auto lending finance company continue grow moderate pace april offset decline auto loan balance bank credit union net credit quality continue solid large midsize firm home mortgage borrower municipality deteriorate sector month delinquency rate residential mortgage remain near pre pandemic low credit card auto loan delinquency rate continue rise signal deterioration balance sheet household credit quality nonfinancial firm borrow corporate bond leveraged loan market remain stable available indicator suggest delinquency rate private credit market c&i loan remain comparable level pandemic despite tick small business loan delinquency rate stay slightly pre pandemic level cre market credit quality deteriorate average cmbs delinquency rate rise april high level drive office hotel retail sector credit quality cre borrower bank weaken slightly staff economic outlook economic forecast prepare june similar projection time previous economy expect maintain high rate resource utilization year real gdp growth project roughly similar estimate potential output growth unemployment rate expect edge slightly remainder year roughly flat total core pce price inflation project low end year end year inflation projection yearâwhich include preliminary reaction cpi dataâwere little change balance inflation forecast time previous inflation forecast high time march march summary economic projections sep submission inflation expect decline demand supply product labor market continue well balance total core pce price inflation expect close percent continue uncertainty baseline projection close average past year risk inflation forecast see tilt upside reflect possibility persistent inflation dynamic supply disruption unexpectedly materialize risk forecast economic activity see skew downside ground persistent inflation result tight financial condition baseline projection addition deteriorate household financial position especially low income household prove large negative effect economic activity anticipate participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base individual assessment appropriate monetary policy include projection fund rate long run projection represent participant assessment rate variable tend converge appropriate monetary policy absence shock economy sep release public inflation development participant note significant decline inflation half early year see lack progress committee percent objective participant judge inflation remain elevated modest progress percent goal month participant observe progress evident small monthly change core pce price index lower trim mean inflation rate april cpi read provide additional evidence recent datum indicate improvement range price category include market base service participant comment sustained achievement percent inflation objective aid low service price inflation note shelter price inflation far slow come participant highlight strong increase record year core import price participant suggest number development product labor market support price pressure diminish particular participant emphasize nominal wage growth rate consistent price stability decline notably labor intensive sector participant note report retailer cut price offer discount participant indicate business contact report pricing power decline participant suggest evidence firm reduce pricing power reflect increase customer resistance price increase slow growth economic activity reassessment business prospective economic condition regard outlook inflation participant emphasize strongly committed percent objective remain concerned elevated inflation continue harm purchasing power household especially able meet high cost essential like food housing transportation participant highlight variety factor help contribute continue disinflation period ahead factor include continue easing demandâsupply pressure product labor market lag effect wage price past monetary policy tightening delay response measure shelter price rental market development prospect additional supply improvement prospect include possibility boost productivity associate business deployment artificial intelligenceârelated technology participant observe long term inflation expectation remain anchored view anchoring underpin disinflation process participant affirm additional favorable datum require great confidence inflation move sustainably percent participant remark demand supply labor market continue come well balance participant observe labor market indicator point reduced degree tightness labor market condition include decline job opening rate low quit rate increase time employment economic reason low hiring rate step ratio job vacancy unemployed worker gradual uptick unemployment rate addition participant indicate business contact report difficulty hire retain worker contact district continue tight labor market condition certain sector health care construction specialty manufacturing participant note labor supply boost increase labor force participation rate immigration participant note unlikely immigration pace see year participant judge immigrant gradually workforce past immigration add labor supply participant observe increase labor force participation limit major source additional labor supply consider payroll datum participant observe increase payroll continue strong monthly increase employment consistent labor market equilibrium high past immigration participant suggest establishment survey overstate actual job gain participant remark variety indicator include wage gain job switcher suggest nominal wage growth slow consistent ease labor market pressure number participant note labor market remain strong ratio vacancy unemployment return pre pandemic level risk cool labor market condition associate increase pace layoff participant observe risk committee dual mandate goal have come well balance labor market condition need careful monitoring participant observe continue labor market strength consistent committee achieve employment inflation goal note gradual cooling labor market require participant note indicator suggest economic activity continue expand solid pace participant expect real gdp growth year strong pace record remark datum economic activity consistent anticipated slowing participant observe low rate output growth year aid disinflation process consistent strong labor market participant view committee restrictive monetary policy stance have restrain effect growth consumption investment spending contribute gradual slowing pace economic activity couple participant particularly stress committee past policy tightening contribute high rate home mortgage loan long term borrowing moderate spending production include household discretionary purchase residential construction activity participant remark spending high income household bolster increase asset price participant observe contrast lower- moderate income household encounter increase strain attempt meet high living cost have run saving accumulate pandemic participant note strain evident rise credit card utilization delinquency rate motor vehicle loan delinquency significant concern participant continue risk achieve employment inflation goal move well balance past year participant cite number downside risk economic activity include associate sharp anticipate slowing aggregate demand alongside marked deterioration labor market condition strain lower- moderate income household budget lead abrupt curtailment consumer spending participant point downside risk economic activity associate fragility part cre sector vulnerable balance sheet position bank participant highlight reason inflation percent long expect participant point risk inflation stay elevated result worsen geopolitical development heighten trade tension persistent shelter price inflation financial condition insufficiently restrictive u.s. fiscal policy expansionary expect scenario see imply upside risk economic activity participant cite risk unanchoring long term inflation expectation consideration monetary policy participant observe incoming datum indicate continue solid growth economic activity strong labor market point modest progress committee percent inflation objective month participant remain highly attentive inflation risk participant judge light economic condition implication outlook employment inflation balance risk appropriate maintain target range fund rate percent participant furthermore judge appropriate process reduce federal reserve security holding discuss outlook monetary policy participant note progress reduce inflation slow year expect december emphasize expect appropriate lower target range fund rate additional information emerge great confidence inflation move sustainably committee percent objective discuss individual outlook target range fund rate participant emphasize importance condition future policy decision incoming datum evolve economic outlook balance risk participant note financial market reaction datum feedback receive contact suggest committee policy approach understand participant suggest clarity fomc reaction function provide communication emphasize committee data dependent approach monetary policy decision conditional evolution economy preset path couple participant remark provide information committee view economic outlook risk outlook improve public understanding committee decision discuss risk management consideration bear outlook monetary policy participant assess labor market tightness have ease inflation have decline past year risk achieve committee employment inflation goal move well balance leave monetary policy position deal risk uncertainty face pursue side committee dual mandate vast majority participant assess growth economic activity appear gradually cool participant remark view policy stance restrictive participant note uncertainty degree restrictiveness policy remark continued strength economy factor mean long run equilibrium interest rate high previously assess case stance monetary policy financial condition restrictive appear couple participant note long run equilibrium interest rate well guide determine fund rate need long run assess restrictiveness policy participant note uncertainty associate economic outlook long appropriate maintain restrictive policy stance participant emphasize need patience allow committee restrictive policy stance restrain aggregate demand moderate inflation pressure participant observe inflation persist elevated level increase target range fund rate need raise number participant remark monetary policy stand ready respond unexpected economic weakness participant specifically emphasize labor market normalizing weakening demand generate large unemployment response past low demand labor feel relatively few job opening committee policy actions discussion monetary policy member agree economic activity continue expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated member concur month modest progress committee percent inflation objective agree acknowledge development postmeete statement member judge risk achieve committee employment inflation goal move well balance past year member view economic outlook uncertain agree remain highly attentive inflation risk support committee goal achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent member concur consider adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree expect appropriate reduce target range gain great confidence inflation move sustainably percent addition member agree reduce federal reserve holding treasury security agency debt agency mortgage back security member affirm strong commitment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction soma accordance follow domestic policy directive release 2:00 p.m. effective june federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest principal payment federal reserve holding agency debt agency mortgage back security mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace job gain remain strong unemployment rate remain low inflation ease past year remain elevated month modest progress committee percent inflation objective committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal move well balance past year economic outlook uncertain committee remain highly attentive inflation risk support goal committee decide maintain target range fund rate percent consider adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee expect appropriate reduce target range gain great confidence inflation move sustainably percent addition committee reduce holding treasury security agency debt agency mortgageâbacked security committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler loretta mester christopher waller vote action consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective june board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective june agree committee hold tuesdayâwednesday july 30â31 adjourn 10:55 a.m. june notation vote notation vote complete committee unanimously approve minute committee hold april 30âmay joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend tuesday return text attend development financial market open market operation return text attend economic financial situation return text attend economic financial situation return text

minute federal open market committee july 30â31 joint federal open market committee board governors federal reserve system hold office board governors tuesday july 10:00 a.m. continue wednesday july 9:00 a.m. developments financial markets open market operations manager turn development financial market financial condition ease modestly intermeete period reflect low long term interest rate high equity price manager note financial condition appear provide headwind tailwind growth nominal treasury yield decline period short term yield have decrease long term yield lead steepening yield curve treasury yield remain sensitive surprise economic datum particularly consumer price index release employment report near term inflation compensation fall intermeete period long term forward measure little change measure inflation expectation obtain term structure model modestly low policy rate path derive future price modal path derive option price decline intermeete period come close alignment median modal response open market desk survey primary dealers survey market participants policy expectation measure point rate cut september fomc cut later year policy ease year equity market high perceive likelihood september cut target range policy rate induce notable appreciation stock firm small medium capitalization tend sensitive interest rate stock large company especially technology sector underperformed earning report receive slightly analyst expectation company note softening consumer spending expectation policy rate advanced foreign economy afes decline datum point continue progress inflation afe bank cut policy rate expect soon manager note market participant continue expect bank japan tighten policy year sudden announcement french election contribute short term market volatility early intermeete period include widening yield french german year sovereign bond widening spread run u.s. treasury security effect u.s. treasury market short live effective fund rate remain unchanged intermeete period manager note rate repurchase agreement repo edge higher reflect increase demand finance treasury security expect effect gradual balance sheet normalization use overnight reverse repo rrp facility decline slightly intermeete period project rrp usage decline noticeably remainder year particularly issuance treasury bill increase manager note possible idiosyncratic factor specific rrp participant support rrp balance month ahead look range money market indicator manager conclude reserve remain abundant indicate closely monitor development money market finally manager describe set technical adjustment production secured overnight financing rate federal reserve bank new york propose public consultation unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time indicate u.s. economic activity advance solidly far year markedly slow pace half labor market condition continue ease job gain moderate unemployment rate move remain low consumer price inflation year early pace remain somewhat elevated consumer price inflationâas measure month change price index personal consumption expenditure pce)âwa june start year month month change june small see early year total pce price inflation percent june core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent recent datum suggest labor market condition ease average monthly nonfarm payroll gain small average pace see previous year unemployment rate move june percent labor force participation rate tick employment population ratio unchanged unemployment rate african americans rise june rate hispanics decline slightly rate white ratio job vacancy unemployment remain june pre pandemic level measure nominal wage continue decelerate average hourly earning employee rise percent month end june percentage point relative year early month change employment cost index hourly compensation private industry worker percent june percentage point year early pace accord advance release real gross domestic product gdp rise solidly modest gain half year gdp growth noticeably slow average pace real private domestic final purchase pdfp)âwhich comprise pce private fix investment provide well signal gdp underlie economic momentumâposte solid increase line pace moderately slow average rate increase net export subtract u.s. gdp growth growth real export good service remain tepid gain export capital good consumer good partly offset decline export food industrial supply contrast real import continue rise brisk pace drive increase import capital good foreign economic growth estimate subdue hold sharp deceleration economic activity china amid ongoing property sector woe europe latin america output expand trend pace restrictive monetary policy continue drag activity recent global inflation development mixed afes headline inflation edge remain target level emerge market economy headline inflation rise touch reflect run food price country bank canada swiss national bank cut policy rate cite ease inflation pressure people bank china lower key policy rate amid ongoing property sector woe weak consumer sentiment staff review financial situation market imply path fund rate move intermeete period option interest rate future suggest market participant place high odd large policy easing early june consistent downward shift imply policy path nominal treasury yield move net pronounced decline short horizon drive decrease inflation compensation broad stock price index rise slightly net yield spread investment- speculative grade corporate bond little change remain low decile respective historical distribution month option imply volatility s&p index rise moderately somewhat elevate historical standard suggest investor perceive outsize risk economic outlook market base measure expect path policy rate sovereign bond yield afe fall notably response decline u.s. rate follow surprise announcement parliamentary election france spread yield french german year sovereign bond widen high level partially retrace outcome clear parliamentary majority broad dollar index little change intermeete period balance move foreign risky asset price mixed modest overnight secure rate edge intermeete period condition u.s. short term funding market remain stable typical dynamic observe surround end average usage rrp facility decline slightly bank total deposit level increase modestly large time deposit display moderate inflow domestic credit market borrowing cost remain elevated intermeete period despite modest decline market rate year conform residential mortgage decline net intermeete period stay near high level interest rate credit card offer increase slightly rate auto loan little change interest rate small business loan remain elevated yield array fix income securitiesâinclude commercial mortgage back security cmbs investment- speculative grade corporate bond residential mortgage back securitiesâmoved low elevate level relative history decline drive decrease treasury yield finance capital market nonbank lender readily accessible public corporation large middle market private corporation credit availability leveraged loan borrower remain solid intermeete period small firm credit availability remain moderately tight july senior loan officer opinion survey bank lending practices sloos bank report modestly tight standard lend term commercial industrial c&i loan net report demand c&i loan remain unchanged c&i loan balance increase commercial real estate cre loan bank july sloos report tighten standard loan category nonetheless cre loan balance increase albeit diminished pace relative previous credit remain available consumer intermeete period credit growth show sign moderate credit card balance slow june sloos respondent indicate standard credit card tighten moderately bank report sloos lend standard auto loan unchanged growth auto lending bank nonbank contract residential mortgage market access credit little change continue depend borrower credit risk attribute credit quality remain solid large midsize firm home mortgage borrower municipality continue deteriorate sector credit quality nonfinancial firm borrow corporate bond leveraged loan market remain stable delinquency rate loan small business remain slightly pre pandemic level credit quality cre market deteriorate average delinquency rate loan cmbs share nonperforme cre loan bank rise household balance sheet delinquency rate residential mortgage remain near pre pandemic low consumer delinquency rate increase particularly nonprime borrower rise delinquency rate credit card auto loan slow provide update assessment stability u.s. financial system balance continue characterize system financial vulnerability notable judge asset valuation pressure remain elevated estimate risk premium key market low compare historical standard house price remain elevated relative fundamental cre price continue decline especially multifamily office sector vacancy rate sector continue increase vulnerability associate business household debt characterize moderate nonfinancial business leverage high ability public firm service debt remain solid large strong earning fraction private firm low debt service ability continue remain high level compare past decade household balance sheet remain strong aggregate home equity stay high delinquency mortgage loan remain low leverage financial sector characterize notable regulatory capital ratio banking sector remain high fair value asset remain low nonbank sector leverage hedge fund high record level base datum partly prevalence cashâfuture basis trade leverage life insurer somewhat elevated holding risky illiquid security continue grow funding risk characterize notable asset prime money market fund runnable cash management vehicle remain near historical high life insurer great reliance nontraditional liability couple increase holding risky corporate debt suggest adverse shock industry trigger substantial funding pressure firm staff economic outlook economic forecast prepare july imply low rate resource utilization projection period relative forecast prepare previous outlook growth half mark response weak expect labor market indicator result output gap start somewhat narrow previously project fully close real gdp growth expect rise line potential leave output gap roughly flat year unemployment rate expect edge slightly remainder roughly unchanged inflation forecast slightly low prepare previous reflect incoming datum lower project level resource utilization total core pce price inflation expect decline demand supply product labor market continue well balance total core inflation expect percent continue uncertainty baseline projection close average past year risk inflation forecast see tilt upside albeit small degree time previous risk forecast real activity view skewed downside persistent inflation result tight financial condition baseline soften indicator labor market condition point large anticipate slowdown aggregate demand growth participant view current conditions economic outlook participants observe inflation ease past year remain elevated month progress committee percent inflation objective participant note progress disinflation broad base major subcomponent core inflation core good price flat march june have rise month year price inflation june housing service show notable slowing participant anticipate time addition core nonhouse service price decelerate month participant note datum corroborate report business contact firm pricing power wan consumer appear sensitive price increase contact report cut price offer discount stay competitive decline input cost help reduce pressure retail price regard outlook inflation participant judge datum increase confidence inflation move sustainably percent participant observe factor contribute disinflation downward pressure inflation coming month factor include continue wan pricing power moderate economic growth runoff excess household saving accumulate pandemic participant note moderation growth labor cost labor market condition rebalance contribute disinflation particularly core nonhouse service price participant note lag time take housing rental condition tenant aggregate price datum housing service mean disinflationary trend component participant observe long term inflation expectation remain anchored view anchoring underpin disinflation process couple participant note inflation pressure persist time assess economy considerable momentum easing demand labor labor market remain strong participant assess supply demand condition labor market continue come well balance unemployment rate move remain low have rise percentage point trough april percent june monthly pace payroll job gain moderate solid month participant note report payroll gain overstate assess payroll gain low need unemployment rate constant flat labor force participation rate participant observe indicator point ease labor market condition include low hiring rate downtrend job vacancy beginning year participant note rebalancing labor market condition past year aid expansion supply worker reflect increase labor force participation rate individual age strong pace immigration participant note continued rebalancing labor market condition nominal wage growth continue moderate participant cite report district contact support labor market condition ease particular contact report experience difficulty hire retain worker see limited wage pressure participant assess condition labor market return stand eve pandemicâstrong overheat outlook labor market participant discuss indicator layoff include initial claim unemployment benefit measure job separation participant comment indicator remain level consistent strong labor market participant agree indicator labor market condition merit close monitoring participant say district contact report actively manage head count selective hiring attrition participant note real gdp growth solid half year slow robust pace see half year pdfp growth usually give well signal gdp growth economic momentum moderate half gdp growth pdfp expand solid pace support growth consumer spending business fix investment participant view moderation growth economic activity line anticipate household sector participant observe consumer spending slow year robust pace consistent restrictive monetary policy ease labor market condition slow income growth note consumer spending grow solid pace half year support strong labor market aggregate household balance sheet participant observe lower- moderate income household encounter increase strain attempt meet high living cost have run saving accumulate pandemic participant note strain evident indicator rise credit card delinquency rate increase share household pay minimum balance warrant continued close monitoring participant cite report consumer especially low income household shift away discretionary spending switch low cost food item brand couple participant remark spending high income household bolster wealth effect equity housing price appreciation participant note residential investment weak reflect pickup mortgage rate early year business sector participant note condition vary firm size sector region couple participant note district contact report large firm have stable outlook outlook small firm appear uncertain participant say contact report condition manufacturing sector somewhat weak professional business service sector technology relate sector remain strong participant note agricultural sector continue face strain stem low food commodity price high input cost participant discuss risk uncertainty economic outlook upside risk inflation outlook see have diminish downside risk employment see have increase participant see risk achieve inflation employment objective continue well balance couple note view risk balanced participant note condition labor market ease risk increase continue easing transition deterioration source upside risk inflation participant cite potential disruption supply chain deterioration geopolitical condition participant note easing financial condition boost economic activity upside risk economic growth inflation financial stability participant comment note vulnerability financial system assess warranted monitoring participant observe banking system sound note risk associate unrealized loss security reliance uninsured deposit interconnection nonbank financial intermediary funding participant comment discount window important liquidity backstop federal reserve improve window operational efficiency communicate effectively window value participant note bank nonbank financial institution vulnerability associate high cre exposure loan portfolio holding cmbs participant remark risk relate cre exposure depend importantly property type local market condition property involve couple participant note concern asset valuation pressure market participant comment cyber risk impair operation financial institution financial infrastructure potentially economy participant remark firm play substantial role provision information technology service financial sector highly interconnect nature firm financial industry increase risk significant cyber disruption small number key firm widespread effect participant note leverage treasury market remain risk important monitor development treasury market resilience amid clearing valuable communicate federal reserve stand repo facility liquidity backstop couple participant comment financial condition low- moderate income household exhaust saving importance monitor rise delinquency rate credit card auto loan consideration monetary policy participant observe indicator suggest economic activity continue expand solid pace job gain moderate unemployment rate move remain low inflation remain somewhat committee long run goal percent participant note inflation ease past year incoming datum indicate progress committee objective participant support maintain target range fund rate percent observe progress inflation increase unemployment rate provide plausible case reduce target range basis point support decision participant furthermore judge appropriate process reduce federal reserve security holding discuss outlook monetary policy participant note growth economic activity solid progress inflation condition labor market ease participant remark incoming datum inflation encouraging additional information need provide great confidence inflation move sustainably committee percent objective appropriate lower target range fund rate participant view incoming datum enhance confidence inflation move committee objective vast majority observe datum continue come expect appropriate ease policy participant comment monetary policy continue restrictive express range view degree restrictiveness participant note ongoing disinflation change nominal target range policy rate result tightening monetary policy participant remark importance communicate committee data dependent approach emphasize particular monetary policy decision conditional evolution economy preset path decision depend totality incoming datum particular data point participant stress need monitor condition money market factor affect demand reserve amid ongoing reduction federal reserve balance sheet discuss risk management consideration bear outlook monetary policy participant highlight uncertainty affect outlook restraint currently provide monetary policy lag past restraint affect affect economic activity degree normalization economy follow disruption associate pandemic majority participant remark risk employment goal increase participant note risk inflation goal decrease participant note risk gradual easing labor market condition transition deterioration participant note reduce policy restraint late little risk unduly weaken economic activity employment couple participant highlight particular cost challenge address weakening fully way participant remark reduce policy restraint soon risk resurgence aggregate demand reversal progress inflation participant point risk relate potential shock upward pressure inflation possibility inflation prove persistent currently expect committee policy actions discussion monetary policy member agree economic activity continue expand solid pace job gain moderate unemployment rate move remain low inflation ease past year remain somewhat elevated member concur month progress committee percent inflation objective member judge risk achieve committee employment inflation goal continue well balance member view economic outlook uncertain agree attentive risk side committee dual mandate support committee goal achieve maximum employment inflation rate percent long run member agree maintain target range fund rate percent member concur consider adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree expect appropriate reduce target range gain great confidence inflation move sustainably percent addition member agree reduce federal reserve holding treasury security agency debt agency mortgageâbacked security member affirm strong commitment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development member agree appropriately reflect development previous relate maximum employment objective statement job gain moderate unemployment rate move remain low similarly appropriately reflect development relate price stability objective agree progress committee percent inflation objective member agree reflect shift balance risk state committee judge risk achieve employment inflation goal well balance committee attentive risk side dual mandate conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective august federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest principal payment federal reserve holding agency debt agency mortgage back security mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace job gain moderate unemployment rate move remain low inflation ease past year remain somewhat elevated month progress committee percent inflation objective committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal well balance economic outlook uncertain committee attentive risk side dual mandate support goal committee decide maintain target range fund rate percent consider adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee expect appropriate reduce target range gain great confidence inflation move sustainably percent addition committee reduce holding treasury security agency debt agency mortgageâbacked security committee strongly commit return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly austan goolsbee philip jefferson adriana kugler christopher waller vote action austan goolsbee vote alternate consistent committee decision leave target range fund rate unchanged board governors federal reserve system vote unanimously maintain interest rate pay balance percent effective august board governors federal reserve system vote unanimously approve establishment primary credit rate exist level percent effective august agree committee hold tuesdayâwednesday september 17â18 adjourn 10:10 a.m. july notation vote notation vote complete july committee unanimously approve minute committee hold june 11â12 attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid sushmita shukla alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively mark meder interim president federal reserve bank cleveland joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist edward knotek david lebow william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system administrator division information technology board alyssa anderson principal economist division monetary affairs board alessandro barbarino special adviser board division board members board david bowman senior associate director division monetary affairs board fang cai assistant director division financial stability board mark carlson adviser division monetary affairs board stephanie curcuru deputy director division international finance board rochelle edge deputy director division monetary affairs board jonas fisher senior vice president federal reserve bank chicago glenn follette associate director division research statistics board etienne gagnon associate director division international finance board jenn gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board david glancy principal economist division monetary affairs board joseph gruber executive vice president federal reserve bank kansas city christopher gust associate director division monetary affairs board diana hancock senior associate director division research statistics board valerie hinojosa section chief division monetary affairs board colin hottman principal economist division international finance board jane ihrig special adviser board division board members board mark jensen vice president federal reserve bank atlanta benjamin johannsen assistant director division monetary affairs board faten khoury senior financial institution policy analyst division reserve bank operations payment systems board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board anna kovner executive vice president federal reserve bank richmond andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board rebecca mccaughrin policy market analysis director federal reserve bank new york benjamin mcdonough deputy secretary ombudsman office secretary board yvette mcknight senior agenda assistant office secretary board andrew meldrum assistant director division monetary affairs board karel mertens senior vice president federal reserve bank dallas thomas mertens vice president federal reserve bank san francisco ann misback secretary office secretary board norman morin associate director division research statistics board michelle neal head markets federal reserve bank new york alyssa o'connor special adviser board division board members board paolo pesenti director monetary policy research federal reserve bank new york eugenio pinto special adviser board division board members board odelle quisumbing assistant secretary office secretary board andrea raffo senior vice president federal reserve bank minneapolis donald keith sill senior vice president federal reserve bank philadelphia arsenios skaperdas senior economist division monetary affairs board gustavo suarez assistant director division research statistics board manjola tase principal economist division monetary affairs board thiago teixeira ferreira special adviser board division board members board clara vega special adviser board division board members board jeffrey walker associate director division reserve bank operations payment systems board randall williams group manager division monetary affairs board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie special adviser board division board members board joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text attend development financial market open market operation return text attend wednesday return text attend economic financial situation return text attend tuesday return text

minute federal open market committee september 17â18 joint federal open market committee board governors federal reserve system hold office board governors tuesday september 10:30 a.m. continue wednesday september 9:00 a.m. developments financial markets open market operations manager turn development financial market nominal treasury yield decline notably period drive weak expect datum releasesâespecially july employment early augustâand policy communication see affirm expectation reduction policy restraint begin decline nominal yield period primarily attributable lower expect real yield measure inflation compensation decline broad equity price finish period modestly high credit spread come tight level see early year narrow historical standard overall risky asset price compatible continued economic expansion manager discuss brief episode elevated market volatility early august episode see large move u.s. foreign equity index equity imply volatility dollarâyen exchange rate treasury yield sharp move appear result rapid unwinding speculative trading position induce unrelated eventsâsuch unexpectedly inflation focus communication bank japan boj late july weak expect u.s. employment early augustâand amplify technical liquidity factor tell unwind process contain market functioning recover relatively quickly turn policy expectation manager note market imply policy rate path shift materially time september modal path fund rate imply option price consistent basis point cut year end compare basis point time july average path fund rate obtain future price shift notably lower remain option imply modal path reflect investor perception risk tilt few cut open market desk survey primary dealers survey market participants respondent modal expectation basis point cut manager note time surveysâabout week earlierâthe probability basis point cut september imply future price increase exceed imply probability basis point cut median respondent modal path fund rate shift notably year line option imply modal path unchanged balance sheet expectation survey little change july survey respondent appear concern economic downturn near medium term median dealer path unemployment rate year modestly high july survey roughly stable level international development bank advanced foreign economy afes begin continue lower policy rate intermeete period bank england boe decide initiate rate cut cycle basis point reduction european central bank ecb bank canada boc deliver basis point cut respectively market imply expectation year end policy rate fall period bank afes small federal reserve contribute modest decline trade weight u.s. dollar index manager turn money market desk operation unsecured overnight rate remain stable intermeete period secured funding market rate overnight repurchase agreement repo high month early amid large issuance treasury security elevated demand security financing little change net period manager discuss interconnection repo fund market underscore importance monitor range indicator condition state money market look range indicator manager conclude reserve appear abundant usage overnight reverse repurchase agreement rrp facility decline intermeete period help increase net supply treasury bill net bill supply expect decrease result september tax date increase assess decline rrp usage slow come intermeete period resume later year manager add concentration rrp usage small number fund complex increase risk idiosyncratic allocation decision outsized effect aggregate rrp volume unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time indicate real gross domestic product gdp expand solidly far year pace job gain continue moderate beginning year unemployment rate move remain low consumer price inflation year early rate remain somewhat elevated consumer price inflationâas measure month change price index personal consumption expenditure pce)âwa low july march follow high month month change beginning year monthly change pce price april small see month year month basis total pce price inflation percent july core pce price inflationâwhich exclude change energy price consumer food pricesâwa percent august month change consumer price index cpi percent core cpi inflation percent measure rate year ago estimate give cpi producer price index datum total pce price inflation percent month end august core pce price inflation percent recent datum suggest labor market condition ease remain solid july august average monthly nonfarm payroll gain average pace unemployment rate edge percent labor force participation rate tick employment population ratio tick unemployment rate african americans move rate hispanics rise rate asians white ratio job vacancy unemployment edge august bit level pandemic job layoff measure initial claim unemployment insurance benefit remain low august measure nominal labor compensation continue decelerate average hourly earning employee rise percent month end august change business sector compensation hour percent measure pace year early real gdp rise solidly balance half year real private domestic final purchase pdfp)âwhich comprise pce private fix investment provide well signal gdp underlie economic momentumâposte strong half increase gdp pdfp growth half moderately slow year recent indicator gdp pdfp suggest economic growth continue solid pace particularly pce business investment equipment intangible grow tepid pace real export good move july lead decline export auto industrial supply contrast real import good especially capital good continue grow robust pace july real gdp growth foreign economy step economic indicator suggest economic growth abroad remain subdue service activity high tech manufacturing relatively robust manufacturing activity remain weak restrictive monetary policy weakness manufacturing particularly pronounce canada germany mexico china indicator domestic demand remain weak inflation economy abroad continue abate net development mixed afes exclude japan month headline inflation tick remain target level high service inflation emerge market economy inflation move sideways latin american economy experience upward inflation pressure food price boe cut policy rate time cycle boc ecb bank mexico ease policy cite progress achieve inflation target contrast boj continue remove monetary accommodation staff review financial situation market imply path fund rate decline notably intermeete period similarly option interest rate future suggest market participant place high odd great policy easing early july fomc consistent downward shift imply policy rate path nominal treasury yield decline significantly net pronounced decrease short horizon drive reduction inflation compensation real treasury yield market base measure interest rate uncertainty near term rise notably reportedly reflect increase concern investor downside risk economic activity broad stock price index increase net despite sizable temporary drop early august yield spread investment- speculative grade corporate bond little change net remain quintile respective historical distribution month option imply volatility s&p index end period roughly unchanged net large temporary spike early august overnight secure rate unchanged condition u.s. short term funding market remain stable average usage rrp facility decline net treasury bill issuance increase provide attractive alternative asset money market fund market base measure expect path policy rate sovereign bond yield afe fall notably response decline u.s. interest rate broad dollar index decline dollar depreciate significantly afe currency amid narrowing interest rate differential u.s. economy afes financial market volatile early intermeete period follow weak expect u.s. employment policy rate increase boj lead unwinding speculative trading position decline equity retrace following week move foreign risky asset price mixed intermeete period domestic credit market borrowing cost remain elevate despite modest decline credit segment rate year conform residential mortgage yield agency mortgage back security mbs decline net continue elevate interest rate credit card offer auto loan little change remain elevated level interest rate newly originated commercial real estate cre loan bank book increase yield array fix income security include investment- speculative grade corporate bond commercial mortgage back security cmbs move lower follow decrease benchmark treasury yield finance capital market nonbank lender readily accessible public corporation large middle market private corporation credit availability leveraged loan borrower remain solid small firm credit availability remain moderately tight commercial industrial loan balance bank little change net credit remain accessible cre borrower cre loan bank continue decelerate july unchanged august non agency cmbs issuance robust august agency cmbs issuance slip bit post pandemic average credit remain available consumer credit growth show sign moderate auto lending continue slow balance credit card increase moderately july august average residential mortgage market access credit little change continue sensitive borrower credit risk attribute credit quality continue solid large midsize firm home mortgage borrower municipality keep deteriorate sector credit quality nonfinancial firm borrow corporate bond leveraged loan market remain stable delinquency rate loan small business remain slightly pre pandemic level credit quality cre market deteriorate average delinquency rate loan cmbs share nonperforme cre loan bank rise household credit quality delinquency rate residential mortgage remain near pre pandemic low consumer loan delinquency rate remain pre pandemic level pace increase slow delinquency rate credit card rise moderately flat auto loan staff economic outlook forecast september economy solid real gdp growth forecast july unemployment rate little high real gdp growth strong expect forecast economic growth half year mark response soft expect labor market indicator real gdp growth forecast little change unemployment rate expect little high end year previously forecast real gdp growth expect rise line estimate potential output growth unemployment rate expect roughly flat tell supply demand labor product market forecast balanced resource utilization tight year inflation forecast slightly low prepare previous primarily reflect incoming datum projection tight economy total core pce price inflation expect decline supply demand labor product market continue well balance total core inflation expect percent judge risk baseline forecast economic activity tilt downside softening indicator labor market condition point great slowing aggregate demand growth expect risk inflation forecast see roughly balanced reflect progress disinflation effect downside risk economic activity inflation continue uncertainty baseline projection close average past year participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base participant individual assessment appropriate monetary policy include projection fund rate long run projection represent participant assessment rate variable tend converge appropriate monetary policy absence shock economy summary economic projections release public inflation development participant observe inflation remain somewhat elevated participant judge monthly reading consistent inflation return sustainably percent participant comment food energy price play important decline inflation rate slow rate price increase evident broad range good service notably core good price decline month rate increase core nonhouse service price move participant remark inflation datum consistent report receive business contact indicate pricing power limited diminishing consumer increasingly seek discount participant observe inflation development quarter suggest strong anticipate inflation reading temporary interruption progress percent participant remark rate increase housing service price slow price continue rise elevated rate contrast core price regard outlook inflation participant indicate gain great confidence inflation move sustainably percent participant cite factor continue downward pressure inflation include modest slowing real gdp growth committee restrictive monetary policy stance anchor inflation expectation wan pricing power increase productivity soften world commodity price participant note nominal wage growth continue slow participant cite sign set decline sign include low rate increase cyclically sensitive wage datum indicate job switcher long receive wage premium employee couple participant remark wage relatively large portion business cost service sector sector disinflation process particularly assist slow nominal wage growth addition participant observe supply demand labor market roughly balance wage increase unlikely source general inflation pressure near future regard housing service price participant suggest rapid disinflationary trend emerge fairly soon reflect slow pace rent increase face tenant participant emphasize inflation remain somewhat elevated strongly commit return inflation committee percent objective participant note labor market condition ease month overheat year labor market tight pandemic evidence participant cite slowdown payroll employment growth uptick unemployment rate employment report receive committee july low reading hire job vacancy reduce quit job find rate widespread report business contact difficulty hire worker participant highlight fact unemployment rate rise notably net april participant note labor market condition remain solid layoff limited initial claim unemployment insurance benefit stay low participant stress layoff lower demand labor business instead take step post few opening reduce hour make use attrition participant suggest firm remain reluctant lay worker have difficulty obtain employee early post pandemic period participant remark pace payroll increase fall short require unemployment rate stable sustained basis assume constant labor force participation rate participant observe evaluation labor market development challenge increase immigration revision report payroll datum possible change underlie growth rate productivity cite complicate factor participant emphasize importance continue use disaggregate datum information provide business contact check reading labor market condition obtain aggregate datum participant agree labor market condition close consistent committee long run goal maximum employment regard outlook labor market participant note cooling appear need help bring inflation percent participant indicate baseline economic outlook include appropriate recalibration committee monetary policy stance labor market solid participant agree labor market indicator merit close monitoring note condition labor market ease risk increase continue easing transition deterioration participant observe economic activity continue expand solid pace highlight resilient consumption spending couple participant note rise real household income bolster consumption cite sign slowing expenditure strain household budget include increase delinquency credit card automobile loan couple participant suggest financial strain experience low- moderate income household imply slow consumption growth come period participant report business contact optimistic economic outlook exercise caution hiring investment decision participant note favorable aggregate supply development include increase productivity contribute solid expansion economic activity participant discuss possible implication introduction technology workplace participant emphasize expect real gdp grow roughly trend rate year participant discuss risk uncertainty associate economic outlook participant see upside risk inflation outlook have diminish downside risk employment see have increase result participant assess risk achieve committee dual mandate goal roughly balance couple participant perceive increase risk significant weakening labor market condition participant cite risk sharp expect slowing consumer spending response labor market cooling continue strain budget low- moderate income household risk achieve committee price stability goal diminish significantly target range fund rate raise vast majority participant see risk inflation balanced couple participant specifically note upside inflation risk associate geopolitical development addition participant cite risk progress committee percent inflation objective stall large anticipate easing financial condition strong expect consumption growth continue strong increase housing service price consideration monetary policy participant note inflation progress committee objective remain somewhat elevated participant express great confidence inflation move sustainably percent participant observe indicator suggest economic activity continue expand solid pace job gain slow unemployment rate move remain low participant judge risk achieve committee employment inflation goal roughly balance light progress inflation balance risk participant agree appropriate ease stance monetary policy give significant progress committee set target range fund rate percent substantial majority participant support lower target range fund rate basis point percent participant observe recalibration stance monetary policy begin bring well alignment indicator inflation labor market emphasize help sustain strength economy labor market continue promote progress inflation reflect balance risk participant note plausible case basis point rate cut previous datum intermeete period provide evidence inflation sustainable path percent labor market continue cool note inflation somewhat elevated economic growth remain solid unemployment remain low participant observe prefer basis point reduction target range indicate support decision participant note basis point reduction line gradual path policy normalization allow policymaker time degree policy restrictiveness economy evolve participant add basis point signal predictable path policy normalization participant remark path policy normalization specific initial easing important determine degree policy restriction participant judge appropriate process reduce federal reserve security holding discuss outlook monetary policy participant anticipate datum come expect inflation move sustainably percent economy near maximum employment appropriate neutral stance policy time participant emphasize important communicate recalibration stance policy interpret evidence favorable economic outlook signal pace policy easing rapid participant assessment appropriate path comment degree restrictiveness monetary policy observe believe restrictive express range view degree restrictiveness participant remark importance communicate committee monetary policy decision conditional evolution economy implication economic outlook balance risk preset course participant discuss importance communicate ongoing reduction federal reserve balance sheet time committee reduce target range fund rate discuss risk management consideration bear outlook monetary policy participant agree upside risk inflation diminish remark downside risk employment increase participant emphasize reduce policy restraint late little risk unduly weaken economic activity employment participant highlight particular cost challenge address weakening fully way participant remark reduce policy restraint soon risk stalling reversal progress inflation participant note uncertainty concern level long term neutral rate interest complicate assessment degree restrictiveness policy appropriate reduce policy restraint gradually committee policy actions discussion monetary policy member agree economic activity continue expand solid pace job gain slow unemployment rate move remain low member concur progress committee percent inflation objective inflation remain somewhat elevated member agree appropriately reflect cumulative development relate inflation balance risk postmeete statement gain great confidence inflation move sustainably percent judge risk achieve committee employment inflation goal roughly balance member view economic outlook uncertain agree attentive risk side committee dual mandate light progress inflation balance risk committee decide lower target range fund rate percent vote decision prefer lower target range fund rate percent member concur consider additional adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree reduce federal reserve holding treasury security agency debt agency mbs member agree postmeete statement affirm strong commitment support maximum employment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective september federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest principal payment federal reserve holding agency debt agency mortgageâbacked security mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace job gain slow unemployment rate move remain low inflation progress committee percent objective remain somewhat elevated committee seek achieve maximum employment inflation rate percent long run committee gain great confidence inflation move sustainably percent judge risk achieve employment inflation goal roughly balance economic outlook uncertain committee attentive risk side dual mandate light progress inflation balance risk committee decide lower target range fund rate percentage point percent consider additional adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee reduce holding treasury security agency debt agency mortgageâbacked security committee strongly commit support maximum employment return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic lisa cook mary daly beth hammack philip jefferson adriana kugler christopher waller vote action michelle bowman governor bowman prefer lower target range fund rate basis point percent light core inflation remain committee objective labor market near employment solid underlying growth express concern committee large policy action see premature declaration victory price stability dual mandate consistent committee decision lower target range fund rate percent board governors federal reserve system vote unanimously lower interest rate pay balance percent effective september board governors federal reserve system vote unanimously approve percentage point decrease primary credit rate percent effective september agree committee hold wednesdayâthursday november 6â7 adjourn 10:30 a.m. september notation vote notation vote complete august committee unanimously approve minute committee hold july 30â31 attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly beth hammack philip jefferson adriana kugler christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse brian doyle edward knotek sylvain leduc william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account jose acosta senior system engineer division information technology board gianni amisano assistant director division research statistics board mary amiti research department head federal reserve bank new york roc armenter executive vice president federal reserve bank philadelphia alyssa arute assistant director division reserve bank operations payment systems board alessandro barbarino special adviser board division board members board david bowman senior associate director division monetary affairs board brent bundick vice president federal reserve bank kansas city jennifer burns deputy directory division supervision regulation board isabel cairó principal economist division monetary affairs board michele cavallo special adviser board division board members board daniel covitz deputy director division research statistics board wendy dunn adviser division research statistics board eric engen senior associate director division research statistics board eric engstrom associate director division monetary affairs board erin ferris principal economist division monetary affairs board andrew figura associate director division research statistics board glenn follette associate director division research statistics board etienne gagnon senior associate director division international finance board jenn gallagher assistant board division board members board carlos garriga senior vice president federal reserve bank st. louis jason hinkle deputy associate director division reserve bank operations payment systems board valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board anna kovner executive vice president federal reserve bank richmond andreas lehnert director division financial stability board paul lengermann deputy associate director division research statistics board kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board mark meder vice president federal reserve bank cleveland ann misback secretary office secretary board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board alyssa o'connor special adviser board division board members board anna paulson executive vice president federal reserve bank chicago eugenio pinto special adviser board division board members board andrea prestipino principal economist division international finance board odelle quisumbing assistant secretary office secretary board andrea raffo senior vice president federal reserve bank minneapolis manjola tase principal economist division monetary affairs board robert tetlow senior adviser division monetary affairs board alex zhou thorp associate director federal reserve bank new york clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jonathan willis vice president federal reserve bank atlanta donielle winford senior information manager division monetary affairs board paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie senior vice president federal reserve bank dallas joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text take action board approve request establish rate submit director federal reserve bank atlanta vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective september date reserve banks inform secretary board request secretary subsequently federal reserve banks boston new york philadelphia cleveland richmond chicago st. louis minneapolis kansas city dallas san francisco inform board approval establishment primary credit rate percent effect september return text attend development financial market open market operation return text attend economic financial situation return text

minute federal open market committee november 6â7 joint federal open market committee board governors federal reserve system hold office board governors wednesday november 10:00 a.m. continue thursday november 9:00 a.m. developments financial markets open market operations manager turn development financial market nominal treasury yield rise notably period factor drive increase yield include strong expect datum release monetary policy communication interpret signal gradual pace policy easing previously think rise short maturity reflect increase real yield inflation compensation rise long maturity primarily drive increase real yield broad equity price rise period reflect solid incoming datum consequent low odd weakening economic outlook vix measure day option imply volatility broad equity price move higher period lead november election decrease follow election day manager note fund rate path shift notably period measure option imply modal path future imply average path future imply path remain option imply path long horizon gap path narrow reflect market participant risk skewed downside open market desk survey primary dealers survey market participants large majority respondent modal expectation basis point cut basis point cut december considerably uncertainty example mean average respondent probability distribution fund rate trough ease cycle close average respondent expect long run level fund rate respondent place substantial weight wide range outcome manager discuss balance sheet policy expectation average survey response indicate modal expectation timing end balance sheet runoff shift bit later response remain dispersed roughly third respondent expect end runoff survey result indicate respondent expect balance sheet runoff alongside rate cut month survey suggest committee policy toolsâthe policy rate balance sheetâwere see work cross purpose international development manager note policy rate expectation year end decline advanced foreign economy afes exception australia u.k. widening differential u.s. interest rate contribute increase trade weight dollar index reach high level year manager turn money market desk operation unsecured overnight rate remain stable intermeete period secured funding market rate overnight repurchase agreement repo increase sharply volatile september end date stay rate offer overnight reverse repurchase agreement rrp facility market contact attribute pressure see end combination typical balance sheet constraint associate financial reporting date large net settlement treasury coupon security take place day overall development repo market end september early october appear conform typical end pattern spike repo rate observe day large post pandemic period september end see non test use stand repo facility srf counterpartie borrow manager note relatively small utilization surprising repo rate noncentrally clear segment triparty repo marketâin facility operatesâdid exceed srf rate manager observe substantial volume trade take place srf rate end segment repo market manager indicate dealer typically earn spread intermediation activity outcome surprising manager suggest consideration relate market structure help explain repo rate srf rate segment end overall manager judge srf perform line desk expectation usage rrp facility decline intermeete period decline appear drive primarily additional net treasury bill supply week treasury bill yield attractive manager note late large rrp participant substantially reduce participation facility lead concentrated configuration rrp case time intermeete period price fund market continue insensitive day day change supply reserve manager note outcome consistent reserve remain abundant indicator point conclusion provide informational briefing committee consideration relate management balance sheet near term consideration focus possibility technical adjustment rrp offering rate review development respect usage rrp facility note lower rrp offering rate basis point align rrp offering rate target range fund rate probably downward pressure money market rate consideration focus possible implication composition federal reserve liability stem debt limit potentially reinstate presentation highlight fact event occur drawdown treasury general account tga balance increase sum reserve rrp balance subsequent rebuilding tga balance reverse effect note substantial shift mask effect ongoing balance sheet runoff money market condition pose challenge assess condition unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time indicate real gross domestic product gdp expand solidly far year pace job gain moderate beginning year unemployment rate move net remain low consumer price inflation year early pace consumer price inflationâas measure month change price index personal consumption expenditure pce)âhad move lower august september total pce price inflation percent september core pce price inflationâwhich exclude change energy price consumer food pricesâwas 2.7â¯percent recent datum suggest labor market condition remain solid average monthly nonfarm payroll gain similar see october job gain hold noticeably effect strike hurricane unemployment rate edge slightly august percent october labor force participation rate tick period employment population ratio unchanged net unemployment rate african americans hispanics move rate asians white ratio job vacancy unemployment october slightly low level pandemic average hourly earning employee rise percent month end october percentage point relative year early month change employment cost index hourly compensation private industry worker percent september percentage point year early pace accord advance release real gdp post solid gain similar pace real private domestic final purchasesâwhich comprise pce private fix investment provide well signal gdp underlie economic momentumârose slightly fast real gdp net export drag real gdp growth brisk rise export outpace fast import growth real gdp growth foreign economy pick somewhat include euro area especially mexico china growth firm sign fiscal stimulus measure start shore confidence say indicator purchasing manager index pmis continue ongoing weakness foreign manufacturing monetary policy restrictive inflation abroad continue ease advanced afes exclude japan month headline inflation slow near target level mainly reflect rapid pass low energy price early year time service inflation remain high economy china core inflation fall low level global financial crisis contrast latin american country notably brazil inflation increase partly renew food price pressure foreign bank ease policy intermeete period include bank canada european central bank afes bank colombia mexico korea philippines thailand emerge market economy staff review financial situation expect path fund rate imply financial market quote increase notably intermeete period amid strong expect data release pertain economic activity somewhat high expect reading inflation comment fomc participant interpret signal gradual approach recalibrate stance monetary policy consistent high expect path fund rate shift investor perception balance risk nominal treasury yield maturity spectrum increase significantly increase long term yield appear attributable high term premiumsâconsistent investor perceive shift balance risk away outcome characterize slow real gdp growth low inflation market base measure inflation compensation move period relatively low level survey base measure long term inflation expectation little change measure continue expectation inflation return time committee percent objective despite high yield amid great confidence growth outlook somewhat well expect corporate earning report broad equity price index increase notably net intermeete period credit spread corporate municipal bond narrow vix rise appreciably reportedly reflect uncertainty outcome u.s. presidential election escalating tension middle east subsequently retrace increase end period moderately lower slightly median historical distribution condition u.s. short term funding market remain stable intermeete period lowering target range fund rate september fully pass secured unsecured reference rate rate secure market exhibit significant temporary upward pressure september end drive typical end dynamic large net treasury coupon settlement intermeete period government money market fund mmfs continue increase allocation treasury bill private repo light favorable rate instrument usage rrp facility decline significantly period intermeete period foreign financial market drive great investor confidence u.s. economic outlook foreign economic datum release political development high u.s. treasury yield spill foreign yield curve soft expect inflation pmi survey datum weigh short term yield euro area u.k. yield increase follow release government budget market participant process budget impact project inflation gilt issuance broad dollar index increase significantly u.s. interest rate rise foreign rate china announcement policy stimulus measure boost domestic risky asset price limited spillover market announcement drive notable flow china focus investment fund european equity price index decrease somewhat japanese canadian equity market rise moderately domestic credit market borrowing cost household business rise intermeete period elevated level primarily reflect increase long term treasury yield rate year fix rate conform residential mortgage rise interest rate credit card remain relatively unchanged near historical high contrast interest rate auto loan edge remain elevated interest rate commercial industrial c&i loan small business loan continue elevate yield rise array fix income security include commercial mortgage back security cmbs investment- speculative grade corporate bond residential mortgage back security intermeete period finance capital market nonbank lender remain available public corporation large midsize private corporation small firm credit availability remain relatively tight october senior loan officer opinion survey bank lending practices sloos bank net report maintain lending standard term basically unchanged c&i loan net growth c&i loan balance remain subdue august september respect commercial real estate cre loan bank october sloos report balance basically unchanged lending standard category cre loan survey early standard cre loan category tighten bank cre loan balance flat partly reflect lending standard stay tight end range prevail credit remain available consumer consumer credit availability continue tighten moderately september credit card balance expand modestly auto credit growth continue slow august october sloos respondent net indicate standard credit card tighten report change lending standard auto loan access credit residential mortgage market little change balance continue depend borrower credit risk attribute october sloos bank net moderately ease residential lending standard credit quality remain solid case large midsize firm home mortgage borrower municipality continue deteriorate sector credit quality nonfinancial firm borrow corporate bond leveraged loan market remain stable delinquency rate loan small business remain modestly pre pandemic level credit quality cre market deteriorate average delinquency rate loan cmbs pool rise september drive office loan household credit quality delinquency rate residential mortgage unchanged september historical low delinquency rate credit card increase bit delinquency rate auto loan inch provide update assessment stability u.s. financial system balance continue characterize system financial vulnerability notable judge asset valuation pressure elevate estimate risk premium key market low historical standard house price remain elevated relative fundamental rent pace decline cre price slow fundamental continue deteriorate multiple category vulnerability associate business household debt characterize moderate nonfinancial business leverage elevate historical standard ability publicly trade firm service debt remain strong support robust earning low interest rate firm continue enjoy portion fix rate debt issue early pandemic say fraction private firm debt have low interest coverage ratio continue increase point deterioration balance sheet risky firm household balance sheet remain solid aggregate home equity remain high delinquency mortgage loan continue low vulnerability associate leverage financial sector characterize notable regulatory capital ratio banking sector remain high bank continue hold large quantity long duration asset leave exposed usual unexpected rise long term interest rate nonbank sector leverage hedge fund remain high partly account prevalence treasury cashâfuture basis trade life insurer leverage remain somewhat elevated continue maintain large holding risky illiquid security contrast broker dealer leverage remain low capital increase line asset vulnerability associate funding risk characterize notable asset prime mmfs runnable cash management vehicle remain near historical high life insurer great reliance nontraditional liability suggest adverse shock industry trigger substantial funding pressure firm staff economic outlook forecast november call economic condition solid relative september real gdp growth projection high reflect strong expect spending labor market indicator revise assessment potential output growth light upward revision productivity imply annual update national income product account real gdp growth expect slightly slow potential output growth result small increase unemployment rate inflation forecast slightly high prepare previous reflect incoming datum outlook similar previous projection total core pce price inflation expect decline supply demand labor product market continue well balance total core inflation expect 2â¯percent continue uncertainty baseline projection close average past 20â¯years reduce assessment downward risk baseline forecast economic activity light incoming datum judge risk somewhat skewed downside labor market condition remain solid possible easing labor market see past year way pronounced slowdown economic activity risk inflation forecast see roughly balanced participant view current conditions economic outlook inflation development participant continue observe inflation ease substantially peak core inflation remain somewhat elevated participant judge month month movement volatile incoming datum remain consistent inflation return sustainably percent participant comment disinflationary progress see broad range core good service price notably core good nonhouse service category price increase rate close see early period price stability participant note slowing component core inflation corroborate report receive business contact firm reluctant increase price consumer appear price sensitive increasingly seek discount participant remark increase housing service price remain somewhat elevated continue expect increase slow subdued pace rent increase face tenant eventually reflect housing service price regard outlook inflation participant indicate remain confident inflation move sustainably percent couple note possibility process long previously expect participant remark insofar robust increase real gdp reflect favorable supply development strength economic activity unlikely source upward inflation pressure participant cite factor continue downward pressure inflation include wan business pricing power committee restrictive monetary policy stance anchor long term inflation expectation participant note nominal wage growth continue wage premium available job switcher diminish addition participant observe supply demand labor market roughly balance light productivity gain wage increase unlikely source inflationary pressure near future discuss labor market development participant view reading consistent labor market condition remain solid labor strike devastating hurricane important source temporary fluctuation employment datum participant continue cite decline job vacancy quit rate turnover consistent gradual easing labor demand participant report business selective hire face large pool qualified job applicant job applicant willing accept accommodative work arrangement moderate wage offer participant note sign rapid deterioration labor market condition layoff remain low participant cite business contact attrition instead layoff manage size workforce participant observe evaluation underlie trend labor market development continue challengingâ difficulty measure effect immigration labor supply revision datum effect natural disaster labor strike factor cite complicate evaluationâand assessment outlook labor market associate considerable uncertainty participant judge labor market condition consistent committee long run goal maximum employment regard outlook labor market participant anticipate appropriate recalibration committee monetary policy stance time labor market solid participant agree labor market indicator merit close monitoring participant see elevated risk labor market deteriorate participant see risk excessive cooling labor market have diminish somewhat committee september participant observe datum economic activity consumer spending strong anticipate assess economic activity continue expand solid pace consumer spending remain strong participant remark consumption support solid labor market rise real wage elevated household wealth participant observe upward revision datum household income saving rate series behavior consistent strength consumer spending participant caution low- moderate income household continue experience financial strain damp spending couple participant cite increase rate delinquency credit card borrowing automobile loan sign strain business sector participant note favorable aggregate supply developmentsâinclude increase labor supply business investment productivityâcontinue support solid expansion business activity couple participant remark considerable uncertainty durability rate increase productivity participant attribute productivity gain potentially transitory factorsâsuch time efficiency gain response early labor shortagesâor possible underestimation labor input participant highlight durable factor business formation investment integration workplace technological advance couple participant discuss trend note especially possible implication expand use artificial intelligence workplace participant indicate district contact report large corporation firm sector like financial service construction professional service technology have optimistic outlook small business firm manufacturing sector participant remark agricultural sector continue face significant strain low crop price high input cost participant evaluation risk uncertainty associate economic outlook upside risk inflation outlook see little change downside risk employment growth see have decrease somewhat upside risk inflation cite participant possibility sudden disruption global supply chain geopolitical development large anticipate easing financial condition strong expect consumption persistent shelter price increase sharp rise insurance charge health auto home participant point downside risk economic activity employment include weak global growth sharply worsen financing condition escalation geopolitical tension sizable asset price correction unwelcome weakening labor market participant judge risk attainment dual mandate objective maximum employment price stability roughly balance financial stability participant comment note vulnerability financial system assess warranted monitoring couple participant observe banking system sound continue potential risk associate unrealized loss asset participant discuss vulnerability associate cre exposure focus risk office sector participant note sign deterioration condition sector cre market lessen couple participant note concern asset valuation pressure market participant comment cyber risk impair operation financial institution financial infrastructure potentially economy participant note particular vulnerabilitie emanate party service provider couple participant mention party service provider context risk associate brokered reciprocal deposit arrangement participant note leverage market treasury security remain risk comment important monitor development market resilience participant discuss vulnerability pose growth private credit potential link bank financial institution couple participant comment financial condition low- moderate income household exhaust saving importance monitor rise delinquency rate credit card auto loan couple participant remark successful implementation securities exchange commission money fund rule note reduce financial stability risk pose domestic mmfs consideration monetary policy participant note inflation progress committee objective remain somewhat elevated participant observe indicator suggest economic activity continue expand solid pace labor market condition ease early year unemployment rate move remain low participant judge risk achieve committee employment inflation goal roughly balance support committee goal participant view appropriate lower target range fund rate basis point percent participant observe recalibration monetary policy stance help maintain strength economy labor market continue enable progress inflation participant judge appropriate process reduce federal reserve security holding discuss outlook monetary policy participant anticipate datum come expect inflation continue sustainably percent economy remain near maximum employment appropriate gradually neutral stance policy time participant note monetary policy decision preset course conditional evolution economy implication economic outlook balance risk stress important committee clear adjust policy stance emphasize monetary policy datum dependent participant note volatility economic datum highlight importance focus underlie economic trend evolution outlook assess incoming information participant remark future value committee consider technical adjustment rate offer rrp facility set rate equal target range fund rate bring rate alignment exist facility establish monetary policy tool discuss risk management consideration bear outlook monetary policy participant agree risk achieve committee employment inflation goal remain roughly balance participant judge downside risk economic activity labor market diminish participant note monetary policy need balance risk ease policy quickly possibly hinder progress inflation risk ease policy slowly unduly weaken economic activity employment discuss positioning monetary policy response potential change balance risk participant note committee pause easing policy rate hold restrictive level inflation remain elevated remark policy easing accelerate labor market turn economic activity falter participant observe uncertainty concern level neutral rate interest complicate assessment degree restrictiveness monetary policy appropriate reduce policy restraint gradually committee policy actions discussion monetary policy member agree economic activity continue expand solid pace labor market condition ease early year unemployment rate move remain low member concur inflation progress committee percent inflation objective inflation remain somewhat elevated discuss committee statement member agree appropriate omit previous reference great confidence inflation move sustainably percent language specifically associate commencement policy easing september long need member agree risk achieve committee employment inflation goal roughly balance member view economic outlook uncertain agree attentive risk side committee dual mandate support goal committee decide lower target range fund rate basis point percent member concur consider additional adjustment target range fund rate carefully incoming datum evolve outlook balance risk member agree reduce federal reserve holding treasury security agency debt agency mortgage back security member agree postmeete statement affirm strong commitment support maximum employment return inflation committee percent objective member agree assess appropriate stance monetary policy monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective november federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest principal payment federal reserve holding agency debt agency mortgageâbacked security mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace early year labor market condition ease unemployment rate move remain low inflation progress committee percent objective remain somewhat elevated committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal roughly balance economic outlook uncertain committee attentive risk side dual mandate support goal committee decide lower target range fund rate percentage point percent consider additional adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee reduce holding treasury security agency debt agency mortgageâbacked security committee strongly commit support maximum employment return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly beth hammack philip jefferson adriana kugler christopher waller vote action consistent committee decision lower target range fund rate percent board governors federal reserve system vote unanimously lower interest rate pay balance percent effective november board governors federal reserve system vote unanimously approve percentage point decrease primary credit rate percent effective november agree committee hold tuesdayâwednesday december 17â18 adjourn 10:20 a.m. november notation vote notation vote complete october committee unanimously approve minute committee hold september 17â18 attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly beth hammack philip jefferson adriana kugler christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse brian doyle edward knotek william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system engineer division information technology board andrea ajello section chief division monetary affairs board gianni amisano assistant director division research statistics board sriya anbil group manager division monetary affairs board roc armenter executive vice president federal reserve bank philadelphia alyssa arute assistant director division reserve bank operations payment systems board alessandro barbarino special adviser board division board members board david bowman senior associate director division monetary affairs board mark carlson adviser division monetary affairs board michele cavallo special adviser board division board members board kevin clark capital markets trading principal federal reserve bank new york juan carlos climent special adviser board division board members board stephanie curcuru deputy director division international finance board marco del negro economic research advisor federal reserve bank new york andrew foerster senior research advisor federal reserve bank san francisco jenn gallagher assistant board division board members board peter garavuso lead information manager division monetary affairs board carlos garriga senior vice president federal reserve bank st. louis michael gibson director division supervision regulation board jonathan goldberg principal economist division monetary affairs board brian gowen capital markets trading principal federal reserve bank new york joseph gruber executive vice president federal reserve bank kansas city james hebden principal economic modeler division monetary affairs board valerie hinojosa section chief division monetary affairs board jane ihrig special adviser board division board members board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board kyungmin kim principal economist division monetary affairs board elizabeth kiser senior associate director division research statistics board anna kovner executive vice president federal reserve bank richmond andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board dan assistant director division monetary affairs board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board joshua louria group manager division monetary affairs board byron lutz deputy associate director division research statistics board benjamin mcdonough deputy secretary ombudsman office secretary board ann misback secretary office secretary board linsey molloy associate director federal reserve bank new york kevin moore assistant director division research statistics board kindra morelock information services senior analyst division monetary affairs board federal reserve bank chicago norman morin associate director division research statistics board michelle neal head markets federal reserve bank new york edward nelson senior adviser division monetary affairs board marcelo ochoa principal economist division monetary affairs board anna paulson executive vice president federal reserve bank chicago fabrizio perri monetary advisor federal reserve bank minneapolis eugenio pinto special adviser board division board members board andrea prestipino principal economist division international finance board odelle quisumbing assistant secretary office secretary board christine repper manager division reserve bank operations payment systems board zeynep senyuz deputy associate director division monetary affairs board gustavo suarez deputy associate director division research statistics board manjola tase principal economist division monetary affairs board robert triplett iii vice president federal reserve bank dallas clara vega special adviser board division board members board annette vissing jørgensen senior adviser division monetary affairs board jeffrey walker senior associate director division reserve bank operations payment systems board jonathan willis vice president federal reserve bank atlanta paul wood special adviser board division board members board egon zakrajsek executive vice president federal reserve bank boston rebecca zarutskie senior vice president federal reserve bank dallas joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text sloos result report base bank response weight outstanding loan respective loan category differ result report publish sloos base bank unweighted response return text take action board approve request establish rate submit board directors federal reserve banks boston new york philadelphia cleveland richmond atlanta chicago minneapolis dallas san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective november date reserve banks inform secretary board request secretary subsequently federal reserve banks st. louis kansas city inform board approval establishment primary credit rate percent effective november return text attend development financial market open market operation return text attend tuesday return text

minute federal open market committee december 17â18 joint federal open market committee board governors federal reserve system hold office board governors tuesday december 10:30 a.m. continue wednesday december 9:00 a.m. developments financial markets open market operations manager turn development financial market nominal treasury yield fluctuate intermeete period slightly high net early november treasury yield rise notably trough mid september rise year nominal yield drive increase real yield liquidity treasury market deteriorate somewhat follow u.s. election remain range observe past year near term measure inflation compensation little high intermeete period long term measure little change manager note sign concern persistent inflationary pressure market price equity price sustain gain experience anticipation immediately follow u.s. election manager note market expectation path fund rate little change intermeete period market fully price basis point cut target range fund rate respondent open market desk survey primary dealers survey market participants expect survey respondent anticipate pace rate cut slow considerably median respondent expect basis point cut year option future price suggest somewhat low level expect policy easing discuss survey market expectation manager note considerable uncertainty market participant path fund rate year ahead manager discuss balance sheet policy expectation average estimate survey respondent timing end balance sheet runoff shift bit later june shift mainly reflect revision estimate respondent expect balance sheet runoff end early international development manager note market participant expect bank nearly advanced foreign economy afes reduce policy rate contrast u.s. market expectation policy rate end afe shift lower intermeete period manager note widening u.s. foreign interest rate appear major contributor increase trade weight u.s. dollar index observe intermeete period manager turn money market desk operation unsecured overnight rate remain stable intermeete period exception temporary pressure month end treasury auction settlement date rate overnight repurchase agreement repo little change manager note average market participant appear expect upward pressure repo market year end comparable see september end base term forward settle repo volume market participant appear proactive year prepare year end manager judge help mitigate somewhat extent upward pressure repo rate time pricing fund market continue insensitive day day change supply reserve intermeete period manager note outcome consistent reserve remain abundant indicator response bank desire level federal reserve senior financial officer survey point conclusion look ahead manager raise possibility potential reinstatement debt limit result substantial shift federal reserve liability pose challenge assess condition usage overnight reverse repurchase agreement rrp facility continue decline intermeete period decrease rrp usage attributable increase net treasury bill issuance treasury bill rate attractive near term manager judge rrp volume rise expect decline net treasury bill issuance typical year end dynamic manager note potential reinstatement debt limit rrp balance elevate time manager discuss market expectation technical adjustment lower rrp offering rate target range fund rate base desk survey market outreach market participant expect adjustment market participant view vary downward pressure adjustment money market rate repo rate expect fall fund rate manager conclude note desk plan add stand repo facility srf auction day week span year end manager view additional auction technical exercise improve federal reserve understanding srf auction time support effective policy implementation market function period expected money market pressure unanimous vote committee ratify desk domestic transaction intermeete period intervention operation foreign currency system account intermeete period staff review economic situation information available time indicate real gross domestic product gdp continue expand solid pace labor market condition ease early unemployment rate remain low consumer price inflation year early rate somewhat elevated total consumer price inflationâas measure month change price index personal consumption expenditure pce)âwas percent october percent rate see year early core pce price inflationâwhich exclude change consumer energy price consumer food pricesâwa percent october low percent rate year early november month change consumer price index cpi percent core cpi inflation percent year early rate give cpi producer price index datum estimate total pce price inflation report percent month end november core pce price inflation percent recent datum suggest labor market condition ease slightly remain solid average monthly nonfarm payroll gain october november little pace estimate job gain hold effect labor strike hurricane october boost similar november effect unwound unemployment rate tick percent november labor force participation rate employment population ratio move bit unemployment rate african americans hispanics move rate asians white ratio job vacancy unemployment hold steady november slightly low level pandemic average hourly earning employee rise percent month end novemberâthe rate previous month real gdp post solid gain similar pace real private domestic final purchase pdfp)âwhich comprise pce private fix investment provide well signal gdp underlie economic momentumârose fast real gdp export rise briskly import growth fast available economic indicator suggest real gdp growth remain solid growth real pdfp outpace real gdp import fall export october real import capital good drop brisk growth early year foreign economic growth pick notably euro area mexico recent economic indicator suggest weak momentum foreign economy lackluster manufacturing activity subdue private consumption spending china growth retail sale slow suggest domestic demand remain weak strength high tech good production continue abroad mainly asia exclude china support buoyant u.s. demand inflation foreign economy continue ease afe headline inflation slow near target level mainly reflect pass low energy price early year service inflation remain high economy china inflation remain close fall food price contrast latin american country notably brazil inflation continue increase partly currency depreciation staff review financial situation market imply path fund rate year edge higher net u.s. election investor assess implication incoming inflation datum potential economic policy change near term economic outlook communication federal reserve official contribute investor perception slow timeline policy rate reduction nominal treasury yield maturity spectrum initially increase reverse increase end intermeete period little change measure near term inflation compensation move long term inflation compensation little change broad equity price rise pronounce increase stock price cyclical sector amid increase investor optimism corporate profit high yield bond spread narrow vixâa forward look measure near term equity market volatilityâfell notably remain pre election level foreign financial market pricing reflect weak expect foreign datum release expectation policy easing foreign bank potential change u.s. trade policy accordingly foreign bond yield decline relative u.s. counterpart contribute dollar appreciation foreign currency foreign equity underperformed u.s. equity reflect investor expectation economic growth diverge u.s. rest world foreign bank ease policy rate intermeete period include bank canada european central bank swiss national bank afes bank hong kong india korea mexico emerge market economy exception central bank brazil increase policy rate basis point signal hike face inflationary pressure condition u.s. short term funding market remain stable intermeete period lowering target range fund rate november fully pass secured unsecured reference rate money market fund mmfs usage rrp facility low average previous intermeete period reflect increase holding treasury bill amid sizable net bill issuance overall mmf asset management stay near record high spread unsecured commercial paper mature year end remain typical range global offshore dollar funding market continue stable domestic market borrowing cost household business municipality remain elevate despite small decline credit segment rate year fix rate conform residential mortgage decline stay elevated interest rate credit card auto loan continue historical high interest rate auto loan decrease borrowing cost leveraged loan borrower decline slightly interest rate newly originated commercial industrial c&i loan tick interest rate short term loan small business remain unchanged yield array fix income security include investment- speculative grade corporate bond commercial mortgage back security cmbs decrease slightly remain elevated financing capital market continue available large midsize business municipality small business credit availability remain relatively tight loan origination stay subdue october c&i loan bank increase moderately october flat november modest growth stall commercial real estate cre loan growth pick moderately october remain subdue late november agency cmbs issuance continue weak october non agency cmbs issuance strong october week november reflect high volume refinance activity credit continue available household auto loan little change growth revolve credit weak november credit residential mortgage market continue readily available high credit score borrower credit availability low credit score borrower improve net month october credit quality remain solid large midsize firm municipality home mortgage borrower credit performance corporate bond leveraged loan stable bank delinquency rate c&i loan stable remain range observe past decade delinquency rate small business loan continue increase october delinquency small business credit card september cre market credit performance deteriorate aggregate cmbs delinquency rate rise october drive delinquency office loan bank delinquency rate cre loan tick september elevate level household credit quality delinquency rate residential mortgage unchanged stand near historical low delinquency rate federal housing administration mortgage disproportionately borrower low credit score small payment remain pre pandemic level delinquency rate credit card continue increase albeit slow pace early year delinquency rate auto loan unchanged staff economic outlook projection december economic condition stay solid give elevated uncertainty specific scope timing potential change trade immigration fiscal regulatory policy potential effect economy highlight difficulty select assess importance factor baseline projection feature number alternative scenario incorporate datum preliminary placeholder assumption potential policy change real gdp growth project slightly slow previous baseline forecast unemployment rate expect bit high near estimate natural rate baseline projection inflation forecast slightly high prepare previous reflect upside surprise datum inflation expect rate effect placeholder trade policy assumption hold inflation inflation forecast decline percent projection november continue uncertainty baseline projection range see past year period encompass number episode uncertainty economy policy change elevate judge risk baseline forecast employment real gdp growth balance concern downside risk marked cooling labor market condition ease month risk inflation forecast see tilt upside core inflation come expect effect trade policy change large assume participant view current conditions economic outlook conjunction fomc participant submit projection outcome real gdp growth unemployment rate inflation year long run projection base participant individual assessment appropriate monetary policy include projection fund rate long run projection represent participant assessment rate variable tend converge appropriate monetary policy absence shock economy summary economic projections release public inflation development participant note inflation ease substantially peak remain somewhat elevated participant comment pace disinflation slow monthly price reading high anticipate remark disinflationary progress continue apparent broad range core good service price notably participant observe core good market base core service category exclude housing price increase rate close see early period price stability participant note slowing component inflation corroborate report receive business contact firm reluctant increase price consumer appear price sensitive increasingly seek discount respect core service price majority participant remark increase component exceed expectation month note increase concentrate non market base price category price movement category typically provide reliable signal resource pressure future trajectory inflation participant remark increase housing service price remain somewhat elevated continue slow gradually pace rent increase tenant continue moderate eventually reflect housing service price regard outlook inflation participant expect inflation percent note high expect reading inflation effect potential change trade immigration policy suggest process long previously anticipate observe disinflationary process stall temporarily note risk couple participant judge positive sentiment financial market momentum economic activity upward pressure inflation participant judge uncertainty scope timing economic effect potential change policy affect foreign trade immigration elevate reflect uncertainty participant take varied approach accounting effect number participant indicate incorporate placeholder assumption degree projection participant indicate incorporate assumption participant incorporate assumption participant remark insofar solid increase real gdp reflect favorable supply development strength economic activity unlikely source upward inflation pressure participant cite factor continue downward pressure inflation include wan business pricing power committee restrictive monetary policy stance anchor long term inflation expectation participant note nominal wage growth continue observe supply demand labor market roughly balance light productivity gain labor market condition unlikely source inflationary pressure near future remark nominal wage growth remain slightly pace consistent time percent inflation discuss labor market development participant view reading range indicator consistent ongoing gradual easing labor market condition unemployment rate remain low participant cite decline job vacancy quit rate rate unemployed obtain job turnover consistent gradual easing labor demand participant note sign rapid deterioration labor market condition layoff remain low participant judge labor market condition consistent committee long run goal maximum employment regard outlook labor market participant anticipate appropriate monetary policy condition labor market solid participant note labor market indicator merit close monitoring participant observe evaluation underlie trend labor market development continue challenge assessment outlook labor market associate considerable uncertainty participant note labor market soften pace payroll growth rate unemployment rate constant give stable labor force participation rate participant observe economic activity continue expand solid pace datum economic activity consumer spending particular balance strong anticipate participant remark consumption support solid labor market rise real wage elevated household net worth participant caution low- moderate income household continue experience financial strain damp spending couple participant cite continue increase rate delinquency credit card borrowing automobile loan sign strain regard business sector participant note favorable aggregate supply developmentsâinclude increase labor supply business investment productivityâcontinue support solid expansion business activity majority participant remark behavior equity market reflect positive sentiment investor participant remark district contact report great optimism economic outlook stem expectation easing government regulation change tax policy contrast participant note contact report increase uncertainty potential change government policy couple participant remark agricultural sector continue face significant strain stem low crop price high input cost evaluation risk uncertainty associate economic outlook vast majority participant judge risk attainment committee dual mandate objective maximum employment price stability roughly balance particular participant see sided risk achieve goal participant judge upside risk inflation outlook increase reason participant cite strong expect reading inflation effect potential change trade immigration policy reason mention include possible disruption global supply chain geopolitical development large anticipate easing financial condition strong expect household spending persistent shelter price increase participant remark period ahead difficult distinguish persistent influence inflation potentially temporary one stem change trade policy lead shift level price participant note risk achievement committee maximum employment goal appear roughly balanced see risk labor market tilt downside participant point risk economic activity employment include downside risk associate weak output growth abroad increase financial vulnerability stem overvaluation risky asset unexpected weakening labor market upside risk associate increase optimism continued strength domestic spending upside factor consideration monetary policy participant note inflation progress committee objective remain somewhat elevated participant observe indicator suggest economic activity continue expand solid pace labor market condition ease early year unemployment rate move remain low vast majority participant view appropriate lower target range fund rate basis point percent assess lowering target range policy rate help maintain strength economy labor market continue enable progress inflation majority participant note judgment appropriate policy action finely balanced participant state merit keep target range fund rate unchanged participant suggest risk persistently elevated inflation increase month participant stress need monetary policy help foster financial condition consistent inflation return sustainably percent participant judge appropriate process reduce federal reserve security holding discuss outlook monetary policy participant indicate committee near point appropriate slow pace policy easing indicate datum come expect inflation continue sustainably percent economy remain near maximum employment appropriate gradually neutral stance policy time participant observe target range fund rate have lower total basis point decision policy rate significantly close neutral value committee commence policy easing september addition participant suggest variety factor underline need careful approach monetary policy decision come quarter factor include elevated inflation reading continue strength spending reduce downside risk outlook labor market economic activity increase upside risk outlook inflation substantial majority participant observe juncture policy stance meaningfully restrictive committee position time evolve outlook economic activity inflation include economy response committee early policy action participant note monetary policy decision preset course conditional evolution economy economic outlook balance risk discuss risk management consideration bear outlook monetary policy vast majority participant agree risk achieve committee employment inflation goal remain roughly balance participant observe high degree uncertainty appropriate committee gradual approach move neutral policy stance participant note inflation course return sustainably percent year committee determined restore maintain price stability likelihood elevated inflation persistent increase participant remark stance monetary policy significantly restrictive committee careful approach consider adjustment stance monetary policy participant note committee hold policy rate restrictive level ease policy slowly inflation remain elevated remark policy easing place rapidly labor market condition deteriorate economic activity falter inflation return percent quickly anticipate committee policy actions discussion monetary policy member agree indicator suggest economic activity continue expand solid pace labor market condition ease early year unemployment rate move remain low member concur inflation progress committee percent objective remain somewhat elevated member agree risk achieve committee employment inflation goal roughly balance member view economic outlook uncertain agree attentive risk side committee dual mandate support goal committee agree lower target range fund rate basis point percent vote decision prefer maintain target range fund rate percent light committee slow pace adjustment stance monetary policy member agree consider extent timing additional adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk member agree reduce federal reserve holding treasury security agency debt agency mortgage back security member judge appropriate technical adjustment rate offer rrp facility set equal target range fund rate bring rate alignment exist facility establish monetary policy tool member agree postmeete statement affirm strong commitment support maximum employment return inflation committee percent objective member agree assess appropriate stance monetary policy committee monitor implication incoming information economic outlook prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal member agree assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development conclusion committee vote direct federal reserve bank new york instruct execute transaction system open market account accordance follow domestic policy directive release 2:00 p.m. effective december federal open market committee direct desk undertake open market operation necessary maintain fund rate target range percent conduct stand overnight repurchase agreement operation minimum bid rate percent aggregate operation limit conduct stand overnight reverse repurchase agreement operation offering rate percent counterparty limit day set rate target range fund rate intend support effective monetary policy implementation smooth functioning shortâterm funding market roll auction principal payment federal reserve holding treasury security mature calendar month exceed cap month redeem treasury coupon security monthly cap treasury bill extent coupon principal payment monthly cap reinvest principal payment federal reserve holding agency debt agency mortgageâbacked security mbs receive calendar month exceed cap month treasury security roughly match maturity composition treasury security outstanding allow modest deviation stated amount reinvestment need operational reason engage dollar roll coupon swap transaction necessary facilitate settlement federal reserve agency mbs transaction vote encompass approval statement release 2:00 p.m. recent indicator economic activity continue expand solid pace early year labor market condition ease unemployment rate move remain low inflation progress committee percent objective remain somewhat elevated committee seek achieve maximum employment inflation rate percent long run committee judge risk achieve employment inflation goal roughly balance economic outlook uncertain committee attentive risk side dual mandate support goal committee decide lower target range fund rate percentage point percent consider extent timing additional adjustment target range fund rate committee carefully incoming datum evolve outlook balance risk committee reduce holding treasury security agency debt agency mortgageâbacked security committee strongly commit support maximum employment return inflation percent objective assess appropriate stance monetary policy committee monitor implication incoming information economic outlook committee prepare adjust stance monetary policy appropriate risk emerge impede attainment committee goal committee assessment account wide range information include reading labor market condition inflation pressure inflation expectation financial international development vote action jerome powell john williams thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly philip jefferson adriana kugler christopher waller vote action beth hammack president hammack dissent prefer maintain target range fund rate percent light uneven progress return inflation percent strength economy labor market state financial condition fund rate far neutral hold fund rate modestly restrictive stance time appropriate ensure inflation return percent timely fashion consistent committee decision lower target range fund rate percent board governors federal reserve system vote unanimously lower interest rate pay balance percent effective december board governors federal reserve system vote unanimously approve percentage point decrease primary credit rate percent effective december agree committee hold tuesdayâwednesday january 28â29 adjourn 10:10 a.m. december notation vote notation vote complete november committee unanimously approve minute committee hold november 6â7 attendance jerome powell chair john williams vice chair thomas barkin michael barr raphael bostic michelle bowman lisa cook mary daly beth hammack philip jefferson adriana kugler christopher waller susan collins austan goolsbee alberto musalem jeffrey schmid sushmita shukla alternate members committee patrick harker neel kashkari lorie logan president federal reserve banks philadelphia minneapolis dallas respectively joshua gallin secretary matthew luecke deputy secretary brian bonis assistant secretary michelle smith assistant secretary mark van der weide general counsel richard ostrander deputy general counsel trevor reeve economist stacey tevlin economist beth anne wilson economist shaghil ahmed james clouse brian doyle edward knotek david lebow sylvain leduc william wascher associate economists roberto perli manager system open market account julie ann remache deputy manager system open market account stephanie aaronson senior associate director division research statistics board jose acosta senior system engineer division information technology board andrea ajello section chief division monetary affairs board david altig executive vice president federal reserve bank atlanta roc armenter executive vice president federal reserve bank philadelphia alyssa arute assistant director division reserve bank operations payment systems board alessandro barbarino special adviser board division board members board michele cavallo special adviser board division board members board stephanie curcuru deputy director division international finance board riccardo dicecio economic policy advisor federal reserve bank st. louis eric engen senior associate director division research statistics board eric engstrom associate director division monetary affairs board andrew figura associate director division research statistics board glenn follette associate director division research statistics board jenn gallagher assistant board division board members board michael gibson director division supervision regulation board joseph gruber executive vice president federal reserve bank kansas city christopher gust associate director division monetary affairs board james hebden principal economic modeler division monetary affairs board françois henriquez vice president federal reserve bank st. louis valerie hinojosa section chief division monetary affairs board bart hobijn senior economist economic advisor federal reserve bank chicago jane ihrig special adviser board division board members board jordan keitelman senior financial institution policy analyst division reserve bank operations payment systems board michael kiley deputy director division financial stability board don kim senior adviser division monetary affairs board anna kovner executive vice president federal reserve bank richmond andreas lehnert director division financial stability board kurt lewis special adviser chair division board members board laura lipscomb special adviser board division board members board david lópez salido senior associate director division monetary affairs board dina tavares marchioni director money markets federal reserve bank new york jonathan mccarthy economic research advisor federal reserve bank new york benjamin mcdonough deputy secretary ombudsman office secretary board karel mertens senior vice president federal reserve bank dallas ann misback secretary office secretary board edward nelson senior adviser division monetary affairs board alyssa o'connor special adviser board division board members board anna orlik principal economist division monetary affairs board michael palumbo senior associate director division research statistics board ander perez orive principal economist division monetary affairs board eugenio pinto special adviser board division board members board albert queralto section chief division international finance board odelle quisumbing assistant secretary office secretary board andrea raffo senior vice president federal reserve bank minneapolis denise redfearn administrative specialist office secretary board achilles sangster lead information manager division monetary affairs board shane sherlund associate director division research statistics board clara vega special adviser board division board members board min wei senior associate director division monetary affairs board randall williams group manager division monetary affairs board paul wood special adviser board division board members board ines xavier senior economist division monetary affairs board egon zakrajsek executive vice president federal reserve bank boston joshua gallin secretary federal open market committee reference fomc committee minute board governors federal reserve system reference board minute return text take action board approve request establish rate submit board directors federal reserve banks boston new york philadelphia cleveland richmond atlanta chicago san francisco vote encompass approval board governors establishment percent primary credit rate remain federal reserve banks effective december date reserve banks inform secretary board request secretary subsequently federal reserve banks st. louis minneapolis kansas city dallas inform board approval establishment primary credit rate percent effective december return text attend development financial market open market operation return text attend tuesday return text attend economic financial situation return text attend opening remark tuesday return text

account monetary policy governing council european central bank hold frankfurt main wednesday thursday january review financial economic monetary development policy option financial market development cœuré review late financial market development week volatility remain elevated different market segment particular equity commodity market brent oil price decline governing council previous monetary policy december recover volatility oil price evidence heighten geopolitical uncertainty impact oil supply concern global growth outlook impact oil demand volatility increase recently foreign exchange market particular follow rejection british parliament withdrawal agreement pound sterling appreciate markedly euro dollar contrast volatility emerge market currency come elevated level observe regard global bond market development yield fall measurably beginning october yield year treasury fall year german government bond yield fall spread narrow return level observe summer decomposition euro area year overnight index swap rate inflation real component suggest countervail factor drive yield period side atlantic rise real yield emerge late summer persist reflect rise real term premium fall inflation component offset impact rise real yield comparison survey market base expectation long term inflation suggest fall inflation component predominantly reflect fall inflation risk premium premature conclude market participant materially reappraise medium term inflation expectation spread higher yield euro area sovereign bond versus german bond stabilise week year sovereign bond spread italy spain portugal germany stable fall early october euro area forward money market curve notably flat october suggest expectation ecb deposit facility rate increase shift september april revision survey expectation moderate see occur look equity valuation loss euro area order united states amount early october model base analysis show euro area equity price movement reflect low earning expectation united states large increase equity risk premium global corporate bond market experience broad base repricing spread high yield bond increase basis point early october euro area repricing pronounce spread high yield bond rise basis point spread euro area investment grade corporate bond increase measurably period finally turn year end development euro area repo market orderly condition observe previous year smooth year end reflect well preparation market participant global environment economic monetary development euro area praet review global environment economic monetary development euro area external environment global growth trade momentum slow particular global composite output purchasing managers index pmi decrease compare weak manufacturing sector component service sector component remain unchanged trade indicator weaken end possibly reflect growth headwind elevated policy uncertainty china trade relation annual consumer price inflation oecd area slow november drive low energy price inflation inflation exclude food energy decrease marginally time wage dynamic show stabilisation compensation employee grow rate close quarter brent crude oil price increase december monetary policy period food price increase metal price decline euro exchange rate remain stable nominal effective term bilateral term dollar turn euro area incoming datum surprise downside near term growth momentum weak previously anticipate headline manufacture pmi euro area december stand november late pmi survey datum point slowing growth momentum particular cyclically sensitive industry capital intermediate good time domestic demand support favourable financing condition labour market dynamic rise wage low energy price particular private consumption expect resilient employment increase previous quarter unemployment rate fall november reach low level october survey indicator signal weak positive employment growth come quarter particular pmi employment indicator weaken notably summer remain expansionary territory stand december extra euro area export expect subdued account weaken foreign demand growth growth euro area good export decline term decline attribute drop capital good export particular motor vehicle late trade datum october november late survey indicator lead property consistently point deterioration euro area trade outlook turn price development accord eurostat flash estimate euro area annual hicp inflation stand december november hicp inflation exclude food energy remain unchanged decrease hicp inflation mainly reflect low energy price inflation overall december datum turn weak expect drive energy service price inflation measure underlie inflation continue sideways domestic cost pressure increase translate consumer price inflation supply chain import producer price inflation good service rise upward cost pressure stem labour cost intensify unit labour cost growth increase result ecb survey professional forecasters point average inflation expectation compare previous survey represent downward revision percentage point percentage point imply weak profile december eurosystem projection account different oil price assumption market base inflation expectation revise somewhat year forward break inflation rate year ahead stand financial condition tighten somewhat month context heighten market volatility unchanged compare december overall credit condition remain favourable compare situation time december euro area non financial equity rebound somewhat earning expectation revise expect timing ecb policy rate increase shift turn money credit development broad money growth moderate slightly november money creation increasingly drive credit private sector annual growth rate loan private sector stabilise month stand november strengthen early time euro area bank composite funding cost increase somewhat month mainly owe increase bond yield equity price decline lending rate remain favourable stand marginally historical low regard fiscal policy euro area fiscal stance measure change cyclically adjust primary balance expect mildly expansionary monetary policy consideration policy option sum praet remark financial condition tighten somewhat month context heighten market volatility remain supportive ecb monetary policy contribute dampen impact prevail uncertainty financial condition credit condition household firm remain accommodative incoming datum growth continue weak expect account soft external demand country sector specific factor near term growth momentum weak previously anticipate risk surround euro area growth outlook move downside persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market financial market volatility increasingly weigh economic sentiment hicp inflation fall december reflect mainly low energy price inflation decline come month measure underlie inflation remain muted labour cost pressure continue strengthen expect pass underlie inflation period ahead ongoing economic expansion continue support confidence convergence inflation ecb inflation aim development call thorough analysis regard implication medium term outlook background praet propose stage confirm governing council enhance forward guidance especially circumstance contribute supportive market interest rate external communication stress incoming information continue weak expect signal slow near term growth momentum acknowledge risk surround euro area growth outlook move downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market financial market volatility underline ongoing euro area expansion gradually rise inflation pressure continue support confidence sustained convergence inflation governing council aim emphasise significant monetary policy stimulus remain essential support build domestic price pressure headline inflation development medium term stimulus provide governing council forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset reiterate event governing council stand ready adjust instrument appropriate ensure inflation continue aim sustained manner govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide praet introduction discuss balance risk recent datum survey result continue weak expect account soft external demand country sector specific factor affect domestic activity impact factor expect fade incoming datum suggest near term growth momentum weak previously anticipate clear cut conclusion draw implication slow growth short term outlook activity medium term light significant uncertainty country sector specific factor transitory long lasting context underline outlook activity reassess depth governing council early march ecb projection available consider outlook risk external environment member note global growth trade momentum slow particular concern member increase impact trade protectionism escalation trade conflict global outlook time note chinese import end low expect reflect negative impact trade tension united states china addition acute risk remain surround united kingdom withdrawal widely agree uncertainty risk relate geopolitical factor threat protectionism vulnerability emerge market financial market volatility remain prominent appear exact increase toll world economy background downside risk global activity trade see have increase turn euro area activity member observe datum weak expect real gdp growth slow hard datum disappoint indicator base late european commission business survey purchasing manager survey decline altogether evidence point likelihood growth potential quarter acknowledge carry effect slow growth half entail low projection growth emphasise growth remain positive probability recession remain low nonetheless perception widely share elevated uncertainty persistent soft patch time emphasise euro area economic expansion continue support fundamental factor particular favourable financing condition employment gain rise wage low energy price ongoing albeit somewhat slow expansion global activity exchange view interpretation incoming datum member share information development respective national economy seek provide assessment persistence factor weakening activity impact emission testing standard car production registration mention dampening factor large euro area economy car registration rise slump last long initially expect sign end uncertainty quickly activity sector recover point absence shock growth euro area expect slow give maturity business cycle rate potential rate close potential member discuss great detail risk euro area growth outlook widely feel possible judge confidence persistent soft patch extent slow growth short term affect medium term growth outlook factor temporary sector country specific member concur assessment provide praet strong case assess risk have move downside large measure downside risk attribute risk external environment relate heighten protectionism united kingdom withdrawal increasingly weigh sentiment euro area cumulative impact persistence wide range risk external domestic emphasise soft datum euro area have decline hard datum concern express persistence prevail high level uncertainty affect confidence reflect fall business survey turn adversely affect domestic demand argument forward assessment risk growth balanced support low oil price stimulus fiscal measure negative impact shock global growth partially offset policy response jurisdiction time underline observed slowdown euro area growth appear deep broad base previously anticipate affect car sector manufacturing sector negative development widespread euro area risk affect component demand slowdown appear mainly external factor pass spillover euro area explain domestic demand slow slowdown previously relate primarily trade private consumption growth weak employment growth decelerate suggest export consumption weak transmit investment period ahead furthermore reiterate past revision growth projection essentially reflect incorporation datum short term leave growth path remainder projection horizon practically unchanged member concur risk euro area outlook move downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market financial market volatility regard price development broad agreement assessment present praet introduction accord eurostat euro area annual hicp inflation decline december november mainly reflect decline energy price inflation basis future price oil headline inflation decrease come month measure underlie inflation remain mute domestic cost pressure continue strengthen broaden amid high level capacity utilisation tighten labour market look ahead underlie inflation expect increase medium term support ecb monetary policy measure ongoing economic expansion rise wage growth regard possible implication weak growth medium term inflation outlook argue information need thorough assessment context note labour market far continue improve labour shortage apparent member states deceleration employment growth observe member consider development wage growth continue provide reassurance outlook underlie inflation compensation employee euro area rise have increase steadily pick wage growth broader base country sector argue relatively high level headline inflation affect wage negotiation contain backward look component widely emphasise transmission high wage consumer price inflation key issue medium term outlook inflation important source uncertainty inflation outlook see require close monitoring note relationship wage unemployment appear intact far little response underlie inflation measure improve labour market condition illustrate fact previous year underlie inflation stable unemployment fall underlying inflation rise period economy grow quickly member discuss behaviour profit margin mark note high wage growth pass price inflation firm absorb lower profit margin attention draw drop gross operating surplus growth practically argue mark squeeze indefinitely effect serve delay pass high wage consumer price underline transmission consumer price inflation subject time lag appear time patience need argue structural long last factor play example relate change competitive environment pressure margin commerce regard development long term inflation expectation member note market base survey base measure fall previous monetary policy governing council expectation inflation year ahead survey professional forecasters revise market base inflation expectation measure year forward inflation link swap rate year ahead stand slightly level prevail time december governing council low level june risk deflation negligible time short term outlook inflation weaken low oil price weak development domestic service price concern express risk renew weakness start weigh inflation expectation persist fiscal policy governing council reiterate need rebuild fiscal buffer particularly important country government debt high adherence stability growth pact critical safeguard sound fiscal position regard monetary analysis member widely share assessment provide praet introduction annual growth rate broad money moderate somewhat november continue underpin credit creation narrow monetary aggregate remain main contributor broad money growth reference result euro area lending survey show lending condition remain favourable euro area follow extended period net easing demand credit continue rise credit standard loan enterprise household tighten slightly account development large euro area economy subject financial market volatility funding cost edge look ahead feel consideration give outlook liquidity condition banking sector redemption outstanding target long term refinance operation approach rise cliff effect monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide praet introduction broad agreement stance remain highly expansionary contribute dampen impact prevail uncertainty financial condition remain favourable remark alongside uncertainty external environment uncertainty euro area economy rise recently pertain growth outlook inflation owe low oil price slow pass wage price broad agreement member supportive financing condition favourable labour market dynamic rise wage growth continue underpin euro area expansion support confidence convergence inflation governing council aim measure underlie inflation remain muted labour cost pressure strengthen expect pass underlie inflation period ahead regard underline euro area experience growth momentum labour market condition improve low oil price support consumption look ahead key question see extent weak growth momentum turn persistent currently envisage information include march projection need deepen analysis obtain great clarity conclusion draw medium term inflation outlook background member agree monetary policy consideration forward praet introduction entail confirm enhance forward guidance path key ecb interest rate reinvestment acquire asset acknowledge risk surround euro area growth outlook move downside account persistence uncertainty relate geopolitical factor threat protectionism significant monetary policy stimulus provide forward guidance key ecb interest rate reinvestment sizeable stock acquire asset time governing council reiterate stand ready adjust instrument appropriate ensure inflation continue governing council inflation aim sustained manner member underline specify forward guidance governing council policy instrument term time base leg state contingent leg serve observation response weak expect datum ease financial condition take place outward shift market expectation timing rise key ecb interest rate endogenous response view consistent state base element governing council forward guidance contribute preserve financial condition project inflation convergence remain contingent chain forward guidance key ecb interest rate reinvestment see function kind automatic stabiliser particularly situation easing deem desirable reaction weak expect datum wide agreement continued convergence inflation governing council aim period ahead require ample degree monetary accommodation number remark available monetary policy tool domain long term liquidity provision potential operation reflect monetary policy objective achieve decision respect take hastily technical analysis require prepare policy option future liquidity operation need proceed swiftly communication member widely concur element propose praet introduction accordingly see appropriate acknowledge incoming datum continue weak expect supportive financing condition favourable labour market dynamic rise wage growth continue underpin expansion gradually rise inflation pressure euro area time recognise risk surround euro area growth outlook move downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market financial market volatility regard need communicate cautiously stress order strike right balance credibility acknowledge weak expect datum convey confidence adjustment governing council medium term inflation aim consequently governing council reconfirm forward guidance key ecb interest rate reinvestment principal payment mature security purchase asset purchase programme member agree monetary policy need prudent patient persistent follow data drive approach period ahead juncture steady hand see warrant discussion regard monetary policy operation forward guidance deem premature time governing council need reiterate prepared act need monetary policy decision communication take account forego member proposal president governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council reiterate expect key ecb interest rate level summer case long necessary ensure continue sustained convergence inflation level close medium term regard non standard monetary policy measure governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190124~cd3821f8f5.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190124~5c00d09d5d.en.html meeting ecb governing council january members draghi president guindos vice president cœuré costa georghadji hansson hernández cos knot lane lautenschläger makúch mersch nowotny praet rehn reinesch stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right january article escb statute attendee dombrovskis commission vice president teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne buch demarco dolenc donnery gaiotti goulard kaasik kuodis mooslechner ódor razmusa alternate rimšēvičs rutkaste schoder stavrou swank tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations rostagno director general monetary policy sousa deputy director general economics stracca deputy director general international european relations release monetary policy account foresee thursday april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday march review financial economic monetary development policy option financial market development cœuré review late financial market development regard bond market development fall euro area year overnight index swap ois yield early october mid february recently reverse slightly notwithstanding recovery yield remain compress compare level observe early october cœuré recall dominant driver low yield month fall inflation component reflect revision market base inflation expectation pronounce decrease inflation link swap rate maturity relate sharp parallel fall oil price end december oil price dollar euro term euro area medium term inflation expectation respond differently year forward inflation link swap rate year ahead rise basis point early january contrast equivalent swap rate euro area continue decline week indicate previous occasion prevalence risk premia adjustment month imply caution warrant interpret monetary policy expectation purely derive market price euro area late forward month ois curve indicate policy expectation euro area remain stable mid january survey base expectation hike deposit facility rate continue shift time united states fund future curve shift upward day return level observe half january survey backtrack somewhat term timing point expectation hike move equity market risky asset continue rally s&p euro stoxx gain governing council january monetary policy year date stock market fully recover sharp loss see euro area gain share price reflect improvement earning prospect high share price mainly reflect fall equity risk premium emerging market benefit improve risk sentiment msci emerging markets index pre october level capital inflow emerge market accelerate credit spread continue narrow improved risk sentiment euro area high yield spread nearly basis point governing council monetary policy 12‑13 december investment grade spread come united states euro area similarly spread euro area sovereign bond yield equivalent german government bond yield fall start year corporate bond issuance volume europe strong premium firm pay issue bond decline measurably week suggest end net purchase corporate sector purchase programme cspp meaningful impact corporate bond market foreign exchange market euro exchange rate vis vis dollar remain relatively stable continue trade close usd eur level observe early october euro dollar depreciate notably british pound week reflect financial market risk deal brexit diminish lately finally cœuré mention development euribor term structure see gradual persistent rise rate particular long horizon disconnected change policy rate expectation global environment economic monetary development euro area praet review global environment economic monetary development euro area external environment global growth trade momentum slow global composite output decrease january point deceleration global growth momentum weakness concentrate manufacturing sector service remain considerably resilient global trade slow significantly turn year annual consumer price inflation oecd area slow january december drive decelerate energy price inflation exclude food energy remain unchanged suggest underlie inflation pressure remain subdue period stability brent crude oil price increase mid february end high time governing council january monetary policy euro exchange rate depreciate slightly dollar january bilateral term nominal effective term turn euro area late incoming information point continue subdued growth indicator relate manufacturing sector weaken relate service show sign stabilisation eurostat release euro area real gdp growth term composition growth domestic demand net export provide positive contribution inventory contribute negatively concern gdp component private consumption increase term weakness consumption growth quarter drive non durable good appear component household spending sensitive change energy price gross fix capital formation grow rate previous look ahead investment growth dynamic expect subdued line slowdown foreign domestic demand incoming datum january monetary policy show continuation solid employment growth pmi employment remain expansionary territory moderate country sector growth euro area trade good weaken year year final drive mainly intra euro area trade growth extra euro area good export remain subdue reflect particular contraction export turkey united kingdom export growth china united states weaken development reflect march ecb projection project real gdp growth real gdp growth revise percentage point percentage point reflect lasting adverse impact country specific factor heighten global uncertainty projection unchanged turn price development accord eurostat flash estimate annual euro area hicp inflation february january hicp exclude food energy inflation decrease somewhat january measure underlie inflation continue sideways domestic cost pressure increase translate high underlying inflation incoming datum point building wage pressure expect support upward adjustment underlie inflation annual negotiate wage growth rise compensation employee grow ecb project hicp inflation decrease pick remainder projection horizon reach shape pattern reflect significant decrease hicp energy inflation link strong drop oil price downward base effect relate previous increase gradually rise underlying inflation support rise supply constraint tighten labour market march ecb projection outlook hicp inflation revise significantly percentage point percentage point hicp exclude energy food revise percentage point year projection horizon long term market base inflation expectation derive year inflation link swap rate year forward decline compare year ago long term inflation expectation year ahead survey professional forecasters spf stand financial condition ease reflect market expectation future monetary policy easing trade tension impact factor financing condition offset impact deterioration macroeconomic outlook price financial market equity price increase despite worsening earning expectation corporate bond spread tighten market imply expect timing policy rate lift unchanged credit condition remain accommodative turn money credit development annual growth rate broad money continue hover rate observe early decrease january december money creation continue support credit private sector time loan growth low january increase compare year ago deceleration reflect development loan non financial corporation nfcs base effect loan household recently stabilise bank profitability remain subdue bank face somewhat high cost market funding time market concern rise pressure bank funding cost forthcoming phasing tltro regard fiscal policy euro area deficit ratio project worsen mainly loosening fiscal stance monetary policy consideration policy option sum praet remark january monetary policy financial condition ease mainly account reappraisal monetary policy global level abate trade tension credit condition household firm remain accommodative incoming datum continue weak particular manufacturing sector growth outlook march ecb projection revise substantially less extent euro area expansion support favourable financing condition employment gain rise wage ongoing albeit somewhat slow expansion global activity time persistence uncertainty weigh growth outlook measure underlie inflation remain muted domestic cost pressure particular wage strengthen translate high underlying inflation march ecb projection entail marked downward revision headline core inflation projection horizon weak economic momentum slow adjustment inflation governing council aim market base measure long term inflation expectation weaken month light ensure inflation remain sustained path level close medium term praet propose adjust calendar base leg ecb forward guidance key ecb interest rate governing council expectation rate level end case long necessary recalibrate calendar base leg forward guidance signal governing council determination provide monetary accommodation need sustained convergence inflation reiterate governing council forward guidance reinvestment launch series quarterly target long term refinance operation tltro iii start september end march maturity year counterpartie entitle borrow stock eligible loan february rate index interest rate ecb main refinance operation life tltro operation help preserve favourable lending condition support smooth transmission monetary policy precise term operation communicate course finally ecb lending operation conduct fix rate tender procedure allotment long necessary end maintenance period start march regard external communication governing council need stress weakening economic datum point sizeable moderation pace economic expansion extend year emphasise weak economic momentum slow adjustment inflation governing council aim adjust forward guidance key ecb interest rate governing council expect level end case long necessary reiterate forward guidance reinvestment announce series quarterly target long term refinance operation tltro iii start september end march stress tltro help preserve lending condition support smooth transmission monetary policy announce extension fix rate tender procedure allotment ecb lending operation long necessary end maintenance period start march explain decision support build domestic price pressure headline inflation development medium term risk euro area growth outlook tilt downside persistence geopolitical uncertainty stress significant monetary policy stimulus remain essential sustained convergence inflation level close medium term provide forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset series tltro reiterate event governing council stand ready adjust instrument appropriate ensure sustained convergence inflation govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide praet introduction recent datum survey result continue weak particular manufacturing sector reflect slowdown external demand compound country sector specific factor sign domestic factor dampen growth start fade weakening economic datum point sizeable moderation pace economic expansion extend year persistence uncertainty appear weigh economic sentiment growth outlook assessment reflect march ecb projection outlook real gdp growth revise substantially slightly compare december eurosystem projection consider outlook risk external environment member take slowdown global growth trade momentum particular concern potential impact trade protectionism global outlook ongoing risk escalation trade conflict reference number factor include impact trade tension united states china threat pose trade dispute european union united states risk surround disorderly withdrawal united kingdom european union attention draw slowdown growth china development economy expect slow result wan effect fiscal package background risk external environment assess downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market turn euro area activity member concur datum continue weak expect note carry effect weak growth half imply low projection growth recent economic indicator disappointing late survey datum release confirm need revise short term growth outlook downwards partly reflect march projection downside risk growth identify early discussion extent materialise weakness growth see long last previously expect result growth potential number quarter member consider downward revision growth projection march projection warrant express confidence baseline scenario context observe update outlook euro area growth release oecd interim economic outlook slightly low ecb projection incorporate substantial downward revision euro area growth member acknowledge baseline scenario protracted soft patch follow return solid growth scenario uncertainty remain elevated unclear persistent soft patch turn note indicator point growth rate quarter year low march projection positive factor take account relate impact fiscal measure unwinding temporary country sector specific factor notably german car industry recall near term number factor continue support euro area economic expansion include favourable financing condition employment gain rise wage growth ongoing albeit somewhat slow expansion global activity emphasise growth momentum weak remain positive euro area global economy currently recession probability recession remain relatively low time widely share downside risk growth outlook continue prevail despite downward revision incorporate march projection stress revision growth projection mainly short term rebound activity expect half year reflect fading temporary factor improvement external trade easing trade conflict follow downward revision growth half year growth expect return potential growth rate projection horizon consider optimistic highlight growth projection revise number consecutive projection exercise growth mean reverting typically assume projection remark factor slowdown development china unlikely fade away month uncertainty turn persistent expect concern express high level uncertainty persist strong adverse impact look ahead particular investment regard balance risk surround euro area growth outlook assess tilt downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market case risk growth somewhat balanced follow downward revision ecb projection consider global risk factor predominantly downside potential affect confidence global activity negatively adverse spillover activity euro area exchange view outlook fiscal policy member reiterate need rebuild fiscal buffer country government debt high time argue consistent country specific recommendation european commission jurisdiction fiscal space stand ready use give downside risk growth mildly expansionary fiscal stance operation automatic stabiliser provide support economic activity regard price development broad agreement assessment present praet introduction basis future price oil headline inflation level decline end year measure underlie inflation remain mute labour cost pressure strengthen broaden amid high level capacity utilisation tighten labour market look ahead underlie inflation expect increase medium term support ecb monetary policy measure ongoing economic expansion rise wage growth assessment reflect march projection annual hicp inflation project rise compare december eurosystem projection outlook hicp inflation revise projection horizon reflect particular subdued near term growth outlook member take implication medium term inflation outlook arise downward revision growth outlook agree weak economic momentum march projection imply slow adjustment inflation ecb price stability objective underlying inflation measure hicp exclude energy food expect pick projection horizon revise compare december eurosystem projection confidence upward movement inflation dynamic express expect path inflation flat previously expect convergence inflation long previously expect headline inflation expect reach end projection horizon member consider development wage growth continue provide positive support outlook underlie inflation compensation employee euro area revise slightly projection nominal labour cost expect strengthen support negotiate wage growth stand december transmission high wage consumer price inflation consider key issue medium term outlook inflation high wage growth have pass price inflation firm absorb increase lower profit margin confidence express mark squeeze indefinitely wage pressure eventually pass underlie inflation time highlight small increase unit labour cost project project increase profit margin predicate rebound economic activity take place recall transmission consumer price inflation subject time lag note slowdown economic activity weigh pass wage price mechanism high wage cost transfer price change structurally year appear case united states europe regard development long term inflation expectation member note expectation decline governing council january monetary policy market base inflation expectation measure year forward inflation link swap rate year ahead currently stand long term survey base inflation expectation revise stand spf gap survey base market base measure widen somewhat concern express trend long term inflation expectation risk unanchoring inflation expectation assess low monetary analysis member concur assessment present praet introduction continue hover growth rate observe early private credit remain main source money creation counterpart perspective decline contribution asset purchase programme app recently replace external monetary flow credit general government annual growth rate loan nfc decrease january december reflect base effect country typical lag reaction slowdown economic activity growth loan household remain unchanged underline lending condition remain supportive late available lending survey point prospect tightening look ahead bank funding condition somewhat favourable bank partly shield benign condition bond market owe increase share deposit funding structure concern voice time effect persistently low rate depress bank interest margin profitability negative effect intermediation financial stability long run recall consequence low rate differ maturity spectrum bank depend business model structure asset liability monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide praet introduction euro area financial condition ease account market reassessment global monetary policy remain supportive borrowing condition firm household favourable monetary policy measure place june continue support access financing monetary policy stance assess accommodative light large stock asset ecb balance sheet downward revision growth inflation forecast horizon march projection sizeable large market participant expect warrant consideration time confidence express condition rebound activity inflation remain place support sustained convergence inflation rate level close medium term background member express broad support package measure propose praet propose extension calendar base leg governing council forward guidance see underpin monetary accommodation need support inflation converge governing council aim reference publication downward revision projection case induce delay expect date interest rate increase line state contingent element forward guidance emphasise governing council react project decrease inflation projection data drive manner order provide additional support situation characterise risk question raise frequently forward guidance adjust response datum bring calendar base leg forward guidance line market expectation later date interest rate increase widely see appropriately reflect governing council assessment inflation outlook number member voice initial preference extend forward guidance end express readiness join consensus form praet proposal policy package see finely balanced shift forward guidance march instead december provide additional accommodation line market pricing interest rate increase compare survey base expectation argue clear easing signal important significant downward revision ecb projection member prefer extend forward guidance end consider consistent baseline scenario underlie projection foresaw rebound economy half caution express commit long horizon follow year situation high uncertainty incoming datum evolve different way high prevail uncertainty data drive gradualist approach see appropriate argue governing council avoid give impression policy predetermine end year need analysis effect unconventional measure financial intermediation mention member agree extend governing council forward guidance end package propose praet recalibrate calendar base leg governing council forward guidance signal governing council determination provide monetary accommodation need sustained convergence inflation time pre empt governing council readjustment monetary policy need come meeting outlook evolve favourably expect state base leg forward guidance automatically imply shift rate expectation economic condition interest rate increase place satisfaction express state base element governing council forward guidance work calendar base guidance member express broad support praet proposal launch series quarterly target long term refinance operation tltro iii start september end march maturity year operation help ensure lending condition remain favourable support smooth transmission monetary policy banking sector light loom cliff effect relate mature tltro operation upcoming regulatory requirement risk deterioration funding condition bank tltro iii help avoid increase funding pressure bank pre emptive nature tltro iii stress jurisdiction tightening credit condition observe tltro iii act backstop provide insurance economy time high uncertainty risk tilt downside recall tltro successful measure provide accommodation euro area base financial system targeted nature highlight respect horizon set operation sufficiently long horizon see helpful ensure sufficient accommodation bring inflation level close medium term increase impact real economy match typical maturity loan nfc conversely short horizon provide strong signal bank need prepared secure funding private market avoid overly reliant funding member agree design tltro iii operation support smooth transmission monetary policy favourable lending condition preserve sufficient accommodation support convergence inflation governing council aim perpetuate reliance bank unconventional policy measure model condition operation design tltro see way ensure pass real economy limit use fund carry trade government bond financial stability consideration take account need address country level regard pricing tltro iii agree index interest rate main refinance operation broad agreement elaborate detail need reflection governing council communicate course member agree conduct lending operation fix rate tender procedure allotment long necessary end maintenance period start march monetary policy decision communication light forego president ascertain member support package measure propose praet turn communication member widely agree need emphasise decision take governing council support build domestic price pressure headline inflation development medium term measure help increase resilience euro area economy risk result geopolitical uncertainty time underline decision see appropriate adjustment instrument governing council disposal reaction weakening economic datum inflation outlook interpret reversal policy stance governing council communication furthermore see warrant reiterate significant monetary policy stimulus remain essential sustained convergence inflation level close medium term provide forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset series tltro emphasise previous communication need reiterate event governing council stand ready adjust instrument appropriate ensure sustained convergence inflation take account forego member proposal president governing council take follow monetary policy decision interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate level end case long necessary ensure continue sustained convergence inflation level close medium term governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation series quarterly target long term refinance operation tltro iii launch start september end march maturity year operation help preserve favourable lending condition smooth transmission monetary policy tltro iii counterpartie entitle borrow stock eligible loan february rate index interest rate main refinance operation life operation like outstanding tltro programme tltro iii feature build incentive credit condition favourable detail precise term tltro iii communicate course eurosystem lending operation conduct fix rate tender procedure allotment long necessary end maintenance period start march member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190307~de1fdbd0b0.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190307~7d8a9d2665.en.html meeting ecb governing council march members draghi president guindos vice president cœuré costa georghadji hansson hernández cos knot lane lautenschläger makúch mersch nowotny praet rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right march article escb statute attendee dombrovskis commission vice president teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce boeckx bonello bradeško buch donnery gaiotti goulard kaasik kuodis mooslechner ódor rutkaste schoder stavrou swank tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations rostagno director general monetary policy sousa deputy director general economics valla deputy director general monetary policy release monetary policy account foresee thursday contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday april review financial economic monetary development policy option financial market development vice president stand cœuré review late financial market development governing council previous monetary policy march global risk sentiment improve market segment equity market index continue rise record strong performance global financial crisis government bond price increase time foreign exchange rate remain stable expectation monetary policy supportive globally important factor development united states march federal open market committee lower projection fund target rate period announce reduce holding treasuries slow pace conclude balance sheet run end september combine revision global economic outlook lead decline global government bond yield period year german bund yield move negative territory past day rise slightly currently trade regard euro area market expectation increase ecb policy rate push time governing council march monetary policy market view medium term outlook euro short term money market rate shift downside stand close low level see late decomposition euro area year overnight index swap ois rate highlight decline rate drive mainly inflation component real component decrease somewhat governing council march monetary policy contrast united states real component main driver decline year spot ois rate consistent soft economic datum release inflation component increase start year support increase oil price euro area government bond yield decline similar degree jurisdiction market participant anticipation low rate long possibly spur renew search yield strong risk appetite evidence decline euro area corporate bond market yield asset swap spread overall result global bond market movement worldwide investment grade debt trade yield compare historical high see mid-2016 nominal effective exchange rate major currency remain stable exception pound sterling strengthen trading partner currency year global environment economic monetary development euro area praet review global environment economic monetary development euro area external environment sign moderation global activity continue early weakness global trade persist global survey indicator point slowdown manufacturing activity service appear resilient month month term global merchandise import growth decelerate january slowdown continue drive emerge market economy particular emerge asia annual consumer price inflation oecd area stand february core inflation fall slightly january february strong jump mid february oil price increase rise governing council march monetary policy price brent crude oil standing usd barrel food price decline metal price remain stable euro depreciate march dollar nominal effective term turn euro area economy high frequency information available governing council march monetary policy continue signal positive albeit subdue growth indicator relate manufacturing sector weaken relate service show sign stabilisation european commission economic sentiment indicator esi drop previous composite output purchasing managers index stand average previous domestic demand support favourable financing condition employment growth rise wage private consumption growth stabilise expect gradually accelerate line development real disposable income turn drive continue labour income growth main factor weakness private consumption high oil price half car delivery bottleneck owe emission testing procedure increase macroeconomic uncertainty country specific factor business investment slow look ahead business investment expect expand albeit low rate reflect march ecb macroeconomic projection consistent low corporate earning expectation employment continue expand albeit slow pace employment growth slow manufacturing market service remain resilient construction sector look ahead survey indicator employment continue employment growth albeit moderate pace growth extra euro area export remain subdue intra euro area trade contract end base lead indicator immediate recovery sight turn price development accord eurostat flash estimate annual hicp inflation stand march february hicp inflation exclude food energy decrease february measure underlie inflation remain mute domestic cost pressure increase translate high underlying inflation growth compensation employee remain long term average fall read drive payment time negotiate wage continue increase rise january pick january broad base euro area country price pressure non energy industrial good increase later stage supply chain signal early stage mixed inflationary pressure pricing chain service strengthen slightly service producer price inflation continue upward trend start beginning trend broad base support main sub category result ecb survey professional forecasters show slight downward revision percentage point hicp inflation expectation time average long term inflation expectation remain unchanged expectation inflation exclude food energy revise percentage point remain unchanged market base measure inflation expectation derive year forward inflation link swap rate year ahead stand basis point low level prevail governing council march monetary policy financial condition ease march monetary policy backdrop reappraisal monetary policy global level improve risk sentiment credit condition remain accommodative cost financing euro area firm decline basis point march stand expect timing ecb policy rate lift shift substantially time equity price increase amid large swing corporate bond spread tighten somewhat annual growth rate broad money rebound february january counterpart perspective private credit remain main source money creation july decline contribution asset purchase programme app replace external monetary inflow less extent credit general government annual growth loan non financial corporation nfcs drop january rebound february volatility month reflect base effect relate bank effort reach minimum threshold loan flow benchmark period series targeted long term refinance operation tltro early look volatility weakening nfc loan dynamic observe september annual growth rate peak moderation consistent observed weakening economic growth accord lending survey result credit standard loan enterprise demand loan enterprise remain unchanged overall lending condition remain favourable continue support credit provision regard fiscal development euro area fiscal stance project turn mildly expansionary monetary policy consideration policy option sum praet note financial condition ease governing council march monetary policy line governing council forward guidance risk free yield curve flatten response ecb monetary policy decision stream negative surprise euro area economy bank lending condition remain favourable incoming datum confirm slow growth momentum extend year activity manufacturing sector decelerate markedly mainly account external headwind global growth trade dynamic remain weak time domestic demand remain resilient idiosyncratic domestic factor dampen growth fade balance risk surround growth outlook remain downside persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market weigh confidence hicp inflation fall march primarily reflect decline inflation exclude food energy market base long term inflation expectation decline mainly reaction weak macroeconomic datum release measure underlie inflation remain muted domestic cost pressure particular wage strengthen translate high underlying inflation background praet propose reiterate forward guidance key ecb interest rate reinvestment readiness act employ available monetary policy tool inflation convergence require support essential preserve ecb accommodative monetary policy stance long necessary growth regain fast pace foster convergence inflation aim concern parameter target long term refinance operation tltro iii set discuss governing council forthcoming meeting praet suggest pricing account thorough assessment base transmission channel development economic outlook context regular assessment governing council preservation favourable implication negative interest rate economy require mitigation possible effect intermediation accordingly public communication stress incoming information confirm slow growth momentum extend year underline employment gain rise wage continue underpin resilience domestic economy gradually rise inflation pressure recognise risk surround euro area growth outlook remain tilt downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market emphasise ample degree monetary policy accommodation remain necessary safeguard favourable financing condition support economic expansion ensure inflation remain sustained path level close medium term reiterate significant monetary policy stimulus provide forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset series tltro announce detail precise term tltro communicate governing council forthcoming meeting pricing account thorough assessment base transmission channel monetary policy development economic outlook highlight context regular assessment governing council preservation favourable implication negative interest rate economy require mitigation possible effect intermediation finally underscore event governing council stand ready adjust instrument appropriate ensure inflation continue aim sustained manner govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide praet introduction incoming datum confirm slow growth momentum extend year sign country sector specific domestic factor dampen growth fade global headwind continue weigh euro area activity leave mark economic sentiment time employment gain rise wage continue underpin resilience domestic economy gradually rise inflation pressure risk surround growth outlook remain tilt downside discuss outlook risk external environment member take continue moderation global activity ongoing weakness global trade comfort draw sign economic activity china stabilise concern reiterate global outlook remain subject continued risk escalation trade conflict uncertainty surround withdrawal united kingdom recall complexity global value chain difficult gauge precise implication risk trade activity time turn euro area activity member agree slow growth momentum observe half extend year incoming datum continue weak especially manufacturing sector extension slow growth momentum anticipate march ecb projection acknowledge datum turn weak expect look ahead member widely share protracted soft patch suggest late datum remain consistent baseline scenario return solid growth half year time acknowledge somewhat confidence baseline scenario range possible outcome widen information need gather run governing council june monetary policy eurosystem projection available member forward number view interpret protracted soft patch baseline scenario important role export manufacturing drive outlook emphasise give euro area run persistent account surplus naturally exposed slowdown global trade rest world shock transmit mainly manufacturing euro area country exposed attention draw role inventory indicate unanticipated lack demand deferred demand concern express return solid growth rate expect baseline scenario currently base assumption shock soft patch temporary negative shock remark soft patch economic growth observe numerous occasion historical datum imply low probability turn recession reference number positive indicator supportive factor service sector remain resilient manufacture financial market development typically forward look upbeat favourable financing condition positive real income development imply employment gain rise wage continue underpin resilience domestic demand support underlie strength euro area economy member concur balance risk surround euro area growth outlook remain tilt downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market downside risk brexit threat protectionism particular potential affect confidence negatively spill activity context recall insofar uncertainty relate chinese economy brexit main factor previously shift risk balance neutral negative recovery china avoidance deal brexit token imply improvement risk balance member take outlook fiscal policy mildly expansionary euro area fiscal stance operation automatic stabiliser provide support economic activity regard role policy area underline structural reform important ensure economy reap benefit ecb monetary policy measure see essential policy area contribute decisively raise long term growth potential reduce vulnerability regard price development broad agreement assessment present praet introduction accord eurostat flash estimate euro area annual hicp inflation march february reflect decline food service non energy industrial good price inflation basis future price oil headline inflation decline come month measure underlie inflation remain mute labour cost pressure strengthen broaden amid high level capacity utilisation tighten labour market look ahead underlie inflation expect increase medium term support ecb monetary policy measure ongoing economic expansion rise wage growth member acknowledge negative surprise march outcome hicp inflation exclude energy food need caution express interpretation surprise complicate impact methodological change compilation hicp calendar effect relate timing easter member underline transmission wage inflation consumer price inflation remain key issue medium term inflation outlook accord late datum growth compensation employee euro area continue stand long term average observe lack pass wage underlie inflation far imply firm retailer compress profit margin raise price consider observed wage growth lead high inflation course member take late development long term inflation expectation long term survey base inflation expectation ecb survey professional forecasters unchanged market base measure year forward inflation link swap rate year ahead decline governing council march monetary policy stand concern express market base inflation expectation shift downward parallel actual inflation maturity time deterioration see mainly reflect response weak economic outlook unanchoring inflation expectation regard monetary analysis member widely share assessment provide praet introduction annual growth rate broad money rebound somewhat february narrow monetary aggregate remain main contributor broad money growth gradually decline contribution growth momentum app continue replace rise contribution credit private sector remain robust time remark gradual recovery growth mfi loan private sector observe beginning show sign stall number country credit provision private sector continue support favourable borrowing cost firm household euro area jurisdiction remain close historical low reference lending survey point demand loan enterprise remain robust demand housing loan continue increase credit term condition remain unchanged follow protract ease period time caution implication easy credit condition low lending rate bank capacity appropriately price credit risk cycle warrant close monitoring regard concern express bank profitability market valuation remain weak structural factor cost efficiency excess capacity need consolidation see primarily responsible reiterate analysis warrant effect persistently low negative interest rate bank interest rate margin profitability potential implication intermediation financial stability time context point response lending survey bank indicate negative deposit facility rate contribute increase lending volume loan category monetary policy stance policy consideration regard monetary policy stance member agree assessment provide praet introduction incoming information governing council march monetary policy confirm slow growth momentum extend year delay convergence governing council medium term inflation aim time albeit slow employment gain rise wage continue underpin resilience domestic economy gradually rise inflation pressure ample degree monetary accommodation remain necessary safeguard favourable financing condition support economic expansion sustained adjustment path inflation financial condition ease march monetary policy risk free yield curve flatten reaction decision communicate negative economic data surprise intervene period subsequent market development bring substantial additional easing financial condition policy rate expect level year long case march overall broad agreement response financial market show governing council reaction function understand background member agree maintain monetary policy stance reconfirm element governing council forward guidance significant monetary policy stimulus provide forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset series tltro monetary policy stance consider consistent governing council data drive approach monetary policy orient medium term baseline outlook march ecb projection remain intact notwithstanding evidence great uncertainty projection risk remain tilt downside wide information set available june include fresh round eurosystem projection acknowledge contingency governing council act materialise point inflation remain uncomfortably governing council inflation aim market base inflation expectation recede project inflation convergence repeatedly delay background governing council reiterate determination stand ready adjust monetary policy tool appropriate ensure inflation continue aim sustained manner emphasise inflation ultimately monetary phenomenon structural factor policy area responsible determine growth potential reap benefit governing council monetary policy broad agreement member detail precise term series tltro consider governing council forthcoming meeting pricing tltro iii operation data dependent account thorough assessment base transmission channel monetary policy development economic outlook argument forward favour price operation primarily serve backstop provide insurance time elevated uncertainty argument support tltro iii operation see potential tool adjust monetary policy stance member support proposal praet introduction addition assess pricing tltro iii operation governing council regular assessment preservation favourable implication negative interest rate economy call mitigation possible effect intermediation turn communication member widely agree element propose praet introduction appropriate governing council acknowledge incoming information confirm slow growth momentum extend year baseline scenario rebound growth half year remain intact risk surround euro area growth outlook remain tilt downside ample degree monetary policy accommodation remain necessary safeguard favourable financing condition support economic expansion ensure inflation remain sustained path level close medium term regard important reiterate significant monetary policy stimulus provide governing council forward guidance key ecb interest rate reinforce reinvestment sizeable stock acquire asset announce series tltro worth reiterate account stock effect sizeable app portfolio end net asset purchase represent tightening monetary policy stance furthermore wide agreement member governing council reiterate monetary policy tool remain available stand ready adjust instrument appropriate ensure inflation continue inflation aim sustained manner member widely agree communicate detail precise term tltro announce follow governing council forthcoming meeting monetary policy decision communication take account forego member proposal president governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate level end case long necessary ensure continue sustained convergence inflation level close medium term governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190410~c27197866f.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190410~3df2ed8a4c.en.html meeting ecb governing council april members draghi president guindos vice president costa georghadji hansson hernández cos knot lane lautenschläger makúch mersch nowotny praet rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right april article escb statute attendee teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accompanying person alves arce aucremanne bradeško buch demarco gaiotti goulard kaasik kuodis mooslechner ódor pattipeilohy rutkaste schoder šiaudinis sinnott stavrou tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations sousa deputy director general economics rostagno director general monetary policy valla deputy director general monetary policy release monetary policy account foresee thursday july contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold vilnius wednesday thursday june review financial economic monetary development policy option financial market development cœuré review late financial market development governing council previous monetary policy april trade negotiation china mexico progressively deteriorate negatively impact global equity market push equity risk premia higher bond yield decline multi year low foreign exchange market euro dollar appreciate nominal effective term reflect mainly weakness emerge market currency particular chinese renminbi time euro continue gradual depreciation dollar trend observe start relate change relative growth outlook bond market yield year german government bond decline basis point october record low level basis point year treasury yield fall basis point period tentative evidence suggest decline global bond yield signal broad reappraisal global growth monetary policy outlook market temporary flight safety yield spread higher yield euro area sovereign bond exception italian government bond decline week unlike period broad risk aversion yield spread tend rise german bond yield year spanish portuguese sovereign bond trade low level record euro area year forward inflation link swap rate year ahead continue trend decline month currently marginally high record low observe aftermath brexit referendum united states mark base inflation expectation decline recently factor suggest increase concern growth outlook relate development spread year bund overnight index swap ois rate good proxy scarcity bond market start year bund yield fall steadily ois rate fall rapidly turn suggest fall bund yield large reflect revision medium term outlook monetary policy concern level key policy rate uncertainty eonia forward curve show reassessment monetary policy outlook euro area october curve flatten notably recently significant shift observe governing council april monetary policy notable change shape treasury yield curve week curve invert belly curve consistent expectation rate cut global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment global manufacturing trade remain weak global composite output purchasing managers index pmi decrease point deceleration global activity reflect weakness manufacturing global trade remain subdue annual consumer price inflation oecd area april increase march drive increase core energy price inflation annual cpi inflation exclude food energy stand april march oil price decline governing council april monetary policy hover usd barrel horizon food price decline metal price decrease euro unchanged dollar appreciate somewhat nominal effective term turn euro area economy real gdp growth rebound unexpectedly eurostat release put increase rebound support temporary factor especially manufacturing sector survey indicator point weak growth ahead turn component domestic demand real private consumption post strong growth drive recovery car purchase follow weakness stem introduction worldwide harmonised light vehicle test procedure wltp normalisation france follow weakness cause yellow vest protest real residential investment grow strongly support mild weather condition machinery equipment investment increase remain relatively resilient face growth slowdown prolong persistence uncertainty pose downside risk outlook business investment labour market development accord eurostat flash estimate euro area employment increase rate similar record previous quarter composite pmi employment stand point continue positive growth indicator hold service manufacturing decline change threshold time august extra intra euro area export show initial sign stabilisation time leading indicator continue signal weak trade development ahead development reflect june eurosystem macroeconomic projection euro area project annual real gdp growth subsequent year hard datum turn well expect subsequent quarter revise mainly account weak global trade turn price development accord eurostat flash estimate annual hicp inflation decrease april mainly low energy service price inflation hicp inflation exclude energy food decrease april look easter relate volatility measure underlie inflation remain muted time accord late information wage pressure continue build annual growth negotiate wage euro area unchanged june eurosystem projection annual hicp inflation expect increase compare march ecb projection outlook hicp inflation revise percentage point percentage point remain unchanged inflation projection line forecast institution market base inflation expectation decline horizon governing council april monetary policy despite measure close historic low meaningful increase deflation risk comparison situation time survey base measure long term expect inflation remain stable long term expectation late march survey professional forecasters stand percentage point survey result record period survey long term inflation expectation consensus economics euro zone barometer remain line ecb inflation aim euro area financial condition tighten marginally remain loose relative start year governing council april monetary policy slight tightening euro area financial condition mainly ascribe heighten trade tension cause euro appreciate nominal effective term equity price decline decline equity market occur despite improvement corporate earning expectation expect timing ecb policy rate lift shift substantially market perceive chance rate cut turn money credit development annual growth rate broad money pick april year year term remain resilient decline mechanical contribution app purchase counterpart perspective private credit continue main source money creation july decline contribution app replace external monetary inflow less extent credit general government euro area level composite lending rate non financial corporation household house purchase stand respectively fall historical low deposit rate remain stable low level regard fiscal policy euro area general government deficit ratio project increase year gdp constant despite fall interest payment reflect mildly expansionary fiscal stance monetary policy consideration policy option sum lane remark hard datum economic activity well expect temporary factor weak global trade prolonged presence uncertainty continue drag euro area growth development reflect downward revision growth outlook june eurosystem projection bank lending condition firm household remain favourable financial condition tighten marginally governing council april monetary policy account escalation trade tension balance risk remain tilt downside despite downward revision growth projection account persistent source uncertainty relate international environment uncertainty weaken delay recovery external demand reflect june projection weigh investment consumption trade tension escalate uncertainty brexit extend time fragility emerge market economy remain despite sign stabilisation hicp inflation decrease mainly account temporary factor measure underlie inflation continue sideways labour cost pressure continue strengthen broaden labour market tighten june eurosystem projection confirm march outlook inflation reach distance governing council inflation aim market base measure inflation expectation decline lane see need update monetary policy stance provide monetary accommodation necessary inflation sustained path level close medium term accordingly propose follow adjustment extend calendar element ecb forward guidance path interest rate half confirm forward guidance reinvestment base assessment base transmission channel monetary policy development economic outlook set interest rate upcoming series targeted long term refinance operation tltro iii equal average rate main refinance operation mro plus basis point life respective operation low average deposit facility rate plus basis point bank eligible net lending exceed benchmark strike reasonable balance acknowledge sound development lending importance preserve accommodative stance measure appropriate economic environment provide necessary monetary accommodation inflation level close medium term look ahead governing council need determine act case adverse contingency stand ready ease monetary policy stance adjust instrument appropriate achieve ecb price stability objective possible measure include extend forward guidance restart net asset purchase decrease policy rate addition follow communicate april governing council point time positive contribution negative interest rate accommodative monetary policy stance sustained convergence inflation undermine possible effect base intermediation governing council monitor carefully base transmission channel monetary policy case mitigate measure complementing lane remark cœuré point communication march ecb specify detail precise term tltro iii communicate course executive board put forward proposal remain detail tltro iii programme take account thorough assessment base transmission channel monetary policy development economic outlook consider experience gain tltro tltro technical press release publish governing council set detail tltro iii pricing definition lending benchmark performance target definition tltro iii group borrowing allowance reference period concentration limit apply tltro iii operation eurosystem provide communication counterpartie course govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide lane introduction despite somewhat well expect datum information indicate global headwind continue weigh euro area outlook prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market leave mark economic sentiment time employment gain increase wage continue underpin resilience euro area economy gradually rise inflation assessment reflect june eurosystem projection foresaw annual real gdp increase compare march ecb projection outlook real gdp growth revise consider outlook risk external environment member highlight ongoing weakness global trade concern express pervasive prolonged uncertainty external environment adverse impact global growth outlook time come persistent uncertainty trade tension negatively affect international production supply chain repercussion investment plan risk external environment see increase increase notably relate deteriorate trade relationship united states china continue uncertainty united kingdom withdrawal underline market appear heighten trade conflict proxy fundamental shift multilateral world order background risk external environment assess downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market turn euro area activity member note datum mix real gdp have rise follow increase economic datum survey information point somewhat weak growth quarter reflect ongoing weakness international trade environment prolong global uncertainty weigh particular euro area manufacturing sector time euro area service construction sector show resilience labour market continue improve context argue economic indicator gap open hard datum notably employment wage remain supportive domestic demand confidence indicator market perception negative attention draw apparent dichotomy economic projection prevail market perception outlook reflect market price globally euro area express market prone overreaction overshooting economic projection tend somewhat sluggish revise outlook subject mean reversion point financial market tend great weight tail risk baseline discuss june eurosystem macroeconomic projection great detail member underline baseline remain consistent march ecb projection change substantial especially regard inflation compare downward revision observe march exercise highlight domestic demand far resilient underpin strong employment wage growth favourable lending condition support accommodative monetary policy stance mildly expansionary fiscal stance emphasis place projection employment continuously revise note risk recession low attention draw dispersion growth rate country point observed soft patch activity mainly large euro area economy sizeable export orient manufacturing sector activity appear robust caution manufacture slowdown observe economy spread integrated intra european value chain balance risk surround euro area growth outlook assess member tilted downside account persistence uncertainty relate geopolitical factor threat protectionism vulnerability emerge market respect outlook fiscal policy member note mildly expansionary euro area fiscal stance provide support economic activity recall order reap benefit ecb monetary policy measure policy area contribute decisively raise long term growth potential reduce vulnerability regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation april mainly reflect low energy service price inflation basis future price oil headline inflation decline come month rise end year look volatility owe temporary factor measure underlie inflation remain mute labour cost pressure continue strengthen broaden amid high level capacity utilisation tighten labour market look ahead underlie inflation expect increase medium term support ecb monetary policy measure ongoing economic expansion rise wage growth assessment reflect june eurosystem projection foresaw annual hicp inflation compare march ecb projection outlook hicp inflation revise percentage point revise percentage point confidence upward movement path inflation express underline pronounce volatility inflation datum temporary significant measure timing public holiday methodological change seasonal adjustment euro area large economy reference downward shift option imply distribution inflation expectation year forward inflation link swap rate year ahead fall level near previous low record september time recall technical factor affect information content market base measure inflation expectation strong deterioration detect measure notably survey room complacency unit labour cost expect decelerate somewhat projection horizon productivity gain outpace wage growth increase profit margin see main factor rise inflation projection argue strong profit margin materialise environment decelerate domestic demand presence substantial cash buffer hold company accommodate shock uncertain condition pass wage price observe time underline limit pass wage price remain puzzle uncertainty lag relationship fundamental economic force remain place inflation pick time regard monetary analysis member widely share assessment provide lane introduction sustained rate broad money growth see reflect ongoing credit creation private sector low opportunity cost hold narrow monetary aggregate continue main contributor broad money growth component counterpart lend non financial private sector remain robust continue support favourable borrowing cost firm household euro area remain close historical low member share assessment level ecb negative interest rate policy continue support loan growth ultimately economic growth inflation immediate cost negative interest rate policy arise bank pay negative rate excess reserve deposit facility holding consider limited size far cost outweigh benefit generation large lending volume reduction risk loan loss provision favourable macroeconomic development foster negative interest rate point finding warrant analysis assessment hold low policy rate horizon long currently envisage governing council forward guidance monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction overall financial condition tighten marginally governing council april monetary policy account renew escalation trade tension time lending condition firm household remain favourable employment gain rise wage underpin resilience domestic economy gradually rise inflation pressure ample degree monetary accommodation remain necessary support euro area expansion ongoing build domestic price pressure headline inflation development medium term broad agreement assessment update monetary policy stance call light prolongation uncertainty implication inflation outlook confidence baseline projection sustained adjustment path inflation continue warrant inflation project reach see distance away governing council inflation aim consider important governing council demonstrate determination act line reaction function adjust monetary policy stance prepare adverse contingency period ahead background member express broad agreement package monetary policy proposal forward lane introduction adjust calendar base component governing council forward guidance key ecb interest rate governing council expect rate level half reiterate governing council forward guidance reinvestment base assessment base transmission channel monetary policy development economic outlook set interest rate forthcoming tltro iii operation equal average mro rate plus basis point life respective operation low average deposit facility rate plus basis point bank eligible net lending exceed benchmark time nuance express individual element policy package respond weakening economic outlook mute inflation development context prolonged uncertainty extension calendar element forward guidance interest rate widely see appropriate point calendar base component progressively align market expectation response change macroeconomic environment independent value calendar element see diminish forward guidance interest rate path nonetheless remain principal instrument adjust monetary policy stance prove effective extension calendar base component month see line gradual approach adjust policy allow monitoring period ahead observed prolong soft patch prove persistent addition underline state contingent element embody powerful automatic stabiliser indicate substantial downward shift entire interest rate swap curve beginning year regard pricing tltro iii operation member widely support proposal lane agree assessment strike reasonable balance acknowledge solid development lending importance preserve ecb accommodative monetary policy stance pricing minimum rate deposit facility rate plus basis point widely see favourable maximise policy effectiveness forthcoming operation argument favour pricing line tltro see make contribution tltro iii monetary policy stance strong time acknowledge lending strong case tltro announce context regular assessment member share lane assessment introduction point time positive contribution negative interest rate accommodative monetary policy stance sustained convergence inflation undermine possible effect base intermediation time broad agreement governing council monitor carefully base transmission channel case mitigate measure context underline possible effect low interest rate environment need address adequate macroprudential policy strengthen effectiveness macroprudential framework prudential tool address possible financial stability risk arise rate remain low level prolonged horizon background president ascertain member agree package monetary policy proposal forward lane introduction see appropriate economic environment provide monetary accommodation necessary inflation sustained path level close medium term time broad agreement light heighten uncertainty extend future governing council need ready prepared ease monetary policy stance adjust instrument appropriate achieve price stability objective potential measure consider include possibility extend strengthen governing council forward guidance resume net asset purchase decrease policy rate context note environment low inflation prevail consideration strategic nature warrant order reinforce credibility ecb monetary policy support achievement sustained adjustment inflation inflation aim point governing council communication emphasis symmetry medium term aim clarify deviation inflation governing council inflation aim tolerate symmetrical fashion direction long support achievement governing council inflation aim sustained manner medium term time point care need take ensure consideration strategic nature see move goalpost time prove challenge achieve governing council inflation aim monetary policy decision communication take account forego member proposal president governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate level half case long necessary ensure continue sustained convergence inflation level close medium term governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation modality series quarterly tltro governing council decide interest rate operation set level basis point average rate apply eurosystem main refinance operation life respective tltro bank eligible net lending exceed benchmark rate apply tltro iii low low average interest rate deposit facility prevail life operation plus basis point modality set technical press release publish end press conference member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190606~32b6221806.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190606~1876cad9a5.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190606~d1b6e3247d.en.html meeting ecb governing council june members draghi president guindos vice president cœuré costa hansson hernández cos herodotou kažimír knot lane lautenschläger mersch nowotny rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch member hold voting right june article escb statute attendee teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accompanying person alves arce aucremanne bradeško cassidy demarco donnery gaiotti goulard kuodis mauderer müller ódor pattipeilohy ritzberger grünwald rutkaste schoder kyriacou tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations rostagno director general monetary policy sousa deputy director general economics stracca deputy director general international european relations valla deputy director general monetary policy release monetary policy account foresee thursday august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday july review financial economic monetary development policy option financial market development cœuré review financial market development governing council previous monetary policy june sovereign bond yield temporarily fall multi year low united states united kingdom japan record low large part euro area econometric evidence suggest expectation global monetary policy easing main driver fall euro area year overnight index swap ois rate start development eonia forward curve indicate basis point cut ecb deposit facility rate currently price september trough curve price cumulative cut basis point end considerable downward shift survey base measure interest rate expectation euro area furthermore uncertainty near term policy outlook increase past week evidence wide dispersion forward money market rate strong bias negative rate euro area year sovereign spread vis vis german bund narrow lower rat jurisdiction governing council previous monetary policy hit multi year low country italy spread spain portugal greece narrow nearly half level observe start credit spread european financial non financial corporation nfcs fall week development essentially reverse widening spread see cover bond spread remain stable turn market euro area inflation link financial instrument decomposition long term inflation expectation suggest bulk observe decline reflect low inflation risk premium change expected inflation picture different look short term inflation expectation decline autumn year reflect fall genuine inflation expectation regard equity market euro stoxx s&p rise respectively start accord decomposition ecb dividend discount model prospect monetary policy ease low earning expectation main factor affect stock price euro area united states start year market fall discount rate offset deterioration earning outlook role equity risk premium differ market euro area risk premium neutral effect stock market course year united states contrast risk premium fall considerably persistently support stock market fall yield despite marked downward revision earning prospect finally regard exchange rate development long term depreciation trend euro dollar attenuate early june volatility remain high decomposition main driver eur usd exchange rate show start relative monetary policy expectation tend upward pressure euro consistent extent reprice euro area money market observe period global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment survey datum indicate slowdown global activity particularly manufacturing global trade remain subdue weakening global investment durable good consumption growth ongoing trade tension oil price volatile amid geopolitical tension increase june monetary policy brent crude oil standing usd barrel period euro exchange rate depreciate slightly bilateral term dollar nominal effective term turn euro area accord eurostat release real gdp growth confirm incoming information june governing council remain line june eurosystem macroeconomic projection point subdue growth quarter year indicate risk outlook remain tilt downside business survey mid june suggest ongoing slowdown output growth gap weak manufacturing strong service activity widen somewhat component domestic demand real private consumption post strong growth increase term look ahead continued growth private consumption consistent household financial situation expectation month remain robust improvement reflect fiscal measure boost disposable income addition private consumption continue support rise labour income short term indicator far confirm continuation somewhat weak business investment far line prediction base accelerator model labour market improve continue reduction unemployment creation employment way year unemployment rate decline percentage point low previous month time purchasing managers index pmi employment decline july stable half level pmi employment point positive albeit slow employment growth trade outlook remain surround uncertainty clear sign stabilisation term type good car export volume remain significantly record year reflect low global demand passenger car modest recovery turn year contribution capital good export continue subdue turn price development project inflation remain muted june euro area annual hicp inflation increase decline energy price inflation offset high hicp inflation exclude food energy rebound june look calendar effect relate late timing easter year measure underlie inflation continue sideways incoming datum line june projection mechanical update short term hicp outlook suggest somewhat low path growth compensation employee slightly long term average unit labour cost show notable upward trajectory beginning stabilise recently high wage labour cost growth quarter partially reflect development gdp deflator contribution unit profit dampen survey base measure long term inflation expectation euro area decline long term expectation report july round survey professional forecasters stand percentage point survey result record period june governing council market base measure inflation expectation unchanged amid notable intra period volatility euro area financial condition ease continue trend see start year governing council june eonia forward curve shift exhibit pronounced inversion short end long end term structure euro area risk free rate decline june decline month decline term premia expectation component decline autumn euro area equity price continue increase low discount rate low equity risk premia turn money credit development annual growth rate broad money continue resilient despite decline contribution purchase asset purchase programme credit private sector remain main source broad money creation effect dynamic match contribution external monetary inflow strong increase contribution inflow annual growth october coincide increase interest foreign investor euro area asset external monetary flow tend volatile euro area bank experience broad base improvement funding cost local peak january low funding cost transmit borrowing cost nfc composite lending rate nfc reach historical low time july lending survey euro area bank report net tightening credit standard loan nfc regard fiscal policy euro area fiscal stance measure change cyclically adjust primary balance expect mildly expansionary monetary policy consideration policy option sum lane remark financial condition ease june governing council account market expectation monetary policy easing bank lending condition firm household remain favourable incoming datum point somewhat weak growth quarter year line june eurosystem projection soften global growth weak international trade dynamic weigh euro area outlook prolonged presence uncertainty continue dampen business sentiment especially manufacturing sector time service sector robust favourable labour market dynamic support consumption balance risk remain tilt downside reflect prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market hicp inflation increase june measure underlie inflation continue sideways market base measure long term inflation expectation stagnate historic low reach june survey signal marked fall long term expectation wage growth robust expect support inflation future soften inflation expectation slow pass cost pressure inflation base assessment lane propose governing council underline need highly accommodative stance monetary policy prolonged period time inflation rate realise project persistently level line aim regard governing council need underscore preparedness act forthcoming meeting inflation outlook fail improve line commitment symmetric inflation aim accordingly lane propose follow decision adjust forward guidance key ecb interest rate reintroduce ease bias task relevant eurosystem committees initiate preparatory work policy option include way strengthen forward guidance policy rate mitigate measure design tiere system remuneration modality potential net asset purchase govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide lane introduction incoming information indicate soften global growth dynamic weak international trade weigh euro area outlook prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market dampen economic sentiment time employment gain increase wage continue underpin resilience euro area economy impact global domestic factor visible differ development euro area manufacturing sector service construction sector consider outlook risk external environment member refer ongoing uncertainty relate trade tension united kingdom withdrawal rotation chinese growth model manufacture investment consumption service context underline main cause slowdown euro area activity lie outside euro area prospect global trade assess poor despite sign stabilisation note pervasive geopolitical trade tension lead upward pressure oil price price see confirmation currently dominant factor international market relate weak global demand risk external environment assess downside forth intensity driver uncertainty imply volatility downside risk turn euro area activity member concur incoming information remain consistent june projection datum soft confirm expectation real gdp growth quarter weak growth record late pmi datum cite example disappointing news increase likelihood economic slowdown soft patch emerge year protract previously anticipate contrast pattern report june eurosystem projection available soft indicator point slow growth raise general doubt expect recovery half year absence far sign expect recovery half year worry reference unchanged positive fundamental relate favourable financing condition income growth associate employment gain rise wage broad agreement sensible collect information await september ecb projection thorough outlook discuss economic situation outlook member widely stress dichotomy weak activity manufacturing sector resilient activity service construction sector mirror dichotomy weak export growth resilient consumption residential investment growth hand dichotomy consider natural give exposure manufacturing sector weakening global trade support domestically orient sector service construction strong labour market real income hand concern express dichotomy forever soon later spillover contagion weakening manufacturing context argue manufacturing typically lead indicator service point weakness euro area manufacturing sector far manifest mainly large euro area country interconnectedness value chain imply risk wide propagation euro area remark trend decline importance manufacture relative service suggest large spillover inevitable continue improvement labour market acknowledge reference late worsening pmi survey datum employment question raise long job market post positive surprise member assess balance risk surround euro area growth outlook tilted downside consider downside risk pervasive persistence ultimately necessitate revision baseline growth scenario respect outlook fiscal policy member note support economic activity come mildly expansionary euro area fiscal stance reference increase contribution government consumption investment context decline real gdp growth rate observe year contingency significant deterioration euro area economic activity fiscal policy assume prominent role sustain demand respect reiterate government use fiscal space country available rebuild fiscal buffer debt high price development broad agreement assessment present lane introduction euro area annual hicp inflation increase june high hicp inflation exclude food energy offset low energy price inflation basis future price oil headline inflation decline come month rise end year look volatility owe temporary factor measure underlie inflation continue sideways remain mute labour cost pressure strengthen broaden amid high level capacity utilisation tighten labour market pass cost pressure inflation take long previously anticipate medium term underlie inflation expect increase support monetary policy measure ongoing economic expansion strong wage growth discuss inflation outlook underline wage growth remain solid measure long term average market derive survey base measure inflation expectation decline furthermore lag pass cost pressure price imply compression profit margin raise question long mean price adjustment long term inflation expectation member widely share decline matter concern warrant close monitoring stress decline long visible market base indicator apparent survey base indicator fall historical low point matter influential inflation expectation financial market professional forecaster shape economic agent available information suggest expectation financial market participant professional forecaster differ household firm note difference low level market base measure high level survey base measure explain negative risk premium argue negative risk premium concern reflect hedge outcome low inflation deflation provide ground complacency regard monetary analysis member widely share assessment provide lane introduction annual growth rate broad money june reflect negative base effect sustained rate broad money growth support ongoing credit creation private sector low opportunity cost hold narrow monetary aggregate continue main contributor broad money growth component lend non financial private sector expand robust pace unchanged annual growth rate loan nfc loan household june overall loan growth continue benefit historically low lending rate member agree ecb monetary policy measure continue support loan growth ultimately real activity inflation euro area lending survey indicate loan growth continue support increase demand loan category time credit standard loan enterprise tighten amid concern economic outlook remain unchanged loan house purchase remark negative interest rate increase pressure banking sector particularly country bank able impose negative rate deposit consequently long term effect negative policy rate need monitor carefully ensure exert intended effect lending monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction overall financial condition ease governing council june monetary policy account market expectation monetary policy easing bank lending condition firm household remain favourable ample degree monetary accommodation remain necessary financial condition support euro area expansion ongoing build domestic price pressure headline inflation development medium term member share assessment information available early june governing council indicate employment gain increase wage continue underpin resilience economy soften global growth dynamic weak international trade weigh euro area outlook prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market continue dampen economic sentiment notably manufacturing sector note datum line baseline scenario force underlie baseline solid wage growth rise cost pressure see intact uncertainty project duration economic slowdown remain high affect medium term inflation outlook environment inflationary pressure remain muted indicator inflation expectation decline despite considerable divergence level different survey base market base measure medium term inflation expectation observation market base measure affect special factor broad agreement prevail downward movement indicator cause concern monetary policy perspective background inflation rate realise project remain persistently level line governing council inflation aim member widely agree assessment highly accommodative stance monetary policy need prolonged period time context confirm symmetry governing council medium term inflation aim see important element bolster achievement sustained adjustment inflation aim remark far interaction inflation aim governing council definition price stability inflation rate introduce facto element asymmetry forward symmetry inflation aim separate level aim point future change inflation aim employ isolated policy measure link broad ecb monetary policy strategy ensure consistency strategy time point clarification symmetric nature governing council reaction function pre empt monetary policy strategy late point time member express broad agreement monetary policy proposal lane introduction adjust forward guidance key ecb interest rate reintroduce ease bias initiate preparatory work include way strengthen governing council forward guidance policy rate mitigate measure design tiere system remuneration option size composition potential net asset purchase see important governing council demonstrate determination capacity act prepared ease policy stance adjust instrument appropriate achieve inflation aim look ahead information available governing council monetary policy september projection incorporate effect measure take governing council june present member support reintroduction ease bias governing council forward guidance interest rate light weakness economic outlook mute inflation development ease bias consider appropriate address risk unwarranted tightening monetary condition relate short end yield curve persistent uncertainty surround global development member support proposal lane task relevant eurosystem committees examine option future policy measure nuance express design individual element possible policy package present list option particular argue term premium long term euro area bond compress time risk unwarranted tightening financial condition high short end long end yield curve express option see package i.e. combination instrument significant complementarity synergy experience show policy package combination rate cut asset purchase effective sequence selective action point choice instrument design possible package reflect relative effectiveness different instrument address future contingency member see value examine way strengthen state base component forward guidance path policy rate announce preparatory work design tiere system option mitigate effect negative interest rate base intermediation preparatory work modality potential net asset purchase context argue link state contingent leg forward guidance inflation require attention pay consistency inflation aim member express broad agreement initiate preparatory work mitigate measure concern raise possible unintended consequence tiere system ability fully mitigate potential effect negative policy rate intermediation background communication need strike careful balance hand give unduly negative signal state economy hand effectively counteract concern observer governing council lack necessary instrument secure convergence inflation inflation aim medium term see appropriate governing council adjust forward guidance key ecb interest rate expect low level half case long necessary restate forward guidance reinvestment governing council underline need highly accommodative stance monetary policy prolonged period time inflation rate realise project persistently level line aim accordingly governing council need convey determination act inflation outlook fail improve line commitment symmetry inflation aim remain essential underscore governing council stand ready adjust instrument appropriate ensure inflation move inflation aim sustained manner furthermore announce relevant eurosystem committees task examine option include way reinforce governing council forward guidance policy rate mitigate measure design tiere system remuneration option size composition potential net asset purchase addition heightened uncertainty extend future remain essential stress significant degree monetary stimulus continue necessary ensure financial condition remain favourable support euro area expansion ongoing build domestic price pressure headline inflation development medium term finally recall situation monetary policy effective policy area contribute raise long term growth potential fiscal policy available space accelerate structural reform monetary policy risk overburden able deploy available instrument effectively monetary policy decision communication take account forego member proposal president governing council decide key ecb interest rate unchanged governing council expect rate low level half case long necessary ensure continue sustained convergence inflation aim medium term governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation governing council underline need highly accommodative stance monetary policy prolonged period time inflation rate realise project persistently level line aim accordingly medium term inflation outlook continue fall short aim governing council determined act line commitment symmetry inflation aim stand ready adjust instrument appropriate ensure inflation move aim sustained manner context governing council task relevant eurosystem committees examine option include way reinforce forward guidance policy rate mitigate measure design tiere system remuneration option size composition potential net asset purchase member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190725~52d3766c9e.en.html meeting ecb governing council july members draghi president guindos vice president cœuré costa herodotou hernández cos kažimír knot lane lautenschläger mersch müller nowotny rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch member hold voting right july article statute escb attendee dombrovskis commission vice president teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person antunes aucremanne bradeško buch cassidy demarco donnery gaiotti goulard haber kaasik kazāks kroes kuodis kyriacou lünnemann odór pérez tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations rostagno director general monetary policy klöckers director general international european relations valla deputy director general monetary policy release monetary policy account foresee thursday october contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday september review financial economic monetary development policy option financial market development cœuré review financial market development governing council previous monetary policy july global financial market undergo strong correction summer bear close resemblance episode observe spring principal catalyst occasion intensification global trade tension yield year german government bond decline basis point compare day july basis point year treasury yield fall basis point cœuré highlight key aspect help interpret development relate response real interest rate different spring episode large decline real rate august interpret sign market participant increasingly concerned cumulative impact sequence trade shock global economy point sign effective lower bind gradually induce non linearity market reaction shock starting level year german government bond yield prior august correction low spring deep negative territory order magnitude decline similar episode sign regard downward rigidity long term rate relate effective lower bind eonia forward curve continue shift lower august pricing cumulative cut basis point rate ecb deposit facility early low money market trading volume long tenor suggest conviction cut significantly deeply negative territory broad base uncertainty future path short term policy rate remain elevated aspect relate possible change portfolio rebalancing response increase share bond trade negative level development relate movement spread year german bund overnight index swap ois rate recently reliable gauge scarcity effect bund cash market mid july notable reversal spread despite grow scarcity cash market level see end market intelligence suggest reversal primarily relate hedging activity increasingly conduct swap market cash bond market novelty asset price response flattening long end yield curve evidence narrow yield spread year year german government bond august time entire german sovereign yield curve move negative territory novelty relate marked persistent rise price gold coincide sharp increase share bond trade negative level move equity market impact renew trade tension august visible particularly emerge market euro area united states impact mute decline bond yield partly offset rise equity risk premium regard foreign exchange market weakening emerge market currency contribute mild appreciation euro nominal effective term global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment survey datum point subdue activity service weakening continue support growth manufacturing activity decelerate trade tension spark risk sentiment especially emerge market economy united states economic activity slow clearly evidence investment remain solid china slowdown economic activity accentuate tariff japan growth momentum set decelerate inflation remain subdue united kingdom risk deal brexit increase economic activity stall overall risk global activity trade remain downside oil price drop august regard exchange rate governing council july monetary policy euro essentially flat depreciate bilateral term dollar appreciate nominal effective term turn euro area information available july monetary policy signal protract weakness euro area growth dynamic mainly drive external sector eurostat release september real gdp growth term regard development far economic sentiment indicator purchasing managers index edge august take july august average low suggest continuation subdue growth regard sectoral development exceptional divergence manufacturing service persist reflect trade shock euro area currently face predominantly affect manufacturing sector domestic demand remain resilient continue underpin solid labour market household confidence improve balance sheet policy stimulus real private consumption expand follow exceptionally strong increase household continue signal optimism future financial situation line retail trade continue grow robust pace housing investment growth expect support demand supply perspective business investment slow early late indicator suggest continuation subdue business investment short term regard labour market employment grow term look ahead pmi employment component point moderation employment growth development reflect september ecb macroeconomic projection euro area project real gdp growth compare june eurosystem projection real gdp growth revise percentage point percentage point unrevise revision mainly account weak external demand somewhat cushion impact low energy price easing financial condition medium term baseline assume gradual dissipation global headwind allow fundamental factor support euro area expansion regain traction outlook support ecb accommodative monetary policy stance improve labour market relatively robust wage growth net worth decline unemployment rise profit loosen fiscal stance recovery foreign demand gdp growth expect slow end projection horizon decline capacity utilisation prolonged period low business confidence expiration tax incentive adversely affect investment labour supply constraint restrict employment growth projection institution private sector line september ecb projection turn euro area price development accord eurostat flash estimate august annual headline hicp inflation hicp inflation exclude food energy move sideways july respectively measure underlie inflation remain muted indicator inflation expectation stagnate wage growth remain solid increase rate long term average compensation employee increase annual term compensation hour increase negotiate wage growth continue stand level half unit labour cost growth rise strongly double increase reflect decline labour productivity growth period turn reflection resilience labour market face slow gdp growth strengthen unit labour cost pressure far absorb profit margin september ecb projection hicp inflation revise projection horizon project reach downward revision inflation low energy price reflect subdued nature inflation dynamic governing council july monetary policy medium long term euro area market base measure inflation expectation stabilise low level despite fall development constitute moderation downward trend start autumn term euro area financial condition notable decline euro area risk free rate maturity take place governing council july monetary policy eonia forward curve invert short horizon addition euro area year ois rate year treasury yield fall july euro area equity price decline somewhat mainly account risk premia fall cushion low discount rate take ease trend financial condition come halt finance condition non financial corporation nfcs remain favourable turn money credit development annual growth rate broad money rise july june despite fading annual contribution asset purchase programme app slowdown economic activity resilience continue reflect portfolio consideration drive decline yield non monetary asset decrease opportunity cost hold lead money holder increase share holding financial portfolio counterpart perspective mirror monetary inflow outside euro area reflect recovery foreign investor demand euro area asset bank funding cost continue favourable mainly drive decline bond yield cost borrow bank firm household fall record low annual growth rate loan nfc remain stable july somewhat september peak annual growth rate loan household continue gradual increase rise july regard fiscal policy euro area fiscal stance measure change cyclically adjust primary balance project mildly expansionary period negative impact stance headline budget balance offset saving interest payment monetary policy consideration policy option sum lane remark governing council july monetary policy risk free interest rate decline notably partial reversal week notwithstanding time ease potential rate decline deterioration macroeconomic outlook revise calculation equilibrium real interest rate limit equity decline moderately low discount rate cushion impact high equity risk premia bank lending condition firm household continue favourable datum indicate extended slowdown euro area economy previously expect particular weakness international trade prolonged global uncertainty continue weigh especially manufacturing sector september ecb projection mark real gdp growth outlook mainly owe weak global environment balance risk remain tilt downside account prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market hicp inflation dynamic development measure underlie inflation remain mute despite robust wage dynamic september projection entail downward revision inflation projection horizon project inflation reach relate low energy price weak growth environment market survey base indicator inflation expectation stagnate historical low overall governing council confront protract slowdown euro area economy persistent downside risk inflation outlook continue fall short medium term inflation aim take long perspective december successive significant downward revision inflation outlook observe bring inflation projection downgrade inflation outlook despite fact financial condition embed forecast reflect substantial expectation additional policy ease mean inflation move away level governing council deem consistent inflation aim imply delay inflation convergence background comprehensive policy response warrant support return sustained convergence path governing council medium term inflation aim lane propose take follow decision lower deposit facility rate basis point adjust forward guidance stipulate key ecb interest rate expect low level project inflation see converge stabilise level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic restart net purchase app monthly pace november net asset purchase expect run long necessary reinforce accommodative impact ecb policy rate end shortly governing council start raise interest rate reinveste principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation change modality series quarterly target long term refinance operation tltro iii preserve favourable lending condition ensure smooth transmission monetary policy support accommodative stance monetary policy interest rate operation set level average rate eurosystem main refinancing operation mro life respective tltro bank eligible net lending exceed benchmark applied rate tltro iii operation low low average deposit facility rate prevail life operation maturity operation prolong year order safeguard base transmission monetary policy introduce tier system remuneration bank holding excess liquidity exempt negative deposit facility rate set measure provide monetary support range mechanism lower deposit facility rate reinforce forward guidance operate yield curve especially short medium term segment strengthen state dependent forward guidance provide clear signpost rate expectation link governing council monetary policy stringent condition inflation outlook forward guidance especially effective condition elevated uncertainty facilitate smooth adjustment evolution macroeconomic financial condition direction expectation future policy path respond stabilise manner positive negative news accord strengthen forward guidance projection horizon project inflation need converge stabilise level sufficiently close reference level signal governing council want project inflation increase significantly realise project inflation figure level consider line aim governing council guidance forward look line strategy orient medium term time propose guidance contain safeguard risk overreact transitory shock inflation forecast measurement error emphasise convergence robust underlie inflation increase ensure pick inflation back sustained build domestic price pressure furthermore maintain ease bias rate governing council room cut rate need resume net purchase important complement interest rate policy particular app great impact long term rate provide support funding cost matter business household propose formulation net purchase horizon dynamically adjust change forward guidance interest rate work background lid medium long term interest rate add stock asset reinveste long governing council postpone undue tightening term premia mechanically occur app portfolio lose average duration addition app net purchase strong signalling effect wealth effect balance sheet bank entity app tend powerful effect formation inflation expectation demonstrate governing council commitment use instrument pursuit aim track approach governing council actively deploy short term policy rate net asset purchase strike balance ensure deploy mutually reinforce instrument efficient manner rely excessively instrument relation reinvestment policy chain nature forward guidance mean revise forward guidance policy rate pass horizon maintain stock purchase asset turn element proposal attractive tltro iii pricing support funding condition environment weak growth ensure bank offer favourable lending condition firm household ensure smooth transmission monetary policy support accommodative stance monetary policy prolong maturity year well align operation typical maturity base financing investment project enhance support tltro iii provide financing real economy finally tier system remuneration help preserve positive effect governing council negative rate policy economy mitigate direct cost bank hold excess reserve contribute safeguarding base transmission mechanism monetary policy summary propose range measure complement reinforce constitute powerful package provide substantial monetary stimulus ensure financial condition remain favourable support euro area growth ongoing build domestic price pressure sustained convergence inflation governing council medium term inflation aim time governing council reiterate need highly accommodative stance monetary policy prolonged period time readiness adjust instrument appropriate ensure inflation move level close sustained manner line governing council commitment symmetry inflation aim cœuré elaborate detail possible tier system remuneration excess liquidity propose modification tltro iii parameter exempt tier introduce multiplier apply level credit institution minimum requirement remunerate applicable holding excess minimum requirement hold account eurosystem turn propose modification price maturity condition tltro iii governing council invite decide set interest rate level average rate apply eurosystem mro life respective tltro iii operation prolong maturity operation year respective settlement date provide option counterpartie repay amount borrow voluntarily maturity quarterly frequency start year settlement operation furthermore cœuré indicate prolongation maturity tltro iii operation imply additional credit claim framework automatically extend end march addition cœuré recall october decide interest rate month long term refinance operation ltro average rate mro life respective operation cover period maintenance period extend end maintenance period start march separately proposal allow purchase asset yield deposit facility rate private sector programme app extent necessary decision reflect change market interest rate relative deposit facility rate govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide lane introduction incoming information governing council july monetary policy indicate protract weakness euro area economy previously expect slowdown growth mainly reflect prevail weakness international trade environment prolong global uncertainty particularly affect manufacturing sector time service construction sector show ongoing resilience number factor continue support euro area economic expansion include favourable financing condition employment gain rise wage growth mildly expansionary euro area fiscal stance continued albeit somewhat slow growth global activity assessment reflect september ecb projection outlook risk external environment note global activity trade project recover gradually medium term downward revision outlook global growth trade late ecb projection member assess risk external environment remain downside account prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market particular reference prevail uncertainty relate trade tension brexit turn euro area activity member concur datum weak expect euro area slowdown expect protract real gdp confirm increase follow growth incoming economic datum survey information point moderate positive growth year downward revision growth projection september ecb projection consider warrant reflect disappointing datum point revise baseline growth inflation consider scenario significant downside risk remain perception outlook differ somewhat member argue despite revision baseline scenario late ecb projection optimistic light prevail uncertainty time highlight rebound euro area growth delay growth expect recover weakness projection horizon observation euro area economy operate close capacity line projection argue slowdown euro area consequence asymmetric shock relate external environment domestic factor impact concentrated large euro area country primarily owe weakness manufacturing sector reference possibility upside downside risk example ongoing trade tension resolve quickly expect number consideration advanced revise growth outlook optimistic argument export weakness time expect spill domestic demand service sector economy indication slowdown export affect labour market development slowdown consider general global nature affect number large economy oppose reflect specific asymmetric shock assumption underlie september ecb projection see relatively favourable projection base orderly brexit probability disorderly brexit recently increase assume resolution trade tension time assumption consider optimistic addition note baseline contain trade measure announce finalisation projection exercise risk surround euro area growth outlook assess member tilt downside account prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market exchange view fiscal policy member consider mildly expansionary euro area fiscal stance provide support economic activity weak economic outlook continued prominence downside risk emphasise government fiscal space act effective timely manner country public debt high government need pursue prudent policy create condition automatic stabiliser operate freely country reinforce effort achieve growth friendly composition public finance regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation august unchanged july low energy price inflation offset high food price inflation rate hicp inflation exclude food energy unchanged basis future price oil owe base effect annual headline inflation decline rise end year measure underlie inflation remain muted indicator inflation expectation stand low level labour cost pressure strengthen broaden amid high level capacity utilisation tighten labour market pass inflation take long previously anticipate medium term underlie inflation expect increase support ecb monetary policy measure ongoing economic expansion robust wage growth assessment reflect september ecb projection revise horizon reflect low energy price weak growth environment note headline underlying inflation currently dampen change statistical treatment package holiday euro area large economy factor fade coming month look ahead member acknowledge implication medium term inflation outlook arise downward revision growth outlook underlying inflation measure hicp exclude food energy expect pick projection horizon revise compare june eurosystem projection attention draw fact revise growth outlook imply upward pressure domestic inflation dynamic look volatility energy price downward revision inflation outlook end horizon project measure underlie inflation headline inflation expect reach end projection horizon member underline wage growth continue solid line long term average transmission high wage consumer price inflation medium term uncertain give revise growth outlook doubt express profit margin increase assume projection economic activity recover regard long term inflation expectation member note governing council july monetary policy market base measure long term expectation stabilise albeit historically low level ecb inflation aim concern express long term downward trend observe inflation expectation evident market base survey base measure market base inflation expectation measure year forward inflation link swap rate year ahead currently stand long term survey base inflation expectation stand survey professional forecasters concern express increase probability inflation outcome derive option price caution urge place emphasis development long term market base measure inflation subject liquidity risk premia particular gap survey base measure market base measure explain negative risk premium remark negative risk premium concern reflect hedge market participant outcome low inflation deflation remark financial market participant responsible set relevant price real economy understanding actual price set behaviour firm level affect expectation general aggregate price development oppose microeconomic determinant suggest deep analysis inflation expectation undertake amid increase concern risk unanchoring inflation expectation monetary analysis member widely share assessment provide lane introduction sustained rate broad money growth reflect ongoing credit creation private sector low opportunity cost hold narrow monetary aggregate continue main contributor broad money growth component member agree ecb monetary policy measure continue support loan growth ultimately activity inflation overall loan growth benefit historically low lending rate bank lending condition firm household continue favourable monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction governing council monetary policy july risk free interest rate decline partly anticipation additional monetary policy stimulus response worsen macroeconomic outlook note substantial anticipation effect future policy measure embody market expectation path interest rate extent reflect projection despite fact financial condition embed projection reflect substantial expectation policy easing project inflation move away level deem consistent governing council inflation aim time caution governing council try accommodate market expectation base decision assessment addition argument forward environment high uncertainty exceed market expectation counterproductive view signal bad outlook embed forecast member agree easing monetary policy stance warrant support return sustained convergence governing council inflation aim september projection revise real gdp growth outlook mainly owe weak global environment inflationary pressure remain muted time point monetary policy response proportional contingency face respect note despite downward revision projection fundamental driving force pick foresee baseline scenario place deflation risk absent juncture monetary transmission function long term yield historical low euro area country member express broad agreement monetary policy proposal lane introduction comprehensive package member see package i.e. combination instrument significant complementarity synergy appropriate approach situation individual policy measure face limitation impact measure uncertain difficult light continue shortfall realised project inflation governing council medium term aim risk unanchoring inflation expectation see important governing council demonstrate determination capacity act line reaction function adjust instrument appropriate achieve inflation aim context measure include restart net asset purchase introduce tier system remuneration reserve see have important signal effect enhance propose change governing council forward guidance time number reservation express individual element propose policy package rationale comprehensive package widely share member assess case specific element differently measure see substitute complement give rise trade off element package instance liquidity provide measure propose tier system large majority member agree change modality series quarterly tltro tltro iii propose lane cœuré remove spread basis point vis vis key ecb interest rate extend maturity year see effective preserve favourable lending condition ensure smooth transmission monetary policy support accommodative stance monetary policy context governing council take propose extension additional credit claim framework end march agree fix interest rate month ltro average rate main refinance operation life respective ltro end maintenance period start march forward guidance app reinvestment member concur lane proposal reinveste principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation member agree proposal enhance state base component governing council forward guidance interest rate member see value keep date base element forward guidance shift future enhanced state contingent forward guidance consider core element package convey governing council intention respect main policy instrument key policy rate measure tie propose guidance net asset purchase reinvestment principal payment propose forward guidance see crucial provide adequate monetary accommodation anchor inflation expectation ecb medium term inflation aim make lift date interest rate state dependent anchor expectation sufficiently far future warrant circumstance widely feel forward guidance need formulate carefully sufficiently stringent unduly precise complex order credible avoid introduce uncertainty expectation market general public accordingly see natural build consistent previous communication sustained adjustment path inflation related convergence confidence resilience attain governing council aim inflation close medium term merit see underline symmetry governing council inflation aim qualitative term pre empte future ecb strategy initial support express base forward guidance quantitative benchmark project realise inflation order provide great clarity inflation aim hand question clarity numerical term actually enhance effectiveness forward guidance subdue inflation record year link governing council forward guidance ecb projection see prone circularity point inflation target bank typically condition policy projection reference robust convergence broad qualitative formulation term inflation outlook consider preferable make forward guidance conditional inflation convergence reflect consistently observed underlie inflation dynamic inflation outlook see help clarify momentum visible verifiable datum actual inflation imply departure forward look nature medium term orientation ecb monetary policy strategy addition notion robust convergence see underline message governing council inflation aim regard cap inflation confirm symmetry inflation aim context argue propose formulation market expectation lift date far future adopt formulation state dependent forward guidance view remain consistent ecb monetary policy strategy redefine policy aim pre empte strategy place later clear majority member agree lane proposal restart net purchase app monthly pace november long necessary reinforce accommodative impact policy rate end shortly key ecb interest rate raise app see necessary component policy package show ecb analysis effective support activity inflation mere reinvestment principal payment mature security see insufficient prevent loss duration ecb balance sheet underpin low yield currently observe engender compression term premia concern express deliver sufficient stimulus include app trigger reversal favourable financial condition contrast restart net purchase provide strong signal governing council determination willingness act light subdued inflation outlook potential risk unanchoring inflation expectation argument room compression term premia necessarily completely context forceful pre emptive monetary policy action consider important call comprehensive package include resumption net asset purchase number member assess case renew net asset purchase sufficiently strong deem efficient instrument give prevail compression term premia deem instrument resort deploy event severe contingency warrant light outlook package include net purchase consider adequate current financial condition see favourable particular bond long maturity trade negative yield point governing council decision base effectiveness measure signal effect vis vis market concern voice potential decline efficiency portfolio rebalancing channel potential adverse effect financial intermediation include bank insurance company pension fund relate flattening long end yield curve heighten financial stability risk remark open ended announcement renew net asset purchase rise demand market participant high monthly purchase amount absence convincing evidence improve inflation outlook exhaust purchasable universe question programme limit consider important ensure boundary monetary policy fiscal policy blur effect potential limit change market functioning bond scarcity need consider note month pace purchase far early phase programme expansionary stance fiscal policy allow governing council purchase limit significant period time feel limit wait issue pressing large majority member agree lane proposal lower rate deposit facility basis point reinforce forward guidance act yield curve especially short medium term segment complement effect net asset purchase long end curve way measure address high level short term uncertainty currently prevail help preserve favourable financial condition member express readiness lower rate deposit facility basis point particular package exclude net asset purchase member feel unable support cut basis point concern possibility increasingly adverse effect additional rate cut majority member propose introduction tier system remuneration policy package exempt tier time level minimum requirement institution subject requirement tier system help preserve positive effect negative rate policy economy mitigate direct cost bank hold excess reserve contribute safeguarding base transmission mechanism governing council monetary policy tier system support ability bank extend loan customer favourable term help preserve incentive bank pass stimulus provide negative rate reserve furthermore corroborate governing council forward guidance interest rate low level number reservation express monetary policy justification tier system argue juncture monetary policy transmission channel function addition bank benefit tltro iii offer favourable lending condition significant decline bond yield remark provide partial relief bank cost negative rate raise potential distributional communication challenge tier system calibrate properly rise effect upward pressure market rate argue jurisdiction negative interest rate long introduce exemption scheme regard design tier system propose value time minimum requirement support case have small large multipli context argue tie exemption directly minimum requirement increase remuneration rate holding well target transmission channel fragile well alleviate potential upward pressure market rate create interaction tltro iii deviate establish framework bank challenging communicate particularly remuneration minimum reserve akin introduction policy rate summary president conclude member agree need act response continued shortfall inflation respect governing council aim clear majority member support propose measure complement reinforce powerful package provide substantial monetary stimulus ensure favourable financial condition support euro area economic expansion ongoing build domestic price pressure sustained convergence inflation governing council medium term inflation aim accordingly governing council reiterate need highly accommodative stance monetary policy prolonged period time continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry finally member agree weaken economic outlook continued prominence downside risk government fiscal space act effective timely manner response significant risk relate geopolitical factor rise threat protectionism vulnerability emerge market policy monetary policy effective well suit address country specific shock context governing council communicate carefully create unrealistic expectation contingency monetary policy able address monetary policy decision communication take account forego member proposal president governing council take follow monetary policy decision interest rate deposit facility decrease basis point interest rate main refinance operation rate marginal lending facility unchanged level respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic net purchase restart governing council app monthly pace november governing council expect run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate reinvestment principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation modality series quarterly target long term refinance operation tltro iii change preserve favourable lending condition ensure smooth transmission monetary policy support accommodative stance monetary policy interest rate operation set level average rate apply eurosystem main refinance operation life respective tltro bank eligible net lending exceed benchmark rate apply tltro iii operation low low average interest rate deposit facility prevail life operation maturity operation extend year order support base transmission monetary policy tier system remuneration introduce bank holding excess liquidity exempt negative deposit facility rate separate press release detail measure take governing council publish press conference member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190912~658eb51d68.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912_1~b17f699a88.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912~19ac2682ff.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912_2~a0b47cd62a.en.html meeting ecb governing council september members draghi president guindos vice president cœuré costa hernández cos herodotou holzmann kažimír knot lane lautenschläger makhlouf mersch müller rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right september article escb statute attendee smets secretary monetary policy director general economics stone deputy secretary secretariat winkler deputy secretary monetary policy senior adviser economics accompanying person alves arce aucremanne bradeško buch demarco donnery gaiotti garnier haber kaasik kazāks kuodis kyriacou lünnemann odór pattipeilohy tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations klöckers director general international european relations rostagno director general monetary policy sousa deputy director general economics valla deputy director general monetary policy release monetary policy account foresee thursday november contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday october review financial economic monetary development policy option financial market development cœuré review late financial market development governing council monetary policy september prospect breakthrough trade negotiation united states china decline fear deal brexit help underpin global market sentiment euro area overnight index swap forward curve shift upwards short long end notably steep compare situation september united states effect recede uncertainty surround brexit trade partially offset change near term monetary policy expectation response weak economic datum market imply probability rate cut federal reserve system october increase notably course october overall bond yield side atlantic remain low level compare early development money market noteworthy october ecb successfully start daily publication euro short term rate str base broad set granular datum money market transaction development relate governing council decision september introduce tier remuneration system excess reserve tentative evidence high trading volume euro money market observe bank prepare introduction tier system maintenance period development relate volatility short term money market rate united states federal reserve system conduct repurchase agreement operation ease funding stress market segment resume purchase treasury bill pace approximately usd month initially liquidity provide measure prove successful ease tension repurchase agreement market turn stock market development euro stoxx index rise mid september relative mid august low unlike spring summer fall equity risk premium recede uncertainty relate brexit trade contribute rise stock price bank share see strong recovery week outperform broad market finally foreign exchange market euro depreciate dollar fall low level year wake governing council september monetary policy subsequently appreciate brexit relate news risk premia reverse pound sterling appreciate strongly euro rise governing council notable rise trading volume option imply volatility global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment pace global activity trade growth remain weak tentative sign stabilisation global growth global manufacturing emerge market economy global composite output purchasing managers index pmi exclude euro area stand unchanged average global trade rebound exclude effect specific factor overall global trade remain subdue dampen high level trade tension weak asian demand governing council september monetary policy oil price drop euro appreciate bilateral term dollar marginally depreciate nominal effective term turn euro area real gdp growth confirm eurostat release regard development business indicator suggest slowdown output growth flash composite output pmi stand october september august european commission economic sentiment indicator decline component domestic demand private consumption continue support high labour income decomposition real disposable income growth suggest labour income remain main driver addition decline oil price half support real disposable income short term indicator point resilient private consumption demand growth business investment slow early late sectoral indicator suggest continuation subdue business investment short term capital good production july remain quarterly average record capacity utilisation manufacturing see continuous gradual decline currently stand close historical average regard labour market sectoral indicator show moderation labour market condition drive manufacturing sector accord national account datum employment growth manufacturing sector decline term employment growth market service remain unchanged resilience labour market face growth slowdown reflect weak hourly productivity growth stand term hourly productivity growth remain positive territory market service sector manufacturing sector see persistent reduction hourly productivity euro area good export contract stockbuilding united kingdom lift euro area good export reverse turn price development accord eurostat annual headline hicp inflation decrease august september remain considerably governing council inflation aim decline reflect low energy food price inflation offset slight increase hicp inflation exclude energy food august september measure underlie inflation remain mute continue sideways low inflation continue broad base share item low inflation rate hicp inflation exclude energy food remain elevated time share item negative inflation rate show downward trend level stand september slightly long term average wage continue grow robust pace compensation employee increase slightly long run average high wage pressure far absorb profit margin accord ecb survey professional forecasters spf hicp inflation expectation stand respectively represent downward revision approximately percentage point year expectation inflation exclude energy food alcohol tobacco revise percentage point year euro area market base indicator medium long term inflation expectation remain low level year forward year ahead measure stand slightly unchanged compare level time september monetary policy regard euro area financial condition risk free bond rate increase maturity september eonia forward curve shift upwards long price basis point rate cut euro area equity price non financial corporation financial corporation slightly increase september volatile slight increase equity price mainly drive decline equity risk premium compensate dampening pressure low long term earning expectation high discount rate financing condition euro area non financial corporation remain favourable unchanged september turn money credit development annual growth rate broad money increase august july growth continue entirely drive annual growth increase counterpart perspective credit private sector continue main source broad money creation contribution mfi net external asset annual growth remain unchanged accord october euro area lending survey net demand loan enterprise remain stable bank expect slight increase previous survey round reflect weakness economic growth development positive contribution fix investment small credit standard loan euro area enterprise ease slightly follow tightening previous quarter competitive pressure main factor contribute easing credit standard loan enterprise euro area fiscal stance expect mildly expansionary provide support demand condition draft budgetary plan envisage change percentage point euro area structural primary balance gdp ratio amount loosen monetary policy consideration policy option sum lane remark september policy package deliver large easing financial condition occur previous month anticipation substantial policy easing bank lending condition firm household continue favourable easy market funding condition exhibit ongoing pass incoming datum confirm governing council previous assessment weakness euro area economy protract pmi manufacturing output index low level december service index deteriorate private consumption remain resilient amid rise wage job growth show sign moderation balance risk surround growth outlook remain tilt downside owe geopolitical factor rise protectionism continue vulnerability emerge market hicp inflation measure underlie inflation remain subdue despite rise wage market survey base measure inflation expectation stagnate historical low look ahead governing council need monitor pass monetary policy measure incoming information economy case forward guidance interest rate act automatic stabiliser monetary policy expectation entire spectrum financial condition adjust change inflation outlook basis assessment lane propose keep monetary policy stance unchanged suggest governing council communication highlight monetary policy measure take september provide substantial monetary stimulus contribute easing borrowing condition firm household support euro area expansion ongoing build domestic price pressure sustained convergence inflation governing council medium term inflation aim stress forward guidance ensure financial condition adjust accordance change inflation outlook event governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry recall equal fiscal policy contribute boost long term growth potential provide cyclical stabilisation soon effect monetary policy intervention inflation economy see govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook economic activity euro area provide lane introduction incoming information governing council september monetary policy confirm previous assessment protract weakness euro area growth dynamic persistence prominent downside risk mute inflationary pressure time ongoing employment growth increase wage continue underpin resilience euro area economy outlook risk external environment note pace global activity trade growth remain weak global trade turn weak anticipate september ecb projection context disentangle source weakness question raise extent downturn tech cycle constitute separate factor independent weakness relate trade tension member assess risk global activity trade remain downside risk pertain prolonged presence uncertainty relate geopolitical factor rise protectionism vulnerability emerge market reference particular continue uncertainty relate withdrawal united kingdom global level trade tension acute september monetary policy doubt express resolve soon turn euro area activity member concur datum confirm protract weakness anticipate governing council september monetary policy real gdp confirm increase follow growth incoming economic datum survey information continue point moderate positive growth half year slowdown growth mainly reflect ongoing weakness international trade environment persistent global uncertainty continue weigh euro area manufacturing sector dampen investment growth protract weakness persistent downside risk activity point key indicator industrial production pmi manufacturing output index continue deteriorate observe pmi stand low level decline long see recession trigger financial crisis incoming datum suggest weakness persist raise question long anticipate september ecb projection sign acceleration growth anticipate projection context remark little additional hard datum available september monetary policy information need reassess economic outlook recall euro area economic activity continue support number factor service construction sector remain resilient despite moderation financing condition favourable labour market post employment gain conjunction rise wage euro area fiscal stance mildly expansionary growth global activity ongoing albeit somewhat slow pace concern express deterioration survey datum service sector reflect spillover persistently negative development export manufacturing initial sign contagion manufacturing service early speak generalised spillover time comfort draw resilience domestically orient sector consumption consumer confidence hold economic downturn far limited effect labour market country downturn sharp reference sign labour market worsen economic weakness persist late survey datum signal somewhat weak employment outlook risk surround euro area growth outlook assess member tilt downside account prolonged presence uncertainty relate geopolitical factor rise threat protectionism vulnerability emerge market outlook fiscal policy member note mildly expansionary euro area fiscal stance provide support economic activity weak economic outlook continued prominence downside risk reiterate government fiscal space act effective timely manner country public debt high government need pursue prudent policy meet structural balance target create condition automatic stabiliser operate freely country reinforce effort achieve growth friendly composition public finance stress compliance stability growth pact country imply increase structural balance tightening fiscal policy offset expansionary stance country fiscal space regard price development member agree assessment present lane introduction euro area annual hicp inflation decrease august september reflect low food energy price inflation measure underlie inflation remain muted indicator inflation expectation stand low level labour cost pressure strengthen amid tight labour market weak growth momentum delay pass inflation medium term inflation expect increase support ecb monetary policy measure ongoing economic expansion robust wage growth emphasise headline inflation currently dampen low energy price inflation late inflation datum confirm expectation embed september projection absence major forecast error core inflation month support projection upward movement underlie inflation dynamic element dampen core inflation start fade statistical downward impact annual rate change package holiday price associate change consumer expenditure weight large euro area economy look ahead argue increase underlie inflation readily materialise give weak macroeconomic outlook member agree assessment wage growth continue solid underline crucial role expect upward adjustment inflation context remark spf indicate downward slop path wage growth time suggest slight slowdown wage dynamic expected inflation adjustment currently hinge delay pass wage growth price recovery profit mark point profit margin increase previous year despite positive economic outlook raise doubt increase context worsen outlook regard long term inflation expectation member note decline survey base measure concern express particular respect consecutive downward revision long term inflation expectation ecb spf argue survey market base indicator adjust estimate liquidity risk premia show similar picture downward shift long term expectation regard monetary analysis member widely share assessment provide lane introduction overall signal provide money credit development remain positive broad money growth credit private sector high level sustained rate broad money growth reflect ongoing credit creation private sector low opportunity cost hold growth loan firm household remain robust benefit continue pass accommodative monetary policy stance lending rate remain historical low favourable lending condition evidence euro area lending survey note financial stability implication need monitor closely decline lending rate squeeze bank margin adequate risk coverage point attention need pay non financial sector loose market base financing condition search yield pose risk monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction package measure decide governing council september monetary policy large extent preserve highly favourable financial condition prevail period owe anticipation monetary policy easing see demonstrate market understand reaction function governing council despite upward movement end yield curve september monetary policy take somewhat long perspective financial condition ease significantly sintra conference june year underline incoming information september monetary policy confirm pronounced slowdown euro area economic growth continued shortfall inflation respect inflation aim vindicate monetary policy decision take governing council wide agreement information need reassess inflation outlook impact monetary policy measure particularly give measure implement notably resumption net asset purchase introduction tier system remuneration measure allow time fully unfold effect euro area economy ultimately inflation outcome take account usual transmission lag monetary policy confidence express comprehensive package policy measure decide september provide substantial monetary stimulus contribute easing borrowing condition firm household support euro area expansion ongoing build domestic price pressure sustained convergence inflation governing council medium term inflation aim background member agree proposal lane introduction monetary policy stance unchanged entail confirm resumption net asset purchase governing council asset purchase programme monthly pace november reiterate forward guidance policy interest rate net asset purchase reinvestment broad agreement monetary policy highly accommodative extended period time face protract weakness economy subdue inflation development accordingly important fully implement september monetary policy decision context highlight governing council forward guidance provide important stabilisation function lane point introduction strengthen state base forward guidance decide september monetary policy clearly tie path policy interest rate inflation prospect ensure financial condition adjust accordance change inflation outlook reinforce governing council commitment achieve inflation aim argue state base nature forward guidance depend forward look component inflation outlook see converge robustly level sufficiently close projection horizon backward look component convergence inflation consistently reflect observed dynamic underlie inflation provide clear guide governing council reaction function strong commitment governing council provide necessary policy stimulus see important ensure sustained convergence inflation governing council aim accordingly vital governing council prepared act set instrument inflation outlook required caution account take assessment possible effect monetary policy measure time plea patience allow measure take september work economy support wait posture juncture regard communication member widely agree proposal lane introduction need stress september monetary policy package support sustained convergence inflation governing council aim note transmission individual measure time work way growth inflation dynamic time governing council need forcefully reiterate unwavering commitment achieve inflation aim need highly accommodative stance monetary policy prolonged period time support underlie inflation pressure headline inflation development medium term light persistence prominent downside risk surround euro area outlook need emphasise governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry look ahead strong unity governing council underline open frank discussion governing council absolutely necessary legitimate regard important form consensus unite governing council commitment pursue inflation aim furthermore policymaker reiterate emphasise need contribute decisively support euro area economy particular fiscal policy notably government fiscal space play prominent role stabilise economic condition weaken economic outlook continued prominence downside risk monetary policy decision communication take account forego member proposal president governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic decide governing council september net purchase restart governing council asset purchase programme monthly pace november governing council expect run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase asset purchase programme extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is191024~78a5550bc1.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp191024~438769bd4f.en.html meeting ecb governing council october members draghi president guindos vice president cœuré costa hernández cos herodotou holzmann kažimír knot lane lautenschläger makhlouf mersch müller rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right october article escb statute attendee lagarde president designate dombrovskis commission vice president teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti garnier haber kuodis kyriacou luikmel lünnemann odór pattipeilohy rutkaste tavlas välimäki ecb graeff director general communications straub counsellor president bindseil director general market operations sousa deputy director general economics rostagno director general monetary policy valla deputy director general monetary policy release monetary policy account foresee thursday january contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday december review financial economic monetary development policy option financial market development cœuré review late financial market development governing council previous monetary policy october sign increase optimism market participant global bond yield remain distance low level observe end summer global stock price close historical high financial market participant pessimistic price additional accommodation bank early year global sovereign bond market quieter previous week prior october monetary policy prospect breakthrough trade negotiation united states china push year treasury german government bond yield yield move sideways german year sovereign bond yield oscillate basis point main reason yield continue upward trajectory outlook remain favourable start breakthrough resolution major risk factor currently face global economy i.e. imposition tariff brexit monetary policy ease major bank include ecb persistent downward pressure yield september expectation easing monetary policy euro area undergo reversal affect entire forward interest rate curve currently limited expectation cut ecb deposit facility rate follow month time prospect tightening remain far future basis point hike price end cœuré provide update progress impact tier system remuneration share bank unused allowance drop sharply implementation governing council decision tier system bank fast use allowance cross border borrowing money market reflect trading volume impact unsecured short term money market rate str limited occasional spike str volatility attribute factor unrelated tier system time notable initial increase repurchase agreement market rate jurisdiction response launch tiere system persistent global equity price increase measurably prospect breakthrough trade negotiation improve euro stoxx50 index governing council monetary policy october s&p hit time high sight stock bond market development somewhat sync stock market currently drive short term factor include drop risk aversion earning expectation suggest stock bond market investor remain cautious medium term growth inflation outlook near term global outlook possibly support substantial easing financial condition emerge market reversal portfolio flow start investor resume channel fund emerge bond market despite ongoing trade tension broad uncertainty financial market effective exchange rate euro continue sideways reflect thing limited movement dollar notable exception stable exchange rate development pound sterling rise mid august risk deal brexit peak global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment pace global activity remain subdue project annual growth rate global activity exclude euro area stand low level nonetheless sign stabilisation outlook global gdp compare september ecb projection growth global activity revise reflect dynamic activity emerge market news trade growth mix uncertainty remain elevated emerge economy tentative sign growth stabilise thank fiscal support reflect domestic activity particular necessarily imply upward revision import risk global trade remain downside global financial condition ease moderately governing council previous monetary policy october particular global equity price continue rise account improved risk sentiment amid retrenchment safe haven flow oil price increase october tight oil supply follow opec+ extension production cut euro depreciate somewhat dollar nominal effective term turn euro area december eurosystem projection real gdp growth unrevise compare september ecb projection real gdp expect increase risk surround euro area growth outlook remain tilt downside somewhat pronounced growth outlook remain mute near term moderate recovery expect later reflect assumption dissipation global headwind allow fundamental support growth regain traction governing council economic news perceive market participant negative overall business survey mid september suggest stabilisation output growth moderate rate weakness manufacturing sector continue purchasing managers index pmi euro area manufacturing output contraction territory february record slight rebound november time spillover rest economy remain contain economic sentiment service sector albeit decline remain slightly long run average construction retail trade consumer confidence continue stand clearly average private consumption continue support high labour income remain main driver real disposable income look ahead real disposable income private consumption growth expect solid albeit decline somewhat account weaken employment dynamic time near term moderation housing investment suggest range indicator include residential investment construction confidence build construction production business investment growth expect weaken near term give fall industrial production rise uncertainty manufacturing activity contribute investment postpone regard development euro area labour market sectoral indicator point moderation labour market condition drive manufacturing sector national account datum show employment growth decline term pmi employment edge november remain contractionary territory manufacturing expansionary territory service construction national account statistic confirm persistent weakness euro area export good service extra euro area export good stable negative contribution asia offset positive contribution united states intra euro area trade prove weak especially intermediate good turn price development accord eurostat flash estimate annual hicp inflation increase october november mainly reflect high service food price inflation hicp inflation exclude energy food increase october november measure underlie inflation remain subdue indication mild increase line previous projection december eurosystem projection hicp inflation project reach end projection horizon projection headline inflation hicp inflation exclude food energy unrevised reflect interplay hand upward pressure weak exchange rate high oil price hand weak global price take cautious domestic price dynamic addition certain indicator underlie inflation heavily affect statistical effect package holiday price euro area large economy indicator exclude component suggest gradual notable upward slope path underlie inflation year time measure show convincing upward trajectory hicp inflation partially reflect change housing relate cost inflation measure high currently cost owner occupy housing account wage growth remain resilient strong labour cost pressure absorb profit margin annual growth compensation employee decline remain close long term average substantially low time profit margin growth follow significant weakening account slowdown economic activity start recover tentatively remain negative slowdown foreign domestic demand particularly affect activity industrial sector unit profit growth highly correlate business cycle service activity correlation tend somewhat low average point estimate long term inflation expectation survey professional forecasters decline stand year final euro area market base indicator medium long term inflation expectation remain low level like indicator year forward inflation link swap rate year ahead currently continue hover somewhat time low reach early october turn euro area financial condition eonia forward curve shift governing council october monetary policy reflect favourable risk sentiment owe promise trade talk united states china tentative stabilisation macroeconomic outlook forward curve show slight inversion trough slightly term premia estimate close previously negative level genuine policy expectation shift forward curve suggest time estimate impact asset purchase programme app compression term premia year sovereign bond remain sizeable euro area equity price increase non financial corporation october monetary policy remain unchanged financial corporation accord dividend discount model increase euro area non financial equity price mainly drive decline equity risk premium perceive improvement global risk sentiment dampen ongoing decline long term earning expectation show sign stabilisation turn money credit development annual growth rate broad money stand october entirely drive annual growth decrease opportunity cost hold monetary asset main factor support robust broad money growth counterpart perspective credit private sector account half broad money creation net external monetary flow account half lending volume continue grow solid pace annual growth loan non financial corporation slightly october credit household reach october difference country ecb monetary policy measure continue pass lending rate euro area level composite lending rate non financial corporation stabilise october cost borrow household house purchase stand historical low large bank deposit funding particular retail deposit remain floor distribution deposit rate non financial corporation continue shift negative territory october time margin pressure offset favourable development bond yield despite increase net interest income earn bank unit asset compress robust growth intermediation volume mean base income generation expand addition tier system expect reduce cost bank hold excess liquidity euro area fiscal stance assess expansionary provide support demand condition neutral composition fiscal expansion tilt direct tax cut high transfer euro area level reduction interest payment estimate offset half budget effect fiscal loosening monetary policy consideration policy option sum lane remark incoming datum monetary policy point continue weak stabilise euro area growth dynamic ongoing weakness international trade environment persistent global uncertainty combination sector specific domestic factor continue weigh euro area manufacturing sector dampen investment private consumption remain resilient amid rise wage favourable albeit moderate labour market development december projection foresaw increase real gdp growth slight downward revision risk growth outlook remain tilt downside geopolitical factor rise protectionism vulnerability emerge market risk somewhat pronounced bank lending condition firm household continue improve sign continue strong pass monetary policy addition equity price increase line improved market sentiment euro exchange rate depreciate somewhat measure underlie inflation remain subdue indication mild increase line previous projection indicator market base survey base inflation expectation remain near historical low solid broad base wage growth expect profile gradual pick inflation remain unchanged compare september ecb projection december eurosystem projection foresaw inflation increase average average reach end projection horizon overall governing council face inflation outlook medium term aim inflation expectation continue stand low level significant action take support rise inflation medium term aim governing council closely monitor inflation development impact unfold monetary policy measure economy strengthen forward guidance ensure financial condition adjust line change inflation outlook background lane propose monetary policy stance unchanged today entail reiterate forward guidance policy interest rate net asset purchase reinvestment time communication governing council need stress stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry govern council monetary policy decision economic monetary analysis regard economic analysis govern council member agree assessment outlook economic activity euro area provide lane introduction incoming information governing council monetary policy october point continue weak euro area growth dynamic sign stabilisation ongoing weakness international trade amid persistent global uncertainty continue weigh euro area manufacturing sector dampen investment growth time service construction sector remain resilient despite moderation employment growth increase wage continue underpin euro area economy outlook reflect december eurosystem projection outlook real gdp growth revise slightly compare september ecb projection outlook external environment note global outlook remain weak downward revision outlook global growth trade december eurosystem projection illustrate fact late projection foresaw growth global trade exclude euro area compare increase september ecb projection member assess risk external environment have remain downside geopolitical factor rise protectionism vulnerability emerge market reference persistence uncertainty relate trade tension withdrawal united kingdom time suggest sentiment united states upbeat recently follow indication trade tension united states china diminish positive development financial market reflect escalation trade dispute come year argue global geopolitical situation conducive lower uncertainty short term reference development world trade organisation impair functioning time concern risk trade link complex nature global supply chain emphasise policy rebuild confidence reduce uncertainty need relation geopolitical tension trade conflict turn euro area activity member agree economic datum survey information remain weak contain positive sign point stabilisation euro area growth real gdp growth confirm increase unchanged previous euro area large economy euro area real activity strong expect addition positive development survey datum citigroup surprise index trend upwards close achieve positive value week accord model estimate probability recession decline significantly regard risk adverse spillover ongoing weakness manufacturing sentiment activity sector economy appear tentative indication industrial production spillover generalised time service sector activity far resilient argue need cautious give risk spillover country discuss december eurosystem projection highlight projection exercise time significant downward revision euro area growth outlook projection interpret confirm narrative contain previous projection exercise increase governing council confidence baseline time acknowledge downward revision foreign demand projection horizon offset prospect strong domestic demand benefit additional monetary policy accommodation introduce september extra fiscal stimulus emphasise comprehensive package policy measure governing council decide september support euro area expansion ongoing build domestic price pressure robust convergence inflation medium term aim stress order reap benefit ecb monetary policy measure policy area need contribute decisively raise long term growth potential support aggregate demand juncture reduce vulnerability risk surround euro area growth outlook relate geopolitical factor rise protectionism vulnerability emerge market assess remain tilt downside have somewhat pronounced fiscal policy mildly expansionary euro area fiscal stance see provide support economic activity weak economic outlook member welcome eurogroup differentiated fiscal response readiness coordinate emphasise government fiscal space ready act effective timely manner government country public debt high need pursue prudent policy meet structural balance target create condition automatic stabiliser operate freely country redouble effort achieve growth friendly composition public finance regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation november compare october mainly reflect high service food price inflation basis future price oil headline inflation rise somewhat come month measure underlie inflation remain mute indication mild increase line previous expectation labour cost pressure strengthen tight labour market weak growth momentum delay pass inflation medium term inflation expect increase support ecb monetary policy measure ongoing economic expansion solid wage growth assessment reflect december eurosystem projection compare september ecb projection outlook hicp inflation revise slightly slightly mainly drive expect future path energy price discuss inflation outlook december eurosystem projection member acknowledge absence major revision consider late projection provide broad confirmation path inflation previous projection exercise note exclude volatile package holiday price euro area large economy solid upward movement underlie inflation support high capacity utilisation level rise energy commodity price tight labour market observe adopt cautious approach development profit margin projection horizon assume recover gradually impact ecb monetary policy measure growth inflation contain december projection see conservative compare range estimate different model member note late inflation projection revise previously substantial downward revision inflation outlook past year hicp inflation expect projection exercise compare december projection comment previous forecast error inflation fully explain domestic international factor suggest effort try well understand reason unexplained weakness inflation impact cost owner occupy housing inflation measure point effect include factor procyclical increase volatility inflation help explain perception high inflation country housing market development relatively strong climate relate policy include european commission green deal package take account projection exercise member contend need step effort understand economic consequence climate change highlight policy design mitigate impact climate change expect impact growth inflation come year implication projection need analyse carefully particular argue policy consider negative supply shock response climate change lead significantly high investment impact oil energy price uncertain regard long term inflation expectation member note market base measure long term expectation stabilise ecb september monetary policy measure visible positive effect long term inflation expectation continue stand historically low level clearly ecb inflation aim term market base measure long term inflation expectation year forward inflation link swap rate year ahead currently stand term survey base measure long term inflation expectation stand survey professional forecasters spf point gap survey base market base measure long term inflation expectation disappear adjust estimate liquidity risk premia risk deflation low remark point estimate provide spf participant level consistent governing council inflation aim accord available indicator degree long term inflation expectation anchor remain unchanged recently time previous decline indicator suggest close monitoring warrant regard monetary analysis member share assessment provide lane introduction money credit development remain robust sustained rate broad money growth reflect ongoing credit creation private sector low opportunity cost hold continue robust growth money see evidence ongoing transmission monetary policy give monetary aggregate continue expand despite pause net asset purchase beginning year resumption november solid growth loan firm household benefit continue improvement lending condition see sign ongoing pass accommodative monetary policy stance borrowing condition real economy accommodative monetary policy stance see safeguard favourable lending condition continue support access financing economic sector lending channel monetary policy see function evidence euro area lending survey continued translation favourable market funding condition easy borrowing condition firm household time cross country heterogeneity pass lending rate visible competitive pressure banking industry differ country similarly note extent bank pass ecb monetary policy deposit rate vary considerably see difference legal framework market practice funding need competitive pressure banking system euro area country potential financial stability implication monetary policy environment see merit close monitoring monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction incoming datum governing council late october point continue weakness euro area growth dynamic initial sign stabilisation growth slowdown inflation development remain subdue indication slight increase measure underlie inflation line previous expectation member express confidence monetary policy measure provide necessary monetary stimulus support stabilisation economic growth compensate large degree negative impulse global factor recovery inflation governing council aim september monetary policy measure contribute substantial easing financial condition preserve easing occur anticipation effect summer perception recede uncertainty mainly relate trade dispute united states china lead upward movement risk free interest rate yield corporate sovereign bond market october monetary policy positive market sentiment support equity price euro depreciate somewhat point upward adjustment yield curve observe september show market respond change datum outlook risk line governing council state dependent forward guidance run counter perception circularity market expectation ecb policy decision time highlight real interest rate remain low level entire maturity spectrum see confirmation effectiveness ecb policy measure underpin favourable financing condition continued pass monetary accommodation improve loan dynamic low lending rate underline provide support firm household finance consumption investment remark introduction tier system remuneration proceed smoothly work intend relieve bank cost hold excess liquidity time preserve money market rate low level encourage additional borrowing lending activity money market include cross border trade lead homogenous distribution liquidity country evidence decline target2 balance time point tiering induce cross border trading entirely base secured money market transaction unsecured transaction remain domestic suggest euro area money market continue display degree fragmentation appear operation way series targeted long term refinance operation tltro iii turn somewhat low expect see contribute preserve favourable lending condition low attribute bank desire minimise exposure year end well distribution liquidity money market result tiere system remuneration caution operation interpret assess future operation success tltro iii judge end programme background member widely agree proposal lane monetary policy stance unchanged steady hand warrant monetary policy entail reiterate governing council forward guidance policy interest rate net asset purchase reinvestment principal payment monetary policy stimulus appear fully appropriate lend substantial support growth inflation development vigilance efficacy policy measure appropriateness monetary policy stance call highlight measure give time exert impact euro area economy face subdue inflation outlook unchanged september member reiterate need highly accommodative monetary policy stance prolonged period time project inflation see distance governing council inflation aim market base measure inflation expectation stagnate historically low level downside risk growth outlook continue prevail despite have somewhat pronounced environment monetary policy need highly expansionary member highlight crucial role governing council forward guidance provide monetary accommodation strengthen state base forward guidance decide september monetary policy see provide degree automatic stabilisation response change macroeconomic condition tie path policy interest rate clearly inflation prospect ensure financial condition adjust accordance evolve state economy outlook inflation look ahead broad agreement need carefully monitor incoming datum evolution risk continue evaluate pass september policy measure case remain vital governing council prepare act adjust instrument appropriate ensure inflation move aim sustained manner line governing council commitment symmetry time member highlight need attentive possible effect monetary policy measure merit close monitoring period ahead suggest liquidity create eurosystem need track carefully impact intermediation asset market equity housing real estate capital outflow outside europe search yield concern voice regard potential impact negative interest rate euro area household saving consumption dynamic require close monitoring nonetheless confidence express policy rate reach call reversal rate far ample evidence credit condition euro area continue improve rise credit volume decline borrowing rate firm household provide support consumption investment plan negative interest rate environment dampen bank net interest income effect profitability remain positive relate particular capital gain bank sale security eurosystem low provision loan impairment macroeconomic environment have improve consequence accommodative monetary policy stance context recall macroprudential policy line defence address risk effect tailor issue identify extent implementation monetary policy adjust reduce unwanted effect introduction tier system excess remuneration see case point communication member agree proposal forward lane introduction need emphasise incoming datum remain weak signal stabilisation euro area economy point risk remain tilt downside somewhat pronounced regard monetary policy need patience perseverance need stress hand need highlight measure decide september effective reach economy time need effect economic outcome unfold hand need emphasise baseline scenario growth inflation continue predicate highly accommodative monetary policy stance prolonged period time steady handed communication need order preserve favourable financial condition support robust convergence inflation governing council inflation aim likewise feel governing council need reiterate commitment achieve inflation aim regard important role governing council state dependent forward guidance need highlight fully appreciate market participant ecb observer need stress forward guidance formulation tightly link future path policy rate inflation outlook sufficiently close consistent rise observed underlie inflation ensure financial condition adjust accordance change inflation outlook time see important stress governing council attentive potential effect monetary policy measure monetary policy configuration fully appropriate need emphasise analysis monitoring effect parcel governing council ongoing monetary policy assessment furthermore necessary reiterate policymaker need contribute decisively support euro area economy contribute stabilisation building confidence alleviate uncertainty relate trade geopolitical tension hold dynamic expansion economy particular fiscal policy notably government fiscal space play prominent role stabilise economic condition weakened economic outlook context governing council welcome eurogroup differentiated fiscal response readiness coordinate finally suggest broad guidance communicate forthcoming strategy include timeline see advisable refrain public discussion strategy prior envisaged launch governing council early monetary policy decision communication take account forego member proposal president governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic november net purchase restart governing council asset purchase programme app monthly pace governing council expect run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is191212~c9e1a6ab3e.en.html press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp191212~06d84240ae.en.html meeting ecb governing council december members lagarde president guindos vice president cœuré costa hernández cos herodotou holzmann kažimír knot lane makhlouf mersch müller rehn reinesch rimšēvičs stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right december article escb statute attendee dombrovskis commission executive vice president teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann odór pattipeilohy rutkaste tavlas välimäki ecb graeff director general communications straub counsellor president holthausen deputy director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday february contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

account monetary policy governing council european central bank hold frankfurt main wednesday thursday january review financial economic monetary development policy option financial market development schnabel review late financial market development period governing council monetary policy december mark major event year end geopolitical tension middle east signing phase trade agreement united states china trade agreement appear significant help consolidate general improvement market sentiment gain momentum early september expectation monetary policy highly accommodative united states euro area support improved market sentiment year end usual characterise thin liquidity money market reporting regulatory obligation turn year smooth repo rate remain concentrate level prevail turn year use eurosystem security lending facility increase slightly year end money market federal reserve injection additional liquidity mitigate potential year end tension year start geopolitical tension escalate middle east financial market prove resilient explain number factor attempt authority quickly escalate situation rhetoric factor prevail high level oil inventory oecd country combine global economy reliant oil past cushion expect impact supply disruption oil price factor general underlie improvement market sentiment improved sentiment visible global bond market early september follow indication phase trade deal united states china reach september yield year german benchmark government bond increase basis point addition spread vis vis year treasury benchmark narrow basis point insight reversal euro area interest rate differential derive breakdown bond yield short term rate expectation component term premia component united states euro area yield currently end-2018 level different reason euro area expect interest rate path adjust downwards united states partly reverse sentiment brighten month decline term premia prove persistent euro area partly link resumption net asset purchase ecb remove additional duration risk market addition decline term premia relate reduced uncertainty outlook short term interest rate overnight index swap forward curve suggest market currently expect ecb stay hold year expectation consistent subdue inflation outlook price market turn corporate government bond issuance combination improved market sentiment continued monetary accommodation foster investor demand private sector strong issuance corporate bond observe year date public issuer investor demand long maturity government bond issuance italy spain exceptionally high january prospect continue monetary policy accommodation improved market sentiment support equity valuation s&p euro stoxx respectively december equity index close historical high global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment global activity trade remain subdue sign stabilisation slight pick purchasing managers index pmi datum turnaround visible manufacture pmi overall pmi signal stabilisation global activity modest growth rate year sign improvement global trade recover recently trade uncertainty decline base trade deal united states china global trade remain subdue dampen high level trade tension weak asian demand turn global financial condition market sentiment risky asset remain positive global equity price continue increase especially united states governing council december monetary policy oil price decrease euro remain stable dollar depreciate slightly nominal effective term turn euro area gdp growth stand accord eurostat estimate business indicator provide sign stabilisation composite output pmi commission economic sentiment indicator start increase particular result forward look manufacturing survey appear stabilise incoming datum governing council point continue positive modest gdp growth demand component private consumption continue support robust income development reflect resilience labour market importantly solid growth compensation employee continue fiscal policy mainly form low taxis high transfer start contribute positively development disposable income addition term trade development drive energy price particular support annual growth disposable income course business investment dynamic remain weak slow early late sectoral indicator suggest business investment subdued short term extra euro area export good increase month display brexit relate volatility look development euro area labour market euro area employment continue rise increase slightly consistent slowdown economic growth euro area unemployment rate stand november essentially unchanged august euro area annual hicp inflation increase december reflect mainly high energy inflation remain considerably governing council inflation aim hicp inflation exclude energy food unchanged service inflation continue substantially strong non energy industrial good inflation measure underlie inflation remain mute sign gradual increase line previous expectation hicp sub component relatively high domestic content prominent driver underlie inflation year wage growth continue solid annual growth compensation employee unchanged line long term average furthermore wage growth remain broad base sector accord late survey professional forecasters spf hicp inflation expectation respectively follow successive round downward revision spf respondent keep inflation forecast essentially unchanged long term inflation expectation stand market base indicator long term inflation expectation euro area recover somewhat governing council monetary policy remain subdue level year forward inflation link swap rate year ahead stand turn euro area financial condition long term risk free rate change little december governing council case eonia forward curve short end curve remain flat euro area equity price financial non financial corporation continue increase december low discount rate accommodative monetary policy play important role support euro area equity price counteract drag decline long term earning expectation financing condition euro area non financial corporation remain favourable remain unchanged december turn money credit development annual growth rate remain robust november entirely drive annual growth portfolio consideration link low opportunity cost hold main economic factor support robust broad money growth counterpart perspective credit private sector contribute half broad money creation net external monetary flow account half pass monetary accommodation euro area lending rate continue lending rate stabilise november stand slightly historical low reflect early movement market rate february interest rate loan private sector decline trend growth loan household firm remain solid annual growth rate loan household remain unchanged october november annual growth rate loan non financial corporation moderate reflect lag reaction past weaken economy accord january lending survey credit standard loan enterprise remain unchanged continued tighten contribution risk perception consistent subdue economic activity euro area counterbalance ease impact competitive pressure survey indicate weakening demand loan firm line slowdown economic activity observe turn fiscal policy euro area fiscal stance assess mildly expansionary fiscal stimulus consist mainly direct tax cut increase transfer expect contribute positively disposable income growth provide tailwind private consumption time monetary policy consideration policy option sum lane remark financial condition remain accommodative support recede trade tension unfold effect september policy package bank lending condition firm household continue favourable indicate ongoing pass favourable market funding condition incoming economic datum confirm governing council previous assessment ongoing moderate growth slightly positive signal forward look indicator uncertainty surround international trade recede risk surround euro area growth outlook relate geopolitical factor protectionism vulnerability emerge market remain skewed downside hicp inflation dynamic development underlie inflation remain subdue market survey base indicator inflation expectation continue signal risk prolong period low inflation wage growth resilient broad base pass inflation continue slow addition tentative sign gradual pick underlie inflation overall despite positive signal future growth inflation outlook price development remain governing council medium term aim risk outlook elevate financial condition remain favourable rely automatic stabilisation function embed forward guidance accommodate short term volatility outlook consider tentative signal stabilisation euro area economy governing council await datum firm ground optimism basis assessment lane propose keep monetary policy stance unchanged entail reiterate forward guidance policy rate net asset purchase reinvestment principal payment addition public communication governing council highlight remain ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry govern council monetary policy decision economic monetary analysis economic analysis member governing council share assessment outlook risk economic activity euro area provide lane introduction incoming information governing council december monetary policy consider line baseline scenario ongoing moderate growth euro area economy december eurosystem macroeconomic projection particular weakness manufacturing sector remain drag euro area growth momentum ongoing albeit decelerate employment growth robust wage growth continue support resilience euro area economy consider outlook risk external environment member note global activity trade subdue indication reflect survey datum stabilisation possible pick activity attention draw january update imf world economic outlook foresaw growth global activity slightly december projection strong growth compare reference imf assessment temporary factor slowdown global manufacturing adjustment automobile sector emission standard lull launch tech product appear fade member agree uncertainty surround international trade recede risk external environment relate geopolitical factor rise protectionism vulnerability emerge market continue tilt downside discuss risk external environment member take phase trade deal united states china appear increase confidence receive positively financial market great clarity united kingdom withdrawal follow general election december contribute decline international risk substantial uncertainty time note tariff impose china united states leave place trade deal adverse consequence euro area export result trade diversion addition unresolved issue remain united states regard trade evidence firm affect uncertainty include impact potential tariff automobile sector clear united kingdom leave end january future trade relationship agree divergence relationship previously expect turn euro area activity member agree incoming economic datum survey information point stabilisation euro area growth dynamic near term growth expect similar rate observe previous quarter line december eurosystem projection real gdp increase follow growth previous pattern moderate growth reflect ongoing weakness international trade environment continue global uncertainty particularly affect euro area manufacturing sector dampen investment growth time service construction sector remain resilient despite moderation half nowcaste model take datum release account point stabilisation growth low rate estimate potential growth eurocoin indicator remain unchanged december impact positive stock market performance offset persistent pessimism firm manufacturing sector remark increase stock market relate improvement earning expectation appear case united states point possible disconnect buoyant financial market continue subdue outlook real economy risk adverse spillover continue weakness manufacturing sector sector economy need monitor closely note far activity service sector resilient support domestic demand underpin favourable financial condition relate ecb september monetary policy package expansionary fiscal policy bottoming manufacturing soon conclude slowdown growth service sector stop spillover service emerge lag sector resilience point stabilisation euro area growth mainly drive household consumption external demand corporate investment remain subdue weak investment suggest little prospect sustained increase growth potential productivity slowdown employment growth highlight euro area large economy slow employment growth consider normal feature mature business cycle amid emerge supply bottleneck country situation employment euro area unemployment pre crisis level flat time considerable heterogeneity level unemployment country positively reference development number euro area indicator include improvement forward look expectation component business survey rise citigroup surprise indicator feel important acknowledge positive sign care take avoid slow change risk assessment note automobile sector remain concern deep structural factor affect industry need monitor closely caution express optimistic note manufacturing pmi improve level signal contraction activity particular automobile sector industrial production decline euro area large economy affect country value chain linkage improvement citigroup surprise indicator mainly relate confidence indicator real economy remain weak improvement hard datum negligible risk surround euro area growth outlook relate geopolitical factor rise protectionism vulnerability emerge market remain tilt downside pronounced uncertainty surround international trade recede euro area fiscal stance expect provide support economic activity weak economic outlook governing council welcome eurogroup december differentiated fiscal response readiness coordinate government fiscal space stand ready act effective timely manner country public debt high government need pursue prudent policy meet structural balance target create condition automatic stabiliser operate freely country intensify effort achieve growth friendly composition public finance price development broad agreement assessment present lane introduction accord eurostat euro area annual hicp inflation december november mainly reflect high energy price inflation basis future price oil headline inflation hover level coming month measure underlie inflation remain mute indication moderate increase line previous expectation indicator inflation expectation remain low level recently stabilise tick slightly labour cost pressure strengthen amid tight labour market weak growth momentum delay pass inflation medium term inflation expect increase support ecb monetary policy measure ongoing economic expansion solid wage growth discuss inflation development member encourage fact headline underlying inflation recently evolve line december projection evidence continue gradual upward trend indicator underlie inflation hicp inflation exclude food energy high level year slightly pre crisis average remark level reach housing cost fully represent inflation measure good price dampen global factor weak demand service price gradually increase link ecb monetary policy measure development inflation measure note gdp deflator increase time argue level underlie inflation remain muted likelihood general upward trend inflation dynamic increase member agree assessment present lane introduction wage growth remain resilient broad base background solid labour market development observe upward movement inflation increase confidence wage salary have grow long term average wage dynamic pass inflation time feel need investigate pass wage inflation development profit margin long term inflation expectation member note indicator stabilise tick recently continue stand low level market base inflation expectation measure year forward inflation link swap rate year ahead currently stand term survey base measure spf long term inflation expectation unchanged recall important issue relate measurement inflation expectation gap survey base market base measure long term inflation expectation account estimate risk liquidity premia point risk deflation decline suggest low level inflation expectation indicate investor expect inflation ecb aim time come reference survey evidence european commission highlight strong correlation household inflation perception measure hicp inflation mention analysis show short term inflation expectation heavily influence actual inflation turn affect long term inflation expectation concern express slight increase market base measure inflation expectation relate high oil price sustain monetary analysis member share assessment provide lane introduction money credit development remain robust annual rate growth stand november unchanged august growth loan firm household remain solid benefit low lending rate ongoing support provide highly accommodative monetary policy stance november annual growth rate loan household remain unchanged annual growth rate loan non financial corporation moderate reflect lag reaction past weaken economy development visible result euro area lending survey demand loan firm weaken time rejection rate increase decline credit growth month ahead caution lending survey report bank estimate demand actual credit growth remain buoyant country credit standard loan firm loan household house purchase remain unchanged point favourable credit supply condition monetary policy stance policy consideration monetary policy stance member widely share assessment provide lane introduction financial condition remain accommodative component financial condition index loosen course short term long term interest rate exchange rate equity price monetary policy measure decide governing council september see lower term premia contribute substantial easing financial condition market sentiment turn positive risk appetite market participant strong uncertainty perceive recede mainly reduce china trade tension stabilisation economic outlook lead upward movement risk free interest rate cut currently price forward curve accommodative monetary policy stance continue safeguard favourable lending condition support household investment demand consumer expectation financial situation consumer confidence member see indication governing council september package gradually transmit economy express confidence capacity monetary policy measure provide necessary monetary stimulus support euro area expansion gradual build domestic price pressure tier system remuneration remark implementation tiering work bank access targeted long term refinance operation tltro iii highlight additional measure help preserve favourable lending condition accommodative monetary policy stance benefit economy contribute resilience domestic demand particular service sector manufacturing continue suffer weak global demand notably investment hold international uncertainty despite low cost borrowing recall interest rate elasticity investment low lack correlation borrowing cost investment demand mean monetary policy ineffective member agree monetary policy highly accommodative prolonged period time inflation far away governing council objective robust convergence inflation governing council aim assure notwithstanding slight uptick underlie inflation monetary policy configuration see appropriate sufficient support underlie inflation pressure development headline inflation medium term point absence large projection error core inflation support governing council confidence robust convergence inflation medium term aim market base measure inflation expectation increase slightly accommodative monetary policy stance argue risk unanchoring long term inflation expectation remain background member agree proposal lane monetary policy stance unchanged entail reiterate governing council forward guidance policy interest rate net asset purchase reinvestment principal payment highly accommodative monetary policy stance prolonged period time see necessary sustain euro area expansion build domestic price pressure robust convergence inflation governing council medium term aim point measure take september give time exert impact euro area economy context member highlight essential role governing council state dependent forward guidance provide monetary accommodation need stress forward guidance formulation tightly link expect future path policy rate inflation outlook sufficiently close consistent rise observed underlie inflation ensure financial condition adjust accordance change inflation outlook addition tie path policy interest rate inflation prospect ensure financial condition tighten prematurely purely improve growth outlook time need evaluate pass september policy decision highlight light potential effect monetary policy stimulus financial stability relate risk need monitor closely potential effect pronounced environment low rate flat yield curve persist long time context note shift base market base finance combination investor search yield lead increase risk taking reference equity market continue rise valuation difficult square weak earning outlook side atlantic subdue profit margin pervasive uncertainty remark high housing price lead fragility financial system insufficiently address macroprudential policy communication member agree proposal forward lane introduction need emphasise prolong accommodative monetary policy stance require monetary policy transmission effective governing council confident substantial monetary policy stimulus pass inflation point risk remain tilt downside pronounced uncertainty surround international trade recede positive assessment risk foster confidence upswing support positive economic development caution optimistic outlook economy need communicate carefully order rise premature tightening financial condition regard governing council forward guidance need emphasise tie inflation outlook accommodative stance maintain governing council see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic time feel governing council need reiterate commitment stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry follow member preliminary consideration december governing council decide launch ecb monetary policy strategy strategy euro area global economy undergo profound structural change decline trend growth slow productivity age population legacy financial crisis drive interest rate reduce scope ecb bank ease monetary policy conventional instrument face adverse cyclical development addition address low inflation different historical challenge address high inflation threat environmental sustainability rapid digitalisation globalisation evolve financial structure transform environment monetary policy operate include dynamic inflation emphasise strategy keep separate ongoing monetary policy deliberation perceive constrain governing council readiness act adjust instrument appropriate monetary policy decision communication take account foregoing governing council decide interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council net purchase asset purchase programme app monthly pace governing council expect run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation governing council furthermore decide launch ecb monetary policy strategy approve related press release member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200123~0bc778277b.en.html press release https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200123~ae33d37f6e.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200123~3b8d9fc08d.en.html meeting ecb governing council january members lagarde president guindos vice president costa hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right january article escb statute attendee teixeira secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accompanying person antunes arce aucremanne bonello bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann odór pattipeilohy rutkaste tavlas välimäki ecb graeff director general communications straub counsellor president silvonen deputy director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting march account monetary policy governing council european central bank hold frankfurt main wednesday thursday march review financial economic monetary development policy option financial market development schnabel review late financial market development focus implication coronavirus covid-19 pandemic different perspective contextual perspective policy perspective stability perspective contextual perspective stock market correct sharply equity market volatility spike s&p volatility index vix rise level see height sovereign debt crisis monday march equity market experience sharp day sell global financial crisis severity sell need assess broad market context take place specifically course half equity market valuation rise notably place price outlook global economy increasingly optimistic lead indicator economic activity suggest risk mood financial market turn imply high risk pronounce correction sentiment change scenario currently materialise policy perspective severity anticipated economic consequence coronavirus pandemic lead wide range policy action bank include federal reserve system jurisdiction include euro area expectation policy easing rise markedly particular notable downward shift inversion eonia forward curve survey datum signal limited expectation interest rate cut change policy rate expectation easing amplify price movement see global sovereign bond market year treasury yield time history fall level yield year german government benchmark bond currently basis point close historical trough record late summer stability perspective imply volatility increase sharply asset class market liquidity private public credit market tighten coronavirus start spread quickly china sign tight funding condition bank observe euro area united states libor ois spread foreign exchange swap basis widen euro area bank underperform broad euro area equity market outbreak coronavirus stock february price book ratio euro area bank fall historical low stressed market condition rise risk aversion flight safety dynamic leave notable footprint euro area sovereign bond market spread widen basis point basis point credit market spread financial institution basis point limited widening investment grade non financial corporation bond basis point reflect mitigate effect corporate sector purchase programme cspp high yield bond spread widen basis point euro area united states sovereign spread emerge market increase measurably past week basis point widening offset previous marked easing financial condition observe commodity market oil price movement reflect separate event week broad repercussion heightened uncertainty relate economic financial impact coronavirus lead drop oil price fall later exacerbate breakdown talk organization petroleum exporting countries opec russia coordination oil production target take oil price february long term market base inflation expectation fall alongside oil price finally foreign exchange market outbreak coronavirus china mid january dollar begin period mark appreciation currency include euro mid february euro briefly fall low level dollar nearly year late february dollar volatile major currency reflect impact change monetary policy expectation global environment economic monetary development euro area lane review global environment economic monetary development euro area governing council january monetary policy base limited datum available date clear coronavirus pandemic major shock economy impact challenge base available information incoming datum need carefully monitor continuous basis period ahead external environment global indicator turn year point stabilisation activity trade indicator show improvement trade relate uncertainty decline follow trade deal united states china development reverse outbreak coronavirus manufacture output china plunge february negative spillover china rest asia pacific region turn global financial condition market sentiment risky asset decline strongly amid flight safety accordingly global equity price fall strongly advanced emerge market economy lead tightening financial condition january govern council oil price fall strongly account uncertainty surround spread coronavirus discord opec+ country euro strengthen somewhat dollar nominal effective term turn euro area late indicator suggest considerable worsening near term growth outlook disruption supply chain impede production plan manufacturing sector necessary containment measure spread coronavirus adversely affect economic activity partly reflect march ecb macroeconomic projection euro area datum cut date predate rapid spread coronavirus euro area outbreak coronavirus euro area real gdp growth moderate follow growth easing mainly reflect ongoing weakness euro area manufacturing sector reduce investment growth march ecb projection foresaw annual real gdp increase particular projection foresaw mute growth half follow improvement half year compare december eurosystem projection outlook real gdp growth revise notably slightly account potential economic impact coronavirus outbreak overall projection need treat caution light substantial uncertainty relate spread coronavirus necessity duration impact measure adopt counter risk surround euro area growth outlook clearly downside addition previously identify risk relate geopolitical factor rise protectionism vulnerability emerge market spread coronavirus add substantial source downside risk growth outlook turn inflation euro area annual hicp inflation decrease february january accord eurostat flash estimate basis sharp decline future price oil headline inflation decline considerably month ahead indicator inflation expectation fall measure underlie inflation remain mute labour cost pressure remain resilient amid tight labour market weak growth momentum delay pass inflation medium term increase inflation support governing council monetary policy measure look coronavirus shock near term anticipated recovery euro area growth dynamic march ecb projection foresaw annual hicp inflation compare december eurosystem projection outlook hicp inflation unrevised projection horizon implication coronavirus inflation surround high uncertainty give downward pressure link weak demand offset upward pressure relate supply disruption sharp decline oil price present significant downside risk short term inflation outlook market base indicator long term inflation expectation fall time low euro area year forward inflation link swap rate year ahead stand march respect euro area financial condition eonia forward curve flat short medium term maturity time january invert significantly hint market expectation imminent rate cut addition euro area year overnight index swap ois rate year treasury yield fall strongly equity price financial non financial company undergo sharp correction take euro area financial condition tighten january monetary policy stand close level observe early accommodative effect low risk free rate partially offset decline euro area stock price euro appreciation turn money credit development annual growth rate stand january have moderate somewhat peak money growth continue reflect ongoing credit creation private sector low opportunity cost hold relative financial instrument narrow monetary aggregate continue main contributor broad money growth loan private sector continue expand annual growth rate loan household pick slightly january december annual growth rate loan non financial corporation remain unchanged january confirm moderation see autumn reflect typically lag reaction past weaken economy turn fiscal policy euro area fiscal stance foresee march ecb projection mildly expansionary neutral include plan fiscal measure cushion economic impact coronavirus monetary policy consideration policy option sum lane remark spread coronavirus major shock world euro area economy severe near term implication aggregate expenditure level supply chain disruption supply chain impede production plan manufacturing sector necessary containment measure spread coronavirus adversely affect activity service sector notably relate transport travel recreational service march ecb projection baseline scenario reflect percentage point decline project gdp growth owe coronavirus unlikely capture impact euro area risk scenario projection suggest negative impact euro area output substantially large range percentage point depend model lockdown measure implement long time period substantial recession envisage ramification economy amplify tightening financial condition especially decline stock price rise yield asset class limit far appreciation euro add tightening financial condition prove persistent drag economy inflation dynamic magnitude duration shock remain highly uncertain baseline scenario main economic impact temporary recovery activity later year spread coronavirus represent substantial downside risk euro area growth outlook inflation remain subdue set decline considerably near term follow sharp decline oil price measure underlie inflation move sideways market base measure inflation expectation reach historical low staff project hicp rise gradually uncertainty apply growth outlook apply inflation outlook monetary policy response require preserve monetary stance underpin transmission mechanism monetary policy response need element safeguard liquidity condition banking system protect continue flow credit real economy prevent financing condition economy tighten pro cyclical way effectiveness monetary policy enhance reinforce fiscal measure support business employee risk cushion impact shock aggregate expenditure level light significant risk economic repercussion coronavirus lane propose follow decision take offer additional long term refinance operation ltro provide immediate liquidity support euro area banking system interest rate equal average deposit facility rate life respective operation sign strain money market liquidity shortage banking system currently see operation provide effective backstop case need additional ltro temporarily ease funding condition bank order provide effective bridge tltro iii operation june apply considerably favourable term tltro iii operation period june june particular rate apply operation period end june low basis point average interest rate deposit facility period entry rate lower basis point average rate apply eurosystem main refinancing operation mro furthermore lending allowance temporarily raise stock eligible loan operation support lending sector affect coronavirus outbreak especially small medium sized enterprise sme addition governing council ask eurosystem committees look option temporarily ease collateral eligibility rule ensure counterpartie able use operation add temporary envelope additional net asset purchase amount end year period governing council use flexibility embed programme combination exist asset purchase programme app temporary envelope support financing condition ease interest rate matter real economy high purchase pace ensure eurosystem show robust presence market time heightened volatility market corporate bond contribute stability corporate bond market increase net asset purchase reinforce effectiveness tltro iii programme support sme increase volume net asset purchase important maintain consistency governing council policy reaction function show agility respond major shift euro area financial condition heighten risk economic inflation outlook substantial monetary policy stimulus place measure support liquidity funding condition help preserve smooth provision credit real economy expect temporary nature shock easing monetary stance provide additional asset purchase considerable support credit supply revised tltro iii programme governing council reduce deposit facility rate occasion particular expectation component bond yield cut short term policy rate suited set medium term orientation monetary policy navigate path temporary period elevated uncertainty time essential maintain option future cut policy rate case warrant tightening financial condition threat ecb medium term inflation aim communication governing council need late indicator suggest considerable worsening near term growth outlook acknowledge economic consequence coronavirus partly reflect march macroeconomic projection cut date predate rapid spread coronavirus euro area highlight substantial downside risk euro area outlook spread coronavirus add substantial source risk stress development governing council monitor closely consequence spread coronavirus economy medium term inflation transmission monetary policy stand ready adjust measure appropriate ensure inflation move aim sustained manner welcome commitment readiness euro area government european institution joint policy action situation reiterate need supportive target fiscal stance weaken outlook safeguard materialisation downside risk govern council monetary policy decision economic monetary analysis regard economic analysis member share assessment outlook risk economic activity euro area provide lane introduction euro area real gdp growth moderate follow growth previous reflect mainly ongoing weakness euro area manufacturing sector slow investment growth depict situation global outbreak coronavirus indicator remain robust strong expect february late information suggest considerable worsening near term growth outlook disruption supply chain impede production plan manufacturing sector necessary measure contain spread coronavirus adversely affect economic activity regard external environment member note clear downside risk ecb projection global activity give finalise february prior spread coronavirus china subsequent reaction financial market highlight march projection decline activity china incorporate baseline external environment concentrate year follow rebound shaped recovery consider shape recovery oil price fall sharply see reflect fall global demand raw material failure saudi arabia russia cut production global reach coronavirus pandemic conjunction remain uncertainty geopolitical factor rise protectionism vulnerability emerge market member agree risk external environment clearly downside environment considerable uncertainty risk adverse global spillover significant disruption global supply chain broad retrenchment demand heighten financial market volatility context international coordination see particularly important reference uncertainty outcome negotiation united kingdom european union future trade relationship ongoing refugee crisis tension border greece risk unwinding globalisation global supply chain highlight possible consequence coronavirus pandemic turn euro area activity member agree spread coronavirus major shock growth prospect impact euro area economy severe principle temporary size impact determine particular spread coronavirus extent containment measure implement containment measure include lockdown place italy adversely affect activity short run member express solidarity italian people consider development see italy soon repeat country recall outbreak relatively little impact euro area datum january february support assessment impact see possible impact extend quarter important government mistake relatively good datum month year reason react strongly situation government prioritise public health issue short term economic concern order contain pandemic argue containment measure reduce economic activity sharply short run expect spread impact economy time observe impact coronavirus pandemic feel particularly sharply service sector activity travel tourism doubt express likelihood lost output recover growth pick sector feel forgo travel visit cinema gym unlikely expand activity crisis recall service sector activity tend fairly labour intensive suggest persistent impact quarter employment wage disposable income context challenge face euro area sme face cash flow problem liquidity constraint highlight notably regard financing preserve work capital background pandemic emphasise outlook euro area subject exceptionally high level uncertainty march ecb projection appear outdated predate rapid spread coronavirus europe give extent development finalisation ecb projection member view scenario prepare ecb especially relevant consider potential intensification coronavirus crisis contain march baseline projection mild scenario consider implication persistent outbreak coronavirus china euro area build severe scenario consider incorporate additional shock financial market oil price scenario epidemic china extend spread coronavirus euro area assume accelerate significantly negative impact euro area gdp mild scenario estimate percentage point compare ecb baseline projection severe scenario negative impact percentage point march projection scenario incorporate monetary policy fiscal policy reaction underline include policy reaction significantly mitigate effect scenario notably event timely target fiscal measure reference oecd interim economic outlook euro area growth outlook similarly revise include adverse scenario private sector forecaster process revise significantly growth outlook background member discuss possibility recession euro area acknowledge risk increase significantly hand argue forecast account rapid deterioration economic condition europe difficult impossible avoid recession accordingly question deep recession recovery moderate prolonged period hand emphasise outlook depend critically strength policy response context underline situation call joint action close coordination euro area monetary fiscal policy macroprudential policy supervision cooperation need national level european institution magnitude downward revision growth short term uncertain direction clear need revision growth inflation outlook medium term consider open question depend future course coronavirus pandemic policy response persistence effect demand supply condition term consequence supply note risk large scale destruction productive capacity partial dismantling global supply chain monetary policy primarily concerned weakness aggregate demand acute risk supply medium long term important ensure temporary demand supply shock lead fully fledge macroeconomic financial crisis disruption production cash flow compound liquidity financing constraint trigger balance sheet problem corporate banking sector scenario lead long run damage supply economy substantial hysteresis effect situation monitor closely possible policy domain ensure permanent damage contain member conclude risk surround euro area growth outlook clearly downside addition previously identify risk relate geopolitical factor rise protectionism vulnerability emerge market spread coronavirus add substantial source downside risk growth outlook fiscal policy ambitious coordinated fiscal stance need weaken outlook safeguard materialisation downside risk emphasise governing council welcome measure take government ensure sufficient health sector resource provide support affected company employee particular measure provide credit guarantee need complement reinforce ecb monetary policy measure underline governing council welcome commitment euro area government european institution act delay strongly collectively response repercussion spread coronavirus broad agreement fiscal policy play lead role temporary timely target measure regard price development broad agreement assessment present lane introduction accord eurostat euro area annual hicp inflation february compare january basis sharp decline spot future price oil headline inflation decline considerably come month indicator inflation expectation fall measure underlie inflation remain mute labour cost pressure far remain steady amid tight labour market weak growth momentum delay pass inflation exchange view implication coronavirus outbreak outlook inflation number factor stress particular clear distinction short term medium term impact need distinguish relative importance shock demand shock supply expect different implication price development observe pandemic initially view primarily global supply shock propagate demand intensify europe reduce activity sector economy demand negatively affect result job loss reduction household income growth impact increase uncertainty confidence investment argue short term shortfall demand expect outweigh supply effect mild scenario produce ecb downward impact inflation assume percentage point impact severe scenario expect percentage point uncertainty need revise outlook inflation medium term policy relevant horizon ecb price stability objective hand temporary nature downturn suggest limit need revision medium term outlook inflation assessment subject unusually high uncertainty hand picture unrevised inflation medium term question sharp decline oil price possibility persistent effect demand materialise hop coronavirus crisis lasting adverse effect attitude consumer expenditure possible case large shock point ultimate medium term implication independent short term event magnitude duration shock impact turn depend course pandemic policy reaction long term inflation expectation member note market base inflation expectation euro area united states fall euro area year forward inflation link swap rate year ahead decline record low time suggest importance market base measure emphasise development reflect market tension flight safety measure regard imperfect indicator future inflation development monetary analysis member concur assessment provide lane introduction monetary dynamic moderate decelerate lending firm annual rate growth stand january have decrease somewhat peak money growth reflect ongoing credit creation private sector low opportunity cost hold relative financial instrument loan private sector continue expand annual growth rate loan non financial corporation remain unchanged january confirm moderation see autumn note credit standard sme tighten somewhat loan rejection rate increase round survey access finance enterprise monetary policy stance policy consideration regard monetary policy stance member widely share assessment provide lane introduction financial condition funding condition euro area tighten governing council previous monetary policy equity market valuation drop significantly week show presentation schnabel mention fall asset price see correction early overvaluation limit far euro appreciation add tightening financial condition prove persistent inflation expectation away governing council aim implication coronavirus pandemic point considerable worsening euro area growth outlook increase downside risk near term implication inflation surround high uncertainty light supply disruption weak demand member agree decisive monetary policy response require circumstance preserve monetary stance underpin monetary transmission mechanism source shock outside realm monetary policy primarily address timely target fiscal policy forceful package monetary policy measure see necessary package mitigate threat liquidity credit crunch aggravate situation real economy help counter self fulfil fear dynamic renew fragmentation financial market order maximise effectiveness monetary policy response coordination fiscal supervisory policy deem essential outline lane introduction member agree element policy response safeguard ample liquidity banking system ensure bank continue access funding attractive condition necessary element guard potential credit crunch argue sufficient ensure liquidity available bank pass end user point financial crisis bank heart problem situation differ sense problem materialise real economy subsequently reflect bank balance sheet member agree element propose policy response protect continue flow credit real economy paramount importance condition see difficult ensure liquidity provide monetary policy operation reach need sme problem real economy risk impairing credit flow business bank need incentivise provide credit viable firm suffer reduction cash flow coronavirus pandemic regard underline commensurate action government supervisor support effective monetary transmission example credit guarantee agreement prevail regard element require monetary policy response safeguard monetary policy stance avert procyclical tightening financing condition economy caution instrument affect monetary policy stance fully effective spread coronavirus contain policy time recall ecb monetary policy highly accommodative financial crisis emphasise order maintain accommodative monetary condition governing council need tool disposal flexible way background member agree package monetary policy measure propose lane introduction offer additional ltro provide immediate liquidity support euro area banking system interest rate equal deposit facility rate apply favourable term tltro iii operation period june june add temporary envelope volume net asset purchase overall package see appropriate address element propose policy response nuance express regard individual component substantial monetary policy stimulus place measure support liquidity funding condition help preserve smooth provision credit real economy member welcome propose additional ltro immediately ease funding condition bank provide effective bridge tltro iii operation june conduct propose favourable term ltro operation announce march allot march settle march subsequent operation take place weekly june operation mature june date roll june tltro iii operation offer funding deposit facility rate ltro allow bank benefit favourable borrowing condition immediately time offer high degree flexibility low operational cost provide simple effective backstop particular combination allotment operation ensure bank supply liquidity june tltro iii operation require long lead time operational complexity member widely share propose change tltro iii operation support lending firm affect spread coronavirus particular sme period june june interest rate tltro iii operation outstanding time basis point average rate apply eurosystem mro period counterpartie eligible net lending meet benchmark interest rate apply basis point average interest rate deposit facility prevail period case high lending performance threshold attain minimum interest rate lower maximum total counterpartie entitle borrow raise stock eligible loan limit fund borrow operation remove propose amendment tltro iii parameter consider suited temporarily ease funding condition bank support credit flow affected sector avoid tightening credit supply amendment effectively lower interest rate ring fence way eligible counterpartie provide strong incentive bank cut lending link favourable term bank credit portfolio incentivise bank cut credit time economy need caution reduction lending performance threshold turn insufficiently supportive bank force reduce credit exposure supervisory concern market pressure possibly result contraction credit member widely agree important investigate option well incentivise bank expand lending sme order allow bank use ecb lending facility member widely welcome lane proposal task eurosystem committee study way broaden collateral framework expand eligible collateral review additional credit claim framework see particularly important regard improve lending flow sme member agree additional envelope net asset purchase propose policy package essential influence level risk free yield curve combination exist app additional temporary envelope end year strong contribution private sector purchase programme support favourable financing condition real economy time heightened uncertainty limit additional envelope calendar year deem appropriate response shock assess temporary stage private sector purchase provide strong signal support favourable funding condition corporate sector flexible expansion app net purchase see partially compensate cut deposit facility rate public sector purchase help preserve risk free rate serve benchmark price financial product remark envelope large face disruption witness large volume justify remark increase envelope app see appropriate way support coordinated policy response governing council urge policymaker decisive fiscal measure overall feel add volume app preferable reduction deposit facility rate additional net purchase support policy transmission long end risk free yield curve provide form backstop public private bond market reservation express case expand public sector purchase programme means preserve lower risk free yield curve time higher rat government bond yield fall record low level environment heighten risk aversion point normal circumstance relationship ecb capital key risk free yield curve stable condition relationship distort shift safe asset call temporary tactical flexibility app purchase address liquidity issue arise flight safety argue provision additional envelope year end allow flexibility implementation purchase temporarily target market condition particularly tight confirm parameter guide app remain place timeline convergence ecb sovereign bond holding capital key allow flexibility purchase exist parameter rationale additional asset purchase particular public sector purchase instrument ease monetary policy stance recall line purpose expand app conceive context remark difficult distinguish observed spread drive increase credit risk lack liquidity widely share challenging circumstance call maximum degree cohesion consensus unity governing council notwithstanding different preference regard monetary policy instrument consideration expect temporary nature shock propose measure member agree appropriate lower deposit facility rate occasion member express willingness cut deposit facility rate member increase app effective lower risk free rate time see important governing council stress line forward guidance rate lower governing council consider appropriate monetary policy decision communication communication stress development governing council monitor closely consequence spread coronavirus economy medium term inflation transmission monetary policy stand ready adjust measure appropriate ensure inflation move aim sustained manner line commitment symmetry propose measure consider adequate time hold spread coronavirus continue unfold governing council confront continue market pressure expectation policy action meeting time come commitment joint policy action euro area government european institution situation welcome need supportive targeted fiscal stance reiterate weaken outlook safeguard materialisation downside risk monetary policy effectively address liquidity constraint financial market limit monetary policy address immediate consequence coronavirus pandemic acknowledge substantial downside risk euro area outlook highlight spread coronavirus add substantial source risk regard forward guidance emphasise governing council expect key ecb interest rate low level governing council see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council confirm stand ready adjust instrument appropriate ensure inflation move aim sustained manner take account forego member proposal president governing council decide follow comprehensive package monetary policy measure additional ltro conduct temporarily provide immediate liquidity support euro area financial system governing council material sign strain money market liquidity shortage banking system operation provide effective backstop case need carry fix rate tender procedure allotment interest rate equal average rate deposit facility ltro provide liquidity favourable term bridge period tltro iii operation june tltro iii considerably favourable term apply period june june tltro iii operation outstanding time operation support lending affect spread coronavirus particular sme period interest rate tltro iii operation basis point average rate apply eurosystem mro counterpartie maintain level credit provision rate apply operation low period end june low basis point average interest rate deposit facility maximum total counterpartie henceforth entitle borrow tltro iii operation raise stock eligible loan february context governing council mandate eurosystem committee investigate collateral ease measure ensure counterpartie continue able use funding support temporary envelope additional net asset purchase add end year ensure strong contribution private sector purchase programme combination exist app support favourable financing condition real economy time heightened uncertainty governing council continue expect net asset purchase run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate interest rate mro interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic reinvestment principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation detail precise term operation publish dedicated press release end ecb press conference member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312~f857a21b6c.en.html press release https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200312_2~06c32dabd1.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200312_1~39db50b717.en.html meeting ecb governing council march members lagarde president guindos vice president costa teleconference hernández cos herodotou teleconference holzmann kazāks teleconference kažimír knot lane makhlouf mersch müller teleconference panetta teleconference rehn reinesch schnabel stournaras vasiliauskas teleconference vasle teleconference vella teleconference villeroy galhau visco teleconference weidmann wunsch members hold voting right march article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško teleconference buch cleanthous teleconference demarco teleconference donnery teleconference filipozzi teleconference gaiotti teleconference kuodis teleconference lünnemann odór pattipeilohy ritzberger grünwald rutkaste tavlas välimäki ecb graeff director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting april account monetary policy governing council european central bank hold frankfurt main wednesday thursday april review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous regular monetary policy march general risk mood subside market liquidity progressively improve financial market continue sign fragility mainly key dimension euro area sovereign bond spread widen relative german benchmark bond irrespective credit rating jurisdiction bond spread temporarily return rise level observe announcement pandemic emergency purchase programme pepp compound expectation increase issuance need high prevail uncertainty surround economic financial fallout crisis sign liquidity premia exacerbate upward pressure term premia result increase issuance need bid ask spread remain normal level jurisdiction environment evidence pepp establish important anchor stability euro area bond market initial effect announcement high investor demand observe sovereign bond auction time historic bid cover ratio yield premium issuance considerable eurosystem purchase help preserve smooth transmission monetary policy part euro area pepp contribute ease financial condition stimulate issuance concern outlook corporate profitability imply financial condition firm bank remain tight outbreak coronavirus covid-19 pandemic investment grade issuer currently face spread twice high crisis reflect expectation notable increase credit rating downgrade number fall angel bond increase downgrade high yield issuer prominent corporate default rate increase measurably month global stock market partly recover loss see late february early march euro stoxx index rise pepp announcement sign significant remain uncertainty surround economic outlook continue pose risk valuation expectation short term earning growth month decline substantially long term earning expectation remain surprisingly resilient far investor sanguine long term repercussion crisis expect shape recovery protract effect growth find difficult price impact growth earning covid-19 pandemic tail risk price market reflect option price suggest hypothesis rule time investor sanguine earning prospect bank total euro stoxx banks index fall extent loss euro area share different bank market base funding condition bank tighten unsecured money market observe increase past week spread month euribor ois rate recently reach wide level see development reflect remain strain commercial paper market new commercial paper issuance remain limited short maturity owe withdrawal traditional buyer notably money market fund corporation response deteriorate liquidity situation future eurosystem liquidity provide operation combination collateral ease package offer immediate relief high market base funding cost safeguard monetary policy transmission keep lending channel open environment series targeted long term refinance operation tltro iii highly attractive large euro area banking sector market participant double expectation week total time expectation adjustment ecb key policy rate subside week ois forward curve shift notably market base measure interest rate expectation consistent survey evidence signal significant expectation cut deposit facility rate global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment survey datum signal sharp deep economic downturn purchasing managers index pmi point sharp contraction global activity half pronounced trough observe great financial crisis global composite output pmi exclude euro area decline sharply january february march service affect strongly manufacture drive supply chain disruption massive demand shock global trade estimate fall sharply signal example substantial drop pmi manufacturing order production disruption spread weigh global trade time come amid considerable volatility global financial condition remain unchanged advanced economy governing council monetary policy march tighten significantly compare mid february coronavirus start spread globally oil price fall approximately usd barrel primarily sudden collapse demand owe coronavirus pandemic euro weaken considerably dollar depreciate marginally nominal effective term march monetary policy turn euro area late economic indicator survey result cover period coronavirus spread euro area show unprecedented decline point significant contraction economic activity rapidly deteriorate labour market coronavirus pandemic associated containment measure severely affect manufacturing service sector take toll productive capacity euro area economy domestic demand partially affect spread coronavirus euro area real gdp decrease reflect impact lockdown measure final week sharp downturn economic activity april suggest impact severe look immediate disruption stem coronavirus pandemic euro area growth expect resume containment measure gradually lift support favourable financing condition euro area fiscal stance resumption global activity give high level uncertainty evolution pandemic difficult predict extent duration imminent recession subsequent recovery pre empte forthcoming eurosystem macroeconomic projection euro area publish june growth scenario produce ecb suggest euro area gdp fall year follow recovery normalisation growth subsequent year extent contraction recovery depend crucially duration success containment measure extent supply capacity domestic demand permanently affect success policy mitigate adverse impact income employment turn euro area price development annual hicp inflation decrease march april drive low energy price inflation slightly low hicp inflation exclude energy food basis sharp decline future price oil headline inflation decline considerably come month expect june sharp downturn economic activity expect downward impact underlie inflation medium term implication coronavirus pandemic inflation surround high uncertainty give downward pressure link weak demand partially offset upward pressure relate lasting damage supply market base indicator long term inflation expectation remain depressed level survey base indicator inflation expectation decline short medium term indicator long term expectation affected euro area financial condition short end eonia forward curve remain unchanged february international financial market turmoil begin global spread coronavirus overall euro area long term risk free rate remain unchanged period stock price decrease substantially follow global spread coronavirus despite improvement sentiment respect financing condition non financial corporation limited tightening financing cost concern availability external financing turn money credit development broad money growth increase march february money growth reflect credit creation private sector drive large extent draw credit line low opportunity cost hold relative financial instrument heighten economic uncertainty appear trigger shift monetary holding precautionary reason environment narrow monetary aggregate encompass liquid form money continue main contributor broad money growth development loan private sector shape impact coronavirus crisis annual growth rate loan household stand march february annual growth rate loan non financial corporation stand march february development clearly visible result euro area lending survey indicate surge firm demand loan draw credit line meet liquidity need work capital financing need fix investment decline demand loan household house purchase increase previous credit standard loan firm tighten slightly credit standard loan household tighten strongly case relate deterioration economic outlook decline creditworthiness firm household time bank expect easing credit standard loan firm euro area fiscal stance assess strongly expansionary euro area country announce significant fiscal measure cushion economic effect coronavirus pandemic transfer firm household constitute large package measure monetary policy consideration policy option sum lane remark european world economy currently experience extraordinary severe economic contraction public healthcare measure contain spread coronavirus halt economic activity globe assessment economic development render difficult usual exceptionally high level uncertainty scenario analysis good approach work ecb indicate deep recession appear benign outcome severe scenario project contraction gdp time containment measure gradually lift governing council expect significant recovery economic activity speed scale remain highly uncertain uncertainty duration pandemic economic consequence containment measure result turbulent financial market development sharp repricing risk asset category generalised tightening financial condition time result late euro area lending survey show mild net tightening credit standard firm tightening significantly pronounced tightening see time financial sovereign debt crisis sign ecb measure announcement country public credit guarantee support firm household far protect base credit flow inflation decline result sharp fall oil price drop service sector inflation market base measure long term inflation expectation remain depressed level record historical low survey base indicator inflation expectation decline short medium term remain stable long term monetary policy anticipate point economy reopen sure necessary condition rebound place line easing containment measure particular monetary policy measure help sustain flow credit household firm especially small medium sized enterprise sme maintain favourable financing condition benefit sector jurisdiction addition governing council credit ease measure successful implementation pepp include flexibility jurisdiction duration programme critical deliver favourable financial condition necessary support economy severe risk monetary policy transmission mechanism outlook euro area pose coronavirus pandemic rapidly evolve situation need reflect adjustment governing council monetary policy stance tail risk associate macro financial crisis scale assess deteriorate substantially monetary policy meeting march march tltro iii programme complement accommodative impact ecb monetary policy measure notably asset purchase programme tltro iii maintain base monetary transmission mechanism funnel monetary easing associate negative interest rate sector rely access credit accordingly finalise revise design tltro iii programme lane propose recalibrate tltro iii pricing particular interest rate tltro iii operation period june june reduce basis point average interest rate main refinance operation prevail period counterpartie eligible net lending reach lending performance threshold interest rate period june june lower basis point average deposit facility rate prevail period lane propose offer series non targeted pandemic emergency long term refinance operation peltro support liquidity condition euro area financial system contribute preserve smooth functioning money market provide effective liquidity backstop peltro consist additional refinance operation commence mature stagger sequence july september line duration collateral ease measure operation carry fix rate tender procedure allotment interest rate basis point average rate eurosystem main refinance operation prevail life peltro substantial monetary policy stimulus place measure support liquidity funding condition help preserve smooth provision credit real economy time governing council need continuously evaluate measure individually package adequately calibrate appropriately sized provide necessary degree accommodation uncertain economic environment june information available include eurosystem macroeconomic projection point governing council stand ready adjust pepp potentially instrument see scale stimulus fall short need communication propose governing council acknowledge available indicator suggest substantial contraction economy activity depend duration containment measure extent supply capacity domestic demand affect permanently combined success fiscal monetary supervisory policy mitigate adverse impact income employment stress decisive policy action take mid march effective provide crucial support euro area economy rapidly evolve economic environment governing council necessary mandate support citizen euro area extremely challenging time fully prepared adjust measure appropriate ensure inflation move aim sustained manner particular signalling fully prepared increase size pepp adjust composition necessary long need finally measure take euro area government european institution ensure sufficient healthcare sector resource provide support affected company worker household welcome reiterate need continued ambitious effort notably joint coordinated policy action guard downside risk support recovery govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment provide lane introduction economic situation euro area risk activity member agree incoming datum governing council monetary policy meeting march march allow well assessment impact crisis euro area economy particular reference gdp release number country publish euro area datum survey base indicator euro area cover business consumer fall sharply march april stand low level clear euro area economy head decline activity unprecedented history demonstrate compare scenario growth event intensification crisis present march ecb projection scenario ecb present clear june eurosystem projection revise significantly compare march ecb projection situation prove disruptive global financial crisis point situation characterise knightian radical uncertainty imply unquantifiable risk background draw range scenario consider warrant circumstance outlook euro area subject exceptional uncertainty member express appreciation scenario analysis conduct ecb register reservation prospect scenario rapidly outdate light evolve condition different view express scenario consider scenario present mild scenario probably optimistic agree ongoing projection round economic outlook revise drastically compare march ecb projection acknowledge extent duration coronavirus pandemic foresee crisis emanate outside economy different previous crisis long lockdown measure place impact activity price time stress economic effect pandemic considerable period coronavirus contain decline demand owe precautionary motif income loss expect weigh economic activity lead slow recovery attention draw fact precautionary saving increase consumer regain confidence quickly containment measure lift risk demand depressed expect containment measure stay place time vaccine available uncertainty adversely affect investment behaviour demand consider recover gradually swift shape recovery probably rule stage time comment early conclude severe scenario present ecb emphasise outlook strength recovery depend critically action member states european union strength policy response difficult predict extent entrepreneurial spirit innovative thinking conduct business environment emerge context recall large shock activity euro area april improvement owe relaxation containment measure look immediate disruption stem coronavirus pandemic euro area growth expect resume containment measure gradually lift support favourable financing condition euro area fiscal stance resumption global activity consider attention usual pay difference sector sector particularly expose impact social distancing measure coronavirus common shock severely affect euro area jurisdiction need impact individual country heterogeneous e.g. case euro area country great reliance tourism member express concern possibility non linear effect amplify effect coronavirus pandemic activity difficult quantify reference particular impact economic downturn liquidity solvency situation firm prospect high level non performing loan consequence banking sector development fiscal position concern rise public debt mention context nexus bank sovereign suggest probability risk occur depend strength recovery turn depend policy response particular argue likelihood self reinforce downward spiral contain owe stabilise effect far reach fiscal monetary policy support measure adopt euro area government ecb globally addition remark extent timely targeted temporary measure effective address acute liquidity shortfall limit adverse long term implication public private debt sustainability member emphasise possible impact pandemic foreign trade include effect change future structure global production risk surround speed strength recovery emerge market economy give reliance raw material risk optimistic recovery economy consider source number downside risk outlook real economy closely monitor fiscal policy member welcome measure take euro area government european institution ensure sufficient healthcare resource provide support affected company worker household time continuous ambitious effort need notably joint coordinated policy action guard downside risk underpin recovery ambitious coordinated fiscal stance critical sharp correction euro area economy measure take possible target temporary nature response pandemic emergency endorsement european council eurogroup agreement safety net worker business sovereign amount package worth welcome time feel strong timely effort urgently need prepare support recovery regard member welcome european council agreement work recovery fund dedicate deal unprecedented crisis note euro area government implement ambitious policy package package need circumstance reduce risk temporary shock permanent lead significant increase financing need euro area country principle imply increase debt gdp ratio lead high financing need year regard price development broad agreement assessment present lane introduction member agree outlook headline inflation short term revise reflect reduction oil price expectation low underlying inflation argue downward impact price weak demand clearly strong supply effect exchange view impact pandemic outlook price development medium long term emphasise depend number factor consider ambiguous net effect depend balance increase slack low aggregate demand possible long term adverse impact aggregate supply capacity time possible pandemic prolong negative effect demand case output gap large put downward pressure price time come remark negative effect pandemic supply economy potential growth lead upward price pressure negative demand effect associate debt deflation note inflation past show high degree persistence upward pressure price cost containment measure supply disruption number structural effect follow pandemic see include exit firm market associate change degree competition last change supply chain location production increase emphasis resilience lead high buffer inventory tight limit production spatial distribution global production change reference problem measure inflation accurately circumstance take account change composition purchase good impair ability collect price datum uncertainty price impute absence actual price datum difficult precision situation respect inflation discuss development inflation expectation member note short term inflation expectation accord ecb survey professional forecasters spf revise sharply stand time spf inflation expectation revise survey base long term inflation expectation far affect coronavirus crisis remain headline inflation market base indicator inflation expectation remain low level fall euro area year forward inflation link swap rate year ahead post record low point inflation expectation appear react development actual inflation take indicator inflation expectation anchor inflation remain ecb inflation aim extended period highlight start coronavirus pandemic likelihood inflation accord option imply probability increase substantially point significant risk deflation low inflation come year regard monetary analysis member concur assessment provide lane introduction increase broad money growth reflect rise loan non financial corporation drive large extent draw credit line development clearly visible result euro area lending survey indicate surge firm demand loan draw credit line meet liquidity need work capital financing need fix investment decline late result lending survey show mild net tightening credit standard firm interim result survey access finance enterprise safe suggest sme register significant deterioration access external finance owe unfavourable evolution financial prospect stress increase lending welcome development raise level risk weight asset bank balance sheet lower capital ratio induce bank restrict lending eventually context public loan guarantee see crucial element maintain credit flow firm household monetary policy stance policy consideration regard monetary policy stance member share financial market development volatile governing council previous regular monetary policy march sharp repricing risk asset category especially mid march partly reverse subsequently describe schnabel introduction financial condition tighten outbreak pandemic despite measure take governing council feel light darken outlook easing appropriate liquidity premia remain elevate jurisdiction term funding market bank fully reopen concern voice increase spread euribor ois rate euribor represent important benchmark pricing loan equity price recover recently remark improvement ground improved fundamental attention draw risk high real interest rate expect inflation continue decline widely share governing council monetary policy measure take march reinforce decision take collateral framework april provide forceful monetary accommodation rapidly evolve environment succeed safeguard ecb monetary policy stance effective monetary policy transmission euro area include counter unwarranted increase risk premia time caution undue risk fragmentation emerge worsening economic outlook underline past experience show loss confidence financial market avoid pre emptive action preferable financial amplification mechanism trigger illiquid corporation bank affect real economy non linear way increase deflationary risk time caution monetary policy able address problem fiscal policy need play essential role overall feel long crisis endure risk financial amplification effect increase member agree rapidly evolve situation reflect adjustment governing council monetary policy stance scale associate tail risk macro financial crisis grow substantially march monetary policy meeting background member support monetary policy measure propose lane introduction recalibrate tltro iii pricing reduce interest rate tltro iii operation period june june offer series non targeted pandemic emergency long term refinance operation peltro support liquidity condition euro area financial system contribute preserve smooth functioning money market provide effective liquidity backstop propose amendment tltro iii parameter consider suited enhance accommodative stance monetary policy widely feel attractive pricing tltro iii operation conjunction government guarantee bank help provide incentive maintain lending time bank face challenge reach lending benchmark counteract pressure lending rate result increase euribor time concern express lower minimum rate tltro iii operation basis point deposit facility rate open possibility bank obtain fund tltro iii operation deposit deposit facility rate instead increase lending private sector member welcome proposal conduct series non targeted long term refinance operation address pandemic emergency peltro consist additional refinance operation commence mature stagger sequence july september line duration governing council collateral ease measure provision term funding operational complexity associate tltro iii see important provide funding bank attractive condition help preserve smooth functioning money market overall broad range measure place governing council monetary policy response consider suitable forceful far include additional measure consideration provide ample liquidity bank appropriate monetary stimulus sector euro area economy look ahead light high uncertainty surround economic inflation outlook show scenario prepare ecb stress ecb need stand ready adjust monetary policy stance appropriate ensure functioning transmission euro area widely see include ensure favourable financing condition address downside risk price stability euro area include result negative real financial feedback loop prevent fragmentation policy measure take response crisis notably pepp essential limit likelihood self reinforce downward spiral announcement pepp follow decrease sovereign bond yield observe reversal take place subsequently yield currently high start crisis national government announce ambitious fiscal package entail significant increase financing need euro area country year member widely agree effective use pepp support financing condition consistent governing council policy aim purchase pepp use flexibility build programme ward severe risk smooth functioning monetary transmission concern voice large scale intervention sovereign bond market rise risk fiscal dominance programme execute carefully order encourage irresponsible behaviour government underline mean justification governing council fulfil price stability mandate support monetary policy transmission include address self fulfil redenomination risk fragmentation event risk rise context remark pepp like asset purchase programme app work extract duration risk asset market objective preserve financing condition consistent return inflation level line ecb medium term inflation aim ensure compatibility ecb mandate underline price stability need keep fore government debt issuance evolution structural deficit monitor closely respect communication member agree element forward lane introduction stress decisive policy action take mid march effective provide crucial support euro area economy governing council stand ready adjust measure appropriate ensure inflation move aim sustained manner fully prepared increase size pepp adjust composition potentially instrument light information available june judge scale stimulus fall short need governing council highlight willingness adapt tool implement forcefully need continue stand ready bold innovative action safeguard smooth functioning transmission mechanism integrity monetary union aim support economic recovery deliver ecb medium term price stability objective context deem important stress flexibility pepp implementation monetary policy decision communication take account forego proposal president governing council take follow monetary policy decision condition targeted long term refinance operation tltro iii ease specifically governing council decide reduce interest rate tltro iii operation period june june basis point average interest rate eurosystem main refinance operation prevail period counterpartie eligible net lending reach lending performance threshold interest rate period june june basis point average deposit facility rate prevail period series non targeted pandemic emergency long term refinance operation peltro conduct support liquidity condition euro area financial system contribute preserve smooth functioning money market provide effective liquidity backstop peltro consist additional refinance operation commence mature stagger sequence july september line duration collateral ease measure carry fix rate tender procedure allotment interest rate basis point average rate main refinance operation prevail life peltro end march purchase conduct governing council pandemic emergency purchase programme pepp envelope ease monetary policy stance counter severe risk monetary policy transmission mechanism outlook euro area pose coronavirus pandemic purchase conduct flexible manner time asset class jurisdiction governing council conduct net asset purchase pepp judge coronavirus crisis phase case end year net purchase asset purchase programme app monthly pace purchase additional temporary envelope end year governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate reinvestment principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council fully prepared increase size pepp adjust composition necessary long need case stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry finally governing council take detail amendment term tltro iii peltro publish dedicated press release end press conference member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference april press release ecb recalibrate targeted lending operation support real economy ecb announce pandemic emergency long term refinance operation meeting ecb governing council april members lagarde president guindos vice president costa hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right april article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann odór rutkaste sleijpen tavlas välimäki ecb graeff director general communications straub counsellor president rahmouni rousseau director general market operations sousa deputy director general economics rostagno director general monetary policy release monetary policy account foresee thursday june contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting june account monetary policy governing council european central bank hold frankfurt main wednesday thursday june review financial economic monetary development policy option financial market development schnabel review financial market development governing council monetary policy april key conclusion draw basis market development ecb monetary policy measure franco german recovery fund proposal subsequently take package propose european commission reduce downside tail risk euro area drop coronavirus covid-19 infection number large fiscal stimulus measure advanced economy add improved sentiment broad base decline risk premia development offset tighten impact deterioration macroeconomic fundamental development euro area financial market recently consistent prospect swift economic recovery expectation gradually revise downward consequence late easing financial condition euro area hinge contribution fiscal monetary policy mitigate fragmentation risk market jurisdiction ecb composite indicator systemic stress consistent broad conclusion show systemic stress range financial market continue steadily recede remain elevated level compare period coronavirus pandemic euro area united states global volatility abate market segment owe effective liquidity backstop provide bank worldwide environment funding condition euro area sovereign bond market ease reflect downward shift euro area gdp weight sovereign yield curve remain pre crisis level empirical evidence suggest monetary policy contribute significantly fall bond yield announcement pandemic emergency purchase programme pepp pepp offset upward pressure bond yield result crisis induce increase free float ratio i.e. share bond hold price sensitive investor relative total bond supply prevail market segmentation imply monetary policy need act targeted flexible way preserve policy transmission entire euro area fiscal development particular news relate ambitious european fiscal response crisis reinforce effectiveness ecb measure result fiscal monetary policy euro area start act complement effectively contain tail risk downward pressure sovereign bond yield contribute ease funding condition euro area corporate bond market remain relatively tight compare pre pandemic period exceptionally high pace gross issuance investment grade corporate bond market decelerate highlight continue high financing need company lockdown measure gradually ease ecb monetary policy provide considerable support corporate credit market include commercial paper market help firm manage cash flow need financial investment grade commercial paper rate come notably week peak non financial commercial paper rate stabilise ecb presence commercial paper market help firm reduce rollover risk turn contribute increase issuance long date paper improvement debt funding firm accompany improvement equity market major global index post substantial gain governing council previous monetary policy offset large loss record start coronavirus pandemic decline beginning high euro area euro stoxx index recently outperform market follow franco german recovery fund proposal announcement euro stoxx index rise compare s&p index mainly reflect decline equity risk premium easing partially offset deteriorate medium long term earning growth expectation consistent shift expectation protract impact crisis global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment characterise sharp downturn global activity trade imply reduction foreign demand euro area incoming datum confirm global economy fall unprecedented recession half year global exclude euro area composite output purchasing managers index pmi extend loss register decline historical low april recover somewhat downturn global trade expect severe contraction output result closed border disruption logistic trade development tend procyclical especially downturn datum export order point sharp fall global trade year financial condition continue ease advanced emerge market economy april monetary policy remain substantially tight pandemic shock brent crude oil price increase april continue stand low level euro appreciate somewhat dollar remain unchanged nominal effective term euro area pandemic associated containment measure take toll productive capacity domestic demand euro area real gdp decrease strict containment measure place mid march country sectoral level manufacturing service sector severely hit pandemic reflect pmi business expectation manufacturing service sector reach record low march april bounce somewhat pandemic shock lead sharp increase household saving consumption decrease strongly income exceptional degree uncertainty lead postponement consumption investment strongly negative effect growth labour market condition rapidly deteriorate sizeable decline euro area trade expect overall incoming datum point significant contraction real gdp euro area activity expect rebound containment measure ease speed scale rebound remain highly uncertain assessment reflect june eurosystem macroeconomic projection euro area june projection signal output decline steeply have decline expect partly reverse half year quarterly growth rate project quarter respectively baseline annual output project shrink follow positive growth rate compare march ecb macroeconomic projection outlook real gdp growth revise substantially downwards percentage point revise upwards percentage point percentage point general extent contraction recovery see depend crucially duration effectiveness containment measure success policy mitigate adverse impact income employment extent supply capacity domestic demand permanently affect euro area fiscal stance provide strong contribution stabilise gdp growth base combination discretionary policy measure working automatic stabiliser result large increase deficit debt anticipated strong increase euro area government debt gdp ratio expect push higher unfavourable interest growth differential turn price development headline inflation drop april accord eurostat flash estimate energy inflation continue push headline inflation inflation especially unprocessed food remain elevated affect consumer inflation perception hicp exclude energy food remain unchanged april overall measure underlie inflation fall somewhat february partly reverse early gradual increase pipeline price pressure weaken wage negotiation remain hold basis future price oil headline inflation decline somewhat come month subdued end year medium term weak demand expect downward pressure inflation expect partially offset upward pressure relate supply constraint long term survey base measure inflation expectation remain historical low stand considerably high market base measure assessment reflect june eurosystem projection entail substantial downward revision inflation outlook baseline scenario headline inflation expect average revision outlook core inflation indicate large deterioration core inflation project reach compare march ecb macroeconomic projection outlook hicp inflation revise downwards percentage point percentage point percentage point extent relate low path energy price revision reflect low price pressure account sharp decline real gdp associate significant increase economic slack regard euro area financial condition risk free rate change little governing council april monetary policy late eonia forward curve remain unchanged indicate expectation rate cut sovereign bond market fragmentation decline spread remain elevated partial recovery risk asset price attributable improvement risk sentiment corporate fundamental continue deteriorate overall financial condition stable governing council april remain significantly tight pandemic crisis turn money credit development broad money growth increase april march strong money growth reflect credit creation drive large extent acute liquidity need economy high economic uncertainty trigger shift money holding precautionary reason environment narrow monetary aggregate encompass liquid form money continue main contributor broad money growth annual growth rate loan non financial corporation rise april march reflect firm need finance ongoing expenditure work capital context rapidly decline revenue time annual growth rate loan household decrease april march amid containment measure decline confidence deteriorate labour market monetary policy consideration policy option sum lane observe incoming information confirm euro area economy experience unprecedented contraction survey datum real time indicator economic activity show positive sign containment measure gradually ease nonetheless reading indicate minor improvement compare speed indicator plummet precede month steep decline output follow decline project partly reverse half year baseline revise substantially downwards relative march projection annual output project shrink follow positive growth rate baseline surround exceptional degree uncertainty june projection entail substantial downward revision inflation outlook baseline scenario headline inflation expect average important vigorous policy response include estimate percentage point contribution output fiscal policy project path output inflation low announcement pepp march arrest sharp sell bond equity market threaten undermine ecb monetary policy stance effective transmission highly accommodative pricing targeted long term refinance operation tltro iii collateral ease measure provide strong incentive bank maintain credit flow real economy addition unconditional refinance operation establishment international swap line ensure liquidity banking system protect measure act stabilise force exceptional period financial condition tighten sharply escalation pandemic downward shift risk free rate fully transmit broad set asset price yield set financial condition real economy particular upward pressure average sovereign yield contribute high corporate bond yield decline equity valuation especially stock background lane emphasise main factor call policy action medium term outlook price stability threaten fallout coronavirus crisis particular baseline projection see percentage point downward revision headline core inflation rate respectively substantially large revision severe scenario financial condition euro area significantly tight compare period pandemic growth inflation outlook call easy financial condition order counter pandemic relate negative revision inflation outlook appropriate policy response increase size pepp envelope march governing council decide launch pepp counter risk transmission mechanism outlook euro area pose outbreak escalating diffusion coronavirus express preamble pepp legal act clear situation hamper transmission monetary policy impulse add severe downside risk relevant inflation outlook background pepp measure proportionate counter risk price stability monetary policy transmission mechanism economic outlook euro area pose outbreak escalating diffusion covid-19 accordingly downward revision inflation outlook downside risk capture severe scenario call temporary phase additional asset purchase order deliver monetary condition support return pre crisis inflation trajectory projection horizon term timing lag transmission monetary policy inflation dynamic mean important significant step address increase inflation shortfall furthermore value timely response compound importance avoid sustained unanchoring inflation expectation downside risk face near term prospect sustained phase low inflation outcome term monetary stance pepp provide temporary additional source accommodation operate alongside standard suite policy instrument level ecb policy rate app forward guidance tltro iii programme pandemic shock set measure configure lift inflation governing council policy aim medium term give scale unique nature shock well tackle substantial downward shift inflation outlook targeted temporary programme pepp recalibration exist policy package increase size pepp envelope provide additional protection risk fragmentation market segment potentially obstruct smooth transmission monetary policy time envelope understand ceiling imply event significant upside surprise outlook envelope need look ahead incoming economic financial datum subsequent projection round provide essential guidance pandemic relate negative shock inflation dynamic sufficiently contain ongoing monetary accommodation prove necessary order support macro financial condition conducive make progress governing council inflation aim pandemic shock inflation path subside monetary stance control calibrate governing council pre crisis suite policy instrument term monetary policy strategy purchase government bond pepp app effective tool deliver treaty assign price stability objective environment especially case give low level ecb policy rate crucial role sovereign yield determine financing condition firm household measure efficient especially combination policy measure instrument require extraordinary adjustment generate impact inflation dynamic easing credit condition help viable business operate retain worker possible turn preserve job important factor determine income financial security individual family euro area governing council measure play key role support credit intermediation bank business prospect banking system depend foremost macroeconomic outlook accordingly pepp app proportionate measure condition pursue price stability objective sufficient safeguard have build design programme limit potential adverse effect include risk fiscal dominance address monetary financing prohibition basis assessment lane propose governing council following decision increase size pepp size propose envelope calculate significant contribution offset pandemic relate downward shift project inflation path extend net purchase horizon pepp end june align governing council minimum purchase horizon phase severe pandemic relate restriction economic activity weak inflation pressure align horizon monetary policy measure take governing council response pandemic case net asset purchase pepp conduct governing council judge coronavirus crisis phase announce mature principal payment security purchase pepp reinveste end case future roll pepp portfolio manage avoid interference desire monetary stance reinvestment strategy pepp avoid risk unwarranted tightening financial condition time recovery pandemic shock incomplete time separate reinvestment strategy distinct app appropriate temporary emergency nature pepp net purchase app monthly pace purchase additional temporary envelope end year governing council expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation key ecb interest rate unchanged expect low level governing council see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic stressed market condition asset purchase tltro iii programme effective efficient tool add monetary accommodation high uncertainty heighten risk aversion weaken transmission policy rate cut market reference rate matter pricing credit household firm especially context temporary shock environment asset purchase efficient ease funding condition lending rate matter real economy public communication governing council need confirm incoming information indicate unprecedented contraction euro area economy highlight projection entail substantial downward revision level economic activity inflation outlook projection horizon baseline surround exceptional degree uncertainty emphasise additional monetary policy action necessary ensure necessary degree monetary accommodation smooth transmission monetary policy sector jurisdiction order safeguard medium term price stability explain decision recalibrate pepp response pandemic relate negative revision project inflation path ease general monetary policy stance support funding cost real economy stress pepp allow governing council counter risk smooth transmission monetary policy flexible implementation purchase time asset class jurisdiction reiterate governing council necessary mandate continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area outlook provide lane introduction incoming information confirm euro area economy experience unprecedented contraction euro area real gdp decrease result coronavirus pandemic measure contain manufacturing service sector severely affect pandemic take toll productive capacity euro area economy domestic demand information survey high frequency indicator income hard datum point significant contraction real gdp indicator suggest bottoming downturn part economy gradually reopen accordingly euro area activity expect rebound containment measure ease support favourable financing condition expansionary fiscal stance resumption global activity speed scale rebound remain highly uncertain assessment reflect june eurosystem macroeconomic projection euro area regard external environment outlook global activity revise downwards significantly compare march ecb macroeconomic projection pandemic crisis affect activity individual country international trade downward revision foreign demand euro area large global activity look different perspective imply juncture euro area rely export offset weakness domestic demand euro area activity member stress exceptional uncertainty surround outlook euro area circumstance underline uncertainty lie outside economic sphere relate future course pandemic medical solution extent contraction recovery depend crucially duration effectiveness containment measure success policy mitigate adverse impact income employment extent supply capacity domestic demand affect permanently point economic outcome highly dependent success policy intervention instance prevent acute liquidity shortage firm turn widespread insolvency link quality policy response degree supply economy damage permanently background member widely acknowledge difficulty prepare projection high degree uncertainty presently surround economic development cloud outlook overall broad agreement publish mild severe scenario alongside baseline projection reasonable way reflect elevated risk uncertainty concern express mild scenario outdate time argue keep mild scenario warrant unlocking economy rise positive outcome short term envisage baseline reference positive sign country outside euro area ahead unlocking process exchange view scenario june eurosystem projection remark confirm range outcome scenario prepare ecb april release time recall scenario assume effective medical solution available mid-2021 imply scenario turn optimistic projection horizon case similarly recall baseline projection assume adverse real financial feedback loop historical experience suggest loop draw recovery imply bad outlook entail baseline context observe date financial market remain fairly resilient rebound rapidly reflect swift forceful monetary policy response far time stress cut date positive impact european commission propose recovery fund additional fiscal stimulus announce large euro area economy take account projection overall balance risk baseline projection growth see downside member underline shape recovery depend crucially consumption investment evolve uncertainty pandemic lead long last change behaviour economic agent particular expect pattern saving ratio see key issue extent sharp spike owe lockdown subsequently unwind economy gradually reopen concern express expect unwinding high saving optimistic protract uncertainty ratio high long service sector particular worker consumer long term income prospect leave consumption subdue time rise real interest rate attempt restore net wealth factor encourage saving time argue unwinding lead saving rate pre crisis rate involuntary saving lockdown containment period spend meet pen demand fiscal policy ambitious coordinated fiscal stance remain critical sharp contraction euro area economy member strongly welcome european commission proposal recovery plan dedicate support region sector severely hit pandemic strengthen single market build lasting prosperous recovery regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation decrease april mainly account low energy price inflation basis spot future price oil headline inflation decline somewhat come month subdued end year medium term weak demand downward pressure inflation partially offset upward pressure relate supply constraint assessment reflect june eurosystem macroeconomic projection euro area foresaw annual hicp inflation baseline scenario concern express model base estimate deflation risk surround baseline scenario june projection reach high level december projection point deflation outcome long low probability event warrant careful monitoring exchange view inflation outlook member recall considerable uncertainty net effect rise slack low demand possible long term adverse impact aggregate supply capacity argue pandemic influence potential output direction instance notwithstanding increase production distribution cost associate public health safety measure total factor productivity increase example improvement digitalisation prompt crisis acknowledge uncertainty impact pandemic crisis potential output real time estimate output gap uncertain normal time context stress output gap overstate slack unemployment gap understate statistically record unemployment keep artificially low temporary employment scheme concern raise lag nature labour market response eventually lead period high unemployment downward pressure wage growth come deceleration start pandemic crisis overall argument point protract weakness inflation outlook point balance demand supply effect disinflationary short term medium term rise inflationary pressure stem factor include disruption supply chain globalisation tendency regulatory restriction context contain pandemic argue remain considerable uncertainty negative supply effect affect pricing good service expensive business viable recall price measurement issue additional source uncertainty environment relate difficulty collect price datum increase recourse imputation addition good service actually purchase lockdown containment period deviate expenditure weight assume consumption basket hicp compilation argue result consumer perception deviate substantially record official statistic reference strong increase food price suggest perceive inflation currently high measured inflation possibly feed expectation discuss development inflation expectation member share assessment provide lane introduction market base indicator long term inflation expectation remain depressed level survey base indicator inflation expectation decline somewhat short medium term long term expectation affected despite remain near historical low argue elevated probability inflation remain accord market base indicator suggest market participant inflation expectation anchor regard monetary analysis member widely agree assessment provide lane introduction strong growth broad money reflect shift money holding precautionary reason context elevated uncertainty strong money growth reflect credit creation drive large extent acute liquidity need economy time question raise impact ongoing large scale accumulation monetary liquidity risk price stability medium term remark lending channel continue perform important monetary policy transmission give bulk financial intermediation euro area operate bank annual growth loan non financial corporation pick april reflect firm need finance ongoing expenditure work capital context rapidly decline revenue upcoming tltro allotment favourable condition encourage bank extend loan private sector entity attention draw complementary support provide prudential aim ease condition banking system uncertain fund provide ecb lending operation reach sector euro area economy liquidity urgently need small medium sized enterprise monetary policy stance policy consideration regard financial condition monetary policy stance member share assessment provide schnabel lane introduction sentiment financial market improve previous monetary policy late april financial condition tighten escalation pandemic recently euro area bond spread decline equity price driver financial condition rebound easing financial condition improvement sentiment previous monetary policy attribute number factor gradual relaxation containment measure support provide ecb monetary policy decision national fiscal policy measure franco german recovery fund proposal take comprehensive recovery package subsequently propose european commission time emphasise improve sentiment financial market lead complacency ecb set monetary policy measure notably pepp contribute calm financial market real interest rate euro area increase contribute tightening stance monetary policy context subdue outlook inflation regard monetary policy transmission mechanism note decline risk free rate transmit broad set asset price yield affect financial condition face real economy particular upward pressure average sovereign bond yield relate increase issuance government debt contribute high corporate bond yield decline equity valuation especially bank look ahead trigger increase price credit household business tight financial condition compare pre coronavirus level unprecedented magnitude economic contraction notable downward revision outlook growth inflation entail june projection highlight addition downside risk outlook rise risk disinflation deflation background member agree monetary policy action need accordance governing council price stability objective time reservation express precise timing propose scale expansion pepp envelope boost monetary policy accommodation prevail uncertainty indication bottoming economic financial condition see argue cautious approach feel act trigger tightening financial condition detriment economic recovery continue exceptionally high level uncertainty see valid reason postpone response require ecb price stability objective call decisive action see particularly important environment monetary policy fiscal action act complement combat economic fallout pandemic crisis member agree argument forward lane introduction pepp effective efficient tool provide additional monetary accommodation environment reflect dual role support monetary policy stance transmission stance part euro area economy stressed market condition term stance give scale unique nature pandemic shock substantial downward shift inflation outlook well tackle targeted temporary programme recalibration standard policy tool argue pepp well available instrument lower medium long term interest rate matter real economy expand pepp help bring sovereign bond yield curve closely line risk free curve turn support transmission monetary policy interest rate applicable household business extent sovereign bond yield act benchmark pricing loan market base credit instrument remark increase size duration asset purchase contribute contain uncertainty support recovery euro area economy vein pepp provide additional protection risk fragmentation market segment obstruct smooth transmission monetary policy recall pepp successful contain spread volatility european government bond market avert risk self fulfil adverse market dynamic context importance flexible implementation pepp emphasise means ensure transmission monetary policy time asset class jurisdiction flexibility see effective efficient period market stress time reiterate line design feature pepp capital key remain relevant benchmark allocation purchase jurisdiction basis member agree proposal lane increase size pepp extend horizon net purchase pepp end june announce principal payment mature security purchase pepp reinveste end case future roll pepp portfolio manage avoid interference desire monetary policy stance regard calibration pepp expansion range preference express favour large small envelope case large envelope base significant downside risk june projection amid exceptionally high degree uncertainty surround economic outlook subdue inflation outlook heighten risk protract disinflation deflation addition point june projection cover possibility crisis spill financial sector happen trigger deterioration financial condition necessitate strong monetary policy response time number argument favour small expansion pepp allow time evolution economic situation medium term outlook price stability point june projection account commission recovery fund proposal recently announce national fiscal measure entail upside risk economic outlook contain projection end broad consensus emerge member proposal forward lane expand pepp envelope order deliver monetary condition support return pre crisis inflation trajectory projection horizon expansion see provide clear signal governing council satisfied medium term inflation outlook note expand size pepp help support smooth transmission jurisdiction euro area regard envisaged horizon net purchase pepp member concur proposal forward lane extend end june align phase severe impact pandemic relate restriction economic activity weak inflation pressure period ahead purchase horizon align horizon monetary policy measure take ecb response pandemic underline propose extension pepp consistent governing council communication net asset purchase coronavirus crisis phase prolonged economic slowdown previously anticipate warrant extension regard reinvestment principal payment member agree proposal lane announce pepp reinvestment horizon end see avoid risk unwarranted tightening financial condition time recovery pandemic shock incomplete reinvestment see enhance effectiveness pepp reduce duration risk investor need absorb future help limit upward pressure long term interest rate announce minimum duration reinvestment horizon end view appropriate give temporary emergency nature pepp argue allow time manner interfere broad monetary policy stance reduce possible deviation capital key arise net purchase phase member forward broad consideration regard effectiveness efficiency asset purchase monetary policy tool pursuit ecb price stability objective include light upcoming monetary policy strategy explain governing council monetary policy deliberation comprehensive way public argue proportionality assessment monetary policy measure thing degree measure contribute achieve monetary policy objective hand possible unintended effect hand require judgement policy measure available effective efficient offer well balance intended unintended effect highlight asset purchase essential tool monetary policy affect macroeconomic development ultimately inflation outcome number transmission channel outset purchase public sector purchase programme pspp security maturity year aim lower market interest rate relevant real economy inflation development ample evidence exhaustive literature show asset purchase programme general pspp particular prove effective achieve intend effect euro area economy maintain price stability asset purchase lower relevant market interest rate euro area translate low lending rate high lending volume ultimately high growth inflation outcome quantitative estimate vary extent subject usual model uncertainty evidence underpin pspp positive impact macroeconomic outcome confirm assessment policy measure effective put upward pressure inflation inflation expectation intend recall decision implement large scale asset purchase programme january take response major challenge strong disinflationary headwind aftermath financial sovereign debt crisis euro area global phenomenon decline equilibrium natural interest rate ultimately determine degree accommodation give level policy rate deliver vast empirical evidence document decline level equilibrium interest rate past decade related decrease potential output growth industrial country reflect factor demographic trend low productivity growth policy interest rate close effective lower bound unconventional instrument need provide degree monetary accommodation consistent ecb inflation aim time note low interest rate environment bank navigate associate number challenge low interest rate incentivise market participant adopt excessive risk take behaviour ultimately trigger risk financial stability low interest rate prevail extended period time strain profitability capitalisation bank low interest environment rise scenario bank finance inefficient firm imply misallocation resource ultimately lead decrease productivity economy low interest rate challenge earning saving household insurance company aim certain nominal yield acknowledge asset purchase pspp contribute potential issue extent lower interest rate natural interest rate challenge low interest rate environment mainly arise structural factor drive decline interest rate monetary policy contribute effect clearly main factor assess benefit cost asset purchase relevant benchmark status quo counterfactual situation policy accommodation asset purchase provide ample evidence euro area economy fare bad policy stimulus asset purchase eurosystem asset purchase create financial condition counter disinflationary force help avert deflationary risk euro area macroeconomic term asset purchase significant positive contribution economic growth inflation euro area respect earning situation bank low interest rate environment reduce interest rate margin positive impact asset purchase broad economy turn support bank balance sheet context highlight far convincing evidence low interest rate contribute call zombie lending empirical evidence effect low interest rate environment retirement provision unclear context nominal return individual asset relevant retirement provision real return asset people hold portfolio lifetime regard impact ecb monetary policy measure household ample evidence numerous study impact low interest rate asset purchase household income evidence derive european household finance consumption survey show net borrower benefit low interest rate net saver see decline interest income note effect low interest rate arise asset purchase similar effect conventional monetary policy instrument judge effect low interest rate household income transmission channel saving income take account significant macroeconomic effect asset purchase contribute high wage high employment positively affect household disposable income consumption regard potential interaction monetary policy fiscal policy clear focus primary objective maintain price stability combine safeguard ensure respect prohibition monetary financing view essential last success credibility monetary policy ultimately acceptance trust euro common currency order ensure sustainable public finance country participate monetary union adopt common budgetary rule budgetary surveillance procedure institutional set rely market discipline sound fiscal policy monetary policy need observe prohibition monetary financing recall treaty functioning european union grant ecb independence assign primary objective price stability prohibit monetary financing require ecb adhere principle open market economy free competition background underline allocate eurosystem purchase public sector security jurisdiction ecb capital key benchmark safeguard help maintain incentive sound fiscal policy regard important set issue issuer limit ensure member states continue finance primarily bond market environment market play important disciplining role bond purchase primary market simply pass eurosystem express eurosystem main holder euro area government bond weaken disciplining role market incentive fiscal soundness euro area sovereign aforementioned safeguard supplement operational constraint conduct purchase criterion eligibility sovereign issuer risk sharing mechanism risk pspp holding national debt security bear respective national bank point combination expansionary monetary policy potentially unsound unsustainable fiscal policy undermine foundation credible monetary policy risk fiscal dominance arise monetary policy pressure refrain raise interest rate require fulfil monetary policy mandate likewise increase portfolio public security eurosystem balance sheet financial risk increase adverse scenario hamper effectiveness monetary policy future view essential embed safeguard design eurosystem asset purchase include limit framework capital key benchmark mitigate risk monetary policy dependent country fiscal policy accordingly constitute guide principle remark situation misguide fiscal structural policy threaten transmission monetary policy achievement ecb price stability objective governing council tool activate conjunction adjustment programme european stability mechanism overall broad agreement member different weight attach benefit effect asset purchase negative effect far clearly outweigh positive effect asset purchase economy pursuit price stability note rule unintended effect increase time eventually outweigh positive effect see important continuously effectiveness efficiency monetary policy measure transmission channel benefit cost context remark expansionary monetary policy instrument contribute low interest rate environment associate effect low rate distinguish feature asset purchase pspp pepp factor pertain policy instrument contribute low interest rate environment monetary policy decision communication respect communication outcome governing council member agree proposal forward lane introduction member agree emphasise communication main factor call policy action pandemic relate downward revision inflation outlook low energy price significant increase economic slack pose threat governing council medium term price stability objective unwarranted tightening financial condition economic environment instead require easy financial condition accordingly stress additional monetary policy action need ensure necessary degree monetary accommodation smooth transmission monetary policy sector jurisdiction order support swift recovery economic activity pre coronavirus level safeguard medium term price stability regard recalibrate pepp appropriate course action expand pepp extend horizon effective ease general monetary policy stance maintain favourable funding cost real economy provide temporary support response pandemic relate shock euro area economy path inflation addition stress conduct purchase flexible manner time asset class jurisdiction allow governing council effectively stave risk smooth transmission monetary policy broad agreement member reiterate governing council necessary mandate continue stand ready adjust instrument appropriate ensure inflation move governing council aim sustained manner include possibility adjust size composition pepp need highlight governing council ready adjust range instrument include tltro policy interest rate forward guidance finally need highlight monetary fiscal policy increasingly complement situation additional monetary policy stimulus hand hand measure take euro area government european institution ensure sufficient healthcare resource provide support affected company worker household time strong timely effort prepare support recovery governing council strongly welcome european commission proposal recovery plan dedicate support region sector severely hit pandemic strengthen single market build lasting prosperous recovery take account forego proposal president governing council take follow monetary policy decision envelope pandemic emergency purchase programme pepp increase total response pandemic relate downward revision inflation projection horizon pepp expansion ease general monetary policy stance support funding condition real economy especially business household purchase conduct flexible manner time asset class jurisdiction allow governing council effectively stave risk smooth transmission monetary policy horizon net purchase pepp extend end june case governing council conduct net asset purchase pepp judge coronavirus crisis phase principal payment mature security purchase pepp reinveste end case future roll pepp portfolio manage avoid interference appropriate monetary stance net purchase asset purchase programme app monthly pace purchase additional temporary envelope end year governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate reinvestment principal payment mature security purchase app extended period time past date governing council start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference june press release monetary policy decision meeting ecb governing council june members lagarde president guindos vice president costa hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right june article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann odór rutkaste sleijpen tavlas välimäki ecb graeff director general communications straub counsellor president rahmouni rousseau director general market operations sousa deputy director general economics rostagno director general monetary policy release monetary policy account foresee thursday august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting july account monetary policy governing council european central bank hold frankfurt main wednesday thursday july review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy june advanced emerge market economy financial condition approach pre pandemic level slowing steady pace reflect strong recovery global stock market euro area sovereign bond market pre pandemic funding condition large restore market base measure inflation expectation recover albeit low level risk premia short term funding bank corporate continue decline optimism financial market hand hand surge coronavirus covid-19 case united states emerge market economy raise fear broad relapse contain spread virus divergence evolution pandemic development financial market high uncertainty ultimate shape pace economic recovery resurgence global trade tension raise question robustness resilience investor sentiment far market intelligence point main stabilising factor relate change expected policy response contain spread covid-19 market participant expect policy response spreading virus rely heavily invasive geographically target restriction economic activity factor relate investor positioning stock price rally mid march asset management equity fund domicile euro area remain pre pandemic value continue inflow money market fund suggest investor prefer liquid cash like position monetary policy factor contribute prevent increase risk premia expand extend pandemic emergency purchase programme pepp june clarify horizon reinvestment period governing council signal monetary policy support factor crisis announcement pepp extension arrest fall market base measure medium term inflation expectation time financial condition critically hinge leader deliver high expectation build european recovery fund consequently signal come european council july important investor stabilise effect pepp complement significant operation series targeted long term refinance operation tltro iii excess liquidity project rise record level year contribute easing short term unsecured funding condition bank firm month euribor critical benchmark lend firm return pre pandemic level commercial paper rate financial non financial firm fall traditional commercial paper investor money market fund come market especially short maturity contribute restore orderly market condition time rise excess liquidity necessarily increase burden bank relative situation prevail end year owe offset effect generous condition tltro significant liquidity late tltro iii operation impact pepp expansion extension forward premia future overnight interest rate affect eonia forward curve shift downward governing council previous monetary policy expectation adjustment key ecb interest rate limited confirm survey evidence overall evidence increase policy response euro area monetary policy fiscal policy complement succeed ease financial condition restore confidence recovery euro area economy positive development increasingly reflect external value euro mid recovery fund proposal take shape euro appreciate wide basket advanced emerge economy currency reflect removal tail risk comparatively successful containment coronavirus europe global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment development global economy continue dominate covid-19 pandemic global economy show sign recovery sharp downturn containment measure continue ease world global composite output purchasing managers index pmi exclude euro area increase june stand substantially high trough april increase june major advanced emerge economy drive strong month month improvement service less extent manufacture time level global composite output pmi point contraction activity june global trade expect recover steep fall governing council june monetary policy oil price increase usd barrel support strong expect pick demand oil easing lockdown measure reduction supply support rebalancing oil market euro appreciate somewhat dollar nominal effective term june monetary policy turn euro area real gdp decrease expect contract line baseline scenario june eurosystem macroeconomic projection incoming datum survey result suggest economic activity improve significantly june trough april alongside ongoing containment virus associate easing lockdown measure time economic indicator remain level record pandemic recovery early stage remain uneven sector jurisdiction euro area activity expect rebound containment measure ease support favourable financing condition expansionary fiscal stance resumption global activity uncertainty speed scale rebound remain high covid-19 pandemic result lockdown measure take government cause collapse consumption growth time government transfer counteract fall growth rate firm operate surplus compensation employee stabilise income growth compare lead rise saving expect record strong increase clear sign recovery consumption emerge spending remain far pre lockdown level retail trade passenger car registration rise consumer confidence indicator available june suggest consumption june increase strongly compare april turn investment euro area business investment expect decline sharply time survey datum production expectation business confidence signal start recovery project june projection exercise euro area real residential investment expect decline sharply result lockdown measure expect recover gradually trade datum available march show respect intra euro area trade intermediate good record strong impact value chain euro area disrupt trade capital good car fuel consumer good suffer partial datum available april highlight export major economy suffer severely regard labour market government support scheme short time work help protect job reflect limited decrease total employment limited increase unemployment rate scheme important driver pronounced fall average hour work look ahead effect pandemic euro area labour market increase context unemployment rate expectation revise ecb survey professional forecasters spf direction later impact pandemic labour market unemployment rate expect peak high frequency indicator job posting hire rate point severe impact covid-19 pandemic euro area labour market turn euro area price development euro area hicp inflation increase slightly june accord eurostat flash estimate reflect mainly negative energy price inflation offset decline food price inflation hicp inflation exclude energy food decline june basis future price oil take account temporary reduction german vat rate headline inflation decline come month pick early medium term weak demand expect downward pressure inflation partially offset upward pressure relate supply constraint measure underlie inflation available weaken february hicp inflation exclude energy food show pronounce decrease say need keep mind measure surround high uncertainty share imputed price datum considerable especially service turn wage compensation employee cpe growth decline sharply heavily affect wage supplementation policy annual cpe growth decrease reflect initial impact short time work temporary lay scheme end allow worker employee status partially offset remuneration loss impact scheme visible annual growth compensation hour increase owe sharp decline actual hour work employee look ahead survey base measure inflation expectation decline late ecb spf hicp inflation expectation stand long term hicp inflation expectation average compare previous round time market base indicator inflation expectation euro area continue recover june governing council remain subdue level regard fiscal policy euro area fiscal stance net effect automatic stabiliser assess strongly expansionary national fiscal response pandemic include state guarantee equity injection heterogeneous euro area country country plan withdraw bulk expansionary discretionary measure automatic stabiliser operate additional sizeable national fiscal package recently announce recovery instrument provide meaningful fiscal support period ahead financial condition euro area remain unchanged governing council june monetary policy tight crisis eonia forward curve inverted imply financial market price low short term rate time overall expectation rate change considerable period long term risk free rate decrease euro area united states june monetary policy nominal long term rate edge similar extent economy decrease real rate increase inflation component significantly pronounced united states consequence long stand gap euro area real rate essentially close turn money credit broad money growth increase april strong money growth reflect credit creation continue drive large extent acute liquidity need economy high economic uncertainty trigger shift money holding precautionary reason environment narrow monetary aggregate encompass liquid form money continue main contributor broad money growth dynamic loan firm remain strong drive firm operational financing need environment compress cash flow substantial variation country annual growth rate loan non financial corporation rise april reflect firm need finance ongoing expenditure working capital state guarantee play important role demand loan firm size design loan state guarantee scheme differ significantly country time annual growth rate loan household remain unchanged decline consecutive month amid ongoing constraint consumption despite severe decline economic activity credit standard loan firm remain unchanged accord result late euro area lending survey monetary fiscal policy measure play major role keep credit standard favourable loan firm euro area bank expect net tightening credit standard loan firm reflect concern borrower creditworthiness country concern foreseen end state guarantee scheme loan household house purchase credit standard tighten net term reflect particular deterioration household income employment prospect context pandemic monetary policy consideration policy option sum lane point steep fall week incoming datum signal increase level euro area economic activity line baseline scenario june eurosystem projection breadth scale recovery remain uneven partial high frequency survey indicator suggest activity bottom april tandem ongoing containment virus easing lockdown measure sign initial recovery consumption significant rebound industrial output country number factor hold complete recovery resurgence covid-19 transmission rate number major economy lead authority halt reverse reopening plan measurable impact external demand euro area export survey suggest employment lag output actual expected decline employment income amid precautionary household saving weigh consumer spending exceptionally elevated uncertainty evolution pandemic economic outlook continue dampen business investment hicp inflation increase marginally june remain close measure underlie inflation weaken somewhat drive low price pressure service non energy industrial good june monetary policy market base indicator long term inflation expectation continue increase mid march historical low remain depressed level survey base indicator long term inflation expectation remain market base measure long term inflation expectation report late spf edge lower previous round euro area financial condition remain stable june significantly tight escalation pandemic lending condition remain favourable late round lending survey signal bank expect considerable net tightening credit standard loan firm relate expected end state guarantee scheme ecb monetary policy measure gradually make way economy provide crucial support underpin recovery euro area economy help offset pandemic relate downward shift project path inflation time outlook surround high uncertainty subject downside risk relate particular prospect global economy emergence potential real financial feedback loop environment governing council await datum well future path economy extent inflation return pre crisis trajectory projection horizon lane propose leave monetary policy stance unchanged reconfirm set exist monetary policy measure addition important emphasise economic activity gain momentum room complacency extent economic slack extremely high uncertainty remain elevated market sentiment exceptionally fragile context outlook economic activity inflation embed june projection conditional substantial monetary policy support premature tightening financial condition ongoing recovery risk communication governing council need stress incoming information signal resumption euro area economic activity level activity remain level prevail onset pandemic outlook remain highly uncertain emphasise inflation pressure expect subdued account sharp decline real gdp associate significant increase economic slack iii highlight environment elevated uncertainty significant economic slack ample monetary policy stimulus necessary support economic recovery bring inflation pre crisis trajectory projection horizon reiterate necessary mandate continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area outlook provide lane introduction incoming datum survey result suggest economic activity improve significantly june trough april alongside ongoing containment virus associate easing lockdown measure time economic indicator remain level record pandemic recovery early stage remain uneven sector jurisdiction decrease euro area real gdp expect contract take line baseline scenario june eurosystem projection euro area activity expect rebound containment measure ease support favourable financing condition expansionary fiscal stance resumption global activity uncertainty speed scale rebound remain high general extent contraction subsequent recovery depend crucially duration effectiveness containment measure success policy mitigate adverse impact income employment extent supply capacity domestic demand permanently affect widely feel uncertainty remain elevated confidence baseline scenario june projection increase regard external environment member share assessment provide lane introduction global activity rebound end global trade remain weak emphasise development world trade critical factor recovery euro area economy evidence trade improve depressed level strong subdue trade dynamic see affect intra- extra euro area export contribution trade far proportional decline euro area real gdp export sector remain expose development term evolution covid-19 pandemic policy adopt trading partner pandemic affect economy sequentially different degree imply uneven recovery global level great reliance internal external demand support recovery domestic global value chain euro area activity member widely acknowledge late datum positive case improvement strong previously expect base datum survey information mechanical estimate euro area real gdp point somewhat negative growth year suggest june projection low expect growth consider mechanical estimate caution technical rebound expect period substantial containment measure answer question steady recovery period ahead observe upward surprise incoming datum come survey forward look indicator order business expectation remain average level time argue mechanical estimate base observed datum little information available rule favourable dynamic carry underline time september ecb projection information available reassessment profile implication medium term outlook activity member reiterate high uncertainty continue surround outlook euro area uncertainty relate future course pandemic finding medical solution euro area globally high uncertainty outbreak pandemic remain visible flat shape fat tail probability distribution time acknowledge increase confidence place baseline scenario june eurosystem projection severe scenario describe projection consider benign development rule underline baseline scenario plausible remain surround elevated risk upside risk relate possibility household unwind forced saving accumulate lockdown period lead catch effect consumption upside risk relate impact recovery fund fiscal package launch large euro area economy extent take account june projection time member refer downside risk growth outlook especially look short term addition risk emanate external economy reference possible cliff effect occur policy support measure expire especially respect labour market lead increase outright unemployment instead decrease hour work person see far concern express protract period unemployment lead hysteresis effect set risk consider associate business sector weak business prospect high uncertainty dampen investment policy measure mitigate acute liquidity shortage extent increase risk solvency problem period ahead impede strong economic recovery context reference risk negative real financial feedback loop member assess balance risk euro area growth outlook downside fiscal policy underline ambitious coordinated fiscal stance remain critical sharp contraction euro area economy measure take response pandemic emergency far possible target temporary nature safety net worker business sovereign endorse april european council amount package worth fully operational provide important funding support member states wish draw look ahead strong timely effort support recovery need member strongly welcome european commission generation proposal design support region sector hard hit pandemic strengthen single market build lasting prosperous recovery consider paramount european leader quickly agree ambitious package member note quantitative impact expect generation proposal depend time activate fund fund spend regard price development member agree assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation increase slightly june mainly reflect negative energy price inflation basis future price oil take account temporary reduction german vat rate headline inflation decline come month pick early medium term weak demand downward pressure inflation partially offset upward pressure relate supply constraint exchange view member highlight number factor short term inflation outlook oil price development lead rebound headline inflation close item hicp basket post negative inflation rate underlie inflation weak half warn dynamic underlie inflation like economic activity clear temporary policy measure expire current inflation development continue surround uncertainty price item hicp basket need impute collect attention draw possibility reduction german vat rate temporarily push euro area headline inflation negative territory effect require appropriate communication regard inflation expectation market base indicator long term expectation continue increase historical low record mid march remain subdue level survey base indicator inflation expectation decline start pandemic long term expectation affected short medium term expectation respect market indicator observe risk neutral probability low negative inflation rate derive year coupon inflation option decrease remain relatively high regard monetary analysis member agree assessment provide lane introduction strong money growth reflect credit creation continue drive large extent acute liquidity need economy annual growth rate loan non financial corporation rise reflect need firm finance ongoing expenditure working capital background credit see particularly important small medium sized enterprise lack access market base funding remark monetary transmission banking sector effective partly balance sheet bank strong start pandemic financial crisis role government guarantee scheme loan highlight underpin loan growth concern express possible future cliff effect programme expire result euro area lending survey indicate bank expect net tightening credit standard loan firm signal risk strong credit growth sustain concern voice emergence real financial feedback loop particular interaction non financial corporation bank notably government guarantee scheme withdraw early note credit standard loan household tighten reflect primarily deterioration household income employment prospect context pandemic time argue expect net tightening credit standard interpret background early considerable easing result supportive policy measure see necessary monitor transmission monetary policy carefully availability cost financing notably banking channel strained adversely affect household consumption business investment point effect pandemic corporate balance sheet evident time pandemic control globally effect materialise increase non performing loan corporate insolvency result pandemic affect balance sheet impair monetary transmission banking sector rise financial stability risk context stress monetary policy able provide liquidity support favourable lending condition fiscal policy deal solvency problem emerge financial corporate sector wake coronavirus shock monetary policy stance policy consideration regard monetary policy stance member share assessment provide schnabel lane introduction financial market condition continue normalise june monetary policy remain tight fragile pandemic fragmentation financial market evident gain equity market narrow bond spread partly offset appreciation euro underline monetary fiscal policy measure governing council state willingness stand ready bring considerable improvement financial condition height coronavirus crisis improvement consider especially noteworthy take place backdrop significant increase fiscal deficit rise public private debt level time calmness financial market consider rest expect continuation supportive policy measure caution positive market development fully back economic datum base overly optimistic expectation european council recovery package progress develop vaccine member agree highly accommodative monetary policy stance continue appropriate account subdue medium term outlook price stability characterise inflation expectation stand near historical low significant economic slack emphasise governing council monetary policy effective ease financial condition tight level see follow coronavirus shock stimulus transmit real economy come month careful monitoring warrant time uncertainty economic outlook remain elevated background monetary policy stance see adequate recalibration deem necessary juncture accordingly member agree proposal lane leave monetary policy stance unchanged reconfirm configuration exist monetary policy instrument financial market calm peak pandemic crisis incoming datum signal short term activity line baseline scenario june macroeconomic projection situation remain fragile risk downside particular risk persistent increase unemployment rate uncertainty extent corporate sector face solvency issue highlight uncertainty continue elevate outlook inflation remain subdue underscore room complacency prevail uncertainty call configuration monetary policy instrument keep place underline information available autumn number temporary fiscal measure expire business directly expose impact pandemic shock regard pepp flexibility programme highlight key element effectiveness efficiency support transmission monetary policy time asset class jurisdiction recall flexibility implementation pepp essential successfully ease market condition time stress capital key provide benchmark allocation purchase argument flexibility pepp suggest net purchase envelope consider ceiling target point incoming datum surprise upside downside risk surround outlook prevail time governing council june monetary policy recede increase possibility envelope deploy fully time recall pepp design achieve dual objective address risk smooth transmission monetary policy euro area risk medium term price stability owe pandemic crisis specifically aim offset pandemic relate downward shift project path inflation accordingly baseline scenario june eurosystem macroeconomic projection absence significant upside surprise medium term inflation outlook presumption pepp envelope regard tltro iii programme point strong june operation evidence programme effectiveness provide favourable funding condition banking sector pass lend real economy see call close monitoring caution see warrant give government guarantee scheme appear play key role support lending evidence late lending survey background analysis view necessary well picture use tltro iii fund include extent liquidity provide translate lending firm household look ahead additional information include hard datum release projection news fiscal measure available september provide clarity medium term inflation outlook time caution term flow information summer unusually difficult extract signal medium term prospect economy inflation path scale initial bounceback activity necessarily good guide speed robustness recovery case september governing council well position reassess monetary policy stance policy tool monetary policy decision communication member agree monetary policy stance leave unchanged communication particular importance argument support steady hand communication market expectation appear align governing council intention context argue uncertainty prevail time governing council june monetary policy recede balance risk remain downside time feel communication aim strike balance acknowledge improvement incoming datum stress remain risk regard broad agreement retain communication attention draw need clear communication impact reduction german vat rate temporarily weigh euro area headline inflation background prevail uncertainty see important reaffirm pepp flexibility need depend market condition governing council stand ready act instrument appropriate ensure necessary degree monetary accommodation stress governing council clear pepp envelope remain available underline governing council avoid create expectation monetary policy action emphasise tool policy space action need take account forego proposal president governing council take follow monetary policy decision interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council purchase pandemic emergency purchase programme pepp total envelope purchase contribute ease monetary policy stance help offset pandemic relate downward shift project path inflation purchase conduct flexible manner time asset class jurisdiction allow governing council effectively stave risk smooth transmission monetary policy governing council conduct net asset purchase pepp end june case judge coronavirus crisis phase governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase asset purchase programme app monthly pace purchase additional temporary envelope end year governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation governing council provide ample liquidity refinance operation particular late operation series targeted long term refinance operation tltro iii register high fund support lending firm household governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference july press release monetary policy decision meeting ecb governing council july members lagarde president guindos vice president costa hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right july article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti garnier goulard haber kaasik kuodis kyriacou lünnemann odór rutkaste sleijpen tavlas välimäki ecb bracke deputy director general communications straub counsellor president rahmouni rousseau director general market operations sousa deputy director general economics rostagno director general monetary policy release monetary policy account foresee thursday october contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting september account monetary policy governing council european central bank hold frankfurt main wednesday thursday september review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy july functioning euro area financial market large restore stress symptom dissipate liquidity return market composite indicator systemic stress ciss remain marginally high coronavirus covid-19 period difference primarily drive elevated volatility particularly stock market financial condition improve euro area gdp weight government bond curve shift return pre crisis level large part curve negative territory close low level record government bond spread reach close pre crisis level investment grade corporate bond spread fall nearly basis point governing council previous monetary policy high yield bond spread fall nearly basis point factor explain general resilience financial market grow divergence number covid-19 fatality remain stable low level number infection triple beginning august market participant believe divergence persist lower risk widespread lockdown result downside risk economic activity notable grow dispersion extent easing financial condition advanced economy euro area lag dispersion explain factor development global stock market shift exchange rate development past day standard poor stock market index mid march trough remain pre crisis level chinese stock trade pre pandemic level euro area contrast stock price increase mid march remain pre crisis level idiosyncratic factor partially explain divergence factor sectoral composition stock market despite correction technology sector continue benefit pandemic technology stock large weight united states euro area factor fall equity risk premia contribute substantially rise valuation united states euro area reversal risk premia slow difference portfolio rebalancing contribute divergence risk premia summer real interest rate decline notably fast united states euro area real year treasury yield currently close historical low time low equivalent yield euro area empirical evidence suggest marginal increase inflation expectation tend raise stock valuation effect considerably great real rate negative territory negative real yield reduce opportunity cost hold coupon asset gold help explain gold price increase strongly course year furthermore decline real rate accelerate depreciation dollar euro nominal effective exchange rate upward trend crisis strike drive large extent euro appreciation dollar far euro appreciate dollar pre pandemic level investor tend reduce holding dollar denominate debt security break inflation rate increase effect strong real rate negative territory specifically model base analysis identify main driver shift exchange rate important substantial improvement global risk sentiment i.e. reversal previous safe haven flow united states decisive policy action take euro area government fight crisis contribute improvement risk sentiment driver relate monetary policy implement united states euro area reflect difference conventional policy space pandemic look ahead market positioning remain tilt euro appreciation net speculative dollar position advanced economy currency include euro remain sizeable global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment widespread collapse activity follow significant rebound recovery economy gap remain pattern development see world global trade post double digit decline line global activity trade recover recently large risk global activity trade remain downside upside risk financial condition continue ease advanced emerge economy governing council july monetary policy important factor rally global risk asset relate positive global macroeconomic surprise reflect citigroup economic surprise index advanced economy stand time high addition risk sentiment improve particular investor forecaster optimistic prospect early availability vaccine july monetary policy recovery oil price stall price decline drive combination decelerate demand growth high supply euro continue appreciate dollar nominal effective term trade weight basket currency appreciation euro result broad weakness dollar turn euro area economy real gdp contract incoming datum survey result point strong rebound gdp growth line short term forecast include high frequency datum recently momentum slow service sector compare manufacturing sector visible survey result august look component gdp detail consumer spending increase strongly april recovery remain far complete survey datum indicate perceive lack demand increasingly drag investment particular business investment quarter labour market adjustment employment unemployment relatively sluggish reflect increase inactivity link suddenness loss employment march april adjustment labour market stem decline average hour work mainly reflect impact job retention scheme look ahead survey high frequency indicator improve recently point employment loss despite effect labour market policy place turn euro area price development euro area annual hicp inflation decrease july −0.2 august accord eurostat flash estimate overall late reading measure underlie inflation point moderate weakening look inflation development month detail energy inflation continue drag euro area inflation oil price low level imply negative year year rate energy inflation notable service inflation closely link domestic development high wage content decline fall june july august basis future price oil take account temporary reduction german vat rate euro area headline inflation negative come month turn positive early near term price pressure expect subdue owe weak demand low wage pressure appreciation euro exchange rate despite upward price pressure relate supply constraint turn wage development large short time work temporary lay scheme lead strong divergence growth compensation employee growth compensation hour quarter negotiate wage growth allow effect decline moderately far stand clearly level reach market base indicator long term inflation expectation return pre pandemic level increase small united states remain subdue level survey base measure remain low level turn financial condition euro area eonia forward curve remain slightly inverted firm expectation cut deposit facility rate long term risk free rate remain low level amid decline real rate sovereign debt market fragmentation recede lead narrowing sovereign spread market risky asset remain stable ease trend financial condition halt appreciation euro money credit broad money growth continue rise reach july june strong money growth reflect domestic credit creation ongoing asset purchase eurosystem heighten preference liquidity money hold sector environment narrow monetary aggregate encompass liquid form money continue main contributor broad money growth follow strong increase early month pandemic annual growth rate loan non financial corporation remain stable july stand annual growth rate loan household stand july remain stable april turn fiscal policy euro area fiscal stance expect strongly expansionary additional spending comprise transfer firm household additional expansionary fiscal measure expect come month member states context generation ngeu programme monetary policy consideration policy option sum lane remark incoming datum indicate strong rebound activity follow record decline output cumulative decline half speed rebound line expected pace set june projection recovery asymmetric advanced manufacturing sector service sector momentum service sector slow somewhat recently consumer spending increase accumulate saving remain high household cautious especially context expect deterioration labour market condition datum suggest partial recovery euro area business investment firm cancel postpone investment plan environment heightened uncertainty spare capacity weak balance sheet september ecb macroeconomic projection signal output rebound quarter respectively growth foresee average −8.0 respectively end projection horizon output project return pre pandemic level euro area hicp inflation fall −0.2 august july accord eurostat flash estimate underlie sharp decline fall inflation exclude food energy decline time low temporary factor distort august figure underlie price pressure weaken owe subdue demand significant labour market slack near term price pressure expect subdued owe appreciation euro exchange rate july monetary policy market base measure long term inflation expectation continue recover historical low reach mid march remain depressed level survey base measure remain market base measure historical low close monitoring inflation expectation remain warrant clear risk negative shock path inflation result pandemic rise renew downward trend inflation expectation near term early collapse oil price temporary reduction vat rate germany imply negative rate euro area headline inflation rest base effect energy component less extent reversal vat rate cut germany generate mechanical rebound inflation expect persistently low medium term notwithstanding gradual pick projection horizon september ecb projection foresaw increase headline inflation unchanged projection inflation mask upward revision core inflation reflect positive impact monetary fiscal policy measure scale upward revision core inflation mute appreciation euro headline inflation increase upward revision core inflation offset change profile path energy price inflation valuation risky asset continue recover globe drive combination positive data surprise strong policy action euro area stock market resilient bond spread decline composite financing cost non financial firm include cost borrowing continue decrease marked appreciation euro exchange rate july appreciation extent reflect improvement global risk sentiment euro area factor ngeu recovery plan reflect development monetary condition euro area relative rest world ecb monetary policy measure provide crucial support recovery euro area economy path output inflation low foresee september projection ecb recalibrate pandemic emergency purchase programme pepp june addition series targeted long term refinance operation tltro iii major force decline path lending rate outlook remain surround high uncertainty balance risk continue tilt downside ngeu recovery plan positive development uncertainty evolution ongoing covid-19 pandemic potential materialisation adverse real financial feedback loop call vigilance come month additional information help inform direction policy include track underlie dynamic pandemic development negotiation post transition brexit arrangement decision fiscal plan background lane propose leave monetary policy stance unchanged reconfirm set exist monetary policy measure time room complacency inflation persistently level consistent governing council inflation aim inflation expectation remain close historical low amplify risk anchoring medium term inflation expectation follow governing council monitor incoming datum carefully regard implication economy medium term inflation outlook important stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry public communication governing council need stress incoming information continue signal strong resumption euro area economic activity line previous expectation recovery remain incomplete uneven subject considerable uncertainty emphasise inflation pressure expect subdued account weak demand low wage pressure appreciation euro exchange rate unchanged projection headline inflation mask upward revision core inflation reflect positive impact monetary fiscal policy albeit mute appreciation euro offset revised path energy price inflation reiterate ample monetary policy stimulus necessary support economic recovery offset negative impact pandemic shock project path inflation highlight environment elevated uncertainty significant economic slack increase exchange rate volatility governing council monitor incoming information carefully stand ready adjust instrument appropriate ensure inflation move aim sustained manner govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic outlook euro area risk activity provide lane introduction incoming datum survey result indicate continued recovery euro area economy point strong rebound gdp growth time level activity remain level prevail pandemic uncertainty relate evolution pandemic dampen strength recovery labour market consumption investment euro area economy support favourable financing condition expansionary fiscal stance strengthening global activity demand assessment reflect september ecb macroeconomic projection euro area annual real gdp growth project fall increase regard external environment member share assessment provide lane introduction note upward revision global activity foreign demand september projection upward revision euro area trade point small upside risk number downside risk include probability deal brexit increase respect volatility euro exchange rate note development nominal effective exchange rate extent drive broad base improvement risk sentiment reduction flight safety flow reflect favourable development euro area weakness dollar relative change monetary policy united states euro area see important driver note nominal effective exchange rate euro level record suggest pace euro appreciation level exchange rate concern stage clear persistent movement exchange rate volatility high potential movement direction member agree incoming datum euro area finalisation june eurosystem projection line previous expectation slump activity actually somewhat pronounced fear real gdp growth turn high expect indication absence lockdown activity especially domestic consumption improve markedly extent pace recovery sustain rest year clear recently momentum slow service sector compare manufacturing sector visible survey result august high frequency indicator datum labour mobility pattern purchasing managers index service sector signal subdue activity retail sale lose momentum weak demand service see low service inflation pandemic common shock euro area country reference heterogeneity development activity country attribute difference evolution virus containment measure fiscal policy response implement country structure economy factor consider cause divergence period ahead context ngeu fund see important help create level playing field scope national fiscal measure differ country discuss outlook growth embed september ecb projection consider important avoid unduly optimistic unduly pessimistic june eurosystem projection produce near trough crisis noticeable improvement growth revise upwards year risk severe scenario outline june recede time emphasise september projection line june projection result policy measure take measure outlook growth inflation bad note real gdp potential output foresee low end projection horizon anticipate year early point prospect permanent loss arise pandemic member stress degree uncertainty remain exceptionally high high economic uncertainty see weigh consumption level precautionary saving particular dependent development household confidence linger uncertainty surround fallout pandemic effect keep household saving elevate time give uncertainty surround outlook late projection include alternative scenario remark degree uncertainty reflect gap end horizon level gdp mild scenario level severe scenario high june eurosystem projection express confidence baseline scenario increase notably compare june increase confidence government need stabilise economy event future adverse shock note baseline scenario assume virus control considerable uncertainty surround future evolution pandemic development vaccine argue severe scenario entirely rule wave infection far lethal wave country experience outbreak virus part euro area resurgence virus assess affect recovery probability country outbreak see high alongside resurgence virus winter month expect challenging medical perspective underline time vaccine widely available point concern economy positive assessment future pattern private consumption base people learn live virus great confidence government prevent health system overwhelmed contain spread virus lockdown ensue severe harm economy reference large stock accumulate household saving draw quickly foresee projection underpin rebound consumption growth come year upside risk growth labour market see emanating fiscal policy government decide currently discuss additional measure incorporate projection note labour market shield slump activity use labour market support scheme government show willingness extend scheme necessary determined approach crisis european level september baseline include additional expenditure expect ngeu programme generally feel time need well understand possible impact include timing fiscal stimulus domestic european level widely underline fiscal support critical arrive early possible withdraw soon time debt sustainability consideration mean important fiscal expansion temporary target particular aim improve productivity sustainable economic growth reference risk debt deflation period ahead give increase private public sector indebtedness concern express possible cliff effect fiscal supervisory measure come end risk financial amplification associate increase insolvency high non performing loan notably non financial corporate sector adverse financial amplification effect extent include september projection regard lending rate swift rebound business investment foresee baseline appear optimistic strong preference firm liquidity note emerge risk insolvency address government shortfall liquidity capital deal exist government programme overall balance risk euro area growth outlook see downside assessment reflect uncertain economic financial implication pandemic fiscal policy wide agreement ambitious coordinated fiscal stance remain critical sharp contraction euro area economy fiscal measure take response pandemic emergency possible target temporary nature safety net endorse european council worker business sovereign amount provide important funding support context member governing council strongly welcome ngeu package potential significantly support region sector hard hit pandemic strengthen single market build lasting prosperous recovery member emphasise order ngeu package fully achieve potential need firmly rooted sound structural policy conceive implement national level order ensure strong ownership design structural policy contribute fast strong uniform recovery crisis support effectiveness monetary policy euro area target structural policy particularly important revitalise euro area economy focus boost investment priority area green digital transition regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual hicp inflation decrease −0.2 august july reflect low contribution food non energy industrial good service component basis future price oil take account temporary reduction german vat rate headline inflation negative come month turn positive early near term price pressure subdue owe weak demand low wage pressure appreciation euro exchange rate despite upward price pressure relate supply constraint medium term recovery demand support accommodative monetary fiscal policy upward pressure inflation assessment reflect september ecb macroeconomic projection euro area annual hicp inflation project unchanged projection inflation mask upward revision inflation exclude energy food reflect positive impact monetary fiscal policy measure offset revised path energy price member note inflation outlook unchanged relative baseline june projection large policy measure take responsible upward revision underlie inflation outlook weak absence measure underline inflation remain governing council aim projection horizon notwithstanding ample policy support argument inflation outlook september projection appear optimistic situation labour market expect lead weak wage pressure time phillips curve estimate particular incorporate output gap total hour work unemployment gap tend low inflation compare september baseline inflation pressure low service sector certain service sector hospitality probably experience gradual recovery previously think pick inflation consider optimistic background sharp decline activity high uncertainty projected inflation profile reflect increase oil price embody future market depend adherence agreement opec cut production time note upward impact growth fiscal measure incorporate projection imply small output gap normally translate well inflation outlook underline uncertainty surround inflation exceptionally high relationship slack inflation heavily distort lockdown specific factor play pandemic include uncertainty pandemic impact supply potential growth suggest relative impact negative shock demand supply investigate depth analyse sectoral development activity sector hospitality tourism recover soon sector online commerce positive demand shock give openness euro area economy member consider appreciation exchange rate constitute risk growth inflation recall significant impact exchange rate appreciation euro area inflation include september ecb projection argument ultimately impact adjustment exchange rate see level price rate inflation economic impact depend underlie cause exchange rate movement difficult reliably disentangle discuss development inflation expectation member note long term inflation expectation report ecb survey professional forecasters fall low level start economic monetary union time market base indicator inflation expectation continue recover year forward inflation link swap rate year ahead presently stand comment inflation expectation appear stabilise uncertainty inflation outlook remain high market begin price risk deflation time highlight inflation expectation low risk deflation decrease remain non negligible argue moderate improvement inflation expectation monetary policy decision take june prospect appreciation exchange rate imply downside risk inflation regard monetary analysis member agree assessment provide lane introduction broad money growth continue rise reflect domestic credit creation ongoing asset purchase eurosystem precautionary motif foster heighten preference liquidity money hold sector bank lending private sector continue support measure take supervisory fiscal monetary policy authority include late tltro iii operation bank lending condition remain favourable lending rate continue stand historical low high rate corporate loan growth continue mirror elevated liquidity need firm finance ongoing expenditure wage payment working capital build liquidity buffer rebound economic activity result recovery firm revenue shift loan demand long term loan uncertainty economic outlook cast shadow future loan demand fact point bank expect slowing firm future loan demand highlight lending survey euro area uncertainty surround economic outlook see pose potential challenge transmission monetary policy banking sector monitor carefully context crucial role government guarantee scheme underpin loan provision real economy stress need avoid cliff effect point effect pandemic evident corporate balance sheet possible financial vulnerability corporate sector turn adverse repercussion balance sheet potential impair monetary policy transmission rise financial stability risk particular absence regulatory relief classification loan non performing surge corporate insolvency result pandemic lead increase non performing loan balance sheet especially government start withdraw support provide debt moratoria loan guarantee weakened balance sheet associate rise firm indebtedness default turn lead bank charge high lending rate customer cut loan lending rate currently historically low level context remark stock price continuously decline low valuation evident low price book ratio bank increase provision high expect loss point low valuation reflect weak profitability outlook doubt investor quality balance sheet adequacy level provision give expect increase firm default bankruptcy caution sovereign exposure bank rise start crisis give rise renew concern tight nexus bank sovereign overall important monitor transmission monetary policy carefully ensure liquidity inject direct fund real economy avoid unduly fuel financial asset price reinforce sovereign nexus monetary policy stance policy consideration regard financial condition monetary policy stance member share assessment provide schnabel lane introduction financial market condition continue normalise july monetary policy valuation risky asset globe continue recover ease trend financial condition partly counteract appreciation euro euro area sovereign corporate bond yield spread narrow equity price notwithstanding weakening stock remain resilient favourable global risk sentiment supportive monetary fiscal policy caution low equity valuation sector reflect investor expectation extended impact pandemic stock price appear highly value example look measure cyclically adjust price earning ratio point possibility volatility correction stock market period ahead see stock market day precede september governing council time july governing council euro exchange rate appreciate significantly advanced emerge market currency reflect positive risk sentiment euro area support agreement ngeu plan relative monetary policy configuration major jurisdiction context risk euro appreciation see partly link market perception scope change monetary policy different jurisdiction background consider important avoid complacency perception investor direction exchange rate movement way bet member widely agree assessment present lane ample stimulus remain necessary support economic recovery safeguard medium term price stability incoming datum governing council positive suggest strong resumption euro area activity line previous expectation risk continue tilt downside strength recovery remain surround significant uncertainty environment inflation pressure expect subdued account weak demand low wage pressure appreciation euro exchange rate background member agree proposal lane leave monetary policy stance unchanged reconfirm configuration exist monetary policy instrument prevail environment high uncertainty keep steady hand respect monetary policy see appropriate time case keep free hand elevated uncertainty underpin need carefully incoming information include euro exchange rate maintain flexibility take appropriate policy action need come week datum available provide improved visibility force play influence medium term inflation outlook regard underlie dynamic pandemic development negotiation post transition brexit arrangement outcome presidential election decision fiscal plan individual country level euro area level closely monitor member widely agree ecb monetary policy measure provide crucial support recovery euro area economy underlie inflation pressure underline inflation growth outlook significantly bad governing council take decisive action outbreak coronavirus crisis configuration monetary policy support flow credit household business contribute accommodative funding condition part economy regard tltro continue underpin decline path lending rate support credit provision household business regard objective pepp underline pepp successful stabilise financial market condition euro area light normalise market condition subside risk fragmentation highlight role pepp ease monetary policy stance take centre stage conjunction ongoing asset purchase asset purchase programme app pepp purchase provide significant monetary stimulus help anchor inflation path project outbreak pandemic context nonetheless stress notwithstanding positive contribution monetary policy underlie inflation dynamic baseline scenario september projection foresaw inflation remain pre crisis path projection horizon basis information pepp envelope provide necessary accommodation offset downward impact pandemic path inflation line prevail market expectation see important firm previous announcement pepp envelope underpin governing council commitment bring inflation level line aim time point pace monthly purchase reduce tension financial market subside allow buffer build case market turbulence fragmentation emerge broad agreement member room complacency emphasise lane introduction key downside risk medium term outlook price stability mainly relate uncertain economic financial implication pandemic inflation persistently level consistent inflation aim inflation expectation remain subdue level pose risk perceive ability determination ecb deliver mandate upward revision inflation exclude energy food late projection headline inflation project final year projection horizon remain project pre crisis path distance level line governing council inflation aim environment important governing council underline readiness adjust instrument appropriate ensure inflation move aim sustained manner pepp currently see primary instrument provide additional monetary policy accommodation note cut policy rate change condition tltro toolkit provide additional monetary policy accommodation necessary regard communication wide agreement member communication propose lane introduction need highlight environment surround elevated uncertainty require governing council carefully incoming information include development exchange rate regard implication medium term inflation outlook context need emphasise euro exchange rate policy target ecb external value euro important determinant inflation development euro area regard appreciation euro exchange rate material impact inflation outlook september ecb projection broad agreement member environment elevated uncertainty volatility exchange rate euro require careful monitoring regard possible implication medium term outlook price stability reference language governing council exchange rate volatility feel propose communication similar appropriate juncture stress governing council ready adjust instrument appropriate ensure inflation move aim sustained manner include reiterate continue determination governing council use pepp flexible manner order address possible threat market fragmentation preserve smooth transmission monetary policy addition need emphasise monetary policy stance accommodative governing council tolerate unwarranted tightening financial condition ecb price stability mandate risk context announcement federal reserve system revise statement long run goals monetary policy strategy important highlight ecb strategy delay covid-19 pandemic resume shortly important focus governing council work year view important highlight pre empte ongoing strategy deliberation governing council constrain take necessary policy action pursuit ecb price stability mandate context emphasise ecb inflation aim symmetrical governing council respond determination sustain downside deviation sustain upside deviation inflation aim finally need highlight fiscal policy continue critical support recovery euro area economy provide important funding support hard hit pandemic urge fiscal support withdraw prematurely channel enhance productivity growth foster sustainable economic growth bolster innovation strengthen long term growth potential euro area economy monetary policy decision communication take account forego proposal president governing council take follow monetary policy decision interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged −0.50 respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council purchase pandemic emergency purchase programme pepp total envelope purchase contribute ease monetary policy stance help offset downward impact pandemic project path inflation purchase conduct flexible manner time asset class jurisdiction allow governing council effectively stave risk smooth transmission monetary policy governing council conduct net asset purchase pepp end june case judge coronavirus crisis phase governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase asset purchase programme app monthly pace purchase additional temporary envelope end year governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation governing council provide ample liquidity refinance operation particular late operation series targeted long term refinance operation tltro iii register high fund support lending firm household governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference september press release monetary policy decision meeting ecb governing council september members lagarde president guindos vice president centeno hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch member hold voting right september article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person alves arce aucremanne bradeško buch demarco donnery gaiotti garnier haber kaasik kuodis kyriacou lünnemann odór rutkaste sleijpen tavlas välimäki ecb straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy bracke deputy director general communications sousa deputy director general economics release monetary policy account foresee thursday november contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting october account monetary policy governing council european central bank hold frankfurt main wednesday thursday october review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy september financial market drive oppose force reduce risk contest presidential election united states expectation large fiscal stimulus programme potential biden presidency boost risk sentiment revive reflation trade renew lockdown measure different country surge coronavirus covid-19 case especially euro area increasingly reflect asset price valuation unlike spring far widespread flight safe haven asset instead euro area sovereign bond spread compress corporate bond spread remain stable equity market policy support direct experience marked correction risk premia euro area equity market increase estimate pull euro area stock price nearly governing council previous monetary policy decline partly mitigate rise short term earning growth expectation united states stock market increase opinion poll start point victory democratic party presidential election november improved risk sentiment renew downward pressure dollar position datum point risk dollar depreciation bond market heighten expectation fiscal stimulus united states lead notable steepening treasury curve reflect rise inflation expectation euro area contrast inflation expectation trend low governing council previous monetary policy put downward pressure yield euro area risk free curve close flat level euro area gdp weight sovereign yield curve shift september monetary policy curve measurably pre pandemic level firmly negative territory year maturity single euro area country benefit negative yield case extend year maturity degree accommodation currently embed euro area sovereign bond market practically unprecedented global financial crisis scale breadth country dispersion euro area year sovereign yield pre pandemic level far level observe previous year substantial convergence bond spread country hit hard sovereign debt crisis market participant point main reason explain spread fall reason relate risk sentiment strong negative correlation euro area sovereign spread stock price development week reason relate expectation monetary policy support ecb reason relate successful bond issuance european commission temporary programme support mitigate unemployment risk emergency sure meet unprecedented demand provide tangible evidence common european response crisis help alleviate pressure euro area sovereign funding finance condition contrary early phase crisis joint fiscal monetary policy response euro area succeed provide firm protection risk fragmentation unwarranted tightening financial condition clearly visible corporate bond market week corporate credit spread resist upward pressure despite deteriorate growth outlook resilience corporate bond market reflect fact firm build significant liquidity buffer past month limit extent rely external credit event renew collapse business activity euro area firm cash coverage nearly time high height global financial crisis finally grow excess liquidity increasingly put downward pressure term money market commercial paper rate early october month euribor trade deposit facility rate corporate issue month commercial paper rate close deposit facility rate provide important liquidity backstop corporate rate fall fast long tenor financial market condition remain favourable market segment vulnerability remain face exceptionally high uncertainty surround future evolution pandemic relate crisis global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment global economy come rapidly early end lockdown development global composite output purchasing managers index pmi exclude euro area indicate recovery activity strong july flat line september retail sale recover strongly world global consumer confidence rise low level remain weak turn trade high frequency datum point strong rebound early indication positive global financial condition unchanged advanced emerge economy oil price increase slightly governing council september monetary policy stand usd barrel october trade narrow range euro remain stable dollar continue unique role global trade nominal effective term september turn euro area output rebound strongly time clear risk gdp growth emerge link primarily late news plan severe lockdown november onwards late datum support recovery lose steam euro area industrial output bounce vigorously august growth decelerate month month retail sale soften summer month manufacturing service pmis september october suggest pace recovery euro area slow look ahead outlook service gloomy industry appear resilient household saving expect high income support remain important consumer confidence come month order protect economy outlook business investment depress weak demand low revenue low profitability turn euro area trade export import good continue recovery look ahead pmi export order signal continuation recovery euro area good export rebound euro area service export fade particularly country rely heavily tourism respect euro area labour market employment expect contract large share job risk pmi composite employment index recover strongly spring remain october start pandemic weakening employment condition particularly mark labour intensive sector accommodation food transportation warehousing euro area unemployment rate increase february august underestimate ongoing adjustment euro area labour market turn nominal development hicp inflation fall september hicp inflation exclude energy food decline low september decrease headline inflation august september reflect low inflation energy non energy industrial good service measure underlie inflation weaken wage growth euro area compensation employee growth compensation hour growth diverge strongly large change hour work negotiate wage growth directly affect change hour work decline gradually wage agreement conclude month point low wage increase look survey base long term inflation expectation report late ecb survey professional forecasters spf inflation expectation year ahead remain stable 1.6%-1.7 september monetary policy market base indicator long term inflation expectation halt recovery remain stable pre pandemic level year forward inflation link swap rate year ahead stand october regard financial condition euro area eonia forward curve remain slightly inverted firm expectation imminent rate cut long term risk free rate remain unchanged low level despite upward movement rate sovereign spread decline amid expectation additional monetary fiscal support risk asset market unchanged despite significant intra period fluctuation euro area financial condition remain stable turn money credit broad money growth remain buoyant accelerate september annual term strengthening monetary dynamic start crisis reflect precautionary motif domestic credit remain main source money creation pandemic trigger major increase non financial corporate debt ratio relation gross operating surplus gross term net liquid asset increase gross debt ratio reflect increase debt level steep fall activity net debt absolute term decline slightly firm accumulate large amount liquid asset offset increase gross debt external finance record steep increase onset crisis drive lending corporate bond issuance bank lending rate remain favourable close historical low direct market finance hit acute market turmoil initial phase crisis subsequently benefit pandemic emergency purchase programme pepp policy support remain decisive favourable credit condition significant fraction lending concentrate part loan market benefit government guarantee large broad base participation targeted long term refinance operation tltro include late operation provide bank significant funding cost relief october lending survey signal tightening credit standard primarily relate deterioration bank perception risk underlie macroeconomic environment borrower creditworthiness fiscal policy fiscal stance expansionary late fiscal plan foresaw large support previously expect fiscal plan remain uncertain generation ngeu programme provide additional fiscal support economy monetary policy consideration policy option sum lane point strong albeit partial uneven rebound economic activity summer month incoming datum signal euro area economic recovery lose momentum relative previously project recovery path rise covid-19 case associated intensification containment measure restrict activity level especially high contact sector constitute clear deterioration near term outlook high frequency mobility indicator transport retail recreation start weaken activity service sector hit hard affect renew restriction mobility social interaction household consumption expect stay subdue precautionary saving motive reinforce resurgence pandemic impact employment income weak balance sheet increase uncertainty economic outlook weigh business investment headline inflation decline august september inflation exclude energy food decrease time low term category decline drive extension seasonal summer sale non summer item fall travel relate price negative energy inflation factor weigh inflation transitory nature persistence weak demand imply prolonged weakness non energy industrial good inflation service inflation expect low service sector expose ongoing intensification containment measure accordingly measure underlie inflation subdued context weak demand significant slack labour product market market base indicator survey base measure long term inflation expectation remain unchanged low level basis downside inflation surprise expect trajectory energy price headline inflation run previous expectation currently expect negative early long september baseline projection long period relatively benign condition datum financial market price pessimistic pandemic outlook pace monthly loan flow firm recently moderate result lending survey point deteriorate credit condition particular muted reaction early stage pandemic credit standard loan firm tighten bank indicate funding balance sheet condition remain supportive high risk perception weigh loan creation survey bank report fall loan demand firm reflect decline emergency liquidity need weaken corporate investment accordingly amplification adverse real financial feedback loop remain material risk need closely monitor monetary policy measure take response pandemic effective efficient stabilise financial market support financing condition household business incoming datum point severe slowdown growth momentum weakening underlie inflation dynamic compare previously expect recovery path furthermore near term risk event loom include geopolitical risk environment risk surround euro area growth outlook clearly tilt downside week come key information receive include round macroeconomic projection allow reassessment economic outlook balance risk pende information lane propose leave monetary policy stance unchanged reconfirm set exist monetary policy measure time governing council clearly signal basis update assessment december recalibrate instrument appropriate ensure financing condition remain favourable support economic recovery counteract negative impact pandemic project inflation path foster convergence inflation aim sustained manner line commitment symmetry communication governing council need stress incoming information signal euro area economic recovery lose momentum rise covid-19 infection associated intensification containment measure weigh economic activity constitute clear deterioration near term outlook emphasise measure underlie inflation decline inflation pressure expect subdued account weak demand low wage pressure past appreciation euro underline environment risk clearly tilt downside governing council carefully incoming information include dynamic pandemic development euro exchange rate round eurosystem macroeconomic projection december allow thorough reassessment economic outlook balance risk highlight basis update assessment governing council recalibrate instrument appropriate ensure financing condition remain favourable support economic recovery counteract negative impact pandemic project inflation path foster convergence inflation aim sustained manner line commitment symmetry emphasise ambitious coordinated fiscal stance remain critical sharp contraction euro area economy reduction private demand govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk activity provide lane introduction incoming datum survey result signal euro area economic recovery lose momentum rapidly expect follow strong partial uneven rebound rise covid-19 case associated intensification containment measure weigh activity constitute clear deterioration near term outlook activity manufacturing sector continue recover activity service sector affect restriction social activity mobility slow visibly fiscal policy measure support household firm consumer cautious light pandemic ramification employment earning weak balance sheet increase uncertainty economic outlook weigh business investment look ahead uncertainty relate evolution pandemic dampen strength recovery labour market consumption investment euro area economy support favourable financing condition expansionary fiscal stance regard external environment member share assessment provide lane introduction global activity rebound swiftly early strongly expect momentum slow recently downside risk relate increase covid-19 infection rate globally geopolitical factor governing council september monetary policy exchange rate euro remain stable dollar nominal effective term turn euro area development member underline positive negative news monetary policy euro area real gdp contract follow trough april euro area economy rebound strongly expect september ecb projection make large contraction half year strength rebound reflect country ease containment measure soon rise covid-19 infection rate see undermine confidence lead additional containment measure generate loss growth momentum early fast pace foresee reference level composite output pmi fall fact pmi business fall strongly datum release far incorporate announcement containment measure march economic situation change rapidly exclude euro area country experience double dip recession euro area economic outlook see depend crucially effectiveness administrative measure infection dynamic pandemic magnitude duration downturn uncertain note restriction implement tend targeted spring region sector limited effect activity early year remark rate infection appear relevant economic activity stringency containment measure vary considerably clear sector manufacturing construction affected euro area case general lockdown early year entertainment leisure tourism heavily affect restriction member period ahead containment measure expect stringent long previously anticipate winter month challenge term limit spread virus sequence temporary circuit breaker lockdown prove necessary result growth trajectory bumpy previously project time recall economy rebound strongly lockdown wave pandemic similar dynamic recovery expect future unclear liquidity buffer firm household build month prove sufficient withstand renew deterioration economy period ahead emergence wave pandemic lead widespread business closure number sector example retail trade point government prudent ease containment measure experience summer month result growth figure adversely affect background member argue look ahead important possibility pandemic long last effect demand supply reduce potential growth concern express possibility non linear effect arise financial amplification channel impact pandemic balance sheet position firm household bank government particularly give persistence crisis overall emphasise clear trade containment measure require reduce spread virus impact economy recognise ultimately concern economy vaccine effective treatment widely available time context member emphasise role national european fiscal policy cushion impact economy necessary containment measure particular regard positive news additional fiscal stimulus announce time measure contain spread virus fiscal measure clearly assume september projection member exchange view extent late development consistent baseline scenario september ecb projection revision upcoming december eurosystem projection result baseline close severe scenario include september projection september baseline scenario assume resurgence virus need ongoing containment measure development see constitute clear downside risk projection highlight uncertainty remain high year time december monetary policy information available major geopolitical development result presidential election brexit initial evidence effectiveness restriction contain spread virus impact economy time draft national budgetary plan assessment european commission available indication prospective use ngeu fund overall member consider risk surround growth outlook clearly tilt downside assessment reflect resurgence covid-19 infection associated intensification containment measure high uncertainty surround timeline pandemic implication economic financial condition fiscal policy ambitious coordinated fiscal stance remain critical sharp contraction euro area economy fiscal measure take response pandemic emergency possible target temporary nature weak demand firm household heighten risk delay recovery warrant continued support national fiscal policy safety net endorse european council worker business sovereign provide important funding support context key role ngeu package stress importance operational delay provide fund deploy productive public spending accompany productivity enhance structural reform ngeu programme contribute fast strong uniform recovery enhance resilience growth potential member states economy support effectiveness monetary policy euro area structural policy particularly important address long stand structural institutional weakness accelerate green digital transition regard price development broad agreement assessment present lane introduction euro area annual hicp inflation decrease september august reflect development price energy non energy industrial good service basis oil price dynamic take account temporary reduction german vat headline inflation negative early near term price pressure subdue owe weak demand notably tourism travel relate sector lower wage pressure appreciation euro impact pandemic fade recovery demand support accommodative monetary fiscal policy upward pressure inflation medium term market base indicator survey base measure long term inflation expectation remain unchanged low level observe headline inflation expect negative territory long foresee september ecb projection highlight hicp inflation exclude energy food fall low september owe low non energy industrial good service inflation time reduction inflation item price index consider cause concern point item currently post negative growth rate underlie price pressure weak raise concern last impact time underline context important stress temporary nature inflation dynamic partly owe special factor exceptional pattern seasonal sale temporary tax reduction account take change consumption basket imply inflation actually slightly high report impact late development growth inflation medium term outlook inflation carefully evaluate december projection express probability inflation rate close severe scenario include september projection increase additional negative surprise materialise development inflation expectation member note long term inflation expectation report ecb spf stable market base indicator inflation expectation decline slightly year forward inflation link swap rate year ahead stand point spf survey round conduct beginning october resurgence pandemic widespread introduction containment measure result need treat caution consider important ensure protract period low inflation short run lead low medium long term inflation expectation regard monetary analysis member agree assessment provide lane introduction broad money growth continue reflect domestic credit creation ongoing asset purchase eurosystem monthly flow loan non financial corporation moderate month amid decline emergency liquidity need subdued investment lending private sector continue support government guarantee monetary policy particularly tltro iii provide bank sizeable funding cost relief bank lending rate continue stand near historical low tltro iii see provide continuous support lending evidence high expect late operation result euro area lending survey signal tightening credit standard mainly account deterioration bank perception risk macroeconomic environment borrower creditworthiness accord survey bank cost fund balance sheet situation contribute tightening underscore positive impact monetary policy support funding condition look ahead bank report expect considerable net tightening credit standard remark result lending survey interpret overstate substantial credit easing observe underpin state guarantee lending fiscal supervisory policy support forthcoming point heighten uncertainty surround wave pandemic associated containment measure pose renew risk transmission monetary policy banking sector require close monitoring financial vulnerability corporate sector particular negative ramification bank balance sheet rise adverse real financial feedback loop backdrop concern express increase non performing loan heterogeneous impact pandemic banking sector country note equity price development suggest market start price adverse impact banking system resurgence covid-19 infection evidence underperformance financial sector share price context recall low profitability banking sector erosion net interest margin present ongoing challenge euro area bank express fiscal initiative address non performing loan ensure adequately capitalise banking sector encourage monetary policy play support favourable financing condition ample liquidity banking sector monetary policy stance policy consideration regard financial condition member widely share assessment provide schnabel lane introduction note euro area financial market relatively calm financial condition include exchange rate development stable finance condition bank household firm remain favourable relatively mute reaction market wave pandemic see evidence effectiveness ecb monetary policy measure contain tail risk include risk market fragmentation time market see fragile face correction pricing example event deal brexit worsening pandemic agreement disbursement fund ngeu plan delay juncture member view monetary policy stance highly accommodative appropriate stress monetary policy aim preserve favourable financing condition future order support economic activity backdrop member support proposal lane leave monetary policy stance unchanged reconfirm set exist monetary policy instrument furthermore member widely agree give sharp slowdown growth momentum weakening underlie inflation dynamic compare previously expect deterioration balance risk warrant recalibrate monetary policy instrument december note take monetary policy decision december consistent prevail market expectation stress governing council position act time need time underline half pepp envelope available conduct ongoing purchase flexible manner case renew market turbulence time december update projection available clear picture dynamic pandemic prospect vaccine emerge information fiscal policy response euro area regard monetary policy measure take early march member widely agree help preserve favourable financing condition sector jurisdiction euro area provide crucial support underpin economic activity safeguard medium term price stability tltro see provide funding bank favourable rate contribute low interest rate lending far successfully avert credit crunch pepp prove successful stabilise market condition reduce fragmentation ease monetary policy stance remark flexibility embed pepp essential continued success exist monetary policy instrument view effective question raise possible non linearity effect diminish return environment high uncertainty favourable financial condition market have stabilise introduction pandemic relate monetary policy measure march note additional asset purchase impact financial condition real economic activity early year emphasise environment monetary policy operate facilitate fiscal expansion keep financing cost affordable policy domain work hand hand acknowledge accommodative monetary policy stance create temptation government enter commitment difficult undo increase expenditure necessary deal pandemic exacerbate structural deficit damage long term sustainability public finance regard communication member widely agree proposal lane introduction governing council need signal stand ready act flexibility embody pandemic emergency monetary policy tool stress determination act signal willingness adjust instrument need stress sign complacency inadvertent detrimental circumstance wide agreement need signal necessity recalibrate ecb monetary policy instrument december monetary policy caution governing council pre commit specific policy action communication governing council need highlight downside risk baseline scenario september projection clearly increase shift balance risk downwards governing council carefully evaluate worsening pandemic associated intensification government containment measure regard implication near term outlook broad agreement governing council communicate basis update assessment recalibrate instrument appropriate ensure financing condition remain favourable support economic recovery counteract negative impact pandemic project inflation path foster convergence inflation governing council aim sustained manner line commitment symmetry finally broad agreement member emphasise ambitious coordinated fiscal stance remain critical effective policy situation deal effect pandemic associated containment measure communication governing council strongly welcome ngeu package encourage institution approve package swiftly order activate timely manner support region sector hard hit pandemic context emphasise monetary policy remove obstacle expansion fiscal policy support favourable financing condition proper functioning financial market way fiscal monetary policy reinforce circumstance monetary policy increase effectiveness empower fiscal policy foster confidence monetary policy decision communication take account forego member proposal president ascertain decision propose communication support member governing council take follow monetary policy decision interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council purchase pandemic emergency purchase programme pepp total envelope purchase contribute ease monetary policy stance help offset downward impact pandemic project path inflation purchase conduct flexible manner time asset class jurisdiction allow governing council effectively stave risk smooth transmission monetary policy governing council conduct net asset purchase pepp end june case judge coronavirus crisis phase governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase asset purchase programme app monthly pace purchase additional temporary envelope end year governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation governing council provide ample liquidity refinance operation particular series targeted long term refinance operation tltro iii remain attractive source funding bank support lending firm household member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference october press release monetary policy decision meeting ecb governing council october members lagarde president guindos vice president centeno hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch member hold voting right october article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo odór pattipeilohy rutkaste tavlas välimäki ecb bracke deputy director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday january contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting december account monetary policy governing council european central bank hold frankfurt main wednesday thursday december review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy october development global financial market drive strong improvement risk sentiment main catalyst news effectiveness imminent roll multiple coronavirus covid-19 vaccine additional factor reinforce amplify improvement risk sentiment grow sign forthcoming bipartisan fiscal stimulus programme united states wake formal commencement presidential transition process communication ecb governing council recalibrate instrument december strengthen confidence ecb commitment monetary policy remain reliable source support commitment support broad base easing financial condition stock market sector country hit hard pandemic benefit hope vaccine restore economic social activity rapidly group include large euro area country despite strong rally stock valuation firm crisis hit sector euro area remain pre pandemic level euro area government bond market improve risk sentiment support decline spread lower rat sovereign week euro area country fund long term borrowing rate equivalent gdp weight average rate bond non euro area advanced economy highlight extent monetary stimulus ecb currently provide expect provide future mitigate social economic cost pandemic monetary policy key factor mitigate increase euro area risk free yield response positive macroeconomic shock real long term rate inflation expectation move opposite direction week year inflation swap increase basis point governing council hope fast recovery previously expect real rate steadily move lower addition spread year german bund correspond overnight index swap ois rate start trend low mid september german bund yield fall sharply equivalent ois rate development typically reflect expectation change net supply bond consistent investor anticipate recalibration pandemic emergency purchase programme pepp result degree monetary policy accommodation currently embed euro area sovereign bond market practically unprecedented period global financial crisis scale breadth country entire euro area gdp weight sovereign yield curve significantly pre pandemic level firmly negative territory dispersion euro area year sovereign yield reach post-2008 low benign condition sovereign bond market increase risk appetite leave mark euro credit market spread financial non financial issuer fall approach pre covid-19 crisis level regard exchange rate development year end approaching risk deal brexit increase considerably past day market participant united kingdom euro area prepare deal brexit scenario imply volatility gbp eur exchange rate increase sharply day especially short term maturity addition optimism medical breakthrough fast global recovery fuel dollar weakness nominal effective dollar exchange rate depreciate course november model base evidence improvement risk sentiment reflect prospect fast global recovery major factor drive appreciation euro comparison stock market performance export orient euro area firm performance firm business model depend domestic demand suggest clear evidence far negative competitiveness effect perceive investor significantly counteract positive global demand effect imply weak dollar overall financial condition global level euro area highly accommodative ecb analysis suggest monetary policy play important restore ease financial condition global level add substantially positive effect stem recede risk aversion market participant global environment economic monetary development euro area lane review global environment economic monetary development euro area regard global economy growth momentum weaken amid rise case infection strict containment policy vaccine news lift prospect future global gdp global trade suffer massive blow deep contraction world demand major effect export euro area firm large fiscal support package preserve job boost disposable income especially advanced economy private consumption recover robustly outlook weaken substantially owe resurgence covid-19 infection couple assumption deal brexit falter fiscal stimulus country purchasing managers index pmi deteriorate markedly november major advanced economy exception united states significant recovery world trade base forward look pmi datum export order world trade expect grow global financial condition loosen drive high equity price decline spread brent crude oil price climb usd barrel improve global risk sentiment imply increase october monetary policy governing council euro appreciate markedly dollar remain stable nominal effective term turn euro area december eurosystem macroeconomic projection entail deterioration short term outlook follow robust rebound real gdp expect return pre crisis level mid-2022 baseline scenario range forecast institution private sector late development real gdp expand accord eurostat manufacturing production unchanged july september recovery service lag manufacturing slow considerable divergence activity level service sector short term outlook dominate effect containment measure introduce stem resurgence coronavirus infection focus demand component private consumption rebound strongly remain pre pandemic level contribute factor rebound strong demand durable good include consumption postpone remain uncertain extent lockdown induce pen demand satisfy retail sale resilient october datum credit card payment contrast point notable drop spending week october november small reduction footfall retail outlet recreational establishment spending decline income support government short term work scheme saving ratio expect rise business investment closely relate development output rebound outlook business investment remain subdue light reduce revenue low rate capacity utilisation fragile corporate balance sheet euro area trade rebound strongly drive trade good provide positive contribution gdp growth renew lockdown restriction interrupt pattern recovery trade look euro area labour market unemployment rate increase percentage point february stand october result special government support measure especially form job retention scheme include short time work scheme labour force growth recover sharp decline record month pandemic time high frequency indicator suggest job creation particularly hard hit pandemic turn nominal development december eurosystem projection include downward revision hicp inflation hicp inflation exclude energy food hicpx projection foresee hicp inflation rebound gradually increase stand similar level forecast international institution private sector medium term horizon headline inflation remain november accord eurostat flash estimate unchanged month row hicpx inflation unchanged energy food inflation decline marginally observed decline service inflation relate travel lot decline expect reverse future headline inflation negative december expect return positive rate beginning special factor include temporary change indirect taxis continue play important role development headline inflation short term inflation outlook negotiate wage growth decrease year year continue slight downward trend level record nonetheless persistence wage development give support inflation course growth rate gdp deflator decline narrow gap vis vis hicpx inflation activity rebound profit margin improve remain pre crisis level important stabilise factor profit margin crisis widespread use public support scheme regard inflation expectation market survey base indicator long term inflation expectation remain subdue participant ecb survey professional forecasters spf continue high risk low inflation long term example probability hicp inflation double recently term financial condition euro area inversion eonia forward curve recede expectation cut deposit facility rate monetary policy expectation contribute keep long term risk free rate low equity price increase governing council drive positive sentiment underpin strengthen earning growth expectation corporate bond spread decline easing financial condition reflect high pricing risky asset vaccine news expectation additional policy support regard monetary development money growth buoyant ample credit provide non financial firm start evidence credit reach part economy need follow introduction policy support measure lending small medium sized enterprise sme strong lend firm term annual growth rate absolute size loan flow nominal lending rate favourable real lending rate stand significantly high pre pandemic level owe low level near term inflation expectation far bank maintain robust capital position prevail start crisis regulatory government support measure support average risk weight size bank capital base increase bank provision cost expect loan loss far absorb bank low profit suggest mount pressure bank bring recovery margin increase lending rate tighten financing condition firm household turn fiscal policy euro area fiscal stance strongly expansionary december eurosystem projection include significantly large stimulus period assume previously generation ngeu programme project provide substantial support growth uncertainty respect actual use fund impact remain high monetary policy consideration policy option sum lane remark prospect roll vaccine encouraging pandemic continue pose risk public health euro area global economy december eurosystem macroeconomic projection indicate pronounced impact pandemic economy short term headline inflation remain unchanged november measure underlie inflation stabilise downward trend see previously continue point broad base weakness price pressure wage dynamic euro appreciation constitute headwind inflation market base measure long term inflation expectation remain subdue level slight improvement response positive vaccine news december projection point protract weakness inflation previously envisage economic disruption associate wave pandemic imply delay convergence inflation governing council inflation aim reflect percentage point downward revision headline inflation projection sentiment financial market benefit optimism prospect vaccine roll out level financial condition predicate expectation monetary policy easing respect financing condition firm household late survey point potential fragility transmission monetary policy bank accord survey access finance enterprises net percentage firm report positive assessment access credit decline past month sharp deterioration access loan credit line expect month october round lending survey indicate tightening credit standard term condition incoming information confirm potential amplification adverse real financial feedback loop remain material risk need closely monitor overall incoming datum eurosystem projection suggest pronounced near term impact pandemic economic activity inflation previously envisage turn protract nature pandemic shock entail delay convergence inflation governing council aim risk unanchoring inflation expectation salient response economic fallout resurgence pandemic lane propose additional monetary policy measure aim preserve favourable financing condition pandemic period support flow credit sector economy underpin economic activity safeguard medium term price stability preserve favourable financing condition extended period time help support inflation development multiple channel reduce finance uncertainty bank corporation household government alike bolster confidence encourage spending investment ultimately underpin economic recovery inflation assurance favourable financing condition maintain help prevent undue tightening financing condition improve macroeconomic landscape keep favourable financing condition environment accelerate dynamic recovery well economic prospect combine attractive financing condition fast track consumption investment finally extended period favourable financing condition underpin confidence recovery eventual pick inflation support inflation expectation provide additional monetary stimulus low real rate overall preserve favourable financing condition help counter negative pandemic shock inflation path support achievement price stability objective reduction uncertainty notably fund cost economy strong forward guidance respond future tightening financing condition aim mind lane propose following decision expand pepp envelope total envelope lengthen net purchase horizon end march expansion extension pepp purchase suitable tool help ensure level financing condition remain favourable absorb shock provide great certainty duration favourable financing condition help reduce uncertainty bolster confidence encourage high spending investment ultimately underpin economic recovery help offset downward impact pandemic project path inflation imply conduct purchase flexibly accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation addition commitment pepp purchase flexibly time asset class jurisdiction support smooth transmission monetary policy recalibration pepp proportionate risk face fulfilment governing council mandate continue efficient rate cut pandemic condition characterise high uncertainty previous assessment balance benefit pepp purchase outweigh potential cost continue hold extension horizon march account expect timeline roll vaccine update macroeconomic projection see return gdp level course extend reinvestment principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance recalibrate condition operation series targeted long term refinance operation tltro iii extend low interest rate period month june add additional operation increase borrowing allowance eligible loan stock order create incentive bank sustain level lending recalibrated tltro iii borrowing condition available bank achieve lending performance target extension pandemic relate low interest rate period addition operation increase potentially borrow tltro iii preserve attractive funding condition past month support flow credit real economy time high stress help bank secure liquidity require extend loan household firm favourable term extend june duration set collateral ease measure adopt governing council april order provide assurance bank use eurosystem liquidity operation notably recalibrated tltro offer additional pandemic emergency long term refinance operation peltro provide effective liquidity backstop concern asset purchase programme app conduct purchase monthly pace governing council need reiterate continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate addition governing council need reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation extend eurosystem repo facility bank eurep temporary swap repo line non euro area bank march finally conduct regular lending operation fix rate tender procedure allotment prevail condition long necessary regard external communication governing council need confirm acknowledge good news roll vaccine resurgence covid-19 infection associated containment measure imply pronounced near term impact pandemic economy protract weakness inflation previously envisage emphasise recalibration monetary policy instrument need ensure financing condition remain favourable underpin economic recovery counteract negative impact pandemic project path inflation stress recalibrated pepp deploy preserve favourable financing condition pandemic period sector underline purchase conduct flexibly accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation particular favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation explain recalibrated tltro preserve attractive funding condition bank help ensure offer favourable lending condition sufficient liquidity extend loan household firm reiterate stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk activity provide lane introduction rebound economic activity strong expect prospect roll vaccine encouraging pandemic continue pose risk public health euro area global economy resurgence covid-19 case associated containment measure significantly restrict euro area economic activity expect contract inflation remain low context weak demand significant slack labour product market overall incoming datum eurosystem projection suggest pronounced near term impact pandemic economy protract weakness inflation previously envisage baseline scenario december eurosystem macroeconomic projection euro area see real gdp growth compare september ecb macroeconomic projection outlook economic activity revise short term see recover level project september baseline scenario medium term compare september ecb macroeconomic projection outlook inflation revise regard external environment member share assessment provide lane introduction global activity rebound strongly previously expect weaken growth momentum foresee amid rise covid-19 case strict containment policy resurgence covid-19 infection couple assumption december eurosystem projection deal brexit falter fiscal stimulus country lead weak outlook turn year projection imply marginal downward revision growth global activity trade member express agreement avoid deal brexit agreement united states renewal fiscal stimulus constitute upside risk projection downside risk remain relate evolution pandemic possibility protract scar effect turn euro area development member acknowledge follow sharp contraction half euro area real gdp rebound strongly note rebound strong expect september ecb projection pronounce decline previously anticipate constitute upside surprise consecutive quarter look ahead experience suggest rebound fairly dynamic restriction lift economic agent apparently learn adapt restriction instance adjust consumption pattern economy demonstrate strong capacity bounce quickly time role policy support remain critical cushion impact pandemic underline member widely agree wave pandemic associated intensification containment measure observe mid october expect result renew significant decline activity less extent observe year highlight carry effect decline main factor downward revision expect real gdp growth projection outlook economic activity member welcome positive news prospective roll vaccine gradual resolution health crisis represent major difference compare situation time governing council monetary policy october see clear improvement financial market sentiment argue prospect effective quickly disseminate vaccine imply benign pandemic scenario previously anticipate september ecb projection substantial bearing medium term economic outlook predicate expect evolution pandemic member consider impact positive news availability vaccine medium term outlook need weigh impact negative late news infection rate containment measure short term respect key question temporary effect renew downward shock long economy recover double dip activity negative territory context recall expect shape recovery look different shape expect early year possible give positive starting point wave pandemic crisis deep draw previously anticipate feel protract curtailment activity inflict lasting damage number sector heighten risk rise insolvency unemployment affect medium term outlook protracted scar effect owe delay recovery background broad agreement member pronounce uncertainty remain key theme economic outlook observe uncertainty ultimately resolve different way fiscal policy measure support household firm uncertainty economic outlook weigh business investment cause consumer cautious health concern containment measure caution consumer spending recover fully pandemic fade away evolution elevated household saving ratio remain critical element projection expect renew spike subsequent gradual unwinding important factor determine profile consumption long job preserve experience suggest significant accumulate saving lead strong rebound growth recall pen demand durable good demand service possibly stay depressed long overall risk surround euro area growth outlook see tilted downside pronounced news vaccine roll out near future encouraging downside risk remain relate implication pandemic economic financial condition fiscal policy ambitious coordinated fiscal stance remain critical sharp contraction euro area economy fiscal measure response pandemic emergency far possible target temporary time weak demand firm household heighten risk delay recovery warrant continued support fiscal policy national european level key role ngeu package importance operational delay reiterate comfort draw signal package close adopt underline provide fund deploy productive public spending accompany productivity enhance structural reform ngeu contribute fast strong uniform recovery enhance resilience growth potential member states economy support effectiveness monetary policy euro area structural policy particularly important address long stand structural institutional weakness accelerate green digital transition regard price development broad agreement assessment present lane introduction accord eurostat flash estimate euro area annual inflation remain unchanged november basis oil price dynamic take account temporary reduction german vat rate headline inflation negative early expect increase owe end temporary vat reduction germany upward base effect energy price inflation time underlie price pressure expect subdue owe weak demand notably tourism travel relate sector low wage pressure appreciation euro impact pandemic fade recovery demand support accommodative fiscal monetary policy upward pressure inflation medium term market base indicator survey base measure long term inflation expectation remain low level outlook inflation december eurosystem projection member note pandemic exceptionally high uncertainty measurement economic slack inflation relationship time probably affect range plausible inflation projection light past projection error inflation suggest need include degree caution projection baseline expected inflation profile december eurosystem projection low compare past projection remain governing council inflation aim end projection horizon projection imply end projection horizon exception year euro area inflation remain inflation aim decade give repeat experience subdued inflation outturn protract error inflation projection question raise persistently subdue inflation ascribe structural factor digitalisation question raise extent projection error development certain specific item relate travel low actual weight consumption pandemic member pay close attention role exchange rate inflation outlook point nominal effective exchange rate currently stand time high appreciation contribute significantly subdue inflation outlook time recall impact exchange rate inflation depend nature persistence shock drive exchange rate movement regard inflation expectation member note end long term inflation expectation spf remain relatively resilient stand close long term downward trend actual hicp inflation december eurosystem projection imply major reversal trend market base measure long term inflation expectation increase pre pandemic level news prospective roll vaccine remain low level monetary analysis member agree assessment provide lane introduction strong broad money growth support eurosystem ongoing asset purchase large source money creation narrow monetary aggregate continue main contributor broad money growth reflect heighten preference liquidity money hold sector low opportunity cost annual growth loan private sector plateaue high rate prior covid-19 pandemic monthly lending volume recede indicate diminish emergency liquidity need weak investment tight condition loan firm signal ecb lending survey tltro iii operation see provide continuous support lending liquidity buffer firm accumulate improved resilience balance sheet beginning crisis extension fiscal macroprudential policy measure tltro iii consider mitigate risk adverse real financial feedback loop time caution credit risk probability default non financial corporation increase crisis endure view exchange role loan supply versus loan demand factor reference elevated corporate saving possible satiation precautionary liquidity need company monetary policy stance policy consideration regard financial condition member widely share assessment provide schnabel lane introduction market sentiment improve notably follow news successful development vaccine account expected monetary policy measure interest rate spread euro area sovereign fall pre crisis level caution uncertainty remain high positive sentiment erode quickly event negative news concern voice risk relate development exchange rate negative consequence inflation outlook member agree economic fallout resurgence pandemic downward revision project inflation path result risk unanchoring inflation expectation additional monetary policy measure necessary preserve favourable financing condition pandemic period support flow credit sector economy underpin economic recovery observe december eurosystem inflation projection far governing council inflation aim background decisive action ensure financing condition remain favourable deem necessary recall medium term inflation outlook line governing council aim circumstance differ respect emergency situation pepp initially decide environment warrant recalibration policy instrument safeguard favourable financing condition adoption additional measure combat crisis remark governing council medium term orientation call patience persistence reach aim time pepp horizon important parameter time argument lowering yield highly accommodative level expect marginal effect growth inflation increase risk unintended effect particular financial stability overall governing council need monitor change outlook price stability carefully come month member express broad agreement monetary policy package propose lane introduction aim maintain favourable financing condition extended period pandemic ensure flow credit sector economy continue support underpin economic activity safeguard medium term price stability expansion extension pepp purchase recalibration tltro iii condition widely see suitable tool ensure financing condition remain favourable pandemic give return governing council inflation aim delay pandemic widely consider appropriate proportional response prevail type shock increase horizon net purchase pepp march extend reinvestment principal payment mature security purchase pepp end add tltro iii operation extend pandemic relate low interest rate period june overall agree propose long horizon pepp tltro iii line expect duration pandemic crisis continued uncertainty roll vaccine expect return economic activity pre pandemic level agree assessment lane balance benefit pepp purchase tltro iii outweigh potential cost continue hold pepp see cornerstone governing council monetary policy package thank flexibility prove particularly effective ensure eurosystem maintain stabilise presence market provide backstop disorderly repricing risk pepp contribute ease monetary policy stance response downward impact pandemic path inflation expansion pepp envelope addition monthly purchase app see appropriate underpin governing council commitment maintain favourable financing condition extend pandemic period moderate increase pepp envelope advocate number member base argument significant space purchase available past decision environment high uncertainty worth keep powder dry maintain option adjust envelope future argument favour large envelope accommodative level financing condition acknowledge argue propose increase pepp envelope insufficient ease financing condition bring inflation close governing council aim light fact additional envelope app run end member highlight flexibility embody pepp argue focus preserve favourable financing condition imply away constant monthly pace purchase adjust pace accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation approach combine forceful communication allow governing council reduce pace purchase have equivalent effect financing condition result great efficiency entire envelope duration programme flexibility allocation pepp purchase time see align principle proportionality governing council monetary policy stance time see essential governing council state stand ready increase envelope need attention draw possible constraint effect additional purchase risk moral hazard fiscal dominance distort market functioning safeguard guarantee sufficient distance monetary financing concern guidance allocation stock asset purchase accord capital key see important maintain legitimacy independence emphasise environment fiscal policy remain appropriate response pandemic drive crisis monetary policy play secondary role member exchange view favourable financing condition feel financing condition consider holistic way appropriate level depend inflation outlook deem important explain maintain favourable financing condition allow flexibility fundamental change condition tighten endogenously response economic development addition relevant financing condition see pertain private public sector economy comprise interest rate credit volume condition regard recalibration tltro iii condition propose change extension pandemic relate low interest rate period addition operation increase potentially borrow see appropriate way preserve attractive funding condition help bank secure liquidity require extend loan household firm favourable lending term lending performance target consider important element -give bank incentive provide additional credit attractive pricing tltro iii sufficient provide ongoing backing base monetary policy transmission propose increase potentially borrow tltro iii see support flow credit real economy allow bank secure liquidity favourable term recall define relation euro area bank stock eligible loan amount half total loan book number reservation express regard propose increase borrowing allowance related particular concern bank increasingly dependent eurosystem funding source induce bank invest sovereign debt background broad agreement reach raise borrowing allowance stock eligible loan regard communication member widely agree element propose lane introduction uncertainty continue pronounce deem important acknowledge positive news emerge impact balance risk time feel governing council need stress medium term inflation outlook far inflation rate close express governing council afford perceive complacent inflation path embody projection addition need stress recalibration governing council policy measure provide sizable flexible support order maintain favourable financing condition extend pandemic period important shift implement pepp highlight underline favourable financing condition maintain asset purchase flow exhaust available pepp envelope need time governing council willingness recalibrate pepp future need ensure financing condition sufficiently favourable counteract impact pandemic medium term inflation outlook context note important role reinvestment principal payment play monetary policy stance underline furthermore governing council need announce carefully monitor measure sufficient guarantee return inflation aim reiterate stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry include possibly cut deposit facility rate governing council monitor effect exchange rate inflation outlook finally need ambitious coordinated fiscal stance sharp contraction euro area economy emphasise underline key role ngeu package importance operational delay monetary policy decision communication take account forego member proposal president governing council decide recalibrate monetary policy instrument follow interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council decide increase envelope pandemic emergency purchase programme pepp total extend horizon net purchase pepp end march case governing council conduct net purchase judge coronavirus crisis phase governing council decide extend reinvestment principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance governing council decide recalibrate condition series targeted long term refinance operation tltro iii specifically decide extend period considerably favourable term apply month june additional operation conduct june december governing council decide raise total counterpartie entitle borrow tltro iii operation stock eligible loan order provide incentive bank sustain level lending recalibrated tltro iii borrowing condition available bank achieve lending performance target governing council decide extend june duration set collateral ease measure adopt governing council april extension measure ensure bank use eurosystem liquidity operation notably recalibrated tltro governing council reassess collateral ease measure june ensure eurosystem counterpartie participation tltro iii operation adversely affect governing council decide offer additional pandemic emergency long term refinance operation peltro provide effective liquidity backstop net purchase asset purchase programme app monthly pace governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation eurosystem repo facility bank eurep temporary swap repo line non euro area bank extend march finally governing council decide conduct regular lending operation fix rate tender procedure allotment prevail condition long necessary monetary policy measure take today contribute preserve favourable financing condition pandemic period support flow credit sector economy underpin economic activity safeguard medium term price stability time uncertainty remain high include regard dynamic pandemic timing vaccine roll out governing council monitor development exchange rate regard possible implication medium term inflation outlook council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference december press release monetary policy decision ecb extend pandemic emergency long term refinance operation ecb prolong support targeted lending operation bank lend real economy meeting ecb governing council december members lagarde president guindos vice president centeno hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf mersch müller panetta rehn reinesch schnabel stournaras vasiliauskas vasle vella villeroy galhau visco weidmann wunsch members hold voting right december article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo ódor rutkaste sleijpen tavlas välimäki ecb bracke deputy director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday february contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting january account monetary policy governing council european central bank hold frankfurt main wednesday thursday january review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy december new global coronavirus covid-19 infection reach record high previous week risk protract containment measure rise amid emergence infectious mutation virus pace vaccination proceed slowly expect sentiment financial market improve noticeably start year mainly reflect expectation additional fiscal stimulus united states spark reflation trade treasury yield curve steepen significantly lead long end reflect increase inflation expectation real rate euro area overnight index swap ois curve contrast remain close flat historical level steepen marginally past week euro area gdp weight yield curve remain close level observe time governing council december monetary policy stable nominal yield euro area mask oppose underlying development medium long term inflation expectation increase pace united states real yield euro area resist upward pressure fact decline record low level repricing short end curve united states euro area ois forward curve continue shift upwards start reflect high interest rate expectation cross asset price correlation consistent market sanguine economic outlook despite risk strict lockdown extend near future price flow datum global equity market suggest improvement risk sentiment recovery long term earning expectation far outweigh impact rise risk free rate global stock market post gain euro stoxx index close reach pre covid-19 pandemic level price gain back continue inflow global equity asset management investment fund increase early november time stock price eventually vulnerable rise real yield globally excess cape yield i.e. inverse cyclically adjust price earning ratio minus real year bond yield continue high mean investor necessarily lower premium demand hold risky asset nonetheless sustained rise real rate rapidly lower relative attractiveness equity pose risk broad base repricing risk price correction evenly distribute equity universe distribution price earning ratio firm euro stoxx index currently wide average past year reflect recovery remain highly uneven credit market show similar resilience risk high rate corporate credit spread euro area continue narrow marginally past week arrival vaccine recalibration measure decide governing council december foster compression risk premia market segment level close prevail covid-19 pandemic foreign exchange market rise government bond yield interrupt depreciation trend dollar gain momentum governing council previous monetary policy georgia run election euro exchange rate versus dollar drop temporarily fall level prevail time monetary policy real rate key factor boost global portfolio rebalancing risk taking extent investor see risk surround rate increasingly skewed upside important driver exchange rate development lose steam take financial market development leave broad base positive mark financial condition euro area sovereign real yield drop spread remain resilient stock price inflation expectation rise euro exchange rate versus dollar reverse appreciation trend strong vote confidence governing council decision focus duration policy support preservation favourable financing condition protect highly accommodative stance environment continue high uncertainty global environment economic monetary development euro area lane review global environment economic monetary development euro area regard external environment global recovery continue end year slight fall global composite output purchasing managers index pmi december signal weakening momentum despite surge covid-19 infection datum forecast indicate optimistic outlook global activity previously expect base strong economic growth united states strong economic datum china trade deal medium term outlook improve rise covid-19 case result containment measure pose near term headwind growth vaccination contain pandemic expect mid-2021 compare wave covid-19 infection containment measure spring service affect november december trade development resilient wave pandemic oil price continue recovery start spring increase governing council december monetary policy usd barrel drive high demand factor limit supply time euro appreciate slightly amid volatility dollar depreciate slightly effective term commodity price metal food rise sharply support strong rebound commodity demand half turn euro area restrictive extended lockdown weigh short term growth outlook economic impact pandemic continue affect service particular manufacturing remain resilient accord late pmi datum december activity service sector continue shrink manufacturing activity continue increase robust development global trade economic impact lockdown moderate compare wave pandemic spring accord european commission survey confidence service sector subdued country wave reflect fact economy adapt well restriction fiscal transfer continue buffer euro area household disposable income half compensate weak labour income service unavailable lockdown consumer force save push household saving rate term distribution young household draw saving financial situation deteriorate old household able save saving consumption future affect outlook euro area economy come quarter regard labour market development euro area unemployment rate stand november percentage point low october labour demand remain weak job market provide limit opportunity look job time job retention scheme especially short time work scheme contain unemployment help stabilise household income turn nominal development hicp inflation hicp inflation exclude food energy hicpx remain respectively december euro area inflation fall pre pandemic level remain persistently negative august owe development energy price good service price broad range measure underlie inflation move sideways measure exclude volatile item indirect tax change decline beginning pandemic decline non energy industrial good inflation attribute weakness clothing footwear inflation expect correct extent pandemic negotiate wage continue broad sideways movement despite large amount slack economy labour market wage agreement conclude pandemic look ahead headline inflation turn positive january increase course year phasing temporary cut german value add tax vat rate january factor hicp weight expect change substantially result change consumption pattern pandemic add elevated uncertainty surround inflation outlook accord survey professional forecasters spf inflation expectation unchanged hicp inflation expect stand look ahead spf continue expect headline inflation year ahead reach market base measure long term inflation expectation increase odd low inflation decline review late development euro area financial condition path risk free rate suggest rate cut expectation absent long term risk free rate increase risk asset stable stand close pre crisis level turn money credit development money growth buoyant annual growth increase october november eurosystem asset purchase remain main source money creation contribution credit private sector continue moderate annual growth loan euro area non financial corporation affect strong expansion loan spring unchanged november short term loan dynamic continue weaken drive demand factor supply factor annual growth loan euro area household remain unchanged november base january lending survey bls euro area credit standard loan firm tighten drive bank heighten risk perception concern borrower creditworthiness bank expect tightening credit standard firm reflect continued uncertainty development pandemic effect credit risk borrower credit standard loan household house purchase continue tighten previous quarter nominal cost debt financing non financial corporation unchanged december historically low level turn fiscal policy fiscal support plan sizeable possibly extend depend development pandemic background strengthened extend covid-19 relate restriction generation ngeu package expect provide strong contribution particularly public investment ambitious government plan fulfil monetary policy consideration policy option sum lane remark launch vaccination campaign euro area important milestone resolution ongoing health crisis near term outlook challenge account renew surge infection emergence virus mutation restrictive containment measure impose euro area country past month high frequency datum incoming survey indicator initial week signal significant weakening service sector albeit less degree wave pandemic spring activity manufacturing sector continue recovery support foreign demand output contract intensification pandemic pose downside risk output look reason cautious optimism prospect recovery course addition roll vaccination campaign sign improvement global economic outlook furthermore trade deal positive development compare december eurosystem macroeconomic projection time uncertainty remain high especially relate dynamic pandemic timely implementation vaccination campaign inflation remain subdue amid weak demand significant slack labour product market hicp hicpx inflation unchanged december respectively headline inflation increase come month basis energy price dynamic support end temporary vat reduction germany underlie price pressure expect mute owe weak demand notably tourism travel relate sector low wage pressure appreciation euro survey base measure market base indicator long term inflation expectation remain low level slight pick market base indicator inflation expectation financial market sentiment remain positive underpin ample fiscal monetary policy support amid global reflation hope fuel expectation substantial fiscal stimulus currency market development euro exchange rate monitor regard possible implication medium term inflation outlook broad term finance condition euro area supportive bond market lending nonetheless important monitor increase nominal risk free rate attribute spillover substantial increase yield look ahead assess impact upward pressure nominal yield favourability financing condition important task context future update inflation outlook assess favourability financing condition important bear mind continue net tightening credit standard report january bls ample monetary policy support remain essential comprehensive policy package announce december contribute preserve favourable financing condition pandemic period help reduce uncertainty bolster confidence encourage consumer spending business investment underpin economic activity safeguard medium term price stability overall risk surround euro area growth outlook remain tilt downside pronounced news global economy agreement future relation launch vaccination campaign encouraging ongoing pandemic implication economic financial condition continue source downside risk background lane propose governing council reconfirm exist monetary policy measure communication governing council need highlight incoming datum confirm december baseline assessment pronounce near term impact pandemic economy protract weakness inflation emphasise ample monetary stimulus remain essential preserve favourable financing condition pandemic period sector economy iii stress help reduce uncertainty bolster confidence encourage consumer spending business investment underpin economic activity safeguard medium term price stability reiterate purchase flexibly pepp accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation reiterate continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk activity provide lane introduction overall incoming datum confirm previous baseline assessment pronounce near term impact pandemic economy protract weakness inflation regard external environment member share assessment provide lane introduction sign improvement global economic outlook particular attention draw positive news evolution trade growth china asian economy additional fiscal stimulus package final result election lead substantial fiscal stimulus successful conclusion trade agreement geopolitical appear uncertainty time pandemic ongoing public health crisis continue pose risk global economy turn euro area development follow sharp contraction half euro area real gdp rebound strongly rise remain pre pandemic level member consider incoming economic datum survey high frequency indicator suggest resurgence pandemic associated intensification containment measure lead decline activity pronounced envisage december eurosystem macroeconomic projection conversely intensification pandemic expect weigh heavily activity foresee early take quarter development remain line december baseline projection recall extension containment measure incorporate december projection highlight response increase case infection measure take announce euro area country lead tight restriction anticipate december projection argue fast rebound growth foresee december projection optimistic growth possibly risk extended lockdown addition vaccination roll out prove slow concern express possible impact spread virulent mutation virus proliferate follow december holiday period time note economic cost containment measure low spring measure targeted firm learn well adjust restriction addition emphasise containment measure strict government provide fiscal support cushion short term impact tight restriction delay vaccination roll out relative early expectation contribute long last restriction attribute mainly logistic see affect time frame change picture substantially underline economic development continue uneven sector service sector adversely affect restriction social interaction mobility industrial sector heterogeneity euro area country fiscal policy measure continue support household firm consumer see remain cautious light pandemic impact employment earning reference high level accumulate household saving potential pen demand contribute swift rebound consumption containment measure ease time weak corporate balance sheet uncertainty economic outlook see weigh business investment member highlight dichotomy risk short term outlook positive development medium term roll vaccine start late december allow great confidence resolution health crisis time widespread immunity achieve setback relate pandemic rule far improvement macroeconomic outlook appear drive external factor domestic factor beneficial euro area open economy particularly manufacturing sector look ahead recovery euro area economy support favourable financing condition expansionary fiscal stance recovery demand containment measure lift uncertainty recede reference continued risk cliff edge effect premature removal fiscal stimulus weak corporate banking sector balance sheet give risk surge corporate insolvency non performing loan overall member assess risk surround euro area growth outlook remain tilt downside pronounce compare situation autumn prior news vaccine improved prospect global economy agreement future relation start vaccination campaign encouraging ongoing pandemic implication economic financial condition continue source downside risk fiscal policy ambitious coordinated fiscal stance see remain critical sharp contraction euro area economy end continued support national fiscal policy warrant give weak demand firm household relate worsening pandemic intensification containment measure time emphasise fiscal measure take response pandemic emergency possible targeted temporary nature concern european leader agree deliver large support package finance budget progress implementation slow challenging key role generation package underline importance operational delay member states call accelerate ratification process finalise recovery resilience plan promptly deploy fund productive public spending accompany productivity enhance structural policy allow generation programme contribute fast strong uniform recovery increase economic resilience growth potential member states economy support effectiveness monetary policy euro area structural policy particularly important address long stand structural institutional weakness accelerate green digital transition regard price development broad agreement assessment present lane introduction euro area annual inflation remain unchanged december basis energy price dynamic headline inflation increase come month support end temporary vat reduction germany underlie price pressure expect subdue owe weak demand notably tourism travel relate sector low wage pressure appreciation euro impact pandemic fade recovery demand support accommodative fiscal monetary policy upward pressure inflation medium term survey base measure market base indicator long term inflation expectation remain low level market base indicator inflation expectation increase slightly discuss inflation development member agree line december projection headline inflation low level december underlie inflation reach historical low strong global demand high commodity price help push inflation price pressure remain subdue achieve robust convergence ecb medium term inflation aim remain challenge favourable development economy inflation contingent progress curb spread pandemic emphasise medium term outlook inflation surround high level uncertainty give unprecedented pandemic situation long stand question change underlie determinant inflation elevated uncertainty relate strength post pandemic economic recovery relative importance demand versus supply factor different sector economy question strength pass finance condition inflation addition continue acute measurement issue relate relevant weight price index pandemic period project gradual recovery inflation baseline scenario see valid highlight inflation project time appear little risk deflation juncture inflation expect rise short term owe high energy price reversal temporary tax reduction jurisdiction rapid recovery activity expect restriction lift rule course inflation dynamic strong foresee projection temporarily light global development especially strong expect rebound activity half year point temporary boost inflation mistake sustained increase emerge slowly member review late exchange rate development note persistent trend appreciation euro reverse start possible adverse implication appreciation euro inflation outlook reiterate note nominal effective exchange rate historically high level negative impact inflation highlight impact exchange rate movement inflation overestimate standard model development inflation expectation member note accord ecb late spf long term inflation expectation unchanged market base indicator inflation expectation increase year forward inflation link swap rate year ahead stand i.e. pre pandemic level regard positive pandemic barely affect long term inflation expectation give adaptive nature inflation expectation argue increase inflation positive impact inflation expectation future note increase market base measure euro area mainly global factor turn monetary analysis member agree assessment provide lane introduction annual growth rate broad money narrow money high november respectively highlight money growth mainly eurosystem ongoing asset purchase monetary dynamic drive development asset liability eurosystem balance sheet attention draw development loan private sector characterise moderate lending non financial corporation resilient lending household note annual growth rate lend non financial corporation appear robust mainly reflect strong increase lend half year monthly lending flow moderate end summer translate weak investment dynamic time argue firm build sizeable precautionary buffer slowdown credit interpret start financial amplification cycle time concern express possible deterioration firm financial position look ahead public support measure phase view exchange interpretation result lending survey bls report continued net tightening credit standard loan firm tightening mainly drive heighten risk perception bank context continued uncertainty economic recovery concern borrower creditworthiness underline perception bank recession harm creditworthiness non financial company crisis relate bankruptcy trigger surge non performing loan npls payment holiday moratoria expire hand argue result bls warrant careful monitoring signal tightening ahead correspond negative consequence credit flow economic activity addition result highlight role structural weakness euro area banking sector overcapacity high npl low profitability slow progress digitalisation hand recall report credit standard tighten previous crisis episode state guarantee loan lead significant relaxation credit standard tightening interpret return normal condition monetary policy stance policy consideration member take assessment financial financing condition provide schnabel lane introduction remain favourable governing council december account ecb recalibrate monetary policy package receive financial market financial market remain calm standard indicator financial condition signal degree accommodation comparable high prevail start pandemic euro area risk free rate rise slightly december sovereign credit spread resilient bond market condition remain favourable corporate bond lending rate close historical low household firm take increase market base inflation expectation account real yield historical low observe expectation substantial fiscal support lead steepening treasury yield curve affect yield euro area limited extent significant decouple yield observe euro area stock price increase december euro exchange rate stable amid volatility note analysis suggest exchange rate development drive policy shock global risk sentiment concern voice development exchange rate negative implication euro area financial condition ultimately consequence inflation outlook member agree ample monetary stimulus remain essential preserve favourable financing condition pandemic period overall monetary policy stance assess remain accommodative help preserve favourable financing condition necessary counter downward impact pandemic project path inflation recent financial market development confirm governing council decision focus extended duration pandemic emergency measure preservation favourable financing condition flexibility pepp far prove effective hold favourable financing condition need prevail time order provide continued support flow credit sector economy counter possible macro financial amplification effect background recall project path inflation december eurosystem macroeconomic projection continue distant governing council medium term inflation aim december package calibrate objective counter downward impact pandemic project path inflation hold governing council allow real interest rate decline financing condition ease account increase inflation expectation inflation outlook fall significantly short governing council aim low real yield provide additional support fast return price stability time maintain increase nominal yield interpret unwarranted tightening financing condition trigger correspond policy response note nominal yield appropriate benchmark assess financing condition remain favourable rise well economic outlook high inflation expectation matter monetary policy perspective evolution real rate decline record low level week overall widely feel recalibration instrument decide december remain appropriate balance instrument need table consideration benefit possible unintended effect emphasise holistic approach need define relevant range financing condition target broad flexible manner sector economy private public comprise lending rate credit volume condition household firm account economic market development ultimately anchor medium term outlook price stability member agree lane proposal reconfirm exist monetary policy measure argue monetary policy steady hand measure place december give time effect economic outlook judge evolve line december eurosystem projection configuration monetary policy tool deem supportive flexible address situation overall member widely agree room complacency governing council stand ready use instrument appropriate ensure robust convergence inflation aim member agree monetary measure place include adopt onset pandemic effective proportionate support growth inflation balance benefit cost remain positive purchase pepp contribute preserve favourable financing condition sector series targeted long term refinance operation tltro iii remain attractive source funding bank support lending firm household continue reinvestment principal payment mature security purchase pepp asset purchase programme app enhance favourable financing condition signal continued presence eurosystem market pandemic period purchase pepp conduct flexibly accord market condition preserve favourable financing condition pandemic period counter downward impact pandemic project path inflation addition flexibility purchase time asset class jurisdiction support smooth transmission monetary policy regard dual role pepp stress regard communication member agree element propose lane introduction hand deem important stress inflation outlook remain disappointing inflation rate baseline scenario hand balanced presentation outlook call uncertainty international development resolve positive way expect context emphasise measure place appropriate outlook design react flexibly equally potentially favourable development upside surprise see essential convey governing council commit maintain steady presence market ensure favourable financing condition point governing council need stress room complacency feel governing council reiterate vigilance regard development exchange rate implication inflation outlook addition governing council need state continue stand ready adjust instrument include deposit facility rate dfr appropriate ensure inflation move aim sustained manner finally sharp contraction euro area economy deem important governing council emphasise need continued ambitious fiscal policy support recovery monetary policy decision communication take account forego member proposal president governing council decide reconfirm accommodative monetary policy stance interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council purchase pepp total envelope governing council conduct net asset purchase pepp end march case judge coronavirus crisis phase purchase pepp conduct preserve favourable financing condition pandemic period favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase app monthly pace governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation finally governing council provide ample liquidity refinance operation particular series targeted long term refinance operation tltro iii remain attractive source funding bank support lending firm household governing council continue stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference january press release monetary policy decision meeting ecb governing council january members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras vasiliauskas vasle villeroy galhau visco weidmann wunsch members hold voting right january article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo ódor pattipeilohy phelan rutkaste tavlas välimäki ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations sousa deputy director general economics rostagno director general monetary policy release monetary policy account foresee thursday thursday april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting march account monetary policy governing council european central bank hold frankfurt main wednesday thursday march review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy january sovereign yield curve advanced economy steepen coronavirus covid-19 case fall pace vaccination accelerate large fiscal stimulus programme united states expect soon law measurable rise commodity price add upward pressure long term nominal bond yield increase long term bond yield mute euro area advanced economy euro area gdp weight yield curve remain considerably flat year precede covid-19 pandemic shape location observe outbreak pandemic sovereign spread remain resilient narrow jurisdiction accordingly increase yield reflect primarily rise euro area risk free rate decomposition year overnight index swap rate indicate investor hardly change view expect future path short term rate recent yield increase instead reflect large rise term premia increase term premia coincide notable rise inflation swap rate inflation risk premium large investor start reappraise balance risk inflation outlook increase inflation risk premium juncture suggest investor long see downside risk future inflation outlook real year risk free interest rate fluctuate time fall close level prevail december governing council currently basis point average real short medium term rate insulate bond market sell continue hit historical low week credit market remain resilient increase bond market volatility risk free rate suggest investor remain fundamentally position high growth credit spread rating class particular high yield bond continue narrow past week support visible recovery realise earning change corporate default outlook mirror expectation significantly improve growth outlook contribute favourable valuation credit market stock market euro stoxx index extend gain gradually approach pre pandemic level ecb analysis suggest rise risk free rate deterioration short term earning outlook prolongation containment measure pull stock price lower week combination well long term earning expectation vaccination roll out associated improvement risk sentiment offset drag stock price economy rise risk free rate increase risk asset valuation remain predicate expectation extended period low interest rate development emerge market provide evidence investor far have able willing absorb rise risk free rate february portfolio inflow emerge market continue robust pace start reverse week ahead finally foreign exchange market expectation high growth accommodative monetary policy upward pressure nominal effective exchange rate dollar dollar exchange rate euro time risk sentiment continue downward pressure dollar hope resolution pandemic spillover effect fiscal policy kick start nurture strong global cyclical upswing global environment economic monetary development euro area lane review global environment economic monetary development euro area regard external environment upgrade outlook result combination ongoing vaccination learn effect live pandemic additional fiscal stimulus united states march ecb macroeconomic projection euro area global activity trade revise projection horizon global economy bounce half fast pace envisage base late purchasing managers index pmi output service particularly improve late global trade pre crisis level pace trade expansion stall turn year trade service continue drag trade owe limitation travel tourism governing council january monetary policy oil price rise climb usd barrel close pre pandemic level term exchange rate euro depreciate dollar remain stable nominal effective term turn euro area economy growth strong expect ongoing restriction negative impact growth base march projection real gdp recover exceed pre crisis level increase robust rate recovery expect vary different gdp component rely heavily fiscal support year zoom late economic development containment measure strict previously expect hold near term recovery change path base late pmis february divergence manufacturing service growth dynamic expect household saving continue mirror pandemic drive consumption dynamic saving accumulate old household typically low propensity consume income wealth spend saving soon lockdown measure relax contrast young population see big deterioration financial situation low skilled service job particularly hit pandemic link delay vaccination campaign household expect normal activity resume delay investment remain resilient datum production capital good give encourage signal ongoing business investment resilience capital good production support foreign demand housing investment expect subdued near term trade weaken turn year drive mainly weak intra euro area export notwithstanding continued growth extra euro area export lead indicator manufacturing export continue rise base improvement shipping survey indicator available february labour market remain resilient strong fiscal support indicator point vulnerability ahead overall survey indicator employment perception rise somewhat indicate expansion time onset pandemic development remain uneven country sector low tech service sector adversely affect wave pandemic tighten restriction importance job retention scheme increase month turn nominal development short term inflation outlook revise march ecb projection inflation path embed december eurosystem projection confirm outer year projection horizon project profile inflation harmonised index consumer prices hicp volatile mainly result energy price hicp inflation expect jump fall increase profile hicp inflation exclude energy food hicpx shift somewhat show gradual increase zoom development headline inflation increase sharply stand january february consecutive month unchanged rate february result negative energy inflation offset decline hicpx inflation february january substantially high record month upswing headline inflation reflect number factor include negative energy inflation end temporary vat rate reduction germany change sale pattern timing volume country strong usual change hicp weight link tightening containment measure share price imputation hicp increase january impact price imputation change hicp inflation remain unclear add high uncertainty pick inflation signal genuinely increase price pressure key wage measure base national account datum compensation employee compensation hour continue strongly affect effect job retention scheme relatively strong growth unit labour cost continue contribute positively development gdp deflator counterbalance effect low contribution profit margin result gdp deflator rise slightly regard inflation expectation ecb survey professional forecasters spf record upward revision short medium term inflation expectation long term inflation expectation increase slightly market base measure inflation expectation stand somewhat level observe governing council january monetary policy year forward inflation link swap rate year ahead stand march compare january turn financial condition euro area increase nominal government bond yield long end curve improvement risk attitude increase inflation link swap rate decline sovereign bond risk premia slight depreciation euro sell bond market synchronise broad base major advanced economy point important global factor look corporate bond market default rate high yield issuer remain low past crisis episode short term earning expectation deteriorate sector january monetary policy index financial condition assign different weight development financial market respective signal differ somewhat increase long term yield signal tightening condition strong stock market slight depreciation euro point loosening monetary development money growth continue strong broad money grow annual rate january amid large footprint eurosystem asset purchase remain large source money creation narrow monetary aggregate remain main contributor broad money growth short term monetary dynamic remain strong monthly flow january weak drive volatile component growth loan non financial corporation continue moderate country reflect monthly flow slowdown growth lending reflect firm substantial liquidity buffer continued postponement fix investment perceive tightening credit standard bank lending rate firm remain close historical low reflect continue pass monetary policy accommodation decline nominal rate euro area counterbalance low inflation expectation period keep real rate pre pandemic level turn fiscal policy accord march projection budget deficit expect small foresee december projection well economic development need support previously expect partly anticipate sizeable additional stimulus foresee response lockdown measure nonetheless budget balance project improve forecast horizon deficit deficit reflect fiscal pull stemming winding pandemic relate measure reaction automatic stabiliser improvement link low interest rate monetary policy consideration policy option sum lane note economic situation improve uncertainty euro area remain high owe particular persistently high rate covid-19 infection spread virus mutation speed vaccination campaign rebound global demand additional fiscal support measure support global domestic activity near term economic outlook remain challenge look short term weakness euro area economic activity expect gain momentum course year medium term recovery euro area economy support favourable financing condition expansionary fiscal stance recovery demand containment measure gradually lift accordingly march projection foresaw growth rebound stabilise risk surround euro area growth outlook medium term balanced downside risk remain near term hand well prospect global economy bolster sizeable fiscal stimulus progress vaccination campaign encouraging hand ongoing pandemic include spread virus mutation implication economic financial condition continue source downside risk accord eurostat flash estimate headline inflation rise sharply january february december mainly owe increase energy price inflation idiosyncratic factor time underlie price pressure remain subdue context weak demand significant slack labour product market survey base measure market base indicator long term inflation expectation remain low level compare governing council inflation aim market base indicator continue rise gradually look ahead inflation expect increase temporarily reach end year march projection foresaw hicp inflation average overriding theme euro area global financial market continued rise long term risk free interest rate sovereign bond yield context holistic multifaceted approach evaluate financing condition span entire transmission chain monetary policy development risk free interest rate sovereign yield particularly relevant market interest rate directly influence governing council monetary policy measure notably asset purchase risk free rate sovereign yield lead indicator financing condition later stage transmission key benchmark rate pricing capital market instrument corporate bond pricing loan household firm follow shock originate risk free sovereign bond market tend trickle transmission chain influence downstream indicator finance condition lag accordingly development risk free interest rate sovereign bond yield measurable real time warning potential development later stage transmission chain lag december governing council pledge preserve favourable financing condition pandemic period prevent tightening inconsistent counter negative pandemic shock project inflation path sizeable persistent rise market interest rate prematurely tighten financing condition sector economy challenge commitment especially context unchanged inflation outlook indicate march projection base joint assessment favourability financing condition inflation outlook lane propose net purchase pandemic emergency purchase programme pepp conduct significantly high pace month year fulfil governing council pledge calibrate pepp purchase appropriate order preserve favourable financing condition help counter negative pandemic shock project path inflation monthly purchase pace implement flexibly accord market condition governing council purchase pace quarterly basis monetary policy meeting base joint assessment financing condition inflation outlook condition favourable financing condition context inflation outlook preserve slow pace purchase governing council scale pace likewise governing council scale pace purchase require preserve favourable financing condition furthermore flexibility purchase time asset class jurisdiction support smooth transmission monetary policy propose significant increase purchase pace pepp constitute proportionate response risk rise market interest rate pose broad financing condition ultimately price stability mandate sizeable persistent shift market interest rate leave unchecked withdraw monetary stimulus prematurely time preserve favourable financing condition remain necessary underpin economic activity safeguard medium term price stability flexibly implement asset purchase suitable monetary policy instrument remain efficient alternative tool preserve favourable financing condition pandemic environment characterise high uncertainty benefit achieve ecb price stability mandate clearly outweigh potential negative effect economic policy domain governing council need reiterate stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry need underline public communication alongside restate establish forward guidance ecb key interest rate asset purchase programme govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk economic activity provide lane introduction economic situation see improve uncertainty surround near term economic outlook remain relate particular dynamic pandemic speed vaccination campaign rebound global demand additional fiscal measure support global euro area activity persistently high covid-19 infection rate spread virus mutation associated extension tightening containment measure weigh euro area economic activity short term look ahead ongoing vaccination campaign envisage gradual relaxation containment measure underpin expectation firm rebound economic activity course inflation pick month mainly account transitory factor increase energy price inflation underlie price pressure remain subdue context weak demand significant slack labour product market regard external environment member share lane assessment global economic recovery fast expect outlook improve context ongoing vaccination learn effect live pandemic attention draw fact additional fiscal stimulus package biden administration american rescue plan call biden plan factor march ecb projection stimulus package pass legislation time projection finalise see constitute upside risk global consequently euro area economic outlook embed projection time point impact biden plan implication eur usd exchange rate depend type open economy macro model mind spillover hard quantify turn euro area development real gdp decline follow strong rebound observe incoming economic datum survey high frequency indicator point continue economic weakness drive persistence pandemic associated containment measure result real gdp contract expect rebound firmly course year overall member agree baseline economic growth march projection note unchanged december eurosystem projection nuance express hand stress real gdp growth repeatedly underestimate successive quarter past year point economy resilient expect argue short term ground optimistic take ecb medium term outlook example assumption evolution save ratio turn conservative reason optimistic passing congress biden plan fiscal impulse exert positive effect euro area economic growth show analysis strong global trade activity great confidence path pandemic emergency compare situation december hand note compare december projection high level activity forward essentially reflect carry effect past outturn note projection revise offset well expect outcome caution express real gdp growth weak foresee march projection offset correspondingly strong rebound subsequent quarter member underline uncertainty surround near term growth outlook baseline continue depend evolution pandemic uncertainty decrease remain high reference slow pace vaccination compare part world question raise realistic assume containment measure reduce early point depend evolution pandemic weakness activity concern express true situation business household sector apparent government support guarantee scheme response pandemic phase related particular risk insolvency impact balance sheet potential emergence financial amplification loop affect medium term economic outlook recall economic development continue uneven economic sector containment measure affect service sector adversely manufacturing sector respect euro area household sector reference assumption baseline projection saving ratio gradually return pre crisis level substantial unwinding excess saving accumulate pandemic period point assumption conservative imply upside risk growth precautionary motif play significant role high accumulate saving simply reflect lack spending opportunity point considerable potential pent demand unleash containment measure ease time stress euro area country heterogeneous debt vulnerability extent predate pandemic exacerbate conceivable saving ratio high reflect heightened caution future deleveraging need point risk unemployment rate turn high expect job preserve job retention scheme expire assessment balance risk member emphasise dichotomy continue elevated risk outlook short term positive development medium term degree uncertainty high see lessen compare time december projection note financial market dynamic suggest positive outlook point downside risk see prevail december take account downward revision growth small vaccination process get way addition factor biden plan fiscal package imply clear upside risk projection pandemic continue imply downside risk balance risk shift balanced possibly start shift upside have downside time governing council december monetary policy see improvement time january overall member judge risk surround euro area growth outlook medium term balanced downside risk remain near term hand well prospect global demand bolster sizeable fiscal stimulus progress vaccination campaign encouraging hand ongoing pandemic include spread virus mutation implication economic financial condition continue source downside risk fiscal policy ambitious coordinated fiscal stance see critical sharp contraction euro area economy end continued support national fiscal policy remain warrant give weak demand firm household ongoing pandemic associated containment measure time fiscal measure take response pandemic emergency possible temporary target nature address vulnerability effectively support swift recovery key role generation package importance operational delay underline member states call ensure timely ratification resources decision finalise recovery resilience plan promptly deploy fund productive public spending accompany productivity enhance structural policy allow generation programme contribute fast strong uniform recovery increase economic resilience growth potential member states economy support effectiveness monetary policy euro area structural policy particularly important address long stand structural institutional weakness accelerate green digital transition background argue consider fiscal stimulus united states overlook fiscal stimulus pipeline euro area country disbursement generation recovery fund come regard price development broad agreement assessment present lane introduction euro area annual hicp inflation increase sharply stand january february december upswing headline inflation reflect number idiosyncratic factor end temporary vat rate reduction germany delay sale period euro area country impact strong usual change hicp weight high energy price inflation basis oil future price headline inflation increase come month volatility expect factor expect fade annual inflation rate early year underlying price pressure expect increase somewhat year supply constraint recovery domestic demand pressure expect subdued reflect low wage pressure past appreciation euro impact pandemic fade unwinding high level slack support accommodative fiscal monetary policy contribute gradual increase inflation medium term accord march ecb projection outlook inflation revise temporary factor high energy price inflation unchanged projection foresaw gradual increase underlie inflation pressure confirm medium term inflation outlook remain unchanged eurosystem projection december governing council inflation aim discuss inflation outlook member agree large upward surprise late hicp datum upward revision headline inflation march ecb projection mainly temporary factor expect fade away time observe small upward surprise late hicp datum account temporary factor highlight medium term outlook headline inflation march ecb projection unchanged december eurosystem projection remain governing council inflation aim projection prevail onset pandemic time recall spillover biden plan fiscal package euro area take account inflation projection lead upward impact subsequent projection regard inflation expectation survey base measure market base indicator long term inflation expectation remain subdue level market base indicator continue rise gradually note upward trend reflect import inflation expectation outside euro area long term inflation expectation rise strongly euro area united states beginning year member consider implication expect temporary increase headline inflation later inflation expectation hand suggest upward impact inflation expectation backward look hand point economic agent look temporary rise inflation report contact business point perception high inflation context spike commodity price supply bottleneck rise production cost warrant close monitoring producer price development forward turn monetary analysis member concur assessment provide lane introduction strong money growth continue support ongoing asset purchase eurosystem remain large source money creation development loan private sector characterise somewhat weak lending non financial corporation resilient lending household question raise information content money growth medium term inflation time secular force hold natural rate interest phillips curve relationship appear weaken attention draw potential consequence prolong pandemic crisis liquidity solvency non financial corporation eventually result high default especially public support moratoria expire reference tightening credit condition expect bank accord late lending survey prospect increase non performing loan banking sector bear risk create financial amplification loop ultimately cloud medium term economic outlook rise financial stability risk monetary policy stance policy consideration regard assessment financial financing condition broad agreement member financing condition assess basis holistic multifaceted set indicator cover entire chain monetary policy transmission long term risk free interest rate sovereign bond yield euro area increase governing council early december reflect spillover bond yield increase expect fiscal stimulus rise commodity price improved growth prospect globally global covid-19 infection decline vaccination campaign proceed well economic outlook united states entail positive demand effect euro area observe optimism prevail financial market reflect reflation trade share business household maintain cautious stance time hold increase observe sovereign yield remain contain extent decouple development united states finance condition non financial private sector remain favourable account ample monetary policy support context important role pepp supportive communication president governing council member underline help dampen increase euro area yield contribute partial decoupling face global bond market sell note increase take place low level indicator financing condition lending rate non financial company household sovereign spread credit spread remain highly accommodative argue holistic multifaceted approach assess favourability financing condition entire transmission chain monetary policy deem appropriate special attention need pay sovereign yield risk free interest rate play key role financing condition later stage transmission chain context remark rise risk free interest rate gdp weight sovereign yield need pronounce persistent order exert material impact broad financing condition role targeted long term refinance operation shield bank somewhat possible increase market base funding cost underline member concur lane ample monetary stimulus remain necessary preserve favourable financing condition pandemic period order ensure sustained convergence inflation governing council aim emphasise assessment financing condition inflation outlook undertake jointly assessment favourable financing condition evolve time focus governing council december decision counter unwarranted premature tightening financing condition preserve particular level possible misperception governing council engage form implicit yield curve control avoid express long medium term inflation outlook remain unsatisfactory governing council need preserve financing condition close favourable level observe december bring inflation projected pre pandemic path material tightening financing condition irrespective underlie driver origin delay convergence inflation governing council aim close medium term context hold governing council look spike inflation focus instead continued shortfall inflation governing council aim point financing condition prevail december pre pandemic projection inflation relevant time light shock occur intervene period background risk economic outlook euro area balanced medium term tightening financing condition see premature euro area weak cyclical position united states basis march projection euro area inflation growth outlook remain unchanged governing council december widely see continue high degree accommodation time underline favourability financing condition necessary understand underlie driver rise risk free rate real yield euro area increase materially december decline short maturity indicate pick nominal yield reflect entirely market reappraisal inflation outlook argue high real rate necessarily cause concern trigger policy intervention reflect high growth prospect high real term premia context remark assess development real interest rate subject uncertainty regard measurement relevant inflation expectation governing council commitment maintain favourable financing condition adopt early december broad consensus member rise risk free rate gdp weight sovereign yield require scaling pace purchase pepp long term sovereign yield figure prominently key variable evaluate financing condition indicative future change component financing condition significant increase pace pepp purchase month widely see warrant member express broad support lane proposal conduct purchase pepp significantly high pace month year significant increase purchase pace month see warrant observed tightening financing condition lack material improvement growth inflation outlook proposal deem proportionate light ecb mandate balance increase optimism medium term outlook considerable uncertainty prevail short term consideration give appropriate size increase pace purchase highlight clear message market governing council reaction function purchase volume need increase significantly propose lane send strong signal governing council want lean tightening financing condition argue moderate increase pace well reflect assessment balanced risk outlook light previous decision similar pace choose economic condition bad risk free rate gdp weight sovereign bond yield increase observe occur account high expect inflation well outlook global economy context remark governing council need avoid give impression overly focus sovereign yield react mechanically set indicator financing condition forward tightening sizeable persistent affect broad financing condition materially overall wide agreement purchase pace need account joint assessment favourability financing condition inflation outlook background member join broad consensus proposal forward lane understanding total pepp envelope call question condition pace purchase reduce future context flexibility purchase time see essential react change financing condition need time decision accelerate purchase pace significantly governing council willing use flexibility programme change envelope duration programme envelope recalibrate require order maintain favourable financing condition help counter negative pandemic shock path inflation equally favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need underline flexibility embody pepp symmetric imply purchase pace increase decrease accord market condition look ahead member agree governing council undertake quarterly joint assessment financing condition inflation outlook order determine pace purchase need financing condition favourable time deem important intervene period flexibility pace purchase continue apply accord market condition regard communication see essential governing council reiterate commitment stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry important provide reassurance governing council maintain accommodative monetary policy long necessary see risk overheat euro area environment finally sharp contraction euro area economy uneven recovery sector deem important emphasise need continued support fiscal policy sustain recovery monetary policy decision communication take account forego member proposal president governing council take follow monetary policy decision governing council conduct net asset purchase pandemic emergency purchase programme pepp total envelope end march case judge coronavirus crisis phase base joint assessment financing condition inflation outlook governing council expect purchase pepp conduct significantly high pace month year governing council purchase flexibly accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation addition flexibility purchase time asset class jurisdiction support smooth transmission monetary policy favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase asset purchase programme app monthly pace governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic finally governing council provide ample liquidity refinance operation particular series targeted long term refinance operation tltro iii remain attractive source funding bank support lending firm household governing council stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference march press release monetary policy decision meeting ecb governing council march members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras vasiliauskas vasle villeroy galhau visco weidmann wunsch members hold voting right march article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo ódor rutkaste sleijpen tavlas välimäki ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee friday contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting april account monetary policy governing council european central bank hold frankfurt main wednesday thursday april review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy march euro area government bond yield decouple treasury yield continue increase course march retreat somewhat april remain unchanged late february reflect renew rise coronavirus covid-19 infection tightening lockdown euro area affect near term growth expectation reflect impact governing council monetary policy decision march precede communication convince market ecb determination maintain favourable financing condition ecb measure effective shielding euro area long term rate spillover regard risk free yield curve sovereign spread decomposition euro area year overnight index swap rate inflation real component show nominal rate underlie component remain unchanged governing council previous monetary policy start observe synchronise pick market base measure long term inflation compensation advanced economy reflect optimism global growth model estimate suggest bulk increase inflation component drive inflation risk premia reflect significant increase investor genuine inflation expectation contrast inflation component long term real rate euro area remain unchanged start case medium term real rate particularly relevant borrowing condition firm remain close historical low global bond market sell suggest ecb measure effective insulate long term sovereign bond yield equally short medium end yield curve similar vein interest rate expectation year remain unchanged governing council monetary policy january market price change deposit facility rate rate expectation remain anchor ecb forward guidance asset price serve cross check driver financing financial condition credit spread rating class remain stable decrease high yield bond growth drive nature bond market sell ecb accommodative monetary policy keep lid corporate spread optimism global growth key driver stock market support accelerate roll vaccine strong global economic datum improvement long term earning growth expectation stock price rally pre pandemic level euro area development mask significant cross country heterogeneity important driver sectoral composition country stock market large share sector benefit crisis tend outperform peer trend reverse positive news vaccine november surge price risky asset create risk high equity price valuation see dependent continue highly accommodative interest rate indicator equity duration inverse dividend yield stand high level dot com bubble united states euro area overall financial market development positive effect financing financial condition euro area sovereign yield spread remain compressed stock price rise euro exchange rate appreciate slightly global environment economic monetary development euro area lane review global environment economic monetary development euro area wave infection hit economy globe time world learn live pandemic impact output limited wave spring year overall positive signal global recovery remain investment lead consumption lag incoming datum point continued recovery global trade good trade surprising upside january oil price remain essentially flat march monetary policy time euro exchange rate basically flat euro appreciate slightly dollar nominal effective term euro area economy headwind result lockdown especially service investment dynamic supportive short term indicator point recovery start focus late development large asymmetry industry service prevail manufacture purchasing managers indices pmis increase time show strong reading strong recovery service pmis expansionary territory retail sale remain weak owe restriction introduce limit spread covid-19 high level containment measure continue delay recovery consumption consumer survey example european commission remain cautious indicator major purchase expect come month business retail sale expectation order consumer good improve remain pre pandemic level private investment continue recover growth construction investment remain mute final forward look indicator positive business expectation construction confidence tick upwards growth extra- intra euro area good export steadily recover low record tourism owe pandemic sector affect service trade show early sign pick labour market indicator continue heavily affect government support programme complicate assessment underlie development unlike previous crisis pandemic disproportionately affect employment average hour work high contact market service sector overall main labour market indicator relatively stable unemployment rate stand february unchanged november despite wave pandemic associated lockdown high number discouraged worker people job retention scheme point continue vulnerability turn nominal development headline inflation increase march drive primarily strong increase energy price inflation reflect predominantly base effect oil price dynamic temporary technical factor continue play important role inflation impact change expenditure weight diminish focus persistent component inflation measure underlie inflation continue hover level see spring provide broad base signal sustained pick furthermore statistical issue link effect weight tax change imputation continue imply uncertainty direction underlie inflation accord late ecb survey professsional forecasters headline inflation expectation revise medium long term expectation large stable market base measure long term inflation expectation continue increase year forward inflation link swap rate year ahead stand april basis point high time march monetary policy turn financial condition long term risk free rate unchanged level prevail time march yield increase observe end drive mainly term premia expectation component equity corporate bond market drive expectation improve growth outlook overall financial condition remain unchanged look policy rate expectation eonia forward curve remain stable short end respect monetary development annual growth decline marginally february remain high level firm household continue accumulate deposit pace similar previous quarter look source money creation eurosystem asset purchase loan non financial private sector february remain level comparable see half volume lending firm increase marginally february annual growth rate loan firm remain high february affect large flow observe march bank lending rate firm remain close historical low accord late euro area lending survey bank see decline demand loan firm mainly explain weakness demand financing investment fading financing need work capital reflect availability liquidity buffer direct government support moderate net percentage bank indicate tightening credit standard follow quarter significantly pronounced tightening tightening bank expect previous credit standard loan household house purchase ease slightly quarter continue tightening support competition lender respect fiscal policy country recently scale fiscal support response lockdown extension euro area country fiscal support average strong severely hit country heterogeneity country follow strong fiscal impulse fiscal support expect sizeable euro area monetary policy consideration policy option sum lane remark recovery global demand additional fiscal measure support global euro area activity time setback vaccination campaign persistently high rate coronavirus infection country associated tightening containment measure restrict economic activity short term overall incoming information include high frequency indicator indicate economic activity contract point resumption growth progress vaccination campaign envisage gradual relaxation containment measure underpin expectation firm rebound economic activity especially half risk euro area growth outlook continue downside near term remain balanced medium term upside risk stem well prospect global demand support sizeable fiscal stimulus rapid progress vaccination campaign fast expect reduction household saving social travel restriction lift wave pandemic include spread virus mutation slow vaccine roll represent downside risk growth outlook come quarter headline inflation rise march record january february owe mainly strong increase energy price inflation time underlie price pressure subdue context weak demand significant slack labour product market expect increase somewhat owe short term supply constraint recovery domestic demand inflation exhibit volatility remainder year survey base measure market base indicator long term inflation expectation remain low level compare ecb inflation aim market base indicator continue increase mainly drive high inflation risk premia amid continue robust risk sentiment global financial market euro area financing condition remain stable late particular risk free rate sovereign bond yield move sideways appear decouple repricing interest rate time rise record early year key indicator upstream segment transmission chain pose risk wide set financing condition turn warrant close monitoring background lane propose governing council leave prevail monetary policy configuration unchanged confirm accommodative monetary policy stance incoming information confirm joint assessment financing condition inflation outlook carry march monetary policy governing council conduct net asset purchase pandemic emergency purchase programme pepp significantly high pace month year regard external communication aspect important governing council need reaffirm practice conduct comprehensive joint evaluation prevail state financing condition inflation outlook monetary policy meeting policy deliberation inform round projection line practice comprehensive joint assessment conduct monetary policy june important highlight calibrate purchase pepp counter adverse effect pandemic medium term inflation outlook element achieve aim stabilise medium term inflation level close ample monetary policy support remain crucial pandemic period order support inflation return inflation aim governing council need stand ready adjust instrument necessary fulfil mandate govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk activity provide lane introduction recovery global demand sizeable fiscal stimulus support global euro area activity near term economic outlook remain cloud uncertainty resurgence pandemic roll vaccination campaign look ahead progress vaccination campaign envisage gradual relaxation containment measure underpin expectation firm rebound economic activity course inflation pick month account idiosyncratic temporary factor increase energy price inflation time underlie price pressure remain subdue context significant economic slack weak demand regard external environment member share assessment lane global economic outlook continue improve despite wave infection occur worldwide reference forecast international institution notably april world economic outlook imf revise expectation global growth project world trade rise attention draw particular positive news economic development united states growth record china beginning year reflect exceptional recovery start pandemic year early respect late exchange rate development note euro appreciate slightly governing council monetary policy underline appreciation exchange rate adverse implication inflation outlook turn euro area development real gdp decline remain pre pandemic level incoming economic datum survey high frequency indicator suggest resurgence pandemic associated intensification containment measure lead decline activity point resumption growth discuss economic outlook euro area member judge situation remain fragile subject high degree uncertainty datum see confirm gdp growth line march ecb macroeconomic projection euro area assessment support late imf oecd forecast rise infection rate particularly young people delay roll vaccination campaign concern safety vaccine prolongation containment measure act drag growth year good news vaccination campaign gain momentum euro area expect lead gradual easing lockdown measure particular support recovery service sector sector affect crisis encourage evidence efficiency vaccination campaign strong share population receive dose increase rapidly learn behaviour household firm response restriction pandemic consider positive factor support growth underline outlook continue depend quickly vaccination campaign proceed spread transmission different variant covid-19 virus uncertainty timing strength recovery euro area remain ground caution evidence sequence downward revision growth rate expect year stress outlook growth inflation remain dependent support fiscal policy measure accommodative monetary policy stance point impact pandemic differ country euro area country activity expect return pre pandemic level end especially service sector affected expect pre pandemic level end member expect strong recovery place half emphasise uncertainty surround near term growth outlook remain high key question consumer respond easing lockdown measure recall march ecb projection exercise base assumption household saving ratio gradually return pre crisis level substantial unwinding excess saving accumulate pandemic assess risk growth range view advance concern behaviour consumer suggest force saving unwind dynamically expect boost consumption later year consider possibility base previous observation high consumption follow low infection rate easing restriction summer possible boost consumption pen demand unfold gradually time argue consumer prove cautious spending year background feel risk activity balanced medium term horizon express marginally tilt upside broad agreement retain risk assessment express march monetary policy revisit fully context june macroeconomic projection exercise accordingly member consider risk surround euro area growth outlook near term continue downside medium term risk remain balanced hand well prospect global demand bolster sizeable fiscal stimulus progress vaccination campaign encouraging hand ongoing pandemic include spread virus mutation implication economic financial condition continue source downside risk fiscal policy ambitious coordinated fiscal stance see crucial premature withdrawal fiscal support risk delay recovery amplify long term scar effect national fiscal policy provide critical timely support firm household expose ongoing pandemic associated containment measure time fiscal measure take response pandemic emergency possible temporary target nature address vulnerability effectively support swift recovery euro area economy member expect fiscal support increase european country year risk cliff edge effect see recede member reiterate key role generation package urgency operational delay call member states ensure timely ratification resources decision finalise recovery resilience plan promptly deploy fund productive public spending accompany productivity enhance structural policy government encourage accelerate pace implementation consider important size fiscal support allow generation programme contribute fast strong uniform recovery increase economic resilience growth potential member states economy support effectiveness monetary policy euro area link reform ensure sustainable growth highlight importance fiscal measure tackle economic fragmentation turn price development broad agreement assessment present lane introduction euro area annual inflation increase march february member agree importance look increase inflation short term expect temporary heighten volatility expect come month time note cut date march ecb projection upward revision inflation outlook addition impact energy price development argue upward pressure inflation short run result supply chain disruption coincide recovery demand underline underlie inflation price pressure remain subdue significant degree slack labour market evidence wage setting pick significantly recall accord march ecb projection inflation project background express policy relevant medium term inflation outlook unchanged march risk outlook assess tilt upside regard development inflation expectation member note long term inflation expectation report ecb survey professional forecasters unchanged market base indicator inflation expectation increase increase mainly reflect increase risk premia genuine albeit small increase inflation expectation underline household inflation expectation differ financial market participant professional forecaster welcome translate high inflation expectation risk see inflation expectation unanchored upside implication high headline inflation inflation expectation possible round effect need monitor turn monetary analysis member concur assessment provide lane introduction strong money growth continue drive ongoing asset purchase eurosystem remain large source money creation lend private sector remain unchanged time note loan rejection rate firm increase credit standard loan firm tighten consecutive hamper transmission ecb monetary policy measure real economy underline late lending survey show moderate tightening previously expect context highlight targeted long term refinance operation tltro continue play crucial role support lending firm household alleviate cliff effect operation register significant fund appear increase market interest rate observe early year pass loan supply lending rate year monetary policy stance policy consideration respect assessment financial financing condition broad agreement member euro area financing condition remain stable monetary policy march visible monetary transmission chain range upstream indicator market interest rate downstream indicator lending condition risk free interest rate sovereign bond yield increase early year move sideways march decouple development market late february report schnabel introduction addition broad lending condition see remain favourable credit standard loan firm tighten somewhat accord late lending survey present lane widely see validate governing council march decision significantly increase pace net asset purchase pepp effectively insulate euro area financing condition global spillover prevent premature tightening caution voice give risk wide financing condition remain market interest rate stand high level prevail december increase slightly period attribute market perception future course monetary policy united states encouraging news vaccination campaign euro area time financial condition broad range market ease base indicator euro exchange rate appreciate slightly stand level prevail datum cut point march projection reiterate development exchange rate monitor closely regard possible implication inflation outlook member express broad agreement proposal lane leave ecb monetary policy configuration unchanged reconfirm accommodative stance monetary policy decision take december march see effective adequate preserve favourable financing condition provide necessary support euro area economy incoming information confirm assessment march monetary policy uncertainty remain high outlook economy inflation continue dependent accommodative monetary policy stance fiscal policy stimulus environment monetary policy steady course help reduce uncertainty bolster confidence underpin economic activity safeguard medium term price stability base evidence incoming datum market development confirm joint assessment financing condition inflation outlook carry march monetary policy governing council decision march undertake significantly high pepp purchase month year remain appropriate look ahead underline governing council reaction function respect purchase pepp drive governing council determination preserve favourable financing condition basis joint assessment financing condition inflation outlook take account holistic multifaceted set indicator context reiterate flexibility conduct purchase cornerstone pepp purchase strategy pepp purchase conduct flexible manner accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation imply favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation respect development stress net purchase march increase high monthly purchase volume july represent significant increase compare average purchase month year decision increase pace purchase take mid march member recall monetary policy june provide opportunity conduct thorough assessment financing condition inflation outlook time assessment inform eurosystem macroeconomic projection comprehensive assessment base inter alia projection normally undertake quarterly basis underline pepp continue operate flexible manner allow pace purchase adapt accord market condition support smooth transmission monetary policy timely manner communication member concur communication outline lane introduction need stress march monetary policy decision timely adequate have successfully contribute stabilise financing condition increase market interest rate early year risk wide financing condition remain governing council commitment preserve favourable financing condition sector economy pandemic period remain essential reduce uncertainty bolster confidence widely agree highlight future pace purchase pepp data dependent base joint assessment financing condition inflation outlook monetary policy decision communication take account forego member proposal president governing council decide reconfirm accommodative monetary policy stance interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council conduct net asset purchase pandemic emergency purchase programme pepp total envelope end march case judge coronavirus crisis phase incoming information confirm joint assessment financing condition inflation outlook carry march monetary policy governing council expect purchase pepp conduct significantly high pace month year governing council purchase flexibly accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation addition flexibility purchase time asset class jurisdiction support smooth transmission monetary policy favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase asset purchase programme app monthly pace governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation finally governing council provide ample liquidity refinance operation particular late operation series targeted long term refinance operation tltro iii register high fund funding obtain tltro iii play crucial role support lending firm household governing council stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference april press release monetary policy decision meeting ecb governing council april members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch members hold voting right april article escb statute attendee senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accompanying person arce aucremanne bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo ódor rutkaste sleijpen tavlas välimäki ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday july contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

july meeting june account monetary policy governing council european central bank hold frankfurt main wednesday thursday june review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy april nominal euro area year gdp weight sovereign bond yield increase basis point short medium term yield remain unchanged take account broad development governing council march mild steepening yield curve observe typical phenomenon economy verge recovery long term treasury yield remain unchanged period market intelligence point key driver diverge yield development euro area united states factor relate pace vaccination accelerate major euro area country result euro area expect close vaccination gap united states start summer high proportion vaccination strengthen investor confidence resilience euro area recovery relate factor concern dynamic reopening considerably fast economically strong analyst expect datum euro area week persistently surprise market analyst upside model base evidence confirm positive macroeconomic shock key factor drive euro area risk free yield governing council march stand sharp contrast period march spillover outside euro area main driving force firm expectation strong euro area recovery lead investor materially upgrade require inflation compensation entire maturity spectrum market expect annual inflation year time adjust negative inflation risk premium level see pandemic option price suggest market price chance euro area inflation year average consequently change inflation compensation remain sole driver development nominal risk free rate week real long term overnight index swap ois rate contrast remain level prevail december governing council pledge preserve favourable financing condition time notable persistent increase spread year gdp weight sovereign bond yield risk free ois rate distinguish widening spread previous episode fact occur euro area sovereign include safe one corporate bond spread contrast remain resilient significant liquidity buffer improve growth credit outlook expectation continue fiscal policy support jointly contribute keep spread stable close pre pandemic level recent development accompany marginal upward shift euro overnight index average eonia forward ois curve indicate slightly early time policy rate lift limited size shift survey evidence suggest genuine lift expectation change significantly month nominal effective exchange rate euro remain unchanged month mask diverge bilateral exchange rate development mirror large different pace recovery crisis proceed globe finally stock market development suggest renew rise long term rate continue see investor harbinger robust resilient expansion euro stoxx index rise governing council march upward revision long term earning expectation push equity valuation euro area high country expect benefit reopening economy fast pace vaccination recently outperform sectoral level euro area banking well perform sector year date benefit improve domestic economy rise bond yield cheap funding cost targeted long term refinance operation tltro despite improve market sentiment euro area valuation remain depressed historical international comparison global environment economic monetary development euro area lane review global environment economic monetary development euro area regard external environment progress overcome pandemic especially advanced economy reflect development purchasing managers indices pmis leading indicator economic activity manufacture pmis recover quickly stabilise recently partly account bottleneck production time significant sharp increase global service output pmi recovery global trade far strong reflect close link trade manufacturing oil price rise governing council april monetary policy relative assumption embed june eurosystem macroeconomic projection euro area cut date dollar term oil price pre pandemic level april euro appreciate slightly dollar unchanged nominal effective term elevated compare spring level turn euro area economy experience consumption lead drop gdp growth loose restriction expect enable rebound activity sectoral level manufacturing hold supply constraint relate semiconductor shipping turn weigh output addition service sector continue adversely affect distance measure lack demand hard hit high contact service travel accommodation food lag clearly improve improve pandemic situation reflect strongly rise level confidence see instance economic sentiment indicator pmi datum component gdp consumer spending decrease real term household have gradually optimistic consumption expect increase strongly quarter year level saving ratio expect fall important mind growth household disposable income sustain substantial public income support quarter economy recover labour income contribute growth household income investment continue support economic recovery housing investment year continue grow firm flag significant shortage labour material near record lengthening supplier delivery time business investment datum indicate rebound contraction turn euro area trade order base indicator signal strong momentum recovery extra euro area good export slow month year euro area manufacturer struggle source semiconductor consequence input shortage affect disruption shipping assess labour market development hard indicator continue weakness soft indicator signal improvement employment pre pandemic level late employment figure account contraction real gdp unemployment rate reflect slight improvement broad measure labour underutilisation remain high line recovery economy forward look employment indicator turn positive june projection include upward revision level economic activity real gdp project grow revise percentage point year unchanged overall fast pace recovery broad base demand component address continue uncertainty surround pandemic influence economic development alternative mild severe scenario prepare june projection exercise turn nominal development inflation harmonised index consumer prices hicp increase march april accord eurostat flash release positive energy relate base effect link strong fall energy inflation dominate development headline inflation february role temporary factor seasonal sale change hicp weight wan month hicp inflation exclude energy food move sideways march somewhat level observe pandemic negotiate wage growth decrease substantially record average compensation employee compensation hour continue strongly affect job retention scheme time gdp deflator increase pronounce rise input cost link surge commodity price inflation substantial increase shipping cost supply shortage raw material lead upward pressure early stage pricing chain far high pipeline pressure intermediate good later stage pricing chain limited extent euro area producer price inflation non food consumer good key measure pipeline pressure non energy industrial good stand april march february june projection headline inflation project average decline respectively compare march projection projection hicp inflation revise unchanged hicp inflation exclude energy food project increase revise projection horizon upward effect rise global inflationary pressure positive development slack turn market base measure inflation compensation inflation link swap ils rate continue recover especially short maturity year forward ils rate year ahead increase basis point governing council april monetary policy year forward ils rate year ahead rise basis point stand regard financial condition euro area asset price financial market mirror improvement economic outlook equity corporate bond market reflect improve outlook growth near term credit risk long term risk free rate gdp weight sovereign bond yield increase somewhat march governing council monetary policy stand pre pandemic level turn monetary development annual growth decline april march month see moderation broad money growth drive special factor growth continue drive eurosystem purchase march resilient lending private sector support liquidity buffer firm deposit household bank lending firm see net redemption april large positive inflow march reflect decision bank frontload lending march meet lending benchmark tltro outflow april reflect decrease liquidity need sector affect pandemic show sign recovery bank lending rate firm increase april offset decline observe march fiscal support scale especially substantial additional stimulus march projection high stimulus fund generation ngeu programme project provide significant growth support forecast horizon accord june fiscal projection massive fiscal response pandemic crisis euro area budget deficit project decline level monetary policy consideration policy option sum lane remark output decline forward look survey datum indicate start significant rebound particular service sector start reopen manufacturing sector remain strong supply constraint uncertain prospect large emerge market economy pose headwind pick economic activity accelerate result progress contain pandemic associate easing social distancing restriction overall base june projection real gdp expect exceed pre pandemic level early envisage march projection risk surround growth outlook balance strong recovery predicate well development epidemiological situation vigorous rebound consumption strong project rebound foreign demand contrast downside risk mainly relate renew deterioration pandemic instance spread infectious coronavirus covid-19 variant financial disruption result surge corporate insolvency increase headline inflation march april predominantly sizeable base effect energy inflation less extent non energy industrial good inflation play role pipeline pressure early stage pricing chain intensify evidence far seep inflation development underlying inflationary pressure remain muted especially wage inflation weak owe reversal year temporary vat reduction germany headline inflation project pick summer peak end year average return moderate rate project increase core inflation reflect upgrade march projection long term benchmark market interest rate continue increase exert upward pressure euro area sovereign bond yield downstream financing indicator capture credit condition face household firm remain accommodative nonetheless tighten month come upward movement long term risk free rate sovereign bond yield prove sustain risk tight financing condition need see subdue outlook inflation near term march confront similar tightening market interest rate backdrop limited progress inflation outlook governing council decide significantly step purchase pandemic emergency purchase programme pepp macroeconomic situation time benign economic prospect brighten risk recede project pick core inflation improve robustness medium term inflation outlook time negative pandemic shock project inflation path fully reverse sustain rise market rate dampen ongoing recovery delay progress boost inflation dynamic background lane propose governing council conduct net asset purchase pepp come significantly high pace month year significantly high pace purchase pepp remain necessary help preserve favourable financing condition need offset negative impact pandemic inflation mean asset purchase pepp remain proportionate monetary policy response risk ecb inflation aim govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk activity provide lane introduction contraction late datum signal bounce service activity ongoing dynamism manufacturing production economic activity expect accelerate half year containment measure lift time uncertainty remain near term economic outlook continue depend course pandemic economy respond reopen inflation pick month account base effect energy inflation transitory factor expect rise half year decline temporary factor fade regard external environment member share assessment provide lane introduction global economic outlook unchanged conceal upgrade outlook advanced economy relative emerge market economy give rapid progress vaccination programme concern pandemic strong trade relationship euro area advanced economy imply unchanged global growth outlook consistent strong euro area foreign demand observe compare progress major economy world economic recovery euro area lack robustness time suggest inflationary pressure experience cyclically advanced economy notably united states harbinger development euro area road turn euro area development year euro area real gdp decline stand pre pandemic level business consumer survey high frequency indicator point sizeable improvement activity medium term recovery euro area economy expect buoy strong global domestic demand continued support monetary policy fiscal policy member agree baseline economic growth june projection upward revision compare march projection widely acknowledge incoming information datum favourable bolster confidence expect economic recovery underline string positive surprise euro area march monetary policy significant progress vaccination containment pandemic restriction euro area country lift point upward revision growth june projection look modest compare improvement indicator activity year turn negative anticipate june projection argue need factor outlook imply fast closing output gap remark projection error heterogeneous country outcome well expect part euro area time number reason caution recovery fragile remain heavily dependent evolution pandemic assumption health crisis summer reference uncertainty surround emergence covid-19 variant containment measure necessitate suggest positive surprise incoming information relate soft datum hard datum note june projection growth quarter year mechanical short term forecasting tool stress recovery remain heavily dependent support fiscal policy measure accommodative monetary policy stance assess risk growth underline number consecutive upward revision growth outlook projection round despite early assessment downside risk observe june baseline projection turn baseline mild scenario march projection note gdp projection move successively close pre pandemic trajectory argue perspective scar effect turn pronounced initially fear time caution pandemic continue restriction remain place outlook prone downward revision previously upward revision june projection number previous upside risk factor fully incorporate baseline notably impact associate fiscal plan behaviour consumer response easing lockdown measure continue surround uncertainty hand argue assumption include june projection concern unwinding accumulate forced saving conservative small additional release saving large effect consumption amount involve possible additional upward risk consumption question raise role wealth effect associate increase house price equity price hand observe projection assume small proportion excess saving unwound end projection horizon projection predicate assumption rapid normalisation saving ratio short term recall excess saving accumulate mainly rich household low propensity consume large heterogeneity excess saving euro area country general question remain scale pen demand extent excess saving consumption housing purpose repay debt observe change projection real gdp growth upward revision essentially carry effect suggest upside risk short term point downside risk financial amplification mechanism owe corporate bankruptcy associated pressure bank diminish note economic recovery remain uneven sector increase insolvency come especially small medium sized enterprise sme service sector suggest uncertainty risk remain final stretch recovery relate necessary resource reallocation typically associate deep recession overall risk surround euro area growth outlook see balanced hand strong recovery ensue global demand pick fast household saving reduce quickly social travel restriction lift hand ongoing pandemic include spread virus mutation implication economic financial condition continue source downside risk fiscal policy ambitious coordinated fiscal stance consider crucial premature withdrawal fiscal support risk weaken recovery amplify long term scar effect national fiscal policy provide critical timely support firm household expose ongoing pandemic associated containment measure time government ensure fiscal measure remain temporary countercyclical sufficiently target nature address vulnerability effectively support swift recovery euro area economy key role ngeu package reiterate member states call deploy fund productively accompany productivity enhance structural policy allow ngeu programme contribute fast strong uniform recovery increase economic resilience growth potential member states economy structural policy particularly important improve economic structure institution accelerate green digital transition member note june projection contain substantial fiscal loosening compare march projection result fiscal stance expect similar risk cliff edge effect see recede continue importance fiscal measure support economic recovery tackle economic fragmentation reiterate concern express fiscal consolidation come late early risk substantial structural deterioration fiscal deficit caution need exercise interpretation fiscal balance period ahead crisis measure statistically record structural spending time consider heterogeneity country timing speed economic recovery imply differentiate need targeted temporary fiscal support suggest call fiscal consolidation need country specific turn price development broad agreement assessment present lane introduction accord eurostat flash release euro area annual inflation increase march april headline inflation increase autumn reflect mainly base effect reversal temporary vat reduction germany inflation expect decline start year temporary factor fade underlie price pressure expect increase somewhat year owe temporary supply constraint recovery domestic demand price pressure subdued reflect low wage pressure context significant economic slack appreciation euro impact pandemic begin fade reduction slack support accommodative monetary fiscal policy contribute gradual increase underlie inflation medium term member widely agree importance look temporary increase inflation underline increase inflation large expect follow long period subdue price increase development assess medium term perspective question raise extent rise input cost temporary supply constraint semiconductor expect feed consumer price time pipeline pressure emerge intermediate good stage typically show limited sluggish pass producer price final consumer good retail price time suggest situation different past company scope absorb pipeline pressure margin long period subdued profit marked pick demand offer opportunity adjust price great usual pass final consumer stage possible household prepared pay high price light ample saving accumulate involuntarily pandemic background argue upside risk short term medium term suggest perception public price rise persistently impact behaviour household company period ahead acknowledge household purchasing power suffer anticipate year difficult interact wage negotiation round effect high oil price headline inflation high wage help convergence governing council inflation aim argue currently little evidence mount wage pressure evidence labour scarcity sector situation differ country country significant degree slack labour market large number employee job retention scheme need bring work recall follow labour market reform wage indexation prevalent year june projection member note projection headline inflation imply medium term figure remain governing council inflation aim hold mild scenario projection forecast institution observe inflation forecast institution similar june projection forecast economic growth low point inflation outlook low substantial fiscal monetary support place mention june projection upward revision underlie inflation rate long term average offset low rate change energy price projection like forecast projection base assumption oil price evolve path future price imply mechanical downward impact energy price dynamic projection horizon context projection imply questionable decline headline inflation argue situation government strive meet climate change target measure require bring additional upside risk price development medium long term horizon reason project inflation widely see subject upward risk regard development inflation expectation member note survey base measure long term inflation expectation remain subdue level comparable market base indicator inflation compensation continue increase stand pre pandemic level increase inflation expectation see welcome development argue inflation expectation firm household tend closely link late actual inflation reading help boost inflation expectation give realise inflation exceed month point high level market base indicator inflation compensation mainly reflect increase risk premia upward shift anticipated path inflation nonetheless reduction hitherto negative risk premia step normalisation economic agent start hedge inflation risk deflation risk respect monetary analysis member concur assessment provide lane introduction annual rate growth broad money decline march april partly owe strong negative base effect weak development deposit reflect reduce liquidity need pandemic situation improve time eurosystem ongoing asset purchase remain large source money creation annual growth rate loan private sector fall april volatility loan non financial corporation reflect frontloade loan creation march relative april loan household record solid monthly flow aggregate credit condition judge remain supportive risk premature tightening lending condition see mitigate continue sizeable degree policy support bank profitability improve allow bank prepare credit default use balance sheet capacity term capital liquidity buffer lending note tightening lending rate include baseline projection expect support measure phase credit risk increase increase bankruptcy corporate sector expect later year cliff edge effect rule notably sme underline increase insolvency come artificially subdue level express risk financial amplification effect credit supply constraint affect firm bank diminish time credit demand slow firm household run precautionary liquidity buffer build pandemic moderate tightening lending rate monetary policy stance policy consideration turn assessment euro area financing financial condition member agree despite increase nominal risk free rate euro area financing condition remain accommodative continue support recovery rise nominal yield see have partly drive improve economic outlook accompany increase inflation compensation real rate consider matter financing condition fall record low remain favourable level downstream indicator nominal financing condition assess favourable lending rate near historical low despite rebound attention draw role global factor drive yield increase yield have stabilise united states governing council april monetary policy concern voice sustained rise market rate translate tightening broad financing condition relevant wide economy reinforce vulnerability sector affect crisis time note stock residential property price buoyant december pepp expand substantially reiterate preserve favourable financing condition pandemic period remain essential reduce uncertainty bolster confidence underpin economic activity safeguard medium term price stability member express broad agreement lane proposal reconfirm accommodative monetary policy stance leave ecb monetary policy configuration unchanged include proposal net purchase pepp significantly high pace month year medium term outlook improve june projection see inflation fall short pre pandemic project path policy relevant horizon robust convergence level close environment monetary policy look temporary short term development inflation focus medium term outlook appropriate improved outlook reflect governing council policy stance financing condition assess fragile allow meaningful reduction pace purchase risk disorderly rise yield stress recovery early stage lack robustness depend heavily policy support project path economy subject significant uncertainty risk undue tightening financing condition juncture jeopardise ongoing economic recovery outlook inflation noticeable slowing pace purchase see inappropriate juncture concern express change net purchase base clear improvement medium term inflation outlook lead unwarranted tightening financing financial condition cast doubt governing council resolve bring inflation aim context remark persistent inflation shortfall project june projection increase asset purchase main monetary policy instrument justify consider low bind interest rate constrain available monetary policy space mean caution require relation tightening policy stance steady course warrant maintain monetary accommodation need underpin economic recovery contribute sustained convergence inflation governing council aim medium term well outlook growth inflation associated upside risk argue provide degree accommodation asset purchase scale somewhat stress matter symmetry consistency decision making improved outlook reflect pace purchase financing condition euro area see favourable june march december imply increase degree accommodation purchase pace maintain improved outlook raise natural interest rate effectively provide accommodation reference governing council establish communication economic development well expect favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need context recall pepp emergency programme limited time span concern express potential effect highly accommodative monetary policy stance maintain long hinder structural change corporate sector resource reallocation labour market addition property price dynamic accelerate overall member express readiness join broad consensus proposal lane governing council confirm expect net asset purchase pepp conduct significantly high pace month year governing council commitment preserve favourable financing condition pandemic period prevent tightening inconsistent counter downward impact pandemic project inflation path reiterate deem essential governing council reaffirm commitment achieve stated inflation aim underline governing council reaction function respect purchase pepp rely joint assessment financing condition outlook inflation medium term reiterate flexibility conduct purchase cornerstone pepp purchase strategy broad parameter pepp purchase decide governing council basis quarterly joint assessment financing condition inflation outlook implement executive board flexible manner accord market condition include seasonality prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation monetary policy decision communication take account forego member proposal president governing council decide confirm accommodative monetary policy stance interest rate main refinance operation interest rate marginal lending facility deposit facility unchanged respectively governing council expect key ecb interest rate low level see inflation outlook robustly converge level sufficiently close projection horizon convergence consistently reflect underlie inflation dynamic governing council conduct net asset purchase pepp total envelope end march case judge coronavirus crisis phase base joint assessment financing condition inflation outlook governing council expect net purchase pepp conduct significantly high pace month year governing council purchase flexibly accord market condition prevent tightening financing condition inconsistent counter downward impact pandemic project path inflation addition flexibility purchase time asset class jurisdiction support smooth transmission monetary policy favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition help counter negative pandemic shock path inflation governing council reinvest principal payment mature security purchase pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance net purchase app monthly pace governing council continue expect monthly net asset purchase app run long necessary reinforce accommodative impact policy rate end shortly start raise key ecb interest rate governing council intend reinveste principal payment mature security purchase app extended period time past date start raise key ecb interest rate case long necessary maintain favourable liquidity condition ample degree monetary accommodation finally governing council provide ample liquidity refinance operation funding obtain series targeted long term refinance operation tltro iii play crucial role support lending firm household governing council stand ready adjust instrument appropriate ensure inflation move aim sustained manner line commitment symmetry member governing council subsequently finalise introductory statement president vice president usual deliver press conference follow end governing council introductory statement introductory statement press conference june press release monetary policy decision meeting ecb governing council june members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch members hold voting right june article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person aucremanne bradeško demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann mauderer novo ódor rutkaste sleijpen tavlas välimäki ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

august meeting july account monetary policy governing council european central bank hold frankfurt main wednesday thursday july review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy june long term government bond yield decline notably advanced economy include euro area despite ongoing strong recovery shock coronavirus covid-19 pandemic model base evidence driver euro area yield suggest large share decline euro area risk free rate reflect foreign spillover mainly form increase global risk aversion fast spread delta variant coronavirus rise infection rate country main reason increase global risk aversion reflect ratio value growth stock have fall markedly week experience united kingdom suggest far progress vaccination campaign succeed weaken link number infection hospitalisation rate delta variant instill uncertainty path economic normalisation weigh yield week long term sovereign yield decline markedly united states investor continue reverse large rise long term real interest rate see early year possibly link change market expectation monetary policy model base decomposition year treasury yield suggest term premia decline considerably week revision expected future path short term rate limited suggest sharp rise real rate early year reflect increase uncertainty outlook monetary policy uncertainty diminish week comparison euro area real risk free rate stable united states start grind low week real year risk free rate euro area currently basis point level prevail governing council december addition market base measure inflation compensation resist broad downward pressure euro area suggest investor remain fundamentally position sustained recovery pandemic crisis government bond spread remain resilient nominal euro area year gdp weight sovereign bond yield decline governing council previous monetary policy june currently negative territory yield fall basis point mid change market expectation future path asset purchase upward pressure yield eonia forward curve flatten considerably week mirror decline term premia relate increase risk spreading delta variant necessarily reflect genuine change interest rate expectation consistent unchanged expectation lift report late ecb survey monetary analysts sma time flattening forward curve reflect adjustment policy rate expectation response outcome ecb strategy immediate market reaction mute market expect early lift interest rate united states euro depreciate markedly dollar reinforce flight safety start year close correlation eur usd exchange rate short term interest rate differential imply movement long end curve matter foreign exchange market instead focus timing interest rate lift despite notable increase global risk aversion far little adjustment credit risk premia euro area fix income market corporate bond spread weather flight safety investment grade credit spread decline high yield bond spread increase somewhat remain pre pandemic level despite strong issuance high yield bond year date ecb datum show strong issuance high yield issuer large extent absorb investment fund raise risk profile non bank increase global risk aversion weigh equity price eurostoxx decline large loss country heavily expose potential actual travel restriction impose wake fast spread delta variant event day illustrate elevated stock market valuation prone sudden correction cyclically adjust price earning ratio close record high price correction sudden sizeable tangible effect investor balance sheet inflow equity fund continue increase governing council previous monetary policy june time high inflow see previous year overall financial condition euro area remain stable highly accommodative level take snapshot indicator large weight exchange rate show easing financial condition stress stock market show tightening global environment economic monetary development euro area lane review global environment economic monetary development euro area regard external environment incoming datum confirm general recovery proceed increase evidence supply constraint time spread covid-19 variant continue major concern global euro area economic recovery purchasing managers index pmi datum june give historically high reading delta variant lead sharp increase case infection trade good remain strong upward trend observe middle year flatten slightly accord datum june monetary policy governing council euro depreciate markedly dollar nominal effective term oil price decrease period remain line technical assumption june projection amid heighten volatility oil market upward trend non oil commodity price stop price metal food remain unchanged june governing council turn euro area gdp decrease especially owe implication lockdown euro area country private consumption supply bottleneck continue dampen manufacturing activity supplier delivery time remain close record high record june globally euro area ratio order stock finished good reach record high intensification supply constraint weigh manufacturing investment lead fall industrial production late ecb corporate telephone survey firm report probably somtime year supply constraint long issue recent survey indicator pmis manufacture output service business activity suggest strong rebound activity particularly service continue growth manufacturing retail sale volume increase availability certain service consistent robust consumption growth business confidence indicator point big recovery industrial confidence high level june pre pandemic level indicator return pre pandemic level consumer confidence increase mainly reflect marked improvement assessment general economic situation month confidence consumer personal financial situation tend main factor purchasing decision improve far strongly business investment survey indicator june suggest strengthening decline capital good production reflect constraint pose supply bottleneck construction firm flag shortage material labour close historical high june amid strong demand condition confidence indicator turn trade april datum reflect continue momentum especially good export united states asia local contribution weaken particular export vehicle electronic affect supply constraint delivery delay extend machinery forward look indicator tourism point recovery far level consistent complete normalisation look labour market unemployment rate decline stand percentage point low april percentage point high february number worker job retention scheme reduce amount labour force overall labour market continue substantially affect pandemic high frequency indicator survey datum point robust employment growth period ahead turn nominal development inflation harmonised index consumer prices hicp decrease slightly june hicp energy inflation remain high contribute lion share percentage point headline inflation june hicp inflation exclude energy food decrease slightly june drive decrease service price inflation non energy industrial good neig price inflation increase june service price inflation historically important driver inflation remain particular price tourism hospitality sector fully recover change hicp weight start drag hicp inflation june factor expect increase summer development measure underlie inflation remain subdue special factor play important role measure persistent common component inflation index increase common component measure capture persistent energy price development measure core inflation development depend volatile item travel relate service clothing footwear include effect change value add taxis net general continue important development underlie inflation basis broad range indicator pipeline pressure neig inflation increase month mainly early stage pricing chain additional upward pressure neig inflation input cost development come month wage development subdue wage settlement low reflect difficulty entail negogiate high wage amid level economic slack high uncertainty late datum give indication rise inflation rate lead high wage agreement increase input cost continue profit margin pressure look ahead important pass high input cost strengthen late ecb survey professional forecasters long term expectation headline inflation revise previous round distribution long term inflation expectation move right respondent revise long term inflation expectation upwards downward time market base measure inflation compensation option imply risk neutral inflation probability remain unchanged june monetary policy turn financial monetary development nominal risk free rate sovereign yield decline june policy look downstream indicator interest rate household firm remain low financial financing condition unchanged long term gdp weight sovereign yield fall parallel risk free rate june monetary policy governing council far level record december annual growth decline suggest normalisation monetary flow compare peak crisis household firm return accumulate deposit pace similar rate prevail pandemic annual growth rate loan firm decline result improvement economic activity confidence indicator real cost financing move pre pandemic level support rebound inflation expectation july lending survey euro area bank report moderate net increase demand loan firm quarter significant decline financing need firm fix investment see make positive contribution loan demand time report change composition lending reflect normalisation reassure bank report unchanged credit standard loan enterprise follow significant net tightening half moderate tightening company replace loan market base financing take advantage attractive bond yield annual growth rate loan household edge continue drive lend house purchase credit standard housing loan remain unchanged turn fiscal policy strong fiscal support expect include generation ngeu programme june projection prepare additional fiscal measure gdp announce year monetary policy consideration policy option sum lane note implement monetary policy strategy important update governing council forward guidance key ecb interest rate commitment maintain monetary accommodation persistent basis essential effective lower bind constraint shortfall medium term inflation outlook relative cent target strategy incorporate key innovation reflect ecb forward guidance interest rate redefinition ecb price stability objective cent inflation target medium term conditional commitment account implication effective lower bind conduct monetary policy environment structurally low nominal interest rate condition forward guidance reinforce commitment attain inflation target clarify policy rate raise evidence sufficiently robust allow governing council expect high degree confidence inflation rate reach cent durable basis practice propose forward guidance serve distinct purpose provide concrete operationalisation concept robust convergence inflation target reflect clear need ecb policy reaction especially persistent condition nominal interest rate close lower bind time outlook inflation target recalibrate forward guidance contain key condition meet interest rate raise inflation reach target advance end projection horizon order ensure lift decision base firm foundation expose volatility long horizon projection error governing council confident target reach durable basis governing council raise rate underlying inflation judge satisfactory progress cent extra safeguard policy tightening face cost push shock elevate headline inflation temporarily fade quickly finally preamble clear guidance service ensure robust convergence target medium term line principle lane propose follow reformulation order ensure robust convergence cent inflation target medium term governing council expect key ecb interest rate low level inflation reach cent ahead end projection horizon durable basis judge realise progress underlie inflation cent sufficiently advanced stipulate inflation expect reach target ahead end projection horizon forward guidance reassurance rise inflation cent time rate lift expect occur end point horizon early convergence target help hedge monetary policy risk react forecast error tend large long horizon state inflation target reach durable basis governing council signal target attain lasting basis result short live force lead price increase unlikely lead persistently high year year inflation purpose governing council need look initial threshold ahead end projection horizon inflation target expect reach durable basis dimension forward guidance formulate expectation governing council mechanically link projection formulation element focus development retain reference underlie inflation specifically condition imply realise progress underlie inflation cent sufficiently advance time rate hike additional condition provide add insurance premature policy reaction transitory possibly contractionary price shock important mind underlie inflation broad concept persistent component inflation provide good guide future inflation development proxie single indicator state contingent nature force shape underlie inflation trend element forward guidance important forward guidance remain state contingent provide powerful automatic stabilisation mechanism direction inflation outlook improve anticipate recovery proceed time horizon increase interest rate automatically shorten financing condition tighten direction setback inflation outlook time lift automatically lengthen lead easy financing condition help support economy inflation outlook specify condition term relatively early convergence projection horizon mean alter governing council concept medium term condition mean act signpost orientate monetary policy time act pre emptively risk expose policy false signal long term inflation expectation remain governing council inflation target orientation state preamble forward guidance remain resolutely focus ensure robust convergence cent inflation target medium term formulation provide ante guidepost requirement need meet post particular preamble limit validity scope forward guidance situation robust convergence assure robust convergence cent target achieve revise forward guidance necessary give reformulation forward guidance constitute revision policy stance prolong horizon key interest rate expect low level proportionality assessment warrant propose revision forward guidance judge proportionate response risk ecb price stability mandate governing council introduce forward guidance interest rate gain substantial experience instrument little doubt effective tool steer interest rate expectation abundant evidence contribute bring inflation close governing council objective propose guidance expect similarly effective propose reformulation efficient compare alternative policy option tool effective efficient medium term segment term structure order provide additional inflation impulse different instrument governing council need low policy rate substantially deep negative territory significantly scale asset purchase programme unintended consequence low level interest rate financial intermediation wide economy unlikely strongly amplify limited delay lift date reformulation rise case outweigh benefit low interest rate employment economic activity course governing council monitor potential effect positive negative extend period negative low interest rate apply respect important support strategy propose forward guidance provide anchoring inflation expectation reduce risk possible effect help shorten time spend low interest rate equal low require volume asset purchase turn assessment economic outlook recovery euro area economy gain momentum delta variant source concern advance vaccination campaign week allow containment measure roll euro area country improvement economic outlook reflect forward look activity sentiment datum sector economy start indicator realise economic activity composite manufacturing pmi hit record june retail sale improve significantly trade show robust momentum increase spread delta variant dampen recovery especially service tourism hospitality supply constraint continue restrain production sector intensification global supply chain disruption evident example long delivery time shortage computer chip lead decline industrial production large euro area economy risk outlook remain balanced downside risk primarily relate possibility renew intensification pandemic owe spread aggressive virus variant persistent supply bottleneck strong incoming forward look datum possibility fast anticipate draw saving represent upside risk outlook hicp inflation decrease slightly june late datum imply upward revision short term profile headline core inflation account strong envisage inflation neig energy component profile envisage june projection confirm survey base measure inflation indicate small rise long term inflation expectation level distance inflation target long term benchmark interest rate remain level observe month year fall june monetary policy influence movement bond yield renew uncertainty future evolution pandemic market reaction federal open market committee june key driver international financial market interest rate expectation euro area remain unaffected incoming information line joint assessment financing condition inflation outlook carry june monetary policy lane propose conduct net asset purchase pandemic emergency purchase programme significantly high pace month year govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction recovery euro area economy widely see track people vaccinate lockdown restriction ease euro area country pandemic continue cast shadow especially delta variant constitute source grow uncertainty inflation pick increase expect temporary outlook inflation medium term remain subdue respect external environment member share assessment provide lane introduction global economic activity trade continue improve despite wave coronavirus spread world believe stringent measure adopt authority link widely lockdown index economic activity substantially weak early wave time concern express situation emerge economy vaccination campaign advanced trade continue heavily affect supply bottleneck rise shipping cost dependent future evolution pandemic environment outlook global trade see highly uncertain outlook economic activity inflation united states regard difficult interpret light financial market development bond yield have decline considerably time inflation united states clearly rise market participant pessimistic growth outlook spread delta variant receptive federal reserve system argument ongoing bout inflation temporary argue number indicator point risk protract rise inflation united states background substantial fiscal policy support discuss euro area economic outlook member concur june baseline projection remain valid despite change quarterly pattern underline euro area economy rebound strongly economic sentiment improve notably indicator favourable previously expect confirm recovery gain ground generally point somewhat strong outcome economic activity growth fall short ambitious figure contain june projection take quarter growth track manufacturing expect perform strongly supply bottleneck hold production near term reopening large part economy support vigorous bounce service sector delta variant coronavirus dampen recovery service especially tourism hospitality people return shop restaurant resume travel consumer spending rise well job prospect increase confidence continued government support reinforce spending ongoing recovery domestic global demand boost optimism business spread delta variant lead renew uncertainty reflect financial market economy hold household firm continue adapt rapidly live presence coronavirus assessment share wave coronavirus limited health impact owe rise vaccination rate example term hospitalisation pressure intensive care unit wave result stringent containment measure limited economic impact context point correlation containment measure economic cost pandemic change time overall economic activity expect return pre crisis level year long way damage economy cause pandemic overcome example number people job retention scheme decline remain high member assess risk economic outlook balanced upside economic activity outperform expectation consumer spend currently expect draw rapidly saving build pandemic attention draw fact recovery gain momentum strong rebound consumption qualitative indicator point fall household saving rate fast improvement pandemic situation lead strong expansion currently envisage addition approval ngeu programme individual country move favourable direction implementation risk remain previously identify risk wave bankruptcy corporate sector appear recede possible downside risk growth underperform expectation pandemic intensify supply shortage turn persistent hold production previously anticipate concern express virus poorly understand sequence mutation unlikely consequence hard predict despite progress vaccination campaign argue tail risk non financial corporate sector notably small medium sized enterprise accumulate recovery asymmetric uneven sectoral perspective underline benign evidence limited bankruptcy far ascribe massive timely response fiscal monetary policy finally rise oil commodity price weigh consumption economic slack remain substantial fragile recovery look comparison june projection point risk delta variant spread clearly materialise immediate economic impact fear overall balance risk economic activity express june projection judge valid background member agree ambitious targeted coordinate fiscal policy complement monetary policy support recovery context ngeu programme key role play contribute strong uniform recovery euro area country accelerate green digital transition support necessary structural reform lift long term growth turn price development headline hicp inflation stand cent june inflation expect rise come month decline increase drive high energy price base effect sharp fall oil price start pandemic impact temporary vat reduction germany year early factor fade drop year year inflation calculation member highlight inflation number clearly high previously expect headline inflation core inflation exclude food energy continue persistent string upside surprise drive particular unexpectedly strong development neig price picture transitory increase inflation widely see hold true increase inflation expect near term owe temporary cost pressure supply chain measure underlie price pressure remain subdue significant slack economy weak wage growth past appreciation euro mean underlie price pressure subdued time attention draw indication profit margin fall rapidly imply cost increase absorb business pass price available datum wage agreement month year point growth negotiate wage remain relatively low environment inflation relatively high subtract reasonable estimate trend productivity growth wage growth show subdue unit labour cost argue take evidence suggest subdue medium term outlook inflation argue far evidence round indirect effect high inflation limited contain pass non energy input cost consumer price stress profit margin squeeze time pandemic base past experience continuous decline margin sustainable reverse suggest cost increase increasingly pass consumer future environment household appear ready spend accumulate saving reference context upward revision earning expectation list company addition supply bottleneck severe persist long previously expect clearly expect transitory labour market development get strong month reduced recourse government support scheme package climate policy recently propose european commission see lead sustain upward pressure energy price price component period ahead argue cost price pressure link climate transition offset efficiency gain technological change replacement fossil fuel renewable energy mix intended downward impact energy consumption point direct effect climate policy energy price dominate initially substitution effect kick later respect public investment impact aggregate demand economic slack net effect climate package clearly stimulate economy decade line conclusion ecb strategy cost owner occupy housing welcome residential property price euro area increase fast pace experience country level suggest underlie trend persistent available experimental owner occupy housing cost datum relate contribution headline inflation euro area estimate percentage point context underline exist hicp remain relevant measure inflation ecb owner occupy housing auxiliary consideration available experimental indicator lag hicp past early period i.e. sovereign debt crisis contribution owner occupy housing significantly negative basis point map property price index owner occupy housing component consumer price remain experimental require work far distinction consumption investment element consider development inflation expectation member note long term inflation expectation edge cent cent accord ecb survey professional forecasters market base indicator inflation expectation remain stable survey carry ecb announcement revise strategy possibly reflect anticipation governing council framework significant market impact observe day strategy announce time market public fully digest change confidence express inflation expectation start right direction caution inflation expectation come year reflect option market price continue high probability euro area inflation fall short cent exceed member concur inflation outlook improve remain distance ecb target level governing council outlook detail september projection available time risk inflation outlook embody june eurosystem projection widely regard increasingly tilt upside clearly see case short term see case less extent assessment medium term outlook uncertain turn monetary financial analysis member concur incoming datum suggest monetary flow normalise pandemic situation improve annual rate growth broad money decline reflect strong negative base effect deposit flow household firm return pre pandemic level liquidity need subside annual growth rate loan private sector decline reflect negative base effect net loan redemption time note july lending survey euro area bank report moderate net increase firm demand loan credit condition judge remain supportive backdrop improve economic situation continue policy support monetary fiscal supervisory authority interest rate loan far insulate upward trend risk free interest rate end remain near historical low member agree financial financing condition remain unchanged highly favourable level euro area risk free interest rate sovereign yield fall nominal real term june monetary policy euro area gdp weight year bond yield fall negative territory remark real interest rate stand historical low decline euro area market interest rate see reflect renew risk aversion owe rapid spread delta variant coronavirus spillover decline yield downstream lending rate firm household remain near historical low reiterate preserve favourable financing condition sector economy pandemic crisis period remain essential economic rebound turn last expansion offset negative impact pandemic inflation monetary policy stance policy consideration regard propose policy measure member agree necessary align forward guidance interest rate revised formulation price stability objective ecb monetary policy strategy give conclusion strategy announce week prior monetary policy highlight change forward guidance shape market participant understanding strategy see test revise strategy underline strategy agree unanimously provide governing council share framework strategy incorporate key innovation need reflect forward guidance provide numerical clarification price stability objective specify explicit cent symmetric inflation target include conditional commitment account implication effective lower bind set monetary policy environment structurally low nominal interest rate include adoption forceful persistent policy measure need revise forward guidance interest rate emphasise order provide credible commitment bring inflation target see essential provide safeguard premature tightening monetary policy environment recall forward guidance state contingent instrument express monetary policy intention fix commitment pre determined policy path forward guidance base governing council assessment outlook price stability governing council retain discretion judgement guidance change circumstance evolve forward guidance mechanically link projection governing council retain flexibility exercise judgement inflation outlook reformulate forward guidance well understand set condition help guide ecb action pursuit inflation target define strategy necessarily imply low long interest rate ultimately succeed anchor inflation expectation target intend accordingly remark forward guidance interest rate credible reduce extent instrument need deploy background formulation forward guidance propose lane widely see finely balanced reflect symmetric inflation target cent conditional commitment account implication effective lower bind conduct policy environment structurally low nominal interest rate particular stipulate specific outlook base outcome base condition meet interest rate raise underline need persistence accommodative policy stance help avoid premature tightening stance ensure robust convergence inflation target medium term regard note forward guidance language clearly dispel notion cent ceiling inflation give strategy explicitly allow moderate transitory overshooting member forward number consideration hand case strengthen forward guidance interest rate policy rate remain constrain lower bound medium term inflation expectation continue stand inflation target market price lift key ecb policy rate time inflation medium term expect cent interpret sign forward guidance insufficient guide market expectation perspective feel forward guidance strengthen formulate lift condition term realise inflation expect inflation point step forward guidance scale later necessary well credibility have scale guidance later hand caution require inflation durably reach cent early point time risk undermine medium term orientation monetary policy addition give significant lag monetary policy transmit real economy intentionally overshoot inflation target regard recall instrument continue provide strong monetary policy support lower bound point loosening monetary policy stance occur automatically substantial change forward guidance somewhat high inflation target strategy case imply postponement lift date credibility governing council forward guidance see key success note future forward guidance extend credible commitment forward guidance place time market expect lift price negative policy rate argument propose formulation prove ambitious jeopardise credibility risk break stipulate condition later suggestion include knock clause forward guidance possible mean enhance credibility mitigate financial stability risk underscore governing council concerned inflation high inflation low time underline strategy provide safeguard stipulate temporary moderate overshoot inflation consistent price stability medium term background member exchange view formulate condition recalibrate forward guidance set proposal lane regard condition remark phrase ahead essential order avoid refer end projection horizon see subject great uncertainty short term forecast give projection error preference express formulate condition term realise inflation project inflation help avoid premature tightening monetary policy stance strengthen credibility guidance provide great clarity market time concern raise phrase ahead perceive deviate medium term orientation monetary policy strategy clarify specify condition term relatively early convergence projection horizon mean alter concept medium term regard condition outline lane phrase durable basis see provide flexibility allow small oscillation target level concern raise phrase vague sufficiently anchor expectation suggest experience formulation forward guidance argue notion durability reinforce refer explicitly level inflation remainder projection horizon regard symmetric nature inflation target suggest reference example inflation fall stay cent forecast horizon acknowledge reformulation interest rate forward guidance imply certain overshoot cent inflation target overshooting temporary moderate see fully line strategy time argue require inflation fall target effectively intentionally overshooting view inconsistent strategy remark explicit safeguard ensure potential overshoot moderate maintain price stability rise need rapid increase policy rate condition interest rate forward guidance meet swift tightening policy rate later stage prove easy pursue rise financial stability risk exacerbate initial overshoot need take account proportionality analysis background broad support include explicit reference ecb agree monetary policy strategy statement overshoot communication forward guidance order address potential misunderstanding regard condition refer underlie inflation see effective mean safeguard premature tightening monetary policy response forecast error supply shock affect headline inflation temporarily concern express phrase realise progress underlie inflation cent sufficiently advanced misinterpret suggest governing council separate cent target underlie inflation point perceive target underlie inflation effectively render guidance ambitious standard measure underlie inflation particular core inflation exclude food energy typically headline inflation euro area historically remark multiple measure underlie inflation reference view ambiguous leave ample room discretion reflect balance argument overwhelming support emerge amend version forward guidance proposal lane notion robust convergence clarify inclusion phrase durably rest projection horizon reference inflation reach cent inclusion language strategy statement reference target symmetric possibility transitory period inflation moderately target place forward guidance firmly strategy framework act safeguard persistent pronounced overshooting phrase underlie inflation sufficiently advanced consistent inflation stabilise cent clear target headline inflation underlie inflation turn proportionality consideration propose revision forward guidance interest rate assess proportionate response risk governing council price stability mandate experience forward guidance suggest effective tool steer market expectation interest rate help bring inflation close governing council target propose reformulation view efficient compare alternative policy option forward guidance substitute use instrument pronounce effect remark recalibration interest rate forward guidance erroneously perceive market participant necessarily imply long period net asset purchase owe link rate guidance forward guidance asset purchase programme app general agreement defer app forward guidance future governing council continue benefit negative policy rate outweigh cost long negative rate remain place great likelihood balance risk shift downside background large majority member indicate support revise forward guidance proposal proposal widely see provide fine balance great emphasis outcome base element forward guidance flexible forward look perspective unanimous agreement strategy broad consensus forward guidance regard great importance time member uphold reservation amend formulation sufficiently address concern relate particular imply likelihood persistence overshooting see promise interest rate low level long time period explicit escape clause turn element stance assessment member concur lane incoming information confirm joint assessment financing condition inflation outlook carry june monetary policy accordingly agree conduct net asset purchase pandemic emergency purchase programme significantly high pace month year monetary policy decision communication communication regard important explain forward guidance interest rate reflect strategy need persistent monetary policy measure face lower bound forward guidance underscore governing council commitment achieve inflation target indicate wait confident path inflation raise key policy rate guidance rule provide indication financial market broad public well align inflation expectation governing council target essential emphasise forward guidance remain consistent medium term orientation monetary policy remain distinct projection horizon regard nonetheless see helpful clarify notion ahead specify refer mid point projection horizon practical purpose note forward guidance interest rate adjust forward guidance asset purchase remain unchanged time point governing council react forcefully time challenge pose effective lower bound range instrument highlight help dispel notion reformulation forward guidance novel delay reaction lower bind problem call imminent deployment policy measure take account forego member proposal president governing council take monetary policy decision set press release publish conclusion member governing council subsequently finalise monetary policy statement president vice president deliver press conference follow end governing council monetary policy statement monetary policy statement press release monetary policy decision meeting ecb governing council july members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch members hold voting right july article escb statute attendee senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accompanying person arce bradeško buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lacerda lünnemann ódor rutkaste sleijpen tavlas vanackere välimäki ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday october contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

october meeting september account monetary policy governing council european central bank hold frankfurt main wednesday thursday september review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy july pronounced decline year treasury yield euro area gdp weight sovereign yield observe previous governing council prove persistent despite ongoing recovery pandemic crisis recently yield trend somewhat high rise level see recovery level see early low interest rate continue prevail currency union sovereign bond spread german bunds remain resilient level close post-2008 low decomposition nominal year euro area overnight index swap ois rate inflation real rate component show market base measure inflation compensation continue increase summer put upward pressure nominal rate expect stage economic cycle base development inflation expectation nominal year ois yield basis point level prevail time monetary policy december governing council pledge preserve favourable financing condition significant parallel decline real interest rate offset large rise nominal yield real year risk free rate euro area reach record low summer cent currently stand exceptional distance average level outbreak global financial crisis factor help explain low real yield remain subject intense market speculation factor mention frequently analyst relate spread delta virus variant start affect mobility region extent low real yield reflect concern growth point decoupling bond market hand stock market hand despite rise infection number stock market continue rally summer earning expectation continue increase euro stoxx cent governing council previous monetary policy index euro area broad gain euro area corporate bond spread remain resilient past month spread remain close low observe past decade despite high leverage corporate bond spread recently support favourable rating action credit rating upgrade outpace downgrade substantial margin factor help explain low real yield relate possibility market recently reappraise way bank adjust policy rate indication relationship expect inflation expect future interest rate change outbreak coronavirus covid-19 pandemic especially euro area suggest market start internalise patient reaction function ecb respect condition governing council need order start raise policy rate evidence announcement ecb forward guidance risk distribution future evolution month euribor truncate mean investor effectively price contingency foreshadow steep increase policy rate compression risk distribution response ecb strategy revise forward guidance initially flatten forward curve forward curve shift outward visibly strategy announcement retrace path recently survey monetary analysts sma suggest ecb forward guidance contribute initial outward shift model base evidence corroborate monetary policy put downward pressure yield month particular model result suggest announcement ecb strategy announcement ecb forward guidance monetary policy consistently put downward pressure long term risk free rate contribution soften week resistance global sovereign bond yield move high occur environment investor price risk high inflation future option price suggest united states market currently attach probability cent inflation year average federal reserve system cent target euro area market imply probability considerably small increase notably cent euro area bond market model base analysis suggest inflation risk premium increase significantly start year albeit depressed level imply compensation investor currently require risk remain small historical standard finally prospect high interest rate united states cause sizeable shift foreign exchange market investor have increase dollar net long position june level similar magnitude see height covid-19 pandemic august euro temporarily reach low level dollar year expect short term interest rate differential united states euro area widen euro moderately appreciate overall financial condition ease governing council previous monetary policy july comprehensive joint assessment inflation outlook financing condition june indicate range financial condition index global environment economic monetary development euro area lane review global environment economic monetary development euro area regard external environment persistence supply bottleneck spread delta variant remain concern respect global activity global purchasing managers indices pmis retreat period strong increase indicate degree normalisation remain threshold indicate continued expansion look development pmis activity region gap development advanced emerge economy open regard development global trade world merchandise import stable june decline previous month bottleneck reflect increase supplier delivery time link loss export july governing council monetary policy euro exchange rate decline cent nominal effective term increase cent dollar oil price unchanged cent amid heighten uncertainty outlook global oil demand supply turn euro area rebound demand continue supply bottleneck constrain production good gdp growth cent substantially strong cent foresee june eurosystem projection show european economy recover far previously expect rebound drive increase domestic demand turn link rapid reopening high contact service containment measure negative impact economic growth anticipate indicate strong learning effect september ecb projection foresaw swift economic rebound persist half drive reopening economy continue strong policy support global recovery growth project strong slow compare june eurosystem projection real gdp growth revise unchanged date real gdp project reach pre crisis level bring forward end late quarterly business survey european commission confirm development activity industrial sector heavily affect shortage material space equipment important factor service lack demand long see issue manufacturing service labour shortage play important role early pandemic manufacture start emerge labour scarcer service consumer confidence improve remain unclear map consumer spending household report improvement personal economic situation degree development household deposit date high frequency proxy saving show household continue save height pandemic look investment strong demand support rapid recovery spending housing business investment lead increase demand external financing investment trade growth extra euro area good export flatten partly owe supply bottleneck dampen trade dynamic time indicator service export signal improvement drive steady recovery tourism important component cross border trade country overall tourism pre pandemic level intra flight recover significantly extra flight far pre pandemic level reflect continue restriction extra travel labour market rebound continue labour shortage emerge unemployment rate decline july cent percentage point low june percentage point high february pandemic start importance job retention scheme continue decrease month provide substantial degree support labour market cover cent labour force july employment survey signal robust recovery labour market pmi composite employment index remain threshold firm report european commission business survey find increasingly difficult meet demand labour turn nominal development headline inflation increase cent august cent july increase reflect high inflation component particular non energy industrial good neig service inflation remain subdued high neig inflation partly reflect pipeline pressure unusually high rate inflation assess temporary september ecb projection headline inflation project rise end year fall half gradually strengthen mid-2022 compare june eurosystem projection september projection inflation harmonised index consumer prices hicp revise mainly drive high energy inflation half horizon hicp inflation exclude energy food revise owe pressure pricing chain amid mismatch demand supply slack weak euro compare september ecb projection forecast international institution private sector indicate ecb projection growth inflation forecast early horizon line forecast temporary special effect continue substantial impact inflation dynamic month complicate assessment inflation figure effect include shift seasonal sale base effect effect change hicp weight beginning vary time measure underlie inflation comprise broad range indicator large move gradually upwards give ground confidence negative pandemic shock year reverse hope upward pressure underlie inflation remain subdue level far away cent service inflation increase drive mainly accord datum available july reopening high contact sector wage development compensation employee increase rise cent year year term result base effect owe extreme development year reflect normalisation work pattern increase negotiate wage overall wage pressure remain low heterogenous country growth gdp deflator euro area moderate cent reach cent overall reduction growth rate gdp deflator reflect development term trade precisely sharp increase import price pmi survey datum input output price development indicate profit margin continue pressure mainly drive increase input cost market base measure inflation compensation euro area increase july governing council remain cent financial monetary development market interest rate somewhat high time july monetary policy governing council risk asset market resilient equity price reach record high overall financial condition ease broad financing condition firm household public sector remain favourable respect monetary development firm borrowing cost continue accommodative balance sheet condition remain fragile heterogeneous euro area lending rate stand average close early value decrease country affect pandemic annual growth lend firm remain moderate july pace june reflect benign factor recovery earning bank profitability recover partially compare year link reduction risk provision thank well expect macroeconomic outlook parallel funding cost decrease reflect low bond yield substantial participation series targeted long term refinance operation tltro iii continue downward pressure ample deposit look sectoral deposit flow broad money month household firm monthly flow deposit return long term average time outbreak covid-19 crisis lead moderation monetary dynamic see sign normalisation turn fiscal policy important recall september ecb projection fiscal stimulus expect double size stimulus include december eurosystem projection record fiscal response covid-19 crisis september baseline projection continue strong improvement fiscal outlook projection horizon especially reverse fiscal impulse monetary policy consideration policy option sum lane remark rebound phase recovery euro area economy increasingly advanced output rise expect exceed pre pandemic level end year cent european adult fully vaccinate extensive reopening economy service sector recover unevenly manufacturing continue perform solidly material shortage supplier bottleneck hold production pick activity foster rapid improvement labour market normalisation economic activity expect come month global spread delta virus variant concern long term effectiveness vaccination delay restoration global economic activity reopening euro area economy line assessment september ecb projection foresaw growth cent high previously anticipate unchanged growth cent cent hicp inflation increase cent august cent july increase reflect high price component especially strong neig category notable upswing inflation assess temporary high energy inflation reflect high usual month month increase energy price august strong rise oil price middle year reversal temporary vat reduction germany affect year year inflation rate end year increase neig inflation partly base effect cause postponement seasonal sale year july august country high cost pressure stem temporary shortage material equipment expect ease result headline inflation rise year factor ease fall year year inflation calculation early september projection foresaw hicp inflation average cent return cent cent compare june projection headline inflation revise projection horizon inflation exclude food energy price project average cent cent cent have revise june projection negative impact pandemic project inflation path fully reverse inflation foresee far cent target projection horizon upward shift revised inflation projection reflect well growth outlook fast reduction degree slack economy risk economic outlook remain balanced large expect decrease saving rate fast improvement pandemic situation lead strong expansion currently envisage inflation slightly high currently expect supply bottleneck long feed high anticipate wage rise time economic outlook deteriorate pandemic worsen delay reopening economy supply shortage turn persistent currently expect accord broad spectrum indicator financing condition remain favourable governing council previous quarterly assessment june decline summer repricing debt security mean long term market interest rate similar level prevail time previous quarterly assessment june preserve favourable financing condition remain necessary support economy recovery path sustained pace net purchase pandemic emergency purchase programme pepp instrument recalibrate forward guidance essential condition preserve monetary policy stance offset negative impact pandemic inflation support anchoring inflation solidly target medium term time line pepp framework adopt december governing council commitment pursue monetary policy stance proportionate objective persistently favourable financing condition context somewhat improve medium term outlook inflation increase inflation expectation possible scale moderately pace purchase pepp month year substantially low pace purchase pepp implement month risk unwarranted tightening market interest rate associated currency appreciation inconsistent counter downward impact pandemic project path inflation pace net purchase moderately low proportionate measure juncture lock monetary accommodation necessary base lane propose net purchase pepp calibrate moderately low pace previous quarter monthly purchase pace implement flexibly accord market condition react short term shock exert upward pressure benchmark interest rate likewise allow rate purchase reduce favourable condition maintain low pace furthermore lane emphasise governing council need confirm monetary policy measure level key ecb interest rate forward guidance future evolution purchase asset purchase programme app reinvestment policy long term refinance operation govern council monetary policy decision economic monetary analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction rebound phase recovery euro area economy increasingly advanced output expect exceed pre pandemic level end year cent european adult fully vaccinate economy reopen allow consumer spend company increase production rise immunity coronavirus mean impact pandemic severe global spread delta variant delay reopening economy increase inflation expect temporary underlying price pressure build slowly inflation outlook projection revise slightly upwards medium term inflation foresee ecb cent target regard external environment member share assessment provide lane introduction recovery global economic activity trade remain solid moderate owe spread delta variant supply bottleneck attention draw risk outlook arise comparatively low vaccination rate worsening pandemic emerge market economy month relative advanced economy lead persistent widespread disruption supply chain turn euro area development real gdp rebound cent year expect track strong growth recovery build success vaccination campaign europe allow significant reopening economy member agree improvement euro area growth outlook include projection express great degree confidence baseline scenario acknowledge uncertainty remain elevated lifting restriction service sector benefit people return shop restaurant rebound travel tourism manufacturing perform strongly production continue hold shortage material equipment overall development indicate economic activity expect return pre crisis level year early expect june eurosystem projection output gap expect close soon previously expect remain way damage economy cause pandemic overcome few people employ pandemic especially young low skilled number worker job retention scheme remain substantial member assess risk economic outlook balanced upside economic activity outperform expectation consumer confident save currently expect note consumer spending increase saving appear return normal quickly expect consumer remain somewhat cautious light pandemic development household benefit accumulated saving possibly positive wealth effect give significant rise price financial asset real estate labour market improve rapidly hold prospect high income great spending unemployment decline number people job retention scheme fall significantly peak recovery domestic global demand boost optimism firm support business investment fast improvement pandemic situation lead strong expansion currently envisage possible downside risk underline economic outlook deteriorate pandemic worsen delay reopening economy supply shortage turn persistent currently expect hold production exclude shortage bottleneck observe far long affect economy sector point moderation growth naturally expect line experience reopening economy spread delta variant far require lockdown measure reimpose slow recovery global trade reopening economy economy show resilience wave virus quarter recovery remain dependent evolution pandemic progress vaccination campaign assumed timing relaxation containment measure push projection round fiscal policy member stress support recovery ambitious targeted coordinate fiscal policy complement monetary policy particular generation programme help ensure strong uniform recovery euro area country accelerate green digital transition support structural reform lift long term growth fiscal policy expect expansionary member consider prospect uncertain regard price development broad agreement assessment present lane introduction inflation increase cent august expect rise autumn decline temporary upswing inflation mainly reflect strong increase oil price middle reversal temporary vat reduction germany delay summer sale cost pressure stem temporary shortage material equipment course factor ease fall year year inflation calculation underlie inflation pressure edge economy recover underlie inflation expect rise medium term increase expect gradual time economy return operate capacity wage expect grow moderately supply bottleneck last long high anticipate wage rise price pressure persistent member agree hump shape pattern inflation september ecb projection concur high short term inflation temporary time consider degree persistence inflation shock especially outlook inflation uncertain risk inflation turn high project context express baseline projection inflation low attention draw fact headline core inflation surprise upside relative projection inflation underestimate time raise doubt model rely projection able capture currently happen economy structural change imply pandemic impact ecb monetary policy strategy close attention need pay direct granular evidence datum collect business union household see essential turn point period possible regime shift respect september projection argue inflation high different path materialise oil price supply bottleneck persistent phillips curve steeper take owner occupy housing account lead high expect path inflation note inflation shock temporary require relatively small percentage shock permanent inflation close cent end projection horizon importance take climate change policy future development carbon price account emphasise impact lead sustain upward price pressure number year carbon price inevitably increase substantially ensure objective paris agreement reach direct effect climate policy energy price affect price development later year projection horizon time little evidence far round effect wage negotiation wage development unit labour cost necessary component durable underlie inflation remain subdue wage negotiation far take expectation moderate future price movement account argue time different sense length magnitude shock inflation combine supply bottleneck excess saving lead high round effect past important monitor closely wage negotiation note well perform phillips curve maintain ecb indicate low inflation end projection horizon foresee ecb projection consider development inflation expectation member note measure long term inflation expectation continue increase remain distance ecb inflation target market base indicator inflation expectation rise high level year year forward inflation link swap rate year ahead exceed cent basis point high pandemic positive news market expectation deflation low inflation option market continue signal investor risk high euro area inflation rate extend medium term recall inflation expectation household business different financial market participant need consider member concur despite improvement inflation outlook remain way ecb target level time risk inflation outlook embody september ecb projection widely regard tilt upside caution underestimation inflation interpret context previous prolonged period overestimation continued shortfall long term inflation expectation target turn monetary financial analysis member concur assessment provide lane introduction bank lending rate firm household historically low level lend household hold especially house purchase remark extent sharp rise housing investment house price mortgage volume fuel ecb monetary policy wake pandemic ample forced saving probably invest real estate time recall low equilibrium interest rate imply high housing value leverage necessarily increase real estate purchase household draw saving accumulate pandemic growth lend firm slow mainly firm fund borrow heavily wave pandemic note government support transfer risk public sector help firm crisis avoid spike non performing loan bankruptcy mitigate risk financial amplification economy open firm benefit recovery large cash holding increase retain earning reduce firm need external funding solid balance sheet continue ensure sufficient credit available large firm bond issuance attractive alternative loan acknowledge firm household take debt pandemic financial health potentially vulnerable deterioration economic outlook worsen quality bank balance sheet risk financial amplification consider small monetary policy stance policy consideration member concur lane assessment accommodative monetary policy stance remain necessary offset negative impact pandemic inflation support anchoring inflation expectation solidly governing council target medium term policy support sustained pace net purchase pepp instrument recalibrate forward guidance deem essential preserve necessary monetary policy accommodation reaffirm governing council commitment monetary policy strategy time pepp framework governing council agree december calibration pace purchase require base joint assessment financing condition inflation outlook assessment financing condition note condition remain favourable loosen governing council previous quarterly assessment june improve notably governing council decision early year significantly increase pace purchase pepp improvement visible broad spectrum indicator rise inflation expectation bring euro area real short long term interest rate historically low level financial condition stock price rise euro depreciate bank lending rate firm household corporate bond spread remain near historical low time observe repricing lead volatility long term market interest rate assessment inflation outlook significant improvement course year acknowledge observe inflation projection revise previous projection round break trend early successive downward revision point emergence upside risk note near term increase inflation drive temporary factor fade medium term policy tightening accord september ecb projection inflation expect persistently reach level fully offset pandemic impact inflation path relevant medium term horizon remain ecb inflation target base joint assessment line pepp framework adopt december member agree persistently favourable financing condition somewhat improve medium term outlook inflation allow governing council moderately scale pace purchase pepp confirm monetary policy measure level key ecb interest rate governing council forward guidance future evolution purchase app reinvestment policy long term refinance operation number comment direction recalibration pace purchase pepp propose lane hand argue symmetric application pepp framework substantial reduction pace purchase light potential effect elevated level purchase perspective pace purchase similar level prevail beginning year appropriate pace provide great degree monetary accommodation start year financing condition economic outlook improve meantime addition embed flexibility allow meaningful increase purchase address market tension need hand reference repricing nominal bond yield call prudent reduction pace purchase concern express slow pace induce market perception tight expect monetary policy result tightening financing condition particular risk reduction pepp purchase month interpret tapering affect component monetary policy stance drive euro area interest rate higher thwart incipient increase inflation expectation time argument market expect end net asset purchase pepp march expectation show significant impact financing condition generate confidence recalibration pepp purchase pace reflect improvement financing condition inflation outlook lead unwarranted tightening market interest rate attention draw substantial stock asset eurosystem acquire beginning year provide significant accommodation come year compress term premium pace purchase reduce reiterate pepp design emergency programme clearly define objective counter impact pandemic path inflation distinguish general monetary policy stance instrument available point pepp monetary policy stance remain highly accommodative calibration pepp purchase pace line pepp framework need judge prevail financial condition inflation outlook express perception premature removal accommodation raise question governing council determination deliver inflation target commitment persistent forceful policy action vicinity effective lower bind order avoid negative deviation inflation target entrench overall balance argument member agree line framework adopt december persistently favourable financing condition somewhat improve medium term outlook inflation allow governing council moderately scale pace purchase pepp line lane proposal regard implementation stress flexibility accord market condition remain key feature pepp allow flexibility margin react short term shock exert upward pressure benchmark interest rate likewise allow pace purchase reduce favourable condition maintain low pace attention draw governing council effort transparent communicate well general public foster trust highlight monetary policy strategy particular suggest information provide official communication reasoning app pepp related policy decision monetary policy decision communication communication member underline improvement outlook acknowledge governing council policy measure produce intended effect temporary nature near term rise inflation stress feel upside risk long term outlook inflation monitor communicate carefully time deem important avoid create impression governing council satisfied outlook inflation respect moderate reduction pace net asset purchase pepp see proportionate gradual line joint assessment improvement financing condition inflation outlook clear decision constitute recalibration programme response condition imply tapering end asset purchase pepp moderately low pace purchase ecb monetary policy remain highly accommodative governing council stress determination act forcefully persistently line revise monetary policy strategy anchor inflation expectation solidly cent target finally underline governing council purchase flexibly accord market condition favourable financing condition maintain asset purchase flow exhaust envelope net purchase horizon pepp envelope need equally envelope recalibrate require maintain favourable financing condition take account forego member proposal president governing council take follow monetary policy decision base joint assessment financing condition inflation outlook governing council judge favourable financing condition maintain moderately low pace net asset purchase pepp previous quarter monthly purchase pace implement flexibly accord market condition governing council confirm measure level key ecb interest rate forward guidance future evolution purchase app reinvestment policy long term refinance operation set press release publish member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow end governing council monetary policy statement monetary policy statement press conference september press release monetary policy decision meeting ecb governing council september members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch members hold voting right september article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce bitans buch demarco donnery gaiotti goulard haber kaasik kuodis kyriacou lünnemann novo ódor sleijpen tavlas vanackere välimäki žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday november contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

november meeting october account monetary policy governing council european central bank hold frankfurt main wednesday thursday october review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy september market base measure inflation compensation euro area surge high level year push long term nominal sovereign bond yield level see early year euro area year inflation swap rate basis point high september percentage point high december governing council pledge preserve favourable financing condition year forward inflation link swap rate year ahead time year rise ecb target contrast year real rate fall basis point december level pattern yield change suggest rise long term rate primarily result adverse spillover typically manifest rise real rate see reappraisal global inflation outlook mainly reflect repercussion global energy shock grow evidence persistent supply bottleneck short medium term horizon increase inflation compensation reflect high genuine inflation expectation long horizon increase reflect high inflation risk premia fact long term inflation risk premia increase strongly previous week suggest market participant increasingly worried inflation outcome expect inflation prevail shock expect fade exceptionally high uncertainty surround nature structure post pandemic global economy contribute rise risk premia market significantly reprice baseline inflation outlook risk evidence change expectation asset purchase euro area globally affect euro area sovereign bond yield contrary development spring spread year german bund overnight index swap ois remain highly resilient week spread euro area sovereign bond bund remain resilient september monetary policy continue fall post-2008 low country development euro area credit stock market suggest high nominal long term yield prevail supply shock expect derail recovery investment grade corporate bond spread remain close record low level high yield weigh euro area equity market previous week downward pressure fully offset upgrade firm long term earning expectation diminish equity risk premium short term money market rate rise euro area significantly major economy time rate lift bring forward mid-2024 late non negligible rise short long term rate reflect term premia actual time lift price investor later consistent reading survey base expectation late survey monetary analyst point respondent anticipate early lift rate hike expect option imply probability expect path short term interest rate point significant widening distribution possible future outcome clearly skewed upside increase uncertainty expect market attach increase probability expect inflation condition lift medium term inflation expectation proxie year swap rate year ahead stand day governing council high level early year inflation expect visibly governing council target average rise measure inflation compensation consistent mark shift distribution expect inflation outcome price inflation option market market put low weight inflation year available datum sample start high weight inflation decade i.e. weight conditional future path inflation embed inflation swap rate market pricing consistent ecb state contingent forward guidance forward guidance remain credible support behaviour forward ois rate continue react sensitively expect inflation pandemic sensitivity increase somewhat previous week owe strong acceleration measure inflation compensation short term nominal rate sensitive inflation real yield curve euro area fall unprecedented level euro continue depreciate dollar expect policy rate differential widen time start pandemic investor long hold net euro long position imply expect euro reverse loss near term continued policy divergence remain scenario investor market bring forward lift expectation response grow expectation prevail inflationary pressure ultimately prove persistent previously anticipate global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment global activity solid expansionary phase global composite output purchasing managers index pmi remain september natural deceleration compare intense reopening phase month early world trade initially show strong recovery pre pandemic level flatline march impact bottleneck visible supplier delivery time ratio order inventory global export industrial production estimate increase lately governing council september monetary policy euro decline significantly nominal effective term dollar oil price increase sharply dollar term reflect demand supply effect oil price future curve stand level high foresee september ecb macroeconomic projection gas price increase strongly oil price previous month reflect strong global demand relate economic recovery supply effect global level euro area outlook cloud supply bottleneck input price pressure industrial production fluctuate level pre pandemic activity decline extent august pmi indicator manufacturing service stand firmly particular pmi datum accommodation food beverage point significant recovery variation industrial sector automotive sector particular severely affect semiconductor shortage context adjustment production process electric vehicle look closely manufacturing supply bottleneck rapid recovery demand lead significant decline inventory time delivery slow ecb corporate telephone survey indicate half respondent expect supply constraint high input price pressure month large number respondent expect supply constraint elevated input price year long regard investment housing investment growth moderate owe mainly tighten supply constraint labour material shortage environment strong demand business investment growth expect remain positive territory perform strongly previously envisage account supply disruption lately pmi order capital good high level decline turn trade recovery continue speed good export subdue service trade rebound somewhat historically large discrepancy buoyant export order weak export volume illustrate impact supply bottleneck export shortfall high euro area rest world euro area export require relatively complex supply chain service export start recover summer indicator continue signal slight rebound labour market development unemployment rate stand august similar pre pandemic period significant number people job retention scheme labour participation rate remain pre pandemic level labour market continue weak pandemic pmi composite indicator employment suggest strong growth sign stabilisation september october job vacancy rate total economy rise level corresponding turn nominal development headline inflation harmonised index consumer prices hicp increase july august september long term perspective reveal inflation currently extraordinarily high large contribution energy good inflation good inflation currently high long term average service inflation see normalise oil price development direct impact fuel price main factor energy price surge recently energy inflation drive strong upward movement gas electricity price service inflation increase september reopening economy non energy industrial good inflation ease indicator underlie inflation increase price contact intensive sector continue drive pick hicp exclude food energy hicpx demand return sector hit pandemic upward short term effect price model base persistent common component inflation pcci affect temporary factor stand september supercore include cyclically sensitive component hicpx increase august september turn pipeline pressure producer price continue rise dynamically increase producer price expect lead continue upward pressure consumer price non energy industrial good growth negotiate wage remain low late remain uncertain upward impact increase consumer price inflation pass wage evidence late corporate telephone survey indicate majority respondent firm expect wage rise somewhat strongly wage growth far remain mute important element inflation dynamic medium term pmi input output price development indicate profit margin continue pressure increasingly service input price currently outpace output price intermediate good industry consumer good industry service turn housing cost ecb residential property price index increase strongly year year experimental owner occupy housing price index increase strongly year year overall cost own house grow considerably strongly cost rent house increase long term survey base indicator inflation expectation market base measure inflation compensation tick move close late ecb survey professional forecasters year ahead inflation expectation revise few respondent expect low inflation respondent expect rate turn financial monetary development nominal risk free rate stand markedly high time september monetary policy sovereign bond spread slightly narrow corporate bond spread narrow positive credit outlook risk free interest rate spread stable slightly narrow evidence tightening nominal financing condition volatility equity price level similar time september respect monetary development lend firm remain moderate see uptick september consistent slight net increase loan demand report bank october round lending survey fixed investment positive contribution loan demand consecutive positive sign economic recovery firm borrowing cost remain level see start pandemic insulate upward trend risk free rate lend household remain strong annual growth loan high period great financial crisis support dynamic lending house purchase borrowing cost household house purchase remain substantially level start pandemic borrowing cost consumer lending follow sharp net tightening early pandemic late round lending survey show credit standard loan firm remain unchanged consecutive despite supply bottleneck bank maintain balanced credit risk line economic recovery continued support authority focus development money creation annual growth rate stand september august monthly household deposit flow return pre pandemic average reflect recovery consumer confidence spending contrast corporate deposit flow remain strong pre pandemic average point strengthening liquidity buffer fiscal policy limited news fiscal tightening pronounce assume september ecb projection fiscal measure announce late draft budgetary plan indicate expansionary fiscal stance look ahead budget balance expect negative prior pandemic country monetary policy consideration policy option sum lane remark euro area economy continue recover momentum moderate extent impact pandemic economic activity decline gradual lifting restriction support consumer spending especially service affect lockdown tourism hospitality manufacturing sector continue expand slow pace owe ongoing supply chain disruption see hard datum industrial production fall august low start pandemic visible pmi manufacturing output index decline september october month low shortage supply labour material equipment cloud outlook come quarter rapid rebound early stage reopen rate expansion pmi service component moderate accordingly composite pmi euro area remain firmly expansionary territory slow markedly fall august september subsequently october month low hicp inflation increase august september september energy inflation account half inflation inflation continue surprise upside drive broad intertwine factor associate energy price shock reopening economy surge energy price reflect supply demand development increase gas electricity price reflect spillover global development rise european gas price outpace global price movement account europe specific factor substitution gas fuel low inventory high carbon price recovery demand link reopening economy combine pandemic relate factor global supply impediment put upward pressure price dynamic especially visible relation consumer service good affect global supply shortage high demand service supply friction push hicpx inflation rise august september similarly pipeline price pressure continue build wide range good visible late stage pricing chain accordingly non energy industrial good inflation stand september long term average special factor associate pandemic base effect relate drop oil price year end temporary vat cut germany contribute high inflation headline inflation appear rise year peak inflation long decline previously expect foresee diminish course influence factor drive near term inflation development ease fall year year inflation calculation look ahead tightening labour market push wage support gradual increase underlie inflation pressure lane mention inflation expect fall ecb target medium term say duration supply shortage high energy price remain uncertain constitute source upside risk near term inflation outlook measure long term inflation expectation move close remain target especially risk adjust basis recovery continue depend course pandemic progress vaccination campaign risk economic outlook see balanced fast anticipate drawdown accumulate saving investment consumption constitute upside risk prolongation supply chain disruption slow recovery persistently high energy price hamper economic activity dent disposable income weigh consumption investment particular factor persist long expect upward shift price level feed high anticipate wage increase late datum point extensive labour market slack wage dynamic remain subdue negative term trade shock generate surge energy price dent profitability reduce scope grant wage increase monitor wage development essential differentiate hand wage adjustment simply response unexpectedly high inflation rate shift expect level inflation target hand self reinforce process employer accommodate demand high pay expectation persistent excess inflation future finance condition firm household public sector remain supportive broad term market interest rate increase markedly september increase long term yield outstrip improvement long term inflation expectation capture survey professional forecaster monetary analyst risk adjust market base measure inflation compensation similarly significant increase term premia relate shift inflation risk premia time persistent increase market interest rate feed tightening financing condition euro area sovereign spread remain stable indication weakening transmission risk free sovereign debt market market base base financing condition firm household currently remain supportive level despite slight increase corporate bond yield euro depreciate noticeably dollar reflect expectation relatively tight monetary policy united states overall late development confirm previous assessment september suggest change pace purchase pandemic emergency purchase programme pepp accordingly lane propose continue conduct net asset purchase pepp moderately low pace final year previous quarter indicator market expectation future path short term money market interest rate difficult reconcile ecb forward guidance policy rate increase near term rate reflect high compensation bear perceive increase inflation risk market participant weight likelihood lift condition meet early envisage ecb assessment market pricing reflect incomplete understanding condition lay governing council forward guidance satisfied lift policy rate especially ecb assessment inflation decline course year inflation foresee settle target projection horizon govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction euro area economy continue recover strongly momentum moderate extent consumer continue confident spending remain strong shortage material equipment labour hold production sector inflation rise primarily surge energy price recovery demand outpace constrain supply inflation expect rise near term decline course year regard external environment member share assessment provide lane introduction big picture solid global recovery slowing momentum deceleration natural connect persistence bottleneck supply constraint reference increase congestion port outlook global oil gas market remain surround uncertainty underline rise price reflect confluence factor relate demand supply inventory argue capacity bottleneck energy supply long last green energy agenda reduce incentive explore maintain oil extraction concern express uncertainty relate global economic outlook implication euro area foreign demand turn euro area development economy continue grow strongly momentum moderate extent output expect exceed pre pandemic level end year lifting pandemic restriction support consumer spending high energy price reduce purchasing power month come time labour market continue improve support prospect high income increase spending recovery domestic global demand support production business investment shortage cost pressure cloud outlook come quarter argue december eurosystem projection downward revision real gdp growth give late evidence euro area country change profile time low growth half high growth suggest look certain temporary setback loss cause pandemic reverse accordingly focus shift normal business cycle dynamic long term perspective member widely acknowledge supply bottleneck last long initially think emerge contact firm ecb corporate telephone survey time appear difference country concern degree bottleneck affect economy firm operate integrate value chain affected observe hand hand strong reliance time delivery system raise question future system return rely inventory buffer suggest result experience reversal past globalisation manufacturing point bottleneck reflect reopening economy structural force shift electric vehicle car manufacturing example overall stress supply bottleneck gradually fade away supply reconnecte demand take long expect member assess risk economic outlook balanced supply bottleneck rise energy price consider main near term risk pace recovery outlook inflation supply shortage high energy price last long slow recovery time persistent bottleneck feed high anticipate wage rise economy return quickly capacity price pressure strong economic activity outperform expectation consumer confident save currently expect recovery continue depend course pandemic progress vaccination campaign exchange view member discuss notion stagflation relation risk economic outlook recall term trade shock imply rise energy price normally come upward impact inflation downward impact economic growth low real disposable income high cost economy come pandemic crisis negative term trade shock see increase likelihood scar effect hamper future growth time caution temporary movement price output different direction label stagflation normal stage recovery accompany low growth upward pressure price come base effect stress outlook clearly lack stagnation element growth momentum decline strong recovery robust rate growth activity potential growth reference unprecedented wedge industrial order industrial production suggest significant potential rebound supply problem recede limit likelihood stagflation stock market pricing high rise earning see factor square stagflation hold regard support fiscal monetary policy anchor inflation expectation context recall stagflation experience 1970 occur different environment indexation allow wage react energy price sustain stagnation inflation regard price development member agree assessment present lane introduction inflation increase september expect rise phase high inflation long originally anticipate inflation expect decline course upswing inflation reflect combination factor sharp rise energy price reopening drive recovery demand outpace supply base effect relate end vat cut germany influence factor expect ease fall year year inflation calculation course recovery continue gradual return economy capacity expect underpin rise wage time market base measure survey base indicator long term inflation expectation move close addition option market large price low inflation outcome follow year factor expect support underlie inflation return inflation target medium term member widely agree expect hump shape pattern short term inflation outlook confidence express effect high energy price supply bottleneck temporary decline inflation long previously expect reference recurrent underestimation late outcome headline underlying inflation corroborate early conjecture risk september ecb projection tilt upside background see december eurosystem projection short term inflation outlook euro area revise upwards broad agreement member key question juncture late development imply medium term inflation outlook point medium term inflation outlook remain surround elevated uncertainty suggest warrant open mind respect different scenario unfold recall mechanical update projection point upward revision update imply significant effect downward slop oil price assumption time suggest surge market price gas reflect consumer price inflation delay owe administer price setting look mechanical update stress persistent bottleneck increase energy cost repercussion ultimately dampening effect underlie inflation medium term inflation outlook case instance bottleneck slow economic recovery similarly effect high energy price term trade imply tax need absorb worker firm domestic economy delay return economic activity pre pandemic level consistent conjunctural indicator suggest economic momentum weaken argue supply shock lead self sustain inflationary process hit resource economy fully utilise case euro area number people labour force hour work economy remain pre pandemic level level lead modest inflationary pressure pandemic addition unemployment rate compress impact job retention scheme time point strong pen demand great readiness pay imply high accumulate saving household allow great pass supply shock inflation member consider increase inflation medium term require high wage growth inflation expectation argue wage growth need reflect persistent shift growth rate shift level widely share negotiate wage growth remain subdue sign round effect wage stem high energy price time caution reassurance wage negotiation see past take place background prevail high inflation rate round effect observe delay possible identify round wage negotiation complete protract high inflation prove pressure trade union face push high wage demand reference indication potential round effect result corporate telephone survey time caution counsel situation associate observed increase wage growth unwelcome round effect catch expect come long period low inflation pick wage growth drive tighten labour market sustain consider healthy development term consequence labour cost rise wage growth weigh productivity growth generally materialisation round effect response term trade shock depend competitive situation relative bargaining power worker employer argue mechanism price raise restore profitability response high wage demand unlikely operation time owe risk lose market share comparison 1970 1980 shift relative importance pay job security wage bargaining respect labour market see contain substantial hidden slack relate employee job retention scheme restraint mobility migration possibility round effect consider limit presence labour market slack argue price effect great currently estimate labour force participation return pre crisis level infection rate high subsidy generous job retention scheme worker reservation wage increase effect vanish labour market normalise pandemic agreement bargaining power trade union scope wage indexation decrease time point wage negotiation take place background high inflation rate ecb target member recall factor relevant medium term inflation outlook argue far projection include rise carbon price need reach objective set paris agreement acknowledge energy price need rise order affect behaviour consumer enterprise relative price change vis vis non energy component question raise ultimate effect high energy price economic activity inflation positive negative relate doubt express use typically downward slop oil price future curve projection assumption fossil fuel price bind elevated rise additionally growth owner occupy housing cost include hicp accelerate rate year year source concern time late estimate suggest owner occupy housing contribute percentage point inflation year accord experimental hicp difference experimentally augment hicp official hicp amount percentage point time caution supplementary cost indicator expect positive contribution inflation partly reflect development house price subject strong mean reversion time finally recall model macroeconomic projection adequately capture prevail inflation dynamic base mean reversion low historical trend see past year regard inflation expectation member take increase long term survey base indicator market base measure inflation expectation schnabel lane report introduction expectation see close have reach target point gradual level line inflation target anchoring confuse unanchoring upside acknowledge individual expectation measure methodological shortcoming risk premium component outlier useful wide range information qualitatively point direction express long inflation spike last entrenched long term inflation expectation suggest indicate result household survey way household firm experience inflation different reading macro datum market analyst bank turn monetary financial analysis member widely concur assessment provide lane introduction bank lending rate firm household remain historically low level growth loan non financial corporation remain moderate despite pick september lending survey show credit condition firm stabilise support time reduction bank risk perception remark growth rate lending household house purchase stand high level time balance sheet continue support favourable funding condition remain solid monetary policy stance policy consideration member widely concur juncture accommodative monetary policy stance reconfirm remain appropriate support convergence inflation governing council symmetric target medium term line governing council strategy monetary policy patient light elevated uncertainty order support self sustain anchoring inflation expectation target monetary policy space constrain effective lower bind interest rate increase inflation rate see opportunity anchor inflation expectation solidly governing council target medium term continued accommodative monetary policy stance line governing council monetary policy strategy call policy persistent interest rate lower bind explicitly allow inflation moderately exceed target transitory period conjecture fundamental change underlying cause low growth low inflation environment prevail prior pandemic note despite increase nominal rate short term real interest rate decrease remark point future generous monetary policy support economy need reassess improved inflation outlook bring neutral configuration time contrary situation past decade governing council increasingly face macroeconomic backdrop deficient supply deficient demand environment rise inflation expectation fast improve labour market time recall macroeconomic outlook depend heavily monetary policy support place regard financing condition note financial financing condition remain favourable market interest rate year ois rate euro area sovereign bond yield increase markedly governing council previous quarterly assessment september increase year ois rate reflect exclusively increase measure inflation compensation substantial increase inflation compensation turn attribute increase term premium relate spillover abroad time real interest rate fall government corporate bond spread remain contain market base base financing condition firm household remain close historically supportive level despite increase corporate bond yield concern voice expectation future path short term money market interest rate difficult reconcile governing council forward guidance interest rate market participant anticipate early date rate increase time governing council september question raise market participant misunderstand condition lay governing council forward guidance satisfied increase policy rate condition governing council inflation reach ahead end projection horizon durably rest projection horizon iii governing council judgement realise progress underlie inflation sufficiently advanced consistent inflation stabilise medium term recall contrast survey base indicator market base measure inflation compensation future interest rate contain term premia disentangle pure expectation component increase term premia account elevated uncertainty potentially offer explanation discrepancy market base measure survey base indicator metric shift significantly september main reason shift discuss hand significant increase market base measure inflation compensation maturity spectrum include medium term suggest market participant judge interest rate lift condition meet early governing council anticipate consistent automatic stabilis function inherent governing council forward guidance reasonable expect change expect time lift inflation expectation rise suggest forward guidance remain credible contribute easing financing condition lower real short medium term interest rate context note gap future path inflation imply inflation swap market september ecb projection attention draw persistent underestimation inflation macroeconomic projection hand market participant possibly question credibility governing council forward guidance context stress governing council reaffirm condition forward guidance determination act forcefully persistently line revise monetary policy strategy order anchor inflation expectation solidly target equally governing council reaffirm assessment inflation decline course year expect settle ecb target projection horizon underline explicitly stress need durability underlie inflation development governing council forward guidance particularly suited look cost push shock one experience member concur near term increase inflation drive temporary factor fade medium term time member agree price pressure persistent foresee september ecb projection judge round effect visible far medium term price pressure need monitor closely context note medium term inflation expectation market participant economic agent general remain anchored target overall acknowledge medium term inflation outlook improve governing council focus medium term inflation outlook suggest look project hump shape path inflation result temporary nature factor affect inflation outlook uncertainty medium term prospect see elevate increase upside risk inflation acknowledge deem important governing council avoid overreaction unwarranted inaction sufficient optionality calibrate monetary policy measure address inflation scenario unfold base joint assessment financing condition inflation outlook member agree lane proposal conduct net asset purchase pepp moderately low pace final year compare previous quarter confirm monetary policy measure level key ecb interest rate governing council forward guidance future evolution purchase asset purchase programme app reinvestment policy long term refinance operation regard upcoming governing council december hold judge basis development net purchase pepp expect come end march line date governing council announce previous communication time highlight monetary policy decision need data drive incoming datum come month need take account governing council benefit macroeconomic projection december caution datum available december resolve uncertainty medium term inflation outlook see important governing council sufficient optionality allow future monetary policy action include december monetary policy decision communication communication stress significant shift path short term money market rate governing council reaffirm forward guidance assessment inflation long decline previously expect medium term foresee remain target context necessary stress medium term inflation outlook governing council determination act forcefully persistently line revise monetary policy strategy anchor inflation expectation solidly target time acknowledge upside risk september projection materialise uptick inflation expect persistent previously anticipate take account forego member proposal president governing council take follow monetary policy decision set detail corresponding ecb press release governing council continue judge favourable financing condition maintain moderately low pace net asset purchase pandemic emergency purchase programme pepp quarter year governing council confirm measure level key ecb interest rate forward guidance future evolution purchase asset purchase programme app reinvestment policy long term refinance operation governing council reiterate stand ready adjust instrument appropriate ensure inflation stabilise target medium term member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference october press release monetary policy decision meeting ecb governing council october members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch member hold voting right october article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce bitans buch demarco donnery gaiotti goulard haber kuodis kyriacou luikmel lünnemann novo ódor sleijpen tavlas vanackere välimäki žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday january contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

january meeting december account monetary policy governing council european central bank hold frankfurt main wednesday thursday december review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy october development context broad financial stability landscape line outcome ecb strategy response discovery omicron stock market worldwide suffer marked loss volume option euro stoxx hit high level outbreak coronavirus covid-19 pandemic march investor look protection loss time year treasury euro area gdp weight sovereign yield fall low see summer stand level observe governing council october financial market development interpret way market expect omicron materially large impact economic activity previous mutation model base evidence show shock decomposition decline year euro area ois yield assign fraction decline yield deterioration economic outlook similarly marked decline oil price reflect reappraisal global growth outlook interpretation financial market development relate fragile market condition prevail news omicron break mid october volatility bond market rise sharply liquidity condition derivative market deteriorate measurably amplify market reaction news omicron factor contribute fragile market environment grow conviction investor period low inflation globally monetary policy tighten soon anticipate early sensitivity financial market change policy outlook year significant monetary policy accommodation united states market assess chance rate hike federal reserve chance rise see early march euro area contrast expectation lift rate hike push compare governing council previous october lift expectation remain far close governing council september volatile gap open autumn lift expectation price market indicate participant survey monetary analysts sma close sma median expectation lift bring forward quarter quarter later price market compare quarter october divergence expect policy cycle continue significant downward pressure euro dollar exchange rate euro depreciate nearly dollar governing council previous monetary policy currently peak late ecb forward guidance remain key factor divergence expect policy cycle relationship expect inflation expect policy rate strengthen somewhat governing council september remain significantly weak covid-19 pandemic look relationship expect policy rate inflation surprise advanced economy euro area stand clear exception significant cumulative upside surprise inflation have limited impact policy rate expectation uncertainty future path policy rate increase euro area contribute rise market volatility risk distribution month euribor narrow somewhat compare governing council previous october remain significantly large july clearly skew upside risk distribution suggest investor concern high uncertainty inflation outlook mean condition ecb forward guidance meet early currently expect corroborate look inflation swap rate come multi year high week euro area forward inflation swap curve remain close target stand level expect covid-19 pandemic option market continue price significant probability inflation exceed ecb target suggest probability inflation year average probability inflation understand sensitive market shock like omicron important look risk exposure investor previously build expectation short term rate volatility stay low long time equity market global equity fund take fund previous decade combine contribute push equity valuation metric tail percentile historical distribution particular united states euro area vulnerability rise substantially non sector example liquidity credit duration risk euro area investment fund increase notably start covid-19 pandemic similarly euro area sovereign corporate bond market credit risk premia severely compress past month despite high leverage prospect high risk free rate lead decompression albeit vary degree spread remain level observe pandemic volatility elevate safe asset high demand bond yield actually fall euro area member states governing council october remain close october level spread increase strong decline german bund yield fall sharply ois rate spread year bund yield equivalent ois rate decline extraordinary level see height pandemic march development highlight exceptional demand safe asset uncertainty policy outlook increase supply available free float bond euro area decline low level result gradual persistent deterioration bond market liquidity euro area jurisdiction recently governing council decide double aggregate limit cash counterpartie pledge eurosystem security lending programme support liquidity repo market time demand collateral rise supply limit global environment economic monetary development euro area lane review global environment economic monetary development euro area external environment purchasing managers index pmi datum signal slow world economy owe covid-19 relate restriction supply chain disruption late pmi datum signal renew improvement especially service manufacturing supply bottleneck continue restrain global activity trade october monetary policy governing council oil price decrease sharply reflect demand supply effect euro exchange rate decline modestly nominal effective term fall visibly dollar gas price increase amid heighten volatility metal price continue downward trend turn development activity euro area lockdown substantial gap gdp pre crisis level gap close lot recovery drive private consumption link recovery household spending service follow early recovery manufacturing nature supply constraint shift time continue weigh activity manufacturing firm suffer shortage material equipment accord industry survey european commission shortage worsen lack skilled labour concern part manufacturing service sector growth disposable income increase quarter reflect large recovery real income real income expect drop link rise energy price imply notable reduction household real disposable income term trade effect expect dampen consumer spending short term regard housing investment confidence continue strong constraint supply play increase role investment machinery equipment exceed pre pandemic level investment transport equipment substantially pre pandemic level accord survey access finance enterprises safe share firm say obtain financing fix investment late month period continue improve reach level pre pandemic average recovery labour market continue strong unemployment rate decrease pre crisis level october job retention scheme continue support labour market staff calculation indicate unemployment rate worker job retention scheme add unemployed addition labour force continue increase slightly remain pre crisis level employment hour work increase remain pre crisis level variation country signal labour market near normal job vacancy rate total economy reach high level start data series increase broad base sector reflect strong labour demand december projection foresaw strong recovery economic activity despite near term downward revision owe supply bottleneck pandemic wave economic growth see equal compare december projection inflation expect high long owe high energy price mismatch supply demand narrative remain bottleneck effect expect fade time headline inflation foresee fall equal reflect low energy inflation robust core inflation support absorption slack increase labour cost high inflation expectation look different forecast time june eurosystem projection foresee partial recovery economy december forecast real gdp projection return pre pandemic path important look labour market december projection return pre pandemic path end projection horizon unemployment rate forecast level see early 1980s partly attributable adverse demographic development lead lack worker strong labour market pressure address high uncertainty surround economic outlook december eurosystem projection continue include alternative pandemic scenario turn development price cost harmonised index consumer prices hicp inflation increase september october november flash release push increase energy inflation energy inflation reach time high november predominantly drive oil fuel price gas electricity play important role substantial rise hicpx inflation i.e. hicp inflation exclude energy food base high inflation good service price pressure spread good service include hicp range inflation rate hicp item currently wide indicator underlie inflation pick bit recently remain difficult disentangle increase reflect pandemic effect include base effect bottleneck expect fade eventually indirect effect import energy special factor work unclear extent indicator good indicator underlie inflation wage pressure remain relatively limited essential aspect assess underlie inflationary pressure pipeline price pressure continue build owe lag impact imply strong upward pressure non energy industrial good neig inflation future time important remember good represent relatively small fraction consumption basket underlie hicp turn wage development growth negotiate wage remain low far evidence substantial round effect allow productivity increase generate domestic inflation pressure minimum wage euro area country expect grow strongly inflation indexation knock effect late development indicator actual wage growth continue strongly affect measure take cushion effect pandemic job retention scheme affect gdp deflator usually see measure domestic price pressure contribution unit labour cost gdp deflator far remain limited measure long term inflation expectation increase significantly course remain stable week target survey ecb survey professional forecasters spf consensus economics support inflation high fall target onwards market base measure long term inflation compensation continue signal inflation regard monetary development eurosystem asset purchase remain large contributor money creation credit private sector strengthen october external monetary outflow weigh negatively money creation outflow consistent eurosystem purchase large bond issuance euro area working portfolio rebalancing credit dynamic remain relatively moderate september governing council reflect contain demand loan firm light firm high liquidity holding recovery revenue increase use alternative external financing source conversely footprint leave supply bottleneck grow push short term lending firm finance work capital inventory turn fiscal policy december eurosystem projection foresaw pronounced fiscal tightening september ecb projection additional fiscal stimulus measure expect result loose stance general escape clause stability growth pact cease apply fiscal normalisation expect fiscal policy supportive growth monetary policy consideration policy option sum lane stress euro area economy continue recover labour market improve underpin ample policy support service manufacturing sector continue expand pace expansion moderate pandemic situation deteriorate sharp increase case infection result reimposition tight restriction country containment measure extent delay recovery contact intensive service time manufacturing activity continue constrain supply bottleneck expect persist gradually dissipate economic activity restrain factor headwind near term outlook deterioration pandemic situation ongoing shortage labour material equipment sector rise energy cost public health crisis ongoing high level immunity robust labour market mitigate economic impact pandemic line assessment activity expect pick strongly course gdp project grow compare september projection growth mark account upward revision quarter year outweigh downward revision final quarter year projection revise owe persistent supply disruption resurgence pandemic growth revise reflect expect fading supply bottleneck continued global recovery unwinding accumulate saving accord eurostat flash estimate hicp inflation increase october november inflation increase sharply primarily account surge energy price recovery demand outpace constrain supply sector inflation expect elevated month decline sharply course energy price stabilise consumption pattern return normal bottleneck global supply petere base effect include reversal temporary german vat cut fall year year inflation calculation hicpx inflation rise october november increase reflect high service inflation mirror strengthening price dynamic high contact service neig inflation increase producer price rise amid ongoing global supply dislocation strong pipeline price pressure evident early later stage pricing chain december projection foresaw significant upward revision path inflation headline inflation project average upward revision percentage point percentage point percentage point upward revision significantly high path energy price price pressure relate supply bottleneck reopening economy factor expect ease course inflation expect fall target time negative pandemic shock project inflation path eliminate project gap vis vis medium term inflation target narrow owe reabsorption slack strong wage dynamic projection horizon increase inflation expectation risk economic outlook balanced economic activity outperform expectation consumer confident save expect contrast worsening pandemic include spread virus variant persistent drag growth future path energy price pace dissipation supply bottleneck risk recovery outlook inflation price pressure high anticipate wage rise economy return quickly capacity inflation turn high financing condition remain favourable level despite pronounce deterioration global risk sentiment associated fall price risk asset compare quarterly comprehensive assessment september risk free gdp weight sovereign yield remain stable bank non financial corporation nfc bond yield level prevail september cost equity low lending rate firm household remain near historical low overall progress economic recovery governing council medium term inflation target permit step step reduction pace asset purchase come quarter pandemic emergency purchase programme pepp launch dual objective offset negative impact pandemic outlook inflation stave unwarranted market fragmentation cause pandemic threaten smooth transmission monetary policy entire euro area pepp deliver dual purpose mission inflation end projection horizon expect exceed end horizon rate project prior pandemic fragmentation monetary policy transmission occur initial phase pandemic successfully counter result finance condition firm household favourable euro area look big picture vaccination campaign observed capacity economy adapt pandemic support conclusion terminate net purchase end march meet criterion pandemic crisis phase time monetary accommodation need inflation stabilise inflation target medium term uncertainty lane stress need maintain flexibility optionality conduct monetary policy background lane propose following conduct net asset purchase pepp low pace previous communicate expectation eurosystem discontinue net purchase pepp end march communicate pandemic show stressed condition flexibility design conduct asset purchase help counter impaired transmission monetary policy effort achieve governing council goal effective future flexibility integral element monetary policy threat monetary policy transmission attainment price stability apparent event renew market fragmentation relate pandemic pepp reinvestment adjust flexibly time asset class jurisdiction time include purchase bond issue hellenic republic rollover redemption order avoid interruption purchase jurisdiction impair transmission stance greek economy recover fallout pandemic addition lane stress need state net purchase pepp resume necessary counter negative shock relate pandemic extend reinvestment horizon pepp end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance extension calendar guidance pepp reinvestment contribute monetary policy stance underpin role pepp reinvestment counter market fragmentation risk line step step reduction asset purchase ensure monetary policy stance remain consistent inflation stabilise target medium term appropriate calibration asset purchase programme app set pace monthly net asset purchase app october onwards maintain net asset purchase app monthly pace long necessary reinforce accommodative impact policy rate anticipate net asset purchase end shortly key ecb interest rate start raise confirm level key ecb interest rate forward guidance future path policy rate crucial maintain degree accommodation necessary stabilise inflation inflation target medium term signal governing council monitor funding condition ensure mature fund provide series targeted long term refinance operation tltro iii hamper smooth transmission monetary policy signal governing council regularly contribution targeted lending operation monetary policy stance lane state governing council special condition applicable tltro iii expect end june announce addition need appropriate calibration tier system remuneration negative interest rate policy limit intermediation capacity banking system environment ample excess liquidity readiness adjust available instrument appropriate direction ensure inflation stabilise medium term lane stress governing council clarify outlook policy financing condition remain sufficiently supportive inflation maintain path convergence target time necessary optionality retain able respond adequately inflation surprise lead upside unanchoring expectation inflation medium term recalibration monetary policy instrument proportionate course action pursuit price stability mandate inflation project ecb target medium term ensure level long term interest rate provide sufficient support economic activity necessary order foster convergence inflation governing council target medium term environment low interest rate appropriately calibrate asset purchase relatively efficient measure turn alternative monetary policy tool provide necessary degree monetary accommodation potential effect propose recalibration outweigh expected benefit term price stability line monetary policy strategy lane state governing council interrelation monetary policy financial stability twice year hand accommodative monetary policy support growth corporate balance sheet non financial financial sector hand impact accommodative monetary policy property financial market warrant close monitoring especially medium term vulnerability intensify macroprudential policy line defence preserve financial stability address medium term vulnerability govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction euro area economy continue recover labour market improve near term outlook face headwind late pandemic wave significant increase energy price shortage material equipment labour sector society well cop pandemic wave result constraint reduce impact economy growth moderate activity expect pick strongly course inflation rise sharply owe surge energy price demand outpace constrain supply sector inflation expect elevated near term ease course inflation projection revise inflation project settle target projection horizon regard external environment member take see early recovery manufacturing recently significant recovery service momentum manufacturing slow supply bottleneck conjunction strong increase global demand pervasive turn euro area development economic activity moderate final slow growth extend early shortage equipment material labour sector hamper production manufacture good cause delay construction slow recovery part service sector bottleneck prevail time ease tight containment measure reintroduce euro area country cope pandemic wave delay recovery pandemic weigh consumer business confidence spread virus variant create additional uncertainty increase energy cost price increase headwind consumption nonetheless economic recovery continue labour market improve people job few job retention scheme support prospect rise household income consumption investment member agree baseline economic growth december eurosystem macroeconomic projection revision compare september ecb projection expect growth rate real gdp show confidence solid recovery suggest sensitivity activity pandemic damage cause pandemic see limit stage vaccination campaign adaptation household business life pandemic probably effective expect result link strength pandemic economic outlook weaken time downward revision growth near term result evolution pandemic subsequent rebalancing high growth later see line experience previous wave pandemic time caution economic performance well expect economy wood reference increase uncertainty imply emergence omicron variant emergence setback service start recover argue impact inflation upward downward context persistent supply constraint fall oil price follow news omicron see signal effect anti inflationary fiscal policy reiterate targeted growth friendly fiscal measure complement monetary policy support help economy adjust structural change way effective implementation generation programme fit package contribute strong green recovery euro area country background member assess risk economic outlook balanced economic activity outperform expectation consumer confident save expect contrast worsening pandemic include spread variant coronavirus persistent drag growth future path energy price pace supply bottleneck resolve present risk recovery outlook inflation direction price pressure high anticipate wage rise economy return quickly capacity inflation turn high regard price development member concur assessment present lane introduction inflation increase november accord eurosystem projection headline inflation expect elevated near term decline course upswing headline inflation primarily reflect sharp rise energy price november account half headline inflation addition demand continue outpace constrain supply certain sector base effect relate end vat cut germany contribute high inflation end expect course energy price stabilise price pressure stem global supply bottleneck subside time gradual return economy capacity improvement labour market expect support fast growth wage market survey base measure long term inflation expectation move close month factor tend drive underlie inflation contribute stabilise headline inflation target medium term baseline scenario inflation december projection member note december projection contain large cumulative upward revision inflation projection history exercise point public perception repeat underestimation inflation problematic overestimation general public typically concerned actual inflation turn low expect time observe eurosystem inflation projection high forecast consensus economics stress third upward revision inflation development volatile energy price price reflect number economic geopolitical factor affect balance demand supply type shock foresee point core inflation increase strongly month inflation broad base barely item hicp exhibit low rate change price prevail pre pandemic period caution portray high level inflation result energy price development temporary factor member elevated uncertainty inflation settle medium term hump baseline scenario december projection see hicp inflation point rate line expectation professional forecaster time remark case outlook imply return low inflation regime pre pandemic period point regime similar prevail great financial crisis inflation average see welcome development feel outcome take grant high inflation persist long anticipate reiterate model calibrate pre pandemic datum suit capture major structural change potential switch low high inflation regime face potential turning point inflation outlook see paramount pay close attention timely signal emerge real economy notably firm wage setter rely model past pattern context reiterate high inflation medium term unlikely come dynamic wage growth respect baseline scenario december projection see predicate wage growth average past decade argue high wage growth outcome materialise presence structural change wage set process strong round effect long inflation remain substantially target entrenched long term inflation expectation spill wage growth actual inflation note late available datum euro area negotiate wage suggest annual growth point round effect far time recall development wage growth lag economic variable effect expect datum stage argue projection relatively high nominal wage growth need perspective number affect impact job retention scheme development productivity take account project growth unit labour cost appear striking measure productivity uncertain affect special factor relate pandemic include impact number hour work member discuss different upside downside factor affect baseline inflation outlook projection reference disinflationary impact omicron low global commodity price suggest fall oil price cut date projection mechanically lower inflation time point balance disinflationary inflationary consequence omicron uncertain particular argue affect supply adversely line previous experience pandemic entail significant upside risk inflation recall baseline projection assume energy commodity price evolve accord backward bend future price imply marked decline energy price projection horizon contribution energy price headline inflation historical average level reiterate increase carbon price level need reach objective paris agreement push inflation upwards come year projection horizon finally recall inflation projection include development owner occupy housing cost reference estimate indicate hicp inflation percentage point high cost include time suggest model pricing inflation compensation derive financial market continue point high likelihood inflation undershoot medium term target lasting overshoot regard inflation expectation member take assessment give schnabel lane survey market base measure long term inflation expectation remain near ecb inflation target case take account estimate risk premia vary time affect interpretation inflation expectation derive pricing inflation compensation financial market far sign long term inflation expectation move away unanchored target follow repeatedly high expect inflation figure month increase significantly beginning inflation exceed target risk perceive temporary phenomenon drive long term inflation expectation contrast inflation decline sharply high rate provide reassurance inflation outlook member widely concur assessment financial monetary condition provide lane introduction market interest rate fall governing council october little change compare september previous quarterly assessment inflation outlook financing condition carry financing condition economy remain favourable bank lending nfc drive partly short term funding need stem supply bottleneck increase expense inventory working capital nfcs demand loan remain moderate strong retain earning ample cash holding high debt contrast lend household continue robust drive demand mortgage euro area bank strengthen balance sheet thank high capital ratio few non performing loan bank profit recover level see pandemic despite continue pressure net interest margin bank funding condition remain favourable monetary policy stance policy consideration respect assessment financing condition note financial financing condition remain favourable despite pronounce deterioration global risk sentiment associated fall price risky asset compare governing council quarterly assessment financing condition september risk free gdp weight sovereign yield remain stable nominal term near historical low real term bank corporate bond yield level prevail september counterbalance low cost equity bank lending rate firm household remain historical low reference euro have depreciate markedly dollar nominal effective term factor loosen financial condition see exacerbate loss term trade contribute upward pressure euro area inflation outlook inflation outlook member concur project near term increase inflation drive temporary factor expect ease course medium term inflation outlook revise projection inflation project settle governing council target baseline scenario stress project convergence inflation expectation welcome outlook surround exceptionally high uncertainty time caution high long inflation scenario rule inflation baseline projection relatively close consider upside risk projection easily turn see important preserve flexibility act decisively inflation expectation anchor direction preserve credibility governing council governing council communicate clearly ready act price pressure prove persistent inflation fail fall target quickly baseline projection foresaw concern express premature scaling monetary stimulus asset purchase argue market participant question credibility governing council forward guidance expect interest rate increase date difficult reconcile condition set governing council increase overall member agree progress economic recovery governing council medium term inflation target permit gradual normalisation monetary policy stance general agreement downward impact pandemic project path inflation dissipate offset net purchase pepp accordingly scale discontinue end march line previous communication time member widely agree substantial monetary policy support need inflation stabilise governing council inflation target medium term argue governing council look supply disruption steady hand carefully monitor development point unanchoring inflation expectation continued high degree monetary policy support deem necessary prevent inflation fall target effect pandemic affect large part euro area economy subside argue significant degree policy stimulus place governing council forward guidance interest rate large stock acquire asset reinvestment policy tltro give measurable progress convergence medium term inflation target need loosening stance additional asset purchase time caution discontinuation net purchase pepp end expiry favourable interest rate condition tltro iii operation imply monetary tightening divergence monetary policy stance jurisdiction perceive accommodative euro area see warrant different economic condition subsequent member widely agree recalibration monetary policy instrument propose lane introduction proportionate course action pursuit governing council price stability mandate give exceptionally high uncertainty surround economic environment gradual data drive flexible approach deem proportionate balance high near term inflation outlook increase medium term vulnerability require maintain sufficient optionality adjust policy information available time argument benefit additional asset purchase diminish cost effect increase evidence example structural deterioration liquidity condition increase impairment market function result low free float bond jurisdiction grow risk financial stability especially housing market rise distributional effect asset purchase disproportionally benefit own asset propose policy package consider consistent economic outlook widely see appropriately calibrate preserve accommodative monetary policy stance need allow inflation stabilise governing council symmetric inflation target medium term background continue favourable financing condition improved inflation outlook broad agreement net asset purchase pepp conduct low pace previous agreement net purchase pepp discontinue end march pepp assess achieve dual objective offset negative impact pandemic outlook inflation stave unwarranted market fragmentation cause pandemic threaten smooth transmission monetary policy entire euro area point declare end emergency consider premature give deterioration pandemic situation time widely feel crisis phase economic term consider come end economic activity expect return pre pandemic level early pandemic shock inflation path consider offset recall net purchase pepp resume economic consequence pandemic endanger attainment governing council price stability objective future extension guidance reinvestment pepp end see assure market participant eurosystem financial market underpin ability pepp reinvestment counter market fragmentation risk hand flexibility operational parameter see important address potential disorderly market development need place long period previously announce hand question lengthen reinvestment horizon interpret add monetary stimulus contradict direction element policy package gear scaling net asset purchase addition concern voice continue asset purchase lead unwelcome flattening yield curve short term interest rate need raise end reinvestment horizon extension see important ensure effectiveness pepp reinvestment protect monetary policy transmission mechanism member agree experience pepp pandemic show stressed condition flexibility design implementation asset purchase help counter impaired transmission monetary policy effective maintain flexibility adjust pepp reinvestment time asset class jurisdiction event renew market fragmentation relate pandemic consider important support smooth transmission monetary policy period net asset purchase reduce number consideration forward commitment flexibility design conduct asset purchase i.e. crisis situation hand see important lesson pepp flexibility element monetary policy threat monetary policy transmission attainment price stability apparent flexibility embed pepp judge help provide require monetary policy support reduce fragmentation financial market crisis suggest governing council stress importance flexibility communication hand argue pepp flexibility target specific pandemic shock proportionate risk transmission monetary policy market fragmentation arise contexts recall pepp design address symmetric shock rise asymmetric consequence member agree flexibility relation pepp reinvestment include ability purchase bond issue hellenic republic rollover redemption order avoid interruption purchase jurisdiction impair transmission monetary policy stance greek economy recover fallout pandemic purchase provide assurance market participant help avoid market fragmentation propose pace net purchase app month month month october onwards widely see strike reasonable balance elevated inflation short term high uncertainty medium term outlook point propose pace purchase appropriate ensure sufficient level monetary policy support follow discontinuation net asset purchase pepp avoid unwanted cliff effect overall member agree legal framework app establish unchanged widely acknowledge discontinue net asset purchase pepp warrant temporary step net asset purchase app recall programme different objective app net purchase intend maintain sufficiently accommodative stance allow inflation stabilise governing council target medium term argue basis change inflation outlook call low purchase volume early phasing purchase app argument context high uncertainty governing council app open ended avoid perception commitment continue net purchase app give high uncertainty surround economic outlook sufficient degree optionality respond adequately inflation surprise see important stabilise inflation symmetric target incoming datum time allow impact evolve pandemic well understand governing council retain ability calibrate recalibrate monetary policy stance data drive manner direction emphasise governing council reaffirm forward guidance interest rate include link end net asset purchase app state contingent nature governing council forward guidance see suit address uncertain economic environment embed flexibility optionality ensure short term yield remain consistent inflation outlook argue risk growth materialise outlook medium term inflation move governing council symmetric inflation target forward guidance allow gradual normalisation monetary policy stance relation target lending programme member agree governing council confirm expect special condition applicable tltro iii end june announce communicate appropriate calibration tier system remuneration negative interest rate policy limit bank intermediation capacity environment grow excess liquidity line monetary policy strategy governing council time consider link monetary policy financial stability structured manner argue monetary policy suited deal financial stability risk tend concentrate particular jurisdiction well address country specific macroprudential measure time note stress monetary policy strategy exist limitation macroprudential policy imply clear case ecb financial stability consideration account monetary policy deliberation point medium term vulnerability increase require close monitoring concern relate particular credit asset housing market high debt level corporate public sector legacy pandemic observe risk disorderly market reaction follow withdrawal monetary policy support lead financial market fragmentation affect monetary transmission jurisdiction argument modify monetary policy stance require achieve ecb primary objective price stability euro area perspective advise dual objective asset purchase i.e. relation monetary policy stance transmission keep distinct overall member concur accommodative monetary policy support balance sheet company financial institution counter risk market fragmentation near term prevent build medium term vulnerability impact accommodative monetary policy property market financial market closely monitor macroprudential policy see line defence preserve financial stability address medium term vulnerability monetary policy decision communication sum large majority member agree policy package propose lane conduct net asset purchase pepp low pace previous adjust pepp reinvestment flexibly time asset class jurisdiction need extend pepp reinvestment horizon end increase net asset purchase app temporarily ensure monetary policy stance remain consistent inflation stabilise medium term reconfirm element monetary policy configuration member retain reservation element propose package support package reservation pertain particular recalibration app purchase extension minimum pepp reinvestment period statement flexibility future asset purchase confine specific circumstance pandemic communication emphasise governing council stress willingness adjust instrument appropriate direction order stabilise inflation medium term addition governing council reassure market stress determination act flexibly quickly counter risk fragmentation governing council judge progress economic recovery medium term inflation target permit step step reduction pace asset purchase come quarter monetary accommodation need inflation stabilise inflation target medium term exist uncertainty governing council need maintain flexibility optionality conduct monetary policy mind take account forego member proposal president governing council take monetary policy decision set corresponding ecb press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference december press release monetary policy decision meeting ecb governing council december members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller panetta rehn reinesch schnabel scicluna stournaras šimkus vasle villeroy galhau visco weidmann wunsch member hold voting right december article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat smets secretary monetary policy director general economics winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arce buch demarco donnery garnier haber kaasik kuodis kyriacou lünnemann nicoletti altimari novo ódor rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations rostagno director general monetary policy sousa deputy director general economics release monetary policy account foresee thursday march contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

march meeting february account monetary policy governing council european central bank hold frankfurt main wednesday thursday february review financial economic monetary development policy option financial market development schnabel review financial market development governing council previous monetary policy december market digest governing council decision december discontinue net asset purchase pandemic emergency purchase programme pepp march adjust future path purchase asset purchase programme app day year overnight index swap ois rate euro area gdp weight sovereign yield low long term real nominal interest rate increase globally exceptionally low level prevail discovery omicron variant coronavirus covid-19 late november year model base breakdown increase year euro area risk free rate suggest mainly drive factor change investor assessment economic impact omicron variant development past week reinforce impression omicron wave sharp short lived drag exert economic growth weak initially fear factor push interest rate higher week reappraisal global monetary policy outlook united states investor bring forward expect time lift hike currently expect march price tightening year expect balance sheet runoff start soon euro area rise inflation compensation add upward pressure high real rate market revise expectation future path inflation response renew upside surprise inflation december january recent energy price development add perception market inflation risk rise brent crude oil price increase usd barrel high level high compare mid december accord future curve oil price expect high medium term gas spot future price high governing council previous monetary policy reflect grow tension russia ukraine low inventory development contribute continued reappraisal medium term inflation outlook euro area respondent survey monetary analysts sma see upside risk inflation entire horizon cover sma survey base indicator long run inflation expectation revise sma particular rise december high start sma likewise january long term inflation expectation consensus economics reach time market base measure long term inflation compensation remain furthermore inflation option market investor price probability inflation year average probability environment market significantly revise expectation monetary policy outlook euro area compare december ois forward curve steepen visibly short term maturity market price cumulative basis point hike deposit facility rate dfr mid-2023 raise dfr usual date treat caution market rate include term premia allow premia market pricing imply dfr actually rise somewhat later sma participant expect dfr increase early steep path lift anticipate december development option market suggest investor revise expectation future path short term interest rate expectation distribution risk path distribution skewed upside monetary policy euro area expect normalise measurably slow pace economy see development foreign exchange market euro temporarily fall dollar low level june time euro dollar compare year ago trade close average nominal effective term euro compare year ago investor prepare fast policy normalisation globally risk asset benefit long period low interest rate expect come pressure risk asset fact remain resilient particular euro area accord market intelligence real interest rate currently remain level supportive growth risk asset euro area sovereign bond market yield spread german year bunds remain december level exception resilience spread noteworthy environment change expect future policy path logic ecb sequence imply significant reduction asset expect buy app picture similar euro area corporate bond market spread increase marginally finance condition euro area firm remain highly favourable regard development global equity market stock decline visibly united states recover good loss euro area stock market suffer moderate loss compare december impact high discount rate offset continue upward revision long term earning expectation improve risk sentiment rise real nominal interest rate far absorb financial market real financing condition remain favourable amid high inflation expectation continue buoyant global growth come year global environment economic monetary development euro area global development lane note omicron variant lead sharp rise global coronavirus case january case appear milder previous wave part world strengthen containment measure previous wave see rotation advanced economy emerge market wave lot country globe find similar situation imply strong synchronised rebound compare early wave loosening containment measure country confirm expectation omicron case number fall quickly sufficient level immunity reach purchasing managers index pmi manufacturing service global level continue point ongoing recovery turn year signal slowdown near term especially manufacturing supply bottleneck continue restrain global activity bottleneck level accord indicator remain substantial euro exchange rate depreciate december governing council dollar nominal effective term take long term perspective exchange rate appreciation observe reverse bring exchange rate close pre pandemic level oil price increase sharply december oil future curve shift upward end oil price increase december attribute supply factor failure opec+ member step production contrast oil price gas price decline december governing council relatively mild winter europe redirection import liquified natural gas asia europe offset large drop gas import russia concern outlook gas price important recognise supply shock tend persistent effect gas price inventory low currently case global food price increase december follow poor harvest rise shipping cost high fertiliser price result rise energy cost turn development activity euro area lane note strong performance middle year significant slowdown end year real gdp grow accord eurostat flash estimate follow growth rate euro area gdp reach pre pandemic level slowdown gdp growth reflect intensification pandemic persist bottleneck high energy price europe covid-19 case rise tenfold mid november emergence omicron variant number intensive care admission long rise line number infection health concern consumer increase european commission survey december show household optimistic near term spending especially sector provide contact intensive consumer service turn production pressure exert supply bottleneck level evidence far significant decline bottleneck production transport equipment continue dampen shortage semiconductor logistical problem result capacity utilisation fall stock finish finish good rise sector production capital good remain robust turn trade good service accumulate level export order remain high pandemic flow order diminish owe acute bottleneck recovery labour market continue strong unemployment decline december low unemployment rate creation euro area december eurosystem macroeconomic projection foresaw significant improvement labour market condition late datum line prediction number people employ include worker job retention scheme basically pre pandemic level total hour work pre pandemic level gap measure mainly explain job retention scheme sector recovery hour work service accelerate quarter manufacturing sector tight labour market useful look ratio vacancy rate unemployment rate compare ratio euro area united states united states pandemic job available people unemployed i.e. ratio ratio fall mid-2020 climb end contrast euro area pick observe ratio end number vacancy post number people unemployed situation euro area different united states outlook employment euro area continue positive improve euro area pmi employment indicator stand expansion threshold turn inflation eurostat hicp flash estimate january release day governing council reflect analysis limited extent late inflation datum integrate fully analysis march month half headline inflation rate result directly energy inflation contribution food price increase accord eurostat flash release headline inflation increase slightly january december november substantially high foresee december projection energy inflation high january fuel price account large share figure rise energy inflation increasingly explain high electricity price affect policy high gas price price unprocessed food exceed project price increase price process food mainly reflect increase price internal market amid global rise energy cost price international commodity respect non energy industrial good neig inflation contribution durable good continue increase attribute supply bottleneck energy price rise price dynamic component neig indicate increase neig inflation broad base item indirect contribution energy non energy inflation item relevant context non energy sector energy input typically energy input cost energy price increase high affect individual category good pricing chain pipeline pressure neig inflation continue build partly reflect rise energy production cost import price intermediate good remain unusually high level domestic producer price inflation non food consumer good increase stand historical high annual rate change import price final non food consumer good negative dampening effect neig inflation increase add pipeline pressure neig reflect high good price euro area importer pay effect depreciation euro range indicator underlie inflation move level important temporary factor particular effect bottleneck high energy price rise price energy increase price level good input output matrix necessarily imply high inflation persist historically measure underlie inflation good predictor future inflation extent design reflect persist development temporary factor clearly play role situation compare headline inflation development euro area united states issue similar qualitative term quantitative term hicp inflation exclude food energy hicpx stand december euro area united states cpi food energy high inflation united states explain high increase rent large weight cpi big difference relate effect core inflation supply disruption bottleneck reopening economy effect far evident datum turn indicator wage development euro area growth negotiate wage remain low month labour market hotter country overall evidence big structural change behaviour negotiate wage expectation labour cost point evidence far significant round effect high level inflation source domestic inflation noteworthy euro area energy import import price energy increase half lead big drop term trade drop essentially tax europe pay rest world income effect deterioration term trade estimate gdp accord calculation balance payment datum show payment country energy import rise month month increase high energy price increase constitute collective negative wealth effect european economy negative effect alleviate taxis subsidy certainly affect macroeconomic dynamic euro area cushion accumulate household saving forecaster need negative wealth effect account analysis future spending production decision turn long term inflation expectation available survey indicator long term inflation expectation recently anchored dip start success story strategy help achieve anchor inflation expectation foundation stone ecb inflation target look ecb survey professional forecasters distribution expectation compare result survey year ago show mode frequent answer increase reflect centre distribution furthermore forecaster expect inflation expect figure share forecaster expect inflation remain relatively small indicate risk upside unanchoring hard convergence long term inflation expectation ecb target sma fraction respondent expect long term inflation sizeable come measurably survey round proportion participant expect long term inflation equal rise significantly little movement term share think inflation long term market base measure medium long term inflation compensation stable measure adjust risk premia somewhat low regard financing condition remain favourable sector bond yield rise line wide bond market movement little impact funding cost reason continue application negative interest rate corporate household deposit target long term refinance operation tltro play role overall borrowing rate face firm household remain low recovery volume loan continue growth rate loan euro area firm increase december euro area bank benign credit risk relate lend firm credit standard remain unchanged lending survey indicate slight tightening loan firm growth loan household continue support dynamic lending house purchase credit standard housing loan remain unchanged regard monetary development annual growth rate slow december partly relate base effect nonetheless short term dynamic money growth remain stable household deposit inflow moderate april context recover consumption low real return possible use deposit fund purchase property turn fiscal policy additional fiscal support agree response omicron variant energy price increase lead slightly weak fiscal tightening expect december projection additional euro area sovereign financing need estimate pressure expect supply bond year monetary policy consideration policy option sum lane stress euro area economy continue recover subdued pandemic wave weigh economic activity especially contact intensive consumer service appear damaging economic activity previous wave shortage equipment material labour sector continue hamper production manufactured good delay construction hold recovery part service sector early sign include january flash pmi release supply bottleneck start ease substantial negative term trade shock generate high energy price reduce purchase power household earning business restrain consumption investment time labour market improve unemployment come support income term strong pick activity later year expect risk growth outlook remain balanced medium term uncertainty relate pandemic abate milder impact omicron variant fear growth strong expect household confident save foresee december projection geopolitical tension increase prolonged phase high energy cost constitute material downside risk consumer spending investment increase cost pressure energy intensive sector elevate risk round inflation effect high nominal wage settlement supply bottleneck fail resolve pace envisage december projection growth negatively affect sharp expect tightening global financial condition sharp slowdown china relate property market development constitute external risk factor warrant monitoring inflation surprise upside december january increase respectively energy price remain far important factor hicp inflation direct impact account half headline inflation january energy cost push price sector indicator base future market signal prolonged phase elevated energy price food price increase reflect unfavourable weather harvest condition high transportation cost rise cost fertiliser associate surge price commodity hicpx stand january december low rate mainly weak dynamic neig component service price inflation remain unchanged overall price gain widespread price large number good service have increase markedly context measure underlie inflation rise role temporary pandemic factor energy input cost mean persistence increase remain uncertain accord purely mechanical update late short term inflation projection near term inflation expect high project december rest year time expect energy price dynamic slow price pressure stem global supply bottleneck recede course addition labour market condition improve wage growth remain mute market survey base measure inflation expection see sharp decline inflation relative measure long term inflation expectation continue converge target importantly indicator sign inflation expectation unanchore upside compare december projection risk inflation outlook tilt upside particularly near term inflation high anticipate month surge energy price intensify especially geopolitical tension escalate oil supply remain persistently sluggish bottleneck production international commerce extend end year look near term inflation high foresee price pressure high anticipate wage rise economy return quickly capacity consider inflation low expect high price energy food exert strong expect drag consumption investment suppress underlying inflation downside risk world economic outlook materialise market interest rate increase governing council december reflect mainly firm expectation monetary policy tightening global level result date interest rate hike imply forward curve bring forward market price fast pace interest rate normalisation lift notwithstanding lending rate firm household continue stand historically low level reflect contain funding cost help term tltro funding overall finance condition economy remain supportive pende march projection round help reassess implication medium term inflation datum accrue december lane propose maintain steady course reconfirm december monetary policy stance mean economic recovery reduction downside risk medium term inflation target governing council discontinue net purchase pepp end march reduce pace asset purchase step step come quarter monetary support need economy advance inflation stabilise durably target uncertainty cloud outlook need maintain flexibility optionality conduct monetary policy governing council stand ready adjust instrument appropriate ensure inflation stabilise target medium term govern council monetary policy decision economic monetary financial analysis regard economic analysis member express broad agreement assessment economic situation euro area risk outlook provide lane introduction regard external environment recovery world economy continue face slowdown near term especially case manufacturing supplier delivery time shorten substantially main news governing council previous monetary policy consider significant movement energy commodity price large extent supply factor associate turn impact geopolitical tension give europe dependence energy import need replenish relatively low storage level argue look ahead rise geopolitical uncertainty bring high persistent inflation underline inflation large extent global phenomenon time recall important difference inflation development united states euro area notion forward euro area inflation essentially reflect persistent external supply shock united states reflect domestic demand fuel substantial fiscal stimulus feed high wage growth turn euro area development output reach pre pandemic level end despite weakening growth final year economic activity demand muted early pandemic containment measure affect activity consumer service high energy cost constrain consumption investment supply bottleneck continue hamper production hold recovery sector sign start ease nonetheless persist time look near term growth rebound strongly course drive robust domestic demand global recovery ongoing fiscal monetary policy support member agree economic recovery continue despite bumpiness induce covid-19 wave argue spread omicron variant constitute major risk economic development observe country lift protective measure hospitalisation death rate fall despite elevated infection rate allow sustained growth dynamic normal business cycle dynamic period ahead time point business see supply chain bottleneck last long previously expect despite sign attenuation look short term volatility argue pen consumer demand materialising saving ratio recede high level reach pandemic point accord late available datum euro area save ratio remain pre pandemic level rise give renew pandemic restriction winter suggest decline necessarily drive low propensity save income drawdown net financial asset temporarily high propensity consume wealth respect saving household firm accumulate see buffer consumption investment impact adverse energy term trade shock reference particular strong rebound corporate profit allow firm absorb shock compression margin time pent demand pressure allow cost increase pass easily consumer price underline term trade shock induce rise energy price equivalent tax loss disposable income bear euro area household firm country introduce compensatory measure point loss offset limited extent fiscal measure look ahead weigh consumption investment widely note labour market recovery robust unemployment fall historically low rate quickly expect time job retention scheme shortage skilled labour increasingly acute tie specific sector difference euro area country employment recover pre pandemic level term headcount survey datum point strong employment growth ahead term total hour work recovery advanced see partly consequence widely government support measure aim retain employment euro area suggest aspect labour market adjustment euro area associate immigration rate worker change job remain incomplete uncertain hand argue evidence significant reduction labour supply hand caution acute labour shortage prove lasting segment clear worker withdraw labour force return economic policy reiterate targeted productivity enhance fiscal measure structural reform attune condition different euro area country essential complement monetary policy effectively pandemic crisis demonstrate monetary fiscal policy work concert efficient regard fiscal reference compensatory measure government recently introduce buffer impact high energy cost purchasing power real income household clear manifestation important role fiscal policy stage highlight lane introduction widely remark fiscal measure expect adopt jurisdiction fiscal measure have direct downward effect measured headline inflation concern express change monetary policy stance context see run counter additional accommodation provide fiscal policy weaken policy mix time fiscal policy provide target support demand need short term background member assess risk economic outlook balance medium term economy perform strongly expect household confident save expect uncertainty relate pandemic abate somewhat geopolitical tension increase furthermore persistently high energy cost exert strong expect drag consumption investment pace supply bottleneck resolve risk outlook growth inflation regard price development member concur assessment present lane introduction underline inflation picture change considerably governing council december assessment inflation continue high project increase december january reach near term inflation high previously anticipate energy price continue main reason elevated rate inflation energy cost push price good service sector time price rise widespread measure underlie inflation rise month role temporary factor relate pandemic mean persistence increase uncertain december january inflation release assess term magnitude direction surprise component highlight euro area country january figure high level reach introduction euro reference double digit close double digit rate small economy large euro area economy low inflation figure relative euro area partly explain government measure contain energy price increase case substantial increase tariff electricity cause high outturn expect note number country inflation actually decline compare december regardless magnitude direction change acknowledge january figure significantly high expect euro area country forecasting community gauge reaction market release stress large upward surprise explain energy inflation argue stem factor reflect development euro area domestic economy note euro area main hicp component surprise upside indicate broad price pressure stem energy component observe surprise january late succession underestimated outcome occur spite large upward revision inflation outlook december projection hand exceptional size projection error see testament uncertainty forecaster currently face hand acknowledge inflation expect high short run long inflation hump recede reference mechanical update short term projection incorporate january figure suggest inflation entire year imply inflation extended period time raise question deviation inflation target describe moderate transitory persistent deviation raise risk inflation entrenched inflation expectation look ahead suggest increase energy cost production cost pass fully consumer price large part euro area effect datum doubt express inflation anticipate december projection argue increasingly inflation converge medium term target reference average error projection project inflation year ahead quarter percentage point fact downward bias projection follow period upward bias raise question underlie model perform sufficiently historical relationship underpin model projection hold argue project decline inflation medium term odd fast absorption labour market slack strong demand come year embed december projection argue put weight source information survey expert judgement incoming datum assess medium term outlook recall major element expect decline inflation medium term assumption include projection energy commodity price evolve downward slop future curve alternative technical assumption derive random walk forecast result inflation remark projection underestimate structural upward pressure energy price stem green transition addition argue official hicp unprecedented rise cost owner occupy housing warrant consideration medium term outlook cost add percentage point hicp inflation percentage point hicp inflation exclude energy food member express concern late upside surprise inflation figure apparent look seasonally adjust month month price development remark vulnerable segment population hit hard high energy cost inflation time point matter monetary policy nature underlie economic force implication force medium term outlook addition monetary policy need forward look react mechanically datum release relate past period inflation figure argue distinction supply demand global domestic influence meaningful simple dichotomy contrast temporary persistent shock respect important extent late inflation increase reflect pass past increase global energy price instead point change domestic inflation process observe upward revision euro area headline core inflation september december projection round explain energy price shock direct indirect effect take account amount large term trade shock euro area economy imply substantial decline real household income corporate earning translate low consumption investment period ahead turn suggest downward impact medium term inflation outlook context reiterate incipient sign sustain domestically generate inflation require high wage growth upward move inflation expectation respect lack evidence strong contractual wage growth fact inflation expectation remain anchor see key miss element inflation picture datum past wage growth lag indicator provide timely signal future inflation especially true available datum relate period pandemic rag prominence give forward look indicator base survey reference result ecb corporate telephone survey point expectation significantly high wage growth compare year significant labour shortage strong pass input price final consumer price possibly point steepening phillips curve time recall december projection anticipate wage growth year projection horizon judge compatible inflation projection late available datum see negotiate wage euro area grow substantially point evidence far round effect associate high inflation rate member widely refer increase risk inflation high long inflation outpace wage growth country erode household purchasing power trigger strong wage increase time express round effect emerge matter underlie driver inflation supply demand factor give lag nature wage datum time round effect observe actual wage growth time point backward look inflation component wage set process stylised fact forecasting model predicate historical relationship prevail high inflation rate incorporate upcoming march projection imply upward revision medium term inflation outlook give impact energy price shock term trade shock influence project inflation opposite direction background compare expectation time december govern council risk inflation outlook tilt upside particularly near term price pressure high anticipate wage rise economy return quickly capacity inflation turn high overall see important await outcome march projection integrated holistic assessment outlook jump conclusion base partial analysis regard inflation expectation member take market base measure long term inflation compensation remain survey base indicator increase late round survey professional forecasters consensus economics see welcome development suggest long term inflation expectation anchor target sign unanchore upside time rise long term expectation surround probability distribution indicate long risk downward unanchoring anchoring inflation expectation see key element inflation outlook reiterate uncertain time focus expectation firm household high actual inflation imply risk unanchoring turn monetary financial analysis member widely concur assessment provide lane introduction finance condition euro area economy remain favourable market interest rate increase governing council december lending rate firm household remain historically low level lend firm pick maturity robust demand mortgage sustain lending household underline credit appear flow freely economy sign firm household sound balance sheet face restriction access finance bank profitability recover balance sheet remain solid note respect ecb banking supervision recently complete supervisory review evaluation process srep cycle confirm resilience euro area banking sector significant institution have maintain solid capital liquidity position excess regulatory requirement bank place cope gradual removal remain supervisory support measure monetary policy stance policy consideration monetary policy stance member underline financing condition remain favourable sector economy remark considerable interest rate spillover development united states market rate euro area note combination expectation monetary tightening global level improved growth prospect tighten labour market renew upside surprise inflation figure rise inflation expectation lead market bring forward expect date ecb rate hike price fast normalisation lift imply endogenous tightening financing condition real interest rate remain deeply negative territory respect implication monetary policy stance stem inflation outlook member concur late figure suggest inflation elevated long expect december risk outlook remain tilt upside particularly near term accordingly broad agreement situation change inflation narrative need adjust put emphasis optionality use instrument period ahead widely share convergence ecb medium term inflation target long distant prospect make fulfilment forward guidance criterion short time span member argue likelihood inflation settle medium term increase significantly outlook come close satisfy condition establish forward guidance interest rate see require timely adjustment highly accommodative monetary policy stance net asset purchase negative policy rate long see consistent incoming datum regard unlikely inflation drop target medium term context underline conclusion condition forward guidance interest rate meet predicate projection judgement governing council base assessment relevant information macroeconomic projection element remark performance projection model challenge prevail high uncertainty see reason put weight projection relative source information recall formulation governing council forward guidance interest rate derive monetary policy strategy call forceful persistent monetary policy action presence effective lower bind interest rate remark inflation outlook evolve meantime stage governing council careful introduce additional policy inertia i.e. slow pace adjustment assess fulfilment forward guidance criterion scaling monetary accommodation commence line establish forward guidance sequence i.e. order different policy instrument operate recall eurosystem currently track buy significant share issuance euro area sovereign bond imply add policy accommodation time inflation expect high long previously anticipate stress monetary policy need forward look long period elevated inflation last high risk material round effect argue task monetary policy environment ensure inflation expectation remain firmly anchored avoid risk prevail high inflation entrench caution express base governing council assessment wage datum available lag environment main risk long tighten monetary policy early late early monetary policy normalisation reduce risk abrupt tighten later potentially associate high economic social cost background number member forward guidance condition satisfied express preference adjust forward guidance phasing app member stress sign upside unanchoring inflation expectation euro area increase inflation expectation observe previous summer consider welcome development downside risk price stability clearly recede regard premature draw conclusion condition forward guidance interest rate meet assessment implication energy price shock medium term inflation outlook available march ecb macroeconomic projection stress remain open question outcome march projection inflation reach ecb target durably projection horizon key condition consider rate increase forward guidance underline scenario conditional financing condition remain favourable respect projection emphasise exceptional uncertainty duration inflation spike need explain include role energy price assumption determine inflation outlook recall governing council credibility found ability maintain price stability contribute european people background maintain governing council avoid overreaction inflation development assess short lived change stance related communication see premature jeopardise recovery december eurosystem projection show inflation remain governing council target medium term visible sign unanchoring inflation expectation sound evidence emerge round effect wage member widely agree march ecb macroeconomic projection allow governing council great depth implication medium term inflation outlook datum accrue december note limited time governing council march incoming information unlikely lead substantially different benign inflation assessment instead imply upward revision inflation outlook come quarter caution despite late high expect inflation outcome extent possible revision march projection particular medium term outlook remain open issue structured quantitative evaluation relevant factor form basis projection exercise provide governing council important information help evolution monetary policy stance solid ground monetary policy decision communication overall broad agreement gradual normalisation monetary policy stance continue appropriate recall december governing council start normalisation process announce discontinuation net asset purchase pepp step step reduction asset purchase expectation special interest rate period series targeted long term refinance operation tltro iii end june context recall clear distinction need interest rate forward guidance guidance app net purchase base different criterion need reinforce accommodative impact ecb policy rate gradual flexible conduct monetary policy see critical end need maintain sufficient optionality respect time horizon adjust governing council policy instrument data drive manner addition heighten geopolitical risk see call prudent approach normalisation context governing council need recognise elevated inflation figure partly result global shock cause monetary policy address monetary policy cause sharp fall domestic demand time economy recover pandemic shock deem important governing council emphasise maintain clear predictable path policy action base careful regular assessment outlook economy inflation background member widely agree governing council confirm forward guidance sequence different policy measure entail end net asset purchase app raise key ecb policy rate finally phase reinvestment need recall governing council forward guidance forward look communication data dependant reflect expectation probability assessment conditional medium term inflation outlook overall governing council use optionality fine tune timing different milestone forward guidance way medium term inflation outlook converge ecb target context recall governing council wide range instrument disposal ensure sufficient flexibility gradually normalise monetary policy stance line evolve situation member widely agree lane proposal confirm decision take governing council december discontinue net asset purchase pepp end march reduce pace net purchase step step come quarter adapt inflation narrative communication acknowledge inflation continue turn high anticipated expect elevated time augment risk round effect period ahead compare assessment december upside risk inflation outlook increase particularly near term communication emphasise inflation narrative communication need adapt order retain increase optionality period ahead increase inflation long last initially expect remark governing council avoid characterise inflation development temporary transitory instead stress assessment inflation expect decline course year compare december outlook change likelihood see inflation rate decrease significantly time communication highlight gradual data drive approach monetary policy normalisation ensure inflation stabilise target medium term light increase uncertainty heighten upside risk inflation outlook general prevail governing council convey increase alertness monitor incoming information carefully particular round effect communicate possibility fast progress path policy normalisation decision warrant update medium term outlook inflation see means ensure governing council disposal sufficient policy flexibility upcoming meeting basis datum available underline governing council reaffirm determination adjust instrument maintain flexibility optionality situation exceptionally high uncertainty take account forego member proposal president governing council confirm decision take monetary policy december set dedicated press release publish member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference february press release monetary policy decision meeting ecb governing council february members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco wunsch members hold voting right february article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person buch demarco donnery goulard haber jurkšas kaasik kuodis kyriacou lünnemann nicoletti altimari novo ódor rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee thursday april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting march account monetary policy governing council european central bank hold frankfurt main wednesday thursday march april review financial economic monetary development policy option financial market development schnabel review late financial market development governing council monetary policy february russia invasion ukraine shift ecb communication agree february contribute orderly adjustment financial market accommodative financial condition consistent change medium term inflation outlook uncertainty trigger war temporarily halt partly reverse repricing monetary policy expectation globally lead heighten volatility market segment far market stress dislocation appear severe peak coronavirus covid-19 pandemic shock large market impact russian invasion ukraine date commodity price oil gas register multi year high future curve shift significantly elevated level result energy price rise contribute substantial reappraisal market euro area inflation outlook entire inflation link swap base forward curve shift significantly upwards year horizon measure contain inflation risk premia genuine inflation expectation somewhat low long term indicator market base inflation expectation move materially higher uptick come beginning previous week market start price shallower path anticipated tightening euro area monetary policy inflation continue surprise upside discernible repricing euro area monetary policy expectation observe start year upward shift forward curve overnight index swap ois rate observe prior war happen governing council february russian invasion ukraine halt partly reverse repricing ecb policy rate expectation market price month postponement interest rate hike relative pre war expectation investor expect basis point increase turn year expect speed tighten cycle lift remain unchanged uncertainty policy rate expectation base information option price increase february distribution risk expect path month euribor widen substantially reflect heighten uncertainty surround economic inflation outlook pronounced skewness distribution suggest market concerned upside risk inflation risk free long term yield side atlantic continue close step drop german bund yield somewhat pronounced treasury yield signal investor war drive small wedge growth outlook united states euro area sharp unprecedented widening bund ois spread follow russian attack suggest flight safety relevant factor repricing monetary policy expectation affect bund ois yield extent development real interest rate similarly characterise have phase governing council february monetary policy phase russian invasion real yield increase strongly short long end curve line gradual normalisation financial condition follow reappraisal monetary policy expectation globally russian attack real yield fall sharply global risk free sovereign yield curve drive safe haven flow decline pronounced short end reflect sharp increase expected inflation spread euro area sovereign bond yield german bund yield initially widen governing council february monetary policy speed magnitude adjustment remain contain relative resilience reflect factor continue strong ecb monetary stimulus include substantial stock acquire asset ecb announce investment policy combination long period low interest rate increase weighted average maturity public debt reduce sensitivity cost debt servicing rise risk free rate easing pandemic restriction sound growth expectation structural reform investment relate generation programme factor play role resilience spread response late geopolitical risk shock development equity market signal uncertainty direct implication invasion expect great euro area major currency area decline equity price reflect rise equity risk premium consistent flight safety bond market look exchange rate start war eur usd exchange rate move closely change policy rate expectation onset war dollar appreciate investor move classic safe haven currency despite unchanged relative monetary policy expectation global environment economic monetary development euro area lane late economic monetary financial development global economy euro area start note economic shock russian invasion ukraine come context solid foundation strong recovery euro area year useful recall point economy start war global economy recover pandemic omicron wave short live negative impact mainly service show change output purchasing managers indices pmis industry particularly tourism recreation november february omicron wave fading economy reopen natural expect catch late datum suggest slight improvement supply bottleneck especially united states united kingdom supply bottleneck ease production expect place satisfy demand trade good pre pandemic level ample scope catch tourism strong engine growth european country look development commodity exchange rate picture oil price change day oil price march clearly level assume march ecb projection exercise exchange rate distinction need draw happen bilateral movement euro exchange rate evolution euro effective trade weight exchange rate heightened uncertainty russian invasion lead investor safe haven currency euro appreciate strongly currency eastern european country depreciate notably dollar weight different development nominal effective term fall euro pronounced turn euro area improvement observe supply bottleneck remain acute risk russia ukraine war lead bottleneck review demand component gdp recovery private consumption strong i.e. omicron wave strength recovery reflect high income run saving lead robust consumption fiscal support reduce level height pandemic positive trend reverse private consumption fall account high energy consumer price translate decline real disposable income mechanism expect operate despite expectation reduction saving partly buffer decline consumption energy price shock negatively affect private consumption people experience increase cost living reduction purchase power investment recover sharp rebound automotive industry drag investment previous quarter housing investment continue affect large demand supply bottleneck production demand house house renovation remain elevated datum show slight dip expectation production survey indicate easing shortage material equipment labour close historical peak appreciate impact energy price shock real income useful look deterioration trade balance term trade euro area good trade balance progressively worsen result deficit end deterioration drive increase deficit energy balance similar deterioration visible term trade final contribution energy deterioration term trade percentage point gdp account gain company charge high export price global customer net loss income vis vis previous year energy price shock amount percentage point end regard labour market development evidence continue point recovery story pmi employment index remain expansionary territory sector february unemployment rate continue fall january job vacancy rate show sector record great number vacancy euro area vacancy rate reach level see united states consistent strengthen labour demand turn march ecb projection exercise lane note variable technical assumption change significantly february projection cut date move february account russian invasion ukraine projection exercise foresaw real gdp grow represent downward revision percentage point mainly impact ukraine crisis energy price confidence trade gdp growth unrevised december eurosystem projection nominal follow series unprecedented energy price shock headline inflation expect average core inflation headline inflation harmonised index consumer prices hicp expect slightly fall december projection headline inflation revise percentage point core inflation percentage point regard saving ratio decline foresee projection horizon household expect reduce saving cushion energy price shock short term boost consumption spending later horizon economy reopen owe high uncertainty surround consequence military conflict euro area ecb prepare scenario adverse scenario severe scenario scenario entail permanent loss income level gdp project significantly low baseline adverse scenario assume additional sanction russia euro area energy market disruption rise uncertainty financial repercussion feature severe scenario include high price sensitivity energy market supply cut additional financial tightening strong round effect high wage inflation scenario inflation significantly high short term fall slightly target move model base analysis risk inflation outlook alternative approach assessment approach rely model simulation estimate probability annual hicp inflation high indicate risk balanced model simulation show probability inflation target approach calculate forecast probability hicp inflation year year ahead base financial monetary indicator approach forecast probability inflation overall approach suggest risk direction risk look balanced analysis confirm end point inflation target similarly accord march survey monetary analysts sma median distribution long term inflation expectation remain mean significant difference february round give relative stability inflation expectation component argue movement real rate drive development risk premium regard balance risk sma respondent see risk inflation balance inflation target fairly distribution level imply upside downside risk inflation turn late inflation development hicp headline inflation increase strongly summer reach february important contribution rise inflation energy february account percentage point inflation rate increase energy price rise energy component fuel gas electricity contribute significantly increase energy inflation price hicp component food good service rise energy input sector large persistent energy price shock pass component strong indicator underlie inflation traditionally seek identify persistent element inflation increase take face value signal headline core inflation high future indicator capture medium term inflation development normal time currently affect shock pandemic shock massive energy price shock call careful analysis inflation dynamic environment development different component core inflation i.e. inflation exclude food energy start good inflation non energy industrial good time percentage point good inflation attribute combination supply bottleneck capture pmi supply delivery time oil price historically good inflation hover recently rise increase late datum percentage point increase estimate factor persistent supply bottleneck energy price shock lane explain march hicp projection build assumption energy price shock level effect assumption apply bottleneck generate level effect nonetheless permanent source inflation good inflation temporary reason inflation high shock vanish inflation expect fall component core inflation service inflation include similar temporary element key temporary element reopening economy need interpret level permanent effect inflation look projection horizon cumulate impact energy price shock core inflation ecb analysis show percentage point cumulative increase core inflation drive indirect effect energy short term early indirect impact estimate account bulk increase core inflation time disappearance slack levelling energy effect core inflation return determine traditional factor phillips curve type effect start kick short analysis show large effect energy price supply bottleneck reopening have core inflation turn wage march projection build observation far sign strong wage pressure line assessment labour market tight projection suggest gradual pick wage basis evidence collect wage settlement collective bargaining agreement frequently cover year examine agreement conclude informative increase negotiate wage coming month euro area growth compensation employee project impact minimum wage increase germany estimate percentage point regard fiscal policy march ecb projection show continued improvement euro area fiscal outlook expect path fiscal correction gradual improved cyclical component overall euro area fiscal deficit project high pre pandemic period debt gdp ratio expect improve percentage point thank strong project path growth foresee return pre pandemic trajectory fiscal balance expect improve interest payment revise upwards december projection important remember regard interest payment lot expire year bond pay rate interest high rate look measure government implement announce cushion impact energy price shock euro area aggregate baseline incorporate associated impact gdp additional measure include baseline recently approve country monetary policy consideration policy option sum lane stress russian invasion ukraine material impact economic activity inflation high energy commodity price disruption international commerce weak confidence prospect economy depend conflict evolve impact economic financial sanction possible measure event degree uncertainty extraordinarily high time underlie condition euro area remain solid help ample policy support labour market continue improve unemployment fall january previous headwind growth gradually wan measure contain spread omicron coronavirus variant milder impact previous wave lift supply bottleneck show sign ease impact massive energy price shock people business partly cushion draw saving accumulate pandemic compensatory fiscal measure bar materialisation bad scenario baseline scenario expect economy rebound course march projection output revise downwards near term owe russia ukraine war baseline projection foresaw economy grow robust pace remainder later projection horizon energy price expect moderate foreseen normalisation saving ratio alongside strong condition labour market support household consumption output expect rise risk economic outlook increase substantially russian invasion ukraine tilt downside risk relate pandemic decline war weaken economic sentiment generate supply constraint persistently high energy cost loss confidence drag demand expect constrain consumption investment alternative scenario economic financial impact war publish projection foresaw economic activity dampen significantly steep rise energy commodity price severe drag trade sentiment inflation increase sharply month hicp inflation surprise upside february rise january energy price increase february continue dominant force rise inflation food price increase account seasonal factor elevated transportation cost high price fertiliser price pressure widespread price good service have increase markedly energy price percolate cost structure sector bottleneck sustain pipeline pressure inflation expect increase near term consequence risk relate energy cost pressure food commodity price owe war ukraine measure underlie inflation rise month persistence rise indicator remain uncertain owe indirect effect high energy price role temporary pandemic factor labour shortage affect sector wage growth remain mute march projection foresaw hicp inflation substantial upward revision inflation reflect mainly effect upward surprise january february impact war path energy commodity price hicp inflation exclude food energy project follow similar profile reach year decline project wage growth high partly result catch wage indirect impact minimum wage increase wage scale look ahead improvement labour market condition return economy capacity support fast growth wage projection horizon long term inflation expectation range measure anchoring inflation target take improvement labour market anchoring inflation expectation increasingly inflation stabilise target medium term war ukraine constitute substantial upside risk energy price price pressure high anticipate wage rise inflation turn high medium term economic growth weaken medium term lead low pressure price alternative scenario economic financial impact war inflation considerably high near term inflation expect fade progressively settle level inflation target russian invasion ukraine cause substantial volatility financial market follow outbreak war risk free market interest rate partially reverse increase observe february sovereign yield partly retrace significant increase accompany steepening risk free curve early february euro area equity record hefty decline especially banking sector euro depreciate dollar investor evaluate consequence war euro area economy spillover financial market turmoil unsecured secured money market rate contain far lending rate loan firm despite upward correction remain favourable need maintain optionality conduct monetary policy condition especially important monetary policy data dependent optionality side hand policy restrict timely response risk excess inflation observe price pressure extend medium term possibility measure necessary crisis continue escalate rule escalation stifle economic rebound euro area jeopardise stability financial system inflation landscape skew risk inflation baseline suggest mission net asset purchase reinforce accommodative impact policy rate consider come close accomplish argue scale profile purchase asset purchase programme app relative path decide december time war generate uncertainty euro area economic outlook need ensure smooth liquidity condition action need safeguard financial stability fulfil mandate pursue price stability consideration mind lane propose announce path net purchase april june calibration net purchase data dependent reflect evolve assessment outlook incoming datum support expectation medium term inflation outlook maintain end net asset purchase net purchase end outlook deteriorate financing condition inconsistent progress target governing council stand ready revise schedule net asset purchase term size and/or duration finally lane propose adjustment rate forward guidance condition ease bias expectation look ahead condition judge meet policy rate keep low level long necessary particular easing warrant response significant deterioration outlook asset purchase appropriate tool adjust need signal adjustment key ecb interest rate place time end governing council net purchase app indicate time limit net asset purchase tentative data dependent calendar rate hike disentangle end date net purchase governing council extra space test condition end purchase bond take step normalisation communication sequencing spacing policy action factor directly rate forward guidance way reiterate sequencing policy instrument reference time convey notion time interval end net asset purchase lift predetermine especially important uncertain environment depend timeline fulfilment rate forward guidance criterion appropriate incorporation prevail economic financial market condition interest rate decision formulation clearly enhance flexibility optionality help manage agile manner specific step implement sequence normalisation decision allow step well attuned incoming datum propose innovation concern rate forward guidance consist element governing council reconfirm path policy rate determine forward guidance strategic commitment stabilise inflation medium term additionally signal adjustment interest rate gradual especially important time uncertainty govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction economy grow gdp return pre pandemic level end year growth slow final expect weak prospect economy depend course russia ukraine war impact economic financial sanction possible retaliatory measure russia ukraine war material impact economic activity inflation high energy commodity price disruption international commerce weak confidence extent effect depend conflict evolve impact sanction possible measure time impact war assess context solid underlying condition euro area economy waning number headwind growth measure contain spread omicron coronavirus variant milder impact previous coronavirus wave lift supply disruption cause pandemic show sign ease furthermore impact massive energy price shock people business partly cushion draw saving accumulate pandemic compensatory fiscal measure member welcome fact recognition highly uncertain environment march projection consider alternative scenario alternative scenario economic financial impact russia ukraine war economic activity see dampen significantly steep rise energy commodity price severe drag trade sentiment inflation considerably high near term inflation expect decrease progressively settle level inflation target member highlight exceptional uncertainty war ukraine ramification imply economic outlook hold short term medium term suggest condition ecb grapple knightian uncertainty i.e. type uncertainty quantifiable fear concern associate war easily capture standard model broad agreement direction initial effect war euro area economy upwards inflation downward economic growth well characterise negative supply shock inflationary disinflationary impact long term prominent imminent economic risk emerge war price energy raw material increase price energy food upward pressure prominence item consumption basket risk strong impact household inflation perception expectation reaction household saving consider key element macroeconomic transmission war shock hand saving expect rise drop asset price rise uncertainty start war lead precautionary behaviour portfolio adjustment household business situation see probably comparable financial crisis pandemic crisis restriction lead force saving combine complete cut russian oil gas supply euro area heighten uncertainty risk aversion lead pessimistic assessment economic outlook present baseline projection scenario hand argue household face high energy bill leave little room build saving uncertainty effect strong country border russia finally underline high stock saving accumulate household pandemic provide partial cushion rise energy price regard external environment member take assessment provide lane omicron variant slow global growth momentum turn year especially service impact diminish global supply bottleneck seemingly pass peak delivery time remain long russia ukraine war lead downward revision euro area foreign demand visible effect dampen positive carry effect follow russia invasion ukraine commodity price surge euro depreciate particularly dollar price risky asset drop characteristic shock euro area economy mention large economic military political implication europe unfold gradually time mention addition oil gas russia ukraine major exporter important commodity wheat fertiliser rare metal lead severe worldwide bottleneck number product finally recall weakening euro amplify adverse term trade shock euro area currently experience owe surge commodity price member agree lane russia ukraine war start context solid foundation strong recovery euro area year government end pandemic relate restriction euro area economy set strong recovery escalation conflict euro area economy enter crisis well fundamental march severe scenario present damaging growth comparable scenario governing council consider year ago response emergence coronavirus context recall global level russia ukraine war economic financial sanction compare shutdown global economy march comfort widely draw continuously improve labour market condition unemployment fall january labour market indicator historically high level household income grow time argue pessimistic assessment economic consequence russia ukraine war imply strong labour market thing past economic contraction owe russia ukraine war lead weak labour market observe 1980s result fall income lead economic weakness include downward pressure inflation fiscal policy response russia ukraine war member agree measure desirable national european level lot uncertainty initiative clear economic activity suffer short term year consumption investment receive boost type fiscal spending additional investment energy sector reduce dependency russian gas oil include investment green energy transition increase defence spending europe public spending support ukraine refugee overall increase government spending tend increase pressure resource price member assess risk economic outlook have increase substantially russian invasion ukraine tilt downside risk relate pandemic decline war ukraine strong effect economic sentiment worsen supply constraint persistently high energy cost loss confidence drag demand expect constrain consumption investment background argue war constitute stagflationary shock entail weak activity high inflation near term give extremely strong starting point anchoring medium term inflation expectation difficult shock push euro area economy stagflation context fiscal response important achieve favourable outcome time weak activity quarter year nonetheless result technical recession term growth rate finally impact war clearly inflationary short run give significant increase uncertainty rise financial stability risk inflationary disinflationary long run regard price development member concur assessment present lane introduction inflation continue surprise strongly upside february increase effect war visible expect rise near term energy price continue main reason high rate inflation push price sector food price increase pressure food commodity price owe war ukraine finally price rise widespread measure underlie inflation rise level different view persistent rise give role temporary pandemic relate factor indirect effect high energy price market base indicator suggest energy price stay high long previously expect moderate course projection horizon price pressure stem global supply bottleneck eventually subside wage growth remain mute time return economy capacity support fast growth wage measure long term inflation expectation derive financial market survey stand factor help headline inflation settle durably target march projection member note substantial upward revision short term inflation outlook december projection february inflation datum release late string consecutive upside surprise lead large revision inflation projection year december march high level inflation turn transitory previously expect late ecb projection nonetheless foresaw rapid decline inflation nearly target projection horizon sizeable persistent projection error core inflation see reminder model underestimate impact recovery pass input price final consumer price particular doubt express convergence inflation expect baseline projection year projection horizon question raise expect fast mean reversion inflation fast previous projection round huge shock inflation appear puzzle inflation projection fall somewhat short target despite consecutive upside surprise inflation outcome persistently positive output gap projection horizon late increase long term inflation expectation context acknowledge model estimate historical datum naturally limit face unusual shock possible turning point regime shift stress medium term projection headline inflation base assumption decline path energy future price path see open challenge light factor energy market point last upward pressure include sanction russia europe plan reduce russian gas import climate change initiative sensitivity analyse alternative technical assumption energy commodity price imply inflation projection time caution mechanical assumption oil price caveat interpret projection important understand oil price drive demand supply shock respect medium term outlook consider projection food price inflation low end horizon question raise high long reference upward impact medium term inflation projection development cost owner occupy housing official hicp index different consideration argue pretence know exact number inflation attention give uncertainty risk distribution point estimate inflation member highlight core inflation measure underlie inflation move include strong upward movement price change frequently good indicator medium term inflation development see argue attribute inflation energy component support assessment inflation broad base persistent trend entrenched increasingly doubtful measure underlie inflation expect decline significantly short term medium term long variable lag pass producer price mean considerable upside pressure pipeline contrast projection increase core inflation foresee partly reverse projection horizon stress core inflation currently drive external factor include energy price bottleneck domestic factor wage factor argue constitute price level effect fade inflation rate time reference analysis historical pattern producer price inflation energy sector show energy inflation typically oscillate positive negative rate change notwithstanding upward spike rule energy inflation turn negative point future recall energy price rise result lastingly high inflation ultimately require high inflation expectation high wage growth self sustaining context note growth negotiate wage end low average point evident wage pressure note growth unit labour cost combine wage growth productivity development expect increase projection horizon stay comparison wage growth inflation suggest cumulative decline real wage projection horizon question raise imply term trade shock associate energy price increase absorb worker situation tight labour market time point low real wage necessarily imply low labour share income positive employment growth case inflation stubbornly high high expect widely see increase likelihood round effect turn high inflation persistent argue round effect wage emerge long year wage contract tend conclude long period concern express round effect non linear nature take time emerge strong difficult stop labour market dynamic indication increase labour market tightness see point clearly rise wage pressure period ahead argue past impact energy price increase short live naturally absorb wage profit margin time situation appear different give large energy shock conjunction far reach structural change post pandemic pen demand supply shortage call question seemingly mute reaction wage inflation projection time recall projection round effect assume play line historical regularity risk project effect turn strong give far wage growth country come low previously expect caution strength labour market quickly vanish reference 1980 round effect induce round effect term low output weak labour market possible union firm prioritise job security wage gain light heighten uncertainty owe war wage price spiral unlikely long contrast 1970 1980 commitment price stability see credible background factor constitute risk economic outlook affect risk outlook inflation see upside near term war ukraine substantial upside risk especially energy price price pressure high anticipate wage rise persistent adverse supply implication inflation turn high medium term demand weaken medium term lower pressure price observe risk projection materialise oil price rise cut date assumption projection governing council addition point fiscal spending defence energy place come year imply additional inflationary pressure regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator indicator see good news point market base measure significantly hand suggest see sign long term inflation expectation unanchore need closely monitor rise wage price spiral hand recall measure include risk premia correct leave genuinely expect inflation respect attention draw correlation movement oil price market base measure inflation compensation instance rise year imply forward inflation link swap rate year ahead inter alia reflect investor look hedge face oil price drive inflation surge long term inflation expectation interpret reflect perception supply shock have direct upward effect inflation near term downward effect disposable income long horizon time reference national survey show medium term inflation expectation business household move turn monetary financial analysis member widely concur assessment provide schnabel lane introduction russian invasion ukraine cause substantial volatility financial market owe heighten uncertainty stock market euro area affect united states reflect fact euro area exposed region world fallout war regard extent fall equity price invasion ukraine include bank minor exposure russian ukrainian economy suggest transmission economic shock euro area economy adverse imply relatively small direct financial trade exposure time underline far financial market tension appear significantly severe start pandemic similar dash cash liquidity hold market segment interruption primary market issuance corporate bond market day financial stability perspective main channel transmission high energy commodity price relate macroeconomic impact inflation growth follow outbreak war risk free market rate partially reverse increase observe wake february euro depreciate dollar euro area equity price record hefty decline especially bank financial sanction russia far cause persistent strain money market liquidity shortage euro area banking system bank balance sheet remain healthy owe robust capital position reduction non performing loan turn reflect sound household finance corporate balance sheet growth lend firm decline increase strongly lending household hold especially loan house purchase monetary policy stance policy consideration regard monetary policy stance financing financial condition euro area assess favourable notwithstanding increase market interest rate observe monetary policy february nominal euro area government bond yield increase significantly december drive increase market base inflation compensation significant fall real interest rate record low level depreciation euro suggest monetary policy stance remain accommodative raise question configuration monetary policy instrument include negative interest rate policy consistent inflation return target medium term note fall risk free interest rate drive deteriorate risk sentiment wake russian invasion ukraine clouding macroeconomic outlook bank lending rate firm increase somewhat remain favourable cost market base debt rise markedly rate loan household house purchase remain steady historically low level large number member hold high level inflation persistence call immediate step monetary policy normalisation inflation project far target unprecedented upward revision late projection round project target significant upside risk evidence alternative scenario argue baseline inflation projection assess effectively target heighten uncertainty surround outlook fragility assumption underlie projection take account addition available measure underlie inflation move suggest projection underestimate persistence target inflation basis argue practical purpose forward guidance condition upward adjustment key ecb interest rate meet close meet time argue remain uncertain persistent rise indicator underlie inflation give role temporary pandemic relate factor indirect effect high energy price remark forward guidance criterion assess meet uncertainty high juncture fulfilment criterion necessary sufficient condition hike policy rate appropriate timing upward adjustment ecb key interest rate determine governing council light available datum consideration prevail financial market condition russian invasion ukraine increase uncertainty surround macroeconomic outlook relate risk inflation outlook see side experience suggest war tend inflationary fuel increase fiscal spending conjunction loose monetary policy stance war dent economic growth short term annual growth project positive severe scenario point slowflation stagflation great persistence inflation increase probability round effect strengthen wage dynamic wage growth remain moderate far usually react lag possibly non linear way heighten risk wage price spiral monetary policy act timely manner long period target inflation lead increase risk upward unanchoring long term inflation expectation late measure market base inflation compensation move entire maturity structure time year circumstance governing council long afford look high inflation drive adverse supply shock evolution inflation landscape december outline lane call act confidence undue hesitation view essential underline primacy price stability objective provide guidance market avoid add uncertainty volatile environment particular consider essential action scale scheduled app purchase follow quarter unlock optionality future decision policy rate take app purchase fulfil stated objective reinforce monetary policy accommodation provide ecb negative interest rate give development inflation outlook governing council december favourable financing condition long evident pace net purchase previously agree continue proportionate i.e. suitable necessary onerous alternative available achieve declare objective continue provide monetary policy accommodation net asset purchase extent envisage december long see consistent primary objective time inflation move away governing council target maintain net asset purchase app spite impend risk price stability question governing council determination pursue primary objective particularly inflation risk skew upside assessment call prudent conditional phasing use non standard instrument case available future use proportionate manner ecb toolbox take action see consistent principle gradualism prudence caution delayed response increase risk abrupt adjustment monetary policy stance prove necessary road prove costly growth financial stability respect important governing council follow data dependent step step approach emphasis optionality flexibility war reinforce need optionality owe increase upside risk inflation light heightened uncertainty nonetheless see wise sided optionality data dependent approach early tell event unfold following month background cautious action see warrant particular scale schedule net asset purchase app link date initial rate rise duration asset purchase increase governing council optionality flexibility imply lift automatically follow shortly end net purchase call action member prefer set firm end date app net purchase summer date conditional unfold event clear way possible rate rise year light deterioration inflation outlook preserve optionality asset purchase cost especially consider risk fall curve member express preference adopt wait approach exceptionally high uncertainty create russia ukraine war pre war situation call removal monetary policy support accompany recovery form cautious adjustment addition normalisation decision take december tighten cycle initiate environment result war bold step justified dent confidence war imply considerable change macroeconomic picture february alternative scenario suggest euro area fall technical recession summer quarter point absence currently high level inflation appropriate monetary policy response loosening stance war associate amplified energy supply shock create acute dilemma monetary policy value keep steady hand wait decide adjustment monetary policy stance allow well understanding plan fiscal policy response implication war economic inflation outlook act raise question governing council focus short term inflation development medium term inflation outlook member forward guidance condition meet obvious meet soon baseline projection alternative scenario suggest inflation fall impact high energy price level headline inflation fade argue war constitute supply demand shock appropriate monetary policy look shock overreact inflation reading argue governing council afford patient measure long term inflation expectation stand sign round effect wage growth remain moderate far lately slow expect projection exercise monetary policy decision communication member agree recalibration monetary policy instrument propose lane introduction balanced compromise proportionate course action pursuit governing council price stability mandate hand take course action governing council continue step step normalisation monetary policy consistent assessment increasingly inflation stabilise target medium term hand propose recalibration maintain governing council flexibility term schedule net asset purchase app emphasise conditionality link medium term inflation outlook increase optionality respect key policy interest rate link lift expected end date net asset purchase basis governing council update assessment take account uncertain environment agreement revise net asset purchase app propose lane introduction monthly net purchase app april june agreement calibration net purchase data dependent reflect governing council evolve assessment outlook wide support conditional expectation governing council conclude net asset purchase app incoming datum support expectation medium term inflation outlook weaken end net purchase give governing council necessary flexibility optionality time need reassess situation come meeting formulation governing council forward guidance interest rate member agree remove ease bias i.e. governing council previously express expectation key policy rate low level forward guidance condition judge fulfil view long warrant member agree separate timing rate hike end date net asset purchase replace previous formulation net asset purchase end shortly governing council start raise key policy rate net asset purchase app view have fulfil purpose reinforce accommodative impact policy rate evidence need conclude condition rate hike meet automaticity decision rate hike prudent retain flexibility optionality respect clarity impact russia ukraine war medium term inflation outlook background judge necessary advisable reach firm conclusion stage forward guidance condition meet member support propose formulation adjustment key ecb interest rate place time end net asset purchase app view appropriate convey notion governing council intend gain extra space condition rate hike net purchase end stress maximum optionality flexibility need maintain particular important avoid misinterpretation formulation necessarily suggest long gap end net purchase initial rate rise member agree path key ecb interest rate determine forward guidance data dependent manner strategic commitment stabilise inflation medium term broad support notion gradualism regard establish principle sound monetary policy consistent prudence environment heightened uncertainty respect possible resurgence fragmentation euro area financial condition recall december governing council include general reference flexibility communication include regular monetary policy press release communication member highlight need convey data dependent approach monetary policy normalisation governing council attentive prevail uncertainty stand ready adjust instrument ensure inflation stabilise target medium term stress amid uncertainty create russian invasion ukraine governing council ensure smooth liquidity condition action need fulfil ecb mandate pursue price stability safeguard financial stability reference context governing council decision extend eurosystem repo facility bank eurep january communicate ecb monetary policy press release prevail uncertainty call governing council maintain maximum optionality flexibility respect future course monetary policy normalisation data dependent approach essential keep confidence trust ecb commitment deliver mandate acknowledge ecb lot term gradual monetary policy normalisation net asset purchase pepp discontinue end march line decision take december highlight fiscal measure include european level important role play shield economy negative impact russian invasion ukraine take account forego member president ascertain member accept policy package propose lane set ecb monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference march press release monetary policy decision meeting ecb governing council march members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco wunsch members hold voting right march article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bitans buch demarco gavilán donnery goulard haber kaasik kuodis kyriacou lünnemann nicoletti altimari novo ódor rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee thursday contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting april account monetary policy governing council european central bank hold frankfurt main wednesday thursday april review financial economic monetary development policy option financial market development schnabel review late financial market development note governing council previous monetary policy march investor risk sentiment improve considerably euro area equity price move close level record prior war ukraine sovereign spread narrow risk free yield increase markedly time market base measure inflation compensation continue creep higher stand governing council target entire horizon development sovereign yield euro area previous monetary policy highlight fact gdp weight sovereign yield curve euro area shift upwards march currently stand considerably level record prior war entire maturity spectrum euro area yield curve steeper despite rise short long term euro area nominal bond yield remain low historical perspective model base breakdown increase year euro area risk free rate point main factor drive upward shift sovereign yield previous improvement global euro area macroeconomic outlook risk sentiment suggest investor war effect growth sufficiently strong long last derail recovery relate factor reflect anticipated monetary policy response consistent expectation continue growth sharp repricing inflation outlook market expect fast pace monetary policy normalisation euro area bring real yield negative territory break long term yield real rate inflation component show rise nominal long term interest rate euro area russian invasion ukraine mainly reflect marked reappraisal inflation outlook investor real interest rate fall slightly march despite increase nominal yield rise inflationary pressure evident inflation link swap forward curve shift markedly high elevate level prevail time governing council previous monetary policy increase inflation compensation stem high inflation risk premia genuine inflation expectation increase moderately sharp rise inflation risk premia signal investor demand high compensation hold inflation risk portfolio year forward inflation link swap rate year ahead market base measure long term inflation expectation stand suggest long term investor attach high probability inflation turn high expect low expect compare march shift market base indicator monetary policy expectation substantial overnight index swap ois forward curve markedly steeper market participant pricing basis point rate hike july year basis point rate hike end year market expect hiking cycle basis point interest rate hike expect suggest market see need substantial policy action secure medium term price stability reflect negative real short long term yield median participant response survey monetary analysts sma show interest rate hike expect place share sma participant expect early lift increase expect path lift substantially shallow compare path suggest market pricing possibly indicate rise term premia high remain uncertainty pace policy normalisation contribute steep forward curve market genuine expectation probably somewhat low indicate forward curve high uncertainty expect euro short term money market rate price market line premise ecb reaction function datum dependent market prepare substantially pronounced hiking cycle compare expectation march expect federal open market committee fomc hike rate basis point month fund rate expect level level fomc hint rapid reduction usd balance sheet begin soon policy limited movement exchange rate euro dollar march monetary policy suggest reappraisal market euro area monetary policy outlook offset downward pressure euro pronounced reappraisal monetary policy expectation time depreciation euro beginning year response change relative monetary policy expectation vis vis united states large suggest cross country regularity development euro area sovereign bond market consistent limited risk stagnation recession sovereign spread sustained downward trend governing council previous monetary policy furthermore strong recovery equity price reflect foremost reversal early increase equity risk premium mirror improve risk sentiment fundamental factor explain resilience equity price risk asset earning outlook euro area firm remain relatively robust despite war earning expectation month far lower long term earning expectation decrease substantially stabilise elevated level analyst continue expect annual earning growth year compare long run average cautious optimism display market participant mean investor dismiss downside risk geopolitical risk remain elevated market continue price heighten tail risk instance downside risk equity market remain elevated euro area risk emanate high margin call commodity future market cause large increase liquidity demand non financial corporation hedge energy price exposure global environment economic monetary development euro area lane late economic monetary financial development global economy euro area global development spring world economic outlook weo projection international monetary fund imf significantly downgrade forecast world gdp growth downward revision large russia significant country close war zone reliant russia import energy metal global supply chain bottleneck start ease turn year consequence war lockdown china easing stall reverse forward look indicator start point deterioration global trade dynamic oil price decline notably peak observe russian invasion ukraine compare day march governing council shorter run future path oil price low high compare cut date february march ecb projection relatively minor movement euro effective exchange rate march governing council take long term perspective euro exchange rate return pre pandemic level effective term dollar turn euro area activity russian invasion ukraine lead spike uncertainty indicate example european commission uncertainty measure evolution confidence indicator suggest deterioration short term outlook owe rise energy price increase uncertainty wave supply disruption generate war lockdown china outlook relatively positive boost tourism expect summer similarly assessment remain positive far assessment war lead temporary slowdown growth persistent downgrade look component domestic demand private consumption contract negative carry drop retail sale december rise energy price hit income pandemic restriction lift household show strong negative reaction outbreak war consumer expectation plunge march particular household expectation future financial situation good predictor consumer spending deteriorate sharply regard business investment uncertainty shock expect harmful investment consumption investment spending plan certainly affect heightened uncertainty plan affect rise energy cost historically datum show negative relationship production cost profit rate expect high cost fully pass consumer price trade datum capture outbreak war available deficit energy food trade balance continue deteriorate beginning year import price energy good continue increase deterioration partly compensate improvement non energy non food trade balance purchasing managers index manufacture export order fall contractionary territory march owe war ukraine lockdown china look labour market development unemployment rate continue decline labour market participation rate continue improve sector employment market service include tourism return pre pandemic level public sector key driver job creation public sector employment stand pre pandemic level end march household expectation unemployment increase visibly albeit start coronavirus covid-19 pandemic important factor cushion impact shock fiscal policy bulk euro area measure address hike energy price package measure increase spending defence refugee turn late inflation development headline inflation harmonised index consumer prices hicp hit high march february far big contribution come energy component percentage point increase energy inflation large reaction economy subject non linearity response economy term inflation output dynamic proportional response usually small fluctuation energy price break energy inflation fuel component historically account large contribution relatively stable big increase energy inflation instead electricity gas price food inflation upward trend summer reach march good inflation march stand percentage point long term mean significant contribution percentage point increase pass high energy cost supply bottleneck significant simply attribute broadening energy shock impact ongoing bottleneck indicator pipeline pressure signal good inflation historically low high service inflation lot area reopen normalisation travel tourism entertainment restaurant service cut price keep low pandemic normalise price increase large margin lot indicator underlie inflation euro area exclusion base model base stand february hicp inflation exclude energy food rise march remain uncertain persistent rise indicator give role temporary pandemic relate factor indirect effect high energy price wage outlook growth negotiate wage euro area gradually increase remain moderate month forward look information wage agreement span year support wage pressure increase gradually nominal wage usually expect equal sum productivity consumer price level reflect decline labour share income negative effect high import price consumer price look inflation expectation april survey professional forecasters spf show distribution individual response continue shift right mode distribution average spf round overall long term inflation expectation report spf average amount upward revision previous round spf sma inflation expect see basically chance inflation target scenario reflect widespread inflation dynamic hold expert variety institution market base indicator inflation compensation increase euro area increase particularly large short horizon long horizon indicator adjust risk premia expectation large turn financial monetary development financial condition unchanged march governing council str forward curve shift markedly short medium term tenor steep increase see adjust risk premia compare forward curve situation time december govern council reveal remarkable tightening market rate relevant price loan sovereign bond bank funding cost increase drive rise bond yield upward pressure funding cost limit bank rely funding source interest rate customer deposit account half liability hover historic low outstanding funding continue favourable rate bank lending rate remain low far shield rise market rate accord late lending survey euro area bank report continued net increase loan demand firm bank report net tightening credit standard loan firm mainly owe increase risk perception decrease risk tolerance bank expect considerably strong net tightening bank report net increase household loan demand monetary policy consideration policy option sum lane stress adverse economic impact russian invasion ukraine combine mechanism evident war associated uncertainty weigh heavily business consumer confidence addition supply disruption acute phase pandemic ease war create bottleneck set pandemic measure asia contribute supply chain problem sector face grow difficulty source input disrupt production sharp rise energy commodity price increase production cost firm reduce purchase power household economy develop crucially dependent evolution conflict impact sanction possible measure offset factor compensatory fiscal measure possibility household draw saving accumulate pandemic reopening sector affect pandemic strong labour market support income spending furthermore time euro area find alternative energy supplier adapt production technology dependent fossil fuel overall war ukraine substantially increase risk growth outlook clearly skewed downside risk relate pandemic decline war strong effect economic sentiment worsen supply constraint persistently high energy cost loss confidence drag demand restrain consumption investment expect inflation increase march revise february energy price drive high outbreak war stand level year continue main reason high rate inflation market base indicator suggest energy price stay high near term moderate food price increase sharply owe elevated transportation production cost notably high price fertiliser relate war ukraine core inflation measure hicp exclude energy food rise february march increase sectoral inflation rate non energy industrial good sector service sector overall development suggest inflation rate high short term war aggravate uncertainty future energy price development influence pace price pressure global supply bottleneck subside measure underlie inflation increase level month uncertain persistent rise indicator give role temporary pandemic relate factor indirect effect high energy price long last impairment supply potential possible energy price persist elevated level measure long term inflation expectation derive financial market expert survey initial sign target revision number indicator inflation expectation warrant close monitoring upside risk surround inflation outlook intensify especially near term price pressure high inflation expectation high anticipate wage rise supply condition worsen durably inflation turn high medium term demand weaken medium term amid persistent erosion real income high energy price high cost good service ease pressure price financial market highly volatile russia invade ukraine upward shift risk free curve far trigger wide repricing credit risk severe strain money market liquidity shortage euro area banking system governing council march market interest rate funding cost continue increase bank lending rate firm household far remain insulate increase market rate thank ample liquidity support low deposit rate health balance sheet lend household hold especially house purchase flow loan firm stabilise ecb lending survey report credit standard loan firm housing loan tighten year lender concerned risk face customer uncertain environment participant survey expect credit standard tighten come month bank weigh adverse economic impact war high energy price lane stress governing council attentive uncertainty closely monitor incoming datum relation implication medium term inflation outlook june monetary policy information course war wide ramification allow governing extensively net impact economy inflation dynamic time lane highlight governing council conclude datum available march support expectation net asset purchase asset purchase programme app conclude look ahead monetary policy depend incoming datum evolve assessment outlook condition high uncertainty need maintain optionality gradualism flexibility conduct monetary policy particular lane stress governing council state readiness adjust instrument mandate incorporate flexibility warrant ensure inflation stabilise medium term govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction russia aggression ukraine affect economy europe conflict associated uncertainty weigh heavily confidence business consumer trade disruption lead shortage material input surge energy commodity price reduce demand hold production time economic activity support reopening economy crisis phase pandemic look ahead economy perform crucially dependent evolution conflict impact sanction possible measure inflation increase significantly high come month mainly sharp rise energy cost inflation pressure intensify sector regard external environment member take assessment provide lane russia war ukraine surge covid-19 infection asia strict lockdown measure take chinese government contain virus cloud global outlook amid sign strain supply chain start increase concern express shortage input produce russia ukraine lead strain impact war ukraine depend economic sanction russia extend oil gas dampen global growth raise energy price turn euro area development economy grow final estimate growth remain weak owe pandemic relate restriction factor point slow growth period ahead war weigh confidence business consumer include uncertainty bring energy commodity price rise sharply war create bottleneck household face high cost living firm confront high production cost sector face grow difficulty source input disrupt production offset factor underpin ongoing recovery compensatory fiscal measure possibility household draw saving accumulate pandemic reopening sector affect pandemic strong labour market people job support income spending fiscal monetary policy support remain critical especially difficult geopolitical situation addition successful implementation investment reform plan generation programme accelerate energy green transition member agree lane heighten uncertainty affect euro area outlook negative supply shock drive surge energy commodity price uncertainty reach level assessment future course economy subject wide confidence band energy shock erode real income severely term trade tax high energy price rise euro area gdp expect squeeze domestic demand fiscal measure mitigate shock unlikely fully offset forward look business confidence indicator weaken substantially owe intensification supply chain disruption argue technical recession come quarter rule time underline incoming datum suggest war slow recovery derail tail scenario materialise consistent financial market development previous governing council ecb corporate telephone survey cts example firm report impact war feel primarily term price cost term order production significant concern future activity reflect high uncertainty survey suggest immediate impact war moderate recent private sector forecast continue predict real gdp growth prediction growth unchanged war pace growth economy absorb remain slack finally point high energy price result drop energy consumption suggest price elasticity energy high assume reaction household spending save propensity consider key element macroeconomic transmission russia ukraine war shock indicator relate consumer behaviour deteriorate consumer confidence fall sharply march expectation weak demand spill production investment plan result business expectation decline sharply march confidence shock investment substantial fuelled accelerator mechanism uncertainty ultimate impact growth remain exceptionally high stage effect aggravate impact high degree uncertainty household saving rate possibly renew high saving household reduce business investment turn weaken demand come time household spending capacity directly affect drop real income owe high inflation context remark perceive drop purchase power addition actual drop owe high inflation important determinant consumption decision apply particularly household low quintile income distribution time recall hit real income owe rise energy price cushion degree fiscal measure national level accumulate saving amount annual disposable income fiscal policy response russia ukraine war highlight government measure soften domestic impact war affected segment population positive news see come fast improve labour market unemployment fall historical low february labour market continue strong strong expect early unemployment rate ratio unemployed worker job vacancy fall record low surveys suggest firm hire plan remain unaffected war point public sector employment stand clearly pre pandemic level employment private sector remain somewhat particular look hour work worker concern job security contribute moderate wage growth background member assess risk economic outlook tilt downside risk relate pandemic decline war ukraine strong effect economic sentiment worsen supply constraint persistently high energy cost loss confidence drag demand expect constrain consumption investment regard price development member concur assessment present lane introduction inflation increase record high march february rise energy price start war reach annual rate energy price continue main contributor high rate inflation market base measure suggest energy price high near term fall slightly price rise widespread food price increase sharply rise transportation production cost notably high price fertiliser relate war ukraine supply bottleneck energy cost normalisation demand economy reopen crisis phase pandemic continue upward pressure price measure underlie inflation rise level month uncertain persistent rise indicator give role temporary pandemic relate factor indirect effect high energy price expect fast growth wage support underlie inflation economy return capacity time measure long term inflation expectation derive financial market expert survey stand initial sign target revision measure warrant close monitoring member note high energy price drive war ukraine main reason inflation march high project war put lot upward pressure global food price push euro area consumer food price future addition high energy price creep sector economy affect manufacturing service make inflation increasingly widespread persistent phenomenon result measure underlie inflation rise level significantly consider unlikely inflation return ecb target near term judge relatively unlikely drag private demand war severe reduce inflation substantially medium term economic consequence war great currently expect number factor inflation persistent project relate pipeline pressure euro area producer price increase january time high war ukraine pandemic measure china suggest pipeline pressure bottleneck intensify affect consumer price relatively long period time give size energy shock pass consumer price great past environment high inflation consumer willing accept strong pass cost price factor relate wage far small number wage contract renegotiate inflation start surge little doubt worker eventually ask compensation loss real income factor relate structural upward pressure inflation war increase prospect acceleration green transition exacerbate supply demand imbalance commodity market price metal record high addition european government try actively limit dependency global value chain area strategic importance expect accelerate reshore effort loosen brake globalisation wage inflation time argue give rise energy cost owe war ukraine unsurprise march inflation figure high early projection strong energy price pressure short term inconsistent low inflation medium term lag effect weak demand outweigh supply effect shock issue fast inflation rise decline addition point increase inflation global factor oil commodity price supply bottleneck war ukraine unlike united states domestic demand euro area potential mean driver domestic price pressure wage employment medium term inflation expectation inconsistent ecb price stability objective respect pipeline price pressure argue affect annual inflation rate year ahead extent distort impact pandemic supply chain disruption principle transitory clear extent pipeline pressure fuel phase high inflation last medium term point energy price appear peak year inflation come month reflect substantial negative base effect member point hard imagine sustained high inflation increase wage pressure development negotiate wage euro area level expect moderate year wage agreement evidence different country point heterogeneity furthermore moderate wage demand expect uncertain environment worker increasingly concerned job security usefulness hard datum wage gauge future inflation pressure call question give wage react substantial lag price increase suggest matter time wage growth catch large persistent overshoot inflation target cts suggest pressure large wage increase build picture wage outlook change quickly unemployment record low level strengthen bargaining position employee euro area country formal wage indexation clause factor explain high wage growth euro area average situation change time mechanism restore lose purchasing power overall broad consensus stubbornly high high expect inflation increase risk round effect arise wage cost view differ extent risk materialise hand argue give usual time lag round effect necessarily result high wage growth year push wage growth later wait wage growth accelerate form future inflation development misguide upside risk inflation materialising result wage price spiral hard stop hand argue round effect wage require structural change labour market specifically structural parameter wage phillips curve represent relationship wage growth unemployment currently estimate parameter suggest low pass price change wage far little evidence structural change take place labour market round effect wage unlikely juncture regard long term inflation expectation member take assessment provide schnabel lane late development market base measure inflation compensation survey base indicator argue increase sign high inflation entrench expectation number indicator long term inflation expectation start unanchored ecb inflation target financial market medium long term inflation link swap rate partly risk premia reflect rate rise premia imply investor demand insurance risk inflation private sector forecast cover spf move preliminary evidence survey access finance enterprises safe suggest inflation expectation important factor determine company future sell price early result consumer expectations survey ces show household inflation expectation year ahead increase significantly consequently argue indication long term inflation expectation start away target underline general financial market indicator long term inflation expectation consistent ecb medium term target give risk premia subtract market swap rate sign inflation expectation unanchore backdrop large inflation shock regard normal inflation expectation household firm temporarily rise somewhat fact inflation expectation increase little response high inflation rate despite fact household firm typically adapt expectation development actually see sign credibility ecb policy mute reaction inflation expectation different happen follow oil shock 1970 overall wide agreement measure long term inflation expectation derive financial market expert survey stand initial sign target revision measure warrant close monitoring background member assess upside risk surround inflation outlook intensify especially near term risk medium term inflation outlook include target move inflation expectation high anticipate wage rise durable worsening supply condition demand weaken medium term lower pressure price turn monetary financial analysis member widely concur assessment provide schnabel lane introduction nominal long term interest rate gradually rise mainly owe high inflation compensation real long term interest rate remain level observe russia invasion ukraine short term nominal interest rate rise expectation normalisation governing council monetary policy stance reflect extent tight monetary policy united states question raise anticipation rate increase lead shift timing consumption investment household firm note governing council decision dynamic observe financial market far consider benign pace policy normalisation expect market participant appear gradual historical perspective interest rate spread sovereign risk free rate remain contain see testimony effort strengthen euro area banking financial system robust decade ago overall financing condition assess favourable real rate remain negative territory historical low remark euro exchange rate stabilise future dynamic depend relative monetary policy stance euro area united states argument small interest rate differential strengthen euro directly lower import cost commodity price dollar counter inflationary pressure exert negative effect economic activity accord euro area lending survey tightening credit standard loan firm housing loan expect coming month dampen lending growth rise tension credit supply highlight bank funding cost increase bank tighten lending standard survey suggest translate high cost borrowing private sector mortgage rate offer non lender rise noticeably jurisdiction lead tightening financing condition change ecb policy rate point lending rate firm household far remain insulate increase market rate credit condition currently signal lending constraint non financial sector furthermore caution restrictive stance report lending survey represent normalisation period favourable condition monetary policy stance policy consideration turn assessment monetary policy stance member widely express concern high inflation number major issue household business headline underlying inflation historically high level price pressure extend energy owner occupy housing cost include hicp underlie inflation high percentage point note indicator long term inflation expectation creep increase risk inflation expectation unanchore target time argue development market base indicator long term inflation expectation interpret positive suggest month early governing council inflation target meet sustained basis background member view important act undue delay order demonstrate governing council determination achieve price stability medium term action deem necessary prevent temporary bout high inflation entrenched prevent inflation expectation rise governing council target significantly costly bring inflation target member judge highly accommodative monetary policy stance appropriate inflation expectation risk unanchore downside long consistent inflation outlook characterise high inflation level increase inflation expectation monetary policy contribute stimulate economy real interest rate remain deep negative territory past projection error headline underlying inflation contribute concern upside risk inflation outlook governing council discuss summer materialise war start include persistent supply demand imbalance fact future curve energy price assumption base good predictor future energy price pressure member argue adjust monetary policy stance aggressively prove counterproductive lower growth inflation remain elevated monetary policy unable address immediate cause high inflation sequence measure decide governing council previous meeting normalise monetary policy stance recall measure include decrease net asset purchase phasing pandemic emergency purchase programme pepp pandemic emergency long term refinance operation peltro special interest rate targeted long term refinance operation tltro communication expected end app highlight ongoing normalisation visible market interest rate expect weigh economy come quarter express real rate remain exceptionally low dampening aggregate demand result high nominal rate insufficient bring inflation medium term adjustment monetary policy stance monetary policy decision communication member widely share gradual normalisation monetary policy stance governing council start december continue adjust medium term inflation outlook change time give governing council assessment medium term inflation outlook highly accommodative monetary policy stance broad agreement governing council judgement datum receive reinforce expectation net asset purchase app conclude net asset purchase end soon later widely express look ahead member voice nuance relate appropriate pace gradual normalisation hand member view high expect inflation figure march inflation expectation move target require adjustment monetary policy stance neutral position soon later modification governing council inflation narrative line state data dependency monetary policy imply net asset purchase end soon possible open possibility interest rate hike shortly note upside risk inflation outlook confirm june eurosystem macroeconomic projection governing council face question continue net purchase june see proportionate risk see governing council signal fast policy normalisation process inflation expectation rise level governing council target stress assessment outlook evolve substantially march change outlook confirm june concrete step accelerate pace policy normalisation require ensure inflation stabilise medium term path see safeguard optionality remain boundary governing council policy guidance avoid increase perceive policy uncertainty help demonstrate governing council readiness adjust tool appropriate strengthen credibility deliver mandate context recall act late lead materialisation round effect high economic financial stability credibility cost governing council force tighten aggressively later stage order anchor inflation expectation argue typically take time high expect inflation reflect wage setting opposite process lengthy high inflation expectation entrenched wage agreement lower inflation hard context experience 1970 refer have demonstrate essential commitment price stability ability monetary policy contain inflationary effect adverse supply shock member maintain gradual normalisation process embody financial market expectation consistent long term inflation expectation remain anchor require reappraisal monetary policy path support accelerate timing restrictive measure include relation end net asset purchase stability long term inflation outlook embody market base indicator march baseline ecb projection shift monetary policy guidance gradual normalisation aggressive accelerated tightening justify consider high uncertainty surround medium term outlook price stability advisable proceed action carefully note proactive normalisation stance prove costly result financial market turbulence reverse later gradual normalisation deem consistent estimate low level natural interest rate euro area imply relatively small step sufficient turn accommodative monetary policy stance restrictive stance model base estimate suggest natural real interest rate negative acknowledge uncertainty surround estimate value high gap estimate euro area natural real interest rate explain partly difference productivity labour supply demographic level excess liquidity notwithstanding low level natural rate recall expect path nominal key ecb interest rate approach neutral level late stage policy normalisation process overall prevail light heighten uncertainty result ongoing effect pandemic war ukraine optionality gradualism flexibility remain important feature governing council monetary policy conduct particular see advisable maintain optionality defer decision precise timing end net asset purchase governing council june allow governing council benefit additional datum eurosystem projection uncertainty exceptionally high different scenario future development inflation outlook envisage highlight lane proposal leave option open decision take june particular proposal see consistent possibility decide end net asset purchase end early member agree monetary policy proposal lane introduction line keep optionality light high uncertainty allow governing council reassess inflation outlook basis incoming information june approach imply hand governing council remain course gradual normalisation monetary policy consistent forward guidance interest rate raise time end net asset purchase hand consider time define period week month march press conference approach prevent timely rate rise condition warrant regard forward guidance interest rate express criterion interest rate hike clearly meet context stress governing council pay attention long term inflation expectation move target inflation expectation fall target past line governing council commitment symmetry risk fall curve overall judge forward guidance condition upward adjustment key ecb interest rate crucial policy governing council june pertain criterion applicable project path inflation condition i.e. realise progress underlie inflation sufficiently advanced consistent inflation stabilise medium term spread sovereign bond yield risk free rate remain stable governing council deem important address possible resurgence fragmentation euro area financial condition necessary order ensure continuous transmission monetary policy euro area reference separation principle i.e. idea appropriate monetary policy stance set independently deployment instrument design avoid sudden disruption financial market trigger tightening stance argument flexibility permanent feature governing council toolbox ecb instrument adjust mandate incorporate flexibility warrant ensure inflation stabilise governing council target medium term addition recall reinvestment asset purchase pepp address possible episode financial market tension relate pandemic need communication member agree policy guidance provide march confirm consistency future action guidance emphasise assert governing council act accord established principle flexibility optionality gradualism communication acknowledge increase inflation detrimental effect household cost living real wealth disposable income express governing council need careful create impression monetary policy able address high energy inflation drive significant inflation figure instead ecb communication underline need monetary policy address persistence inflation result round effect avoid create perception inaction presence high inflation figure finally governing council emphasise willing action need fulfil ecb mandate pursue price stability bring inflation medium term take account forego member proposal president governing council take monetary policy decision set ecb press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference april press release monetary policy decision meeting ecb governing council april members lagarde president guindos vice president elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco wunsch members hold voting right april article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person bitans buch cassidy demarco donnery gavilán gilbert goulard haber kaasik koukoularides kuodis lünnemann nicoletti altimari novo ódor rosalino sleijpen tavlas välimäki vanackere ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee thursday july contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting june account monetary policy governing council european central bank hold amsterdam wednesday thursday june july review financial economic monetary development policy option financial market development schnabel review late financial market development governing council previous monetary policy april major shift monetary policy expectation action world inflation continue surprise upside main development financial market revolve main theme volatility financial market high historical standard reflect long expect persistence high inflation associated uncertainty extent pace monetary policy adjustment require restore price stability medium term monetary policy normalisation euro area expect proceed significantly fast pace time governing council april rate lift expect july expectation steep policy path contribute halt partly reverse rise inflation risk premia marked depreciation euro offset renew rise oil price change monetary policy expectation bring valuation risky asset close long term average fix income stock market increase volatility witness globally previous month reflect high imply volatility virtually main asset class bond equity foreign exchange high volatility hand hand deterioration market liquidity volatility surprising turn point monetary policy magnitude amplify combination shock hit world economy war ukraine energy transition global excess demand china covid policy source policy uncertainty volatility extent require policy adjustment pace policy adjustment iii transmission change policy rate market interest rate lending rate source uncertainty relate extent require policy adjustment euro area major currency area investor significantly reprice expect terminal rate peak interest rate expect market end normalisation tighten cycle correct term premia strong repricing terminal rate major factor increase nominal long term bond yield rise nominal year overnight index swap ois rate drive rise inflation compensation real year rate increase markedly market feedback suggest uncertainty extent policy normalisation drive main factor uncertainty level neutral rate level equilibrium real rate interest uncertainty need policy rate neutral rate source uncertainty relate pace policy adjustment mean market reprice terminal rate expect significantly swifter policy normalisation time governing council april survey continue lag market price pace policy adjustment expect investor dependent perceive degree anchoring long term inflation expectation survey base measure inflation expectation give different indication risk unanchoring depend underlying sample market base measure long term inflation compensation decline decade high level record april start rise lately remain development reflect market change view likelihood recession particular market expectation resilient growth outlook ecb communication pointing rate lift july ecb communication important factor decline inflation risk premia long horizon emphasise commitment protect price stability source uncertainty financial market relate expected strength transmission change key ecb interest rate money market lending rate weak expect transmission strong swifter require policy adjustment eye investor strength policy transmission depend extent expect pace decline excess liquidity excess liquidity expect decline slowly previously assume high expectation prospective rise key ecb interest rate lead bank postpone repayment fund targeted long term refinance operation tltro change policy rate expectation transmit broad financial market equity sell expect come elevated level underpin historically low real interest rate time april monetary policy euro area stock market outperform index despite expectation steep policy path euro area fix income market spread continue widen market reprice future path policy despite challenge liquidity condition elevated volatility sovereign bond market corporate bond market see excessive move marked differentiation issuer spread increase italy greece debt gdp ratio high corporate high yield issuer credit risk large spread increase spain portugal corporate investment grade issuer expectation monetary policy tightening firm euro appreciate visibly currency advanced economy governing council april dollar notable exception marked persistent depreciation euro dollar currency oil import predominately invoice tangible immediate effect inflation inflation expectation oil price increase dollar term euro term time ecb communication start year provide counterweight downward pressure euro result primarily forceful action federal reserve system outlook inflation monetary policy key driver asset price foreseeable future context high volatility natural reflection price discovery environment bank find hard provide clear forward guidance give uncertainty policy outlook global environment economic monetary development euro area lane late economic monetary financial development global economy euro area start international environment noticeable slowdown global trade good datum march point contraction drive development china lockdown measure continue loss global trade momentum persist war ukraine lockdown china interrupt easing global supply pressure march euro area purchasing managers index pmi delivery time deteriorate march improvement look exchange rate euro marginally weak dollar appreciate slightly nominal effective term governing council april oil price increase notably april june eurosystem macroeconomic projection euro area base high oil price slope future curve remain negative commodity price moderate gas metal food price decline june projection see significant downward revision world growth projection lower project growth imply downward revision euro area foreign demand especially turn euro area real gdp grow accord eurostat late estimate exclude ireland euro area gdp contribution domestic demand euro area growth negative amid lockdown start outbreak war ukraine june projection revise quarterly gdp profile embody significant recovery summer short term estimate subject high uncertainty rest year projection range available short term forecasting tool range estimate wide account high uncertainty indicator uncertainty rise sharply follow outbreak war especially manufacturing less extent service pmi composite indicator pmi manufacturing output fall indicator service business activity rise regard private consumption household increasingly feel squeeze real income rise energy food price consumer expectations survey show household expect able maintain consumption real term survey point reduction save flow housing investment affect jump input cost construction material rely import commodity result shortage material equipment continue accumulate construction sector rise construction cost expect break growth housing investment consumer expectations survey indicate perceive attractiveness housing investment decrease elevated uncertainty expect weigh housing investment course year datum capital good production show significant recovery end rebound car production follow outbreak war production sector see little progress euro area good trade balance deteriorate owe rise cost import energy food trade balance deteriorate percentage point start percentage point energy food balance capture real income cost have pay money rest world key reason good prospect tourism far sector hit hard pandemic available indicator point strong recovery expectation demand summer month pre pandemic level labour market evidence suggest good recovery continue growth employment consistent return pre pandemic relationship gdp employment break cause pandemic support measure place mean recovery economic activity currently explain recovery employment unemployment rate decline april particular country spain recovery tourism help create job survey datum continue signal favourable labour market development turn fiscal policy june projection incorporate significant support measure relate war compensation energy price increase measure amount roughly gdp euro area figure vary country gdp growth expect support mainly measure withdraw later forecast horizon impact inflation expect downside reverse owe temporary nature energy compensation measure term euro area fiscal balance gradual rolling deficit continue expect projection signal slow progress foresee march nonetheless thank high nominal gdp debt gdp ratio expect decline despite high interest payment move late inflation development headline inflation increase large contribution energy category energy inflation fuel important factor evolution energy inflation contribution category harmonised index consumer prices hicp increase outcome headline hicp inflation hicp inflation exclude energy food june projection forecast error component large food inflation intensification pipeline pressure reason upward revision inflation projection extent pipeline pressure long time transmit headline inflation key uncertainty currently fast pass scale increase pipeline pressure time fast pass mean short adjustment period pass lead strong effect inflation near term weak effect price level adjust core inflation clearly rise continue analysis need component core inflation move case component core inflation rise describe general inflation impulse contrast core inflation essentially characterise lot relative price movement result reopening certain sector good inflation analysis show energy price bottleneck account percentage point percentage point increase respectively good inflation affect green transition recovery domestic demand play role service inflation develop way sector contact intensive sector contribute increase service inflation oil sensitive service sector see large increase contribution service inflation suggest energy have significant indirect effect service inflation overall reopening economy energy price increase explain dynamic service inflation move wage growth negotiate wage see considerable increase owe payment exclude increase considerably moderate forward look wage tracker euro area aggregation datum euro area large economy indicate wage growth obtain basis negotiate year cover year represent increase figure negotiate wage increase eurosystem project term aggregate wage dynamic wage expectation remain contain accord consumer expectations survey look firm cop spike cost unit profit weaken significantly increase steadily rise input cost mean unit profit absorb late survey access finance enterprises indicate base qualitative reply firm industry expect increase selling price month apply particular sector see high cost increase construction industry trade share respondent expect high increase service small turn assumption june projection lane note compare december projection oil price high time trade weight exchange rate euro currently weak exchange rate dollar time weak trade weight exchange rate long term yield basis point high expect december short term yield basis point higher development oil exchange rate play major role inflation forecast error inflation rate high tightening assumption take place june projection contain wealth sensitivity analysis downside scenario way capture non linearity financial development april governing council euro area risk free rate increase market participant revise expectation early tightening monetary policy correct forward curve risk premia give indication similar late survey monetary analysis important course significant increase steepening real interest rate observe governing council december look term structure real forward rate percentage point increase real forward rate long end year forward rate year ahead contract year forward rate contract onwards increase real rate percentage point regard inflation expectation reflect survey monetary analysts previously fall expect onwards stay durably survey closely align inflation come close target stay market base measure inflation compensation see inflation peak near term decline maturity price level effect permanent remain case market participant envisage sizeable reduction inflation dynamic mask slight decline long term measure inflation compensation year forward inflation link swap rate year ahead temporarily increase target estimate genuine inflation expectation year horizon year ahead obtain purge plain market datum inflation risk premia increase recently estimate include model shift endpoint stand close amid high model uncertainty allow treatment risk premia expectation inflation come target remain narrative inflation risk premium capture upside risk consumer inflation expectation year ahead consumer expectations survey april point slight decline march median slight decrease time result indicate heightened uncertainty move lend firm household flow remain positive credit growth firm remain positive partly rotation away bond issuance expensive borrowing picture household mixed recovery credit consumption pre pandemic level remain case aggregate household lot saving financing cost far lending rate credit condition large insulate increase market rate explain fact deposit rate remain low deposit funding remain readily available people hold lot money deposit mortgage rate pick country display correlation sovereign yield deposit rate significant pass far strong sign big slowdown mortgage lending picture change rapidly country mortgage rate move significantly monetary policy consideration policy option summary lane stress significant increase hicp inflation april hicp inflation exclude energy food increase april high rate reflect rise non energy industrial good inflation service inflation far negotiate wage growth euro area remain moderate especially exclude payment forward look wage tracker incorporate late wage settlement show uptick nominal wage increase moderate pace wage formation warrant careful monitoring particularly context labour market tight country implement increase minimum wage future path headline inflation revise significantly june projection especially near term projection indicate inflation undesirably elevate time projection horizon wage growth expect rise level historical average hicp inflation project stand percentage point high march projection decline percentage point higher percentage point higher mean headline inflation final year projection horizon project slightly target decline projection horizon reflect moderation energy food commodity price embed future price fading pandemic effect gradual easing supply bottleneck normalisation monetary policy hicp inflation exclude energy food revise entire projection horizon expect percentage point high march projection percentage point high percentage point higher upward revision reflect ongoing reopening economy especially service emergence supply disruption tighten labour market pick wage increase time core inflation expect decline projection horizon owe fade impact pandemic easing bottleneck indirect contribution surge energy price fall away assumption long term inflation expectation remain anchored rise level market interest rate projection horizon contribute sustained decline headline inflation ecb target end measure long term inflation expectation derive financial market expert survey stand time initial sign target revision measure warrant close monitoring risk inflation projection primarily upside especially relation risk medium term inflation outlook include durable worsening production capacity economy high energy food price long term inflation expectation rise ecb target high anticipate wage rise demand weaken medium term lower pressure price turn growth forecast june projection countervail force result marked downward revision real gdp growth real gdp growth expect percentage point low march projection percentage point low strong growth expect owe catch effect percentage point high march projection take revision imply low level gdp projection horizon risk relate pandemic decline war continue significant downside risk growth particular major risk disruption energy supply euro area reflect downside scenario include projection furthermore war escalate economic sentiment worsen supply constraint increase energy food cost persistently high expect market price sequence ecb rate hike increase risk free rate amplify euro area sovereign bond yield corporate bond yield lending rate start rise low equity price contribute tightening financial condition basis update assessment appropriate step normalise monetary policy governing council announce net asset purchase asset purchase programme app end july consistent communication march april meeting line state sequencing i.e. prior action open door rate hike july furthermore governing council reiterate update forward guidance length horizon reinvestment app refer need maintain favourable liquidity condition ample degree monetary accommodation governing council language reinvestment period state need ensure ample liquidity condition appropriate monetary policy stance governing council communicate see condition forward guidance raise ecb policy rate satisfied condition forward guidance state inflation see reach target ahead end projection horizon condition require inflation stabilise level durably rest projection horizon fact june projection see inflation exceed target wide margin moderately substantial condition stipulate realise progress underlie inflation need judge sufficiently advanced consistent inflation stabilise medium term datum confirm underlie inflation dynamic strengthen broaden core inflation expect stand target entire projection horizon albeit decline path wide range statistical filter extract underlie common factor time trend explain price change cross sectionally time suggest inflation dynamic return pre pandemic target configuration late wage settlement line strong trend consistent inflation stabilise target medium term accordingly line ecb policy sequencing governing council intention increase key ecb interest rate basis point monetary policy july governing council state expect raise key ecb interest rate september signal scale rate increase september depend update medium term inflation outlook factor justify signal intend increment july basis point moderate initial increase foster continue orderly market adjustment amid high uncertainty long term inflation expectation remain anchor ecb target base yield curve reflect underlie expectation gradual sustained sequence rate increase inflation project return close target effective way manage upside risk medium term inflation clear ecb reaction function mean communicate large increment fast sequence moderate rate increase appropriate risk intensify materialise give projection high degree uncertainty large pre emptive initial increment run risk trigger excessive adjustment market interest rate counterproductive especially upside risk fail materialise term inflation dynamic event affect considerable lag defer large increment subsequent material difference consideration suggest basis point increment proportionate step addition open door large increment september allow governing council benefit update set projection observe impact rate hike financial condition summer step step approach interest rate adjustment signal determination exit negative rate policy expeditiously reassert value optionality context fraught multiple source risk governing council clear future path policy interest rate data dependent determine commitment stabilise inflation medium term look governing council signal base assessment anticipate gradual sustained path increase interest rate appropriate pace governing council adjust monetary policy depend incoming datum governing council assess inflation develop medium term medium term inflation outlook deteriorate pace rate increase accelerate likewise medium term inflation outlook moderate pace slow process gradualism flexibility optionality data dependence important consideration set path interest rate likelihood different scenario depend factor quickly price pressure abate evolution excess capacity degree inflation expectation continue anchored ecb target finally governing council confirm announce previously special condition applicable tltro iii end june sequential plan attractive element end net asset purchase raise rate avoid ecb monetary policy instrument work opposite direction mitigate volatility minimise financial stability risk move sequentially allow governing council observe market adjust end net asset purchase pivot process policy normalisation matter monetary policy stance level overnight interest rate path rate expect follow come month year moderate hike lift additional benefit foster orderly adjustment financing condition reduce volatility finally flexibility help governing council ensure smooth transmission ecb monetary policy entire euro area process policy normalisation line monetary policy strategy governing council use biannual assessment interrelation monetary policy financial stability evidence available financial stability perspective environment worsen december period especially short term particular low growth increase cost pressure rise risk free rate sovereign bond yield lead deterioration financing condition face borrower especially country time tight financing condition reduce exist financial stability vulnerability medium term bank start year solid capital position improve asset quality face great credit risk governing council watch factor closely case macroprudential policy remain line defence preserve financial stability address medium term vulnerability govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane global trade see important loss momentum mainly result development china war ukraine lockdown china halt gradual easing global supply pressure start end respect important monitor late datum sign easing resume time concern express surge inflation observe economic area member see important difference price pressure united states related overheat domestic demand euro area reflect large extent import inflation turn euro area development activity expect dampen high energy cost deterioration term trade great uncertainty adverse impact high inflation disposable income firm face high cost renew disruption supply chain outlook future output deteriorate factor support economic activity expect strengthen month come reopening sector affect pandemic strong labour market people job support income consumption unemployment remain historical low april job vacancy sector show robust demand labour addition saving accumulate pandemic buffer member note economic growth employment remain surprisingly robust give size supply shock caution strong expect growth euro area real gdp year drive large extent high contribution inventory change unwind domestic demand exclude inventory change contract look june projection question raise assumption baseline benign term impact sanction war doubt express concern assumption projection saving ratio unwind long imply reduction previously accumulate saving question raise consumer start tap saving heavily cope loss purchase power reallocate saving real asset member widely acknowledge resilience labour market imply unemployment gap close early output gap puzzle give labour market typically lag indicator observe size output gap revise significantly hardly revision potential output despite additional supply shock suspect output gap small close fast time argue resilience labour market reflect number factor unlikely permanent public employment temporary job job retention scheme imply risk eventually deterioration employment member agree downside risk economic activity projection anticipate near term risk relate pandemic decline war continue significant downside risk growth particular disruption energy supply euro area major risk reflect downside scenario include projection furthermore war escalate economic sentiment worsen supply constraint increase energy food cost persistently high expect context emphasise downside risk relate negative cost shock impact uncertainty demand risk pandemic restart medium term outlook growth look balanced term risk quarter weak risk technical recession need bear mind consider stagflation unlikely outcome member agree fiscal policy help cushion impact war targeted temporary budgetary measure protect people bear brunt high energy price limit risk add inflationary pressure swift implementation investment structural reform plan generation programme fit package repowereu plan help euro area economy grow fast sustainable manner resilient global shock suggest fiscal measure compensate high energy price energy price remain high time fiscal support case negative implication public debt respect warn fiscal measure targeted temporary price development member agree assessment present lane introduction inflation rise government intervene help slow energy inflation energy price stand level market base indicator suggest global energy price stay high near term moderate extent year year food price rise reflect importance ukraine russia main global producer agricultural good price strongly renew supply bottleneck recovery domestic demand economy reopen especially service sector price rise widespread sector accordingly measure underlie inflation rise wage growth include forward look indicator start pick time strengthening economy catch effect lead fast growth wage note month row inflation figure underestimate reference fact mechanical update june projection number imply level inflation percentage point high time observe inflation projection error explain direct indirect effect prediction energy food price rise underlying change agent behaviour error explain difficulty forecast supply shock time argue energy food shock appear persistent previously think consequence war ukraine inflation gain momentum outbreak conflict point inflation rate service non energy industrial good surprise upside increase core inflation month far year anticipate inflationary pressure opening tourism sector prominent figure come month tourism open widely core inflation reach indicator underlie inflation continue increase markedly stand indicate price pressure broaden persistent term absolute deviation currently upside deviation core inflation inflation target large downside time period monetary policy focus deflation risk emphasise core inflation project entire horizon june projection time argue measure underlie inflation interpret carefully affect unusual transitory force indirect effect energy shock opening supply bottleneck example take indirect effect energy price core inflation projection result projection core inflation member agree wage development play role inflation outlook reference usefulness call wage tracker afford forward look perspective negotiate wage growth measure confirm negotiate wage increase argue payment late pick negotiate wage see sign round effect incipient wage price spiral time wage tracker suggest increasingly tight labour market start translate high wage demand mention great recourse wage indexation country context european legislation minimum wage see particular concern potential emergence wage price spiral note wage tracker account negotiation place end year change forward look picture point ultimately necessary look negotiate wage growth element affect actual wage growth caution express look nominal wage growth growth unit labour cost ultimately relevant indicator inflation trend show modest dynamic regard remark wage growth currently contain project run slightly high sum productivity growth inflation target come year stress reduction real wage lead upward pressure nominal wage forward june projection member highlight large upward revision inflation outlook particularly raise number question future path inflation observe inflation path baseline resemble adverse scenario march projection underline time headline inflation final year projection horizon core inflation horizon reference late oecd forecast show high level core inflation euro area persist long stand average give steeply downward slop future path headline core inflation express result assumption shock transitory combine model dynamic mean reverting build convergence neglect issue successive adverse shock possibility great persistence and/or non linear behaviour currently main challenge inflation outlook tendency projection strongly converge target year horizon projection year see have limited information content core inflation high headline inflation see signal upside risk headline inflation core inflation typically capture persistent component inflation relevant medium term trend recall owner occupy housing fully take account core inflation high remark normalisation monetary policy accord rate path currently price market include technical assumption sufficient bring inflation medium term accord baseline projection time argue succession supply shock suggest lengthening shortening relevant policy horizon aim maintain price stability medium term recall ecb strategy confirm target headline core inflation relevant yardstick monetary policy underline future path inflation june projection different foresee forecaster private sector international institution overall widely acknowledge uncertainty high transmission inflation shock potential persistence need well understand baseline projection see potentially benign despite substantial upward revision inflation outlook historically high level core inflation point increase risk high inflation entrenched persistent pipeline pressure see continue build odd strong quick pass consumer price increase time stress risk exist direction case consider inflation outlook governing council baseline configuration risk account assumption underlie projection note energy commodity price see rise stay high long contrast downward slop path future curve embed projection technical assumption main reason forecast error past structural shift climate change exert last upward pressure energy food price lead headline inflation exceed core inflation large margin observe historically cast doubt plausibility headline inflation fall core inflation embed projection fiscal argue government support measure reinforce inflation pressure turn targeted temporary envisage time high pressure resource mismatch supply demand additionally supply bottleneck prove protract assume baseline scenario attention draw ongoing rotation bottleneck good expect ease service emerge gain prominence household rebalance consumption good service medium term inflation pressure high assume projection potential economic growth suffer lasting damage successive supply shock war ukraine question raise reliability stability phillips curve relationship behavioural economic indicate collective psychology change rapidly threshold effect possible non linearity remark long inflation stay elevate great risk round effect high wage and/or high profit margin accord projection consecutive year inflation suggest rise risk round effect high inflation entrench time spending power household turn high assume projection saving ratio revise expectation high precautionary saving projection foresaw drawing saving nominal term notwithstanding forced dissaving real term maintain consumption face high unanticipated inflation accordingly firm pricing power high project use reopening economy restore profit margin increase pass cost consumer price instead absorb high cost accept low margin reference period follow financial crisis profit margin increase downturn number euro area economy weak corporate balance sheet time underline round effect wage price spiral observe indication union cautious wage claim preserve employment time renew uncertainty caution help avoid derail strong labour market source income stability europe pandemic wide agreement market derive indicator inflation expectation anchor target level widely feel room complacency give high cost anchoring expectation risk unanchoring inflation expectation see particularly high inflation expectation adapt development risk consider increasingly materialise hicp inflation project stand far year emphasis place importance household firm inflation expectation directly relevant wage pricing decision underline concern loss purchasing power pronounced general public europe background member assess risk surround inflation primarily upside risk medium term inflation outlook include durable reduction production capacity economy persistently high energy food price inflation expectation rise target high anticipate wage rise demand weaken medium term lower pressure price turn monetary financial analysis member concur assessment provide schnabel lane introduction market interest rate increase nominal term governing council april response change outlook inflation monetary policy near term real rate remain negative territory close historical low real forward curve rise substantially month benchmark interest rate rise funding cost increase high lending rate particular household lending firm pick march reflect continued need finance investment working capital backdrop increase production cost persistent supply bottleneck low reliance market funding lending household increase reflect continue robust demand mortgage euro area bank start year solid capital position improve asset quality far base financing condition household firm remain relatively resilient increase market rate notwithstanding grow sign turning point have reach borrowing cost firm historical low see december broad financial condition tighten considerably owe rise bond yield low equity valuation euro exchange rate stabilise time risk aversion rise investor selective evidence rise risk premia yield lower rat corporate sovereign bond remark scale speed yield spread increase country major change country economic fundamental suggest factor play include non linearity multiple equilibrium factor political nature line monetary policy strategy adopt july governing council hold regular biannual structured exchange interrelation monetary policy financial stability member concur environment financial stability worsen december especially short term particular low economic growth increase cost pressure rise risk free rate sovereign bond yield lead deterioration financing condition face borrower context agreement monetary policy normalisation affect financial stability different horizon opposite way tight financing condition reduce financial stability vulnerability medium term example residential real estate time interest rate exit prolonged period negative territory monetary policy normalisation accompany short term financial stress increase fragmentation financial condition bank face great credit risk environment low growth heightened uncertainty look ahead factor need watch closely case macroprudential policy remain line defence preserve financial stability address medium term vulnerability monetary policy stance policy consideration turn assessment monetary policy stance member agree revise medium term inflation outlook require step take normalising monetary policy late eurosystem projection see headline core inflation baseline scenario stand assessment risk inflation projection tilt upside entire horizon especially respect take account baseline projection base assumption monetary policy adjust line market expectation cut date projection expectation have shift markedly upwards month underline appropriate monetary policy response governing council depended assessment inflation outlook comprise baseline risk assessment baseline inflation projection exceed ecb target relevant horizon large persistent upside risk suggest ecb need respond strongly imply market expectation interest rate embed projection member agree imperative ecb preserve credibility show resolve sure inflation return inflation target medium term hand credibility perceive call question recently light high inflation repeat projection error narrative insist temporary nature inflation shock long determine action judge need protect anchoring inflation expectation avoid sizeable round effect inflation wage feed argue monetary policy stance normalise slowly monetary policy risk add demand pressure time economy recover pandemic pressure resource high hand stress ecb credibility doubt long inflation expectation remain anchored long evidence round effect see ecb confidence reputation earn successfully combat risk deflation past reference survey evidence general public confirm ecb currently blame episode high energy inflation give shock see mainly relate rise food energy cost euro area experience excessive demand time clear general public expect ecb action live mandate maintain price stability medium term member concur measure long term inflation expectation derive financial market expert survey appear anchor ecb target notwithstanding initial sign target revision risk unanchoring increase time argue april reassuring development number indicator include stabilisation euro exchange rate evidence far see consistent successful anchoring inflation expectation ecb target line monetary policy strategy announce provide governing council ground reasonable degree self confidence time caution room complacency look ahead anchoring inflation expectation take grant measure long term inflation expectation stand level governing council inflation target hold costly address broad base unanchoring inflation expectation materialise oppose respond pre emptively hand argue experience gain 1970 different inflation outcome jurisdiction trace different reaction function suggest bank act early achieve well inflation outcome hand maintain environment differ 1970 important respect improve transparency weak aggregate demand condition low degree unionisation low prevalence wage indexation clause monetary policy decision communication member agree monetary policy normalisation process guide principle optionality data dependence gradualism flexibility different view express need interpretation gradualism practice reconcile gradualism need data dependence optionality uncertain environment forward notion gradualism misleading interpret imply slow rigid pace adjustment monetary policy stance interpretation inconsistent need optionality data dependence particular necessary avoid gradualism see preclude interest rate step excess basis point ensure price stability medium term depend change inflation outlook prevail risk circumstance require forceful load response signal determination protect price stability argue principle gradualism suggest respond early forward look manner reduce need large disruptive adjustment later remark merit gradualism depend nature uncertainty shock light long sequence persistent upward inflation surprise increase risk unanchoring inflation expectation brainard principle i.e. policymaker act cautiously uncertainty effect monetary policy measure long apply agreement gradualism necessarily interpret slow action small step member feel sustained succession rate increase come quarter reflect rate path embed market expectation projection characterise gradual caution drop notion gradualism see signal ecb intend abrupt action undermine predictability risk trigger disorderly market movement gradualism consider consistent medium term orientation ecb monetary policy strategy prevail uncertainty growth outlook deem especially important face supply shock face euro area euro area expose movement energy price currency area overall member agree retain gradualism guide principle monetary policy normalisation process understanding rule interest rate step increment large basis point need protect price stability medium term point principle optionality data dependence essentially equivalent especially important circumstance case emphasise notion gradualism interfere governing council duty time need maintain price stability medium term number member recall forward guidance criterion interest rate establish july satisfied time time need safeguard coherence predictability ecb policy acknowledge suggest stick sequence previously communicate suggest imply delay raise interest rate principle offset implement large rate hike july indicate explicitly possibility large interest rate later time caution communicate policy intention future meeting governing council avoid unduly constrain optionality data dependence case member agree point basis late projection development measure underlie inflation forward guidance criterion satisfied revised medium term inflation outlook call decisive step monetary policy normalisation line agree sequencing appropriate moment announce net asset purchase app end july action open door rate hike july look ahead member agree appropriate provide guidance governing council expectation path key policy rate decide july september meeting reservation express appear lock decision take governing council short term underline forward guidance need conditional outlook prevail circumstance recall signalling policy intention meeting ahead feature ecb communication past reference vigilance strong vigilance close monitoring inflation risk member express support proposal signal governing council intention increase key ecb interest rate basis point july start rate hike cycle step magnitude see proportionate step indicate lane introduction respect different argument bring forward rate hike year step need prepare explain carefully start rate hike cycle orderly avoid unnecessarily surprise market induce unwarranted volatility adverse economic surprise near term exclude prudent start forcefully number member express initial preference keep door open large hike july remark signal see unconditional commitment governing council need retain discretion adjust size interest rate case information available july materially affect medium term inflation outlook background agree governing council point specific expectation september particular open door increase key ecb interest rate basis point large increment appropriate september outlook medium term inflation improve time rate hike large increment signal governing council intention deposit facility rate positive territory end year period negative rate time deem important maintain optionality data dependence exclude incoming datum period september materially affect medium term inflation outlook direction point acceleration monetary policy normalisation process conditional market condition remain orderly look september member widely agree basis assessment gradual sustained path interest rate increase appropriate pace adjustment depend incoming datum development medium term inflation outlook comment neutral rate unobservable vague concept guide actual policy measure maintain achievement neutral stance reveal time governing council observe economy inflation outlook react shock monetary policy normalisation note respect helpful ecb communicate point rate path september avoid market overshoot remark good reason key ecb interest rate parallel initial step july basis share assessment consideration member accept monetary policy proposal present lane introduction subject explicit guidance provide september appropriate take step normalise monetary policy confirm conduct monetary policy guide optionality data dependence gradualism flexibility member agree decision end net purchase app pave way interest rate increase meeting line sequencing monetary policy action enshrine ecb forward guidance see appropriate point time confirm mature holding app reinveste extended period time past date governing council start raise key ecb interest rate reinvestment consider important long necessary maintain ample liquidity ensure orderly money market condition appropriate monetary policy stance agree confirm special interest rate period tltro iii end june announce previously regard path key ecb interest rate member agree follow governing council communicate forward guidance condition satisfied announce line policy sequencing intention raise key ecb interest rate basis point july monetary policy look ahead agree governing council announce expect raise key ecb interest rate september calibration rate increase depend update medium term inflation outlook indicate medium term outlook persist deteriorate large increment appropriate september element communication member agree governing council need reiterate readiness adjust instrument mandate incorporate flexibility warrant ensure inflation stabilise target medium term ecb mandate stressed condition flexibility element monetary policy threat monetary policy transmission jeopardise attainment price stability attention draw widening sovereign spread month context point establishment anti fragmentation tool odd need contain inflation pressure address fragmentation regard necessary put governing council well position accelerate monetary policy normalisation warrant inflation outlook reference separation principle introduce ecb wake financial crisis distinguish non standard measure aim safeguard monetary policy transmission instrument aim set appropriate policy stance euro area work possible anti fragmentation tool accelerate complete rapidly risk fragmentation intensify ecb advance monetary policy normalisation member agree communication emphasise high inflation major challenge governing council sure inflation return target medium term governing council maintain optionality data dependence gradualism flexibility conduct monetary policy hierarchy guide principle take account forego member president ascertain member able support policy proposal forward lane subject include explicit guidance respect governing council september monetary policy proposal president governing council accordingly decide basis update assessment step normalise monetary policy confirm early decision place set ecb monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference june press release monetary policy decision meeting ecb governing council june members lagarde president guindos vice president elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco wunsch members hold voting right june article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person buch dabušinskas demarco donnery gavilán gilbert goulard haber horváth kaasik koukoularides lünnemann nicoletti altimari novo rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee thursday august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting july account monetary policy governing council european central bank hold frankfurt main wednesday thursday july august review financial economic monetary development policy option financial market development schnabel review late financial market development note narrative shift governing council previous monetary policy early june weak expect incoming datum global economy concern disruption gas supply combination high expect inflation outcome turn investor focus possible stagflationary scenario environment volatility short term interest rate expectation stand historical high eur usd exchange rate remain pressure sell risk asset continue investor attract cheap valuation schnabel turn key driver shift investor sentiment concern inflation concern stagflation surprise economic datum release recently negative global economy united states fear recession temporarily weigh natural gas price commodity price contrast despite wan growth momentum gas price continue increase europe owe domestic gas supply shock daily movement expectation short term interest rate historical high lately reflect uncertainty investor face monetary policy implication incoming information look volatility investor expect ecb speed policy normalisation near term relative expectation time june governing council despite increase risk slow growth momentum compare june overnight index swap ois forward curve steepen end survey participant large converge market swift tightening key ecb policy rate measure inflation compensation lead key observation end inflation link swap forward curve increase notably june monetary policy reflect particular supply drive sharp increase european gas price medium term inflation expectation peak governing council april gradually shift lower partly owe reappraisal expectation governing council monetary policy intention forward inflation swap rate converge level fluctuate following year despite decline inflation compensation tail risk inflation risk unanchoring long term compensation moderate probability market assign high inflation outcome year horizon year ahead rise steadily start year probability currently stand high level accord late survey professional forecasters long term inflation expectation revise upwards stand average consistent sticki long term inflation compensation market repricing inflation compensation key factor drive decline nominal long term sovereign bond yield year real rate i.e. adjusted inflation increase june monetary policy historical perspective short long term euro area real sovereign bond yield remain low background ecb monetary policy normalisation path embed market expectation schnabel note substantial tightening financial condition ongoing euro area unlike major currency area rate expectation embed financial market price validate ecb actual decision asset price affect divergence monetary policy major currency area euro exchange rate half depreciation euro vis vis dollar start year attribute divergence monetary policy hoc govern council june contribute mitigate downward pressure euro exchange rate regard sovereign bond spread initial orderly increase beginning year accelerate june governing council concern extent monetary policy tightening require restore price stability intensify ecb announcement hoc govern council accelerate completion design anti fragmentation instrument halt reverse adverse dynamic euro area sovereign bond market market base funding cost bank increase notably start year rise risk free rate broad base increase risk premia contrast previous episode heighten volatility sovereign bond market far visible differentiation bank euro area jurisdiction observation market base financing cost non financial corporation tandem rate risk asset corporate bond yield surge past month rise real yield lately deterioration investor sentiment schnabel note rise real rate weakening investor sentiment impact equity price governing council early june euro area stock market decline fall drive increase equity risk premium high discount rate weaken long term earning growth expectation near term earning forecast remain resilient global environment economic monetary development euro area lane late economic monetary financial development global economy euro area start global picture compare level december global trade pre pandemic level decline month year high frequency datum global trade available mid july show decline accelerate purchasing managers index pmi datum manufacturing sector show sharp drop output advanced economy pmi service show levelling june strong reading april compare level eur usd exchange rate level end reach peak sustained fairly gentle depreciation euro recently bilateral exchange rate see pronounced drop oil price decline june governing council future curve extend decline gas price increase markedly commodity price moderate turn euro area economy indicator manufacturing sector show sharp slowdown pmi export order index fall threshold june contrast service remain upward trend thank reopening economy late datum point moderation supply bottleneck measure pmi indicator supplier delivery time see visible improvement have halve compare bad level observe autumn significant moderation demand genuine improvement supply alongside deterioration short term gdp outlook term trade shock continue severely hit real income purchasing power household good trade balance stabilise compare april partly fact energy consumption moderate europe compare spend gdp energy import start euro area spend gdp turn domestic demand private consumption moderate significantly end year consumer buy few retail good expect few major purchase time consumer increase spending service housing investment concern relate shortage material labour decline somewhat month reflect lower expect construction activity concern relate financing condition prominent outlook housing sector cooling business investment capital good production point continue weakness regard labour market unemployment rate decline record low labour force participation recover euro area improvement unemployment figure reflect job creation late pmi datum indicate loss momentum change sectoral composition employment help explain labour market remain strong drive reopening recreation sector labour intensive activity see big drop pandemic turn late inflation development inflation harmonised index consumer prices hicp increase june stand energy inflation account hicp basket contribute half increase remain exceptionally high june reflect continue high increase gas oil electricity commodity wholesale price big contributor continue food account hicp basket non energy industrial good price continue increase june durable good strongly affect supply bottleneck recently pipeline pressure i.e. pass early increase price production chain service inflation see small decline june reduction public transportation price germany june august indicator underlie inflation continue rise index construct ecb provide measure domestic inflation include price item low import content measure currently range indicator underlie inflation expectation indicator underlie inflation revert base assumption energy shock supply bottleneck gradually disappear momentum term month month change underlie inflation indicator roughly stable stable rate level consistent inflation question remain temporary adjustment persistent turn wage negotiate wage continue grow modest rate month experimental ecb wage tracker include large euro area country indicate wage increase agree imply annual wage growth year fall year wage agreement sign show pick wage growth year year imply agreement consistent inflation remain significantly high long wage adjustment far catch inflation profit margin late ecb corporate telephone survey give mixed picture firm able increase margin decrease margin reflect difference capacity pass large increase input cost pass potential high intermediate firm sell business sell directly consumer respect inflation expectation late survey professional forecasters indicate mean long term inflation forecast rise slightly mode i.e. frequent answer give participant remain distribution response course year increase share participant think inflation amount nearly respondent market base measure inflation compensation consistent acute episode high inflation imply return mid-2024 turn financial monetary development lane note respondent july survey monetary analysts shift steepen path expect deposit facility rate relative survey round june change assessment stance end interest rate hiking cycle lane report bank see big increase cost market funding start year composite funding cost creep increase interest rate pay deposit firm see marked increase cost market base financing cost borrowing bank edge real borrowing rate remain negative territory creep period cost borrowing household house purchase continue increase strongly reflect rise long term market interest rate adjust inflation real rate start increase remain negative territory july lending survey show bank considerably tighten credit standard firm household tightening reduction risk tolerance increase risk perception relate deteriorate economic outlook bank lending firm remain robust end firm tap bond market less extent instead mainly financing july lending survey indicate firm demand loan drive need finance work capital inventory investment lending flow household remain strong july lending survey indicate drop demand housing loan following month money growth moderate significantly peak short term dynamic long term average reflect fact ecb stop net asset purchase low firm deposit bank role monetary policy transmission mechanism currency union lane recall smooth transmission single monetary policy euro area jurisdiction prerequisite deliver ecb price stability mandate explain decentralised currency union smooth transmission monetary policy mean level borrowing cost jurisdiction union difference local financing condition legitimately arise owe thing country specific economic factor monetary policy impulse governing council send transmit smoothly rise disproportionate reaction jurisdiction divorce fundamental factor region fundamentally unjustified reaction local financing condition expect actual change monetary policy stance induce distortion ultimately undermine singleness ecb monetary policy ability deliver treaty mandate particular breakdown relation sovereign yield fundamental bond market fragment national border lead excessive divergence financing condition euro area leave unchecked result persistent impairment transmission mechanism episode acute unwarranted divergence financing condition country arise response wide range different shock face inflation low high lane stress ongoing normalisation ecb monetary policy stance trigger fragmentation bond market adverse consequence euro area country volatility upward shift risk free yield curve mean duration risk private investor increase test capacity hold different type risk upward pressure sovereign spread vulnerable jurisdiction lead tightening financing condition country possibly appropriate address excess inflation symmetric distortion opposite direction emerge vulnerable country capital inflow originate vulnerable country compress yield level necessary stabilise inflation target medium term case currency union particularly susceptible risk fragmentation event degenerate self fulfil debt crisis typically maximum level interest rate national government debt sustainable interest rate euro area country refinance debt spiral upwards self fulfil manner level debt dynamic unstable ultimately unsustainable self perpetuate mechanism give rise multiple equilibrium particular fundamentally sound sovereign bring brink default owe self fulfil dynamic involve market participant demand high risk premia base fear market illiquid announce governing council prepared intervene bond market lean market movement justify fundamental coordinate creditor expectation stable equilibrium crisis avoid monetary policy consideration policy option lane propose governing council approve transmission protection instrument tpi forward executive board safeguard monetary policy transmission euro area singleness monetary policy precondition ecb able deliver mandate tpi addition ecb toolkit activate counter unwarranted disorderly market dynamic pose threat smooth transmission monetary policy euro area safeguard transmission mechanism tpi allow governing council effectively deliver price stability mandate subject fulfil establish criterion eurosystem able secondary market purchase security issue jurisdiction experience deterioration financing condition warrant country specific fundamental enable eurosystem counter risk transmission mechanism extent necessary scale tpi purchase depend severity risk face policy transmission purchase restrict ante tpi monetary policy tool address wide variety shock lead fragmentation ultimately transmission impairment tpi specific design feature safeguard comply monetary financing prohibition principle proportionality decide governing council light specific shock need address give situation tpi necessary specifically design minimise threat transmission arise normalisation interest rate appropriate environment high inflation significant upside risk ensure inflation stabilise ecb target medium term element effectiveness tpi announcement act stabilise force consider necessary governing council activation point time allow active response emerge threat transmission mechanism announce tpi proportionate condition meet tool need effective pursue intermediate objective protect transmission mechanism precondition attain ecb primary objective efficient sense intermediate objective achieve alternative measure have intrusive effect area economic life tool cost efficient benefit achieve protection transmission mechanism outweigh potentially adverse effect include conflict maintenance monetary policy stance appropriate achieve primary objective risk tool unduly interfere economic policy make assessment governing council rely thorough exercise carry eurosystem committee ecb past month outcome exercise demonstrate design tpi effective instrument particularly suited accompany announcement normalisation step prevent impairment transmission announcement tpi imply immediate activation efficient way preserve smooth transmission ecb monetary policy stance extent achieve instrument available eurosystem give specific design feature purpose potential effect result tpi announcement outweigh benefit announce instrument mitigate risk fragmentation normalisation tightening monetary policy highly uncertain economic geopolitical environment particularly true specific design feature safeguard tpi ensure potential interference monetary policy stance policy avoid include fact design enable normalisation policy rate high level inflation tpi mitigate risk weakening impetus sound fiscal policy euro area accordance governance tpi governing council activate assess tangible risk policy transmission exist time activation adequate safeguard place time ensure obligation principle contain law respect conduct comprehensive proportionality assessment establish activation proportionate price stability mandate ecb tpi purchase terminate reflect durable improvement transmission base assessment persistent tension country fundamental sum assessment economy outlook price stability lane remark economic activity slow benefit reopening economy risk growth outlook remain tilt downside russia war ukraine remain source significant downside risk especially energy supply russia disrupt extent lead ration euro area firm household war dampen confidence aggravate supply constraint energy food price persistently high expect fast deceleration global growth pose risk euro area outlook purely mechanical update june projection see high downside risk gdp growth inflation increase june overall inflationary pressure broaden intensify signal increase range indicator underlie inflation inflation expect undesirably high time owe continue pressure energy food price pipeline pressure pricing chain depreciation euro source high inflation look ahead absence disruption energy cost expect stabilise supply bottleneck ease ongoing policy normalisation support return inflation ecb target development measure inflation expectation mixed limit upward revision survey base measure long term inflation expectation remain close contrast market base measure inflation compensation ease appreciably late forward inflation link swap rate price return inflation level course overall measure long term inflation expectation stand target revision indicator warrant continued monitoring risk inflation outlook continue upside intensify particularly short term risk medium term inflation outlook include durable worsening production capacity euro area economy persistently high energy food price inflation expectation rise target high anticipate wage rise demand weaken medium term ease pressure price market interest rate exceptionally volatile result pronounce economic geopolitical uncertainty addition dispersion sovereign bond yield remain elevated global risk asset market record decline bank funding cost rise past month increasingly high lending rate particular household volume lending household remain strong expect decline low demand lend firm robust high production cost inventory building low reliance market funding create continued need credit bank time demand loan finance investment decline balance financial condition euro area tighten backdrop lane propose progress path policy normalisation sure inflation return target medium term addition approval tpi propose raise key ecb interest rate basis point increment large step signal june big step ecb policy rate normalisation path appropriate base update assessment inflation risk take account reinforce support provide tpi effective transmission monetary policy increment magnitude support return inflation ecb medium term target strengthen anchoring inflation expectation ensure demand condition adjust deliver ecb inflation target medium term lane remark normalisation interest rate appropriate forthcoming meeting frontloading exit negative interest rate allow governing council transition approach interest rate decision future policy path data dependent guide governing council medium term inflation target context policy normalisation governing council evaluate option remunerate excess liquidity holding forthcoming meeting govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction inflation continue undesirably high expect target time late datum indicate slowdown economic growth cloud outlook half time risk growth downside relate particular uncertainty consequence russian invasion ukraine slowdown cushion number supportive factor risk inflation outlook upside intensify especially short term spread regard external environment slowdown global trade observe worsen reflect development advanced emerge market economy concern express deteriorate outlook united states united kingdom observe china probably able play past role engine global growth economy slow member widely note depreciation euro constitute important change external environment imply great inflationary pressure euro area particular high cost energy import invoice dollar point improvement competitiveness support growth normally associate depreciation impede prevail global supply constraint logistic restriction time suggest depreciation dollar divergent monetary policy partly reflect difference outlook economy argue risk recession economy materialise euro expect appreciate countervail probably dominant effect result worsen global risk sentiment typically imply strengthening dollar turn euro area development economic activity slow russia war ukraine ongoing drag growth adverse impact high inflation purchase power demand continuous supply constraint high uncertainty have dampening effect economy firm continue face high cost disruption supply chain tentative sign supply bottleneck ease take factor significantly cloud outlook half time economic activity continue benefit reopening economy strong labour market fiscal policy support instance people start travel tourism expect help economy coming month consumption support saving household build pandemic strong labour market unemployment fall historical low job vacancy sector show robust demand labour member note increase sign downturn euro area economic activity extend pmi survey datum output manufacturing service point loss momentum case manufacturing indicator drop contractionary territory time mid-2020 survey datum order business expectation suggest weakening coming month consumer confidence decline time low inflation erode real wealth saving real income decline equity price point negative effect capital expenditure background caution warrant prospect consumption investment demand time reiterate euro area economy demonstrate considerable strength resilience face multiple crisis notably regard pandemic war ukraine additionally indication major recession euro area far context good understanding resilience labour market dynamic need member agree risk economic activity downside prolongation war ukraine remain source significant downside risk growth especially energy supply russia disrupt extent lead ration firm household possibility russian gas supply shortage increase probability recession war dampen confidence aggravate supply constraint fast deceleration global growth pose risk euro area outlook risk renew pandemic wave see loom infection rate remain high despite favourable weather condition overall acknowledge development energy market warrant close attention stress baseline scenario june projection european commission forecast publish foresee recession member agree fiscal policy help cushion impact war ukraine bear brunt high energy price temporary target measure tailor limit risk fuel inflationary pressure fiscal policy country aim preserve debt sustainability raise growth potential sustainable manner enhance recovery note dispersion inflation rate euro area country role play energy gas price require response provide monetary policy need address policy area warning give call interpret recommend continue untargeted fiscal stimulus price development member agree assessment present lane introduction inflation increase june surge energy price important component inflation price pressure spread sector owe indirect impact high energy cost economy accordingly measure underlie inflation rise inflation expect undesirably high time owe continue pressure energy food price pipeline pressure pricing chain high inflationary pressure stem depreciation euro exchange rate look ahead absence disruption energy cost stabilise supply bottleneck ease ongoing policy normalisation support return inflation governing council target underline late inflation development imply clear materialisation upside risk previous governing council june see inflation surprise confirm underestimation bias observe past outturn compare early projection inflation rate record june increase projection seasonally adjust month month rate point continue strong momentum inflation component observe upward movement inflation take place despite dampening effect temporary measure introduce cope high energy price actual inflationary pressure great suggest official reading extent reflect government measure background argue upside risk clearly dominant short term upside risk evident update short term projection take explicit account strong month month dynamic elevated level oil refining margin strong link electricity price oil gas future apparent fast pass energy producer price consumer price note update short term outlook easily convert update medium term outlook key issue outlook extent inflation pressure observe absence shock large contribution energy food rise inflation diminish mechanically remain see indirect effect contribute rise core inflation time consider possible persistence inflationary pressure medium term recall hicp projection fully include cost owner occupy housing late datum point persistent upward pressure housing cost despite increase mortgage interest rate argue upward shift medium term inflation emerge structural change economy example possible partial reversal globalisation green transition usual projection horizon see important potential round effect weak anchoring expectation imply high inflation medium term price pressure simply inflation burst owe war stop adjustment complete expected retreat inflation anticipated peak later year see predicate main factor base effect process convergence target line phillips curve prediction caution type prediction disappoint past see questionable shift short term outlook upwards keep end point unchanged short run situation impact persistence propagate inflation tendency medium term respect persistence inflation process embed model parameter maintain value estimate low inflation environment value change inflation move higher addition persistent price pressure emerge strong supply constraint imply potential output low initially think negative effect failure bring people labour market member agree persistence inflation depend large extent behaviour wage wage growth accord forward look indicator continue increase gradually month remain contain time strengthening economy catch effect support fast growth wage recall steady state inflation consistent wage grow year give typical productivity growth reference indication ecb corporate telephone survey quarter respondent expect high wage growth point elevated risk round effect reference forward look wage tracker suggest pick wage growth point possible great persistence inflation overall maintain evidence significant round effect repeat upward surprise regard inflation indication inflation persistent increase probability effect context reference annual economic report bank international settlements conclude transition low high inflation regime tend self reinforce mainly owe occurrence wage price spiral member point wage formation euro area build overlap multi year wage agreement see imply long delay high inflation reflect negotiation process catch nominal wage response erosion real wage place risk wage start move increase medium term particularly high persistence inflation observe major currency area argue far cost term trade shock bear essentially worker rebalancing distribution imply tax worker employer time depend productivity development bargaining power ability firm maintain profit margin argue need closely monitor wage development transform price level effect presistent inflation remark rebalancing profit wage necessarily represent start wage price spiral time point high rate inflation trigger increase wage indexation change structural feature wage formation reverse early wage growth trend take hold low inflation environment situation raise question apparent tightness labour market lead high wage growth far explanation forward worker hesitant ask high wage strong pricing power firm increase scope grant high wage corroborate evidence corporate telephone survey firm report labour shortage easy pass cost high selling price context point evidence high frequency reprice face significant cost push shock regard long term inflation expectation measure currently stand line medium term target target revision indicator warrant continued monitoring survey base measure edge case survey professional forecasters long term expectation rise historical high median stand increase number survey respondent upper end distribution expectation see early warning sign shift mean point expectation prove relatively slow adjust upwards year target inflation true opposite direction difficult anchor expectation move away target reference ecb consumer expectations survey renew upshift inflation expectation year ahead temporary drop follow outbreak war ukraine upward shift reflect experience effect long lived hard reverse express late survey datum suggest great threat anchor apparent financial market base measure inflation expectation remark market base measure inflation compensation matter monetary policy financial market transmit interest rate change far extreme movement observe measure despite heighten volatility measure actually decline mid june market participant expect high interest rate low economic growth hand argue return level see january suggest expectation anchor see corroborate notion high inflation drive mainly supply factor expectation hand question raise see stable anchoring expectation rise substantially fall caution draw comfort market base measure model input background member assess risk inflation outlook continue upside intensify particularly short term risk medium term inflation outlook include durable worsening production capacity euro area economy persistently high energy food price inflation expectation rise governing council target high anticipate wage rise demand weaken medium term wake economic slowdown lower pressure price risk medium term inflation outlook see clearly tilt upside argue recession necessarily diminish upside risk especially relate gas cut supply shock imply increase inflation time point scenario low growth high persistent inflation owe supply shock contrast scenario low growth care high inflation appear market reflect combination low growth expectation low inflation expectation respect behaviour union response recession see crucial turn monetary financial analysis member concur assessment provide lane introduction bank funding cost rise month increasingly high lending rate particular household remark increase funding cost remain contain probably owe fact bank pay interest customer deposit continue access favourable eurosystem funding include targeted long term refinance operation tltro transmission high funding cost lending rate incomplete country owe strong competition bank typical lag transmission lending rate start increase strongly come quarter volume lending household remain strong expect decline low demand loan lend firm robust high production cost inventory building low reliance market funding create continued need credit bank time demand loan finance investment decline money growth continue moderate owe low liquid saving low eurosystem asset purchase lending survey report credit standard tighten loan category year bank concerned risk face customer uncertain environment overall despite increase cost borrowing decline equity price monetary financial condition assess have remain favourable take account contribution exchange rate real interest rate short maturity decline june governing council expect inflation revise upwards long maturity real rate increase somewhat market interest rate volatile result pronounce economic geopolitical uncertainty remark market expectation terminal rate interest rate hiking cycle display significant volatility increase mid june high interest rate expectation decrease perceive recession risk rise monetary policy stance policy consideration turn assessment monetary policy stance member agree appropriate step path monetary policy normalisation month inflation repeatedly high expect upside risk governing council anticipate june materialise increase energy price dampen economic growth outlook medium term risk increase recall monetary policy able provide effective support economy hit series supply shock witness pandemic government well able provide support household firm leave monetary policy focus inflation development necessary action line ecb mandate inflationary pressure judge intensify governing council june especially short term highlight persistently high inflation pose increase risk long term inflation expectation unanchore market base measure inflation compensation survey base long term inflation expectation line governing council medium term inflation target caution continued anchoring inflation expectation dependent governing council act decisively worsen inflation outlook background see appropriate reaffirm governing council determination bring inflation target medium term particularly fact instrument establish prevent unwarranted disorderly reaction financial market ongoing normalisation monetary policy safeguard smooth monetary policy transmission euro area member discuss lane proposal approve tpi forward executive board member highlight importance measure see decisive step ensure smooth transmission monetary policy stance enable governing council effectively deliver price stability mandate tpi strengthen governing council toolkit fragmentation threaten transmission monetary policy complement reinvestment flexibility pandemic emergency purchase programme pepp outright monetary transactions omt programme confidence express tpi clear eligibility criterion structure process activation condition exit use support stabilise potential toolkit allow effective response event unwarranted disorderly market dynamic vein tpi complement instrument available address fragmentation help support smooth transmission monetary policy euro area country stance normalise argue detailed monetary policy case tpi clear framework activation essential tpi deem important way increase resilience economic monetary union decentralise fiscal policy lack fully fledge capital market banking union incomplete expose asymmetric shock incompleteness disappear fundamental change euro area architecture context monetary policy play role ecb mandate address fragmentation extent impede smooth transmission monetary policy stance precondition ecb able deliver price stability mandate fragmentation risk consider environment monetary policy normalise time large supply shock increase risk economic growth ecb take action preserve efficiency monetary policy suggest european government domain responsibility advance institutional reform order well address underlie source fragmentation euro area design tpi consider proportionate contain sufficient safeguard condition ensure governing council act mandate recall european court justice confirm case law exercise competence monetary policy pursuit price stability governing council broad discretion carry thorough proportionality assessment initiative comprehensive work tpi carry past month eurosystem committee ecb clearly document fact governing council base decision thorough analysis dimension proportionality assessment effectiveness efficiency limited effect analysis lead conclusion instrument incorporate sufficient eligibility criterion activation condition number additional safeguard instrument proportionate response challenge pose fragmentation effective efficient conduct monetary policy highlight tpi design way avoid weaken incentive government pursue sound economic policy particularly fiscal domain remark success tpi ultimately require sufficient commitment government maintain impetus sound fiscal economic policy view essential governing council underline readiness use tpi extent necessary address risk transmission appropriate state condition recall persistent fundamental problem address omt programme monetary policy able react self fulfil liquidity crisis solvency problem tackle actor respect point assess sustainability public debt governing council account available debt sustainability analysis european commission european stability mechanism imf institution ecb internal analysis establish hierarchy analysis different institution importantly stress governing council undertake assessment discretion light forego member unanimously support tpi propose lane introduction unity team spirit member governing council widely praise eurosystem committee ecb national bank thank efficient collaboration preparatory phase unanimous decision governing council forceful convincing communication see lend strong credibility tpi turn consideration monetary policy stance large number member agree appropriate raise ecb key interest rate basis point propose lane basis point hike see warrant worsening inflation outlook governing council june governing council take large step policy rate normalisation path signal previous apply state principle data dependence optionality see provide clear signal determination act fulfil mandate member argue favour raise ecb key interest rate basis point intend communicate governing council june preserve consistency governing council early communication recession risk loom increase basis point see line gradual monetary policy normalisation perceive compatible inflation return governing council target medium term transitory shock fade concern raise governing council deviate early guidance surprised market large expect increase add prevail market uncertainty consideration notwithstanding maintain governing council demonstrate willing able respond outlook change argue despite constitute large expect increase basis point interest rate hike provide clarity market participant highly uncertain environment judge monetary policy stance remain accommodative basis point rise member widely hold tpi provide reinforce support effective transmission monetary policy help governing council proceed decisively normalisation monetary policy envisage june tpi judge allow governing council address unwarranted disorderly financial market development effectively perceive necessary enable governing council act decisively maintain price stability underline decision raise interest rate basis point regard frontloade exit negative rate interest rate adjustment necessary normalise monetary policy indicate change rate expect end point normalisation cycle governing council change assessment terminal rate hiking cycle determine precisely interest rate approach closely basis point hike deposit facility rate end period negative interest rate clearly long warrant long term inflation expectation stand high inflation number furthermore argue frontloade basis point increase july allow governing council flexibility react incoming datum proceed monetary policy normalisation future meeting look september ahead broad support express lane proposal transition approach interest rate decision provide forward guidance interest rate powerful instrument time interest rate close effective lower bind usefulness judge significantly diminish normalisation phase circumstance exceptionally high uncertainty specific forward guidance future interest rate path see excessively constrain governing council optionality flexibility data dependence risk governing council tie decision need reverse later circumstance change context attention draw continue forward guidance evolution eurosystem balance sheet different view express need interpretation notion gradualism reconcile need data dependence optionality hand stress uncertain environment incoming datum point increase risk price stability optionality precedence gradualism hand maintain gradualism interpret proceed step step policy normalisation jump immediately end point rate highly uncertain condition sense basis point increase regard gradual compatible principle flexibility optionality data dependence govern normalisation path member agree flexibility reinvestment redemption come pepp portfolio remain line defence counter risk transmission mechanism relate pandemic question narrowing spread observe mid june attribute activation flexible pepp reinvestment link factor expectation governing council create tool fight fragmentation activation pepp flexibility june necessary monetary policy decision communication background member express readiness join consensus raise ecb key interest rate basis point communication acknowledge upside risk inflation outlook intensify especially short term emphasise governing council decision base update assessment risk medium term inflation outlook decision see step ongoing normalisation process start december year phasing unconventional monetary policy measure see important stress basis point hike consitute upward shift interest rate path frontloading policy normalisation take account forego member have ascertain comment proposal president governing council approve tpi broad condition safeguard set dedicated press release governing council decide raise key ecb interest rate basis point accordingly interest rate main refinance operation interest rate marginal lending facility deposit facility increase respectively effect july governing council upcoming meeting normalisation interest rate appropriate frontloading exit negative interest rate allow governing council transition approach interest rate decision governing council future policy rate path data dependent help deliver inflation target medium term governing council intend reinveste principal payment mature security purchase asset purchase programme app extended period time past date start raise key ecb interest rate case long necessary maintain ample liquidity condition appropriate monetary policy stance concern pepp governing council intend reinvest principal payment mature security purchase programme end case future roll pepp portfolio manage avoid interference appropriate monetary policy stance redemption come pepp portfolio reinveste flexibly counter risk transmission mechanism relate pandemic governing council monitor funding condition ensure mature operation series targeted long term refinance operation tltro iii hamper smooth transmission monetary policy governing council regularly targeted lending operation contribute monetary policy stance governing council stand ready adjust instrument mandate ensure inflation stabilise target medium term governing council tpi safeguard smooth transmission monetary policy stance euro area member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference july press release monetary policy decision transmission protection instrument meeting ecb governing council july members lagarde president guindos vice president elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco wunsch members hold voting right july article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person buch demarco donnery gavilán goulard haber kaasik koukoularides kuodis lünnemann nicoletti altimari rosalino alternate centeno rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee october contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting september account monetary policy governing council european central bank hold frankfurt main wednesday thursday september october review financial economic monetary development policy option financial market development schnabel start note narrative financial market shift governing council previous monetary policy july initially fear recession dominate global asset price financial condition ease expectation pace interest rate increase bank world slow recession perceive job bring inflation target level recently focus investor gradually shift tight monetary policy stance inflation outcome continue high expect environment key observation volatility interest rate market remain historically high level reflect high uncertainty inflation heighten datum dependence monetary policy monetary policy normalisation euro area expect proceed significantly fast pace expect time governing council previous monetary policy summer rally risk asset halt partly reverse investor reappraisal future path monetary policy finally sensitivity euro area sovereign bond yield spread policy rate expectation remain notably weak governing council hoc june volatility global interest rate market currency market remain elevated heighten volatility interest rate market primarily drive uncertainty future course inflation shift monetary policy approach increase data dependency change policy rate expectation market reassess extent pace policy normalisation reach trough late july terminal rate level market participant expect policy interest rate peak rebound markedly currently stand close peak see mid june expect speed progress terminal rate increase investor expect gradual tighten cycle steeper expect policy path partly reflect fact investor attach increase probability scenario inflation high long investor expect inflation peak december instead september expect time july option market point rise upside risk inflation investor currently price probability inflation average year measure long term inflation compensation start creep higher euro area late increase end inflation swap rate real short term rate expect highly accommodative time come contrast markedly development united states accord market base estimate comparable rate expect restrictive territory schnabel explain reappraisal monetary policy expectation transmit broad financial market equity price increase notably summer spite weak growth outlook start decline half august owe increase concern inflation associate increase discount rate weak corporate earning growth expectation decline risk asset price partly offset improvement investor sentiment investor require compensation hold risky asset instead risk free bond overall stock market slightly euro area market notably level prevail time governing council july key factor divergence sharp rise european energy price weigh household real disposable income firm earning expectation high energy price europe rise downside risk growth euro area relative united states weigh euro exchange rate divergence expect path policy rate differential economy euro area fix income market tandem repricing risk asset corporate bond spread temporarily narrow early summer line recovery investor risk appetite reverse narrowing august euro area sovereign spread gradually widen reflect shift policy rate expectation link spread interest rate expectation weak governing council hoc june money market pass basis point rate hike july smooth exception repo treasury bill market specifically partial pass german non general collateral rate follow july hike mainly reflect scarcity german bund collateral global environment economic monetary development euro area lane late economic monetary financial development global economy euro area unusually high economic growth rate record start year sector reopen global activity slow average growth rate observe pandemic deceleration trade couple fall export order point continued loss momentum despite reduction purchasing managers index pmi supplier delivery time result weaken demand partial resolution supply bottleneck level supply bottleneck remain elevated euro depreciate start drive monetary policy expectation worsen term trade turn euro area activity significant moderation manufacturing sector start pmi manufacture output fall threshold indicate contraction level pmi service activity high weaken accommodation food sector benefit reopening economy euro area economy grow mechanical short term forecasting tool point substantial slowdown activity quarter focus demand component private consumption recover significantly thank strong contribution consumption service consumption durable good continue weak period european commission survey point significant weakening demand contact intensive service future weakening demand good low level european commission uncertainty indicator point big increase household uncertainty perceive need precautionary saving move investment affect supply bottleneck lockdown non construction investment record strong growth rate contrast contribution construction investment limit housing investment decline survey indicator suggest moderation non construction investment half year euro area good trade balance stabilise gdp june energy balance result deficit gdp effect income term trade loss amount percentage point constitute income transfer energy export country outside euro area imply percentage point available income domestic spending labour market remain robust pmi employment signal moderation sector analysis relationship unemployment job vacancy rate beveridge curve help well understand dynamic labour market euro area currently historically low unemployment rate historically high vacancy rate comparison united states ratio vacancy unemployment lot high turn fiscal policy euro area government provide support response war ukraine notwithstanding scaling pandemic relate measure accord eurosystem model fiscal support raise euro area growth percentage point lower inflation harmonised index consumer prices hicp percentage point year support measure design temporary unwinding estimate push inflation high despite high fiscal support euro area deficit continue estimate fall gdp move late inflation development hicp inflation increase august energy continue contribute half total headline inflation component play significant role september ecb macroeconomic projection feature significant upward revision inflation period high energy food commodity price core inflation account upward revision percentage point revision turn relate assumption speedy pass energy food inflation core inflation onwards upward revision small picture broaden inflationary pressure remain place indicator underlie inflation shift upwards term momentum reflect monthly change indicator start flatten turn slightly negative fact indicator sensitive change oil price fall look pipeline pressure good price inflation measure remain robust import price intermediate good i.e. good early stage production chain moderate extent service price inflation increase pre pandemic rate july decomposition supply demand factor show demand factor make increase contribution service price inflation supply shock important recovery demand play role say important distinguish recovery demand situation excess demand distinction matter comparison inflation euro area united states united states pick core inflation closely match pick wage growth case euro area clear disconnect evolution core inflation negotiate wage euro area inflation item hicp basket relatively high share wage direct input cost follow dynamic negotiate wage remain contain large movement euro area core inflation instead component manufacture good item relatively low share wage direct input cost follow factor increase core inflation economy different wage play role united states euro area turn late wage development euro area negotiate wage grow experimental ecb wage tracker point gradual acceleration wage growth come quarter recently conclude wage agreement include increase average euro area agreement conclude wage increase slightly low agreement conclude far accelerate trend datum regard inflation expectation survey monetary analysts sma show analyst continuously estimate inflation rate year year project inflation rate significantly inflation rate include september projection sma point stable inflation rate year ahead inflation expectation measure response ecb consumer expectations survey jump march year continue fluctuate march level market base measure inflation compensation increase strongly near term increase reflect expectation high near term inflation energy shock uncertainty relate supply russian gas cause inflation risk premia increase look ahead inflation compensation measure embed steep decline mid-2024 lane recall key assumption feature september projection compare june projection oil price revise moderately gas electricity price revise sharply short term interest rate revise significantly month interest rate see close remain level significant tightening financing condition embed projection reflect ecb monetary policy tightening move main feature september projection useful look key figure express change relative previous year well capture development interim clean carry effect influence annual average inflation expect average relative inflation see fall look annual average inflation expect year difference respect expect fact annual figure embed large carry effect give high starting point projection annual figure show ecb projection feature significant drop momentum look quarterly inflation development time decline core inflation expect pronounced energy supply bottleneck shock expect impact catch wage recover loss real wage strong labour market imply core inflation projection horizon turn financial monetary development lane note tightening financing condition continue impact spread economy bank bond funding cost see strong increase cover bond senior unsecured bond addition deposit rate firm household start increase nominal cost firm debt financing household borrowing cost expect increase later year volume loan firm remain strong firm prefer borrow later net issuance debt security negative firm continue substitute bond issuance loan give relatively low rate loan loan flow household remain solid lend house purchase show sign slowdown forward look indicator point slowdown private sector borrowing half year turn development significant moderation money growth rate past year end eurosystem net asset purchase money creation support lending growth credit private sector expect slow money creation expect decelerate corporate household deposit accumulation normalise month annual deposit growth rate stand close pre pandemic average sum lane stress price pressure extraordinarily high persist extended period august energy price inflation remain extremely elevated level large contributor inflation stand august food price inflation rise august july partly reflect high input cost relate energy disruption trade food commodity adverse weather condition market base indicator suggest near term oil price moderate wholesale gas price stay extraordinarily high supply bottleneck ease continue gradually feed consumer price recover demand service sector contribute rise inflation depreciation euro add build inflationary pressure price pressure continue strengthen broaden economy owe impact high energy cost economy accordingly measure underlie inflation remain elevated level inflation rise near term supply driver inflation fade time normalisation monetary policy work way economy price setting inflation come resilient labour market catch compensate high inflation support growth wage time incoming datum wage agreement indicate wage dynamic remain contain measure long term inflation expectation stand target revision indicator warrant continued monitoring projection inflation revise especially near term headline hicp inflation expect high level rest result extremely elevated energy food commodity price reopening economy supply bottleneck compare june projection headline inflation revise percentage point percentage point percentage point upward revision reflect datum surprise exceptional increase assumption wholesale gas electricity price strong wage growth depreciation euro hicp inflation project average subsequently decrease project decline attributable expectation fall energy food commodity price projection horizon hicp inflation exclude energy food elevated level middle expect decline effect reopening economy subside supply bottleneck energy input cost pressure ease late projection see inflation exclude energy food reach rebound activity half late datum point substantial slowdown euro area economic growth economy expect stagnate later high energy price reduce purchase power people income ease supply bottleneck constrain economic activity employment rise survey indicator employment perception suggest growth high frequency indicator signal job vacancy start plateau july possibly lead peak half year weak outlook reflect projection notwithstanding upward revision datum compare june projection gdp growth revise percentage point growth half year high expect contrast growth revise percentage point percentage point owe mainly impact energy supply disruption high inflation decline confidence projection see real gdp grow slow markedly energy market rebalance uncertainty decline supply bottleneck resolve real income recover medium term growth expect rebound stand context slow global economy downside risk growth outlook intensify particular near term reflect downside scenario projection long last war ukraine remain significant risk growth especially firm household face rationing energy supply situation confidence deteriorate supply constraint worsen energy food cost persistently high expect deterioration global economic outlook additional drag euro area external demand risk inflation outlook primarily upside disruption energy supply major risk short term medium term inflation turn high expect persistent worsen production capacity euro area economy increase energy food price inflation expectation rise ecb inflation target high anticipate wage rise energy cost decline demand weaken medium term lower pressure price market interest rate increase anticipation monetary policy normalisation response inflation outlook credit firm expensive month lending rate household stand high level year volume lending firm remain strong reflect need finance high production cost inventory building mortgage lending household moderate tighten credit standard rise borrowing cost weak consumer confidence sovereign yield move line risk free rate backdrop ongoing application flexibility reinvestment pandemic emergency purchase programme pepp reflect unanimous approval transmission protection instrument july governing council corporate bond equity rally period improve risk sentiment lately fall discount rate increase monetary policy consideration policy option lane propose key ecb interest rate raise basis point major step frontload transition prevail highly accommodative level policy rate level ensure timely return inflation ecb medium term target furthermore propose communicate base assessment meeting interest rate expect raise dampen demand guard risk persistent upward shift inflation expectation lane recall monetary policy strategy stipulate appropriate monetary policy response deviation inflation target context specific depend origin magnitude persistence deviation inflation expect target long period net upside risk inflation take account fact key policy rate highly accommodative appropriate major step communication decision clear appropriate monetary policy euro area account fact energy shock remain dominant drive force inflation dynamic general economic outlook include impact significant term trade deterioration particular inflation dynamic associate energy shock component euro area particularly expose different nature demand drive overheating dynamic line approach set interest rate governing council underline policy data dependent pre set path future interest rate decision reflect evolve inflation outlook incoming datum addition lane propose governing council apply flexibility reinveste redemption come pepp portfolio finally lane propose tier system remuneration excess reserve suspend set multipli positive deposit facility rate tier system long necessary role support base transmission monetary policy deposit facility rate negative govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction rebound activity half late datum point substantial slowdown euro area economic growth economy expect stagnate later high energy price reduce purchase power people income ease supply bottleneck constrain economic activity addition adverse geopolitical situation especially russia war ukraine weigh confidence business consumer outlook reflect september projection economic growth revise markedly remainder year inflation remain far high stay target extended period soar energy food price demand pressure sector result reopening economy supply bottleneck drive inflation price pressure continue strengthen broaden economy inflation rise near term driver inflation fade time normalisation monetary policy work way economy price setting inflation come global economic activity decelerate half supply disruption headwind growth momentum weaken significantly month look ahead weaken global activity weigh global trade euro area foreign demand despite ease pressure global supply chain global growth expect moderate half year high inflation erode real income context global monetary policy tighten cycle member see difference economic situation united states euro area united states price pressure related overheat domestic demand euro area reflect great extent import inflation sequence supply shock visible wage pressure united states see reflect fact labour market adjust increase redundancy reduction hour work person employ imply strong recovery activity employment united states see sharp rise number job vacancy lead shift cyclical relationship job vacancy unemployment represent beveridge curve euro area relationship remain stable suggest high wage pressure united states reflect pronounced labour market tightness euro area euro area expose surge energy price particularly gas price start war ukraine main driver high inflation note trend depreciation euro past year notably vis vis dollar add inflationary pressure euro area period ahead weakening euro dollar explain number factor include different implication energy shock economy respective term trade diverge cyclical condition different risk associate war energy crisis time fast tightening monetary policy see play important role turn development euro area economy grow owe mainly strong consumer spending contact intensive service result end pandemic relate restriction summer people travel country large tourism sector benefit especially time business suffer high energy cost continue supply bottleneck ease gradually buoyant tourism support economic growth economy expect slow substantially remainder year main reason high inflation dampen spending production economy headwind reinforce gas supply disruption strong rebound demand service come reopening economy run steam following month weaken global demand context tight monetary policy major economy worsen term trade mean support euro area economy uncertainty remain high confidence fall sharply time labour market remain robust support economic activity people enter employment unemployment rate stand historical low july total hour work increase surpass pre pandemic level regard economic activity member concur lane increase sign downturn euro area extend highlight economy demonstrate considerable strength growth rate look ahead highlight baseline september projection recession foresee period stagnation turn year mention range model indicator suggest recession year complete shutdown gas supply russia turn outright recession reaction domestic demand consider key element transmission high energy price accommodative monetary policy recall important feature late projection high energy price inevitably weigh consumption real income decline addition business investment expect bad previously anticipate especially energy intensive firm firm operate energy sector expose financial stress generate high energy price member note addition negative impact surge energy commodity price uncertainty distribution associate term trade loss worker firm context express time income loss term trade shock fully absorb firm worker seek recoup lose profit real income fiscal policy response high energy price member agree measure temporary target vulnerable household firm order limit risk fuel inflationary pressure concern express government find difficult measure target reverse timely manner take context adverse supply shock government advise reduce deficit finance structural consolidation path especially country public debt sustainability call question time point address energy crisis supply shock require foremost action government argue monetary policy primarily control inflation dampening effect economic activity long variable lag control short term inflation development initiative government european commission strong impact regard potential output comment impact war pandemic productive capacity economy turn big long last expect demand need reduce commensurately inflation curb supply hit hard demand fuel inflationary pressure real income decline accord survey evidence company production constraint mainly relate shortage labour equipment insufficient demand question raise output gap close line indication come unemployment gap point potential underestimation role capacity constraint drive inflation express aggregate demand clearly potential clear demand supply factor play important role determine degree economic slack euro area background member assess context slow global economy risk growth primarily downside particularly near term reflect downside scenario projection long last war ukraine remain significant risk growth especially firm household face rationing energy supply situation confidence deteriorate supply constraint worsen energy food cost persistently high expect deterioration global economic outlook additional drag euro area external demand regard price development member agree assessment present lane introduction inflation rise august energy price inflation remain extremely elevated dominant component inflation market base indicator suggest near term oil price moderate wholesale gas price stay extraordinarily high food price inflation rise august partly reflect high input cost relate energy disruption trade food commodity adverse weather condition supply bottleneck ease continue gradually feed consumer price put upward pressure inflation recover demand service sector depreciation euro add build inflationary pressure price pressure spread sector owe impact high energy cost economy accordingly measure underlie inflation remain elevated level resilient labour market catch compensate high inflation support growth wage time late datum wage agreement indicate wage dynamic remain contain measure long term inflation expectation currently stand target revision indicator warrant continued monitoring widely underline high inflation outcome drive high energy price recent development energy market suggest headline inflation reach turning point end year month month inflation rate continue strong momentum argument nature inflation process change inflation start self reinforce point project mark weakening growth sufficient bring inflation target message downside scenario prepare ecb point significant recession inflation stand higher end horizon ecb target demand factor important driver underlie inflation stand target baseline projection inflation continue broaden sector spend category producer price inflation core consumer good continue rise unprecedented size pipeline pressure imply firm pass substantial cost increase consumer argue inflation drive pass supply shock good market appear unwind exception volatile gas price recession increasingly mitigate inflationary pressure expectation anchor wage growth contain convincing sign round effect materialise member recall wage pressure key understand risk high energy price have round effect inflation wage development euro area appear moderate evidence difference country euro area country labour market clearly overheat ultimately lead high wage wage lagging indicator business cycle general number important wage negotiation place autumn observe far convincing sign round effect wage context comment usefulness ongoing wage development indicator future inflation pressure questionable give wage react gradually substantial lag labour market condition euro area regard long term inflation expectation measure market survey base inflation expectation consider anchored line price stability medium term time argue number indicator point increase risk long term inflation expectation unanchore consumer medium term inflation expectation report consumer expectations survey gradually increase july median expectation inflation year ahead stand mean long term inflation expectation report ecb survey professional forecasters increase historical high highlight prolonged period high inflation increase risk inflation expectation unanchore particular affect experience suggest empirical evidence high expect inflation figure exacerbate risk round effect wage create upside risk inflation outlook projection model unable fully capture persistence scale inflationary episode expect decline inflation end projection horizon see surround high usual degree uncertainty background member assess risk inflation outlook primarily upside way growth major risk short term disruption energy supply medium term inflation turn high expect persistent worsen production capacity euro area economy increase energy food price rise inflation expectation target high anticipate wage rise point expansion unfunded partially fund government support constitute upside risk inflation energy cost decline demand weaken medium term lower pressure price reference useful large set sensitivity analysis carry ecb context late projection widely feel time extraordinary statistical uncertainty baseline projection precise number foresee inflation end projection horizon matter assessment risk see upside horizon include policy relevant medium term horizon turn monetary financial analysis member concur assessment provide lane introduction credit firm expensive month lending rate household stand high level year term volume lending firm far remain strong reflect need finance high production cost inventory building mortgage lending household moderate tighten credit standard rise borrowing cost weak consumer confidence note despite increase cost mortgage credit growth remain resilient parallel apparent resilience real economy banking sector far hold profitability benefit high operating income low operating expense low loan loss provision well asset quality expect mitigate risk negative feedback loop financial sector rest economy economic growth slow pocket vulnerability appear market interest rate increase anticipation monetary policy rate increase response inflation outlook maintain market condition sign destabilisation note financial market fragmentation reappear governing council monetary policy sovereign yield move line risk free rate corporate bond spread narrow previous monetary policy equity market financial sector weak underline euro depreciate nearly dollar june amplify energy price shock add import price pressure extended period overall financial condition tighten somewhat euro area monetary policy remain relatively loose particularly real term exchange rate take account time high market interest rate start feed lending rate financing condition real economy increase expect monetary policy stance policy consideration turn assessment monetary policy stance member agree appropriate step path monetary policy normalisation overall level ecb key policy rate judge highly accommodative inflation august deposit facility rate short term real rate deeply negative inflation far high stay governing council target extended period essential bring timely manner inflation repeatedly high expect month inflationary pressure see unlikely abate inflation projection revise upwards year year projection drift upwards past quarter clearly exceed governing council target risk surround project inflation path remain tilt upside entire projection horizon month month figure headline core inflation rise strongly underline supply shock particular affect energy price main driver high level inflation worsen outlook demand factor play role monetary policy equip address supply shock clearly affect balance supply demand argue put emphasis supply problem risk neglect fact aggregate demand adjust curb inflation regard maintain expect weakening economic activity sufficient reduce inflation significant extent bring project inflation target see governing council difficult challenge ensure inflation return target timely manner unnecessarily exacerbate economic downturn argue growth concern case prevent need forceful increase interest rate remark timely reduction monetary policy accommodation inflationary pressure result depreciation euro increase low exchange rate provide limited support economic activity environment continued global supply bottleneck shortage monetary policy prevent round effect high energy price impact supply shock primary responsibility counter risk round effect prevent unanchoring inflation expectation risk increase inflation persistent initially expect background governing council response upside deviation ecb target ought forceful inflation low recall governing council regard deviation inflation target direction equally undesirable ecb monetary policy strategy prescribe price stability maintain medium term orientation magnitude persistence deviation governing council inflation target context origin inflation pressure take account time argue act forcefully avoid need increase interest rate sharply later economic cycle economy slow maintain long high inflation persist high risk inflation expectation unanchored costly bring target turn size interest rate increase large number member line lane proposal express preference raise key ecb interest rate basis point basis point increase judge proportionate response upward revision inflation outlook important signal governing council determined bring inflation target timely manner fact inflation repeatedly high expect upward revision medium term inflation projection see call fast pace monetary policy normalisation inflation expectation anchor target level medium term market participant price large interest rate increase july response late inflation datum deposit facility rate far level consider neutral term monetary policy accommodation bad inflation outlook progress level support return inflation frontloade governing council decision july raise ecb key policy rate basis point important step normalise interest rate level argue policy expansionary basis point rate hike member express preference increase key ecb interest rate basis point basis point increase see clearly insufficient address inflation outlook argue basis point hike large signal determination proceed interest rate normalisation governing council begin july loom risk recession mitigate inflationary pressure increase basis point sustained path neutral rate level prove sufficient return inflation governing council target medium term transitory shock fade need address risk sharp rise inflation exacerbate war destabilising inflation expectation response aggressive exacerbate recession benefit inflation short term far inflation expectation anchor wage growth remain moderate little evidence round effect size upward revision inflation projection see sufficiently large require aggressive response uncertain inflation dampen domestic demand high uncertainty surround projection particularly end projection horizon note euro area affect excess demand united states supply factor energy play large role euro area wage inflation moderate medium term inflation expectation well anchor monetary policy decision communication end member join consensus raise key ecb interest rate basis point reaffirm governing council decision remain data dependent basis point increase signal governing council intend interest rate increase similar magnitude future meeting see essential communicate prudently way forward counter risk increase volatility bond market refer frontloading interest rate normalisation member widely concur lane monetary policy data dependent follow pre set path interest rate set basis time consider important interest rate raise subsequent meeting normalisation process interest rate level ultimately require stabilise inflation medium term time level reach stress subject uncertainty model dependent context specific change time addition neutral rate interest depend long term trend factor productivity demographic interplay saving investment behaviour concept debatable unobservable difficult measure real time despite difficulty broad consensus decision key policy rate significantly neutral rate look configuration key ecb interest rate underline eurosystem large balance sheet continue provide significant monetary policy accommodation compress term premia see appropriate reiterate governing council stand ready adjust instrument mandate ensure inflation return medium term target member agree lane proposal apply flexibility reinveste redemption come pepp portfolio contain unwarranted volatility sovereign bond market see essential complement basis point interest rate increase signal ecb commitment ensure smooth transmission monetary policy euro area finally member agree lane proposal suspend tier system remuneration excess reserve set multipli tier system long consider necessary positive value deposit facility rate reach consequence decision raise policy rate basis point member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference september press release monetary policy decision meeting ecb governing council september members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right september article escb statute observer attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person buch cassidy demarco garnier alternate villeroy galhau thursday gavilán gilbert haber kaasik koukoularides kuodis lünnemann nicoletti altimari novo ódor rutkaste tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee november contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting october account monetary policy governing council european central bank hold frankfurt main wednesday thursday october november review financial economic monetary development policy option financial market development schnabel note uncertainty increase financial market governing council previous monetary policy september occur amid persistently high inflation elevated fear recession increase attention potential financial instability inflation concern remain dominant driver financial market development inflation outcome continue surprise upside lead renew adjustment market expectation monetary policy globally background persistent inflation surprise investor sharply revise expectation bank terminal policy rate level market participant expect interest rate cycle peak embed risk free rate major advanced economy albeit different degree euro area compare expectation time governing council previous monetary policy market pricing survey evidence point expectation fast pace policy rate hike markedly high terminal rate forceful policy action bring tightening financial condition medium long term real interest rate move notably high risk asset continue sell high degree uncertainty extent policy adjustment need rein inflation time investor gradually shift attention effect sharp global rate hiking cycle amid tight funding condition lower rat entity low market liquidity heighten volatility repo market heighten concern inflation result euro area risk free yield sensitive news inflation case contrast relationship risk free yield news growth remain weak suggest market participant expect bank focus primarily inflation united states adjustment near term rate expectation financial market price pronounced unlike euro area forward rate curve united states show marked inversion signal expectation reversal rate hike course euro area real interest rate increase entire maturity spectrum governing council previous monetary policy deeply negative short maturity remain level prevail previous tightening cycle december inflationary pressure far intense repeat upward inflation surprise heighten uncertainty path monetary policy require tame inflation market base measure long term inflation compensation euro area trend upwards week stand level observe time governing council previous monetary policy despite sharp reappraisal monetary policy expectation additional inflationary pressure emanate ongoing depreciation euro far year euro weaken vis vis dollar consider bulk commodity denominate dollar currency development exacerbate energy price shock reappraisal monetary policy expectation lead broad base tightening financial condition risk free rate global sell equity market continue euro area analyst lately limited downward revision euro area firm long term earning prospect earning expectation remain high level cyclically adjust price earning ratio come markedly elevated level prevail extended period accommodative monetary policy close albeit long run average euro area corporate bond market spread high yield investment grade bond increase bond issuance euro area non financial corporation decline markedly especially high yield segment development sovereign bond market far benign despite sharp rise risk free yield sovereign spread vis vis overnight index swap ois rate remain unchanged sensitive change risk free yield announcement transmission protection instrument direct spillover financial market turmoil united kingdom limit euro area financial market entirely immune mitigate factor euro area pension fund sector comparatively small concentrated reduce risk euro area wide financial stability interest rate derivative commonly base euro interbank offer rate euribor limit impact country specific shock margin call transmission policy rate adjustment money market september rate hike functioning euro area repo market impair temporarily trigger predominantly concern additional cash flow repo market non monetary policy deposit hold eurosystem tension repo market reflect general scarcity collateral abundance cash deposit repo market environment high uncertainty time cash bond market continue function smoothly global environment economic monetary development euro area lane highlight global economic activity continue slow october global economic growth see sharp reversal strong performance beginning year trend performance recently datum good trade show relatively stable growth rate july purchasing managers index pmi export order october significantly threshold indicate contraction filling backlog order support activity order decline late datum show manufacturing firm work backlog accumulate year suggest channel provide support economy future turn exchange rate development past couple year euro effective exchange rate bilateral exchange rate vis vis dollar record trend depreciation governing council monetary policy little movement see effective exchange rate owe fact japanese yen depreciate fact trade weight exchange rate appreciate slightly september look determinant euro depreciation versus dollar difference expect path policy rate play big role deterioration euro area term trade price pay import rise fast receive export increasingly important commodity compare situation time september price oil metal food change significantly contrast huge decline spot price gas late gas future curve signal reversal drop early stabilisation turn euro area gdp growth boost strong increase private consumption result reopening contact intensive service period contribution inflation harmonised index consumer price hicp demand factor increase particular large increase private consumption large contribution inflation indicator suggest gdp growth stagnate year quarter assessment point drop economic activity different scenario euro area enter prolonged period negative growth different downside scenario describe september ecb macroeconomic projection energy price currently low assume downside scenario assumption energy rationing lead sizeable production cut materialise major increase financial stress survey base sectoral indicator confirm continue downward trend manufacturing activity despite fact industrial production support filling order backlog easing supply bottleneck support expect future pmi indicator show significant slowdown service sector month retail sale volume decline path june manufacturing service experience increase uncertainty affect expect dynamic demand focus private consumption consumer confidence continue decline period september rise marginally october european commission consumer survey show household increasingly postpone major purchase reduce saving order maintain consumption basic necessity investment outlook darken significantly indicator housing investment build construction pmi residential output start signal contraction year continue decline indicator non construction investment move contractionary territory good trade balance continue deteriorate reach deficit august record drive mainly rapidly rise import bill energy high energy price increase import cost affect chemical export production chemical high energy content expensive europe reduce competitiveness product export service sector strong recovery tourism indicator late datum start signal return normal level turn labour market unemployment rate remain historical low august employment total hour work increase respectively say indicator start weakening labour market ecb late corporate telephone survey show employment growth remain positive territory firm pessimistic employment line sentiment economic activity slowdown visible pmi datum employment index remain threshold indicate growth pmi indicator service manufacturing threshold value indicator construction move look tightness labour market ratio job vacancy unemployed person increase significantly past year evident eurostat datum datum obtain private digital job search platform set datum suggest increase tightness period indication suggest stabilisation ratio turn fiscal policy structural balance expect improve reduction pandemic relate spending compensate energy relate spending measure large energy spending programme finance large revenue windfall result euro area fiscal deficit expect improve year unlikely improve year government announce large package fiscal measure budgetary plan prevent improvement deficit gdp ratio far appear spending newly announce measure reduce early temporary target measure increase interest rate expect lead high financing cost government move late inflation development hicp inflation increase september forecast error september projection amount percentage point primarily relate energy food component projection non energy industrial good inflation slightly high actual outcome projection service inflation low country contribute september forecast error weight food price total hicp double energy price understand dynamic important consumer price food see sharp increase food producer price index rise time growth upstream price start production chain fertiliser price international food commodity price start decelerate fact food producer price rise path imply pipeline pressure expect food consumer price good price datum show pipeline pressure intermediate good price start ease remain elevated pressure consumer good price continue increase reflect transmission lag focus core inflation i.e. inflation exclude energy food decomposition supply demand factor show july supply factor continue significant contribution suggest core inflation rate come significantly supply factor ease decomposition show steady increase contribution demand factor lane recall core inflation affect indirect effect high energy price cause energy intensive sector raise price ecb analysis divide good service energy intensive non energy intensive item show disproportionate share inflation stem energy intensive sector stabilisation energy price important implication core inflation turn domestic wage pressure negotiate wage continue increase gradually month impact wage payment exclude forward look information compile experimental ecb wage tracker euro area show wage agreement conclude imply wage growth represent acceleration compare relatively moderate pace growth headline inflation euro area exceed headline inflation united states owe high energy food inflation united states core inflation strong euro area closely correlate wage inflation euro area core inflation remain ahead wage inflation sector high price increase particularly labour intensive relatively energy intensive inflation wage sensitive hicp item continue increase line negotiate wage growth remain relatively contain sector see inflation pressure sector expose supply chain problem move price pressure relate housing rental price growth remain september exert dampening effect service price inflation rate price relate housing increase strongly growth owner occupy housing cost reach look ahead september projection suggest significant deceleration residential property price growth long term inflation expectation report october ecb survey professional forecasters remain basically constant headline inflation decrease core inflation respondent significantly revise inflation expectation response continue lie average affect movement tail distribution increase number respondent expect inflation exceed marked decline number expect inflation september datum ecb consumer expectations survey show significant change increase expect inflation occur march market base measure inflation compensation continue point sharp decline inflation rate year high level significantly low rate turn monetary financial development funding cost gradually increase reflect change risk free rate early bond yield rise basis point deposit rate household firm see significant increase expect rise come month context monetary policy normalisation rate lend firm household increase credit standard tighten markedly late monetary datum september show large shift overnight time deposit mainly firm financial intermediary ofi household record large inflow time deposit year continue increase holding overnight deposit deposit reconfiguration line increase opportunity cost hold overnight deposit beginning monetary policy normalisation september monetary datum confirm drop loan flow non financial corporation particular household provide evidence tightening financial condition transmit real economy finally lane report result october ecb survey monetary analyst compare september survey respondent expect path key ecb interest rate steepen shift upwards basis point sum lane stress inflation remain far high stay ecb target extended period inflation increase september energy price inflation exceed effect reflect ongoing pass wholesale price retail price food price inflation rise owe development unprocessed process food component measure underlie inflation elevated level measure inflation exclude energy food rise september august reflect impact high utility price cost structure sector ongoing impact supply bottleneck post pandemic recovery demand wage growth continue increase gradually time clear sign widespread round effect long term inflation expectation remain align target increase wage growth signal ecb wage tracker moderately level embed september projection wage pressure public sector add impulse overall risk inflation outlook primarily upside major risk short term rise retail energy price medium term inflation turn high expect increase price energy food commodity strong pass consumer price persistent worsen production capacity euro area economy persistent rise inflation expectation ecb target high anticipate wage rise contrast decline energy cost weakening demand lower price pressure economic activity slow significantly year expect weaken remainder beginning high inflation linger uncertainty cut supply gas russia dampen consumer business confidence expect curb aggregate demand half effect reopening economy boost service spring summer expect fade autumn winter month household concern inflation erode real disposable income low income especially affect supply chain bottleneck gradually ease energy supply shock weigh manufacturing activity trade addition global economic prospect remain clouded line development available indicator short term estimate point marginal downside risk clear downside risk year compare september projection long last war ukraine significant risk confidence deteriorate supply constraint worsen energy food cost persistently high expect weaken world economy additional drag growth euro area far labour market continue source resilience economy react delay economic activity lose momentum accordingly weakening economy lead somewhat high unemployment future market interest rate rise broad financial condition tighten significantly amid expectation fast substantial monetary policy tightening euro area globally government bond yield rise tandem risk free interest rate spread narrow slightly probably continue reflect support transmission protection instrument communication flexible reinvestment pandemic emergency purchase programme pepp bank funding cost increase response rise market interest rate make borrow expensive firm household lending firm remain robust need finance high production cost build inventory demand loan finance investment continue decline household borrowing house purchase reach turning point summer late lending survey indicate credit standard tighten bank concerned deteriorate outlook economy risk face customer environment bank expect tighten credit standard monetary policy consideration policy option protract period excessively high inflation risk add medium term price pressure lane propose key ecb interest rate raise basis point major policy rate increase row substantial progress withdraw monetary policy accommodation ecb policy rate accommodative large increase underscore governing council commitment tame inflation reduce support demand ensure inflation expectation remain anchor medium term target tangible sign commitment communicate governing council expect raise rate future rate path base evolve outlook inflation economy follow approach addition rate normalisation lane propose change term condition series targeted long term refinance operation tltro iii acute phase pandemic tltro play key role counter downside risk price stability period ecb grant exceptionally favourable condition credit institution borrow operation aim sustain supply loan real economy time bank pull disengage credit intermediation unexpected extraordinary rise inflation instrument need recalibrate ensure consistent broad monetary policy normalisation process reinforce transmission policy rate increase lending condition necessary adjust interest rate applicable tltro iii november offer bank additional voluntary early repayment date propose recalibration proportionate contribute normalisation funding cost ensue normalisation financing condition turn exert downward pressure inflation medium term recalibration remove disincentive voluntary early repayment outstanding tltro iii fund reduce eurosystem balance sheet expect facilitate release security currently collateral eurosystem alleviate collateral scarcity improve money market intermediation capacity bank reduce balance sheet turn support smoother efficient pass governing council policy rate increase secured money market rate propose recalibration efficient seek achieve objective short reinvestment period eurosystem bond holding aggressive interest rate hike amend tltro iii condition effect abrupt unforeseeable change circumstance justify change policy stance service ecb primary objective lane propose adjust remuneration minimum reserve hold credit institution eurosystem align closely money market condition give high level excess liquidity marginal cost reserve currently anchor interest rate deposit facility rate main refinance operation change remuneration main refinance operation rate deposit facility rate restore neutrality minimum reserve system finally lane propose continue apply flexibility reinveste redemption fall pepp portfolio counter risk monetary policy transmission mechanism relate pandemic govern council monetary policy decision economic monetary financial analysis economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction inflation remain far high stay target extended period september euro area inflation reach soar energy food price supply bottleneck post pandemic recovery demand have lead broadening price pressure increase inflation month regard external environment late datum confirm signal slow economic growth country sector imply substantial reversal pick global activity record early year observe increase number economy expect enter recession concern express cumulative impact slowdown include spillover synchronise monetary policy tightening result technical recession global level time reference ease global supply bottleneck uncertainty surround china united states global activity negatively affect china closure economy global fallout restrictive monetary policy united states time argue lockdown china lead decline country import liquified natural gas dampen effect gas price regard note spot price natural gas see unexpected sharp fall day movement global commodity market reverse price increase post beginning year alleviation global energy price pressure anticipate argue future price suggest reversal trend decline gas price volatile time high past turn euro area development economic activity euro area slow significantly weakening expect remainder year early reduce real income push cost firm high inflation continue dampen spending production severe disruption supply gas worsen situation consumer business confidence fall rapidly weigh economy demand service slow perform strongly previous quarter sector affect pandemic relate restriction reopen survey base indicator order manufacturing sector low global economic activity grow slowly context persistent geopolitical uncertainty especially owe russia unjustified war ukraine tight financing condition worsen term trade weigh income euro area time labour market continue perform unemployment rate remain historically low level august short term indicator suggest job create year weakening economy lead somewhat high unemployment future member widely agree outlook euro area economic activity deteriorate september monetary policy note component demand include consumption investment export show sign weakening reference late forward look survey indicator economic activity post strong decline signal contraction argue technical recession baseline scenario outcome express real gdp ahead repeatedly underestimate previous projection currently projection error opposite sign time caution far hard evidence consistent mild recession suggest hard landing economy protract downturn distinction widely see key issue economic picture medium term inflation outlook question raise propagation mechanism turn shallow short live recession deep prolonged slump weakness banking sector factor past episode key factor housing market country play role issue recession imply resilience labour market regard note late datum forward look pmi survey indicator manufacturing activity employment time observe ratio job vacancy unemployed person remain low euro area united states point less degree labour market tightness euro area argue uncertainty loss purchasing power main factor deterioration outlook reflect low real wage low real financial wealth give household hold saving low remunerate deposit debt security context reference analysis point substantially high inflation rate low income household energy food item great proportion consumption see reminder inflation substantial distributional consequence argue consumer confidence stay weak long inflation stay high consumer lose large previous gain purchase power time recall substantial excess saving accumulate pandemic crisis fiscal support strong labour market bolster consumption context note finding consumer expectations survey suggest household keep spending save liquidate stock saving fiscal policy reiterate fiscal support measure shield economy impact high energy price temporary target vulnerable order limit risk fuel inflation policy measure provide incentive low energy consumption bolster energy supply time government pursue fiscal policy show committed gradually bring high public debt ratio structural policy design increase euro area growth potential supply capacity boost resilience contribute reduction medium term price pressure swift implementation investment structural reform plan generation programme important contribution objective solution energy problem see mainly structural nature point plan fiscal support appear differ country concern express face high energy cost grow pressure government support demand transfer fuel inflation instead foster potential growth target public investment risk fiscal compensation package turn big warrant price stability perspective argue planned expect additional fiscal measure need expect recession assess fiscal stance consider important include fund recall recession activate automatic stabiliser increase spending time tax revenue decline tax revenue bolster inflation tax expect decline inflation dampening impact revenue time funding cost rise result high interest rate lead deterioration nominal deficit background incoming datum confirm risk economic growth outlook clearly downside especially near term long last war ukraine remain significant risk confidence deteriorate supply constraint worsen energy food cost persistently high expect weaken world economy additional drag growth euro area concern express change economic outlook economy close downside scenario baseline scenario depict september ecb projection caution voice equate outlook downside scenario mechanism different regard gas price development potential gas supply rationing affect production argue respect outlook benign september downside scenario meantime downside risk materialise regard price development member agree assessment present lane introduction inflation rise september reflect increase component energy price inflation remain main driver inflation increase contribution gas electricity price food price inflation rise high input cost food production expensive supply bottleneck gradually ease lag impact contribute inflation impact pen demand weakening drive price service sector depreciation euro add build inflationary pressure price pressure evident increase number sector owe impact high energy cost feed economy measure underlie inflation remain elevated level measure inflation exclude energy food rise september member underline late inflation outcome reassure datum continue come expectation concern express especially regard core inflation broad array measure underlie inflation appear gradually increase exception point stabilisation hop embed september projection continued strong short run momentum confirm upward trend month month increase core inflation time point price natural gas fall doubt high volatility market low gas price sustain form basis revise outlook note late development caution simply extrapolate large impact include september projection point correction wholesale energy price automatically imply corresponding pass hicp inflation early surge energy price lead fast impact inflation remain see evolve commodity price surge reverse change non linearity speed strength pass depend size persistence energy price shock typically embed model forecast recall ultimately matter wholesale consumer energy price important understand pass mechanism corresponding time lag observation long term contract imply long delay significant upward pipeline pressure work way reference decomposition inflation underlying factor note rise headline core inflation come increase demand drive factor inflation decline result supply demand factor doubt express juncture relaxation supply sufficient argue reduction inflation need drive low contribution demand component decomposition non energy industrial good inflation service inflation show non energy intensive component inflation increase caution alleviation inflationary pressure energy offset countervail force force exchange rate depreciation negatively affect inflation outlook broad basis pass producer consumer price take time account upward pressure pipeline recall pass recently fast strong expect embed standard model argue quick strong pass fast price adjustment complete early inflation rate normalise context see useful look inflation rate well picture inflation dynamic give annual rate affect base effect carry regard wage continue strong labour market support high wage catch wage compensate high inflation incoming wage datum wage agreement indicate wage growth pick infer statement union representative employer politician tight labour market prolonged period high inflation see begin impact wage growth corporate telephone survey large majority respondent expect wage increase time argue growth negotiate wage compensation employee dynamic level moderate compare inflation clear sign wage price spiral recall wage lagging indicator doubt express comfort picture provide experimental ecb wage tracker hold consider unwise assume worker simply accept hit real wage strong response nominal wage risk future wage growth underestimate suggest timely information wage job posting private digital platform increase fast datum negotiate wage argue euro area labour market clearly source strength resilience caution labour market undergo normalisation wake pandemic relate crisis respect associate swing productivity sectoral reallocation concern express strength undermine wage overstretch delicate adjustment period attention draw unusual resilience profit profit margin light deteriorate cyclical condition important wage development come factor drive inflation inflation persistence regard long term inflation expectation measure currently stand target revision indicator warrant continued monitoring argue survey base measure trend upwards time market base measure point direction sign turning point time recall market base inflation measure contain inflation risk premium turn positive caution add look upper tail distribution assess risk long term inflation expectation include low tail survey monetary analysts distribution appear symmetric survey expectation measure cut date prior fall gas price fall persist expectation downward adjustment argue actual hicp inflation stand long term inflation expectation remain relatively anchor time warn formation inflation expectation backward look actual inflation bring timely manner expectation increasingly react actual inflation turn push higher context reference substantial upward shift expectation headline core inflation reflect survey professional forecasters point increase risk unanchoring upward shift medium term inflation expectation see consumer expectations survey background member agree risk inflation outlook primarily upside major risk short term rise retail energy price medium term inflation turn high expect increase price energy food commodity strong pass consumer price persistent worsen production capacity euro area economy persistent rise inflation expectation ecb target high anticipate wage rise contrast decline energy cost weakening demand lower price pressure point risk direction need reassess december eurosystem projection key issue extent possible recession limit upside risk inflation medium term argue shallow technical recession unlikely inflation check give momentum risk price increase difficult reverse reference downside scenario september projection deep recession baseline scenario high inflation rate comment dampening effect recession counterbalance increase likelihood round effect result high inflation short term lead great inflation persistence constitute upside risk medium term inflation outlook argue increase risk vicious circle high inflation expectation feed high price high wage concern raise effect highly non linear give size shock argue potential economic output low currently estimate low potential output imply high inflationary pressure reconcile difference estimate unemployment output gap turn monetary financial analysis member concur assessment provide lane introduction bank funding cost increase response rise market interest rate translate high borrowing cost firm household bank lending firm remain robust household borrowing house purchase reach turning point summer late lending survey indicate bank tighten credit standard year expect tighten point transmission increase lending rate household highly dependent fixation period interest rate mortgage contract differ significantly euro area economy member agree financial condition market financing condition different type borrower tighten significantly anticipation fast substantial monetary policy tightening euro area globally euro area government bond yield rise lockstep risk free interest rate spread relative ois rate have remain unchanged governing council september monetary policy spread relatively insensitive shift monetary policy expectation probably reflect support transmission protection instrument communication flexible reinvestment pepp context highlight governing council interest rate hike september transmit smoothly segment repo market use eurosystem facility security lending cash reach high level september interest rate decision take effect tension repo market reflect behaviour swap spread i.e. spread ois rate sovereign bond yield maturity widen jurisdiction partly owe scarcity collateral remark financial market volatility increase september govern council evidence bond market turbulence trigger announcement initial budget plan express long period policy measure suppress volatility significant extent reversal situation consider healthy return normal market condition consider noteworthy volatility especially pronounce market traditionally consider low risk money market sovereign bond market high volatility market beginning year equity market measure liquidity bid ask spread indicate euro area market continue function monetary policy stance policy consideration turn monetary policy proposal widely share inflation outlook continue worsen inflation far high repeatedly project figure addition price pressure broad base rise trend core inflation measure underlie inflation development indicate increase risk inflation entrenched round effect wage price spiral emerge return inflation ecb target deem unlikely decisive monetary policy action action underscore governing council commitment bring inflation control keep inflation expectation anchor time underline wage growth accelerate consider moderate indication wage price spiral price pressure originate international commodity market weaken recently expect economic downturn high interest rate tight financial condition dampen inflation medium term economic outlook deteriorate considerably widely judge expect weakening economic activity suffice curb inflation significant extent bring project inflation target argue event shallow recession governing council normalise tighten monetary policy want pause prolonged deep recession curb inflation large extent context attention draw divergence monetary policy remove accommodation fiscal policy expansionary reiterate governing council focus squarely primary objective bring inflation target timely manner reference outcome ecb strategy underscore commitment act forcefully available instrument address prolong downward deviation target ecb need equal determination inflation target counter far high inflation prevent entrench irrespective deteriorate outlook economic activity monetary policy decision communication background member agree inflation outlook appropriate normalise monetary policy withdraw accommodation ensure demand long sustain governing council monetary policy action have desire effect financial financing condition setting ecb key policy rate judge accommodative imply increase widely share monetary policy normalisation order counter risk long term inflation expectation unanchore possible wage price spiral successive inflation figure projection heighten uncertainty prevail upside risk inflation outlook see warrant action turn size rate increase lane proposal raise key ecb interest rate basis point support large majority member basis point increase judge appropriate response protract period excessively high inflation risk add medium term price pressure recall monetary policy stance accommodative argue basis point increase constitute necessary step neutral level frontloading interest rate increase allow neutral level reach swiftly note market participant price increase size argue fall short market expectation imply unwelcome loosening impulse potentially undermine confidence governing council commitment price stability hold feed uncertainty regard way governing council react inflation outlook increase volatility risk free interest rate environment argue persistence high inflation uncertain optimal policy call forceful response reduce risk inflation remain high long member express preference increase key ecb interest rate basis point take account rate hike accompany signal need future rate hike change remuneration minimum reserve adjustment term condition tltro iii imply additional monetary policy tightening direction monetary policy clear prudence necessary regard pace adjustment basis point hike deem sufficient adjust monetary policy stance gradual measured way give market sentiment fragile risk significant slowdown economic activity increase financing condition tighten significantly start normalisation process argue overly aggressive pace tightening repercussion financial stability economic activity ultimately inflation widely feel basis point increase governing council substantial progress withdraw monetary policy accommodation clear rate need raise reach level deliver ecb medium term target decision need base incoming datum evolve outlook inflation economy overall light prevail uncertainty broad support data dependent approach take monetary policy decision take place use concept neutral rate terminal rate consistent inflation return target medium term different view express link measure projection scenario steady state property time difficulty rely precise value rate acknowledge agreement look ahead governing council need remove accommodation interest rate hike express monetary tightening probably need monetary policy stance normalise move neutral territory respect december monetary policy note governing council information available see especially valuable light high market volatility uncertainty characterise environment december projection provide information horizon extend include assessment increase recession risk development commodity price tightening financial condition september affect medium term inflation outlook turn ecb outstanding lending operation member unanimously agree lane proposal change term condition tltro iii adjustment see essential ongoing monetary policy normalisation process recalibration governing council toolkit ensure consistency monetary policy instrument line governing council communication stand ready adjust instrument mandate ensure inflation return medium term target recalibration tltro iii december inflation outlook change fundamentally owe war ukraine lead energy crisis foresee time accordingly governing council recalibrate monetary policy stance include term condition tltro iii order pursue price stability mandate light worsen inflation outlook negative short term real interest rate monetary policy transmission accelerate widely hold change tltro iii condition reinforce transmission change policy rate funding cost lending condition household firm date fully reflect intend monetary policy tightening argue maintain average tltro iii rate remain lifetime operation rate deposit facility rate risk blur intended policy signal question governing council determination bring inflation medium term target timely manner note adjustment tltro iii condition bank incentive opportunity early repayment borrowing contribute normalisation eurosystem balance sheet decrease size balance sheet judge necessary helpful step consider reduction asset purchase programme app portfolio finally note repayment tltro iii fund reduce bank need collateral flow market help alleviate collateral scarcity lead repo market tension overall member agree monetary policy case adjust tltro iii condition strong result effect achieve measure indicate lane proposal effect acknowledge see outweigh benefit tltro iii adjustment require order maintain effectiveness monetary policy governing council ability attain medium term inflation target timely manner consideration argument adjustment judge proportionate service governing council mandate member agree lane proposal lower remuneration minimum reserve hold euro area credit institution eurosystem rate main refinance operation deposit facility rate order align closely money market condition member agree proposal apply flexibility reinveste redemption fall pepp portfolio retain exist flexibility pepp reinvestment see prudent approach counter risk monetary policy transmission mechanism relate pandemic persist market environment look configuration key ecb interest rate underline eurosystem large bond portfolio continue provide significant monetary policy accommodation compress term premia allow downward pressure term premia decline facilitate efficient setting monetary policy help contain inflation respect see necessary follow assessment repayment result adjustment tltro iii impact financial condition reinvestment strategy app portfolio governing council december monetary policy member widely concur lane monetary policy data dependent follow pre set path accordance approach set interest rate stress governing council commitment achieve medium term inflation target see important interest rate expect raise order guard risk inflation expectation unanchore forward guidance interest rate widely see little value high uncertainty currently prevail vein indicate size future interest rate adjustment see imply renew forward guidance interest rate governing council deem long warrant governing council stress importance authority address supply issue appropriate structural macroprudential policy support monetary policy ensure price stability finally see appropriate reiterate governing council stand ready adjust instrument mandate ensure inflation return medium term target member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference october press release monetary policy decision ecb recalibrate targeted lending operation help restore price stability medium term ecb adjust remuneration minimum reserve meeting ecb governing council october members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right october article escb statute observer attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy accordance article treaty functioning european union accompany person cassidy alternate makhlouf demarco gavilán goulard haber kelly koukoularides kuodis luikmel lünnemann madouros nicoletti altimari novo ódor rutkaste sleijpen tavlas ulbrich välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president arce director general economics rahmouni rousseau director general market operations release monetary policy account foresee january contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting december account monetary policy governing council european central bank hold frankfurt main wednesday thursday december january review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy october narrative financial market shift inflation concern expectation bank worldwide slow halt ultimately reverse interest rate hike datum consumer price index cpi october interpret early sign easing inflation pressure prompt market repricing policy rate expectation united states reinforce cpi inflation figure november surprise downside result rebound investor risk appetite lead broad base easing global financial condition show low nominal real yield tight credit spread buoyant equity market euro area work ecb intention withdraw monetary policy accommodation development occur environment news euro area economy turn positive time notable upward repricing market near term inflation outlook risk long term inflation expectation unanchore remain elevated market condition remain challenge uncertainty monetary policy volatility market interest rate continue high amid low liquidity collateral scarcity market hope turning point inflation development change direction pivot global monetary policy appear spill euro area interest rate expectation euro area overnight index swap ois forward curve inverted signal expectation moderate cut ecb key policy rate year contrast near term market pricing remain unchanged expected terminal rate peak hiking cycle continue stand market participant expect key ecb interest rate increase basis point february final basis point increment expect march spillover united states predominant driver movement euro area risk free yield reflect sensitivity macroeconomic news united states reappraisal rate expectation euro area near term odd domestic development incoming datum macroeconomy energy price market base inflation outlook particular economic datum release euro area recently turn positive period weak expect outcome point wan risk deep protract recession market participant previously consider key factor put downward pressure euro area inflation time natural gas price rebound sharply low record late october owe mild weather condition storage facility level comparable see early summer point renew tightness european gas market recede downside tail risk economic growth high energy price notable upward repricing market base expectation inflation near term look evolution long term inflation expectation euro area signal upside risk observe market base indicator survey ecb survey professional forecasters ecb survey monetary analysts sma distribution response shift markedly course past month significant rise share respondent expect sustained period inflation ecb target despite high near term inflation expectation upside risk long term inflation outlook global repricing monetary policy rate expectation lead easing broad financial condition euro area market participant expectation bank cut policy rate soon reach terminal rate lead decline long term yield relative short term yield repricing policy rate expectation lead decrease euro area real gdp weight sovereign bond yield maturity spectrum peak reach mid october real rate negative territory maturity year yield spread continue narrow euro area sovereign corporate bond market market expectation global monetary policy pivot pronounced effect equity market see renew relief rally downward trend cyclically adjust price earning ratio reverse approach long run average development exchange rate closely reflect driver broad market development sustained rally dollar appear come end line unwinding long position dollar change monetary policy outlook united states return risk environment comparatively well economic outlook euro area main driver appreciation euro governing council previous monetary policy condition remain challenge euro area money repo market significant improvement lately year end tension arise collateral scarcity jurisdiction high credit rating decrease illustrate significant increase respective repo rate turn year positive dynamic see light decision take authority include eurosystem national debt management office week alleviate collateral scarcity overall pricing repo market remain expensive factor market positioning interest rate volatility valuation effect continue exacerbate structural factor collateral scarcity secured money market look ahead repayment fund ecb target long term refinance operation tltro prospective future reduction eurosystem portfolio security hold monetary policy purpose expect significant issuance activity expect support availability collateral unsecured money market segment observe downward pressure borrowing rate reflect availability excess cash invest time policy rate rise quickly lead euribor rate persistently low equivalent ois rate maturity month start policy rate hiking cycle summer global environment economic monetary development euro area start international environment lane highlight global trade momentum soften significantly end look ahead global purchasing managers index pmi indicator export order threshold point continue weakness global trade weakening trade reduce pressure supply chain pmi indicator supplier delivery time continue improve november suggest factor hold production push price long time diminish expect disappear year euro appreciate nominal effective term governing council monetary policy october depreciate year commodity price oil future curve decline october contrast gas spot price rebound strongly future price remain unchanged elevated level october turn euro area real gdp growth slow reflect record increase investment ireland annualise basis grow compare previous exclude ireland real gdp euro area grow regard demand component gdp private consumption grow strongly quarter particularly germany spain italy growth nominal consumer income use accumulate saving compensate high rate inflation final private consumption project stagnate account decline real income household expect reluctant dip saving continuously decline start russia war ukraine consumer confidence improve somewhat october november remain low historical perspective move investment residential investment growth negative territory spring growth non construction investment exclude contribution intellectual property product ireland decelerate expect contract final turn trade significant decline good trade balance start mid-2021 interrupt september owe small improvement energy import price european firm able charge high price sell non energy good rest world development help partially offset high energy bill short term economic activity indicator mechanical short term gdp forecasting continue contraction economic activity sectoral level pmi indicator manufacturing sector continue point weak output improve somewhat owe continue easing supply bottleneck allow firm work order backlog service sector forward look indicator economic activity decline line normalisation follow boost reopening economy year labour market see significant recovery employment wake coronavirus covid-19 pandemic total hour work person employ recover limited extent look ahead pmi indicator point deceleration employment growth sector measure labour market tightness country low unemployment high vacancy rate country high unemployment low vacancy rate look ahead accord december eurosystem macroeconomic projection euro area annual average real gdp growth project slow markedly rebound compare september ecb projection outlook growth revise percentage point owe positive surprise summer percentage point gdp growth outlook remain unchanged risk growth outlook downside especially near term russia war ukraine remain significant downside risk economy energy food cost persistently high expect additional drag growth euro area world economy weaken sharply expect downside scenario december projection assume complete cut russian gas real gdp contract recover grow turn fiscal policy size fiscal measure compensate energy crisis increase gdp embed september ecb projection gdp accord december eurosystem projection december projection imply strong upward revision fiscal support measure estimate gdp measure expect place gdp gdp cyclically adjust primary balance deteriorate gdp see reach pandemic relate measure progressively withdraw project deteriorate gdp improve percentage point gdp move late inflation development accord eurostat flash estimate headline inflation decline november october owe low energy inflation partly offset increase food inflation decline energy inflation november mainly reflect low crude oil gas price inflation energy inflation expect drop december result fiscal measure take euro area country january february expect increase utility company adjust price january february subsequently december projection foresaw decline energy inflation gradual project early reflect delay pass wholesale gas electricity price customer long term contract food inflation increase november project upward trend early decline mid year expect increase early fact large increase see international food commodity price fully pass retail price good inflation slowdown price rise early stage production chain pass retail price observed significant slowdown intermediate good inflation start visible retail good inflation course indicator underlie inflation remain high level october measure increase stabilise notably affect low month month energy inflation momentum domestic inflation slow mid-2022 relate easing indirect effect energy price supply bottleneck time inflation wage intensive component harmonised index consumer prices hicp pick past month negotiate wage growth continue increase experimental ecb wage tracker point substantial rise growth negotiate wage quarter country cover wage tracker agreement sign far imply wage increase line december projection november round ecb consumer expectations survey report perception inflation stabilise clearly show consumer pay attention level inflation year ahead inflation expectation show sign reversal decline october november year ahead inflation expectation remain stable turn key feature december projection inflation revise significantly average inflation project average upward revision drive combination repeat inflation surprise month exception november persistent pipeline price pressure fast wage growth annual average mask strong downward base effect energy inflation project bring headline inflation inflation project ease onwards somewhat unusual time profile inflation fact fiscal measure design tackle energy price crisis expect dampen inflation push measure schedule unwound core inflation i.e. hicp inflation exclude energy food project average fall strong wage growth amid robust labour market dynamic primary contributor persistence core inflation indirect effect high energy food cost core inflation remain substantial play role explain core inflation past depreciation euro push core inflation project core inflation rate significantly low estimate indirect effect energy inflation effect exchange rate risk inflation outlook primarily upside near term exist pipeline pressure lead strong expect rise retail price energy food medium term risk stem primarily domestic factor persistent rise inflation expectation ecb target high anticipate wage rise contrast decline energy cost weakening demand lower price pressure update downside scenario december projection reflect risk point high inflation baseline respectively energy price spike inflation see drop baseline downward impact demand channel start dominate uncertainty impact monetary policy tightening constitute risk inflation projection wide range estimate different modelling approach reflect high uncertainty surround economic outlook december baseline projection accompany sensitivity analysis downside scenario mechanical impact technical assumption baseline imply slightly low gdp growth significantly low gdp growth september projection technical assumption imply significantly low inflation high inflation rate project september time extension fiscal measure unrealistic assumption government attempt buffer energy price shock lift inflation measurably downside scenario assume complete halt russian gas oil supply lead disruption production trade result high inflation baseline indicate prevalence upside risk inflation point lower inflation turn monetary financial development lane recall december sma respondent expect path key ecb interest rate pronounced hump shape expect october round survey deposit facility rate expect peak march basis point high expect previous survey round long run deposit facility rate expect unchanged october sma sma respondent expect run asset purchase programme app start march lane note long term risk free interest rate sovereign yield decline low term premia revise policy expectation support risk asset real interest rate decline governing council october monetary policy compare year ago big upward shift term structure real forward rate real spot rate continue negative maturity reflect high rate inflation compare late real forward rate rise basis point horizon short term continue increase interest rate imply firm need refinance time face high real rate index financial condition euro area send mixed signal governing council october monetary policy shift result high equity price low risk free rate counterbalance strong euro say financial condition remain tight assume september projection look financing condition firm late round survey access finance small medium sized enterprise safe firm report widen financing gap difference change demand external financing perceive change supply deteriorate economic environment accompany increase share firm consider vulnerable define firm simultaneously report low turnover decline profit high interest expenditure non decreasing debt asset ratio report large financing gap increase firm vulnerability typically associate subsequent fall gdp euro area lane report transmission tightening monetary policy affect money credit development line happen past note previous tightening cycle rate time deposit closely follow policy rate rate overnight deposit systematically policy rate return positive policy rate bank currently restore past pricing structure strongly increase rate furth normal distance vis à-­­­­vis policy rate rate overnight deposit record minor increase far lending rate household mortgage increase markedly contribute moderation lending household drive mainly low mortgage lending growth rate loan firm increase substantially increase translate significant moderation lending firm firm significantly reduce bond issuance face increase cost issue debt security outpace sluggish lending rate firm face high borrowing need nominal term inflation increase operating cost investment financing need sum lane highlight amid exceptional uncertainty substantial upward revision inflation profile entire projection horizon call monetary policy response significantly reduce inflation rate projection horizon strong inflation dynamic revise projection mean estimate range terminal rate ensure return inflation target timely manner rise markedly raise policy rate sufficiently restrictive level keep time reduce inflation dampen demand guard risk persistent upward shift inflation expectation monetary policy consideration policy option backdrop lane propose key ecb interest rate raise basis point propose clear interest rate rise significantly steady pace reach level sufficiently restrictive ensure timely return inflation medium term target juncture take account cumulative basis point increase key ecb interest rate july basis point increment view sustainable pace monetary policy tighten expeditious manner increase magnitude acknowledge uncertainty surround state economy inflation outlook lag governing council past policy action transmit tighten impulse deliver portfolio instrument include reimbursement tltro condition significant uncertainty steady pace allow governing council learn impact decision financial condition broad economy far reassess basis level interest rate sufficiently restrictive ensure timely return inflation target key ecb interest rate primary tool set monetary policy stance governing council reinforce impact rate hike yield curve announce principle normalise eurosystem monetary policy security holding lane propose communicate march onwards app portfolio decline measured predictable pace eurosystem reinvest principal payment mature security lane propose announce decline average month end governing council determine subsequent pace time addition governing council signal operational framework steer short term interest rate conclude end provide information endpoint balance sheet normalisation process line ecb monetary policy strategy governing council use depth interrelation monetary policy financial stability financial stability environment deteriorate governing council june owe weak economy rise credit risk addition sovereign vulnerability rise amid weak economic outlook weak fiscal position tight financing condition mitigate build financial vulnerability reduce tail risk inflation medium term cost high risk systemic stress great downside risk growth short term addition liquidity need non financial institution amplify market volatility time euro area bank comfortable level capital help reduce effect tight monetary policy financial stability macroprudential policy remain line defence preserve financial stability address medium term vulnerability govern council monetary policy decision economic monetary financial analysis regard economic analysis member agree assessment economic situation euro area risk outlook provide lane introduction euro area economy expect contract year owe energy crisis high uncertainty weaken global economic activity tight financing condition accord late eurosystem projection recession relatively short lived shallow growth nonetheless expect subdue revise significantly september ecb projection near term growth project recover headwind fade regard external environment member share assessment provide lane world economy slow context continue geopolitical uncertainty especially owe russia unjustified war ukraine people tight financing condition worldwide weaken global activity weigh global trade euro area foreign demand despite improvement global supply chain pressure attention draw risk surround chinese economy lead renew bottleneck global supply chain underline euro area continue confront exceptional degree global uncertainty economic geopolitical nature impact fully understand turn euro area development member concur lane euro area experience mild recession economic growth euro area slow high inflation tight financing condition dampen spending production reduce real household income push cost firm past deterioration term trade reflect fast rise import price export price continue weigh purchase power euro area positive employment increase unemployment fall historical low october rise wage set restore lose purchasing power support consumption economy weaken job creation slow unemployment rise come quarter look ahead note eurosystem revise economic growth projection time member highlight far strong expect resilience economic activity domestic demand clearly remain robust response high energy price previously fear reflect strong rebound demand consumer service follow lifting pandemic relate restriction labour market particular remain robust turn support domestic demand result employment barely revise projection outcome see good news contribute high inflation medium term acknowledge growth expect close come year euro area face significant economic slowdown compare domestic demand far resilient face high energy price considerable uncertainty dampen impact tight monetary policy reference structural model forward look rational expectation suggest significantly strong impact monetary policy aggregate demand embed projection model imply balanced risk medium term outlook inflation time remark underlie empirical evidence appear point high interest rate sensitivity aggregate demand inflation large part euro area notwithstanding significant heterogeneity transmission monetary policy case forceful fiscal response energy crisis important factor resilience aggregate demand labour market measure adopt pandemic phase concern express domestic demand hold face expected eventual withdrawal fiscal support give performance economic activity labour market note currently need revise estimate potential output growth extent resilience euro area economy drive fiscal support possible impact war­­ particular energy price shock pandemic productive capacity economy turn great long expect result demand reduce strongly curb inflation small output gap consistent observed strong dynamic core inflation fiscal policy response high energy price member reiterate measure temporary design help vulnerable household firm limit risk fuel additional inflationary pressure fiscal support measure temporary targeted tailor preserve incentive consume energy fiscal measure fall short principle exacerbate inflationary pressure necessitate strong monetary policy response line economic governance framework fiscal policy orient make economy productive gradually bring high public debt policy enhance euro area supply capacity especially energy sector help reduce price pressure medium term end government swiftly implement investment structural reform plan generation programme reform economic governance framework conclude rapidly targeted income measure perceive member effective price measure hamper necessary long term adjustment energy production consumption widely highlight fiscal response sufficiently target create challenge outlook sound public finance monetary policy continue relaxation fiscal rule fiscal deficit see large currently project basis standard assumption stress energy price remain volatile fiscal policy currently try smooth effect household firm long fiscal policy mainly aim smooth impact high energy price time necessarily regard expansionary background member assess risk economic growth outlook downside especially near term russia war ukraine continue significant downside risk economy energy food cost persistently high expect additional drag growth euro area world economy weaken sharply expect regard price development member agree assessment present lane introduction inflation decline november accord eurostat flash estimate mainly low energy price inflation service inflation edge food price inflation rise high input cost food production pass consumer price price pressure remain strong sector partly result impact high energy cost economy inflation exclude energy food unchanged november measure underlie inflation high fiscal measure compensate household high energy price inflation set dampen inflation inflation rise measure withdraw supply bottleneck gradually ease effect contribute inflation push good price particular true lifting pandemic relate restriction weaken effect pen demand drive price especially service sector depreciation euro continue feed consumer price wage growth strengthen support robust labour market catch wage compensate worker high inflation member underline headline inflation slow november inflation far high delay pass energy price increase consumer price rebound gas price imply uncertainty headline inflation reach peak late datum suggest inflation broad base persistent decline headline inflation november unexpected inflation high project september high inflation project extend long drive solely negative supply shock pandemic energy price target inflation clearly reach policy relevant horizon ecb hold accountable headline inflation number come sharply course owe base effect case underlie inflation measure underlie inflation continue display strong month month dynamic reflect projection see core inflation high persistent clearly target imply increase risk inflation entrench euro area economy time underline december projection inflation revise significantly especially outer year projection unprecedented revision project headline inflation note upward revision horizon reflect large extent revise judgement time profile fiscal measure relevant technical assumption e.g. oil price gas price exchange rate interest rate revise september exercise direction lead low inflation consequently upward revision inflation projection reflect upward revision domestic cost pressure update judgement speed extent pass cost price strengthening euro constitute noteworthy change external environment imply somewhat low inflationary pressure euro area period ahead lag effect euro pronounce past depreciation work way economy finally highlight speed inflation project come revise september projection particular profile steep decline core inflation compare remain practically unchanged high starting level take account member recall wage pressure key understand risk round effect inflation wage development euro area accelerate round effect high wage appear start materialise labour market continue historically tight increase pressure wage compensation employee previously grow rate similar negotiate wage grow significantly fast growth unit labour cost pick substantially expect end projection horizon stand level consistent ecb inflation target drive decline labour productivity partly worker have reallocate pandemic factor consider point round effect reality express unit labour cost relatively contain projection horizon monitor closely fiscal policy widely see play crucial role determine degree persistence medium term inflation sensitivity analysis carry context projection upside inflation risk stem fiscal policy substantial fiscal policy expansionary previously expect expansionary express fiscal measure expire reverse naturally look design monetary policy high inflation rate project year projection period instead direct consequence assumption concern fiscal plan turn overestimate inflationary impact fiscal policy stance horizon example long term price pressure diminish energy relate fiscal measure implement recession reduce pass cost price good service background remark inflation projection surround unusual degree uncertainty particularly medium term confidence band surround inflation projection vast grow projection horizon precision inflation projection year ahead assess extremely low accord projection see significantly different uncertainty underline communication avoid convey false sense precision context feel risk baseline inflation projection assess balanced medium run represent increase compare september exercise projection early upside risk incorporate baseline look long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator measure long term inflation expectation currently stand target revision indicator warrant continued monitoring long term market survey base inflation expectation judge remain anchor time argue indicator long term inflation expectation risk unanchore point risk elevate rise non linearly inflation remain high extended period time suggest projection risk unanchoring remain considerable give long time target inflation project importance experience shape inflation perception household particular addition anchoring long term inflation expectation conditional governing council credibility bring inflation target timely manner note late indicator sign long term inflation expectation gradually retrench household relatively high inflation expectation surprising give backward look give weight inflation perception price good increase relative term e.g. energy food ecb late consumer expectations survey median inflation expectation year ahead remain fairly stable european commission survey admittedly qualitative clear downward trend background member assess risk inflation outlook primarily upside near term exist pipeline pressure lead strong expect rise retail price energy food respect medium term view differ risk see remain upside risk stem primarily domestic factor persistent rise inflation expectation governing council target high anticipate wage rise regard reiterate sensitivity analysis conduct context projection exercise point upside risk inflation notably energy food price contrast decline energy cost weakening demand tight financing condition lower price pressure turn monetary financial analysis member concur assessment provide lane introduction line ongoing normalisation monetary policy borrowing cost rise firm household bank lending firm remain robust firm replace bond loan credit finance high cost production investment increase cost borrowing weakening prospect housing market translate low growth rate loan household member agree transmission monetary policy normalisation financing condition proceed smoothly line happen past point important difference country understand relevant transmission example transmission market rate time deposit lending rate relatively limited weak past large euro area economy rapid usual lend rate large economy note early concern diminish bank adjust relatively smoothly change tltro condition result significant early repayment tension widening spread repo market ease somewhat time concern express governing council october monetary policy long term risk free rate sovereign bond yield decline low term premia revise policy expectation result low real interest rate negative territory maturity year decline link spillover united states reflect typically high correlation yield change currency area addition market transpose development united states inflation come euro area notwithstanding difference outlook argument financial market reaction governing council october decision communication contribute loosening financial condition reverse tightening occur wake september decline euro area yield curve support risk asset contribute loosening financial condition loosening see unwelcome development judge inconsistent significantly adverse euro area inflation outlook embed projection background reversal downward shift market pricing call particular foster reassessment embed financial market regard ecb future interest rate path include peak terminal rate governing council hold regular biannual exchange interrelation monetary policy financial stability member concur financial stability condition deteriorate june amid weak economy rise credit risk high sovereign vulnerability environment low growth weak fiscal position take sudden liquidity need non financial institution amplify market volatility time comfortable level capital maintain euro area bank help reduce possible negative effect tight monetary policy financial stability point insufficient delay monetary policy response simply lead deferred great repercussion financial stability member discuss potentially disorderly financial market reaction shock include different scenario quantitative tightening adverse change fiscal policy monetary policy stance policy consideration turn assessment monetary policy stance member note december eurosystem projection inflation outlook revise inflation clearly governing council target medium near term inflation persistent inflation pressure base risk inflation expectation unanchore see increase addition pipeline pressure remain elevated core inflation volatile see responsive monetary policy time project persistently high underlying inflationary pressure strengthen point inflation see stay target consecutive year increasingly difficult argue high inflation attribute primarily external shock outside control monetary policy context wage development see add risk round effect expansionary fiscal policy intensify inflationary pressure interfere intended effect ongoing monetary policy tightening remark fiscal policy role play smooth inflation impact energy shock domain responsibility underline project slowdown economic growth principle lower inflation pressure shallow expect dampen significant extent recall quarterly macroeconomic projection exercise conduct ecb eurosystem comprise model base analysis consider judgement constitute key input governing council decision making underline projection exercise market broad public judge coherence governing council action fail react decisively worsen inflation outlook embody projection argue undermine role hand lead doubt governing council determination pursue deliver price stability objective reiterate line outcome ecb strategy governing council react symmetrically equally forcefully inflation medium term target monetary policy unable influence inflation outlook short term projection show target inflation rate prolong period monetary policy affect inflation outlook time caution inflation projection year projection period subject high uncertainty underestimate effect swift monetary policy tightening follow long period highly accommodative monetary policy perspective note projection inflation converge target mid-2025 profile core inflation continue pronounce deceleration risk baseline direction elevated uncertainty see suggest gradual approach keep medium term orientation unduly shorten policy relevant horizon significant increase interest rate stem past monetary policy decision effect feed real economy governing council careful dampen demand excessively rate move restrictive territory exacerbate project recession argue significant upward revision inflation projection notably year projection period come surprise market participant perceive inconsistent market expectation interest rate path projection base widely share monetary policy stance tighten decisively configuration interest rate expectation embody market pricing sufficiently restrictive bring inflation target timely manner consequently maintain interest rate rise level market participant currently expect sufficiently restrictive level long reduce inflation guard risk persistent upward shift inflation expectation adjustment monetary policy stance deem line governing council communication data dependent approach monetary policy decision monetary policy decision communication basis consideration member agree tighten monetary policy stance steadily sustainably increase interest rate reduce size eurosystem balance sheet warrant large number member initially express preference increase key ecb interest rate basis point inflation clearly expect high long prevail market expectation financial condition plainly inconsistent timely return ecb inflation target worsen inflation outlook require interest rate hike large price market fail exceed market expectation regard confirm market view future policy path result yield curve shift upwards extent require bring inflation target argue give unfavourable datum inflation outlook available december projection governing council data dependent approach require interest rate increase size october counter unwarranted loosening financial condition monetary policy stance maintain basis point increase speak preferable rely alternative approach basis point accompany strengthen communication way forward risk management approach address persistent inflation pressure see call decision err determined action prevent unanchoring inflation expectation raise interest rate basis point send wrong message risk perceive inconsistent inflation target medium term reinforce perception asymmetry governing council reaction function member nonetheless express willingness basis point rate rise majority support proposal forward lane take account strengthen communication governing council policy intention enhanced message governing council raise rate significantly sustained pace proposal way see equivalent raise rate basis point frontloaded steady approach bring interest rate restrictive level see consistent persistent nature inflation process continue elevated uncertainty take account broad majority member support lane proposal raise key ecb interest rate basis point communicate interest rate rise significantly steady pace reach level sufficiently restrictive ensure timely return inflation ecb medium term target basis point increase judge constitute appropriate pace monetary policy tighten manner expeditious recognise uncertainty surround state economy inflation outlook note interest rate approach estimate neutral level frontloading interest rate increase speed monetary tightening relevant instead steadiness rate hike time interest rate remain restrictive territory matter hold increase basis point allow governing council tighten monetary policy long period important give increase persistence high inflation time argue mean sustained basis point increment interest rate reach sufficiently restrictive level quickly course meeting allow governing council evaluate impact policy way context recall basis point interest rate hike significant increase historical standard stress order produce upward shift market expectation regard future path interest rate strong communication require highlight element interest rate increase significantly raise restrictive territory long market currently expect communicate prospect sustained high interest rate path judge material tighten impact financial condition recall increase rate basis point summer governing council great deal progress remove monetary policy accommodation significant effect economy inflation outlook visible lag stress governing council simultaneously announce start reduction reinvestment mature security app portfolio ongoing tltro repayment contribute accelerated reduction size eurosystem balance sheet line market expectation implication financial market uncertain see call cautious approach raise interest rate concern voice large interest rate rise heighten risk financial stability announcement reduction app reinvestment large early repayment tltro borrowing trigger financial market volatility finally basis point interest rate increase see appropriate project decline inflation come month base effect fiscal measure member maintain position favour rate increase basis point straightforward response financial condition inconsistent expectation inflation remain high long embody projection risk remain tilt upside strengthen communication deem important environment constitute substitute large rate increase remedy insufficiently large increase hold propose adjustment monetary policy stance insufficient take account combination basis point interest rate hike announcement reduction app reinvestment turn policy affect size composition eurosystem balance sheet member widely agree lane proposal communicate key principle reduce app portfolio march portfolio decline measured predictable pace month average eurosystem reinvest principal payment mature security see welcome step normalisation ecb monetary policy stance keep governing council long stand communication stand ready flexibly adjust instrument mandate ensure inflation return medium term target recall interest rate governing council primary tool set monetary policy stance element monetary policy stance need consider caution interest rate balance sheet adjustment regard substitute trade propose policy package normalisation eurosystem monetary policy security holding see necessary complement ongoing tightening interest rate policy signal governing council willingness align instrument work direction light high inflation rate interest rate have move away lower bound accommodative liquidity condition long see require timely announcement reassure market participant reduction app portfolio place measured predictable way member express preference reduce app portfolio fast pace terminate reinvestment altogether recall decision affect eurosystem monetary policy portfolio apply app pandemic emergency purchase programme pepp rapid pace portfolio reduction see context fast monthly pace net purchase portfolio build hold investor able absorb issuance eurosystem presence market start passive balance sheet reduction normalisation process regard overdue market have expect ecb announcement respect time october monetary policy early significant reduction app portfolio help policy space regain future express estimate impact balance sheet reduction economic output inflation assume symmetry i.e. assume policy work channel observe balance sheet expansion phase reason believe effect quantitative tightening asymmetric weak well regard portfolio reduction element normalisation operate background interest rate ecb primary tool set monetary policy stance caution fast pace reduction lead emergence bond market fragmentation interest rate increase difficult pursue perspective moderate pace see appropriate particular reduction balance sheet estimate limited impact inflation outlook basis forego agree announce average pace reduction app portfolio apply beginning march leave pace subsequent period decide communicate late point time allow governing council evaluate investor reaction come month recalibrate pace necessary remark principle modality guide normalisation eurosystem monetary policy security holding consistent outcome governing council monetary policy strategy include regard ecb obligation support general economic policy european union prejudice attainment primary objective price stability member agree proposal apply flexibility reinveste redemption fall pepp portfolio maintain exist flexibility pepp reinvestment see efficient pre emptive approach counter potential emergence risk monetary policy transmission mechanism relate pandemic justify ground prudence member agree communicate inflation remain far high project stay governing council medium term target long emphasise signal intention policy rate sufficiently restrictive territory steady sustained pace bring inflation target timely manner necessary powerful message revised inflation outlook hold backdrop upward revision inflation outlook explain reasoning governing council decision particularly important absence forceful policy action consistency coherence governing council communication call see strengthen impact market expectation time concern express communicate expectation interest rate rise significantly steady pace reach level sufficiently restrictive ensure timely return inflation governing council target perceive departure governing council data dependent approach reintroduce form interest rate forward guidance focus attention future meeting rise problem time inconsistency appropriate path light information turn different currently envisage instead suggest communication acknowledge inflation outlook interest rate need raise long high level currently price market take account eurosystem inflation projection suggest governing council strengthen call fiscal policy avoid exacerbate inflationary pressure keep measure temporary targeted tailor preserve incentive consume energy context fiscal vulnerability need conclude reform economic governance framework address finally see appropriate reiterate governing council stand ready flexibly adjust instrument mandate ensure inflation return medium term target member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference december press release monetary policy decision meeting ecb governing council december members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch member hold voting right december article escb statute observer attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person buch demarco garnier gavilán gilbert haber kaasik koukoularides kuodis lünnemann madouros nicoletti altimari novo ódor rutkaste tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee march contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting february account monetary policy governing council european central bank hold frankfurt main wednesday thursday february march review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy december leave visible footprint euro area financial market welcome increase real interest rate level consistent timely return inflation target terminal rate price euro area real overnight index swap ois forward curve edge initially sharp decline expected inflation low gas price inflation surprise downside later contribute market participant revise rate expectation expectation rapid disinflation induce market price material rate cut suggest judge period restrictive monetary policy need rein high inflation relatively short development alongside sign resilient euro area economy reopening china economy boost risk sentiment risk premia decline measurably market segment compress bond spread boost equity price euro appreciate sentiment euro area improve compression risk premia predicate market firm conviction inflation dynamic steep sustain downward trajectory strong persistence underlie price pressure lead reappraisal monetary policy outlook correction asset price suggest strong market reaction week high expect inflation print document substantial change real interest rate occur governing council previous monetary policy note euro area real ois forward curve shift upwards real year ois rate have turn positive time global financial crisis upward shift reflect impact ecb december communication decline expect inflation pronounce near term rise real rate necessarily imply rate restrictive especially consider uncertainty level neutral rate persistent mark end long era negative real interest rate model base analysis suggest decline market base inflation outlook broad origin long phase upside surprise inflation miss downside relative expectation euro area headline inflation observe november substantial decline gas price large impact inflation swap rate past short long end inflation swap curve increase sensitivity change gas price contribute increase disconnect market imply inflation path professional forecaster factor raise doubt market benign inflation grow sign technical recession euro area reopening china economy market seemingly discount risk inflation outlook question ecb rate restrictive territory sustained period market imply path future short term interest rate foresaw tightening short run line ecb december communication envisage reversal expected terminal rate euro area initially shift notably upwards response governing council previous monetary policy gradually fall investor reappraise inflation outlook furthermore market currently expect significant number rate cut course word give investor expect fast sustained return inflation expect policy rate restrictive level short period time investor certain revise expect interest rate path imply volatility horizon year low spring remain high historical perspective decline interest rate volatility mask important difference driver uncertainty model base analysis suggest uncertainty ecb reaction function increase inflation uncertainty decline development confine euro area investor globally expect major bank cut key policy rate year headline inflation expect ease rapidly high spot level response sign turning point headline inflation investor signal believe rate cut soon need despite warning official world interest rate probably stay high long market expect core inflation measure exclude energy food index remain elevated overall market take global economy include euro area inflection point strong growth low inflation previously expect positioning put market pricing considerable risk correction inflation prove persistent visible look significant impact global reappraisal inflation interest rate outlook broad financial market fix income market broad base compression risk premia euro area sovereign bond market spread fall jurisdiction despite ecb december announcement asset purchase programme app portfolio start decline march expectation fast run euro area corporate bond market spread non financial corporate bond low late october level rally financial market spur prevail disinflation narrative especially pronounce stock market euro area equity particular have significant gain fade risk recession amid low gas price key driver euro continue appreciation december appreciation broad base major currency japanese yen notable exception environment positive risk sentiment market functioning improve notably reflect low volatility improved liquidity euro area sovereign bond market positive contribution investor risk absorption capacity time increase public sector issuance contribute reduce collateral scarcity german repo rate non general collateral move close euro short term rate str reduce collateral premium global environment economic monetary development euro area lane observe world economy decelerate global purchasing managers index pmi manufacturing service output fall threshold end consistent low activity international trade slow final despite deceleration global growth projection improve owe partly relaxation pandemic restriction china euro continue appreciate december governing council trade weight term exchange rate return level observe beginning slowdown global demand unusually warm winter effective gas saving measure lead sharp decline energy price european gas price fall december monetary policy accord future curve expect level ease concern storage level winter oil price tick december remain significantly mid-2022 level sharply low energy price easing supply bottleneck interpret partial reversal large negative supply shock observe euro area economy slow prove resilient expect december pmi composite output indicator rise threshold january fall contractionary territory autumn unlike service manufacture output threshold manufacturing principal drag output despite continue easing supply bottleneck particularly benefit car production sale strong demand leisure activity tourism hospitality cushion slowdown service activity late round commission household survey suggest euro area household revise expectation consumer price month ahead sharply downwards expectation economic situation upwards pessimistic economic situation support improvement expectation financial situation help private consumption period ahead survey result support interpretation reversal negative supply shock housing business investment clearly weaken owe partly tight financing condition commission business survey show supply constraint demand constraint far strong factor limit production particular shortage material equipment constrain production capital good sector output sector support easing supply bottleneck firm work backlog order especially car industry order remain weak construction sector pmi output order downward trend early nonetheless lane continue expect economy recover course year robust labour market rise wage fiscal support measure headwind fade away favourable supply development persist provide support recovery activity decline energy inflation mean improvement term trade significant drop import price inflation follow pronounce decline export price inflation asymmetry price adjustment lead significant improvement euro area account end labour market continue resilient unemployment rate stabilise december far pre covid level pmi employment decline high mid-2021 level firmly positive suggest firm continue increase labour force term vacancy late datum online job matching portal large euro area country ireland indicate slight decline level remain high compare december expectation risk growth outlook balanced russia war ukraine continue significant downside risk economy push energy food cost additional drag euro area growth world economy weaken sharply expect recovery face obstacle pandemic intensify cause renew supply disruption adverse energy shock fade away fast anticipate security european gas supply remain vulnerable global supply risk high usual gas inventory reduce supply risk winter euro area company adapt quickly challenging international environment support high growth currently expect hicp inflation decline sharply october december january accord eurostat flash estimate low figure reflect sizeable drop energy price inflation contrast food price inflation increase december december hicp inflation exclude energy food stand january variation sub category inflation rate non energy industrial good rise service inflation decline measure term momentum define annualise month month percentage change price deceleration inflation dynamic december january notably strong suggest annual rate component uncertainty surround eurostat january flash hicp estimate great usual contain estimate figure germany january usual change hicp weight reflect change expenditure previous year item important change increase weight service household return normal consumption profile measure underlie inflation continue stand high level indicator include energy component see turnaround addition dynamic core inflation show levelling momentum look determinant good inflation energy sensitive item continue provide strong contribution december look ahead contribution energy sensitive item expect decline uncertain pace reduction symmetric increase contribution non energy sensitive item increase reconcile increase contribution energy sensitive item fall energy cost useful look pipeline pressure pressure decline food inflation particular international food commodity price european farm gate price producer price index process food increase owe long transmission lag similarly good inflation significant decline pipeline pressure intermediate good producer price index non food consumer good increase fast decline observe pressure upstream production chain expect lead low retail price case united states lane report late round ecb corporate telephone survey firm state input cost pressure ease reflect decline energy cost input cost expect input cost decline move inflationary pressure stem housing sector rent inflation pick gradually euro area housing relate expense increase strongly pace start decelerate end year inflation owner occupy housing cost start ease reflect acquisition component residential property price inflation euro area ease substantially fall measure wage growth strengthen compensation past high inflation main theme wage negotiation wage development far line december eurosystem macroeconomic projection euro area ecb wage tracker improve representativeness inclusion datum france indicate contract sign come effect imply ongoing wage increase similarly accord january wage expectation corporate telephone survey firm expect average wage growth similar rate expect october survey round wage tracker show sign turnaround month long term inflation expectation stand market base measure inflation compensation edge marked correction direction inflation projection ecb survey professional forecasters increase long term expectation revise marginally ecb survey monetary analysts unchanged finally ecb consumer expectations survey december indicate levelling median inflation perception year ahead inflation expectation continue point year ahead inflation remain overall favourable supply development persist help dampen inflation include impact low energy price cost structure energy intensive sector good service category real wage gap time improvement term trade constitute positive income wealth shock support demand inflation outlook remain highly uncertain compare governing council expectation december risk inflation outlook balanced especially near term upside exist pipeline pressure send retail price high near term strong expect economic rebound china fresh boost commodity price foreign demand domestic factor inflation expectation persistently ecb target high anticipate wage rise drive inflation higher medium term downside fall energy price persist slow inflation rapidly expect downward pressure energy component translate weak dynamic underlie inflation weakening demand contribute low price pressure currently anticipate especially medium term net impact reopening china economy euro area inflation dynamic come month uncertain strong rebound chinese production ease supply bottleneck increase competition global good market constitute disinflationary impulse world economy recovery chinese demand add inflationary pressure especially high demand commodity turn financial monetary development funding cost continue reflect transmission monetary policy euro area bond yield increase somewhat december governing council reflect movement key ecb interest rate market rate deposit rate increase rise strongly firm household spread saving deposit overnight deposit continue widen line past rate hiking period time lead considerable downward adjustment currently high share overnight deposit holding currently incentive minimise deposit holding account ecb target long term refinance operation tltro repay bank need long term deposit meet regulatory ratio expectation portfolio switch increase policy rate continue pass firm cost debt financing rise substantially september strong increase lending rate lead considerably narrow spread cost market base debt financing cost borrowing end compare september level pace monetary policy tightening fast previous rate hiking cycle reflect great frequency size policy rate hike represent reversal previous loosening necessary normalisation address high inflation view severe squeeze bank customer transmission monetary policy reflect development lending condition report bank late lending survey bank continue substantial net tightening credit standard loan firm loan household house purchase lane note survey mean change credit standard level legitimate ask bank tighten reverse accommodative set credit standard tightening continue point trend normalisation demand loan non financial corporation decline final drive mainly rise interest rate line increase lending rate firm lending survey reveal decline demand loan stem particular commercial real estate residential real estate construction sector interest rate sensitive sector addition loan demand dampen low financing need fix investment moderation firm financing need work capital lending survey report steep drop demand housing loan unprecedented history survey main driver fall rise interest rate deteriorate prospect housing market low consumer confidence debt financing flow firm decline november december owe net redemption borrowing evidence deleverage firm end household borrowing dynamic weaken drive mainly development housing loan moderate trend mortgage borrowing reflect tight credit standard rise lending rate decrease loan demand finally monetary development lane report deceleration loan creation reflect decline money growth moderation broad money growth drive mainly outflow narrow money growth fall markedly persistently low remuneration overnight deposit mean opportunity cost hold instrument rise significantly deposit flow continue reflect shift time deposit instrument offer remuneration closely link market rate monetary policy consideration policy option background lane propose raise key ecb interest rate basis point communicate governing council expect raise governing council stay course raise interest rate significantly steady pace keep level sufficiently restrictive ensure timely return inflation medium term target accordingly underlie inflation pressure lane propose communicate intention raise interest rate basis point monetary policy march evaluate subsequent path monetary policy signal basis point step march acknowledge wide range scenario governing council see step size remain necessary bring key ecb interest rate level ensure return inflation target timely manner say look immediate term monetary policy march provide waypoint evaluate subsequent path monetary policy include basis set macroeconomic projection available governing council way ensure future policy rate decision continue data dependent follow approach parameter govern measured predictable reduction asset purchase programme app portfolio decide december important process remain transparent simple understand neutral possible vis vis pricing class security hold portfolio end lane propose partial reinvestment conduct line practice prejudice objective price stability governing council support gradual decarbonisation eurosystem corporate bond holding line goal paris agreement regard pandemic emergency purchase programme pepp signal power framework pepp reinvestment flexibility support monetary policy transmission mechanism propose spirit prudence allow flexibility pepp reinvestment effective line defence remain fragmentation risk schnabel detail proposal modality follow reduce app holding follow governing council decision december monetary policy reduce app portfolio month average beginning march end partial reinvestment phase reinvestment amount expect relatively small change modality limited impact composition app portfolio argue keep modality period partial reinvestment simple reflect possible practice apply reinvestment approach preserve consistency monetary policy stance market functioning facilitate eurosystem public communication govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane subdue global economic activity high level geopolitical uncertainty especially owe russia unjustified war ukraine people continue act headwind euro area growth subdued global activity weigh global trade euro area foreign demand despite improvement global supply chain member argue hand reopening chinese economy lead few bottleneck global supply chain support global activity imply strong foreign demand euro area hand reopening economy increase china appetite commodity include natural gas china strong competitor europe supply liquified natural gas upward pressure european gas price act headwind europe recovery pressure price raw material metal owe increase demand china visible force play eventually prevail clear create considerable uncertainty euro area outlook member highlight energy commodity price come significantly case return level prevail start russia war ukraine imply euro area import bill fossil fuel reduce considerably time mention considerable scepticism energy market low energy price persist decline price drive mild winter weather necessarily repeat winter widely stress euro area continue confront exceptionally high degree global uncertainty owe economic geopolitical factor regard economic activity despite challenging external environment member concur lane euro area avoid recession high inflation tight financing condition global headwind dampen spending production especially manufacturing sector addition ease supply bottleneck secure gas supply firm work large order backlog confidence improve output service sector hold support continue effect reopening economy strong demand leisure activity rise wage decline energy price inflation set ease loss purchase power people experience owe high inflation turn support consumption overall economy prove resilient expect recover come quarter unemployment rate remain historical low december rate job create see potentially slow unemployment rise come quarter member comment surprising resilience economic activity date release eurostat preliminary flash estimate gdp growth surprise upside regard good news figure push volatile transaction irish intellectual property product combination level inflation low expect strong activity see indicative partial reversal negative supply shock shape development euro area economy past year result euro area economy well situation expect december argue development line soft landing economy slow avoid recession circumstance governing council able bring inflation overly large sacrifice term economic activity maintain despite well expect economic news underlie economic situation fundamentally change december member concur government support measure shield economy impact high energy price temporary targeted tailor preserve incentive consume energy particular energy crisis acute important start roll measure promptly line fall energy price concerted manner measure fall short principle drive medium term inflationary pressure strong monetary policy response line economic governance framework fiscal policy orient make economy productive gradually bring high public debt policy enhance euro area supply capacity especially energy sector help reduce price pressure medium term end government swiftly implement investment structural reform plan generation programme reform economic governance framework conclude rapidly background member assess risk economic growth outlook have balanced russia war ukraine continue significant downside risk economy push cost energy food additional drag euro area growth world economy weaken sharply expect recovery face obstacle pandemic intensify cause renew supply disruption energy shock fade away fast anticipated euro area company adapt quickly challenging international environment support high growth currently expect regard price development member concur assessment present lane introduction price pressure remain strong partly high energy cost spread economy hicp inflation exclude energy food measure core inflation remain january indicator underlie inflation high supply bottleneck gradually ease delay effect push good price inflation true lifting pandemic relate restriction weaken effect pen demand drive price especially service sector government measure compensate household high energy price contrast dampen inflation scale measure depend evolution energy price contribution inflation particularly uncertain expect raise inflation expire market base indicator suggest energy price see significantly low coming year expect time governing council december time wage grow fast support robust labour market datum wage dynamic line december eurosystem projection measure long term inflation expectation stand warrant continued monitoring member concur rate headline inflation slow october inflation far high good news ought welcome argue december assessment inflation outlook fundamentally change core inflation level foresee december early declare victory attention draw fact inflation figure euro area large economy available time include eurostat flash release january suggest likelihood final release turn somewhat high euro area context underline core inflation surprise slightly upside remain unchanged december see reason mute market reaction low expect headline inflation figure january core inflation regard attractor headline inflation revert medium term late inflation figure necessarily welcome development caution express focus measure core inflation element core inflation quickly see experience united states line late development euro area pipeline pressure necessarily imply persistent element inflation relate wage turn recall ecb monitor wide array measure underlie inflation undertake detailed analysis component headline inflation look exclusively particular measure core inflation exclude volatile item finally mention january inflation development croatia join euro area stable compare december suggest upward impact price cash changeover limited far contrary expectation people regard development core inflation stress pass low energy price measure key factor assessment lag rate core inflation convincing sign deceleration context member debate extent low energy price lead moderation underlie price pressure depend pass decline energy price component inflation symmetric observe energy price increase hand number reason believe offset factor lead slow pass disinflationary impulse observe inflationary phase particular pass early high wholesale energy price retail price take time ongoing demand pressure increase wage pressure rise wage negotiation increasingly influence high rate past inflation continue labour scarcity addition long duration wage contract rise minimum wage stagger wage setting lead long persistence wage growth respect underline inflation pressure broaden time drive force inflation process long pure supply inflation shock rise inflation start supply shock turn demand type inflation make inflation persistent evidence effect increase energy price gdp inflation different effect decrease energy price partly owe downward price wage rigidity recent evidence euro area show significant asymmetry strong fast pass observe energy price rise expect simply reverse swiftly price decline hand argue decline energy price transmit quickly item core inflation line inflationary shock filter measure quarter price rise suggest core inflation time decline fast envisage december projection case note early observe rapid pass non energy industrial good inflation increase suggest upside pressure past high energy price staggered price adjustment imply household firm face high energy price time elapse energy commodity price fall household firm pass previous increase energy price time acknowledge rate industrial producer price inflation exclude energy significantly decelerate important indication low energy price point translate low core inflation context argue month month change hicp exclude energy food core momentum initial sign underlie inflation start decline annual growth rate despite fact core inflation naturally respond lag change energy price member consider implication reopening china economy inflation development euro area context remark reopening major global net export economy china balance expect dampening impact global price pressure chinese aggregate demand increase chinese exporter expect lower price regain market share lose period lockdown spur price competition worldwide upward pressure inflation expect increase chinese demand especially commodity considerable uncertainty dampen impact tight monetary policy inflation inflation dynamic reflect monetary policy tightening fact argue basis survey evidence financing condition hardly restrictive dampen demand sufficiently bring inflation ecb target timely manner suggest contribution monetary policy disinflation limit far indirectly appreciation euro housing market channel number euro area economy regard exchange rate note appreciation euro imply low inflationary pressure euro area period ahead member recall wage pressure key understand risk round effect inflation determine persistent development underlie price pressure month ago wage growth remain moderate clear acceleration take account outlook core inflation highlight despite slowdown economic activity labour market remain exceptionally tight mean price pressure act labour intensive service unlikely abate soon wage tracker show strong wage increase newly conclude contract context long duration wage contract centralised wage bargaining lead persistent wage growth note wage growth pool job mover naturally expect high wage growth job stayer expect account bulk productivity growth follow pandemic economy period intensify job churning natural labour productivity wage growth accelerate necessarily imply increase price pressure time highlight observed strong increase minimum wage add exist wage pressure evidence time increase minimum wage feed wage increase wage scale wide agreement sign wage price spiral argue wage growth clearly consistent inflation target take account trend improvement productivity context reiterate wage lagging indicator phase wage growth see fully reflect past price increase sector country wage expect rise observe lot heterogeneity sector country wage negotiation ongoing wage claim hardly reliable early indicator final wage agreement tend moderate observe catch effect loss purchase power accumulate past year unavoidably exert upward pressure wage growth line december projection time energy price start decline loss real income low previously expect imply push recover purchasing power high wage diminish lead strong expect aggregate demand underline far association fast rise price lag wage imply large shift income labour capital development unit profit growth remain strong suggest pass high cost high selling price remain robust widely stress development profit mark warrant constant monitoring analysis equal footing development wage member agree fiscal policy continue play crucial role determine degree persistence medium term inflation member fiscal policy work monetary policy effort restore price stability time upward effect inflation expect positive demand impact fiscal policy especially component fiscal policy aim protect consumer loss purchase power government expect refrain provide additional support diminished need costly budgetary term regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator concur line long term inflation expectation anchor financial market continue governing council credible bring inflation target time argue indicator suggest long term inflation expectation remain risk unanchore market base expectation near term inflation come substantially medium long term inflation expectation remain unchanged survey base measure increase median year ahead inflation expectation consumer expectations survey december reverse previous decline stand survey professional forecasters report upward revision headline core inflation long term inflation expectation decline slightly background member assess risk inflation outlook balanced especially near term upside exist pipeline pressure push retail price high near term strong expect economic rebound china fresh boost commodity price foreign demand domestic factor persistent rise inflation expectation ecb target high anticipate wage rise drive inflation high include medium term downside fall energy price persist slow inflation rapidly expect downward pressure energy component translate weak dynamic underlie inflation weakening demand contribute low price pressure currently anticipate especially medium term turn monetary financial analysis member concur assessment provide lane introduction monetary policy tighten lending rate firm household rise growth lending firm decelerate sharply month partly stem low financing need inventory reflect weaken demand loan finance business investment context steep upward lending rate considerable tightening credit standard report euro area lending survey household borrowing continue weaken reflect rise lending rate tight credit standard sharp fall demand mortgage pace loan creation decelerate money growth slow rapidly marked decline growth liquid component include overnight deposit partially compensate shift term deposit highlight weakening credit dynamic growth loan firm euro area come virtual standstill november december large natural desire consequence ongoing normalisation monetary policy stance size speed decline monitor act drag recovery question raise extent weakening lending dynamic low demand trace monetary policy tightening supply factor reference respect result late round lending survey point reduce loan demand drive mainly high general level interest rate low demand fix investment tightening lending standard drive mainly bank risk perception risk tolerance cost fund time remark euro area bank capital position remain solid amid improve asset quality despite challenging quickly evolve macroeconomic financial circumstance stage policy normalisation bank see profitability boost increase interest rate margin rise lending rate low lending volume necessarily reflect reduction bank intermediation capacity look base financing cost member note broad financial condition tighten december reflect governing council policy decision communication market expectation terminal rate rise level regard comfortable consistent timely return inflation target notwithstanding uncertainty precise level terminal rate expectation remarkably stable december member welcome fact real forward rate positive entire yield curve underline debt financing condition tighten amid benign situation bond market conjunction recede uncertainty particular bond spread remain contain risk asset include equity perform strongly addition ecb announcement december plan reduce app portfolio march result substantial increase term premia government bond spread overall despite volatility feel market response governing council communication follow december deem success monetary financial development member note transmission monetary policy financing condition work intend far line previous hiking cycle give transmission lag long variable typically estimate year argue limited impact expect visible demand inflation point policy normalisation assume start july suggest december winding asset purchase announce well starting point financing condition begin tighten mortgage rate start rise ahead time policy rate raise accordingly evidence time transmission monetary policy housing market welcome long stand sign overheat consumer loan loan non financial corporation contrast see little impact sharp deceleration lending firm observe month regard extent financing condition constrain demand reference ecb corporate telephone survey suggest large firm continue financing condition favourable consider reason reduce investment similarly european commission survey financial constraint see firm significant factor limit production somewhat odd result ecb lending survey bank point significant negative contribution interest rate demand loan monetary policy stance policy consideration turn assessment monetary policy stance member stress inflation remain far high late datum imply risk balanced downside risk growth upside risk inflation have diminish relative governing council december assessment energy price decline rapidly suggest partial reversal early adverse supply shock development persist lead rapid fall headline inflation reiterate give typically long transmission lag decline headline inflation observe date unlikely result monetary policy tightening time underline core inflation measure underlie inflation sticki limited evidence stabilisation far overall widely argue late datum change balance risk fundamentally alter assessment governing council december need stay course raise interest rate significantly steady pace keep level sufficiently restrictive ensure timely return inflation ecb medium term target member agree sign wage price spiral take hold wage pressure broaden line december projection sign stabilisation turning point headline inflation pass persistent component inflation highly uncertain underlying price pressure remain strong inflation non energy component price index rise tight labour market exert pressure core inflation well expect growth outlook contribute continue inflationary pressure unlikely abate significant policy tightening case argue basis standard model elasticity expect inflation close envisage december projection take account datum change external assumption include high market rate strong euro nominal effective term markedly low energy price impact datum member underline role change market interest rate expectation move higher cut date december projection time acknowledge partial analysis strength persistence factor drive inflation require round projection implication baseline outlook balance risk uncertainty remain high case unclear low energy price persist uncertainty surround inflation outlook stem particularly impact china reopen fiscal measure exchange rate inflation ecb projection help shed light question provide complete picture remark base projection yield curve line member view offer well benchmark provide projection available governing council december monetary policy attention draw gap inflation trajectory embed december projection imply financial market market participant appear optimistic substantially reassess inflation outlook inflation link swap rate have come significantly short horizon raise question market give weight decline energy price context see somewhat surprising market hardly react flash estimate euro area january headline inflation low project time react strongly upside surprise january headline inflation euro area large economy see acceleration core inflation market pay attention core inflation headline inflation gauge underlying inflationary pressure underline survey market base indicator inflation expectation long term horizon remain anchored suggest ecb expect successful bring inflation medium term point survey base measure inflation expectation revise upwards risk inflation expectation unanchore disappear monetary policy decision communication background broad support express lane proposal raise key ecb interest rate basis point communicate governing council expect raise indicate specifically intend raise rate basis point monetary policy march evaluate subsequent policy path increase require governing council policy rate enter restrictive territory necessary level sufficiently restrictive ensure timely return inflation medium term target assessment level rate see excessively restrictive complex uncertain feel concern overtightening premature high level inflation persistence underlie price pressure emphasise policy rate barely consistent range estimate neutral rate large bond portfolio hold eurosystem provide substantial policy accommodation benign inflation scenario expect financial market conditional significant rate increase price forward curve overall see imperative stay course determination intention tighten reduce unwarranted policy uncertainty fully consistent decision communication adopt governing council december express give substantial distance prospective terminal rate continue value risk management perspective frontloade rate hike stage particular show determination raise rate significantly help avoid force rate hike later context remark risk free forward curve suggest market expect rate cut long terminal rate reach see somewhat odd governing council communication december interest rate need stay restrictive level inflation return medium term target time interpret market have confidence ecb successful stabilise inflation word inflation return target interest rate come level consistent long run steady state broad agreement tightening need reservation express propose communication intention march point policy rate come close level caution need ensure monetary policy tighten excessively high uncertainty inflation outlook change rapidly direction require careful assessment datum effect previous rate hike price dynamic ecb symmetric inflation target risk deserve consideration risk little note short term momentum core inflation start decline somewhat allow transmission lag core inflation come time start policy normalisation large buffer saving accumulate household firm substantial pen demand ensure monetary policy tighten cause harm real economy buffer remain high level diminish imply caution require regard tighten step point propose communication prevent adapt intend change policy stance march require basis substantial information express intention different give commitment merely reflect fact basis information available probability change occur see insignificant convey absence abrupt change circumstance basis point interest rate hike march consistent wide range possible scenario way inflation develop advance indication provide clarity near term direction monetary policy reconcile communicate intention raise rate march data dependent approach see important provide firm signal policy intention march state path monetary policy follow evaluate open mind line data dependent approach turn policy affect size composition eurosystem balance sheet member widely agree lane proposal key parameter reduction app portfolio detailed operational modality describe schnabel set dedicated ecb press release particular give relatively small reinvestment amount expect broad support express member simple neutral approach mean partial reinvestment period march end june conduct line practice remain reinvestment amount allocate proportionally share redemption constituent programme app public sector purchase programme proportionally share redemption jurisdiction national supranational issuer app support monetary policy stance introduce reduction app portfolio carry way support smooth policy normalisation transmission keep decline portfolio measure predictable highlight tilt reinvestment corporate sector purchase programme portfolio strongly issuer well climate performance signal ecb continued commitment prejudice objective price stability support policy achieve climate goal paris agreement gradual decarbonisation eurosystem corporate bond holding member agree proposal apply flexibility reinveste redemption fall pepp portfolio maintain exist flexibility see efficient pre emptive approach counter potential emergence risk monetary policy transmission mechanism relate pandemic take account forego member proposal president governing council take monetary policy decision set relevant press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference february press release monetary policy decision detailed modality reduce asset purchase programme holding meeting ecb governing council february members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right february article escb statute attendee donohoe president eurogroup senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person buch demarco garnier gavilán gilbert haber kaasik koukoularides kuodis lünnemann madouros nicoletti altimari novo ódor rutkaste šošić välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting march account monetary policy governing council european central bank hold frankfurt main wednesday thursday march april review financial economic monetary development policy option financial market development schnabel distinguish period report financial market development governing council previous monetary policy february period stretch collapse silicon valley bank svb united states mount sign persistent pressure core inflation euro area i.e. inflation harmonised index consumer prices hicp exclude food energy component lead investor reassess view future path inflation interest rate price high long inflation rate environment expectation level terminal rate peak rate ecb ongoing rate hiking cycle reach level week prior governing council march expect date rate cut push despite sharp upward revision expect policy rate path market base indicator long term inflation expectation continue point elevated concern inflation ecb target period start market development abruptly halt collapse svb interest rate expectation revise downwards sharply partially reverse decline march drop morning march financial market indicator close market march show sign banking sector turbulence cause systemic crisis united states euro area move indicator reverse morning march turbulent market condition possible clear picture change market perception dust market turbulence settle amid market volatility observation stand broad stock index remain resilient stock share price non financial corporation affect moderately spillover united states euro area contain share price euro area remain positive territory relative low mid-2022 owe strong sustained rally improve earning expectation stock price major global bank fall sharply europe united states spread credit default swap increase moderately euro area bank liquidity condition remain solid fra ois spread i.e. difference rate charge interbank unsecured deposit overnight index swap ois rate increase significantly euro area remain near long term average level cost offshore dollar funding increase substantially increase partially reverse subsequently regard volatility fix income market react strongly svb event equity market overall development suggest intensification stress banking sector inflation outlook soon come fore mind market participant banking sector turbulence start united states global macroeconomic upside surprise dominate financial market development major economy positive datum economic activity accompany upward surprise headline inflation especially core inflation euro area growth inflation mix lead repricing market inflation outlook euro area medium term market participant perceive factor drive inflation pressure shift external supply internal demand differently headline core inflation investor price substantially sluggish return inflation despite low natural gas price expectation persistent core inflation lead significant reappraisal policy rate expectation euro area united states see similarly strong repricing forward curve underline perceive close synchronicity global economic activity inflation cycle development reverse unfolding event relate svb development market base indicator long term inflation expectation euro area vivid reminder investor see elevated risk inflation remain target medium term evidence option price point elevated upside risk inflation factor fuel market concern inflation persistent euro area relate prevail uncertainty ecb reaction function factor relate uncertainty extent policy tightening need bring real interest rate sufficiently restrictive territory curb inflation factor relate broad financial condition insufficiently restrictive remain unchanged governing council october monetary policy despite notable tightening monetary policy period development bond market sovereign bond spread remain unchanged collapse svb start increase somewhat increase spread moderate entirely drive sharp decline german bund yield development corporate bond market benign onset banking sector stress sharp increase corporate bond spread investment grade financial corporation compare non financial corporation spread high yield non financial corporate bond increase remain relatively compress level historical perspective market functioning collateral availability concern fade announcement ceiling remuneration non monetary policy deposit spread short term government bill respective risk free rate ois narrow look ahead progress roll ecb monetary policy bond portfolio support availability collateral global environment economic monetary development euro area lane note ongoing exceptional tension financial market source significant uncertainty economic outlook lead undue tightening credit condition significantly dampen confidence imply additional uncertainty baseline assessment growth inflation governing council need closely monitor market tension stand ready respond necessary preserve price stability financial stability euro area euro area banking sector resilient strong capital liquidity position reflect effective supervision rigorous implementation global regulatory reform agenda case ecb policy toolkit fully equip provide liquidity support euro area financial system need preserve smooth transmission monetary policy turn economic development euro area series favourable supply shock increase evidence ecb monetary policy tightening work way economy dominant development start year fall energy price clearing supply chain bottleneck lower price pressure time boost confidence support real income business activity especially short run survey indicator point improve business consumer sentiment low level bright prospect economic activity reflect broad base improvement supply condition delivery time input factory shorten degree see recovery global financial crisis international market drag euro area economy evidence substantial fall order book volume february overall world economy show sign stabilisation month year reopening china expect provide support later outlook global activity remain subdue near term reflect weak domestic demand key trading partner euro area addition rapid tightening ecb monetary policy stance increase cost credit euro area economy slow provision loan sharp tightening financing condition start affect real economy measurably euro area economic activity stagnate industrial production virtually flat final recover marginally january notable contraction production energy intermediate good durable consumer good offset expand production non durable capital good especially motor vehicle production sector recover easing supply disruption time market service contract mainly sharp decline retail trade transport accommodation food service december previously expect economic contraction avoid private domestic demand component contract private consumption strong quarter result reopening euro area economy significant drop reflect low confidence early term trade shock adversely affect spending decision look ahead household start optimistic expectation financial situation thank decline inflation translate strong optimism spending plan relation demand housing monetary policy expect strong impact result ecb consumer expectations survey show household perception housing good investment continue deteriorate turn investment investment residential construction start fall decline accelerate quarter survey indicator purchasing managers index pmi output business expectation construction sector recover slightly month clearly point contracting activity currently near future business investment see small contraction irish intellectual property product exclude survey indicator show improvement capital good sector month output pmi sector move slightly positive territory line expected well outlook gdp short term steeply rise financing cost expect weigh business investment quarter ahead trade datum confirm significant drop import good export recover somewhat thank fall energy price term trade start improve end year lead improvement good trade balance service forward look indicator tourism point expectation strong rebound half reopening china contribute labour market indicator point resilience unemployment rate stand january stable april vacancy rate remain stable employment growth expect positive early accord pmi labour force recover impact pandemic remain long term trend dynamism reflect increase participation rate particular old worker increase migrant worker important element account relation future wage growth dynamic macroeconomic development reflect march ecb macroeconomic projection provide financial market tension feed undue tightening credit condition significantly dampen confidence economy look set recover come quarter adverse supply shock occur past year partly reversed industrial production expect pick supply condition improve confidence continue recover firm work large order backlog rise wage fall energy price partly offset loss purchase power household experience result high inflation turn project support consumer spending accordingly project growth revise percentage point march projection time expect pick growth weak project december headwind tight financing condition appreciation euro see outweigh positive effect real income confidence somewhat low inflation combination factor gradual withdrawal fiscal support linger concern energy supply risk winter expect weigh economic growth medium term risk outlook economic growth tilt downside persistently elevated financial market tension tighten broad credit condition strongly expect dampen confidence russia unjustified war ukraine people continue significant downside risk economy push cost energy food additional drag euro area growth world economy weaken sharply expect company adapt quickly challenging international environment fading energy shock support high growth currently expect inflation edge january february underlying price pressure remain strong decline inflation index result renew sharp drop energy price conversely food price inflation increase february past surge cost energy input food production feed consumer price inflation exclude energy food increase markedly february january drive delay pass past surge energy price continue albeit decline pipeline pressure strengthen wage growth pressure sectoral level inflation non energy industrial good sector rise february mainly reflect delay effect past supply bottleneck high energy price service inflation rise february drive gradual pass past energy cost increase residual pen demand reopening economy rise wage indicator underlie inflation stay high indicator aim capture persistent inflation interesting compare survey expectation persistence inflation survey datum expectation headline inflation near term align information come indicator underlie inflation word survey predict inflation fall high month disconnect survey datum market base inflation compensation measure indicate inflation beginning show straightforward extrapolate signal medium term headline inflation indicator underlie inflation indicator reflect vary degree cumulate distortion result extraordinary development follow pandemic war ukraine energy shock focus core inflation large gap inflation development energy sensitive sector non energy sensitive sector sector high energy dependency see disproportionate increase inflation rate compare non energy sensitive sector imply effect energy shock fade contribution component core inflation start decline lane note downward pressure expect inflation development energy sensitive sector inflation wage intensive sector start increase contribution core inflation change hicp weight january expect significant impact profile inflation headline inflation change imply negative impact core inflation especially service impact estimate negative positive year owe high weight recreational service lane remark important look inflation momentum order capture turning point indicator momentum month month annualise inflation rate base seasonally adjust datum headline inflation measure fall close november close february sharp fall momentum entirely sharp decline energy inflation component hicp change inflation momentum limited pipeline pressure weaken remain substantial wage pressure strengthen support robust labour market employee aim recoup purchasing power lose owe high inflation firm able raise profit margin sector face constrain supply resurgent demand evolution profit compare wage suggest wage limited influence inflation past year increase profit significantly dynamic wage important question forecasting inflation firm pricing strategy accept low profit margin period ahead market base measure inflation compensation increase substantially maturity governing council february ease recently reassuringly expectation capture ecb survey monetary analysts ecb survey professional forecasters show increase share respondent expect inflation target long run household expectation inflation year ahead express ecb consumer expectations survey decline percentage point january compare previous month survey march ecb projection path inflation revise projection horizon owe mainly small contribution energy price previously expect turn imply small role compensatory fiscal measure somewhat strong impact monetary policy tightening inflation project average imply downward revision percentage point respectively contrast inflation exclude energy food revise percentage point account data surprise lag pass indirect effect past energy price increase overall indirect effect contribute inflation end projection horizon despite sharp downward correction energy price similarly past depreciation euro continue upward pressure core inflation less extent previously assume owe appreciation euro project core inflation essentially come profit labour cost contribution indirect effect past energy shock depreciation euro sizeable fall energy price combine appreciation euro continue tightening credit condition expect gradually dampen core inflation compare december projection reflect downward revision core inflation percentage point respectively later year projection horizon core inflation project ease slowly upside risk inflation include exist pipeline pressure send retail price high near term domestic factor persistent rise inflation expectation governing council target high anticipated increase wage profit margin drive inflation high include medium term strong expect economic rebound china fresh boost commodity price foreign demand downside persistently elevated financial market tension accelerate disinflation addition fall energy price translate reduce pressure underlie inflation wage weakening demand include owe strong expect transmission monetary policy contribute low price pressure currently anticipate especially medium term financing condition reflect strong transmission tight monetary policy recently subject significant volatility market interest rate rise considerably week follow governing council february monetary policy increase reverse sharply day march context severe financial market tension turn real rate lane comment measure real rate short term version compute policy rate minus expected inflation rate ahead short term real rate remain negative increase strongly positive territory expect inflation decline policy rate imply yield curve increase version medium term cost finance concept compute expect average policy rate year minus expected inflation rate period version solidly positive horizon lane emphasise credit firm expensive january bank cost borrowing rise level see late big increase bond yield deposit rate start rise noticeably composition effect people move away overnight deposit well remunerate type deposit away targeted long term refinance operation tltro market funding push cost finance bank follow sharp slowdown mid-2022 credit flow non financial firm lately decline close result low demand considerably tight credit supply condition cost borrowing household increase especially owe high mortgage rate currently high level early rise borrowing cost resultant decline demand tight credit standard lead slowdown growth loan household amid weak loan dynamic money growth slow sharply drive liquid component decline annual growth rate narrow money accelerate pronounced reshuffling instrument broad money shift overnight deposit liquid well remunerate instrument time deposit monetary policy consideration policy option inflation set target long lane propose raise key ecb interest rate basis point line intention communicate february governing council governing council state future policy rate decision determine assessment inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission follow announcement february governing council evaluate subsequent path monetary policy march clear statement ecb policy reaction function help orient market expectation key factor underlie decision particular clarify careful analysis underlie price pressure state monetary policy transmission point time act cross check projection time heightened uncertainty potential structural change reflect fact monetary policy consider financial development extent affect price stability line ecb monetary policy strategy statement regard pandemic emergency purchase programme pepp signal power pepp reinvestment flexibility framework contribute support transmission mechanism propose spirit prudence governing council allow flexibility pepp reinvestment effective line defence remain fragmentation risk exercise flexibility event market condition deteriorate govern council monetary policy decision economic monetary financial analysis regard economic analysis member share assessment economic situation outlook euro area provide lane introduction march ecb projection cut date mid february technical assumption finalise early march release flash estimate euro area inflation february emergence financial market tension broad agreement tension imply additional uncertainty baseline assessment economic growth inflation express give emergence tension heighten uncertainty observer economy different place compare picture projection time point despite uncertainty imply tension situation deteriorate drastically situation inflation simply disappear underlying inflation particular remain far high regard external environment member take assessment provide lane upward impact trade unwinding supply bottleneck fade half march ecb projection world real gdp growth trade growth revise upwards reflect high growth projection china united states exchange view reiterate reopening chinese economy increase china appetite commodity currently apply china demand coal suggest prospect country restock gas supply closely monitor increase demand gas fully reflect gas future price impact euro area energy price point slow expect growth china imply enormous increase energy demand turn economic activity euro area member take lane assessment dominant development start year represent partial reversal early adverse supply shock increase evidence monetary policy tightening start work way economy euro area economy stagnate avoid previously expect contraction private domestic demand fall sharply high inflation prevail uncertainty tight financing condition dent private consumption investment fall respectively accord march ecb projection economy look set recover come quarter industrial production pick supply condition improve confidence continue recover firm work large order backlog rise wage fall energy price attenuate loss purchase power household experience result high inflation turn support consumer spending look ahead ecb baseline projection economic growth revise average result decline energy price economy great resilience challenging international environment projection expect growth pick underpin robust labour market improve confidence recovery real income time pick growth see weak project december owe tightening monetary policy comfort draw fact contraction end year previously expect caution observed stagnation imply fragile growth outlook year note upward revision economic growth reflect well expect outcome low energy price time financing condition substantially tight compare correspond assumption underpin december eurosystem projection understand impact interest rate increase growth usually come lag question forecasting model sufficiently capture cumulative impact growth inflation sequence rate increase see far argue decline credit gdp ratio foresee projection horizon drive fall demand credit reflect significant supply effect strong impact consumption investment appear odd limited credit supply effect gdp incorporate projection time question absence hard evidence quantity restriction lending come play turbulence economy improve macro risk recede profitability grow capital liquidity position solid member widely underline continued resilience labour market remain strong despite weakening economic activity employment grow unemployment rate stay historical low january note increase unemployment rate expect month materialise projection imply continued labour market tightness projection horizon strong growth employment see reflect elastic response labour force job opportunity differ situation united kingdom united states labour force participation rate fully recover pandemic time caution upward revision real gdp growth highly resilient labour market reflect impact tailwind include accumulate saving liquidity buffer hold household firm generous government support measure expect indefinitely context recall labour market usually lag indicator soon later reflect uncertainty real economy argue tight labour market reflect potentially persistent matching problem vacancy unemployed implication wage point resilience labour market labour scarcity mean basis historical regularity monetary policy transmission economy weak expect regard fiscal policy member reiterate government support measure shield economy impact high energy price temporary targeted tailor preserve incentive consume energy energy price fall risk energy supply recede important start roll measure promptly concerted manner measure fall short principle drive medium term inflationary pressure strong monetary policy response line economic governance framework state european commission guidance march fiscal policy orient make euro area economy productive gradually bring high public debt policy enhance euro area supply capacity especially energy sector help reduce price pressure medium term end government swiftly implement investment structural reform plan generation programme reform economic governance framework conclude rapidly risk fiscal see stem government energy relate support measure remain place long currently expect budgetary space redirect expenditure uncertainty prevail reform fiscal governance framework outlook medium term national consolidation path background member assess risk economic growth outlook tilt downside persistently elevated financial market tension tighten broad credit condition strongly expect dampen confidence point regard financial market tension expectation soft landing economy risk russia war ukraine continue significant downside risk economy push cost energy food additional drag euro area growth world economy weaken sharply expect company adapt quickly challenging international environment fading energy shock support high growth currently expect medium term question raise assessment balance risk tilt downside justify give baseline projection see substantial downward adjustment regard price development look ahead member note path headline inflation revise march ecb projection mainly owe small contribution energy price previously expect somewhat strong downward impact monetary policy tightening time underlie price pressure remain strong ecb expect hicp inflation exclude energy food average high foresee december projection inflation outlook projection point hicp datum february surprise upside compare starting point projection mechanically incorporate late information imply high headline core inflation disregard upside surprise project outcome core inflation suggest projection incorporate overly optimistic belief unwinding underlie inflation core inflation close turning point see hard datum reference calculation momentum core inflation short term base annualise rate price increase month rebound euro area accord february inflation datum release comfort draw observation march projection embody downward revision inflation outlook consecutive round upward revision acknowledge mainly low future energy commodity price imply supply shock cause inflation surge initially partly unwind question raise strongly quickly situation energy price reflect underlie inflation welcome projection incorporate stagger effect pass past increase energy price core inflation beg question pass play symmetrically respect decline energy price evidence asymmetric pass observe pmi survey datum point slow decline output price input price line academic research remark decomposition hicp inflation exclude energy food energy sensitive wage sensitive item suggest energy factor important wage important accord decomposition wage growth main driver underlie inflation lately contribution roughly twice large apparent stickiness core inflation reflect rotation main driver argue extent adjustment core inflation energy price development symmetric disinflationary phase depend behaviour profit margin recall profit margin remain resilient expand face large adverse energy cost push shock behaviour potentially differ energy price fall remain see widening profit margin reverse regard wage price setting member agree wage pressure strengthen robust labour market employee aim recoup purchasing power lose owe high inflation firm able raise profit margin sector face constrain supply resurgent demand reference strong growth compensation employee unit labour cost level consider consistent inflation target medium term give tight labour market ongoing high inflationary pressure particular everyday purchase food wage growth expect ease soon observe average wage agreement euro area conceal considerable variation country doubt project low wage growth end horizon march projection justify time argue consistent revise nominal wage growth inflation decelerate fast pace previously expect medium term nominal wage growth little low fall cost living real term projection imply upward revision wage note imply term trade shock result decline real wage end projection horizon compare early member widely reiterate development profit mark warrant constant monitoring analysis equal footing development wage frequent reference wage public communication imply consideration profit margin development stress term trade shock operate like tax absorption domestic economy proceed burden sharing labour capital monetary policy perspective matter burden sharing contribute prevent round effect wage price spiral question raise strong profit margin development imply sizeable cost pressure immediately affect competitiveness european exporter observe corporate balance sheet profitability strong suggest pricing power significant economy start soften period increase cost pressure pricing power increase frequency price change keep upward pressure underlie inflation point competitiveness concern ultimately kick help reduce inflation regard long term inflation expectation member take measure currently stand warrant continued monitoring especially light volatility market base inflation expectation underline market derive inflation expectation increase substantially maturity period governing council monetary policy meeting ease recently measure include significant inflation risk premia rise premia interpret reflect market uncertainty ecb ability achieve inflation target lasting basis fact year forward inflation link swap rate year ahead move see indication fast reduction underlie inflation unlikely furthermore market base inflation expectation hardly move response late financial market tension suggest event see have large disinflationary impact recall swap rate reflect genuine inflation expectation include significant inflation risk premia reference increase option price imply probability long term inflation respect survey recall medium term inflation expectation ecb consumer expectations survey reassuringly come background member assess upside downside risk inflation outlook considerable uncertainty associate financial market tension need governing council collective balance risk price stability range risk factor upside risk inflation include exist pipeline pressure send retail price high expect near term domestic factor inflation expectation persistently target high anticipated increase wage profit margin drive inflation high include medium term strong expect economic rebound china fresh boost commodity price foreign demand downside risk inflation include persistently elevate financial market tension accelerate disinflation addition fall energy price translate reduce pressure underlie inflation wage weakening demand include owe sharp deceleration credit strong project transmission monetary policy contribute low price pressure currently anticipate especially medium term list risk factor imply risk balance instead highlight significant uncertainty prevail environment call data dependent approach monetary policymaking member express range view risk respect baseline inflation projection number member see risk tilt upside entire horizon member argue small probability inflation fall low level quickly suggest march ecb projection give impression immaculate disinflation i.e. return inflation target low cost term lose output underline baseline balance risk independent downward revision baseline reflect great optimism lead upward tilting risk balance remark interpretation appear corroborate late inflation datum high expect challenge downward revision baseline addition suggest late strengthening wage growth consistent round effect have start suggest output gap narrow case give different indication compare unemployment gap discuss previous occasion point potential different risk factor reinforce neutralise imply great persistence especially core inflation embed projection expansionary fiscal policy consider important upside risk factor surround uncertainty relate adherence fiscal rule time argue downward impact incorporate baseline monetary policy tightening credit constraint small imply downside risk turn monetary financial analysis member widely concur assessment provide lane introduction note credit euro area firm expensive thing collateral value decline contribute sharp contraction demand loan time credit supply play role tension financial market reinforce tightening credit condition bank sensitive risk deposit outflow willing lend background economy project pick come quarter profitable lending opportunity bank existence credit supply restriction call question argument credit development specifically lending firm respond monetary policy time lag weakening loan growth reflect low credit demand owe energy price shock high investment uncertainty quantitative restriction supply credit reference downward trend lend non financial corporation reverse exceptionally strong loan growth see pandemic period caution benign assessment revise risk premia increase tension financial market prove long lasting note household borrowing expensive owe high mortgage rate result decline loan demand tight credit standard lead slowdown growth loan household concern voice sharp slowdown money growth drive liquid component foreshadow risk economic outlook time member express confidence euro area banking sector resilient strong capital liquidity position governing council expression confidence euro area banking sector measure discuss international level ease condition bank foreign currency funding expect alleviate market tension hold face spillover euro area bank governing council equip policy toolkit allow provide sufficient liquidity support euro area financial system need preserve smooth transmission monetary policy instrument governing council see able calm market necessary point context tight monetary policy pocket financial vulnerability expect expect market participant scrutinise soundness bank elevated market volatility persist argue assess financial stability risk consider transmission monetary policy impulse strong time market stress calm time monetary policy stance policy consideration turn assessment monetary policy stance member widely agree credit expensive previous monetary policy reflect ongoing transmission tight monetary policy bond market broad financial condition recently subject significant volatility increase risk premia low risk free yield market participant considerably lower expectation policy rate peak hiking cycle exert countervail effect mean time need fully effect monetary policy stance financial condition background reference separation principle call monetary policy stance assess independently risk relate financial stability recall governing council liquidity instrument hand address potential liquidity strain banking sector spillover international development allow look volatility financial market variable set interest rate accordance price stability objective analysis strength monetary policy transmission see warrant well understand effect tight financial condition economic outlook trend underlie inflation hand hold past effect monetary policy continually overestimate happen hand point long transmission lag effect interest rate increase july fully materialise lead risk impact monetary policy tightening underestimate turn policy proposal member emphasise inflation remain far high project high long inflation expectation appear anchored development market base measure inflation compensation move wrong direction period february monetary policy risk high inflation persistent core inflation increase context monetary policy way bring inflation include case baseline march ecb projection materialise point light risk persistent inflation dynamic ecb monetary policy persistent time ongoing exceptional financial market tension see source significant uncertainty economic inflation outlook magnitude persistence scope shock know sustained financial stress potential economy baseline scenario different regime regime shift difficult ascertain real time feel objective price stability financial stability complementary fundamental trade safeguard financial stability support orderly transmission monetary policy achievement price stability medium term judge situation deteriorate significantly financial market tension unlikely fundamentally change governing council assessment inflation outlook monetary policy decision communication background large majority agree lane proposal raise ecb key interest rate basis point line intention governing council communicate monetary policy acknowledge situation heightened uncertainty decision take imperfect information situation risk see side follow announce intend interest rate path see important instil confidence avoid create uncertainty financial market case highlight inflation far governing council target inflation dynamic strong justify basis point increase ecb key interest rate overall deliver basis point increase consider proportionate take account possible effect member prefer increase key rate financial market tension subside conduct comprehensive evaluation stance governing council monetary policy stress market volatile positive opening financial market day take evidence financial stability risk recede risk management approach see call interest rate hike hold risk raise rate tension turn short lived assess severe risk associate raise rate persistent crisis basis point increase exert strong tighten effect economy suffer fallout financial stress past episode recall governing council increase interest rate reverse hike shortly feel governing council data dependent approach situation postpone interest rate hike wait uncertainty decline look ahead member concur lane elevated level uncertainty reinforce importance data dependent approach governing council future policy rate decision argue approach acknowledge governing council limited information ongoing market turbulence develop time maintain governing council communication confirm determination deliver primary objective underpin sizeable interest rate increase background underline inflation outlook embed march ecb projection confirm governing council ground cover adjust monetary policy stance ensure timely return inflation target time see important governing council clarify reaction function future monetary policy decision context spell main reaction variable critical particular comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation strength monetary policy transmission list main variable give particular weight upcoming policy decision governing council provide anchor public use form expectation condition heighten uncertainty clear statement policy reaction function allow public form assessment strength monetary policy transmission basis newly available information lending survey case governing council time period monetary policy reassess effect tightening finance condition inflation dynamic time stand ready provide liquidity support need ensure smooth monetary policy transmission consideration mind member agree governing council refrain communicate unconditional expectation future interest rate path concern voice absence guidance interpret indicate hiking cycle come end reason suggest convey message market turmoil occur governing council express expectation increase rate give baseline scenario member widely concur resilience euro area banking system importance reassure market participant bank capital liquidity position strong hold indicate governing council monitor financial stability risk reiterate price stability primary objective governing council remain committed bring inflation medium term target timely manner finally see important reiterate governing council stand ready adjust instrument mandate ensure inflation return medium term target elevated uncertainty highlight smooth functioning monetary policy transmission mechanism member agree proposal apply flexibility reinveste redemption fall pepp portfolio maintain exist flexibility pepp reinvestment consider efficient pre emptive approach respond potential emergence risk transmission mechanism relate pandemic take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference march press release monetary policy decision meeting ecb governing council march members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right march article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré buch demarco gavilán haber koukoularides kuodis luikmel lünnemann madouros nicoletti altimari novo ódor rutkaste sleijpen šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee june contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting account monetary policy governing council european central bank hold frankfurt main wednesday thursday june review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy market narrative shift financial stability concern inflation concern potential effect economy turbulence banking sector market far digest failure especially euro area measure systemic stress volatility market liquidity return close level failure silicon valley bank svb risk asset euro area recover loss experience follow svb failure case rally multi year high sovereign bond spread show remarkable resilience investor significantly scale expectation ecb monetary policy tightening sharp downward shift expectation monetary policy rate height banking tension partially reverse peak rate expect deposit facility remain basis point level price failure svb potential factor explain repricing recede inflation risk heighten recession fear face tight financial condition financial stability concern explanation fully bear financial market datum basis market pricing risk systemic stress contain imply volatility bond market retreat average high level mid march stock market imply volatility united states recently fall low level november similarly liquidity condition euro area sovereign bond market normalise turbulence leave lasting mark stock index remain level observe svb failure euro area stock currently stand level start spillover financial sector non financial corporate sector limit price risk asset adversely affect euro area united states general resilience financial market extend sovereign bond sovereign spread widen slightly svb failure normalise quickly banking tension subside remain close pre svb level resilience challenge evolve market expectation reduction asset purchase programme app portfolio start quantitative tightening expectation roll absorb smoothly market despite fade concern market turbulence investor response banking tension significantly scale expectation future ecb interest rate hike possible explanation pronounce repricing expectation ecb interest rate recede concern inflation risk euro area decline inflation link swap ils forward rate start beginning march continue onset banking turbulence line initially disinflationary effect turbulence time market participant risk long term inflation outlook have alleviate banking tension year forward ils rate year ahead remain stubbornly governing council march monetary policy investor continue scenario inflation remain target long term significantly probable scenario drop alternative explanation repricing monetary policy expectation perception tight financial condition recession imply need rate hike common financial condition index euro area remain unchanged collapse svb lending rate increase little indication financial market banking sector stress affect economic growth investor currently price marginally high tail risk economic outlook euro area compare pre svb period evolution exchange rate provide insight expect impact banking sector turbulence economy start banking tension euro appreciate discernibly dollar line narrowing year interest rate differential euro area united states monetary policy convergence ecb federal reserve system key driver euro appreciation scaling rate hike expectation great united states euro area positive economic data surprise euro area support euro rise downside risk growth outlook pressure dollar euro dollar exchange rate development consistent muted impact banking tension economic outlook euro area united states possible explanation repricing interest rate expectation relate financial stability concern net outflow deposit euro area bank market base funding important short term funding condition interbank market return pre svb condition increase credit liquidity risk premia money market mid march prove temporary similarly effect long term market funding condition limit asset swap spread bond return pre svb level time bank increase use long term bond market funding alternative deposit funding tend increase average funding cost finally vulnerability bank rise interest rate depend fund consideration asset balance sheet overall short run risk euro area bank high interest rate appear contain global environment economic monetary development euro area lane late economic monetary financial development global economy euro area governing council monetary policy global economic activity strong expect early global composite output purchasing managers index pmi rise march reach time pmi datum signal divergence service continue expand manufacturing weaken contractionary territory service sector trade intensive world trade remain weak euro appreciate dollar nominal effective term compare march ecb macroeconomic projection non energy commodity price remain unchanged oil future curve low slightly steeply downward sloping gas future curve low slightly upward slop end year embed ecb projection euro area gdp growth year accord eurostat preliminary flash estimate line march projection exclude strong negative growth rate ireland slightly high available country datum point positive contribution net trade owe buoyant export offset negative contribution domestic demand time development differ significantly country depend relative importance service versus manufacturing low energy price easing supply bottleneck fiscal policy support firm household continue shore economy manufacturing activity benefit backlog order prospect worsen visible manufacturing output pmi april service sector grow strongly owe reopening economy private domestic demand especially consumption remain weak household inclined purchase big ticket item impulse additional saving accumulate pandemic progressively wan financing condition tighten instance month year retail sale car registration decline level end respectively asset allocation saving flow show household accumulate money account deposit subsequently large consume invest financial asset capital formation chiefly housing repay debt contribute increase saving ratio end turn investment housing investment contract mid-2022 beginning build construction rebound thank good weather buffer accumulate order backlog suggest temporary recovery housing investment pmi construction remain negative territory point subdue outlook affordability profitability indicator decline sharply end contrast non housing investment net export expect contribute positively gdp growth recovery capital good help ease supply bottleneck order pmi capital good remain negative territory regard prospect export pmi manufacturing order remain threshold april pmi service return expansionary territory look ahead model estimate survey datum point moderate expansion gdp quarter line march projection exercise labour market remain strong month unemployment rate relatively stable april previous year fall historical low march employment grow steadily high labour force participation high immigration old highly skilled worker expansion contrast average hour work sluggish employment outlook remain positive accord april pmi indicator sectoral difference employment pmi service increase strongly index manufacturing decline marginally remain expansionary territory construction sector employment pmi contractionary territory year negotiate wage growth increase strongly slightly january february december wage growth moderate payment exclude rate december january february late settlement monitor ecb wage tracker imply comparable signal wage growth come month albeit significant variation country time high frequency job posting indicator wage pressure moderate october ecb corporate telephone survey show large company expect margin deteriorate elevated level firm indicate continue expect wage rise fall energy price ease supply bottleneck strong labour market rise wage expect support economy coming month later year scope catch dynamic progressively tight financing condition act drag economic growth accord eurostat flash estimate annual inflation rate april have drop february march uptick april positive base effect energy inflation service inflation increase slightly inflation rate component harmonised index consumer prices hicp decline inflation exclude energy food core inflation april february level edge slightly high march food price inflation remain elevate april march february overall price pressure remain strong inflation momentum measure annualise month month price change show headline inflation rate april energy inflation deeply negative momentum decline food service price inflation decelerate slightly good inflation high indicator underlie inflation elevate send mixed signal exclusion base model base measure decline indicator level creep measure model base persistent common component inflation pcci decline strongly quickly affect impact decline energy price time domestic inflation increase indicative pressure come wage information take indicator message mixed important acknowledge measure underlie inflation send signal large relative price adjustment hand big decline energy price hand big increase price labour measure underlie inflation include past energy shock pressure wage remain high measure good predictor inflation year give reversal energy shock easing bottleneck expectation catch low real wage growth fade time long term inflation expectation report ecb survey professional forecasters consensus economics survey ecb survey monetary analysts remain range financial market base measure inflation compensation increase exclude high inflation risk premia remain unchanged close upward movement inflation expectation reflect ecb consumer expectations survey warrant ongoing monitoring short term euro area forward rate increase beginning april partly reverse early decline acute phase banking tension forward curve peak rate reach year pricing indicate increase probability attach cut key ecb interest rate start reflect rise risk free yield curve interest rate loan increase credit flow remain low widen spread bond risk free rate wake banking tension affect lending behaviour late lending survey show strong net tightening standard apply bank corporate housing loan bank cite high risk perception low risk tolerance main driver loan decision share reject applicant increase loan category parallel bank report decline demand credit owe general level interest rate weak fix investment firm worsen housing market prospect household overall constitute tighten impulse add factor expect weigh economic growth dampen inflation year monetary policy consideration policy option follow march monetary policy governing council announce policy rate decision base assessment inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission overall incoming information support assessment medium term inflation outlook form march headline inflation decline significantly month underlie price pressure remain strong time past rate hike transmit forcefully euro area financing monetary condition lag strength transmission real economy remain uncertain incoming information send range signal development expect dampen medium term inflation dynamic low energy price easing bottleneck appreciation euro decline global prospect manufacturing global monetary tightening direction strength core food price inflation level wage agreement pose upside risk march projection especially term duration inflation adjustment process underlying inflation signal mixed exclusion base model base measure start decline domestic wage intensive component inflation rise addition momentum indicator continue substantial relation monetary policy transmission financing condition continue tighten late lending survey indicate extent credit tightening strong previously expect bank tension global banking system add risk aversion curb credit supply consideration mind governing council need strike right balance advance interest rate level sufficiently restrictive ensure inflation return target timely manner take account elevated uncertainty speed strength transmission cumulative tightening policy stance include credit channel argue favour raise rate increment basis point governing council emphasis data dependence articulate main criterion inform rate decision effective steady policy expectation app portfolio set decline month end june realised expect balance sheet normalisation far complement tightening policy interest rate smooth manner look ahead late survey monetary analysts indicate june investor expect acceleration pace reduction app portfolio rate consistent run extent expectation price market yield impact discontinue app reinvestment july expect small background line governing council principle data dependence commitment reduce app portfolio measured predictable pace lane propose governing council communicate expectation reinvestment discontinue july express decision expectation preserve flexibility case adverse tail risk materialise particular regard financial market condition govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane global growth exclude euro area high expect start year upside surprise broad base advanced emerge economy contrast economic activity global trade relatively weak month demand rotate domestic service euro exchange rate appreciate governing council monetary policy look ahead contribute low inflationary pressure euro area non energy commodity price unchanged oil price increase gas price decline extend previous large decrease high inventory contribute improve gas price outlook united states economic activity moderate reflect weaken domestic demand china real gdp growth rebound strongly pandemic induce slump reopening chinese economy high expect growth china mention external factor contribute low core inflation euro area cheap chinese import dampen inflation europe united states past time high demand china upward pressure global commodity price include energy regard economic activity euro area member concur lane assessment low energy price easing supply bottleneck fiscal policy support firm household contribute resilience economy time private domestic demand especially consumption remain weak business consumer confidence recover steadily month remain weak russia unjustified war ukraine people divergence sector economy manufacturing sector work backlog order prospect worsen service sector hand grow strongly especially owe reopening economy household income benefit strength labour market member highlight resilience economic activity far preliminary flash estimate gdp growth well anticipate early especially take account aggregate number push volatile transaction irish intellectual property product line march ecb projection incoming datum suggest growth pick quarter line march projection imply euro area economy manage escape recession exit accommodative monetary policy far smooth resilience economic activity see good news argue strengthen activity contribute persistent upward inflation pressure make timely return inflation target difficult point well expect gdp growth mainly drive reversal term trade shock associate low energy price easing bottleneck increase labour supply factor support potential output favourable supply force allow increase gdp time favour disinflation impact tight monetary policy start visible finance condition early stage transmission time raise question impact tight monetary policy pipeline materialise give remain uncertainty long variable lag transmission monetary policy output inflation context mention impact tight monetary policy visible non financial company perception weak demand outlook flag ecb late corporate telephone survey monetary policy work slow aggregate demand respect demand component financing condition tighten investment expect weaken partly result fair uncertainty cloud outlook private consumption consumer service tourism strengthen pandemic overcome strong tourism contribute high export non euro area tourist return euro area development relate labour income growth domestic demand member concur energy crisis fade government roll related support measure promptly concerted manner avoid drive medium term inflationary pressure strong monetary policy response context argue fiscal stance line cyclical position economy fiscal tightening future little late helpful bring inflation target especially interest rate rise question government manage tighten fiscal stance time high inflation increasingly weigh public deficit owe thing high public wage pension outlay time mention size energy relate fiscal measure consequence impact inflation removal revise line low expect energy price fiscal policy orient make economy productive gradually bring high public debt policy enhance euro area supply capacity especially energy sector help reduce price pressure medium term reform economic governance framework conclude soon background express long evident balance risk economic activity skewed downside judge precede monetary policy member nonetheless assess market tension relate stress banking system subside renew financial market tension persistent pose downside risk outlook growth tighten broad credit condition strongly expect dampen confidence russia war ukraine continue significant downside risk economy reversal past adverse supply shock sustain spur confidence support high growth currently expect continued resilience labour market bolster household confidence spending lead high growth anticipate regard price development member agree assessment present lane introduction inflation push gradual pass past energy cost increase supply bottleneck service especially push higher pent demand reopening economy rise wage information available march suggest underlie inflation remain high wage pressure strengthen employee context robust labour market recoup purchasing power lose result high inflation sector firm able increase profit margin mismatch supply demand uncertainty create high volatile inflation measure long term inflation expectation currently stand indicator edge warrant continued monitoring member underline headline inflation decline substantially early peak inflation outlook high long inflation datum continue surprise upside headline core inflation inflation component energy price significantly high expect march ecb projection accord mechanical update headline core inflation high project march underlying inflation prove persistent argue point clear upside risk late projection feel outlook headline inflation medium term remain similar march projection development underlie inflation worrisome point increase persistence momentum component energy remain high increase especially service background inflation outlook march projection judge optimistic robust evidence turning point underlie inflation rise risk inflation entrenched owe high wage growth inflation expectation unanchore argue governing council focus monthly inflation datum percentage point high low matter downward trend inflation expect medium term line projection respect change projection assumption march cut date late development oil price food commodity price exchange rate mechanically imply downward impact inflation look ahead force wage push inflation factor direction include rise interest rate strong exchange rate low energy price ease supply bottleneck increase labour supply low fiscal subsidy disinflationary food price inflation widely see important factor elevated level headline inflation pipeline pressure suggest pass past cost shock consumer food price remain incomplete pose significant upside risk food inflation represent upside risk price related area restaurant hotel service underlie inflation commodity price fall steeply consumer price remain sticky suggest expand profit margin prevent inflation fall time argue large currently elevated food price inflation explain high energy price big transportation component food price labour energy intensive regard development core inflation late development see worrisome level momentum inflation exclude energy food continue high small improvement core inflation measure underlie inflation interpret indication turning point reference united states policy relevant measure core inflation start decline time ago albeit slow pace argue underlie inflation euro area appear stubborn sticki united states wage price setting typically flexible europe observed strength persistence core inflation see question early hypothesis euro area inflation large extent supply drive external shock result domestic demand point momentum service inflation clearly rise indicate wage key component service inflation increasingly important explain underlying inflation especially give resilience labour market demand hospitality service expect strengthen come month additional boost service core inflation context reference development wage negotiation public sector large euro area country evidence non linearity great persistence reaction pipeline pressure worry outlook underlie inflation time point give early large increase energy price natural core inflation start decline considerable lag suggest historical regularity context recall stable predictive relationship core indicator underlie inflation headline inflation year ahead causality core headline inflation opposite direction background express attention pay core inflation core inflation representative household consumption basket core inflation clear lead indicator property future headline inflation beneficial explain analysis underlie inflation pressure take wide range indicator account core inflation member recall trend wage key understand medium term inflation pressure case wage development far remain line march ecb projection necessarily provide reassurance trend wage increase prove consistent ecb inflation target late wage increase notably public sector widely see worrisome include march projection clear sign union regain bargaining power unlikely recede reference empirical evidence public sector play lead role private sector wage set number euro area country high inflation protract exacerbate underlie social conflict worker employer wage claim long time line domestic inflation productivity growth wage claim clearly high level consistent regularity future inflation decline anticipate wage growth increase risk upside euro area development typically start late slowly hard stop negotiate wage include payment grow year year january february significant increase growth rate compensation employee weakening labour productivity growth imply sharp increase unit labour cost time substantial evidence long inflation remain high strong demand high wage round effect price social dialogue see come increase strain number country suggest argument wage versus profit intense contend sign wage profit price spiral emerge addition remark high mortgage rate induce worker demand high wage give rise channel inflation perpetuate recall considerable difference wage development euro area country take implication monetary policy euro area context mention uniform message wage indicator development negotiate wage ecb wage tracker point continued acceleration signal indicator affect compositional methodological issue contrast information online job match platform cover hiring show deceleration wage dynamic addition point observed reduction unemployment rate reflect increase hire remarkable reduction unemployment duration suggest european labour market fluid positive productivity justify wage increase relate robust productivity growth observe increase productivity see available macro datum far finally point cumulative increase price mean nominal wage increase observe past year need context catch process employee try compensate low real wage receive period march ecb projection expect significant wage increase recognise real wage recover projection horizon nonetheless note march projection foresee inflation eventually come target substantial nominal wage increase argue cost adverse term trade shock compensate share worker employer benign inflation outcome depict baseline scenario projection subject large upside risk high wage protract impact increase inflation persistence especially absorb low profit margin increase wage pressure elevated profit see warrant close monitoring country sector profit margin grow strongly end year unit profit euro area contribute half domestic price pressure wage inflation low price inflation profit plainly rise price clearly outpace increase input cost wage wage chase price profit chase wage explanation increase persistence high inflation fully understand implication inflation important profit develop future context corporate telephone survey send clear message suggest company able attain ample mark think persist year company pass high input cost reversal process see wage contribute profit line past regularity regard long term inflation expectation member recall inflation expectation matter lot wage negotiation particular high inflation expectation today rise high inflation prolong period long duration wage agreement inflation expectation matter lot firm price setting repeat upside surprise target overshoot long period time erode trust ecb ability willingness bring inflation target maintain credibility ecb commitment price stability especially challenge light substantial lag policy transmission attention draw increase consumer inflation expectation march question raise relate persistently high food inflation energy price have decline significantly background large number member assess risk price stability clearly tilt upside policy relevant horizon member judge risk symmetric especially near term overall governing council assess significant upside risk inflation outlook include exist pipeline pressure send retail price high expect near term russia war ukraine push cost energy food lasting rise inflation expectation target high anticipated increase wage profit margin drive inflation higher include medium term recently negotiate wage agreement add upside risk inflation especially profit margin remain high downside risk include renew financial market tension bring inflation fast project weak demand example marked slowing lending strong transmission monetary policy lead low price pressure currently anticipate especially medium term turn monetary financial analysis member concur assessment provide lane introduction policy rate increase transmit strongly risk free interest rate financing condition firm household bank growth loan firm household weaken owe high borrowing rate tight credit supply condition low demand tightening credit standard report late round lending survey strong bank expect previous survey round suggest lending weaken observed weakness lending mean money growth continue decline argue strong tightening credit standard report survey level expect bank previous survey round attributable tension global banking system time argue indication credit crunch lending reflect mainly weak loan demand quantitative constraint express surprising stress uncertainty banking sector limited impact result lending survey report unchanged net tightening loan firm compare previous expect deceleration pace tighten period ahead recall tightening credit standard come long period favourable credit development extent reflect normalisation addition feel observed tightening lending standard decline loan demand welcome evidence monetary policy transmission work furthermore access financing see major problem firm reflect response european commission business survey obstacle production credit development weaken measure real term contraction loan firm proportion gdp particularly pronounce similar contraction observe overall member assess financing condition tighten march monetary policy picture market base financial condition mix market acute strain arise financial market early march diminish reflect measure systemic stress volatility return level see prior emergence financial market tension stock price remain notably low tension high beginning year bond spread risk free rate widen somewhat bank funding cost rise low level bank compensate outflow overnight deposit expensive time deposit market base debt increase supply pressure market bond elevate bank take step pre fund large reimbursement targeted long term refinance operation tltro expire june short term funding condition interbank market return level see prior onset banking sector tension context argue financial market tension lead fast increase funding cost bank fast transmission monetary policy financing condition previously expect member express confidence resilience european bank bank increasingly report profit link rise net interest income context underline financial stress instability far level jeopardise transmission monetary policy financial fragility surface unprecedented policy rate tighten cycle expose financial imbalance build period low interest rate background remark case important uphold separation principle call monetary policy stance assess independently risk relate financial stability address need dedicated mean monetary policy stance policy consideration turn assessment monetary policy stance member evaluate datum obtain previous monetary policy criterion specify march important drive governing council reaction unfold circumstance criterion comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission start inflation outlook member concur assessment inflation outturn have surprised upside outlook continue high inflation long risk severe economic downturn risk impact financial stability ease factor exert downward pressure inflation recede consideration tend support inference inflation risk move upside march monetary policy time commodity price fall finance condition tighten effective exchange rate euro appreciate balance weigh different factor conclude medium term inflation outlook consistent march projection member assess evidence measure underlie inflation source concern core inflation edge slightly indicator underlie inflation range give mixed picture momentum service inflation clearly rise wage expect increasingly important explain underlying inflation hicp inflation exclude energy food high momentum rise strong wage growth expect prevail risk persistent inflation possibility round effect turn assessment monetary policy transmission member note solid evidence monetary policy transmit financing credit condition see positive development suggest stage transmission work strong dynamic underlie inflation reflection slow expect transmission monetary policy inflation hand argue strong labour market long interest rate fixation period loan transmission weak usual note tightening credit condition pipeline extent policy rate increase reflect lending rate credit growth furthermore uncertainty transmission channel currently high usual extra tighten impulse accord lending survey result bank cautious lending decision follow banking sector tension hard quantify precisely warrant continuous monitoring overall feel condition place declare victory complacent inflation outlook instead member concur tightening need bring inflation target medium term high inflation see hurt vulnerable part society weaken euro area economic performance emphasis place evidence measure long term inflation expectation edge indicate risk unanchoring inflation expectation particular market base measure long term expectation remain stubbornly high partly attribute level risk premia suggest investor see upside risk long term inflation prevail downside risk short horizon market base measure inflation expectation stand inflation projection monitor inflation expectation household firm see important matter wage negotiation firm price setting monetary policy decision communication background member agree tightening monetary policy stance increase interest rate warrant number member initially express preference increase key ecb interest rate basis point risk inflation outlook pose continue upside inflation surprise inflation project target year elevated risk unanchoring inflation expectation step clearly demonstrate governing council determination achieve price stability face elevated persistent inflation decisive action warrant rate sufficiently restrictive territory ensure timely return inflation target member see risk tighten rate risk tighten little express financial market turbulence short live exert meaningful additional tighten impulse furthermore resilience euro area economy recede recession risk broaden price wage pressure suggest underlie inflation unlikely decelerate sufficiently soon give rise increase risk unanchoring expectation time member indicate accept propose rate increase basis point ecb communication convey clear directional bias underline basis outlook interest rate increase warrant order return inflation target avoid small rate increase misinterpret signal prospect pause hiking cycle background member support basis point rate rise propose lane combination clear communication basis datum monetary policy ground cover decision see strike right balance need rate increase account elevated uncertainty speed strength monetary policy transmission interest rate restrictive territory raise rate basis point see preferable include risk management perspective magnitude view prudent possible cost large increment outweigh benefit give elevated uncertainty perception transmission impact previous rate increase pende addition point small increment decide july allow governing council raise rate long underlying inflation pressure persist strengthen summer sufficiently strong evidence turning point reach inflation retreat adequate pace emphasis merit keep data dependent approach uncertain environment rate move close possible land zone return standard size rate increment justify fact monetary policy instrument reinforce transmission monetary policy stance basis conclude reduce size increment basis point justify main reason substantial ground cover far governing council have raise rate basis point month imply rate get close destination small rate increase reflect uncertainty impact past decision great deal impact pipeline slow pace rate hike see help right conclusion draw destination time underline reduce size rate increment interpret signal governing council open door pause monetary policy tighten cycle member agree data dependent approach combine communication ecb reaction function issue follow march serve governing council financial market assess progress term inflation outlook underlie inflation transmission monetary policy price interest rate accordingly argue communication emphasise importance persistent tenacious clear peak rate reach rate stay level time increase reverse immediately regard communication governing council directional bias member agree appropriate affirm governing council future decision ensure policy rate bring level sufficiently restrictive achieve timely return inflation ecb medium term target keep level long necessary time strong preference return outright forward guidance policy rate regard suitable instrument rate lower bind see inconsistent approach decision making remain warrant volatile environment turn policy affect size composition eurosystem balance sheet member widely agree lane proposal announce governing council expectation discontinuing july reinvestment mature security app portfolio member recall reason balance sheet need normalise end reinvestment july see consistent monetary policy stance need support reduction excess liquidity complement expiry large tltro operation june addition progress balance sheet normalisation need regain policy space possible future situation policy rate come close lower bound order adhere principle proportionality regard app introduce provide additional monetary accommodation compress term premia rate lower bind condition ample excess liquidity upside price pressure proportionality continue partial reinvestment policy questionable level excess liquidity necessary implement desire monetary policy stance furthermore normalisation need reduce effect large balance sheet include risk fiscal dominance exposure credit duration risk impact financial stability risk market functioning finally long term perspective steep yield curve support bank intermediation capacity maturity transformation contrast keep term premia app security holding long necessary negatively affect balance sheet provision credit private sector member widely view financial market able digest portfolio run have calm turbulent week mid march market absorption smooth time market turbulence despite relatively load government bond issuance year overall financial market see have price run summer imply impact long term yield limit recall reduction stock security hold app portfolio accompany considerable decline excess liquidity link upcoming sizeable tltro repayment large coming june fact june repayment fully expect price market preclude impact liquidity withdraw fast contraction eurosystem balance sheet wide implication financial sector time pressure yield rise interest rate deposit rotation household saving investment fund term deposit rate increase rise demand bond investment fund reference need monitor composition app portfolio order composition asset class remain compatible intend monetary policy stance ecb treaty requirement support general economic policy reflect ecb monetary policy strategy particular request composition portfolio remain align climate goal paris agreement caution express fast contraction eurosystem balance sheet owe tltro repayment expect pace reduction balance sheet fast impact app run lowering inflation see small remark optimal size balance sheet long run uncertain member see benefit leave announcement adjustment app reinvestment june provide directional communication follow decide exact calibration reinvestment june monetary policy allow complete assessment impact tltro reimbursement june amid low liquidity summer month see beneficial high uncertainty market volatility overall process reduce reinvestment app include governing council communication process see success expected realise balance sheet normalisation deliver tightening long term yield support policy stance time measurably increase volatility background member ready join consensus support lane proposal subject reiterate principle gradualism predictability announce expectation reinvestment app discontinue july take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference press release monetary policy decision meeting ecb governing council members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré buch dabušinskas demarco gavilán haber horváth kaasik koukoularides lünnemann madouros nicoletti altimari novo rutkaste sleijpen tavlas välimäki vanackere žumer šujica ecb proissl director general communications rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee july contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting june account monetary policy governing council european central bank hold frankfurt main wednesday thursday june july review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy narrative financial market shift global tail risk emanate banking sector tension debt ceiling debate concern deterioration euro area macroeconomic outlook persistent core inflation pressure globally global market condition normalise tail risk economy subside volatility financial market decrease notably market segment country suggest risk systemic stress currently contain stock market imply volatility united states measure vix volatility index decline low level beginning market condition normalise market segment euro area bank restart primary market issuance activity covered bond senior bond recently subordinated bond bank asset swap spread subordinated senior bond decrease substantially remain slightly level see collapse silicon valley bank svb spread non financial corporate bond remain stable stand average level record development sovereign bond market benign sovereign spread relative overnight index swap ois rate decrease market turmoil march continue narrow start partial reinvestment expected end reinvestment asset purchase programme app absorb smoothly market sovereign spread remain sensitive fundamental illustrate response shift rating outlook negative macroeconomic datum surprise spark investor concern deterioration economic outlook development equity market argue hypothesis market price severe economic downturn equity index euro area bank non financial corporation see small change defensive equity sector i.e. stock tend stable period expected economic weakness underperformed sector sensitive business cycle development long term risk free bond yield provide little indication negative data surprise leave significant mark economic growth outlook decomposition long term yield real rate inflation component euro area show real rate slightly governing council previous monetary policy marginally collapse svb united states real interest rate continue recover strongly banking sector turmoil market long price banking sector stress drive significant wedge growth outlook euro area united states evident gap year real rate widen large early march divergence risk free rate euro area vis vis united states reflect eur usd exchange rate euro depreciate previous monetary policy closely track movement interest rate differential evolution interest rate expectation end euro short term rate str forward curve remain unchanged forward curve price basis point rate hike july probability additional basis point hike imply peak deposit facility rate slightly level expect time previous monetary policy inversion forward curve moderate contrast fund future curve shift upwards markedly previous monetary policy uncertainty future path monetary policy euro area decline substantially collapse svb volatility expect euro area short term interest rate reach low level start ecb rate hiking cycle reflect increase convergence monetary policy expectation market participant reduction uncertainty ecb medium term policy rate path somewhat odd market participant inflation expectation inflation link swap forward rate continue gradually increase mid march low remarkably repricing come despite weak macroeconomic datum soft expect inflation datum release fall commodity price increase inflation link swap rate partly attribute rise inflation risk premia reflect fact commodity price appear subject pronounce upside risk investor demand compensation risk relate food price expose upside risk pose russia war ukraine rise probability frequent extreme weather event occur year result niño factor drive inflation compensation increase expect core inflation rate market base measure long term inflation compensation euro area trend upwards summer amid volatility persistent upward trend measure unique major currency area option price point rise upside risk inflation elevated rise market base inflation expectation medium long run indicate investor doubt currently price ecb policy rate path sufficient rein inflation timely manner real year ois rate year ahead currently basis point level svb collapse expect low come year schnabel turn market impact ecb policy decision announce february ceiling remuneration government deposit hold eurosystem rate deposit non euro area resident hold eurosystem management service framework set spread basis point euro short term rate str overall level remuneration deposit achieve desire effect development closely monitor pricing adequately calibrate turn implication upcoming large repayment targeted long term refinance operation tltro june bank expect predominantly draw excess liquidity holding market funding recourse ecb regular refinance operation main refinance operation month long term refinance operation natural choice bank require funding source global environment economic monetary development euro area start outlook global economy lane recall rebound year global economic growth decelerate especially advanced economy heavily skewed service sector gap global output purchasing managers index service manufacturing sector reach historical high euro depreciate dollar effective term monetary policy oil future remain stable natural gas future price low time governing council non energy commodity price decline food metal price fall compare euro area economy stagnate month contract public private consumption negative contribution inventory partly offset expand net trade investment business investment hold thank easing supply bottleneck car production particular resume time survey datum point modest recovery year development diverge sharply sector euro area hard datum survey indicate weak activity manufacturing sector amid feeble demand run order backlog contrast service sector remain resilient benefit stimulus provide contact intensive service reopening economy historical pattern suggest weakness manufacturing spill service sector month ahead possible reason expect lag slowdown service relate fact monetary policy show powerful fast effect manufacturing service contractionary impact monetary policy gradually reach component aggregate demand typically sensitive interest rate change housing business investment durable good consumption expectation high mortgage rate weigh heavily perceive attractiveness housing investment short term indicator suggest weakening business investment owe tight financing condition fall order consumer inclined purchase big ticket item survey base evidence suggest rise share household variable rate mortgage expect difficulty make mortgage payment time time private consumption expect pick drive remain pen demand contact intensive service follow pandemic rise income result nominal wage increase rise employment look ahead modest increase export expect june eurosystem macroeconomic projection euro area revise outlook gdp growth downward slightly leave unchanged average annual real gdp growth expect slow rebound output expect increase projection horizon supply favourable development include ongoing expansion productive capacity pandemic easing supply bottleneck expansion labour supply include immigration demand expect increase owe rise domestic income underpin robust labour market improvement term trade associate decline uncertainty recovery foreign demand time scale recovery demand constrain ecb policy tightening gradual withdrawal fiscal support tight financing condition restrict economic activity medium term downside risk economic growth include russia war ukraine increase broad geopolitical tension fragment global trade weigh euro area economy growth slow ecb monetary policy transmit forcefully expect renew financial market tension lead tight financing condition anticipate weaken confidence weak growth world economy dampen economic activity euro area growth high expect strong labour market recede uncertainty mean people business confident spend labour market remain strong unemployment rate stand historical low april employment continue benefit strong increase labour force demand labour remain high level include result labour hoarding time average hour work person employ somewhat pre pandemic level wage pressure continue strengthen add underlie inflation pressure wage increase line march projection lead reassessment wage pressure june projection time sector profit level place employer favourable position absorb wage increase scope price increase decline large increase unit profit sector range contact intensive service agriculture contrast divergence start emerge sector energy utility construction sector see strong increase unit profit manufacture sector contact intensive service sector see decline unit profit imply sizeable wage increase pass customer early evidence low unit profit manufacturing contact intensive service consistent baseline assumption decline unit profit june projection headline inflation measure harmonised index consumer prices hicp decline april follow uptick april energy inflation resume downward trend see autumn food inflation peak march stand hicp inflation exclude energy food hicpx core inflation decline consecutive month reach term pipeline pressure food good inflation ongoing improvement early stage production process improvement expect translate reduction pressure input cost rest year number indicator underlie inflation notably trim measure exclusion base measure model base indicator persistent common component inflation pcci show sign soften supercore indicator wage sensitive component hicpx level domestic inflation continue increase reflect continue strong wage growth demand contact intensive service configuration suggest external driver underlie inflation rise energy cost supply bottleneck ease rise wage ongoing effect reopening economy put upward pressure domestic component underlie inflation different dynamic good inflation compare service inflation relate difference tradability labour content different inflation component imply important look separately underlying measure component hicp good inflation supercore pcci measure decline pcci have downward path end significant downward adjustment pcci indicator reflect decline energy price large share good production energy intensive momentum good inflation downward path contrast service inflation underlie measure momentum point visible decline pcci indicator service stabilise supercore measure upward trend service inflation decline marginally datum affect cheap monthly ticket public transport germany turn inflation expectation respondent survey monetary analysts keep expectation unchanged consumer expectations survey show consumer inflation perception expectation decrease significantly april temporary increase march june projection see headline hicp inflation slightly path envisage previous exercise headline inflation expect decrease average downward impact low energy price assumption offset upward revision food inflation core inflation underlying price pressure remain strong staff revise projection core inflation especially year year owe past upward surprise implication robust labour market speed disinflation projection see core inflation average decline average russia war ukraine remain significant upside risk inflation outlook push energy food cost lasting rise inflation expectation ecb inflation target high anticipated increase wage profit margin drive inflation higher include medium term recent wage agreement number country add upside risk inflation contrast renew financial market tension bring inflation fast project weak demand example owe strong transmission monetary policy lead low price pressure especially medium term inflation come fast decline energy price low food price increase pass price good service quickly currently anticipate tight monetary policy continue transmit funding cost increase spread subordinated bond hybrid instrument increase cost equity bank impact monetary policy tightening risk free yield curve continue drive lending rate firm household cost borrowing firm increase april mortgage rate rise average monthly flow lend firm negative november year lending contract slightly april small new firm tend dependent credit face particularly steep increase borrowing rate weak loan flow overall contraction credit exceed scale indicate historical pattern short term dynamic monetary aggregate weaken start year month annualise growth rate negative start year despite cushioning effect generate shift overnight term deposit development connect monetary policy tightening way amid weak lending loan flow support money growth reduce size eurosystem balance sheet mechanically drain money system bank increase long term funding mainly bond issuance replace mature tltro fund finally additional issuance government bond fully absorb bank absorb sector particular household reduce monetary policy consideration policy option basis assessment element ecb reaction function inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission lane propose raise key ecb interest rate basis point profile headline inflation core inflation shift upward june projection compare previous exercise albeit slightly indicator underlie price pressure remain strong show tentative sign soften time accumulate policy tightening increasingly take hold economy tight monetary policy stance gradually feel real activity lane propose confirm end reinvestment app july benign development euro area bond market market participant expect reinvestment stop private investor able smoothly absorb large scale public sector issuance beginning partial app run time preserve option apply flexibility reinvestment pandemic emergency purchase programme line defence fragmentation risk continue warrant proposed end app reinvestment july constellation datum projection argue continuity communicate governing council orientation monetary policy meeting governing council need convey message future decision ensure policy rate bring level sufficiently restrictive achieve timely return inflation target keep level long necessary emphasis data dependence allow governing council adjust course appropriate highly uncertain environment july addition monthly inflation datum release governing council able observe impact repayment large tltro iii operation come later june market effect end app reinvestment july addition evidence impact governing council measure include vintage ecb euro area lending survey corporate telephone survey emphasis data dependence clear reaction function provide suitable framework reflect information future policy rate decision line monetary policy strategy governing council need depth interrelation monetary policy financial stability financial stability outlook remain challenging governing council december tight financing condition raise funding cost bank credit risk outstanding loan tension banking system factor rise systemic stress depress economic growth short term factor weigh resilience financial sector downturn real estate market amplify high borrowing cost rise unemployment time euro area bank strong capital liquidity position mitigate financial stability risk macroprudential policy remain line defence build financial vulnerability govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane downward revision expectation foreign demand despite reopening china dynamic competitor import price important element eurosystem projection slow increase price rest world help contain pricing power eventually dampen core inflation euro area question raise possible effect weakness chinese economy fully take account projection outlook euro area foreign demand china source global disinflation time argue economic surprise index china united states upside caution assume world growth set slow context recall growth performance chinese economy repercussion global commodity price key risk factor euro area inflation outlook attention draw continue high geopolitical risk inject uncertainty volatility outlook global activity inflation notably respect energy food reference context sizeable rebound gas price early decline regard economic activity euro area member concur lane economy stagnate month real gdp shrink drop private public consumption economic growth weak short run strengthen course year inflation come supply disruption continue ease condition different sector economy uneven manufacturing continue weaken partly owe low global demand tight euro area financing condition service remain resilient note outcome real gdp imply technical recession weak figure embed june projection imply economy face material contraction addition mechanical estimate present lane point weak expect growth subsequent quarter perspective projection real gdp growth year 1½% subsequent year optimistic question raise divergence manufacturing service atypically strong give performance service sector drive post pandemic rebalancing economy attention draw decline domestic demand year see sign tightening monetary policy reach real economy suggest transmission work expect far conceal tailwind growth owe financial buffer accumulate saving available firm consumer stagger recovery supply bottleneck support tailwind fade look ahead argue baseline growth scenario projection entail possibly modest conservative impact monetary policy tightening effect credit supply constraint role quantity non price effect credit channel transmission typically explicitly reflect traditional macro model note little evidence quantity restriction credit provision bank capitalise profitable member discuss different element growth outlook projection supply bottleneck see ease expect note capacity utilisation manufacturing close historical high need additional investment projection horizon context reference extra investment require meet climate objective especially household sector estimate gdp annually net term possible crowding investment owe high interest rate climate relate investment drive subsidy relatively resilient interest rate cycle suggest upside risk investment upside risk see regard consumption give substantial accumulate saving remain place high extra saving associate household saving ratio embed june projection member widely agree labour market remain source strength job add unemployment rate stand historical low april average number hour work increase somewhat pre pandemic level context emphasise labour market expansion sustain extensive margin i.e. people join labour force argue imply well adjustment process usually case europe marginally attach worker seek work significant reduction number underemployed people warn strong inflow labour market imply fragility entrant need time learn job obtain employment stability ensure economy stall excessive tightening point demographic trend typically slow move post pandemic environment labour scarcity rapid structural change impact trend labour market development wage visible conventional projection horizon role high level employment support aggregate demand strong wage pressure increase bargaining power worker emphasise high employment currently manifestation improvement supply consistent expectation material recession price pressure fall time argue situation combine employment economic stagnation difficult rationalise standard model accordingly question raise expect okun law eventually enforce consistency labour market economic activity relationship work bring unemployment gap well alignment output gap measure slack misalign time argue potentially persistent rise sick leave fall productivity decline average hour work negatively affect potential output context emphasise need supply reform improvement strong labour market accompany high productivity growth member concur energy crisis recede government roll related support measure promptly concerted manner avoid drive medium term inflationary pressure strong monetary policy response fiscal policy design euro area economy productive gradually bring high public debt policy enhance euro area supply capacity especially energy sector help reduce price pressure medium term reform economic governance framework conclude soon feel risk fiscal domain skew late insufficient withdrawal stimulus number jurisdiction euro area background member concur economic outlook remain highly uncertain recall late gdp number result nowcaste model estimate figure imply downside risk growth relative june projection downside risk growth include russia unjustified war ukraine increase broad geopolitical tension fragment global trade weigh euro area economy growth slow effect monetary policy forceful project renew financial market tension lead tight financing condition anticipate weaken confidence additionally weak growth world economy dampen economic activity euro area growth high project strong labour market recede uncertainty mean people business confident spend time argue risk factor mention opposite direction monetary policy transmit strongly project world economy grow fast anticipate regard price development member agree assessment present lane introduction member consider consecutive decline core inflation positive signal widely feel sufficient convincing evidence confirm turning point emphasise momentum price dynamic remain strong component inflation exception energy outcome core inflation prove stubborn continue high project point great persistence look ahead degree persistence differ sector low non energy industrial good inflation high service inflation clearly role external shock diminish main driver inflation domestic include strong contribution wage profit particular strong growth hospitality service price expect summer impact labour cost increase observe food inflation start come somewhat remain elevated geopolitical risk weather climate relate factor include niño point upside risk doubt express particular emphasis core inflation justify see lead indicator future headline inflation fact juncture role unwind energy food inflation imply core inflation lag headline inflation context recall core inflation component headline inflation need analyse ecb monitor wide range measure underlie inflation recall measure underlie inflation start decline continue grow strongly decline underlie inflation sufficient ensure inflation return target respect june projection broad agreement stubbornness inflation high unit labour cost key factor upward revision core inflation especially time extent upward revision inflation question light late encouraging datum respect change assumption underpin june projection compare march projection particular assumption high interest rate low energy price appreciation euro project speed decline inflation argue clear disinflationary factor operate early stage disinflationary process important ask factor operate end projection horizon disinflation hard achieve close inflation come high wage inflation expectation entrench point recall expect decline inflation predicate wage pressure abate real wage barely loss profit margin unit profit dynamic reverse act buffer high unit labour cost see point narrow path get close ecb target mention united states core personal consumption expenditures inflation despite reach turning point early prove persistent repeatedly fail come line early federal open market committee projection member widely agree assessment lane introduction wage pressure partly reflect payment increasingly important source inflation compensation employee rise negotiate wage rise firm sector able profit relatively high especially demand outstrip supply note main problem company face continue capacity hire skilled labour long remain case employment creation come wage pressure wage drift actual negotiate wage high reflection tight labour market concern express protract wage pressure turn contribute great persistence domestic price pressure notably unit labour cost increase amid subdue growth productivity continued pricing power firm point tightness labour market emerge backdrop increase labour force fast creation short term contract migration factor tend reduce wage pressure new entrant tend job pay low wage job mover typically take high quality job significant wage increase member assess outlook wage different angle acknowledge baseline june projection contain substantial nominal wage growth recent information point strong wage growth country argue outcome line baseline projection imply upside risk recall projection predicate assumption pressure wage negotiation gradually abate long assumption visible actual datum confirmation wage pressure run course upside risk wage growth remain give stagger wage set long term contract europe impact high wage spread year come likewise risk country sector union bargaining catch real wage respect pre pandemic level try trend decline wage share incur past decade nominal wage growth expect historical average accord june projection suggest time growth consider moderate view expectation real wage loss return pre pandemic level currently evidence significant round effect wage price spiral warning give underestimate risk price level high inflation come wage price spiral unfold ultimately depend ability willingness firm absorb high unit labour cost profit margin turn depend economic environment firm operate monetary policy context reiterate high level inflation lead tit tat strategy worker business seek compensation price cost increase respectively recall euro area hit term trade shock policymaker communicate condition self defeat social partner aim compensation number small country high wage growth high inflation start raise concern revaluation real exchange rate loss competitiveness relative peer suspect future issue euro area level profit play important role development output price note projection decline inflation rest assumption margin shrink assumption consider line past cyclical behaviour margin relation labour cost development evidence provide reassurance profit revert early pattern post pandemic environment profit dynamic strong time notwithstanding variation activity argue ultimately behaviour margin depend evolution pricing power resilient economy remain big risk firm pass high unit labour cost price absorb low profit margin regard inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator measure currently stand indicator remain elevated need monitor closely point market base measure stand clearly close correct risk premia argument measure anchored stand level previously consider worrying trend point upwards comfort draw well news come decline medium term inflation expectation ecb consumer expectations survey time reference qualitative datum european commission consumer survey show unusual gap inflation perception actual inflation suggest continue risk upward shift inflation expectation long period target inflation despite sharp decline inflation argue respect ultimately inflation expectation matter extent change actual behaviour show wage price setting real economy background member consider upside downside risk inflation outlook upside risk inflation include potential renew upward pressure cost energy food relate russia war ukraine lasting rise inflation expectation ecb target high anticipated increase wage profit margin drive inflation higher include medium term recent wage agreement number country add upside risk inflation contrast renew financial market tension bring inflation fast project weak demand example strong transmission monetary policy lead low price pressure especially medium term inflation come fast decline energy price low food price increase pass good service quickly currently anticipate range view express risk assessment respect path inflation significant upside risk headline core inflation see stem great persistence strong wage dynamic entire projection horizon specific upside risk associate food commodity price assumption possibly last damage supply capacity hysteresis effect sufficiently restrictive fiscal policy weak project monetary policy transmission acknowledge past forecast error implication increased inflation persistence partly incorporate baseline consider typical correlation forecast error time imply upward risk period ahead time argue late evidence strong wage high labour cost incorporate baseline projection long consider upside risk turn monetary financial analysis member concur assessment provide lane introduction impact monetary policy tightening credit monetary dynamic judge sizeable weak lending reduction eurosystem balance sheet lead continue decline annual broad money growth credit dynamic weaken owe high borrowing rate tight credit supply condition low loan demand maintain speed extent contraction lending fully explain increase policy rate fundamental economic activity express credit weakness point increase risk unwarranted intensification transmission monetary policy stance banking sector express credit remain relatively resilient face sharp rate increase contraction explain weak loan demand credit supply constraint maintain credit weakness drive decrease short term loan firm finance increase work capital need relate early energy price shock doubt express weakness credit exceed scale indicate historical pattern comparison depend period consider parameter include analysis account need take stock flow credit associate accumulate liquidity hold response high inflation loan gap i.e. deviation credit path consistent past cyclical pattern tend decrease later increase provide reliable measure credit supply restriction inflationary environment furthermore underline euro area banking sector weather turmoil march relatively profitable note accord ecb banking supervision profitability develop benign way monetary policy tightening start support lending capacity accord survey access finance enterprise firm ample cash owe pandemic support measure attenuate concern credit demand meet attention draw forthcoming release lending survey corporate telephone survey shed light development time widely acknowledge funding condition tighten bank credit expensive firm household borrowing cost non price condition firm appear adjust fast previous tighten episode lending rate concern express possible funding tension increase credit risk perception translate tight financing condition reflect macroeconomic projection context underline credit condition affect increase ecb policy rate reduction eurosystem balance sheet particularly backdrop come tltro iii repayment june note rapid pace policy rate hike reduce borrower creditworthiness increase bank risk perception signal lending survey expect dampen lending significantly concern voice credit tightening particular consequence reduction household net disposable income cause high debt servicing cost variable rate mortgage loan fully filter real economy jurisdiction prevalence fix rate mortgage impact high rate muted materialise mainly flow lending stock outstanding mortgage argue long rate fixation period mortgage debt slow rise deposit rate high level excess saving mitigate slow transmission tight lending condition household recall share fix rate mortgage increase number jurisdiction period low interest rate dampen monetary policy transmission compare historical precedent governing council hold biannual structured exchange interrelation monetary policy financial stability member concur financial stability outlook remain challenging december tight financing condition raise funding cost bank credit risk outstanding loan context see risk excessive monetary policy tightening hamper smooth transmission monetary policy increase fragmentation risk factor weigh resilience financial sector downturn real estate market amplify high borrowing cost rise unemployment time confidence express euro area bank strong capital liquidity position macroprudential policy remain line defence build financial vulnerability monetary policy stance policy consideration turn assessment monetary policy stance member assess financing condition tighten monetary policy past policy rate increase transmit forcefully financial financing condition note long term real bond yield level prevail beginning year market expectation policy rate path embed forward curve reveal survey remain relatively stable previous pricing rate increase basis point governing council june july meeting background argue market participant surprise upward revision inflation particularly core inflation june projection trigger repricing forward curve hold level peak deposit facility interest rate duration embody forward curve reflect projection judge insufficient bring inflation medium term target projection show inflation lie underline forward curve embed projection foresaw interest rate cut ecb half line survey monetary analyst policy rate approach peak interest rate cycle trade perceive market participant level peak rate duration see important argue long prospect high persistent policy rate price term structure market interest rate policy path reflect financing condition accordance main element reaction function governing council communicate early year member evaluate development previous monetary policy relate inflation outlook dynamic underlie inflation strength monetary policy transmission start inflation outlook member concur assessment upward revision inflation path june projection inflation project high long call question return target timely manner upside revision headline core inflation return target push future upside risk inflation outlook judge prevail mainly owe persistent wage price dynamic incorporate projection addition recall inflation projection materialise governing council minimum deliver successive interest rate increase june july embody assumption projection base argue bring inflation high number moderate level easy achieve return medium term target context remark envisage return inflation end consider late risk materialise meantime inflation target see important governing council stress symmetry inflation objective i.e. upward downward deviation regard equally undesirable scenario high inflation high interest rate see possible interest rate stay sufficiently restrictive contrast maintain projection late inflation datum show initial supply driver inflation gradually wan demand factor gain importance headline inflation decline path october project fall projection horizon incoming datum line governing council expectation strengthen confidence monetary policy right track time prevail high level uncertainty underline see important governing council response upward revision inflation outlook perceive change reaction function appropriate response parameter reaction function emphasis place evidence market base measure inflation compensation edge require close monitoring particular long term market base measure remain stubbornly high partly attribute risk premia suggest investor see upside risk long term inflation outlook prevail downside risk contrast survey base indicator inflation expectation stabilise decrease weigh different element inflation expectation assess anchored evidence emerge wage price set behaviour euro area country start moderate context weight attach macroeconomic projection oppose actual datum assess monetary policy stance discuss hand argue governing council focus datum projection assess inflation outlook argue attach weight observable datum improve policy decision particular uncertainty high hand maintain projection important useful input governing council decision making provide discipline crucial benchmark deliberation scrutinise disregard member assess level persistence underlie inflation source concern core inflation revise significantly june projection caution strong wage growth key driver inflation convince evidence underlie inflation peak lack underline president appearance european parliament highlight accord datum release core inflation stabilise reach turning point time underlie inflation measure embark steady path decline context argue governing council emphasis behaviour core inflation mandate relate headline inflation core inflation represent household consumption basket historically good lead indicator future headline inflation euro area finally turn assessment monetary policy transmission member concur interest rate reach restrictive territory remain unclear point stance sufficiently restrictive evidence tight policy stance transmit financing condition credit volume real economy strength transmission ultimate lag transmission inflation remain variable uncertain high borrowing rate see contribute soften demand require dampen underlie inflation dynamic point tighten impact interest rate increase subject uncertainty neutral rate push structural change labour market affect monetary policy context argue adjustment well function labour market need time unfold benefit gradual cautious conduct monetary policy transmission monetary policy observe vary euro area country institutional arrangement fiscal national policy differ inflation react tightening monetary policy stance different lag country caution increase policy rate unprecedentedly fast effect past rate hike expect materialise exert downward impact growth inflation argument inflation expectation start shift upwards response prolonged period high inflation monetary policy transmit forcefully high share service hicp imply change interest rate slow affect aggregate inflation uncertainty transmission monetary policy high show substantial difference estimate effect model monetary policy decision communication background consideration governing council reaction function member agree tighten monetary policy stance increase interest rate warrant past rate increase transmit forcefully financing condition gradually have impact economy tight financing condition key reason inflation project decline medium term target inflation project high long argument worsen inflation outlook strong signal need consider past decision decisive bring inflation target quickly look ahead maintain continue gradual tighten path allow governing council monitor impact past monetary policy decision ensure financial condition adjust way consistent inflation move medium term target emphasis need sufficiently restrictive persistent monetary policy tightening see essential communicate monetary policy ground cover bring inflation target timely manner hold governing council increase interest rate july necessary broad consensus support basis point rate increase propose lane preference initially express raise key ecb interest rate basis point risk high inflation persistent emphasis merit stick data dependent approach uncertain environment particularly rate move close possible peak level broad consensus prevail favour confirm end reinvestment app july propose lane preference express defer decision later date effect june tltro iii repayment bank liquidity assess overall euro area bond market consider function smoothly beginning partial app run end reinvestment signal governing council previous expect market participant note end reinvestment coincide june tltro iii repayment remove large amount excess liquidity system note discontinuation reinvestment app governing council climate relate measure consider ensure measure fit purpose align objective paris agreement climate neutrality objective member agree data dependent approach monetary policymaking combine communication ecb reaction function serve governing council reconfirm time remark governing council need additional interest rate step prepared stop raise rate require datum judgement july september information available allow governing council update assessment inflation outlook dynamic underlie inflation strength monetary transmission context data dependent approach optionality see essential feel governing council stress fiscal policy need tighten order dampen demand support disinflation process take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference june press release monetary policy decision meeting ecb governing council june members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau visco vujčić wunsch members hold voting right june article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person assouan buch dabušinskas demarco gavilán gilbert haber koukoularides lünnemann madouros martin nicoletti altimari novo rutkaste šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting july account monetary policy governing council european central bank hold frankfurt main wednesday thursday july august review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy june narrative global financial market shift high long scenario inflation grow optimism disinflation scenario increase divergence economic datum euro area united states elevated sensitivity euro area asset price especially datum surprise interpretation market datum challenge cause rapid shift market narrative follow previous monetary policy communication high inflation release strong economic datum initially drive euro short term rate str forward curve higher upward shift partly reverse euro area response release consumer price index cpi july low expect purchasing managers indices pmis euro area look volatility late str forward curve stand level observe governing council previous monetary policy market price basis point rate hike probability additional basis point hike september peak deposit facility rate end year market pricing line result ecb survey monetary analysts reuters bloomberg survey poll conduct cpi release show slight majority foresee rate hike september peak deposit facility rate look upward shift market expectation ecb peak rate relate expectation subsequent rate cut clear correlation observe expect peak rate cumulative rate cut price end spillover united states reappraisal euro area monetary policy key driver euro area risk free yield policy data drive period global tighten cycle sensitivity asset price macroeconomic news increase strongly give large common component global inflation dynamic lead role united states inflation cycle euro area risk free yield asset price appear heighten sensitivity datum surprise model base decomposition risk free year overnight index swap ois rate suggest euro area ois rate initially support expectation monetary policy tightening look development cpi release reversal euro area long term yield drive spillover united states reinforce ease monetary policy expectation disappointing data release euro area shift market narrative mirror eur usd exchange rate development euro appreciate expectation monetary policy tighten euro area relative united states improve risk sentiment lose gain past week owe deteriorate economic outlook euro area overall euro continue appreciate currently stand nominal effective term trough record september reduce inflationary pressure mean low import price repricing near term inflationary pressure observe financial market follow june monetary policy reflect upward revision inflation projection june eurosystem macroeconomic projection euro area expect persistence inflation rotation underlying driver decomposition year forward inflation compensation year ahead euro area show upward pressure stem demand factor counterbalance fading negative supply shock market perception strong inflation persistence euro area consistent continue upside risk long term inflation outlook market base measure long term headline inflation compensation euro area continue trend upwards empirical analysis suggest inflation link swap ils rate remain reliable indicator inflation compensation euro area significantly affect supply demand imbalance market underlie euro area break inflation rate beir high short term rate expectation tandem stable long term rate deepen inversion euro area yield curve negative euro area datum surprise inversion reignite recession concern market participant empirical evidence deep yield curve inversion strong track record predict recession owe stock effect bank bond holding term premium remain compress reduce predictive content slope yield curve economic growth time euro area equity credit market remain resilient rise equity price benign development credit market consistent expectation soft landing economy point limited transmission monetary policy risk asset price relate compress term premia imply loose financing condition medium long term segment sovereign spread close level observe ahead monetary policy tightening cycle late upward pressure stem sharp rise policy rate offset solid nominal economic growth launch transmission protection instrument additional compensating factor increase corporate bond spread response tighten expectation notably pronounce year date corporate spread actually narrow exception high yield bond level prevail time governing council previous monetary policy odd rise default risk owe expectation protract economic downturn stable condition credit market need see context sharp decline excess liquidity amid large repayment series targeted long term refinance operation tltro iii start run asset purchase programme app point good absorption capacity market historically large decline excess liquidity end june owe mature tltro iii operation result upward pressure money market rate period rise excess liquidity negative spread str deposit facility rate steadily widen reintroduction positive rate reduction excess liquidity spread basis point irrespective level excess liquidity particular spread remain unchanged decline excess liquidity follow sizeable tltro iii repayment june finding consistent ample liquidity condition prevail evidence local scarcity reflect fact repayment widely anticipate bank recourse standard refinance operation main refinance operation mro month long term refinance operation ltro increase mildly increase small expect usage lately decline notably look ahead excess liquidity expect decline steady pace remain tltro iii operation mature app portfolio gradually unwound global environment economic monetary development euro area external environment lane note global economic activity resilient half year visibly lose momentum week global pmi manufacture output fall contractionary territory june drive sharp slowdown advanced economy adverse consequence global trade service pmi remain expansionary territory reach turning point euro appreciate dollar nominal effective term governing council previous monetary policy june slight reversal period regard commodity oil price increase gas price decline metal price remain relatively stable food commodity price increase governing council previous monetary policy partly reflect russia unilateral withdrawal black sea grain initiative turn euro area indicator point weak growth outlook composite output pmi decline april july fall threshold dynamic consistent weak gdp performance quarter year manufacturing production contract housing investment business investment estimate decline consistent tight financing condition make housing affordable increase cost capital reduce investment service remain resilient especially contact intensive sector tourism july pmi point mark deceleration activity order inflow suggest broad base deceleration month come zoom demand component gdp private consumption decline labour non labour income support factor decline drive reversal fiscal measure increase household saving despite progress correct term trade shock housing investment growth turn negative positive construction support mild winter easing bottleneck positive blip prospect quarter turn negative build construction decline survey indicator contractionary territory residential building permit lead indicator housing market fall considerably quarter similar drop observe housing sale business investment resilient support easing bottleneck survey indicator pmis capital good outstanding business order point contraction follow quarter ecb july corporate telephone survey suggest firm busy fulfil backlog order book order decline trade export order book level manufacturing good historical average export firm long able rely large backlog order pmi export order deep contractionary territory service pmi order move threshold tourism order expand decline pace import visible decline intermediate good link weak investment prospect labour market remain robust unemployment rate stay historical low datum indicate expansion employment continue especially service sector lane recall expand labour force key factor contribute employment creation past year contribute positively potential output forward look survey indicator suggest job creation slow come month turn negative manufacturing sector overall wage negotiation appear line path embed june macroeconomic projection risk projection hand forward look ecb wage tracker late corporate telephone survey point modest upside risk june wage growth projection hand monthly datum available country indicate growth negotiate wage decrease exclude payment move profit unit profit contribute significantly increase gdp deflator unit labour cost late corporate telephone survey suggest picture decline profit start year low profit expect follow quarter inflation measure harmonised index consumer prices hicp come june expect fall driver underlie downward trend inflation dynamic change external source inflation ease domestic price pressure include rise wage robust profit increasingly important driver inflation energy price fall drop year year food price inflation continue slow remain high point lag pass past input cost shock weather relate factor hicp inflation exclude energy food edge june line june projection amid upside base effect service inflation non energy industrial good inflation decrease reflect ease supply bottleneck weak demand strong global competition conversely service inflation rise owe robust spending holiday travel reflect upward base effect give relevance base effect short term dynamic important monitor indicator momentum hicp inflation component continue decline albeit different degree headline inflation annualise month month basis june reflect strong negative momentum energy inflation food inflation momentum fall high core inflation item decline significantly good service take long term perspective inflation momentum decrease remain pre pandemic average drive dynamic food service inflation indicator underlie inflation show softening remain elevated level staff analysis suggest pcci persistent common component inflation good predictor year ahead value indicator underlie inflation continue monitor analysis show fading past energy price increase supply bottleneck downward pressure indicator time additional transitory element continue affect measure effect post pandemic reopening service despite correlate extent bottleneck shock fair assume inflation generate high profit tourism hospitality transitory factor boost underlying inflation focus pipeline pressure incoming datum price early stage production chain show significant downward movement food good case food hot summer risk associate niño climate event represent clear upside risk food inflation standard tool able capture good inflation pipeline pressure unequivocally point significant deceleration rest year analysis service inflation significant downward adjustment zoom contact intensive service lane note reset price accommodation pronounce reopening spring intensity price increase year low year ago case restaurant price increase smooth accommodation inflation particular sector start stabilise highly wage intensive sector rise wage cost sector upward pressure service inflation pmi output price tourism recreation good lead indicator contact intensive service suggest decline inflation period ahead annual growth rate residential property price decline time cost renting slowly reach annual increase june inflation owner occupy housing price continue decline mildly price pressure ease purchase house maintenance cost relate housing remain high measure long term inflation expectation currently stand indicator remain elevated need monitor closely lane note significant news fiscal governing council previous monetary policy june incoming information confirm fiscal tightening expect national budget reduce support measure relate energy bill compare small amount available spend generation ngeu programme year governing council monetary policy tightening continue transmit strongly broad financing condition risk free interest rate short medium term maturity increase previous monetary policy funding expensive bank owe ongoing phasing tltro iii large june tltro iii repayment proceed smoothly bank prepare average lending rate business loan mortgage rise respectively late lending survey point tightening credit standard sharp drop loan demand firm household bank concerned risk face customer willing bear risk report demand loan corporation fall time low start survey time low height global financial crisis decline demand substantially great expect bank previous reflect mainly impact rise interest rate loan demand willingness undertake fix investment term funding firm monthly flow loan net issuance corporate debt security continue flat relation nominal business income nominal gdp point significant shrinking credit volume tight financing condition make housing affordable attractive investment accordingly demand mortgage drop row accord lending survey response credit standard consumer credit lending tighten previous bank expectation term condition consumer credit tighten loan demand continue fall mean consumption durable good affect near term monetary policy consideration policy option basis assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane propose governing council raise key ecb interest rate basis point incoming data release validate inflation outlook june projection measure underlie inflation show sign cool remain elevated strong transmission monetary policy stance broad financing condition remain important factor bring inflation target give incoming information governing council underscore continuity general policy orientation time september round projection available governing council incoming datum inflation release july august available evidence speed strength monetary transmission take september projection evolution underlie inflation incoming information monetary transmission help governing council update assessment appropriate monetary policy stance lane propose communicate future decision ensure key ecb interest rate set sufficiently restrictive level long necessary achieve timely return inflation governing council medium term target formulation clear governing council open mind appropriate policy action september governing council signal appropriate level duration restriction data dependent preserve option apply flexibility reinvestment pandemic emergency purchase programme line defence fragmentation risk continue warrant end app reinvestment finally lane propose set remuneration minimum reserve step reduce interest need pay reserve implement appropriate monetary policy stance ensure degree control stance preserve effectiveness governing council monetary policy improve efficiency policy implementation govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane late survey datum point visible loss momentum global activity hard datum suggest bottoming decline end resilience half reference chinese economy activity market expectation time chinese authority announce set policy measure include aim business friendly environment support investment question raise imply euro area outlook give strong trade link china argue china source weakness global demand financial market appear price relatively high probability recession united states euro area large trading partner member take appreciation euro compare technical assumption time june eurosystem projection case vis vis dollar nominal effective term affect real economy ultimately price euro area regard economic activity euro area member concur lane near term economic outlook euro area deteriorate owe weak domestic demand high inflation tight financing condition dampen spending weigh especially manufacture output hold weak external demand housing business investment show sign weakness service remain resilient especially contact intensive subsector tourism momentum slow sector economy expect weak short run time fall inflation rise income improve supply condition support recovery broad agreement assessment sign possible downward surprise economic activity compare june projection constitute important news reference result nowcaste model mechanically synthesise hard soft datum point stagnation projection see clearly positive growth caution link soft indicator hard datum weaken gdp datum prone revision prudent await eurostat gdp release come week draw firm conclusion case datum comprehensive update embed september ecb projection question raise extent deterioration short term growth outlook relate ecb monetary policy tightening oppose deterioration reflect repercussion pandemic energy shock possibly structural factor affect euro area economy low competitiveness context high energy climate relate cost hand argue deterioration outlook show monetary transmission work interest rate increase intend job hand recall typical transmission lag ecb estimate suggest impact gdp past tightening pipeline materialise come year context feel important look evidence late deterioration growth outlook reflect impact monetary policy measure residual effect pass early shock long last structural issue weigh supply widely regard unsurprise investment housing weak prospect investment particular capital intensive interest sensitive sector comfort draw context observation lending survey suggest green investment affect general pull lending public private green investment vital mitigate occurrence impact climate shock time argue bad news concern growth outlook concentrate housing investment prospect business investment dependent financing demand sector raise question elasticity embed projection capture impact monetary policy measure low member extensively discuss contrast signal come industrial service sector late survey datum industry point downturn activity service line positive growth consumer sentiment continue improve despite ecb monetary tightening high inflation point relative resilience service large extent seasonal activity recreational travel accommodation business change remainder year context suggest demand tourism relate service partly come outside europe pen demand euro area rely previously accumulate saving expect diminish time addition argue deceleration industrial production growth start extend service expectation express reconnection sector accelerate summer argue spillover weakness manufacturing service sector inevitable give considerable heterogeneity service recall dichotomy manufacturing service line historical pattern monetary policy affect service long lag aggregate activity lag response long recovery time pervasive euro area economy service base early decade dichotomy see raise question slowdown economic activity predominantly demand impact monetary policy case strong effect observe service similar vein see puzzle interest rate elasticity manufacturing sector appear high euro area united states fact sentiment manufacturing sector hold compare euro area see cast doubt slowdown euro area attribute monetary policy explain asymmetry economy structural factor weigh specifically manufacturing euro area mention have play role notable example car industry merely victim low demand face competitiveness issue example energy price shock lead large structural change industrial competitiveness member widely agree labour market remain robust unemployment rate stay historical low job create especially service sector time forward look indicator suggest trend slow come month turn negative manufacturing note labour market development remain puzzle give response unusually mute compare previous episode weaken growth labour market remain strong element economic outlook suggest soft landing possible economy strength see reflect increase flexibility european labour market especially case service time great flexibility imply employment service sector fragile affect employment negatively firm stop hire worker start fire unemployment jump abruptly later risk exacerbate service sector employ large share temporary time worker observe glimpse softening labour market condition manufacturing suspect sign follow sector regard fiscal policy member concur energy crisis fade government roll related support measure promptly concerted manner essential avoid drive medium term inflationary pressure strong monetary policy response eurogroup statement euro area fiscal stance consistent assessment fiscal policy design euro area economy productive gradually bring high public debt policy enhance euro area supply capacity help reduce price pressure medium term support green transition further ngeu programme reiterate reform economic governance framework conclude end year respect fiscal tightening imply national budget plan acknowledge significant tightening expect future support disinflation process european commission start ask additional adjustment budget sign government fiscal tightening caution advise give great control public expenditure improvement deficit announce past fail materialise context remain see instance energy subsidy phase speedily deficit reduce tandem point reduction government debt gdp ratio observe far reflect impact inflation structural reform effort change primary balance indicate tightening argue fiscal policy european country remain procyclical add inflationary pressure pressure high primary balance high interest rate emerge gradually long budget support high expect tax revenue result high inflation background member concur outlook economic growth remain highly uncertain downside risk growth include russia unjustified war ukraine increase broad geopolitical tension fragment global trade weigh euro area economy growth slow effect monetary policy forceful expect world economy weaken dampen demand euro area export conversely growth high project strong labour market rise real income recede uncertainty mean people business confident spend argue time scenario remain june projection late information imply clear downside risk growth elevated uncertainty nowcast imminent release gdp datum provide information regard price development member agree assessment present lane introduction driver inflation change external source inflation ease domestic price pressure include rise wage robust profit margin increasingly important driver inflation measure move lower underlie inflation remain high include owe persistent impact past energy price increase economy wide price member underline material surprise late inflation outcome compare june projection see good news give early streak upward surprise observed decline headline inflation mainly energy food price see confirmation shock initially cause inflation rise steeply unwind quickly visible major role base effect decline inflation point lead boom bust pattern inflation country energy food account large share household consumption basket point relevance mile problem inflation pressure rotate external source domestic price pressure suggest core inflation pass peak caution elevated summer month slight decline see look upward base effect associate temporary transport price subsidy euro area large economy summer base effect drop datum october point datum hopefully confirm peak reach core inflation time remain stubbornly high context comfort draw survey datum firm point substantial decline frequency share price increase compare price reduction euro area economy similarly short term inflation expectation household sell price expectation firm consistently decline month euro area reference ecb analysis underlie inflation measure refer lane introduction observe measure balance remain stable month high level note measure identify perform well indicator medium term inflation currently point different direction pcci decline swiftly hicp inflation exclude energy food travel relate item clothing footwear measure domestic price pressure point upside adjust different measure impact energy bottleneck shock point low level remain fading shock expect bring inflation target point entrenched inflationary pressure food price development identify major source uncertainty influence factor potential shock hard predict context consequence russia unilateral withdrawal black sea grain initiative big question mark significant risk factor food price impact climate change weather shock relate niño non linear need establish shock relate demand supply imply mainly short term volatility affect medium term outlook short term volatility necessarily warrant monetary policy response context high inflation affect wage negotiation material impact member note wage growth somewhat high expect information appear line turnaround low wage growth anticipate june projection perspective material surprise wage growth expect peak summer decelerate concern express outlook surround upside risk reference wage agreement long duration imply wage pressure low near term linger long pipeline materialising later agreement expire anecdotal information euro area economy suggest worker claim wage negotiation oriented actual inflation forward look anchor prospect inflation come target addition point high wage growth outpace low productivity growth imply late economic activity labour market development lead softening unit labour cost pressure foresee june projection point upside risk inflation trend nominal wage increase incompatible ecb medium term target adjust subdue productivity development respect pass high wage recall assumption june projection rise labour cost buffer compression unit profit doubt raise case follow strong profit growth see argue chance buffering occur future see realistic disappointing growth performance negative demand development probability firm lower mark increase recall labour hoarding cost free cost soon later low productivity low profit firm low wage conclude evolution wage profit growth remain important factor uncertainty regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator measure currently stand indicator remain elevated need monitor closely broad stability survey base long run inflation expectation consider important mean large wage increase future emphasise continue increase market base inflation compensation measure include measure year forward year ahead stand mainly risk premia question inflation expectation remain anchored suggest market participant see rise upside risk long term inflation addition evidence continue raise question recede inflation uncertainty show reduction risk premia background member consider outlook inflation remain highly uncertain subject upside downside risk upside risk include potential renew upward pressure cost energy food relate russia unilateral withdrawal black sea grain initiative adverse weather condition light unfold climate crisis push food price project lasting rise inflation expectation ecb target high anticipated increase wage profit margin drive inflation higher include medium term contrast weak demand example owe strong transmission monetary policy lead low price pressure especially medium term inflation come fast decline energy price low food price increase pass price good service quickly currently anticipate member refer different risk inflation set risk pertain possibility high wage growth profit margin remain elevate long suggest process disinflation challenging direct effect previous external supply shock inflation reverse persistent domestic price pressure round effect start dominate time look wage profit margin inflation expectation evolve currently discernible indication strengthen round effect recall inflation projection predicate assumption shock occur contrast example climate food crisis exacerbate niño effect year suggest shock occur projection horizon associated upside risk inflation timescale today consequence climate change see frequent extreme weather event drought wildfire flood threaten harvest tourism risk food price see strongly tilt upside addition shock adverse structural development reduce euro area supply capacity increase upside risk inflation medium long term express combination surprise inflation low expect growth prospect imply risk inflation balanced start downside time point presence adverse supply shock outcome stagflation recession necessarily accompany clear reduction inflation time come unlike standard case demand shock drive force argue compare assessment basis june projection downshift risk inflation outlook warrant merely take account mechanical impact update technical assumption financing condition exchange rate inflation number apply conventional elasticity suggest picture inflation line expectation growth low interpret way point great inflation persistence expect give growth rate pass policy tightening final objective turn monetary financial analysis member concur assessment provide lane introduction average lending rate business loan mortgage rise credit standard tighten accord lending survey credit demand firm household fall lead mute loan growth rate monthly loan flow firm hover november underline evidence lending survey show credit demand firm business investment decline expect decline point follow large swing observe pandemic period confront energy shock medium term perspective outstanding credit return long term trend attention draw development money credit aggregate growth rate decline fast pace negative territory real term particular recall development narrow money typically good lead indicator turn point economic activity weak development credit aggregate reflect supply demand effect argue lending survey show evidence credit supply restriction incoming datum signal financial amplification effect stem banking sector existence credit supply channel see relevant event crisis like development financial sector reinforce tighten impact monetary policy impulse credit demand channel take account calibrate monetary policy stance context maintain bank liquidity condition monitor carefully financial stability risk particularly high balance sheet financial intermediary contract amid weak macroeconomic condition respect transmission tight financing condition loan housing remark part euro area housing market recover despite ongoing tightening monetary policy possible reason see mute response long term interest rate compress large stock asset eurosystem balance sheet long term rate stable sizeable initial increase observe reference indication tight financing condition start affect economic decision notably regard investment choice overall risk free forward rate curve remain somewhat level observe prior governing council previous monetary policy downward shift observe week explain market participant expect low growth rate feed low inflation rate require pronounce interest rate increase remark narrative appear odd continue upward drift market base measure inflation compensation correct inflation compensation measure extract forward ils rate inflation risk premia year forward ils rate year ahead virtually level time june fact risk premia increase remain elevated see point upside risk inflation concern voice inversion yield curve interpret indicator upcoming slowdown economic activity fact yield curve inverted united states euro area main trading partner see add recession risk euro area context argue euro area monetary policy face challenge market participant expect directionally similar interest rate path currency area light past negative datum surprise economic activity euro area decouple positive development united states monetary policy stance policy consideration turn assessment monetary policy stance member assess financing condition have tighten governing council june past policy rate increase continue transmit strongly financing condition sector risk free interest rate short medium term maturity increase period point appreciation euro contribute tightening financial condition risk asset include equity resilient monetary tightening deteriorate outlook corporate sovereign bond spread observation borrowing cost bank firm household rise substantially increase time rate hike transmission lag monetary policy measure mature tltro iii operation rundown app portfolio see reinforce monetary policy tightening result increase key ecb interest rate note have reprice quickly start tighten cycle long term interest rate move sideways time real interest rate rise significantly past year rise interest rate hike inflation expect fall underline restrictiveness monetary policy degree monetary policy restriction ultimately require remain uncertain accordance main element reaction function governing council communicate early year member evaluate development governing council june relate inflation outlook dynamic underlie inflation strength monetary policy transmission start inflation outlook member concur development line june eurosystem projection contrast indicator real economy signal weak gdp growth project note headline inflation come quickly albeit high level inflation expectation remain anchored partly owe strong monetary policy response observed decline inflation risk round effect lead wage price spiral contain raise confidence monetary policy start effect caution express inflation datum come month require governing council able confirm downward trend hicp inflation highlight inflation time expect return target quickly action comprehensive picture emerge ecb projection september time maintain weakening economic activity expect help generate condition necessary restore price stability upside risk inflation outlook see prevail relate mainly underestimation wage pressure renew supply shock argue weakening economy contribute dampen inflation pressure bring inflation outlook line governing council medium term target time argue overtightening help bring inflation sustainably target later lead inflation undershooting recall effect past rate hike fully transmit real economy governing council need account secondary objective assign treaty european union contain unnecessary effect output employment pursue price stability mandate medium term concern voice slowdown economic activity ongoing transmission past monetary policy action lead pronounce deceleration economic activity necessary achieve price stability elevated inflation outlook weak growth outlook concern raise economy enter phase stagflation contrast benign scenario soft landing underline governing council mandate price stability institutional independence grant allow bank focus squarely price stability prevail uncertainty large cost bring inflation entrench argue preferable tighten monetary policy tighten decide stop tighten cycle governing council need clear sign inflation converge target effect shock fade finally inflation risk fiscal development see persist member assess level persistence underlie inflation source concern acknowledge indicator underlie inflation stable month stability suggest momentum reverse inflation pass peak take little comfort draw ecb analysis suggest fading supply shock insufficient bring core inflation value overall despite improvement underlie inflation expect high extended period growth slow action take contrast argue tight monetary policy work way pipeline moderate wage increase buffer profit margin help bring core inflation finally turn assessment monetary policy transmission member concur ample evidence policy tightening transmit strongly broad financing condition include lending rate money credit flow transmission monetary policy increasingly dampening demand judge important factor bring inflation target feel hand decline economic activity significant expect reaction substantial monetary policy tightening past month hand risk strong transmission expect elevate particularly sharp increase lending rate weak credit growth note monetary policy tightening strongly affect sector depend heavily financing housing construction automotive industry capital good context discuss disconnect manufacturing service attribute monetary policy have different impact sector manufacturing expect react strongly quickly service monetary policy tightening expect response service sector materialise delay deem difficult determine extent slowdown growth monetary policy tightening residual effect past supply shock economic development judge influence aftermath pandemic energy price shock note economic weakness drive supply shock demand impact slowdown growth inflation pronounced little doubt leg monetary policy transmission financial condition work well understanding leg transmission process financial condition real economy see crucial have discuss governing council reaction function member agree tighten monetary policy stance increase interest rate warrant light inflation outlook basically unchanged june monetary policy additional interest rate step restrictive territory see necessary bring inflation target timely manner context recall governing council communicate september seek achieve inflation target timely manner severity supply shock time governing council expect inflation return target shift bring timing forward require depress economic activity unnecessary extent see important extend time horizon target meet time caution shock inflation occur result instance weather relate effect food price drive inflation away target monetary policy decision communication background member support basis point rate increase propose lane preference initially express raise key ecb interest rate risk strong anticipate transmission emphasis merit stick data dependent approach uncertain environment market participant pay special attention governing council guidance future interest rate path particular broad agreement prevail ahead september governing council hint rate increase signal pause hiking rate reach peak rate emphasise tightening assess basis incoming datum risk management approach carefully weigh relevant risk hand argue interest rate cover ground bring inflation target particular inflation decline quickly expect rate hike september necessary convincing evidence effect cumulative tightening strong bring underlying inflation manner consistent timely return headline inflation target context maintain bring inflation fully target moderate persistently elevated level turn difficult specifically argue process disinflation challenging direct effect previous external supply shock inflation reverse persistent domestic price pressure start dominate argue point need action governing council stubborn persistent inflation pressure turn hand argue probable september ecb projection revise inflation path sufficiently downwards need interest rate hike september caution express assign importance september projection strong case adopt risk management approach come meeting light prevail uncertainty broad agreement express lane proposal set remuneration minimum reserve leave minimum ratio member widely agree decision improve efficiency monetary policy reduce interest need pay reserve order implement appropriate stance maintain degree control monetary policy stance ensure pass interest rate decision money market set remuneration minimum reserve deem proportional response effect arise rapid monetary policy tightening environment high excess liquidity recall interest rate lower bind governing council introduce tier system remuneration counter negative effect bank transmission capacity reduction remuneration minimum reserve see reversal tiere system argue reduction necessary period asset purchase monetary policy tightening proceed raise interest rate reduce balance sheet gradually time take account financial market risk arise fast disposal asset recall october governing council decide reduce remuneration minimum reserve rate mro deposit facility rate change align minimum remuneration closely short term money market rate efficiency aspect gain relevance line high level key ecb interest rate clarify decision prejudge outcome ongoing ecb operational framework time member express reservation change remuneration minimum reserve argue remunerate minimum reserve relevant market rate add tighten effect monetary policy measure caution change remuneration minimum reserve raise question objective eurosystem reaction function relate profit loss concern financial independence member contrast see minimum requirement monetary policy tool support complement intend restrictive monetary policy stance member prefer increase minimum ratio note minimum ratio rule argue governing council good case take step normalisation policy instrument reverse previous reduction decide december package non standard measure support lending channel free liquidity collateral monetary transmission clearly stress recall bank benefit extraordinarily favourable refinance term condition tltro extended period time recall minimum reserve remunerate mro rate mention rationale minimum requirement clear prudential liquidity regulation bank introduce response global financial crisis overall caution express minimum ratio active instrument adjust monetary policy stance consideration mind member express willingness join broad consensus support measure propose lane respect communication feel ecb reaction function understand market participant line governing council data dependent approach communication avoid signal complacency financial market participant public decline headline inflation slow growth ease financial financing condition counteract governing council intention bring inflation target timely manner broad agreement governing council ensure key ecb interest rate set sufficiently restrictive level long necessary achieve timely return inflation medium term target feel word set consistent preserving optionality include possibility rate cut september finally governing council reiterate fiscal policy design way economy productive gradually bring high public debt take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference july press release monetary policy decision ecb adjust remuneration minimum reserve meeting ecb governing council july members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kažimír knot lane makhlouf müller nagel panetta reinesch schnabel scicluna šimkus stournaras välimäki temporarily replace rehn vasle villeroy galhau visco vujčić wunsch members hold voting right july article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré bitans buch demarco gavilán gilbert kaasik koukoularides lünnemann madouros martin nicoletti altimari novo pösö rutkaste alternate kazāks šiaudinis šošić steiner tavlas vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee october contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting september account monetary policy governing council european central bank hold frankfurt main wednesday thursday september october review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy july investor growth outlook euro area united states continue diverge widen gap nominal real yield economy drive euro low dollar despite expect deceleration euro area growth momentum market expectation inflation medium long term edge tear perception weakening euro area economy stubborn inflation expectation peak deposit facility rate shape forward rate curve remain unchanged long term sovereign yield rise major advanced economy increase mute economy negative macroeconomic surprise euro area impact development exchange rate market euro depreciate markedly dollar slightly nominal effective term account widespread weakness currency decomposition nominal year yield euro area united states real rate inflation component show difference macroeconomic outlook reflect stark divergence real rate economy investor price future year euro area real rate lower year strength economy push investor expectation future year real rate significantly higher time despite weaken cyclical outlook euro investor increase inflation compensation demand near medium term horizon rise inflation link swap ils rate partly reflect upward revision investor core inflation expectation market imply pricing euro area genuine synthetic core inflation expectation synthetic core expectation adjust risk premia suggest market participant revise core inflation expectation market base measure long term headline inflation compensation euro area continue edge higher continue rise inflation risk premia account increase inflation compensation genuine long term inflation expectation show small uptick weaken domestic economic activity sticky inflation monetary policy rate expectation euro area remain large unchanged governing council previous monetary policy respondent ecb survey monetary analysts continue expect peak deposit facility rate reach october september respondent evenly split slight majority expect pause expect interest rate hike rate cutting price peak course slightly high expect governing council previous monetary policy weaken economic development prompt investor expect quick reversal monetary policy instead investor remain position policy rate stay peak level extended period time word shape forward curve suggest market participant expect severe recession consistent resilience risk asset tighten cycle sovereign bond spread withstand downward revision near term growth momentum widen slightly previous greek sovereign bond outperform expected materialising rating upgrade corporate bond spread tick remain level contrast euro area equity price decline governing council july drive significant degree decompression risk premia week stock price resilient beginning tighten cycle diverge driver non financial financial firm share non financial corporation benefit compression risk premia consistent improve investor risk sentiment dividend pay out share buyback long term earning expectation high interest rate dampening effect financial firm stock price benefit high earning expectation strong dividend pay out share buyback general resilience risk asset support gradual decline volatility perception global tighten cycle near end explanation resilience risk asset market price increase probability pass tight financial condition growth near peak financial condition tighten sharply tighten moderately consider standard lag transmission financial condition economic activity drag growth tight condition currently large start recede relatively soon explanation resilience risk asset relate pronounced tightening long term rate nominal long term yield hover october suggest hardly tighten impulse long end curve year term premia remain compress euro area real rate remain large unchanged december stand visibly peak reach october development commodity market governing council previous monetary policy illustrate upside risk inflation oil price usd barrel reach high level month opec+ producer agree extend supply cut rest year european gas price increase markedly july show increase sensitivity supply outage finally upside risk inflation emanate food price react lag year extreme weather event cause climate change amplify niño money market non monetary policy deposit continue decline july secured money market rate unchanged amid limited volatility suggest downward pressure repo market scarcity concern month asset swap spread narrow notably collateral scarcity concern recede amid increase sovereign debt issuance balanced positioning unsecured money market stable change remuneration minimum reserve global environment economic monetary development euro area lane late economic monetary financial development global economy euro area offer opportunity stock learn summer start international environment global growth support service spring momentum start soften owe growth slowdown china slip post pandemic reopening japan global economic activity slow result huge slump fall long term average importance global activity euro area primarily trade global trade good see protract period decline owe ongoing rotation good service trade intensive turn euro area economic outlook lane recall august flash estimate annual harmonised index consumer prices hicp inflation remain unchanged july level decline inflation interrupt owe jump energy price annual inflation rate energy rise august july upward shift energy price expectation affect dynamic headline inflation coming month food price inflation come peak march august annual inflation exclude energy food fall august july non energy industrial good inflation rate decline past energy price surge recede supply bottleneck resolve service inflation edge remain elevated august owe strong dynamic tourist relate service wage pressure overall moderation core inflation line continue soften underlie inflation reflect fade impact previous supply shock fall demand supply mismatch gradual pass energy price disinflation come month sharp price increase record autumn drop yearly rate pull inflation momentum hicp inflation measure annualise rate month month change hicp august word outcome legacy carry effect momentum help negative momentum energy inflation food inflation momentum significantly low annual rate inflation core component possible observe significant drop momentum good inflation small decline momentum service inflation indicator underlie inflation continue fall reflect fade impact previous shock supply bottleneck decontaminate measure i.e. measure underlie inflation correct past supply shock show small decline month measure underlie inflation show substantial downward adjustment good predictor future inflation low range measure continue decline considerably exception domestic inflation analysis pipeline pressure show continue downward adjustment upstream production chain food good inflation remain case reduction consumer food inflation minor compare evolution producer price index downward pressure producer price expect start kick substantially autumn climate change event succession natural disaster increase risk price increase food commodity feed risk high food inflation good significant downward correction pipeline pressure particular import price intermediate non food consumer good expect exert downward pressure hicp good inflation coming month service inflation remain persistently high reflect effect past energy shock post pandemic reopening inflation contact intensive energy sensitive category make large contribution total service inflation show sign turnaround annual price change remain contrast inflation non contact intensive service category significantly low line projection previous round wage pressure remain elevated year decline accumulate real wage loss low inflation wage growth decelerate time lane note seasonal pattern wage contract renew start year word compensation employee datum important signal euro area disinflationary wage path additional datum provide little information expect path wage uncertainty expect large time contribution unit profit annual inflation define gdp deflator half moderate relative contribution suggest rise wage pressure start absorb firm measure long term inflation expectation currently stand indicator increase need monitor closely september ecb macroeconomic projection euro area see headline inflation high previously expect drive high energy price low owe appreciation euro tight financing condition great economic slack headline inflation expect decrease average time revise projection inflation exclude energy food line weak growth prospect appreciation euro year see reach fall cut date appreciation euro embed september projection reverse past appreciation feed euro area economy owe lag impact focus percentage change allow impact carry effect clean datum possible hicp revise upwards hicp inflation project percentage point high extra inflation momentum expect upside risk inflation include potential renew upward pressure cost energy food adverse weather condition unfold climate crisis push food price expect lasting rise inflation expectation target high anticipated increase wage profit margin drive inflation higher include medium term contrast weak demand example owe strong transmission monetary policy worsening economic environment outside euro area lead low price pressure especially medium term euro area economic growth stagnate half composite output purchasing managers index pmi fall august fast rate nearly year level manufacture output set weak moderation export demand tight financing condition past support order backlog decline service far contribute positively growth owe high demand contact intensive category clear sign slowdown june worsening survey indicator lead reassessment gdp outlook half accord september projection real gdp expect stagnate increase regard domestic demand private consumption stagnate housing investment contract have decline path past year residential building permit lead indicator housing investment fall firm assessment order book downbeat point contraction housing investment period ahead high interest rate visible impact demand component business investment growth exclude volatile irish intellectual property product moderate significantly survey indicator european commission pmi capital good output indicate decline half year near term private consumption expect weak housing investment business investment expect decline drive monetary policy tightening time economic momentum expect pick real income expect rise support fall inflation rise wage strong labour market underpin consumer spending activity level dampen monetary policy tightening adverse credit supply condition increasingly real economy expect gradual withdrawal fiscal support weigh economic growth come quarter labour market far remain resilient face slow economy show sign lose momentum unemployment rate stay historical low july employment grow late survey datum suggest come close stall strong demand labour start moderate indicator job vacancy rate edge month growth labour force main source employment growth slow past month owe weak economic activity september projection embed low increase employment increase unemployment projection horizon expect decline june projection recent pmi indicator confirm slowing momentum employment growth particularly notable service sector turn fiscal outlook september projection incorporate relatively limit change fiscal projection highly uncertain government decide budget year basis government intention fiscal projection imply significant improvement cyclically adjust primary balance september projection annual average real gdp growth project particular september projection embed significant downward revision housing business investment tight financing condition credit supply effect economic growth slow effect monetary policy forceful expect world economy weaken instance owe slowdown china conversely growth high project strong labour market rise real income recede uncertainty mean people business confident spend turn monetary financial analysis euro area bank remain capitalise record good net interest income moderate provisioning cost improvement capital asset ratio account low total asset drive weaken loan dynamic shrink liquidity bank funding cost continue increase mainly account high deposit money market rate gradual shift fund away overnight deposit time deposit exert upward pressure funding cost ecb interest rate hike increase attractiveness long term deposit relative overnight deposit time reduction funding lead bank increasingly rely debt security issuance monetary policy tightening continue transmit strongly financing condition increasingly affect broad economy business lending rate increase credit volume contract firm cost borrowing continue increase steeply reach july high level household composite mortgage rate remain upward trajectory exceed july high level early credit supply channel remain active late lending survey point difference transmission corporate sector real estate construction firm experience substantial tightening credit standard weakening demand manufacturing service firm lend firm household remain weak june july amid tightening credit standard high funding cost july see negative flow loan household low record substantial monetary policy tightening expect pass rate come month fix rate loan expire bank face rise funding cost saver migrate term deposit higher yield bond line decrease credit creation annual growth rate turn negative july time expect decline coming month monetary policy consideration policy option basis assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane propose governing council raise key ecb interest rate basis point order reinforce progress medium term inflation target incoming datum validate governing council previous assessment inflation outlook measure underlie inflation start ease furthermore evidence indicate transmission monetary policy broad financing condition real economy firmly take hold economic slowdown mid-2022 set near term level gdp end projection horizon considerably low previously expect result additional economic slack contribute disinflation process significant portion tightening past rate hike pipeline range model base simulation suggest deposit facility rate region long understand maintain sufficiently long duration consistent return inflation target projection horizon view external expert cluster interval match market pricing uncertainty surround model base simulation expert survey market indicator choice hold deposit facility rate move finely balanced margin safe decide additional hike give highly uncertain environment significant disinflation require return inflation target timely manner additional hike reinforce progress target basic reason economy evolve line baseline case decision hike bolster confidence inflation return target projection horizon high interest rate strongly limit amplification upside shock inflation path consequence secure pace disinflation great insurance upside risk reinforce anchoring inflation expectation remain precondition disinflation process pace decision key policy rate raise cumulative basis point meeting basis assessment governing council key policy rate range level maintain sufficiently long duration substantial contribution timely return inflation target governing council future decision ensure key ecb interest rate set sufficiently restrictive level long necessary time high level sided uncertainty baseline mean governing council data dependent determine appropriate level duration restrictiveness monetary stance finally preserve option apply flexibility pandemic emergency purchase programme pepp reinvestment line defence fragmentation risk continue warrant govern council monetary policy decision economic monetary financial analysis regard external environment member take downward revision ecb projection euro area foreign demand negative economic surprise china partly offset positive surprise united states context recall growth performance chinese economy repercussion global commodity price risk factor euro area inflation outlook attention draw continue high geopolitical risk imply exceptional degree uncertainty outlook global economic activity inflation notably respect energy food turn commodity market oil price increase significantly follow saudi arabia russia extension production cut rest year time different view express persistent impact shock hand argue real transformation take place energy market supplier try maximise revenue production cut global energy transition persistent upward pressure energy price year come point climate change bring series adverse supply shock great frequency extreme weather event result destruction harvest agricultural land affect energy food price tend particularly salient consumer imply outsized effect household inflation expectation wage negotiation hand express increase oil price increase turn temporary reason increase supply cut russia saudi arabia attempt avoid fall revenue possible weakening global oil demand global trade good decelerate production good energy intensive provision service demand oil weaken significantly light deceleration chinese economy late energy shock see aftershock follow large disruption clearly small energy shock reflection main issue coronavirus covid-19 pandemic russia unjustified war ukraine context caution express development european gas market volatility increase price level high vulnerable upside move major economy recall context energy food supply shock dominate irrespective persistence differentiate price level inflation shock important regard economic activity euro area member concur lane growth subdued come month stagnate half year indicator suggest weak contract low demand euro area export impact tight financing condition dampen activity include low investment service sector far resilient weaken time economic momentum pick real income expect rise support fall inflation rise wage strong labour market underpin consumer spending labour market far remain resilient despite slow economy service sector major driver employment growth mid-2022 create few job member widely acknowledge weak expect growth prospect short term business sentiment indicator pmi signal fragile economic outlook slowdown china high energy price exert downward pressure economic activity weakening activity imply economy flirt recession soft indicator reliable past sheer size deterioration information content outlook significant hard datum clearly disappointing assess resilient early estimate quarterly gdp growth essentially flat preliminary indication gdp growth low foresee financial market expectation growth deteriorate indicate negative slope yield curve weak incoming datum main reason ecb projection revise downwards size revision growth projection see significant cumulative downward revision close level gdp end projection horizon nearly large downward revision june estimate effect russia unjustified war ukraine incorporate projection late revision mainly concentrate quarter projection quarterly growth basically june eurosystem projection take account eurostat downward revision growth compare initial estimate include september ecb projection mechanically lead low growth year addition nowcaste model suggest low growth rate contain baseline year risk growth see downside widely feel hindsight june projection optimistic strength economic recovery notably maintain projection consumption investment optimistic time contribution net trade economic growth close accord pmi contraction manufacturing spread service sector noteworthy summer service sector appear buoyant far tourism concern suggest part service sector experience weak activity addition argue strong expect monetary transmission explain downward revision growth sector expect affect monetary policy grow look ahead optimism rebound private consumption embody baseline question give prolong deceleration annual credit growth credit channel see especially relevant housing business investment activity decelerate significantly past quarter revise sharply projection horizon weakening outlook investment incorporate projection see worry give need public private investment europe relate green transition digitalisation argue project weakening investment explain judgement effect tight credit supply condition importance question adverse effect investment tight monetary policy weigh productivity growth ultimately push unit labour cost vicious circle addition evidence large share monetary tightening pipeline argue compress demand currently project time point financial tightening happen imply tighten impact soon reach peak overall feel remain reasonable expect gradual economic recovery hold thank recovery people real income rise wage strong labour market underpin consumer spending context recall project economic recovery inconsistent grow impact monetary tightening year recovery essentially quarter near growth question raise extent economic slowdown purely cyclical nature sign trend productivity shift downward permanent conceivable high level volatility energy price permanently scar part economy distinguish energy intensive non energy intensive industry weakening growth come energy intensive part economy point underlie structural driver structural slowdown nature affect potential output assessment economic slack ultimately upward impact inflation context mention late revision outlook activity inflation label stagflationary labour market condition favourable 1970 term coin turn labour market note september projection entail limited increase unemployment rate contrast continue decline embed june projection labour market nonetheless remain relatively tight horizon look sacrifice ratio measure cost reduce inflation term output employment implicit projection cost bring significant inflation surge form increase unemployment look remarkably favourable overall fair projection line soft landing time point indicator benign outlook nearly immaculate disinflation lead complacency strength labour market point recession decline employment typically achieve reduction hiring increase firing slowdown hire see negative signal require attention remark employment remain strong far continued presence job retention scheme scheme convenient firm hold cheap productive labour economic activity fail pick case firm shift labour hoarding labour shedding time labour market see tight cyclical perspective arguably affect structural change reduction average number hour work real estate market highlight follow tightening monetary policy number transaction fall significantly adjustment real estate price far remain fairly muted context point country real estate transaction start pick presumably owe reduced uncertainty future interest rate path massive adjustment mortgage rate early remain stable high level time household feel confident enter housing market background member assess risk economic growth tilt downside growth slow effect monetary policy forceful expect world economy weaken instance owe slowdown china conversely growth high project strong labour market rise real income recede uncertainty mean people business confident spend regard price development member concur assessment present lane underline headline inflation decline inflation expect high long headline inflation september projection revise upwards june projection time inflation foresee fall end regard late appear drive base effect energy inflation gradual disinflation path entail september projection see fragile conditional number benign assumption turnaround wage pressure compression unit profit decline path energy price observe mechanical update projection include high oil price weak euro observe cut date suggest headline inflation long fall ecb target end horizon context recurrent underestimation inflation past year despite clouded outlook real economy appear significant upward pressure inflation especially development energy market early project disinflation process entrench accord eurostat flash estimate headline inflation surprise upside august remain high level contribute upward revision september inflation projection factor favourable energy price assumption despite weakening economy inflation datum sufficient comfort inflation return target timely manner kilometre expect particularly challenging time indicator inflation momentum low annual inflation rate headline core inflation point momentum inflation component rebound somewhat recently remain medium term inflation target argue core inflation continue sticky previous quick progress headline inflation increasingly fade energy base effect vanish reversed turn pipeline pressure reflect evolution producer price input cost include world food commodity price picture recede upstream price pressure remain intact point evidence asymmetry pass rise fall input cost consumer price reference evidence country indicate share firm lower price increase input cost fall share time inflation cycle exceed share firm raise price indicate disinflation process progress remark share firm lower price grow fall far short share firm increase price input cost asymmetry pass implication sacrifice ratio i.e. phillips curve flat inflation fall inflation rise fact price change frequently slow pass fall input cost regard impact late energy price increase inflation feel hard hand rebound oil price particular permanent shock affect wage price persistently hand demand weak monetary policy restrictive territory effect energy shock headline inflation differ experience transitory persistent context volatile inflation frequent food energy supply shock key question extent shock feed medium term inflation outlook short term clearly raise inflation weigh real income lead subdue demand low capacity utilisation imply disinflationary impact medium term see crucial distinguish shock price level effect shock translate inflation dynamic relevance medium term note particular uncertainty outlook fiscal stance come year uncertainty surround european fiscal governance framework evidence country suggest fiscal deficit large expect projection baseline implication inflation outlook late development core inflation describe encouraging month core inflation develop project indicator underlie inflation appear peak stabilise case indicator domestic inflation remain strong reflect persistent pressure service price high wage content member recall wage pressure key understand medium term inflation pressure acknowledge wage development remain line projection tentative sign imminent peak wage pressure time stress firm evidence turnaround wage dynamic sufficient hard datum wage agreement employee compensation emerge course spring context recall labour market wage setting particular rely national institutional framework country wage setting strong backward look component example wage indexation cost living allowance country backward look component weak inevitably lead wage differential country quarter significant projection error wage important main risk inflation wage growth high persistent incorporate projection far wage datum confirm indication obtain forward look indicator ecb wage tracker remark recently unit profit appear low predict important main assumption projection downward trajectory inflation time low contribution unit profit gdp deflator compensate recovery real wage robust growth unit labour cost time underline increase unit labour cost drive high wage low expect labour productivity growth hand express low labour productivity growth temporary nature owe labour hoarding surprising labour productivity growth low give ongoing economic slowdown procyclicality labour productivity labour hoarding necessarily temporary phenomenon economy remain weak firm start shed job lead high productivity low unit labour cost low inflationary pressure gdp growth instead accelerate cyclical improvement labour productivity expect plausible expect productivity growth rebound near future contain unit labour cost inflation hand structural change labour market fall average hour work acknowledge potentially have permanent impact labour productivity unit labour cost ultimately price regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator widely acknowledge basis ils rate adjust inflation risk premia long term market base genuine inflation expectation remain stable middle see great achievement governing council monetary policy decision estimated measure genuine inflation expectation hardly increase despite high inflation number room complacency renew commodity price shock clear monetary policy completely different situation initial energy shock hit time warning sign survey financial market certain indicator measure expectation inflation year forward year ahead edge spite weakening economy suggest low economic growth sufficient tame underlying price pressure see warning sign risk unanchoring inflation expectation remain elevated rise market base inflation compensation risk supply shock prevalent future reflect risk premia signal investor concern inflation turn high ecb target survey professional forecasters balance risk indicator clearly tilt upside average expect headline inflation remain flat upside risk inflation expectation survey asymmetric distribution expected inflation elevated inflation risk premia suggest continued anchoring inflation expectation take grant people expect repeat shock push inflation eventually embed inflation expectation turn affect wage push inflation away target background member assess upside risk inflation potential renew upward pressure cost energy food adverse weather condition unfold climate crisis push food price expect lasting rise inflation expectation target high anticipated increase wage profit margin drive inflation higher include medium term contrast weak demand example strong transmission monetary policy worsening economic environment outside euro area lead low price pressure especially medium term time express inflation risk balanced analysis suggest inflation evolve project move downside turn monetary financial analysis member concur assessment provide lane introduction monetary policy tightening continue transmit strongly broad financing condition funding expensive bank saver replace overnight deposit time deposit pay interest ecb target long term refinance operation tltro phase average lending rate business loan mortgage continue increase attention draw fact credit dynamic weaken annual growth rate loan firm household decline amid weak lending reduction eurosystem balance sheet money growth fall sharply particular measure momentum i.e. annualise growth rate past month show monetary credit aggregate decelerate fast manner previously see global financial crisis sovereign debt crisis decline lending reflect combination weak loan demand bank tighten credit supply respective contribution factor hard disentangle express credit development primarily reflect weak loan demand remain line historical pattern monetary policy transmission little evidence credit supply constraint play role addition past effect monetary policy deteriorate macroeconomic outlook low demand reflect fact firm large cash buffer accumulate period heightened uncertainty relate pandemic recently energy crisis need external financing stress bank strong position lend loan demand rise particular bank duration mismatch balance sheet lock low rate loan book funding cost increase strong incentive satisfy eventual increase demand creditworthy borrower support future profitability emphasise bank balance sheet solid reflect elevated capital ratio low level non performing loan resilient profitability microprudential perspective bank net interest income adjust favourably high rate mitigate concern rate increase detrimental bank raise question bank tighten credit standard emerge lending survey basis anecdotal evidence suggest despite strong fundamental bank cautious extend credit owe worry liquidity especially turmoil occur banking sector march bank liquidity constrain expectation level excess liquidity decline year bank face movement overnight term deposit require high remuneration run tltro development make bank careful argue large credit slowdown far attribute demand factor risk credit condition tighten supply restriction come play forcefully background argue transmission monetary policy tightening price loan rate quantity credit volume rate hike july strong fast expect strong fast typically take account macroeconomic model remark pass past interest rate decision differ greatly country country large share float rate mortgage sizeable construction sector experience rapid pass sustained weakening economic activity fix rate mortgage prevalent home ownership limited transmission sluggish suggest large pass past interest rate increase pipeline argue tighten cycle start long interest rate increase take end net asset purchase account suggest transmission line historical average maintain impact loan rate volume appear exceptionally strong simply reflect regular transmission exceptionally large rapid interest rate change change historical regularity relation unit rate increment attention draw fact pass deposit rate currently sluggish monetary policy stance policy consideration turn assessment monetary policy stance member assess financing condition have tighten governing council previous monetary policy july transmission monetary policy broad financing condition real economy firmly take hold risk free forward curve remain unchanged relative level prior previous monetary policy reflect market participant assessment growth weaken amid elevated inflation real long term rate remain stable euro area underline uncertainty outlook remain exceptionally high background member assess datum available monetary policy accordance main element reaction function governing council communicate early year comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation strength monetary policy transmission start inflation outlook member concur assessment present lane introduction overall process disinflation proceed expect headline inflation decline july stall august high energy price time comfort draw fact core inflation figure long surprised upside past month projection inflation revise upwards september downward revision albeit inflation expect reach target year recall governing council focus medium term inflation small upward revision inflation projection short term large concern long deviation target spill inflation expectation round effect wage profit similar vein base effect inflation come month temporarily push inflation implication medium term inflation outlook profile raise communication challenge overall risk inflation balanced demand weaken significantly monetary policy clearly restrictive territory notwithstanding increase energy price possibility upward energy price shock occur future push inflation risk underestimate persistence inflation round effect wage remain member see indicator underlie inflation clearly moderately decline path close exception domestic inflation rise regard wage growth limited sign start turn hard evidence inflection point need emerge time unit profit low imply early projection suggest rise wage pressure absorb firm time important assumption underlie moderation gdp deflator project despite upward revision owe high unit labour cost turn assessment monetary policy transmission member note ample evidence find proceed strongly expect reflect exceptionally strong increase key ecb interest rate analysis suggest impact usual pattern transmission significant interest rate pass pende restrain economic activity inflation projection horizon hand remark effect monetary policy tightening increase time extend hand tighten cycle start long time previously raising policy rate july impact expect recede time basis typical transmission lag underline important channel monetary transmission inflation expectation have able inflation expectation anchor despite long period inflation target see major achievement time recall market base measure inflation compensation elevated achievement fragile risk inflation stay target long call humility caution overall member concur inflation expect high long time monetary policy cycle reach stage risk tighten risk tighten little balanced particular key ecb interest rate range level maintain sufficiently long duration substantial contribution timely return inflation ecb target assessment support model base simulation expert survey market pricing suggest constellation deposit facility rate region long understand maintain sufficiently long duration consistent return inflation target projection horizon considerable uncertainty member highlight decision raise rate pausing close tactical consideration play role situation reflect forward rate curve suggest probability rate increase versus pause september relatively evenly split time case analyst expectation report survey monetary analyst monetary policy decision communication background decision see close solid majority member express support basis point rate increase propose lane member emphasise high level inflation fact rate increase signal strong determination governing council bring inflation target timely manner horizon inflation bring extend accord late ecb projection expect case time inflation exceed target year row err pause time decision close risk interpret weakening ecb determination especially time headline core inflation emphasis place upward revision headline inflation projection year projection horizon fact projection condition market interest rate embody rate increase end year tentative evidence suggest wage growth close peak evidence require sure turn additional consideration risk inflation path embed projection fragile additional supply shock push inflation target long feed inflation expectation climate relate event risk push food price raise rate contain element insurance continue elevated risk inflation remain target long see safe confront situation interest rate high rate reduce amplification shock lessen probability have raise rate future context argue monetary policy close effective lower bind inflation low strong case look supply shock situation different member argue pause rise speculation tighten cycle increase risk rebound inflation situation require wave monetary tightening later adverse consequence real estate market financial stability hike send signal governing council concerned economy potential recession high inflation member express preference maintain rate level member underline fact governing council clear decision data dependent view datum available july balance support rate hike economy weaken substantially inflation project return end projection horizon risk inflation outlook balanced oil price increase turn temporary basis point increase rate take place start tighten cycle see sufficiently demonstrate governing council commitment deliver mandate price stability member maintain lot pass past rate hike pende include scenario imply downside risk economic growth significant see little room upside risk growth outlook pause advantage provide time impact previous decision economy evaluate slowdown deep expect inflation actually come project require increase interest rate consideration rate hike risk repeat situation occur interest rate increase reverse quickly face economic consequence sovereign debt crisis background recall ecb secondary objective inflation target reach end low interest rate path increase likelihood soft landing preferable governing council need account economic social cost possible hard landing risk management perspective point risk hike time later have reverse course economy weaken expect large introduce pause tighten cycle have increase rate come meeting member agree executive board proposal apply flexibility reinveste redemption fall pepp portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference september press release monetary policy decision meeting ecb governing council september members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta reinesch schnabel scicluna šimkus stournaras välimäki temporarily replace rehn vasle villeroy galhau visco vujčić wunsch member hold voting right september article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré buch dabušinskas demarco gavilán haber kaasik koukoularides lünnemann madouros martin nicoletti altimari novo pösö rutkaste sleijpen šošić tavlas vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee november contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting october account monetary policy governing council european central bank hold athens wednesday thursday october november review financial economic monetary development policy option financial market development schnabel start presentation note market immediate response dramatic geopolitical upheaval middle east follow terrorist attack israel october far contain bolster continue robust economic growth united states surge global long term bond yield start summer continue week investor increasingly internalise prospect interest rate stay high long time expectation future path short term interest rate remain unchanged long term sovereign bond yield rise globally yield side atlantic approach level see monetary policy tighten cycle differential euro area year interest rate fall level observe ecb start increase key policy rate july aggregate rise sovereign bond yield euro area predominantly drive increase risk free rate rise yield uniform euro area country idiosyncratic factor contribute development sign market fragmentation question arise long term risk free rate rise sharply time bank near end tighten cycle decomposition increase real rate inflation component show high year overnight index swap ois rate beginning september entirely reflect rise real interest rate furthermore substantial change see term premium increase basis point early september ecb analysis suggest repricing term premia emanate united states result policy macro spillover look evolution year term premia united states euro area tighten cycle start term premium remain exceptionally compressed historical perspective exceptional period interest rate effective lower bind euro area term premium rise continuously persistently year rise risk compensation expect uncertainty inflation policy outlook increase euro area term premium remain visibly level observe previous tighten cycle timing rise global term premium explain coincidence broad factor factor investor convinced early year global recession imminent bank worldwide cut interest rate substantially policy expectation change substantially investor currently expect cumulative rate cut basis point euro area basis point late ecb survey monetary analysts median expectation timing basis point cut push september june previously investor appear certain fight inflation rapidly win global phenomenon extend advanced economy raise uncertainty entire future path short term interest rate result high term premium factor contribute sudden rise term premium relate change supply demand treasuries comparison net issuance euro area expect low happen odd policy pivot japan increase market currently price bank japan exit negative rate april potential adjustment yield curve control framework early october factor reinforce increase global term premium investor positioning treasury market euro area market base measure long term inflation expectation illustrate year forward index link swap rate year ahead finally start come cyclical high remain volatile measure inflation compensation decline curve change long tenor reflect decline inflation risk premium decline inflation compensation particularly notable environment conflict middle east imply risk energy price skewed upside aggregate gas future price oil price appreciably high month ago fact measure inflation compensation decline environment suggest tightening stem ecb interest rate hike september combination high real rate result global spillover foster market confidence governing council commitment bring inflation target timely manner speed magnitude rise real rate conflict middle east affect risk asset weigh risk sentiment stock market volatility increase visibly remain level see russia invasion ukraine global stock market valuation decline considerably week say valuation euro area remain level observe start monetary policy tighten cycle reason resilience equity risk premium economic sentiment deteriorate measurably risk premium constant similar phenomenon observe corporate bond market mark deviation past regularity suggest interest rate risk take channel policy transmission work differently rate difference rating category credit spread higher rat issuer insensitive rise yield contrast spread risky high yield issuer widen measurably week near low record cycle high speed bond market rout leave significant mark foreign exchange market mid july euro fall nearly dollar constitute headwind eurosystem effort reduce inflation timely manner appreciation dollar time broad base foreign exchange perspective real yield united states see sign strength investor growth hold well expect global environment economic monetary development euro area lane late economic monetary financial development global economy euro area start global economy lane point global growth momentum continue slow global composite output purchasing managers index pmi fall consecutive month september deterioration service sector converge contractionary reading manufacturing china real estate sector continue drag growth gdp figure year suggest economy find footing contrast economy remain robust show clear sign deceleration governing council previous monetary policy september euro depreciate dollar nominal effective term previous appreciation adversely affect euro area trade escalate conflict israel hamas increase uncertainty pose upside risk oil gas price near term far impact future price ahead limit oil price high time september cut date september ecb macroeconomic projection euro area negative slope oil future curve steep projection lane recall period elevated level crack spread difference crude oil price price refined product petrol diesel fall september gasoline crack spread fall energy price consumer important monitor price refined crude oil gas market face number supply risk gas price remain low cut date september projection high time previous monetary policy regard commodity pattern remain decline price metal food link weak global economy euro area economy remain weak european commission composite economic sentiment indicator pmi point decline consumer confidence business activity manufacture output continue fall october accord flash release owe low inventory decline order tight financing condition housing business investment contract demand weaken response high borrowing cost decline housing investment fact start rebound start drive positive impact mild winter pmi forward look indicator european commission point decline housing investment evident construction sector account large weakness activity contrast housing investment business investment hold sustained period time help backlog work business investment increase marginally order point contraction half year outlook investment significantly bad support generation programme demand contact intensive service sector exceed pre pandemic level activity tourism remain supportive service sector lose steam fact weak industrial activity start spill business orient service impetus reopen effect fade impact high interest rate broaden sector service pmi continue decline october accord flash release contractionary territory august private consumption expect remain weak look ahead european commission consumer confidence indicator improve spring start deteriorate summer month remain historical average turn trade outlook export weaken survey datum september show export order good service remain contractionary territory indicate global weakness continue weigh euro area export furthermore firm work backlog suggest support come factor fade key factor dampen demand euro area good loss competitiveness result persistently high energy price past appreciation euro labour market resilient unemployment rate historical low august momentum start soften economy remain weak employment expectation decline october service manufacturing accord pmi flash release manufacture employment expectation fall low level august labour force expand year large pandemic few job currently create turn fiscal policy draft budgetary plan indicate significant decline support measure imply restrictive fiscal stance restrictive stance reflect austerity measure winding energy subsidy risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy weigh growth russia unjustified war ukraine tragic conflict spark terrorist attack israel key source geopolitical risk result firm household confident resilience world economy uncertain future dampen growth conversely growth high expect resilient labour market rise real income mean people business confident spend world economy grow strongly expect headline inflation drop markedly september line september projection expect come near term temporary mechanical uptick turn year decline september visible main component confirm general disinflationary process way energy price fall account negative base effect food inflation high decrease inflation exclude energy food measure harmonised index consumer prices hicpx drop sharply september percentage point low expect september projection fall support improve supply condition pass previous decline energy price impact tight monetary policy demand corporate pricing power non energy industrial good inflation fall september monthly dynamic revert historical average service inflation decline consecutive month september drive discontinuation public transport ticket germany year reduction impact change hicp weight reflect softening activity travel tourism sector fading post pandemic reopening effect measure underlie inflation continue decline measure adjust past energy supply shock confirm downward trajectory august adjusted persistent common component inflation measure good predictor inflation development past close time domestic inflation remain persistent hover august edge september high level indicator underscore significance continue wage pressure underlie inflation move late wage development negotiate wage growth remain robust wage tracker capture wage growth hire show continued evidence easing wage pressure contact corporate sector report ongoing strong wage growth corporate telephone survey respondent expect moderation year overall available indicator continue wage forecast include september projection track wage development need continuous monitoring month ahead wage negotiation place start corporate telephone survey suggest profit margin squeeze contract evidence line expect decline profit margin come quarter embed september projection inflation expectation report ecb survey professional forecasters remain unchanged october distribution remain concentrated ecb consumer expectations survey show consumer adjust downwards perception past inflation willingness revise perceive inflation downward sensitive actual development inflation willingness revise upwards consumer inflation expectation move september particularly year ahead horizon development line country outside euro area united states sweden united kingdom appear link increase energy price need close monitoring risk inflation remain twofold hand upside risk inflation come high energy food cost heightened geopolitical tension drive energy price near term make medium term outlook uncertain extreme weather unfold climate crisis push food price expect additionally lasting rise inflation expectation inflation target high anticipated increase wage profit margin drive inflation higher include medium term hand weak demand example owe strong transmission monetary policy worsening economic environment rest world amid great geopolitical risk ease price pressure especially medium term turn monetary financial development short term risk free rate stable september monetary policy long term rate rise markedly result additional tightening financing condition transmission ecb past monetary policy action financing condition continue exceptionally strong increasingly affect broad economy dampen demand help push inflation rise lending rate firm household house purchase respectively august continue outpace previous hiking cycle cost reach high level decade accord late euro area lending survey credit standard loan firm household tighten bank concerned risk face customer willing risk credit dynamic weaken annual growth rate loan firm drop sharply july august september positive monthly net flow partially compensate large outflow register august loan household remain subdue growth rate slow july august september annual growth rate broad monetary aggregate remain negative september despite considerable monthly inflow rest world partial reversal large net redemption loan firm august positive nominal gdp growth currently slightly negative growth annual basis imply real money growth strongly negative growth currency circulation overnight deposit increase slightly remain highly negative firm household continue shift fund overnight deposit term deposit moderate somewhat month reflect attractive rate continue explain unprecedented rate contraction overall transmission policy tightening lending rate lending volume strong historical standard take account steep path ecb policy rate past monetary policy consideration policy option basis element governing council reaction function lane propose maintain key ecb interest rate level incoming information confirm governing council previous assessment medium term inflation outlook inflation expect stay high long domestic price pressure remain strong time inflation drop markedly september measure underlie inflation continue ease governing council past interest rate increase continue transmit forcefully financing condition increasingly dampen demand help push inflation hold key ecb interest rate level confirm governing council assessment september rate level maintain sufficiently long duration substantial contribution timely return inflation target support range model base simulation suggest tighten cycle far substantial downward impact inflation gdp growth tightening pipeline policy stance press inflation time december monetary policy governing council datum gdp growth october november inflation figure fresh monetary datum round projection governing council future decision ensure key ecb interest rate set sufficiently restrictive level long necessary governing council follow data dependent approach determine appropriate level duration restriction particular interest rate decision base assessment inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission finally preserve option apply flexibility pandemic emergency purchase programme pepp reinvestment counter risk monetary policy transmission mechanism relate pandemic continue warrant govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane late trade datum well expect near term outlook trade deteriorate compare september ecb projection question raise extent compatible expectation euro area export demand pick driver strengthen economy period ahead stress growth china united states well expect point improvement international environment turn commodity market argue 1970 good benchmark assess impact late spike oil price energy substitution easy wholesale gas price main source high level energy inflation remain previous peak time concern express development middle east lead energy relate supply shock 1970 negative consequence growth inflation worldwide regard economic activity euro area member concur lane economy remain weak outlook deteriorate subdue foreign demand tight financing condition increasingly weigh investment consumer spending recent information suggest manufacture output continue fall service sector weaken factor play subdue industrial activity spill sector impetus post pandemic reopening effect fade impact high interest rate broaden sector economy weak remainder inflation fall household real income recover demand euro area export pick economy strengthen come year widely underline outlook global economy euro area surround elevated uncertainty context member note weak outlook economic growth september monetary policy imply materialisation downside risk identify time nowcasting tool indicate low growth quarter expect september ecb projection imply technical recession suggest continue weakness increase concern activity pick gradually previously expect weakness persist time argue pmi indicator point deep downturn lose predictive power furthermore late information point stagnate activity deep recession concern weak short term outlook combine slight worsening external demand tightening financing condition imply weak expect growth fundamentally question raise improvement economic activity project september come growth currently slow component demand consumption investment export fiscal monetary condition tighten time argue somewhat weak growth outlook compatible soft landing narrative entail september ecb projection inflation continue decline real income recover observed weak growth partly reflect successful transmission tight monetary policy transmission advanced impact appear close peak bleaker short term outlook stand way gradual recovery expect projection soft landing scenario see support sound household balance sheet available datum suggest high saving year reflect large extent repayment loan increase cash holding suggest household imminently start consume improvement balance sheet positive financial stability household position safe long term turn employment note strength labour market far support economic activity member emphasise different aspect late datum hand note labour market tight perform well expect historically low unemployment rate firm hold employee essential narrative growth resume owe high spending limited increase unemployment compatible soft landing scenario hand point sign labour market weakening constitute important change early assessment concern express strong performance labour market labour hoarding fragile argue labour market europe today exposed vagary external shock adjustment occur strong weakness foreign demand transmit labour market abrupt manner imply downside risk growth context note productivity average hour work person employ fully recover pandemic uncertain economy find normal indicator simply low structural basis implication inflation outlook medium term regard fiscal policy member reiterate energy crisis fade government roll related support measure essential avoid drive medium term inflationary pressure tight monetary policy fiscal policy design economy productive gradually bring high public debt structural reform investment enhance euro area supply capacity support implementation generation programme help reduce price pressure medium term support green digital transition end reform economic governance framework conclude end year progress capital market union completion banking union accelerate member note country draft budgetary plan remain line assumption slightly restrictive fiscal stance euro area incorporate september ecb projection analysis impact economic cycle economic slowdown budget balance cyclically adjust balance see warrant issue sustainability future debt development particular point reduction debt gdp ratio reflect large extent impact high inflation interpret policy drive consolidation effort inflation recede windfall gain count long impact high interest rate government funding cost effect concern express ongoing discussion fiscal rule context deliberation economic governance framework imply vacuum stability growth pact replace regulation disciplined fiscal policy consider paramount achieve price stability argue fiscal stance risk push opposite direction include measure alter borrowing cost see directly interfere monetary policy transmission time point fiscal tightening structural reform limited help economy need support supply member assess risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy weigh growth russia unjustified war ukraine tragic conflict spark terrorist attack israel key source geopolitical risk result firm household confident future dampen growth conversely growth high expect resilient labour market rise real income mean people business confident spend world economy grow strongly expect note downside risk identify early materialise additional risk uncertainty arise governing council september monetary policy relate mainly impact conflict middle east particularly escalate come war ukraine result uncertainty firm apprehensive lead demand investment give development china remain source fragility suggest downside risk mainly stem external environment include possibility spillover united states owe euro area long term yield move higher tandem united states time positive surprise suggest development united states china turn well expect overall growth continue weak eurosystem projection december provide comprehensive picture turn price development member agree assessment present lane introduction incoming information confirm previous assessment medium term inflation outlook inflation drop september partly strong base effect decline broad base near term inflation come sharp increase energy food price record autumn drop yearly rate energy price rise recently predictable geopolitical tension headline inflation member observe late development line september ecb projection furthermore remark indicator underlie inflation move right direction month pass peak continue decline cost notably industrial raw material fall pipeline price pressure continue decline pass consumer price time note domestic price pressure remain strong reflect persistence service inflation impact continue wage pressure underlie inflation increase momentum component headline inflation exception service inflation member note late information wage appear line expectation entail september ecb projection highlight increase wage drift component strong growth negotiate wage wage drift sensitive cyclical development imply pronounced weakening wage growth dynamic demand weaken employment stagnate remark limit sign round effect evidence wage price spiral far cumulative term real wage euro area remain subdue compare beginning inflationary process information ecb wage tracker recently sign wage agreement point continue strong wage growth expect moderate time decline materialise subject high uncertainty rise energy price delay dampen expect decline wage growth justify high wage demand measure long term inflation expectation indicator remain elevated need monitor closely decline market base inflation compensation see welcome development line reinforce credibility bring inflation target case market forward look expectation expectation household part business sector strong backward look element difference need bear mind case surprise inflation context inflation expectation see fragile visible renew uptick consumer expectation possibly response high energy price late ecb survey professional forecasters respondent see upshift balance risk inflation expectation year horizon probability inflation long term member consider increase uncertainty surround outlook economic growth translate additional uncertainty outlook inflation particularly short term note headline inflation decline near term owe base effect turn year temporary rebound headline inflation expect energy relate base effect member underline outlook wage growth continue highly uncertain picture wage development gradually crystallise course year long lag hard datum release argue strong decline observe headline inflation increase confidence inflation return ecb target help contain upward pressure wage come negotiation high level uncertainty surround outlook wage outlook productivity average hour work person employ imply highly uncertain outlook unit labour cost turn inflation unit profit play crucial role determine future path inflation note previous upward shift profit margin prove temporary cyclical condition weaken time easing cost factor help mitigate upward pressure margin background member assess upside downside risk inflation upside risk come high energy food cost heightened geopolitical tension drive energy price near term medium term outlook uncertain extreme weather unfold climate crisis push food price expect high anticipate increase wage profit margin lasting rise inflation expectation target drive inflation higher include medium term contrast weak demand example owe strong transmission monetary policy worsening economic environment rest world amid great geopolitical risk ease price pressure especially medium term differ view balance risk inflation member view balance tilt upside owe upside risk wage growth energy price upside risk stem impact depreciation euro primarily dollar member see inflation risk balanced inflation see evolve project converge target medium term possibly risk undershoot downside risk core inflation see owe economic activity weak expect datum core inflation slightly low expect consequence negative supply shock specifically relate energy express scenario unlikely play way large commodity price shock coincide amid persistent supply bottleneck release pen demand post pandemic reopening increase oil price stem conflict middle east far limited market see increase spike persistent shift weak aggregate demand tight monetary policy principle induce firm resist large increase unit labour cost absorb profit margin pass consumer argue large increase profit margin suggest future scope absorb high energy cost margin upside risk high energy price come long period inflation substantially target see insignificant macroeconomic environment different context persistence high energy price trigger round effect especially large number wage agreement negotiate start come year imply delay reduction expect decline wage growth overall risk pose geopolitical environment include direct indirect effect high commodity price impact economic sentiment firm household warrant close monitoring turn monetary financial analysis member concur assessment provide lane introduction significant development governing council previous monetary policy marked rise long term interest rate reflect large increase major economy notably united states decline year forward inflation link swap rate year ahead note contribute pronounced increase real interest rate see welcome sign credibility governing council monetary policy action overall rise long term rate correction risk asset price judge tighten financial condition depreciation euro opposite effect member discuss range explanation rise long term interest rate different implication expect spillover euro area explanation include well expect macroeconomic development support narrative rate remain high long rise term premium increase potential output united states rise concern financing requirement associate persistently high budget deficit push natural interest rate note technical factor play role argue environment quantitative tightening lack stable demand bond bank naturally increase term premium market clearing rate long term bond high especially face spike volatility see recently broad agreement spillover united states major driver increase euro area long term interest rate contribute rise euro area ois rate basis point governing council previous monetary policy note development relate underlie economic fundamental inflation outlook euro area drive term premium component expectation component long term interest rate regard argue euro area fiscal policy play role drive term premia higher additional possibility financial market start price high natural interest rate euro area member agree rise long term interest rate euro area tighten financing condition anticipate argue governing council monetary policy stance restrictive uncertainty assessment different view desirability high long term rate euro area hand see undesirable link euro area development contribute additional tightening unnecessarily weaken economic activity intended cause inflation undershoot high long term rate render fiscal sustainability challenging euro area country hand high long term rate welcome long period term premia substantially compress strengthen monetary policy transmission activity base long term credit signal government long term borrowing costly future addition tightening enhance credibility inflation return target timely manner consistent maintain policy rate sufficiently restrictive level extended period economic growth perspective impact euro area depend rise long term interest rate drive well growth prospect economy imply positive spillover effect strong euro area external demand member agree monetary policy continue transmit strongly broad financing condition funding expensive bank average interest rate business loan mortgage rise august rate long term loan non financial corporation decline late lending survey indicate sharp drop credit demand drive high borrowing rate cut investment plan house purchase credit standard loan firm household tighten time note resilience banking sector see concern late survey access finance enterprises suggest financial constraint remain contain historical comparison late corporate telephone survey suggest bank willing lend firm sector economy background monetary credit aggregate continue decline rapidly amid weak lending reduction eurosystem balance sheet continue contract sharply august fall annual term fast rate record introduction euro september remain negative credit dynamic weaken annual growth rate loan firm drop sharply loan household remain subdue time note indication financial amplification i.e. weakness banking sector reinforce negative macroeconomic development early large negative flow credit non financial company see drive mainly decline short term lending typically associate financing work capital need inventory loan momentum fall quickly previously large negative net flow record august partly reverse september monetary transmission lending channel see strong previously anticipate include bank lead significant tightening financing condition note transmission strong structural labour shortage resilient risk sentiment financial market reflect robust equity market relatively compress risk premia time mention service sector account persistence inflation appear sensitive tightening financing condition accord corporate telephone survey service firm see impact tight financing condition business activity past month ratio high look ahead month financial condition indirect effect service sector slowdown growth aggregate demand recently compensate strong reopening effect highlight country reduction mortgage lending particular concern reference country introduce measure support mortgage market counteract effect monetary policy measure bring inflation observe general situation euro area widely feel monetary transmission work strong gradual orderly look ahead argue transmission come fix rate lending roll especially country high ratio fix variable rate loan suggest transmission unfold gradually owe long mortgage fixation period attention draw large cash buffer part corporate sector reduce need borrowing time conjunction inventory cycle come end extent additional transmission remain uncertain possibility strengthen high long term interest rate dampen growth long term credit time note late lending survey suggest bank expect tighten credit standard less extent come outcome mean equal subset financing condition soon plateau monetary policy stance policy consideration turn assessment monetary policy stance member highlight uncertainty surround economic outlook increase compare time september governing council affect assessment appropriate monetary policy stance time note financing condition tighten account spillover united states increase confidence bar significant deviation inflation september ecb projection monetary policy stance sufficiently restrictive bring inflation target timely manner hold market revise expect interest rate path high level maintain time contribute sufficiently restrictive monetary policy stance caution tight labour market level policy rate restrictive think fact market participant move date expect rate cut see evidence perceive risk overtightene background member assess datum available september monetary policy accordance main element reaction function governing council communicate early year comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation strength monetary policy transmission overall hold element reaction function move right direction provide clear evidence monetary policy work intend start inflation outlook member concur assessment present lane introduction overall process disinflation proceed expect reflect diminish effect exogenous factor push inflation impact monetary policy headline inflation evolve project growth turn weak expect partly owe materialisation downside risk note slowdown economic activity reflect dampen effect past interest rate increase time comfort draw fact forecast error inflation close disinflation process proceed somewhat fast expect overall development see create confidence process bring inflation target timely manner caution dampen effect past interest rate increase inflation materialise come year uncertainty stem mainly future wage dynamic fiscal policy geopolitical risk high upside risk inflation factor materialise time effect inflation evident recall monetary policy face challenge address effect adverse supply shock inflation overall maintain give outlook expect governing council able bring inflation target assume mile bring inflation target difficult argue governing council careful effort tame inflation eventually lead undershooting target member agree indicator underlie inflation appear pass peak continue decline signal governing council wait month time domestic inflation stubbornly high long run inflation projection governing council target turn assessment monetary policy transmission member agree transmission proceed strongly anticipate september significant interest rate pass pende restrain activity inflation projection horizon point successful disinflationary period require prolonged period rate restrictive territory weaken labour market time downside risk highlight strengthen transmission economic activity inflation case stress room complacency difficult disinflation process start inflation dynamic remainder year characterise base effect misinterpret reversal inflation trend lead market volatility inflation uptick short lived change disinflationary outlook context caution declare victory inflation stage inflation twice ecb target overall confidence express progress see important maintain restrictive stance sufficient time rate restrictive territory patience persistence need ensure inflation converge medium term target timely manner governing council incoming datum arrive act need monetary policy decision communication background member agree proposal lane maintain key ecb interest rate level element governing council reaction function consider support case hold hiking cycle consecutive increase interest rate confidence express monetary policy stance sufficiently restrictive give governing council opportunity rate level time inflation outlook dynamic underlie inflation strength monetary policy transmission observe market expect policy rate stay high long period predict ahead governing council september expectation move hump shape interest rate path macroeconomic model tend prescribe optimal flat profile later cut deposit facility rate deem important governing council avoid unwarranted loosening financial condition member argue favour keep door open possible rate hike keep governing council emphasis data dependence decision september close interest rate hike september reinforce progress price stability objective important element definition inflation target governing council introduce follow monetary policy strategy note inflation episode market survey base indicator medium term inflation expectation remain anchor target member agree focus communication action see necessary governing council adapt communication considerable uncertainty surround evolve economic inflation outlook phase economy slow time argue governing council strive continuity consistency stick previous communication closely possible avoid send message complacency member agree governing council stress determination set policy rate future decision sufficiently restrictive level long necessary bring inflation target timely manner high uncertainty risk supply shock materialise governing council data dependent approach reaffirm interest rate leave unchanged hold governing council ready basis ongoing assessment interest rate hike necessary baseline scenario conclusion stress governing council persistent vigilant persistence see essential bring inflation medium term mean convey perseverance patience face shock materialise vigilance imply governing council assert effectiveness measure acknowledge progress overconfidence complacency avoid possible challenge lie ahead inflation bring target member agree executive board proposal apply flexibility reinveste redemption fall pepp portfolio broad agreement continuity pepp reinvestment consistent decision interest rate unchanged october early termination pepp reinvestment see premature take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference october press release monetary policy decision meeting ecb governing council october members lagarde president guindos vice president centeno elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta reinesch schnabel scicluna šimkus stournaras välimäki temporarily replace rehn vasle villeroy galhau visco vujčić wunsch members hold voting right october article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person bénassy quéré dabušinskas demarco gavilán haber kaasik kroes koukoularides lünnemann madouros martin nicoletti altimari novo pösö rutkaste šošić tavlas ulbrich vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee january contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting december account monetary policy governing council european central bank hold frankfurt main wednesday thursday december january review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy october narrative financial market entirely turn prove high sensitivity incoming datum communication market turn bullish drive expectation quick immaculate disinflation early sharp monetary policy reversal repricing support risk asset price equity market soar sovereign corporate credit spread narrow amid continue smooth market absorption buoyant risk asset market strong euro exchange rate consistent investor price bottoming deterioration euro area economic growth momentum look key driver financial market development monetary policy expectation dominant factor downward surprise inflation worldwide macroeconomic datum exclude inflation come well expect euro area alleviate fear hard landing economy factor support investor risk appetite diminish impact geopolitical tension accompany low oil price pronounced swing market pricing month result strong movement financial condition index tightening euro area financial condition see september october expectation interest rate high long decompression term premia reverse november early december investor position rapid disinflation component standard financial condition index point substantial loosening financial condition level see start year investor substantially revise assessment near term long term inflation outlook governing council previous monetary policy expect inflation come quickly stand close ecb inflation target inflation link swap ils forward curve point feature market pricing annual inflation harmonised index consumer prices hicp market base measure compensation headline inflation euro area move lower entire maturity spectrum investor foresee scenario inflation return target level compare period global financial crisis ils forward curve currently upward slop drive inflation risk premia gradually increase horizon word global economic geopolitical landscape upside risk long term inflation see prominent global financial crisis disinflation narrative emerge united states find fertile ground euro area spill euro area short term rate market especially flash estimate euro area inflation november come low expect market currently price early rate cut ecb swifter rate cut cycle time governing council previous monetary policy basis point cut april fully price market december prior release policy rate decision federal open market committee fomc expect cumulative rate cut euro area end increase nearly basis point basis point time governing council previous monetary policy important factor sharp downward adjustment forward rate pricing rate hike time october governing council option price point assumption risk neutrality probability basis point rate hike december market attach probability rate hike contrast outcome report survey respondent affect change tail distribution response partly explain substantial divergence survey base market base expectation analyst expect later few rate cut market participant participant survey monetary analysts expect cumulative cut basis point start july factor explain divergence analyst tend sluggish revise expectation wait firm guidance similar development see start tighten cycle survey result lag forward curve euro area united states month result inflation monetary policy repricing real rate short end curve rise measurably investor reappraise near term inflation outlook nominal short term rate sticky reflect ecb communication look short term real forward rate drop markedly entire maturity spectrum decline nominal interest rate great downward revision inflation outlook medium long term word previous tightening partly reverse decomposition euro area equity price movement show strong rise share price governing council previous monetary policy drive accommodative monetary policy repricing small countervail effect earning expectation development fix income market consistent market participant position bottoming deterioration growth momentum euro area economy reappraisal policy rate outlook combination somewhat well macroeconomic news euro area reverse widening spread corporate sovereign bond observe september october possible adjustment reinvestment pandemic emergency purchase programme pepp portfolio december result survey monetary analysts suggest market expect partial run pepp reinvestment middle run december sustained demand bond primary secondary market amid ongoing run asset purchase programme app portfolio support smooth market absorption early end pepp reinvestment private investor step eurosystem reduce footprint sovereign corporate bond market smooth absorption support debt manager tap retail demand reduce somewhat maturity newly issue debt bank funding condition benefit monetary policy repricing improve risk sentiment euro area bond spread narrow notably risky bond investor appetite bond lead healthy primary market issuance activity additional tier at1 bond segment increase recourse market base funding bank amid favourable funding condition suggest bank able smoothly absorb repayment targeted long term refinance operation tltro suggest notable voluntary repayment year end dynamic funding market expect calm small eurosystem footprint bond market low excess liquidity help reduce distortion repo market report date turn exchange rate development euro initially appreciate markedly dollar governing council october monetary policy appreciation strong suggest movement interest rate differential partly result improved investor sentiment global repricing monetary policy weigh dollar late november euro partly reverse gain speculative position point future appreciation euro dollar consistent expectation soft landing euro area economy global environment economic monetary development euro area review global economy lane note world real gdp strong global trade turn weak project december reason drop elasticity trade global growth relate post pandemic normalisation composition demand trade intensive good trade intensive service datum show consumption good service approach respective pre pandemic trend suggest process change composition demand come end global inventory cycle return normal fluctuation pandemic trade push higher strong build inventory import inventory global supply chain problem supply chain disruption unwound order decline historically high stock inventory run normalisation inventory cycle expect contribute strengthening trade growth normalisation trade elasticity period ahead turn euro area lane recall november flash estimate inflation substantially low expect headline inflation fall october main component hicp contribute decline core inflation i.e. exclude energy food component decrease november october decline non energy industrial good inflation reflect ease supply chain bottleneck slow demand growth service inflation decline november october measure underlie inflation fall october annual rate domestic inflation remain elevate momentum indicator decline markedly month compare year ago strong disinflation headline inflation fall percentage point year owe particular massive decline energy component look inflation projection december correct foresee major disinflation process year ahead disinflationary process course base effect large energy price increase low energy inflation food price contribute disinflation core inflation recently look ahead assessment inflation reach end strong phase disinflationary cycle core inflation food inflation expect gradual decline upward energy relate base effect expiry fiscal measure introduce compensate effect inflation push headline inflation term inflation momentum measure annualise month month percentage change inflation good inflation fall november momentum service inflation decline remain strong focus measure underlie inflation lane recall measure suppose capture persistent component inflation component inflation expect persist year ahead past year measure underlie inflation increase fall significantly give blurred signal underlie inflationary force measure adjust energy supply bottleneck shock see steep increase decrease decline underlie inflation evident adjust measure point small improvement low peak level decline adjusted measure underlie inflation partly attribute effect monetary policy word action monetary policy underlie inflation stay high analysis price dynamic individual item core inflation basket show item account half core inflation sensitive monetary policy item lately decline help explain decline underlie inflation demonstrate monetary policy work way economy envisage short term selling price expectation firm report european commission late business survey point normalisation manufacturing share firm expect charge high price month ahead close long term average late eurostat release show rate increase compensation employee decline percentage point stand contribution unit profit gdp deflator fall substantially suggest expect moderate growth profit begin absorb inflationary effect wage increase wage growth remain strong negotiate wage growth include payment increase forward look wage tracker continue signal high pressure deceleration wage tracker regard inflation expectation october round ecb consumer expectations survey show consumer adjust perception past inflation downward risk factor upcoming wage negotiation professional forecaster contrast late survey monetary analysts show sizeable drop inflation expectation long term inflation expectation report survey remain stable near term headline inflation set pick owe energy relate base effect expiry fiscal measure aim limit repercussion energy price shock projection see inflation decline gradually result upward base effect phasing past compensatory fiscal measure approach governing council target nonetheless strength ongoing disinflation process reflect december projection revise projection headline inflation percentage point percentage point projection unchanged inflation project core inflation project lane focus growth rate free carry effect start hicp inflation december projection show growth rate expect slow gradually evolution inflation fairly flat slowdown core inflation affect base effect project fast rate fall upside risk inflation include heighten geopolitical tension raise energy price near term extreme weather event drive food price inflation turn high anticipate inflation expectation target wage profit margin increase expect contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly potentially owe rise geopolitical risk turn economic activity euro area real gdp fall marginally rise domestic demand offset run inventory survey indicator suggest activity set weaken service sector construction contract tentative sign activity manufacturing sector bottom move demand component private consumption increase drive consumption service durable good consumption service support remain effect post pandemic reopening economy durable good consumption boost delivery previously order motor vehicle supply bottleneck resolve upward movement durable good consumption observe lagging indicator consumption regard near term expectation demand good sensitive interest rate change chiefly durable good decline consumption service support remain reopen effect recovery private consumption embed december eurosystem projection predicate fall inflation rise wage expect boost real disposable income housing business investment set weak tight lending condition business investment strong housing investment owe reduction outstanding stock order factor support business investment increasingly affect monetary tightening euro area good export growth remain negative september growth import volume decline export prospect remain subdue amid increase competitiveness challenge accord european commission business survey european firm perceive competitive global market owe price factor increasingly non price factor employment far resilient unemployment rate stand october employment increase short term indicator point cooling labour market weak economic activity dampen demand worker firm advertise few vacancy month total number hour work edge sequence subdue growth follow expect recovery base rise real income improve foreign demand reflect projection staff expect annual real gdp growth rise compare september projection real gdp growth revise percentage point percentage point unchanged risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east key source geopolitical risk result firm household confident future conversely growth high rise real income lead spending increase anticipated world economy grow strongly expect regard fiscal policy december projection entail relatively small revision main fiscal balance compare september projection budget deficit expect decline gdp fiscal stance expect tighten important monitor government stick budgetary plan turn monetary financial analysis market interest rate fall markedly october governing council reverse significant increase observe early autumn initially decline mainly affect medium long maturity amid spillover major economy recently short term market rate decline measurably response inflation fall fast expect november result market forward curve embed early strong easing monetary policy stance incorporate projection monetary policy transmission remain exceptionally strong bank lending firm household continue weak decline annual growth rate lending firm reflect weak credit demand tight credit standard softening loan demand high interest rate slow nominal fix investment slow pace lend household drive mortgage loan consistent weakness housing market tight credit condition bank composite funding cost rise deposit base available bank continue contract annual growth rate broad monetary aggregate currency circulation overnight deposit october stand respectively close historical low important question extent pressure transmission monetary policy pipeline ecb analysis show sizeable increase policy rate short period time tend lead strong fast transmission credit volume impact tighten cycle credit growth tend peak early imply standard relationship non linearity relevant setting substantial extra interest rate effect attributable great strength policy rate adjustment relative historical regularity lane show historical perspective financing condition tighten strongly hiking cycle monetary policy consideration policy option basis assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane propose keep key ecb interest rate unchanged notwithstanding downside surprise inflation substantial downward revision project inflation headline inflation set return target half remain distance inflation ecb target waning disinflationary supply tailwind high level domestic inflation continue maintain sufficiently restrictive stance governing council maintain strategic orientation future decision ensure key ecb interest rate set sufficiently restrictive level long necessary follow data dependent approach determine appropriate level duration restriction particular governing council interest rate decision base assessment inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission appropriate time schedule pepp reinvestment fade impact pandemic reduction fragmentation risk lane propose advance normalisation eurosystem balance sheet measured predictable pace particular reinvestment maintain half pepp portfolio allow run month average half reinvestment fully discontinue end year proposal line market expectation reflect survey monetary analysts line governing council guidance future roll pepp portfolio manage avoid interference appropriate monetary policy stance partial reinvestment end operational modality similar partial reinvestment app apply furthermore preserve option apply flexibility reinveste redemption come pepp portfolio counter risk monetary policy transmission mechanism relate pandemic continue warrant finally line ecb monetary policy strategy time governing council thoroughly link monetary policy financial stability euro area bank demonstrate resilience high capital ratio significantly profitable past year outlook financial stability remain fragile environment tighten financing condition weak growth geopolitical tension particular situation worsen bank funding cost increase expect borrower struggle repay loan time impact economy scenario contain financial market react orderly fashion macroprudential policy remain line defence build financial vulnerability measure place contribute preserve resilience financial system govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane euro area foreign demand remain weak despite upward revision december projection compare september important reason post pandemic normalisation demand away trade intensive good trade intensive service fallout heighten geopolitical risk far remain contain energy price come elevated level price oil gas decline significantly governing council previous monetary policy regard economic activity euro area member concur lane tight financing condition subdue foreign demand weigh economic activity near term member widely acknowledge weak expect growth short term survey indicator suggest economy hit trough globally euro area purchasing managers indices pmis bottom show small uptick support prospect soft landing time argue premature think weakness activity run course driver growth unlikely sustain euro area economy near term clear signal upcoming improvement global trade geopolitical risk add global weakness manufacturing cash buffer firm household far delay impact monetary policy aggregate demand buffer decline tandem contraction balance sheet eurosystem impact tight financing condition strong corporate profitability important driver business investment decline corporate profitability see downward risk investment generalised tightening fiscal stance expect possibly relate economic governance downward pressure economy finally exceptionally strong monetary policy transmission lend firm household risk have strong negative impact growth inflation incorporate december baseline projection eurosystem basis argue december projection growth near term optimistic consider mechanical nowcasting tool continue point slow economic activity possibility technical recession recall recently disconnect hard soft datum pmis consensus economics forecast gdp growth significantly low equivalent projection expect growth hinge increase consumption turn dependent dynamic labour income productivity growth currently weak strong growth labour income projection see simultaneously drive continue strength employment catch real wage removal fiscal measure implement support household response increase energy price distributional effect bear low income household high propensity consume weigh consumption finally increase real interest rate maturity short year negative impact private consumption time underline evidence monetary policy transmission work welcome remain consistent soft landing impact monetary policy tightening increasingly visible proceed intend financing credit condition tighten lending slow aggregate demand weaken underlie inflation ease inflation come euro area economy set recover gradually owe rise real income strong consumption high foreign demand investment remain resilient far project stagnate perform well project financial condition loosen business confidence improve especially jurisdiction high prevalence adjustable interest rate mortgage interest rate start decline soon support housing investment demand component react response high interest rate owe variability lag strength transmission process reason transmission monetary policy remain uncertain powerful suggest historical pattern model leg transmission monetary policy financing condition rapid strong transmission real economy uncertain weak factor play role strong labour market relatively strong balance sheet firm household bank great weight interest sensitive sector service value add projection remain subject significant uncertainty respect medium term outlook economic activity price reflect lack clarity interplay cyclical factor structural change wake pandemic supply shock possibility shock hit economy turn labour market note employment remain resilient edge hour work subdued time level indicator lead complacency strength labour market change abruptly monitor carefully reference potential non linear change macroeconomic condition firm adjust employment synchronised way high degree labour hoarding costly particularly time profit weaken albeit high level labour market main mechanism support project economic recovery period ahead potential non linear response labour market pose downside risk economic outlook broad question raise extent economic slowdown cyclical structural nature highlight basis regular annual supply undertake potential output revise projection albeit moderately partly reflect structurally high energy price weak capital formation euro area corporation find hard compete internationally owe high energy cost europe investment renewable run capacity problem energy transition provide relief high energy price near term downward revision potential output implication imply output gap inflationary dynamic overall outlook productivity growth potential output growth see weak fiscal structural policy member reiterate energy crisis fade government roll related support measure essential avoid drive medium term inflationary pressure tight monetary policy fiscal policy design economy productive gradually bring high public debt structural reform investment enhance euro area supply capacity help reduce price pressure medium term support green digital transition argue fiscal stance tight year ahead imply drag economic activity automatic stabiliser work opposite direction context low growth low inflation impede meaningful improvement fiscal balance complicate fiscal outlook stress function monetary union stability orient monetary policy require set clear simple fiscal rule background member assess risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east key source geopolitical risk result firm household confident future conversely growth high rise real income lead spending increase anticipated world economy grow strongly expect regard price development member agree assessment present lane introduction underline decline inflation good news suggest fast anticipate disinflationary process decline drive fading energy shock broad base reflect development core component short run inflation expect pick come month mainly owe energy relate base effect inflation number remain affect unwinding past shock food non energy industrial good component reversal fiscal measure hard discern underlie trend late inflation number treat caution early fully confident inflation return target datum need confirm decline particular datum wage growth expect spring year context highlight market base measure inflation expectation start decline significantly inflation datum come low expect underscore importance inflation outturn come month driver inflation expectation particularly give household expectation remain sticky time measure inflation momentum seasonally adjust month month growth rate suggest headline core inflation essentially target november measure volatile argue well predictor future inflation annual growth rate point price adjustment typically frequent start year end year signal measure future inflation interpret particular caution owe statistical difficulty seasonal adjustment condition point envisage decline inflation interact strength economic activity turn determine scale speed price setter able pass cost final price hand outlook economic activity projection optimistic argue strength disinflation underestimate concern confirm market expectation embody notably low inflation path projection particular hand scepticism express downward trend inflation confirm come quarter particularly fiscal policy probably loose time tight labour market push wage indirectly service inflation renew strong price increase energy food rule turn wage development member recall wage outlook key understand medium term inflation pressure labour remain scarce wage growth strong compensation employee grow elevated rate limited signal stabilisation come negotiate wage ecb wage tracker couple fall productivity growth unit labour cost grow record pace contribute persistence domestic inflation level consistent medium term price stability call remain vigilant project strong pick productivity growth materialise decline prove structural labour hoarding persist long important monitor future round wage negotiation negotiation wage agreement conclude early year member expect substantial hard evidence corroborate project moderation wage growth available middle year strong wage growth constitute upward risk inflation projection acknowledge recently observe project drop inflation lead low wage demand inflation continue particularly low round effect time point low inflation far fully reflect perception firm general public take grant low inflation figure immediately translate low wage demand reason domestic inflation start stabilise recently spite continue rapid increase wage firm moderate markup embed previous projection important assumption december projection decline contribution unit profit gdp deflator measure inflation underpin convergence medium term inflation trend target significant downward adjustment contribution unit profit see late national account datum lend support expectation appear consistent return unit profit previous trend assume projection return trend partly cyclical nature proceed quickly currently project underline particularly high uncertainty surround component ongoing project disinflation regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator market base inflation expectation remain anchor come recently reflect market inflation fall rapidly stabilise time professional forecaster continue cautious underline inflation expectation household firm remain sticky ecb target feel exceptionally large gap form interest rate path derive financial market price interest rate assumption embody projection point upside risk inflation path project hard establish extent equally substantial fall price energy cut date projection provide downward impetus inflation month come background member highlight number risk medium term inflation outlook direction upside risk inflation include heighten geopolitical tension push energy price high near term extreme weather event drive food price inflation turn high anticipate inflation expectation target wage profit margin increase expect contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly potentially owe rise geopolitical risk overall risk see balanced member assess risk point upside member judge have shift downside consistent prevail downside risk economic activity context member debate notion mile disinflation trajectory hard cover hand argue notion useful way summarise challenge face governing council determine persistence inflation pressure require duration monetary policy restriction beginning understand bring inflation way level exceed hardly possible incur effect low employment low output surprisingly far progress inflation advance relatively mild cost term economic activity prospect soft landing remain place service inflation run continue strong wage growth potentially challenging mile loom respect reiterate projection predicate moderation wage growth buffering wage growth low unit profit sustained rebound productivity growth help bring growth rate unit labour cost progress disinflation rest number benign assumption inflation expectation remain anchor addition potential rigidity price wage stem example backward look feature wage negotiation impact structural shock economy inflation dynamic contribute mile”-type delay disinflation risk shock energy food price shock effect climate change food price climate relate measure high carbon taxis render inflation persistent easily unanchor inflation expectation long period target inflation hand express notion difficult mile undermine confidence ecb inflation target achieve timely manner fundamentally clear nature disinflationary process change target draw close look annual inflation datum year appear disinflation date actually fast previous surge inflation question empirical relevance mile narrative argue inflation depend state economy monetary policy weak economy tight monetary policy world economy lose momentum surprising inflation fall rapidly finally argue main condition inflation persistent proximity inflation target inflation expectation unanchore ultimately depend credibility monetary policy turn monetary financial analysis member concur assessment provide lane introduction significant development governing council previous monetary policy marked fall market interest rate intensify follow fomc policy decision press conference december evident update market development provide schnabel market base measure inflation expectation decline considerably horizon approach reflect market participant inflation fall rapidly stabilise level real interest rate fall significantly near term nominal interest rate drop correspond inflation expectation embed market price overall decline market interest rate rise risk asset price lead loose financial condition accord measure appreciation euro opposite direction member agree reprice financial market partially attribute good news broad base slowdown inflation euro area major advanced economy widely feel market expectation reflect significant optimism inconsistent outlook projection respect inflation outlook rate path embody technical assumption reflect forward curve time cut date projection incorporate basis point rate cut addition recall analyst include participate survey monetary analysts remain cautious recall market expectation volatile market perception narrative shift dramatically governing council monetary policy reverse early september october push rate higher high long narrative suggest reversal sentiment come month concern express sharp market repricing threaten loosen financial condition excessively derail disinflationary process background widely regard important accommodate market expectation post communication overall humility advise respect judge market expectation give prevail uncertainty include uncertainty surround outlook growth inflation note inflation fall level interest rate increasingly tight time member agree far monetary policy continue transmit strongly broad financing condition average interest rate business loan mortgage rise october high borrowing rate subdued loan demand tight loan supply weaken credit dynamic weak lending reduction eurosystem balance sheet broad money measure annual growth continue contract consecutive month growth remain negative consecutive month time note financial market repricing start translate low interest rate mortgage lending jurisdiction great prevalence float rate mortgage average rate outstanding stock housing loan start decline come transmission monetary policy loan growth remain strong annual growth rate loan non financial corporation fall negative territory time july growth loan household remain subdue contend sign tighten banking sector reflect dual effect high policy rate low deposit amid decline supply liquidity argue risk environment excess liquidity abundant furthermore recall decline liquidity system limited impact bank continue repay tltro voluntarily governing council hold biannual structured exchange link monetary policy financial stability member concur euro area bank demonstrate resilience high capital ratio significantly profitable past year situation worsen bank funding cost credit risk increase expect risk assess contain market reaction scenario orderly reiterate macroprudential policy remain line defence build financial vulnerability measure place contribute preserve resilience financial system monetary policy stance policy consideration turn assessment monetary policy stance member highlight maintain sufficiently long duration monetary policy stance sufficiently restrictive bring inflation target timely manner base interest rate embed projection lie market interest rate projection suggest rate path line reach inflation target half background member assess datum available monetary policy accordance main element reaction function governing council communicate early comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation strength monetary policy transmission overall hold element reaction function move right direction provide clear evidence monetary policy work intend start inflation outlook member concur assessment present lane introduction overall process disinflation proceed probably strongly anticipate november flash estimate come significantly low expect fall inflation encouraging broad base span main component include core item indicative weak demand reflect impact monetary policy diminish effect factor push inflation give ground increase confidence inflation bring target timely manner highlight inflation pick near term account upward base effect cost energy decline slowly course furthermore project inflation unchanged december projection september round remain slightly target especially core inflation note service inflation start ease inflationary pressure recede component indicative weak demand affect monetary policy underline future wage dynamic remain highly uncertain agreement negotiate early convincing evidence sustained turnaround wage emerge necessary sufficient confidence gain inflation fall ecb target time note inflation rate plunge past year eurosystem projection contain large downward revision inflation sign wage growth stabilise come argue wage lagging indicator stress projection unchanged december round core inflation remain horizon upside risk inflation outlook fiscal policy include high carbon taxis energy food price see elevate prevail geopolitical risk upside risk inflation materialise clear adverse structural change emerge inflation pressure persistent member agree indicator underlie inflation appear pass peak continue decline dynamic underlie inflation remain strong historical perspective include look measure adjust energy shock supply bottleneck particular domestic inflation remain elevated edge lower slow pace sticky wage growth service inflation particular reflect strong labour market point base effect fiscal measure challenging ascertain true dynamic underlie inflation turn assessment monetary policy transmission member agree transmission proceed strongly help dampen inflationary pressure good service argue significant interest rate pass pende peak impact activity see early bulk impact inflation expect year express transmission financing condition lending activity work strongly initially expect non linearity financial amplification work effect typically include standard model projection baseline bolster strength transmission economic activity price reference wide range estimate impact monetary policy normalisation december large difference extent persistence effect depend model policy analysis projection different underlying assumption context argument observe disinflation validate notion surge inflation transitory support decisive policy action ecb instrumental achieve outcome look ahead emphasise transmission pipeline firm cash buffer household excess saving extent limit impact monetary policy aggregate demand decline alongside contraction eurosystem balance sheet see suggest impact tight financing condition strong expect come quarter argue limited evidence effect policy tightening have strengthen economic activity develop accord expectation labour market remain tight downward adjustment inflation expectation appear follow downward inflation surprise weakness economy basis december eurosystem projection member express increase confidence inflation bring target different view ground sufficient confidence target reach timely manner need see continue vigilance patience maintenance restrictive stance time stress room complacency time governing council lower guard caution warrant inflation probably pick near term continue uncertainty relation wage underlie inflation dynamic suggest early confident task accomplish monetary policy decision communication background member agree proposal lane maintain key ecb interest rate level element governing council reaction function consider support case decision confidence express monetary policy stance continue sufficiently restrictive give governing council opportunity hold rate level time inflation outlook dynamic underlie inflation strength monetary policy transmission restate governing council data dependent approach see important focus element reaction function provide structured approach monetary policy decision making communication see integral governing council orientation offer necessary flexibility turn policy affect size composition eurosystem balance sheet large majority member agree lane proposal advance normalisation balance sheet measured predictable pace view proportionate response initial objective pepp instrument design counter risk monetary policy transmission mechanism outlook euro area pose pandemic pandemic emergency dimension maintain reinvestment long appropriate addition market currently function smoothly fragmentation concern limited mean risk end reinvestment contain especially move partial reinvestment allow flexible reinvestment necessary opportune time decision logical step normalisation eurosystem balance sheet proposal line market expectation surprise market participant approach allow smooth adjustment particular redemption pepp portfolio small relative source balance sheet shrinkage time see crucial decision end reinvestment early originally plan fully delinke monetary policy stance decision relate level policy interest rate mean important stress interest rate decision main instrument governing council monetary policy member favour early end reinvestment propose suggest tapering start early gradual member argue reinvestment end context argue difference start taper end reinvestment couple quarter soon later affect proportionality assessment member unanimously agree lane proposal apply flexibility reinveste redemption fall pepp portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference december press release monetary policy decision meeting ecb governing council december members lagarde president guindos vice president centeno cipollone elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta reinesch schnabel scicluna šimkus stournaras välimäki temporarily replace rehn vasle villeroy galhau vujčić wunsch members hold voting right december article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person dabušinskas demarco garnier gavilán gilbert haber horváth kaasik kelly koukoularides lünnemann nicoletti altimari novo pösö rutkaste šošić tavlas ulbrich vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee february contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu 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meeting january account monetary policy governing council european central bank hold frankfurt main wednesday thursday january february review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy december rapid easing financial condition observe october level par slightly financial condition ease sharply november december narrative financial market shift high long swift disinflation imminent monetary policy easing governing council december financial condition continue ease late december tighten slightly follow ecb communication counter aggressive market pricing rate cut cycle start early march probability basis point cut april stand cut fully price june expect cumulative rate cut end year decline slightly december basis point policy rate expectation forward market scale slightly less extent interest rate market position initial basis point cut probability march cut investor expect magnitude cumulative cut euro area course anticipate globally synchronise normalisation cycle uncertainty policy path high reflect persistent volatility bond market easing global financial condition november december hand hand low volatility risk asset market imply volatility euro area equity market drop low level onset coronavirus pandemic february despite significant geopolitical tension risk protract economic weakness low imply volatility risk asset market accompany meaningfully low imply volatility bond market decouple equity market volatility potential source heighten monetary policy uncertainty timing pace policy adjustment extent require policy adjustment respondent january ecb survey monetary analysts sma raise expectation pace rate cut year remain cautious financial market pricing market foresaw cumulative easing basis point sma respondent expect total cut basis point end year difference outlook inflation explain discrepancy market pricing analyst expectation future path monetary policy investor trade financial market discernibly optimistic inflation outlook median sma respondent explanation different speed adjust information interest rate tighten cycle rate market consistently lead survey expectation month source uncertainty medium term policy rate path concern extent adjustment require return neutral policy rate uncertainty surround estimate rate sma participant raise noticeably median long run expectation policy rate compare level period start ecb hiking path expect reversal tightening visible long tenor yield curve euro area year real overnight index swap ois rate remain close early level slightly september level ecb hike interest rate correspond nominal ois interest rate fall early level united states year real ois interest rate fall similar degree late october remain early level reappraisal monetary policy outlook dominant driver decline bond yield governing council october monetary policy news growth outlook fiscal development rescaling early aggressive market pricing affect risk asset market euro area equity market remain unchanged december long perspective start reveal development equity market risk asset market robust provide ease impulse financial condition somewhat strong repricing monetary policy expectation euro area united states reflect slight appreciation euro dollar move lower broad set currency intra euro area sovereign bond spread decline announcement phasing reinvestment pandemic emergency purchase programme pepp absorb market government bond see record demand announcement pepp ongoing gradual predictable unwinding eurosystem bond portfolio asset purchase programme app amplify sensitivity spread change risk free rate suggest fragmentation risk remain muted absorption euro area government bond market support benign liquidity condition underpin return foreign investor investment fund prospect smooth healthy market absorption remain place benign market condition evident year end trading repo market functioning repo rate decline general collateral non general collateral market substantially contained year end global environment economic monetary development euro area review global environment lane note global economic activity moderate time global trade growth improve post pandemic pattern normalise tension red sea gulf aden downside risk trade adversely affect delivery time maritime shipping cost especially route china europe end december big drop transit volume shipping rout africa far rental price container vessel relatively unaffected owe spare capacity shipping price increase oil production expect affect development red sea area late projection international energy agency estimate oil supply demand balance market surplus remainder year notable movement energy price oil future price significantly level time governing council december gas future price significantly low lane note analyse energy price important look emissions trading system ets market emission allowance price fall week january reflect weak demand industry power sector case power sector increase use renewable concern global commodity little movement food metal price governing council limit change euro exchange rate dollar nominal effective term turn euro area lane recall inflation rise december november owe energy relate base effect increase expect service inflation remain steady food non energy industrial good inflation continue decline look ahead headline inflation core inflation measure respectively harmonised index consumer prices hicp hicp exclude energy food expect downward trajectory domestic inflation remain high owe elevated pace wage increase fall labour productivity start ease indicator momentum headline inflation component ease annualise month month growth rate seasonally adjust core inflation fall momentum good inflation momentum service food inflation close broad range underlie inflation measure fall december reflect fade impact past shock weak demand result ongoing strong transmission tight monetary policy different measure persistent common component inflation good predictor inflation year ahead ease december overall december inflation datum provide evidence disinflationary process track fact run fast previously expect headwind expect increase inflation momentum embed december eurosystem macroeconomic projection increase role wage pressure explain dynamic core inflation fading energy price fall disinflationary pressure come removal supply bottleneck historically purchasing managers indices pmis price able capture development good service inflation correlation improve pmi show month lead property good month lead property service basis pmi suggest downward pressure good service inflation near term late reading show small reversal suggest pressure set weaken look ahead expect slowdown disinflationary process evident decomposition service inflation wage intensive wage intensive component far decline service inflation observe early drive wage intensive component contribution wage intensive component decline gradually pace wage growth remain elevated initial sign deceleration unit labour cost grow compensation employee negotiate wage growth decrease september october forward look wage tracker signal wage dynamic line december projection lane recall wage tracker contain old contract renegotiate different point time new agreement sign end payment include show increase negotiation take place expect conclude february march survey base measure wage expectation show firm professional forecaster expect decline wage growth accord january corporate telephone survey wage growth expect fall expectation bit low previous round similarly late survey professional forecasters expectation annual growth compensation employee point ease wage growth onwards revise long term horizon particular expect wage growth see trend increase consistent ecb medium term inflation target contribution unit profit domestic price pressure continue decrease suggest expect profit margin absorb price pressure come wage increase january corporate telephone survey suggest firm adjust profit margin report profit margin edge somewhat end year remain long term average early mid-2023 confirm profit start mitigate inflationary effect wage increase look ahead inflation expect ease course effect past energy shock supply bottleneck post pandemic reopening economy fade tight monetary policy constrain demand measure short term inflation expectation come markedly long term inflation expectation stand market base measure inflation compensation imply fixing contract measure extract swap contract link near term euro area inflation release indicate investor expect inflation fall early april stay remainder consumer expectations survey show perception inflation finally decline month household expectation year ahead decline considerably october december year ahead expectation move sideways october regard professional forecaster inflation expectation shift entire horizon long term expectation stand upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term hamper global trade inflation turn high anticipate wage increase expect profit margin remain resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly inflation decline quickly near term energy price evolve line downward shift market expectation future path oil gas price euro area economy stagnate final follow mild contraction real gdp late statistical release service industrial production indicate drop relative survey indicator include pmi remain level consistent fall activity january forward look indicator signal pick growth ahead turn component demand private consumption estimate remain subdue end lane recall december projection entail significant recovery private consumption indicator available firm expectation remain contain retail trade continue historical average contact intensive service move housing investment gdp demand component visibly affect monetary policy transmission housing investment contract past year estimate decline final december projection entail slow rate decline time pmi housing output remain deeply negative territory sign bottom business investment picture mixed business investment grow expectation december projection decline accumulation stock finished capital good cushion decline investment past additionally exist order book capital good help investment growth positive territory order fall sharply suggest period weak investment ahead trade spite recovery global trade euro area export remain subdue draw close import continue weak owe unfavourable composition demand inventory destocke cycle global level euro area labour market continue robust unemployment rate fall november worker enter labour force labour market condition benefit surge profit margin enable firm hoard labour despite demand tail time momentum demand labour decelerate few vacancy advertise turn fiscal policy news fiscal measure limit measure take cancel euro area aggregate level country implement measure roll previous plan risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east key source geopolitical risk result firm household confident future global trade disrupt growth high rise real income lead great increase spending anticipate world economy grow strongly expect turn monetary financial analysis market interest rate move sideways previous governing council similarly long end yield curve risk free rate sovereign bond yield little change despite fluctuation intervene period monetary aggregate continue decline annual term remain close historical low broad monetary aggregate decline year year november decline consistent lack aggregate growth lending measure real term decline large narrow monetary aggregate currency circulation overnight deposit continue fall sharply november background portfolio shift transmission restrictive monetary policy stance broad financing condition remain exceptionally strong lending rate business loan decline slightly november remain close historical high mortgage rate increase january lending survey suggest high borrowing rate associate cutback investment plan house purchase lead drop credit demand background credit dynamic improve somewhat remain weak november despite increase short term loan firm associate great work capital need time tightening credit standard loan company report january moderate sign trend restrictive credit condition observe year flatten monetary policy consideration policy option overall incoming information confirm governing council previous assessment medium term inflation outlook dynamic underlie inflation strength monetary policy transmission inflation head target possibly fast pace previously expect level policy interest rate substantial contribution reach goal maintain sufficiently long duration term evaluation policy rate trajectory disinflationary process need governing council sufficiently confident inflation hit target timely manner settle sustainably level lane propose keep key ecb interest rate unchanged element governing council reaction function give robust framework assess datum guide decision upcoming policy meeting governing council follow data dependent approach determine appropriate level duration restriction particular governing council interest rate decision base assessment inflation outlook light incoming economic financial datum dynamic underlie inflation strength monetary policy transmission finally lane propose preserve option apply flexibility reinveste redemption come pepp portfolio counter risk monetary policy transmission mechanism related pandemic govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane global gdp growth see decelerate incoming trade datum suggest good trade momentum turn positive line assessment normalisation inventory cycle consumption pattern good service support trade impact global trade development red sea area see contain far look key global economy united states course soft landing china gdp growth slow context weak chinese domestic demand argue chinese export additional negative pressure international price weakness china negatively affect euro area export increase uncertainty economic outlook turn energy commodity oil price increase december governing council european gas price decline demand remain subdued gas storage facility relatively euro area economy see particularly expose geopolitical risk elevated year come war ukraine remain important risk factor conflict middle east result rise freight cost lengthening delivery time owe attack freight ship red sea gulf aden far major disruption trade main impact come ship take long route africa result high shipping rate long delivery time anecdotally lead euro area company halt production lack component context heighten global uncertainty see puzzle international energy price development remain benign regard economic activity member concur lane euro area economy stagnate final incoming datum continue signal weakness near term forward look survey indicator point pick growth ahead labour market remain robust unemployment rate november fall low level start euro worker enter labour force time demand labour slow few job vacancy advertise government roll energy relate support measure avoid drive medium term inflationary pressure fiscal structural policy design euro area economy productive competitive gradually bring high public debt ratio structural reform investment enhance euro area supply capacity support implementation generation programme help reduce price pressure medium term support green digital transition follow ecofin council agreement reform economic governance framework legislative process conclude swiftly rule implement delay imperative progress capital market union completion banking union accelerate member widely acknowledge growth weak expect short term far decline inflation come relatively mild cost term economic activity hand survey indicator suggest economy bottom pmi indicator plateaue show uptick feed soft landing look flash pmis january manufacturing activity firmly negative territory upward path forward look pmi service increase notably employment expectation edge moderately hand point economy stagnate row projection shift start recovery quarter consumer confidence remain low pmi indicator service come analyst expectation january ecb contact non financial corporation show business environment perceive worsen improve governing council need clear sign recovery track look ahead main factor expect recovery accord december projection consumption see pick real household income gradually improve investment see potential driver housing investment weak year gradually recover mortgage rate come peak reference lending survey foresee increase household demand loan house purchase business investment hold well anticipate give high stock order capital good profit remain pre pandemic trend especially financial condition loosen see pose upward risk economic outlook notably short term weak investment trajectory december projection anticipate time stress monetary transmission remain strong particularly housing sector reflect weak development housing loan turn labour market condition see persistently tight unemployment time low argue sacrifice ratio bring inflation virtually give tight labour market prudent governing council exercise caution wage prospect await evidence wage growth actually moderate project argue governing council need hard datum confirm wage turn corner time highlight labour market clearly show sign cool dampening effect future wage growth give significant labour hoarding economic activity recover soon employment wage growth fall softening labour market condition visible decline job vacancy typically variable start adjust background member assess risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east key source geopolitical risk result firm household confident future global trade disrupt growth high rise real income mean spending increase anticipate world economy grow strongly expect context express risk surround growth inflation december projection increasingly downside remark low figure activity economy stagnate contracting mechanically imply substantially low growth owe carry effect growth rate far potential mainly result tight financial condition weak sentiment withdrawal fiscal support lag effect monetary policy tightening euro area growth remain disappointing medium term perspective regard important stress need structural reform address low productivity impediment supply low potential growth europe highlight importance make progress capital market union improve functioning single market factor product market context point national government face structural challenge include age population green digital transition tackle backdrop heighten geopolitical risk activity sentiment manufacturing sector slowly improve firm continue face structural headwind unrelated ecb monetary policy need tackle foremost government structural reform reform fiscal governance framework stress european commission european council implement rule transparently efficiently possible way permit progress fiscal consolidation simultaneously create headroom investment recall government need bring high public debt ratio ready contribute close investment gap green transition adaptation climate change imply adjust path headline fiscal policy composition budget able pursue truly sustainable level economic activity resilient increasingly plausible scenario world fall short objective paris agreement regard price development member concur assessment present lane introduction inflation rise december past fiscal measure cushion impact high energy price drop annual inflation rate rebound weak expect aside base effect trend decline inflation continue food price inflation ease december hicp inflation exclude energy food decline owe good inflation fall service inflation stable inflation expect ease course effect past energy shock supply bottleneck post pandemic reopening economy fade tight monetary policy continue weigh demand measure underlie inflation decline december elevated rate wage increase fall labour productivity keep domestic price pressure high start ease time low unit profit start moderate inflationary effect rise unit labour cost measure short term inflation expectation come markedly measure long term inflation expectation stand member stress decline inflation good news headline underlie inflation figure recently continuously predict level suggest fast anticipate disinflationary process march projection downward revision inflation context highlight projection tend underestimate change inflation momentum direction downside inflation surprise currently occur parallel downside growth surprise repeat sign strong expect transmission monetary policy additionally market participant expect low inflation profile notably express suggest risk inflation projection move downside especially short term emphasise outlook inflation remain particularly cloud short term seasonality play disproportionate role firm post price start year complicate interpretation incoming inflation number underline extract signal month month datum inflation evolve medium term subject considerable uncertainty regard medium term component wage dynamic evolution inflation expectation remain crucial remain open issue pandemic relate change price service unwind relative good price protract deflation good price extended period service inflation normal level service price typically stickier heavily determine wage headline inflation see track ecb inflation target path remain surround considerable uncertainty especially respect medium term prospect inflation return target timely sustained manner remain fragile depend number benign assumption materialise particular emphasis place project decline record high unit labour cost growth predicate rebound productivity alongside moderation wage growth assume high labour cost absorb profit indicate project small contribution unit profit domestic inflation reference mile difficulty final stretch inflation target see challenging early phase see risk swift disinflation follow reversal supply shock forceful monetary tightening soon start wane domestic component inflation prove persistent shock derail progress example momentum service inflation slow annual growth rate remain high december similarly domestic inflation come remain measure underlie inflation absorption high input cost low profit margin assure suggest increase sell price expectation successive month turn wage development detail member recall wage pressure key medium term inflation outlook far wage growth remain strong negative productivity growth lead historically large increase unit labour cost distance wage growth trend increase 2½% compatible inflation target assume trend productivity growth regard significant diminish gradually time remain see unit labour cost growth decline sharply assume december projection rely partly strong recovery productivity growth combine moderation wage growth despite stagnation underline economy continue add job unemployment rate clearly available estimate non accelerating inflation rate unemployment nairu euro area trade union probably powerful negotiating position keep mind backloading wage increase country imply persistent pressure wage growth stretch time reason unit labour cost expect improve significantly year economy expect recover strongly accord december projection baseline scenario firm increase output year necessarily add employment improvement productivity ensure unit labour cost decline quickly wage economy grow unit labour cost retrench inflation pressure persist argue unlikely happen firm face weak demand pricing power eventually respond layoff pre empt decline labour productivity point nominal wage growth accord late available datum compensation employee necessarily excessive number catch phase take account real wage decline beginning inflation surge recovery real wage embody december projection regard necessary euro area economy recover period stagnation context weak demand expect upward pressure inflation conversely employment wage weaken risk economy quickly find situation low growth low inflation context rapid disinflation trade union accept low nominal wage increase achieve real wage increase finally caution express overinterprete signal wage growth labour market typically lag output dynamic impact monetary policy tightening visible wage growth lag background widely feel signal wage growth year important wage contract schedule settle come month moment open question worker react environment fall inflation level price high compare wage level incoming information wage tracker line baseline december projection question raise wage agreement corroborate sign moderation line projection firm compress margin element consistent inflation return target medium term finally recall negotiate wage typically lagging indicator economic growth wage drift component total wage growth immediately responsive business cycle context economy stagnate nearly half year component wage growth turn weak suggest information wage tracker negotiate wage attention draw reason inflation fall spite increase wage wage amount firm total cost indicator intermediate cost currently fall wage intermediate cost take pressure inflation total cost decline change producer price typically lead change consumer price quarter decline cost pressure expect transmit consumer price couple quarter intermediate cost move opposite direction wage wage growth sufficient indicator capture cost pressure economy give price typically set mark total cost wage cost question raise near future profit margin scope absorb rise unit labour cost business increasingly pass high unit labour cost price firm profit far exceptional level time firm purportedly take advantage high inflation increase profit margin fact profit margin come point anecdotal evidence suggest firm start cut investment feel constrain lack profitability performance manufacturing sector weak sector expose global competition profit buffer unit labour cost contrast service sector shield global competition demand robust high unit labour cost sector pass price easily context note stock return suggest corporate profitability high significant uncertainty surround link wage price setting underline governing council need monitor broad set variable understand state labour market ultimately affect inflation rely indicator regard long term inflation expectation market base measure come notably remain anchor reflect market inflation fall rapidly stabilise context reference risk downward unanchoring inflation expectation result weakness economic activity fast broad disinflation anticipate time express indication expectation unanchored downside inflation expectation household firm instead skew upside overall development widely see right direction background upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term hamper global trade inflation turn high anticipate wage increase expect profit margin prove resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly inflation decline quickly near term energy price evolve line downward shift market expectation future path oil gas price turn monetary financial analysis market interest rate unchanged compare level time governing council previous show substantial volatility rapid fall market interest rate turn year subsequently reverse communication governing council member curb expectation imminent policy rate cut lead market price low probability policy rate cut upcoming meeting governing council expect cumulative rate cut currently nearly double basis point embed december projection addition argue market expect low interest rate expect low growth inflation project especially respect widely feel market pricing future interest rate sign market understand ecb reaction function instead appear market simply expect inflation low foresee december projection notably give market expectation inflation future path nominal interest rate move lower tandem profile expected real interest rate remain unchanged important dismiss market assessment advisable exercise humility judge market expectation inflation rate mean governing council follow validate expectation market pricing respond incoming datum governing council communication assessment euro area equity market assess buoyant remain robust despite weak outlook economic growth argue reflect repricing outlook interest rate financial market underprice risk shallower monetary policy ease cycle alternative interpretation strength equity market financial market participant expect profit resilient justify stock market valuation notably globally active firm member point euro area financial market continue function sovereign corporate bond spread contain narrow evidence market fragmentation amid normalisation eurosystem balance sheet welcome development overall significant loosening financial condition october monetary policy governing council pause hiking cycle series interest rate increase implement july financial condition unchanged time december tighten slightly trough end member agree ecb restrictive monetary policy strongly transmit financing condition firm household evidence recently emerge borrowing cost reach peak bank lending rate firm fall november time long period mortgage rate increase lending survey suggest flattening tightening credit standard easing term condition housing loan recall rate lending reach turning point repricing exist stock loan high rate remain pipeline credit dynamic improve somewhat remain weak weakness reflect impact past monetary policy tightening report late lending survey contribute drop credit demand credit supply argue weak incentive lending play role bank attractive alternative way put liquidity work include invest bond market place fund ecb deposit facility anecdotal evidence suggest loan supply see major problem firm cite issue regulation lack qualified labour important overall assess monetary policy transmission credit volume remain strong especially mortgage time credit dynamic appear line narrative soft landing economy fact monthly lending flow firm reach high level year loan household pick indication credit dynamic close turning point peak monetary transmission lending volume reach finally remark response change monetary policy stance bank funding strategy gradually normalise term configuration interest rate recourse eurosystem balance sheet bank benefit able draw function funding market stable sustainable spread diversified funding strategy imply increase aggregate funding cost contribute robust balance sheet increase resilience bank shock prevail uncertain macro financial environment support orderly smooth transmission monetary policy shock materialise monetary policy stance policy consideration turn monetary policy stance member assess incoming datum governing council accordance main element governing council communicate important shape reaction function element implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission overall member see late development economic activity inflation consistent monetary policy stance progress element reaction function give ground confident monetary policy work start inflation outlook datum release issue previous suggest disinflation proceed envisage slightly fast pace previously expect argue basis information update assumption particular low energy price projection march downward revision inflation underline important question policy perspective extent news near term inflation translate change medium term inflation outlook incoming information confirm previous assessment medium term inflation outlook premature draw firm conclusion regard complete evaluation need march projection available inflation decrease fast expect partly attribute factor energy price development easily reverse assessment medium term inflation outlook wide range variable need consider particular extent disinflation lead low wage claim projection prevail market expectation interest rate important conditioning assumption market expectation currently significantly low underlie december projection low path interest rate currently expect market endogenous reaction low inflation extent low nominal rate translate high growth inflation future need carefully assess include look expect path real rate change projection assumption member note measure underlie inflation pass peak have fall summer hicp inflation exclude energy food weak predict datum release momentum come measure underlie inflation remain relatively high include service inflation domestic inflation wage growth remain strong limited indication turnaround far unit labour cost rise sharply reflect weak productivity growth remain see grow slowly foresee projection predicate recovery productivity growth moderate wage growth uncertainty pertain contribution unit profit domestic inflation decline project firm absorb high labour cost pass consumer turn assessment monetary policy transmission member note solid evidence monetary policy transmit financial market finance condition credit condition impact have strong expect uncertainty remain timing peak impact ultimate effect monetary policy tightening real economy inflation member signal continuity caution patience need disinflationary process remain fragile let early undo progress initial inflation shock reverse task lie ahead reversal round effect prove stubborn time member express increase confidence inflation bring inflation target timely manner point time meeting risk reach inflation target see balanced time express year significantly overshoot inflation target cost overshooting high cost undershoot context member underline fact ecb inflation target symmetric imply need avoid undershooting overshooting policy rate close effective lower bind time volatility inflation path achieve target shock materialise projection foresaw temporary period inflation long deviation large persistent policy conclusion keep ecb medium term orientation governing council necessarily act recall ecb monetary policy strategy prescribe average inflation target governing council aim undershooting persistent deviation inflation target direction require policy response monetary policy decision communication background member agree proposal lane maintain key ecb interest rate level affirm progress need disinflationary process governing council sufficiently confident inflation set hit ecb target timely manner sustainable way juncture regard important monetary policy stay course governing council proceed steady hand time member underline fact monetary policy remain data dependent reiterate base assessment governing council consider key ecb interest rate level maintain sufficiently long duration substantial contribution return inflation medium term target timely manner future decision ensure policy rate set sufficiently restrictive level long necessary broad consensus member premature rate cut member widely refer risk management consideration support risk cut policy rate early see outweigh cut rate late have reverse course event economic activity pick strongly expect wage growth accelerate renew inflationary pressure emerge entail high reputational cost point risk inadvertent overtightening monetary policy mitigate fact financial market price number rate cut contribute loosening financial financing condition argue loosening premature possibly derail delay timely return inflation target case member agree follow data dependent calendar base approach important line element reaction function governing council communicate member agree executive board proposal apply flexibility reinveste redemption fall pepp portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference january press release monetary policy decision meeting ecb governing council january members lagarde president guindos vice president centeno cipollone elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta reinesch schnabel scicluna šimkus stournaras välimäki temporarily replace rehn vasle villeroy galhau vujčić wunsch members hold voting right january article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré dabušinskas demarco gavilán haber kaasik koukoularides lünnemann madouros martin mauderer nicoletti altimari novo pösö rutkaste sleijpen šošić vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee april contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting march account monetary policy governing council european central bank hold frankfurt main wednesday thursday march april review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy january monetary policy expectation retract early large interest rate cut initially foresee turn year favourable news global economy favourable news inflation key factor shape financial market development case factor macroeconomic datum surprise move positive territory euro area united states china time result investor attach discernibly low probability scenario hard landing global economy factor relate reassessment medium term inflation outlook high expect inflation release euro area united states especially core inflation dent investor hope rapid smooth disinflation look path headline core inflation euro area measure respectively harmonised index consumer prices hicp index exclude energy food inflation link bond market price somewhat high headline inflation rate year compare expectation time governing council monetary policy january response investor expectation low downside tail risk economic activity slightly bumpy path disinflation rate market price substantially shallower ease cycle euro area expected cumulative interest rate cut end have decline notably basis point late december basis point late repricing gap expectation interest rate market report market analyst disappear united states strong labour market datum high expect inflation figure cautious communication federal reserve system trigger great repricing policy rate expectation result overnight index swap ois forward curve price substantially shallower ease cycle united states key explanatory factor expectation synchronised monetary policy ease cycle advanced economy common component global inflation market anticipate disinflationary momentum unfold synchronously come year spillover united states factor explain close movement monetary policy expectation jurisdiction datum release continue exert significant influence yield advanced economy decomposition euro area ois rate different maturity inflation compensation real rate show euro area inflation compensation increase notably curve time real rate decline particular long end imply mild loosening financing condition risk free rate united states rise inflation compensation slightly pronounced real rate remain firm curve widen yield differential mirror slight depreciation euro exchange rate dollar nominal effective term euro remain unchanged dollar appreciate despite repricing near term inflation outlook risk long term inflation outlook materially change january year forward inflation link swap ils rate year ahead remain unchanged compare close peak level september govern council ils forward rate come materially drive decline inflation risk premia sharp past tightening effective contain eventually lower risk long term inflation outlook year forward ils rate year ahead stand markedly historical mean consistent ils rate euro area option price indicate risk high inflation come remain somewhat elevated compare historical average risk asset market appear look tighten impulse stem expectation later shallower ease cycle support improved risk sentiment benchmark stock market index major advanced emerge economy include china follow bullish trend governing council january buoyant risk sentiment visible corporate bond market true sovereign bond market spread german bunds continue narrow differential italian german year government bond yield small march investor appear keen lock attractive return amid expectation peak tighten cycle reach bid cover ratio continue gradual upward trend point strong demand bond despite record high sovereign issuance year date despite benign price development risk asset market pocket risk emerge example relate commercial real estate market broad repercussion financial intermediary market continue rally risky market segment despite repricing monetary policy expectation stretch valuation asset point complacency financial market global environment economic monetary development euro area start global outlook lane note global economic activity subdue sign improvement trade momentum good service expect strengthen year march ecb macroeconomic projection euro area foresee significant pick euro area foreign demand line previous exercise euro area foreign demand project grow reflect expectation normalisation demand good benefit european producer commodity oil price increase gas price decline international metal price decline food price edge turn euro area lane recall accord eurostat flash release euro area headline inflation decline february january energy inflation negative partly owe withdrawal fiscal support food inflation fall strongly february january reflect easing process unprocessed food inflation core inflation decrease february january period rate non energy industrial good inflation decelerate service inflation edge percentage point inflation wage sensitive service remain high non wage sensitive service support high wage growth play important role elevated service inflation measure underlie inflation decline january impact past adverse supply shock continue fade low energy price reduce cost pressure tight monetary policy weigh demand low end range indicator persistent common component inflation close november annual growth rate indicator domestic inflation unchanged domestic price pressure measure growth gdp deflator high deflator project decrease gradually profit growth offer buffer high labour cost pressure recover accord march ecb projection growth compensation employee estimate slow base available country datum forthcoming release euro area datum march growth compensation employee expect turn slightly low project negotiate wage growth include payment decline percentage point late signal ecb forward look wage tracker indicate gradual slowing negotiate wage growth euro area additionally contribution wage drift cyclically sensitive element compensation decline visibly have percentage point start tracker feedback firm participate ecb corporate telephone survey point low wage growth year compare profit absorb rise labour cost reduce inflationary effect inflation expect downward path coming month near term volatility headline inflation owe base effect energy component timing easter headline inflation expect decline ecb target labour cost dynamic moderated past energy shock supply bottleneck pandemic reopening effect dissipate headline inflation project average relative december projection headline inflation revise percentage point percentage point remain unchanged core inflation projection revise projection horizon year imply downward revision core inflation percentage point year percentage point year percentage point upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term disrupt global trade inflation turn high anticipate wage increase expect profit margin prove resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly economic activity euro area remain weak month consumer continue hold spending housing investment remain subdued company export reflect slowdown external demand loss competitiveness business investment remain weak reflect impact restrictive monetary policy depletion order backlog subdued demand forward look indicator purchasing managers indices pmis improve remain low level survey point gradual recovery economic activity course year recovery expect proceed slow pace previously anticipate reflect carry weak datum outturn subdue level survey indicator inflation fall wage keep grow real income rebound support growth ahead housing business investment support easing financing condition business investment expect pick demand strengthen addition demand euro area export improve global demand rebound price competitiveness pressure ease respect domestic demand component projection see significant pick consumption investment expect contract result ongoing transmission monetary policy tightening expect contribute recovery year recovery instead lead consumption export good consumption play key role turn interconnect projection labour cost unit labour cost see decelerate quickly compensation employee projection horizon owe expected pick productivity manufacture output especially depress labour shed result high ratio employment output low labour productivity projection suggest recovery output especially manufacture output achieve recovery productivity take factor explain glide path inflation target employment grow final outpace economic activity unemployment rate edge historical low january december revise employer announce few job vacancy few firm report production limit labour shortage labour market construction manufacturing sector remain basically stagnation contraction late employment pmis remain look service high tech sector employment pmis remain level slightly low tech sector recover strongly stand noticeable decline number firm report labour limit production possibility especially service ecb projection indicate subdued growth near term follow recovery thank rise real income fading impact past monetary policy tightening financing condition improve foreign demand output growth expect average relative december projection growth revise percentage point unchanged revise percentage point fiscal outlook march projection little change december projection risk economic activity remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth high inflation come quickly expect rise real income mean spending increase anticipate world economy grow strongly expect turn monetary financial analysis market interest rate increase monetary policy transmission past policy rate hike broad financing condition remain strong lending rate business loan stabilise mortgage rate decline december january lending rate remain elevated business loan mortgage high lending rate tight credit standard low business investment continue dampen demand loan long maturity annual growth rate lending firm turn positive stand december edge lower january reach owe negative flow month year year growth loan household continue weaken slow january annual growth rate broad monetary aggregate narrow monetary aggregate currency circulation overnight deposit remain weak january stand respectively stand negative territory november annual growth rate marginally positive december january increase explain strengthening net inflow rest world drive mainly strong trade surplus amid weak import weak deposit creation continue underpin shift funding composition expensive funding source monetary policy consideration policy option base assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane propose keep key ecb interest rate unchanged element governing council reaction function support unchanged policy headline inflation project markedly low compare previous expectation return target mid-2025 slightly undershoot subsequent quarter growth expect recover gradually trend underlie inflation continue soften time key measure include domestic inflation remain elevated confirmation need concern project outlook wage inflation unit margin criterion ongoing strong transmission monetary policy confirm albeit sign stabilisation owe anticipation future rate cut base criterion key ecb interest rate level maintain sufficiently long duration substantial contribution ecb goal return inflation medium term target timely manner warrant continue follow data dependent approach determine appropriate level duration restriction ensure policy rate set sufficiently restrictive level long necessary evaluation policy trajectory obtain joint evolution inflation outlook include projection underlie inflation strength monetary transmission month development increase confidence monetary policy decision take deliver ecb medium term inflation target especially project narrowing distance target time disinflation process ecb sufficiently confident inflation hit target timely manner settle target sustainably lane propose preserve option apply flexibility reinveste redemption come pandemic emergency purchase programme pepp portfolio counter risk monetary policy transmission mechanism relate pandemic govern council monetary policy decision economic monetary financial analysis regard external environment global gdp growth remain subdue early sign improvement broad set early indicator suggest global growth decline reflect tight monetary policy work way global economy fading tailwind consumption pandemic relate excess saving indicator improve turn year global growth expect pick follow moderation global trade show early sign improvement start post pandemic factor cause period weak trade example owe rotation demand good service ease period ahead regard key global economy growth united states expectation labour market robust time chinese economy continue struggle weakening housing sector overall underline global economic outlook uncertain turn energy commodity oil price expect decline supply surplus global market expect persist despite opec+ producer have announce production cut european gas price fall governing council monetary policy demand remain subdued gas storage level relatively high highlight gas price volatile respect international determinant consumer price inflation price pressure limited despite tension red sea area demand good weak inventory level remain high regard economic activity euro area member concur lane economy remain weak consumer continue hold spending investment moderate company export reflect slowdown external demand loss competitiveness survey point gradual recovery course year inflation fall wage continue grow real income rebound support growth addition dampening impact past interest rate increase gradually fade demand euro area export pick unemployment rate low start euro employment grow final outpace economic activity result output person decline employer post few job vacancy few firm report production limit labour shortage member widely acknowledge weak expect growth short term economic activity stagnate quarter row expect weak quarter risk see downside mechanical nowcasting tool show low number march projection quarter consequently euro area economy far show convincing sign improvement imply quarter economic stagnation sector indication recovery manufacturing construction private consumption investment external demand remain weak time point datum available governing council confirm bottoming euro area economy support foreign demand recover continue solid growth united states recently positive news china pmis euro area strong expect service move expansionary territory manufacturing remain weak stand significantly trough summer new order steadily increase manufacturing service sector november member express broad agreement late macroeconomic projection emphasise march projection see consecutive downward revision growth downward revision inflation downward revision inflation macroeconomic projection converge consensus economics forecast time note projection growth inflation credit development point benign outlook hard landing credit crunch avoid macroeconomic projection show encouraging picture outlook track bring inflation target revision small reason confidence baseline projection risk growth outlook tilt downside short term contribution cyclical structural factor growth long term potential hard disentangle real time main driver expect recovery increase real income high government consumption improve term trade monetary policy restrictive private consumption expect pick real household income start gradually improve support concomitant recovery business investment context important investment resume line necessary digital green transformation ultimately reduce medium term price stability risk benefit monetary policy increase robustness supply economy addition fiscal policy see key driver economic growth projection horizon term government consumption public investment particular generation ngeu programme release final deficit figure come week enable clear assessment fiscal policy stance country run excessively high deficit pose challenge road mention country fiscal imbalance stem large extent shortfall tax receipt reflect weak economy spending overrun reiterate government roll energy relate support measure allow disinflation process proceed sustainably fiscal structural policy strengthen euro area economy productive competitive expand supply capacity gradually bring high public debt ratio speedy implementation ngeu programme determined effort remove national barrier deep integrated banking capital market help increase investment green digital transition reduce price pressure medium term revise economic governance framework implement delay turn labour market widely stress thorough understanding market remain crucial assess outlook wage inflation apply wage dynamic labour productivity point share firm cite labour shortage constraint output remain high fall point labour market tightness firm continue hoard labour interpret sign try avoid shortage future labour hoarding allow meet future resurgence demand workforce place positive implication labour productivity additionally remark monetary policy transmission remain strong significant portion downward revision growth outlook stem monetary policy have forceful effect growth expect look ahead project improvement economic activity base rate cut embed market rate assumption underpin projection background member assess risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth high inflation come quickly expect rise real income mean spending increase anticipate world economy grow strongly expect point scenario unfold downside risk economic activity materialise possible scenario weak demand lead slowdown profit wage growth inflation dampen alternative downside scenario project recovery productivity materialise give ongoing strength wage development weak economic growth translate high unit labour cost contribute upside domestic price pressure slow disinflation process regard price development member concur assessment present lane introduction welcome decline inflation reflect fast anticipate disinflationary process partly unwinding past supply shock sign monetary policy work past year headline core inflation fall percentage point service inflation decline past month late projection suggest inflation temporarily reach trough close target half early previously expect basis express disinflation process make good progress time mention disinflationary process remain bumpy fragile timely sustainable return target foresee projection rely sufficiently restrictive monetary policy stance inflation momentum measure annualise month month rate jump hicp component food consistent late pmi show share service firm indicate rise selling price steadily increase november pose upside risk inflation outlook especially core inflation important upside risk associate energy price recently ease significantly gas price particular risk strongly tilt upside show option imply distribution important mind wrong assumption energy price eventually feed inflation component input price indirectly wage imply benign inflation outlook late projection depend critically favourable energy price assumption combination niño niña conjunction impact global warming climate change create upside risk food price add month month figure show core inflation rise couple month call continued caution inflation outlook service inflation late figure barely move record november lend support picture mile persistence component inflation january service consumption basket grow annual rate turnaround service inflation start late july service inflation lose mere percentage point percentage point increase observe start pandemic give large rise weight service euro area value add stickiness significantly restrain disinflation process time monetary policy transmission service inflation weak slow manufacturing service tend capital intensive expose change external financing condition october corporate telephone survey service firm report hardly impact financing condition past future activity reflect large cash buffer exposure global competition mean pressure service firm absorb rise cost curtail margin overall evidence consistent notion monetary policy transmission service inflation work mainly indirectly effect monetary policy inflation expectation wage general dampening aggregate demand furthermore rotation consumption good service resilience labour market weaken indirect transmission channel argue perseverance keep monetary policy sufficiently restrictive progress inflation encouraging february inflation figure warning sign mile uncertain slow bumpy time recall service inflation persistent remain stubbornly high month expect incorporate projection owe weak productivity growth service sector service inflation traditionally high average inflation rate annual growth rate service inflation february high momentum fall trend april close january pick february context mention november january service inflation push development transport insurance service package holiday component classify wage sensitive argue wage sensitive component exert particular upward pressure service inflation june service inflation mainly high good inflation rotation demand good service pandemic result start increase later peak later start decrease later point service inflation high normal disinflation episode wage respond slow pace supply shock energy price give price level gap good service clear service price converge good price way round turn wage profit development member recall information nexus wage profit productivity remain key element build confidence inflation outlook question mark element nexus evidence need conclude inflation durably turn corner march projection foresaw significant decline growth unit labour cost revise compare december projection convincing evidence emerge nominal wage growth come expect particular firm absorb high unit labour cost profit revision compare december projection imply significantly strong contribution unit profit domestic inflation expect gdp deflator far remain stubbornly datum profit encouraging strong absorption high labour cost low profit margin need materialise furthermore projection envisage steady recovery productivity growth projection horizon materialise observed slowdown productivity growth cyclical factor labour hoarding factor change composition labour force structurally high sick leave shift employment service sector productivity slowdown persistent significant weakness manufacturing structural nature different implication evolution inflation particularly previous downward revision potential output growth prove insufficient time mention labour productivity procyclical euro area economic activity subdue weak productivity development interpret sign excessive monetary policy tightening incoming information wage country suggest wage development continue deserve special attention datum euro area compensation employee available information receive euro area country information suggest wage growth slow significantly year regard gdp deflator headline figure release country incorporate march ecb projection incoming wage growth figure tracker base job advert see lead indicator negotiate wage figure suggest negotiate wage increase slow especially compare inflation outlook contain september projection subsequent downside inflation surprise diminish need nominal wage catch past inflation question raise near future profit margin able absorb rise unit labour cost business increasingly pass high unit labour cost raise price level profit atypically high suggest sufficient room margin compress profit affect weak demand regard long term inflation expectation member take assessment schnabel lane late development market base measure inflation compensation survey base indicator market base measure inflation compensation come notably remain anchor upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term disrupt global trade inflation turn high anticipate wage increase expect profit margin prove resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly turn monetary financial analysis member concur assessment provide lane schnabel introduction market interest rate rise governing council previous converge view analyst price few interest rate cut probability rate cut june argue repricing reflect recognition disinflation slow certain previously expect addition spillover high market interest rate united states mention market expectation future interest rate see line macroeconomic fundamental include inflation outlook interest rate assumption embed late projection financial market continue function underprice risk asset category spread high yield corporate bond euro area narrow level see past year widen default pick sovereign bond spread continue narrow increase result fiscal risk equity market appear buoyant especially united states euro exchange rate change little dollar nominal effective term member agree ecb restrictive monetary policy transmit strongly broad financing condition firm household condition remain tight remark reduce supply liquidity contribute monetary tightening owe ongoing prospective reduction asset purchase programme app pepp portfolio mature target long term refinance operation interest rate business loan stabilise mortgage rate decline december january contribute slight easing financing condition lending rate remain elevated historical term furthermore continue reprice outstanding stock loan contribute strong transmission past rate hike bank funding cost high bank tighten lending standard increasingly favour safe asset riskiness borrower increase negative implication credit supply contend loan risky risk adjust cost actually rise sign annual growth loan firm stabilise low level notwithstanding volatility monthly flow turn year growth loan household continue weaken annual term broad money measure grow subdue annual rate month annualise growth rate momentum rebound somewhat mid-2023 argue impact credit tightening strong expect especially mortgage lending additionally outlook credit remain moderate owe substantial impact high interest rate tight credit standard projection horizon caution express assume turning point lending growth reach attention draw analysis suggest ratio corporate loan gdp project fall historical low come quarter time argue projection entail credit crunch credit dynamic appear soft landing give increase evidence loan growth reach trough decline funding cost support slightly low lending rate loan context argue peak monetary policy transmission lending volume reach concern express financial stability risk emerge give sign financial distress low income household proportion mortgage holder struggle meet payment rise rapidly historical high probably persist extended period risk face non financial firm risk commercial real estate sector highlight background bank non performing underperform loan increase tough non financial corporate access credit narrow spread high yield bond currently mitigate factor spread increase owe high default rate non financial corporate access debt financing suffer time equity price remain elevated suggest asset quality risk remain contain monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council communicate shape reaction function comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission overall progress element warrant increase confidence inflation track reach ecb target timely sustainable manner datum evidence need governing council sufficiently confident start inflation outlook member concur assessment present lane introduction inflation continue decline target expect good progress see encouraging fact inflation slightly high anticipate february see change general picture argue associated increase momentum hicp component food measure annualise month month rate inflation warning uncertain slow bumpy disinflation process lie ahead inflation expect downward trend come month near term projection have revise compare december projection continue moderation bumpy profile trough expect summer drive base effect ahead inflation track decline target result moderate labour cost fading effect past energy shock supply bottleneck post pandemic reopening economy accord late projection inflation expect target slightly target medium term early previously anticipate especially compare september projection member agree measure underlie inflation decline monetary policy owe indirect effect low energy price recede impact past supply shock fade tight monetary policy weigh demand projection core inflation revise expect fall domestic price pressure elevate owe combination robust wage growth fall labour productivity sticky service inflation remain see unit labour cost decline line projection rely recovery productivity growth moderate wage growth uncertainty surround project continued decline contribution unit profit gdp deflator extent firm absorb high labour cost pass consumer note entire horizon march ecb projection core inflation low end range forecast continue uncertainty effect wage profit productivity nexus domestic inflation highlight need caution evidence core inflation decline time sign wage growth start moderate addition profit absorb rise labour cost reduce inflationary effect service inflation expect persistent lag component inflation finally member agree monetary policy transmission work uncertainty strength transmission interest rate rise monetary policy transmit robustly financial market financing condition credit condition aggregate demand help lower inflation weigh growth potentially expect measurable effect small young enterprise recall significant policy transmission remain pipeline come quarter impact past policy tightening continue transmit funding condition broad financing condition credit volume real economy argue tightening financing condition stem contraction eurosystem balance sheet time contend tighten impulse monetary policy gradually fade point financial financing condition effective monetary policy stance ease ease market reprice rate expectation transmission see weak slow service inflation tend capital intensive reliant external financing overall member express increase confidence inflation track decline sustainably inflation target timely manner patience caution need evidence datum require governing council sufficiently confident task accomplish important complacent disinflationary process remain fragile conditional number benign assumption wage profit productivity furthermore smooth sustainable return inflation target imply projection contingent monetary policy stance remain restrictive long time widely feel clearly risk outlook monetary policy work disinflation process remain solid robust take risk overshoot versus undershoot ecb symmetric inflation target medium term balanced balanced monetary policy decision communication member agree proposal lane maintain key ecb interest rate level consensus premature rate cut instead affirm important disinflation process accumulate additional evidence governing council sufficiently confident inflation set return target timely sustainable manner reiterate base assessment governing council consider key ecb interest rate level maintain sufficiently long duration substantial contribution return inflation medium term target timely manner future decision ensure policy rate set sufficiently restrictive level long necessary member underline need policy data dependent base element reaction function communicate wise await incoming datum evidence case consider rate cut strengthen base late ecb projection progress criterion specify governing council contain projection error balanced risk assessment date rate cut come clearly recall ecb focus mandate price stability euro area spillover major policy area naturally take account highlight addition projection governing council significantly datum information june especially wage dynamic contrast information available time april limited make hard sufficiently confident sustainability disinflation process question remain sustainability disinflationary process particularly service domestic inflation account uncertain outlook wage growth productivity growth profit margin order increase confidence inflation sustainably return ecb target incoming datum need confirm important assumption prediction indicator march ecb projection hold true member agree lane proposal apply flexibility reinveste redemption fall pepp portfolio line executive board proposal present schnabel introduction take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference march press release monetary policy decision meeting ecb governing council march members lagarde president guindos vice president centeno cipollone elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta reinesch rehn schnabel scicluna šimkus stournaras vasle villeroy galhau vujčić wunsch member hold voting right march article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person bénassy quéré dabušinskas demarco gavilán haber horváth kaasik koukoularides lünnemann madouros mauderer nicoletti altimari novo sleijpen šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting april account monetary policy governing council european central bank hold frankfurt main wednesday thursday april review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy march financial market start price divergence monetary policy path expect euro area united states reflect widen interest rate differential united states series solid economic datum release signal economy resilience level interest rate lead financial market expect timing interest rate cut later extent monetary policy ease previously anticipate euro area contrast expectation path ecb monetary policy change less extent owe governing council communication incoming euro area economic datum spillover rate expectation short end euro area yield curve remain contain investor see chance rate cut fully price rate cut june follow rate cut later year line evidence april round survey monetary analysts sma increase divergence expect development euro area short term interest rate mirror visible divergence long term interest rate economy euro area long term overnight index swap ois rate increase modestly governing council previous monetary policy march ois rate united states increase notably period increase united states reflect rise real interest rate inflation compensation spill euro area point degree decoupling long end yield curve unprecedented combination macroeconomic monetary policy shock common economy drive movement euro area interest rate close level see global financial crisis start extent movement diminish macroeconomic development outlook monetary policy synchronise economy result widening yield differential governing council monetary policy march accompany slight depreciation euro exchange rate vis vis dollar ecb communication cement expectation timing initial cut policy interest rate uncertainty subsequent policy path remain elevated volatility euro area interest rate market remain markedly elevate compare period ecb begin hike rate contrast benign macroeconomic development global economy especially united states reduce downside tail risk economic growth hand hand low volatility risk asset market measure imply volatility euro area equity market return pre pandemic level source elevated uncertainty path ecb monetary policy base option pricing investor continue risk euro area inflation outlook tilt upside despite ongoing disinflation process driver perceive upside risk inflation outlook food price increase sharply week owe extreme weather event relate climate change niño phenomenon brent crude oil price rise usd barrel fear rise tension middle east risk asset market remain resilient monetary policy uncertainty benchmark euro stoxx index increase march monetary policy late equity valuation continue stand close historical median euro area rally euro area equity market start year mainly drive large internationally active euro area firm small medium sized company dependent domestic market benefit global risk environment give stretch market valuation segment especially united states risk market correction increase combination buoyant global risk asset market resilient growth low market volatility continue support euro area sovereign spread vis vis ois rate despite small uptick spread remain compress level notwithstanding high debt servicing cost deterioration fiscal outlook euro area economy regard funding market function liquidity redistribute smoothly banking system excess liquidity decline repayment march fund borrow operation series targeted long term refinance operation tltro lead drop euro area excess liquidity decline fall peak november increase fund standard refinance operation relative size repayment march limited comparable level see time early tltro repayment bank adapt low funding increase funding source include repo borrowing amid significantly increase activity secured money market important funding source bond issuance particular covered bond issuance pick markedly reverse development see previous year overall encourage bond money market function smoothly sign reduce fragmentation risk development funding market closely monitor line governing council decision context operational framework global environment economic monetary development euro area start global economy lane review incoming information point modest pick global activity global trade expect recover gradually year economic recovery proceed expenditure pattern gradually rebalance service good inventory cycle normalise tension red sea area remain downside risk trade euro exchange rate remain stable march monetary policy dollar nominal effective term clear jump oil price march brent crude oil increase usd barrel price future curve imply partial retracement late increase come month european natural gas price increase march stand lot low time december metal price increase somewhat food commodity price increase substantially march drive mainly rise cocoa price turn euro area lane highlight headline inflation measure harmonised index consumer prices hicp improve gradually past month decline march february energy inflation rise march previous month mainly owe upward base effect reversal fiscal support measure food inflation weaken march february process food inflation continue decline unprocessed food inflation turn negative core inflation i.e. hicp exclude energy food decrease march february non energy industrial good inflation rate decelerate march previous month service inflation remain unchanged march owe early timing easter observer notice momentum inflation pick visible different component important take account march ecb macroeconomic projection focus service inflation come peak summer march large reduction pandemic reopening effect fade away particularly contact intensive service tourism accommodation restaurant tight correlation wage inflation rate wage sensitive sector explain material drop service inflation see line project deceleration wage compare measure underlie inflation decline february confirm picture gradually diminish price pressure impact past adverse supply shock continue fade tight monetary policy weigh demand low end range measure indicator base persistent common component inflation pcci edge higher remain close annual rate domestic inflation unchanged wage pressure gradually moderate remain elevate compare steady state benchmark annual growth compensation employee decelerate outcome percentage point march ecb projection growth compensation hour slow fall annual term wage salary component labour cost indicator decrease annual unit labour cost growth fall previous remain high reflect weak productivity growth negotiate wage growth include payment decline ecb forward look wage tracker continue sign ease tracker base job advert feedback firm participate corporate telephone survey cts survey access finance enterprises safe point low wage growth course year ongoing project deceleration wage growth remain fundamental underpinning expected convergence inflation ecb target important emphasise wage growth stable rest year reduction wage pressure follow linear trend negotiate wage growth bounce mainly result payment important mind dynamic embed projection late reading profit continue buffer pass high labour cost inflation annual growth unit profit decelerate fall significant decline main driver reduction annual growth rate gdp deflator fall percentage point stand turn inflation expectation survey professional forecasters spf centre distribution long term inflation expectation remain inflation peak right tail distribution reflect risk measure imply far few respondent expect inflation noticeably target long term reassure term people have solid understanding inflation target perspective firm reflect safe median expectation interquartile range inflation year ahead low previous survey round sell price expectation firm low report safe corresponding european commission survey capture near term selling price expectation look ahead headline inflation expect fluctuate level near term account base effect energy component reversal upward effect early timing easter service inflation march inflation expect decline ecb target labour cost pressure ease effect past energy shock supply bottleneck post pandemic reopening economy continue dissipate disinflationary impact monetary policy unfold upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term disrupt global trade inflation turn high anticipate wage increase expect profit margin prove resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly euro area economy remain weak datum available continue point divergence weak manufacturing sector improve service sector partly reflect persistent adverse impact past energy price shock manufacture output economic activity expect pick modestly gain momentum course year recovery support rise real income result low inflation increase wage improve term trade addition growth euro area export pick come quarter global economy recover spending shift tradable finally monetary policy exert drag demand time consumer confidence pick extent subdue compare level prevail war ukraine late consumer expectations survey ces show sign upward trend consumer plan major purchase holiday concern housing investment survey indicator remain weak property price datum show dropping residential property price stabilise business investment indication survey remain weak substantial variation country regard labour market weak gdp growth strong employment growth result weak labour productivity unemployment rate remain unchanged historical low february time tightness labour market continue decline gradually employer post few job vacancy look fiscal stance euro area cyclically adjust primary deficit somewhat large indicate march ecb projection risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth high inflation come quickly expect rise real income mean spending increase anticipate world economy grow strongly expect turn analysis monetary financial development risk free interest rate stable governing council previous monetary policy transmission restrictive monetary policy stance broad financing condition remain strong lending rate business loan mortgage edge lower february remain elevated respectively information available continue signal stagnant loan dynamic backdrop weak aggregate demand tight credit standard restrictive monetary policy annual growth rate loan firm increase slightly february loan household unchanged february weak credit creation weigh growth remain subdue february january bank funding cost remain historically high level information late lending survey bls safe consistent persistently weak credit demand stabilisation tight level credit supply condition firm bls indicate modest net tightening credit standard loan firm mainly account bank risk perception parallel bank cite high interest rate cutback investment plan main factor mark decline net loan demand firm confirm profile safe company report decrease availability loan safe register marked drop share firm apply loan household result bls indicate moderate decline net demand loan house purchase stable net demand consumer credit credit standard household mortgage ease time year standard consumer credit tighten monetary policy consideration policy option base assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane propose keep key ecb interest rate unchanged incoming datum line medium term inflation trajectory embed march ecb macroeconomic projection foresaw headline inflation return target mid-2025 headline inflation decline march look near term volatility associate base effect reversal fiscal measure expect resume downward path later year take range underlie inflation measure indicate disinflation expect time year year domestic inflation service inflation edge slowly accordingly governing council need confirmation wage growth decelerate anticipate profit margin continue buffer pass high labour cost inflation progress target course underpin phase deceleration wage growth ongoing fading energy shock supply bottleneck small contribution reversal fiscal measure disinflationary pressure reinforce cumulative demand dampen impact restrictive monetary stance include limit capacity firm pass cost increase incoming datum confirm transmission monetary tightening remain strong sign stabilisation credit supply tight level ease pricing loan primarily owe anticipation future policy rate cut base element reaction function governing council conclude key ecb interest rate level make substantial contribution ongoing disinflation process governing council future decision ensure policy rate stay sufficiently restrictive long necessary governing council update assessment inflation outlook dynamic underlie inflation strength monetary policy transmission increase confidence inflation converge target sustained manner appropriate reduce level monetary policy restriction event governing council follow data dependent approach determine appropriate level duration restriction pre commit particular rate path govern council monetary policy decision economic monetary financial analysis regard external environment global gdp growth remain subdue early sign improvement global growth momentum build strong increase purchasing managers index pmi manufacturing despite modest gdp growth global trade see rebound drive emerge market economy strong economic datum united states rebound economy see support global recovery member note industrial activity china well expect stress uncertainty risk global growth relate country recovery member take release consumer price index cpi datum march united states high expect datum see confirmation global inflation currently reflect mainly sticky service price development point inflation outcome reflect idiosyncratic factor case depreciation euro follow release inflation datum point need close monitoring impact exchange rate euro area inflation spillover united states sustained exchange rate effect slow disinflationary process euro area argue exchange rate effect depend underlie shock drive economic activity inflation respect inflation development united states euro area see different nature united states drive strongly demand factor euro area supply factor regard euro area economy member widely agree late information vindicate growth inflation outlook entail march projection indicate forecasting ability quarterly projection exercise restore economic activity member concur lane economy remain weak spend service resilient manufacture firm face weak demand production subdue especially energy intensive sector survey point gradual recovery course year lead service pmi future activity month ahead reach long term average march incoming hard datum confirm picture recovery expect support rise real income result low inflation increase wage improve term trade addition growth euro area export expect pick come quarter global economy recover spending shift tradable finally monetary policy exert drag demand time member acknowledge mixed signal late datum soft indicator favourable hard indicator persistently point weak growth momentum mechanical nowcasting tool indicate real gdp growth quarter line march projection slight downward risk growth estimate weak comfort draw observation late datum consistent march projection show recovery activity time recall achieve profile baseline projection remain challenge observe upward movement incoming datum equate materialisation upside risk baseline projection background remark sign recovery private consumption expect growth engine similarly late weak indicator business sentiment bode investment prospect relatively sluggish recovery foresee projection unfold reassure recession avoid despite monetary policy stance contribute bring inflation double digit moderate level observe euro area growth landscape heterogeneous country sector energy intensive sector grow fast energy intensive one see point structural cyclical weakness respect fiscal structural policy member reiterate government roll energy relate support measure disinflation stay track implement revise economic governance framework fully delay help government bring budget deficit debt ratio sustained basis national fiscal structural policy aim make economy productive competitive help reduce price pressure medium term european level effective speedy implementation generation programme strengthening single market help foster innovation increase investment green digital transition determined concrete effort complete banking union capital market union help mobilise massive private investment necessary achieve governing council stress statement march highlight assumption fiscal policy embed march projection constitute element uncertainty risk concern express sizeable upward revision deficit debt figure number euro area country need fiscal prudence consolidation euro area clearly spell especially important special situation transition framework assess excessive deficit fiscal trajectory time widely consider good news monetary policy perspective soon framework place provide guide principle enhance prospect credible implementation turn labour market recall unemployment rate low level introduction euro time tightness labour market continue diminish gradually employer post few job vacancy labour market development see different perspective hand suggest state labour market remain unchanged tightness remain concern medium term inflation outlook unemployment rate historical low employment grow robustly indicator tightness continue stand pre pandemic level hand acknowledge direction development indicator imply cooling labour demand particularly visible decrease job vacancy concern express labour market support economy reach limit labour supply increase substantially firm limited buffer leave hoarding labour turn cycle labour market imply great labour shedding reduced hiring deterioration employment outlook prompt low consumption basis member assess risk economic growth remain tilt downside growth low effect monetary policy turn strong expect weak world economy slowdown global trade weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth high inflation come quickly expect rise real income lift spend anticipate world economy grow fast expect downside risk economic growth see particularly relevant short term confirm mechanical nowcasting tool express near term risk balance reference rebound survey base indicator hard datum look ahead stress factor previously cushion economy potential adverse shock include high level liquidity ample household saving fiscal space rise labour supply sizeable business profit margin partly diminish suggest geopolitical risk stem conflict middle east increase tandem escalation conflict past week regard price development member concur assessment lane incoming information confirm previous assessment medium term inflation outlook inflation continue edge annual rate february march lead low food good price inflation service price inflation remain high march measure underlie inflation fall february confirm picture gradually diminish price pressure domestic inflation remain high wage unit profit grow strongly anticipate indicator point moderation wage growth unit labour cost growth remain high reflect weak productivity growth firm profit absorb rise labour cost inflation expect fluctuate level come month decline inflation target year owe weak growth labour cost unfold effect restrictive monetary policy fading impact energy crisis post pandemic reopening member see late inflation development evidence impact past extraordinary shock wan economic relationship normalise bolster confidence projection expect path reach ecb inflation target outcome similar anticipate march projection member take bumpy profile headline inflation indicate projection downward linear trend remainder year expect bump relate base effect energy inflation take account baseline projection headline inflation naturally key variable monitor particularly volatile service inflation recently see increase momentum measure annualise month month rate development wage growth affect respect important identify underlying direction development look big picture broad agreement service inflation role wage remain key issue inflation outlook signal service inflation have stay high level past month indicator domestic inflation reflect inflation hicp item relatively low import intensity stand gdp deflator measure domestic inflation national account remain figure conclusive evidence progress disinflation persistent domestic component apparent time great stickiness service inflation see natural affect fading supply shock addition transmission monetary policy service sector weak service capital intensive pass wage high owe characteristic cost structure sector capacity service firm absorb high wage cost profit margin compression remain uncertain experience level profit margin increase wake pandemic sector benefit decline input cost reason development service inflation warrant close monitoring confirmation require weakening pressure wage profit disaggregate datum available february suggest price pressure service come wage sensitive item instead pressure come item typically affect reprice beginning year include adjustment past cost increase instance insurance policy good service administered price turn domestic price pressure measure gdp deflator national account member see wage profit productivity triangle key assess speed extent disinflation considerable uncertainty assumption expectation variable play project march have datum point projection variable important euro area national account datum release shortly governing council june monetary policy underline inflation outlook remain sensitive behaviour profit margin concern express margin absorb high cost extent assume projection argue elevate margin combine relatively weak economic environment indication persistently strong pricing power relatively weak competition case business serve domestic demand notably service sector lead increase wage turn additional competitive pressure exporter point additional upward pressure wage recently sign wage agreement wage growth far line projection wage pressure diminish somewhat compare early expectation suggest wage growth have begin moderate expect focus shift productivity development crucial perspective ultimate labour cost pressure high productivity growth recover quickly strongly foresee baseline march projection argue case low negative productivity growth rate turn merely cyclical partly structural nature point bleak investment outlook embed projection difficult structural improvement labour productivity regard long term inflation expectation market base measure inflation compensation survey base indicator remain stable stand fact inflation expectation remain anchor see reassure indicate monetary policy stance have desire effect upside risk inflation include heighten geopolitical tension especially middle east push energy price freight cost high near term disrupt global trade inflation turn high anticipate wage increase expect profit margin prove resilient contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly upside risk result high growth unit labour cost especially productivity growth recover expect upside risk see prevail food oil price risk round effect consider relatively small environment general disinflation unlike note oil price increase substantially year date significantly high assumption march projection point upside risk inflation slowdown inflation recently support low gas electricity price follow relatively warm winter low demand recession manufacturing sector imply upside risk typically inelastic energy demand meet recovery economic activity colder period upside risk food price partly relate extreme weather event include niño niña phenomenon climate shock turn monetary financial analysis member concur assessment provide lane schnabel introduction market interest rate stable governing council previous wide financing condition remain restrictive financial market calm steady march amid compression risk premia market price cut ecb interest rate june cut price end year appear peak restrictiveness euro area financing condition pass interest rate loan household firm start come primarily anticipation future policy rate cut average rate exist loan edge information continue signal weak loan dynamic weak aggregate demand tight credit standard restrictive monetary policy bank lending firm particular see persistently weak low demand loan firm decline report bank firm late bls safe reflect elevate borrowing rate cutback investment plan lend household credit standard mortgage ease time year standard consumer credit tighten point weak demand consumer credit increase reject loan application fragile household balance sheet great risk aversion bank turn signal risk persistent weakness consumption overall late credit development remain subdued point pick credit growth later loan creation hold high rate tight credit standard highlight ratio credit gdp fall rapidly continued weak credit dynamic see pose risk recovery raise prospect credit recovery liquidity buffer diminish sign stabilisation visible loan flow household firm despite volatility turn year monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council communicate shape reaction function comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission overall element suggest key ecb interest rate level make substantial contribution ongoing disinflation process start inflation outlook member widely agree datum line medium term inflation trajectory embed march projection foresaw headline inflation return target mid-2025 inflation come slightly high expect february increase offset weak expect outturn march overall figure suggest limited news validate projection economic growth assess have slightly weak expect narrative improve growth outlook remain intact significant risk remain baseline projection growth inflation member express increase confidence projection extraordinary shock past wan economic relationship normalise inflation expectation remain anchor time widely share evidence require gain sufficient confidence inflation solidly track return ecb target timely sustained manner member concur progress underlying inflation measure continue decline expect downward path period ahead indication wage profit margin line march projection suggest slightly muted development anticipate time domestic inflation elevate little progress service inflation steady stress return inflation target remain conditional rebound productivity growth significant compression unit profit absorption high cost datum confirm transmission monetary tightening continue strong sign stabilisation credit condition restrictive level weak credit datum suggest credit channel monetary policy transmission powerful previously expect decline demand loan report bls see downside risk growth outlook point weak investment time argue tighten impulse monetary policy reach peak likelihood gradual easing condition near future forward look indicator recover firm indicate response safe expect increase investment turnover transmission monetary policy see weak service sector part economy service capital intensive interest rate sensitive inflation decline delayed pick economic growth regard important restrictive monetary policy stance basis future monetary policy decision underline considerable uncertainty degree restrictiveness ecb monetary policy stance measure unobservable concept like neutral rate interest judge transmission lag capital labour good market real economy ultimately inflation way assess restrictiveness monetary policy evaluate level policy rate relative available model base estimate natural neutral rate interest context argue ongoing structural change lead increase benchmark rate change include anticipation significant global investment need address climate change green transition geopolitical shift trade fragmentation lead deglobalisation advance artificial intelligence digitalisation addition rise public debt burden worldwide exert upward pressure natural rate interest time recall estimate euro area publish recently ecb economic bulletin significant increase sizeable model parameter uncertainty attach model base construct natural rate provide useful indication see limited use day day policymaking time restrictiveness monetary policy preferable look incoming datum monetary policy decision communication background large majority member agree lane proposal maintain key ecb interest rate level member concur information confirm march projection increase confidence disinflationary process continue time important datum include projection release ahead june allow governing council comprehensive assessment progress see monitor triangle wage productivity growth profit continue key see plausible governing council position start ease monetary policy restriction june additional evidence receive confirm medium term inflation outlook embed march projection member feel sufficiently confident element governing council reaction function give ground reduction policy rate recall policy rate increase september decline expected inflation imply tightening policy stance real rate currently close peak cycle policy rate see restrictive territory time effect restrictive policy stance feel start ease phase remark reduction eurosystem balance sheet have contractionary impact economy currently significant risk inflation expectation unanchore downside risk emerge weakness growth persist member refer risk management consideration see balance risk have shift recently risk undershoot inflation target eventually have pay high price term decline activity see high risk act early overshoot target medium term broad consensus emerge member agree prudent wait monetary policy evidence gain sufficient confidence timely sustained return inflation target compare outlook march major surprise observe justify action conversely long available datum continue confirm projection look ahead policy path underlie projection see consistent return inflation target medium term member stress value wait june evidence confirm indicate change outlook value take account exist risk materialise june include renew risk inflation pose possible escalation geopolitical tension projection june allow comprehensive analysis main risk implication price stability member stress maintain data dependent approach optionality warrant allow incoming datum take account exclude pre commitment particular rate path datum dependence mean overly focus datum point path indicator take bumpy headline inflation particular expect fluctuate level near term decline later suggest bumpiness inflation profile foresee consistent return inflation target mid-2025 member feel market understand ecb communication reaction function prepare possibility rate cut june datum confirm outlook member agree executive board proposal apply flexibility reinveste redemption fall pandemic emergency purchase programme portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference april press release monetary policy decision meeting ecb governing council april members lagarde president guindos vice president centeno cipollone elderson hernández cos herodotou holzmann kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau vujčić wunsch member hold voting right march article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré dabušinskas demarco backer gavilán gilbert haber kaasik kelly koukoularides lünnemann martin mauderer nicoletti altimari novo rutkaste šošić tavlas välimäki žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee july contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting june account monetary policy governing council european central bank hold frankfurt main wednesday thursday june july review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy april narrative financial market converge major advanced economy move gradual ease cycle high long interest rate owe protracted mile disinflation key driver financial market development strong euro area economy sign cool economy strong investor risk appetite euro area macroeconomic datum continue turn well expect past month strengthen investor economic recovery track contrast macroeconomic datum surprise united states favourable tentative sign labour market cooling inflation line expectation ease investor concern federal reserve system hike interest rate look incoming datum affect expectation ecb monetary policy expect timing rate cut remain unchanged market survey participant certain cut basis point june overnight index swap ois forward curve edge higher june cumulatively price basis point rate cut end governing council previous monetary policy april june survey monetary analysts sma median participant expect rate cut basis point end cut embed market pricing cut survey participant expect governing council previous monetary policy inflation have repeatedly surprised upside federal reserve pivot december market pricing united states gradually shift few late rate cut recently subdued economic datum inflation release line expectation cause market participant price slightly steep ease cycle result narrative monetary policy divergence atlantic play strongly far end policy rate cut expect diverge modestly ecb expect start ease cycle ahead federal reserve divergence expect vanish end monetary policy expect relatively synchronise market anticipate gradual cautious easing cycle economy uncertainty gradual ease cycle remain high side atlantic market expectation gradual ease cycle elevated uncertainty rate path rest anticipation protracted bumpy disinflation path start investor expect swift continuous disinflation time market price euro area headline inflation exclude tobacco return target june subsequently stay level market gradually price bumpy inflation profile investor expect inflation close june expect hover range end time medium long term inflation profile edge suggest investor anticipate scenario inflation return target level see low long period reconvergence policy rate expectation euro area united states reflect long term risk free yield governing council previous monetary policy spread euro area nominal yield narrow peak april movement yield differential euro area united states mirror euro dollar exchange rate euro recently have recover loss dollar euro area financial condition mix week important driver condition risk asset price downward correction equity market mid april rate cut push time stock market recover major economy temporarily reach time high euro area united states combination buoyant risk sentiment globally recover domestic growth momentum continue contain sovereign bond spread time market absorption euro area government bond market remain smooth support benign liquidity condition smooth market absorption remarkable consider increase net issuance euro area government bond reduction eurosystem market footprint result record level net supply strong investor risk appetite foster low corporate bond spread narrow high yield bond governing council previous monetary policy april risk price correction continue elevate especially high yield segment overall asset price configuration equity market sovereign corporate bond space point stretch valuation risky market segment risk price correction historically buoyant risk sentiment turn pricing risk asset market continue support abundant liquidity euro area excess liquidity continue decline stand peak november spread euro short term rate str deposit facility rate show sign lift floor basis point remain close level see past year global environment economic monetary development euro area start global economy lane stress post pandemic normalisation process supply big driver strong performance global growth euro area competitor export price fall carry partly responsible low level good inflation observe euro area development global activity look favourable april mainly soft datum outlook global trade mixed look ahead june eurosystem macroeconomic projection build stable external environment annual term world gdp exclude euro area project grow growth euro area foreign demand set recover year rise year subsequently expect grow rate euro remain stable dollar nominal effective term monetary policy governing council long term perspective eur usd exchange rate stable euro appreciate start year trade weight term oil price show sizeable fluctuation past year decrease usd barrel april governing council look ahead expect volatile link geopolitical risk gas price direction governing council european gas price increase megawatt demand remain subdued gas storage level high turn euro area headline inflation accord flash estimate percentage point high april energy inflation increase april mainly drive upward base effect food inflation recede april inflation exclude energy food core inflation rise april decline good inflation percentage point offset rebound service inflation increase have slow april time month measure underlie inflation ease reflect fade impact past large supply shock weak demand drift lower time underlie inflation indicator remain relatively high reflect lag unwinding past inflationary shock strong ongoing labour cost increase and/or reprice service item wage growth elevate drive ongoing adjustment past inflation surge negotiate wage growth increase percentage point high strong growth include large payment public sector euro area large economy design multi year wage settlement economy specify large increase compensate lack early adjustment inflation surge small increase forward look wage tracker signal wage dynamic strong decelerate year wage contract conclude wage tracker decline april similarly firm participate corporate telephone survey april expect wage grow compare wage growth key driver inflation net impact labour cost increase price buffer low contribution profit gdp deflator expect come high decelerate significantly compare stand deceleration domestic price pressure continue projection foresaw moderation rely ongoing compression profit continue decline unit labour cost link scale procyclical improvement productivity inflation project fluctuate level coming month headline inflation profile affect roll fiscal measure upward energy base effect headline inflation expect decline target half follow year owe weak growth labour cost lag impact past monetary policy tighten gradually feed consumer price fading impact energy crisis pandemic price wage dynamic june eurosystem projection see inflation average compare march ecb projection headline inflation revise percentage point unchanged core inflation project average imply upward revision percentage point percentage point projection remain unchanged element projection gradual easing nominal wage growth initially elevated level upward impact inflation compensation pressure tight labour market see fade period ahead recovery productivity growth support moderation labour cost pressure profit growth weaken partially buffer pass labour cost price measure short term inflation expectation decline previous year long term inflation expectation remain stable stand uncertainty surround projection useful compare projection year affect carry effect relative outlook september project timely return inflation target reconfirm december march june projection stability project inflation end round projection remarkable addition inflation outlook reconfirm round turn economic activity quarter stagnation euro area gdp grow preliminary aggregate national gdp figure available far show economic growth mainly drive net export domestic demand play fairly limited role incoming information suggest continued growth short run drive pick consumption growth amid rise real disposable income improve confidence medium term negative impact past monetary policy tightening see fade gradually growth benefit resilient labour market unemployment rate decline historically low level service sector expand solid pace accommodation food service contribute dynamism manufacturing activity improve significantly accord purchasing managers index pmi survey remain contractionary territory regard consumption survey signal strong development contact intensive service good retail durable good motor car survey point figure normal level clearly recovery consumer confidence course term trade improve confidence fairly flat month consumer uncertainty come relatively high housing investment increase help temporary factor large euro area economy mild weather business investment project grow year global import grow strongly euro area export lead loss market share euro area start euro area export grow quickly global import global import decelerate forward look pmi remain mute export expansion activity tourism sector expect scale previous year unemployment rate edge april low level start euro employment increase line economic activity expect grow moderately indicator suggest marginal softening labour market condition job vacancy rate decline percentage point year high continue gradual easing peak job posting suggest trend development fiscal policy point improvement budget balance year active fiscal adjustment see easy austerity year large relate reversal fiscal subsidy considerably painful cut pay reduce employment fiscal multiplier small term dynamic limited revision fiscal plan compare march projection recovery strengthen come quarter late projection see economic growth compare march projection outlook gdp growth revise percentage point owe positive surprise start year improve forward look information revise marginally percentage point unrevise risk free market interest rate increase maturity previous monetary policy market price high real rate high anticipated inflation reading strong economy financing cost plateaue restrictive level past policy rate increase work way financial system average interest rate loan firm mortgage unchanged april respectively credit dynamic remain weak bank lending firm grow annual rate april slightly previous month growth loan household unchanged annual basis annual growth broad money measure rise april march euro area grow account surplus non resident demand euro denominate security give rise monetary inflow outside euro area monetary policy consideration policy option overall update joint assessment inflation outlook dynamic underlie inflation strength monetary policy transmission element ecb reaction function support increase confidence inflation converge target timely sustained manner particular inflation project fall average decline target half reflect high energy non energy commodity price upside surprise service inflation disinflation somewhat slow update projection time incoming datum suggest economic recovery proceed moderate pace turn point contain risk demand drive inflation pressure granular analysis driver domestic inflation service inflation wage growth indicate marked deceleration relative partial datum available show compression unit profit help absorb wage growth give ground increase confidence assumption profit play important buffering role time disinflation support restrictive monetary policy stance fade impact past inflation ongoing price pressure countervail impact reversal fiscal support measure fall datum relative start hold period september ecb bring policy rate level project timely return inflation target reconfirm december march june projection round instance inflation rate project end remarkably stable projection round particular september june round project hicp inflation rate compare year early fluctuate narrow interval inflation outlook confirm projection round speed disinflation fast expect period inflation come percentage point start hold period see inflation average inflation actually average inflation rate mark late projection exercise set underlie inflation indicator show considerable progress compare start hold period gauge drift lower improvement inflation profile reduce risk high long inflation pose stability inflation expectation include impact future wage settlement measure short term inflation expectation decline month measure long term inflation expectation remain stable stand transmission reaction function remain strong mortgage rate measurably low autumn peak index affordability mortgage loan point restrictive condition rate corporate loan move sideways nominal term upwards real term dampen demand external finance activity recover segment demand sensitive interest rate construction activity abstract temporary factor non construction business investment overall incoming datum financing condition signal monetary stance remain restrictive help maintain disinflationary process particular compare start hold period real lending rate firm household rise markedly interest rate decision robust wide range scenario clearly restrictive level deposit facility rate large upside shock inflation include persistent expect service inflation weak expect monetary transmission address slow pace rate cut baseline rate path embed projection time policy rate level offer great protection downside shock remain base assessment appropriate moderate degree monetary policy restriction month hold rate steady accordingly lane propose key ecb interest rate lower basis point time lane underline high level uncertainty elevated price pressure evident domestic inflation service inflation wage growth indicator mean restrictive monetary stance need maintain follow data dependent approach determine appropriate level duration restriction time incoming datum provide information balance element persistent component inflation evolution cost dynamic include interplay compensation productivity domestic pricing power depend strength composition cyclical recovery chart future course policy governing council maintain evaluation framework base inflation outlook dynamic underlie inflation state monetary policy transmission governing council confirm previously communicate intention reduce pepp portfolio month average half year reiterate intention discontinue reinvestment pepp end operational modality partial reinvestment pepp redemption closely follow precedent app partial reinvestment phase help ensure process remain transparent neutral possible pricing financial market furthermore lane propose flexibility allow remain pepp reinvestment effective line defence fragmentation risk exercise market condition deteriorate finally line monetary policy strategy assess link monetary policy financial stability analysis suggest euro area bank remain resilient improve economic outlook foster financial stability heighten geopolitical risk cloud horizon unexpected tightening global financing condition prompt repricing financial non financial asset negative effect wide economy macroprudential policy remain line defence build financial vulnerability measure currently place soon effect help financial system resilient govern council monetary policy decision economic monetary financial analysis regard external environment late datum soft hard point sustained momentum global activity strengthening global trade half member point uncertainty relate political economic development world large economy potential spillover euro area question raise growth policy adopt china impact activity inflation euro area strong expansion manufacturing capacity boost chinese export imply loss export market share low economic growth euro area associate strong disinflationary force time large european production capacity drive market mean costly write off investment possibly inflationary consequence concern express global trading system increase fragmentation separate economic bloc authority engage reciprocal tariff raising deglobalisation clearly visible datum consider important risk future quantify risk difficult possible outcome lie limited sector specific consequence wide breakdown trade link forward deglobalisation great protectionism rise cost climate change global trend affect supply economy give rise long term inflation pressure regard euro area economy member widely note june eurosystem projection entail upward revision economic growth inflation inflation stay target year headline core inflation revise compare march projection economic activity late datum lend support recovery anticipate previous projection round quarter stagnation euro area economy grow upward surprise growth see allay fear materialisation downside risk identify previous discussion concern monetary policy unduly hold growth diminish argue well expect outcome rely pick construction net export reflect temporary factor nonetheless surprise prompt revise growth expectation significantly follow succession projection round downward revision context doubt raise recovery place expect depend pick private consumption convincing evidence datum note projection entail upward revision saving ratio addition concern raise presence domestic political geopolitical uncertainty saving ratio high expect happen consumption curtail long upward revision household saving come time favourable growth outlook revision keep ratio pre pandemic level high propensity consume envisage associate upside risk consumption growth baseline like consumption investment remain weak argue reflect fair replacement investment expect provide strong impulse recovery business investment hold weak final demand high borrowing cost time suggest sectoral perspective expect recovery activity track weakness manufacturing appear bottom late survey datum support notion service lead recovery impact restrictive monetary policy see gradually fade service sector affect strongly sector capital intensive interest rate sensitive respond indirect influence monetary policy general dampening aggregate demand tourism see important component growth service drive large extent domestic real income euro area less extent foreign demand turn labour market member consider remain persistently robust key element soft landing economy see puzzle market indicator labour hoarding relatively unchanged labour shedding unemployment industry construction shortage labour persist especially service sector time point come historically high employment low unemployment market realistically expect slacken net employment gain conceal large number turnover contract suggest firm churning foster productivity gain help absorb rise wage bill respect fiscal structural policy member reiterate national policy aim make economy productive competitive help raise potential growth reduce price pressure medium term effective speedy implementation generation ngeu programme progress capital market union completion banking union strengthening single market help foster innovation increase investment green digital transition implement revise economic governance framework fully delay help government bring budget deficit debt ratio sustained basis stress speedy implementation ngeu programme innovation green transitioning help reduce price pressure medium term concern express period political uncertainty multiple election fiscal policy consolidation end year factor projection background member assess risk economic growth balance near term remain tilt downside medium term weak world economy escalation trade tension major economy weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk adverse geopolitical development result firm household confident future global trade disrupt growth low effect monetary policy turn strong expect growth high inflation come quickly expect rise confidence real income mean spending increase anticipate world economy grow strongly expect suggest risk growth emerge wage increase decouple pace firm realistically absorb productivity increase imply loss competitiveness market share ultimately fall investment activity see different angle weak expected economic recovery curtail expected productivity increase lead low profit margin reduce economy capacity absorb increase real wage embed wage contract projection baseline regard price development member concur assessment lane late datum reflection bumpy profile headline inflation expect hand fact late figure headline particular service inflation high march projection see increase uncertainty surround disinflation path hand argue upward surprise late datum incorporate june projection subsequent offsetting prudent approach underline upward revision inflation push return target end projection unchanged point rest assumption energy food inflation long term average notoriously volatile nature component exposure effect geopolitic climate change transition policy benign assumption see highly uncertain short term project inflation path bumpy remainder mainly base effect anticipate inflation path correct base effect actual outcome project trend short term horizon see point clearly downwards widely underline despite upward inflation surprise april big picture remain ongoing disinflation member note inflation number release cut date projection service inflation surprise upside show persistence demonstrate strong momentum lot persistence embed projection argue outcome view unambiguously upside risk baseline inflation path strength service inflation past month stem large extent resetting infrequently change price area insurance healthcare wage sensitive service inflation continue moderate note core inflation persistence service inflation far offset strong disinflation good sector expect fade impact reversal past supply shock headwind emerge good inflation world prone frequent supply chain disruption geopolitical fragmentation protectionism climate change dynamic future low good inflation reliably compensate overshooting service inflation turn domestic price pressure wage rise strongly make past inflation surge main determinant inflation persistence owe staggered nature wage adjustment process important role payment process wage catch price feed inflation considerable time see pick growth negotiate wage labour cost indicator include eurostat labour cost index high level anticipated moderation materialise time forward look indicator signal wage growth moderate course year profit absorb pronounced rise unit labour cost reduce inflationary effect reiterate wage key element assessment inflation outlook relate particular prominent role setting service price range indicator need consider form holistic assessment growth negotiate wage increase datum available number euro area country suggest growth compensation employee euro area elevated level record point late wage information incorporate baseline june projection upside risk datum contribute upward revision wage growth compare march projection warning underestimate strength wage dynamic scope surprise course time emphasise take account available country base estimate euro area gdp deflator unit labour cost unit profit probably increase slowly embed june projection high wage growth consider reflect large extent worker seek compensation past purchase power loss wage dynamic slow process complete inflation normalise caution catch nonetheless imply draw process bumpy wage path depend contract come renewal stagger wage set process period inflation compensate attention draw payment play important role particularly light fiscal incentive set expire indication union payment transitory future factor regular pay rise express catch lead real wage exceed pre war pre pandemic level trend environment protract labour scarcity possible shift bargaining power capital labour addition remark scope buffer high wage compression profit margin limited service sector expose international competition experience robust demand risk opposite direction wage growth profile argue high wage settlement take place sector substantial profit past year allow employer grant generous wage increase absorb pass final price incoming datum critical relationship wage productivity profit see support prudent inflation projection ongoing disinflation process caution uncertainty surround outlook high transition low inflation period large shock possible structural change relationship start evolve differently historical pattern continued prudence warrant respect rely standard projection model actual datum need provide sufficient confidence disinflation stall mile time diminish projection error see ground renew confidence projection regard long term inflation expectation measure remain stable stand somewhat high rate market base measure essentially reflect high inflation risk premia genuine inflation expectation remain anchor inflation target anchoring expectation indicator take sign credibility monetary policy literature experience effect warn extended period high inflation lasting impact formation inflation expectation make fragile anchor difficult future context comfort draw gradual lowering consumer inflation expectation level household survey typically remain ecb inflation target see signal trust disinflation process self fulfil element contribute moderation wage claim firm pricing power member assess inflation turn high anticipate wage profit increase expect upside risk inflation stem heighten geopolitical tension push energy price freight cost high near term disrupt global trade extreme weather event unfold climate crisis drive food price contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly suggest risk factor inflation relate instance extent expected pick productivity growth evolution fiscal stance underpin inflation outlook element develop direction decisive element balance risk background member express different view directional change balance risk hand argue thing equal upward revision baseline imply reduction remain upside risk risk balanced hand maintain downside risk relate strong transmission monetary policy gradually recede continue upside risk high labour cost shift balance upside turn monetary financial analysis market interest rate rise governing council previous real interest rate recently increase market participant fully price basis point cut key ecb interest rate june cut price end year shallower ease cycle expect side atlantic amid similarity inflation trend globally financial market support strong risk appetite contrast limited risk appetite euro area consumer firm suggest financial market sentiment weaken point real economy catch market sentiment buoyant despite heighten geopolitical risk uncertainty risk misprice financial market monitor financial stability perspective financing cost plateaue restrictive level past policy rate increase work way financial system average interest rate loan firm mortgage unchanged april lending rate increase real term time rate hike september credit dynamic remain weak credit flow firm stable low level march april take lending debt security firm demand loan investment remain weak owe low aggregate demand continue high borrowing cost growth loan house purchase remain stagnant consumer credit growth resilient weak annual growth broad money measure continue gradual recovery remain relatively subdued look ahead loan growth gradually pick time highlight bank reduce liquid asset holding target long term refinance operation mature appear strong preference liquidity low supply liquidity system reduce appetite bank lend respect express long bank benefit ample excess reserve remunerate deposit facility rate limited incentive expand risky lending real economy biannual structured exchange link monetary policy financial stability member concur euro area bank remain resilient continue robust capital liquidity position improve economic outlook foster financial stability highlight recently publish financial stability review time geopolitical factor increase risk period ahead unexpected tightening global financing condition prompt repricing financial non financial asset negative effect wide economy macroprudential policy remain line defence build financial vulnerability measure currently place soon effect help financial system resilient monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council communicate shape reaction function comprise inflation outlook dynamic underlie inflation strength monetary policy transmission start inflation outlook member concur assessment present lane introduction june projection headline inflation revise compare march projection inflation expect fluctuate level rest year include energy relate base effect expect decline ecb target half year owe weak growth labour cost unfold effect ecb restrictive monetary policy fading impact energy crisis pandemic subsequently inflation expect close target sustainable manner measure long term inflation expectation remain stable anchor target market base expectation move period inflation expectation consumer firm continue decline gradually development inflation expectation give indication public trust confidence disinflation process return inflation target member express confidence inflation outlook confirm ongoing disinflation process reflect projection datum suggest inflation sticki previously expect exact speed return target uncertain time long term perspective highlight different vintage projection past year inflation fluctuate narrow range renew stability rise great confidence reliability robustness projection show inflation remain track meet target medium term notwithstanding upward revision inflation projection small projection error headline inflation support confidence inflation outlook member concur progress term dynamic underlie inflation measure underlie inflation decline april month datum available confirm picture gradually diminish price pressure time domestic price pressure remain strong wage growth elevate projection core inflation revise compare march projection momentum service core inflation remain fairly strong time clarity obtain dynamic important inflation driver evidence require extent unit profit absorb inflationary pressure high wage productivity growth rebound expect finally member agree monetary policy transmission remain strong real interest rate stand close peak cycle monetary policy clearly remain restrictive territory time interest rate cut remain true allow upward shift natural rate interest express ongoing quantitative tightening need take account assessment policy stance restrictiveness policy reflect weak credit dynamic subdue aggregate demand help lower inflation weigh growth transmission probably unfold time give monetary policy affect economy long variable lag peak impact restrictive monetary policy financing condition gdp probably occur lag effect output effect price imply peak impact inflation come process transmission service inflation weak slow transmission good inflation overall member express continue increase confidence inflation track decline sustainably inflation target timely manner end late datum slightly favourable anticipate hop march april expect disinflationary path bumpy noisy surprise direction important recognise smooth linear disinflation process prerequisite confidence timely return inflation target addition different indicator provide contrast signal future disinflation path important step focus big picture excessive focus individual observation detail development meeting run risk able wood tree data dependent mean look datum assess drive reaction function element include consider wide inflation outlook recent development noise detract long term perspective indicate consistent disinflation timely sustainable return inflation target despite volatility disinflation process proceed substantial progress governing council raise interest rate september evident significant great expect decline headline core inflation time rate hike headline inflation halve time hike inflation outlook especially improve late projection compare september december round pace disinflation somewhat slow anticipate march inflation projection slightly high september market participant remain confident medium term disinflation process volatility nearer term rate expectation reflect uncertainty pace disinflation important overreact adverse datum inflation number single month necessarily imply trend reflect factor way important overreact positive number previous month balance inflation outlook assessment risk increase confidence express inflation decline target half subsequently sustainably level time underline decision future take face uncertainty key question confirmation confidence inflation return target timely manner point necessary judgement base information available information conclusive prefer approach see conflict data dependence wait confirmation certainly imply cut interest rate late potentially create significant risk undershoot target highlight degree restrictiveness need reduce inflation low place september follow basis point cut interest rate restrictive territory relation estimate natural neutral rate interest mean strong demand endanger return inflation target upside shock inflation address opt slow pace rate reduction compare baseline rate path embed projection appear little risk need reverse policy large external shock occur case policy reversal convincingly justify cut interest rate basis point offer great protection downside shock keep level cut interest rate robust wide range scenario maintain cautious approach member feel datum available increase confidence inflation converge target instead point great uncertainty outlook member general disinflation trend remain intact big picture relevant point comparison datum time monetary policy previous projection time april interest rate keep hold sufficient confidence inflation return sustainably target timely manner wage growth surprise upside inflation sticki mainly account service inflation service inflation momentum high pace domestic disinflation overestimate period wage growth strengthen suggest significant wage pressure pipeline point great stickiness ahead increase price pressure time wage lagging indicator addition june projection headline core inflation revise compare march projection late projection core inflation barely change september project return headline inflation target push final lengthy period high inflation delay bring inflation target difficult anchor inflation expectation future suggest mile final phase disinflation difficult member view risk inflation outlook tilt upside partly downside risk inflation diminish owe ongoing economic recovery owe heighten geopolitical risk argue small undershooting inflation costly continued overshooting especially anchoring inflation expectation take give consideration suggest cut interest rate fully line principle data dependence case keep interest rate unchanged willingness support lane proposal express notwithstanding reservation forward monetary policy decision communication background member agree proposal lane lower key ecb interest rate basis point base update assessment inflation outlook dynamic underlie inflation strength monetary policy transmission see appropriate moderate degree monetary policy restriction month hold rate steady september inflation fall percentage point inflation outlook improve markedly inflation projection fluctuate narrow range period increase confidence reliability solidity robustness projection show inflation return target timely manner underlying inflation ease reinforce sign price pressure weaken period inflation expectation decline horizon monetary policy keep finance condition restrictive dampen demand keep inflation expectation anchor major contribution bring inflation dissent uphold maintain incoming datum upside risk inflation support case rate cut particular inflationary pressure evident datum show stickiness inflation stickiness exacerbate different geopolitical risk addition decoupling path interest rate risk add inflationary pressure exchange rate effect regard future meeting member emphasise remain determined ensure inflation return sustainably medium term target timely manner affirm policy rate sufficiently restrictive long necessary achieve aim continue uncertainty surround disinflationary process bumpy path ahead see important maintain data dependent approach determine appropriate level duration restriction pre commitment particular rate path optionality retain member reiterate monetary policy base establish element reaction function turn communication member agree important convey increase confidence disinflationary process justify policy decision highlight need continued caution patience future disinflation path continue determination bring inflation target timely manner member agree lane proposal confirm reduction eurosystem holding security pepp month average half year modality reduce pepp holding line follow app agree apply flexibility reinveste redemption fall pepp portfolio context note early announcement intended pepp run absorb smoothly market take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference june press release monetary policy decision meeting ecb governing council june members lagarde president guindos vice president centeno cipollone elderson hernández cos holzmann kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau vujčić wunsch members hold voting right june article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person bénassy quéré dabušinskas demarco gavilán haber horváth kaasik koukoularides kroes lünnemann madouros mauderer nicoletti altimari novo rutkaste šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee august contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting july account monetary policy governing council european central bank hold frankfurt main wednesday thursday july august review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy june financial market move response political news cause volatility response weak expect inflation datum announcement snap election france dent investor risk appetite rally euro area risk asset market result rise volatility market segment remain contain short live sign systemic stress fragmentation risk premia rise modestly euro exchange rate recover quickly macroeconomic news mute small negative macroeconomic surprise euro area united states expectation ecb policy rate remain unchanged amid volatility follow election european parliament edge lower release consumer price index cpi datum euro area financial condition remain unchanged continue benign market condition absorption net issuance government bond continue proceed smoothly investor demand remain strong political uncertainty affect financial market reflect spike imply volatility euro area stock market imply volatility remain contain long term perspective retreat swiftly previous low contrast option imply volatility euro area bond market hardly move stand close low level see investor risk appetite euro area recover quickly temporary slump currently stand level see start year point continue strong investor risk sentiment resilience financial market high degree investor differentiation visible sovereign bond market increase sovereign spread german bund small historical perspective spread narrow initial spike volatility currently stand level prevail european parliamentary election exception french sovereign bond spread stand slightly high investor differentiation extend euro area equity market corporate bond market overall impact euro area stock market valuation mute short lived development euro area corporate bond market mirror equity market spread investment grade financial corporate bond non financial corporate bond euro area exclude france have narrow eur usd exchange rate initially depreciate somewhat quickly recover loss unchanged level prevail time governing council previous monetary policy regard expectation monetary policy follow june federal open market committee probability cut interest rate september initially decline slightly counterbalance subsequently somewhat weak expect macroeconomic datum particular june release cpi datum push fund future curve substantially low time june governing council development spill extent expectation ecb interest rate rate expectation remain unaffected political uncertainty european election edge lower july weak expect cpi datum release market pricing expect policy rate path remain relatively close peak forward curve late substantially trough rate expectation reach start year regard speed extent rate cut cycle participant survey monetary analysts sma change view previous survey round average continue expect basis point rate cut quarterly projection available december line expectation financial market survey difference expect level terminal rate moderate downward shift euro area forward curve relative united states partly reflect fact euro area core inflation measure harmonised index consumer prices hicp exclude energy food continue surprise upside contrast late inflation datum release euro area near term inflation fixing swap contract link specific monthly release euro area year year hicp inflation exclude tobacco edge governing council previous monetary policy remain level foresee june eurosystem macroeconomic projection accord market participant risk long term inflation outlook remain tilt upside evidence option imply probability year forward inflation link swap rate year ahead assumption risk neutrality mean investor assess overshooting inflation target costly undershooting investor price substantially high probability inflation overshoot level undershoot level reflect anticipation frequent adverse supply shock signal positive inflation risk premia time development euro area real interest rate mix recently year real rate remain unchanged amid high volatility year year real rate drop governing council previous monetary policy absorption government security continue proceed smoothly include france recent auction continue strong investor demand auction result line past regularity past year net issuance find strong demand foreign investor foreign hedge fund emerge important player european sovereign bond market global environment economic monetary development euro area start inflation euro area lane note headline hicp inflation decline slightly june rise energy inflation edge despite upward base effect food inflation fall good price inflation service price inflation respectively june measure underlie inflation tick owe factor measure underlie inflation stable edge june compare average measure underlie inflation decline compare previous relation wage development compensation employee increase line june projection negotiate wage remain important driver total compensation decrease slightly negotiate wage growth include payment increase forward look wage tracker continue signal elevated wage pressure year drive catch dynamic wage agreement euro area large economy account bulk late tracker information agreement reach wholesale retail chemical construction sector tend long contract duration pronounce catch component phase tracker reflect wage hire pick june near term response firm participate ecb corporate telephone survey cts survey access finance enterprises safe point materially low wage growth picture reflect year year profile recently agree multi year wage contract participant ecb survey professional forecasters spf expect marked deceleration wage growth accord spf expect deceleration wage growth year attributable catch past inflation play small role decline expected inflation domestic price pressure moderate period ahead profit need play annual growth rate gdp deflator decline expect fall large contribution decline come unit profit contribution annual growth rate unit profit turn negative headline inflation expect fluctuate level remainder resume downward path decline ecb target half owe fade impact past inflation surge weak growth labour cost unfold effect restrictive monetary policy medium long term inflation expectation remain stable stand turn global economy growth momentum increase global composite purchasing managers index pmi exclude euro area rise survey base indicator signal improvement global activity global trade continue strengthen drive frontloading demand firm rebuilt inventory long phase destocking confirm july update imf world economic outlook weo project global real gdp growth global trade growth compare april weo basically change outlook global growth trade euro exchange rate remain stable dollar nominal effective term governing council oil price increase usd barrel brent crude oil increase oil price reflect tight supply condition rise geopolitical concern european natural gas price decrease governing council stand megawatt hour demand remain subdued gas storage level high incoming information indicate euro area economy continue expand service sector continue lead recovery service component pmi soften somewhat june construction output boost favourable weather germany fiscal incentive italy fall april non construction investment rise moderately muted rest year manufacturing activity show renew sign weakness pmi indicator output order drop contractionary territory respectively june good export weak narrative remain consumption lead recovery rise real income translate rise consumption late datum support consumption grow consumer confidence slowly increase remain subdue compare pre pandemic average level employment expand line economic activity support expansion labour force unemployment rate remain unchanged survey indicator suggest positive moderating employment growth pmi employment average suggest employment growth compare june projection time labour demand gradually moderate ecb labour hoarding indicator measure share firm hold worker despite deteriorate outlook decline job posting decline june follow deceleration job vacancy rate year turn fiscal policy level fiscal support euro area remain sizeable somewhat strong assume june eurosystem projection concrete fiscal news june projection relatively limited uncertainty surround fiscal outlook increase policy rate cut june transmit smoothly money market interest rate broad financial condition somewhat volatile financing condition firm household remain restrictive level effect past policy rate increase continue work way transmission chain average interest rate business loan decline slightly interest rate mortgage loan remain constant consecutive month growth loan firm household remain stable subdue rate past month annual growth broad money measure continue recover reach drive strong net foreign inflow take information euro area lending survey bls safe suggest credit supply condition loan firm stabilise tight demand persistently weak respondent july bls report slight tightening credit standard loan firm participant safe see small net improvement loan availability accord survey demand corporate loan decline household bls signal easing standard mortgage moderate tightening consumer credit net demand housing loan consumer credit increase time mid-2022 monetary policy consideration policy option aggregate lane conclude incoming information support previous assessment medium term inflation outlook quarterly profile measure underlie inflation remain line picture gradually diminish price pressure weakening economic datum help contain upside inflation risk elevated wage growth line expectation firm see profit decline buffer inflationary impact high labour cost monetary policy keep finance condition restrictive time domestic price pressure high service inflation elevate headline inflation target year background lane propose keep key ecb policy rate unchanged information available governing council monetary policy september incorporate wealth fresh datum macroeconomic projection euro area datum available include gdp growth compensation employee profit margin productivity alongside hicp release monetary indicator timely soft indicator activity consumer confidence govern council monetary policy decision economic monetary financial analysis look external environment member take outlook global growth present lane july update imf april weo entail unchanged expectation real gdp growth somewhat embed june eurosystem projection positive news solid growth global activity trade important element anticipated euro area recovery time attention draw late soft datum economic activity united states china argue external environment recently clearly disinflationary mitigate concern high long inflation late inflation decline united states issue possible divergence euro area monetary policy discuss spring abate regard euro area economy member widely note medium term outlook discuss previous governing council entail june eurosystem projection change datum reveal inflation persistent previously anticipate activity indicator disappoint downside argue short term outlook somewhat stagflationary time contend weak activity dampen inflation time economic activity member concur lane incoming information indicate euro area economy grow slow pace service continue lead recovery industrial production good export weak indicator point mute investment growth amid heightened uncertainty recovery expect support consumption drive strong real income result low inflation high nominal wage export pick rise global demand finally monetary policy exert drag demand time member acknowledge short term outlook growth deteriorate visible soft hard datum notably weak pmi indicator manufacturing prospect somewhat low short term growth embed projection corroborate late survey spf sma concern express mute activity temporary cyclical nature inference support notably fact sign recovery manufacturing industrial production adverse impact early energy term trade shock fade reference share energy cost gdp fall close long term average doubtful short term cyclical phenomenon fully explain weak performance manufacturing consistent observe subdue development export reflect lasting structural loss competitiveness cast doubt capacity euro area recover growth world trade stress economy remain lopsided recovery continue drive essence activity service confirm positive incoming information service pmi service production tourism play important role service activity questionable type spending support economy sustainably half year observe moderate recovery consumer confidence low level saving ratio increase point increase saving ratio reflect large extent increase non labour income high income household save consume additional income great saving see natural reaction high interest rate deposit offer context past monetary policy tightening strong increase saving observe year raise question consumption base narrative embed projection overall despite layer uncertainty feel euro area economy remain track consumption lead recovery line rise real income growth survey result entail positive sign future household spending accord late bls household demand loan rise turn labour market incoming datum confirm continued resilience unemployment rate unchanged low level start euro employment grow support increase labour force expand rate job create mainly service sector time firm gradually reduce job posting albeit high level member widely point continue tightness labour market note tightness persist despite immigration rise labour force participation participant ecb cts continue difficulty recruiting highlight continued labour shortage time cts finding suggest firm respond shortage invest labour save technology automation digitalisation note employment growth continue drive mainly service sector caution express observed state labour market interpretation hand persistent resilience reinforce prediction soft landing economy achievable lack sustained growth dynamic raise concern durability appear inclusive vibrant labour market history euro area respect national fiscal structural policy member reiterate policy aim economy productive competitive help raise potential growth reduce price pressure medium term effective speedy implementation generation ngeu programme progress capital market union completion banking union strengthening single market key factor help foster innovation increase investment green digital transition european commission guidance call member states strengthen fiscal sustainability eurogroup statement fiscal stance euro area welcome implement revise economic governance framework fully delay help government bring budget deficit debt ratio sustained basis course fiscal policy see pose challenge coming month concern express period political uncertainty change government fiscal consolidation expect far combination fiscal slippage country fiscal discipline lead divergence fiscal position great vulnerability september euro area country multi year budgetary plan market start analyse compliant plan fiscal rule credibility depend early compliance effort promotion sound fiscal regime call vocal need structural reform weak economic growth imply high risk slippage comply fiscal rule context suggest implementation ngeu programme emphasis effectiveness speediness give risk inefficiency associate limited administrative capacity implementation authority member assess risk economic growth tilt downside weak world economy escalation trade tension major economy weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth low effect monetary policy turn strong expect growth high inflation come quickly expect rise confidence real income mean spending increase anticipate world economy grow strongly expect point continuous presence macro risk geopolitical fragmentation lack fiscal discipline fuel uncertainty hamper planning appear far economy show resilience type uncertainty regard price development member concur assessment provide lane incoming information confirm medium term inflation outlook annual inflation ease slightly june good price inflation service price inflation unchanged respectively measure underlie inflation tick owe factor measure stable edge june inflation expect fluctuate level rest year partly owe energy relate base effect expect decline target half year owe weak growth labour cost effect restrictive monetary policy fade impact past inflation surge member consider short term inflation outlook remain line june projection point somewhat high profile service inflation core inflation partly associate increase tourism relate price emphasise disinflationary process headline hicp inflation short term horizon evident adjust impact energy relate base effect cause volatility year note survey market somewhat optimistic inflation short term june projection somewhat pessimistic economic growth persistence service inflation remain element shape inflation outlook remark risk see high service inflation long period mitigate tepid recovery issue euro area hold true euro area june service inflation high expect string consecutive upward surprise observe service inflation drop fairly quickly peak mid-2023 november hover level contrast good price inflation decline proceed quickly progress reduce service inflation appear stall level service inflation twice high average global financial crisis persistence service inflation broad base euro area country component drive individual category momentum remain high despite decline disinflation non energy industrial good flatten high freight cost rise protectionism upward pressure good price inflation future decline core inflation need rely disinflation service time point service inflation sluggish lag element inflation process item particular late observation reflect laggard delay backward look reprice specific subsector generalise forward look price resetting member agree triangular relationship wage productivity profit remain assess domestic price pressure inflation outlook argue expect disinflationary trend base dynamic variable align historical pattern caution evolution variable remain surround high level uncertainty development warrant close monitoring datum important input governing council monetary policy september concern wage specifically year available measure point continue elevated growth anticipate june projection late datum show wage euro area rise elevated pace maintain aggregate development large extent reflect development specific sector country broad base trend profile wage growth embed late projection downward slop expectation support result number survey survey indication low wage growth favourable news inflation outlook caution express decline need appear datum far remain exceptionally high historical standard context consider useful look decomposition wage growth main driver catch component forward look inflation expectation labour market tightness compensation high productivity reference evidence cts half respondent indicate recruiting hard prevail wage case labour scarcity turn structural phenomenon cause example demographic factor change preference leisure important far wage increase reflect increase negotiation power worker individual collective far merely reflect real wage catch wake inflation surge staggered process collective wage bargaining imply deferred impact inflation real wage catch real wage large share worker country fall short pre pandemic level look ahead provide protractedness wage dynamic inflation perspective desirable catch proceed contain manner healthy element underpin real income growth benefit euro area economy time concern express wage grow strongly consistent inflation target catch process complete real wage catch low incentive worker claim high wage increase firm pass wage increase environment weak demand regard long term inflation expectation member take late development market base measure inflation compensation survey base indicator measure long term inflation expectation remain stable stand current inflation expectation anchor suggest inflation unlikely undershoot target distribution skewed upside valid expectation derive consumer expectations survey safe spf sma option imply probability year forward inflation link swap rate year ahead high outcome outcome analyst long term inflation expectation report sma asymmetry suggest principle large upside downside risk reconcile expectation frequent adverse supply shock future risk member assess inflation turn high anticipate wage profit increase expect upside risk inflation stem heighten geopolitical tension push energy price freight cost high near term disrupt global trade extreme weather event unfold climate crisis drive food price contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly point downside risk aggregate demand come downside risk inflation medium term time argue good reason watchful upside risk inflation incoming datum particularly service inflation early expectation key building block disinflation narrative expect pick productivity moderation wage growth appear actual datum unit labour cost grow fast turn monetary financial analysis member underline policy rate cut june transmit smoothly money market interest rate market interest rate edge governing council previous monetary policy june fluctuate extent response datum release average market participant currently price additional basis point cut end year attach probability cut july monetary policy overall broad financial condition change little governing council previous monetary policy june somewhat volatile meantime financial market affect political uncertainty euro area effect increase volatility remain mute reverse financing cost remain stable restrictive level previous policy rate increase continue work way transmission chain average interest rate loan firm edge mortgage rate remain unchanged lending condition remain tight accord late bls credit standard lend firm tighten slightly standard mortgage ease moderately bls highlight continued sluggish demand firm loan credit line expect growth loan demand turn positive household demand mortgage consumer loan rise express bls result suggest transmission monetary policy restriction pass peak credit growth remain subdue growth lending firm household remain low level marginally increase previous month annual growth rate continue gradual recovery remain relatively subdued drive inflow fund outside euro area monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council communicate shape reaction function start inflation outlook member concur assessment present lane introduction incoming information forward look indicator support governing council previous assessment medium term inflation outlook recent development late datum consistent june projection headline inflation expect fluctuate level rest year partly owe energy relate base effect inflation expect decline target half year stabilise target important inflation expectation remain firmly anchor measure long term inflation expectation stand time distribution inflation expectation skewed upside addition service inflation continue persistent expect regard underlie inflation member note measure underlie inflation tick owe factor measure stable edge june signal different measure underlie inflation remain mixed domestic inflation continue elevate range measure appear sticki expect core inflation remain relatively high high expect show persistence subject upside risk give repeat upside surprise service inflation measure underlie inflation fairly flat remainder year interpret datum tricky inflation approach target measure naturally adjust slowly hard determine slow decline signal genuine stalling disinflation process labour cost dynamic key concern interaction wage productivity profit particularly important evolution domestic inflation capture gdp deflator respect comfort domestic cost pressure high wage growth include service sector increasingly buffer unit profit finally member agree monetary policy transmission unfold accord expectation monetary policy keep financing condition restrictive transmission past policy rate hike remain strong tight financing condition partly explain sluggishness domestic demand weigh activity coming month take ongoing contraction eurosystem balance sheet add restrictiveness time continued growth profit service sector albeit low rate strength service demand suggest weak transmission monetary policy economy exert strong inflationary pressure say monetary policy probably long transmit service sector transmission service inflation relatively weak see isolation relatively low good price inflation monetary policy decision communication background member agree lane proposal maintain key ecb interest rate level member concur incoming information support governing council previous assessment medium term inflation outlook measure underlie inflation tick owe factor measure stable edge june line expectation inflationary impact high wage growth buffer profit monetary policy keep finance condition restrictive time domestic price pressure high service inflation elevate headline inflation target remark development suggest mile disinflation challenging task bring inflation sustainably target assure despite significant progress inflation come gradually see natural governing council policy response cautious support pause cautious approach particularly warrant give prevail uncertainty evolution wage profit productivity service inflation need monitoring assessment datum arrive order gain confidence inflation outlook time september extensive datum available july august inflation datum national account information include compensation employee profit productivity update monetary datum set projection term timing argue governing council afford patient wait datum confirm disinflation track cautious approach allow governing council respond follow gradual path reduce policy rate inflation persistent currently foresee importance bring inflation sustainably target timely manner reiterate matter credibility delay entail high cost inflation expectation fragile usual owe inflation have target long time underline gradual attenuation policy restriction balance act important unduly harm economy keep rate restrictive level long member emphasise remain determined ensure inflation return medium term target timely manner policy rate sufficiently restrictive long necessary achieve aim see important maintain data dependent approach determine appropriate level duration restriction pre commitment particular rate path exact pace inflation return target remain uncertain nonetheless important eye real economy september widely see good time evaluate level monetary policy restriction approach open mind imply datum dependence equivalent overly focused specific single data point finally policy base establish element reaction function member agree executive board proposal apply flexibility partial reinvestment redemption fall pandemic emergency purchase programme portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference july press release monetary policy decision meeting ecb governing council july members lagarde president guindos vice president centeno cipollone delgado elderson kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel scicluna šimkus stournaras vasle villeroy galhau vujčić wunsch members hold voting right july article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person arpa bénassy quéré dabušinskas demarco gavilán gilbert haber alternate holzmann kaasik koukoularides lünnemann madouros martin mauderer nicoletti altimari novo rutkaste šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee october related topic monetary policy policy disclaimer relate topic tag currently available select content contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting september account monetary policy governing council european central bank hold frankfurt main wednesday thursday september october review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy july repeat period elevated market volatility growth concern dominant market theme volatility risk asset market leave persistent imprint broad financial market associate shift expectation policy path federal reserve system reappraisal expectation monetary policy spill euro area rate expectation support somewhat weak economic datum notable decline headline inflation euro area overnight index swap ois market currently price steeper frontloade rate cut cycle anticipate time governing council previous monetary policy time survey expectation hardly change relative july volatility equity market shoot level see october follow august non farm payroll employment unwinding yen carry trade similarly imply volatility euro area stock market composite indicator systemic stress spike turbulence prove short live indicator volatility systemic stress come quickly sharp swing risk aversion global investor mirror equity price weak growth outlook have reflect sectoral performance global equity market euro area united states defensive sector recently outperform cyclical one suggest equity investor position weak economic growth factor amplify stock market dynamic sensitivity equity price macroeconomic shock depend prevail valuation great role speculative market instrument include short volatility equity fund pronounced reappraisal expect path monetary policy spill rate expectation major advanced economy include euro area euro area ois forward curve shift noticeably low compare expectation prevail time governing council july contrast market expectation survey prove stable expectation report survey monetary analysts sma unchanged versus previous round point gradual rate path dynamic market base survey base policy rate expectation year illustrate total rate cut expect end end market sma show high volatility market expectation relative survey pervasive feature start market base expectation oscillate stable sma expectation dominant driver interest rate market inter period fact domestic euro area factor partly explain muted sensitivity analyst expectation incoming datum time expect policy divergence euro area united states change sign market currently expect steep ease cycle federal reserve decline nominal rate maturity governing council explain mainly decline expect real rate show breakdown ois rate different maturity inflation compensation real rate contrast decline euro area nominal rate relate decline inflation compensation market reassessment outlook inflation euro area united states lead year inflation link swap ils rate year ahead decline tandem side atlantic global shift investor focus inflation growth concern lower investor require compensation upside inflation risk driver inflation compensation marked decline energy price governing council july past year market near term inflation outlook closely correlate energy price market base inflation expectation oscillate stable survey base expectation show comparison year date development sma expectation market pricing inflation rate year end dominance factor financial market development divergence policy rate expectation euro area united states reflect exchange rate development euro push higher dollar owe repricing monetary policy expectation deterioration macroeconomic outlook nominal effective term euro exchange rate depreciate mildly appreciation dollar currency offset weakening swiss franc japanese yen sovereign bond market prove resilient volatility risky asset market segment year sovereign spread german bunds widen modestly turbulence retreat shortly regard corporate borrowing cost roll euro area corporate debt ease measurably rating bucket relative peak finally mute month lending operation extend period pricing main refinance operation announce march spread deposit facility rate reduce basis point september market currently expect slow increase money market reaction adjustment global environment economic monetary development euro area lane start review inflation development euro area headline inflation decrease august flash release percentage point low july mainly reflect sharp decline energy inflation july august account downward base effect food inflation august marginally july core inflation measure harmonised index consumer prices hicp exclude energy food decrease percentage point august decline good inflation outweigh rise service inflation measure underlie inflation unchanged july domestic inflation remain high wage rise elevated pace labour cost pressure moderate low profit partially buffer impact high wage inflation growth compensation employee fall despite weak productivity unit labour cost grow strongly annual growth unit profit continue fall come negotiate wage growth high volatile remainder year give significant role payment country staggered nature wage adjustment forward look wage tracker signal wage growth strong near term moderate headline inflation expect rise year partly previous fall energy price drop annual rate accord late ecb projection headline inflation expect average notably reach half year compare june projection profile headline inflation unchanged inflation projection include owner occupy housing cost helpful cross check september projection imply substantial difference inflation rent owner occupy housing cost index show similar profile hicp inflation projection core inflation projection revise slightly service inflation high expect staff continue expect rapid decline core inflation year owe weak economy low wage pressure projection see fast disinflation course result projection core inflation year mark turn global economy lane stress global activity exclude euro area remain resilient global trade strengthen company frontloade order anticipation shipping delay ahead christmas season time downside risk rise indicator signal slowdown manufacturing frontloading trade half year mean trade performance half weak euro appreciate dollar july governing council stable effective term energy market brent crude oil price decrease usd barrel july european natural gas price increase stand megawatt hour amid ongoing geopolitical concern euro area real gdp expand year revise follow fall short late projection real gdp important exaggerate slowdown pronounced exclude small euro area economy large volatile contribution intangible investment euro area economy continue grow expansion drive private domestic demand mainly net export government spending private domestic demand weaken household consume firm cut business investment housing investment drop sharply euro area flash composite output purchasing managers index pmi rise august july service sector continue expand interest sensitive manufacturing sector continue contract past year flash pmi service business activity august rise manufacturing output pmi remain deeply contractionary territory picture raise concern development similar activity order indication manufacturing sector recover anytime soon consumer confidence remain subdued industrial production continue face strong headwind highly interconnect industrial sector euro area large economy suffer prolonged slump trade concern improvement pmis export order service manufacturing slip month expand global real gdp expect grow accord september ecb macroeconomic projection compare june projection global real gdp growth revise percentage point year projection horizon outlook world economy upgrade slightly downgrade term export price euro area competitor expect fuel disinflationary pressure euro area particularly euro area labour market remain resilient unemployment rate unchanged july employment grow time growth labour force slow recent survey indicator point moderation demand labour job vacancy rate fall close pre pandemic peak early indicator labour market dynamic suggest deceleration labour market momentum employment pmi stand neutral level august projection output growth expect strengthen compare june projection outlook growth revise percentage point year projection horizon downward revision reflect lower expect gdp datum subdue short term activity indicator downward revision average annual growth rate result slightly weak contribution net trade domestic demand concern fiscal policy euro area budget balance project improve progressively strongly previous projection round turn monetary financial analysis risk free market interest rate decrease markedly monetary policy owe weak outlook global growth reduced concern inflation pressure tension global market summer lead temporary tightening financial condition risky market segment euro area forward rate fall maturity financing condition firm household remain restrictive past policy rate increase continue work way transmission chain average interest rate loan firm mortgage stay high july respectively monetary dynamic stable amid mark volatility monthly flow net external asset remain main driver money creation annual growth rate stand july unchanged june credit growth remain sluggish amid weak demand monetary policy consideration policy option assessment inflation outlook dynamic underlie inflation strength monetary policy transmission lane conclude confidence timely return inflation target support decline uncertainty projection include stability projection round inflation expectation range indicator remain align timely convergence target incoming datum wage profit line expectation baseline scenario foresee demand lead economic recovery boost labour productivity allow firm absorb expect growth labour cost dent profitability buffer cost pressure stem high wage dampen price increase measure underlie inflation include high predictive content future inflation stable level consistent inflation return target sufficiently timely manner domestic inflation keep elevate pay rise project slowdown wage growth year expect major contribution final phase disinflation target base assessment appropriate step moderate degree monetary policy restriction accordingly lane propose lower deposit facility rate rate governing council steer monetary policy stance basis point decision robust wide range scenario clearly restrictive level deposit facility rate upside shock inflation call question timely return inflation target address slow pace rate reduction come quarter compare baseline rate path embed projection time compare hold deposit facility rate level offer great protection downside risk lead undershooting target projection horizon include risk associate excessively slow unwinding rate tighten cycle look ahead gradual approach dial restrictiveness appropriate incoming datum line baseline projection time optionality retain regard speed adjustment direction incoming datum indicate sustained acceleration speed disinflation material shortfall speed economic recovery implication medium term inflation fast pace rate adjustment warrant direction incoming datum indicate slow expect disinflation fast pace economic recovery slow pace rate adjustment warrant consideration reinforce value data dependent approach maintain way optionality flexibility future rate decision imply reiterate commitment policy rate sufficiently restrictive long necessary achieve timely return inflation target emphasis data dependent approach set policy iii retention pronged reaction function base governing council assessment inflation outlook dynamic underlie inflation strength monetary policy transmission announce march change operational framework implement monetary policy come effect start maintenance period september spread rate main refinance operation deposit facility rate reduce basis point spread rate marginal lending facility rate main refinance operation unchanged basis point technical adjustment imply main refinance operation marginal lending facility rate reduce basis point follow week respectively change governing council emphasise communication steer monetary policy stance adjust deposit facility rate govern council monetary policy decision economic monetary financial analysis look external environment member take assessment provide lane incoming datum confirm growth global activity resilient negative surprise pmi manufacturing output indicate potential headwind near term outlook service sector grow robustly manufacturing sector contract good inflation decline sharply contrast persistent service inflation global trade surprise upside owe frontloade restocking set decelerate project recover grow line global activity rest projection horizon euro area foreign demand follow path similar global trade revise owe mainly strong datum net export main demand component support euro area activity past quarter look ahead foreign demand show sign weakness fall export order pmis overall september projection show slightly improve growth outlook relative june projection globally major economy suggest fear major global slowdown exaggerated activity remain robust despite sign rebalancing labour market rise unemployment primarily increase labour force drive high participation rate strong immigration weaken labour demand increase slack china growth slow significantly persistent downturn property market continue dampen household demand export remain primary driver growth fall chinese export price highlight persist overcapacity construction high tech manufacturing sector turn commodity oil price fall significantly governing council previous monetary policy decline reflect positive supply news dampen risk sentiment slowdown economic activity especially china future curve suggest downward trend oil price contrast european gas price increase wake geopolitical concern localise supply disruption international price metal food commodity decline slightly food price fall owe favourable wheat crop condition canada united states context argue decline commodity price interpret barometer sentiment strength global activity regard economic activity euro area member concur assessment present lane acknowledge weak expect growth outcome broad agreement express late macroeconomic projection emphasise incoming datum imply downward revision growth outlook relative previous projection round remark private domestic economy contribute negatively gdp growth row stagnate middle note cut projection eurostat revise datum late quarter notable change composition growth early national account release sizeable revision backdata upward revision level activity take account september projection respect late release demand component point favourable contribution consumption investment present pessimistic picture september projection euro area account surplus suggest domestic demand remain weak reference potential adverse non linear dynamic result economic weakness example weak balance sheet household firm originate labour market country large firm recently move lay underline long anticipate consumption lead recovery euro area far materialise raise question projection rely consumption drive recovery late datum show household continue cautious spending saving rate elevate rebound quarter spite high accumulate saving albeit low level follow national account revision backdata consumer worried economic prospect little confidence robust recovery fully line observe trend increase consumer confidence context factor household increase caution mention include uncertainty geopolitical situation fiscal policy economic impact climate change transition policy demographic development outcome election uncertain environment business household cautious wait situation evolve time argue important factor boost saving ratio high interest rate environment elasticity saving interest rate typically relatively low model increase interest rate early significant come long period low negative rate background small elasticity imply significant impact consumption saving reference european commission consumer sentiment indicator show gradual recovery consumer confidence time step low inflation perceive consumer uncertainty retreat high saving rate unlikely explain mainly precautionary motif reflect ongoing monetary policy transmission expect gradually weaken time deposit loan rate start fall survey point increase household spending context lag monetary policy transmission recall example household see increase mortgage payment confront high mortgage rate rate fixation period expire additional factor encourage build saving reference concept permanent income important determinant consumer spending household fear permanent income increase disposable income owe structural development economy surprising limit spending overall consider recession euro area remain unlikely project recovery rely pick consumption investment remain plausible line standard economic fundamental dynamic set place sluggish spending reflect lag response high real income materialise time addition rise household saving imply buffer support high spending later case united states consumption saving behaviour clearly differed opposite side atlantic particular concern express weakness investment year give importance investment demand supply economy observe economic recovery expect receive support capital accumulation owe continue tightness financial condition high uncertainty structural weakness underline main economic driver investment profit weaken quarter firm liquidity buffer dissipate time addition projection investment outlook revise remain subdue atypical economic recovery contrast strongly significant investment need highlight mario draghi future european competitiveness turn labour market resilience remarkable unemployment rate remain historical low amid continue robust albeit slow employment growth time productivity growth remain low surprise downside imply increase labour productivity materialise project decline vacancy rate see reflect weaken labour demand remain pre pandemic peak note decline vacancy usually coincide high job destruction constitute downside risk employment activity decline vacancy coincide decline growth compensation employee perceive sign labour market cool member underline unclear extent low productivity cyclical reflect structural change impact growth potential labour productivity low owe cyclical factor argue project increase labour productivity require change european firm assume rate innovation total factor productivity project increase labour productivity simply come high capacity utilisation presence remain slack response high demand cyclical perspective scenario aggregate demand pick soon later affect labour market finally demand eventually recover structural problem labour productivity growth subdued medium term hand contend case potential output growth low high unit labour cost price pressure structural problem solve low interest rate address policy domain hand take structural weakness amplify high interest rate structural challenge concern monetary policy future lower natural rate interest potentially make recourse unconventional policy frequent reference disparity growth outlook different country perceive additional challenge monetary policy share manufacturing gross value add trade openness differ economy country euro area suffer slowdown industrial activity weak growth large euro area economy particular drag euro area growth weakness cyclical economy face significant structural challenge contrast euro area country show robust growth include strong contribution domestic demand highlight course national fiscal policy remain uncertain national budgetary plan negotiate transition european commission context gradual improvement aggregated fiscal position euro area embed projection mask considerable difference country implement revise economic governance framework fully transparently delay help government bring budget deficit debt ratio sustained basis effect expansionary fiscal policy economy perceive particularly uncertain environment possibly contribute high saving high spending household exert ricardian keynesian effect background member call fiscal structural policy aim make economy productive competitive help raise potential growth reduce price pressure medium term mario draghi future european competitiveness enrico letta empower single market stress urgent need reform provide concrete proposal happen government strong start direction medium term plan fiscal structural policy particular argue mario draghi clearly identify structural factor explain europe growth industrial competitiveness gap united states see take long term challenge face europe basic underlying question europeans control destiny europe heed invest european economy increasingly fall united states china background member assess risk economic growth remain tilt downside low demand euro area export owe instance weak world economy escalation trade tension major economy weigh euro area growth russia unjustified war ukraine tragic conflict middle east major source geopolitical risk result firm household confident future global trade disrupt growth low lag effect monetary policy tightening turn strong expect growth high inflation come quickly expect rise confidence real income mean spending increase anticipate world economy grow strongly expect regard price development member concur assessment present lane introduction underline fact decline inflation deliver good news incoming datum bolster confidence inflation return target end fall inflation slow wage growth unit labour cost high cost increasingly absorb profit suggest disinflationary process track unchanged baseline path headline inflation projection give reassurance inflation target end emphasise core inflation persistent particular service inflation continue come strong project move sideways november year recent decline headline inflation strongly influence low energy price know volatile baseline path depend critically low wage growth acceleration productivity growth rate see year historical average conversely stress inflation recently decline somewhat fast expect risk undershoot target non negligible eurostat august hicp flash release projection pessimistic pace disinflation near term commodity price decline cut date add downward pressure inflation price raw material energy cost competitor export price fall euro appreciate dollar addition low international price short term impact headline euro area inflation ultimately indirect effect core inflation price service transportation e.g. airfare particular case size downward effect depend persistent drop energy price expect long perspective underline number consecutive round projection point inflation reach target end time point level headline inflation understate challenge monetary policy face call caution give high volatility energy price headline inflation number informative medium term price pressure overall feel core inflation require continued attention upward revision project quarterly core inflation quarter amount percentage point show battle inflation win domestic inflation remain high reflect persistent price pressure service sector progress disinflation effectively stall november service inflation rise august level previous month outlook service inflation call caution stickiness drive structural factor service sector global shortage labour structural leisure service confront structural change preference warrant monitoring remark projection industrial good inflation indicate sectoral rate essentially settle period strong globalisation pandemic world fragmentation deglobalisation negative supply shock legitimate expect high price increase non energy industrial good inflation currently low category necessarily set member stress wage pressure important driver persistence service inflation wage growth appear ease gradually remain high bumpy forward look wage tracker upward trajectory argue strong expect wage pressure remain major upside risk inflation particular service inflation support focus risk scenario wage growth slow expect productivity growth remain low profit absorb high cost less degree anticipate incoming datum support baseline scenario upside risk inflation medium term path price stability hinge number critical assumption need materialise point trend wage growth downwards especially focus growth compensation employee nominal wage growth half year june projection negotiate wage growth volatile owe payment difference compensation employee wage drift sensitive currently weak state economy despite ongoing catch real wage currently observe fast expect disinflation ultimately expect downward pressure wage claim round effect have remain contain late inflation surge sign wage price spiral take root regard long term inflation expectation market base measure come notably remain anchor reflect market inflation fall rapidly sharp decline oil price drive mainly benign supply condition low risk sentiment push inflation expectation united states euro area level see long time context mention owe weakness economic activity fast broad anticipated disinflation risk downward unanchoring inflation expectation increase reference particular price inflation fixing swap contract link specific monthly release euro area year year hicp inflation exclude tobacco point inflation near term fall early foresee september projection express price entirely comparable measure hicp inflation partly contaminate negative inflation risk premia low reading suggest risk surround inflation balanced downside short term point inflation fixing highly correlate oil price limit forecasting power short horizon background member assess inflation turn high anticipate wage profit increase expect upside risk inflation stem heighten geopolitical tension push energy price freight cost high near term disrupt global trade extreme weather event unfold climate crisis drive food price contrast inflation surprise downside monetary policy dampened demand expect economic environment rest world worsen unexpectedly turn monetary financial analysis member concur assessment provide schnabel lane introduction market interest rate decline significantly governing council previous monetary policy july market participant fully price basis point cut deposit facility rate september attach probability rate cut october total rate cut price end year cut immediately june year ois rate decrease basis point july note financial market anticipate ease cycle imply additional immediate easing monetary policy stance reflect loose financial condition decline market interest rate euro area globally attributable weak outlook global growth anticipation monetary policy easing reduce concern inflation pressure spillover united states play significant role development euro area market rate change euro area datum notably domestic inflation outlook limit see projection addition note low interest rate path united states reflect federal reserve assessment prospect inflation employment dual mandate low rate normally expect stimulate world economy include euro area concurrent major decline global oil price suggest spillover effect counteract concern weak global economy naturally reverberate euro area tension global market august lead temporary tightening condition risky market segment swiftly reverse compare early year market participant switch concerned inflation remain high long context robust growth concern little growth prelude hard landing amid recede inflation pressure indication hard landing united states euro area argue event early august show financial market highly sensitive disappointing growth reading major economy see represent source instability downside risk market development time indicate investor willing risk express high volatility market turbulence august partly reflect unwinding carry trade wake bank japan policy tightening follow extended period monetary policy accommodation correction short live amid continue high valuation equity market low risk premia range asset financing cost euro area measure interest rate market debt instrument loan remain restrictive past policy rate increase continue work way transmission chain average interest rate loan firm mortgage stay high july respectively suggest element broad financing condition tight level lending rate broad indicator financial condition equity financing example abundant entire period disinflation credit spread compressed time argue simply reflect weak investment demand firm need want borrow prepared issue debt security high rate background credit growth remain sluggish amid weak demand growth lending firm household remain level far july slightly june slightly annual growth broad money measure july remain relatively subdue rate june suggest weakness credit dynamic reflect restrictive financing condition credit growth weak argue bank face challenge price book ratio high early year remain argue high credit risk deteriorate loan book potential constrain credit supply time june rate cut anticipation future cut slightly lower funding cost addition bank remain highly profitable robust valuation unusual price book ratio bank difficulty raise capital credit demand consider main factor hold loan growth investment remain especially weak household suggest demand mortgage increase pick housing market monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council reaction function start inflation outlook late ecb projection confirm inflation outlook june projection inflation expect rise year partly previous sharp fall energy price drop annual rate expect decline target half year disinflation process support recede labour cost pressure past monetary policy tighten gradually feed consumer price inflation subsequently expect close target sustained basis measure long term inflation expectation stand market base measure fall close level governing council previous monetary policy member agree economic development confirm baseline outlook reflect unchanged projection headline inflation indicate disinflationary path progress robust inflation right trajectory track return target end headline inflation expect volatile remainder bumpy inflation profile mean final phase disinflation expect start rest number assumption need carefully monitor inflation settle sustainably target timely manner risk delay reach ecb target see warrant caution avoid dial policy restriction prematurely time argue monetary policy oriented medium term presence shock risk target undershot projection horizon significant turn underlie inflation member note measure unchanged july domestic inflation remain high strong price pressure come especially wage core inflation relatively high sticky beginning year continue surprise upside projection core inflation revise slightly service inflation high expect labour cost dynamic concern project decline core service inflation year reliant key assumption wage productivity profit actual datum remain patchy particular productivity low pick wage growth despite gradual easing remain high bumpy disappointment productivity growth concern capacity profit absorb increase unit labour cost reach limit wage growth decline inflation return sustainably target factor mean core inflation service inflation sticki decline currently expect risk notwithstanding comfort draw gradual decline momentum service inflation albeit high level expectation fall partly result significant base effect catch process wage advance wage growth slow previously project expect weaken fast year sign wage price spiral low energy price factor reduce cost live downward pressure wage claim year finally member agree monetary policy transmission past tightening continue dampen economic activity pass peak financing condition remain restrictive reflect weak credit dynamic dampen consumption investment economic activity past monetary policy tightening gradually feed consumer price support disinflation process reason monetary policy work way economy research suggest year lag effect impact dissipate completely example firm household liquidity buffer diminish exposed high interest rate previously bank turn face credit risk time interest rate hike year past transmission monetary policy expect weaken progressively peak loan deposit rate fall albeit moderately year gradually fading effect restrictive monetary policy expect support consumption investment future nonetheless ongoing uncertainty transmission mechanism term efficacy timing underscore continue importance monitor strength monetary policy transmission monetary policy decision communication background member consider proposal lane lower deposit facility rate rate governing council steer monetary policy stance basis point previously announce march change operational framework implement monetary policy effect september particular spread interest rate main refinance operation deposit facility rate set basis point spread rate marginal lending facility rate main refinance operation unchanged basis point accordingly deposit facility rate decrease interest rate main refinance operation marginal lending facility decrease respectively base update assessment inflation outlook dynamic underlie inflation strength monetary policy transmission appropriate step moderate degree monetary policy restriction incoming datum virtually unchanged projection increase member confidence disinflation proceed steadily inflation track return target sustainable timely manner headline inflation fall august level previously see summer inflation surge sign ease pressure labour market wage growth unit labour cost slow despite bumpy datum expect come month big picture remain continue disinflationary trend progress firm pace plan particular governing council expectation significant wage growth buffer low profit confirm datum survey market base measure inflation expectation remain anchored long term expectation remain close long period include time heightened uncertainty confidence projection bolster stability increase accuracy projection show inflation track reach target end round note economic outlook euro area concerning project recovery fragile economic activity remain subdue risk economic growth tilt downside near term risk growth rise concern reflect low growth projection compare june remark inflation increasingly close target real economic activity relevant calibrate monetary policy background member support proposal lane reduce degree monetary policy restriction basis point rate cut see robust wide range scenario offer sided optionality future look ahead member emphasise remain determined ensure inflation return medium term target timely manner policy rate sufficiently restrictive long necessary achieve aim follow data dependent approach determine appropriate level duration restriction pre commitment particular rate path accordingly well maintain optionality period ahead free respond incoming datum underline speed degree restrictiveness reduce depend evolution incoming datum element state reaction function solid anchor monitoring decision make process data dependence datum point dependence mechanical weight attach near term development headline inflation core inflation single statistic necessary implication totality datum medium term inflation outlook example appropriate ignore volatility oil price time oil price move create material spillover economy important respond member concur gradual approach dial restrictiveness appropriate future datum line baseline projection see consistent anticipation gradual easing financial condition support economic activity include need investment boost labour productivity total factor productivity mention gradual cautious approach currently appropriate fully certain inflation problem solve early declare victory give upward revision quarterly projection core inflation upside surprise service inflation uncertainty decline remain high key factor assumption underlie baseline outlook include relate wage productivity profit core service inflation need materialise slowly factor warrant close monitoring real test come clear wage growth come productivity growth pick project pass high labour cost moderate price pressure contain time argue continue uncertainty mean side risk baseline outlook emphasise value maintain data dependent approach highlight important risk management consideration particular underline alternative scenario example fast pace rate cut appropriate downside risk domestic demand growth outlook materialise example low expect service inflation increase risk target undershot important maintain approach conversely scenario necessary suspend cut cycle structural decline activity factor lead high expect core inflation turn communication member agree important convey inflation datum come expect late ecb projection confirm previous inflation outlook time reduce risk near term inflation datum misinterpret explain inflation expect rise year partly result base effect decline target half year reiterate governing council follow data dependent approach pre commit particular rate path set policy base established element reaction function previously announce change spread interest rate main refinance operation deposit facility rate important clear beginning communication governing council steer monetary policy stance deposit facility rate member agree executive board proposal apply flexibility partial reinvestment redemption fall pandemic emergency purchase programme portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference september press release monetary policy decision meeting ecb governing council september members lagarde president guindos vice president centeno cipollone demarco temporarily replace scicluna elderson escrivá holzmann kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel šimkus stournaras vasle villeroy galhau vujčić wunsch members hold voting right september article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person bénassy quéré gavilán haber horváth kroes luikmel lünnemann madouros nicoletti altimari novo papageorghiou rutkaste schembri šiaudinis šošić tavlas ulbrich välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee november related topic monetary policy policy disclaimer relate topic tag currently available select content contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting october account monetary policy governing council european central bank hold ljubljana wednesday thursday october november review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy september policy rate expectation shift forth incoming datum challenge market participant price speed extent disinflation monetary policy ease cycle key driver financial market development september sluggish euro area economy robust economy rise volatile commodity price combination weak euro area macroeconomic datum high commodity price affect market inflation outlook perceive balance risk inflation inflation fixing swap contract link monthly release harmonised index consumer prices exclude tobacco recently shift upwards significantly reverse decline see follow governing council july energy price drop notably swing investor inflation outlook illustrate significant impact energy price inflation expectation time market base indicator risk inflation base option pricing remain tilt downside near medium term balanced recently risk long term inflation outlook tilt upside incoming datum euro area significant impact monetary policy expectation market participant currently expect load rate cut basis point rate cut cut december fully price expect contain rate cut cycle low total cut march onward high terminal rate compare expectation september participant survey monetary analysts sma hold similar view near term outlook interest rate market deviation half reappraisal expect policy rate path pronounced united states market participant notably revise expectation terminal policy rate expectation ecb terminal rate pull higher albeit united states reflect weak incoming macroeconomic datum euro area increase divergence terminal rate time uncertainty rate market measure dispersion analyst forecast month forward interest rate year ahead remain high historical average euro area united states indicate uncertainty policy rate path remain material decomposition change risk free rate curve euro area united states inflation compensation real rate show nominal rate increase medium long term maturity currency area rise pronounced united states strong increase inflation compensation real rate euro area repricing inflation outlook upward pressure risk free rate inflation compensation rise significantly maturity contrast euro area real interest rate decline maturity pronounced drop short end curve imply loosening financing condition entire euro area real rate curve currently close neutral territory bond investor expect soft landing euro area policy rate move neutral level support equity market development major equity market index rise significantly september october development corporate bond market suggest investor shrug weakening euro area economy corporate bond spread decline sharp decline observe high yield non financial corporate bond partly support benign outlook default rate corporate sector sovereign spread relative german bund french bond decline inter period broad base pronounce easing financial condition governing council previous monetary policy drive low short end real rate high equity price weakening euro dollar line development year yield differential euro area united states dynamic money market rate pass change policy rate money market rate effective time gradual upward drift repo rate relative deposit facility rate past month bring secure rate close vicinity deposit facility rate happen contrast spread unsecured euro short term rate str deposit facility rate remain stable factor explain counterintuitive situation borrow cash cheap unsecured market secured market dominant factor appear significant improvement collateral availability partly consequence reduction eurosystem market footprint contrast little evidence far upward pressure repo rate stem liquidity shortage addition factor relate regulation market microstructure limit ability cash lender arbitrage secured unsecured market lender active market narrowing spread rate main refinance operation deposit facility rate basis point september limited recourse eurosystem standard refinance operation market base funding remain attractive global environment economic monetary development euro area start inflation euro area lane recall headline inflation september accord eurostat flash estimate subsequently revise final release available october substantially low august path foresee september ecb macroeconomic projection downside surprise reflect drop energy inflation core inflation play role turn downside surprise good inflation less degree service inflation respect underlie inflation exclusion base indicator available september move underlie inflation indicator available august ease stable persistent common component inflation pcci remain range high level measure reflect backward look nature time propagation past shock ongoing domestic inflation indicator particular remain high mainly cover service item take month month seasonally adjust service inflation rate august september close long term average suggest moderation inflation dynamic compare early year service inflation remain high expect decelerate prediction support example pcci service component service pcci stand start year reflect significant service inflation backward look element factor example large increase insurance fee start continue push annual service inflation rate lead negative base effect start historically increase signal future inflation service segment imply service inflation time converge level service pcci factor drop datum incoming datum signal wage growth line september projection forward look wage tracker line september projection point easing wage growth survey indicator suggest marked deceleration wage growth come year downside surprise inflation december eurosystem projection allow comprehensive assessment inflation outlook headline inflation expect rise later decline target course early foresee late expert survey indicate inflation rate september projection baseline inflation expectation euro area firm consumer decline horizon turn external environment global growth momentum steady uneven global composite purchasing managers index pmi exclude euro area fall september august service remain resilient manufacture output stagnate deceleration appear drive fading inventory build see early year global import growth moderate follow frontloading order environment robust growth support trade end year euro remain stable nominal effective term governing council previous monetary policy oil gas price increase future curve oil price continue downward sloping late datum international energy agency suggest positive supply balance oil support decrease oil price euro area incoming information suggest economic activity weak expect euro area composite output pmi fall september august deterioration pmi broad base country sub index interest rate sensitive manufacturing sector contract manufacturing output pmi fall september august service sector continue expand pace expansion slow pmi service activity decline september august partly reflect unwinding olympic games relate boost service august late reading signal weak near term outlook foresee september projection household income rise available datum indicate household consumption fall real term surprising downside saving rate stand pre pandemic average elevated saving rate reflect high real return saving effort recuperate loss real net wealth strong growth non labour income marginal propensity consume low extent consumption respond increase income lag high saving rate include temporary component survey evidence point gradual recovery household spending retail sale edge august european commission consumer confidence indicator rise september housing investment close trough support low financing cost recovery house price outlook business investment uncertain accord ecb late contact non financial company weak demand loss competitiveness increase concern uncertain regulatory environment green transition cause firm delay investment instead focus efficiency cost cutting respect external trade euro area export decrease reflect decline market share euro area link loss competitiveness decline pmi export order indicate situation unlikely improve near term expert survey point growth outlook somewhat weak september baseline ecb sma report growth projection respectively percentage point september projection growth projection ecb survey professional forecasters consensus economics respondent stand percentage point baseline year respect fiscal policy draft budgetary plan announce euro area country labour market remain resilient incoming information consistent near term outlook september projection unemployment rate stay historical low august survey point slow employment growth moderation demand labour turn monetary financial analysis short term market interest rate decline governing council previous monetary policy owe mainly weak news euro area economy fall inflation financing condition remain restrictive average interest rate loan firm mortgage fall slightly august respectively growth lending household show early sign improvement accord late euro area lending survey credit standard mortgage ease row owe especially great competition bank low interest rate well housing market prospect lead strong increase demand mortgage line mortgage lending pick slightly grow annual rate august bank expect similar development demand housing loan year growth lend firm demand loan firm remain weak lending survey confirm credit standard loan firm remain restrictive level reach year progressive tightening bank report net tightening credit standard business loan time mid-2021 cite risk perception relate general economic firm specific outlook factor tend tightening credit condition bank report moderate net increase demand loan firm time year drive mainly decline interest rate mute contribution fixed investment overall lend firm continue subdue grow annual rate august drive monthly flow fluctuate start year look ahead year bank expect renewed moderate tightening credit standard net increase loan demand firm monetary policy consideration policy option summary incoming information inflation show disinflationary process track indicator economic activity surprise somewhat downside weigh inflation outlook financing condition remain restrictive inflation expect rise come month decline target course domestic inflation remain high wage rise elevated pace time labour cost pressure set ease gradually profit partially buffer impact inflation overall incoming information suggest downside risk growth outlook september baseline associate weakening inflation pressure prominent base assessment lane propose governing council lower deposit facility rate rate steer monetary policy stance basis point line operational framework mean rate main refinance operation rate marginal lending facility lower basis point proposal motivate prudent risk management slowdown signal indicator economic activity downside surprise inflation prove temporary decision cut rate october post turn merely have bring forward december cut contrast datum suggest persistent weakness confirm strong disinflationary process cut post signal nimble adjustment policy change macroeconomic condition retain optionality important act hedge materialisation risk direction growth inflation outlook communication governing council refrain give guidance speed scale monetary easing future meeting govern council monetary policy decision economic monetary financial analysis regard external environment member take nowcast point steady growth global activity half support expectation pick world trade member widely stress uncertainty surround external environment suggest thing late survey datum include decline global pmi output manufacturing service albeit expansionary territory economy prove robust expect china note growth expect benefit monetary fiscal stimulus time caution need stimulus point economic fragility significant commodity price dynamic china important source demand furthermore geopolitical conflict situation middle east remain major source uncertainty direct effect oil price shipping cost dampen confidence regard economic activity euro area member concur incoming information suggest growth somewhat weak expect industrial production particularly volatile summer month survey indicate manufacturing continue contract service survey show uptick august support strong summer tourism season late datum point sluggish continue growth business increase investment slowly housing investment continue fall export weaken especially good export household income rise consumption remain weak saving rate stand pre pandemic average time survey evidence point gradual recovery household spending economy expect strengthen time rise real income allow household consume gradually fading effect restrictive monetary policy expect support consumption investment export expect contribute recovery global demand rise weak incoming datum see increasingly raise question drive project economic expansion remark demand component consumption investment export show strengthening foresee september projection particular question raise consumption lead growth economic activity projection datum pointing substantial increase saving rate instead different explanation offer increase saving rate include relatively elevated interest rate encourage postponement consumption saving set aside refinance fix rate loan take time low interest rate high interest rate uncertainty relate outlook fiscal policy possibility ricardian effect i.e. people save anticipation high taxis service high public debt factor dampen positive impact high real disposable income consumption short term time consider plausible high real disposable income delay eventually translate high consumption indicator support narrative continue upward trend consumer confidence albeit low level uptick retail sale high demand consumer credit comfort draw observation interest rate sensitive housing market appear reach turning point house price rise demand mortgage increase measurably respect weakness investment underline constrain domestic demand hamper capital deepening challenge narrative rapid pick productivity embed projection recall investment typically hinge large extent prospect demand demand see remain particularly subdue time geopolitical structural factor increase uncertainty export manufacturing sector transmission past monetary policy tightening factor hold investment mean monetary policy ease lead decisive turnaround especially root cause structural overregulation relate political uncertainty argue evidence sluggish consumption investment contradict expectation soft landing economy available information euro area head recession context note negative news come mainly soft survey datum hard datum limit give contradictory signal reference respect upward surprise industrial production august contrast weak pmi survey september stage concern relate mainly downside risk september projection need revise baseline context recall growth rate remain disperse euro area country particular point headwind face large euro area economy reflect mainly structural weakness manufacturing sector conjunction high energy cost loss price competitiveness labour market remain resilient unemployment rate stay historical low august survey point slow employment growth moderation demand labour remain crucial monitor labour market development include look evidence labour hoarding affect productivity job vacancy decline argue associate easing labour market tightness imply few incentive firm hoard labour concern raise company start shed labour country tipping point reach aggregate euro area unemployment rate remain stable far historically low rate surprise downside member reiterate fiscal structural policy aim make economy productive competitive resilient help raise potential growth reduce price pressure medium term end crucial swiftly follow concrete ambitious structural policy mario draghi proposal enhance european competitiveness enrico letta proposal empower single market implement revise economic governance framework fully transparently delay help government bring budget deficit debt ratio sustained basis government strong start direction medium term plan fiscal structural policy note reform fiscal governance framework allow appropriate balance fiscal consolidation necessary investment growth enhance reform draft budgetary plan currently submit european commission closely assess time governing council december monetary policy concern express multi year nature plan focus year ahead leave year excessive fiscal spending context recall high fiscal expenditure deficit induce pandemic energy price shock follow russia invasion ukraine mean transitory fading observe limited fiscal space available look ahead widely feel emphasis need structural policy foster economic activity enhance growth potential background member assess risk economic growth remain tilt downside low confidence prevent consumption investment recover fast expect amplify source geopolitical risk russia unjustified war ukraine tragic conflict middle east disrupt energy supply global trade low demand euro area export instance weak world economy escalation trade tension major economy weigh euro area growth growth low lag effect monetary policy tightening turn strong expect growth high world economy grow strongly expect easy financing condition decline inflation lead fast rebound consumption investment regard price development member concur incoming information inflation show disinflationary process track annual inflation fall low level april mainly drive energy base effect low expect energy price wide agreement incoming datum september increase confidence ongoing disinflation process inflation converge medium term target discuss late information note outcome headline inflation september imply low inflation path expect september projection signal downside risk imply target reach early temporary bump turn year point direction late market analyst expectation see inflation target time observe low september outcome headline inflation reflect energy price development notoriously volatile background caution short term movement headline inflation guide medium term outlook progress core inflation limited express despite downward surprise outcome target early declare victory term timely sustainable return target reference fact service inflation hover rate caution express momentum service price dynamic come remain high time service inflation keep high item typically adjust sluggishly index past inflation upward impact naturally fade inflation converge assess outlook service inflation see warrant close monitoring wage development overall wage growth low expect negotiate wage growth expect high volatile rest year moderate ecb forward look wage tracker corroborate expectation september projection wage pressure ease reference wage tracker scenario put wage growth half imply exert cost pressure recall moderation wage growth materialise wage growth fall expect depend perception real wage accumulate loss purchase power sector country regard long term inflation expectation member take measure long term inflation expectation stand point large majority participant survey professional forecasters believe inflation long term right target context argue movement long term market base measure inflation compensation need assess caution appear drive high volatility energy price background member assess upside downside risk inflation inflation turn high anticipate wage profit increase expect upside risk inflation stem heighten geopolitical tension push energy price freight cost high near term disrupt global trade extreme weather event unfold climate crisis drive food price contrast inflation surprise downside low confidence concern geopolitical event prevent consumption investment recover fast expect monetary policy dampened demand expect economic environment rest world worsen unexpectedly argue downside risk economic growth imply downside risk inflation outlook reflect natural correlation risk case demand shock upside downside risk feel upside risk intense downside risk pronounced stress geopolitical conflict remain significant source upside risk implication energy price show way volatility energy price affect inflation outcome september argue exclude geopolitical risk risk upside recede substantially turn monetary financial analysis member note short term market interest rate decline governing council september monetary policy owe mainly weak news euro area economy fall inflation market participant expect extensive rate cut cycle market participant price basis point rate cut october basis point cut december change market expectation sentiment rapid substantial september rate cut expect december expect real interest rate base expectation inflation interest rate embody market pricing decline maturity time previous pronounced drop short end curve positive expect real interest rate relatively low maturity short term medium long term real interest rate range neutral estimate broad financial condition ease previous drive strong equity market tight credit spread corporate sovereign bond weak euro exchange rate addition low short term market interest rate reduction policy rate september transmit smoothly money market interest rate limited increase main refinance operation narrowing spread interest rate main refinance operation deposit facility rate see successful outcome change operational framework implement monetary policy repo rate recently increase relative deposit facility rate mainly drive reduction collateral scarcity small eurosystem footprint financial market gradual reabsorption excess liquidity eurosystem operational framework see prepared tame potential increase money market volatility case money market warrant continuous monitoring financing condition remain restrictive average interest rate loan firm mortgage fall slightly august suggest pass past policy rate increase gradually start fade provide initial indication lending rate ease restrictive level regard observe limited easing lending rate appear mirror image slow tightening banking system financial market interest rate increase addition balance sheet normalisation include close complete repayment targeted long term refinance operation continue gradual roll asset portfolio induce bank maintain deposit rate elevated level bank adjust funding mix response revise interest rate outlook affect speed monetary policy transmission overall lending condition appear relatively tight show sign softening accord late lending survey credit standard business loan unchanged year progressive tightening addition credit standard mortgage ease row owe especially great competition bank demand loan firm rise time year low interest rate well housing market prospect lead particularly strong increase demand mortgage development see positive signal recovery economic growth dampen effect high interest rate gradually fade addition measurable increase mortgage demand sign cut interest rate loose financing condition start transmit economy give high interest rate sensitivity housing sector suggest development beginning sustained turnaround help stabilise household saving rate start bring context rise loan consumption argue lending survey negative expect doubtful pick loan demand mark major turnaround credit growth remain sluggish mortgage lending pick slightly grow annual rate august consumer credit grow robustly lend firm continue subdue grow annual rate august consecutive month negative net flow time firm reliant bank enterprise respond easing broad financial condition increasingly tap bond equity market important external financing loan monetary policy stance policy consideration turn monetary policy stance member assess datum available previous monetary policy accordance main element governing council communicate shape reaction function comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission start inflation outlook year year inflation expect rise come month partly previous sharp fall energy price drop annual rate nonetheless inflation expect decline target course year continue disinflationary process support ease labour cost pressure past monetary policy tighten gradually feed consumer price measure long term inflation expectation remain anchored stand member concur assessment incoming inflation information show disinflationary process track headline inflation turn low expect september close target upside risk inflation see low need careful monitoring downside risk high affect subdue economic condition underline weak expect reading indicator economic activity result inflation probably reach target somewhat early low previously expect broad agreement convergence inflation ecb medium term target track configuration upside downside risk balanced range view express extent baseline outlook inflation affect comprehensive reassessment undertake alongside december projection member clearly extent weak growth persistent affect future path disinflation see project consumption lead recovery materialising stress incoming information limit see confirm inflation outlook contain september projection slight acceleration disinflationary trajectory time recall projection inflation revise slightly past projection round development imply reversal upward revision large persistent undershooting inflation target require sustained policy response remain unlikely mainly structural inflationary trend geopolitical fragmentation climate change lead frequent adverse supply shock scenario undershoot probably require combination factor include disappointing economic growth move recessionary territory weakening financial system wage pressure fade away downward shift inflation expectation contrast suggest change inflation outlook significant downside surprise rapid change market expectation point increase risk undershoot target course possibly sustained manner especially wage growth moderate substantially see great risk overshoot target turn underlie inflation member note measure decline unchanged domestic inflation elevate wage pressure euro area remain strong time important range underlie inflation indicator domestic inflation remain substantially pcci firmly anchor case place great emphasis forward look indicator underlie inflation core inflation fall september remain relatively high fairly limited progress trend development domestic core inflation partly link persistently high service inflation recently positive sign bad pass example time surge inflation little incremental price inflation record service base effect exclude service inflation momentum decline albeit high level argue reading need clear picture key datum confirm significant decline domestic service inflation arrive half labour cost dynamic key concern domestic inflation wage pressure need carefully monitor despite slight decline wage growth elevate expect high volatile rest year give significant role payment staggered nature wage adjustment time labour cost pressure set ease gradually wage growth moderate profit partially buffer impact inflation stress key datum confirm significant deceleration wage growth unit labour cost arrive disappointing productivity growth finally member agree monetary policy transmission past tightening continue dampen economic activity sign easing start visible restrictiveness gradually progressively withdraw financing condition remain restrictive continue weigh consumption investment exert downward pressure growth inflation time easing monetary financial condition decline expect real interest rate maturity spectrum policy stance approach estimate neutral territory early previously think underline transmission past monetary tightening ongoing owe lag effect ease materialise holder fix rate mortgage example see interest rate increase mortgage payment set interest rate fall aggregate mortgage take interest rate low suggest saving responsive interest rate imply model estimate small change observe past increase interest rate large rapid counter inflation surge argue high interest rate continue weigh investment long term real interest rate neutral territory context continue restrictiveness short end yield curve dampen aggregate demand imply model finally emphasise strength monetary policy transmission interact weakness economy example make bank reluctant lend time gradually fading effect restrictive monetary policy expect support consumption investment future initial sign easing monetary policy restriction anticipation come start transmit economy interest rate sensitive housing sector line quick responsiveness start hiking cycle look ahead cyclical component construction sector probably support demand boost easing financial condition manufacture sector face structural challenge unlikely benefit easing restriction need time work way economy lag effect past rate hike extend end monetary policy decision communication background member consider proposal lane lower key ecb interest rate basis point particular base update assessment inflation outlook dynamic underlie inflation strength monetary policy transmission appropriate step moderate degree monetary policy restriction lower deposit facility rate rate governing council steer monetary policy stance incoming information inflation show disinflationary process track increase confidence inflation converge medium term inflation target timely manner disinflationary trend get strong robust gain momentum recent inflation figure weak expect fall albeit temporarily target late reading see continuation sequence contend fall september mainly link low energy price insufficient justify rate cut wage growth evolve line projection initial sign improvement service inflation indication service domestic inflation decline materially come year measure underlie inflation domestic inflation continue substantially comfort draw performance stability inflation projection improve past year addition inflation expectation range measure anchor time early declare victory fight inflation especially main decline service inflation wage growth materialise important configuration wage productivity growth profit margin consistent reach target stay sustainably inflation outlook affect downside surprise indicator economic activity regard important monetary policy fulfil primary objective price stability harm real economy necessary context maintain weak growth outlook primarily reflect structural cyclical demand factor outside realm monetary policy risk management consideration widely see key element support decision cut interest rate particular slowdown signal indicator economic activity downside surprise inflation prove temporary decision cut rate post turn merely have bring forward december cut little risk associate cutting especially give interest rate restrictive territory support disinflationary process contrast datum signal persistent weakness confirm strong disinflationary process cut today justify timely adjustment policy change macroeconomic condition reasoning mean risk cut potentially early low risk wait potentially act late contend act provide insurance downside risk lead undershooting target ahead support soft landing furthermore point decision cut interest rate response materialisation downside risk identify past prevail risk background member support proposal lane reduce degree monetary policy restriction basis point rate cut data drive decision justify wide range indicator inflation outlook point direction reflect interpretation datum trend continuity respect previous cutting decision dependence individual datum point consistent policy consideration forward previous highlight governing council decide quickly datum come weak anticipate member initially express prefer accrue information wait december comprehensive assessment medium term outlook inflation available member precautionary risk management case cut express readiness support proposal look ahead member emphasise remain determined ensure inflation return medium term target timely manner policy rate sufficiently restrictive long necessary achieve aim follow data dependent approach determine appropriate level duration restriction pre commitment particular rate path need optionality period ahead reiterate order free respond necessary underline speed degree restrictiveness reduce depend evolution incoming datum evaluate establish element reaction function particular materialisation different risk factor accelerate decelerate disinflationary process data dependence datum point dependence argue close rate neutral territory cautious monetary policy factor slow pace disinflation member agree executive board proposal apply flexibility partial reinvestment redemption fall pandemic emergency purchase programme portfolio take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference october press release monetary policy decision meeting ecb governing council october members lagarde president guindos vice president centeno cipollone demarco temporarily replace scicluna elderson escrivá holzmann kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel šimkus stournaras vasle villeroy galhau vujčić wunsch members hold voting right october article escb statute attendee senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accompanying person arpa bénassy quéré gavilán horváth kaasik koukoularides lünnemann madouros mauderer nicoletti altimari novo rutkaste schembri šiaudinis sleijpen šošić tavlas välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee january related topic euro area monetary policy policy disclaimer relate topic tag currently available select content contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

meeting december account monetary policy governing council european central bank hold frankfurt main wednesday thursday december january review financial economic monetary development policy option financial market development schnabel note governing council previous monetary policy october narrative financial market shift result rise trade economic policy uncertainty investor increasingly focus divergence growth prospect euro area united states manifest divergence bond yield equity price development euro area united states pronounce weakening euro dollar euro area near term inflation outlook embed market pricing shift upwards inflation compensation decline long horizon lead investor expect frontloading ecb rate cut low terminal rate owe expectation rate cut cycle combine weakening euro exchange rate dollar benign risk asset price constellation financial condition loosen key factor shape euro area financial market development inter period presidential election surge policy uncertainty large euro area economy far rise macroeconomic uncertainty translate high financial market volatility contrary market volatility decrease governing council previous monetary policy environment benign financial market condition high economic political uncertainty implication economic sentiment knock effect asset price case point weak euro area purchasing managers index pmi november initially governing council october monetary policy macroeconomic datum surprise consistently upside united states euro area november euro area pmi produce presidential election november disappoint pull citigroup economic surprise index negative territory equivalent index united states remain firmly positive territory rise uncertainty diverge macroeconomic datum reflect sharp divergence monetary policy expectation euro area overnight index swap ois forward curve shift lower compare expectation prevail time governing council previous monetary policy market currently expect frontloading rate cut expected terminal rate move lower compare time october participant december round ecb survey monetary analysts sma anticipate rate cut bring forward lower expectation terminal rate relative october round survey contrast fund future curve move opposite direction investor scale expectation rate cut federal reserve system global investor expect synchronise ease cycle economy picture change markedly bring differential expect terminal rate ecb federal reserve system basis point divergence risk free rate euro area united states visible maturity breakdown euro area ois rate change inflation compensation real rate show main driver divergence real rate perception heighten downside risk economic growth exert downward pressure near term inflation expectation reflect inflation fixing swap contract link specific monthly release euro area year year hicp inflation exclude tobacco late inflation fixing shift upwards significantly reverse previous decline currently close converge inflation trajectory implicit december eurosystem projection long term year forward inflation compensation year ahead continue decline currently stand accord evidence option price risk inflation balanced turn foreign exchange market development main driver eur usd exchange rate sharp divergence interest rate reappraisal expectation ecb monetary policy lead low risk free ois rate turn transmit euro area sovereign bond market sovereign bond yield decline euro area jurisdiction governing council october time euro area sovereign see increase spread bond yield ois rate mainly reflect reduced scarcity sovereign bond drive reduction eurosystem monetary policy bond holding prospect increase net issuance structural factor influence asset swap spread recently shape dynamic repo market eurosystem balance sheet reduce excess liquidity decline repo market shift regime collateral abundance trend expect persist rise collateral availability contribute convergence repo rate deposit facility rate dfr jurisdiction market perception diverge growth trajectory reflect equity market stock rally historical high euro area equity price temporarily drop near early level gradually recover early december onwards well performance equity market drive particular sector expect benefit incoming administration high risk premia euro area couple fall risk premia united states contribute historically large valuation gap euro area equity market recent financial market development implication financial condition take long term perspective financial condition ease significantly governing council interest rate hike september currently stand close accommodative level see early particular euro area real risk free interest rate decline markedly maturity overall development accelerate easing euro area financial condition inflation expectation firm ecb inflation target global environment economic monetary development euro area start inflation euro area lane recall headline inflation november accord eurostat flash estimate percentage point high october increase expect primarily reflect development energy inflation move october november owe mainly base effect food inflation edge november october core inflation exclude energy food unchanged indicator underlie inflation range exclude measure domestic inflation indicator underlie inflation high predictive power headline inflation suggest sustained return inflation target particular persistent common component inflation pcci remain domestic inflation indicator closely track service inflation ease somewhat october remain high reflect strong wage pressure fact price service adjust past inflation surge time incoming information point moderation service inflation dynamic support easing domestic inflation month month seasonally adjust service inflation rate fall november october indicate soften momentum sizeable gap service inflation medium term underlie trend capture pcci service stand suggest downward adjustment service inflation coming month gap suggest idiosyncratic non persistent factor contribute high level service inflation step achieve inflation target moderation service inflation project decrease noticeably half incoming wage datum confirm previous assessment elevated ease wage pressure growth rate compensation employee moderate percentage point december projection growth rate unit labour cost ease profit margin continue buffer impact elevated labour cost inflation annual growth unit profit remain negative forward look wage tracker continue point material easing wage growth headline inflation expect fluctuate level near term previous sharp fall energy price continue drop annual rate expect settle sustainably medium term target course ease labour cost pressure ongoing impact consumer price ecb past monetary policy tightening help process accord late eurosystem projection headline inflation expect average project increase result expansion emissions trading system ets projection continue foresee rapid decline core inflation compare september round projection revise percentage point headline inflation core inflation late inflation expectation ecb survey monetary analysts sma line december projection headline inflation market base indicator inflation compensation consistent timely return inflation target show mark reduction inflation risk premia medium long term maturity market revise risk future adverse supply shock revise risk future adverse demand shock turn global environment global growth momentum remain strong vulnerable trade policy uncertainty global composite pmi exclude euro area increase november october owe improvement service manufacturing sector anticipation high tariff support good trade near term lead frontloading import implementation policy ultimately weigh trade december eurosystem projection global real gdp expect grow slow outlook unchanged september ecb projection october governing council euro depreciate nominal effective term dollar oil price see considerable volatility forward curve fluctuating curve low embed ecb september projection display slightly negative profile come year gas price increase substantially low start year remain peak furthermore gas future curve downward sloping partly expand global supply capacity available future immediately food commodity price volatile increase approximately start year euro area economy grow exceed september ecb projection exclude irish datum economy grow growth drive mainly increase consumption partly reflect factor boost tourism summer firm build inventory factor outweigh negative net contribution trade overall private domestic demand remain subdue investment contract exclude contribution irish datum euro area aggregate production growth drive service interest sensitive manufacturing sector continue contract owe competitiveness loss high energy price relative term rise uncertainty high regulatory cost lag effect previous monetary policy tightening incoming information suggest slowdown near term euro area composite output pmi decline october november deterioration pmi continue broad base country sub index manufacture pmi output index fall november october forward look pmi manufacturing order fall point weak short term outlook industry pmi service activity fall contractionary territory time january decline november october business consumer confidence remain subdue environment high uncertainty lead strong household saving firm hold investment monthly indicator suggest deceleration private consumption growth continue contraction housing business investment export sector appear weaken labour market remain resilient employment grow surprising upside unemployment rate remain historical low october demand labour continue soften job vacancy rate decline percentage point peak survey point few job create fiscal policy significant correction euro area budget balance pandemic reduction national deficit foresee projection reflect country fiscal structural plan reform economic governance framework plan need actually deliver look ahead condition place growth strengthen projection horizon accord assessment structural factor weigh euro area economy especially manufacturing sector weak productivity growth include significant cyclical component component drive past tightening monetary policy weak external demand domestic demand benefit rise real wage gradual fading effect restrictive monetary policy ongoing recovery global economy fiscal policy set consolidation path generation fund support investment year external euro area export growth expect benefit strengthen foreign demand time trade uncertainty increase materially effect potential increase tariff euro area economy depend extent timing magnitude tariff non tariff measure response jurisdiction accord december eurosystem projection real gdp growth expect average compare september projection revise percentage point percentage point percentage point late sma indicate low growth profile projection market interest rate euro area decline governing council october reflect perceive worsening economic outlook monetary financial analysis degree normalisation observe monetary dynamic annual growth rate rise october august growth narrow monetary aggregate continue recover annual growth rate turn positive time december stand october far monetary dynamic large extent drive sizeable net monetary inflow rest world ecb past interest rate cut gradually make expensive firm household borrow average interest rate loan firm october half percentage point peak year early cost firm issue market base debt fall percentage point peak average rate mortgage come october half percentage point peak financing condition remain restrictive cost credit firm elevate historical perspective particularly real term cumulative tightening credit standard beginning hiking cycle remain substantial average rate outstanding stock mortgage set rise fix rate loan reprice high level bank lending firm gradually pick low level annual rate increase rise october annual growth rate debt security issue firm net redemption stand october remain narrow range observe month mortgage lending continue rise gradually annual growth rate october monetary policy consideration policy option summary incoming information late projection indicate disinflation process remain track domestic inflation high come service inflation dynamic moderated labour cost pressure ease recent cut key ecb interest rate gradually transmit funding cost financing condition remain restrictive entire transmission chain dfr rate financial intermediary charge household firm staff expect slow economic recovery september projection mark downward adjustment growth outlook relative projection round growth pick year survey indicator suggest slow december baseline projection low policy rate easing financing condition prerequisite inflation stabilise sustainably target lane propose key ecb interest rate lower basis point particular decision lower dfr rate governing council steer monetary policy stance justify update assessment inflation outlook dynamic underlie inflation strength monetary policy transmission environment high uncertainty prudent maintain agility follow approach pre commit particular rate path term risk management event upside shock inflation outlook and/or economic momentum monetary easing able proceed slowly path embed december projection equally event downside shock inflation outlook and/or economic momentum able proceed quickly policy restrictive weigh demand disinflation process sufficiently advanced emphasis communication adjust express determination ensure inflation return target pledge stabilise sustainably target alternative expression well describe governing council primary task ongoing basis connection intention policy rate sufficiently restrictive replace sided pledge adopt appropriate stance stabilise inflation sustainably target time lane propose preserve continuity key communication element include commitment data dependent approach set rate support pronged reaction function refrain pre commitment speed scale monetary easing future meeting finally line governing council monetary policy strategy regular assessment link monetary policy financial stability carry indicate euro area bank remain resilient sign financial market stress build financial sector vulnerability financial stability risk nonetheless remain elevated macroprudential policy remain line defence build financial vulnerability enhance resilience preserve macroprudential space govern council monetary policy decision economic monetary financial analysis regard external environment member take assessment provide lane global activity develop well expect december projection see global growth remain solid united states china project grow strongly september projection growth rate ease slightly projection horizon euro area foreign demand see recover expect grow line global activity rest projection horizon dominant risk relate increase fragmentation trade protectionism notably united states dampen trade economic activity push consumer price united states globally event retaliation risk notwithstanding global activity remain robust half resilient trade growth reflect frontloade good import amid uncertainty surround trade policy incoming administration container freight rate shipment asia europe united states increase summer fall autumn united states economic activity strong expect strong real gdp growth revise december projection uncertainty baseline projection decline china activity strengthen support development consumption housing market main weak spot drag growth foreseeable future euro depreciate nominal effective term governing council oil price remain stable metal price decline gas food commodity price increase broad base appreciation dollar election market start factor few rate cut federal reserve divergence macroeconomic outlook euro area united states weigh euro member underline geopolitical economic policy uncertainty pronounced governing council owe increase uncertainty policy trade migration defence future multilateral cooperation remark inflationary effect pre announced policy big united states rest world see important well understand response china high tariff probably impose chinese product extent cause diversion chinese export united states euro area meantime uncertainty policy compound great policy uncertainty europe france form stable government germany snap election expect place february backdrop member underscore importance european institution european commission inaugurate provide leadership anchor stability regard economic activity euro area member agree assessment present lane economy grow exceed expectation drive mainly strong expect increase consumption partly reflect factor boost tourism summer firm build inventory late information suggest activity lose momentum survey indicate manufacturing contract growth service slow firm hold investment spending face weak demand highly uncertain outlook export weak european industry find challenge competitive time labour market remain resilient economy see strengthen time slowly previously expect rise real wage strengthen household spending affordable credit boost consumption investment provide trade tension escalate export support recovery global demand rise broad agreement express late eurosystem macroeconomic projection point downward revision gdp growth projection horizon baseline probably remain optimistic base assumption trade policy europe key trading partner unchanged strong foreign demand support euro area export fully acknowledge projection reasonable uncertain time trade policy united states play adverse direction effect euro area growth clearly negative impact inflation uncertain trade policy uncertainty directly take account projection baseline negative impact outlook partly account market price real interest rate equity price external value euro condition assumption trade policy uncertainty influence forward look component pmi trade policy uncertainty incorporate indirectly partially baseline time point near term euro area economic outlook evolve line project september significant challenge uncertainty emerge survey continue signal low economic growth national account datum surprise upside particular consumption growth strong expect strong embed december projection line narrative consumption drive recovery support rise confidence retail trade sector high consumer expectation major purchase month resilience labour market surprising increase sign weaken country sign turnaround housing market house price rise country mortgage demand recover similarly corporate debt financing rebound large extent owe pick issuance debt security encourage decrease interest rate outpace decline rate loan rise firm inventory signal imminent turnaround inventory cycle remove significant drag growth clear sign dialling policy restriction start transmit financing condition economy furthermore significant upward revision save rate projection suggest consumption growth turn high foresee implausible saving rate significantly pre pandemic average sustained basis weak spot remain business investment show sign turnaround argue balance euro area economy remain fragile rebound gdp growth follow negative surprise temporary summer boost consumption short live suggest weak retail sale october addition industrial sector continue contract headline composite pmi indicator fall november context point growth far support public consumption public investment sustainable fiscal stance expect expansionary projection horizon projection economic growth revise cumulative downward revision growth percentage point compare september projection growth revise despite low interest rate path price market suggest monetary policy see mitigate effect worsen macroeconomic environment incoming information point weak private domestic demand background argue consumption lead recovery euro area foresee time materialise far apart evidence see remain see expect rebound consumption merely delay partly reflect lag catch real wage factor work reference analysis large euro area economy suggest persistently high saving rate large contribution non labour income significant household income year source income know weak link consumption save driver high saving rate high uncertainty come year saving rate expect decline financial income account small portion income furthermore argue financial condition soon cease produce headwind growth argument forward level interest rate fact comparable level imply financial condition restrain aggregate demand extent past say ongoing high degree uncertainty mean saving normalise addition highlight household pessimistic development real disposable income negative level real disposable income justify basis available datum misperception explain household continue save dampen consumption appear survey evidence price level especially good purchase frequently matter annual inflation rate household inflation perception look ahead consumption weigh low consumer confidence similar caution express member outlook investment economic recovery expect receive support capital accumulation demand component especially suffer uncertain environment overall projection indicate period relatively low growth limit investment physical human capital suppress medium term growth drag potential output lower economy speed limit activity share investment gdp end forecast horizon percentage point low despite strong increase public investment turn labour market member acknowledge remain resilient far unemployment rate stay historical low continue slow employment growth employment growth outperform gdp growth year slowdown necessarily interpret weakening labour market return historical relationship labour market condition gdp growth structurally euro area labour market strong currently assess robust labour market performance year consistent downward revision non accelerating inflation rate unemployment nairu low unemployment relatively moderate wage growth continue coincide time labour market flow deteriorate typically early sign fall job availability flow employment fairly stable measure mask fact job quit lay off typically move opposite direction business cycle question raise project increase labour productivity explain projection high capacity utilisation response high demand scepticism express extent low labour productivity link cyclical factor extent low productivity reflect structural challenge face euro area economy remain see rebound productivity growth embed projection actually materialise european manufacturing face long term deterioration competitiveness elevated energy cost challenge illustrate difficulty distinguish cyclical structural factor real time potential output high potential growth weaken long term acknowledge limit substantial reassessment variable datum need available gradually argue economy mainly lack demand run potential suggest thing grow account surplus possible trade barrier gap potential actual growth large context remark reason question rationale have economy run potential sustained growth potential easy address structural problem investment need upgrade capital stock have people work good way enable workforce retrain acquire skill need digital economy economy run potential easy implement structural reform significant growth challenge undeniably structural point mario draghi ignore cyclical context decline inflation high saving rate acknowledge weak aggregate demand growth challenge short term background member reiterate fiscal structural policy economy productive competitive resilient crucial swiftly follow concrete ambitious structural policy mario draghi proposal enhance european competitiveness enrico letta proposal empower single market member welcome european commission assessment government medium term plan fiscal structural policy revise economic governance framework government focus implement commitment framework fully delay help bring budget deficit debt ratio sustained basis prioritise growth enhance reform investment respect fiscal policy argue future fiscal stance loose currently expect geopolitical context doubtful fiscal plan fully implement pressure increase defence spending mount fiscal policy lot loose pandemic time remark euro area fiscal stance tight united states unclear extent fiscal policy eventually contribute economic growth euro area background member assess risk economic growth remain tilt downside risk great friction global trade weigh euro area growth dampen export weaken global economy low confidence prevent consumption investment recover fast expect amplify geopolitical risk russia unjustified war ukraine tragic conflict middle east disrupt energy supply global trade growth low lag effect monetary policy tightening last long expect high easy financing condition fall inflation allow domestic consumption investment rebound fast regard price development member agree assessment present lane introduction concur incoming datum bolster confidence inflation return target course satisfaction express monetary policy action effective bring inflation headline inflation project return expect fluctuate target widely regard early declare victory return target reach caution inflation picture extent flatter fact energy price come expect non energy industrial good inflation low expect couple month ago time high gas food price show shock quickly affect inflation outlook argue time people remain highly attentive inflation necessary pay particular attention potentially inflationary shock hit economy projection take account estimate impact expand ets include inflation drop target see surprising drive mainly weak project energy price inflation far historical average food price inflation assume historical average spite increase frequency extreme weather event climate change express clear upside risk inflation projection attention draw prospect substantial supply demand shock horizon look ahead challenge inflation target consider geopolitical risk economic fragmentation ongoing climate nature crisis create bottleneck increase frequency intensity persistence productive capacity economy specifically respect potential policy shock atlantic inflation push significantly high exchange rate channel appreciation dollar especially pass price tend rapid wake high inflation retaliation direct inflationary effect import price addition bottleneck emerge global supply chain operate trade supply shock channel outweigh downward impact inflation weak demand background recall part disinflationary path materialise job mile appear shorten somewhat particular domestic inflation stand october drive mainly high service inflation stand october november remark momentum service inflation indicate slowdown seasonal adjustment distort shift household consumption pattern actual momentum high statistic show caution express signal fall core inflation tend volatile instead weight place ongoing easing wage pressure especially cooling labour market information negotiate wage confirm moderation wage growth time low productivity growth project upward pressure unit labour cost inflation projection inflation close survey result forecast consensus economics short term market pricing hand incorporate expectation low inflation projection possibly reflect somewhat pessimistic euro area growth medium term risk inflation appear sided time argue risk inflation medium term downside especially give high probability weak growth context argue expand ets unlikely project impact inflation consumer reallocate spending pollute source energy time point high taxation similarly tariff protectionism usually give rise low economic activity medium term ultimately exert downward pressure inflation service inflation component deserve scrutiny underline month month change november large monthly drop service price pandemic service inflation momentum decline significantly especially wage sensitive component non wage sensitive component idiosyncratic element disappear number service reprice turn year surprise exclude give price change have impact inflation happen half year month year reveal important information inflation remainder wage pressure important driver persistence service inflation wage growth remain high bumpy decline wage growth far anticipate projection ecb wage tracker need confirm hard datum time number indicator suggest wage growth slow high level look track record wage tracker project future wage growth increase confidence appear warrant wage growth subdued future help bring service inflation overall inflation sustainably wage inflation settle targeted inflation rate plus trend productivity growth regard long term inflation expectation member take late development market base measure inflation compensation survey base indicator market derive measure medium term inflation expectation drop long term inflation expectation stand close consumer inflation expectation move significantly november especially year horizon background respect risk inflation outlook member assess inflation turn high wage profit increase expect upside risk inflation stem heighten geopolitical tension push energy price freight cost high near term disrupt global trade extreme weather event unfold climate crisis drive food price expect contrast inflation surprise downside low confidence concern geopolitical event prevent consumption investment recover fast expect monetary policy dampened demand expect economic environment rest world worsen unexpectedly great friction global trade euro area inflation outlook uncertain turn monetary financial analysis market interest rate euro area decline october governing council reflect perceive worsening economic outlook repricing policy rate expectation financial market reprice particularly strongly pmi release expect significant rate cut time autumn context considerable uncertainty implication change policy uncertain domestic political outlook financial market translate downside risk low real rate low equity price weak euro exchange rate past interest rate cut anticipation future cut contribute easing financing condition bank lending non financial corporate sector household recover slowly suggest impact past monetary policy tightening wan effect credit growth removal policy restriction start visible net issuance corporate debt security see large decrease interest rate loan pick housing market show sign turnaround house price rise mortgage demand recover country biannual exchange link monetary policy financial stability member concur euro area bank remain resilient continue solid capital liquidity position euro area bank navigate phase monetary policy restriction concern persist regard governance operational resilience risk management include relation climate nature relate risk nonetheless financial stability risk remain elevated stretch stock market valuation risk financial deregulation increase global activity realm cryptocurrency involve non financial intermediary less extent banking sector finally geopolitical risk fully price financial market materialise lead abrupt repricing risk jeopardise bank capital adequacy recall macroprudential policy remain line defence build financial vulnerability monetary policy stance policy consideration turn monetary policy stance member assess datum available monetary policy accordance main element governing council cite shape reaction function comprise implication incoming economic financial datum inflation outlook dynamic underlie inflation iii strength monetary policy transmission inflation outlook member increasingly confident inflation return target half early foresee previous projection governing council job fully return inflation target get close accord projection projection foresaw inflation rate early notably low inflation near term foresee september projection note past year inflation projection remarkably accurate despite large inflation shock past year measure long term inflation expectation remain anchored clear governing council let guard final stretch disinflation particularly assumption underlie projection need corroborate hard datum conditional monetary policy make contribution work way economy upside downside risk inflation outlook key aspect projection recovery productivity growth confirm uncertainty surround future policy pursue incoming administration include impact tariff potential retaliation fiscal trade uncertainty evolution exchange rate pass inflation add domestic political uncertainty outlook energy food price context recall governing council single mandate maintain price stability dual mandate pose trade price stability hand growth employment consideration hand recognise weak economy imply downward pressure inflation remark economy pick likelihood increase inflation undershoot target road comfort draw fact projection inflation close market pricing survey result short term market price low inflation foresee december eurosystem projection market base indicator incorporate risk premia negative medium term mean market hold similar inflation outlook entail projection require high compensation downside risk medium term turn underlie inflation member concur measure consistent inflation return target timely manner pcci good forecasting property medium term inflation decline substantially domestic inflation high drive mainly high service inflation core inflation remain stubbornly high quarter key datum conclusively confirm project moderation wage growth available course softening labour market information negotiate wage line gradual easing labour cost pressure regard monetary policy transmission monetary policy stance remain restrictive dfr reduce series cut peak lag effect past monetary policy tightening feed macroeconomy financing condition include market base base financing continue restrictive cost credit firm elevate historical perspective particularly real term cumulative tightening credit standard beginning hiking cycle remain elevated addition average interest rate outstanding stock mortgage set rise fix rate loan reprice high level time remark financial market expect rate cut term structure real risk free interest rate align neutral level maturity year dialling monetary policy restriction past month transmit financing condition fully pass interest rate loan firm household have start come gradual fading restriction start reach real economy provide support consumption investment growth future time note sensitivity credit demand level interest rate low indicate monetary policy stance noticeably restrictive accord result late available euro area lending survey refer large share bank report general level interest rate currently affect demand loan credit line enterprise contrast result year ago half respondent bank see impact reflect anticipation rate cut come remark general level interest rate include funding cost high global financial crisis restrictiveness financing condition necessary account level natural neutral rate interest argue factor shift rate upwards outbreak pandemic include rise public debt world need major investment tackle digital green transition global fragmentation contribute reversal global saving glut conversely factor drive natural rate low relate demographic productivity development high propensity save productivity development surround high uncertainty conflict influence stem structural decline traditional manufacturing rise artificial intelligence overall natural neutral rate interest useful analytical concept available estimate rough gauge restrictiveness monetary policy owe high model parameter uncertainty argue gradual approach need allow assessment policy rate reach neutral level take proper account transmission lag advisable draw broad range approach estimate model natural rate restrictiveness policy look interplay output inflation interest rate credit dynamic allow transmission lag informative level restrictiveness monetary policy predominantly base financial system like euro area need average funding cost take account cost loan cost financing bond market give importance bank small medium sized enterprise finally remark monetary policy stance predicate interest rate size eurosystem balance sheet shrink month january time recall reduction eurosystem balance sheet announce advance price significant extent time announcement monetary policy decision communication background member support proposal lane lower key ecb interest rate basis point cut magnitude line control pace ease provide sense direction path interest rate projection conditional downward path policy rate imply cut january reiterate datum dependency preclude foregone conclusion future rate path measured pace interest rate cut consistent general notion check point pass ascertain disinflation remain track keep open optionality adjustment way cautious approach warrant prevail uncertainty existence number factor hamper rapid decline inflation target baseline projection inflation confirm month quarter gradual dialling policy restrictiveness see appropriate member note case basis point rate cut favour consideration give possibility large cut member emphasise deterioration euro area economic outlook successive projection exercise stress risk growth amid global domestic political uncertainty tilt downside large rate cut provide insurance downside risk growth economy pick risk inflation undershoot target increase suggest monetary policy restrictive interest rate distance neutral level context need signal governing council commitment symmetric target stress need vigilant prevent materialisation upside downside risk inflation time member widely concur basis point cut appropriate light gradual complete progress return inflation sustained basis prevail risk uncertainty respect point reflect projection economy expand pace potential growth come year inflation overshoot undershoot target materially underline case ecb single mandate price stability dual mandate disinflation process conclude early cut rate large remark basis point cut perceive ecb have negative state economy actually case desirable warrant additional negative shock furthermore keep mind rate cut decide october governing council demonstrate commitment react worsen macroeconomic outlook associate weakening inflationary pressure increase speed interest rate adjustment point frequency price adjustment low situation weak growth face negative shock imply flat phillips curve mean case adjust interest rate basis point way rate hike cycle similarly unanchoring inflation expectation rapid way persistent owe low bind interest rate significant worsening growth outlook flat phillips curve necessarily trigger steep decline inflation imply downside risk inflation large reasoning rule decisive action adverse scenario event phillips curve steeper member point significant economic slowdown attributable structural factor monetary policy address need address government economic slowdown see cyclical condition accommodative monetary policy unable boost potential growth structural reason firm wish invest argue fast normalisation monetary policy aim run economy potential provide room government address structural problem time monetary policy ineffective resolve structural weakness responsibility long term growth responsibility government good contribution monetary policy provide price stability remove major source uncertainty member argue favour maintain data dependent approach determine appropriate level policy rate take account transmission lag emphasise data dependency mean look backwards past datum forwards medium term outlook remark datum dependency imply take analytical approach hard datum survey indicator economic model judgement project trend inflation dynamic risk surround outlook turn communication aspect member support propose change wording monetary policy statement remove tighten bias replace intention sufficiently restrictive sided pledge adopt appropriate stance ensure inflation stabilise sustainably medium term target change communication see reinforce rate cut overall member conclude propose change communication strike fine balance remove reference maintain monetary policy restrictiveness avoid send signal path rate adjustment preset context change communication see adjustment well reflect ecb reaction function late circumstance change way monetary policy conduct member agree proposal lane reinvestment principal payment mature security purchase pandemic emergency purchase programme pepp cease end line governing council intention express june member highlight december bank repay remain amount borrow targeted long term refinance operation conclude balance sheet normalisation process take account forego member proposal president governing council take monetary policy decision set monetary policy press release member governing council subsequently finalise monetary policy statement president vice president usual deliver press conference follow governing council monetary policy statement monetary policy statement press conference december press release monetary policy decision meeting ecb governing council december members lagarde president guindos vice president centeno cipollone demarco temporarily replace scicluna elderson escrivá holzmann kazāks kažimír knot lane makhlouf müller nagel panetta patsalides rehn reinesch schnabel šimkus stournaras vasle villeroy galhau vujčić wunsch member hold voting right december article escb statute attendee dombrovskis commission executive vice president senkovic secretary director general secretariat rostagno secretary monetary policy director general monetary policy winkler deputy secretary monetary policy senior adviser economics accordance article treaty functioning european union accompany person arpa garnier gavilán gilbert horváth kaasik kelly koukoularides lünnemann nicoletti altimari novo rutkaste schembri šiaudinis šošić tavlas ulbrich välimäki vanackere žumer šujica ecb proissl director general communications straub counsellor president rahmouni rousseau director general market operations arce director general economics sousa deputy director general economics release monetary policy account foresee february related topic monetary policy euro area policy disclaimer relate topic tag currently available select content contact european central bank directorate general communications sonnemannstrasse frankfurt main germany media@ecb.europa.eu reproduction permit provide source acknowledge medium contact

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve mpc late projection inflation activity set accompanying february inflation report condition smooth adjustment average range possible outcome eventual trading relationship european union gently rise path bank rate imply market yield world economy continue slow month broad base soften region deceleration reflect past tightening global financial condition initial impact trade tension business sentiment global growth expect dip trend come quarter weigh net trade rise potential rate activity project support accommodative monetary policy major economic area market expect economic growth slow late appear weaken early slowdown mainly reflect soft activity abroad great effect brexit uncertainty home uncertainty lead great usual short term volatility datum provide signal medium term outlook heightened uncertainty elevated funding cost assume subside time great clarity future trading arrangement assume emerge development loose fiscal policy provide support domestic spending committee projection quarterly gdp growth recover later year growth rise end forecast period cpi inflation fall december expect decline slightly mpc target near term sharp fall petrol price occur november effect unwind cpi inflation rise mpc judge demand potential supply currently balance weak near term outlook lead small margin slack open year demand growth exceed subdued pace supply growth excess demand build half forecast period result domestic inflationary pressure firm upward pressure inflation sterling past depreciation wane assumption condition february report inflation settle rate little target committee judge economy develop line inflation report projection ongoing tightening monetary policy forecast period gradual pace limited extent appropriate return inflation sustainably target conventional horizon economic outlook depend significantly nature withdrawal particular trading arrangement european union united kingdom transition abrupt smooth household business financial market respond appropriate path monetary policy depend balance effect demand supply exchange rate monetary policy response brexit form take automatic direction mpc judge month stance monetary policy appropriate committee act achieve inflation target monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve committee previous news economic datum mix mpc february inflation report projection appear track projection weak near term outlook expect lead small margin slack open year demand growth exceed subdued pace supply growth excess demand build half forecast period broad base softening global gdp trade growth continue global financial condition ease support announcement accommodative policy major economy shift expectation potential nature timing united kingdom withdrawal european union continue generate volatility asset price particularly sterling exchange rate brexit uncertainty weigh confidence short term economic activity notably business investment employment growth strong survey indicator outlook soften indicator consumer spending consistent ongoing modest growth committee previously note short term economic datum provide signal usual medium term growth outlook cpi inflation rise slightly february expect close target coming month labour market remain tight annual pay growth have rise remain 3½% give continue weakness productivity growth growth unit wage cost rise indicator domestically generate inflation remain modest committee february inflation report projection condition smooth adjustment average range possible outcome united kingdom eventual trading relationship european union committee continue judge economy develop line projection ongoing tightening monetary policy forecast period gradual pace limited extent appropriate return inflation sustainably target conventional horizon economic outlook depend significantly nature timing withdrawal particular trading arrangement european union united kingdom transition abrupt smooth household business financial market respond appropriate path monetary policy depend balance effect demand supply exchange rate monetary policy response brexit form take automatic direction mpc judge month stance monetary policy appropriate committee act achieve inflation target monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve committee update projection activity inflation set accompanying inflation report assume smooth adjustment average range possible outcome united kingdom eventual trading relationship european union condition path bank rate rise end forecast period low february report financial condition path heavily influence global development forward interest rate united states euro area fall markedly mpc note previously datum unusually volatile near term shift expectation brexit financial market household business gdp expect grow reflect large expect boost company united kingdom european union build stock ahead brexit deadline boost expect temporary quarterly growth expect slow smooth development underlying pace gdp growth appear slightly strong previously anticipate marginally potential subdue pace reflect impact slowdown global growth ongoing brexit uncertainty have particularly pronounce impact business investment fall year mpc judge currently small margin excess supply economy mpc projection global growth stabilise potential rate brexit uncertainty subside gradually gdp growth begin pick year rise end forecast period business investment recover household spending continue support demand growth sustain rise real income gdp growth pick subdue pace potential supply growth excess demand begin build excess demand rise potential output end forecast period notably high february report reflect support demand provide low market interest rate easy financial condition cpi inflation march expect slightly mpc target half forecast period reflect low expect retail energy price labour market remain tight unemployment rate project decline 3½% end forecast period annual pay growth remain 3½% unit labour cost growth strengthen rate historical average excess demand emerge domestic inflationary pressure expect firm cpi inflation pick target year time rise end year forecast period committee continue judge economy develop line inflation report projection ongoing tightening monetary policy forecast period gradual pace limited extent appropriate return inflation sustainably target conventional horizon mpc judge stance monetary policy appropriate economic outlook depend significantly nature timing withdrawal particular trading arrangement european union united kingdom transition abrupt smooth household business financial market respond appropriate path monetary policy depend balance effect demand supply exchange rate monetary policy response brexit form take automatic direction committee act achieve inflation target monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve mpc economic projection set inflation report assume smooth adjustment average range possible outcome united kingdom eventual trading relationship european union condition path bank rate rise end forecast period projection gdp growth little potential reflect subdued global growth ongoing brexit uncertainty growth pick subdue pace potential supply growth excess demand rise potential output end forecast period excess demand emerge domestic inflationary pressure firm cpi inflation pick target year time rise end year forecast period committee previous near term datum line report downside risk growth increase globally trade tension intensify domestically perceive likelihood deal brexit rise trade concern contribute volatility global equity price corporate bond spread fall industrial metal price forward interest rate major economy fall materially increased brexit uncertainty additional downward pressure forward interest rate lead decline sterling exchange rate expect datum volatile large brexit relate effect financial market business grow gdp expect flat reflect unwind positive contribution gdp company united kingdom european union build stock significantly ahead brexit deadline look volatility underlie growth united kingdom appear weaken slightly half year relative rate little potential underlying pattern relatively strong household consumption growth weak business investment persist cpi inflation fall target later year reflect fall energy price core cpi inflation core service cpi inflation remain slightly level consistent inflation target medium term labour market remain tight datum employment unemployment regular pay line expectation time report growth unit wage cost remain target consistent level committee continue judge economy develop line inflation report projection include assumption smooth brexit ongoing tightening monetary policy forecast period gradual pace limited extent appropriate return inflation sustainably target conventional horizon mpc judge exist stance monetary policy appropriate economic outlook depend significantly nature timing withdrawal particular trading arrangement european union united kingdom transition abrupt smooth household business financial market respond appropriate path monetary policy depend balance effect demand supply exchange rate monetary policy response brexit form take automatic direction committee act achieve inflation target monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end july mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve global trade tension intensify global activity remain soft lead substantial decline advanced economy forward interest rate material loosening financial condition include united kingdom increase perceive likelihood deal brexit lower interest rate lead marked depreciation sterling exchange rate brexit relate development stockbuilde ahead previous deadline make datum volatile grow gdp expect flat slightly weak anticipate look volatility underlying growth appear slow rate potential reflect impact intensify brexit relate uncertainty business investment weak global growth net trade evidence company middle july suggest uncertainty united kingdom future trading relationship european union entrenched labour market remain tight annual pay growth relatively strong consumer spending remain resilient cpi inflation june core cpi inflation committee update projection set accompanying august inflation report assume smooth adjustment average range possible outcome united kingdom eventual trading relationship european union projection condition prevail asset price underlie output growth subdue near term reflect entrench brexit uncertainty mean margin excess supply persist year projection gdp project accelerate robust growth rate reflect gradual recovery global growth firm domestic demand growth drive large recovery investment growth uncertainty dissipate line brexit conditioning assumption acceleration gdp result significant build excess demand 1¾% potential gdp end forecast period fall near term cpi inflation project rise target build excess demand lead firm domestic inflationary pressure condition prevail asset price cpi inflation reach end year forecast period projection affect inconsistency smooth brexit conditioning assumption underpin forecast prevail market asset price forecast condition asset price reflect market participant perception likelihood consequence deal brexit assume brexit proceed smoothly form deal market interest rate rise sterling exchange rate appreciate consistent forecast somewhat low path gdp growth cpi inflation increase uncertainty nature withdrawal mean economy follow wide range path coming year appropriate path monetary policy depend balance effect brexit demand supply exchange rate monetary policy response brexit form take automatic direction circumstance committee set monetary policy appropriately achieve inflation target mpc judge exist stance monetary policy appropriate assume smooth brexit recovery global growth significant margin excess demand build medium term occur committee judge increase interest rate gradual pace limited extent appropriate return inflation sustainably target monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september mpc vote unanimously maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve mpc previous trade war united states china intensify outlook global growth weaken monetary policy loosen major economy shift expectation potential timing nature brexit continue generate heighten volatility asset price particular sterling exchange rate rise 3½% brexit relate development make economic datum volatile gdp fall expect rise committee judge underlying growth slow remain slightly positive degree excess supply appear open company brexit uncertainty continue weigh business investment consumption growth remain resilient support continued growth real household income weak global backdrop weigh export government announce significant increase departmental spending raise gdp mpc forecast period equal cpi inflation fall august july expect slightly target near term labour market appear tight unemployment rate have beginning year annual pay growth strengthen high rate decade unit wage cost growth rise level consistent inflation target medium term labour market appear tighten official survey measure employment growth soften period follow referendum degree slack economy fall global growth relatively strong recently entrench brexit uncertainty slow global growth lead emergence margin excess supply increase uncertainty nature withdrawal mean economy follow wide range path coming year appropriate response monetary policy depend balance effect brexit demand supply sterling exchange rate possible political event lead period entrenched uncertainty nature transition united kingdom eventual future trading relationship european union long uncertainty persist particularly environment weak global growth demand growth potential increase excess supply eventuality domestically generate inflationary pressure reduce event deal brexit exchange rate probably fall cpi inflation rise gdp growth slow committee interest rate decision need balance upward pressure inflation fall sterling reduction supply capacity downward pressure reduction demand eventuality monetary policy response automatic direction event great clarity economy path smooth brexit assume recovery global growth significant margin excess demand build medium term occur committee judge increase interest rate gradual pace limited extent appropriate return inflation sustainably target circumstance committee set monetary policy appropriately achieve inflation target mpc judge exist stance monetary policy appropriate monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end november mpc vote majority maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve committee projection activity inflation set accompanying november monetary policy report base assumption orderly transition deep free trade agreement united kingdom european union look brexit relate volatility underlie gdp growth slow materially year small margin excess supply open slowdown reflect weak global growth drive trade protectionism domestic impact brexit relate uncertainty october agree withdrawal agreement political declaration flexible extension article consequence perceive likelihood deal brexit fall markedly sterling exchange rate appreciate agreement expect remove uncertainty face business household mpc project gdp growth pick support easy fiscal policy modest recovery global growth remainder forecast period demand growth expect outstrip subdue pace supply growth restrain extent adjustment trading arrangement inflationary pressure project lessen near term cpi inflation remain september expect decline 1¼% spring owe temporary effect fall regulated energy water price unit labour cost grow rate consistent inflation target core service cpi inflation begin increase somewhat employment growth slow pay growth fall near term half mpc forecast period significant margin excess demand emerge domestic inflationary pressure expect build condition market yield cpi inflation project rise slightly end forecast period monetary policy respond direction change economic outlook order ensure sustainable return inflation target committee factor monitor closely response company household brexit development prospect recovery global growth global growth fail stabilise brexit uncertainty entrenched monetary policy need reinforce expect recovery gdp growth inflation ahead provide risk materialise economy recover line mpc late projection modest tightening policy gradual pace limited extent need maintain inflation sustainably target mpc judge exist stance monetary policy appropriate monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve committee late projection activity inflation set november monetary policy report base assumption orderly transition deep free trade agreement united kingdom european union gdp growth project pick potential rate support reduction brexit relate uncertainty easing fiscal policy modest recovery global growth demand growth outstrip subdued pace supply growth excess demand domestic inflationary pressure expect build gradually cpi inflation project rise slightly target end forecast period mpc previous economic datum line november report global growth show tentative sign stabilise global financial condition supportive partial escalation china trade war provide additional support outlook relative november report trade tension elevated gdp increase expect rise marginally household consumption continue grow steadily business investment export order remain weak financial market remain sensitive domestic policy development november report sterling exchange rate appreciate focus equity outperform international counterpart evidence extent policy uncertainty company household decline sign labour market loosen remain tight employment growth slow vacancy fall unemployment rate remain stable employment rate record high pay growth ease somewhat unit labour cost continue grow rate consistent inflation target medium term cpi inflation remain november core cpi inflation remain expect headline rate expect fall 1¼% spring owe temporary effect fall regulated energy water price monetary policy respond direction change economic outlook order ensure sustainable return inflation target committee factor monitor closely response company household brexit development prospect recovery global growth global growth fail stabilise brexit uncertainty entrenched monetary policy need reinforce expect recovery gdp growth inflation ahead provide risk materialise economy recover line mpc late projection modest tightening policy gradual pace limited extent need maintain inflation sustainably target mpc judge exist stance monetary policy appropriate monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end january mpc vote majority maintain bank rate committee vote unanimously maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve gdp growth slow year reflect weak global growth elevated brexit uncertainty output expect flat growth regular pay fall 3½% unit labour cost continue grow rate consistent inflation target medium term cpi inflation fall december core cpi inflation decline core service inflation target consistent range unemployment rate remain low stable employment growth pick follow annual reassessment supply condition committee judge somewhat great margin spare capacity economy year exert downward pressure domestically generate inflation indicator global growth stabilise reflect partial easing trade tension significant loosening monetary policy bank past year global business confidence manufacture indicator pick domestically near term uncertainty face business household recede survey business activity pick markedly case investment intention appear recover housing market indicator strengthen consumer confidence increase slightly committee monitor closely extent early indication improved outlook sustain follow hard datum domestic activity coming month committee update projection activity inflation set accompanying january monetary policy report base assumption immediate orderly beginning year deep free trade agreement united kingdom european union gdp growth project pick little early ahead condition market path bank rate fall slightly forecast period recovery growth support pickup global activity decline brexit uncertainty government announce spending measure support factor sufficient boost demand growth weaken potential supply growth result slack erode gradually forecast period margin excess demand build cpi inflation project mpc target year condition market yield strengthen domestic price pressure alongside wan drag energy price mean inflation reach target end year rise slightly end forecast period monetary policy set ensure sustainable return inflation target policy need reinforce expect recovery gdp growth positive signal indicator global domestic activity sustain indicator domestic price relatively weak ahead economy recover line mpc late projection modest tightening policy need maintain inflation sustainably target mpc judge exist stance monetary policy appropriate monetary policy summary minute monetary policy committee voting history

monetary policy summary minute monetary policy committee bank england monetary policy committee mpc set monetary policy meet inflation target help sustain growth employment context challenge week respond severe economic financial disruption cause spread covid-19 spread disease measure need contain evolve significantly economic consequence development apparent sharp reduction activity give severity disruption risk long term damage economy especially business failure large scale significant increase unemployment near term people unable work period adjust work arrangement consumer face company require cease operation time business need cease scale activity household spending social activity delayable form consumption decline materially environment heighten uncertainty business postpone investment decision export weaken effect economic activity offset partly temporarily high spending essential good service nonetheless business cashflow severely affect way support measure threaten material number business fail large persistent rise unemployment little evidence precise magnitude economic shock covid-19 probable global gdp fall sharply half year unemployment rise rapidly range economy suggest early indicator united kingdom introduction social distancing measure composite flash output expectation pmis fall sharply march time low level consistent material contraction gdp timely indicator activity footfall shop number flight decline sharply significant move range financial market price imply volatility rise historically elevated level evidence widespread disruption market functioning risky asset price fall period lead mpc special march yield long term government debt rise additional demand dollar liquidity contribute disruption dollar funding market usually liquid market sterling exchange rate depreciate sharply overall global financial condition tighten materially major bank set wide range policy response help stabilise market improve liquidity government bond market public policy line combat challenge covid-19 comprise extraordinary effort nhs health professional carer volunteer country monetary policy account broad public policy response reduce disruptive consequence household business spread covid-19 help minimise long term damage economy health crisis abate environment essential monetary financial stability maintain pre requisite long term economic prosperity consistent bank england coordinate action government order ensure initiative complementary maximum impact support household business period disruption government announce series substantial fiscal support measure alleviate severe cashflow problem face business household bank england role play support business household economic disruption associate covid-19 financial policy committee fpc reduce countercyclical capital buffer rate bank exposure borrower policy march action support ability bank supply credit need household business fpc prudential regulation committee monitor closely response bank measure credit condition face business household march treasury announce creation covid corporate financing facility ccff bank act treasury agent provide funding business purchase commercial paper year maturity alternative source finance large company scheme help preserve capacity banking system lend company include small medium sized enterprise ccff fund issuance additional reserve set separate legal entity bank asset purchase facility mpc decide asset purchase finance reserve take size ccff account take decision target stock government corporate bond finance reserve necessary fulfil remit role monetary policy set chancellor letter march mpc statutory objective maintain price stability subject support economic policy government include objective growth employment update remit letter confirm operational target monetary policy remain inflation rate measure month increase consumer prices index cpi cpi inflation february prior development inflation set fall mpc target decline spring reflect pass fuel price sharp decline oil price ahead inflation boost significant depreciation sterling exchange rate mpc monitor closely development inflation indicator inflation expectation include household business financial market financial market measure inflation expectation rise week nature economic shock covid-19 different mpc previously respond scale duration shock economic activity highly uncertain large sharp ultimately prove temporary particularly job loss business failure minimise circumstance consistent mpc remit monetary policy aim guard unwarranted tightening financial condition support business household crisis limit lasting damage economy mpc week mpc reduce bank rate basis point introduce term funding scheme additional incentive small medium sized enterprises tfsme announce increase stock asset purchase finance issuance reserve total purchase undertake soon operationally possible consistent improved market function majority additional asset purchase comprise government bond additional sterling non financial investment grade corporate bond purchase end march mpc vote unanimously maintain bank rate committee vote unanimously bank england programme government bond sterle non financial investment grade corporate bond purchase finance issuance reserve total stock purchase mpc monitor closely pass bank building society lending rate reduction bank rate impact asset purchase gilt yield fall significantly follow previous week special mpc commencement additional gilt purchase operation march need mpc expand asset purchase mpc monitor situation closely consistent remit stand ready respond necessary guard unwarranted tightening financial condition support economy download minute meeting end march march monetary policy committee voting history

monetary policy summary minute monetary policy committee authorities world take action halt spread coronavirus covid-19 pandemic support economic activity bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment context challenge respond severe economic financial disruption cause spread covid-19 end mpc vote unanimously maintain bank rate committee vote majority bank england programme government bond sterle non financial investment grade corporate bond purchase finance issuance reserve total stock purchase member prefer increase target stock asset purchase additional spread covid-19 measure contain have significant impact united kingdom country world activity fall sharply beginning year unemployment rise markedly economic datum continue consistent sudden marked drop global activity oil price volatile tentative sign recovery domestic spending china echo country start relax covid relate restriction economic activity financial market recover somewhat week risky asset price pick low mid march reflect action take authority united kingdom global financial condition remain tight prior outbreak covid-19 timeliest indicator demand stabilise low level week unprecedented fall late march early april payment datum point reduction level household consumption consumer confidence decline markedly housing market activity practically cease accord bank decision maker panel company sale expect low normal business investment low widespread coronavirus job retention scheme sharp increase benefit claim consistent pronounced rise unemployment rate cpi inflation decline march fall month large reflect development energy price unprecedented situation mean outlook global economy unusually uncertain depend critically evolution pandemic government household business respond recognise uncertainty mpc construct plausible illustrative economic scenario accompanying monetary policy report scenario base set stylise assumption pandemic response government household business usual prevail level asset price market path interest rate scenario highly conditional help illustrate potential impact covid-19 economy channel impact feel report include number estimate sensitivity economy selection key variable take alongside scenario serve illustrate important driver outlook illustrative scenario incorporate sharp fall gdp substantial increase unemployment addition worker furlough currently give assumed path relaxation social distancing measure fall gdp temporary activity pick relatively rapidly nonetheless degree precautionary behaviour household business assume persist economy take time recover previous path cpi inflation expect fall target half year reflect weakness demand set accompany interim financial stability report financial policy committee fpc assess risk financial stability resilience financial system economic market shock associate covid-19 draw mpc illustrative scenario fpc judge core banking system capital buffer sufficient absorb loss support government guarantee lending bank england funding capacity provide credit support economy mpc statutory objective maintain price stability subject support economic policy government include objective growth employment circumstance consistent mpc remit monetary policy aim support business household crisis limit lasting damage economy onset covid-19 shock mpc complement response part bank england government take number action fulfil mandate committee reduce bank rate introduce term funding scheme additional incentive small medium sized enterprises tfsme announce increase stock government bond sterle non financial investment grade corporate bond purchase carry soon operationally possible consistent improved market function committee note stock asset purchase reach beginning july pace purchase committee continue monitor closely range indicator market functioning illustrative scenario recovery economic activity relatively rapid inflation rise target conditional scenario assumption include gradual easing social distancing support significant monetary fiscal stimulus relative scenario committee assess balance risk economic outlook lie downside committee judge exist stance monetary policy appropriate mpc monitor situation closely consistent remit stand ready action necessary support economy ensure sustained return inflation target monetary policy summary minute monetary policy committee voting history

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment context challenge respond severe economic financial disruption cause spread covid-19 end june mpc vote unanimously maintain bank rate committee vote unanimously bank england exist programme government bond sterle non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england increase target stock purchase government bond finance issuance reserve additional total stock asset purchase risky asset price recover march low remain sensitive news evolution pandemic recent datum outturn fall global gdp severe expect time monetary policy report sign consumer spending service output pick follow easing covid relate restriction economic activity recent additional announcement easy monetary fiscal policy help support recovery downside risk global outlook include spread covid-19 emerge market economy return high rate infection advanced economy gdp contract april follow fall march evidence timely indicator suggest gdp start recover payment datum consistent recovery consumer spending june housing activity start pick recently lfs unemployment rate unchanged month april timely indication claimant count hmrc payroll datum job vacancy labour market weaken materially follow strong expect coronavirus job retention scheme great number worker furlough evidence business survey bank agents consistent weak outlook employment come quarter household worried job security month cpi inflation decline march april trigger explanatory letter governor chancellor publish alongside monetary policy announcement cpi inflation fall current target rate cpi inflation large account effect pandemic collapse global oil price direct effect inflation price motor fuel indirect effect reduce input cost sector economy sharp drop domestic activity add downward pressure inflation increase spare capacity sector economy unprecedented situation mean outlook global economy unusually uncertain depend critically evolution pandemic measure take protect public health government household business respond factor emerge evidence suggest fall global gdp severe set report strong expect difficult clear inference recovery risk high persistent unemployment united kingdom relaxation covid relate restriction economic activity degree precautionary behaviour household business persist economy especially labour market time recover previous path cpi inflation target expect fall come quarter reflect weakness demand mpc judge easing monetary policy warrant meet statutory objective committee agree increase target stock purchase government bond additional order meet inflation target medium term committee expect programme complete total stock asset purchase reach turn year mpc monitor situation closely consistent remit stand ready action necessary support economy ensure sustained return inflation target committee asset purchase programme

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment context challenge respond economic financial impact covid-19 pandemic end august mpc vote unanimously maintain bank rate committee vote unanimously bank england exist programme government bond sterle non financial investment grade corporate bond purchase finance issuance reserve maintain target total stock purchase committee projection activity inflation set accompanying august monetary policy report development weak starting point committee late projection unclear informative economy perform outlook global economy remain unusually uncertain depend critically evolution pandemic measure take protect public health government household business respond factor mpc projection assume direct impact covid-19 economy dissipate gradually forecast period give inherent uncertainty evolution pandemic mpc medium term projection informative guide usual global activity strengthen month remain level covid-19 continue spread rapidly number emerge market economy renew rise case advanced economy gdp expect low high frequency indicator imply spending recover significantly trough activity april payment datum household consumption july level start year housing market activity appear return close normal level despite sign tightening credit supply household evidence available business spending survey business investment fall markedly investment intention weak employment appear fall covid-19 outbreak significantly mitigate extensive support temporary government scheme survey worker return work furlough considerable uncertainty remain prospect employment support scheme unwind near term unemployment rate project rise materially 7½% end year consistent material degree spare capacity mpc projection gdp continue recover near term social distancing eas consumer spending pick business investment recover somewhat slowly unemployment decline gradually beginning onwards activity support substantial fiscal monetary policy action place nonetheless recovery demand take time health concern drag activity gdp project exceed level end reflect persistently weak supply capacity give scale movement output inherent uncertainty factor determine outlook evolution balance demand supply hard mpc projection imply margin spare capacity end year risk outlook gdp judge skew downside month cpi inflation increase june cpi inflation expect fall target average year reflect direct indirect effect covid-19 include impact energy price temporary cut vat hospitality holiday accommodation attraction effect unwind inflation rise support gradual strengthening domestic price pressure spare capacity diminish mpc projection condition prevail market yield cpi inflation expect year time committee monitor situation closely stand ready adjust monetary policy accordingly meet remit mpc range action take deliver objective committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee judge exist stance monetary policy remain appropriate

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment context challenge respond economic financial impact covid-19 pandemic end september mpc vote unanimously maintain bank rate committee vote unanimously bank england exist programme government bond sterle non financial investment grade corporate bond purchase finance issuance reserve maintain target total stock purchase outlook economy remain unusually uncertain mpc projection august monetary policy report assume direct impact covid-19 economy dissipate gradually condition assumption immediate orderly comprehensive free trade agreement european union january conditional assumption gdp project recover activity support substantial fiscal monetary policy action nonetheless recovery demand take time health concern expect drag activity unemployment rate project rise markedly consistent material degree spare capacity decline gradually condition prevail market yield cpi inflation expect year time indicator global activity line committee expectation time august mpc sterling exchange rate index fall reflect brexit development gdp july 18½% trough april 11½% level high frequency payment datum consumption continue recover summer start year level aggregate strong expect august report investment intention remain weak uncertainty business elevate bank expect gdp level weak expect august report administrative datum number pay employee fall february august number furlough worker continue decline considerable uncertainty remain labour market government job support scheme unwind month cpi inflation fall july august consistent temporary impact inflation government eat help scheme cut vat hospitality holiday accommodation attraction trigger exchange open letter governor chancellor publish alongside monetary policy announcement cpi inflation expect early albeit slightly high expect time august report path growth inflation depend evolution pandemic measure take protect public health nature transition trading arrangement european union united kingdom depend response household business financial market development recent domestic economic datum little strong committee expect time august report give risk unclear informative economy perform increase covid-19 case part world include united kingdom potential weigh economic activity albeit probably less scale see early year august report remain risk persistent period elevated unemployment projection committee monitor situation closely stand ready adjust monetary policy accordingly meet remit mpc range action take deliver objective committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee judge exist stance monetary policy remain appropriate

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment context challenge respond economic financial impact covid pandemic end november mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously bank england exist programme government bond purchase finance issuance reserve bank england increase target stock purchase government bond additional finance issuance reserve total stock government bond purchase committee previous rapid rise rate covid infection government devolve administration respond increase severity covid restriction restriction announce include october reflect committee judgement sign consumer spending soften range high frequency indicator investment intention remain weak committee late projection activity inflation set accompanying november monetary policy report assume development relate covid weigh near term spending great extent project august report lead decline gdp household spending gdp expect pick restriction loosen level activity expect materially low trade gdp affect initial period adjustment half year united kingdom leave single market customs union january assume immediately free trade agreement european union remainder forecast period gdp project recover direct impact covid economy assume wane activity support substantial fiscal policy announce accommodative monetary policy recovery take time risk gdp projection judge skew downside fall activity reflect decline demand supply overall judge material spare capacity economy lfs unemployment rate rise month august labour market slack increase imply measure extended coronavirus job retention scheme job support scheme mitigate significantly impact weak economic activity labour market unemployment rate expect peak 7¾% point spare capacity expect erode activity pick small degree excess demand emerge half forecast period month cpi inflation increase september remain mpc target reflect direct indirect effect covid economy include temporary impact low energy price reduction vat downward pressure spare capacity cpi inflation expect winter rise sharply target effect low energy price vat dissipate projection condition prevail asset price inflation project year time outlook economy remain unusually uncertain depend evolution pandemic measure take protect public health nature transition trading arrangement european union united kingdom depend response household business financial market development mpc judge easing monetary policy warrant committee agree increase target stock purchase government bond additional order meet inflation target medium term take total stock government bond purchase committee asset purchase programme mpc monitor situation closely outlook inflation weaken committee stand ready additional action necessary achieve remit committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase committee projection activity inflation set accompanying february monetary policy report covid-19 covid vaccination programme way number country include united kingdom improve economic outlook global activity affect increase covid case include newly identify strain virus associated reimposition restriction united kingdom european union announce trade agreement apply january global gdp growth slow rise covid case consequent restriction contain spread virus weigh economic activity mpc previous financial market remain resilient gdp expect rise little level low materially strong expect november report scale breadth covid restriction place mean expect affect activity impact expect severe united kingdom lockdown gdp expect fall contrast expectation rise november report labour market indicator difficult interpret lfs unemployment rate rise month november indicator labour market slack remain high imply measure government employment support scheme limit significantly immediate rise unemployment increase unemployment project quarter average weekly earnings growth notably strong expect november report overstate underlying pay growth gdp project recover rapidly pre covid level vaccination programme assume lead easing covid relate restriction people health concern project activity support substantial fiscal monetary policy action announce pace gdp growth slow boost factor fade spare capacity economy eliminate activity pick month cpi inflation rise november december weakness outturn reflect direct indirect effect covid economy cpi inflation expect rise sharply target spring reduction vat certain service come end give development energy price mpc projection condition market path interest rate cpi inflation project close year forecast period outlook economy remain unusually uncertain depend evolution pandemic measure take protect public health household business financial market respond development mpc monitor situation closely outlook inflation weaken committee stand ready additional action necessary achieve remit committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee judge exist stance monetary policy remain appropriate

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase mpc projection february monetary policy report assume covid relate restriction people health concern weigh activity near term vaccination programme lead easing gdp project recover strongly pre covid level time report increase unemployment project couple quarter cpi inflation expect return target spring condition market path interest rate project close year forecast period time forecast development global gdp growth little strong anticipate substantial fiscal stimulus package provide significant additional support outlook reflect alongside positive news vaccination programme advanced economy long term government bond yield rise rapidly level similar see shortly pandemic reflect high real yield risky asset price remain resilient united kingdom sterling effective exchange rate appreciate mortgage credit condition ease little aggregate measure financial condition unchanged february report rate covid infection hospitalisation fall markedly united kingdom vaccination programme proceed rapid pace plan easing restriction activity announce envisage restriction lift somewhat rapidly assume february report budget publish march contain number significant policy announcement include extension coronavirus job retention scheme measure support economy near term reflect february report gdp fall january weak expect mainly development public sector output leave gdp level news plan easing restriction activity consistent slightly strong outlook consumption growth anticipate february report clear represent news mpc medium term forecast lfs unemployment rate rise month december labour market slack remain high imply measure extension government employment support scheme mean near term rise lfs unemployment rate moderate suggest mpc february report projection construct basis exist government policy time month cpi inflation rise slightly january weakness outturn reflect direct indirect effect covid economy particular decline oil price see early case mpc projection cpi inflation expect return swiftly target spring effect early fall oil price drop annual comparison reflect increase energy price development direct implication inflation medium term inflation expectation anchor judge material degree spare capacity outlook economy particularly relative movement demand supply recovery pandemic remain unusually uncertain continue depend evolution pandemic measure take protect public health household business financial market respond development mpc monitor situation closely outlook inflation weaken committee stand ready additional action necessary achieve remit committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee judge exist stance monetary policy remain appropriate

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase covid-19 covid action take contain continue dramatic rapidly change impact united kingdom country world committee update projection economic activity inflation set accompanying monetary policy report global gdp growth slow covid relate restriction weigh economic activity growth appear strong expect february report covid vaccination programme progress pick pace country recently covid case increase significantly india economy lead tight restriction advanced economy risky asset price continue increase long term government bond yield stabilise march high time february report gdp expect fall 1½% weak assume february report new covid case united kingdom continue fall vaccination programme proceed apace restriction economic activity ease reflect development gdp expect rise sharply activity average level gdp expect recover strongly pre covid level remainder year absence restriction domestic economic activity demand growth boost decline health risk fall uncertainty announce fiscal monetary stimulus consumer spending support household run year additional accumulate saving pace gdp growth expect slow boost factor wane level activity high forecast february projection fall activity past year reflect decline demand supply lfs unemployment rate fall slightly month february labour market slack remain high imply measure overall judge spare capacity economy extension government employment support scheme budget expect limit significantly near term rise lfs unemployment rate mpc expect medium term equilibrium rate unemployment rise forecast february spare capacity eliminate activity pick temporary period excess demand demand supply return balance month cpi inflation rise february march february outturn trigger exchange open letter governor chancellor publish alongside monetary policy announcement weakness cpi outturn reflect direct indirect effect covid economy case mpc forecast inflation project rise close target near term effect fade projection cpi inflation rise temporarily target end owe mainly development energy price transitory development direct implication inflation medium term projection condition market path interest rate inflation return medium term outlook economy particularly relative movement demand supply remain uncertain continue depend evolution pandemic measure take protect public health household business financial market respond development projection mpc report economy experience temporary period strong gdp growth temporary period modestly target cpi inflation growth inflation fall inflation target year ahead judge appropriate stance monetary policy committee consistent policy guidance focus medium term prospect inflation include balance demand supply factor transient mpc monitor situation closely action necessary achieve remit committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee judge exist stance monetary policy remain appropriate

bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase mpc projection monetary policy report gdp expect recover strongly pre covid-19 covid level spare capacity economy expect eliminate activity pick expect temporary period excess demand demand supply return balance cpi inflation project rise temporarily target owe mainly development energy price transitory effect fade condition market path interest rate inflation expect return medium term development global gdp growth somewhat strong anticipate particularly advanced economy global price pressure pick reflect strong demand good rise commodity price supply constraint transportation bottleneck start apparent consumer price inflation advanced economy financial market measure inflation expectation near term strength inflation expect transitory bank revise expectation level gdp 1½% report restriction economic activity ease output june expect 2½% pre covid level recovery activity pronounce consumer face service restriction loosen april output number sector pre covid level remain materially housing market remain strong indicator consumer confidence increase direct economic implication delay final stage relaxation covid restriction relatively small compare impact previous stage lfs unemployment rate fall slightly month april labour market slack remain high imply measure individual stop look work pandemic record inactive uncertainty individual resume search job number furlough job decline fast expect demand recover overall judge spare capacity aggregate economy vacancy rise pre covid level increase sign recruitment difficulty business location sector private sector regular pay month april high year early measure pay growth continue boost compositional effect give job loss skew lower pay employee pandemic addition base effect drop pay spring summer distort annual comparison level private sector regular pay unchanged june month pay growth rise close underlying pay growth appear pre covid rate month cpi inflation rise april mpc target percentage point high expect report core cpi inflation rise build global input cost pressure increasingly pass manufacture output price non oil import price cpi inflation expect pick target owe primarily development energy commodity price exceed temporary period committee expectation direct impact rise commodity price cpi inflation transitory committee expectation economy experience temporary period strong gdp growth target cpi inflation growth inflation fall side risk path possible near term upward pressure price prove somewhat large expect take evidence financial market measure survey household business professional forecaster committee judge inflation expectation anchored judge appropriate stance monetary policy committee consistent policy guidance focus medium term prospect inflation include balance demand supply medium term inflation expectation factor transient mpc monitor situation closely action necessary achieve remit committee intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee opportunity economic outlook fully context august monetary policy report accompany economic projection committee judge exist stance monetary policy remain appropriate

monetary policy summary august bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end august committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase committee update projection activity inflation set accompanying august monetary policy report assume despite spread delta variant impact covid economy fade time condition market path interest rate global gdp growth estimate rise sharply covid vaccination programme gather pace restriction ease partly reflect spread delta variant global growth expect expand slow pace anticipate report global price pressure continue build reflect speed unevenness recovery activity disruption supply chain gdp expect rise leave pre pandemic level slightly strong expect report mpc previous number covid case continue rise subsequently show sign fall sharp increase number people ask self isolate temporarily majority remain domestic covid restriction lift fast indicator household spending flat close pre covid level housing market remain strong gdp expect grow somewhat weak expect report small negative impact development pandemic gdp project recover remainder year reach pre pandemic level demand growth boost wan impact covid pace gdp growth expect slow normal rate partly reflect gradual tightening stance announced fiscal policy labour force survey unemployment rate month percentage point high end inactivity rate percentage point level end number time furlough job continue decline demand recover remain end june stock vacancy increase indicator recruitment difficulty appear difficulty match available job worker friction period reduce effective supply economy overall mpc judge spare capacity erode past couple quarter demand outstrip growth effective supply friction labour market judge dissipate forecast period boost growth effective supply capacity uncertainty judgement include economy adjust end furlough scheme private sector regular pay month high year early annual growth project peak 8½% adjust impact furlough scheme change composition employment pandemic annual base effect underlie pay growth appear pre covid rate month cpi inflation rise june mpc target percentage point high expect report core cpi inflation rise build global input cost pressure pass consumer good price less degree reopening economy lead pickup consumer service good price cpi inflation project rise temporarily near term owe development energy good price fall close target committee expectation elevated global domestic cost pressure prove transitory nonetheless economy project experience pronounced period target inflation near term expect report alongside temporary constraint supply rapid recovery demand erode spare capacity economy project margin excess demand period medium term condition market path interest rate inflation project fall close target demand supply expect return balance mpc policy guidance place specify intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably member committee judge considerable progress achieve condition guidance condition meet fully member judge condition guidance meet fully guidance clear necessary sufficient condition future tightening monetary policy member confirm judge appropriate stance monetary policy committee focus medium term prospect inflation include medium term inflation expectation factor transient particular committee undue weight capacity pressure frictional nature temporary committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlie wage pressure addition side risk path inflation medium term risk management consideration force committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term committee judge exist stance monetary policy remain appropriate minute monetary policy committee end august turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp growth estimate rise sharply covid vaccination programme gather pace restriction ease growth somewhat strong project monetary policy report partly reflect spread delta variant global gdp expect expand slow pace anticipate report global price pressure continue build reflect speed unevenness recovery global activity supply chain disruption shortage input factor transitory subsequently unwind sharp increase manufacture output price non oil commodity price rise little recently brent oil spot price fall slightly mpc previous barrel increase production announce opec+ member july have push somewhat price shipping cost increase disruption major chinese port ease global containerise trade flow continue rise factor combine strong demand certain good service push consumer price inflation high advanced emerge market economy emes month united states core pce inflation tick june headline measure remain unchanged euro area headline hicp inflation increase somewhat july core measure fall little headline inflation region expect fall somewhat come quarter previous rise reflect factor temporary contribution energy price sector specific supply demand mismatch china contrast consumer price inflation remain subdue producer price inflation pick sharply accord preliminary flash estimate euro area gdp grow follow slight fall outturn strong expect time mpc previous leave level gdp low immediately pandemic lead service sector euro area composite output pmi rise july european commission business confidence survey balance pick euro area unemployment rate fall percentage point june recent news spread delta variant push gdp growth compare previous assumption accord advance estimate gdp increase slightly weak expect time mpc previous sufficient raise level gdp pre covid peak household spending continue grow robustly service consumption have accelerate good consumption growth have slow labour market unemployment rate little change june inactivity remain persistently high sign elevated mismatch high level vacancy despite unemployment remain pre covid rate recent news spread delta variant weigh gdp growth mobility index internet search relate social spending suggest impact economic activity small major advanced economy china gdp growth pick line expectation time mpc previous follow relatively weak expansion covid relate restriction impose guangdong province june appear fairly limited impact aggregate economic activity monthly datum june suggest rebalancing private domestic demand retail sale manufacturing investment strengthening albeit property investment moderate number large eme sharp increase covid case recently late business survey point mixed picture country manufacture pmi july recover india turkey fall sharply south africa indonesia rollout vaccine emes continue limited advanced economy give aggregate growth large eme appear slow somewhat economic impact spread delta variant expect persistent advanced economy committee discuss lesson learn economic experience country take early step relax covid restriction united kingdom australia new zealand israel country provide exact parallel united kingdom situation different experience virus policy response noteworthy feature household saving tend decline elevated rate restriction lift fall materially pre covid level suggest rapid run involuntarily accumulate saving gradual normalisation composition consumer demand demand durable good remain high demand service recover government australia new zealand appear able withdraw support labour market sharp increase unemployment monetary financial condition advanced economy long term government bond yield fall mpc previous reverse increase see early year main driver movement appear increase concern covid relate risk global growth outlook fall yield account primarily real rate inflation compensation component have stable market imply measure advanced economy policy rate fall little mpc previous july ecb governing council leave key policy interest rate scale pace asset purchase programme unchanged governing council early publish monetary policy strategy july include adoption symmetric inflation target medium term conclusion strategy line market expectation july federal open market committee leave unchanged target range fund rate pace asset purchase market imply path bank rate underpin august monetary policy report projection rise mpc year forecast horizon little change report movement risky asset price mpc previous mix equity price increase united kingdom euro area little change fall government bond yield support equity price equity risk premia rise region possibly reflect perceive increase risk pose covid economic outlook equity price relate company industry expose covid airline continue underperform headline index sterling effective exchange rate stable previous mpc credit supply condition household loosen committee previous particularly mortgage lending tightening occur onset pandemic unwound spread fix term mortgage continue fall net secured lending household rise time high june strength large elevated number property transaction complete tapering july temporary stamp duty threshold england northern ireland removal similar tax change wales net flow consumer credit continue slightly positive june have edge gradually previous month credit condition small medium sized enterprise tighten ending government lending scheme condition corporate sector little change loose expect report demand output gdp estimate rise slightly weak expect bank immediately prior release consumer face service output increase month reflect reopening indoor hospitality non self contain accommodation private business business service construction manufacturing output weak expect particular evidence global supply chain disruption weigh activity shortage semiconductor microchip lead sharp fall car production bank continue expect gdp slightly strong forecast time monetary policy report august report projection incorporate quarterly growth leave gdp level prior pandemic mpc previous number covid case continue increase subsequently show sign fall sharp increase number people ask self isolate temporarily channel number hospitalisation covid patient particular death day testing positive covid rise less degree previous wave pandemic vaccination programme continue majority remain domestic covid restriction lift england july plan relax similar degree wales august scotland august restriction northern ireland lift progressively late july have pick strongly april immediately follow reopening economy fast indicator household spending chaps payment datum flat june july level close immediately pandemic measure consumer confidence stabilise official retail sale volume rise june follow fall leave level sale level private car registration rise slightly june pre pandemic level residential property transaction pick significantly june buyer complete transaction tapering july temporary stamp duty threshold england northern ireland removal similar tax change wales number mortgage approval house purchase fall slightly june house price index rise take inflation rate month compare period year early timely indicator suggest ongoing strength house price inflation near term survey intelligence bank agents continue point demand run ahead supply ons business insights conditions survey suggest share company open trading increase slightly mpc previous share appear stabilise datum tentative sign rise covid case number individual self isolate affect workplace mobility area evidence manufacturing service pmi survey suggest remain substantial backlog work bank agents report constraint output friction global domestic supply chain shortage heavy good vehicle delivery driver restriction labour supply official trade datum continue good import european union weak import non country company expectation near term impact covid business investment similar level july decision maker panel survey survey committee available previous firm expect investment low low agency contact report company sector expect resume investment project hold pandemic particularly sector demand outpace capacity overall gdp expect grow august report projection compare report despite upside news activity anticipate mean level gdp project slightly low time report small negative impact expect development pandemic committee discuss risk near term outlook gdp impact delta variant counterfactual strong growth have large negative impact activity committee assume include voluntary social distancing moderation covid case persist lead strong expect growth clear extent voluntary social distancing affect spending aggregate level consumption substitute away easily activity consider risky health perspective level indicator spending occur late pickup case possible flattening consumer spending month simply reflect easing initial release pen demand observe country reopen early united kingdom supply cost price labour force survey lfs unemployment rate fall month remain percentage point high end lfs inactivity rate percentage point high pandemic lfs response beginning reweighte population weight inform hmrc payroll datum revised lfs estimate consistent stable population age show slightly steep decrease employment rate relative early estimate period hmrc payroll figure continue steep decline number employee imply lfs show sharp recovery turn year hmrc series increase june low february number job furlough coronavirus job retention scheme cjrs fall june end month equivalent private sector job late datum ons business insights conditions survey scale match administrative estimate suggest private sector job furlough half july job hold employee flexible form furlough allow undertake work employer proportion salary furlough hour cover government taper july august employer require increase unemployment inactivity number job furlough onset pandemic suggest material labour market slack indicator point labour market have tight stock vacancy increase june average single month ratio vacancy unemployment return level early late bank agents score recruitment difficulty rise sharply close pre pandemic level index availability rec report jobs reach record low june speed scale recovery labour demand contribute increase recruitment difficulty addition appear difficulty match available job worker reflect disparity geographical area week agents contact report significant number employee self isolate period contribute temporary labour shortage private sector regular average weekly earnings awe rise month year early annual rate project peak 8½% august monetary policy report forecast annual awe growth rate boost base effect reflect marked drop pay strength reflect significant compositional effect job lose pandemic skewed lower pay role adjust effect cjrs change composition bank estimate private sector regular pay rise annualise rate 2¾% include annualise growth half year rate see prior pandemic lot uncertainty estimate agents report pickup pay settlement sign pay pressure emerge number contact review pay structure give targeted pay increase bonus month cpi inflation rise june percentage point high project report similarly core cpi inflation exclude food beverage tobacco energy rise bulk news core good component car clothing footwear additional upside news service cater price particular less degree energy price good price increase globally reflect strong demand good supply shortage strength cpi inflation relate initial reopening sector economy cpi inflation project rise near term half project increase account high energy price inflation time core cpi inflation project rise agents contact report increase cost wide range material commodity high usual freight warehousing cost cost have pass consumer price great extent early year price cost indicator manufacture input output pmi remain high mpc june case strengthen pose potential upside risk short term inflation forecast alongside increase labour cost pressure import price pick strongly cost measure albeit expect give development world export price sterling exchange rate extent cpi inflation boost initially lifting restriction potential inflationary pressure moderate demand settle company expectation inflation year ahead increase accord range business survey include late deloitte cfo cbi survey july decision maker panel year ahead financial market professional forecaster inflation expectation rise citi yougov measure household year ahead inflation expectation rise july have fall little short term household measure tend correlate inflation outturn possible increase somewhat alongside expected rise cpi inflation come month medium term measure inflation expectation expect stable face temporary shock inflation citi yougov year ahead measure inflation expectation remain unchanged july medium term financial market measure inflation compensation year inflation swap rate year forward stable mpc previous little average level previous decade immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee review development backdrop late economic projection set accompanying august monetary policy report projection assume despite spread delta variant impact covid economy fade time condition market path interest rate global gdp growth estimate rise sharply covid vaccination programme gather pace restriction ease partly reflect spread delta variant global gdp expect expand slow pace anticipate report august report projection weight world gdp continue rise robustly near term impact covid continue wane support vaccination programme pace expansion global gdp slow growth return pre covid rate year forecast period global price pressure continue build reflect speed unevenness recovery activity disruption supply chain development reflect world export price inflation pick sharply trend persist period particularly supply chain vulnerable covid relate disruption strength global inflationary pressure expect transitory committee projection possible price pressure prove weak expect medium term previous period elevated tradable good price follow period relatively low inflation possibly supply adjust lag advanced economy long term government bond yield fall mpc previous possibly reflect concern covid relate risk global growth fall yield account primarily real rate inflation compensation component have stable movement risky asset price globally mix credit supply condition household loosen particularly mortgage lending tightening occur onset pandemic unwound august total stock asset hold asset purchase facility reach include programme government bond purchase announce november gdp expect rise leave pre pandemic level slightly strong expect report mpc previous number covid case united kingdom continue rise subsequently show sign fall sharp increase number people ask self isolate temporarily majority remain domestic covid restriction lift fast indicator household spending flat close pre covid level housing market remain strong evidence constraint output friction supply chain restriction labour supply gdp expect grow somewhat weak expect report small negative impact development pandemic near term risk gdp judge skew downside forecast impact global activity renew rise covid case especially variant virus emerge vaccine efficacy significantly low gdp project recover remainder year reach pre pandemic level demand growth boost wan impact covid pace gdp growth expect slow normal rate forecast period consumption support household run additional saving accumulate aggregate spend activity restrict fiscal policy estimate support demand near term policy stance tighten gradually time line government announcement labour force survey unemployment rate month percentage point high end inactivity rate percentage point level end number time furlough job continue decline demand recover remain end june stock vacancy increase indicator recruitment difficulty appear difficulty match available job worker friction period reduce effective supply economy suggest unemployment rate consistent stabilise wage growth rate line inflation target high prior pandemic overall mpc judge spare capacity erode past couple quarter demand outstrip growth effective supply friction labour market judge dissipate forecast period boost growth effective supply capacity uncertainty judgement include economy adjust end furlough scheme near term excess demand project emerge august report projection pickup demand project little rapid supply supply growth slow little demand growth excess demand erode demand supply return balance year forecast period side risk mpc assumption degree economy need adjust medium term response pandemic projection supply growth possibility composition demand normalise sectoral adjustment supply relatively quick alternatively large reallocation labour sector geographic area require result persistent mismatch supply demand private sector regular pay month high year early annual growth project peak 8½% adjust impact furlough scheme change composition employment pandemic annual base effect underlie pay growth appear pre covid rate month cpi inflation rise june mpc target percentage point high expect report core cpi inflation rise build global input cost pressure pass consumer good price less degree reopening economy lead pickup consumer service good price cpi inflation project rise temporarily near term percentage point high expect report owe development energy good price target inflation expect transitory august report projection commodity price assume stabilise supply shortage assume ease global demand rebalance away good service result cpi inflation expect fall project return close target medium term side risk path inflation downside example large expect supply response commodity global market push future input price import cost upside elevated inflationary pressure potentially lead round effect consumer price take evidence financial market measure survey household business professional forecaster committee judge inflation expectation remain anchor committee monitor risk domestic global demand cost pressure affect medium term inflation expectation committee turn immediate policy decision committee expectation elevated global domestic cost pressure prove transitory nonetheless economy project experience pronounced period target inflation near term expect report alongside temporary constraint supply rapid recovery demand erode spare capacity economy project margin excess demand period medium term condition market path interest rate inflation project fall close target demand supply expect return balance mpc half policy guidance place specify intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably committee discuss condition guidance meet take account august report projection development economic datum member committee judge considerable progress achieve condition mpc exist policy guidance condition meet fully particular judge sufficiently clear economy path meet inflation target sustainably give remain downside risk covid judgement member gdp employment materially medium term potential member committee judge condition exist policy guidance meet fully demonstrate development economic datum late projection spare capacity cpi inflation august report note guidance clear necessary sufficient condition future tightening monetary policy member confirm judge appropriate stance monetary policy committee focus medium term prospect inflation include medium term inflation expectation factor transient particular committee undue weight capacity pressure frictional nature temporary committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlie wage pressure addition remain side risk path inflation medium term risk management consideration continue force member committee judge exist stance monetary policy include previously announce increase target stock purchase asset remain appropriate economic outlook warrant reduction scale monetary policy stimulus mpc prefer stop asset purchase programme soon practical end year currently plan judge exist policy stance inflation target year ahead reflect prospect large persistent level excess demand united kingdom great impact global cost pressure forecast august report continue asset purchase cpi inflation output gap close situation later year cause medium term inflation expectation drift higher modest tightening monetary policy mitigate risk ultimately necessitate abrupt subsequent tightening policy great adjustment growth employment committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term chair invite committee vote proposition bank rate maintain bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve bank england exist programme government bond purchase finance issuance reserve maintain target stock purchase committee vote unanimously favour proposition member andrew bailey ben broadbent jon cunliffe jonathan haskel dave ramsden silvana tenreyro gertjan vlieghe vote favour proposition michael saunders vote proposition prefer reduce target stock government bond purchase operational consideration exist programme government bond purchase start january completion expect end detail plan operational approach gilt purchase august december mpc meeting set market notice accompany minute market function worsen materially bank england stand ready increase pace purchase ensure effective transmission monetary policy addition describe market notice accompany minute committee agree reinvest cash flow associate redemption september gilt hold asset purchase facility committee asset purchase programme need scope bank england evaluate exist technical parameter gilt purchase programme mpc monetary policy toolkit february minute committee request pra engage pra regulate firm ensure commence preparation order ready implement negative bank rate point month mpc request bank commence internal technical preparation deliver option tiere system remuneration ready implement judge appropriate alongside negative bank rate committee stress february preparation interpret signal setting negative bank rate imminent prospect specific time august committee brief technical preparation internally pra regulate firm progress sufficiently negative bank rate implement system tiere account remuneration warrant box accompanying august monetary policy report committee set update strategy mix monetary policy tool intended approach instrument toolkit deliver tightening stance policy require path bank rate stock purchase asset year depend economic development stance monetary policy set meet inflation target way help sustain growth employment finally behalf committee chair express appreciation gertjan vlieghe contribution work mpc follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel dave ramsden michael saunders silvana tenreyro gertjan vlieghe clare lombardelli treasury representative permit bank england act amend bank england financial services act bradley fried august observer purpose exercise oversight function role bank court directors

monetary policy summary september bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase mpc projection august monetary policy report gdp project recover remainder year demand growth boost wan impact covid-19 covid project period excess demand near term demand supply expect return balance demand growth slow constraint supply ease cpi inflation project rise temporarily near term owe development energy good price condition market path interest rate cpi inflation expect fall close target medium term august mpc pace recovery global activity show sign slow backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent financial market indicator inflation expectation rise somewhat include united kingdom bank revise expectation level gdp august report leave expect level gdp 2½% pre covid level downward revision reflect emergence supply constraint output evident survey show historically lengthy supplier delivery time backlog work significant material labour shortage number sector low normal level inventory momentum appear pick service orientate sector output remain pre covid level official estimate retail sale weaken somewhat indicator spending remain strong level consumer confidence labour force survey unemployment rate fall month july slightly august report forecast hmrc payroll datum employee number include furlough job surpass level august number time furlough job continue decline basis report number july materially less degree estimate august report sign increase redundancy stock vacancy increase indicator recruitment difficulty bank estimate underlie pay growth pick pre pandemic rate uncertainty outlook labour market increase key question include economy adjust closure furlough scheme end september extent impact duration change unemployment degree persistence difficulty match available job worker committee development forthcoming forecast round ahead november monetary policy report include periodic assessment supply economy month cpi inflation rise july august compare figure expect august report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise august high rate november base effect account majority increase cpi inflation july august global cost pressure continue affect consumer good price less degree reopening economy lead increase consumer service price indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september cpi inflation expect rise near term slightly owe development energy good price material rise spot forward wholesale gas price august report represent upside risk mpc inflation projection april indicator cost pressure remain elevated committee expectation continue elevated global cost pressure prove transitory mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation factor transient previous committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term development intervene period appear strengthen case considerable uncertainty committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlying pay pressure extent business pass wage cost increase medium term inflation expectation committee judge exist stance monetary policy remain appropriate minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy global economy continue recover weight global gdp growth line expectation time august monetary policy report global activity expect grow slightly slow pace account weak growth united states china early evidence rotation demand good service service pmis line manufacture pmis united states euro area backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent euro area gdp pick strong expect time august report number covid case appear stabilise euro area country alongside recovery mobility continue progress vaccination programme turn euro area manufacture pmi remain historical average fall weak level month august supply constraint affect activity service pmi remain elevated bank expect euro area gdp growth somewhat strong time august report level gdp expect pre covid level gdp rise slightly weak expect time august report labour market non farm payroll increase august slow pace average job add previous month unemployment rate fall covid case start fall region remain elevated pace vaccination rollout slow considerably month southern state particular see low mobility activity hold state despite consistent link case activity have weaken real personal consumption spending fall july service spending continue recover relative good spending high frequency spending datum point slowdown consumer spending remain pre covid level overall gdp expect rise somewhat time august report chinese activity slow july imposition localise lockdown response outbreak covid weigh mobility official datum business survey point moderation activity august gdp expect rise slightly time august report recovery large emerging market economies emes weak expect time august report account particularly impact gdp delta variant drive wave india covid case eme fall month increase pace vaccination rollout economy vaccination rate remain level see advanced economy indicator economic mobility hold eme recently covid case rise global inflationary pressure remain strong manufacture input output price continue rise sharply albeit marginally slow rate oil price remain elevate compare pre covid level brent oil spot price barrel wholesale gas price rise sharply europe asia drive combination strong global demand range supply constraint include low level inventory unusually long cold winter europe low usual availability wind energy week non energy commodity price aggregate unchanged shipping cost continue rise spot rate rise particularly sharply certain route strength shipping cost continue reflect range factor include strong global good demand supply chain disruption congestion covid relate closure large port supplier delivery time continue rise supply condition appear improve slightly sector semiconductor production time previous order backlog clear global containerise trade flow continue recover world trade volume pre pandemic level euro area month headline hicp inflation rise august july strong expect time august report core inflation rise account substantial increase clothing footwear inflation cpi inflation remain elevate august ease slightly august year high june july headline pce inflation pick little july core pce inflation remain unchanged rise headline inflation primarily drive sector sensitive reopening economy sign price pressure sector ease example contribution inflation car price durable good price ease past couple month monetary financial condition committee previous advanced economy financial market price move narrow range equity price corporate bond spread change little short term long term government bond yield increase slightly recently global equity price volatile drive financial distress evergrande group china large property developer market imply measure advanced economy policy rate increase slightly committee previous united kingdom increase level bank rate basis point basis point expect december respectively compare august february time committee previous market expectation basis point increase fund rate united states bring forward february june september ecb governing council decide reduce moderately pace asset purchase pandemic emergency purchase programme governing council leave key policy rate unchanged financial market indicator inflation expectation rise somewhat include united kingdom near term measure inflation compensation year inflation swap rate year forward rise substantially united kingdom committee previous driver movement appear strong expect cpi inflation outturn year inflation swap rate year forward indicator medium term inflation expectation increase slightly basis point average real yield imply advanced economy long term government bond fall substantially peak march significantly low pre pandemic level alongside advanced economy equity price increase materially beginning year large advanced economy increase significantly pre pandemic level market contact forward possible explanation constellation asset price attribute low real yield primarily expectation monetary policy highly accommodative bank look transitory increase inflation support risky asset price contact expect real rate rise time range view gradually occur contact attribute low real yield pessimistic outlook medium term global growth appear incorporate equity valuation sterling effective exchange rate stable previous mpc mortgage credit condition united kingdom ease fall lending spread mortgage product spread product loan value ltv ratio low equal similar spread january spread product ltv ratio high remain january level number mortgage product available continue improve availability product low ltv ratio similar pre pandemic level availability product high ltv ratio remain pre pandemic level supervisory intelligence suggest lender optimistic economic outlook wholesale funding spread fall month ring fence bank ample liquidity strong deposit growth credit condition unsecured borrowing household lend small medium sized enterprise change little committee previous spread remain mpc forecast early year demand output mpc previous number hospitalisation covid-19 covid patient death day testing positive covid tend rise united kingdom number covid case start fall recently number people ask self isolate temporarily channel decline sharply follow change guidance august mean people dos covid vaccine long isolate come contact test positive virus government recently announce autumn winter plan respond covid include child age offer dose covid vaccine adult clinically vulnerable offer booster jab covid relate restriction international travel relax recently accord ons quarterly estimate gdp rise close projection incorporate august monetary policy report leave level gdp 4½% pre covid level expenditure component household consumption estimate rise follow reopening retail hospitality sector somewhat weak increase expect august report business investment subject revision rise expect remain pre covid level government consumption increase education output rebound recovery pupil attendance early restriction lift ahead mpc ons release blue book consistent revision gdp quarterly national accounts publish september include significant methodological change introduction double deflation improvement deflator item telecommunication clothing change expect raise pre pandemic economic growth rate official output datum june july somewhat weak expect august report monthly growth rate respectively imply level gdp 3½% level middle year downside news appear reflect sign bottleneck supply chain labour shortage start affect output particularly manufacturing construction sector combine slow expect recovery demand consumer face service recovery activity appear underway component output remain pre covid level date consumer face service transport workplace relate service example fast indicator use public transport number flight rise week evidence spend entertainment recreational event increase restriction loosen education output rise normal level take component judge account large gdp growth expect indicator household spending remain strong level consumer confidence official estimate retail sale volume fall august level sale remain pre covid level food store sale fall fast indicator restaurant spending pick housing activity indicator remain robust include mortgage approval house purchase july house price index unwound record rise june relate timing tapering temporary stamp duty cut england northern ireland timely house price datum pick appear impact supply constraint output prove persistent supplier delivery time continue lengthen materially manufacturing construction sector accord late pmi survey half respondent late cbi industrial trends survey report material component factor limit production month respondent note skilled labour limit factor close historical series high supply chain issue lead respondent late cbi distributive trades survey low level retail inventory relative expect sale record backlog work rise accord component service pmi link primarily shortage key intelligence bank agents suggest backdrop strong demand quarter supply issue resolve case separately high spot wholesale gas price significantly affect production plan sector overall bank revise expectation gdp growth time august report reflect emergence supply constraint output leave level gdp 2½% pre covid level alongside launch spending review september government announce health social care levy april proceed spend health social care base increase national insurance contributions work adult rise dividend tax rate envelope core day day departmental spending assume follow path set spring budget government announce state pension triple lock suspend fiscal year spending review conclude october alongside autumn budget update economic fiscal forecast office budget responsibility supply cost price labour force survey lfs unemployment rate fall month july slightly expectation august monetary policy report unemployment rate remain percentage point level lfs employment grow month july slightly expectation time august report hmrc payroll datum suggest employee number increase august surpass level datum prone revision inactivity rate fall month july unwound increase course pandemic hmrc administrative datum suggest job private sector job furlough coronavirus job retention scheme cjrs july compare job furlough june materially high number job furlough assume time august report possibly reflect downside news gdp growth period additionally reweighting ons business insights conditions survey bics lead substantial upward revision estimate share private sector job furlough relative datum available time august report recent bics datum suggest number job furlough decline private sector job week september staff estimate suggest half job furlough flexible form furlough allow employee undertake work employer proportion salary furlough hour cover government taper progressively july august employer require july cjrs end september indicator redundancy remain subdue run end cjrs level lfs redundancy fall month july redundancy rate decrease percentage point pre pandemic level hr1 notifications statutory requirement record advance notification plan redundancy single establishment remain low relevant statutory consultation period overlap end date cjrs small business disproportionate user furlough scheme definition require hr1 notification bics datum point increase plan redundancy small business month intelligence bank agents highlight risk micro business employ close permanently cjrs closure indicator labour demand remain strong labour market appear tighten stock job vacancy rise august surpass previous record set july ratio vacancy unemployment rise rapidly surpass average single month basis rec index availability tighten record pace august intelligence bank agents suggest recruitment difficulty widespread acute month agent contact attribute labour shortage combination factor include demand recover quickly expect reduction availability worker shortage heavy goods vehicle hgv driver exacerbate age workforce backlog licence testing private sector regular average weekly earnings awe rise month july year early compare month june awe growth continue boost compositional effect give job loss skew lower pay employee pandemic awe growth push mechanically cjrs recently private sector job have furlough july compare july cjrs drag measured pay growth pandemic period prior adjust mechanical effect cjrs change composition bank estimate private sector regular pay growth pre pandemic rate rec report jobs permanent salary index measure monthly pay growth permanent hire increase high level record point robust pay growth hire bank agents contact report increase pay settlement recently contact report pay increase significantly high worker skill particularly short supply hgv driver use bonus retain widespread month cpi inflation rise july august inflation rate august exchange letter governor chancellor exchequer publish alongside minute core inflation rise july august high rate november headline cpi outturn august percentage point projection august report upside news account recreational audio visual good food accommodation service base effect account majority increase month inflation july august base effect year eat help scheme drag price august year temporarily reduce vat rate hospitality holiday accommodation attraction drop annual calculation account rise service inflation year high additionally item clothing footwear airfare grow average rate august year global supply bottleneck continue affect consumer good price consumer good market affect indirectly supply bottleneck example continue semiconductor shortage disrupt car production lead increase demand car market month car price inflation rise august reopening economy lead pickup consumer service price recent monthly price increase particularly pronounce relative historical average service directly affect previous restriction restaurant recreational accommodation service committee discuss near term outlook consumer price cpi inflation expect rise temporarily slightly slightly high projection august report half near term project target inflation expect account elevated energy price inflation project contribution energy price october reflect base effect ofgem announce increase standard variable tariff cap retail gas electricity price spot forward wholesale gas price rise materially publication august report backdrop strong demand supply disruption represent significant upside risk mpc inflation projection april ofgem update retail energy price cap base relevant forward contract mean cpi inflation slightly equal core good inflation expect pre pandemic average account remainder project target inflation contrast pandemic period service inflation expect rise slightly rate close pre covid average reflect continued recovery activity consumer face service taper rise vat hospitality holiday accommodation attraction october indicator cost pressure remain elevated manufacturer output price exclude food energy grow annualise rate close month august survey base measure output input price inflation pmis remain historically high level contact bank agents report sign cost pass manufacturing construction sector recently contact report sign firm pass labour cost increase labour intensive sector indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september bank kantar year ahead measure household inflation expectation increase slightly historical average potential short term measure household expectation rise come month tend official inflation outturn previously movement short term measure inconsistent household inflation expectation remain anchor august decision maker panel report increase company year ahead price inflation expectation professional forecaster average expect rise inflation short term august report projection accord late treasury survey independent forecaster immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc projection august monetary policy report gdp project recover remainder year demand growth boost wan impact covid-19 covid project period excess demand near term demand supply expect return balance demand growth slow constraint supply ease cpi inflation project rise temporarily near term owe development energy good price condition market path interest rate cpi inflation expect fall close target medium term committee review development include extent line projection august report august mpc pace recovery global activity show sign slow euro area gdp growth high expect time august report expect somewhat strong development gdp show opposite pattern link covid case activity continue weaken growth china large emerging market economies weaken somewhat early evidence rotation demand good service service pmis line manufacture pmis united states euro area recently backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent oil price remain elevated global shipping cost continue rise wholesale gas price rise substantially europe supply condition appear improve slightly global semiconductor sector time previous order backlog clear headline core consumer price inflation rise euro area remain elevate united states committee previous global equity price corporate bond spread change little short term long term government bond yield increase slightly include united kingdom mortgage credit condition united kingdom ease fall lending spread mortgage product september total stock asset hold asset purchase facility reach include programme government bond purchase announce november bank revise expectation level gdp august report leave expect level gdp 2½% pre covid level downward revision reflect emergence supply constraint output evident survey show historically lengthy supplier delivery time backlog work significant material labour shortage number sector low normal level inventory momentum appear pick service orientate sector output remain pre covid level official estimate retail sale weaken somewhat indicator spending remain strong level consumer confidence bank initial assessment fiscal announcement neutral growth outlook high spending health social care fund increase national insurance contributions rise dividend tax rate envelope core day day departmental spending assume follow path set spring budget ahead committee government conclude spending review october alongside autumn budget update economic fiscal forecast office budget responsibility labour force survey unemployment rate fall month july slightly august report forecast hmrc payroll datum suggest employee number include furlough job surpass level august inactivity rate fall month july unwound increase course pandemic number time furlough job continue decline materially less degree estimate august report surprise partly explain downside news gdp growth hmrc administrative datum suggest job private sector job furlough coronavirus job retention scheme cjrs july half job flexible form furlough allow employee undertake work employer recent business insights conditions survey bics datum suggest number job furlough decline private sector job week september end cjrs september remove support income sign increase redundancy stock vacancy increase indicator recruitment difficulty contact bank agents attribute labour shortage combination factor include demand recover quickly expect reduction availability worker shortage heavy goods vehicle driver exacerbate age workforce backlog licence testing bank estimate underlie pay growth pick pre pandemic rate bank agents contact report pay increase significantly high worker skill particularly short supply use bonus retain widespread committee discuss explanation surprisingly high number job record furlough despite signal rapidly tighten labour market possibility company continue use cjrs hoard labour ahead expect recovery demand cost strategy increase recently company choose let end scheme sufficiently confident future demand retain substantial proportion furlough job small company include single employee decision reopen depend idiosyncratic condition extent business bring fully pre covid workplace prolong furlough business support workplace ancillary good service possible great number furlough worker able find job alternative employer expand scope exist job allowable cjrs worker probably unemployed end scheme account large proportion furlough high vacancy rate difficult explain hypothesis shift pattern demand pandemic furlough suitable match job vacancy currently available vacancy rise economy include sector high number furlough job mismatch granular level company sector case increase unemployment follow end cjrs structural cyclical overall committee judge uncertainty outlook labour market increase key question include economy adjust closure furlough scheme end september extent impact duration change unemployment degree persistence difficulty match available job worker committee development forthcoming forecast round ahead november monetary policy report include periodic assessment supply economy ahead mpc official datum furlough number available august additional timely information available bics survey bank agents include potential increase redundancy official labour market datum october cover period follow closure cjrs publish november mpc month cpi inflation rise july august compare figure expect august report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise august high rate november base effect account majority increase cpi inflation july august global cost pressure continue affect consumer good price less degree reopening economy lead increase consumer service price cpi inflation expect rise near term slightly owe development energy good price material rise spot forward wholesale gas price august report represent upside risk mpc inflation projection april mean cpi inflation equal indicator cost pressure remain elevated committee expectation continue elevated global cost pressure prove transitory good reason expect material supply response commodity global market push future input price import cost say pandemic reinforce retrenchment globalisation scope factor create future disinflationary pressure elevated inflationary pressure potentially lead round effect consumer price financial market indicator inflation expectation rise somewhat include united kingdom year inflation swap rate year forward basis point average indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september bank kantar year ahead measure household inflation expectation increase slightly historical average take range evidence financial market measure survey household business professional forecaster committee judge inflation expectation remain anchored give development committee monitor closely risk domestic global demand cost pressure affect medium term inflation expectation committee turn immediate policy decision mpc half policy guidance place specify intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably remain range view committee condition guidance meet member agree previous formal guidance long useful situation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate stance monetary policy focus medium term prospect inflation factor transient member committee judge exist stance monetary policy include previously announce increase target stock purchase asset remain appropriate range view near term path unemployment follow closure furlough scheme member group agree outlook labour market underlie inflationary pressure particularly uncertain uncertainty resolve coming month high option value wait additional information decide tightening monetary policy warrant sign unemployment rate increase significantly follow end cjrs somewhat long extent rise structural cyclical structural push effective supply economy long persist member group remain inflation fall medium term line projection august report supply bottleneck clear demand growth ease company pricing power moderated abstract constraint effective supply gdp remain medium term potential level monetary policy role sustain demand reduce degree medium term scarring economy show sign normalise recently demand strong supply constraint prove long lasting cpi inflation continue surprise upside indicator cost pressure appear somewhat persistent financial market inflation break even continue rise gradually different member place different weight argument member group monetary policy point need start unwind post pandemic stimulus member group agree future initial tightening monetary policy implement increase bank rate tightening appropriate end exist government bond asset purchase programme member economic outlook warrant tightening monetary policy stance mpc increase evidence range global domestic cost price indicator inflationary pressure persist record vacancy level pace underlie wage growth evidence ongoing tightness labour market condition alongside sign capacity pressure member judge exist policy stance inflation target medium term reflect great impact cost pressure prospect large persistent level excess demand united kingdom forecast august report member prefer stop asset purchase programme soon practical continue end year currently plan continue asset purchase cpi inflation output gap close cause medium term inflation expectation drift decision curtail asset purchase programme imply modest policy tightening mitigate risk ultimately necessitate abrupt subsequent tightening policy great adjustment growth employment demonstrate committee commitment return inflation target medium term ensure medium term inflation expectation remain anchor previous committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term development intervene period appear strengthen case considerable uncertainty remain committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlying pay pressure extent business pass wage cost increase medium term inflation expectation chair invite committee vote proposition bank rate maintain bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve bank england exist programme government bond purchase finance issuance reserve maintain target stock purchase committee vote unanimously favour proposition member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill silvana tenreyro vote favour proposition member dave ramsden michael saunders vote proposition prefer reduce target stock government bond purchase operational consideration exist programme government bond purchase start january completion expect end detail plan operational approach gilt purchase august december mpc meeting set market notice accompany august minute market function worsen materially bank england stand ready increase pace purchase ensure effective transmission monetary policy committee asset purchase programme need scope bank england evaluate exist technical parameter gilt purchase programme consistent committee previous guidance mpc agree reinvest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility eligible corporate bond commence november announce march reinvestment programme climate impact issuer bond account detail reinvestment operation publish market notice nearer time alongside detail bank approach green portfolio implement year follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro tom josephs treasury representative permit bank england act amend bank england financial services act dorothy thompson september observer purpose exercise oversight function role bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end november publish november monetary policy summary september bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september committee judge exist stance monetary policy remain appropriate mpc vote unanimously maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase mpc projection august monetary policy report gdp project recover remainder year demand growth boost wan impact covid-19 covid project period excess demand near term demand supply expect return balance demand growth slow constraint supply ease cpi inflation project rise temporarily near term owe development energy good price condition market path interest rate cpi inflation expect fall close target medium term august mpc pace recovery global activity show sign slow backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent financial market indicator inflation expectation rise somewhat include united kingdom bank revise expectation level gdp august report leave expect level gdp 2½% pre covid level downward revision reflect emergence supply constraint output evident survey show historically lengthy supplier delivery time backlog work significant material labour shortage number sector low normal level inventory momentum appear pick service orientate sector output remain pre covid level official estimate retail sale weaken somewhat indicator spending remain strong level consumer confidence labour force survey unemployment rate fall month july slightly august report forecast hmrc payroll datum employee number include furlough job surpass level august number time furlough job continue decline basis report number july materially less degree estimate august report sign increase redundancy stock vacancy increase indicator recruitment difficulty bank estimate underlie pay growth pick pre pandemic rate uncertainty outlook labour market increase key question include economy adjust closure furlough scheme end september extent impact duration change unemployment degree persistence difficulty match available job worker committee development forthcoming forecast round ahead november monetary policy report include periodic assessment supply economy month cpi inflation rise july august compare figure expect august report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise august high rate november base effect account majority increase cpi inflation july august global cost pressure continue affect consumer good price less degree reopening economy lead increase consumer service price indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september cpi inflation expect rise near term slightly owe development energy good price material rise spot forward wholesale gas price august report represent upside risk mpc inflation projection april indicator cost pressure remain elevated committee expectation continue elevated global cost pressure prove transitory mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation factor transient previous committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term development intervene period appear strengthen case considerable uncertainty committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlying pay pressure extent business pass wage cost increase medium term inflation expectation committee judge exist stance monetary policy remain appropriate minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy global economy continue recover weight global gdp growth line expectation time august monetary policy report global activity expect grow slightly slow pace account weak growth united states china early evidence rotation demand good service service pmis line manufacture pmis united states euro area backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent euro area gdp pick strong expect time august report number covid case appear stabilise euro area country alongside recovery mobility continue progress vaccination programme turn euro area manufacture pmi remain historical average fall weak level month august supply constraint affect activity service pmi remain elevated bank expect euro area gdp growth somewhat strong time august report level gdp expect pre covid level gdp rise slightly weak expect time august report labour market non farm payroll increase august slow pace average job add previous month unemployment rate fall covid case start fall region remain elevated pace vaccination rollout slow considerably month southern state particular see low mobility activity hold state despite consistent link case activity have weaken real personal consumption spending fall july service spending continue recover relative good spending high frequency spending datum point slowdown consumer spending remain pre covid level overall gdp expect rise somewhat time august report chinese activity slow july imposition localise lockdown response outbreak covid weigh mobility official datum business survey point moderation activity august gdp expect rise slightly time august report recovery large emerging market economies emes weak expect time august report account particularly impact gdp delta variant drive wave india covid case eme fall month increase pace vaccination rollout economy vaccination rate remain level see advanced economy indicator economic mobility hold eme recently covid case rise global inflationary pressure remain strong manufacture input output price continue rise sharply albeit marginally slow rate oil price remain elevate compare pre covid level brent oil spot price barrel wholesale gas price rise sharply europe asia drive combination strong global demand range supply constraint include low level inventory unusually long cold winter europe low usual availability wind energy week non energy commodity price aggregate unchanged shipping cost continue rise spot rate rise particularly sharply certain route strength shipping cost continue reflect range factor include strong global good demand supply chain disruption congestion covid relate closure large port supplier delivery time continue rise supply condition appear improve slightly sector semiconductor production time previous order backlog clear global containerise trade flow continue recover world trade volume pre pandemic level euro area month headline hicp inflation rise august july strong expect time august report core inflation rise account substantial increase clothing footwear inflation cpi inflation remain elevate august ease slightly august year high june july headline pce inflation pick little july core pce inflation remain unchanged rise headline inflation primarily drive sector sensitive reopening economy sign price pressure sector ease example contribution inflation car price durable good price ease past couple month monetary financial condition committee previous advanced economy financial market price move narrow range equity price corporate bond spread change little short term long term government bond yield increase slightly recently global equity price volatile drive financial distress evergrande group china large property developer market imply measure advanced economy policy rate increase slightly committee previous united kingdom increase level bank rate basis point basis point expect december respectively compare august february time committee previous market expectation basis point increase fund rate united states bring forward february june september ecb governing council decide reduce moderately pace asset purchase pandemic emergency purchase programme governing council leave key policy rate unchanged financial market indicator inflation expectation rise somewhat include united kingdom near term measure inflation compensation year inflation swap rate year forward rise substantially united kingdom committee previous driver movement appear strong expect cpi inflation outturn year inflation swap rate year forward indicator medium term inflation expectation increase slightly basis point average real yield imply advanced economy long term government bond fall substantially peak march significantly low pre pandemic level alongside advanced economy equity price increase materially beginning year large advanced economy increase significantly pre pandemic level market contact forward possible explanation constellation asset price attribute low real yield primarily expectation monetary policy highly accommodative bank look transitory increase inflation support risky asset price contact expect real rate rise time range view gradually occur contact attribute low real yield pessimistic outlook medium term global growth appear incorporate equity valuation sterling effective exchange rate stable previous mpc mortgage credit condition united kingdom ease fall lending spread mortgage product spread product loan value ltv ratio low equal similar spread january spread product ltv ratio high remain january level number mortgage product available continue improve availability product low ltv ratio similar pre pandemic level availability product high ltv ratio remain pre pandemic level supervisory intelligence suggest lender optimistic economic outlook wholesale funding spread fall month ring fence bank ample liquidity strong deposit growth credit condition unsecured borrowing household lend small medium sized enterprise change little committee previous spread remain mpc forecast early year demand output mpc previous number hospitalisation covid-19 covid patient death day testing positive covid tend rise united kingdom number covid case start fall recently number people ask self isolate temporarily channel decline sharply follow change guidance august mean people dos covid vaccine long isolate come contact test positive virus government recently announce autumn winter plan respond covid include child age offer dose covid vaccine adult clinically vulnerable offer booster jab covid relate restriction international travel relax recently accord ons quarterly estimate gdp rise close projection incorporate august monetary policy report leave level gdp 4½% pre covid level expenditure component household consumption estimate rise follow reopening retail hospitality sector somewhat weak increase expect august report business investment subject revision rise expect remain pre covid level government consumption increase education output rebound recovery pupil attendance early restriction lift ahead mpc ons release blue book consistent revision gdp quarterly national accounts publish september include significant methodological change introduction double deflation improvement deflator item telecommunication clothing change expect raise pre pandemic economic growth rate official output datum june july somewhat weak expect august report monthly growth rate respectively imply level gdp 3½% level middle year downside news appear reflect sign bottleneck supply chain labour shortage start affect output particularly manufacturing construction sector combine slow expect recovery demand consumer face service recovery activity appear underway component output remain pre covid level date consumer face service transport workplace relate service example fast indicator use public transport number flight rise week evidence spend entertainment recreational event increase restriction loosen education output rise normal level take component judge account large gdp growth expect indicator household spending remain strong level consumer confidence official estimate retail sale volume fall august level sale remain pre covid level food store sale fall fast indicator restaurant spending pick housing activity indicator remain robust include mortgage approval house purchase july house price index unwound record rise june relate timing tapering temporary stamp duty cut england northern ireland timely house price datum pick appear impact supply constraint output prove persistent supplier delivery time continue lengthen materially manufacturing construction sector accord late pmi survey half respondent late cbi industrial trends survey report material component factor limit production month respondent note skilled labour limit factor close historical series high supply chain issue lead respondent late cbi distributive trades survey low level retail inventory relative expect sale record backlog work rise accord component service pmi link primarily shortage key intelligence bank agents suggest backdrop strong demand quarter supply issue resolve case separately high spot wholesale gas price significantly affect production plan sector overall bank revise expectation gdp growth time august report reflect emergence supply constraint output leave level gdp 2½% pre covid level alongside launch spending review september government announce health social care levy april proceed spend health social care base increase national insurance contributions work adult rise dividend tax rate envelope core day day departmental spending assume follow path set spring budget government announce state pension triple lock suspend fiscal year spending review conclude october alongside autumn budget update economic fiscal forecast office budget responsibility supply cost price labour force survey lfs unemployment rate fall month july slightly expectation august monetary policy report unemployment rate remain percentage point level lfs employment grow month july slightly expectation time august report hmrc payroll datum suggest employee number increase august surpass level datum prone revision inactivity rate fall month july unwound increase course pandemic hmrc administrative datum suggest job private sector job furlough coronavirus job retention scheme cjrs july compare job furlough june materially high number job furlough assume time august report possibly reflect downside news gdp growth period additionally reweighting ons business insights conditions survey bics lead substantial upward revision estimate share private sector job furlough relative datum available time august report recent bics datum suggest number job furlough decline private sector job week september staff estimate suggest half job furlough flexible form furlough allow employee undertake work employer proportion salary furlough hour cover government taper progressively july august employer require july cjrs end september indicator redundancy remain subdue run end cjrs level lfs redundancy fall month july redundancy rate decrease percentage point pre pandemic level hr1 notifications statutory requirement record advance notification plan redundancy single establishment remain low relevant statutory consultation period overlap end date cjrs small business disproportionate user furlough scheme definition require hr1 notification bics datum point increase plan redundancy small business month intelligence bank agents highlight risk micro business employ close permanently cjrs closure indicator labour demand remain strong labour market appear tighten stock job vacancy rise august surpass previous record set july ratio vacancy unemployment rise rapidly surpass average single month basis rec index availability tighten record pace august intelligence bank agents suggest recruitment difficulty widespread acute month agent contact attribute labour shortage combination factor include demand recover quickly expect reduction availability worker shortage heavy goods vehicle hgv driver exacerbate age workforce backlog licence testing private sector regular average weekly earnings awe rise month july year early compare month june awe growth continue boost compositional effect give job loss skew lower pay employee pandemic awe growth push mechanically cjrs recently private sector job have furlough july compare july cjrs drag measured pay growth pandemic period prior adjust mechanical effect cjrs change composition bank estimate private sector regular pay growth pre pandemic rate rec report jobs permanent salary index measure monthly pay growth permanent hire increase high level record point robust pay growth hire bank agents contact report increase pay settlement recently contact report pay increase significantly high worker skill particularly short supply hgv driver use bonus retain widespread month cpi inflation rise july august inflation rate august exchange letter governor chancellor exchequer publish alongside minute core inflation rise july august high rate november headline cpi outturn august percentage point projection august report upside news account recreational audio visual good food accommodation service base effect account majority increase month inflation july august base effect year eat help scheme drag price august year temporarily reduce vat rate hospitality holiday accommodation attraction drop annual calculation account rise service inflation year high additionally item clothing footwear airfare grow average rate august year global supply bottleneck continue affect consumer good price consumer good market affect indirectly supply bottleneck example continue semiconductor shortage disrupt car production lead increase demand car market month car price inflation rise august reopening economy lead pickup consumer service price recent monthly price increase particularly pronounce relative historical average service directly affect previous restriction restaurant recreational accommodation service committee discuss near term outlook consumer price cpi inflation expect rise temporarily slightly slightly high projection august report half near term project target inflation expect account elevated energy price inflation project contribution energy price october reflect base effect ofgem announce increase standard variable tariff cap retail gas electricity price spot forward wholesale gas price rise materially publication august report backdrop strong demand supply disruption represent significant upside risk mpc inflation projection april ofgem update retail energy price cap base relevant forward contract mean cpi inflation slightly equal core good inflation expect pre pandemic average account remainder project target inflation contrast pandemic period service inflation expect rise slightly rate close pre covid average reflect continued recovery activity consumer face service taper rise vat hospitality holiday accommodation attraction october indicator cost pressure remain elevated manufacturer output price exclude food energy grow annualise rate close month august survey base measure output input price inflation pmis remain historically high level contact bank agents report sign cost pass manufacturing construction sector recently contact report sign firm pass labour cost increase labour intensive sector indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september bank kantar year ahead measure household inflation expectation increase slightly historical average potential short term measure household expectation rise come month tend official inflation outturn previously movement short term measure inconsistent household inflation expectation remain anchor august decision maker panel report increase company year ahead price inflation expectation professional forecaster average expect rise inflation short term august report projection accord late treasury survey independent forecaster immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc projection august monetary policy report gdp project recover remainder year demand growth boost wan impact covid-19 covid project period excess demand near term demand supply expect return balance demand growth slow constraint supply ease cpi inflation project rise temporarily near term owe development energy good price condition market path interest rate cpi inflation expect fall close target medium term committee review development include extent line projection august report august mpc pace recovery global activity show sign slow euro area gdp growth high expect time august report expect somewhat strong development gdp show opposite pattern link covid case activity continue weaken growth china large emerging market economies weaken somewhat early evidence rotation demand good service service pmis line manufacture pmis united states euro area recently backdrop robust good demand continue supply constraint global inflationary pressure remain strong sign cost pressure prove persistent oil price remain elevated global shipping cost continue rise wholesale gas price rise substantially europe supply condition appear improve slightly global semiconductor sector time previous order backlog clear headline core consumer price inflation rise euro area remain elevate united states committee previous global equity price corporate bond spread change little short term long term government bond yield increase slightly include united kingdom mortgage credit condition united kingdom ease fall lending spread mortgage product september total stock asset hold asset purchase facility reach include programme government bond purchase announce november bank revise expectation level gdp august report leave expect level gdp 2½% pre covid level downward revision reflect emergence supply constraint output evident survey show historically lengthy supplier delivery time backlog work significant material labour shortage number sector low normal level inventory momentum appear pick service orientate sector output remain pre covid level official estimate retail sale weaken somewhat indicator spending remain strong level consumer confidence bank initial assessment fiscal announcement neutral growth outlook high spending health social care fund increase national insurance contributions rise dividend tax rate envelope core day day departmental spending assume follow path set spring budget ahead committee government conclude spending review october alongside autumn budget update economic fiscal forecast office budget responsibility labour force survey unemployment rate fall month july slightly august report forecast hmrc payroll datum suggest employee number include furlough job surpass level august inactivity rate fall month july unwound increase course pandemic number time furlough job continue decline materially less degree estimate august report surprise partly explain downside news gdp growth hmrc administrative datum suggest job private sector job furlough coronavirus job retention scheme cjrs july half job flexible form furlough allow employee undertake work employer recent business insights conditions survey bics datum suggest number job furlough decline private sector job week september end cjrs september remove support income sign increase redundancy stock vacancy increase indicator recruitment difficulty contact bank agents attribute labour shortage combination factor include demand recover quickly expect reduction availability worker shortage heavy goods vehicle driver exacerbate age workforce backlog licence testing bank estimate underlie pay growth pick pre pandemic rate bank agents contact report pay increase significantly high worker skill particularly short supply use bonus retain widespread committee discuss explanation surprisingly high number job record furlough despite signal rapidly tighten labour market possibility company continue use cjrs hoard labour ahead expect recovery demand cost strategy increase recently company choose let end scheme sufficiently confident future demand retain substantial proportion furlough job small company include single employee decision reopen depend idiosyncratic condition extent business bring fully pre covid workplace prolong furlough business support workplace ancillary good service possible great number furlough worker able find job alternative employer expand scope exist job allowable cjrs worker probably unemployed end scheme account large proportion furlough high vacancy rate difficult explain hypothesis shift pattern demand pandemic furlough suitable match job vacancy currently available vacancy rise economy include sector high number furlough job mismatch granular level company sector case increase unemployment follow end cjrs structural cyclical overall committee judge uncertainty outlook labour market increase key question include economy adjust closure furlough scheme end september extent impact duration change unemployment degree persistence difficulty match available job worker committee development forthcoming forecast round ahead november monetary policy report include periodic assessment supply economy ahead mpc official datum furlough number available august additional timely information available bics survey bank agents include potential increase redundancy official labour market datum october cover period follow closure cjrs publish november mpc month cpi inflation rise july august compare figure expect august report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise august high rate november base effect account majority increase cpi inflation july august global cost pressure continue affect consumer good price less degree reopening economy lead increase consumer service price cpi inflation expect rise near term slightly owe development energy good price material rise spot forward wholesale gas price august report represent upside risk mpc inflation projection april mean cpi inflation equal indicator cost pressure remain elevated committee expectation continue elevated global cost pressure prove transitory good reason expect material supply response commodity global market push future input price import cost say pandemic reinforce retrenchment globalisation scope factor create future disinflationary pressure elevated inflationary pressure potentially lead round effect consumer price financial market indicator inflation expectation rise somewhat include united kingdom year inflation swap rate year forward basis point average indicator household medium term inflation expectation increase month citi yougov year ahead measure high level september bank kantar year ahead measure household inflation expectation increase slightly historical average take range evidence financial market measure survey household business professional forecaster committee judge inflation expectation remain anchored give development committee monitor closely risk domestic global demand cost pressure affect medium term inflation expectation committee turn immediate policy decision mpc half policy guidance place specify intend tighten monetary policy clear evidence significant progress eliminate spare capacity achieve inflation target sustainably remain range view committee condition guidance meet member agree previous formal guidance long useful situation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate stance monetary policy focus medium term prospect inflation factor transient member committee judge exist stance monetary policy include previously announce increase target stock purchase asset remain appropriate range view near term path unemployment follow closure furlough scheme member group agree outlook labour market underlie inflationary pressure particularly uncertain uncertainty resolve coming month high option value wait additional information decide tightening monetary policy warrant sign unemployment rate increase significantly follow end cjrs somewhat long extent rise structural cyclical structural push effective supply economy long persist member group remain inflation fall medium term line projection august report supply bottleneck clear demand growth ease company pricing power moderated abstract constraint effective supply gdp remain medium term potential level monetary policy role sustain demand reduce degree medium term scarring economy show sign normalise recently demand strong supply constraint prove long lasting cpi inflation continue surprise upside indicator cost pressure appear somewhat persistent financial market inflation break even continue rise gradually different member place different weight argument member group monetary policy point need start unwind post pandemic stimulus member group agree future initial tightening monetary policy implement increase bank rate tightening appropriate end exist government bond asset purchase programme member economic outlook warrant tightening monetary policy stance mpc increase evidence range global domestic cost price indicator inflationary pressure persist record vacancy level pace underlie wage growth evidence ongoing tightness labour market condition alongside sign capacity pressure member judge exist policy stance inflation target medium term reflect great impact cost pressure prospect large persistent level excess demand united kingdom forecast august report member prefer stop asset purchase programme soon practical continue end year currently plan continue asset purchase cpi inflation output gap close cause medium term inflation expectation drift decision curtail asset purchase programme imply modest policy tightening mitigate risk ultimately necessitate abrupt subsequent tightening policy great adjustment growth employment demonstrate committee commitment return inflation target medium term ensure medium term inflation expectation remain anchor previous committee judge economy evolve line projection august monetary policy report modest tightening monetary policy forecast period necessary consistent inflation target sustainably medium term development intervene period appear strengthen case considerable uncertainty remain committee monitor closely incoming evidence development labour market particularly unemployment wide measure slack underlying pay pressure extent business pass wage cost increase medium term inflation expectation chair invite committee vote proposition bank rate maintain bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve bank england exist programme government bond purchase finance issuance reserve maintain target stock purchase committee vote unanimously favour proposition member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill silvana tenreyro vote favour proposition member dave ramsden michael saunders vote proposition prefer reduce target stock government bond purchase operational consideration exist programme government bond purchase start january completion expect end detail plan operational approach gilt purchase august december mpc meeting set market notice accompany august minute market function worsen materially bank england stand ready increase pace purchase ensure effective transmission monetary policy committee asset purchase programme need scope bank england evaluate exist technical parameter gilt purchase programme consistent committee previous guidance mpc agree reinvest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility eligible corporate bond commence november announce march reinvestment programme climate impact issuer bond account detail reinvestment operation publish market notice nearer time alongside detail bank approach green portfolio implement year follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro tom josephs treasury representative permit bank england act amend bank england financial services act dorothy thompson september observer purpose exercise oversight function role bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end november publish november

monetary policy summary november bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end november committee judge exist stance monetary policy remain appropriate mpc vote majority maintain bank rate committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote majority bank england exist programme government bond purchase finance issuance reserve maintain target stock government bond purchase total target stock asset purchase committee update projection activity inflation set accompany november monetary policy report projection condition asset energy price average day october give market imply path bank rate rise end wholesale energy price assume base respective future curve month projection flat material risk assumption global gdp increase slow pace project august report growth somewhat restrain disruption supply chain alongside rapid pace global demand good rise lead supply bottleneck certain sector sign weak consumption demand bottleneck restrain growth somewhat near term global gdp nonetheless expect recover effect covid-19 covid gdp project level half forecast period condition market imply path bank rate gdp growth expect relatively subdued pace growth slow potential supply growth ease pre covid rate high energy price fading monetary fiscal policy support temper demand growth autumn budget spending review government announce high path government consumption particularly couple year end forecast period margin spare capacity expect emerge labour force survey unemployment rate fall month august majesty revenue customs payroll datum continue rise strongly job furlough immediately coronavirus job retention scheme close end september significantly expect august report nonetheless continue sign increase redundancy stock vacancy increase indicator recruitment difficulty take considerable uncertainty initial indicator unemployment rise slightly bank estimate underlie pay growth remain pre pandemic rate pay growth expect fall rate november report projection month cpi inflation fall slightly august september bank expect inflation rise october account predominantly impact utility bill past strength wholesale gas price cpi inflation expect rise 4½% november level winter account increase core good food price inflation wholesale gas price rise sharply august cpi inflation expect peak april materially high expect august report upward pressure cpi inflation expect dissipate time supply disruption eas global demand rebalance energy price stop rise result cpi inflation project fall materially half year condition market imply path bank rate mpc forecasting convention future energy price cpi inflation project little target year time target end forecast period alternative scenario condition energy price follow forward curve forecast period set november report cpi inflation fall target rapidly mpc projection materially low half forecast period mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation include medium term inflation expectation factor transient meeting committee judge modest tightening monetary policy forecast period necessary meet inflation target sustainably medium term late development set alongside committee update projection reinforce near term uncertainty especially outlook labour market extent domestic cost price pressure persist medium term committee conclude exist stance monetary policy remain appropriate committee judge provide incoming datum particularly labour market line projection november monetary policy report necessary come month increase bank rate order return cpi inflation sustainably target observe market imply path bank rate committee note november monetary policy report projection cpi inflation project target end forecast period probably fall little point give margin spare capacity expect emerge look come month committee focus medium term prospect inflation committee judge side risk development economy medium term reach assessment balance risk light relevant datum emerge minute monetary policy committee end november turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate rise little weak expect august monetary policy report weak growth account slow expect growth united states china partly offset strength euro area global gdp expect expand slow pace anticipate august report reflect supply chain disruption continue weigh global activity bottleneck stem supply disruption pattern global demand rise energy price continue increase global cost pressure supply chain bottleneck month reflect strong demand consumer good advanced economy particular united states supply disruption localise lockdown major chinese port covid relate closure factory asian economy estimate supply constraint construct bank derive range pmi delivery time stock finished good remain elevate mpc previous sign demand begin rotate away good service apparent united states durable consumption moderate accord preliminary flash estimate euro area gdp grow strong expect august report leave level gdp upside news reflect small expect drag activity spread delta variant euro area gdp growth expect accord flash estimate euro area composite output pmi decrease point october service manufacturing index decrease accord advance estimate gdp increase weak expect time august report leave level gdp 1½% high household spending rise spending good fall service consumption continue rise high frequency spending datum suggest social spending restaurant recreation continue recover labour market non farm payroll increase september slow pace expect financial market unemployment rate fall september august level job vacancy remain high gdp growth expect china gdp increase low expect time august report downside news reflect impact local covid outbreak consumption service activity power shortage rapid slowdown housing activity stress property market recently weigh activity near term global inflationary pressure remain strong mpc previous wholesale gas price continue rise europe asia reflect strong demand fall end october brent oil spot price rise barrel non energy commodity price increase shipping cost remain elevated particularly route connect asia united states europe survey indicator manufacture input output price continue rise october number advanced economy global cost pressure expect dissipate time supply disruption ease global demand rebalance energy price stop rise cost pressure continue pass consumer price euro area united states euro area hicp inflation increase october high rate increase core inflation rise united states core pce inflation remain september headline measure rise monetary financial condition sizable movement global financial market committee previous reflect impact supply chain bottleneck sharp rise energy price market participant outlook global inflation growth perception possible monetary policy response advanced economy long term government bond yield rise basis point mpc september large reflect increase inflation compensation component nominal interest rate year bond yield reverse decline see summer united kingdom exceed level see immediately prior pandemic committee previous short term market measure inflation compensation rise sharply advanced economy include united kingdom market contact report increase reflect strength cpi inflation datum development energy price supply chain bottleneck medium term measure advanced economy inflation compensation continue rise period committee united states euro area measure average level past decade united kingdom medium term inflation compensation measure remain post-2008 average level interpret medium term inflation compensation measure straightforward inflation market hedge large pension liability cause shift inflation compensation drive change inflation expectation perceive inflation risk inference measure base rpi inflation market expectation cpi inflation complicate uncertain future wedge consumer price rpi inflation interpretation medium term measure include year inflation swap rate year forward affect uncertainty plan alignment rpi cpih equal alignment push level inflation compensation point relative price past useful range inflation compensation measure include reference maturity prior year inflation swap rate year forward despite difficulty interpretation model attempt extract medium term market expectation cpi inflation intelligence gather market contact suggest high inflation expectation great perceive risk inflation account average level medium term inflation compensation measure alongside factor committee assessment medium term inflation expectation set box november monetary policy report september federal open market committee fomc leave unchanged target range fund rate pace asset purchase leave unchanged fomc note moderation pace asset purchase soon warrant update summary economic projections fomc participant revise projection appropriate level fund rate median rise october bank canada leave policy rate unchanged cease asset purchase programme move reinvestment phase purchase solely replace mature bond october ecb governing council leave key policy interest rate unchanged significant change asset purchase programme november reserve bank australia maintain target cash rate continue asset purchase programme discontinue target yield april bond norges bank reserve bank new zealand increase policy rate basis point meeting advanced economy path market imply policy rate rise committee previous year horizon market imply policy rate rise basis point united states euro area united kingdom global interest rate market volatile recently reflect diminished market liquidity united kingdom market imply expectation path bank rate year ahead increase sharply mpc september appear reflect market participant perception rise inflationary pressure mpc communication policy outlook market contact expect committee raise bank rate end year expectation exact timing finely balanced november december mpc meeting november report condition market imply path bank rate base work day average october rise end immediate run mpc november market imply path bank rate reach end year market contact note diminished market liquidity mean difficult infer path bank rate expectation sterling effective exchange rate index rise previous mpc contrast movement advanced economy government bond market relatively little news corporate financing condition advanced economy equity price rise committee previous support strong earning corporate bond spread remain historically low level united kingdom credit condition corporate remain stable lending rate mortgage loan value ltv ratio high continue fall september despite increase risk free rate associated relatively sharp narrowing mortgage spread reflect typical lag response mortgage rate movement risk free rate equal effect expect reverse extent consistent rise lending rate mortgage product ltv ratio recently late credit conditions survey suggest unsecured credit condition household continue loosen somewhat demand output quarterly gdp growth revise quarterly national accounts qna estimate gdp revise higher precede quarter cumulative shortfall activity estimate contrast initial estimate imply august monetary policy report projection qna align blue book include significant methodological change introduction double deflation improvement deflator item telecommunication clothing reflect change contribution manufacturing telecom service gdp growth revise significantly decade offset revision contribution sector financial service overall gdp growth estimate slightly low average year lead financial crisis slightly high average subsequent year notably gdp estimate rise august follow fall july activity slightly weak expect time august report despite upward revision precede quarter upside news early month government service output health sector particular activity subsequently fall july august manufacturing construction activity weaken spring output sector pre covid level august output business transport work relate service continue recover albeit modest pace anticipate activity consumer face service recover strongly slightly expect output sub sector accommodation food service pre covid level activity sub sector art recreation continue lag pre pandemic level downside news august report appear reflect impact supply chain disruption particularly business manufacturing construction sector supplier delivery time particular sector continue lengthen accord late pmi survey show stock manufacture good historically low level backlog work historical high rate outstanding business continue rise service company albeit less degree bank agents report shortage material labour weigh output wide range business business expect supply issue certain product persist late-2022 accord late ons business insights conditions survey production supply chain trading business affect sharp increase gas price consistent supply disruption continue third respondent late cbi industrial trends survey report lack material component expect factor limit production month respondent cite shortage skilled labour potential limiting factor series high level mid-1970 high frequency indicator suggest consumer spending recover summer modest pace anticipate time august report pick discernible component shortfall originally large include public transport journey flight cinema visit retail sale volume fall september month row peak april sale volume remain average decline reflect substitution away spending good service bank anticipate persist period spending continue converge pre covid pattern good spending dampen product shortage agents contact report lose sale product electrical good furniture continued shortage car sale particular perception possible disruption supply prompt burst spending motor fuel late september subsequent shortage additional supply deliver spending fuel low usual indicator confidence household fall week see economy number covid case remain relatively high united kingdom unlike swing confidence past late change appear reflect non health factor ons opinions lifestyle survey show decline share adult express worry covid half october fifth respondent remain concern softening consumer confidence instead reflect idiosyncratic factor fuel shortage prospective change individual real income addition increase inflation associate high energy cost household affect withdrawal fiscal measure support economy covid crisis removal temporary week uplift universal credit end september september bank england nmg household survey continue household aggregate expect increase spending month relatively low income expect reduce spending decline share household anticipate return pre covid level spending end year middle business investment intention year ahead remain robust less degree near term business investment rise level october decision maker panel continue drag covid business investment lessen time gradually anticipate july investment expect low contact bank agents report investment have hold shortage equipment skilled labour agents special survey investment intention indicate strong rebound spending month particularly consumer service firm business look reinstate investment plan hold consider project perceive low risk desire increase efficiency productivity improve digital capability overall gdp expect grow november report projection half rate envisage august report result gdp expect pre covid level downward revision mainly reflect supply chain disruption modest recovery consumer demand particular contributing factor autumn budget spending review government announce significant increase public service spending alongside tax welfare change increase spending addition high health social care spending announce september alongside health social care levy bank estimate fiscal policy announce august report boost gdp peak fiscal year supply cost price labour force survey lfs unemployment rate fall month august percentage point low expect time august monetary policy report jobless rate remain level increase entirely account unemployed month long lfs employment rise month august level shortfall account low self employment majesty revenue customs hmrc employee payroll rise single month september initial estimate tend revise somewhat increase total number payroll employee compare pre pandemic level account sustained increase worker health education public administration sector past year contrast number employee consumer face service remain way pre covid level lfs inactivity rate fall slightly month august account fall inactive student discourage worker percentage point high immediately prior pandemic average hour work continue increase month august furlough increasingly return work little level accord hmrc administrative datum job 5½% private sector job furlough coronavirus job retention scheme cjrs august compare job furlough july line estimate derive ons business insights conditions survey bics double assumption incorporate august report fully furlough job account total number job furlough august small firm employee account half furlough job late bics datum suggest share private sector job furlough fall 4½% job final day cjrs end september far little evidence end cjrs lead significant increase unemployment remain uncertainty outlook indicator redundancy remain subdue include late bics datum plan redundancy small business month bank agents pick report widespread layoff large company sector demand weak report retain anticipation recovery indicator employment demand labour market tightness remain elevated stock job vacancy record ons reach record high month september strength relatively broad base sector firm size ratio vacancy unemployment reach high level consistent series available high frequency indicator number online vacancy rise october rec availability index remain historically low level company wide range sector report increase hire intention bank agent time turnover pick recruitment difficulty broad base company report acute shortage range occupation agents score company recruitment difficulty high level series begin private sector regular average weekly earnings awe rise month august year early line expectation time august report adjust mechanical effect cjrs change composition bank estimate private sector regular pay growth rise 4½% pre pandemic rate 3½% rec permanent salary index measure monthly pay growth permanent hire increase record high september respondent survey note great competition worker job candidate able successfully negotiate high starting pay median economy employment weight annual basic pay growth bank pay settlement database remain month slightly high compare growth consistent pay settlement report bank agents continue increase labour market tighten aggregate report rise number target pay award excess compensate worker pay freeze pandemic retain skill particularly high demand recent trend settlement difficult determine precision give seasonality pay negotiation relatively low number settlement include early estimate government announce autumn budget spending review national living wage age rise april large rise national minimum wage young worker temporary pause public sector pay progression introduce november lift pay award determine independent pay body recommendation ahead april month cpi inflation fall slightly august september core inflation exclude food beverage tobacco energy decline outturn line expectation time august report component core good inflation remain year high service inflation fall reflect unwind boost inflation august year eat help scheme bank expect cpi inflation rise october account predominantly impact utility price inflation previously announce increase ofgem standard variable tariff cap gas electricity price cpi inflation expect rise 4½% november level winter account increase core good food price inflation survey indicator cost price historically elevated level food input cost rise materially core manufacturing producer output price inflation reach high level september service producer price inflation increase high rate strength component relate freight support service partly reflect congestion port flash composite input output price pmis rise record high october contact attribute movement supply shortage rise fuel transport energy bill strong wage pressure bank agents report increase cost pass output retail price great extent previously autumn budget spending review government announce number change excise duty include major reform alcohol duty regime freezing duty year february freezing fuel duty year april take announcement represent percentage point downside news bank cpi inflation forecast wholesale gas price continue rise sharply september mpc fall end october rise gas electricity future price suggest ofgem retail price cap increase materially april take account cpi inflation expect pick close percentage point high expect august report ofgem announce recently consult price cap methodology ahead determine energy price cap april mpc previous citi yougov measure household inflation expectation year ahead rise september october high level year ahead measure fall slightly rise sharply september common business survey indicator company pricing intention decision maker panel series expect price growth month elevated level rise sharply october response question cbi distributive trades survey expect change general level price market firm compete year year line past average professional forecaster expect cpi inflation close target medium term immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee review development backdrop late economic projection set accompanying november monetary policy report projection condition asset energy price average work day october give market imply path bank rate rise end wholesale energy price assume base respective future curve month projection flat material risk assumption weight global gdp estimate rise little weak expect august report account slow expect growth united states china partly offset strength euro area growth somewhat restrain disruption supply chain alongside rapid pace global demand good rise lead supply bottleneck certain sector fiscal stimulus particularly united states continue boost materially consumer demand durable good less extent early year supply disruption localise lockdown major chinese port covid relate closure factory asian economy weigh activity global gdp expect expand slow pace anticipate august report supply demand imbalance expect ease november report projection reflect continued rotation demand service advanced economy dissipation supply disruption supply chain bottleneck rise energy price continue increase global cost pressure wholesale gas price rise europe asia brent oil price shipping cost remain elevated november report projection world export price exclude fuel project rise export price inflation expect fall bottleneck ease relatively gradually energy price stop rise shipping cost decrease sizable movement global financial market committee previous advanced economy long term government bond yield increase large reflect increase inflation compensation component nominal interest rate advanced economy equity price rise corporate bond spread remain historically low level market imply expectation path bank rate year ahead increase sharply mpc september deterioration liquidity condition mean difficult infer path policy expectation market contact expect committee increase bank rate end year expectation exact timing finely balanced november december meeting november total stock asset hold asset purchase facility reach include programme government bond purchase announce november cumulative shortfall gdp estimate compare expect august report projection gdp expect grow november report projection half rate envisage august report downward revision mainly reflect supply chain disruption modest recovery consumer demand contribute factor retail sale volume fall september month row consumer confidence fall week gdp project level autumn budget spending review government announce high path government consumption particularly couple year increase spending addition high health social care spending announce september alongside health social care levy bank estimate fiscal policy announce august report boost gdp peak fiscal year half forecast period condition market imply path bank rate gdp growth expect relatively subdued pace growth slow potential supply growth expect ease pre covid rate high energy price fading monetary fiscal policy support temper demand growth consumption growth expect slow forecast period reflect drag real income high energy price government spending growth expect fall fiscal policy stance tighten gradually time line announce government policy business investment project rise half forecast period sale recover uncertainty decline support government capital allowance super deduction fall follow late stocktake supply economy set detail november report committee expect potential supply low end forecast period august partly reflect update assessment impact demographic trend potential participation average hour weak expect path business investment weigh growth capital total factor productivity labour force survey lfs unemployment rate fall month august majesty revenue customs payroll datum continue rise strongly total number payroll employee estimate level account sustained increase worker health education public administration sector past year lfs employment month august 1½% pre pandemic level reflect low self employment measured gdp way pre covid level economy labour productivity weak focus market sector gdp employment datum average level productivity expect marginally high end year compare lfs inactivity rate fall slightly month august percentage point high immediately prior pandemic job furlough immediately coronavirus job retention scheme cjrs close end september significantly expect august report nonetheless continue sign increase redundancy stock vacancy increase indicator recruitment difficulty take considerable uncertainty initial indicator suggest unemployment rise slightly official labour market figure october set lfs datum cover period follow closure cjrs publish ahead december mpc official datum publish important monitor development self employment sign increase bankruptcy small medium sized enterprise significant uncertainty degree slack economy judge small margin excess demand currently excess demand expect erode demand growth slow supply growth condition market imply path bank rate margin spare capacity expect emerge end forecast period account spare capacity labour market unemployment rate expect rise somewhat demand growth slow bank estimate underlie pay growth remain pre pandemic rate pay settlement continue increase labour market tighten underlie wage growth project fall rate november report projection month cpi inflation fall slightly august september bank expect inflation rise october account predominantly impact utility bill past strength wholesale gas price cpi inflation expect rise 4½% november level winter account increase core good food price inflation wholesale gas price rise sharply august fall end october cpi inflation expect peak april november report projection materially high expect august report path wholesale energy price uncertain change substantially short period time november report projection upward pressure cpi inflation expect dissipate time supply disruption ease global demand rebalance energy price stop rise result cpi inflation project fall materially half year condition market imply path bank rate mpc forecasting convention future energy price cpi inflation project little target year time target end forecast period projection condition alternative assumption constant interest rate cpi inflation forecast year time committee previous citi yougov year ahead measure household inflation expectation fall slightly october rise sharply september medium term inflation compensation measure financial market remain post-2008 average level high inflation expectation great perceive risk inflation play role alongside factor professional forecaster expect cpi inflation close target medium term overall set box november report mpc judge inflation expectation remain anchor united kingdom committee monitor closely risk domestic global demand cost pressure affect medium term inflation expectation wage price setting committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation include medium term inflation expectation factor transient committee good collective judgement risk medium term inflation projection november report balanced mask large risk direction include thing energy price wage growth different mpc member place different weight risk balance risk alternative scenario condition energy price follow forward curve forecast period set november report cpi inflation fall target rapidly mpc projection materially low half forecast period alternative scenario consistent general tendency commodity price revert prior level follow similar large movement historically risk november report projection wage growth ease judge skew upside earning growth boost forecast period impact high expected inflation employee resist decline real wage different experience decade include dynamic labour market follow global financial crisis possible break past wage bargaining behaviour aspect labour market currently different period great expect upward pressure wage growth continuation low availability worker example low path participation migration sustain demand labour health education public administration sector persistence labour market mismatch industry dimension meeting committee judge modest tightening monetary policy forecast period necessary meet inflation target sustainably medium term late development set alongside committee update projection reinforce near term uncertainty remain especially outlook labour market extent domestic cost price pressure persist medium term member committee judge exist stance monetary policy include previously announce increase target stock purchase asset remain appropriate importantly signal previously value wait additional information near term development labour market include official datum relate period follow end cjrs decide tightening monetary policy warrant addition downgrade near term gdp prospect august report reflect moderation demand downside risk demand accentuate impact high price household real income current elevated global cost pressure prove transitory lead increase consumer price persistently high inflation rate assess appropriate monetary policy strategy important cost benefit take insurance possible upside risk medium term inflation round effect wage price case time ability loosen monetary policy response significant negative demand shock future degree constrain effective low bound bank rate interest rate increase need bring inflation target sustainably round effect materialise committee join majority note moderation domestic global activity cross current domestic labour market wage energy price dynamic business pricing expectation affect inflation prospect observe continue elevated level risky asset price despite increase government bond yield globally light agree majority maintain bank rate judge appropriate remove monetary stimulus asset price terminate exist asset purchase programme ahead subsequent increase bank rate member committee economic outlook warrant tightening monetary policy stance member prefer immediate end exist asset purchase programme immediate increase bank rate domestic global cost pressure remain strong united kingdom labour market tighten sign end furlough scheme ease labour market strain member judge exist policy stance cpi inflation target medium term reflect great impact cost pressure especially pay growth prospect large persistent level excess demand united kingdom projection november report maintain policy stance cpi inflation target output gap close cause medium term inflation expectation drift decision tighten policy reduce risk ultimately necessitate abrupt subsequent tightening policy great adjustment growth employment demonstrate committee commitment return inflation target medium term help ensure medium term inflation expectation remain anchor committee judge provide incoming datum particularly labour market line projection november monetary policy report necessary come month increase bank rate order return cpi inflation sustainably target observe market imply path bank rate committee note november monetary policy report projection cpi inflation project target end forecast period probably fall little point give margin spare capacity expect emerge look come month committee focus medium term prospect inflation committee judge side risk development economy medium term reach assessment balance risk light relevant datum emerge chair invite committee vote proposition bank rate maintain bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve bank england exist programme government bond purchase finance issuance reserve maintain target stock purchase member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill silvana tenreyro vote favour proposition member dave ramsden michael saunders vote proposition prefer increase bank rate basis point committee vote unanimously favour proposition member andrew bailey ben broadbent jon cunliffe jonathan haskel huw pill silvana tenreyro vote favour proposition member catherine mann dave ramsden michael saunders vote proposition prefer reduce target stock government bond purchase operational consideration exist programme government bond purchase start january completion expect end detail plan operational approach gilt purchase august december mpc meeting set market notice accompany august minute committee asset purchase programme need scope bank england evaluate exist technical parameter gilt purchase programme september mpc agree reinvest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility eligible corporate bond commence november committee subsequently brief bank approach take make investment way take account climate impact issuer bond detail approach publish come day ahead reinvestment operation commencing late november follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act diana noble october brad fried november observer purpose exercise oversight function role member bank court directors

monetary policy summary december bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority increase bank rate percentage point committee vote unanimously bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve committee vote unanimously maintain stock government bond purchase finance issuance reserve total target stock asset purchase mpc projection november monetary policy report global gdp expect recover effect covid-19 covid near term condition rise path bank rate expect financial market time upward pressure cpi inflation expect dissipate time supply disruption ease global demand rebalance good service energy price stop rise earning growth expect fall rate result inflation project fall materially half year november mpc omicron covid variant emerge appear spread rapidly united kingdom world variant appear transmissible delta variant basis knowledge pose risk public health global risky asset price fall response news recover long term advanced economy government bond yield decline level global gdp line november report projection consumer price inflation advanced economy rise expect omicron variant pose downside risk activity early balance effect demand supply medium term global inflationary pressure unclear global cost pressure remain strong bank revise expectation level gdp november report leave gdp 1½% pre covid level growth sector continue restrain disruption supply chain shortage labour impact omicron variant associate additional measure introduce government devolved administrations voluntary social distancing push gdp december experience march suggest successive wave covid appear impact gdp uncertainty extent prove case occasion labour force survey unemployment rate fall month october number payrolle employee continue rise strongly november little sign available datum closure coronavirus job retention scheme end september lead weakening labour market lfs unemployment rate expect fall compare 4½% projection november report bank estimate underlie earning growth remain pre pandemic rate committee continue upside risk projection pay november report month cpi inflation rise september november trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement relative november report projection significant upside news core good less extent service price inflation bank expect inflation majority winter period peak april increase account predominantly lag impact utility bill development wholesale gas price indicator cost price pressure remain historically elevated level recently contact bank agents expect price increase year drive large pay energy cost cpi inflation expect fall half year mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation include medium term inflation expectation factor transient november committee judge provide incoming datum particularly labour market line projection november monetary policy report necessary come month increase bank rate order return cpi inflation sustainably target recent economic development condition meet labour market tight continue tighten sign great persistence domestic cost price pressure omicron variant weigh near term activity impact medium term inflationary pressure unclear stage committee judge increase bank rate percentage point warrant mpc development include emerge evidence implication economy omicron variant forthcoming forecast round ahead february monetary policy report committee focus medium term prospect inflation committee continue judge side risk inflation outlook medium term modest tightening monetary policy forecast period necessary meet inflation target sustainably committee reach assessment balance risk medium term inflation light relevant datum emerge minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight world gdp expect grow line projection november monetary policy report supply disruption increase covid-19 covid case associated measure expect weigh euro area activity economy expect grow strongly anticipate compare pre covid level demand good continue strong relative service united states household drive entire increase durable good consumption economy period emergence spread omicron covid variant pose downside risk global recovery activity effect inflation unclear euro area gdp rise accord release little strong incorporate november report leave level gdp bank expect gdp grow slow anticipate november report prior emergence omicron variant covid case rise sharply region country tighten measure november december composite output pmi increase november drive pickup service output mobility indicator fall recently supply bottleneck weigh production manufacturing output pmi remain expansionary territory euro area unemployment rate decrease slightly october euro area wage growth remain moderate united states gdp increase accord estimate weak expect november report leave level gdp high gdp expect expand high anticipate november report household spending grow strongly october expect rotation demand service stall strength good spending continue particularly durable expenditure increase decline early year fiscal support fade labour market non farm payroll grow november unemployment rate fall wage growth pick number indicator remain line pre covid rate adjust compositional demographic effect china localise covid outbreak associate measure weigh activity gdp expect grow little estimate november report housing market continue weaken emerge market activity pick difference country global cost pressure remain strong inflation rise advanced economy expect november report november euro area annual hicp inflation increase cpi inflation reach consistent pce inflation 5½% november strong demand certain good supply disruption high energy price increase mpc discuss outlook global inflation price pressure united states broaden sector price fall extent anticipate sector previously experience large increase mixed signal early indicator cost pressure wholesale gas spot price rise europe year future price reach high oil coal price decline peak brent oil spot price barrel shipping cost remain elevated chinese pmi manufacturing input price ease late datum index price delivery time united states euro area indicate strong pressure euro area company report high level material shortage china covid strategy alongside emergence omicron lead renew supply disruption forward example port factory close monetary financial condition response news emergence spread omicron variant global risky asset price fall somewhat recover global equity price decline day follow initial news large decline sector affect previous covid measure global corporate bond spread widen albeit low level imply volatility rise asset class overall move relatively modest unwound subsequently case long term advanced economy government bond yield fall response news omicron variant united states fall unwound subsequently leave year government bond yield basis point lower mpc november contrast united kingdom euro area year government bond yield fall basis point committee previous fall account reduction real component nominal interest rate path market imply policy rate united states rise somewhat mpc previous reflect cpi datum federal open market committee fomc communication november fomc leave target range fund rate unchanged begin reduce monthly pace asset purchase minute fomc note participant prefer somewhat fast pace reduction result early conclusion net purchase option chair powell note subsequently expect discuss fomc forthcoming december market imply policy rate united states reach end-2022 end-2023 basis point high immediately prior mpc november contrast market imply path policy rate euro area move little period united kingdom market imply expectation path bank rate fall sharply immediately follow mpc november market contact expect bank rate rise coming month day run mpc december contact expect bank rate follow cpi release december market pricing finely balanced bank rate remain increase basis point market imply path bank rate reach end volatility short term interest rate market remain elevate committee previous reflect diminished market liquidity expect persist year end period medium term inflation compensation measure united kingdom remain average level past decade contrast similar measure united states euro area average level past decade committee discuss previous interpret medium term inflation compensation measure straightforward use inflation market hedge large pension liability uncertain future wedge consumer price rpi inflation mean inflation compensation measure provide direct read market participant fundamental view inflation outlook model attempt extract medium term market expectation cpi inflation intelligence gather market contact suggest high inflation expectation great perceive risk inflation account average level medium term inflation compensation measure alongside factor sterling effective exchange rate index fall mpc previous somewhat sharp depreciation sterling dollar move lending rate mortgage mix committee previous interest rate mortgage loan value ltv ratio rise basis point low point consistent lag response increase risk free rate autumn half increase have pass lending rate high ltv mortgage rate continue fall committee previous albeit slow pace normalisation housing activity measure follow end stamp duty holiday indicator house price inflation remain robust december bank financial policy committee fpc announce increase countercyclical capital buffer rate come effect december line usual month implementation period expect increase rate economic recovery proceed line mpc projection november monetary policy report absent material change outlook financial stability fpc review mortgage market recommendation include consider measure operate place fpc analysis suggest loan income lti flow limit play strong role affordability test guard increase aggregate household indebtedness number highly indebted household house price rise rapidly fpc decide maintain lti flow limit recommendation consult half withdraw affordability test demand output accord ons quarterly estimate gdp rise little weak projection incorporate november monetary policy report leave level gdp pre covid level initial estimate private consumption investment growth subject revision materially low expect total government expenditure rise high expect november report sum expenditure component significantly headline gdp indicate uncertainty surround expenditure estimate possibility upward revision spend forthcoming release gdp growth october little weak expect september october growth drive increase health spending reflect strong non covid activity doctor appointment growth transport work relate activity reflect return worker office high mobility general contrast output business business service information communication finance weaken construction output fall october follow sharp rise september supply chain disruption remain acute appear weigh activity anticipate november report consistent have little news level output sector previously affect disruption manufacturing construction global semiconductor shortage continue weigh car production particular evidence low availability constrain car purchase accord late ihs markit cip manufacture pmi survey supplier delivery time continue lengthen november backlog work continue rise indicator show easing supply chain disruption proportion firm report non labour input disruption significant recruitment difficulty november decision maker panel increase slightly bank agents report increase number contact report constraint growth primarily labour shortage demand good hard fulfil supply chain disruption increase number agents contact report expect supply issue persist half possibly case retail sale volume increase october leave level sale 5½% pre covid level indicator card spending suggest retail spending remain robust november bank agents report company concern able meet demand christmas lack stock availability reduce consumer choice look ahead emergence spread omicron variant encourage good relative service spending good income ratio return pre covid level number covid case pick day lead mpc december identification omicron variant measure place england end november day december december government announce additional measure introduce england include guidance work home possible extend legal requirement wear face cover public venue daily testing contact omicron case introduction covid pass nightclub event large crowd devolved nation number measure place wear face covering public place advice work home covid pass december coronavirus alert level raise level transmission variant judge high rise exponentially government announce plan eligible england offer booster vaccine end year offer additional support devolved administration accelerate vaccination programme december government announce remove country travel red list scotland people advise limit socialise household physical distancing measure shop hospitality venue introduce tentative sign economic activity start affect emergence spread omicron late november number opentable seat diner fall week probably reflect impact storm arwen end november retail footfall passenger flight number flat week december respectively mobility datum suggest moderate decline public transport use early december overall bank revise expectation gdp growth time november report news level gdp october impact omicron associated measure december mean bank expect gdp 1½% level supply cost price labour force survey unemployment rate fall month october percentage point expectation time november monetary policy report number people unemployed month remain record low number people unemployed month remain high prior pandemic lfs employment increase month october level slightly weak expect november report majesty revenue customs hmrc employee payroll rise strongly single month november initial estimate tend revise somewhat payroll growth revise october example overall little sign available official datum closure coronavirus job retention scheme cjrs end september lead weakening labour market average hour work continue increase month october furlough return work level lfs inactivity rate unchanged month october percentage point high immediately prior pandemic general government employment base return public sector organisation increase compare level lfs flow datum suggest increase public sector employment entirely account move private sector employment stock job vacancy record ons reach month november ratio vacancy unemployment reach record high consistent series available increase appear reflect strong demand labour labour market flow datum show similarly strong pace hiring imply average duration vacancy bank estimate labour market matching efficiency pre covid level timely indicator labour market activity remain robust ihs markit cips composite employment pmi fall slightly november remain historically elevated level rec permanent placement availability index remain close record high low level respectively november contact bank agents range sector report want meet increase demand turnover remain high normal company recruitment difficulty report widespread acute particularly hiring experienced early indication follow emergence spread omicron united kingdom suggest adzuna vacancy fall somewhat hospitality catering sector overall bank expect lfs unemployment rate fall compare 4½% projection november report abstract risk impact omicron possible unemployment rate fall come month hire continue pace elevated level vacancy weakness demand relate variant offset force extent private sector regular average weekly earnings awe rise month october year early weak early year line expectation time november report adjust mechanical effect cjrs change composition bank estimate private sector regular pay growth remain 4½% pre pandemic rate pay indicator remain strong consistent continuation pace underlie earning growth near term rec permanent salary index measure monthly pay growth permanent hire increase record high november job job flow reach record high particular strength number voluntary resignation median pay growth base hmrc payroll datum fall somewhat peak mid-2021 look ahead number contact bank agents expect upward pressure pay growth year strength consumer price inflation encourage worker demand high pay settlement overall labour market tight appear upside risk projection november report earning growth fall significantly come year month cpi inflation rise september november compare figure expect november report release trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise november relative november report projection significant upside news core good less extent service price inflation cpi inflation expect majority winter period peak april percentage point high expect november report rise inflation spring large reflect development wholesale gas electricity future price feed ofgem retail price cap april movement wholesale price period follow november report consistent bank baseline assumption cap increase gas electricity future price pick sharply day lead mpc imply additional upside pressure utility price inflation persist fall oil price mpc previous small partly offsetting negative effect energy price inflation coming month core good price inflation expect pre covid average near term account majority remainder project target inflation service price inflation project pre covid rate increase somewhat food price inflation expect rise reflect cost increase month indicator cost price pressure remain historically elevated level recently composite input output price pmis reach record high november short term model construct bank cpi inflation exclude energy housing education financial service base survey indicator price pressure suggest additional upside risk update projection inflation month bank agents report rise cost increasingly frequently pass price contact expect price increase year drive large pay energy cost cpi inflation expect fall half year mpc previous household year ahead inflation expectation rise bank kantar survey remain unchanged december citi yougov survey albeit high level medium long term household expectation survey pick quarter citi yougov year ahead measure remain historical average bank kantar year ahead measure slightly historical average albeit break series early shift face face online survey mean response question year year ahead inflation treasury survey professional forecaster increase significantly recently median response consistent mpc inflation target immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc projection november monetary policy report global gdp expect recover effect covid near term consumption growth expect slow forecast period reflect drag real income high energy price condition rise path bank rate expect financial market time upward pressure cpi inflation expect dissipate time supply disruption ease global demand rebalance good service energy price stop rise earning growth expect fall rate result inflation project fall materially half year condition rise market path bank rate time cpi inflation project little target year time target end forecast period november mpc omicron covid variant emerge appear spread rapidly united kingdom world variant appear transmissible delta variant basis knowledge pose risk public health committee review economic development pre date possible impact emergence spread omicron variant level global gdp line november report projection consumer price inflation advanced economy rise expect omicron variant pose downside risk activity early balance effect demand supply medium term global inflationary pressure unclear global cost pressure remain strong notwithstanding apparent stabilisation shipping price global supply chain remain heavily disrupt company report high level material shortage united states euro area global risky asset price fall response emergence omicron variant recover long term advanced economy government bond yield decline market contact expect bank rate rise coming month day run mpc december contact expect bank rate follow cpi release december market pricing finely balanced bank rate remain increase basis point december total stock asset hold asset purchase facility reach include programme government bond purchase announce november include final gilt purchase auction conduct december programme complete time committee december policy announcement committee brief bank progress invest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility eligible corporate bond commence november number covid case united kingdom pick day lead mpc december identification omicron variant measure place england extend devolved nation december coronavirus alert level raise level government announce plan eligible england offer booster vaccine end year offer additional support devolved administration accelerate vaccination programme bank revise expectation level gdp november report leave gdp 1½% pre covid level growth sector continue restrain disruption supply chain shortage labour impact omicron variant associate additional measure introduce government devolved administrations voluntary social distancing push gdp december experience march suggest successive wave covid appear impact gdp uncertainty extent prove case occasion tentative sign economic activity start affect emergence spread omicron previous covid wave headline gdp affect significantly way public sector output measure national account labour force survey unemployment rate fall month october number payrolle employee continue rise strongly november little sign available datum closure coronavirus job retention scheme end september lead weakening labour market lfs unemployment rate expect fall compare 4½% projection november report abstract risk impact omicron variant possible unemployment rate fall come month hire continue pace elevated level vacancy weakness demand relate variant offset force extent bank continue estimate underlie earning growth remain pre pandemic rate committee continue upside risk projection pay november report rec permanent salary index job job flow increase record high contact bank agents expect strength consumer price inflation encourage worker demand high pay settlement month cpi inflation rise september november percentage point high expect time november report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core inflation rise november relative november report projection significant upside news core good less extent service price inflation bank expect inflation majority winter period peak april increase account predominantly lag impact utility bill development wholesale gas price indicator cost price pressure remain historically elevated level recently contact bank agents expect price increase year drive large pay energy cost cpi inflation expect fall half year committee previous medium term measure financial market inflation compensation remain average level past decade reflect market participant somewhat high expectation inflation measure medium long term household inflation expectation pick quarter citi yougov year ahead measure remain historical average bank kantar year ahead measure slightly historical average break series early median response survey professional forecaster remain consistent cpi inflation close target medium term overall set box november report mpc judge inflation expectation remain anchor united kingdom committee monitor closely risk domestic global demand cost pressure affect medium term inflation expectation wage price setting run policy decision committee brief chief medical officer england covid development include risk public health omicron variant committee discuss possible implication covid development economic outlook mpc note previously risk economy drop vaccine effectiveness arise viral mutation unclear currently extent omicron variant lead decline vaccine protection severe disease give clear sign increase transmissibility variant potential high number infection short period important position global economy materially different compare prior onset pandemic include elevated level consumer price inflation global inflationary pressure influence significantly shift spending service durable good pandemic induce mpc november report forecast assume rebalancing demand lead gradual reduction inflation rate case level price trade good possibility renew social distancing mean rebalancing delay global price pressure persist long limit household stock durable rise response fiscal policy globally variant uncertain potential worsening global supply chain disruption push inflationary pressure example china covid strategy lead renew disruption chinese factory port affect shipping cost aggregate demand slow reduce inflationary pressure particularly consumer face service change expectation future demand lead loosening labour market condition demand condition strong household deploy saving build course pandemic great extent assume november report overall balance effect inflation unclear far successive wave covid tend impact gdp consumer spending previous wave uncertainty extent prove case occasion progressively limited reduction mobility social interaction reflect successful roll vaccine protection offer delta variant emergence partially vaccine resistant covid variant significant negative impact consumer confidence economic behaviour limit extent household adjust behaviour example large number employee continue work home prior change government guidance growth consumer spending restaurant continue support sale away delivery food addition seat dining online retail sale remain strong spend category consumption necessarily mean like like reduction total spending aggregate consumption decision closely related household expectation future income include expectation point pandemic immediate peak outlook activity balance effect omicron variant demand supply depend response policymaker united kingdom abroad committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock give lag change monetary policy effect inflation committee judge appropriate policy stance focus medium term prospect inflation include medium term inflation expectation factor transient november committee judge provide incoming datum particularly labour market line projection november monetary policy report necessary come month increase bank rate order return cpi inflation sustainably target recent economic development suggest condition meet labour market tight continue tighten sign great persistence domestic cost price pressure omicron variant weigh near term activity impact medium term inflationary pressure unclear stage member committee judge immediate small increase bank rate warrant condition tighten set november meet decision finely balanced uncertainty covid development value wait information degree omicron escape protection vaccine initial economic effect wave strong case tighten monetary policy give strength underlying inflationary pressure order maintain price stability medium term economic impact variant scenario increase inflationary pressure maintain monetary policy stance cpi inflation materially target output gap appear close cause medium term inflation expectation drift committee judge emergence omicron variant increase bank rate appropriate significant uncertainty introduce omicron warrant wait february clarity consider change bank rate output remain level trend potential variant renew voluntary social distancing unambiguously slow economic activity sided effect inflation effect omicron short term trade inflation output medium term prospect inflation depend critically transmissibility vaccine resistance severity variant policy response domestically abroad scenario tight monetary policy require somewhat long period accommodation line risk management concern owe asymmetry available monetary policy tool prefer wait evidence recovery remain entrenched threaten materially variant tighten monetary policy mpc development include emerge evidence implication economy omicron variant forthcoming forecast round ahead february monetary policy report committee focus medium term prospect inflation committee continue judge side risk inflation outlook medium term modest tightening monetary policy forecast period necessary meet inflation target sustainably committee reach assessment balance risk medium term inflation light relevant datum emerge chair invite committee vote proposition bank rate increase percentage point bank england maintain stock sterling non financial investment grade corporate bond purchase finance issuance reserve bank england maintain stock government bond purchase finance issuance reserve member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders vote favour proposition silvana tenreyro vote proposition prefer maintain bank rate committee vote unanimously favour proposition follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act bradley fried diana harding december observer purpose exercise oversight function role member bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end february publish february

monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february mpc vote majority increase bank rate percentage point member minority prefer increase bank rate percentage point committee vote unanimously bank england begin reduce stock government bond purchase finance issuance reserve cease reinvest mature asset committee vote unanimously bank england begin reduce stock sterling non financial investment grade corporate bond purchase finance issuance reserve cease reinvest mature asset programme corporate bond sale complete early end unwind fully stock corporate bond purchase committee update projection activity inflation set accompanying february monetary policy report projection condition market imply path bank rate rise 1½% middle wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption global activity return pre covid-19 covid level end year emergence omicron variant expect depressed activity somewhat december january economic impact limited short duration gdp expect recover february march output return pre pandemic level end labour force survey unemployment rate fall month november expect fall near term near term gdp growth expect slow subdue rate main reason adverse impact high global energy tradable good price real aggregate income spending result unemployment rate expect rise excess supply build end forecast period underlie earning growth estimate remain pre pandemic rate expect strengthen come year 4¾% consistent result bank agents annual pay survey tight labour market temporary upward pressure wage settlement high price inflation month cpi inflation rise november december percentage point high expect time november report inflation expect increase coming month close february march peak 7¼% april project peak percentage point high expect november report project overshoot inflation relative target mainly reflect global energy tradable good price rise energy future price mean ofgem utility price cap expect substantially high reset april core good cpi inflation expect rise impact global bottleneck tradable good price february report projection upward pressure cpi inflation expect dissipate time global energy price assume constant month global bottleneck ease tradable good price fall little underlying wage growth project ease labour market loosen gradually inflation decline condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year alternative scenario condition energy price follow forward curve forecast period set february report excess supply percentage point low medium term mpc projection cpi inflation percentage point target year time mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock particular movement prove persistent sharp rise price global energy tradable good united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign great persistence domestic cost price pressure committee judge increase bank rate percentage point warrant consistent mpc guidance set august report committee agree bank england cease reinvest future maturity fall stock government bond purchase reflect mpc intention reduce holding government bond gradual predictable manner addition committee agree bank england cease reinvest maturity fall stock sterling non financial investment grade corporate bond purchase initiate programme corporate bond sale complete early end unwind fully stock corporate bond purchase decision initiate programme corporate bond sale reflect specific characteristic corporate bond market mpc involvement take signal commencement scale duration potential future government bond sale programme committee reaffirm begin process actively sell government bond bank rate rise depend economic circumstance time committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy extent tightening monetary policy depend medium term prospect inflation mpc judge economy develop line february report projection modest tightening monetary policy appropriate coming month committee continue judge side risk medium term inflation outlook primarily wage development upside energy global tradable good price downside committee update assessment balance risk medium term inflation light relevant datum emerge minute monetary policy committee end february turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow expect november monetary policy report global gdp expect grow slowly anticipate november report omicron covid variant lead renew restriction voluntary social distancing country uncertainty relate economic impact omicron decline economic consequence limited short duration anticipate time mpc december global cost pressure arise strength good demand supply chain disruption high energy price remain elevated weigh activity past month strong demand good particular united states appear important determinant global bottleneck supply chain disruption month accord preliminary flash estimate euro area gdp increase output return level weak expect november report tight restriction address rise covid case number november december country drive initially delta variant subsequently omicron unemployment rate fall december historical low omicron case number increase result euro area output expect contract slightly notwithstanding restriction start ease country indicator point weakness covid sensitive sector flash service activity pmi fall january manufacturing output pmi pick possibly suggest stabilisation supply constraint particularly germany accord advance estimate gdp grow imply output level reflect strong recovery anticipate november report economic impact delta variant wan growth account primarily stockbuilde consumption support growth evidence continue rotation household spending good service labour market appear tight end unemployment rate fall december low level february participation rate remain pre covid level number job vacancy continue high relative historical level high frequency card spending datum suggest relatively temporary disruption spend relate omicron turn year limited restriction place gdp expect grow china gdp increase strong expect november report year year industrial production growth increase december reflect easing power shortage input constraint strong external demand consumption indicator continue somewhat weak measure production year year retail sale growth slow localise covid outbreak associate restriction weigh domestic demand outbreak appear relatively limited impact supply capacity economy look ahead uncertainty transmissible omicron variant cause great supply disruption extent china maintain covid strategy housing market continue slow consumer price inflation remain elevate euro area united states euro area annual hicp inflation increase january significantly market expectation immediately ahead release core inflation fall united states annual pce inflation rise december core inflation increase high energy price drive pickup consumer price inflation euro area price pressure base united states strong contribution energy car accommodation core good suggest addition high energy price pressure global bottleneck strong demand good inelastic supply pass consumer price divergence wage growth united states euro area accord federal reserve bank atlanta measure wage growth continue increase somewhat pre covid rate wage growth euro area remain mute mpc discuss case risk global inflation outlook near term pass consumer price inflation past cost increase mpc december signal cost indicator mix energy price volatile wholesale gas spot price initially fall europe peak mid december recently rise amid increase geopolitical tension brent oil spot price rise barrel mpc previous measure shipping cost mix easing increase index global input price delivery time plateaue suggest stabilisation global bottleneck high level overall global bottleneck expect ease month spend united states rotate service little later anticipate november report risk demand rotation delay example consumer preference shift permanently supply chain disrupt event widespread factory port closure china response covid development risk materialise consumer price rise anticipate alternatively possible global cost pressure abate quickly great extent medium term expect case consumer price inflation moderate fast pace monetary financial condition mpc previous advanced economy government bond yield rise significantly year yield increase basis point united states euro area united kingdom reach high level onset pandemic increase account primarily real rate increase nominal yield reflect high estimate term premia country high degree comovement yield different economy path market imply policy rate united states rise significantly mpc previous january fomc leave target range fund rate unchanged continue reduce monthly pace asset purchase publish additional information principle significantly reduce size federal reserve balance sheet market imply policy rate united states reach 1¼% end-2022 basis point high immediately prior mpc december euro area near term market imply path policy rate move little period december ecb governing council leave key policy interest rate unchanged announce gradual reduction pace net asset purchase united kingdom market imply expectation path bank rate year ahead rise market pricing consistent increase bank rate percentage point mpc february monetary policy report condition market imply path bank rate base work day average january rise 1½% mid-2023 immediate run mpc february market imply path bank rate reach mid-2023 result bank england market participants survey publish time friday follow release minute paint similar picture bank rate expectation respondent widely expect percentage point increase bank rate large majority expect bank rate reach year respondent assess balance risk near term path skew upside respondent expect reinvestment bank holding government bond cease anticipated bank rate increase medium term inflation compensation measure united kingdom increase slightly mpc previous remain average level past decade contrast similar measure united states euro area average level past decade committee discuss previously interpret medium term inflation compensation measure straightforward model attempt extract medium term market expectation cpi inflation intelligence gather market contact suggest high inflation expectation great perceive risk inflation account average level medium term inflation compensation measure alongside factor consistent result market participants survey suggest respondent attribute level elevated inflation expectation technical factor arise fact inflation market hedge large pension liability upside balance risk inflation outlook sterling effective exchange rate rise previous mpc dollar contrast fall despite relatively large increase government bond yield equity price fall mpc previous recover initial fall reflect increase government bond yield impact geopolitical development overall equity price end period low united states united kingdom increase somewhat cushion estimate fall equity risk premia reflect composition ftse share index include skew sector support rise energy price country strong performance sector expose covid relative exposed high interest rate adjustment corporate bond market spread remain historically low level have reverse modest increase see response initial emergence omicron lending rate mortgage loan value ltv ratio increase mpc previous consistent lag response increase risk free rate half increase have pass lend rate subsequent increase risk free rate see december mpc expect feed mortgage lending rate course component household borrowing credit card personal loan sensitive expect demand output quarterly gdp growth revise slightly quarterly national accounts level gdp revise news account high path household consumption pandemic consumption rise saving ratio fall business investment fall particular weakness air transport sector remain pre covid level gdp estimate rise november strong expect bank combine upward revision gdp mean prior onset omicron variant aggregate activity regain pre pandemic level time gdp high expect time november monetary policy report november output datum activity strong expect sector economy include consumer facing transport professional service tentative sign manufacturing construction sector supply disruption start ease monthly datum volatile bank expect gdp fall december impact omicron variant end month rise retail sale volume fall sharply december accord official datum reflect unwind previous strength consumer appear bring forward purchase ahead holiday season omicron weigh activity contact bank agents report shortage good continue supply chain issue constrain aggregate spending anticipate shortage exacerbate absence sickness self isolation report curtail activity number sector have reach high level turn year number covid case fall appear stabilise december chancellor exchequer announce additional support available business impact omicron variant include grant premise business hospitality leisure sector england government cover cost statutory sick pay covid relate absence small medium sized employer united kingdom run mpc government devolved administrations announce number relaxation covid measure place response omicron variant include lifting plan measure england half january removal post arrival testing requirement fully vaccinate traveller united kingdom february recent high frequency indicator suggest activity rebound somewhat early january include consumer face service work relate travel consistent intelligence bank agents peak economic impact omicron variant pass quickly gfk consumer confidence fall january probably initial concern impact omicron despite incipient squeeze real household disposable income household view financial situation far hold relatively contact bank agents note expect pressure household income dampen consumer spending coming month overall bank expect gdp recover february march economy project return pre pandemic level activity end gdp average unchanged market sector gdp expect surpass november level march number company report skilled labour shortage constraint output january cbi industrial trends survey remain elevated number company report material shortage factor limit production fall somewhat high level mid-1970 january manufacturing pmis suggest supply constraint worsen previous month contact bank agents expect slow improvement supply chain disruption continue judge problem persist increase report slow investment growth shortage good machinery labour widespread strength investment intention report agents contact highlight reinstatement project pause pandemic need increase capacity meet demand weaken december january decision maker panel report small drag covid business investment half year supply cost price labour force survey lfs unemployment rate fall month november percentage point low expect time november monetary policy report lfs employment rate expect inactivity unexpectedly rise slightly number inactive people report want job continue fall majesty revenue customs hmrc employee payroll rise single month december initial estimate tend revise somewhat bank judge lfs employee hmrc payroll series level account unusually high number individual have switch self employment payroll associate tax reform self employment remain weak account estimate switching lfs employment level month november indicator labour market tightness remain elevated ratio vacancy unemployment increase record high consistent series begin bank expect lfs unemployment rate fall despite spread omicron weigh activity beginning flash composite employment pmi january unchanged month remain past historical average bank agents report modest easing employment growth recruitment difficulty have remain intense high frequency indicator online vacancy dip december begin recover january profile comparable seasonal pattern prior pandemic instead weak labour demand main counterpart labour market covid relate weakness activity appear increase absence sickness self isolation caring responsibility ons business insights conditions survey suggest workforce absent covid relate reason turn year agents contact begin reduction absence view omicron temporary issue growth private sector regular average weekly earnings awe slow month november year early line bank expectation ahead release pay growth boost mechanical effect coronavirus job retention scheme change composition workforce effect wan month adjust effect bank estimate underlie private sector regular pay growth remain 4½% pre pandemic rate 3½% median pay growth base hmrc payroll data comparable pre pandemic rate imply pay award skewed upside past consistent bank agents contact report pay increase significantly high worker skill short supply february report projection underlie private sector pay growth expect pick come quarter special survey firm conduct bank agents suggest average pay settlement expect rise close pickup base different sector economy firm different size contact cite ability retain recruit worker increase consumer price inflation factor push expectation pay rec permanent salary index measure monthly pay growth permanent hire remain close record high december headline awe growth expect somewhat low underlie rate past boost pay compositional effect assume fade uncertainty precise scale speed unwind month cpi inflation rise december percentage point november report forecast upside news spread number component particularly core good strength core good price alongside high energy price account absolute overshoot inflation relative target service price inflation move pre covid rate price increase particularly acute hand car hospitality replicate trend united states cpi inflation project increase coming month close february march peak 7¼% april high utility price cap implement project peak percentage point high expect november report addition upside news cpi datum december wholesale gas electricity future price increase put upward pressure utility price cost supplier resort mechanism cover loss energy company incur take customer fail supplier expect begin pass household energy bill annual ons update cpi weight anticipate bank lead increase cpi inflation near term great weight place energy price certain contract price telecommunication service index consumer price measure increase coming month survey indicator cost price flash composite input output price pmis january remain historically elevated level bank agents report cost raw material shipping rate route appear stabilise high energy wage cost put additional upward pressure price agents pay survey suggest company expect increase price wage pressure share low consumer face firm measure household company short term inflation expectation rise mpc previous citi yougov household measure expectation year ahead increase december january year ahead measure unchanged respondent decision maker panel increase expectation price increase month survey cover month november month january professional forecaster continue expect cpi inflation close target year ahead immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee review development backdrop update projection activity inflation set accompanying february monetary policy report projection condition market imply path bank rate rise 1½% middle wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption weight world gdp estimate grow line expectation november report global gdp expect grow slowly uncertainty relate economic impact omicron decline economic consequence limited short duration anticipate time mpc december february report projection global activity continue grow restrain high global energy price forecast period impact ongoing supply chain constraint tradable good come year consumer price inflation rise united states euro area committee previous global cost pressure arise strength good demand supply chain disruption high energy price remain elevated wholesale gas spot price initially fall europe peak mid december recently rise amid increase geopolitical tension oil price rise significantly strong demand good particular united states appear important determinant global bottleneck supply chain disruption month february report projection world export price expect rise little near term global bottleneck ease global tradable good price expect fall little forecast period pre pandemic level mpc previous advanced economy government bond yield increase significantly market imply expectation path bank rate rise market pricing consistent increase bank rate percentage point mpc result bank england market participants survey publish time friday follow release minute paint similar picture bank rate expectation have reach high level turn year number covid case fall united kingdom appear stabilise run mpc government devolved administrations announce number relaxation covid measure place response omicron variant mpc projection condition assumption material restriction economic activity impose widespread voluntary social distancing follow wave gdp estimate rise november combine upward revision gdp mean prior emergence omicron variant aggregate activity regain pre pandemic level time omicron variant expect depressed activity somewhat december january economic impact limited short duration gdp expect recover february march output return pre pandemic level end labour force survey unemployment rate fall month november percentage point low expect time november report expect fall near term despite spread omicron weigh activity beginning ratio vacancy unemployment increase record high indicator balance demand supply economy suggest currently small margin excess demand economy near term gdp growth expect slow subdue rate main reason adverse impact high global energy tradable good price real aggregate income spending consumption growth expect slow household cut spending face material adverse effect real income sharp rise global energy tradable good price plan increase national insurance contribution april consumption growth slow materially year forecast period remain income growth reflect assumption household spend significant additional saving accumulate aggregate pandemic result household saving rate expect fall end risk direction projection give windfall nature excess saving build course pandemic household willing spend support level real consumption set exist saving concentrated high earner spend proportionately little saving development energy price particular disproportionately affect household low saving february report projection margin excess supply expect emerge later year build forecast period account slack labour market unemployment rate expect rise end projection underlie earning growth estimate remain pre pandemic rate expect strengthen come year 4¾% consistent result bank agents annual pay survey tight labour market temporary upward pressure wage settlement high price inflation month cpi inflation rise november december percentage point high expect time november report upside news spread number component particularly core good strength core good price alongside high energy price account absolute overshoot inflation relative target service price inflation move pre covid rate cpi inflation expect increase coming month close february march peak 7¼% april project peak percentage point high expect november report quarter project increase inflation december april expect reflect high contribution energy good price survey indicator cost price remain historically elevated level treasury representative brief committee government policy plan response ofgem forthcoming price cap announcement february report projection upward pressure cpi inflation expect dissipate time global energy price assume constant month global bottleneck ease tradable good price fall little underlying wage growth project ease labour market loosen gradually inflation decline condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year projection condition alternative assumption constant interest rate cpi inflation expect year time respectively alternative scenario condition market imply path bank rate energy price follow forward curve forecast period set february report excess supply percentage point low medium term mpc projection cpi inflation percentage point target year time measure household company short term inflation expectation rise mpc previous measure inflation expectation year ahead long term measure derive household survey financial market increase month short term measure professional forecaster continue expect cpi inflation close target year ahead risk inflation outlook long term inflation expectation evolve wage price setting consistent inflation return target medium term overall mpc judge inflation expectation remain anchor committee monitor measure inflation expectation closely box august monetary policy report committee set strategy mix monetary policy instrument deliver tight policy include preference circumstance use bank rate active policy tool adjust stance monetary policy committee note intend begin reduce stock government bond cease reinvest mature asset bank rate reach appropriate give economic circumstance benefit provide predictable gradual path reduction stock government bond mpc actively sell stock government bond bank rate rise depend economic circumstance time box state mpc separate decision corporate bond portfolio course run mpc committee consider strategy reduce stock sterling non financial investment grade corporate bond purchase judge cease reinvestment addition initiate programme corporate bond sale point bank rate reach appropriately reflect specific characteristic corporate bond purchase scheme cbps judge implication unwinding government bond portfolio govern framework set box august report cbps far small stock government bond hold apf absolute term proportion respective market mpc judge impact monetary condition unwind stock corporate bond time market function normally relatively small committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock particular movement prove persistent sharp rise price global energy tradable good united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve cpi inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign great persistence domestic cost price pressure member committee judge increase bank rate warrant different member place different weight argument increase bank rate percentage point member judge percentage point increase bank rate warrant february report projection imply tightening monetary policy require bring inflation target sustainably medium term forecast incorporate material trade relate continue global energy tradable good price shock cpi inflation expect materially target half forecast time margin spare capacity open year condition market path bank rate cpi inflation project fall target widen margin spare capacity scenario energy price follow forward curve forecast period inflation project undershoot target percentage point year time member recognise risk possibility strong domestic wage price pressure near term see need balance potential inflation fall quickly great extent expect energy tradable good price follow low path mpc projection case move bank rate small increment large increase outsized impact expectation path policy sufficient projection push inflation target year forecast member judge percentage point increase bank rate warrant monetary policy accommodative capacity pressure widespread especially labour market project path cpi inflation revise year forecast period medium term inflation expectation remain relatively high measure increase company respond decision maker panel indicate expect raise price significantly strong pickup pay settlement report bank agents broadening good price service price inflation suggest development reflect domestic cost price cpi inflation persistent expect february report projection monetary policy tighten great extent order reduce risk trend pay growth inflation expectation firmly embed help bring inflation target sustainably medium term consistent mpc guidance set august report give financial market function normally committee agree bank england cease reinvest future maturity fall stock government bond purchase reflect mpc intention reduce holding government bond gradual predictable manner addition committee agree bank england cease reinvest maturity fall stock sterling non financial investment grade corporate bond purchase initiate programme corporate bond sale complete early end unwind fully stock corporate bond purchase decision initiate programme corporate bond sale reflect specific characteristic corporate bond market mpc involvement take signal commencement scale duration potential future government bond sale programme committee reaffirm begin process actively sell government bond bank rate rise depend economic circumstance time committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy committee agree matter course vote proposition stock purchase asset decision concern sale government bond potential movement bank rate judge insufficient achieve inflation target prevailing condition one asset purchase particularly effective reduction stock purchase asset amend reverse extent tightening monetary policy depend medium term prospect inflation mpc judge economy develop line february report projection modest tightening monetary policy appropriate coming month committee continue judge side risk medium term inflation outlook primarily wage development upside energy global tradable good price downside committee update assessment balance risk medium term inflation light relevant datum emerge chair invite committee vote proposition bank rate increase percentage point bank england begin reduce stock government bond purchase finance issuance reserve cease reinvest mature asset bank england begin reduce stock sterling non financial investment grade corporate bond purchase finance issuance reserve cease reinvest mature asset programme asset sale complete early end unwind fully stock corporate bond purchase member andrew bailey ben broadbent jon cunliffe huw pill silvana tenreyro vote favour proposition member jonathan haskel catherine mann dave ramsden michael saunders vote proposition prefer increase bank rate percentage point committee vote unanimously favour proposition operational consideration september mpc agree reinvest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility apf eligible corporate bond commence november committee brief february programme reinvestment complete run undertake line approach green set bank england announcement november february total stock asset hold apf comprise government bond purchase sterling non financial investment grade corporate bond purchase consistent committee decision begin reduce stock government bond purchase cash flow associate redemption march gilt hold apf reinveste total government bond hold apf mature bond mature detail maturity profile apf own government bond set bank england website keep update ensure general public financial market clear information size apf schedule evolve stock purchase asset begin fall bank england monitor money market function closely stand ready adjust reserve direction judge necessary facilitate smooth transmission monetary policy consistent decision begin reduce stock sterling non financial investment grade corporate bond purchase committee ask bank design programme corporate bond sale detail announce month programme design disrupt functioning sterling investment grade corporate bond market detail include initial schedule operation set market notice publish ahead start sale governor write letter chancellor exchequer set consideration addition letter highlight appropriate government indemnity associate apf reduce size progressively line reduction stock purchase asset following member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act ron kalifa january observer purpose exercise oversight function role bank court directors monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february mpc vote majority increase bank rate percentage point member minority prefer increase bank rate percentage point committee vote unanimously bank england begin reduce stock government bond purchase finance issuance reserve cease reinvest mature asset committee vote unanimously bank england begin reduce stock sterling non financial investment grade corporate bond purchase finance issuance reserve cease reinvest mature asset programme corporate bond sale complete early end unwind fully stock corporate bond purchase committee update projection activity inflation set accompanying february monetary policy report projection condition market imply path bank rate rise 1½% middle wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption global activity return pre covid-19 covid level end year emergence omicron variant expect depressed activity somewhat december january economic impact limited short duration gdp expect recover february march output return pre pandemic level end labour force survey unemployment rate fall month november expect fall near term near term gdp growth expect slow subdue rate main reason adverse impact high global energy tradable good price real aggregate income spending result unemployment rate expect rise excess supply build end forecast period underlie earning growth estimate remain pre pandemic rate expect strengthen come year 4¾% consistent result bank agents annual pay survey tight labour market temporary upward pressure wage settlement high price inflation month cpi inflation rise november december percentage point high expect time november report inflation expect increase coming month close february march peak 7¼% april project peak percentage point high expect november report project overshoot inflation relative target mainly reflect global energy tradable good price rise energy future price mean ofgem utility price cap expect substantially high reset april core good cpi inflation expect rise impact global bottleneck tradable good price february report projection upward pressure cpi inflation expect dissipate time global energy price assume constant month global bottleneck ease tradable good price fall little underlying wage growth project ease labour market loosen gradually inflation decline condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year alternative scenario condition energy price follow forward curve forecast period set february report excess supply percentage point low medium term mpc projection cpi inflation percentage point target year time mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock particular movement prove persistent sharp rise price global energy tradable good united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign great persistence domestic cost price pressure committee judge increase bank rate percentage point warrant consistent mpc guidance set august report committee agree bank england cease reinvest future maturity fall stock government bond purchase reflect mpc intention reduce holding government bond gradual predictable manner addition committee agree bank england cease reinvest maturity fall stock sterling non financial investment grade corporate bond purchase initiate programme corporate bond sale complete early end unwind fully stock corporate bond purchase decision initiate programme corporate bond sale reflect specific characteristic corporate bond market mpc involvement take signal commencement scale duration potential future government bond sale programme committee reaffirm begin process actively sell government bond bank rate rise depend economic circumstance time committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy extent tightening monetary policy depend medium term prospect inflation mpc judge economy develop line february report projection modest tightening monetary policy appropriate coming month committee continue judge side risk medium term inflation outlook primarily wage development upside energy global tradable good price downside committee update assessment balance risk medium term inflation light relevant datum emerge minute monetary policy committee end february turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow expect november monetary policy report global gdp expect grow slowly anticipate november report omicron covid variant lead renew restriction voluntary social distancing country uncertainty relate economic impact omicron decline economic consequence limited short duration anticipate time mpc december global cost pressure arise strength good demand supply chain disruption high energy price remain elevated weigh activity past month strong demand good particular united states appear important determinant global bottleneck supply chain disruption month accord preliminary flash estimate euro area gdp increase output return level weak expect november report tight restriction address rise covid case number november december country drive initially delta variant subsequently omicron unemployment rate fall december historical low omicron case number increase result euro area output expect contract slightly notwithstanding restriction start ease country indicator point weakness covid sensitive sector flash service activity pmi fall january manufacturing output pmi pick possibly suggest stabilisation supply constraint particularly germany accord advance estimate gdp grow imply output level reflect strong recovery anticipate november report economic impact delta variant wan growth account primarily stockbuilde consumption support growth evidence continue rotation household spending good service labour market appear tight end unemployment rate fall december low level february participation rate remain pre covid level number job vacancy continue high relative historical level high frequency card spending datum suggest relatively temporary disruption spend relate omicron turn year limited restriction place gdp expect grow china gdp increase strong expect november report year year industrial production growth increase december reflect easing power shortage input constraint strong external demand consumption indicator continue somewhat weak measure production year year retail sale growth slow localise covid outbreak associate restriction weigh domestic demand outbreak appear relatively limited impact supply capacity economy look ahead uncertainty transmissible omicron variant cause great supply disruption extent china maintain covid strategy housing market continue slow consumer price inflation remain elevate euro area united states euro area annual hicp inflation increase january significantly market expectation immediately ahead release core inflation fall united states annual pce inflation rise december core inflation increase high energy price drive pickup consumer price inflation euro area price pressure base united states strong contribution energy car accommodation core good suggest addition high energy price pressure global bottleneck strong demand good inelastic supply pass consumer price divergence wage growth united states euro area accord federal reserve bank atlanta measure wage growth continue increase somewhat pre covid rate wage growth euro area remain mute mpc discuss case risk global inflation outlook near term pass consumer price inflation past cost increase mpc december signal cost indicator mix energy price volatile wholesale gas spot price initially fall europe peak mid december recently rise amid increase geopolitical tension brent oil spot price rise barrel mpc previous measure shipping cost mix easing increase index global input price delivery time plateaue suggest stabilisation global bottleneck high level overall global bottleneck expect ease month spend united states rotate service little later anticipate november report risk demand rotation delay example consumer preference shift permanently supply chain disrupt event widespread factory port closure china response covid development risk materialise consumer price rise anticipate alternatively possible global cost pressure abate quickly great extent medium term expect case consumer price inflation moderate fast pace monetary financial condition mpc previous advanced economy government bond yield rise significantly year yield increase basis point united states euro area united kingdom reach high level onset pandemic increase account primarily real rate increase nominal yield reflect high estimate term premia country high degree comovement yield different economy path market imply policy rate united states rise significantly mpc previous january fomc leave target range fund rate unchanged continue reduce monthly pace asset purchase publish additional information principle significantly reduce size federal reserve balance sheet market imply policy rate united states reach 1¼% end-2022 basis point high immediately prior mpc december euro area near term market imply path policy rate move little period december ecb governing council leave key policy interest rate unchanged announce gradual reduction pace net asset purchase united kingdom market imply expectation path bank rate year ahead rise market pricing consistent increase bank rate percentage point mpc february monetary policy report condition market imply path bank rate base work day average january rise 1½% mid-2023 immediate run mpc february market imply path bank rate reach mid-2023 result bank england market participants survey publish time friday follow release minute paint similar picture bank rate expectation respondent widely expect percentage point increase bank rate large majority expect bank rate reach year respondent assess balance risk near term path skew upside respondent expect reinvestment bank holding government bond cease anticipated bank rate increase medium term inflation compensation measure united kingdom increase slightly mpc previous remain average level past decade contrast similar measure united states euro area average level past decade committee discuss previously interpret medium term inflation compensation measure straightforward model attempt extract medium term market expectation cpi inflation intelligence gather market contact suggest high inflation expectation great perceive risk inflation account average level medium term inflation compensation measure alongside factor consistent result market participants survey suggest respondent attribute level elevated inflation expectation technical factor arise fact inflation market hedge large pension liability upside balance risk inflation outlook sterling effective exchange rate rise previous mpc dollar contrast fall despite relatively large increase government bond yield equity price fall mpc previous recover initial fall reflect increase government bond yield impact geopolitical development overall equity price end period low united states united kingdom increase somewhat cushion estimate fall equity risk premia reflect composition ftse share index include skew sector support rise energy price country strong performance sector expose covid relative exposed high interest rate adjustment corporate bond market spread remain historically low level have reverse modest increase see response initial emergence omicron lending rate mortgage loan value ltv ratio increase mpc previous consistent lag response increase risk free rate half increase have pass lend rate subsequent increase risk free rate see december mpc expect feed mortgage lending rate course component household borrowing credit card personal loan sensitive expect demand output quarterly gdp growth revise slightly quarterly national accounts level gdp revise news account high path household consumption pandemic consumption rise saving ratio fall business investment fall particular weakness air transport sector remain pre covid level gdp estimate rise november strong expect bank combine upward revision gdp mean prior onset omicron variant aggregate activity regain pre pandemic level time gdp high expect time november monetary policy report november output datum activity strong expect sector economy include consumer facing transport professional service tentative sign manufacturing construction sector supply disruption start ease monthly datum volatile bank expect gdp fall december impact omicron variant end month rise retail sale volume fall sharply december accord official datum reflect unwind previous strength consumer appear bring forward purchase ahead holiday season omicron weigh activity contact bank agents report shortage good continue supply chain issue constrain aggregate spending anticipate shortage exacerbate absence sickness self isolation report curtail activity number sector have reach high level turn year number covid case fall appear stabilise december chancellor exchequer announce additional support available business impact omicron variant include grant premise business hospitality leisure sector england government cover cost statutory sick pay covid relate absence small medium sized employer united kingdom run mpc government devolved administrations announce number relaxation covid measure place response omicron variant include lifting plan measure england half january removal post arrival testing requirement fully vaccinate traveller united kingdom february recent high frequency indicator suggest activity rebound somewhat early january include consumer face service work relate travel consistent intelligence bank agents peak economic impact omicron variant pass quickly gfk consumer confidence fall january probably initial concern impact omicron despite incipient squeeze real household disposable income household view financial situation far hold relatively contact bank agents note expect pressure household income dampen consumer spending coming month overall bank expect gdp recover february march economy project return pre pandemic level activity end gdp average unchanged market sector gdp expect surpass november level march number company report skilled labour shortage constraint output january cbi industrial trends survey remain elevated number company report material shortage factor limit production fall somewhat high level mid-1970 january manufacturing pmis suggest supply constraint worsen previous month contact bank agents expect slow improvement supply chain disruption continue judge problem persist increase report slow investment growth shortage good machinery labour widespread strength investment intention report agents contact highlight reinstatement project pause pandemic need increase capacity meet demand weaken december january decision maker panel report small drag covid business investment half year supply cost price labour force survey lfs unemployment rate fall month november percentage point low expect time november monetary policy report lfs employment rate expect inactivity unexpectedly rise slightly number inactive people report want job continue fall majesty revenue customs hmrc employee payroll rise single month december initial estimate tend revise somewhat bank judge lfs employee hmrc payroll series level account unusually high number individual have switch self employment payroll associate tax reform self employment remain weak account estimate switching lfs employment level month november indicator labour market tightness remain elevated ratio vacancy unemployment increase record high consistent series begin bank expect lfs unemployment rate fall despite spread omicron weigh activity beginning flash composite employment pmi january unchanged month remain past historical average bank agents report modest easing employment growth recruitment difficulty have remain intense high frequency indicator online vacancy dip december begin recover january profile comparable seasonal pattern prior pandemic instead weak labour demand main counterpart labour market covid relate weakness activity appear increase absence sickness self isolation caring responsibility ons business insights conditions survey suggest workforce absent covid relate reason turn year agents contact begin reduction absence view omicron temporary issue growth private sector regular average weekly earnings awe slow month november year early line bank expectation ahead release pay growth boost mechanical effect coronavirus job retention scheme change composition workforce effect wan month adjust effect bank estimate underlie private sector regular pay growth remain 4½% pre pandemic rate 3½% median pay growth base hmrc payroll data comparable pre pandemic rate imply pay award skewed upside past consistent bank agents contact report pay increase significantly high worker skill short supply february report projection underlie private sector pay growth expect pick come quarter special survey firm conduct bank agents suggest average pay settlement expect rise close pickup base different sector economy firm different size contact cite ability retain recruit worker increase consumer price inflation factor push expectation pay rec permanent salary index measure monthly pay growth permanent hire remain close record high december headline awe growth expect somewhat low underlie rate past boost pay compositional effect assume fade uncertainty precise scale speed unwind month cpi inflation rise december percentage point november report forecast upside news spread number component particularly core good strength core good price alongside high energy price account absolute overshoot inflation relative target service price inflation move pre covid rate price increase particularly acute hand car hospitality replicate trend united states cpi inflation project increase coming month close february march peak 7¼% april high utility price cap implement project peak percentage point high expect november report addition upside news cpi datum december wholesale gas electricity future price increase put upward pressure utility price cost supplier resort mechanism cover loss energy company incur take customer fail supplier expect begin pass household energy bill annual ons update cpi weight anticipate bank lead increase cpi inflation near term great weight place energy price certain contract price telecommunication service index consumer price measure increase coming month survey indicator cost price flash composite input output price pmis january remain historically elevated level bank agents report cost raw material shipping rate route appear stabilise high energy wage cost put additional upward pressure price agents pay survey suggest company expect increase price wage pressure share low consumer face firm measure household company short term inflation expectation rise mpc previous citi yougov household measure expectation year ahead increase december january year ahead measure unchanged respondent decision maker panel increase expectation price increase month survey cover month november month january professional forecaster continue expect cpi inflation close target year ahead immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee review development backdrop update projection activity inflation set accompanying february monetary policy report projection condition market imply path bank rate rise 1½% middle wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption weight world gdp estimate grow line expectation november report global gdp expect grow slowly uncertainty relate economic impact omicron decline economic consequence limited short duration anticipate time mpc december february report projection global activity continue grow restrain high global energy price forecast period impact ongoing supply chain constraint tradable good come year consumer price inflation rise united states euro area committee previous global cost pressure arise strength good demand supply chain disruption high energy price remain elevated wholesale gas spot price initially fall europe peak mid december recently rise amid increase geopolitical tension oil price rise significantly strong demand good particular united states appear important determinant global bottleneck supply chain disruption month february report projection world export price expect rise little near term global bottleneck ease global tradable good price expect fall little forecast period pre pandemic level mpc previous advanced economy government bond yield increase significantly market imply expectation path bank rate rise market pricing consistent increase bank rate percentage point mpc result bank england market participants survey publish time friday follow release minute paint similar picture bank rate expectation have reach high level turn year number covid case fall united kingdom appear stabilise run mpc government devolved administrations announce number relaxation covid measure place response omicron variant mpc projection condition assumption material restriction economic activity impose widespread voluntary social distancing follow wave gdp estimate rise november combine upward revision gdp mean prior emergence omicron variant aggregate activity regain pre pandemic level time omicron variant expect depressed activity somewhat december january economic impact limited short duration gdp expect recover february march output return pre pandemic level end labour force survey unemployment rate fall month november percentage point low expect time november report expect fall near term despite spread omicron weigh activity beginning ratio vacancy unemployment increase record high indicator balance demand supply economy suggest currently small margin excess demand economy near term gdp growth expect slow subdue rate main reason adverse impact high global energy tradable good price real aggregate income spending consumption growth expect slow household cut spending face material adverse effect real income sharp rise global energy tradable good price plan increase national insurance contribution april consumption growth slow materially year forecast period remain income growth reflect assumption household spend significant additional saving accumulate aggregate pandemic result household saving rate expect fall end risk direction projection give windfall nature excess saving build course pandemic household willing spend support level real consumption set exist saving concentrated high earner spend proportionately little saving development energy price particular disproportionately affect household low saving february report projection margin excess supply expect emerge later year build forecast period account slack labour market unemployment rate expect rise end projection underlie earning growth estimate remain pre pandemic rate expect strengthen come year 4¾% consistent result bank agents annual pay survey tight labour market temporary upward pressure wage settlement high price inflation month cpi inflation rise november december percentage point high expect time november report upside news spread number component particularly core good strength core good price alongside high energy price account absolute overshoot inflation relative target service price inflation move pre covid rate cpi inflation expect increase coming month close february march peak 7¼% april project peak percentage point high expect november report quarter project increase inflation december april expect reflect high contribution energy good price survey indicator cost price remain historically elevated level treasury representative brief committee government policy plan response ofgem forthcoming price cap announcement february report projection upward pressure cpi inflation expect dissipate time global energy price assume constant month global bottleneck ease tradable good price fall little underlying wage growth project ease labour market loosen gradually inflation decline condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year projection condition alternative assumption constant interest rate cpi inflation expect year time respectively alternative scenario condition market imply path bank rate energy price follow forward curve forecast period set february report excess supply percentage point low medium term mpc projection cpi inflation percentage point target year time measure household company short term inflation expectation rise mpc previous measure inflation expectation year ahead long term measure derive household survey financial market increase month short term measure professional forecaster continue expect cpi inflation close target year ahead risk inflation outlook long term inflation expectation evolve wage price setting consistent inflation return target medium term overall mpc judge inflation expectation remain anchor committee monitor measure inflation expectation closely box august monetary policy report committee set strategy mix monetary policy instrument deliver tight policy include preference circumstance use bank rate active policy tool adjust stance monetary policy committee note intend begin reduce stock government bond cease reinvest mature asset bank rate reach appropriate give economic circumstance benefit provide predictable gradual path reduction stock government bond mpc actively sell stock government bond bank rate rise depend economic circumstance time box state mpc separate decision corporate bond portfolio course run mpc committee consider strategy reduce stock sterling non financial investment grade corporate bond purchase judge cease reinvestment addition initiate programme corporate bond sale point bank rate reach appropriately reflect specific characteristic corporate bond purchase scheme cbps judge implication unwinding government bond portfolio govern framework set box august report cbps far small stock government bond hold apf absolute term proportion respective market mpc judge impact monetary condition unwind stock corporate bond time market function normally relatively small committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance unprecedented circumstance economy subject large repeat shock particular movement prove persistent sharp rise price global energy tradable good united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve cpi inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign great persistence domestic cost price pressure member committee judge increase bank rate warrant different member place different weight argument increase bank rate percentage point member judge percentage point increase bank rate warrant february report projection imply tightening monetary policy require bring inflation target sustainably medium term forecast incorporate material trade relate continue global energy tradable good price shock cpi inflation expect materially target half forecast time margin spare capacity open year condition market path bank rate cpi inflation project fall target widen margin spare capacity scenario energy price follow forward curve forecast period inflation project undershoot target percentage point year time member recognise risk possibility strong domestic wage price pressure near term see need balance potential inflation fall quickly great extent expect energy tradable good price follow low path mpc projection case move bank rate small increment large increase outsized impact expectation path policy sufficient projection push inflation target year forecast member judge percentage point increase bank rate warrant monetary policy accommodative capacity pressure widespread especially labour market project path cpi inflation revise year forecast period medium term inflation expectation remain relatively high measure increase company respond decision maker panel indicate expect raise price significantly strong pickup pay settlement report bank agents broadening good price service price inflation suggest development reflect domestic cost price cpi inflation persistent expect february report projection monetary policy tighten great extent order reduce risk trend pay growth inflation expectation firmly embed help bring inflation target sustainably medium term consistent mpc guidance set august report give financial market function normally committee agree bank england cease reinvest future maturity fall stock government bond purchase reflect mpc intention reduce holding government bond gradual predictable manner addition committee agree bank england cease reinvest maturity fall stock sterling non financial investment grade corporate bond purchase initiate programme corporate bond sale complete early end unwind fully stock corporate bond purchase decision initiate programme corporate bond sale reflect specific characteristic corporate bond market mpc involvement take signal commencement scale duration potential future government bond sale programme committee reaffirm begin process actively sell government bond bank rate rise depend economic circumstance time committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy committee agree matter course vote proposition stock purchase asset decision concern sale government bond potential movement bank rate judge insufficient achieve inflation target prevailing condition one asset purchase particularly effective reduction stock purchase asset amend reverse extent tightening monetary policy depend medium term prospect inflation mpc judge economy develop line february report projection modest tightening monetary policy appropriate coming month committee continue judge side risk medium term inflation outlook primarily wage development upside energy global tradable good price downside committee update assessment balance risk medium term inflation light relevant datum emerge chair invite committee vote proposition bank rate increase percentage point bank england begin reduce stock government bond purchase finance issuance reserve cease reinvest mature asset bank england begin reduce stock sterling non financial investment grade corporate bond purchase finance issuance reserve cease reinvest mature asset programme asset sale complete early end unwind fully stock corporate bond purchase member andrew bailey ben broadbent jon cunliffe huw pill silvana tenreyro vote favour proposition member jonathan haskel catherine mann dave ramsden michael saunders vote proposition prefer increase bank rate percentage point committee vote unanimously favour proposition operational consideration september mpc agree reinvest cash flow associate reduction stock sterling non financial investment grade corporate bond purchase hold asset purchase facility apf eligible corporate bond commence november committee brief february programme reinvestment complete run undertake line approach green set bank england announcement november february total stock asset hold apf comprise government bond purchase sterling non financial investment grade corporate bond purchase consistent committee decision begin reduce stock government bond purchase cash flow associate redemption march gilt hold apf reinveste total government bond hold apf mature bond mature detail maturity profile apf own government bond set bank england website keep update ensure general public financial market clear information size apf schedule evolve stock purchase asset begin fall bank england monitor money market function closely stand ready adjust reserve direction judge necessary facilitate smooth transmission monetary policy consistent decision begin reduce stock sterling non financial investment grade corporate bond purchase committee ask bank design programme corporate bond sale detail announce month programme design disrupt functioning sterling investment grade corporate bond market detail include initial schedule operation set market notice publish ahead start sale governor write letter chancellor exchequer set consideration addition letter highlight appropriate government indemnity associate apf reduce size progressively line reduction stock purchase asset following member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act ron kalifa january observer purpose exercise oversight function role bank court directors

monetary policy summary march bank england condemn russia unprovoked invasion suffering inflict ukraine bank work closely government support response coordination international authority bank monetary policy committee mpc support condemnation welcome action mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote majority increase bank rate percentage point prefer maintain bank rate mpc projection february monetary policy report publish russia invasion ukraine gdp growth expect slow subdue rate course year large reflect adverse impact previous large increase global energy tradable good price real aggregate income spending result margin spare capacity project open unemployment rate rise cpi inflation expect peak 7¼% april upward pressure inflation expect dissipate time condition rise market imply path bank rate expect time february report mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year development february report accentuate peak inflation adverse impact activity intensify squeeze household income inflation invasion ukraine russia lead large increase energy commodity price include food price exacerbate global supply chain disruption increase uncertainty economic outlook significantly global inflationary pressure strengthen considerably coming month growth economy net energy importer include united kingdom slow turn economic activity gdp january strong expect february report business confidence hold labour market activity datum remain robust consumer confidence fall response squeeze real household disposable income impact real aggregate income materially large imply projection february report consistent weak outlook growth employment equal month cpi inflation rise december january trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement inflation expect increase coming month high later year project overshoot inflation relative target increase extent reflect global energy price material contribution tradable good price service price inflation pick less extent component core service price return pre covid trend underlie nominal earning growth estimate remain pre pandemic rate expect strengthen come year sustain late rise energy future price mean ofgem utility price cap substantially high reset october temporarily push cpi inflation end year level project april previously expect peak inflation expect fall materially energy price stop rise squeeze real income demand put significant downward pressure domestically generate inflation judgement reflect monetary policy act ensure long term inflation expectation anchor target mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock russia invasion ukraine shock particular movement prove persistent elevated level global energy tradable good price united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign robust domestic cost price pressure risk pressure persist committee judge increase bank rate percentage point warrant base assessment economic situation committee judge modest tightening monetary policy appropriate come month risk side judgement depend medium term prospect inflation evolve mpc development light incoming datum implication medium term inflation include economic implication geopolitical event forthcoming forecast round ahead monetary policy report minute monetary policy committee end march bank england condemn russia unprovoked invasion suffering inflict ukraine bank work closely government support response coordination international authority bank monetary policy committee mpc support condemnation welcome action turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy global economic outlook deteriorate significantly follow russia invasion ukraine late february associate material increase price energy raw material price increase raise global consumer producer price inflation near term high rate erode real aggregate income net commodity import country renew supply chain problem emerge production trade important input decline physical disruption cause invasion effect sanction impose russia gdp growth united states euro area line expectation february report expect slightly strong anticipate particularly euro area euro area pmis pick sharply february indicate economic impact omicron covid variant severe expect united states household consumption rebound january rotation good service spending stall unemployment rate fall euro area united states turn year wage growth continue rise united states accord federal reserve bank atlanta measure chinese activity datum january february combine include industrial production retail sale strong expect reflect small impact omicron covid variant time follow rapid pickup covid case hong kong accompany high mortality rate covid case start rise china chinese authority continue react tight local restriction line country covid strategy report factory stop production response lead supply disruption weigh economic activity prior increase energy price consumer price inflation high economy euro area annual hicp inflation increase february core inflation annual cpi inflation rise february core inflation headline cpi figure consistent annual pce inflation 6½% euro area hicp inflation drive large increase energy price month particular gas price contribution cpi inflation broad base component core service rent healthcare price rise contribute particularly strongly increase car household good price push core good inflation high invasion commodity price increase substantially exhibit marked volatility russia significant exporter gas supply gas euro area large global crude oil producer concern gas flow europe disrupt lead exceptional volatility european wholesale gas price price rise sharply follow invasion elevated level early march dutch title transfer facility spot price rise mwh decline mwh time mpc average spot price assume february report future curve month little spot price spot price brent crude oil volatile increase february report barrel time mpc drive announcement government curtail oil import russia russia ukraine major producer raw material price metal food rise respectively february report russia account significant proportion global pig iron steel nickel aluminium copper export key input production process report car manufacturer have shut european plant lack input region russia ukraine account world wheat export russia supply world fertiliser ukraine major producer neon key input production semiconductor potentially lead renew supply pressure sector increase energy raw material price expect boost global consumer price inflation significantly near term directly fuel utility food price indirectly firm cost supply chain disruption add upward pressure good price give europe reliance russian gas fragmentation global market mean gas price increase materially effect expect large euro area united kingdom high price reduce real income exacerbate policy challenge face bank world russian economy expect affect significantly sanction financial sanction announce shortly invasion begin aim hinder trade russia restrict ability russian bank process foreign transaction particularly dollar curtail access russian bank swift message service costly process transaction transaction central bank russia prohibit restrict ability use international reserve support rouble facilitate cross border trade service debt recently united states announce ban russian oil import united kingdom declare phase import russian oil end year european union set plan cut gas use end year third gas import russia wave voluntary withdrawal company activity russia involve high profile consumer face firm broad range company supply good service russian business sector mining company late february central bank russia raise interest rate order exporter surrender foreign exchange receipt restrict ability resident capital country rouble fall start invasion central eastern european currency depreciate polish hungarian bank raise interest rate central eastern european country experience significant influx refugee ukraine monetary financial condition mpc previous indicator financial market volatility increase risky asset price fall reflect expect global impact russia invasion ukraine advanced economy equity price fall significantly spread corporate bond widen option imply distribution equity price suggest movement reflect increase pricing downside risk equity price shift case expectation short term financial market inflation compensation measure increase advanced economy large reflect impact invasion energy price medium term measure increase period common measure movement medium term measure noteworthy give oil gas future curve consistent energy price inflation fall significantly near term horizon united kingdom increase medium term inflation compensation measure take level average past decade committee discuss previously interpret medium term inflation compensation measure straightforward use inflation market hedge large pension liability uncertain future wedge consumer price rpi inflation mean inflation compensation measure provide direct read market participant fundamental view inflation outlook model attempt extract medium term market expectation cpi inflation intelligence gather market contact suggest high inflation expectation great perceive risk inflation persistence probably account average level medium term inflation compensation measure alongside factor sterling effective exchange rate fall previous mpc great extent dollar near term path market imply policy rate united states rise mpc previous increase pre date invasion market imply policy rate united states reach little end-2022 basis point high immediately prior mpc february euro area near term market imply path policy rate rise mpc previous march ecb governing council leave key policy interest rate unchanged announce fast reduction pace net asset purchase united kingdom market imply expectation path bank rate year ahead rise market pricing consistent increase bank rate percentage point mpc market imply path bank rate reach end-2022 basis point high immediately prior mpc february late bank england market participants survey suggest respondent expect slightly shallower path bank rate market imply path couple year great number respondent view balance risk path skewed upside downside long term advanced economy government bond yield increase mpc previous lending rate mortgage loan value ltv ratio rise mpc previous consistent lag response increase risk free rate autumn lending rate high ltv mortgage start increase rate high ltv mortgage remain low autumn reflect normalisation spread market increase significantly start pandemic subsequent increase risk free rate occur february mpc expect feed mortgage lending rate course interest rate unsecured household borrowing credit card personal loan usual sensitive change reference rate demand output mpc brief initial report bank agents decision maker panel business sentiment follow invasion ukraine russia little evidence available impact invasion economic activity squeeze real post tax labour income materially large expect previously commodity price increase accord ons quarterly estimate gdp increase line expectation incorporate february monetary policy report projection close level activity prior onset pandemic household consumption business investment rise government expenditure grow strongly component business investment remain pre covid level follow decline december gdp rise january notably strong expect time february report level high government service output strong expect account health activity include nhs test trace gdp growth january broad base service manufacturing construction sector output consumer face service rise line expectation time february report consistent high frequency indicator limited economic impact high contact sector omicron covid variant committee previous relaxation case removal covid measure announce government devolved administration recent high frequency economic indicator suggest activity high contact sector track return pre omicron level year datum card spending restaurant reservation train journey flight continue recover strongly week bank expect gdp increase strong february report projection flat quarterly outturn nowcast assume surprising strength non covid related activity month persist prior invasion late february tentative sign squeeze real disposable income start weigh household sector aggregate retail sale volume rise strongly january food sale fall pre pandemic level food price rise notably gfk consumer confidence decline materially february weakness pronounce forward look personal financial situation component unclear represent downside news relative weakness real income spending factor february report projection intelligence bank agents suggest consumer spending continue grow robust pace contact concern outlook demand come month increase pressure household real disposable income housing market activity remain robust indicator house price surprise upside relative february report projection recent indicator corporate sector sentiment somewhat resilient consumer confidence collate prior invasion ihs markit cips composite output pmi february rise high level june sign manufacturing construction pmi supply chain disruption ease late intelligence bank agents suggest invasion expect exacerbate shortage tradable good affect production plan sector automotive industry demand early result march decision maker panel suggest company view invasion source uncertainty business average negative impact firm sale expectation month chancellor exchequer spring statement parliament march alongside update office budget responsibility projection economic fiscal outlook supply cost price month cpi inflation rise january marginally february monetary policy report forecast release trigger exchange open letter governor chancellor exchequer publish alongside minute take energy core good inflation account fifth overshoot cpi inflation relative target january food price inflation strengthen account remainder overshoot government energy bills rebate package support household worth announce mpc february completion february report projection package include payment household tax bill april credit household administer electricity bill october repay subsequent year period ons announcement treatment element package official consumer price measure forthcoming cpi inflation expect rise february march rise april remain close rate rest percentage point high expect february report majority news attribute energy price include ofgem announcement slightly high expect increase gas electricity price cap april base wholesale gas electricity price pre dated russia invasion ukraine addition increase oil price associate invasion reflect price petrol heating oil wholesale gas price exceptionally volatile month observation window relevant ofgem october utility price cap calculation run february end july recently open sustain late rise gas electricity future price mean price cap reset october high high expect february report food price inflation expect rise january reflect pass cost increase month indicator cost pressure food supply chain continue rise follow invasion agricultural commodity price increase sharply upward pressure input cost food price inflation core cpi inflation expect rise 5½% account increase core good price inflation core good inflation expect average previous decade service price inflation project increase slightly historical average near term profile core inflation slightly high expectation time february report global supply chain disruption pose upside risk outlook core good price inflation survey indicator cost price pressure remain elevated ihs markit cips pmi composite input output price measure remain close historical high indicator pre dated russia invasion ukraine understate consequent cost pressure associate invasion timely intelligence bank agents contact suggest input price pick late february particular metal grain seed oil mpc previous household business inflation expectation rise bank ipsos citi yougov survey report rise household short term inflation expectation rise march particularly pronounce reach high level survey begin late change household short term inflation expectation typically correspond change spot inflation especially development price frequently purchase item food fuel utility medium term measure household inflation expectation increase short term counterpart citi yougov year ahead measure match previous record high record june decision maker panel report increase expectation business year ahead output price inflation rise month february rise slightly early march datum particularly respondent view invasion large source uncertainty business expectation professional forecaster report treasury february survey remain close inflation target two- year ahead horizon late labour market indicator continue point tight tighten labour market alongside rise inflation contribute strong pay growth labour force survey lfs unemployment rate fall month january expect time february report lfs employment rate unchanged inactivity rate rise slightly development consistent expectation time february report majesty revenue customs hmrc employee payroll rise strongly february initial estimate tend revise somewhat subsequently indicator labour demand remain strong stock vacancy month february rise supplant record high set precede month period rec permanent placement index remain close record high february vacancy unemployment ratio measure labour market tightness remain pre covid level reach record high level intelligence bank agents suggest elevated recruitment difficulty persist sector skill level agents contact report high rate job churn vacancy little improvement labour availability expect year private sector regular average weekly earnings awe growth rise month january year early strong expect february report bank estimate workforce compositional effect start drag headline pay growth recently adjust mechanical effect change workforce composition coronavirus job retention scheme bank estimate underlie private sector regular pay growth remain 4½% pre pandemic rate 3½% hmrc median pay growth february pre pandemic rate look ahead late intelligence bank agents continue point high pay settlement year ago consistent agents annual pay survey immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc projection february monetary policy report publish russia invasion ukraine gdp growth expect slow subdue rate course year large reflect adverse impact previous large increase global energy tradable good price real aggregate income spending result margin spare capacity project open unemployment rate expect rise cpi inflation expect peak 7¼% april upward pressure inflation expect dissipate time condition rise market imply path bank rate expect time february report mpc forecasting convention future energy price cpi inflation project fall little target year time target great margin year committee review economic news backdrop russia invasion ukraine related development base available economic datum period prior invasion weight global gdp expect grow little expect february report particularly euro area global consumer price inflation rise february euro area united states invasion lead large increase energy commodity price include food price exacerbate global supply chain disruption increase uncertainty economic outlook significantly global inflationary pressure strengthen considerably coming month growth united kingdom major trading partner euro area economy net energy importer slow gas price europe rise sharply follow invasion elevate level decline spot price brent oil volatile increase barrel time mpc price metal food rise respectively great commodity russia ukraine major exporter mpc previous indicator financial market volatility increase advanced economy risky asset price fall long term advanced economy government bond yield increase united kingdom market imply expectation path bank rate year ahead rise market pricing consistent increase bank rate percentage point mpc market imply path bank rate reach end-2022 government energy bills rebate announce mpc february completion february report projection ons announcement treatment element package consumer price statistic forthcoming chancellor exchequer spring statement parliament march alongside update office budget responsibility projection economic fiscal outlook mpc brief initial report bank agents decision maker panel business sentiment follow russia invasion ukraine little evidence available impact invasion economic activity gdp january strong expect february report bank expect gdp increase strong february report projection flat quarterly outturn business confidence hold labour market activity datum remain robust labour force survey unemployment rate fall month january expect time february report majesty revenue customs employee payroll rise strongly february initial estimate tend revise somewhat subsequently vacancy unemployment ratio rise record high indicator recruitment difficulty remain elevated consumer confidence fall response squeeze real household disposable income development labour market lag confidence spending development impact energy price real aggregate income materially large imply projection february report consistent weak outlook growth employment equal extent household react additional weakness real income cut real spending reduce saving important monitor come quarter aggregate saving rate decline materially pandemic drive peak quarter fall pre covid level household run additional stock saving build pandemic development energy price affect disproportionately household low income household general see substantial rise saving pandemic limit extent offset rundown saving important monitor extent high uncertainty lead reduction business investment underlie nominal earning growth estimate remain pre pandemic rate month january high expect february report late intelligence bank agents continue point high pay settlement year ago consistent agents annual pay survey month cpi inflation rise december january trigger exchange open letter governor chancellor exchequer publish alongside minute inflation expect increase coming month percentage point high expect february report majority news attribute energy price project overshoot inflation relative target increase extent reflect global energy price material contribution tradable good price service price inflation pick less extent component level core service price return pre covid trend survey indicator cost price pressure remain elevated sustain late rise energy future price mean ofgem utility price cap substantially high reset october wholesale price exceptionally volatile month observation window relevant october price cap calculation run february end july recently open movement temporarily push cpi inflation end year level project april previously expect peak outturn percentage point high expect february report addition continue global supply chain disruption pose upside risk outlook core good inflation inflation expect fall materially possibly great extent expect february report energy price stop rise squeeze real income demand significant downward pressure domestically generate inflation increase market imply path bank rate push demand inflation medium term relative february report equal judgement inflation fall reflect monetary policy act ensure long term inflation expectation anchor target mpc previous financial market household business indicator inflation expectation rise medium term inflation compensation measure financial market increase average past decade citi yougov measure household year ahead expectation match previous record high level decision maker panel report increase expectation business year ahead output price inflation nonetheless expectation professional forecaster remain close target year ahead horizon overall mpc judge inflation expectation remain anchor risk inflation outlook wage price set manner consistent inflation return target medium term committee monitor measure inflation expectation closely committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock russia invasion ukraine shock particular movement prove persistent elevated level global energy tradable good price united kingdom net importer necessarily weigh real aggregate income spending monetary policy unable prevent role monetary policy ensure real economic adjustment occur consistent achieve cpi inflation target sustainably medium term minimise undesirable volatility output give tightness labour market continue sign robust domestic cost price pressure risk pressure persist member committee judge percentage point increase bank rate warrant activity somewhat strong expect time february report indication tightening labour market reverse direction quickly expect effect russia invasion ukraine accentuate peak inflation adverse impact activity intensify squeeze household income monetary policy tighten order reduce risk trend nominal pay growth domestic pricing inflation expectation strengthen embed help ensure inflation target sustainably medium term committee appropriate maintain exist stance monetary policy recognise risk round effect protract period high inflation tight labour market consequence policy tightening warrant place great weight point material negative impact high commodity price real household income activity appear exacerbate russia invasion ukraine invasion increase uncertainty decrease consumer business confidence impact activity employment push domestic inflationary pressure path monetary policy depend full assessment currently possible balance pressure especially give volatility commodity market base assessment economic situation committee judge modest tightening monetary policy appropriate come month risk side judgement depend medium term prospect inflation evolve mpc development light incoming datum implication medium term inflation include economic implication geopolitical event forthcoming forecast round ahead monetary policy report chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro vote favour proposition jon cunliffe vote proposition prefer maintain bank rate operational consideration march follow maturity march gilt previously hold asset purchase facility apf total stock asset hold apf comprise government bond purchase sterling non financial investment grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act dorothy thompson march bradley fried dorothy thompson march observer purpose exercise oversight function role member bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end publish

monetary policy summary mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote majority increase bank rate percentage point member minority prefer increase bank rate percentage point global inflationary pressure intensify sharply follow russia invasion ukraine lead material deterioration outlook world growth development exacerbate greatly combination adverse supply shock united kingdom country face concern supply chain disruption rise russia invasion ukraine covid-19 development china gdp estimate rise strong expect february monetary policy report unemployment rate fall month february fall slightly coming month consistent continue tightening labour market margin excess demand survey business activity remain strong sign indicator retail spending consumer confidence squeeze real disposable income start weigh household sector level gdp expect unchanged month cpi inflation rise march percentage point high expect february report strength inflation relative target mainly reflect previous large increase global energy tradable good price shift global demand durable good supply chain disruption committee update projection activity inflation set accompanying monetary policy report projection condition market imply path bank rate rise 2½% mid-2023 fall end forecast period fiscal policy assume evolve line announced government policy wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption report projection cpi inflation expect rise remainder year average slightly peak majority increase reflect high household energy price follow large rise ofgem price cap april project additional large increase october price cap mechanism mean take time increase wholesale gas electricity price respective future curve reflect retail energy price give operation price cap consumer price inflation peak later united kingdom economy fall later expected rise cpi inflation reflect high food core good service price underlie nominal earning growth rise project february report expect strengthen coming month give tightening labour market upward pressure high price inflation company expect increase selling price strongly near term follow sharp rise cost reporting confidence able rebuild margin nonetheless report projection gdp growth expect slow sharply half forecast period predominantly reflect significant adverse impact sharp rise global energy tradable good price household real income company profit margin unemployment rate fall slightly near term expect rise 5½% year time give sharp slowdown demand growth excess supply build 2¼% end forecast period monetary policy act ensure long term inflation expectation anchor target upward pressure cpi inflation expect dissipate time global commodity price assume rise projection global bottleneck ease time weakening demand growth build excess supply lead domestic inflationary pressure subside condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time reflect wan influence external factor year target mainly reflect weak domestic pressure risk inflation projection judge skew upside point give risk persistent strength nominal wage growth domestic price setting assume mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock russia invasion ukraine shock particular movement prove persistent projection assume elevated level global energy tradable good price united kingdom net importer necessarily weigh household real income company profit margin monetary policy unable prevent role monetary policy ensure real economic adjustment occur manner consistent achieve inflation target sustainably medium term minimise undesirable volatility output recent development exacerbate materially near term peak cpi inflation prospective negative impact activity medium term inflationary pressure give tightness labour market continue sign robust domestic cost price pressure risk pressure persist committee vote increase bank rate percentage point base update assessment economic outlook member committee judge degree tightening monetary policy appropriate come month risk side judgement range view member balance risk mpc development light incoming datum implication medium term inflation committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy bank rate increase consistent mpc previous guidance committee begin process sell government bond hold asset purchase facility committee reaffirm decision commence sale depend economic circumstance include market condition time sale expect conduct gradual predictable manner disrupt functioning financial market committee recognise benefit provide market participant clarity framework potential sale programme committee ask bank work strategy government bond sale provide update august allow committee decision subsequent commence sale minute monetary policy committee end turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy economic consequence russian invasion ukraine start feel globally elevate level increase price energy commodity start war upward pressure producer consumer price inflation weigh real income concern supply chain bottleneck rise owe war ukraine covid-19 covid development china development consistent deterioration outlook global growth weight global gdp expect grow slightly materially slow anticipate time february monetary policy report european economy expect particularly affect war ukraine give dependence energy import euro area gdp expect grow little rate significantly low anticipate february report follow growth accord preliminary flash release economic impact omicron variant somewhat anticipate february report indicator suggest service activity continue expand covid restriction ease nonetheless war ukraine weigh growth prospect particularly manufacturing sector output pmis decline april forward look indicator business expectation consumer confidence weaken significantly invasion outlook central eastern european country worsen currency depreciate relative dollar mpc partly reflect strength trade linkage russia ukraine economic output expect decline materially direct consequence war russian economy expect contract significantly year accord advance estimate gdp contract drive primarily widening trade deficit weak inventory investment weak anticipate february report underlying demand personal consumption gross private fix investment remain strong spending continue rotate service good net exporter oil retail gas price have rise absolute term europe economy expect relatively affect development commodity price albeit fully shield gdp expect expand reasonably strongly labour market remain tight unemployment rate fall march close pre covid level wage growth continue rise accord federal reserve bank atlanta measure china experience significant outbreak covid case challenge economic backdrop include stress property sector authority impose lockdown number large city include shanghai late march result development china gdp expect grow slowly anticipate february report weak gdp grow consistent chinese authority approach support manufacturing covid outbreak example closed loop production system worker remain factory site industrial production growth fall retail sale growth march port affected city experience congestion widespread report delay road freight add global supply chain pressure delay start ease disruption possible come month supply chain constraint arise russia invasion ukraine intensify global cost pressure russia ukraine major producer input range metal food fertiliser oil natural gas war lead broad increase commodity price fall peak week spot price brent crude oil increase barrel february report european gas price rise sharply follow invasion moderate russia decision cease gas flow poland bulgaria late april lead short live increase dutch title transfer facility ttf spot price stand mwh level mpc march high time february report ttf future curve remain level year decline notably wedge open ttf spot gas price contract trading low level mwh penny therm large liquefy natural gas lng shipment united kingdom alongside rebound output norwegian gas field seasonally warm weather wedge persist future curve month point future price rise ttf future price lng shipment expect line capacity export european union week metal price fall level little time february report aggregate price metal nickel zinc remain elevated food price include wheat corn remain substantially high time february report backdrop strong commodity price global consumer price inflation continue rise euro area annual hicp inflation increase april core inflation united states annual cpi inflation rise march core inflation headline pce inflation increase increase cpi inflation high contribution energy price core good service component continue large contribution inflation rate euro area energy price main contributor inflation core inflation rise sharply april measure inflation expectation increase advanced economy particular short horizon committee discuss risk global inflation outlook implication growth upside risk future path energy price particularly gas price example flow russian gas large euro area country slow significantly scenario european gas price increase sharply gas quantity ration winter gas stock run low upside risk inflation price pressure relate global supply chain disruption additional constraint affect transportation capacity input industrial process agricultural production possible owe war ukraine severe covid outbreak china set backdrop continue strong consumer demand generate increase core good price low demand china reduce commodity price margin finally risk tight labour market strong wage growth couple high inflation expectation lead inflationary pressure advanced economy additional price pressure lead deterioration global growth outlook real income squeeze reduce consumer spending exacerbate policy challenge face bank world monetary financial condition mpc previous advanced economy government bond yield rise significantly united states euro area united kingdom year yield increase basis point united states basis point euro area basis point united kingdom near term path market imply policy rate united states rise significantly mpc previous march federal open market committee increase target range fund rate give indication committee place begin process reduce size federal reserve balance sheet early quick pace episode balance sheet reduction market imply policy rate united states reach end-2022 peak euro area near term market imply path policy rate rise mpc previous april ecb governing council leave key policy interest rate unchanged note datum reinforce expectation net asset purchase conclude united kingdom market pricing consistent increase bank rate percentage point mpc market imply expectation path bank rate rise monetary policy report condition market imply path bank rate base work day average april rise end-2022 peak fall year time result bank england market participants survey indicate similar expectation bank rate near term respondent expect percentage point increase respondent expect low path bank rate market imply path ahead albeit significant number respondent view balance risk path skewed upside downside year reconcile difference market imply expectation short term financial market inflation compensation measure united kingdom increase mpc previous reflect continued impact russia invasion ukraine gas energy price time medium term inflation compensation measure united kingdom fall modestly remain level time february report average level past decade intelligence gather market contact suggest high inflation expectation great perceive upside risk inflation account average level medium term inflation compensation measure alongside factor dollar effective exchange rate appreciate mpc march interest rate differential widen sterling effective exchange rate depreciate euro effective exchange rate remain unchanged euro area equity price unchanged mpc previous ftse share index increase level see prior invasion ukraine focusse ftse index support rise energy price remain level see prior invasion adjustment corporate bond market lending rate mortgage loan value ltv ratio rise mpc previous consistent lag response increase risk free rate autumn lending rate high ltv mortgage sight deposit rate start increase increase risk free rate occur march mpc expect feed mortgage rate course interest rate unsecured household borrowing credit card personal loan usual sensitive change reference rate demand output start immediate complete dataset real gdp growth revise slightly level gdp estimate identical prior pandemic expenditure component household consumption rise saving ratio fall low level onset pandemic high pre covid period business investment increase leave 8½% pre pandemic level government spending rise pre covid level turn late available monthly datum gdp increase february follow growth january output consumer face service rise strongly february particularly accommodation food art recreation sector economic impact omicron variant unwound government service output fall spend nhs test trace vaccination programme decline manufacturing construction output fall slightly month bank expect gdp growth strong flat quarterly outturn incorporate february monetary policy report projection upward revision reflect high expect market sector output increase sign squeeze real disposable income start weigh household sector retail sale volume fall march follow decline february weakness fuel food store non store retailing nominal retail sale value remain stable weak sale volume counterpart increase sale deflator gfk consumer confidence decline sharply april close previous low point series record mid-2008 backward forward look sub balance feed headline confidence indicator fall month indicator house price housing activity remain robust activity indicator business survey weaken remain notably strong household survey counterpart s&p global cip flash composite output index fall march april remain long run average level composite order output expectation series fall long run average accord contact bank agents output grow solid pace business service report strong growth growth continue hold shortage labour good worsen widespread invasion ukraine increase covid relate restriction china investment intention report agents remain strong despite increase uncertainty investment spending hold cost pressure shortage material good labour expect sale growth year remain strong april decision maker panel result report projection gdp expect increase real income squeeze weigh household spending adverse effect renew disruption supply chain covid relate government spending project decline timing additional platinum jubilee bank holiday expect reduce growth temporarily percentage point equivalent boost expect result exclude temporary impact extra bank holiday market sector output project grow half pace expect committee discuss risk near term outlook gdp report projection real consumer spending project rise slightly real household disposable income expect decline materially reflect judgement household saving ratio fall 3½% end year percentage point average downside risk consumption profile reduced form model mechanical pre covid mapping consumer confidence decline spend growth set possible saving ratio fall near term low long project respondent late bank nmg household survey state save use exist saving face hypothetical increase inflation strength business business service manufacturing construction output persist long assume projection consistent extent relative strength business survey indicator output chancellor exchequer present spring statement parliament march addition measure energy bills rebate package announce february spring statement include immediate month reduction fuel duty announcement increase annual national insurance primary threshold low profits limit july align income tax personal allowance reduction basic rate income tax april take bank estimate measure boost gdp coming year supply cost price labour force survey lfs unemployment rate fall month february consistent ongoing tightening labour market number inactive people report want job continue historically low inactivity increase aggregate lfs employment flat month contrast growth hmrc employee payroll survey indicator employment remain strong committee discuss risk outlook labour market activity labour market tight expect bank agents report firm employment intention remain robust despite increase uncertainty broad economic outlook rate hire hinder high usual turnover recruitment difficulty number vacancy remain elevated survey measure firm employment intention household sense job security continue resilient labour market lag activity previous turning point economic cycle prospective weakening output weigh labour demand come quarter consistent monetary policy report forecast unemployment rate project fall stabilise half year increase economy average weekly earnings awe growth increase month february year early percentage point february report forecast reflect strength regular pay bonus bank estimate underlie private sector regular pay growth remain 4½% adjust mechanical effect change composition workforce coronavirus job retention scheme median pay settlement record bank database rise month year consistent agents february pay survey recently agents contact begin increase pay settlement bonus course year retain especially strong demand particular skill underlying pay growth expect increase remainder year project february report consistent tight labour market alongside rise inflation month cpi inflation rise march percentage point february report forecast bulk upside news split evenly energy core good price take energy core good component account fifth overshoot cpi inflation relative target remainder spread food service component core good inflation somewhat weak euro area united kingdom united states cpi inflation expect rise april increase subsequent month average slightly peak build subsequent russian invasion ukraine push commodity price household gas electricity price contribute additional percentage point cpi inflation april energy price cap announce ofgem take effect increase wholesale price remain elevate spot price moderate result high retail energy price cap reset october half month observation window determine price cap complete sustain high gas electricity future price mean price cap high add percentage point cpi inflation october addition increase wholesale oil food commodity price pass household core cpi inflation exclude food beverage tobacco energy expect increase rate march survey indicator cost price pressure remain historically elevated level inflation outturn tend rate imply past relationship indicator special survey pricing profit margin conduct bank agents suggest firm expect significantly upwards pressure price month previous month high labour cost utility price cost shipping raw material frequently cite factor push inflation year half survey respondent consider easy normal pass cost increase price close company describe margin unsustainably low fifth firm anticipate rebuild margin sustainable level month measure business inflation expectation rise mpc previous respondent decision maker panel increase expectation price increase month average april quarter respond deloitte cfo survey anticipate cpi inflation 2½% year time citi yougov household measure expectation year year edge april remain historically elevated professional forecaster continue expect inflation close target medium term immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee review development backdrop update projection activity inflation set accompanying monetary policy report projection condition market imply path bank rate rise 2½% mid-2023 fall end forecast period fiscal policy assume evolve line announced government policy wholesale energy price assume follow respective future curve month projection constant contrast future curve downward slop coming year material risk assumption global inflationary pressure intensify sharply follow russia invasion ukraine lead material deterioration outlook world growth global gdp expect grow slightly concern supply chain disruption rise russia invasion ukraine covid-19 development china market pricing consistent increase bank rate percentage point mpc market imply expectation path bank rate rise bank england market participants survey indicate similar expectation bank rate near term respondent expect low path bank rate market imply path ahead chancellor exchequer present spring statement parliament march take energy bills rebate package announce february bank estimate spring statement measure boost gdp coming year gdp estimate rise strong expect february report upward revision reflect high expect market sector output unemployment rate fall month february fall slightly coming month consistent continue tightening labour market margin excess demand inactivity increase lfs employment flat month contrast growth hmrc employee payroll survey indicator employment remain strong firm continue significant recruitment difficulty elevated level vacancy survey suggest average level capacity utilisation survey business activity remain strong sign indicator retail spending consumer confidence squeeze real disposable income start weigh household sector level gdp expect unchanged timing additional platinum jubilee bank holiday expect reduce growth temporarily percentage point equivalent boost expect exclude temporary impact extra bank holiday market sector output project grow half pace expect report projection gdp growth expect slow sharply half forecast period predominantly reflect significant adverse impact sharp rise global energy tradable good price household real income company profit margin total real household disposable income project fall 1¾% great fall february projection consumption growth expect slow materially half forecast period expect slow income growth positive projection outlook aggregate consumption depend range factor include distribution squeeze income household extent willing able draw accumulate saving overall gdp growth expect flat unemployment rate fall slightly near term expect rise 5½% year time give sharp slowdown demand growth committee revise projection labour force participation follow fall pandemic report projection excess supply economy expect build 2¼% end forecast period month cpi inflation rise march percentage point high expect february report strength inflation relative mpc target mainly reflect previous large increase global energy tradable good price shift global demand durable good supply chain disruption increase inflation rate domestically supply service report projection cpi inflation expect rise remainder year average slightly peak majority increase reflect high household energy price follow large rise ofgem price cap april project additional large increase october price cap mechanism mean take time increase wholesale gas electricity price respective future curve reflect retail energy price give operation price cap consumer price inflation peak later united kingdom economy fall later expected rise cpi inflation reflect high food core good service price bank measure underlie nominal earning growth rise project february report expect strengthen coming month give tightening labour market upward pressure high price inflation median pay settlement record bank database rise consistent agents february pay survey recently agents contact begin increase pay settlement bonus course year company expect increase selling price strongly near term follow sharp rise cost reporting confidence able rebuild margin mpc previous short term financial market inflation compensation measure continue increase measure business short medium term inflation expectation long term inflation expectation imply financial market household survey fall modestly remain elevate historic norm limited news indicator professional forecaster expectation committee monitor measure inflation expectation closely monetary policy act ensure long term inflation expectation anchor target upward pressure cpi inflation expect dissipate time global commodity price assume rise projection global bottleneck expect ease time weakening demand growth build excess supply lead domestic inflationary pressure subside condition rise market imply path bank rate mpc forecasting convention future energy price cpi inflation project fall little target year time reflect wan influence external factor year target mainly reflect weak domestic pressure risk inflation projection judge skew upside point give risk persistent strength nominal wage growth domestic price setting assume projection condition alternative assumption constant interest rate cpi inflation expect year time respectively downside risk assumed path energy commodity price price fall level imply future curve case energy price level gdp nearly high end forecast period excess supply unemployment percentage point low forecast report cpi inflation fall target rapidly projection percentage point target year time respectively committee turn immediate policy decision mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock russia invasion ukraine shock particular movement prove persistent projection assume elevated level global energy tradable good price united kingdom net importer necessarily weigh household real income company profit margin monetary policy unable prevent role monetary policy ensure real economic adjustment occur manner consistent achieve inflation target sustainably medium term minimise undesirable volatility output recent development exacerbate materially near term peak cpi inflation prospective negative impact activity medium term inflationary pressure give tightness labour market continue sign robust domestic cost price pressure risk pressure persist member committee judge increase bank rate warrant different member place different weight argument increase bank rate percentage point momentum labour market activity continue strong strong expect strength labour market far accompany notable resilience business relative consumer confidence sign weakness household spending real income squeeze begin bite strong forecast domestic inflationary pressure february report justify increase bank rate underlying wage growth continue strengthen time high headline inflation potential round effect domestic wage price setting key question self sustain momentum domestically generate inflation slack economy expect open great delay real income squeeze lead weakness aggregate demand turn labour market risk high inflation expectation embed economy member committee judge percentage point increase bank rate warrant report projection imply tightening monetary policy require bring inflation target sustainably medium term condition market path bank rate endpoint forecast characterise large margin excess supply cpi inflation target medium term outlook particularly uncertain currently member prefer percentage point increase bank rate member weight continue strength demand yield risk capacity pressure especially labour market great forecast period report projection member judge monetary policy lean strongly risk trend pay growth firm pricing strategy inflation expectation economy widely firmly embed fast policy tightening help bring inflation target sustainably medium term reduce risk extended costly tighten cycle later base update assessment economic outlook member committee judge degree tightening monetary policy appropriate come month risk side judgement range view member balance risk member committee judge risk activity inflation policy horizon evenly balanced guidance appropriate juncture mpc development light incoming datum implication medium term inflation february consistent guidance set august report give financial market function normally committee agree cease reinvest future maturity fall stock government bond purchase reflect mpc intention reduce holding government bond gradual predictable manner mpc reaffirm begin process sell government bond bank rate rise depend economic circumstance time mpc committee reaffirm preference circumstance use bank rate active policy tool adjust stance monetary policy bank rate increase consistent mpc previous guidance committee begin process sell government bond hold asset purchase facility committee reaffirm decision commence sale depend economic circumstance include market condition time sale expect conduct gradual predictable manner disrupt functioning financial market committee recognise benefit provide market participant clarity framework potential sale programme committee ask bank work strategy government bond sale provide update august allow committee decision subsequent commence sale chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe huw pill dave ramsden silvana tenreyro vote favour proposition member jonathan haskel catherine mann michael saunders vote proposition prefer increase bank rate percentage point operational consideration total stock asset hold asset purchase facility apf comprise government bond purchase sterling non financial investment grade corporate bond purchase february mpc committee agree bank england cease reinvest maturity fall stock sterling non financial investment grade corporate bond purchase initiate programme corporate bond sale complete early end unwind fully stock corporate bond purchase committee ask bank design programme corporate bond sale design disrupt functioning sterling investment grade corporate bond market consistent previous guidance committee brief mpc bank england plan commence corporate bond sale september corporate bond hold portfolio mature april allow mature detail provide high level market notice accompany minute operational market notice publish month prior start sale programme publication information programme corporate bond sale take signal design timing potential future government bond sale programme agree exchange letter governor chancellor exchequer february size apf holding decline authorise maximum size apf adjust reflect size portfolio month line early agreement set exchange letter release alongside minute authorise maximum size apf reduce align size holding review confirm governor chancellor october note governor letter chancellor february gilt sale judge appropriate future conduct predictable manner period time disrupt functioning financial market bank liaise debt management office dmo order minimise interference dmo issuance programme view market participant good minimise disruption asset market follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro james benford treasury representative april clare lombardelli treasury representative april permit bank england act amend bank england financial services act dido harding april april observer purpose exercise oversight function role bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end june publish june

monetary policy summary june bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote majority increase bank rate percentage point member minority prefer increase bank rate percentage point mpc projection monetary policy report gdp growth expect slow sharply half forecast period labour market expect tighten slightly near term unemployment rate project rise 5½% year time cpi inflation expect average slightly peak condition rise market imply path bank rate time mpc forecast convention future energy price cpi inflation project fall little target year time reflect wan influence external factor target year mainly reflect weak domestic pressure risk inflation projection judge skew upside point relatively little news global domestic economic datum report significant movement financial market weight global growth appear line expectation global inflationary pressure remain elevated oil price rise equity market end period lower short long term government bond yield continue rise gdp weak expect april partly reflect decline test trace activity bank expect gdp fall weak anticipate time report consumer confidence fall indicator household spending appear hold indicator business sentiment weaken far remain resilient indicator consumer confidence consistent positive underlie gdp growth month april unemployment rate employment grow inactivity rate decline little month high immediately pandemic recruitment difficulty remain elevated labour demand remain strong underlie nominal earning growth remain strong bank agents bonus payment address recruitment retention difficulty indicator consistent tight labour market initial bank analysis government cost living support package suggest equal boost gdp raise cpi inflation percentage point year upside risk estimate give targeted load nature measure month cpi inflation rise march april close expectation time report trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement inflation overshoot target mainly reflect previous large increase global energy tradable good price greatly exacerbate war ukraine raise significantly wholesale price agricultural commodity mainly reflect impact pandemic shift demand good impair disrupt supply chain excess inflation attribute global event role interaction domestic factor include tight labour market pricing strategy firm consumer service price inflation influence domestic cost good price inflation strengthen month addition core consumer good price inflation high united kingdom euro area united states cpi inflation expect month rise slightly october increase october reflect high project household energy price follow prospective additional large increase ofgem price cap mpc late forecast upward pressure cpi inflation expect dissipate time main reflect stabilisation price commodity albeit elevated level tradable good reflect combined impact weak real income tight monetary policy domestic demand monetary policy act ensure long term inflation expectation anchor target mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock monetary policy ensure adjustment shock occur cpi inflation return target sustainably medium term minimise undesirable volatility output continue sign robust cost price pressure include tightness labour market risk pressure persistent committee vote increase bank rate percentage point mpc action necessary return inflation target sustainably medium term line remit scale pace timing increase bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response minute monetary policy committee end june turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global growth appear line expectation time monetary policy report global inflationary pressure remain elevated gdp growth rate euro area united states marginally strong report quarterly rate expect respectively business particularly consumer confidence fall region russia invasion ukraine sentiment indicator show sign stabilise euro area euro area unemployment rate remain unchanged record low april unemployment rate hold steady close pre pandemic level china experience covid-19 covid outbreak major city month authority impose strict regional lockdown control spread virus reflect development chinese activity datum weak april anticipate time report bank expect level gdp flat compare quarterly growth incorporate report slowdown continue mark indicator consumption industrial production see decline albeit somewhat small relative strictness lockdown company continue operate call closed loop production system continue weakness property sector weigh fix investment activity expect recover covid restriction start lift recently pmi indicator show slowing rate contraction indicator supply constraint start ease somewhat shanghai major port operate close capacity development commodity price mix mpc previous spot price brent crude oil increase barrel european gas price end period little change dutch title transfer facility spot price measure price continental wholesale market mwh agricultural commodity metal price volatile slightly mpc previous elevated level euro area annual hicp inflation increase accord flash release core inflation strong market expectation annual cpi inflation rebound market expectation core inflation fall slightly headline cpi figure consistent annual pce inflation remain stable indicator wage growth stabilise elevated level month united states rise euro area monetary financial condition mpc previous government bond yield risky asset price volatile major advanced economy year government bond yield rise basis point united states united kingdom germany respectively equity index major advanced economy fall mpc previous large decline s&p euro stoxx spread advanced economy corporate bond widen day near term path market imply policy rate united states euro area rise significantly mpc previous reach respectively end-2022 june ecb governing council decide end net asset purchase asset purchase programme july leave key policy interest rate unchanged set accompany statement governing council conclude condition accord forward guidance start raise key ecb interest rate satisfy governing council intend raise rate july monetary policy look ahead governing council expect raise september calibration rate increase depend update medium term inflation outlook medium term inflation outlook persist deteriorate governing council indicate large increment appropriate united kingdom market pricing indicate expectation increase percentage point bank rate mpc market imply path bank rate rise materially mpc previous reach end-2022 peak path continue high expectation bank rate respondent bank late market participants survey reflect upside risk inflation outlook domestically internationally sterling effective exchange rate depreciate 2½% previous mpc compare day moving average monetary policy report projection condition sterling particularly weak dollar accord market participant movement reflect rise yield differential short term government bond yield united states compare united kingdom perception growth outlook lending rate mortgage united kingdom increase reflect continue response increase bank rate risk free market rate observe autumn lending rate mortgage loan value ltv ratio rise high ltv ratio spread narrow pre pandemic level interest rate unsecured borrowing increase slightly usual household unsecured lending rate continue sensitive change risk free rate rate lending business high april december reflect increase bank rate take evidence far pass increase risk free rate mortgage rate autumn great close pass see prior financial crisis interest rate away lower bound interest rate instant access deposit increase autumn mortgage lending increase risk free rate occur mpc expect feed lending deposit rate course demand output accord ons quarterly estimate gdp increase slightly expectation incorporate monetary policy report projection expenditure component household consumption rise business investment subject substantial revision fall total government expenditure rise monthly gdp fall march april weak expectation government service output fall significantly april nhs test trace activity continue decline manufacture output fall expectation time report output consumer face service rise april line expectation bank expect gdp fall report projection growth downside news reflect large expect impact scaling test trace activity april alongside weak expect market sector output growth relative slowing growth expect primarily reflect temporary factor additional holiday platinum jubilee anticipated fall test trace activity intelligence bank agents suggest early sign slowing underlie growth demand remain robust line projection time report mixed sign extent squeeze real disposable income weigh household sentiment spending gfk consumer confidence fall previous low point series mid-2008 weakness broad base backward forward look sub balance headline confidence indicator indicator consumer spending hold retail sale volume increase april follow decline march fast indicator spending suggest continued recovery previously subdue area consumer service international travel resilience area restaurant reservation indicator house price remain robust period housing activity fall indicator corporate sector sentiment weaken mpc previous remain resilient indicator consumer confidence base pre covid relationship consistent positive underlie gdp growth s&p global cips pmi composite output index fall remain long run average level composite output expectation series fall business survey indicator continue hold cbi report output balance lloyds trading expectation balance show little change month addition expect sale year ahead remain strong decision maker panel result indicator fall somewhat month accord contact bank agents growth continue hold supply chain disruption company increasingly take measure alleviate effect disruption example alternative input hold stock chancellor exchequer announce cost living support package include direct payment household mean test benefit payment pensioner payment people disability benefit doubling universal rebate energy bills support scheme provide additional household chancellor announce original rebate long repay subsequent year announce measure take effect half year additional payment household receive mean test benefit start soon july payment benefit recipient skew people low income take standard fiscal multiplier initial bank analysis suggest measure boost gdp raise cpi inflation percentage point year upside risk estimate give targeted load nature measure bank conduct detailed assessment measure ahead august monetary policy report supply cost price month cpi inflation rise april close monetary policy report projection energy core good inflation continue account overshoot cpi inflation relative target food service inflation rise account remainder overshoot increase contribution service price partly restoration vat rate hospitality sector sale core cpi inflation exclude food beverage tobacco energy rise april cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute high inflation rate widespread cpi basket inflation rate tenth class level category weight cpi basket pre pandemic average april compare half summer committee discuss strength inflation cross country perspective rate consumer price inflation euro area united states elevate half year base component level comparison committee note energy price inflation push measure headline consumer price inflation similar extent united kingdom euro area consistent region great exposure european wholesale gas price increase small effect united states core good price inflation strong united kingdom region recently rise april compare euro area month pce measure united states strength food price inflation economy similar late datum partly reflect importance global development agricultural price service price inflation reflect domestic labour market condition great extent component inflation strong united kingdom united states euro area cpi inflation expect rise somewhat near term september reflect high food core good service price inflation increase oil price push inflation relative report projection percentage point core cpi inflation expect rise september cpi inflation expect rise slightly october slightly high monthly peak consistent report project increase september october expect reset ofgem utility price cap sustain late wholesale gas future price mean increase utility price cap october similar expectation time report third month observation window relevant reset october cap pass follow consultation ofgem decision increase frequency cap reset forthcoming outcome week extension observation window provide additional uncertainty magnitude increase utility price october period october estimate suggest reset price cap quarterly semi annual basis modest implication cpi inflation projection give late wholesale gas price future curve government cost living support package include doubling universal rebate household effect october ons announcement treatment rebate economic statistic include consumer price forthcoming survey indicator cost price remain elevated s&p global cips pmi composite input price index rise record high level corresponding composite output price index remain close record high contact bank agents report manufacturing service company continue face elevated input price business continue pass price order protect margin short term measure inflation expectation household business financial market remain substantially elevated relative historic average bank ipsos citi yougov measure household year ahead inflation expectation close record high level recently decision maker panel report increase expectation business year ahead output price inflation month medium long term measure inflation expectation elevate short term counterpart remain historic average set indicator inflation compensation measure financial market fall modestly remain average level past decade expectation professional forecaster report treasury survey rise percentage point inflation target year ahead horizon shift mean appear effect substantial upward revision single forecaster median distribution remain close forecast horizon committee monitor measure inflation expectation closely ons reweighting labour force survey lfs population estimate change marginally composition labour market month april unemployment rate equal pre pandemic trough slightly low month january lfs employment grow strongly inactivity rate decline little month high immediately pandemic labour market development consistent expectation time report tight labour market majesty revenue customs hmrc employee payroll rise initial estimate tend revise somewhat subsequently labour demand indicator remain strong alongside evidence persistently elevated recruitment difficulty stock vacancy rise month vacancy unemployment ratio measure labour market tightness remain elevated stock vacancy equal stock unemployed people growth stock vacancy slow month february month recent employment indicator business survey rec labour demand index remain strong intelligence bank agents contact suggest hire intention continue positive recruitment difficulty remain severe contact say expect recruitment difficulty persist month structural shortage labour skill recent indicator nominal pay growth remain elevated consistent continue effect tightening labour market nominal private sector regular awe growth month april line expectation time report adjust mechanical effect change workforce composition coronavirus job retention scheme bank estimate underlie nominal private sector regular pay growth remain consistent expectation time report excess pre pandemic rate 3½% hmrc paye measure median pay growth range 6¼% month pre pandemic rate recent strong growth bonus payment broad base compare pre pandemic sectoral average bank agents contact report bonus payment address recruitment retention difficulty give development market sector productivity underlie nominal earning indicator appear consistent elevated rate unit wage cost growth bank agents report pay settlement continue high year ago deal average little expect company agents pay survey conduct near beginning year significant minority company consider mid year pay settlement intelligence reinforce upside risk mpc projection pay growth domestic price pressure highlight report immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc projection monetary policy report gdp growth expect slow sharply half forecast period labour market expect tighten slightly near term unemployment rate project rise 5½% year time cpi inflation expect average slightly peak condition rise market imply path bank rate time mpc forecast convention future energy price cpi inflation project fall little target year time reflect wan influence external factor target year mainly reflect weak domestic pressure risk inflation projection judge skew upside point mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy recently subject succession large shock shock push global energy tradable good price elevated level price increase raise inflation united kingdom net importer item necessarily weigh household real income company real profit real economic adjustment monetary policy unable prevent global shock interact domestic factor include tight labour market pricing strategy firm lead persistent inflationary pressure role monetary policy ensure adjustment real economy occur cpi inflation return target sustainably medium term minimise undesirable volatility output monetary policy act ensure long term inflation expectation anchor target late output business survey consumer spending indicator mix take materially different near term underlie growth path project report late official datum continue momentum labour market activity sustain sign timely indicator employment imminent deterioration surprising change labour market activity usually lag development gdp quarter risk tightness labour market persist long expect government fiscal package incorporate mpc update projection consumer spending save behaviour ahead august report reason slightly big boost growth inflation standard multipli framework cpi inflation april close mpc expectation time report inflationary pressure appear broaden major component consumer price include service sector indicator cost price pressure remain robust key question remain self sustain momentum domestically generate inflation persist margin slack economy expect open course continue sign robust cost price pressure include tightness labour market risk pressure persistent member committee judge increase bank rate warrant member committee judge percentage point increase bank rate warrant member note economic news fairly limited relative report projection cpi inflation project way target year time report demand start slow line forecast labour market remain tight indication broad domestic inflationary pressure require response order ensure inflation return sustainably target medium term member prefer percentage point increase bank rate member high weight prospect resilience demand shortfall supply cost capacity pressure relatively strong forecast period member judge monetary policy lean strongly risk trend pay growth firm pricing decision inflation expectation economy widely firmly embed fast policy tightening help bring inflation target sustainably medium term reduce risk extended costly tighten cycle later mpc action necessary return inflation target sustainably medium term line remit scale pace timing increase bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe huw pill dave ramsden silvana tenreyro vote favour proposition member jonathan haskel catherine mann michael saunders vote proposition prefer increase bank rate percentage point operational consideration june total stock asset hold asset purchase facility apf comprise government bond purchase sterling non financial investment grade corporate bond purchase consistent committee decision february begin reduce stock government bond purchase cash flow associate redemption july gilt hold apf reinveste follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act sir bradley fried june observer purpose exercise oversight function role bank court directors committee express thank significant contribution bank time chair court court bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end august publish august

monetary policy summary august bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end august mpc vote majority increase bank rate percentage point prefer increase bank rate percentage point inflationary pressure united kingdom rest europe intensify significantly monetary policy report mpc previous reflect near doubling wholesale gas price owe russia restriction gas supply europe risk curb feed retail energy price exacerbate fall real income household increase cpi inflation near term cpi inflation expect rise forecast report june elevated level fall target year ahead gdp growth united kingdom slow late rise gas price lead significant deterioration outlook activity united kingdom rest europe united kingdom project enter recession year real household post tax income project fall sharply consumption growth turn negative domestic inflationary pressure project strong half forecast period firm expect increase selling price markedly reflect sharp rise cost labour market remain tight unemployment rate month vacancy historically high level result consistent late agents survey underlie nominal wage growth expect high report half forecast period inflationary pressure expect dissipate time global commodity price assume rise tradable good price inflation expect fall sign evident labour market loosen slowly response fall demand unemployment expect rise domestic inflationary pressure expect subside half forecast period increase degree economic slack low headline inflation reduce pressure wage growth monetary policy act ensure long term inflation expectation anchor target risk mpc projection external domestic factor exceptionally large range plausible path economy cpi inflation medium term activity significantly higher low baseline projection august monetary policy report result come assessment outlook implication monetary policy committee currently put weight implication single set conditioning assumption projection august report contain projection gdp unemployment inflation baseline condition mpc convention wholesale energy price constant month point alternative projection energy price follow downward slop future curve forecast period scenario explore implication great persistence domestic price setting baseline condition announce government fiscal policy include cost living support package announce significant difference projection half forecast period high near term inflation fall gdp year marked decline inflation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy continue subject succession large shock inevitably lead volatility output monetary policy ensure adjustment shock occur cpi inflation return target sustainably medium term labour market remain tight domestic cost price pressure elevate risk long period externally generate price inflation lead enduring domestic price wage pressure consideration committee vote increase bank rate percentage point mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response minute committee ask bank work strategy sell government bond gilt hold asset purchase facility commit provide update august base analysis committee provisionally minded commence gilt sale shortly september subject economic market condition judge appropriate confirmatory vote minute monetary policy committee end august turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price committee discuss strategy sell government bond hold asset purchase facility international economy weight global gdp growth slow project weak late rise gas price less extent tightening financial condition lead significant deterioration outlook global economic activity accord preliminary flash estimate euro area gdp grow high expect rate reflect tourism return pre covid-19 covid level restriction ease monetary policy report euro area unemployment rate fall pre covid level reach june vacancy continue grow forward look indicator s&p global pmi composite output index business consumer confidence survey balance fall sharply indicate weak gdp growth accord advance estimate gdp fall consecutive negative growth fall mainly account low stockbuilding domestic final demand growth slow unemployment rate remain early sign levelling increase vacancy high frequency datum ism manufacturing non manufacturing pmi fall june low reading mid-2020 remain indicate gdp growth weak positive china gdp fall significantly weak expect relate strict regional lockdown covid continue weakness property sector gdp growth expect recover easing covid restriction european spot future gas price roughly double mpc previous mid june risk russia limit severely flow gas europe start crystallise dutch title transfer facility spot price measure european wholesale gas price rise mwh close peak start russia ukraine war response russia restriction gas flow country agree voluntary reduction gas consumption spring price commodity food oil metal fall materially mpc previous movement price reflect weaken near term global growth outlook indicator global supply constraint remain elevated early sign supply bottleneck start ease indicator shipping cost decline peak pmi survey indicate manufacture delivery time fall different region high energy commodity price global supply bottleneck strong labour market contribute increase global inflation rate euro area annual headline core hicp inflation july increase respectively united states annual headline core pce inflation increase june respectively annual cpi inflation increase june monetary financial condition mpc previous financial market continue volatile market participant expect bank major advanced economy react forcefully near term inflationary pressure need respond weak activity year government bond yield fall basis point united kingdom united states germany respectively mpc june reverse increase see june meeting risky asset price recover follow large decline equity price increase corporate bond spread mpc june meeting significant number bank globally increase policy rate past week include quarter bank bank international settlements publish datum july federal open market committee increase target range fund rate basis point 2½% july ecb governing council raise key policy interest rate basis point approve transmission protection instrument ensure monetary policy stance transmit smoothly euro area country governing council continue normalise monetary policy near term path market imply policy rate united states euro area imply sharp pickup rate flat lined fall little level low time mpc previous united kingdom market pricing consistent increase bank rate basis point mpc follow governor announcement mansion house speech july mpc publish detail strategy begin sell gilt hold asset purchase facility alongside august monetary policy report majority market participant expect sale begin shortly mpc september expectation extent sale little change accord respondent bank late market participants survey maps market imply expectation path bank rate fall mpc previous peak march path continue high expectation bank rate respondent late maps gap path narrow slightly median respondent maps expect bank rate peak compare time mpc previous medium term inflation compensation measure low advanced economy include united kingdom time report reflect concern weak global growth outlook low price commodity tight monetary policy near term medium term inflation compensation measure remain average level past decade base work day average july august report condition sterling effective exchange rate low correspond level time report depreciation sterling dollar account fall sterling appreciate somewhat run mpc lending rate fix rate mortgage united kingdom continue increase materially reflect response increase risk free market rate observe autumn pass increase risk free rate mortgage rate close pass typically see prior global financial crisis interest rate away lower bound late credit conditions survey suggest secure credit availability household decline lender report reflect worsen economic outlook respondent expect secured credit availability decrease slightly usual increase interest rate unsecured household borrowing sight deposit rate small mortgage lending demand output monthly gdp estimate increase follow decline april outturn weak bank expect uncertainty scale upward impact activity additional trading day associate timing platinum jubilee holiday period follow quarterly increase gdp bank expect gdp fall weak growth expect monetary policy report headline growth depress run nhs test trace activity impact platinum jubilee bank estimate gdp growth exclude factor compare previous quarter slightly weak expect report consistent indicator output growth business survey decline slowdown underlying growth reflection fall real income high global energy tradable good price business survey indicator weaken july example s&p global cips pmi composite output index fall june long run average remain consistent positive gdp growth aggregate particular weakness manufacture output composite future output index rise slightly july accord bank agents activity grow moderate pace recently output constrain ongoing shortage labour good company report optimistic household economic outlook overall bank expect gdp increase slightly weak incorporate report headline growth boost unwind effect platinum jubilee underlying growth expect slow positive follow growth household consumption growth expect slow slowdown anticipate growth retail sale volume fall june particular weakness clothing footwear household good store continue downward trend retail spending observe half accord bank agents sign consumer demand soften fall household real income depress spending food retailer report decline sale volume agents widespread report slowdown sale durable good consistent change composition spending accord ons datum output surpass pre pandemic level consumer face service sector hotel restaurant land transport unclear output sector rise near term gfk consumer confidence remain unchanged july record low level record june early indication slowing housing demand june rics survey business investment fall persistently low expect previous monetary policy report projection relative pre pandemic level weakness particularly apparent investment transport equipment building structure official datum business investment subject significant revision past accord bank agents investment intention soften slightly recently remain positive current investment spending continue hold cost pressure shortage great number agents contact indicate uncertainty demand curtail investment future follow change measurement associate united kingdom withdrawal european union remain difficult interpret external trade datum include able consistent comparison series time supply cost price labour force survey lfs unemployment rate month equal pre pandemic trough consistent tight labour market lfs employment growth strong pick month corollary stable unemployment strong employment growth decline inactivity rate employment rate remain somewhat level immediately prior pandemic inactivity rate somewhat high early period indicator labour demand remain strong alongside evidence continue recruitment difficulty stock vacancy relatively stable month remain close record high month june vacancy unemployment ratio measure labour market tightness remain elevated industry basis ratio sector economy high corresponding pre pandemic level bank agents survey employment pay conduct week early july report strong employment intention business respondent expect recruitment difficulty limit intention realise agents contact report continue broad base recruitment difficulty attrition vacancy rate high normal business indicator nominal pay growth remain strong consistent effect continue labour market tightness high cpi inflation outturn annual growth private sector regular average weekly earnings awe month line expectation time monetary policy report adjust mechanical effect change workforce composition coronavirus job retention scheme bank estimate underlie nominal private sector regular pay growth 4½% month excess pre pandemic rate 3½% hmrc paye measure median pay growth june pre pandemic rate agents employment pay survey report increase wage settlement relative estimate equivalent survey conduct start survey suggest business expect increase pay deal month little high previous survey significant minority respondent late survey provide expected pay settlement figure month indicate prefer wait observe future cpi outturn decide give expect path cpi inflation come month suggest potential upside risk pay growth near term respondent late survey give consider award payment compensate underlying private sector regular awe pay growth expect pick half drive persistent tightness labour market high inflation government recently announce pay award broad set public sector employee average compare annual rate public sector awe regular pay growth month month cpi inflation rise june percentage point report projection contrast core cpi inflation exclude food beverage tobacco energy fall percentage point expectation time report relative report upside news fuel food less extent service price soften core cpi inflation account deceleration core good price large reflect outright fall car price service inflation closely associate domestically generate inflation rise cpi inflation expect rise july level rest reflect high fuel food service price cpi inflation expect rise percentage point high expectation time report percentage point high time june mpc majority upside news high expect household energy price primarily reflect substantial rise wholesale gas future price occur report recently russia restriction gas supply european market july risk curb sterle gas future price end-2022 nearly double less extent upside news reflect ofgem announce change method update price cap share bank advance publication change include put weight sharp increase wholesale gas price transitional observation window august monetary policy report projection price cap assume rise october compare report increase typical annual dual fuel bill october switch reset cap quarterly semi annual basis mean price cap reset january direct contribution energy cpi inflation project reach percentage point nearly percentage point high report expect account half overshoot cpi inflation relative target rise energy price additional indirect effect cpi inflation increase firm cost pass wide range price non energy good service bank estimate indirect effect contribute percentage point cpi inflation assume gas price follow monetary policy report conditioning assumption add significantly inflation following year core cpi inflation expect pick near term reach 6¼% end year reflect strengthen service price inflation indicator cost price remain elevated development mix s&p global cips pmi composite input output indicator fall somewhat july high inflation rate ons measure producer output price service producer price rise historically elevated level agents contact report input price inflation remain elevated company expect pass high cost price protect margin remain normal short term measure inflation expectation household business financial market remain substantially elevated relative historical average respondent decision maker panel increase expectation price increase month average july june deloitte cfo survey report median expectation cpi inflation year time year ahead expectation report cbi distributive trades survey remain historical average citi yougov measure household expectation year horizon edge july remain historically elevated level household short term inflation expectation tend line measured inflation rate equivalent indicator medium term inflation expectation medium long term measure inflation expectation remain historical average albeit extent short term counterpart financial market indicator medium term inflation expectation fall high level historical average citi yougov indicator household expectation year horizon ease percentage point july remain historically elevated level bank survey economic forecasters publish august report median expectation cpi inflation year horizon committee monitor measure inflation expectation closely immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment inflationary pressure united kingdom rest europe intensify significantly monetary policy report mpc previous reflect near doubling wholesale gas price owe russia restriction gas supply europe risk curb retail energy price exacerbate fall real income household increase cpi inflation near term cpi inflation expect rise forecast report june elevated level fall target year ahead gdp growth slow underlie term slightly great extent expect previously reflection fall real income high global energy tradable good price constraint output ongoing shortage labour good company remain optimistic economic outlook household labour market tight tighten united kingdom project enter recession year agents employment pay survey report business expect increase pay month little high previous survey indicator consumer producer service price inflation rise late datum moderation core consumer good inflation respondent decision maker panel increase expectation price increase month measure inflation expectation remain elevated particularly near term financial market indicator medium term inflation expectation low high risk mpc projection external domestic factor exceptionally large range plausible path economy cpi inflation medium term activity significantly higher low baseline projection august monetary policy report result come assessment outlook implication monetary policy committee currently put weight implication single set conditioning assumption projection august report contain projection gdp unemployment inflation baseline condition mpc convention wholesale energy price constant month point alternative projection energy price follow downward slop future curve forecast period scenario explore implication great persistence domestic price setting baseline condition announce government fiscal policy include cost living support package announce significant difference projection half forecast period show high near term inflation fall gdp year marked decline inflation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy continue subject succession large shock inevitably lead volatility output shock push global energy tradable good price elevated level price increase raise inflation united kingdom net importer item necessarily weigh household real income real economic adjustment monetary policy unable prevent global shock interact domestic factor include tight labour market pricing strategy firm lead persistent inflationary pressure role monetary policy ensure adjustment real economy occur cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target labour market remain tight domestic cost price pressure elevate risk long period externally generate price inflation lead enduring domestic price wage pressure consideration member committee judge increase bank rate warrant member committee judge percentage point increase bank rate warrant member forceful policy action justify backdrop jump energy price indication inflationary pressure persistent broaden domestically drive sector tight labour market environment company find easy pass price increase high protracted path cpi inflation month increase risk eventual decline external price pressure sufficient restrain expectation target inflation ahead member judge spending strong assume august report projection example labour market prove resilient household draw accumulate saving great extent overall fast pace policy tightening help bring inflation target sustainably medium term reduce risk extended costly tighten cycle later prefer percentage point increase bank rate bank rate reach level consistent return inflation target medium term demand slowing household income squeeze past bank rate increase take effect set labour market remain tight underlying wage service price recently accelerate slow demand lower domestic inflationary pressure uncertainty quickly occur share concern high near term rate cpi inflation lead round effect prolong period target inflation policy act effect generate great degree slack risk oversteere medium term inflation target balance consideration agree tightening appropriate feel small increase bank rate help minimise risk retain option act forcefully require future meeting mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders vote favour proposition silvana tenreyro vote proposition prefer increase bank rate percentage point mpc strategy government bond sale set minute committee ask bank work strategy sell government bond gilt hold asset purchase facility apf commit provide update august allow committee decision subsequent bank england commence gilt sale process reduce size apf begin february committee vote cease gilt reinvestment initiate sale sterling non financial investment grade corporate bond line previous communication apf reduction committee strategy asset sale guide set key principle committee preference use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct relatively gradual predictable manner period time run mpc bank set framework assess condition appropriate bank england start gilt sale consistent key principle framework bank brief mpc state economic market condition include consistent sale conduct disrupt functioning financial market financial policy committee fpc brief base analysis mpc provisionally minded commence gilt sale shortly september policy subject economic market condition judge appropriate confirmatory vote committee ask bank position begin sale programme end september event proceed mpc agree set reduction stock purchase gilt hold apf month period point policy vote comprise mature gilt gilt sale committee judge month sale programme start september reduction stock purchase gilt hold apf appropriate give profile mature gilt period imply sale programme plan detail propose programme set provisional market notice accompany minute follow year mpc intend set reduction stock purchase gilt subsequent month period annual committee amend design parameter sale programme require example account variation gilt maturity period mpc agree high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy unwind predictable amendment judge necessary order meet remit example potential movement bank rate judge insufficient meet inflation target market judge distressed mpc amend halt sale programme consider restart reinvestment additional asset purchase fpc role assessment financial stability operational consideration august total stock asset hold asset purchase facility apf comprise government bond purchase sterling non financial investment grade corporate bond purchase consistent committee decision february begin reduce stock government bond purchase cease reinvest mature asset cash flow associate redemption september gilt hold apf reinveste consistent committee decision february begin reduce stock sterling non financial investment grade corporate bond purchase cease reinvest mature asset programme corporate bond sale complete early end unwind fully stock corporate bond purchase bank begin sale corporate bond week commence september operational detail publish month ahead auction commence committee brief operational change sterling monetary framework come effect alongside start gilt sale programme bank launch short term repo str facility help ensure short term market rate remain close bank rate allow mpc future decision apf unwind independently implication supply reserve alongside minute bank publish explanatory note set broad framework control short term interest rate apf reduction programme market notice describe str detail finally behalf committee chair express appreciation michael saunders contribution work mpc follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative monetary policy summary august bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end august mpc vote majority increase bank rate percentage point prefer increase bank rate percentage point inflationary pressure united kingdom rest europe intensify significantly monetary policy report mpc previous reflect near doubling wholesale gas price owe russia restriction gas supply europe risk curb feed retail energy price exacerbate fall real income household increase cpi inflation near term cpi inflation expect rise forecast report june elevated level fall target year ahead gdp growth united kingdom slow late rise gas price lead significant deterioration outlook activity united kingdom rest europe united kingdom project enter recession year real household post tax income project fall sharply consumption growth turn negative domestic inflationary pressure project strong half forecast period firm expect increase selling price markedly reflect sharp rise cost labour market remain tight unemployment rate month vacancy historically high level result consistent late agents survey underlie nominal wage growth expect high report half forecast period inflationary pressure expect dissipate time global commodity price assume rise tradable good price inflation expect fall sign evident labour market loosen slowly response fall demand unemployment expect rise domestic inflationary pressure expect subside half forecast period increase degree economic slack low headline inflation reduce pressure wage growth monetary policy act ensure long term inflation expectation anchor target risk mpc projection external domestic factor exceptionally large range plausible path economy cpi inflation medium term activity significantly higher low baseline projection august monetary policy report result come assessment outlook implication monetary policy committee currently put weight implication single set conditioning assumption projection august report contain projection gdp unemployment inflation baseline condition mpc convention wholesale energy price constant month point alternative projection energy price follow downward slop future curve forecast period scenario explore implication great persistence domestic price setting baseline condition announce government fiscal policy include cost living support package announce significant difference projection half forecast period high near term inflation fall gdp year marked decline inflation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy continue subject succession large shock inevitably lead volatility output monetary policy ensure adjustment shock occur cpi inflation return target sustainably medium term labour market remain tight domestic cost price pressure elevate risk long period externally generate price inflation lead enduring domestic price wage pressure consideration committee vote increase bank rate percentage point mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response minute committee ask bank work strategy sell government bond gilt hold asset purchase facility commit provide update august base analysis committee provisionally minded commence gilt sale shortly september subject economic market condition judge appropriate confirmatory vote minute monetary policy committee end august turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price committee discuss strategy sell government bond hold asset purchase facility international economy weight global gdp growth slow project weak late rise gas price less extent tightening financial condition lead significant deterioration outlook global economic activity accord preliminary flash estimate euro area gdp grow high expect rate reflect tourism return pre covid-19 covid level restriction ease monetary policy report euro area unemployment rate fall pre covid level reach june vacancy continue grow forward look indicator s&p global pmi composite output index business consumer confidence survey balance fall sharply indicate weak gdp growth accord advance estimate gdp fall consecutive negative growth fall mainly account low stockbuilding domestic final demand growth slow unemployment rate remain early sign levelling increase vacancy high frequency datum ism manufacturing non manufacturing pmi fall june low reading mid-2020 remain indicate gdp growth weak positive china gdp fall significantly weak expect relate strict regional lockdown covid continue weakness property sector gdp growth expect recover easing covid restriction european spot future gas price roughly double mpc previous mid june risk russia limit severely flow gas europe start crystallise dutch title transfer facility spot price measure european wholesale gas price rise mwh close peak start russia ukraine war response russia restriction gas flow country agree voluntary reduction gas consumption spring price commodity food oil metal fall materially mpc previous movement price reflect weaken near term global growth outlook indicator global supply constraint remain elevated early sign supply bottleneck start ease indicator shipping cost decline peak pmi survey indicate manufacture delivery time fall different region high energy commodity price global supply bottleneck strong labour market contribute increase global inflation rate euro area annual headline core hicp inflation july increase respectively united states annual headline core pce inflation increase june respectively annual cpi inflation increase june monetary financial condition mpc previous financial market continue volatile market participant expect bank major advanced economy react forcefully near term inflationary pressure need respond weak activity year government bond yield fall basis point united kingdom united states germany respectively mpc june reverse increase see june meeting risky asset price recover follow large decline equity price increase corporate bond spread mpc june meeting significant number bank globally increase policy rate past week include quarter bank bank international settlements publish datum july federal open market committee increase target range fund rate basis point 2½% july ecb governing council raise key policy interest rate basis point approve transmission protection instrument ensure monetary policy stance transmit smoothly euro area country governing council continue normalise monetary policy near term path market imply policy rate united states euro area imply sharp pickup rate flat lined fall little level low time mpc previous united kingdom market pricing consistent increase bank rate basis point mpc follow governor announcement mansion house speech july mpc publish detail strategy begin sell gilt hold asset purchase facility alongside august monetary policy report majority market participant expect sale begin shortly mpc september expectation extent sale little change accord respondent bank late market participants survey maps market imply expectation path bank rate fall mpc previous peak march path continue high expectation bank rate respondent late maps gap path narrow slightly median respondent maps expect bank rate peak compare time mpc previous medium term inflation compensation measure low advanced economy include united kingdom time report reflect concern weak global growth outlook low price commodity tight monetary policy near term medium term inflation compensation measure remain average level past decade base work day average july august report condition sterling effective exchange rate low correspond level time report depreciation sterling dollar account fall sterling appreciate somewhat run mpc lending rate fix rate mortgage united kingdom continue increase materially reflect response increase risk free market rate observe autumn pass increase risk free rate mortgage rate close pass typically see prior global financial crisis interest rate away lower bound late credit conditions survey suggest secure credit availability household decline lender report reflect worsen economic outlook respondent expect secured credit availability decrease slightly usual increase interest rate unsecured household borrowing sight deposit rate small mortgage lending demand output monthly gdp estimate increase follow decline april outturn weak bank expect uncertainty scale upward impact activity additional trading day associate timing platinum jubilee holiday period follow quarterly increase gdp bank expect gdp fall weak growth expect monetary policy report headline growth depress run nhs test trace activity impact platinum jubilee bank estimate gdp growth exclude factor compare previous quarter slightly weak expect report consistent indicator output growth business survey decline slowdown underlying growth reflection fall real income high global energy tradable good price business survey indicator weaken july example s&p global cips pmi composite output index fall june long run average remain consistent positive gdp growth aggregate particular weakness manufacture output composite future output index rise slightly july accord bank agents activity grow moderate pace recently output constrain ongoing shortage labour good company report optimistic household economic outlook overall bank expect gdp increase slightly weak incorporate report headline growth boost unwind effect platinum jubilee underlying growth expect slow positive follow growth household consumption growth expect slow slowdown anticipate growth retail sale volume fall june particular weakness clothing footwear household good store continue downward trend retail spending observe half accord bank agents sign consumer demand soften fall household real income depress spending food retailer report decline sale volume agents widespread report slowdown sale durable good consistent change composition spending accord ons datum output surpass pre pandemic level consumer face service sector hotel restaurant land transport unclear output sector rise near term gfk consumer confidence remain unchanged july record low level record june early indication slowing housing demand june rics survey business investment fall persistently low expect previous monetary policy report projection relative pre pandemic level weakness particularly apparent investment transport equipment building structure official datum business investment subject significant revision past accord bank agents investment intention soften slightly recently remain positive current investment spending continue hold cost pressure shortage great number agents contact indicate uncertainty demand curtail investment future follow change measurement associate united kingdom withdrawal european union remain difficult interpret external trade datum include able consistent comparison series time supply cost price labour force survey lfs unemployment rate month equal pre pandemic trough consistent tight labour market lfs employment growth strong pick month corollary stable unemployment strong employment growth decline inactivity rate employment rate remain somewhat level immediately prior pandemic inactivity rate somewhat high early period indicator labour demand remain strong alongside evidence continue recruitment difficulty stock vacancy relatively stable month remain close record high month june vacancy unemployment ratio measure labour market tightness remain elevated industry basis ratio sector economy high corresponding pre pandemic level bank agents survey employment pay conduct week early july report strong employment intention business respondent expect recruitment difficulty limit intention realise agents contact report continue broad base recruitment difficulty attrition vacancy rate high normal business indicator nominal pay growth remain strong consistent effect continue labour market tightness high cpi inflation outturn annual growth private sector regular average weekly earnings awe month line expectation time monetary policy report adjust mechanical effect change workforce composition coronavirus job retention scheme bank estimate underlie nominal private sector regular pay growth 4½% month excess pre pandemic rate 3½% hmrc paye measure median pay growth june pre pandemic rate agents employment pay survey report increase wage settlement relative estimate equivalent survey conduct start survey suggest business expect increase pay deal month little high previous survey significant minority respondent late survey provide expected pay settlement figure month indicate prefer wait observe future cpi outturn decide give expect path cpi inflation come month suggest potential upside risk pay growth near term respondent late survey give consider award payment compensate underlying private sector regular awe pay growth expect pick half drive persistent tightness labour market high inflation government recently announce pay award broad set public sector employee average compare annual rate public sector awe regular pay growth month month cpi inflation rise june percentage point report projection contrast core cpi inflation exclude food beverage tobacco energy fall percentage point expectation time report relative report upside news fuel food less extent service price soften core cpi inflation account deceleration core good price large reflect outright fall car price service inflation closely associate domestically generate inflation rise cpi inflation expect rise july level rest reflect high fuel food service price cpi inflation expect rise percentage point high expectation time report percentage point high time june mpc majority upside news high expect household energy price primarily reflect substantial rise wholesale gas future price occur report recently russia restriction gas supply european market july risk curb sterle gas future price end-2022 nearly double less extent upside news reflect ofgem announce change method update price cap share bank advance publication change include put weight sharp increase wholesale gas price transitional observation window august monetary policy report projection price cap assume rise october compare report increase typical annual dual fuel bill october switch reset cap quarterly semi annual basis mean price cap reset january direct contribution energy cpi inflation project reach percentage point nearly percentage point high report expect account half overshoot cpi inflation relative target rise energy price additional indirect effect cpi inflation increase firm cost pass wide range price non energy good service bank estimate indirect effect contribute percentage point cpi inflation assume gas price follow monetary policy report conditioning assumption add significantly inflation following year core cpi inflation expect pick near term reach 6¼% end year reflect strengthen service price inflation indicator cost price remain elevated development mix s&p global cips pmi composite input output indicator fall somewhat july high inflation rate ons measure producer output price service producer price rise historically elevated level agents contact report input price inflation remain elevated company expect pass high cost price protect margin remain normal short term measure inflation expectation household business financial market remain substantially elevated relative historical average respondent decision maker panel increase expectation price increase month average july june deloitte cfo survey report median expectation cpi inflation year time year ahead expectation report cbi distributive trades survey remain historical average citi yougov measure household expectation year horizon edge july remain historically elevated level household short term inflation expectation tend line measured inflation rate equivalent indicator medium term inflation expectation medium long term measure inflation expectation remain historical average albeit extent short term counterpart financial market indicator medium term inflation expectation fall high level historical average citi yougov indicator household expectation year horizon ease percentage point july remain historically elevated level bank survey economic forecasters publish august report median expectation cpi inflation year horizon committee monitor measure inflation expectation closely immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment inflationary pressure united kingdom rest europe intensify significantly monetary policy report mpc previous reflect near doubling wholesale gas price owe russia restriction gas supply europe risk curb retail energy price exacerbate fall real income household increase cpi inflation near term cpi inflation expect rise forecast report june elevated level fall target year ahead gdp growth slow underlie term slightly great extent expect previously reflection fall real income high global energy tradable good price constraint output ongoing shortage labour good company remain optimistic economic outlook household labour market tight tighten united kingdom project enter recession year agents employment pay survey report business expect increase pay month little high previous survey indicator consumer producer service price inflation rise late datum moderation core consumer good inflation respondent decision maker panel increase expectation price increase month measure inflation expectation remain elevated particularly near term financial market indicator medium term inflation expectation low high risk mpc projection external domestic factor exceptionally large range plausible path economy cpi inflation medium term activity significantly higher low baseline projection august monetary policy report result come assessment outlook implication monetary policy committee currently put weight implication single set conditioning assumption projection august report contain projection gdp unemployment inflation baseline condition mpc convention wholesale energy price constant month point alternative projection energy price follow downward slop future curve forecast period scenario explore implication great persistence domestic price setting baseline condition announce government fiscal policy include cost living support package announce significant difference projection half forecast period show high near term inflation fall gdp year marked decline inflation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy continue subject succession large shock inevitably lead volatility output shock push global energy tradable good price elevated level price increase raise inflation united kingdom net importer item necessarily weigh household real income real economic adjustment monetary policy unable prevent global shock interact domestic factor include tight labour market pricing strategy firm lead persistent inflationary pressure role monetary policy ensure adjustment real economy occur cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target labour market remain tight domestic cost price pressure elevate risk long period externally generate price inflation lead enduring domestic price wage pressure consideration member committee judge increase bank rate warrant member committee judge percentage point increase bank rate warrant member forceful policy action justify backdrop jump energy price indication inflationary pressure persistent broaden domestically drive sector tight labour market environment company find easy pass price increase high protracted path cpi inflation month increase risk eventual decline external price pressure sufficient restrain expectation target inflation ahead member judge spending strong assume august report projection example labour market prove resilient household draw accumulate saving great extent overall fast pace policy tightening help bring inflation target sustainably medium term reduce risk extended costly tighten cycle later prefer percentage point increase bank rate bank rate reach level consistent return inflation target medium term demand slowing household income squeeze past bank rate increase take effect set labour market remain tight underlying wage service price recently accelerate slow demand lower domestic inflationary pressure uncertainty quickly occur share concern high near term rate cpi inflation lead round effect prolong period target inflation policy act effect generate great degree slack risk oversteere medium term inflation target balance consideration agree tightening appropriate feel small increase bank rate help minimise risk retain option act forcefully require future meeting mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure committee particularly alert indication persistent inflationary pressure necessary act forcefully response chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders vote favour proposition silvana tenreyro vote proposition prefer increase bank rate percentage point mpc strategy government bond sale set minute committee ask bank work strategy sell government bond gilt hold asset purchase facility apf commit provide update august allow committee decision subsequent bank england commence gilt sale process reduce size apf begin february committee vote cease gilt reinvestment initiate sale sterling non financial investment grade corporate bond line previous communication apf reduction committee strategy asset sale guide set key principle committee preference use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct relatively gradual predictable manner period time run mpc bank set framework assess condition appropriate bank england start gilt sale consistent key principle framework bank brief mpc state economic market condition include consistent sale conduct disrupt functioning financial market financial policy committee fpc brief base analysis mpc provisionally minded commence gilt sale shortly september policy subject economic market condition judge appropriate confirmatory vote committee ask bank position begin sale programme end september event proceed mpc agree set reduction stock purchase gilt hold apf month period point policy vote comprise mature gilt gilt sale committee judge month sale programme start september reduction stock purchase gilt hold apf appropriate give profile mature gilt period imply sale programme plan detail propose programme set provisional market notice accompany minute follow year mpc intend set reduction stock purchase gilt subsequent month period annual committee amend design parameter sale programme require example account variation gilt maturity period mpc agree high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy unwind predictable amendment judge necessary order meet remit example potential movement bank rate judge insufficient meet inflation target market judge distressed mpc amend halt sale programme consider restart reinvestment additional asset purchase fpc role assessment financial stability operational consideration august total stock asset hold asset purchase facility apf comprise government bond purchase sterling non financial investment grade corporate bond purchase consistent committee decision february begin reduce stock government bond purchase cease reinvest mature asset cash flow associate redemption september gilt hold apf reinveste consistent committee decision february begin reduce stock sterling non financial investment grade corporate bond purchase cease reinvest mature asset programme corporate bond sale complete early end unwind fully stock corporate bond purchase bank begin sale corporate bond week commence september operational detail publish month ahead auction commence committee brief operational change sterling monetary framework come effect alongside start gilt sale programme bank launch short term repo str facility help ensure short term market rate remain close bank rate allow mpc future decision apf unwind independently implication supply reserve alongside minute bank publish explanatory note set broad framework control short term interest rate apf reduction programme market notice describe str detail finally behalf committee chair express appreciation michael saunders contribution work mpc follow member committee andrew bailey chair ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden michael saunders silvana tenreyro clare lombardelli treasury representative

monetary policy summary september bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september mpc vote increase bank rate percentage point member vote raise bank rate percentage point member prefer increase bank rate percentage point prefer increase bank rate percentage point committee vote unanimously reduce stock purchase government bond finance issuance reserve month total line strategy set minute august mpc august monetary policy report mpc note risk projection external domestic factor exceptionally large give large increase wholesale gas price consequent impact real income household cpi inflation august wholesale gas price highly volatile large move financial market include sharp increase government bond yield globally sterling depreciate materially period uncertainty outlook retail energy price fall follow government announcement support measure include energy price guarantee guarantee limit significantly increase cpi inflation reduce volatility support aggregate private demand relative committee august projection additional growth plan announcement schedule place shortly mpc expect provide fiscal support contain news material economic outlook announcement november mpc round committee assessment impact demand inflation announcement news determine implication monetary policy modest downside news underlie gdp growth fast indicator contact bank agents level consumer spending peak indication demand labour weaken labour market nonetheless tighten summer inactivity materially high anticipate consumer service price nominal wage continue rise rapidly expect core good price inflation low expect month cpi inflation fall slightly july august release trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement give energy price guarantee peak measured cpi inflation low project august report october energy bill combine indirect effect high energy cost inflation expect following month start fall mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target sign august report continue strength domestically generate inflation government energy price guarantee lower bring forward expect peak cpi inflation duration guarantee expect reduce risk long period externally generate price inflation lead persistent domestic price wage pressure risk remain material labour market tight domestic cost price pressure elevated guarantee reduce inflation near term mean household spending weak project august report year forecast period equal relative forecast add inflationary pressure medium term consideration committee vote increase bank rate percentage point mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure outlook persistent inflationary pressure include strong demand committee respond forcefully necessary august mpc communicate provisionally minded commence gilt sale shortly september subject economic market condition appropriate committee agree condition appropriate vote begin sale government bond hold asset purchase facility shortly minute monetary policy committee end september member monetary policy committee mpc wish heartfelt condolence royal family follow death majesty queen elizabeth originally schedule end september postpone week light period national mourning ahead rescheduled order support deliberation committee receive briefing bank economic financial development turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp growth appear slow datum come touch weak expectation time august monetary policy report wholesale gas price highly volatile mpc previous add uncertainty project inflation dynamic degree real disposable income household reduce forward gdp euro area expect flat line august report follow strong expect growth united states gdp expect grow marginally low anticipate august report follow gdp growth weak expect manufacture pmis soften economy july august service pmi remain robust united states dip euro area august consumer business confidence indicator continue fall region july stabilise august consumer confidence measure increase notably labour market remain strong unemployment rate fall july match february pre pandemic level tick little august participation rate increase euro area unemployment rate fall july low record vacancy rate stabilise month economy albeit high level wage growth moderate little remain strong china gdp growth weak anticipate time august report july fix asset investment industrial production fall rate growth retail sale slow indicator pick august take datum suggest recovery strict regional lockdown early year covid-19 covid outbreak bumpy property market continue weaken secondary market property price decline moderately august consecutive month manufacture pmis august drive drought southern china affect electricity supply service pmis fall reflect impact renew covid lockdown region month backdrop people bank china cut lending rate government announce credit fiscal ease measure inflationary pressure remain strong advanced economy euro area annual hicp inflation increase percentage point august core inflation increase similar energy price increase big contribution annual headline inflation increase month increase contribution food core good price united states annual headline cpi inflation fall august july annual core cpi inflation rise market expectation easing headline cpi measure account fall contribution energy increase core cpi measure account large high core service inflation cpi datum consistent annual headline pce inflation federal open market committee fomc target variable have fall august core pce inflation have remain unchanged european gas spot future price highly volatile mpc previous rise august high level give strong demand european country continue build gas stock pace ahead winter mitigate risk potential cessation russian gas supply follow short period ease price late august risk crystallise early september russia close nordstream pipeline lead price spike price remain volatile subsequently time mpc dutch title transfer facility spot price measure european wholesale gas price stand mwh high august report policy measure announce government suggest european commission aim reduce burden high energy bill household company price commodity include oil metal ease august report potentially reflect market participant adjust downwards expectation global economic outlook brent crude oil spot price fall barrel agricultural price rise drive weather relate disruption hot weather europe america asia affect supply evidence supply chain disruption ease shipping cost decline appreciably monetary financial condition mpc previous large volatile movement financial market globally particularly united kingdom market participant expect bank major advanced economy react strongly near term inflationary pressure yield move materially high long horizon contrast june july year government bond yield increase basis point united kingdom united states germany respectively equity price globally end period low time mpc august corporate bond spread little change near term path market imply policy rate pick sharply major advanced economy mpc august september ecb governing council raise key policy interest rate basis point line prior market expectation market contact expect fomc increase target range fund rate basis point end september median respondent bank late market participants survey maps expect bank rate increase basis point market imply pricing consistent increase bank rate basis point committee expect confirm plan set august minute commence gilt sale reduce stock purchase gilt hold asset purchase facility month market imply expectation path bank rate rise sharply mpc previous peak 4¾% mid-2023 increase path market imply policy rate august significantly large united kingdom united states euro area peak rate high correspond peak united states euro area reach respectively accord market participant rise rate reflect number factor include impact increase natural gas price news domestic inflationary pressure expectation fiscal easing market imply path bank rate continue high expectation bank rate respondent maps median respondent expect bank rate peak 3½% march gap market imply path ascribe mainly combination domestic global factor skew risk upside medium term inflation compensation measure advanced economy volatile mpc august end period little change united states somewhat high euro area measure fall steadily peak march troughe late july volatile measure end period somewhat high time august mpc remain average level past decade sterling effective exchange rate depreciate 4½% previous mpc low compare day moving average august report projection condition fall period relatively broad base major currency lending rate fix rate mortgage united kingdom increase august loan value ltv category basis point principally reflect response increase risk free market rate observe autumn rate high ltv mortgage return peak covid indication reduce mortgage credit availability primarily reflect response worsen economic outlook reduction lender risk appetite interest rate unsecured household borrowing increase usual correspond risk free reference rate usual pass reference rate rise deposit rate great term sight deposit rate committee discuss broad impact far tightening monetary policy increase risk free market rate autumn lead high retail lending rate degree pass typically see prior global financial crisis relative past tighten cycle large share borrower fix rate mortgage debt shield high rate time face high jump rate need refinance household experience increase value house period dampen effect consumer spending mpc monitor closely transmission monetary policy action demand output accord ons quarterly estimate gdp fall slightly expectation fall incorporate august monetary policy report projection upside news reflect small expect impact additional holiday platinum jubilee june assessment underlie gdp growth remain unchanged expenditure component household consumption fall total government expenditure fall partly reflect extensive roll test trace activity business investment rise monthly gdp rise july weak expectation time august report reflect modest downside news underlie growth expect slow downside news come manufacturing construction output service output rise july line expectation bank expect gdp fall august report projection growth successive quarterly decline fall reflect small expect bounce growth follow holiday expect impact additional holiday september queen state funeral expect slowing underlie growth consistent weakness late business survey s&p global cips pmi composite output index fall july august reach time fall level early business survey indicator point near term growth close composite pmi output expectation series fall month august accord contact bank agents growth manufacturing output continue hold supply chain disruption slightly less extent quarter demand weaken business investment intention report ease firm cite uncertainty demand broad economic outlook rise cost squeeze real disposable income continue impact negatively household spending retail sale volume fall august continue downward trend mid-2021 fall broad base main component fast indicator consumer face service travel transport flatten month partly reflect impact strike accord contact bank agent spend part hospitality sector fall summer compare year ago number indicator housing activity weaken month august house price remain strong ons house price index pick july follow fall month june supply cost price month cpi inflation fall slightly august line expectation time august monetary policy report outturn trigger exchange letter governor chancellor exchequer publish alongside minute core cpi inflation exclude food beverage tobacco energy rise slightly line expectation time august report core good inflation stable expectation time august report service inflation rise august month row upside news annual service inflation remain high broad range sector september government announce energy price guarantee cap household unit energy price level consistent typical annual household dual fuel bill october period year consumer support business charity public sector organisation energy bill month period initial month scheme government provide ongoing focused support vulnerable industry energy bills support scheme extend provide universal rebate energy bill household help rise energy bill ons announce august payment affect headline cpi inflation line expectation time august report introduction energy price guarantee mean cpi inflation expect rise near term peak little october rise inflation reflect impact increase energy price cpi rise level guarantee government announcement reduce significantly degree energy price see sequence rise course year contribute level headline cpi inflation direct contribution energy annual cpi inflation project percentage point compare percentage point time august report start near term inflation outlook little percentage point low case household energy bill rise announce increase ofgem price cap october increase cap january expect exist ofgem framework give behaviour wholesale gas price ease composite input output price pmis remain elevated relative historical average july august agents contact note energy cost pay depreciation sterling increasingly important factor cost pressure face company bank expect core cpi inflation stay close level coming month elevate relative historical average get precise steer inflation expectation difficult short term measure inflation expectation increase month remain substantially high past average mixed signal medium long term measure inflation expectation measure level remain elevated relative historical average citi yougov indicator household expectation year horizon rise bank inflation attitudes survey year inflation expectation measure fall year ahead cpi inflation expectation decision maker panel firm remain elevated relative inflation target august committee monitor measure inflation expectation closely labour market labour force survey lfs measure employment growth month july slow month june outturn weak mpc expectation time august report easing employment growth reflect continued recruitment difficulty early sign weaken labour demand particular manufacturing sector august small fall vacancy economy contact bank agents report recruitment difficulty moderate somewhat recently employment survey soften month remain near historical average consistent ongoing positive employment growth lfs unemployment rate fall month july low level expectation time august report start unemployment rate remain flat june july release indicate inactivity significantly high expect time august report particularly large increase july mpc discuss surprising strength inactivity continue key component tightness labour market flow inactivity recently strong flow inactivity remain high lfs survey response indicate large proportion rise inactivity meet rise worker age work age want job annual economy total pay growth month july percentage point high month june percentage point high expectation time august report private sector regular pay rise month july strong expectation time august report bonus surprised upside mechanical effect change workforce composition coronavirus job retention scheme pay growth fade headline nominal private sector regular pay growth informative indicator underlie pay growth point onset pandemic nominal pay growth expect rise end year agents contact report expect high level inflation industrial dispute play increase role pay award significant proportion firm give consider give payment help rise living cost review broad remuneration package immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment material economic news mpc previous fiscal policy announcement government response energy price shock scheduling additional growth plan announcement backdrop significant rise wholesale gas price month government announce package measure support household business energy bill include energy price guarantee guarantee effect reduce near term outlook cpi inflation compare counterfactual scenario policy action less degree relative august monetary policy report projection policy action base low path gas price time limit reduction household spending year compare weak august report projection scheme act primarily offset impact externally generate energy price shock household business government announce growth plan set september august wholesale gas price highly volatile large move financial market include sharp increase government bond yield globally sterling depreciate materially period modest downside news underlie gdp growth fast indicator contact bank agents suggest level consumer spending peak indication demand labour weaken labour market nonetheless tighten summer inactivity materially high anticipate time august report consumer service price nominal wage continue rise rapidly expect core good price inflation low expect august report mpc note risk projection external domestic factor exceptionally large give large rise wholesale gas price consequent impact real income household cpi inflation announced energy price guarantee expect effect significantly reduce degree uncertainty outlook retail energy price period guarantee cpi inflation mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target sign august report continue strength domestically generate inflation government energy price guarantee lower bring forward expect peak cpi inflation duration guarantee expect reduce risk long period externally generate price inflation lead persistent domestic price wage pressure risk remain material labour market tight domestic cost price pressure remain elevated guarantee reduce inflation near term mean household spending weak project august report year forecast period equal relative forecast add inflationary pressure medium term consideration member committee judge increase bank rate warrant member agree forthcoming growth plan provide fiscal support contain news material economic outlook november mpc round committee assessment impact demand inflation announcement news determine implication monetary policy member judge percentage point increase bank rate warrant member tight labour market wage growth domestic inflation target consistent rate justify forceful response monetary policy impact energy price guarantee mean pressure demand relative supply strong previously expect near term guarantee lower bring forward expect peak cpi inflation restrain expectation target inflation ahead necessarily sufficient give inflation high month november forecast round provide committee opportunity assessment impact demand inflation government fiscal announcement member prefer percentage point increase bank rate member data outturn register persistent inflationary pressure medium term measure inflation expectation remain high energy price guarantee welcome reduction near term peak inflation provide additional support household add demand pressure fast policy tightening help bring inflation target sustainably medium term reduce risk extended costly tighten cycle later prefer percentage point increase bank rate data outturn suggest activity weaken risk round effect near term inflation fall high expect service price inflation reflect energy price base effect sector persist wage growth service sector negatively correlate producer price inflation quarter set pressure demand supply medium term include expected fiscal policy balance increase percentage point appropriate time consider case increase percentage point mpc action necessary return inflation target sustainably medium term line remit policy pre set path committee decide appropriate level bank rate scale pace timing change bank rate reflect committee assessment economic outlook inflationary pressure outlook persistent inflationary pressure include strong demand committee respond forcefully necessary consistent guidance set minute august give economic market condition judge appropriate member committee agree bank england reduce stock government bond purchase finance issuance reserve month comprise mature gilt gilt sale total committee reaffirm matter course vote proposition stock purchase asset outside schedule annual committee reaffirm set minute august high bar amend plan reduction stock purchase gilt outside judge bar meet financial policy committee role assessment financial stability chair invite committee vote proposition bank rate increase percentage point bank england reduce stock government bond purchase finance issuance reserve month total member andrew bailey ben broadbent jon cunliffe huw pill silvana tenreyro vote favour proposition member jonathan haskel catherine mann dave ramsden vote proposition prefer increase bank rate percentage point swati dhingra vote proposition prefer increase bank rate percentage point committee vote unanimously favour proposition operational consideration september total stock asset hold asset purchase facility apf comprise government bond purchase sterling non financial investment grade corporate bond purchase light revised timing mpc bank announce september sale apf corporate bond auction start week later previously announce operation place september bank stand ready conduct corporate bond buyback specify execution window week begin october detail gilt sale programme vote mpc set market notice accompany minute supplement detail set market notice publish bank september confirm commencement operation provide detail precise timing size gilt sale operation ahead alongside minute governor exchange letter chancellor exchequer implication mpc decision gilt sale operational arrangement relate apf committee brief august operational change sterling monetary framework come effect alongside start gilt sale programme bank launch short term repo str facility help ensure short term market rate remain close bank rate allow mpc future decision apf unwind independently implication supply reserve detail str set market notice september operation place october follow commencement gilt sale programme follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act anne glover september observer purpose exercise oversight function role bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end november publish november

monetary policy summary november bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end november mpc vote majority increase bank rate percentage point prefer increase bank rate percentage point prefer increase bank rate percentage point set accompanying november monetary policy report mpc update projection activity inflation describe challenging outlook economy mpc previous forecast significant development fiscal policy uncertainty outlook retail energy price fall extent follow government intervention november forecast consistent government announcement october mpc work assumption fiscal support continue month period energy price guarantee epg generate stylised path household energy price year support mechanically limit increase energy component cpi inflation significantly reduce volatility boost aggregate private demand relative august projection support augment inflationary pressure non energy good service fiscal measure announce include october support demand relative august projection mpc forecast incorporate measure announce autumn statement schedule november large move asset price august report partly reflect global development specific factor play significant role period mpc projection condition path bank rate imply financial market work day lead october path rise peak 5¼% fall overall path percentage point high year august projection high market yield curve push mortgage rate sharply financial condition tighten materially push activity forecast period gdp expect decline reflect squeeze real income high global energy tradable good price fall activity end year expect marked august reflect support epg labour market remain tight sign labour demand begin ease cpi inflation september project pick low expect august reflect impact epg service cpi inflation rise nominal annual private sector regular pay growth rise month august percentage point high expect august report mpc november projection condition elevated path market interest rate gdp project fall high energy price materially tight financial condition weigh spending gdp growth pick end projection judge significant margin excess demand currently continued weakness spending lead increase economic slack emerge half year include rise jobless rate lfs unemployment rate expect rise 6½% end forecast period aggregate slack increase potential gdp mpc projection cpi inflation start fall early year previous increase energy price drop annual comparison domestic inflationary pressure strong come quarter subside cpi inflation project fall sharply way target year time target year time projection condition alternative assumption constant interest rate activity strong mpc forecast condition market rate gdp expect fall end cpi inflation project little target end year fall percentage point target end year risk set inflation projection judge skew upside medium term reflect possibility persistence wage price setting mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target labour market remain tight continue sign firm inflation domestic price wage great persistence currently announce fiscal policy include mpc work assumption continue fiscal support household energy price support demand relative committee projection august committee account additional information government autumn statement december forecast february consideration committee vote increase bank rate percentage point majority committee judge economy evolve line late monetary policy report projection increase bank rate require sustainable return inflation target albeit peak low price financial market considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate minute monetary policy committee end november turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp growth remain weak grow similar pace precede late indicator suggest near term global inflation remain elevated drive high energy price tight labour market supply chain bottleneck ease somewhat gdp euro area increase accord preliminary flash estimate line market expectation weak growth report slowdown reflect continue squeeze household real income high energy food price european government announce range policy measure address impact high energy price household business expect support growth united states accord advance estimate gdp rise have fall slightly previous quarter growth boost net trade particular rise good service export fall good import financial condition united states continue tighten federal open market committee fomc tighten monetary policy response inflationary pressure contribute slowing housing market dollar effective exchange rate appreciate start year important implication global economy particularly non china emerge market economy ncemes impact global asset price capital outflow ncemes relatively gradual nceme exchange rate depreciate dollar advanced economy currency number nceme bank have tighten monetary policy early significantly country commodity exporter nonetheless tightening financial condition imply weakening outlook nceme official chinese gdp datum suggest growth strong expect covid relate restriction loosen accommodative monetary fiscal policy boost growth pickup rebound contraction record look ahead ongoing impact covid relate restriction weakness housing sector slowing global demand expect weigh activity european gas spot price fall markedly peak august time mpc dutch title transfer facility spot price measure european wholesale gas price mwh low time previous drive partly build gas stock european country ahead winter gas future price remain elevated reflect ongoing impact russia restriction gas supply europe global supply chain bottleneck ease supply condition improve global demand slow shipping cost fall peak early year indicator supply constraint point easing pressure past month brent crude oil spot price little change september barrel remain high start year metal price fall slightly september global agricultural good price unchanged fall peak labour market remain tight united states euro area vacancy elevate relative unemployment united states ratio summary measure labour market tightness fall little month remain near record level wage growth elevate united states euro area slow somewhat outturn united states accord flash estimate euro area annual headline hicp inflation october increase energy price continue key driver high inflation significantly high expect contribution energy accounting large surprise united states annual headline pce inflation fall peak september annual cpi inflation fall reflect fall oil fuel price service inflation high united states euro area reflect great labour market tightness monetary financial condition level short long term market interest rate united kingdom modestly change compare mpc september substantially high time august monetary policy report week period exceptional volatility financial market significant repricing financial asset particularly affect long date government debt market interest rate rise sharply government growth plan announce september volatile retracing september follow period volatility market illiquidity bank england announce strictly time limit target financial stability operation buy long date government bond order address market dysfunction reduce risk financial stability core funding market october bank announce additional measure include undertake target daily purchase operation index link government bond line bank announce outset operation bond purchase cease october financial stability operation design allow liability drive investment ldi fund affect significant repricing financial asset time reduce leverage increase resilience future stress day lead mpc november condition financial market stabilise somewhat leave move gilt yield mpc previous relatively small balance major advanced economy near term path market imply policy rate change materially september path long term yield remain substantially high time august report overall move august large united kingdom year government bond yield rise basis point compare basis point united states euro area period global equity price fall spread corporate debt widen fall risky asset price somewhat pronounced united kingdom relative major advanced economy central bank major advanced economy continue tighten monetary policy mpc september expect market participant react strongly near term inflationary pressure october ecb governing council raise key policy interest rate basis point line prior market expectation follow increase basis point september governing council expect raise interest rate note substantial progress withdraw monetary policy accommodation fomc increase target range fund rate basis point september 3¼% market contact expect increase basis point fomc end november median respondent bank late market participants survey maps expect bank rate increase basis point line expect increase bank rate derive market pricing mpc projection condition path bank rate imply financial market work day lead october path rise peak 5¼% fall immediate run mpc november market imply expectation path bank rate peak 4¾% half line peak time mpc september expect path bank rate late maps conduct october remain low market imply path shift materially high relative previous survey conduct start september median expect path peak bank rate 4½% percentage point high peak 3½% previous survey respondent expect somewhat fast decline bank rate imply market path median expectation bank rate year horizon fall recent change market expectation path bank rate follow substantial upward move august september meeting united kingdom market imply path policy rate average percentage point high year time august report rise large united states euro area accord market participant rise rate august reflect number factor include impact fiscal announcement demand high premium require invest asset datum news degree near term domestic inflationary pressure global factor market illiquidity perception reaction function market imply measure medium term inflation compensation rise somewhat united states euro area mpc september remain range united kingdom medium term inflation compensation measure volatile fall sharply mpc previous move distort volatile repricing long date index link government debt associate pressure ldi fund period respondent maps provide alternative gauge inflation expectation market participant median respondent expectation cpi inflation rise previous survey year horizon respectively immediate run mpc november sterling effective exchange rate 1¾% high compare previous mpc remain 2¾% low relative august relatively modest change mask volatile move exchange rate period market turbulence sterling briefly reach historic low dollar consistent sterling imply volatility measure uncertainty outlook exchange rate pick significantly fall datum sterling risk reversal measure derive foreign exchange option fall sharply period market volatility suggest price insure risk large depreciation sterling significantly exceed price insure large appreciation lending rate mortgage increase sharply mpc previous reflect sharp rise risk free market rate period increase august report monthly average quote rate year fix rate loan value ltv mortgage increase august september preliminary datum suggest rate increase significantly october high rate rate increase major ltv category pass high reference rate occur fast typically case past reference rate fall high late september moderate fall mortgage rate day lead mpc period volatility interest rate market number available mortgage product ltv fall sharply short period number available product recover somewhat remain previous level interest rate unsecured household borrowing product increase mpc september lender report late credit conditions survey ccs carry exceptional volatility interest rate market credit availability decline secured unsecured household borrowing decline expect bank lending rate corporate increase late datum september lender respond bank late ccs expect corporate credit availability worsen market intelligence suggest contraction availability credit corporate week particularly risky borrower deposit rate sight term deposit rise mpc september rate sight deposit increase basis point rate year fix rate bond increase basis point household deposit flow increase september non financial corporation reduce deposit financial corporation increase deposit materially reflect significant market volatility end month demand output quarterly gdp growth revise quarterly national accounts estimate gdp revise lower precede quarter level gdp estimate slightly pre covid level downward revision past estimate health output offset upward revision market sector output monthly gdp estimate fall august follow increase july bank expect gdp contract percentage point weak anticipate august monetary policy report expect weakness reflect additional holiday queen state funeral september primarily drive weakness underlie output underlying weakness reflection fall real household income consumer spending high global energy tradable good price business survey indicator weaken mpc september example s&p global cips pmi flash composite output index fall october long run average consistent negative gdp growth future output index fall significantly september october accord bank agents economic activity continue weaken squeeze real income increase uncertainty outlook weigh confidence demand growth constrain ongoing shortage labour good less extent previously follow growth household consumption growth expect fall retail sale volume fall september continue downward trend retail spending observe half weakness reflect additional holiday queen state funeral contact bank agents report squeeze real income feel area consumer spending gfk consumer confidence fall record low level september remain close low october despite recover little september rics survey point continue weakness housing demand wide set survey indicator suggest house price inflation start slow business investment weak time despite increase pre covid level range evidence suggest business investment subdued near term example october decision maker panel survey uncertainty remain elevated intelligence bank agents highlight uncertainty rise cost tight financial condition increase work capital requirement weigh company investment plan government announce reversal percentage point increase national insurance contribution november cancellation health social care levy come force april change stamp duty land tax double nil rate band increase level stamp duty start time buyer government cancel plan percentage point cut basic rate income tax april keep economic condition allow cut permanently set annual investment allowance allow fall april overall government energy price guarantee epg announce prior mpc september subsequently adjust measure expect support demand full plan tax spending publish november autumn statement supply cost price labour force survey lfs unemployment rate fall month august low level vacancy unemployment ratio measure labour market tightness reach record high unemployment fall number vacancy lfs inactivity rate rise percentage point pre covid level increase account great proportion people working age want job increase long term sickness contrast inactivity rate fall euro area onset pandemic rise less extent united states sign labour demand begin ease labour market remain tight number vacancy fall somewhat september survey measure employment intention soften albeit point outright fall employment late kpmg rec report jobs continue demand rise slow rate alongside low availability grow number contact bank agents pause recruitment plan allow headcount fall attrition firm reportedly reluctant redundancy ongoing recruitment difficulty indicator nominal pay growth remain strong consistent effect continue labour market tightness alongside high inflation outturn short term inflation expectation annual private sector regular average weekly earnings growth rise little month august august monetary policy report projection agents report pay settlement stabilise recruitment difficulty post covid recovery lead consumer face firm move away hourly pay rate align statutory national living wage move pay voluntary real living wage rise increase number firm prepare salary payment addition normal pay round include payment try help offset rise living cost month cpi inflation rise slightly september reflect pickup non energy component food price inflation increase high expect ahead release offset news item core cpi inflation exclude food beverage tobacco energy rise little aggregate cpi inflation core cpi inflation line august report forecast cpi inflation expect rise october retail gas electricity price increase level consistent government epg government announce epg place month treasury lead support household energy bill april government announce support low cost epg remain level year ensure support need november report short term forecast cpi inflation project fall project decline reflection strong price increase turn year begin fall annual calculation survey indicator cost price composite input output price pmis tend moderate month albeit remain elevated relative historical average core good cpi inflation expect fall amid sign supply chain pressure ease demand weakening service cpi inflation expect close rate continue pass labour cost include energy business household measure inflation expectation remain elevated albeit indicator tick recently respondent decision maker panel lower price expectation year ahead october modest narrowing upper tail distribution large fall expectation cpi inflation citi yougov household measure inflation expectation year year ahead unchanged october have fall september record high level august professional forecaster respond bank late quarterly survey project cpi inflation average year time immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee september significant development fiscal policy particularly support household energy price financial market regard fiscal policy government intervention reduce uncertainty outlook retail energy price forecast consistent announcement october mpc work assumption fiscal support month period epg generate stylised path household energy price year support mechanically limit increase energy component cpi inflation significantly reduce volatility boost aggregate private demand relative august projection support augment inflationary pressure non energy good service fiscal measure announce include october support demand relative august projection mpc forecast incorporate measure announce autumn statement schedule november large move asset price august monetary policy report partly reflect global development specific factor play significant role period mpc projection condition path bank rate imply financial market work day lead october path rise peak 5¼% fall overall path percentage point high year august projection high market yield curve push mortgage rate sharply financial condition tighten materially push activity forecast period immediate run mpc november market imply expectation path bank rate peak 4¾% response deterioration market condition late september bank england follow recommendation financial policy committee announce temporary target purchase nominal inflation link government bond mpc inform time mpc judge financial stability operation bank affect mpc ability conduct monetary policy include early decision sell government bond gilt sale begin november mpc previous monthly gdp estimate fall august business survey indicator weaken retail sale volume decline september gfk consumer confidence fall record low september remain close level october despite recover little labour market remain tight sign labour demand begin ease annual private sector regular average weekly earnings growth rise little month august august report projection cpi inflation september service cpi inflation rise contact bank agents report inflation important factor pay negotiation forthcoming increase national living wage expect influence pay negotiation mpc late projection describe challenging outlook economy expect recession prolonged period cpi inflation elevated near term mid-2023 inflation expect fall sharply condition elevated path market interest rate previous increase energy price drop annual comparison expect decline way target year projection reflect negative contribution energy price emergence increase degree economic slack steadily rise unemployment rate risk decline path inflation judge upside mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member committee judge increase bank rate warrant member judge percentage point increase bank rate warrant member labour market remain tight cost price pressure elevate forceful response monetary policy justify continue sign firm inflation domestic price wage great persistence announce fiscal policy include mpc work assumption continue fiscal support household energy price support demand relative committee projection august overall large increase bank rate help bring inflation target sustainably medium term reduce risk extended costly tightening later prefer percentage point increase bank rate gdp growth slow negative territory nominal retail sale service output fall time wage growth real wage fall course year clear sign cost living crisis take hold economic activity suggest gradated approach warrant avoid overtightening policy lag effect monetary policy imply sizable impact past rate increase come continue risk volatility geopolitical uncertainty necessitate tightening risk hard stock situation small rate increase warrant safeguard create deep long recession prefer percentage point increase bank rate monetary policy restrictive light fall real income economy enter recession importantly tightening policy past year feed real economy line estimate transmission lag prevail level bank rate time result loose labour market low domestic inflationary pressure medium term inflation fall target remain uncertainty size round effect high headline inflation far quickly labour market respond slowing demand feel gradual tightening warrant risk management ground albeit ground weak policy stance restrictive majority committee judge economy evolve line late monetary policy report projection increase bank rate require sustainable return inflation target albeit peak low price financial market considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member vote proposition swati dhingra prefer increase bank rate percentage point silvana tenreyro prefer increase bank rate percentage point operational consideration september mpc vote begin sale government bond september bank executive postpone start gilt sale operation light dysfunctional market condition time market notice publish october bank announce gilt sale operation distribute evenly short medium maturity sector gilt sale operation take place november operation corporate bond sale programme take place september october light dysfunctional market condition time bank temporarily pause corporate bond sale operation week sale restart october november total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act david roberts october observer purpose exercise oversight function role bank court directors bank england act give bank england operational responsibility set monetary policy meet government inflation target operational decision take bank monetary policy committee minute committee end december publish december

monetary policy summary december bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority increase bank rate percentage point member prefer maintain bank rate prefer increase bank rate percentage point mpc november monetary policy report projection condition elevated path market interest rate time economy expect recession prolonged period cpi inflation expect high near term inflation expect fall sharply mid-2023 way target year projection reflect negative contribution energy price emergence increase degree economic slack steadily rise unemployment rate risk decline path inflation judge upside domestic wage price pressure elevate limit news domestic global economic datum relative november report projection indicator global supply chain bottleneck ease global inflationary pressure elevated advanced economy government bond yield fall particularly long maturity sterling effective exchange rate appreciate 2¾% reduction fix term mortgage rate committee previous rate materially high summer bank expect gdp decline percentage point strong expect november report household consumption remain weak housing market indicator continue soften survey investment intention weaken labour demand begin ease labour market remain tight unemployment rate rise slightly month october vacancy fall vacancy unemployment ratio remain elevated level annual growth private sector regular pay pick month october percentage point strong expectation time november report month cpi inflation fall october november november figure slightly expectation time november report exchange open letter governor chancellor exchequer publish alongside monetary policy announcement introduction energy price guarantee epg october limit rise cpi inflation contribution household energy bill inflation rise mpc previous core good price inflation fall annual food service price inflation strengthen cpi inflation expect fall gradually early increase energy good price drop annual comparison announcement autumn statement extension epg cap household unit energy price level consistent typical household dual fuel bill year april march imply slightly low near term path energy bill working assumption november report equal reduce mpc forecast cpi inflation percentage point additional near term fiscal support announce autumn statement fiscal policy expect tighten progressively large amount fiscal year onwards overall bank estimate measure combine impact epg increase level gdp year horizon leave unchanged year horizon reduce level gdp year time relative assume november report impact cpi inflation projection horizon estimate small mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point labour market remain tight evidence inflationary pressure domestic price wage great persistence justify forceful monetary policy response majority committee judge economy evolve line november monetary policy report projection increase bank rate require sustainable return inflation target considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight world gdp increase strong expect november monetary policy report expect increase line projection november report measure global supply chain bottleneck ease global inflationary pressure remain elevated euro area gdp increase strong incorporate november report weak growth bank expect gdp fall little weak anticipate november report composite output pmi increase slightly november remain contractionary territory month row weakness broad base euro area economy sector united states gdp increase strong expect november report share service consumption rise tentatively point expect rotation demand partly reverse october gdp expect rise line expectation november report non farm payroll increase november unemployment rate remain unchanged china sharp increase covid case contribute slowing activity china quarterly gdp growth way rate anticipate time november report covid outbreak related restriction weigh consumption import growth contract sharply result chinese export growth contract november reflect slow global growth covid relate disruption production chinese government issue guideline recently ease covid policy weaken property sector continue negative impact activity measure global supply chain constraint ease month line assumption november report evident movement october november indicator supply constraint base global pmi survey indicator remain elevate compare historical average china measure increase october november remain peak historical average shipping cost fall number region covid outbreak associated disruption output china pose risk global supply chain future precise effect depend chinese economy response change covid policy extent global supply chain resilient energy price movement mix mpc previous time december mpc brent crude oil spot price barrel have fall level start year dutch title transfer facility spot price measure european wholesale gas price mwh previous mpc gas future price remain elevated reflect concern impact russian restriction gas supply expectation supply constraint winter global agricultural good price unchanged period compare year ago remain elevated level accord flash estimate euro area annual hicp inflation fall october november core hicp inflation remain cpi inflation fall october november suggest pce inflation ease mpc discuss outlook global inflation november report world export price inflation expect peak weight world consumer price inflation peak development consistent world export price project fall global consumer price inflation expect decline end year absent shock assumed future path energy price easing global supply constraint consistent fall global trade good price service price inflation advanced economy fall quickly expect strength reflect indirect effect energy price tightening monetary policy economy bear global demand inflation effect increase policy rate lag shock energy commodity price continue upside risk outlook persistent tightness advanced economy labour market addition upside risk service price inflation persistently high input cost embed include high wage growth monetary financial condition mpc november government bond yield move lower major advanced economy particularly long maturity year yield fall basis point united kingdom united states germany respectively movement partially offset significantly large increase global yield occur end july support reduction yield risky asset price rise globally mpc previous market expectation near term path policy rate little change major advanced economy mpc previous federal open market committee ecb governing council expect raise policy rate basis point forthcoming meeting conclude december respectively market imply policy path united states euro area expect peak middle year little little respectively materially change time mpc previous large majority respondent bank late market participants survey maps expect bank rate increase basis point mpc consistent market imply pricing median maps respondent expect bank rate peak 4¼% half year level remainder market imply path bank rate reflect upside skew bank rate expectation rise 4¾% middle year remain close level remainder market imply path little high maps median gap measure narrow previous maps survey conduct mid october market imply policy path fall major advanced economy mpc november expectation policy rate year ahead decline basis point united kingdom united states euro area respectively united kingdom addition material reduction occur immediate run mpc november november monetary policy report projection finalise expect rate year horizon remain high united kingdom major advanced economy medium term inflation compensation measure little change united states euro area mpc previous interpret move medium term inflation compensation measure remain challenging measure fall mpc previous follow significant volatility september october large distortion repricing long date index link government debt associate pressure liability drive investment ldi fund look material reduction medium term inflation compensation measure peak march remain average level past decade late maps median respondent expectation cpi inflation year horizon have fall previous survey response remain skewed upside sterling effective exchange rate appreciate 2¾% previous mpc reflect broad base depreciation dollar consistent somewhat large decline interest rate expectation relative advanced economy period improvement global risk sentiment reduction owner occupy fix term mortgage rate committee previous rate remain materially high summer lending rate fix rate mortgage fall basis point november mpc reflect reduction risk free market rate follow sharp rise late september time announcement government growth plan number mortgage product available continue recover october low remain level see summer past year credit availability reduce accord supervisory intelligence large relate expect deterioration borrower balance sheet early sign tight lending condition decline credit demand feed low lending volume mortgage market approval house purchase fall october exclude covid lockdown period half low level corporate sector net finance raise business october decline low level net reduction sterle broad money october partially offset large increase september sterling net lending fall october follow sizeable increase september flow account primarily firm financial sector contributory factor significant market volatility end september associate development ldi fund mpc inform november bank begin unwind timely orderly way specific gilt purchase result financial stability operation conduct september october december gilt purchase operation sell demand output accord ons quarterly estimate gdp fall small decline expectation november monetary policy report fall expenditure component household consumption business investment fall government spending estimate rise underlying output define market sector output adjust estimate effect additional holiday estimate bank fall similar headline gdp monthly gdp rise october follow fall september marginally strong expect bank immediately prior release rebound level output large reflect unwind economic impact additional holiday queen state funeral sectoral level private sector service rise line expectation upside news concentrate manufacture output less degree government construction sector bank expect gdp decline percentage point strong expect november report consistent weakening quarterly underlying growth -¼% -½% partially offset boost headline output growth effect additional holiday unwind october assumption government output contribute positively gdp s&p global cips composite output pmi remain change mark consecutive month november intelligence bank agents consistent modest weakening activity centre consumer face sector growth prospect ahead composite future output pmi recover close september level albeit remain long run average contrast cbi composite expectation balance fall sharply november aggregate estimate real growth late decision maker panel suggest respondent expect sale volume stagnate year take forward look survey evidence consistent projection november report slight fall gdp indicator household consumption remain weak retail sale volume rise october reflect boost growth effect additional holiday unwind remain level gfk consumer confidence edge higher november remain weak historical standard household real income expect flat near term housing market indicator continue weaken month year strength official house price index increase strongly october house price fall sharply nationwide halifax index october november november rics survey show decline price balance continue weakness indicator housing market activity accord high frequency zoopla datum volume offer property potential buyer decline normal seasonal level survey investment intention weaken consistent small decline business investment follow period great strength capital spending bad pandemic agency intelligence indicate business confidence remain weak mention uncertainty agents report fall somewhat week autumn statement take place november accompany economic fiscal outlook office budget responsibility obr fiscal rule set update charter budget responsibility additional fiscal support announce near term include target cost living support addition extended energy price guarantee scheme cut business rate increase spending health social care education fiscal year plan fiscal policy tighten progressively large amount net tax rise account half tightening reduction departmental capital spending account half overall bank estimate additional policy measure announce autumn statement relative assume november monetary policy report increase level gdp year time leave unchanged year horizon reduce level gdp year time committee discuss obr late macroeconomic projection compare november monetary policy report obr gdp projection similar mpc year forecast period forecast profile diverge significantly obr expect gdp high november report gap reflect obr judgement demand supply strong mpc expect medium term productivity expect 1½% high obr projection difference reflect strong project path business investment capital stock supply cost price labour force survey lfs unemployment rate rise month october slightly high expectation time november monetary policy report lfs employment grow month october slightly weak expect time november report hmrc employee payroll increase november lfs inactivity fall slightly remain high historical standard forward look indicator kpmg rec report jobs november show hiring remain historical average ons vacancy survey continue decline month remain high level vacancy unemployment ratio remain close record high base comparable series online indicator vacancy flatten month remain significantly pre covid level planned redundancy remain low decrease s&p global household financial index yougov survey measure perception job security intelligence contact bank agents consistent early sign labour market loosening albeit tight starting point employment intention flat recruitment difficulty ease slightly committee discuss labour market development overall datum suggest labour market historically tight appear past peak tightness labour demand appear weaken somewhat november report consistent weakening give usual lag gdp labour market early strength labour market partly reflect recovery demand follow pandemic weakness labour participation appear somewhat exacerbate tightness labour market weakness participation reflect age population early retirement decision worker ill health give trend time key uncertainty speed downward adjustment labour demand labour supply fall extent supply demand imbalance exert upward pressure inflation mpc opportunity judgement annual supply stocktake conclude alongside february monetary policy report annual economy total pay growth pick slightly month october private sector regular pay growth pick percentage point strong expectation time november report month month annualise basis private sector regular pay growth fall level line annual rate increase early year annual public sector pay growth remain weak month october annual private sector wage growth expect flatten coming month decline later risk pay indicator november kpmg rec survey tend lead official datum weaken little number contact bank agents expect upward pressure pay growth year strength cpi inflation encourage worker demand high pay settlement contact report weak demand affordability constraint firm easing recruitment difficulty limit extent pay increase month consumer price inflation fall november october november figure slightly low expect november report downside news concentrate food core good price release trigger exchange open letter governor chancellor exchequer publish alongside minute core cpi inflation exclude energy food beverage tobacco ease slightly october november consider non energy inflationary pressure core good inflation fall peak weak vehicle price inflation expect ease near term consistent easing supply chain bottleneck cost pressure soften food non alcoholic beverage price inflation november high level year expect rise large reflect global factor include adverse climate condition supply constraint cause war ukraine rise energy fertiliser cost food production core service inflation rise october november contact bank agents report consumer service price push high input price particularly pay food energy large component overshoot inflation target continue contribution energy price cpi inflation expect stay elevated near term fall gradually large early increase energy good price drop annual comparison effect expect outweigh continue strength food service price inflation november report government announce cap household unit energy price energy price guarantee rise april march level consistent typical annual dual fuel bill early mpc forecast period imply low path household energy bill working assumption november report indicative path household utility bill sit halfway previously announce cap typical household bill level imply future price ofgem price cap framework downside news lower forecast cpi inflation percentage point equal boost household real income similar degree measure household business inflation expectation fall late datum remain elevated level year ahead citi bank ipsos household measure fall november long horizon five- year ahead citi measure fall bank ipsos measure rise little respondent decision maker panel november indicate low price inflation expectation year low inflation expectation year ahead series remain immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc november monetary policy report projection condition elevated path market interest rate time economy expect recession prolonged period cpi inflation expect high near term inflation expect fall sharply mid-2023 way target year projection reflect negative contribution energy price emergence increase degree economic slack steadily rise unemployment rate risk decline path inflation judge upside domestic wage price pressure elevate limited news domestic global economic datum relative november report projection bank expect gdp decline percentage point strong expect november report housing market indicator continue weaken vacancy fall vacancy unemployment ratio remain elevated level annual growth private sector regular pay pick percentage point strong expect time november report number contact bank agents expect upward pressure pay growth year pay indicator kpmg rec survey tend lead official datum weaken little month cpi inflation fall november slightly expectation time november report mpc previous core good price inflation fall annual food service price inflation strengthen measure household business inflation expectation fall remain elevated level autumn statement take place november accompany economic fiscal outlook office budget responsibility fiscal rule set update charter budget responsibility chancellor exchequer write governor set remit mpc include update government economic strategy letter chancellor state bank england act require reaffirm mpc remit annually provide certainty confirm government change definition price stability announcement autumn statement extension energy price guarantee epg cap household unit energy price level consistent typical household dual fuel bill year april march imply slightly low near term path energy bill working assumption november report equal reduce mpc forecast cpi inflation percentage point additional near term fiscal support announce autumn statement fiscal policy expect tighten progressively large amount fiscal year onwards overall bank estimate measure combine impact epg increase level gdp year horizon leave unchanged year horizon reduce level gdp year time relative assume november report impact cpi inflation projection horizon estimate small committee full assessment news take development november report forthcoming forecast discussion ahead february mpc mpc opportunity judgement supply economy annual supply stocktake conclude alongside february monetary policy report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member committee judge percentage point increase bank rate warrant labour market remain tight evidence inflationary pressure domestic price wage great persistence justify forceful monetary policy response service price inflation private sector regular wage growth increase significantly half year continue surprise upside november report remain risk follow protract period high inflation inflation expectation slow adjust downward target consistent level external cost pressure pass activity economy clearly weaken sign resilient expect uncertain quickly labour market loosen economic forecaster continue predict strong outlook demand mpc november report projection percentage point increase bank rate help bring inflation target sustainably medium term reduce risk extended costly tightening later member prefer leave bank rate unchanged real economy remain weak result fall real income tight financial condition increase sign downturn start affect labour market lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate sufficient bring inflation target fall target medium term policy setting increasingly restrictive long strong case tightening risk management ground prefer percentage point increase bank rate evidence inflection point cpi inflation great evidence price wage pressure stay strong long project november report forceful monetary tightening reinforce tighten cycle importantly lean inflation psychology embed wage settlement inflation expectation push core service underlie inflation measure pull forward monetary action reduce risk bank rate need rise year economy slow majority committee judge economy evolve line november monetary policy report projection increase bank rate require sustainable return inflation target considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel huw pill dave ramsden vote favour proposition member vote proposition member swati dhingra silvana tenreyro prefer maintain bank rate catherine mann prefer increase bank rate percentage point operational consideration december total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase september mpc vote begin sale government bond hold monetary policy purpose bank complete total sale bond auction take mature bond lead reduction outstanding stock mpc brief progress gilt sale operational arrangement publish market notice december february mpc vote unwind fully stock sterling non financial investment grade corporate bond purchase early end stock corporate bond reduce total include sale bank auction september committee content rate reduction stock sustain permit early unwind portfolio initially anticipate committee pace sale implication completion date follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act david roberts december observer purpose exercise oversight function role bank court directors monetary policy summary december bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority increase bank rate percentage point member prefer maintain bank rate prefer increase bank rate percentage point mpc november monetary policy report projection condition elevated path market interest rate time economy expect recession prolonged period cpi inflation expect high near term inflation expect fall sharply mid-2023 way target year projection reflect negative contribution energy price emergence increase degree economic slack steadily rise unemployment rate risk decline path inflation judge upside domestic wage price pressure elevate limit news domestic global economic datum relative november report projection indicator global supply chain bottleneck ease global inflationary pressure elevated advanced economy government bond yield fall particularly long maturity sterling effective exchange rate appreciate 2¾% reduction fix term mortgage rate committee previous rate materially high summer bank expect gdp decline percentage point strong expect november report household consumption remain weak housing market indicator continue soften survey investment intention weaken labour demand begin ease labour market remain tight unemployment rate rise slightly month october vacancy fall vacancy unemployment ratio remain elevated level annual growth private sector regular pay pick month october percentage point strong expectation time november report month cpi inflation fall october november november figure slightly expectation time november report exchange open letter governor chancellor exchequer publish alongside monetary policy announcement introduction energy price guarantee epg october limit rise cpi inflation contribution household energy bill inflation rise mpc previous core good price inflation fall annual food service price inflation strengthen cpi inflation expect fall gradually early increase energy good price drop annual comparison announcement autumn statement extension epg cap household unit energy price level consistent typical household dual fuel bill year april march imply slightly low near term path energy bill working assumption november report equal reduce mpc forecast cpi inflation percentage point additional near term fiscal support announce autumn statement fiscal policy expect tighten progressively large amount fiscal year onwards overall bank estimate measure combine impact epg increase level gdp year horizon leave unchanged year horizon reduce level gdp year time relative assume november report impact cpi inflation projection horizon estimate small mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point labour market remain tight evidence inflationary pressure domestic price wage great persistence justify forceful monetary policy response majority committee judge economy evolve line november monetary policy report projection increase bank rate require sustainable return inflation target considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight world gdp increase strong expect november monetary policy report expect increase line projection november report measure global supply chain bottleneck ease global inflationary pressure remain elevated euro area gdp increase strong incorporate november report weak growth bank expect gdp fall little weak anticipate november report composite output pmi increase slightly november remain contractionary territory month row weakness broad base euro area economy sector united states gdp increase strong expect november report share service consumption rise tentatively point expect rotation demand partly reverse october gdp expect rise line expectation november report non farm payroll increase november unemployment rate remain unchanged china sharp increase covid case contribute slowing activity china quarterly gdp growth way rate anticipate time november report covid outbreak related restriction weigh consumption import growth contract sharply result chinese export growth contract november reflect slow global growth covid relate disruption production chinese government issue guideline recently ease covid policy weaken property sector continue negative impact activity measure global supply chain constraint ease month line assumption november report evident movement october november indicator supply constraint base global pmi survey indicator remain elevate compare historical average china measure increase october november remain peak historical average shipping cost fall number region covid outbreak associated disruption output china pose risk global supply chain future precise effect depend chinese economy response change covid policy extent global supply chain resilient energy price movement mix mpc previous time december mpc brent crude oil spot price barrel have fall level start year dutch title transfer facility spot price measure european wholesale gas price mwh previous mpc gas future price remain elevated reflect concern impact russian restriction gas supply expectation supply constraint winter global agricultural good price unchanged period compare year ago remain elevated level accord flash estimate euro area annual hicp inflation fall october november core hicp inflation remain cpi inflation fall october november suggest pce inflation ease mpc discuss outlook global inflation november report world export price inflation expect peak weight world consumer price inflation peak development consistent world export price project fall global consumer price inflation expect decline end year absent shock assumed future path energy price easing global supply constraint consistent fall global trade good price service price inflation advanced economy fall quickly expect strength reflect indirect effect energy price tightening monetary policy economy bear global demand inflation effect increase policy rate lag shock energy commodity price continue upside risk outlook persistent tightness advanced economy labour market addition upside risk service price inflation persistently high input cost embed include high wage growth monetary financial condition mpc november government bond yield move lower major advanced economy particularly long maturity year yield fall basis point united kingdom united states germany respectively movement partially offset significantly large increase global yield occur end july support reduction yield risky asset price rise globally mpc previous market expectation near term path policy rate little change major advanced economy mpc previous federal open market committee ecb governing council expect raise policy rate basis point forthcoming meeting conclude december respectively market imply policy path united states euro area expect peak middle year little little respectively materially change time mpc previous large majority respondent bank late market participants survey maps expect bank rate increase basis point mpc consistent market imply pricing median maps respondent expect bank rate peak 4¼% half year level remainder market imply path bank rate reflect upside skew bank rate expectation rise 4¾% middle year remain close level remainder market imply path little high maps median gap measure narrow previous maps survey conduct mid october market imply policy path fall major advanced economy mpc november expectation policy rate year ahead decline basis point united kingdom united states euro area respectively united kingdom addition material reduction occur immediate run mpc november november monetary policy report projection finalise expect rate year horizon remain high united kingdom major advanced economy medium term inflation compensation measure little change united states euro area mpc previous interpret move medium term inflation compensation measure remain challenging measure fall mpc previous follow significant volatility september october large distortion repricing long date index link government debt associate pressure liability drive investment ldi fund look material reduction medium term inflation compensation measure peak march remain average level past decade late maps median respondent expectation cpi inflation year horizon have fall previous survey response remain skewed upside sterling effective exchange rate appreciate 2¾% previous mpc reflect broad base depreciation dollar consistent somewhat large decline interest rate expectation relative advanced economy period improvement global risk sentiment reduction owner occupy fix term mortgage rate committee previous rate remain materially high summer lending rate fix rate mortgage fall basis point november mpc reflect reduction risk free market rate follow sharp rise late september time announcement government growth plan number mortgage product available continue recover october low remain level see summer past year credit availability reduce accord supervisory intelligence large relate expect deterioration borrower balance sheet early sign tight lending condition decline credit demand feed low lending volume mortgage market approval house purchase fall october exclude covid lockdown period half low level corporate sector net finance raise business october decline low level net reduction sterle broad money october partially offset large increase september sterling net lending fall october follow sizeable increase september flow account primarily firm financial sector contributory factor significant market volatility end september associate development ldi fund mpc inform november bank begin unwind timely orderly way specific gilt purchase result financial stability operation conduct september october december gilt purchase operation sell demand output accord ons quarterly estimate gdp fall small decline expectation november monetary policy report fall expenditure component household consumption business investment fall government spending estimate rise underlying output define market sector output adjust estimate effect additional holiday estimate bank fall similar headline gdp monthly gdp rise october follow fall september marginally strong expect bank immediately prior release rebound level output large reflect unwind economic impact additional holiday queen state funeral sectoral level private sector service rise line expectation upside news concentrate manufacture output less degree government construction sector bank expect gdp decline percentage point strong expect november report consistent weakening quarterly underlying growth -¼% -½% partially offset boost headline output growth effect additional holiday unwind october assumption government output contribute positively gdp s&p global cips composite output pmi remain change mark consecutive month november intelligence bank agents consistent modest weakening activity centre consumer face sector growth prospect ahead composite future output pmi recover close september level albeit remain long run average contrast cbi composite expectation balance fall sharply november aggregate estimate real growth late decision maker panel suggest respondent expect sale volume stagnate year take forward look survey evidence consistent projection november report slight fall gdp indicator household consumption remain weak retail sale volume rise october reflect boost growth effect additional holiday unwind remain level gfk consumer confidence edge higher november remain weak historical standard household real income expect flat near term housing market indicator continue weaken month year strength official house price index increase strongly october house price fall sharply nationwide halifax index october november november rics survey show decline price balance continue weakness indicator housing market activity accord high frequency zoopla datum volume offer property potential buyer decline normal seasonal level survey investment intention weaken consistent small decline business investment follow period great strength capital spending bad pandemic agency intelligence indicate business confidence remain weak mention uncertainty agents report fall somewhat week autumn statement take place november accompany economic fiscal outlook office budget responsibility obr fiscal rule set update charter budget responsibility additional fiscal support announce near term include target cost living support addition extended energy price guarantee scheme cut business rate increase spending health social care education fiscal year plan fiscal policy tighten progressively large amount net tax rise account half tightening reduction departmental capital spending account half overall bank estimate additional policy measure announce autumn statement relative assume november monetary policy report increase level gdp year time leave unchanged year horizon reduce level gdp year time committee discuss obr late macroeconomic projection compare november monetary policy report obr gdp projection similar mpc year forecast period forecast profile diverge significantly obr expect gdp high november report gap reflect obr judgement demand supply strong mpc expect medium term productivity expect 1½% high obr projection difference reflect strong project path business investment capital stock supply cost price labour force survey lfs unemployment rate rise month october slightly high expectation time november monetary policy report lfs employment grow month october slightly weak expect time november report hmrc employee payroll increase november lfs inactivity fall slightly remain high historical standard forward look indicator kpmg rec report jobs november show hiring remain historical average ons vacancy survey continue decline month remain high level vacancy unemployment ratio remain close record high base comparable series online indicator vacancy flatten month remain significantly pre covid level planned redundancy remain low decrease s&p global household financial index yougov survey measure perception job security intelligence contact bank agents consistent early sign labour market loosening albeit tight starting point employment intention flat recruitment difficulty ease slightly committee discuss labour market development overall datum suggest labour market historically tight appear past peak tightness labour demand appear weaken somewhat november report consistent weakening give usual lag gdp labour market early strength labour market partly reflect recovery demand follow pandemic weakness labour participation appear somewhat exacerbate tightness labour market weakness participation reflect age population early retirement decision worker ill health give trend time key uncertainty speed downward adjustment labour demand labour supply fall extent supply demand imbalance exert upward pressure inflation mpc opportunity judgement annual supply stocktake conclude alongside february monetary policy report annual economy total pay growth pick slightly month october private sector regular pay growth pick percentage point strong expectation time november report month month annualise basis private sector regular pay growth fall level line annual rate increase early year annual public sector pay growth remain weak month october annual private sector wage growth expect flatten coming month decline later risk pay indicator november kpmg rec survey tend lead official datum weaken little number contact bank agents expect upward pressure pay growth year strength cpi inflation encourage worker demand high pay settlement contact report weak demand affordability constraint firm easing recruitment difficulty limit extent pay increase month consumer price inflation fall november october november figure slightly low expect november report downside news concentrate food core good price release trigger exchange open letter governor chancellor exchequer publish alongside minute core cpi inflation exclude energy food beverage tobacco ease slightly october november consider non energy inflationary pressure core good inflation fall peak weak vehicle price inflation expect ease near term consistent easing supply chain bottleneck cost pressure soften food non alcoholic beverage price inflation november high level year expect rise large reflect global factor include adverse climate condition supply constraint cause war ukraine rise energy fertiliser cost food production core service inflation rise october november contact bank agents report consumer service price push high input price particularly pay food energy large component overshoot inflation target continue contribution energy price cpi inflation expect stay elevated near term fall gradually large early increase energy good price drop annual comparison effect expect outweigh continue strength food service price inflation november report government announce cap household unit energy price energy price guarantee rise april march level consistent typical annual dual fuel bill early mpc forecast period imply low path household energy bill working assumption november report indicative path household utility bill sit halfway previously announce cap typical household bill level imply future price ofgem price cap framework downside news lower forecast cpi inflation percentage point equal boost household real income similar degree measure household business inflation expectation fall late datum remain elevated level year ahead citi bank ipsos household measure fall november long horizon five- year ahead citi measure fall bank ipsos measure rise little respondent decision maker panel november indicate low price inflation expectation year low inflation expectation year ahead series remain immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc november monetary policy report projection condition elevated path market interest rate time economy expect recession prolonged period cpi inflation expect high near term inflation expect fall sharply mid-2023 way target year projection reflect negative contribution energy price emergence increase degree economic slack steadily rise unemployment rate risk decline path inflation judge upside domestic wage price pressure elevate limited news domestic global economic datum relative november report projection bank expect gdp decline percentage point strong expect november report housing market indicator continue weaken vacancy fall vacancy unemployment ratio remain elevated level annual growth private sector regular pay pick percentage point strong expect time november report number contact bank agents expect upward pressure pay growth year pay indicator kpmg rec survey tend lead official datum weaken little month cpi inflation fall november slightly expectation time november report mpc previous core good price inflation fall annual food service price inflation strengthen measure household business inflation expectation fall remain elevated level autumn statement take place november accompany economic fiscal outlook office budget responsibility fiscal rule set update charter budget responsibility chancellor exchequer write governor set remit mpc include update government economic strategy letter chancellor state bank england act require reaffirm mpc remit annually provide certainty confirm government change definition price stability announcement autumn statement extension energy price guarantee epg cap household unit energy price level consistent typical household dual fuel bill year april march imply slightly low near term path energy bill working assumption november report equal reduce mpc forecast cpi inflation percentage point additional near term fiscal support announce autumn statement fiscal policy expect tighten progressively large amount fiscal year onwards overall bank estimate measure combine impact epg increase level gdp year horizon leave unchanged year horizon reduce level gdp year time relative assume november report impact cpi inflation projection horizon estimate small committee full assessment news take development november report forthcoming forecast discussion ahead february mpc mpc opportunity judgement supply economy annual supply stocktake conclude alongside february monetary policy report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject succession large shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member committee judge percentage point increase bank rate warrant labour market remain tight evidence inflationary pressure domestic price wage great persistence justify forceful monetary policy response service price inflation private sector regular wage growth increase significantly half year continue surprise upside november report remain risk follow protract period high inflation inflation expectation slow adjust downward target consistent level external cost pressure pass activity economy clearly weaken sign resilient expect uncertain quickly labour market loosen economic forecaster continue predict strong outlook demand mpc november report projection percentage point increase bank rate help bring inflation target sustainably medium term reduce risk extended costly tightening later member prefer leave bank rate unchanged real economy remain weak result fall real income tight financial condition increase sign downturn start affect labour market lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate sufficient bring inflation target fall target medium term policy setting increasingly restrictive long strong case tightening risk management ground prefer percentage point increase bank rate evidence inflection point cpi inflation great evidence price wage pressure stay strong long project november report forceful monetary tightening reinforce tighten cycle importantly lean inflation psychology embed wage settlement inflation expectation push core service underlie inflation measure pull forward monetary action reduce risk bank rate need rise year economy slow majority committee judge economy evolve line november monetary policy report projection increase bank rate require sustainable return inflation target considerable uncertainty outlook committee continue judge outlook suggest persistent inflationary pressure respond forcefully necessary mpc action necessary return inflation target sustainably medium term line remit committee decide appropriate level bank rate chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel huw pill dave ramsden vote favour proposition member vote proposition member swati dhingra silvana tenreyro prefer maintain bank rate catherine mann prefer increase bank rate percentage point operational consideration december total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase september mpc vote begin sale government bond hold monetary policy purpose bank complete total sale bond auction take mature bond lead reduction outstanding stock mpc brief progress gilt sale operational arrangement publish market notice december february mpc vote unwind fully stock sterling non financial investment grade corporate bond purchase early end stock corporate bond reduce total include sale bank auction september committee content rate reduction stock sustain permit early unwind portfolio initially anticipate committee pace sale implication completion date follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act david roberts december observer purpose exercise oversight function role bank court directors

monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate global consumer price inflation remain high peak advanced economy include united kingdom wholesale gas price fall recently global supply chain disruption appear ease amid slowing global demand bank continue tighten monetary policy market pricing indicate reduction policy rate ahead domestic inflationary pressure firm expect private sector regular pay growth service cpi inflation notably high forecast november monetary policy report labour market remain tight historical standard start loosen survey indicator wage growth ease alongside gradual decline underlie output give lag monetary policy transmission increase bank rate december expect increase impact economy come quarter near term datum development crucial assess quickly extent external domestic inflationary pressure abate set accompanying february monetary policy report mpc update projection cpi inflation fall sharply elevated level december large owe past increase energy good price fall calculation annual rate annual cpi inflation expect fall end year alongside shallow project decline output november report forecast late modal forecast condition market imply path bank rate rise 4½% mid-2023 fall 3¼% year time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee continue judge risk inflation skew significantly upside mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point headline cpi inflation begin edge fall sharply rest year result past movement energy good price labour market remain tight domestic price wage pressure strong expect suggest risk great persistence underlie inflation extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far considerable uncertainty outlook mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require look ahead mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end february turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy global gdp growth probably slow account weaken growth euro area subdue economic activity china owe increase covid case weight world gdp expect subdue near term global consumer price inflation remain elevated peak advanced economy project fall course follow decline energy price global demand weaken supply chain pressure ease euro area gdp growth slow quarter real income squeeze high energy food price follow growth gdp rise accord preliminary flash estimate little high expect november february monetary policy report projection s&p global euro area flash composite output pmi rise little change mark january forward look order index remain contractionary territory united states gdp increase marginally low significantly strong anticipate november february report forecast financial condition loosen mpc previous tight year ago expect weigh growth come quarter survey indicator ism pmis point weak growth china rise covid case weigh activity final gdp growth flat weak growth rate expect time november report activity expect weak early december china begin remove covid restriction effectively end covid policy mobility measure fall sharply retail sale fall december relative year early industrial production increase consistent impact late covid wave great consumption manufacture output suggest global supply chain disrupt previous covid wave china reduce upward impact global good price inflation removal restriction reduce likelihood future lockdown potential future supply chain disruption chinese gdp growth expect recover come quarter european natural gas price fall markedly mpc december dutch title transfer facility spot price decline mwh nearly gas future curve fall significantly relatively mild weather contribute low gas consumption continental europe alleviate supply concern winter storage level remain high development cause large downward movement wholesale gas price brent crude oil spot price rise barrel price agricultural good increase mpc december global consumer price inflation appear peak euro area flash estimate suggest annual headline hicp inflation decrease consecutive month january fall percentage point decline drive reduction energy price inflation core inflation remain unchanged united states annual pce inflation fall december low level september november upward pressure energy core good price continue fade core pce inflation decline mpc discuss monetary policy tighten past year affect economic activity united states euro area financial condition possibly tighten little previous tightening cycle united states include mortgage rate somewhat similar historical episode euro area indicator consumption decline line expect united states broad real income squeeze contribute materially weakness euro area give lag transmission monetary policy early judge impact inflation publish forecast federal reserve ecb suggest persistence inflationary pressure monetary financial condition bank continue tighten monetary policy market pricing imply policy rate increase near term december federal open market committee fomc ecb governing council increase policy rate basis point target range fund rate 4½% interest rate ecb deposit facility fomc ecb governing council expect increase rate basis point respectively forthcoming meeting conclude february peak market imply policy path united states little change mpc previous little euro area peak market imply policy path rise somewhat little 3½% large majority respondent bank late market participants survey maps expect bank rate increase basis point mpc consistent market imply pricing median maps respondent expect bank rate reach peak 4¼% march level rest unchanged previous survey market imply path bank rate rise 4½% middle year little mpc previous close gap median path maps market imply path remain consistent expectation reduction policy rate united states end-2025 market imply policy path percentage point low expect peak rate compare percentage point low united kingdom euro area risky asset price rise globally november monetary policy report include period mpc december ease global inflation concern support risk appetite overall strong equity price narrow corporate borrowing spread low expectation policy rate contribute loosening global financial condition november report united kingdom move reflect unwinding high premia require invest asset associate market volatility late september october year sterling effective exchange rate depreciate somewhat previous mpc remain high time november report broad base depreciation dollar consistent improvement global risk sentiment somewhat large decline interest rate expectation relative advanced economy period reduction financial market participant near term inflation expectation mpc december reflect fall wholesale gas price united kingdom median maps respondent expectation cpi inflation year ahead fall respectively compare previous survey december year horizon median cpi inflation expectation remain response skew upside committee discuss movement medium term inflation compensation measure material reduction measure peak march remain average level previous decade interpret move inflation compensation measure remain challenging particularly follow significant market volatility september october large distortion repricing long date index link government debt associate pressure liability drive investment ldi fund look market contact attribute majority fall measure march fundamental factor include fall expectation inflation change perception balance risk inflation outlook say market technical factor include associate pressure ldi fund autumn attribute significant role explain move inflation compensation measure continue reduction owner occupy fix term mortgage rate committee previous rate remain materially high summer average quote rate year fix rate loan value mortgage stand december basis point basis point low november preliminary datum january suggest rate fall basis point spread mortgage product relative relevant risk free rate fall november leave far average level large net reduction sterle broad money cumulatively net money outflow october december reverse large increase record september flow account primarily firm financial sector contributory factor large flow significant market volatility end september associate development ldi fund january mpc inform bank england complete sale temporary holding government bond purchase autumn financial stability ground demand output quarterly gdp growth revise quarterly national accounts strong expect time november monetary policy report estimate gdp revise lower precede quarter mean level gdp remain slightly pre covid level weakness reflect additional holiday queen state funeral september primarily drive weakness underlying output monthly gdp estimate rise november follow increase october bank expect gdp grow strong time november report underlying output remain weak small rise headline gdp expect reflect temporary factor recovery activity follow queen state funeral gdp expect decline business survey s&p global cips flash pmis output order index remain change mark january consistent small fall gdp business survey paint similar picture output growth close future output pmi cover firm expectation output year increase month remain historical average continue underlying weakness gdp growth reflect fall real household income consumer spending high global energy tradeable good price household consumption contract spend good indicate retail sale volume downward trend spring spending transition good service follow pandemic contact bank agents note customer trade lower price product drop demand household good gfk consumer confidence remain historically low level january business investment weak time fall overall business investment pre covid level subdued near term intelligence bank agents suggest weak demand tight financial condition uncertainty outlook hold investment spending housing investment growth slow close weakness economic outlook combine impact high mortgage rate housing market expect weigh housing investment lead indicator house price halifax nationwide index point fall september move contrast trend observe pandemic strong growth housing investment activity price late credit conditions survey suggest availability secured lending household decline fall availability expect loan approval house purchase decline sharply november december mortgage pricing expensive committee note causal link house price spending reasonably modest historically united kingdom house price tend strong correlation consumption evidence slowdown output growth lead softening labour demand labour market remain tight labour force survey lfs employment growth slow half reflect past slowdown gdp growth timely survey indicator labour demand consistent stagnate employment business contact agents report easing recruitment difficulty hiring retention difficulty remain normal range sector number job vacancy fall remain elevated lfs unemployment rate remain historically low level month november february report forecast project rise gradually course year agents business contact report reluctant reduce headcount actively intend accommodate weak demand attrition reduce work hour supply cost price month cpi inflation edge december november account decline fuel price month core cpi inflation exclude energy food beverage tobacco remain unchanged line november monetary policy report projection core good inflation fall anticipate service inflation surprise upside rise year high february report forecast cpi inflation project fall middle year previous large increase energy good price drop calculation annual rate core good inflation expect moderate albeit remain robust consistent global supply chain improve survey indicator manufacturer cost pressure ease retail gas electricity price currently subject government energy price guarantee epg epg typical annual dual fuel bill increase april retail energy price expect rise point wholesale gas future price fall recently decline unlikely push ofgem energy price cap april revise epg increase small increase household energy bill april direct contribution energy month cpi inflation expect fall sustain late fall gas future price push ofgem price cap epg ceiling july pull household energy price service cpi inflation expect historically high rate half year large reflect ongoing strength pay growth bank analysis suggest labour cost tend predominant driver service inflation long run high non labour input cost firm rebuild margin push service price recently committee discuss potential persistence inflation dynamic role wage particular series global shock past year result sharp successive increase price tradeable good include energy continue pass supply chain sign global pressure begin abate risk great inflation persistence interaction global pressure domestic wage price setting remain context tight labour market relatedly measure inflation expectation year ahead remain elevated annual private sector regular average weekly earnings growth rise little month november percentage point november report projection annual private sector wage growth expect flatten similar rate consistent high frequency pay growth plateaue survey firm conduct bank agents suggest average pay settlement rise similar rate survey respondent expect consumer price inflation main driver pay settlement survey tentative indication pay pressure moderate year expect pay settlement little low half year half measure pay permanent hire kpmg rec survey lead indicator private sector pay growth quarter ahead suggest pronounced slowing pay growth later year measure inflation expectation fall peak elevated level citi yougov household measure inflation expectation year year ahead edge january respectively follow steeper fall december respondent decision maker panel january revise expectation cpi inflation year ahead leave price expectation unchanged professional forecaster respond bank late quarterly survey average project cpi inflation fall year time line inflation target year ahead immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment domestic inflationary pressure firm expect private sector regular pay growth service cpi inflation notably high forecast november monetary policy report labour market remain tight historical standard unemployment rate month november mpc assessment long term equilibrium rate unemployment stand gdp growth surprise upside relative november report forecast underlying output decline gradually sign labour market start loosen survey indicator wage growth ease wholesale gas price fall recently consumer price inflation peak advanced economy measure inflation expectation fall peak elevated level set accompanying february monetary policy report mpc update projection show cpi inflation fall sharply elevated level december large owe past increase energy good price fall calculation annual rate annual cpi inflation expect fall end year alongside shallow project decline output november report forecast late modal forecast condition market imply path bank rate rise 4½% mid-2023 fall 3¼% year time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee continue judge risk inflation skew significantly upside primarily reflect possibility great persistence domestic wage price setting upside risk wholesale energy price conditioning assumption qualitatively inflation forecast take account upside risk judge close target policy horizon modal projection mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant economic activity weaken sign great resilience datum headline cpi inflation begin edge fall sharply rest year result past development energy good price labour market remain tight domestic price wage pressure strong expect suggest risk great persistence underlie inflation measure inflation expectation elevated level risk inflation outlook medium term large asymmetric skew great persistence warrant additional weight strength labour market inflation datum relatively medium term projection percentage point increase bank rate address risk domestic wage price pressure remain elevate external cost pressure wan member prefer leave bank rate unchanged real economy remain weak result fall real income tightening financial condition past year continue sign downturn affect labour market especially forward look indicator time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far considerable uncertainty outlook mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require look ahead mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration february total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act david roberts january observer purpose exercise oversight function role bank court directors monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end february mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate global consumer price inflation remain high peak advanced economy include united kingdom wholesale gas price fall recently global supply chain disruption appear ease amid slowing global demand bank continue tighten monetary policy market pricing indicate reduction policy rate ahead domestic inflationary pressure firm expect private sector regular pay growth service cpi inflation notably high forecast november monetary policy report labour market remain tight historical standard start loosen survey indicator wage growth ease alongside gradual decline underlie output give lag monetary policy transmission increase bank rate december expect increase impact economy come quarter near term datum development crucial assess quickly extent external domestic inflationary pressure abate set accompanying february monetary policy report mpc update projection cpi inflation fall sharply elevated level december large owe past increase energy good price fall calculation annual rate annual cpi inflation expect fall end year alongside shallow project decline output november report forecast late modal forecast condition market imply path bank rate rise 4½% mid-2023 fall 3¼% year time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee continue judge risk inflation skew significantly upside mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point headline cpi inflation begin edge fall sharply rest year result past movement energy good price labour market remain tight domestic price wage pressure strong expect suggest risk great persistence underlie inflation extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far considerable uncertainty outlook mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require look ahead mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end february turn immediate policy decision backdrop late economic projection committee discuss international economy monetary financial condition demand output supply cost price international economy global gdp growth probably slow account weaken growth euro area subdue economic activity china owe increase covid case weight world gdp expect subdue near term global consumer price inflation remain elevated peak advanced economy project fall course follow decline energy price global demand weaken supply chain pressure ease euro area gdp growth slow quarter real income squeeze high energy food price follow growth gdp rise accord preliminary flash estimate little high expect november february monetary policy report projection s&p global euro area flash composite output pmi rise little change mark january forward look order index remain contractionary territory united states gdp increase marginally low significantly strong anticipate november february report forecast financial condition loosen mpc previous tight year ago expect weigh growth come quarter survey indicator ism pmis point weak growth china rise covid case weigh activity final gdp growth flat weak growth rate expect time november report activity expect weak early december china begin remove covid restriction effectively end covid policy mobility measure fall sharply retail sale fall december relative year early industrial production increase consistent impact late covid wave great consumption manufacture output suggest global supply chain disrupt previous covid wave china reduce upward impact global good price inflation removal restriction reduce likelihood future lockdown potential future supply chain disruption chinese gdp growth expect recover come quarter european natural gas price fall markedly mpc december dutch title transfer facility spot price decline mwh nearly gas future curve fall significantly relatively mild weather contribute low gas consumption continental europe alleviate supply concern winter storage level remain high development cause large downward movement wholesale gas price brent crude oil spot price rise barrel price agricultural good increase mpc december global consumer price inflation appear peak euro area flash estimate suggest annual headline hicp inflation decrease consecutive month january fall percentage point decline drive reduction energy price inflation core inflation remain unchanged united states annual pce inflation fall december low level september november upward pressure energy core good price continue fade core pce inflation decline mpc discuss monetary policy tighten past year affect economic activity united states euro area financial condition possibly tighten little previous tightening cycle united states include mortgage rate somewhat similar historical episode euro area indicator consumption decline line expect united states broad real income squeeze contribute materially weakness euro area give lag transmission monetary policy early judge impact inflation publish forecast federal reserve ecb suggest persistence inflationary pressure monetary financial condition bank continue tighten monetary policy market pricing imply policy rate increase near term december federal open market committee fomc ecb governing council increase policy rate basis point target range fund rate 4½% interest rate ecb deposit facility fomc ecb governing council expect increase rate basis point respectively forthcoming meeting conclude february peak market imply policy path united states little change mpc previous little euro area peak market imply policy path rise somewhat little 3½% large majority respondent bank late market participants survey maps expect bank rate increase basis point mpc consistent market imply pricing median maps respondent expect bank rate reach peak 4¼% march level rest unchanged previous survey market imply path bank rate rise 4½% middle year little mpc previous close gap median path maps market imply path remain consistent expectation reduction policy rate united states end-2025 market imply policy path percentage point low expect peak rate compare percentage point low united kingdom euro area risky asset price rise globally november monetary policy report include period mpc december ease global inflation concern support risk appetite overall strong equity price narrow corporate borrowing spread low expectation policy rate contribute loosening global financial condition november report united kingdom move reflect unwinding high premia require invest asset associate market volatility late september october year sterling effective exchange rate depreciate somewhat previous mpc remain high time november report broad base depreciation dollar consistent improvement global risk sentiment somewhat large decline interest rate expectation relative advanced economy period reduction financial market participant near term inflation expectation mpc december reflect fall wholesale gas price united kingdom median maps respondent expectation cpi inflation year ahead fall respectively compare previous survey december year horizon median cpi inflation expectation remain response skew upside committee discuss movement medium term inflation compensation measure material reduction measure peak march remain average level previous decade interpret move inflation compensation measure remain challenging particularly follow significant market volatility september october large distortion repricing long date index link government debt associate pressure liability drive investment ldi fund look market contact attribute majority fall measure march fundamental factor include fall expectation inflation change perception balance risk inflation outlook say market technical factor include associate pressure ldi fund autumn attribute significant role explain move inflation compensation measure continue reduction owner occupy fix term mortgage rate committee previous rate remain materially high summer average quote rate year fix rate loan value mortgage stand december basis point basis point low november preliminary datum january suggest rate fall basis point spread mortgage product relative relevant risk free rate fall november leave far average level large net reduction sterle broad money cumulatively net money outflow october december reverse large increase record september flow account primarily firm financial sector contributory factor large flow significant market volatility end september associate development ldi fund january mpc inform bank england complete sale temporary holding government bond purchase autumn financial stability ground demand output quarterly gdp growth revise quarterly national accounts strong expect time november monetary policy report estimate gdp revise lower precede quarter mean level gdp remain slightly pre covid level weakness reflect additional holiday queen state funeral september primarily drive weakness underlying output monthly gdp estimate rise november follow increase october bank expect gdp grow strong time november report underlying output remain weak small rise headline gdp expect reflect temporary factor recovery activity follow queen state funeral gdp expect decline business survey s&p global cips flash pmis output order index remain change mark january consistent small fall gdp business survey paint similar picture output growth close future output pmi cover firm expectation output year increase month remain historical average continue underlying weakness gdp growth reflect fall real household income consumer spending high global energy tradeable good price household consumption contract spend good indicate retail sale volume downward trend spring spending transition good service follow pandemic contact bank agents note customer trade lower price product drop demand household good gfk consumer confidence remain historically low level january business investment weak time fall overall business investment pre covid level subdued near term intelligence bank agents suggest weak demand tight financial condition uncertainty outlook hold investment spending housing investment growth slow close weakness economic outlook combine impact high mortgage rate housing market expect weigh housing investment lead indicator house price halifax nationwide index point fall september move contrast trend observe pandemic strong growth housing investment activity price late credit conditions survey suggest availability secured lending household decline fall availability expect loan approval house purchase decline sharply november december mortgage pricing expensive committee note causal link house price spending reasonably modest historically united kingdom house price tend strong correlation consumption evidence slowdown output growth lead softening labour demand labour market remain tight labour force survey lfs employment growth slow half reflect past slowdown gdp growth timely survey indicator labour demand consistent stagnate employment business contact agents report easing recruitment difficulty hiring retention difficulty remain normal range sector number job vacancy fall remain elevated lfs unemployment rate remain historically low level month november february report forecast project rise gradually course year agents business contact report reluctant reduce headcount actively intend accommodate weak demand attrition reduce work hour supply cost price month cpi inflation edge december november account decline fuel price month core cpi inflation exclude energy food beverage tobacco remain unchanged line november monetary policy report projection core good inflation fall anticipate service inflation surprise upside rise year high february report forecast cpi inflation project fall middle year previous large increase energy good price drop calculation annual rate core good inflation expect moderate albeit remain robust consistent global supply chain improve survey indicator manufacturer cost pressure ease retail gas electricity price currently subject government energy price guarantee epg epg typical annual dual fuel bill increase april retail energy price expect rise point wholesale gas future price fall recently decline unlikely push ofgem energy price cap april revise epg increase small increase household energy bill april direct contribution energy month cpi inflation expect fall sustain late fall gas future price push ofgem price cap epg ceiling july pull household energy price service cpi inflation expect historically high rate half year large reflect ongoing strength pay growth bank analysis suggest labour cost tend predominant driver service inflation long run high non labour input cost firm rebuild margin push service price recently committee discuss potential persistence inflation dynamic role wage particular series global shock past year result sharp successive increase price tradeable good include energy continue pass supply chain sign global pressure begin abate risk great inflation persistence interaction global pressure domestic wage price setting remain context tight labour market relatedly measure inflation expectation year ahead remain elevated annual private sector regular average weekly earnings growth rise little month november percentage point november report projection annual private sector wage growth expect flatten similar rate consistent high frequency pay growth plateaue survey firm conduct bank agents suggest average pay settlement rise similar rate survey respondent expect consumer price inflation main driver pay settlement survey tentative indication pay pressure moderate year expect pay settlement little low half year half measure pay permanent hire kpmg rec survey lead indicator private sector pay growth quarter ahead suggest pronounced slowing pay growth later year measure inflation expectation fall peak elevated level citi yougov household measure inflation expectation year year ahead edge january respectively follow steeper fall december respondent decision maker panel january revise expectation cpi inflation year ahead leave price expectation unchanged professional forecaster respond bank late quarterly survey average project cpi inflation fall year time line inflation target year ahead immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment domestic inflationary pressure firm expect private sector regular pay growth service cpi inflation notably high forecast november monetary policy report labour market remain tight historical standard unemployment rate month november mpc assessment long term equilibrium rate unemployment stand gdp growth surprise upside relative november report forecast underlying output decline gradually sign labour market start loosen survey indicator wage growth ease wholesale gas price fall recently consumer price inflation peak advanced economy measure inflation expectation fall peak elevated level set accompanying february monetary policy report mpc update projection show cpi inflation fall sharply elevated level december large owe past increase energy good price fall calculation annual rate annual cpi inflation expect fall end year alongside shallow project decline output november report forecast late modal forecast condition market imply path bank rate rise 4½% mid-2023 fall 3¼% year time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee continue judge risk inflation skew significantly upside primarily reflect possibility great persistence domestic wage price setting upside risk wholesale energy price conditioning assumption qualitatively inflation forecast take account upside risk judge close target policy horizon modal projection mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant economic activity weaken sign great resilience datum headline cpi inflation begin edge fall sharply rest year result past development energy good price labour market remain tight domestic price wage pressure strong expect suggest risk great persistence underlie inflation measure inflation expectation elevated level risk inflation outlook medium term large asymmetric skew great persistence warrant additional weight strength labour market inflation datum relatively medium term projection percentage point increase bank rate address risk domestic wage price pressure remain elevate external cost pressure wan member prefer leave bank rate unchanged real economy remain weak result fall real income tightening financial condition past year continue sign downturn affect labour market especially forward look indicator time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far considerable uncertainty outlook mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require look ahead mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration february total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative permit bank england act amend bank england financial services act david roberts january observer purpose exercise oversight function role bank court directors

monetary policy summary march bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate global growth expect strong project february monetary policy report core consumer price inflation advanced economy remain elevated wholesale gas future oil price fall materially large volatile move global financial market particular failure silicon valley bank run ubs purchase credit suisse reflect market concern possible broad impact event overall government bond yield unchanged risky asset price somewhat low time committee previous bank england financial policy committee fpc brief mpc global banking sector development fpc judge banking system maintain robust capital strong liquidity position place support economy wide range economic scenario include period high interest rate fpc assessment banking system remain resilient reflect development wholesale funding cost rise united kingdom advanced economy mpc monitor closely effect credit condition face household business impact macroeconomic inflation outlook additional fiscal support announce spring budget bank provisionally estimate relative february report increase level gdp coming year assessment include extent measure affect supply demand medium term conduct ahead monetary policy report gdp flat turn year expect increase slightly compare decline anticipate february report government energy price guarantee epg maintain month april real household disposable income flat near term fall significantly labour market remain tight news mpc previous point strong expect employment growth flat rise unemployment rate month cpi inflation fall december january rise february percentage point high expect february report consequence exchange open letter governor chancellor exchequer publish alongside monetary policy announcement service cpi inflation february percentage point weak expect time february report food core good price inflation significantly strong project surprising strength core good component account high clothing footwear price tend volatile prove persistent annual private sector regular earning growth ease month january percentage point expectation february cpi inflation expect fall significantly low rate anticipate february report low expect rate near term news budget include epg alongside fall wholesale energy price service cpi inflation expect unchanged near term wage growth fall somewhat quickly project february report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point cpi inflation increase unexpectedly late release remain fall sharply rest year service inflation line expectation labour market remain tight near term path gdp employment somewhat strong expect previously nominal wage growth weak expect cost price pressure remain elevated extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty financial economic outlook rise mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require mpc assessment news february report include economic implication financial market banking sector development forthcoming forecast round mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end march turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight world gdp increase expect grow expectation strong anticipate february monetary policy report account expectation sharp rebound chinese gdp follow end covid policy december upside news demand united states euro area downside risk outlook remain particular unclear credit condition economic activity affect banking sector stress number advanced economy euro area gdp flat line projection february report expect increase strong incorporate february report s&p global euro area composite output pmi rise high level month february indicate expand activity service manufacturing united states gdp increase expect grow strong expect february report retail sale real consumption grow strongly january ism non manufacturing pmis suggest robust gdp growth january february ism manufacture output pmi remain change mark job add economy january february unemployment rate remain near record low china economic activity rebound follow end covid policy december economy expect grow materially strong contraction incorporate february report rebound concentrate domestic demand reflect lifting covid relate restriction voluntary social distancing number covid case peak early expect previously nbs non manufacturing caixin service pmis january february strong strong manufacturing counterpart retail sale surge investment industrial production growth pick relative year early measure chinese supply chain constraint ease indicator global shipping cost continue decline overall china reopening disinflationary advanced economy easing supply chain disruption expect outweigh positive spillover strong demand european natural gas price fall materially mpc february dutch title transfer facility spot price measure european wholesale gas price decline mwh relative february level see russia invasion ukraine february gas future curve fall fall drive milder weather energy use fuel switching imply gas storage level continue high risk remain winter wholesale gas price fall line continental european counterpart recently possible macroeconomic implication financial market volatility follow failure silicon valley bank contribute fall commodity price brent crude oil spot price fall barrel mpc previous price agricultural good metal decline headline consumer price inflation continue decline euro area united states core cpi inflation prove somewhat persistent expect euro area annual headline hicp inflation february january annual core inflation increase measure high expect market participant increase account service price inflation energy price inflation continue decline expect decline low wholesale gas price push headline relative core measure near term wage growth euro area continue increase albeit low level advanced economy united states annual headline cpi inflation decrease february january core inflation fall marginally line market expectation annual headline core pce inflation surprise upside january strength account energy housing cost inflation expect ease annual average hourly earning growth tick united states february follow moderation previous month mpc discuss extent low wholesale energy price boost global activity note effect come government price cap household europe cushion adverse effect retail price activity wholesale price high committee discuss net effect upside news economic activity low energy price global inflation hand low energy price push headline inflation core inflation indirect round effect hand low energy price push demand take factor push gdp equal upward pressure global inflation monetary financial condition large volatile move financial market mpc previous particular failure silicon valley bank svb early march reflect market concern possible broad impact event day lead mpc decision ubs agree buy credit suisse major advanced economy bank announce coordinated action enhance provision liquidity stand dollar liquidity swap line arrangement overall government bond yield unchanged risky asset price somewhat low time committee previous change aggregate index equity price major advanced economy modest end period relative time mpc previous bank equity price particularly affect market sentiment deteriorate follow news svb end period low united states euro area united kingdom measure wholesale funding cost rise remain peak see autumn prior concern emerge svb market imply monetary policy path pick materially advanced economy reflect positive global macroeconomic news couple market interpretation tone communication federal open market committee fomc ecb governing council factor push market imply policy path country include united kingdom issue svb public risk sentiment reverse volatility pick government bond yield globally move appreciably low risk sentiment remain weak give fragility reveal individual bank market contact suggest fall yield reflect flight safety market participant seek wait volatility perception increase downside risk outlook growth inflation market expectation near term path policy rate euro area united states end period unchanged expect peak level similar time mpc previous 3½% respectively end march ecb governing council raise key policy rate basis point little high imply market pricing immediately announcement fomc end march market pricing consistent expectation increase fund rate basis point united kingdom majority market contact expect bank rate increase basis point mpc market pricing rise consistent expectation follow release february cpi datum immediately prior mpc decision market imply path bank rate rise peak little 4½% august somewhat high peak time mpc previous market imply path remain consistent expectation reduction policy rate united states mid-2026 market imply policy rate percentage point low expect peak rate rate percentage point low peak united kingdom percentage point low euro area sterling effective exchange rate end period higher compare time mpc previous medium term inflation compensation measure increase little united kingdom remain unchanged united states euro area mpc previous interpret movement medium term inflation compensation measure continue challenge remain case material reduction measure peak march remain average level previous decade reduction owner occupy fix term mortgage rate mpc previous rate remain materially high summer average quote rate year fix rate loan value mortgage fall basis point february pass high risk free reference rate monetary policy tightening cycle occur line typically case past except temporary period slightly fast typical pass clear sign increase funding cost affect mortgage rate net secured lending household decrease somewhat january december mortgage approval house purchase fall autumn remain fairly stable january historically low level continue weakness housing market indicator official house price index fall month average december january lead indicator halifax nationwide house price index point fall compare peak autumn indicator housing market activity rics survey increase little february remain weak sight deposit rate rise mpc february increase bank rate relative change correspond risk free reference rate increase sight deposit rate beginning tighten cycle significantly pronounced past cycle contrast time deposit line evidence household rebalance away sight time deposit response demand output accord ons quarterly estimate real gdp flat marginally weak expect february monetary policy report household consumption rise business investment estimate increase investment revise start level 4½% pre pandemic level previous estimate monthly gdp increase january follow fall december volatility monthly path large account fall subsequent partial rebound health education output turn year reflect pattern public sector strike activity sickness market sector output rise january partially unwind decline december look holiday relate volatility gdp point year level market sector output unchanged spring bank continue expect gdp decline project february report consistent signal business survey activity february s&p global cips composite output order pmi index rise level close historical average cbi composite output balance pick remain contractionary household consumption business investment subdue retail sale volume rise january follow decline december gfk consumer confidence increase february high level april remain historical average survey business investment intention remain weak spring budget take place march accompany economic fiscal outlook office budget responsibility additional fiscal support announce include energy support measure household business temporary capital allowance qualify business investment undertake package measure aim increase labour market participation high defence spending freeze fuel duty bank provisionally estimate additional policy measure relative assume february monetary policy report increase level gdp coming year assessment news extent affect supply demand medium term conduct monetary policy report forecast round bank expect gdp increase slightly compare decline incorporate february report bank agents report subdue activity hold well contact previously expect particularly consumer service sector composite future output pmi rise february associated highlight improve confidence near term economic outlook news government energy price guarantee epg typical annual dual fuel bill maintain april increase suggest real household disposable income flat near term fall significantly expect previously committee discuss development activity prospective upside news gdp reflect development energy price include decline wholesale price epg adjustment unwind term trade shock household business experience news reflect factor include continue momentum employment growth channel similar judgement mpc february report low perception risk job loss result low precautionary saving household previously assume activity weak expect supply cost price labour market remain tight news mpc previous point strong expect employment growth participation labour force survey lfs unemployment rate remain month january percentage point expectation time february monetary policy report lfs employment grow month january slightly strong expect time february report strong expect rise employment counterpart fall inactivity rate population lfs datum suggest flow inactivity employment unemployment fall pre covid level alongside decline share inactive age expect work indicator labour market quantity strengthen month alongside similar development output indicator composite employment index s&p global cips pmi hmrc employee payroll increase february rate decline stock vacancy continue abate month february vacancy month february high prior pandemic contact bank agents report labour market remain tight little sign loosen contact report churn job fall recruitment difficulty ease recently remain elevated overall bank expect employment growth comparison decline anticipate february report unemployment rate low level start rise annual private sector regular average weekly earnings awe growth ease slightly month january percentage point expectation time february report month month private sector regular awe growth fall significantly month pay growth indicator kpmg rec survey measure pay permanent hire suggest private sector regular pay growth undershoot somewhat near term projection february report report earning growth project soften half year low inflation expectation anticipate quantitatively important change slack environment pull pay growth month cpi inflation rise february january release trigger exchange open letter governor chancellor exchequer publish alongside minute february figure percentage point high expectation time february report upside news concentrate clothing footwear food non alcoholic beverage clothing footwear price tend volatile news prove persistent core cpi inflation exclude energy food beverage tobacco rise february january percentage point high expectation time february report bank expect cpi inflation fall significantly low rate anticipate february report low expect rate development administer energy price retail gas electricity price currently subject government energy price guarantee epg spring budget government announce epg maintain typical dual fuel bill month april change epg represent downside news outlook household energy price lower directly forecast cpi inflation percentage point equal measure announce budget freezing fuel duty contribute percentage point downside news inflation forecast april staff expect cpi inflation decline fall wholesale gas future price level future price sustain mean epg bind household energy bill july instead ofgem price cap set price domestic energy bill reset month ofgem method late bank estimate suggest direct energy contribution cpi inflation turn negative end year household business short term inflation expectation continue fall quarterly bank ipsos survey report fall year ahead inflation expectation contrast measure year ahead inflation expectation citi yougov survey household edge february remain materially peak observe august dmp survey report business expectation price year ahead fall february albeit remain elevated level bank ipsos measure household two- year ahead inflation expectation close historical average committee discuss persistence inflation service cpi inflation reach february expect unchanged near term continue pass labour cost easing pay growth expect february report appear evident late indicator labour market remain tight news previous mpc point strong expect employment growth flat rise unemployment rate immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection annual cpi inflation expect fall sharply end year alongside shallow project decline output november report forecast condition market imply path bank rate time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee judge risk inflation skew significantly upside previous mpc considerable news global domestic economic datum relative near term projection february report global growth expect strong project gdp long expect contract china euro area core consumer price inflation advanced economy remain elevated wholesale gas future oil price fall materially gdp expect increase slightly compare decline anticipate february report labour market remain tight unemployment rate month january rise employment counterpart fall inactivity rate news mpc previous point strong expect employment growth flat rise unemployment rate additional fiscal support announce spring budget bank provisionally estimate relative february report increase level gdp coming year assessment include extent measure affect supply demand medium term conduct ahead monetary policy report month cpi inflation fall december january rise february percentage point high expect february report service cpi inflation february percentage point weak expect time february report food core good price inflation significantly strong project surprising strength core good component account high clothing footwear price tend volatile prove persistent annual private sector regular earning growth ease month january percentage point expectation february month month growth measure pay fall significantly month cpi inflation expect fall significantly low rate anticipate february report low expect rate near term news budget include energy price guarantee alongside fall wholesale energy price previous mpc service cpi inflation expect unchanged near term wage growth fall somewhat quickly project february report low path energy price unwind term trade shock household business experience direct contribution household energy price cpi inflation expect turn negative end year act reduce inflation indirectly dissipation round effect low energy price boost activity take demand news push gdp employment equal time upward pressure inflation large volatile move global financial market particular failure silicon valley bank run ubs purchase credit suisse reflect market concern possible broad impact event overall government bond yield unchanged risky asset price somewhat low time committee previous bank england financial policy committee fpc brief mpc global banking sector development fpc judge banking system maintain robust capital strong liquidity position place support economy wide range economic scenario include period high interest rate fpc assessment banking system remain resilient reflect development wholesale funding cost rise united kingdom advanced economy mpc monitor closely effect credit condition face household business impact macroeconomic inflation outlook mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant considerable news previous mpc evaluate framework monitor persistence inflationary pressure set february minute nominal wage growth weak expect labour market remain tight unemployment rate expect flat rise service cpi inflation line expectation alongside development headline cpi inflation surprise significantly upside near term path gdp somewhat strong expect previously member weight possibility strong domestic global outlook demand drive factor weak path energy price give strengthening precede fall price renew sustain demand labour reinforce persistence high cost consumer price round effect relate energy price inflation diminish member prefer leave bank rate unchanged effect energy price shock cost push shock unwound headline cpi inflation fall sharply reduce associated persistence domestic price setting time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty financial economic outlook rise mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require mpc assessment news february report include economic implication financial market banking sector development forthcoming forecast round mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration march total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative occasion final chair express appreciation behalf committee clare lombardelli role treasury representative monetary policy summary march bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate global growth expect strong project february monetary policy report core consumer price inflation advanced economy remain elevated wholesale gas future oil price fall materially large volatile move global financial market particular failure silicon valley bank run ubs purchase credit suisse reflect market concern possible broad impact event overall government bond yield unchanged risky asset price somewhat low time committee previous bank england financial policy committee fpc brief mpc global banking sector development fpc judge banking system maintain robust capital strong liquidity position place support economy wide range economic scenario include period high interest rate fpc assessment banking system remain resilient reflect development wholesale funding cost rise united kingdom advanced economy mpc monitor closely effect credit condition face household business impact macroeconomic inflation outlook additional fiscal support announce spring budget bank provisionally estimate relative february report increase level gdp coming year assessment include extent measure affect supply demand medium term conduct ahead monetary policy report gdp flat turn year expect increase slightly compare decline anticipate february report government energy price guarantee epg maintain month april real household disposable income flat near term fall significantly labour market remain tight news mpc previous point strong expect employment growth flat rise unemployment rate month cpi inflation fall december january rise february percentage point high expect february report consequence exchange open letter governor chancellor exchequer publish alongside monetary policy announcement service cpi inflation february percentage point weak expect time february report food core good price inflation significantly strong project surprising strength core good component account high clothing footwear price tend volatile prove persistent annual private sector regular earning growth ease month january percentage point expectation february cpi inflation expect fall significantly low rate anticipate february report low expect rate near term news budget include epg alongside fall wholesale energy price service cpi inflation expect unchanged near term wage growth fall somewhat quickly project february report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point cpi inflation increase unexpectedly late release remain fall sharply rest year service inflation line expectation labour market remain tight near term path gdp employment somewhat strong expect previously nominal wage growth weak expect cost price pressure remain elevated extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty financial economic outlook rise mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require mpc assessment news february report include economic implication financial market banking sector development forthcoming forecast round mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end march turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight world gdp increase expect grow expectation strong anticipate february monetary policy report account expectation sharp rebound chinese gdp follow end covid policy december upside news demand united states euro area downside risk outlook remain particular unclear credit condition economic activity affect banking sector stress number advanced economy euro area gdp flat line projection february report expect increase strong incorporate february report s&p global euro area composite output pmi rise high level month february indicate expand activity service manufacturing united states gdp increase expect grow strong expect february report retail sale real consumption grow strongly january ism non manufacturing pmis suggest robust gdp growth january february ism manufacture output pmi remain change mark job add economy january february unemployment rate remain near record low china economic activity rebound follow end covid policy december economy expect grow materially strong contraction incorporate february report rebound concentrate domestic demand reflect lifting covid relate restriction voluntary social distancing number covid case peak early expect previously nbs non manufacturing caixin service pmis january february strong strong manufacturing counterpart retail sale surge investment industrial production growth pick relative year early measure chinese supply chain constraint ease indicator global shipping cost continue decline overall china reopening disinflationary advanced economy easing supply chain disruption expect outweigh positive spillover strong demand european natural gas price fall materially mpc february dutch title transfer facility spot price measure european wholesale gas price decline mwh relative february level see russia invasion ukraine february gas future curve fall fall drive milder weather energy use fuel switching imply gas storage level continue high risk remain winter wholesale gas price fall line continental european counterpart recently possible macroeconomic implication financial market volatility follow failure silicon valley bank contribute fall commodity price brent crude oil spot price fall barrel mpc previous price agricultural good metal decline headline consumer price inflation continue decline euro area united states core cpi inflation prove somewhat persistent expect euro area annual headline hicp inflation february january annual core inflation increase measure high expect market participant increase account service price inflation energy price inflation continue decline expect decline low wholesale gas price push headline relative core measure near term wage growth euro area continue increase albeit low level advanced economy united states annual headline cpi inflation decrease february january core inflation fall marginally line market expectation annual headline core pce inflation surprise upside january strength account energy housing cost inflation expect ease annual average hourly earning growth tick united states february follow moderation previous month mpc discuss extent low wholesale energy price boost global activity note effect come government price cap household europe cushion adverse effect retail price activity wholesale price high committee discuss net effect upside news economic activity low energy price global inflation hand low energy price push headline inflation core inflation indirect round effect hand low energy price push demand take factor push gdp equal upward pressure global inflation monetary financial condition large volatile move financial market mpc previous particular failure silicon valley bank svb early march reflect market concern possible broad impact event day lead mpc decision ubs agree buy credit suisse major advanced economy bank announce coordinated action enhance provision liquidity stand dollar liquidity swap line arrangement overall government bond yield unchanged risky asset price somewhat low time committee previous change aggregate index equity price major advanced economy modest end period relative time mpc previous bank equity price particularly affect market sentiment deteriorate follow news svb end period low united states euro area united kingdom measure wholesale funding cost rise remain peak see autumn prior concern emerge svb market imply monetary policy path pick materially advanced economy reflect positive global macroeconomic news couple market interpretation tone communication federal open market committee fomc ecb governing council factor push market imply policy path country include united kingdom issue svb public risk sentiment reverse volatility pick government bond yield globally move appreciably low risk sentiment remain weak give fragility reveal individual bank market contact suggest fall yield reflect flight safety market participant seek wait volatility perception increase downside risk outlook growth inflation market expectation near term path policy rate euro area united states end period unchanged expect peak level similar time mpc previous 3½% respectively end march ecb governing council raise key policy rate basis point little high imply market pricing immediately announcement fomc end march market pricing consistent expectation increase fund rate basis point united kingdom majority market contact expect bank rate increase basis point mpc market pricing rise consistent expectation follow release february cpi datum immediately prior mpc decision market imply path bank rate rise peak little 4½% august somewhat high peak time mpc previous market imply path remain consistent expectation reduction policy rate united states mid-2026 market imply policy rate percentage point low expect peak rate rate percentage point low peak united kingdom percentage point low euro area sterling effective exchange rate end period higher compare time mpc previous medium term inflation compensation measure increase little united kingdom remain unchanged united states euro area mpc previous interpret movement medium term inflation compensation measure continue challenge remain case material reduction measure peak march remain average level previous decade reduction owner occupy fix term mortgage rate mpc previous rate remain materially high summer average quote rate year fix rate loan value mortgage fall basis point february pass high risk free reference rate monetary policy tightening cycle occur line typically case past except temporary period slightly fast typical pass clear sign increase funding cost affect mortgage rate net secured lending household decrease somewhat january december mortgage approval house purchase fall autumn remain fairly stable january historically low level continue weakness housing market indicator official house price index fall month average december january lead indicator halifax nationwide house price index point fall compare peak autumn indicator housing market activity rics survey increase little february remain weak sight deposit rate rise mpc february increase bank rate relative change correspond risk free reference rate increase sight deposit rate beginning tighten cycle significantly pronounced past cycle contrast time deposit line evidence household rebalance away sight time deposit response demand output accord ons quarterly estimate real gdp flat marginally weak expect february monetary policy report household consumption rise business investment estimate increase investment revise start level 4½% pre pandemic level previous estimate monthly gdp increase january follow fall december volatility monthly path large account fall subsequent partial rebound health education output turn year reflect pattern public sector strike activity sickness market sector output rise january partially unwind decline december look holiday relate volatility gdp point year level market sector output unchanged spring bank continue expect gdp decline project february report consistent signal business survey activity february s&p global cips composite output order pmi index rise level close historical average cbi composite output balance pick remain contractionary household consumption business investment subdue retail sale volume rise january follow decline december gfk consumer confidence increase february high level april remain historical average survey business investment intention remain weak spring budget take place march accompany economic fiscal outlook office budget responsibility additional fiscal support announce include energy support measure household business temporary capital allowance qualify business investment undertake package measure aim increase labour market participation high defence spending freeze fuel duty bank provisionally estimate additional policy measure relative assume february monetary policy report increase level gdp coming year assessment news extent affect supply demand medium term conduct monetary policy report forecast round bank expect gdp increase slightly compare decline incorporate february report bank agents report subdue activity hold well contact previously expect particularly consumer service sector composite future output pmi rise february associated highlight improve confidence near term economic outlook news government energy price guarantee epg typical annual dual fuel bill maintain april increase suggest real household disposable income flat near term fall significantly expect previously committee discuss development activity prospective upside news gdp reflect development energy price include decline wholesale price epg adjustment unwind term trade shock household business experience news reflect factor include continue momentum employment growth channel similar judgement mpc february report low perception risk job loss result low precautionary saving household previously assume activity weak expect supply cost price labour market remain tight news mpc previous point strong expect employment growth participation labour force survey lfs unemployment rate remain month january percentage point expectation time february monetary policy report lfs employment grow month january slightly strong expect time february report strong expect rise employment counterpart fall inactivity rate population lfs datum suggest flow inactivity employment unemployment fall pre covid level alongside decline share inactive age expect work indicator labour market quantity strengthen month alongside similar development output indicator composite employment index s&p global cips pmi hmrc employee payroll increase february rate decline stock vacancy continue abate month february vacancy month february high prior pandemic contact bank agents report labour market remain tight little sign loosen contact report churn job fall recruitment difficulty ease recently remain elevated overall bank expect employment growth comparison decline anticipate february report unemployment rate low level start rise annual private sector regular average weekly earnings awe growth ease slightly month january percentage point expectation time february report month month private sector regular awe growth fall significantly month pay growth indicator kpmg rec survey measure pay permanent hire suggest private sector regular pay growth undershoot somewhat near term projection february report report earning growth project soften half year low inflation expectation anticipate quantitatively important change slack environment pull pay growth month cpi inflation rise february january release trigger exchange open letter governor chancellor exchequer publish alongside minute february figure percentage point high expectation time february report upside news concentrate clothing footwear food non alcoholic beverage clothing footwear price tend volatile news prove persistent core cpi inflation exclude energy food beverage tobacco rise february january percentage point high expectation time february report bank expect cpi inflation fall significantly low rate anticipate february report low expect rate development administer energy price retail gas electricity price currently subject government energy price guarantee epg spring budget government announce epg maintain typical dual fuel bill month april change epg represent downside news outlook household energy price lower directly forecast cpi inflation percentage point equal measure announce budget freezing fuel duty contribute percentage point downside news inflation forecast april staff expect cpi inflation decline fall wholesale gas future price level future price sustain mean epg bind household energy bill july instead ofgem price cap set price domestic energy bill reset month ofgem method late bank estimate suggest direct energy contribution cpi inflation turn negative end year household business short term inflation expectation continue fall quarterly bank ipsos survey report fall year ahead inflation expectation contrast measure year ahead inflation expectation citi yougov survey household edge february remain materially peak observe august dmp survey report business expectation price year ahead fall february albeit remain elevated level bank ipsos measure household two- year ahead inflation expectation close historical average committee discuss persistence inflation service cpi inflation reach february expect unchanged near term continue pass labour cost easing pay growth expect february report appear evident late indicator labour market remain tight news previous mpc point strong expect employment growth flat rise unemployment rate immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection annual cpi inflation expect fall sharply end year alongside shallow project decline output november report forecast condition market imply path bank rate time increase degree economic slack alongside fall external pressure lead cpi inflation decline target medium term considerable uncertainty medium term outlook committee judge risk inflation skew significantly upside previous mpc considerable news global domestic economic datum relative near term projection february report global growth expect strong project gdp long expect contract china euro area core consumer price inflation advanced economy remain elevated wholesale gas future oil price fall materially gdp expect increase slightly compare decline anticipate february report labour market remain tight unemployment rate month january rise employment counterpart fall inactivity rate news mpc previous point strong expect employment growth flat rise unemployment rate additional fiscal support announce spring budget bank provisionally estimate relative february report increase level gdp coming year assessment include extent measure affect supply demand medium term conduct ahead monetary policy report month cpi inflation fall december january rise february percentage point high expect february report service cpi inflation february percentage point weak expect time february report food core good price inflation significantly strong project surprising strength core good component account high clothing footwear price tend volatile prove persistent annual private sector regular earning growth ease month january percentage point expectation february month month growth measure pay fall significantly month cpi inflation expect fall significantly low rate anticipate february report low expect rate near term news budget include energy price guarantee alongside fall wholesale energy price previous mpc service cpi inflation expect unchanged near term wage growth fall somewhat quickly project february report low path energy price unwind term trade shock household business experience direct contribution household energy price cpi inflation expect turn negative end year act reduce inflation indirectly dissipation round effect low energy price boost activity take demand news push gdp employment equal time upward pressure inflation large volatile move global financial market particular failure silicon valley bank run ubs purchase credit suisse reflect market concern possible broad impact event overall government bond yield unchanged risky asset price somewhat low time committee previous bank england financial policy committee fpc brief mpc global banking sector development fpc judge banking system maintain robust capital strong liquidity position place support economy wide range economic scenario include period high interest rate fpc assessment banking system remain resilient reflect development wholesale funding cost rise united kingdom advanced economy mpc monitor closely effect credit condition face household business impact macroeconomic inflation outlook mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant considerable news previous mpc evaluate framework monitor persistence inflationary pressure set february minute nominal wage growth weak expect labour market remain tight unemployment rate expect flat rise service cpi inflation line expectation alongside development headline cpi inflation surprise significantly upside near term path gdp somewhat strong expect previously member weight possibility strong domestic global outlook demand drive factor weak path energy price give strengthening precede fall price renew sustain demand labour reinforce persistence high cost consumer price round effect relate energy price inflation diminish member prefer leave bank rate unchanged effect energy price shock cost push shock unwound headline cpi inflation fall sharply reduce associated persistence domestic price setting time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse extent domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty financial economic outlook rise mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service inflation evidence persistent pressure tightening monetary policy require mpc assessment news february report include economic implication financial market banking sector development forthcoming forecast round mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration march total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro clare lombardelli treasury representative occasion final chair express appreciation behalf committee clare lombardelli role treasury representative

monetary policy summary bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate committee update projection activity inflation set accompanying monetary policy report condition market imply path bank rate peak 4¾% end forecast period 3½% upside news near term outlook global activity weight world gdp expect grow moderate pace forecast period risk absent shock small impact gdp tightening credit condition relate global banking sector development headline inflation fall united states euro area core inflation measure elevated gdp expect flat half year underlying output exclude estimate impact strike extra holiday project grow modestly economic activity weak expect february committee judge path demand materially strong expect february report albeit subdue historical standard improved outlook reflect strong global growth low energy price fiscal support spring budget possibility tight labour market lead low precautionary saving household indication labour market start loosen expect tight february report near term unemployment rate project end rise half forecast period 4½% cpi inflation high expect time february march mpc meeting upside surprise concentrate core good food price elevated nominal private sector wage growth service cpi inflation close expectation cpi inflation expect fall sharply april large rise price level year ago drop annual comparison addition extension spring budget energy price guarantee decline wholesale energy price lower contribution household energy bill cpi inflation food price inflation fall slowly previously expect alongside news good price explain committee modal expectation cpi inflation fall slowly february report mpc late modal projection condition market interest rate cpi inflation decline little year horizon materially target reflect emergence increase degree economic slack decline external pressure expect reduce cpi inflation considerable uncertainty pace cpi inflation return sustainably target committee continue judge risk inflation forecast skew significantly upside reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation profile incorporate risk target medium term mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point mpc continue address risk persistent strength domestic price wage setting represent upward skew project distribution cpi inflation pace domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty global financial economic outlook elevated mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying monetary policy report late international economic datum suggest gdp growth strong february monetary policy report forecast united kingdom main trading partner committee note reflect different factor region instance activity china particularly service sector surprise upside follow end covid policy euro area economy resilient expect previous sharp rise energy price export support strong growth china united states robust labour market high post tax income follow increase income tax threshold come effect january reflect strong expect household consumption absolute term global output growth expect somewhat weak pre pandemic average committee note headline inflation remain elevate fall united states euro area core inflation measure flat high rate addition late development monetary financial condition committee discuss divergence movement market interest rate failure silicon valley bank svb short term interest rate united kingdom rise similar level see failure svb united states remain low level reach time svb failure market contact note attribute specific factor cpi inflation have high expect specific factor credit condition expect somewhat tight give stress experience medium sized bank follow sign improvement official estimate activity business survey bank increase estimate underlie quarterly gdp growth half year committee discuss potential factor upside news demand high energy tradable good price depressed activity external shock begin abate great degree assume previous forecast condition high prevail commodity future price business household appear resilient shock crystallise support fiscal policy household spending support strength labour market continue employment growth boost income reduce extent precautionary saving committee discuss domestic inflationary pressure evolve indicator tightness vacancy unemployment ratio report recruitment difficulty continue point loosening labour market albeit remain high historical standard annual private sector regular pay growth close expectation month consistent easing high frequency pay growth datum continue risk pay growth plateau rate consistent inflation target sustainably medium term labour market tight household real income weak short term inflation expectation elevate similarly business rebuild expand margin demand firm month cpi inflation remain march high expect precede forecast service cpi inflation line expectation material upside news food core good price food price inflation reach historical high close component cpi basket particularly salient household potentially inflation expectation contact bank agents expect easing cost pressure associate low commodity price broad improvement supply condition pass consumer good price time work supply chain committee judge process slow food price previously anticipate immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment recent global economic development reinforce mpc time march economic activity resilient expect time february report bank expect underlie gdp grow compare expectation february report negative growth indication labour market start loosen vacancy unemployment ratio continue fall contact bank agents report recruitment difficulty ease availability increase late kpmg rec report jobs nonetheless labour market tight expect february employment growth month february expect strong project february report unemployment rate project flat compare projection february month cpi inflation high expect reflect upside news food good price inflation service cpi inflation line expectation annual private sector regular pay growth month february close february report forecast kpmg rec permanent salary index tend lead ons measure private sector pay growth flatten month follow marked fall summer indicator household business inflation expectation fall slightly elevated level set accompanying monetary policy report mpc update projection show cpi inflation expect fall sharply april large price rise year ago drop annual comparison addition extension spring budget energy price guarantee decline wholesale energy price lower contribution household energy bill cpi inflation update analysis report agents contact suggest food price inflation fall slowly previously expect alongside news good price explain committee modal expectation cpi inflation fall slowly february report economic activity weak expect february committee judge path demand materially strong february report albeit subdue historical standard improved outlook reflect strong global growth low energy price fiscal support spring budget possibility tight labour market lead low precautionary saving household give lag monetary policy transmission increase bank rate december expect increase impact economy come quarter unemployment rate project end rise half forecast period 4½% mpc late modal projection condition market interest rate cpi inflation decline little year horizon materially target reflect emergence increase degree economic slack decline external pressure expect reduce cpi inflation considerable uncertainty pace cpi inflation return sustainably target committee continue judge risk inflation forecast skew significantly upside staff analysis explore range channel associate persistence wage price setting environment committee discuss possibility round effect external cost shock inflation wage domestic price long unwind emerge risk inherently difficult quantify precisely motivate committee choice include skew modal projection mean cpi inflation profile incorporate risk target medium term bank england financial policy committee fpc continue brief mpc banking sector development fpc continue judge banking system resilient maintain robust capital strong liquidity position resilient economic outlook capacity support economy period high interest rate economic condition bad forecast fpc monitor development jurisdiction closely light risk indirect spillover overseas bank impact wide financial system impact global banking sector development domestic credit condition gdp expect small mpc monitor closely effect credit condition face household business mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant important address risk persistent strength domestic price wage setting represent upward skew project distribution cpi inflation cpi inflation strong expect owe high food good price service cpi inflation wage growth elevate close expectation indication labour market begin loosen path unemployment project low february gdp growth strong expect expect high forecast period february member repeat surprise resilience demand labour market remain tight circumstance domestic price pressure risk persistent report projection cpi inflation project long return target condition high path bank rate remain risk round effect external cost shock inflation wage domestic price long unwind emerge percentage point increase bank rate well manage upside risk inflation outlook context prolonged return inflation target materially strong project demand member prefer leave bank rate unchanged effect energy price shock cost push shock unwound headline cpi inflation fall sharply reduce associated persistence domestic price setting time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse pace domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty global financial economic outlook remain elevated mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase february mpc vote unwind fully stock sterling non financial investment grade corporate bond purchase early end december committee note content initial rate reduction stock sustain permit early unwind portfolio originally anticipate consistent indication corporate bond sale continue progress absorb smoothly market sale programme expect conclude come week small number short maturity bond hold announce bank outset sale programme mature fully april follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro james bowler treasury representative permit bank england act amend bank england financial services act david roberts observer purpose exercise oversight function role bank court directors monetary policy summary bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate committee update projection activity inflation set accompanying monetary policy report condition market imply path bank rate peak 4¾% end forecast period 3½% upside news near term outlook global activity weight world gdp expect grow moderate pace forecast period risk absent shock small impact gdp tightening credit condition relate global banking sector development headline inflation fall united states euro area core inflation measure elevated gdp expect flat half year underlying output exclude estimate impact strike extra holiday project grow modestly economic activity weak expect february committee judge path demand materially strong expect february report albeit subdue historical standard improved outlook reflect strong global growth low energy price fiscal support spring budget possibility tight labour market lead low precautionary saving household indication labour market start loosen expect tight february report near term unemployment rate project end rise half forecast period 4½% cpi inflation high expect time february march mpc meeting upside surprise concentrate core good food price elevated nominal private sector wage growth service cpi inflation close expectation cpi inflation expect fall sharply april large rise price level year ago drop annual comparison addition extension spring budget energy price guarantee decline wholesale energy price lower contribution household energy bill cpi inflation food price inflation fall slowly previously expect alongside news good price explain committee modal expectation cpi inflation fall slowly february report mpc late modal projection condition market interest rate cpi inflation decline little year horizon materially target reflect emergence increase degree economic slack decline external pressure expect reduce cpi inflation considerable uncertainty pace cpi inflation return sustainably target committee continue judge risk inflation forecast skew significantly upside reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation profile incorporate risk target medium term mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target committee vote increase bank rate percentage point mpc continue address risk persistent strength domestic price wage setting represent upward skew project distribution cpi inflation pace domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty global financial economic outlook elevated mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying monetary policy report late international economic datum suggest gdp growth strong february monetary policy report forecast united kingdom main trading partner committee note reflect different factor region instance activity china particularly service sector surprise upside follow end covid policy euro area economy resilient expect previous sharp rise energy price export support strong growth china united states robust labour market high post tax income follow increase income tax threshold come effect january reflect strong expect household consumption absolute term global output growth expect somewhat weak pre pandemic average committee note headline inflation remain elevate fall united states euro area core inflation measure flat high rate addition late development monetary financial condition committee discuss divergence movement market interest rate failure silicon valley bank svb short term interest rate united kingdom rise similar level see failure svb united states remain low level reach time svb failure market contact note attribute specific factor cpi inflation have high expect specific factor credit condition expect somewhat tight give stress experience medium sized bank follow sign improvement official estimate activity business survey bank increase estimate underlie quarterly gdp growth half year committee discuss potential factor upside news demand high energy tradable good price depressed activity external shock begin abate great degree assume previous forecast condition high prevail commodity future price business household appear resilient shock crystallise support fiscal policy household spending support strength labour market continue employment growth boost income reduce extent precautionary saving committee discuss domestic inflationary pressure evolve indicator tightness vacancy unemployment ratio report recruitment difficulty continue point loosening labour market albeit remain high historical standard annual private sector regular pay growth close expectation month consistent easing high frequency pay growth datum continue risk pay growth plateau rate consistent inflation target sustainably medium term labour market tight household real income weak short term inflation expectation elevate similarly business rebuild expand margin demand firm month cpi inflation remain march high expect precede forecast service cpi inflation line expectation material upside news food core good price food price inflation reach historical high close component cpi basket particularly salient household potentially inflation expectation contact bank agents expect easing cost pressure associate low commodity price broad improvement supply condition pass consumer good price time work supply chain committee judge process slow food price previously anticipate immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment recent global economic development reinforce mpc time march economic activity resilient expect time february report bank expect underlie gdp grow compare expectation february report negative growth indication labour market start loosen vacancy unemployment ratio continue fall contact bank agents report recruitment difficulty ease availability increase late kpmg rec report jobs nonetheless labour market tight expect february employment growth month february expect strong project february report unemployment rate project flat compare projection february month cpi inflation high expect reflect upside news food good price inflation service cpi inflation line expectation annual private sector regular pay growth month february close february report forecast kpmg rec permanent salary index tend lead ons measure private sector pay growth flatten month follow marked fall summer indicator household business inflation expectation fall slightly elevated level set accompanying monetary policy report mpc update projection show cpi inflation expect fall sharply april large price rise year ago drop annual comparison addition extension spring budget energy price guarantee decline wholesale energy price lower contribution household energy bill cpi inflation update analysis report agents contact suggest food price inflation fall slowly previously expect alongside news good price explain committee modal expectation cpi inflation fall slowly february report economic activity weak expect february committee judge path demand materially strong february report albeit subdue historical standard improved outlook reflect strong global growth low energy price fiscal support spring budget possibility tight labour market lead low precautionary saving household give lag monetary policy transmission increase bank rate december expect increase impact economy come quarter unemployment rate project end rise half forecast period 4½% mpc late modal projection condition market interest rate cpi inflation decline little year horizon materially target reflect emergence increase degree economic slack decline external pressure expect reduce cpi inflation considerable uncertainty pace cpi inflation return sustainably target committee continue judge risk inflation forecast skew significantly upside staff analysis explore range channel associate persistence wage price setting environment committee discuss possibility round effect external cost shock inflation wage domestic price long unwind emerge risk inherently difficult quantify precisely motivate committee choice include skew modal projection mean cpi inflation profile incorporate risk target medium term bank england financial policy committee fpc continue brief mpc banking sector development fpc continue judge banking system resilient maintain robust capital strong liquidity position resilient economic outlook capacity support economy period high interest rate economic condition bad forecast fpc monitor development jurisdiction closely light risk indirect spillover overseas bank impact wide financial system impact global banking sector development domestic credit condition gdp expect small mpc monitor closely effect credit condition face household business mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance economy subject sequence large overlap shock monetary policy ensure adjustment shock continue cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target member judge percentage point increase bank rate warrant important address risk persistent strength domestic price wage setting represent upward skew project distribution cpi inflation cpi inflation strong expect owe high food good price service cpi inflation wage growth elevate close expectation indication labour market begin loosen path unemployment project low february gdp growth strong expect expect high forecast period february member repeat surprise resilience demand labour market remain tight circumstance domestic price pressure risk persistent report projection cpi inflation project long return target condition high path bank rate remain risk round effect external cost shock inflation wage domestic price long unwind emerge percentage point increase bank rate well manage upside risk inflation outlook context prolonged return inflation target materially strong project demand member prefer leave bank rate unchanged effect energy price shock cost push shock unwound headline cpi inflation fall sharply reduce associated persistence domestic price setting time lag effect monetary policy mean sizeable impact past rate increase come imply setting bank rate reduce inflation target medium term policy setting increasingly restrictive bring forward point rate increase need reverse pace domestic inflationary pressure ease depend evolution economy include impact significant increase bank rate far uncertainty global financial economic outlook remain elevated mpc monitor closely indication persistent inflationary pressure include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase february mpc vote unwind fully stock sterling non financial investment grade corporate bond purchase early end december committee note content initial rate reduction stock sustain permit early unwind portfolio originally anticipate consistent indication corporate bond sale continue progress absorb smoothly market sale programme expect conclude come week small number short maturity bond hold announce bank outset sale programme mature fully april follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro james bowler treasury representative permit bank england act amend bank england financial services act david roberts observer purpose exercise oversight function role bank court directors

monetary policy summary june bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate time previous mpc monetary policy report market imply path bank rate average year gilt yield rise materially particularly short maturity suggest path bank rate average 5½% mortgage rate rise notably sterling effective exchange rate appreciate committee continue monitor closely impact significant increase bank rate far set report great share fix rate mortgage mean impact increase bank rate date feel time business survey underlie quarterly gdp growth middle year indicator household spending tend strengthen little lfs employment increase month april high expect time report counterpart strong employment growth fall inactivity rate unemployment rate flat line report vacancy unemployment ratio fall remain significantly elevated annual growth private sector regular average weekly earnings awe increase month april percentage point expectation time report month month growth measure pay pick indication future pay growth kpmg rec survey bank agents awe growth ease rest year month cpi inflation fall march april remain rate percentage point high expect report service cpi inflation rise percentage point strong expect time report core good price inflation strong project general news component imply persistent inflationary pressure cpi inflation expect fall significantly course year main reflect development energy price service cpi inflation project unchanged near term core good cpi inflation expect decline later year support development cost price indicator early supply chain particular annual producer output price inflation fall sharply month food price inflation project fall coming month mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc recognise round effect domestic price wage development generate external cost shock long unwind emerge significant upside news datum indicate persistence inflation process background tight labour market continued resilience demand committee vote increase bank rate percentage point mpc monitor closely indication persistent inflationary pressure economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end june turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp growth expect marginally strong anticipate time monetary policy report follow slightly weak expect outturn acute risk global banking sector stress appear fade follow end covid policy december growth momentum china appear slow line expectation time report recent weakness chinese tradable good price start downward pressure world export price inflation labour market remain tight euro area united states unemployment rate remain close historically low level alongside flat rise labour participation rate elevated decline vacancy unemployment ratio strong wage pressure continue labour market tightness contribute elevated service price inflation region european wholesale spot future gas price relatively volatile give change long range weather forecast disruption supply norway end period mpc previous little change brent crude oil spot price decline mpc previous barrel agricultural commodity price unchanged headline consumer price inflation continue decline euro area united states annual euro area hicp inflation decrease april account mainly continue fall energy price inflation decline annual core hicp inflation pronounce service price inflation remain high core good price inflation continue decline gradually united states headline cpi inflation fall percentage point consistent annual pce inflation have decline cpi inflation core good service inflation remain april level core good inflation significantly peak monetary financial condition end june federal open market committee leave fund rate unchanged end june ecb governing council raise key policy rate basis point line market expectation united kingdom market path imply bank rate follow average 5½% year compare conditioning assumption underpin monetary policy report material increase short long term government bond yield globally particularly pronounce united kingdom mpc previous year overnight index swap ois rate year forward increase basis point respectively euro area united states united kingdom year government bond yield increase basis point respectively germany united states united kingdom committee discuss possible driver increase interest rate positive news datum united states resolution debt ceiling negotiation downside risk relate banking sector stress see march perceive recede somewhat factor impact globally movement rate large major advanced economy leave ois curve high flat euro area counterpart reflect news continued resilience demand great degree appear reflect increase market participant expectation inflation persistence median respondent bank late market participants survey maps conduct late labour market cpi release expect cpi inflation year ahead respectively compare previous survey evidence market pricing sensitive economic datum outturn usual past decade recent datum release accompany large movement ois curve surprise similar magnitude generate previously notably response material upside surprise datum release cpi inflation labour market map respondent cite evolution wage growth labour market tightness service price inflation important indicator form expectation evolution monetary policy line mpc communication medium term inflation compensation measure united kingdom united states euro area increase little mpc previous interpret movement medium term inflation compensation measure continue challenge measure materially low peak march remain average level previous decade map respondent expectation cpi inflation year ahead remain unchanged survey sterling effective exchange rate appreciate end period high time mpc previous high beginning focus equity price fall mpc previous contrast increase major equity index united states euro area owner occupy fix term mortgage rate pick materially mpc previous follow period decline month reflect pass increase risk free reference rate market share weight average quote rate year fix rate loan value mortgage increase basis point mpc year equivalent increase basis point net decline number owner occupy mortgage product available borrower mpc previous net secured lending household decrease somewhat april unusually net outflow compare roughly march mortgage approval house purchase fall april remain average level previous month deposit rate increase line previous trend see cycle time deposit rate move materially mpc previous response high reference rate sight deposit rate rise reflect relative movement remuneration shift deposit volume instant access account time deposit previous month substitution internalise flow sterling broad money grow annual rate april slightly march demand output accord ons quarterly estimate real gdp increase marginally strong expect monetary policy report household consumption rise business investment estimate increase housing investment fall leave level low monthly gdp increase april follow fall march leave close pre pandemic level market sector output rise april rise trend month contrast flat profile gdp divergence reflect impact strike activity volume public sector output business survey continue underlying pace quarterly gdp growth take account impact idiosyncratic factor include additional holiday bank expect headline gdp flat line projection report outlook uncertain bank continue judge underlie quarterly growth rate reasonable projection consistent strong headline gdp growth impact idiosyncratic factor unwound bank agents note slight pickup outlook underlie activity s&p global cips composite pmi output expectation index point increase underlie growth momentum indicator household spending tend strengthen little month albeit weak level case quarterly retail sale volume grow time month consumer confidence continue pick contact bank agents report consumer demand resilient expect good service increase mortgage rate far cycle lead high aggregate interest payment household metric rise supply cost price labour force survey lfs employment increase month april percentage point high expect time monetary policy report decline unemployment counterpart strong employment growth fall population inactivity rate particularly student reach low level spring hmrc paye employee payroll s&p global cips pmi composite employment index continue point employment growth somewhat soft lfs base estimate measure labour market tightness continue ease labour market remain tight historical standard lfs unemployment rate flat month april consistent expectation time report vacancy unemployment ratio fall month april low level october significantly elevate compare pre covid level number job job flow decline level observe pre covid recruitment employment consultancy respond kpmg rec survey indicate availability continue improve bank agents contact report recruitment difficulty continue ease recruitment difficult normal annual private sector regular average weekly earnings awe growth increase percentage point month april percentage point expectation time report pick annual pay growth time report concentrate higher pay sector financial business service pay growth lower pay sector like wholesaling retailing hotel restaurant flat month month growth private sector regular pay strong rise annualise rate april march contrast notably fall growth rate july february countervail sign soften pay growth kpmg rec survey measure pay permanent hire historically lead awe pay growth year decline have stable low level october indicator point risk private sector regular pay growth ease expect report rest year bank agent contact report pay settlement half year somewhat low half low near term inflation expectation loose labour market expect play role month cpi inflation unchanged april release trigger exchange open letter governor chancellor exchequer publish alongside minute figure percentage point high expectation time report upside cpi news report concentrate core component core good account majority news core good inflation rate rise purchase vehicle recreational good account majority news surprise strength vehicle price appear relate temporary supply shortage year old car reflect lack car production owe early semi conductor shortage coincide age range car ons collect price non energy good import price rise suggest core good manufacturer retailer face high cost bank analysis suggest world export price account significant share elevated core good cpi inflation service cpi inflation rise april percentage point strong expect report partly reflect sharp rise measured vehicle excise duty rate airfare package holiday account upside news airfare volatile component basket news appear reflect timing easter april food cpi inflation edge softening annual food price inflation united kingdom appear follow development euro area country albeit somewhat lag consistent global nature shock food price cpi inflation expect fall significantly course year main reflect development energy price energy price expect drag cpi inflation october resetting ofgem price cap face household time considerable uncertainty outlook household energy price relevant observation window october price cap pass far core good inflation expect elevated near term indicator manufacture cost pressure continue ease producer price index ppi input output price inflation moderate respectively consistent development united states euro area core good cpi inflation diverge manufacture ppi inflation recently historically series show strong movement possibility reassertion historical association near term pose downside risk outlook core good cpi inflation continued pass service provider cost include labour cost expect service price inflation elevate near term bank agents consumer service contact report absorb fair proportion cost increase pass consumer price food cpi inflation expect ease near term reflect waning pass previous shock fall cost inflation food supply chain household business short term inflation expectation ease remain somewhat historical average household median year inflation expectation measure bank ipsos citi yougov survey fall decision maker panel survey suggest business expectation price year ahead decline household median medium term inflation expectation close historical average late release major survey bank ipsos year ahead measure pre covid average successive citi yougov year ahead measure fall standard deviation pre covid average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee late projection activity inflation set monetary policy report condition market imply path bank rate average year modal case cpi inflation expect decline little year horizon materially target reflect project emergence increase degree economic slack decline external pressure expect reduce cpi inflation committee continue judge risk inflation projection skew significantly upside reflect potential persistent strength domestic price wage setting previous mpc material news number economic data outturn include committee note monitor closely indicator persistent inflationary pressure lfs employment increase month april high expect time report counterpart strong employment growth fall inactivity rate unemployment rate flat line report vacancy unemployment ratio fall remain significantly elevated annual growth private sector regular average weekly earnings awe increase month april percentage point expectation time report indication future pay growth kpmg rec survey bank agents suggest awe growth ease rest year month cpi inflation fall march april remain rate percentage point high expect report service cpi inflation rise percentage point strong expect time report cpi inflation expect fall significantly course year main reflect development energy price service cpi inflation project unchanged near term core good cpi inflation expect decline later year support development cost price indicator early supply chain particular annual producer output price inflation fall sharply month food price inflation project fall coming month committee continue monitor closely impact significant increase bank rate far set report great share fix rate mortgage mean impact increase bank rate date feel time committee recognise important development rental market mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target household business short term inflation expectation ease remain somewhat historical average household median medium term inflation expectation close historical average late release major survey medium term inflation compensation measure financial market increase little mpc previous average level previous decade member judge percentage point increase bank rate warrant round effect domestic price wage development generate external cost shock long unwind emerge significant upside news datum indicate persistence inflation process background tight labour market continued resilience demand indicator future pay growth good inflation weaken property leading indicator test similar period high inflation scale upside surprise official estimate wage growth service cpi inflation suggest percentage point increase interest rate require particular member prefer leave bank rate unchanged main factor underlie vote energy price shock global cost push shock continue reverse course good price inflation fall sharply lag reduce associated persistence domestic wage price setting contrast strength outturn forward look indicator point material fall future wage price inflation lag effect monetary policy mean sizable impact past rate increase come include additional rate increase carry month offset additional persistence imply late datum setting bank rate reduce inflation target medium term recent substantial increase market yield accentuate mainly affect inflation late point energy price fall peak past rate rise lower inflation significantly mpc monitor closely indication persistent inflationary pressure economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration june total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro sam beckett treasury representative behalf committee chair express appreciation silvana tenreyro contribution work mpc monetary policy summary june bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote majority 7–2 increase bank rate percentage point member prefer maintain bank rate time previous mpc monetary policy report market imply path bank rate average year gilt yield rise materially particularly short maturity suggest path bank rate average 5½% mortgage rate rise notably sterling effective exchange rate appreciate committee continue monitor closely impact significant increase bank rate far set report great share fix rate mortgage mean impact increase bank rate date feel time business survey underlie quarterly gdp growth middle year indicator household spending tend strengthen little lfs employment increase month april high expect time report counterpart strong employment growth fall inactivity rate unemployment rate flat line report vacancy unemployment ratio fall remain significantly elevated annual growth private sector regular average weekly earnings awe increase month april percentage point expectation time report month month growth measure pay pick indication future pay growth kpmg rec survey bank agents awe growth ease rest year month cpi inflation fall march april remain rate percentage point high expect report service cpi inflation rise percentage point strong expect time report core good price inflation strong project general news component imply persistent inflationary pressure cpi inflation expect fall significantly course year main reflect development energy price service cpi inflation project unchanged near term core good cpi inflation expect decline later year support development cost price indicator early supply chain particular annual producer output price inflation fall sharply month food price inflation project fall coming month mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc recognise round effect domestic price wage development generate external cost shock long unwind emerge significant upside news datum indicate persistence inflation process background tight labour market continued resilience demand committee vote increase bank rate percentage point mpc monitor closely indication persistent inflationary pressure economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit minute monetary policy committee end june turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp growth expect marginally strong anticipate time monetary policy report follow slightly weak expect outturn acute risk global banking sector stress appear fade follow end covid policy december growth momentum china appear slow line expectation time report recent weakness chinese tradable good price start downward pressure world export price inflation labour market remain tight euro area united states unemployment rate remain close historically low level alongside flat rise labour participation rate elevated decline vacancy unemployment ratio strong wage pressure continue labour market tightness contribute elevated service price inflation region european wholesale spot future gas price relatively volatile give change long range weather forecast disruption supply norway end period mpc previous little change brent crude oil spot price decline mpc previous barrel agricultural commodity price unchanged headline consumer price inflation continue decline euro area united states annual euro area hicp inflation decrease april account mainly continue fall energy price inflation decline annual core hicp inflation pronounce service price inflation remain high core good price inflation continue decline gradually united states headline cpi inflation fall percentage point consistent annual pce inflation have decline cpi inflation core good service inflation remain april level core good inflation significantly peak monetary financial condition end june federal open market committee leave fund rate unchanged end june ecb governing council raise key policy rate basis point line market expectation united kingdom market path imply bank rate follow average 5½% year compare conditioning assumption underpin monetary policy report material increase short long term government bond yield globally particularly pronounce united kingdom mpc previous year overnight index swap ois rate year forward increase basis point respectively euro area united states united kingdom year government bond yield increase basis point respectively germany united states united kingdom committee discuss possible driver increase interest rate positive news datum united states resolution debt ceiling negotiation downside risk relate banking sector stress see march perceive recede somewhat factor impact globally movement rate large major advanced economy leave ois curve high flat euro area counterpart reflect news continued resilience demand great degree appear reflect increase market participant expectation inflation persistence median respondent bank late market participants survey maps conduct late labour market cpi release expect cpi inflation year ahead respectively compare previous survey evidence market pricing sensitive economic datum outturn usual past decade recent datum release accompany large movement ois curve surprise similar magnitude generate previously notably response material upside surprise datum release cpi inflation labour market map respondent cite evolution wage growth labour market tightness service price inflation important indicator form expectation evolution monetary policy line mpc communication medium term inflation compensation measure united kingdom united states euro area increase little mpc previous interpret movement medium term inflation compensation measure continue challenge measure materially low peak march remain average level previous decade map respondent expectation cpi inflation year ahead remain unchanged survey sterling effective exchange rate appreciate end period high time mpc previous high beginning focus equity price fall mpc previous contrast increase major equity index united states euro area owner occupy fix term mortgage rate pick materially mpc previous follow period decline month reflect pass increase risk free reference rate market share weight average quote rate year fix rate loan value mortgage increase basis point mpc year equivalent increase basis point net decline number owner occupy mortgage product available borrower mpc previous net secured lending household decrease somewhat april unusually net outflow compare roughly march mortgage approval house purchase fall april remain average level previous month deposit rate increase line previous trend see cycle time deposit rate move materially mpc previous response high reference rate sight deposit rate rise reflect relative movement remuneration shift deposit volume instant access account time deposit previous month substitution internalise flow sterling broad money grow annual rate april slightly march demand output accord ons quarterly estimate real gdp increase marginally strong expect monetary policy report household consumption rise business investment estimate increase housing investment fall leave level low monthly gdp increase april follow fall march leave close pre pandemic level market sector output rise april rise trend month contrast flat profile gdp divergence reflect impact strike activity volume public sector output business survey continue underlying pace quarterly gdp growth take account impact idiosyncratic factor include additional holiday bank expect headline gdp flat line projection report outlook uncertain bank continue judge underlie quarterly growth rate reasonable projection consistent strong headline gdp growth impact idiosyncratic factor unwound bank agents note slight pickup outlook underlie activity s&p global cips composite pmi output expectation index point increase underlie growth momentum indicator household spending tend strengthen little month albeit weak level case quarterly retail sale volume grow time month consumer confidence continue pick contact bank agents report consumer demand resilient expect good service increase mortgage rate far cycle lead high aggregate interest payment household metric rise supply cost price labour force survey lfs employment increase month april percentage point high expect time monetary policy report decline unemployment counterpart strong employment growth fall population inactivity rate particularly student reach low level spring hmrc paye employee payroll s&p global cips pmi composite employment index continue point employment growth somewhat soft lfs base estimate measure labour market tightness continue ease labour market remain tight historical standard lfs unemployment rate flat month april consistent expectation time report vacancy unemployment ratio fall month april low level october significantly elevate compare pre covid level number job job flow decline level observe pre covid recruitment employment consultancy respond kpmg rec survey indicate availability continue improve bank agents contact report recruitment difficulty continue ease recruitment difficult normal annual private sector regular average weekly earnings awe growth increase percentage point month april percentage point expectation time report pick annual pay growth time report concentrate higher pay sector financial business service pay growth lower pay sector like wholesaling retailing hotel restaurant flat month month growth private sector regular pay strong rise annualise rate april march contrast notably fall growth rate july february countervail sign soften pay growth kpmg rec survey measure pay permanent hire historically lead awe pay growth year decline have stable low level october indicator point risk private sector regular pay growth ease expect report rest year bank agent contact report pay settlement half year somewhat low half low near term inflation expectation loose labour market expect play role month cpi inflation unchanged april release trigger exchange open letter governor chancellor exchequer publish alongside minute figure percentage point high expectation time report upside cpi news report concentrate core component core good account majority news core good inflation rate rise purchase vehicle recreational good account majority news surprise strength vehicle price appear relate temporary supply shortage year old car reflect lack car production owe early semi conductor shortage coincide age range car ons collect price non energy good import price rise suggest core good manufacturer retailer face high cost bank analysis suggest world export price account significant share elevated core good cpi inflation service cpi inflation rise april percentage point strong expect report partly reflect sharp rise measured vehicle excise duty rate airfare package holiday account upside news airfare volatile component basket news appear reflect timing easter april food cpi inflation edge softening annual food price inflation united kingdom appear follow development euro area country albeit somewhat lag consistent global nature shock food price cpi inflation expect fall significantly course year main reflect development energy price energy price expect drag cpi inflation october resetting ofgem price cap face household time considerable uncertainty outlook household energy price relevant observation window october price cap pass far core good inflation expect elevated near term indicator manufacture cost pressure continue ease producer price index ppi input output price inflation moderate respectively consistent development united states euro area core good cpi inflation diverge manufacture ppi inflation recently historically series show strong movement possibility reassertion historical association near term pose downside risk outlook core good cpi inflation continued pass service provider cost include labour cost expect service price inflation elevate near term bank agents consumer service contact report absorb fair proportion cost increase pass consumer price food cpi inflation expect ease near term reflect waning pass previous shock fall cost inflation food supply chain household business short term inflation expectation ease remain somewhat historical average household median year inflation expectation measure bank ipsos citi yougov survey fall decision maker panel survey suggest business expectation price year ahead decline household median medium term inflation expectation close historical average late release major survey bank ipsos year ahead measure pre covid average successive citi yougov year ahead measure fall standard deviation pre covid average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee late projection activity inflation set monetary policy report condition market imply path bank rate average year modal case cpi inflation expect decline little year horizon materially target reflect project emergence increase degree economic slack decline external pressure expect reduce cpi inflation committee continue judge risk inflation projection skew significantly upside reflect potential persistent strength domestic price wage setting previous mpc material news number economic data outturn include committee note monitor closely indicator persistent inflationary pressure lfs employment increase month april high expect time report counterpart strong employment growth fall inactivity rate unemployment rate flat line report vacancy unemployment ratio fall remain significantly elevated annual growth private sector regular average weekly earnings awe increase month april percentage point expectation time report indication future pay growth kpmg rec survey bank agents suggest awe growth ease rest year month cpi inflation fall march april remain rate percentage point high expect report service cpi inflation rise percentage point strong expect time report cpi inflation expect fall significantly course year main reflect development energy price service cpi inflation project unchanged near term core good cpi inflation expect decline later year support development cost price indicator early supply chain particular annual producer output price inflation fall sharply month food price inflation project fall coming month committee continue monitor closely impact significant increase bank rate far set report great share fix rate mortgage mean impact increase bank rate date feel time committee recognise important development rental market mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target household business short term inflation expectation ease remain somewhat historical average household median medium term inflation expectation close historical average late release major survey medium term inflation compensation measure financial market increase little mpc previous average level previous decade member judge percentage point increase bank rate warrant round effect domestic price wage development generate external cost shock long unwind emerge significant upside news datum indicate persistence inflation process background tight labour market continued resilience demand indicator future pay growth good inflation weaken property leading indicator test similar period high inflation scale upside surprise official estimate wage growth service cpi inflation suggest percentage point increase interest rate require particular member prefer leave bank rate unchanged main factor underlie vote energy price shock global cost push shock continue reverse course good price inflation fall sharply lag reduce associated persistence domestic wage price setting contrast strength outturn forward look indicator point material fall future wage price inflation lag effect monetary policy mean sizable impact past rate increase come include additional rate increase carry month offset additional persistence imply late datum setting bank rate reduce inflation target medium term recent substantial increase market yield accentuate mainly affect inflation late point energy price fall peak past rate rise lower inflation significantly mpc monitor closely indication persistent inflationary pressure economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc adjust bank rate necessary return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe jonathan haskel catherine mann huw pill dave ramsden vote favour proposition member swati dhingra silvana tenreyro vote proposition prefer maintain bank rate operational consideration june total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra jonathan haskel catherine mann huw pill dave ramsden silvana tenreyro sam beckett treasury representative behalf committee chair express appreciation silvana tenreyro contribution work mpc

monetary policy summary august bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end august mpc vote majority 6–3 increase bank rate percentage point member prefer increase bank rate percentage point prefer maintain bank rate committee update projection activity inflation set accompanying august monetary policy report condition market imply path bank rate rise peak average 5½% year forecast period compare average equivalent period time report sterling effective exchange rate high report underlie quarterly gdp growth half year bank expect similar growth rate near term reflect resilient household income retail sale volume business survey month indicator sign weakening include july s&p global cips composite pmi labour market remain tight indication loosen lfs unemployment rate rise month somewhat high expect report vacancy unemployment ratio continue fall remain historical average annual private sector regular pay growth increase month materially expectation time report month month growth measure pay pick earning growth expect decline come quarter end year uncertainty near term outlook month cpi inflation fall june low expect time committee previous core good service cpi inflation low expect downside news informative persistent inflationary pressure small compare report projection june cpi inflation line expectation cpi inflation remain target expect fall significantly end year account low energy less degree food core good price inflation service price inflation project elevated close rate near term mpc august modal projection condition market interest rate cpi inflation return target fall target medium term increase degree economic slack reduce domestic inflationary pressure alongside decline external cost pressure committee decide forecast bring upside risk inflation persistence modal projection push inflation projection medium term relative report committee continue judge risk modal inflation forecast skewed upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation incorporate risk year horizon respectively mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term recent data outturn mix key indicator notably wage growth risk persistent inflationary pressure begin crystallise committee vote increase bank rate percentage point give significant increase bank rate start tighten cycle monetary policy stance restrictive mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc ensure bank rate sufficiently restrictive sufficiently long return inflation target sustainably medium term line remit minute monetary policy committee end august turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying august monetary policy report committee discuss inflation evolve advanced economy include euro area united states headline consumer price inflation decrease significantly economy commodity price energy price fall supply chain bottleneck dissipate core inflation peak united states appear peak euro area consumer good price inflation decline service price inflation remain strong bank tighten monetary policy note policy dampen economic activity weight global growth prove resilient slow evident example interest sensitive component demand housing investment united states housing business investment euro area show sign weakness consumer spending united states resilient support build saving pandemic robustness labour market advanced economy labour market remain tight vacancy unemployment ratio wage growth united states start fall wage growth remain strong euro area remain see quickly persistent component inflation fall economy risk underlie inflationary pressure persist headline measure fall target late development monetary financial condition committee discuss evidence interest rate financial market sensitive economic datum outturn particularly united kingdom usual past decade market participant appear place weight usual data outturn leading indicator inflation persistence united kingdom respondent bank market participants survey continue cite evolution wage growth labour market tightness service price inflation important indicator form expectation evolution monetary policy line mpc communication series volatile month month committee discuss near term outlook economic activity bank expect underlie quarterly gdp growth consistent expectation time report continue resilience household spending support strength labour market activity nominal wage growth consistent number business survey month set committee note july indicator mixed decline flash s&p global cips composite pmi early sign resilient growth low consumer confidence great number contact bank agents report slowing outlook activity period recent increase market interest rate subsequent medium coverage increase mortgage cost contribute movement indicator committee discuss balance economic outlook impact high rate weigh consumer spending business investment upside impact income subside energy food price take factor suggest modestly positive underlie output growth half year committee discuss news indicator inflation persistence sign labour market loosen remain tight absolute term lfs unemployment rate rise month vacancy unemployment ratio continue decline recruitment difficulty appear ease somewhat annual private sector regular pay growth increase materially strong expect report month month growth measure pay pick recent outturn pay growth appear strong standard model base productivity short term inflation expectation measure economic slack predict great round effect rise inflation wage growth term trade shock affect economy suggest medium term equilibrium rate unemployment high wage growth expect strong near term risk upside surprise set development forward look indicator kpmg rec report jobs imply wage growth slow sharply anticipate half survey relationship official earning growth appear weaken recently month cpi inflation ease june line projection report reflect fall contribution energy less extent food price core good service cpi inflation strong expect time report elevated good price inflation continue broad base product slow producer price inflation suggest ease significantly end service cpi inflation project elevated near term mpc note strength reflect resilience demand strength nominal pay growth extent non labour input cost upside surprise reflect component service price idiosyncratic factor play immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee discuss evolution key economic indicator previous degree show continued resilience underlie quarterly gdp growth half year bank expect similar growth rate near term reflect resilient household income retail sale volume business survey month indicator show sign weakening include july s&p global cips composite pmi labour market remain tight indication loosen lfs unemployment rate rise month vacancy unemployment ratio continue fall remain historical average annual private sector regular pay growth increase month month month growth measure pay pick earning growth expect decline come quarter end year uncertainty near term outlook month cpi inflation fall june low expect time committee previous core good service cpi inflation low expect downside news informative persistent inflationary pressure small set accompanying august monetary policy report cpi inflation expect fall significantly end year account low energy less degree food core good price inflation service price inflation project elevated close rate near term past increase bank rate high path market interest rate august report forecast condition expect increasingly weigh activity inflation come quarter relative projection quarterly gdp growth expect weak forecast period particularly beginning increase degree economic slack expect emerge middle year unemployment rate project rise aggregate spare capacity unemployment increase somewhat committee late projection report reflect weak path gdp mpc august modal projection condition market interest rate cpi inflation return target fall target medium term increase degree economic slack reduce domestic inflationary pressure alongside decline external cost pressure committee decide forecast bring upside risk inflation persistence modal projection push inflation projection medium term relative report committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation incorporate risk year horizon respectively mpc note significant increase bank rate december yield curve period tighten stance monetary policy restrict demand relative supply effect build come quarter show mpc august modal mean projection mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target indicator household corporate inflation expectation tend decline mpc previous medium term inflation compensation measure financial market rise slightly remain long term average member judge percentage point increase bank rate warrant recent data outturn mix key indicator notably wage growth surprise significantly upside medium term equilibrium rate unemployment rise risk great persistence broad domestic inflationary pressure crystallise set unemployment rate increase little vacancy unemployment ratio decrease previous mpc indicator slow activity need weigh surprising resilience activity number quarter early conclude economy close significant turning point monetary stance weigh economic activity percentage point increase bank rate necessary address risk great inflation persistence member judge percentage point increase bank rate warrant member important lean actively inflation persistence describe august report successive forecast predict member note continue tightness labour market vacancy unemployment ratio fall long run average level high frequency private sector wage growth measure continue trend upwards consistent possibility equilibrium unemployment rate rise key metric include core service cpi inflation continue high member forceful increase bank rate help bring inflation target sustainably medium term reduce risk costly tightening later prefer leave bank rate unchanged policy stance increasingly restrictive long strong case tightening risk management ground instead risk overtightening continue build increase likelihood output loss volatility require sharp reversal policy lag effect monetary policy mean sizeable impact past rate increase come particularly cumulative impact housing cost recent news component consumer producer price inflation strongly indicate downward trajectory cpi inflation wage inflation strong business service real wage fall industry cover quarter employee give restrictive policy stance pay growth slow inflation salient item ease year labour market continue loosen give significant increase bank rate start tighten cycle monetary policy stance restrictive mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc ensure bank rate sufficiently restrictive sufficiently long return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe megan greene huw pill dave ramsden vote favour proposition member vote proposition member jonathan haskel catherine mann prefer increase bank rate percentage point swati dhingra prefer maintain bank rate operational consideration august total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase discuss box august monetary policy report committee vote target gilt stock reduction month period october september september follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative permit bank england act amend bank england financial services act david roberts july observer purpose exercise oversight function role bank court directors monetary policy summary august bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end august mpc vote majority 6–3 increase bank rate percentage point member prefer increase bank rate percentage point prefer maintain bank rate committee update projection activity inflation set accompanying august monetary policy report condition market imply path bank rate rise peak average 5½% year forecast period compare average equivalent period time report sterling effective exchange rate high report underlie quarterly gdp growth half year bank expect similar growth rate near term reflect resilient household income retail sale volume business survey month indicator sign weakening include july s&p global cips composite pmi labour market remain tight indication loosen lfs unemployment rate rise month somewhat high expect report vacancy unemployment ratio continue fall remain historical average annual private sector regular pay growth increase month materially expectation time report month month growth measure pay pick earning growth expect decline come quarter end year uncertainty near term outlook month cpi inflation fall june low expect time committee previous core good service cpi inflation low expect downside news informative persistent inflationary pressure small compare report projection june cpi inflation line expectation cpi inflation remain target expect fall significantly end year account low energy less degree food core good price inflation service price inflation project elevated close rate near term mpc august modal projection condition market interest rate cpi inflation return target fall target medium term increase degree economic slack reduce domestic inflationary pressure alongside decline external cost pressure committee decide forecast bring upside risk inflation persistence modal projection push inflation projection medium term relative report committee continue judge risk modal inflation forecast skewed upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation incorporate risk year horizon respectively mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term recent data outturn mix key indicator notably wage growth risk persistent inflationary pressure begin crystallise committee vote increase bank rate percentage point give significant increase bank rate start tighten cycle monetary policy stance restrictive mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc ensure bank rate sufficiently restrictive sufficiently long return inflation target sustainably medium term line remit minute monetary policy committee end august turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying august monetary policy report committee discuss inflation evolve advanced economy include euro area united states headline consumer price inflation decrease significantly economy commodity price energy price fall supply chain bottleneck dissipate core inflation peak united states appear peak euro area consumer good price inflation decline service price inflation remain strong bank tighten monetary policy note policy dampen economic activity weight global growth prove resilient slow evident example interest sensitive component demand housing investment united states housing business investment euro area show sign weakness consumer spending united states resilient support build saving pandemic robustness labour market advanced economy labour market remain tight vacancy unemployment ratio wage growth united states start fall wage growth remain strong euro area remain see quickly persistent component inflation fall economy risk underlie inflationary pressure persist headline measure fall target late development monetary financial condition committee discuss evidence interest rate financial market sensitive economic datum outturn particularly united kingdom usual past decade market participant appear place weight usual data outturn leading indicator inflation persistence united kingdom respondent bank market participants survey continue cite evolution wage growth labour market tightness service price inflation important indicator form expectation evolution monetary policy line mpc communication series volatile month month committee discuss near term outlook economic activity bank expect underlie quarterly gdp growth consistent expectation time report continue resilience household spending support strength labour market activity nominal wage growth consistent number business survey month set committee note july indicator mixed decline flash s&p global cips composite pmi early sign resilient growth low consumer confidence great number contact bank agents report slowing outlook activity period recent increase market interest rate subsequent medium coverage increase mortgage cost contribute movement indicator committee discuss balance economic outlook impact high rate weigh consumer spending business investment upside impact income subside energy food price take factor suggest modestly positive underlie output growth half year committee discuss news indicator inflation persistence sign labour market loosen remain tight absolute term lfs unemployment rate rise month vacancy unemployment ratio continue decline recruitment difficulty appear ease somewhat annual private sector regular pay growth increase materially strong expect report month month growth measure pay pick recent outturn pay growth appear strong standard model base productivity short term inflation expectation measure economic slack predict great round effect rise inflation wage growth term trade shock affect economy suggest medium term equilibrium rate unemployment high wage growth expect strong near term risk upside surprise set development forward look indicator kpmg rec report jobs imply wage growth slow sharply anticipate half survey relationship official earning growth appear weaken recently month cpi inflation ease june line projection report reflect fall contribution energy less extent food price core good service cpi inflation strong expect time report elevated good price inflation continue broad base product slow producer price inflation suggest ease significantly end service cpi inflation project elevated near term mpc note strength reflect resilience demand strength nominal pay growth extent non labour input cost upside surprise reflect component service price idiosyncratic factor play immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee discuss evolution key economic indicator previous degree show continued resilience underlie quarterly gdp growth half year bank expect similar growth rate near term reflect resilient household income retail sale volume business survey month indicator show sign weakening include july s&p global cips composite pmi labour market remain tight indication loosen lfs unemployment rate rise month vacancy unemployment ratio continue fall remain historical average annual private sector regular pay growth increase month month month growth measure pay pick earning growth expect decline come quarter end year uncertainty near term outlook month cpi inflation fall june low expect time committee previous core good service cpi inflation low expect downside news informative persistent inflationary pressure small set accompanying august monetary policy report cpi inflation expect fall significantly end year account low energy less degree food core good price inflation service price inflation project elevated close rate near term past increase bank rate high path market interest rate august report forecast condition expect increasingly weigh activity inflation come quarter relative projection quarterly gdp growth expect weak forecast period particularly beginning increase degree economic slack expect emerge middle year unemployment rate project rise aggregate spare capacity unemployment increase somewhat committee late projection report reflect weak path gdp mpc august modal projection condition market interest rate cpi inflation return target fall target medium term increase degree economic slack reduce domestic inflationary pressure alongside decline external cost pressure committee decide forecast bring upside risk inflation persistence modal projection push inflation projection medium term relative report committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean cpi inflation incorporate risk year horizon respectively mpc note significant increase bank rate december yield curve period tighten stance monetary policy restrict demand relative supply effect build come quarter show mpc august modal mean projection mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target indicator household corporate inflation expectation tend decline mpc previous medium term inflation compensation measure financial market rise slightly remain long term average member judge percentage point increase bank rate warrant recent data outturn mix key indicator notably wage growth surprise significantly upside medium term equilibrium rate unemployment rise risk great persistence broad domestic inflationary pressure crystallise set unemployment rate increase little vacancy unemployment ratio decrease previous mpc indicator slow activity need weigh surprising resilience activity number quarter early conclude economy close significant turning point monetary stance weigh economic activity percentage point increase bank rate necessary address risk great inflation persistence member judge percentage point increase bank rate warrant member important lean actively inflation persistence describe august report successive forecast predict member note continue tightness labour market vacancy unemployment ratio fall long run average level high frequency private sector wage growth measure continue trend upwards consistent possibility equilibrium unemployment rate rise key metric include core service cpi inflation continue high member forceful increase bank rate help bring inflation target sustainably medium term reduce risk costly tightening later prefer leave bank rate unchanged policy stance increasingly restrictive long strong case tightening risk management ground instead risk overtightening continue build increase likelihood output loss volatility require sharp reversal policy lag effect monetary policy mean sizeable impact past rate increase come particularly cumulative impact housing cost recent news component consumer producer price inflation strongly indicate downward trajectory cpi inflation wage inflation strong business service real wage fall industry cover quarter employee give restrictive policy stance pay growth slow inflation salient item ease year labour market continue loosen give significant increase bank rate start tighten cycle monetary policy stance restrictive mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation evidence persistent pressure tightening monetary policy require mpc ensure bank rate sufficiently restrictive sufficiently long return inflation target sustainably medium term line remit chair invite committee vote proposition bank rate increase percentage point member andrew bailey ben broadbent jon cunliffe megan greene huw pill dave ramsden vote favour proposition member vote proposition member jonathan haskel catherine mann prefer increase bank rate percentage point swati dhingra prefer maintain bank rate operational consideration august total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase discuss box august monetary policy report committee vote target gilt stock reduction month period october september september follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative permit bank england act amend bank england financial services act david roberts july observer purpose exercise oversight function role bank court directors

monetary policy summary september bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september mpc vote majority 5–4 maintain bank rate member prefer increase bank rate percentage point committee vote unanimously reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total mpc august modal monetary policy report projection condition market imply path bank rate average 5½% year forecast period cpi inflation expect return target project fall target medium term increase degree economic slack expect reduce domestic inflationary pressure alongside decline external cost pressure committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean projection cpi inflation incorporate risk year horizon respectively mpc previous global growth evolve line august report projection albeit difference region spot oil price rise significantly underlying inflationary pressure remain elevated advanced economy gdp estimate decline july s&p global cips composite output pmi fall august business survey indicator consistent positive gdp growth news prove erratic bank expect gdp rise slightly underlie growth half weak expect sign loosening labour market remain tight historical standard vacancy unemployment ratio continue decline reflect steady fall number vacancy rise unemployment labour force survey unemployment rate rise month july high expect august report indicator employment soften backdrop subdued activity annual private sector regular average weekly earnings awe growth increase month july percentage point august report projection path awe difficult reconcile indicator pay growth tend stable rate growth elevate high awe series month cpi inflation fall june august percentage point expectation time committee previous trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core good cpi inflation fall june august weak expect august report service cpi inflation rise june july decline august percentage point low expect august report movement link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate albeit slightly weak expect cpi inflation expect fall significantly near term reflect low annual energy inflation despite renew upward pressure oil price decline food core good price inflation service price inflation project elevated near term potential month month volatility mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term development key indicator inflation persistence mix acceleration awe apparent measure wage downside news service inflation increase sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit tightening monetary policy require evidence persistent inflationary pressure mpc commit minute august reduction asset purchase facility annually set reduction stock purchase government bond subsequent month period committee vote reduce stock government bond purchase hold monetary policy purpose finance issuance reserve period october september total minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate increase line august monetary policy report projection global gdp growth expect line august report difference region euro area gdp increase expect contract weak expect august report manufacturing service output pmis enter contractionary territory weakness german manufacturing output particularly pronounce united states gdp increase growth expect increase strong project august report quarter contrast development euro area manufacturing output pmi stop contract service output pmi remain expansionary territory committee discuss possible factor relative strength activity real income increase strongly united states uplifted partly significant fiscal policy action pandemic small deterioration term trade government support europe abate energy price fall household appear relatively willing spend excess saving possibly high consumer confidence growth appear slow china nbs manufacture pmi have remain neutral level april consumption industrial production growth similarly weak alongside soft investment fall export notable headwind property sector property price fall major developer narrowly avoid technical default take indicator point chinese growth slow weak expect august report energy price increase mpc previous dutch title transfer facility spot price measure european wholesale gas price rise owe strike action australian liquefy natural gas facility gas future curve unchanged brent spot oil price rise barrel follow supply cut opec+ group oil inventory fall globally headline consumer price inflation united states euro area continue follow downward trend peak rate record impact volatile energy price affect datum annual euro area hicp inflation decrease slightly august united states headline cpi inflation increase august july account reduce drag annual energy price inflation underlie inflationary pressure remain elevated advanced economy annual core cpi inflation fall august july annual core inflation euro area fall august july outturn pay growth region continue strong labour market remain tight show sign ease vacancy unemployment ratio decrease united states flat euro area monetary financial condition market pricing suggest policy rate major advanced economy expect near peak end september ecb governing council raise key policy rate basis point market expectation federal open market committee leave fund rate unchanged forthcoming end september united kingdom bank rate expectation imply market pricing fall immediate run mpc follow august cpi release leave market expectation september bank rate decision finely balance basis point increase change reduction market expectation path bank rate september mpc decision market pricing immediate run mpc suggest peak bank rate hold quarter mpc previous year overnight index swap ois rate year forward decrease basis point market imply path bank rate average little year year government bond yield united kingdom little relative mpc august contrast global peer rate horizon rise somewhat committee note level year government bond yield converge period continue evidence interest rate financial market sensitive economic datum outturn particularly united kingdom usual past decade data outturn volatile month month overall sensitivity interest rate data release relate nominal environment remain great release relate real activity reduction market rate response august flash pmi july gdp datum release mpc previously communicate vote reduction stock gilt hold bank asset purchase facility monetary policy purpose month period october september accord market participants survey maps median market expectation mpc pace gilt stock reduction year ahead medium term inflation compensation measure united kingdom little change relative mpc previous interpret level measure continue challenge remain low peak march average level previous decade median maps respondent expectation cpi inflation year ahead late survey slightly relative previous survey distribution survey response remain skewed upside aggregate growth sterle net lending bank continue slow mortgage lending continue decline quote mortgage rate fall somewhat mpc august reflect pass reduction risk free reference rate remain substantially high start bank rate tighten cycle period corporate credit condition tighten consistent subdue demand credit corporate lending growth weak annual growth rate aggregate sterling broad money slow july pass increase bank rate instant access saving account previously slow pass time deposit account increase committee previous increase sight deposit rate remain substantially small increase bank rate end demand output accord ons quarterly estimate real gdp increase marginally strong expect august monetary policy report household consumption rise business investment strong expect august report housing investment continue fall year early monthly gdp estimate fall july follow rise june july outturn weak expect august report particularly service sector measure government health service output fall sharply reflect impact strike poor weather appear dampen activity sector weakness private service activity concentrate transport business service sector s&p global cips composite output pmi fall august consistent fall gdp base past historical relationship future output pmi series rise slightly remain close long run average business survey indicator activity include lloyds business barometer remain consistent positive gdp growth late intelligence bank agents suggest activity remain subdue grow concern economic outlook notably contact consumer face business business service sector combine signal official datum business survey bank expect gdp rise compare increase incorporate august report downside news prove erratic underlying growth weak build august projection half committee discuss factor slowing gdp growth include impact significant tightening monetary policy end clear sign weakness continue housing sector housing investment measure house price fall somewhat alongside low level property transaction recent consumer spending indicator show few sign soften consumer confidence recover august real labour income rise corporate spending indicator weaken month increase number firm respond ons business insights conditions survey note concern interest rate manufacture export order pmi fall sharply recently reflect global development mpc previous ons publish estimate impact blue book gdp revise nearly high news account strong public sector output reverse revision blue book committee implication revision supply demand november forecast round discussion time blue book dataset available supply cost price sign loosening labour market remain tight historical standard contact bank agents report easing recruitment difficulty persistent skill shortage sector vacancy unemployment ratio continue decline reflect steady fall number vacancy rise unemployment labour force survey lfs unemployment rate rise month july high expect august monetary policy report forecast late quarterly datum show increase flow inactivity unemployment indicative increase unemployment have associate individual previously inactive beginning look work gradual increase flow employment unemployment indicator employment soften backdrop subdue activity lfs employment fall month july precede increase previous non overlapping month series fluctuate period sample size response rate lfs decline bank agents report company expect number stable active plan redundancy kpmg rec report jobs point fall company hire s&p global cips composite employment pmi fall august albeit historical average committee discuss infer late development indicator pay annual private sector regular average weekly earnings awe growth month july percentage point august report projection news upward revision previous month datum month month growth awe measure increase month strength see number different sector late path awe difficult reconcile pay indicator include measure hmrc payroll lfs decision maker panel dmp tend stable rate elevate high awe series bank agents continue average annual pay settlement region 6½% contact expect settlement begin drift few additional payment provide compensate high cost living measure kpmg rec report signal clear decrease pay growth puzzlingly relationship awe datum strong past month cpi inflation fall july edge august percentage point august report forecast late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation drive low energy price july fall august drive component combination past fall petrol pump price drop annual comparison increase month result high rate energy price inflation august contrast core cpi inflation exclude energy food beverage tobacco fall have relatively stable precede month low core good price inflation account third downside surprise cpi inflation august report late news confine idiosyncratic car component downside news core good suggest easing input cost pressure evident flattening non petroleum producer price feed consumer good price quickly anticipate previously relatively modest offsetting news food energy price august sustain significant increase oil price mean energy contribution cpi inflation high assume august report forecast coming month remainder downside surprise cpi inflation august service price service cpi inflation unexpectedly rise year high july fall sharply expect august increase july subsequent unwind correspond news link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate downside news wide consumer basket service underlying measure service inflation produce bank determine movement price change service component begin decline s&p global cips service input output price pmis continue fall past average agent contact report pay pressure remain intense consumer face service company cost pressure ease abstract underlie trend path service inflation volatile coming month reflect potential noise price travel relate service temporary sharp upward spike anticipate january large unusual fall number service price beginning expect repeat result positive base effect early year inflation expectation year ahead remain elevated level business respond dmp expect price increase month measure household inflation expectation unchanged bank ipsos citi yougov survey medium term measure close historical average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc august modal monetary policy report projection condition market imply path bank rate average 5½% year forecast period cpi inflation expect return target project fall target medium term increase degree economic slack expect reduce domestic inflationary pressure alongside decline external cost pressure committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price take long unwind emerge mean projection cpi inflation incorporate risk year horizon respectively committee discuss news economic datum outturn past increase bank rate expect weigh increasingly economy impact tight monetary policy apparent early indicator demand labour market tightness indicator domestically generate inflation wage growth service cpi inflation later stage monetary transmission mechanism weakening activity datum prove erratic bank expect gdp rise slightly underlie growth half weak expect ahead final committee aware flash s&p global cips composite pmi september release publically friday september sign loosening labour market remain tight historical standard vacancy unemployment ratio continue decline reflect steady fall number vacancy great expect rise unemployment annual private sector regular average weekly earnings awe growth increase month july percentage point august report projection indicator pay tend stable rate growth elevate high awe series month cpi inflation fall august percentage point expectation time committee previous service cpi inflation decline august percentage point low expect august report movement link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate albeit slightly weak expect mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target bank rate decision committee turn immediate decision bank rate development key indicator inflation persistence mix acceleration awe apparent measure wage downside news service inflation increase sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive mean decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent place sufficient weight impact previous tightening come activity inflation member judge maintain bank rate warrant sign labour market loosen acceleration awe noteworthy apparent measure wage important weight single datum point headline service cpi inflation fall low expect activity contact bank agents downbeat output pmi august consistent fall gdp member group late development mean judgement bank rate unchanged increase finely balanced condition warrant restrictive policy stance maintain material progress return inflation target sustainably risk overtightene policy continue build increase likelihood output loss volatility require sharp reversal policy lag effect monetary policy mean sizeable impact past rate increase come member judge percentage point increase bank rate warrant sign weaken economic activity consumer sentiment appear hold real household income start rise forward look indicator output remain positive labour market relatively tight consistent possible rise medium term equilibrium rate unemployment pace loosening slow measure wage growth service inflation remain rate consistent target sustainably medium term service cpi inflation fall expect late datum release appear drive mainly volatile component follow upside surprise member judge evidence persistent inflationary pressure monetary stance weigh increasingly economic activity percentage point increase bank rate necessary address risk deeply embed inflation persistence bring inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit tightening monetary policy require evidence persistent inflationary pressure decision annual pace reduction stock government bond purchase hold monetary policy purpose set minute august mpc commit reduction asset purchase facility apf annually set reduction stock purchase government bond gilt subsequent month period box august monetary policy report set assessment process quantitative tightening previous year committee judge reduce size apf important benefit reduce risk ratchet upwards size balance sheet time successive policy cycle encounter effective lower bind interest rate turn increase headroom flexibility able use balance sheet future need appropriate pace gilt stock reduction guide set key principle mpc outline august monetary policy report committee intend use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct gradual predictable manner period time set box august report committee judge quantitative tightening smoothly evidence negative impact gilt sale market function range financial market measure apf reduction tighten effect yield difficult measure precisely judge modest line mpc prior expectation committee learn monitor development process progress tighten impact reduction apf activity inflation appear expect modest hard measure precisely marginal effect quantitative tightening mpc economic forecast condition asset price incorporate announce expect apf reduction alongside factor mpc effect account set desire monetary policy stance bank rate tightening effect reduction apf lead slightly low path bank rate equal give impact apf reduction judge modest unlikely material difference appropriate path bank rate past year draw experience year quantitative tightening committee consider number factor support modest increase pace gilt stock reduction previous year month ahead assessment market condition market capacity absorb pace gilt sale imply gilt stock reduction suggest pace unlikely disrupt functioning financial market committee note gilt stock reduction year ahead leave pace gilt sale unchanged relative previous year give increase apf gilt maturity set august report focus mpc total gilt stock reduction comprise mature gilt sale variation profile redemption lead variation pace sale time notwithstanding committee place weight continuity pace sale committee note previous year reduction apf gilt holding accompany near complete unwind corporate bond portfolio reduction size apf past year take factor support small increase pace reduction stock gilt relative previous year immediate run bank brief mpc state economic market condition current condition judge appropriate committee proceed preferred pace gilt stock reduction financial policy committee fpc brief member mpc agree bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month period october september comprise mature gilt sale mpc reaffirm high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy apf reduction predictable judge bar meet fpc role assessment financial stability chair invite committee vote proposition bank rate maintain bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total member andrew bailey ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member jon cunliffe megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point committee vote unanimously favour proposition operational consideration september total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase september mpc vote reduce stock government bond purchase month period october september bank england set market notice september gilt sale programme adjust order meet mpc target mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september detail associate gilt sale programme cover set market notice accompany minute bank set auction size meet mpc annual target closely practicable follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden james bowler treasury representative sarah breeden observer behalf committee chair express appreciation jon cunliffe contribution work mpc role establish monetary policy framework monetary policy summary september bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end september mpc vote majority 5–4 maintain bank rate member prefer increase bank rate percentage point committee vote unanimously reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total mpc august modal monetary policy report projection condition market imply path bank rate average 5½% year forecast period cpi inflation expect return target project fall target medium term increase degree economic slack expect reduce domestic inflationary pressure alongside decline external cost pressure committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price long unwind emerge mean projection cpi inflation incorporate risk year horizon respectively mpc previous global growth evolve line august report projection albeit difference region spot oil price rise significantly underlying inflationary pressure remain elevated advanced economy gdp estimate decline july s&p global cips composite output pmi fall august business survey indicator consistent positive gdp growth news prove erratic bank expect gdp rise slightly underlie growth half weak expect sign loosening labour market remain tight historical standard vacancy unemployment ratio continue decline reflect steady fall number vacancy rise unemployment labour force survey unemployment rate rise month july high expect august report indicator employment soften backdrop subdued activity annual private sector regular average weekly earnings awe growth increase month july percentage point august report projection path awe difficult reconcile indicator pay growth tend stable rate growth elevate high awe series month cpi inflation fall june august percentage point expectation time committee previous trigger exchange open letter governor chancellor exchequer publish alongside monetary policy announcement core good cpi inflation fall june august weak expect august report service cpi inflation rise june july decline august percentage point low expect august report movement link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate albeit slightly weak expect cpi inflation expect fall significantly near term reflect low annual energy inflation despite renew upward pressure oil price decline food core good price inflation service price inflation project elevated near term potential month month volatility mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term development key indicator inflation persistence mix acceleration awe apparent measure wage downside news service inflation increase sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit tightening monetary policy require evidence persistent inflationary pressure mpc commit minute august reduction asset purchase facility annually set reduction stock purchase government bond subsequent month period committee vote reduce stock government bond purchase hold monetary policy purpose finance issuance reserve period october september total minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate increase line august monetary policy report projection global gdp growth expect line august report difference region euro area gdp increase expect contract weak expect august report manufacturing service output pmis enter contractionary territory weakness german manufacturing output particularly pronounce united states gdp increase growth expect increase strong project august report quarter contrast development euro area manufacturing output pmi stop contract service output pmi remain expansionary territory committee discuss possible factor relative strength activity real income increase strongly united states uplifted partly significant fiscal policy action pandemic small deterioration term trade government support europe abate energy price fall household appear relatively willing spend excess saving possibly high consumer confidence growth appear slow china nbs manufacture pmi have remain neutral level april consumption industrial production growth similarly weak alongside soft investment fall export notable headwind property sector property price fall major developer narrowly avoid technical default take indicator point chinese growth slow weak expect august report energy price increase mpc previous dutch title transfer facility spot price measure european wholesale gas price rise owe strike action australian liquefy natural gas facility gas future curve unchanged brent spot oil price rise barrel follow supply cut opec+ group oil inventory fall globally headline consumer price inflation united states euro area continue follow downward trend peak rate record impact volatile energy price affect datum annual euro area hicp inflation decrease slightly august united states headline cpi inflation increase august july account reduce drag annual energy price inflation underlie inflationary pressure remain elevated advanced economy annual core cpi inflation fall august july annual core inflation euro area fall august july outturn pay growth region continue strong labour market remain tight show sign ease vacancy unemployment ratio decrease united states flat euro area monetary financial condition market pricing suggest policy rate major advanced economy expect near peak end september ecb governing council raise key policy rate basis point market expectation federal open market committee leave fund rate unchanged forthcoming end september united kingdom bank rate expectation imply market pricing fall immediate run mpc follow august cpi release leave market expectation september bank rate decision finely balance basis point increase change reduction market expectation path bank rate september mpc decision market pricing immediate run mpc suggest peak bank rate hold quarter mpc previous year overnight index swap ois rate year forward decrease basis point market imply path bank rate average little year year government bond yield united kingdom little relative mpc august contrast global peer rate horizon rise somewhat committee note level year government bond yield converge period continue evidence interest rate financial market sensitive economic datum outturn particularly united kingdom usual past decade data outturn volatile month month overall sensitivity interest rate data release relate nominal environment remain great release relate real activity reduction market rate response august flash pmi july gdp datum release mpc previously communicate vote reduction stock gilt hold bank asset purchase facility monetary policy purpose month period october september accord market participants survey maps median market expectation mpc pace gilt stock reduction year ahead medium term inflation compensation measure united kingdom little change relative mpc previous interpret level measure continue challenge remain low peak march average level previous decade median maps respondent expectation cpi inflation year ahead late survey slightly relative previous survey distribution survey response remain skewed upside aggregate growth sterle net lending bank continue slow mortgage lending continue decline quote mortgage rate fall somewhat mpc august reflect pass reduction risk free reference rate remain substantially high start bank rate tighten cycle period corporate credit condition tighten consistent subdue demand credit corporate lending growth weak annual growth rate aggregate sterling broad money slow july pass increase bank rate instant access saving account previously slow pass time deposit account increase committee previous increase sight deposit rate remain substantially small increase bank rate end demand output accord ons quarterly estimate real gdp increase marginally strong expect august monetary policy report household consumption rise business investment strong expect august report housing investment continue fall year early monthly gdp estimate fall july follow rise june july outturn weak expect august report particularly service sector measure government health service output fall sharply reflect impact strike poor weather appear dampen activity sector weakness private service activity concentrate transport business service sector s&p global cips composite output pmi fall august consistent fall gdp base past historical relationship future output pmi series rise slightly remain close long run average business survey indicator activity include lloyds business barometer remain consistent positive gdp growth late intelligence bank agents suggest activity remain subdue grow concern economic outlook notably contact consumer face business business service sector combine signal official datum business survey bank expect gdp rise compare increase incorporate august report downside news prove erratic underlying growth weak build august projection half committee discuss factor slowing gdp growth include impact significant tightening monetary policy end clear sign weakness continue housing sector housing investment measure house price fall somewhat alongside low level property transaction recent consumer spending indicator show few sign soften consumer confidence recover august real labour income rise corporate spending indicator weaken month increase number firm respond ons business insights conditions survey note concern interest rate manufacture export order pmi fall sharply recently reflect global development mpc previous ons publish estimate impact blue book gdp revise nearly high news account strong public sector output reverse revision blue book committee implication revision supply demand november forecast round discussion time blue book dataset available supply cost price sign loosening labour market remain tight historical standard contact bank agents report easing recruitment difficulty persistent skill shortage sector vacancy unemployment ratio continue decline reflect steady fall number vacancy rise unemployment labour force survey lfs unemployment rate rise month july high expect august monetary policy report forecast late quarterly datum show increase flow inactivity unemployment indicative increase unemployment have associate individual previously inactive beginning look work gradual increase flow employment unemployment indicator employment soften backdrop subdue activity lfs employment fall month july precede increase previous non overlapping month series fluctuate period sample size response rate lfs decline bank agents report company expect number stable active plan redundancy kpmg rec report jobs point fall company hire s&p global cips composite employment pmi fall august albeit historical average committee discuss infer late development indicator pay annual private sector regular average weekly earnings awe growth month july percentage point august report projection news upward revision previous month datum month month growth awe measure increase month strength see number different sector late path awe difficult reconcile pay indicator include measure hmrc payroll lfs decision maker panel dmp tend stable rate elevate high awe series bank agents continue average annual pay settlement region 6½% contact expect settlement begin drift few additional payment provide compensate high cost living measure kpmg rec report signal clear decrease pay growth puzzlingly relationship awe datum strong past month cpi inflation fall july edge august percentage point august report forecast late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation drive low energy price july fall august drive component combination past fall petrol pump price drop annual comparison increase month result high rate energy price inflation august contrast core cpi inflation exclude energy food beverage tobacco fall have relatively stable precede month low core good price inflation account third downside surprise cpi inflation august report late news confine idiosyncratic car component downside news core good suggest easing input cost pressure evident flattening non petroleum producer price feed consumer good price quickly anticipate previously relatively modest offsetting news food energy price august sustain significant increase oil price mean energy contribution cpi inflation high assume august report forecast coming month remainder downside surprise cpi inflation august service price service cpi inflation unexpectedly rise year high july fall sharply expect august increase july subsequent unwind correspond news link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate downside news wide consumer basket service underlying measure service inflation produce bank determine movement price change service component begin decline s&p global cips service input output price pmis continue fall past average agent contact report pay pressure remain intense consumer face service company cost pressure ease abstract underlie trend path service inflation volatile coming month reflect potential noise price travel relate service temporary sharp upward spike anticipate january large unusual fall number service price beginning expect repeat result positive base effect early year inflation expectation year ahead remain elevated level business respond dmp expect price increase month measure household inflation expectation unchanged bank ipsos citi yougov survey medium term measure close historical average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc august modal monetary policy report projection condition market imply path bank rate average 5½% year forecast period cpi inflation expect return target project fall target medium term increase degree economic slack expect reduce domestic inflationary pressure alongside decline external cost pressure committee continue judge risk modal inflation forecast skew upside albeit reflect possibility round effect external cost shock inflation wage domestic price take long unwind emerge mean projection cpi inflation incorporate risk year horizon respectively committee discuss news economic datum outturn past increase bank rate expect weigh increasingly economy impact tight monetary policy apparent early indicator demand labour market tightness indicator domestically generate inflation wage growth service cpi inflation later stage monetary transmission mechanism weakening activity datum prove erratic bank expect gdp rise slightly underlie growth half weak expect ahead final committee aware flash s&p global cips composite pmi september release publically friday september sign loosening labour market remain tight historical standard vacancy unemployment ratio continue decline reflect steady fall number vacancy great expect rise unemployment annual private sector regular average weekly earnings awe growth increase month july percentage point august report projection indicator pay tend stable rate growth elevate high awe series month cpi inflation fall august percentage point expectation time committee previous service cpi inflation decline august percentage point low expect august report movement link service airfare accommodation tend volatile summer holiday period exclude travel relate component service inflation stable continue high rate albeit slightly weak expect mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target bank rate decision committee turn immediate decision bank rate development key indicator inflation persistence mix acceleration awe apparent measure wage downside news service inflation increase sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive mean decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent place sufficient weight impact previous tightening come activity inflation member judge maintain bank rate warrant sign labour market loosen acceleration awe noteworthy apparent measure wage important weight single datum point headline service cpi inflation fall low expect activity contact bank agents downbeat output pmi august consistent fall gdp member group late development mean judgement bank rate unchanged increase finely balanced condition warrant restrictive policy stance maintain material progress return inflation target sustainably risk overtightene policy continue build increase likelihood output loss volatility require sharp reversal policy lag effect monetary policy mean sizeable impact past rate increase come member judge percentage point increase bank rate warrant sign weaken economic activity consumer sentiment appear hold real household income start rise forward look indicator output remain positive labour market relatively tight consistent possible rise medium term equilibrium rate unemployment pace loosening slow measure wage growth service inflation remain rate consistent target sustainably medium term service cpi inflation fall expect late datum release appear drive mainly volatile component follow upside surprise member judge evidence persistent inflationary pressure monetary stance weigh increasingly economic activity percentage point increase bank rate necessary address risk deeply embed inflation persistence bring inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include tightness labour market condition behaviour wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit tightening monetary policy require evidence persistent inflationary pressure decision annual pace reduction stock government bond purchase hold monetary policy purpose set minute august mpc commit reduction asset purchase facility apf annually set reduction stock purchase government bond gilt subsequent month period box august monetary policy report set assessment process quantitative tightening previous year committee judge reduce size apf important benefit reduce risk ratchet upwards size balance sheet time successive policy cycle encounter effective lower bind interest rate turn increase headroom flexibility able use balance sheet future need appropriate pace gilt stock reduction guide set key principle mpc outline august monetary policy report committee intend use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct gradual predictable manner period time set box august report committee judge quantitative tightening smoothly evidence negative impact gilt sale market function range financial market measure apf reduction tighten effect yield difficult measure precisely judge modest line mpc prior expectation committee learn monitor development process progress tighten impact reduction apf activity inflation appear expect modest hard measure precisely marginal effect quantitative tightening mpc economic forecast condition asset price incorporate announce expect apf reduction alongside factor mpc effect account set desire monetary policy stance bank rate tightening effect reduction apf lead slightly low path bank rate equal give impact apf reduction judge modest unlikely material difference appropriate path bank rate past year draw experience year quantitative tightening committee consider number factor support modest increase pace gilt stock reduction previous year month ahead assessment market condition market capacity absorb pace gilt sale imply gilt stock reduction suggest pace unlikely disrupt functioning financial market committee note gilt stock reduction year ahead leave pace gilt sale unchanged relative previous year give increase apf gilt maturity set august report focus mpc total gilt stock reduction comprise mature gilt sale variation profile redemption lead variation pace sale time notwithstanding committee place weight continuity pace sale committee note previous year reduction apf gilt holding accompany near complete unwind corporate bond portfolio reduction size apf past year take factor support small increase pace reduction stock gilt relative previous year immediate run bank brief mpc state economic market condition current condition judge appropriate committee proceed preferred pace gilt stock reduction financial policy committee fpc brief member mpc agree bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month period october september comprise mature gilt sale mpc reaffirm high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy apf reduction predictable judge bar meet fpc role assessment financial stability chair invite committee vote proposition bank rate maintain bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total member andrew bailey ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member jon cunliffe megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point committee vote unanimously favour proposition operational consideration september total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase september mpc vote reduce stock government bond purchase month period october september bank england set market notice september gilt sale programme adjust order meet mpc target mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september detail associate gilt sale programme cover set market notice accompany minute bank set auction size meet mpc annual target closely practicable follow member committee andrew bailey chair ben broadbent jon cunliffe swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden james bowler treasury representative sarah breeden observer behalf committee chair express appreciation jon cunliffe contribution work mpc role establish monetary policy framework

monetary policy summary november bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end november mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point committee update projection activity inflation set accompanying november monetary policy report condition market imply path bank rate remain 5¼% decline gradually 4¼% end low profile underpin august projection mpc previous long term government bond yield increase advanced economy gdp growth strong expect united states underlie inflationary pressure advanced economy elevated follow event middle east oil future curve rise somewhat gas future price little change gdp expect flat weak project august report business survey point slight contraction output pessimistic gdp expect grow weak project previously mpc continue wide range datum inform development labour market activity focus single indicator increase uncertainty surround labour force survey underline importance approach backdrop subdue economic activity employment growth soften half great extent project august report fall vacancy survey indicate easing recruitment difficulty point loosening labour market contact bank agents similarly report easing hire constraint persistent skill shortage sector pay growth remain high range indicator rise annual rate growth private sector regular average weekly earning apparent series remain uncertainty near term path pay wage growth nonetheless project decline come quarter elevated level month cpi inflation fall september expectation august report downside news reflect low expect core good price inflation close service inflation slightly weak expect august cpi inflation remain target expect fall sharply 4¾% 4½% 3¾% decline expect account low energy core good food price inflation january fall service inflation mpc late modal projection condition market imply path bank rate cpi inflation return target end fall target increase degree economic slack reduce domestic inflationary pressure committee continue judge risk modal inflation projection skewed upside round effect domestic price wage expect long unwind emerge upside risk inflation energy price give event middle east take account skew mean projection cpi inflation year horizon respectively condition alternative assumption constant interest rate high profile market curve half mean cpi inflation return target year time fall year horizon mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc previous decision little news key indicator inflation persistence continue sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit mpc late projection monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure minute monetary policy committee end november turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying november monetary policy report committee discuss global economic outlook consumer price inflation ease advanced economy remain elevated upside risk inflation energy price give event middle east global growth remain subdue course aggregate evolve expect august monetary policy report gdp growth united states china strong expect euro area growth weak bank judge output currently potential united states time extent strength activity reflect strong supply uncertain contrast sustained period excess supply expect euro area reflect great exposure europe global energy price shock contribute significant trade outlook inflation growth market expectation path policy rate suggest interest rate near peak united kingdom united states euro area monetary policymaker jurisdiction describe stance monetary policy restrictive market participant report increase conviction policy rate high long median respondent bank late market participants survey expect bank rate half decline gradually sensitivity interest rate year ahead economic datum outturn appear diminish variation expect rate year horizon committee discuss movement long term advanced economy government bond yield rise materially mpc september large move see united states reflect market expectation global policy rate high long cycle possible market perception equilibrium real interest rate rise year model bank suggest rise term premia additional compensation investor require hold long term bond contribute rise long term global yield reflect increase uncertainty economic outlook interest rate evolve assessment balance supply demand government bond market remain case change term premia account small proportion rise long term advanced economy government bond yield past year relative contribution rise expect policy rate committee discuss weakening gdp growth context significant tightening monetary policy end continue weakness potential supply growth unwinding previous fiscal support quarterly gdp expect flat business survey output order point fall gdp forward look indicator pessimistic growth prospect increase sign impact tight monetary policy momentum real economy clear weak housing investment impact tight policy come quickly contact bank agents report high financing cost great economic uncertainty inhibit business investment company strong cash position continue invest tightening monetary policy time feed consumer spending fully take effect backdrop broad recovery real income decline recently retail sale volume consumer service output consumer confidence slowdown gdp growth feed softening labour demand decline response rate result ons temporarily cease publish labour force survey estimate employment unemployment inactivity june data collective steer broad range indicator track underlie trend official estimate labour market activity past point employment flat half narrow set indicator available monitor development split non employment unemployment inactivity number vacancy continue decline indicator recruitment difficulty ease consistent labour market loosening labour market remain relatively tight committee discuss degree persistence wage domestic price rise annual rate growth private sector regular average weekly earning apparent indicator pay common signal wage growth remain elevate time annual service cpi inflation recede meaningfully decline headline inflation have instead account low energy food core good price inflation persistence cpi inflation reflect round effect include company price set behaviour november monetary report projection mpc judge unexpected strength pay associate high medium term unemployment rate owe persistent labour market friction resistance past loss real income extent high unemployment reflect supply relate factor imply easing labour market weigh pay growth immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee agree little news key indicator inflation persistence mpc previous decision past increase bank rate weigh increasingly economy impact tight monetary policy materialise early demand labour market tightness wage growth service cpi inflation gdp expect unchanged grow mpc november monetary policy report projection gdp expect flat half forecast period growth project historical average medium term weak profile august report backdrop subdue economic activity base range indicator employment growth soften fall vacancy survey indicate easing recruitment difficulty point loosening labour market pay growth remain high range indicator rise annual rate growth private sector regular average weekly earning awe apparent series remain uncertainty near term path pay mpc judge november report projection unexpected strength pay associate high medium term equilibrium unemployment rate great persistence wage price inflation month cpi inflation remain target inflation fall september expectation august report downside news reflect low expect core good price inflation close service cpi inflation slightly weak expect august mpc late modal projection condition market imply path bank rate cpi inflation expect return target end project fall target increase degree economic slack expect reduce domestic inflationary pressure committee continue judge risk modal inflation projection skew upside round effect domestic price wage expect long unwind emerge upside risk inflation energy price give event middle east take account skew mean projection cpi inflation year horizon respectively mpc consider projection condition alternative assumption constant interest rate forecast period high profile market curve half alternative assumption mean cpi inflation expect return target year time quarter early condition market imply path interest rate mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target give significant increase bank rate start tighten cycle monetary policy stance restrictive decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent risk tighten policy give impact policy come member judge maintain bank rate warrant little news economic datum previous gdp growth weaken labour market continue loosen cpi inflation expect decline significantly come quarter acceleration awe noteworthy reflect broad range wage growth measure member group mpc late projection indicate restrictive monetary policy stance warrant extended period time bring inflation sustainably target rise bank rate remain possibility risk overtightene policy continue build lag effect monetary policy mean sizeable impact past rate increase come member prefer percentage point increase bank rate weaken economic activity real household income continue rise forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment strong labour demand pace loosening slow measure wage growth service inflation remain elevated member continue judge evidence persistent inflationary pressure increase bank rate necessary address risk deeply embed inflation persistence bring inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit mpc late projection indicate monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point operational consideration september bank england complete final gilt sale auction october september annual programme meet mpc decision reduce stock government bond purchase hold monetary policy purpose period september mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september auction annual programme take place october november total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sarah breeden observer november sam beckett treasury representative ben bernanke observer monetary policy summary november bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end november mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point committee update projection activity inflation set accompanying november monetary policy report condition market imply path bank rate remain 5¼% decline gradually 4¼% end low profile underpin august projection mpc previous long term government bond yield increase advanced economy gdp growth strong expect united states underlie inflationary pressure advanced economy elevated follow event middle east oil future curve rise somewhat gas future price little change gdp expect flat weak project august report business survey point slight contraction output pessimistic gdp expect grow weak project previously mpc continue wide range datum inform development labour market activity focus single indicator increase uncertainty surround labour force survey underline importance approach backdrop subdue economic activity employment growth soften half great extent project august report fall vacancy survey indicate easing recruitment difficulty point loosening labour market contact bank agents similarly report easing hire constraint persistent skill shortage sector pay growth remain high range indicator rise annual rate growth private sector regular average weekly earning apparent series remain uncertainty near term path pay wage growth nonetheless project decline come quarter elevated level month cpi inflation fall september expectation august report downside news reflect low expect core good price inflation close service inflation slightly weak expect august cpi inflation remain target expect fall sharply 4¾% 4½% 3¾% decline expect account low energy core good food price inflation january fall service inflation mpc late modal projection condition market imply path bank rate cpi inflation return target end fall target increase degree economic slack reduce domestic inflationary pressure committee continue judge risk modal inflation projection skewed upside round effect domestic price wage expect long unwind emerge upside risk inflation energy price give event middle east take account skew mean projection cpi inflation year horizon respectively condition alternative assumption constant interest rate high profile market curve half mean cpi inflation return target year time fall year horizon mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc previous decision little news key indicator inflation persistence continue sign impact tight monetary policy labour market momentum real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit mpc late projection monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure minute monetary policy committee end november turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying november monetary policy report committee discuss global economic outlook consumer price inflation ease advanced economy remain elevated upside risk inflation energy price give event middle east global growth remain subdue course aggregate evolve expect august monetary policy report gdp growth united states china strong expect euro area growth weak bank judge output currently potential united states time extent strength activity reflect strong supply uncertain contrast sustained period excess supply expect euro area reflect great exposure europe global energy price shock contribute significant trade outlook inflation growth market expectation path policy rate suggest interest rate near peak united kingdom united states euro area monetary policymaker jurisdiction describe stance monetary policy restrictive market participant report increase conviction policy rate high long median respondent bank late market participants survey expect bank rate half decline gradually sensitivity interest rate year ahead economic datum outturn appear diminish variation expect rate year horizon committee discuss movement long term advanced economy government bond yield rise materially mpc september large move see united states reflect market expectation global policy rate high long cycle possible market perception equilibrium real interest rate rise year model bank suggest rise term premia additional compensation investor require hold long term bond contribute rise long term global yield reflect increase uncertainty economic outlook interest rate evolve assessment balance supply demand government bond market remain case change term premia account small proportion rise long term advanced economy government bond yield past year relative contribution rise expect policy rate committee discuss weakening gdp growth context significant tightening monetary policy end continue weakness potential supply growth unwinding previous fiscal support quarterly gdp expect flat business survey output order point fall gdp forward look indicator pessimistic growth prospect increase sign impact tight monetary policy momentum real economy clear weak housing investment impact tight policy come quickly contact bank agents report high financing cost great economic uncertainty inhibit business investment company strong cash position continue invest tightening monetary policy time feed consumer spending fully take effect backdrop broad recovery real income decline recently retail sale volume consumer service output consumer confidence slowdown gdp growth feed softening labour demand decline response rate result ons temporarily cease publish labour force survey estimate employment unemployment inactivity june data collective steer broad range indicator track underlie trend official estimate labour market activity past point employment flat half narrow set indicator available monitor development split non employment unemployment inactivity number vacancy continue decline indicator recruitment difficulty ease consistent labour market loosening labour market remain relatively tight committee discuss degree persistence wage domestic price rise annual rate growth private sector regular average weekly earning apparent indicator pay common signal wage growth remain elevate time annual service cpi inflation recede meaningfully decline headline inflation have instead account low energy food core good price inflation persistence cpi inflation reflect round effect include company price set behaviour november monetary report projection mpc judge unexpected strength pay associate high medium term unemployment rate owe persistent labour market friction resistance past loss real income extent high unemployment reflect supply relate factor imply easing labour market weigh pay growth immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee agree little news key indicator inflation persistence mpc previous decision past increase bank rate weigh increasingly economy impact tight monetary policy materialise early demand labour market tightness wage growth service cpi inflation gdp expect unchanged grow mpc november monetary policy report projection gdp expect flat half forecast period growth project historical average medium term weak profile august report backdrop subdue economic activity base range indicator employment growth soften fall vacancy survey indicate easing recruitment difficulty point loosening labour market pay growth remain high range indicator rise annual rate growth private sector regular average weekly earning awe apparent series remain uncertainty near term path pay mpc judge november report projection unexpected strength pay associate high medium term equilibrium unemployment rate great persistence wage price inflation month cpi inflation remain target inflation fall september expectation august report downside news reflect low expect core good price inflation close service cpi inflation slightly weak expect august mpc late modal projection condition market imply path bank rate cpi inflation expect return target end project fall target increase degree economic slack expect reduce domestic inflationary pressure committee continue judge risk modal inflation projection skew upside round effect domestic price wage expect long unwind emerge upside risk inflation energy price give event middle east take account skew mean projection cpi inflation year horizon respectively mpc consider projection condition alternative assumption constant interest rate forecast period high profile market curve half alternative assumption mean cpi inflation expect return target year time quarter early condition market imply path interest rate mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target give significant increase bank rate start tighten cycle monetary policy stance restrictive decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent risk tighten policy give impact policy come member judge maintain bank rate warrant little news economic datum previous gdp growth weaken labour market continue loosen cpi inflation expect decline significantly come quarter acceleration awe noteworthy reflect broad range wage growth measure member group mpc late projection indicate restrictive monetary policy stance warrant extended period time bring inflation sustainably target rise bank rate remain possibility risk overtightene policy continue build lag effect monetary policy mean sizeable impact past rate increase come member prefer percentage point increase bank rate weaken economic activity real household income continue rise forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment strong labour demand pace loosening slow measure wage growth service inflation remain elevated member continue judge evidence persistent inflationary pressure increase bank rate necessary address risk deeply embed inflation persistence bring inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit mpc late projection indicate monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point operational consideration september bank england complete final gilt sale auction october september annual programme meet mpc decision reduce stock government bond purchase hold monetary policy purpose period september mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september auction annual programme take place october november total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sarah breeden observer november sam beckett treasury representative ben bernanke observer

monetary policy summary december bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point mpc november monetary policy report projection condition market imply path bank rate remain 5¼% decline gradually 4¼% end gdp expect flat half forecast period reflect relatively weak potential supply increase degree economic slack expect emerge start year modal projection cpi inflation return target end fall target committee continue judge risk modal inflation projection skew upside mean projection cpi inflation year horizon mpc previous advanced economy government bond yield fall materially include short horizon risky asset price rise global gdp growth little strong project november report consumer price inflation euro area united states decline quickly expect upside risk inflation give event middle east oil wholesale gas future price fall gdp flat line november report projection fall october base late official survey datum bank expect gdp growth flat come quarter committee continue wide range datum development labour market activity employment growth soften evidence loosening labour market relative assumption november report fiscal measure autumn statement provisionally estimate increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small annual private sector regular average weekly earnings awe growth decline month october percentage point november report projection bring awe somewhat line indicator pay growth fall upside risk outlook wage growth include possible effect recently announce increase national living wage month cpi inflation fall sharply september october service price inflation decline downside news relative november report reflect movement component provide good signal underlie trend service price persistence headline inflation cpi inflation expect near rate turn year particular service price inflation project increase temporarily january relate base effect unusually weak price movement start year start fall gradually near term path cpi inflation somewhat low project november report reflect decline energy price mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc previous decision cpi inflation fall expect downside news private sector regular awe growth key indicator inflation persistence elevated anticipate tight monetary policy lead loose labour market weigh activity real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit illustrate november monetary policy report projection committee continue judge monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow touch strong project november monetary policy report growth advanced economy diverge significantly weak growth euro area united states global gdp growth expect slow euro area gdp contract november report projection expect flat near term indicator service manufacturing output pmis stabilise month albeit level indicate contraction activity industrial production remain weak particularly energy intensive sector contrast gdp grow strong expect november report project slow markedly recent data release show sign soften consumption growth service manufacture ism pmis weaken relative china gdp grow forward growth expect slow give relatively weak momentum indicator pmis annual consumer price inflation china turn negative month account low food price mpc november despite continue conflict middle east brent spot oil price fall barrel owe combination slow global demand evidence supply increase non opec country bind opec supply cut anticipate market participant healthy inventory growth european wholesale gas spot near term future price fall nearly storage level winter forecast warm weather curb demand expectation supply boost opening israel production capacity committee discuss relative extent disinflation advanced economy risk global inflation outlook consumer price inflation decline quickly euro area united states month expect november report accord flash estimate annual euro area headline hicp inflation fall november energy food price contribute decline core good service price inflation decline core inflation fall united states headline cpi inflation fall november energy price deflation contribute decline core cpi inflation remain stable month core service price inflation ease slowly relative economy core inflation fall united kingdom october reflect small decline far core good price inflation elevated service price inflation extent comparable measure wage inflation considerably high united kingdom sign ease economy look forward domestically generate inflationary pressure advanced economy remain elevated headline inflation target time risk development middle east lead renew rise energy potentially trade good price shock push inflation high interact inflation expectation lead round effect monetary financial condition committee previous government bond yield fall materially major advanced economy include short horizon corporate credit spread decline equity price pick market pricing suggest policy interest rate major advanced economy expect peak month contrast development year economic news impact expect peak policy rate remain relatively stable instead news tend affect net reduce length time policy rate expect stay peak united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc median maps respondent expect bank rate half decline gradually option imply market pricing suggest market participant increase probability place bank rate remain level month time fall long term government bond yield previous mpc somewhat pronounced united states euro area broadly consistent sterling effective exchange rate end period high despite have fall mpc previous year government bond yield major advanced economy remain materially high start monetary policy tighten cycle basis point united kingdom evidence long rate sensitive change short rate tighten cycle period global financial crisis change market participant perception level neutral rate interest inflation persistence medium term inflation compensation measure united kingdom fall slightly relative mpc previous interpret level measure continue difficult remain low peak march average level previous decade median maps respondent expectation cpi inflation year ahead late survey slightly relative previous survey aggregate sterling net lending bank m4lex fall october month growth rate continue negative albeit slightly september annual growth gross mortgage lending slow quote rate fix rate mortgage product fall mpc previous reflect pass reduction corresponding risk free reference rate annual growth rate aggregate sterling broad money m4ex remain negative october annual growth household deposit continue slow ratio household deposit gross disposable income increase sharply covid lockdown period fall pre covid level demand output level real gdp unchanged line expectation time november monetary policy report weak positive growth record half year domestic demand growth weak expect household consumption estimate fall business housing investment respectively monthly gdp fall october weak expect follow increase september decline output broad base service production construction sector abstract volatility government health service output market sector activity fall low level december set softness s&p global cips composite output pmi rise november consistent unchanged gdp business survey indicator future growth remain positive late intelligence bank agents suggest demand weaken slightly week overall bank expect gdp flat compare positive growth project november report sign weaken household consumption evident mpc previous real household labour income look continue rise half year retail sale volume decline october follow fall september take spending low level covid lockdown period bank agents report flat fall consumer good volume compare year ago gfk consumer confidence rise november flat spring historically weak level alongside continue fall housing investment indicator housing market activity price remain weak house price index decline september reverse similar sized increase august price unchanged previous year timely indicator price pick little month range indicator housing construction activity consistent decline dwell investment end year autumn statement take place november accompany economic fiscal outlook office budget responsibility obr obr judge medium term fiscal outlook improve receipt boost interaction high nominal earning frozen tax threshold additional fiscal measure announce statement include penny cut main rate employee national insurance contributions permanent capital allowance qualify business investment package reform welfare health service design increase labour market participation relative assume november report bank provisionally estimate additional measure increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small assessment news conduct february report forecast round supply cost price reflect increase uncertainty ons official labour market activity datum committee continue wide range indicator collectively point loosening labour market ons expect release update labour force survey lfs estimate january reflect population figure include high net migration quarterly employment growth slow reflect hmrc paye real time information measure line november monetary policy report projection contact bank agents report soften labour demand relative supply past year consistent survey rec kpmg report jobs indicate continue easing recruitment difficulty ons experimental estimate unemployment rate base lfs datum june project forward line claimant count remain flat month october vacancy unemployment ratio fall month october slightly level see prior pandemic account mainly fall vacancy indicator pay growth decline remain elevated annual private sector regular average weekly earnings awe growth month october percentage point low month july percentage point low november report projection decline bring awe series somewhat line high indicator pay dip october exclude government relate sector bank calculation base hmrc paye real time information suggest median pay growth fall november datum early estimate subject revision downward trend wage growth consistent forward look indicator expectation future wage growth decision maker panel dmp survey fall october start year early intelligence bank agents signal fall average annual pay settlement committee note continue upside risk wage growth forecast include direct possible indirect effect recently announce increase national living wage example exist pay relativity business establish month cpi inflation fall sharply september october percentage point november report forecast late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation month attribute fall energy food core good price inflation external cost pressure continue abate service price inflation remain elevated reduction ofgem energy price cap october reduce materially typical household energy bill compare year ago despite announce rise price cap january energy expect contribute negatively annual cpi inflation month great extent expect previously reflect decline oil price wholesale gas future price sustain core good price inflation project fall come quarter reflect base effect decrease cost pressure include ease global good price inflation contact bank agents anticipate decline food price inflation number have revise estimate low compare november service price inflation remain high cpi inflation october fall percentage point september percentage point low expect november report downside news account component typically reliable indicator trend inflationary persistence non private rent accommodation airfare exclude component service inflation stable continue high rate line precede month s&p global cips service input output price pmis remain peak early agent contact report non labour cost pressure moderate general ease service price inflation anticipate temporary spike january large unusual fall number service price beginning expect repeat start year increase mechanically annual percentage change service price inflation january positive base effect expect increase cpi inflation 4½% end year 4¾% january fall close february inflation expectation year ahead remain elevated level particularly business short term business expectation measure dmp survey ease slightly year expectation marginally high household short term inflation expectation continue fall peak see long term household expectation remain high close historical average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc november monetary policy report projection gdp expect flat half forecast period reflect relatively weak potential supply increase degree economic slack expect emerge start year pace slack emerge depend relative contribution supply demand news development activity committee undertake supply capacity economy regular stocktake ahead february report anticipate tight monetary policy lead loose labour market weigh activity real economy base late official survey datum bank expect gdp growth flat come quarter committee monitor closely impact activity inflation significant increase bank rate impact financial market movement macroeconomic projection forecast round ahead modal november report projection condition market imply path bank rate remain 5¼% decline gradually 4¼% end cpi inflation expect return target end fall target committee continue judge risk modal inflation projection skew upside mean projection cpi inflation year horizon mpc previous decision cpi inflation fall expect october key indicator inflation persistence remain elevated service price inflation decline downside news relative november report reflect movement component provide good signal underlie trend service price persistence headline inflation downside news private sector regular average weekly earning growth important interpret development measure place context evolution broad pay dynamic remain upside risk outlook wage growth include possible effect recently announce increase national living wage relative development united states euro area measure wage inflation considerably high united kingdom service price inflation fall far mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target give significant increase bank rate start tighten cycle monetary policy stance restrictive decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent risk tighten policy give impact policy come member judge maintain bank rate warrant news key datum downside mpc previous decision economic development relatively limited member group early conclude service price inflation pay growth firmly downward path metric inflation persistence remain high major advanced economy possibly reflect favourable supply development strong round effect united kingdom round effect slow unwind labour market tight extent wage price setting account downward path cpi inflation clear risk cpi inflation medium term remain skewed upside include event middle east risk overtightene policy continue build lag effect monetary policy mean sizeable impact past rate increase come member prefer percentage point increase bank rate indicator economic activity remain subdue real household income continue edge forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment pace loosening slow measure wage growth moderate slightly remain rate consistent inflation target underlying service price inflation remain elevated member continue judge evidence persistent inflationary pressure financial condition ease november report increase bank rate necessary address risk deeply embed inflation persistence return inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit illustrate november monetary policy report projection committee continue judge monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point operational consideration september mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september comprise mature gilt sale mpc brief progress gilt sale operational arrangement publish market notice 4.30pm december december total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative monetary policy summary december bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end december mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point mpc november monetary policy report projection condition market imply path bank rate remain 5¼% decline gradually 4¼% end gdp expect flat half forecast period reflect relatively weak potential supply increase degree economic slack expect emerge start year modal projection cpi inflation return target end fall target committee continue judge risk modal inflation projection skew upside mean projection cpi inflation year horizon mpc previous advanced economy government bond yield fall materially include short horizon risky asset price rise global gdp growth little strong project november report consumer price inflation euro area united states decline quickly expect upside risk inflation give event middle east oil wholesale gas future price fall gdp flat line november report projection fall october base late official survey datum bank expect gdp growth flat come quarter committee continue wide range datum development labour market activity employment growth soften evidence loosening labour market relative assumption november report fiscal measure autumn statement provisionally estimate increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small annual private sector regular average weekly earnings awe growth decline month october percentage point november report projection bring awe somewhat line indicator pay growth fall upside risk outlook wage growth include possible effect recently announce increase national living wage month cpi inflation fall sharply september october service price inflation decline downside news relative november report reflect movement component provide good signal underlie trend service price persistence headline inflation cpi inflation expect near rate turn year particular service price inflation project increase temporarily january relate base effect unusually weak price movement start year start fall gradually near term path cpi inflation somewhat low project november report reflect decline energy price mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term mpc previous decision cpi inflation fall expect downside news private sector regular awe growth key indicator inflation persistence elevated anticipate tight monetary policy lead loose labour market weigh activity real economy give significant increase bank rate start tighten cycle monetary policy stance restrictive committee vote maintain bank rate mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit illustrate november monetary policy report projection committee continue judge monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow touch strong project november monetary policy report growth advanced economy diverge significantly weak growth euro area united states global gdp growth expect slow euro area gdp contract november report projection expect flat near term indicator service manufacturing output pmis stabilise month albeit level indicate contraction activity industrial production remain weak particularly energy intensive sector contrast gdp grow strong expect november report project slow markedly recent data release show sign soften consumption growth service manufacture ism pmis weaken relative china gdp grow forward growth expect slow give relatively weak momentum indicator pmis annual consumer price inflation china turn negative month account low food price mpc november despite continue conflict middle east brent spot oil price fall barrel owe combination slow global demand evidence supply increase non opec country bind opec supply cut anticipate market participant healthy inventory growth european wholesale gas spot near term future price fall nearly storage level winter forecast warm weather curb demand expectation supply boost opening israel production capacity committee discuss relative extent disinflation advanced economy risk global inflation outlook consumer price inflation decline quickly euro area united states month expect november report accord flash estimate annual euro area headline hicp inflation fall november energy food price contribute decline core good service price inflation decline core inflation fall united states headline cpi inflation fall november energy price deflation contribute decline core cpi inflation remain stable month core service price inflation ease slowly relative economy core inflation fall united kingdom october reflect small decline far core good price inflation elevated service price inflation extent comparable measure wage inflation considerably high united kingdom sign ease economy look forward domestically generate inflationary pressure advanced economy remain elevated headline inflation target time risk development middle east lead renew rise energy potentially trade good price shock push inflation high interact inflation expectation lead round effect monetary financial condition committee previous government bond yield fall materially major advanced economy include short horizon corporate credit spread decline equity price pick market pricing suggest policy interest rate major advanced economy expect peak month contrast development year economic news impact expect peak policy rate remain relatively stable instead news tend affect net reduce length time policy rate expect stay peak united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc median maps respondent expect bank rate half decline gradually option imply market pricing suggest market participant increase probability place bank rate remain level month time fall long term government bond yield previous mpc somewhat pronounced united states euro area broadly consistent sterling effective exchange rate end period high despite have fall mpc previous year government bond yield major advanced economy remain materially high start monetary policy tighten cycle basis point united kingdom evidence long rate sensitive change short rate tighten cycle period global financial crisis change market participant perception level neutral rate interest inflation persistence medium term inflation compensation measure united kingdom fall slightly relative mpc previous interpret level measure continue difficult remain low peak march average level previous decade median maps respondent expectation cpi inflation year ahead late survey slightly relative previous survey aggregate sterling net lending bank m4lex fall october month growth rate continue negative albeit slightly september annual growth gross mortgage lending slow quote rate fix rate mortgage product fall mpc previous reflect pass reduction corresponding risk free reference rate annual growth rate aggregate sterling broad money m4ex remain negative october annual growth household deposit continue slow ratio household deposit gross disposable income increase sharply covid lockdown period fall pre covid level demand output level real gdp unchanged line expectation time november monetary policy report weak positive growth record half year domestic demand growth weak expect household consumption estimate fall business housing investment respectively monthly gdp fall october weak expect follow increase september decline output broad base service production construction sector abstract volatility government health service output market sector activity fall low level december set softness s&p global cips composite output pmi rise november consistent unchanged gdp business survey indicator future growth remain positive late intelligence bank agents suggest demand weaken slightly week overall bank expect gdp flat compare positive growth project november report sign weaken household consumption evident mpc previous real household labour income look continue rise half year retail sale volume decline october follow fall september take spending low level covid lockdown period bank agents report flat fall consumer good volume compare year ago gfk consumer confidence rise november flat spring historically weak level alongside continue fall housing investment indicator housing market activity price remain weak house price index decline september reverse similar sized increase august price unchanged previous year timely indicator price pick little month range indicator housing construction activity consistent decline dwell investment end year autumn statement take place november accompany economic fiscal outlook office budget responsibility obr obr judge medium term fiscal outlook improve receipt boost interaction high nominal earning frozen tax threshold additional fiscal measure announce statement include penny cut main rate employee national insurance contributions permanent capital allowance qualify business investment package reform welfare health service design increase labour market participation relative assume november report bank provisionally estimate additional measure increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small assessment news conduct february report forecast round supply cost price reflect increase uncertainty ons official labour market activity datum committee continue wide range indicator collectively point loosening labour market ons expect release update labour force survey lfs estimate january reflect population figure include high net migration quarterly employment growth slow reflect hmrc paye real time information measure line november monetary policy report projection contact bank agents report soften labour demand relative supply past year consistent survey rec kpmg report jobs indicate continue easing recruitment difficulty ons experimental estimate unemployment rate base lfs datum june project forward line claimant count remain flat month october vacancy unemployment ratio fall month october slightly level see prior pandemic account mainly fall vacancy indicator pay growth decline remain elevated annual private sector regular average weekly earnings awe growth month october percentage point low month july percentage point low november report projection decline bring awe series somewhat line high indicator pay dip october exclude government relate sector bank calculation base hmrc paye real time information suggest median pay growth fall november datum early estimate subject revision downward trend wage growth consistent forward look indicator expectation future wage growth decision maker panel dmp survey fall october start year early intelligence bank agents signal fall average annual pay settlement committee note continue upside risk wage growth forecast include direct possible indirect effect recently announce increase national living wage example exist pay relativity business establish month cpi inflation fall sharply september october percentage point november report forecast late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation month attribute fall energy food core good price inflation external cost pressure continue abate service price inflation remain elevated reduction ofgem energy price cap october reduce materially typical household energy bill compare year ago despite announce rise price cap january energy expect contribute negatively annual cpi inflation month great extent expect previously reflect decline oil price wholesale gas future price sustain core good price inflation project fall come quarter reflect base effect decrease cost pressure include ease global good price inflation contact bank agents anticipate decline food price inflation number have revise estimate low compare november service price inflation remain high cpi inflation october fall percentage point september percentage point low expect november report downside news account component typically reliable indicator trend inflationary persistence non private rent accommodation airfare exclude component service inflation stable continue high rate line precede month s&p global cips service input output price pmis remain peak early agent contact report non labour cost pressure moderate general ease service price inflation anticipate temporary spike january large unusual fall number service price beginning expect repeat start year increase mechanically annual percentage change service price inflation january positive base effect expect increase cpi inflation 4½% end year 4¾% january fall close february inflation expectation year ahead remain elevated level particularly business short term business expectation measure dmp survey ease slightly year expectation marginally high household short term inflation expectation continue fall peak see long term household expectation remain high close historical average immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc november monetary policy report projection gdp expect flat half forecast period reflect relatively weak potential supply increase degree economic slack expect emerge start year pace slack emerge depend relative contribution supply demand news development activity committee undertake supply capacity economy regular stocktake ahead february report anticipate tight monetary policy lead loose labour market weigh activity real economy base late official survey datum bank expect gdp growth flat come quarter committee monitor closely impact activity inflation significant increase bank rate impact financial market movement macroeconomic projection forecast round ahead modal november report projection condition market imply path bank rate remain 5¼% decline gradually 4¼% end cpi inflation expect return target end fall target committee continue judge risk modal inflation projection skew upside mean projection cpi inflation year horizon mpc previous decision cpi inflation fall expect october key indicator inflation persistence remain elevated service price inflation decline downside news relative november report reflect movement component provide good signal underlie trend service price persistence headline inflation downside news private sector regular average weekly earning growth important interpret development measure place context evolution broad pay dynamic remain upside risk outlook wage growth include possible effect recently announce increase national living wage relative development united states euro area measure wage inflation considerably high united kingdom service price inflation fall far mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy act ensure long term inflation expectation anchor target give significant increase bank rate start tighten cycle monetary policy stance restrictive decision increase maintain bank rate finely balanced risk tighten policy underlying inflationary pressure prove persistent risk tighten policy give impact policy come member judge maintain bank rate warrant news key datum downside mpc previous decision economic development relatively limited member group early conclude service price inflation pay growth firmly downward path metric inflation persistence remain high major advanced economy possibly reflect favourable supply development strong round effect united kingdom round effect slow unwind labour market tight extent wage price setting account downward path cpi inflation clear risk cpi inflation medium term remain skewed upside include event middle east risk overtightene policy continue build lag effect monetary policy mean sizeable impact past rate increase come member prefer percentage point increase bank rate indicator economic activity remain subdue real household income continue edge forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment pace loosening slow measure wage growth moderate slightly remain rate consistent inflation target underlying service price inflation remain elevated member continue judge evidence persistent inflationary pressure financial condition ease november report increase bank rate necessary address risk deeply embed inflation persistence return inflation target sustainably medium term mpc monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation monetary policy need sufficiently restrictive sufficiently long return inflation target sustainably medium term line committee remit illustrate november monetary policy report projection committee continue judge monetary policy need restrictive extended period time tightening monetary policy require evidence persistent inflationary pressure chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent swati dhingra huw pill dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann vote proposition prefer increase bank rate percentage point operational consideration september mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september comprise mature gilt sale mpc brief progress gilt sale operational arrangement publish market notice 4.30pm december december total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative

monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end january mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point prefer reduce bank rate percentage point committee update projection activity inflation set accompanying february monetary policy report condition market imply path bank rate decline 5¼% 3¼% end forecast period percentage point low average november report mpc previous global gdp growth remain subdue activity continue strong united states inflationary pressure abate euro area united states wholesale energy price fall significantly material risk development middle east disruption ship red sea follow weakness gdp growth expect pick gradually forecast period large reflect wan drag rate growth past increase bank rate business survey consistent improve outlook activity near term labour market continue ease remain tight historical standard february report projection continue relative weakness demand despite subdue supply growth historical standard lead margin economic slack emerge half forecast period unemployment expect rise somewhat month cpi inflation fall december expectation november report downside news broad base reflect low fuel core good service price inflation elevate wage growth ease number measure project decline come quarter cpi inflation project fall temporarily target increase profile inflation half year account development direct energy price contribution month inflation negative mpc late modal projection condition low market imply path bank rate cpi inflation 2¾% end year remain target nearly remainder forecast period reflect persistence domestic inflationary pressure despite increase degree slack economy cpi inflation project year time year committee judge risk modal cpi inflation projection skewed upside half forecast period stem geopolitical factor judge risk domestic price wage pressure evenly balanced mean unlike previous forecast difference mpc modal mean projection year horizon condition alternative assumption constant interest rate path cpi inflation significantly low committee modal projection condition decline path market rate fall target onwards mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation fall relatively sharply restrictive stance monetary policy weigh activity real economy lead loose labour market committee february forecast risk inflation balanced service price inflation wage growth fall somewhat expect key indicator inflation persistence elevated result monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level minute monetary policy committee end january turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying february monetary policy report consumer price inflation major advanced economy decline expect november report continued easing good service price inflation committee compare feature disinflation see united states euro area united kingdom risk inflation outlook committee judge divergence see economy reflect difference energy price dynamic variation impact timing global shock subsequent dissipation alongside distinct profile spare capacity disinflation core good price comparatively pronounced far united states euro area united kingdom lag fall producer output price inflation core consumer good inflation show sign long previous cycle difference commonality development service price inflation wage growth economy bank analysis suggest fall service inflation economy account decline non labour input cost include energy labour cost contrast remain elevate country sign ease emerge particularly united states extent comparable measure wage inflation remain considerably high united kingdom united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc expect bank rate downward median expect profile bank rate maps imply cumulative basis point reduction bank rate year start june line market pricing market contact suggest disinflationary news economic datum outturn jurisdiction united kingdom significant factor downward move short term rate month similar downward move short term rate occur advanced economy period gdp growth weaken weakness particularly pronounce market sector output reflect significant tightening monetary policy implement end contain persistence round effect inflation continue weakness potential supply growth cumulative gdp growth materially weak expect time november report path household consumption notably expectation timely indicator suggest activity edge committee complete annual supply stocktake set section february report judge potential supply growth remain weak historical standard mpc judge degree excess demand little high past assume november report imply weak supply growth past time revise slightly potential supply growth future expect weak rate see pre covid committee discuss degree persistence wage growth domestic price inflation downside news headline cpi inflation relative november report account combination fuel core good service price absolute term service price inflation remain significantly elevated common signal range indicator wage growth ease somewhat recently remain significantly elevated downward trend pronounce annual rate growth private sector regular average weekly earning awe bring awe series line indicator majority year wage setting process conclude month survey firm conduct bank agents suggest average pay settlement rise slightly low remain see degree fall cpi inflation short term inflation expectation influence year wage setting influence catch effect follow high rate cpi inflation see past couple year evidence agents suggest possible upward pressure wage indirect effect increase national living wage intelligence agents suggest company able pass increase cost price immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection gdp expect flat growth expect pick gradually forecast period large reflect wan drag past increase bank rate medium term low market imply interest rate path forecast condition push gdp materially compare november projection labour market continue ease remain tight february report projection continue relative weakness demand despite subdue supply growth historical standard lead margin economic slack emerge half forecast period relative november output gap projection push boost demand low market path interest rate equivalently imply monetary policy follow yield curve stance policy restrictive time november report month cpi inflation remain target inflation fall december expectation november report downside news broad base reflect low fuel core good service price inflation elevate wage growth ease number measure project decline come quarter mpc late modal projection cpi inflation expect fall temporarily target increase profile inflation half year account development direct energy price contribution month inflation negative condition low market imply path bank rate underpin november report cpi inflation project target nearly remainder forecast period owe persistence domestic inflationary pressure committee judge risk modal inflation projection skew upside half forecast period stem geopolitical factor risk domestic price wage pressure evenly balanced take mean difference mpc modal mean projection year horizon mpc judge monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate member judge maintain bank rate warrant headline cpi inflation fall relatively sharply restrictive stance monetary policy weigh activity lead loose labour market committee february forecast risk inflation balanced service price inflation wage growth fall somewhat expect key indicator inflation persistence remain elevated question evidence require entrenched persistence long level bank rate need maintain member prefer percentage point increase bank rate headline inflation fall expect necessarily informative inflation persistence current indicator economic activity remain subdue real household income continue edge forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment range indicator suggest pace loosening slow measure wage growth moderate remain rate consistent inflation target underlying service price inflation slow remain elevated member continue judge evidence persistent inflationary pressure include forecast financial condition ease mpc december increase bank rate necessary address risk deeply embed inflation persistence return inflation target sustainably medium term prefer percentage point reduction bank rate increment apply way lag transmission mean bank rate need restrictive wait lag indicator domestic relative price growth fall sharply reduce rate come risk overtightene potential upside risk geopolitic say consumer price inflation time firm downward trajectory leading indicator granular producer price datum point easing consumer price outlook demand remain weak resilient previously assume vacancy fall sharply advanced economy consumption have recover pre pandemic level reduce prospect embed persistence show forward look indicator domestic relative price monthly annualise rate nominal pay growth bank agents survey suggest low pass cost price mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene huw pill dave ramsden vote favour proposition member vote proposition member jonathan haskel catherine mann prefer increase bank rate percentage point swati dhingra prefer reduce bank rate percentage point operational consideration january total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts january observer purpose exercise oversight function role bank court directors monetary policy summary february bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end january mpc vote majority 6–3 maintain bank rate member prefer increase bank rate percentage point prefer reduce bank rate percentage point committee update projection activity inflation set accompanying february monetary policy report condition market imply path bank rate decline 5¼% 3¼% end forecast period percentage point low average november report mpc previous global gdp growth remain subdue activity continue strong united states inflationary pressure abate euro area united states wholesale energy price fall significantly material risk development middle east disruption ship red sea follow weakness gdp growth expect pick gradually forecast period large reflect wan drag rate growth past increase bank rate business survey consistent improve outlook activity near term labour market continue ease remain tight historical standard february report projection continue relative weakness demand despite subdue supply growth historical standard lead margin economic slack emerge half forecast period unemployment expect rise somewhat month cpi inflation fall december expectation november report downside news broad base reflect low fuel core good service price inflation elevate wage growth ease number measure project decline come quarter cpi inflation project fall temporarily target increase profile inflation half year account development direct energy price contribution month inflation negative mpc late modal projection condition low market imply path bank rate cpi inflation 2¾% end year remain target nearly remainder forecast period reflect persistence domestic inflationary pressure despite increase degree slack economy cpi inflation project year time year committee judge risk modal cpi inflation projection skewed upside half forecast period stem geopolitical factor judge risk domestic price wage pressure evenly balanced mean unlike previous forecast difference mpc modal mean projection year horizon condition alternative assumption constant interest rate path cpi inflation significantly low committee modal projection condition decline path market rate fall target onwards mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation fall relatively sharply restrictive stance monetary policy weigh activity real economy lead loose labour market committee february forecast risk inflation balanced service price inflation wage growth fall somewhat expect key indicator inflation persistence elevated result monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level minute monetary policy committee end january turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying february monetary policy report consumer price inflation major advanced economy decline expect november report continued easing good service price inflation committee compare feature disinflation see united states euro area united kingdom risk inflation outlook committee judge divergence see economy reflect difference energy price dynamic variation impact timing global shock subsequent dissipation alongside distinct profile spare capacity disinflation core good price comparatively pronounced far united states euro area united kingdom lag fall producer output price inflation core consumer good inflation show sign long previous cycle difference commonality development service price inflation wage growth economy bank analysis suggest fall service inflation economy account decline non labour input cost include energy labour cost contrast remain elevate country sign ease emerge particularly united states extent comparable measure wage inflation remain considerably high united kingdom united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc expect bank rate downward median expect profile bank rate maps imply cumulative basis point reduction bank rate year start june line market pricing market contact suggest disinflationary news economic datum outturn jurisdiction united kingdom significant factor downward move short term rate month similar downward move short term rate occur advanced economy period gdp growth weaken weakness particularly pronounce market sector output reflect significant tightening monetary policy implement end contain persistence round effect inflation continue weakness potential supply growth cumulative gdp growth materially weak expect time november report path household consumption notably expectation timely indicator suggest activity edge committee complete annual supply stocktake set section february report judge potential supply growth remain weak historical standard mpc judge degree excess demand little high past assume november report imply weak supply growth past time revise slightly potential supply growth future expect weak rate see pre covid committee discuss degree persistence wage growth domestic price inflation downside news headline cpi inflation relative november report account combination fuel core good service price absolute term service price inflation remain significantly elevated common signal range indicator wage growth ease somewhat recently remain significantly elevated downward trend pronounce annual rate growth private sector regular average weekly earning awe bring awe series line indicator majority year wage setting process conclude month survey firm conduct bank agents suggest average pay settlement rise slightly low remain see degree fall cpi inflation short term inflation expectation influence year wage setting influence catch effect follow high rate cpi inflation see past couple year evidence agents suggest possible upward pressure wage indirect effect increase national living wage intelligence agents suggest company able pass increase cost price immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection gdp expect flat growth expect pick gradually forecast period large reflect wan drag past increase bank rate medium term low market imply interest rate path forecast condition push gdp materially compare november projection labour market continue ease remain tight february report projection continue relative weakness demand despite subdue supply growth historical standard lead margin economic slack emerge half forecast period relative november output gap projection push boost demand low market path interest rate equivalently imply monetary policy follow yield curve stance policy restrictive time november report month cpi inflation remain target inflation fall december expectation november report downside news broad base reflect low fuel core good service price inflation elevate wage growth ease number measure project decline come quarter mpc late modal projection cpi inflation expect fall temporarily target increase profile inflation half year account development direct energy price contribution month inflation negative condition low market imply path bank rate underpin november report cpi inflation project target nearly remainder forecast period owe persistence domestic inflationary pressure committee judge risk modal inflation projection skew upside half forecast period stem geopolitical factor risk domestic price wage pressure evenly balanced take mean difference mpc modal mean projection year horizon mpc judge monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate member judge maintain bank rate warrant headline cpi inflation fall relatively sharply restrictive stance monetary policy weigh activity lead loose labour market committee february forecast risk inflation balanced service price inflation wage growth fall somewhat expect key indicator inflation persistence remain elevated question evidence require entrenched persistence long level bank rate need maintain member prefer percentage point increase bank rate headline inflation fall expect necessarily informative inflation persistence current indicator economic activity remain subdue real household income continue edge forward look indicator output remain positive labour market relatively tight consistent rise medium term equilibrium rate unemployment range indicator suggest pace loosening slow measure wage growth moderate remain rate consistent inflation target underlying service price inflation slow remain elevated member continue judge evidence persistent inflationary pressure include forecast financial condition ease mpc december increase bank rate necessary address risk deeply embed inflation persistence return inflation target sustainably medium term prefer percentage point reduction bank rate increment apply way lag transmission mean bank rate need restrictive wait lag indicator domestic relative price growth fall sharply reduce rate come risk overtightene potential upside risk geopolitic say consumer price inflation time firm downward trajectory leading indicator granular producer price datum point easing consumer price outlook demand remain weak resilient previously assume vacancy fall sharply advanced economy consumption have recover pre pandemic level reduce prospect embed persistence show forward look indicator domestic relative price monthly annualise rate nominal pay growth bank agents survey suggest low pass cost price mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene huw pill dave ramsden vote favour proposition member vote proposition member jonathan haskel catherine mann prefer increase bank rate percentage point swati dhingra prefer reduce bank rate percentage point operational consideration january total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts january observer purpose exercise oversight function role bank court directors

monetary policy summary march bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote majority 8–1 maintain bank rate prefer reduce bank rate percentage point mpc previous market imply path advanced economy policy rate shift united states euro area inflationary pressure continue abate slightly expect material risk notably development middle east include disruption ship red sea have decline half year gdp market sector output expect start grow half year business survey consistent improve outlook activity fiscal measure spring budget increase level gdp coming year measure probably boost potential supply extent implication output gap inflationary pressure economy small reflect uncertainty ons labour force survey committee continue wide range indicator labour market activity labour market continue loosen remain relatively tight historical standard elevated nominal wage growth moderate number measure contact bank agents expect decline pay settlement year great difficulty pass cost increase price month cpi inflation fall february january december little expectation february monetary policy report service consumer price inflation decline remain elevated february indicator short term inflation expectation continue ease cpi inflation project fall slightly target marginally weak previously expect owe freeze fuel duty announce budget february report projection cpi inflation expect increase slightly account direct energy price contribution month inflation service price inflation expect fall gradually mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation continue fall relatively sharply owe base effect external effect energy good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure nonetheless key indicator inflation persistence elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level minute monetary policy committee end march turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow line projection february monetary policy report divergence growth advanced economy continue united states grow fast expect euro area gdp flat line february report projection near term indicator pmis industrial production continue stabilise recovery somewhat weak expect contrast gdp grow high anticipate february report growth expect slow follow weakening real private consumption retail sale growth start year china gdp grow forward growth expect rate early march government set annual growth target emerge market economy see mixed gdp growth outturn india grow particularly strongly near term indicator suggest momentum persist despite conflict middle east continue disruption ship red sea limited news energy price mpc february brent spot oil price increase barrel opec aligned oil producer expect extend production cut european wholesale natural gas spot near term future price flat committee february temperature remain mild storage level high labour market advanced economy continue loosen remain tight job vacancy rate particular continue decline country unemployment rate increase february non farm payroll grow month unemployment rate euro area edge january wage growth euro area united states fall datum outcome wage negotiation euro area available gap wage growth united kingdom hand euro area united states continue narrow wage growth decline quickly recently wage growth economy annual pay growth remain high united kingdom headline core consumer price inflation continue trend euro area united states start year february inflation rate region slightly high expect market participant account news core inflation euro area headline hicp inflation february core inflation united states headline cpi inflation core inflation service price inflation remain elevate economy committee discuss factor influence global long term real equilibrium interest rate factor previously operate demographic bear long term real rate increase investment climate transition technology artificial intelligence drive example expectation high productivity growth raise long term real equilibrium interest rate sustained increase fiscal spending impact committee factor monetary financial condition committee previous market imply path policy rate major advanced economy shift corporate bond spread narrow equity price rise leave mixed signal direction change financial condition follow significant fall market expectation policy rate december january strong expect economic datum particularly non farm payroll inflation release united states push slightly expect timing future reduction policy rate major advanced economy despite rise short term interest rate risky asset price increase market intelligence suggest narrowing corporate credit spread rise equity price reflect grow confidence global growth credit condition corporate earning improve forward line market expectation bank japan raise policy rate positive territory end policy yield curve control united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc continue expect bank rate downward median respondent late maps expect cumulative basis point reduction bank rate year start august line market pricing basis point february maps median respondent report perceive neutral interest rate similar survey committee discuss increase convergence correlate movement month market expectation policy rate path market intelligence indicate despite difference project supply demand growth convergence attribute factor similarity policy rate economy similar stage disinflationary process quote mortgage rate increase somewhat committee previous reflect pass increase risk free reference rate remain substantially level reach summer availability secured lending household improve slightly late credit conditions survey number owner occupy mortgage product advertise level record start interest rate tighten cycle quote interest rate unsecured consumer credit lending business remain close peak annual growth rate aggregate sterling broad money decrease december january drive volatility holding non intermediate financial corporation sector remain slightly previous month average annual growth household deposit continue rise demand output real gdp fall weak expect february monetary policy report follow decline bank estimate market sector output subject swing measured non market output health education decline similar sized fall expenditure component gdp domestic household consumption housing investment fall respectively business investment estimate rise monthly gdp rise january high level september strength monthly growth concentrate construction government service sector private service output rise slightly gdp market sector output growth expect pick positive half year flash s&p global cips composite output pmi little change march slightly long run historical average future output pmi ease slightly year high february similarly positive signal business survey future market sector activity intelligence bank agents slightly optimistic outlook bank continue expect gdp growth early indication suggest small rise output growth consumption weak expect early sign gradual recovery retail sale volume volatile rise january follow decline december intelligence agents suggest consumption growth weak improve gfk consumer confidence stable month future personal financial situation sub balance remain slightly long run average number mortgage approval house purchase rise january high level october house price index flat month timely indicator house price tend rise slightly spring budget take place march accompany economic fiscal outlook office budget responsibility government announce package fiscal measure include cut main rate employee self employ national insurance contribution april bank provisionally estimate measure increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small assessment news conduct report forecast round supply cost price reflect uncertainty ons labour force survey lfs committee continue wide range indicator labour market activity collectively point labour market remain relatively tight absolute term continue loosen ons release update lfs estimate february advise caution interpret result owe low sample size estimate reflect migration population datum lfs unemployment rate estimate fall past month month january indicator claimant count agent intelligence recruitment difficulty point flat slightly rise profile unemployment vacancy unemployment ratio remain slightly level collective steer range measure point modestly positive quarterly employment growth line february monetary policy report projection committee note employment growth relatively resilient environment subdue activity suggest company potentially retain exist employee meet future increase demand consistent agent intelligence committee monitor retention restrain tightening labour market gdp growth pick backdrop ease labour market tightness recede inflation expectation indicator pay growth decline remain elevated annual private sector regular average weekly earnings awe growth month january percentage point low month october line february report projection awe move increasingly line measure median private sector pay growth derive hmrc payroll data committee discuss degree persistence wage growth short term measure wage growth ease underlying measure base range pay indicator run month month annualise pace suggest moderation inflationary persistence hand adjust awe datum cpi weight basis indicate pay growth moderate slow pace headline datum suggest forward look indicator point slow moderation expectation future wage growth decision maker panel dmp survey remain flat late intelligence average pay settlement collect agents remain close level observe agents annual survey present february report agent contact expect low pass high labour cost price compare month cpi inflation fall february january december little expectation february report late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation month attribute fall food core good price inflation external cost pressure continue abate service price inflation decline remain elevated energy price continue drag annual cpi inflation despite rise ofgem price cap january energy expect contribute negatively cpi inflation month owe upcoming reduction price cap april freeze fuel duty announce budget provide marginal drag compare february report projection core good price inflation fall february slightly low expect february report cost pressure previous shock global good price inflation continue dissipate food non alcoholic beverage inflation fall february january level producer input output price core good food recede significantly previous peak past year flatten agent contact similarly anticipate fall flat input cost service price inflation remain high cpi inflation february decrease percentage point january line february report expectation high frequency service price measure exclude component typically reliable indicator trend inflation persistence rent airfare package holiday education rise 4½% month month annualise basis moderation service price inflation month appear account weakness non labour labour cost household median short term inflation expectation continue ease february bank england inflation attitudes survey long term expectation remain steady close historical average inflation expectation citi yougov survey household remain somewhat high bank measure year ahead measure decline remain historical average long term measure steady business expectation look year ahead february dmp survey ease marginally compare january remain late maps median cpi expectation market participant year point fall little median expectation year horizon remain unchanged immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection gdp growth expect pick gradually forecast period cpi inflation expect fall temporarily target increase 2¾% condition market imply path bank rate time february report inflation project target nearly remainder forecast period owe persistence domestic inflationary pressure committee judge risk modal inflation projection skew upside half forecast period stem geopolitical factor risk domestic price wage pressure judge evenly balanced mpc previous market imply path advanced economy policy rate shift include united kingdom have decline half year gdp market sector output expect start grow half year business survey remain consistent improve outlook activity reflect uncertainty ons labour force survey committee continue wide range indicator labour market activity labour market continue loosen remain relatively tight historical standard extent company retain exist employee meet future increase demand employment growth weak relative output growth near term consistent easing labour market tightness labour demand prove strong easing month cpi inflation fall february january december little expectation february report service consumer price inflation decline remain elevated february high frequency measure core service inflation month month annualise rate 4½% indicator short term inflation expectation continue ease elevated nominal wage growth moderate number measure underlying measure base range pay indicator run month month annualise pace contact bank agents continue expect decline pay settlement year great difficulty pass cost increase price cpi inflation project fall slightly target marginally weak previously expect owe freeze fuel duty announce budget mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation continue fall relatively sharply owe base effect external effect energy good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure nonetheless key indicator inflation persistence remain elevated range view member extent risk persistent inflationary pressure recede end range development nominal indicator include high frequency suggest restrictive stance policy unwinding round effect associate decline short term inflation expectation have material impact reduce persistent slow move component inflation end range wage growth remain high expect moderate slowly reflect agents late intelligence limited sign far service price inflation return target consistent pace sufficiently rapidly evidence diminish round effect tentative upside risk remain wage cpi inflation projection member accumulation evidence inflation persistence require warrant shift monetary policy stance member differ extent evidence need degree restrictiveness policy prefer percentage point reduction bank rate wait reassurance reduce bank rate weigh living standard supply capacity bank rate need restrictive enable smooth transition policy stance account lag transmission preclude possibility maintain bank rate upside risk materialise consumer price inflation time firm downward trajectory consumption recover pre pandemic level sharp contrast advanced economy drive economic growth outlook demand remain weak vacancy fall sharply forward look indicator nominal pay growth easing mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill dave ramsden vote favour proposition swati dhingra vote proposition prefer reduce bank rate percentage point operational consideration march total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative monetary policy summary march bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end march mpc vote majority 8–1 maintain bank rate prefer reduce bank rate percentage point mpc previous market imply path advanced economy policy rate shift united states euro area inflationary pressure continue abate slightly expect material risk notably development middle east include disruption ship red sea have decline half year gdp market sector output expect start grow half year business survey consistent improve outlook activity fiscal measure spring budget increase level gdp coming year measure probably boost potential supply extent implication output gap inflationary pressure economy small reflect uncertainty ons labour force survey committee continue wide range indicator labour market activity labour market continue loosen remain relatively tight historical standard elevated nominal wage growth moderate number measure contact bank agents expect decline pay settlement year great difficulty pass cost increase price month cpi inflation fall february january december little expectation february monetary policy report service consumer price inflation decline remain elevated february indicator short term inflation expectation continue ease cpi inflation project fall slightly target marginally weak previously expect owe freeze fuel duty announce budget february report projection cpi inflation expect increase slightly account direct energy price contribution month inflation service price inflation expect fall gradually mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation continue fall relatively sharply owe base effect external effect energy good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure nonetheless key indicator inflation persistence elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level minute monetary policy committee end march turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow line projection february monetary policy report divergence growth advanced economy continue united states grow fast expect euro area gdp flat line february report projection near term indicator pmis industrial production continue stabilise recovery somewhat weak expect contrast gdp grow high anticipate february report growth expect slow follow weakening real private consumption retail sale growth start year china gdp grow forward growth expect rate early march government set annual growth target emerge market economy see mixed gdp growth outturn india grow particularly strongly near term indicator suggest momentum persist despite conflict middle east continue disruption ship red sea limited news energy price mpc february brent spot oil price increase barrel opec aligned oil producer expect extend production cut european wholesale natural gas spot near term future price flat committee february temperature remain mild storage level high labour market advanced economy continue loosen remain tight job vacancy rate particular continue decline country unemployment rate increase february non farm payroll grow month unemployment rate euro area edge january wage growth euro area united states fall datum outcome wage negotiation euro area available gap wage growth united kingdom hand euro area united states continue narrow wage growth decline quickly recently wage growth economy annual pay growth remain high united kingdom headline core consumer price inflation continue trend euro area united states start year february inflation rate region slightly high expect market participant account news core inflation euro area headline hicp inflation february core inflation united states headline cpi inflation core inflation service price inflation remain elevate economy committee discuss factor influence global long term real equilibrium interest rate factor previously operate demographic bear long term real rate increase investment climate transition technology artificial intelligence drive example expectation high productivity growth raise long term real equilibrium interest rate sustained increase fiscal spending impact committee factor monetary financial condition committee previous market imply path policy rate major advanced economy shift corporate bond spread narrow equity price rise leave mixed signal direction change financial condition follow significant fall market expectation policy rate december january strong expect economic datum particularly non farm payroll inflation release united states push slightly expect timing future reduction policy rate major advanced economy despite rise short term interest rate risky asset price increase market intelligence suggest narrowing corporate credit spread rise equity price reflect grow confidence global growth credit condition corporate earning improve forward line market expectation bank japan raise policy rate positive territory end policy yield curve control united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc continue expect bank rate downward median respondent late maps expect cumulative basis point reduction bank rate year start august line market pricing basis point february maps median respondent report perceive neutral interest rate similar survey committee discuss increase convergence correlate movement month market expectation policy rate path market intelligence indicate despite difference project supply demand growth convergence attribute factor similarity policy rate economy similar stage disinflationary process quote mortgage rate increase somewhat committee previous reflect pass increase risk free reference rate remain substantially level reach summer availability secured lending household improve slightly late credit conditions survey number owner occupy mortgage product advertise level record start interest rate tighten cycle quote interest rate unsecured consumer credit lending business remain close peak annual growth rate aggregate sterling broad money decrease december january drive volatility holding non intermediate financial corporation sector remain slightly previous month average annual growth household deposit continue rise demand output real gdp fall weak expect february monetary policy report follow decline bank estimate market sector output subject swing measured non market output health education decline similar sized fall expenditure component gdp domestic household consumption housing investment fall respectively business investment estimate rise monthly gdp rise january high level september strength monthly growth concentrate construction government service sector private service output rise slightly gdp market sector output growth expect pick positive half year flash s&p global cips composite output pmi little change march slightly long run historical average future output pmi ease slightly year high february similarly positive signal business survey future market sector activity intelligence bank agents slightly optimistic outlook bank continue expect gdp growth early indication suggest small rise output growth consumption weak expect early sign gradual recovery retail sale volume volatile rise january follow decline december intelligence agents suggest consumption growth weak improve gfk consumer confidence stable month future personal financial situation sub balance remain slightly long run average number mortgage approval house purchase rise january high level october house price index flat month timely indicator house price tend rise slightly spring budget take place march accompany economic fiscal outlook office budget responsibility government announce package fiscal measure include cut main rate employee self employ national insurance contribution april bank provisionally estimate measure increase level gdp coming year measure probably boost potential supply extent implication committee output gap projection inflationary pressure economy small assessment news conduct report forecast round supply cost price reflect uncertainty ons labour force survey lfs committee continue wide range indicator labour market activity collectively point labour market remain relatively tight absolute term continue loosen ons release update lfs estimate february advise caution interpret result owe low sample size estimate reflect migration population datum lfs unemployment rate estimate fall past month month january indicator claimant count agent intelligence recruitment difficulty point flat slightly rise profile unemployment vacancy unemployment ratio remain slightly level collective steer range measure point modestly positive quarterly employment growth line february monetary policy report projection committee note employment growth relatively resilient environment subdue activity suggest company potentially retain exist employee meet future increase demand consistent agent intelligence committee monitor retention restrain tightening labour market gdp growth pick backdrop ease labour market tightness recede inflation expectation indicator pay growth decline remain elevated annual private sector regular average weekly earnings awe growth month january percentage point low month october line february report projection awe move increasingly line measure median private sector pay growth derive hmrc payroll data committee discuss degree persistence wage growth short term measure wage growth ease underlying measure base range pay indicator run month month annualise pace suggest moderation inflationary persistence hand adjust awe datum cpi weight basis indicate pay growth moderate slow pace headline datum suggest forward look indicator point slow moderation expectation future wage growth decision maker panel dmp survey remain flat late intelligence average pay settlement collect agents remain close level observe agents annual survey present february report agent contact expect low pass high labour cost price compare month cpi inflation fall february january december little expectation february report late cpi release trigger exchange open letter governor chancellor exchequer publish alongside minute decline cpi inflation month attribute fall food core good price inflation external cost pressure continue abate service price inflation decline remain elevated energy price continue drag annual cpi inflation despite rise ofgem price cap january energy expect contribute negatively cpi inflation month owe upcoming reduction price cap april freeze fuel duty announce budget provide marginal drag compare february report projection core good price inflation fall february slightly low expect february report cost pressure previous shock global good price inflation continue dissipate food non alcoholic beverage inflation fall february january level producer input output price core good food recede significantly previous peak past year flatten agent contact similarly anticipate fall flat input cost service price inflation remain high cpi inflation february decrease percentage point january line february report expectation high frequency service price measure exclude component typically reliable indicator trend inflation persistence rent airfare package holiday education rise 4½% month month annualise basis moderation service price inflation month appear account weakness non labour labour cost household median short term inflation expectation continue ease february bank england inflation attitudes survey long term expectation remain steady close historical average inflation expectation citi yougov survey household remain somewhat high bank measure year ahead measure decline remain historical average long term measure steady business expectation look year ahead february dmp survey ease marginally compare january remain late maps median cpi expectation market participant year point fall little median expectation year horizon remain unchanged immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment mpc february monetary policy report projection gdp growth expect pick gradually forecast period cpi inflation expect fall temporarily target increase 2¾% condition market imply path bank rate time february report inflation project target nearly remainder forecast period owe persistence domestic inflationary pressure committee judge risk modal inflation projection skew upside half forecast period stem geopolitical factor risk domestic price wage pressure judge evenly balanced mpc previous market imply path advanced economy policy rate shift include united kingdom have decline half year gdp market sector output expect start grow half year business survey remain consistent improve outlook activity reflect uncertainty ons labour force survey committee continue wide range indicator labour market activity labour market continue loosen remain relatively tight historical standard extent company retain exist employee meet future increase demand employment growth weak relative output growth near term consistent easing labour market tightness labour demand prove strong easing month cpi inflation fall february january december little expectation february report service consumer price inflation decline remain elevated february high frequency measure core service inflation month month annualise rate 4½% indicator short term inflation expectation continue ease elevated nominal wage growth moderate number measure underlying measure base range pay indicator run month month annualise pace contact bank agents continue expect decline pay settlement year great difficulty pass cost increase price cpi inflation project fall slightly target marginally weak previously expect owe freeze fuel duty announce budget mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation continue fall relatively sharply owe base effect external effect energy good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure nonetheless key indicator inflation persistence remain elevated range view member extent risk persistent inflationary pressure recede end range development nominal indicator include high frequency suggest restrictive stance policy unwinding round effect associate decline short term inflation expectation have material impact reduce persistent slow move component inflation end range wage growth remain high expect moderate slowly reflect agents late intelligence limited sign far service price inflation return target consistent pace sufficiently rapidly evidence diminish round effect tentative upside risk remain wage cpi inflation projection member accumulation evidence inflation persistence require warrant shift monetary policy stance member differ extent evidence need degree restrictiveness policy prefer percentage point reduction bank rate wait reassurance reduce bank rate weigh living standard supply capacity bank rate need restrictive enable smooth transition policy stance account lag transmission preclude possibility maintain bank rate upside risk materialise consumer price inflation time firm downward trajectory consumption recover pre pandemic level sharp contrast advanced economy drive economic growth outlook demand remain weak vacancy fall sharply forward look indicator nominal pay growth easing mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill dave ramsden vote favour proposition swati dhingra vote proposition prefer reduce bank rate percentage point operational consideration march total stock asset hold monetary policy purpose comprise government bond purchase sterling non‐financial investment‐grade corporate bond purchase follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative

monetary policy summary bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote majority 7–2 maintain bank rate member prefer reduce bank rate percentage point committee update projection activity inflation set accompanying monetary policy report condition market imply path bank rate decline 5¼% 3¾% end forecast period compare endpoint 3¼% february internationally growth outturn tend strong united states euro area underlie inflationary pressure region continue moderate somewhat start year expect united states forward interest rate rise united states result follow modest weakness year gdp expect rise grow despite pick forecast period demand growth expect weak potential supply growth period margin economic slack project emerge reflect continue restrictive stance monetary policy respect indicator inflation persistence service consumer price inflation decline remain elevated march remain considerable uncertainty statistic derive ons labour force survey difficult gauge evolution labour market base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard annual private sector regular average weekly earning growth decline month february series tend volatile alternative indicator ease pay growth month cpi inflation fall march february cpi inflation expect return close target near term increase slightly half year 2½% owe unwinding energy relate base effect upside risk near term inflation outlook geopolitical factor development middle east limited impact oil price far condition market interest rate reflect margin slack economy cpi inflation project year time year report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation continue fall owe base effect external effect good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence moderate expect elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation committee forthcoming datum release inform assessment risk inflation persistence recede basis committee long bank rate maintain level minute monetary policy committee end turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying monetary policy report mpc discuss development consumer price inflation united states euro area united states outturn high expect market participant headline core pce inflation evidence suggest high expect inflation reflect surprisingly strong domestic demand inflation persistence euro area inflation datum line market expectation demand remain relatively subdued increase divergence demand region consistent divergence monetary policy potential implication exchange rate broad financial condition give change perceive outlook demand inflation market participant revise expectation monetary policy mpc previous push expect timing degree future reduction fund rate alongside market imply path policy rate major advanced economy include united kingdom shift materially committee discuss degree move interest rate reflect global domestic factor straightforward separate correlation market interest rate near historical range sensitivity rate domestic datum outturn remain elevated market contact begin judge increase divergence outlook major advanced economy reflect monetary policy near term say contact expect influence global factor lead great macroeconomic monetary policy convergence major advanced economy united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc expect bank rate downwards median expect profile bank rate maps imply cumulative basis point reduction bank rate year similar profile march maps despite increase yield curve turn activity gdp growth strengthen start year reverse fall output estimate occur half committee expect recovery output underpin pickup household consumption support high real income committee discuss risk near term outlook consumer spending house price inflation hold expect upside risk outlook spending potential explanation high interest rate weigh house price expect set modest expect rise unemployment pose downside risk consumption example household directly affect choose save precautionary reason committee discuss degree persistence wage growth domestic price inflation consistent easing short term inflation expectation loosening labour market wage growth fall somewhat service consumer price inflation continue ease wage growth service price inflation slightly high expect february monetary policy report difference small context typical datum volatility series indicate elevated domestic inflationary pressure committee discuss relative weight different indicator inflation persistence particularly event divergent signal future remain considerable uncertainty estimate labour market tightness derive labour force survey lfs owe small sample size range labour market indicator include vacancy unemployment ratio survey indicator recruitment difficulty suggest labour market continue loosen remain relatively tight historical standard severe issue surround lfs committee note private sector regular average weekly earning awe series tend volatile especially compare service price inflation awe growth fall sharply year decline suggest indicator appear gradual low peak possibly reflect past fall real wage relatively tight labour market nominal pay growth continue elevate appropriate weight place different indicator inflation persistence depend wide economic development depend expect path demand example indicator inflation persistence expect diverge environment subdue demand firm expect absorb high wage growth profit margin high wage growth pass high service price inflation demand recover firm choose pass wage growth result high service price inflation initial report indicate agents contact expect low pass high labour cost price year owe weak demand consumer face service firm survey decision maker panel month april say expect raise price year committee evidence different indicator persistence monitor context immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment indicator inflation persistence evolve expect albeit little strong anticipate february monetary policy report service consumer price inflation decline remain elevated march high frequency measure service price inflation show somewhat slowdown annual rate indicate elevated domestic inflationary pressure service price inflation expect ease gradually course year wage growth indirect effect energy good price weaken remain considerable uncertainty statistic derive ons labour force survey difficult gauge evolution labour market base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard annual private sector regular average weekly earning growth decline month february series tend volatile alternative indicator suggest ease pay growth committee note year pay settlement tend concentrate early year provide important indication extent pay growth continue moderate expect firmer information april settlement soon available include bank agents intelligence month cpi inflation fall march february expect february report mpc report projection cpi inflation expect return close target near term increase slightly half year 2½% owe unwinding energy relate base effect condition market interest rate reflect margin slack economy cpi inflation project year time year continue upside risk modal cpi inflation projection geopolitical factor half forecast period risk evenly balance half mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation continue fall owe base effect external effect good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence moderate expect remain elevated range view member risk assumption persistence embody cpi projection range view extent evidence need warrant change bank rate degree member anticipate incremental information forthcoming data outturn lead update materially assessment inflation persistence member degree restrictiveness policy member prefer percentage point reduction bank rate member bank rate need restrictive enable smooth gradual transition policy stance account lag transmission consumer price inflation time firm downward trajectory late forecast show inflation return close target short term consistent forward look indicator output price inflation fall input price inflation outlook demand remain subdue vacancy continue fall nominal pay growth easing risk inflation return sustainably target medium term downside mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation committee forthcoming datum release inform assessment risk inflation persistence recede basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill vote favour proposition member swati dhingra dave ramsden vote proposition prefer reduce bank rate percentage point operational consideration total stock asset hold monetary policy purpose government bond corporate bond purchase scheme fully unwound april holding sterling non‐financial investment‐grade corporate bond follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts april observer purpose exercise oversight function role bank court directors monetary policy summary bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end mpc vote majority 7–2 maintain bank rate member prefer reduce bank rate percentage point committee update projection activity inflation set accompanying monetary policy report condition market imply path bank rate decline 5¼% 3¾% end forecast period compare endpoint 3¼% february internationally growth outturn tend strong united states euro area underlie inflationary pressure region continue moderate somewhat start year expect united states forward interest rate rise united states result follow modest weakness year gdp expect rise grow despite pick forecast period demand growth expect weak potential supply growth period margin economic slack project emerge reflect continue restrictive stance monetary policy respect indicator inflation persistence service consumer price inflation decline remain elevated march remain considerable uncertainty statistic derive ons labour force survey difficult gauge evolution labour market base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard annual private sector regular average weekly earning growth decline month february series tend volatile alternative indicator ease pay growth month cpi inflation fall march february cpi inflation expect return close target near term increase slightly half year 2½% owe unwinding energy relate base effect upside risk near term inflation outlook geopolitical factor development middle east limited impact oil price far condition market interest rate reflect margin slack economy cpi inflation project year time year report mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation continue fall owe base effect external effect good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence moderate expect elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation committee forthcoming datum release inform assessment risk inflation persistence recede basis committee long bank rate maintain level minute monetary policy committee end turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying monetary policy report mpc discuss development consumer price inflation united states euro area united states outturn high expect market participant headline core pce inflation evidence suggest high expect inflation reflect surprisingly strong domestic demand inflation persistence euro area inflation datum line market expectation demand remain relatively subdued increase divergence demand region consistent divergence monetary policy potential implication exchange rate broad financial condition give change perceive outlook demand inflation market participant revise expectation monetary policy mpc previous push expect timing degree future reduction fund rate alongside market imply path policy rate major advanced economy include united kingdom shift materially committee discuss degree move interest rate reflect global domestic factor straightforward separate correlation market interest rate near historical range sensitivity rate domestic datum outturn remain elevated market contact begin judge increase divergence outlook major advanced economy reflect monetary policy near term say contact expect influence global factor lead great macroeconomic monetary policy convergence major advanced economy united kingdom respondent bank late market participants survey maps expect bank rate leave unchanged mpc expect bank rate downwards median expect profile bank rate maps imply cumulative basis point reduction bank rate year similar profile march maps despite increase yield curve turn activity gdp growth strengthen start year reverse fall output estimate occur half committee expect recovery output underpin pickup household consumption support high real income committee discuss risk near term outlook consumer spending house price inflation hold expect upside risk outlook spending potential explanation high interest rate weigh house price expect set modest expect rise unemployment pose downside risk consumption example household directly affect choose save precautionary reason committee discuss degree persistence wage growth domestic price inflation consistent easing short term inflation expectation loosening labour market wage growth fall somewhat service consumer price inflation continue ease wage growth service price inflation slightly high expect february monetary policy report difference small context typical datum volatility series indicate elevated domestic inflationary pressure committee discuss relative weight different indicator inflation persistence particularly event divergent signal future remain considerable uncertainty estimate labour market tightness derive labour force survey lfs owe small sample size range labour market indicator include vacancy unemployment ratio survey indicator recruitment difficulty suggest labour market continue loosen remain relatively tight historical standard severe issue surround lfs committee note private sector regular average weekly earning awe series tend volatile especially compare service price inflation awe growth fall sharply year decline suggest indicator appear gradual low peak possibly reflect past fall real wage relatively tight labour market nominal pay growth continue elevate appropriate weight place different indicator inflation persistence depend wide economic development depend expect path demand example indicator inflation persistence expect diverge environment subdue demand firm expect absorb high wage growth profit margin high wage growth pass high service price inflation demand recover firm choose pass wage growth result high service price inflation initial report indicate agents contact expect low pass high labour cost price year owe weak demand consumer face service firm survey decision maker panel month april say expect raise price year committee evidence different indicator persistence monitor context immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment indicator inflation persistence evolve expect albeit little strong anticipate february monetary policy report service consumer price inflation decline remain elevated march high frequency measure service price inflation show somewhat slowdown annual rate indicate elevated domestic inflationary pressure service price inflation expect ease gradually course year wage growth indirect effect energy good price weaken remain considerable uncertainty statistic derive ons labour force survey difficult gauge evolution labour market base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard annual private sector regular average weekly earning growth decline month february series tend volatile alternative indicator suggest ease pay growth committee note year pay settlement tend concentrate early year provide important indication extent pay growth continue moderate expect firmer information april settlement soon available include bank agents intelligence month cpi inflation fall march february expect february report mpc report projection cpi inflation expect return close target near term increase slightly half year 2½% owe unwinding energy relate base effect condition market interest rate reflect margin slack economy cpi inflation project year time year continue upside risk modal cpi inflation projection geopolitical factor half forecast period risk evenly balance half mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation continue fall owe base effect external effect good price restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence moderate expect remain elevated range view member risk assumption persistence embody cpi projection range view extent evidence need warrant change bank rate degree member anticipate incremental information forthcoming data outturn lead update materially assessment inflation persistence member degree restrictiveness policy member prefer percentage point reduction bank rate member bank rate need restrictive enable smooth gradual transition policy stance account lag transmission consumer price inflation time firm downward trajectory late forecast show inflation return close target short term consistent forward look indicator output price inflation fall input price inflation outlook demand remain subdue vacancy continue fall nominal pay growth easing risk inflation return sustainably target medium term downside mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation committee forthcoming datum release inform assessment risk inflation persistence recede basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill vote favour proposition member swati dhingra dave ramsden vote proposition prefer reduce bank rate percentage point operational consideration total stock asset hold monetary policy purpose government bond corporate bond purchase scheme fully unwound april holding sterling non‐financial investment‐grade corporate bond follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts april observer purpose exercise oversight function role bank court directors

monetary policy summary june bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote majority 7–2 maintain bank rate member prefer reduce bank rate percentage point month cpi inflation fall march close monetary policy report projection indicator short term inflation expectation continue moderate particularly household cpi inflation expect rise slightly half year decline energy price year fall annual comparison gdp appear grow strongly expect half year business survey consistent slow pace underlie growth considerable uncertainty estimate derive ons labour force survey mean difficult gauge evolution labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard collective steer range indicator aggregate pay growth continue ease late datum service consumer price inflation march somewhat high project report strength reflect price index link regulate typically change annually volatile component mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation fall target restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence continue moderate elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation august forecast round member committee information available affect assessment risk inflation persistence recede basis committee long bank rate maintain level minute monetary policy committee end june turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate rise line projection monetary policy report expect grow similar pace growth rate advanced economy converge growth moderate euro area gdp rise composite output pmi reach month high account manufacturing sector gdp expand growth region expect pace china gdp grow account strength export emerge market economy indicator activity pmis see healthy growth period particular strength india mpc brent spot oil price rise barrel european wholesale natural gas spot price increase small increase future price global shipping cost rise mpc amid long expect disruption route red sea cost remain pandemic era peak level anticipation constrain shipping capacity half year indication producer fill inventory soon usual high demand combine ongoing shipping capacity constraint push shipping rate uncertainty extent timing potential effect consumer price labour market advanced economy remain tight unemployment rate increase vacancy rate decrease april take vacancy unemployment ratio close pre covid level non farm payroll growth rebound expect market participant suggest continued strength labour market euro area unemployment rate fall historically low level april wage pressure remain elevated region wage growth component employment cost index have tick slightly negotiate wage growth rise euro area payment committee discuss extent wage strength push inflationary pressure region headline consumer price inflation major advanced economy continue somewhat bank target month service inflation remain elevated euro area month hicp inflation core inflation rise slightly high expect market participant service inflation increase particularly strongly base effect german transport price cpi inflation fall marginally core cpi inflation fall slightly market expectation look ahead headline inflation expect moderate economy inflation target core service shelter inflation expect decline slow pace united states energy relate base effect lead uneven inflation profile euro area monetary financial condition month major advanced economy government bond yield see relatively high degree movement committee previous period yield move offset direction response macroeconomic datum particular united states news indicator mix recently yield affect uncertainty relate forthcoming french election market imply path policy rate major advanced economy end period somewhat low time committee previous near term sterling effective exchange rate end period strong great divergence risky asset price country equity price europe fall response political uncertainty united states increase somewhat end june ecb governing council decrease key policy rate basis point line market expectation statement governing council note despite progress quarter domestic price pressure remain strong reiterate follow data dependent approach follow announcement market imply path subsequent cut euro area policy rate fall basis point end june federal open market committee fomc leave fund rate unchanged line market expectation median fomc expect basis point reduction fund rate compare time march fomc projection united kingdom bank rate expectation imply market pricing increase follow april cpi release show inflation high expect mpc market participant respondent bank late market participants survey maps expect bank rate leave unchanged mpc map respondent continue expect bank rate downward median profile imply cumulative basis point reduction bank rate year start august basis point maps contrast somewhat path imply market pricing suggest basis point cut occur november medium term inflation compensation measure united kingdom little change mpc previous credit condition month growth rate aggregate sterling net lending bank pick slightly april annual growth net secured lending household pick high remain rate see start bank rate tighten cycle mortgage approval house purchase indicator early stage house buying process fall slightly april month consecutive increase quote rate fix rate mortgage product little change mpc previous annual growth rate aggregate sterling broad money increase slightly april annual growth household deposit pick reflect large inflow isa month demand output real gdp increase percentage point strong expect monetary policy report half upside news account strong government service output tend volatile subject significant revision quarter market sector output growth somewhat strong expect monthly gdp unchanged month april somewhat strong bank expectation great unwinding strength business business service output rise strongly offset weather relate weakness component service construction sector bank expect gdp growth strong rate incorporate report light committee discuss underlie trend growth late upside news measure gdp half year set surprisingly weak output datum observe half recent indication official datum strong underlying rate output growth suggest business survey remain survey continue signal company expect output growth pick course year give potential supply risk spare capacity economy open less degree project report household consumption increase close expectation report retail sale volume fall sharply april reflect weather relate volatility spending real labour income continue pick consumer confidence recover household continue personal financial situation positively nonetheless reflect restrictive stance monetary policy household remain sceptical make major purchase instead favour saving contact bank agents report pickup consumer demand cautiously optimistic growth rise course year housing investment estimate grow significantly strong expect report indicate easing impact high interest rate have upside surprise reflect continue upward trend private housing repair maintenance alongside small increase work period pronounce weakness late april housing construction output datum weaken component potentially owe adverse weather condition house price index rise month business investment estimate rise strength concentrate spending aircraft s&p global cips manufacturing investment good output pmi pick recently expect business investment growth decision maker panel survey supply cost price continue labour market datum quality issue matter increase concern owe low achieve sample size labour force survey lfs)-based estimate labour market dynamic subject considerable uncertainty key labour market flow datum fully reintroduce difficult gauge underlie state labour market activity mpc time utilise wide range datum inform judgement labour market include official datum business survey intelligence bank agents collective steer number indicator hmrc rti payroll employee datum range business survey bank agents employment score point underlie employment growth have slow rate population growth contrast lfs base estimate employment report sharp decline deceleration underlie employment reflect slowing labour demand volume vacancy continue fall pre covid level pace decline slow relative year decline vacancy relatively broad base sector similar pattern reflect sectoral decline demand report kpmg rec survey reflect slow labour demand labour market tightness continue ease vacancy unemployment ratio fall month april return pre covid level high historical standard bank agents contact report recruitment difficulty ease near pre covid level historically high level kpmg rec survey indicate availability increase nonetheless indicator model underlying unemployment extract signal indicator claimant count vacancy measure recruitment difficulty household indicator point underlie unemployment rate have relatively flat quarter imply labour market little tight official datum suggest lfs measure unemployment rate increase percentage point annual private sector regular average weekly earnings awe growth ease month january month april line expectation time monetary policy report april traditionally important month pay setting year pay settlement take effect alongside annual increase national living wage collective steer range pay growth indicator continue ease update forecast remain line projection report annual growth datum suggest risk near term pay growth moderate expect report bank agents contact report pay settlement slightly average level record agents annual pay survey present february report contact consumer face business expose national living wage report high settlement accord decision maker panel dmp survey month business expectation annual pay growth year ahead ease slightly rate elevate counterpoint upside risk kpmg rec monthly pay growth index continue downside risk future pay growth month cpi inflation fall march decline headline cpi inflation account base effect good service outturn close expectation time report downside news core good price inflation somewhat offset upside news service price inflation consumer good price inflation continue ease cost pressure previous external shock dissipate household domestic energy bill continue pull headline inflation decline annual rate food non alcoholic beverage price inflation fall compare peak march core good price inflation drop slightly pre covid inflation rate ons producer price datum continue point ease cost pressure producer output input price level flat continue trend observe past year signal indicator s&p global cip manufacture pmi input output price index import price point mute cost price pressure core good committee discuss development indicator consumer service price inflation business price set behaviour service price inflation ease march somewhat high outturn expect time report high frequency measure service price inflation pick month strength account component service basket index link regulate price typically change april remain annual inflation rate month strength volatile component basket accommodation service monthly annualise inflation rate seasonally adjust service price measure exclude indexed volatile component rent foreign holiday average 5¼% month close average mid-2023 cpi microdata suggest share service price increase measure price set behaviour continue ease share remain elevate historical standard evidence dmp survey suggest business expect frequency service price increase normalise somewhat course year s&p global cips pmi service input price index rise sharply april fall close historical average correspond output price index decline low level year evidence profit margin consumer face service evolve mix hand intelligence bank agents suggest consumer face service business face price sensitive consumer find challenging maintain profit margin face continue cost pressure include labour cost hand late dmp survey datum suggest business consumer face sector wholesale retail food accommodation experience flat decline profit margin previous year expect maintain slightly increase margin year ahead suggest margin expansion add significantly inflation realise cost growth staff expect cpi inflation increase slightly half year owe small drag month inflation domestic energy bill indicator household inflation expectation important channel potential round effect cpi inflation continue moderate normalise historical average bank england ipsos inflation attitudes survey measure median short term inflation expectation fall marginally historical average corresponding measure medium term expectation remain close historical average citi yougov indicator household short term inflation expectation ease april remain slightly historical average contrast development household measure business price expectation report dmp survey remain elevated level albeit continue downward path immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee note timing general election july relevant decision usual basis judge necessary achieve inflation target sustainably medium term mpc monetary policy report projection margin economic slack project emerge reflect continue restrictive stance monetary policy cpi inflation expect return close target near term increase slightly half year 2½% decline energy price previous year fall annual comparison continue upside risk near term inflation outlook geopolitical factor condition market imply path bank rate time report reflect margin slack economy cpi inflation project year time year committee consider development previous mpc inform assessment risk inflation persistence recede gdp appear grow strongly expect half year business survey remain consistent slow pace underlie growth contact bank agents report pickup consumer demand housing indicator show sign great resilience month considerable uncertainty estimate derive ons labour force survey mean difficult gauge evolution labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard collective steer range indicator aggregate pay growth continue ease late datum sign year increase national living wage nlw have great expect impact bank agents contact report pay settlement slightly average level record agents annual pay survey present february report month cpi inflation fall march close report projection indicator short term inflation expectation continue moderate particularly household implication future wage price set decision service consumer price inflation march somewhat high project report strength reflect price index link regulate typically change annually volatile component high frequency measure service consumer price inflation pick month s&p global cips pmi service input price index rise sharply april fall close historical average correspond output price index decline low level year continue range view risk inflation persistence embody cpi projection report hand continue unwinding past shock energy import good price moderate extent employee domestic firm seek high nominal pay domestic selling price recover reduction real income experience past headline cpi inflation short term inflation expectation fall inflationary dynamic adjust rapidly downside upside hand remain risk enduring shift price wage set behaviour associate high degree real income resistance change relative wage structure addition uncertainty near term path demand spare capacity economy extent constrain domestic price face elevate cost pressure contrast upside news service consumer price inflation core good price inflation weak project report series volatile downside news spread component good basket consistent broad development external cost pressure cpi inflation expect increase slightly half year decline energy price year fall annual comparison mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation fall target restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence continue moderate remain elevated continue range view member extent accumulate evidence need warrant change bank rate degree incremental information lead update materially assessment inflation persistence member group return headline inflation welcome necessarily indicative require sustained return target continue high level upside news service inflation support round effect maintain persistent upward pressure underlie inflation wage growth continue exceed model base estimate indicator domestic demand strong expect risk outlook activity skewed upside member evidence diminish inflation persistence need reduce degree monetary policy restrictiveness member group upside news service price inflation relative report alter significantly disinflationary trajectory economy support evidence strength service inflation include regulate index component basket volatile component impact increase nlw april aggregate pay growth unlikely large future factor push medium term inflation member policy decision finely balanced member prefer percentage point reduction bank rate member bank rate need restrictive enable smooth gradual transition policy stance account lag transmission cpi inflation firm downward trajectory time return target forecast stay close short term consistent easing labour market forward look indicator inflation pass continue fall inflation expectation give subdue outlook demand risk inflation remain sustainably target medium term downside mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation august forecast round member committee information available affect assessment risk inflation persistence recede basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill vote favour proposition member swati dhingra dave ramsden vote proposition prefer reduce bank rate percentage point operational consideration june stock government bond hold monetary policy purpose finally occasion final behalf committee member past chair express appreciation ben broadbent contribution work mpc follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts june observer purpose exercise oversight function role bank court directors monetary policy summary june bank england monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment end june mpc vote majority 7–2 maintain bank rate member prefer reduce bank rate percentage point month cpi inflation fall march close monetary policy report projection indicator short term inflation expectation continue moderate particularly household cpi inflation expect rise slightly half year decline energy price year fall annual comparison gdp appear grow strongly expect half year business survey consistent slow pace underlie growth considerable uncertainty estimate derive ons labour force survey mean difficult gauge evolution labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard collective steer range indicator aggregate pay growth continue ease late datum service consumer price inflation march somewhat high project report strength reflect price index link regulate typically change annually volatile component mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term committee vote maintain bank rate headline cpi inflation fall target restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence continue moderate elevated monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation august forecast round member committee information available affect assessment risk inflation persistence recede basis committee long bank rate maintain level minute monetary policy committee end june turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate rise line projection monetary policy report expect grow similar pace growth rate advanced economy converge growth moderate euro area gdp rise composite output pmi reach month high account manufacturing sector gdp expand growth region expect pace china gdp grow account strength export emerge market economy indicator activity pmis see healthy growth period particular strength india mpc brent spot oil price rise barrel european wholesale natural gas spot price increase small increase future price global shipping cost rise mpc amid long expect disruption route red sea cost remain pandemic era peak level anticipation constrain shipping capacity half year indication producer fill inventory soon usual high demand combine ongoing shipping capacity constraint push shipping rate uncertainty extent timing potential effect consumer price labour market advanced economy remain tight unemployment rate increase vacancy rate decrease april take vacancy unemployment ratio close pre covid level non farm payroll growth rebound expect market participant suggest continued strength labour market euro area unemployment rate fall historically low level april wage pressure remain elevated region wage growth component employment cost index have tick slightly negotiate wage growth rise euro area payment committee discuss extent wage strength push inflationary pressure region headline consumer price inflation major advanced economy continue somewhat bank target month service inflation remain elevated euro area month hicp inflation core inflation rise slightly high expect market participant service inflation increase particularly strongly base effect german transport price cpi inflation fall marginally core cpi inflation fall slightly market expectation look ahead headline inflation expect moderate economy inflation target core service shelter inflation expect decline slow pace united states energy relate base effect lead uneven inflation profile euro area monetary financial condition month major advanced economy government bond yield see relatively high degree movement committee previous period yield move offset direction response macroeconomic datum particular united states news indicator mix recently yield affect uncertainty relate forthcoming french election market imply path policy rate major advanced economy end period somewhat low time committee previous near term sterling effective exchange rate end period strong great divergence risky asset price country equity price europe fall response political uncertainty united states increase somewhat end june ecb governing council decrease key policy rate basis point line market expectation statement governing council note despite progress quarter domestic price pressure remain strong reiterate follow data dependent approach follow announcement market imply path subsequent cut euro area policy rate fall basis point end june federal open market committee fomc leave fund rate unchanged line market expectation median fomc expect basis point reduction fund rate compare time march fomc projection united kingdom bank rate expectation imply market pricing increase follow april cpi release show inflation high expect mpc market participant respondent bank late market participants survey maps expect bank rate leave unchanged mpc map respondent continue expect bank rate downward median profile imply cumulative basis point reduction bank rate year start august basis point maps contrast somewhat path imply market pricing suggest basis point cut occur november medium term inflation compensation measure united kingdom little change mpc previous credit condition month growth rate aggregate sterling net lending bank pick slightly april annual growth net secured lending household pick high remain rate see start bank rate tighten cycle mortgage approval house purchase indicator early stage house buying process fall slightly april month consecutive increase quote rate fix rate mortgage product little change mpc previous annual growth rate aggregate sterling broad money increase slightly april annual growth household deposit pick reflect large inflow isa month demand output real gdp increase percentage point strong expect monetary policy report half upside news account strong government service output tend volatile subject significant revision quarter market sector output growth somewhat strong expect monthly gdp unchanged month april somewhat strong bank expectation great unwinding strength business business service output rise strongly offset weather relate weakness component service construction sector bank expect gdp growth strong rate incorporate report light committee discuss underlie trend growth late upside news measure gdp half year set surprisingly weak output datum observe half recent indication official datum strong underlying rate output growth suggest business survey remain survey continue signal company expect output growth pick course year give potential supply risk spare capacity economy open less degree project report household consumption increase close expectation report retail sale volume fall sharply april reflect weather relate volatility spending real labour income continue pick consumer confidence recover household continue personal financial situation positively nonetheless reflect restrictive stance monetary policy household remain sceptical make major purchase instead favour saving contact bank agents report pickup consumer demand cautiously optimistic growth rise course year housing investment estimate grow significantly strong expect report indicate easing impact high interest rate have upside surprise reflect continue upward trend private housing repair maintenance alongside small increase work period pronounce weakness late april housing construction output datum weaken component potentially owe adverse weather condition house price index rise month business investment estimate rise strength concentrate spending aircraft s&p global cips manufacturing investment good output pmi pick recently expect business investment growth decision maker panel survey supply cost price continue labour market datum quality issue matter increase concern owe low achieve sample size labour force survey lfs)-based estimate labour market dynamic subject considerable uncertainty key labour market flow datum fully reintroduce difficult gauge underlie state labour market activity mpc time utilise wide range datum inform judgement labour market include official datum business survey intelligence bank agents collective steer number indicator hmrc rti payroll employee datum range business survey bank agents employment score point underlie employment growth have slow rate population growth contrast lfs base estimate employment report sharp decline deceleration underlie employment reflect slowing labour demand volume vacancy continue fall pre covid level pace decline slow relative year decline vacancy relatively broad base sector similar pattern reflect sectoral decline demand report kpmg rec survey reflect slow labour demand labour market tightness continue ease vacancy unemployment ratio fall month april return pre covid level high historical standard bank agents contact report recruitment difficulty ease near pre covid level historically high level kpmg rec survey indicate availability increase nonetheless indicator model underlying unemployment extract signal indicator claimant count vacancy measure recruitment difficulty household indicator point underlie unemployment rate have relatively flat quarter imply labour market little tight official datum suggest lfs measure unemployment rate increase percentage point annual private sector regular average weekly earnings awe growth ease month january month april line expectation time monetary policy report april traditionally important month pay setting year pay settlement take effect alongside annual increase national living wage collective steer range pay growth indicator continue ease update forecast remain line projection report annual growth datum suggest risk near term pay growth moderate expect report bank agents contact report pay settlement slightly average level record agents annual pay survey present february report contact consumer face business expose national living wage report high settlement accord decision maker panel dmp survey month business expectation annual pay growth year ahead ease slightly rate elevate counterpoint upside risk kpmg rec monthly pay growth index continue downside risk future pay growth month cpi inflation fall march decline headline cpi inflation account base effect good service outturn close expectation time report downside news core good price inflation somewhat offset upside news service price inflation consumer good price inflation continue ease cost pressure previous external shock dissipate household domestic energy bill continue pull headline inflation decline annual rate food non alcoholic beverage price inflation fall compare peak march core good price inflation drop slightly pre covid inflation rate ons producer price datum continue point ease cost pressure producer output input price level flat continue trend observe past year signal indicator s&p global cip manufacture pmi input output price index import price point mute cost price pressure core good committee discuss development indicator consumer service price inflation business price set behaviour service price inflation ease march somewhat high outturn expect time report high frequency measure service price inflation pick month strength account component service basket index link regulate price typically change april remain annual inflation rate month strength volatile component basket accommodation service monthly annualise inflation rate seasonally adjust service price measure exclude indexed volatile component rent foreign holiday average 5¼% month close average mid-2023 cpi microdata suggest share service price increase measure price set behaviour continue ease share remain elevate historical standard evidence dmp survey suggest business expect frequency service price increase normalise somewhat course year s&p global cips pmi service input price index rise sharply april fall close historical average correspond output price index decline low level year evidence profit margin consumer face service evolve mix hand intelligence bank agents suggest consumer face service business face price sensitive consumer find challenging maintain profit margin face continue cost pressure include labour cost hand late dmp survey datum suggest business consumer face sector wholesale retail food accommodation experience flat decline profit margin previous year expect maintain slightly increase margin year ahead suggest margin expansion add significantly inflation realise cost growth staff expect cpi inflation increase slightly half year owe small drag month inflation domestic energy bill indicator household inflation expectation important channel potential round effect cpi inflation continue moderate normalise historical average bank england ipsos inflation attitudes survey measure median short term inflation expectation fall marginally historical average corresponding measure medium term expectation remain close historical average citi yougov indicator household short term inflation expectation ease april remain slightly historical average contrast development household measure business price expectation report dmp survey remain elevated level albeit continue downward path immediate policy decision mpc set monetary policy meet inflation target way help sustain growth employment committee note timing general election july relevant decision usual basis judge necessary achieve inflation target sustainably medium term mpc monetary policy report projection margin economic slack project emerge reflect continue restrictive stance monetary policy cpi inflation expect return close target near term increase slightly half year 2½% decline energy price previous year fall annual comparison continue upside risk near term inflation outlook geopolitical factor condition market imply path bank rate time report reflect margin slack economy cpi inflation project year time year committee consider development previous mpc inform assessment risk inflation persistence recede gdp appear grow strongly expect half year business survey remain consistent slow pace underlie growth contact bank agents report pickup consumer demand housing indicator show sign great resilience month considerable uncertainty estimate derive ons labour force survey mean difficult gauge evolution labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard collective steer range indicator aggregate pay growth continue ease late datum sign year increase national living wage nlw have great expect impact bank agents contact report pay settlement slightly average level record agents annual pay survey present february report month cpi inflation fall march close report projection indicator short term inflation expectation continue moderate particularly household implication future wage price set decision service consumer price inflation march somewhat high project report strength reflect price index link regulate typically change annually volatile component high frequency measure service consumer price inflation pick month s&p global cips pmi service input price index rise sharply april fall close historical average correspond output price index decline low level year continue range view risk inflation persistence embody cpi projection report hand continue unwinding past shock energy import good price moderate extent employee domestic firm seek high nominal pay domestic selling price recover reduction real income experience past headline cpi inflation short term inflation expectation fall inflationary dynamic adjust rapidly downside upside hand remain risk enduring shift price wage set behaviour associate high degree real income resistance change relative wage structure addition uncertainty near term path demand spare capacity economy extent constrain domestic price face elevate cost pressure contrast upside news service consumer price inflation core good price inflation weak project report series volatile downside news spread component good basket consistent broad development external cost pressure cpi inflation expect increase slightly half year decline energy price year fall annual comparison mpc remit clear inflation target apply time reflect primacy price stability monetary policy framework framework recognise occasion inflation depart target result shock disturbance monetary policy ensure cpi inflation return target sustainably medium term monetary policy need restrictive sufficiently long return inflation target sustainably medium term line mpc remit committee judge autumn monetary policy need restrictive extended period time risk inflation embed target dissipate committee recognise stance monetary policy restrictive bank rate reduce give start restrictive level member judge maintain bank rate warrant headline cpi inflation fall target restrictive stance monetary policy weigh activity real economy lead loose labour market bear inflationary pressure key indicator inflation persistence continue moderate remain elevated continue range view member extent accumulate evidence need warrant change bank rate degree incremental information lead update materially assessment inflation persistence member group return headline inflation welcome necessarily indicative require sustained return target continue high level upside news service inflation support round effect maintain persistent upward pressure underlie inflation wage growth continue exceed model base estimate indicator domestic demand strong expect risk outlook activity skewed upside member evidence diminish inflation persistence need reduce degree monetary policy restrictiveness member group upside news service price inflation relative report alter significantly disinflationary trajectory economy support evidence strength service inflation include regulate index component basket volatile component impact increase nlw april aggregate pay growth unlikely large future factor push medium term inflation member policy decision finely balanced member prefer percentage point reduction bank rate member bank rate need restrictive enable smooth gradual transition policy stance account lag transmission cpi inflation firm downward trajectory time return target forecast stay close short term consistent easing labour market forward look indicator inflation pass continue fall inflation expectation give subdue outlook demand risk inflation remain sustainably target medium term downside mpc remain prepared adjust monetary policy warrant economic datum return inflation target sustainably monitor closely indication persistent inflationary pressure resilience economy include range measure underlie tightness labour market condition wage growth service price inflation august forecast round member committee information available affect assessment risk inflation persistence recede basis committee long bank rate maintain level chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden ben broadbent megan greene jonathan haskel catherine mann huw pill vote favour proposition member swati dhingra dave ramsden vote proposition prefer reduce bank rate percentage point operational consideration june stock government bond hold monetary policy purpose finally occasion final behalf committee member past chair express appreciation ben broadbent contribution work mpc follow member committee andrew bailey chair sarah breeden ben broadbent swati dhingra megan greene jonathan haskel catherine mann huw pill dave ramsden sam beckett treasury representative david roberts june observer purpose exercise oversight function role bank court directors

monetary policy summary august monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end july mpc vote majority 5–4 reduce bank rate percentage point member prefer maintain bank rate committee publish update set projection activity inflation accompanying august monetary policy report month cpi inflation mpc target june cpi inflation expect increase 2¾% half year decline energy price year fall annual comparison reveal clearly prevail persistence domestic inflationary pressure private sector regular average weekly earning growth fall month service consumer price inflation decline june gdp pick sharply far year underlying momentum appear weak committee framework assess medium term outlook inflation distinguishe round effect mpc focus round effect capture persistent inflationary pressure committee continue monitor accumulation evidence broad range indicator committee expect fall headline inflation normalisation indicator inflation expectation feed weak pay price set dynamic margin slack emerge economy gdp fall potential labour market ease domestic inflationary persistence expect fade away year owe restrictive stance monetary policy risk inflationary pressure round effect prove enduring medium term strong expect path demand structural factor high equilibrium rate unemployment affect domestic wage price set persistently furthermore degree restrictiveness monetary policy embody committee assessment balance consideration committee vote reduce bank rate appropriate reduce slightly degree policy restrictiveness impact past external shock abate progress moderate risk persistence inflation gdp strong expect restrictive stance monetary policy continue weigh activity real economy lead loose labour market bear inflationary pressure monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end july turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying august monetary policy report global activity project expand steadily quarter gdp grow somewhat strong expect euro area gdp grow line expectation recent outturn consumer price inflation united states euro area suggest normalisation bank target committee discuss development internationally trade good price note presence range risk material inflation outlook chinese export price recently high expect pose downside risk past weakness emerge say effect inflation significant competitive effect generate spillover price inflation trade good export country set upside risk good price risk great trade fragmentation increase trade restriction broadening disruption shipping route affect supply good production concentrate particular region upside risk commodity price geopolitical development include event middle east remain level sterling important driver import price effective exchange rate appreciate committee previous high level start year appreciation weigh outlook import price inflation equal extent pass depend underlie driver appreciation market imply path bank rate relatively little change committee june path assume monetary policy report bank late market participants survey maps respondent expect bank rate downward expectation timing finely balanced significant majority respondent expect reduction occur mpc subsequent september consistent market pricing imply close even probability basis point reduction bank rate median profile bank rate august maps imply cumulative basis point reduction end year unchanged june survey line market pricing turn activity gdp grow strength appear continue growth half year strong expect time report business survey continue point underlie growth somewhat weak headline gdp growth committee discuss risk outlook domestic demand judge skew upside household real income growth continue support reversal previous energy shock appear raise saving consumption far flat retail sale volume point continue elevated saving improvement indicator gfk major purchase balance suggest risk consumption growth strengthen expect projection august report set box august report risk impact high interest rate spending modest occur early expect committee late modal projection suggest upside risk outlook spending set corporate insolvency rate continue rise remain historical average month cpi inflation fall mpc target remain level june inflation expect increase 2¾% half year owe small expect drag domestic energy bill committee discuss late accumulate evidence degree persistence pay growth domestic price inflation annual private sector regular average weekly earning growth continue fall albeit elevated level line projection time report continue downward trajectory pay growth drive normalisation short term inflation expectation ease labour market tightness pay growth remain excess rate explain bank model service consumer price inflation decline remain elevated high expect time report immediate policy decision monetary policy committee set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably committee brief government july statement immediate public spending pressure government announce change stance fiscal policy set budget october incorporate november monetary policy report projection month cpi inflation return mpc target june cpi inflation expect increase 2¾% half year decline energy price year fall annual comparison reveal clearly prevail persistence domestic inflationary pressure committee framework assess medium term outlook inflation distinguish round effect mpc focus round effect capture persistent inflationary pressure committee note potential path inflation committee expect fall headline inflation normalisation indicator inflation expectation feed weak pay price set dynamic margin slack emerge economy gdp fall potential labour market ease domestic inflationary persistence expect fade away year owe restrictive stance monetary policy modal projection august monetary policy report representation condition market imply path interest rate cpi inflation project fall year time year risk inflationary pressure round effect prove enduring medium term strong expect path demand structural factor high medium term equilibrium rate unemployment affect domestic wage price set persistently furthermore degree restrictiveness monetary policy embody committee assessment reflect risk august report modal inflation projection skew somewhat upside forecast period mean cpi inflation project year horizon respectively committee continue monitor accumulation evidence broad range indicator remain considerable uncertainty statistic derive ons labour force survey make difficult gauge underlie state labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard private sector regular average weekly earning growth fall month line expectation report line alternative indicator wage growth service consumer price inflation june unchanged strong expect report expect mpc previous low early year follow weakness half gdp growth pick sharply turn year strong expect report business survey continue point weak underlying gdp growth different member place different probability extent restrictive policy stance lead inflationary pressure unwind adverse inflationary dynamic prove enduring possibly result structural factor great momentum demand committee recognise stance monetary policy restrictive bank rate reduce level member prefer percentage point reduction bank rate appropriate reduce slightly degree policy restrictiveness impact past external shock abate progress moderate risk persistence inflation normalisation inflation expectation forward look indicator decision maker panel survey point wan wage price pressure strength service inflation continue reflect volatile component series gdp strong expect restrictive stance monetary policy continue weigh activity real economy lead loose labour market bear inflationary pressure member decision finely balanced inflationary persistence conclusively dissipate remain upside risk outlook member prefer maintain bank rate upside news service inflation gdp outturn relative report continue elevated wage growth suggest round effect have great impact wage price set behaviour economy embody modal forecast external factor international food energy price play major role reduce headline inflation date contrast underlie domestic inflationary pressure appear entrenched member think great risk enduring structural shift rise medium term equilibrium rate unemployment fall potential growth rise long run neutral interest rate contribute domestic inflationary persistence prefer maintain level bank rate strong evidence upside pressure materialise monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate reduce percentage point member andrew bailey sarah breeden swati dhingra clare lombardelli dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann huw pill vote proposition prefer maintain bank rate operational consideration july stock government bond hold monetary policy purpose discuss box august monetary policy report committee vote target reduction stock government bond hold monetary policy purpose month period october september september follow member committee andrew bailey chair sarah breeden swati dhingra megan greene jonathan haskel clare lombardelli catherine mann huw pill dave ramsden sam beckett treasury representative david roberts july jonathan bewes july observer purpose exercise oversight function role member bank court directors behalf committee chair express appreciation jonathan haskel contribution work mpc monetary policy summary august monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end july mpc vote majority 5–4 reduce bank rate percentage point member prefer maintain bank rate committee publish update set projection activity inflation accompanying august monetary policy report month cpi inflation mpc target june cpi inflation expect increase 2¾% half year decline energy price year fall annual comparison reveal clearly prevail persistence domestic inflationary pressure private sector regular average weekly earning growth fall month service consumer price inflation decline june gdp pick sharply far year underlying momentum appear weak committee framework assess medium term outlook inflation distinguishe round effect mpc focus round effect capture persistent inflationary pressure committee continue monitor accumulation evidence broad range indicator committee expect fall headline inflation normalisation indicator inflation expectation feed weak pay price set dynamic margin slack emerge economy gdp fall potential labour market ease domestic inflationary persistence expect fade away year owe restrictive stance monetary policy risk inflationary pressure round effect prove enduring medium term strong expect path demand structural factor high equilibrium rate unemployment affect domestic wage price set persistently furthermore degree restrictiveness monetary policy embody committee assessment balance consideration committee vote reduce bank rate appropriate reduce slightly degree policy restrictiveness impact past external shock abate progress moderate risk persistence inflation gdp strong expect restrictive stance monetary policy continue weigh activity real economy lead loose labour market bear inflationary pressure monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end july turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying august monetary policy report global activity project expand steadily quarter gdp grow somewhat strong expect euro area gdp grow line expectation recent outturn consumer price inflation united states euro area suggest normalisation bank target committee discuss development internationally trade good price note presence range risk material inflation outlook chinese export price recently high expect pose downside risk past weakness emerge say effect inflation significant competitive effect generate spillover price inflation trade good export country set upside risk good price risk great trade fragmentation increase trade restriction broadening disruption shipping route affect supply good production concentrate particular region upside risk commodity price geopolitical development include event middle east remain level sterling important driver import price effective exchange rate appreciate committee previous high level start year appreciation weigh outlook import price inflation equal extent pass depend underlie driver appreciation market imply path bank rate relatively little change committee june path assume monetary policy report bank late market participants survey maps respondent expect bank rate downward expectation timing finely balanced significant majority respondent expect reduction occur mpc subsequent september consistent market pricing imply close even probability basis point reduction bank rate median profile bank rate august maps imply cumulative basis point reduction end year unchanged june survey line market pricing turn activity gdp grow strength appear continue growth half year strong expect time report business survey continue point underlie growth somewhat weak headline gdp growth committee discuss risk outlook domestic demand judge skew upside household real income growth continue support reversal previous energy shock appear raise saving consumption far flat retail sale volume point continue elevated saving improvement indicator gfk major purchase balance suggest risk consumption growth strengthen expect projection august report set box august report risk impact high interest rate spending modest occur early expect committee late modal projection suggest upside risk outlook spending set corporate insolvency rate continue rise remain historical average month cpi inflation fall mpc target remain level june inflation expect increase 2¾% half year owe small expect drag domestic energy bill committee discuss late accumulate evidence degree persistence pay growth domestic price inflation annual private sector regular average weekly earning growth continue fall albeit elevated level line projection time report continue downward trajectory pay growth drive normalisation short term inflation expectation ease labour market tightness pay growth remain excess rate explain bank model service consumer price inflation decline remain elevated high expect time report immediate policy decision monetary policy committee set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably committee brief government july statement immediate public spending pressure government announce change stance fiscal policy set budget october incorporate november monetary policy report projection month cpi inflation return mpc target june cpi inflation expect increase 2¾% half year decline energy price year fall annual comparison reveal clearly prevail persistence domestic inflationary pressure committee framework assess medium term outlook inflation distinguish round effect mpc focus round effect capture persistent inflationary pressure committee note potential path inflation committee expect fall headline inflation normalisation indicator inflation expectation feed weak pay price set dynamic margin slack emerge economy gdp fall potential labour market ease domestic inflationary persistence expect fade away year owe restrictive stance monetary policy modal projection august monetary policy report representation condition market imply path interest rate cpi inflation project fall year time year risk inflationary pressure round effect prove enduring medium term strong expect path demand structural factor high medium term equilibrium rate unemployment affect domestic wage price set persistently furthermore degree restrictiveness monetary policy embody committee assessment reflect risk august report modal inflation projection skew somewhat upside forecast period mean cpi inflation project year horizon respectively committee continue monitor accumulation evidence broad range indicator remain considerable uncertainty statistic derive ons labour force survey make difficult gauge underlie state labour market activity base broad set indicator mpc judge labour market continue loosen remain relatively tight historical standard private sector regular average weekly earning growth fall month line expectation report line alternative indicator wage growth service consumer price inflation june unchanged strong expect report expect mpc previous low early year follow weakness half gdp growth pick sharply turn year strong expect report business survey continue point weak underlying gdp growth different member place different probability extent restrictive policy stance lead inflationary pressure unwind adverse inflationary dynamic prove enduring possibly result structural factor great momentum demand committee recognise stance monetary policy restrictive bank rate reduce level member prefer percentage point reduction bank rate appropriate reduce slightly degree policy restrictiveness impact past external shock abate progress moderate risk persistence inflation normalisation inflation expectation forward look indicator decision maker panel survey point wan wage price pressure strength service inflation continue reflect volatile component series gdp strong expect restrictive stance monetary policy continue weigh activity real economy lead loose labour market bear inflationary pressure member decision finely balanced inflationary persistence conclusively dissipate remain upside risk outlook member prefer maintain bank rate upside news service inflation gdp outturn relative report continue elevated wage growth suggest round effect have great impact wage price set behaviour economy embody modal forecast external factor international food energy price play major role reduce headline inflation date contrast underlie domestic inflationary pressure appear entrenched member think great risk enduring structural shift rise medium term equilibrium rate unemployment fall potential growth rise long run neutral interest rate contribute domestic inflationary persistence prefer maintain level bank rate strong evidence upside pressure materialise monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate reduce percentage point member andrew bailey sarah breeden swati dhingra clare lombardelli dave ramsden vote favour proposition member megan greene jonathan haskel catherine mann huw pill vote proposition prefer maintain bank rate operational consideration july stock government bond hold monetary policy purpose discuss box august monetary policy report committee vote target reduction stock government bond hold monetary policy purpose month period october september september follow member committee andrew bailey chair sarah breeden swati dhingra megan greene jonathan haskel clare lombardelli catherine mann huw pill dave ramsden sam beckett treasury representative david roberts july jonathan bewes july observer purpose exercise oversight function role member bank court directors behalf committee chair express appreciation jonathan haskel contribution work mpc

monetary policy summary september monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end september mpc vote majority 8–1 maintain bank rate prefer reduce bank rate percentage point committee vote unanimously reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total monetary policy decision guide need squeeze persistent inflationary pressure system return cpi inflation target timely manner lasting basis policy act ensure inflation expectation anchor set time august monetary policy report committee deliberation support consideration range case different probability different risk attach case unwinding global shock drive inflation result fall headline inflation feed weak pay price set dynamic persistence inflationary pressure dissipate restrictive stance monetary policy case case period economic slack gdp fall potential labour market ease require order pay price set dynamic normalise fully domestic inflationary persistence expect fade away owe opening slack restrictive stance monetary policy relative case case economy subject structural shift change wage price setting follow major supply shock experience year degree restrictiveness monetary policy embody committee late assessment mean monetary policy tight long mpc previous global activity growth continue steady pace datum outturn great uncertainty near term outlook oil price fall reflect large weak demand market imply path policy rate major advanced economy decline limited news economic indicator relative committee expectation august monetary policy report headline gdp growth expect return underlying pace half year month cpi inflation august expect increase 2½% end year decline energy price year fall annual comparison service consumer price inflation remain elevated august private sector regular average weekly earning growth decline month july committee vote maintain bank rate absence material development gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow line projection august monetary policy report consistent steady growth quarter gdp grow strongly anticipate gdp growth moderate euro area china euro area gdp growth expect little weak anticipate august report gdp growth expect moderate somewhat line previous expectation activity indicator pmis suggest ongoing weakness manufacturing sector economy month service sector continue expand labour market outturn united states soft july august relative previous month unemployment euro area remain low point continue tightness wage growth continue moderate region headline consumer price inflation decline target euro area united states euro area month hicp inflation august core inflation tick line market participant expectation cpi inflation fall august core cpi inflation remain unchanged line market expectation annual service price inflation remain elevate economy high frequency measure point ease month tentative sign shift balance risk global activity downside consistent mpc previous brent spot oil price decline barrel market contact ascribe move weak demand china indicator domestic demand continue soft monetary financial condition mpc previous government bond yield fall major advanced economy response softening labour market datum associate fomc communication market imply path policy rate economy end period low couple datum release period have line market expectation mean interest rate movement drive primarily development united states market imply path fall united states associate appreciation sterling dollar account increase sterling effective exchange rate previous mpc movement yield major advanced economy particularly pronounce early august alongside large move asset price market specific factor include seasonally low market liquidity exacerbate reaction news early august move unwound quickly yield country end period low contrast equity price little change mpc previous s&p euro stoxx increase somewhat september ecb governing council reduce key policy rate basis point line market expectation statement governing council reiterate data dependent approach focus inflation outlook strength policy transmission end september fomc expect reduce fund rate basis point united kingdom bank rate expectation imply market pricing continue basis point cut occur november consistent bank late market participants survey maps november median maps profile imply slightly slow pace reduction bank rate market imply path point gradual reduction expect united states less extent euro area credit condition soon fully extent bank rate reduction august pass relevant saving borrowing rate face household corporate anticipate mortgage rate fall mpc previous line decline risk free reference rate share year fix rate mortgage secured household lending increase despite rate mortgage year fix rate period reverse previous trend long duration mortgage fix increase popularity probably reflect household expectation low interest rate slow mortgage stock turnover mean share year fix rate mortgage outstanding lending remain historically high household saving preference adjust past year rate offer time deposit relatively attractive reflect decline risk free reference rate deposit flow shift sight deposit isa instant access household deposit continue main driver aggregate sterle broad money growth increase annual basis july remain weak historical standard demand output gdp increase percentage point low expect august monetary policy report follow growth bank judge underlie pace growth somewhat weak half year expenditure component gdp household consumption rise business housing investment decline real government expenditure increase continue evidence great project government spending public sector finance datum gdp unchanged month july june grow month month basis july slightly weak expect output july concentrate manufacturing professional service sector bank expect gdp growth marginally weak rate incorporate august report line estimate underlie growth rate extract model base range business survey indicator disaggregate gdp datum late intelligence bank agents suggest improve real income august bank rate reduction anticipate cut interest rate underpin improved sentiment expectation increase activity sector turn year little news indicator consumer spending housing market datum strengthen somewhat retail sale volume volatile gradually rise trend start year gfk consumer confidence unchanged august forward look indicator housing market continue point recovery home buyer enquiry price mortgage approval house purchase increase high level september committee discuss near term outlook activity evolution output gap uncertainty surround assessment demand supply judge balance quarter continuation pace underlie gdp growth give committee potential supply growth consistent little change output gap end year path little strong august report projection demand growth expect slow end year significant margin spare capacity project open time projection reflect previously announce medium term tightening stance fiscal policy prior upcoming budget committee monitor closely different channel monetary transmission mechanism interact dynamic household saving ratio turn outlook consumer demand supply cost price labour market datum quality issue continue area concern low achieve sample size mean labour force survey lfs)-based estimate labour market dynamic remain subject considerable uncertainty make difficult gauge underlie state labour market activity mpc time utilise wide range datum inform judgement labour market include official datum business survey intelligence bank agents bank indicator model underlie employment continue point growth line population growth great dispersion outturn individual employment indicator kpmg rec s&p global report jobs continue point contraction employment lloyds business barometer suggest expansion line soften labour demand vacancy continue fall gradually slow pace remain pre pandemic level rec report agents intelligence signal continue easing recruitment difficulty suggest improved job retention sector vacancy unemployment ratio return pre pandemic average start bank indicator model suggest underlie unemployment increase steadily past quarter contrast volatile lfs datum indicator household inflation expectation normalise close historical average bank england ipsos inflation attitudes survey measure median short term inflation expectation fall august corresponding measure medium term expectation remain close historical average citi yougov indicator household short term inflation expectation increase slightly august previously possibly owe medium report rise ofgem utility price cap october business price expectation report dmp survey remain slightly elevated level continue downward path normalisation inflation expectation less extent easing labour market tightness support continued moderation pay growth annual private sector regular average weekly earning growth ease month july month june line august monetary policy report projection survey suggest wage growth moderate inflation target consistent level dmp survey indicate fall approximately year late agents intelligence indicate pay settlement half year expect come low rate compare expect settlement range remain possibility upside risk pay growth depend trajectory national living wage nlw half year month cpi inflation august july slightly low august report expectation consumer core good food price inflation remain subdue cost pressure previous global shock unwound producer price level flat energy price continue drag cpi inflation service price inflation increase august compare july june slightly low august expect time august report volatility number service sub component july august outturn include accommodation catering price airfare committee discuss momentum service price inflation price set behaviour firm strength service price inflation support evidence dmp survey show firm price inflation continue fall less extent service firm july cpi microdata point high proportion service price raise month case pre covid ease catering service food input cost moderate monthly annualise inflation rate seasonally adjust service price measure exclude indexed volatile component rent foreign holiday average month august close average end fall peak level apparent stability measure suggest pass low labour cost ease inflation expectation come accordingly bank expect service inflation ease slightly cpi inflation expect increase somewhat remainder year owe small drag month inflation domestic energy bill announce uptick utility price effect october offset somewhat decrease petrol price immediate policy decision monetary policy committee set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably monetary policy decision guide need squeeze persistent inflationary pressure system return cpi inflation target timely manner lasting basis policy act ensure inflation expectation remain anchor set time august monetary policy report committee deliberation support consideration range case different probability different risk attach case unwinding global shock drive inflation result fall headline inflation feed weak pay price set dynamic persistence inflationary pressure dissipate restrictive stance monetary policy case case period economic slack gdp fall potential labour market ease require order pay price set dynamic normalise fully domestic inflationary persistence expect fade away owe opening slack restrictive stance monetary policy relative case case economy subject structural shift change wage price setting follow major supply shock experience year degree restrictiveness monetary policy embody committee late assessment mean monetary policy tight long committee continue monitor accumulation evidence broad range indicator focus extent possible time use development datum series case mpc previous global activity growth continue steady pace data outturn suggest great uncertainty near term outlook oil price fall reflect large weak demand market imply path policy rate major advanced economy decline limited news economic indicator relative committee expectation august monetary policy report headline gdp growth expect return underlying pace half year base broad set indicator mpc judge labour market continue loosen remain tight historical standard month cpi inflation august expect increase 2½% end year decline energy price year fall annual comparison service consumer price inflation remain elevate august private sector regular average weekly earning growth decline month july household inflation expectation normalise close historical average business inflation expectation remain slightly elevated level bank rate decision different member take different view probability risk associate case committee consider inform vote bank rate member prefer maintain bank rate wage price setting continue normalise activity growth line expectation great uncertainty near term global outlook range view member degree unwinding past global shock normalisation inflation expectation restrictive policy stance lead underlie domestic inflationary pressure unwind pressure prove entrench possibly result structural factor great momentum demand despite difference policy stance judge appropriate member absence material development gradual approach remove policy restraint warrant prefer percentage point reduction bank rate bank rate need restrictive enable smooth gradual transition policy stance account lag transmission cpi inflation firm downward trajectory time datum development remain consistent cpi inflation stay sustainably target give easing labour market continue fall inflation expectation forward look indicator pass subdue outlook demand monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness mpc assessment prospective development forthcoming november forecast round annual decision pace reduction stock government bond purchase hold monetary policy purpose set minute august mpc commit reduction asset purchase facility apf annually set reduction stock purchase government bond gilt subsequent month period box august monetary policy report set assessment process quantitative tightening previous year committee continue judge reduce size apf benefit reduce risk ratchet upwards size bank balance sheet time increase headroom flexibility available bank use balance sheet future need appropriate pace gilt stock reduction guide set key principle mpc outline august monetary policy report committee intend use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct gradual predictable manner period time set box august report committee judge quantitative tightening continue proceed smoothly evidence negative impact gilt sale market function range financial market measure particular measure gilt market liquidity improve apf reduction tighten effect yield difficult measure precisely judge modest line mpc previous expectation consistent finding empirical study bank committee learn monitor development process progress remain hard measure precisely marginal effect quantitative tightening economy mpc forecast condition asset price incorporate announce expect apf reduction mpc take effect account set desire monetary policy stance bank rate tightening effect reduction apf lead slightly low path bank rate equal give impact apf reduction judge modest unlikely material difference appropriate path bank rate past year committee consider case maintain pace gilt stock reduction month ahead mature apf gilt holding bank brief mpc state economic market condition financial policy committee fpc brief mpc deliberation member mpc agree bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month period october september comprise mature gilt sale mpc reaffirm high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy apf reduction predictable judge bar meet fpc role assessment financial stability chair invite committee vote proposition bank rate maintain bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total member andrew bailey sarah breeden megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor vote favour proposition swati dhingra vote proposition prefer reduce bank rate percentage point committee vote unanimously favour proposition operational consideration september stock government bond hold monetary policy purpose mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september detail associate gilt sale programme cover set market notice accompany minute bank set auction size meet mpc annual target closely practicable follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative david roberts september jonathan bewes september observer purpose exercise oversight function role member bank court directors monetary policy summary september monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end september mpc vote majority 8–1 maintain bank rate prefer reduce bank rate percentage point committee vote unanimously reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total monetary policy decision guide need squeeze persistent inflationary pressure system return cpi inflation target timely manner lasting basis policy act ensure inflation expectation anchor set time august monetary policy report committee deliberation support consideration range case different probability different risk attach case unwinding global shock drive inflation result fall headline inflation feed weak pay price set dynamic persistence inflationary pressure dissipate restrictive stance monetary policy case case period economic slack gdp fall potential labour market ease require order pay price set dynamic normalise fully domestic inflationary persistence expect fade away owe opening slack restrictive stance monetary policy relative case case economy subject structural shift change wage price setting follow major supply shock experience year degree restrictiveness monetary policy embody committee late assessment mean monetary policy tight long mpc previous global activity growth continue steady pace datum outturn great uncertainty near term outlook oil price fall reflect large weak demand market imply path policy rate major advanced economy decline limited news economic indicator relative committee expectation august monetary policy report headline gdp growth expect return underlying pace half year month cpi inflation august expect increase 2½% end year decline energy price year fall annual comparison service consumer price inflation remain elevated august private sector regular average weekly earning growth decline month july committee vote maintain bank rate absence material development gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end september turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow line projection august monetary policy report consistent steady growth quarter gdp grow strongly anticipate gdp growth moderate euro area china euro area gdp growth expect little weak anticipate august report gdp growth expect moderate somewhat line previous expectation activity indicator pmis suggest ongoing weakness manufacturing sector economy month service sector continue expand labour market outturn united states soft july august relative previous month unemployment euro area remain low point continue tightness wage growth continue moderate region headline consumer price inflation decline target euro area united states euro area month hicp inflation august core inflation tick line market participant expectation cpi inflation fall august core cpi inflation remain unchanged line market expectation annual service price inflation remain elevate economy high frequency measure point ease month tentative sign shift balance risk global activity downside consistent mpc previous brent spot oil price decline barrel market contact ascribe move weak demand china indicator domestic demand continue soft monetary financial condition mpc previous government bond yield fall major advanced economy response softening labour market datum associate fomc communication market imply path policy rate economy end period low couple datum release period have line market expectation mean interest rate movement drive primarily development united states market imply path fall united states associate appreciation sterling dollar account increase sterling effective exchange rate previous mpc movement yield major advanced economy particularly pronounce early august alongside large move asset price market specific factor include seasonally low market liquidity exacerbate reaction news early august move unwound quickly yield country end period low contrast equity price little change mpc previous s&p euro stoxx increase somewhat september ecb governing council reduce key policy rate basis point line market expectation statement governing council reiterate data dependent approach focus inflation outlook strength policy transmission end september fomc expect reduce fund rate basis point united kingdom bank rate expectation imply market pricing continue basis point cut occur november consistent bank late market participants survey maps november median maps profile imply slightly slow pace reduction bank rate market imply path point gradual reduction expect united states less extent euro area credit condition soon fully extent bank rate reduction august pass relevant saving borrowing rate face household corporate anticipate mortgage rate fall mpc previous line decline risk free reference rate share year fix rate mortgage secured household lending increase despite rate mortgage year fix rate period reverse previous trend long duration mortgage fix increase popularity probably reflect household expectation low interest rate slow mortgage stock turnover mean share year fix rate mortgage outstanding lending remain historically high household saving preference adjust past year rate offer time deposit relatively attractive reflect decline risk free reference rate deposit flow shift sight deposit isa instant access household deposit continue main driver aggregate sterle broad money growth increase annual basis july remain weak historical standard demand output gdp increase percentage point low expect august monetary policy report follow growth bank judge underlie pace growth somewhat weak half year expenditure component gdp household consumption rise business housing investment decline real government expenditure increase continue evidence great project government spending public sector finance datum gdp unchanged month july june grow month month basis july slightly weak expect output july concentrate manufacturing professional service sector bank expect gdp growth marginally weak rate incorporate august report line estimate underlie growth rate extract model base range business survey indicator disaggregate gdp datum late intelligence bank agents suggest improve real income august bank rate reduction anticipate cut interest rate underpin improved sentiment expectation increase activity sector turn year little news indicator consumer spending housing market datum strengthen somewhat retail sale volume volatile gradually rise trend start year gfk consumer confidence unchanged august forward look indicator housing market continue point recovery home buyer enquiry price mortgage approval house purchase increase high level september committee discuss near term outlook activity evolution output gap uncertainty surround assessment demand supply judge balance quarter continuation pace underlie gdp growth give committee potential supply growth consistent little change output gap end year path little strong august report projection demand growth expect slow end year significant margin spare capacity project open time projection reflect previously announce medium term tightening stance fiscal policy prior upcoming budget committee monitor closely different channel monetary transmission mechanism interact dynamic household saving ratio turn outlook consumer demand supply cost price labour market datum quality issue continue area concern low achieve sample size mean labour force survey lfs)-based estimate labour market dynamic remain subject considerable uncertainty make difficult gauge underlie state labour market activity mpc time utilise wide range datum inform judgement labour market include official datum business survey intelligence bank agents bank indicator model underlie employment continue point growth line population growth great dispersion outturn individual employment indicator kpmg rec s&p global report jobs continue point contraction employment lloyds business barometer suggest expansion line soften labour demand vacancy continue fall gradually slow pace remain pre pandemic level rec report agents intelligence signal continue easing recruitment difficulty suggest improved job retention sector vacancy unemployment ratio return pre pandemic average start bank indicator model suggest underlie unemployment increase steadily past quarter contrast volatile lfs datum indicator household inflation expectation normalise close historical average bank england ipsos inflation attitudes survey measure median short term inflation expectation fall august corresponding measure medium term expectation remain close historical average citi yougov indicator household short term inflation expectation increase slightly august previously possibly owe medium report rise ofgem utility price cap october business price expectation report dmp survey remain slightly elevated level continue downward path normalisation inflation expectation less extent easing labour market tightness support continued moderation pay growth annual private sector regular average weekly earning growth ease month july month june line august monetary policy report projection survey suggest wage growth moderate inflation target consistent level dmp survey indicate fall approximately year late agents intelligence indicate pay settlement half year expect come low rate compare expect settlement range remain possibility upside risk pay growth depend trajectory national living wage nlw half year month cpi inflation august july slightly low august report expectation consumer core good food price inflation remain subdue cost pressure previous global shock unwound producer price level flat energy price continue drag cpi inflation service price inflation increase august compare july june slightly low august expect time august report volatility number service sub component july august outturn include accommodation catering price airfare committee discuss momentum service price inflation price set behaviour firm strength service price inflation support evidence dmp survey show firm price inflation continue fall less extent service firm july cpi microdata point high proportion service price raise month case pre covid ease catering service food input cost moderate monthly annualise inflation rate seasonally adjust service price measure exclude indexed volatile component rent foreign holiday average month august close average end fall peak level apparent stability measure suggest pass low labour cost ease inflation expectation come accordingly bank expect service inflation ease slightly cpi inflation expect increase somewhat remainder year owe small drag month inflation domestic energy bill announce uptick utility price effect october offset somewhat decrease petrol price immediate policy decision monetary policy committee set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably monetary policy decision guide need squeeze persistent inflationary pressure system return cpi inflation target timely manner lasting basis policy act ensure inflation expectation remain anchor set time august monetary policy report committee deliberation support consideration range case different probability different risk attach case unwinding global shock drive inflation result fall headline inflation feed weak pay price set dynamic persistence inflationary pressure dissipate restrictive stance monetary policy case case period economic slack gdp fall potential labour market ease require order pay price set dynamic normalise fully domestic inflationary persistence expect fade away owe opening slack restrictive stance monetary policy relative case case economy subject structural shift change wage price setting follow major supply shock experience year degree restrictiveness monetary policy embody committee late assessment mean monetary policy tight long committee continue monitor accumulation evidence broad range indicator focus extent possible time use development datum series case mpc previous global activity growth continue steady pace data outturn suggest great uncertainty near term outlook oil price fall reflect large weak demand market imply path policy rate major advanced economy decline limited news economic indicator relative committee expectation august monetary policy report headline gdp growth expect return underlying pace half year base broad set indicator mpc judge labour market continue loosen remain tight historical standard month cpi inflation august expect increase 2½% end year decline energy price year fall annual comparison service consumer price inflation remain elevate august private sector regular average weekly earning growth decline month july household inflation expectation normalise close historical average business inflation expectation remain slightly elevated level bank rate decision different member take different view probability risk associate case committee consider inform vote bank rate member prefer maintain bank rate wage price setting continue normalise activity growth line expectation great uncertainty near term global outlook range view member degree unwinding past global shock normalisation inflation expectation restrictive policy stance lead underlie domestic inflationary pressure unwind pressure prove entrench possibly result structural factor great momentum demand despite difference policy stance judge appropriate member absence material development gradual approach remove policy restraint warrant prefer percentage point reduction bank rate bank rate need restrictive enable smooth gradual transition policy stance account lag transmission cpi inflation firm downward trajectory time datum development remain consistent cpi inflation stay sustainably target give easing labour market continue fall inflation expectation forward look indicator pass subdue outlook demand monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness mpc assessment prospective development forthcoming november forecast round annual decision pace reduction stock government bond purchase hold monetary policy purpose set minute august mpc commit reduction asset purchase facility apf annually set reduction stock purchase government bond gilt subsequent month period box august monetary policy report set assessment process quantitative tightening previous year committee continue judge reduce size apf benefit reduce risk ratchet upwards size bank balance sheet time increase headroom flexibility available bank use balance sheet future need appropriate pace gilt stock reduction guide set key principle mpc outline august monetary policy report committee intend use bank rate active policy tool adjust stance monetary policy sale conduct disrupt functioning financial market help achieve sale conduct gradual predictable manner period time set box august report committee judge quantitative tightening continue proceed smoothly evidence negative impact gilt sale market function range financial market measure particular measure gilt market liquidity improve apf reduction tighten effect yield difficult measure precisely judge modest line mpc previous expectation consistent finding empirical study bank committee learn monitor development process progress remain hard measure precisely marginal effect quantitative tightening economy mpc forecast condition asset price incorporate announce expect apf reduction mpc take effect account set desire monetary policy stance bank rate tightening effect reduction apf lead slightly low path bank rate equal give impact apf reduction judge modest unlikely material difference appropriate path bank rate past year committee consider case maintain pace gilt stock reduction month ahead mature apf gilt holding bank brief mpc state economic market condition financial policy committee fpc brief mpc deliberation member mpc agree bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month period october september comprise mature gilt sale mpc reaffirm high bar amend plan reduction stock purchase gilt outside schedule annual order consistent principle bank rate active policy tool adjust stance monetary policy apf reduction predictable judge bar meet fpc role assessment financial stability chair invite committee vote proposition bank rate maintain bank england reduce stock government bond purchase hold monetary policy purpose finance issuance reserve month total member andrew bailey sarah breeden megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor vote favour proposition swati dhingra vote proposition prefer reduce bank rate percentage point committee vote unanimously favour proposition operational consideration september stock government bond hold monetary policy purpose mpc vote reduce stock government bond purchase hold monetary policy purpose month period october september detail associate gilt sale programme cover set market notice accompany minute bank set auction size meet mpc annual target closely practicable follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative david roberts september jonathan bewes september observer purpose exercise oversight function role member bank court directors

monetary policy summary november monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end november mpc vote majority 8–1 reduce bank rate percentage point prefer maintain bank rate continue progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly cpi inflation fall september expect increase 2½% end year weakness energy price fall annual comparison service consumer price inflation decline annual private sector regular average weekly earning growth continue fall remain elevated month august headline gdp growth expect fall underlying pace half year mpc judge labour market continue loosen appear relatively tight historical standard monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis committee deliberation support consideration range case impact evolution inflation persistence case set accompanying november monetary policy report case remain persistence inflation dissipate quickly pay price set dynamic normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour case different implication quickly restrictiveness monetary policy withdraw mpc late projection activity inflation set accompanying november report forecast base case cpi inflation project fall target medium term condition usual day average forward interest rate margin slack emerge later forecast period act round effect domestic price wage combined effect measure announce autumn budget provisionally expect boost level gdp peak year time relative august projection budget provisionally expect boost cpi inflation percentage point peak reflect indirect effect small margin excess supply direct impact budget measure remain significant uncertainty outlook labour market datum difficult interpret wage growth elevated usual relationship predict impact budget announcement inflation depend degree speed high cost pass price profit margin wage employment committee vote reduce bank rate reflect continue progress disinflation base evolve evidence gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end november turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying november monetary policy report committee discuss near term global risk potential impact inflation outlook united kingdom balance risk global activity particularly stem china germany remain downside near term alongside upside risk good commodity price great trade fragmentation adverse geopolitical development include event middle east mpc previous market imply path bank rate united kingdom shift materially period prior autumn budget market intelligence attribute modest upward move market imply path international factor strong expect economic datum united states period time budget upward shift material market pricing continue consistent basis point reduction bank rate mpc bank continue judge economy grow underlying basis accord official datum gdp grow percentage point weak expect august report percentage point weak early outturn indicate time mpc previous half gdp project grow somewhat slow rate committee discuss implication late activity datum evolution slack economy limited evidence aggregate demand fall short aggregate supply survey capacity utilisation remain close historical average indicator labour market tightness ease late continue appear relatively tight historical standard development reinforce drag activity lag transmission past monetary tightening unlikely intensify come year material news economic outlook autumn budget take fiscal policy announcement provisionally expect boost level gdp peak year time relative august projection committee discuss increase cost employment follow change employer national insurance contribution nics increase national living wage nlw degree speed increase transmit price profit margin wage employment month cpi inflation fall september decline cpi inflation start year primarily reflect low good price inflation disinflation underlying service price have pronounced service price inflation decrease sharply september downside news concentrate volatile category expect unwind service price inflation expect unchanged month annual growth private sector regular average weekly earning fall significantly mid-2023 remain relatively strong month august immediate policy decision monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably mpc previous continue disinflation month cpi inflation fall september decline cpi inflation start year primarily reflect low good price inflation disinflation underlying service price pronounce annual growth private sector regular average weekly earning fall significantly mid-2023 remain relatively strong month august year ahead expectation wage growth dmp survey flat initial agent intelligence report expect range pay award year gdp grow slightly weak expect august report gdp growth expect fall underlying pace half year combined effect measure announce autumn budget provisionally expect boost level gdp peak year time relative august projection budget provisionally expect boost cpi inflation percentage point peak reflect indirect effect small margin excess supply direct impact budget measure base collective steer wide range indicator mpc judge labour market continue ease appear relatively tight historical standard significant uncertainty labour market outlook impact inflationary persistence combined effect policy announce budget particularly increase employer nic nlw increase cost employment net effect news aggregate inflation depend degree speed cost transmit price wage employment absorb profit margin productivity growth hand high labour cost constrain firm cash flow limited pass pricing turn moderate wage growth loosen labour market reduce labour demand hand increase labour cost prove inflationary upward pressure price pass consumer committee continue monitor accumulation evidence broad range indicator inflation persistence include evidence point case set november monetary policy report have begin materialise case remain persistence inflation dissipate quickly pay price set dynamic continue normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour november forecast base case round effect domestic price wage expect somewhat long unwind emerge margin slack emerge later forecast period act round effect lead cpi inflation fall target medium term example economy grow expect material downside news wage service inflation nonetheless emerge increase weight mpc place case materialise sign slowing disinflation process particularly absence pickup activity growth instead increase likelihood mpc place case materialise member prefer reduce bank rate continue progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly member different probability risk case believe cut bank rate appropriate range evidence time prefer maintain bank rate structural factor wage price set dynamic continue draw underlie disinflation process cpi inflation project target end forecast period wage development robust project firm worker incorporate past upcoming adjustment national living wage national insurance contribution prospect robust demand associate budget support pricing opportunity firm face uncertainty maintain level bank rate allow time evaluate upside pressure materialise base evolve evidence gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate reduce percentage point member andrew bailey sarah breeden swati dhingra megan greene clare lombardelli huw pill dave ramsden alan taylor vote favour proposition catherine mann vote proposition prefer maintain bank rate operational consideration november stock government bond hold monetary policy purpose follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative david roberts october observer purpose exercise oversight function role bank court directors monetary policy summary november monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end november mpc vote majority 8–1 reduce bank rate percentage point prefer maintain bank rate continue progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly cpi inflation fall september expect increase 2½% end year weakness energy price fall annual comparison service consumer price inflation decline annual private sector regular average weekly earning growth continue fall remain elevated month august headline gdp growth expect fall underlying pace half year mpc judge labour market continue loosen appear relatively tight historical standard monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis committee deliberation support consideration range case impact evolution inflation persistence case set accompanying november monetary policy report case remain persistence inflation dissipate quickly pay price set dynamic normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour case different implication quickly restrictiveness monetary policy withdraw mpc late projection activity inflation set accompanying november report forecast base case cpi inflation project fall target medium term condition usual day average forward interest rate margin slack emerge later forecast period act round effect domestic price wage combined effect measure announce autumn budget provisionally expect boost level gdp peak year time relative august projection budget provisionally expect boost cpi inflation percentage point peak reflect indirect effect small margin excess supply direct impact budget measure remain significant uncertainty outlook labour market datum difficult interpret wage growth elevated usual relationship predict impact budget announcement inflation depend degree speed high cost pass price profit margin wage employment committee vote reduce bank rate reflect continue progress disinflation base evolve evidence gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee continue monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness minute monetary policy committee end november turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price late datum topic set accompanying november monetary policy report committee discuss near term global risk potential impact inflation outlook united kingdom balance risk global activity particularly stem china germany remain downside near term alongside upside risk good commodity price great trade fragmentation adverse geopolitical development include event middle east mpc previous market imply path bank rate united kingdom shift materially period prior autumn budget market intelligence attribute modest upward move market imply path international factor strong expect economic datum united states period time budget upward shift material market pricing continue consistent basis point reduction bank rate mpc bank continue judge economy grow underlying basis accord official datum gdp grow percentage point weak expect august report percentage point weak early outturn indicate time mpc previous half gdp project grow somewhat slow rate committee discuss implication late activity datum evolution slack economy limited evidence aggregate demand fall short aggregate supply survey capacity utilisation remain close historical average indicator labour market tightness ease late continue appear relatively tight historical standard development reinforce drag activity lag transmission past monetary tightening unlikely intensify come year material news economic outlook autumn budget take fiscal policy announcement provisionally expect boost level gdp peak year time relative august projection committee discuss increase cost employment follow change employer national insurance contribution nics increase national living wage nlw degree speed increase transmit price profit margin wage employment month cpi inflation fall september decline cpi inflation start year primarily reflect low good price inflation disinflation underlying service price have pronounced service price inflation decrease sharply september downside news concentrate volatile category expect unwind service price inflation expect unchanged month annual growth private sector regular average weekly earning fall significantly mid-2023 remain relatively strong month august immediate policy decision monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably mpc previous continue disinflation month cpi inflation fall september decline cpi inflation start year primarily reflect low good price inflation disinflation underlying service price pronounce annual growth private sector regular average weekly earning fall significantly mid-2023 remain relatively strong month august year ahead expectation wage growth dmp survey flat initial agent intelligence report expect range pay award year gdp grow slightly weak expect august report gdp growth expect fall underlying pace half year combined effect measure announce autumn budget provisionally expect boost level gdp peak year time relative august projection budget provisionally expect boost cpi inflation percentage point peak reflect indirect effect small margin excess supply direct impact budget measure base collective steer wide range indicator mpc judge labour market continue ease appear relatively tight historical standard significant uncertainty labour market outlook impact inflationary persistence combined effect policy announce budget particularly increase employer nic nlw increase cost employment net effect news aggregate inflation depend degree speed cost transmit price wage employment absorb profit margin productivity growth hand high labour cost constrain firm cash flow limited pass pricing turn moderate wage growth loosen labour market reduce labour demand hand increase labour cost prove inflationary upward pressure price pass consumer committee continue monitor accumulation evidence broad range indicator inflation persistence include evidence point case set november monetary policy report have begin materialise case remain persistence inflation dissipate quickly pay price set dynamic continue normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour november forecast base case round effect domestic price wage expect somewhat long unwind emerge margin slack emerge later forecast period act round effect lead cpi inflation fall target medium term example economy grow expect material downside news wage service inflation nonetheless emerge increase weight mpc place case materialise sign slowing disinflation process particularly absence pickup activity growth instead increase likelihood mpc place case materialise member prefer reduce bank rate continue progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly member different probability risk case believe cut bank rate appropriate range evidence time prefer maintain bank rate structural factor wage price set dynamic continue draw underlie disinflation process cpi inflation project target end forecast period wage development robust project firm worker incorporate past upcoming adjustment national living wage national insurance contribution prospect robust demand associate budget support pricing opportunity firm face uncertainty maintain level bank rate allow time evaluate upside pressure materialise base evolve evidence gradual approach remove policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee monitor closely risk inflation persistence decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate reduce percentage point member andrew bailey sarah breeden swati dhingra megan greene clare lombardelli huw pill dave ramsden alan taylor vote favour proposition catherine mann vote proposition prefer maintain bank rate operational consideration november stock government bond hold monetary policy purpose follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative david roberts october observer purpose exercise oversight function role bank court directors

monetary policy summary december monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end december mpc vote majority 6–3 maintain bank rate member prefer reduce bank rate percentage point mpc previous month cpi inflation increase november september slightly high previous expectation owe large strong inflation core good food service consumer price inflation remain elevated headline cpi inflation expect rise slightly near term household inflation expectation normalise indicator increase recently indicator near term activity decline bank expect gdp growth weak end year project november monetary policy report committee judge labour market balance annual private sector regular average weekly earning growth pick sharply month october tend volatile wage indicator late agents intelligence suggest average pay settlement range remain significant uncertainty development labour market monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis quarter progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly committee continue range case past global shock drive inflation unwind persistent domestic inflationary pressure mpc monitor impact growth inflationary pressure measure announce autumn budget geopolitical tension trade policy uncertainty development generate additional uncertainty economic outlook committee vote maintain bank rate committee continue monitor closely risk inflation persistence extent evolve evidence consistent constrain supply sustain inflationary pressure weak demand lead emergence spare capacity economy push inflation gradual approach remove monetary policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee decide appropriate degree monetary policy restrictiveness minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow marginally high projection november monetary policy report balance risk near term outlook activity number advanced economy remain downside euro area gdp grow high november report projection support household consumption growth expect slow line weakness output pmis particularly france germany gdp increase line november report projection expect cool slightly china gdp grow rebound owe strong export growth expect recover partly support additional policy stimulus euro area labour market remain tight continue normalise labour market united states remain close balance unemployment region remain near historical low indicator pay growth cool euro area albeit increase negotiate wage growth attributable payment germany recent indicator wage growth united states mix headline consumer price inflation advanced economy increase slightly close market expectation euro area month hicp inflation increase november account energy relate base effect core inflation remain unchanged united states pce inflation rise slightly october core pce inflation increase slightly increase account partly core service exclude housing mpc november european wholesale gas price initially increase sharply owe cold weather strong demand asia disruption provision russian own gas supply price increase reverse time mpc december decision committee discuss risk global growth inflation stem geopolitical tension trade policy uncertainty indicator have increase materially incoming administration propose increase tariff manner influence future global trade apply result direct indirect impact economy magnitude direction impact depend range factor unknown include total package economic policy deliver united states timing subsequent policy response country monetary financial condition market imply path policy rate united states euro area end period mpc previous little low reflect particular weak expect global activity datum corporate bond spread little change economy equity price increase slightly december ecb governing council reduce key policy rate basis point line market expectation end december fomc expect reduce fund rate basis point united kingdom near term market expectation bank rate increase mpc previous predominantly reflect strong expect wage datum sterling effective exchange rate little change sterling depreciate dollar offset appreciation euro market expectation policy rate united kingdom united states increasingly diverge euro area september euro area path shift steeply downward sloping path shift shallow united kingdom united states rate expect year time compare euro area august november bank rate reduction associate change risk free reference rate continue pass relevant saving borrowing rate face household corporate line historical experience main exception household sight deposit rate fall slowly bank rate august historically reduction bank rate associate fairly rapid pass sight deposit rate rate rise bank rate tighten cycle housing market activity continue pick mortgage approval house purchase have rise pre pandemic average october reflect decline average rate pay mortgage quote rate peak mid-2023 period average rate pay outstanding mortgage continue increase majority fix term mortgage refinance high rate note november financial stability report fix rate mortgage account fix rate start rise impact high interest rate pass mortgagor household broad money balance grow unusually strongly october evidence deposit flow household non intermediary financial companies include asset manager insurance company pension fund recent trend broad money little change annual growth m4ex increase slightly ratio household money gross domestic income remain close pre pandemic trend demand output gdp rise slightly weak expect november monetary policy report expenditure component household consumption estimate grow government spending business investment rise gdp decline october similar sized fall september manufacture output contract october service output flat month market sector output fall level observe april indicator near term activity weaken previous mpc example s&p global cips composite output pmi fall november remain level december flash release decline future output order index service manufacturing pmi fall month suggest mixture domestic global factor play bank agents report deterioration business sentiment previous mpc activity subdue currently expect pick economy year context notable sale outcome report dmp survey consistently come low company expectation sale year ahead contrast indicator consumer confidence increase slightly month remain historical average housing market indicator fairly robust bank expect gdp growth weak incorporate november report consistent late combine steer business survey available official datum committee discuss extent development output reflect weakness demand supply few implication margin spare capacity economy domestic inflationary pressure uncertainty measure announce autumn budget affect growth include extent company time account indirect spillover private demand high public spending direct consequence increase employer national insurance contribution nics effect april supply cost price low response rate continue impart considerable uncertainty labour force survey lfs)-based estimate labour market quantity late reweighting key lfs variable ons incorporate upward revision estimate population half people separately ons revise estimate net inward migration people reflect lfs time take revision close half gap level employment imply pre revision lfs datum imply alternative measure workforce job corollary upward revision employment pronounce weakness labour productivity lfs revision minimal implication historical profile underlie rate unemployment high frequency indicator unemployment exhibit dispersion little evidence significant increase period november monetary policy report household survey job security advanced notification potential redundancy remain consistent little net change underlying unemployment rate vacancy continue fall albeit slow pace bank analysis difference observe ratio vacancy unemployment ratio vacancy unemployment consistent equilibrium labour market take account example change cost post vacancy time suggest labour market balance analysis corroborate indicator agents rec survey signal tightness labour market simple historical vacancy unemployment ratio imply uncertainty surround development key labour market quantity measure labour productivity limit extent committee able draw firm conclusion regular stocktake short medium term supply capacity economy undertake ahead february monetary policy report annual growth private sector regular average weekly earning awe rise month august month october upside surprise reflect combination great expect strength month revision prior month base effect previous year push annual rate private sector regular awe growth close measure pay growth exhibit volatility comparable survey base measure signal indicator follow announce increase national living wage nlw employer national insurance contribution tend corroborate support diminish churn ease recruitment difficulty ongoing loosening labour market annual private sector wage growth slow policy relevant horizon agents intelligence available autumn budget example suggest firm aggregate expect pay settlement sit range slightly high range report budget lower 5½% average report late evidence dmp survey consistent soften wage growth sector albeit plateau aggregate year ahead expect wage growth consumer service company particular remain elevate survey firm report response high employer nic involve multiple type adjustment pay growth dmp survey example high price low employment cite frequently low wage granular disaggregation result dmp survey suggest firm great exposure nlw respond high nic pay low wage firm respond high nic raise price accept low profit margin and/or lay exist worker month cpi inflation increase november september slightly high previous expectation owe large strong inflation core good food core cpi inflation increase annual service price inflation november little change rate october september month moving average annualise monthly increase range underlie service price edge higher november remain low correspond annual rate extent domestically generate disinflation date remain relatively modest near term headline cpi inflation expect rise slightly indicator household inflation expectation normalise half year short term expectation begin increase late datum bank england ipsos inflation attitudes survey measure median year ahead inflation expectation rise november measure medium term expectation survey edge historical average citi yougov indicator household short term inflation expectation rise month realise cpi inflation ease business price expectation report dmp survey remain consistent modest decline inflation come year particularly consumer face service sector late increase inflation expectation reflect great attentiveness household cost living increase reduction winter fuel payment high bus fare vehicle excise duty successive increase ofgem price cap october january high food price increase interact elevate inflation perception add persistence domestic inflationary pressure immediate policy decision monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis quarter progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly set november monetary policy report committee deliberation support consideration range case impact evolution inflation persistence case remain persistence inflation dissipate quickly pay price set dynamic continue normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour case different implication quickly restrictiveness monetary policy withdraw mpc consider impact growth inflationary pressure measure announce autumn budget geopolitical tension trade policy uncertainty domestic global development generate additional uncertainty economic outlook set november report combined effect measure announce budget provisionally expect boost level gdp cpi inflation percentage point peak relative august projection remain significant uncertainty economy respond high cost employment include increase employer national insurance contribution national living wage committee note indicator trade policy uncertainty increase materially magnitude direction impact policy inflation unclear effect apparent time mpc previous indicator near term activity decline bank expect gdp growth weak project november monetary policy report component december s&p global cips flash pmi fall include order employment index indicator employment growth mixed remain significant uncertainty development labour market quantity derive labour force survey committee judge labour market balance base wide range evidence number job vacancy continue fall albeit slow pace decline indicator labour market tightness agents rec survey annual private sector regular awe growth pick sharply month october percentage point strong expect november report awe growth tend volatile wage indicator late agents intelligence suggest average pay settlement range month cpi inflation increase november september slightly high previous expectation service consumer price inflation remain elevated core good price inflation rise food consumer price inflation pick slightly month indicator good price inflation increase include december s&p global cips flash pmi headline cpi inflation expect rise slightly near term household inflation expectation normalise indicator increase recently reflect development energy food price idiosyncratic factor business price expectation remain consistent modest decline inflation come year particularly consumer face service sector monetary policy act ensure long term inflation expectation anchor target member prefer maintain bank rate indicator near term activity weaken cpi inflation wage growth indicator inflation expectation rise add risk inflation persistence macroeconomic implication high cost employment face company remain particularly uncertain backdrop year repeat sequence negative supply shock incoming datum help clarify potential trade persistent inflationary pressure great weakness output employment member development add argument gradual approach withdrawal policy restrictiveness eschew commitment change policy specific evolution prospect disaggregate measure activity inflation warrant activist strategy member prefer percentage point reduction bank rate datum development point sluggish demand weaken labour market year ahead downward pressure demand wage price short run factor alongside high uncertainty weak global condition pair temporary uptick headline inflation entail policy trade medium term continue stance restrictive risked deviating unsustainably inflation target open unduly large output gap give evolve balance risk restrictive policy rate warrant committee continue monitor closely risk inflation persistence extent evolve evidence consistent constrain supply sustain inflationary pressure weak demand lead emergence spare capacity economy push inflation gradual approach remove monetary policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden megan greene clare lombardelli catherine mann huw pill vote favour proposition member swati dhingra dave ramsden alan taylor vote proposition prefer reduce bank rate percentage point operational consideration december stock government bond hold monetary policy purpose follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative monetary policy summary december monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably end december mpc vote majority 6–3 maintain bank rate member prefer reduce bank rate percentage point mpc previous month cpi inflation increase november september slightly high previous expectation owe large strong inflation core good food service consumer price inflation remain elevated headline cpi inflation expect rise slightly near term household inflation expectation normalise indicator increase recently indicator near term activity decline bank expect gdp growth weak end year project november monetary policy report committee judge labour market balance annual private sector regular average weekly earning growth pick sharply month october tend volatile wage indicator late agents intelligence suggest average pay settlement range remain significant uncertainty development labour market monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis quarter progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly committee continue range case past global shock drive inflation unwind persistent domestic inflationary pressure mpc monitor impact growth inflationary pressure measure announce autumn budget geopolitical tension trade policy uncertainty development generate additional uncertainty economic outlook committee vote maintain bank rate committee continue monitor closely risk inflation persistence extent evolve evidence consistent constrain supply sustain inflationary pressure weak demand lead emergence spare capacity economy push inflation gradual approach remove monetary policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee decide appropriate degree monetary policy restrictiveness minute monetary policy committee end december turn immediate policy decision committee discuss international economy monetary financial condition demand output supply cost price international economy weight global gdp estimate grow marginally high projection november monetary policy report balance risk near term outlook activity number advanced economy remain downside euro area gdp grow high november report projection support household consumption growth expect slow line weakness output pmis particularly france germany gdp increase line november report projection expect cool slightly china gdp grow rebound owe strong export growth expect recover partly support additional policy stimulus euro area labour market remain tight continue normalise labour market united states remain close balance unemployment region remain near historical low indicator pay growth cool euro area albeit increase negotiate wage growth attributable payment germany recent indicator wage growth united states mix headline consumer price inflation advanced economy increase slightly close market expectation euro area month hicp inflation increase november account energy relate base effect core inflation remain unchanged united states pce inflation rise slightly october core pce inflation increase slightly increase account partly core service exclude housing mpc november european wholesale gas price initially increase sharply owe cold weather strong demand asia disruption provision russian own gas supply price increase reverse time mpc december decision committee discuss risk global growth inflation stem geopolitical tension trade policy uncertainty indicator have increase materially incoming administration propose increase tariff manner influence future global trade apply result direct indirect impact economy magnitude direction impact depend range factor unknown include total package economic policy deliver united states timing subsequent policy response country monetary financial condition market imply path policy rate united states euro area end period mpc previous little low reflect particular weak expect global activity datum corporate bond spread little change economy equity price increase slightly december ecb governing council reduce key policy rate basis point line market expectation end december fomc expect reduce fund rate basis point united kingdom near term market expectation bank rate increase mpc previous predominantly reflect strong expect wage datum sterling effective exchange rate little change sterling depreciate dollar offset appreciation euro market expectation policy rate united kingdom united states increasingly diverge euro area september euro area path shift steeply downward sloping path shift shallow united kingdom united states rate expect year time compare euro area august november bank rate reduction associate change risk free reference rate continue pass relevant saving borrowing rate face household corporate line historical experience main exception household sight deposit rate fall slowly bank rate august historically reduction bank rate associate fairly rapid pass sight deposit rate rate rise bank rate tighten cycle housing market activity continue pick mortgage approval house purchase have rise pre pandemic average october reflect decline average rate pay mortgage quote rate peak mid-2023 period average rate pay outstanding mortgage continue increase majority fix term mortgage refinance high rate note november financial stability report fix rate mortgage account fix rate start rise impact high interest rate pass mortgagor household broad money balance grow unusually strongly october evidence deposit flow household non intermediary financial companies include asset manager insurance company pension fund recent trend broad money little change annual growth m4ex increase slightly ratio household money gross domestic income remain close pre pandemic trend demand output gdp rise slightly weak expect november monetary policy report expenditure component household consumption estimate grow government spending business investment rise gdp decline october similar sized fall september manufacture output contract october service output flat month market sector output fall level observe april indicator near term activity weaken previous mpc example s&p global cips composite output pmi fall november remain level december flash release decline future output order index service manufacturing pmi fall month suggest mixture domestic global factor play bank agents report deterioration business sentiment previous mpc activity subdue currently expect pick economy year context notable sale outcome report dmp survey consistently come low company expectation sale year ahead contrast indicator consumer confidence increase slightly month remain historical average housing market indicator fairly robust bank expect gdp growth weak incorporate november report consistent late combine steer business survey available official datum committee discuss extent development output reflect weakness demand supply few implication margin spare capacity economy domestic inflationary pressure uncertainty measure announce autumn budget affect growth include extent company time account indirect spillover private demand high public spending direct consequence increase employer national insurance contribution nics effect april supply cost price low response rate continue impart considerable uncertainty labour force survey lfs)-based estimate labour market quantity late reweighting key lfs variable ons incorporate upward revision estimate population half people separately ons revise estimate net inward migration people reflect lfs time take revision close half gap level employment imply pre revision lfs datum imply alternative measure workforce job corollary upward revision employment pronounce weakness labour productivity lfs revision minimal implication historical profile underlie rate unemployment high frequency indicator unemployment exhibit dispersion little evidence significant increase period november monetary policy report household survey job security advanced notification potential redundancy remain consistent little net change underlying unemployment rate vacancy continue fall albeit slow pace bank analysis difference observe ratio vacancy unemployment ratio vacancy unemployment consistent equilibrium labour market take account example change cost post vacancy time suggest labour market balance analysis corroborate indicator agents rec survey signal tightness labour market simple historical vacancy unemployment ratio imply uncertainty surround development key labour market quantity measure labour productivity limit extent committee able draw firm conclusion regular stocktake short medium term supply capacity economy undertake ahead february monetary policy report annual growth private sector regular average weekly earning awe rise month august month october upside surprise reflect combination great expect strength month revision prior month base effect previous year push annual rate private sector regular awe growth close measure pay growth exhibit volatility comparable survey base measure signal indicator follow announce increase national living wage nlw employer national insurance contribution tend corroborate support diminish churn ease recruitment difficulty ongoing loosening labour market annual private sector wage growth slow policy relevant horizon agents intelligence available autumn budget example suggest firm aggregate expect pay settlement sit range slightly high range report budget lower 5½% average report late evidence dmp survey consistent soften wage growth sector albeit plateau aggregate year ahead expect wage growth consumer service company particular remain elevate survey firm report response high employer nic involve multiple type adjustment pay growth dmp survey example high price low employment cite frequently low wage granular disaggregation result dmp survey suggest firm great exposure nlw respond high nic pay low wage firm respond high nic raise price accept low profit margin and/or lay exist worker month cpi inflation increase november september slightly high previous expectation owe large strong inflation core good food core cpi inflation increase annual service price inflation november little change rate october september month moving average annualise monthly increase range underlie service price edge higher november remain low correspond annual rate extent domestically generate disinflation date remain relatively modest near term headline cpi inflation expect rise slightly indicator household inflation expectation normalise half year short term expectation begin increase late datum bank england ipsos inflation attitudes survey measure median year ahead inflation expectation rise november measure medium term expectation survey edge historical average citi yougov indicator household short term inflation expectation rise month realise cpi inflation ease business price expectation report dmp survey remain consistent modest decline inflation come year particularly consumer face service sector late increase inflation expectation reflect great attentiveness household cost living increase reduction winter fuel payment high bus fare vehicle excise duty successive increase ofgem price cap october january high food price increase interact elevate inflation perception add persistence domestic inflationary pressure immediate policy decision monetary policy committee mpc set monetary policy meet inflation target way help sustain growth employment mpc adopt medium term forward look approach determine monetary stance require achieve inflation target sustainably monetary policy guide need squeeze remain inflationary pressure economy achieve target timely manner lasting basis quarter progress disinflation particularly previous external shock abate remain domestic inflationary pressure resolve slowly set november monetary policy report committee deliberation support consideration range case impact evolution inflation persistence case remain persistence inflation dissipate quickly pay price set dynamic continue normalise follow unwinding global shock drive inflation case period economic slack require normalise dynamic fully case inflationary persistence reflect structural shift wage price set behaviour case different implication quickly restrictiveness monetary policy withdraw mpc consider impact growth inflationary pressure measure announce autumn budget geopolitical tension trade policy uncertainty domestic global development generate additional uncertainty economic outlook set november report combined effect measure announce budget provisionally expect boost level gdp cpi inflation percentage point peak relative august projection remain significant uncertainty economy respond high cost employment include increase employer national insurance contribution national living wage committee note indicator trade policy uncertainty increase materially magnitude direction impact policy inflation unclear effect apparent time mpc previous indicator near term activity decline bank expect gdp growth weak project november monetary policy report component december s&p global cips flash pmi fall include order employment index indicator employment growth mixed remain significant uncertainty development labour market quantity derive labour force survey committee judge labour market balance base wide range evidence number job vacancy continue fall albeit slow pace decline indicator labour market tightness agents rec survey annual private sector regular awe growth pick sharply month october percentage point strong expect november report awe growth tend volatile wage indicator late agents intelligence suggest average pay settlement range month cpi inflation increase november september slightly high previous expectation service consumer price inflation remain elevated core good price inflation rise food consumer price inflation pick slightly month indicator good price inflation increase include december s&p global cips flash pmi headline cpi inflation expect rise slightly near term household inflation expectation normalise indicator increase recently reflect development energy food price idiosyncratic factor business price expectation remain consistent modest decline inflation come year particularly consumer face service sector monetary policy act ensure long term inflation expectation anchor target member prefer maintain bank rate indicator near term activity weaken cpi inflation wage growth indicator inflation expectation rise add risk inflation persistence macroeconomic implication high cost employment face company remain particularly uncertain backdrop year repeat sequence negative supply shock incoming datum help clarify potential trade persistent inflationary pressure great weakness output employment member development add argument gradual approach withdrawal policy restrictiveness eschew commitment change policy specific evolution prospect disaggregate measure activity inflation warrant activist strategy member prefer percentage point reduction bank rate datum development point sluggish demand weaken labour market year ahead downward pressure demand wage price short run factor alongside high uncertainty weak global condition pair temporary uptick headline inflation entail policy trade medium term continue stance restrictive risked deviating unsustainably inflation target open unduly large output gap give evolve balance risk restrictive policy rate warrant committee continue monitor closely risk inflation persistence extent evolve evidence consistent constrain supply sustain inflationary pressure weak demand lead emergence spare capacity economy push inflation gradual approach remove monetary policy restraint remain appropriate monetary policy need restrictive sufficiently long risk inflation return sustainably target medium term dissipate committee decide appropriate degree monetary policy restrictiveness chair invite committee vote proposition bank rate maintain member andrew bailey sarah breeden megan greene clare lombardelli catherine mann huw pill vote favour proposition member swati dhingra dave ramsden alan taylor vote proposition prefer reduce bank rate percentage point operational consideration december stock government bond hold monetary policy purpose follow member committee andrew bailey chair sarah breeden swati dhingra megan greene clare lombardelli catherine mann huw pill dave ramsden alan taylor sam beckett treasury representative

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 6 February 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. The MPC’s latest projections for inflation and activity are set out in the accompanying February Inflation Report. They are conditioned on a smooth adjustment to the average of a range of possible outcomes for the UK’s eventual trading relationship with the European Union and the gently rising path of Bank Rate implied by market yields. The world economy has continued to slow over recent months, with a broad-based softening across all regions. That deceleration reflects the past tightening in global financial conditions, as well as the initial impact of trade tensions on business sentiment. Global growth is expected to dip below trend in coming quarters, weighing on UK net trade, before rising to around potential rates. Activity is projected to be supported by the more accommodative monetary policies in all major economic areas that markets now expect. UK economic growth slowed in late 2018 and appears to have weakened further in early 2019. This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home. These uncertainties could lead to greater-than-usual short-term volatility in UK data, which may therefore provide less of a signal about the medium-term outlook. Heightened uncertainty and elevated bank funding costs are assumed to subside over time, as greater clarity on future trading arrangements is assumed to emerge. These developments, together with looser fiscal policy, provide support to domestic spending. In the Committee’s central projection, quarterly GDP growth recovers later this year, with four-quarter growth rising to 2% by the end of the forecast period. CPI inflation fell to 2.1% in December and is expected to decline to slightly below the MPC’s 2% target in the near term, largely due to the sharp fall in petrol prices which has occurred since November. As that effect unwinds, CPI inflation rises above 2%. The MPC judges that demand and potential supply are currently broadly in balance. The weaker near-term outlook is likely to lead to a small margin of slack opening up this year. Thereafter, demand growth exceeds the subdued pace of supply growth and excess demand builds over the second half of the forecast period. As a result, domestic inflationary pressures firm, as the upward pressure on inflation of sterling’s past depreciation wanes. Under the assumptions that condition the February Report, inflation settles at a rate a little above the target. The Committee judges that, were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. The economic outlook will continue to depend significantly on the nature of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. The MPC judges at this month’s meeting that the current stance of monetary policy is appropriate. The Committee will always act to achieve the 2% inflation target. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 March 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. Since the Committee’s previous meeting, the news in economic data has been mixed, but the MPC’s February Inflation Report projections appear on track. In those projections, a weaker near-term outlook was expected to lead to a small margin of slack opening up this year. Thereafter, demand growth exceeded the subdued pace of supply growth and excess demand built over the second half of the forecast period. The broad-based softening in global GDP and trade growth has continued. Global financial conditions have eased, in part supported by announcements of more accommodative policies in some major economies. Shifting expectations about the potential nature and timing of the United Kingdom’s withdrawal from the European Union have continued to generate volatility in UK asset prices, particularly the sterling exchange rate. Brexit uncertainties also continue to weigh on confidence and short-term economic activity, notably business investment. Employment growth has been strong, although survey indicators suggest that the outlook has softened. Most indicators of consumer spending are consistent with ongoing modest growth. As the Committee has previously noted, short-term economic data may provide less of a signal than usual about the medium-term growth outlook. CPI inflation rose slightly to 1.9% in February and is expected to remain close to the 2% target over coming months. The labour market remains tight and annual pay growth, having risen through 2018, has remained around 3½%. Given continuing weakness in productivity growth, growth in unit wage costs has also risen, although other indicators of domestically generated inflation have remained modest. The Committee’s February Inflation Report projections were conditioned on a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. The Committee continues to judge that, were the economy to develop broadly in line with those projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. The MPC judges at this month’s meeting that the current stance of monetary policy is appropriate. The Committee will always act to achieve the 2% inflation target. Monetary policy summary and minutes Monetary policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 1 May 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. The Committee’s updated projections for activity and inflation are set out in the accompanying May Inflation Report. They assume a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. They are also conditioned on a path for Bank Rate that rises to around 1% by the end of the forecast period, lower than in the February Report. As with UK financial conditions more generally, that path has been heavily influenced by recent global developments, with forward interest rates in the United States and the euro area falling markedly. The MPC has noted previously that UK data could be unusually volatile in the near term, due to shifting expectations about Brexit in financial markets and among households and businesses. GDP is expected to have grown by 0.5% in 2019 Q1, in part reflecting a larger-than-expected boost from companies in the United Kingdom and the European Union building stocks ahead of recent Brexit deadlines. That boost is expected to be temporary, however, and quarterly growth is expected to slow to around 0.2% in Q2. Smoothing through those developments, the underlying pace of GDP growth appears to be slightly stronger than previously anticipated, but marginally below potential. That subdued pace reflects the impact of the slowdown in global growth and ongoing Brexit uncertainties. The latter is having a particularly pronounced impact on business investment, which has been falling for a year. The MPC judges that there is currently a small margin of excess supply in the economy. In the MPC’s central projection, global growth stabilises around its potential rate and Brexit uncertainties subside gradually. Four-quarter UK GDP growth begins to pick up next year and rises to over 2% by the end of the forecast period. Business investment recovers and household spending continues to support demand growth, sustained by rising real incomes. GDP growth picks up above the subdued pace of potential supply growth, such that excess demand begins to build.  Excess demand rises above 1% of potential output by the end of the forecast period, notably higher than in the February Report, reflecting the support to demand provided by lower market interest rates and easier financial conditions more generally. CPI inflation was 1.9% in March and is expected to be slightly further below the MPC’s 2% target during the first half of the forecast period, largely reflecting lower expected retail energy prices. The labour market remains tight, with the unemployment rate projected to decline to 3½% by the end of the forecast period. Annual pay growth has remained around 3½% and unit labour cost growth has strengthened to rates that are above historical averages. As excess demand emerges, domestic inflationary pressures are expected to firm, such that CPI inflation picks up to above the 2% target in two years’ time and is still rising at the end of the three-year forecast period. The Committee continues to judge that, were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. The MPC judges at this meeting that the current stance of monetary policy is appropriate. The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond.  The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. The Committee will always act to achieve the 2% inflation target. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 19 June 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. The MPC’s most recent economic projections, set out in the May Inflation Report , assumed a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union and were conditioned on a path for Bank Rate that rose to around 1% by the end of the forecast period. In those projections, GDP growth was a little below potential during 2019 as a whole, reflecting subdued global growth and ongoing Brexit uncertainties. Growth then picked up above the subdued pace of potential supply growth, such that excess demand rose above 1% of potential output by the end of the forecast period. As excess demand emerged, domestic inflationary pressures firmed, such that CPI inflation picked up to above the 2% target in two years’ time and was still rising at the end of the three-year forecast period. Since the Committee’s previous meeting, the near-term data have been broadly in line with the May Report, but downside risks to growth have increased.  Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices. Forward interest rates in major economies have fallen materially further.  Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate. As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses. After growing by 0.5% in 2019 Q1, GDP is now expected to be flat in Q2. That in part reflects an unwind of the positive contribution to GDP in the first quarter from companies in the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines. Looking through recent volatility, underlying growth in the United Kingdom appears to have weakened slightly in the first half of the year relative to 2018 to a rate a little below its potential. The underlying pattern of relatively strong household consumption growth but weak business investment has persisted. CPI inflation was 2.0% in May. It is likely to fall below the 2% target later this year, reflecting recent falls in energy prices. Core CPI inflation was 1.7% in May, and core services CPI inflation has remained slightly below levels consistent with meeting the inflation target in the medium term. The labour market remains tight, with recent data on employment, unemployment and regular pay in line with expectations at the time of the May Report. Growth in unit wage costs has remained at target-consistent levels. The Committee continues to judge that, were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. The Committee will always act to achieve the 2% inflation target. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 July 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. Since May, global trade tensions have intensified and global activity has remained soft. This has led to a substantial decline in advanced economies’ forward interest rates and a material loosening in financial conditions, including in the United Kingdom. An increase in the perceived likelihood of a no-deal Brexit has further lowered UK interest rates and led to a marked depreciation of the sterling exchange rate. Brexit-related developments, such as stockbuilding ahead of previous deadlines, are making UK data volatile. After growing by 0.5% in 2019 Q1, GDP is expected to have been flat in Q2, slightly weaker than anticipated in May. Looking through recent volatility, underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade.  Evidence from companies, up to the middle of July, suggests that uncertainty over the United Kingdom’s future trading relationship with the European Union has become more entrenched. The labour market remains tight. Annual pay growth has been relatively strong.  Consumer spending has remained resilient. CPI inflation was 2.0% in June and core CPI inflation was 1.8%. The Committee’s updated projections are set out in the accompanying August Inflation Report . They continue to assume a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. In the central projection, conditioned on prevailing asset prices, underlying output growth is subdued in the near term, reflecting more entrenched Brexit uncertainties. This means that a margin of excess supply persists over the first year of the projection. Thereafter, GDP is projected to accelerate to robust growth rates, reflecting a gradual recovery in global growth and firming UK domestic demand growth, driven in large part by a recovery in investment growth as uncertainties dissipate in line with the Brexit conditioning assumption. The acceleration in GDP results in a significant build-up of excess demand, to around 1¾% of potential GDP by the end of the forecast period. After falling in the near term, CPI inflation is projected to rise above the 2% target, as building excess demand leads to firmer domestic inflationary pressures. Conditioned on prevailing asset prices, CPI inflation reaches 2.4% by the end of the three-year forecast period. These projections are affected by an inconsistency between the smooth Brexit conditioning assumption underpinning the forecast and the prevailing market asset prices on which the forecasts are also conditioned. These asset prices reflect market participants’ perceptions of the likelihood and consequences of a no-deal Brexit.  If, as assumed, Brexit proceeds smoothly to some form of deal, market interest rates would likely rise and the sterling exchange rate would likely appreciate. A more consistent forecast would therefore have somewhat lower paths for GDP growth and CPI inflation. Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate path of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. In all circumstances, the Committee will set monetary policy appropriately to achieve the 2% inflation target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 18 September 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. Since the MPC’s previous meeting, the trade war between the United States and China has intensified, and the outlook for global growth has weakened.  Monetary policy has been loosened in many major economies. Shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices, in particular the sterling exchange rate has risen by over 3½%. Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in 2019 Q2 and now expected to rise by 0.2% in Q3. The Committee judges that underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies. Brexit uncertainties have continued to weigh on business investment, although consumption growth has remained resilient, supported by continued growth in real household income. The weaker global backdrop is weighing on exports. The Government has announced a significant increase in departmental spending for 2020-21, which could raise GDP by around 0.4% over the MPC’s forecast period, all else equal. CPI inflation fell to 1.7% in August, from 2.1% in July, and is expected to remain slightly below the 2% target in the near term. The labour market appears to remain tight, with the unemployment rate having been just under 4% since the beginning of this year. Annual pay growth has strengthened further to the highest rate in over a decade. Unit wage cost growth has also risen, to a level above that consistent with meeting the inflation target in the medium term. The labour market does not appear to be tightening further, however, with official and survey measures of employment growth softening. For most of the period following the EU referendum, the degree of slack in the UK economy has been falling and global growth has been relatively strong.  Recently, however, entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply. Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate response of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the sterling exchange rate. It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union. The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced. In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow. The Committee’s interest rate decisions would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand. In this eventuality, the monetary policy response would not be automatic and could be in either direction. In the event of greater clarity that the economy is on a path to a smooth Brexit, and assuming some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target. In all circumstances, the Committee will set monetary policy appropriately to achieve the 2% inflation target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 6 November 2019, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. The Committee’s new projections for activity and inflation are set out in the accompanying November Monetary Policy Report . They are now based on the assumption of an orderly transition to a deep free trade agreement between the United Kingdom and the European Union. Looking through Brexit-related volatility, underlying UK GDP growth has slowed materially this year and a small margin of excess supply has opened up. That slowdown reflects weaker global growth, driven by trade protectionism, and the domestic impact of Brexit-related uncertainties. In October, the UK and EU agreed a Withdrawal Agreement and Political Declaration as well as a flexible extension of Article 50. As a consequence, the perceived likelihood of a no-deal Brexit has fallen markedly and the sterling exchange rate has appreciated. These agreements are expected to remove some of the uncertainty facing businesses and households, and the MPC projects that UK GDP growth will pick up during 2020. This will be further supported by easier UK fiscal policy and a modest recovery in global growth. Over the remainder of the forecast period, demand growth is expected to outstrip the subdued pace of supply growth, which is restrained to some extent by the adjustment to new trading arrangements with the EU. Inflationary pressures are projected to lessen in the near term. CPI inflation remained at 1.7% in September and is expected to decline to around 1¼% by the spring, owing to the temporary effect of falls in regulated energy and water prices. While unit labour costs have been growing at rates above those consistent with meeting the inflation target and core services CPI inflation has begun to increase somewhat, employment growth has slowed and pay growth is likely to fall back in the near term. In the second half of the MPC’s forecast period, however, as a significant margin of excess demand emerges, domestic inflationary pressures are expected to build. Conditioned on current market yields, CPI inflation is projected to rise to slightly above 2% towards the end of the forecast period. Monetary policy could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the 2% target.  The Committee will, among other factors, monitor closely the responses of companies and households to Brexit developments as well as the prospects for a recovery in global growth. If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation.  Further ahead, provided these risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 18 December 2019, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. The Committee’s latest projections for activity and inflation were set out in the November Monetary Policy Report and were based on the assumption of an orderly transition to a deep free trade agreement between the United Kingdom and the European Union. UK GDP growth was projected to pick up from current below-potential rates, supported by the reduction of Brexit-related uncertainties, an easing of fiscal policy and a modest recovery in global growth. With demand growth outstripping the subdued pace of supply growth, excess demand and domestic inflationary pressures were expected to build gradually. CPI inflation was projected to rise to slightly above the 2% target towards the end of the forecast period. Since the MPC’s previous meeting, economic data have been broadly in line with the November Report. Global growth has shown tentative signs of stabilising and global financial conditions remain supportive. The partial de-escalation of the US-China trade war provides some additional support to the outlook relative to the November Report, although trade tensions remain elevated. UK GDP increased by 0.3% in 2019 Q3 and is expected to rise only marginally in Q4. Household consumption has continued to grow steadily, but business investment and export orders have remained weak. Financial markets have remained sensitive to domestic policy developments. Since the November Report, the sterling exchange rate has appreciated by 2% and UK-focused equities have outperformed their international counterparts. There is no evidence yet about the extent to which policy uncertainties among companies and households have declined. There continue to be some signs that the labour market is loosening, although it remains tight. Employment growth has slowed and vacancies have fallen, but the unemployment rate has remained stable and the employment rate is around its record high. Although pay growth has eased somewhat, unit labour costs have continued to grow at rates above those consistent with meeting the inflation target in the medium term. CPI inflation remained at 1.5% in November and core CPI inflation remained at 1.7%, broadly as expected. The headline rate is still expected to fall to around 1¼% by the spring, owing to the temporary effects of falls in regulated energy and water prices. Monetary policy could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the 2% target. The Committee will, among other factors, continue to monitor closely the responses of companies and households to Brexit developments as well as the prospects for a recovery in global growth. If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation. Further ahead, provided these risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 29 January 2020, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.75%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion. UK GDP growth slowed last year, reflecting weaker global growth and elevated Brexit uncertainties. Output is expected to have been flat in 2019 Q4. Growth in regular pay has fallen back to around 3½%, though unit labour costs have continued to grow at rates above those consistent with meeting the inflation target in the medium term. CPI inflation fell to 1.3% in December, core CPI inflation declined to 1.4%, and core services inflation is below its target-consistent range.  The unemployment rate has remained low and stable, and employment growth has picked up. Following its annual reassessment of supply-side conditions, the Committee judges that there has been a somewhat greater margin of spare capacity in the economy over recent years, which has been exerting downward pressure on domestically generated inflation. The most recent indicators suggest that global growth has stabilised, reflecting the partial easing of trade tensions and the significant loosening of monetary policy by many central banks over the past year. Global business confidence and other manufacturing indicators have generally picked up. Domestically, near-term uncertainties facing businesses and households have receded. Surveys of business activity have picked up, quite markedly in some cases, and investment intentions appear to have recovered. Housing market indicators have strengthened and consumer confidence has increased slightly. The Committee will monitor closely the extent to which these early indications of an improved outlook are sustained and follow through to the hard data on domestic activity in coming months. The Committee’s updated projections for activity and inflation are set out in the accompanying January Monetary Policy Report . They are based on the assumption of an immediate but orderly move, at the beginning of next year, to a deep free trade agreement between the United Kingdom and the European Union. UK GDP growth is projected to pick up a little in early 2020. Further ahead, and conditioned on a market path for Bank Rate that falls slightly over the forecast period, the recovery in UK growth is supported by a pickup in global activity, a further decline in Brexit uncertainties and the Government’s announced spending measures.  Support from these factors is sufficient to boost demand growth above weakened potential supply growth. As a result, slack is eroded gradually over the first part of the forecast period and a margin of excess demand builds thereafter. CPI inflation is projected to remain below the MPC’s 2% target throughout this year and much of 2021. Further out, and conditioned on market yields, strengthening domestic price pressures, alongside a waning drag from energy prices, mean that inflation reaches the 2% target by the end of next year and rises slightly above it by the end of the forecast period. Monetary policy will be set to ensure a sustainable return of inflation to the 2% target. Policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak. Further ahead, if the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate. Monetary policy summary and minutes Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and thereby helps to sustain growth and employment. In that context, its challenge over recent weeks has been to respond to the severe economic and financial disruption caused by the spread of Covid-19. The spread of the disease and the measures that are likely to be needed to contain it have evolved significantly. The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely. Given the severity of that disruption, there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment. In the near term, many people will be unable to work for a period and others are adjusting their working arrangements. Many consumer-facing companies are now required to cease operations for a time, while other businesses have also needed to cease or scale back their activities. Household spending on social activities and other delayable forms of consumption is likely to decline materially. In an environment of heightened uncertainty, businesses are likely to postpone investment decisions. Exports are likely to weaken. These effects on economic activity will be offset partly by temporarily higher spending on essential goods and services. Nonetheless, business cashflows will be severely affected in a way that, without support measures, would threaten material numbers of businesses failing, and large and persistent rises in unemployment. There is little evidence as yet to assess the precise magnitude of the economic shock from Covid-19. It is probable that global GDP will fall sharply during the first half of this year. Unemployment is likely to rise rapidly across a range of economies, as suggested by early indicators. In the United Kingdom, even before the introduction of the most recent social distancing measures, the composite flash output and expectation PMIs fell sharply in March to their all-time lowest levels, consistent with a material contraction in GDP. Other timely indicators of activity, such as footfall in shops and the number of flights, have also declined sharply. There have been very significant moves in a range of financial market prices and implied volatilities have risen to historically elevated levels, with evidence of widespread disruption to market functioning. Risky asset prices have fallen and, in the period leading up to the MPC’s special meeting on 19 March, yields on longer-term government debt rose. Additional demand for US dollar liquidity contributed to disruption in dollar funding markets, and in other usually liquid markets. The sterling exchange rate has depreciated sharply. Overall, UK and global financial conditions have tightened materially. All major central banks have set out wide-ranging policy responses that have helped to stabilise markets and improve liquidity in government bond markets. What public policy is doing The front line of combatting the challenges of Covid-19 comprises the extraordinary efforts of NHS health professionals, carers and volunteers across the country. Monetary policy should take into account the broader public policy response to reduce the disruptive consequences for households and businesses of the spread of Covid-19. This should help to minimise the longer-term damage to the economy when the health crisis abates. In this environment, it is essential that monetary and financial stability are maintained, as these are pre-requisites of longer-term economic prosperity.  Consistent with this, the Bank of England has coordinated its actions with those of the UK Government in order to ensure that these initiatives are complementary and have maximum impact in supporting households and businesses during this period of disruption. The Government has announced a series of substantial fiscal support measures to alleviate some of the severe cashflow problems facing businesses and households. The Bank of England also has a role to play in supporting businesses and households through the economic disruption associated with Covid-19. The Financial Policy Committee (FPC) reduced the UK countercyclical capital buffer rate to 0% of banks’ exposures to UK borrowers at its policy meeting on 9 March.  This action supports the ability of banks to supply the credit needed by households and businesses. The FPC, together with the Prudential Regulation Committee, will monitor closely the response of banks to recent measures, as well as the credit conditions faced by UK businesses and households more generally. On 17 March, HM Treasury announced the creation of the Covid Corporate Financing Facility (CCFF), for which the Bank would act as HM Treasury’s agent. This will provide funding to businesses by purchasing commercial paper of up to a one-year maturity. As an alternative source of finance for larger companies, the scheme will help preserve the capacity of the banking system to lend to other companies, including small and medium-sized enterprises. The CCFF is being funded by the issuance of additional central bank reserves but is set up in a separate legal entity from the Bank and from the Asset Purchase Facility. The MPC will continue to decide on the overall amount of asset purchases that are financed by central bank reserves. It is therefore taking the size of the CCFF into account when taking its decisions on the target stock of government and corporate bonds financed by reserves necessary to fulfil its remit. The role of monetary policy As set out in the Chancellor’s letter on 11 March, the MPC has statutory objectives to maintain price stability and, subject to that, to support the economic policy of the Government including its objectives for growth and employment. The updated remit letter confirms that the operational target for monetary policy remains an inflation rate of 2% measured by the 12-month increase in the Consumer Prices Index (CPI). CPI inflation was 1.7% in February. Prior to recent developments, inflation was already set to fall further below the MPC’s 2% target. It is now likely to decline to below 1% in the spring, reflecting the pass-through to fuel prices of the recent and sharp decline in the oil price. Further ahead, inflation will be boosted by the significant depreciation of the sterling exchange rate. The MPC will be monitoring closely developments in inflation and in indicators of inflation expectations, including those of households, businesses and financial markets.  Financial market measures of inflation expectations have not risen over recent weeks. The nature of the economic shock from Covid-19 is very different from those to which the MPC has previously had to respond. The scale and duration of the shock to economic activity, while highly uncertain, will be large and sharp but should ultimately prove temporary, particularly if job losses and business failures can be minimised. In the current circumstances, and consistent with the MPC’s remit, monetary policy is aimed at guarding against an unwarranted tightening in financial conditions and, more broadly, supporting businesses and households through the crisis and limiting any lasting damage to the economy. What the MPC is doing Over recent weeks, the MPC has reduced Bank Rate by 65 basis points, from 0.75% to 0.1%, and introduced a Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). It has also announced an increase in the stock of asset purchases, financed by the issuance of central bank reserves, by £200 billion to a total of £645 billion. Those purchases are being undertaken as soon as operationally possible, consistent with improved market functioning.  The majority of additional asset purchases would comprise UK government bonds. Some additional sterling non-financial investment-grade corporate bonds would also be purchased. At its meeting ending on 25 March 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee also voted unanimously for the Bank of England to continue with the programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion. The MPC will monitor closely the pass-through to banks and building societies’ lending rates of the recent reductions in Bank Rate. Regarding the impact of asset purchases, gilt yields fell significantly following the previous week’s special MPC meeting and the commencement of additional gilt purchase operations from 20 March.  If needed, the MPC can expand asset purchases further. The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy. Download the minutes of the meetings ending on 19 March 2020 and 25 March 2020 Monetary Policy Committee voting history

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting Authorities around the world are taking action to halt the spread of the Coronavirus (Covid-19) pandemic and to support economic activity. The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  In that context, its challenge is to respond to the severe economic and financial disruption caused by the spread of Covid-19.  At its meeting ending on 6 May 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted by a majority of 7-2 for the Bank of England to continue with the programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, to take the total stock of these purchases to £645 billion.  Two members preferred to increase the target for the stock of asset purchases by an additional £100 billion at this meeting. The spread of Covid-19 and the measures to contain it are having a significant impact on the United Kingdom and many countries around the world.  Activity has fallen sharply since the beginning of the year and unemployment has risen markedly. Economic data have continued to be consistent with a sudden and very marked drop in global activity.  Oil prices have been volatile.  There have, however, been tentative signs of recovery in domestic spending in China, and this is likely to be echoed in other countries that have started to relax Covid-related restrictions on economic activity.  Financial markets have recovered somewhat over recent weeks and risky asset prices have picked up from their lows in mid-March.  This in part reflects the actions taken by authorities in the United Kingdom and elsewhere.  Global financial conditions have, nevertheless, remained tighter than prior to the outbreak of Covid-19. The timeliest indicators of UK demand have generally stabilised at very low levels in recent weeks, after unprecedented falls during late March and early April.  Payments data point to a reduction in the level of household consumption of around 30%.  Consumer confidence has declined markedly and housing market activity has practically ceased.  According to the Bank’s Decision Maker Panel, companies’ sales are expected to be around 45% lower than normal in 2020 Q2 and business investment 50% lower.  There has been widespread take-up of the Coronavirus Job Retention Scheme.  Nevertheless, sharp increases in benefit claims are consistent with a pronounced rise in the unemployment rate. CPI inflation declined to 1.5% in March and is likely to fall below 1% in the next few months, in large part reflecting developments in energy prices. The unprecedented situation means that the outlook for the UK and global economies is unusually uncertain.  It will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it.  Recognising these uncertainties, the MPC has constructed a plausible illustrative economic scenario in the accompanying May Monetary Policy Report.  This scenario is based on a set of stylised assumptions about the pandemic and the responses of governments, households and businesses, and, as usual, on the prevailing levels of asset prices and the market path for interest rates.  While the scenario is highly conditional, it helps to illustrate the potential impact of Covid-19 on the economy and the channels through which the impact is felt.  The Report also includes a number of estimates of the sensitivity of the economy to a selection of key variables, which, taken alongside the scenario, serve to illustrate the important drivers of the outlook. The illustrative scenario incorporates a very sharp fall in UK GDP in 2020 H1 and a substantial increase in unemployment in addition to those workers who are furloughed currently.  Given the assumed path for the relaxation of social distancing measures, the fall in GDP should be temporary and activity should pick up relatively rapidly.  Nonetheless, because a degree of precautionary behaviour by households and businesses is assumed to persist, the economy takes some time to recover towards its previous path.  CPI inflation is expected to fall further below the 2% target during the second half of this year, largely reflecting the weakness of demand. As set out in the accompanying interim Financial Stability Report, the Financial Policy Committee (FPC) has assessed the risks to UK financial stability and the resilience of the UK financial system to the economic and market shocks associated with Covid-19.  Drawing on the MPC’s illustrative scenario, the FPC judges that the core banking system has capital buffers more than sufficient to absorb losses and, supported by government guarantees for new lending and Bank of England funding, the capacity to provide credit to support the UK economy. The MPC has statutory objectives to maintain price stability and, subject to that, to support the economic policy of the Government including its objectives for growth and employment.  In the current circumstances, and consistent with the MPC’s remit, monetary policy is aimed at supporting businesses and households through the crisis, and limiting any lasting damage to the economy. Since the onset of the Covid-19 shock, the MPC has, complementing the responses of other parts of the Bank of England and the UK Government, taken a number of actions to fulfil its mandate.  The Committee has reduced Bank Rate to 0.1%;  has introduced a Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME);  and announced a £200 billion increase in the stock of UK government bond and sterling non-financial investment-grade corporate bond purchases, to be carried out as soon as operationally possible and consistent with improved market functioning.  The Committee notes that the stock of asset purchases will reach £645 billion by the beginning of July, at the current pace of purchases.  The Committee continues to monitor closely a range of indicators of market functioning. In the illustrative scenario, the recovery in economic activity is relatively rapid and inflation rises to around the 2% target, conditional on the scenario assumptions that include a gradual easing in social distancing, and supported by the very significant monetary and fiscal stimulus.  Relative to the scenario, the Committee assesses that the balance of risks to the economic outlook lies to the downside. At this meeting, the Committee judges that the existing stance of monetary policy is appropriate.  The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2% target. Monetary policy summary and minutes Monetary Policy Committee voting history

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the severe economic and financial disruption caused by the spread of Covid-19.  At its meeting ending on 17 June 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with the existing programme of £200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves. The Committee voted by a majority of 8-1 for the Bank of England to increase the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, by an additional £100 billion, to take the total stock of asset purchases to £745 billion. Risky asset prices have recovered further from their March lows, although they have remained sensitive to news on the evolution of the pandemic.  Recent data outturns suggest that the fall in global GDP in 2020 Q2 will be less severe than expected at the time of the May Monetary Policy Report. There are signs of consumer spending and services output picking up, following the easing of Covid-related restrictions on economic activity. Recent additional announcements of easier monetary and fiscal policy will help to support the recovery. Downside risks to the global outlook remain, however, including from the spread of Covid-19 within emerging market economies and from a return to a higher rate of infection in advanced economies. UK GDP contracted by around 20% in April, following a 6% fall in March. Evidence from more timely indicators suggests that GDP started to recover thereafter. Payments data are consistent with a recovery in consumer spending in May and June, and housing activity has started to pick up recently. The LFS unemployment rate was unchanged at 3.9% in the three months to April. But other and more timely indications from the claimant count, HMRC payrolls data and job vacancies suggest that the labour market has weakened materially. Following stronger than expected take-up of the Coronavirus Job Retention Scheme, a greater number of workers are likely to be furloughed in the second quarter. Evidence from business surveys and the Bank’s Agents is consistent with a weak outlook for employment in coming quarters. Some households are also worried about their job security. Twelve-month CPI inflation declined from 1.5% in March to 0.8% in April, triggering the explanatory letter from the Governor to the Chancellor published alongside this monetary policy announcement. CPI inflation fell further in May, to 0.5%. Current below-target rates of CPI inflation can in large part be accounted for by the effects of the pandemic. The collapse in global oil prices has had direct effects on inflation, via the prices of motor fuels, and indirect effects by reducing input costs in other sectors of the economy. The sharp drop in domestic activity is also adding to downward pressure on inflation through increased spare capacity in most sectors of the economy. The unprecedented situation means that the outlook for the UK and global economies is unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors. The emerging evidence suggests that the fall in global and UK GDP in 2020 Q2 will be less severe than set out in the May Report. Although stronger than expected, it is difficult to make a clear inference from that about the recovery thereafter. There is a risk of higher and more persistent unemployment in the United Kingdom. Even with the relaxation of some Covid-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist. The economy, and especially the labour market, will therefore take some time to recover towards its previous path. CPI inflation is well below the 2% target and is expected to fall further below it in coming quarters, largely reflecting the weakness of demand. At this meeting, the MPC judges that a further easing of monetary policy is warranted to meet its statutory objectives. The Committee agreed to increase the target stock of purchased UK government bonds by an additional £100 billion in order to meet the inflation target in the medium term. The Committee expects that programme to be completed, and the total stock of asset purchases to reach £745 billion, around the turn of the year. The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2% target. The Committee will keep the asset purchase programme under review.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the economic and financial impact of the Covid-19 pandemic. At its meeting ending on 4 August 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these purchases at £745 billion. The Committee’s projections for activity and inflation are set out in the accompanying August Monetary Policy Report. Although recent developments suggest a less weak starting point for the Committee’s latest projections, it is unclear how informative they are about how the economy will perform further out. The outlook for the UK and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors. The MPC’s projections assume that the direct impact of Covid-19 on the economy dissipates gradually over the forecast period. Given the inherent uncertainties regarding the evolution of the pandemic, the MPC’s medium-term projections are a less informative guide than usual. Global activity has strengthened over recent months, although it generally remains below its level in 2019 Q4. Covid-19 has continued to spread rapidly within a number of emerging market economies, however, and there has been a renewed rise in cases in many advanced economies. UK GDP is expected to have been over 20% lower in 2020 Q2 than in 2019 Q4. But higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April. Payments data suggest that household consumption in July was less than 10% below its level at the start of the year.  Housing market activity appears to have returned to close to normal levels, despite signs of a tightening in credit supply for some households. There is less evidence available on business spending, but surveys suggest that business investment is likely to have fallen markedly in Q2 and investment intentions remain very weak. Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes. Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind. In the near term, the unemployment rate is projected to rise materially, to around 7½% by the end of the year, consistent with a material degree of spare capacity. In the MPC’s central projection, GDP continues to recover beyond the near term, as social distancing eases and consumer spending picks up further. Business investment also recovers, but somewhat more slowly. Unemployment declines gradually from the beginning of 2021 onwards. Activity is supported by the substantial fiscal and monetary policy actions in place.  Nonetheless, the recovery in demand takes time as health concerns drag on activity. GDP is not projected to exceed its level in 2019 Q4 until the end of 2021, in part reflecting persistently weaker supply capacity. Given the scale of the movements in output, as well as the inherent uncertainty over the factors determining the outlook, the evolution of the balance between demand and supply is hard to assess.  The MPC’s central projection implies that a margin of spare capacity is likely to remain until the end of next year.  The risks to the outlook for GDP are judged to be skewed to the downside. Twelve-month CPI inflation increased to 0.6% in June from 0.5% in May. CPI inflation is expected to fall further below the 2% target and average around ¼% in the latter part of the year, largely reflecting the direct and indirect effects of Covid-19.  These include the impact of energy prices and the temporary cut in VAT for hospitality, holiday accommodation and attractions.  As these effects unwind, inflation rises, supported by a gradual strengthening of domestic price pressures as spare capacity diminishes. In the MPC’s central projection, conditioned on prevailing market yields, CPI inflation is expected to be around 2% in two years’ time. The Committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit. The MPC will keep under review the range of actions that could be taken to deliver its objectives. The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. At this meeting, the Committee judges that the existing stance of monetary policy remains appropriate.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. In that context, its challenge at present is to respond to the economic and financial impact of the Covid-19 pandemic. At its meeting ending on 16 September 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to continue with its existing programmes of UK government bond and sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these purchases at £745 billion. The outlook for the economy remains unusually uncertain. The MPC’s central projections in the August Monetary Policy Report assumed that the direct impact of Covid-19 on the economy would dissipate gradually. They were also conditioned on the assumption of an immediate, orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021. Conditional on those assumptions, UK GDP was projected to continue to recover. Activity was also supported by substantial fiscal and monetary policy actions. Nonetheless, the recovery in demand took time as health concerns were expected to drag on activity. The unemployment rate was projected to rise markedly, consistent with a material degree of spare capacity, before declining gradually. Conditioned on prevailing market yields, CPI inflation was expected to be around 2% in two years’ time. Indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting. The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments. UK GDP in July was around 18½% above its trough in April and around 11½% below its 2019 Q4 level. High-frequency payments data suggest that consumption has continued to recover during the summer and is now at around its start-of-year level in aggregate, stronger than expected in the August Report. Investment intentions have remained very weak and uncertainties among businesses are elevated. For 2020 Q3 as a whole, Bank staff expect GDP to be around 7% below its 2019 Q4 level, less weak than had been expected in the August Report. Administrative data suggest that the number of paid employees has fallen by around 700,000 between February and August. The number of furloughed workers has continued to decline;  considerable uncertainty remains around the labour market after the government job support schemes unwind. Twelve-month CPI inflation fell from 1.0% in July to 0.2% in August, consistent with temporary impacts on inflation from the Government’s Eat Out to Help Out scheme and the cut in VAT for hospitality, holiday accommodation and attractions. This triggers the exchange of open letters between the Governor and the Chancellor published alongside this monetary policy announcement. CPI inflation is expected to remain below 1% until early 2021, albeit slightly higher than expected at the time of the August Report. The path of growth and inflation will depend on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It will also depend on the responses of households, businesses and financial markets to these developments. Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out. The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year. As in the August Report, there remains a risk of a more persistent period of elevated unemployment than in the central projection. The Committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit. The MPC will keep under review the range of actions that could be taken to deliver its objectives. The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. At this meeting, the Committee judged that the existing stance of monetary policy remains appropriate.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  In that context, its challenge at present is to respond to the economic and financial impact of the Covid pandemic.  At its meeting ending on 4 November 2020, the MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.  The Committee voted unanimously for the Bank of England to continue with the existing programme of £100 billion of UK government bond purchases, financed by the issuance of central bank reserves, and also for the Bank of England to increase the target stock of purchased UK government bonds by an additional £150 billion, financed by the issuance of central bank reserves, to take the total stock of government bond purchases to £875 billion. Since the Committee’s previous meeting, there has been a rapid rise in rates of Covid infection.  The UK Government and devolved administrations have responded by increasing the severity of Covid restrictions.  All restrictions announced up to and including 31 October have been reflected in the Committee’s judgements. There are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak.  The Committee’s latest projections for activity and inflation are set out in the accompanying November Monetary Policy Report.  These assume that developments related to Covid will weigh on near-term spending to a greater extent than projected in the August Report, leading to a decline in GDP in 2020 Q4. Household spending and GDP are expected to pick up in 2021 Q1, as restrictions loosen.  The level of activity in the first quarter is expected to remain materially lower than in 2019 Q4.  UK trade and GDP are also likely to be affected during an initial period of adjustment, over the first half of next year, as the United Kingdom leaves the Single Market and Customs Union on 1 January and is assumed to move immediately to a free trade agreement with the European Union. Over the remainder of the forecast period, GDP is projected to recover further as the direct impact of Covid on the economy is assumed to wane.  Activity is also supported by the substantial fiscal policies already announced and accommodative monetary policy.  The recovery takes time, however, and the risks around the GDP projection are judged to be skewed to the downside. The fall in activity over 2020 has reflected a decline in both demand and supply.  Overall, there is judged to be a material amount of spare capacity in the economy.  The LFS unemployment rate rose to 4.5% in the three months to August, but it is likely that labour market slack has increased by more than implied by this measure.  The extended Coronavirus Job Retention Scheme and new Job Support Scheme will mitigate significantly the impact of weaker economic activity on the labour market.  The unemployment rate is expected to peak at around 7¾% in 2021 Q2.  Beyond that point, spare capacity is expected to be eroded as activity picks up, and a small degree of excess demand emerges over the second half of the forecast period. Twelve-month CPI inflation increased to 0.5% in September, but remained well below the MPC’s 2% target, largely reflecting the direct and indirect effects of Covid on the economy.  These include the temporary impact of lower energy prices and the reduction in VAT, as well as some downward pressure from spare capacity.  CPI inflation is expected to remain at, or just above, ½% during most of the winter, before rising quite sharply towards the target as the effects of lower energy prices and VAT dissipate.  In the central projection, conditioned on prevailing asset prices, inflation is projected to be 2% in two years’ time. The outlook for the economy remains unusually uncertain.  It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.  It also depends on the responses of households, businesses and financial markets to these developments. At this meeting, the MPC judges that a further easing of monetary policy is warranted.  The Committee agreed to increase the target stock of purchased UK government bonds by an additional £150 billion in order to meet the inflation target in the medium term, taking the total stock of government bond purchases to £875 billion.  The Committee will keep the asset purchase programme under review. The MPC will continue to monitor the situation closely.  If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit.  The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 3 February 2021, the Committee judged that the existing stance of monetary policy remains appropriate. The MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted unanimously for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. The Committee’s projections for activity and inflation are set out in the accompanying February Monetary Policy Report. Covid-19 (Covid) vaccination programmes are under way in a number of countries, including the United Kingdom, which has improved the economic outlook. Nevertheless, recent UK and global activity has been affected by an increase in Covid cases, including from newly identified strains of the virus, and the associated reimposition of restrictions. The United Kingdom and European Union also announced a trade agreement, which has applied since 1 January 2021. Global GDP growth slowed in 2020 Q4, as a rise in Covid cases and consequent restrictions to contain the spread of the virus weighed on economic activity. Since the MPC’s previous meeting, financial markets have remained resilient. UK GDP is expected to have risen a little in 2020 Q4 to a level around 8% lower than in 2019 Q4. This is materially stronger than expected in the November Report. While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown. GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report. Labour market indicators remain difficult to interpret. The LFS unemployment rate rose to 5.0% in the three months to November, but other indicators suggest that labour market slack has remained higher than implied by this measure. The Government’s employment support schemes are likely to limit significantly the immediate rise in unemployment. A further increase in unemployment is projected over the next few quarters. Average Weekly Earnings growth has been notably stronger than expected in the November Report, although this may overstate underlying pay growth. GDP is projected to recover rapidly towards pre-Covid levels over 2021, as the vaccination programme is assumed to lead to an easing of Covid-related restrictions and people’s health concerns. Projected activity is also supported by the substantial fiscal and monetary policy actions already announced. Further out, the pace of GDP growth slows as the boost from these factors fades. Spare capacity in the economy is eliminated as activity picks up during 2021. Twelve-month CPI inflation rose from 0.3% in November to 0.6% in December. The weakness of recent outturns largely reflects the direct and indirect effects of Covid on the economy. CPI inflation is expected to rise quite sharply towards the 2% target in the spring, as the reduction in VAT for certain services comes to an end and given developments in energy prices. In the MPC’s central projection, conditioned on the market path for interest rates, CPI inflation is projected to be close to 2% over the second and third years of the forecast period. The outlook for the economy remains unusually uncertain. It depends on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments. The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. At this meeting, the Committee judged that the existing stance of monetary policy remains appropriate.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 17 March 2021, the Committee judged that the existing stance of monetary policy remains appropriate. The MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted unanimously for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. The MPC’s central projections in the February Monetary Policy Report assumed that Covid-related restrictions and people’s health concerns would weigh on activity in the near term, but that the vaccination programme would lead to those easing, such that UK GDP was projected to recover strongly over 2021 towards pre-Covid levels.  At the time of the Report, a further increase in unemployment had been projected over the next couple of quarters. CPI inflation was expected to return towards the 2% target in the spring and, conditioned on the market path for interest rates, it was projected to be close to 2% over the second and third years of the forecast period. Since the time of that forecast, developments in global GDP growth have been a little stronger than anticipated, and the substantial new US fiscal stimulus package should provide significant additional support to the outlook.  In part reflecting this and alongside positive news on some vaccination programmes, advanced economy longer-term government bond yields have risen rapidly to levels similar to those seen shortly before the pandemic. For the most part this has reflected higher real yields.  Risky asset prices have remained resilient. In the United Kingdom, the sterling effective exchange rate has appreciated and mortgage credit conditions have eased a little. An aggregate measure of UK financial conditions has been broadly unchanged since the February Report. The rates of Covid infections and hospitalisations have fallen markedly across the United Kingdom and the vaccination programme is proceeding at a rapid pace. Plans for the easing of restrictions on activity have been announced and envisage that restrictions could be lifted somewhat more rapidly than was assumed in the February Report. Budget 2021, published in March, contained a number of significant new policy announcements, including the extension of the Coronavirus Job Retention Scheme and other measures to support the economy in the near term which had not been reflected in the February Report. UK GDP fell by 2.9% in January. This was less weak than expected, due mainly to developments in public sector output, but still leaves GDP around 10% below its 2019 Q4 level. The news in recent plans for the easing of restrictions on activity may be consistent with a slightly stronger outlook for consumption growth in 2021 Q2 than was anticipated in the February Report, although it is less clear that this represents news to the MPC’s medium-term forecast. The LFS unemployment rate rose to 5.1% in the three months to December, but it is likely that labour market slack has remained higher than implied by this measure. The extension of the Government’s employment support schemes is likely to mean that the near-term rise in the LFS unemployment rate will be more moderate than suggested by the MPC’s February Report projections, which had been constructed on the basis of existing government policy at that time. Twelve-month CPI inflation rose slightly to 0.7% in January. The weakness of recent outturns has largely reflected the direct and indirect effects of Covid on the economy, in particular the decline in oil prices seen in early 2020. As has been the case in recent MPC projections, CPI inflation is expected to return swiftly to around the 2% target in the spring, as the effects of those earlier falls in oil prices drop out of the annual comparison, and reflecting more recent increases in energy prices. These developments should have few direct implications for inflation over the medium term, however. Inflation expectations remain well anchored. There is judged to be a material degree of spare capacity at present. The outlook for the economy, and particularly the relative movement in demand and supply during the recovery from the pandemic, remains unusually uncertain. It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments. The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. At this meeting, the Committee judged that the existing stance of monetary policy remains appropriate.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 5 May 2021, the Committee judged that the existing stance of monetary policy remained appropriate. The MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted by a majority of 8-1 for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. Covid-19 (Covid) and the actions taken to contain it have continued to have a dramatic and rapidly changing impact on the United Kingdom and countries around the world. The Committee’s updated projections for economic activity and inflation are set out in the accompanying May Monetary Policy Report. Global GDP growth is likely to have slowed in 2021 Q1 as Covid-related restrictions weighed on economic activity, although growth appears to have been stronger than expected in the February Report. Covid vaccination programmes have progressed and picked up pace in many countries. Recently, however, new Covid cases have increased significantly in India and some other economies, leading to tighter restrictions. Advanced-economy risky asset prices have continued to increase and longer-term government bond yields have stabilised since March, such that they are higher than at the time of the February Report. UK GDP is expected to have fallen by around 1½% in 2021 Q1, less weak than was assumed in the February Report. New Covid cases in the United Kingdom have continued to fall, the vaccination programme is proceeding apace, and restrictions on economic activity are easing. Reflecting these developments, GDP is expected to rise sharply in 2021 Q2, although activity in that quarter is likely to remain on average around 5% below its level in 2019 Q4. GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity. Demand growth is further boosted by a decline in health risks and a fall in uncertainty, as well as announced fiscal and monetary stimulus. Consumer spending is also supported by households running down over the next three years around 10% of their additional accumulated savings. After 2021, the pace of GDP growth is expected to slow as the boost from some of those factors wanes. The level of activity is higher in each quarter of the forecast than in the February projections. The fall in activity over the past year has reflected a decline in both demand and supply. The LFS unemployment rate fell slightly to 4.9% in the three months to February, but it is likely that labour market slack has remained higher than implied by this measure. Overall, there is judged to be spare capacity in the economy at present. The extension of the Government’s employment support schemes in Budget 2021 is expected to limit significantly the near-term rise in the LFS unemployment rate. The MPC also expects the medium-term equilibrium rate of unemployment to rise by less than was forecast in February. Spare capacity is eliminated as activity picks up during 2021, and there is a temporary period of excess demand, before demand and supply return broadly to balance. Twelve-month CPI inflation rose from 0.4% in February to 0.7% in March, with the February outturn triggering the exchange of open letters between the Governor and the Chancellor published alongside this monetary policy announcement. The weakness of recent CPI outturns has largely reflected the direct and indirect effects of Covid on the economy. As has been the case in recent MPC forecasts, inflation is projected to rise to close to the target in the near term as some of those effects fade.  In the central projection, CPI inflation rises temporarily above the 2% target towards the end of 2021, owing mainly to developments in energy prices. These transitory developments should have few direct implications for inflation over the medium term, however. In the central projection, conditioned on the market path for interest rates, inflation returns to around 2% in the medium term. The outlook for the economy, and particularly the relative movement in demand and supply, remains uncertain. It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments. In the central projections of the MPC’s May Report, the economy experiences a temporary period of strong GDP growth and a temporary period of modestly above-target CPI inflation, after which growth and inflation fall back, with inflation around the target two and three years ahead.  In judging the appropriate stance of monetary policy, the Committee will, consistent with its policy guidance and as always, focus on the medium-term prospects for inflation, including the balance between demand and supply, rather than factors that are likely to be transient. The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 22 June 2021, the Committee judged that the existing stance of monetary policy remained appropriate.  The MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.  The Committee voted by a majority of 8-1 for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. In the MPC’s central projection in the May Monetary Policy Report, UK GDP was expected to recover strongly over 2021, to pre-Covid-19 (Covid) levels.  Spare capacity in the economy was expected to be eliminated as activity picked up, and there was expected to be a temporary period of excess demand, before demand and supply returned broadly to balance.  CPI inflation was projected to rise temporarily above the 2% target, owing mainly to developments in energy prices.  As these transitory effects faded, conditioned on the market path for interest rates, inflation was expected to return to around 2% in the medium term. Since May, developments in global GDP growth have been somewhat stronger than anticipated, particularly in advanced economies.  Global price pressures have picked up further, reflecting strong demand for goods, rising commodity prices, supply-side constraints and transportation bottlenecks, and these have started to become apparent in consumer price inflation in some advanced economies.  Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory. Bank staff have revised up their expectations for the level of UK GDP in 2021 Q2 by around 1½% since the May Report, as restrictions on economic activity have eased, so that output in June is expected to be around 2½% below its pre-Covid 2019 Q4 level.  This recovery in activity has been most pronounced in the consumer-facing services for which restrictions were loosened in April.  Output in a number of sectors is now around pre-Covid levels, although it remains materially below in others.  The housing market remains strong, and indicators of consumer confidence have increased.  The direct economic implications of the delays in the final stages of the relaxation of Covid restrictions are likely to be relatively small compared with the impact of previous stages. The LFS unemployment rate fell slightly to 4.7% in the three months to April, although it is likely that labour market slack has remained higher than implied by this measure.  Some individuals stopped looking for work during the pandemic, and were therefore recorded as inactive.  There is uncertainty around how many of these individuals will resume their search for a job, and when.  The number of furloughed jobs has declined faster than expected, as demand has recovered.  Overall, there is judged to be spare capacity in aggregate in the economy at present.  However, vacancies have risen above pre-Covid levels, and there are increasing signs of recruitment difficulties for some businesses, and in some locations and sectors. Private sector regular pay in the three months to April was 5.6% higher than a year earlier.  Measured pay growth continues to be boosted by compositional effects, given that job losses have been skewed towards lower-paid employees during the pandemic.  In addition, the base effect of the drop in pay in spring and summer 2020 will continue to distort the annual comparison, such that, even if the level of private sector regular pay were to remain unchanged in May and June, twelve-month pay growth would still rise to close to 8% in the second quarter.  Underlying pay growth appears to be around pre-Covid rates. Twelve-month CPI inflation rose from 1.5% in April to 2.1% in May, above the MPC’s 2% target and 0.3 percentage points higher than expected in the May Report.  Core CPI inflation has also risen from 1.3% to 2.0%.  Building global input cost pressures have increasingly been passed through into manufacturing output prices and non-oil import prices.  CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3% for a temporary period. The Committee’s expectation is that the direct impact of rises in commodity prices on CPI inflation will be transitory.  More generally, the Committee’s central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.  There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected.  Taking together the evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judges that UK inflation expectations remain well anchored. In judging the appropriate stance of monetary policy, the Committee will, consistent with its policy guidance and as always, focus on the medium-term prospects for inflation, including the balance between demand and supply, and medium-term inflation expectations, rather than factors that are likely to be transient. The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit.  The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. The Committee will have the opportunity to assess the economic outlook more fully in the context of its August Monetary Policy Report and accompanying economic projections. At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate.

Monetary Policy Summary, August 2021 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 4 August 2021, the Committee judged that the existing stance of monetary policy remained appropriate. The MPC voted unanimously to maintain Bank Rate at 0.1%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee voted by a majority of 7-1 for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. The Committee’s updated projections for activity and inflation are set out in the accompanying August Monetary Policy Report . They assume that, despite the spread of the Delta variant, the impact of Covid on the UK economy fades further over time. They are also conditioned on the market path for interest rates. Global GDP growth is estimated to have risen sharply in 2021 Q2, as Covid vaccination programmes gathered pace and restrictions were eased further. Partly reflecting the spread of the Delta variant, global growth in Q3 is expected to expand at a slower pace than anticipated in the May Report. Global price pressures have continued to build, reflecting the speed and unevenness of the recovery in activity, and disruptions to supply chains. UK GDP is expected to have risen by 5% in 2021 Q2, leaving it around 4% below its pre-pandemic level and slightly stronger than expected in the May Report. After the MPC’s previous meeting, the number of Covid cases continued to rise but has subsequently shown signs of falling back, although there has been a sharp increase in the number of people being asked to self-isolate temporarily. The majority of remaining domestic Covid restrictions have now been lifted. Faster indicators of household spending have been broadly flat, at close to pre-Covid levels, but the housing market has remained strong. GDP is expected to grow by around 3% in Q3, somewhat weaker than expected in the May Report, with a small negative impact from recent developments in the pandemic. UK GDP is projected to recover further over the remainder of the year, reaching its pre-pandemic level in 2021 Q4, with demand growth boosted by a waning impact from Covid. Further out, the pace of GDP growth is expected to slow towards more normal rates, partly reflecting the gradual tightening in the stance of announced fiscal policy. The Labour Force Survey unemployment rate was 4.8% in the three months to May, 1 percentage point higher than at the end of 2019. The inactivity rate was also 1 percentage point above its level at the end of 2019. The number of full and part-time furloughed jobs has continued to decline as demand has recovered, but remained at around 2 million at the end of June. The stock of vacancies has increased further, as have indicators of recruitment difficulties. There appear to have been difficulties in matching available jobs and workers. These frictions are for a period reducing effective supply in the economy. Overall, the MPC judges that spare capacity has been eroded over the past couple of quarters, as demand has outstripped growth in effective supply. Frictions in the labour market are judged likely to dissipate over the forecast period, boosting growth in effective supply capacity. There is uncertainty around these judgements, including how the economy will adjust to the end of the furlough scheme. Private sector regular pay in the three months to May was over 7% higher than a year earlier, and annual growth is projected to have peaked at around 8½% in 2021 Q2. Adjusted for the impact of the furlough scheme, the changing composition of employment during the pandemic and annual base effects, underlying pay growth appears to continue to be around pre-Covid rates. Twelve-month CPI inflation rose to 2.5% in June, above the MPC’s 2% target and 0.8 percentage points higher than expected in the May Report. Core CPI inflation has also risen further, to 2.3%, as building global input cost pressures have been passed through to some consumer goods prices and, to a lesser degree, the reopening of the economy has led to a pickup in some consumer services and goods prices. CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and other goods prices, before falling back to close to the 2% target. The Committee’s central expectation is that current elevated global and domestic cost pressures will prove transitory. Nonetheless, the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report. And, alongside temporary constraints on supply, the rapid recovery in demand has eroded spare capacity such that the economy is projected to have a margin of excess demand for a period. In the medium term, conditioned on the market path for interest rates, inflation is projected to fall back to close to the 2% target, and demand and supply are expected to return broadly to balance. The MPC has had policy guidance in place specifying that it does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. Some members of the Committee judge that, although considerable progress has been made in achieving the conditions of that guidance, the conditions are not yet met fully. The other members judge that the conditions of the guidance have been met fully, but note that the guidance made clear that these have only ever been necessary not sufficient conditions for any future tightening in monetary policy. All members confirm that in judging the appropriate stance of monetary policy, the Committee will, as always, focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that are likely to be transient. In particular, the Committee will not put undue weight on capacity pressures that are frictional in nature and likely to be temporary. The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying wage pressures. In addition, there remain two-sided risks around the central path for inflation in the medium term. Risk management considerations continue to have some force. The Committee judges that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term. At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate. Minutes of the Monetary Policy Committee meeting ending on 4 August 2021 1) Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2) UK-weighted global GDP growth was estimated to have risen sharply in 2021 Q2, as Covid vaccination programmes had gathered pace and restrictions had eased further. Growth in Q2 was likely to have been somewhat stronger than projected in the May Monetary Policy Report . Partly reflecting the spread of the Delta variant, global GDP in Q3 was expected to expand at a slower pace than had been anticipated in the May Report. 3) Global price pressures had continued to build, reflecting the speed and unevenness of the recovery in global activity, supply chain disruptions, and some shortages of inputs. Some of these factors were likely to be transitory and could subsequently unwind. There had been further sharp increases in manufacturing output prices and non-oil commodity prices had also risen a little recently. The Brent oil spot price had fallen slightly since the MPC’s previous meeting, however, to around $72 per barrel, with the increased production announced by OPEC+ members on 18 July having pushed down somewhat on prices. Shipping costs had increased further, although disruption at major Chinese ports had been easing and global containerised trade flows had continued to rise. 4) These factors had combined with strong demand for certain goods and services to push consumer price inflation higher in many advanced and emerging market economies (EMEs) in recent months. In the United States, core PCE inflation had ticked up to 3.5% in June, while the headline measure had remained unchanged at 4.0%. In the euro area, headline HICP inflation had increased somewhat in July, to 2.2%, although the core measure had fallen a little to 0.7%. Headline inflation in these regions was expected to fall somewhat in coming quarters, as some of the previous rises had reflected factors that were likely to be temporary, such as the contribution of energy prices and sector-specific supply and demand mismatches. In China, by contrast, consumer price inflation had remained subdued, although producer price inflation had picked up sharply. 5) According to the preliminary flash estimate, euro-area GDP had grown by 2.0% in 2021 Q2, following a slight fall in Q1. This Q2 outturn was stronger than expected at the time of the MPC’s previous meeting, although it still left the level of GDP around 3% lower than immediately before the pandemic, in 2019 Q4. Led by the service sector, the euro-area composite output PMI had risen further in July, to 60.2, and the European Commission’s business confidence survey balances had also picked up again. The euro-area unemployment rate had fallen by 0.3 percentage points to 7.7% in June. Recent news on the spread of the Delta variant was likely to push down on GDP growth in Q3 compared with previous assumptions. 6) According to the advance estimate, US GDP had increased by 1.6% in 2021 Q2. This was slightly weaker than expected at the time of the MPC’s previous meeting, but it had been sufficient to raise the level of GDP back above its pre-Covid peak. Within this, household spending had continued to grow robustly, with services consumption having accelerated but goods consumption growth having slowed. In the labour market, the unemployment rate was little changed at 5.9% in June, but inactivity had remained persistently high, and there were signs of elevated mismatch, with a high level of vacancies despite unemployment remaining well above its pre-Covid rate. Recent news on the spread of the Delta variant was likely to weigh on GDP growth in Q3, although mobility indices and internet searches related to social spending suggested that the impact on US economic activity was likely to be smaller than in other major advanced economies. 7) In China, GDP growth had picked up to 1.3% in 2021 Q2, in line with expectations at the time of the MPC’s previous meeting, following a relatively weak expansion of 0.4% in Q1. Covid-related restrictions imposed in Guangdong province in May and June appeared to have had a fairly limited impact on aggregate economic activity. Monthly data for June had suggested some rebalancing towards private domestic demand, with retail sales and manufacturing investment strengthening, albeit with property investment moderating. 8) In a number of large EMEs, there had been a sharp increase in Covid cases recently. The latest business surveys had nevertheless pointed to a mixed picture across countries, with manufacturing PMIs for July recovering in India and Turkey, but falling sharply in South Africa and Indonesia. The rollout of vaccines in EMEs continued to have been generally more limited than in many advanced economies. Given this, aggregate growth in large EMEs appeared likely to slow somewhat in the third quarter, and the economic impact from the spread of the Delta variant was expected to be more persistent than in advanced economies. 9) The Committee discussed any lessons that could be learned from the economic experience of countries that had taken earlier steps to relax Covid restrictions than the United Kingdom, such as Australia, New Zealand and Israel. None of these countries provided an exact parallel to the United Kingdom’s situation, and each had had different experiences of the virus and policy responses. There were nevertheless some noteworthy features. Household savings had tended to decline from elevated rates after restrictions were lifted, but had not fallen materially below their pre-Covid levels, suggesting that there had been no rapid run-down of involuntarily accumulated savings. There had been only a gradual normalisation in the composition of consumer demand, with demand for durable goods remaining high as demand for services recovered. Governments in Australia and New Zealand appeared to have been able to withdraw support from the labour market without a sharp increase in unemployment. Monetary and financial conditions 10) Advanced-economy longer-term government bond yields had fallen since the MPC’s previous meeting, reversing some of the increases seen earlier in the year. The main drivers of these movements appeared to have been increased concerns about Covid-related risks to the global growth outlook. The falls in yields had been accounted for primarily by real rates, with inflation compensation components having been broadly stable. 11) Market-implied measures of advanced-economy policy rates had fallen a little since the MPC’s previous meeting. At its meeting on 22 July, the ECB Governing Council had left its key policy interest rates and the scale and pace of its asset purchase programmes unchanged. The Governing Council had earlier published its new monetary policy strategy, on 8 July, which had included the adoption of a symmetric 2% inflation target over the medium term. The conclusions of the strategy review had been largely in line with market expectations. At its 28 July meeting, the Federal Open Market Committee had left unchanged its target range for the federal funds rate and the pace of asset purchases. 12) The market-implied path for Bank Rate that underpinned the August Monetary Policy Report projections rose to around 0.5% at the MPC’s three-year forecast horizon, little changed from the May Report. 13) Movements in risky asset prices since the MPC’s previous meeting had been mixed. US equity prices had increased, but in the United Kingdom and euro area, they had been little changed. Although the fall in government bond yields had supported equity prices, equity risk premia had risen in all regions, possibly reflecting a perceived increase in the risk posed by Covid to the economic outlook. Equity prices related to companies in industries that had been most exposed to Covid, such as airlines, had continued to underperform headline indices. 14) The sterling effective exchange rate had been broadly stable since the previous MPC meeting. 15) Credit supply conditions for households had loosened since the Committee’s previous meeting, particularly for mortgage lending, for which much of the tightening that had occurred since the onset of the pandemic had unwound. Spreads on fixed-term mortgages had continued to fall. Net secured lending to households had risen to an all-time high of £17.9 billion in June. This strength was in large part due to an elevated number of property transactions completing before the tapering in July of the temporary stamp duty threshold in England and Northern Ireland, and the removal of the similar tax change in Wales. The net flow of consumer credit had continued to be slightly positive in June, having edged up gradually over the previous few months. 16) While credit conditions for small and medium-sized enterprises had tightened in 2021 Q2 with the ending of some government lending schemes, conditions for the corporate sector overall had been little changed, and were looser than expected in the May Report. Demand and output 17) UK GDP was estimated to have risen by 0.8% in May, slightly weaker than had been expected by Bank staff immediately prior to the release. Within this, consumer-facing services output had increased by around 5% on the month, reflecting the reopening of indoor hospitality and non-self-contained accommodation. Private business-to-business services, construction and manufacturing output in May had been weaker than expected, however. In particular, there had been some evidence of global supply chain disruptions weighing on UK activity, with a shortage of semiconductor microchips leading to a sharp fall in car production. For the second quarter as a whole, Bank staff continued to expect GDP to have been slightly stronger than forecast at the time of the May Monetary Policy Report . The August Report projections incorporated 2021 Q2 quarterly growth of 5%, which would have left GDP around 4% below its level in 2019 Q4, prior to the pandemic. 18) After the MPC’s previous meeting, the number of Covid cases had continued to increase but had subsequently shown signs of falling back, although there had been a sharp increase in the number of people asked to self-isolate temporarily through various channels. The number of hospitalisations of Covid patients and, in particular, deaths within 28 days of testing positive for Covid had risen to a lesser degree than during previous waves of the pandemic. The vaccination programme had continued. The majority of remaining domestic Covid restrictions had been lifted in England on 19 July, and were planned to be relaxed to a similar degree in Wales on 7 August and in Scotland on 9 August. Restrictions in Northern Ireland had been lifted progressively in late July. 19) Having picked up strongly in April and May, immediately following the reopening of the economy, faster indicators of household spending, such as CHAPS payments data, had been broadly flat in June and July, at levels close to those immediately before the pandemic. Measures of consumer confidence had also stabilised. Official retail sales volumes had risen by 0.5% in June, following a 1.3% fall in May, and leaving the level of sales around 9% above its 2019 Q4 level. Private new car registrations had risen slightly in June, to around their pre-pandemic levels. 20) Residential property transactions had picked up significantly in June, to 198,000 from 114,000 in May, as buyers had completed transactions before the tapering in July of the temporary stamp duty threshold in England and Northern Ireland, and the removal of the similar tax change in Wales. The number of mortgage approvals for house purchase had fallen slightly in June, however, to 81,300. The UK house price index had risen by 0.5% in May, taking the inflation rate in the three months to May compared to the same period a year earlier to around 10%. Timelier indicators had suggested some ongoing strength in house price inflation in the near term, with surveys and intelligence from the Bank’s Agents continuing to point to demand running ahead of supply. 21) The ONS Business Insights and Conditions Survey suggested that the share of UK companies open for trading had increased slightly further since the MPC’s previous meeting, although that share appeared to have stabilised at around 90% in the most recent data. There had been tentative signs that rising Covid cases and the number of individuals self-isolating had affected workplace mobility in some areas. Evidence from both manufacturing and services PMI surveys suggested that there remained substantial backlogs of work. The Bank’s Agents had also reported constraints on output from frictions in both global and domestic supply chains, shortages of heavy goods vehicle delivery drivers and restrictions in labour supply. Official trade data for May had continued to show that goods imports from the European Union had been weaker than imports from non-EU countries. 22) Companies’ expectations of the near-term impact of Covid on business investment had been at similar levels in the July Decision Maker Panel survey as in the May survey that the Committee had had available at its previous meeting. Firms expected investment in 2021 Q3 to be around 6% lower than it would otherwise have been, and around 3% lower in 2021 Q4. Agency contacts had reported that companies in several sectors were expecting to resume investment projects that had been put on hold during the pandemic, particularly in sectors in which demand was outpacing capacity. 23) Overall, GDP was expected to grow by around 3% in 2021 Q3 in the August Report projection, compared with just over 4% in the May Report. Despite the upside news in activity anticipated for the second quarter, this meant that the level of GDP was projected to be slightly lower in the third quarter than at the time of the May Report, with a small negative impact expected from recent developments in the pandemic. 24) The Committee discussed the risks around the near-term outlook for GDP. The impact of the Delta variant could, against a counterfactual of stronger growth, already be having a larger negative impact on activity than the Committee was assuming, including via voluntary social distancing. If the recent moderation in Covid cases persisted then that could lead to stronger-than-expected growth further out, however. And it was not clear to what extent voluntary social distancing was affecting spending at an aggregate level if consumption could now be substituted away more easily from activities considered riskier from a health perspective. But some levelling off in many indicators of spending had occurred before the latest pickup in cases and so it was also possible that the flattening in consumer spending over recent months had simply reflected an easing of the initial release of pent-up demand. This had also been observed in countries that had reopened earlier than the United Kingdom. Supply, costs and prices 25) The Labour Force Survey (LFS) unemployment rate had fallen from 5.2% in 2020 Q4 to 4.8% in the three months to May, although it had remained 1 percentage point higher than at the end of 2019. The LFS inactivity rate was also around 1 percentage point higher than it had been before the pandemic. LFS responses since the beginning of 2020 had been reweighted using population weights informed by HMRC payrolls data. The revised LFS estimates were now consistent with a broadly stable population aged 16 and over, and had shown a slightly steeper decrease in the employment rate relative to earlier estimates for the period. HMRC payroll figures had continued to show a much steeper decline in the number of employees during 2020 than implied by the LFS, but had also shown a sharper recovery since the turn of the year. The HMRC series had increased by around a further 350,000 between May and June, although it was still around 200,000 lower than in February 2020. 26) The number of jobs furloughed under the Coronavirus Job Retention Scheme (CJRS) had fallen by around 600,000 during June, to just under 1.9 million by the end of the month, equivalent to around 8% of private sector jobs. The latest data from the ONS Business Insights and Conditions Survey, scaled to match the administrative estimates, had suggested that around 6% of private sector jobs were furloughed in the first half of July, of which 55% of these jobs were held by employees on a flexible form of furlough that allowed them to have undertaken some work with their employer. The proportion of salary for furloughed hours covered by the government had been tapered from 80% to 70% in July and to 60% from 1 August, with employers required to top up to 80%. 27) The increases in unemployment, inactivity and the number of jobs furloughed since the onset of the pandemic suggested a material amount of labour market slack. Other indicators pointed to the labour market having been tighter, however. The stock of vacancies had increased further in June, to almost 20% above its 2019 average, such that the single-month ratio of vacancies to unemployment had returned to its level in early 2020. The latest Bank’s Agents’ score for recruitment difficulties had also risen sharply to close to its pre-pandemic level, and the index of staff availability in the REC Report on Jobs had reached a record low in June. The speed and scale of the recovery in labour demand had contributed to increasing recruitment difficulties. In addition, there appeared to have been difficulties in matching available jobs and workers, perhaps reflecting disparities across geographical areas. In recent weeks, some of the Agents’ contacts had also reported a significant number of employees self-isolating for a period, contributing to temporary labour shortages. 28) Private sector regular Average Weekly Earnings (AWE) had risen by 7.2% in the three months to May on a year earlier, and the annual rate was projected to have peaked at around 8½% in 2021 Q2 in the August Monetary Policy Report forecast. Annual AWE growth rates had been boosted by base effects, reflecting the marked drop in pay in 2020 Q2. The recent strength had also reflected significant compositional effects, with the jobs lost during the pandemic skewed towards lower-paid roles. Adjusted for the effects of the CJRS and changes in composition, Bank staff estimated that private sector regular pay had risen by an annualised rate of 2¾% since 2019 Q4, including 4% annualised growth in the first half of this year, the latter of which was around the rates seen prior to the pandemic. There was a lot of uncertainty around these estimates, however. The Agents had also reported a pickup in pay settlements, and signs of pay pressures emerging more broadly, with a number of contacts reviewing pay structures or giving targeted pay increases or bonuses. 29) Twelve-month CPI inflation had risen from 2.1% in May to 2.5% in June, 0.8 percentage points higher than projected in the May Report. Similarly, core CPI inflation, excluding food, beverages, tobacco and energy, had risen from 2.0% to 2.3%. The bulk of the news had been in core goods components, such as cars and clothing and footwear, with some additional upside news in services, and catering prices in particular, and to a lesser degree energy prices. Goods prices had increased globally, reflecting strong demand for goods and supply shortages. Some of the recent strength in CPI inflation might have also been related to the initial reopening of some sectors of the economy. 30) CPI inflation was projected to rise further in the near term, to around 4% in 2021 Q4. Almost half of the projected increase was accounted for by higher energy price inflation. At the same time, core CPI inflation was projected to rise to around 3%. The Agents’ contacts had reported further increases in the costs of a wide range of materials and commodities, and higher-than-usual freight and warehousing costs, with such costs having been passed through to consumer prices to a greater extent than earlier in the year. Price and cost indicators, such as the manufacturing input and output PMIs, had remained high since the MPC’s June meeting, and in some cases had strengthened further, posing a potential upside risk to the short-term inflation forecast alongside increasing labour cost pressures. UK import prices had picked up less strongly than these other cost measures would suggest, however, albeit by more than might have been expected given developments in world export prices and the sterling exchange rate. To the extent that CPI inflation had been boosted initially by the lifting of restrictions, there was the potential for such inflationary pressures to moderate as demand settled down. 31) Companies’ expectations of inflation one and two years ahead had increased, according to a range of business surveys, including the latest Deloitte CFO and CBI surveys and the July Decision Maker Panel. One-year ahead financial market and professional forecasters’ inflation expectations had also risen in 2021 Q2, and the Citi/YouGov measure of household one-year ahead inflation expectations had risen in July, having fallen a little in Q2. Short-term household measures tended to be correlated with inflation outturns, so it was possible that they would increase somewhat further alongside the expected rise in CPI inflation over the coming months. Medium-term measures of inflation expectations were expected to be more stable in the face of a temporary shock to inflation. The Citi/YouGov five-year ahead measure of inflation expectations had remained unchanged in July. Medium-term financial market measures of UK inflation compensation, such as the five-year inflation swap rate, five years forward, had been broadly stable since the MPC’s previous meeting, at a little above their average levels over the previous decade. The immediate policy decision 32) The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 33) The Committee reviewed recent developments against the backdrop of its latest economic projections as set out in the accompanying August Monetary Policy Report . Those projections assumed that, despite the spread of the Delta variant, the impact of Covid on the UK economy faded further over time. They were also conditioned on the market path for interest rates. 34) Global GDP growth was estimated to have risen sharply in 2021 Q2, as Covid vaccination programmes had gathered pace and restrictions had been eased further. Partly reflecting the spread of the Delta variant, global GDP in Q3 was expected to expand at a slower pace than had been anticipated in the May Report. In the August Report projections, UK-weighted world GDP continued to rise robustly in the near term, as the impact of Covid continued to wane, supported by vaccination programmes. The pace of the expansion in global GDP slowed over 2022, with growth returning to around pre-Covid rates in the latter years of the forecast period. 35) Global price pressures had continued to build, reflecting the speed and unevenness of the recovery in activity, and disruptions to supply chains. These developments had been reflected in world export price inflation, which had picked up sharply. Such trends could persist for a period, particularly if supply chains were vulnerable to further Covid-related disruptions. The strength in global inflationary pressures was expected to be transitory in the Committee’s central projections, however. And it was possible that price pressures could prove to be weaker than expected in the medium term, as previous periods of elevated tradable goods prices had often been followed by periods of relatively low inflation, possibly because supply had adjusted only with a lag. 36) Advanced-economy longer-term government bond yields had fallen since the MPC’s previous meeting, possibly reflecting concerns about Covid-related risks to global growth. The falls in yields had been accounted for primarily by real rates, with inflation compensation components having been broadly stable. Movements in risky asset prices globally had been mixed. Credit supply conditions for UK households had loosened, particularly for mortgage lending, for which much of the tightening that had occurred since the onset of the pandemic had unwound. 37) As of 4 August 2021, the total stock of assets held in the Asset Purchase Facility had reached £845 billion, including £100 billion of the £150 billion programme of UK government bond purchases announced on 5 November 2020. 38) UK GDP was expected to have risen by 5% in 2021 Q2, leaving it around 4% below its pre-pandemic level and slightly stronger than expected in the May Report. 39) After the MPC’s previous meeting, the number of Covid cases in the United Kingdom had continued to rise but had subsequently shown signs of falling back, although there had been a sharp increase in the number of people being asked to self-isolate temporarily. The majority of remaining domestic Covid restrictions had now been lifted. 40) Faster indicators of household spending had been broadly flat, at close to pre-Covid levels, but the housing market had remained strong. There was some evidence of constraints on output from frictions in supply chains, and restrictions in labour supply. GDP was expected to grow by around 3% in 2021 Q3, somewhat weaker than expected in the May Report, with a small negative impact from recent developments in the pandemic. In the near term, the risks to GDP were judged to be skewed to the downside of the central forecast, as there could be an impact on UK and global activity from a renewed rise in Covid cases, especially if any new variants of the virus emerged for which vaccine efficacy was significantly lower. 41) UK GDP was projected to recover further over the remainder of the year, reaching its pre-pandemic level in 2021 Q4, with demand growth boosted by a waning impact from Covid. Further out, the pace of GDP growth was expected to slow towards more normal rates. Over the forecast period, consumption was supported by households running down around 10% of the additional savings they had accumulated in aggregate while spending on some activities had been restricted. Fiscal policy was estimated to continue to support UK demand in the near term, with the policy stance tightening gradually over time in line with government announcements. 42) The Labour Force Survey unemployment rate had been 4.8% in the three months to May, 1 percentage point higher than at the end of 2019. The inactivity rate had also been 1 percentage point above its level at the end of 2019. The number of full and part-time furloughed jobs had continued to decline as demand had recovered, but had remained at around 2 million at the end of June. The stock of vacancies had increased further, as had indicators of recruitment difficulties. There appeared to have been difficulties in matching available jobs and workers. These frictions were for a period reducing effective supply in the economy, suggesting that the unemployment rate consistent with stabilising wage growth at rates in line with meeting the inflation target was at present higher than prior to the pandemic. Overall, the MPC judged that spare capacity had been eroded over the past couple of quarters, as demand had outstripped growth in effective supply. Frictions in the labour market were judged likely to dissipate over the forecast period, boosting growth in effective supply capacity. There was uncertainty around these judgements, including how the economy would adjust to the end of the furlough scheme. 43) In the near term, excess demand was projected to emerge in the August Report projections, as the pickup in demand was projected to continue to be a little more rapid than that of supply. Over 2022, however, as supply growth slowed by a little less than demand growth, excess demand was eroded. Demand and supply returned broadly to balance in the third year of the forecast period. 44) There were two-sided risks around the MPC’s assumptions about the degree to which the economy would need to adjust in the medium term in response to the pandemic, and hence its projections for supply growth. One possibility was that the composition of demand would normalise and that any sectoral re-adjustment on the supply side might be relatively quick. Alternatively, a larger reallocation of labour within or across sectors or geographic areas might be required, resulting in more persistent mismatches between supply and demand. 45) Private sector regular pay in the three months to May had been over 7% higher than a year earlier, and annual growth was projected to have peaked at around 8½% in 2021 Q2. Adjusted for the impact of the furlough scheme, the changing composition of employment during the pandemic and annual base effects, underlying pay growth appeared to continue to be around pre-Covid rates. 46) Twelve-month CPI inflation had risen to 2.5% in June, above the MPC’s 2% target and 0.8 percentage points higher than had been expected in the May Report. Core CPI inflation had also risen further, to 2.3%, as building global input cost pressures had been passed through to some consumer goods prices and, to a lesser degree, the reopening of the economy had led to a pickup in some consumer services and goods prices. 47) CPI inflation was projected to rise temporarily in the near term, to 4% in 2021 Q4, 1.5 percentage points higher than had been expected in the May Report, and owing largely to developments in energy and other goods prices. Above-target inflation was expected to be transitory in the August Report projections, as commodity prices were assumed to stabilise, supply shortages were assumed to ease and global demand to rebalance away from goods and back towards services. As a result, CPI inflation was expected to fall back and was projected to return to close to the 2% target in the medium term. 48) There were two-sided risks around this central path for inflation. On the downside, for example, there could be larger-than-expected supply responses in commodity and other global markets, pushing down on future input prices and import costs. On the upside, current elevated inflationary pressures could potentially lead to some second-round effects on consumer prices. Taking together the evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judged that UK inflation expectations remained well anchored. The Committee would continue to monitor the risk that domestic and global demand and cost pressures could affect medium-term inflation expectations. 49) The Committee turned to its immediate policy decision. 50) The Committee’s central expectation was that current elevated global and domestic cost pressures would prove transitory. Nonetheless, the economy was projected to experience a more pronounced period of above-target inflation in the near term than had been expected in the May Report. And, alongside temporary constraints on supply, the rapid recovery in demand had eroded spare capacity such that the economy was projected to have a margin of excess demand for a period. In the medium term, conditioned on the market path for interest rates, inflation was projected to fall back to close to the 2% target, and demand and supply were expected to return broadly to balance. 51) The MPC had, since the second half of 2020, had policy guidance in place specifying that it did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably. The Committee discussed whether the conditions of that guidance had now been met, taking account of both the August Report projections and recent developments in economic data. 52) Some members of the Committee judged that, although considerable progress had been made in achieving the conditions of the MPC’s existing policy guidance, the conditions were not yet met fully. In particular, they judged that it was not sufficiently clear that the economy was on a path to meet the inflation target sustainably, given the remaining downside risks from Covid, and the judgement of these members that GDP and employment were materially below their medium-term potential. 53) The other members of the Committee judged that the conditions of the existing policy guidance had been met fully, as demonstrated by developments in economic data and the latest central projections for spare capacity and CPI inflation in the August Report, but noted that the guidance had made clear that these had only ever been necessary not sufficient conditions for any future tightening in monetary policy. 54) All members confirmed that in judging the appropriate stance of monetary policy, the Committee would, as always, focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that were likely to be transient. In particular, the Committee would not put undue weight on capacity pressures that were frictional in nature and likely to be temporary. The Committee would be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying wage pressures. In addition, there remained two-sided risks around the central path for inflation in the medium term. Risk management considerations continued to have some force. 55) At this meeting, most members of the Committee judged that the existing stance of monetary policy, which included the previously announced £150 billion increase in the target stock of purchased assets, remained appropriate. 56) For one member, the economic outlook warranted a reduction in the scale of monetary policy stimulus at this MPC meeting. This member preferred to stop the current asset purchase programme as soon as practical after this meeting rather than continue it until around the end of the year, as currently planned. This member judged that, with the existing policy stance, inflation was likely to remain above the 2% target two and three years ahead. This reflected the prospect of a larger and more persistent level of excess demand in the United Kingdom and a greater impact from global cost pressures than in the central forecast in the August Report. Moreover, continuing with asset purchases when CPI inflation was 4% and the output gap was closed, as was likely to be the situation later this year, might cause medium-term inflation expectations to drift higher. A modest tightening of monetary policy at this meeting would mitigate these risks, which otherwise might ultimately necessitate a more abrupt subsequent tightening in policy and hence a greater adjustment in growth and employment. 57) The Committee judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term. 58) The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 0.1%; The Bank of England should maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion; The Bank of England should continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these purchases at £875 billion. The Committee voted unanimously in favour of the first and second propositions. Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Dave Ramsden, Silvana Tenreyro and Gertjan Vlieghe) voted in favour of the third proposition. One member (Michael Saunders) voted against this proposition, preferring to reduce the target for the stock of UK government bond purchases from £875 billion to £830 billion. Operational considerations 59) The existing programme of £150 billion of UK government bond purchases had started in January and its completion was expected by around the end of 2021. Further details of the planned operational approach to gilt purchases between the August and December MPC meetings were set out in the Market Notice accompanying these minutes. Should market functioning worsen materially, the Bank of England stood ready to increase the pace of purchases to ensure the effective transmission of monetary policy. 60) In addition, and as also described in the Market Notice accompanying these minutes, the Committee agreed to reinvest £16.6 billion of cash flows associated with the redemptions of the September 2021 gilt held by the Asset Purchase Facility. 61) The Committee would keep the asset purchase programme under review. If needed, there was scope for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase programme. The MPC’s monetary policy toolkit 62) In its February 2021 minutes, the Committee had requested that the PRA should engage with PRA-regulated firms to ensure they commenced preparations in order to be ready to implement a negative Bank Rate at any point after six months. The MPC had also requested that Bank staff should commence internal technical preparations to deliver the option of a tiered system of reserve remuneration that could be ready to be implemented, should it be judged appropriate, alongside a negative Bank Rate. As the Committee had stressed in February, these preparations should not be interpreted as a signal that the setting of a negative Bank Rate was imminent, or in prospect at some specific time. At its August meeting, the Committee had been briefed that technical preparations internally and by PRA-regulated firms had progressed sufficiently that a negative Bank Rate could be implemented by the system as a whole, with or without tiered reserve account remuneration, if warranted. 63) In Box A of the accompanying August Monetary Policy Report , the Committee had set out its updated strategy for the mix of its monetary policy tools and its intended approach to using the instruments in its toolkit to deliver any tightening in the overall stance of policy, should that be required. The path of Bank Rate and the stock of purchased assets over the next few years would depend on economic developments. The overall stance of monetary policy would, as always, be set to meet the 2% inflation target, and in a way that helped sustain growth and employment. 64) Finally, on behalf of the Committee, the Chair expressed his appreciation to Gertjan Vlieghe for his contributions to the work of the MPC since becoming a member in 2015. 65) The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Dave Ramsden Michael Saunders Silvana Tenreyro Gertjan Vlieghe Clare Lombardelli was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Bradley Fried was also present on 2 August, as an observer, for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, September 2021 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 22 September 2021, the Committee judged that the existing stance of monetary policy remained appropriate.  The MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.  The Committee voted by a majority of 7-2 for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. In the MPC’s central projections in the August Monetary Policy Report , UK GDP was projected to recover further over the remainder of the year, with demand growth boosted by a waning impact from Covid-19 (Covid).  There was projected to be a period of excess demand in the near term, before demand and supply were expected to return broadly to balance as demand growth slowed and constraints on supply eased.  CPI inflation was projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and goods prices.  Conditioned on the market path for interest rates, CPI inflation was expected to fall back to close to the 2% target in the medium term. Since the August MPC meeting, the pace of recovery of global activity has showed signs of slowing.  Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures have remained strong and there are some signs that cost pressures may prove more persistent.  Some financial market indicators of inflation expectations have risen somewhat, including in the United Kingdom. Bank staff have revised down their expectations for the level of UK GDP in 2021 Q3 by around 1% since the August Report, leaving the expected level of Q3 GDP around 2½% below its pre-Covid level.  This downward revision in part reflects the emergence of some supply constraints on output.  These have been evident in surveys showing historically lengthy supplier delivery times and backlogs of work, significant material and labour shortages in a number of sectors, and lower than normal levels of inventories.  Momentum appears to have picked up in services-orientated sectors where output remains well below pre-Covid levels.  Although official estimates of retail sales have weakened somewhat, other indicators of spending have generally remained at strong levels, as has consumer confidence. The Labour Force Survey unemployment rate fell to 4.6% in the three months to July, slightly below the August Report forecast, while HMRC payroll data suggest that employee numbers (which include furloughed jobs) surpassed their 2019 Q4 level in August.  The number of full and part-time furloughed jobs has continued to decline, but, on the basis of the most recent reported number of 1.7 million in July, to a materially lesser degree than estimated in the August Report.  There have been few signs of any increase in redundancies, and the stock of vacancies has increased further, as have indicators of recruitment difficulties.  Bank staff’s estimate of underlying pay growth has picked up, to above its pre-pandemic rate. Uncertainty around the outlook for the labour market has therefore increased.  Key questions include how the economy will adjust to the closure of the furlough scheme at the end of September; the extent, impact and duration of any change in unemployment; as well as the degree and persistence of any difficulties in matching available jobs with workers.  The Committee will review these, along with other, developments as part of its forthcoming forecast round ahead of the November Monetary Policy Report, which will also include its periodic assessment of the supply side of the economy. Twelve-month CPI inflation rose from 2.0% in July to 3.2% in August, compared with the 3.0% figure expected in the August Report, and triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement.  Core inflation also rose to 3.1% in August, its highest rate since November 2011.  While base effects accounted for the majority of the increase in CPI inflation between July and August, global cost pressures have continued to affect UK consumer goods prices.  To a lesser degree, the reopening of the economy has led to a further increase in some consumer services prices.  Indicators of households’ medium-term inflation expectations have increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September. CPI inflation is expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices.  The material rise in spot and forward wholesale gas prices since the August Report represents an upside risk to the MPC’s inflation projection from April 2022.  Most other indicators of cost pressures have remained elevated.  The Committee’s central expectation continues to be that current elevated global cost pressures will prove transitory. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework.  The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances.  In the recent unprecedented circumstances, the economy has been subject to very large shocks.  Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate policy stance, will as always focus on the medium-term prospects for inflation, rather than factors that are likely to be transient. At its previous meeting, the Committee judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.  Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain.  The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations. At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate. Minutes of the Monetary Policy Committee meeting ending on 22 September 2021 1) Before turning to its immediate policy decision, the Committee discussed:  the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2) The global economy had continued to recover and UK-weighted global GDP growth in 2021 Q2 had been broadly in line with expectations at the time of the August Monetary Policy Report .  Global activity was now expected to grow at a slightly slower pace in Q3, however, accounted for largely by weaker growth in the United States and China.  There had also been some early evidence of a rotation in demand from goods to services, with the services PMIs above or in line with the manufacturing PMIs in the United States and the euro area.  Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures had remained strong and there were some signs that cost pressures might prove more persistent. 3) Euro-area GDP had picked up by 2.2% in 2021 Q2, stronger than had been expected at the time of the August Report.  The number of Covid cases appeared to have stabilised in most euro-area countries alongside a recovery in mobility and continued progress in vaccination programmes.  Turning to Q3, the euro-area manufacturing PMI had remained well above its historical average, although it had fallen back to its weakest level in six months in August, with supply constraints affecting activity.  The services PMI had also remained elevated.  Bank staff now expected euro-area GDP growth in Q3 to be somewhat stronger than at the time of the August Report, but the level of GDP was expected to remain below its pre-Covid level. 4) US GDP had risen by 1.6% in 2021 Q2, slightly weaker than had been expected at the time of the August Report.  In the labour market, non-farm payrolls had increased by 235,000 in August, a much slower pace than the average of around 1 million jobs that had been added over the previous two months.  The unemployment rate had nevertheless fallen to 5.2%.  Although Covid cases had now started to fall across most US regions, they had remained elevated and the pace of the vaccination rollout had slowed considerably in recent months, as some southern states in particular had seen a lower take-up.  But mobility and activity had held up in these states despite this, consistent with the link between cases and activity having weakened.  Real personal consumption spending had fallen by 0.1% in July, with services spending continuing to recover relative to goods spending.  The most recent high-frequency spending data had also pointed to some slowdown in consumer spending, although they had remained above their pre-Covid levels.  Overall, US GDP in Q3 was expected to rise by somewhat less than at the time of the August Report. 5) Chinese activity had slowed in July, with the re-imposition of localised lockdowns in response to outbreaks of Covid weighing on mobility.  Official data and business surveys had pointed to a further moderation in activity in August, and GDP in 2021 Q3 was expected to rise by slightly less than at the time of the August Report. 6) The recovery in other large Emerging Market Economies (EMEs) had been weaker than expected at the time of the August Report, accounted for particularly by the impact on GDP of the delta variant-driven second wave in India.  Covid cases in these EMEs had generally fallen in recent months and there had been an increase in the pace of vaccination rollouts in some of these economies, although vaccination rates had still remained below the levels seen in most advanced economies.  Indicators of economic mobility had generally held up across EMEs recently, even when Covid cases had risen. 7) Global inflationary pressures had remained strong.  Manufacturing input and output prices had continued to rise sharply, albeit at marginally slower rates.  Oil prices had remained elevated compared to their pre-Covid levels, with the Brent oil spot price around $74 per barrel.  Wholesale gas prices had risen sharply in Europe and Asia, driven by a combination of strong global demand and a range of supply constraints, including a low level of inventories after an unusually long and cold winter in Europe, as well as a lower-than-usual availability of wind energy in recent weeks.  Non-energy commodity prices, in aggregate, had been largely unchanged.  Shipping costs had continued to rise, with spot rates rising particularly sharply on certain routes.  The strength in shipping costs had continued to reflect a range of factors, including strong global goods demand, as well as supply chain disruptions such as congestion and Covid-related closures at some large ports.  Supplier delivery times had continued to rise.  Supply conditions had appeared to have improved slightly in some sectors such as semiconductor production, although it would take some time for previous order backlogs to clear.  Global containerised trade flows had continued to recover and world trade volumes had been 6.5% above pre-pandemic levels in 2021 Q2. 8) In the euro area, twelve-month headline HICP inflation had risen to 3.0% in August, from 2.2% in July, stronger than had been expected at the time of the August Report.  Core inflation had also risen to 1.6% from 0.7%, accounted for in part by a substantial increase in clothing and footwear inflation. 9) US CPI inflation had remained elevated in August, although it had eased slightly to 5.3% in August from a 13-year high of 5.4% in June and July.  Headline PCE inflation had picked up a little further to 4.2% in July, and core PCE inflation had remained unchanged at 3.6%.  The rise in headline inflation had primarily been driven by sectors that were sensitive to the reopening of the US economy.  But there had been some signs that price pressures in other sectors were easing.  For example, the contribution to inflation of used cars prices and other durable goods prices had eased in the past couple of months. Monetary and financial conditions 10) Since the Committee’s previous meeting, advanced-economy financial market prices had generally moved within a narrow range.  Equity prices and corporate bond spreads had changed little, while shorter-term and longer-term government bond yields had increased slightly.  Most recently, global equity prices had been more volatile, in part driven by the financial distress at Evergrande Group, one of China’s largest property developers. 11) Market implied measures of advanced-economy policy rates had increased slightly since the Committee’s previous meeting.  In the United Kingdom, increases in the level of Bank Rate to 25 basis points and 50 basis points were now expected in May 2022 and December 2022 respectively, compared to August 2022 and February 2024 at the time of the Committee’s previous meeting.  Market expectations of the first 25 basis point increase in the federal funds rate in the United States had been brought forward to February 2023 from June 2023.  At its meeting on 9 September, the ECB Governing Council had decided to reduce moderately the pace of asset purchases under the Pandemic Emergency Purchase Programme.  The Governing Council had left its key policy rates unchanged. 12) Some financial market indicators of inflation expectations had risen somewhat, including in the United Kingdom.  Near-term measures of inflation compensation, such as the one-year inflation swap rate, one year forward, had risen substantially in the United Kingdom since the Committee’s previous meeting.  The driver of this movement appeared to be the stronger than expected CPI inflation outturn.  Five-year inflation swap rates, five years forward, an indicator of medium-term inflation expectations, had increased slightly and were around 20 basis points above their 2019 average. 13) Real yields implied by advanced-economy longer-term government bonds had fallen substantially since their recent peak in March 2021, and were now significantly lower than their pre-pandemic levels.  Alongside this, advanced-economy equity prices had increased materially since the beginning of this year, such that, in some large advanced economies, they had increased significantly above their pre-pandemic levels. 14) Market contacts had put forward several possible explanations for this constellation of asset prices.  Some had attributed low real yields primarily to expectations of monetary policy, which could remain highly accommodative if central banks looked through any transitory increases in inflation, while also supporting risky asset prices.  These contacts had expected real rates to rise over time, with a range of views around how gradually this might occur.  Other contacts had attributed low real yields to a more pessimistic outlook for medium-term global growth than had appeared to be incorporated into equity valuations. 15) The sterling effective exchange rate had been broadly stable since the previous MPC meeting. 16) Mortgage credit conditions in the United Kingdom had eased further, with a further fall in lending spreads on most mortgage products.  Spreads on products with loan-to-value (LTV) ratios lower than or equal to 75% were now similar to spreads in January 2020, while spreads on products with LTV ratios higher than 75% had remained above their January 2020 levels.  The number of mortgage products available had continued to improve, with availability for products with low LTV ratios now similar to pre-pandemic levels, although availability for products with high LTV ratios had remained below pre-pandemic levels.  Supervisory intelligence suggested that lenders had become more optimistic about the economic outlook, while bank wholesale funding spreads had fallen over recent months and ring-fenced banks had ample liquidity from strong deposit growth. 17) Credit conditions for unsecured borrowing by households and for lending to small and medium-sized enterprises had changed little since the Committee’s previous meeting and spreads had remained below the MPC’s forecasts made earlier this year. Demand and output 18) Since the MPC’s previous meeting, the number of hospitalisations of Covid-19 (Covid) patients and deaths within 28 days of testing positive for Covid had tended to rise in the United Kingdom, although the number of Covid cases had started to fall back again most recently.  The number of people that had been asked to self-isolate temporarily through various channels had declined sharply following a change in guidance in August that meant that those people who had had two doses of a Covid vaccine no longer had to isolate if they came into contact with someone who had tested positive for the virus.  The UK Government had recently announced its autumn and winter plan for responding to Covid, including that all children aged 12 to 15  would be offered one dose of a Covid vaccine, and that all adults over 50 and those that were clinically vulnerable would be offered a booster jab.  Covid-related restrictions on international travel had also been relaxed recently. 19) According to the ONS’s first quarterly estimate, UK GDP had risen by 4.8% in 2021 Q2, close to the projection incorporated into the August Monetary Policy Report for the quarter as a whole.  That had left the level of GDP around 4½% below its pre-Covid level in 2019 Q4.  Within the expenditure components, household consumption had been estimated to have risen by 7.3% following the reopening of the retail and hospitality sectors through the second quarter, although that had been a somewhat weaker increase than expected in the August Report.  Business investment, which was often subject to revision, had also risen by less than had been expected, by 2.4% and had remained around 15% below its pre-Covid level.  Government consumption had increased by over 6%, as education output had rebounded due to the recovery in pupil attendance after earlier restrictions had been lifted. 20) Ahead of the MPC’s next meeting, the ONS would release Blue Book-consistent revisions to GDP as part of the Quarterly National Accounts published on 30 September, including significant methodological changes such as the introduction of double deflation and improvements to deflators for items such as telecommunications and clothing.  Some of these changes were expected to raise pre-pandemic economic growth rates. 21) Official output data for June and July had been somewhat weaker than expected in the August Report, with monthly growth rates of 1.0% and 0.1% respectively, implying that the level of GDP had been around 3½% below its 2019 Q4 level in the middle of the year.  The downside news appeared to have reflected signs that bottlenecks in supply chains and labour shortages had started to affect output, particularly in the manufacturing and construction sectors, combined with a slower-than-expected recovery in demand in some consumer-facing services. 22) A further recovery in activity appeared to be underway in components of output that had remained well below their pre-Covid levels to date, such as some consumer-facing services, and transport and workplace-related services.  For example, faster indicators of the use of public transport and the number of flights had risen over recent weeks.  And there was some evidence to suggest spending on entertainment and recreational events had increased, as restrictions had loosened further.  Education output was also likely to have risen towards its normal level.  Taken together, these components were judged likely to account for a large part of the GDP growth expected in 2021 Q3. 23) Other indicators of household spending had generally remained at strong levels, as had consumer confidence.  Although official estimates of retail sales volumes had fallen by 0.9% in August, the level of sales had remained over 4% above its pre-Covid level.  Food store sales had fallen, while faster indicators of restaurant spending had picked up. Housing activity indicators had remained robust, including mortgage approvals for house purchase.  Although the July UK House Price Index had unwound almost all of its record rise in June, perhaps related to the timing of the tapering of the temporary stamp duty cut in England and Northern Ireland, other timelier house price data had picked up further. 24) It appeared likely that the impact of supply constraints on output would prove more persistent.  Supplier delivery times had continued to lengthen materially in the manufacturing and construction sectors according to the latest PMI surveys.  And over half of the respondents to the latest CBI Industrial Trends survey had reported that materials or components were a factor limiting production over the next three months, with about a third of respondents noting that skilled labour was also a limiting factor, both of which were close to historical series’ highs.  Supply chain issues had led respondents to the latest CBI’s Distributive Trades survey to report the lowest level of retail inventories, relative to expected sales, on record.  Backlogs of work had also risen according to that component of the services PMI, linked primarily to shortages of key staff.  Intelligence from the Bank’s Agents suggested that, against a backdrop of strong demand, it might take some quarters for supply issues to be resolved in some cases.  Separately, recent high spot wholesale gas prices had significantly affected the production plans of some sectors. 25) Overall, Bank staff had revised down their expectations for 2021 Q3 GDP growth from 2.9% at the time of the August Report to 2.1%, in part reflecting the emergence of some supply constraints on output.  That would leave the level of Q3 GDP around 2½% below its pre-Covid level. 26) Alongside the launch of Spending Review 2021 on 7 September, the Government had announced a new, Health and Social Care Levy from April 2022, the proceeds of which would be used for spending on health and social care.  This would be based on an increase in National Insurance Contributions for all working adults and a rise in dividend tax rates.  The overall envelope for core day-to-day departmental spending was otherwise assumed to follow the path set out at spring Budget 2021.  The Government had also announced that the state pension triple lock would be suspended for fiscal year 2022-23.  The Spending Review would conclude on 27 October alongside both an autumn Budget, and an updated economic and fiscal forecast by the Office for Budget Responsibility. Supply, costs and prices 27) The Labour Force Survey (LFS) unemployment rate had fallen to 4.6% in the three months to July, slightly below the expectations in the August Monetary Policy Report .  The unemployment rate had remained 0.8 percentage points above its 2019 Q4 level of 3.8%.  LFS employment had grown by 0.6% in the three months to July, slightly above expectations at the time of the August Report.  HMRC payroll data suggested that employee numbers had increased by 241,000 in August and had surpassed their 2019 Q4 level, although these data were prone to revision.  The inactivity rate had fallen to 36.7% in the three months to July and had unwound around one fifth of its increase over the course of the pandemic. 28) HMRC administrative data suggested that around 1.7 million jobs, just under 7% of private sector jobs, had been furloughed on the Coronavirus Job Retention Scheme (CJRS) in July, compared to around 2 million jobs furloughed in June.  This was a materially higher number of jobs furloughed than had been assumed at the time of the August Report, in part possibly reflecting the downside news in GDP growth over that period.  Additionally, the reweighting of the ONS’s Business Insights and Conditions Survey (BICS) had led to a substantial upward revision to the estimated share of private sector jobs furloughed, relative to the data that had been available at the time of the August Report.  Recent BICS data suggested that the number of jobs furloughed had declined to around 6% of private sector jobs over the two weeks to 5 September.  Staff estimates suggested that just under half of those jobs furloughed had been on a flexible form of furlough that allowed those employees to have undertaken some work with their employer.  The proportion of salary for furloughed hours covered by the Government had been tapered progressively, from 80% to 70% in July and to 60% from 1 August, with employers required to top up to 80% since July.  The CJRS would end on 30 September 2021. 29) Indicators of redundancies had remained subdued in the run-up to the end of the CJRS.  The level of LFS redundancies had fallen in the three months to July, and the redundancy rate had decreased to 3.4%, around ½ percentage point below pre-pandemic levels.  HR1 notifications, a statutory requirement that recorded the advance notification of planned redundancies of 20 or more staff at a single establishment, had remained low, even as the relevant statutory consultation periods overlapped with the end date of the CJRS.  Smaller businesses had been disproportionate users of the furlough scheme, however, and by definition were not required to make HR1 notifications.  The BICS data had not pointed to an increase in planned redundancies by small businesses over the next three months, although intelligence from the Bank’s Agents had highlighted a risk of some micro businesses, which employed only one or two staff, closing permanently upon the CJRS’s closure. 30) Indicators of labour demand had remained strong and the labour market appeared to have tightened further.  The stock of job vacancies had risen above 1 million in August, surpassing the previous record set in July.  The ratio of vacancies to unemployment had also risen rapidly, and had surpassed its 2019 average on a single month basis.  The REC index of staff availability had tightened at a record pace in August.  Intelligence from the Bank’s Agents suggested that recruitment difficulties had become more widespread and acute in recent months.  Agents’ contacts had attributed labour shortages to a combination of factors, including demand recovering more quickly than expected and a reduction in the availability of EU workers.  The shortage of Heavy Goods Vehicle (HGV) drivers had been exacerbated by an ageing workforce and a backlog of licence testing. 31) Private-sector regular Average Weekly Earnings (AWE) had risen by 7.8% in the three months to July on a year earlier, compared to 8.4% in the three months to June.  AWE growth had continued to be boosted by compositional effects, given that job losses had been skewed towards lower-paid employees during the pandemic.  AWE growth had also been pushed up mechanically by the CJRS recently, with just under 7% of private sector jobs having been furloughed in July, compared to around 23% in July 2020.  The CJRS had been a drag on measured pay growth over the pandemic period prior to May.  Adjusted for the mechanical effects of the CJRS and changes in composition, Bank staff estimated that private sector regular pay growth had been around 4%, above pre-pandemic rates.  The REC Report on Jobs permanent staff salaries index, which measured the monthly pay growth of new permanent hires, had increased to its highest level on record and had pointed to robust pay growth of new hires.  The Bank’s Agents’ contacts had reported an increase in pay settlements recently.  Their contacts had also reported that pay increases had been significantly higher for workers with skills in particularly short supply, such as HGV drivers, while the use of one-off bonuses to retain staff had become more widespread. 32) Twelve-month CPI inflation had risen from 2.0% in July to 3.2% in August.  As the inflation rate in August had been above 3%, an exchange of letters between the Governor and the Chancellor of the Exchequer was being published alongside these minutes.  Core inflation had also risen from 1.8% in July to 3.1% in August, its highest rate since November 2011.  The headline CPI outturn for August had been 0.2 percentage points above the projection in the August Report.  That upside news had been accounted for largely by recreational and audio-visual goods, food and accommodation services. 33) Base effects had accounted for the majority of the increase in twelve-month inflation between July and August.  The base effects from last year’s Eat Out to Help Out scheme, which had dragged on prices in August last year, and the temporarily reduced VAT rate for hospitality, holiday accommodation and attractions dropping out of the annual calculation, had largely accounted for a rise in services inflation to a four-year high.  Additionally, other items, such as clothing and footwear and airfares had grown at below average rates in August last year. 34) Global supply bottlenecks had continued to affect UK consumer goods prices.  Some consumer goods markets had also been affected indirectly by supply bottlenecks.  For example, continuing semiconductor shortages had disrupted new car production, which had led to an increase in demand in the used car market.  Twelve-month used car price inflation had risen to 18.3% in August. 35) The reopening of the economy had led to a pickup in some consumer services prices.  Recent monthly price increases had been particularly pronounced, relative to historical averages, for those services most directly affected by previous restrictions, such as restaurants recreational and accommodation services. 36) The Committee discussed the near-term outlook for consumer prices.  CPI inflation was expected to rise further temporarily, to slightly above 4% in 2021 Q4, slightly higher than the projection in the August Report. 37) Around half of the near-term projected above-target inflation was expected to be accounted for by elevated energy price inflation.  The projected contribution of energy prices from October 2021 reflected a base effect as well as Ofgem’s most recent announced increases in the standard variable tariff caps on retail gas and electricity prices.  Spot and forward wholesale gas prices had risen materially since the publication of the August Report, against a backdrop of strong demand and some supply disruption.  This could represent a significant upside risk to the MPC’s inflation projection from April 2022, when Ofgem next updated its retail energy price caps based on the relevant forward contracts, and meant that CPI inflation would remain slightly above 4% into 2022 Q2, all else equal. 38) Core goods inflation was expected to remain above pre-pandemic averages, accounting for most of the remainder of the projected above-target inflation.  In contrast to much of the pandemic period, services inflation was expected to rise slightly, to rates close to pre-Covid averages, which in part reflected a continued recovery of activity in consumer-facing services, as well as the tapered rise in VAT on hospitality, holiday accommodation and attractions from October.  Most indicators of cost pressures had remained elevated.  Manufacturers’ output prices, excluding food and energy, had grown at an annualised rate of close to 10% in the three months to August.  Survey-based measures of output and input price inflation, such as the PMIs, had remained at around their recent historically high levels.  Contacts of the Bank’s Agents had reported that there had been more signs of cost pass-through in the manufacturing and construction sectors recently.  These contacts had also reported some signs of firms passing on some labour cost increases in labour-intensive sectors. 39) Indicators of households’ medium-term inflation expectations had increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September. The Bank/Kantar five-year ahead measure of households’ inflation expectations had also increased slightly, but was now around its historical average.  There was the potential for short-term measures of households’ expectations to rise further in the coming months, as they had tended to move with official inflation outturns previously.  Such movements in these short-term measures would not be inconsistent with household inflation expectations remaining anchored.  The August Decision Maker Panel had reported an increase in companies’ one-year ahead own-price inflation expectations.  Professional forecasters, on average, expected less of a rise in inflation in the short term than the August Report projection, according to the latest HM Treasury survey of independent forecasters. The immediate policy decision 40) The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 41) In the MPC’s central projections in the August Monetary Policy Report , UK GDP had been projected to recover further over the remainder of the year, with demand growth boosted by a waning impact from Covid-19 (Covid).  There had been projected to be a period of excess demand in the near term, before demand and supply had been expected to return broadly to balance as demand growth slowed and constraints on supply eased.  CPI inflation had been projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and goods prices.  Conditioned on the market path for interest rates, CPI inflation had been expected to fall back to close to the 2% target in the medium term. 42) The Committee reviewed recent developments, including the extent to which they had been in line with the projections in the August Report. 43) Since the August MPC meeting, the pace of recovery of global activity had showed signs of slowing.  Euro-area GDP growth in 2021 Q2 had been higher than expected at the time of the August Report, and was now expected to be somewhat stronger in Q3 as well.  Developments in US GDP had shown the opposite pattern, although the link between Covid cases and activity there had continued to weaken.  Growth in China and other large Emerging Market Economies had also weakened somewhat.  There had been some early evidence of a rotation in demand from goods to services, with the services PMIs above or in line with the manufacturing PMIs in the United States and the euro area recently. 44) Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures had remained strong and there were some signs that cost pressures might prove more persistent.  Oil prices had remained elevated and global shipping costs had continued to rise.  Wholesale gas prices had risen substantially across Europe.  Supply conditions appeared to have improved slightly in the global semiconductors sector, although it would take some time for previous order backlogs to clear.  Headline and core consumer price inflation had risen in the euro area and had remained elevated in the United States. 45) Since the Committee’s previous meeting, global equity prices and corporate bond spreads had generally changed little, while shorter-term and longer-term government bond yields had increased slightly, including in the United Kingdom.  Mortgage credit conditions in the United Kingdom had eased further, with a further fall in lending spreads on most mortgage products. 46) As of 22 September 2021, the total stock of assets held in the Asset Purchase Facility had reached £852 billion, including £108 billion of the £150 billion programme of UK government bond purchases announced on 5 November 2020. 47) Bank staff had revised down their expectations for the level of UK GDP in 2021 Q3 by around 1% since the August Report, leaving the expected level of Q3 GDP around 2½% below its pre-Covid level.  This downward revision in part reflected the emergence of some supply constraints on output.  These had been evident in surveys showing historically lengthy supplier delivery times and backlogs of work, significant material and labour shortages in a number of sectors, and lower than normal levels of inventories.  Momentum appeared to have picked up in services-orientated sectors, where output had remained well below pre-Covid levels.  Although official estimates of retail sales had weakened somewhat, other indicators of spending had generally remained at strong levels, as had consumer confidence. 48) Bank staff’s initial assessment was that recent fiscal announcements were likely to be broadly neutral for the growth outlook, as higher spending on health and social care would be funded by an increase in National Insurance Contributions and a rise in dividend tax rates.  The overall envelope for core day-to-day departmental spending was otherwise assumed to follow the path set out at spring Budget 2021.  Ahead of the Committee’s next meeting, the Government would conclude its Spending Review on 27 October alongside both an autumn Budget, and an updated economic and fiscal forecast by the Office for Budget Responsibility. 49) The Labour Force Survey unemployment rate had fallen to 4.6% in the three months to July, slightly below the August Report forecast, while HMRC payroll data suggested that employee numbers (which included furloughed jobs) had surpassed their 2019 Q4 level in August.  The inactivity rate had fallen in the three months to July and had unwound around one fifth of its increase over the course of the pandemic. 50) The number of full and part-time furloughed jobs had continued to decline, but to a materially lesser degree than had been estimated in the August Report.  That surprise could only partly be explained by downside news in GDP growth.  HMRC administrative data suggested that around 1.7 million jobs, just under 7% of private sector jobs, had been furloughed on the Coronavirus Job Retention Scheme (CJRS) in July, with just under half of those jobs on a flexible form of furlough that allowed those employees to have undertaken some work with their employer.  Recent Business Insights and Conditions Survey (BICS) data suggested that the number of jobs furloughed had declined to around 6% of private sector jobs over the two weeks to 5 September.  The end of the CJRS on 30 September would remove this support to incomes. 51) There had been few signs of any increase in redundancies, and the stock of vacancies had increased further, as had indicators of recruitment difficulties.  Contacts of the Bank’s Agents had attributed labour shortages to a combination of factors, including demand recovering more quickly than expected and a reduction in the availability of EU workers.  The shortage of Heavy Goods Vehicle drivers had been exacerbated by an ageing workforce and a backlog of licence testing. 52) Bank staff’s estimate of underlying pay growth had picked up, to above its pre-pandemic rate.  The Bank’s Agents’ contacts had reported that pay increases had been significantly higher for workers with skills in particularly short supply, while the use of one-off bonuses to retain staff had become more widespread. 53) The Committee discussed explanations for the surprisingly high number of jobs that were still recorded as being furloughed, despite other signals of a rapidly tightening labour market.  One possibility was that some companies had continued to use the CJRS to hoard labour ahead of an expected recovery in demand, even though the cost of that strategy had increased recently.  Although some of these companies might choose to let staff go at the end of the scheme, others might be sufficiently confident of future demand to retain them.  A substantial proportion of furloughed jobs had been at very small companies, including those with a single employee, for which the decision to reopen or not might depend more on idiosyncratic conditions.  To the extent that some businesses had not yet brought staff back fully to their pre-Covid workplaces, this might have prolonged furlough in other businesses that supported these workplaces through ancillary goods and services.  It was also possible that a greater number of furloughed workers had been able to find second jobs with alternative employers, or had expanded the scope of existing second jobs, which were allowable under the CJRS.  These workers would probably not become unemployed at the end of the scheme, although, if they accounted for a large proportion of those still furloughed, it would make current high vacancy rates more difficult to explain. 54) Another hypothesis was that, due to shifts in the pattern of demand during the pandemic, those on furlough were not suitable matches for the job vacancies currently available.  Although vacancies had risen across the economy, including in sectors with a high number of furloughed jobs, there could be mismatch at a more granular level across companies within the same sector.  In that case, any increase in unemployment following the end of the CJRS might, at least in part, be more structural than cyclical. 55) Overall, the Committee judged that uncertainty around the outlook for the labour market had increased.  Key questions included how the economy would adjust to the closure of the furlough scheme at the end of September; the extent, impact and duration of any change in unemployment;  as well as the degree and persistence of any difficulties in matching available jobs with workers. 56) The Committee would review these, along with other, developments as part of its forthcoming forecast round ahead of the November Monetary Policy Report, which would also include its periodic assessment of the supply side of the economy.  Ahead of the next MPC meeting, official data on furlough numbers would only be available for August, although additional, timelier information would be available from the BICS, other surveys and the Bank’s Agents, including on any potential increase in redundancies.  Official labour market data for October, covering the period following the closure of the CJRS, would not be published until after the November MPC meeting. 57) Twelve-month CPI inflation had risen from 2.0% in July to 3.2% in August, compared with the 3.0% figure expected in the August Report, and had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside this monetary policy announcement.  Core inflation had also risen to 3.1% in August, its highest rate since November 2011.  While base effects had accounted for the majority of the increase in CPI inflation between July and August, global cost pressures had continued to affect UK consumer goods prices.  To a lesser degree, the reopening of the economy had led to a further increase in some consumer services prices. 58) CPI inflation was expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices.  The material rise in spot and forward wholesale gas prices since the August Report represented an upside risk to the MPC’s inflation projection from April 2022, and meant that CPI inflation could remain above 4% into 2022 Q2, all else equal.  Most other indicators of cost pressures had remained elevated.  The Committee’s central expectation continued to be that current elevated global cost pressures would prove transitory.  Indeed, there were still good reasons to expect material supply responses in commodity and other global markets, pushing down on future input prices and import costs.  That said, should the pandemic reinforce the retrenchment of globalisation, there would be less scope for these factors to create future disinflationary pressures.  And current elevated inflationary pressures could potentially lead to some second-round effects on consumer prices. 59) Some financial market indicators of inflation expectations had risen somewhat, including in the United Kingdom.  The UK five-year inflation swap rate, five years forward was around 20 basis points above its 2019 average.  Indicators of UK households’ medium-term inflation expectations had increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September.  The Bank/Kantar five-year ahead measure of households’ inflation expectations had also increased slightly, but was now around its historical average.  Taking together the full range of evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judged that UK inflation expectations remained well anchored.  But given recent developments, the Committee would monitor very closely the risk that domestic and global demand and cost pressures could further affect medium-term inflation expectations. 60) The Committee turned to its immediate policy decision. 61) The MPC had, since the second half of 2020, had policy guidance in place specifying that it did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably.  There remained a range of views on the Committee about whether the conditions of that guidance were met, but all members agreed that the previous formal guidance was no longer useful in the present situation. 62) The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework.  The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances.  In the recent unprecedented circumstances, the economy had been subject to very large shocks.  Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate stance of monetary policy, would as always focus on the medium-term prospects for inflation, rather than factors that were likely to be transient. 63) At this meeting, most members of the Committee judged that the existing stance of monetary policy, which included the previously announced £150 billion increase in the target stock of purchased assets, remained appropriate.  There was a range of views about the most likely near-term path of unemployment following the closure of the furlough scheme.  However, all members in this group agreed that the outlook for the labour market, and hence underlying inflationary pressures, was particularly uncertain, and that some of this uncertainty should be resolved over coming months.  Hence, there was a high option value in waiting for that additional information before deciding if and when a tightening in monetary policy might be warranted.  If there were signs that the unemployment rate was increasing significantly following the end of the CJRS, it might take somewhat longer to assess the extent to which that rise was structural or cyclical, and, if structural and pushing down on effective supply in the economy, for how long that might persist. 64) For members in this group, it remained likely that inflation would fall back in the medium term in line with the projection in the August Report, as supply bottlenecks were cleared, demand growth eased, and companies’ pricing power moderated.  On one view, abstracting from current constraints on effective supply, GDP remained well below its medium-term potential level and monetary policy could have a role in sustaining demand, with a view to reducing the degree of medium-term scarring.  On another view, the economy had shown further signs of normalising recently and demand could remain strong even while supply constraints proved more long-lasting.  CPI inflation had continued to surprise on the upside, some indicators of cost pressures appeared somewhat more persistent and financial market inflation break-evens had continued to rise gradually.  Different members placed different weights on these arguments.  For all members in this group, monetary policy would at some point need to start to unwind some of its post-pandemic stimulus. 65) All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme. 66) For two members, the economic outlook warranted a tightening in the monetary policy stance at this MPC meeting.  There was increasing evidence from a range of global and domestic cost and price indicators that inflationary pressures were likely to persist.  Record vacancy levels and the pace of underlying wage growth were evidence of ongoing tightness in labour market conditions, alongside other signs of capacity pressures.  These members judged that, with the existing policy stance, inflation was likely to remain above the 2% target in the medium term.  This reflected a greater impact from cost pressures, and the prospect of a larger and more persistent level of excess demand in the United Kingdom than in the central forecast in the August Report. 67) These two members preferred to stop the current asset purchase programme as soon as practical after this meeting rather than continuing it until around the end of the year, as currently planned.  Continuing with asset purchases when CPI inflation was above 3% and the output gap was closed might cause medium-term inflation expectations to drift up further.  A decision to curtail the asset purchase programme at this meeting would imply a modest policy tightening and mitigate that risk, which might otherwise ultimately necessitate a more abrupt subsequent tightening in policy and hence a greater adjustment in growth and employment.  It would demonstrate the Committee’s commitment to returning inflation to target in the medium term and ensuring that medium-term inflation expectations remained well anchored. 68) At its previous meeting, the Committee had judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.  Some developments during the intervening period appeared to have strengthened that case, although considerable uncertainties remained.  The Committee would be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses passed on wage and other cost increases, as well as medium-term inflation expectations. 69) The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 0.1%; The Bank of England should maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion; The Bank of England should continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these purchases at £875 billion. The Committee voted unanimously in favour of the first and second propositions. Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Silvana Tenreyro) voted in favour of the third proposition.  Two members (Dave Ramsden and Michael Saunders) voted against this proposition, preferring to reduce the target for the stock of UK government bond purchases from £875 billion to £840 billion. Operational considerations 70) The existing programme of £150 billion of UK government bond purchases had started in January and its completion was expected by around the end of 2021.  Further details of the planned operational approach to gilt purchases between the August and December MPC meetings had been set out in the Market Notice accompanying the August 2021 minutes.  Should market functioning worsen materially, the Bank of England stood ready to increase the pace of purchases to ensure the effective transmission of monetary policy. 71) The Committee would keep the asset purchase programme under review.  If needed, there was scope for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase programme. 72) Consistent with the Committee’s previous guidance, the MPC agreed to reinvest the cash flows associated with reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by the Asset Purchase Facility back into eligible corporate bonds, commencing in November 2021.  As announced in March, this reinvestment programme would be the first to take the climate impact of the issuers of bonds into account.  Further details of reinvestment operations would be published in a Market Notice nearer the time, alongside details of how the Bank’s approach to ‘greening’ the portfolio would be implemented this year. 73) The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Tom Josephs was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Dorothy Thompson was also present on 15 and 17 September, as an observer, for the purpose of exercising oversight functions in her role as a member of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target.  Operational decisions are taken by the Bank’s Monetary Policy Committee.  The minutes of the Committee meeting ending on 2 November will be published on 4 November 2021. Monetary Policy Summary, September 2021 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 22 September 2021, the Committee judged that the existing stance of monetary policy remained appropriate.  The MPC voted unanimously to maintain Bank Rate at 0.1%.  The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.  The Committee voted by a majority of 7-2 for the Bank of England to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. In the MPC’s central projections in the August Monetary Policy Report , UK GDP was projected to recover further over the remainder of the year, with demand growth boosted by a waning impact from Covid-19 (Covid).  There was projected to be a period of excess demand in the near term, before demand and supply were expected to return broadly to balance as demand growth slowed and constraints on supply eased.  CPI inflation was projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and goods prices.  Conditioned on the market path for interest rates, CPI inflation was expected to fall back to close to the 2% target in the medium term. Since the August MPC meeting, the pace of recovery of global activity has showed signs of slowing.  Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures have remained strong and there are some signs that cost pressures may prove more persistent.  Some financial market indicators of inflation expectations have risen somewhat, including in the United Kingdom. Bank staff have revised down their expectations for the level of UK GDP in 2021 Q3 by around 1% since the August Report, leaving the expected level of Q3 GDP around 2½% below its pre-Covid level.  This downward revision in part reflects the emergence of some supply constraints on output.  These have been evident in surveys showing historically lengthy supplier delivery times and backlogs of work, significant material and labour shortages in a number of sectors, and lower than normal levels of inventories.  Momentum appears to have picked up in services-orientated sectors where output remains well below pre-Covid levels.  Although official estimates of retail sales have weakened somewhat, other indicators of spending have generally remained at strong levels, as has consumer confidence. The Labour Force Survey unemployment rate fell to 4.6% in the three months to July, slightly below the August Report forecast, while HMRC payroll data suggest that employee numbers (which include furloughed jobs) surpassed their 2019 Q4 level in August.  The number of full and part-time furloughed jobs has continued to decline, but, on the basis of the most recent reported number of 1.7 million in July, to a materially lesser degree than estimated in the August Report.  There have been few signs of any increase in redundancies, and the stock of vacancies has increased further, as have indicators of recruitment difficulties.  Bank staff’s estimate of underlying pay growth has picked up, to above its pre-pandemic rate. Uncertainty around the outlook for the labour market has therefore increased.  Key questions include how the economy will adjust to the closure of the furlough scheme at the end of September; the extent, impact and duration of any change in unemployment; as well as the degree and persistence of any difficulties in matching available jobs with workers.  The Committee will review these, along with other, developments as part of its forthcoming forecast round ahead of the November Monetary Policy Report, which will also include its periodic assessment of the supply side of the economy. Twelve-month CPI inflation rose from 2.0% in July to 3.2% in August, compared with the 3.0% figure expected in the August Report, and triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement.  Core inflation also rose to 3.1% in August, its highest rate since November 2011.  While base effects accounted for the majority of the increase in CPI inflation between July and August, global cost pressures have continued to affect UK consumer goods prices.  To a lesser degree, the reopening of the economy has led to a further increase in some consumer services prices.  Indicators of households’ medium-term inflation expectations have increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September. CPI inflation is expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices.  The material rise in spot and forward wholesale gas prices since the August Report represents an upside risk to the MPC’s inflation projection from April 2022.  Most other indicators of cost pressures have remained elevated.  The Committee’s central expectation continues to be that current elevated global cost pressures will prove transitory. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework.  The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances.  In the recent unprecedented circumstances, the economy has been subject to very large shocks.  Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate policy stance, will as always focus on the medium-term prospects for inflation, rather than factors that are likely to be transient. At its previous meeting, the Committee judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.  Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain.  The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations. At this meeting, the Committee judged that the existing stance of monetary policy remained appropriate. Minutes of the Monetary Policy Committee meeting ending on 22 September 2021 1) Before turning to its immediate policy decision, the Committee discussed:  the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2) The global economy had continued to recover and UK-weighted global GDP growth in 2021 Q2 had been broadly in line with expectations at the time of the August Monetary Policy Report .  Global activity was now expected to grow at a slightly slower pace in Q3, however, accounted for largely by weaker growth in the United States and China.  There had also been some early evidence of a rotation in demand from goods to services, with the services PMIs above or in line with the manufacturing PMIs in the United States and the euro area.  Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures had remained strong and there were some signs that cost pressures might prove more persistent. 3) Euro-area GDP had picked up by 2.2% in 2021 Q2, stronger than had been expected at the time of the August Report.  The number of Covid cases appeared to have stabilised in most euro-area countries alongside a recovery in mobility and continued progress in vaccination programmes.  Turning to Q3, the euro-area manufacturing PMI had remained well above its historical average, although it had fallen back to its weakest level in six months in August, with supply constraints affecting activity.  The services PMI had also remained elevated.  Bank staff now expected euro-area GDP growth in Q3 to be somewhat stronger than at the time of the August Report, but the level of GDP was expected to remain below its pre-Covid level. 4) US GDP had risen by 1.6% in 2021 Q2, slightly weaker than had been expected at the time of the August Report.  In the labour market, non-farm payrolls had increased by 235,000 in August, a much slower pace than the average of around 1 million jobs that had been added over the previous two months.  The unemployment rate had nevertheless fallen to 5.2%.  Although Covid cases had now started to fall across most US regions, they had remained elevated and the pace of the vaccination rollout had slowed considerably in recent months, as some southern states in particular had seen a lower take-up.  But mobility and activity had held up in these states despite this, consistent with the link between cases and activity having weakened.  Real personal consumption spending had fallen by 0.1% in July, with services spending continuing to recover relative to goods spending.  The most recent high-frequency spending data had also pointed to some slowdown in consumer spending, although they had remained above their pre-Covid levels.  Overall, US GDP in Q3 was expected to rise by somewhat less than at the time of the August Report. 5) Chinese activity had slowed in July, with the re-imposition of localised lockdowns in response to outbreaks of Covid weighing on mobility.  Official data and business surveys had pointed to a further moderation in activity in August, and GDP in 2021 Q3 was expected to rise by slightly less than at the time of the August Report. 6) The recovery in other large Emerging Market Economies (EMEs) had been weaker than expected at the time of the August Report, accounted for particularly by the impact on GDP of the delta variant-driven second wave in India.  Covid cases in these EMEs had generally fallen in recent months and there had been an increase in the pace of vaccination rollouts in some of these economies, although vaccination rates had still remained below the levels seen in most advanced economies.  Indicators of economic mobility had generally held up across EMEs recently, even when Covid cases had risen. 7) Global inflationary pressures had remained strong.  Manufacturing input and output prices had continued to rise sharply, albeit at marginally slower rates.  Oil prices had remained elevated compared to their pre-Covid levels, with the Brent oil spot price around $74 per barrel.  Wholesale gas prices had risen sharply in Europe and Asia, driven by a combination of strong global demand and a range of supply constraints, including a low level of inventories after an unusually long and cold winter in Europe, as well as a lower-than-usual availability of wind energy in recent weeks.  Non-energy commodity prices, in aggregate, had been largely unchanged.  Shipping costs had continued to rise, with spot rates rising particularly sharply on certain routes.  The strength in shipping costs had continued to reflect a range of factors, including strong global goods demand, as well as supply chain disruptions such as congestion and Covid-related closures at some large ports.  Supplier delivery times had continued to rise.  Supply conditions had appeared to have improved slightly in some sectors such as semiconductor production, although it would take some time for previous order backlogs to clear.  Global containerised trade flows had continued to recover and world trade volumes had been 6.5% above pre-pandemic levels in 2021 Q2. 8) In the euro area, twelve-month headline HICP inflation had risen to 3.0% in August, from 2.2% in July, stronger than had been expected at the time of the August Report.  Core inflation had also risen to 1.6% from 0.7%, accounted for in part by a substantial increase in clothing and footwear inflation. 9) US CPI inflation had remained elevated in August, although it had eased slightly to 5.3% in August from a 13-year high of 5.4% in June and July.  Headline PCE inflation had picked up a little further to 4.2% in July, and core PCE inflation had remained unchanged at 3.6%.  The rise in headline inflation had primarily been driven by sectors that were sensitive to the reopening of the US economy.  But there had been some signs that price pressures in other sectors were easing.  For example, the contribution to inflation of used cars prices and other durable goods prices had eased in the past couple of months. Monetary and financial conditions 10) Since the Committee’s previous meeting, advanced-economy financial market prices had generally moved within a narrow range.  Equity prices and corporate bond spreads had changed little, while shorter-term and longer-term government bond yields had increased slightly.  Most recently, global equity prices had been more volatile, in part driven by the financial distress at Evergrande Group, one of China’s largest property developers. 11) Market implied measures of advanced-economy policy rates had increased slightly since the Committee’s previous meeting.  In the United Kingdom, increases in the level of Bank Rate to 25 basis points and 50 basis points were now expected in May 2022 and December 2022 respectively, compared to August 2022 and February 2024 at the time of the Committee’s previous meeting.  Market expectations of the first 25 basis point increase in the federal funds rate in the United States had been brought forward to February 2023 from June 2023.  At its meeting on 9 September, the ECB Governing Council had decided to reduce moderately the pace of asset purchases under the Pandemic Emergency Purchase Programme.  The Governing Council had left its key policy rates unchanged. 12) Some financial market indicators of inflation expectations had risen somewhat, including in the United Kingdom.  Near-term measures of inflation compensation, such as the one-year inflation swap rate, one year forward, had risen substantially in the United Kingdom since the Committee’s previous meeting.  The driver of this movement appeared to be the stronger than expected CPI inflation outturn.  Five-year inflation swap rates, five years forward, an indicator of medium-term inflation expectations, had increased slightly and were around 20 basis points above their 2019 average. 13) Real yields implied by advanced-economy longer-term government bonds had fallen substantially since their recent peak in March 2021, and were now significantly lower than their pre-pandemic levels.  Alongside this, advanced-economy equity prices had increased materially since the beginning of this year, such that, in some large advanced economies, they had increased significantly above their pre-pandemic levels. 14) Market contacts had put forward several possible explanations for this constellation of asset prices.  Some had attributed low real yields primarily to expectations of monetary policy, which could remain highly accommodative if central banks looked through any transitory increases in inflation, while also supporting risky asset prices.  These contacts had expected real rates to rise over time, with a range of views around how gradually this might occur.  Other contacts had attributed low real yields to a more pessimistic outlook for medium-term global growth than had appeared to be incorporated into equity valuations. 15) The sterling effective exchange rate had been broadly stable since the previous MPC meeting. 16) Mortgage credit conditions in the United Kingdom had eased further, with a further fall in lending spreads on most mortgage products.  Spreads on products with loan-to-value (LTV) ratios lower than or equal to 75% were now similar to spreads in January 2020, while spreads on products with LTV ratios higher than 75% had remained above their January 2020 levels.  The number of mortgage products available had continued to improve, with availability for products with low LTV ratios now similar to pre-pandemic levels, although availability for products with high LTV ratios had remained below pre-pandemic levels.  Supervisory intelligence suggested that lenders had become more optimistic about the economic outlook, while bank wholesale funding spreads had fallen over recent months and ring-fenced banks had ample liquidity from strong deposit growth. 17) Credit conditions for unsecured borrowing by households and for lending to small and medium-sized enterprises had changed little since the Committee’s previous meeting and spreads had remained below the MPC’s forecasts made earlier this year. Demand and output 18) Since the MPC’s previous meeting, the number of hospitalisations of Covid-19 (Covid) patients and deaths within 28 days of testing positive for Covid had tended to rise in the United Kingdom, although the number of Covid cases had started to fall back again most recently.  The number of people that had been asked to self-isolate temporarily through various channels had declined sharply following a change in guidance in August that meant that those people who had had two doses of a Covid vaccine no longer had to isolate if they came into contact with someone who had tested positive for the virus.  The UK Government had recently announced its autumn and winter plan for responding to Covid, including that all children aged 12 to 15  would be offered one dose of a Covid vaccine, and that all adults over 50 and those that were clinically vulnerable would be offered a booster jab.  Covid-related restrictions on international travel had also been relaxed recently. 19) According to the ONS’s first quarterly estimate, UK GDP had risen by 4.8% in 2021 Q2, close to the projection incorporated into the August Monetary Policy Report for the quarter as a whole.  That had left the level of GDP around 4½% below its pre-Covid level in 2019 Q4.  Within the expenditure components, household consumption had been estimated to have risen by 7.3% following the reopening of the retail and hospitality sectors through the second quarter, although that had been a somewhat weaker increase than expected in the August Report.  Business investment, which was often subject to revision, had also risen by less than had been expected, by 2.4% and had remained around 15% below its pre-Covid level.  Government consumption had increased by over 6%, as education output had rebounded due to the recovery in pupil attendance after earlier restrictions had been lifted. 20) Ahead of the MPC’s next meeting, the ONS would release Blue Book-consistent revisions to GDP as part of the Quarterly National Accounts published on 30 September, including significant methodological changes such as the introduction of double deflation and improvements to deflators for items such as telecommunications and clothing.  Some of these changes were expected to raise pre-pandemic economic growth rates. 21) Official output data for June and July had been somewhat weaker than expected in the August Report, with monthly growth rates of 1.0% and 0.1% respectively, implying that the level of GDP had been around 3½% below its 2019 Q4 level in the middle of the year.  The downside news appeared to have reflected signs that bottlenecks in supply chains and labour shortages had started to affect output, particularly in the manufacturing and construction sectors, combined with a slower-than-expected recovery in demand in some consumer-facing services. 22) A further recovery in activity appeared to be underway in components of output that had remained well below their pre-Covid levels to date, such as some consumer-facing services, and transport and workplace-related services.  For example, faster indicators of the use of public transport and the number of flights had risen over recent weeks.  And there was some evidence to suggest spending on entertainment and recreational events had increased, as restrictions had loosened further.  Education output was also likely to have risen towards its normal level.  Taken together, these components were judged likely to account for a large part of the GDP growth expected in 2021 Q3. 23) Other indicators of household spending had generally remained at strong levels, as had consumer confidence.  Although official estimates of retail sales volumes had fallen by 0.9% in August, the level of sales had remained over 4% above its pre-Covid level.  Food store sales had fallen, while faster indicators of restaurant spending had picked up. Housing activity indicators had remained robust, including mortgage approvals for house purchase.  Although the July UK House Price Index had unwound almost all of its record rise in June, perhaps related to the timing of the tapering of the temporary stamp duty cut in England and Northern Ireland, other timelier house price data had picked up further. 24) It appeared likely that the impact of supply constraints on output would prove more persistent.  Supplier delivery times had continued to lengthen materially in the manufacturing and construction sectors according to the latest PMI surveys.  And over half of the respondents to the latest CBI Industrial Trends survey had reported that materials or components were a factor limiting production over the next three months, with about a third of respondents noting that skilled labour was also a limiting factor, both of which were close to historical series’ highs.  Supply chain issues had led respondents to the latest CBI’s Distributive Trades survey to report the lowest level of retail inventories, relative to expected sales, on record.  Backlogs of work had also risen according to that component of the services PMI, linked primarily to shortages of key staff.  Intelligence from the Bank’s Agents suggested that, against a backdrop of strong demand, it might take some quarters for supply issues to be resolved in some cases.  Separately, recent high spot wholesale gas prices had significantly affected the production plans of some sectors. 25) Overall, Bank staff had revised down their expectations for 2021 Q3 GDP growth from 2.9% at the time of the August Report to 2.1%, in part reflecting the emergence of some supply constraints on output.  That would leave the level of Q3 GDP around 2½% below its pre-Covid level. 26) Alongside the launch of Spending Review 2021 on 7 September, the Government had announced a new, Health and Social Care Levy from April 2022, the proceeds of which would be used for spending on health and social care.  This would be based on an increase in National Insurance Contributions for all working adults and a rise in dividend tax rates.  The overall envelope for core day-to-day departmental spending was otherwise assumed to follow the path set out at spring Budget 2021.  The Government had also announced that the state pension triple lock would be suspended for fiscal year 2022-23.  The Spending Review would conclude on 27 October alongside both an autumn Budget, and an updated economic and fiscal forecast by the Office for Budget Responsibility. Supply, costs and prices 27) The Labour Force Survey (LFS) unemployment rate had fallen to 4.6% in the three months to July, slightly below the expectations in the August Monetary Policy Report .  The unemployment rate had remained 0.8 percentage points above its 2019 Q4 level of 3.8%.  LFS employment had grown by 0.6% in the three months to July, slightly above expectations at the time of the August Report.  HMRC payroll data suggested that employee numbers had increased by 241,000 in August and had surpassed their 2019 Q4 level, although these data were prone to revision.  The inactivity rate had fallen to 36.7% in the three months to July and had unwound around one fifth of its increase over the course of the pandemic. 28) HMRC administrative data suggested that around 1.7 million jobs, just under 7% of private sector jobs, had been furloughed on the Coronavirus Job Retention Scheme (CJRS) in July, compared to around 2 million jobs furloughed in June.  This was a materially higher number of jobs furloughed than had been assumed at the time of the August Report, in part possibly reflecting the downside news in GDP growth over that period.  Additionally, the reweighting of the ONS’s Business Insights and Conditions Survey (BICS) had led to a substantial upward revision to the estimated share of private sector jobs furloughed, relative to the data that had been available at the time of the August Report.  Recent BICS data suggested that the number of jobs furloughed had declined to around 6% of private sector jobs over the two weeks to 5 September.  Staff estimates suggested that just under half of those jobs furloughed had been on a flexible form of furlough that allowed those employees to have undertaken some work with their employer.  The proportion of salary for furloughed hours covered by the Government had been tapered progressively, from 80% to 70% in July and to 60% from 1 August, with employers required to top up to 80% since July.  The CJRS would end on 30 September 2021. 29) Indicators of redundancies had remained subdued in the run-up to the end of the CJRS.  The level of LFS redundancies had fallen in the three months to July, and the redundancy rate had decreased to 3.4%, around ½ percentage point below pre-pandemic levels.  HR1 notifications, a statutory requirement that recorded the advance notification of planned redundancies of 20 or more staff at a single establishment, had remained low, even as the relevant statutory consultation periods overlapped with the end date of the CJRS.  Smaller businesses had been disproportionate users of the furlough scheme, however, and by definition were not required to make HR1 notifications.  The BICS data had not pointed to an increase in planned redundancies by small businesses over the next three months, although intelligence from the Bank’s Agents had highlighted a risk of some micro businesses, which employed only one or two staff, closing permanently upon the CJRS’s closure. 30) Indicators of labour demand had remained strong and the labour market appeared to have tightened further.  The stock of job vacancies had risen above 1 million in August, surpassing the previous record set in July.  The ratio of vacancies to unemployment had also risen rapidly, and had surpassed its 2019 average on a single month basis.  The REC index of staff availability had tightened at a record pace in August.  Intelligence from the Bank’s Agents suggested that recruitment difficulties had become more widespread and acute in recent months.  Agents’ contacts had attributed labour shortages to a combination of factors, including demand recovering more quickly than expected and a reduction in the availability of EU workers.  The shortage of Heavy Goods Vehicle (HGV) drivers had been exacerbated by an ageing workforce and a backlog of licence testing. 31) Private-sector regular Average Weekly Earnings (AWE) had risen by 7.8% in the three months to July on a year earlier, compared to 8.4% in the three months to June.  AWE growth had continued to be boosted by compositional effects, given that job losses had been skewed towards lower-paid employees during the pandemic.  AWE growth had also been pushed up mechanically by the CJRS recently, with just under 7% of private sector jobs having been furloughed in July, compared to around 23% in July 2020.  The CJRS had been a drag on measured pay growth over the pandemic period prior to May.  Adjusted for the mechanical effects of the CJRS and changes in composition, Bank staff estimated that private sector regular pay growth had been around 4%, above pre-pandemic rates.  The REC Report on Jobs permanent staff salaries index, which measured the monthly pay growth of new permanent hires, had increased to its highest level on record and had pointed to robust pay growth of new hires.  The Bank’s Agents’ contacts had reported an increase in pay settlements recently.  Their contacts had also reported that pay increases had been significantly higher for workers with skills in particularly short supply, such as HGV drivers, while the use of one-off bonuses to retain staff had become more widespread. 32) Twelve-month CPI inflation had risen from 2.0% in July to 3.2% in August.  As the inflation rate in August had been above 3%, an exchange of letters between the Governor and the Chancellor of the Exchequer was being published alongside these minutes.  Core inflation had also risen from 1.8% in July to 3.1% in August, its highest rate since November 2011.  The headline CPI outturn for August had been 0.2 percentage points above the projection in the August Report.  That upside news had been accounted for largely by recreational and audio-visual goods, food and accommodation services. 33) Base effects had accounted for the majority of the increase in twelve-month inflation between July and August.  The base effects from last year’s Eat Out to Help Out scheme, which had dragged on prices in August last year, and the temporarily reduced VAT rate for hospitality, holiday accommodation and attractions dropping out of the annual calculation, had largely accounted for a rise in services inflation to a four-year high.  Additionally, other items, such as clothing and footwear and airfares had grown at below average rates in August last year. 34) Global supply bottlenecks had continued to affect UK consumer goods prices.  Some consumer goods markets had also been affected indirectly by supply bottlenecks.  For example, continuing semiconductor shortages had disrupted new car production, which had led to an increase in demand in the used car market.  Twelve-month used car price inflation had risen to 18.3% in August. 35) The reopening of the economy had led to a pickup in some consumer services prices.  Recent monthly price increases had been particularly pronounced, relative to historical averages, for those services most directly affected by previous restrictions, such as restaurants recreational and accommodation services. 36) The Committee discussed the near-term outlook for consumer prices.  CPI inflation was expected to rise further temporarily, to slightly above 4% in 2021 Q4, slightly higher than the projection in the August Report. 37) Around half of the near-term projected above-target inflation was expected to be accounted for by elevated energy price inflation.  The projected contribution of energy prices from October 2021 reflected a base effect as well as Ofgem’s most recent announced increases in the standard variable tariff caps on retail gas and electricity prices.  Spot and forward wholesale gas prices had risen materially since the publication of the August Report, against a backdrop of strong demand and some supply disruption.  This could represent a significant upside risk to the MPC’s inflation projection from April 2022, when Ofgem next updated its retail energy price caps based on the relevant forward contracts, and meant that CPI inflation would remain slightly above 4% into 2022 Q2, all else equal. 38) Core goods inflation was expected to remain above pre-pandemic averages, accounting for most of the remainder of the projected above-target inflation.  In contrast to much of the pandemic period, services inflation was expected to rise slightly, to rates close to pre-Covid averages, which in part reflected a continued recovery of activity in consumer-facing services, as well as the tapered rise in VAT on hospitality, holiday accommodation and attractions from October.  Most indicators of cost pressures had remained elevated.  Manufacturers’ output prices, excluding food and energy, had grown at an annualised rate of close to 10% in the three months to August.  Survey-based measures of output and input price inflation, such as the PMIs, had remained at around their recent historically high levels.  Contacts of the Bank’s Agents had reported that there had been more signs of cost pass-through in the manufacturing and construction sectors recently.  These contacts had also reported some signs of firms passing on some labour cost increases in labour-intensive sectors. 39) Indicators of households’ medium-term inflation expectations had increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September. The Bank/Kantar five-year ahead measure of households’ inflation expectations had also increased slightly, but was now around its historical average.  There was the potential for short-term measures of households’ expectations to rise further in the coming months, as they had tended to move with official inflation outturns previously.  Such movements in these short-term measures would not be inconsistent with household inflation expectations remaining anchored.  The August Decision Maker Panel had reported an increase in companies’ one-year ahead own-price inflation expectations.  Professional forecasters, on average, expected less of a rise in inflation in the short term than the August Report projection, according to the latest HM Treasury survey of independent forecasters. The immediate policy decision 40) The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 41) In the MPC’s central projections in the August Monetary Policy Report , UK GDP had been projected to recover further over the remainder of the year, with demand growth boosted by a waning impact from Covid-19 (Covid).  There had been projected to be a period of excess demand in the near term, before demand and supply had been expected to return broadly to balance as demand growth slowed and constraints on supply eased.  CPI inflation had been projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and goods prices.  Conditioned on the market path for interest rates, CPI inflation had been expected to fall back to close to the 2% target in the medium term. 42) The Committee reviewed recent developments, including the extent to which they had been in line with the projections in the August Report. 43) Since the August MPC meeting, the pace of recovery of global activity had showed signs of slowing.  Euro-area GDP growth in 2021 Q2 had been higher than expected at the time of the August Report, and was now expected to be somewhat stronger in Q3 as well.  Developments in US GDP had shown the opposite pattern, although the link between Covid cases and activity there had continued to weaken.  Growth in China and other large Emerging Market Economies had also weakened somewhat.  There had been some early evidence of a rotation in demand from goods to services, with the services PMIs above or in line with the manufacturing PMIs in the United States and the euro area recently. 44) Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures had remained strong and there were some signs that cost pressures might prove more persistent.  Oil prices had remained elevated and global shipping costs had continued to rise.  Wholesale gas prices had risen substantially across Europe.  Supply conditions appeared to have improved slightly in the global semiconductors sector, although it would take some time for previous order backlogs to clear.  Headline and core consumer price inflation had risen in the euro area and had remained elevated in the United States. 45) Since the Committee’s previous meeting, global equity prices and corporate bond spreads had generally changed little, while shorter-term and longer-term government bond yields had increased slightly, including in the United Kingdom.  Mortgage credit conditions in the United Kingdom had eased further, with a further fall in lending spreads on most mortgage products. 46) As of 22 September 2021, the total stock of assets held in the Asset Purchase Facility had reached £852 billion, including £108 billion of the £150 billion programme of UK government bond purchases announced on 5 November 2020. 47) Bank staff had revised down their expectations for the level of UK GDP in 2021 Q3 by around 1% since the August Report, leaving the expected level of Q3 GDP around 2½% below its pre-Covid level.  This downward revision in part reflected the emergence of some supply constraints on output.  These had been evident in surveys showing historically lengthy supplier delivery times and backlogs of work, significant material and labour shortages in a number of sectors, and lower than normal levels of inventories.  Momentum appeared to have picked up in services-orientated sectors, where output had remained well below pre-Covid levels.  Although official estimates of retail sales had weakened somewhat, other indicators of spending had generally remained at strong levels, as had consumer confidence. 48) Bank staff’s initial assessment was that recent fiscal announcements were likely to be broadly neutral for the growth outlook, as higher spending on health and social care would be funded by an increase in National Insurance Contributions and a rise in dividend tax rates.  The overall envelope for core day-to-day departmental spending was otherwise assumed to follow the path set out at spring Budget 2021.  Ahead of the Committee’s next meeting, the Government would conclude its Spending Review on 27 October alongside both an autumn Budget, and an updated economic and fiscal forecast by the Office for Budget Responsibility. 49) The Labour Force Survey unemployment rate had fallen to 4.6% in the three months to July, slightly below the August Report forecast, while HMRC payroll data suggested that employee numbers (which included furloughed jobs) had surpassed their 2019 Q4 level in August.  The inactivity rate had fallen in the three months to July and had unwound around one fifth of its increase over the course of the pandemic. 50) The number of full and part-time furloughed jobs had continued to decline, but to a materially lesser degree than had been estimated in the August Report.  That surprise could only partly be explained by downside news in GDP growth.  HMRC administrative data suggested that around 1.7 million jobs, just under 7% of private sector jobs, had been furloughed on the Coronavirus Job Retention Scheme (CJRS) in July, with just under half of those jobs on a flexible form of furlough that allowed those employees to have undertaken some work with their employer.  Recent Business Insights and Conditions Survey (BICS) data suggested that the number of jobs furloughed had declined to around 6% of private sector jobs over the two weeks to 5 September.  The end of the CJRS on 30 September would remove this support to incomes. 51) There had been few signs of any increase in redundancies, and the stock of vacancies had increased further, as had indicators of recruitment difficulties.  Contacts of the Bank’s Agents had attributed labour shortages to a combination of factors, including demand recovering more quickly than expected and a reduction in the availability of EU workers.  The shortage of Heavy Goods Vehicle drivers had been exacerbated by an ageing workforce and a backlog of licence testing. 52) Bank staff’s estimate of underlying pay growth had picked up, to above its pre-pandemic rate.  The Bank’s Agents’ contacts had reported that pay increases had been significantly higher for workers with skills in particularly short supply, while the use of one-off bonuses to retain staff had become more widespread. 53) The Committee discussed explanations for the surprisingly high number of jobs that were still recorded as being furloughed, despite other signals of a rapidly tightening labour market.  One possibility was that some companies had continued to use the CJRS to hoard labour ahead of an expected recovery in demand, even though the cost of that strategy had increased recently.  Although some of these companies might choose to let staff go at the end of the scheme, others might be sufficiently confident of future demand to retain them.  A substantial proportion of furloughed jobs had been at very small companies, including those with a single employee, for which the decision to reopen or not might depend more on idiosyncratic conditions.  To the extent that some businesses had not yet brought staff back fully to their pre-Covid workplaces, this might have prolonged furlough in other businesses that supported these workplaces through ancillary goods and services.  It was also possible that a greater number of furloughed workers had been able to find second jobs with alternative employers, or had expanded the scope of existing second jobs, which were allowable under the CJRS.  These workers would probably not become unemployed at the end of the scheme, although, if they accounted for a large proportion of those still furloughed, it would make current high vacancy rates more difficult to explain. 54) Another hypothesis was that, due to shifts in the pattern of demand during the pandemic, those on furlough were not suitable matches for the job vacancies currently available.  Although vacancies had risen across the economy, including in sectors with a high number of furloughed jobs, there could be mismatch at a more granular level across companies within the same sector.  In that case, any increase in unemployment following the end of the CJRS might, at least in part, be more structural than cyclical. 55) Overall, the Committee judged that uncertainty around the outlook for the labour market had increased.  Key questions included how the economy would adjust to the closure of the furlough scheme at the end of September; the extent, impact and duration of any change in unemployment;  as well as the degree and persistence of any difficulties in matching available jobs with workers. 56) The Committee would review these, along with other, developments as part of its forthcoming forecast round ahead of the November Monetary Policy Report, which would also include its periodic assessment of the supply side of the economy.  Ahead of the next MPC meeting, official data on furlough numbers would only be available for August, although additional, timelier information would be available from the BICS, other surveys and the Bank’s Agents, including on any potential increase in redundancies.  Official labour market data for October, covering the period following the closure of the CJRS, would not be published until after the November MPC meeting. 57) Twelve-month CPI inflation had risen from 2.0% in July to 3.2% in August, compared with the 3.0% figure expected in the August Report, and had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside this monetary policy announcement.  Core inflation had also risen to 3.1% in August, its highest rate since November 2011.  While base effects had accounted for the majority of the increase in CPI inflation between July and August, global cost pressures had continued to affect UK consumer goods prices.  To a lesser degree, the reopening of the economy had led to a further increase in some consumer services prices. 58) CPI inflation was expected to rise further in the near term, to slightly above 4% in 2021 Q4, owing largely to developments in energy and goods prices.  The material rise in spot and forward wholesale gas prices since the August Report represented an upside risk to the MPC’s inflation projection from April 2022, and meant that CPI inflation could remain above 4% into 2022 Q2, all else equal.  Most other indicators of cost pressures had remained elevated.  The Committee’s central expectation continued to be that current elevated global cost pressures would prove transitory.  Indeed, there were still good reasons to expect material supply responses in commodity and other global markets, pushing down on future input prices and import costs.  That said, should the pandemic reinforce the retrenchment of globalisation, there would be less scope for these factors to create future disinflationary pressures.  And current elevated inflationary pressures could potentially lead to some second-round effects on consumer prices. 59) Some financial market indicators of inflation expectations had risen somewhat, including in the United Kingdom.  The UK five-year inflation swap rate, five years forward was around 20 basis points above its 2019 average.  Indicators of UK households’ medium-term inflation expectations had increased in recent months, with the Citi/YouGov five-to-ten year ahead measure at its highest level since 2013 in September.  The Bank/Kantar five-year ahead measure of households’ inflation expectations had also increased slightly, but was now around its historical average.  Taking together the full range of evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judged that UK inflation expectations remained well anchored.  But given recent developments, the Committee would monitor very closely the risk that domestic and global demand and cost pressures could further affect medium-term inflation expectations. 60) The Committee turned to its immediate policy decision. 61) The MPC had, since the second half of 2020, had policy guidance in place specifying that it did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably.  There remained a range of views on the Committee about whether the conditions of that guidance were met, but all members agreed that the previous formal guidance was no longer useful in the present situation. 62) The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework.  The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances.  In the recent unprecedented circumstances, the economy had been subject to very large shocks.  Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate stance of monetary policy, would as always focus on the medium-term prospects for inflation, rather than factors that were likely to be transient. 63) At this meeting, most members of the Committee judged that the existing stance of monetary policy, which included the previously announced £150 billion increase in the target stock of purchased assets, remained appropriate.  There was a range of views about the most likely near-term path of unemployment following the closure of the furlough scheme.  However, all members in this group agreed that the outlook for the labour market, and hence underlying inflationary pressures, was particularly uncertain, and that some of this uncertainty should be resolved over coming months.  Hence, there was a high option value in waiting for that additional information before deciding if and when a tightening in monetary policy might be warranted.  If there were signs that the unemployment rate was increasing significantly following the end of the CJRS, it might take somewhat longer to assess the extent to which that rise was structural or cyclical, and, if structural and pushing down on effective supply in the economy, for how long that might persist. 64) For members in this group, it remained likely that inflation would fall back in the medium term in line with the projection in the August Report, as supply bottlenecks were cleared, demand growth eased, and companies’ pricing power moderated.  On one view, abstracting from current constraints on effective supply, GDP remained well below its medium-term potential level and monetary policy could have a role in sustaining demand, with a view to reducing the degree of medium-term scarring.  On another view, the economy had shown further signs of normalising recently and demand could remain strong even while supply constraints proved more long-lasting.  CPI inflation had continued to surprise on the upside, some indicators of cost pressures appeared somewhat more persistent and financial market inflation break-evens had continued to rise gradually.  Different members placed different weights on these arguments.  For all members in this group, monetary policy would at some point need to start to unwind some of its post-pandemic stimulus. 65) All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme. 66) For two members, the economic outlook warranted a tightening in the monetary policy stance at this MPC meeting.  There was increasing evidence from a range of global and domestic cost and price indicators that inflationary pressures were likely to persist.  Record vacancy levels and the pace of underlying wage growth were evidence of ongoing tightness in labour market conditions, alongside other signs of capacity pressures.  These members judged that, with the existing policy stance, inflation was likely to remain above the 2% target in the medium term.  This reflected a greater impact from cost pressures, and the prospect of a larger and more persistent level of excess demand in the United Kingdom than in the central forecast in the August Report. 67) These two members preferred to stop the current asset purchase programme as soon as practical after this meeting rather than continuing it until around the end of the year, as currently planned.  Continuing with asset purchases when CPI inflation was above 3% and the output gap was closed might cause medium-term inflation expectations to drift up further.  A decision to curtail the asset purchase programme at this meeting would imply a modest policy tightening and mitigate that risk, which might otherwise ultimately necessitate a more abrupt subsequent tightening in policy and hence a greater adjustment in growth and employment.  It would demonstrate the Committee’s commitment to returning inflation to target in the medium term and ensuring that medium-term inflation expectations remained well anchored. 68) At its previous meeting, the Committee had judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report , some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.  Some developments during the intervening period appeared to have strengthened that case, although considerable uncertainties remained.  The Committee would be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses passed on wage and other cost increases, as well as medium-term inflation expectations. 69) The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 0.1%; The Bank of England should maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion; The Bank of England should continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these purchases at £875 billion. The Committee voted unanimously in favour of the first and second propositions. Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Silvana Tenreyro) voted in favour of the third proposition.  Two members (Dave Ramsden and Michael Saunders) voted against this proposition, preferring to reduce the target for the stock of UK government bond purchases from £875 billion to £840 billion. Operational considerations 70) The existing programme of £150 billion of UK government bond purchases had started in January and its completion was expected by around the end of 2021.  Further details of the planned operational approach to gilt purchases between the August and December MPC meetings had been set out in the Market Notice accompanying the August 2021 minutes.  Should market functioning worsen materially, the Bank of England stood ready to increase the pace of purchases to ensure the effective transmission of monetary policy. 71) The Committee would keep the asset purchase programme under review.  If needed, there was scope for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase programme. 72) Consistent with the Committee’s previous guidance, the MPC agreed to reinvest the cash flows associated with reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by the Asset Purchase Facility back into eligible corporate bonds, commencing in November 2021.  As announced in March, this reinvestment programme would be the first to take the climate impact of the issuers of bonds into account.  Further details of reinvestment operations would be published in a Market Notice nearer the time, alongside details of how the Bank’s approach to ‘greening’ the portfolio would be implemented this year. 73) The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Tom Josephs was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Dorothy Thompson was also present on 15 and 17 September, as an observer, for the purpose of exercising oversight functions in her role as a member of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target.  Operational decisions are taken by the Bank’s Monetary Policy Committee.  The minutes of the Committee meeting ending on 2 November will be published on 4 November 2021.

Monetary Policy Summary, November 2021 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation
                    target, and in a way that helps to sustain growth and employment. At its meeting
                    ending on 2 November 2021, the Committee judged that the existing stance of monetary policy remained
                    appropriate. The MPC voted by a majority of 7-2 to maintain Bank Rate at
                    0.1%. The Committee voted unanimously for the Bank of England to maintain the stock
                    of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of
                    central bank reserves, at £20 billion. The Committee voted by a majority of 6-3 for
                    the Bank of England to continue with its existing programme of UK government bond purchases,
                    financed by the issuance of central bank reserves, maintaining the target for the stock of these
                    government bond purchases at £875 billion and so the total target stock of asset purchases at £895
                    billion. The Committee’s updated central projections for activity and inflation are set out in the
                    accompanying November
                        Monetary Policy Report . The projections are conditioned on asset and energy
                    prices averaged over the 15 days to 27 October. This gives a market-implied path
                    for Bank Rate that rises to around 1% by the end of 2022. Wholesale energy prices
                    are assumed to be based on their respective futures curves for the first six months of the
                    projections and remain flat beyond that. There are material risks around this
                    assumption. Both global and UK GDP increased in 2021 Q3, although at a slower pace than projected in the August
                    Report. Growth is somewhat restrained by disruption in supply chains.
                    Alongside the rapid pace at which global demand for goods has risen, this has led to supply
                    bottlenecks in certain sectors. There have also been some signs of weaker UK
                    consumption demand. While bottlenecks will continue to restrain growth somewhat in
                    the near term, global and UK GDP are nonetheless expected to recover further from the effects of
                    Covid-19 (Covid). UK GDP is projected to get back to its 2019 Q4 level in 2022 Q1. Over the second half of the forecast period, and conditioned on the market-implied path for Bank
                    Rate, UK GDP growth is expected to be relatively subdued. The pace of growth slows
                    as potential supply growth eases back towards pre-Covid rates, and as higher energy prices and the
                    fading of monetary and fiscal policy support temper demand growth. At the Autumn
                    Budget and Spending Review 2021, the Government announced a higher path for government consumption,
                    particularly over the next couple of years. By the end of the forecast period, a
                    margin of spare capacity is expected to emerge. The Labour Force Survey unemployment rate fell to 4.5% in the three months to August, while Her
                    Majesty’s Revenue and Customs payroll data have continued to rise strongly. Just
                    over a million jobs are likely to have been furloughed immediately before the Coronavirus Job
                    Retention Scheme closed at end-September, significantly more than expected in the August
                    Report. Nonetheless, there have continued to be few signs of increases in
                    redundancies and the stock of vacancies has increased further, as have indicators of recruitment
                    difficulties. Taken together, while there is considerable uncertainty, initial
                    indicators suggest that unemployment will rise slightly in 2021 Q4. Bank staff’s
                    estimate of underlying pay growth has remained above pre-pandemic rates, although pay growth is
                    expected to fall back from its current rate in the November Report central projections. Twelve-month CPI inflation fell slightly from 3.2% in August to 3.1% in September.
                    Bank staff expect inflation to rise to just under 4% in October, accounted for
                    predominantly by the impact on utility bills of past strength in wholesale gas prices.
                    CPI inflation is then expected to rise to 4½% in November and remain around that level
                    through the winter, accounted for by further increases in core goods and food price
                    inflation. Wholesale gas prices have risen sharply since August.
                    CPI inflation is now expected to peak at around 5% in April 2022, materially higher than
                    expected in the August Report. The upward pressure on CPI inflation is expected to dissipate over time, as supply disruption eases,
                    global demand rebalances, and energy prices stop rising. As a result, CPI inflation
                    is projected to fall back materially from the second half of next year. Conditioned
                    on the market-implied path for Bank Rate and the MPC’s current forecasting convention for future
                    energy prices, CPI inflation is projected to be a little above the 2% target in two years’ time and
                    just below the target at the end of the forecast period. In an alternative scenario
                    that is conditioned on energy prices following forward curves throughout the forecast period and as
                    set out in the November Report, CPI inflation falls back towards the target more rapidly than in the
                    MPC’s central projection, and is materially lower over the second half of the forecast period. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of
                    price stability in the UK monetary policy framework. The framework also recognises
                    that there will be occasions when inflation will depart from the target as a result of shocks and
                    disturbances. In the recent unprecedented circumstances, the economy has been
                    subject to very large shocks. Given the lag between changes in monetary policy and
                    their effects on inflation, the Committee, in judging the appropriate policy stance, will as always
                    focus on the medium-term prospects for inflation, including medium-term inflation expectations,
                    rather than factors that are likely to be transient. At its recent meetings, the Committee has judged that some modest tightening of monetary policy over
                    the forecast period was likely to be necessary to meet the 2% inflation target sustainably in the
                    medium term. The latest developments, set alongside the Committee’s updated
                    projections, reinforce this view. Nevertheless, near-term uncertainties remain,
                    especially around the outlook for the labour market, and the extent to which domestic cost and price
                    pressures persist into the medium term. At this meeting, the Committee concluded that the existing stance of monetary policy remained
                    appropriate. The Committee judges that, provided the incoming data, particularly on the labour market, are broadly
                    in line with the central projections in the November
                        Monetary Policy Report , it will be necessary over coming months to increase Bank Rate in
                    order to return CPI inflation sustainably to the 2% target. In observing the
                    market-implied path for Bank Rate, the Committee notes that, in the November Monetary Policy Report
                    central projections, CPI inflation is projected to be below the 2% target at the end of the forecast
                    period, and would probably fall a little further beyond that point, given the margin of spare
                    capacity that is expected to emerge. Looking beyond the coming months, the Committee will, as always, continue to focus on the medium-term
                    prospects for inflation. The Committee judges that there are two-sided risks around
                    developments in the economy in the medium term, and will reach its assessment on the balance of
                    these risks in light of the relevant data as they emerge. Minutes of the Monetary Policy Committee meeting ending on 2 November 2021 1) Before turning to its immediate policy decision, and against the backdrop of its latest economic
                    projections, the Committee discussed: the international economy; monetary and financial conditions;
                    demand and output; and supply, costs and prices. The international economy 2) UK-weighted global GDP was estimated to have risen by 1.2% in 2021 Q3, a little weaker than had
                    been expected in the August
                        Monetary Policy Report . This weaker growth had been accounted for by slower-than-expected
                    growth in the United States and China, partly offset by strength in the euro area. Global GDP was
                    expected to expand at a slower pace in Q4 than had been anticipated in the August Report, in part
                    reflecting supply chain disruptions, which had continued to weigh on global activity. Bottlenecks,
                    stemming from supply disruptions and the pattern of global demand, as well as rising energy prices,
                    had continued to increase global cost pressures. 3) Supply chain bottlenecks over recent months had reflected both strong demand for consumer goods in
                    advanced economies, in particular in the United States, and further supply disruptions from
                    localised lockdowns at some major Chinese ports and Covid-related closures of factories in other
                    Asian economies. Estimates of supply constraints constructed by Bank staff, derived from a range of
                    PMIs such as delivery times and stocks of finished goods, had remained elevated since the MPC’s
                    previous meeting. There had been some signs that demand had begun to rotate away from goods and back
                    towards services. That had been most apparent in the United States where durables consumption had
                    moderated. 4) According to the preliminary flash estimate, euro-area GDP had grown by 2.2% in 2021 Q3. This was
                    stronger than had been expected in the August Report, and had left the level of GDP 0.5% below that
                    in 2019 Q4. The upside news had reflected, in part, a smaller-than-expected drag on activity from
                    the spread of the Delta variant. Euro-area GDP growth was expected to be just under 1% in Q4.
                    According to the flash estimate, the euro-area composite output PMI had decreased by 1.9 points in
                    October, to 54.3, with both the services and manufacturing indices decreasing. 5) According to the Advance estimate, US GDP had increased by 0.5% in 2021 Q3. This was weaker than
                    expected at the time of the August Report, but had left the level of GDP around 1½% higher than in
                    2019 Q4. Within this, household spending had risen by 0.4%, with spending on goods falling but
                    services consumption continuing to rise. More recent high-frequency spending data suggested that
                    social spending, such as on restaurants and recreation, had continued to recover. In the labour
                    market, non-farm payrolls had increased by 194,000 in September, a much slower pace than had been
                    expected by financial markets. The unemployment rate had nevertheless fallen to 4.8% in September,
                    from 5.2% in August, and the level of job vacancies had remained high. US GDP growth was expected to
                    be around 1% in Q4. 6) In China, GDP had increased by 0.2% in 2021 Q3, lower than had been expected at the time of the
                    August Report. This downside news had reflected the impact of local Covid outbreaks on consumption
                    and services activity, power shortages and a rapid slowdown in housing activity. Further stresses in
                    the property market more recently were likely to weigh on activity in the near term. 7) Global inflationary pressures had remained strong since the MPC’s previous meeting. Wholesale gas
                    prices had continued to rise in Europe and Asia, reflecting strong demand, although they had fallen
                    back at the end of October. The Brent oil spot price had risen further and was now around $85 per
                    barrel. Non-energy commodity prices had also increased. Shipping costs had remained elevated,
                    particularly for routes connecting Asia with the United States and with Europe. Survey indicators of
                    manufacturing input and output prices had continued to rise in October in a number of advanced
                    economies. Global cost pressures were expected to dissipate over time as supply disruption eased,
                    global demand rebalanced and energy prices stopped rising. 8) Cost pressures had continued to pass through to consumer prices in the euro area and in the United
                    States. Euro-area HICP inflation had increased to 4.1% in October, its highest rate since 2008, and
                    there had also been an increase in core inflation, which had risen to 2.1%. In the United States,
                    core PCE inflation had remained at 3.6% in September, and the headline measure had risen to 4.4%. Monetary and financial conditions 9) There had been some sizable movements in UK and global financial markets since the Committee’s
                    previous meeting. In part that had reflected the impact of supply chain bottlenecks and sharp rises
                    in energy prices on market participants’ outlook for global inflation and growth, and perceptions of
                    possible monetary policy responses. 10) Advanced-economy longer-term government bond yields had risen by around 20 to 30 basis points
                    since the MPC’s September meeting, in large part reflecting an increase in the inflation
                    compensation component of nominal interest rates. Ten-year bond yields had now mostly reversed the
                    declines seen over the summer and, in the United Kingdom, had exceeded the levels seen immediately
                    prior to the pandemic. 11) Since the Committee’s previous meeting, short-term market measures of inflation compensation had
                    risen sharply across advanced economies, including in the United Kingdom. Market contacts had
                    reported that these increases had largely reflected strength in CPI inflation data, developments in
                    energy prices and supply chain bottlenecks. Medium-term measures of advanced-economy inflation
                    compensation had also continued to rise for much of the period since the Committee’s last meeting.
                    In both the United States and the euro area, these measures were now around their average levels
                    over the past decade. In the United Kingdom, medium-term inflation compensation measures had
                    remained above their post-2008 average levels. 12) Interpreting UK medium-term inflation compensation measures was not straightforward. UK inflation
                    markets were used for hedging large pension liabilities, which could cause shifts in inflation
                    compensation over and above those driven by changes in inflation expectations and perceived
                    inflation risks. Inferences from UK measures, which were based on RPI inflation, about market
                    expectations for CPI inflation were further complicated by the uncertain future wedge between
                    consumer price and RPI inflation. The interpretation of some medium-term measures, including the
                    five-year inflation swap rate, five years forward, was also affected by uncertainty around the
                    planned alignment of the RPI with CPIH in 2030. All else equal, this alignment would push down
                    levels of inflation compensation beyond that point, relative to prices in the past. It was therefore
                    useful to consider a range of inflation compensation measures, including those with reference
                    maturities prior to 2030, such as the three-year inflation swap rate, five years forward. Despite
                    these difficulties in interpretation, models that attempted to extract medium-term market
                    expectations for CPI inflation, and intelligence gathered from market contacts, suggested that
                    higher inflation expectations and greater perceived risks to inflation might have in part accounted
                    for the above-average levels of medium-term inflation compensation measures, alongside other
                    factors. The Committee’s overall assessment of medium-term inflation expectations was set out in Box
                    C in the November
                        Monetary Policy Report . 13) At its 22 September meeting, the Federal Open Market Committee (FOMC) had left unchanged its
                    target range for the federal funds rate. The pace of asset purchases had also been left unchanged,
                    but the FOMC had noted that a moderation in the pace of asset purchases might soon be warranted. In
                    their updated Summary of Economic Projections, FOMC participants had revised up their projections
                    for the appropriate level of the federal funds rate, with the median now rising to 1% in 2023. At
                    its 27 October meeting, the Bank of Canada had left its policy rate unchanged and had ceased its
                    asset purchase programme, moving into a reinvestment phase during which purchases would be made
                    solely to replace maturing bonds. At its meeting on 28 October, the ECB Governing Council had left
                    its key policy interest rates unchanged and had made no significant changes to its asset purchase
                    programmes. On 2 November, the Reserve Bank of Australia had maintained the target for its cash
                    rate, had continued its asset purchase programme and had discontinued its target for the yield on
                    the April 2024 bond. Both the Norges Bank and the Reserve Bank of New Zealand had increased policy
                    rates by 25 basis points at their most recent meetings. 14) Across advanced economies, the paths for market-implied policy rates had risen since the
                    Committee’s previous meeting. At the three-year horizon, the market-implied policy rate had risen by
                    around 30 to 40 basis points in the United States, the euro area and the United Kingdom. Global
                    interest rate markets had been volatile most recently, in part reflecting diminished market
                    liquidity. 15) In the United Kingdom, market-implied expectations for the path of Bank Rate over the year ahead
                    had increased sharply since the MPC’s September meeting, which appeared to reflect market
                    participants’ perceptions of a further rise in inflationary pressures and recent MPC communications
                    about the policy outlook. Most market contacts were expecting the Committee to raise Bank Rate to
                    0.25% by the end of the year, with expectations for the exact timing finely balanced between the
                    November and December MPC meetings. The November Report was conditioned on a market-implied path for
                    Bank Rate, based on the 15-working day average to 27 October, that rose to around 1% by the end of
                    2022. In the immediate run-up to the MPC’s November meeting, the market-implied path for Bank Rate
                    had reached around 1.3% by the end of next year. Market contacts had noted that diminished market
                    liquidity meant that it had become more difficult to infer a central path for Bank Rate
                    expectations. 16) The sterling effective exchange rate index had risen by around 1% since the previous MPC meeting. 17) In contrast to movements in advanced-economy government bond markets, there had been relatively
                    little news in corporate financing conditions. Advanced-economy equity prices had risen since the
                    Committee’s previous meeting, in part supported by strong earnings, and corporate bond spreads had
                    remained at historically low levels. In the United Kingdom, bank credit conditions for corporates
                    had remained broadly stable. 18) Lending rates on mortgages with loan-to-value (LTV) ratios higher than 75% had continued to fall
                    since the September meeting, despite the increases in risk-free rates. The associated relatively
                    sharp narrowing in mortgage spreads was in part likely to reflect the typical lagged response of
                    mortgage rates to movements in risk-free rates, and so, all else equal, this effect would be
                    expected to reverse to some extent. Perhaps consistent with that, there had been a rise in lending
                    rates on some mortgage products with LTV ratios at or below 75% recently. The latest Credit
                    Conditions Survey had suggested that unsecured credit conditions for households had continued to
                    loosen somewhat. Demand and output 19) UK quarterly GDP growth in 2021 Q2 had been revised up to 5.5% in the Quarterly National Accounts
                    (QNA). Estimates of GDP had also been revised higher in preceding quarters, such that the cumulative
                    shortfall in activity since 2019 Q4 was estimated to have been 3.3%, contrasting with an initial
                    estimate of 4.4% and the 4.3% that had been implied in the August
                        Monetary Policy Report projection. 20) The QNA had been aligned with Blue Book 2021, which had included significant methodological
                    changes such as the introduction of double deflation and improvements to deflators for items such as
                    telecommunications and clothing. Reflecting these changes, the contributions of manufacturing and
                    telecoms services to GDP growth had been revised up significantly over recent decades, with largely
                    offsetting revisions to contributions from other sectors such as financial services. Overall, GDP
                    growth was now estimated to have been slightly lower on average in the years leading up to the
                    financial crisis, and slightly higher on average in the subsequent years, most notably between 2016
                    and 2019. 21) UK GDP was estimated to have risen by 0.4% in August, following a 0.1% fall in July, with
                    activity slightly weaker than expected at the time of the August Report despite the upward revisions
                    to preceding quarters. Much of the upside news in earlier months had been in government services
                    output, and the health sector in particular, where activity had subsequently fallen back in July and
                    August. Manufacturing and construction activity had also weakened since the spring, with output in
                    these sectors around 2% below pre-Covid levels in August. Output in business, and transport and
                    work-related, services had continued to recover, albeit at a more modest pace than had been
                    anticipated. Activity in other consumer-facing services had recovered strongly and by slightly more
                    than had been expected, however. Output in some sub-sectors, such as accommodation and food
                    services, had been at or around pre-Covid levels, although activity in other sub-sectors, such as
                    arts and recreation, had continued to lag further behind pre-pandemic levels. 22) Much of the downside news since the August Report had appeared to reflect the impact of supply
                    chain disruption, particularly for businesses in the manufacturing and construction sectors.
                    Supplier delivery times in those particular sectors had continued to lengthen according to the
                    latest PMI surveys, which had also shown stocks of manufactured goods being at historically low
                    levels and backlogs of work at around historical highs. Rates of outstanding business had also
                    continued to rise for services companies, albeit to a lesser degree. 23) The Bank’s Agents had reported that shortages of materials and labour had weighed on output
                    across a wide range of businesses, and that some businesses expected supply issues for certain
                    products to persist until at least late-2022. According to the latest ONS Business Insights and
                    Conditions Survey, the production or supply chains of around 11% of trading businesses had been
                    affected by the recent sharp increases in gas prices. Consistent with supply disruption continuing,
                    almost two thirds of respondents to the latest CBI Industrial Trends survey had reported that a lack
                    of materials or components were expected to be a factor limiting production over the next three
                    months, and 40% of respondents had cited shortages of skilled labour as a potential limiting factor,
                    with both series at their highest levels since the mid-1970s. 24) High-frequency indicators suggested that consumer spending had recovered further since the
                    summer, but at a more modest pace than had been anticipated at the time of the August Report. A
                    pick-up had been most discernible in those components where shortfalls had originally been the
                    largest, including public transport journeys, flights and cinema visits. Retail sales volumes had
                    fallen in September for the fifth month in a row and by around 5% from their peak in April, although
                    sales volumes had remained around 4% above their 2019 Q4 average. The declines had in part reflected
                    a substitution away from spending on goods back towards services, which Bank staff anticipated could
                    persist for a period as spending continued to converge towards its pre-Covid pattern. Goods spending
                    might have also been dampened by product shortages, with some Agents’ contacts reporting lost sales
                    for products such as electrical goods and furniture, and a continued shortage of new cars for sale
                    in particular. The perception of possible disruption to supply had prompted a burst of spending on
                    motor fuels in late September, and subsequent shortages until additional supplies had been
                    delivered, with spending on fuel being lower than usual thereafter. 25) Indicators of confidence among UK households had fallen in recent weeks, and by more than had
                    been seen in other economies. The number of Covid cases had remained relatively high in the United
                    Kingdom, but, unlike other swings in confidence over the recent past, the latest changes had
                    appeared to reflect non-health factors. The ONS Opinions and Lifestyle Survey had shown a further
                    decline in the share of adults expressing worries around Covid in the first half of October,
                    although around two fifths of respondents had remained concerned. The softening in consumer
                    confidence might have instead reflected idiosyncratic factors, such as the recent fuel shortages, or
                    recent or prospective changes in individuals’ real incomes. In addition to increases in inflation,
                    largely associated with higher energy costs, some households had been affected by the withdrawal of
                    fiscal measures to support the economy during the Covid crisis, such as the removal of the temporary
                    £20 per week uplift to Universal Credit at the end of September. The September Bank of England/NMG
                    household survey had continued to show that households in aggregate were expecting to increase their
                    spending over the next three months, but that those on relatively low incomes were still expecting
                    to reduce their spending. There had also been declines in the share of households anticipating a
                    return to pre-Covid levels of spending by the end of this year or by the middle of 2022. 26) Businesses’ investment intentions over the year ahead had remained robust, although to a lesser
                    degree in the near term. Business investment had risen by 4.5% in 2021 Q2, but was still around 13%
                    below its 2019 Q4 level. The October Decision Maker Panel had continued to report that the drag from
                    Covid on business investment was lessening over time, but more gradually than had been anticipated
                    in July, with investment in 2021 Q4 expected to be around 7% lower than it would otherwise have
                    been. Some contacts of the Bank’s Agents had reported investment having been held back by shortages
                    of equipment and skilled labour. Nevertheless, the Agents’ special survey of investment intentions
                    had indicated a strong rebound in spending over the next twelve months, particularly among consumer
                    services firms. Businesses had generally looked to reinstate investment plans that had been put on
                    hold, or had been considering other new projects that were perceived as being lower risk, as part of
                    a desire to increase efficiency and productivity, and to improve digital capabilities. 27) Overall, GDP was expected to grow by around 1.5% in 2021 Q3 and by 1% in Q4 in the November
                    Report projections, around half of the rates envisaged in the August Report. As a result, GDP was
                    expected to remain below its pre-Covid level until 2022 Q1. While this downward revision had mainly
                    reflected supply chain disruption, a more modest recovery in consumer demand in particular had also
                    been a contributing factor. 28) At the Autumn Budget and Spending Review 2021, the Government had announced significant increases
                    in public services spending alongside other tax and welfare changes. These increases in spending
                    were in addition to the higher health and social care spending announced in September alongside the
                    new Health and Social Care Levy. Bank staff had estimated that the fiscal policies announced since
                    the August Report would boost GDP by just over ½% at their peak in fiscal year 2023-24. Supply, costs and prices 29) The Labour Force Survey (LFS) unemployment rate had fallen to 4.5% in the three months to August,
                    0.3 percentage points lower than had been expected at the time of the August
                        Monetary Policy Report . The jobless rate had remained above its 2019 Q4 level, however, with
                    that increase almost entirely accounted for by those that had been unemployed for six months or
                    longer. LFS employment had risen by 0.7% in the three months to August, to 1.6% below its 2019 Q4
                    level, with that shortfall more than accounted for by lower self employment. Her Majesty’s Revenue
                    and Customs (HMRC) employee payrolls had risen by 210,000 in the single month of September, although
                    these initial estimates had tended to be revised down somewhat. The increase in the total number of
                    payroll employees compared to its pre-pandemic level had been more than accounted for by a sustained
                    increase in workers in the health, education and public administration sector over the past year. In
                    contrast, the number of employees in consumer-facing services had remained some way below pre-Covid
                    levels. 30) The LFS inactivity rate had fallen slightly in the three months to August, accounted for largely
                    by a fall in inactive students and discouraged workers, but was still around 1 percentage point
                    higher than immediately prior to the pandemic. Average hours worked had continued to increase in the
                    three months to August, as those on furlough had increasingly returned to work, and were now only a
                    little below their 2019 Q4 level. 31) According to HMRC administrative data, around 1.4 million jobs, just over 5½% of private sector
                    jobs, had been furloughed on the Coronavirus Job Retention Scheme (CJRS) in August, compared to
                    around 1.7 million jobs furloughed in July. This had been in line with estimates derived from the
                    ONS’s Business Insights and Conditions Survey (BICS), but was more than double the assumption
                    incorporated in the August Report. Fully furloughed jobs had accounted for 55% of the total number
                    of jobs furloughed in August. Smaller firms with less than 10 employees had accounted for around
                    half of furloughed jobs. The latest BICS data suggested that the share of private sector jobs
                    furloughed had fallen to 4½%, or around 1.1 million jobs, in the final ten days of the CJRS at the
                    end of September. 32) There was so far little evidence that the end of the CJRS had led to a significant increase in
                    unemployment, although there remained uncertainty around the outlook. Indicators of redundancies had
                    remained subdued, including the latest BICS data on planned redundancies by small businesses over
                    the next three months. The Bank’s Agents had not picked up reports of widespread layoffs, and some
                    larger companies in sectors where demand was still weak had reported that they were likely to
                    continue to retain staff in anticipation of a recovery. 33) Indicators of employment demand and labour market tightness had remained elevated. The stock of
                    job vacancies recorded by the ONS had reached another record high of 1.1 million in the three months
                    to September, and the strength had been relatively broad-based across sectors and by firm size. The
                    ratio of vacancies to unemployment had also reached its highest level since a consistent series had
                    been available in 2001. Higher frequency indicators of the number of online vacancies had risen
                    further in October. The REC staff availability indices had remained at historically very low levels.
                    Companies across a wide range of sectors had reported an increase in hiring intentions to the Bank’s
                    Agents. At the same time, staff turnover had picked up and recruitment difficulties had become more
                    broad based, with companies reporting acute shortages in a range of occupations. The Agents’ score
                    for companies’ staff recruitment difficulties was at its highest level since the series had begun in
                    1997. 34) Private-sector regular Average Weekly Earnings (AWE) had risen by 6.8% in the three months to
                    August on a year earlier, broadly in line with expectations at the time of the August Report.
                    Adjusted for the mechanical effects of the CJRS and changes in composition, Bank staff estimated
                    that private sector regular pay growth had risen to around 4½%, above pre-pandemic rates of around
                    3½%. The REC permanent staff salaries index, which measured the monthly pay growth of new permanent
                    hires, had increased to another record high in September, with respondents to the survey noting
                    greater competition for workers and that some job candidates had been able to successfully negotiate
                    higher starting pay. 35) Median whole-economy employment-weighted annual basic pay growth in the Bank’s pay settlements
                    database had remained at 3% over recent months, slightly higher than in 2020 and compared with
                    growth of 2% in 2019. That was broadly consistent with pay settlements reported to the Bank’s
                    Agents, which had continued to increase as the labour market had tightened. Within the aggregate
                    reports, there had been a rising number of targeted pay awards in excess of 5%, to compensate
                    workers for pay freezes during the pandemic or to retain staff with skills in particularly high
                    demand. Recent trends in settlements were difficult to determine with precision, given the
                    seasonality of pay negotiations and the relatively low numbers of settlements included in early
                    estimates. 36) The Government had announced at the Autumn Budget and Spending Review 2021 that the National
                    Living Wage for those aged over 23 would rise by 6.6% from April 2022, with large rises in the
                    National Minimum Wage for younger workers as well. The temporary pause in public sector pay
                    progression introduced in November 2020 had also been lifted, with pay awards to be determined after
                    independent pay review bodies made their recommendations ahead of next April. 37) Twelve-month CPI inflation had fallen slightly, from 3.2% in August to 3.1% in September. Core
                    inflation, excluding food, beverages, tobacco and energy, had also declined, from 3.1% to 2.9%. Both
                    of these outturns had been broadly in line with expectations at the time of the August Report.
                    Within the components, core goods inflation had remained at an eleven-year high of 3.3%. Services
                    inflation had fallen to 2.6%, largely reflecting the unwind of the boost to inflation in August from
                    last year’s Eat Out to Help Out scheme. 38) Bank staff expected CPI inflation to rise to just under 4% in October, accounted for
                    predominantly by the impact on utility price inflation of previously announced increases in Ofgem’s
                    standard variable tariff caps on gas and electricity prices. CPI inflation was expected to rise to
                    4½% in November and remain around that level through the winter, accounted for by further increases
                    in core goods and food price inflation. 39) Most survey indicators of costs and prices were at historically elevated levels. Food input costs
                    had risen materially, while core manufacturing producer output price inflation had reached its
                    highest level since 2008 in September. Services producer price inflation had increased to 3.6% in
                    2021 Q3, from 2.0% in Q2, also the highest rate since 2008. Some of that strength had been due to
                    components related to freight and support services, and could partly reflect recent congestion at
                    some ports. The flash composite input and output price PMIs had risen to record highs in October,
                    with contacts attributing those movements to supply shortages, rising fuel, transport and energy
                    bills, and stronger wage pressures. The Bank’s Agents had also reported that increased costs were
                    being passed through to output and retail prices to a greater extent than previously. 40) At the Autumn Budget and Spending Review 2021, the government had announced a number of changes
                    to excise duties, including a major reform of the alcohol duty regime and a freezing of duties for
                    one year from February 2022, and a freezing of fuel duties for one year from April 2022. Taken
                    together, these announcements represented around 0.1 percentage points of downside news to Bank
                    staff’s CPI inflation forecast. 41) Wholesale gas prices had continued to rise sharply since the September MPC meeting, although they
                    had fallen back at the very end of October. The rises in gas and electricity futures prices
                    suggested that Ofgem’s retail price caps would increase materially further from April 2022. Taking
                    account of this, CPI inflation was expected to pick up to close to 5% in 2022 Q2, around 1
                    percentage point higher than had been expected in the August Report. Ofgem had announced recently
                    that it would consult on its price cap methodology ahead of determining the energy price caps in
                    April. 42) Since the MPC’s previous meeting, the Citi/YouGov measure of household inflation expectations for
                    the year ahead had risen from 4.1% in September to 4.4% in October, its highest level since 2008.
                    The five-to-ten year ahead measure had fallen slightly to 3.7%, after rising sharply in September.
                    In common with other business survey indicators of companies’ own pricing intentions, the Decision
                    Maker Panel series on expected price growth over the next twelve months was at elevated levels, and
                    had risen sharply in October. Responses to questions in the CBI Distributive Trades survey on the
                    expected change in the general level of prices in the markets in which firms compete, over the next
                    year and two years, were broadly in line with past averages, however. Professional forecasters
                    expected CPI inflation to be close to target in the medium term. The immediate policy decision 43) The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain
                    growth and employment. 44) The Committee reviewed recent developments against the backdrop of its latest economic
                    projections as set out in the accompanying November
                        Monetary Policy Report . The projections were conditioned on asset and energy prices averaged
                    over the 15 working days to 27 October. This gave a market-implied path for Bank Rate that rose to
                    around 1% by the end of 2022. Wholesale energy prices were assumed to be based on their respective
                    futures curves for the first six months of the projections and remain flat beyond that. There were
                    material risks around this assumption. 45) UK-weighted global GDP was estimated to have risen by 1.2% in 2021 Q3, a little weaker than had
                    been expected in the August Report. This had been accounted for by slower-than-expected growth in
                    the United States and China, partly offset by strength in the euro area. Growth was somewhat
                    restrained by disruption in supply chains. Alongside the rapid pace at which global demand for goods
                    had risen, this had led to supply bottlenecks in certain sectors. Fiscal stimulus, particularly in
                    the United States, had continued to boost materially consumers’ demand for durable goods, although
                    to a lesser extent than earlier in the year. Supply disruptions from localised lockdowns at some
                    major Chinese ports and Covid-related closures of factories in other Asian economies had weighed on
                    activity. 46) Global GDP in 2021 Q4 was also expected to expand at a slower pace than had been anticipated in
                    the August Report. Supply and demand imbalances were expected to ease over 2022 in the November
                    Report projections, reflecting a continued rotation of demand back towards services in advanced
                    economies, and a dissipation of supply disruptions. 47) Supply chain bottlenecks and rising energy prices had continued to increase global cost
                    pressures. Wholesale gas prices had risen further in Europe and Asia, as had the Brent oil price,
                    and shipping costs had remained elevated. In the November Report projections, world export prices
                    excluding fuels were projected to rise by around 6% in 2021 as a whole. Export price inflation was
                    then expected to fall back, as bottlenecks eased relatively gradually, energy prices stopped rising
                    and shipping costs decreased. 48) There had been some sizable movements in UK and global financial markets since the Committee’s
                    previous meeting. Advanced-economy longer-term government bond yields had increased, in large part
                    reflecting an increase in the inflation compensation component of nominal interest rates.
                    Advanced-economy equity prices had risen, while corporate bond spreads had remained at historically
                    low levels. 49) Market-implied expectations for the path of Bank Rate over the year ahead had increased sharply
                    since the MPC’s September meeting, although a deterioration in liquidity conditions meant that it
                    had become more difficult to infer a central path for policy expectations. Most market contacts were
                    expecting the Committee to increase Bank Rate to 0.25% by the end of this year, with expectations
                    for the exact timing finely balanced between the November and December meetings. 50) As of 2 November 2021, the total stock of assets held in the Asset Purchase Facility had reached
                    £871 billion, including £127 billion of the £150 billion programme of UK government bond purchases
                    announced on 5 November 2020. 51) In 2021 Q2, the cumulative shortfall in UK GDP since 2019 Q4 was estimated to have been 3.3%,
                    compared with the 4.3% that had been expected in the August Report projection. GDP was expected to
                    grow by around 1.5% in 2021 Q3 and by 1% in Q4 in the November Report projections, around half of
                    the rates envisaged in the August Report. While these downward revisions had mainly reflected supply
                    chain disruption, a more modest recovery in consumer demand had also been a contributing factor.
                    Retail sales volumes had fallen in September for the fifth month in a row, and consumer confidence
                    had fallen in recent weeks. UK GDP was now projected to get back to its 2019 Q4 level in 2022 Q1. 52) At the Autumn Budget and Spending Review 2021, the Government had announced a higher path for
                    government consumption, particularly over the next couple of years. These increases in spending were
                    in addition to the higher health and social care spending announced in September alongside the new
                    Health and Social Care Levy. Bank staff had estimated that the fiscal policies announced since the
                    August Report would boost GDP by just over ½% at their peak in fiscal year 2023-24. 53) Over the second half of the forecast period, and conditioned on the market-implied path for Bank
                    Rate, UK GDP growth was expected to be relatively subdued. The pace of growth slowed as potential
                    supply growth was expected to ease back towards pre-Covid rates, and as higher energy prices and the
                    fading of monetary and fiscal policy support tempered demand growth. Consumption growth was expected
                    to slow over the forecast period, in part reflecting the drag on real incomes from higher energy
                    prices. Government spending growth was also expected to fall back, as the fiscal policy stance
                    tightened gradually over time in line with announced government policy. Business investment was
                    projected to rise over the first half of the forecast period as sales recovered and uncertainty
                    declined, and was supported by the Government’s capital allowance super-deduction, before falling
                    back. 54) Following its latest stocktake of the supply side of the economy and as set out in detail in the
                    November Report, the Committee expected potential supply to be around 1% lower by the end of the
                    forecast period than in August. That partly reflected an updated assessment of the impact of
                    demographic trends on potential participation and average hours, as well as a weaker expected path
                    for business investment, which weighed on the growth of capital and total factor productivity. 55) The Labour Force Survey (LFS) unemployment rate had fallen to 4.5% in the three months to August,
                    while Her Majesty’s Revenue and Customs payroll data had continued to rise strongly. The total
                    number of payroll employees was now estimated to be above its 2019 Q4 level, more than accounted for
                    by a sustained increase in workers in the health, education and public administration sector over
                    the past year. Nevertheless, LFS employment in the three months to August had been around 1½% below
                    its pre-pandemic level, reflecting lower self employment. With measured GDP also still some way
                    below its pre-Covid level, whole-economy labour productivity had been weak. Focusing on
                    market-sector GDP and employment data, the average level of productivity was expected to be
                    marginally higher by the end of the year compared to 2019 Q4. 56) The LFS inactivity rate had fallen slightly in the three months to August, but was still around 1
                    percentage point higher than immediately prior to the pandemic. 57) Just over a million jobs were likely to have been furloughed immediately before the Coronavirus
                    Job Retention Scheme (CJRS) closed at end-September, significantly more than had been expected in
                    the August Report. Nonetheless, there had continued to be few signs of increases in redundancies and
                    the stock of vacancies had increased further, as had indicators of recruitment difficulties. Taken
                    together, while there was considerable uncertainty, initial indicators suggested that unemployment
                    would rise slightly in 2021 Q4. Official labour market figures for October, the first set of LFS
                    data covering the period following the closure of the CJRS, would be published ahead of the December
                    MPC meeting, with further official data for 2021 Q4 published thereafter. It would be important to
                    monitor developments in self employment and any signs of increased bankruptcies among small and
                    medium-sized enterprises. 58) There was significant uncertainty about the degree of slack in the economy, although it was
                    judged likely that there was a small margin of excess demand currently. Over 2022 and 2023, excess
                    demand was expected to be eroded, as demand growth slowed by more than supply growth. Conditioned on
                    the market-implied path for Bank Rate, a margin of spare capacity was expected to emerge by the end
                    of the forecast period. In part, that was accounted for by some spare capacity in the labour market,
                    as the unemployment rate was expected to rise somewhat as demand growth slowed. 59) Bank staff’s estimate of underlying pay growth had remained above pre-pandemic rates. Pay
                    settlements had continued to increase as the labour market had tightened. Underlying wage growth
                    was, nevertheless, projected to fall back from its current rate in the November Report central
                    projections. 60) Twelve-month CPI inflation had fallen slightly from 3.2% in August to 3.1% in September. Bank
                    staff expected inflation to rise to just under 4% in October, accounted for predominantly by the
                    impact on utility bills of past strength in wholesale gas prices. CPI inflation was then expected to
                    rise to 4½% in November and remain around that level through the winter, accounted for by further
                    increases in core goods and food price inflation. Wholesale gas prices had risen sharply since
                    August, although they had fallen back at the very end of October. CPI inflation was now expected to
                    peak at around 5% in April 2022 in the November Report projections, materially higher than had been
                    expected in the August Report. The path for wholesale energy prices was nevertheless very uncertain,
                    and could change substantially over short periods of time. 61) In the November Report projections, the upward pressure on CPI inflation was expected to
                    dissipate over time, as supply disruption eased, global demand rebalanced, and energy prices stopped
                    rising. As a result, CPI inflation was projected to fall back materially from the second half of
                    next year. Conditioned on the market-implied path for Bank Rate and the MPC’s current forecasting
                    convention for future energy prices, CPI inflation was projected to be a little above the 2% target
                    in two years’ time and just below the target at the end of the forecast period. In projections
                    conditioned on the alternative assumption of constant interest rates at 0.1%, CPI inflation was
                    forecast to be 2.8% in two years’ time. 62) Since the Committee’s previous meeting, the Citi/YouGov five-to-ten year ahead measure of
                    household inflation expectations had fallen slightly in October, after rising sharply in September.
                    Medium-term UK inflation compensation measures in financial markets had remained above their
                    post-2008 average levels. Higher inflation expectations and greater perceived risks to inflation
                    might have played a role in this, alongside other factors. Professional forecasters expected CPI
                    inflation to be close to target in the medium term. 63) Overall, and as set out in Box C in the November Report, the MPC judged that inflation
                    expectations remained well anchored in the United Kingdom at present. The Committee would,
                    nevertheless, continue to monitor very closely the risk that domestic and global demand and cost
                    pressures could affect medium-term inflation expectations, and so wage and price setting. 64) The Committee turned to its immediate policy decision. 65) The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy
                    of price stability in the UK monetary policy framework. The framework also recognised that there
                    would be occasions when inflation would depart from the target as a result of shocks and
                    disturbances. In the recent unprecedented circumstances, the economy had been subject to very large
                    shocks. Given the lag between changes in monetary policy and their effects on inflation, the
                    Committee, in judging the appropriate policy stance, would as always focus on the medium-term
                    prospects for inflation, including medium-term inflation expectations, rather than factors that were
                    likely to be transient. 66) The Committee’s best collective judgement was that the risks to the medium-term inflation
                    projections in the November Report were broadly balanced. But this masked large risks in both
                    directions, including among other things from energy prices and wage growth. Different MPC members
                    placed different weights on these risks and therefore on the overall balance of risks. 67) In an alternative scenario that was conditioned on energy prices following forward curves
                    throughout the forecast period and as set out in the November Report, CPI inflation fell back
                    towards the target more rapidly than in the MPC’s central projection, and was materially lower over
                    the second half of the forecast period. This alternative scenario was consistent with a general
                    tendency for many commodity prices to revert towards their prior levels following similar large
                    movements historically. 68) The risks around the November Report projection for wage growth to ease were judged to be skewed
                    to the upside. Earnings growth could be boosted over the forecast period by the impact of higher
                    current and expected inflation, if employees resisted declines in their real wages. That would be
                    different to the experience of recent decades, including the dynamics of the labour market following
                    the global financial crisis. It was, however, possible that there could be a break from past wage
                    bargaining behaviour, as some aspects of the labour market were currently quite different to that
                    period. There could also be greater than expected upward pressure on wage growth from: a
                    continuation of a lower availability of workers, for example due to a lower path for participation
                    or migration; sustained demand for labour from the health, education and public administration
                    sector; or a persistence of labour market mismatch within industries or across other dimensions. 69) At its recent meetings, the Committee had judged that some modest tightening of monetary policy
                    over the forecast period was likely to be necessary to meet the 2% inflation target sustainably in
                    the medium term. The latest developments, set alongside the Committee’s updated projections,
                    reinforced this view. Nevertheless, near-term uncertainties remained, especially around the outlook
                    for the labour market, and the extent to which domestic cost and price pressures persisted into the
                    medium term. 70) At this meeting, most members of the Committee judged that the existing stance of monetary
                    policy, which included the previously announced £150 billion increase in the target stock of
                    purchased assets, remained appropriate. Importantly, and as had been signalled previously, there was
                    value in waiting for additional information on near-term developments in the labour market,
                    including official data relating to the period following the end of the CJRS, before deciding when a
                    tightening in monetary policy might be warranted. In addition, at least part of the downgrade in
                    near-term UK GDP prospects since the August Report was likely to have reflected a moderation in
                    demand, and downside risks to demand could be accentuated by the impact of higher prices on
                    households’ real incomes. Current elevated global cost pressures were still most likely to prove
                    transitory, leading to a one-off increase in consumer prices rather than persistently higher
                    inflation rates. In assessing the appropriate monetary policy strategy, it was important to consider
                    the costs, as well as the benefits, of taking out insurance against possible upside risks to
                    medium-term inflation from second-round effects on wages and prices. As had been the case for some
                    time, the ability to loosen monetary policy in response to any significant negative demand shock in
                    the future was to some degree constrained by the effective lower bound of Bank Rate, whereas
                    interest rates could be increased by as much as was needed to bring inflation back to target
                    sustainably should any second-round effects materialise. 71) One member of the Committee joined the majority in noting a moderation in domestic and global
                    activity, along with cross-currents in the domestic labour market and wages, energy price dynamics,
                    and business pricing expectations affecting inflation prospects. But this member also observed a
                    continued elevated level of risky asset prices, despite the increase in government bond yields
                    globally. In light of this, while agreeing with the majority on maintaining Bank Rate, this member
                    judged that it would be appropriate to remove some of the monetary stimulus to asset prices by
                    terminating the existing asset purchase programme at this meeting, ahead of any subsequent increase
                    in Bank Rate. 72) For two members of the Committee, the economic outlook warranted a tightening in the monetary
                    policy stance at this meeting. These members preferred an immediate end to the existing asset
                    purchase programme, as well as an immediate increase in Bank Rate to 0.25%. Domestic and global cost
                    pressures had remained strong. In the United Kingdom, the labour market had tightened further, with
                    no sign that the end of the furlough scheme had eased labour market strains. These members judged
                    that, with the existing policy stance, CPI inflation was likely to remain above the 2% target in the
                    medium term. This reflected a greater impact from cost pressures, especially pay growth, and the
                    prospect of a larger and more persistent level of excess demand in the United Kingdom than in the
                    central projection in the November Report. Maintaining the current policy stance when CPI inflation
                    was well above target and the output gap was closed might cause medium-term inflation expectations
                    to drift up further. A decision to tighten policy at this meeting would reduce that risk, which
                    might otherwise ultimately necessitate a more abrupt subsequent tightening in policy and hence a
                    greater adjustment in growth and employment. It would demonstrate the Committee’s commitment to
                    returning inflation to target in the medium term and help to ensure that medium-term inflation
                    expectations remained well anchored. 73) The Committee judged that, provided the incoming data, particularly on the labour market, were
                    broadly in line with the central projections in the November
                        Monetary Policy Report , it would be necessary over coming months to increase Bank Rate in
                    order to return CPI inflation sustainably to the 2% target. In observing the market-implied path for
                    Bank Rate, the Committee noted that, in the November Monetary Policy Report central projections, CPI
                    inflation was projected to be below the 2% target at the end of the forecast period, and would
                    probably fall a little further beyond that point, given the margin of spare capacity that was
                    expected to emerge. 74) Looking beyond the coming months, the Committee would, as always, continue to focus on the
                    medium-term prospects for inflation. The Committee judged that there were two-sided risks around
                    developments in the economy in the medium term, and would reach its assessment on the balance of
                    these risks in light of the relevant data as they emerged. 75) The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 0.1%; The Bank of England should maintain the stock of sterling non-financial investment-grade corporate
                    bond purchases, financed by the issuance of central bank reserves, at £20 billion; The Bank of England should continue with its existing programme of UK government bond purchases,
                    purchases at £875 billion. Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw
                    Pill and Silvana Tenreyro) voted in favour of the first proposition. Two members (Dave Ramsden and
                    Michael Saunders) voted against this proposition, preferring to increase Bank Rate by 15 basis
                    points to 0.25%. The Committee voted unanimously in favour of the second proposition. Six members (Andrew Bailey, Ben
                    Broadbent, Jon Cunliffe, Jonathan Haskel, Huw Pill and Silvana Tenreyro) voted in favour of the
                    third proposition. Three members (Catherine L Mann, Dave Ramsden and Michael Saunders) voted against
                    this proposition, preferring to reduce the target for the stock of UK government bond purchases from
                    £875 billion to £855 billion. Operational considerations 76) The existing programme of £150 billion of UK government bond purchases had started in January and
                    its completion was expected by around the end of 2021. Further details of the planned operational
                    approach to gilt purchases between the August and December MPC meetings had been set out in the
                    Market Notice accompanying the August 2021 minutes. 77) The Committee would keep the asset purchase programme under review. If needed, there was scope
                    for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase
                    programme. 78) At its September meeting, the MPC had agreed to reinvest the cash flows associated with
                    reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by
                    the Asset Purchase Facility back into eligible corporate bonds, commencing in November 2021. The
                    Committee had subsequently been briefed by Bank staff on the approach that would be taken to making
                    these investments in a way that took account of the climate impact of the issuers of bonds. Details
                    of this approach would be published in the coming days, ahead of reinvestment operations commencing
                    in late November. 79) The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw
                    Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial
                    Services Act 2016, Diana Noble was also present on 27 October and Brad Fried was present on 2
                    November, as observers for the purpose of exercising oversight functions in their roles as members
                    of the Bank’s Court of Directors.

Monetary Policy Summary, December 2021 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 15 December 2021, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.15 percentage points, to 0.25%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £875 billion, and so the total target stock of asset purchases at £895 billion. In the MPC’s central projections in the November Monetary Policy Report , global and UK GDP were expected to recover further from the effects of Covid-19 (Covid) in the near term. Conditioned on the rising path for Bank Rate expected by financial markets at that time, upward pressure on CPI inflation was expected to dissipate over time, as supply disruption eased, global demand rebalanced from goods to services, and energy prices stopped rising. Earnings growth was also expected to fall back from its current rate. As a result, inflation was projected to fall back materially from the second half of next year. Since the November MPC meeting, the Omicron Covid variant has emerged. It appears to be spreading rapidly within the United Kingdom and around the world. The new variant appears to be much more transmissible than the Delta variant and, on the basis of current knowledge, poses new risks to public health. Global risky asset prices fell in response to this news but have since largely recovered. Longer-term advanced-economy government bond yields have declined. The level of global GDP in 2021 Q4 is likely to be broadly in line with the November Report projection, but consumer price inflation in advanced economies has risen by more than expected. The Omicron variant poses downside risks to activity in early 2022, although the balance of its effects on demand and supply, and hence on medium-term global inflationary pressures, is unclear. Global cost pressures have remained strong. Bank staff have revised down their expectations for the level of UK GDP in 2021 Q4 by around ½% since the November Report, leaving GDP around 1½% below its pre-Covid level. Growth in many sectors has continued to be restrained by disruption in supply chains and shortages of labour. The impact of the Omicron variant, associated additional measures introduced by the UK Government and Devolved Administrations, and voluntary social distancing will push down on GDP in December and in 2022 Q1. The experience since March 2020 suggests that successive waves of Covid appear to have had less impact on GDP, although there is uncertainty around the extent to which that will prove to be the case on this occasion. The Labour Force Survey unemployment rate fell to 4.2% in the three months to October, while the number of payrolled employees continued to rise strongly in November. There is little sign in the available data that the closure of the Coronavirus Job Retention Scheme at the end of September has led to a weakening in the labour market. The LFS unemployment rate is now expected to fall to around 4% in 2021 Q4, compared with the 4½% projection in the November Report. Bank staff continue to estimate that underlying earnings growth has remained above pre-pandemic rates, and the Committee continues to see upside risks around the projection for pay in the November Report. Twelve-month CPI inflation rose from 3.1% in September to 5.1% in November, triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Relative to the November Report projection, there has been significant upside news in core goods and, to a lesser extent, services price inflation. Bank staff expect inflation to remain around 5% through the majority of the winter period, and to peak at around 6% in April 2022, with that further increase accounted for predominantly by the lagged impact on utility bills of developments in wholesale gas prices. Indicators of cost and price pressures have remained at historically elevated levels recently, and contacts of the Bank’s Agents expect further price increases next year driven in large part by pay and energy costs. CPI inflation is still expected to fall back in the second half of next year. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy has been subject to very large and repeated shocks. Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate policy stance, will as always focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that are likely to be transient. At its November meeting, the Committee judged that, provided the incoming data, particularly on the labour market, were broadly in line with the central projections in the November Monetary Policy Report , it would be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target. Recent economic developments suggest that these conditions have been met. The labour market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures. Although the Omicron variant is likely to weigh on near-term activity, its impact on medium-term inflationary pressures is unclear at this stage. The Committee judges that an increase in Bank Rate of 0.15 percentage points is warranted at this meeting. The MPC will review developments, including emerging evidence on the implications for the economy of the Omicron variant, as part of its forthcoming forecast round ahead of the February 2022 Monetary Policy Report . The Committee will, as always, continue to focus on the medium-term prospects for inflation. The Committee continues to judge that there are two-sided risks around the inflation outlook in the medium term, but that some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the 2% inflation target sustainably. The Committee will reach its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerge. Minutes of the Monetary Policy Committee meeting ending on 15 December 2021 1) Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2) UK-weighted world GDP was expected to grow by 0.8% in 2021 Q4, broadly in line with the projection in the November Monetary Policy Report . Supply disruptions, and an increase in Covid-19 (Covid) cases with associated measures, were expected to weigh on euro-area activity, while the US economy was expected to grow more strongly than had been anticipated. Compared to pre-Covid levels, demand for goods had continued to be strong relative to services in the United States, with US households driving almost the entire increase in durable goods consumption across G7 economies over that period. The emergence and spread of the Omicron Covid variant posed downside risks to the global recovery in activity, with the overall effect on inflation unclear. 3) In the euro area, GDP had risen by 2.2% in 2021 Q3 according to the third release, a little stronger than incorporated into the November Report, and leaving the level of GDP only 0.3% below that in 2019 Q4. Bank staff expected GDP to grow by 0.5% in the fourth quarter, slower than had been anticipated in the November Report. Even prior to the emergence of the Omicron variant, Covid cases had risen sharply across the region, and several countries had tightened measures during November and December. The composite output PMI had increased to 55.4 in November, driven by a pickup in services output, but mobility indicators had fallen back recently. Supply bottlenecks had also weighed on production, although the manufacturing output PMI had remained in expansionary territory. The euro-area unemployment rate had decreased slightly in October, to 7.3%, and euro-area wage growth had remained moderate in 2021 Q3. 4) In the United States, GDP had increased by 0.5% in 2021 Q3 according to the second estimate, weaker than had been expected in the November Report. This had left the level of GDP 1.4% higher than in 2019 Q4. In the fourth quarter, US GDP was expected to expand by 1.4%, higher than anticipated in the November Report. Household spending had grown strongly in October, although the expected rotation of demand towards services had stalled. Strength in goods spending had continued, particularly durables expenditure, which had increased again after declining earlier in the year as fiscal support had faded. In the labour market, non-farm payrolls had grown by only 210,000 in November, but the unemployment rate had fallen to 4.2%. Wage growth had picked up across a number of indicators, but had remained broadly in line with pre-Covid rates after adjusting for compositional and demographic effects. 5) In China, localised Covid outbreaks and associated measures had weighed on activity. GDP was expected to grow by 1.0% in 2021 Q4, a little below the estimate in the November Report. The housing market had continued to weaken. In other emerging markets, activity had generally picked up in 2021 Q3, although there had been differences across countries. 6) Global cost pressures had remained strong and inflation had risen by more in advanced economies than had been expected in the November Report. In November, euro-area annual HICP inflation had increased to 4.9%. US CPI inflation had reached 6.8%, consistent with PCE inflation of around 5½% in November. Strong demand for certain goods, supply disruptions and high energy prices had been behind these increases. 7) The MPC discussed the outlook for global inflation. Price pressures in the United States had broadened across sectors, and prices had not fallen back to the extent anticipated in the sectors that had previously experienced the largest increases. There had been mixed signals from early indicators of cost pressures. Wholesale gas spot prices had risen again in Europe and one-year futures prices had reached new highs. Oil and coal prices had declined from their peak, with the Brent oil spot price now around $73 per barrel. Shipping costs had remained elevated, but Chinese PMI manufacturing input prices had eased in the latest data. Indices of prices and delivery times in the United States and in the euro area had still indicated strong pressures, however, and US and euro-area companies had reported higher levels of material shortages. China’s zero-Covid strategy alongside the emergence of Omicron could also lead to renewed supply disruptions going forward if, for example, ports and factories were to close. Monetary and financial conditions 8) In response to news of the emergence and spread of the Omicron variant, global risky asset prices had fallen somewhat, but had since largely recovered. Global equity prices had declined by around 3 to 5% in the days following the initial news, with larger declines in sectors that had been most affected by previous Covid measures. Global corporate bond spreads had also widened, albeit from low levels. Implied volatilities had risen across asset classes. Overall, these moves had been relatively modest, however, and had unwound subsequently in some cases. 9) Longer-term advanced-economy government bond yields had also fallen in response to news of the Omicron variant. In the United States, some of that fall had unwound subsequently, leaving ten-year US government bond yields around 10 basis points lower overall since the MPC’s November meeting. In contrast, in the United Kingdom and the euro area, ten-year government bond yields had fallen by around 20 to 30 basis points since the Committee’s previous meeting. Those falls had largely been accounted for by a reduction in the real component of nominal interest rates. 10) The path for market-implied policy rates in the United States had risen somewhat since the MPC’s previous meeting. In part, that was likely to have reflected US CPI data and Federal Open Market Committee (FOMC) communications. At its 3 November meeting, the FOMC had left its target range for the federal funds rate unchanged and had begun to reduce the monthly pace of its asset purchases. The minutes of that FOMC meeting had noted that some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases, an option which Chair Powell had noted subsequently he expected would be discussed again at the FOMC’s forthcoming meeting on 15 December. The market-implied policy rate in the United States now reached around 0.7% by end-2022 and 1.3% by end-2023, around 10 basis points higher than immediately prior to the MPC’s November meeting. In contrast, the market-implied path for policy rates in the euro area had moved down a little over the same period. 11) In the United Kingdom, market-implied expectations for the path of Bank Rate had fallen sharply immediately following the MPC’s November meeting. Market contacts were expecting Bank Rate to rise in the coming months. In the days running up to the MPC’s December meeting, most contacts had expected Bank Rate to remain at 0.1% at this meeting. Following the UK CPI release on 15 December, however, market pricing had become more finely balanced between Bank Rate remaining at 0.1% and an increase of 15 basis points at this meeting. Further out, the market-implied path for Bank Rate reached 1.1% by the end of 2022. Volatility in UK short-term interest rate markets had remained elevated since the Committee’s previous meeting, in part reflecting diminished market liquidity, some of which was expected to persist over the year-end period. 12) Medium-term inflation compensation measures in the United Kingdom had remained above their average levels of the past decade. That contrasted with similar measures in the United States and the euro area which had been around their average levels of the past decade. 13) As the Committee had discussed at its previous meeting, interpreting UK medium-term inflation compensation measures was not straightforward. The use of UK inflation markets for hedging large pension liabilities and the uncertain future wedge between consumer price and RPI inflation meant that inflation compensation measures did not provide a direct read of market participants’ fundamental views on the inflation outlook. Nevertheless, models that attempted to extract medium-term market expectations for CPI inflation, and intelligence gathered from market contacts, suggested that higher inflation expectations and greater perceived risks to inflation might have in part accounted for the above-average levels of medium-term inflation compensation measures, alongside other factors. 14) The sterling effective exchange rate index had fallen by around 1% since the MPC’s previous meeting, with a somewhat sharper depreciation of sterling against the dollar of around 3%. 15) Moves in lending rates on UK mortgages had been mixed since the Committee’s previous meeting. Interest rates on mortgages with loan-to-value (LTV) ratios at or below 75% had risen by around 30 basis points from their recent low points. This was consistent with a lagged response to the increases in risk-free rates since the autumn, with around half of those increases now having passed through to lending rates. Higher LTV mortgage rates had continued to fall since the Committee’s previous meeting, albeit at a slower pace. There had been a normalisation in housing activity measures following the end of the stamp duty holiday, while indicators of house price inflation had remained robust. 16) At its December 2021 meeting, the Bank’s Financial Policy Committee (FPC) had announced an increase in the UK countercyclical capital buffer rate from 0% to 1%, coming into effect from 13 December 2022 in line with the usual twelve-month implementation period. It would also expect to increase the rate further to 2% in 2022 Q2, if the UK economic recovery proceeded broadly in line with the MPC’s central projections in the November Monetary Policy Report , and absent a material change in the outlook for UK financial stability. The FPC had also reviewed its mortgage market Recommendations, including considering how its measures had operated since they had been put in place. The FPC’s analysis had suggested that its loan to income (LTI) flow limit played a stronger role than its affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households when house prices rose rapidly. The FPC had therefore decided to maintain the LTI flow limit Recommendation, but to consult, in the first half of 2022, on withdrawing its affordability test. Demand and output 17) According to the ONS’s first quarterly estimate, UK GDP had risen by 1.3% in 2021 Q3, a little weaker than the 1.5% projection that had been incorporated into the November Monetary Policy Report . That had left the level of Q3 GDP 2.1% below its pre-Covid level in 2019 Q4. Within that, the initial estimates of private consumption and investment growth, which were often subject to revision, had been materially lower than expected. Total government expenditure had risen by 1.3%, higher than had been expected in the November Report. The sum of the Q3 expenditure components had been significantly less than headline GDP, indicating uncertainty surrounding the expenditure estimates and the possibility of an upward revision to spending in forthcoming releases. 18) GDP growth in October had been a little weaker than expected, at 0.1%. In both September and October, growth had been driven in part by increases in health spending, reflecting strong non-Covid activity such as doctor appointments. There had also been growth in transport and work-related activities, which had reflected the return of workers to offices and higher mobility in general. By contrast, output in some business-to-business services, such as information and communications, and finance, had weakened. Construction output had fallen in October, although this had followed a sharp rise in September. 19) Supply chain disruptions had remained acute, but did not appear to have weighed on activity by more than had been anticipated in the November Report. This was consistent with there having been little news to the level of output in those sectors that had previously been most affected by disruptions, such as manufacturing and construction. The global semiconductor shortage had continued to weigh on car production in particular, and there had been evidence that low availability had constrained new car purchases. According to the latest IHS Markit/CIPS manufacturing PMI surveys, supplier delivery times had continued to lengthen in November, and backlogs of work had continued to rise. Other indicators had also shown no easing in supply chain disruptions. The proportion of firms reporting non-labour input disruptions and significant recruitment difficulties in the November Decision Maker Panel had increased slightly, and the Bank’s Agents had reported an increase in the number of contacts reporting constraints to growth, primarily due to labour shortages but also demand for goods becoming harder to fulfil due to supply chain disruptions. An increasing number of Agents’ contacts had also reported that they expected supply issues to persist until the second half of 2022, and possibly 2023 or 2024 in some cases. 20) Retail sales volumes had increased in October, leaving the level of sales around 5½% above its pre-Covid level. Some indicators of card spending suggested retail spending had remained robust in November. The Bank’s Agents had reported companies’ concerns about being able to meet demand for Christmas, and that a lack of stock availability was reducing consumer choice. Looking ahead, the emergence and spread of the Omicron variant was likely to encourage goods, relative to services, spending, as the goods-to-income ratio had returned to around its pre-Covid level. 21) The number of Covid cases had picked up in the days leading up to the MPC’s December meeting. With the identification of the Omicron variant, measures had been put in place in England at the end of November and during the first few days of December. On 8 December, the UK Government had announced that additional measures would be introduced for England, including: guidance on working from home wherever possible; extending the legal requirement to wear a face covering to further public venues; daily testing for contacts of Omicron cases; and the introduction of Covid passes for nightclubs as well as events with large crowds. In the devolved nations, a number of measures were already in place, such as wearing face coverings in public places, advice to work from home and Covid passes. On 12 December, the UK Coronavirus alert level had been raised to level four, as transmission of the new variant was judged to be high or rising exponentially, and the UK Government had announced a plan for all those eligible in England to be offered a booster vaccine by the end of this year, while offering additional support to Devolved Administrations to accelerate their vaccination programmes. On 14 December, the UK Government had announced that it would remove the countries on the UK’s travel red list and, in Scotland, people had been advised to limit socialising to three households and physical distancing measures in shops and hospitality venues had been re-introduced. 22) There had been some tentative signs that economic activity had started to be affected by the emergence and spread of Omicron in late November. The number of OpenTable seated diners had fallen in recent weeks, although some of this had probably reflected the impact of storm Arwen at the end of November. UK retail footfall and passenger flight numbers had been flat on the weeks to 4 and 5 December respectively. However, mobility data had suggested a moderate decline in public transport use in early December. 23) Overall, Bank staff had revised down their expectations for 2021 Q4 GDP growth to 0.6%, from 1% at the time of the November Report. News to the level of GDP up to October, and the impact from Omicron and associated measures in December, meant that Bank staff now expected GDP in Q4 to be around 1½% below its 2019 Q4 level. Supply, costs and prices 24) The Labour Force Survey unemployment rate had fallen to 4.2% in the three months to October, 0.2 percentage points below expectations at the time of the November Monetary Policy Report . Within that, the number of people who had been unemployed for up to six months had remained around its recent record low, although the number of people unemployed for over twelve months had remained higher than prior to the pandemic. LFS employment had increased by 0.5% in the three months to October, to 1.3% below its 2019 Q4 level, slightly weaker than expected in the November Report. Her Majesty’s Revenue and Customs (HMRC) employee payrolls had risen strongly by 257,000 in the single month of November, although these initial estimates had tended to be revised down somewhat. Payrolls growth had been revised down in October, for example, from 160,000 to 74,000. Overall, there was little sign in the available official data that the closure of the Coronavirus Job Retention Scheme (CJRS) at the end of September had led to a weakening in the labour market. Average hours worked had continued to increase in the three months to October, as those on furlough had returned to work, and were now only just over 1% below their 2019 Q4 level. The LFS inactivity rate had been unchanged in the three months to October, and was still around ¾ percentage points higher than immediately prior to the pandemic. 25) General government employment, based on returns from public sector organisations, had increased by around 219,000 in 2021 Q3 compared with its 2019 Q4 level. LFS flows data suggested that recent increases in public sector employment could be almost entirely accounted for by moves from private sector employment. 26) The stock of job vacancies recorded by the ONS had reached 1.2 million in the three months to November, and the ratio of vacancies to unemployment had also reached another record high since a consistent series had been available from 2001. Those increases appeared to reflect strong demand for labour, as labour market flows data up to 2021 Q3 had shown a similarly strong pace of new hiring. The implied average duration of vacancies and Bank staff estimates of labour market matching efficiency had been around pre-Covid levels. 27) More timely indicators of labour market activity had generally remained robust. The IHS Markit/CIPS composite employment PMI had fallen slightly in November, but had remained at a historically elevated level. The REC permanent staff placements and staff availability indices had remained close to recent record high and low levels respectively in November. Contacts of the Bank’s Agents in a range of sectors had reported wanting to take on more staff to meet increased demand, and staff turnover had remained higher than normal for many companies. Recruitment difficulties had also been reported to have become more widespread and acute, particularly for the hiring of experienced staff. Early indications following the emergence and spread of Omicron in the United Kingdom suggested that Adzuna vacancies had fallen back somewhat in the hospitality and catering sector. 28) Overall, Bank staff now expected the LFS unemployment rate to fall to around 4% in 2021 Q4, compared with the 4½% projection in the November Report. Abstracting from the risks from the impact of Omicron, it was possible that the unemployment rate could fall further over coming months if hiring continued to keep pace with the current elevated levels of vacancies. Any weakness in demand related to the new variant could offset those forces to some extent. 29) Private-sector regular Average Weekly Earnings (AWE) had risen by 4.7% in the three months to October on a year earlier, weaker than earlier in the year but broadly in line with expectations at the time of the November Report. Adjusted for the mechanical effects of the CJRS and changes in composition, Bank staff estimated that private sector regular pay growth had remained at around 4½%, above pre-pandemic rates of around 3%. 30) Other pay indicators had remained strong, consistent with a continuation of the current pace of underlying earnings growth in the near term. The REC permanent staff salaries index, which measured the monthly pay growth of new permanent hires, had increased to another record high in November. Job-to-job flows had reached a record high in 2021 Q3, with particular strength in the number of voluntary resignations. Median pay growth based on HMRC payrolls data had fallen back somewhat from its peak in mid-2021. Looking ahead, a number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, in part as strength in consumer price inflation could encourage workers to demand higher pay settlements. Overall, should the labour market remain tight, there appeared to be upside risks around the projections in the November Report for earnings growth to fall back significantly over the coming year. 31) Twelve-month CPI inflation had risen from 3.1% in September to 5.1% in November, compared with the 4.5% figure expected in the November Report. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside this monetary policy announcement. Core inflation had also risen to 4.0% in November. Relative to the November Report projection, there had been significant upside news in core goods and, to a lesser extent, services price inflation. 32) CPI inflation was expected to remain around 5% through the majority of the winter period, and peak at around 6% in April 2022. The latter would be around one percentage point higher than had been expected in the November Report. 33) The further rise in inflation next spring would in large part reflect current developments in wholesale gas and electricity futures prices, which would feed into Ofgem’s retail price caps from April. Movements in wholesale prices over much of the period following the November Report had been broadly consistent with Bank staff’s baseline assumptions of how much these caps were likely to increase, but gas and electricity futures prices had picked up sharply in the days leading up to the MPC’s meeting which implied additional upside pressure on utility price inflation if this persisted. The fall in oil prices since the MPC’s previous meeting would have a small, and only partly offsetting, negative effect on energy price inflation over coming months. 34) Core goods price inflation was expected to remain well above its pre-Covid average in the near term, accounting for the majority of the remainder of the projected above-target inflation. Services price inflation was projected to remain at above pre-Covid rates and increase somewhat further. Food price inflation was also expected to rise further, reflecting cost increases over recent months. 35) Other indicators of cost and price pressures had remained at historically elevated levels recently. Both the composite input and output price PMIs had reached new record highs in November. A short-term model constructed by Bank staff of CPI inflation excluding energy, housing, education and financial services, based on such survey indicators of price pressures, suggested some additional upside risks around the updated central projection for inflation over the next six months. The Bank’s Agents had reported that rising costs were increasingly and more frequently being passed through to prices, and that contacts expected further price increases next year driven in large part by pay and energy costs. CPI inflation was still expected to fall back in the second half of next year. 36) Since the MPC’s previous meeting, households’ one-year ahead inflation expectations had risen in the 2021 Q4 Bank/Kantar survey, but had remained unchanged in the December Citi/YouGov survey albeit at a higher level. Medium to longer-term household expectations in these surveys had picked up over recent quarters. The Citi/YouGov five to ten-year ahead measure had remained above its historical average, while the Bank/Kantar five-year ahead measure was still slightly below its historical average albeit that there was a break in this series in early 2020 due to the shift from face-to-face to online surveys. The mean response to questions on three-year and four-year ahead inflation in the HM Treasury survey of professional forecasters had increased significantly recently, but the median response was still consistent with the MPC meeting its 2% inflation target. The immediate policy decision 37) The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 38) In the MPC’s central projections in the November Monetary Policy Report , global and UK GDP had been expected to recover further from the effects of Covid in the near term. UK consumption growth had been expected to slow over the forecast period, in part reflecting the drag on real incomes from higher energy prices. Conditioned on the rising path for Bank Rate expected by financial markets at that time, upward pressure on UK CPI inflation had been expected to dissipate over time, as supply disruption eased, global demand rebalanced from goods to services, and energy prices stopped rising. Earnings growth had also been expected to fall back from its current rate. As a result, inflation had been projected to fall back materially from the second half of next year. Conditioned on the rising market path for Bank Rate at that time, CPI inflation had been projected to be a little above the 2% target in two years’ time and just below the target at the end of the forecast period. 39) Since the November MPC meeting, the Omicron Covid variant had emerged. It appeared to be spreading rapidly within the United Kingdom and around the world. The new variant appeared to be much more transmissible than the Delta variant and, on the basis of current knowledge, posed new risks to public health. 40) The Committee reviewed recent economic developments, most of which pre-dated any possible impact from the emergence and spread of the Omicron variant. 41) The level of global GDP in 2021 Q4 was likely to be broadly in line with the November Report projection, but consumer price inflation in advanced economies had risen by more than expected. The Omicron variant posed downside risks to activity in early 2022, although the balance of its effects on demand and supply, and hence on medium-term global inflationary pressures, was unclear. Global cost pressures had remained strong. Notwithstanding an apparent stabilisation in shipping prices, global supply chains had remained heavily disrupted. Companies had reported higher levels of material shortages in the United States and in the euro area. 42) Global risky asset prices had fallen in response to the emergence of the Omicron variant, but had since largely recovered. Longer-term advanced-economy government bond yields had declined. 43) Market contacts were expecting Bank Rate to rise in the coming months. In the days running up to the MPC’s December meeting, most contacts had expected Bank Rate to remain at 0.1% at this meeting. Following the UK CPI release on 15 December, however, market pricing had become more finely balanced between Bank Rate remaining at 0.1% and an increase of 15 basis points at this meeting. 44) As of 15 December 2021, the total stock of assets held in the Asset Purchase Facility had reached £893 billion, including £149 billion of the £150 billion programme of UK government bond purchases announced on 5 November 2020. Including the final gilt purchase auction that was being conducted on 15 December, the programme was due to be completed by the time of the Committee’s December policy announcement. The Committee had also been briefed by Bank staff on progress towards investing the cash flows associated with reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by the Asset Purchase Facility back into eligible corporate bonds, which had commenced in November 2021. 45) The number of Covid cases in the United Kingdom had picked up in the days leading up to the MPC’s December meeting and, upon the identification of the Omicron variant, measures had been put in place in England and had been extended in the devolved nations. On 12 December, the Coronavirus alert level had been raised to level four, and the UK Government had announced a plan for all those eligible in England to be offered a booster vaccine by the end of this year, while offering additional support to Devolved Administrations to accelerate their vaccination programmes. 46) Bank staff had revised down their expectations for the level of UK GDP in 2021 Q4 by around ½% since the November Report, leaving GDP around 1½% below its pre-Covid level. Growth in many sectors had continued to be restrained by disruption in supply chains and shortages of labour. The impact of the Omicron variant, associated additional measures introduced by the UK Government and Devolved Administrations, and voluntary social distancing would push down on GDP in December and in 2022 Q1. The experience since March 2020 suggested that successive waves of Covid appeared to have had less impact on GDP, although there was uncertainty around the extent to which that would prove to be the case on this occasion. There had already been some tentative signs that UK economic activity had started to be affected by the emergence and spread of Omicron. As in previous Covid waves, headline GDP was still likely to be affected significantly by the ways in which public-sector output was measured in the UK national accounts. 47) The Labour Force Survey unemployment rate had fallen to 4.2% in the three months to October, while the number of payrolled employees had continued to rise strongly in November. There was little sign in the available data that the closure of the Coronavirus Job Retention Scheme at the end of September had led to a weakening in the labour market. The LFS unemployment rate was now expected to fall to around 4% in 2021 Q4, compared with the 4½% projection in the November Report. Abstracting from the risks from the impact of the Omicron variant, it was possible that the unemployment rate could fall further over coming months if hiring continued to keep pace with the current elevated levels of vacancies. Any weakness in demand related to the new variant could offset those forces to some extent. 48) Bank staff continued to estimate that underlying earnings growth had remained above pre-pandemic rates, and the Committee continued to see upside risks around the projection for pay in the November Report. The REC permanent staff salaries index and job-to-job flows had both increased to record highs, and contacts of the Bank’s Agents expected strength in consumer price inflation to encourage workers to demand higher pay settlements. 49) Twelve-month CPI inflation had risen from 3.1% in September to 5.1% in November, 0.6 percentage points higher than had been expected at the time of the November Report, and triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside this monetary policy announcement. Core inflation had also risen to 4.0% in November. Relative to the November Report projection, there had been significant upside news in core goods and, to a lesser extent, services price inflation. 50) Bank staff expected inflation to remain around 5% through the majority of the winter period, and to peak at around 6% in April 2022, with that further increase accounted for predominantly by the lagged impact on utility bills of developments in wholesale gas prices. Indicators of cost and price pressures had remained at historically elevated levels recently, and contacts of the Bank’s Agents expected further price increases next year driven in large part by pay and energy costs. CPI inflation was still expected to fall back in the second half of next year. 51) Since the Committee’s previous meeting, medium-term measures of UK financial market inflation compensation had remained above their average levels over the past decade. In part, that was likely to reflect market participants’ somewhat higher central expectations for inflation. Measures of medium to longer-term household inflation expectations had picked up over recent quarters, with the Citi/YouGov five to ten-year ahead measure remaining above its historical average, while the Bank/Kantar five-year ahead measure was still slightly below its historical average though there had been a break in this series in early 2020. The median responses in surveys of professional forecasters had remained consistent with CPI inflation being close to target in the medium term. Overall, and as set out in Box C in the November Report, the MPC judged that inflation expectations remained well anchored in the United Kingdom at present. The Committee would, nevertheless, continue to monitor very closely the risk that domestic and global demand and cost pressures could affect medium-term inflation expectations, and so wage and price setting. 52) In the run-up to its policy decision, the Committee had been briefed by the Chief Medical Officer for England on recent Covid developments, including the risks to public health from the Omicron variant. 53) The Committee discussed the possible implications of recent Covid developments for the economic outlook. The MPC had noted previously the risks to the economy from a drop in vaccine effectiveness arising from viral mutations, although it was unclear currently to what extent the Omicron variant would lead to a decline in vaccine protection against severe disease. Given the clear signs of increased transmissibility for the new variant, there was the potential for a very high number of infections over a very short period. 54) It was important to note that the current position of the global and UK economies was materially different compared with prior to the onset of the pandemic, including the elevated levels of consumer price inflation. Global inflationary pressures had been influenced significantly by the shift in spending from services to durable goods that the pandemic had induced. In the MPC’s November Report forecast, it had been assumed that a rebalancing of demand would lead to a gradual reduction in the inflation rate, and in some cases the level, of the prices of traded goods. The possibility of renewed social distancing meant that this rebalancing was now more likely to be delayed and so global price pressures might persist for longer, although there were limits to how much further households’ stocks of durables were likely to rise and the responses of fiscal policy globally to the new variant was uncertain. A potential worsening of global supply chain disruption could also push up on inflationary pressures. For example, China’s current zero-Covid strategy could lead to renewed disruptions at Chinese factories and ports, and could affect shipping costs. Against that, aggregate demand could slow, reducing inflationary pressures, particularly for some consumer-facing services, and any change in expectations of future demand might lead to some loosening of labour market conditions. Demand conditions could nevertheless remain strong if households deployed savings that had been built up during the course of the pandemic to a greater extent than had been assumed in the November Report. Overall, the balance of these effects on inflation was unclear. 55) So far, successive waves of Covid had tended to have less impact on GDP and consumer spending than previous waves, but there was uncertainty around the extent to which that would prove to be the case on this occasion. Progressively more limited reductions in mobility and social interactions might have reflected the successful roll-out of vaccines and the protection that these offered against the Delta variant. The emergence of a new, partially vaccine-resistant Covid variant might therefore have a significant negative impact on consumer confidence and on economic behaviour. There could, however, also be limits to the extent to which households would adjust their behaviour further. For example, a large number of employees had continued to work from home prior to the recent change in government guidance, growth in consumer spending on restaurants had continued to be supported by sales of take-away and delivery food in addition to seated dining, and online retail sales had remained strong. More generally, spending less on one category of consumption did not necessarily mean a like-for-like reduction in total spending. Such aggregate consumption decisions should be more closely related to household expectations of future income, including expectations beyond the point at which the pandemic was likely to be at its immediate peak. 56) The outlook for UK activity, and the balance of the effects of the Omicron variant on demand and supply, would also depend on the responses of other policymakers in the United Kingdom and abroad. 57) The Committee turned to its immediate policy decision. 58) The MPC’s remit was clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there will be occasions when inflation would depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy had been subject to very large and repeated shocks. Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate policy stance, would as always focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that were likely to be transient. 59) At its November meeting, the Committee had judged that, provided the incoming data, particularly on the labour market, were broadly in line with the central projections in the November Monetary Policy Report , it would be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target. Recent economic developments suggested that these conditions had been met. The labour market was tight and had continued to tighten, and there were some signs of greater persistence in domestic cost and price pressures. Although the Omicron variant was likely to weigh on near-term activity, its impact on medium-term inflationary pressures was unclear at this stage. 60) At this meeting, most members of the Committee judged that an immediate, small increase in Bank Rate was warranted. Although the conditions for tightening set out in November had been met, the decision at this meeting was finely balanced because of the uncertainty around Covid developments. There was some value in waiting for further information on the degree to which Omicron was likely to escape the protection of current vaccines and on the initial economic effects of this new wave. There was, however, also a strong case for tightening monetary policy now, given the strength of current underlying inflationary pressures and in order to maintain price stability in the medium term. The economic impact of the new variant could, in some scenarios, increase these inflationary pressures further. Moreover, maintaining the current monetary policy stance when CPI inflation was materially above the 2% target and the output gap appeared to be closed might cause medium-term inflation expectations to drift up further. 61) One member of the Committee judged that, were it not for the emergence of the Omicron variant, an increase in Bank Rate could have been appropriate at this meeting. However, the significant uncertainty introduced by Omicron warranted waiting until February for more clarity before considering any change in Bank Rate. UK output remained below its 2019 Q4 level and further below the trend for potential. The new variant and renewed voluntary social distancing would unambiguously slow economic activity, but would have two-sided effects on inflation. The overall effect of Omicron on the short-term trade-off between inflation and output, and on the medium-term prospects for inflation, would depend critically on the transmissibility, vaccine resistance and severity of the variant, but also on the overall policy response, both domestically and abroad. Some scenarios would call for tighter monetary policy, while others would require a somewhat longer period of accommodation. In line with risk management concerns owing to the asymmetry of available monetary policy tools, this member preferred to wait for further evidence that the recovery remained entrenched, and was not threatened materially by the new variant, before tightening monetary policy. 62) The MPC would review developments, including emerging evidence on the implications for the economy of the Omicron variant, as part of its forthcoming forecast round ahead of the February 2022 Monetary Policy Report . The Committee would, as always, continue to focus on the medium-term prospects for inflation. The Committee continued to judge that there were two-sided risks around the inflation outlook in the medium term, but that some modest tightening of monetary policy over the forecast period was likely to be necessary to meet the 2% inflation target sustainably. The Committee would reach its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerged. 63) The Chair invited the Committee to vote on the propositions that: Bank Rate should be increased by 0.15 percentage points, to 0.25%; The Bank of England should maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion; The Bank of England should maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £875 billion. Eight members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden and Michael Saunders) voted in favour of the first proposition. Silvana Tenreyro voted against this proposition, preferring to maintain Bank Rate at 0.1%. The Committee voted unanimously in favour of the second and third propositions. 64) The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Bradley Fried and Diana Harding were also present on 10 December, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target. Operational decisions are taken by the Bank’s Monetary Policy Committee. The minutes of the Committee meeting ending on 2 February will be published on 3 February 2022.

Monetary Policy Summary, February 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 2 February 2022, the MPC voted by a majority of 5-4 to increase Bank Rate by 0.25 percentage points, to 0.5%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 0.75%. The Committee voted unanimously for the Bank of England to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets. The Committee also voted unanimously for the Bank of England to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. The Committee’s updated central projections for activity and inflation are set out in the accompanying February Monetary Policy Report. The projections are conditioned on a market-implied path for Bank Rate that rises to around 1½% by the middle of 2023. Wholesale energy prices are assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which are downward sloping over coming years. There are material risks around this assumption. Global and UK activity returned to their pre-Covid-19 (Covid) levels towards the end of last year. The emergence of the Omicron variant is expected to have depressed activity somewhat in December and January. But its economic impact is likely to be limited and of short duration, and UK GDP is expected to recover in February and March such that output returns to its pre-pandemic level once again by the end of the first quarter. The Labour Force Survey unemployment rate fell to 4.1% in the three months to November, and is expected to fall further in the near term, to 3.8% in 2022 Q1. Beyond the near term, UK GDP growth is expected to slow to subdued rates. The main reason for that is the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending. As a result, the unemployment rate is expected to rise to 5% and excess supply builds to around 1% by the end of the forecast period. Underlying earnings growth is estimated to have remained above pre-pandemic rates, and is expected to strengthen over the coming year, to around 4¾%. This is consistent with the results of the Bank’s Agents’ annual pay survey, with the tight labour market, and with some temporary upward pressure on wage settlements from higher price inflation. Twelve-month CPI inflation rose from 5.1% in November to 5.4% in December, almost 1 percentage point higher than expected at the time of the November Report. Inflation is expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7¼% in April. This projected peak is around 2 percentage points higher than expected in the November Report. The projected overshoot of inflation relative to the 2% target mainly reflects global energy and tradable goods prices. The further rise in energy futures prices meant that Ofgem’s utility price caps were expected to be substantially higher at the reset in April 2022. Core goods CPI inflation is also expected to rise further, due to the impact of global bottlenecks on tradable goods prices. In the February Report central projection, upward pressures on CPI inflation are expected to dissipate over time, as global energy prices are assumed to remain constant after six months, and as global bottlenecks ease and tradable goods prices fall back a little. Underlying wage growth is also projected to ease from 2023, as the labour market loosens gradually and inflation declines. Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation is projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. In an alternative scenario that is conditioned on energy prices following forward curves throughout the forecast period and as set out in the February Report, excess supply is around ½ percentage point lower in the medium term than in the MPC’s central projection, and CPI inflation is around ¾ percentage point below the 2% target in two and three years’ time. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy has been subject to very large and repeated shocks. In particular, should recent movements prove persistent, the sharp rises in prices of global energy and tradable goods of which the United Kingdom is a net importer will necessarily weigh on UK real aggregate income and spending. This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as such a real economic adjustment occurs, it does so consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output. Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, the Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting. Consistent with the MPC’s guidance set out in the August 2021 Report, the Committee agrees at this meeting that the Bank of England should cease to reinvest any future maturities falling due from its stock of UK government bond purchases. This reflects the MPC’s intention to reduce its holdings of government bonds in a gradual and predictable manner. In addition, the Committee agrees that the Bank of England should cease to reinvest any maturities falling due from its stock of sterling non-financial investment-grade corporate bond purchases, and that it should initiate a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. The decision to initiate the programme of corporate bond sales reflects the specific characteristics of the corporate bond market and the MPC’s involvement in it, and should not be taken as a signal regarding the commencement, scale or duration of any potential future UK government bond sales programme. The Committee reaffirms that it will consider beginning the process of actively selling UK government bonds only once Bank Rate has risen to at least 1%, and depending on economic circumstances at the time. The Committee also reaffirms its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The extent of any further tightening in monetary policy will depend on the medium-term prospects for inflation. The MPC judges that, if the economy develops broadly in line with the February Report central projections, some further modest tightening in monetary policy is likely to be appropriate in the coming months. The Committee continues to judge that there are two-sided risks around the medium-term inflation outlook, primarily from wage developments on the upside and from energy and global tradable goods prices on the downside. The Committee will update its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerge. Minutes of the Monetary Policy Committee meeting ending on 2 February 2022 1. Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2. UK-weighted global GDP was estimated to have grown by 0.8% in 2021 Q4, as had been expected in the November Monetary Policy Report. In 2022 Q1, global GDP was expected to grow more slowly than had been anticipated in the November Report, as the Omicron Covid variant had led to renewed restrictions and voluntary social distancing in many countries. However, the uncertainty relating to the economic impact of Omicron had declined, and its economic consequences were likely to be more limited and of shorter duration than had been anticipated at the time of the MPC's December meeting. Global cost pressures, arising from the strength in goods demand and supply chain disruptions as well as high energy prices, had remained elevated and had also weighed on activity over past months. Strong demand for goods, in particular in the United States, had appeared to have been a more important determinant of global bottlenecks than supply chain disruptions over recent months. 3. According to the preliminary flash estimate, euro-area GDP had increased by 0.3% in 2021 Q4, such that output had returned to its 2019 Q4 level. This was weaker than had been expected in the November Report, due to tighter restrictions to address rising Covid case numbers in November and December in several countries, driven initially by the Delta variant and subsequently by Omicron. The unemployment rate had fallen to 7.0% in December, a historical low. Omicron case numbers had increased going into 2022 and, as a result, euro-area output was expected to contract slightly in the first quarter. Notwithstanding restrictions starting to ease in some countries, recent indicators had pointed to weakness in Covid-sensitive sectors with the flash services activity PMI falling back in January. The manufacturing output PMI had picked up, possibly suggesting some stabilisation in supply constraints, particularly in Germany. 4. According to the advance estimate, US GDP had grown by 1.7% in 2021 Q4, implying that output had been around 3% above its 2019 Q4 level. This had reflected a stronger recovery than had been anticipated in the November Report, as the economic impact of the Delta variant had waned. Growth in the fourth quarter had been accounted for primarily by stockbuilding. Consumption had also supported growth, and there had been evidence for a continuing rotation of household spending from goods to services. The labour market had appeared tight at the end of 2021. The unemployment rate had fallen to 3.9% in December, the lowest level since February 2020, as participation rates had remained below pre-Covid levels and the number of job vacancies had continued to be high relative to historical levels. More recent high-frequency card spending data suggested that there had been a relatively temporary disruption to spending related to Omicron around the turn of the year, with limited restrictions in place. In 2022 Q1, GDP was expected to grow by 0.5%. 5. In China, GDP had increased by 1.6% in 2021 Q4, stronger than had been expected in the November Report. Year-on-year industrial production growth had increased in December, reflecting an easing of power shortages and of some input constraints, as well as strong external demand. However, consumption indicators had continued to be somewhat weaker than measures of production, with year-on-year retail sales growth slowing, as localised Covid outbreaks and associated restrictions weighed on domestic demand. The recent outbreaks appeared to have had a relatively limited impact on the supply capacity of the economy but, looking ahead, there was uncertainty as to whether the more transmissible Omicron variant might cause greater supply disruptions, to the extent that China maintained its current Covid strategy. The housing market had continued to slow. 6. Consumer price inflation had remained elevated in the euro area and the United States. Euro-area annual HICP inflation had increased to 5.1% in January, significantly above market expectations immediately ahead of the release, while core inflation had fallen to 2.3%. In the United States, annual PCE inflation had risen to 5.8% in December, with core inflation increasing to 4.9%. High energy prices had driven most of the pickup in consumer price inflation over the fourth quarter in the euro area, while price pressures were more broadly based in the United States, with strong contributions from energy, cars, accommodation and other core goods. This suggested that, in addition to high energy prices, pressures from global bottlenecks due to strong demand for goods and inelastic supply had been passing through to consumer prices. There had also been some divergence in wage growth between the United States and the euro area. According to the Federal Reserve Bank of Atlanta’s measure, US wage growth had continued to increase in the fourth quarter, to somewhat above its pre-Covid rate, while wage growth in the euro area had remained muted in the third quarter. 7. The MPC discussed the central case for, as well as risks to, the global inflation outlook. In the near term, there would likely be further pass-through to consumer price inflation from past cost increases. Since the MPC’s December meeting, signals from cost indicators had been mixed. Energy prices had been volatile. Wholesale gas spot prices had initially fallen back in Europe from their peak in mid-December, but had recently risen again amid increasing geopolitical tensions. The Brent oil spot price had risen by $19 per barrel since the MPC’s previous meeting, to $91. Measures of shipping costs had been mixed, with some easing and others increasing once more. Indices of global input prices and delivery times had plateaued, suggesting some stabilisation in global bottlenecks at high levels. Overall, global bottlenecks were expected to ease over the next twelve months as spending in the United States rotated back to services, a little later than had been anticipated in the November Report. There was, however, a risk that the demand rotation could be delayed further, for example if consumer preferences had shifted more permanently. Supply chains could also be further disrupted in the event of widespread factory and port closures in China in response to Covid developments. Should these risks materialise, consumer prices could rise further than anticipated. Alternatively, it was possible that global cost pressures abated more quickly and to a greater extent in the medium term than expected, in which case consumer price inflation might moderate at a faster pace as well. Monetary and financial conditions 8. Since the MPC’s previous meeting, advanced-economy government bond yields had risen significantly. Ten-year yields had increased by around 35 to 60 basis points in the United States, euro area and United Kingdom, reaching their highest levels since the onset of the pandemic. These increases had been accounted for primarily by real rates. The increases in nominal yields had reflected higher estimated term premia across countries, with a high degree of comovement between yields across different economies. 9. The path for market-implied policy rates in the United States had risen significantly since the MPC’s previous meeting. At its 26 January meeting, the FOMC had left its target range for the federal funds rate unchanged and had continued to reduce the monthly pace of its asset purchases, as well as publishing additional information regarding its principles for significantly reducing the size of the Federal Reserve's balance sheet. The market-implied policy rate in the United States reached around 1¼% by end-2022, around 50 basis points higher than immediately prior to the MPC’s December meeting. In the euro area, the near-term market-implied path for policy rates had moved down a little over the same period. At its meeting on 16 December, the ECB Governing Council had left its key policy interest rates unchanged, and had announced a gradual reduction in the pace of net asset purchases. 10. In the United Kingdom, market-implied expectations for the path of Bank Rate over the year ahead had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points, to 0.5%, at this MPC meeting. The February Monetary Policy Report was conditioned on a market-implied path for Bank Rate, based on the 15-working day average to 26 January, that rose to around 1½% by mid-2023. In the immediate run-up to the MPC’s February meeting, the market-implied path for Bank Rate had reached around 1.7% by mid-2023. The results of the Bank of England’s new Market Participants Survey, which would be published for the first time on the Friday following the release of these minutes, had painted a broadly similar picture of Bank Rate expectations: respondents had widely expected a 0.25 percentage point increase in Bank Rate at this meeting; a large majority expected Bank Rate to reach 1% within the next year; and respondents assessed that the balance of risks around this near-term path was skewed to the upside. Respondents expected reinvestments of the Bank’s holdings of UK government bonds to cease after the anticipated Bank Rate increase at this meeting. 11. Medium-term inflation compensation measures in the United Kingdom had increased slightly since the MPC’s previous meeting and had remained above their average levels of the past decade, in contrast to similar measures in the United States and the euro area, which had been around their average levels of the past decade. As the Committee had discussed previously, interpreting UK medium-term inflation compensation measures was not straightforward. Nevertheless, models that attempted to extract medium-term market expectations for CPI inflation, and intelligence gathered from market contacts, suggested that higher inflation expectations and greater perceived risks to inflation might have in part accounted for these above-average levels of medium-term inflation compensation measures, alongside other factors. This was consistent with results from the Market Participants Survey, which had suggested that respondents attributed these levels in part to elevated inflation expectations, but also to technical factors, such as those arising from the fact that inflation markets were used for hedging large pension liabilities, and an upside balance of risks around the inflation outlook. 12. The sterling effective exchange rate had risen by around 2% since the previous MPC meeting. The US dollar had, in contrast, fallen by around ½%, despite a relatively large increase in US government bond yields. 13. Equity prices had fallen after the MPC’s previous meeting, before recovering. The initial fall had reflected the increase in government bond yields, as well as the impact of geopolitical developments. Overall, equity prices had ended the period lower in the United States, while in the United Kingdom they had increased somewhat, cushioned by an estimated fall in equity risk premia. This in part had reflected the composition of the FTSE All Share index, including its skew towards sectors that had been supported by the recent rise in energy prices. Across countries, there had been stronger performance in those sectors more exposed to Covid, relative to those more exposed to higher interest rates. There had been less adjustment in the corporate bond market, as spreads had remained at historically low levels, having reversed the modest increases seen in response to the initial emergence of Omicron. 14. Lending rates on mortgages with loan-to-value (LTV) ratios at or below 75% had increased further since the MPC’s previous meeting. This was broadly consistent with a lagged response to the increases in risk-free rates in the fourth quarter of 2021, with around half of those increases having passed through to lending rates. The subsequent further increases in risk-free rates seen since the December MPC meeting would be expected to feed through to mortgage lending rates in due course. Other components of household borrowing, such as credit cards and personal loans had been less sensitive, as would be expected. Demand and output 15. UK quarterly GDP growth in 2021 Q3 had been revised down slightly in the Quarterly National Accounts, from 1.3% to 1.1%. The level of GDP had, however, been revised up by around ½%, with that news more than accounted for by a higher path of household consumption throughout the pandemic. In the third quarter, consumption had risen by 2.7%, while the saving ratio had fallen back to 8.3%. Business investment had fallen by 2.5% in Q3, with particular weakness in the air transport sector, and had remained well below its pre-Covid level in 2019 Q4. 16. GDP was estimated to have risen by 0.9% in November, stronger than had been expected by Bank staff. Combined with the upward revisions to GDP, this meant that, prior to the onset of the Omicron variant, aggregate activity had regained its pre-pandemic level for the first time. GDP had been almost 1% higher than expected at the time of the November Monetary Policy Report. Within the November output data, activity had been stronger than expected across most sectors of the economy, including consumer-facing, transport and professional services. There had also been tentative signs in the manufacturing and construction sectors that supply disruptions were starting to ease, although monthly data could be volatile. 17. Bank staff expected GDP to have fallen by around ½% in December, largely due to the impact of the Omicron variant towards the end of the month, but to have risen by just over 1% during 2021 Q4 as a whole. Retail sales volumes had fallen quite sharply in December, according to official data, in part reflecting the unwind of previous strength, as consumers appeared to have brought forward some purchases ahead of the holiday season, and as Omicron had weighed on activity. Contacts of the Bank’s Agents had reported that shortages of some goods due to continuing supply-chain issues had not constrained aggregate spending by as much as had been anticipated. Nevertheless, staff shortages, exacerbated by absences due to sickness or self-isolation, were reported to have curtailed activity across a number of sectors. 18. Having reached a very high level around the turn of the year, the number of Covid cases had fallen back, and had then appeared to have stabilised. On 21 December, the Chancellor of the Exchequer had announced that additional support would be available for businesses who were impacted by the Omicron variant, including one-off grants of up to £6,000 per premise for businesses in the hospitality and leisure sectors in England, and that the Government would cover the cost of Statutory Sick Pay for Covid-related absences for small and medium-sized employers across the United Kingdom. In the run-up to this MPC meeting, the UK Government and Devolved Administrations had announced a number of relaxations to Covid measures, some of which had been put in place in response to the Omicron variant. These had included the lifting of Plan B measures in England during the second half of January, and the removal of post-arrival testing requirements for fully vaccinated travellers into the United Kingdom from 11 February. 19. Recent high-frequency indicators suggested that activity had rebounded somewhat since early January, including in consumer-facing services and work-related travel. This was consistent with intelligence from the Bank’s Agents that the peak economic impacts of the Omicron variant had passed quickly. GfK consumer confidence had nevertheless fallen in January, probably due to initial concerns around the impact of Omicron. Despite the incipient squeeze on real household disposable incomes, households’ views of their own financial situation had, so far, held up relatively well. Contacts of the Bank’s Agents had noted, however, that they expected pressure on household incomes to dampen consumer spending in the coming months. Overall, Bank staff expected GDP to recover further in February and March, such that the economy was projected to return to its pre-pandemic level of activity once again by the end of the first quarter, and that GDP on average would be unchanged between 2022 Q1 and 2021 Q4. Market sector GDP was expected to surpass its November 2021 level by March. 20. Although the number of companies reporting skilled labour shortages as a constraint on output in the January CBI Industrial Trends survey had remained very elevated, the number of companies reporting materials shortages as a factor limiting production had fallen back somewhat from its highest level since the mid-1970s, and the January manufacturing PMIs had suggested that supply constraints were not worsening as much as in previous months. Contacts of the Bank’s Agents expected only a slow improvement in supply chain disruption through 2022, and some continued to judge that problems could persist into 2023. There had also been increasing reports of slower investment growth due to shortages of goods, machinery and labour. There had, nevertheless, been widespread strength in investment intentions reported to the Agents, with contacts highlighting the reinstatement of projects that had been paused during the pandemic, and the need to increase capacity to meet demand. After weakening in December, the January Decision Maker Panel had reported a smaller drag from Covid on business investment over the first half of this year. Supply, costs and prices 21. The Labour Force Survey (LFS) unemployment rate had fallen to 4.1% in the three months to November, 0.4 percentage points lower than had been expected at the time of the November Monetary Policy Report. The LFS employment rate had been broadly as expected, however, as inactivity had unexpectedly risen slightly. The number of inactive people who reported wanting a job had continued to fall. Her Majesty’s Revenue and Customs (HMRC) employee payrolls had risen by a further 184,000 in the single month of December, although these initial estimates had tended to be revised down somewhat. Bank staff judged that both the LFS employee and HMRC payroll series were around their 2019 Q4 levels after accounting for an unusually high number of individuals having switched from self-employment and onto payrolls, associated in part with tax reforms. Self-employment had remained weak even accounting for these estimates of switching, such that LFS employment was 1.4% below its 2019 Q4 level in the three months to November. Indicators of labour market tightness had nevertheless remained elevated. The ratio of vacancies to unemployment had increased to another record high since a consistent series had begun in 2001. 22. Bank staff expected the LFS unemployment rate to fall further to 3.8% in 2022 Q1, despite the spread of Omicron weighing on activity at the beginning of the quarter. The flash composite employment PMI for January had been broadly unchanged on the month, remaining well above its past historical average. The Bank’s Agents had reported a modest easing in employment growth, in part due to recruitment difficulties having remained intense. High-frequency indicators of online vacancies had dipped during December and had begun to recover in January, but that profile had been comparable to the seasonal pattern prior to the pandemic. Instead of weaker labour demand, the main counterpart in the labour market to Covid-related weakness in activity had appeared to be an increase in staff absences due to sickness, self-isolation or caring responsibilities. The ONS Business Insights and Conditions Survey suggested that around 3% of the workforce had been absent for Covid-related reasons around the turn of the year. The Agents’ contacts had begun to see a reduction in absences, however, and generally viewed Omicron as a temporary issue. 23. Growth in private-sector regular Average Weekly Earnings (AWE) had slowed to 4.1% in the three months to November on a year earlier, broadly in line with Bank staff expectations ahead of the release. Pay growth had been boosted by the mechanical effects of the Coronavirus Job Retention Scheme and changes in the composition of the workforce, but those effects had waned in recent months. Adjusting for these effects, Bank staff estimated that underlying private-sector regular pay growth had remained at around 4 to 4½%, above pre-pandemic rates of around 3 to 3½%. The median of pay growth based on HMRC payrolls data was around 3%, comparable to pre-pandemic rates, implying that recent pay awards had been more skewed towards the upside than in the recent past. That was broadly consistent with the Bank’s Agents’ contacts reporting that pay increases had been significantly higher for workers with skills in short supply. 24. In the February Report projection, underlying private-sector pay growth was expected to pick up further in coming quarters. A special survey of firms conducted by the Bank’s Agents suggested that the average pay settlement was expected to rise to close to 5% in 2022, with the pickup broadly based across different sectors of the economy and firms of different sizes. Contacts had cited the ability to retain staff and recruit new workers, and increases in consumer price inflation, as factors that had pushed up their expectations for pay. The REC permanent staff salaries index, which measured the monthly pay growth of new permanent hires, had also remained close to record highs in December. Headline AWE growth was expected to be somewhat lower than the underlying rate, as the past boost to pay from compositional effects was assumed to continue to fade, although there was uncertainty around the precise scale and speed of any such unwind. 25. Twelve-month CPI inflation had risen to 5.4% in December, almost 1 percentage point above the November Report forecast. The upside news had been spread across a number of components, particularly within core goods. Strength in core goods prices, alongside higher energy prices, had also accounted for much of the absolute overshoot in inflation relative to the 2% target. Services price inflation had moved further above its pre-Covid rate. Price increases had been particularly acute for second-hand cars and hospitality, replicating trends in the United States. 26. CPI inflation was projected to increase further in coming months, to close to 6% in February and March and peaking at around 7¼% in April when higher utility price caps were due to be implemented. This projected peak was around 2 percentage points higher than had been expected in the November Report. In addition to the upside news in the CPI data to December, wholesale gas and electricity futures prices had increased further, putting upward pressure on utility prices. The costs of the Supplier of Last Resort mechanism, covering the losses that energy companies had incurred from taking on customers from failed suppliers, were also expected to begin to be passed on to household energy bills. The annual ONS update of the CPI weights was anticipated by Bank staff to lead to an increase in CPI inflation in the near term, in part due to greater weight being placed on energy prices. Certain contract prices, such as for telecommunication services, that were indexed to consumer price measures were also due to increase in coming months. 27. Survey indicators of costs and prices, such as the flash composite input and output price PMIs for January, had remained at historically elevated levels. The Bank’s Agents had reported that the costs of some raw materials and shipping rates on some routes appeared to be stabilising, but that higher energy and wage costs were putting additional upward pressure on prices. The Agents’ pay survey had suggested that around 70% of companies were expecting to increase their prices due to current wage pressures, although that share was lower among consumer-facing firms. 28. Measures of households’ and companies’ short-term inflation expectations had risen further since the MPC’s previous meeting. The Citi/YouGov household measure of expectations for the year ahead had increased from 4.0% in December to 4.8% in January, although the five-to-ten year ahead measure was unchanged. Respondents to the Decision Maker Panel had increased their expectations for their own price increases over the next twelve months from 4.2% in the survey covering the three months to November to 4.5% for the three months to January. Professional forecasters continued to expect CPI inflation to be close to the 2% target two and three years ahead. The immediate policy decision 29. The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 30. The Committee reviewed recent developments against the backdrop of its updated central projections for activity and inflation as set out in the accompanying February Monetary Policy Report. The projections were conditioned on a market-implied path for Bank Rate that rose to around 1½% by the middle of 2023. Wholesale energy prices were assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which were downward sloping over coming years. There were material risks around this assumption. 31. UK-weighted world GDP in 2021 Q4 was estimated to have grown in line with expectations in the November Report. In 2022 Q1, global GDP was expected to grow more slowly, but the uncertainty relating to the economic impact of Omicron had declined, and its economic consequences were likely to be more limited and of shorter duration than had been anticipated at the time of the MPC's December meeting. In the February Report projections, global activity continued to grow thereafter, but was restrained by higher global energy prices over the forecast period, and by the impact of ongoing supply chain constraints for tradable goods over the coming year. 32. Consumer price inflation had risen further in the United States and the euro area since the Committee’s previous meeting. Global cost pressures, arising from the strength in goods demand and supply chain disruptions as well as high energy prices, had also remained elevated. Wholesale gas spot prices had initially fallen back in Europe from their peak in mid-December, but had recently risen again amid increasing geopolitical tensions. Oil prices had risen significantly. Strong demand for goods, in particular in the United States, had appeared to have been a more important determinant of global bottlenecks than supply chain disruptions over recent months. In the February Report projections, world export prices were expected to rise a little further in the near term. As global bottlenecks eased, global tradable goods prices were expected to fall a little over the forecast period, though to remain well above their pre-pandemic levels. 33. Since the MPC’s previous meeting, advanced-economy government bond yields had increased significantly. Market-implied expectations for the path of Bank Rate had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points, to 0.5%, at this MPC meeting. The results of the Bank of England’s Market Participants Survey, which would be published for the first time on the Friday following the release of these minutes, had painted a broadly similar picture of Bank Rate expectations. 34. Having reached a very high level around the turn of the year, the number of Covid cases had fallen back in the United Kingdom, and had then appeared to have stabilised. In the run-up to this MPC meeting, the UK Government and Devolved Administrations had announced a number of relaxations to Covid measures, some of which had been put in place in response to the Omicron variant. The MPC’s projections were conditioned on the assumptions that no material restrictions on economic activity were re-imposed, and that there was no further widespread voluntary social distancing, following this wave. 35. UK GDP was estimated to have risen by 0.9% in November. Combined with upward revisions to GDP, this meant that, prior to the emergence of the Omicron variant, aggregate activity had regained its pre-pandemic level for the first time. The Omicron variant was expected to have depressed activity somewhat in December and January. But its economic impact was likely to be limited and of short duration, and GDP was expected to recover in February and March such that output returned to its pre-pandemic level once again by the end of the first quarter. 36. The Labour Force Survey unemployment rate had fallen to 4.1% in the three months to November, 0.4 percentage points lower than had been expected at the time of the November Report. It was expected to fall further in the near term, to 3.8% in 2022 Q1, despite the spread of Omicron weighing on activity at the beginning of the quarter. The ratio of vacancies to unemployment had increased, to another record high. Most indicators of the balance of demand and supply in the economy suggested that there was currently a small margin of excess demand across the economy as a whole. 37. Beyond the near term, UK GDP growth was expected to slow to subdued rates. The main reason for that was the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending. 38. Consumption growth was expected to slow, as households cut back on spending in the face of the material adverse effects on their real incomes from the sharp rises in global energy and tradable goods prices, and the planned increase in national insurance contributions in April 2022. Although consumption growth therefore slowed materially over the first two years of the forecast period, it remained above income growth. That reflected an assumption that households would spend some of the significant additional savings that they had accumulated, in aggregate, during the pandemic. As a result, the household saving rate was expected to fall from 8.3% in 2021 Q3 to below 4% from the end of 2022. There were risks in both directions around this projection. Given the windfall nature of the excess savings built up during the course of the pandemic, households could be more willing to spend out of these to support their level of real consumption. Set against that, existing savings were more concentrated among higher earners, who might generally spend proportionately little out of their savings. Developments in energy prices in particular could also disproportionately affect those households with lower savings. 39. In the February Report projections, a margin of excess supply was expected to emerge later this year and to build over the forecast period. In part, that was accounted for by some slack in the labour market, with the unemployment rate expected to rise to around 5% by the end of the projection. 40. Underlying earnings growth was estimated to have remained above pre-pandemic rates, and was expected to strengthen over the coming year, to around 4¾%. This was consistent with the results of the Bank’s Agents’ annual pay survey, with the tight labour market, and with some temporary upward pressure on wage settlements from higher price inflation. 41. Twelve-month CPI inflation had risen from 5.1% in November to 5.4% in December, almost 1 percentage point higher than had been expected at the time of the November Report. The upside news had been spread across a number of components, particularly within core goods. Strength in core goods prices, alongside higher energy prices, had accounted for much of the absolute overshoot in inflation relative to the 2% target. Services price inflation had moved further above its pre-Covid rate. 42. CPI inflation was expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7¼% in April. This projected peak was around 2 percentage points higher than expected in the November Report. Three-quarters of the projected increase in inflation between December and April was expected to reflect higher contributions from energy and goods prices. Survey indicators of costs and prices had remained at historically elevated levels. 43. The HM Treasury representative had briefed the Committee on the Government’s policy plans in response to Ofgem’s forthcoming price cap announcement. 44. In the February Report central projection, upward pressures on CPI inflation were expected to dissipate over time, as global energy prices were assumed to remain constant after six months, and as global bottlenecks eased and tradable goods prices fell back a little. Underlying wage growth was also projected to ease from 2023, as the labour market loosened gradually and inflation declined. Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation was projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. In projections conditioned on the alternative assumption of constant interest rates at 0.5%, CPI inflation was expected to be 2.6% and 2.1% in two and three years’ time respectively. 45. In an alternative scenario that was conditioned on the market-implied path for Bank Rate and energy prices following forward curves throughout the forecast period, and as was set out in the February Report, excess supply was around ½ percentage point lower in the medium term than in the MPC’s central projection, and CPI inflation was around ¾ percentage point below the 2% target in two and three years’ time. 46. Measures of households’ and companies’ short-term inflation expectations had risen further since the MPC’s previous meeting. Measures of inflation expectations two to three years ahead, as well as some longer-term measures derived from household surveys and financial markets, had also increased in recent months, but by less than short-term measures. Professional forecasters continued to expect CPI inflation to be close to the 2% target two and three years ahead. A risk to the inflation outlook was that longer-term inflation expectations evolved such that wage and price setting were not consistent with inflation returning to the 2% target in the medium term. Overall, the MPC judged that inflation expectations remained well anchored at present. The Committee would, nevertheless, continue to monitor measures of inflation expectations very closely. 47. In Box A of the August 2021 Monetary Policy Report, the Committee had set out its strategy for the mix of monetary policy instruments to deliver tighter policy, including its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The Committee had noted that it intended to begin to reduce the stock of UK government bonds, by ceasing to reinvest maturing assets, when Bank Rate reached 0.5% and if appropriate given the economic circumstances. This would have the benefit of providing a predictable and gradual path for the reduction in the stock of government bonds. The MPC would also consider actively selling some of the stock of government bonds only once Bank Rate had risen to at least 1%, and depending on economic circumstances at the time. The Box had stated that the MPC would take a separate decision on the corporate bond portfolio in due course. 48. In the run-up to this MPC meeting, the Committee had considered its strategy for reducing the stock of sterling non-financial investment-grade corporate bond purchases. It judged that ceasing reinvestments and, in addition, initiating a programme of corporate bond sales at the point Bank Rate reached 0.5%, would appropriately reflect the specific characteristics of the Corporate Bond Purchase Scheme (CBPS). It also judged that this would not have implications for the unwinding of the UK government bond portfolio, which would continue to be governed by the framework set out in Box A in the August Report. 49. The CBPS, at £20 billion, was far smaller than the stock of UK government bonds held by the APF, both in absolute terms and as a proportion of their respective markets. The MPC therefore judged that the impact on monetary conditions of unwinding the stock of corporate bonds, at a time when markets were functioning normally, was likely to be relatively small. 50. The Committee turned to its immediate policy decision. 51. The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy had been subject to very large and repeated shocks. In particular, should recent movements prove persistent, the sharp rises in prices of global energy and tradable goods of which the United Kingdom was a net importer, would necessarily weigh on UK real aggregate income and spending. This was something monetary policy was unable to prevent. The role of monetary policy was to ensure that, as such a real economic adjustment occurred, it did so consistent with achieving the 2% CPI inflation target sustainably in the medium term, while minimising undesirable volatility in output. 52. Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. Different members placed different weights on the arguments for an increase in Bank Rate of 0.25 or of 0.5 percentage points at this meeting. 53. Five members judged that a 0.25 percentage point increase in Bank Rate was warranted at this meeting. The February Report projections implied that some tightening in monetary policy was required to bring inflation back to the 2% target sustainably in the medium term. However, the forecast also incorporated a material trade-off related to the continuing global energy and tradable goods price shock, with CPI inflation expected to remain materially above the target in the first half of the forecast, at the same time as a margin of spare capacity was opening up. After the second year, conditioned on the market path for Bank Rate, CPI inflation was projected to fall below the target due to that widening margin of spare capacity. In the scenario in which energy prices followed their forward curves throughout the forecast period, inflation was projected to undershoot the target by ¾ percentage point in two and three years’ time. These members recognised the risks from the possibility of stronger domestic wage and price pressures in the near term, but also saw a need to balance this against the potential for inflation to fall more quickly and to a greater extent than expected if energy and other tradable goods prices followed a lower path than in the MPC’s central projection. There was also a case for moving Bank Rate in small increments; a larger increase at this meeting could have an outsized impact on expectations for the further path of policy, which was already sufficient, in the central projection, to push inflation well below the target in year three of the forecast. 54. Four members judged that a 0.5 percentage point increase in Bank Rate was warranted at this meeting. Monetary policy had been very accommodative, and capacity pressures were now widespread, especially in the labour market. The projected path for CPI inflation was again being revised up over the first two years of the forecast period, while medium-term inflation expectations remained relatively high and on some measures had increased further. Companies responding to the Decision Maker Panel had indicated that they expected to raise prices significantly in 2022. The strong pickup in pay settlements reported to the Bank’s Agents, and the recent broadening from goods price to services price inflation, suggested that these developments were now being reflected in domestic costs and prices, which could make CPI inflation more persistent than was expected in the February Report central projection. Monetary policy should tighten to a greater extent at this meeting in order to reduce the risk that recent trends in pay growth and inflation expectations became more firmly embedded and thereby help to bring inflation back to the target sustainably in the medium term. 55. Consistent with the MPC’s guidance set out in the August 2021 Report, and given that financial markets were functioning normally, the Committee agreed at this meeting that the Bank of England should cease to reinvest any future maturities falling due from its stock of UK government bond purchases. This reflected the MPC’s intention to reduce its holdings of government bonds in a gradual and predictable manner. 56. In addition, the Committee agreed that the Bank of England should cease to reinvest any maturities falling due from its stock of sterling non-financial investment-grade corporate bond purchases, and that it should initiate a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. 57. The decision to initiate this programme of corporate bond sales reflected the specific characteristics of the corporate bond market and the MPC’s involvement in it, and should not be taken as a signal regarding the commencement, scale or duration of any potential future UK government bond sales programme. The Committee reaffirmed that it would consider beginning the process of actively selling UK government bonds only once Bank Rate had risen to at least 1%, and depending on economic circumstances at the time. 58. The Committee also reaffirmed its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The Committee agreed that, as a matter of course, it would not continue to vote at each meeting on propositions regarding the stock of purchased assets, at least until any decision concerning sales of UK government bonds. If potential movements in Bank Rate were judged insufficient to achieve the inflation target, or if prevailing conditions were ones in which asset purchases might be particularly effective, the reductions in the stock of purchased assets could be amended or reversed. 59. The extent of any further tightening in monetary policy would depend on the medium-term prospects for inflation. The MPC judged that, if the economy developed broadly in line with the February Report central projections, some further modest tightening in monetary policy was likely to be appropriate in the coming months. The Committee continued to judge that there were two-sided risks around the medium-term inflation outlook, primarily from wage developments on the upside and from energy and global tradable goods prices on the downside. The Committee would update its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerged. 60. The Chair invited the Committee to vote on the propositions that: Bank Rate should be increased by 0.25 percentage points, to 0.5%; The Bank of England should begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets; The Bank of England should begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets and by a programme of asset sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. Five members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill and Silvana Tenreyro) voted in favour of the first proposition. Four members (Jonathan Haskel, Catherine L Mann, Dave Ramsden and Michael Saunders) voted against this proposition, preferring to increase Bank Rate by 0.5 percentage points, to 0.75%. The Committee voted unanimously in favour of the second and third propositions. Operational considerations 61. At its September 2021 meeting, the MPC had agreed to reinvest the cash flows associated with reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by the Asset Purchase Facility (APF) back into eligible corporate bonds, commencing in November 2021. The Committee had been briefed at its February meeting on this programme of reinvestments completed in the run-up to the meeting and undertaken in line with the approach to greening set out in the Bank of England's announcement in November 2021. 62. As of 2 February 2022, the total stock of assets held in the APF was £895 billion, comprising £875 billion of UK government bond purchases and £20 billion of sterling non-financial investment-grade corporate bond purchases. 63. Consistent with the Committee’s decision at this meeting to begin to reduce the stock of UK government bond purchases, the £27.9 billion of cash flows associated with the redemption of the March 2022 gilt held by the APF would not be reinvested. 64. In total over 2022 and 2023, just over £70 billion of UK government bonds held by the APF would mature, and over 2024 and 2025 around a further £130 billion of bonds would mature. Details of the full maturity profile of APF-owned government bonds would be set out on the Bank of England’s website, which would be kept updated to ensure that the general public and financial markets had clear information on how the size of the APF was scheduled to evolve. 65. As the stock of purchased assets began to fall, the Bank of England would continue to monitor money market functioning closely, and would stand ready to adjust reserves in either direction if judged necessary to facilitate the smooth transmission of monetary policy. 66. Consistent with the decision at this meeting to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, the Committee asked Bank staff to design a programme of corporate bond sales, details of which would be announced within three months. The programme would be designed so as not to disrupt the functioning of the sterling investment-grade corporate bond market. Further details, including the initial schedule of operations, would be set out in a Market Notice to be published ahead of the start of sales. 67. The Governor had written a letter to the Chancellor of the Exchequer setting out some of these considerations. In addition, the letter highlighted that it was appropriate for the Government indemnity associated with the APF to reduce in size progressively, in line with the reduction in the stock of purchased assets. 68. The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 69. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Ron Kalifa was also present on 26 and 28 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, February 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 2 February 2022, the MPC voted by a majority of 5-4 to increase Bank Rate by 0.25 percentage points, to 0.5%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 0.75%. The Committee voted unanimously for the Bank of England to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets. The Committee also voted unanimously for the Bank of England to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. The Committee’s updated central projections for activity and inflation are set out in the accompanying February Monetary Policy Report. The projections are conditioned on a market-implied path for Bank Rate that rises to around 1½% by the middle of 2023. Wholesale energy prices are assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which are downward sloping over coming years. There are material risks around this assumption. Global and UK activity returned to their pre-Covid-19 (Covid) levels towards the end of last year. The emergence of the Omicron variant is expected to have depressed activity somewhat in December and January. But its economic impact is likely to be limited and of short duration, and UK GDP is expected to recover in February and March such that output returns to its pre-pandemic level once again by the end of the first quarter. The Labour Force Survey unemployment rate fell to 4.1% in the three months to November, and is expected to fall further in the near term, to 3.8% in 2022 Q1. Beyond the near term, UK GDP growth is expected to slow to subdued rates. The main reason for that is the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending. As a result, the unemployment rate is expected to rise to 5% and excess supply builds to around 1% by the end of the forecast period. Underlying earnings growth is estimated to have remained above pre-pandemic rates, and is expected to strengthen over the coming year, to around 4¾%. This is consistent with the results of the Bank’s Agents’ annual pay survey, with the tight labour market, and with some temporary upward pressure on wage settlements from higher price inflation. Twelve-month CPI inflation rose from 5.1% in November to 5.4% in December, almost 1 percentage point higher than expected at the time of the November Report. Inflation is expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7¼% in April. This projected peak is around 2 percentage points higher than expected in the November Report. The projected overshoot of inflation relative to the 2% target mainly reflects global energy and tradable goods prices. The further rise in energy futures prices meant that Ofgem’s utility price caps were expected to be substantially higher at the reset in April 2022. Core goods CPI inflation is also expected to rise further, due to the impact of global bottlenecks on tradable goods prices. In the February Report central projection, upward pressures on CPI inflation are expected to dissipate over time, as global energy prices are assumed to remain constant after six months, and as global bottlenecks ease and tradable goods prices fall back a little. Underlying wage growth is also projected to ease from 2023, as the labour market loosens gradually and inflation declines. Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation is projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. In an alternative scenario that is conditioned on energy prices following forward curves throughout the forecast period and as set out in the February Report, excess supply is around ½ percentage point lower in the medium term than in the MPC’s central projection, and CPI inflation is around ¾ percentage point below the 2% target in two and three years’ time. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy has been subject to very large and repeated shocks. In particular, should recent movements prove persistent, the sharp rises in prices of global energy and tradable goods of which the United Kingdom is a net importer will necessarily weigh on UK real aggregate income and spending. This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as such a real economic adjustment occurs, it does so consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output. Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, the Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting. Consistent with the MPC’s guidance set out in the August 2021 Report, the Committee agrees at this meeting that the Bank of England should cease to reinvest any future maturities falling due from its stock of UK government bond purchases. This reflects the MPC’s intention to reduce its holdings of government bonds in a gradual and predictable manner. In addition, the Committee agrees that the Bank of England should cease to reinvest any maturities falling due from its stock of sterling non-financial investment-grade corporate bond purchases, and that it should initiate a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. The decision to initiate the programme of corporate bond sales reflects the specific characteristics of the corporate bond market and the MPC’s involvement in it, and should not be taken as a signal regarding the commencement, scale or duration of any potential future UK government bond sales programme. The Committee reaffirms that it will consider beginning the process of actively selling UK government bonds only once Bank Rate has risen to at least 1%, and depending on economic circumstances at the time. The Committee also reaffirms its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The extent of any further tightening in monetary policy will depend on the medium-term prospects for inflation. The MPC judges that, if the economy develops broadly in line with the February Report central projections, some further modest tightening in monetary policy is likely to be appropriate in the coming months. The Committee continues to judge that there are two-sided risks around the medium-term inflation outlook, primarily from wage developments on the upside and from energy and global tradable goods prices on the downside. The Committee will update its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerge. Minutes of the Monetary Policy Committee meeting ending on 2 February 2022 1. Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2. UK-weighted global GDP was estimated to have grown by 0.8% in 2021 Q4, as had been expected in the November Monetary Policy Report. In 2022 Q1, global GDP was expected to grow more slowly than had been anticipated in the November Report, as the Omicron Covid variant had led to renewed restrictions and voluntary social distancing in many countries. However, the uncertainty relating to the economic impact of Omicron had declined, and its economic consequences were likely to be more limited and of shorter duration than had been anticipated at the time of the MPC's December meeting. Global cost pressures, arising from the strength in goods demand and supply chain disruptions as well as high energy prices, had remained elevated and had also weighed on activity over past months. Strong demand for goods, in particular in the United States, had appeared to have been a more important determinant of global bottlenecks than supply chain disruptions over recent months. 3. According to the preliminary flash estimate, euro-area GDP had increased by 0.3% in 2021 Q4, such that output had returned to its 2019 Q4 level. This was weaker than had been expected in the November Report, due to tighter restrictions to address rising Covid case numbers in November and December in several countries, driven initially by the Delta variant and subsequently by Omicron. The unemployment rate had fallen to 7.0% in December, a historical low. Omicron case numbers had increased going into 2022 and, as a result, euro-area output was expected to contract slightly in the first quarter. Notwithstanding restrictions starting to ease in some countries, recent indicators had pointed to weakness in Covid-sensitive sectors with the flash services activity PMI falling back in January. The manufacturing output PMI had picked up, possibly suggesting some stabilisation in supply constraints, particularly in Germany. 4. According to the advance estimate, US GDP had grown by 1.7% in 2021 Q4, implying that output had been around 3% above its 2019 Q4 level. This had reflected a stronger recovery than had been anticipated in the November Report, as the economic impact of the Delta variant had waned. Growth in the fourth quarter had been accounted for primarily by stockbuilding. Consumption had also supported growth, and there had been evidence for a continuing rotation of household spending from goods to services. The labour market had appeared tight at the end of 2021. The unemployment rate had fallen to 3.9% in December, the lowest level since February 2020, as participation rates had remained below pre-Covid levels and the number of job vacancies had continued to be high relative to historical levels. More recent high-frequency card spending data suggested that there had been a relatively temporary disruption to spending related to Omicron around the turn of the year, with limited restrictions in place. In 2022 Q1, GDP was expected to grow by 0.5%. 5. In China, GDP had increased by 1.6% in 2021 Q4, stronger than had been expected in the November Report. Year-on-year industrial production growth had increased in December, reflecting an easing of power shortages and of some input constraints, as well as strong external demand. However, consumption indicators had continued to be somewhat weaker than measures of production, with year-on-year retail sales growth slowing, as localised Covid outbreaks and associated restrictions weighed on domestic demand. The recent outbreaks appeared to have had a relatively limited impact on the supply capacity of the economy but, looking ahead, there was uncertainty as to whether the more transmissible Omicron variant might cause greater supply disruptions, to the extent that China maintained its current Covid strategy. The housing market had continued to slow. 6. Consumer price inflation had remained elevated in the euro area and the United States. Euro-area annual HICP inflation had increased to 5.1% in January, significantly above market expectations immediately ahead of the release, while core inflation had fallen to 2.3%. In the United States, annual PCE inflation had risen to 5.8% in December, with core inflation increasing to 4.9%. High energy prices had driven most of the pickup in consumer price inflation over the fourth quarter in the euro area, while price pressures were more broadly based in the United States, with strong contributions from energy, cars, accommodation and other core goods. This suggested that, in addition to high energy prices, pressures from global bottlenecks due to strong demand for goods and inelastic supply had been passing through to consumer prices. There had also been some divergence in wage growth between the United States and the euro area. According to the Federal Reserve Bank of Atlanta’s measure, US wage growth had continued to increase in the fourth quarter, to somewhat above its pre-Covid rate, while wage growth in the euro area had remained muted in the third quarter. 7. The MPC discussed the central case for, as well as risks to, the global inflation outlook. In the near term, there would likely be further pass-through to consumer price inflation from past cost increases. Since the MPC’s December meeting, signals from cost indicators had been mixed. Energy prices had been volatile. Wholesale gas spot prices had initially fallen back in Europe from their peak in mid-December, but had recently risen again amid increasing geopolitical tensions. The Brent oil spot price had risen by $19 per barrel since the MPC’s previous meeting, to $91. Measures of shipping costs had been mixed, with some easing and others increasing once more. Indices of global input prices and delivery times had plateaued, suggesting some stabilisation in global bottlenecks at high levels. Overall, global bottlenecks were expected to ease over the next twelve months as spending in the United States rotated back to services, a little later than had been anticipated in the November Report. There was, however, a risk that the demand rotation could be delayed further, for example if consumer preferences had shifted more permanently. Supply chains could also be further disrupted in the event of widespread factory and port closures in China in response to Covid developments. Should these risks materialise, consumer prices could rise further than anticipated. Alternatively, it was possible that global cost pressures abated more quickly and to a greater extent in the medium term than expected, in which case consumer price inflation might moderate at a faster pace as well. Monetary and financial conditions 8. Since the MPC’s previous meeting, advanced-economy government bond yields had risen significantly. Ten-year yields had increased by around 35 to 60 basis points in the United States, euro area and United Kingdom, reaching their highest levels since the onset of the pandemic. These increases had been accounted for primarily by real rates. The increases in nominal yields had reflected higher estimated term premia across countries, with a high degree of comovement between yields across different economies. 9. The path for market-implied policy rates in the United States had risen significantly since the MPC’s previous meeting. At its 26 January meeting, the FOMC had left its target range for the federal funds rate unchanged and had continued to reduce the monthly pace of its asset purchases, as well as publishing additional information regarding its principles for significantly reducing the size of the Federal Reserve's balance sheet. The market-implied policy rate in the United States reached around 1¼% by end-2022, around 50 basis points higher than immediately prior to the MPC’s December meeting. In the euro area, the near-term market-implied path for policy rates had moved down a little over the same period. At its meeting on 16 December, the ECB Governing Council had left its key policy interest rates unchanged, and had announced a gradual reduction in the pace of net asset purchases. 10. In the United Kingdom, market-implied expectations for the path of Bank Rate over the year ahead had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points, to 0.5%, at this MPC meeting. The February Monetary Policy Report was conditioned on a market-implied path for Bank Rate, based on the 15-working day average to 26 January, that rose to around 1½% by mid-2023. In the immediate run-up to the MPC’s February meeting, the market-implied path for Bank Rate had reached around 1.7% by mid-2023. The results of the Bank of England’s new Market Participants Survey, which would be published for the first time on the Friday following the release of these minutes, had painted a broadly similar picture of Bank Rate expectations: respondents had widely expected a 0.25 percentage point increase in Bank Rate at this meeting; a large majority expected Bank Rate to reach 1% within the next year; and respondents assessed that the balance of risks around this near-term path was skewed to the upside. Respondents expected reinvestments of the Bank’s holdings of UK government bonds to cease after the anticipated Bank Rate increase at this meeting. 11. Medium-term inflation compensation measures in the United Kingdom had increased slightly since the MPC’s previous meeting and had remained above their average levels of the past decade, in contrast to similar measures in the United States and the euro area, which had been around their average levels of the past decade. As the Committee had discussed previously, interpreting UK medium-term inflation compensation measures was not straightforward. Nevertheless, models that attempted to extract medium-term market expectations for CPI inflation, and intelligence gathered from market contacts, suggested that higher inflation expectations and greater perceived risks to inflation might have in part accounted for these above-average levels of medium-term inflation compensation measures, alongside other factors. This was consistent with results from the Market Participants Survey, which had suggested that respondents attributed these levels in part to elevated inflation expectations, but also to technical factors, such as those arising from the fact that inflation markets were used for hedging large pension liabilities, and an upside balance of risks around the inflation outlook. 12. The sterling effective exchange rate had risen by around 2% since the previous MPC meeting. The US dollar had, in contrast, fallen by around ½%, despite a relatively large increase in US government bond yields. 13. Equity prices had fallen after the MPC’s previous meeting, before recovering. The initial fall had reflected the increase in government bond yields, as well as the impact of geopolitical developments. Overall, equity prices had ended the period lower in the United States, while in the United Kingdom they had increased somewhat, cushioned by an estimated fall in equity risk premia. This in part had reflected the composition of the FTSE All Share index, including its skew towards sectors that had been supported by the recent rise in energy prices. Across countries, there had been stronger performance in those sectors more exposed to Covid, relative to those more exposed to higher interest rates. There had been less adjustment in the corporate bond market, as spreads had remained at historically low levels, having reversed the modest increases seen in response to the initial emergence of Omicron. 14. Lending rates on mortgages with loan-to-value (LTV) ratios at or below 75% had increased further since the MPC’s previous meeting. This was broadly consistent with a lagged response to the increases in risk-free rates in the fourth quarter of 2021, with around half of those increases having passed through to lending rates. The subsequent further increases in risk-free rates seen since the December MPC meeting would be expected to feed through to mortgage lending rates in due course. Other components of household borrowing, such as credit cards and personal loans had been less sensitive, as would be expected. Demand and output 15. UK quarterly GDP growth in 2021 Q3 had been revised down slightly in the Quarterly National Accounts, from 1.3% to 1.1%. The level of GDP had, however, been revised up by around ½%, with that news more than accounted for by a higher path of household consumption throughout the pandemic. In the third quarter, consumption had risen by 2.7%, while the saving ratio had fallen back to 8.3%. Business investment had fallen by 2.5% in Q3, with particular weakness in the air transport sector, and had remained well below its pre-Covid level in 2019 Q4. 16. GDP was estimated to have risen by 0.9% in November, stronger than had been expected by Bank staff. Combined with the upward revisions to GDP, this meant that, prior to the onset of the Omicron variant, aggregate activity had regained its pre-pandemic level for the first time. GDP had been almost 1% higher than expected at the time of the November Monetary Policy Report. Within the November output data, activity had been stronger than expected across most sectors of the economy, including consumer-facing, transport and professional services. There had also been tentative signs in the manufacturing and construction sectors that supply disruptions were starting to ease, although monthly data could be volatile. 17. Bank staff expected GDP to have fallen by around ½% in December, largely due to the impact of the Omicron variant towards the end of the month, but to have risen by just over 1% during 2021 Q4 as a whole. Retail sales volumes had fallen quite sharply in December, according to official data, in part reflecting the unwind of previous strength, as consumers appeared to have brought forward some purchases ahead of the holiday season, and as Omicron had weighed on activity. Contacts of the Bank’s Agents had reported that shortages of some goods due to continuing supply-chain issues had not constrained aggregate spending by as much as had been anticipated. Nevertheless, staff shortages, exacerbated by absences due to sickness or self-isolation, were reported to have curtailed activity across a number of sectors. 18. Having reached a very high level around the turn of the year, the number of Covid cases had fallen back, and had then appeared to have stabilised. On 21 December, the Chancellor of the Exchequer had announced that additional support would be available for businesses who were impacted by the Omicron variant, including one-off grants of up to £6,000 per premise for businesses in the hospitality and leisure sectors in England, and that the Government would cover the cost of Statutory Sick Pay for Covid-related absences for small and medium-sized employers across the United Kingdom. In the run-up to this MPC meeting, the UK Government and Devolved Administrations had announced a number of relaxations to Covid measures, some of which had been put in place in response to the Omicron variant. These had included the lifting of Plan B measures in England during the second half of January, and the removal of post-arrival testing requirements for fully vaccinated travellers into the United Kingdom from 11 February. 19. Recent high-frequency indicators suggested that activity had rebounded somewhat since early January, including in consumer-facing services and work-related travel. This was consistent with intelligence from the Bank’s Agents that the peak economic impacts of the Omicron variant had passed quickly. GfK consumer confidence had nevertheless fallen in January, probably due to initial concerns around the impact of Omicron. Despite the incipient squeeze on real household disposable incomes, households’ views of their own financial situation had, so far, held up relatively well. Contacts of the Bank’s Agents had noted, however, that they expected pressure on household incomes to dampen consumer spending in the coming months. Overall, Bank staff expected GDP to recover further in February and March, such that the economy was projected to return to its pre-pandemic level of activity once again by the end of the first quarter, and that GDP on average would be unchanged between 2022 Q1 and 2021 Q4. Market sector GDP was expected to surpass its November 2021 level by March. 20. Although the number of companies reporting skilled labour shortages as a constraint on output in the January CBI Industrial Trends survey had remained very elevated, the number of companies reporting materials shortages as a factor limiting production had fallen back somewhat from its highest level since the mid-1970s, and the January manufacturing PMIs had suggested that supply constraints were not worsening as much as in previous months. Contacts of the Bank’s Agents expected only a slow improvement in supply chain disruption through 2022, and some continued to judge that problems could persist into 2023. There had also been increasing reports of slower investment growth due to shortages of goods, machinery and labour. There had, nevertheless, been widespread strength in investment intentions reported to the Agents, with contacts highlighting the reinstatement of projects that had been paused during the pandemic, and the need to increase capacity to meet demand. After weakening in December, the January Decision Maker Panel had reported a smaller drag from Covid on business investment over the first half of this year. Supply, costs and prices 21. The Labour Force Survey (LFS) unemployment rate had fallen to 4.1% in the three months to November, 0.4 percentage points lower than had been expected at the time of the November Monetary Policy Report. The LFS employment rate had been broadly as expected, however, as inactivity had unexpectedly risen slightly. The number of inactive people who reported wanting a job had continued to fall. Her Majesty’s Revenue and Customs (HMRC) employee payrolls had risen by a further 184,000 in the single month of December, although these initial estimates had tended to be revised down somewhat. Bank staff judged that both the LFS employee and HMRC payroll series were around their 2019 Q4 levels after accounting for an unusually high number of individuals having switched from self-employment and onto payrolls, associated in part with tax reforms. Self-employment had remained weak even accounting for these estimates of switching, such that LFS employment was 1.4% below its 2019 Q4 level in the three months to November. Indicators of labour market tightness had nevertheless remained elevated. The ratio of vacancies to unemployment had increased to another record high since a consistent series had begun in 2001. 22. Bank staff expected the LFS unemployment rate to fall further to 3.8% in 2022 Q1, despite the spread of Omicron weighing on activity at the beginning of the quarter. The flash composite employment PMI for January had been broadly unchanged on the month, remaining well above its past historical average. The Bank’s Agents had reported a modest easing in employment growth, in part due to recruitment difficulties having remained intense. High-frequency indicators of online vacancies had dipped during December and had begun to recover in January, but that profile had been comparable to the seasonal pattern prior to the pandemic. Instead of weaker labour demand, the main counterpart in the labour market to Covid-related weakness in activity had appeared to be an increase in staff absences due to sickness, self-isolation or caring responsibilities. The ONS Business Insights and Conditions Survey suggested that around 3% of the workforce had been absent for Covid-related reasons around the turn of the year. The Agents’ contacts had begun to see a reduction in absences, however, and generally viewed Omicron as a temporary issue. 23. Growth in private-sector regular Average Weekly Earnings (AWE) had slowed to 4.1% in the three months to November on a year earlier, broadly in line with Bank staff expectations ahead of the release. Pay growth had been boosted by the mechanical effects of the Coronavirus Job Retention Scheme and changes in the composition of the workforce, but those effects had waned in recent months. Adjusting for these effects, Bank staff estimated that underlying private-sector regular pay growth had remained at around 4 to 4½%, above pre-pandemic rates of around 3 to 3½%. The median of pay growth based on HMRC payrolls data was around 3%, comparable to pre-pandemic rates, implying that recent pay awards had been more skewed towards the upside than in the recent past. That was broadly consistent with the Bank’s Agents’ contacts reporting that pay increases had been significantly higher for workers with skills in short supply. 24. In the February Report projection, underlying private-sector pay growth was expected to pick up further in coming quarters. A special survey of firms conducted by the Bank’s Agents suggested that the average pay settlement was expected to rise to close to 5% in 2022, with the pickup broadly based across different sectors of the economy and firms of different sizes. Contacts had cited the ability to retain staff and recruit new workers, and increases in consumer price inflation, as factors that had pushed up their expectations for pay. The REC permanent staff salaries index, which measured the monthly pay growth of new permanent hires, had also remained close to record highs in December. Headline AWE growth was expected to be somewhat lower than the underlying rate, as the past boost to pay from compositional effects was assumed to continue to fade, although there was uncertainty around the precise scale and speed of any such unwind. 25. Twelve-month CPI inflation had risen to 5.4% in December, almost 1 percentage point above the November Report forecast. The upside news had been spread across a number of components, particularly within core goods. Strength in core goods prices, alongside higher energy prices, had also accounted for much of the absolute overshoot in inflation relative to the 2% target. Services price inflation had moved further above its pre-Covid rate. Price increases had been particularly acute for second-hand cars and hospitality, replicating trends in the United States. 26. CPI inflation was projected to increase further in coming months, to close to 6% in February and March and peaking at around 7¼% in April when higher utility price caps were due to be implemented. This projected peak was around 2 percentage points higher than had been expected in the November Report. In addition to the upside news in the CPI data to December, wholesale gas and electricity futures prices had increased further, putting upward pressure on utility prices. The costs of the Supplier of Last Resort mechanism, covering the losses that energy companies had incurred from taking on customers from failed suppliers, were also expected to begin to be passed on to household energy bills. The annual ONS update of the CPI weights was anticipated by Bank staff to lead to an increase in CPI inflation in the near term, in part due to greater weight being placed on energy prices. Certain contract prices, such as for telecommunication services, that were indexed to consumer price measures were also due to increase in coming months. 27. Survey indicators of costs and prices, such as the flash composite input and output price PMIs for January, had remained at historically elevated levels. The Bank’s Agents had reported that the costs of some raw materials and shipping rates on some routes appeared to be stabilising, but that higher energy and wage costs were putting additional upward pressure on prices. The Agents’ pay survey had suggested that around 70% of companies were expecting to increase their prices due to current wage pressures, although that share was lower among consumer-facing firms. 28. Measures of households’ and companies’ short-term inflation expectations had risen further since the MPC’s previous meeting. The Citi/YouGov household measure of expectations for the year ahead had increased from 4.0% in December to 4.8% in January, although the five-to-ten year ahead measure was unchanged. Respondents to the Decision Maker Panel had increased their expectations for their own price increases over the next twelve months from 4.2% in the survey covering the three months to November to 4.5% for the three months to January. Professional forecasters continued to expect CPI inflation to be close to the 2% target two and three years ahead. The immediate policy decision 29. The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 30. The Committee reviewed recent developments against the backdrop of its updated central projections for activity and inflation as set out in the accompanying February Monetary Policy Report. The projections were conditioned on a market-implied path for Bank Rate that rose to around 1½% by the middle of 2023. Wholesale energy prices were assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which were downward sloping over coming years. There were material risks around this assumption. 31. UK-weighted world GDP in 2021 Q4 was estimated to have grown in line with expectations in the November Report. In 2022 Q1, global GDP was expected to grow more slowly, but the uncertainty relating to the economic impact of Omicron had declined, and its economic consequences were likely to be more limited and of shorter duration than had been anticipated at the time of the MPC's December meeting. In the February Report projections, global activity continued to grow thereafter, but was restrained by higher global energy prices over the forecast period, and by the impact of ongoing supply chain constraints for tradable goods over the coming year. 32. Consumer price inflation had risen further in the United States and the euro area since the Committee’s previous meeting. Global cost pressures, arising from the strength in goods demand and supply chain disruptions as well as high energy prices, had also remained elevated. Wholesale gas spot prices had initially fallen back in Europe from their peak in mid-December, but had recently risen again amid increasing geopolitical tensions. Oil prices had risen significantly. Strong demand for goods, in particular in the United States, had appeared to have been a more important determinant of global bottlenecks than supply chain disruptions over recent months. In the February Report projections, world export prices were expected to rise a little further in the near term. As global bottlenecks eased, global tradable goods prices were expected to fall a little over the forecast period, though to remain well above their pre-pandemic levels. 33. Since the MPC’s previous meeting, advanced-economy government bond yields had increased significantly. Market-implied expectations for the path of Bank Rate had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points, to 0.5%, at this MPC meeting. The results of the Bank of England’s Market Participants Survey, which would be published for the first time on the Friday following the release of these minutes, had painted a broadly similar picture of Bank Rate expectations. 34. Having reached a very high level around the turn of the year, the number of Covid cases had fallen back in the United Kingdom, and had then appeared to have stabilised. In the run-up to this MPC meeting, the UK Government and Devolved Administrations had announced a number of relaxations to Covid measures, some of which had been put in place in response to the Omicron variant. The MPC’s projections were conditioned on the assumptions that no material restrictions on economic activity were re-imposed, and that there was no further widespread voluntary social distancing, following this wave. 35. UK GDP was estimated to have risen by 0.9% in November. Combined with upward revisions to GDP, this meant that, prior to the emergence of the Omicron variant, aggregate activity had regained its pre-pandemic level for the first time. The Omicron variant was expected to have depressed activity somewhat in December and January. But its economic impact was likely to be limited and of short duration, and GDP was expected to recover in February and March such that output returned to its pre-pandemic level once again by the end of the first quarter. 36. The Labour Force Survey unemployment rate had fallen to 4.1% in the three months to November, 0.4 percentage points lower than had been expected at the time of the November Report. It was expected to fall further in the near term, to 3.8% in 2022 Q1, despite the spread of Omicron weighing on activity at the beginning of the quarter. The ratio of vacancies to unemployment had increased, to another record high. Most indicators of the balance of demand and supply in the economy suggested that there was currently a small margin of excess demand across the economy as a whole. 37. Beyond the near term, UK GDP growth was expected to slow to subdued rates. The main reason for that was the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending. 38. Consumption growth was expected to slow, as households cut back on spending in the face of the material adverse effects on their real incomes from the sharp rises in global energy and tradable goods prices, and the planned increase in national insurance contributions in April 2022. Although consumption growth therefore slowed materially over the first two years of the forecast period, it remained above income growth. That reflected an assumption that households would spend some of the significant additional savings that they had accumulated, in aggregate, during the pandemic. As a result, the household saving rate was expected to fall from 8.3% in 2021 Q3 to below 4% from the end of 2022. There were risks in both directions around this projection. Given the windfall nature of the excess savings built up during the course of the pandemic, households could be more willing to spend out of these to support their level of real consumption. Set against that, existing savings were more concentrated among higher earners, who might generally spend proportionately little out of their savings. Developments in energy prices in particular could also disproportionately affect those households with lower savings. 39. In the February Report projections, a margin of excess supply was expected to emerge later this year and to build over the forecast period. In part, that was accounted for by some slack in the labour market, with the unemployment rate expected to rise to around 5% by the end of the projection. 40. Underlying earnings growth was estimated to have remained above pre-pandemic rates, and was expected to strengthen over the coming year, to around 4¾%. This was consistent with the results of the Bank’s Agents’ annual pay survey, with the tight labour market, and with some temporary upward pressure on wage settlements from higher price inflation. 41. Twelve-month CPI inflation had risen from 5.1% in November to 5.4% in December, almost 1 percentage point higher than had been expected at the time of the November Report. The upside news had been spread across a number of components, particularly within core goods. Strength in core goods prices, alongside higher energy prices, had accounted for much of the absolute overshoot in inflation relative to the 2% target. Services price inflation had moved further above its pre-Covid rate. 42. CPI inflation was expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7¼% in April. This projected peak was around 2 percentage points higher than expected in the November Report. Three-quarters of the projected increase in inflation between December and April was expected to reflect higher contributions from energy and goods prices. Survey indicators of costs and prices had remained at historically elevated levels. 43. The HM Treasury representative had briefed the Committee on the Government’s policy plans in response to Ofgem’s forthcoming price cap announcement. 44. In the February Report central projection, upward pressures on CPI inflation were expected to dissipate over time, as global energy prices were assumed to remain constant after six months, and as global bottlenecks eased and tradable goods prices fell back a little. Underlying wage growth was also projected to ease from 2023, as the labour market loosened gradually and inflation declined. Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation was projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. In projections conditioned on the alternative assumption of constant interest rates at 0.5%, CPI inflation was expected to be 2.6% and 2.1% in two and three years’ time respectively. 45. In an alternative scenario that was conditioned on the market-implied path for Bank Rate and energy prices following forward curves throughout the forecast period, and as was set out in the February Report, excess supply was around ½ percentage point lower in the medium term than in the MPC’s central projection, and CPI inflation was around ¾ percentage point below the 2% target in two and three years’ time. 46. Measures of households’ and companies’ short-term inflation expectations had risen further since the MPC’s previous meeting. Measures of inflation expectations two to three years ahead, as well as some longer-term measures derived from household surveys and financial markets, had also increased in recent months, but by less than short-term measures. Professional forecasters continued to expect CPI inflation to be close to the 2% target two and three years ahead. A risk to the inflation outlook was that longer-term inflation expectations evolved such that wage and price setting were not consistent with inflation returning to the 2% target in the medium term. Overall, the MPC judged that inflation expectations remained well anchored at present. The Committee would, nevertheless, continue to monitor measures of inflation expectations very closely. 47. In Box A of the August 2021 Monetary Policy Report, the Committee had set out its strategy for the mix of monetary policy instruments to deliver tighter policy, including its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The Committee had noted that it intended to begin to reduce the stock of UK government bonds, by ceasing to reinvest maturing assets, when Bank Rate reached 0.5% and if appropriate given the economic circumstances. This would have the benefit of providing a predictable and gradual path for the reduction in the stock of government bonds. The MPC would also consider actively selling some of the stock of government bonds only once Bank Rate had risen to at least 1%, and depending on economic circumstances at the time. The Box had stated that the MPC would take a separate decision on the corporate bond portfolio in due course. 48. In the run-up to this MPC meeting, the Committee had considered its strategy for reducing the stock of sterling non-financial investment-grade corporate bond purchases. It judged that ceasing reinvestments and, in addition, initiating a programme of corporate bond sales at the point Bank Rate reached 0.5%, would appropriately reflect the specific characteristics of the Corporate Bond Purchase Scheme (CBPS). It also judged that this would not have implications for the unwinding of the UK government bond portfolio, which would continue to be governed by the framework set out in Box A in the August Report. 49. The CBPS, at £20 billion, was far smaller than the stock of UK government bonds held by the APF, both in absolute terms and as a proportion of their respective markets. The MPC therefore judged that the impact on monetary conditions of unwinding the stock of corporate bonds, at a time when markets were functioning normally, was likely to be relatively small. 50. The Committee turned to its immediate policy decision. 51. The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy had been subject to very large and repeated shocks. In particular, should recent movements prove persistent, the sharp rises in prices of global energy and tradable goods of which the United Kingdom was a net importer, would necessarily weigh on UK real aggregate income and spending. This was something monetary policy was unable to prevent. The role of monetary policy was to ensure that, as such a real economic adjustment occurred, it did so consistent with achieving the 2% CPI inflation target sustainably in the medium term, while minimising undesirable volatility in output. 52. Given the current tightness of the labour market and continuing signs of greater persistence in domestic cost and price pressures, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. Different members placed different weights on the arguments for an increase in Bank Rate of 0.25 or of 0.5 percentage points at this meeting. 53. Five members judged that a 0.25 percentage point increase in Bank Rate was warranted at this meeting. The February Report projections implied that some tightening in monetary policy was required to bring inflation back to the 2% target sustainably in the medium term. However, the forecast also incorporated a material trade-off related to the continuing global energy and tradable goods price shock, with CPI inflation expected to remain materially above the target in the first half of the forecast, at the same time as a margin of spare capacity was opening up. After the second year, conditioned on the market path for Bank Rate, CPI inflation was projected to fall below the target due to that widening margin of spare capacity. In the scenario in which energy prices followed their forward curves throughout the forecast period, inflation was projected to undershoot the target by ¾ percentage point in two and three years’ time. These members recognised the risks from the possibility of stronger domestic wage and price pressures in the near term, but also saw a need to balance this against the potential for inflation to fall more quickly and to a greater extent than expected if energy and other tradable goods prices followed a lower path than in the MPC’s central projection. There was also a case for moving Bank Rate in small increments; a larger increase at this meeting could have an outsized impact on expectations for the further path of policy, which was already sufficient, in the central projection, to push inflation well below the target in year three of the forecast. 54. Four members judged that a 0.5 percentage point increase in Bank Rate was warranted at this meeting. Monetary policy had been very accommodative, and capacity pressures were now widespread, especially in the labour market. The projected path for CPI inflation was again being revised up over the first two years of the forecast period, while medium-term inflation expectations remained relatively high and on some measures had increased further. Companies responding to the Decision Maker Panel had indicated that they expected to raise prices significantly in 2022. The strong pickup in pay settlements reported to the Bank’s Agents, and the recent broadening from goods price to services price inflation, suggested that these developments were now being reflected in domestic costs and prices, which could make CPI inflation more persistent than was expected in the February Report central projection. Monetary policy should tighten to a greater extent at this meeting in order to reduce the risk that recent trends in pay growth and inflation expectations became more firmly embedded and thereby help to bring inflation back to the target sustainably in the medium term. 55. Consistent with the MPC’s guidance set out in the August 2021 Report, and given that financial markets were functioning normally, the Committee agreed at this meeting that the Bank of England should cease to reinvest any future maturities falling due from its stock of UK government bond purchases. This reflected the MPC’s intention to reduce its holdings of government bonds in a gradual and predictable manner. 56. In addition, the Committee agreed that the Bank of England should cease to reinvest any maturities falling due from its stock of sterling non-financial investment-grade corporate bond purchases, and that it should initiate a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. 57. The decision to initiate this programme of corporate bond sales reflected the specific characteristics of the corporate bond market and the MPC’s involvement in it, and should not be taken as a signal regarding the commencement, scale or duration of any potential future UK government bond sales programme. The Committee reaffirmed that it would consider beginning the process of actively selling UK government bonds only once Bank Rate had risen to at least 1%, and depending on economic circumstances at the time. 58. The Committee also reaffirmed its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. The Committee agreed that, as a matter of course, it would not continue to vote at each meeting on propositions regarding the stock of purchased assets, at least until any decision concerning sales of UK government bonds. If potential movements in Bank Rate were judged insufficient to achieve the inflation target, or if prevailing conditions were ones in which asset purchases might be particularly effective, the reductions in the stock of purchased assets could be amended or reversed. 59. The extent of any further tightening in monetary policy would depend on the medium-term prospects for inflation. The MPC judged that, if the economy developed broadly in line with the February Report central projections, some further modest tightening in monetary policy was likely to be appropriate in the coming months. The Committee continued to judge that there were two-sided risks around the medium-term inflation outlook, primarily from wage developments on the upside and from energy and global tradable goods prices on the downside. The Committee would update its assessment on the balance of the risks to medium-term inflation in light of the relevant data as they emerged. 60. The Chair invited the Committee to vote on the propositions that: Bank Rate should be increased by 0.25 percentage points, to 0.5%; The Bank of England should begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets; The Bank of England should begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets and by a programme of asset sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. Five members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill and Silvana Tenreyro) voted in favour of the first proposition. Four members (Jonathan Haskel, Catherine L Mann, Dave Ramsden and Michael Saunders) voted against this proposition, preferring to increase Bank Rate by 0.5 percentage points, to 0.75%. The Committee voted unanimously in favour of the second and third propositions. Operational considerations 61. At its September 2021 meeting, the MPC had agreed to reinvest the cash flows associated with reductions in the stock of sterling non-financial investment-grade corporate bond purchases held by the Asset Purchase Facility (APF) back into eligible corporate bonds, commencing in November 2021. The Committee had been briefed at its February meeting on this programme of reinvestments completed in the run-up to the meeting and undertaken in line with the approach to greening set out in the Bank of England's announcement in November 2021. 62. As of 2 February 2022, the total stock of assets held in the APF was £895 billion, comprising £875 billion of UK government bond purchases and £20 billion of sterling non-financial investment-grade corporate bond purchases. 63. Consistent with the Committee’s decision at this meeting to begin to reduce the stock of UK government bond purchases, the £27.9 billion of cash flows associated with the redemption of the March 2022 gilt held by the APF would not be reinvested. 64. In total over 2022 and 2023, just over £70 billion of UK government bonds held by the APF would mature, and over 2024 and 2025 around a further £130 billion of bonds would mature. Details of the full maturity profile of APF-owned government bonds would be set out on the Bank of England’s website, which would be kept updated to ensure that the general public and financial markets had clear information on how the size of the APF was scheduled to evolve. 65. As the stock of purchased assets began to fall, the Bank of England would continue to monitor money market functioning closely, and would stand ready to adjust reserves in either direction if judged necessary to facilitate the smooth transmission of monetary policy. 66. Consistent with the decision at this meeting to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, the Committee asked Bank staff to design a programme of corporate bond sales, details of which would be announced within three months. The programme would be designed so as not to disrupt the functioning of the sterling investment-grade corporate bond market. Further details, including the initial schedule of operations, would be set out in a Market Notice to be published ahead of the start of sales. 67. The Governor had written a letter to the Chancellor of the Exchequer setting out some of these considerations. In addition, the letter highlighted that it was appropriate for the Government indemnity associated with the APF to reduce in size progressively, in line with the reduction in the stock of purchased assets. 68. The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 69. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Ron Kalifa was also present on 26 and 28 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, March 2022 The Bank of England condemns Russia’s unprovoked invasion and the suffering inflicted on Ukraine. The Bank is working closely with the UK Government to support its response in coordination with international authorities. The Bank’s Monetary Policy Committee (MPC) supports this condemnation and welcomes these actions. The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 16 March 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points, to 0.75%. One member preferred to maintain Bank Rate at 0.5%. In the MPC’s central projections in the February Monetary Policy Report, published before Russia’s invasion of Ukraine, UK GDP growth was expected to slow to subdued rates during the course of this year. This in large part reflected the adverse impact of the previous, already large, increases in global energy and tradable goods prices on UK real aggregate income and spending. As a result, a margin of spare capacity was projected to open up and the unemployment rate to rise to 5% by 2025. CPI inflation was expected to peak at around 7¼% in April 2022. Upward pressures on inflation were expected to dissipate over time and, conditioned on the rising market-implied path for Bank Rate expected at the time of the February Report and the MPC’s current forecasting convention for future energy prices, CPI inflation was projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. Developments since the February Report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes. Regarding inflation, the invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices including food prices. It is also likely to exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly. Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow. Turning to economic activity, UK GDP in January was stronger than expected in the February Report. Business confidence has held up and labour market activity data have remained robust. Consumer confidence has, however, fallen in response to the squeeze on real household disposable incomes. That impact on real aggregate income is now likely to be materially larger than implied by the projections in the February Report, consistent with a weaker outlook for growth and employment, all else equal. Twelve-month CPI inflation rose from 5.4% in December to 5.5% in January, which triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Inflation is expected to increase further in coming months, to around 8% in 2022 Q2, and perhaps even higher later this year. The projected overshoot of inflation relative to the 2% target to an increasing extent reflects global energy prices, with some further material contribution from tradable goods prices. Service price inflation has also picked up, although to a lesser extent than other components, with core services prices returning to their pre-Covid trend. Underlying nominal earnings growth is estimated to have remained above pre-pandemic rates, and is still expected to strengthen over the coming year. If sustained, the latest rise in energy futures prices means that Ofgem’s utility price caps could again be substantially higher when they are reset in October 2022. This could temporarily push CPI inflation around the end of this year above the level projected for April, which was previously expected to be the peak. Further out, inflation is expected to fall back materially, as energy prices stop rising and as the squeeze on real incomes and demand puts significant downward pressure on domestically generated inflation. That judgement also reflects that monetary policy will act to ensure that longer-term inflation expectations are well anchored around the 2% target. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock. In particular, should recent movements prove persistent, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom is a net importer, will necessarily weigh further on UK real aggregate income and spending. This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as this real economic adjustment occurs, it does so consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output. Given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist, the Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting. Based on its current assessment of the economic situation, the Committee judges that some further modest tightening in monetary policy may be appropriate in the coming months, but there are risks on both sides of that judgement depending on how medium-term prospects for inflation evolve. The MPC will review developments in the light of incoming data and their implications for medium-term inflation, including the economic implications of recent geopolitical events, as part of its forthcoming forecast round ahead of the May 2022 Monetary Policy Report. Minutes of the Monetary Policy Committee meeting ending on 16 March 2022 1: The Bank of England condemned Russia’s unprovoked invasion and the suffering inflicted on Ukraine. The Bank was working closely with the UK Government to support its response in coordination with international authorities. The Bank’s Monetary Policy Committee (MPC) supported this condemnation and welcomed these actions. 2: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 3: The global economic outlook had deteriorated significantly following Russia’s invasion of Ukraine in late February, and the associated material increase in the prices of energy and raw materials. These price increases would further raise global consumer and producer price inflation in the near term from already high rates, and erode real aggregate income for net commodity-importing countries. Renewed supply chain problems were also likely to emerge as production of, and trade in, important inputs declined, due both to the physical disruption caused by the invasion and the effects of sanctions imposed on Russia. 4: GDP growth in the United States and in the euro area in 2021 Q4 had been broadly in line with expectations in the February Report, and was expected to be slightly stronger in 2022 Q1 than had been anticipated, particularly in the euro area. Euro-area PMIs had picked up sharply in February, indicating that the economic impact of the Omicron Covid variant had been less severe than expected. In the United States, household consumption had rebounded in January, although the rotation from goods to services spending had stalled. Unemployment rates had fallen further in the euro area and the United States at the turn of the year, and wage growth had continued to rise in the United States according to the Federal Reserve Bank of Atlanta’s measure. 5: Chinese activity data for January and February combined, including industrial production and retail sales, had been stronger than expected, reflecting a smaller impact from the Omicron Covid variant at that time. Following a rapid pickup in Covid cases in Hong Kong accompanied by a high mortality rate, Covid cases had, however, started rising again in China, and Chinese authorities had continued to react with tight local restrictions in line with the country’s current Covid strategy. There had been reports of factories stopping production in response, which could lead to supply disruption and weigh on economic activity. 6: Even prior to the most recent increases in energy prices, consumer price inflation had been high in many economies. Euro-area annual HICP inflation had increased to 5.8% in February, with core inflation at 2.7%. US annual CPI inflation had risen to 7.9% in February, and core inflation to 6.4%. The headline US CPI figure was consistent with annual PCE inflation around 6½%. In the euro area, HICP inflation had been driven in large part by increases in energy prices over recent months, in particular gas prices. Contributions to US CPI inflation had been broad-based across components: within core services, rent and healthcare price rises had contributed particularly strongly, while increases in car and household goods prices had pushed core goods inflation higher. 7: Since the invasion, commodity prices had increased substantially, while exhibiting marked volatility. Russia was a significant exporter of gas, supplying around 40% of the gas used in the euro area, and was also the second largest global crude oil producer. Concerns that gas flows to Europe might be disrupted had led to exceptional volatility in European wholesale gas prices. Those prices had risen sharply following the invasion from already elevated levels in early March, with the Dutch Title Transfer Facility spot price rising to around €240 per MWh, before declining again to around €115 per MWh at the time of the MPC’s meeting, around 40% above the average spot price assumed in the February Report. The futures curve six months out was a little below current spot prices. The spot price of Brent crude oil had also been volatile and had increased by around 17% since the February Report, to around $100 per barrel at the time of the MPC’s meeting, in part driven by announcements by the US and UK governments that they would curtail oil imports from Russia. 8: Russia and Ukraine were also major producers of other raw materials, and prices of metals and food had risen by around 15 and 20% respectively since the February Report. Russia accounted for a significant proportion of global pig iron, steel, nickel, aluminium and copper exports that were a key input to many production processes. There had been reports of some car manufacturers having to shut European plants because of a lack of inputs from the region. Russia and Ukraine also accounted for almost 30% of the world’s wheat exports and Russia supplied 16% of the world’s fertiliser. Ukraine was a major producer of neon, which was a key input for the production of semiconductors, potentially leading to renewed supply pressures in this sector. 9: The increases in energy and other raw material prices were expected to boost global consumer price inflation significantly in the near term, directly through fuel, utilities and food prices, and indirectly through firms’ costs. Supply chain disruption could also add further upward pressure to goods prices. Given Europe’s reliance on Russian gas, and the fragmentation of the global market which meant that US gas prices had not increased materially, the effect was expected to be larger in the euro area and in the United Kingdom. Higher prices would reduce real incomes, exacerbating the policy challenges facing central banks around the world. 10: The Russian economy was expected to be affected significantly by sanctions. Financial sanctions announced shortly after the invasion began had been aimed at hindering trade with Russia, through restricting the ability of some Russian banks to process foreign transactions, particularly in dollars, and through curtailing access of some Russian banks to the SWIFT messaging service, which made it more costly to process transactions. Transactions with the Central Bank of Russia had also been prohibited, restricting its ability to use its international reserves to support the rouble, facilitate cross-border trade and service debt. More recently, the United States had announced a ban on Russian oil imports, the United Kingdom had declared that it would phase out its imports of Russian oil by the end of this year, and the European Union had set out plans to cut its gas use by the end of this year by around two-thirds of its gas imports from Russia in 2021. There had also been a wave of voluntary withdrawals of companies from activities in Russia. This had not only involved high profile consumer-facing firms, but also a broader range of companies supplying goods and services to the Russian business sector and mining companies. In late February, the Central Bank of Russia had raised interest rates from 9.5 to 20%, had ordered exporters to surrender 80% of their foreign exchange receipts, and had restricted the ability of residents to take capital out of the country. The rouble had fallen by around 25% since the start of the invasion. Central and Eastern European currencies had depreciated by 3 to 6%, and the Polish and Hungarian central banks had raised interest rates. Central and Eastern European countries had experienced a significant influx of refugees from Ukraine. Monetary and financial conditions 11: Since the MPC’s previous meeting, indicators of financial market volatility had increased and risky asset prices had fallen, reflecting the expected global impact of Russia’s invasion of Ukraine. Advanced economy equity prices had fallen significantly and spreads on corporate bonds had widened. Option-implied distributions of equity prices suggested that these movements reflected increased pricing of downside risks to equity prices, as well as a shift down in central case expectations. 12: Short-term financial market inflation compensation measures had increased across advanced economies, in large part reflecting the impact of the invasion on energy prices. Medium-term measures had also increased over the same period. It was common for these measures to move together, but recent movements in medium-term measures were nevertheless noteworthy, given that oil and gas futures curves were consistent with energy price inflation falling back significantly beyond the near-term horizon. 13: In the United Kingdom, the increases in medium-term inflation compensation measures had taken their levels further above their average of the past decade. As the Committee had discussed previously, interpreting UK medium-term inflation compensation measures was not straightforward. The use of UK inflation markets for hedging large pension liabilities and the uncertain future wedge between consumer price and RPI inflation meant that inflation compensation measures did not provide a direct read of market participants’ fundamental views on the inflation outlook. Nevertheless, models that attempted to extract medium-term market expectations for CPI inflation, and intelligence gathered from market contacts, suggested that higher inflation expectations and greater perceived risks of inflation persistence had probably accounted for above-average levels of UK medium-term inflation compensation measures, alongside other factors. 14: The sterling effective exchange rate had fallen by 1.7% since the previous MPC meeting, and to a greater extent against the US dollar. 15: The near-term path for market-implied policy rates in the United States had risen since the MPC’s previous meeting, although some of this increase had pre-dated the invasion. The market-implied policy rate in the United States reached a little under 2% by end-2022, around 50 basis points higher than immediately prior to the MPC’s February meeting. In the euro area, the near-term market implied path for policy rates had also risen since the MPC’s previous meeting. At its meeting on 10 March, the ECB Governing Council had left its key policy interest rates unchanged, but had announced a faster reduction in the pace of net asset purchases. 16: In the United Kingdom, market-implied expectations for the path of Bank Rate over the year ahead had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points, to 0.75%, at this MPC meeting. The market-implied path for Bank Rate now reached around 2% by end-2022, around 70 basis points higher than immediately prior to the MPC’s February meeting. The latest Bank of England Market Participants Survey suggested that respondents expected a slightly shallower path for Bank Rate than the market-implied path over the next couple of years, but a greater number of respondents viewed the balance of risks around that path as being skewed to the upside rather than to the downside. 17: Longer-term advanced economy government bond yields had increased since the MPC’s previous meeting. 18: UK bank lending rates on mortgages with loan-to-value (LTV) ratios at or below 75% had risen further since the MPC’s previous meeting. This was broadly consistent with a lagged response to the increases in risk-free rates since the autumn of 2021. Lending rates on some higher LTV mortgages had also started to increase. However, rates on higher LTV mortgages had, on the whole, remained lower than in autumn 2021, reflecting the normalisation of spreads in this market, which had increased significantly at the start of the pandemic. The subsequent further increases in risk-free rates that had occurred since the February MPC meeting would be expected to feed through to mortgage lending rates in due course. Interest rates on unsecured household borrowing, such as credit cards and personal loans had, as usual, been less sensitive to changes in reference rates. Demand and output 19: The MPC had been briefed on initial reports from the Bank’s Agents and Decision Maker Panel on business sentiment following the invasion of Ukraine by Russia. But there was little evidence available yet on the impact of the invasion on UK economic activity. The squeeze on real post-tax labour income would, nevertheless, be materially larger than expected previously, due to recent commodity price increases. 20: According to the ONS’s first quarterly estimate, UK GDP had increased by 1.0% in 2021 Q4, broadly in line with the expectation incorporated into the February Monetary Policy Report projection and close to the level of activity prior to the onset of the pandemic in 2019 Q4. Household consumption and business investment had risen by around 1% on the quarter, with government expenditure growing more strongly than those components. Business investment had remained more than 10% below its pre-Covid level, however. 21: Following a 0.2% decline in December, GDP had risen by 0.8% in January, notably stronger than had been expected at the time of the February Report, and to a level 0.5% higher than in 2019 Q4. Government services output had been stronger than expected, accounted for by health activity including NHS Test and Trace. GDP growth in January had been broad based across the service, manufacturing and construction sectors. Output in consumer-facing services had risen by 1.8%, broadly in line with expectations at the time of the February Report. This was consistent with other higher-frequency indicators and with a very limited economic impact on high-contact sectors from the Omicron Covid variant. 22: Since the Committee’s previous meeting, there had been further relaxations, and in some cases removals, of Covid measures announced by the UK Government and Devolved Administrations. Recent high-frequency economic indicators suggested that activity in high-contact sectors was on track to return to its pre-Omicron levels during the first quarter of the year. Data on card spending, restaurant reservations, train journeys and flights had continued to recover strongly over recent weeks. 23: Bank staff now expected GDP to increase by around ¾% in 2022 Q1, stronger than the February Report projection for a flat quarterly outturn. This nowcast assumed that some of the surprising strength in non-Covid related activity in recent months persisted through the quarter. 24: Prior to the invasion in late February, there had already been tentative signs that the squeeze on real disposable incomes was starting to weigh on the household sector. Although aggregate retail sales volumes had risen strongly in January, food sales had fallen to below pre-pandemic levels as food prices had risen. Notably, GfK consumer confidence had declined materially in February, with the weakness most pronounced in the forward-looking personal financial situation component. It was, however, unclear whether that represented downside news relative to the weakness in real incomes and spending that had been factored into the February Report projections. Intelligence from the Bank’s Agents suggested that consumer spending had continued to grow at a robust pace. However, contacts were concerned about the outlook for demand over the coming months, due to increasing pressures on households’ real disposable incomes. 25: Housing market activity had remained robust, and indicators of house prices had surprised on the upside relative to the February Report projections. 26: Recent indicators of corporate sector sentiment had been somewhat more resilient than consumer confidence, although these had generally been collated prior to the invasion. The IHS Markit/CIPS composite output PMI in February had risen to its highest level since June 2021. There had also been signs in the manufacturing and construction PMIs that supply chain disruptions had eased further. Nevertheless, the latest intelligence from the Bank’s Agents suggested that the invasion was expected to exacerbate shortages of some tradable goods and could affect the production plans of some sectors, such as the automotive industry. And on the demand side, early results from the March Decision Maker Panel suggested that around one third of companies viewed the invasion as one of the top three sources of uncertainty for their business, with an average negative impact across all firms of around 3% on sales expectations over the next twelve months. 27: The Chancellor of the Exchequer would present the Spring Statement to Parliament on 23 March, alongside updated Office for Budget Responsibility projections in its Economic and fiscal outlook. Supply, costs and prices 28: Twelve-month CPI inflation had risen to 5.5% in January, marginally above the February Monetary Policy Report forecast. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 29: Taken together, energy and core goods inflation had accounted for over four fifths of the overshoot of CPI inflation relative to the 2% target in January. Food price inflation had strengthened further and accounted for much of the remainder of the overshoot. 30: The Government’s Energy Bills Rebate, a package of support for households worth around £9 billion, had been announced after the MPC’s February meeting and the completion of the February Report projections. This package included a £150 payment to most households via council tax bills in April, and a £200 credit to households administered via electricity bills from October and repaid over the subsequent five-year period. The ONS’s announcements on the treatment of these elements of this package in official consumer price measures were forthcoming. 31: CPI inflation was expected to rise to around 6% in February and March, before rising further, to around 8% in April, and remaining close to that rate for the rest of the quarter. The latter would be around 1 percentage point higher than expected in the February Report. The majority of this news could be attributed to energy prices. This included Ofgem’s announcement of slightly higher than expected increases in gas and electricity price caps in April, which were based on wholesale gas and electricity prices that pre-dated Russia’s invasion of Ukraine. In addition, recent increases in oil prices associated with the invasion were being reflected in prices of petrol and heating oil. Wholesale gas prices had been exceptionally volatile and the six-month observation window relevant for Ofgem’s October utility price cap calculation, which would run from February to the end of July, had only recently opened. If sustained, the latest rise in gas and electricity futures prices would mean that price caps, when reset in October 2022, could be around 35% higher, which would be around 20% higher than had been expected in the February Report. 32: Food price inflation was expected to rise further, from 4.3% in January, reflecting the pass-through of cost increases over recent months. Indicators of cost pressures further down the food supply chain had continued to rise. Following the invasion, agricultural commodity prices had increased sharply, which could put further upward pressure on input costs and food price inflation. 33: Core CPI inflation was expected to rise further, to around 5 to 5½% in 2022 Q2 accounted for largely by increases in core goods price inflation. Core goods inflation was expected to remain above its average during the previous decade. Services price inflation was projected to increase slightly, above recent historical averages. The overall near-term profile for core inflation was slightly higher than the expectation at the time of the February Report. Global supply chain disruptions posed an upside risk to the outlook for core goods price inflation. 34: Survey indicators of cost and price pressures had remained elevated. Both the IHS Markit/CIPS PMI composite input and output price measures had remained close to their historical highs. But these indicators pre-dated Russia’s invasion of Ukraine and were likely to understate the consequent cost pressures associated with the invasion. More timely intelligence from the Bank’s Agents’ contacts suggested that input prices had picked up further since late February, in particular for metals, grain and seed oils. 35: Since the MPC’s previous meeting, households’ and businesses’ inflation expectations had risen further. Both the Bank/Ipsos and the Citi/YouGov surveys had reported a further rise in households’ short-term inflation expectations in 2022 Q1. The rise in the latter in March had been particularly pronounced, reaching its highest level since the survey had begun in late 2005. Changes in households’ short-term inflation expectations had typically corresponded with changes in spot inflation, especially developments in the prices of frequently purchased items, such as food, fuel and utilities. Medium-term measures of households’ inflation expectations had also increased further, though by less than their short-term counterparts. Nevertheless, the Citi/YouGov five-to-ten year ahead measure had matched its previous record high recorded in June 2011. 36: The Decision Maker Panel had reported a further increase in expectations for businesses’ year-ahead output price inflation, which had risen to 4.8% in the three months to February, and risen slightly further in the early March data particularly for those respondents who had viewed the invasion as the largest source of uncertainty for their businesses. The expectations of professional forecasters, reported in HM Treasury’s February survey, had remained close to the inflation target of 2% at the two- to three-year ahead horizons. 37: The latest labour market indicators had continued to point to a tight and tightening labour market, which, alongside rising inflation, had contributed to strong pay growth. 38: The Labour Force Survey (LFS) unemployment rate had fallen to 3.9% in the three months to January, as had been expected at the time of the February Report. The LFS employment rate had been unchanged, with the inactivity rate rising slightly. Both developments had been broadly consistent with expectations at the time of the February Report. Her Majesty’s Revenue and Customs (HMRC) employee payrolls had risen strongly, by a further 275,000 in February, although these initial estimates had tended to be revised down somewhat subsequently. 39: Indicators of labour demand had remained strong. The stock of vacancies in the three months to February had risen to 1.3 million, supplanting the record high set in the preceding three-month period. The REC permanent placements index had remained close to its record high in February. The vacancy-to-unemployment ratio, a measure of labour market tightness, had remained above pre-Covid levels and had reached a new record high level. Intelligence from the Bank’s Agents suggested that elevated recruitment difficulties had persisted across most sectors and skill levels. The Agents’ contacts had reported high rates of job churn and vacancies, with little improvement in labour availability expected over the next year. 40: Private-sector regular Average Weekly Earnings (AWE) growth had risen to 4.1% in the three months to January on a year earlier, stronger than had been expected in the February Report. Bank staff estimated that workforce compositional effects had started to drag on headline pay growth recently. Adjusted for the mechanical effects of the changes in workforce composition and the Coronavirus Job Retention Scheme, Bank staff estimated that underlying private sector regular pay growth had remained at around 4 to 4½%, above pre-pandemic rates of around 3 to 3½%. The HMRC median of pay growth in February had been 3.7%, also above pre-pandemic rates. Looking ahead, the latest intelligence from the Bank’s Agents continued to point to higher pay settlements than a year ago, consistent with the Agents’ recent annual pay survey. The immediate policy decision 41: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 42: In the MPC’s central projections in the February Monetary Policy Report, published before Russia’s invasion of Ukraine, UK GDP growth had been expected to slow to subdued rates during the course of this year. This had in large part reflected the adverse impact of the previous, already large, increases in global energy and tradable goods prices on UK real aggregate income and spending. As a result, a margin of spare capacity had been projected to open up and the unemployment rate had been expected to rise to 5% by 2025. CPI inflation had been expected to peak at around 7¼% in April 2022. Upward pressures on inflation had been expected to dissipate over time and, conditioned on the rising market-implied path for Bank Rate expected at the time of the February Report and the MPC’s current forecasting convention for future energy prices, CPI inflation had been projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years. 43: The Committee reviewed recent economic news, against the backdrop of Russia’s invasion of Ukraine and related developments. 44: Based on available economic data for the period prior to the invasion, UK-weighted global GDP in 2022 Q1 was expected to grow by a little more than had been expected in the February Report, particularly in the euro area. Global consumer price inflation had risen further in February, to 5.8% in the euro area and to 7.9% in the United States. 45: The invasion had led to further large increases in energy and other commodity prices including food prices. It was also likely to exacerbate global supply chain disruptions, and had increased the uncertainty around the economic outlook significantly. Global inflationary pressures would strengthen considerably further over coming months, while growth in many of the United Kingdom’s major trading partners, such as the euro area and other economies that were net energy importers, was likely to slow. 46: Gas prices in Europe had risen sharply following the invasion from already elevated levels, before declining again. The spot price of Brent oil had also been volatile and had increased to around $100 per barrel at the time of the MPC’s meeting. Prices of metals and food had risen by around 15 and 20% respectively, and by a greater amount for those commodities of which Russia or Ukraine were major exporters. 47: Since the MPC’s previous meeting, indicators of financial market volatility had increased and advanced economy risky asset prices had fallen. Longer-term advanced economy government bond yields had increased. 48: In the United Kingdom, market-implied expectations for the path of Bank Rate over the year ahead had risen, with market pricing consistent with an increase in Bank Rate of 0.25 percentage points at this MPC meeting. The market-implied path for Bank Rate now reached around 2% by end-2022. 49: The Government’s Energy Bills Rebate had been announced after the MPC’s February meeting and the completion of the February Report projections. The ONS’s announcements on the treatments of the elements of this package in consumer price statistics were forthcoming. The Chancellor of the Exchequer would present the Spring Statement to Parliament on 23 March, alongside updated Office for Budget Responsibility projections in its Economic and fiscal outlook. 50: The MPC had been briefed on initial reports from the Bank’s Agents and Decision Maker Panel on business sentiment following Russia’s invasion of Ukraine. But there was little evidence available yet on the impact of the invasion on UK economic activity. 51: UK GDP in January had been stronger than expected in the February Report. Bank staff now expected GDP to increase by around ¾% in 2022 Q1, stronger than the February Report projection for a flat quarterly outturn. Business confidence had held up and labour market activity data had remained robust. The Labour Force Survey unemployment rate had fallen to 3.9% in the three months to January, as expected at the time of the February Report. Her Majesty’s Revenue and Customs employee payrolls had risen strongly in February, although these initial estimates had tended to be revised down somewhat subsequently. The vacancy-to-unemployment ratio had risen to another record high, and indicators of recruitment difficulties had remained elevated. Consumer confidence had, however, fallen in response to the squeeze on real household disposable incomes. Developments in the labour market were also likely to lag those in confidence and spending. 52: Due to recent developments, the impact of energy prices on real aggregate income was now likely to be materially larger than implied by the projections in the February Report, consistent with a weaker outlook for growth and employment, all else equal. The extent to which households reacted to the additional weakness in their real incomes by cutting their real spending or by reducing their savings would be important to monitor over coming quarters. The aggregate saving rate had already declined materially from its pandemic-driven peak over recent quarters, although it could fall below its pre-Covid level if some households were to run down the additional stock of savings built up during the pandemic. Developments in energy prices were likely to affect disproportionately households with lower incomes. Those households had not in general seen substantial rises in savings during the pandemic, however, which would limit the extent of any offset from a rundown of savings. It would also be important to monitor the extent to which higher uncertainty led to a reduction in business investment. 53: Underlying nominal earnings growth was estimated to have remained above pre-pandemic rates in the three months to January, and was higher than had been expected in the February Report. The latest intelligence from the Bank’s Agents continued to point to higher pay settlements than a year ago, consistent with the Agents’ recent annual pay survey. 54: Twelve-month CPI inflation had risen from 5.4% in December to 5.5% in January, which had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. Inflation was expected to increase further in coming months, to around 8% in 2022 Q2, around 1 percentage point higher than expected in the February Report. The majority of this news could be attributed to energy prices. The projected overshoot of inflation relative to the 2% target to an increasing extent reflected global energy prices, with some further material contribution from tradable goods prices. Service price inflation had also picked up, although to a lesser extent than other components, with the level of core services prices returning to their pre-Covid trend. Survey indicators of cost and price pressures had remained elevated. 55: If sustained, the latest rise in energy futures prices meant that Ofgem’s utility price caps could again be substantially higher when they were reset in October 2022. Wholesale prices had, however, been exceptionally volatile and the six-month observation window relevant for the October price cap calculation, which would run from February to the end of July, had only recently opened. Such movements could nevertheless temporarily push CPI inflation around the end of this year above the level projected for April, which had previously been expected to be the peak. Such an outturn could be several percentage points higher than had been expected in the February Report. In addition, continuing global supply chain disruptions posed an upside risk to the outlook for core goods inflation. 56: Further out, inflation was expected to fall back materially, and possibly to a greater extent than had been expected in the February Report, as energy prices stopped rising and as the squeeze on real incomes and demand put significant downward pressure on domestically generated inflation. The recent increase in the market-implied path of Bank Rate would also push down on demand and inflation in the medium term relative to the February Report, all else equal. The judgement that inflation would fall back also reflected that monetary policy would act to ensure that longer-term inflation expectations were well anchored around the 2% target. 57: Since the MPC’s previous meeting, financial market, household and business indicators of inflation expectations had risen. Medium-term UK inflation compensation measures in financial markets had increased further above their averages of the past decade. The Citi/YouGov measure of households’ five-to-ten year ahead expectations had matched its previous record high level. The Decision Maker Panel had reported a further increase in expectations for businesses’ year-ahead output price inflation. Nonetheless, the expectations of professional forecasters, had remained close to the 2% target at the two to three year ahead horizon. Overall, the MPC judged that inflation expectations remained well anchored at present. A risk to the inflation outlook was that wages and prices would not be set in a manner consistent with inflation returning to the 2% target in the medium term. The Committee would continue to monitor measures of inflation expectations very closely. 58: The Committee turned to its immediate policy decision. 59: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine was another such shock. In particular, should recent movements prove persistent, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom was a net importer, would necessarily weigh further on UK real aggregate income and spending. This was something monetary policy was unable to prevent. The role of monetary policy was to ensure that, as this real economic adjustment occurred, it did so consistent with achieving the 2% CPI inflation target sustainably in the medium term, while minimising undesirable volatility in output. 60: Given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures would persist, most members of the Committee judged that a 0.25 percentage point increase in Bank Rate was warranted at this meeting. UK activity had been somewhat stronger than had been expected at the time of the February Report and there had been indications that the current tightening in the labour market might not reverse direction as quickly as had been expected. The effects of Russia’s invasion of Ukraine would likely accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes. Monetary policy should be tightened at this meeting in order to reduce the risk that recent trends in nominal pay growth, domestic pricing, and inflation expectations strengthened and became embedded, and thereby to help to ensure inflation was at target sustainably in the medium term. 61: For one member of the Committee, it was appropriate to maintain the existing stance of monetary policy at this meeting. This member recognised the risk of second-round effects from a protracted period of high inflation and a tight labour market and that, as a consequence, further policy tightening might be warranted. This member, however, also placed great weight, at this point, on the very material negative impacts of higher commodity prices on real household incomes and activity. These appeared to have been exacerbated by Russia’s invasion of Ukraine. The invasion could also increase uncertainty and decrease consumer and business confidence. Such impacts on activity and employment would push against domestic inflationary pressures. For this member, the path of monetary policy would depend upon a fuller assessment than currently possible of the balance between these pressures, especially given current volatility in commodity markets. 62: Based on its current assessment of the economic situation, the Committee judged that some further modest tightening in monetary policy might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects for inflation evolved. The MPC would review developments in the light of incoming data and their implications for medium-term inflation, including the economic implications of recent geopolitical events, as part of its forthcoming forecast round ahead of the May 2022 Monetary Policy Report. 63: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 0.75%. 64: Eight members (Andrew Bailey, Ben Broadbent, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden, Michael Saunders and Silvana Tenreyro) voted in favour of the proposition. Jon Cunliffe voted against the proposition, preferring to maintain Bank Rate at 0.5%. Operational considerations 65: As of 16 March 2022, and following the maturity of the March 2022 gilt previously held by the Asset Purchase Facility (APF), the total stock of assets held in the APF was £867 billion, comprising £847 billion of UK government bond purchases and £20 billion of sterling non-financial investment-grade corporate bond purchases. 66: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 67: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Dorothy Thompson was also present on 8 March, and Bradley Fried and Dorothy Thompson were present on 11 March, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target.  Operational decisions are taken by the Bank’s Monetary Policy Committee.  The minutes of the Committee meeting ending on 4 May will be published on 5 May 2022.

Monetary Policy Summary, May 2022 The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 4 May 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%. Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth. These developments have exacerbated greatly the combination of adverse supply shocks that the United Kingdom and other countries continue to face. Concerns about further supply chain disruption have also risen, both due to Russia’s invasion of Ukraine and to Covid-19 developments in China. UK GDP is estimated to have risen by 0.9% in 2022 Q1, stronger than expected in the February Monetary Policy Report. The unemployment rate fell to 3.8% in the three months to February, and is likely to fall slightly further in coming months, consistent with a continuing tightening in the labour market and with a margin of excess demand at present. Surveys of business activity have generally remained strong. There have, however, been signs from indicators of retail spending and consumer confidence that the squeeze on real disposable incomes is starting to weigh on the household sector. The level of GDP is expected to be broadly unchanged in Q2. Twelve-month CPI inflation rose to 7.0% in March, around 1 percentage point higher than expected in the February Report. The strength of inflation relative to the 2% target mainly reflects previous large increases in global energy and tradable goods prices, the latter of which is due to the shift in global demand towards durable goods and to supply chain disruptions. The Committee’s updated central projections for activity and inflation are set out in the accompanying May Monetary Policy Report. The projections are conditioned on a market-implied path for Bank Rate that rises to around 2½% by mid-2023, before falling to 2% at the end of the forecast period. Fiscal policy is assumed to evolve in line with announced Government policies. Wholesale energy prices are assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which are downward sloping over coming years. There are material risks around this assumption. In the May Report central projection, CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4. The majority of that further increase reflects higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October. The price cap mechanism means that it takes some time for increases in wholesale gas and electricity prices, and their respective futures curves, to be reflected in retail energy prices. Given the operation of the price cap, consumer price inflation is likely to peak later in the United Kingdom than in many other economies, and may therefore fall back later. The expected rise in CPI inflation also reflects higher food, core goods and services prices. Underlying nominal earnings growth has risen by more than projected in the February Report and is expected to strengthen in coming months, given the further tightening of the labour market and some upward pressure from higher price inflation. Companies generally expect to increase their selling prices strongly in the near term, following the sharp rises in their costs, with many reporting confidence that they will be able to rebuild at least some of their margins. Nonetheless, in the May Report central projection, UK GDP growth is expected to slow sharply over the first half of the forecast period. That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins. Although the unemployment rate is likely to fall slightly further in the near term, it is expected to rise to 5½% in three years’ time given the sharp slowdown in demand growth. Excess supply builds to 2¼% by the end of the forecast period. With monetary policy acting to ensure that longer-term inflation expectations are anchored at the 2% target, upward pressure on CPI inflation is expected to dissipate over time. Global commodity prices are assumed to rise no further in the central projection, global bottlenecks ease over time, and the weakening in demand growth and building excess supply lead domestic inflationary pressures to subside. Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation is projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to 1.3% in three years, well below the target and mainly reflecting weaker domestic pressures. The risks to the inflation projection are judged to be skewed to the upside at these points, given the risks of more persistent strength in nominal wage growth and domestic price setting than assumed. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock. In particular, should recent movements prove persistent as the central projections assume, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom is a net importer, will necessarily weigh further on most UK households’ real incomes and many UK companies’ profit margins. This is something monetary policy is unable to prevent. The role of monetary policy is to ensure that, as this real economic adjustment occurs, it does so in a manner consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output. Recent developments have exacerbated materially both the near-term peak in CPI inflation, and the prospective negative impact on activity and medium-term inflationary pressures. Nevertheless, given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist, the Committee voted to increase Bank Rate by 0.25 percentage points at this meeting. Based on their updated assessment of the economic outlook, most members of the Committee judge that some degree of further tightening in monetary policy may still be appropriate in the coming months. There are risks on both sides of that judgement and a range of views among these members on the balance of risks. The MPC will continue to review developments in the light of incoming data and their implications for medium-term inflation. The Committee reaffirms its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. As Bank Rate is now being increased to 1%, and consistent with the MPC’s previous guidance, the Committee will consider beginning the process of selling UK government bonds held in the Asset Purchase Facility. The Committee reaffirms that the decision to commence sales will depend on economic circumstances including market conditions at the time, and that sales would be expected to be conducted in a gradual and predictable manner so as not to disrupt the functioning of financial markets. The Committee recognises the benefits of providing market participants with clarity on the framework for any potential sales programme. The Committee has therefore asked Bank staff to work on a strategy for UK government bond sales, and will provide an update at its August meeting. This will allow the Committee to make a decision at a subsequent meeting on whether to commence sales. Minutes of the Monetary Policy Committee meeting ending on 4 May 2022 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: The economic consequences of the Russian invasion of Ukraine had started to be felt globally. From already elevated levels, increases in the prices of energy and other commodities since the start of the war had put further upward pressure on producer and consumer price inflation, weighing on real incomes. Concerns around supply chain bottlenecks had also risen, owing both to the war in Ukraine and to Covid-19 (Covid) developments in China. These developments were consistent with a deterioration in the outlook for global growth. UK-weighted global GDP was expected to grow only slightly in 2022 Q2, materially slower than had been anticipated at the time of the February Monetary Policy Report. 3: European economies were expected to be particularly affected by the war in Ukraine given their dependence on energy imports. Euro-area GDP was expected to grow only a little in 2022 Q2, at a rate significantly lower than had been anticipated in the February Report, following growth of 0.2% in Q1 according to the preliminary flash release. In the first quarter, the economic impact of the Omicron variant had been somewhat less than had been anticipated in the February Report, and indicators suggested that services activity had continued to expand into the second quarter as Covid restrictions had eased. Nonetheless, the war in Ukraine had weighed on growth prospects, particularly in the manufacturing sector, with output PMIs declining in April. Forward-looking indicators of business expectations and consumer confidence had also weakened significantly since the invasion. The outlook for Central and Eastern European countries had worsened, and their currencies had depreciated relative to the US dollar since the MPC’s last meeting, partly reflecting the strength of their trade linkages with Russia. Ukraine’s economic output was expected to decline materially as a direct consequence of the war. The Russian economy was also expected to contract significantly this year. 4: According to the advance estimate, US GDP had contracted by 0.4% in 2022 Q1, driven primarily by a widening of the trade deficit and weak inventory investment. Although this was weaker than had been anticipated in the February Report, underlying demand, namely personal consumption and gross private fixed investment, had remained strong in the first quarter, and spending had continued to rotate back towards services from goods. As a net exporter of oil and with retail gas prices having not risen by as much in absolute terms as in Europe, the US economy was expected to be relatively less affected by developments in commodity prices, albeit not fully shielded, and GDP was expected to expand reasonably strongly in the second quarter. The US labour market had remained tight, with the unemployment rate falling to 3.6% in March, close to pre-Covid levels. Wage growth had continued to rise, according to the Federal Reserve Bank of Atlanta’s measure. 5: China had been experiencing a significant outbreak of Covid cases, against an already challenging economic backdrop, including stresses in the property sector. The authorities had imposed lockdowns in a number of large cities, including Shanghai, in late March. As a result of these developments, China’s GDP was expected to grow more slowly in 2022 Q2 than had been anticipated in the February Report, by 0.8%. This would also be weaker than in Q1, when GDP had grown by 1.3%. Consistent with the Chinese authorities’ approach to supporting manufacturing during Covid outbreaks, for example through closed-loop production systems in which workers remained on factory sites, industrial production growth had fallen by less than retail sales growth in March. Some ports in affected cities had experienced congestion and there had been widespread reports of delays to road freight, adding to global supply chain pressures. Although delays had started to ease, further disruptions were possible over the coming months. 6: Supply chain constraints had also arisen due to Russia’s invasion of Ukraine, intensifying global cost pressures. Russia and Ukraine were major producers of many inputs, ranging from metals and food to fertilisers, as well as oil and natural gas. The war had led to broad increases in commodity prices, although some had fallen back from their peaks over recent weeks. The spot price of Brent crude oil had increased by around 25% to $106 per barrel since the February Report. 7: European gas prices had risen sharply following the invasion, before moderating. Russia’s decision to cease gas flows to Poland and Bulgaria in late April had led to a short-lived increase in the Dutch Title Transfer Facility (TTF) spot price, which now stood at around €100 per MWh, broadly the same level as at the MPC’s March meeting and around 20% higher than at the time of the February Report. The TTF futures curve remained at around this level for just under a year before declining notably. A wedge had opened up between the TTF and UK spot gas prices, with UK contracts trading at a lower level of around €65 per MWh, or 160 pence per therm. This was due to large liquefied natural gas (LNG) shipments to the United Kingdom, alongside a rebound in output from Norwegian gas fields and seasonally warmer weather. This wedge persisted in the futures curve for about six months, at which point the UK futures price rose to the TTF futures price as LNG shipments to the UK were expected to be more in line with capacity to re-export to the European Union. 8: Over recent weeks, metals prices had fallen to levels a little above those at the time of the February Report in aggregate, although the prices of some metals such as nickel and zinc had remained elevated. Food prices, including wheat and corn, had remained substantially higher than at the time of the February Report. 9: Against this backdrop of strong commodity prices, global consumer price inflation had continued to rise. In the euro area, annual HICP inflation had increased to 7.5% in April, with core inflation at 3.5%. In the United States, annual CPI inflation had risen to 8.5% in March, with core inflation at 6.5%, while headline PCE inflation had increased to 6.6%. Much of the increase in US CPI inflation had been due to higher contributions from energy prices, but core goods and services components had continued to make the largest contributions to the inflation rate. In the euro area, energy prices had been the main contributor to inflation, although core inflation had risen sharply in April. Measures of inflation expectations had generally increased in advanced economies, in particular at shorter horizons. 10: The Committee discussed the risks around the global inflation outlook, and the implications for growth. There was an upside risk to the future path for energy prices, particularly gas prices, for example if flows of Russian gas to large euro-area countries slowed significantly. Under such a scenario, European gas prices would be likely to increase sharply and gas quantities could be rationed going into next winter as EU gas stocks might run low. There was also an upside risk to inflation from further price pressures related to global supply chain disruptions. Additional constraints affecting transportation capacity, inputs to industrial processes and agricultural production were possible, both owing to the war in Ukraine and if there were further severe Covid outbreaks in China. Set against the backdrop of continuing strong US consumer demand, this could generate further increases in core goods prices, although lower demand from China could reduce commodity prices at the margin. Finally, there was a risk that tight labour markets and strong wage growth, coupled with higher inflation expectations, could lead to further inflationary pressures in advanced economies. Additional price pressures could lead to a further deterioration in the global growth outlook as real incomes were squeezed, reducing consumer spending and exacerbating the policy challenges facing central banks around the world. Monetary and financial conditions 11: Since the MPC’s previous meeting, advanced-economy government bond yields had risen significantly and by more in the United States and in the euro area than in the United Kingdom. Ten-year yields had increased by around 80 basis points in the United States, 65 basis points in the euro area and 35 basis points in the United Kingdom. 12: The near-term path for market-implied policy rates in the United States had risen significantly since the MPC’s previous meeting. At its March meeting, the Federal Open Market Committee had increased the target range for the federal funds rate to 0.25-0.50% and had given an indication that the Committee was well placed to begin the process of reducing the size of the Federal Reserve’s balance sheet as early as May and at a quicker pace than during the 2017-19 episode of balance sheet reduction. The market-implied policy rate in the United States reached 2.8% by end-2022 and peaked at around 3.4% in 2023. In the euro area, the near-term market-implied path for policy rates had also risen since the MPC’s previous meeting. At its meeting on 14 April, the ECB Governing Council had left its key policy interest rates unchanged and had noted that recent data had reinforced its expectation that net asset purchases should be concluded in the third quarter of 2022. 13: In the United Kingdom, market pricing was consistent with an increase in Bank Rate of 0.25 percentage points, to 1% at this MPC meeting, and market-implied expectations for the path of Bank Rate had risen further out. The May Monetary Policy Report was conditioned on a market-implied path for Bank Rate, based on the 15-working day average to 26 April, that rose to around 2% by end-2022, peaked at 2.6% in 2023 and then fell back to around 2% in three years’ time. The results of the Bank of England’s Market Participants Survey had indicated broadly similar expectations for Bank Rate in the near term, with almost all respondents expecting a 0.25 percentage point increase at this meeting. Respondents expected a much lower central path for Bank Rate than the market-implied path further ahead, albeit a significant number of respondents viewed the balance of risks around that path as being skewed to the upside rather than to the downside over the next two years, reconciling at least in part the difference with market-implied expectations. 14: Short-term financial market inflation compensation measures in the United Kingdom had increased since the MPC’s previous meeting, in part reflecting the continued impact of Russia’s invasion of Ukraine on gas and other energy prices. At the same time, medium-term inflation compensation measures in the United Kingdom had fallen modestly, but they had remained above their levels at the time of the February Report and above their average levels of the past decade. Intelligence gathered from market contacts, suggested that higher inflation expectations and greater perceived upside risks to inflation might have in part accounted for these above-average levels of medium-term inflation compensation measures, alongside other factors. 15: The US dollar effective exchange rate had appreciated by around 2% since the MPC’s March meeting, as interest rate differentials had widened. The sterling effective exchange rate had depreciated by around 1%, while the euro effective exchange rate had remained broadly unchanged. 16: US and euro-area equity prices had been broadly unchanged since the MPC’s previous meeting. The FTSE All-Share index had increased to levels seen prior to the invasion of Ukraine, but the UK-focussed FTSE index, which had been less supported by the rise in energy prices, had remained below levels seen prior to the invasion. There had been less adjustment in the corporate bond market. 17: UK bank lending rates on mortgages with loan-to-value (LTV) ratios at or below 75% had risen further since the MPC’s previous meeting. This was broadly consistent with a lagged response to the increases in risk-free rates since the autumn of 2021. Lending rates on higher LTV mortgages and sight deposit rates had also started to increase. The further increases in risk-free rates that had occurred since the March MPC meeting would be expected to feed through to mortgage rates in due course. Interest rates on unsecured household borrowing, such as credit cards and personal loans had, as usual, been less sensitive to changes in reference rates. Demand and output 18: Starting with the most immediate quarter with a complete dataset, UK real GDP growth in 2021 Q4 had been revised up slightly, from 1.0% to 1.3%, with the level of GDP estimated to have been almost identical to that in 2019 Q4 prior to the pandemic. Within the expenditure components, household consumption had risen by 0.5% on the quarter and the saving ratio had fallen to 6.5%, its lowest level since the onset of the pandemic though still higher than during the pre-Covid period. Business investment had increased by 1.0% in Q4, leaving it around 8½% below its pre-pandemic level. Government spending had risen by 1.2%, to almost 9% above its pre-Covid level. 19: Turning to the latest available monthly data, GDP had increased by 0.1% in February, following 0.8% growth in January. The output of consumer-facing services had risen strongly in February, particularly in the accommodation and foods, and arts and recreation sectors, as the economic impact of the Omicron variant had unwound. Government services output had fallen back, as spending on NHS Test and Trace and the vaccination programme had declined. Manufacturing and construction output had fallen slightly on the month. 20: For the first quarter as a whole, Bank staff now expected GDP growth of 0.9%, stronger than the flat quarterly outturn that had been incorporated in the February Monetary Policy Report projection. That upward revision largely reflected higher-than-expected market-sector output. 21: There had been increasing signs that the squeeze on real disposable incomes was starting to weigh on the household sector. Retail sales volumes had fallen by 1.4% in March, following a 0.5% decline in February, with weakness in fuel, food store and non-store retailing. Nominal retail sales values had remained broadly stable, such that weaker sales volumes had been the counterpart to recent further increases in the sales deflator. GfK consumer confidence had declined sharply in April, to close to the previous low point for the series recorded in mid-2008. All five backward and forward looking sub-balances feeding into the headline confidence indicator had fallen on the month. Indicators of house prices and housing activity had remained robust, however. 22: Although some activity indicators from business surveys had weakened, they had remained notably stronger than their household survey counterparts. The S&P Global/CIPS flash composite output index had fallen from 60.9 in March to 57.6 in April, but had remained above its long-run average level. The composite new orders and output expectations series had fallen to around their long-run averages. According to contacts of the Bank’s Agents, output was growing at a solid pace overall, with business services reporting strong growth. But growth had continued to be held back by shortages of labour and goods, with the latter worsening and becoming more widespread since the invasion of Ukraine and the increase in Covid-related restrictions in China. Investment intentions reported to the Agents had remained strong despite increasing uncertainty, although current investment spending was being held back by cost pressures and shortages of materials, goods and labour. Expected sales growth over the year between 2021 Q4 and 2022 Q4 had remained strong in the April Decision Maker Panel results. 23: In the May Report central projection, GDP was expected to increase by 0.1% in 2022 Q2, as the real income squeeze weighed on household spending and there were some adverse effects from the renewed disruption of supply chains. Covid-related government spending was also projected to decline further. The timing of the additional Platinum Jubilee Bank Holiday was expected to reduce growth temporarily by a ¼ percentage point, with an equivalent boost expected in 2022 Q3. As a result, excluding the temporary impact of the extra Bank Holiday, market-sector output was projected to grow in Q2, but at only about half of the pace expected in the first quarter. 24: The Committee discussed the risks around the near-term outlook for GDP. In the May Report central projections, real consumer spending was projected to rise only slightly in 2022 Q2 and during H2, while real household disposable income was expected to decline materially. That reflected a judgement that the household saving ratio would fall to around 5% in Q2 and to 3½% by the end of the year, around 1 percentage point below its 2019 average. There were downside risks to that consumption profile from reduced-form models and from a mechanical pre-Covid mapping of recent consumer confidence declines to spending growth. Set against that, it was possible that the saving ratio could fall back even further in the near term, or remain lower for longer, than had been projected. Many respondents to the latest Bank/NMG household survey had stated that they would save less or use existing savings if faced with a hypothetical increase in inflation. And recent strength in business-to-business services, manufacturing and construction output could persist for longer than was assumed in the central projection, consistent to some extent with the relative strength in business survey indicators of output. 25: The Chancellor of the Exchequer had presented the Spring Statement to Parliament on 23 March. In addition to the measures in the Energy Bills Rebate package that had been announced in February, the Spring Statement had included an immediate twelve-month reduction in fuel duty. There had also been an announcement of an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit from July 2022 to align with the income tax personal allowance, and a reduction in the basic rate of income tax from 20% to 19% from April 2024. Taken together, Bank staff estimated that these measures were likely to boost GDP by around ½% over coming years. Supply, costs and prices 26: The Labour Force Survey (LFS) unemployment rate had fallen to 3.8% in the three months to February, consistent with an ongoing tightening in the labour market. The number of inactive people who reported wanting a job had also continued to be historically low. Inactivity had increased in aggregate and LFS employment had been broadly flat in recent months. In contrast, growth in HMRC employee payrolls and survey indicators of employment had remained strong. 27: The Committee discussed the risks to the outlook for labour market activity. The labour market had again been tighter than expected. The Bank’s Agents were reporting that firms’ employment intentions had remained robust, despite increased uncertainty around the broader economic outlook, but that the recent rate of hiring had been hindered by higher than usual staff turnover and recruitment difficulties. The number of vacancies had remained elevated, and survey measures of firms’ employment intentions and households’ sense of their own job security had also continued to be resilient. Nevertheless, the labour market had lagged activity around previous turning points in the economic cycle, and the prospective weakening in output was likely to weigh on labour demand in coming quarters. Consistent with this, in the May Monetary Policy Report forecast, the unemployment rate was projected to fall further in 2022 Q2, before stabilising in the second half of the year and increasing in 2023. 28: Whole-economy Average Weekly Earnings (AWE) growth had increased to 5.4% in the three months to February on a year earlier, more than 1 percentage point above the February Report forecast, reflecting strength in both regular pay and bonuses. Bank staff estimated that underlying private-sector regular pay growth had remained at around 4 to 4½%, once adjusting for the mechanical effects of changes in the composition of the workforce and the Coronavirus Job Retention Scheme. The median pay settlement recorded in the Bank staff’s database had risen in the first few months of this year, broadly consistent with the Agents’ February pay survey. More recently, some of the Agents’ contacts had begun to consider further increases in pay settlements, or one-off bonuses, during the course of the year to retain staff, especially where there was strong demand for particular skills. Underlying pay growth was expected to increase over the remainder of the year, and by more than had been projected in the February Report, consistent with a tight labour market alongside rising inflation. 29: Twelve-month CPI inflation had risen to 7.0% in March, around 1 percentage point above the February Report forecast. The bulk of the upside news had been split evenly across energy and core goods prices. Taken together, energy and core goods components had also accounted for around four-fifths of the overshoot of CPI inflation relative to the 2% target, with the remainder spread across food and services components. Core goods inflation had been somewhat weaker in the euro area than in the United Kingdom and the United States. 30: CPI inflation was expected to rise to around 9% in April, and to increase further in subsequent months, averaging slightly over 10% at its peak in 2022 Q4. 31: The build up to and subsequent Russian invasion of Ukraine had pushed up commodity prices further. Household gas and electricity prices were due to contribute an additional 1½ percentage points to CPI inflation in April as the new energy price caps announced by Ofgem took effect. Further increases in wholesale prices, which had remained elevated even as spot prices had moderated, were likely to result in higher retail energy price caps when they were next reset in October. Around half of the six-month observation window for determining those price caps had now been completed. If sustained, higher gas and electricity futures prices would mean that the price caps could be around 40% higher, adding a further 1½ percentage points to CPI inflation from October. In addition, recent increases in wholesale oil and food commodity prices were being passed through to households. 32: Core CPI inflation, excluding food, beverages, tobacco and energy, was also expected to increase from its rate of 5.7% in March. Survey indicators of cost and price pressures had remained at historically elevated levels, and recent inflation outturns had tended to be above rates implied by their past relationships with those indicators. A special survey on pricing and profit margins conducted by the Bank’s Agents suggested that firms expected significantly more upwards pressure on prices over the next twelve months than the previous twelve months. Higher labour costs, utilities prices, and the costs of shipping and raw materials were frequently cited as factors pushing up on inflation over the next year. Around half of survey respondents considered that it was easier than normal to pass these cost increases through to prices. Close to 40% of companies had described their margins as unsustainably low at present, but three-fifths of those firms had anticipated rebuilding their margins to sustainable levels over the next twelve months. 33: Measures of businesses’ inflation expectations had risen further since the MPC’s previous meeting. Respondents to the Decision Maker Panel had increased their expectations for their own price increases over the next twelve months to 6.2% on average in April, and more than three quarters of those responding to the 2022 Q1 Deloitte CFO Survey had anticipated CPI inflation being above 2½% in two years’ time. The Citi/YouGov household measures of expectations over the next year and next five-to-ten years had edged down in April, but had remained historically elevated. Professional forecasters had continued to expect inflation to be close to the 2% target in the medium term. The immediate policy decision 34: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 35: The Committee reviewed recent developments against the backdrop of its updated central projections for activity and inflation as set out in the accompanying May Monetary Policy Report. The projections were conditioned on a market-implied path for Bank Rate that rose to around 2½% by mid-2023, before falling to 2% at the end of the forecast period. Fiscal policy was assumed to evolve in line with announced Government policies. Wholesale energy prices were assumed to follow their respective futures curves for the first six months of the projections and remain constant beyond that, in contrast to futures curves, which were downward sloping over coming years. There were material risks around this assumption. 36: Global inflationary pressures had intensified sharply following Russia’s invasion of Ukraine. This had led to a material deterioration in the outlook for world growth. Global GDP was expected to grow only slightly in 2022 Q2. Concerns about further supply chain disruption had risen, both due to Russia’s invasion of Ukraine and to Covid-19 developments in China. 37: Market pricing was consistent with an increase in Bank Rate of 0.25 percentage points, to 1% at this MPC meeting, and market-implied expectations for the path of Bank Rate had risen further out. The Bank of England’s Market Participants Survey indicated broadly similar expectations for Bank Rate in the near term, although respondents expected a much lower central path for Bank Rate than the market-implied path further ahead. 38: The Chancellor of the Exchequer had presented the Spring Statement to Parliament on 23 March. Taken together with the Energy Bills Rebate package that had been announced in February, Bank staff estimated that the Spring Statement measures were likely to boost GDP by around ½% over coming years. 39: UK GDP was estimated to have risen by 0.9% in 2022 Q1, stronger than had been expected in the February Report. That upward revision largely reflected higher-than-expected market-sector output. 40: The unemployment rate had fallen to 3.8% in the three months to February, and was likely to fall slightly further in coming months, consistent with a continuing tightening in the labour market and with a margin of excess demand at present. Inactivity had increased, however, and LFS employment had been broadly flat in recent months. In contrast, growth in HMRC employee payrolls and survey indicators of employment had remained strong. Firms had continued to report significant recruitment difficulties and elevated levels of vacancies, and most surveys suggested above-average levels of capacity utilisation. 41: Surveys of business activity had generally remained strong. There had, however, been signs from indicators of retail spending and consumer confidence that the squeeze on real disposable incomes was starting to weigh on the household sector. The level of GDP was expected to be broadly unchanged in 2022 Q2. The timing of the additional Platinum Jubilee Bank Holiday was expected to reduce growth temporarily by a ¼ percentage point, with an equivalent boost expected in Q3. Excluding the temporary impact of the extra Bank Holiday, market-sector output was projected to grow in Q2, but at only about half of the pace expected in the first quarter. 42: In the May Report central projection, UK GDP growth was expected to slow sharply over the first half of the forecast period. That predominantly reflected the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins. Total real household disposable income was projected to fall by 1¾% in 2022, which was a greater fall than in the February projection. Four-quarter consumption growth was expected to slow materially over the first half of the forecast period. However, it was expected to slow by much less than income growth and was positive throughout the projection. The outlook for aggregate consumption would depend on a range of factors including the distribution of the squeeze on incomes across households, and the extent to which they were willing and able to draw on accumulated savings. Overall, four-quarter GDP growth was expected to be broadly flat in 2023. 43: Although the unemployment rate was likely to fall slightly further in the near term, it was expected to rise to 5½% in three years’ time given the sharp slowdown in demand growth. The Committee had also revised down its projection for labour force participation following the fall during the pandemic. In the May Report central projection, excess supply in the economy was expected to build to 2¼% by the end of the forecast period. 44: Twelve-month CPI inflation had risen to 7.0% in March, around 1 percentage point higher than had been expected in the February Report. The strength of inflation relative to the MPC’s 2% target mainly reflected previous large increases in global energy and tradable goods prices, the latter of which was due to the shift in global demand towards durable goods and to supply chain disruptions. There had also been some increase in the inflation rates of more domestically supplied services. 45: In the May Report central projection, CPI inflation was expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4. The majority of that further increase reflected higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October. The price cap mechanism meant that it took some time for increases in wholesale gas and electricity prices, and their respective futures curves, to be reflected in retail energy prices. Given the operation of the price cap, consumer price inflation was likely to peak later in the United Kingdom than in many other economies, and might therefore fall back later. The expected rise in CPI inflation also reflected higher food, core goods and services prices. 46: The Bank staff’s measure of underlying nominal earnings growth had risen by more than had been projected in the February Report and was expected to strengthen in coming months, given the further tightening of the labour market and some upward pressure from higher price inflation. The median pay settlement recorded in the Bank staff’s database had risen, broadly consistent with the Agents’ February pay survey. More recently, some of the Agents’ contacts had begun to consider further increases in pay settlements, or one-off bonuses, during the course of the year. Companies generally expected to increase their selling prices strongly in the near term, following the sharp rises in their costs, with many reporting confidence that they would be able to rebuild at least some of their margins. 47: Since the MPC’s previous meeting, UK short-term financial market inflation compensation measures had continued to increase, as had measures of businesses’ short to medium-term inflation expectations. Longer-term inflation expectations implied by financial markets and in household surveys had fallen modestly but remained elevated by historic norms. There had been limited news in indicators of professional forecasters’ expectations. The Committee would continue to monitor measures of inflation expectations very closely. 48: With monetary policy acting to ensure that longer-term inflation expectations were anchored at the 2% target, upward pressure on CPI inflation was expected to dissipate over time. Global commodity prices were assumed to rise no further in the central projection, global bottlenecks were expected to ease over time, and the weakening in demand growth and building excess supply led domestic inflationary pressures to subside. 49: Conditioned on the rising market-implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation was projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to 1.3% in three years, well below the target and mainly reflecting weaker domestic pressures. The risks to the inflation projection were judged to be skewed to the upside at these points, given the risks of more persistent strength in nominal wage growth and domestic price setting than had been assumed. In projections conditioned on the alternative assumption of constant interest rates at 1%, CPI inflation was expected to be 2.9% and 2.2% in two and three years’ time respectively. 50: There were downside risks to the assumed paths for energy and other commodity prices if prices fell back to the levels implied by futures curves. In the case of energy prices, the level of GDP would be nearly 1% higher by the end of the forecast period and excess supply and unemployment around ¾ percentage points lower than the central forecast in the May Report. CPI inflation would fall back towards the target more rapidly than in the central projection and would be around ½ and over 1 percentage points below the target in two and three years’ time respectively. 51: The Committee turned to its immediate policy decision. 52: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine was another such shock. In particular, should recent movements prove persistent as the central projections assumed, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom was a net importer, would necessarily weigh further on most UK households’ real incomes and many UK companies’ profit margins. This was something monetary policy was unable to prevent. The role of monetary policy was to ensure that, as this real economic adjustment occurred, it did so in a manner consistent with achieving the 2% inflation target sustainably in the medium term, while minimising undesirable volatility in output. 53: Recent developments had exacerbated materially both the near-term peak in CPI inflation, and the prospective negative impact on activity and medium-term inflationary pressures. Nevertheless, given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures would persist, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 54: Different members placed different weights on the arguments for whether to increase Bank Rate at this meeting and if so by 0.25 or 0.5 percentage points. Momentum in labour market activity had continued to be both strong and stronger than had been expected. Strength in the labour market had so far been accompanied by a notable resilience in business relative to consumer confidence. While there were signs of weakness in household spending now that the real income squeeze was beginning to bite, the stronger than forecast domestic inflationary pressures since the February Report justified a further increase in Bank Rate. Underlying wage growth had continued to strengthen and, at a time of already high headline inflation, there was the potential for some further second-round effects in domestic wage and price setting. A key question was whether some self-sustaining momentum in domestically generated inflation would remain even as slack in the economy was expected to open up. The greater the delay between the real income squeeze leading to weakness in aggregate demand and to a turn-around in the labour market, the more risk there was that higher inflation expectations would become embedded in the economy. 55: Six members of the Committee judged that a further 0.25 percentage point increase in Bank Rate to 1% was warranted at this meeting. The May Report projections implied that some tightening in monetary policy was required to bring inflation back to the 2% target sustainably in the medium term. But, conditioned on the market path for Bank Rate, the endpoint of the forecast was characterised by a large margin of excess supply and CPI inflation well below target, although the medium-term outlook was particularly uncertain currently. 56: Three members preferred a 0.5 percentage point increase in Bank Rate at this meeting. These members put more weight on continued strength in demand, yielding risks that capacity pressures, especially in the labour market, would be greater over the forecast period than in the May Report projections. These members also judged that monetary policy should lean strongly against risks that recent trends in pay growth, firms’ pricing strategies and inflation expectations in the economy more widely would become more firmly embedded. Faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce risks of a more extended and costly tightening cycle later. 57: Based on their updated assessment of the economic outlook, most members of the Committee judged that some degree of further tightening in monetary policy might still be appropriate in the coming months. There were risks on both sides of that judgement and a range of views among these members on the balance of risks. 58: Some members of the Committee judged that the risks around activity and inflation over the policy horizon were more evenly balanced and that such guidance was not appropriate at this juncture. 59: The MPC would continue to review developments in the light of incoming data and their implications for medium-term inflation. 60: At its February 2022 meeting, consistent with the guidance set out in the August 2021 Report, and given that financial markets were functioning normally, the Committee had agreed to cease to reinvest any future maturities falling due from its stock of UK government bond purchases. This had reflected the MPC’s intention to reduce its holdings of government bonds in a gradual and predictable manner. The MPC had also reaffirmed that it would consider beginning the process of selling UK government bonds only once Bank Rate had risen to at least 1%, and depending on economic circumstances at the time. 61: At this MPC meeting, the Committee reaffirmed its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. As Bank Rate was now being increased to 1%, and consistent with the MPC’s previous guidance, the Committee would consider beginning the process of selling UK government bonds held in the Asset Purchase Facility. The Committee reaffirmed that the decision to commence sales would depend on economic circumstances including market conditions at the time, and that sales would be expected to be conducted in a gradual and predictable manner so as not to disrupt the functioning of financial markets. The Committee recognised the benefits of providing market participants with clarity on the framework for any potential sales programme. The Committee had therefore asked Bank staff to work on a strategy for UK government bond sales, and would provide an update at its August meeting. This would allow the Committee to make a decision at a subsequent meeting on whether to commence sales. 62: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 1%. 63: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, Dave Ramsden and Silvana Tenreyro) voted in favour of the proposition. Three members (Jonathan Haskel, Catherine L Mann and Michael Saunders) voted against the proposition, preferring to increase Bank Rate by 0.5 percentage points, to 1.25%. Operational considerations 64: As of 4 May 2022, the total stock of assets held in the Asset Purchase Facility (APF) was £867 billion, comprising £847 billion of UK government bond purchases and £19.6 billion of sterling non-financial investment-grade corporate bond purchases. 65: At the February 2022 MPC meeting, the Committee had agreed that the Bank of England should cease to reinvest any maturities falling due from its stock of sterling non-financial investment-grade corporate bond purchases, and that it should initiate a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases. The Committee had also asked Bank staff to design a programme of corporate bond sales, designed so as not to disrupt the functioning of the sterling investment-grade corporate bond market. 66: Consistent with that previous guidance, the Committee had been briefed at this MPC meeting on the Bank of England’s plans to commence corporate bond sales in September 2022, and for any corporate bonds held in the portfolio maturing on or before 5 April 2024 to be allowed to mature. Further details were being provided in the high-level Market Notice accompanying these minutes, with a full operational Market Notice to be published at least a month prior to the start of the sales programme. The publication of further information on this programme of corporate bond sales should not be taken as a signal regarding the design or timing of any potential future UK government bond sales programme. 67: As had been agreed in the exchange of letters between the Governor and the Chancellor of the Exchequer in February 2022, as the size of APF holdings declined, the authorised maximum size of the APF should be adjusted to reflect the size of the portfolio every six months. In line with that earlier agreement, and as set out in a further exchange of letters that would be released alongside these minutes, the authorised maximum size of the APF could now be reduced to align with the size of the current holdings. This would be reviewed and confirmed between the Governor and Chancellor again in October. 68: As noted in the Governor’s letter to the Chancellor in February 2022, were gilt sales judged to be appropriate in the future, these would be conducted in a predictable manner over a period of time so as not to disrupt the functioning of financial markets. The Bank would liaise with the UK Debt Management Office (DMO) in order to minimise interference with the DMO's own issuance programme and would consider the views of market participants as to how best to minimise disruption in asset markets. 69: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro James Benford was present as the Treasury representative on 27 April and Clare Lombardelli was present as the Treasury representative on 29 April and 4 May. 70: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Dido Harding was also present on 27 April and 29 April, as an observer for the purpose of exercising oversight functions in her role as a member of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target. Operational decisions are taken by the Bank’s Monetary Policy Committee. The minutes of the Committee meeting ending on 15 June will be published on 16 June 2022.

Monetary Policy Summary, June 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 15 June 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1.25%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.5%. In the MPC’s central projections in the May Monetary Policy Report, UK GDP growth was expected to slow sharply over the first half of the forecast period and, although the labour market was expected to tighten slightly further in the near term, the unemployment rate was projected to rise to 5½% in three years’ time. CPI inflation was expected to average slightly over 10% at its peak in 2022 Q4. Conditioned on the rising market-implied path for Bank Rate at that time and the MPC’s forecasting convention for future energy prices, CPI inflation was projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to be well below the target in three years, mainly reflecting weaker domestic pressures. The risks to the inflation projection were judged to be skewed to the upside at these points. There has been relatively little news in global and domestic economic data since the May Report, although there have been significant movements in financial markets. UK-weighted global growth in 2022 Q2 appears to be broadly in line with expectations. Global inflationary pressures have remained elevated and oil prices have risen further. Equity markets have ended the period lower, while short and longer-term government bond yields have continued to rise. UK GDP was weaker than expected in April, partly reflecting a further decline in Test and Trace activity. Bank staff now expect GDP to fall by 0.3% in the second quarter as a whole, weaker than anticipated at the time of the May Report. Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth. In the three months to April, the unemployment rate was 3.8% and employment grew by 0.5%. The inactivity rate has declined a little over recent months but is still higher than immediately before the pandemic. Recruitment difficulties have remained elevated and labour demand has remained strong. Underlying nominal earnings growth has also remained strong, and the Bank’s Agents report that bonus payments have been used to address recruitment and retention difficulties. All of these indicators remain consistent with a tight labour market. Initial Bank staff analysis of the Government’s recent Cost of Living Support package suggests that, all else equal, it could boost GDP by around 0.3% and raise CPI inflation by 0.1 percentage points in the first year, with some upside risks around these estimates given the targeted and front-loaded nature of some of the measures. Twelve-month CPI inflation rose from 7.0% in March to 9.0% in April, close to expectations at the time of the May Report, and triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Inflation’s overshoot of the 2% target mainly reflects previous large increases in global energy and other tradable goods prices. The former has been greatly exacerbated by the war in Ukraine, which has also raised significantly the wholesale price of many agricultural commodities. The latter mainly reflects the impact of the pandemic, which shifted demand towards goods but also impaired and disrupted supply chains. However, not all of the excess inflation can be attributed to global events. There has also been a role for interactions with domestic factors, including the tight labour market and the pricing strategies of firms. Consumer services price inflation, which is more influenced by domestic costs than goods price inflation, has strengthened in recent months. In addition, core consumer goods price inflation is higher in the United Kingdom than in the euro area and in the United States. CPI inflation is expected to be over 9% during the next few months and to rise to slightly above 11% in October. The increase in October reflects higher projected household energy prices following a prospective additional large increase in the Ofgem price cap. In the MPC’s latest forecasts in May, upward pressure on CPI inflation was expected to dissipate over time. In the main, this reflected the stabilisation of the prices of commodities, albeit at elevated levels, and other tradable goods. It also reflected the combined impact of weaker real incomes and tighter monetary policy on domestic demand. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has recently been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks occurs, CPI inflation will return to the 2% target sustainably in the medium term, while minimising undesirable volatility in output. In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the Committee voted to increase Bank Rate by 0.25 percentage points, to 1.25%, at this meeting. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response. Minutes of the Monetary Policy Committee meeting ending on 15 June 2022 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global growth in 2022 Q2 appeared to be broadly in line with expectations at the time of the May Monetary Policy Report. Global inflationary pressures had remained elevated. 3: GDP growth rates in the euro area and in the United States were likely to be marginally stronger in 2022 Q2 than in the May Report, with quarterly rates of 0.3% and 0.8% now expected respectively. Business and particularly consumer confidence had fallen back in both regions since Russia’s invasion of Ukraine, although some sentiment indicators had shown signs of stabilising in the euro area in May. The euro-area unemployment rate had remained unchanged at a record low of 6.8% in April, while the US unemployment rate had held steady at 3.6% in May, close to pre-pandemic levels. 4: China had experienced Covid-19 (Covid) outbreaks in major cities over recent months, and the authorities had imposed strict regional lockdowns to control the spread of the virus. In part reflecting those developments, Chinese activity data had been weaker in April than had been anticipated at the time of the May Report, and Bank staff now expected the level of GDP to be broadly flat in 2022 Q2 compared with the 0.8% quarterly growth that had been incorporated in the May Report. The slowdown had continued to be most marked in indicators of consumption. Industrial production had also seen a decline, albeit somewhat smaller relative to the strictness of the lockdowns, as some companies had continued to operate via so-called closed-loop production systems. Continued weakness in the property sector had weighed on fixed investment. Activity was expected to recover as some Covid restrictions had started to be lifted more recently. PMI indicators in May had shown a slowing in the rate of contraction, and indicators of supply constraints had started to ease somewhat, with Shanghai’s major port operating closer to capacity. 5: Developments in commodity prices had been mixed since the MPC’s previous meeting. The spot price of Brent crude oil had increased by around 15% to $120 per barrel. European gas prices had ended the period little changed, with the Dutch Title Transfer Facility spot price, a measure of prices in the continental wholesale market, at around €100 per MWh. Agricultural commodity and metals prices had been volatile, and they were now down slightly since the MPC’s previous meeting though still at elevated levels. 6: Euro-area annual HICP inflation had increased to 8.1% in May according to the flash release, with core inflation at 3.8%, both of which had been stronger than market expectations. US annual CPI inflation had rebounded to 8.6% in May, also above market expectations, while core inflation had fallen slightly to 6.0%. The headline US CPI figure was consistent with annual PCE inflation remaining stable at 6.3%. Indicators of wage growth had stabilised at elevated levels over recent months in the United States and risen in the euro area. Monetary and financial conditions 7: Since the MPC’s previous meeting, government bond yields and risky asset prices had been volatile in major advanced economies. Ten-year government bond yields had risen by around 40, 55 and 75 basis points in the United States, United Kingdom and Germany respectively. Equity indices in the major advanced economies had fallen since the MPC’s previous meeting, with large declines in the S&P 500 and the Euro Stoxx 50. Spreads on advanced economy corporate bonds had also widened over recent days. 8: The near-term path for market-implied policy rates in the United States and in the euro area had risen significantly since the MPC’s previous meeting, reaching around 3.6% and 1.3% respectively by end-2022. At its meeting on 9 June, the ECB Governing Council had decided to end net asset purchases under its asset purchase programme as of 1 July 2022 and had left its key policy interest rates unchanged. As set out in the accompanying statement, the Governing Council had also concluded that the conditions, according to its forward guidance, for starting to raise the key ECB interest rates had been satisfied. Therefore, the Governing Council was intending to raise these rates by 0.25% at its July monetary policy meeting. Looking further ahead, the Governing Council was expecting to raise them again in September. The calibration of this rate increase would depend on the updated medium-term inflation outlook and, if the medium-term inflation outlook persisted or deteriorated, the Governing Council had indicated that a larger increment would be appropriate. 9: In the United Kingdom, market pricing indicated an expectation of an increase of 0.25 percentage points in Bank Rate, to 1.25%, at this MPC meeting. The market-implied path for Bank Rate had risen materially since the MPC’s previous meeting, reaching around 2.9% by end-2022 and peaking at 3.3% in 2023. This path continued to be higher than the expectations for Bank Rate of respondents to the Bank’s latest Market Participants Survey, perhaps in part reflecting upside risks to the inflation outlook domestically and internationally. 10: The sterling effective exchange rate had depreciated by around 2½% since the previous MPC meeting and by almost 4% compared to the 15-day moving average on which the May Monetary Policy Report projections had been conditioned. Sterling had been particularly weak against the US dollar. According to market participants, the recent movements had in part reflected the rising yield differential between shorter-term government bond yields in the United States compared to those in the United Kingdom, and perceptions of the UK growth outlook. 11: Lending rates for new mortgages in the United Kingdom had increased further in May, reflecting a continuing response to the increases in Bank Rate and risk-free market rates that had been observed since the autumn of 2021. Lending rates on mortgages with loan-to-value (LTV) ratios at or below 75% had risen by more than those at higher LTV ratios, such that the spread between the two had narrowed to below pre-pandemic levels. Interest rates on unsecured borrowing had also increased slightly overall. As usual, however, households’ unsecured lending rates had continued to be less sensitive to changes in risk-free rates. Rates on new lending to businesses were higher in April than in December 2021, reflecting the increases in Bank Rate. 12: Taking together all of the evidence so far, the pass-through of the increases in risk-free rates to mortgage rates since the autumn of 2021 had been greater than in 2017-18 and much closer to the full pass-through that was seen prior to the financial crisis when interest rates had been further away from the lower bound. Interest rates on instant-access deposits had also increased since last autumn, though by much less than for mortgage lending. The further increases in risk-free rates that had occurred since the May MPC meeting would be expected to feed through to lending and deposit rates in due course. Demand and output 13: According to the ONS’s first quarterly estimate, UK GDP had increased by 0.8% in 2022 Q1, slightly below the expectations incorporated into the May Monetary Policy Report projection. Within the expenditure components, household consumption had risen by 0.4% on the quarter and business investment, which was often subject to substantial revision, had fallen by 0.5%. Total government expenditure had risen by 1.5%. 14: Monthly GDP had fallen by 0.1% in March and by 0.3% in April, the latter weaker than expectations. Government services output had fallen significantly in April, as NHS Test and Trace activity had continued to decline. Manufacturing output had also fallen, below expectations at the time of the May Report. Output in consumer-facing services had risen by 2.2% in April, broadly in line with expectations. 15: Bank staff now expected GDP to fall by 0.3% in 2022 Q2, below the May Report projection of 0.1% growth. The downside news had reflected a larger than expected impact from the scaling back of Test and Trace activity in April, alongside weaker than expected market sector output growth. Relative to 2022 Q1, the slowing in growth was still expected primarily to reflect temporary factors such as the additional bank holiday for the Platinum Jubilee as well as the anticipated fall in Test and Trace activity. Intelligence from the Bank’s Agents suggested that, although there had been some early signs of a slowing in underlying growth, demand had remained mostly robust and broadly in line with projections at the time of the May Report . 16: There had been mixed signs on the extent to which the squeeze on real disposable incomes was weighing on household sentiment and spending. GfK consumer confidence had fallen further in May, to below the previous low point for the series in mid-2008. That weakness had been broad-based across backward and forward-looking sub-balances that fed into the headline confidence indicator. Other indicators of consumer spending had held up, however. Retail sales volumes had increased by 1.4% in April, following a decline of 1.2% in March. Faster indicators of spending had also suggested a continued recovery in previously subdued areas of consumer services, such as international travel, and resilience in other areas, such as restaurant reservations. Indicators of house prices had remained robust in the recent period and housing activity had fallen back. 17: Some indicators of corporate sector sentiment had weakened since the MPC’s previous meeting, although they had remained more resilient than indicators of consumer confidence and, based on pre-Covid relationships, were consistent with positive underlying GDP growth. The S&P Global/CIPS PMI composite output index had fallen in May, but had remained around its long-run average level. The composite output expectations series had also fallen. Other business survey indicators had continued to hold up. The CBI reported output balance and Lloyds trading expectations balance had both shown little change on the month. In addition, expected sales over the year ahead had remained strong in the May Decision Maker Panel results, although this indicator had fallen back somewhat over recent months. According to contacts of the Bank’s Agents, growth had continued to be held back by supply chain disruptions, although companies were increasingly taking measures to alleviate the effects of these disruptions, for example by using alternative inputs and holding more stock. 18: The Chancellor of the Exchequer had announced a £15 billion Cost of Living Support package on 26 May. This had included: a direct one-off payment of £650 for households on means-tested benefits; a payment of £300 to pensioners; and a £150 payment to people on disability benefits. There had been a doubling of the universal rebate through the Energy Bills Support Scheme, providing an additional £200 to households. The Chancellor had also announced that the original £200 rebate would no longer have to be repaid in subsequent years. The announced measures took effect over the second half of this year, with additional payments for households receiving means-tested benefits starting as soon as July. The payments to benefit recipients were skewed towards people on lower incomes. 19: Taken together, and using standard fiscal multipliers, initial Bank staff analysis suggested that these measures were likely to boost GDP by around 0.3% and raise CPI inflation by 0.1 percentage points in the first year, with some upside risks around these estimates given the targeted and front-loaded nature of some of the measures. Bank staff would conduct a detailed assessment of the new measures ahead of the August Monetary Policy Report. Supply, costs and prices 20: Twelve-month CPI inflation had risen to 9.0% in April, close to the May Monetary Policy Report projection. Energy and core goods inflation had continued to account for around 80% of the overshoot of CPI inflation relative to the 2% target. Food and services inflation had risen further and accounted for the remainder of the overshoot, with an increasing contribution from services prices, which was partly due to the restoration of the 20% VAT rate on the hospitality sector’s sales. Core CPI inflation, excluding food, beverages, tobacco and energy, had risen to 6.2%. The April CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 21: Higher inflation rates had become more widespread within the CPI basket. The inflation rates of around nine tenths of the 85 class level categories by weight in the CPI basket had been above their pre-pandemic averages in April, compared to around half in the summer of 2021. 22: The Committee discussed the strength of UK inflation from a cross-country perspective. Rates of consumer price inflation in the euro area and in the United States had also been elevated during the first half of this year. Based on a component level comparison, the Committee noted that energy price inflation had pushed up on measures of headline consumer price inflation to a similar extent in both the United Kingdom and the euro area, consistent with those regions’ greater exposure to European wholesale gas price increases, with a smaller effect in the United States. Core goods price inflation had been stronger in the United Kingdom than in other regions recently. It had risen to 8.0% in April, compared to 3.8% in the euro area for the same month and 6.4%, on the PCE measure, in the United States. The strength of food price inflation across the three economies had been similar in the latest data, partly reflecting the importance of global developments for agricultural prices. Services price inflation, which reflected domestic labour market conditions to a greater extent than other components of inflation, had been stronger in the United Kingdom and in the United States than in the euro area. 23: CPI inflation was expected to rise somewhat further in the near term, to just under 10% in September, reflecting higher food, core goods and services price inflation. The recent increase in oil prices would also push up on inflation relative to the May Report projection, by around a quarter of a percentage point. Core CPI inflation was expected to rise to just under 7% by September. 24: CPI inflation was then expected to rise to slightly above 11% in October, slightly higher than the monthly peak consistent with the May Report. The projected increase between September and October was expected to be due largely to the next reset of Ofgem’s utility price cap. If sustained, the latest wholesale gas futures prices would mean around a 40% increase in the utility price cap in October, similar to the expectation at the time of the May Report. Over two-thirds of the six-month observation window relevant for the reset of the October cap had now passed. Following the recent consultation, Ofgem’s decision on whether to increase the frequency at which the cap was reset was forthcoming. One outcome could be around a three-week extension to the current observation window, which provided some additional uncertainty around the magnitude of the increases in utility prices in October. For the period beyond October, staff estimates suggested that resetting the price cap on a quarterly, rather than semi-annual basis, had only modest implications for the CPI inflation projections, given the latest wholesale gas price futures curve. 25: The Government’s Cost of Living Support package had included a doubling of the universal rebate to households, which was due to take effect from October. The ONS’s announcement on the treatment of this rebate in economic statistics, including consumer prices, was forthcoming. 26: Survey indicators of cost and prices had remained elevated. The S&P Global/CIPS PMI composite input price index had risen to a record high level in May. The corresponding composite output price index had remained close to its record high. Contacts of the Bank’s Agents had reported that manufacturing and services companies had continued to face elevated input prices, which businesses had continued to pass onto their prices in order to protect their margins. 27: Short-term measures of inflation expectations across households, businesses and financial markets had remained substantially elevated relative to their historic averages. The Bank/Ipsos and Citi/YouGov measures of households’ one-year ahead inflation expectations had been close to their record high levels recently. The Decision Maker Panel had reported a further increase in expectations for businesses’ year-ahead output price inflation, to 5.9% in the three months to May. 28: Medium to longer-term measures of inflation expectations had not been as elevated as their short-term counterparts, although they had, nevertheless, remained above their historic averages. Within this latter set of indicators, inflation compensation measures in financial markets had fallen modestly, but they had remained well above their average levels of the past decade. The expectations of professional forecasters reported in HM Treasury’s May survey had risen to around ½ percentage point above the inflation target of 2% at the two to three-year ahead horizons. However, this shift in the mean appeared to be due largely to the effect of a substantial upward revision by a single forecaster. The median of the distribution had remained close to 2% at these forecast horizons. The Committee would continue to monitor measures of inflation expectations very closely. 29: The ONS’s reweighting of the Labour Force Survey (LFS) with new population estimates had changed only marginally the composition of the labour market. In the three months to April, the unemployment rate was 3.8%, equal to its pre-pandemic trough and slightly lower than in the three months to January. LFS employment had grown strongly, by 0.5%. The inactivity rate had declined a little over recent months but was still higher than immediately before the pandemic. These labour market developments had been broadly consistent with the expectations made at the time of the May Report and with a tight labour market . Her Majesty’s Revenue and Customs (HMRC) employee payrolls had risen by a further 90,000 in May, although these initial estimates had tended to be revised down somewhat subsequently. 30: Labour demand indicators had remained strong, alongside evidence of persistently elevated recruitment difficulties. The stock of vacancies had risen further, to 1.3 million in the three months to May. The vacancy-to-unemployment ratio, a measure of labour market tightness, remained elevated, within which the stock of vacancies was now broadly equal to the stock of unemployed people. Growth in the stock of vacancies had however slowed, from 5.4% in the three months to February to 1.6% in the three months to May. Recent employment indicators in business surveys and the REC labour demand index had remained strong. Intelligence from the Bank’s Agents’ contacts suggested that hiring intentions had continued to be positive and that recruitment difficulties had remained severe. Contacts had said that they expected recruitment difficulties to persist for at least the next twelve months, due to structural shortages of labour and skills. 31: Recent indicators of nominal pay growth had remained elevated, consistent with the continued effects of a tightening labour market. Nominal private sector regular AWE growth had been 4.8% in the three months to April, in line with the expectation at the time of the May Report. Adjusted for the mechanical effects of the changes in workforce composition and the Coronavirus Job Retention Scheme, Bank staff estimated that underlying nominal private sector regular pay growth had remained above 4%, also consistent with expectations at the time of the May Report and in excess of pre-pandemic rates of around 3 to 3½%. HMRC PAYE measures of median pay growth had been in a range of 4 to 6¼% over recent months, also above pre-pandemic rates. Recent strong growth in bonus payments had been broad based when compared to pre-pandemic sectoral averages. The Bank’s Agents’ contacts had reported that one-off bonus payments had been used to address recruitment and retention difficulties. Given recent developments in market-sector productivity, these underlying nominal earnings indicators also appeared to be consistent with elevated rates of unit wage cost growth. 32: The Bank’s Agents had reported that pay settlements continued to be much higher than a year ago, with deals averaging just over 5%, a little above the 4.8% expected by companies in the Agents’ pay survey conducted near the beginning of this year. A significant minority of companies were considering mid-year top-ups to pay settlements. This recent intelligence reinforced the upside risk to the MPC’s central projections for pay growth and domestic price pressures highlighted in the May Report. The immediate policy decision 33: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 34: In the MPC’s central projections in the May Monetary Policy Report, UK GDP growth had been expected to slow sharply over the first half of the forecast period and, although the labour market had been expected to tighten slightly further in the near term, the unemployment rate had been projected to rise to 5½% in three years’ time. CPI inflation had been expected to average slightly over 10% at its peak in 2022 Q4. Conditioned on the rising market-implied path for Bank Rate at that time and the MPC’s forecasting convention for future energy prices, CPI inflation had been projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to be well below the target in three years, mainly reflecting weaker domestic pressures. The risks to the inflation projection had been judged to be skewed to the upside at these points. 35: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had recently been subject to a succession of very large shocks. These shocks had pushed global energy and other tradable goods prices to elevated levels. Those price increases had raised UK inflation and, since the United Kingdom was a net importer of these items, would necessarily weigh on most UK households’ real incomes and many UK companies’ real profits. This real economic adjustment was something monetary policy was unable to prevent. These global shocks could interact with domestic factors, including the tight labour market and the pricing strategies of firms, and could lead to more persistent inflationary pressures. The role of monetary policy was to ensure that, as the adjustment in the real economy occurred, CPI inflation returned to the 2% target sustainably in the medium term, while minimising undesirable volatility in output. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 36: The latest output, business survey and consumer spending indicators had been mixed, and, taken together, did not suggest a materially different near-term underlying growth path to that projected in the May Report. The latest official data continued to suggest that momentum in labour market activity had been sustained, and there had been no signs from other timelier indicators of employment of an imminent deterioration. That was not in itself surprising as changes in labour market activity usually lagged developments in GDP by one or two quarters, but there was a risk that tightness in the labour market persisted for longer than expected. The Government’s recent fiscal package would be incorporated into the MPC’s updated projections for consumer spending and saving behaviour ahead of the August Report, and there were some reasons for a slightly bigger boost to growth and inflation than a standard multiplier framework would suggest. Although CPI inflation in April had been close to the MPC’s expectations at the time of the May Report, inflationary pressures appeared to have broadened across the major components of consumer prices, including in the services sector, and other indicators of cost and price pressures had remained robust. A key question remained about whether some self-sustaining momentum in domestically generated inflation would persist even as a margin of slack in the economy was expected to open up in due course. 37: In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures became more persistent, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 38: Six members of the Committee judged that a further 0.25 percentage point increase in Bank Rate, to 1.25%, was warranted at this meeting. These members noted that the economic news overall had been fairly limited relative to the May Report projections. CPI inflation had been projected to be some way below the 2% target in three years’ time in the May Report, and demand might be starting to slow in line with the May forecast. But the labour market remained tight and indications of broader domestic inflationary pressure required a response in order to ensure inflation returned sustainably to the target in the medium term. 39: Three members preferred a 0.5 percentage point increase in Bank Rate at this meeting. These members put a higher weight on the prospect of more resilience in demand or shortfalls in supply or both, such that cost and capacity pressures would remain relatively strong over the forecast period. These members also judged that monetary policy should lean strongly against risks that recent trends in pay growth, firms’ pricing decisions, and inflation expectations in the economy more widely would become more firmly embedded. Faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce the risks of a more extended and costly tightening cycle later. 40: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The scale, pace and timing of any further increases in Bank Rate would reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response. 41: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 1.25%. 42: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, Dave Ramsden and Silvana Tenreyro) voted in favour of the proposition. Three members (Jonathan Haskel, Catherine L Mann and Michael Saunders) voted against the proposition, preferring to increase Bank Rate by 0.5 percentage points, to 1.5%. Operational considerations 43: As of 15 June 2022, the total stock of assets held in the Asset Purchase Facility (APF) was £866 billion, comprising £847 billion of UK government bond purchases and £19.3 billion of sterling non-financial investment-grade corporate bond purchases. 44: Consistent with the Committee’s decision at its February 2022 meeting to begin to reduce the stock of UK government bond purchases, the £3.2 billion of cash flows associated with the redemption of the July 2022 gilt held by the APF would not be reinvested. 45: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 46: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Sir Bradley Fried was also present on 8 June, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. The Committee expressed its thanks for his significant contribution to the Bank during his time as Chair of Court since 2018 and as a member of Court since 2012. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target. Operational decisions are taken by the Bank’s Monetary Policy Committee. The minutes of the Committee meeting ending on 3 August will be published on 4 August 2022.

Monetary Policy Summary, August 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 3 August 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.5 percentage points, to 1.75%. One member preferred to increase Bank Rate by 0.25 percentage points, to 1.5%. Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs. As this feeds through to retail energy prices, it will exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term. CPI inflation is expected to rise more than forecast in the May Report, from 9.4% in June to just over 13% in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead. GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year. Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative. Domestic inflationary pressures are projected to remain strong over the first half of the forecast period. Firms generally report that they expect to increase their selling prices markedly, reflecting the sharp rises in their costs. The labour market has remained tight, with the unemployment rate at 3.8% in the three months to May and vacancies at historically high levels. As a result, and consistent with the latest Agents’ survey, underlying nominal wage growth is expected to be higher than in the May Report over the first half of the forecast period. Inflationary pressures are nevertheless expected to dissipate over time. Global commodity prices are assumed to rise no further, and tradable goods price inflation is expected to fall back, the first signs of which may already be evident. Although the labour market may loosen only slowly in response to falling demand, unemployment is expected to rise from 2023. Domestic inflationary pressures are therefore expected to subside in the second half of the forecast period, as the increasing degree of economic slack and lower headline inflation reduce the pressure on wage growth. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The risks around the MPC’s projections from both external and domestic factors are exceptionally large at present. There is a range of plausible paths for the economy, which have CPI inflation and medium-term activity significantly higher or lower than in the baseline projections in the August Monetary Policy Report. As a result, in coming to its assessment of the outlook and its implications for monetary policy, the Committee is currently putting less weight on the implications of any single set of conditioning assumptions and projections. The August Report contains several projections for GDP, unemployment and inflation: a baseline conditioned on the MPC’s current convention for wholesale energy prices to remain constant beyond the six-month point; an alternative projection in which energy prices follow their downward-sloping futures curves throughout the forecast period; and a scenario which explores the implications of greater persistence in domestic price setting than in the baseline. These are all conditioned on announced Government fiscal policies, including the Cost of Living Support package announced in May. There are significant differences between these projections in the latter half of the forecast period. However, all show very high near-term inflation, a fall in GDP over the next year and a marked decline in inflation thereafter. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has continued to be subject to a succession of very large shocks, which will inevitably lead to volatility in output. Monetary policy will ensure that, as the adjustment to these shocks occurs, CPI inflation will return to the 2% target sustainably in the medium term. The labour market remains tight, and domestic cost and price pressures are elevated. There is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures. In view of these considerations, the Committee voted to increase Bank Rate by 0.5 percentage points, to 1.75%, at this meeting. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy is not on a pre-set path. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response. In the minutes of its May 2022 meeting, the Committee asked Bank staff to work on a strategy for selling UK government bonds (gilts) held in the Asset Purchase Facility and committed to providing an update at its August meeting. Based on this analysis, the Committee is provisionally minded to commence gilt sales shortly after its September meeting, subject to economic and market conditions being judged appropriate and to a confirmatory vote at that meeting. Minutes of the Monetary Policy Committee meeting ending on 3 August 2022 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The Committee also discussed its strategy for selling UK government bonds held in the Asset Purchase Facility. The international economy 2: UK-weighted global GDP growth was likely to have slowed in 2022 Q2, and was projected to remain weak in Q3. The latest rise in gas prices and, to a lesser extent, a tightening in financial conditions, had led to another significant deterioration in the outlook for global economic activity. 3: According to the preliminary flash estimate, euro-area GDP had grown by a higher-than-expected rate of 0.7% in 2022 Q2. This could in part have reflected tourism returning to pre-Covid-19 (Covid) levels as restrictions were eased. Since the May Monetary Policy Report, the euro-area unemployment rate had fallen further below pre-Covid levels, reaching 6.6% in June, while vacancies had continued to grow. However, forward-looking indicators, such as the S&P Global PMI composite output index and other business and consumer confidence survey balances had fallen sharply, indicating weaker GDP growth in Q3. 4: According to the advance estimate, US GDP had fallen by 0.2% in 2022 Q2, the second consecutive quarter of negative growth. While the fall had been mainly accounted for by lower stockbuilding, domestic final demand growth had also slowed. The unemployment rate had remained at 3.6%, while there were early signs of a levelling out of the increase in vacancies in high-frequency data. The US ISM manufacturing and non-manufacturing PMIs had both fallen in June to their lowest readings since mid-2020, although they had remained above 50, indicating GDP growth could remain weak, but positive, in Q3. 5: China’s GDP had fallen by 2.6% in 2022 Q2, significantly weaker than had been expected and related largely to the strict regional lockdowns due to Covid and continued weakness in the property sector. GDP growth in Q3 was expected to recover, due to the easing of Covid restrictions. 6: European spot and futures gas prices had roughly doubled since the MPC’s previous meeting in mid-June, as the risks of Russia limiting severely the flow of gas to Europe had started to crystallise. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had risen to around €200 per MWh, close to its peak around the start of the Russia-Ukraine war. In response to Russia’s restriction of gas flows, EU member countries had agreed to a voluntary 15% reduction in gas consumption until the spring of 2023. Prices of other commodities, such as food, oil, and metals, had fallen materially since the MPC’s previous meeting, with the movements in the latter two prices likely to have reflected a weakening near-term global growth outlook. 7: Indicators of global supply constraints had remained elevated, although there were some early signs that supply bottlenecks had started to ease. Some indicators of shipping costs had declined from their peaks, while PMI surveys indicated that manufacturing delivery times had fallen back across different regions. 8: High energy and other commodity prices, global supply bottlenecks and strong labour markets had contributed to increases in global inflation rates. Euro-area annual headline and core HICP inflation in July had increased to 8.9% and 4.0% respectively. In the United States, annual headline and core PCE inflation had increased to 6.8% and 4.8% in June respectively, and annual US CPI inflation had increased to 9.1% in June. Monetary and financial conditions 9: Since the MPC’s previous meeting, financial markets had continued to be volatile. Market participants now expected that central banks in major advanced economies would react more forcefully to near-term inflationary pressures, but could need to respond to weaker activity thereafter. Ten-year government bond yields had fallen by around 70, 80 and 90 basis points in the United Kingdom, United States and Germany respectively since the MPC’s June meeting, more than reversing the increases seen between the May and June meetings. Risky asset prices had recovered, following large declines in equity prices and increases in corporate bond spreads between the MPC’s May and June meetings. 10: A significant number of central banks globally had increased their policy rates over the past six weeks, including more than three quarters of the central banks for which the Bank for International Settlements published data. At its July meeting, the Federal Open Market Committee had increased the target range for the federal funds rate by 75 basis points, to 2¼ to 2½%. At its July meeting, the ECB Governing Council had raised its key policy interest rates by 50 basis points and had approved a Transmission Protection Instrument, to ensure that the monetary policy stance was transmitted smoothly across all euro-area countries as the Governing Council continued to normalise monetary policy. The near-term path for market-implied policy rates in both the United States and euro area implied a sharp pickup in rates in 2022, but thereafter flat-lined or fell back a little, at levels lower than at the time of the MPC’s previous meeting. 11: In the United Kingdom, market pricing was broadly consistent with an increase in Bank Rate of 50 basis points at this MPC meeting. Following the Governor’s announcement in his Mansion House speech on 19 July that the MPC would publish more details on its strategy for beginning to sell the gilts held in the Asset Purchase Facility alongside the August Monetary Policy Report, a majority of market participants now expected that such sales would begin shortly after the MPC’s September meeting. Expectations for the extent of these sales were little changed, according to respondents to the Bank’s latest Market Participants Survey (MaPS). 12: Further out, market-implied expectations for the path of Bank Rate had fallen since the MPC’s previous meeting, now peaking at just under 3% in March 2023. This path continued to be higher than the expectations for Bank Rate of respondents to the latest MaPS, although the gap between the two paths had narrowed slightly, as the median respondent to MaPS now expected Bank Rate to peak at 2.5%, compared to 2% at the time of the MPC’s previous meeting. 13: Medium-term inflation compensation measures were lower across advanced economies, including the United Kingdom, than at the time of the May Report. That might have reflected concerns about the weaker global growth outlook, lower prices for some commodities, and tighter monetary policy in the near term. Medium-term UK inflation compensation measures had remained above their average levels of the past decade. 14: Based on the 15-working day average to 26 July on which the August Report had been conditioned, the sterling effective exchange rate was around 3% lower than the corresponding level at the time of the May Report. The depreciation of sterling against the US dollar had accounted for around 60% of this fall. Sterling had appreciated somewhat in the run-up to this MPC meeting. 15: Lending rates for new fixed-rate mortgages in the United Kingdom had continued to increase materially, reflecting a further response to the increases in risk-free market rates that had been observed since autumn 2021. The pass-through of these increases in risk-free rates to mortgage rates had been close to the full pass-through that had typically been seen prior to the global financial crisis, when interest rates had been further away from their lower bound. The latest Credit Conditions Survey suggested that secured credit availability for households had declined in the second quarter, with lenders reporting that this had largely reflected a worsening economic outlook. Respondents had expected secured credit availability to decrease slightly further in 2022 Q3. As usual, increases in interest rates on unsecured household borrowing and sight deposit rates had been smaller than for mortgage lending. Demand and output 16: Monthly GDP was estimated to have increased by 0.5% in May, following a 0.2% decline in April. The May outturn had been weaker than Bank staff had expected, but there was still uncertainty around the scale of the upward impact on activity from the additional trading day in May associated with the timing of the Platinum Jubilee bank holiday period. 17: Following a 0.8% quarterly increase in GDP in 2022 Q1, Bank staff now expected GDP to have fallen by 0.2% in Q2 as a whole, weaker than the 0.1% growth expected in the May Monetary Policy Report. Headline growth had been depressed by the run-down of NHS Test and Trace activity and by the impact of the Platinum Jubilee over the quarter as a whole. Bank staff had estimated that GDP growth excluding those factors was likely to have been around ½%, compared to around 1% in previous quarters. That was also slightly weaker than had been expected in the May Report, but broadly consistent with indicators of output growth from business surveys that had declined over the quarter. The slowdown in underlying growth was in part likely to be a reflection of the fall in real incomes due to higher global energy and tradable goods prices. 18: Most business survey indicators had weakened further in July. For example, the S&P Global/CIPS PMI composite output index had fallen from 53.7 in June to 52.1, below its long-run average but remaining consistent with positive GDP growth. Within the aggregate, there had been particular weakness in manufacturing output. The composite future output index had risen slightly in July, however. According to the Bank’s Agents, activity had grown at a moderate pace recently, with output constrained by ongoing shortages of labour and goods, and with companies reported to be more optimistic than households about the economic outlook. 19: Overall, Bank staff now expected GDP to increase by 0.4% in 2022 Q3, slightly weaker than had been incorporated in the May Report. With headline growth likely to be boosted by the unwind of the effect of the Platinum Jubilee, underlying growth was expected to slow further but to remain positive. 20: Following 0.5% growth in 2022 Q1, household consumption growth was expected to have slowed in Q2, with a further slowdown anticipated in Q3 to around 0.1% growth. Retail sales volumes had fallen by 0.1% in June, with particular weakness in clothing and footwear, and household goods stores. This had continued the downward trend in retail spending observed since the second half of 2021. According to the Bank’s Agents, there had been signs of consumer demand softening, as the fall in household real incomes was depressing spending. Food retailers had reported declines in sales volumes to the Agents, and there had also been widespread reports of a slowdown in sales of durable goods, which could be consistent with a change in the composition of spending. According to ONS data, output had surpassed its pre-pandemic level in some consumer-facing service sectors, such as hotels and restaurants, and land transport, but it was unclear whether the output of these sectors would rise much further in the near term. GfK consumer confidence had remained unchanged in July at the record-low level recorded in June. There had been some early indications of a slowing in housing demand in the June RICS survey. 21: Business investment had fallen by 0.6% in 2022 Q1 and had been persistently lower than expected in previous Monetary Policy Report projections. Relative to its pre-pandemic level, that weakness had been particularly apparent in investment in transport equipment and buildings and structures. Official data for business investment had been subject to significant revision in the past. According to the Bank’s Agents, investment intentions had softened slightly recently but had remained positive. Current investment spending had continued to be held back by cost pressures and shortages, and a greater number of the Agents’ contacts had indicated that uncertainty about demand might curtail investment in future. 22: Following changes in measurement associated with the United Kingdom’s withdrawal from the European Union, it remained very difficult to interpret recent external trade data, including being able to make consistent comparisons in these series across time. Supply, costs and prices 23: The Labour Force Survey (LFS) unemployment rate had been 3.8% in the three months to May, equal to its pre-pandemic trough and consistent with a tight labour market. LFS employment growth had been strong, picking up to 0.9% in the three months to May. The corollary of stable unemployment and strong employment growth had been a further decline in the inactivity rate. Nevertheless, the employment rate had remained somewhat below its level immediately prior to the pandemic, with the inactivity rate still somewhat higher than it had been during that earlier period. 24: Indicators of labour demand had remained strong, alongside evidence of continued recruitment difficulties. The stock of vacancies had been relatively stable in recent months, remaining close to its record high in the three months to June. The vacancy-to-unemployment ratio, a measure of labour market tightness, had also remained elevated and, on an industry basis, this ratio for each sector of the economy had been higher than its corresponding pre-pandemic level. The Bank’s Agents’ survey on employment and pay, conducted over the six weeks to early July, had reported strong employment intentions among businesses, although respondents had expected recruitment difficulties to limit these intentions being realised. Indeed, the Agents’ contacts had reported continued broad-based recruitment difficulties, with attrition and vacancy rates higher than normal for many businesses. 25: Indicators of nominal pay growth had remained strong, consistent with the effects of continued labour market tightness and higher CPI inflation outturns. Annual growth in private sector regular Average Weekly Earnings (AWE) had been 5% in the three months to May, broadly in line with expectations at the time of the May Monetary Policy Report. Adjusted for the mechanical effects of the changes in workforce composition and the Coronavirus Job Retention Scheme, Bank staff estimated that underlying nominal private sector regular pay growth had been around 4½% in the three months to May, in excess of pre-pandemic rates of around 3 to 3½%. The HMRC PAYE measure of the median of pay growth had been around 5% in June, also above its pre-pandemic rate. 26: The Agents’ employment and pay survey had reported an increase in recent wage settlements relative to estimates from the broadly equivalent survey conducted at the start of 2022. This survey had also suggested that businesses expected to increase pay deals by around 6% over the next twelve months, which was a little higher than in the previous survey. A significant minority of respondents in the latest survey had not provided an expected pay settlement figure for the next twelve months, with some indicating that they preferred to wait to observe future CPI outturns before deciding. Given the expected path of CPI inflation in the coming months, this suggested a potential upside risk to pay growth in the near term. Around a quarter of respondents to the latest survey had given or were considering awarding one-off payments to compensate staff. Underlying private sector regular AWE pay growth was expected to pick up further, to around 6% over the second half of 2022, driven by persistent tightness in the labour market and by higher inflation. 27: The Government had recently announced pay awards for a broad set of public sector employees of around 4%, on average, which compared to an annual rate of public sector AWE regular pay growth of 1.8% in the three months to May. 28: Twelve-month CPI inflation had risen to 9.4% in June, 0.3 percentage points above the May Report projection. In contrast, core CPI inflation, excluding food, beverages and tobacco and energy, had fallen to 5.8%, around ½ percentage point below the expectation at the time of the May Report. Relative to the May Report, there had been upside news in fuel, food and, to a lesser extent, services prices. The softening in core CPI inflation had been accounted for by a deceleration in core goods prices, in large part reflecting outright falls in used car prices. Services inflation, which was more closely associated with domestically generated inflation, had risen further, to 5.2%. 29: CPI inflation was expected to rise to around 10% in July and remain at around this level through the rest of the third quarter, reflecting higher fuel, food and services prices. 30: In 2022 Q4, CPI inflation was expected to rise to just over 13%, about 3 percentage points higher than the expectation at the time of the May Report and more than 2 percentage points higher than at the time of the June MPC meeting. The majority of that upside news was due to higher expected household energy prices. That primarily reflected the very substantial rise in wholesale gas futures prices that had occurred since the May Report, most recently due to Russia’s restrictions of gas supplies to European markets in July and due to the risk of further curbs. Since May, sterling gas futures prices for end-2022 had nearly doubled. To a lesser extent, the upside news reflected Ofgem’s announced changes to the method for updating its price cap, which had been shared with the Bank in advance of publication. These changes included putting more weight on the most recent sharp increases in wholesale gas prices, via transitional observation windows. In the August Monetary Policy Report projections, the price cap was assumed to rise by around 75% in October, compared to around 40% in the May Report. That would increase the typical annual dual-fuel bill from just under £2,000 to around £3,500 in October. The switch to resetting the cap on a quarterly, rather than semi-annual, basis meant that the price cap would be reset again in January. 31: The direct contribution of energy to CPI inflation was projected to reach 6½ percentage points in 2022 Q4, nearly 2½ percentage points higher than in the May Report and expected to account for more than half of the overshoot of CPI inflation relative to the 2% target. The rise in energy prices was likely to have additional indirect effects on CPI inflation by increasing firms’ costs, which were then likely to be passed on to a wide range of prices for non-energy goods and services. Bank staff estimated that these indirect effects would contribute around 1 percentage point to CPI inflation in 2022 Q4 and, assuming gas prices followed the Monetary Policy Report conditioning assumption, would continue to add significantly to inflation during the following year. 32: Core CPI inflation was also expected to pick up again in the near term, reaching around 6¼% by the end of the year, largely reflecting strengthening services price inflation. Indicators of costs and prices more broadly had remained elevated, although recent developments had been mixed. The S&P Global/CIPS PMI composite input and output indicators had fallen back somewhat in July from their recent highs. The inflation rates of the ONS’s measures of both producer output prices and services producer prices had risen further, to historically elevated levels. The Agents’ contacts had reported that input price inflation had remained elevated and that many companies expected to pass higher costs into prices to protect their margins, which remained below normal. 33: Short-term measures of inflation expectations across households, businesses and financial markets had remained substantially elevated relative to their historical averages. Respondents to the Decision Maker Panel had increased their expectations for their own price increases over the next twelve months to 6.6% on average in July, from 6.3% in June. The 2022 Q2 Deloitte CFO Survey had reported a median expectation for CPI inflation of 3.4% in two years’ time. Two-year ahead expectations reported in the CBI Distributive Trades Survey had remained above its historical average in 2022 Q2. The Citi/YouGov measure of households’ expectations at the one-year horizon had edged down in July but had remained at historically elevated levels. Households’ short-term inflation expectations tended to move more in line with measured inflation rates than equivalent indicators of medium-term inflation expectations. 34: Most medium to longer-term measures of inflation expectations had remained above their historical averages, albeit to a less extent than their short-term counterparts. Financial market indicators of medium-term inflation expectations had fallen from their recent highs to a level that was still above historical averages. The Citi/YouGov indicator of households’ expectations at the five to ten-year horizon had eased by 0.2 percentage points to 3.8% in July but had remained at a historically elevated level. The Bank’s Survey of Economic Forecasters, published in the August Report, had a median expectation for CPI inflation of 2% at the three-year horizon. The Committee would continue to monitor measures of inflation expectations very closely. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: Inflationary pressures in the United Kingdom and the rest of Europe had intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflected a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs. As this fed through to retail energy prices, it would exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term. CPI inflation was expected to rise more than forecast in the May Report, from 9.4% in June to just over 13% in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead. 37: UK GDP growth was slowing in underlying terms and to a slightly greater extent than had been expected previously. This was in part a reflection of the fall in real incomes due to higher global energy and tradable goods prices, as well as constraints on output from ongoing shortages of labour and goods. Companies had remained more optimistic about the economic outlook than households. The labour market was tight but not tightening further. The United Kingdom was now projected to enter recession from the fourth quarter of this year. 38: The Agents’ employment and pay survey had reported that businesses expected to increase pay by around 6% over the next twelve months, a little higher than in their previous survey. Indicators of consumer and producer services price inflation had risen further in the latest data, although there had been some moderation in core consumer goods inflation. Respondents to the Decision Maker Panel had increased further their expectations for their own price increases over the next twelve months. Most other measures of inflation expectations had remained elevated, particularly in the near term, although financial market indicators of medium-term inflation expectations were lower than their recent highs. 39: The risks around the MPC’s projections from both external and domestic factors were exceptionally large at present. There was a range of plausible paths for the economy, which had CPI inflation and medium-term activity significantly higher or lower than in the baseline projections in the August Monetary Policy Report. As a result, in coming to its assessment of the outlook and its implications for monetary policy, the Committee was currently putting less weight on the implications of any single set of conditioning assumptions and projections. 40: The August Report contained several projections for GDP, unemployment and inflation: a baseline conditioned on the MPC’s current convention for wholesale energy prices to remain constant beyond the six-month point; an alternative projection in which energy prices followed their downward-sloping futures curves throughout the forecast period; and a scenario which explored the implications of greater persistence in domestic price setting than in the baseline. These were all conditioned on announced Government fiscal policies, including the Cost of Living Support package announced in May. There were significant differences between these projections in the latter half of the forecast period. However, all showed very high near-term inflation, a fall in GDP over the next year and a marked decline in inflation thereafter. 41: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had continued to be subject to a succession of very large shocks, which would inevitably lead to volatility in output. These shocks had pushed global energy and other tradable goods prices to elevated levels. Those price increases had raised UK inflation and, since the United Kingdom was a net importer of these items, would necessarily weigh on households’ real incomes. This real economic adjustment was something monetary policy was unable to prevent. These global shocks could interact with domestic factors, including the tight labour market and the pricing strategies of firms, and could lead to more persistent inflationary pressures. The role of monetary policy was to ensure that, as the adjustment in the real economy occurred, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 42: The labour market remained tight, and domestic cost and price pressures were elevated. There was a risk that a longer period of externally generated price inflation would lead to more enduring domestic price and wage pressures. In view of these considerations, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 43: Eight members of the Committee judged that a 0.5 percentage point increase in Bank Rate, to 1.75%, was warranted at this meeting. For these members, a more forceful policy action was justified. Against the backdrop of another jump in energy prices, there had been indications that inflationary pressures were becoming more persistent and broadening to more domestically driven sectors. In a tight labour market and an environment in which companies were finding it easier to pass on price increases, a higher and more protracted path for CPI inflation over the next 18 months could increase the risk that an eventual decline in external price pressures would not be sufficient to restrain expectations of above-target inflation further ahead. Some of these members also judged that spending could be stronger than was assumed in the August Report projections if, for example, the labour market proved more resilient or some households drew down their accumulated savings to a greater extent. Overall, a faster pace of policy tightening at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening cycle later. 44: One member preferred a 0.25 percentage point increase in Bank Rate at this meeting. For this member, Bank Rate might already have reached the level consistent with returning inflation to the 2% target in the medium term. Demand would continue its recent slowing as household incomes were squeezed further and as past Bank Rate increases took full effect. Set against that, the labour market remained tight, and underlying wages and services prices had recently accelerated. While slowing demand would lower these domestic inflationary pressures, there was uncertainty over how much and how quickly this would occur. This member also shared concerns that the high near-term rate of CPI inflation would lead to second-round effects, prolonging the period of above-target inflation. Policy could act against those effects by generating a greater degree of slack and at the risk of oversteering medium-term inflation below target. Balancing these considerations, this member agreed that a further tightening was appropriate at this meeting, but felt that a smaller increase in Bank Rate would help minimise the risks, while retaining the option to act more forcefully if required at future meetings. 45: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy was not on a pre-set path. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate would reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response. 46: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 1.75%. 47: Eight members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden and Michael Saunders) voted in favour of the proposition. One member (Silvana Tenreyro) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 1.5%. The MPC’s strategy for UK government bond sales 48: As set out in the minutes of its May 2022 meeting, the Committee had asked Bank staff to work on a strategy for selling UK government bonds (gilts) held in the Asset Purchase Facility (APF) and had committed to providing an update at its August meeting. This would allow the Committee to make a decision at a subsequent meeting on whether the Bank of England should commence gilt sales. 49: The process of reducing the size of the APF had begun in February 2022, when the Committee had voted to cease gilt reinvestments and to initiate sales of sterling non-financial investment-grade corporate bonds. 50: In line with previous communications on APF reduction, the Committee’s strategy for asset sales would be guided by a set of key principles. First, the Committee had a preference to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a relatively gradual and predictable manner over a period of time. 51: In the run-up to this MPC meeting, Bank staff had set out a framework for assessing whether conditions were appropriate for the Bank of England to start gilt sales, consistent with these key principles. Using this framework, Bank staff had briefed the MPC on the current state of economic and market conditions, including whether these would be consistent with sales being conducted without disrupting the functioning of financial markets. The Financial Policy Committee (FPC) had also been briefed. 52: Based on the staff’s analysis, the MPC was provisionally minded to commence gilt sales shortly after its September policy meeting, subject to economic and market conditions being judged appropriate and to a confirmatory vote at that meeting. The Committee had asked the Bank to be in a position to begin a sales programme before the end of September. 53: In the event that this should proceed, the MPC agreed to set an amount for the reduction in the stock of purchased gilts held in the APF over a twelve-month period from the point at which the policy was voted on, comprising both maturing gilts and gilt sales. The Committee judged that, over the first twelve months of a sales programme starting in September, a reduction in the stock of purchased gilts held in the APF of around £80 billion was likely to be appropriate. Given the profile of maturing gilts over this period, this would imply a sales programme of around £10 billion per quarter. 54: The planned details of the proposed programme were set out in a provisional Market Notice accompanying these minutes. 55: For following years, the MPC intended to set an amount for the reduction in the stock of purchased gilts over the subsequent twelve-month period, as part of an annual review. As such, the Committee could amend the design parameters of the sales programme as required, for example to take into account the variation in gilt maturities across those periods. 56: The MPC agreed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that unwind should be predictable. If such amendments were judged necessary in order to meet its remit, for example if potential movements in Bank Rate alone were judged insufficient to meet the inflation target, or if markets were judged to be very distressed, the MPC would first consider amending or halting the sales programme before considering restarting reinvestments or additional asset purchases. The FPC would also have a role through its assessment of financial stability. Operational considerations 57: On 3 August 2022 the total stock of assets held in the Asset Purchase Facility (APF) was £863 billion, comprising £844 billion of UK government bond purchases and £19.1 billion of sterling non-financial investment-grade corporate bond purchases. 58: Consistent with the Committee’s decision at its February 2022 meeting to begin to reduce the stock of UK government bond purchases by ceasing to reinvest maturing assets, the £5.9 billion of cash flows associated with the redemption of the September 2022 gilt held by the APF would not be reinvested. 59: Consistent with the Committee’s decision at its February 2022 meeting to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases, the Bank would begin sales of corporate bonds in the week commencing 19 September 2022, with operational details to be published around a month ahead of auctions commencing. 60: The Committee had been briefed on operational changes to the Sterling Monetary Framework that would come into effect alongside the start of a gilt sales programme. The Bank would launch a new Short Term Repo (STR) facility to help to ensure that short-term market rates remained close to Bank Rate, and to allow the MPC to make future decisions about APF unwind independently of the implications for the supply of reserves. Alongside these minutes, the Bank was publishing an Explanatory Note setting out the broader framework for controlling short-term interest rates during the APF reduction programme, and a Market Notice describing the STR in more detail. 61: Finally, on behalf of the Committee, the Chair expressed his appreciation to Michael Saunders for his contributions to the work of the MPC since becoming a member in 2016. 62: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. Monetary Policy Summary, August 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 3 August 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.5 percentage points, to 1.75%. One member preferred to increase Bank Rate by 0.25 percentage points, to 1.5%. Inflationary pressures in the United Kingdom and the rest of Europe have intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs. As this feeds through to retail energy prices, it will exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term. CPI inflation is expected to rise more than forecast in the May Report, from 9.4% in June to just over 13% in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead. GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year. Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative. Domestic inflationary pressures are projected to remain strong over the first half of the forecast period. Firms generally report that they expect to increase their selling prices markedly, reflecting the sharp rises in their costs. The labour market has remained tight, with the unemployment rate at 3.8% in the three months to May and vacancies at historically high levels. As a result, and consistent with the latest Agents’ survey, underlying nominal wage growth is expected to be higher than in the May Report over the first half of the forecast period. Inflationary pressures are nevertheless expected to dissipate over time. Global commodity prices are assumed to rise no further, and tradable goods price inflation is expected to fall back, the first signs of which may already be evident. Although the labour market may loosen only slowly in response to falling demand, unemployment is expected to rise from 2023. Domestic inflationary pressures are therefore expected to subside in the second half of the forecast period, as the increasing degree of economic slack and lower headline inflation reduce the pressure on wage growth. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The risks around the MPC’s projections from both external and domestic factors are exceptionally large at present. There is a range of plausible paths for the economy, which have CPI inflation and medium-term activity significantly higher or lower than in the baseline projections in the August Monetary Policy Report. As a result, in coming to its assessment of the outlook and its implications for monetary policy, the Committee is currently putting less weight on the implications of any single set of conditioning assumptions and projections. The August Report contains several projections for GDP, unemployment and inflation: a baseline conditioned on the MPC’s current convention for wholesale energy prices to remain constant beyond the six-month point; an alternative projection in which energy prices follow their downward-sloping futures curves throughout the forecast period; and a scenario which explores the implications of greater persistence in domestic price setting than in the baseline. These are all conditioned on announced Government fiscal policies, including the Cost of Living Support package announced in May. There are significant differences between these projections in the latter half of the forecast period. However, all show very high near-term inflation, a fall in GDP over the next year and a marked decline in inflation thereafter. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has continued to be subject to a succession of very large shocks, which will inevitably lead to volatility in output. Monetary policy will ensure that, as the adjustment to these shocks occurs, CPI inflation will return to the 2% target sustainably in the medium term. The labour market remains tight, and domestic cost and price pressures are elevated. There is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures. In view of these considerations, the Committee voted to increase Bank Rate by 0.5 percentage points, to 1.75%, at this meeting. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy is not on a pre-set path. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response. In the minutes of its May 2022 meeting, the Committee asked Bank staff to work on a strategy for selling UK government bonds (gilts) held in the Asset Purchase Facility and committed to providing an update at its August meeting. Based on this analysis, the Committee is provisionally minded to commence gilt sales shortly after its September meeting, subject to economic and market conditions being judged appropriate and to a confirmatory vote at that meeting. Minutes of the Monetary Policy Committee meeting ending on 3 August 2022 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The Committee also discussed its strategy for selling UK government bonds held in the Asset Purchase Facility. The international economy 2: UK-weighted global GDP growth was likely to have slowed in 2022 Q2, and was projected to remain weak in Q3. The latest rise in gas prices and, to a lesser extent, a tightening in financial conditions, had led to another significant deterioration in the outlook for global economic activity. 3: According to the preliminary flash estimate, euro-area GDP had grown by a higher-than-expected rate of 0.7% in 2022 Q2. This could in part have reflected tourism returning to pre-Covid-19 (Covid) levels as restrictions were eased. Since the May Monetary Policy Report, the euro-area unemployment rate had fallen further below pre-Covid levels, reaching 6.6% in June, while vacancies had continued to grow. However, forward-looking indicators, such as the S&P Global PMI composite output index and other business and consumer confidence survey balances had fallen sharply, indicating weaker GDP growth in Q3. 4: According to the advance estimate, US GDP had fallen by 0.2% in 2022 Q2, the second consecutive quarter of negative growth. While the fall had been mainly accounted for by lower stockbuilding, domestic final demand growth had also slowed. The unemployment rate had remained at 3.6%, while there were early signs of a levelling out of the increase in vacancies in high-frequency data. The US ISM manufacturing and non-manufacturing PMIs had both fallen in June to their lowest readings since mid-2020, although they had remained above 50, indicating GDP growth could remain weak, but positive, in Q3. 5: China’s GDP had fallen by 2.6% in 2022 Q2, significantly weaker than had been expected and related largely to the strict regional lockdowns due to Covid and continued weakness in the property sector. GDP growth in Q3 was expected to recover, due to the easing of Covid restrictions. 6: European spot and futures gas prices had roughly doubled since the MPC’s previous meeting in mid-June, as the risks of Russia limiting severely the flow of gas to Europe had started to crystallise. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had risen to around €200 per MWh, close to its peak around the start of the Russia-Ukraine war. In response to Russia’s restriction of gas flows, EU member countries had agreed to a voluntary 15% reduction in gas consumption until the spring of 2023. Prices of other commodities, such as food, oil, and metals, had fallen materially since the MPC’s previous meeting, with the movements in the latter two prices likely to have reflected a weakening near-term global growth outlook. 7: Indicators of global supply constraints had remained elevated, although there were some early signs that supply bottlenecks had started to ease. Some indicators of shipping costs had declined from their peaks, while PMI surveys indicated that manufacturing delivery times had fallen back across different regions. 8: High energy and other commodity prices, global supply bottlenecks and strong labour markets had contributed to increases in global inflation rates. Euro-area annual headline and core HICP inflation in July had increased to 8.9% and 4.0% respectively. In the United States, annual headline and core PCE inflation had increased to 6.8% and 4.8% in June respectively, and annual US CPI inflation had increased to 9.1% in June. Monetary and financial conditions 9: Since the MPC’s previous meeting, financial markets had continued to be volatile. Market participants now expected that central banks in major advanced economies would react more forcefully to near-term inflationary pressures, but could need to respond to weaker activity thereafter. Ten-year government bond yields had fallen by around 70, 80 and 90 basis points in the United Kingdom, United States and Germany respectively since the MPC’s June meeting, more than reversing the increases seen between the May and June meetings. Risky asset prices had recovered, following large declines in equity prices and increases in corporate bond spreads between the MPC’s May and June meetings. 10: A significant number of central banks globally had increased their policy rates over the past six weeks, including more than three quarters of the central banks for which the Bank for International Settlements published data. At its July meeting, the Federal Open Market Committee had increased the target range for the federal funds rate by 75 basis points, to 2¼ to 2½%. At its July meeting, the ECB Governing Council had raised its key policy interest rates by 50 basis points and had approved a Transmission Protection Instrument, to ensure that the monetary policy stance was transmitted smoothly across all euro-area countries as the Governing Council continued to normalise monetary policy. The near-term path for market-implied policy rates in both the United States and euro area implied a sharp pickup in rates in 2022, but thereafter flat-lined or fell back a little, at levels lower than at the time of the MPC’s previous meeting. 11: In the United Kingdom, market pricing was broadly consistent with an increase in Bank Rate of 50 basis points at this MPC meeting. Following the Governor’s announcement in his Mansion House speech on 19 July that the MPC would publish more details on its strategy for beginning to sell the gilts held in the Asset Purchase Facility alongside the August Monetary Policy Report, a majority of market participants now expected that such sales would begin shortly after the MPC’s September meeting. Expectations for the extent of these sales were little changed, according to respondents to the Bank’s latest Market Participants Survey (MaPS). 12: Further out, market-implied expectations for the path of Bank Rate had fallen since the MPC’s previous meeting, now peaking at just under 3% in March 2023. This path continued to be higher than the expectations for Bank Rate of respondents to the latest MaPS, although the gap between the two paths had narrowed slightly, as the median respondent to MaPS now expected Bank Rate to peak at 2.5%, compared to 2% at the time of the MPC’s previous meeting. 13: Medium-term inflation compensation measures were lower across advanced economies, including the United Kingdom, than at the time of the May Report. That might have reflected concerns about the weaker global growth outlook, lower prices for some commodities, and tighter monetary policy in the near term. Medium-term UK inflation compensation measures had remained above their average levels of the past decade. 14: Based on the 15-working day average to 26 July on which the August Report had been conditioned, the sterling effective exchange rate was around 3% lower than the corresponding level at the time of the May Report. The depreciation of sterling against the US dollar had accounted for around 60% of this fall. Sterling had appreciated somewhat in the run-up to this MPC meeting. 15: Lending rates for new fixed-rate mortgages in the United Kingdom had continued to increase materially, reflecting a further response to the increases in risk-free market rates that had been observed since autumn 2021. The pass-through of these increases in risk-free rates to mortgage rates had been close to the full pass-through that had typically been seen prior to the global financial crisis, when interest rates had been further away from their lower bound. The latest Credit Conditions Survey suggested that secured credit availability for households had declined in the second quarter, with lenders reporting that this had largely reflected a worsening economic outlook. Respondents had expected secured credit availability to decrease slightly further in 2022 Q3. As usual, increases in interest rates on unsecured household borrowing and sight deposit rates had been smaller than for mortgage lending. Demand and output 16: Monthly GDP was estimated to have increased by 0.5% in May, following a 0.2% decline in April. The May outturn had been weaker than Bank staff had expected, but there was still uncertainty around the scale of the upward impact on activity from the additional trading day in May associated with the timing of the Platinum Jubilee bank holiday period. 17: Following a 0.8% quarterly increase in GDP in 2022 Q1, Bank staff now expected GDP to have fallen by 0.2% in Q2 as a whole, weaker than the 0.1% growth expected in the May Monetary Policy Report. Headline growth had been depressed by the run-down of NHS Test and Trace activity and by the impact of the Platinum Jubilee over the quarter as a whole. Bank staff had estimated that GDP growth excluding those factors was likely to have been around ½%, compared to around 1% in previous quarters. That was also slightly weaker than had been expected in the May Report, but broadly consistent with indicators of output growth from business surveys that had declined over the quarter. The slowdown in underlying growth was in part likely to be a reflection of the fall in real incomes due to higher global energy and tradable goods prices. 18: Most business survey indicators had weakened further in July. For example, the S&P Global/CIPS PMI composite output index had fallen from 53.7 in June to 52.1, below its long-run average but remaining consistent with positive GDP growth. Within the aggregate, there had been particular weakness in manufacturing output. The composite future output index had risen slightly in July, however. According to the Bank’s Agents, activity had grown at a moderate pace recently, with output constrained by ongoing shortages of labour and goods, and with companies reported to be more optimistic than households about the economic outlook. 19: Overall, Bank staff now expected GDP to increase by 0.4% in 2022 Q3, slightly weaker than had been incorporated in the May Report. With headline growth likely to be boosted by the unwind of the effect of the Platinum Jubilee, underlying growth was expected to slow further but to remain positive. 20: Following 0.5% growth in 2022 Q1, household consumption growth was expected to have slowed in Q2, with a further slowdown anticipated in Q3 to around 0.1% growth. Retail sales volumes had fallen by 0.1% in June, with particular weakness in clothing and footwear, and household goods stores. This had continued the downward trend in retail spending observed since the second half of 2021. According to the Bank’s Agents, there had been signs of consumer demand softening, as the fall in household real incomes was depressing spending. Food retailers had reported declines in sales volumes to the Agents, and there had also been widespread reports of a slowdown in sales of durable goods, which could be consistent with a change in the composition of spending. According to ONS data, output had surpassed its pre-pandemic level in some consumer-facing service sectors, such as hotels and restaurants, and land transport, but it was unclear whether the output of these sectors would rise much further in the near term. GfK consumer confidence had remained unchanged in July at the record-low level recorded in June. There had been some early indications of a slowing in housing demand in the June RICS survey. 21: Business investment had fallen by 0.6% in 2022 Q1 and had been persistently lower than expected in previous Monetary Policy Report projections. Relative to its pre-pandemic level, that weakness had been particularly apparent in investment in transport equipment and buildings and structures. Official data for business investment had been subject to significant revision in the past. According to the Bank’s Agents, investment intentions had softened slightly recently but had remained positive. Current investment spending had continued to be held back by cost pressures and shortages, and a greater number of the Agents’ contacts had indicated that uncertainty about demand might curtail investment in future. 22: Following changes in measurement associated with the United Kingdom’s withdrawal from the European Union, it remained very difficult to interpret recent external trade data, including being able to make consistent comparisons in these series across time. Supply, costs and prices 23: The Labour Force Survey (LFS) unemployment rate had been 3.8% in the three months to May, equal to its pre-pandemic trough and consistent with a tight labour market. LFS employment growth had been strong, picking up to 0.9% in the three months to May. The corollary of stable unemployment and strong employment growth had been a further decline in the inactivity rate. Nevertheless, the employment rate had remained somewhat below its level immediately prior to the pandemic, with the inactivity rate still somewhat higher than it had been during that earlier period. 24: Indicators of labour demand had remained strong, alongside evidence of continued recruitment difficulties. The stock of vacancies had been relatively stable in recent months, remaining close to its record high in the three months to June. The vacancy-to-unemployment ratio, a measure of labour market tightness, had also remained elevated and, on an industry basis, this ratio for each sector of the economy had been higher than its corresponding pre-pandemic level. The Bank’s Agents’ survey on employment and pay, conducted over the six weeks to early July, had reported strong employment intentions among businesses, although respondents had expected recruitment difficulties to limit these intentions being realised. Indeed, the Agents’ contacts had reported continued broad-based recruitment difficulties, with attrition and vacancy rates higher than normal for many businesses. 25: Indicators of nominal pay growth had remained strong, consistent with the effects of continued labour market tightness and higher CPI inflation outturns. Annual growth in private sector regular Average Weekly Earnings (AWE) had been 5% in the three months to May, broadly in line with expectations at the time of the May Monetary Policy Report. Adjusted for the mechanical effects of the changes in workforce composition and the Coronavirus Job Retention Scheme, Bank staff estimated that underlying nominal private sector regular pay growth had been around 4½% in the three months to May, in excess of pre-pandemic rates of around 3 to 3½%. The HMRC PAYE measure of the median of pay growth had been around 5% in June, also above its pre-pandemic rate. 26: The Agents’ employment and pay survey had reported an increase in recent wage settlements relative to estimates from the broadly equivalent survey conducted at the start of 2022. This survey had also suggested that businesses expected to increase pay deals by around 6% over the next twelve months, which was a little higher than in the previous survey. A significant minority of respondents in the latest survey had not provided an expected pay settlement figure for the next twelve months, with some indicating that they preferred to wait to observe future CPI outturns before deciding. Given the expected path of CPI inflation in the coming months, this suggested a potential upside risk to pay growth in the near term. Around a quarter of respondents to the latest survey had given or were considering awarding one-off payments to compensate staff. Underlying private sector regular AWE pay growth was expected to pick up further, to around 6% over the second half of 2022, driven by persistent tightness in the labour market and by higher inflation. 27: The Government had recently announced pay awards for a broad set of public sector employees of around 4%, on average, which compared to an annual rate of public sector AWE regular pay growth of 1.8% in the three months to May. 28: Twelve-month CPI inflation had risen to 9.4% in June, 0.3 percentage points above the May Report projection. In contrast, core CPI inflation, excluding food, beverages and tobacco and energy, had fallen to 5.8%, around ½ percentage point below the expectation at the time of the May Report. Relative to the May Report, there had been upside news in fuel, food and, to a lesser extent, services prices. The softening in core CPI inflation had been accounted for by a deceleration in core goods prices, in large part reflecting outright falls in used car prices. Services inflation, which was more closely associated with domestically generated inflation, had risen further, to 5.2%. 29: CPI inflation was expected to rise to around 10% in July and remain at around this level through the rest of the third quarter, reflecting higher fuel, food and services prices. 30: In 2022 Q4, CPI inflation was expected to rise to just over 13%, about 3 percentage points higher than the expectation at the time of the May Report and more than 2 percentage points higher than at the time of the June MPC meeting. The majority of that upside news was due to higher expected household energy prices. That primarily reflected the very substantial rise in wholesale gas futures prices that had occurred since the May Report, most recently due to Russia’s restrictions of gas supplies to European markets in July and due to the risk of further curbs. Since May, sterling gas futures prices for end-2022 had nearly doubled. To a lesser extent, the upside news reflected Ofgem’s announced changes to the method for updating its price cap, which had been shared with the Bank in advance of publication. These changes included putting more weight on the most recent sharp increases in wholesale gas prices, via transitional observation windows. In the August Monetary Policy Report projections, the price cap was assumed to rise by around 75% in October, compared to around 40% in the May Report. That would increase the typical annual dual-fuel bill from just under £2,000 to around £3,500 in October. The switch to resetting the cap on a quarterly, rather than semi-annual, basis meant that the price cap would be reset again in January. 31: The direct contribution of energy to CPI inflation was projected to reach 6½ percentage points in 2022 Q4, nearly 2½ percentage points higher than in the May Report and expected to account for more than half of the overshoot of CPI inflation relative to the 2% target. The rise in energy prices was likely to have additional indirect effects on CPI inflation by increasing firms’ costs, which were then likely to be passed on to a wide range of prices for non-energy goods and services. Bank staff estimated that these indirect effects would contribute around 1 percentage point to CPI inflation in 2022 Q4 and, assuming gas prices followed the Monetary Policy Report conditioning assumption, would continue to add significantly to inflation during the following year. 32: Core CPI inflation was also expected to pick up again in the near term, reaching around 6¼% by the end of the year, largely reflecting strengthening services price inflation. Indicators of costs and prices more broadly had remained elevated, although recent developments had been mixed. The S&P Global/CIPS PMI composite input and output indicators had fallen back somewhat in July from their recent highs. The inflation rates of the ONS’s measures of both producer output prices and services producer prices had risen further, to historically elevated levels. The Agents’ contacts had reported that input price inflation had remained elevated and that many companies expected to pass higher costs into prices to protect their margins, which remained below normal. 33: Short-term measures of inflation expectations across households, businesses and financial markets had remained substantially elevated relative to their historical averages. Respondents to the Decision Maker Panel had increased their expectations for their own price increases over the next twelve months to 6.6% on average in July, from 6.3% in June. The 2022 Q2 Deloitte CFO Survey had reported a median expectation for CPI inflation of 3.4% in two years’ time. Two-year ahead expectations reported in the CBI Distributive Trades Survey had remained above its historical average in 2022 Q2. The Citi/YouGov measure of households’ expectations at the one-year horizon had edged down in July but had remained at historically elevated levels. Households’ short-term inflation expectations tended to move more in line with measured inflation rates than equivalent indicators of medium-term inflation expectations. 34: Most medium to longer-term measures of inflation expectations had remained above their historical averages, albeit to a less extent than their short-term counterparts. Financial market indicators of medium-term inflation expectations had fallen from their recent highs to a level that was still above historical averages. The Citi/YouGov indicator of households’ expectations at the five to ten-year horizon had eased by 0.2 percentage points to 3.8% in July but had remained at a historically elevated level. The Bank’s Survey of Economic Forecasters, published in the August Report, had a median expectation for CPI inflation of 2% at the three-year horizon. The Committee would continue to monitor measures of inflation expectations very closely. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: Inflationary pressures in the United Kingdom and the rest of Europe had intensified significantly since the May Monetary Policy Report and the MPC’s previous meeting. That largely reflected a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs. As this fed through to retail energy prices, it would exacerbate the fall in real incomes for UK households and further increase UK CPI inflation in the near term. CPI inflation was expected to rise more than forecast in the May Report, from 9.4% in June to just over 13% in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead. 37: UK GDP growth was slowing in underlying terms and to a slightly greater extent than had been expected previously. This was in part a reflection of the fall in real incomes due to higher global energy and tradable goods prices, as well as constraints on output from ongoing shortages of labour and goods. Companies had remained more optimistic about the economic outlook than households. The labour market was tight but not tightening further. The United Kingdom was now projected to enter recession from the fourth quarter of this year. 38: The Agents’ employment and pay survey had reported that businesses expected to increase pay by around 6% over the next twelve months, a little higher than in their previous survey. Indicators of consumer and producer services price inflation had risen further in the latest data, although there had been some moderation in core consumer goods inflation. Respondents to the Decision Maker Panel had increased further their expectations for their own price increases over the next twelve months. Most other measures of inflation expectations had remained elevated, particularly in the near term, although financial market indicators of medium-term inflation expectations were lower than their recent highs. 39: The risks around the MPC’s projections from both external and domestic factors were exceptionally large at present. There was a range of plausible paths for the economy, which had CPI inflation and medium-term activity significantly higher or lower than in the baseline projections in the August Monetary Policy Report. As a result, in coming to its assessment of the outlook and its implications for monetary policy, the Committee was currently putting less weight on the implications of any single set of conditioning assumptions and projections. 40: The August Report contained several projections for GDP, unemployment and inflation: a baseline conditioned on the MPC’s current convention for wholesale energy prices to remain constant beyond the six-month point; an alternative projection in which energy prices followed their downward-sloping futures curves throughout the forecast period; and a scenario which explored the implications of greater persistence in domestic price setting than in the baseline. These were all conditioned on announced Government fiscal policies, including the Cost of Living Support package announced in May. There were significant differences between these projections in the latter half of the forecast period. However, all showed very high near-term inflation, a fall in GDP over the next year and a marked decline in inflation thereafter. 41: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had continued to be subject to a succession of very large shocks, which would inevitably lead to volatility in output. These shocks had pushed global energy and other tradable goods prices to elevated levels. Those price increases had raised UK inflation and, since the United Kingdom was a net importer of these items, would necessarily weigh on households’ real incomes. This real economic adjustment was something monetary policy was unable to prevent. These global shocks could interact with domestic factors, including the tight labour market and the pricing strategies of firms, and could lead to more persistent inflationary pressures. The role of monetary policy was to ensure that, as the adjustment in the real economy occurred, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 42: The labour market remained tight, and domestic cost and price pressures were elevated. There was a risk that a longer period of externally generated price inflation would lead to more enduring domestic price and wage pressures. In view of these considerations, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 43: Eight members of the Committee judged that a 0.5 percentage point increase in Bank Rate, to 1.75%, was warranted at this meeting. For these members, a more forceful policy action was justified. Against the backdrop of another jump in energy prices, there had been indications that inflationary pressures were becoming more persistent and broadening to more domestically driven sectors. In a tight labour market and an environment in which companies were finding it easier to pass on price increases, a higher and more protracted path for CPI inflation over the next 18 months could increase the risk that an eventual decline in external price pressures would not be sufficient to restrain expectations of above-target inflation further ahead. Some of these members also judged that spending could be stronger than was assumed in the August Report projections if, for example, the labour market proved more resilient or some households drew down their accumulated savings to a greater extent. Overall, a faster pace of policy tightening at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening cycle later. 44: One member preferred a 0.25 percentage point increase in Bank Rate at this meeting. For this member, Bank Rate might already have reached the level consistent with returning inflation to the 2% target in the medium term. Demand would continue its recent slowing as household incomes were squeezed further and as past Bank Rate increases took full effect. Set against that, the labour market remained tight, and underlying wages and services prices had recently accelerated. While slowing demand would lower these domestic inflationary pressures, there was uncertainty over how much and how quickly this would occur. This member also shared concerns that the high near-term rate of CPI inflation would lead to second-round effects, prolonging the period of above-target inflation. Policy could act against those effects by generating a greater degree of slack and at the risk of oversteering medium-term inflation below target. Balancing these considerations, this member agreed that a further tightening was appropriate at this meeting, but felt that a smaller increase in Bank Rate would help minimise the risks, while retaining the option to act more forcefully if required at future meetings. 45: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy was not on a pre-set path. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate would reflect the Committee’s assessment of the economic outlook and inflationary pressures. The Committee would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response. 46: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 1.75%. 47: Eight members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden and Michael Saunders) voted in favour of the proposition. One member (Silvana Tenreyro) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 1.5%. The MPC’s strategy for UK government bond sales 48: As set out in the minutes of its May 2022 meeting, the Committee had asked Bank staff to work on a strategy for selling UK government bonds (gilts) held in the Asset Purchase Facility (APF) and had committed to providing an update at its August meeting. This would allow the Committee to make a decision at a subsequent meeting on whether the Bank of England should commence gilt sales. 49: The process of reducing the size of the APF had begun in February 2022, when the Committee had voted to cease gilt reinvestments and to initiate sales of sterling non-financial investment-grade corporate bonds. 50: In line with previous communications on APF reduction, the Committee’s strategy for asset sales would be guided by a set of key principles. First, the Committee had a preference to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a relatively gradual and predictable manner over a period of time. 51: In the run-up to this MPC meeting, Bank staff had set out a framework for assessing whether conditions were appropriate for the Bank of England to start gilt sales, consistent with these key principles. Using this framework, Bank staff had briefed the MPC on the current state of economic and market conditions, including whether these would be consistent with sales being conducted without disrupting the functioning of financial markets. The Financial Policy Committee (FPC) had also been briefed. 52: Based on the staff’s analysis, the MPC was provisionally minded to commence gilt sales shortly after its September policy meeting, subject to economic and market conditions being judged appropriate and to a confirmatory vote at that meeting. The Committee had asked the Bank to be in a position to begin a sales programme before the end of September. 53: In the event that this should proceed, the MPC agreed to set an amount for the reduction in the stock of purchased gilts held in the APF over a twelve-month period from the point at which the policy was voted on, comprising both maturing gilts and gilt sales. The Committee judged that, over the first twelve months of a sales programme starting in September, a reduction in the stock of purchased gilts held in the APF of around £80 billion was likely to be appropriate. Given the profile of maturing gilts over this period, this would imply a sales programme of around £10 billion per quarter. 54: The planned details of the proposed programme were set out in a provisional Market Notice accompanying these minutes. 55: For following years, the MPC intended to set an amount for the reduction in the stock of purchased gilts over the subsequent twelve-month period, as part of an annual review. As such, the Committee could amend the design parameters of the sales programme as required, for example to take into account the variation in gilt maturities across those periods. 56: The MPC agreed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that unwind should be predictable. If such amendments were judged necessary in order to meet its remit, for example if potential movements in Bank Rate alone were judged insufficient to meet the inflation target, or if markets were judged to be very distressed, the MPC would first consider amending or halting the sales programme before considering restarting reinvestments or additional asset purchases. The FPC would also have a role through its assessment of financial stability. Operational considerations 57: On 3 August 2022 the total stock of assets held in the Asset Purchase Facility (APF) was £863 billion, comprising £844 billion of UK government bond purchases and £19.1 billion of sterling non-financial investment-grade corporate bond purchases. 58: Consistent with the Committee’s decision at its February 2022 meeting to begin to reduce the stock of UK government bond purchases by ceasing to reinvest maturing assets, the £5.9 billion of cash flows associated with the redemption of the September 2022 gilt held by the APF would not be reinvested. 59: Consistent with the Committee’s decision at its February 2022 meeting to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases, the Bank would begin sales of corporate bonds in the week commencing 19 September 2022, with operational details to be published around a month ahead of auctions commencing. 60: The Committee had been briefed on operational changes to the Sterling Monetary Framework that would come into effect alongside the start of a gilt sales programme. The Bank would launch a new Short Term Repo (STR) facility to help to ensure that short-term market rates remained close to Bank Rate, and to allow the MPC to make future decisions about APF unwind independently of the implications for the supply of reserves. Alongside these minutes, the Bank was publishing an Explanatory Note setting out the broader framework for controlling short-term interest rates during the APF reduction programme, and a Market Notice describing the STR in more detail. 61: Finally, on behalf of the Committee, the Chair expressed his appreciation to Michael Saunders for his contributions to the work of the MPC since becoming a member in 2016. 62: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Michael Saunders Silvana Tenreyro Clare Lombardelli was present as the Treasury representative.

Monetary Policy Summary, September 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 21 September 2022, the MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25%. Five members voted to raise Bank Rate by 0.5 percentage points, three members preferred to increase Bank Rate by 0.75 percentage points, to 2.5%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2%. The Committee also voted unanimously to reduce the stock of purchased UK government bonds, financed by the issuance of central bank reserves, by £80 billion over the next twelve months, to a total of £758 billion, in line with the strategy set out in the minutes of the August MPC meeting. In the August Monetary Policy Report, the MPC noted that the risks around its projections from both external and domestic factors were exceptionally large, given the very large increase in wholesale gas prices since May and the consequent impacts on real incomes for UK households and on CPI inflation. Since August, wholesale gas prices have been highly volatile, and there have been large moves in financial markets, including a sharp increase in government bond yields globally. Sterling has depreciated materially over the period. Uncertainty around the outlook for UK retail energy prices has nevertheless fallen, following the Government’s announcements of support measures including an Energy Price Guarantee. The Guarantee is likely to limit significantly further increases in CPI inflation, and reduce its volatility, while supporting aggregate private demand relative to the Committee’s August projections. An additional Growth Plan announcement is scheduled to take place shortly after this MPC meeting, which is expected to provide further fiscal support, and is likely to contain news that is material for the economic outlook. Once this announcement has been made, and as part of its November MPC round, the Committee will make a full assessment of the impact on demand and inflation from all these announcements, along with other news, and determine further implications for monetary policy. There has been some modest downside news to underlying UK GDP growth in 2022 Q3, and faster indicators and contacts of the Bank’s Agents suggest that the level of consumer spending is likely to have peaked in this quarter. There have been some indications that the demand for labour is weakening, although the labour market nonetheless tightened further over the summer, with inactivity materially higher than anticipated. Consumer services prices and nominal wages have continued to rise more rapidly than expected, although core goods price inflation has been lower than expected. Twelve-month CPI inflation fell slightly from 10.1% in July to 9.9% in August, with the release triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Given the Energy Price Guarantee, the peak in measured CPI inflation is now likely to be lower than projected in the August Report, at just under 11% in October. Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. There have been further signs since the August Report of continuing strength in domestically generated inflation. In and of itself, the Government’s Energy Price Guarantee will lower and bring forward the expected peak of CPI inflation. For the duration of the Guarantee, this might be expected to reduce the risk that a long period of externally generated price inflation leads to more persistent domestic price and wage pressures, although that risk remains material. The labour market is tight and domestic cost and price pressures remain elevated. While the Guarantee reduces inflation in the near term, it also means that household spending is likely to be less weak than projected in the August Report over the first two years of the forecast period. All else equal, and relative to that forecast, this would add to inflationary pressures in the medium term. In view of these considerations, the Committee voted to increase Bank Rate by 0.5 percentage points, to 2.25%, at this meeting. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy is not on a pre-set path. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary. At its August meeting, the MPC had communicated that it was provisionally minded to commence gilt sales shortly after its September meeting, subject to economic and market conditions being appropriate. At this meeting, the Committee agreed that the conditions were appropriate, and voted to begin the sale of UK government bonds held in the Asset Purchase Facility shortly after this meeting. Minutes of the Monetary Policy Committee meeting ending on 21 September 2022 1: Members of the Monetary Policy Committee (MPC) wished to express their heartfelt condolences to the Royal Family, following the death of Her Majesty Queen Elizabeth II. 2: This meeting, which had originally been scheduled to end on 14 September, had been postponed by one week in light of the period of national mourning. Ahead of the rescheduled meeting, in order to support its deliberations, the Committee had received a further briefing from Bank staff on recent economic and financial developments. 3: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 4: UK-weighted global GDP growth appeared to be slowing in 2022 Q3, with data coming in a touch below the already weak expectations at the time of the August Monetary Policy Report. Wholesale gas prices had been highly volatile since the MPC’s previous meeting, adding to uncertainty around projected inflation dynamics and the degree to which the real disposable income of households would be reduced going forward. 5: GDP in the euro area was expected to be flat in 2022 Q3, in line with the August Report, following stronger-than-expected growth of 0.8% in Q2. In the United States, GDP was expected to grow by 0.2% in the third quarter, marginally lower than had been anticipated in the August Report, following Q2 GDP growth of -0.1%, which had been weaker than expected. Manufacturing PMIs had softened across both economies over July and August, while the services PMI had remained robust in the United States, though had dipped below 50 in the euro area in August. Consumer and business confidence indicators had continued to fall in both regions in July, but had stabilised in August, with US consumer confidence measures increasing notably. Labour markets had remained strong. The US unemployment rate had fallen in July, matching its February 2020 pre-pandemic level, but had ticked up a little in August to 3.7%, as the participation rate had increased. In the euro area, the unemployment rate had fallen to 6.6% in July, the lowest on record. Vacancy rates had stabilised over recent months in both economies, albeit at high levels, and wage growth although moderating a little, had remained strong. 6: China’s GDP growth was likely to be weaker in 2022 Q3 than had been anticipated at the time of the August Report. In July, fixed asset investment and industrial production had fallen, and the rate of growth in retail sales had slowed, although these indicators had picked up again in August. Taken together, these data suggested that the recovery from strict regional lockdowns earlier in the year due to Covid-19 (Covid) outbreaks was bumpy. The property market had continued to weaken, with secondary market property prices declining moderately in August for the twelfth consecutive month. Manufacturing PMIs had been below 50 in August, in part driven by a drought in southern China that had been affecting electricity supply. Services PMIs, while above 50, had fallen, reflecting the impact of renewed Covid lockdowns in some regions in recent months. Against this backdrop, the People’s Bank of China had cut lending rates, and the government had announced further credit and fiscal easing measures. 7: Inflationary pressures had remained strong in advanced economies. In the euro area, annual HICP inflation had increased by 0.2 percentage points to 9.1% in August, with core inflation increasing by a similar amount to 4.3%. While energy price increases had made the biggest contribution to annual headline inflation, increases on the month were due to increases in contributions from food and core goods prices. In the United States, annual headline CPI inflation had fallen in August, to 8.3%, from 8.5% in July, but annual core CPI inflation had risen to 6.3% from 5.9%, above market expectations. The easing in the headline CPI measure had been accounted for by a fall in the contribution from energy, while the increase in the core CPI measure had been accounted for in large part by higher core services inflation. These CPI data were consistent with annual headline PCE inflation, the Federal Open Market Committee’s (FOMC) target variable, having fallen to 6.0% in August and core PCE inflation having remained unchanged at 4.6%. 8: European gas spot and futures prices had been highly volatile since the MPC’s previous meeting. They had risen during most of August from an already high level given strong demand: European countries had continued to build gas stocks at pace ahead of winter, in part to mitigate the risk of a potential cessation in Russian gas supplies. Following a short period of easing prices in late August, that risk had largely crystallised in early September when Russia closed the Nordstream 1 pipeline, leading to a further price spike. Prices had remained volatile subsequently. At the time of this MPC meeting, the Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, stood at around €210 per MWh, around 25% higher than in the August Report. Several policy measures had been announced by EU governments and suggested by the European Commission that were aimed at reducing the burden from high energy bills on households and companies. 9: Prices of other commodities, including oil and metals, had eased since the August Report, potentially reflecting market participants adjusting downwards their expectations of the global economic outlook. The Brent crude oil spot price had fallen by around 10% to $93 per barrel. Agricultural prices had risen, driven in part by weather-related disruption, as hot weather across Europe, America, and Asia had affected supply. There had been further evidence that supply chain disruptions might be easing, with shipping costs declining appreciably. Monetary and financial conditions 10: Since the MPC’s previous meeting, there had been large and volatile movements in financial markets globally, and particularly in the United Kingdom. Market participants expected that central banks in major advanced economies would continue to react strongly to near-term inflationary pressures. Yields had also moved materially higher at longer horizons, which contrasted to June and July. Ten-year government bond yields had increased by around 150, 80 and 110 basis points in the United Kingdom, United States and Germany respectively. Equity prices globally had ended the period lower than at the time of the MPC’s August meeting, although corporate bond spreads had been little changed. 11: The near-term path for market-implied policy rates had picked up sharply across major advanced economies since the MPC’s August meeting. At its meeting on 8 September, the ECB Governing Council had raised its key policy interest rates by 75 basis points, in line with prior market expectations. Market contacts expected that the FOMC would increase the target range for the federal funds rate by at least 75 basis points at its meeting ending on 21 September. 12: The median respondent to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this meeting, while market-implied pricing was consistent with an increase in Bank Rate of between 50 and 75 basis points. The Committee was also expected to confirm its plans, as set out in the August minutes, to commence gilt sales and reduce the stock of purchased gilts held in the Asset Purchase Facility by around £80 billion over the next twelve months. 13: Further out, market-implied expectations for the path of Bank Rate had risen sharply since the MPC’s previous meeting, now peaking at around 4¾% in mid-2023. The increase in the path for market-implied policy rates since August had been significantly larger in the United Kingdom than in the United States or the euro area. The peak in UK rates was higher than the corresponding peaks for the United States and the euro area, which now reached 4.5% and 2.8% respectively. According to market participants, the rise in UK rates had reflected a number of factors, including the impact of increases in natural gas prices, news about domestic inflationary pressures, and expectations of fiscal easing. The market-implied path for Bank Rate continued to be higher than the expectations for Bank Rate of respondents to MaPS. The median respondent expected Bank Rate to peak at around 3½% in March 2023, with the gap between this and the market-implied path being ascribed mainly to a combination of domestic and global factors skewing risks to the upside. 14: Medium-term inflation compensation measures across advanced economies had been quite volatile since the MPC’s August meeting, and had ended the period little changed in the United States but somewhat higher in the euro area. UK measures, which had fallen steadily from their recent peaks in March 2022, had troughed in late July and then had been volatile. These UK measures had ended the period somewhat higher than at the time of the August MPC meeting, and remained well above their average levels of the past decade. 15: The sterling effective exchange rate had depreciated by around 4½% since the previous MPC meeting, and was now around 3% lower compared to the 15-day moving average on which the August Report projections had been conditioned. The fall over this period had been relatively broad-based against other major currencies. 16: Lending rates for new fixed-rate mortgages in the United Kingdom had increased further in August across all loan-to-value (LTV) categories, by between 8 and 25 basis points. This had principally reflected a further response to the increases in risk-free market rates that had been observed since autumn 2021, although rates on high LTV mortgages had only just returned to around their peaks during Covid. There had also been some indications of reduced mortgage credit availability, primarily reflecting a response to the worsening economic outlook rather than a reduction in lenders’ risk appetite. Interest rates on unsecured household borrowing had also increased, but as usual by less than the corresponding risk-free reference rates. Also as usual, the pass-through of reference rate rises to deposit rates was greater for term than for sight deposit rates. 17: The Committee discussed the broader impact so far of the recent tightening in UK monetary policy. Increases in risk-free market rates since autumn 2021 had led to higher retail bank lending rates with around the full degree of pass-through that had typically been seen prior to the global financial crisis. Relative to past tightening cycles, there was a larger share of borrowers with fixed-rate mortgage debt, who would be shielded from higher rates for a time, but who would face a higher jump in rates when they did need to refinance. Households might have experienced an increase in the value of their houses over that period, which could dampen the effect on consumer spending. The MPC would continue to monitor closely the transmission of its monetary policy actions. Demand and output 18: According to the ONS’s first quarterly estimate, UK GDP had fallen by 0.1% in 2022 Q2, slightly above the expectations of a 0.2% fall incorporated into the August Monetary Policy Report projection. The upside news had reflected a smaller-than-expected impact from the additional bank holiday for the Platinum Jubilee in June, with the staff assessment of underlying GDP growth for Q2 remaining unchanged at around ½%. Within the expenditure components, household consumption had fallen by 0.1% on the quarter, total government expenditure had fallen by 3.9%, partly reflecting the extensive roll-back of Test and Trace activity, and business investment had risen by 3.8%. 19: Monthly GDP had risen by 0.2% in July, weaker than expectations at the time of the August Report, reflecting some modest downside news to underlying growth that was expected to slow in 2022 Q3. The downside news came from manufacturing and construction output. Services output had risen in July in line with expectations. Bank staff now expected GDP to fall by 0.1% in Q3, below the August Report projection of 0.4% growth, and a second successive quarterly decline. That fall would also, in part, reflect the smaller-than-expected bounce back in growth following the bank holiday in Q2 and the expected impact from the additional bank holiday in September for the Queen’s state funeral. 20: The expected slowing in underlying growth in 2022 Q3 was consistent with weakness in the latest business surveys. The S&P Global/CIPS PMI composite output index had fallen in July and again in August, reaching 49.6, the first time it had fallen below the 50 level since early 2021. Other business survey indicators had also pointed to near-term growth being close to zero. The composite PMI output expectations series had fallen in the three months to August. According to contacts of the Bank’s Agents, growth in manufacturing output had continued to be held back by supply chain disruptions, although to a slightly lesser extent than in recent quarters, but demand had also weakened. Business investment intentions were also reported to be easing, with firms citing uncertainty about demand and the broader economic outlook, and rising costs. 21: The squeeze on real disposable incomes had continued to impact negatively on household spending. Retail sales volumes had fallen by 1.6% in August, continuing a downward trend since mid-2021, and the fall had been broad-based across the main components. Some faster indicators of consumer-facing services, such as travel and transport, had flattened off over recent months, although this had partly reflected the impact of strikes. According to contacts of the Bank’s Agents, spending in some parts of the hospitality sector had fallen over the summer compared with a year ago. A number of indicators of housing activity had weakened in the three months to August, although house prices had remained strong. The ONS UK house price index had picked up in July, following a fall in the three months to June. Supply, costs and prices 22: Twelve-month CPI inflation had fallen slightly to 9.9% in August, in line with expectations at the time of the August Monetary Policy Report. This outturn had triggered the exchange of letters between the Governor and the Chancellor of the Exchequer that was published alongside these minutes. Core CPI inflation, excluding food, beverages and tobacco and energy, had risen slightly to 6.3%, also in line with expectations at the time of the August Report. Core goods inflation had been stable at 6.6%, below expectations at the time of the August Report, but services inflation had risen to 5.9% in August, the second month in a row of upside news. Annual services inflation had remained high across a broad range of sectors. 23: On 8 September, the Government had announced the Energy Price Guarantee, which would cap household unit energy prices at a level consistent with a typical annual household dual-fuel bill of £2,500 from October for a period of two years. As for consumers, there would be support for all businesses, charities and public sector organisations in meeting energy bills, for a six-month period. After this initial six-month scheme, the Government would provide ongoing focused support for vulnerable industries. The Energy Bills Support Scheme, which had been extended in May and would provide a £400 universal rebate on energy bills to households, would also help them with the rise in energy bills. The ONS had announced in August that this one-off payment would not affect headline CPI inflation, in line with expectations at the time of the August Report. 24: The introduction of the Energy Price Guarantee meant that CPI inflation was expected to rise by less in the near term, peaking at a little under 11% in October. The rise in inflation reflected the impact of the further increase in energy prices in the CPI as they rose to the level of the Guarantee. The Government’s announcements would reduce significantly the degree to which energy prices, which had seen a sequence of rises over the course of the year, would contribute to the level of headline CPI inflation. The direct contribution of energy to annual CPI inflation was now projected to be around 4 percentage points in 2022 Q4, compared to around 6½ percentage points at the time of the August Report. By the start of 2023, the near-term inflation outlook was a little over 5 percentage points lower than would have been the case had household energy bills risen with the announced increase in the Ofgem price cap from October, and with the increase in the cap in January that would have been expected under the existing Ofgem framework, given the recent behaviour of wholesale gas prices. 25: There had been some easing in the composite input and output price PMIs, but these had remained elevated relative to their historical averages. Over July and August, the Agents’ contacts had noted that energy costs, pay and the depreciation of sterling were becoming increasingly important factors in cost pressures facing companies. Bank staff expected core CPI inflation to stay close to the current level in coming months, elevated relative to historical averages. 26: While getting a precise steer on inflation expectations was difficult, short-term measures of inflation expectations had increased further on the month and had remained substantially higher than past averages. There had been mixed signals from medium to longer-term measures of inflation expectations, although for most measures their level had also remained elevated relative to historical averages. The Citi/YouGov indicator of household expectations at the five to ten-year horizon had risen, but the Bank’s Inflation Attitudes Survey five-year inflation expectations measure had fallen back. Year-ahead CPI inflation expectations from the Decision Maker Panel of firms had remained elevated relative to the inflation target in August. The Committee would continue to monitor measures of inflation expectations very closely. 27: Regarding the labour market, the Labour Force Survey (LFS) measure of employment growth in the three months to July had slowed to 0.1%, from 0.5% in the three months to June. Both outturns had been weaker than the MPC’s expectations at the time of the August Report. The easing in employment growth might have reflected continued recruitment difficulties and perhaps some early signs of weakening labour demand, in particular in the manufacturing sector. In August there had been a small fall in vacancies across the economy as a whole. Contacts of the Bank’s Agents had reported that recruitment difficulties might have moderated somewhat recently. Employment surveys had been softening in recent months. However, they remained near their historical averages and were consistent with ongoing positive employment growth. 28: The LFS unemployment rate had fallen to 3.6% in the three months to July, its lowest level since 1974 and below expectations at the time of the August Report. Since the start of 2022, however, the unemployment rate had remained broadly flat. The June and July releases indicated that inactivity had been significantly higher than expected at the time of the August Report, with a particularly large increase in July. The MPC discussed the surprising strength in inactivity, which had continued to be a key component of the tightness in the labour market. While flows out of inactivity had recently been strong, flows into inactivity had remained high. LFS survey responses indicated that a large proportion of the rise in inactivity was met by a rise in workers aged above 64 or those at working age who did not want a job. 29: Annual whole-economy total pay growth had been 5.5% in the three months to July, 0.3 percentage points higher than in the three months to June, and 0.6 percentage points higher than the expectation at the time of the August Report. Private sector regular pay had risen by 6.0% in the three months to July, stronger than the expectations of 5.5% at the time of the August Report, and bonuses had also surprised to the upside. The mechanical effects of the changes in workforce composition and the Coronavirus Job Retention Scheme on pay growth had been fading, such that headline nominal private sector regular pay growth was now a more informative indicator of underlying pay growth than it had been at any point since the onset of the pandemic. 30: Nominal pay growth was expected to rise further by the end of the year. The Agents’ contacts had reported that the current and expected high level of inflation, as well as industrial disputes, had been playing an increasing role in pay awards. A significant proportion of firms had given, or had been considering giving, their staff one-off payments to help with rising living costs or were reviewing their broader remuneration packages. The immediate policy decision 31: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 32: The most material economic news since the MPC’s previous meeting had been on fiscal policy, with the announcement of the Government’s response to the energy price shock and the scheduling of an additional Growth Plan announcement. 33: Against a backdrop of very significant rises in wholesale gas prices in recent months, the Government had announced a package of measures to support households and businesses with their energy bills, including an Energy Price Guarantee. The Guarantee would have the effect of reducing the near-term outlook for CPI inflation compared both with a counterfactual scenario in which there had been no policy action, and, to a lesser degree, relative to the August Monetary Policy Report projection, which also had no policy action but had been based on the lower path for gas prices at the time. It would also limit the reduction in household spending over the first two years compared with the very weak August Report projection. The scheme would therefore act primarily to offset some of the impacts of the externally generated energy price shock on households and businesses. The Government had also announced that a Growth Plan would be set out on 23 September. 34: Since August, wholesale gas prices had been highly volatile, and there had been large moves in financial markets, including a sharp increase in government bond yields globally. Sterling had depreciated materially over the period. There had been some modest downside news to underlying UK GDP growth in Q3, and faster indicators and contacts of the Bank’s Agents had suggested that the level of consumer spending was likely to have peaked in Q3. There had been some indications that the demand for labour was weakening, although the labour market had nonetheless tightened further over the summer, with inactivity materially higher than anticipated at the time of the August Report. Consumer services prices and nominal wages had continued to rise more rapidly than expected, although core goods price inflation had been lower than expected. 35: In the August Report, the MPC had noted that the risks around its projections from both external and domestic factors were exceptionally large, given the very large rise in wholesale gas prices since May and the consequent impacts on real incomes for UK households and on CPI inflation. The announced Energy Price Guarantee was expected to have the effect of significantly reducing the degree of uncertainty around the outlook for UK retail energy prices over the period of the Guarantee, and therefore also for CPI inflation. 36: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a succession of very large shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 37: There had been further signs since the August Report of continuing strength in domestically generated inflation. In and of itself, the Government’s Energy Price Guarantee would lower and bring forward the expected peak of CPI inflation. For the duration of the Guarantee, this might have been expected to reduce the risk that a long period of externally generated price inflation led to more persistent domestic price and wage pressures, although that risk remained material. 38: The labour market was tight and domestic cost and price pressures remained elevated. While the Guarantee reduced inflation in the near term, it also meant that household spending was likely to be less weak than projected in the August Report over the first two years of the forecast period. All else equal and relative to that forecast, this would add to inflationary pressures in the medium term. 39: In view of these considerations, all members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 40: All members also agreed that the forthcoming Growth Plan would provide further fiscal support and was likely to contain news that was material for the economic outlook. In the November MPC round, the Committee would make a full assessment of the impact on demand and inflation from all these announcements, along with other news, and determine further implications for monetary policy. 41: Five members judged that a further 0.5 percentage point increase in Bank Rate to 2.25% was warranted at this meeting. For these members, a tight labour market with wage growth and domestic inflation well above target-consistent rates justified a further, forceful response from monetary policy. The impact of the Energy Price Guarantee meant that the pressure of demand relative to supply was likely to be stronger than previously expected. In the near term, the Guarantee would lower and bring forward the expected peak in CPI inflation. This should restrain expectations of above-target inflation further ahead, but was not necessarily sufficient to do so alone, given inflation would still be very high for several months. The November forecast round would provide the Committee with an opportunity to make a full assessment of the impact on demand and inflation of the Government’s fiscal announcements. 42: Three members preferred a 0.75 percentage point increase in Bank Rate to 2.5% at this meeting. For these members, recent data outturns had already registered more persistent inflationary pressures, and medium-term measures of inflation expectations had remained high. The Energy Price Guarantee, while welcome in its reduction of the near-term peak in inflation, would provide additional support to households, which would add to demand pressure. Faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce the risks of a more extended and costly tightening cycle later. 43: One member preferred a 0.25 percentage point increase in Bank Rate to 2% at this meeting. For this member, recent data outturns had suggested that activity was already weakening, and the risks of second-round effects from near-term inflation were falling. On the latter, higher-than-expected services price inflation could reflect energy price or base effects in some sectors that would not persist, and wage growth across services sectors had been negatively correlated with producer price inflation in recent quarters. Set against that, there could be further pressures of demand on supply in the medium term, including from expected fiscal policy. On balance, for this member, an increase of 0.25 percentage points was appropriate at this time, although the member had also considered the case for an increase of 0.5 percentage points. 44: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Policy was not on a pre-set path. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. The scale, pace and timing of any further changes in Bank Rate would reflect the Committee’s assessment of the economic outlook and inflationary pressures. Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee would respond forcefully, as necessary. 45: Consistent with the guidance set out in the minutes of its August meeting, and given that economic and market conditions were judged appropriate, all members of the Committee agreed at this meeting that the Bank of England should reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by an amount of £80 billion over the next twelve months, comprising both maturing gilts and gilt sales, to a total of £758 billion. 46: The Committee reaffirmed that, as a matter of course, it would not continue to vote at each meeting on propositions regarding the stock of purchased assets outside a scheduled annual review. The Committee also reaffirmed that, as set out in the minutes of its August meeting, there would be a high bar for amending the planned reduction in the stock of purchased gilts outside such a review. In judging whether that bar was met, the Financial Policy Committee would also have a role through its assessment of financial stability. 47: The Chair invited the Committee to vote on the propositions that: Bank Rate should be increased by 0.5 percentage points, to 2.25%; The Bank of England should reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by £80 billion over the next twelve months, to a total of £758 billion. 48: Five members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro) voted in favour of the first proposition. Three members (Jonathan Haskel, Catherine L Mann and Dave Ramsden) voted against the first proposition, preferring to increase Bank Rate by 0.75 percentage points, to 2.5%. One member (Swati Dhingra) voted against the first proposition, preferring to increase Bank Rate by 0.25 percentage points, to 2%. 49: The Committee voted unanimously in favour of the second proposition. Operational considerations 50: On 21 September 2022, the total stock of assets held in the Asset Purchase Facility (APF) was £857 billion, comprising £838 billion of UK government bond purchases and £18.9 billion of sterling non-financial investment-grade corporate bond purchases. 51: In light of the revised timing of this MPC meeting, the Bank had announced on 9 September that sales of APF corporate bonds via auctions would start one week later than previously announced, with the first operation to take place on 27 September. The Bank would stand ready to conduct corporate bond buybacks during specified execution windows from the week beginning 24 October. 52: The details of the gilt sales programme voted on at this MPC meeting were set out in a Market Notice accompanying these minutes. These supplemented details set out in the Market Notice published by the Bank on 1 September, confirming the commencement of these operations and providing further detail on the precise timing and size of gilt sale operations in the quarter ahead. 53: Alongside these minutes, the Governor had exchanged letters with the Chancellor of the Exchequer, regarding the implications of the MPC’s decision at this meeting on gilt sales for various operational arrangements related to the APF. 54: The Committee had been briefed at its August meeting on operational changes to the Sterling Monetary Framework that would come into effect alongside the start of a gilt sales programme. The Bank would launch a new Short Term Repo (STR) facility to help to ensure that short-term market rates remained close to Bank Rate, and to allow the MPC to make future decisions about APF unwind independently of the implications for the supply of reserves. Details of the STR had been set out in a Market Notice on 1 September. The first operation would take place on 6 October, following the commencement of the gilt sales programme. 55: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, Anne Glover was also present on 8 September, as an observer for the purpose of exercising oversight functions in her role as a member of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target. Operational decisions are taken by the Bank’s Monetary Policy Committee. The minutes of the Committee meeting ending on 2 November will be published on 3 November 2022.

Monetary Policy Summary, November 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 2 November 2022, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points, to 3%. One member preferred to increase Bank Rate by 0.5 percentage points, to 2.75%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2.5%. As set out in the accompanying November Monetary Policy Report, the MPC’s updated projections for activity and inflation describe a very challenging outlook for the UK economy. Since the MPC’s previous forecast, there have been significant developments in fiscal policy. Uncertainty around the outlook for UK retail energy prices has fallen to some extent following further government interventions. For the current November forecast, and consistent with the Government’s announcements on 17 October, the MPC’s working assumption is that some fiscal support continues beyond the current six-month period of the Energy Price Guarantee (EPG), generating a stylised path for household energy prices over the next two years. Such support would mechanically limit further increases in the energy component of CPI inflation significantly, and reduce its volatility. However, in boosting aggregate private demand relative to the August projections, the support could augment inflationary pressures in non-energy goods and services. Other fiscal measures announced up to and including 17 October also support demand relative to the August projection. The MPC’s forecast does not incorporate any further measures that may be announced in the Autumn Statement scheduled for 17 November. There have been large moves in UK asset prices since the August Report. These partly reflect global developments, although UK-specific factors have played a very significant role during this period. The MPC’s projections are conditioned on the path of Bank Rate implied by financial markets in the seven working days leading up to 25 October. That path rose to a peak of around 5¼% in 2023 Q3, before falling back. Overall, the path is around 2¼ percentage points higher over the next three years than in the August projection. The higher market yield curve has pushed new mortgage rates up sharply. Financial conditions have tightened materially, pushing down on activity over the forecast period. GDP is expected to decline by around ¾% during 2022 H2, in part reflecting the squeeze on real incomes from higher global energy and tradable goods prices. The fall in activity around the end of this year is expected to be less marked than in August, however, reflecting support from the EPG. The labour market remains tight, although there are signs that labour demand has begun to ease. CPI inflation was 10.1% in September and is projected to pick up to around 11% in 2022 Q4, lower than was expected in August, reflecting the impact of the EPG. Services CPI inflation has risen. Nominal annual private sector regular pay growth rose to 6.2% in the three months to August, 0.6 percentage points higher than expected in the August Report. In the MPC’s November central projection that is conditioned on the elevated path of market interest rates, GDP is projected to continue to fall throughout 2023 and 2024 H1, as high energy prices and materially tighter financial conditions weigh on spending. Four-quarter GDP growth picks up to around ¾% by the end of the projection. Although there is judged to be a significant margin of excess demand currently, continued weakness in spending is likely to lead to an increasing amount of economic slack emerging from the first half of next year, including a rising jobless rate. The LFS unemployment rate is expected to rise to just under 6½% by the end of the forecast period and aggregate slack increases to 3% of potential GDP. In the MPC’s central projection, CPI inflation starts to fall back from early next year as previous increases in energy prices drop out of the annual comparison. Domestic inflationary pressures remain strong in coming quarters and then subside. CPI inflation is projected to fall sharply to some way below the 2% target in two years’ time, and further below the target in three years’ time. In projections conditioned on the alternative assumption of constant interest rates at 3%, activity is stronger than in the MPC’s forecast conditioned on market rates, although GDP is still expected to be falling at the end of 2023. CPI inflation is projected to be a little above the target at the end of the second year. However, it falls more than a percentage point below the target at the end of the third year. The risks around both sets of inflation projections are judged to be skewed to the upside in the medium term, however, in part reflecting the possibility of more persistence in wage and price setting. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The labour market remains tight and there have been continuing signs of firmer inflation in domestic prices and wages that could indicate greater persistence. Currently announced fiscal policy, including the MPC’s working assumption about continued fiscal support for household energy prices, will also support demand, relative to the Committee’s projections in August. The Committee will take account of any additional information in the Government’s Autumn Statement at its December meeting and in its next forecast in February. In view of these considerations, the Committee has voted to increase Bank Rate by 0.75 percentage points, to 3%, at this meeting. The majority of the Committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets. There are, however, considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. Minutes of the Monetary Policy Committee meeting ending on 2 November 2022 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP growth was likely to have remained weak in 2022 Q3, growing at a similar pace to the preceding quarter, and with the latest indicators suggesting that this would continue in the near term. Global inflation remained elevated, driven by higher energy prices and tight labour markets, but supply-chain bottlenecks had eased somewhat. 3: GDP in the euro area had increased by 0.2% in 2022 Q3 according to the preliminary flash estimate, in line with market expectations and much weaker than the 0.8% growth reported in Q2. The slowdown had largely reflected the continuing squeeze on household real incomes due to high energy and food prices. Several European governments had announced a range of policy measures to address the impact of high energy prices on households and businesses. These were expected to support growth. 4: In the United States, according to the advance estimate, third-quarter GDP had risen by 0.6%, having fallen slightly in the previous two quarters. Growth had been boosted by net trade in particular, with a rise in both goods and services exports, and a fall in goods imports. Financial conditions in the United States had continued to tighten, as the Federal Open Market Committee (FOMC) had tightened monetary policy in response to inflationary pressures. This had also contributed to a slowing in the US housing market. 5: The US dollar effective exchange rate had appreciated by over 10% since the start of the year. This could have had important implications for the global economy, particularly for non-China emerging market economies (NCEMEs), through its impact on global asset prices. Capital outflows from NCEMEs had, however, generally been relatively gradual, and many NCEME exchange rates had depreciated by less against the US dollar than some advanced economy currencies, in part due to a number of NCEME central banks having tightened monetary policy early and significantly, as well as some of these countries being commodity exporters. Nonetheless, this tightening in financial conditions implied a weakening in the outlook for NCEMEs. 6: Official Chinese GDP data suggested growth in 2022 Q3 had been stronger than expected, at 3.9%, as Covid-related restrictions were loosened. Accommodative monetary and fiscal policies had also boosted growth. The pickup in Q3 was in part a rebound from a 2.7% contraction recorded in Q2. Looking ahead, the ongoing impact of Covid-related restrictions, weakness in the housing sector and a slowing in global demand were expected to weigh on activity. 7: European gas spot prices had fallen markedly since their peak in August. At the time of this MPC meeting, the Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, was around €117 per MWh, around 40% lower than at the time of the previous meeting. This had been driven partly by the build-up of gas stocks in many European countries ahead of the winter. Gas futures prices remained elevated though, which reflected the ongoing impact of Russia’s restriction of gas supplies to Europe. 8: Global supply-chain bottlenecks had eased as supply conditions had improved and as global demand had slowed. Shipping costs had fallen from their peaks earlier in the year and other indicators of supply constraints pointed to an easing of pressures over the past few months. The Brent crude oil spot price was little changed from September, at $95 a barrel, although it remained 20% higher than at the start of the year. Metals prices had fallen slightly since September. Global agricultural goods prices were broadly unchanged, but had fallen by around 20% from their recent peaks in 2022 Q2. 9: Labour markets had remained tight in the United States and in the euro area. Vacancies were elevated relative to unemployment. In the United States, although this ratio, a summary measure of labour market tightness, had fallen back a little in recent months, it remained near record levels. Wage growth was elevated in both the United States and the euro area, although it had slowed somewhat in recent outturns in the United States. 10: According to the flash estimate, euro-area annual headline HICP inflation in October had increased to 10.7%, with energy prices continuing to be the key driver of high inflation. This was significantly higher than had been expected, with the contribution from energy accounting for the largest part of the surprise. In the United States, annual headline PCE inflation had fallen from its recent peak, to 6.2% in September, and annual US CPI inflation had fallen to 8.2%, reflecting the fall in oil and hence fuel prices. Services inflation had been higher in the United States than in the euro area, which had in part reflected greater labour market tightness. Monetary and financial conditions 11: The level of short and longer-term market interest rates in the United Kingdom were overall only modestly changed compared to the MPC’s September meeting, but were still substantially higher than at the time of the August Monetary Policy Report. In recent weeks, there had been a period of exceptional volatility in UK financial markets, with significant repricing of UK financial assets, particularly affecting long-dated UK government debt. Market interest rates had risen very sharply after the Government’s Growth Plan was announced on 23 September and had been volatile thereafter, before retracing. 12: On 28 September, following a period of volatility and market illiquidity, the Bank of England had announced a strictly time-limited and targeted financial stability operation to buy long-dated UK government bonds, in order to address market dysfunction and to reduce any risks to financial stability and core funding markets. On 10 and 11 October, the Bank had announced additional measures, including undertaking further targeted daily purchase operations for index-linked UK government bonds. In line with what the Bank had announced from the outset of these operations, all bond purchases had ceased on 14 October. These financial stability operations had been designed to allow liability-driven investment (LDI) funds affected by the significant repricing of UK financial assets time to reduce their leverage and to increase their resilience to future stresses. 13: In the days leading up to the MPC’s November meeting, conditions in UK financial markets had stabilised somewhat, leaving the overall moves in gilt yields since the MPC’s previous meeting relatively small. On balance, across major advanced economies, the near-term path for market-implied policy rates had not changed materially since the September meeting, but these paths and longer-term yields remained substantially higher than at the time of the August Report. Overall, moves since August had been largest in the United Kingdom, where ten-year government bond yields had risen by around 160 basis points, compared to around 130 basis points in the United States and euro area. Over this period, global equity prices had fallen and spreads on corporate debt had widened. These falls in risky asset prices had been somewhat more pronounced in the United Kingdom, relative to other major advanced economies. 14: Central banks in major advanced economies had continued to tighten monetary policy since the MPC’s September meeting and were expected by market participants to continue to react strongly to near-term inflationary pressures. At its meeting on 27 October, the ECB Governing Council had raised its key policy interest rates by 75 basis points, in line with prior market expectations and following an increase of 75 basis points at its September meeting. The Governing Council expected to raise interest rates further, while noting that substantial progress had been made in withdrawing monetary policy accommodation. The FOMC had also increased the target range for the federal funds rate by 75 basis points at its September meeting to 3 to 3¼%, and market contacts expected a further increase of 75 basis points at the FOMC’s meeting ending on 2 November. 15: The median respondent to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 75 basis points at this meeting, broadly in line with the expected increase in Bank Rate derived from market pricing. 16: The MPC’s projections were conditioned on the path of Bank Rate implied by financial markets in the seven working days leading up to 25 October. That path was rising to a peak of around 5¼% in 2023 Q3, before falling back. In the immediate run-up to the MPC’s November meeting, market-implied expectations for the path of Bank Rate peaked at around 4¾% in the second half of 2023, broadly in line with the peak at the time of the MPC’s September meeting. The expected path for Bank Rate in the latest MaPS, conducted between 19 and 21 October, had remained lower than the market-implied path but had shifted materially higher relative to the previous survey conducted at the start of September. The median expected path now had a peak in Bank Rate of 4½% in May 2023, 1 percentage point higher than the peak of 3½% in the previous survey. Thereafter, respondents expected a somewhat faster decline in Bank Rate than implied by the market path, with the median expectation for Bank Rate at the three-year horizon falling to 3%. 17: Recent changes in market expectations for the path of Bank Rate had followed substantial upward moves between the August and September meetings. In the United Kingdom, the market-implied path for policy rates was now on average around 2 percentage points higher over the next three years than at the time of the August Report. That rise had been larger than in the United States and euro area. According to market participants, the rise in UK rates since August had reflected a number of factors, including the impact of recent fiscal announcements on UK demand, a higher premium required to invest in UK assets, data news on the degree of near-term domestic inflationary pressures, global factors, market illiquidity, and perceptions of the central bank reaction function. 18: Market-implied measures of medium-term inflation compensation had risen somewhat in the United States and euro area since the MPC’s September meeting, but had remained within recent ranges. In the United Kingdom, medium-term inflation compensation measures had been very volatile and had fallen sharply since the MPC’s previous meeting. These moves had, however, been distorted by the volatile repricing in long-dated and index-linked UK government debt and associated pressure on LDI funds during that period. Respondents to the MaPS had provided an alternative gauge of inflation expectations among market participants. The median respondent’s expectation for CPI inflation had risen since the previous survey at both the three and five-year horizons, to 3% and 2.5% respectively. 19: In the immediate run-up to the MPC’s November meeting, the sterling effective exchange rate had been around 1¾% higher compared to the previous MPC meeting but had remained around 2¾% lower relative to the August meeting. Those relatively modest overall changes had masked volatile moves in the exchange rate during the recent period of market turbulence, with sterling briefly reaching an historic low against the dollar. Consistent with this, sterling implied volatility, a measure of the uncertainty around the outlook for the exchange rate, had picked up significantly, before falling back in the most recent data. Sterling risk reversal measures derived from foreign exchange options had also fallen sharply during the period of market volatility, suggesting that the price of insuring against the risk of a large depreciation in sterling significantly exceeded the price of insuring against a large appreciation. 20: Lending rates for new mortgages had increased sharply since the MPC’s previous meeting, reflecting the sharp rise in risk-free market rates during the period as well as increases since the August Report. The monthly average quoted rate on a two-year fixed-rate 75% loan-to-value (LTV) mortgage had increased from 3.6% in August, to 4.2% in September. Preliminary data suggested that the rate had increased significantly further to 6.0% in October, its highest rate since 2008. Rates had increased across all major LTV categories, with the pass-through of higher reference rates occurring faster than had typically been the case in the past. Reference rates had fallen back from their highs in late September, and there had been moderate falls in some mortgage rates in the days leading up to this MPC meeting. 21: During the period of volatility in UK interest rate markets, the number of available mortgage products across all LTVs had fallen sharply for a short period. The number of available products had since recovered somewhat, but remained below its previous level. Interest rates on some unsecured household borrowing products had also increased since the MPC’s September meeting. Lenders had reported in the latest Credit Conditions Survey (CCS), which had been carried out before the exceptional volatility in UK interest rate markets, that credit availability had declined in 2022 Q3 for both secured and unsecured household borrowing and that further declines were expected in Q4. 22: Bank lending rates to corporates had also increased in the latest data for September. Lenders responding to the Bank’s latest CCS had expected overall corporate credit availability to worsen in Q4 and more recent market intelligence also suggested that there had been a contraction in the availability of credit to corporates in recent weeks, particularly for riskier borrowers. 23: Deposit rates for both sight and term deposits had risen since the MPC’s September meeting. The rate on sight deposits had increased by 35 basis points while the rate on two-year fixed-rate bonds had increased by over 100 basis points. Household deposit flows had increased in September. Non-financial corporations had reduced their deposits, while financial corporations had increased their deposits materially, which was likely to reflect the significant market volatility towards the end of the month. Demand and output 24: UK quarterly GDP growth in 2022 Q2 had been revised up to 0.2% in the Quarterly National Accounts. Estimates of GDP had been revised lower in preceding quarters, such that the level of GDP in Q2 was now estimated to be slightly below its pre-Covid level. Downward revisions to past estimates of health output had more than offset upward revisions to market sector output. 25: Monthly GDP was estimated to have fallen by 0.3% in August, following a 0.1% increase in July. Bank staff now expected GDP to have contracted by 0.5% in 2022 Q3 as a whole, 0.9 percentage points weaker than anticipated in the August Monetary Policy Report. Although the expected weakness in part reflected the additional bank holiday for the Queen’s state funeral in September, it was primarily driven by weakness in underlying output. That underlying weakness was in part likely to be a reflection of the fall in real household incomes, and hence consumer spending, due to higher global energy and tradable goods prices. 26: Most business survey indicators had weakened since the MPC’s September meeting. For example, the S&P Global/CIPS UK PMI flash composite output index had fallen to 47.2 in October, below its long-run average and consistent with negative GDP growth. The future output index had also fallen significantly, from 61.4 in September to 55.0 in October. According to the Bank’s Agents, economic activity had continued to weaken, as squeezed real incomes and increased uncertainty about the outlook weighed on confidence and demand. Growth was also constrained by ongoing shortages of labour and goods, though to a lesser extent than previously. 27: Following 0.2% growth in 2022 Q2, household consumption growth was expected to fall in both Q3 and Q4. Retail sales volumes had fallen by 1.4% in September. This had continued the downward trend in retail spending observed since the second half of 2021, although the weakness in part reflected the additional bank holiday for the Queen’s state funeral. Contacts of the Bank’s Agents had reported that the squeeze on real incomes was being felt across most areas of consumer spending. GfK consumer confidence had fallen to a new record-low level in September, and had remained close to that low in October, despite recovering a little. The September RICS survey pointed to continued weakness in housing demand and a wider set of survey indicators suggested that UK house price inflation had started to slow. 28: Business investment had been weak for some time and, despite increasing by 3.7% in 2022 Q2, was around 8% below its pre-Covid level. A range of evidence suggested that business investment was likely to remain subdued in the near term. For example, in the October Decision Maker Panel survey, uncertainty had remained elevated. Intelligence from the Bank’s Agents highlighted that this uncertainty, as well as rising costs, tighter financial conditions and increased working capital requirements, were weighing on companies’ investment plans. 29: The Government had announced a reversal of the 1.25 percentage point increase in the National Insurance contribution from 6 November 2022 and the cancellation of the Health and Social Care Levy, which had been due to come into force from 6 April 2023. It had also made changes to Stamp Duty Land Tax, doubling the nil rate band to £250,000 and increasing the level at which stamp duty started for first-time buyers from £300,000 to £425,000. The Government had also cancelled the planned 1 percentage point cut in the basic rate of income tax from April 2024, keeping it at 20% until economic conditions allowed for it to be cut. It had permanently set the Annual Investment Allowance at £1 million, rather than allowing it to fall in April 2023. 30: Overall, together with the government’s Energy Price Guarantee (EPG) that had been announced prior to the MPC’s September meeting and subsequently adjusted, these measures were expected to support demand. A fuller plan for UK tax and spending was due to be published on 17 November in the Autumn Statement. Supply, costs and prices 31: The Labour Force Survey (LFS) unemployment rate had fallen to 3.5% in the three months to August, its lowest level since 1974. The vacancy-to-unemployment ratio, a measure of labour market tightness, had reached a new record high, as unemployment had fallen by more than the number of vacancies. The LFS inactivity rate had risen to around 1 percentage point above its pre-Covid level, with that increase largely accounted for by a greater proportion of people of working age who did not want a job, within which there had been an increase in long-term sickness. In contrast, the inactivity rate had fallen in the euro area since the onset of the pandemic, and had risen to a lesser extent in the United States. 32: There were signs that labour demand had begun to ease, although the labour market had remained tight. The number of vacancies had fallen somewhat further in September, and survey measures of employment intentions had also softened, albeit none were pointing to outright falls in employment. The latest KPMG/REC UK Report on Jobs had continued to show demand for staff rising, but at a slower rate, alongside low staff availability. A growing number of contacts of the Bank’s Agents had paused recruitment or were planning to allow headcount to fall through attrition, but most firms were reportedly reluctant to make any redundancies due to ongoing recruitment difficulties. 33: Indicators of nominal pay growth had remained strong, consistent with the effects of continued labour market tightness alongside higher inflation outturns and short-term inflation expectations. Annual private sector regular Average Weekly Earnings growth had risen to a little above 6% in the three months to August, and to further above the August Monetary Policy Report projection. The Agents were reporting that pay settlements had stabilised at around 5% to 7%. Recruitment difficulties during the post-Covid recovery had led to more consumer-facing firms moving away from hourly pay rates that were aligned to the statutory National Living Wage and moving towards paying the voluntary UK real Living Wage, which had risen by around 10%. An increasing number of firms had also made, or were preparing to make, salary payments in addition to their normal pay round, including one-off payments to staff to try to help to offset rising living costs. 34: Twelve-month CPI inflation had risen slightly to 10.1% in September, reflecting a pickup across non-energy components. Food price inflation had increased to 14.5%, higher than had been expected ahead of the release, with offsetting news across other items. Core CPI inflation, excluding food, beverages, tobacco and energy, had risen a little to 6.5%. In aggregate, both CPI inflation and core CPI inflation had been broadly in line with the August Report forecast. 35: CPI inflation was expected to rise to almost 11% in October, as retail gas and electricity prices increased to levels consistent with the Government’s EPG. The Government had announced that the EPG would remain in place for six months, and that a Treasury-led review would consider how to support households with their energy bills after April 2023. The Government had also announced that this further support would be at a lower cost than if the EPG had remained at the same level for a full two years, while ensuring enough support for those in need. 36: Under the November Report short-term forecast, CPI inflation was projected to fall towards 10% in 2023 Q1. The projected decline was in part a reflection of strong price increases around the turn of this year beginning to fall out of the annual calculation. Survey indicators of costs and prices, such as the composite input and output price PMIs, had also tended to moderate in recent months, albeit they had remained elevated relative to their historical averages. Core goods CPI inflation was expected to fall amid signs of supply-chain pressures easing and demand weakening. Services CPI inflation was expected to remain close to recent rates of around 6%, however, in part due to continued pass-through of labour and other costs, including energy. 37: Business and household measures of inflation expectations had remained elevated, albeit that some indicators had ticked down more recently. Respondents to the Decision Maker Panel had lowered their own price expectations for the year ahead in October, with a modest narrowing of the upper tail of the distribution, and with a larger fall in their expectations for CPI inflation. The Citi/YouGov household measures of inflation expectations over the next year and next five-to-ten years ahead were broadly unchanged in October, having fallen in September from their record high levels in August. Professional forecasters responding to the Bank’s latest quarterly survey were projecting CPI inflation to be 2.4%, on average, in three years’ time. The immediate policy decision 38: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 39: Since the Committee’s September meeting, the most significant developments had been in fiscal policy, particularly regarding support for household energy prices, and in financial markets. 40: As regards fiscal policy, further government interventions had reduced uncertainty around the outlook for UK retail energy prices. For this forecast, and consistent with the announcements on 17 October, the MPC’s working assumption was that some fiscal support would continue beyond the current six-month period of the EPG, generating a stylised path for household energy prices over the next two years. Such support would mechanically limit further increases in the energy component of CPI inflation significantly, and reduce its volatility. However, in boosting aggregate private demand relative to the August projections, the support could augment inflationary pressures in non-energy goods and services. 41: Other fiscal measures that had been announced up to and including 17 October would also support demand relative to the August projection. The MPC’s forecast did not incorporate any further measures that might be announced in the Autumn Statement scheduled for 17 November. 42: There had been large moves in UK asset prices since the August Monetary Policy Report. These had partly reflected global developments, although UK-specific factors had played a very significant role during this period. The MPC’s projections were conditioned on the path of Bank Rate implied by financial markets in the seven working days leading up to 25 October. That path had risen to a peak of around 5¼% in 2023 Q3, before falling back. Overall, the path was around 2¼ percentage points higher over the next three years than in the August projection. The higher market yield curve had pushed new mortgage rates up sharply. Financial conditions had tightened materially, pushing down on activity over the forecast period. 43: In the immediate run-up to the MPC’s November meeting, market-implied expectations for the path of Bank Rate had peaked at around 4¾%. 44: In response to the deterioration in market conditions in late September, the Bank of England had, following a recommendation from the Financial Policy Committee, announced temporary and targeted purchases of nominal and inflation-linked UK government bonds, of which the MPC had been informed at the time. The MPC had judged that these financial stability operations by the Bank would not affect the MPC’s ability to conduct monetary policy, including its earlier decision to sell UK government bonds. These gilt sales had begun on 1 November. 45: Since the MPC’s previous meeting, monthly GDP had been estimated to have fallen by 0.3% in August and most business survey indicators had weakened. Retail sales volumes had declined in September and GfK consumer confidence, which had fallen to a new record-low in September, had remained close to that level in October, despite recovering a little. The labour market had remained tight, although there were signs that labour demand had begun to ease. Annual private sector regular Average Weekly Earnings growth had risen to a little above 6% in the three months to August, and to further above the August Report projection. CPI inflation had been 10.1% in September. Services CPI inflation had risen. Contacts of the Bank’s Agents had reported that inflation was becoming a more important factor in pay negotiations, and that forthcoming increases in the National Living Wage were expected by some to influence pay negotiations. 46: The MPC’s latest projections described a very challenging outlook for the UK economy. It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term. From mid-2023, inflation was expected to fall sharply, conditioned on the elevated path of market interest rates, and as previous increases in energy prices dropped out of the annual comparison. It was then expected to decline to some way below the 2% target in years two and three of the projection. This reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation were judged to be to the upside. 47: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a succession of very large shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 48: All members of the Committee judged that an increase in Bank Rate was warranted at this meeting. 49: Seven members judged that a 0.75 percentage point increase in Bank Rate, to 3%, was warranted at this meeting. For these members, with the labour market remaining tight, and cost and price pressures being elevated, a further, more forceful response from monetary policy was justified. There had been continuing signs of firmer inflation in domestic prices and wages that could indicate greater persistence. Announced fiscal policy, including the MPC’s working assumption about continued fiscal support for household energy prices, would also support demand, relative to the Committee’s projections in August. Overall, a larger increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later. 50: One member preferred a 0.5 percentage point increase in Bank Rate, to 2.75%, at this meeting. GDP growth had been slowing and was now in negative territory. Nominal retail sales and services output had fallen. At the same time, there had been some wage growth, but real wages had fallen through the course of the year. The clearer signs of the cost of living crisis taking hold on economic activity suggested a more gradated approach was warranted to avoid an overtightening in policy. The lags in the effects of monetary policy implied that sizable impacts from past rate increases were still to come through. The continued risks from volatility and geopolitical uncertainty necessitated some tightening. But these risks also made it harder to take stock of the current situation and a smaller rate increase was warranted to safeguard against creating a deeper and longer recession. 51: One member preferred a 0.25 percentage point increase in Bank Rate, to 2.5%, at this meeting. Monetary policy had already been restrictive in light of falling real incomes, with the economy now likely to be entering recession. Importantly, most of the tightening in policy over the past year was yet to feed through to the real economy. In line with estimated transmission lags, the prevailing level of Bank Rate would, in time, result in a looser labour market and lower domestic inflationary pressures, such that medium-term inflation was likely to fall below target. However, there remained uncertainty over the size of second-round effects from high headline inflation, and over how far and how quickly the labour market would respond to the slowing in demand. This member therefore felt that a further gradual tightening was warranted on risk management grounds, albeit that these grounds were becoming weaker as the policy stance became more restrictive. 52: The majority of the Committee judged that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate might be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets. 53: There were, however, considerable uncertainties around the outlook. The Committee continued to judge that, if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary. 54: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. 55: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.75 percentage points, to 3%. 56: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members voted against the proposition. Swati Dhingra preferred to increase Bank Rate by 0.5 percentage points, to 2.75%, and Silvana Tenreyro preferred to increase Bank Rate by 0.25 percentage points, to 2.5%. Operational considerations 57: At its September 2022 meeting, the MPC had voted to begin sales of UK government bonds. On 28 September, the Bank’s Executive had postponed the start of these gilt sale operations, in light of the dysfunctional market conditions at that time. In a Market Notice published on 20 October, the Bank had announced that, for 2022 Q4, gilt sale operations would be distributed evenly across the short and medium maturity sectors only. The first gilt sale operation, of £750 million, had taken place on 1 November. 58: The first operation in the corporate bond sales programme had taken place on 27 September. On 11 October, in light of the dysfunctional market conditions at that time, the Bank had temporarily paused its corporate bond sales operations for two weeks. Sales had restarted on 25 October. 59: On 2 November 2022, the total stock of assets held for monetary policy purposes was £854 billion, comprising £837 billion of UK government bond purchases and £17.4 billion of sterling non‐financial investment‐grade corporate bond purchases. 60: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 61: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 26 and 28 October, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. The Bank of England Act 1998 gives the Bank of England operational responsibility for setting monetary policy to meet the Government’s inflation target. Operational decisions are taken by the Bank’s Monetary Policy Committee. The minutes of the Committee meeting ending on 14 December will be published on 15 December 2022.

Monetary Policy Summary, December 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 14 December 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.5 percentage points, to 3.5%. Two members preferred to maintain Bank Rate at 3%, and one member preferred to increase Bank Rate by 0.75 percentage points, to 3.75%. In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy was expected to be in recession for a prolonged period and CPI inflation was expected to remain very high in the near term. Inflation was expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation were judged to be to the upside. Domestic wage and price pressures are elevated. There has been limited news in other domestic and global economic data relative to the November Report projections. Most indicators of global supply chain bottlenecks have eased, but global inflationary pressures remain elevated. Advanced-economy government bond yields have fallen, particularly at longer maturities. The sterling effective exchange rate has appreciated by around 2¾%. There has been some reduction in UK fixed-term mortgage rates since the Committee’s previous meeting, but rates remain materially higher than in the summer. Bank staff now expect UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than expected in the November Report. Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further. Although labour demand has begun to ease, the labour market remains tight. The unemployment rate rose slightly to 3.7% in the three months to October. Vacancies have fallen back, but the vacancies-to-unemployment ratio remains at a very elevated level. Annual growth of private sector regular pay picked up further in the three months to October, to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report. Twelve-month CPI inflation fell from 11.1% in October to 10.7% in November. The November figure was slightly below expectations at the time of the November Report. The exchange of open letters between the Governor and the Chancellor of the Exchequer is being published alongside this monetary policy announcement. Although the introduction of the Energy Price Guarantee (EPG) in October has limited the rise in CPI inflation, the contribution of household energy bills to inflation has risen further. Since the MPC’s previous meeting, core goods price inflation has fallen back, while annual food and services price inflation have strengthened. CPI inflation is expected to continue to fall gradually over the first quarter of 2023, as earlier increases in energy and other goods prices drop out of the annual comparison. The announcement in the Autumn Statement that the extension of the EPG will cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implies a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this will reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point. Other additional near-term fiscal support was also announced in the Autumn Statement, but fiscal policy is expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimate that these measures, combined with the impact of the EPG, will increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what was assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons is estimated to be small. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.5 percentage points, to 3.5%, at this meeting. The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response. The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target. There are considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. Minutes of the Monetary Policy Committee meeting ending on 14 December 2022 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted world GDP had increased by 0.5% in 2022 Q3, stronger than had been expected in the November Monetary Policy Report, and was expected to increase by 0.1% in Q4, in line with the projection in the November Report. Most measures of global supply chain bottlenecks had eased, but global inflationary pressures had remained elevated. 3: In the euro area, GDP had increased by 0.3% in 2022 Q3, stronger than incorporated into the November Report but weaker than the 0.8% growth in Q2. Bank staff expected GDP to fall by 0.2% in the fourth quarter, a little weaker than had been anticipated in the November Report. The composite output PMI had increased slightly in November but had remained in contractionary territory for the fifth month in a row. The weakness had been broad based across euro-area economies and across sectors. 4: In the United States, GDP had increased by 0.7% in 2022 Q3, stronger than had been expected in the November Report. The share of services in consumption had risen throughout the third quarter, tentatively pointing to the expected rotation in US demand, although this had partly reversed in October. In the fourth quarter, US GDP was expected to rise by 0.1%, broadly in line with the expectation in the November Report. Non-farm payrolls had increased by 263,000 in November and the unemployment rate had remained unchanged at 3.7%. 5: In China, a sharp increase in Covid cases had contributed to a slowing in activity. China’s quarterly GDP growth in 2022 Q4 was likely to be some way below the 1.4% rate that had been anticipated at the time of the November Report. Covid outbreaks and related restrictions had weighed on consumption, and import growth had contracted sharply as a result. Chinese export growth had also contracted in November, reflecting slowing global growth and some Covid-related disruption to production. The Chinese government had issued new guidelines recently that had eased some zero-Covid policies. The weakening property sector had continued to have a negative impact on activity. 6: Most measures of global supply chain constraints had eased in recent months, broadly in line with the assumption in the November Report. This was evident in the movements in October and November of an indicator of supply constraints based on global PMI surveys, although that indicator had remained elevated compared with historical averages. In China, that measure had increased in October and November, but had remained below recent peaks and around its historical average. Shipping costs had fallen across a number of regions. Further Covid outbreaks and any associated disruption to output in China could pose a risk to global supply chains in future, although the precise effect would depend on the Chinese economy’s response to changes in Covid policies and the extent to which global supply chains had become more resilient. 7: Energy price movements had been mixed since the MPC’s previous meeting. At the time of the December MPC meeting, the Brent crude oil spot price was around $80 a barrel, having fallen by around 15%, although only to around the same level as at the start of the year. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, was €137 per MWh, up 18% since the previous MPC meeting. Gas futures prices had remained elevated, reflecting concerns around the impact of Russian restrictions to gas supplies and an expectation that supply constraints would continue into next winter. Global agricultural goods prices were broadly unchanged over this period and compared to a year ago, though remained at elevated levels 8: According to the flash estimate, euro-area annual HICP inflation had fallen from 10.6% in October to 10.0% in November, with core HICP inflation remaining at 5.0%. US CPI inflation had fallen from 7.7% in October to 7.1% in November, suggesting PCE inflation would also ease further. 9: The MPC discussed the outlook for global inflation. In the November Report, world export price inflation had been expected to peak at 14% in 2022 Q2, and UK-weighted world consumer price inflation to peak at just over 8% in 2022 Q4. Developments since then had been consistent with that view. World export prices had been projected to fall over 2023 as a whole and global consumer price inflation was expected to decline to 1.9% by the end of next year. Absent further shocks, the assumed future path of energy prices and the easing of global supply constraints were consistent with this fall in global traded goods prices. Services price inflation in advanced economies could fall back more quickly than expected if its recent strength had in part reflected indirect effects of energy prices. The tightening in monetary policy across many economies would bear down on global demand and inflation, as the effects of increases in policy rates fed through with a lag. Further shocks to energy and other commodity prices continued to present some upside risks to the central outlook, as would more persistent tightness in advanced economy labour markets. In addition, there could be upside risks to services price inflation if persistently high input costs became embedded, including through higher wage growth. Monetary and financial conditions 10: Since the MPC’s November meeting, government bond yields had moved lower across major advanced economies, particularly at longer maturities. Ten-year yields had fallen by around 20, 60 and 20 basis points in the United Kingdom, United States and Germany respectively. Those movements had only partially offset the significantly larger increases in global yields that had occurred since the end of July. Supported by the recent reduction in yields, risky asset prices had risen globally since the MPC’s previous meeting. 11: Market expectations for the near-term path of policy rates were little changed across major advanced economies since the MPC’s previous meeting. Both the Federal Open Market Committee and the ECB Governing Council were expected to raise policy rates by 50 basis points at their forthcoming meetings concluding on 14 and 15 December respectively. The market-implied policy paths in the United States and euro area were expected to peak around the middle of next year at a little under 5% and a little under 3% respectively, not materially changed from at the time of the MPC’s previous meeting. 12: A large majority of respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this MPC meeting, consistent with market-implied pricing. The median MaPS respondent expected Bank Rate to peak at 4¼% in the first half of next year and remain at that level throughout the remainder of 2023. The market-implied path for Bank Rate, which would also reflect any upside skew in Bank Rate expectations, rose to around 4¾% by around the middle of next year and remained close to that level throughout the remainder of 2023. While the market-implied path was a little higher than the MaPS median, the gap between these measures had narrowed since the previous MaPS survey, conducted in mid-October. 13: Further out, market-implied policy paths had fallen across major advanced economies since the MPC’s November meeting. Expectations for policy rates three years ahead, had declined by around 50, 75 and 40 basis points in the United Kingdom, United States and euro area respectively. In the United Kingdom, this was in addition to the material reduction that had occurred in the immediate run-up to the MPC’s November meeting, after the November Monetary Policy Report projections had been finalised. Nevertheless, expected rates at the three-year horizon had remained higher in the United Kingdom than in other major advanced economies. 14: Medium-term inflation compensation measures were little changed in the United States and euro area since the MPC’s previous meeting. Interpreting the moves in UK medium-term inflation compensation measures remained challenging. Nevertheless, these measures had fallen since the MPC’s previous meeting, following significant volatility in September and October, when there had been large distortions from the repricing in long-dated and index-linked UK government debt, and associated pressure on liability-driven investment (LDI) funds. Looking further back, there had been a material reduction in UK medium-term inflation compensation measures since their peak in March, although they had remained above their average levels of the past decade. In the latest MaPS, the median respondent’s expectation for CPI inflation at both the three and five-year horizons had been 2%, having fallen since the previous survey. Responses, however, had remained skewed to the upside. 15: The sterling effective exchange rate had appreciated by around 2¾% since the previous MPC meeting. In part, that had reflected a broad-based depreciation of the US dollar, consistent with the somewhat larger declines in US interest rate expectations relative to other advanced economies over the period and some improvement in global risk sentiment. 16: There had been some reduction in UK owner-occupied fixed-term mortgage rates since the Committee’s previous meeting, but rates had remained materially higher than in the summer. Lending rates for new fixed-rate mortgages had fallen by around 40 to 80 basis points since the November MPC meeting, reflecting the reduction in risk-free market rates following their sharp rise in late September around the time of the announcement of the Government’s Growth Plan. The number of mortgage products available had continued to recover from October lows, but had remained below the levels seen in the summer. 17: Over the past year, overall bank credit availability had reduced. According to supervisory intelligence that had, in large part, been related to an expected deterioration in borrowers’ balance sheets. 18: There were some early signs that tighter lending conditions and a decline in credit demand were feeding through to lower lending volumes. In the mortgage market, approvals for house purchase had fallen below 60,000 in October, which, excluding the Covid lockdown period in the first half of 2020, had been the lowest level since 2013. In the corporate sector, net finance raised by businesses in October had declined to its lowest level since 2009. 19: There had been a net reduction in sterling broad money in October, although that had only partially offset the very large increase in September. Sterling net lending had also fallen in October following a sizeable increase in September. These flows were accounted for primarily by some firms in the financial sector and one contributory factor was likely to have been the significant market volatility towards the end of September, associated with developments at LDI funds. 20: The MPC had been informed that, on 29 November, the Bank had begun to unwind, in a timely but orderly way, the specific gilt purchases resulting from the financial stability operations conducted between 28 September and 14 October. As of 13 December, around 40% of the gilts purchased during those operations had been sold. Demand and output 21: According to the ONS’s first quarterly estimate, GDP had fallen by 0.2% in 2022 Q3, a smaller decline than the expectation in the November Monetary Policy Report of a 0.5% fall. Within the expenditure components, household consumption and business investment had both fallen by 0.5%, while government spending was estimated to have risen by 2.1%. Underlying output, defined as market sector output adjusted for the estimated effects of recent additional bank holidays, was estimated by Bank staff to have fallen by a similar amount as headline GDP. 22: Monthly GDP had risen by 0.5% in October, following a 0.6% fall in September, and marginally stronger than had been expected by Bank staff immediately prior to the release. The rebound in the level of output had in large part reflected the unwind of the economic impact of the additional bank holiday for the Queen’s state funeral. At a sectoral level, private sector services had risen in line with expectations, with upside news concentrated in manufacturing output and, to a lesser degree, the government and construction sectors. 23: Bank staff now expected GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. This was consistent with a weakening in quarterly underlying growth to between -¼% and -½%, partially offset by the boost to headline output growth from the effect of the additional bank holiday unwinding in October and an assumption that government output would contribute positively to GDP during the quarter. The S&P Global/CIPS UK composite output PMI had remained below the 50 no-change mark for the fourth consecutive month in November. Intelligence from the Bank’s Agents was consistent with only a modest further weakening in activity in the fourth quarter, centred in consumer-facing sectors. 24: For growth prospects further ahead, the composite future output PMI had recovered to close to its September levels, albeit remaining below its long-run average. In contrast, the CBI composite expectations balance had fallen sharply in November. An aggregate estimate of real growth from the latest Decision Maker Panel suggested that respondents expected sales volumes to stagnate over the next year. Taken together, the forward-looking survey evidence was broadly consistent with the projection in the November Report of a slight fall in GDP in 2023 Q1. 25: Indicators of household consumption had remained weak. Retail sales volumes had risen by 0.6% in October, in part reflecting the boost to growth from the effect of the additional bank holiday unwinding, but had remained 1.2% below their 2019 Q4 level. GfK consumer confidence had edged higher in November, but had remained very weak by historical standards. Household real incomes were expected to be broadly flat in the near term. 26: Most housing market indicators had continued to weaken in recent months, after several years of strength. Although the official UK House Price Index had increased strongly in October, house prices had fallen quite sharply in the Nationwide and Halifax indices in October and November. The November RICS survey had shown further declines in price balances and continuing weakness in indicators of housing market activity. According to higher-frequency Zoopla data, the volume of offers made on properties by potential buyers had declined to below their normal seasonal levels. 27: Surveys of investment intentions had weakened further, and were consistent with small declines in business investment, following a period of greater strength in capital spending after the worst of the pandemic. Agency intelligence indicated that business confidence had remained weak, although mentions of uncertainty in the Agents’ reports had fallen back somewhat in recent weeks. 28: The Autumn Statement had taken place on 17 November, accompanied by both an Economic and fiscal outlook from the Office for Budget Responsibility (OBR) and new fiscal rules as set out in an updated Charter for Budget Responsibility. Some additional fiscal support had been announced in the near term, including targeted cost-of-living support in addition to the extended Energy Price Guarantee scheme, cuts in business rates, and increased spending on health, social care and education. From fiscal year 2024-25, planned fiscal policy would tighten by progressively larger amounts, with net tax rises accounting for around half of this tightening and reductions in both departmental current and capital spending accounting for the other half. Overall, Bank staff estimated that the additional policy measures announced in the Autumn Statement could, relative to what had been assumed in the November Monetary Policy Report, increase the level of GDP by 0.4% in one year’s time, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time. 29: The Committee discussed how the OBR’s latest macroeconomic projections compared to those in the November Monetary Policy Report. The OBR’s GDP projection was broadly similar to the MPC’s over the first year of the forecast period. Thereafter, the forecast profiles diverged very significantly, with the OBR expecting GDP to be around 5% higher than in the November Report by 2025 Q4. This gap reflected the OBR’s judgement that both demand and supply would be stronger than the MPC was expecting in the medium term. Productivity was expected to be around 1½% higher in the OBR’s projection, with that difference in part reflecting a much stronger projected path for business investment and hence the capital stock. Supply, costs and prices 30: The Labour Force Survey (LFS) unemployment rate had risen to 3.7% in the three months to October, slightly higher than the expectation of 3.5% at the time of the November Monetary Policy Report. LFS employment had grown by 0.1% in the three months to October, slightly weaker than the 0.3% expected at the time of the November Report. HMRC employee payrolls had increased by 107,000 in November. LFS inactivity had fallen slightly, but had remained high by historical standards. 31: Regarding more forward-looking indicators, the KPMG/REC Report on Jobs for November had shown that hiring had remained below historical averages. The ONS vacancy survey had continued to decline in recent months, while remaining at a very high level. The vacancies–to-unemployment ratio had remained close to record highs, based on comparable series since 2001. Online indicators of vacancies had flattened off in recent months, but they had remained significantly above pre-Covid levels. Planned redundancies had remained low, although there had been a decrease in the S&P Global UK Household Financial Index and YouGov survey measures of perceptions of job security. Intelligence from contacts of the Bank’s Agents was consistent with some early signs of the labour market loosening, albeit from a very tight starting point, as employment intentions were flat and recruitment difficulties had eased slightly. 32: The Committee discussed recent labour market developments. Overall, recent data suggested that the labour market was historically very tight but appeared to be past its peak tightness. Labour demand appeared to have weakened somewhat and the November Report was consistent with a further weakening, given the usual lags between GDP and the labour market. While the earlier strength in the labour market had partly reflected the recovery in demand following the pandemic, recent weakness in labour participation appeared to have somewhat exacerbated the tightness of the labour market. This weakness in participation in part reflected an ageing population, early retirement decisions for some workers and ill health. Given that these trends could continue for some time, a key uncertainty was the speed of the downward adjustment to labour demand as labour supply fell, and thus the extent to which any supply-demand imbalance exerted upward pressure on inflation. The MPC would have an opportunity to review these judgements as part of its annual supply stocktake, which would conclude alongside the February 2023 Monetary Policy Report. 33: Annual whole-economy total pay growth had picked up slightly to 6.2% in the three months to October. Private sector regular pay growth had also picked up further to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report. On a three month on three month annualised basis, private sector regular pay growth had fallen back to 6.7%, a level more in line with the annual rate of increase than earlier in the year. Annual public sector pay growth had remained weaker, at 2.7% in the three months to October. 34: Annual private sector wage growth was expected to flatten off at around 7% in coming months, before declining later in 2023. There were risks on either side. Pay indicators in the November KPMG/REC survey, which tended to lead the official data, had weakened a little further. However, a number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, in part as strength in CPI inflation could encourage workers to continue to demand high pay settlements. Some contacts had nevertheless reported that weaker demand, affordability constraints for firms and an easing in recruitment difficulties could limit the extent of pay increases. 35: Twelve-month consumer price inflation had fallen to 10.7% in November, from 11.1% in October. The November figure had been slightly lower than expected in the November Report, with the downside news concentrated in food and core goods prices. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. Core CPI inflation, excluding energy, food, beverages and tobacco, had eased slightly from 6.5% in October to 6.3% in November. 36: Considering non-energy inflationary pressures, core goods inflation had fallen back from recent peaks, in part due to weaker vehicle price inflation and was expected to ease further in the near term. This was consistent with an easing of supply chain bottlenecks and some cost pressures softening. However, food and non-alcoholic beverage price inflation had been 16.4% in November, its highest level in 45 years, and was expected to rise further. This had in large part reflected global factors including adverse climate conditions, supply constraints caused by the war in Ukraine and rising energy and fertiliser costs in food production. Core services inflation had risen to 6.3% in October and to 6.4% in November. Contacts of the Bank’s Agents reported that consumer services prices continue to be pushed up by higher input prices, particularly pay, food and energy. 37: The largest component of the overshoot of the 2% inflation target had continued to be the contribution from energy prices. CPI inflation was expected to stay elevated in the near term, but to continue to fall gradually over the first quarter of 2023, in large part as earlier increases in energy and other goods prices dropped out of the annual comparison. These effects were expected to outweigh continuing strength from food and services price inflation. 38: Since the November Report, the Government had announced that the cap on household unit energy prices under the Energy Price Guarantee would rise, from April 2023 to March 2024, to a level consistent with a typical annual dual-fuel bill of £3,000, from £2,500. Over the early part of the MPC’s forecast period, this implied a lower path for household energy bills than the working assumption made in the November Report of an indicative path for household utility bills that sat halfway between the previously announced £2,500 cap on the typical household bill and the level implied by futures prices under the Ofgem price cap framework. This downside news would lower the forecast for CPI inflation in 2023 Q2 by 0.8 percentage points, all else equal, and would boost household real incomes to a similar degree. 39: Most measures of households’ and businesses’ inflation expectations had fallen back in the latest data, but had remained at elevated levels. The one-year ahead Citi and Bank/Ipsos household measures had both fallen in November. At longer horizons, the five- to ten-year ahead Citi measure had fallen, while the Bank/Ipsos measure had risen a little. Respondents to the Decision Maker Panel in November had indicated lower own-price and inflation expectations over the next year, and lower inflation expectations three years ahead, although all of these series had remained above 2%. The immediate policy decision 40: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 41: In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy had been expected to be in recession for a prolonged period and CPI inflation had been expected to remain very high in the near term. Inflation had been expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This had reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation had been judged to be to the upside. 42: Domestic wage and price pressures were elevated. There had been limited news in other domestic and global economic data relative to the November Report projections. Bank staff now expected UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. Most housing market indicators had continued to weaken. Vacancies had fallen back, but the vacancies-to-unemployment ratio had remained at a very elevated level. Annual growth of private sector regular pay had picked up further and had been 0.5 percentage points stronger than had been expected at the time of the November Report. A number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, although pay indicators in the KPMG/REC survey, which tended to lead the official data, had weakened a little further. Twelve-month CPI inflation had fallen to 10.7% in November, slightly below expectations at the time of the November Report. Since the MPC’s previous meeting, core goods price inflation had fallen back, while annual food and services price inflation had strengthened. Most measures of households’ and businesses’ inflation expectations had fallen back, but had remained at elevated levels. 43: The Autumn Statement had taken place on 17 November, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility and new fiscal rules as set out in an updated Charter for Budget Responsibility. The Chancellor of the Exchequer had also written to the Governor setting out the remit for the MPC, including some updates to the government’s economic strategy. In this letter, the Chancellor had stated that, although the Bank of England Act required him to reaffirm the MPC’s remit annually, to provide certainty he could confirm that this government would not change the definition of price stability. 44: The announcement in the Autumn Statement that the extension of the Energy Price Guarantee (EPG) would cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implied a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this would reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point. 45: Other additional near-term fiscal support had also been announced in the Autumn Statement, but fiscal policy was expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimated that these measures, combined with the impact of the EPG, would increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what had been assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons was estimated to be small. 46: The Committee would make a fuller assessment of this news, taken together with other developments since the November Report, as part of its forthcoming forecast discussions ahead of the February MPC meeting. The MPC would also have an opportunity to review its judgements on the supply side of the economy as part of its annual supply stocktake, which would conclude alongside the February Monetary Policy Report. 47: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a succession of very large shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 48: Six members of the Committee judged that a 0.5 percentage point increase in Bank Rate, to 3.5%, was warranted at this meeting. The labour market remained tight and there had been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justified a further forceful monetary policy response. Both services price inflation and private sector regular wage growth had increased significantly over the second half of the year, with the latter continuing to surprise on the upside since the November Report. There remained a risk that, following a protracted period of high inflation, inflation expectations could be slow to adjust downwards to target-consistent levels once external cost pressures had passed. Although activity in the economy was clearly weakening, there were some signs that it was more resilient than had been expected and it was therefore uncertain how quickly the labour market would loosen. Other economic forecasters had also continued to predict a stronger outlook for demand than in the MPC’s November Report projections. A 0.5 percentage point increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later. 49: Two members preferred to leave Bank Rate unchanged at 3% at this meeting. The real economy remained weak, as a result of falling real incomes and tighter financial conditions. There were increasing signs that the downturn was starting to affect the labour market. But the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate was more than sufficient to bring inflation back to target, before falling below target in the medium term. As the policy setting had become increasingly restrictive, there was no longer a strong case for further tightening on risk management grounds. 50: One member preferred a 0.75 percentage point increase in Bank Rate, to 3.75%, at this meeting. Although there was some evidence of an inflection point in CPI inflation, there was greater evidence that price and wage pressures would stay strong for longer than had been projected in the November Report. Another more forceful monetary tightening now would reinforce the tightening cycle, importantly leaning against an inflation psychology that was embedding in wage settlements and inflation expectations, and was pushing up core services and other underlying inflation measures. Pulling forward monetary action now would reduce the risk that Bank Rate would need to rise well into next year even as the economy slowed further. 51: The majority of the Committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate might be required for a sustainable return of inflation to target. 52: There were considerable uncertainties around the outlook. The Committee continued to judge that, if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary. 53: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. 54: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 3.5%. 55: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Swati Dhingra and Silvana Tenreyro) preferred to maintain Bank Rate at 3%. Catherine L Mann preferred to increase Bank Rate by 0.75 percentage points, to 3.75%. Operational considerations 56: On 14 December 2022, the total stock of assets held for monetary policy purposes was £844 billion, comprising £831 billion of UK government bond purchases and £13.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 57: At its September 2022 meeting, the MPC had voted to begin sales of UK government bonds held for monetary policy purposes. In 2022 Q4, the Bank had completed a total of £6 billion of sales of these bonds via eight auctions. Taken together with maturing bonds, this had led to a reduction in the outstanding stock of £7 billion in 2022 Q4 and £44 billion over 2022 as a whole. The MPC had been briefed on progress on these gilt sales and on the operational arrangements for 2023 Q1, which would be published in a Market Notice on 16 December at 6pm. 58: In February 2022, the MPC had voted to unwind fully the stock of sterling non-financial investment-grade corporate bond purchases no earlier than towards the end of 2023. The stock of corporate bonds had since been reduced by a total of £6.4 billion, including £4.2 billion via sales through the Bank’s auctions since September. The Committee was content with the current rate of reduction in the stock, which, if sustained, would permit an earlier unwind of the portfolio than initially anticipated. The Committee would keep the pace of sales, and the implications for the completion date, under review. 59: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 60: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 7 and 9 December, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, December 2022 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 14 December 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.5 percentage points, to 3.5%. Two members preferred to maintain Bank Rate at 3%, and one member preferred to increase Bank Rate by 0.75 percentage points, to 3.75%. In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy was expected to be in recession for a prolonged period and CPI inflation was expected to remain very high in the near term. Inflation was expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation were judged to be to the upside. Domestic wage and price pressures are elevated. There has been limited news in other domestic and global economic data relative to the November Report projections. Most indicators of global supply chain bottlenecks have eased, but global inflationary pressures remain elevated. Advanced-economy government bond yields have fallen, particularly at longer maturities. The sterling effective exchange rate has appreciated by around 2¾%. There has been some reduction in UK fixed-term mortgage rates since the Committee’s previous meeting, but rates remain materially higher than in the summer. Bank staff now expect UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than expected in the November Report. Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further. Although labour demand has begun to ease, the labour market remains tight. The unemployment rate rose slightly to 3.7% in the three months to October. Vacancies have fallen back, but the vacancies-to-unemployment ratio remains at a very elevated level. Annual growth of private sector regular pay picked up further in the three months to October, to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report. Twelve-month CPI inflation fell from 11.1% in October to 10.7% in November. The November figure was slightly below expectations at the time of the November Report. The exchange of open letters between the Governor and the Chancellor of the Exchequer is being published alongside this monetary policy announcement. Although the introduction of the Energy Price Guarantee (EPG) in October has limited the rise in CPI inflation, the contribution of household energy bills to inflation has risen further. Since the MPC’s previous meeting, core goods price inflation has fallen back, while annual food and services price inflation have strengthened. CPI inflation is expected to continue to fall gradually over the first quarter of 2023, as earlier increases in energy and other goods prices drop out of the annual comparison. The announcement in the Autumn Statement that the extension of the EPG will cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implies a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this will reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point. Other additional near-term fiscal support was also announced in the Autumn Statement, but fiscal policy is expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimate that these measures, combined with the impact of the EPG, will increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what was assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons is estimated to be small. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.5 percentage points, to 3.5%, at this meeting. The labour market remains tight and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justifies a further forceful monetary policy response. The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target. There are considerable uncertainties around the outlook. The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary. The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee will, as always, consider and decide the appropriate level of Bank Rate at each meeting. Minutes of the Monetary Policy Committee meeting ending on 14 December 2022 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted world GDP had increased by 0.5% in 2022 Q3, stronger than had been expected in the November Monetary Policy Report, and was expected to increase by 0.1% in Q4, in line with the projection in the November Report. Most measures of global supply chain bottlenecks had eased, but global inflationary pressures had remained elevated. 3: In the euro area, GDP had increased by 0.3% in 2022 Q3, stronger than incorporated into the November Report but weaker than the 0.8% growth in Q2. Bank staff expected GDP to fall by 0.2% in the fourth quarter, a little weaker than had been anticipated in the November Report. The composite output PMI had increased slightly in November but had remained in contractionary territory for the fifth month in a row. The weakness had been broad based across euro-area economies and across sectors. 4: In the United States, GDP had increased by 0.7% in 2022 Q3, stronger than had been expected in the November Report. The share of services in consumption had risen throughout the third quarter, tentatively pointing to the expected rotation in US demand, although this had partly reversed in October. In the fourth quarter, US GDP was expected to rise by 0.1%, broadly in line with the expectation in the November Report. Non-farm payrolls had increased by 263,000 in November and the unemployment rate had remained unchanged at 3.7%. 5: In China, a sharp increase in Covid cases had contributed to a slowing in activity. China’s quarterly GDP growth in 2022 Q4 was likely to be some way below the 1.4% rate that had been anticipated at the time of the November Report. Covid outbreaks and related restrictions had weighed on consumption, and import growth had contracted sharply as a result. Chinese export growth had also contracted in November, reflecting slowing global growth and some Covid-related disruption to production. The Chinese government had issued new guidelines recently that had eased some zero-Covid policies. The weakening property sector had continued to have a negative impact on activity. 6: Most measures of global supply chain constraints had eased in recent months, broadly in line with the assumption in the November Report. This was evident in the movements in October and November of an indicator of supply constraints based on global PMI surveys, although that indicator had remained elevated compared with historical averages. In China, that measure had increased in October and November, but had remained below recent peaks and around its historical average. Shipping costs had fallen across a number of regions. Further Covid outbreaks and any associated disruption to output in China could pose a risk to global supply chains in future, although the precise effect would depend on the Chinese economy’s response to changes in Covid policies and the extent to which global supply chains had become more resilient. 7: Energy price movements had been mixed since the MPC’s previous meeting. At the time of the December MPC meeting, the Brent crude oil spot price was around $80 a barrel, having fallen by around 15%, although only to around the same level as at the start of the year. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, was €137 per MWh, up 18% since the previous MPC meeting. Gas futures prices had remained elevated, reflecting concerns around the impact of Russian restrictions to gas supplies and an expectation that supply constraints would continue into next winter. Global agricultural goods prices were broadly unchanged over this period and compared to a year ago, though remained at elevated levels 8: According to the flash estimate, euro-area annual HICP inflation had fallen from 10.6% in October to 10.0% in November, with core HICP inflation remaining at 5.0%. US CPI inflation had fallen from 7.7% in October to 7.1% in November, suggesting PCE inflation would also ease further. 9: The MPC discussed the outlook for global inflation. In the November Report, world export price inflation had been expected to peak at 14% in 2022 Q2, and UK-weighted world consumer price inflation to peak at just over 8% in 2022 Q4. Developments since then had been consistent with that view. World export prices had been projected to fall over 2023 as a whole and global consumer price inflation was expected to decline to 1.9% by the end of next year. Absent further shocks, the assumed future path of energy prices and the easing of global supply constraints were consistent with this fall in global traded goods prices. Services price inflation in advanced economies could fall back more quickly than expected if its recent strength had in part reflected indirect effects of energy prices. The tightening in monetary policy across many economies would bear down on global demand and inflation, as the effects of increases in policy rates fed through with a lag. Further shocks to energy and other commodity prices continued to present some upside risks to the central outlook, as would more persistent tightness in advanced economy labour markets. In addition, there could be upside risks to services price inflation if persistently high input costs became embedded, including through higher wage growth. Monetary and financial conditions 10: Since the MPC’s November meeting, government bond yields had moved lower across major advanced economies, particularly at longer maturities. Ten-year yields had fallen by around 20, 60 and 20 basis points in the United Kingdom, United States and Germany respectively. Those movements had only partially offset the significantly larger increases in global yields that had occurred since the end of July. Supported by the recent reduction in yields, risky asset prices had risen globally since the MPC’s previous meeting. 11: Market expectations for the near-term path of policy rates were little changed across major advanced economies since the MPC’s previous meeting. Both the Federal Open Market Committee and the ECB Governing Council were expected to raise policy rates by 50 basis points at their forthcoming meetings concluding on 14 and 15 December respectively. The market-implied policy paths in the United States and euro area were expected to peak around the middle of next year at a little under 5% and a little under 3% respectively, not materially changed from at the time of the MPC’s previous meeting. 12: A large majority of respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this MPC meeting, consistent with market-implied pricing. The median MaPS respondent expected Bank Rate to peak at 4¼% in the first half of next year and remain at that level throughout the remainder of 2023. The market-implied path for Bank Rate, which would also reflect any upside skew in Bank Rate expectations, rose to around 4¾% by around the middle of next year and remained close to that level throughout the remainder of 2023. While the market-implied path was a little higher than the MaPS median, the gap between these measures had narrowed since the previous MaPS survey, conducted in mid-October. 13: Further out, market-implied policy paths had fallen across major advanced economies since the MPC’s November meeting. Expectations for policy rates three years ahead, had declined by around 50, 75 and 40 basis points in the United Kingdom, United States and euro area respectively. In the United Kingdom, this was in addition to the material reduction that had occurred in the immediate run-up to the MPC’s November meeting, after the November Monetary Policy Report projections had been finalised. Nevertheless, expected rates at the three-year horizon had remained higher in the United Kingdom than in other major advanced economies. 14: Medium-term inflation compensation measures were little changed in the United States and euro area since the MPC’s previous meeting. Interpreting the moves in UK medium-term inflation compensation measures remained challenging. Nevertheless, these measures had fallen since the MPC’s previous meeting, following significant volatility in September and October, when there had been large distortions from the repricing in long-dated and index-linked UK government debt, and associated pressure on liability-driven investment (LDI) funds. Looking further back, there had been a material reduction in UK medium-term inflation compensation measures since their peak in March, although they had remained above their average levels of the past decade. In the latest MaPS, the median respondent’s expectation for CPI inflation at both the three and five-year horizons had been 2%, having fallen since the previous survey. Responses, however, had remained skewed to the upside. 15: The sterling effective exchange rate had appreciated by around 2¾% since the previous MPC meeting. In part, that had reflected a broad-based depreciation of the US dollar, consistent with the somewhat larger declines in US interest rate expectations relative to other advanced economies over the period and some improvement in global risk sentiment. 16: There had been some reduction in UK owner-occupied fixed-term mortgage rates since the Committee’s previous meeting, but rates had remained materially higher than in the summer. Lending rates for new fixed-rate mortgages had fallen by around 40 to 80 basis points since the November MPC meeting, reflecting the reduction in risk-free market rates following their sharp rise in late September around the time of the announcement of the Government’s Growth Plan. The number of mortgage products available had continued to recover from October lows, but had remained below the levels seen in the summer. 17: Over the past year, overall bank credit availability had reduced. According to supervisory intelligence that had, in large part, been related to an expected deterioration in borrowers’ balance sheets. 18: There were some early signs that tighter lending conditions and a decline in credit demand were feeding through to lower lending volumes. In the mortgage market, approvals for house purchase had fallen below 60,000 in October, which, excluding the Covid lockdown period in the first half of 2020, had been the lowest level since 2013. In the corporate sector, net finance raised by businesses in October had declined to its lowest level since 2009. 19: There had been a net reduction in sterling broad money in October, although that had only partially offset the very large increase in September. Sterling net lending had also fallen in October following a sizeable increase in September. These flows were accounted for primarily by some firms in the financial sector and one contributory factor was likely to have been the significant market volatility towards the end of September, associated with developments at LDI funds. 20: The MPC had been informed that, on 29 November, the Bank had begun to unwind, in a timely but orderly way, the specific gilt purchases resulting from the financial stability operations conducted between 28 September and 14 October. As of 13 December, around 40% of the gilts purchased during those operations had been sold. Demand and output 21: According to the ONS’s first quarterly estimate, GDP had fallen by 0.2% in 2022 Q3, a smaller decline than the expectation in the November Monetary Policy Report of a 0.5% fall. Within the expenditure components, household consumption and business investment had both fallen by 0.5%, while government spending was estimated to have risen by 2.1%. Underlying output, defined as market sector output adjusted for the estimated effects of recent additional bank holidays, was estimated by Bank staff to have fallen by a similar amount as headline GDP. 22: Monthly GDP had risen by 0.5% in October, following a 0.6% fall in September, and marginally stronger than had been expected by Bank staff immediately prior to the release. The rebound in the level of output had in large part reflected the unwind of the economic impact of the additional bank holiday for the Queen’s state funeral. At a sectoral level, private sector services had risen in line with expectations, with upside news concentrated in manufacturing output and, to a lesser degree, the government and construction sectors. 23: Bank staff now expected GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. This was consistent with a weakening in quarterly underlying growth to between -¼% and -½%, partially offset by the boost to headline output growth from the effect of the additional bank holiday unwinding in October and an assumption that government output would contribute positively to GDP during the quarter. The S&P Global/CIPS UK composite output PMI had remained below the 50 no-change mark for the fourth consecutive month in November. Intelligence from the Bank’s Agents was consistent with only a modest further weakening in activity in the fourth quarter, centred in consumer-facing sectors. 24: For growth prospects further ahead, the composite future output PMI had recovered to close to its September levels, albeit remaining below its long-run average. In contrast, the CBI composite expectations balance had fallen sharply in November. An aggregate estimate of real growth from the latest Decision Maker Panel suggested that respondents expected sales volumes to stagnate over the next year. Taken together, the forward-looking survey evidence was broadly consistent with the projection in the November Report of a slight fall in GDP in 2023 Q1. 25: Indicators of household consumption had remained weak. Retail sales volumes had risen by 0.6% in October, in part reflecting the boost to growth from the effect of the additional bank holiday unwinding, but had remained 1.2% below their 2019 Q4 level. GfK consumer confidence had edged higher in November, but had remained very weak by historical standards. Household real incomes were expected to be broadly flat in the near term. 26: Most housing market indicators had continued to weaken in recent months, after several years of strength. Although the official UK House Price Index had increased strongly in October, house prices had fallen quite sharply in the Nationwide and Halifax indices in October and November. The November RICS survey had shown further declines in price balances and continuing weakness in indicators of housing market activity. According to higher-frequency Zoopla data, the volume of offers made on properties by potential buyers had declined to below their normal seasonal levels. 27: Surveys of investment intentions had weakened further, and were consistent with small declines in business investment, following a period of greater strength in capital spending after the worst of the pandemic. Agency intelligence indicated that business confidence had remained weak, although mentions of uncertainty in the Agents’ reports had fallen back somewhat in recent weeks. 28: The Autumn Statement had taken place on 17 November, accompanied by both an Economic and fiscal outlook from the Office for Budget Responsibility (OBR) and new fiscal rules as set out in an updated Charter for Budget Responsibility. Some additional fiscal support had been announced in the near term, including targeted cost-of-living support in addition to the extended Energy Price Guarantee scheme, cuts in business rates, and increased spending on health, social care and education. From fiscal year 2024-25, planned fiscal policy would tighten by progressively larger amounts, with net tax rises accounting for around half of this tightening and reductions in both departmental current and capital spending accounting for the other half. Overall, Bank staff estimated that the additional policy measures announced in the Autumn Statement could, relative to what had been assumed in the November Monetary Policy Report, increase the level of GDP by 0.4% in one year’s time, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time. 29: The Committee discussed how the OBR’s latest macroeconomic projections compared to those in the November Monetary Policy Report. The OBR’s GDP projection was broadly similar to the MPC’s over the first year of the forecast period. Thereafter, the forecast profiles diverged very significantly, with the OBR expecting GDP to be around 5% higher than in the November Report by 2025 Q4. This gap reflected the OBR’s judgement that both demand and supply would be stronger than the MPC was expecting in the medium term. Productivity was expected to be around 1½% higher in the OBR’s projection, with that difference in part reflecting a much stronger projected path for business investment and hence the capital stock. Supply, costs and prices 30: The Labour Force Survey (LFS) unemployment rate had risen to 3.7% in the three months to October, slightly higher than the expectation of 3.5% at the time of the November Monetary Policy Report. LFS employment had grown by 0.1% in the three months to October, slightly weaker than the 0.3% expected at the time of the November Report. HMRC employee payrolls had increased by 107,000 in November. LFS inactivity had fallen slightly, but had remained high by historical standards. 31: Regarding more forward-looking indicators, the KPMG/REC Report on Jobs for November had shown that hiring had remained below historical averages. The ONS vacancy survey had continued to decline in recent months, while remaining at a very high level. The vacancies–to-unemployment ratio had remained close to record highs, based on comparable series since 2001. Online indicators of vacancies had flattened off in recent months, but they had remained significantly above pre-Covid levels. Planned redundancies had remained low, although there had been a decrease in the S&P Global UK Household Financial Index and YouGov survey measures of perceptions of job security. Intelligence from contacts of the Bank’s Agents was consistent with some early signs of the labour market loosening, albeit from a very tight starting point, as employment intentions were flat and recruitment difficulties had eased slightly. 32: The Committee discussed recent labour market developments. Overall, recent data suggested that the labour market was historically very tight but appeared to be past its peak tightness. Labour demand appeared to have weakened somewhat and the November Report was consistent with a further weakening, given the usual lags between GDP and the labour market. While the earlier strength in the labour market had partly reflected the recovery in demand following the pandemic, recent weakness in labour participation appeared to have somewhat exacerbated the tightness of the labour market. This weakness in participation in part reflected an ageing population, early retirement decisions for some workers and ill health. Given that these trends could continue for some time, a key uncertainty was the speed of the downward adjustment to labour demand as labour supply fell, and thus the extent to which any supply-demand imbalance exerted upward pressure on inflation. The MPC would have an opportunity to review these judgements as part of its annual supply stocktake, which would conclude alongside the February 2023 Monetary Policy Report. 33: Annual whole-economy total pay growth had picked up slightly to 6.2% in the three months to October. Private sector regular pay growth had also picked up further to 6.9%, 0.5 percentage points stronger than the expectation at the time of the November Report. On a three month on three month annualised basis, private sector regular pay growth had fallen back to 6.7%, a level more in line with the annual rate of increase than earlier in the year. Annual public sector pay growth had remained weaker, at 2.7% in the three months to October. 34: Annual private sector wage growth was expected to flatten off at around 7% in coming months, before declining later in 2023. There were risks on either side. Pay indicators in the November KPMG/REC survey, which tended to lead the official data, had weakened a little further. However, a number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, in part as strength in CPI inflation could encourage workers to continue to demand high pay settlements. Some contacts had nevertheless reported that weaker demand, affordability constraints for firms and an easing in recruitment difficulties could limit the extent of pay increases. 35: Twelve-month consumer price inflation had fallen to 10.7% in November, from 11.1% in October. The November figure had been slightly lower than expected in the November Report, with the downside news concentrated in food and core goods prices. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. Core CPI inflation, excluding energy, food, beverages and tobacco, had eased slightly from 6.5% in October to 6.3% in November. 36: Considering non-energy inflationary pressures, core goods inflation had fallen back from recent peaks, in part due to weaker vehicle price inflation and was expected to ease further in the near term. This was consistent with an easing of supply chain bottlenecks and some cost pressures softening. However, food and non-alcoholic beverage price inflation had been 16.4% in November, its highest level in 45 years, and was expected to rise further. This had in large part reflected global factors including adverse climate conditions, supply constraints caused by the war in Ukraine and rising energy and fertiliser costs in food production. Core services inflation had risen to 6.3% in October and to 6.4% in November. Contacts of the Bank’s Agents reported that consumer services prices continue to be pushed up by higher input prices, particularly pay, food and energy. 37: The largest component of the overshoot of the 2% inflation target had continued to be the contribution from energy prices. CPI inflation was expected to stay elevated in the near term, but to continue to fall gradually over the first quarter of 2023, in large part as earlier increases in energy and other goods prices dropped out of the annual comparison. These effects were expected to outweigh continuing strength from food and services price inflation. 38: Since the November Report, the Government had announced that the cap on household unit energy prices under the Energy Price Guarantee would rise, from April 2023 to March 2024, to a level consistent with a typical annual dual-fuel bill of £3,000, from £2,500. Over the early part of the MPC’s forecast period, this implied a lower path for household energy bills than the working assumption made in the November Report of an indicative path for household utility bills that sat halfway between the previously announced £2,500 cap on the typical household bill and the level implied by futures prices under the Ofgem price cap framework. This downside news would lower the forecast for CPI inflation in 2023 Q2 by 0.8 percentage points, all else equal, and would boost household real incomes to a similar degree. 39: Most measures of households’ and businesses’ inflation expectations had fallen back in the latest data, but had remained at elevated levels. The one-year ahead Citi and Bank/Ipsos household measures had both fallen in November. At longer horizons, the five- to ten-year ahead Citi measure had fallen, while the Bank/Ipsos measure had risen a little. Respondents to the Decision Maker Panel in November had indicated lower own-price and inflation expectations over the next year, and lower inflation expectations three years ahead, although all of these series had remained above 2%. The immediate policy decision 40: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 41: In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy had been expected to be in recession for a prolonged period and CPI inflation had been expected to remain very high in the near term. Inflation had been expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection. This had reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation had been judged to be to the upside. 42: Domestic wage and price pressures were elevated. There had been limited news in other domestic and global economic data relative to the November Report projections. Bank staff now expected UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than had been expected in the November Report. Most housing market indicators had continued to weaken. Vacancies had fallen back, but the vacancies-to-unemployment ratio had remained at a very elevated level. Annual growth of private sector regular pay had picked up further and had been 0.5 percentage points stronger than had been expected at the time of the November Report. A number of contacts of the Bank’s Agents expected further upward pressure on pay growth next year, although pay indicators in the KPMG/REC survey, which tended to lead the official data, had weakened a little further. Twelve-month CPI inflation had fallen to 10.7% in November, slightly below expectations at the time of the November Report. Since the MPC’s previous meeting, core goods price inflation had fallen back, while annual food and services price inflation had strengthened. Most measures of households’ and businesses’ inflation expectations had fallen back, but had remained at elevated levels. 43: The Autumn Statement had taken place on 17 November, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility and new fiscal rules as set out in an updated Charter for Budget Responsibility. The Chancellor of the Exchequer had also written to the Governor setting out the remit for the MPC, including some updates to the government’s economic strategy. In this letter, the Chancellor had stated that, although the Bank of England Act required him to reaffirm the MPC’s remit annually, to provide certainty he could confirm that this government would not change the definition of price stability. 44: The announcement in the Autumn Statement that the extension of the Energy Price Guarantee (EPG) would cap household unit energy prices at a level consistent with a typical household dual fuel bill of £3,000 per year from April 2023 to March 2024 implied a slightly lower near-term path for energy bills than the working assumption made in the November Report. All else equal, this would reduce the MPC’s forecast for CPI inflation in 2023 Q2 by around ¾ of a percentage point. 45: Other additional near-term fiscal support had also been announced in the Autumn Statement, but fiscal policy was expected to tighten by progressively larger amounts from fiscal year 2024-25 onwards. Overall, Bank staff estimated that these measures, combined with the impact of the EPG, would increase the level of GDP by 0.4% at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5% in three years’ time, relative to what had been assumed in the November Report. The overall impact on the CPI inflation projection at all of these horizons was estimated to be small. 46: The Committee would make a fuller assessment of this news, taken together with other developments since the November Report, as part of its forthcoming forecast discussions ahead of the February MPC meeting. The MPC would also have an opportunity to review its judgements on the supply side of the economy as part of its annual supply stocktake, which would conclude alongside the February Monetary Policy Report. 47: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a succession of very large shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 48: Six members of the Committee judged that a 0.5 percentage point increase in Bank Rate, to 3.5%, was warranted at this meeting. The labour market remained tight and there had been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence and thus justified a further forceful monetary policy response. Both services price inflation and private sector regular wage growth had increased significantly over the second half of the year, with the latter continuing to surprise on the upside since the November Report. There remained a risk that, following a protracted period of high inflation, inflation expectations could be slow to adjust downwards to target-consistent levels once external cost pressures had passed. Although activity in the economy was clearly weakening, there were some signs that it was more resilient than had been expected and it was therefore uncertain how quickly the labour market would loosen. Other economic forecasters had also continued to predict a stronger outlook for demand than in the MPC’s November Report projections. A 0.5 percentage point increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening later. 49: Two members preferred to leave Bank Rate unchanged at 3% at this meeting. The real economy remained weak, as a result of falling real incomes and tighter financial conditions. There were increasing signs that the downturn was starting to affect the labour market. But the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate was more than sufficient to bring inflation back to target, before falling below target in the medium term. As the policy setting had become increasingly restrictive, there was no longer a strong case for further tightening on risk management grounds. 50: One member preferred a 0.75 percentage point increase in Bank Rate, to 3.75%, at this meeting. Although there was some evidence of an inflection point in CPI inflation, there was greater evidence that price and wage pressures would stay strong for longer than had been projected in the November Report. Another more forceful monetary tightening now would reinforce the tightening cycle, importantly leaning against an inflation psychology that was embedding in wage settlements and inflation expectations, and was pushing up core services and other underlying inflation measures. Pulling forward monetary action now would reduce the risk that Bank Rate would need to rise well into next year even as the economy slowed further. 51: The majority of the Committee judged that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate might be required for a sustainable return of inflation to target. 52: There were considerable uncertainties around the outlook. The Committee continued to judge that, if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary. 53: The MPC would take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. The Committee would, as always, consider and decide the appropriate level of Bank Rate at each meeting. 54: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 3.5%. 55: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Swati Dhingra and Silvana Tenreyro) preferred to maintain Bank Rate at 3%. Catherine L Mann preferred to increase Bank Rate by 0.75 percentage points, to 3.75%. Operational considerations 56: On 14 December 2022, the total stock of assets held for monetary policy purposes was £844 billion, comprising £831 billion of UK government bond purchases and £13.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 57: At its September 2022 meeting, the MPC had voted to begin sales of UK government bonds held for monetary policy purposes. In 2022 Q4, the Bank had completed a total of £6 billion of sales of these bonds via eight auctions. Taken together with maturing bonds, this had led to a reduction in the outstanding stock of £7 billion in 2022 Q4 and £44 billion over 2022 as a whole. The MPC had been briefed on progress on these gilt sales and on the operational arrangements for 2023 Q1, which would be published in a Market Notice on 16 December at 6pm. 58: In February 2022, the MPC had voted to unwind fully the stock of sterling non-financial investment-grade corporate bond purchases no earlier than towards the end of 2023. The stock of corporate bonds had since been reduced by a total of £6.4 billion, including £4.2 billion via sales through the Bank’s auctions since September. The Committee was content with the current rate of reduction in the stock, which, if sustained, would permit an earlier unwind of the portfolio than initially anticipated. The Committee would keep the pace of sales, and the implications for the completion date, under review. 59: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 60: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 7 and 9 December, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, February 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 February 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%. Two members preferred to maintain Bank Rate at 3.5%. Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom. Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead. UK domestic inflationary pressures have been firmer than expected. Both private sector regular pay growth and services CPI inflation have been notably higher than forecast in the November Monetary Policy Report. The labour market remains tight by historical standards, although it has started to loosen and some survey indicators of wage growth have eased, alongside a gradual decline in underlying output. Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters. Near-term data developments will be crucial in assessing how quickly and to what extent external and domestic inflationary pressures will abate. As set out in the accompanying February Monetary Policy Report, the MPC’s updated projections show CPI inflation falling back sharply from its current very elevated level, of 10.5% in December, in large part owing to past increases in energy and other goods prices falling out of the calculation of the annual rate. Annual CPI inflation is expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. In the latest modal forecast, conditioned on a market-implied path for Bank Rate that rises to around 4½% in mid-2023 and falls back to just over 3¼% in three years’ time, an increasing degree of economic slack, alongside falling external pressures, leads CPI inflation to decline to below the 2% target in the medium term. There are considerable uncertainties around this medium-term outlook, and the Committee continues to judge that the risks to inflation are skewed significantly to the upside. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.5 percentage points, to 4%, at this meeting. Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices. However, the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation. The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. There are considerable uncertainties around the outlook. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. Looking further ahead, the MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 1 February 2023 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: Global GDP growth had probably slowed in 2022 Q4, accounted for by weakening growth in the euro area and subdued economic activity in China owing to an increase in Covid cases. UK-weighted world GDP was expected to continue to be subdued in the near term. Global consumer price inflation remained elevated, although it was likely to have peaked in many advanced economies. It was projected to fall over the course of 2023 following declines in energy prices and as global demand weakened and supply chain pressures eased. 3: In the euro area, GDP growth had slowed in recent quarters as real incomes had been squeezed by higher energy and food prices. Following growth of 0.3% in 2022 Q3, GDP had risen by 0.1% in Q4 according to the preliminary flash estimate, a little higher than expected in the November and February Monetary Policy Report projections. The S&P Global euro-area flash composite output PMI had risen a little above the 50 no-change mark in January, although the forward-looking new orders index had remained in contractionary territory. 4: In the United States, GDP had increased by 0.7% in 2022 Q4, only marginally lower than in Q3, and significantly stronger than anticipated in the November and February Report forecasts. Although financial conditions had loosened further since the MPC’s previous meeting, they were much tighter than a year ago and were expected to continue to weigh on growth in coming quarters. Survey indicators such as the ISM PMIs had also pointed towards weaker growth. 5: In China, rising Covid cases had weighed on activity in the final quarter of 2022. GDP growth had been flat in Q4, much weaker than the 1.4% growth rate expected at the time of the November Report, and activity in 2023 Q1 was also expected to be weak. In early December, China had begun to remove Covid restrictions, effectively ending its zero-Covid policy, and mobility measures had fallen sharply. Retail sales had fallen in December relative to a year earlier while industrial production had increased, consistent with the impact of the latest Covid wave being greater on consumption than on manufacturing output. This suggested that global supply chains might be less disrupted than after previous Covid waves in China, reducing any upward impact on global goods prices and hence UK inflation. Moreover, the removal of restrictions would reduce the likelihood of future lockdowns, and hence potential future supply chain disruption. Chinese GDP growth was expected to recover in coming quarters. 6: European natural gas prices had fallen markedly since the MPC’s December meeting. The Dutch Title Transfer Facility spot price, had declined to €58 per MWh, down nearly 60%, and the gas futures curve had also fallen significantly. Relatively mild weather had contributed to lower gas consumption in continental Europe, alleviating supply concerns for next winter as storage levels had remained high. These developments had also caused large downward movements in UK wholesale gas prices. The Brent crude oil spot price had risen by around 5%, to $85 per barrel. The prices of agricultural goods had increased by around 4% since the MPC's December meeting. 7: Global consumer price inflation appeared to have peaked. In the euro area, the flash estimate had suggested that annual headline HICP inflation decreased for the third consecutive month in January, falling by 0.7 percentage points to 8.5%. The decline had been driven by a reduction in energy price inflation. Core inflation had remained unchanged at 5.2%. In the United States, annual PCE inflation had fallen to 5.0% in December, its lowest level since September 2021, and down from 5.5% in November. Upward pressure from energy and core goods prices had continued to fade. Core PCE inflation had declined to 4.4%. 8: The MPC discussed how monetary policy tightening over the past year had affected economic activity in the United States and the euro area. Financial conditions had possibly tightened a little more than in previous tightening cycles in the United States, including mortgage rates, but had been somewhat more similar to historical episodes in the euro area. Indicators of consumption had declined, broadly in line with what might have been expected in the United States, while the broader real income squeeze was contributing materially to the weakness in the euro area. Given lags in the transmission of monetary policy, it was too early to judge the impact on inflation, but published forecasts from both the Federal Reserve and the ECB had suggested some persistence in inflationary pressures. Monetary and financial conditions 9: Many central banks had continued to tighten monetary policy, and market pricing implied that policy rates were likely to increase further in the near term. In December, both the Federal Open Market Committee (FOMC) and the ECB Governing Council had increased policy rates by 50 basis points. The target range for the federal funds rate was 4¼ to 4½% and the interest rate on the ECB’s deposit facility was 2%. The FOMC and ECB Governing Council were expected to increase rates by a further 25 and 50 basis points respectively at their forthcoming meetings concluding on 1 and 2 February. The peak in the market-implied policy path in the United States was little changed since the MPC’s previous meeting, at a little under 5%. In the euro area, the peak in the market-implied policy path had risen somewhat, to a little under 3½%. 10: A large majority of respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this MPC meeting, broadly consistent with market-implied pricing. The median MaPS respondent expected Bank Rate to reach a peak of 4¼% in March and to remain at that level throughout the rest of 2023, broadly unchanged since the previous survey. The market-implied path for Bank Rate rose to around 4½% by the middle of this year, down a little since the MPC’s previous meeting and further closing the gap with the median path in the MaPS. 11: Further out, market-implied paths remained consistent with expectations of a reduction in policy rates. In the United States, by end-2025, the market implied policy path was around 2 percentage points lower than the expected peak in rates, compared with around 1 percentage point lower in the United Kingdom and euro area. 12: Risky asset prices had risen globally since the November Monetary Policy Report, including in the period since the MPC’s December meeting. Easing global inflation concerns had supported risk appetite. Overall, stronger equity prices, narrower corporate borrowing spreads and lower expectations for policy rates had contributed to some loosening in global financial conditions since the November Report. In the United Kingdom, those moves had in part reflected an unwinding of the higher premia required to invest in UK assets associated with the market volatility in late September and October last year. 13: The sterling effective exchange rate had depreciated somewhat since the previous MPC meeting, but remained around 1% higher than at the time of the November Report. Over the quarter, there had been a broad-based depreciation of the US dollar, consistent with some improvement in global risk sentiment as well as the somewhat larger declines in US interest rate expectations relative to other advanced economies over the period. 14: There had been a further reduction in financial market participants’ near-term inflation expectations since the MPC’s December meeting, in part reflecting falls in wholesale gas prices. In the United Kingdom, the median of MaPS respondents’ expectations for CPI inflation one and two years ahead had fallen to 3.5% and 2.5% respectively, compared to 5.5% and 3.0% in the previous survey in December. At both the three and five-year horizons, median CPI inflation expectations had remained at 2%, although responses had still been skewed to the upside. 15: The Committee discussed movements in UK medium-term inflation compensation measures. There had been a material reduction in these measures since their peak last March, although they had remained above their average levels of the previous decade. Interpreting moves in inflation compensation measures remained challenging, particularly following the significant market volatility last September and October, when there had been large distortions from the repricing in long-dated and index-linked UK government debt, and associated pressure on liability-driven investment (LDI) funds. Nevertheless, looking further back, market contacts had attributed the majority of the fall in these measures since last March to fundamental factors, including falling central expectations for inflation and changing perceptions of the balance of risks around the inflation outlook. That said, market technical factors, including those associated with pressure on LDI funds last autumn, were also attributed a significant role in explaining moves in inflation compensation measures. 16: There had been a continued reduction in UK owner-occupied fixed-term mortgage rates since the Committee’s previous meeting, but rates had remained materially higher than in the summer. The average quoted rates on two-year fixed-rate 90% and 75% loan-to-value mortgages stood at 6.0% and 5.4% in December, around 30 basis points and 50 basis points lower than in November. Preliminary data for January suggested that rates had fallen by a further 25 basis points. Spreads on these mortgage products relative to their relevant risk-free rate had fallen since November, leaving them not far from their 2016 to 2019 average levels. 17: There had been a large net reduction in sterling broad money in 2022 Q4. Cumulatively, net money outflows from October to December had more than reversed the very large increase recorded in September. These flows were accounted for primarily by some firms in the financial sector. One contributory factor to these large flows was likely to have been the significant market volatility towards the end of September, associated with developments at LDI funds. 18: On 12 January, the MPC had been informed that the Bank of England had completed its sales of its temporary holdings of UK government bonds purchased in autumn 2022 on financial stability grounds. Demand and output 19: Although UK quarterly GDP growth in 2022 Q3 had been revised down to -0.3% in the Quarterly National Accounts, it was stronger than had been expected at the time of the November Monetary Policy Report. Estimates of GDP had been revised lower in preceding quarters, which meant that the level of GDP in Q3 had remained slightly below its pre-Covid level. Although the weakness in the third quarter in part reflected the additional bank holiday for the Queen’s state funeral in September, it had primarily been driven by weakness in underlying output. 20: Monthly GDP had been estimated to have risen by 0.1% in November, following a 0.5% increase in October. Bank staff now expected GDP to have grown by 0.1% in 2022 Q4 as a whole, stronger than at the time of the November Report. Underlying output had remained weak. The small rise in headline GDP expected in Q4 in part reflected some temporary factors such as the recovery in activity following the Queen’s state funeral. 21: GDP was expected to decline by 0.1% in 2023 Q1. Business surveys such as the S&P Global/CIPS UK flash PMIs, in which the output and new orders indices had remained below the 50 no-change mark in January, were consistent with small falls in GDP. Other business surveys had painted a similar picture of output growth being close to zero. The future output PMI, which covered firms’ expectations for output over the next year, had increased in recent months but remained below its historical average. Continued underlying weakness in GDP growth was in part likely to reflect the fall in real household incomes, and hence consumer spending, due to high global energy and tradeable goods prices. 22: Household consumption had contracted by 1.1% in 2022 Q3, and spending on goods, as indicated by retail sales volumes, had been on a downward trend since spring 2021, in part due to spending transitioning from goods to services following the pandemic. Contacts of the Bank’s Agents had noted customers trading down to lower-priced products and a drop in demand for household goods. GfK consumer confidence had remained around historically low levels in January. 23: Business investment had been weak for some time and had fallen by 2.5% in 2022 Q3. Overall, business investment was around 8% below its pre-Covid level and was likely to remain subdued in the near term. Intelligence from the Bank’s Agents suggested that weak demand, tighter financial conditions and uncertainty about the outlook were holding back investment spending. 24: Housing investment growth had slowed to close to zero in 2022 Q3. The weakness in the economic outlook, combined with the impact of higher mortgage rates on the housing market, were expected to continue to weigh on housing investment. Leading indicators of house prices such as the Halifax and Nationwide indices had also pointed to falls since September. These recent moves were in contrast to the trend observed since the pandemic of strong growth in housing investment, activity and prices. The latest Credit Conditions Survey suggested that the availability of secured lending to households had declined in 2022 Q4, with further falls in availability expected in 2023 Q1. Loan approvals for house purchase had declined sharply in November and December when mortgage pricing had been more expensive. The Committee noted that although the causal links between house prices and spending had been reasonably modest historically in the United Kingdom, house prices had tended to have a strong correlation with consumption. 25: There was some evidence that the slowdown in output growth was leading to a softening in labour demand, although the labour market had remained tight. Labour Force Survey (LFS) employment growth had slowed over the second half of 2022, reflecting the past slowdown in GDP growth, and timelier survey indicators of labour demand had been consistent with stagnating employment. Business contacts of the Agents had reported a further easing in recruitment difficulties, but that hiring and retention difficulties had remained above normal across a range of sectors. Although the number of job vacancies had fallen, they had remained elevated. The LFS unemployment rate had remained at a historically low level of 3.7% in the three months to November, and in the February Report forecast was projected to rise only gradually over the course of the year. Many of the Agents’ business contacts had reported that they were reluctant to reduce headcount actively, and intended to accommodate weaker demand through attrition or by reducing working hours. Supply, costs and prices 26: Twelve-month CPI inflation had edged down to 10.5% in December, from 10.7% in November, accounted for by a decline in fuel prices on the month. Core CPI inflation, excluding energy, food, beverages and tobacco, had remained unchanged at 6.3%, and was broadly in line with the November Monetary Policy Report projection. Core goods inflation had fallen by more than had been anticipated, to 5.8%, but services inflation had surprised to the upside, rising to a 30-year high of 6.8%. 27: In the February Report forecast, CPI inflation was projected to fall to around 8% by the middle of this year, as previous large increases in energy and other goods prices dropped out of the calculation of the annual rate. Core goods inflation was expected to continue to moderate, albeit remaining robust, consistent with global supply chains improving and survey indicators of manufacturers’ cost pressures easing. 28: Retail gas and electricity prices were currently subject to the Government’s Energy Price Guarantee (EPG). The EPG for a typical annual dual-fuel bill was due to increase from £2,500 to £3,000 in April. Retail energy prices were also expected to rise by 20% at that point, because even though wholesale gas futures prices had fallen recently, those declines were unlikely to push Ofgem’s energy price caps for April below the revised EPG. A 20% increase would be smaller than the increase of more than 50% in household energy bills in April 2022, such that the direct contribution of energy to twelve-month CPI inflation was expected to fall. If sustained, the latest falls in gas futures prices would push the Ofgem price caps below the EPG ceiling in July, and so pull down household energy prices. 29: Services CPI inflation was expected to remain around recent historically high rates over the first half of the year, in large part reflecting ongoing strength in pay growth. Bank staff analysis suggested that labour costs tended to be the predominant driver of services inflation in the long run, although higher non-labour input costs and firms rebuilding their margins had also been pushing up services prices recently. 30: The Committee discussed the potential persistence of recent inflation dynamics, and the role of wages in particular. A series of global shocks over the past few years had resulted in sharp and successive increases in the prices of tradeable goods, including energy, which continued to be passed through supply chains. There had been signs that these global pressures were beginning to abate. But the risk of greater inflation persistence, through the interactions of global pressures with domestic wage and price setting, remained in the context of a tight labour market. Relatedly, measures of inflation expectations over the year ahead had remained elevated. 31: Annual private sector regular Average Weekly Earnings growth had risen to a little over 7% in the three months to November, 0.7 percentage points above the November Report projection. Annual private sector wage growth was expected to flatten off at a similar rate in 2023 H1, consistent with higher-frequency pay growth also plateauing. A survey of firms conducted by the Bank’s Agents suggested that the average pay settlement in 2023 would rise at a broadly similar rate as in 2022. Survey respondents had expected consumer price inflation to be the main driver of pay settlements. Within the survey, there were tentative indications of pay pressures moderating over the year, with expected pay settlements a little lower in the second half of the year than in the first half. The measure of pay for new permanent hires in the KPMG/REC survey, which was a leading indicator for private sector pay growth three to four quarters ahead, suggested a more pronounced slowing in pay growth later in the year. 32: Measures of inflation expectations had fallen back from their recent peaks, but most were still at elevated levels. The Citi/YouGov household measures of inflation expectations over the next year and five-to-ten years ahead had edged down in January, to 5.4% and 3.5% respectively, following steeper falls in December. Respondents to the Decision Maker Panel in January had revised down their expectations for CPI inflation over the year ahead, to 6.4%, but had left their own price expectations unchanged, at 5.8%. Professional forecasters responding to the Bank’s latest quarterly survey were, on average, projecting CPI inflation to fall to 3.9% in one year’s time, and to be in line with the 2% inflation target three years ahead. The immediate policy decision 33: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 34: UK domestic inflationary pressures had been firmer than expected. Both private sector regular pay growth and services CPI inflation had been notably higher than forecast in the November Monetary Policy Report. The labour market had remained tight by historical standards. The unemployment rate had been 3.7% in the three months to November, below the MPC’s assessment of the long-term equilibrium rate of unemployment, which stood at just above 4%. GDP growth had surprised to the upside in 2022 H2, relative to the November Report forecast. Underlying output was declining gradually, however. There were signs that the labour market had started to loosen and some survey indicators of wage growth had eased. Wholesale gas prices had fallen recently, and consumer price inflation was likely to have peaked across many advanced economies. Measures of UK inflation expectations had fallen back from their recent peaks, but most were still at elevated levels. 35: As set out in the accompanying February Monetary Policy Report, the MPC’s updated projections showed CPI inflation falling back sharply from its current very elevated level, of 10.5% in December, in large part owing to past increases in energy and other goods prices falling out of the calculation of the annual rate. Annual CPI inflation was expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. 36: In the latest modal forecast, conditioned on a market-implied path for Bank Rate that rose to around 4½% in mid-2023 and fell back to just over 3¼% in three years’ time, an increasing degree of economic slack, alongside falling external pressures, led CPI inflation to decline to below the 2% target in the medium term. There were considerable uncertainties around this medium-term outlook, and the Committee continued to judge that the risks to inflation were skewed significantly to the upside, primarily reflecting the possibility of greater persistence in domestic wage and price setting, and also upside risks to the wholesale energy price conditioning assumption. Qualitatively, an inflation forecast that took into account these upside risks was judged to be much closer to the 2% target at the policy horizon than the modal central projection. 37: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 38: Seven members judged that a 0.5 percentage point increase in Bank Rate, to 4%, was warranted at this meeting. Economic activity had weakened, but there had been some signs of greater resilience in the most recent data. Headline CPI inflation had begun to edge back and was likely to fall sharply over the rest of the year, as a result of past developments in energy and other goods prices. However, the labour market had remained tight and domestic price and wage pressures had been stronger than expected, suggesting risks of greater persistence in underlying inflation. Measures of inflation expectations were still at elevated levels. The risks to the inflation outlook in the medium term were both large and asymmetric, with a skew towards greater persistence. This warranted additional weight being put on recent strength in the labour market and inflation data, and relatively less on the medium-term projections. A 0.5 percentage point increase in Bank Rate at this meeting would address the risk that domestic wage and price pressures remained elevated even as external cost pressures waned. 39: Two members preferred to leave Bank Rate unchanged at 3.5% at this meeting. The real economy remained weak, as a result of falling real incomes and the tightening in financial conditions over the past year. There were continuing signs that the downturn was affecting the labour market, especially in more forward-looking indicators. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 40: The extent to which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. There were considerable uncertainties around the outlook. The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 41: Looking further ahead, the MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 42: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 4%. 43: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 3.5%. Operational considerations 44: On 1 February 2023, the total stock of assets held for monetary policy purposes was £838 billion, comprising £826 billion of UK government bond purchases and £11.5 billion of sterling non‐financial investment‐grade corporate bond purchases. 45: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 46: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 27 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, February 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 February 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 4%. Two members preferred to maintain Bank Rate at 3.5%. Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom. Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead. UK domestic inflationary pressures have been firmer than expected. Both private sector regular pay growth and services CPI inflation have been notably higher than forecast in the November Monetary Policy Report. The labour market remains tight by historical standards, although it has started to loosen and some survey indicators of wage growth have eased, alongside a gradual decline in underlying output. Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters. Near-term data developments will be crucial in assessing how quickly and to what extent external and domestic inflationary pressures will abate. As set out in the accompanying February Monetary Policy Report, the MPC’s updated projections show CPI inflation falling back sharply from its current very elevated level, of 10.5% in December, in large part owing to past increases in energy and other goods prices falling out of the calculation of the annual rate. Annual CPI inflation is expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. In the latest modal forecast, conditioned on a market-implied path for Bank Rate that rises to around 4½% in mid-2023 and falls back to just over 3¼% in three years’ time, an increasing degree of economic slack, alongside falling external pressures, leads CPI inflation to decline to below the 2% target in the medium term. There are considerable uncertainties around this medium-term outlook, and the Committee continues to judge that the risks to inflation are skewed significantly to the upside. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.5 percentage points, to 4%, at this meeting. Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices. However, the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation. The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. There are considerable uncertainties around the outlook. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. Looking further ahead, the MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 1 February 2023 1: Before turning to its immediate policy decision, and against the backdrop of its latest economic projections, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: Global GDP growth had probably slowed in 2022 Q4, accounted for by weakening growth in the euro area and subdued economic activity in China owing to an increase in Covid cases. UK-weighted world GDP was expected to continue to be subdued in the near term. Global consumer price inflation remained elevated, although it was likely to have peaked in many advanced economies. It was projected to fall over the course of 2023 following declines in energy prices and as global demand weakened and supply chain pressures eased. 3: In the euro area, GDP growth had slowed in recent quarters as real incomes had been squeezed by higher energy and food prices. Following growth of 0.3% in 2022 Q3, GDP had risen by 0.1% in Q4 according to the preliminary flash estimate, a little higher than expected in the November and February Monetary Policy Report projections. The S&P Global euro-area flash composite output PMI had risen a little above the 50 no-change mark in January, although the forward-looking new orders index had remained in contractionary territory. 4: In the United States, GDP had increased by 0.7% in 2022 Q4, only marginally lower than in Q3, and significantly stronger than anticipated in the November and February Report forecasts. Although financial conditions had loosened further since the MPC’s previous meeting, they were much tighter than a year ago and were expected to continue to weigh on growth in coming quarters. Survey indicators such as the ISM PMIs had also pointed towards weaker growth. 5: In China, rising Covid cases had weighed on activity in the final quarter of 2022. GDP growth had been flat in Q4, much weaker than the 1.4% growth rate expected at the time of the November Report, and activity in 2023 Q1 was also expected to be weak. In early December, China had begun to remove Covid restrictions, effectively ending its zero-Covid policy, and mobility measures had fallen sharply. Retail sales had fallen in December relative to a year earlier while industrial production had increased, consistent with the impact of the latest Covid wave being greater on consumption than on manufacturing output. This suggested that global supply chains might be less disrupted than after previous Covid waves in China, reducing any upward impact on global goods prices and hence UK inflation. Moreover, the removal of restrictions would reduce the likelihood of future lockdowns, and hence potential future supply chain disruption. Chinese GDP growth was expected to recover in coming quarters. 6: European natural gas prices had fallen markedly since the MPC’s December meeting. The Dutch Title Transfer Facility spot price, had declined to €58 per MWh, down nearly 60%, and the gas futures curve had also fallen significantly. Relatively mild weather had contributed to lower gas consumption in continental Europe, alleviating supply concerns for next winter as storage levels had remained high. These developments had also caused large downward movements in UK wholesale gas prices. The Brent crude oil spot price had risen by around 5%, to $85 per barrel. The prices of agricultural goods had increased by around 4% since the MPC's December meeting. 7: Global consumer price inflation appeared to have peaked. In the euro area, the flash estimate had suggested that annual headline HICP inflation decreased for the third consecutive month in January, falling by 0.7 percentage points to 8.5%. The decline had been driven by a reduction in energy price inflation. Core inflation had remained unchanged at 5.2%. In the United States, annual PCE inflation had fallen to 5.0% in December, its lowest level since September 2021, and down from 5.5% in November. Upward pressure from energy and core goods prices had continued to fade. Core PCE inflation had declined to 4.4%. 8: The MPC discussed how monetary policy tightening over the past year had affected economic activity in the United States and the euro area. Financial conditions had possibly tightened a little more than in previous tightening cycles in the United States, including mortgage rates, but had been somewhat more similar to historical episodes in the euro area. Indicators of consumption had declined, broadly in line with what might have been expected in the United States, while the broader real income squeeze was contributing materially to the weakness in the euro area. Given lags in the transmission of monetary policy, it was too early to judge the impact on inflation, but published forecasts from both the Federal Reserve and the ECB had suggested some persistence in inflationary pressures. Monetary and financial conditions 9: Many central banks had continued to tighten monetary policy, and market pricing implied that policy rates were likely to increase further in the near term. In December, both the Federal Open Market Committee (FOMC) and the ECB Governing Council had increased policy rates by 50 basis points. The target range for the federal funds rate was 4¼ to 4½% and the interest rate on the ECB’s deposit facility was 2%. The FOMC and ECB Governing Council were expected to increase rates by a further 25 and 50 basis points respectively at their forthcoming meetings concluding on 1 and 2 February. The peak in the market-implied policy path in the United States was little changed since the MPC’s previous meeting, at a little under 5%. In the euro area, the peak in the market-implied policy path had risen somewhat, to a little under 3½%. 10: A large majority of respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be increased by 50 basis points at this MPC meeting, broadly consistent with market-implied pricing. The median MaPS respondent expected Bank Rate to reach a peak of 4¼% in March and to remain at that level throughout the rest of 2023, broadly unchanged since the previous survey. The market-implied path for Bank Rate rose to around 4½% by the middle of this year, down a little since the MPC’s previous meeting and further closing the gap with the median path in the MaPS. 11: Further out, market-implied paths remained consistent with expectations of a reduction in policy rates. In the United States, by end-2025, the market implied policy path was around 2 percentage points lower than the expected peak in rates, compared with around 1 percentage point lower in the United Kingdom and euro area. 12: Risky asset prices had risen globally since the November Monetary Policy Report, including in the period since the MPC’s December meeting. Easing global inflation concerns had supported risk appetite. Overall, stronger equity prices, narrower corporate borrowing spreads and lower expectations for policy rates had contributed to some loosening in global financial conditions since the November Report. In the United Kingdom, those moves had in part reflected an unwinding of the higher premia required to invest in UK assets associated with the market volatility in late September and October last year. 13: The sterling effective exchange rate had depreciated somewhat since the previous MPC meeting, but remained around 1% higher than at the time of the November Report. Over the quarter, there had been a broad-based depreciation of the US dollar, consistent with some improvement in global risk sentiment as well as the somewhat larger declines in US interest rate expectations relative to other advanced economies over the period. 14: There had been a further reduction in financial market participants’ near-term inflation expectations since the MPC’s December meeting, in part reflecting falls in wholesale gas prices. In the United Kingdom, the median of MaPS respondents’ expectations for CPI inflation one and two years ahead had fallen to 3.5% and 2.5% respectively, compared to 5.5% and 3.0% in the previous survey in December. At both the three and five-year horizons, median CPI inflation expectations had remained at 2%, although responses had still been skewed to the upside. 15: The Committee discussed movements in UK medium-term inflation compensation measures. There had been a material reduction in these measures since their peak last March, although they had remained above their average levels of the previous decade. Interpreting moves in inflation compensation measures remained challenging, particularly following the significant market volatility last September and October, when there had been large distortions from the repricing in long-dated and index-linked UK government debt, and associated pressure on liability-driven investment (LDI) funds. Nevertheless, looking further back, market contacts had attributed the majority of the fall in these measures since last March to fundamental factors, including falling central expectations for inflation and changing perceptions of the balance of risks around the inflation outlook. That said, market technical factors, including those associated with pressure on LDI funds last autumn, were also attributed a significant role in explaining moves in inflation compensation measures. 16: There had been a continued reduction in UK owner-occupied fixed-term mortgage rates since the Committee’s previous meeting, but rates had remained materially higher than in the summer. The average quoted rates on two-year fixed-rate 90% and 75% loan-to-value mortgages stood at 6.0% and 5.4% in December, around 30 basis points and 50 basis points lower than in November. Preliminary data for January suggested that rates had fallen by a further 25 basis points. Spreads on these mortgage products relative to their relevant risk-free rate had fallen since November, leaving them not far from their 2016 to 2019 average levels. 17: There had been a large net reduction in sterling broad money in 2022 Q4. Cumulatively, net money outflows from October to December had more than reversed the very large increase recorded in September. These flows were accounted for primarily by some firms in the financial sector. One contributory factor to these large flows was likely to have been the significant market volatility towards the end of September, associated with developments at LDI funds. 18: On 12 January, the MPC had been informed that the Bank of England had completed its sales of its temporary holdings of UK government bonds purchased in autumn 2022 on financial stability grounds. Demand and output 19: Although UK quarterly GDP growth in 2022 Q3 had been revised down to -0.3% in the Quarterly National Accounts, it was stronger than had been expected at the time of the November Monetary Policy Report. Estimates of GDP had been revised lower in preceding quarters, which meant that the level of GDP in Q3 had remained slightly below its pre-Covid level. Although the weakness in the third quarter in part reflected the additional bank holiday for the Queen’s state funeral in September, it had primarily been driven by weakness in underlying output. 20: Monthly GDP had been estimated to have risen by 0.1% in November, following a 0.5% increase in October. Bank staff now expected GDP to have grown by 0.1% in 2022 Q4 as a whole, stronger than at the time of the November Report. Underlying output had remained weak. The small rise in headline GDP expected in Q4 in part reflected some temporary factors such as the recovery in activity following the Queen’s state funeral. 21: GDP was expected to decline by 0.1% in 2023 Q1. Business surveys such as the S&P Global/CIPS UK flash PMIs, in which the output and new orders indices had remained below the 50 no-change mark in January, were consistent with small falls in GDP. Other business surveys had painted a similar picture of output growth being close to zero. The future output PMI, which covered firms’ expectations for output over the next year, had increased in recent months but remained below its historical average. Continued underlying weakness in GDP growth was in part likely to reflect the fall in real household incomes, and hence consumer spending, due to high global energy and tradeable goods prices. 22: Household consumption had contracted by 1.1% in 2022 Q3, and spending on goods, as indicated by retail sales volumes, had been on a downward trend since spring 2021, in part due to spending transitioning from goods to services following the pandemic. Contacts of the Bank’s Agents had noted customers trading down to lower-priced products and a drop in demand for household goods. GfK consumer confidence had remained around historically low levels in January. 23: Business investment had been weak for some time and had fallen by 2.5% in 2022 Q3. Overall, business investment was around 8% below its pre-Covid level and was likely to remain subdued in the near term. Intelligence from the Bank’s Agents suggested that weak demand, tighter financial conditions and uncertainty about the outlook were holding back investment spending. 24: Housing investment growth had slowed to close to zero in 2022 Q3. The weakness in the economic outlook, combined with the impact of higher mortgage rates on the housing market, were expected to continue to weigh on housing investment. Leading indicators of house prices such as the Halifax and Nationwide indices had also pointed to falls since September. These recent moves were in contrast to the trend observed since the pandemic of strong growth in housing investment, activity and prices. The latest Credit Conditions Survey suggested that the availability of secured lending to households had declined in 2022 Q4, with further falls in availability expected in 2023 Q1. Loan approvals for house purchase had declined sharply in November and December when mortgage pricing had been more expensive. The Committee noted that although the causal links between house prices and spending had been reasonably modest historically in the United Kingdom, house prices had tended to have a strong correlation with consumption. 25: There was some evidence that the slowdown in output growth was leading to a softening in labour demand, although the labour market had remained tight. Labour Force Survey (LFS) employment growth had slowed over the second half of 2022, reflecting the past slowdown in GDP growth, and timelier survey indicators of labour demand had been consistent with stagnating employment. Business contacts of the Agents had reported a further easing in recruitment difficulties, but that hiring and retention difficulties had remained above normal across a range of sectors. Although the number of job vacancies had fallen, they had remained elevated. The LFS unemployment rate had remained at a historically low level of 3.7% in the three months to November, and in the February Report forecast was projected to rise only gradually over the course of the year. Many of the Agents’ business contacts had reported that they were reluctant to reduce headcount actively, and intended to accommodate weaker demand through attrition or by reducing working hours. Supply, costs and prices 26: Twelve-month CPI inflation had edged down to 10.5% in December, from 10.7% in November, accounted for by a decline in fuel prices on the month. Core CPI inflation, excluding energy, food, beverages and tobacco, had remained unchanged at 6.3%, and was broadly in line with the November Monetary Policy Report projection. Core goods inflation had fallen by more than had been anticipated, to 5.8%, but services inflation had surprised to the upside, rising to a 30-year high of 6.8%. 27: In the February Report forecast, CPI inflation was projected to fall to around 8% by the middle of this year, as previous large increases in energy and other goods prices dropped out of the calculation of the annual rate. Core goods inflation was expected to continue to moderate, albeit remaining robust, consistent with global supply chains improving and survey indicators of manufacturers’ cost pressures easing. 28: Retail gas and electricity prices were currently subject to the Government’s Energy Price Guarantee (EPG). The EPG for a typical annual dual-fuel bill was due to increase from £2,500 to £3,000 in April. Retail energy prices were also expected to rise by 20% at that point, because even though wholesale gas futures prices had fallen recently, those declines were unlikely to push Ofgem’s energy price caps for April below the revised EPG. A 20% increase would be smaller than the increase of more than 50% in household energy bills in April 2022, such that the direct contribution of energy to twelve-month CPI inflation was expected to fall. If sustained, the latest falls in gas futures prices would push the Ofgem price caps below the EPG ceiling in July, and so pull down household energy prices. 29: Services CPI inflation was expected to remain around recent historically high rates over the first half of the year, in large part reflecting ongoing strength in pay growth. Bank staff analysis suggested that labour costs tended to be the predominant driver of services inflation in the long run, although higher non-labour input costs and firms rebuilding their margins had also been pushing up services prices recently. 30: The Committee discussed the potential persistence of recent inflation dynamics, and the role of wages in particular. A series of global shocks over the past few years had resulted in sharp and successive increases in the prices of tradeable goods, including energy, which continued to be passed through supply chains. There had been signs that these global pressures were beginning to abate. But the risk of greater inflation persistence, through the interactions of global pressures with domestic wage and price setting, remained in the context of a tight labour market. Relatedly, measures of inflation expectations over the year ahead had remained elevated. 31: Annual private sector regular Average Weekly Earnings growth had risen to a little over 7% in the three months to November, 0.7 percentage points above the November Report projection. Annual private sector wage growth was expected to flatten off at a similar rate in 2023 H1, consistent with higher-frequency pay growth also plateauing. A survey of firms conducted by the Bank’s Agents suggested that the average pay settlement in 2023 would rise at a broadly similar rate as in 2022. Survey respondents had expected consumer price inflation to be the main driver of pay settlements. Within the survey, there were tentative indications of pay pressures moderating over the year, with expected pay settlements a little lower in the second half of the year than in the first half. The measure of pay for new permanent hires in the KPMG/REC survey, which was a leading indicator for private sector pay growth three to four quarters ahead, suggested a more pronounced slowing in pay growth later in the year. 32: Measures of inflation expectations had fallen back from their recent peaks, but most were still at elevated levels. The Citi/YouGov household measures of inflation expectations over the next year and five-to-ten years ahead had edged down in January, to 5.4% and 3.5% respectively, following steeper falls in December. Respondents to the Decision Maker Panel in January had revised down their expectations for CPI inflation over the year ahead, to 6.4%, but had left their own price expectations unchanged, at 5.8%. Professional forecasters responding to the Bank’s latest quarterly survey were, on average, projecting CPI inflation to fall to 3.9% in one year’s time, and to be in line with the 2% inflation target three years ahead. The immediate policy decision 33: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 34: UK domestic inflationary pressures had been firmer than expected. Both private sector regular pay growth and services CPI inflation had been notably higher than forecast in the November Monetary Policy Report. The labour market had remained tight by historical standards. The unemployment rate had been 3.7% in the three months to November, below the MPC’s assessment of the long-term equilibrium rate of unemployment, which stood at just above 4%. GDP growth had surprised to the upside in 2022 H2, relative to the November Report forecast. Underlying output was declining gradually, however. There were signs that the labour market had started to loosen and some survey indicators of wage growth had eased. Wholesale gas prices had fallen recently, and consumer price inflation was likely to have peaked across many advanced economies. Measures of UK inflation expectations had fallen back from their recent peaks, but most were still at elevated levels. 35: As set out in the accompanying February Monetary Policy Report, the MPC’s updated projections showed CPI inflation falling back sharply from its current very elevated level, of 10.5% in December, in large part owing to past increases in energy and other goods prices falling out of the calculation of the annual rate. Annual CPI inflation was expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. 36: In the latest modal forecast, conditioned on a market-implied path for Bank Rate that rose to around 4½% in mid-2023 and fell back to just over 3¼% in three years’ time, an increasing degree of economic slack, alongside falling external pressures, led CPI inflation to decline to below the 2% target in the medium term. There were considerable uncertainties around this medium-term outlook, and the Committee continued to judge that the risks to inflation were skewed significantly to the upside, primarily reflecting the possibility of greater persistence in domestic wage and price setting, and also upside risks to the wholesale energy price conditioning assumption. Qualitatively, an inflation forecast that took into account these upside risks was judged to be much closer to the 2% target at the policy horizon than the modal central projection. 37: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 38: Seven members judged that a 0.5 percentage point increase in Bank Rate, to 4%, was warranted at this meeting. Economic activity had weakened, but there had been some signs of greater resilience in the most recent data. Headline CPI inflation had begun to edge back and was likely to fall sharply over the rest of the year, as a result of past developments in energy and other goods prices. However, the labour market had remained tight and domestic price and wage pressures had been stronger than expected, suggesting risks of greater persistence in underlying inflation. Measures of inflation expectations were still at elevated levels. The risks to the inflation outlook in the medium term were both large and asymmetric, with a skew towards greater persistence. This warranted additional weight being put on recent strength in the labour market and inflation data, and relatively less on the medium-term projections. A 0.5 percentage point increase in Bank Rate at this meeting would address the risk that domestic wage and price pressures remained elevated even as external cost pressures waned. 39: Two members preferred to leave Bank Rate unchanged at 3.5% at this meeting. The real economy remained weak, as a result of falling real incomes and the tightening in financial conditions over the past year. There were continuing signs that the downturn was affecting the labour market, especially in more forward-looking indicators. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 40: The extent to which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. There were considerable uncertainties around the outlook. The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 41: Looking further ahead, the MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 42: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 4%. 43: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 3.5%. Operational considerations 44: On 1 February 2023, the total stock of assets held for monetary policy purposes was £838 billion, comprising £826 billion of UK government bond purchases and £11.5 billion of sterling non‐financial investment‐grade corporate bond purchases. 45: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 46: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 27 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, March 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 22 March 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.25%. Two members preferred to maintain Bank Rate at 4%. Global growth is expected to be stronger than projected in the February Monetary Policy Report, and core consumer price inflation in advanced economies has remained elevated. Wholesale gas futures and oil prices have fallen materially. There have been large and volatile moves in global financial markets, in particular since the failure of Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events. Overall, government bond yields are broadly unchanged and risky asset prices are somewhat lower than at the time of the Committee’s previous meeting. The Bank of England’s Financial Policy Committee (FPC) has briefed the MPC about recent global banking sector developments. The FPC judges that the UK banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment is that the UK banking system remains resilient. Reflecting these developments, bank wholesale funding costs have risen in the United Kingdom and other advanced economies. The MPC will continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook. Additional fiscal support was announced in the Spring Budget. Bank staff have provisionally estimated that this could, relative to the February Report, increase the level of GDP by around 0.3% over coming years. A full assessment, including the extent to which these measures could affect supply as well as demand in the medium term, will be conducted ahead of the May Monetary Policy Report. GDP is still likely to have been broadly flat around the turn of the year, but is now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report. As the Government’s Energy Price Guarantee (EPG) will be maintained at £2,500 for three further months from April, real household disposable income could remain broadly flat in the near term, rather than falling significantly. The labour market has remained tight, while the news since the MPC’s previous meeting points to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. Twelve-month CPI inflation fell from 10.5% in December to 10.1% in January but then rose to 10.4% in February, 0.6 percentage points higher than expected in the February Report. As a consequence, the exchange of open letters between the Governor and the Chancellor of the Exchequer is being published alongside this monetary policy announcement. Services CPI inflation was 6.6% in February, 0.1 percentage points weaker than expected at the time of the February Report, but food and core goods price inflation have been significantly stronger than projected. Most of the surprising strength in the core goods component was accounted for by higher clothing and footwear prices, which tend to be volatile and could therefore prove less persistent. Annual private sector regular earnings growth has eased, to 7% in the three months to January, 0.1 percentage points below the expectation in February. CPI inflation is still expected to fall significantly in 2023 Q2, to a lower rate than anticipated in the February Report. This lower-than-expected rate is largely due to the near-term news in the Budget including on the EPG, alongside the falls in wholesale energy prices. Services CPI inflation is expected to remain broadly unchanged in the near term, but wage growth is likely to fall back somewhat more quickly than projected in the February Report. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.25 percentage points, to 4.25%, at this meeting. CPI inflation increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year. Services inflation has been broadly in line with expectations. The labour market has remained tight, and the near-term paths of GDP and employment are likely to be somewhat stronger than expected previously. Although nominal wage growth has been weaker than expected, cost and price pressures have remained elevated. The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook have risen. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will make a full assessment of all of the news since the February Report, including the economic implications of recent financial market and banking sector developments, as part of its forthcoming May forecast round. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 22 March 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted world GDP had increased by 0.3% in 2022 Q4 and was expected to grow by 0.4% in 2023 Q1. That expectation for the first quarter was stronger than had been anticipated in the February Monetary Policy Report, accounted for by expectations of a sharper rebound in Chinese GDP following the end of its zero-Covid policy in December, as well as upside news to demand in the United States and in the euro area. Downside risks to the outlook nevertheless remained. In particular, it was unclear how credit conditions and economic activity might be affected by recent banking sector stress in a number of advanced economies. 3: In the euro area, GDP had been flat in 2022 Q4, in line with the projection in the February Report, and was expected to increase by 0.1% in 2023 Q1, stronger than had been incorporated into the February Report. The S&P Global euro-area composite output PMI had risen to its highest level in eight months in February, indicating expanding activity in both services and manufacturing. 4: In the United States, GDP had increased by 0.7% in 2022 Q4 and was expected to grow by 0.3% in 2023 Q1, both stronger than had been expected in the February Report. Retail sales and real consumption had grown strongly in January, and the ISM non-manufacturing PMIs suggested robust GDP growth in January and February, although the ISM manufacturing output PMI had remained below the 50 no-change mark. Around 810,000 jobs had been added to the US economy over January and February, and the unemployment rate had remained near record lows. 5: In China, economic activity had rebounded following the end of its zero-Covid policy in December. The economy was now expected to grow by 1.6% in 2023 Q1, materially stronger than the 1% contraction that had been incorporated into the February Report. The rebound was likely to have been concentrated in domestic demand, reflecting the lifting of Covid-related restrictions and less voluntary social distancing as the number of Covid cases had peaked earlier than had been expected previously. The NBS non-manufacturing and Caixin services PMIs in January and February had been strong, and stronger than their manufacturing counterparts. Retail sales had surged, and investment and industrial production growth had picked up relative to a year earlier. A measure of Chinese supply chain constraints had eased, and most indicators of global shipping costs had continued to decline. Overall, China’s reopening was likely to be disinflationary for advanced economies, as the easing of supply chain disruption was expected to outweigh positive spillovers from stronger demand. 6: European natural gas prices had fallen materially since the MPC’s February meeting. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had declined to €42 per MWh, down 26% relative to February and below levels seen just before Russia's invasion of Ukraine in February 2022. The gas futures curve had also fallen further. These falls had been driven by milder weather, less energy use and fuel switching, implying that gas storage levels had continued to be high, although risks remained for the next winter. UK wholesale gas prices had fallen in line with their continental European counterparts. More recently, the possible macroeconomic implications of the financial market volatility that had followed the failure of Silicon Valley Bank had also contributed to falls in commodity prices. The Brent crude oil spot price had fallen by 12%, to $75 per barrel, since the MPC’s previous meeting, and the prices of agricultural goods and metals had also declined. 7: Headline consumer price inflation had continued to decline in the euro area and the United States, but core CPI inflation had proved somewhat more persistent than had been expected. In the euro area, annual headline HICP inflation had been 8.5% in February, down from 8.6% in January, but annual core inflation had increased to 5.6%, from 5.3%. Both measures had been higher than expected by market participants, and the increase had largely been accounted for by services price inflation. Energy price inflation had continued to decline, and was expected to decline further on the back of lower wholesale gas prices, which would push down on headline relative to core measures in the near term. Wage growth in the euro area had continued to increase, albeit from a lower level than in other advanced economies. 8: In the United States, annual headline CPI inflation had decreased to 6.0% in February, from 6.4% in January, while core inflation had fallen marginally to 5.5% from 5.6%, in line with market expectations. However, annual headline and core PCE inflation had surprised to the upside in January. This strength had been accounted for by energy and housing cost inflation, which were expected to ease. Annual average hourly earnings growth had ticked up in the United States in February, following some moderation in previous months. 9: The MPC discussed the extent to which lower wholesale energy prices might already have boosted global activity in the first quarter, noting that most of the effect was still likely to come through as government price caps on households in Europe had cushioned the adverse effect on retail prices and activity while wholesale prices had been higher. The Committee also discussed what the net effect of upside news on economic activity and lower energy prices might be on global inflation. On the one hand, lower energy prices would push down on headline inflation, and also on core inflation via indirect and second-round effects. On the other hand, lower energy prices would push up demand, which, taken together with other factors pushing up GDP, and all else equal, would be likely to put upward pressure on global inflation. Monetary and financial conditions 10: There had been large and volatile moves in financial markets since the MPC’s previous meeting, in particular since the failure of Silicon Valley Bank (SVB) in early March and reflecting market concerns about the possible broader impact of these events. In the days leading up to the MPC’s decision, UBS had agreed to buy Credit Suisse, and major advanced economy central banks had announced a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements. Overall, government bond yields were broadly unchanged and risky asset prices were somewhat lower than at the time of the Committee’s previous meeting. 11: The change in aggregate indices of equity prices in major advanced economies had been modest by the end of the period relative to the time of the MPC’s previous meeting. Bank equity prices had, however, been particularly affected as market sentiment had deteriorated following news about SVB, ending the period around 20% lower in the United States and around 5 to 10% down in the euro area and the United Kingdom. Measures of UK wholesale bank funding costs had risen, while remaining below the peaks seen in autumn 2022. 12: Prior to concerns emerging about SVB, market-implied monetary policy paths had picked up materially in advanced economies, reflecting positive global macroeconomic news, coupled with market interpretations of the tone of communications from the Federal Open Market Committee (FOMC), and the ECB Governing Council. These factors had also pushed up on market-implied policy paths in other countries, including in the United Kingdom. 13: After the issues at SVB had become public, however, risk sentiment had reversed and volatility had picked up, such that government bond yields globally had moved appreciably lower again. Risk sentiment had remained weak, given fragilities revealed at some other individual banks. Market contacts suggested that the fall in yields had largely reflected a flight to safety as market participants sought to wait out the volatility, while there was also some perception of an increase in downside risks to the outlook for growth and inflation. 14: Market expectations for the near-term path of policy rates in the euro area and the United States had ended the period largely unchanged and were expected to peak at a level similar to that at the time of the MPC’s previous meeting, at around 3½% and around 5% respectively. At its meeting ending on 16 March, the ECB Governing Council had raised its key policy rates by 50 basis points, a little higher than had been implied by market pricing immediately before the announcement. At the FOMC’s meeting ending on 22 March, market pricing was consistent with expectations of an increase in the federal funds rate of around 20 basis points. In the United Kingdom, the majority of market contacts expected Bank Rate to be increased by 25 basis points at this MPC meeting, and market pricing had risen consistent with these expectations following the release of February CPI data immediately prior to the MPC’s decision. The market-implied path of Bank Rate rose to a peak of a little above 4½% in August 2023, somewhat higher than the peak at the time of the MPC’s previous meeting. 15: Further out, market-implied paths remained consistent with expectations of a reduction in policy rates. In the United States, by mid-2026, the market-implied policy rate was just under 2 percentage points lower than the expected peak in rates, while the same rates were around 1½ percentage points lower than the peak in the United Kingdom and ¾ percentage points lower in the euro area. 16: The sterling effective exchange rate had ended the period around ½% higher compared to the time of the MPC’s previous meeting. 17: Medium-term inflation compensation measures had increased a little in the United Kingdom, and had remained broadly unchanged in the United States and the euro area, since the MPC’s previous meeting. Although interpreting the movements in UK medium-term inflation compensation measures continued to be challenging, it remained the case that there had been a material reduction in these measures since their peak in March 2022, while they had remained above their average levels of the previous decade. 18: There had been a further reduction in UK owner-occupied fixed-term mortgage rates since the MPC’s previous meeting, although rates remained materially higher than in summer 2022. The average quoted rate on a two-year fixed-rate 75% loan-to-value mortgage had fallen by 35 basis points in February, to 4.8%. More generally, the pass-through of higher risk-free reference rates during the current monetary policy tightening cycle had occurred broadly in line with what had typically been the case in the past, excepting the temporary period of slightly faster-than-typical pass-through in 2022 Q4. There were no clear signs as yet that the recent increase in UK bank funding costs had affected mortgage rates. 19: Net secured lending to households had decreased somewhat further, to £2.5 billion in January from £3.1 billion in December. Mortgage approvals for house purchase, which had been falling since autumn 2022, had remained fairly stable in January, at historically low levels of just under 40,000. 20: There had continued to be weakness in other housing market indicators. The official UK House Price Index had fallen by 0.5% a month on average over December and January, and leading indicators such as the Halifax and Nationwide house price indices pointed to falls of around 3 to 4% compared to their peak in autumn 2022. Indicators of housing market activity from the RICS survey had increased a little in February but had remained weak. 21: Sight deposit rates had risen since the MPC’s February meeting, though by less than the increase in Bank Rate. Relative to changes in the corresponding risk-free reference rates, the increase in sight deposit rates since the beginning of the current tightening cycle had been significantly less pronounced than it had been in past cycles, in contrast to time deposits, which had been broadly in line. There was some evidence that households might have rebalanced away from sight to time deposits in response. Demand and output 22: According to the ONS’s first quarterly estimate, real GDP had been flat in 2022 Q4, marginally weaker than had been expected in the February Monetary Policy Report. Household consumption had risen by 0.1%, while business investment had been estimated to have increased by almost 5%. Investment had also been revised up since the start of 2022, such that its level in 2022 Q3 was only 4½% below its pre-pandemic level, rather than 8% as in the previous estimate. 23: Monthly GDP had increased by 0.3% in January, following a 0.5% fall in December. This volatility in the monthly path had in large part been accounted for by a fall and subsequent partial rebound in health and education output around the turn of the year, reflecting the pattern of public-sector strike activity and sickness. Market sector output had risen by 0.1% in January, partially unwinding the 0.2% decline in December. Looking through the bank holiday-related volatility in GDP at various points last year, the level of market sector output had been broadly unchanged since the spring. 24: Bank staff continued to expect GDP to decline by 0.1% in 2023 Q1, as had been projected in the February Report. That was broadly consistent with the overall signal from business surveys of activity. In February, the S&P Global/CIPS UK composite output and new orders PMI indices had risen to levels close to their historical averages, whereas the CBI composite output balance had picked up but had remained contractionary. 25: Household consumption and business investment were also likely to be subdued in the first quarter. Retail sales volumes had risen by 0.5% in January, following a 1.2% decline in December. GfK consumer confidence had increased in February, to its highest level since April 2022, but had nevertheless remained well below its historical average. Most surveys of businesses’ investment intentions had remained weak. 26: The Spring Budget had taken place on 15 March, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility. Additional fiscal support had been announced, including further energy support measures for households and businesses, temporary 100% capital allowances for qualifying business investment undertaken between 2023-24 and 2025-26, a package of measures aimed at increasing labour market participation, higher defence spending and a freeze in fuel duty. Bank staff had provisionally estimated that these additional policy measures could, relative to what had been assumed in the February Monetary Policy Report, increase the level of GDP by around 0.3% over coming years. A full assessment of this news, and the extent to which it could affect supply as well as demand in the medium term, would be conducted as part of the May Monetary Policy Report forecast round. 27: Bank staff now expected GDP to increase slightly in the second quarter, compared with the 0.4% decline incorporated in the February Report. The Bank’s Agents had reported that, while subdued overall, activity was holding up better than contacts had previously expected, particularly in the consumer services sector. The composite future output PMI had risen further in February, with the associated report highlighting improved confidence regarding the near-term economic outlook. The news that the Government’s Energy Price Guarantee (EPG) for a typical annual dual-fuel bill would be maintained at £2,500 in April rather than increased, suggested that real household disposable income could remain broadly flat in the near term, rather than falling significantly as had been expected previously. 28: The Committee discussed these developments in activity. Some of the prospective upside news in GDP was likely to reflect developments in energy prices, including recent declines in wholesale prices as well as the EPG adjustment, and hence a further unwind of the terms of trade shock that households and businesses had been experiencing. But some of the news could reflect other factors, including the continued momentum in employment growth. This channel was similar to the judgement that the MPC had made in the February Report that lower perceptions of the risk of job losses could result in lower precautionary saving by households than had previously been assumed. Activity could therefore be less weak than expected. Supply, costs and prices 29: The labour market had remained tight, while the news since the MPC’s previous meeting pointed to stronger-than-expected employment growth and participation. The Labour Force Survey (LFS) unemployment rate had remained at 3.7% in the three months to January, 0.1 percentage points below the expectation at the time of the February Monetary Policy Report. LFS employment had grown by 0.2% in the three months to January, slightly stronger than had been expected at the time of the February Report. This stronger-than-expected rise in employment had been the counterpart to a fall in the inactivity rate of the 16+ population. LFS data for 2022 Q4 suggested that the flow into inactivity from employment and unemployment had fallen to around pre-Covid levels, alongside a decline in the share of the inactive aged 50-64 who did not expect to work again. 30: Some other indicators of labour market quantities had strengthened in recent months, alongside a similar development in some output indicators. The composite employment index in the S&P Global/CIPS UK PMI and HMRC employee payrolls had both increased in February. The rate of decline in the stock of vacancies had continued to abate in the three months to February. There had been just over 1.1 million vacancies in the three months to February, around one third higher than prior to the pandemic. Contacts of the Bank’s Agents had reported that the labour market remained tight, with little sign of loosening. Nevertheless, contacts had reported that churn in jobs had fallen back, and that recruitment difficulties had eased recently but remained elevated. Overall, Bank staff expected employment growth of 0.2% in 2023 Q2, in comparison to the 0.4% decline that had been anticipated in the February Report, and for the unemployment rate to remain around its current low level rather than starting to rise. 31: Annual private sector regular Average Weekly Earnings (AWE) growth had eased slightly to 7% in the three months to January, 0.1 percentage points below the expectation at the time of the February Report. Three month on three month private sector regular AWE growth had fallen significantly in recent months. Other pay growth indicators, such as the KPMG/REC survey measure of pay for new permanent hires, suggested that private sector regular pay growth could undershoot somewhat the near-term projections in the February Report. In that Report, earnings growth had been projected to soften in the second half of this year, as lower inflation expectations, which were anticipated to be quantitatively more important than changes in slack in the current environment, pulled down on pay growth. 32: Twelve-month CPI inflation had risen to 10.4% in February from 10.1% in January. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The February figure had been 0.6 percentage points higher than the expectation at the time of the February Report, with the upside news concentrated in clothing and footwear, and food and non-alcoholic beverages. Clothing and footwear prices had tended to be volatile and this news could therefore prove less persistent. Core CPI inflation, excluding energy, food, beverages and tobacco, had risen to 6.2% in February from 5.8% in January, and had been 0.3 percentage points higher than the expectation made at the time of the February Report. 33: Bank staff still expected CPI inflation to fall significantly in 2023 Q2, to a lower rate than had been anticipated in the February Report. This lower-than-expected rate was due largely to developments in administered energy prices. Retail gas and electricity prices were currently subject to the Government’s Energy Price Guarantee (EPG). As part of the Spring Budget, the Government had announced that the EPG would now be maintained at £2,500, for a typical dual-fuel bill, for the three months from April. This change in the EPG represented downside news to the outlook for household energy prices, lowering directly the forecast for CPI inflation in 2023 Q2 by around 1 percentage point, all else equal. Other measures announced in the Budget, such as the freezing of fuel duty, had contributed around a further ⅓ percentage points of downside news to the inflation forecast, from April. 34: Staff expected CPI inflation to decline further beyond 2023 Q2, due largely to falls in wholesale gas futures prices. If that level of futures prices were to be sustained, it would mean that the EPG would not bind on household energy bills from July. Instead, Ofgem price caps would set the price of domestic energy bills, resetting every three months as per Ofgem’s method. The latest Bank staff estimates suggested that the direct energy contribution to CPI inflation would turn negative by the end of this year. 35: Households’ and businesses’ short-term inflation expectations had continued to fall back. The quarterly Bank/Ipsos survey had reported a fall in year-ahead inflation expectations to around 4%. By contrast, the measure of one-year ahead inflation expectations in the Citi/YouGov survey of households had edged up in February, though had remained materially below its peak observed last August. The DMP survey had reported that businesses’ expectations about their own prices a year ahead had fallen further in February, albeit they had remained at an elevated level. The Bank/Ipsos measures of households’ two- and five-year ahead inflation expectations had been close to their historical averages. 36: The Committee discussed the persistence of inflation. Services CPI inflation had reached 6.6% in February and was expected to remain broadly unchanged in the near term, in part due to the continued pass-through of labour and other costs. Nevertheless, the easing in pay growth that had been expected in the February Report appeared more evident in the latest indicators. The labour market had remained tight, and the news since the previous MPC meeting pointed to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. The immediate policy decision 37: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 38: In the MPC’s February Monetary Policy Report projections, annual CPI inflation had been expected to fall back sharply towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. Conditioned on the market-implied path for Bank Rate at that time, an increasing degree of economic slack, alongside falling external pressures, would lead CPI inflation to decline to below the 2% target in the medium term. There were considerable uncertainties around this medium-term outlook, and the Committee had judged that the risks to inflation were skewed significantly to the upside. 39: Since the previous MPC meeting, there had been considerable news in global and domestic economic data relative to the near-term projections in the February Report. Global growth was expected to be stronger than projected, with GDP no longer being expected to contract in either China or the euro area in 2023 Q1. Core consumer price inflation in advanced economies had remained elevated. Wholesale gas futures and oil prices had fallen materially. 40: UK GDP was now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report. The labour market had remained tight, with an unemployment rate of 3.7% in the three months to January and a rise in employment as a counterpart to a fall in the inactivity rate. The news since the MPC’s previous meeting pointed to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. 41: Additional fiscal support had been announced in the Spring Budget. Bank staff had provisionally estimated that this could, relative to the February Report, increase the level of GDP by around 0.3% over coming years. A full assessment, including the extent to which these measures could affect supply as well as demand in the medium term, would be conducted ahead of the May Monetary Policy Report. 42: Twelve-month CPI inflation had fallen from 10.5% in December to 10.1% in January but had then risen to 10.4% in February, 0.6 percentage points higher than had been expected in the February Report. Services CPI inflation had been 6.6% in February, 0.1 percentage points weaker than had been expected at the time of the February Report, but food and core goods price inflation had been significantly stronger than projected. Most of the surprising strength in the core goods component was accounted for by higher clothing and footwear prices, which had tended to be volatile and could therefore prove less persistent. Annual private sector regular earnings growth had eased, to 7% in the three months to January, 0.1 percentage points below the expectation in February. Three month on three month growth in this measure of pay had fallen significantly in recent months. 43: CPI inflation was still expected to fall significantly in 2023 Q2, to a lower rate than had been anticipated in the February Report. This lower-than-expected rate was largely due to the near-term news in the Budget including on the Energy Price Guarantee, alongside the falls in wholesale energy prices since the previous MPC meeting. Services CPI inflation was expected to remain broadly unchanged in the near term, but wage growth was likely to fall back somewhat more quickly than had been projected in the February Report. 44: More generally, a lower path of energy prices would unwind further the terms of trade shock that households and businesses had been experiencing. The direct contribution of household energy prices to CPI inflation was now expected to turn negative by the end of this year, and this could also act to reduce inflation indirectly and via a dissipation of second-round effects. Lower energy prices would, however, boost activity, which, taken together with any other demand news pushing up GDP and employment, would, all else equal and over time, put upward pressure on inflation. 45: There had been large and volatile moves in global financial markets, in particular since the failure of Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events. Overall, government bond yields were broadly unchanged and risky asset prices were somewhat lower than at the time of the Committee’s previous meeting. 46: The Bank of England’s Financial Policy Committee (FPC) had briefed the MPC about recent global banking sector developments. The FPC judged that the UK banking system maintained robust capital and strong liquidity positions, and was well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment was that the UK banking system remained resilient. 47: Reflecting these developments, bank wholesale funding costs had risen in the United Kingdom and other advanced economies. The MPC would continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook. 48: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 49: Seven members judged that a 0.25 percentage point increase in Bank Rate, to 4.25%, was warranted at this meeting. The considerable news since the previous MPC meeting could be evaluated in the framework for monitoring the persistence of inflationary pressures set out in the February minutes. Although nominal wage growth had been weaker than expected, the labour market had remained tight and the unemployment rate was now expected to be flat in 2023 Q2 rather than rising. Services CPI inflation had been broadly in line with expectations. Alongside these developments, headline CPI inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than expected previously. These members put some weight on the possibility that the stronger domestic and global outlook for demand was also being driven by factors over and above the weaker path of energy prices, given that the strengthening had at least in part preceded the falls in prices. Renewed and sustained demand for labour could still reinforce the persistence of higher costs in consumer prices, even if second-round effects related to energy price inflation were to diminish. 50: Two members preferred to leave Bank Rate unchanged at 4% at this meeting. As the effects of the energy price shock and other cost-push shocks unwound, headline CPI inflation should fall sharply over 2023, which would also reduce associated persistence in domestic price setting. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 51: The extent to which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook had risen. 52: The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 53: The MPC would make a full assessment of all of the news since the February Report, including the economic implications of recent financial market and banking sector developments, as part of its forthcoming May forecast round. 54: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 55: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 4.25%. 56: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4%. Operational considerations 57: On 22 March 2023, the total stock of assets held for monetary policy purposes was £826 billion, comprising £818 billion of UK government bond purchases and £7.7 billion of sterling non‐financial investment‐grade corporate bond purchases. 58: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 59: On the occasion of her final meeting, the Chair expressed his appreciation on behalf of the Committee to Clare Lombardelli for her role as Treasury representative since 2017. Monetary Policy Summary, March 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 22 March 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.25%. Two members preferred to maintain Bank Rate at 4%. Global growth is expected to be stronger than projected in the February Monetary Policy Report, and core consumer price inflation in advanced economies has remained elevated. Wholesale gas futures and oil prices have fallen materially. There have been large and volatile moves in global financial markets, in particular since the failure of Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events. Overall, government bond yields are broadly unchanged and risky asset prices are somewhat lower than at the time of the Committee’s previous meeting. The Bank of England’s Financial Policy Committee (FPC) has briefed the MPC about recent global banking sector developments. The FPC judges that the UK banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment is that the UK banking system remains resilient. Reflecting these developments, bank wholesale funding costs have risen in the United Kingdom and other advanced economies. The MPC will continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook. Additional fiscal support was announced in the Spring Budget. Bank staff have provisionally estimated that this could, relative to the February Report, increase the level of GDP by around 0.3% over coming years. A full assessment, including the extent to which these measures could affect supply as well as demand in the medium term, will be conducted ahead of the May Monetary Policy Report. GDP is still likely to have been broadly flat around the turn of the year, but is now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report. As the Government’s Energy Price Guarantee (EPG) will be maintained at £2,500 for three further months from April, real household disposable income could remain broadly flat in the near term, rather than falling significantly. The labour market has remained tight, while the news since the MPC’s previous meeting points to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. Twelve-month CPI inflation fell from 10.5% in December to 10.1% in January but then rose to 10.4% in February, 0.6 percentage points higher than expected in the February Report. As a consequence, the exchange of open letters between the Governor and the Chancellor of the Exchequer is being published alongside this monetary policy announcement. Services CPI inflation was 6.6% in February, 0.1 percentage points weaker than expected at the time of the February Report, but food and core goods price inflation have been significantly stronger than projected. Most of the surprising strength in the core goods component was accounted for by higher clothing and footwear prices, which tend to be volatile and could therefore prove less persistent. Annual private sector regular earnings growth has eased, to 7% in the three months to January, 0.1 percentage points below the expectation in February. CPI inflation is still expected to fall significantly in 2023 Q2, to a lower rate than anticipated in the February Report. This lower-than-expected rate is largely due to the near-term news in the Budget including on the EPG, alongside the falls in wholesale energy prices. Services CPI inflation is expected to remain broadly unchanged in the near term, but wage growth is likely to fall back somewhat more quickly than projected in the February Report. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.25 percentage points, to 4.25%, at this meeting. CPI inflation increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year. Services inflation has been broadly in line with expectations. The labour market has remained tight, and the near-term paths of GDP and employment are likely to be somewhat stronger than expected previously. Although nominal wage growth has been weaker than expected, cost and price pressures have remained elevated. The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook have risen. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will make a full assessment of all of the news since the February Report, including the economic implications of recent financial market and banking sector developments, as part of its forthcoming May forecast round. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 22 March 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted world GDP had increased by 0.3% in 2022 Q4 and was expected to grow by 0.4% in 2023 Q1. That expectation for the first quarter was stronger than had been anticipated in the February Monetary Policy Report, accounted for by expectations of a sharper rebound in Chinese GDP following the end of its zero-Covid policy in December, as well as upside news to demand in the United States and in the euro area. Downside risks to the outlook nevertheless remained. In particular, it was unclear how credit conditions and economic activity might be affected by recent banking sector stress in a number of advanced economies. 3: In the euro area, GDP had been flat in 2022 Q4, in line with the projection in the February Report, and was expected to increase by 0.1% in 2023 Q1, stronger than had been incorporated into the February Report. The S&P Global euro-area composite output PMI had risen to its highest level in eight months in February, indicating expanding activity in both services and manufacturing. 4: In the United States, GDP had increased by 0.7% in 2022 Q4 and was expected to grow by 0.3% in 2023 Q1, both stronger than had been expected in the February Report. Retail sales and real consumption had grown strongly in January, and the ISM non-manufacturing PMIs suggested robust GDP growth in January and February, although the ISM manufacturing output PMI had remained below the 50 no-change mark. Around 810,000 jobs had been added to the US economy over January and February, and the unemployment rate had remained near record lows. 5: In China, economic activity had rebounded following the end of its zero-Covid policy in December. The economy was now expected to grow by 1.6% in 2023 Q1, materially stronger than the 1% contraction that had been incorporated into the February Report. The rebound was likely to have been concentrated in domestic demand, reflecting the lifting of Covid-related restrictions and less voluntary social distancing as the number of Covid cases had peaked earlier than had been expected previously. The NBS non-manufacturing and Caixin services PMIs in January and February had been strong, and stronger than their manufacturing counterparts. Retail sales had surged, and investment and industrial production growth had picked up relative to a year earlier. A measure of Chinese supply chain constraints had eased, and most indicators of global shipping costs had continued to decline. Overall, China’s reopening was likely to be disinflationary for advanced economies, as the easing of supply chain disruption was expected to outweigh positive spillovers from stronger demand. 6: European natural gas prices had fallen materially since the MPC’s February meeting. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had declined to €42 per MWh, down 26% relative to February and below levels seen just before Russia's invasion of Ukraine in February 2022. The gas futures curve had also fallen further. These falls had been driven by milder weather, less energy use and fuel switching, implying that gas storage levels had continued to be high, although risks remained for the next winter. UK wholesale gas prices had fallen in line with their continental European counterparts. More recently, the possible macroeconomic implications of the financial market volatility that had followed the failure of Silicon Valley Bank had also contributed to falls in commodity prices. The Brent crude oil spot price had fallen by 12%, to $75 per barrel, since the MPC’s previous meeting, and the prices of agricultural goods and metals had also declined. 7: Headline consumer price inflation had continued to decline in the euro area and the United States, but core CPI inflation had proved somewhat more persistent than had been expected. In the euro area, annual headline HICP inflation had been 8.5% in February, down from 8.6% in January, but annual core inflation had increased to 5.6%, from 5.3%. Both measures had been higher than expected by market participants, and the increase had largely been accounted for by services price inflation. Energy price inflation had continued to decline, and was expected to decline further on the back of lower wholesale gas prices, which would push down on headline relative to core measures in the near term. Wage growth in the euro area had continued to increase, albeit from a lower level than in other advanced economies. 8: In the United States, annual headline CPI inflation had decreased to 6.0% in February, from 6.4% in January, while core inflation had fallen marginally to 5.5% from 5.6%, in line with market expectations. However, annual headline and core PCE inflation had surprised to the upside in January. This strength had been accounted for by energy and housing cost inflation, which were expected to ease. Annual average hourly earnings growth had ticked up in the United States in February, following some moderation in previous months. 9: The MPC discussed the extent to which lower wholesale energy prices might already have boosted global activity in the first quarter, noting that most of the effect was still likely to come through as government price caps on households in Europe had cushioned the adverse effect on retail prices and activity while wholesale prices had been higher. The Committee also discussed what the net effect of upside news on economic activity and lower energy prices might be on global inflation. On the one hand, lower energy prices would push down on headline inflation, and also on core inflation via indirect and second-round effects. On the other hand, lower energy prices would push up demand, which, taken together with other factors pushing up GDP, and all else equal, would be likely to put upward pressure on global inflation. Monetary and financial conditions 10: There had been large and volatile moves in financial markets since the MPC’s previous meeting, in particular since the failure of Silicon Valley Bank (SVB) in early March and reflecting market concerns about the possible broader impact of these events. In the days leading up to the MPC’s decision, UBS had agreed to buy Credit Suisse, and major advanced economy central banks had announced a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements. Overall, government bond yields were broadly unchanged and risky asset prices were somewhat lower than at the time of the Committee’s previous meeting. 11: The change in aggregate indices of equity prices in major advanced economies had been modest by the end of the period relative to the time of the MPC’s previous meeting. Bank equity prices had, however, been particularly affected as market sentiment had deteriorated following news about SVB, ending the period around 20% lower in the United States and around 5 to 10% down in the euro area and the United Kingdom. Measures of UK wholesale bank funding costs had risen, while remaining below the peaks seen in autumn 2022. 12: Prior to concerns emerging about SVB, market-implied monetary policy paths had picked up materially in advanced economies, reflecting positive global macroeconomic news, coupled with market interpretations of the tone of communications from the Federal Open Market Committee (FOMC), and the ECB Governing Council. These factors had also pushed up on market-implied policy paths in other countries, including in the United Kingdom. 13: After the issues at SVB had become public, however, risk sentiment had reversed and volatility had picked up, such that government bond yields globally had moved appreciably lower again. Risk sentiment had remained weak, given fragilities revealed at some other individual banks. Market contacts suggested that the fall in yields had largely reflected a flight to safety as market participants sought to wait out the volatility, while there was also some perception of an increase in downside risks to the outlook for growth and inflation. 14: Market expectations for the near-term path of policy rates in the euro area and the United States had ended the period largely unchanged and were expected to peak at a level similar to that at the time of the MPC’s previous meeting, at around 3½% and around 5% respectively. At its meeting ending on 16 March, the ECB Governing Council had raised its key policy rates by 50 basis points, a little higher than had been implied by market pricing immediately before the announcement. At the FOMC’s meeting ending on 22 March, market pricing was consistent with expectations of an increase in the federal funds rate of around 20 basis points. In the United Kingdom, the majority of market contacts expected Bank Rate to be increased by 25 basis points at this MPC meeting, and market pricing had risen consistent with these expectations following the release of February CPI data immediately prior to the MPC’s decision. The market-implied path of Bank Rate rose to a peak of a little above 4½% in August 2023, somewhat higher than the peak at the time of the MPC’s previous meeting. 15: Further out, market-implied paths remained consistent with expectations of a reduction in policy rates. In the United States, by mid-2026, the market-implied policy rate was just under 2 percentage points lower than the expected peak in rates, while the same rates were around 1½ percentage points lower than the peak in the United Kingdom and ¾ percentage points lower in the euro area. 16: The sterling effective exchange rate had ended the period around ½% higher compared to the time of the MPC’s previous meeting. 17: Medium-term inflation compensation measures had increased a little in the United Kingdom, and had remained broadly unchanged in the United States and the euro area, since the MPC’s previous meeting. Although interpreting the movements in UK medium-term inflation compensation measures continued to be challenging, it remained the case that there had been a material reduction in these measures since their peak in March 2022, while they had remained above their average levels of the previous decade. 18: There had been a further reduction in UK owner-occupied fixed-term mortgage rates since the MPC’s previous meeting, although rates remained materially higher than in summer 2022. The average quoted rate on a two-year fixed-rate 75% loan-to-value mortgage had fallen by 35 basis points in February, to 4.8%. More generally, the pass-through of higher risk-free reference rates during the current monetary policy tightening cycle had occurred broadly in line with what had typically been the case in the past, excepting the temporary period of slightly faster-than-typical pass-through in 2022 Q4. There were no clear signs as yet that the recent increase in UK bank funding costs had affected mortgage rates. 19: Net secured lending to households had decreased somewhat further, to £2.5 billion in January from £3.1 billion in December. Mortgage approvals for house purchase, which had been falling since autumn 2022, had remained fairly stable in January, at historically low levels of just under 40,000. 20: There had continued to be weakness in other housing market indicators. The official UK House Price Index had fallen by 0.5% a month on average over December and January, and leading indicators such as the Halifax and Nationwide house price indices pointed to falls of around 3 to 4% compared to their peak in autumn 2022. Indicators of housing market activity from the RICS survey had increased a little in February but had remained weak. 21: Sight deposit rates had risen since the MPC’s February meeting, though by less than the increase in Bank Rate. Relative to changes in the corresponding risk-free reference rates, the increase in sight deposit rates since the beginning of the current tightening cycle had been significantly less pronounced than it had been in past cycles, in contrast to time deposits, which had been broadly in line. There was some evidence that households might have rebalanced away from sight to time deposits in response. Demand and output 22: According to the ONS’s first quarterly estimate, real GDP had been flat in 2022 Q4, marginally weaker than had been expected in the February Monetary Policy Report. Household consumption had risen by 0.1%, while business investment had been estimated to have increased by almost 5%. Investment had also been revised up since the start of 2022, such that its level in 2022 Q3 was only 4½% below its pre-pandemic level, rather than 8% as in the previous estimate. 23: Monthly GDP had increased by 0.3% in January, following a 0.5% fall in December. This volatility in the monthly path had in large part been accounted for by a fall and subsequent partial rebound in health and education output around the turn of the year, reflecting the pattern of public-sector strike activity and sickness. Market sector output had risen by 0.1% in January, partially unwinding the 0.2% decline in December. Looking through the bank holiday-related volatility in GDP at various points last year, the level of market sector output had been broadly unchanged since the spring. 24: Bank staff continued to expect GDP to decline by 0.1% in 2023 Q1, as had been projected in the February Report. That was broadly consistent with the overall signal from business surveys of activity. In February, the S&P Global/CIPS UK composite output and new orders PMI indices had risen to levels close to their historical averages, whereas the CBI composite output balance had picked up but had remained contractionary. 25: Household consumption and business investment were also likely to be subdued in the first quarter. Retail sales volumes had risen by 0.5% in January, following a 1.2% decline in December. GfK consumer confidence had increased in February, to its highest level since April 2022, but had nevertheless remained well below its historical average. Most surveys of businesses’ investment intentions had remained weak. 26: The Spring Budget had taken place on 15 March, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility. Additional fiscal support had been announced, including further energy support measures for households and businesses, temporary 100% capital allowances for qualifying business investment undertaken between 2023-24 and 2025-26, a package of measures aimed at increasing labour market participation, higher defence spending and a freeze in fuel duty. Bank staff had provisionally estimated that these additional policy measures could, relative to what had been assumed in the February Monetary Policy Report, increase the level of GDP by around 0.3% over coming years. A full assessment of this news, and the extent to which it could affect supply as well as demand in the medium term, would be conducted as part of the May Monetary Policy Report forecast round. 27: Bank staff now expected GDP to increase slightly in the second quarter, compared with the 0.4% decline incorporated in the February Report. The Bank’s Agents had reported that, while subdued overall, activity was holding up better than contacts had previously expected, particularly in the consumer services sector. The composite future output PMI had risen further in February, with the associated report highlighting improved confidence regarding the near-term economic outlook. The news that the Government’s Energy Price Guarantee (EPG) for a typical annual dual-fuel bill would be maintained at £2,500 in April rather than increased, suggested that real household disposable income could remain broadly flat in the near term, rather than falling significantly as had been expected previously. 28: The Committee discussed these developments in activity. Some of the prospective upside news in GDP was likely to reflect developments in energy prices, including recent declines in wholesale prices as well as the EPG adjustment, and hence a further unwind of the terms of trade shock that households and businesses had been experiencing. But some of the news could reflect other factors, including the continued momentum in employment growth. This channel was similar to the judgement that the MPC had made in the February Report that lower perceptions of the risk of job losses could result in lower precautionary saving by households than had previously been assumed. Activity could therefore be less weak than expected. Supply, costs and prices 29: The labour market had remained tight, while the news since the MPC’s previous meeting pointed to stronger-than-expected employment growth and participation. The Labour Force Survey (LFS) unemployment rate had remained at 3.7% in the three months to January, 0.1 percentage points below the expectation at the time of the February Monetary Policy Report. LFS employment had grown by 0.2% in the three months to January, slightly stronger than had been expected at the time of the February Report. This stronger-than-expected rise in employment had been the counterpart to a fall in the inactivity rate of the 16+ population. LFS data for 2022 Q4 suggested that the flow into inactivity from employment and unemployment had fallen to around pre-Covid levels, alongside a decline in the share of the inactive aged 50-64 who did not expect to work again. 30: Some other indicators of labour market quantities had strengthened in recent months, alongside a similar development in some output indicators. The composite employment index in the S&P Global/CIPS UK PMI and HMRC employee payrolls had both increased in February. The rate of decline in the stock of vacancies had continued to abate in the three months to February. There had been just over 1.1 million vacancies in the three months to February, around one third higher than prior to the pandemic. Contacts of the Bank’s Agents had reported that the labour market remained tight, with little sign of loosening. Nevertheless, contacts had reported that churn in jobs had fallen back, and that recruitment difficulties had eased recently but remained elevated. Overall, Bank staff expected employment growth of 0.2% in 2023 Q2, in comparison to the 0.4% decline that had been anticipated in the February Report, and for the unemployment rate to remain around its current low level rather than starting to rise. 31: Annual private sector regular Average Weekly Earnings (AWE) growth had eased slightly to 7% in the three months to January, 0.1 percentage points below the expectation at the time of the February Report. Three month on three month private sector regular AWE growth had fallen significantly in recent months. Other pay growth indicators, such as the KPMG/REC survey measure of pay for new permanent hires, suggested that private sector regular pay growth could undershoot somewhat the near-term projections in the February Report. In that Report, earnings growth had been projected to soften in the second half of this year, as lower inflation expectations, which were anticipated to be quantitatively more important than changes in slack in the current environment, pulled down on pay growth. 32: Twelve-month CPI inflation had risen to 10.4% in February from 10.1% in January. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The February figure had been 0.6 percentage points higher than the expectation at the time of the February Report, with the upside news concentrated in clothing and footwear, and food and non-alcoholic beverages. Clothing and footwear prices had tended to be volatile and this news could therefore prove less persistent. Core CPI inflation, excluding energy, food, beverages and tobacco, had risen to 6.2% in February from 5.8% in January, and had been 0.3 percentage points higher than the expectation made at the time of the February Report. 33: Bank staff still expected CPI inflation to fall significantly in 2023 Q2, to a lower rate than had been anticipated in the February Report. This lower-than-expected rate was due largely to developments in administered energy prices. Retail gas and electricity prices were currently subject to the Government’s Energy Price Guarantee (EPG). As part of the Spring Budget, the Government had announced that the EPG would now be maintained at £2,500, for a typical dual-fuel bill, for the three months from April. This change in the EPG represented downside news to the outlook for household energy prices, lowering directly the forecast for CPI inflation in 2023 Q2 by around 1 percentage point, all else equal. Other measures announced in the Budget, such as the freezing of fuel duty, had contributed around a further ⅓ percentage points of downside news to the inflation forecast, from April. 34: Staff expected CPI inflation to decline further beyond 2023 Q2, due largely to falls in wholesale gas futures prices. If that level of futures prices were to be sustained, it would mean that the EPG would not bind on household energy bills from July. Instead, Ofgem price caps would set the price of domestic energy bills, resetting every three months as per Ofgem’s method. The latest Bank staff estimates suggested that the direct energy contribution to CPI inflation would turn negative by the end of this year. 35: Households’ and businesses’ short-term inflation expectations had continued to fall back. The quarterly Bank/Ipsos survey had reported a fall in year-ahead inflation expectations to around 4%. By contrast, the measure of one-year ahead inflation expectations in the Citi/YouGov survey of households had edged up in February, though had remained materially below its peak observed last August. The DMP survey had reported that businesses’ expectations about their own prices a year ahead had fallen further in February, albeit they had remained at an elevated level. The Bank/Ipsos measures of households’ two- and five-year ahead inflation expectations had been close to their historical averages. 36: The Committee discussed the persistence of inflation. Services CPI inflation had reached 6.6% in February and was expected to remain broadly unchanged in the near term, in part due to the continued pass-through of labour and other costs. Nevertheless, the easing in pay growth that had been expected in the February Report appeared more evident in the latest indicators. The labour market had remained tight, and the news since the previous MPC meeting pointed to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. The immediate policy decision 37: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 38: In the MPC’s February Monetary Policy Report projections, annual CPI inflation had been expected to fall back sharply towards the end of this year, alongside a much shallower projected decline in output than in the November Report forecast. Conditioned on the market-implied path for Bank Rate at that time, an increasing degree of economic slack, alongside falling external pressures, would lead CPI inflation to decline to below the 2% target in the medium term. There were considerable uncertainties around this medium-term outlook, and the Committee had judged that the risks to inflation were skewed significantly to the upside. 39: Since the previous MPC meeting, there had been considerable news in global and domestic economic data relative to the near-term projections in the February Report. Global growth was expected to be stronger than projected, with GDP no longer being expected to contract in either China or the euro area in 2023 Q1. Core consumer price inflation in advanced economies had remained elevated. Wholesale gas futures and oil prices had fallen materially. 40: UK GDP was now expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report. The labour market had remained tight, with an unemployment rate of 3.7% in the three months to January and a rise in employment as a counterpart to a fall in the inactivity rate. The news since the MPC’s previous meeting pointed to stronger-than-expected employment growth in 2023 Q2 and a flat rather than rising unemployment rate. 41: Additional fiscal support had been announced in the Spring Budget. Bank staff had provisionally estimated that this could, relative to the February Report, increase the level of GDP by around 0.3% over coming years. A full assessment, including the extent to which these measures could affect supply as well as demand in the medium term, would be conducted ahead of the May Monetary Policy Report. 42: Twelve-month CPI inflation had fallen from 10.5% in December to 10.1% in January but had then risen to 10.4% in February, 0.6 percentage points higher than had been expected in the February Report. Services CPI inflation had been 6.6% in February, 0.1 percentage points weaker than had been expected at the time of the February Report, but food and core goods price inflation had been significantly stronger than projected. Most of the surprising strength in the core goods component was accounted for by higher clothing and footwear prices, which had tended to be volatile and could therefore prove less persistent. Annual private sector regular earnings growth had eased, to 7% in the three months to January, 0.1 percentage points below the expectation in February. Three month on three month growth in this measure of pay had fallen significantly in recent months. 43: CPI inflation was still expected to fall significantly in 2023 Q2, to a lower rate than had been anticipated in the February Report. This lower-than-expected rate was largely due to the near-term news in the Budget including on the Energy Price Guarantee, alongside the falls in wholesale energy prices since the previous MPC meeting. Services CPI inflation was expected to remain broadly unchanged in the near term, but wage growth was likely to fall back somewhat more quickly than had been projected in the February Report. 44: More generally, a lower path of energy prices would unwind further the terms of trade shock that households and businesses had been experiencing. The direct contribution of household energy prices to CPI inflation was now expected to turn negative by the end of this year, and this could also act to reduce inflation indirectly and via a dissipation of second-round effects. Lower energy prices would, however, boost activity, which, taken together with any other demand news pushing up GDP and employment, would, all else equal and over time, put upward pressure on inflation. 45: There had been large and volatile moves in global financial markets, in particular since the failure of Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events. Overall, government bond yields were broadly unchanged and risky asset prices were somewhat lower than at the time of the Committee’s previous meeting. 46: The Bank of England’s Financial Policy Committee (FPC) had briefed the MPC about recent global banking sector developments. The FPC judged that the UK banking system maintained robust capital and strong liquidity positions, and was well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment was that the UK banking system remained resilient. 47: Reflecting these developments, bank wholesale funding costs had risen in the United Kingdom and other advanced economies. The MPC would continue to monitor closely any effects on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook. 48: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 49: Seven members judged that a 0.25 percentage point increase in Bank Rate, to 4.25%, was warranted at this meeting. The considerable news since the previous MPC meeting could be evaluated in the framework for monitoring the persistence of inflationary pressures set out in the February minutes. Although nominal wage growth had been weaker than expected, the labour market had remained tight and the unemployment rate was now expected to be flat in 2023 Q2 rather than rising. Services CPI inflation had been broadly in line with expectations. Alongside these developments, headline CPI inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than expected previously. These members put some weight on the possibility that the stronger domestic and global outlook for demand was also being driven by factors over and above the weaker path of energy prices, given that the strengthening had at least in part preceded the falls in prices. Renewed and sustained demand for labour could still reinforce the persistence of higher costs in consumer prices, even if second-round effects related to energy price inflation were to diminish. 50: Two members preferred to leave Bank Rate unchanged at 4% at this meeting. As the effects of the energy price shock and other cost-push shocks unwound, headline CPI inflation should fall sharply over 2023, which would also reduce associated persistence in domestic price setting. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 51: The extent to which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook had risen. 52: The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 53: The MPC would make a full assessment of all of the news since the February Report, including the economic implications of recent financial market and banking sector developments, as part of its forthcoming May forecast round. 54: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 55: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 4.25%. 56: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4%. Operational considerations 57: On 22 March 2023, the total stock of assets held for monetary policy purposes was £826 billion, comprising £818 billion of UK government bond purchases and £7.7 billion of sterling non‐financial investment‐grade corporate bond purchases. 58: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Clare Lombardelli was present as the Treasury representative. 59: On the occasion of her final meeting, the Chair expressed his appreciation on behalf of the Committee to Clare Lombardelli for her role as Treasury representative since 2017.

Monetary Policy Summary, May 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 10 May 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.5%. Two members preferred to maintain Bank Rate at 4.25%. The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report. They are conditioned on a market-implied path for Bank Rate that peaks at around 4¾% in 2023 Q4 before ending the forecast period at just over 3½%. There has been upside news to the near-term outlook for global activity, with UK-weighted world GDP now expected to grow at a moderate pace throughout the forecast period. Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments. Headline inflation has been falling in the United States and euro area, although core inflation measures remain elevated. UK GDP is expected to be flat over the first half of this year, although underlying output, excluding the estimated impact of strikes and an extra bank holiday, is projected to grow modestly. Economic activity has been less weak than expected in February, and the Committee now judges that the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards. The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households. Although there are indications that the labour market has started to loosen, it is expected to remain tighter than in the February Report in the near term. The unemployment rate is now projected to remain below 4% until the end of 2024, before rising over the second half of the forecast period to around 4½%. CPI inflation was 10.2% in 2023 Q1, higher than expected at the time of the February and March MPC meetings, with the upside surprise concentrated in core goods and food prices. Although still elevated, nominal private sector wage growth and services CPI inflation have been close to expectations. CPI inflation is expected to fall sharply from April, in part as large rises in the price level one year ago drop out of the annual comparison. In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices will both lower the contribution from household energy bills to CPI inflation. However, food price inflation is likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explains why the Committee’s modal expectation for CPI inflation now falls back more slowly than in the February Report. In the MPC’s latest modal projection conditioned on market interest rates, CPI inflation declines to a little above 1% at the two and three-year horizons, materially below the 2% target. This reflects the emergence of an increasing degree of economic slack and declining external pressures that are expected to reduce CPI inflation. However, there remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target. The Committee continues to judge that the risks around the inflation forecast are skewed significantly to the upside, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices may take longer to unwind than they did to emerge. The mean CPI inflation profile, which incorporates this risk, is at or just below the 2% target in the medium term. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.25 percentage points, to 4.5%, at this meeting. In doing so the MPC is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation. The pace at which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the global financial and economic outlook remain elevated. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 10 May 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying May 2023 Monetary Policy Report . 2: The latest international economic data suggested GDP growth had been stronger than the February 2023 Monetary Policy Report forecast across the United Kingdom’s main trading partners. The Committee noted that this had reflected different factors across regions. For instance, activity in China, particularly in the service sector, had surprised to the upside following the end of its zero-Covid policy. The euro-area economy had been more resilient than expected to the previous sharp rise in energy prices, while exports had been supported by stronger growth in China. In the United States, a robust labour market and higher post-tax income, following an increase in income tax thresholds that had come into effect from January, had been reflected in stronger-than-expected household consumption. In absolute terms, global output growth was nevertheless expected to remain somewhat weaker than its pre-pandemic average. The Committee also noted that headline inflation, while remaining elevated, had been falling in the United States and euro area, but core inflation measures had been flatter at high rates. 3: In addition to the latest developments in monetary and financial conditions, the Committee discussed the divergence in movements in UK and US market interest rates since the failure of Silicon Valley Bank (SVB). While short-term interest rates in the United Kingdom had risen back to similar levels to those seen before the failure of SVB, those in the United States had remained at around the lower levels reached at the time of SVB’s failure. Market contacts had noted that this could, in part, be attributed to both UK-specific factors, such as CPI inflation having been higher than expected, and US-specific factors, where US credit conditions were expected to be somewhat tighter given stresses experienced by medium-sized US banks. 4: Following further signs of improvement in official estimates of UK activity and business surveys, Bank staff had increased their estimate of underlying quarterly GDP growth to around 0.2% during the first half of the year. The Committee discussed the potential factors behind the recent upside news in demand. While high energy and other tradable goods prices had depressed activity, these external shocks were beginning to abate and to a greater degree than assumed in previous forecasts that had been conditioned on higher prevailing commodities futures prices. Businesses and households also appeared to have been more resilient to the shocks that had crystallised, supported by fiscal policy. For households, spending had been further supported by the strength of the labour market and continuing employment growth, which had boosted incomes and may have reduced the extent of precautionary saving. 5: The Committee discussed how domestic inflationary pressures were evolving. Indicators of tightness, such as the vacancies-to-unemployment ratio and reported recruitment difficulties, continued to point to a loosening in the labour market, albeit they remained high by historical standards. Annual private sector regular pay growth had been close to expectations in recent months, consistent with an easing in higher-frequency pay growth data. But there continued to be a risk that pay growth could plateau at rates above those consistent with meeting the 2% inflation target sustainably in the medium term, if the labour market were to remain tight while households’ real incomes were still weak and short-term inflation expectations were elevated. Similarly, businesses might rebuild, and perhaps expand, their margins if demand were to remain firm. 6: Twelve-month CPI inflation had remained just above 10% in March, higher than expected in preceding forecasts. Although services CPI inflation had been in line with expectations, there had been material upside news within food and core goods prices. Food price inflation had reached a new historical high of close to 20%, and this component of the CPI basket was particularly salient for households and hence potentially for their inflation expectations more broadly. Contacts of the Bank’s Agents were expecting an easing in cost pressures associated with lower commodity prices and broader improvements in supply conditions to be passed on to consumer goods prices, but this would take some time to work through supply chains. The Committee judged that that process would be slower for food prices than had previously been anticipated. The immediate policy decision 7: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 8: Recent UK and global economic developments reinforced the MPC’s view at the time of its March meeting that economic activity had been more resilient than expected at the time of the February Report. Bank staff now expected underlying UK GDP to grow by around 0.2% in both 2023 Q1 and Q2, compared to expectations in the February Report of negative growth. There were indications that the labour market had started to loosen. The vacancies-to-unemployment ratio had continued to fall, contacts of the Bank’s Agents had reported that recruitment difficulties had eased and staff availability had increased in the latest KPMG/REC UK Report on Jobs. Nonetheless, the labour market was tighter than had been expected in February. Employment growth had been 0.5% in the three months to February, and was expected to be around 0.2% in 2023 Q2, both stronger than projected in the February Report. The unemployment rate was projected to be flat at 3.8% in Q2, compared to a projection of 4.1% in February. 9: Twelve-month CPI inflation had been higher than expected in 2023 Q1, at 10.2%, reflecting upside news in food and other goods price inflation, while services CPI inflation had been in line with expectations. Annual private sector regular pay growth had been 6.9% in the three months to February, close to the February Report forecast. The KPMG/REC permanent staff salaries index, which had tended to lead the ONS measure of private sector pay growth, had flattened in recent months, following a marked fall since last summer. Indicators of household and business UK inflation expectations had fallen back slightly, but most were still at elevated levels. 10: As set out in the accompanying May Monetary Policy Report, the MPC’s updated projections showed that CPI inflation was expected to fall sharply from April, in part as large price rises one year ago dropped out of the annual comparison. In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices would both lower the contribution from household energy bills to CPI inflation. However, updated staff analysis and reports from the Agents’ contacts suggested that food price inflation was likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explained why the Committee’s modal expectation for CPI inflation now fell back more slowly than in the February Report. 11: Economic activity had been less weak than expected in February, and the Committee now judged that the path of demand was likely to be materially stronger than in the February Report, albeit still subdued by historical standards. The improved outlook reflected stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market would lead to lower precautionary saving by households. Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 were expected to have an increasing impact on the economy in the coming quarters. The unemployment rate was now projected to remain below 4% until the end of 2024, before rising over the second half of the forecast period to around 4½%. 12: In the MPC’s latest modal projection conditioned on market interest rates, CPI inflation declined to a little above 1% at the two and three-year horizons, materially below the 2% target. This reflected the emergence of an increasing degree of economic slack and declining external pressures that were expected to reduce CPI inflation. 13: However, there were considerable uncertainties around the pace at which CPI inflation would return sustainably to the 2% target. The Committee continued to judge that the risks to the inflation forecast were skewed significantly to the upside. Staff analysis had explored a range of channels that could be associated with more persistence in wage or price setting in the current environment. The Committee discussed the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices could take longer to unwind than they had to emerge. These risks were inherently difficult to quantify precisely, which had motivated the Committee’s choice to include them in the skew rather than the modal projection. The mean CPI inflation profile, which incorporated this risk, was at or just below the 2% target in the medium term. 14: The Bank of England’s Financial Policy Committee (FPC) had continued to brief the MPC about recent banking sector developments. The FPC continued to judge that the UK banking system was resilient, maintaining robust capital and strong liquidity positions. It was resilient to the current economic outlook, and had the capacity to support the economy in a period of higher interest rates even if economic conditions were worse than forecast. The FPC was monitoring developments in other jurisdictions closely in light of the risk that indirect spillovers from overseas banks impacted the wider UK financial system. 15: The impact of recent global banking sector developments on domestic credit conditions and hence UK GDP was expected to be small. The MPC would continue to monitor closely any effects on the credit conditions faced by households and businesses. 16: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 17: Seven members judged that a 0.25 percentage point increase in Bank Rate, to 4.5%, was warranted at this meeting. It was important to continue to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation. CPI inflation had been stronger than expected, owing to higher food and other goods prices, although services CPI inflation and wage growth, while still elevated, had been close to expectations. There were indications that the labour market had begun to loosen, but the path of unemployment was projected to be lower than in February. GDP growth had also been stronger than expected, and was expected to be higher over much of the forecast period than in February. For these members, there had been repeated surprises about the resilience of demand, while the labour market had remained tight. These were circumstances in which domestic price pressures risked becoming more persistent. In the May Report projections, CPI inflation was projected to take longer to return to the 2% target, conditioned on a higher path for Bank Rate. There remained a risk that the second-round effects of external cost shocks on inflation in wages and domestic prices could take longer to unwind than they had to emerge. A 0.25 percentage point increase in Bank Rate would better manage the upside risks to the inflation outlook, in the context of a more prolonged return of inflation to target and materially stronger projected demand. 18: Two members preferred to leave Bank Rate unchanged at 4.25% at this meeting. As the effects of the energy price shock and other cost-push shocks unwound, headline CPI inflation should fall sharply over 2023, which would also reduce associated persistence in domestic price setting. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 19: The pace at which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the global financial and economic outlook remained elevated. 20: The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 21: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 22: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 4.5%. 23: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4.25%. Operational considerations 24: On 10 May 2023, the total stock of assets held for monetary policy purposes was £816 billion, comprising £813 billion of UK government bond purchases and £2.7 billion of sterling non‐financial investment‐grade corporate bond purchases. 25: In February 2022, the MPC had voted to unwind fully the stock of sterling non-financial investment-grade corporate bond purchases no earlier than towards the end of 2023. In December 2022, the Committee had noted that it was content with the initial rate of reduction in the stock which, if sustained, would permit an earlier unwind of the portfolio than originally anticipated. 26: Consistent with those indications, corporate bond sales had continued to progress and had been absorbed smoothly by the market. The sales programme was expected to conclude in coming weeks after which a small number of very short maturity bonds would continue to be held, as announced by the Bank at the outset of the sales programme, maturing fully by 5 April 2024. 27: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro James Bowler was present as the Treasury representative. 28: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 2 and 4 May, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, May 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 10 May 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.25 percentage points, to 4.5%. Two members preferred to maintain Bank Rate at 4.25%. The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report. They are conditioned on a market-implied path for Bank Rate that peaks at around 4¾% in 2023 Q4 before ending the forecast period at just over 3½%. There has been upside news to the near-term outlook for global activity, with UK-weighted world GDP now expected to grow at a moderate pace throughout the forecast period. Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments. Headline inflation has been falling in the United States and euro area, although core inflation measures remain elevated. UK GDP is expected to be flat over the first half of this year, although underlying output, excluding the estimated impact of strikes and an extra bank holiday, is projected to grow modestly. Economic activity has been less weak than expected in February, and the Committee now judges that the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards. The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households. Although there are indications that the labour market has started to loosen, it is expected to remain tighter than in the February Report in the near term. The unemployment rate is now projected to remain below 4% until the end of 2024, before rising over the second half of the forecast period to around 4½%. CPI inflation was 10.2% in 2023 Q1, higher than expected at the time of the February and March MPC meetings, with the upside surprise concentrated in core goods and food prices. Although still elevated, nominal private sector wage growth and services CPI inflation have been close to expectations. CPI inflation is expected to fall sharply from April, in part as large rises in the price level one year ago drop out of the annual comparison. In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices will both lower the contribution from household energy bills to CPI inflation. However, food price inflation is likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explains why the Committee’s modal expectation for CPI inflation now falls back more slowly than in the February Report. In the MPC’s latest modal projection conditioned on market interest rates, CPI inflation declines to a little above 1% at the two and three-year horizons, materially below the 2% target. This reflects the emergence of an increasing degree of economic slack and declining external pressures that are expected to reduce CPI inflation. However, there remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target. The Committee continues to judge that the risks around the inflation forecast are skewed significantly to the upside, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices may take longer to unwind than they did to emerge. The mean CPI inflation profile, which incorporates this risk, is at or just below the 2% target in the medium term. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target. The Committee has voted to increase Bank Rate by 0.25 percentage points, to 4.5%, at this meeting. In doing so the MPC is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation. The pace at which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the global financial and economic outlook remain elevated. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 10 May 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying May 2023 Monetary Policy Report . 2: The latest international economic data suggested GDP growth had been stronger than the February 2023 Monetary Policy Report forecast across the United Kingdom’s main trading partners. The Committee noted that this had reflected different factors across regions. For instance, activity in China, particularly in the service sector, had surprised to the upside following the end of its zero-Covid policy. The euro-area economy had been more resilient than expected to the previous sharp rise in energy prices, while exports had been supported by stronger growth in China. In the United States, a robust labour market and higher post-tax income, following an increase in income tax thresholds that had come into effect from January, had been reflected in stronger-than-expected household consumption. In absolute terms, global output growth was nevertheless expected to remain somewhat weaker than its pre-pandemic average. The Committee also noted that headline inflation, while remaining elevated, had been falling in the United States and euro area, but core inflation measures had been flatter at high rates. 3: In addition to the latest developments in monetary and financial conditions, the Committee discussed the divergence in movements in UK and US market interest rates since the failure of Silicon Valley Bank (SVB). While short-term interest rates in the United Kingdom had risen back to similar levels to those seen before the failure of SVB, those in the United States had remained at around the lower levels reached at the time of SVB’s failure. Market contacts had noted that this could, in part, be attributed to both UK-specific factors, such as CPI inflation having been higher than expected, and US-specific factors, where US credit conditions were expected to be somewhat tighter given stresses experienced by medium-sized US banks. 4: Following further signs of improvement in official estimates of UK activity and business surveys, Bank staff had increased their estimate of underlying quarterly GDP growth to around 0.2% during the first half of the year. The Committee discussed the potential factors behind the recent upside news in demand. While high energy and other tradable goods prices had depressed activity, these external shocks were beginning to abate and to a greater degree than assumed in previous forecasts that had been conditioned on higher prevailing commodities futures prices. Businesses and households also appeared to have been more resilient to the shocks that had crystallised, supported by fiscal policy. For households, spending had been further supported by the strength of the labour market and continuing employment growth, which had boosted incomes and may have reduced the extent of precautionary saving. 5: The Committee discussed how domestic inflationary pressures were evolving. Indicators of tightness, such as the vacancies-to-unemployment ratio and reported recruitment difficulties, continued to point to a loosening in the labour market, albeit they remained high by historical standards. Annual private sector regular pay growth had been close to expectations in recent months, consistent with an easing in higher-frequency pay growth data. But there continued to be a risk that pay growth could plateau at rates above those consistent with meeting the 2% inflation target sustainably in the medium term, if the labour market were to remain tight while households’ real incomes were still weak and short-term inflation expectations were elevated. Similarly, businesses might rebuild, and perhaps expand, their margins if demand were to remain firm. 6: Twelve-month CPI inflation had remained just above 10% in March, higher than expected in preceding forecasts. Although services CPI inflation had been in line with expectations, there had been material upside news within food and core goods prices. Food price inflation had reached a new historical high of close to 20%, and this component of the CPI basket was particularly salient for households and hence potentially for their inflation expectations more broadly. Contacts of the Bank’s Agents were expecting an easing in cost pressures associated with lower commodity prices and broader improvements in supply conditions to be passed on to consumer goods prices, but this would take some time to work through supply chains. The Committee judged that that process would be slower for food prices than had previously been anticipated. The immediate policy decision 7: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 8: Recent UK and global economic developments reinforced the MPC’s view at the time of its March meeting that economic activity had been more resilient than expected at the time of the February Report. Bank staff now expected underlying UK GDP to grow by around 0.2% in both 2023 Q1 and Q2, compared to expectations in the February Report of negative growth. There were indications that the labour market had started to loosen. The vacancies-to-unemployment ratio had continued to fall, contacts of the Bank’s Agents had reported that recruitment difficulties had eased and staff availability had increased in the latest KPMG/REC UK Report on Jobs. Nonetheless, the labour market was tighter than had been expected in February. Employment growth had been 0.5% in the three months to February, and was expected to be around 0.2% in 2023 Q2, both stronger than projected in the February Report. The unemployment rate was projected to be flat at 3.8% in Q2, compared to a projection of 4.1% in February. 9: Twelve-month CPI inflation had been higher than expected in 2023 Q1, at 10.2%, reflecting upside news in food and other goods price inflation, while services CPI inflation had been in line with expectations. Annual private sector regular pay growth had been 6.9% in the three months to February, close to the February Report forecast. The KPMG/REC permanent staff salaries index, which had tended to lead the ONS measure of private sector pay growth, had flattened in recent months, following a marked fall since last summer. Indicators of household and business UK inflation expectations had fallen back slightly, but most were still at elevated levels. 10: As set out in the accompanying May Monetary Policy Report, the MPC’s updated projections showed that CPI inflation was expected to fall sharply from April, in part as large price rises one year ago dropped out of the annual comparison. In addition, the extension in the Spring Budget of the Energy Price Guarantee and declines in wholesale energy prices would both lower the contribution from household energy bills to CPI inflation. However, updated staff analysis and reports from the Agents’ contacts suggested that food price inflation was likely to fall back more slowly than previously expected. Alongside news in other goods prices, this explained why the Committee’s modal expectation for CPI inflation now fell back more slowly than in the February Report. 11: Economic activity had been less weak than expected in February, and the Committee now judged that the path of demand was likely to be materially stronger than in the February Report, albeit still subdued by historical standards. The improved outlook reflected stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market would lead to lower precautionary saving by households. Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 were expected to have an increasing impact on the economy in the coming quarters. The unemployment rate was now projected to remain below 4% until the end of 2024, before rising over the second half of the forecast period to around 4½%. 12: In the MPC’s latest modal projection conditioned on market interest rates, CPI inflation declined to a little above 1% at the two and three-year horizons, materially below the 2% target. This reflected the emergence of an increasing degree of economic slack and declining external pressures that were expected to reduce CPI inflation. 13: However, there were considerable uncertainties around the pace at which CPI inflation would return sustainably to the 2% target. The Committee continued to judge that the risks to the inflation forecast were skewed significantly to the upside. Staff analysis had explored a range of channels that could be associated with more persistence in wage or price setting in the current environment. The Committee discussed the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices could take longer to unwind than they had to emerge. These risks were inherently difficult to quantify precisely, which had motivated the Committee’s choice to include them in the skew rather than the modal projection. The mean CPI inflation profile, which incorporated this risk, was at or just below the 2% target in the medium term. 14: The Bank of England’s Financial Policy Committee (FPC) had continued to brief the MPC about recent banking sector developments. The FPC continued to judge that the UK banking system was resilient, maintaining robust capital and strong liquidity positions. It was resilient to the current economic outlook, and had the capacity to support the economy in a period of higher interest rates even if economic conditions were worse than forecast. The FPC was monitoring developments in other jurisdictions closely in light of the risk that indirect spillovers from overseas banks impacted the wider UK financial system. 15: The impact of recent global banking sector developments on domestic credit conditions and hence UK GDP was expected to be small. The MPC would continue to monitor closely any effects on the credit conditions faced by households and businesses. 16: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. The economy had been subject to a sequence of very large and overlapping shocks. Monetary policy would ensure that, as the adjustment to these shocks continued, CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 17: Seven members judged that a 0.25 percentage point increase in Bank Rate, to 4.5%, was warranted at this meeting. It was important to continue to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation. CPI inflation had been stronger than expected, owing to higher food and other goods prices, although services CPI inflation and wage growth, while still elevated, had been close to expectations. There were indications that the labour market had begun to loosen, but the path of unemployment was projected to be lower than in February. GDP growth had also been stronger than expected, and was expected to be higher over much of the forecast period than in February. For these members, there had been repeated surprises about the resilience of demand, while the labour market had remained tight. These were circumstances in which domestic price pressures risked becoming more persistent. In the May Report projections, CPI inflation was projected to take longer to return to the 2% target, conditioned on a higher path for Bank Rate. There remained a risk that the second-round effects of external cost shocks on inflation in wages and domestic prices could take longer to unwind than they had to emerge. A 0.25 percentage point increase in Bank Rate would better manage the upside risks to the inflation outlook, in the context of a more prolonged return of inflation to target and materially stronger projected demand. 18: Two members preferred to leave Bank Rate unchanged at 4.25% at this meeting. As the effects of the energy price shock and other cost-push shocks unwound, headline CPI inflation should fall sharply over 2023, which would also reduce associated persistence in domestic price setting. At the same time, the lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. That implied the current setting of Bank Rate would be likely to reduce inflation to well below target in the medium term. As the policy setting had become increasingly restrictive, this would bring forward the point at which recent rate increases would need to be reversed. 19: The pace at which domestic inflationary pressures eased would depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the global financial and economic outlook remained elevated. 20: The MPC would continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 21: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 22: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 4.5%. 23: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4.25%. Operational considerations 24: On 10 May 2023, the total stock of assets held for monetary policy purposes was £816 billion, comprising £813 billion of UK government bond purchases and £2.7 billion of sterling non‐financial investment‐grade corporate bond purchases. 25: In February 2022, the MPC had voted to unwind fully the stock of sterling non-financial investment-grade corporate bond purchases no earlier than towards the end of 2023. In December 2022, the Committee had noted that it was content with the initial rate of reduction in the stock which, if sustained, would permit an earlier unwind of the portfolio than originally anticipated. 26: Consistent with those indications, corporate bond sales had continued to progress and had been absorbed smoothly by the market. The sales programme was expected to conclude in coming weeks after which a small number of very short maturity bonds would continue to be held, as announced by the Bank at the outset of the sales programme, maturing fully by 5 April 2024. 27: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro James Bowler was present as the Treasury representative. 28: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 2 and 4 May, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, June 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 21 June 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 5%. Two members preferred to maintain Bank Rate at 4.5%. At the time of the previous MPC meeting and May Monetary Policy Report, the market-implied path for Bank Rate averaged just over 4% over the next three years. Since then, gilt yields have risen materially, particularly at shorter maturities, now suggesting a path for Bank Rate that averages around 5½%. Mortgage rates have also risen notably. The sterling effective exchange rate has appreciated further. The Committee is continuing to monitor closely the impact of the significant increases in Bank Rate so far. As set out in the May Report, the greater share of fixed-rate mortgages means that the full impact of the increase in Bank Rate to date will not be felt for some time. Business surveys continue to suggest underlying quarterly GDP growth of around ¼% during the middle of this year. Indicators of household spending have tended to strengthen a little. LFS employment increased by 0.8% in the three months to April, higher than expected at the time of the May Report. The counterpart to this strong employment growth has been a further fall in the inactivity rate. The unemployment rate has been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio has fallen further but remains significantly elevated. Annual growth in private sector regular Average Weekly Earnings (AWE) increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. Three-month on three-month growth in this measure of pay has also picked up. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggest that AWE growth will ease over the rest of this year, however. Twelve-month CPI inflation fell from 10.1% in March to 8.7% in April and remained at that rate in May. This is 0.3 percentage points higher than expected in the May Report. Services CPI inflation rose to 7.4% in May, 0.5 percentage points stronger than expected at the time of the May Report, while core goods price inflation has also been much stronger than projected. In general, news in the latter component is less likely to imply persistent inflationary pressures. CPI inflation is expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Services CPI inflation is projected to remain broadly unchanged in the near term. Core goods CPI inflation is expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain. In particular, annual producer output price inflation has fallen very sharply in recent months. Food price inflation is projected to fall further in coming months. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. The MPC recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge. There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand. At this meeting, the Committee voted to increase Bank Rate by 0.5 percentage points, to 5%. The MPC will continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 21 June 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP growth in 2023 Q2 was expected to be marginally stronger than anticipated at the time of the May Monetary Policy Report, following a slightly weaker-than-expected outturn for Q1. The most acute risks from recent global banking sector stresses appeared to have faded. Following the end of its zero-Covid policy in December 2022, growth momentum in China appeared to have slowed in Q2, in line with expectations at the time of the May Report. Recent weakness in Chinese tradable goods prices could start to put downward pressure on world export price inflation. 3: Labour markets had remained tight in both the euro area and the United States, with unemployment rates remaining close to their historically low levels alongside flat or rising labour participation rates, elevated but declining vacancies-to-unemployment ratios and strong wage pressure. This continued labour market tightness could have contributed to elevated services price inflation in both regions. 4: European wholesale spot and futures gas prices had been relatively volatile given changes in long-range weather forecasts and disruptions in supplies from Norway, but had ended the period since the MPC’s previous meeting little changed. The Brent crude oil spot price had declined by around 3% since the MPC’s previous meeting to around $75 per barrel. Agricultural commodity prices had been broadly unchanged. 5: Headline consumer price inflation had continued to decline in the euro area and the United States. Annual euro-area HICP inflation had decreased to 6.1% in May from 7.0% in April, accounted for mainly by continued falls in energy price inflation. The decline in annual core HICP inflation had been less pronounced as services price inflation had remained high while core goods price inflation had continued to decline gradually. In the United States, headline CPI inflation had fallen by 0.9 percentage points in May, to 4.0%, which was consistent with annual PCE inflation having declined to 3.8%. Within CPI inflation, while both core goods and services inflation had remained broadly at their April levels, core goods inflation was significantly below its 2022 peak. Monetary and financial conditions 6: At its meeting ending on 14 June, the Federal Open Market Committee had left the federal funds rate unchanged and, at its meeting ending on 15 June, the ECB Governing Council had raised its key policy rates by 25 basis points, both in line with market expectations. In the United Kingdom, the market path implied that Bank Rate would be around 4.8% following this meeting, and would now average around 5½% over the next three years, compared to just over 4% in the conditioning assumption underpinning the May Monetary Policy Report. 7: There had been a material increase in both shorter and longer-term government bond yields globally, which had been particularly pronounced in the United Kingdom. Since the MPC’s previous meeting, the one-year overnight index swap (OIS) rate, one year forward had increased by around 40, 80 and 140 basis points respectively in the euro area, United States and United Kingdom, and the 10-year government bond yield had increased by around 5, 25 and 55 basis points respectively in Germany, the United States and United Kingdom. 8: The Committee discussed the possible drivers of the increases in interest rates. There had been some positive news from data in the United States, and from the resolution of US debt ceiling negotiations, while downside risks related to the banking sector stress seen in March 2023 were perceived to have receded somewhat. These factors had had an impact globally. 9: The movements in UK rates had been much larger than in other major advanced economies, leaving the UK OIS curve both higher and flatter than its US and euro-area counterparts. In part, this had reflected some news about the continued resilience of UK demand. To a greater degree, it had appeared to reflect an increase in market participants’ expectations of UK inflation persistence. The median respondent to the Bank’s latest Market Participants Survey (MaPS), which had been conducted before the latest UK labour market and CPI releases, now expected CPI inflation one and three years ahead to be 3.1% and 2.2% respectively, compared with 2.7% and 2.0% in the previous survey in May. 10: There was some evidence that market pricing had been more sensitive to economic data outturns than had been usual over the past decade. Recent data releases had been accompanied by larger movements in the OIS curve than surprises of a similar magnitude had generated previously, notably in response to the material upside surprises in recent UK data releases on CPI inflation and the labour market. MaPS respondents had cited the evolution of wage growth, labour market tightness and services price inflation as the most important indicators when forming their expectations for the evolution of UK monetary policy, in line with the MPC’s recent communications. 11: Medium-term inflation compensation measures in the United Kingdom, United States and euro area had increased a little further since the MPC’s previous meeting. Although interpreting the movements in UK medium-term inflation compensation measures continued to be challenging, these measures were materially lower than their peak in March 2022, while remaining above their average levels of the previous decade. MaPS respondents’ expectations of CPI inflation five years ahead had remained unchanged since the May survey, at 2.0%. 12: The sterling effective exchange rate had appreciated further, and had ended the period around 2% higher than at the time of the MPC’s previous meeting and around 6% higher than at the beginning of 2023. UK-focused equity prices had fallen by around 3% since the MPC’s previous meeting, in contrast to an increase in major equity indices in the United States and euro area. 13: UK owner-occupied fixed-term mortgage rates had picked up materially since the MPC’s previous meeting, following a period of decline in recent months. This had largely reflected the pass-through of increases in risk-free reference rates. The market-share weighted average quoted rate on a two-year fixed-rate 75% loan-to-value mortgage had increased by around 90 basis points since the May MPC meeting, to 5.6%, and the five-year equivalent had increased by around 80 basis points, to 5.1%. There had been a net decline in the number of owner-occupied mortgage products available to borrowers since the MPC’s previous meeting. 14: Net secured lending to households had decreased somewhat further in April, with, unusually, net outflows of £1.4 billion, compared to roughly zero in March. Mortgage approvals for house purchase had also fallen in April, to 48,700, but had remained above the average level of the previous six months. 15: Deposit rates had increased broadly in line with previous trends seen in this cycle. Time deposit rates had moved up materially since the MPC’s previous meeting, in response to higher reference rates, while sight deposit rates had risen by much less. Reflecting these relative movements in remuneration, there had been a shift in deposit volumes from instant access accounts towards time deposits over the previous six months. Such substitution was internalised within the flow of overall sterling broad money, which had grown at an annual rate of 1.6% in April, up slightly from 1.4% in March. Demand and output 16: According to the ONS’s first quarterly estimate, real GDP had increased by 0.1% in 2023 Q1, marginally stronger than had been expected in the May Monetary Policy Report. Household consumption had also risen by 0.1%, while business investment had been estimated to have increased by 0.7%. Housing investment had fallen by 2.5% in Q1, leaving the level 5.5% lower than in 2022 Q3. 17: Monthly GDP had increased by 0.2% in April, following a 0.3% fall in March, and leaving it close to its pre-pandemic level. Market sector output had also risen by 0.2% in April and had been on a rising trend over recent months, in contrast to the flatter profile of overall GDP. That divergence was in part likely to reflect the impact of strike activity on the volume of public sector output. 18: Business surveys continued to suggest an underlying pace of quarterly GDP growth of around ¼% in 2023 Q2. After taking account of the impact of idiosyncratic factors, including the additional bank holiday in May, Bank staff expected headline GDP to be flat in the second quarter, in line with the projection in the May Report. 19: The outlook for 2023 Q3 was more uncertain, but Bank staff continued to judge that an underlying quarterly growth rate of around ¼% was a reasonable central projection. This would be consistent with stronger headline GDP growth than in Q2 as the impact of idiosyncratic factors unwound. The Bank’s Agents had noted a slight pickup in the outlook for underlying activity in 2023 H2, while the S&P Global/CIPS UK composite PMI output expectations index also pointed to some further increase in underlying growth momentum. 20: Most indicators of household spending had tended to strengthen a little over recent months, albeit from very weak levels in some cases. Quarterly retail sales volumes had grown for the first time in 18 months, while consumer confidence had continued to pick up. Contacts of the Bank’s Agents had reported that consumer demand had been more resilient than they had expected across both goods and services. The increase in mortgage rates so far during this cycle had, however, already led to higher aggregate interest payments by households, and this metric was likely to rise further. Supply, costs and prices 21: Labour Force Survey (LFS) employment had increased by 0.8% in the three months to April, 0.2 percentage points higher than had been expected at the time of the May Monetary Policy Report. Rather than a decline in unemployment, the counterpart to this strong employment growth had been a further fall in the 16+ population’s inactivity rate, particularly amongst students, which had reached its lowest level since spring 2020. HMRC PAYE employee payrolls and the S&P Global/CIPS UK PMI composite employment index had continued to point to employment growth being somewhat softer than LFS-based estimates. 22: Some measures of labour market tightness had continued to ease, but overall the labour market had remained tight by historical standards. The LFS unemployment rate had been broadly flat, at 3.8%, in the three months to April, consistent with the expectation at the time of the May Report. The vacancies-to-unemployment ratio had fallen further in the three months to April, to its lowest level since October 2021, but was still significantly elevated compared to pre-Covid levels. The number of job-to-job flows had declined again in 2023 Q1, to just above the level observed pre-Covid. Recruitment and employment consultancies responding to the KPMG/REC survey had indicated that overall staff availability had continued to improve in May. The Bank’s Agents’ contacts had reported that recruitment difficulties had continued to ease, but overall recruitment had still been more difficult than normal. 23: Annual private sector regular Average Weekly Earnings (AWE) growth had increased by 0.5 percentage points to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. The pick-up in annual pay growth since the time of the May Report had been concentrated in higher-paying sectors such as financial and business services. Pay growth in lower-paid sectors like wholesaling, retailing, hotels and restaurants had been broadly flat. Three-month on three-month growth in private sector regular pay had been strong, rising to an annualised rate of around 8% in April, from 6.3% in March, contrasting notably with the falling growth rates between July 2022 and February 2023. 24: There had nevertheless been some countervailing signs of softening pay growth. The KPMG/REC survey measure of pay for new permanent hires, which had historically led AWE pay growth by around a year, had declined in May, having been broadly stable at a lower level since October 2022. This indicator pointed to a risk of private sector regular pay growth easing by more than had been expected in the May Report over the rest of this year. Some of the Bank’s Agents’ contacts had reported that pay settlements in the second half of this year could be somewhat lower than in the first half, largely due to lower near-term inflation expectations, with a looser labour market also expected to play a role. 25: At 8.7%, twelve-month CPI inflation in May had been unchanged from April. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The May figure was 0.3 percentage points higher than the expectation at the time of the May Report. 26: The upside CPI news since the May Report had been concentrated in core components, with core goods accounting for the majority of this news. Within core goods, for which the inflation rate had risen to 6.8% in May, the purchase of vehicles and recreational goods had accounted for the majority of this news. The surprise strength in vehicle prices had appeared to be related to a temporary supply shortage of 2-3 year old used cars, reflecting the lack of car production owing to the earlier semi-conductor shortage and coinciding with the age range of used cars for which the ONS collected prices. Non-energy goods import prices had risen further, suggesting that core goods manufacturers and retailers still faced high costs. Bank staff analysis suggested that world export prices could account for a significant share of elevated core goods CPI inflation. 27: Services CPI inflation had risen from 6.9% in April to 7.4% in May, 0.5 percentage points stronger than had been expected in the May Report, and partly reflecting a sharp rise in measured Vehicle Excise Duty rates. Airfares and package holidays had also accounted for some of the upside news. Airfares were a volatile component of the basket and the news in May had appeared to reflect the timing of Easter in April. 28: Food CPI inflation had edged down to 18.3% in May. The softening of annual food price inflation in the United Kingdom appeared to have followed developments in euro-area countries, albeit with somewhat of a lag, consistent with the global nature of recent shocks to food prices. 29: CPI inflation was expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Energy prices were expected to drag on CPI inflation even further in October, due largely to the resetting of the Ofgem price cap faced by households at that time. There was still considerable uncertainty around the outlook for household energy prices, however, as only around a third of the relevant observation window for the October price cap had passed so far. 30: Core goods inflation was expected to remain elevated in the near term. Indicators of manufacturing cost pressures had nevertheless continued to ease. Producer price index (PPI) input and output price inflation had moderated to 0.5% and 2.9% respectively in May, broadly consistent with developments in the United States and euro area. Core goods CPI inflation had diverged from manufacturing PPI inflation recently, whereas historically these series had shown strong co-movement. The possibility of a reassertion of this historical association in the near term posed a downside risk to the outlook for core goods CPI inflation. 31: The continued pass-through of service providers’ costs, including labour costs, was expected to keep services price inflation elevated in the near term. The Bank’s Agents’ consumer services contacts had reported that, while they had absorbed some, a fair proportion of cost increases had been passed on to consumer prices. 32: Food CPI inflation was expected to ease in the near term, reflecting the waning of pass-through from previous shocks and the recent fall-back in cost inflation further up the food supply chain. 33: Households and businesses’ short-term inflation expectations had eased further but had remained somewhat above their historical averages. Households’ median one-year inflation expectations, as measured by both the Bank/Ipsos and Citi/YouGov surveys, had fallen. The Decision Maker Panel survey suggested that businesses’ expectations for their own prices a year ahead had also declined, to around 5% in May. 34: Households’ median medium-term inflation expectations had been close to their historical averages in the latest releases of the major surveys. The Bank/Ipsos 5-year ahead measure had been below its pre-Covid average for a second successive quarter. The Citi/YouGov 5-10 year ahead measure had fallen to 3.5%, less than one standard deviation above its pre-Covid average. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: The Committee’s latest projections for activity and inflation had been set out in the May Monetary Policy Report and had been conditioned on a market-implied path for Bank Rate that had averaged just over 4% over the next three years. In the modal case, CPI inflation had been expected to decline to a little above 1% at the two and three-year horizons, materially below the 2% target. This had reflected the projected emergence of an increasing degree of economic slack and declining external pressures that had been expected to reduce CPI inflation. However, the Committee had continued to judge that the risks around this inflation projection were skewed significantly to the upside, reflecting the potential for more persistent strength in domestic price and wage setting. 37: Since the previous MPC meeting, there had been material news in a number of UK economic data outturns, including those that the Committee had noted it would be monitoring closely as indicators of persistent inflationary pressures. 38: LFS employment had increased by 0.8% in the three months to April, higher than had been expected at the time of the May Report. The counterpart to this strong employment growth had been a further fall in the inactivity rate. The unemployment rate had been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio had fallen further but remained significantly elevated. 39: Annual growth in private sector regular Average Weekly Earnings (AWE) had increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggested that AWE growth would ease over the rest of this year, however. 40: Twelve-month CPI inflation had fallen from 10.1% in March to 8.7% in April and had remained at that rate in May. This was 0.3 percentage points higher than had been expected in the May Report. Services CPI inflation had risen to 7.4% in May, 0.5 percentage points stronger than had been expected at the time of the May Report. 41: CPI inflation was expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Services CPI inflation was projected to remain broadly unchanged in the near term. Core goods CPI inflation was expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain. In particular, annual producer output price inflation had fallen very sharply in recent months. Food price inflation was projected to fall further in coming months. 42: The Committee was continuing to monitor closely the impact of the significant increases in Bank Rate so far. As set out in the May Report, the greater share of fixed-rate mortgages meant that the full impact of the increase in Bank Rate to date would not be felt for some time. The Committee also recognised that it had become more important to consider developments in the rental market. 43: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation departed from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 44: Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Households and businesses’ short-term inflation expectations had eased further but had remained somewhat above their historical averages. Households’ median medium-term inflation expectations had been close to their historical averages in the latest releases of the major surveys. UK medium-term inflation compensation measures in financial markets had increased a little further since the MPC’s previous meeting and were above their average levels of the previous decade. 45: Seven members judged that a 0.5 percentage point increase in Bank Rate, to 5%, was warranted at this meeting. The second-round effects in domestic price and wage developments generated by external cost shocks were likely to take longer to unwind than they had done to emerge. There had been significant upside news in recent data that indicated more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand. Some indicators of future pay growth and goods inflation had weakened, but their properties as leading indicators had not been tested in a similar period of high inflation. The scale of the recent upside surprises in official estimates of wage growth and services CPI inflation suggested a 0.5 percentage point increase in interest rates was required at this particular meeting. 46: Two members preferred to leave Bank Rate unchanged at 4.5% at this meeting. There were two main factors underlying their votes. First, as the energy price shock and other global cost-push shocks continued to reverse over the course of 2023, goods price inflation should fall sharply, which, with some lag, would reduce associated persistence in domestic wage and price setting . In contrast with the strength in recent outturns, forward-looking indicators were pointing to material falls in future wage and price inflation. Second, the lags in the effects of monetary policy meant that sizable impacts from past rate increases were still to come through. This included additional rate increases carried out in recent months, which would more than offset any additional persistence implied by the latest data. The current setting of Bank Rate would therefore be likely to reduce inflation below target in the medium term. Recent substantial increases in market yields would accentuate this, as they would mainly affect inflation in late 2024 and beyond, by which point energy price falls from their peaks and past rate rises would have lowered inflation significantly. 47: The MPC would continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 48: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 49: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 5%. 50: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4.5%. Operational considerations 51: On 21 June 2023, the total stock of assets held for monetary policy purposes was £806 billion, comprising £805 billion of UK government bond purchases and £0.8 billion of sterling non‐financial investment‐grade corporate bond purchases. 52: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Sam Beckett was present as the Treasury representative. 53: On behalf of the Committee, the Chair expressed his appreciation to Silvana Tenreyro for her contributions to the work of the MPC since becoming a member in 2017. Monetary Policy Summary, June 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 21 June 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 5%. Two members preferred to maintain Bank Rate at 4.5%. At the time of the previous MPC meeting and May Monetary Policy Report, the market-implied path for Bank Rate averaged just over 4% over the next three years. Since then, gilt yields have risen materially, particularly at shorter maturities, now suggesting a path for Bank Rate that averages around 5½%. Mortgage rates have also risen notably. The sterling effective exchange rate has appreciated further. The Committee is continuing to monitor closely the impact of the significant increases in Bank Rate so far. As set out in the May Report, the greater share of fixed-rate mortgages means that the full impact of the increase in Bank Rate to date will not be felt for some time. Business surveys continue to suggest underlying quarterly GDP growth of around ¼% during the middle of this year. Indicators of household spending have tended to strengthen a little. LFS employment increased by 0.8% in the three months to April, higher than expected at the time of the May Report. The counterpart to this strong employment growth has been a further fall in the inactivity rate. The unemployment rate has been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio has fallen further but remains significantly elevated. Annual growth in private sector regular Average Weekly Earnings (AWE) increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. Three-month on three-month growth in this measure of pay has also picked up. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggest that AWE growth will ease over the rest of this year, however. Twelve-month CPI inflation fell from 10.1% in March to 8.7% in April and remained at that rate in May. This is 0.3 percentage points higher than expected in the May Report. Services CPI inflation rose to 7.4% in May, 0.5 percentage points stronger than expected at the time of the May Report, while core goods price inflation has also been much stronger than projected. In general, news in the latter component is less likely to imply persistent inflationary pressures. CPI inflation is expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Services CPI inflation is projected to remain broadly unchanged in the near term. Core goods CPI inflation is expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain. In particular, annual producer output price inflation has fallen very sharply in recent months. Food price inflation is projected to fall further in coming months. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. The MPC recognises that the second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge. There has been significant upside news in recent data that indicates more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand. At this meeting, the Committee voted to increase Bank Rate by 0.5 percentage points, to 5%. The MPC will continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 21 June 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP growth in 2023 Q2 was expected to be marginally stronger than anticipated at the time of the May Monetary Policy Report, following a slightly weaker-than-expected outturn for Q1. The most acute risks from recent global banking sector stresses appeared to have faded. Following the end of its zero-Covid policy in December 2022, growth momentum in China appeared to have slowed in Q2, in line with expectations at the time of the May Report. Recent weakness in Chinese tradable goods prices could start to put downward pressure on world export price inflation. 3: Labour markets had remained tight in both the euro area and the United States, with unemployment rates remaining close to their historically low levels alongside flat or rising labour participation rates, elevated but declining vacancies-to-unemployment ratios and strong wage pressure. This continued labour market tightness could have contributed to elevated services price inflation in both regions. 4: European wholesale spot and futures gas prices had been relatively volatile given changes in long-range weather forecasts and disruptions in supplies from Norway, but had ended the period since the MPC’s previous meeting little changed. The Brent crude oil spot price had declined by around 3% since the MPC’s previous meeting to around $75 per barrel. Agricultural commodity prices had been broadly unchanged. 5: Headline consumer price inflation had continued to decline in the euro area and the United States. Annual euro-area HICP inflation had decreased to 6.1% in May from 7.0% in April, accounted for mainly by continued falls in energy price inflation. The decline in annual core HICP inflation had been less pronounced as services price inflation had remained high while core goods price inflation had continued to decline gradually. In the United States, headline CPI inflation had fallen by 0.9 percentage points in May, to 4.0%, which was consistent with annual PCE inflation having declined to 3.8%. Within CPI inflation, while both core goods and services inflation had remained broadly at their April levels, core goods inflation was significantly below its 2022 peak. Monetary and financial conditions 6: At its meeting ending on 14 June, the Federal Open Market Committee had left the federal funds rate unchanged and, at its meeting ending on 15 June, the ECB Governing Council had raised its key policy rates by 25 basis points, both in line with market expectations. In the United Kingdom, the market path implied that Bank Rate would be around 4.8% following this meeting, and would now average around 5½% over the next three years, compared to just over 4% in the conditioning assumption underpinning the May Monetary Policy Report. 7: There had been a material increase in both shorter and longer-term government bond yields globally, which had been particularly pronounced in the United Kingdom. Since the MPC’s previous meeting, the one-year overnight index swap (OIS) rate, one year forward had increased by around 40, 80 and 140 basis points respectively in the euro area, United States and United Kingdom, and the 10-year government bond yield had increased by around 5, 25 and 55 basis points respectively in Germany, the United States and United Kingdom. 8: The Committee discussed the possible drivers of the increases in interest rates. There had been some positive news from data in the United States, and from the resolution of US debt ceiling negotiations, while downside risks related to the banking sector stress seen in March 2023 were perceived to have receded somewhat. These factors had had an impact globally. 9: The movements in UK rates had been much larger than in other major advanced economies, leaving the UK OIS curve both higher and flatter than its US and euro-area counterparts. In part, this had reflected some news about the continued resilience of UK demand. To a greater degree, it had appeared to reflect an increase in market participants’ expectations of UK inflation persistence. The median respondent to the Bank’s latest Market Participants Survey (MaPS), which had been conducted before the latest UK labour market and CPI releases, now expected CPI inflation one and three years ahead to be 3.1% and 2.2% respectively, compared with 2.7% and 2.0% in the previous survey in May. 10: There was some evidence that market pricing had been more sensitive to economic data outturns than had been usual over the past decade. Recent data releases had been accompanied by larger movements in the OIS curve than surprises of a similar magnitude had generated previously, notably in response to the material upside surprises in recent UK data releases on CPI inflation and the labour market. MaPS respondents had cited the evolution of wage growth, labour market tightness and services price inflation as the most important indicators when forming their expectations for the evolution of UK monetary policy, in line with the MPC’s recent communications. 11: Medium-term inflation compensation measures in the United Kingdom, United States and euro area had increased a little further since the MPC’s previous meeting. Although interpreting the movements in UK medium-term inflation compensation measures continued to be challenging, these measures were materially lower than their peak in March 2022, while remaining above their average levels of the previous decade. MaPS respondents’ expectations of CPI inflation five years ahead had remained unchanged since the May survey, at 2.0%. 12: The sterling effective exchange rate had appreciated further, and had ended the period around 2% higher than at the time of the MPC’s previous meeting and around 6% higher than at the beginning of 2023. UK-focused equity prices had fallen by around 3% since the MPC’s previous meeting, in contrast to an increase in major equity indices in the United States and euro area. 13: UK owner-occupied fixed-term mortgage rates had picked up materially since the MPC’s previous meeting, following a period of decline in recent months. This had largely reflected the pass-through of increases in risk-free reference rates. The market-share weighted average quoted rate on a two-year fixed-rate 75% loan-to-value mortgage had increased by around 90 basis points since the May MPC meeting, to 5.6%, and the five-year equivalent had increased by around 80 basis points, to 5.1%. There had been a net decline in the number of owner-occupied mortgage products available to borrowers since the MPC’s previous meeting. 14: Net secured lending to households had decreased somewhat further in April, with, unusually, net outflows of £1.4 billion, compared to roughly zero in March. Mortgage approvals for house purchase had also fallen in April, to 48,700, but had remained above the average level of the previous six months. 15: Deposit rates had increased broadly in line with previous trends seen in this cycle. Time deposit rates had moved up materially since the MPC’s previous meeting, in response to higher reference rates, while sight deposit rates had risen by much less. Reflecting these relative movements in remuneration, there had been a shift in deposit volumes from instant access accounts towards time deposits over the previous six months. Such substitution was internalised within the flow of overall sterling broad money, which had grown at an annual rate of 1.6% in April, up slightly from 1.4% in March. Demand and output 16: According to the ONS’s first quarterly estimate, real GDP had increased by 0.1% in 2023 Q1, marginally stronger than had been expected in the May Monetary Policy Report. Household consumption had also risen by 0.1%, while business investment had been estimated to have increased by 0.7%. Housing investment had fallen by 2.5% in Q1, leaving the level 5.5% lower than in 2022 Q3. 17: Monthly GDP had increased by 0.2% in April, following a 0.3% fall in March, and leaving it close to its pre-pandemic level. Market sector output had also risen by 0.2% in April and had been on a rising trend over recent months, in contrast to the flatter profile of overall GDP. That divergence was in part likely to reflect the impact of strike activity on the volume of public sector output. 18: Business surveys continued to suggest an underlying pace of quarterly GDP growth of around ¼% in 2023 Q2. After taking account of the impact of idiosyncratic factors, including the additional bank holiday in May, Bank staff expected headline GDP to be flat in the second quarter, in line with the projection in the May Report. 19: The outlook for 2023 Q3 was more uncertain, but Bank staff continued to judge that an underlying quarterly growth rate of around ¼% was a reasonable central projection. This would be consistent with stronger headline GDP growth than in Q2 as the impact of idiosyncratic factors unwound. The Bank’s Agents had noted a slight pickup in the outlook for underlying activity in 2023 H2, while the S&P Global/CIPS UK composite PMI output expectations index also pointed to some further increase in underlying growth momentum. 20: Most indicators of household spending had tended to strengthen a little over recent months, albeit from very weak levels in some cases. Quarterly retail sales volumes had grown for the first time in 18 months, while consumer confidence had continued to pick up. Contacts of the Bank’s Agents had reported that consumer demand had been more resilient than they had expected across both goods and services. The increase in mortgage rates so far during this cycle had, however, already led to higher aggregate interest payments by households, and this metric was likely to rise further. Supply, costs and prices 21: Labour Force Survey (LFS) employment had increased by 0.8% in the three months to April, 0.2 percentage points higher than had been expected at the time of the May Monetary Policy Report. Rather than a decline in unemployment, the counterpart to this strong employment growth had been a further fall in the 16+ population’s inactivity rate, particularly amongst students, which had reached its lowest level since spring 2020. HMRC PAYE employee payrolls and the S&P Global/CIPS UK PMI composite employment index had continued to point to employment growth being somewhat softer than LFS-based estimates. 22: Some measures of labour market tightness had continued to ease, but overall the labour market had remained tight by historical standards. The LFS unemployment rate had been broadly flat, at 3.8%, in the three months to April, consistent with the expectation at the time of the May Report. The vacancies-to-unemployment ratio had fallen further in the three months to April, to its lowest level since October 2021, but was still significantly elevated compared to pre-Covid levels. The number of job-to-job flows had declined again in 2023 Q1, to just above the level observed pre-Covid. Recruitment and employment consultancies responding to the KPMG/REC survey had indicated that overall staff availability had continued to improve in May. The Bank’s Agents’ contacts had reported that recruitment difficulties had continued to ease, but overall recruitment had still been more difficult than normal. 23: Annual private sector regular Average Weekly Earnings (AWE) growth had increased by 0.5 percentage points to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. The pick-up in annual pay growth since the time of the May Report had been concentrated in higher-paying sectors such as financial and business services. Pay growth in lower-paid sectors like wholesaling, retailing, hotels and restaurants had been broadly flat. Three-month on three-month growth in private sector regular pay had been strong, rising to an annualised rate of around 8% in April, from 6.3% in March, contrasting notably with the falling growth rates between July 2022 and February 2023. 24: There had nevertheless been some countervailing signs of softening pay growth. The KPMG/REC survey measure of pay for new permanent hires, which had historically led AWE pay growth by around a year, had declined in May, having been broadly stable at a lower level since October 2022. This indicator pointed to a risk of private sector regular pay growth easing by more than had been expected in the May Report over the rest of this year. Some of the Bank’s Agents’ contacts had reported that pay settlements in the second half of this year could be somewhat lower than in the first half, largely due to lower near-term inflation expectations, with a looser labour market also expected to play a role. 25: At 8.7%, twelve-month CPI inflation in May had been unchanged from April. This release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The May figure was 0.3 percentage points higher than the expectation at the time of the May Report. 26: The upside CPI news since the May Report had been concentrated in core components, with core goods accounting for the majority of this news. Within core goods, for which the inflation rate had risen to 6.8% in May, the purchase of vehicles and recreational goods had accounted for the majority of this news. The surprise strength in vehicle prices had appeared to be related to a temporary supply shortage of 2-3 year old used cars, reflecting the lack of car production owing to the earlier semi-conductor shortage and coinciding with the age range of used cars for which the ONS collected prices. Non-energy goods import prices had risen further, suggesting that core goods manufacturers and retailers still faced high costs. Bank staff analysis suggested that world export prices could account for a significant share of elevated core goods CPI inflation. 27: Services CPI inflation had risen from 6.9% in April to 7.4% in May, 0.5 percentage points stronger than had been expected in the May Report, and partly reflecting a sharp rise in measured Vehicle Excise Duty rates. Airfares and package holidays had also accounted for some of the upside news. Airfares were a volatile component of the basket and the news in May had appeared to reflect the timing of Easter in April. 28: Food CPI inflation had edged down to 18.3% in May. The softening of annual food price inflation in the United Kingdom appeared to have followed developments in euro-area countries, albeit with somewhat of a lag, consistent with the global nature of recent shocks to food prices. 29: CPI inflation was expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Energy prices were expected to drag on CPI inflation even further in October, due largely to the resetting of the Ofgem price cap faced by households at that time. There was still considerable uncertainty around the outlook for household energy prices, however, as only around a third of the relevant observation window for the October price cap had passed so far. 30: Core goods inflation was expected to remain elevated in the near term. Indicators of manufacturing cost pressures had nevertheless continued to ease. Producer price index (PPI) input and output price inflation had moderated to 0.5% and 2.9% respectively in May, broadly consistent with developments in the United States and euro area. Core goods CPI inflation had diverged from manufacturing PPI inflation recently, whereas historically these series had shown strong co-movement. The possibility of a reassertion of this historical association in the near term posed a downside risk to the outlook for core goods CPI inflation. 31: The continued pass-through of service providers’ costs, including labour costs, was expected to keep services price inflation elevated in the near term. The Bank’s Agents’ consumer services contacts had reported that, while they had absorbed some, a fair proportion of cost increases had been passed on to consumer prices. 32: Food CPI inflation was expected to ease in the near term, reflecting the waning of pass-through from previous shocks and the recent fall-back in cost inflation further up the food supply chain. 33: Households and businesses’ short-term inflation expectations had eased further but had remained somewhat above their historical averages. Households’ median one-year inflation expectations, as measured by both the Bank/Ipsos and Citi/YouGov surveys, had fallen. The Decision Maker Panel survey suggested that businesses’ expectations for their own prices a year ahead had also declined, to around 5% in May. 34: Households’ median medium-term inflation expectations had been close to their historical averages in the latest releases of the major surveys. The Bank/Ipsos 5-year ahead measure had been below its pre-Covid average for a second successive quarter. The Citi/YouGov 5-10 year ahead measure had fallen to 3.5%, less than one standard deviation above its pre-Covid average. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: The Committee’s latest projections for activity and inflation had been set out in the May Monetary Policy Report and had been conditioned on a market-implied path for Bank Rate that had averaged just over 4% over the next three years. In the modal case, CPI inflation had been expected to decline to a little above 1% at the two and three-year horizons, materially below the 2% target. This had reflected the projected emergence of an increasing degree of economic slack and declining external pressures that had been expected to reduce CPI inflation. However, the Committee had continued to judge that the risks around this inflation projection were skewed significantly to the upside, reflecting the potential for more persistent strength in domestic price and wage setting. 37: Since the previous MPC meeting, there had been material news in a number of UK economic data outturns, including those that the Committee had noted it would be monitoring closely as indicators of persistent inflationary pressures. 38: LFS employment had increased by 0.8% in the three months to April, higher than had been expected at the time of the May Report. The counterpart to this strong employment growth had been a further fall in the inactivity rate. The unemployment rate had been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio had fallen further but remained significantly elevated. 39: Annual growth in private sector regular Average Weekly Earnings (AWE) had increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggested that AWE growth would ease over the rest of this year, however. 40: Twelve-month CPI inflation had fallen from 10.1% in March to 8.7% in April and had remained at that rate in May. This was 0.3 percentage points higher than had been expected in the May Report. Services CPI inflation had risen to 7.4% in May, 0.5 percentage points stronger than had been expected at the time of the May Report. 41: CPI inflation was expected to fall significantly further during the course of the year, in the main reflecting developments in energy prices. Services CPI inflation was projected to remain broadly unchanged in the near term. Core goods CPI inflation was expected to decline later this year, supported by developments in cost and price indicators earlier in the supply chain. In particular, annual producer output price inflation had fallen very sharply in recent months. Food price inflation was projected to fall further in coming months. 42: The Committee was continuing to monitor closely the impact of the significant increases in Bank Rate so far. As set out in the May Report, the greater share of fixed-rate mortgages meant that the full impact of the increase in Bank Rate to date would not be felt for some time. The Committee also recognised that it had become more important to consider developments in the rental market. 43: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation departed from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 44: Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Households and businesses’ short-term inflation expectations had eased further but had remained somewhat above their historical averages. Households’ median medium-term inflation expectations had been close to their historical averages in the latest releases of the major surveys. UK medium-term inflation compensation measures in financial markets had increased a little further since the MPC’s previous meeting and were above their average levels of the previous decade. 45: Seven members judged that a 0.5 percentage point increase in Bank Rate, to 5%, was warranted at this meeting. The second-round effects in domestic price and wage developments generated by external cost shocks were likely to take longer to unwind than they had done to emerge. There had been significant upside news in recent data that indicated more persistence in the inflation process, against the background of a tight labour market and continued resilience in demand. Some indicators of future pay growth and goods inflation had weakened, but their properties as leading indicators had not been tested in a similar period of high inflation. The scale of the recent upside surprises in official estimates of wage growth and services CPI inflation suggested a 0.5 percentage point increase in interest rates was required at this particular meeting. 46: Two members preferred to leave Bank Rate unchanged at 4.5% at this meeting. There were two main factors underlying their votes. First, as the energy price shock and other global cost-push shocks continued to reverse over the course of 2023, goods price inflation should fall sharply, which, with some lag, would reduce associated persistence in domestic wage and price setting . In contrast with the strength in recent outturns, forward-looking indicators were pointing to material falls in future wage and price inflation. Second, the lags in the effects of monetary policy meant that sizable impacts from past rate increases were still to come through. This included additional rate increases carried out in recent months, which would more than offset any additional persistence implied by the latest data. The current setting of Bank Rate would therefore be likely to reduce inflation below target in the medium term. Recent substantial increases in market yields would accentuate this, as they would mainly affect inflation in late 2024 and beyond, by which point energy price falls from their peaks and past rate rises would have lowered inflation significantly. 47: The MPC would continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. 48: The MPC would adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit. 49: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.5 percentage points, to 5%. 50: Seven members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden) voted in favour of the proposition. Two members (Swati Dhingra and Silvana Tenreyro) voted against the proposition, preferring to maintain Bank Rate at 4.5%. Operational considerations 51: On 21 June 2023, the total stock of assets held for monetary policy purposes was £806 billion, comprising £805 billion of UK government bond purchases and £0.8 billion of sterling non‐financial investment‐grade corporate bond purchases. 52: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Silvana Tenreyro Sam Beckett was present as the Treasury representative. 53: On behalf of the Committee, the Chair expressed his appreciation to Silvana Tenreyro for her contributions to the work of the MPC since becoming a member in 2017.

Monetary Policy Summary, August 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 2 August 2023, the MPC voted by a majority of 6–3 to increase Bank Rate by 0.25 percentage points, to 5.25%. Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying August Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that rises to a peak of just over 6% and averages just under 5½% over the three-year forecast period, compared with an average of just over 4% for the equivalent period at the time of the May Report. The sterling effective exchange rate is around 4% higher than in the May Report. Underlying quarterly GDP growth has been around 0.2% during the first half of this year. Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months. Some more recent indicators show signs of weakening, however, including the July S&P Global/CIPS UK composite PMI. The labour market remains tight but there are some indications that it is loosening. The LFS unemployment rate rose to 4.0% in the three months to May, somewhat higher than expected in the May Report, and the vacancies to unemployment ratio has continued to fall, although the latter still remains above historical averages. Annual private sector regular pay growth increased to 7.7% in the three months to May, materially above expectations at the time of the May Report, and three-month on three-month growth in this measure of pay has picked up further. Earnings growth is nevertheless expected to decline in coming quarters, to around 6% by the end of this year, although there is uncertainty around this near-term outlook. Twelve-month CPI inflation fell from 8.7% in May to 7.9% in June, lower than expected at the time of the Committee’s previous meeting. Within this, core goods and services CPI inflation were both lower than expected, although the downside news in the latter, which is more likely to be informative about persistent inflationary pressures, was much smaller. Compared to the May Report projections, June CPI inflation was in line with expectations. CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term. In the MPC’s August most likely, or modal, projection conditioned on market interest rates, CPI inflation returns to the 2% target by 2025 Q2. It then falls below the target in the medium term, as an increasing degree of economic slack reduces domestic inflationary pressures, alongside declining external cost pressures. The Committee has decided in this forecast to bring some of the upside risks to inflation from persistence into its modal projection, pushing up on this inflation projection in the medium term relative to the May Report. The Committee continues to judge that risks around the modal inflation forecast are skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge. Mean CPI inflation, which incorporates these risks, is 2.0% and 1.9% at the two and three-year horizons respectively. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Recent data outturns have been mixed. However, some key indicators, notably wage growth, suggest that some of the risks from more persistent inflationary pressures may have begun to crystallise. At this meeting, the Committee voted to increase Bank Rate by 0.25 percentage points, to 5.25%. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 2 August 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying August 2023 Monetary Policy Report . 2: The Committee discussed how inflation was evolving in other advanced economies, including in the euro area and the United States. Headline consumer price inflation had decreased significantly in these economies as commodity prices and energy prices had fallen back, and supply chain bottlenecks had dissipated. Core inflation had already peaked in the United States and appeared to be peaking in the euro area. Consumer goods price inflation was declining but services price inflation had remained strong. Several central banks had tightened monetary policy further and had noted that policy was dampening economic activity. 3: While UK-weighted global growth had proven resilient, some slowing was evident. For example, interest-sensitive components of demand such as housing investment in the United States, and housing and business investment in the euro area, had shown signs of weakness. Consumer spending, at least in the United States, had been more resilient, supported by the build-up of savings during the pandemic and the robustness of the labour market. 4: Advanced-economy labour markets generally remained tight, although the vacancies to unemployment ratio and wage growth in the United States had both started to fall. Wage growth remained strong in the euro area. It remained to be seen how quickly the more persistent components of inflation would fall back across economies, and there was a risk that underlying inflationary pressures could continue to persist even as headline measures fell towards their targets. 5: Regarding the latest developments in monetary and financial conditions, the Committee discussed evidence that interest rates in financial markets had been more sensitive to economic data outturns, particularly in the United Kingdom, than had been usual over the past decade. Market participants appeared to have placed more weight than usual on data outturns as leading indicators of inflation persistence. In the United Kingdom, respondents to the Bank’s Market Participants Survey had continued to cite the evolution of wage growth, labour market tightness and services price inflation as the most important indicators when forming their expectations for the evolution of UK monetary policy, in line with the MPC’s recent communications. Nevertheless, some of these series could be volatile from month to month. 6: The Committee discussed the near-term outlook for UK economic activity. Bank staff expected underlying quarterly GDP growth of 0.2% in 2023 Q2 and Q3, consistent with expectations at the time of the May Report. There had been continued resilience in household spending, supported by strength in both labour market activity and nominal wage growth, and consistent with a number of business surveys over recent months. 7: Set against that, the Committee noted that July indicators had been more mixed. There had been a decline in the flash S&P Global/CIPS UK composite PMI, which could be an early sign of less resilient growth, and lower consumer confidence. A greater number of contacts of the Bank’s Agents had reported a slowing in the outlook for activity in the most recent period. Recent increases in market interest rates, and the subsequent media coverage of increasing mortgage costs, could have also contributed to the movements in these indicators. 8: The Committee discussed the balance in the economic outlook between the impact of higher rates weighing on consumer spending and business investment, against the upside impact on incomes from subsiding energy and food prices. Taken together, these factors suggested modestly positive underlying output growth for the second half of the year. 9: The Committee discussed recent news on indicators of UK inflation persistence. There were some signs that the labour market was loosening, although it remained tight in absolute terms. The LFS unemployment rate had risen to 4.0% in the three months to May, the vacancies to unemployment ratio had continued to decline, and recruitment difficulties appeared to be easing somewhat. However, annual private sector regular pay growth had increased further in May, and was materially stronger than had been expected in the May Report. Three-month on three-month growth in this measure of pay had picked up further. 10: Recent outturns in pay growth appeared to have been stronger than a standard model, based on productivity, short-term inflation expectations and a measure of economic slack, would have predicted. This could indicate greater second-round effects from the rise in inflation on wage growth after the terms of trade shock that had affected the economy. This suggested that the medium-term equilibrium rate of unemployment was likely to be higher. Wage growth was expected to remain strong in the near term, with the risk that there could be further upside surprises. Set against that, developments in some forward-looking indicators, such as the KPMG/REC UK Report on Jobs, implied that wage growth could slow more sharply than anticipated in the second half of 2023, although that survey’s relationship with official earnings growth appeared to have weakened recently. 11: Twelve-month CPI inflation had eased to 7.9% in June, in line with the projection in the May Report, and reflecting a falling contribution from energy and, to a lesser extent, food prices. However, both core goods and services CPI inflation had been stronger than expected at the time of the May Report. Elevated goods price inflation continued to be broad-based across products, but slowing producer price inflation suggested that it could ease significantly towards the end of 2023. Services CPI inflation was projected to remain elevated in the near term. The MPC noted that its strength was likely to reflect resilience in demand, the strength of nominal pay growth and, to some extent, non-labour input costs, although some of the upside surprise had reflected components of services prices in which more idiosyncratic factors were likely to be at play. The immediate policy decision 12: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 13: The Committee discussed the evolution of key economic indicators since its previous meeting and the degree to which they had shown continued resilience. Underlying quarterly GDP growth had been around 0.2% during the first half of this year. Bank staff expected a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months. Some more recent indicators had shown signs of weakening, however, including the July S&P Global/CIPS UK composite PMI. 14: The labour market remained tight, but there were some indications that it was loosening. The LFS unemployment rate had risen to 4.0% in the three months to May and the vacancies to unemployment ratio had continued to fall, although the latter still remained above historical averages. 15: Annual private sector regular pay growth had increased to 7.7% in the three months to May, and three-month on three-month growth in this measure of pay had picked up further. Earnings growth was nevertheless expected to decline in coming quarters, to around 6% by the end of this year, although there was uncertainty around this near-term outlook. 16: Twelve-month CPI inflation had fallen from 8.7% in May to 7.9% in June, lower than expected at the time of the Committee’s previous meeting. Within this, core goods and services CPI inflation had both been lower than expected, although the downside news in the latter, which was more likely to be informative about persistent inflationary pressures, had been much smaller. 17: As set out in the accompanying August Monetary Policy Report, CPI inflation was expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, was projected to remain elevated at close to its current rate in the near term. 18: Past increases in Bank Rate, and the higher path of market interest rates on which the August Report forecast was conditioned, were expected to increasingly weigh on UK activity and inflation in coming quarters. Relative to the May projection, quarterly GDP growth was expected to be weaker throughout much of the forecast period, particularly during 2024 and at the beginning of 2025. An increasing degree of economic slack was expected to emerge after the middle of next year and the unemployment rate was projected to rise to just under 5% by 2026 Q3. Both aggregate spare capacity and unemployment increased by somewhat more in the Committee’s latest projections than in the May Report, reflecting the weaker path of GDP. 19: In the MPC’s August most likely, or modal, projection conditioned on market interest rates, CPI inflation returned to the 2% target by 2025 Q2. It then fell below the target in the medium term, as an increasing degree of economic slack reduced domestic inflationary pressures, alongside declining external cost pressures. The Committee had decided in this forecast to bring some of the upside risks to inflation from persistence into its modal projection, pushing up on this inflation projection in the medium term relative to the May Report. 20: The Committee continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices might take longer to unwind than they did to emerge. Mean CPI inflation, which incorporated these risks, was 2.0% and 1.9% at the two and three-year horizons respectively. 21: The MPC noted that the significant increases in Bank Rate since December 2021, and the move up across the yield curve as a whole over the same period, had tightened the overall stance of monetary policy, restricting demand relative to supply. These effects were likely to continue to build over coming quarters, as was shown in the MPC's August modal and mean projections. 22: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 23: Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Most indicators of household and corporate inflation expectations had tended to decline since the MPC’s previous meeting, while medium-term inflation compensation measures in financial markets had risen slightly and had remained above their long-term averages. 24: Six members judged that a 0.25 percentage point increase in Bank Rate, to 5.25%, was warranted at this meeting. Recent data outturns had been mixed. However, some key indicators, notably wage growth, had surprised significantly on the upside. This could indicate that the medium-term equilibrium rate of unemployment had risen, and that some of the risks of greater persistence in broader domestic inflationary pressures had crystallised. Set against that, the unemployment rate had increased a little and the vacancies to unemployment ratio had decreased further since the previous MPC meeting. The most recent indicators of slowing activity needed to be weighed against the surprising resilience of activity over a number of quarters, and it was too early to conclude that the economy was at or very close to a significant turning point. Although the monetary stance was weighing on economic activity, a 0.25 percentage point increase in Bank Rate at this meeting was necessary to address the risks from greater inflation persistence. 25: Two members judged that a 0.5 percentage point increase in Bank Rate, to 5.5%, was warranted at this meeting. For these members, it was important to lean more actively against inflation persistence, which, as described in the August Report, successive forecasts had under-predicted. These members noted the continued tightness in the labour market: while the vacancies to unemployment ratio was falling, it was still well above long-run average levels. Further, high-frequency private sector wage growth measures had continued to trend upwards, consistent with the possibility that the equilibrium unemployment rate had risen. Key metrics including both core and services CPI inflation had continued to remain high. For these members, a forceful increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more costly tightening later. 26: One member preferred to leave Bank Rate unchanged at 5% at this meeting. As the policy stance had become increasingly restrictive, there was no longer a strong case for further tightening on risk management grounds. Instead, the risks of overtightening had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past and recent rate increases were still to come through, particularly from cumulative impacts on housing costs. Recent news in components of consumer and producer price inflation strongly indicated a downward trajectory for CPI inflation. Wage inflation had been strongest in business services, while real wages had fallen in most other industries, covering three-quarters of all employees. Given the restrictive policy stance, pay growth was likely to slow as inflation in salient items eased over this year and as the labour market continued to loosen further. 27: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC would ensure that Bank Rate was sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit. 28: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 5.25%. 29: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.5 percentage points, to 5.5%. Swati Dhingra preferred to maintain Bank Rate at 5%. Operational considerations 30: On 2 August 2023, the total stock of assets held for monetary policy purposes was £786 billion, comprising £785 billion of UK government bond purchases and £0.8 billion of sterling non‐financial investment‐grade corporate bond purchases. 31: As discussed in Box A in the August Monetary Policy Report, the Committee would vote on the target for gilt stock reduction over the 12-month period from October 2023 to September 2024 at its September 2023 meeting. 32: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. 33: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 26 and 28 July, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, August 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 2 August 2023, the MPC voted by a majority of 6–3 to increase Bank Rate by 0.25 percentage points, to 5.25%. Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying August Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that rises to a peak of just over 6% and averages just under 5½% over the three-year forecast period, compared with an average of just over 4% for the equivalent period at the time of the May Report. The sterling effective exchange rate is around 4% higher than in the May Report. Underlying quarterly GDP growth has been around 0.2% during the first half of this year. Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months. Some more recent indicators show signs of weakening, however, including the July S&P Global/CIPS UK composite PMI. The labour market remains tight but there are some indications that it is loosening. The LFS unemployment rate rose to 4.0% in the three months to May, somewhat higher than expected in the May Report, and the vacancies to unemployment ratio has continued to fall, although the latter still remains above historical averages. Annual private sector regular pay growth increased to 7.7% in the three months to May, materially above expectations at the time of the May Report, and three-month on three-month growth in this measure of pay has picked up further. Earnings growth is nevertheless expected to decline in coming quarters, to around 6% by the end of this year, although there is uncertainty around this near-term outlook. Twelve-month CPI inflation fell from 8.7% in May to 7.9% in June, lower than expected at the time of the Committee’s previous meeting. Within this, core goods and services CPI inflation were both lower than expected, although the downside news in the latter, which is more likely to be informative about persistent inflationary pressures, was much smaller. Compared to the May Report projections, June CPI inflation was in line with expectations. CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term. In the MPC’s August most likely, or modal, projection conditioned on market interest rates, CPI inflation returns to the 2% target by 2025 Q2. It then falls below the target in the medium term, as an increasing degree of economic slack reduces domestic inflationary pressures, alongside declining external cost pressures. The Committee has decided in this forecast to bring some of the upside risks to inflation from persistence into its modal projection, pushing up on this inflation projection in the medium term relative to the May Report. The Committee continues to judge that risks around the modal inflation forecast are skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge. Mean CPI inflation, which incorporates these risks, is 2.0% and 1.9% at the two and three-year horizons respectively. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Recent data outturns have been mixed. However, some key indicators, notably wage growth, suggest that some of the risks from more persistent inflationary pressures may have begun to crystallise. At this meeting, the Committee voted to increase Bank Rate by 0.25 percentage points, to 5.25%. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit. Minutes of the Monetary Policy Committee meeting ending on 2 August 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying August 2023 Monetary Policy Report . 2: The Committee discussed how inflation was evolving in other advanced economies, including in the euro area and the United States. Headline consumer price inflation had decreased significantly in these economies as commodity prices and energy prices had fallen back, and supply chain bottlenecks had dissipated. Core inflation had already peaked in the United States and appeared to be peaking in the euro area. Consumer goods price inflation was declining but services price inflation had remained strong. Several central banks had tightened monetary policy further and had noted that policy was dampening economic activity. 3: While UK-weighted global growth had proven resilient, some slowing was evident. For example, interest-sensitive components of demand such as housing investment in the United States, and housing and business investment in the euro area, had shown signs of weakness. Consumer spending, at least in the United States, had been more resilient, supported by the build-up of savings during the pandemic and the robustness of the labour market. 4: Advanced-economy labour markets generally remained tight, although the vacancies to unemployment ratio and wage growth in the United States had both started to fall. Wage growth remained strong in the euro area. It remained to be seen how quickly the more persistent components of inflation would fall back across economies, and there was a risk that underlying inflationary pressures could continue to persist even as headline measures fell towards their targets. 5: Regarding the latest developments in monetary and financial conditions, the Committee discussed evidence that interest rates in financial markets had been more sensitive to economic data outturns, particularly in the United Kingdom, than had been usual over the past decade. Market participants appeared to have placed more weight than usual on data outturns as leading indicators of inflation persistence. In the United Kingdom, respondents to the Bank’s Market Participants Survey had continued to cite the evolution of wage growth, labour market tightness and services price inflation as the most important indicators when forming their expectations for the evolution of UK monetary policy, in line with the MPC’s recent communications. Nevertheless, some of these series could be volatile from month to month. 6: The Committee discussed the near-term outlook for UK economic activity. Bank staff expected underlying quarterly GDP growth of 0.2% in 2023 Q2 and Q3, consistent with expectations at the time of the May Report. There had been continued resilience in household spending, supported by strength in both labour market activity and nominal wage growth, and consistent with a number of business surveys over recent months. 7: Set against that, the Committee noted that July indicators had been more mixed. There had been a decline in the flash S&P Global/CIPS UK composite PMI, which could be an early sign of less resilient growth, and lower consumer confidence. A greater number of contacts of the Bank’s Agents had reported a slowing in the outlook for activity in the most recent period. Recent increases in market interest rates, and the subsequent media coverage of increasing mortgage costs, could have also contributed to the movements in these indicators. 8: The Committee discussed the balance in the economic outlook between the impact of higher rates weighing on consumer spending and business investment, against the upside impact on incomes from subsiding energy and food prices. Taken together, these factors suggested modestly positive underlying output growth for the second half of the year. 9: The Committee discussed recent news on indicators of UK inflation persistence. There were some signs that the labour market was loosening, although it remained tight in absolute terms. The LFS unemployment rate had risen to 4.0% in the three months to May, the vacancies to unemployment ratio had continued to decline, and recruitment difficulties appeared to be easing somewhat. However, annual private sector regular pay growth had increased further in May, and was materially stronger than had been expected in the May Report. Three-month on three-month growth in this measure of pay had picked up further. 10: Recent outturns in pay growth appeared to have been stronger than a standard model, based on productivity, short-term inflation expectations and a measure of economic slack, would have predicted. This could indicate greater second-round effects from the rise in inflation on wage growth after the terms of trade shock that had affected the economy. This suggested that the medium-term equilibrium rate of unemployment was likely to be higher. Wage growth was expected to remain strong in the near term, with the risk that there could be further upside surprises. Set against that, developments in some forward-looking indicators, such as the KPMG/REC UK Report on Jobs, implied that wage growth could slow more sharply than anticipated in the second half of 2023, although that survey’s relationship with official earnings growth appeared to have weakened recently. 11: Twelve-month CPI inflation had eased to 7.9% in June, in line with the projection in the May Report, and reflecting a falling contribution from energy and, to a lesser extent, food prices. However, both core goods and services CPI inflation had been stronger than expected at the time of the May Report. Elevated goods price inflation continued to be broad-based across products, but slowing producer price inflation suggested that it could ease significantly towards the end of 2023. Services CPI inflation was projected to remain elevated in the near term. The MPC noted that its strength was likely to reflect resilience in demand, the strength of nominal pay growth and, to some extent, non-labour input costs, although some of the upside surprise had reflected components of services prices in which more idiosyncratic factors were likely to be at play. The immediate policy decision 12: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 13: The Committee discussed the evolution of key economic indicators since its previous meeting and the degree to which they had shown continued resilience. Underlying quarterly GDP growth had been around 0.2% during the first half of this year. Bank staff expected a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months. Some more recent indicators had shown signs of weakening, however, including the July S&P Global/CIPS UK composite PMI. 14: The labour market remained tight, but there were some indications that it was loosening. The LFS unemployment rate had risen to 4.0% in the three months to May and the vacancies to unemployment ratio had continued to fall, although the latter still remained above historical averages. 15: Annual private sector regular pay growth had increased to 7.7% in the three months to May, and three-month on three-month growth in this measure of pay had picked up further. Earnings growth was nevertheless expected to decline in coming quarters, to around 6% by the end of this year, although there was uncertainty around this near-term outlook. 16: Twelve-month CPI inflation had fallen from 8.7% in May to 7.9% in June, lower than expected at the time of the Committee’s previous meeting. Within this, core goods and services CPI inflation had both been lower than expected, although the downside news in the latter, which was more likely to be informative about persistent inflationary pressures, had been much smaller. 17: As set out in the accompanying August Monetary Policy Report, CPI inflation was expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, was projected to remain elevated at close to its current rate in the near term. 18: Past increases in Bank Rate, and the higher path of market interest rates on which the August Report forecast was conditioned, were expected to increasingly weigh on UK activity and inflation in coming quarters. Relative to the May projection, quarterly GDP growth was expected to be weaker throughout much of the forecast period, particularly during 2024 and at the beginning of 2025. An increasing degree of economic slack was expected to emerge after the middle of next year and the unemployment rate was projected to rise to just under 5% by 2026 Q3. Both aggregate spare capacity and unemployment increased by somewhat more in the Committee’s latest projections than in the May Report, reflecting the weaker path of GDP. 19: In the MPC’s August most likely, or modal, projection conditioned on market interest rates, CPI inflation returned to the 2% target by 2025 Q2. It then fell below the target in the medium term, as an increasing degree of economic slack reduced domestic inflationary pressures, alongside declining external cost pressures. The Committee had decided in this forecast to bring some of the upside risks to inflation from persistence into its modal projection, pushing up on this inflation projection in the medium term relative to the May Report. 20: The Committee continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices might take longer to unwind than they did to emerge. Mean CPI inflation, which incorporated these risks, was 2.0% and 1.9% at the two and three-year horizons respectively. 21: The MPC noted that the significant increases in Bank Rate since December 2021, and the move up across the yield curve as a whole over the same period, had tightened the overall stance of monetary policy, restricting demand relative to supply. These effects were likely to continue to build over coming quarters, as was shown in the MPC's August modal and mean projections. 22: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 23: Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Most indicators of household and corporate inflation expectations had tended to decline since the MPC’s previous meeting, while medium-term inflation compensation measures in financial markets had risen slightly and had remained above their long-term averages. 24: Six members judged that a 0.25 percentage point increase in Bank Rate, to 5.25%, was warranted at this meeting. Recent data outturns had been mixed. However, some key indicators, notably wage growth, had surprised significantly on the upside. This could indicate that the medium-term equilibrium rate of unemployment had risen, and that some of the risks of greater persistence in broader domestic inflationary pressures had crystallised. Set against that, the unemployment rate had increased a little and the vacancies to unemployment ratio had decreased further since the previous MPC meeting. The most recent indicators of slowing activity needed to be weighed against the surprising resilience of activity over a number of quarters, and it was too early to conclude that the economy was at or very close to a significant turning point. Although the monetary stance was weighing on economic activity, a 0.25 percentage point increase in Bank Rate at this meeting was necessary to address the risks from greater inflation persistence. 25: Two members judged that a 0.5 percentage point increase in Bank Rate, to 5.5%, was warranted at this meeting. For these members, it was important to lean more actively against inflation persistence, which, as described in the August Report, successive forecasts had under-predicted. These members noted the continued tightness in the labour market: while the vacancies to unemployment ratio was falling, it was still well above long-run average levels. Further, high-frequency private sector wage growth measures had continued to trend upwards, consistent with the possibility that the equilibrium unemployment rate had risen. Key metrics including both core and services CPI inflation had continued to remain high. For these members, a forceful increase in Bank Rate at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more costly tightening later. 26: One member preferred to leave Bank Rate unchanged at 5% at this meeting. As the policy stance had become increasingly restrictive, there was no longer a strong case for further tightening on risk management grounds. Instead, the risks of overtightening had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past and recent rate increases were still to come through, particularly from cumulative impacts on housing costs. Recent news in components of consumer and producer price inflation strongly indicated a downward trajectory for CPI inflation. Wage inflation had been strongest in business services, while real wages had fallen in most other industries, covering three-quarters of all employees. Given the restrictive policy stance, pay growth was likely to slow as inflation in salient items eased over this year and as the labour market continued to loosen further. 27: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required. The MPC would ensure that Bank Rate was sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit. 28: The Chair invited the Committee to vote on the proposition that: Bank Rate should be increased by 0.25 percentage points, to 5.25%. 29: Six members (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.5 percentage points, to 5.5%. Swati Dhingra preferred to maintain Bank Rate at 5%. Operational considerations 30: On 2 August 2023, the total stock of assets held for monetary policy purposes was £786 billion, comprising £785 billion of UK government bond purchases and £0.8 billion of sterling non‐financial investment‐grade corporate bond purchases. 31: As discussed in Box A in the August Monetary Policy Report, the Committee would vote on the target for gilt stock reduction over the 12-month period from October 2023 to September 2024 at its September 2023 meeting. 32: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. 33: As permitted under the Bank of England Act 1998, as amended by the Bank of England and Financial Services Act 2016, David Roberts was also present on 26 and 28 July, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, September 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 September 2023, the MPC voted by a majority of 5–4 to maintain Bank Rate at 5.25%. Four members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. The Committee also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next twelve months, to a total of £658 billion. In the MPC’s August most likely, or modal, Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that averaged just under 5½% over the three-year forecast period, CPI inflation was expected to return to the 2% target by 2025 Q2. It was then projected to fall below the target in the medium term, as an increasing degree of economic slack was expected to reduce domestic inflationary pressures, alongside declining external cost pressures. The Committee had continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge. The mean projection for CPI inflation, which incorporated these risks, was 2.0% and 1.9% at the two and three-year horizons respectively. Since the MPC’s previous meeting, global growth has evolved broadly in line with the August Report projections, albeit with some differences across regions. Spot oil prices have risen significantly, while underlying inflationary pressures have remained elevated across advanced economies. UK GDP is estimated to have declined by 0.5% in July and the S&P Global/CIPS composite output PMI fell in August, although other business survey indicators remain consistent with positive GDP growth. While some of this news could prove erratic, Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected. There have been some further signs of a loosening in the labour market, although it remains tight by historical standards. The vacancies-to-unemployment ratio has continued to decline, reflecting both a steady fall in the number of vacancies and rising unemployment. The Labour Force Survey unemployment rate rose to 4.3% in the three months to July, higher than expected in the August Report. Indicators of employment have generally softened against the backdrop of subdued activity. Annual private sector regular Average Weekly Earnings (AWE) growth increased to 8.1% in the three months to July, 0.8 percentage points above the August Report projection. The recent path of the AWE is, however, difficult to reconcile with other indicators of pay growth. Most of these have tended to be more stable at rates of growth that are elevated but not quite as high as the AWE series. Twelve-month CPI inflation fell from 7.9% in June to 6.7% in August, 0.4 percentage points below expectations at the time of the Committee’s previous meeting, and triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Core goods CPI inflation has fallen from 6.4% in June to 5.2% in August, much weaker than expected in the August Report. Services CPI inflation rose from 7.2% in June to 7.4% in July but declined to 6.8% in August, 0.3 percentage points lower than expected in the August Report. Some of those movements are linked to services such as airfares and accommodation that tend to be volatile over the summer holiday period. Excluding these travel-related components, services inflation has been more stable at continued high rates, albeit slightly weaker than expected. CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Developments in key indicators of inflation persistence have been mixed, with the recent acceleration in the AWE not apparent in other measures of wages and with some downside news on services inflation. There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. The MPC committed in the minutes of its August 2022 meeting to review the reduction in the Asset Purchase Facility annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds over the subsequent 12-month period. At this meeting, the Committee voted to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the period from October 2023 to September 2024, to a total of £658 billion. Minutes of the Monetary Policy Committee meeting ending on 20 September 2023 1: Before turning to its immediate policy decisions, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have increased by 0.5% in 2023 Q2, broadly in line with the August Monetary Policy Report projection. Global GDP growth of 0.3% was expected for Q3, also in line with the August Report, but with some differences across regions. 3: Euro-area GDP had increased by 0.1% in 2023 Q2 but was expected to contract in Q3, weaker than expected in the August Report. Manufacturing and services output PMIs had both entered contractionary territory, with weakness in German manufacturing output particularly pronounced. 4: In the United States, GDP had increased by 0.5% in 2023 Q2, and growth was expected to increase further in Q3, stronger than projected in the August Report for both quarters. In contrast to developments in the euro area, the manufacturing output PMI had stopped contracting and the services output PMI had remained in expansionary territory. 5: The Committee discussed some possible factors behind the recent relative strength of US activity. Real incomes had increased more strongly in the United States, uplifted partly by significant fiscal policy actions during the pandemic and a smaller deterioration in the terms of trade, whereas government support in Europe had abated as energy prices had fallen back. US households had also appeared relatively more willing to spend any excess savings, possibly due to higher consumer confidence. 6: Growth appeared to have slowed in China, with the NBS manufacturing PMI having remained below the neutral 50 level since April. Consumption and industrial production growth were similarly weak, alongside softer investment and falling exports. There had been notable headwinds from the property sector, with property prices falling and a major developer narrowly avoiding technical default. Taken together, these indicators pointed to Chinese growth slowing further in 2023 Q3, weaker than had been expected in the August Report. 7: Energy prices had increased since the MPC’s previous meeting. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had risen by 26%, owing in part to strike action at Australian liquefied natural gas facilities, although the gas futures curve had been broadly unchanged. Brent spot oil prices had risen by 17%, to $93 per barrel, following supply cuts by the OPEC+ group, as well as oil inventories falling globally. 8: Headline consumer price inflation in the United States and euro area had continued to follow a downward trend from the peak rates recorded in 2022, although the impact of volatile energy prices had affected recent data. Annual euro-area HICP inflation had decreased slightly to 5.2% in August. In the United States, headline CPI inflation had increased to 3.7% in August from 3.2% in July, largely accounted for by a reduced drag from annual energy price inflation. 9: Underlying inflationary pressures had remained elevated across advanced economies. US annual core CPI inflation had fallen to 4.3% in August from 4.7% in July. Annual core inflation in the euro area had fallen to 5.3% in August from 5.5% in July. Outturns in pay growth in these regions had continued to be strong. Labour markets had remained tight though had shown some signs of easing. The vacancies-to-unemployment ratio had decreased in the United States and had been broadly flat in the euro area. Monetary and financial conditions 10: Market pricing suggested that policy rates in major advanced economies were expected to be nearing their peaks. At its meeting ending on 14 September, the ECB Governing Council had raised its key policy rates by 25 basis points, while market expectations were for the Federal Open Market Committee to leave the federal funds rate unchanged at its forthcoming meeting ending on 20 September. In the United Kingdom, Bank Rate expectations implied by market pricing had fallen in the immediate run-up to the MPC’s meeting, following the August CPI release. That had left market expectations for the September Bank Rate decision finely balanced between a 25 basis point increase and no change. 11: There had also been a reduction in market expectations for the path of Bank Rate beyond the September MPC decision. Market pricing in the immediate run-up to the MPC’s meeting suggested a peak in Bank Rate of around 5.5%, held for around three quarters. Since the MPC’s previous meeting, the one-year overnight index swap (OIS) rate, one year forward had decreased by around 70 basis points. The market implied path for Bank Rate now averaged a little under 5% over the next three years. 12: Ten-year government bond yields in the United Kingdom were down a little relative to the MPC’s August meeting, in contrast to global peers, for whom rates at this horizon had risen somewhat. The Committee noted that the level of UK and US 10-year government bond yields had converged over the recent period. 13: There had continued to be evidence that interest rates in financial markets had been more sensitive to economic data outturns, particularly in the United Kingdom, than had been usual over the past decade. Nevertheless, these data outturns could be volatile from month to month. Overall, the sensitivity of UK interest rates to data releases relating to the nominal environment had remained greater than to releases relating to real activity, although there had been some reductions in market rates in response to both the August flash PMI and July GDP data releases. 14: As the MPC had previously communicated, it would vote at this meeting on the reduction in the stock of gilts held in the Bank’s Asset Purchase Facility for monetary policy purposes over the 12-month period from October 2023 to September 2024. According to the Market Participants Survey (MaPS), the median market expectation for the MPC’s pace of gilt stock reduction over the year ahead was £100 billion. 15: Medium-term inflation compensation measures in the United Kingdom were little changed relative to the MPC’s previous meeting. Although interpreting the level of these measures continued to be challenging, they had remained lower than their peak in March 2022, but above their average levels of the previous decade. The median MaPS respondent’s expectation for CPI inflation three years ahead was 2.0% in the latest survey, down slightly relative to the previous survey. The distribution of survey responses had, however, remained skewed to the upside. 16: Aggregate growth in sterling net lending by banks had continued to slow. Within that, new mortgage lending had continued to decline. While quoted mortgage rates had fallen somewhat since the MPC’s August meeting, largely reflecting pass-through of reductions in risk-free reference rates, they had remained substantially higher than at the start of the Bank Rate tightening cycle. Over that period, corporate credit conditions had also tightened and, consistent with that, and with subdued demand for credit, corporate lending growth had been weak. 17: The annual growth rate in aggregate sterling broad money had slowed further to 0% in July. The pass-through of increases in Bank Rate to instant-access savings accounts, which had previously been much slower than pass-through to time deposit accounts, had increased since the Committee’s previous meeting. The overall increase in such sight deposit rates had, however, remained substantially smaller than the increase in Bank Rate since the end of 2021. Demand and output 18: According to the ONS’s first quarterly estimate, real GDP had increased by 0.2% in 2023 Q2, marginally stronger than had been expected in the August Monetary Policy Report. Household consumption had risen by 0.6% and business investment by 3.4%, stronger than expected in the August Report. Housing investment had continued to fall, down by 2.3% on the quarter and by 7.7% on a year earlier. 19: Monthly GDP was estimated to have fallen by 0.5% in July, following a rise of 0.5% in June. The July outturn was weaker than had been expected in the August Report, particularly within the services sector. Measured government health services output had fallen sharply in part reflecting the impact of strikes, and poor weather had also appeared to have dampened activity in some sectors. Weakness in private services activity had otherwise been concentrated in transport and other business services sectors. 20: The S&P Global/CIPS UK composite output PMI had fallen in August, to 48.6, which was consistent with a fall in GDP based on past historical relationships. The future output PMI series had risen slightly, however, and remained close to its long-run average. Other business survey indicators of activity, including the Lloyds Business Barometer, had also remained consistent with positive GDP growth. The latest intelligence from the Bank’s Agents suggested that activity had remained subdued and that there were growing concerns about the economic outlook, most notably from contacts in consumer-facing businesses but also from some in the business services sector. 21: Combining the signals from official data and business surveys, Bank staff now expected GDP to rise by only 0.1% in 2023 Q3, compared with the 0.4% increase incorporated in the August Report. Although some of this downside news could prove erratic, underlying growth was also likely to be weaker than the ¼% per quarter built into the August projection for the second half of 2023. 22: The Committee discussed the factors behind a slowing in GDP growth, including the impact of the significant tightening in monetary policy since the end of 2021. The clearest signs of weakness continued to be in the housing sector, with housing investment and most measures of house prices falling somewhat, alongside a low level of property transactions. Recent consumer spending indicators had shown fewer signs of softening, with consumer confidence recovering in August and real labour incomes now rising. Corporate spending indicators had generally weakened over recent months, however, with an increasing number of firms responding to the ONS Business Insights and Conditions Survey noting concerns about interest rates. The manufacturing export orders PMI had also fallen quite sharply recently, in part reflecting global developments. 23: Since the MPC’s previous meeting, the ONS had published some estimates of the impact of Blue Book 2023. GDP had been revised nearly 2% higher by 2021 Q4, although almost all of this news had been accounted for by stronger public sector output, largely reversing the revisions in Blue Book 2022. The Committee would consider the implications of revisions for supply as well as demand in its November forecast round discussions, by which time the Blue Book dataset beyond 2021 would also be available. Supply, costs and prices 24: There had been further signs of a loosening in the labour market, although it remained tight by historical standards. Contacts of the Bank’s Agents had reported an easing in recruitment difficulties, but also persistent skills shortages in some sectors. The vacancies-to-unemployment ratio had continued to decline, reflecting both a steady fall in the number of vacancies and rising unemployment. The Labour Force Survey (LFS) unemployment rate had risen to 4.3% in the three months to July, higher than expected in the August Monetary Policy Report forecast. The latest quarterly data had shown an increase in flows from inactivity into unemployment, indicative of some of the increase in unemployment having been associated with individuals that were previously inactive beginning to look for work, as well as a gradual increase in flows from employment into unemployment. 25: Indicators of employment had generally softened against a backdrop of subdued activity. LFS employment had fallen by 0.6% in the three months to July, but that had been preceded by a 0.8% increase in the previous non-overlapping three months. This series often fluctuated from one period to another and sample sizes and response rates to the LFS had been declining. The Bank’s Agents had reported that companies were expecting to keep staff numbers broadly stable, with few active plans to make redundancies. The KPMG/REC Report on Jobs was, however, pointing to a fall in companies hiring new staff. The S&P Global/CIPS composite employment PMI had also fallen in August, albeit only to around its historical average. 26: The Committee discussed what to infer from the latest developments in indicators of pay. Annual private sector regular Average Weekly Earnings (AWE) growth had been 8.1% in the three months to July, 0.8 percentage points above the August Report projection, with the news largely due to upward revisions to previous months’ data. Three-month-on-three-month growth for the same AWE measure had increased in recent months, with that strength seen across a number of different sectors. 27: The latest path of the AWE was, however, difficult to reconcile with other pay indicators, including measures using HMRC payrolls, the LFS and the Decision Maker Panel (DMP), which had tended to be more stable at rates that were elevated but not quite as high as the AWE series. The Bank’s Agents were continuing to report that average annual pay settlements were in the region of 6 to 6½%, with contacts expecting settlements to begin to drift down and for there to be fewer additional payments provided to compensate for a higher cost of living. Only the measures within the KPMG/REC Report were signalling a clear decrease in pay growth but, puzzlingly, their relationship with the AWE data had been less strong over the recent past. 28: Twelve-month CPI inflation had fallen to 6.8% in July, before edging down to 6.7% in August, 0.4 percentage points below the August Report forecast. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 29: While declines in CPI inflation had been largely driven by lower energy prices up to July, the fall in August had been driven by other components. A combination of past falls in petrol pump prices dropping out of the annual comparison and increases on the month had resulted in a higher rate of energy price inflation in August. In contrast, core CPI inflation, excluding energy, food, beverages and tobacco, had fallen to 6.2%, having been relatively stable at just under 7% in preceding months. 30: Lower core goods price inflation had accounted for just under two-thirds of the downside surprise in CPI inflation since the August Report. Some of the latest news had been confined to the more idiosyncratic used cars component. Downside news elsewhere in core goods, however, suggested that the recent easing in input cost pressures, evident in a flattening in non-petroleum producer prices, was feeding through to consumer goods prices more quickly than had been anticipated previously. There had been relatively modest and offsetting news in food and energy prices up to August. If sustained, recent significant increases in oil prices would, however, mean that the energy contribution to CPI inflation would be higher than assumed in the August Report forecast over coming months. 31: The remainder of the downside surprise in CPI inflation since August had been in services prices. Services CPI inflation had unexpectedly risen back to a 31-year high of 7.4% in July before falling more sharply than had been expected to 6.8% in August. Some of the increase in July and the subsequent unwind, along with the corresponding news, was linked to services such as airfares and accommodation that tended to be volatile over the summer holiday period. Excluding travel-related components such as these, services inflation had been more stable at continued high rates. Nevertheless, there had also been some downside news across this wider part of the consumer basket for services. 32: An underlying measure of services inflation produced by Bank staff, which was determined by the co-movement of price changes across services components, had begun to decline. The S&P Global/CIPS UK services input and output price PMIs had continued to fall towards their past averages, while Agents’ contacts were reporting that, although pay pressures had remained intense for consumer-facing services companies, other cost pressures were easing. 33: Abstracting from these underlying trends, the path of services inflation was likely to be volatile in coming months, in part reflecting potential noise in the prices of travel-related services. A temporary sharp upward spike was also anticipated in January 2024, as large and unusual falls in a number of services prices at the beginning of 2023 were not expected to be repeated, resulting in a positive base effect early next year. 34: Inflation expectations for the year ahead had remained at elevated levels. Businesses responding to the DMP were expecting their own prices to increase by around 5% over the next twelve months. Measures of household inflation expectations were broadly unchanged in both the Bank/Ipsos and Citi/YouGov surveys, within which the medium-term measures were closer to their historical averages. The immediate policy decisions 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: In the MPC’s August most likely, or modal, Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that had averaged just under 5½% over the three-year forecast period, CPI inflation had been expected to return to the 2% target by 2025 Q2. It had then been projected to fall below the target in the medium term, as an increasing degree of economic slack had been expected to reduce domestic inflationary pressures, alongside declining external cost pressures. The Committee had continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices took longer to unwind than they did to emerge. The mean projection for CPI inflation, which incorporated these risks, had been 2.0% and 1.9% at the two and three-year horizons respectively. 37: The Committee discussed the news in recent UK economic data outturns. Past increases in Bank Rate were expected to weigh increasingly on the economy, with the impact of tighter monetary policy likely to be apparent earlier for indicators of demand and labour market tightness than for indicators of domestically generated inflation, such as wage growth and services CPI inflation, which were at a later stage in the monetary transmission mechanism. 38: While some of the weakening in recent activity data could prove erratic, Bank staff now expected GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 was also likely to be weaker than had been expected. Ahead of its final meeting, the Committee was made aware of the flash S&P Global/CIPS UK composite PMI for September that would be released publically on Friday 22 September. 39: There had been some further signs of a loosening in the labour market, although it had remained tight by historical standards. The vacancies-to-unemployment ratio had continued to decline, reflecting both a steady fall in the number of vacancies and a greater than expected rise in unemployment. 40: Annual private sector regular Average Weekly Earnings (AWE) growth had increased to 8.1% in the three months to July, 0.8 percentage points above the August Report projection. Most other indicators of pay had tended to be more stable at rates of growth that were elevated but not quite as high as the AWE series. 41: Twelve-month CPI inflation had fallen to 6.7% in August, 0.4 percentage points below expectations at the time of the Committee’s previous meeting. Services CPI inflation had declined to 6.8% in August, 0.3 percentage points lower than had been expected in the August Report. Some of those movements were linked to services such as airfares and accommodation that tended to be volatile over the summer holiday period. Excluding these travel-related components, services inflation had been more stable at continued high rates, albeit slightly weaker than had been expected. 42: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Bank Rate decision 43: The Committee turned to its immediate decision on Bank Rate. Developments in key indicators of inflation persistence had been mixed, with the recent acceleration in the AWE not apparent in other measures of wages and with some downside news on services inflation. There were increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. This meant that the decision on whether to increase or to maintain Bank Rate at this meeting had become more finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could still prove persistent, and not placing sufficient weight on the impact of the previous tightening that was still to come through on activity and inflation. 44: Five members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. There were signs that the labour market was loosening. The recent acceleration in the AWE was noteworthy but was not apparent in other measures of wages. Although it was important not to put too much weight on a single data point, headline and services CPI inflation had fallen back and were lower than had been expected. Regarding activity, contacts of the Bank’s Agents had become more downbeat, and the output PMI in August was now consistent with falling GDP. For most members within this group, the latest developments meant that the judgement to keep Bank Rate unchanged at this meeting rather than increase it was finely balanced. Conditions were likely to warrant a restrictive policy stance being maintained until material progress had been made in returning inflation to the 2% target sustainably. For one member, however, the risks of overtightening policy had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 45: Four members judged that a 0.25 percentage point increase in Bank Rate, to 5.5%, was warranted at this meeting. Although there were now some signs of weakening economic activity, consumer sentiment appeared to be holding up, real household incomes had started to rise, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a possible rise in the medium-term equilibrium rate of unemployment, and the pace of loosening had been slow. Measures of wage growth and services inflation had remained at rates above those consistent with meeting the 2% target sustainably in the medium term. While services CPI inflation had fallen by more than had been expected in the latest data release, this appeared to have been driven mainly by volatile components and had followed recent upside surprises. These members judged that overall there was evidence of more persistent inflationary pressures. Although the monetary stance was weighing increasingly on economic activity, a 0.25 percentage point increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and bring inflation back to the 2% target sustainably in the medium term. 46: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Decision on the annual pace of reduction in the stock of UK government bond purchases held for monetary policy purposes 47: As set out in the minutes of its August 2022 meeting, the MPC had committed to review the reduction in the Asset Purchase Facility (APF) annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds (gilts) over the subsequent 12-month period. Box A of the August 2023 Monetary Policy Report had set out an assessment of the process of quantitative tightening over the previous year. 48: The Committee judged that reducing the size of the APF had the important benefit of reducing the risk of a ratchet upwards in the size of the central bank balance sheet over time if successive policy cycles encountered the effective lower bound on interest rates. That in turn should increase the headroom and flexibility for the central bank to be able to use its balance sheet in the future should that be needed. 49: The appropriate pace of gilt stock reduction would continue to be guided by a set of key principles, which the MPC had first outlined in the August 2021 Monetary Policy Report. First, the Committee intended to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a gradual and predictable manner over a period of time. 50: As set out in the Box in the August 2023 Report, the Committee judged that quantitative tightening was going smoothly. There was no evidence of a negative impact of gilt sales on market functioning across a range of financial market measures. APF reduction was likely to have had some tightening effect on yields, which, while difficult to measure precisely, was judged to have been modest. That was in line with the MPC’s prior expectations, but the Committee would continue to learn from monitoring developments as the process progressed. 51: The tightening impact of the reduction in the APF on activity and inflation also appeared to have been, and was expected to be, modest. While it was hard to measure precisely the marginal effect of quantitative tightening, the MPC’s economic forecasts were conditioned on asset prices that incorporated announced and expected APF reduction alongside other factors. The MPC would therefore take this effect into account when setting the desired monetary policy stance using Bank Rate. Any tightening effect from the reduction in the APF would lead to a slightly lower path for Bank Rate, all else equal. Given that the impact of APF reduction was judged to have been modest, this was unlikely to have made a material difference to the appropriate path for Bank Rate over the past year. 52: Drawing on the experience of the first year of quantitative tightening, the Committee considered a number of factors which supported a modest increase in the pace of gilt stock reduction from £80 billion over the previous year to £100 billion over the 12 months ahead. First, an assessment of market conditions, and of market capacity to absorb the pace of gilt sales implied by a £100 billion gilt stock reduction, suggested that this pace was unlikely to disrupt the functioning of financial markets. Second, the Committee noted that a £100 billion gilt stock reduction over the year ahead would leave the pace of gilt sales broadly unchanged relative to the previous year, given some increase in APF gilt maturities. As set out in the August 2023 Report, the focus of the MPC was on total gilt stock reduction, comprising both maturing gilts and sales, such that variation in the profile of redemptions might also lead to variation in the pace of sales over time. Notwithstanding that, the Committee placed some weight on continuity in the pace of sales. Third, the Committee noted that over the previous year the £80 billion reduction in APF gilt holdings had been accompanied by the near-complete unwind of the £20 billion corporate bond portfolio, such that the overall reduction in the size of the APF over the past year had also been around £100 billion. Taken together, these factors supported a small increase in the pace of reduction in the stock of gilts relative to the previous year. 53: In the immediate run-up to this meeting, Bank staff had briefed the MPC on the current state of economic and market conditions. Current conditions were judged appropriate for the Committee to proceed with its preferred pace of gilt stock reduction. The Financial Policy Committee (FPC) had also been briefed. 54: All members of the MPC agreed at this meeting that the Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the 12-month period from October 2023 to September 2024, comprising both maturing gilts and sales. 55: The MPC also reaffirmed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that APF reduction should be predictable. In judging whether that bar was met, the FPC would also have a role through its assessment of financial stability. 56: The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 5.25%; The Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next twelve months, to a total of £658 billion. 57: Five members (Andrew Bailey, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the first proposition. Four members (Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. 58: The Committee voted unanimously in favour of the second proposition. Operational considerations 59: On 20 September 2023, the total stock of assets held for monetary policy purposes was £759 billion, comprising £759 billion of UK government bond purchases and £0.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 60: At its September 2022 meeting, the MPC had voted to reduce the stock of UK government bond purchases by £80 billion over the 12-month period from October 2022 to September 2023. The Bank of England had set out in a Market Notice on 1 September how the 2023 Q3 gilt sales programme would be adjusted in order to meet the MPC's target. 61: At this meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024. The details of the first quarter of the associated gilt sales programme, covering 2023 Q4, were set out in a Market Notice accompanying these minutes. The Bank would continue to set auction sizes each quarter, to meet the MPC’s annual target as closely as practicable. 62: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden James Bowler was present as the Treasury representative. Sarah Breeden was present as an observer. 63: On behalf of the Committee, the Chair expressed his appreciation to Jon Cunliffe for his contributions to the work of the MPC since becoming a member in 2013 and for his role in establishing the monetary policy framework. Monetary Policy Summary, September 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 September 2023, the MPC voted by a majority of 5–4 to maintain Bank Rate at 5.25%. Four members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. The Committee also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next twelve months, to a total of £658 billion. In the MPC’s August most likely, or modal, Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that averaged just under 5½% over the three-year forecast period, CPI inflation was expected to return to the 2% target by 2025 Q2. It was then projected to fall below the target in the medium term, as an increasing degree of economic slack was expected to reduce domestic inflationary pressures, alongside declining external cost pressures. The Committee had continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge. The mean projection for CPI inflation, which incorporated these risks, was 2.0% and 1.9% at the two and three-year horizons respectively. Since the MPC’s previous meeting, global growth has evolved broadly in line with the August Report projections, albeit with some differences across regions. Spot oil prices have risen significantly, while underlying inflationary pressures have remained elevated across advanced economies. UK GDP is estimated to have declined by 0.5% in July and the S&P Global/CIPS composite output PMI fell in August, although other business survey indicators remain consistent with positive GDP growth. While some of this news could prove erratic, Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected. There have been some further signs of a loosening in the labour market, although it remains tight by historical standards. The vacancies-to-unemployment ratio has continued to decline, reflecting both a steady fall in the number of vacancies and rising unemployment. The Labour Force Survey unemployment rate rose to 4.3% in the three months to July, higher than expected in the August Report. Indicators of employment have generally softened against the backdrop of subdued activity. Annual private sector regular Average Weekly Earnings (AWE) growth increased to 8.1% in the three months to July, 0.8 percentage points above the August Report projection. The recent path of the AWE is, however, difficult to reconcile with other indicators of pay growth. Most of these have tended to be more stable at rates of growth that are elevated but not quite as high as the AWE series. Twelve-month CPI inflation fell from 7.9% in June to 6.7% in August, 0.4 percentage points below expectations at the time of the Committee’s previous meeting, and triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement. Core goods CPI inflation has fallen from 6.4% in June to 5.2% in August, much weaker than expected in the August Report. Services CPI inflation rose from 7.2% in June to 7.4% in July but declined to 6.8% in August, 0.3 percentage points lower than expected in the August Report. Some of those movements are linked to services such as airfares and accommodation that tend to be volatile over the summer holiday period. Excluding these travel-related components, services inflation has been more stable at continued high rates, albeit slightly weaker than expected. CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Developments in key indicators of inflation persistence have been mixed, with the recent acceleration in the AWE not apparent in other measures of wages and with some downside news on services inflation. There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. The MPC committed in the minutes of its August 2022 meeting to review the reduction in the Asset Purchase Facility annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds over the subsequent 12-month period. At this meeting, the Committee voted to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the period from October 2023 to September 2024, to a total of £658 billion. Minutes of the Monetary Policy Committee meeting ending on 20 September 2023 1: Before turning to its immediate policy decisions, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have increased by 0.5% in 2023 Q2, broadly in line with the August Monetary Policy Report projection. Global GDP growth of 0.3% was expected for Q3, also in line with the August Report, but with some differences across regions. 3: Euro-area GDP had increased by 0.1% in 2023 Q2 but was expected to contract in Q3, weaker than expected in the August Report. Manufacturing and services output PMIs had both entered contractionary territory, with weakness in German manufacturing output particularly pronounced. 4: In the United States, GDP had increased by 0.5% in 2023 Q2, and growth was expected to increase further in Q3, stronger than projected in the August Report for both quarters. In contrast to developments in the euro area, the manufacturing output PMI had stopped contracting and the services output PMI had remained in expansionary territory. 5: The Committee discussed some possible factors behind the recent relative strength of US activity. Real incomes had increased more strongly in the United States, uplifted partly by significant fiscal policy actions during the pandemic and a smaller deterioration in the terms of trade, whereas government support in Europe had abated as energy prices had fallen back. US households had also appeared relatively more willing to spend any excess savings, possibly due to higher consumer confidence. 6: Growth appeared to have slowed in China, with the NBS manufacturing PMI having remained below the neutral 50 level since April. Consumption and industrial production growth were similarly weak, alongside softer investment and falling exports. There had been notable headwinds from the property sector, with property prices falling and a major developer narrowly avoiding technical default. Taken together, these indicators pointed to Chinese growth slowing further in 2023 Q3, weaker than had been expected in the August Report. 7: Energy prices had increased since the MPC’s previous meeting. The Dutch Title Transfer Facility spot price, a measure of European wholesale gas prices, had risen by 26%, owing in part to strike action at Australian liquefied natural gas facilities, although the gas futures curve had been broadly unchanged. Brent spot oil prices had risen by 17%, to $93 per barrel, following supply cuts by the OPEC+ group, as well as oil inventories falling globally. 8: Headline consumer price inflation in the United States and euro area had continued to follow a downward trend from the peak rates recorded in 2022, although the impact of volatile energy prices had affected recent data. Annual euro-area HICP inflation had decreased slightly to 5.2% in August. In the United States, headline CPI inflation had increased to 3.7% in August from 3.2% in July, largely accounted for by a reduced drag from annual energy price inflation. 9: Underlying inflationary pressures had remained elevated across advanced economies. US annual core CPI inflation had fallen to 4.3% in August from 4.7% in July. Annual core inflation in the euro area had fallen to 5.3% in August from 5.5% in July. Outturns in pay growth in these regions had continued to be strong. Labour markets had remained tight though had shown some signs of easing. The vacancies-to-unemployment ratio had decreased in the United States and had been broadly flat in the euro area. Monetary and financial conditions 10: Market pricing suggested that policy rates in major advanced economies were expected to be nearing their peaks. At its meeting ending on 14 September, the ECB Governing Council had raised its key policy rates by 25 basis points, while market expectations were for the Federal Open Market Committee to leave the federal funds rate unchanged at its forthcoming meeting ending on 20 September. In the United Kingdom, Bank Rate expectations implied by market pricing had fallen in the immediate run-up to the MPC’s meeting, following the August CPI release. That had left market expectations for the September Bank Rate decision finely balanced between a 25 basis point increase and no change. 11: There had also been a reduction in market expectations for the path of Bank Rate beyond the September MPC decision. Market pricing in the immediate run-up to the MPC’s meeting suggested a peak in Bank Rate of around 5.5%, held for around three quarters. Since the MPC’s previous meeting, the one-year overnight index swap (OIS) rate, one year forward had decreased by around 70 basis points. The market implied path for Bank Rate now averaged a little under 5% over the next three years. 12: Ten-year government bond yields in the United Kingdom were down a little relative to the MPC’s August meeting, in contrast to global peers, for whom rates at this horizon had risen somewhat. The Committee noted that the level of UK and US 10-year government bond yields had converged over the recent period. 13: There had continued to be evidence that interest rates in financial markets had been more sensitive to economic data outturns, particularly in the United Kingdom, than had been usual over the past decade. Nevertheless, these data outturns could be volatile from month to month. Overall, the sensitivity of UK interest rates to data releases relating to the nominal environment had remained greater than to releases relating to real activity, although there had been some reductions in market rates in response to both the August flash PMI and July GDP data releases. 14: As the MPC had previously communicated, it would vote at this meeting on the reduction in the stock of gilts held in the Bank’s Asset Purchase Facility for monetary policy purposes over the 12-month period from October 2023 to September 2024. According to the Market Participants Survey (MaPS), the median market expectation for the MPC’s pace of gilt stock reduction over the year ahead was £100 billion. 15: Medium-term inflation compensation measures in the United Kingdom were little changed relative to the MPC’s previous meeting. Although interpreting the level of these measures continued to be challenging, they had remained lower than their peak in March 2022, but above their average levels of the previous decade. The median MaPS respondent’s expectation for CPI inflation three years ahead was 2.0% in the latest survey, down slightly relative to the previous survey. The distribution of survey responses had, however, remained skewed to the upside. 16: Aggregate growth in sterling net lending by banks had continued to slow. Within that, new mortgage lending had continued to decline. While quoted mortgage rates had fallen somewhat since the MPC’s August meeting, largely reflecting pass-through of reductions in risk-free reference rates, they had remained substantially higher than at the start of the Bank Rate tightening cycle. Over that period, corporate credit conditions had also tightened and, consistent with that, and with subdued demand for credit, corporate lending growth had been weak. 17: The annual growth rate in aggregate sterling broad money had slowed further to 0% in July. The pass-through of increases in Bank Rate to instant-access savings accounts, which had previously been much slower than pass-through to time deposit accounts, had increased since the Committee’s previous meeting. The overall increase in such sight deposit rates had, however, remained substantially smaller than the increase in Bank Rate since the end of 2021. Demand and output 18: According to the ONS’s first quarterly estimate, real GDP had increased by 0.2% in 2023 Q2, marginally stronger than had been expected in the August Monetary Policy Report. Household consumption had risen by 0.6% and business investment by 3.4%, stronger than expected in the August Report. Housing investment had continued to fall, down by 2.3% on the quarter and by 7.7% on a year earlier. 19: Monthly GDP was estimated to have fallen by 0.5% in July, following a rise of 0.5% in June. The July outturn was weaker than had been expected in the August Report, particularly within the services sector. Measured government health services output had fallen sharply in part reflecting the impact of strikes, and poor weather had also appeared to have dampened activity in some sectors. Weakness in private services activity had otherwise been concentrated in transport and other business services sectors. 20: The S&P Global/CIPS UK composite output PMI had fallen in August, to 48.6, which was consistent with a fall in GDP based on past historical relationships. The future output PMI series had risen slightly, however, and remained close to its long-run average. Other business survey indicators of activity, including the Lloyds Business Barometer, had also remained consistent with positive GDP growth. The latest intelligence from the Bank’s Agents suggested that activity had remained subdued and that there were growing concerns about the economic outlook, most notably from contacts in consumer-facing businesses but also from some in the business services sector. 21: Combining the signals from official data and business surveys, Bank staff now expected GDP to rise by only 0.1% in 2023 Q3, compared with the 0.4% increase incorporated in the August Report. Although some of this downside news could prove erratic, underlying growth was also likely to be weaker than the ¼% per quarter built into the August projection for the second half of 2023. 22: The Committee discussed the factors behind a slowing in GDP growth, including the impact of the significant tightening in monetary policy since the end of 2021. The clearest signs of weakness continued to be in the housing sector, with housing investment and most measures of house prices falling somewhat, alongside a low level of property transactions. Recent consumer spending indicators had shown fewer signs of softening, with consumer confidence recovering in August and real labour incomes now rising. Corporate spending indicators had generally weakened over recent months, however, with an increasing number of firms responding to the ONS Business Insights and Conditions Survey noting concerns about interest rates. The manufacturing export orders PMI had also fallen quite sharply recently, in part reflecting global developments. 23: Since the MPC’s previous meeting, the ONS had published some estimates of the impact of Blue Book 2023. GDP had been revised nearly 2% higher by 2021 Q4, although almost all of this news had been accounted for by stronger public sector output, largely reversing the revisions in Blue Book 2022. The Committee would consider the implications of revisions for supply as well as demand in its November forecast round discussions, by which time the Blue Book dataset beyond 2021 would also be available. Supply, costs and prices 24: There had been further signs of a loosening in the labour market, although it remained tight by historical standards. Contacts of the Bank’s Agents had reported an easing in recruitment difficulties, but also persistent skills shortages in some sectors. The vacancies-to-unemployment ratio had continued to decline, reflecting both a steady fall in the number of vacancies and rising unemployment. The Labour Force Survey (LFS) unemployment rate had risen to 4.3% in the three months to July, higher than expected in the August Monetary Policy Report forecast. The latest quarterly data had shown an increase in flows from inactivity into unemployment, indicative of some of the increase in unemployment having been associated with individuals that were previously inactive beginning to look for work, as well as a gradual increase in flows from employment into unemployment. 25: Indicators of employment had generally softened against a backdrop of subdued activity. LFS employment had fallen by 0.6% in the three months to July, but that had been preceded by a 0.8% increase in the previous non-overlapping three months. This series often fluctuated from one period to another and sample sizes and response rates to the LFS had been declining. The Bank’s Agents had reported that companies were expecting to keep staff numbers broadly stable, with few active plans to make redundancies. The KPMG/REC Report on Jobs was, however, pointing to a fall in companies hiring new staff. The S&P Global/CIPS composite employment PMI had also fallen in August, albeit only to around its historical average. 26: The Committee discussed what to infer from the latest developments in indicators of pay. Annual private sector regular Average Weekly Earnings (AWE) growth had been 8.1% in the three months to July, 0.8 percentage points above the August Report projection, with the news largely due to upward revisions to previous months’ data. Three-month-on-three-month growth for the same AWE measure had increased in recent months, with that strength seen across a number of different sectors. 27: The latest path of the AWE was, however, difficult to reconcile with other pay indicators, including measures using HMRC payrolls, the LFS and the Decision Maker Panel (DMP), which had tended to be more stable at rates that were elevated but not quite as high as the AWE series. The Bank’s Agents were continuing to report that average annual pay settlements were in the region of 6 to 6½%, with contacts expecting settlements to begin to drift down and for there to be fewer additional payments provided to compensate for a higher cost of living. Only the measures within the KPMG/REC Report were signalling a clear decrease in pay growth but, puzzlingly, their relationship with the AWE data had been less strong over the recent past. 28: Twelve-month CPI inflation had fallen to 6.8% in July, before edging down to 6.7% in August, 0.4 percentage points below the August Report forecast. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 29: While declines in CPI inflation had been largely driven by lower energy prices up to July, the fall in August had been driven by other components. A combination of past falls in petrol pump prices dropping out of the annual comparison and increases on the month had resulted in a higher rate of energy price inflation in August. In contrast, core CPI inflation, excluding energy, food, beverages and tobacco, had fallen to 6.2%, having been relatively stable at just under 7% in preceding months. 30: Lower core goods price inflation had accounted for just under two-thirds of the downside surprise in CPI inflation since the August Report. Some of the latest news had been confined to the more idiosyncratic used cars component. Downside news elsewhere in core goods, however, suggested that the recent easing in input cost pressures, evident in a flattening in non-petroleum producer prices, was feeding through to consumer goods prices more quickly than had been anticipated previously. There had been relatively modest and offsetting news in food and energy prices up to August. If sustained, recent significant increases in oil prices would, however, mean that the energy contribution to CPI inflation would be higher than assumed in the August Report forecast over coming months. 31: The remainder of the downside surprise in CPI inflation since August had been in services prices. Services CPI inflation had unexpectedly risen back to a 31-year high of 7.4% in July before falling more sharply than had been expected to 6.8% in August. Some of the increase in July and the subsequent unwind, along with the corresponding news, was linked to services such as airfares and accommodation that tended to be volatile over the summer holiday period. Excluding travel-related components such as these, services inflation had been more stable at continued high rates. Nevertheless, there had also been some downside news across this wider part of the consumer basket for services. 32: An underlying measure of services inflation produced by Bank staff, which was determined by the co-movement of price changes across services components, had begun to decline. The S&P Global/CIPS UK services input and output price PMIs had continued to fall towards their past averages, while Agents’ contacts were reporting that, although pay pressures had remained intense for consumer-facing services companies, other cost pressures were easing. 33: Abstracting from these underlying trends, the path of services inflation was likely to be volatile in coming months, in part reflecting potential noise in the prices of travel-related services. A temporary sharp upward spike was also anticipated in January 2024, as large and unusual falls in a number of services prices at the beginning of 2023 were not expected to be repeated, resulting in a positive base effect early next year. 34: Inflation expectations for the year ahead had remained at elevated levels. Businesses responding to the DMP were expecting their own prices to increase by around 5% over the next twelve months. Measures of household inflation expectations were broadly unchanged in both the Bank/Ipsos and Citi/YouGov surveys, within which the medium-term measures were closer to their historical averages. The immediate policy decisions 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: In the MPC’s August most likely, or modal, Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that had averaged just under 5½% over the three-year forecast period, CPI inflation had been expected to return to the 2% target by 2025 Q2. It had then been projected to fall below the target in the medium term, as an increasing degree of economic slack had been expected to reduce domestic inflationary pressures, alongside declining external cost pressures. The Committee had continued to judge that the risks around the modal inflation forecast were skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices took longer to unwind than they did to emerge. The mean projection for CPI inflation, which incorporated these risks, had been 2.0% and 1.9% at the two and three-year horizons respectively. 37: The Committee discussed the news in recent UK economic data outturns. Past increases in Bank Rate were expected to weigh increasingly on the economy, with the impact of tighter monetary policy likely to be apparent earlier for indicators of demand and labour market tightness than for indicators of domestically generated inflation, such as wage growth and services CPI inflation, which were at a later stage in the monetary transmission mechanism. 38: While some of the weakening in recent activity data could prove erratic, Bank staff now expected GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 was also likely to be weaker than had been expected. Ahead of its final meeting, the Committee was made aware of the flash S&P Global/CIPS UK composite PMI for September that would be released publically on Friday 22 September. 39: There had been some further signs of a loosening in the labour market, although it had remained tight by historical standards. The vacancies-to-unemployment ratio had continued to decline, reflecting both a steady fall in the number of vacancies and a greater than expected rise in unemployment. 40: Annual private sector regular Average Weekly Earnings (AWE) growth had increased to 8.1% in the three months to July, 0.8 percentage points above the August Report projection. Most other indicators of pay had tended to be more stable at rates of growth that were elevated but not quite as high as the AWE series. 41: Twelve-month CPI inflation had fallen to 6.7% in August, 0.4 percentage points below expectations at the time of the Committee’s previous meeting. Services CPI inflation had declined to 6.8% in August, 0.3 percentage points lower than had been expected in the August Report. Some of those movements were linked to services such as airfares and accommodation that tended to be volatile over the summer holiday period. Excluding these travel-related components, services inflation had been more stable at continued high rates, albeit slightly weaker than had been expected. 42: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. Bank Rate decision 43: The Committee turned to its immediate decision on Bank Rate. Developments in key indicators of inflation persistence had been mixed, with the recent acceleration in the AWE not apparent in other measures of wages and with some downside news on services inflation. There were increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. This meant that the decision on whether to increase or to maintain Bank Rate at this meeting had become more finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could still prove persistent, and not placing sufficient weight on the impact of the previous tightening that was still to come through on activity and inflation. 44: Five members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. There were signs that the labour market was loosening. The recent acceleration in the AWE was noteworthy but was not apparent in other measures of wages. Although it was important not to put too much weight on a single data point, headline and services CPI inflation had fallen back and were lower than had been expected. Regarding activity, contacts of the Bank’s Agents had become more downbeat, and the output PMI in August was now consistent with falling GDP. For most members within this group, the latest developments meant that the judgement to keep Bank Rate unchanged at this meeting rather than increase it was finely balanced. Conditions were likely to warrant a restrictive policy stance being maintained until material progress had been made in returning inflation to the 2% target sustainably. For one member, however, the risks of overtightening policy had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 45: Four members judged that a 0.25 percentage point increase in Bank Rate, to 5.5%, was warranted at this meeting. Although there were now some signs of weakening economic activity, consumer sentiment appeared to be holding up, real household incomes had started to rise, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a possible rise in the medium-term equilibrium rate of unemployment, and the pace of loosening had been slow. Measures of wage growth and services inflation had remained at rates above those consistent with meeting the 2% target sustainably in the medium term. While services CPI inflation had fallen by more than had been expected in the latest data release, this appeared to have been driven mainly by volatile components and had followed recent upside surprises. These members judged that overall there was evidence of more persistent inflationary pressures. Although the monetary stance was weighing increasingly on economic activity, a 0.25 percentage point increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and bring inflation back to the 2% target sustainably in the medium term. 46: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Decision on the annual pace of reduction in the stock of UK government bond purchases held for monetary policy purposes 47: As set out in the minutes of its August 2022 meeting, the MPC had committed to review the reduction in the Asset Purchase Facility (APF) annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds (gilts) over the subsequent 12-month period. Box A of the August 2023 Monetary Policy Report had set out an assessment of the process of quantitative tightening over the previous year. 48: The Committee judged that reducing the size of the APF had the important benefit of reducing the risk of a ratchet upwards in the size of the central bank balance sheet over time if successive policy cycles encountered the effective lower bound on interest rates. That in turn should increase the headroom and flexibility for the central bank to be able to use its balance sheet in the future should that be needed. 49: The appropriate pace of gilt stock reduction would continue to be guided by a set of key principles, which the MPC had first outlined in the August 2021 Monetary Policy Report. First, the Committee intended to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a gradual and predictable manner over a period of time. 50: As set out in the Box in the August 2023 Report, the Committee judged that quantitative tightening was going smoothly. There was no evidence of a negative impact of gilt sales on market functioning across a range of financial market measures. APF reduction was likely to have had some tightening effect on yields, which, while difficult to measure precisely, was judged to have been modest. That was in line with the MPC’s prior expectations, but the Committee would continue to learn from monitoring developments as the process progressed. 51: The tightening impact of the reduction in the APF on activity and inflation also appeared to have been, and was expected to be, modest. While it was hard to measure precisely the marginal effect of quantitative tightening, the MPC’s economic forecasts were conditioned on asset prices that incorporated announced and expected APF reduction alongside other factors. The MPC would therefore take this effect into account when setting the desired monetary policy stance using Bank Rate. Any tightening effect from the reduction in the APF would lead to a slightly lower path for Bank Rate, all else equal. Given that the impact of APF reduction was judged to have been modest, this was unlikely to have made a material difference to the appropriate path for Bank Rate over the past year. 52: Drawing on the experience of the first year of quantitative tightening, the Committee considered a number of factors which supported a modest increase in the pace of gilt stock reduction from £80 billion over the previous year to £100 billion over the 12 months ahead. First, an assessment of market conditions, and of market capacity to absorb the pace of gilt sales implied by a £100 billion gilt stock reduction, suggested that this pace was unlikely to disrupt the functioning of financial markets. Second, the Committee noted that a £100 billion gilt stock reduction over the year ahead would leave the pace of gilt sales broadly unchanged relative to the previous year, given some increase in APF gilt maturities. As set out in the August 2023 Report, the focus of the MPC was on total gilt stock reduction, comprising both maturing gilts and sales, such that variation in the profile of redemptions might also lead to variation in the pace of sales over time. Notwithstanding that, the Committee placed some weight on continuity in the pace of sales. Third, the Committee noted that over the previous year the £80 billion reduction in APF gilt holdings had been accompanied by the near-complete unwind of the £20 billion corporate bond portfolio, such that the overall reduction in the size of the APF over the past year had also been around £100 billion. Taken together, these factors supported a small increase in the pace of reduction in the stock of gilts relative to the previous year. 53: In the immediate run-up to this meeting, Bank staff had briefed the MPC on the current state of economic and market conditions. Current conditions were judged appropriate for the Committee to proceed with its preferred pace of gilt stock reduction. The Financial Policy Committee (FPC) had also been briefed. 54: All members of the MPC agreed at this meeting that the Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the 12-month period from October 2023 to September 2024, comprising both maturing gilts and sales. 55: The MPC also reaffirmed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that APF reduction should be predictable. In judging whether that bar was met, the FPC would also have a role through its assessment of financial stability. 56: The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 5.25%; The Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next twelve months, to a total of £658 billion. 57: Five members (Andrew Bailey, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the first proposition. Four members (Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. 58: The Committee voted unanimously in favour of the second proposition. Operational considerations 59: On 20 September 2023, the total stock of assets held for monetary policy purposes was £759 billion, comprising £759 billion of UK government bond purchases and £0.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 60: At its September 2022 meeting, the MPC had voted to reduce the stock of UK government bond purchases by £80 billion over the 12-month period from October 2022 to September 2023. The Bank of England had set out in a Market Notice on 1 September how the 2023 Q3 gilt sales programme would be adjusted in order to meet the MPC's target. 61: At this meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024. The details of the first quarter of the associated gilt sales programme, covering 2023 Q4, were set out in a Market Notice accompanying these minutes. The Bank would continue to set auction sizes each quarter, to meet the MPC’s annual target as closely as practicable. 62: The following members of the Committee were present: Andrew Bailey, Chair Ben Broadbent Jon Cunliffe Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden James Bowler was present as the Treasury representative. Sarah Breeden was present as an observer. 63: On behalf of the Committee, the Chair expressed his appreciation to Jon Cunliffe for his contributions to the work of the MPC since becoming a member in 2013 and for his role in establishing the monetary policy framework.

Monetary Policy Summary, November 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 November 2023, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Three members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. The Committee’s updated projections for activity and inflation are set out in the accompanying November Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that remains around 5¼% until 2024 Q3 and then declines gradually to 4¼% by the end of 2026, a lower profile than underpinned the August projections. Since the MPC’s previous meeting, long-term government bond yields have increased across advanced economies. GDP growth has been stronger than expected in the United States. Underlying inflationary pressures in advanced economies remain elevated. Following events in the Middle East, the oil futures curve has risen somewhat while gas futures prices are little changed. UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than projected previously. The MPC continues to consider a wide range of data to inform its view on developments in labour market activity, rather than focusing on a single indicator. The increasing uncertainties surrounding the Labour Force Survey underline the importance of this approach. Against a backdrop of subdued economic activity, employment growth is likely to have softened over the second half of 2023, and to a greater extent than projected in the August Report. Falling vacancies and surveys indicating an easing of recruitment difficulties also point to a loosening in the labour market. Contacts of the Bank’s Agents have similarly reported an easing in hiring constraints, although persistent skills shortages remain in some sectors. Pay growth has remained high across a range of indicators, although the recent rise in the annual rate of growth of private sector regular average weekly earnings has not been apparent in other series. There remains uncertainty about the near-term path of pay, but wage growth is nonetheless projected to decline in coming quarters from these elevated levels. Twelve-month CPI inflation fell to 6.7% both in September and 2023 Q3, below expectations in the August Report. This downside news largely reflects lower-than-expected core goods price inflation. At close to 7%, services inflation has been only slightly weaker than expected in August. CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2. This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation. In the MPC’s latest most likely, or modal, projection conditioned on the market-implied path for Bank Rate, CPI inflation returns to the 2% target by the end of 2025. It then falls below the target thereafter, as an increasing degree of economic slack reduces domestic inflationary pressures. The Committee continues to judge that the risks to its modal inflation projection are skewed to the upside. Second-round effects in domestic prices and wages are expected to take longer to unwind than they did to emerge. There are also upside risks to inflation from energy prices given events in the Middle East. Taking account of this skew, the mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively. Conditioned on the alternative assumption of constant interest rates at 5.25%, which is a higher profile than the market curve beyond the second half of 2024, mean CPI inflation returns to target in two years’ time and falls to 1.6% at the three-year horizon. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Since the MPC’s previous decision, there has been little news in key indicators of UK inflation persistence. There have continued to be signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Minutes of the Monetary Policy Committee meeting ending on 1 November 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying November 2023 Monetary Policy Report . 2: The Committee discussed the global economic outlook. Consumer price inflation had generally been easing in advanced economies, but remained elevated. There were upside risks to inflation from energy prices given events in the Middle East. Global growth had remained subdued over the course of 2023 and, in aggregate, had evolved largely as had been expected in the August Monetary Policy Report. Within that, in 2023 Q3, GDP growth in the United States and China had been stronger than expected while euro-area growth had been weaker. Bank staff judged that output was currently above potential in the United States and could remain so for some time, although the extent to which recent strength in activity had also reflected stronger supply was uncertain. In contrast, a sustained period of excess supply was expected in the euro area. In part, that reflected the greater exposure of Europe to the global energy price shock, which had contributed to a more significant trade-off between the outlooks for inflation and growth. 3: Market expectations for the paths of policy rates suggested that interest rates were at or near their peaks in the United Kingdom, the United States and the euro area. Monetary policymakers in each jurisdiction had described the stance of monetary policy as restrictive. Market participants had reported an increasing conviction that UK policy rates would remain ‘higher-for-longer’ and the median respondent to the Bank's latest Market Participants Survey expected Bank Rate to remain at 5.25% until the second half of 2024, before declining gradually. The sensitivity of interest rates over the year ahead to economic data outturns appeared to have diminished, with more variation in expected rates at the two and three-year horizons. 4: The Committee discussed movements in longer-term advanced economy government bond yields, which had risen materially since the MPC’s September meeting, with the largest moves seen in the United States. In part, that was likely to reflect market expectations that global policy rates would remain higher for longer during the current cycle. It was also possible that market perceptions of the equilibrium real interest rate had risen in recent years. Models used by Bank staff suggested that a rise in term premia, the additional compensation that investors required to hold longer-term bonds, had contributed to the most recent rise in longer-term global yields. That might have reflected increased uncertainty around the economic outlook and interest rates, as well as an evolving assessment of the balance of supply and demand in government bond markets. It remained the case, however, that changes in term premia had accounted for only a small proportion of the overall rise in longer-term advanced economy government bond yields over the past two years, relative to the contribution from the rise in expected policy rates. 5: The Committee discussed the recent weakening in UK GDP growth, in the context of the significant tightening of monetary policy since the end of 2021, continued weakness in potential supply growth and an unwinding of previous fiscal support. Quarterly GDP was expected to have been flat in 2023 Q3. Some business surveys of current output and orders were pointing to a fall in GDP in Q4, although other more forward-looking indicators were less pessimistic about growth prospects. 6: There had been increasing signs of some impact of tighter monetary policy on momentum in the real economy. This was perhaps clearest in weaker housing investment, for which the impact of tighter policy was likely to have come through most quickly. Contacts of the Bank’s Agents were reporting that higher financing costs, along with greater economic uncertainty, had also been inhibiting business investment, although companies with strong cash positions were continuing to invest. The tightening in monetary policy would take time to feed through to consumer spending fully and was taking effect against the backdrop of a broader recovery in real incomes. There had, however, been declines recently in retail sales volumes, consumer services output and consumer confidence. 7: The slowdown in GDP growth had been feeding into a softening of labour demand. A decline in response rates had resulted in the ONS temporarily ceasing to publish Labour Force Survey estimates of employment, unemployment and inactivity from the June data. Nevertheless, the collective steer from a broad range of indicators, which had tracked the underlying trends in official estimates of labour market activity in the past, pointed to employment being broadly flat in the second half of 2023. There was a narrower set of indicators available to monitor developments in the split of non-employment between unemployment and inactivity. The number of vacancies had continued to decline and indicators of recruitment difficulties had eased, consistent with the labour market loosening further. The labour market had nevertheless remained relatively tight. 8: The Committee discussed the degree of persistence in wages and domestic prices. The recent rise in the annual rate of growth of private sector regular average weekly earnings had not been apparent in other indicators of pay, but there was a common signal that wage growth had remained elevated at around 7%. At the same time, annual services CPI inflation had yet to recede meaningfully, with declines in headline inflation having instead been accounted for by lower energy, food and core goods price inflation. The recent persistence in CPI inflation had in part reflected second-round effects, including through companies’ price-setting behaviour. In its November Monetary Report projections, the MPC also judged that more of the recent unexpected strength in pay had been associated with a higher medium-term unemployment rate, owing to more persistent labour market frictions and a resistance to past losses in real income. To the extent that higher unemployment had reflected such supply-related factors, it would imply less easing in the labour market and hence weigh less on pay growth. The immediate policy decision 9: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 10: The Committee agreed that there had been little news in key indicators of UK inflation persistence since the MPC’s previous decision. Past increases in Bank Rate had weighed increasingly on the economy with the impact of tighter monetary policy likely to materialise earlier in demand and labour market tightness than in wage growth and services CPI inflation. 11: UK GDP was expected to have been unchanged in 2023 Q3, and to grow by 0.1% in Q4. In the MPC’s November Monetary Policy Report projections, GDP was expected to be broadly flat over the first half of the forecast period and growth was projected to remain well below historical averages in the medium term, a weaker profile than in the August Report. 12: Against this backdrop of subdued economic activity, and based on a range of indicators, employment growth was likely to have softened. Falling vacancies and surveys indicating an easing of recruitment difficulties also pointed to a loosening in the labour market. 13: Pay growth had remained high across a range of indicators, although the recent rise in the annual rate of growth of private sector regular average weekly earnings (AWE) had not been apparent in other series. There remained uncertainty about the near-term path of pay. The MPC judged in its November Report projections that more of the recent unexpected strength in pay had been associated with a higher medium-term equilibrium unemployment rate, and therefore greater persistence in wage and price inflation. 14: Twelve-month CPI inflation remained well above the 2% target. Inflation had fallen to 6.7% both in September and 2023 Q3, below expectations in the August Report. The downside news had largely reflected lower-than-expected core goods price inflation. At close to 7%, services CPI inflation was only slightly weaker than had been expected in August. 15: In the MPC’s latest most likely, or modal, projections, conditioned on the market-implied path for Bank Rate, CPI inflation was expected to return to the 2% target by the end of 2025. It was then projected to fall below the target thereafter, as an increasing degree of economic slack was expected to reduce domestic inflationary pressures. 16: The Committee continued to judge that the risks around the modal inflation projection were skewed to the upside. Second-round effects in domestic prices and wages were expected to take longer to unwind than they had done to emerge. There were also upside risks to inflation from energy prices given events in the Middle East. Taking account of this skew, the mean projection for CPI inflation was 2.2% and 1.9% at the two and three-year horizons respectively. 17: The MPC also considered its projections conditioned on the alternative assumption of constant interest rates at 5.25% over the forecast period, which was a higher profile than the market curve beyond the second half of 2024. Under this alternative assumption, mean CPI inflation was expected to return to the 2% target in two years’ time, three quarters earlier than when conditioned on the market-implied path for interest rates. 18: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 19: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The decision whether to increase or to maintain Bank Rate at this meeting was again finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could prove more persistent, and the risks of tightening policy too much given the impact of policy that was still to come through. 20: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. There had been little news in UK economic data since the previous meeting. GDP growth had weakened and the labour market had continued to loosen. CPI inflation was expected to decline significantly in coming quarters, and the acceleration in AWE, while noteworthy, was not reflected in a broader range of wage growth measures. For most members within this group, the MPC’s latest projections indicated that a restrictive monetary policy stance was likely to be warranted for an extended period of time to bring inflation sustainably back to the 2% target. A further rise in Bank Rate remained a possibility. For one member, the risks of overtightening policy had continued to build. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 21: Three members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although there was some weakening in economic activity, real household incomes had continued to rise, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment and strong labour demand, and the pace of loosening had been slow. Measures of wage growth and services inflation had remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and bring inflation back to target sustainably in the medium term. 22: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. The MPC’s latest projections indicated that monetary policy was likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. 23: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 24: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members (Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. Operational considerations 25: On 25 September, the Bank of England had completed the final gilt sales auction of the October 2022 to September 2023 annual programme to meet the MPC’s decision to reduce the stock of UK government bond purchases held for monetary policy purposes by £80 billion over that period. 26: At its September 2023 meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024. The first auction of that annual programme had taken place on 2 October 2023. 27: On 1 November, the total stock of assets held for monetary policy purposes was £751 billion, comprising £750 billion of UK government bond purchases and £0.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 28: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sarah Breeden was present as an observer before becoming a member on 1 November. Sam Beckett was present as the Treasury representative. Ben Bernanke was present as an observer. Monetary Policy Summary, November 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 November 2023, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Three members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. The Committee’s updated projections for activity and inflation are set out in the accompanying November Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that remains around 5¼% until 2024 Q3 and then declines gradually to 4¼% by the end of 2026, a lower profile than underpinned the August projections. Since the MPC’s previous meeting, long-term government bond yields have increased across advanced economies. GDP growth has been stronger than expected in the United States. Underlying inflationary pressures in advanced economies remain elevated. Following events in the Middle East, the oil futures curve has risen somewhat while gas futures prices are little changed. UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than projected previously. The MPC continues to consider a wide range of data to inform its view on developments in labour market activity, rather than focusing on a single indicator. The increasing uncertainties surrounding the Labour Force Survey underline the importance of this approach. Against a backdrop of subdued economic activity, employment growth is likely to have softened over the second half of 2023, and to a greater extent than projected in the August Report. Falling vacancies and surveys indicating an easing of recruitment difficulties also point to a loosening in the labour market. Contacts of the Bank’s Agents have similarly reported an easing in hiring constraints, although persistent skills shortages remain in some sectors. Pay growth has remained high across a range of indicators, although the recent rise in the annual rate of growth of private sector regular average weekly earnings has not been apparent in other series. There remains uncertainty about the near-term path of pay, but wage growth is nonetheless projected to decline in coming quarters from these elevated levels. Twelve-month CPI inflation fell to 6.7% both in September and 2023 Q3, below expectations in the August Report. This downside news largely reflects lower-than-expected core goods price inflation. At close to 7%, services inflation has been only slightly weaker than expected in August. CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2. This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation. In the MPC’s latest most likely, or modal, projection conditioned on the market-implied path for Bank Rate, CPI inflation returns to the 2% target by the end of 2025. It then falls below the target thereafter, as an increasing degree of economic slack reduces domestic inflationary pressures. The Committee continues to judge that the risks to its modal inflation projection are skewed to the upside. Second-round effects in domestic prices and wages are expected to take longer to unwind than they did to emerge. There are also upside risks to inflation from energy prices given events in the Middle East. Taking account of this skew, the mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively. Conditioned on the alternative assumption of constant interest rates at 5.25%, which is a higher profile than the market curve beyond the second half of 2024, mean CPI inflation returns to target in two years’ time and falls to 1.6% at the three-year horizon. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Since the MPC’s previous decision, there has been little news in key indicators of UK inflation persistence. There have continued to be signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Minutes of the Monetary Policy Committee meeting ending on 1 November 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying November 2023 Monetary Policy Report . 2: The Committee discussed the global economic outlook. Consumer price inflation had generally been easing in advanced economies, but remained elevated. There were upside risks to inflation from energy prices given events in the Middle East. Global growth had remained subdued over the course of 2023 and, in aggregate, had evolved largely as had been expected in the August Monetary Policy Report. Within that, in 2023 Q3, GDP growth in the United States and China had been stronger than expected while euro-area growth had been weaker. Bank staff judged that output was currently above potential in the United States and could remain so for some time, although the extent to which recent strength in activity had also reflected stronger supply was uncertain. In contrast, a sustained period of excess supply was expected in the euro area. In part, that reflected the greater exposure of Europe to the global energy price shock, which had contributed to a more significant trade-off between the outlooks for inflation and growth. 3: Market expectations for the paths of policy rates suggested that interest rates were at or near their peaks in the United Kingdom, the United States and the euro area. Monetary policymakers in each jurisdiction had described the stance of monetary policy as restrictive. Market participants had reported an increasing conviction that UK policy rates would remain ‘higher-for-longer’ and the median respondent to the Bank's latest Market Participants Survey expected Bank Rate to remain at 5.25% until the second half of 2024, before declining gradually. The sensitivity of interest rates over the year ahead to economic data outturns appeared to have diminished, with more variation in expected rates at the two and three-year horizons. 4: The Committee discussed movements in longer-term advanced economy government bond yields, which had risen materially since the MPC’s September meeting, with the largest moves seen in the United States. In part, that was likely to reflect market expectations that global policy rates would remain higher for longer during the current cycle. It was also possible that market perceptions of the equilibrium real interest rate had risen in recent years. Models used by Bank staff suggested that a rise in term premia, the additional compensation that investors required to hold longer-term bonds, had contributed to the most recent rise in longer-term global yields. That might have reflected increased uncertainty around the economic outlook and interest rates, as well as an evolving assessment of the balance of supply and demand in government bond markets. It remained the case, however, that changes in term premia had accounted for only a small proportion of the overall rise in longer-term advanced economy government bond yields over the past two years, relative to the contribution from the rise in expected policy rates. 5: The Committee discussed the recent weakening in UK GDP growth, in the context of the significant tightening of monetary policy since the end of 2021, continued weakness in potential supply growth and an unwinding of previous fiscal support. Quarterly GDP was expected to have been flat in 2023 Q3. Some business surveys of current output and orders were pointing to a fall in GDP in Q4, although other more forward-looking indicators were less pessimistic about growth prospects. 6: There had been increasing signs of some impact of tighter monetary policy on momentum in the real economy. This was perhaps clearest in weaker housing investment, for which the impact of tighter policy was likely to have come through most quickly. Contacts of the Bank’s Agents were reporting that higher financing costs, along with greater economic uncertainty, had also been inhibiting business investment, although companies with strong cash positions were continuing to invest. The tightening in monetary policy would take time to feed through to consumer spending fully and was taking effect against the backdrop of a broader recovery in real incomes. There had, however, been declines recently in retail sales volumes, consumer services output and consumer confidence. 7: The slowdown in GDP growth had been feeding into a softening of labour demand. A decline in response rates had resulted in the ONS temporarily ceasing to publish Labour Force Survey estimates of employment, unemployment and inactivity from the June data. Nevertheless, the collective steer from a broad range of indicators, which had tracked the underlying trends in official estimates of labour market activity in the past, pointed to employment being broadly flat in the second half of 2023. There was a narrower set of indicators available to monitor developments in the split of non-employment between unemployment and inactivity. The number of vacancies had continued to decline and indicators of recruitment difficulties had eased, consistent with the labour market loosening further. The labour market had nevertheless remained relatively tight. 8: The Committee discussed the degree of persistence in wages and domestic prices. The recent rise in the annual rate of growth of private sector regular average weekly earnings had not been apparent in other indicators of pay, but there was a common signal that wage growth had remained elevated at around 7%. At the same time, annual services CPI inflation had yet to recede meaningfully, with declines in headline inflation having instead been accounted for by lower energy, food and core goods price inflation. The recent persistence in CPI inflation had in part reflected second-round effects, including through companies’ price-setting behaviour. In its November Monetary Report projections, the MPC also judged that more of the recent unexpected strength in pay had been associated with a higher medium-term unemployment rate, owing to more persistent labour market frictions and a resistance to past losses in real income. To the extent that higher unemployment had reflected such supply-related factors, it would imply less easing in the labour market and hence weigh less on pay growth. The immediate policy decision 9: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 10: The Committee agreed that there had been little news in key indicators of UK inflation persistence since the MPC’s previous decision. Past increases in Bank Rate had weighed increasingly on the economy with the impact of tighter monetary policy likely to materialise earlier in demand and labour market tightness than in wage growth and services CPI inflation. 11: UK GDP was expected to have been unchanged in 2023 Q3, and to grow by 0.1% in Q4. In the MPC’s November Monetary Policy Report projections, GDP was expected to be broadly flat over the first half of the forecast period and growth was projected to remain well below historical averages in the medium term, a weaker profile than in the August Report. 12: Against this backdrop of subdued economic activity, and based on a range of indicators, employment growth was likely to have softened. Falling vacancies and surveys indicating an easing of recruitment difficulties also pointed to a loosening in the labour market. 13: Pay growth had remained high across a range of indicators, although the recent rise in the annual rate of growth of private sector regular average weekly earnings (AWE) had not been apparent in other series. There remained uncertainty about the near-term path of pay. The MPC judged in its November Report projections that more of the recent unexpected strength in pay had been associated with a higher medium-term equilibrium unemployment rate, and therefore greater persistence in wage and price inflation. 14: Twelve-month CPI inflation remained well above the 2% target. Inflation had fallen to 6.7% both in September and 2023 Q3, below expectations in the August Report. The downside news had largely reflected lower-than-expected core goods price inflation. At close to 7%, services CPI inflation was only slightly weaker than had been expected in August. 15: In the MPC’s latest most likely, or modal, projections, conditioned on the market-implied path for Bank Rate, CPI inflation was expected to return to the 2% target by the end of 2025. It was then projected to fall below the target thereafter, as an increasing degree of economic slack was expected to reduce domestic inflationary pressures. 16: The Committee continued to judge that the risks around the modal inflation projection were skewed to the upside. Second-round effects in domestic prices and wages were expected to take longer to unwind than they had done to emerge. There were also upside risks to inflation from energy prices given events in the Middle East. Taking account of this skew, the mean projection for CPI inflation was 2.2% and 1.9% at the two and three-year horizons respectively. 17: The MPC also considered its projections conditioned on the alternative assumption of constant interest rates at 5.25% over the forecast period, which was a higher profile than the market curve beyond the second half of 2024. Under this alternative assumption, mean CPI inflation was expected to return to the 2% target in two years’ time, three quarters earlier than when conditioned on the market-implied path for interest rates. 18: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 19: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The decision whether to increase or to maintain Bank Rate at this meeting was again finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could prove more persistent, and the risks of tightening policy too much given the impact of policy that was still to come through. 20: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. There had been little news in UK economic data since the previous meeting. GDP growth had weakened and the labour market had continued to loosen. CPI inflation was expected to decline significantly in coming quarters, and the acceleration in AWE, while noteworthy, was not reflected in a broader range of wage growth measures. For most members within this group, the MPC’s latest projections indicated that a restrictive monetary policy stance was likely to be warranted for an extended period of time to bring inflation sustainably back to the 2% target. A further rise in Bank Rate remained a possibility. For one member, the risks of overtightening policy had continued to build. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 21: Three members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although there was some weakening in economic activity, real household incomes had continued to rise, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment and strong labour demand, and the pace of loosening had been slow. Measures of wage growth and services inflation had remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and bring inflation back to target sustainably in the medium term. 22: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. The MPC’s latest projections indicated that monetary policy was likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. 23: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 24: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members (Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. Operational considerations 25: On 25 September, the Bank of England had completed the final gilt sales auction of the October 2022 to September 2023 annual programme to meet the MPC’s decision to reduce the stock of UK government bond purchases held for monetary policy purposes by £80 billion over that period. 26: At its September 2023 meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024. The first auction of that annual programme had taken place on 2 October 2023. 27: On 1 November, the total stock of assets held for monetary policy purposes was £751 billion, comprising £750 billion of UK government bond purchases and £0.6 billion of sterling non‐financial investment‐grade corporate bond purchases. 28: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sarah Breeden was present as an observer before becoming a member on 1 November. Sam Beckett was present as the Treasury representative. Ben Bernanke was present as an observer.

Monetary Policy Summary, December 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 13 December 2023, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Three members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. In the MPC’s November Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that remained around 5¼% until 2024 Q3 and then declined gradually to 4¼% by the end of 2026, GDP was expected to be broadly flat in the first half of the forecast period, in part reflecting relatively weak potential supply, and an increasing degree of economic slack was expected to emerge from the start of next year. In the most likely, or modal, projection, CPI inflation returned to the 2% target by the end of 2025 and fell below the target thereafter. The Committee continued to judge that the risks to its modal inflation projection were skewed to the upside, such that the mean projection for CPI inflation was 2.2% and 1.9% at the two and three-year horizons. Since the MPC’s previous meeting, advanced-economy government bond yields have fallen materially, including at shorter horizons, and risky asset prices have risen. Global GDP growth has been a little stronger than projected in the November Report. Consumer price inflation in the euro area and the United States has declined more quickly than expected. There remain upside risks to inflation given events in the Middle East, although oil and wholesale gas futures prices have fallen. UK GDP was flat in 2023 Q3, in line with the November Report projection, and fell by 0.3% in October. Based on the latest official and survey data, Bank staff expect GDP growth to be broadly flat in Q4 and over coming quarters. The Committee continues to consider a wide range of data on developments in labour market activity. Employment growth is likely to have softened, and there has been further evidence of some loosening in the labour market. Relative to the assumptions in the November Report, the fiscal measures in the Autumn Statement are provisionally estimated to increase the level of GDP by around ¼% over coming years. As these measures will probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, are likely to be smaller. Annual private sector regular Average Weekly Earnings (AWE) growth declined to 7.3% in the three months to October, 0.5 percentage points below the November Report projection. That has brought AWE somewhat more into line with other indicators of pay growth, which have fallen below 7%. There remain upside risks to the outlook for wage growth, including from the possible effects of the recently announced increase in the National Living Wage. Twelve-month CPI inflation fell sharply from 6.7% in September to 4.6% in October. Services price inflation declined to 6.6%, although much of the downside news relative to the November Report reflected movements in components that may not provide a good signal of underlying trends in services prices and of persistence in headline inflation. CPI inflation is expected to remain near to its current rate around the turn of the year. In particular, services price inflation is projected to increase temporarily in January, related to base effects from unusually weak price movements at the start of this year, before starting to fall back gradually thereafter. The near-term path for CPI inflation is somewhat lower than projected in the November Report, in part reflecting recent declines in energy prices. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Since the MPC’s previous decision, CPI inflation has fallen back broadly as expected, while there has been some downside news in private sector regular AWE growth. However, key indicators of UK inflation persistence remain elevated. As anticipated, tighter monetary policy is leading to a looser labour market and is weighing on activity in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. As illustrated by the November Monetary Policy Report projections, the Committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Minutes of the Monetary Policy Committee meeting ending on 13 December 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.5% in 2023 Q3, a touch stronger than projected in the November Monetary Policy Report. Growth among advanced economies had diverged, with significantly weaker growth in the euro area than in the United States. In Q4, global GDP growth was expected to slow to 0.4%. 3: Euro-area GDP had contracted by 0.1% in the third quarter, just above the November Report projection, and was expected to be flat in 2023 Q4. Near-term indicators such as services and manufacturing output PMIs had stabilised over recent months, albeit at levels indicating a contraction in activity. Industrial production had remained weak, particularly in energy-intensive sectors. 4: By contrast, US GDP had grown by 1.3% in 2023 Q3, stronger than had been expected in the November Report, but was projected to slow markedly in the fourth quarter. Recent data releases had shown signs of softening consumption growth, and both services and manufacturing ISM PMIs had weakened relative to the third quarter. 5: In China, GDP had grown by 1.3% in 2023 Q3. Going forward, growth was expected to slow given relatively weak momentum in recent indicators such as PMIs. Annual consumer price inflation in China had turned negative over recent months, in part accounted for by lower food prices. 6: Since the MPC’s November meeting and despite the continuing conflict in the Middle East, the Brent spot oil price had fallen by 17%, to around $75 per barrel, owing to a combination of slowing global demand, evidence of supply increases from non-OPEC countries, less binding OPEC supply cuts than had been anticipated by market participants, as well as healthy US inventory growth. European wholesale gas spot and near-term futures prices had fallen by nearly 30%, as storage levels were almost full going into winter and as forecasts of warmer weather had curbed demand expectations, while supply had been boosted by a re-opening of Israel’s production capacity. 7: The Committee discussed the relative extent of disinflation across advanced economies and the risks around the global inflation outlook. Consumer price inflation had declined more quickly in the euro area and the United States over recent months than had been expected in the November Report. According to the flash estimate, annual euro-area headline HICP inflation had fallen to 2.4% in November. Energy and food prices had contributed to the decline, and core goods and services price inflation had also declined such that core inflation had fallen to 3.6%. In the United States, headline CPI inflation had fallen to 3.1% in November, with energy price deflation contributing to the decline. Core CPI inflation had remained more stable in recent months, at 4.0%, as core services price inflation had eased more slowly. 8: Relative to both economies, core inflation had fallen back by less in the United Kingdom, to 5.7% in October, reflecting smaller declines so far in core goods price inflation and more elevated services price inflation. To the extent that they were broadly comparable, measures of wage inflation were also considerably higher in the United Kingdom than elsewhere, even though there were signs of easing in all three economies. 9: Looking forward, domestically generated inflationary pressures in most advanced economies remained elevated and could yet keep headline inflation above central bank targets for some time. There was also a risk that developments in the Middle East could lead to a renewed rise in energy, and potentially other traded goods, prices. Such a shock would push inflation higher once again, and could interact with inflation expectations and lead to second-round effects. Monetary and financial conditions 10: Since the Committee’s previous meeting, government bond yields had fallen materially across major advanced economies, including at shorter horizons. Corporate credit spreads had also declined and equity prices had picked up. 11: Market pricing suggested that policy interest rates in most major advanced economies were at their expected peaks and would remain there for several months. In contrast to developments during much of this year, recent economic news had had less impact on expected peak policy rates, which had remained relatively stable. Instead, recent news had tended to affect, and on net reduce, the length of time policy rates were expected to stay at the peak. 12: In the United Kingdom, all of the respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. The median MaPS respondent expected Bank Rate to remain at 5.25% until the second half of 2024, before declining gradually. Option-implied market pricing suggested that market participants had increased the probability they placed on Bank Rate remaining at its current level in three months’ time. The fall in longer-term UK government bond yields since the previous MPC meeting had been somewhat less pronounced than in the United States and in the euro area. Broadly consistent with this, the sterling effective exchange rate had ended the period around 2% higher. 13: Despite having fallen since the MPC’s previous meeting, ten-year government bond yields across major advanced economies remained materially higher than at the start of the current monetary policy tightening cycle, by around 325 basis points in the United Kingdom. There was some evidence that UK long rates had been more sensitive to changes in short rates during this tightening cycle than during the period before the global financial crisis, perhaps because of changes in market participants’ perceptions about the level of the neutral rate of interest and about inflation persistence. 14: Medium-term inflation compensation measures in the United Kingdom had fallen slightly relative to the MPC’s previous meeting. Although interpreting the level of these measures continued to be difficult, they had remained lower than their peak in March 2022, but above their average levels of the previous decade. The median MaPS respondent’s expectation for CPI inflation three years ahead was 2.0% in the latest survey, down slightly relative to the previous survey. 15: Aggregate sterling net lending by banks (M4Lex) had fallen in October, and the twelve-month growth rate had continued to be negative, albeit slightly less so than in September. Within that, annual growth in gross mortgage lending had slowed further. Quoted rates on fixed-rate mortgage products had fallen further since the MPC’s previous meeting, largely reflecting the pass-through of reductions in their corresponding risk-free reference rates. 16: The annual growth rate of aggregate sterling broad money (M4ex) had remained negative in October, at around -3%. Within that, annual growth in household deposits had continued to slow, such that the ratio of household deposits to gross disposable income, which had increased sharply during the Covid lockdown period in 2020, had now fallen to just above its pre-Covid level. Demand and output 17: The level of real GDP had been unchanged in 2023 Q3, in line with expectations at the time of the November Monetary Policy Report, but weaker than the positive growth that had been recorded during the first half of the year. Domestic demand growth had been weaker than expected in Q3, with household consumption estimated to have fallen by 0.4%, and business and housing investment down by 4.2% and 1.3% respectively. 18: Monthly GDP had fallen by 0.3% in October, weaker than had been expected though following a 0.2% increase in September. The declines in output had been broad based across the services, production and construction sectors. Abstracting from volatility in government health services output, market sector activity had fallen to its lowest level since December 2022. 19: Set against that softness, the S&P Global/CIPS UK composite output PMI had risen back above 50 in November, consistent with broadly unchanged GDP. Business survey indicators of future growth had also remained more positive. The latest intelligence from the Bank’s Agents suggested that demand had weakened slightly further over recent weeks, however. Overall, Bank staff now expected GDP to be flat in 2023 Q4, compared with the 0.1% positive growth that had been projected in the November Report. 20: Signs of weakening in household consumption had become more evident since the MPC’s previous meeting. Real household labour incomes looked to have continued to rise during the second half of the year. Nevertheless, retail sales volumes had declined by 0.3% in October, following a 1.1% fall in September, which had taken spending to its lowest level since the 2021 Covid lockdown period. The Bank’s Agents had also reported flat or falling consumer goods volumes compared to a year ago. GfK consumer confidence had risen in November, although it had been broadly flat since the spring at an historically weak level. 21: Alongside continued falls in housing investment, indicators of housing market activity and prices had remained weak. The UK House Price Index had declined by 0.5% in September but that had reversed a similar-sized increase in August, and prices had been broadly unchanged over the previous year. More timely indicators of prices had picked up a little over recent months. A range of indicators of housing construction activity were consistent with a further decline in dwelling investment at the end of this year. 22: The Autumn Statement had taken place on 22 November, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility (OBR). The OBR had judged that the medium-term fiscal outlook had improved, with receipts being boosted by the interaction of higher nominal earnings and frozen tax thresholds. 23: Additional fiscal measures had been announced in the Statement, including a 2 pence cut in the main rate of employee National Insurance Contributions, a permanent 100% capital allowance for qualifying business investment, and a package of reforms to welfare and health services designed to increase labour market participation. Relative to what had been assumed in the November Report, Bank staff had provisionally estimated that these additional measures could increase the level of GDP by around ¼% over coming years. As the measures would probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, were likely to be smaller. A full assessment of this news would be conducted as part of the February Report forecast round. Supply, costs and prices 24: Reflecting in part the increased uncertainties around the ONS’s official labour market activity data, the Committee was continuing to consider a wide range of indicators that collectively pointed to some loosening in the labour market. The ONS was expected to release updated Labour Force Survey (LFS) estimates in January to reflect more recent UK population figures, including higher net migration since 2021. 25: Quarterly employment growth had been slowing, as reflected by the HMRC PAYE Real Time Information measure, and broadly in line with the November Monetary Policy Report projection. Contacts of the Bank’s Agents had reported softening labour demand relative to supply over the past year, consistent with surveys such as the REC/KPMG Report on Jobs that had also indicated a continued easing in recruitment difficulties. The ONS’s experimental estimate of the unemployment rate, based on the LFS data for June projected forward in line with the claimant count, had remained flat at 4.2% in the three months to October. The vacancies-to-unemployment ratio had fallen to 0.66 in the three months to October, slightly above the levels seen just prior to the pandemic, accounted for mainly by a fall in vacancies. 26: Indicators of pay growth had declined, although they had remained elevated overall. Annual private sector regular Average Weekly Earnings (AWE) growth had been 7.3% in the three months to October, 0.8 percentage points lower than in the three months to July and 0.5 percentage points lower than the November Report projection. This decline had brought the AWE series somewhat more in line with, but still higher than, other indicators of pay that had dipped below 7% in October. Excluding government-related sectors, a Bank staff calculation based on HMRC PAYE Real Time Information suggested that median pay growth had fallen further in November, although these data were early estimates subject to revision. 27: The downward trend in wage growth was broadly consistent with more forward-looking indicators. Expectations for future wage growth from the Decision Maker Panel (DMP) Survey had fallen to 5% in October from around 6% at the start of the year. Early intelligence from the Bank’s Agents signalled a fall in average annual pay settlements in 2024. The Committee noted continued upside risks to wage growth forecasts, however. This included the direct and possible indirect effects of the recently announced increase in the National Living Wage, for example if existing pay relativities within businesses were re-established. 28: Twelve-month CPI inflation had fallen sharply from 6.7% in September to 4.6% in October, 0.2 percentage points below the November Report forecast. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 29: The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however. 30: The reduction in the Ofgem energy price cap in October had reduced materially the typical household energy bill compared to a year ago. Despite the announced rise in the price cap by around 5% in January, energy was expected to continue to contribute negatively to annual CPI inflation over the next six months, and to a greater extent than had been expected previously, reflecting the recent declines in oil prices as well as in wholesale gas futures prices if sustained. 31: Core goods price inflation was projected to fall further in coming quarters, reflecting base effects and decreasing cost pressures, including from easing global goods price inflation. Contacts of the Bank’s Agents anticipated further declines in food price inflation, with a number having revised their estimates lower compared to November. 32: Services price inflation had remained higher than overall CPI inflation at 6.6% in October, a fall of 0.3 percentage points from September and 0.3 percentage points lower than expected in the November Report. This downside news, however, had been accounted for by those components that were not typically reliable indicators of trends in inflationary persistence, such as non-private rents, accommodation and airfares. Excluding these components, services inflation had been more stable at continued high rates, in line with the preceding six months. 33: The S&P Global/CIPS UK services input and output price PMIs had remained below their peaks in early 2022, while Agents’ contacts had reported that non-labour cost-pressures were moderating. Although a general easing in services price inflation was therefore anticipated over 2024, a temporary spike was likely in January. Large and unusual falls in a number of services prices at the beginning of 2023 were not expected to be repeated at the start of next year, which would increase mechanically the annual percentage change in services price inflation in January. This positive base effect was expected to increase CPI inflation from just under 4½% at the end of this year to around 4¾% in January, before falling back closer to 4% in February. 34: Inflation expectations for the year ahead had remained at elevated levels, particularly for businesses. Short-term business expectations, as measured in the DMP Survey, had eased slightly, although three-year expectations had been marginally higher. Households’ short-term inflation expectations had continued to fall below the peaks seen in 2022. Longer-term household expectations had remained higher, but at close to their historical averages. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: In the MPC’s November Monetary Policy Report projections, GDP had been expected to be broadly flat in the first half of the forecast period, in part reflecting relatively weak potential supply. An increasing degree of economic slack had been expected to emerge from the start of next year, although the pace at which that slack emerged would depend on the relative contributions of supply and demand news to developments in activity. The Committee was undertaking a full review of the overall supply capacity of the economy in its regular stocktake ahead of the February Report. 37: As anticipated, tighter monetary policy was leading to a looser labour market and was weighing on activity in the real economy more generally. Based on the latest official and survey data, Bank staff expected GDP growth to be broadly flat in 2023 Q4 and over coming quarters. The Committee would continue to monitor closely the impact on activity and inflation of the significant increase in Bank Rate. It would also consider the impact of recent financial market movements on its macroeconomic projections as part of the forecast round ahead of its next meeting. 38: In the most likely, or modal, November Report projection, conditioned on a market-implied path for Bank Rate that had remained around 5¼% until 2024 Q3 and then had declined gradually to 4¼% by the end of 2026, CPI inflation had been expected to return to the 2% target by the end of 2025 and to fall below the target thereafter. The Committee had continued to judge that the risks to its modal inflation projection were skewed to the upside, such that the mean projection for CPI inflation had been 2.2% and 1.9% at the two and three-year horizons. 39: Since the MPC’s previous decision, CPI inflation had fallen back broadly as expected, to 4.6% in October. Key indicators of UK inflation persistence remained elevated. Services price inflation had declined to 6.6%, although much of the downside news relative to the November Report had reflected movements in components that might not provide a good signal of underlying trends in services prices and of persistence in headline inflation. 40: There had been some downside news in private sector regular Average Weekly Earnings growth, but it was important not to over-interpret developments in any one measure, which had to be placed in the context of the evolution of broader pay dynamics. There remained upside risks to the outlook for wage growth, including from the possible effects of the recently announced increase in the National Living Wage. Relative to developments in the United States and the euro area, measures of wage inflation were considerably higher in the United Kingdom and services price inflation had fallen back by less so far. 41: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 42: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The decision whether to increase or to maintain Bank Rate at this meeting was again finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could prove more persistent, and the risks of tightening policy too much given the impact of policy that was still to come through. 43: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Although some of the news in key data had been to the downside since the MPC’s previous decision, economic developments had been relatively limited overall. For most members within this group, it was too early to conclude that services price inflation and pay growth were on a firmly downward path. Both of these metrics of inflation persistence remained higher than in other major advanced economies, possibly reflecting less favourable supply-side developments and stronger second-round effects in the United Kingdom. Second-round effects were likely to be slow to unwind and, with the labour market still tight, the extent to which wage and price-setting would take account of the downward path of CPI inflation was not clear. The risks to CPI inflation in the medium term remained skewed to the upside including from events in the Middle East. For one member, the risks of overtightening policy had continued to build. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 44: Three members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although current indicators of economic activity had remained subdued, real household incomes had continued to edge up, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment, and the pace of loosening had been slow. Measures of wage growth had moderated slightly but had remained at rates above those consistent with the inflation target. Underlying services price inflation had remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures. Financial conditions had eased since the November Report. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term. 45: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. As was illustrated by the November Monetary Policy Report projections, the Committee continued to judge that monetary policy was likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. 46: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 47: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members (Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. Operational considerations 48: At its September 2023 meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024, comprising both maturing gilts and sales. The MPC had been briefed on progress on these gilt sales and on the operational arrangements for 2024 Q1, which would be published in a Market Notice at 4.30pm on 15 December. 49: On 13 December, the total stock of assets held for monetary policy purposes was £744 billion, comprising just under £744 billion of UK government bond purchases and £0.4 billion of sterling non‐financial investment‐grade corporate bond purchases. 50: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. Monetary Policy Summary, December 2023 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 13 December 2023, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Three members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. In the MPC’s November Monetary Policy Report projections, conditioned on a market-implied path for Bank Rate that remained around 5¼% until 2024 Q3 and then declined gradually to 4¼% by the end of 2026, GDP was expected to be broadly flat in the first half of the forecast period, in part reflecting relatively weak potential supply, and an increasing degree of economic slack was expected to emerge from the start of next year. In the most likely, or modal, projection, CPI inflation returned to the 2% target by the end of 2025 and fell below the target thereafter. The Committee continued to judge that the risks to its modal inflation projection were skewed to the upside, such that the mean projection for CPI inflation was 2.2% and 1.9% at the two and three-year horizons. Since the MPC’s previous meeting, advanced-economy government bond yields have fallen materially, including at shorter horizons, and risky asset prices have risen. Global GDP growth has been a little stronger than projected in the November Report. Consumer price inflation in the euro area and the United States has declined more quickly than expected. There remain upside risks to inflation given events in the Middle East, although oil and wholesale gas futures prices have fallen. UK GDP was flat in 2023 Q3, in line with the November Report projection, and fell by 0.3% in October. Based on the latest official and survey data, Bank staff expect GDP growth to be broadly flat in Q4 and over coming quarters. The Committee continues to consider a wide range of data on developments in labour market activity. Employment growth is likely to have softened, and there has been further evidence of some loosening in the labour market. Relative to the assumptions in the November Report, the fiscal measures in the Autumn Statement are provisionally estimated to increase the level of GDP by around ¼% over coming years. As these measures will probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, are likely to be smaller. Annual private sector regular Average Weekly Earnings (AWE) growth declined to 7.3% in the three months to October, 0.5 percentage points below the November Report projection. That has brought AWE somewhat more into line with other indicators of pay growth, which have fallen below 7%. There remain upside risks to the outlook for wage growth, including from the possible effects of the recently announced increase in the National Living Wage. Twelve-month CPI inflation fell sharply from 6.7% in September to 4.6% in October. Services price inflation declined to 6.6%, although much of the downside news relative to the November Report reflected movements in components that may not provide a good signal of underlying trends in services prices and of persistence in headline inflation. CPI inflation is expected to remain near to its current rate around the turn of the year. In particular, services price inflation is projected to increase temporarily in January, related to base effects from unusually weak price movements at the start of this year, before starting to fall back gradually thereafter. The near-term path for CPI inflation is somewhat lower than projected in the November Report, in part reflecting recent declines in energy prices. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. Since the MPC’s previous decision, CPI inflation has fallen back broadly as expected, while there has been some downside news in private sector regular AWE growth. However, key indicators of UK inflation persistence remain elevated. As anticipated, tighter monetary policy is leading to a looser labour market and is weighing on activity in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. As illustrated by the November Monetary Policy Report projections, the Committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. Minutes of the Monetary Policy Committee meeting ending on 13 December 2023 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.5% in 2023 Q3, a touch stronger than projected in the November Monetary Policy Report. Growth among advanced economies had diverged, with significantly weaker growth in the euro area than in the United States. In Q4, global GDP growth was expected to slow to 0.4%. 3: Euro-area GDP had contracted by 0.1% in the third quarter, just above the November Report projection, and was expected to be flat in 2023 Q4. Near-term indicators such as services and manufacturing output PMIs had stabilised over recent months, albeit at levels indicating a contraction in activity. Industrial production had remained weak, particularly in energy-intensive sectors. 4: By contrast, US GDP had grown by 1.3% in 2023 Q3, stronger than had been expected in the November Report, but was projected to slow markedly in the fourth quarter. Recent data releases had shown signs of softening consumption growth, and both services and manufacturing ISM PMIs had weakened relative to the third quarter. 5: In China, GDP had grown by 1.3% in 2023 Q3. Going forward, growth was expected to slow given relatively weak momentum in recent indicators such as PMIs. Annual consumer price inflation in China had turned negative over recent months, in part accounted for by lower food prices. 6: Since the MPC’s November meeting and despite the continuing conflict in the Middle East, the Brent spot oil price had fallen by 17%, to around $75 per barrel, owing to a combination of slowing global demand, evidence of supply increases from non-OPEC countries, less binding OPEC supply cuts than had been anticipated by market participants, as well as healthy US inventory growth. European wholesale gas spot and near-term futures prices had fallen by nearly 30%, as storage levels were almost full going into winter and as forecasts of warmer weather had curbed demand expectations, while supply had been boosted by a re-opening of Israel’s production capacity. 7: The Committee discussed the relative extent of disinflation across advanced economies and the risks around the global inflation outlook. Consumer price inflation had declined more quickly in the euro area and the United States over recent months than had been expected in the November Report. According to the flash estimate, annual euro-area headline HICP inflation had fallen to 2.4% in November. Energy and food prices had contributed to the decline, and core goods and services price inflation had also declined such that core inflation had fallen to 3.6%. In the United States, headline CPI inflation had fallen to 3.1% in November, with energy price deflation contributing to the decline. Core CPI inflation had remained more stable in recent months, at 4.0%, as core services price inflation had eased more slowly. 8: Relative to both economies, core inflation had fallen back by less in the United Kingdom, to 5.7% in October, reflecting smaller declines so far in core goods price inflation and more elevated services price inflation. To the extent that they were broadly comparable, measures of wage inflation were also considerably higher in the United Kingdom than elsewhere, even though there were signs of easing in all three economies. 9: Looking forward, domestically generated inflationary pressures in most advanced economies remained elevated and could yet keep headline inflation above central bank targets for some time. There was also a risk that developments in the Middle East could lead to a renewed rise in energy, and potentially other traded goods, prices. Such a shock would push inflation higher once again, and could interact with inflation expectations and lead to second-round effects. Monetary and financial conditions 10: Since the Committee’s previous meeting, government bond yields had fallen materially across major advanced economies, including at shorter horizons. Corporate credit spreads had also declined and equity prices had picked up. 11: Market pricing suggested that policy interest rates in most major advanced economies were at their expected peaks and would remain there for several months. In contrast to developments during much of this year, recent economic news had had less impact on expected peak policy rates, which had remained relatively stable. Instead, recent news had tended to affect, and on net reduce, the length of time policy rates were expected to stay at the peak. 12: In the United Kingdom, all of the respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. The median MaPS respondent expected Bank Rate to remain at 5.25% until the second half of 2024, before declining gradually. Option-implied market pricing suggested that market participants had increased the probability they placed on Bank Rate remaining at its current level in three months’ time. The fall in longer-term UK government bond yields since the previous MPC meeting had been somewhat less pronounced than in the United States and in the euro area. Broadly consistent with this, the sterling effective exchange rate had ended the period around 2% higher. 13: Despite having fallen since the MPC’s previous meeting, ten-year government bond yields across major advanced economies remained materially higher than at the start of the current monetary policy tightening cycle, by around 325 basis points in the United Kingdom. There was some evidence that UK long rates had been more sensitive to changes in short rates during this tightening cycle than during the period before the global financial crisis, perhaps because of changes in market participants’ perceptions about the level of the neutral rate of interest and about inflation persistence. 14: Medium-term inflation compensation measures in the United Kingdom had fallen slightly relative to the MPC’s previous meeting. Although interpreting the level of these measures continued to be difficult, they had remained lower than their peak in March 2022, but above their average levels of the previous decade. The median MaPS respondent’s expectation for CPI inflation three years ahead was 2.0% in the latest survey, down slightly relative to the previous survey. 15: Aggregate sterling net lending by banks (M4Lex) had fallen in October, and the twelve-month growth rate had continued to be negative, albeit slightly less so than in September. Within that, annual growth in gross mortgage lending had slowed further. Quoted rates on fixed-rate mortgage products had fallen further since the MPC’s previous meeting, largely reflecting the pass-through of reductions in their corresponding risk-free reference rates. 16: The annual growth rate of aggregate sterling broad money (M4ex) had remained negative in October, at around -3%. Within that, annual growth in household deposits had continued to slow, such that the ratio of household deposits to gross disposable income, which had increased sharply during the Covid lockdown period in 2020, had now fallen to just above its pre-Covid level. Demand and output 17: The level of real GDP had been unchanged in 2023 Q3, in line with expectations at the time of the November Monetary Policy Report, but weaker than the positive growth that had been recorded during the first half of the year. Domestic demand growth had been weaker than expected in Q3, with household consumption estimated to have fallen by 0.4%, and business and housing investment down by 4.2% and 1.3% respectively. 18: Monthly GDP had fallen by 0.3% in October, weaker than had been expected though following a 0.2% increase in September. The declines in output had been broad based across the services, production and construction sectors. Abstracting from volatility in government health services output, market sector activity had fallen to its lowest level since December 2022. 19: Set against that softness, the S&P Global/CIPS UK composite output PMI had risen back above 50 in November, consistent with broadly unchanged GDP. Business survey indicators of future growth had also remained more positive. The latest intelligence from the Bank’s Agents suggested that demand had weakened slightly further over recent weeks, however. Overall, Bank staff now expected GDP to be flat in 2023 Q4, compared with the 0.1% positive growth that had been projected in the November Report. 20: Signs of weakening in household consumption had become more evident since the MPC’s previous meeting. Real household labour incomes looked to have continued to rise during the second half of the year. Nevertheless, retail sales volumes had declined by 0.3% in October, following a 1.1% fall in September, which had taken spending to its lowest level since the 2021 Covid lockdown period. The Bank’s Agents had also reported flat or falling consumer goods volumes compared to a year ago. GfK consumer confidence had risen in November, although it had been broadly flat since the spring at an historically weak level. 21: Alongside continued falls in housing investment, indicators of housing market activity and prices had remained weak. The UK House Price Index had declined by 0.5% in September but that had reversed a similar-sized increase in August, and prices had been broadly unchanged over the previous year. More timely indicators of prices had picked up a little over recent months. A range of indicators of housing construction activity were consistent with a further decline in dwelling investment at the end of this year. 22: The Autumn Statement had taken place on 22 November, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility (OBR). The OBR had judged that the medium-term fiscal outlook had improved, with receipts being boosted by the interaction of higher nominal earnings and frozen tax thresholds. 23: Additional fiscal measures had been announced in the Statement, including a 2 pence cut in the main rate of employee National Insurance Contributions, a permanent 100% capital allowance for qualifying business investment, and a package of reforms to welfare and health services designed to increase labour market participation. Relative to what had been assumed in the November Report, Bank staff had provisionally estimated that these additional measures could increase the level of GDP by around ¼% over coming years. As the measures would probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, were likely to be smaller. A full assessment of this news would be conducted as part of the February Report forecast round. Supply, costs and prices 24: Reflecting in part the increased uncertainties around the ONS’s official labour market activity data, the Committee was continuing to consider a wide range of indicators that collectively pointed to some loosening in the labour market. The ONS was expected to release updated Labour Force Survey (LFS) estimates in January to reflect more recent UK population figures, including higher net migration since 2021. 25: Quarterly employment growth had been slowing, as reflected by the HMRC PAYE Real Time Information measure, and broadly in line with the November Monetary Policy Report projection. Contacts of the Bank’s Agents had reported softening labour demand relative to supply over the past year, consistent with surveys such as the REC/KPMG Report on Jobs that had also indicated a continued easing in recruitment difficulties. The ONS’s experimental estimate of the unemployment rate, based on the LFS data for June projected forward in line with the claimant count, had remained flat at 4.2% in the three months to October. The vacancies-to-unemployment ratio had fallen to 0.66 in the three months to October, slightly above the levels seen just prior to the pandemic, accounted for mainly by a fall in vacancies. 26: Indicators of pay growth had declined, although they had remained elevated overall. Annual private sector regular Average Weekly Earnings (AWE) growth had been 7.3% in the three months to October, 0.8 percentage points lower than in the three months to July and 0.5 percentage points lower than the November Report projection. This decline had brought the AWE series somewhat more in line with, but still higher than, other indicators of pay that had dipped below 7% in October. Excluding government-related sectors, a Bank staff calculation based on HMRC PAYE Real Time Information suggested that median pay growth had fallen further in November, although these data were early estimates subject to revision. 27: The downward trend in wage growth was broadly consistent with more forward-looking indicators. Expectations for future wage growth from the Decision Maker Panel (DMP) Survey had fallen to 5% in October from around 6% at the start of the year. Early intelligence from the Bank’s Agents signalled a fall in average annual pay settlements in 2024. The Committee noted continued upside risks to wage growth forecasts, however. This included the direct and possible indirect effects of the recently announced increase in the National Living Wage, for example if existing pay relativities within businesses were re-established. 28: Twelve-month CPI inflation had fallen sharply from 6.7% in September to 4.6% in October, 0.2 percentage points below the November Report forecast. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. 29: The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however. 30: The reduction in the Ofgem energy price cap in October had reduced materially the typical household energy bill compared to a year ago. Despite the announced rise in the price cap by around 5% in January, energy was expected to continue to contribute negatively to annual CPI inflation over the next six months, and to a greater extent than had been expected previously, reflecting the recent declines in oil prices as well as in wholesale gas futures prices if sustained. 31: Core goods price inflation was projected to fall further in coming quarters, reflecting base effects and decreasing cost pressures, including from easing global goods price inflation. Contacts of the Bank’s Agents anticipated further declines in food price inflation, with a number having revised their estimates lower compared to November. 32: Services price inflation had remained higher than overall CPI inflation at 6.6% in October, a fall of 0.3 percentage points from September and 0.3 percentage points lower than expected in the November Report. This downside news, however, had been accounted for by those components that were not typically reliable indicators of trends in inflationary persistence, such as non-private rents, accommodation and airfares. Excluding these components, services inflation had been more stable at continued high rates, in line with the preceding six months. 33: The S&P Global/CIPS UK services input and output price PMIs had remained below their peaks in early 2022, while Agents’ contacts had reported that non-labour cost-pressures were moderating. Although a general easing in services price inflation was therefore anticipated over 2024, a temporary spike was likely in January. Large and unusual falls in a number of services prices at the beginning of 2023 were not expected to be repeated at the start of next year, which would increase mechanically the annual percentage change in services price inflation in January. This positive base effect was expected to increase CPI inflation from just under 4½% at the end of this year to around 4¾% in January, before falling back closer to 4% in February. 34: Inflation expectations for the year ahead had remained at elevated levels, particularly for businesses. Short-term business expectations, as measured in the DMP Survey, had eased slightly, although three-year expectations had been marginally higher. Households’ short-term inflation expectations had continued to fall below the peaks seen in 2022. Longer-term household expectations had remained higher, but at close to their historical averages. The immediate policy decision 35: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 36: In the MPC’s November Monetary Policy Report projections, GDP had been expected to be broadly flat in the first half of the forecast period, in part reflecting relatively weak potential supply. An increasing degree of economic slack had been expected to emerge from the start of next year, although the pace at which that slack emerged would depend on the relative contributions of supply and demand news to developments in activity. The Committee was undertaking a full review of the overall supply capacity of the economy in its regular stocktake ahead of the February Report. 37: As anticipated, tighter monetary policy was leading to a looser labour market and was weighing on activity in the real economy more generally. Based on the latest official and survey data, Bank staff expected GDP growth to be broadly flat in 2023 Q4 and over coming quarters. The Committee would continue to monitor closely the impact on activity and inflation of the significant increase in Bank Rate. It would also consider the impact of recent financial market movements on its macroeconomic projections as part of the forecast round ahead of its next meeting. 38: In the most likely, or modal, November Report projection, conditioned on a market-implied path for Bank Rate that had remained around 5¼% until 2024 Q3 and then had declined gradually to 4¼% by the end of 2026, CPI inflation had been expected to return to the 2% target by the end of 2025 and to fall below the target thereafter. The Committee had continued to judge that the risks to its modal inflation projection were skewed to the upside, such that the mean projection for CPI inflation had been 2.2% and 1.9% at the two and three-year horizons. 39: Since the MPC’s previous decision, CPI inflation had fallen back broadly as expected, to 4.6% in October. Key indicators of UK inflation persistence remained elevated. Services price inflation had declined to 6.6%, although much of the downside news relative to the November Report had reflected movements in components that might not provide a good signal of underlying trends in services prices and of persistence in headline inflation. 40: There had been some downside news in private sector regular Average Weekly Earnings growth, but it was important not to over-interpret developments in any one measure, which had to be placed in the context of the evolution of broader pay dynamics. There remained upside risks to the outlook for wage growth, including from the possible effects of the recently announced increase in the National Living Wage. Relative to developments in the United States and the euro area, measures of wage inflation were considerably higher in the United Kingdom and services price inflation had fallen back by less so far. 41: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. Monetary policy was also acting to ensure that longer-term inflation expectations were anchored at the 2% target. 42: Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance was restrictive. The decision whether to increase or to maintain Bank Rate at this meeting was again finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could prove more persistent, and the risks of tightening policy too much given the impact of policy that was still to come through. 43: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Although some of the news in key data had been to the downside since the MPC’s previous decision, economic developments had been relatively limited overall. For most members within this group, it was too early to conclude that services price inflation and pay growth were on a firmly downward path. Both of these metrics of inflation persistence remained higher than in other major advanced economies, possibly reflecting less favourable supply-side developments and stronger second-round effects in the United Kingdom. Second-round effects were likely to be slow to unwind and, with the labour market still tight, the extent to which wage and price-setting would take account of the downward path of CPI inflation was not clear. The risks to CPI inflation in the medium term remained skewed to the upside including from events in the Middle East. For one member, the risks of overtightening policy had continued to build. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through. 44: Three members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although current indicators of economic activity had remained subdued, real household incomes had continued to edge up, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment, and the pace of loosening had been slow. Measures of wage growth had moderated slightly but had remained at rates above those consistent with the inflation target. Underlying services price inflation had remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures. Financial conditions had eased since the November Report. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term. 45: The MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. As was illustrated by the November Monetary Policy Report projections, the Committee continued to judge that monetary policy was likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. 46: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 47: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members (Megan Greene, Jonathan Haskel and Catherine L Mann) voted against the proposition, preferring to increase Bank Rate by 0.25 percentage points, to 5.5%. Operational considerations 48: At its September 2023 meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2023 to September 2024, comprising both maturing gilts and sales. The MPC had been briefed on progress on these gilt sales and on the operational arrangements for 2024 Q1, which would be published in a Market Notice at 4.30pm on 15 December. 49: On 13 December, the total stock of assets held for monetary policy purposes was £744 billion, comprising just under £744 billion of UK government bond purchases and £0.4 billion of sterling non‐financial investment‐grade corporate bond purchases. 50: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative.

Monetary Policy Summary, February 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 January 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Two members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying February Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that declines from 5¼% to around 3¼% by the end of the forecast period, almost 1 percentage point lower on average than in the November Report. Since the MPC’s previous meeting, global GDP growth has remained subdued, although activity continues to be stronger in the United States. Inflationary pressures are abating across the euro area and United States. Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea. Following recent weakness, GDP growth is expected to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in Bank Rate. Business surveys are consistent with an improving outlook for activity in the near term. The labour market has continued to ease, but remains tight by historical standards. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, leads a margin of economic slack to emerge during the first half of the forecast period. Unemployment is expected to rise somewhat further. Twelve-month CPI inflation fell to 4.0% in December 2023, below expectations in the November Report. This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth has eased across a number of measures and is projected to decline further in coming quarters. CPI inflation is projected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year is accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. In the MPC’s latest most likely, or modal, projection conditioned on the lower market-implied path for Bank Rate, CPI inflation is around 2¾% by the end of this year. It then remains above target over nearly all of the remainder of the forecast period. This reflects the persistence of domestic inflationary pressures, despite an increasing degree of slack in the economy. CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years. The Committee judges that the risks around its modal CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. It now judges that the risks from domestic price and wage pressures are more evenly balanced, meaning that, unlike in previous forecasts, there is no difference between the MPC’s modal and mean projections at the two and three-year horizons. Conditioned on the alternative assumption of constant interest rates at 5.25%, the path for CPI inflation is significantly lower than in the Committee’s modal projection conditioned on the declining path of market rates, falling below the 2% target from 2025 Q4 onwards. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back relatively sharply. The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the Committee’s February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated. As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 31 January 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying February 2024 Monetary Policy Report . 2: Consumer price inflation across major advanced economies had declined by more than had been expected in the November Report, with continued easing of both goods and services price inflation. The Committee compared features of the disinflation seen across the United States, the euro area and the United Kingdom, and the risks around the inflation outlook. The Committee judged that the divergence seen across economies reflected differences in energy price dynamics and variation in the impact and timing of recent global shocks and their subsequent dissipation, alongside distinct profiles for spare capacity. Disinflation in core goods prices had been comparatively more pronounced so far in the United States because in the euro area and the United Kingdom the lag between falls in producer output price inflation and core consumer goods inflation had shown signs that it might have been longer than in previous cycles. 3: There had also been some differences, as well as commonalities, in the development of services price inflation and wage growth across these economies. Bank staff analysis suggested that the recent falls in services inflation across the three economies had been accounted for largely by declining non-labour input costs, including energy. Labour costs, by contrast, had remained elevated across countries, although there were some signs of easing emerging, particularly in the United States. To the extent that they were broadly comparable, measures of wage inflation had remained considerably higher in the United Kingdom than elsewhere. 4: In the United Kingdom, all of the respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. They also all expected the next move in the Bank Rate to be downward. The median expected profile for Bank Rate from the MaPS implied a cumulative 100 basis point reduction in Bank Rate this year starting from June 2024, broadly in line with market pricing. Market contacts had suggested that disinflationary news in recent economic data outturns both in other jurisdictions and in the United Kingdom had been a significant factor in the downward moves in UK short-term rates in recent months. Similar downward moves in short-term rates had also occurred in other advanced economies over this period. 5: UK GDP growth had weakened in 2023, with this weakness particularly pronounced in market sector output. This reflected the significant tightening of monetary policy implemented since the end of 2021 to contain the persistence of second-round effects on inflation as well as continued weakness in potential supply growth. Cumulative GDP growth over 2023 as a whole had been materially weaker than expected at the time of the November Report, with the path for household consumption notably below expectations. Timelier indicators suggested that activity would edge up in 2024 Q1. 6: The Committee had completed its annual supply stocktake, as set out in Section 3 of the February Report, and judged that potential supply growth remained weak by historical standards. The MPC also now judged that the degree of excess demand had been a little higher over the recent past than had been assumed in the November Report, implying weaker supply growth in the past. At the same time, it had revised up slightly its view of potential supply growth in the future, although this was still expected to be weaker than the rates seen pre-Covid. 7: The Committee discussed the degree of persistence in wage growth and domestic price inflation. There had been downside news in headline CPI inflation relative to the November Report, accounted for by a combination of fuel, core goods and services prices. In absolute terms, services price inflation remained significantly elevated. There had been a common signal from a range of indicators that wage growth had eased somewhat recently, although it had remained significantly elevated overall. This downward trend had been most pronounced in the annual rate of growth of private sector regular average weekly earnings (AWE), although that had brought the AWE series more into line with other indicators. 8: The majority of this year’s wage setting processes would conclude in the next few months. A survey of firms conducted by the Bank’s Agents suggested that the average pay settlement in 2024 would be for a rise only slightly lower than in 2023, at 5.4%. It remained to be seen to what degree the falls in CPI inflation and short-term inflation expectations would influence this year’s wage setting, although this could also be influenced by a catch-up effect following the high rates of CPI inflation seen over the past couple of years. Evidence from the Agents suggested some possible upward pressures on wages from indirect effects of the increase in the National Living Wage. Intelligence from the Agents, however, also suggested that companies would not be able to pass on increased costs into prices as much as they had done in 2023. The immediate policy decision 9: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 10: In the MPC’s February Monetary Policy Report projections, UK GDP was expected to have been flat in 2023 Q4. Growth was expected to pick up gradually during the forecast period, in large part reflecting a waning drag from past increases in Bank Rate. In the medium term, the lower market-implied interest rate path, on which the forecast was conditioned, pushed up on GDP materially compared with the November projection. 11: The labour market had continued to ease, but had remained tight. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, led to a margin of economic slack emerging during the first half of the forecast period. Relative to November, the output gap projection had been pushed up by the boost to demand from the lower market path of interest rates. Equivalently, this implied that, if monetary policy were to follow the yield curve, then the stance of policy would be less restrictive than at the time of the November Report. 12: Twelve-month CPI inflation had remained above the 2% target. Inflation had fallen to 4.0% in December, below expectations in the November Report. The downside news had been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth had eased across a number of measures and was projected to decline further in coming quarters. 13: In the MPC’s latest most likely, or modal, projections, CPI inflation was expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year was accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. Conditioned on a lower market-implied path for Bank Rate than had underpinned the November Report, CPI inflation was then projected to remain above the 2% target over nearly all of the remainder of the forecast period, owing to persistence in domestic inflationary pressures. 14: The Committee judged that the risks around the modal inflation projection were skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. Risks from domestic price and wage pressures were now more evenly balanced, however. Taken together, this meant there was no difference between the MPC’s modal and mean projections at the two and three-year horizons. 15: The MPC judged that monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. 16: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had fallen back relatively sharply. The restrictive stance of monetary policy was weighing on activity and was leading to a looser labour market. In the Committee’s February forecast, the risks to inflation were more balanced. Although services price inflation and wage growth had fallen by somewhat more than had been expected, key indicators of inflation persistence remained elevated. There were questions, on which further evidence would be required, about how entrenched this persistence would be, and therefore about how long the current level of Bank Rate would need to be maintained. 17: Two members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although headline inflation had fallen by more than had been expected, this was not necessarily informative about inflation persistence. Current indicators of economic activity had remained subdued, but real household incomes had continued to edge up, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment, and a range of indicators suggested that the pace of loosening had been slow. Measures of wage growth had moderated further but remained at rates above those consistent with the inflation target. Underlying services price inflation had slowed but remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures than included within the forecast. Financial conditions had eased since the MPC’s December meeting. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term. 18: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For this member, the increments applied on the way up, together with lags in transmission, meant that Bank Rate needed to become less restrictive now. Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates would come with a risk of overtightening. There might be potential upside risks from geopolitics. That said, consumer price inflation was already, and had been for some time, on a firm downward trajectory. Moreover, leading indicators, such as those from granular producer prices data, pointed to an easing in consumer prices. The outlook for demand remained weak, and less resilient than previously assumed, with vacancies falling more sharply than in some other advanced economies and consumption not having recovered to pre-pandemic levels. This further reduced the prospects of embedded persistence, shown in forward-looking indicators of domestic relative prices, such as monthly annualised rates of nominal pay growth and the Bank’s Agents’ surveys, and suggested lower pass-through of costs to prices. 19: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would, therefore, continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 20: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 21: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 22: On 31 January, the total stock of assets held for monetary policy purposes was £738.0 billion, comprising £737.6 billion of UK government bond purchases and £0.4 billion of sterling non‐financial investment‐grade corporate bond purchases. 23: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 24 and 26 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, February 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 January 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%. Two members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying February Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that declines from 5¼% to around 3¼% by the end of the forecast period, almost 1 percentage point lower on average than in the November Report. Since the MPC’s previous meeting, global GDP growth has remained subdued, although activity continues to be stronger in the United States. Inflationary pressures are abating across the euro area and United States. Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea. Following recent weakness, GDP growth is expected to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in Bank Rate. Business surveys are consistent with an improving outlook for activity in the near term. The labour market has continued to ease, but remains tight by historical standards. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, leads a margin of economic slack to emerge during the first half of the forecast period. Unemployment is expected to rise somewhat further. Twelve-month CPI inflation fell to 4.0% in December 2023, below expectations in the November Report. This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth has eased across a number of measures and is projected to decline further in coming quarters. CPI inflation is projected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year is accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. In the MPC’s latest most likely, or modal, projection conditioned on the lower market-implied path for Bank Rate, CPI inflation is around 2¾% by the end of this year. It then remains above target over nearly all of the remainder of the forecast period. This reflects the persistence of domestic inflationary pressures, despite an increasing degree of slack in the economy. CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years. The Committee judges that the risks around its modal CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. It now judges that the risks from domestic price and wage pressures are more evenly balanced, meaning that, unlike in previous forecasts, there is no difference between the MPC’s modal and mean projections at the two and three-year horizons. Conditioned on the alternative assumption of constant interest rates at 5.25%, the path for CPI inflation is significantly lower than in the Committee’s modal projection conditioned on the declining path of market rates, falling below the 2% target from 2025 Q4 onwards. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back relatively sharply. The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the Committee’s February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated. As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 31 January 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying February 2024 Monetary Policy Report . 2: Consumer price inflation across major advanced economies had declined by more than had been expected in the November Report, with continued easing of both goods and services price inflation. The Committee compared features of the disinflation seen across the United States, the euro area and the United Kingdom, and the risks around the inflation outlook. The Committee judged that the divergence seen across economies reflected differences in energy price dynamics and variation in the impact and timing of recent global shocks and their subsequent dissipation, alongside distinct profiles for spare capacity. Disinflation in core goods prices had been comparatively more pronounced so far in the United States because in the euro area and the United Kingdom the lag between falls in producer output price inflation and core consumer goods inflation had shown signs that it might have been longer than in previous cycles. 3: There had also been some differences, as well as commonalities, in the development of services price inflation and wage growth across these economies. Bank staff analysis suggested that the recent falls in services inflation across the three economies had been accounted for largely by declining non-labour input costs, including energy. Labour costs, by contrast, had remained elevated across countries, although there were some signs of easing emerging, particularly in the United States. To the extent that they were broadly comparable, measures of wage inflation had remained considerably higher in the United Kingdom than elsewhere. 4: In the United Kingdom, all of the respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. They also all expected the next move in the Bank Rate to be downward. The median expected profile for Bank Rate from the MaPS implied a cumulative 100 basis point reduction in Bank Rate this year starting from June 2024, broadly in line with market pricing. Market contacts had suggested that disinflationary news in recent economic data outturns both in other jurisdictions and in the United Kingdom had been a significant factor in the downward moves in UK short-term rates in recent months. Similar downward moves in short-term rates had also occurred in other advanced economies over this period. 5: UK GDP growth had weakened in 2023, with this weakness particularly pronounced in market sector output. This reflected the significant tightening of monetary policy implemented since the end of 2021 to contain the persistence of second-round effects on inflation as well as continued weakness in potential supply growth. Cumulative GDP growth over 2023 as a whole had been materially weaker than expected at the time of the November Report, with the path for household consumption notably below expectations. Timelier indicators suggested that activity would edge up in 2024 Q1. 6: The Committee had completed its annual supply stocktake, as set out in Section 3 of the February Report, and judged that potential supply growth remained weak by historical standards. The MPC also now judged that the degree of excess demand had been a little higher over the recent past than had been assumed in the November Report, implying weaker supply growth in the past. At the same time, it had revised up slightly its view of potential supply growth in the future, although this was still expected to be weaker than the rates seen pre-Covid. 7: The Committee discussed the degree of persistence in wage growth and domestic price inflation. There had been downside news in headline CPI inflation relative to the November Report, accounted for by a combination of fuel, core goods and services prices. In absolute terms, services price inflation remained significantly elevated. There had been a common signal from a range of indicators that wage growth had eased somewhat recently, although it had remained significantly elevated overall. This downward trend had been most pronounced in the annual rate of growth of private sector regular average weekly earnings (AWE), although that had brought the AWE series more into line with other indicators. 8: The majority of this year’s wage setting processes would conclude in the next few months. A survey of firms conducted by the Bank’s Agents suggested that the average pay settlement in 2024 would be for a rise only slightly lower than in 2023, at 5.4%. It remained to be seen to what degree the falls in CPI inflation and short-term inflation expectations would influence this year’s wage setting, although this could also be influenced by a catch-up effect following the high rates of CPI inflation seen over the past couple of years. Evidence from the Agents suggested some possible upward pressures on wages from indirect effects of the increase in the National Living Wage. Intelligence from the Agents, however, also suggested that companies would not be able to pass on increased costs into prices as much as they had done in 2023. The immediate policy decision 9: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 10: In the MPC’s February Monetary Policy Report projections, UK GDP was expected to have been flat in 2023 Q4. Growth was expected to pick up gradually during the forecast period, in large part reflecting a waning drag from past increases in Bank Rate. In the medium term, the lower market-implied interest rate path, on which the forecast was conditioned, pushed up on GDP materially compared with the November projection. 11: The labour market had continued to ease, but had remained tight. In the February Report projections, the continuing relative weakness of demand, despite subdued supply growth by historical standards, led to a margin of economic slack emerging during the first half of the forecast period. Relative to November, the output gap projection had been pushed up by the boost to demand from the lower market path of interest rates. Equivalently, this implied that, if monetary policy were to follow the yield curve, then the stance of policy would be less restrictive than at the time of the November Report. 12: Twelve-month CPI inflation had remained above the 2% target. Inflation had fallen to 4.0% in December, below expectations in the November Report. The downside news had been broad-based, reflecting lower fuel, core goods and services price inflation. Although still elevated, wage growth had eased across a number of measures and was projected to decline further in coming quarters. 13: In the MPC’s latest most likely, or modal, projections, CPI inflation was expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4. This profile of inflation over the second half of the year was accounted for by developments in the direct energy price contribution to 12-month inflation, which becomes less negative. Conditioned on a lower market-implied path for Bank Rate than had underpinned the November Report, CPI inflation was then projected to remain above the 2% target over nearly all of the remainder of the forecast period, owing to persistence in domestic inflationary pressures. 14: The Committee judged that the risks around the modal inflation projection were skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. Risks from domestic price and wage pressures were now more evenly balanced, however. Taken together, this meant there was no difference between the MPC’s modal and mean projections at the two and three-year horizons. 15: The MPC judged that monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. 16: Six members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had fallen back relatively sharply. The restrictive stance of monetary policy was weighing on activity and was leading to a looser labour market. In the Committee’s February forecast, the risks to inflation were more balanced. Although services price inflation and wage growth had fallen by somewhat more than had been expected, key indicators of inflation persistence remained elevated. There were questions, on which further evidence would be required, about how entrenched this persistence would be, and therefore about how long the current level of Bank Rate would need to be maintained. 17: Two members preferred a 0.25 percentage point increase in Bank Rate, to 5.5%, at this meeting. Although headline inflation had fallen by more than had been expected, this was not necessarily informative about inflation persistence. Current indicators of economic activity had remained subdued, but real household incomes had continued to edge up, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a rise in the medium-term equilibrium rate of unemployment, and a range of indicators suggested that the pace of loosening had been slow. Measures of wage growth had moderated further but remained at rates above those consistent with the inflation target. Underlying services price inflation had slowed but remained elevated. These members continued to judge that there was evidence of more persistent inflationary pressures than included within the forecast. Financial conditions had eased since the MPC’s December meeting. An increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term. 18: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For this member, the increments applied on the way up, together with lags in transmission, meant that Bank Rate needed to become less restrictive now. Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates would come with a risk of overtightening. There might be potential upside risks from geopolitics. That said, consumer price inflation was already, and had been for some time, on a firm downward trajectory. Moreover, leading indicators, such as those from granular producer prices data, pointed to an easing in consumer prices. The outlook for demand remained weak, and less resilient than previously assumed, with vacancies falling more sharply than in some other advanced economies and consumption not having recovered to pre-pandemic levels. This further reduced the prospects of embedded persistence, shown in forward-looking indicators of domestic relative prices, such as monthly annualised rates of nominal pay growth and the Bank’s Agents’ surveys, and suggested lower pass-through of costs to prices. 19: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would, therefore, continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 20: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 21: Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition. Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 22: On 31 January, the total stock of assets held for monetary policy purposes was £738.0 billion, comprising £737.6 billion of UK government bond purchases and £0.4 billion of sterling non‐financial investment‐grade corporate bond purchases. 23: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 24 and 26 January, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, March 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 March 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Since the MPC’s previous meeting, market-implied paths for advanced economy policy rates have shifted up. In the United States and the euro area, inflationary pressures have continued to abate, though by slightly less than expected. Material risks remain, notably from developments in the Middle East including disruption to shipping through the Red Sea. Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year. Business surveys remain consistent with an improving outlook for activity. The fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around ¼% over coming years. As the measures will probably also boost potential supply to some extent, the implications for the output gap, and hence inflationary pressures in the economy, are likely to be smaller. Reflecting uncertainties around the ONS’s Labour Force Survey, the Committee is continuing to consider a wide range of indicators of labour market activity. The labour market has continued to loosen but remains relatively tight by historical standards. Although still elevated, nominal wage growth has moderated across a number of measures. Contacts of the Bank’s Agents continue to expect some decline in pay settlements this year and to report greater difficulty in passing on cost increases to prices. Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Monetary Policy Report. Services consumer price inflation has declined but remains elevated, at 6.1% in February. Most indicators of short-term inflation expectations have continued to ease. CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget. In the February Report projection, CPI inflation was expected to increase slightly again in Q3 and Q4 , accounted for by the direct energy price contribution to 12-month inflation. Services price inflation is expected to fall back gradually. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has continued to fall back relatively sharply in part owing to base effects and external effects from energy and goods prices. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Nonetheless, key indicators of inflation persistence remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 20 March 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.4% in 2023 Q4, in line with the projection in the February Monetary Policy Report. The divergence in growth among advanced economies had continued, with the United States again growing faster than had been expected. 3: Euro-area GDP had been flat in 2023 Q4, in line with the February Report projection. Near-term indicators such as PMIs and industrial production had continued to stabilise, but the recovery was somewhat weaker than had been expected. By contrast, US GDP had grown by 0.8% in the fourth quarter, higher than had been anticipated in the February Report. US growth was expected to slow in 2024 Q1, following a weakening in real private consumption and retail sales growth since the start of the year. 4: In China, GDP had grown by 1.0% in 2023 Q4. Going forward, growth was expected to remain at around that rate and, in early March, the government had set an annual growth target of around 5%. Other emerging market economies had seen mixed GDP growth outturns in the fourth quarter, with India growing particularly strongly. Near-term indicators suggested that some momentum was persisting into 2024. 5: Despite the conflict in the Middle East and continuing disruption to shipping through the Red Sea, there had been limited news in energy prices since the MPC’s February meeting. The Brent spot oil price had increased by around 5% to $87 per barrel as OPEC and other aligned oil producers were expected to extend production cuts. European wholesale natural gas spot and near-term futures prices had been broadly flat since the Committee’s February meeting, as temperatures had remained mild and storage levels high. 6: Labour markets in advanced economies had continued to loosen but had remained tight overall. The job vacancies rate in particular had continued to decline across countries. The US unemployment rate had increased to 3.9% in February, while non-farm payrolls had grown by 275,000 in the same month. The unemployment rate in the euro area had edged down to 6.4% in January. Wage growth in the euro area and the United States had fallen in 2023 Q4 but data on the outcome of current wage negotiations in the euro area were not yet available. The gap in wage growth between the United Kingdom on the one hand, and the euro area and the United States on the other, had continued to narrow as UK wage growth had declined more quickly recently than wage growth in the other two economies. However, annual pay growth had remained higher in the United Kingdom. 7: Headline and core consumer price inflation had continued to trend down in the euro area and the United States since the start of this year. However, February inflation rates in both regions had been slightly higher than expected by market participants, accounted for by news in core inflation. In the euro area, headline HICP inflation had been 2.6% in February, and core inflation 3.1%. In the United States, headline CPI inflation had been 3.2%, and core inflation 3.8%. Services price inflation had remained elevated in both economies. 8: The Committee discussed some factors that might influence the global long-term real equilibrium interest rate. Factors that had previously been operating, such as demographics, were likely to continue to bear down on the long-term real rate. Increased investment into climate transition technologies or artificial intelligence, driven for example by expectations of higher productivity growth, might be raising the long-term real equilibrium interest rate. Sustained increases in fiscal spending could also have an impact. The Committee would continue to discuss these factors. Monetary and financial conditions 9: Since the Committee’s previous meeting, the market-implied paths for policy rates across major advanced economies had shifted up. Corporate bond spreads had, however, narrowed and equity prices had risen, leaving mixed signals on the direction of the overall change in financial conditions. 10: Following significant falls in market expectations of policy rates in December and January, recent stronger than expected economic data, particularly non-farm payrolls and inflation releases in the United States, had pushed out slightly the expected timing of future reductions in policy rates across major advanced economies. Despite the rise in short-term interest rates, risky asset prices had increased. Market intelligence suggested that the narrowing in corporate credit spreads and rising equity prices had reflected growing confidence that global growth, credit conditions and corporate earnings would improve going forward. 11: In line with market expectations, the Bank of Japan had raised its policy rate to positive territory and had also ended its policy of yield curve control . 12: In the United Kingdom, all respondents to the Bank’s latest Market Participants Survey (MaPS) had expected Bank Rate to be left unchanged at this MPC meeting. They had also all continued to expect the next move in Bank Rate to be downward. The median respondent in the latest MaPS had expected a cumulative 75 basis points reduction in Bank Rate this year, starting in August. This was broadly in line with current market pricing but down from 100 basis points in the February MaPS. The median respondent had reported that they perceived the neutral interest rate to be at 3.25%, similar to recent surveys. 13: The Committee discussed the increasing convergence and correlated movements in recent months between market expectations for the UK and US policy rate paths. Market intelligence indicated that, despite differences in recent and projected supply and demand growth, this recent convergence could be attributed to factors such as the similarities in current policy rates and the two economies being in broadly similar stages of the disinflationary process. 14: While quoted mortgage rates had increased somewhat since the Committee’s previous meeting, largely reflecting pass-through of increases in risk-free reference rates, they had remained substantially below the levels reached last summer. The availability of secured lending to households had improved slightly in the latest Credit Conditions Survey, and the number of owner-occupied mortgage products advertised was now back at levels recorded before the start of the interest rate tightening cycle. Quoted interest rates on unsecured consumer credit and bank lending to businesses had remained close to their recent peaks. 15: The annual growth rate of aggregate sterling broad money had decreased from -0.3% in December to -1.6% in January, driven by volatility in the holdings of the non-intermediate other financial corporations sector, but had remained slightly above the previous six-month average of -1.8%. Within that, annual growth in household deposits had, however, continued to rise. Demand and output 16: UK real GDP had fallen by 0.3% in 2023 Q4, weaker than had been expected in the February Monetary Policy Report. This had followed a 0.1% decline in Q3. A Bank staff estimate of market sector output, which was less subject to swings in measured non-market output in health and education, had declined by 0.4% in Q4, after a similar-sized fall in Q3. Within the expenditure components of GDP, domestic household consumption and housing investment had fallen by 0.4% and 1.9% respectively in Q4. Business investment was estimated to have risen by 1.5%. 17: Monthly GDP had risen by 0.2% in January, to its highest level since September 2023. Strength in monthly growth had been concentrated in the construction and government services sectors. Private services output had risen slightly. 18: GDP and market sector output growth were both expected to pick up and be positive over the first half of the year. The flash S&P Global/CIPS UK composite output PMI had been little changed in March at slightly below its long-run historical average, while the future output PMI had eased back slightly from its two-year high in February. There was a similarly positive signal from most other business surveys of current and future market sector activity. Intelligence from the Bank’s Agents had also become slightly more optimistic about the outlook. Bank staff continued to expect GDP growth of 0.1% in 2024 Q1 and early indications suggested a small further rise in output growth in Q2. 19: Although consumption had been weaker than expected over 2023, there had been some early signs of a gradual recovery. Retail sales volumes had been volatile but had risen by 3.4% in January following a 3.3% decline in December. Intelligence from the Agents suggested that consumption growth was likely to remain weak in 2024 Q1 but to improve thereafter. GfK consumer confidence had been broadly stable over recent months, with the future personal financial situation sub-balance remaining only slightly below its long-run average. The number of mortgage approvals for house purchases had risen in January to its highest level since October 2022. The UK House Price Index had been broadly flat over recent months, but other timelier indicators of house prices had tended to rise slightly. 20: The Spring Budget 2024 had taken place on 6 March, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility. The Government had announced a package of fiscal measures, including a further 2p cut in the main rate of employee and self-employed national insurance contributions from April 2024. Bank staff had provisionally estimated that these new measures would increase the level of GDP by around ¼% over coming years. As the measures would probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, were likely to be smaller. A full assessment of this news would be conducted as part of the May Report forecast round. Supply, costs and prices 21: Reflecting uncertainties around the ONS’s Labour Force Survey (LFS), the Committee was continuing to consider a wide range of indicators of labour market activity. These collectively pointed to the labour market remaining relatively tight in absolute terms, though continuing to loosen. 22: The ONS had released updated LFS estimates in February but had advised caution in interpreting the results owing to low sample sizes. These estimates also did not reflect the most recent migration and population data. The LFS unemployment rate was estimated to have fallen over the past six months, to 3.9% in the three months to January. Other indicators, such as the claimant count and Agents’ intelligence on recruitment difficulties, pointed to a flat or slightly rising profile of unemployment. The vacancies-to-unemployment ratio had remained slightly above its 2019 Q4 levels. 23: The collective steer from a range of measures pointed to modestly positive quarterly employment growth, in line with the February Monetary Policy Report projections. The Committee noted that employment growth had been relatively resilient in an environment of subdued activity, suggesting that companies were potentially retaining their existing employees to meet future increases in demand. This was also consistent with Agents’ intelligence. The Committee would monitor whether or not this retention would restrain any tightening in the labour market as GDP growth picked up. 24: Against the backdrop of easing labour market tightness and receding inflation expectations, most indicators of pay growth had declined, although they had remained elevated. Annual private sector regular Average Weekly Earnings (AWE) growth had been 6.1% in the three months to January, 1.1 percentage points lower than in the three months to October and broadly in line with the February Report projection. AWE had moved increasingly into line with other measures such as median private sector pay growth derived from HMRC payrolls data. 25: The Committee discussed the degree of persistence in wage growth. Some shorter-term measures of wage growth had eased, such as an underlying measure based on a range of pay indicators which had been running at a three-month on three-month annualised pace of around 5%, and suggested a moderation in inflationary persistence. On the other hand, adjusting AWE data on a CPI-weighted basis indicated that pay growth could be moderating at a slower pace than the headline data were suggesting. Some forward-looking indicators also pointed to slower moderation. Expectations for future wage growth from the Decision Maker Panel (DMP) Survey had remained flat at 5.2%. The latest intelligence on average pay settlements collected by the Agents had remained close to the levels observed in the Agents’ annual survey presented in the February Report. Agents’ contacts had generally expected lower pass-through of higher labour costs to prices compared to 2023, however. 26: Twelve-month CPI inflation had fallen to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Report. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The decline in CPI inflation over recent months could largely be attributed to falls in food and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had declined but remained elevated. 27: Energy prices had continued to drag on annual CPI inflation. Despite the 5% rise in the Ofgem price cap in January, energy was expected to continue to contribute negatively to CPI inflation over the next six months owing to the upcoming reduction in the price cap from April. The freeze in fuel duty announced in the Budget would provide a further marginal drag compared to the February Report projections. 28: Core goods price inflation had fallen to 1.9% in February, slightly lower than expected in the February Report, as cost pressures from previous shocks and global goods price inflation had continued to dissipate. Food and non-alcoholic beverages inflation had also fallen, to 5.0% in February from 6.9% in January. The level of producer input and output prices for both core goods and food had receded significantly from their previous peaks over the past year and had then flattened, while Agents’ contacts similarly anticipated falling or flat input costs. 29: Services price inflation had remained higher than CPI inflation, at 6.1% in February, a decrease of 0.4 percentage points from January and in line with February Report expectations. Higher-frequency services price measures that excluded components that were not typically reliable indicators of trends in inflation persistence, such as rents, airfares, package holidays and education, had risen by around 4½% on a three-month on three-month annualised basis. The moderation of services price inflation in recent months appeared to have been accounted for largely by weakness in non-labour rather than labour costs. 30: Households’ median short-term inflation expectations had continued to ease in the February Bank of England Inflation Attitudes Survey, while longer-term expectations had remained steady and close to historical averages. Inflation expectations in the Citi/YouGov survey of households had remained somewhat higher than the Bank measures. The one-year ahead measure had been in decline, though had remained above historical averages, while the longer-term measure had been steadier. Business expectations looking one and three years ahead in the February DMP Survey had eased marginally compared to January but had remained above 2%. In the latest MaPS, median CPI expectations of market participants at the one-year point had fallen a little, while median expectations at the three and five-year horizons had remained unchanged at 2%. The immediate policy decision 31: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 32: In the MPC’s February Monetary Policy Report projections, GDP growth had been expected to pick up gradually during the forecast period. CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2¾%. Conditioned on the market-implied path for Bank Rate at the time of the February Report, inflation had then been projected to remain above the 2% target over nearly all of the remainder of the forecast period, owing to persistence in domestic inflationary pressures. The Committee had judged that the risks around the modal inflation projection were skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. Risks from domestic price and wage pressures had been judged to be evenly balanced. 33: Since the MPC’s previous meeting, market-implied paths for advanced economy policy rates had shifted up, including in the United Kingdom. 34: Having declined through the second half of last year, UK GDP and market sector output were expected to start growing again during the first half of this year. Business surveys remained consistent with an improving outlook for activity. Reflecting uncertainties around the ONS’s Labour Force Survey, the Committee was continuing to consider a wide range of indicators of labour market activity. The labour market had continued to loosen but remained relatively tight by historical standards. To the extent that companies had been retaining their existing employees to meet future increases in demand, employment growth was likely to be weaker relative to output growth in the near term, consistent with a further easing in labour market tightness. Should labour demand prove stronger, there could be less of an easing. 35: Twelve-month CPI inflation had fallen to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Report. Services consumer price inflation had declined but remained elevated, at 6.1% in February. Higher-frequency measures of core services inflation, such as the three-month on three-month annualised rate, had been around 4½%. Most indicators of short-term inflation expectations had continued to ease. Although still elevated, nominal wage growth had moderated across a number of measures. An underlying measure based on a range of pay indicators had been running at a three-month on three-month annualised pace of around 5%. Contacts of the Bank’s Agents continued to expect some decline in pay settlements this year and to report greater difficulty in passing on cost increases to prices. CPI inflation was projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than had previously been expected owing to the freeze in fuel duty announced in the Budget. 36: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 37: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 38: Eight members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had continued to fall back relatively sharply in part owing to base effects and external effects from energy and goods prices. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Nonetheless, key indicators of inflation persistence remained elevated. 39: There was a range of views among these members on the extent to which the risks from persistent inflationary pressures had receded. At one end of this range, developments in nominal indicators, including at higher frequencies, suggested that the restrictive stance of policy and the unwinding of second-round effects associated with declining short-term inflation expectations were having a material impact in reducing the more persistent and slower-moving components of inflation. At the other end of this range, wage growth remained too high and was expected to moderate only slowly, as reflected in the Agents’ latest intelligence. There were limited signs so far that services price inflation would return to a target-consistent pace sufficiently rapidly, with evidence of diminishing second-round effects still tentative. Some upside risks remained around both the wage and CPI inflation projections. 40: For all of these members, a further accumulation of evidence on inflation persistence would be required to warrant a shift in the monetary policy stance, with members differing on the extent of evidence that was likely to be needed. They would continue to consider the degree of restrictiveness of policy at each meeting. 41: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For this member, waiting for more reassurance before reducing Bank Rate would weigh further on living standards and supply capacity. Bank Rate needed to become less restrictive now to enable a smooth transition in the policy stance and to account for lags in transmission. While this did not preclude the possibility of maintaining Bank Rate if upside risks were to materialise, consumer price inflation was already, and had been for some time, on a firm downward trajectory. Consumption had not recovered to pre-pandemic levels, in sharp contrast to some other advanced economies where it was driving economic growth. The outlook for demand remained weak, with vacancies falling sharply and forward-looking indicators of nominal pay growth easing. 42: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 43: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 44: Eight members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden) voted in favour of the proposition. Swati Dhingra voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 45: On 20 March, the total stock of assets held for monetary policy purposes was £729.9 billion, comprising £729.8 billion of UK government bond purchases and £0.1 billion of sterling non‐financial investment‐grade corporate bond purchases. 46: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. Monetary Policy Summary, March 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 March 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5.25%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Since the MPC’s previous meeting, market-implied paths for advanced economy policy rates have shifted up. In the United States and the euro area, inflationary pressures have continued to abate, though by slightly less than expected. Material risks remain, notably from developments in the Middle East including disruption to shipping through the Red Sea. Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year. Business surveys remain consistent with an improving outlook for activity. The fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around ¼% over coming years. As the measures will probably also boost potential supply to some extent, the implications for the output gap, and hence inflationary pressures in the economy, are likely to be smaller. Reflecting uncertainties around the ONS’s Labour Force Survey, the Committee is continuing to consider a wide range of indicators of labour market activity. The labour market has continued to loosen but remains relatively tight by historical standards. Although still elevated, nominal wage growth has moderated across a number of measures. Contacts of the Bank’s Agents continue to expect some decline in pay settlements this year and to report greater difficulty in passing on cost increases to prices. Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Monetary Policy Report. Services consumer price inflation has declined but remains elevated, at 6.1% in February. Most indicators of short-term inflation expectations have continued to ease. CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget. In the February Report projection, CPI inflation was expected to increase slightly again in Q3 and Q4 , accounted for by the direct energy price contribution to 12-month inflation. Services price inflation is expected to fall back gradually. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has continued to fall back relatively sharply in part owing to base effects and external effects from energy and goods prices. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Nonetheless, key indicators of inflation persistence remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 20 March 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.4% in 2023 Q4, in line with the projection in the February Monetary Policy Report. The divergence in growth among advanced economies had continued, with the United States again growing faster than had been expected. 3: Euro-area GDP had been flat in 2023 Q4, in line with the February Report projection. Near-term indicators such as PMIs and industrial production had continued to stabilise, but the recovery was somewhat weaker than had been expected. By contrast, US GDP had grown by 0.8% in the fourth quarter, higher than had been anticipated in the February Report. US growth was expected to slow in 2024 Q1, following a weakening in real private consumption and retail sales growth since the start of the year. 4: In China, GDP had grown by 1.0% in 2023 Q4. Going forward, growth was expected to remain at around that rate and, in early March, the government had set an annual growth target of around 5%. Other emerging market economies had seen mixed GDP growth outturns in the fourth quarter, with India growing particularly strongly. Near-term indicators suggested that some momentum was persisting into 2024. 5: Despite the conflict in the Middle East and continuing disruption to shipping through the Red Sea, there had been limited news in energy prices since the MPC’s February meeting. The Brent spot oil price had increased by around 5% to $87 per barrel as OPEC and other aligned oil producers were expected to extend production cuts. European wholesale natural gas spot and near-term futures prices had been broadly flat since the Committee’s February meeting, as temperatures had remained mild and storage levels high. 6: Labour markets in advanced economies had continued to loosen but had remained tight overall. The job vacancies rate in particular had continued to decline across countries. The US unemployment rate had increased to 3.9% in February, while non-farm payrolls had grown by 275,000 in the same month. The unemployment rate in the euro area had edged down to 6.4% in January. Wage growth in the euro area and the United States had fallen in 2023 Q4 but data on the outcome of current wage negotiations in the euro area were not yet available. The gap in wage growth between the United Kingdom on the one hand, and the euro area and the United States on the other, had continued to narrow as UK wage growth had declined more quickly recently than wage growth in the other two economies. However, annual pay growth had remained higher in the United Kingdom. 7: Headline and core consumer price inflation had continued to trend down in the euro area and the United States since the start of this year. However, February inflation rates in both regions had been slightly higher than expected by market participants, accounted for by news in core inflation. In the euro area, headline HICP inflation had been 2.6% in February, and core inflation 3.1%. In the United States, headline CPI inflation had been 3.2%, and core inflation 3.8%. Services price inflation had remained elevated in both economies. 8: The Committee discussed some factors that might influence the global long-term real equilibrium interest rate. Factors that had previously been operating, such as demographics, were likely to continue to bear down on the long-term real rate. Increased investment into climate transition technologies or artificial intelligence, driven for example by expectations of higher productivity growth, might be raising the long-term real equilibrium interest rate. Sustained increases in fiscal spending could also have an impact. The Committee would continue to discuss these factors. Monetary and financial conditions 9: Since the Committee’s previous meeting, the market-implied paths for policy rates across major advanced economies had shifted up. Corporate bond spreads had, however, narrowed and equity prices had risen, leaving mixed signals on the direction of the overall change in financial conditions. 10: Following significant falls in market expectations of policy rates in December and January, recent stronger than expected economic data, particularly non-farm payrolls and inflation releases in the United States, had pushed out slightly the expected timing of future reductions in policy rates across major advanced economies. Despite the rise in short-term interest rates, risky asset prices had increased. Market intelligence suggested that the narrowing in corporate credit spreads and rising equity prices had reflected growing confidence that global growth, credit conditions and corporate earnings would improve going forward. 11: In line with market expectations, the Bank of Japan had raised its policy rate to positive territory and had also ended its policy of yield curve control . 12: In the United Kingdom, all respondents to the Bank’s latest Market Participants Survey (MaPS) had expected Bank Rate to be left unchanged at this MPC meeting. They had also all continued to expect the next move in Bank Rate to be downward. The median respondent in the latest MaPS had expected a cumulative 75 basis points reduction in Bank Rate this year, starting in August. This was broadly in line with current market pricing but down from 100 basis points in the February MaPS. The median respondent had reported that they perceived the neutral interest rate to be at 3.25%, similar to recent surveys. 13: The Committee discussed the increasing convergence and correlated movements in recent months between market expectations for the UK and US policy rate paths. Market intelligence indicated that, despite differences in recent and projected supply and demand growth, this recent convergence could be attributed to factors such as the similarities in current policy rates and the two economies being in broadly similar stages of the disinflationary process. 14: While quoted mortgage rates had increased somewhat since the Committee’s previous meeting, largely reflecting pass-through of increases in risk-free reference rates, they had remained substantially below the levels reached last summer. The availability of secured lending to households had improved slightly in the latest Credit Conditions Survey, and the number of owner-occupied mortgage products advertised was now back at levels recorded before the start of the interest rate tightening cycle. Quoted interest rates on unsecured consumer credit and bank lending to businesses had remained close to their recent peaks. 15: The annual growth rate of aggregate sterling broad money had decreased from -0.3% in December to -1.6% in January, driven by volatility in the holdings of the non-intermediate other financial corporations sector, but had remained slightly above the previous six-month average of -1.8%. Within that, annual growth in household deposits had, however, continued to rise. Demand and output 16: UK real GDP had fallen by 0.3% in 2023 Q4, weaker than had been expected in the February Monetary Policy Report. This had followed a 0.1% decline in Q3. A Bank staff estimate of market sector output, which was less subject to swings in measured non-market output in health and education, had declined by 0.4% in Q4, after a similar-sized fall in Q3. Within the expenditure components of GDP, domestic household consumption and housing investment had fallen by 0.4% and 1.9% respectively in Q4. Business investment was estimated to have risen by 1.5%. 17: Monthly GDP had risen by 0.2% in January, to its highest level since September 2023. Strength in monthly growth had been concentrated in the construction and government services sectors. Private services output had risen slightly. 18: GDP and market sector output growth were both expected to pick up and be positive over the first half of the year. The flash S&P Global/CIPS UK composite output PMI had been little changed in March at slightly below its long-run historical average, while the future output PMI had eased back slightly from its two-year high in February. There was a similarly positive signal from most other business surveys of current and future market sector activity. Intelligence from the Bank’s Agents had also become slightly more optimistic about the outlook. Bank staff continued to expect GDP growth of 0.1% in 2024 Q1 and early indications suggested a small further rise in output growth in Q2. 19: Although consumption had been weaker than expected over 2023, there had been some early signs of a gradual recovery. Retail sales volumes had been volatile but had risen by 3.4% in January following a 3.3% decline in December. Intelligence from the Agents suggested that consumption growth was likely to remain weak in 2024 Q1 but to improve thereafter. GfK consumer confidence had been broadly stable over recent months, with the future personal financial situation sub-balance remaining only slightly below its long-run average. The number of mortgage approvals for house purchases had risen in January to its highest level since October 2022. The UK House Price Index had been broadly flat over recent months, but other timelier indicators of house prices had tended to rise slightly. 20: The Spring Budget 2024 had taken place on 6 March, accompanied by an Economic and fiscal outlook from the Office for Budget Responsibility. The Government had announced a package of fiscal measures, including a further 2p cut in the main rate of employee and self-employed national insurance contributions from April 2024. Bank staff had provisionally estimated that these new measures would increase the level of GDP by around ¼% over coming years. As the measures would probably also boost potential supply to some extent, the implications for the Committee’s output gap projection, and hence inflationary pressures in the economy, were likely to be smaller. A full assessment of this news would be conducted as part of the May Report forecast round. Supply, costs and prices 21: Reflecting uncertainties around the ONS’s Labour Force Survey (LFS), the Committee was continuing to consider a wide range of indicators of labour market activity. These collectively pointed to the labour market remaining relatively tight in absolute terms, though continuing to loosen. 22: The ONS had released updated LFS estimates in February but had advised caution in interpreting the results owing to low sample sizes. These estimates also did not reflect the most recent migration and population data. The LFS unemployment rate was estimated to have fallen over the past six months, to 3.9% in the three months to January. Other indicators, such as the claimant count and Agents’ intelligence on recruitment difficulties, pointed to a flat or slightly rising profile of unemployment. The vacancies-to-unemployment ratio had remained slightly above its 2019 Q4 levels. 23: The collective steer from a range of measures pointed to modestly positive quarterly employment growth, in line with the February Monetary Policy Report projections. The Committee noted that employment growth had been relatively resilient in an environment of subdued activity, suggesting that companies were potentially retaining their existing employees to meet future increases in demand. This was also consistent with Agents’ intelligence. The Committee would monitor whether or not this retention would restrain any tightening in the labour market as GDP growth picked up. 24: Against the backdrop of easing labour market tightness and receding inflation expectations, most indicators of pay growth had declined, although they had remained elevated. Annual private sector regular Average Weekly Earnings (AWE) growth had been 6.1% in the three months to January, 1.1 percentage points lower than in the three months to October and broadly in line with the February Report projection. AWE had moved increasingly into line with other measures such as median private sector pay growth derived from HMRC payrolls data. 25: The Committee discussed the degree of persistence in wage growth. Some shorter-term measures of wage growth had eased, such as an underlying measure based on a range of pay indicators which had been running at a three-month on three-month annualised pace of around 5%, and suggested a moderation in inflationary persistence. On the other hand, adjusting AWE data on a CPI-weighted basis indicated that pay growth could be moderating at a slower pace than the headline data were suggesting. Some forward-looking indicators also pointed to slower moderation. Expectations for future wage growth from the Decision Maker Panel (DMP) Survey had remained flat at 5.2%. The latest intelligence on average pay settlements collected by the Agents had remained close to the levels observed in the Agents’ annual survey presented in the February Report. Agents’ contacts had generally expected lower pass-through of higher labour costs to prices compared to 2023, however. 26: Twelve-month CPI inflation had fallen to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Report. The latest CPI release had triggered the exchange of open letters between the Governor and the Chancellor of the Exchequer that was being published alongside these minutes. The decline in CPI inflation over recent months could largely be attributed to falls in food and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had declined but remained elevated. 27: Energy prices had continued to drag on annual CPI inflation. Despite the 5% rise in the Ofgem price cap in January, energy was expected to continue to contribute negatively to CPI inflation over the next six months owing to the upcoming reduction in the price cap from April. The freeze in fuel duty announced in the Budget would provide a further marginal drag compared to the February Report projections. 28: Core goods price inflation had fallen to 1.9% in February, slightly lower than expected in the February Report, as cost pressures from previous shocks and global goods price inflation had continued to dissipate. Food and non-alcoholic beverages inflation had also fallen, to 5.0% in February from 6.9% in January. The level of producer input and output prices for both core goods and food had receded significantly from their previous peaks over the past year and had then flattened, while Agents’ contacts similarly anticipated falling or flat input costs. 29: Services price inflation had remained higher than CPI inflation, at 6.1% in February, a decrease of 0.4 percentage points from January and in line with February Report expectations. Higher-frequency services price measures that excluded components that were not typically reliable indicators of trends in inflation persistence, such as rents, airfares, package holidays and education, had risen by around 4½% on a three-month on three-month annualised basis. The moderation of services price inflation in recent months appeared to have been accounted for largely by weakness in non-labour rather than labour costs. 30: Households’ median short-term inflation expectations had continued to ease in the February Bank of England Inflation Attitudes Survey, while longer-term expectations had remained steady and close to historical averages. Inflation expectations in the Citi/YouGov survey of households had remained somewhat higher than the Bank measures. The one-year ahead measure had been in decline, though had remained above historical averages, while the longer-term measure had been steadier. Business expectations looking one and three years ahead in the February DMP Survey had eased marginally compared to January but had remained above 2%. In the latest MaPS, median CPI expectations of market participants at the one-year point had fallen a little, while median expectations at the three and five-year horizons had remained unchanged at 2%. The immediate policy decision 31: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 32: In the MPC’s February Monetary Policy Report projections, GDP growth had been expected to pick up gradually during the forecast period. CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2¾%. Conditioned on the market-implied path for Bank Rate at the time of the February Report, inflation had then been projected to remain above the 2% target over nearly all of the remainder of the forecast period, owing to persistence in domestic inflationary pressures. The Committee had judged that the risks around the modal inflation projection were skewed to the upside over the first half of the forecast period, stemming from geopolitical factors. Risks from domestic price and wage pressures had been judged to be evenly balanced. 33: Since the MPC’s previous meeting, market-implied paths for advanced economy policy rates had shifted up, including in the United Kingdom. 34: Having declined through the second half of last year, UK GDP and market sector output were expected to start growing again during the first half of this year. Business surveys remained consistent with an improving outlook for activity. Reflecting uncertainties around the ONS’s Labour Force Survey, the Committee was continuing to consider a wide range of indicators of labour market activity. The labour market had continued to loosen but remained relatively tight by historical standards. To the extent that companies had been retaining their existing employees to meet future increases in demand, employment growth was likely to be weaker relative to output growth in the near term, consistent with a further easing in labour market tightness. Should labour demand prove stronger, there could be less of an easing. 35: Twelve-month CPI inflation had fallen to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Report. Services consumer price inflation had declined but remained elevated, at 6.1% in February. Higher-frequency measures of core services inflation, such as the three-month on three-month annualised rate, had been around 4½%. Most indicators of short-term inflation expectations had continued to ease. Although still elevated, nominal wage growth had moderated across a number of measures. An underlying measure based on a range of pay indicators had been running at a three-month on three-month annualised pace of around 5%. Contacts of the Bank’s Agents continued to expect some decline in pay settlements this year and to report greater difficulty in passing on cost increases to prices. CPI inflation was projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than had previously been expected owing to the freeze in fuel duty announced in the Budget. 36: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 37: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 38: Eight members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had continued to fall back relatively sharply in part owing to base effects and external effects from energy and goods prices. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Nonetheless, key indicators of inflation persistence remained elevated. 39: There was a range of views among these members on the extent to which the risks from persistent inflationary pressures had receded. At one end of this range, developments in nominal indicators, including at higher frequencies, suggested that the restrictive stance of policy and the unwinding of second-round effects associated with declining short-term inflation expectations were having a material impact in reducing the more persistent and slower-moving components of inflation. At the other end of this range, wage growth remained too high and was expected to moderate only slowly, as reflected in the Agents’ latest intelligence. There were limited signs so far that services price inflation would return to a target-consistent pace sufficiently rapidly, with evidence of diminishing second-round effects still tentative. Some upside risks remained around both the wage and CPI inflation projections. 40: For all of these members, a further accumulation of evidence on inflation persistence would be required to warrant a shift in the monetary policy stance, with members differing on the extent of evidence that was likely to be needed. They would continue to consider the degree of restrictiveness of policy at each meeting. 41: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For this member, waiting for more reassurance before reducing Bank Rate would weigh further on living standards and supply capacity. Bank Rate needed to become less restrictive now to enable a smooth transition in the policy stance and to account for lags in transmission. While this did not preclude the possibility of maintaining Bank Rate if upside risks were to materialise, consumer price inflation was already, and had been for some time, on a firm downward trajectory. Consumption had not recovered to pre-pandemic levels, in sharp contrast to some other advanced economies where it was driving economic growth. The outlook for demand remained weak, with vacancies falling sharply and forward-looking indicators of nominal pay growth easing. 42: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 43: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 44: Eight members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann, Huw Pill, Dave Ramsden) voted in favour of the proposition. Swati Dhingra voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 45: On 20 March, the total stock of assets held for monetary policy purposes was £729.9 billion, comprising £729.8 billion of UK government bond purchases and £0.1 billion of sterling non‐financial investment‐grade corporate bond purchases. 46: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative.

Monetary Policy Summary, May 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 8 May 2024, the MPC voted by a majority of 7–2 to maintain Bank Rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report and are conditioned on a market-implied path for Bank Rate that declines from 5¼% to 3¾% by the end of the forecast period, compared with an endpoint of 3¼% in February. Internationally, recent growth outturns have tended to be stronger in the United States than in the euro area. Underlying inflationary pressures in both regions have continued to moderate somewhat since the start of the year, though by less than expected in the United States. Forward interest rates have risen in the United States and, as a result, elsewhere. Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period. A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated, at 6.0% in March. There remains considerable uncertainty around statistics derived from the ONS Labour Force Survey. It is therefore more difficult to gauge the evolution of the labour market. Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards. Annual private sector regular average weekly earnings growth declined to 6.0% in the three months to February, although that series tends to be volatile. Alternative indicators also suggest easing pay growth. Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February. CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects. There continue to be upside risks to the near-term inflation outlook from geopolitical factors, although developments in the Middle East have had a limited impact on oil prices so far. Conditioned on market interest rates and reflecting a margin of slack in the economy, CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has continued to fall back, in part owing to base effects and external effects from goods prices. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. The Committee will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 8 May 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying May 2024 Monetary Policy Report . 2: The MPC discussed developments in consumer price inflation in the United States and in the euro area. In the United States, recent outturns had been higher than expected by market participants on both headline and core PCE inflation. The evidence suggested that this higher-than-expected inflation had reflected surprisingly strong domestic demand rather than inflation persistence. Euro-area inflation data had been more in line with market expectations, and demand had remained relatively subdued. The increased divergence in demand across regions could be consistent with a divergence in monetary policy, with potential implications for exchange rates and broader financial conditions. 3: Given this change in the perceived outlook for US demand and inflation, market participants had revised their expectations for US monetary policy since the MPC’s previous meeting, pushing out the expected timing and degree of future reductions in the federal funds rate. Alongside this, the market-implied path for policy rates in other major advanced economies, including the United Kingdom, had also shifted up materially, though by less. 4: The Committee discussed the degree to which these moves in UK interest rates had reflected global or domestic factors. This was not straightforward to separate out. The correlation between US and UK market interest rates had been near the top of its historical range, and the sensitivity of UK rates to both US and domestic data outturns had remained elevated. Nevertheless, market contacts had begun to judge that the increasing divergence of the US outlook from that of other major advanced economies could be reflected in their monetary policies in the near term. That said, contacts had expected that the influence of global factors could lead to greater macroeconomic and monetary policy convergence across major advanced economies beyond 2024. 5: In the United Kingdom, all but one of the respondents to the Bank’s latest Market Participants Survey (MaPS) had expected Bank Rate to be left unchanged at this MPC meeting. They had also all expected the next move in Bank Rate to be downwards. The median expected profile for Bank Rate from MaPS implied a cumulative 75 basis point reduction in Bank Rate this year, similar to the profile from the March MaPS, despite the increase in the UK yield curve. 6: Turning to activity, UK GDP growth had strengthened since the start of the year, reversing the fall in output that was estimated to have occurred in the second half of 2023. The Committee expected the recovery in output to be underpinned by a pickup in household consumption, supported by higher real incomes. 7: The Committee discussed the risks around the near-term outlook for consumer spending. House price inflation had held up by more than had been expected, which could suggest upside risks to the outlook for spending. One potential explanation for this would be that higher interest rates had weighed on house prices by less than had been expected. Set against that, a modest expected rise in unemployment could pose downside risks to consumption, for example if those households not directly affected nevertheless chose to save more for precautionary reasons. 8: The Committee discussed the degree of persistence in UK wage growth and domestic price inflation. Consistent with the recent easing in short-term inflation expectations and a loosening in the labour market, wage growth had fallen somewhat further. Services consumer price inflation had also continued to ease. Although both wage growth and services price inflation had been slightly higher than expected in the February Monetary Policy Report, that difference was small in the context of typical data volatility. Both series still indicated elevated domestic inflationary pressures. 9: The Committee discussed the relative weights to put on different indicators of inflation persistence, particularly in the event that they were to give divergent signals in the future. There remained considerable uncertainty around estimates of labour market tightness derived from the Labour Force Survey (LFS), owing to small sample sizes. A range of labour market indicators, including the vacancies to unemployment ratio and survey indicators of recruitment difficulties, suggested that the labour market had continued to loosen, however, while remaining relatively tight by historical standards. 10: Although less severe than the issues surrounding the LFS, the Committee noted that the private sector regular average weekly earnings (AWE) series tended to be volatile, especially when compared with services price inflation. While AWE growth had fallen sharply since last year, the decline suggested by other indicators appeared more gradual and from a lower peak. Possibly reflecting past falls in real wages and a relatively tight labour market, nominal pay growth had continued to be elevated. 11: The appropriate weight to place on different indicators of inflation persistence would also depend on wider economic developments. Depending on the expected path for demand, for example, indicators of inflation persistence might be expected to diverge. In an environment of subdued demand, firms might be expected to absorb higher wage growth into their profit margins. Higher wage growth would then not pass through to higher services price inflation. But as demand recovered, firms might choose to pass through that wage growth, resulting in higher services price inflation. Initial reports indicated that the Agents’ contacts generally expected lower pass-through of higher labour costs to prices than last year, owing to weaker demand. Consumer-facing services firms surveyed in the Decision Maker Panel in the three months to April had said that they expected to raise prices by 4.7% over the next year . The Committee would consider evidence from different indicators of persistence and would continue to monitor them in context. The immediate policy decision 12: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 13: Indicators of inflation persistence had evolved broadly as expected, albeit a little stronger than had been anticipated in the February Monetary Policy Report. 14: Services consumer price inflation had declined but remained elevated, at 6.0% in March. Higher-frequency measures of services price inflation showed somewhat more of a slowdown than annual rates but still indicated elevated domestic inflationary pressures. Services price inflation was expected to continue to ease gradually over the course of this year, as wage growth and indirect effects from energy and other goods prices weakened further. 15: There remained considerable uncertainty around statistics derived from the ONS Labour Force Survey. It was therefore more difficult to gauge the evolution of the labour market. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. Annual private sector regular average weekly earnings growth had declined to 6.0% in the three months to February, although that series tended to be volatile. Alternative indicators also suggested easing pay growth. 16: The Committee noted that this year’s pay settlements, which tended to be concentrated in the early part of the year, would provide an important indication of the extent to which pay growth continued to moderate as expected. Firmer information on April settlements would soon become available, including from the Bank’s Agents’ intelligence. 17: Twelve-month CPI inflation had fallen to 3.2% in March from 3.4% in February, broadly as expected in the February Report. In the MPC’s May Report projections, CPI inflation was expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects. Conditioned on market interest rates and reflecting a margin of slack in the economy, CPI inflation was projected to be 1.9% in two years’ time and 1.6% in three years. 18: There continued to be upside risks to the modal CPI inflation projection from geopolitical factors during the first half of the forecast period, but the risks overall were more evenly balanced over the second half. 19: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 20: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 21: Seven members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had continued to fall back, in part owing to base effects and external effects from goods prices. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Key indicators of inflation persistence were moderating broadly as expected, although they remained elevated. There was a range of views among these members regarding the risks around the assumptions on persistence embodied in the May CPI projection. There was also a range of views about the extent of the evidence that was likely to be needed to warrant a change in Bank Rate, and the degree to which these members anticipated that incremental information in forthcoming data outturns would lead them to update materially their assessment of inflation persistence. All of these members would continue to consider the degree of restrictiveness of policy at each meeting. 22: Two members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For these members, Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. Consumer price inflation was already, and had been for some time, on a firm downward trajectory. The latest forecasts showed inflation returning close to the target in the short term, and this was consistent with forward-looking indicators of output price inflation falling behind input price inflation. As the outlook for demand remained subdued, with vacancies continuing to fall and nominal pay growth easing, the risks to inflation returning sustainably to the target in the medium term were to the downside. 23: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. The Committee would consider forthcoming data releases and how these informed the assessment that the risks from inflation persistence were receding. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 24: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 25: Seven members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted in favour of the proposition. Two members (Swati Dhingra and Dave Ramsden) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 26: On 8 May, the total stock of assets held for monetary policy purposes was £703 billion, all of which were UK government bonds. The Corporate Bond Purchase Scheme had been fully unwound on 2 April, such that there were now no holdings of sterling non‐financial investment‐grade corporate bonds. 27: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 30 April and 2 May, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, May 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 8 May 2024, the MPC voted by a majority of 7–2 to maintain Bank Rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%. The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report and are conditioned on a market-implied path for Bank Rate that declines from 5¼% to 3¾% by the end of the forecast period, compared with an endpoint of 3¼% in February. Internationally, recent growth outturns have tended to be stronger in the United States than in the euro area. Underlying inflationary pressures in both regions have continued to moderate somewhat since the start of the year, though by less than expected in the United States. Forward interest rates have risen in the United States and, as a result, elsewhere. Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period. A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated, at 6.0% in March. There remains considerable uncertainty around statistics derived from the ONS Labour Force Survey. It is therefore more difficult to gauge the evolution of the labour market. Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards. Annual private sector regular average weekly earnings growth declined to 6.0% in the three months to February, although that series tends to be volatile. Alternative indicators also suggest easing pay growth. Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February. CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects. There continue to be upside risks to the near-term inflation outlook from geopolitical factors, although developments in the Middle East have had a limited impact on oil prices so far. Conditioned on market interest rates and reflecting a margin of slack in the economy, CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has continued to fall back, in part owing to base effects and external effects from goods prices. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. The Committee will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 8 May 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying May 2024 Monetary Policy Report . 2: The MPC discussed developments in consumer price inflation in the United States and in the euro area. In the United States, recent outturns had been higher than expected by market participants on both headline and core PCE inflation. The evidence suggested that this higher-than-expected inflation had reflected surprisingly strong domestic demand rather than inflation persistence. Euro-area inflation data had been more in line with market expectations, and demand had remained relatively subdued. The increased divergence in demand across regions could be consistent with a divergence in monetary policy, with potential implications for exchange rates and broader financial conditions. 3: Given this change in the perceived outlook for US demand and inflation, market participants had revised their expectations for US monetary policy since the MPC’s previous meeting, pushing out the expected timing and degree of future reductions in the federal funds rate. Alongside this, the market-implied path for policy rates in other major advanced economies, including the United Kingdom, had also shifted up materially, though by less. 4: The Committee discussed the degree to which these moves in UK interest rates had reflected global or domestic factors. This was not straightforward to separate out. The correlation between US and UK market interest rates had been near the top of its historical range, and the sensitivity of UK rates to both US and domestic data outturns had remained elevated. Nevertheless, market contacts had begun to judge that the increasing divergence of the US outlook from that of other major advanced economies could be reflected in their monetary policies in the near term. That said, contacts had expected that the influence of global factors could lead to greater macroeconomic and monetary policy convergence across major advanced economies beyond 2024. 5: In the United Kingdom, all but one of the respondents to the Bank’s latest Market Participants Survey (MaPS) had expected Bank Rate to be left unchanged at this MPC meeting. They had also all expected the next move in Bank Rate to be downwards. The median expected profile for Bank Rate from MaPS implied a cumulative 75 basis point reduction in Bank Rate this year, similar to the profile from the March MaPS, despite the increase in the UK yield curve. 6: Turning to activity, UK GDP growth had strengthened since the start of the year, reversing the fall in output that was estimated to have occurred in the second half of 2023. The Committee expected the recovery in output to be underpinned by a pickup in household consumption, supported by higher real incomes. 7: The Committee discussed the risks around the near-term outlook for consumer spending. House price inflation had held up by more than had been expected, which could suggest upside risks to the outlook for spending. One potential explanation for this would be that higher interest rates had weighed on house prices by less than had been expected. Set against that, a modest expected rise in unemployment could pose downside risks to consumption, for example if those households not directly affected nevertheless chose to save more for precautionary reasons. 8: The Committee discussed the degree of persistence in UK wage growth and domestic price inflation. Consistent with the recent easing in short-term inflation expectations and a loosening in the labour market, wage growth had fallen somewhat further. Services consumer price inflation had also continued to ease. Although both wage growth and services price inflation had been slightly higher than expected in the February Monetary Policy Report, that difference was small in the context of typical data volatility. Both series still indicated elevated domestic inflationary pressures. 9: The Committee discussed the relative weights to put on different indicators of inflation persistence, particularly in the event that they were to give divergent signals in the future. There remained considerable uncertainty around estimates of labour market tightness derived from the Labour Force Survey (LFS), owing to small sample sizes. A range of labour market indicators, including the vacancies to unemployment ratio and survey indicators of recruitment difficulties, suggested that the labour market had continued to loosen, however, while remaining relatively tight by historical standards. 10: Although less severe than the issues surrounding the LFS, the Committee noted that the private sector regular average weekly earnings (AWE) series tended to be volatile, especially when compared with services price inflation. While AWE growth had fallen sharply since last year, the decline suggested by other indicators appeared more gradual and from a lower peak. Possibly reflecting past falls in real wages and a relatively tight labour market, nominal pay growth had continued to be elevated. 11: The appropriate weight to place on different indicators of inflation persistence would also depend on wider economic developments. Depending on the expected path for demand, for example, indicators of inflation persistence might be expected to diverge. In an environment of subdued demand, firms might be expected to absorb higher wage growth into their profit margins. Higher wage growth would then not pass through to higher services price inflation. But as demand recovered, firms might choose to pass through that wage growth, resulting in higher services price inflation. Initial reports indicated that the Agents’ contacts generally expected lower pass-through of higher labour costs to prices than last year, owing to weaker demand. Consumer-facing services firms surveyed in the Decision Maker Panel in the three months to April had said that they expected to raise prices by 4.7% over the next year . The Committee would consider evidence from different indicators of persistence and would continue to monitor them in context. The immediate policy decision 12: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 13: Indicators of inflation persistence had evolved broadly as expected, albeit a little stronger than had been anticipated in the February Monetary Policy Report. 14: Services consumer price inflation had declined but remained elevated, at 6.0% in March. Higher-frequency measures of services price inflation showed somewhat more of a slowdown than annual rates but still indicated elevated domestic inflationary pressures. Services price inflation was expected to continue to ease gradually over the course of this year, as wage growth and indirect effects from energy and other goods prices weakened further. 15: There remained considerable uncertainty around statistics derived from the ONS Labour Force Survey. It was therefore more difficult to gauge the evolution of the labour market. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. Annual private sector regular average weekly earnings growth had declined to 6.0% in the three months to February, although that series tended to be volatile. Alternative indicators also suggested easing pay growth. 16: The Committee noted that this year’s pay settlements, which tended to be concentrated in the early part of the year, would provide an important indication of the extent to which pay growth continued to moderate as expected. Firmer information on April settlements would soon become available, including from the Bank’s Agents’ intelligence. 17: Twelve-month CPI inflation had fallen to 3.2% in March from 3.4% in February, broadly as expected in the February Report. In the MPC’s May Report projections, CPI inflation was expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects. Conditioned on market interest rates and reflecting a margin of slack in the economy, CPI inflation was projected to be 1.9% in two years’ time and 1.6% in three years. 18: There continued to be upside risks to the modal CPI inflation projection from geopolitical factors during the first half of the forecast period, but the risks overall were more evenly balanced over the second half. 19: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 20: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 21: Seven members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had continued to fall back, in part owing to base effects and external effects from goods prices. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Key indicators of inflation persistence were moderating broadly as expected, although they remained elevated. There was a range of views among these members regarding the risks around the assumptions on persistence embodied in the May CPI projection. There was also a range of views about the extent of the evidence that was likely to be needed to warrant a change in Bank Rate, and the degree to which these members anticipated that incremental information in forthcoming data outturns would lead them to update materially their assessment of inflation persistence. All of these members would continue to consider the degree of restrictiveness of policy at each meeting. 22: Two members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For these members, Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. Consumer price inflation was already, and had been for some time, on a firm downward trajectory. The latest forecasts showed inflation returning close to the target in the short term, and this was consistent with forward-looking indicators of output price inflation falling behind input price inflation. As the outlook for demand remained subdued, with vacancies continuing to fall and nominal pay growth easing, the risks to inflation returning sustainably to the target in the medium term were to the downside. 23: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. The Committee would consider forthcoming data releases and how these informed the assessment that the risks from inflation persistence were receding. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 24: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 25: Seven members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted in favour of the proposition. Two members (Swati Dhingra and Dave Ramsden) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 26: On 8 May, the total stock of assets held for monetary policy purposes was £703 billion, all of which were UK government bonds. The Corporate Bond Purchase Scheme had been fully unwound on 2 April, such that there were now no holdings of sterling non‐financial investment‐grade corporate bonds. 27: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 30 April and 2 May, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, June 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 19 June 2024, the MPC voted by a majority of 7–2 to maintain Bank Rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. Indicators of short-term inflation expectations have also continued to moderate, particularly for households. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison. UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around ¼% per quarter. The considerable uncertainty around estimates derived from the ONS Labour Force Survey means that it is very difficult to gauge the evolution of labour market activity. Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards. The collective steer from a range of indicators of aggregate pay growth has continued to ease in the latest data. Services consumer price inflation was 5.7% in May, down from 6.0% in March, but somewhat higher than projected in the May Report. This strength in part reflected prices that are index-linked or regulated, which are typically changed only annually, and volatile components. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back to the 2% target. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. As part of the August forecast round, members of the Committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 19 June 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have risen by 0.5% in 2024 Q1, in line with the projection in the May Monetary Policy Report. It was expected to continue to grow at a similar pace in Q2. Growth rates across advanced economies had converged as US growth had moderated. 3: Euro-area GDP had risen by 0.3% in 2024 Q1. The composite output PMI had reached a 12-month high in May, accounted for in part by the manufacturing sector. US GDP had also expanded by 0.3% in Q1. Growth in both regions was expected to continue at around this pace in Q2. 4: In China, GDP had grown by 1.6% in 2024 Q1, accounted for in part by strength in exports. In other emerging market economies, indicators of activity such as PMIs had seen healthy growth over this period, with particular strength in India. 5: Since the MPC’s May meeting, the Brent spot oil price had risen by 3% to around $85 per barrel. European wholesale natural gas spot prices had increased by 12%, with a smaller increase in futures prices. 6: Global shipping costs had risen since the MPC’s May meeting amid longer-than-expected disruptions to routes through the Red Sea, although these costs had remained well below their pandemic-era peak levels. In anticipation of constrained shipping capacity over the second half of the year, there were indications that producers were filling inventories sooner than usual. This higher demand combined with ongoing shipping capacity constraints had been pushing up on shipping rates, although there was uncertainty around the extent and timing of any potential effects on consumer prices. 7: Labour markets in advanced economies had remained tight overall. The US unemployment rate had increased to 4.0% in May and the vacancy rate had decreased in April, taking the vacancies-to-unemployment ratio closer to pre-Covid levels. However, non-farm payrolls growth had rebounded in May by more than had been expected by market participants, suggesting continued strength in the labour market. The euro-area unemployment rate had fallen to an historically low level of 6.4% in April. Wage pressures had remained elevated in both regions in 2024 Q1, with the wage growth component of the US employment cost index having ticked up slightly and negotiated wage growth rising to 4.7% in the euro area due to one-off payments. The Committee discussed the extent to which this wage strength could continue to push up on inflationary pressures in those regions. 8: Headline consumer price inflation in major advanced economies had continued to be somewhat above central banks’ targets over recent months, with services inflation remaining elevated. In the euro area, twelve-month HICP inflation had been 2.6% in May, while core inflation had risen to 2.9%, slightly higher than expected by market participants. Within this, services inflation had increased particularly strongly, in part due to base effects from German transport prices. US CPI inflation had fallen marginally to 3.3% in May, while core CPI inflation had fallen to 3.4%, both slightly below market expectations. Looking ahead, headline inflation was expected to continue to moderate in both economies, though to remain above inflation targets in 2024. Core services and shelter inflation were expected to decline at a slow pace in the United States, while energy-related base effects could lead to an uneven inflation profile in the euro area. Monetary and financial conditions 9: As in recent months, major advanced economy government bond yields had seen a relatively high degree of co-movement since the Committee’s previous meeting. Within that period, yields had moved in offsetting directions in response to macroeconomic data, in particular in the United States where the news from various indicators had been mixed. More recently, yields had been affected by uncertainty related to the forthcoming French election. Market-implied paths for policy rates across major advanced economies had generally ended the period somewhat lower than at the time of the Committee’s previous meeting, except for in the very near term. The sterling effective exchange rate had ended the period around 2% stronger. There had been greater divergence in risky asset prices across countries, where equity prices in Europe had fallen in response to political uncertainty, but those in the United States had increased somewhat. 10: At its meeting ending on 6 June, the ECB Governing Council had decreased its key policy rates by 25 basis points, in line with market expectations. In its statement, the Governing Council had noted that, despite the progress over recent quarters, domestic price pressures had remained strong, and had reiterated that it would follow a data-dependent and meeting-by-meeting approach. Following the announcement, the market-implied path for subsequent cuts in euro-area policy rates in 2024 had fallen from 66 to 44 basis points. At its meeting ending on 12 June, the Federal Open Market Committee (FOMC) had left the federal funds rate unchanged, also in line with market expectations. The median FOMC member now expected that there would be one 25 basis point reduction in the federal funds rate in 2024, compared to three at the time of the March FOMC projections. 11: In the United Kingdom, Bank Rate expectations implied by market pricing had increased following the April CPI release, which had shown inflation higher than expected by both the MPC and market participants. All respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. MaPS respondents had all continued to expect the next move in Bank Rate to be downward, and the median profile had implied a cumulative 50 basis points reduction in Bank Rate this year, starting in August, although this was down from 75 basis points in the May MaPS. This contrasted somewhat with the path implied by market pricing, which had suggested that the first full 25 basis point cut would occur in November. 12: Medium-term inflation compensation measures in the United Kingdom had been little changed since the MPC’s previous meeting. 13: Regarding credit conditions, the 12-month growth rate of aggregate sterling net lending by banks had picked up slightly to 1.0% in April. Annual growth in net secured lending to households had picked up to a recent high, although it had remained well below rates seen before the start of the Bank Rate tightening cycle. Mortgage approvals on house purchases, an indicator of an earlier stage in the house-buying process, had fallen slightly in April after six months of consecutive increases. Quoted rates on fixed-rate mortgage products had been little changed since the MPC’s previous meeting. 14: The annual growth rate of aggregate sterling broad money had increased slightly to 0.4% in April. Within that, annual growth in household deposits had picked up further, reflecting a large inflow to ISAs in the most recent month. Demand and output 15: UK real GDP had increased by 0.6% in 2024 Q1, 0.2 percentage points stronger than had been expected in the May Monetary Policy Report. Just under half of that upside news had been accounted for by stronger government services output, which had tended to be volatile and subject to significant revision over recent quarters. Market sector output growth had also been somewhat stronger than expected, however. 16: Monthly GDP had been unchanged on the month in April, somewhat stronger than Bank staff expectations, which had been for a greater unwinding of the strength in Q1. Business-to-business services output had risen strongly, offsetting some weather-related weakness in other components of services and in the construction sector. 17: Bank staff now expected GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report. In light of this, the Committee discussed its view of the underlying trend in growth. The latest upside news to measured GDP over the first half of this year should be set against the surprisingly weak output data that had been observed during the second half of 2023. Recent indications from official data were stronger than an underlying rate of current output growth suggested by most business surveys, which had remained at around ¼% per quarter. Those surveys had nevertheless continued to signal that companies were expecting output growth to pick up further through the course of the year. For a given view of potential supply, this could suggest a risk that spare capacity in the economy might open up to a lesser degree than had been projected in the May Report. 18: Household consumption had increased by 0.2% in 2024 Q1, close to expectations in the May Report. Retail sales volumes had fallen sharply in April, in part reflecting weather-related volatility in spending. Real labour income had continued to pick up. Consumer confidence had also recovered further, with households continuing to view their own personal financial situations more positively. Nonetheless, perhaps reflecting the restrictive stance of monetary policy, households had remained sceptical about making major purchases and instead had favoured saving. Contacts of the Bank’s Agents had reported a pickup in consumer demand in 2024 Q2 and were cautiously optimistic that growth could rise further over the course of this year. 19: Housing investment had been estimated to have grown by 4.1% in 2024 Q1, significantly stronger than had been expected in the May Report and perhaps indicating some easing in the impact that higher interest rates had been having. That upside surprise had reflected a continued upward trend in private housing repair and maintenance, alongside a small increase in new work after a period of pronounced weakness. The latest April housing construction output data had weakened for both of these components, in part potentially owing to adverse weather conditions. The UK House Price Index had risen over recent months. 20: Business investment had been estimated to have risen by 0.9% in 2024 Q1, with recent strength concentrated in spending on aircraft. The S&P Global/CIPS UK manufacturing investment goods output PMI had picked up recently, as had expected business investment growth in the Decision Maker Panel survey. Supply, costs and prices 21: The continuing labour market data quality issues were a matter of increasing concern. Owing to very low achieved sample sizes, Labour Force Survey (LFS)-based estimates of labour market dynamics were still subject to considerable uncertainties. Key labour market flows data had not yet been fully reintroduced. It was therefore difficult to gauge the underlying state of labour market activity. The MPC had for some time utilised a wide range of data to inform its judgements on the labour market, including official data, business surveys and intelligence from the Bank’s Agents. 22: The collective steer from a number of indicators, such as HMRC RTI payrolls employee data, a range of business surveys and the Bank’s Agents’ employment scores, pointed to underlying employment growth having slowed to broadly the same rate as population growth. This was in contrast to the LFS-based estimate of employment, which had reported a sharp decline. 23: The deceleration in underlying employment was in part likely to have reflected a further slowing in labour demand. The volume of vacancies had continued to fall back in May to around 10% above pre-Covid levels, although the pace of decline had slowed relative to last year. This decline in vacancies had been relatively broad-based across sectors, and a similar pattern had been reflected in the sectoral declines in demand for staff reported in the KPMG/REC survey. 24: In part reflecting this slowing labour demand, labour market tightness had continued to ease. The vacancies-to-unemployment ratio had fallen further in the three months to April, returning to around pre-Covid levels, which were still high by historical standards. The Bank’s Agents’ contacts had reported that recruitment difficulties had eased to near to their pre-Covid levels, although this was also still a historically high level. The KPMG/REC survey had indicated that staff availability had increased further in May. Nonetheless, an indicator model of underlying unemployment, which extracted a signal from indicators such as the claimant count, vacancies, measures of recruitment difficulties and other household indicators, had pointed to the underlying unemployment rate having been relatively flat in recent quarters, implying that the labour market was a little tighter than official data suggested. The LFS measure of the unemployment rate had increased by 0.6 percentage points since 2023 Q4. 25: Annual private sector regular Average Weekly Earnings (AWE) growth had eased from 6.1% in the three months to January to 5.8% in the three months to April, in line with the expectation made at the time of the May Monetary Policy Report. April was traditionally an important month for pay setting, with around 40% of the year’s pay settlements taking effect alongside the annual increase in the National Living Wage. The collective steer from a range of pay growth indicators had continued to ease, with the staff’s updated forecast for 2024 Q2 remaining in line with the projection in the May Report of annual growth of just over 5%. 26: Nevertheless, some recent data suggested a risk that near-term pay growth could moderate by less than had been expected in the May Report. The Bank’s Agents’ contacts had reported that recent pay settlements for 2024 were slightly above the average level recorded in the Agents’ annual pay survey presented in the February Report. Contacts from those consumer-facing businesses that were most exposed to the National Living Wage had generally reported higher settlements. According to the Decision Maker Panel (DMP) survey in the three months to May, businesses’ expectations for annual pay growth a year ahead had eased slightly to a rate of 4.5%, which was nevertheless still elevated. A counterpoint to these upside risks were the KPMG/REC monthly pay growth indices, which had continued to suggest a downside risk to future pay growth. 27: Twelve-month CPI inflation had fallen to 2.0% in May from 3.2% in March. The decline in headline CPI inflation had been accounted for largely by base effects across both goods and services. The May outturn had been close to the expectation made at the time of the May Report, although downside news from core goods price inflation had somewhat offset upside news from services price inflation. 28: Consumer goods price inflation had continued to ease as the cost pressures from previous external shocks had dissipated further. Households’ domestic energy bills had continued to pull down headline inflation, declining at an annual rate of 27.1% in May. Food and non-alcoholic beverages price inflation had fallen to 1.7% in May compared to a peak of 19% in March 2023. Core goods price inflation had dropped to -0.1% in May, slightly below pre-Covid inflation rates. ONS producer price data had continued to point to easing cost pressures. Producer output and input price levels had been broadly flat in May, continuing a trend observed over the past year. The signals from other indicators, such as the S&P Global/CIPS manufacturing PMI input and output price indices and import prices, had also pointed to muted cost and price pressures for core goods. 29: The Committee discussed recent developments in indicators of consumer services price inflation and businesses’ price-setting behaviour. Services price inflation had eased to 5.7% in May from 6.0% in March. This was a somewhat higher outturn than had been expected at the time of the May Report, however. Higher-frequency measures of services price inflation had picked up in the three months to May. Some of this strength had been accounted for by components of the services basket that were index-linked or regulated, for which prices were typically changed in April and remained in the annual inflation rate for 12 months, as well as strength in some of the more volatile components of this basket such as accommodation services. The monthly annualised inflation rates of a seasonally adjusted services price measure, which excluded indexed and volatile components, rents and foreign holidays, had averaged 5¼% over the three months to May, close to its average since mid-2023. CPI microdata suggested that the share of services prices that had increased, a measure of price-setting behaviour, had continued to ease, although this share had remained elevated by historical standards. Evidence from the DMP survey suggested that businesses expected the frequency of services price increases to normalise somewhat further over the course of this year. The S&P Global/CIPS PMI services input price index had risen sharply in April but had fallen to close to its historical average in May. The corresponding output price index had declined to its lowest level in three years. 30: Evidence on how profit margins in consumer-facing services would evolve had been mixed. On the one hand, intelligence from the Bank’s Agents suggested that consumer-facing services businesses were facing price-sensitive consumers and so would find it more challenging to maintain profit margins in the face of continuing cost pressures, including any from labour costs. On the other hand, the latest DMP survey data suggested that businesses in consumer-facing sectors, such as wholesale and retail, and food and accommodation had experienced flat or declining profit margins over the previous year and were expecting to maintain or even slightly increase these margins over the year ahead. This suggested that margin expansion would not add significantly to inflation above and beyond realised cost growth. 31: Staff expected CPI inflation to increase slightly in the second half of this year, owing largely to the smaller drag on 12-month inflation from domestic energy bills. 32: Indicators of households’ inflation expectations, an important channel of potential second-round effects on CPI inflation, had continued to moderate and had for the most part normalised to around their historical averages. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median short-term inflation expectations had fallen to 2.8% in May, marginally below its historical average. The corresponding measure of medium-term expectations had remained close to, but below, its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had eased to 3.1% in May, from 3.3% in April, but had remained slightly above its historical average. In contrast to developments in household measures, businesses’ own price expectations, as reported in the DMP survey, had remained at more elevated levels, albeit also on a continued downward path. The immediate policy decision 33: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 34: The Committee noted that the timing of the general election on 4 July was not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2% inflation target sustainably in the medium term. 35: In the MPC’s May Monetary Policy Report projections, a margin of economic slack had been projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy. CPI inflation had been expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, as declines in energy prices in the previous year fell out of the annual comparison. There had continued to be upside risks to the near-term inflation outlook from geopolitical factors. Conditioned on the market-implied path for Bank Rate at the time of the May Report and reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years. 36: The Committee considered developments since the previous MPC meeting and how these informed the assessment that the risks from inflation persistence were receding. 37: UK GDP appeared to have grown more strongly than had been expected during the first half of this year. Business surveys, however, remained consistent with a slower pace of underlying growth, of around ¼% per quarter. Contacts of the Bank’s Agents had reported a pickup in consumer demand in 2024 Q2 and most housing indicators had also shown signs of greater resilience over recent months. 38: The considerable uncertainty around estimates derived from the ONS Labour Force Survey meant that it was very difficult to gauge the evolution of labour market activity. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. 39: The collective steer from a range of indicators of aggregate pay growth had continued to ease in the latest data, although there were some signs that this year’s increase in the National Living Wage (NLW) could be having a greater than expected impact. The Bank’s Agents’ contacts had reported that recent pay settlements for 2024 were slightly above the average level recorded in the Agents’ annual pay survey presented in the February Report. 40: Twelve-month CPI inflation had fallen to 2.0% in May from 3.2% in March, close to the May Report projection. Indicators of short-term inflation expectations had continued to moderate, particularly for households, which could have implications for future wage and price-setting decisions. 41: Services consumer price inflation had been 5.7% in May, down from 6.0% in March, but somewhat higher than had been projected in the May Report. This strength had in part reflected prices that were index-linked or regulated, which were typically changed only annually, and volatile components. Higher-frequency measures of services consumer price inflation had picked up in the three months to May. The S&P Global/CIPS PMI services input price index had risen sharply in April but had fallen back to close to its historical average in May. The corresponding output price index had declined to its lowest level in three years. 42: More generally, there continued to be a range of views regarding the risks of inflation persistence embodied in the CPI projection in the May Report. On the one hand, the continued unwinding of the past shocks to energy and other imported goods prices might moderate the extent to which employees and domestic firms would seek higher nominal pay and domestic selling prices to recover the reductions in real incomes that they had experienced in the past. As headline CPI inflation and short-term inflation expectations had fallen further, inflationary dynamics could therefore adjust as rapidly on the downside as they had done on the upside. On the other hand, there remained a risk that there had been a more enduring shift in price and wage-setting behaviour, perhaps associated with a higher degree of real income resistance or with changes in the relative wage structure. In addition, there was uncertainty around the near-term paths of demand and spare capacity in the economy, and hence around the extent to which these were likely to constrain domestic prices in the face of still-elevated cost pressures. 43: In contrast to the upside news in services consumer price inflation, core goods price inflation had been weaker than had been projected in the May Report. Although this series was often volatile, the downside news had been spread across several components of the goods basket and was consistent with broader developments in external cost pressures. 44: UK CPI inflation was expected to increase slightly in the second half of this year, as declines in energy prices last year fell out of the annual comparison. 45: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 46: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 47: Seven members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had fallen back to the 2% target. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Key indicators of inflation persistence had continued to moderate, although they remained elevated. 48: There continued to be a range of views among these members about the extent of accumulated evidence that was likely to be needed to warrant a change in Bank Rate, and the degree to which incremental information was leading them to update materially their assessment of inflation persistence. 49: For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target. Continued high levels of, and upside news to, services inflation supported the view that second-round effects would maintain persistent upward pressure on underlying inflation. Wage growth had continued to exceed model-based estimates. Indicators of domestic demand were stronger than had been expected, and the risks to the outlook for activity were skewed to the upside. For these members, more evidence of diminishing inflation persistence was needed before reducing the degree of monetary policy restrictiveness. 50: For other members within this group, the upside news in services price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on. This view was supported by evidence that the recent strength in services inflation included regulated and indexed components of the basket, and volatile components. The impact of the increase in the NLW this April on aggregate pay growth was unlikely to be as large in future. Such factors would not push up medium-term inflation. For these members, the policy decision at this meeting was finely balanced. 51: Two members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For these members, Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. CPI inflation had been on a firm downward trajectory for some time and had returned to the 2% target in May. It was forecast to stay close to 2% in the short term, consistent with the further easing in the labour market, forward-looking indicators of inflation and pass-through, and continued falls in inflation expectations. Given the subdued outlook for demand, the risks to inflation remaining sustainably at the target in the medium term were to the downside. 52: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. As part of the August forecast round, members of the Committee would consider all of the information available and how this affected the assessment that the risks from inflation persistence were receding. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 53: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 54: Seven members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted in favour of the proposition. Two members (Swati Dhingra and Dave Ramsden) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 55: On 19 June, the stock of UK government bonds held for monetary policy purposes was £696 billion. 56: Finally, on the occasion of his 128th and final meeting and on behalf of Committee members past and present, the Chair expressed his appreciation to Ben Broadbent for his contributions to the work of the MPC since becoming a member in 2011. 57: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 12 and 17 June, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, June 2024 The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 19 June 2024, the MPC voted by a majority of 7–2 to maintain Bank Rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. Indicators of short-term inflation expectations have also continued to moderate, particularly for households. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison. UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around ¼% per quarter. The considerable uncertainty around estimates derived from the ONS Labour Force Survey means that it is very difficult to gauge the evolution of labour market activity. Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards. The collective steer from a range of indicators of aggregate pay growth has continued to ease in the latest data. Services consumer price inflation was 5.7% in May, down from 6.0% in March, but somewhat higher than projected in the May Report. This strength in part reflected prices that are index-linked or regulated, which are typically changed only annually, and volatile components. The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term. At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back to the 2% target. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. As part of the August forecast round, members of the Committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level. Minutes of the Monetary Policy Committee meeting ending on 19 June 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have risen by 0.5% in 2024 Q1, in line with the projection in the May Monetary Policy Report. It was expected to continue to grow at a similar pace in Q2. Growth rates across advanced economies had converged as US growth had moderated. 3: Euro-area GDP had risen by 0.3% in 2024 Q1. The composite output PMI had reached a 12-month high in May, accounted for in part by the manufacturing sector. US GDP had also expanded by 0.3% in Q1. Growth in both regions was expected to continue at around this pace in Q2. 4: In China, GDP had grown by 1.6% in 2024 Q1, accounted for in part by strength in exports. In other emerging market economies, indicators of activity such as PMIs had seen healthy growth over this period, with particular strength in India. 5: Since the MPC’s May meeting, the Brent spot oil price had risen by 3% to around $85 per barrel. European wholesale natural gas spot prices had increased by 12%, with a smaller increase in futures prices. 6: Global shipping costs had risen since the MPC’s May meeting amid longer-than-expected disruptions to routes through the Red Sea, although these costs had remained well below their pandemic-era peak levels. In anticipation of constrained shipping capacity over the second half of the year, there were indications that producers were filling inventories sooner than usual. This higher demand combined with ongoing shipping capacity constraints had been pushing up on shipping rates, although there was uncertainty around the extent and timing of any potential effects on consumer prices. 7: Labour markets in advanced economies had remained tight overall. The US unemployment rate had increased to 4.0% in May and the vacancy rate had decreased in April, taking the vacancies-to-unemployment ratio closer to pre-Covid levels. However, non-farm payrolls growth had rebounded in May by more than had been expected by market participants, suggesting continued strength in the labour market. The euro-area unemployment rate had fallen to an historically low level of 6.4% in April. Wage pressures had remained elevated in both regions in 2024 Q1, with the wage growth component of the US employment cost index having ticked up slightly and negotiated wage growth rising to 4.7% in the euro area due to one-off payments. The Committee discussed the extent to which this wage strength could continue to push up on inflationary pressures in those regions. 8: Headline consumer price inflation in major advanced economies had continued to be somewhat above central banks’ targets over recent months, with services inflation remaining elevated. In the euro area, twelve-month HICP inflation had been 2.6% in May, while core inflation had risen to 2.9%, slightly higher than expected by market participants. Within this, services inflation had increased particularly strongly, in part due to base effects from German transport prices. US CPI inflation had fallen marginally to 3.3% in May, while core CPI inflation had fallen to 3.4%, both slightly below market expectations. Looking ahead, headline inflation was expected to continue to moderate in both economies, though to remain above inflation targets in 2024. Core services and shelter inflation were expected to decline at a slow pace in the United States, while energy-related base effects could lead to an uneven inflation profile in the euro area. Monetary and financial conditions 9: As in recent months, major advanced economy government bond yields had seen a relatively high degree of co-movement since the Committee’s previous meeting. Within that period, yields had moved in offsetting directions in response to macroeconomic data, in particular in the United States where the news from various indicators had been mixed. More recently, yields had been affected by uncertainty related to the forthcoming French election. Market-implied paths for policy rates across major advanced economies had generally ended the period somewhat lower than at the time of the Committee’s previous meeting, except for in the very near term. The sterling effective exchange rate had ended the period around 2% stronger. There had been greater divergence in risky asset prices across countries, where equity prices in Europe had fallen in response to political uncertainty, but those in the United States had increased somewhat. 10: At its meeting ending on 6 June, the ECB Governing Council had decreased its key policy rates by 25 basis points, in line with market expectations. In its statement, the Governing Council had noted that, despite the progress over recent quarters, domestic price pressures had remained strong, and had reiterated that it would follow a data-dependent and meeting-by-meeting approach. Following the announcement, the market-implied path for subsequent cuts in euro-area policy rates in 2024 had fallen from 66 to 44 basis points. At its meeting ending on 12 June, the Federal Open Market Committee (FOMC) had left the federal funds rate unchanged, also in line with market expectations. The median FOMC member now expected that there would be one 25 basis point reduction in the federal funds rate in 2024, compared to three at the time of the March FOMC projections. 11: In the United Kingdom, Bank Rate expectations implied by market pricing had increased following the April CPI release, which had shown inflation higher than expected by both the MPC and market participants. All respondents to the Bank’s latest Market Participants Survey (MaPS) expected Bank Rate to be left unchanged at this MPC meeting. MaPS respondents had all continued to expect the next move in Bank Rate to be downward, and the median profile had implied a cumulative 50 basis points reduction in Bank Rate this year, starting in August, although this was down from 75 basis points in the May MaPS. This contrasted somewhat with the path implied by market pricing, which had suggested that the first full 25 basis point cut would occur in November. 12: Medium-term inflation compensation measures in the United Kingdom had been little changed since the MPC’s previous meeting. 13: Regarding credit conditions, the 12-month growth rate of aggregate sterling net lending by banks had picked up slightly to 1.0% in April. Annual growth in net secured lending to households had picked up to a recent high, although it had remained well below rates seen before the start of the Bank Rate tightening cycle. Mortgage approvals on house purchases, an indicator of an earlier stage in the house-buying process, had fallen slightly in April after six months of consecutive increases. Quoted rates on fixed-rate mortgage products had been little changed since the MPC’s previous meeting. 14: The annual growth rate of aggregate sterling broad money had increased slightly to 0.4% in April. Within that, annual growth in household deposits had picked up further, reflecting a large inflow to ISAs in the most recent month. Demand and output 15: UK real GDP had increased by 0.6% in 2024 Q1, 0.2 percentage points stronger than had been expected in the May Monetary Policy Report. Just under half of that upside news had been accounted for by stronger government services output, which had tended to be volatile and subject to significant revision over recent quarters. Market sector output growth had also been somewhat stronger than expected, however. 16: Monthly GDP had been unchanged on the month in April, somewhat stronger than Bank staff expectations, which had been for a greater unwinding of the strength in Q1. Business-to-business services output had risen strongly, offsetting some weather-related weakness in other components of services and in the construction sector. 17: Bank staff now expected GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report. In light of this, the Committee discussed its view of the underlying trend in growth. The latest upside news to measured GDP over the first half of this year should be set against the surprisingly weak output data that had been observed during the second half of 2023. Recent indications from official data were stronger than an underlying rate of current output growth suggested by most business surveys, which had remained at around ¼% per quarter. Those surveys had nevertheless continued to signal that companies were expecting output growth to pick up further through the course of the year. For a given view of potential supply, this could suggest a risk that spare capacity in the economy might open up to a lesser degree than had been projected in the May Report. 18: Household consumption had increased by 0.2% in 2024 Q1, close to expectations in the May Report. Retail sales volumes had fallen sharply in April, in part reflecting weather-related volatility in spending. Real labour income had continued to pick up. Consumer confidence had also recovered further, with households continuing to view their own personal financial situations more positively. Nonetheless, perhaps reflecting the restrictive stance of monetary policy, households had remained sceptical about making major purchases and instead had favoured saving. Contacts of the Bank’s Agents had reported a pickup in consumer demand in 2024 Q2 and were cautiously optimistic that growth could rise further over the course of this year. 19: Housing investment had been estimated to have grown by 4.1% in 2024 Q1, significantly stronger than had been expected in the May Report and perhaps indicating some easing in the impact that higher interest rates had been having. That upside surprise had reflected a continued upward trend in private housing repair and maintenance, alongside a small increase in new work after a period of pronounced weakness. The latest April housing construction output data had weakened for both of these components, in part potentially owing to adverse weather conditions. The UK House Price Index had risen over recent months. 20: Business investment had been estimated to have risen by 0.9% in 2024 Q1, with recent strength concentrated in spending on aircraft. The S&P Global/CIPS UK manufacturing investment goods output PMI had picked up recently, as had expected business investment growth in the Decision Maker Panel survey. Supply, costs and prices 21: The continuing labour market data quality issues were a matter of increasing concern. Owing to very low achieved sample sizes, Labour Force Survey (LFS)-based estimates of labour market dynamics were still subject to considerable uncertainties. Key labour market flows data had not yet been fully reintroduced. It was therefore difficult to gauge the underlying state of labour market activity. The MPC had for some time utilised a wide range of data to inform its judgements on the labour market, including official data, business surveys and intelligence from the Bank’s Agents. 22: The collective steer from a number of indicators, such as HMRC RTI payrolls employee data, a range of business surveys and the Bank’s Agents’ employment scores, pointed to underlying employment growth having slowed to broadly the same rate as population growth. This was in contrast to the LFS-based estimate of employment, which had reported a sharp decline. 23: The deceleration in underlying employment was in part likely to have reflected a further slowing in labour demand. The volume of vacancies had continued to fall back in May to around 10% above pre-Covid levels, although the pace of decline had slowed relative to last year. This decline in vacancies had been relatively broad-based across sectors, and a similar pattern had been reflected in the sectoral declines in demand for staff reported in the KPMG/REC survey. 24: In part reflecting this slowing labour demand, labour market tightness had continued to ease. The vacancies-to-unemployment ratio had fallen further in the three months to April, returning to around pre-Covid levels, which were still high by historical standards. The Bank’s Agents’ contacts had reported that recruitment difficulties had eased to near to their pre-Covid levels, although this was also still a historically high level. The KPMG/REC survey had indicated that staff availability had increased further in May. Nonetheless, an indicator model of underlying unemployment, which extracted a signal from indicators such as the claimant count, vacancies, measures of recruitment difficulties and other household indicators, had pointed to the underlying unemployment rate having been relatively flat in recent quarters, implying that the labour market was a little tighter than official data suggested. The LFS measure of the unemployment rate had increased by 0.6 percentage points since 2023 Q4. 25: Annual private sector regular Average Weekly Earnings (AWE) growth had eased from 6.1% in the three months to January to 5.8% in the three months to April, in line with the expectation made at the time of the May Monetary Policy Report. April was traditionally an important month for pay setting, with around 40% of the year’s pay settlements taking effect alongside the annual increase in the National Living Wage. The collective steer from a range of pay growth indicators had continued to ease, with the staff’s updated forecast for 2024 Q2 remaining in line with the projection in the May Report of annual growth of just over 5%. 26: Nevertheless, some recent data suggested a risk that near-term pay growth could moderate by less than had been expected in the May Report. The Bank’s Agents’ contacts had reported that recent pay settlements for 2024 were slightly above the average level recorded in the Agents’ annual pay survey presented in the February Report. Contacts from those consumer-facing businesses that were most exposed to the National Living Wage had generally reported higher settlements. According to the Decision Maker Panel (DMP) survey in the three months to May, businesses’ expectations for annual pay growth a year ahead had eased slightly to a rate of 4.5%, which was nevertheless still elevated. A counterpoint to these upside risks were the KPMG/REC monthly pay growth indices, which had continued to suggest a downside risk to future pay growth. 27: Twelve-month CPI inflation had fallen to 2.0% in May from 3.2% in March. The decline in headline CPI inflation had been accounted for largely by base effects across both goods and services. The May outturn had been close to the expectation made at the time of the May Report, although downside news from core goods price inflation had somewhat offset upside news from services price inflation. 28: Consumer goods price inflation had continued to ease as the cost pressures from previous external shocks had dissipated further. Households’ domestic energy bills had continued to pull down headline inflation, declining at an annual rate of 27.1% in May. Food and non-alcoholic beverages price inflation had fallen to 1.7% in May compared to a peak of 19% in March 2023. Core goods price inflation had dropped to -0.1% in May, slightly below pre-Covid inflation rates. ONS producer price data had continued to point to easing cost pressures. Producer output and input price levels had been broadly flat in May, continuing a trend observed over the past year. The signals from other indicators, such as the S&P Global/CIPS manufacturing PMI input and output price indices and import prices, had also pointed to muted cost and price pressures for core goods. 29: The Committee discussed recent developments in indicators of consumer services price inflation and businesses’ price-setting behaviour. Services price inflation had eased to 5.7% in May from 6.0% in March. This was a somewhat higher outturn than had been expected at the time of the May Report, however. Higher-frequency measures of services price inflation had picked up in the three months to May. Some of this strength had been accounted for by components of the services basket that were index-linked or regulated, for which prices were typically changed in April and remained in the annual inflation rate for 12 months, as well as strength in some of the more volatile components of this basket such as accommodation services. The monthly annualised inflation rates of a seasonally adjusted services price measure, which excluded indexed and volatile components, rents and foreign holidays, had averaged 5¼% over the three months to May, close to its average since mid-2023. CPI microdata suggested that the share of services prices that had increased, a measure of price-setting behaviour, had continued to ease, although this share had remained elevated by historical standards. Evidence from the DMP survey suggested that businesses expected the frequency of services price increases to normalise somewhat further over the course of this year. The S&P Global/CIPS PMI services input price index had risen sharply in April but had fallen to close to its historical average in May. The corresponding output price index had declined to its lowest level in three years. 30: Evidence on how profit margins in consumer-facing services would evolve had been mixed. On the one hand, intelligence from the Bank’s Agents suggested that consumer-facing services businesses were facing price-sensitive consumers and so would find it more challenging to maintain profit margins in the face of continuing cost pressures, including any from labour costs. On the other hand, the latest DMP survey data suggested that businesses in consumer-facing sectors, such as wholesale and retail, and food and accommodation had experienced flat or declining profit margins over the previous year and were expecting to maintain or even slightly increase these margins over the year ahead. This suggested that margin expansion would not add significantly to inflation above and beyond realised cost growth. 31: Staff expected CPI inflation to increase slightly in the second half of this year, owing largely to the smaller drag on 12-month inflation from domestic energy bills. 32: Indicators of households’ inflation expectations, an important channel of potential second-round effects on CPI inflation, had continued to moderate and had for the most part normalised to around their historical averages. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median short-term inflation expectations had fallen to 2.8% in May, marginally below its historical average. The corresponding measure of medium-term expectations had remained close to, but below, its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had eased to 3.1% in May, from 3.3% in April, but had remained slightly above its historical average. In contrast to developments in household measures, businesses’ own price expectations, as reported in the DMP survey, had remained at more elevated levels, albeit also on a continued downward path. The immediate policy decision 33: The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. 34: The Committee noted that the timing of the general election on 4 July was not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2% inflation target sustainably in the medium term. 35: In the MPC’s May Monetary Policy Report projections, a margin of economic slack had been projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy. CPI inflation had been expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, as declines in energy prices in the previous year fell out of the annual comparison. There had continued to be upside risks to the near-term inflation outlook from geopolitical factors. Conditioned on the market-implied path for Bank Rate at the time of the May Report and reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years. 36: The Committee considered developments since the previous MPC meeting and how these informed the assessment that the risks from inflation persistence were receding. 37: UK GDP appeared to have grown more strongly than had been expected during the first half of this year. Business surveys, however, remained consistent with a slower pace of underlying growth, of around ¼% per quarter. Contacts of the Bank’s Agents had reported a pickup in consumer demand in 2024 Q2 and most housing indicators had also shown signs of greater resilience over recent months. 38: The considerable uncertainty around estimates derived from the ONS Labour Force Survey meant that it was very difficult to gauge the evolution of labour market activity. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. 39: The collective steer from a range of indicators of aggregate pay growth had continued to ease in the latest data, although there were some signs that this year’s increase in the National Living Wage (NLW) could be having a greater than expected impact. The Bank’s Agents’ contacts had reported that recent pay settlements for 2024 were slightly above the average level recorded in the Agents’ annual pay survey presented in the February Report. 40: Twelve-month CPI inflation had fallen to 2.0% in May from 3.2% in March, close to the May Report projection. Indicators of short-term inflation expectations had continued to moderate, particularly for households, which could have implications for future wage and price-setting decisions. 41: Services consumer price inflation had been 5.7% in May, down from 6.0% in March, but somewhat higher than had been projected in the May Report. This strength had in part reflected prices that were index-linked or regulated, which were typically changed only annually, and volatile components. Higher-frequency measures of services consumer price inflation had picked up in the three months to May. The S&P Global/CIPS PMI services input price index had risen sharply in April but had fallen back to close to its historical average in May. The corresponding output price index had declined to its lowest level in three years. 42: More generally, there continued to be a range of views regarding the risks of inflation persistence embodied in the CPI projection in the May Report. On the one hand, the continued unwinding of the past shocks to energy and other imported goods prices might moderate the extent to which employees and domestic firms would seek higher nominal pay and domestic selling prices to recover the reductions in real incomes that they had experienced in the past. As headline CPI inflation and short-term inflation expectations had fallen further, inflationary dynamics could therefore adjust as rapidly on the downside as they had done on the upside. On the other hand, there remained a risk that there had been a more enduring shift in price and wage-setting behaviour, perhaps associated with a higher degree of real income resistance or with changes in the relative wage structure. In addition, there was uncertainty around the near-term paths of demand and spare capacity in the economy, and hence around the extent to which these were likely to constrain domestic prices in the face of still-elevated cost pressures. 43: In contrast to the upside news in services consumer price inflation, core goods price inflation had been weaker than had been projected in the May Report. Although this series was often volatile, the downside news had been spread across several components of the goods basket and was consistent with broader developments in external cost pressures. 44: UK CPI inflation was expected to increase slightly in the second half of this year, as declines in energy prices last year fell out of the annual comparison. 45: The MPC’s remit was clear that the inflation target applied at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognised that there would be occasions when inflation would depart from the target as a result of shocks and disturbances. Monetary policy would ensure that CPI inflation returned to the 2% target sustainably in the medium term. 46: Monetary policy would need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee had judged since last autumn that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipated. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level. 47: Seven members judged that maintaining Bank Rate at 5.25% was warranted at this meeting. Headline CPI inflation had fallen back to the 2% target. The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures. Key indicators of inflation persistence had continued to moderate, although they remained elevated. 48: There continued to be a range of views among these members about the extent of accumulated evidence that was likely to be needed to warrant a change in Bank Rate, and the degree to which incremental information was leading them to update materially their assessment of inflation persistence. 49: For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target. Continued high levels of, and upside news to, services inflation supported the view that second-round effects would maintain persistent upward pressure on underlying inflation. Wage growth had continued to exceed model-based estimates. Indicators of domestic demand were stronger than had been expected, and the risks to the outlook for activity were skewed to the upside. For these members, more evidence of diminishing inflation persistence was needed before reducing the degree of monetary policy restrictiveness. 50: For other members within this group, the upside news in services price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on. This view was supported by evidence that the recent strength in services inflation included regulated and indexed components of the basket, and volatile components. The impact of the increase in the NLW this April on aggregate pay growth was unlikely to be as large in future. Such factors would not push up medium-term inflation. For these members, the policy decision at this meeting was finely balanced. 51: Two members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. For these members, Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. CPI inflation had been on a firm downward trajectory for some time and had returned to the 2% target in May. It was forecast to stay close to 2% in the short term, consistent with the further easing in the labour market, forward-looking indicators of inflation and pass-through, and continued falls in inflation expectations. Given the subdued outlook for demand, the risks to inflation remaining sustainably at the target in the medium term were to the downside. 52: The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It would therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. As part of the August forecast round, members of the Committee would consider all of the information available and how this affected the assessment that the risks from inflation persistence were receding. On that basis, the Committee would keep under review for how long Bank Rate should be maintained at its current level. 53: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 5.25%. 54: Seven members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted in favour of the proposition. Two members (Swati Dhingra and Dave Ramsden) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 5%. Operational considerations 55: On 19 June, the stock of UK government bonds held for monetary policy purposes was £696 billion. 56: Finally, on the occasion of his 128th and final meeting and on behalf of Committee members past and present, the Chair expressed his appreciation to Ben Broadbent for his contributions to the work of the MPC since becoming a member in 2011. 57: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Ben Broadbent Swati Dhingra Megan Greene Jonathan Haskel Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was also present on 12 and 17 June, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, August 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 31 July 2024, the MPC voted by a majority of 5–4 to reduce Bank Rate by 0.25 percentage points, to 5%. Four members preferred to maintain Bank Rate at 5.25%. The Committee has published an updated set of projections for activity and inflation in the accompanying August Monetary Policy Report. Twelve-month CPI inflation was at the MPC’s 2% target in both May and June. CPI inflation is expected to increase to around 2¾% in the second half of this year, as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. Private sector regular average weekly earnings growth has fallen to 5.6% in the three months to May, and services consumer price inflation has declined to 5.7% in June. GDP has picked up quite sharply so far this year, but underlying momentum appears weaker. The Committee’s framework for assessing the medium-term outlook for inflation distinguishes between first and second-round effects. The MPC has been focused on second-round effects that capture more persistent inflationary pressures. The Committee continues to monitor the accumulation of evidence from a broad range of indicators. The Committee expects the fall in headline inflation, and normalisation in many indicators of inflation expectations, to continue to feed through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further. Domestic inflationary persistence is expected to fade away over the next few years, owing to the restrictive stance of monetary policy. However, there is a risk that inflationary pressures from second-round effects will prove more enduring in the medium term. A stronger-than-expected path for demand, and structural factors such as a higher equilibrium rate of unemployment, could affect domestic wage and price-setting more persistently. Furthermore, the degree of restrictiveness of monetary policy could be less than embodied in the Committee’s current assessment. In balancing these considerations, at this meeting, the Committee voted to reduce Bank Rate to 5%. It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 31 July 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying August 2024 Monetary Policy Report . 2: Global activity was projected to have expanded steadily over recent quarters. US GDP had grown by 0.7% in 2024 Q2, somewhat stronger than had been expected. Euro-area GDP had grown by 0.3% in Q2, in line with expectations. Recent outturns for consumer price inflation in the United States and the euro area suggested some further normalisation toward central banks’ targets. 3: The Committee discussed developments in internationally traded goods prices, noting the presence of a range of risks that could be material for the UK inflation outlook. Although Chinese export prices had recently been higher than expected, they could pose a downside risk if past weakness were to re-emerge. That said, the effects on UK inflation would only be significant if competitive effects also generated spillovers to the price inflation of traded goods exported by other countries. Set against that, there were upside risks to goods prices from the risk of greater trade fragmentation and increased trade restrictions. A broadening of recent disruption to shipping routes could affect the supply of goods whose production was concentrated in particular regions. Upside risks to commodity prices from geopolitical developments, including from events in the Middle East, also remained. 4: The level of sterling was also likely to be an important driver of UK import prices. The effective exchange rate had appreciated further since the Committee’s previous meeting, such that it was over 3% higher than its level at the start of this year. The appreciation was likely to weigh on the outlook for UK import prices and inflation, all else equal, but the extent of pass-through was likely to depend on the underlying driver of the appreciation. 5: The market-implied path for Bank Rate was relatively little changed since the Committee's June meeting and the path that had been assumed in the May Monetary Policy Report. In the Bank's latest Market Participants Survey (MaPS), all respondents had expected the next move in Bank Rate to be downwards. Expectations on the timing of that move were finely balanced with a significant majority of respondents expecting the reduction to occur either at this MPC meeting or the subsequent one in September. That was consistent with market pricing for this meeting, which implied a close-to-evens probability of a 25 basis point reduction in Bank Rate. The median profile for Bank Rate in the August MaPS implied a cumulative 50 basis point reduction by the end of this year, unchanged from the June survey and also broadly in line with market pricing. 6: Turning to UK activity, GDP had grown by 0.7% in 2024 Q1, with that strength appearing to have continued into Q2. Growth in the first half of the year had been stronger than expected at the time of the May Report. Business surveys had continued to point to underlying growth of around 0.3% per quarter, somewhat weaker than headline GDP growth. 7: The Committee discussed the risks around the outlook for domestic demand, which were judged to be skewed to the upside. Households’ real income growth had continued to be supported by the reversal of the previous energy shock, although this had appeared to raise savings more than consumption so far. While flat retail sales volumes pointed to continued elevated savings, improvements in indicators such as the GfK major purchases balance suggested a risk that consumption growth could strengthen by more than had been expected in the projection in the August Report. As set out in Box C in the August Report, there was a risk that the impact of higher interest rates on spending had been more modest and would occur earlier than was expected in the Committee’s latest modal projections, suggesting upside risks to the outlook for spending. Set against that, corporate insolvency rates had continued to rise, although they had remained well below their historical averages. 8: Twelve-month CPI inflation had fallen back to the MPC’s 2% target in May and had remained at that level in June. Inflation was expected to increase to around 2¾% over the second half of this year, owing largely to a smaller expected drag from domestic energy bills. 9: The Committee discussed the latest accumulated evidence on the degree of persistence in pay growth and domestic price inflation. Annual private sector regular average weekly earnings growth had continued to fall back, albeit to a still elevated level, in line with the projection at the time of the May Report. The continued downward trajectory in pay growth had been driven by the normalisation of short-term inflation expectations and some further easing in labour market tightness, although pay growth had remained in excess of rates explained by Bank models. Services consumer price inflation had declined in 2024 Q2 but had remained elevated and had been higher than expected at the time of the May Report. The immediate policy decision 10: The Monetary Policy Committee sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 11: The Committee had been briefed on the Government’s 29 July statement on immediate public spending pressures. The Government had announced that any changes in the stance of fiscal policy would be set out in the Budget on 30 October. These would be incorporated in the November Monetary Policy Report projections. 12: Twelve-month CPI inflation had returned to the MPC’s 2% target in May and June. CPI inflation was expected to increase to around 2¾% in the second half of this year, as declines in energy prices last year fell out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. 13: The Committee’s framework for assessing the medium-term outlook for inflation distinguished between first and second-round effects. The MPC was focused on second-round effects that captured more persistent inflationary pressures. The Committee noted that there were several potential paths for inflation. 14: The Committee expected the fall in headline inflation, and normalisation in many indicators of inflation expectations, to continue to feed through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP fell below potential and the labour market eased further. Domestic inflationary persistence was expected to fade away over the next few years, owing to the restrictive stance of monetary policy. The modal projection in the August Monetary Policy Report was one representation of this. Conditioned on the market-implied path of interest rates, CPI inflation was projected to fall back to 1.7% in two years’ time and to 1.5% in three years. 15: However, there was a risk that inflationary pressures from second-round effects would prove more enduring in the medium term. A stronger-than-expected path for demand, and structural factors such as a higher medium-term equilibrium rate of unemployment, could affect domestic wage and price-setting more persistently. Furthermore, the degree of restrictiveness of monetary policy could be less than embodied in the Committee’s current assessment. This was reflected in the risks around the August Report modal inflation projection being skewed somewhat to the upside throughout the forecast period. Mean CPI inflation was projected to be 2.0% and 1.8% at the two and three-year horizons respectively. 16: The Committee also continued to monitor the accumulation of evidence from a broad range of indicators. 17: There remained considerable uncertainty around statistics derived from the ONS Labour Force Survey, making it more difficult to gauge the underlying state of labour market activity. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. 18: Private sector regular average weekly earnings growth had fallen to 5.6% in the three months to May, in line with expectations in the May Report, and broadly in line with alternative indicators of wage growth. 19: Services consumer price inflation had been 5.7% in June, unchanged from May and stronger than had been expected in the May Report, but broadly as expected since the MPC’s previous meeting and lower than earlier in the year. 20: Following weakness in the second half of 2023, UK GDP growth had picked up sharply around the turn of the year and has been stronger than expected in the May Report. Business surveys had continued to point to weaker underlying GDP growth of around 0.3% per quarter. 21: Different members placed different probabilities on the extent to which the current restrictive policy stance would lead inflationary pressures to continue to unwind, or whether adverse inflationary dynamics would prove more enduring, possibly as a result of more structural factors or greater momentum in demand. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced from its current level. 22: Five members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. It was appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks had abated and there had been some progress in moderating risks of persistence in inflation. There had been a normalisation in inflation expectations, and forward-looking indicators such as the Decision Maker Panel survey pointed to waning wage and price pressures. The recent strength in services inflation had in part continued to reflect more volatile components of this series. Although GDP had been stronger than expected, the restrictive stance of monetary policy continued to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. For some of these members, the decision was finely balanced. Inflationary persistence had not yet conclusively dissipated, and there remained some upside risks to the outlook. 23: Four members preferred to maintain Bank Rate at 5.25% at this meeting. The upside news to services inflation and GDP outturns relative to the May Report, along with continued elevated wage growth, suggested that second-round effects were having a greater impact on wage and price-setting behaviour in the economy beyond what was embodied in the modal forecast. External factors, such as international food and energy prices, had played the major role in reducing headline inflation to date. By contrast, underlying domestic inflationary pressures appeared more entrenched. These members thought that there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of unemployment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence. They preferred to maintain the current level of Bank Rate until there was stronger evidence that these upside pressures would not materialise. 24: Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee continued to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 25: The Chair invited the Committee to vote on the proposition that: Bank Rate should be reduced by 0.25 percentage points, to 5%. 26: Five members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli and Dave Ramsden) voted in favour of the proposition. Four members (Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted against the proposition, preferring to maintain Bank Rate at 5.25%. Operational considerations 27: On 31 July, the stock of UK government bonds held for monetary policy purposes was £690 billion. 28: As discussed in Box A in the August Monetary Policy Report, the Committee would vote on the target for the reduction in the stock of UK government bonds held for monetary policy purposes over the 12-month period from October 2024 to September 2025 at its September 2024 meeting. 29: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Jonathan Haskel Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was present on 23 and 29 July, and Jonathan Bewes on 29 July, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors. 30: On behalf of the Committee, the Chair expressed his appreciation to Jonathan Haskel for his contributions to the work of the MPC since becoming a member in 2018. Monetary Policy Summary, August 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 31 July 2024, the MPC voted by a majority of 5–4 to reduce Bank Rate by 0.25 percentage points, to 5%. Four members preferred to maintain Bank Rate at 5.25%. The Committee has published an updated set of projections for activity and inflation in the accompanying August Monetary Policy Report. Twelve-month CPI inflation was at the MPC’s 2% target in both May and June. CPI inflation is expected to increase to around 2¾% in the second half of this year, as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. Private sector regular average weekly earnings growth has fallen to 5.6% in the three months to May, and services consumer price inflation has declined to 5.7% in June. GDP has picked up quite sharply so far this year, but underlying momentum appears weaker. The Committee’s framework for assessing the medium-term outlook for inflation distinguishes between first and second-round effects. The MPC has been focused on second-round effects that capture more persistent inflationary pressures. The Committee continues to monitor the accumulation of evidence from a broad range of indicators. The Committee expects the fall in headline inflation, and normalisation in many indicators of inflation expectations, to continue to feed through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further. Domestic inflationary persistence is expected to fade away over the next few years, owing to the restrictive stance of monetary policy. However, there is a risk that inflationary pressures from second-round effects will prove more enduring in the medium term. A stronger-than-expected path for demand, and structural factors such as a higher equilibrium rate of unemployment, could affect domestic wage and price-setting more persistently. Furthermore, the degree of restrictiveness of monetary policy could be less than embodied in the Committee’s current assessment. In balancing these considerations, at this meeting, the Committee voted to reduce Bank Rate to 5%. It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 31 July 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying August 2024 Monetary Policy Report . 2: Global activity was projected to have expanded steadily over recent quarters. US GDP had grown by 0.7% in 2024 Q2, somewhat stronger than had been expected. Euro-area GDP had grown by 0.3% in Q2, in line with expectations. Recent outturns for consumer price inflation in the United States and the euro area suggested some further normalisation toward central banks’ targets. 3: The Committee discussed developments in internationally traded goods prices, noting the presence of a range of risks that could be material for the UK inflation outlook. Although Chinese export prices had recently been higher than expected, they could pose a downside risk if past weakness were to re-emerge. That said, the effects on UK inflation would only be significant if competitive effects also generated spillovers to the price inflation of traded goods exported by other countries. Set against that, there were upside risks to goods prices from the risk of greater trade fragmentation and increased trade restrictions. A broadening of recent disruption to shipping routes could affect the supply of goods whose production was concentrated in particular regions. Upside risks to commodity prices from geopolitical developments, including from events in the Middle East, also remained. 4: The level of sterling was also likely to be an important driver of UK import prices. The effective exchange rate had appreciated further since the Committee’s previous meeting, such that it was over 3% higher than its level at the start of this year. The appreciation was likely to weigh on the outlook for UK import prices and inflation, all else equal, but the extent of pass-through was likely to depend on the underlying driver of the appreciation. 5: The market-implied path for Bank Rate was relatively little changed since the Committee's June meeting and the path that had been assumed in the May Monetary Policy Report. In the Bank's latest Market Participants Survey (MaPS), all respondents had expected the next move in Bank Rate to be downwards. Expectations on the timing of that move were finely balanced with a significant majority of respondents expecting the reduction to occur either at this MPC meeting or the subsequent one in September. That was consistent with market pricing for this meeting, which implied a close-to-evens probability of a 25 basis point reduction in Bank Rate. The median profile for Bank Rate in the August MaPS implied a cumulative 50 basis point reduction by the end of this year, unchanged from the June survey and also broadly in line with market pricing. 6: Turning to UK activity, GDP had grown by 0.7% in 2024 Q1, with that strength appearing to have continued into Q2. Growth in the first half of the year had been stronger than expected at the time of the May Report. Business surveys had continued to point to underlying growth of around 0.3% per quarter, somewhat weaker than headline GDP growth. 7: The Committee discussed the risks around the outlook for domestic demand, which were judged to be skewed to the upside. Households’ real income growth had continued to be supported by the reversal of the previous energy shock, although this had appeared to raise savings more than consumption so far. While flat retail sales volumes pointed to continued elevated savings, improvements in indicators such as the GfK major purchases balance suggested a risk that consumption growth could strengthen by more than had been expected in the projection in the August Report. As set out in Box C in the August Report, there was a risk that the impact of higher interest rates on spending had been more modest and would occur earlier than was expected in the Committee’s latest modal projections, suggesting upside risks to the outlook for spending. Set against that, corporate insolvency rates had continued to rise, although they had remained well below their historical averages. 8: Twelve-month CPI inflation had fallen back to the MPC’s 2% target in May and had remained at that level in June. Inflation was expected to increase to around 2¾% over the second half of this year, owing largely to a smaller expected drag from domestic energy bills. 9: The Committee discussed the latest accumulated evidence on the degree of persistence in pay growth and domestic price inflation. Annual private sector regular average weekly earnings growth had continued to fall back, albeit to a still elevated level, in line with the projection at the time of the May Report. The continued downward trajectory in pay growth had been driven by the normalisation of short-term inflation expectations and some further easing in labour market tightness, although pay growth had remained in excess of rates explained by Bank models. Services consumer price inflation had declined in 2024 Q2 but had remained elevated and had been higher than expected at the time of the May Report. The immediate policy decision 10: The Monetary Policy Committee sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 11: The Committee had been briefed on the Government’s 29 July statement on immediate public spending pressures. The Government had announced that any changes in the stance of fiscal policy would be set out in the Budget on 30 October. These would be incorporated in the November Monetary Policy Report projections. 12: Twelve-month CPI inflation had returned to the MPC’s 2% target in May and June. CPI inflation was expected to increase to around 2¾% in the second half of this year, as declines in energy prices last year fell out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. 13: The Committee’s framework for assessing the medium-term outlook for inflation distinguished between first and second-round effects. The MPC was focused on second-round effects that captured more persistent inflationary pressures. The Committee noted that there were several potential paths for inflation. 14: The Committee expected the fall in headline inflation, and normalisation in many indicators of inflation expectations, to continue to feed through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP fell below potential and the labour market eased further. Domestic inflationary persistence was expected to fade away over the next few years, owing to the restrictive stance of monetary policy. The modal projection in the August Monetary Policy Report was one representation of this. Conditioned on the market-implied path of interest rates, CPI inflation was projected to fall back to 1.7% in two years’ time and to 1.5% in three years. 15: However, there was a risk that inflationary pressures from second-round effects would prove more enduring in the medium term. A stronger-than-expected path for demand, and structural factors such as a higher medium-term equilibrium rate of unemployment, could affect domestic wage and price-setting more persistently. Furthermore, the degree of restrictiveness of monetary policy could be less than embodied in the Committee’s current assessment. This was reflected in the risks around the August Report modal inflation projection being skewed somewhat to the upside throughout the forecast period. Mean CPI inflation was projected to be 2.0% and 1.8% at the two and three-year horizons respectively. 16: The Committee also continued to monitor the accumulation of evidence from a broad range of indicators. 17: There remained considerable uncertainty around statistics derived from the ONS Labour Force Survey, making it more difficult to gauge the underlying state of labour market activity. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained relatively tight by historical standards. 18: Private sector regular average weekly earnings growth had fallen to 5.6% in the three months to May, in line with expectations in the May Report, and broadly in line with alternative indicators of wage growth. 19: Services consumer price inflation had been 5.7% in June, unchanged from May and stronger than had been expected in the May Report, but broadly as expected since the MPC’s previous meeting and lower than earlier in the year. 20: Following weakness in the second half of 2023, UK GDP growth had picked up sharply around the turn of the year and has been stronger than expected in the May Report. Business surveys had continued to point to weaker underlying GDP growth of around 0.3% per quarter. 21: Different members placed different probabilities on the extent to which the current restrictive policy stance would lead inflationary pressures to continue to unwind, or whether adverse inflationary dynamics would prove more enduring, possibly as a result of more structural factors or greater momentum in demand. The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced from its current level. 22: Five members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. It was appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks had abated and there had been some progress in moderating risks of persistence in inflation. There had been a normalisation in inflation expectations, and forward-looking indicators such as the Decision Maker Panel survey pointed to waning wage and price pressures. The recent strength in services inflation had in part continued to reflect more volatile components of this series. Although GDP had been stronger than expected, the restrictive stance of monetary policy continued to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. For some of these members, the decision was finely balanced. Inflationary persistence had not yet conclusively dissipated, and there remained some upside risks to the outlook. 23: Four members preferred to maintain Bank Rate at 5.25% at this meeting. The upside news to services inflation and GDP outturns relative to the May Report, along with continued elevated wage growth, suggested that second-round effects were having a greater impact on wage and price-setting behaviour in the economy beyond what was embodied in the modal forecast. External factors, such as international food and energy prices, had played the major role in reducing headline inflation to date. By contrast, underlying domestic inflationary pressures appeared more entrenched. These members thought that there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of unemployment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence. They preferred to maintain the current level of Bank Rate until there was stronger evidence that these upside pressures would not materialise. 24: Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee continued to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 25: The Chair invited the Committee to vote on the proposition that: Bank Rate should be reduced by 0.25 percentage points, to 5%. 26: Five members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli and Dave Ramsden) voted in favour of the proposition. Four members (Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill) voted against the proposition, preferring to maintain Bank Rate at 5.25%. Operational considerations 27: On 31 July, the stock of UK government bonds held for monetary policy purposes was £690 billion. 28: As discussed in Box A in the August Monetary Policy Report, the Committee would vote on the target for the reduction in the stock of UK government bonds held for monetary policy purposes over the 12-month period from October 2024 to September 2025 at its September 2024 meeting. 29: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Jonathan Haskel Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Sam Beckett was present as the Treasury representative. David Roberts was present on 23 and 29 July, and Jonathan Bewes on 29 July, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors. 30: On behalf of the Committee, the Chair expressed his appreciation to Jonathan Haskel for his contributions to the work of the MPC since becoming a member in 2018.

Monetary Policy Summary, September 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 18 September 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 4.75%. The Committee voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £558 billion. Monetary policy decisions have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis. Policy has been acting to ensure that inflation expectations remain well anchored. As set out at the time of the August Monetary Policy Report, the Committee’s deliberations have been supported by the consideration of a range of cases, to which different probabilities and different risks can be attached. In the first case, the unwinding of the global shocks that drove up inflation and the resulting fall in headline inflation should continue to feed through to weaker pay and price-setting dynamics. The persistence of inflationary pressures would therefore dissipate with a less restrictive stance of monetary policy than in other cases. In the second case, a period of economic slack, in which GDP falls below potential and the labour market eases further, may be required in order for pay and price-setting dynamics to normalise fully. Domestic inflationary persistence would then be expected to fade away, owing to the opening up of slack from a more restrictive stance of monetary policy relative to the first case. In the third case, the economy may be subject to structural shifts such as changes in wage and price-setting following the major supply shocks experienced over recent years. The degree of restrictiveness of monetary policy may be less than embodied in the Committee’s latest assessment, meaning that monetary policy would have to remain tighter for longer. Since the MPC’s previous meeting, global activity growth has continued at a steady pace, although some data outturns suggest greater uncertainty around the near-term outlook. Oil prices have fallen back, reflecting in large part weaker demand. Market-implied paths for policy rates across major advanced economies have declined. There has generally been limited news in UK economic indicators relative to the Committee’s expectations in the August Monetary Policy Report. Headline GDP growth is expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Twelve-month CPI inflation was 2.2% in August, and is expected to increase to around 2½% towards the end of this year as declines in energy prices last year fall out of the annual comparison. Services consumer price inflation remained elevated at 5.6% in August. Private sector regular average weekly earnings growth declined to 4.9% in the three months to July. At this meeting, the Committee voted to maintain Bank Rate at 5%. In the absence of material developments, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 18 September 2024 1: Before turning to its immediate policy decisions, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 1: UK-weighted global GDP was estimated to have grown by 0.5% in 2024 Q2, broadly in line with the projection in the August Monetary Policy Report, and consistent with steady growth over recent quarters. US GDP had grown more strongly than had been anticipated, while GDP growth had moderated in the euro area and in China in the second quarter. 2: In the third quarter, euro-area GDP growth was expected to be a little weaker than had been anticipated in the August Report, and US GDP growth was expected to moderate somewhat, in line with previous expectations. Activity indicators such as PMIs suggested ongoing weakness in the manufacturing sector in both economies over recent months, while the services sector had continued to expand. 3: Labour market outturns in the United States had been softer in July and August relative to previous months. Unemployment in the euro area had remained low, pointing to some continuing tightness. Wage growth had continued to moderate across both regions. 4: Headline consumer price inflation had declined further towards central bank targets in the euro area and in the United States. In the euro area, 12-month HICP inflation had been 2.2% in August, while core inflation had ticked down to 2.8%, in line with market participants’ expectations. US CPI inflation had fallen to 2.5% in August, while core CPI inflation had remained unchanged at 3.2%, also in line with market expectations. Annual services price inflation had remained elevated in both economies, although higher frequency measures pointed to some easing over recent months. 5: There were tentative signs of a shift in the balance of risks to global activity towards the downside. Consistent with that, since the MPC's previous meeting, the Brent spot oil price had declined by around 6%, to $75 per barrel. Market contacts had ascribed the moves largely to weaker demand in China, as indicators of domestic demand there had continued to be soft. Monetary and financial conditions 6: Since the MPC’s previous meeting, government bond yields had fallen across major advanced economies in response to the softening in US labour market data and associated FOMC communications. Market-implied paths for policy rates across economies had generally ended the period lower. Coupled with UK data releases in that period having been largely in line with market expectations, that meant UK interest rate movements had been driven primarily by developments in the United States. Nevertheless, the UK market-implied path had fallen by less than in the United States. That had been associated with an appreciation of sterling against the dollar of 3%, which had accounted for most of the 1% increase in the sterling effective exchange rate since the previous MPC meeting. 7: Movements in yields across major advanced economies had been particularly pronounced early in August, alongside large moves in asset prices more generally. Market-specific factors including seasonally low market liquidity were likely to have exacerbated reactions to news. While these early August moves had unwound quickly, yields across countries had nevertheless ended the period lower. In contrast, UK equity prices had been little changed since the MPC’s previous meeting and the S&P 500 and Euro Stoxx 50 had both increased somewhat. 8: At its meeting on 12 September, the ECB Governing Council had reduced its key policy rate by 25 basis points, in line with market expectations. In its statement, the Governing Council had reiterated its data-dependent and meeting-by-meeting approach, focused on the inflation outlook and strength of policy transmission. At its meeting ending on 18 September, the FOMC was expected to reduce the federal funds rate by either 25 or 50 basis points. 9: In the United Kingdom, Bank Rate expectations implied by market pricing had continued to suggest that the next 25 basis point cut would occur in November. That was consistent with the Bank’s latest Market Participants Survey (MaPS). Beyond November, while the median MaPS profile implied a slightly slower pace of reduction in Bank Rate than the market-implied path, both pointed to much more gradual reductions than were expected in the United States and to a lesser extent in the euro area. 10: Regarding credit conditions, it was too soon to assess fully the extent to which the Bank Rate reduction in August had passed through to the relevant saving and borrowing rates facing households and corporates. Nevertheless, as had been anticipated, mortgage rates had fallen since the MPC’s previous meeting broadly in line with declines in risk-free reference rates. 11: The share of two-year fixed-rate mortgages within new secured household lending had been increasing since 2023 Q1, despite rates on these mortgages being above five-year fixed rates over this period. That had reversed the previous trend whereby longer-duration mortgage fixes had increased in popularity since 2016, probably reflecting household expectations of lower interest rates. Slow mortgage stock turnover meant that the share of five-year fixed-rate mortgages in outstanding lending had remained historically high. 12: Household saving preferences had also adjusted over the past year, as rates offered on time deposits had become relatively less attractive, reflecting the declines in risk-free reference rates. Deposit flows had shifted into sight deposits and ISAs, many of which were instant access. Household deposits had continued to be the main driver of aggregate sterling broad money growth. The latter had increased to 1.6% on an annual basis in July, but had remained weak by historical standards. Demand and output 13: UK GDP had increased by 0.6% in 2024 Q2, 0.1 percentage points lower than had been expected in the August Monetary Policy Report. That had followed 0.7% growth in Q1, but Bank staff judged that the underlying pace of growth had been somewhat weaker during the first half of the year. 14: Within the expenditure components of Q2 GDP, household consumption had risen by 0.2% on the quarter, while business and housing investment had both declined by 0.1%. Real government expenditure had increased by 1.6%, and there had continued to be some evidence of greater-than-projected central government spending in recent public sector finances data. 15: GDP had been unchanged on the month in both July and June but had grown by 0.5% on a three-month-on-three-month basis in July. Slightly weaker-than-expected output in July had been concentrated in the manufacturing and professional services sectors. 16: Bank staff now expected GDP growth of 0.3% in 2024 Q3, marginally weaker than the 0.4% rate that had been incorporated in the August Report. That was broadly in line with estimates of the underlying growth rate that had been extracted from models based on a range of business survey indicators and on disaggregated GDP data. The latest intelligence from the Bank’s Agents suggested that improving real incomes, the August Bank Rate reduction and anticipated further cuts in interest rates had underpinned improved sentiment and expectations of increased activity across most sectors around the turn of the year. 17: There had been little news from most indicators of consumer spending, although housing market data had strengthened somewhat. Retail sales volumes had been volatile, around a very gradually rising trend since the start of the year. GfK consumer confidence had been unchanged in August. Forward-looking indicators in the housing market had continued to point to a recovery in home buyer enquiries and prices, while mortgage approvals for house purchase had increased to their highest level since September 2022. 18: The Committee discussed the near-term outlook for activity and the evolution of the output gap. Although uncertainties surrounded this assessment, overall demand and supply were judged to have been broadly in balance over recent quarters. A continuation of the current pace of underlying GDP growth would, given the Committee’s view of potential supply growth, be consistent with little change in the output gap through the end of this year. That path was a little stronger than the August Report projections, however, in which demand growth had been expected to slow at the end of this year and a significant margin of spare capacity had been projected to open up over time. That projection in part reflected the previously announced medium-term tightening in the stance of fiscal policy, prior to the upcoming Budget. The Committee would also continue to monitor closely how the different channels of the monetary transmission mechanism were interacting with the dynamics of the household saving ratio, and in turn the outlook for consumer demand. Supply, costs and prices 19: Labour market data quality issues continued to be an area of concern. Very low achieved sample sizes meant Labour Force Survey (LFS)-based estimates of labour market dynamics remained subject to considerable uncertainties. This was making it difficult to gauge the underlying state of labour market activity. The MPC had, for some time, utilised a wide range of data to inform its judgements on the labour market, including official data, business surveys and intelligence from the Bank’s Agents. 20: A Bank staff indicator model of underlying employment continued to point to growth of around 0.2% per quarter, broadly in line with population growth. There was greater dispersion among outturns from individual employment indicators. The KPMG/REC/S&P Global UK Report on Jobs had continued to point to a contraction in employment while the Lloyds Business Barometer suggested an expansion. 21: In line with softening labour demand, vacancies had continued to fall back gradually, although at a slower pace than in 2023 and they had remained above pre-pandemic levels. The REC Report and Agents’ intelligence signalled a continued easing in recruitment difficulties, with the latter suggesting improved job retention in some sectors. The vacancies-to-unemployment ratio had returned to its pre-pandemic average at the start of 2024 Q2. A Bank staff indicator model suggested that underlying unemployment had increased steadily over the past few quarters, in contrast to more volatile LFS data. 22: Indicators of households’ inflation expectations had largely normalised to close to their historical averages. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median short-term inflation expectations had fallen to 2.7% in August. The corresponding measure of medium-term expectations had remained close to, but below, its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had increased slightly to 3.1% in August from 2.7% previously, possibly owing to media reports of a rise in the Ofgem utility price cap in October. Businesses’ own price expectations, as reported in the DMP Survey, had remained at slightly more elevated levels, although on a continued downward path. 23: This normalisation in inflation expectations, as well as, to a lesser extent, the easing in labour market tightness, had supported continued moderation in pay growth. Annual private sector regular average weekly earnings growth had eased to 4.9% in the three months to July from 5.3% in the three months to June, broadly in line with August Monetary Policy Report projections. Other surveys suggested that wage growth would continue to moderate, although remain above inflation target-consistent levels, with the DMP Survey indicating a fall to approximately 4% over the next year. The latest Agents’ intelligence indicated that pay settlements over the second half of the year were, as expected, coming in at lower rates compared to H1, and 2025-expected settlements might be in a 2 to 4% range. There remained the possibility of some upside risk to pay growth depending on the trajectory of the National Living Wage (NLW) in the first half of next year. 24: Twelve-month CPI inflation had been 2.2% in August and July, slightly lower than August Report expectations. Consumer core goods and food price inflation had remained subdued as the cost pressures from previous global shocks had unwound further, and producer price levels had been broadly flat. Energy prices had continued to drag on CPI inflation. 25: Services price inflation had increased to 5.6% in August compared to 5.2% in July and 5.7% in June. This was slightly lower in August than had been expected at the time of the August Report. There had been volatility in a number of services sub-components in the July and August outturns, including accommodation and catering prices and airfares. 26: The Committee discussed momentum in services price inflation and price-setting behaviour in firms. Strength in services price inflation was supported by evidence from the DMP Survey which showed firms’ own-price inflation continuing to fall, but to a lesser extent among services firms. July CPI microdata pointed to a higher proportion of services prices being raised each month than was the case pre-Covid, though with some easing in catering services where food input costs had moderated. The monthly annualised inflation rates of a seasonally adjusted services price measure, which excluded indexed and volatile components, rents and foreign holidays, had averaged around 4% in the three months to August, close to its average since the end of 2023. Although it had fallen from its peak level, the apparent stability in this measure suggested further pass-through from lower labour costs and easing inflation expectations was still to come. Accordingly, Bank staff expected services inflation to ease slightly further in Q4. 27: CPI inflation was expected to increase somewhat over the remainder of this year, owing to the smaller drag on 12-month inflation from domestic energy bills. The announced uptick in utility prices to take effect in October was likely to be offset somewhat by the recent decrease in petrol prices. The immediate policy decisions 28: The Monetary Policy Committee sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 29: Monetary policy decisions had been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis. Policy had been acting to ensure that inflation expectations remained well anchored. As set out at the time of the August Monetary Policy Report, the Committee’s deliberations had been supported by the consideration of a range of cases, to which different probabilities and different risks could be attached. 30: In the first case, the unwinding of the global shocks that had driven up inflation and the resulting fall in headline inflation should continue to feed through to weaker pay and price-setting dynamics. The persistence of inflationary pressures would therefore dissipate with a less restrictive stance of monetary policy than in other cases. 31: In the second case, a period of economic slack, in which GDP fell below potential and the labour market eased further, might be required in order for pay and price-setting dynamics to normalise fully. Domestic inflationary persistence would then be expected to fade away, owing to the opening up of slack from a more restrictive stance of monetary policy relative to the first case. 32: In the third case, the economy might be subject to structural shifts such as changes in wage and price-setting following the major supply shocks that had been experienced over recent years. The degree of restrictiveness of monetary policy might be less than embodied in the Committee’s latest assessment, meaning that monetary policy would have to remain tighter for longer. 33: The Committee continued to monitor the accumulation of evidence from a broad range of indicators, with a focus on the extent to which it was possible over time to use developments in data series to assess the various cases. 34: Since the MPC’s previous meeting, global activity growth had continued at a steady pace, although some data outturns suggested greater uncertainty around the near-term outlook. Oil prices had fallen back, reflecting in large part weaker demand. Market-implied paths for policy rates across major advanced economies had declined. 35: There had generally been limited news in UK economic indicators relative to the Committee’s expectations in the August Monetary Policy Report. Headline GDP growth was expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained tight by historical standards. 36: Twelve-month CPI inflation had been 2.2% in August, and was expected to increase to around 2½% towards the end of this year as declines in energy prices last year fell out of the annual comparison. Services consumer price inflation had remained elevated at 5.6% in August. Private sector regular average weekly earnings growth had declined to 4.9% in the three months to July. Households’ inflation expectations had largely normalised to close to their historical averages, although businesses’ inflation expectations had remained at slightly more elevated levels. Bank Rate decision 37: Different members took different views on the probabilities and risks associated with the various cases that the Committee was considering, which were informing their votes on Bank Rate. 38: Eight members preferred to maintain Bank Rate at 5% at this meeting. Wage and price-setting had continued to normalise and UK activity growth had been broadly in line with expectations, although there was some greater uncertainty around the near-term global outlook. There was a range of views among these members on the degree to which the unwinding of past global shocks, the normalisation in inflation expectations and the current restrictive policy stance would lead underlying domestic inflationary pressures to continue to unwind, or whether these pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand. Despite these differences of view, the current policy stance was judged to be appropriate. For most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted. 39: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. CPI inflation had been on a firm downward trajectory for some time. Data developments remained consistent with CPI inflation staying sustainably at target, given the further easing in the labour market, continued falls in inflation expectations and forward-looking indicators of pass-through, and the subdued outlook for demand. 40: Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee continued to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 41: The MPC would make a full assessment of recent and prospective developments as part of its forthcoming November forecast round. Annual decision on the pace of reduction in the stock of UK government bond purchases held for monetary policy purposes 42: As set out in the minutes of its August 2022 meeting, the MPC had committed to review the reduction in the Asset Purchase Facility (APF) annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds (gilts) over the subsequent 12-month period. Box A of the August 2024 Monetary Policy Report had set out an assessment of the process of quantitative tightening over the previous year. 43: The Committee continued to judge that reducing the size of the APF had the benefit of reducing the risk of a ratchet upwards in the size of the Bank’s balance sheet over time, and thus should increase the headroom and flexibility available to the Bank to use its balance sheet in the future if needed. 44: The appropriate pace of gilt stock reduction would continue to be guided by a set of key principles, which the MPC had first outlined in the August 2021 Monetary Policy Report. First, the Committee intended to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a gradual and predictable manner over a period of time. 45: As set out in the Box in the August 2024 Report, the Committee judged that quantitative tightening had continued to proceed smoothly. There was no evidence of a negative impact of gilt sales on market functioning across a range of financial market measures. In particular, measures of gilt market liquidity had further improved. APF reduction was likely to have had some tightening effect on yields, which, while difficult to measure precisely, was judged to have been modest. That was in line with the MPC’s previous expectations, and was broadly consistent with findings from other empirical studies and central banks. The Committee would continue to learn from monitoring developments as the process progressed. 46: While it remained hard to measure precisely the marginal effect of quantitative tightening on the economy, the MPC’s forecasts were conditioned on asset prices that incorporated announced and expected APF reductions. The MPC had therefore taken this effect into account when setting the desired monetary policy stance using Bank Rate. Any tightening effect from the reduction in the APF would have led to a slightly lower path for Bank Rate, all else equal. Given that the impact of APF reduction was judged to have been modest, this was unlikely to have made a material difference to the appropriate path for Bank Rate over the past year. 47: The Committee considered the case to maintain the pace of gilt stock reduction at £100 billion over the 12 months ahead, of which £87 billion would be maturing APF gilt holdings. Bank staff had briefed the MPC on the current state of economic and market conditions. The Financial Policy Committee (FPC) had also been briefed on the MPC’s deliberations. 48: All members of the MPC agreed at this meeting that the Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the 12-month period from October 2024 to September 2025, comprising both maturing gilts and sales. 49: The MPC also reaffirmed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that APF reduction should be predictable. In judging whether that bar was met, the FPC would also have a role through its assessment of financial stability. 50: The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 5%; and The Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £558 billion. 51: Eight members (Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine L Mann, Huw Pill, Dave Ramsden and Alan Taylor) voted in favour of the first proposition. Swati Dhingra voted against this proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 4.75%. 52: The Committee voted unanimously in favour of the second proposition. Operational considerations 53: On 18 September 2024, the stock of UK government bonds held for monetary policy purposes was £659 billion. 54: At this meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2024 to September 2025. The details of the first quarter of the associated gilt sales programme, covering 2024 Q4, were set out in a Market Notice accompanying these minutes. The Bank would continue to set auction sizes each quarter, to meet the MPC’s annual target as closely as practicable. 55: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative. David Roberts was present on 12 September, and Jonathan Bewes on 16 September, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors. Monetary Policy Summary, September 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 18 September 2024, the MPC voted by a majority of 8–1 to maintain Bank Rate at 5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 4.75%. The Committee voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £558 billion. Monetary policy decisions have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis. Policy has been acting to ensure that inflation expectations remain well anchored. As set out at the time of the August Monetary Policy Report, the Committee’s deliberations have been supported by the consideration of a range of cases, to which different probabilities and different risks can be attached. In the first case, the unwinding of the global shocks that drove up inflation and the resulting fall in headline inflation should continue to feed through to weaker pay and price-setting dynamics. The persistence of inflationary pressures would therefore dissipate with a less restrictive stance of monetary policy than in other cases. In the second case, a period of economic slack, in which GDP falls below potential and the labour market eases further, may be required in order for pay and price-setting dynamics to normalise fully. Domestic inflationary persistence would then be expected to fade away, owing to the opening up of slack from a more restrictive stance of monetary policy relative to the first case. In the third case, the economy may be subject to structural shifts such as changes in wage and price-setting following the major supply shocks experienced over recent years. The degree of restrictiveness of monetary policy may be less than embodied in the Committee’s latest assessment, meaning that monetary policy would have to remain tighter for longer. Since the MPC’s previous meeting, global activity growth has continued at a steady pace, although some data outturns suggest greater uncertainty around the near-term outlook. Oil prices have fallen back, reflecting in large part weaker demand. Market-implied paths for policy rates across major advanced economies have declined. There has generally been limited news in UK economic indicators relative to the Committee’s expectations in the August Monetary Policy Report. Headline GDP growth is expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Twelve-month CPI inflation was 2.2% in August, and is expected to increase to around 2½% towards the end of this year as declines in energy prices last year fall out of the annual comparison. Services consumer price inflation remained elevated at 5.6% in August. Private sector regular average weekly earnings growth declined to 4.9% in the three months to July. At this meeting, the Committee voted to maintain Bank Rate at 5%. In the absence of material developments, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 18 September 2024 1: Before turning to its immediate policy decisions, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 1: UK-weighted global GDP was estimated to have grown by 0.5% in 2024 Q2, broadly in line with the projection in the August Monetary Policy Report, and consistent with steady growth over recent quarters. US GDP had grown more strongly than had been anticipated, while GDP growth had moderated in the euro area and in China in the second quarter. 2: In the third quarter, euro-area GDP growth was expected to be a little weaker than had been anticipated in the August Report, and US GDP growth was expected to moderate somewhat, in line with previous expectations. Activity indicators such as PMIs suggested ongoing weakness in the manufacturing sector in both economies over recent months, while the services sector had continued to expand. 3: Labour market outturns in the United States had been softer in July and August relative to previous months. Unemployment in the euro area had remained low, pointing to some continuing tightness. Wage growth had continued to moderate across both regions. 4: Headline consumer price inflation had declined further towards central bank targets in the euro area and in the United States. In the euro area, 12-month HICP inflation had been 2.2% in August, while core inflation had ticked down to 2.8%, in line with market participants’ expectations. US CPI inflation had fallen to 2.5% in August, while core CPI inflation had remained unchanged at 3.2%, also in line with market expectations. Annual services price inflation had remained elevated in both economies, although higher frequency measures pointed to some easing over recent months. 5: There were tentative signs of a shift in the balance of risks to global activity towards the downside. Consistent with that, since the MPC's previous meeting, the Brent spot oil price had declined by around 6%, to $75 per barrel. Market contacts had ascribed the moves largely to weaker demand in China, as indicators of domestic demand there had continued to be soft. Monetary and financial conditions 6: Since the MPC’s previous meeting, government bond yields had fallen across major advanced economies in response to the softening in US labour market data and associated FOMC communications. Market-implied paths for policy rates across economies had generally ended the period lower. Coupled with UK data releases in that period having been largely in line with market expectations, that meant UK interest rate movements had been driven primarily by developments in the United States. Nevertheless, the UK market-implied path had fallen by less than in the United States. That had been associated with an appreciation of sterling against the dollar of 3%, which had accounted for most of the 1% increase in the sterling effective exchange rate since the previous MPC meeting. 7: Movements in yields across major advanced economies had been particularly pronounced early in August, alongside large moves in asset prices more generally. Market-specific factors including seasonally low market liquidity were likely to have exacerbated reactions to news. While these early August moves had unwound quickly, yields across countries had nevertheless ended the period lower. In contrast, UK equity prices had been little changed since the MPC’s previous meeting and the S&P 500 and Euro Stoxx 50 had both increased somewhat. 8: At its meeting on 12 September, the ECB Governing Council had reduced its key policy rate by 25 basis points, in line with market expectations. In its statement, the Governing Council had reiterated its data-dependent and meeting-by-meeting approach, focused on the inflation outlook and strength of policy transmission. At its meeting ending on 18 September, the FOMC was expected to reduce the federal funds rate by either 25 or 50 basis points. 9: In the United Kingdom, Bank Rate expectations implied by market pricing had continued to suggest that the next 25 basis point cut would occur in November. That was consistent with the Bank’s latest Market Participants Survey (MaPS). Beyond November, while the median MaPS profile implied a slightly slower pace of reduction in Bank Rate than the market-implied path, both pointed to much more gradual reductions than were expected in the United States and to a lesser extent in the euro area. 10: Regarding credit conditions, it was too soon to assess fully the extent to which the Bank Rate reduction in August had passed through to the relevant saving and borrowing rates facing households and corporates. Nevertheless, as had been anticipated, mortgage rates had fallen since the MPC’s previous meeting broadly in line with declines in risk-free reference rates. 11: The share of two-year fixed-rate mortgages within new secured household lending had been increasing since 2023 Q1, despite rates on these mortgages being above five-year fixed rates over this period. That had reversed the previous trend whereby longer-duration mortgage fixes had increased in popularity since 2016, probably reflecting household expectations of lower interest rates. Slow mortgage stock turnover meant that the share of five-year fixed-rate mortgages in outstanding lending had remained historically high. 12: Household saving preferences had also adjusted over the past year, as rates offered on time deposits had become relatively less attractive, reflecting the declines in risk-free reference rates. Deposit flows had shifted into sight deposits and ISAs, many of which were instant access. Household deposits had continued to be the main driver of aggregate sterling broad money growth. The latter had increased to 1.6% on an annual basis in July, but had remained weak by historical standards. Demand and output 13: UK GDP had increased by 0.6% in 2024 Q2, 0.1 percentage points lower than had been expected in the August Monetary Policy Report. That had followed 0.7% growth in Q1, but Bank staff judged that the underlying pace of growth had been somewhat weaker during the first half of the year. 14: Within the expenditure components of Q2 GDP, household consumption had risen by 0.2% on the quarter, while business and housing investment had both declined by 0.1%. Real government expenditure had increased by 1.6%, and there had continued to be some evidence of greater-than-projected central government spending in recent public sector finances data. 15: GDP had been unchanged on the month in both July and June but had grown by 0.5% on a three-month-on-three-month basis in July. Slightly weaker-than-expected output in July had been concentrated in the manufacturing and professional services sectors. 16: Bank staff now expected GDP growth of 0.3% in 2024 Q3, marginally weaker than the 0.4% rate that had been incorporated in the August Report. That was broadly in line with estimates of the underlying growth rate that had been extracted from models based on a range of business survey indicators and on disaggregated GDP data. The latest intelligence from the Bank’s Agents suggested that improving real incomes, the August Bank Rate reduction and anticipated further cuts in interest rates had underpinned improved sentiment and expectations of increased activity across most sectors around the turn of the year. 17: There had been little news from most indicators of consumer spending, although housing market data had strengthened somewhat. Retail sales volumes had been volatile, around a very gradually rising trend since the start of the year. GfK consumer confidence had been unchanged in August. Forward-looking indicators in the housing market had continued to point to a recovery in home buyer enquiries and prices, while mortgage approvals for house purchase had increased to their highest level since September 2022. 18: The Committee discussed the near-term outlook for activity and the evolution of the output gap. Although uncertainties surrounded this assessment, overall demand and supply were judged to have been broadly in balance over recent quarters. A continuation of the current pace of underlying GDP growth would, given the Committee’s view of potential supply growth, be consistent with little change in the output gap through the end of this year. That path was a little stronger than the August Report projections, however, in which demand growth had been expected to slow at the end of this year and a significant margin of spare capacity had been projected to open up over time. That projection in part reflected the previously announced medium-term tightening in the stance of fiscal policy, prior to the upcoming Budget. The Committee would also continue to monitor closely how the different channels of the monetary transmission mechanism were interacting with the dynamics of the household saving ratio, and in turn the outlook for consumer demand. Supply, costs and prices 19: Labour market data quality issues continued to be an area of concern. Very low achieved sample sizes meant Labour Force Survey (LFS)-based estimates of labour market dynamics remained subject to considerable uncertainties. This was making it difficult to gauge the underlying state of labour market activity. The MPC had, for some time, utilised a wide range of data to inform its judgements on the labour market, including official data, business surveys and intelligence from the Bank’s Agents. 20: A Bank staff indicator model of underlying employment continued to point to growth of around 0.2% per quarter, broadly in line with population growth. There was greater dispersion among outturns from individual employment indicators. The KPMG/REC/S&P Global UK Report on Jobs had continued to point to a contraction in employment while the Lloyds Business Barometer suggested an expansion. 21: In line with softening labour demand, vacancies had continued to fall back gradually, although at a slower pace than in 2023 and they had remained above pre-pandemic levels. The REC Report and Agents’ intelligence signalled a continued easing in recruitment difficulties, with the latter suggesting improved job retention in some sectors. The vacancies-to-unemployment ratio had returned to its pre-pandemic average at the start of 2024 Q2. A Bank staff indicator model suggested that underlying unemployment had increased steadily over the past few quarters, in contrast to more volatile LFS data. 22: Indicators of households’ inflation expectations had largely normalised to close to their historical averages. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median short-term inflation expectations had fallen to 2.7% in August. The corresponding measure of medium-term expectations had remained close to, but below, its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had increased slightly to 3.1% in August from 2.7% previously, possibly owing to media reports of a rise in the Ofgem utility price cap in October. Businesses’ own price expectations, as reported in the DMP Survey, had remained at slightly more elevated levels, although on a continued downward path. 23: This normalisation in inflation expectations, as well as, to a lesser extent, the easing in labour market tightness, had supported continued moderation in pay growth. Annual private sector regular average weekly earnings growth had eased to 4.9% in the three months to July from 5.3% in the three months to June, broadly in line with August Monetary Policy Report projections. Other surveys suggested that wage growth would continue to moderate, although remain above inflation target-consistent levels, with the DMP Survey indicating a fall to approximately 4% over the next year. The latest Agents’ intelligence indicated that pay settlements over the second half of the year were, as expected, coming in at lower rates compared to H1, and 2025-expected settlements might be in a 2 to 4% range. There remained the possibility of some upside risk to pay growth depending on the trajectory of the National Living Wage (NLW) in the first half of next year. 24: Twelve-month CPI inflation had been 2.2% in August and July, slightly lower than August Report expectations. Consumer core goods and food price inflation had remained subdued as the cost pressures from previous global shocks had unwound further, and producer price levels had been broadly flat. Energy prices had continued to drag on CPI inflation. 25: Services price inflation had increased to 5.6% in August compared to 5.2% in July and 5.7% in June. This was slightly lower in August than had been expected at the time of the August Report. There had been volatility in a number of services sub-components in the July and August outturns, including accommodation and catering prices and airfares. 26: The Committee discussed momentum in services price inflation and price-setting behaviour in firms. Strength in services price inflation was supported by evidence from the DMP Survey which showed firms’ own-price inflation continuing to fall, but to a lesser extent among services firms. July CPI microdata pointed to a higher proportion of services prices being raised each month than was the case pre-Covid, though with some easing in catering services where food input costs had moderated. The monthly annualised inflation rates of a seasonally adjusted services price measure, which excluded indexed and volatile components, rents and foreign holidays, had averaged around 4% in the three months to August, close to its average since the end of 2023. Although it had fallen from its peak level, the apparent stability in this measure suggested further pass-through from lower labour costs and easing inflation expectations was still to come. Accordingly, Bank staff expected services inflation to ease slightly further in Q4. 27: CPI inflation was expected to increase somewhat over the remainder of this year, owing to the smaller drag on 12-month inflation from domestic energy bills. The announced uptick in utility prices to take effect in October was likely to be offset somewhat by the recent decrease in petrol prices. The immediate policy decisions 28: The Monetary Policy Committee sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 29: Monetary policy decisions had been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis. Policy had been acting to ensure that inflation expectations remained well anchored. As set out at the time of the August Monetary Policy Report, the Committee’s deliberations had been supported by the consideration of a range of cases, to which different probabilities and different risks could be attached. 30: In the first case, the unwinding of the global shocks that had driven up inflation and the resulting fall in headline inflation should continue to feed through to weaker pay and price-setting dynamics. The persistence of inflationary pressures would therefore dissipate with a less restrictive stance of monetary policy than in other cases. 31: In the second case, a period of economic slack, in which GDP fell below potential and the labour market eased further, might be required in order for pay and price-setting dynamics to normalise fully. Domestic inflationary persistence would then be expected to fade away, owing to the opening up of slack from a more restrictive stance of monetary policy relative to the first case. 32: In the third case, the economy might be subject to structural shifts such as changes in wage and price-setting following the major supply shocks that had been experienced over recent years. The degree of restrictiveness of monetary policy might be less than embodied in the Committee’s latest assessment, meaning that monetary policy would have to remain tighter for longer. 33: The Committee continued to monitor the accumulation of evidence from a broad range of indicators, with a focus on the extent to which it was possible over time to use developments in data series to assess the various cases. 34: Since the MPC’s previous meeting, global activity growth had continued at a steady pace, although some data outturns suggested greater uncertainty around the near-term outlook. Oil prices had fallen back, reflecting in large part weaker demand. Market-implied paths for policy rates across major advanced economies had declined. 35: There had generally been limited news in UK economic indicators relative to the Committee’s expectations in the August Monetary Policy Report. Headline GDP growth was expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained tight by historical standards. 36: Twelve-month CPI inflation had been 2.2% in August, and was expected to increase to around 2½% towards the end of this year as declines in energy prices last year fell out of the annual comparison. Services consumer price inflation had remained elevated at 5.6% in August. Private sector regular average weekly earnings growth had declined to 4.9% in the three months to July. Households’ inflation expectations had largely normalised to close to their historical averages, although businesses’ inflation expectations had remained at slightly more elevated levels. Bank Rate decision 37: Different members took different views on the probabilities and risks associated with the various cases that the Committee was considering, which were informing their votes on Bank Rate. 38: Eight members preferred to maintain Bank Rate at 5% at this meeting. Wage and price-setting had continued to normalise and UK activity growth had been broadly in line with expectations, although there was some greater uncertainty around the near-term global outlook. There was a range of views among these members on the degree to which the unwinding of past global shocks, the normalisation in inflation expectations and the current restrictive policy stance would lead underlying domestic inflationary pressures to continue to unwind, or whether these pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand. Despite these differences of view, the current policy stance was judged to be appropriate. For most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted. 39: One member preferred a 0.25 percentage point reduction in Bank Rate at this meeting. Bank Rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission. CPI inflation had been on a firm downward trajectory for some time. Data developments remained consistent with CPI inflation staying sustainably at target, given the further easing in the labour market, continued falls in inflation expectations and forward-looking indicators of pass-through, and the subdued outlook for demand. 40: Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee continued to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 41: The MPC would make a full assessment of recent and prospective developments as part of its forthcoming November forecast round. Annual decision on the pace of reduction in the stock of UK government bond purchases held for monetary policy purposes 42: As set out in the minutes of its August 2022 meeting, the MPC had committed to review the reduction in the Asset Purchase Facility (APF) annually and, as part of that, to set an amount for the reduction in the stock of purchased UK government bonds (gilts) over the subsequent 12-month period. Box A of the August 2024 Monetary Policy Report had set out an assessment of the process of quantitative tightening over the previous year. 43: The Committee continued to judge that reducing the size of the APF had the benefit of reducing the risk of a ratchet upwards in the size of the Bank’s balance sheet over time, and thus should increase the headroom and flexibility available to the Bank to use its balance sheet in the future if needed. 44: The appropriate pace of gilt stock reduction would continue to be guided by a set of key principles, which the MPC had first outlined in the August 2021 Monetary Policy Report. First, the Committee intended to use Bank Rate as its active policy tool when adjusting the stance of monetary policy. Second, sales would be conducted so as not to disrupt the functioning of financial markets. Third, to help achieve that, sales would be conducted in a gradual and predictable manner over a period of time. 45: As set out in the Box in the August 2024 Report, the Committee judged that quantitative tightening had continued to proceed smoothly. There was no evidence of a negative impact of gilt sales on market functioning across a range of financial market measures. In particular, measures of gilt market liquidity had further improved. APF reduction was likely to have had some tightening effect on yields, which, while difficult to measure precisely, was judged to have been modest. That was in line with the MPC’s previous expectations, and was broadly consistent with findings from other empirical studies and central banks. The Committee would continue to learn from monitoring developments as the process progressed. 46: While it remained hard to measure precisely the marginal effect of quantitative tightening on the economy, the MPC’s forecasts were conditioned on asset prices that incorporated announced and expected APF reductions. The MPC had therefore taken this effect into account when setting the desired monetary policy stance using Bank Rate. Any tightening effect from the reduction in the APF would have led to a slightly lower path for Bank Rate, all else equal. Given that the impact of APF reduction was judged to have been modest, this was unlikely to have made a material difference to the appropriate path for Bank Rate over the past year. 47: The Committee considered the case to maintain the pace of gilt stock reduction at £100 billion over the 12 months ahead, of which £87 billion would be maturing APF gilt holdings. Bank staff had briefed the MPC on the current state of economic and market conditions. The Financial Policy Committee (FPC) had also been briefed on the MPC’s deliberations. 48: All members of the MPC agreed at this meeting that the Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the 12-month period from October 2024 to September 2025, comprising both maturing gilts and sales. 49: The MPC also reaffirmed that there would be a high bar for amending the planned reduction in the stock of purchased gilts outside a scheduled annual review. That was in order to remain consistent with the principles that Bank Rate should be the active policy tool when adjusting the stance of monetary policy, and that APF reduction should be predictable. In judging whether that bar was met, the FPC would also have a role through its assessment of financial stability. 50: The Chair invited the Committee to vote on the propositions that: Bank Rate should be maintained at 5%; and The Bank of England should reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £558 billion. 51: Eight members (Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine L Mann, Huw Pill, Dave Ramsden and Alan Taylor) voted in favour of the first proposition. Swati Dhingra voted against this proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 4.75%. 52: The Committee voted unanimously in favour of the second proposition. Operational considerations 53: On 18 September 2024, the stock of UK government bonds held for monetary policy purposes was £659 billion. 54: At this meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the 12-month period from October 2024 to September 2025. The details of the first quarter of the associated gilt sales programme, covering 2024 Q4, were set out in a Market Notice accompanying these minutes. The Bank would continue to set auction sizes each quarter, to meet the MPC’s annual target as closely as practicable. 55: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative. David Roberts was present on 12 September, and Jonathan Bewes on 16 September, as observers for the purpose of exercising oversight functions in their roles as members of the Bank’s Court of Directors.

Monetary Policy Summary, November 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 6 November 2024, the MPC voted by a majority of 8–1 to reduce Bank Rate by 0.25 percentage points, to 4.75%. One member preferred to maintain Bank Rate at 5%. There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly. CPI inflation fell to 1.7% in September but is expected to increase to around 2½% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around ¼% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards. Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. The Committee’s deliberations have been supported by the consideration of a range of cases that could impact the evolution of inflation persistence. These three cases are set out further in the accompanying November Monetary Policy Report. In the first case, most of the remaining persistence in inflation may dissipate quickly as pay and price-setting dynamics continue to normalise following the unwinding of the global shocks that drove up inflation. In the second case, a period of economic slack may be required to normalise these dynamics fully. In the third case, some inflationary persistence may also reflect structural shifts in wage and price-setting behaviour. Each case would have different implications for how quickly the restrictiveness of monetary policy could be withdrawn. The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report. This forecast is based on the second case. CPI inflation is projected to fall back to around the 2% target in the medium term, conditioned on the usual 15 day average of forward interest rates, as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages. The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Budget is provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures. There remains significant uncertainty around the outlook for the labour market. Data are difficult to interpret and wage growth has been more elevated than usual relationships would predict. The impact of the Budget announcements on inflation will depend on the degree to and speed with which these higher costs pass through into prices, profit margins, wages and employment. At this meeting, the Committee voted to reduce Bank Rate to 4.75%, reflecting the continued progress in disinflation. Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 6 November 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying November 2024 Monetary Policy Report . 2: The Committee discussed the near-term global risks and their potential impact on the inflation outlook in the United Kingdom. The balance of risks to global activity, particularly stemming from China and Germany, remained to the downside in the near term. Alongside that, there were upside risks to goods and commodity prices from greater trade fragmentation and adverse geopolitical developments, including from events in the Middle East. 3: Since the MPC’s previous meeting, the market-implied path for Bank Rate in the United Kingdom had shifted up materially. For the period prior to Autumn Budget 2024, market intelligence had attributed the modest upward moves in the market-implied path largely to international factors such as stronger-than-expected economic data in the United States. For the period around the time of the Budget, the upward shift had been more material. However, market pricing had continued to remain consistent with a 25 basis point reduction in Bank Rate at this MPC meeting. 4: Bank staff continued to judge that the economy was growing at around ¼% per quarter on an underlying basis. According to the official data, GDP had grown by 0.5% in 2024 Q2, 0.2 percentage points weaker than had been expected in the August Report, and 0.1 percentage points weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2. 5: The Committee discussed the implications of the latest activity data for the evolution of slack in the economy. There was limited evidence that aggregate demand was falling short of aggregate supply. Surveys of capacity utilisation had remained close to their historical averages, and indicators of labour market tightness, while easing of late, continued to appear relatively tight by historical standards. These developments reinforced the view that the drag on activity from the lagged transmission of past monetary tightening was unlikely to intensify over the coming year. 6: There had been material news to the economic outlook in Autumn Budget 2024. Taken together, the fiscal policy announcements were provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Committee also discussed the increase in the overall cost of employment that was likely to follow from the changes to employers’ National Insurance contributions (NICs) and the increase in the National Living Wage (NLW), and the degree to and speed with which that increase might be transmitted into prices, profit margins, wages and employment. 7: Twelve-month CPI inflation had fallen to 1.7% in September. The decline in CPI inflation since the start of this year had primarily reflected lower goods price inflation, with disinflation in underlying services prices having been less pronounced. Services price inflation had, however, decreased quite sharply to 4.9% in September. Most of this downside news had been concentrated in more volatile categories, and some of this was expected to unwind. Services price inflation was expected to remain broadly unchanged over the next six months. Annual growth in private-sector regular average weekly earnings had fallen back significantly since mid-2023, but it had remained relatively strong at 4.8% in the three months to August. The immediate policy decision 8: The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 9: Since the MPC’s previous meeting, there had been continued disinflation. Twelve-month CPI inflation had fallen to 1.7% in September. The decline in CPI inflation since the start of the year had primarily reflected lower goods price inflation, with disinflation in underlying services prices less pronounced. 10: Annual growth in private sector regular average weekly earnings had fallen back significantly since mid-2023 but had remained relatively strong at 4.8% in the three months to August. Year-ahead expectations for wage growth in the DMP Survey had been flat at around 4% since May, while initial Agents’ intelligence had reported an expected range of pay awards between 2% and 4% next year. 11: GDP had grown by 0.5% in 2024 Q2, slightly weaker than had been expected in the August Report. GDP growth was expected to fall back to its recent underlying pace of around ¼% per quarter over the second half of the year. 12: The combined effects of the measures announced in Autumn Budget 2024 were provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Budget was provisionally expected to boost CPI inflation by just under ½ of a percentage point at its peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures. 13: Based on the collective steer from a wide range of indicators, the MPC judged that the labour market continued to ease but that it appeared relatively tight by historical standards. However, there was significant uncertainty around the labour market outlook and its impact on inflationary persistence. The combined effect of some policies announced in the Budget, particularly the increase in employer NICs and the NLW, was likely to increase the overall costs of employment. The net effect of this news on aggregate inflation would depend on the degree to and speed with which those costs would be transmitted into prices, wages, employment, or otherwise absorbed in profit margins or productivity growth. On the one hand, higher labour costs could constrain firms’ cash-flows if there was limited pass-through to pricing. This in turn could moderate wage growth and further loosen the labour market through reduced labour demand. On the other hand, the increase in labour costs could prove more inflationary if upward pressure on prices were passed on to consumers. 14: The Committee continued to monitor the accumulation of evidence from a broad range of indicators of inflation persistence, including evidence that could point to the three cases set out in the November Monetary Policy Report having begun to materialise. In the first case, most of the remaining persistence in inflation might dissipate quickly as pay and price-setting dynamics continued to normalise following the unwinding of the global shocks that drove up inflation. In the second case, a period of economic slack might be required to normalise these dynamics fully. In the third case, some inflationary persistence might reflect structural shifts in wage and price-setting behaviour. 15: In the November forecast, which was based on the second case, second-round effects in domestic prices and wages were expected to take somewhat longer to unwind than they did to emerge. The margin of slack that emerged later in the forecast period would act against those second-round effects, leading CPI inflation to fall back to around the 2% target in the medium term. 16: If, for example, the economy were to grow broadly as expected, but material downside news to wages and services inflation were nonetheless to emerge, this could increase the weight that the MPC would place on the first case materialising. Signs of a slowing in the disinflation process, particularly in the absence of a pickup in activity growth, could instead increase the likelihood that the MPC would place on the third case materialising. 17: At this meeting, eight members preferred to reduce Bank Rate to 4.75%. There had been continued progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly. These members put different probabilities on and risks around the three cases, but they believed that a cut in Bank Rate was appropriate at this meeting. They would continue to assess the range of evidence over time. 18: One member preferred to maintain Bank Rate at 5%. For this member, structural factors in wage and price-setting dynamics continued to draw out the underlying disinflation process, and CPI inflation was projected to remain above the 2% target until the end of the forecast period. Wage developments might continue to be more robust than projected as firms and workers incorporated past and upcoming adjustments in the National Living Wage and National Insurance contributions. This, along with prospects for more robust demand associated with the Budget, was likely to support pricing opportunities for firms. In the face of these uncertainties, maintaining the current level of Bank Rate would allow time to evaluate whether these upside pressures would materialise. 19: Based on the evolving evidence, a gradual approach to removing policy restraint remained appropriate. Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee would continue to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 20: The Chair invited the Committee to vote on the proposition that: Bank Rate should be reduced by 0.25 percentage points, to 4.75%. 21: Eight members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Huw Pill, Dave Ramsden and Alan Taylor) voted in favour of the proposition. Catherine L Mann voted against the proposition, preferring to maintain Bank Rate at 5%. Operational considerations 22: On 6 November 2024, the stock of UK government bonds held for monetary policy purposes was £655 billion. 23: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative. David Roberts was also present on 28 October, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors. Monetary Policy Summary, November 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 6 November 2024, the MPC voted by a majority of 8–1 to reduce Bank Rate by 0.25 percentage points, to 4.75%. One member preferred to maintain Bank Rate at 5%. There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly. CPI inflation fell to 1.7% in September but is expected to increase to around 2½% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around ¼% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards. Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. The Committee’s deliberations have been supported by the consideration of a range of cases that could impact the evolution of inflation persistence. These three cases are set out further in the accompanying November Monetary Policy Report. In the first case, most of the remaining persistence in inflation may dissipate quickly as pay and price-setting dynamics continue to normalise following the unwinding of the global shocks that drove up inflation. In the second case, a period of economic slack may be required to normalise these dynamics fully. In the third case, some inflationary persistence may also reflect structural shifts in wage and price-setting behaviour. Each case would have different implications for how quickly the restrictiveness of monetary policy could be withdrawn. The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report. This forecast is based on the second case. CPI inflation is projected to fall back to around the 2% target in the medium term, conditioned on the usual 15 day average of forward interest rates, as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages. The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Budget is provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures. There remains significant uncertainty around the outlook for the labour market. Data are difficult to interpret and wage growth has been more elevated than usual relationships would predict. The impact of the Budget announcements on inflation will depend on the degree to and speed with which these higher costs pass through into prices, profit margins, wages and employment. At this meeting, the Committee voted to reduce Bank Rate to 4.75%, reflecting the continued progress in disinflation. Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 6 November 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying November 2024 Monetary Policy Report . 2: The Committee discussed the near-term global risks and their potential impact on the inflation outlook in the United Kingdom. The balance of risks to global activity, particularly stemming from China and Germany, remained to the downside in the near term. Alongside that, there were upside risks to goods and commodity prices from greater trade fragmentation and adverse geopolitical developments, including from events in the Middle East. 3: Since the MPC’s previous meeting, the market-implied path for Bank Rate in the United Kingdom had shifted up materially. For the period prior to Autumn Budget 2024, market intelligence had attributed the modest upward moves in the market-implied path largely to international factors such as stronger-than-expected economic data in the United States. For the period around the time of the Budget, the upward shift had been more material. However, market pricing had continued to remain consistent with a 25 basis point reduction in Bank Rate at this MPC meeting. 4: Bank staff continued to judge that the economy was growing at around ¼% per quarter on an underlying basis. According to the official data, GDP had grown by 0.5% in 2024 Q2, 0.2 percentage points weaker than had been expected in the August Report, and 0.1 percentage points weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2. 5: The Committee discussed the implications of the latest activity data for the evolution of slack in the economy. There was limited evidence that aggregate demand was falling short of aggregate supply. Surveys of capacity utilisation had remained close to their historical averages, and indicators of labour market tightness, while easing of late, continued to appear relatively tight by historical standards. These developments reinforced the view that the drag on activity from the lagged transmission of past monetary tightening was unlikely to intensify over the coming year. 6: There had been material news to the economic outlook in Autumn Budget 2024. Taken together, the fiscal policy announcements were provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Committee also discussed the increase in the overall cost of employment that was likely to follow from the changes to employers’ National Insurance contributions (NICs) and the increase in the National Living Wage (NLW), and the degree to and speed with which that increase might be transmitted into prices, profit margins, wages and employment. 7: Twelve-month CPI inflation had fallen to 1.7% in September. The decline in CPI inflation since the start of this year had primarily reflected lower goods price inflation, with disinflation in underlying services prices having been less pronounced. Services price inflation had, however, decreased quite sharply to 4.9% in September. Most of this downside news had been concentrated in more volatile categories, and some of this was expected to unwind. Services price inflation was expected to remain broadly unchanged over the next six months. Annual growth in private-sector regular average weekly earnings had fallen back significantly since mid-2023, but it had remained relatively strong at 4.8% in the three months to August. The immediate policy decision 8: The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 9: Since the MPC’s previous meeting, there had been continued disinflation. Twelve-month CPI inflation had fallen to 1.7% in September. The decline in CPI inflation since the start of the year had primarily reflected lower goods price inflation, with disinflation in underlying services prices less pronounced. 10: Annual growth in private sector regular average weekly earnings had fallen back significantly since mid-2023 but had remained relatively strong at 4.8% in the three months to August. Year-ahead expectations for wage growth in the DMP Survey had been flat at around 4% since May, while initial Agents’ intelligence had reported an expected range of pay awards between 2% and 4% next year. 11: GDP had grown by 0.5% in 2024 Q2, slightly weaker than had been expected in the August Report. GDP growth was expected to fall back to its recent underlying pace of around ¼% per quarter over the second half of the year. 12: The combined effects of the measures announced in Autumn Budget 2024 were provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Budget was provisionally expected to boost CPI inflation by just under ½ of a percentage point at its peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures. 13: Based on the collective steer from a wide range of indicators, the MPC judged that the labour market continued to ease but that it appeared relatively tight by historical standards. However, there was significant uncertainty around the labour market outlook and its impact on inflationary persistence. The combined effect of some policies announced in the Budget, particularly the increase in employer NICs and the NLW, was likely to increase the overall costs of employment. The net effect of this news on aggregate inflation would depend on the degree to and speed with which those costs would be transmitted into prices, wages, employment, or otherwise absorbed in profit margins or productivity growth. On the one hand, higher labour costs could constrain firms’ cash-flows if there was limited pass-through to pricing. This in turn could moderate wage growth and further loosen the labour market through reduced labour demand. On the other hand, the increase in labour costs could prove more inflationary if upward pressure on prices were passed on to consumers. 14: The Committee continued to monitor the accumulation of evidence from a broad range of indicators of inflation persistence, including evidence that could point to the three cases set out in the November Monetary Policy Report having begun to materialise. In the first case, most of the remaining persistence in inflation might dissipate quickly as pay and price-setting dynamics continued to normalise following the unwinding of the global shocks that drove up inflation. In the second case, a period of economic slack might be required to normalise these dynamics fully. In the third case, some inflationary persistence might reflect structural shifts in wage and price-setting behaviour. 15: In the November forecast, which was based on the second case, second-round effects in domestic prices and wages were expected to take somewhat longer to unwind than they did to emerge. The margin of slack that emerged later in the forecast period would act against those second-round effects, leading CPI inflation to fall back to around the 2% target in the medium term. 16: If, for example, the economy were to grow broadly as expected, but material downside news to wages and services inflation were nonetheless to emerge, this could increase the weight that the MPC would place on the first case materialising. Signs of a slowing in the disinflation process, particularly in the absence of a pickup in activity growth, could instead increase the likelihood that the MPC would place on the third case materialising. 17: At this meeting, eight members preferred to reduce Bank Rate to 4.75%. There had been continued progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly. These members put different probabilities on and risks around the three cases, but they believed that a cut in Bank Rate was appropriate at this meeting. They would continue to assess the range of evidence over time. 18: One member preferred to maintain Bank Rate at 5%. For this member, structural factors in wage and price-setting dynamics continued to draw out the underlying disinflation process, and CPI inflation was projected to remain above the 2% target until the end of the forecast period. Wage developments might continue to be more robust than projected as firms and workers incorporated past and upcoming adjustments in the National Living Wage and National Insurance contributions. This, along with prospects for more robust demand associated with the Budget, was likely to support pricing opportunities for firms. In the face of these uncertainties, maintaining the current level of Bank Rate would allow time to evaluate whether these upside pressures would materialise. 19: Based on the evolving evidence, a gradual approach to removing policy restraint remained appropriate. Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee would continue to monitor closely the risks of inflation persistence and would decide the appropriate degree of monetary policy restrictiveness at each meeting. 20: The Chair invited the Committee to vote on the proposition that: Bank Rate should be reduced by 0.25 percentage points, to 4.75%. 21: Eight members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Huw Pill, Dave Ramsden and Alan Taylor) voted in favour of the proposition. Catherine L Mann voted against the proposition, preferring to maintain Bank Rate at 5%. Operational considerations 22: On 6 November 2024, the stock of UK government bonds held for monetary policy purposes was £655 billion. 23: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative. David Roberts was also present on 28 October, as an observer for the purpose of exercising oversight functions in his role as a member of the Bank’s Court of Directors.

Monetary Policy Summary, December 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 18 December 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 4.75%. Three members preferred to reduce Bank Rate by 0.25 percentage points, to 4.5%. Since the MPC’s previous meeting, twelve-month CPI inflation has increased to 2.6% in November from 1.7% in September. This was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food. Services consumer price inflation has remained elevated. Headline CPI inflation is expected to continue to rise slightly in the near term. Although household inflation expectations have largely normalised, some indicators have increased recently. Most indicators of UK near-term activity have declined. Bank staff expect GDP growth to have been weaker at the end of the year than projected in the November Monetary Policy Report. The Committee now judges that the labour market is broadly in balance. Annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October, but has tended to be more volatile than other wage indicators. The latest Agents’ intelligence suggests that average pay settlements in 2025 will be within a range of 3 to 4%. There remains significant uncertainty around developments in the labour market. Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly. The Committee continues to consider a range of cases for how the past global shocks that drove up inflation may unwind, and therefore how persistent domestic inflationary pressures may be. The MPC is also monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. These developments have generated additional uncertainties around the economic outlook. At this meeting, the Committee voted to maintain Bank Rate at 4.75%. The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation. A gradual approach to removing monetary policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 18 December 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.5% in 2024 Q3, marginally higher than the projection in the November Monetary Policy Report. On balance, the risks around the near-term outlook for activity in a number of advanced economies remained to the downside. Euro-area GDP had grown by 0.4% in the third quarter, higher than the November Report projections and supported by household consumption. Growth was expected to slow in Q4, however, in line with weakness in the output PMIs, particularly in France and Germany. US GDP had increased by 0.7% in Q3, in line with the November Report projections, and was expected to cool slightly in Q4. In China, GDP had grown by 0.9% in Q3, a rebound from Q2, owing to stronger exports. Growth was expected to recover further, partly supported by additional policy stimulus. 3: The euro-area labour market had remained tight but had continued to normalise, while the labour market in the United States had remained close to balance. Unemployment in these regions remained at or near historical lows. Indicators of pay growth had generally cooled in the euro area, albeit with an increase in negotiated wage growth in 2024 Q3 that was attributable largely to one-off payments in Germany. Recent indicators of wage growth in the United States had been mixed. 4: Headline consumer price inflation in advanced economies had increased slightly, close to market expectations. In the euro area, twelve-month HICP inflation had increased to 2.2% in November, accounted for largely by an energy-related base effect, while core inflation had remained unchanged at 2.7%. In the United States, PCE inflation had risen slightly to 2.3% in October, while core PCE inflation had also increased slightly to 2.8%. These increases had been accounted for partly by core services excluding housing. 5: Since the MPC’s November meeting, European wholesale gas prices had initially increased sharply, owing to colder weather, strong demand from Asia and disruption in the provision of Russian-owned gas supplies. These price increases had largely reversed by the time of the MPC’s December decision. 6: The Committee discussed risks to global growth and inflation stemming from geopolitical tensions and trade policy uncertainty, with indicators of the latter having increased materially. The incoming US administration had proposed to increase tariffs in a manner that could influence future global trade if applied and, as a result, have some direct and indirect impacts on the UK economy. The magnitude and direction of any such impacts would depend on a range of factors that were at present unknown, including the total package of economic policies to be delivered in the United States, their timing and any subsequent policy responses from other countries. Monetary and financial conditions 7: Market-implied paths for policy rates in the United States and euro area had ended the period since the MPC’s previous meeting a little lower. That reflected, in particular, weaker-than-expected global activity data. Corporate bond spreads were little changed across these economies, while equity prices had increased slightly. At its meeting on 12 December, the ECB Governing Council had reduced its key policy rate by 25 basis points, in line with market expectations. At its meeting ending on 18 December, the FOMC was expected to reduce the federal funds rate by 25 basis points. 8: In the United Kingdom, near-term market expectations for Bank Rate had increased since the MPC’s previous meeting, predominantly reflecting stronger-than-expected wage data. The sterling effective exchange rate was little changed. Within that, sterling had depreciated by 2% against the dollar, offsetting an appreciation against the euro of around 1%. 9: More generally, market expectations for policy rates in the United Kingdom and United States had increasingly diverged from the euro area since September. The euro-area path had shifted down and had become more steeply downward sloping, while the UK and US paths had shifted up and had become shallower. In the United Kingdom and United States, rates were expected to be around 3.75 to 4% in three years’ time, compared with 2% in the euro area. 10: The August and November Bank Rate reductions, and associated changes in other risk-free reference rates, had continued to pass through to the relevant saving and borrowing rates facing households and corporates, broadly in line with historical experience. The main exception had been household sight deposit rates, which had fallen by less and more slowly than Bank Rate since August. Historically, such reductions in Bank Rate had been associated with full and fairly rapid pass-through to sight deposit rates, although these rates had not risen by as much as Bank Rate during the most recent tightening cycle. 11: Housing market activity had continued to pick up, with mortgage approvals for house purchase having risen back to their pre-pandemic average in October. That reflected, in part, declines in the average rate paid on new mortgages since quoted rates had peaked in mid-2023. Over the same period, however, the average rate paid on all outstanding mortgages had continued to increase as the majority of fixed-term mortgages were refinanced on to higher rates. As noted in the November Financial Stability Report, 37% of fixed rate mortgage accounts had not yet re-fixed since rates had started to rise in 2021 H2, so the full impact of higher interest rates had not yet passed through to all mortgagors. 12: Household broad money balances had grown unusually strongly in October. There had been evidence of deposits flowing to households from Non-Intermediary Other Financial Companies, which included asset managers, insurance companies and pension funds. Recent overall trends in broad money had been little changed, however, with annual growth in M4ex increasing only slightly to 3.4%. The ratio of household money to gross domestic income remained close to its pre-pandemic trend. Demand and output 13: UK GDP had risen by 0.1% in 2024 Q3, slightly weaker than the 0.2% that had been expected in the November Monetary Policy Report. Within the expenditure components, household consumption had been estimated to have grown by ½%, and government spending and business investment had each risen by around 1%. 14: GDP had declined by 0.1% in October after a similar-sized fall in September. Manufacturing output had contracted by 0.6% in October, while services output had been flat on the month. Market sector output had now fallen back to around a level that had last been observed in April. 15: Most indicators of near-term activity had weakened since the previous MPC meeting. For example, the S&P Global/CIPS UK composite output PMI had fallen back to just over 50 in November and had remained at that level in the December flash release, and there had also been declines in the future output and new orders indices. Both the services and manufacturing PMIs had fallen in recent months, suggesting that a mixture of domestic and global factors was at play. The Bank’s Agents had reported that there had been some further deterioration in business sentiment since the previous MPC meeting and that activity was subdued currently, although it was still expected to pick up across the economy next year. In this context, it was notable that sales outcomes reported in the DMP Survey had consistently come in lower than companies’ expectations of their sales one-year ahead. In contrast to most other indicators, consumer confidence had increased slightly over recent months, though remained below its historical average, and most housing market indicators had been fairly robust. 16: Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report. That was broadly consistent with the latest combined steer from business surveys and the available official data. 17: The Committee discussed the extent to which recent developments in output could reflect the weakness of both demand and supply, such that there might be fewer implications for the margin of spare capacity in the economy and thus domestic inflationary pressures. There was also uncertainty around how the measures that had been announced in the Autumn Budget were affecting growth. This included the extent to which companies would, over time, take account of the indirect spillovers to private demand from higher public spending, as well as the direct consequences of the increase in employer National Insurance contributions (NICs) that would take effect from April. Supply, costs and prices 18: Low response rates had continued to impart considerable uncertainty to Labour Force Survey (LFS)-based estimates of labour market quantities. In its latest reweighting of key LFS variables, the ONS had incorporated upward revisions to the estimated population of around half a million people. Separately, the ONS had revised up its estimates of net inward migration by over 400,000 people, although that would not be reflected in the LFS for some time. Taken together, these revisions could close around half of the gap between the level of employment implied by pre-revision LFS data and that implied by alternative measures such as workforce jobs. The corollary of these upward revisions to employment would be more pronounced weakness in labour productivity. However, the LFS revisions had had only minimal implications for the historical profile of the underlying rate of unemployment. 19: At a higher frequency, other indicators of unemployment had exhibited some dispersion, but there had been little evidence of a significant increase during the period since the November Monetary Policy Report. Household surveys of job security and advanced notifications of potential redundancies had remained consistent with little net change in the underlying unemployment rate. 20: Vacancies had continued to fall, albeit at a slower pace than in 2023. Bank staff analysis of the difference between the observed ratio of vacancies to unemployment and the ratio of vacancies to unemployment that might be consistent with equilibrium in the labour market, after taking account of, for example, changes in the cost of posting vacancies over time, suggested that the labour market was now broadly in balance. This analysis, which was corroborated by other indicators from the Agents and in the REC survey, signalled less tightness in the current labour market than a simple historical view of the vacancies-to-unemployment ratio would imply. 21: The uncertainty surrounding developments in key labour market quantities and measured labour productivity would limit the extent to which the Committee would be able to draw firm conclusions in its next regular stocktake of the short to medium-term supply capacity of the economy. This was being undertaken ahead of the February Monetary Policy Report. 22: Annual growth in private sector regular average weekly earnings (AWE) had risen from 4.8% in the three months to August to 5.4% in the three months to October. This upside surprise had reflected a combination of greater-than-expected strength on the month and revisions to prior months. Base effects from the previous year would push annual rates of private sector regular AWE growth closer to 6% in 2024 Q4, but this measure of pay growth had often exhibited more volatility than comparable survey-based measures. 23: The signal from most indicators following the announced increases in the National Living Wage (NLW) and employer National Insurance contributions tended to corroborate the view that, supported by diminishing churn, easing recruitment difficulties and an ongoing loosening of the labour market, annual private sector wage growth would slow over the policy-relevant horizon. The Agents’ intelligence available since the Autumn Budget, for example, suggested that firms in aggregate expected pay settlements in 2025 to sit within a range of 3 to 4%. This was slightly higher than the 2 to 4% range reported before the Budget, but lower than the 5½% average reported in 2024. The latest evidence from the DMP Survey was also consistent with a softening in wage growth across all sectors, albeit to a plateau of around 4% in aggregate over the year ahead. Expected wage growth in consumer services companies, in particular, had remained elevated at around 5%. 24: Across surveys, firms had reported that their response to higher employer NICs would involve multiple types of adjustment, of which pay growth was but one. In the DMP Survey, for example, higher prices and lower employment were both cited more frequently than lower wages. Moreover, a more granular disaggregation of the results of the DMP Survey suggested that firms with greater exposure to the NLW would be less likely to respond to higher NICs by paying lower wages. These firms would be more likely to respond to higher NICs by raising prices, accepting lower profit margins and/or laying off existing workers. 25: Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September. This was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food. Core CPI inflation had increased to 3.5%. 26: Annual services price inflation had been 5.0% in November, little changed from its rate in October and September. The three-month moving averages of annualised monthly increases in a range of underlying services prices had edged higher in November, but had remained lower than their corresponding annual rates. The extent of domestically generated disinflation to date, however, had remained relatively modest. 27: In the near term, headline CPI inflation was expected to continue to rise slightly. 28: Although indicators of households’ inflation expectations had largely normalised through the first half of this year, short-term expectations had begun to increase again in the latest data. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median one-year ahead inflation expectations had risen to 3.0% in November. The measure of medium-term expectations in the same survey had now edged above its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had risen over several months to 3.5%, even while realised CPI inflation had eased. Businesses’ own price expectations, as reported in the DMP Survey, had remained consistent with only a modest decline in inflation over the coming year, particularly in consumer-facing services sectors. 29: The latest increases in inflation expectations might reflect greater attentiveness among households to cost-of-living increases, such as the reduction in winter fuel payments, higher bus fares and vehicle excise duty, successive increases in the Ofgem price cap in October and January, and higher food prices. These increases might interact with already-elevated inflation perceptions, and thus could add to the persistence of domestic inflationary pressures. The immediate policy decision 30: The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 31: Monetary policy had been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there had been progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly. 32: As set out in the November Monetary Policy Report, the Committee’s deliberations had been supported by the consideration of a range of cases that could impact the evolution of inflation persistence. In the first case, most of the remaining persistence in inflation might dissipate quickly as pay and price-setting dynamics continued to normalise following the unwinding of the global shocks that had driven up inflation. In the second case, a period of economic slack might be required to normalise these dynamics fully. In the third case, some inflationary persistence might also reflect structural shifts in wage and price-setting behaviour. Each case would have different implications for how quickly the restrictiveness of monetary policy could be withdrawn. 33: The MPC was also considering the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. These domestic and global developments had generated additional uncertainties around the economic outlook. 34: As set out in the November Report, the combined effects of the measures announced in the Budget were provisionally expected to boost the level of GDP by around ¾%, and CPI inflation by just under ½ of a percentage point, at their peaks relative to the August projections. However, there remained significant uncertainty around how the economy might respond to higher overall costs of employment, including from the increase in employer National Insurance contributions and the National Living Wage. 35: The Committee noted that indicators of trade policy uncertainty had increased materially, but that the magnitude and the direction of the impact of any such policies on UK inflation was at present unclear. These effects might not be apparent for some time. 36: Since the MPC’s previous meeting, most indicators of UK near-term activity had declined. Bank staff were expecting zero GDP growth in 2024 Q4, weaker than had been projected in the November Monetary Policy Report. Several components of the December S&P Global/CIPS UK flash PMI had fallen, including the new orders and employment indices. Other indicators of employment growth had been more mixed. 37: Although there remained significant uncertainty around developments in labour market quantities derived from the Labour Force Survey, the Committee now judged that the labour market was broadly in balance based on a wider range of evidence. The number of job vacancies had continued to fall, albeit at a slower pace than in 2023. There had also been a decline in indicators of labour market tightness from the Agents and in the REC survey. 38: Annual private sector regular AWE growth had picked up quite sharply in the three months to October, to 5.4%, which was ½ of a percentage point stronger than had been expected in the November Report. AWE growth had tended to be more volatile than other wage indicators, however. The latest Agents’ intelligence suggested that average pay settlements in 2025 would be within a range of 3 to 4%. 39: Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September, slightly higher than previous expectations. Services consumer price inflation had remained elevated, at 5.0%, while core goods price inflation had risen to 1.1%. Food consumer price inflation had picked up slightly over recent months, to 2%. Some other indicators of goods price inflation had increased, including in the December S&P Global/CIPS UK flash PMI. Headline CPI inflation was expected to continue to rise slightly in the near term. 40: Although household inflation expectations had largely normalised, some indicators had increased recently, in part reflecting developments in energy and food prices as well as other more idiosyncratic factors. Businesses’ own price expectations had remained consistent with only a modest decline in inflation over the coming year, particularly in consumer-facing services sectors. Monetary policy was acting to ensure that longer-term inflation expectations were anchored at the 2% target. 41: At this meeting, six members preferred to maintain Bank Rate at 4.75%. Most indicators of UK near-term activity had weakened, but CPI inflation, wage growth and some indicators of inflation expectations had risen, adding to the risk of inflation persistence. The macroeconomic implications of the higher costs of employment facing companies remained particularly uncertain. Against a backdrop over recent years of a repeated sequence of negative supply shocks, incoming data would help to clarify the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment. For five of these members, recent developments added to the argument for a gradual approach to the withdrawal of policy restrictiveness, while eschewing any commitment to changing policy at a specific meeting. For the other member, the evolution of and prospects for disaggregated measures of activity and inflation could warrant an activist strategy. 42: Three members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. The most recent data developments pointed to sluggish demand and a weakening labour market, now and in the year ahead, both of which would see further downward pressure on demand, wages, and prices. In the short run, these factors, alongside higher uncertainty and weak global conditions, paired with the temporary uptick in headline inflation entailed a policy trade-off. In the medium term, a continued stance that was very restrictive risked deviating unsustainably from the 2% inflation target and opening an unduly large output gap. Given the evolving balance of risks, a less restrictive policy rate was warranted. 43: The Committee continued to monitor closely the risks of inflation persistence and would assess the extent to which the evolving evidence was consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation. A gradual approach to removing monetary policy restraint remained appropriate. Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee would decide the appropriate degree of monetary policy restrictiveness at each meeting. 44: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 4.75%. 45: Six members (Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill) voted in favour of the proposition. Three members (Swati Dhingra, Dave Ramsden and Alan Taylor) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 4.5%. Operational considerations 46: On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655 billion. 47: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative. Monetary Policy Summary, December 2024 The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. At its meeting ending on 18 December 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 4.75%. Three members preferred to reduce Bank Rate by 0.25 percentage points, to 4.5%. Since the MPC’s previous meeting, twelve-month CPI inflation has increased to 2.6% in November from 1.7% in September. This was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food. Services consumer price inflation has remained elevated. Headline CPI inflation is expected to continue to rise slightly in the near term. Although household inflation expectations have largely normalised, some indicators have increased recently. Most indicators of UK near-term activity have declined. Bank staff expect GDP growth to have been weaker at the end of the year than projected in the November Monetary Policy Report. The Committee now judges that the labour market is broadly in balance. Annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October, but has tended to be more volatile than other wage indicators. The latest Agents’ intelligence suggests that average pay settlements in 2025 will be within a range of 3 to 4%. There remains significant uncertainty around developments in the labour market. Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly. The Committee continues to consider a range of cases for how the past global shocks that drove up inflation may unwind, and therefore how persistent domestic inflationary pressures may be. The MPC is also monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. These developments have generated additional uncertainties around the economic outlook. At this meeting, the Committee voted to maintain Bank Rate at 4.75%. The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation. A gradual approach to removing monetary policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting. Minutes of the Monetary Policy Committee meeting ending on 18 December 2024 1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The international economy 2: UK-weighted global GDP was estimated to have grown by 0.5% in 2024 Q3, marginally higher than the projection in the November Monetary Policy Report. On balance, the risks around the near-term outlook for activity in a number of advanced economies remained to the downside. Euro-area GDP had grown by 0.4% in the third quarter, higher than the November Report projections and supported by household consumption. Growth was expected to slow in Q4, however, in line with weakness in the output PMIs, particularly in France and Germany. US GDP had increased by 0.7% in Q3, in line with the November Report projections, and was expected to cool slightly in Q4. In China, GDP had grown by 0.9% in Q3, a rebound from Q2, owing to stronger exports. Growth was expected to recover further, partly supported by additional policy stimulus. 3: The euro-area labour market had remained tight but had continued to normalise, while the labour market in the United States had remained close to balance. Unemployment in these regions remained at or near historical lows. Indicators of pay growth had generally cooled in the euro area, albeit with an increase in negotiated wage growth in 2024 Q3 that was attributable largely to one-off payments in Germany. Recent indicators of wage growth in the United States had been mixed. 4: Headline consumer price inflation in advanced economies had increased slightly, close to market expectations. In the euro area, twelve-month HICP inflation had increased to 2.2% in November, accounted for largely by an energy-related base effect, while core inflation had remained unchanged at 2.7%. In the United States, PCE inflation had risen slightly to 2.3% in October, while core PCE inflation had also increased slightly to 2.8%. These increases had been accounted for partly by core services excluding housing. 5: Since the MPC’s November meeting, European wholesale gas prices had initially increased sharply, owing to colder weather, strong demand from Asia and disruption in the provision of Russian-owned gas supplies. These price increases had largely reversed by the time of the MPC’s December decision. 6: The Committee discussed risks to global growth and inflation stemming from geopolitical tensions and trade policy uncertainty, with indicators of the latter having increased materially. The incoming US administration had proposed to increase tariffs in a manner that could influence future global trade if applied and, as a result, have some direct and indirect impacts on the UK economy. The magnitude and direction of any such impacts would depend on a range of factors that were at present unknown, including the total package of economic policies to be delivered in the United States, their timing and any subsequent policy responses from other countries. Monetary and financial conditions 7: Market-implied paths for policy rates in the United States and euro area had ended the period since the MPC’s previous meeting a little lower. That reflected, in particular, weaker-than-expected global activity data. Corporate bond spreads were little changed across these economies, while equity prices had increased slightly. At its meeting on 12 December, the ECB Governing Council had reduced its key policy rate by 25 basis points, in line with market expectations. At its meeting ending on 18 December, the FOMC was expected to reduce the federal funds rate by 25 basis points. 8: In the United Kingdom, near-term market expectations for Bank Rate had increased since the MPC’s previous meeting, predominantly reflecting stronger-than-expected wage data. The sterling effective exchange rate was little changed. Within that, sterling had depreciated by 2% against the dollar, offsetting an appreciation against the euro of around 1%. 9: More generally, market expectations for policy rates in the United Kingdom and United States had increasingly diverged from the euro area since September. The euro-area path had shifted down and had become more steeply downward sloping, while the UK and US paths had shifted up and had become shallower. In the United Kingdom and United States, rates were expected to be around 3.75 to 4% in three years’ time, compared with 2% in the euro area. 10: The August and November Bank Rate reductions, and associated changes in other risk-free reference rates, had continued to pass through to the relevant saving and borrowing rates facing households and corporates, broadly in line with historical experience. The main exception had been household sight deposit rates, which had fallen by less and more slowly than Bank Rate since August. Historically, such reductions in Bank Rate had been associated with full and fairly rapid pass-through to sight deposit rates, although these rates had not risen by as much as Bank Rate during the most recent tightening cycle. 11: Housing market activity had continued to pick up, with mortgage approvals for house purchase having risen back to their pre-pandemic average in October. That reflected, in part, declines in the average rate paid on new mortgages since quoted rates had peaked in mid-2023. Over the same period, however, the average rate paid on all outstanding mortgages had continued to increase as the majority of fixed-term mortgages were refinanced on to higher rates. As noted in the November Financial Stability Report, 37% of fixed rate mortgage accounts had not yet re-fixed since rates had started to rise in 2021 H2, so the full impact of higher interest rates had not yet passed through to all mortgagors. 12: Household broad money balances had grown unusually strongly in October. There had been evidence of deposits flowing to households from Non-Intermediary Other Financial Companies, which included asset managers, insurance companies and pension funds. Recent overall trends in broad money had been little changed, however, with annual growth in M4ex increasing only slightly to 3.4%. The ratio of household money to gross domestic income remained close to its pre-pandemic trend. Demand and output 13: UK GDP had risen by 0.1% in 2024 Q3, slightly weaker than the 0.2% that had been expected in the November Monetary Policy Report. Within the expenditure components, household consumption had been estimated to have grown by ½%, and government spending and business investment had each risen by around 1%. 14: GDP had declined by 0.1% in October after a similar-sized fall in September. Manufacturing output had contracted by 0.6% in October, while services output had been flat on the month. Market sector output had now fallen back to around a level that had last been observed in April. 15: Most indicators of near-term activity had weakened since the previous MPC meeting. For example, the S&P Global/CIPS UK composite output PMI had fallen back to just over 50 in November and had remained at that level in the December flash release, and there had also been declines in the future output and new orders indices. Both the services and manufacturing PMIs had fallen in recent months, suggesting that a mixture of domestic and global factors was at play. The Bank’s Agents had reported that there had been some further deterioration in business sentiment since the previous MPC meeting and that activity was subdued currently, although it was still expected to pick up across the economy next year. In this context, it was notable that sales outcomes reported in the DMP Survey had consistently come in lower than companies’ expectations of their sales one-year ahead. In contrast to most other indicators, consumer confidence had increased slightly over recent months, though remained below its historical average, and most housing market indicators had been fairly robust. 16: Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report. That was broadly consistent with the latest combined steer from business surveys and the available official data. 17: The Committee discussed the extent to which recent developments in output could reflect the weakness of both demand and supply, such that there might be fewer implications for the margin of spare capacity in the economy and thus domestic inflationary pressures. There was also uncertainty around how the measures that had been announced in the Autumn Budget were affecting growth. This included the extent to which companies would, over time, take account of the indirect spillovers to private demand from higher public spending, as well as the direct consequences of the increase in employer National Insurance contributions (NICs) that would take effect from April. Supply, costs and prices 18: Low response rates had continued to impart considerable uncertainty to Labour Force Survey (LFS)-based estimates of labour market quantities. In its latest reweighting of key LFS variables, the ONS had incorporated upward revisions to the estimated population of around half a million people. Separately, the ONS had revised up its estimates of net inward migration by over 400,000 people, although that would not be reflected in the LFS for some time. Taken together, these revisions could close around half of the gap between the level of employment implied by pre-revision LFS data and that implied by alternative measures such as workforce jobs. The corollary of these upward revisions to employment would be more pronounced weakness in labour productivity. However, the LFS revisions had had only minimal implications for the historical profile of the underlying rate of unemployment. 19: At a higher frequency, other indicators of unemployment had exhibited some dispersion, but there had been little evidence of a significant increase during the period since the November Monetary Policy Report. Household surveys of job security and advanced notifications of potential redundancies had remained consistent with little net change in the underlying unemployment rate. 20: Vacancies had continued to fall, albeit at a slower pace than in 2023. Bank staff analysis of the difference between the observed ratio of vacancies to unemployment and the ratio of vacancies to unemployment that might be consistent with equilibrium in the labour market, after taking account of, for example, changes in the cost of posting vacancies over time, suggested that the labour market was now broadly in balance. This analysis, which was corroborated by other indicators from the Agents and in the REC survey, signalled less tightness in the current labour market than a simple historical view of the vacancies-to-unemployment ratio would imply. 21: The uncertainty surrounding developments in key labour market quantities and measured labour productivity would limit the extent to which the Committee would be able to draw firm conclusions in its next regular stocktake of the short to medium-term supply capacity of the economy. This was being undertaken ahead of the February Monetary Policy Report. 22: Annual growth in private sector regular average weekly earnings (AWE) had risen from 4.8% in the three months to August to 5.4% in the three months to October. This upside surprise had reflected a combination of greater-than-expected strength on the month and revisions to prior months. Base effects from the previous year would push annual rates of private sector regular AWE growth closer to 6% in 2024 Q4, but this measure of pay growth had often exhibited more volatility than comparable survey-based measures. 23: The signal from most indicators following the announced increases in the National Living Wage (NLW) and employer National Insurance contributions tended to corroborate the view that, supported by diminishing churn, easing recruitment difficulties and an ongoing loosening of the labour market, annual private sector wage growth would slow over the policy-relevant horizon. The Agents’ intelligence available since the Autumn Budget, for example, suggested that firms in aggregate expected pay settlements in 2025 to sit within a range of 3 to 4%. This was slightly higher than the 2 to 4% range reported before the Budget, but lower than the 5½% average reported in 2024. The latest evidence from the DMP Survey was also consistent with a softening in wage growth across all sectors, albeit to a plateau of around 4% in aggregate over the year ahead. Expected wage growth in consumer services companies, in particular, had remained elevated at around 5%. 24: Across surveys, firms had reported that their response to higher employer NICs would involve multiple types of adjustment, of which pay growth was but one. In the DMP Survey, for example, higher prices and lower employment were both cited more frequently than lower wages. Moreover, a more granular disaggregation of the results of the DMP Survey suggested that firms with greater exposure to the NLW would be less likely to respond to higher NICs by paying lower wages. These firms would be more likely to respond to higher NICs by raising prices, accepting lower profit margins and/or laying off existing workers. 25: Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September. This was slightly higher than previous expectations, owing in large part to stronger inflation in core goods and food. Core CPI inflation had increased to 3.5%. 26: Annual services price inflation had been 5.0% in November, little changed from its rate in October and September. The three-month moving averages of annualised monthly increases in a range of underlying services prices had edged higher in November, but had remained lower than their corresponding annual rates. The extent of domestically generated disinflation to date, however, had remained relatively modest. 27: In the near term, headline CPI inflation was expected to continue to rise slightly. 28: Although indicators of households’ inflation expectations had largely normalised through the first half of this year, short-term expectations had begun to increase again in the latest data. The Bank of England/Ipsos Inflation Attitudes Survey’s measure of median one-year ahead inflation expectations had risen to 3.0% in November. The measure of medium-term expectations in the same survey had now edged above its historical average. The Citi/YouGov indicator of households’ short-term inflation expectations had risen over several months to 3.5%, even while realised CPI inflation had eased. Businesses’ own price expectations, as reported in the DMP Survey, had remained consistent with only a modest decline in inflation over the coming year, particularly in consumer-facing services sectors. 29: The latest increases in inflation expectations might reflect greater attentiveness among households to cost-of-living increases, such as the reduction in winter fuel payments, higher bus fares and vehicle excise duty, successive increases in the Ofgem price cap in October and January, and higher food prices. These increases might interact with already-elevated inflation perceptions, and thus could add to the persistence of domestic inflationary pressures. The immediate policy decision 30: The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably. 31: Monetary policy had been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. Over recent quarters there had been progress in disinflation, particularly as previous external shocks had abated, although remaining domestic inflationary pressures were resolving more slowly. 32: As set out in the November Monetary Policy Report, the Committee’s deliberations had been supported by the consideration of a range of cases that could impact the evolution of inflation persistence. In the first case, most of the remaining persistence in inflation might dissipate quickly as pay and price-setting dynamics continued to normalise following the unwinding of the global shocks that had driven up inflation. In the second case, a period of economic slack might be required to normalise these dynamics fully. In the third case, some inflationary persistence might also reflect structural shifts in wage and price-setting behaviour. Each case would have different implications for how quickly the restrictiveness of monetary policy could be withdrawn. 33: The MPC was also considering the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. These domestic and global developments had generated additional uncertainties around the economic outlook. 34: As set out in the November Report, the combined effects of the measures announced in the Budget were provisionally expected to boost the level of GDP by around ¾%, and CPI inflation by just under ½ of a percentage point, at their peaks relative to the August projections. However, there remained significant uncertainty around how the economy might respond to higher overall costs of employment, including from the increase in employer National Insurance contributions and the National Living Wage. 35: The Committee noted that indicators of trade policy uncertainty had increased materially, but that the magnitude and the direction of the impact of any such policies on UK inflation was at present unclear. These effects might not be apparent for some time. 36: Since the MPC’s previous meeting, most indicators of UK near-term activity had declined. Bank staff were expecting zero GDP growth in 2024 Q4, weaker than had been projected in the November Monetary Policy Report. Several components of the December S&P Global/CIPS UK flash PMI had fallen, including the new orders and employment indices. Other indicators of employment growth had been more mixed. 37: Although there remained significant uncertainty around developments in labour market quantities derived from the Labour Force Survey, the Committee now judged that the labour market was broadly in balance based on a wider range of evidence. The number of job vacancies had continued to fall, albeit at a slower pace than in 2023. There had also been a decline in indicators of labour market tightness from the Agents and in the REC survey. 38: Annual private sector regular AWE growth had picked up quite sharply in the three months to October, to 5.4%, which was ½ of a percentage point stronger than had been expected in the November Report. AWE growth had tended to be more volatile than other wage indicators, however. The latest Agents’ intelligence suggested that average pay settlements in 2025 would be within a range of 3 to 4%. 39: Twelve-month CPI inflation had increased to 2.6% in November from 1.7% in September, slightly higher than previous expectations. Services consumer price inflation had remained elevated, at 5.0%, while core goods price inflation had risen to 1.1%. Food consumer price inflation had picked up slightly over recent months, to 2%. Some other indicators of goods price inflation had increased, including in the December S&P Global/CIPS UK flash PMI. Headline CPI inflation was expected to continue to rise slightly in the near term. 40: Although household inflation expectations had largely normalised, some indicators had increased recently, in part reflecting developments in energy and food prices as well as other more idiosyncratic factors. Businesses’ own price expectations had remained consistent with only a modest decline in inflation over the coming year, particularly in consumer-facing services sectors. Monetary policy was acting to ensure that longer-term inflation expectations were anchored at the 2% target. 41: At this meeting, six members preferred to maintain Bank Rate at 4.75%. Most indicators of UK near-term activity had weakened, but CPI inflation, wage growth and some indicators of inflation expectations had risen, adding to the risk of inflation persistence. The macroeconomic implications of the higher costs of employment facing companies remained particularly uncertain. Against a backdrop over recent years of a repeated sequence of negative supply shocks, incoming data would help to clarify the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment. For five of these members, recent developments added to the argument for a gradual approach to the withdrawal of policy restrictiveness, while eschewing any commitment to changing policy at a specific meeting. For the other member, the evolution of and prospects for disaggregated measures of activity and inflation could warrant an activist strategy. 42: Three members preferred a 0.25 percentage point reduction in Bank Rate at this meeting. The most recent data developments pointed to sluggish demand and a weakening labour market, now and in the year ahead, both of which would see further downward pressure on demand, wages, and prices. In the short run, these factors, alongside higher uncertainty and weak global conditions, paired with the temporary uptick in headline inflation entailed a policy trade-off. In the medium term, a continued stance that was very restrictive risked deviating unsustainably from the 2% inflation target and opening an unduly large output gap. Given the evolving balance of risks, a less restrictive policy rate was warranted. 43: The Committee continued to monitor closely the risks of inflation persistence and would assess the extent to which the evolving evidence was consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation. A gradual approach to removing monetary policy restraint remained appropriate. Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. The Committee would decide the appropriate degree of monetary policy restrictiveness at each meeting. 44: The Chair invited the Committee to vote on the proposition that: Bank Rate should be maintained at 4.75%. 45: Six members (Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill) voted in favour of the proposition. Three members (Swati Dhingra, Dave Ramsden and Alan Taylor) voted against the proposition, preferring to reduce Bank Rate by 0.25 percentage points, to 4.5%. Operational considerations 46: On 18 December 2024, the stock of UK government bonds held for monetary policy purposes was £655 billion. 47: The following members of the Committee were present: Andrew Bailey, Chair Sarah Breeden Swati Dhingra Megan Greene Clare Lombardelli Catherine L Mann Huw Pill Dave Ramsden Alan Taylor Sam Beckett was present as the Treasury representative.

Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 23-24 January 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the latest financial market developments. In the first few weeks of 2019 volatility had remained elevated across different market segments, in particular in equity and commodity markets. Brent oil prices had declined further after the Governing Council’s previous monetary policy meeting on 12-13 December 2018 but had since recovered. The volatility in oil prices was evidence of the heightened geopolitical uncertainty and its impact on oil supply, as well as concerns about the global growth outlook and its impact on oil demand. Volatility had also increased recently in some foreign exchange markets. In particular, following the rejection by the British Parliament of the EU Withdrawal Agreement, the pound sterling had appreciated markedly against both the euro and the US dollar. By contrast, volatility in emerging market currencies had come down from the elevated levels observed in 2018. As regards global bond market developments, yields had fallen measurably. Since the beginning of October 2018 the yields on ten-year US Treasuries had fallen from around 3.2% to 2.75%, while ten-year German government bond yields had fallen from around 0.60% to around 0.25%. The spread between the two had thus narrowed, returning to the levels that had been observed over most of the summer of 2018. A decomposition of euro area and US ten-year overnight index swap rates into the inflation and the real components suggested that two countervailing factors had been driving yields over this period on both sides of the Atlantic. First, the rise in real yields that had emerged in late summer had persisted and likely reflected a rise in the real term premium. Second, there had been a fall in the inflation component, which had offset the impact from the rise in real yields. A comparison between survey and market-based expectations for long-term inflation suggested that the fall in the inflation component may have predominantly reflected a fall in the inflation risk premium. It would hence be premature to conclude that market participants had materially reappraised their medium-term inflation expectations. Spreads of higher-yielding euro area sovereign bonds versus German bonds had broadly stabilised in recent weeks. Ten-year sovereign bond spreads for Italy, Spain and Portugal against Germany had either been stable or had fallen since early October 2018. For the euro area, the forward money market curve was notably flatter than in October 2018, suggesting that expectations of a first ECB deposit facility rate increase had shifted from September 2019 to April 2020. Revisions to survey expectations had been more moderate and saw this occurring in the fourth quarter of 2019. Looking at equities, overall valuation losses in the euro area were of the same order as in the United States, amounting to some 8-9% since early October 2018. A model-based analysis showed that euro area equity price movements had also reflected lower earnings expectations, whereas in the United States they had, by and large, been due to an increase in the equity risk premium. Global corporate bond markets had experienced some broad-based repricing. Spreads of US high-yield bonds had increased by around 120 basis points since early October 2018. In the euro area, the repricing had been less pronounced, but spreads of high-yield bonds had nevertheless risen by around 90 basis points. Spreads of euro area investment-grade corporate bonds had also increased measurably over this period. Finally, turning to year-end developments in the euro area repo market, more orderly conditions had been observed than in previous years. The smooth year-end had likely reflected better preparations by market participants. The global environment and economic and monetary developments in the euro area Mr Praet reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, the global growth and trade momentum was slowing further. In particular, the global composite output Purchasing Managers’ Index (PMI) had decreased in the fourth quarter of 2018 compared with the third quarter, on the back of a weaker manufacturing sector component, while the services sector component had remained broadly unchanged. Trade indicators had also weakened towards the end of 2018, possibly reflecting growth headwinds as well as elevated policy uncertainty regarding US-China trade relations. Annual consumer price inflation in the OECD area had slowed to 2.7% in November, largely driven by lower energy price inflation. Inflation excluding food and energy had decreased marginally, to 2.2%. At the same time, wage dynamics had showed some stabilisation, with compensation per employee growing at a rate close to 3% in the first three quarters of 2018. Brent crude oil prices had increased by around 3% since the December monetary policy meeting. Over the same period, food prices had increased by 4%, while metal prices had declined by 2%. The euro exchange rate had remained broadly stable, both in nominal effective terms and in bilateral terms against the US dollar. Turning to the euro area, incoming data had generally surprised on the downside and the near-term growth momentum would likely be weaker than previously anticipated. The headline manufacturing PMI for the euro area for December had stood at 51.1, down from 52.7 in November. The latest PMI survey data had pointed to a further slowing of the growth momentum, in particular in more cyclically sensitive industries, such as capital and intermediate goods. At the same time, domestic demand was being supported by favourable financing conditions and labour market dynamics, rising wages and lower energy prices. In particular, private consumption could be expected to remain resilient. Employment had increased by 0.2%, quarter on quarter, in the third quarter of 2018, down from 0.4% in the previous two quarters. The unemployment rate had fallen further in November to 7.9%, thereby reaching its lowest level since October 2008. Survey indicators had signalled weaker but still positive employment growth in the coming quarters. In particular, the PMI employment indicator had weakened notably since the summer, but remained in expansionary territory, standing at 53.4 in December. Extra-euro area exports were expected to remain subdued on account of weakening foreign demand growth. Growth in euro area goods exports had declined in the third quarter of 2018, by 0.4% in quarter-on-quarter terms. The decline in the third quarter could be attributed to a drop in capital goods exports, and in particular in motor vehicles. The latest trade data for October and November, together with the latest survey indicators with leading properties, consistently pointed to a further deterioration in the euro area trade outlook in the fourth quarter of 2018. Turning to price developments, according to Eurostat’s flash estimate, euro area annual HICP inflation had stood at 1.6% in December, down from 1.9% in November, while HICP inflation excluding food and energy had remained unchanged at 1.0%. The decrease in HICP inflation had mainly reflected lower energy price inflation. Overall, the December data had turned out weaker than expected, driven by energy and services price inflation. Meanwhile, measures of underlying inflation had continued to move sideways. Domestic cost pressures had increased, but had yet to translate into consumer price inflation. Along the supply chain, import and producer price inflation for both goods and services were rising. The upward cost pressure stemming from labour costs had intensified in the third quarter of 2018, with unit labour cost growth increasing to 2.2%, from 1.6% in the second quarter. The results from the ECB Survey of Professional Forecasters for the first quarter of 2019 had pointed to average inflation expectations of 1.5% for 2019, 1.6% for 2020 and 1.7% for 2021. Compared with the previous survey for the fourth quarter of 2018, this represented downward revisions of 0.2 percentage point for 2019 and 0.1 percentage point for 2020. This implied a weaker profile than in the December 2018 Eurosystem staff projections, which could largely be accounted for by different oil price assumptions. Market-based inflation expectations had also been revised down somewhat, with the five-year forward break-even inflation rate five years ahead standing at 1.54%. Financial conditions had tightened somewhat in recent months in the context of heightened market volatility, while being broadly unchanged compared with the December meeting. Overall, credit conditions remained favourable. Compared with the situation at the time of the December meeting, euro area non-financial equities had rebounded somewhat, although earnings expectations had been revised down. The expected timing of a first ECB policy rate increase had shifted out further. Turning to money and credit developments, broad money (M3) growth had moderated slightly further to 3.7% in November. Money creation was increasingly driven by credit to the private sector. The annual growth rate of loans to the private sector had stabilised in recent months, standing at 3.3% in November 2018, after strengthening since early 2014. At the same time, euro area banks’ composite funding costs had been increasing somewhat in recent months, mainly owing to increases in bank bond yields, and bank equity prices had declined. Meanwhile, bank lending rates remained favourable, standing only marginally above their historical lows. As regards fiscal policy, the euro area fiscal stance – as measured by the change in the cyclically adjusted primary balance – was expected to be mildly expansionary in 2019 and 2020. Monetary policy considerations and policy options Summing up, Mr Praet remarked that financial conditions had tightened somewhat in recent months in a context of heightened market volatility, but remained supportive. The ECB’s monetary policy had contributed to dampening the impact of prevailing uncertainties on financial conditions. Credit conditions for households and firms remained accommodative. Incoming data on growth had continued to be weaker than expected on account of softer external demand and country and sector-specific factors, with the near-term growth momentum likely to be weaker than previously anticipated. The risks surrounding the euro area growth outlook had moved to the downside, as the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility was increasingly weighing on economic sentiment. HICP inflation had fallen in December, reflecting mainly lower energy price inflation, and was likely to decline further over the coming months. Measures of underlying inflation remained muted, but labour cost pressures were continuing to strengthen and were expected to pass through to underlying inflation in the period ahead. While the ongoing economic expansion continued to support confidence in the convergence of inflation to the ECB’s inflation aim, recent developments called for thorough analysis as regards their implications for the medium-term outlook. Against this background, Mr Praet proposed at this stage to confirm the Governing Council’s enhanced forward guidance, which – especially under the current circumstances – had contributed to more supportive market interest rates. External communication should: (a) stress that incoming information had continued to be weaker than expected, signalling a slower near-term growth momentum; (b) acknowledge that the risks surrounding the euro area growth outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility; (c) underline that the ongoing euro area expansion and gradually rising inflation pressures continued to support confidence in the sustained convergence of inflation to the Governing Council’s aim; (d) emphasise that significant monetary policy stimulus remained essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term, and that this stimulus would be provided by the Governing Council’s forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets; (e) reiterate that, in any event, the Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation continued to move towards its aim in a sustained manner. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook for economic activity in the euro area provided by Mr Praet in his introduction, and they discussed the balance of risks. Recent data and survey results had continued to be weaker than expected, on account of softer external demand and some country and sector-specific factors affecting domestic activity. While the impact of some of these factors was expected to fade, incoming data suggested that the near-term growth momentum was likely to be weaker than previously anticipated. However, no clear-cut conclusions could be drawn regarding the implications of slower growth in the short term for the outlook for activity in the medium term, in the light of significant uncertainty about whether the country and sector-specific factors would be transitory or longer-lasting. In this context, it was underlined that the outlook for activity would be reassessed in more depth by the Governing Council at its meeting in early March, when the new ECB staff projections would be available. In considering the outlook and risks for the external environment, members noted that global growth and trade momentum had slowed further. In particular, there were concerns among members about an increasing impact of trade protectionism, and an escalation of trade conflicts, on the global outlook over time. It was noted that Chinese imports at the end of 2018 had been much lower than expected, which likely reflected the negative impact of trade tensions between the United States and China. In addition, acute risks remained surrounding the United Kingdom’s withdrawal from the EU. It was widely agreed that uncertainties and risks related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility had remained prominent and appeared to be exacting an increasing toll on the world economy. Against this background, the downside risks to global activity and trade were seen as having increased. Turning to euro area activity, members observed that the recent data had been weaker than expected. Real GDP growth had slowed from 0.4% to 0.2%, quarter on quarter, in the third quarter of 2018. Some other hard data had also disappointed, and more recent indicators based on the latest European Commission business surveys and purchasing managers’ surveys had declined further. Altogether, the evidence pointed to the likelihood of growth being at or even below potential for several quarters. It also had to be acknowledged that the carry-over effect from slower growth in the second half of 2018 would in itself entail a lower projection for growth in 2019. However, it was emphasised that growth remained positive, and that the probability of a recession remained low. Nonetheless, the perception was widely shared that there was elevated uncertainty at present regarding how persistent the current soft patch would be. At the same time, it was emphasised that the euro area economic expansion continued to be supported by fundamental factors, and in particular by favourable financing conditions, further employment gains and rising wages, lower energy prices and the ongoing – albeit somewhat slower – expansion in global activity. In their exchange of views about the interpretation of incoming data, members shared information on recent developments in their respective national economies and sought to provide an assessment of the likely persistence of the factors behind the recent weakening in activity. The impact of new emissions testing standards on car production and registrations was again mentioned as a dampening factor in the largest euro area economy. However, new car registrations were rising again. The slump had lasted longer than initially expected and, while there were signs that it might now be ending, there was uncertainty about how quickly activity in this sector would recover. It was also pointed out that, even in the absence of shocks, growth in the euro area would have been expected to slow – given the maturity of the business cycle – from rates above potential towards rates closer to potential. Members discussed in greater detail the risks to the euro area growth outlook. It was widely felt that it was not yet possible to judge with any confidence how persistent the present soft patch would be and to what extent slower growth in the short term could affect the medium-term growth outlook, as some factors were temporary or sector or country-specific. However, members concurred with the assessment provided by Mr Praet that a stronger case could now be made for assessing the risks as having moved to the downside. In large measure, downside risks could be attributed to risks in the external environment, such as those related to heightened protectionism and the United Kingdom’s withdrawal from the EU, which were increasingly weighing on sentiment in the euro area. The cumulative impact from the persistence of a wide range of risks, both external and domestic, was emphasised, with soft data in the euro area having declined more than hard data. Concern was expressed that the persistence of the prevailing high level of uncertainty was affecting confidence, as reflected in further falls in business surveys, which in turn could adversely affect domestic demand. Arguments were put forward that an assessment of risks to growth as still being broadly balanced could be supported by lower oil prices and the stimulus from fiscal measures. Moreover, the negative impact of a shock to global growth could also be partially offset by policy responses in various jurisdictions. At the same time, it was underlined that the observed slowdown in euro area growth appeared to be deeper and more broad-based than previously anticipated, affecting not only the car sector, but also other manufacturing sectors. Negative developments had become more widespread across the euro area, and risked affecting several components of demand. Although the slowdown appeared to be mainly due to external factors, pass-through and spillovers in the euro area explained why domestic demand had also slowed. While the slowdown had previously been related primarily to trade, private consumption growth had been weaker in the third quarter of 2018 and employment growth had decelerated. It was suggested that if exports and consumption were both weaker, this was likely to be transmitted to investment in the period ahead. Furthermore, it was reiterated that past revisions to growth in the staff projections had essentially reflected the incorporation of new data regarding the short term, leaving the growth path for the remainder of the projection horizon practically unchanged. All in all, members concurred with the view that the risks to the euro area outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility. With regard to price developments, there was broad agreement with the assessment presented by Mr Praet in his introduction. According to Eurostat, euro area annual HICP inflation had declined to 1.6% in December from 1.9% in November, mainly reflecting a decline in energy price inflation. On the basis of current futures prices for oil, headline inflation was likely to decrease further over the coming months. Measures of underlying inflation remained generally muted, but domestic cost pressures were continuing to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation was expected to increase over the medium term, supported by the ECB’s monetary policy measures, the ongoing economic expansion and rising wage growth. As regards the possible implications of weaker growth for the medium-term inflation outlook, it was argued that more information was needed for a thorough assessment. In this context, it was noted that the labour market had so far continued to improve, with labour shortages becoming more apparent in some Member States, although more broadly some deceleration in employment growth had been observed. Members considered that recent developments in wage growth continued to provide some reassurance regarding the outlook for underlying inflation. Compensation per employee in the euro area as a whole had risen by 2.5% in the third quarter of 2018, having increased steadily since 2016, while the pick-up in wage growth had become broader-based across countries and sectors. It was also argued that the relatively high level of headline inflation in 2018 would continue to affect wage negotiations, which often contained a backward-looking component. It was widely emphasised that the transmission of higher wages to consumer price inflation was a key issue for the medium-term outlook for inflation and an important source of uncertainty regarding the inflation outlook that was seen to require close monitoring. It was noted that while the relationship between wages and unemployment appeared to be intact, there had so far been little response in underlying inflation measures to improving labour market conditions. This was illustrated by the fact that over the previous five years underlying inflation had been stable at around 1%, while unemployment had fallen from around 12% to just below 8%. Underlying inflation had not risen even in the period when the economy was growing very quickly. Members also discussed the behaviour of profit margins and mark-ups. It was noted that higher wage growth had not been passed through to price inflation because firms had absorbed it by lowering profit margins, and attention was drawn to the drop in gross operating surplus growth to practically zero in the third quarter of 2018. However, it was argued that mark-ups could not be squeezed indefinitely, and that this effect would serve only to delay the pass-through of higher wages to consumer prices. More generally, it was underlined that the transmission to consumer price inflation was subject to time lags, and it appeared that more time and patience were needed. However, it was also argued that more structural or longer-lasting factors might still be at play, for example related to changes in the competitive environment and to pressures on margins from e-commerce. As regards recent developments in longer-term inflation expectations, members noted that both market-based and survey-based measures had fallen since the previous monetary policy meeting of the Governing Council. Expectations of inflation five years ahead in the Survey of Professional Forecasters for the first quarter of 2019 had been revised down to 1.8%, from 1.9% in the fourth quarter of 2018. Market-based inflation expectations, as measured by the five-year forward inflation-linked swap rate five years ahead, stood at 1.54%, slightly below the level prevailing at the time of the December 2018 Governing Council meeting and at their lowest level since June 2017. While the risk of deflation had been negligible for some time, the short-term outlook for inflation had weakened due to lower oil prices and weak developments in domestic services prices. Concern was expressed that there might be a risk that this renewed weakness could start to weigh on inflation expectations if it were to persist. Regarding fiscal policies, the Governing Council reiterated the need to rebuild fiscal buffers. This was particularly important in countries where government debt was high and for which full adherence to the Stability and Growth Pact was critical for safeguarding sound fiscal positions. With regard to the monetary analysis, members widely shared the assessment provided by Mr Praet in his introduction. The annual growth rate of broad money (M3), which had moderated somewhat in November 2018, continued to be underpinned by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth. Reference was made to the results of the euro area bank lending survey for the fourth quarter of 2018, which showed that overall bank lending conditions had remained favourable in the euro area, following an extended period of net easing, while demand for bank credit had continued to rise. Credit standards on loans to enterprises and households had tightened slightly, mostly on account of developments in one large euro area economy that had been subject to financial market volatility, and bank funding costs had also edged up. Looking ahead, it was felt that some consideration should be given to the outlook for liquidity conditions in the banking sector, as the redemptions of outstanding targeted longer-term refinancing operations were approaching, which might give rise to “cliff effects”. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Praet in his introduction. There was broad agreement that the stance remained highly expansionary overall and that it had contributed to dampening the impact of prevailing uncertainties on financial conditions, which remained favourable. It was remarked that, alongside uncertainty about the external environment, uncertainty regarding the euro area economy had risen recently – pertaining to both the growth outlook and inflation – owing to not only lower oil prices but also the slow pass-through from wages to prices. There was broad agreement among members that supportive financing conditions, favourable labour market dynamics and rising wage growth continued to underpin the euro area expansion, thus supporting confidence in the convergence of inflation to the Governing Council’s aim. While measures of underlying inflation remained muted, labour cost pressures were strengthening further and were expected to pass through to underlying inflation in the period ahead. In this regard, it was underlined that the euro area was still experiencing growth momentum, with labour market conditions improving and lower oil prices supporting consumption. Looking ahead, a key question was seen to be the extent to which the weaker growth momentum might turn out to be more persistent than currently envisaged. More information, including the March projections, was needed to deepen the analysis and obtain greater clarity before conclusions could be drawn about the medium-term inflation outlook. Against this background, all members agreed with the monetary policy considerations put forward by Mr Praet in his introduction. This entailed confirming the enhanced forward guidance on the path of the key ECB interest rates and on the reinvestments of acquired assets while acknowledging that the risks surrounding the euro area growth outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism. Significant monetary policy stimulus would continue to be provided by the forward guidance on the key ECB interest rates and on the reinvestments of the sizeable stock of acquired assets. At the same time, the Governing Council would reiterate that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation continued to move towards the Governing Council’s inflation aim in a sustained manner. Members underlined that specifying the forward guidance on the Governing Council’s policy instruments in terms of both a time-based leg and a state-contingent leg had served it well. The observation was made that, in response to the recent weaker than expected data, some easing in financial conditions had taken place through an outward shift in market expectations for the timing of a first rise in key ECB interest rates. This endogenous response was viewed as being consistent with the state-based elements of the Governing Council’s forward guidance and contributed to preserving the financial conditions on which the projected inflation convergence remained contingent. The “chained” forward guidance on the key ECB interest rates and the reinvestments was seen as functioning as a kind of automatic stabiliser, particularly in situations when further easing was deemed desirable in reaction to weaker than expected data. There was wide agreement that the continued convergence of inflation to the Governing Council’s aim in the period ahead still required an ample degree of monetary accommodation. A number of remarks were made regarding available monetary policy tools in the domain of longer-term liquidity provision. Any potential new operations should reflect the monetary policy objectives to be achieved. While any decisions in this respect should not be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly. On communication, members widely concurred with the elements proposed by Mr Praet in his introduction. Accordingly, it was seen as appropriate to acknowledge that the incoming data had continued to be weaker than expected but that supportive financing conditions, favourable labour market dynamics and rising wage growth continued to underpin the expansion and gradually rising inflation pressures in the euro area. At the same time, it had to be recognised that the risks surrounding the euro area growth outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility. In this regard, the need to communicate cautiously was stressed, in order to strike the right balance between credibility in acknowledging the weaker than expected data and conveying confidence in the adjustment towards the Governing Council’s medium-term inflation aim. Consequently, the Governing Council would reconfirm its forward guidance on the key ECB interest rates and on the reinvestment of the principal payments from maturing securities purchased under the asset purchase programme. Members agreed that monetary policy needed to remain prudent, patient and persistent and to continue to follow a data-driven approach in the period ahead. At the current juncture, a steady hand was seen as warranted and discussions with regard to monetary policy operations or the forward guidance were deemed premature. At the same time, the Governing Council needed to reiterate that it was prepared to act if needed. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council reiterated that it expected the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels below, but close to, 2% over the medium term. With regard to non-standard monetary policy measures, the Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190124~cd3821f8f5.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190124~5c00d09d5d.en.html Meeting of the ECB’s Governing Council, 23-24 January 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Ms Georghadji Mr Hansson Mr Hernández de Cos Mr Knot * Mr Lane Ms Lautenschläger Mr Makúch Mr Mersch Mr Nowotny * Mr Praet Mr Rehn Mr Reinesch * Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella * Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in January 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Vice-President ** Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Ms Buch Mr Demarco Mr Dolenc Ms Donnery Mr Gaiotti Ms Goulard Mr Kaasik Mr Kuodis Mr Mooslechner Mr Ódor Ms Razmusa, Alternate to Mr Rimšēvičs Mr Rutkaste Mr Schoder Mr Stavrou Mr Swank Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Mr Stracca, Deputy Director General International and European Relations Release of the next monetary policy account foreseen on Thursday, 4 April 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 6-7 March 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the latest financial market developments. As regards bond market developments, the fall in euro area ten-year overnight index swap (OIS) yields from early October 2018 to mid-February 2019 had recently reversed slightly. Notwithstanding the recent recovery, yields remained compressed compared with the levels observed in early October 2018. Mr Cœuré recalled that the dominant driver of lower yields in recent months had been a fall in the inflation component, as reflected in revisions to market-based inflation expectations. The pronounced decrease in inflation-linked swap rates, across all maturities, in the fourth quarter of 2018 had likely been related, at least in part, to the sharp parallel fall in oil prices. However, since the end of December 2018 oil prices had gone up by more than 25%, both in US dollar and in euro terms, but the euro area and US medium-term inflation expectations seemed to have responded differently. The US five-year forward inflation-linked swap rate five years ahead had risen by around 20 basis points since early January 2019. In contrast, the equivalent swap rate for the euro area had continued to decline until last week. As had been indicated on previous occasions, the prevalence of risk premia adjustments in recent months implied that caution was warranted when interpreting monetary policy expectations purely derived from market prices. For the euro area, the latest forward one-month OIS curve indicated that policy expectations in the euro area had remained broadly stable since mid-January 2019. Survey-based expectations of a first hike in the deposit facility rate, however, had continued to shift further out in time. In the United States, the federal funds futures curve had shifted upward in recent days and had returned to levels observed in the second half of January 2019. Surveys had backtracked somewhat, but mostly in terms of timing, and still pointed to expectations of one more hike in 2019. Moving to equity markets, risky assets had continued to rally. Both the S&P 500 and the EURO STOXX had gained about 6% since the Governing Council’s January monetary policy meeting and were up by around 11% year-to-date. All in all, stock markets had by now almost fully recovered the sharp losses seen in the fourth quarter of 2018. However, at least in the euro area, the gains in share prices did not reflect an improvement in earnings prospects. Rather, higher share prices mainly reflected a fall in the equity risk premium. Emerging markets had also benefited from the improved risk sentiment. The MSCI Emerging Markets Index was already above its pre-October 2018 level and capital inflows into emerging markets had accelerated again. Credit spreads, too, had continued to narrow on improved risk sentiment. Euro area high yield spreads were down nearly 80 basis points since the Governing Council’s monetary policy meeting on 12‑13 December 2018. Investment grade spreads had also come down, both in the United States and in the euro area. Similarly, the spreads of most euro area sovereign bond yields over equivalent German government bond yields had fallen since the start of the year. Corporate bond issuance volumes in Europe had also been strong. The premium that firms had to pay for issuing new bonds had declined measurably in recent weeks, which suggested that the end of net purchases under the corporate sector purchase programme (CSPP) had not had a meaningful impact on the corporate bond market. In foreign exchange markets, the euro exchange rate vis-à-vis the US dollar had remained relatively stable and had continued to trade close to the USD/EUR 1.13-1.14 level observed since early October 2018. The euro and the US dollar had depreciated notably against the British pound in recent weeks, which likely reflected the financial markets’ view that the risks of a “no-deal” Brexit had diminished lately. Finally, Mr Cœuré mentioned developments in the EURIBOR term structure, which had seen a gradual and persistent rise in rates, in particular over the longer horizons, and which had become largely disconnected from changes in policy rate expectations. The global environment and economic and monetary developments in the euro area Mr Praet reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, global growth and trade momentum had slowed further. Global composite output had decreased again in January, pointing to further deceleration in global growth momentum. The weakness had been concentrated in the manufacturing sector, whereas services had remained considerably more resilient. Global trade had slowed significantly around the turn of the year. Annual consumer price inflation in the OECD area had slowed to 2.1% in January from 2.4% in December, largely driven by decelerating energy prices. Inflation, excluding food and energy, had remained broadly unchanged at 2.2%, suggesting that underlying inflation pressures had remained subdued. After a period of stability, Brent crude oil prices had increased in mid-February, ending 6% higher than at the time of the Governing Council’s January monetary policy meeting. The euro exchange rate had depreciated slightly against the US dollar since the January meeting in bilateral terms (-0.2%) as well as in nominal effective terms (-0.5%). Turning to the euro area, the latest incoming information pointed to continued subdued growth. Indicators related to the manufacturing sector had weakened further, whereas those related to services had showed signs of stabilisation. Eurostat’s second release had put euro area real GDP growth in the fourth quarter of 2018 at 0.2%. In terms of the composition of growth in the fourth quarter of 2018, domestic demand and net exports had provided positive contributions, while inventories had contributed negatively. Concerning GDP components, private consumption had increased by 0.2% in quarter-on-quarter terms in the fourth quarter of 2018, up from 0.1% in the third quarter. The weakness in consumption growth in recent quarters had been largely driven by non-durable goods, which appeared to be the component of household spending most sensitive to changes in energy prices. Gross fixed capital formation had grown by 0.6% in the fourth quarter of 2018, the same rate as in the previous quarter. Looking ahead, investment growth dynamics were expected to remain subdued, in line with the slowdown in foreign and domestic demand. Incoming data since the January monetary policy meeting had shown a continuation of solid employment growth in the fourth quarter of 2018, at 0.3%. The PMI for employment had remained in expansionary territory, but had moderated further across most countries and sectors. Growth of euro area trade in goods had weakened further year-on-year in the final quarter of 2018, driven mainly by intra-euro area trade. Growth of extra-euro area goods exports had also remained subdued, reflecting in particular the contraction of exports to Turkey and the United Kingdom, while export growth to China and the United States had also weakened. These developments were also reflected in the March 2019 ECB staff projections, which projected real GDP growth at 1.1% in 2019, 1.6% in 2020 and 1.5% in 2021. Real GDP growth had been revised down by 0.6 percentage points in 2019 and by 0.1 percentage points in 2020, reflecting both a more lasting adverse impact of country-specific factors and heightened global uncertainties. The projections for 2021 were unchanged. Turning to price developments, according to Eurostat’s flash estimate, annual euro area HICP inflation had been 1.5% in February, up from 1.4% in January, while the HICP excluding food and energy inflation had decreased somewhat, to 1.0%, from 1.1% in January. Meanwhile, measures of underlying inflation had continued to move sideways. Domestic cost pressures had been increasing, but had yet to translate into higher underlying inflation. Incoming data pointed to building wage pressures, which were expected to support the upward adjustment in underlying inflation. Annual negotiated wage growth had risen to 2.2% in the fourth quarter of 2018, up from 2.1% in the third quarter, while overall compensation per employee had grown by 2.2% in the fourth quarter of 2018. ECB staff projected HICP inflation decreasing until the fourth quarter of 2019 and then picking up over the remainder of the projection horizon, to reach 1.6% in 2021. This V-shaped pattern reflected, first, a significant decrease in HICP energy inflation linked to the recent strong drop in oil prices and downward base effects related to their previous increase in 2018 and, second, gradually rising underlying inflation, supported by rising supply constraints and tightening labour markets. In the March 2019 ECB staff projections, the outlook for HICP inflation had been revised down significantly by 0.3 percentage points in 2019 and by 0.2 percentage points in both 2020 and 2021. HICP excluding energy and food had been revised down by 0.2 percentage points in each year of the projection horizon. Longer-term market-based inflation expectations, as derived from the five-year inflation-linked swap rates five years forward, had declined to 1.5% compared with around 1.7% one year ago. Longer-term inflation expectations, five years ahead, in the Survey of Professional Forecasters (SPF) stood at 1.8% in the first quarter of 2019. Financial conditions had eased. This reflected market expectations about future monetary policy and some easing of trade tensions. The impact of these factors on financing conditions had more than offset the impact of the deterioration in the macroeconomic outlook as priced in by financial markets. Equity prices had increased, despite a worsening in earnings expectations, while corporate bond spreads had tightened. The market-implied expected timing of the policy rate “lift-off” was largely unchanged. Credit conditions had remained accommodative. Turning to money and credit developments, the annual growth rate of broad money (M3) had continued to hover around the rates observed since early 2018, while decreasing to 3.8% in January 2019, from 4.1% in December 2018. Money creation continued to be supported by credit to the private sector. At the same time, loan growth had been lower in January, increasing by 3.0% compared with one year ago. The recent deceleration reflected developments in loans to non-financial corporations (NFCs), in part due to base effects, while loans to households had recently stabilised. Bank profitability remained subdued, while banks were faced with a somewhat higher cost of market funding. At the same time, market concerns had risen about pressures on banks’ funding costs due to the forthcoming phasing-out of the TLTRO-II. As regards fiscal policy, the euro area deficit ratio was projected to worsen in 2019-21, mainly due to a loosening of the fiscal stance. Monetary policy considerations and policy options Summing up, Mr Praet remarked that since the January monetary policy meeting financial conditions had eased, mainly on account of a reappraisal of monetary policies at the global level and abating trade tensions. Moreover, credit conditions for households and firms remained accommodative. Incoming data had continued to be weak, in particular in the manufacturing sector. The growth outlook in the March 2019 ECB staff projections had been revised down substantially for 2019 and, to a lesser extent, for 2020. The euro area expansion would continue to be supported by favourable financing conditions, further employment gains, rising wages, and the ongoing – albeit somewhat slower – expansion in global activity. At the same time, the persistence of uncertainties was weighing on the growth outlook. Measures of underlying inflation remained muted. Domestic cost pressures, in particular wages, had been strengthening, but had yet to translate into higher underlying inflation. The March 2019 ECB staff projections entailed a marked downward revision in both headline and core inflation across the projection horizon with weaker economic momentum slowing the adjustment of inflation towards the Governing Council’s aim. Market-based measures of longer-term inflation expectations had weakened in recent months. In this light, to ensure that inflation remained on a sustained path to levels that were below, but close to, 2% over the medium term, Mr Praet proposed: (a) to adjust the calendar-based leg of the ECB’s forward guidance on the key ECB interest rates to indicate the Governing Council’s expectation that rates would “remain at their present levels at least through the end of 2019 and in any case for as long as necessary”, as recalibrating the calendar-based leg of forward guidance would signal the Governing Council’s determination to provide the monetary accommodation needed for a sustained convergence of inflation; (b) to reiterate the Governing Council’s forward guidance on reinvestments; and (c) to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III) starting in September 2019 and ending in March 2021, each with a maturity of two years. Counterparties would be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019, at a rate indexed to the interest rate on the ECB’s main refinancing operations over the life of each TLTRO. These new operations would help to preserve the favourable bank lending conditions and support the smooth transmission of monetary policy. The precise terms of the operations would be communicated in due course. Finally, the ECB’s lending operations would continue to be conducted as fixed-rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021. As regards external communication, the Governing Council needed to: (a) stress that the weakening in economic data pointed to a sizeable moderation in the pace of the economic expansion that would extend into the current year; (b) emphasise that the weaker economic momentum was slowing the adjustment of inflation towards the Governing Council’s aim; (c) adjust the forward guidance on the key ECB interest rates, namely that the Governing Council expected them to “remain at their present levels at least through the end of 2019, and in any case for as long as necessary”, while reiterating the forward guidance on reinvestments; (d) announce a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, and stress that the new TLTROs would help to preserve bank lending conditions and support the smooth transmission of monetary policy; (e) announce the extension of the fixed-rate tender procedures with full allotment for the ECB’s lending operations for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021; (f) explain that these decisions would support the further build-up of domestic price pressures and headline inflation developments over the medium term; (g) indicate that the risks to the euro area growth outlook were still tilted to the downside because of the persistence of geopolitical uncertainties; (h) stress that significant monetary policy stimulus remained essential for a sustained convergence of inflation towards levels below, but close to, 2% over the medium term, and would continue to be provided by the forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs; and (i) reiterate that, in any event, the Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure a sustained convergence of inflation. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook for economic activity in the euro area provided by Mr Praet in his introduction. Recent data and survey results had continued to be weak, in particular in the manufacturing sector, reflecting the slowdown in external demand compounded by some country and sector-specific factors. While there were signs that some of these domestic factors dampening growth were starting to fade, the weakening in economic data pointed to a sizeable moderation in the pace of the economic expansion that would extend into the current year, with the persistence of uncertainties appearing to weigh on economic sentiment and the growth outlook. This assessment was broadly reflected in the March 2019 ECB staff projections, in which the outlook for real GDP growth had been revised down substantially for 2019 and slightly for 2020 compared with the December 2018 Eurosystem staff projections. In considering the outlook and risks for the external environment, members took note of the further slowdown in global growth and trade momentum. In particular, there were concerns about the potential impact of trade protectionism on the global outlook and the ongoing risk of an escalation of trade conflicts. Reference was made in the discussion to a number of factors, including the impact of trade tensions between the United States and China, the threat posed by a trade dispute between the European Union and the United States, and the risks surrounding a disorderly withdrawal of the United Kingdom from the European Union. Attention was also drawn to the slowdown in growth in China, as well as developments in the US economy, which was expected to slow as a result of the waning effect of the fiscal package. Against this background, the risks to the external environment were assessed to be on the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. Turning to euro area activity, members concurred that the recent data had continued to be weaker than expected. It was noted that the carry-over effect from weaker growth in the second half of 2018 implied a lower projection for growth in 2019. Recent economic indicators had also been disappointing, with the latest surveys and data releases confirming the need to revise the short-term growth outlook downwards, as partly reflected in the March staff projections. The downside risks to growth identified in earlier discussions had thus, to some extent, materialised. The weakness in growth was seen as being longer-lasting than had previously been expected, with the result that growth was now likely to be below potential for a number of quarters. Members considered that the downward revisions to the growth projections in the March staff projections were warranted and expressed confidence in the baseline as the central scenario. In this context, it was observed that the updated outlook for euro area growth just released by the OECD in its Interim Economic Outlook, although slightly lower than the ECB staff projections – with 1.0% for 2019 and 1.2% for 2020 – also incorporated a substantial downward revision to euro area growth. Members acknowledged that, while the baseline scenario of a more protracted “soft patch” followed by a return to more solid growth was the most likely scenario, uncertainty remained elevated and it was unclear how persistent the current soft patch would turn out to be. It was noted that, while some indicators pointed to growth rates in the first and second quarters of this year that were lower than in the March staff projections, there were some positive factors to be taken into account, such as those relating to the impact of fiscal measures and the unwinding of some temporary country and sector-specific factors, notably in the German car industry. Moreover, it was recalled that, beyond the near term, a number of factors continued to support the euro area economic expansion, including favourable financing conditions, further employment gains and rising wage growth, as well as the ongoing, albeit somewhat slower, expansion in global activity. It was also emphasised that, while the growth momentum was weaker, it remained positive. Neither the euro area, nor the global economy, was currently in recession and the probability of a recession remained relatively low. At the same time, the view was widely shared that downside risks to the growth outlook continued to prevail despite the downward revisions incorporated in the March projections. It was stressed that the revisions to the growth projections were mainly to the short term and that a rebound in activity was expected in the second half of the year, reflecting the fading of temporary factors, an improvement in external trade and an easing of trade conflicts. Following the downward revisions to growth in the first half of the year, growth was expected to return to potential, with quarter-on-quarter growth rates of around 0.4% throughout the projection horizon, which might be considered optimistic. It was highlighted that the growth projections had been revised down in a number of consecutive projection exercises and that growth might not be mean-reverting, as typically assumed in projections. The remark was made that some of the factors behind the slowdown, such as developments in China, were unlikely to fade away in a few months. Uncertainty might also turn out to be more persistent than expected and concern was expressed that, if the current high level of uncertainty persisted, there could be a stronger adverse impact looking ahead, in particular on investment. As regards the balance of risks surrounding the euro area growth outlook, these were generally assessed to be still tilted to the downside on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. Although a case could be made that the risks to growth were now somewhat more balanced, following the downward revision to the ECB staff projections, it was considered that overall the global risk factors, which were predominantly on the downside, had the potential to further affect confidence and global activity negatively, with adverse spillovers to activity in the euro area. In an exchange of views about the outlook for fiscal policy, members reiterated the need for rebuilding fiscal buffers in countries where government debt was high. At the same time, it was argued that, consistent with the country-specific recommendations from the European Commission, jurisdictions that had fiscal space should stand ready to use it, given the downside risks to growth. The mildly expansionary fiscal stance and the operation of automatic stabilisers were providing some support to economic activity. With regard to price developments, there was broad agreement with the assessment presented by Mr Praet in his introduction. On the basis of current futures prices for oil, headline inflation was likely to remain at around current levels, before declining towards the end of the year. Measures of underlying inflation remained generally muted, but labour cost pressures had strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation was expected to increase over the medium term, supported by the ECB’s monetary policy measures, the ongoing economic expansion and rising wage growth. This assessment was also broadly reflected in the March staff projections, in which annual HICP inflation was projected to rise from 1.2% in 2019 to 1.5% in 2020 and to 1.6% in 2021. Compared with the December 2018 Eurosystem staff projections, the outlook for HICP inflation had been revised down over the whole projection horizon, reflecting in particular the more subdued near-term growth outlook. Members took note of the implications for the medium-term inflation outlook arising from the downward revisions to the growth outlook and generally agreed that the weaker economic momentum in the March staff projections implied a slower adjustment of inflation to the ECB’s price stability objective. Underlying inflation, as measured by the HICP excluding energy and food, was still expected to pick up over the projection horizon but had also been revised down compared with the December 2018 Eurosystem staff projections. Confidence in the upward movement in inflation dynamics was expressed, even though the expected path for inflation was flatter than previously expected and thus the convergence of inflation would take longer than previously expected. Headline inflation was now only expected to reach 1.6% in 2021, at the end of the projection horizon. Members considered that recent developments in wage growth continued to provide positive support for the outlook for underlying inflation. Although compensation per employee in the euro area had been revised down slightly in the projections, nominal labour costs were expected to strengthen, supported by negotiated wage growth, which stood at 2.2% in December 2018. The transmission of higher wages to consumer price inflation was considered to remain a key issue for the medium-term outlook for inflation, with higher wage growth not yet having passed through to price inflation, as firms had absorbed increases by lowering profit margins. Some confidence was expressed, however, that as mark-ups could not be squeezed indefinitely, wage pressures would eventually pass through to underlying inflation. At the same time, it was highlighted that a smaller increase in unit labour costs was now projected and that the projected increase in profit margins was predicated on the rebound in economic activity taking place. More generally, it was recalled that the transmission to consumer price inflation was subject to time lags and it was noted that the slowdown in economic activity could weigh on the pass-through from wages to prices. Moreover, the mechanism whereby higher wage costs were transferred to prices might have changed structurally in recent years, as appeared to be the case in both the United States and Europe. As regards recent developments in longer-term inflation expectations, members noted that expectations had declined further since the Governing Council’s January 2019 monetary policy meeting. Market-based inflation expectations, as measured by the five-year forward inflation-linked swap rate five years ahead, currently stood at 1.5%. Longer-term survey-based inflation expectations had been revised down as well, standing at 1.8% in the SPF for the first quarter of 2019. Hence, the gap between survey-based and market-based measures had widened somewhat. While some concern was expressed about the trend in longer-term inflation expectations, the risk of an unanchoring of inflation expectations was assessed as very low. On the monetary analysis, members concurred with the assessment presented by Mr Praet in his introduction. M3 continued to hover around the growth rates observed since early 2018. While private credit remained the main source of money creation from a counterpart perspective, the decline in the contribution of the asset purchase programme (APP) had recently been replaced by external monetary flows and credit to the general government. The annual growth rate of loans to NFCs had decreased to 3.3% in January 2019, from 3.9% in December 2018, reflecting a base effect but also, in some countries, the typical lagged reaction to a slowdown in economic activity, while growth in loans to households had remained unchanged. It was underlined that bank lending conditions remained overall very supportive, even if the latest available bank lending survey had pointed to the prospect of some tightening looking ahead. Bank funding conditions had become somewhat less favourable, although banks were partly shielded from less benign conditions in bond markets owing to the increased share of deposits in their funding structures. Concerns were voiced that over time the effects of persistently low rates could depress banks’ interest margins and profitability with negative effects on bank intermediation and financial stability in the longer run. It was recalled that the consequences of low rates differed across the maturity spectrum and across banks, depending on their business models and the structure of their assets and liabilities. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Praet in his introduction that euro area financial conditions had eased, also on account of markets’ reassessment of global monetary policy, and remained, overall, very supportive. Borrowing conditions for firms and households were still favourable, as the monetary policy measures put in place since June 2014 were continuing to support access to financing. While the monetary policy stance was assessed as being very accommodative, also in the light of the large stock of assets on the ECB’s balance sheet, the downward revisions of growth and inflation across the forecast horizon in the March staff projections were sizeable and larger than market participants had expected, warranting some consideration. At the same time, confidence was expressed that the conditions for a rebound in activity and inflation remained in place to support a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Against this background, members expressed broad support for the package of measures proposed by Mr Praet. The proposed extension of the calendar-based leg of the Governing Council’s forward guidance was generally seen as underpinning the monetary accommodation needed to support inflation converging towards the Governing Council’s aim. Reference was made to the publication of the downward revision to the projections, which was in any case likely – by itself – to induce a further delay in the expected date of the first interest rate increase, in line with the state-contingent element of the forward guidance. It was emphasised that the Governing Council would be reacting to the projected decrease in the inflation projections in a data-driven manner in order to provide additional support in a situation that was characterised by various risks. A question was raised about how frequently forward guidance should be adjusted in response to new data. All in all, bringing the calendar-based leg of forward guidance more into line with market expectations of a later date for the first interest rate increase was widely seen as appropriately reflecting the Governing Council’s assessment of the inflation outlook. A number of members voiced an initial preference for extending the forward guidance through the end of the first quarter of 2020, while expressing their readiness to join a consensus forming on Mr Praet’s proposal, with the overall policy package seen as finely balanced. Shifting the forward guidance to March 2020 instead of December 2019 would provide additional accommodation and would be more in line with the markets’ pricing of a first interest rate increase, compared with survey-based expectations. It was argued that a clear easing signal would be important in view of the significant downward revisions to the ECB staff projections. Other members preferred to extend the forward guidance until the end of 2019 as this was considered to be more consistent with the baseline scenario underlying the projections that foresaw a rebound of the economy in the second half of 2019. Caution was expressed about committing to a longer horizon well into the following year in a situation of high uncertainty where incoming data could evolve in very different ways. In view of the high prevailing uncertainty, a data-driven gradualist approach was seen as most appropriate, while it was also argued that the Governing Council should avoid giving the impression that policy would be all but predetermined until the end of the year. The need for more analysis of the effects of the various unconventional measures on financial intermediation was mentioned. All in all, members agreed to extend the Governing Council’s forward guidance through the end of 2019 as part of the overall package, as proposed by Mr Praet. Recalibrating the calendar-based leg of the Governing Council’s forward guidance would signal the Governing Council’s determination to provide the monetary accommodation needed for a sustained convergence of inflation. At the same time, it would not pre-empt the Governing Council’s readjustment of its monetary policy, if needed, at one of its coming meetings should the outlook evolve less favourably than expected. Moreover, the state-based leg of forward guidance automatically implied a shift in rate expectations if the economic conditions for an interest rate increase were not yet in place. Satisfaction was expressed that the state-based element of the Governing Council’s forward guidance was working well, together with the calendar-based guidance. Members also expressed broad support for Mr Praet’s proposal to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III) starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations would help to ensure that bank lending conditions remained favourable and would support the smooth transmission of monetary policy via the banking sector. In the light of looming cliff effects related to maturing TLTRO-II operations, upcoming regulatory requirements and the risk of some deterioration in funding conditions for banks, TLTRO-III would help to avoid increasing funding pressures for banks. In the discussion, the mostly pre-emptive nature of TLTRO-III was stressed as in most jurisdictions a tightening of credit conditions had not yet been observed. TLTRO-III would act as a backstop to provide insurance to the economy at a time of high uncertainty with risks tilted to the downside. While it was recalled that TLTROs had been very successful measures for providing accommodation in the euro area’s bank-based financial system, their targeted nature was highlighted as well. With respect to the horizon of the new set of operations, a sufficiently long horizon was seen as helpful to ensure sufficient accommodation to bring inflation towards levels of below, but close to, 2% over the medium term and increase the impact on the real economy, also by broadly matching the typical maturity of loans to NFCs. Conversely, a shorter horizon would provide a stronger signal to banks that they needed to be prepared to secure funding on private markets and avoid becoming overly reliant on central bank funding. Members agreed that the design of the TLTRO-III operations should support the smooth transmission of monetary policy and favourable bank lending conditions, preserving sufficient accommodation to support the convergence of inflation to the Governing Council’s aim, while not perpetuating the reliance of banks on unconventional policy measures. Modelling the conditions for the new operations on the design of TLTRO-II was seen as a way to ensure their pass-through to the real economy and limit the use of funds for carry trades in government bonds. Financial stability considerations had to be taken into account, but also needed to be addressed at the country level. With regard to the pricing of TLTRO-III, it was generally agreed that it should be indexed to the interest rate on the main refinancing operations. There was broad agreement that elaborating the details would need more reflection by the Governing Council and they should be communicated in due course. Members also agreed to continue conducting lending operations as fixed rate tender procedures with full allotment for as long as necessary and at least until the end of the reserve maintenance period starting in March 2021. Monetary policy decisions and communication In the light of the foregoing discussion, the President ascertained that all members supported the package of measures as proposed by Mr Praet. Turning to communication, members widely agreed that it needed to be emphasised that decisions to be taken by the Governing Council would support the further build-up of domestic price pressures and headline inflation developments over the medium term. Moreover, the measures would help to increase the resilience of the euro area economy to the risks resulting from geopolitical uncertainties. At the same time, it was underlined that the decisions should be seen as an appropriate adjustment of the instruments at the Governing Council’s disposal in reaction to a weakening of economic data and the inflation outlook and should not be interpreted as a reversal of the policy stance. In the Governing Council’s communication, it was furthermore seen as warranted to reiterate that significant monetary policy stimulus remained essential for a sustained convergence of inflation towards levels below, but close to, 2% over the medium term and that it would continue to be provided by the forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs. As emphasised in previous communication, it also needed to be reiterated that, in any event, the Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure a sustained convergence of inflation. Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council took the following monetary policy decisions: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council now expected the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. A new series of quarterly targeted longer-term refinancing operations (TLTRO-III) would be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations would help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties would be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO-III would feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III would be communicated in due course. The Eurosystem’s lending operations would continue to be conducted as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190307~de1fdbd0b0.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190307~7d8a9d2665.en.html Meeting of the ECB’s Governing Council, 6-7 March 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa * Ms Georghadji Mr Hansson Mr Hernández de Cos * Mr Knot Mr Lane Ms Lautenschläger Mr Makúch Mr Mersch Mr Nowotny * Mr Praet Mr Rehn Mr Reinesch Mr Rimšēvičs Mr Stournaras Mr Vasiliauskas Mr Vasle * Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in March 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Vice-President ** Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Boeckx Mr Bonello Mr Bradeško Ms Buch Ms Donnery Mr Gaiotti Ms Goulard Mr Kaasik Mr Kuodis Mr Mooslechner Mr Ódor Mr Rutkaste Mr Schoder Mr Stavrou Mr Swank Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 23 May 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 9-10 April 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments The Vice-President, standing in for Mr Cœuré, reviewed the latest financial market developments. Since the Governing Council’s previous monetary policy meeting on 6-7 March 2019, global risk sentiment had improved across various market segments. Equity market indices had continued to rise, recording one of the strongest first quarter performances since the global financial crisis, while government bond prices had also increased. At the same time, foreign exchange rates had mostly remained broadly stable. Expectations that monetary policy would remain supportive globally had been an important factor behind these developments. In the United States, at its meeting in March 2019 the Federal Open Market Committee had lowered its projections for the federal funds target rate for the period 2019 to 2021 and had also announced that it would reduce its holdings of US Treasuries at a slower pace from May 2019, concluding its balance sheet run-off by the end of September 2019. This, combined with revisions to the global economic outlook, had led to a decline in global government bond yields over the review period. The ten-year German Bund yield had moved into negative territory, although over the past few days it had risen slightly and was currently trading around zero. With regard to the euro area, market expectations for a first increase in ECB policy rates had been pushed further out in time since the Governing Council’s March 2019 monetary policy meeting. Market views regarding the medium-term outlook for euro short-term money market rates had shifted further to the downside, standing close to the low levels seen in late 2016. A decomposition of the euro area ten-year overnight index swap (OIS) rate highlighted that the decline in the rate seemed to have been driven mainly by the inflation component, although the real component had also decreased somewhat since the Governing Council’s March 2019 monetary policy meeting. In contrast, in the United States, the real component seemed to have been the main driver of a decline in the ten-year spot OIS rate, consistent with the softer US economic data releases in the first quarter of 2019. The inflation component had increased since the start of the year, supported by an increase in oil prices. Euro area government bond yields had declined to a similar degree across all jurisdictions. Market participants’ anticipation of “low rates for longer” had possibly spurred a renewed search for yield and a stronger risk appetite, as evidenced also in declining euro area corporate bond market yields and asset swap spreads. Overall, as a result of these global bond market movements 20% of worldwide investment-grade debt was trading at yields below zero, compared with the historical high of 25% seen in mid-2016. Nominal effective exchange rates of major currencies had remained broadly stable, with the exception of the pound sterling, which had strengthened by around 4% against its trading partners’ currencies during the first quarter of this year. The global environment and economic and monetary developments in the euro area Mr Praet reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, there were signs that the moderation in global activity had continued in early 2019 and that the weakness in global trade was persisting. Global survey indicators pointed to a further slowdown in manufacturing activity, while services appeared more resilient. In three-month-on-three-month terms, global merchandise import growth had decelerated further in January. The slowdown had continued to be largely driven by emerging market economies and, in particular, emerging Asia. Annual consumer price inflation in the OECD area stood at 2.1% in February. Core inflation had fallen slightly from 2.2% in January to 2.1% in February. After the strong jump in mid-February, oil prices had increased again, rising by 9% since the Governing Council’s March 2019 monetary policy meeting, with the price of Brent crude oil standing at almost USD 71 per barrel. Food prices had declined by 2.5%, while metal prices had remained broadly stable. The euro had depreciated since the March meeting, both against the US dollar (by 0.7%) and in nominal effective terms (by 0.3%). Turning to the euro area economy, high frequency information that had become available since the Governing Council’s March 2019 monetary policy meeting continued to signal positive, albeit subdued, growth in the first quarter of 2019. Indicators related to the manufacturing sector had weakened further, whereas those related to services had shown signs of stabilisation. The European Commission’s Economic Sentiment Indicator (ESI) had dropped to 106.0 in the first quarter of 2019, from 108.9 in the previous quarter, and the composite output Purchasing Managers’ Index had stood at an average of 51.5, down from 52.3 in the previous quarter. Domestic demand was being supported by favourable financing conditions, employment growth and rising wages. Private consumption growth had stabilised at 1.0% in the fourth quarter of 2018. It was expected to gradually accelerate again, in line with developments in real disposable income, which were in turn largely driven by continued labour income growth. The four main factors behind the recent weakness in private consumption had been the higher oil prices in the first half of 2018, car delivery bottlenecks owing to the new emissions testing procedures, increased macroeconomic uncertainty, and some country-specific factors. Business investment had slowed in the fourth quarter of 2018. Looking ahead, business investment was expected to continue expanding, albeit at a lower rate, as had also been reflected in the March 2019 ECB staff macroeconomic projections. This was consistent with lower corporate earnings expectations. Employment had continued to expand, albeit at a slower pace. Employment growth had slowed in manufacturing and market services, while it had remained resilient in the construction sector. Looking ahead, survey indicators for employment continued to indicate further employment growth, albeit at a more moderate pace. Growth in extra-euro area exports had remained subdued, while intra-euro area trade had contracted at the end of 2018. Based on leading indicators, no immediate recovery was in sight. Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation had stood at 1.4% in March, down from 1.5% in February, while HICP inflation excluding food and energy had decreased to 0.8%, from 1.0% in February. Measures of underlying inflation had remained generally muted. Domestic cost pressures had been increasing, but had yet to translate into higher underlying inflation. Growth in compensation per employee had remained above its long-term average (of 2.1%), although it had fallen from 2.5% in the third quarter of 2018 to 2.2% in the fourth quarter. The third quarter reading, however, had been driven in part by some one-off payments. At the same time, negotiated wages had continued to increase, rising from 2.1% in the third quarter of 2018 to 2.2% in the fourth quarter, and further to 2.5% in January 2019. The pick-up in January had been quite broad-based across euro area countries. Price pressures for non-energy industrial goods had increased in the later stages of the supply chain, while signals in the earlier stages were mixed. Inflationary pressures along the pricing chain for services had also strengthened slightly again. Services producer price inflation had continued the upward trend that had started at the beginning of 2016. This trend had been broad-based and was supported by all the main sub-categories. The results of the ECB Survey of Professional Forecasters for the second quarter of 2019 had shown slight downward revisions of 0.1 percentage points for HICP inflation expectations for 2019, 2020 and 2021. At the same time, average longer-term inflation expectations had remained broadly unchanged at 1.8%. Expectations for inflation excluding food and energy had been revised down by 0.1 percentage points for 2019 and 2020, while remaining unchanged for 2021. Market-based measures of inflation expectations derived from the five-year forward inflation-linked swap rate five years ahead had stood at 1.4%, which was 15 basis points lower than the level that had prevailed before the Governing Council’s March 2019 monetary policy meeting. Financial conditions had eased since the March monetary policy meeting against the backdrop of a further reappraisal of monetary policies at the global level as well as improved risk sentiment. Credit conditions had generally remained very accommodative. The overall cost of financing for euro area firms had declined by 9 basis points since the March meeting and stood at 4.5%. The expected timing of the ECB’s policy rate “lift-off” had shifted out substantially. At the same time, equity prices had increased amid large swings and corporate bond spreads had tightened somewhat. The annual growth rate of broad money (M3) had rebounded in February to 4.3%, from 3.8% in January. From a counterpart perspective, while private credit had remained the main source of money creation, since July 2018 the decline in the contribution of the asset purchase programme (APP) had been replaced by external monetary inflows and, to a lesser extent, by bank credit to the general government. The annual growth of bank loans to non-financial corporations (NFCs) had dropped to 3.4% in January, but had rebounded to 3.7% in February. The volatility in the first two months of 2019 had reflected base effects related to banks’ efforts to reach minimum threshold loan flows within the benchmark period for the second series of targeted longer-term refinancing operations (TLTRO-II) in early 2018. Looking through this volatility, a weakening in NFC loan dynamics had been observed since September 2018, when the annual growth rate had peaked at 4.3%. This moderation was consistent with the observed weakening in economic growth during 2018. According to the bank lending survey results for the first quarter of 2019, both credit standards for loans to enterprises and demand for loans to enterprises had remained broadly unchanged. Overall, bank lending conditions remained favourable and continued to support credit provision. As regards fiscal developments, the euro area fiscal stance was projected to turn mildly expansionary in 2019. Monetary policy considerations and policy options Summing up, Mr Praet noted that financial conditions had eased since the Governing Council’s March 2019 monetary policy meeting. In line with the Governing Council’s forward guidance, the risk-free yield curve had flattened in response to the ECB’s monetary policy decisions and also to a stream of negative surprises about the euro area economy. Bank lending conditions remained favourable. Incoming data confirmed that the slower growth momentum was extending into the current year. Activity in the manufacturing sector had decelerated markedly, mainly on account of external headwinds, as global growth and trade dynamics remained weak. At the same time, domestic demand remained resilient and some of the idiosyncratic domestic factors dampening growth were fading. The balance of risks surrounding the growth outlook remained on the downside, as the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, was weighing on confidence. HICP inflation had fallen in March, primarily reflecting a decline in inflation excluding food and energy. Market-based, longer-term inflation expectations had also declined, mainly in reaction to weak macroeconomic data releases, and measures of underlying inflation remained muted. Domestic cost pressures, in particular in wages, had been strengthening, but had yet to translate into higher underlying inflation. Against this background, Mr Praet proposed to reiterate the forward guidance on the key ECB interest rates and on reinvestments, and the readiness to act by employing all available monetary policy tools should inflation convergence require more support. It was essential to preserve the ECB’s accommodative monetary policy stance for as long as necessary for growth to regain a faster pace and thereby foster convergence of inflation to its aim. Concerning the parameters of the new targeted longer-term refinancing operations (TLTRO-III), set to be discussed at one of the Governing Council’s forthcoming meetings, Mr Praet suggested that their pricing would take into account a thorough assessment of the bank-based transmission channel as well as further developments in the economic outlook. In the context of its regular assessment, the Governing Council could also consider whether the preservation of the favourable implications of negative interest rates for the economy would require the mitigation of their possible side effects, if any, on bank intermediation. Accordingly, the public communication should: (a) stress that the incoming information confirmed slower growth momentum extending into the current year; (b) underline that further employment gains and rising wages continued to underpin the resilience of the domestic economy and gradually rising inflation pressures; (c) recognise that the risks surrounding the euro area growth outlook remained tilted to the downside on account of the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets; (d) emphasise that an ample degree of monetary policy accommodation remained necessary to safeguard favourable financing conditions and support the economic expansion, and thus to ensure that inflation remained on a sustained path towards levels that were below, but close to, 2% over the medium term; (e) reiterate that significant monetary policy stimulus was being provided by the forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs; (f) announce that the details on the precise terms of the new TLTROs would be communicated at one of the Governing Council’s forthcoming meetings and that their pricing would take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook; (g) highlight that, in the context of its regular assessment, the Governing Council would consider whether the preservation of the favourable implications of negative interest rates for the economy would require the mitigation of their possible side effects, if any, on bank intermediation; and (h) finally, underscore that, in any event, the Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation continued to move towards its aim in a sustained manner. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally shared the assessment of the outlook for economic activity in the euro area provided by Mr Praet in his introduction. Incoming data confirmed that the slower growth momentum was extending into the current year. There were signs that some of the country and sector-specific domestic factors dampening growth were fading, but global headwinds continued to weigh on euro area activity and were leaving marks on economic sentiment. At the same time, further employment gains and rising wages continued to underpin the resilience of the domestic economy and gradually rising inflation pressures. The risks surrounding the growth outlook remained tilted to the downside. In discussing the outlook and risks for the external environment, members took note of the continued moderation of global activity and the ongoing weakness of global trade. Some comfort was drawn from recent signs that economic activity in China was stabilising. Concerns were reiterated that the global outlook remained subject to the continued risk of an escalation of trade conflicts and the uncertainty surrounding the withdrawal of the United Kingdom from the EU. It was also recalled that the complexity of global value chains made it difficult to gauge the precise implications of such risks for trade and activity over time. Turning to euro area activity, members agreed that the slower growth momentum observed in the second half of 2018 was extending into the current year. Incoming data had continued to be weak, especially for the manufacturing sector. The extension of the slower growth momentum had, in part, already been anticipated in the March 2019 ECB staff projections, but it was also acknowledged that some recent data had turned out even weaker than expected. Looking further ahead, members widely shared the view that the more protracted “soft patch” suggested by the latest data remained consistent with the baseline scenario of a return to more solid growth in the second half of the current year. At the same time, it was acknowledged that there was now somewhat less confidence in this baseline scenario and that the range of other possible outcomes had widened. More information would need to be gathered in the run-up to the Governing Council’s June monetary policy meeting, when new Eurosystem staff projections would become available. Members put forward a number of views on how to interpret and assess the more protracted “soft patch” and the baseline scenario. The important role of exports and manufacturing in driving the current outlook was emphasised. Given that the euro area was running a persistent current account surplus, it was naturally more exposed to the slowdown in global trade than the rest of the world. As this shock was transmitted mainly through manufacturing, some euro area countries were more exposed than others. Attention was also drawn to the role of inventories and whether they were indicating an unanticipated lack of demand or deferred demand. Concern was again expressed that the return to more solid growth rates expected in the baseline scenario was currently based on the assumption that the shocks behind the “soft patch” would be temporary and that there would be no new negative shocks. However, it was also remarked that “soft patches” in economic growth had been observed on numerous occasions and that historical data implied a low probability of them turning into recessions. Reference was made to a number of positive indicators and supportive factors. The service sector had remained more resilient than manufacturing. Financial market developments, which were typically more forward looking, were more upbeat. Favourable financing conditions, and the positive real income developments implied by further employment gains and rising wages, continued to underpin the resilience of domestic demand and to support the underlying strength of the euro area economy. Members generally concurred with the view that the balance of risks surrounding the euro area growth outlook remained tilted to the downside on account of the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. Downside risks, from Brexit and the threat of protectionism in particular, had the potential to further affect confidence and negatively spill over to activity. In this context, it was recalled that, insofar as uncertainties related to the Chinese economy and Brexit had been two main factors in previously shifting the risk balance from neutral to negative, a recovery in China and the avoidance of a “no-deal” Brexit should by the same token imply an improvement in the risk balance. Members took note of the outlook for fiscal policy, with the mildly expansionary euro area fiscal stance and the operation of automatic stabilisers providing support to economic activity. With regard to the role of other policy areas, it was underlined that structural reforms were important for ensuring that the economy could reap the full benefits of the ECB’s monetary policy measures. It was seen as essential for other policy areas to contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. With regard to price developments, there was broad agreement with the assessment presented by Mr Praet in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.4% in March, after 1.5% in February 2019, reflecting declines in food, services and non-energy industrial goods price inflation. On the basis of current futures prices for oil, headline inflation was likely to decline over the coming months. Measures of underlying inflation remained generally muted, but labour cost pressures had strengthened and broadened amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation was expected to increase over the medium term, supported by the ECB’s monetary policy measures, the ongoing economic expansion and rising wage growth. Members acknowledged the negative surprise in the March outcome for HICP inflation excluding energy and food. A need for caution was expressed, though, as the interpretation of this surprise was complicated by the impact of recent methodological changes in the compilation of the HICP and calendar effects related to the timing of Easter. Members underlined that the transmission of wage inflation to consumer price inflation remained a key issue for the medium-term inflation outlook. Although, according to the latest data, growth in compensation per employee in the euro area continued to stand above its long-term average, it was observed that the lack of pass-through of wages to underlying inflation so far implied that firms and retailers were compressing their profit margins rather than raising prices. All in all, however, it was generally considered that the observed wage growth should also lead to higher inflation in due course. Members took note of the latest developments in longer-term inflation expectations. While longer-term survey-based inflation expectations in the ECB Survey of Professional Forecasters for the second quarter of 2019 had been unchanged at 1.8%, the market-based measure of the five-year forward inflation-linked swap rate five years ahead had declined further since the Governing Council’s March 2019 monetary policy meeting, to stand at 1.4%. Some concern was expressed that market-based inflation expectations had shifted downwards in parallel with actual inflation and across all maturities. At the same time, the deterioration was seen to mainly reflect a response to the weaker economic outlook rather than an unanchoring of inflation expectations. With regard to the monetary analysis, members widely shared the assessment provided by Mr Praet in his introduction. The annual growth rate of broad money M3 had rebounded somewhat in February. The narrow monetary aggregate M1 had remained the main contributor to broad money growth. The gradually declining contribution to the growth momentum of M3 from the APP continued to be replaced by a rising contribution from credit to the private sector, which had remained robust. At the same time, a remark was made that the gradual recovery in the growth of MFI loans to the private sector, which had been observed since the beginning of 2014, showed signs of stalling in a number of countries. Credit provision to the private sector continued to be supported by very favourable borrowing costs for firms and households across euro area jurisdictions, which remained close to their historical lows. Reference was made to the bank lending survey for the first quarter of 2019, which pointed to demand for loans to enterprises remaining robust, while demand for housing loans continued to increase. Credit terms and conditions remained broadly unchanged, following a protracted easing period. At the same time, it was cautioned that the implications of very easy credit conditions and low lending rates for banks’ capacity to appropriately price credit risk through the cycle warranted close monitoring. In this regard, concerns were expressed that banks’ profitability and market valuations remained weak. Structural factors, such as cost efficiency, excess capacity and the need for consolidation, were seen to be primarily responsible for this. It was reiterated that further analysis was warranted on the effects of persistently low and negative interest rates on banks’ interest rate margins and profitability, as well as on the potential implications for bank intermediation and financial stability over time. In this context, the point was made that, in the responses to the bank lending survey, banks had indicated that the negative deposit facility rate was still contributing to increased lending volumes across all loan categories. Monetary policy stance and policy considerations With regard to the monetary policy stance, members broadly agreed with the assessment provided by Mr Praet in his introduction. The incoming information since the Governing Council’s March 2019 monetary policy meeting had confirmed that the slower growth momentum was extending into the current year and might delay convergence to the Governing Council’s medium-term inflation aim. At the same time, further, albeit slowing, employment gains and rising wages continued to underpin the resilience of the domestic economy and gradually rising inflation pressures. Still, an ample degree of monetary accommodation remained necessary to safeguard favourable financing conditions and support the economic expansion as well as a sustained adjustment in the path of inflation. Financial conditions had eased since the March monetary policy meeting. The risk-free yield curve had flattened in reaction to the decisions communicated at that meeting as well as to negative economic data surprises in the intervening period. Moreover, subsequent market developments had brought about a substantial additional easing of financial conditions. Policy rates were now expected to remain at current levels for almost a year longer than had been the case before the March meeting. Overall, there was broad agreement that the response by financial markets showed that the Governing Council’s reaction function was well understood. Against this background, all members agreed to maintain the current monetary policy stance and to reconfirm all elements of the Governing Council’s forward guidance. Significant monetary policy stimulus would be provided by the forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs. The present monetary policy stance was considered to be consistent with the Governing Council’s data-driven approach to monetary policy, oriented towards the medium term. The baseline outlook of the March 2019 ECB staff projections had remained broadly intact, notwithstanding evidence of greater uncertainty around the central projection, with risks remaining tilted to the downside. A wider information set would be available in June, including a fresh round of Eurosystem staff projections. While it was acknowledged that contingencies for the Governing Council to act again had not materialised, the point was made that inflation remained uncomfortably below the Governing Council’s inflation aim and market-based inflation expectations had receded, while the projected inflation convergence had been repeatedly delayed. Against this background, the Governing Council reiterated its determination to stand ready to adjust all of its monetary policy tools, as appropriate, to ensure that inflation continued to move towards its aim in a sustained manner. It was emphasised that inflation was ultimately a monetary phenomenon, while structural factors and other policy areas were responsible for determining growth potential and reaping the full benefits of the Governing Council’s monetary policy. There was broad agreement among members that details on the precise terms of the new series of TLTROs should be considered at one of the Governing Council’s forthcoming meetings. The pricing of the new TLTRO-III operations should be data-dependent and take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook. Some arguments were put forward in favour of pricing the new operations so that they would primarily serve as a backstop, providing insurance in times of elevated uncertainty. Other arguments supported the view that the TLTRO-III operations should also be seen as a potential tool for adjusting the monetary policy stance. Members supported the proposal made by Mr Praet in his introduction that, in addition to assessing the pricing of the new TLTRO-III operations, the Governing Council should also consider in its regular assessment whether the preservation of the favourable implications of negative interest rates for the economy called for the mitigation of their possible side effects, if any, on bank intermediation. Turning to communication, members widely agreed with the elements proposed by Mr Praet in his introduction. It was appropriate for the Governing Council to acknowledge that the incoming information confirmed that the slower growth momentum was extending into the current year. The baseline scenario of a rebound in growth in the second half of the year remained broadly intact, while the risks surrounding the euro area growth outlook remained tilted to the downside. An ample degree of monetary policy accommodation remained necessary to safeguard favourable financing conditions and support the economic expansion, and thus to ensure that inflation remained on a sustained path towards levels below, but close to, 2% over the medium term. In this regard, it was important to reiterate that significant monetary policy stimulus was being provided by the Governing Council’s forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the announced new series of TLTROs. It was also worth reiterating that, on account of the stock effects of the sizeable APP portfolio, the end of net asset purchases did not represent a tightening of the monetary policy stance. There was, furthermore, wide agreement among members that the Governing Council should reiterate that all monetary policy tools remained available and that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation continued to move towards its inflation aim in a sustained manner. Members also widely agreed to communicate that the details on the precise terms of the new TLTROs would be announced following one of the Governing Council’s forthcoming meetings. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40%, respectively. The Governing Council expected the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that were below, but close to, 2% over the medium term. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190410~c27197866f.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190410~3df2ed8a4c.en.html Meeting of the ECB’s Governing Council, 9-10 April 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Costa* Ms Georghadji Mr Hansson Mr Hernández de Cos Mr Knot Mr Lane Ms Lautenschläger Mr Makúch* Mr Mersch Mr Nowotny Mr Praet Mr Rehn Mr Reinesch Mr Rimšēvičs Mr Stournaras Mr Vasiliauskas Mr Vasle* Mr Vella Mr Villeroy de Galhau* Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in April 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Mr Gaiotti Ms Goulard Mr Kaasik Mr Kuodis Mr Mooslechner Mr Ódor Mr Pattipeilohy Mr Rutkaste Mr Schoder Mr Šiaudinis Mr Sinnott Mr Stavrou Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 11 July 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Vilnius on Wednesday and Thursday, 5-6 June 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the latest financial market developments. Since the Governing Council’s previous monetary policy meeting on 9-10 April 2019, US trade negotiations with both China and Mexico had progressively deteriorated, negatively impacting global equity markets and pushing equity risk premia higher. Bond yields had declined to multi-year lows. In foreign exchange markets, the euro and the US dollar had appreciated in nominal effective terms, reflecting mainly the weakness in emerging market currencies and, in particular, the Chinese renminbi. At the same time, the euro had continued its gradual depreciation against the US dollar, a trend observed since the start of 2018 that likely related to changes in the relative growth outlook. In bond markets, the yield on the ten-year German government bond had declined by more than 70 basis points since October 2018, to a record low level of -22 basis points. The ten-year US Treasury yield had fallen even more – by around 100 basis points over the same period. Tentative evidence suggested that the recent decline in global bond yields signalled a broader reappraisal of the global growth and monetary policy outlook by markets rather than a temporary flight to safety. First, yield spreads of higher-yielding euro area sovereign bonds – with the exception of Italian government bonds – had declined in recent weeks, unlike in periods of broad risk aversion, when these yield spreads would tend to rise against German bonds. The yields on ten-year Spanish and Portuguese sovereign bonds were trading at their lowest levels on record. Also, euro area five-year forward inflation-linked swap rates five years ahead had continued their trend decline of recent months and were currently only marginally higher than the record low of 1.25% observed in the aftermath of the 2016 Brexit referendum. In the United States, marked-based inflation expectations had also declined more recently. A third factor that suggested increasing concerns over the growth outlook related to recent developments in the spread between the ten-year Bund and the overnight index swap (OIS) rate. This had been a good proxy for scarcity in bond markets. Since the start of the year, with Bund yields falling steadily, OIS rates had fallen even more rapidly. In turn, this suggested that the recent fall in Bund yields by and large reflected a revision of the medium-term outlook for monetary policy, concerning both the level of the key policy rates and the uncertainty around them. The EONIA forward curve also showed that there had been a reassessment of the monetary policy outlook in the euro area. Since October 2018 the curve had flattened notably and, more recently, a significant shift had been observed since the Governing Council’s April 2019 monetary policy meeting. There had also been notable changes in the shape of the US Treasury yield curve. In recent weeks the curve had become inverted in the belly of the curve, consistent with expectations of a rate cut. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, global manufacturing and trade remained weak. The global composite output Purchasing Managers’ Index (PMI) had decreased in May, pointing to some deceleration in global activity in the second quarter of 2019. Reflecting the weakness in manufacturing, global trade had remained subdued in the first quarter of 2019. Annual consumer price inflation in the OECD area in April had increased to 2.5%, from 2.3% in March, driven by an increase in core and energy price inflation. Annual CPI inflation excluding food and energy had stood at 2.2% in April, up from 2.1% in March. Oil prices had declined by 11% since the Governing Council’s April monetary policy meeting and now hovered around USD 62.3 per barrel. Over the same horizon, food prices had declined by almost 4% and metal prices had decreased by 2.7%, while the euro was broadly unchanged against the US dollar but had appreciated somewhat in nominal effective terms. Turning to the euro area economy, real GDP growth had rebounded unexpectedly in the first quarter of 2019, with Eurostat’s second release putting the increase at 0.4% quarter on quarter. This rebound had been supported by some temporary factors, especially in the manufacturing sector. However, survey indicators pointed to weaker growth ahead. Turning to the components of domestic demand, real private consumption had posted strong quarter-on-quarter growth of 0.5%. This had in part been driven by a recovery in car purchases following the weakness in the fourth quarter of 2018 stemming from the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), as well as by some normalisation in France following weakness caused by the “yellow vest” protests. Real residential investment had grown strongly in the first quarter of 2019, at 1.5% quarter on quarter, supported by mild weather conditions. Machinery and equipment investment had increased by 1.2%, quarter on quarter, in the first quarter of 2019, remaining relatively resilient in the face of the recent growth slowdown. The prolonged persistence of uncertainties posed, however, a downside risk to the outlook for business investment. Regarding labour market developments, according to Eurostat’s flash estimate, euro area employment had increased by 0.3%, quarter on quarter, in the first quarter of 2019, a rate similar to those recorded in the previous two quarters. Moreover, the composite PMI on employment stood at 52.7 in May, pointing towards continued positive overall growth. The indicator had held up in services, but in manufacturing it had declined below the no-change threshold of 50 for the first time since August 2014. Extra and intra-euro area exports both showed initial signs of stabilisation. At the same time, leading indicators continued to signal weak trade developments ahead. These developments were also reflected in the June 2019 Eurosystem staff macroeconomic projections for the euro area, which projected annual real GDP growth at 1.2% in 2019 and 1.4% in the subsequent two years. While recent hard data for the first quarter of 2019 had turned out better than expected, the subsequent quarters had been revised down mainly on account of weaker global trade. Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation had decreased to 1.2% in May, from 1.7% in April, mainly due to lower energy and services price inflation. HICP inflation excluding energy and food had decreased to 0.8% in May, from 1.3% in April. Looking through the Easter-related volatility, measures of underlying inflation remained muted. At the same time, according to the latest information, wage pressures had continued to build up. Annual growth in negotiated wages in the euro area had been 2.2% in the first quarter of 2019, unchanged from the fourth quarter of 2018. In the June 2019 Eurosystem staff projections, annual HICP inflation was expected to increase from 1.3% in 2019 to 1.4% in 2020 and 1.6% in 2021. Compared with the March 2019 ECB staff projections, the outlook for HICP inflation had been revised up by 0.1 percentage points for 2019 and down by 0.1 percentage points for 2020, but remained unchanged for 2021. The inflation projections were in line with the forecasts of other institutions. Market-based inflation expectations had declined at all horizons since the Governing Council’s April monetary policy meeting. Despite these measures being close to historic lows, there had been no meaningful increase in deflation risk in comparison with the situation in 2015 or 2016. At the same time, survey-based measures of longer-term expected inflation had remained stable. The longer-term expectation in the latest (March) Survey of Professional Forecasters stood at 1.8%, 0.1 percentage points below the survey result recorded over the period from the fourth quarter of 2017 to the fourth quarter of 2018. Moreover, other surveys of long-term inflation expectations, namely by Consensus Economics and the Euro Zone Barometer, remained broadly in line with the ECB’s inflation aim. Euro area financial conditions had tightened marginally, but had remained looser relative to the start of the year. Since the Governing Council’s April monetary policy meeting, the slight tightening in euro area financial conditions could mainly be ascribed to heightened trade tensions, which had caused the euro to appreciate in nominal effective terms and equity prices to decline. The decline in equity markets had occurred despite an improvement in corporate earnings expectations. Meanwhile, the expected timing of an ECB policy rate “lift-off” had shifted out substantially, with some market-perceived chance of rate cuts. Turning to money and credit developments, the annual growth rate of broad money (M3) had picked up in April, to 4.7% in year-on-year terms, thereby remaining rather resilient to the declining mechanical contribution of APP purchases. From a counterpart perspective, while private credit continued to be the main source of money creation, since July 2018 the decline in the contribution of the APP had been replaced by external monetary inflows and, to a lesser extent, by bank credit to general government. At the euro area level, the composite lending rates for non-financial corporations and for households for house purchase stood at 1.62% and 1.75% respectively, falling to new historical lows. Deposit rates remained stable at very low levels. As regards fiscal policy, after 0.5% in 2018, the euro area general government deficit ratio was projected to increase this year to 0.9% of GDP and to remain constant thereafter, despite falling interest payments. This reflected a mildly expansionary fiscal stance. Monetary policy considerations and policy options Summing up, Mr Lane remarked that, while the most recent hard data for first quarter economic activity were better than expected, in part due to temporary factors, weak global trade and the prolonged presence of uncertainties continued to be a drag on euro area growth developments. This was reflected in another downward revision of the growth outlook in the June 2019 Eurosystem staff projections. Bank lending conditions for firms and households remained very favourable, even if overall financial conditions had tightened marginally since the Governing Council’s April monetary policy meeting, largely on account of the re-escalation of trade tensions. The balance of risks remained tilted to the downside, despite the downward revision to the growth projections, largely on account of persistent sources of uncertainty relating to the international environment. These uncertainties could weaken or delay the recovery in external demand beyond what was already reflected in the June projections and further weigh on investment and consumption. Trade tensions had re-escalated, uncertainty about Brexit was extended in time and fragilities in emerging market economies remained, despite signs of stabilisation in some of them. HICP inflation had decreased in May, mainly on account of temporary factors. Measures of underlying inflation had continued to move sideways, even if labour cost pressures had continued to strengthen and broaden as labour markets had tightened further. The June 2019 Eurosystem staff projections broadly confirmed the March outlook for inflation, which would reach only 1.6% in 2021, some distance below the Governing Council’s inflation aim. Market-based measures of inflation expectations had further declined. Mr Lane therefore saw the need to update the monetary policy stance to provide the monetary accommodation necessary for inflation to remain on a sustained path towards levels that were below, but close to, 2% over the medium term. Accordingly, he proposed the following adjustments: first, to extend the calendar element of the ECB’s forward guidance on the path of interest rates to “at least through the first half of 2020”; second, to confirm the forward guidance on reinvestment; and third, based on the assessment of the bank-based transmission channel of monetary policy and the developments in the economic outlook, to set the interest rate of the upcoming series of targeted longer-term refinancing operations (TLTRO III) equal to the average rate on the main refinancing operations (MRO) plus 10 basis points over the life of the respective operation, and as low as the average deposit facility rate plus 10 basis points for those banks whose eligible net lending exceeded a benchmark. This struck a reasonable balance between acknowledging the sound developments in bank lending and the importance of preserving the accommodative stance. These measures were appropriate in the current economic environment and would provide the necessary monetary accommodation for inflation to move towards levels that were below, but close to, 2% over the medium term. Looking ahead, the Governing Council needed to be determined to act in case of adverse contingencies. It should stand ready to ease the monetary policy stance further by adjusting all of its instruments, as appropriate, to achieve the ECB’s price stability objective. Possible measures could include extending forward guidance further, restarting net asset purchases and decreasing policy rates. In addition, following on from what had been communicated in April 2019, the Governing Council could indicate that, at the current point in time, the positive contribution of negative interest rates to the accommodative monetary policy stance and to the sustained convergence of inflation was not undermined by possible side effects on bank-based intermediation. However, the Governing Council should continue to monitor carefully the bank-based transmission channel of monetary policy and the case for mitigating measures. Complementing Mr Lane’s remarks, Mr Cœuré pointed out that, in its communication of 7 March 2019, the ECB had specified that further details on the precise terms of TLTRO III would be communicated in due course. The Executive Board was now putting forward proposals on the remaining details of the TLTRO III programme, taking into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook, but also considering the experience gained with TLTRO I and TLTRO II. A technical press release, to be published after the Governing Council meeting, would set out details regarding TLTRO III pricing, the definition of the lending benchmark and the performance target, the definition of TLTRO III groups, the borrowing allowance and reference periods, as well as the concentration limits to be applied to every TLTRO III operation. The Eurosystem would provide further communication to counterparties in due course. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook for economic activity in the euro area provided by Mr Lane in his introduction. Despite the somewhat better than expected data for the first quarter of 2019, the most recent information indicated that global headwinds continued to weigh on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, was leaving its mark on economic sentiment. At the same time, further employment gains and increasing wages continued to underpin the resilience of the euro area economy and gradually rising inflation. This assessment was broadly reflected in the June 2019 Eurosystem staff projections, which foresaw annual real GDP increasing by 1.2% in 2019, 1.4% in 2020 and 1.4% in 2021. Compared with the March 2019 ECB staff projections, the outlook for real GDP growth had been revised up for 2019 and down for 2020 and 2021. Considering the outlook and risks for the external environment, members highlighted the ongoing weakness in global trade, and concern was expressed about more pervasive and prolonged uncertainties in the external environment and their adverse impact on the global growth outlook for some time to come. Persistent uncertainty and trade tensions were negatively affecting international production and supply chains, with likely repercussions on investment plans. Risks to the external environment were generally seen to be increasing or to have already increased, notably related to the deteriorating trade relationship between the United States and China, and to the continuing uncertainty regarding the United Kingdom’s withdrawal from the EU. It was underlined that markets appeared to see heightened trade conflicts as a proxy for a more fundamental shift in the multilateral world order. Against this background, the risks to the external environment were assessed to remain on the downside on account of the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. Turning to euro area activity, members noted that recent data had been mixed, with real GDP having risen by 0.4%, quarter on quarter, in the first quarter of 2019, following an increase of 0.2% in the fourth quarter of 2018. However, further economic data and survey information pointed to somewhat weaker growth in the second and third quarters. This reflected ongoing weakness in international trade in an environment of prolonged global uncertainty, which was weighing in particular on the euro area manufacturing sector. At the same time, the euro area services and construction sectors were showing resilience and the labour market was continuing to improve. In this context, it was argued that, in recent economic indicators, a gap had opened between hard data, notably on employment and wages, which remained supportive of domestic demand, and some of the confidence indicators and market perceptions, which seemed to be more negative. Attention was drawn to an apparent dichotomy between economic projections and prevailing market perceptions of the outlook, as reflected in market prices, both globally and for the euro area. A view was expressed that markets might be prone to overreaction and overshooting, while economic projections tended to be somewhat sluggish in revising the outlook and subject to mean reversion. The point was made that financial markets tended to give greater weight to tail risks than the baseline. Discussing the June 2019 Eurosystem staff macroeconomic projections in greater detail, members underlined that the baseline remained broadly consistent with the March 2019 ECB staff projections and that changes were not very substantial, especially with regard to inflation, compared with the downward revisions that had been observed in the March exercise. It was highlighted that domestic demand had so far been rather resilient, underpinned by strong employment and wage growth, favourable lending conditions and support from a very accommodative monetary policy stance and a mildly expansionary fiscal stance. Emphasis was placed on the staff projections for employment, which had been continuously revised up. It was also noted that the risk of recession was low. Attention was also drawn to the dispersion of growth rates across countries, which pointed to the observed “soft patch” in activity being mainly due to two of the larger euro area economies, which had sizeable export-oriented manufacturing sectors, while activity elsewhere appeared to be more robust. However, it was also cautioned that the manufacturing slowdown observed in these two economies might yet spread further, in view of integrated intra-European value chains. The balance of risks surrounding the euro area growth outlook was assessed by members to remain tilted to the downside on account of the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. With respect to the outlook for fiscal policy, members noted that the mildly expansionary euro area fiscal stance was providing support to economic activity. It was recalled that, in order to reap the full benefits from the ECB’s monetary policy measures, other policy areas had to contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.2% in May 2019, after 1.7% in April, mainly reflecting lower energy and services price inflation. On the basis of current futures prices for oil, headline inflation was likely to decline over the coming months before rising again towards the end of the year. Looking through the recent volatility owing to temporary factors, measures of underlying inflation remained generally muted, but labour cost pressures continued to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation was expected to increase over the medium term, supported by the ECB’s monetary policy measures, the ongoing economic expansion and rising wage growth. This assessment was also broadly reflected in the June 2019 Eurosystem staff projections, which foresaw annual HICP inflation at 1.3% in 2019, 1.4% in 2020 and 1.6% in 2021. Compared with the March 2019 ECB staff projections, the outlook for HICP inflation had been revised up by 0.1 percentage points for 2019 and revised down by 0.1 percentage points for 2020. Confidence in the upward movement in the path of inflation was expressed, and it was underlined that the recent pronounced volatility in inflation data should be temporary and had, in significant measure, been due to the timing of public holidays and to methodological changes regarding seasonal adjustment in the euro area’s largest economy. Reference was made to the downward shift in the option-implied distribution of inflation expectations. The five-year forward inflation-linked swap rate five years ahead had fallen back to levels near the previous lows recorded in September 2016. At the same time, it was recalled that while technical factors might affect the information content of market-based measures of inflation expectations and while no such strong deterioration could be detected in other measures, notably surveys, there should be no room for complacency. With unit labour costs expected to decelerate somewhat over the projection horizon, as productivity gains outpaced wage growth, increasing profit margins were seen as the main factor behind rising inflation in the projections. However, it was argued that stronger profit margins might not materialise in an environment of decelerating domestic demand and in the presence of substantial cash buffers held by companies, which could be used to accommodate shocks in uncertain conditions. Hence the pass-through from wages to prices might not be observed for some time. However, it was also underlined that, while the limited pass-through from wages to prices remained a puzzle and there were uncertainties and lags in the relationship, the fundamental economic forces remained in place for inflation to pick up over time. With regard to the monetary analysis, members widely shared the assessment provided by Mr Lane in his introduction. The sustained rates of broad money growth were seen to reflect ongoing bank credit creation for the private sector and low opportunity costs of holding M3. The narrow monetary aggregate M1 continued to be the main contributor to broad money growth on the components side. On the counterparts side, lending to the non-financial private sector had remained robust overall and continued to be supported by very favourable borrowing costs for firms and households across the euro area, which remained close to their historical lows. Members also broadly shared the assessment that, at current levels, the ECB’s negative interest rate policy continued to support loan growth and, ultimately, economic growth and inflation. The immediate costs of the negative interest rate policy arising from banks paying a negative rate on their excess reserves and deposit facility holdings were considered to be overall limited in size. So far, these costs were outweighed by the overall benefits from the generation of larger lending volumes and the reduction of risks and loan loss provisions due to the more favourable macroeconomic developments fostered by negative interest rates. The point was made that such findings warranted further analysis and that this assessment might not hold for lower policy rates or for horizons longer than those currently envisaged in the Governing Council’s forward guidance. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. Overall, financial conditions had tightened marginally since the Governing Council’s April monetary policy meeting, largely on account of the renewed escalation of trade tensions. At the same time, bank lending conditions for firms and households remained very favourable. While further employment gains and rising wages still underpinned the resilience of the domestic economy and gradually rising inflation pressures, an ample degree of monetary accommodation remained necessary to support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term. There was also broad agreement with the assessment that an update of the monetary policy stance was called for in the light of the prolongation of uncertainties and their implications for the inflation outlook. Confidence in the baseline projection and a sustained adjustment in the path of inflation continued to be warranted, but inflation was still projected to reach only 1.6% in 2021, which was seen to remain some distance away from the Governing Council’s inflation aim. It was hence considered important for the Governing Council to demonstrate its determination to act, in line with its reaction function, by adjusting its monetary policy stance at the current meeting, and to further prepare for adverse contingencies in the period ahead. Against this background, members expressed broad agreement with the overall package of monetary policy proposals put forward by Mr Lane in his introduction: first, to adjust the calendar-based component of the Governing Council’s forward guidance on the key ECB interest rates to indicate that the Governing Council now expected rates to remain at their present levels “at least through the first half of 2020”; second, to reiterate the Governing Council’s forward guidance on reinvestment; and, third, based on the assessment of the bank-based transmission channel of monetary policy and the developments in the economic outlook, to set the interest rate on the forthcoming TLTRO III operations equal to the average MRO rate plus 10 basis points over the life of the respective operation, and as low as the average deposit facility rate plus 10 basis points for those banks whose eligible net lending exceeded a benchmark. At the same time, some nuances were expressed about individual elements of the policy package. Responding to the further weakening of the economic outlook and the muted inflation developments, in the context of prolonged uncertainties, the extension of the calendar element of the forward guidance on interest rates was widely seen as appropriate. The point was made that, if the calendar-based component was progressively aligned with market expectations in response to changes in the macroeconomic environment, the independent value of the calendar element could be seen to be diminished. The forward guidance on the interest rate path nonetheless remained the principal instrument for adjusting the monetary policy stance and had proved effective. Moreover, the extension of the calendar-based component by six months was seen to be in line with a gradual approach to adjusting policy, which would allow monitoring in the period ahead to see whether the observed prolonged “soft patch” proved to be persistent. In addition, it was underlined that the state-contingent element embodied a powerful automatic stabiliser, as indicated by the very substantial downward shift in the entire interest rate swap curve since the beginning of the year. With regard to the pricing of the TLTRO III operations, members widely supported the proposal made by Mr Lane and agreed with his assessment that this struck a reasonable balance between acknowledging the solid developments in bank lending and the importance of preserving the ECB’s accommodative monetary policy stance. The pricing of a minimum rate at the deposit facility rate plus 10 basis points was widely seen as very favourable and maximising the policy effectiveness of the forthcoming operations. Some arguments were made in favour of a pricing more in line with that of TLTRO II. This was seen as making the contribution of TLTRO III to the monetary policy stance even stronger. At the same time, it was acknowledged that bank lending was, overall, much stronger now than had been the case when TLTRO II was announced. In the context of their regular assessment, members also broadly shared Mr Lane’s assessment in his introduction that, at the current point in time, the positive contribution of negative interest rates to the accommodative monetary policy stance and to the sustained convergence of inflation was not undermined by possible side effects on bank-based intermediation. At the same time, there was also broad agreement that the Governing Council should continue to monitor carefully the bank-based transmission channel and the case for mitigating measures. In this context, it was underlined that the possible side effects of a low interest rate environment would also need to be addressed by adequate macroprudential policies. A call was therefore made to strengthen the effectiveness of macroprudential frameworks and prudential tools to address possible financial stability risks arising from rates remaining at very low levels over a prolonged horizon. Against this background, the President ascertained that all members agreed with the overall package of monetary policy proposals put forward by Mr Lane in his introduction, which was seen as appropriate in the current economic environment to provide the monetary accommodation necessary for inflation to remain on a sustained path towards levels below, but close to, 2% over the medium term. At the same time, there was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instruments, as appropriate, to achieve its price stability objective. Potential measures to be considered included the possibility of further extending and strengthening the Governing Council’s forward guidance, resuming net asset purchases and decreasing policy rates. In this context, it was also noted that, should the environment of too low inflation continue to prevail, considerations of a more strategic nature might be warranted in order to reinforce the credibility of the ECB’s monetary policy and support the achievement of a sustained adjustment in inflation to its inflation aim. The point was made that the Governing Council’s communication should put more emphasis on the symmetry of its medium-term aim by clarifying that deviations of inflation from the Governing Council’s inflation aim would be tolerated in a symmetrical fashion, in both directions, as long as this supported the achievement of the Governing Council’s inflation aim in a sustained manner over the medium term. At the same time, the point was made that care needed to be taken to ensure that any considerations of a strategic nature could not be seen as moving the goalposts at a time when it proved challenging to achieve the Governing Council’s inflation aim. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.40%, respectively. The Governing Council expected the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels below, but close to, 2% over the medium term. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Regarding the modalities of the new series of quarterly TLTROs, the Governing Council decided that the interest rate in each operation would be set at a level that is 10 basis points above the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending were to exceed a benchmark, the rate applied in TLTRO III would be lower and could be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points. Further modalities would be set out in a technical press release to be published at the end of the press conference. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190606~32b6221806.en.html Press releases https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190606~1876cad9a5.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190606~d1b6e3247d.en.html Meeting of the ECB’s Governing Council, 5-6 June 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Mr Hansson Mr Hernández de Cos Mr Herodotou Mr Kažimír* Mr Knot* Mr Lane Ms Lautenschläger Mr Mersch Mr Nowotny Mr Rehn* Mr Reinesch Mr Rimšēvičs Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch* * Members not holding a voting right in June 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Mr Cassidy Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Kuodis Ms Mauderer Mr Müller Mr Ódor Mr Pattipeilohy Ms Ritzberger-Grünwald Mr Rutkaste Mr Schoder Mr Kyriacou Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Mr Stracca, Deputy Director General International and European Relations Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 22 August 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 24-25 July 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 5-6 June 2019. Sovereign bond yields had temporarily fallen to multi-year lows in the United States, the United Kingdom and Japan, and to new record lows in large parts of the euro area. Econometric evidence suggested that expectations of further global monetary policy easing had been the main driver behind the fall in euro area ten-year overnight index swap (OIS) rates since the start of 2019. Developments in the EONIA forward curve indicated that a 10 basis point cut in the ECB deposit facility rate was currently priced in for September 2019, and, at its trough, the curve had priced in a cumulative cut of almost 30 basis points by the end of 2020. There had also been a considerable downward shift in survey-based measures of interest rate expectations in the euro area. Furthermore, uncertainty around the near-term policy outlook had increased over the past few weeks, as evidenced by a wider dispersion of forward money market rates and a stronger bias towards more negative rates. Euro area ten-year sovereign spreads vis-à-vis the German Bund had narrowed further in lower-rated jurisdictions since the Governing Council’s previous monetary policy meeting and had hit multi-year lows in all countries, except Italy. Spreads in Spain, Portugal and Greece had narrowed to nearly half the levels observed at the start of 2019. Credit spreads of European financial and non-financial corporations (NFCs) had also fallen over recent weeks. These developments had essentially reversed the widening of spreads seen in May. Covered bond spreads, meanwhile, had remained more stable. Turning to the market for euro area inflation-linked financial instruments, a decomposition of long-term inflation expectations suggested that the bulk of the observed decline reflected a lower inflation risk premium rather than a change in expected inflation. However, the picture was different when looking at shorter-term inflation expectations, where most of the decline since the autumn of last year reflected a fall in “genuine” inflation expectations. With regard to equity markets, the Euro Stoxx 50 and the S&P 500 had risen by around 17% and 20% respectively since the start of 2019. According to a decomposition using the ECB’s dividend-discount model, the prospects of further monetary policy easing and lower earnings expectations had been the main factors affecting stock prices in the euro area and the United States since the start of the year. In both markets, the fall in discount rates had largely offset the deterioration in the earnings outlook. The role of the equity risk premium had differed across the two markets, however. In the euro area, the risk premium had had a broadly neutral effect on stock markets over the course of the year. In the United States, by contrast, the risk premium had fallen considerably and persistently, thereby supporting stock markets over and above the fall in yields, despite a more marked downward revision to earnings prospects. Finally, as regards exchange rate developments, the longer-term depreciation trend of the euro against the US dollar had attenuated in early June 2019, although volatility remained high. A decomposition of the main drivers of the EUR/USD exchange rate showed that since the start of 2019 relative monetary policy expectations had tended to put upward pressure on the euro, consistent with the extent of repricing in the euro area and US money markets that had been observed over this period. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, survey data had indicated a slowdown in global activity in the second quarter of 2019, particularly in manufacturing. Global trade had remained subdued on the back of a weakening of both global investment and durable goods consumption growth, as well as ongoing trade tensions. Oil prices had been volatile amid geopolitical tensions and had increased by 2.4% since the June monetary policy meeting, with Brent crude oil standing at around USD 63.8 per barrel. Over the same period the euro exchange rate had depreciated slightly, both in bilateral terms against the US dollar and in nominal effective terms. Turning to the euro area, according to Eurostat’s third release, real GDP growth in the first quarter of 2019 was confirmed at 0.4%. Incoming information since the June Governing Council meeting had remained broadly in line with the June 2019 Eurosystem staff macroeconomic projections. This pointed to subdued growth in the second and third quarters of the year and indicated that risks to the outlook remained tilted to the downside. Business surveys since mid-June suggested an ongoing slowdown in output growth, with the gap between weak manufacturing and generally stronger services activity widening somewhat further. Regarding the components of domestic demand, real private consumption had posted strong growth in the first quarter of 2019, increasing by 0.5% in quarter-on-quarter terms, from 0.3% in the fourth quarter of 2018. Looking ahead, continued growth in private consumption was consistent with households’ view of their financial situation and their expectations for the next 12 months, which had remained robust. In part, this improvement had also reflected fiscal measures, which had boosted disposable income in 2019. In addition, private consumption had continued to be supported by rising labour income. Short-term indicators had so far confirmed a continuation of somewhat weaker business investment. Thus far, this had been broadly in line with the predictions based on an accelerator model. Labour markets had improved further, continuing the reduction in unemployment and creation of employment that had been under way in recent years. The unemployment rate had declined to 7.5% in May – 0.1 percentage points lower than in the previous month. At the same time, the Purchasing Managers’ Index (PMI) on employment had declined to 52 in July, after being broadly stable in the first half of 2019. At current levels, the PMI on employment pointed to positive, albeit slowing, employment growth in the third quarter. The trade outlook had remained surrounded by uncertainty and there was no clear sign of stabilisation. In terms of types of good, car export volumes had remained significantly below those recorded last year, reflecting lower global demand for passenger cars. After a modest recovery around the turn of the year, the contribution of capital goods exports had continued to be subdued. Turning to price developments, current and projected inflation had remained muted. In June euro area annual HICP inflation had increased to 1.3%, from 1.2% in May, as a decline in energy price inflation had been more than offset by higher HICP inflation excluding food and energy, which had rebounded to 1.1% in June, from 0.8% in May. Looking through calendar effects related to the late timing of Easter this year, measures of underlying inflation had continued to move sideways. The incoming data had been broadly in line with the June projections, although a mechanical update of the short-term HICP outlook suggested a somewhat lower path. Growth in compensation per employee was 2.3% in the first quarter of 2019, up from 2.2% in the fourth quarter of 2018 and slightly above the long-term average of 2.1%. Unit labour costs had shown a notable upward trajectory since the beginning of 2018, but had stabilised more recently. The higher wage and labour cost growth in recent quarters was only partially reflected in developments in the GDP deflator, as the contribution of unit profits had been dampened. Survey-based measures of longer-term inflation expectations in the euro area had declined. The longer-term expectation reported in the July round of the Survey of Professional Forecasters stood at 1.7%, which was 0.2 percentage points below the survey result recorded over the period from the fourth quarter of 2017 to the fourth quarter of 2018. Since the June Governing Council meeting market-based measures of inflation expectations had been broadly unchanged amid some notable intra-period volatility. Euro area financial conditions had eased further, continuing the trend seen since the start of the year. Since the Governing Council’s June meeting the EONIA forward curve had shifted down further and now exhibited an even more pronounced inversion at the short end. At the longer end of the term structure, euro area risk free rates had declined since the June meeting. Most of the decline in recent months had been due to a decline in term premia. However, the expectations component had also been declining since the autumn of 2018. Euro area equity prices had continued to increase on the back of lower discount rates, as well as lower equity risk premia. Turning to money and credit developments, the annual growth rate of broad money (M3) had continued to be rather resilient despite the declining contribution of purchases under the asset purchase programme. Credit to the private sector had remained the main source of broad money creation. However, its effect on M3 dynamics had been almost matched by the contribution of external monetary inflows in May. The strong increase in the contribution of these inflows to annual M3 growth since October 2018 had coincided with increased interest among foreign investors in euro area assets. However, external monetary flows had tended to be volatile. Euro area banks had experienced a broad-based improvement in their funding costs from a local peak in January 2019. The low bank funding costs were being transmitted to borrowing costs for NFCs. In May the composite bank lending rates for NFCs had reached new historical lows. At the same time, in the July 2019 bank lending survey, euro area banks had reported a net tightening of credit standards on loans to NFCs in the second quarter of 2019. As regards fiscal policy, the euro area fiscal stance, as measured by the change in the cyclically adjusted primary balance, was expected to be mildly expansionary in 2019-20. Monetary policy considerations and policy options Summing up, Mr Lane remarked that financial conditions had eased since the June Governing Council meeting, largely on account of market expectations of further monetary policy easing. Bank lending conditions for firms and households remained very favourable. Incoming data still pointed to somewhat weaker growth in the second and third quarters of this year, in line with the June 2019 Eurosystem staff projections. Softening global growth and weak international trade dynamics were weighing on the euro area outlook, while the prolonged presence of uncertainties continued to dampen business sentiment, especially in the manufacturing sector. At the same time, the services sector had been robust and favourable labour market dynamics were supporting consumption. The balance of risks remained tilted to the downside, reflecting the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets. HICP inflation had increased in June, while measures of underlying inflation had continued to move sideways. Market-based measures of longer-term inflation expectations had stagnated at the historic lows reached after the June meeting, while surveys signalled a marked fall in longer-term expectations. Wage growth had been robust and was expected to support inflation in the future, although the softening in inflation expectations could slow the pass-through of cost pressures to inflation. Based on this assessment, Mr Lane proposed that at the current meeting the Governing Council underline the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, had been persistently below levels that were in line with its aim. In this regard, the Governing Council needed to underscore its preparedness to act at its forthcoming meetings should the inflation outlook fail to improve, in line with its commitment to a symmetric inflation aim. Accordingly, Mr Lane proposed the following decisions: first, to adjust the forward guidance on the key ECB interest rates by reintroducing an easing bias; and, second, to task the relevant Eurosystem Committees with initiating preparatory work on policy options, including ways to strengthen the forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and the modalities of potential new net asset purchases. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook for economic activity in the euro area provided by Mr Lane in his introduction. Incoming information indicated that softening global growth dynamics and weak international trade were still weighing on the euro area outlook. Moreover, the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets, was dampening economic sentiment. At the same time, employment gains and increasing wages continued to underpin the resilience of the euro area economy. The impact of these global and domestic factors was visible in the differing developments in the euro area manufacturing sector and in the services and construction sectors. In considering the outlook and risks for the external environment, members referred to ongoing uncertainties related to trade tensions, the United Kingdom’s withdrawal from the EU and the rotation in the Chinese growth model from manufacturing investment towards consumption and services. In this context, it was underlined that the main causes of the slowdown in euro area activity lay outside the euro area. The prospects for global trade were assessed to remain poor, despite some recent signs of stabilisation. It was noted that the pervasive geopolitical and trade tensions had not led to more upward pressure on oil prices and on prices more generally, which could be seen as confirmation that currently the dominant factor in international markets was related to weak global demand. The risks to the external environment were assessed to remain on the downside. However, the back and forth in the intensity of some of the drivers of uncertainty also implied some volatility in these downside risks. Turning to euro area activity, members generally concurred that incoming information had remained broadly consistent with the June staff projections, with recent data mostly being on the soft side, confirming expectations that real GDP growth in the second and third quarters of 2019 would be weaker than the 0.4% quarter-on-quarter growth recorded in the first quarter. The latest PMI data were cited as an example of disappointing news. There was now an increased likelihood that the economic slowdown or “soft patch” that had emerged last year would be more protracted than had previously been anticipated. Moreover, in contrast to the pattern reported in the June Eurosystem staff projections, available “soft” indicators at present pointed to slower growth in the third quarter of 2019, raising more general doubts regarding the expected recovery in the second half of the year. While the absence thus far of signs of the expected recovery in the second half of the year was worrying, reference was made to unchanged positive fundamentals, such as those related to favourable financing conditions or to the income growth associated with further employment gains and rising wages. There was broad agreement that it was sensible to collect more information and await the September ECB staff projections for a thorough review of the outlook. In discussing the economic situation and outlook, members widely stressed the dichotomy between weak activity in the manufacturing sector and generally resilient activity in the services and construction sectors. This was broadly mirrored by a dichotomy between weaker export growth and more resilient consumption and residential investment growth. On the one hand, these dichotomies were considered natural given the exposure of the manufacturing sector to the weakening in global trade and the support for the more domestically oriented sectors, such as services and construction, from strong labour markets and real incomes. On the other hand, concern was expressed that such dichotomies could not last forever and that sooner or later there might be spillovers or contagion from the weakening in manufacturing. In this context, it was argued that manufacturing was typically a leading indicator of services. It was also pointed out that, while the weakness in the euro area manufacturing sector had thus far manifested itself mainly in a few larger euro area countries, interconnectedness via value chains implied a risk of wider propagation across the euro area. However, it was also remarked that there was a trend decline in the importance of manufacturing relative to services, suggesting that large spillovers were not inevitable. While the continued improvement in labour markets was acknowledged, reference was made to the latest worsening of PMI survey data for employment and the question was raised as to how long the job market would still be posting positive surprises. Members assessed the balance of risks surrounding the euro area growth outlook to remain tilted to the downside. It was also considered that these downside risks had become more pervasive and that their persistence could ultimately also necessitate a revision to the baseline growth scenario. With respect to the outlook for fiscal policy, members noted the support for economic activity coming from the mildly expansionary euro area fiscal stance. Reference was made to the increasing contribution of government consumption and investment in the context of the declining real GDP growth rates generally observed since last year. The contingency of a significant further deterioration in euro area economic activity would call for fiscal policy to assume a more prominent role in sustaining demand. In this respect, it was reiterated that governments should use fiscal space in countries where it was available and should continue to rebuild fiscal buffers in those where debt was high. Regarding price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Euro area annual HICP inflation had increased to 1.3% in June 2019, from 1.2% in May, as higher HICP inflation excluding food and energy had more than offset lower energy price inflation. On the basis of current futures prices for oil, headline inflation was likely to decline over the coming months, before rising again towards the end of the year. Looking through the recent volatility owing to temporary factors, measures of underlying inflation had continued to move sideways and remained generally muted. While labour cost pressures had strengthened and broadened further amid high levels of capacity utilisation and tightening labour markets, the pass-through of cost pressures to inflation was taking longer than previously anticipated. Over the medium term underlying inflation was expected to increase, supported by monetary policy measures, the ongoing economic expansion and stronger wage growth. When discussing the inflation outlook, it was underlined that although wage growth had remained solid and some measures were above their longer-term averages, both market-derived and survey-based measures of inflation expectations had declined. Furthermore, the lag in the pass-through of cost pressures to prices implied a compression of profit margins and raised the questions of how long this could last and what it meant for price adjustments. Regarding longer-term inflation expectations, members widely shared the view that the recent declines were a matter of concern, which warranted close monitoring. It was stressed that declines were no longer visible only in the market-based indicators but were now also apparent in survey-based indicators, which had fallen to historical lows. The point was made that it mattered how influential inflation expectations from financial markets and professional forecasters were in shaping those of other economic agents. Available information suggested that the expectations of financial market participants or professional forecasters differed from those of households and firms. It was also noted that the difference between the low levels of market-based measures and the higher levels of survey-based measures could be explained by a negative risk premium, but it was also argued that the negative risk premium might itself be of concern if it reflected hedging against outcomes of very low inflation or deflation and therefore provided no grounds for complacency. With regard to the monetary analysis, members widely shared the assessment provided by Mr Lane in his introduction. The annual growth rate of broad money (M3) had been 4.5% in June, down from 4.8% in May, reflecting a negative base effect. The sustained rates of broad money growth were supported by ongoing bank credit creation for the private sector and low opportunity costs of holding M3. The narrow monetary aggregate M1 continued to be the main contributor to broad money growth on the components side. Lending to the non-financial private sector was expanding at a robust pace, with unchanged annual growth rates of 3.8% for loans to NFCs and 3.3% for loans to households in June. Overall, loan growth continued to benefit from historically low bank lending rates. Members also agreed that the ECB’s monetary policy measures continued to support loan growth and, ultimately, real activity and inflation. The euro area bank lending survey for the second quarter of 2019 indicated that loan growth continued to be supported by increasing demand across all loan categories. At the same time, credit standards for loans to enterprises had tightened in the second quarter amid concerns about the economic outlook, while they had remained broadly unchanged for loans for house purchase. A remark was made that negative interest rates were increasing the pressure on the banking sector, particularly in countries where banks were not able to impose negative rates on deposits. Consequently, the longer-term effects of negative policy rates needed to be monitored carefully to ensure that they exerted their intended effect on bank lending. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. Overall, financial conditions had eased since the Governing Council’s June monetary policy meeting, largely on account of market expectations of further monetary policy easing. Bank lending conditions for firms and households remained very favourable. An ample degree of monetary accommodation remained necessary for financial conditions to support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term. Members shared the assessment that information available since the early June Governing Council meeting indicated that, while further employment gains and increasing wages continued to underpin the resilience of the economy, softening global growth dynamics and weak international trade were still weighing on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets, continued to dampen economic sentiment, notably in the manufacturing sector. It was noted that, while recent data were broadly in line with the baseline scenario and the forces underlying the baseline – such as solid wage growth and rising cost pressures – were still seen as intact, the uncertainty around the projected duration of the economic slowdown remained high, also affecting the medium-term inflation outlook. In this environment, inflationary pressures had remained muted and indicators of inflation expectations had declined. Despite the considerable divergence in the levels of different survey-based and market-based measures of medium-term inflation expectations and the observation that market-based measures may have been affected by special factors, broad agreement prevailed that the overall downward movement across indicators was a cause for concern from a monetary policy perspective. Against the background of inflation rates, both realised and projected, remaining persistently below levels that were in line with the Governing Council’s inflation aim, members widely agreed with the assessment that a highly accommodative stance of monetary policy was needed for a prolonged period of time. In this context, confirming the symmetry of the Governing Council’s medium-term inflation aim was seen as an important element to bolster the achievement of a sustained adjustment in inflation to its aim. A remark was made that so far the interaction between the inflation aim and the Governing Council’s definition of price stability as an inflation rate of below 2% introduced, de facto, an element of asymmetry. A view was put forward that a discussion of symmetry around the inflation aim could not be separated from a discussion about the level of this aim, while the point was made that any future change in the inflation aim should not be employed as an isolated policy measure but should be linked to a broader review of the ECB’s monetary policy strategy to ensure consistency of the strategy. At the same time, the point was made that a clarification of the symmetric nature of the Governing Council’s “reaction function” would not pre-empt a full review of the monetary policy strategy at a later point in time. Members expressed broad agreement with the monetary policy proposals made by Mr Lane in his introduction: first, to adjust the forward guidance on the key ECB interest rates by reintroducing an easing bias; and, second, to initiate preparatory work, including on ways to strengthen the Governing Council’s forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. It was seen as important for the Governing Council to demonstrate its determination and capacity to act and to be prepared to ease the policy stance further by adjusting all of its instruments, as appropriate, to achieve its inflation aim. Looking ahead, more information would be available at the Governing Council’s monetary policy meeting in September, when new projections, incorporating the effects of the measures taken at the Governing Council’s June meeting, would be presented. Members broadly supported the reintroduction of an easing bias to the Governing Council’s forward guidance on interest rates in the light of the weakness of the economic outlook and the muted inflation developments. The easing bias was considered appropriate for addressing the risk of an unwarranted tightening of monetary conditions related to the short end of the yield curve in view of the persistent uncertainty surrounding global developments. Members also broadly supported the proposal made by Mr Lane to task the relevant Eurosystem Committees with examining options for future policy measures. Some nuances were expressed about the design and the individual elements of a possible policy package, which was presented as a list of options. In particular, it was argued that the term premium on long-term euro area bonds had already been compressed for quite some time and that the risk of an unwarranted tightening of financial conditions was higher at the short end than at the long end of the yield curve. However, the view was expressed that the various options should be seen as a package, i.e. a combination of instruments with significant complementarities and synergies, since experience had shown that a policy package – such as the combination of rate cuts and asset purchases – was more effective than a sequence of selective actions. The point was made that the choice of instruments and the design of a possible package should reflect the relative effectiveness of different instruments in addressing future contingencies. Members saw value in examining ways to further strengthen the state-based component of the forward guidance on the path of policy rates, announcing preparatory work on the design of a tiered system or other options to mitigate the effects of negative interest rates on bank-based intermediation, and preparatory work on modalities for potential new net asset purchases. In this context, it was also argued that linking the state-contingent leg of the forward guidance to inflation would require attention being paid to consistency with the inflation aim. While members expressed broad agreement with initiating preparatory work on mitigating measures, some concerns were raised regarding possible unintended consequences of a tiered system and its ability to fully mitigate the potential effects of negative policy rates on bank intermediation. Against this background, communication needed to strike a careful balance between, on the one hand, giving unduly negative signals about the state of the economy and, on the other hand, effectively counteracting the concern among some observers that the Governing Council lacked the necessary instruments to secure the convergence of inflation to its inflation aim over the medium term. It was therefore seen as appropriate for the Governing Council to adjust its forward guidance on the key ECB interest rates, namely that it now expected them to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary, while restating its forward guidance on reinvestments. Moreover, the Governing Council should underline the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, had been persistently below levels that were in line with its aim. Accordingly, the Governing Council needed to convey its determination to act if the inflation outlook failed to improve, in line with its commitment to symmetry in the inflation aim. It therefore remained essential to underscore that the Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its inflation aim in a sustained manner. Furthermore, it should be announced that the relevant Eurosystem Committees were being tasked with examining options, including ways to reinforce the Governing Council’s forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. In addition, as heightened uncertainty was likely to extend further into the future, it remained essential to stress that a significant degree of monetary stimulus continued to be necessary to ensure that financial conditions remained very favourable and supported the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term. Finally, it was recalled that in the current situation monetary policy would be more effective if other policy areas contributed to raising the longer-term growth potential. With fiscal policy using available space and accelerated structural reforms, monetary policy would be less at risk of being overburdened and would be able to deploy available instruments more effectively. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided to keep the key ECB interest rates unchanged. The Governing Council expected the rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, had been persistently below levels that were in line with its aim. Accordingly, if the medium-term inflation outlook continued to fall short of its aim, the Governing Council was determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. In this context, the Governing Council was tasking the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190725~52d3766c9e.en.html Meeting of the ECB’s Governing Council, 24-25 July 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Mr Herodotou Mr Hernández de Cos Mr Kažimír Mr Knot Mr Lane Ms Lautenschläger Mr Mersch Mr Müller* Mr Nowotny Mr Rehn* Mr Reinesch Mr Rimšēvičs Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann* Mr Wunsch* * Members not holding a voting right in July 2019 under Article 10.2 of the Statute of the ESCB. Other attendees Mr Dombrovskis, Commission Vice-President** Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Antunes Mr Aucremanne Mr Bradeško Ms Buch Mr Cassidy Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kazāks Mr Kroes Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Pérez Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Klöckers, Director General International & European Relations Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 10 October 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 11-12 September 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 24-25 July 2019. Global financial markets had undergone a strong correction over the summer, which bore a close resemblance to the episode observed during the spring. The principal catalyst on both occasions was an intensification of global trade tensions. The yield on the ten-year German government bond had declined by around 35 basis points, compared with the day before the July meeting, to -71 basis points. The ten-year US Treasury yield had fallen by around 50 basis points. Mr Cœuré highlighted three key aspects to help interpret these developments. The first related to the response of real interest rates, which was different from the spring episode. The large decline in real rates in August could be interpreted as a sign that market participants were becoming increasingly concerned about the cumulative impact of the sequence of trade shocks on the global economy. The second point was whether there were signs of an effective lower bound gradually inducing non-linearity in the market reaction to shocks. Although the starting level of the ten-year German government bond yield prior to the August correction had been much lower than in the spring, and was already in deep negative territory, the order of magnitude of the decline had been similar in both episodes. There were no signs in this regard of downward rigidities in long-term rates that could relate to the effective lower bound. The EONIA forward curve had also continued to shift lower during August, pricing in a cumulative cut of almost 40 basis points in the rate on the ECB’s deposit facility by early 2021. However, lower money market trading volumes for longer tenors suggested that the conviction about cuts significantly deeper into negative territory was not broad-based and uncertainty over the future path of short-term policy rates remained elevated. The third aspect related to possible changes in portfolio rebalancing in response to the increase in the share of bonds that were trading at negative levels. A first development related to recent movements in the spread between the ten-year German Bund and the overnight index swap (OIS) rate, which until recently had been a reliable gauge of scarcity effects in the Bund cash market. However, since mid-July, there had been a notable reversal in the spread, despite growing scarcity in the cash market, to levels last seen towards the end of 2016. Market intelligence suggested that the reversal might primarily be related to hedging activities that were increasingly being conducted in the swap market rather than in the cash bond market. The second novelty in asset price responses was a flattening of the very long end of the yield curve, as evidenced by the narrower yield spread between 10-year and 30-year German government bonds. In August, for the first time, the entire German sovereign yield curve had moved into negative territory. The third novelty related to the marked and persistent rise in the price of gold, which coincided with the sharp increase in the share of bonds that were trading at negative levels. Moving to the equity markets, the impact of the renewed trade tensions in August had been visible particularly in emerging markets. In the euro area and in the United States, the impact had been much more muted, with the decline in bond yields partly offsetting the rise in the equity risk premium. As regards foreign exchange markets, the weakening of emerging market currencies contributed to a mild appreciation of the euro in nominal effective terms. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, survey data pointed to subdued activity in the third quarter. Services, although weakening, had continued to support growth, while manufacturing activity had decelerated further. Trade tensions had sparked a risk-off sentiment, especially in emerging market economies. In the United States, economic activity was slowing – most clearly evidenced in investment – but remained solid. In China, the slowdown in economic activity was accentuated by new tariffs, while in Japan the growth momentum was set to decelerate and inflation remained subdued. In the United Kingdom, the risk of a no-deal Brexit was increasing, while economic activity had stalled. Overall, risks to global activity and trade remained on the downside. Oil prices had dropped by 8% in August. As regards exchange rates, since the Governing Council’s July monetary policy meeting the euro had been essentially flat, depreciating by -1.2% in bilateral terms against the US dollar but appreciating by 0.7% in nominal effective terms. Turning to the euro area, information available since the July monetary policy meeting signalled a more protracted weakness in euro area growth dynamics, mainly driven by the external sector. Eurostat’s second release of 6 September put real GDP growth in the second quarter of 2019 at 0.2% in quarter-on-quarter terms. With regard to developments in the third quarter so far, while the Economic Sentiment Indicator and the Purchasing Managers’ Index had edged up in August, taking July and August together they had, on average, been lower than in the second quarter, suggesting a continuation of subdued growth. As regards sectoral developments, the exceptional divergence between manufacturing and services had persisted, reflecting the trade shock that the euro area currently faced, which predominantly affected the manufacturing sector. Domestic demand had, on the whole, remained resilient and continued to be underpinned by a solid labour market, household confidence, improving balance sheets and policy stimulus. Real private consumption had expanded by 0.2% in the second quarter of 2019, following an exceptionally strong increase of 0.4% in the first quarter. Households continued to signal optimism about their future financial situation. In line with this, retail trade had continued to grow at an overall robust pace. Regarding housing investment, growth was expected to remain supported both from a demand and a supply-side perspective. Business investment had been slowing since early 2018 and the latest indicators suggested a continuation of subdued business investment in the short term. As regards the labour market, employment had grown by 0.2% in quarter-on-quarter terms in the second quarter of 2019, down from 0.4% in the first quarter. Looking ahead, the PMI employment component pointed to a further moderation in employment growth. These developments were also reflected in the September 2019 ECB staff macroeconomic projections for the euro area, which projected real GDP growth at 1.1% in 2019, 1.2% in 2020 and 1.4% in 2021. Compared with the June 2019 Eurosystem staff projections, real GDP growth had been revised down by 0.1 percentage points for 2019 and by 0.2 percentage points for 2020, while it was unrevised for 2021. The revisions were mainly on account of weaker external demand, which was somewhat cushioned by the impact of lower energy prices and the easing of financial conditions. Over the medium term, the baseline assumed a gradual dissipation of global headwinds, allowing fundamental factors supporting the euro area expansion to regain traction. The outlook was supported by the ECB’s very accommodative monetary policy stance, improving labour markets and relatively robust wage growth and net worth, as well as by declining unemployment, rising profits, a loosening fiscal stance and a recovery in foreign demand. Nevertheless, GDP growth was expected to slow towards the end of the projection horizon, as declining capacity utilisation, a prolonged period of low business confidence and the expiration of tax incentives adversely affected investment. Moreover, labour supply constraints restricted employment growth. Projections from other institutions and the private sector were in line with the September 2019 ECB staff projections. Turning to euro area price developments, according to Eurostat’s flash estimate of 30 August, both annual headline HICP inflation and HICP inflation excluding food and energy had moved sideways in July, at 1.0% and 0.9% respectively. Measures of underlying inflation remained muted and indicators of inflation expectations were stagnating. Wage growth remained solid, increasing at rates around long-term averages. Compensation per employee had increased by 2.1% in annual terms in the second quarter of 2019, while compensation per hour had increased by 2.2%. Negotiated wage growth continued to stand above its 2018 level in the first half of 2019. Since the first quarter of 2018, unit labour cost growth had risen strongly. Between the first quarter of 2018 and the second quarter of 2019 it had more than doubled, increasing from 1.0% to 2.1%. This reflected the decline in labour productivity growth over the same period, in turn a reflection of the resilience of the labour market in the face of slowing GDP growth. Strengthening unit labour cost pressures had so far been largely absorbed by profit margins. In the September ECB staff projections, HICP inflation had been revised down over the whole projection horizon and was projected to reach 1.5% in 2021. The downward revision of inflation was due to lower energy prices, but also reflected the subdued nature of inflation dynamics. Since the Governing Council’s July monetary policy meeting, medium to longer-term euro area market-based measures of inflation expectations had largely stabilised at low levels. Despite the fall, recent developments constituted a moderation in a downward trend that had started in the autumn of 2018. In terms of euro area financial conditions, a further notable decline in euro area risk-free rates across maturities had taken place since the Governing Council’s July monetary policy meeting. The EONIA forward curve had inverted further at short horizons. In addition, both the euro area ten-year OIS rate and the ten-year US Treasury yield had fallen. Since the July meeting, euro area equity prices had also declined somewhat, mainly on account of risk premia, but their fall had been cushioned by lower discount rates. Taken together, the easing trend in financial conditions had come to a halt, while financing conditions for non-financial corporations (NFCs) had remained very favourable. Turning to money and credit developments, the annual growth rate of broad money (M3) had risen to 5.2% in July, after 4.5% in June and 4.8% in May, despite a fading annual contribution from the asset purchase programme (APP) and a slowdown in economic activity. This resilience continued to reflect portfolio considerations, driven by declines in the yields of non-monetary assets, which decreased the opportunity cost of holding M3 and led money holders to increase the share of M3 holdings in their financial portfolios. From a counterpart perspective, this was mirrored in further monetary inflows from outside the euro area, which reflected a recovery in foreign investor demand for euro area assets. Bank funding costs continued to be favourable, mainly driven by the decline in bank bond yields. The cost of borrowing from banks for firms and households had fallen to new record lows. The annual growth rate of loans to NFCs remained stable at 3.9% in July, only somewhat below its September 2018 peak of 4.3%. The annual growth rate of loans to households had continued its gradual increase, rising to 3.4% in July. As regards fiscal policy, the euro area fiscal stance – as measured by the change in the cyclically adjusted primary balance – was projected to be mildly expansionary over the period 2019-21. The negative impact of the stance on the headline budget balance over 2019-21 was largely offset by savings in interest payments. Monetary policy considerations and policy options Summing up, Mr Lane remarked that, since the Governing Council’s July monetary policy meeting, risk-free interest rates had declined notably, a partial reversal in the last week notwithstanding. At the same time, the easing potential from rates declining due to a deterioration in the macroeconomic outlook and to revised calculations of the equilibrium real interest rate might be limited. Equities had only declined moderately, as the lower discount rates had cushioned the impact of higher equity risk premia. Bank lending conditions for firms and households continued to be very favourable. The most recent data indicated a more extended slowdown in the euro area economy than previously expected. In particular, the weakness of international trade and prolonged global uncertainties continued to weigh, especially on the manufacturing sector. The September 2019 ECB staff projections had further marked down the real GDP growth outlook in 2019 and 2020, mainly owing to the weaker global environment. The balance of risks remained tilted to the downside, largely on account of the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. HICP inflation dynamics and developments in measures of underlying inflation remained muted, despite robust wage dynamics. The September projections entailed a downward revision of inflation over the projection horizon, with projected inflation reaching only 1.5% in 2021. This was, in part, related to lower energy prices, but also to the weaker growth environment. Both market and survey-based indicators of inflation expectations had stagnated at historical lows. Overall, the Governing Council was confronted with a protracted slowdown in the euro area economy, persistent downside risks and an inflation outlook that continued to fall short of its medium-term inflation aim. Taking a longer perspective, since December 2018 successive and significant downward revisions to the inflation outlook had been observed, bringing the 2021 inflation projection down from 1.8% to 1.5%. The further downgrade of the inflation outlook – despite the fact that the financial conditions embedded in the forecast already reflected substantial expectations for additional policy easing – meant that inflation was moving further away from levels that the Governing Council deemed consistent with its inflation aim and implied a further delay in inflation convergence. Against this background, a comprehensive policy response was warranted to support the return to a sustained convergence path towards the Governing Council’s medium-term inflation aim. Mr Lane therefore proposed taking the following decisions at the current meeting. First, to lower the deposit facility rate by 10 basis points to -0.50%. Second, to adjust the forward guidance by stipulating that the key ECB interest rates would now be expected to remain at their present or lower levels until projected inflation was seen to converge to and stabilise around a level sufficiently close to, but below, 2% within the projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Third, to restart net purchases under the APP at a monthly pace of €20 billion as from 1 November 2019. Moreover, net asset purchases should be expected to run for as long as necessary, to reinforce the accommodative impact of the ECB’s policy rates, and to end shortly before the Governing Council started raising interest rates. Fourth, to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when the Governing Council started raising key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Fifth, to change the modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III) to preserve favourable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy. The interest rate in each operation would be set at the level of the average rate for the Eurosystem’s main refinancing operations (MROs) over the life of the respective TLTRO. For banks whose eligible net lending exceeded a benchmark, the applied rate in TLTRO III operations would be lower, and could be as low as the average deposit facility rate prevailing over the life of the operation. Moreover, the maturity of the operations would be prolonged from two to three years. Sixth, in order to safeguard the bank-based transmission of monetary policy, to introduce a two-tier system for reserve remuneration in which part of banks’ holdings of excess liquidity would be exempt from the negative deposit facility rate. This set of measures would provide monetary support through a range of mechanisms. Lowering the deposit facility rate – together with the reinforced forward guidance – would operate throughout the yield curve, especially in the short to medium-term segments. The strengthened state-dependent forward guidance would provide a clear signpost for rate expectations by linking the Governing Council’s monetary policy to more stringent conditions for the inflation outlook. Moreover, forward guidance was especially effective under conditions of elevated uncertainty by facilitating smooth adjustment to the evolution of macroeconomic and financial conditions in both directions, with expectations about the future policy path responding in a stabilising manner to positive or negative news. According to the strengthened forward guidance, over the projection horizon projected inflation would not only need to converge to, but also stabilise around, levels “sufficiently close to, but below, 2%”. The reference to such levels would signal that the Governing Council wanted to see projected inflation increase significantly from the current realised and projected inflation figures, which were well below levels considered to be in line with its aim. The Governing Council’s guidance would remain forward-looking, in line with its strategy oriented towards the medium term. At the same time, the proposed guidance would contain safeguards against the risk of overreacting to transitory shocks to inflation, as well as against forecast and measurement errors, as it would be emphasised that convergence should be robust and that underlying inflation would have to increase to ensure that the pick-up in inflation was backed by a sustained build-up of domestic price pressures. Furthermore, by maintaining the easing bias on rates, the Governing Council would indicate that it still had room to cut rates further, if needed. Resuming net purchases was an important complement to interest rate policy. In particular, the APP had a greater impact on longer-term rates, providing further support to the funding costs that mattered to businesses and households. Under the proposed formulation, the net purchase horizon dynamically adjusted to changes in the forward guidance on interest rates and thereby worked in the background to keep a lid on medium to longer-term interest rates. By adding to the stock of assets and reinvesting for longer, the Governing Council could postpone an undue tightening in term premia, which mechanically occurred as the APP’s portfolio lost average duration. In addition, APP net purchases had strong signalling effects and wealth effects on the balance sheets of banks and other entities, and the APP tended to have a more powerful effect on the formation of inflation expectations by demonstrating the Governing Council’s commitment to use all instruments in pursuit of its aim. More generally, a two-track approach, whereby the Governing Council actively deployed both the short-term policy rate and net asset purchases, struck a balance by ensuring that it deployed mutually-reinforcing instruments in the most efficient manner, rather than relying excessively on any one instrument. In relation to the reinvestment policy, the chained nature of the forward guidance meant that the revised forward guidance on policy rates would pass through to the horizon for maintaining the stock of purchased assets. Turning to the other elements of the proposal, a more attractive TLTRO III pricing would support bank funding conditions in an environment of weak growth. This would ensure that banks would continue to offer favourable lending conditions to firms and households, which would ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy. Prolonging the maturity to three years would better align the operations with the typical maturity of bank-based financing of investment projects, thereby enhancing the support that TLTRO III provided to the financing of the real economy. Finally, a two-tier system for reserve remuneration would help preserve the positive effects of the Governing Council’s negative rate policy on the economy by mitigating the direct cost for banks of holding excess reserves, thereby contributing to the safeguarding of the bank-based transmission mechanism of the monetary policy. In summary, the proposed range of measures complemented and reinforced one another and constituted a powerful package to provide substantial monetary stimulus that would ensure that financial conditions remained very favourable and would support euro area growth, the ongoing build-up of domestic price pressures and the sustained convergence of inflation to the Governing Council’s medium-term inflation aim. At the same time, the Governing Council should reiterate the need for a highly accommodative stance of monetary policy for a prolonged period of time and its readiness to adjust all its instruments, as appropriate, to ensure that inflation moved towards levels close to, but below, 2% in a sustained manner, in line with the Governing Council’s commitment to symmetry in its inflation aim. Mr Cœuré elaborated on the details of a possible two-tier system for the remuneration of excess liquidity and the proposed modifications to the TLTRO III parameters. An “exempt tier” would be introduced, with a multiplier of 6 to be applied to the level of credit institutions’ minimum reserve requirements, to be remunerated at 0% and applicable to reserve holdings in excess of minimum reserve requirements held on current accounts with the Eurosystem. Turning to the proposed modifications to the price and maturity conditions of TLTRO III, the Governing Council was invited to decide to set the interest rate at the level of the average rate applied in the Eurosystem’s MROs over the life of the respective TLTRO III operation, to prolong the maturity of operations from two to three years from their respective settlement dates and to provide an option for counterparties to repay the amounts borrowed voluntarily before maturity, at a quarterly frequency starting two years after the settlement of each operation. Furthermore, Mr Cœuré indicated that the prolongation of the maturity of the TLTRO III operations implied that the additional credit claims frameworks were automatically extended until the end of March 2024. In addition, Mr Cœuré recalled that, in October 2017, it had been decided that the interest rate in three-month longer-term refinancing operations (LTROs) would remain at the average rate of the MROs over the life of the respective operations covering the period until the last maintenance period of 2019, which should now be extended at least until the end of the reserve maintenance period starting in March 2021. Separately, a proposal was also made to allow purchases of assets with yields below the deposit facility rate under the private sector programmes of the APP, to the extent necessary, with the decision reflecting changes in market interest rates relative to the deposit facility rate. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook for economic activity in the euro area provided by Mr Lane in his introduction. Incoming information since the Governing Council’s July monetary policy meeting indicated a more protracted weakness in the euro area economy than previously expected. The slowdown in growth mainly reflected the prevailing weakness of international trade in an environment of prolonged global uncertainties, which were particularly affecting the manufacturing sector. At the same time, the services and construction sectors showed ongoing resilience and a number of factors continued to support the euro area economic expansion, including favourable financing conditions, further employment gains and rising wage growth, the mildly expansionary euro area fiscal stance and the continued – albeit somewhat slower – growth in global activity. This assessment was broadly reflected in the September ECB staff projections. In the discussion on the outlook and risks for the external environment, it was noted that, while global activity and trade were projected to recover gradually over the medium term, there had been a further downward revision to the outlook for both global growth and trade in the latest ECB staff projections. Members assessed the risks to the external environment to have remained on the downside on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. In particular, reference was made to prevailing uncertainties related to trade tensions and Brexit. Turning to euro area activity, members generally concurred that the recent data had been weaker than expected and that the euro area slowdown was now expected to be more protracted. Real GDP was confirmed to have increased by 0.2%, quarter on quarter, in the second quarter of 2019, following growth of 0.4% in the first quarter, while incoming economic data and survey information pointed to moderate, but positive, growth in the third quarter of the year. The downward revisions to the growth projections in the September ECB staff projections were generally considered to have been warranted, as they largely reflected disappointing data. The point was made that the revised baseline for growth and inflation should continue to be considered the most likely scenario, while significant downside risks remained. Perceptions about the outlook differed somewhat, with several members arguing that, despite the revisions, the baseline scenario in the latest ECB staff projections was still too optimistic in the light of the prevailing uncertainties. At the same time, it was highlighted that, while the rebound in euro area growth was delayed, growth was still expected to recover from its current weakness over the projection horizon. The observation was also made that the euro area economy was operating at close to full capacity, in line with the projections. It was argued that the current slowdown in the euro area was the consequence of asymmetric shocks related to the external environment or to domestic factors, whose impact was largely concentrated in two of the largest euro area countries, primarily owing to weakness in the manufacturing sector. Reference was also made to the possibility of upside, as well as downside, risks; for example, if the ongoing trade tensions were to be resolved more quickly than expected. However, a number of considerations were also advanced to suggest that the revised growth outlook might be too optimistic. The argument was made that the export weakness could over time be expected to spill over to domestic demand and to the services sector of the economy, and there were already some indications of the slowdown in exports affecting labour market developments. The slowdown could also be considered rather general and of a global nature, affecting a number of large economies, as opposed to reflecting specific asymmetric shocks. Moreover, the assumptions underlying the September ECB staff projections were seen as relatively favourable because the projections were based on an orderly Brexit – while the probability of a disorderly Brexit had recently increased – and assumed a resolution of trade tensions over time. Both of these assumptions could be considered optimistic. In addition, it was noted that the baseline did not contain some trade measures that had been announced since the finalisation of the projection exercise. The risks surrounding the euro area growth outlook were generally assessed by members to be still tilted to the downside on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. In an exchange of views about fiscal policy, members considered that the mildly expansionary euro area fiscal stance was providing some support to economic activity. However, in view of the weaker economic outlook and the continued prominence of downside risks, it was emphasised that governments with fiscal space should act in an effective and timely manner. In countries where public debt was high, governments needed to pursue prudent policies that would create conditions for automatic stabilisers to operate freely, while all countries should reinforce their efforts to achieve a more growth-friendly composition of public finances. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.0% in August 2019, unchanged from July, with lower energy price inflation being offset by higher food price inflation. The rate of HICP inflation excluding food and energy was also unchanged. On the basis of current futures prices for oil and owing to base effects, annual headline inflation was likely to decline before rising again towards the end of the year. Measures of underlying inflation remained generally muted and indicators of inflation expectations stood at low levels. While labour cost pressures had strengthened and broadened amid high levels of capacity utilisation and tightening labour markets, their pass-through to inflation was taking longer than previously anticipated. Over the medium term, underlying inflation was expected to increase, supported by the ECB’s monetary policy measures, the ongoing economic expansion and robust wage growth. This assessment was also broadly reflected in the September ECB staff projections, which had been revised down over the whole horizon, reflecting lower energy prices and the weaker growth environment. It was noted that both headline and underlying inflation were currently being dampened by a change in the statistical treatment of package holidays in the euro area’s largest economy, a factor which would fade in coming months. Looking ahead, members acknowledged the implications for the medium-term inflation outlook arising from the downward revisions to the growth outlook. Underlying inflation, as measured by the HICP excluding food and energy, was still expected by staff to pick up over the projection horizon but had been revised down compared with the June 2019 Eurosystem staff projections. Attention was drawn to the fact that the revised growth outlook implied less upward pressure on domestic inflation dynamics. Looking through the volatility of energy prices, there had been a downward revision to the inflation outlook at the end of the horizon, with the projected measures of underlying inflation and headline inflation only expected to reach 1.5% in 2021, at the end of the projection horizon. Members underlined that wage growth continued to be solid and in line with long-term averages. However, the transmission of higher wages to consumer price inflation in the medium term might have become more uncertain given the revised growth outlook, with some doubts being expressed about whether profit margins would increase – as assumed in the projections – as economic activity recovered. As regards longer-term inflation expectations, members noted that, since the Governing Council’s July monetary policy meeting, market-based measures of longer-term expectations had stabilised, albeit at historically low levels and well below the ECB’s inflation aim. Concern was expressed about the longer-term downward trend observed in inflation expectations, which was evident in both market-based and survey-based measures. Market-based inflation expectations, as measured by the five-year forward inflation-linked swap rate five years ahead, currently stood at 1.23%, while longer-term survey-based inflation expectations stood at 1.7% in the Survey of Professional Forecasters for the third quarter of 2019. Concerns were also expressed about the increased probability of inflation outcomes between zero and 1%, as derived from option prices. Caution was urged, however, against placing too much emphasis on developments in longer-term, market-based measures of inflation, which were subject to liquidity and risk premia. In particular, the gap between survey-based measures and market-based measures could also be explained by a negative risk premium, although it was remarked that the negative risk premium could itself be a concern if it reflected hedging by market participants against outcomes of very low inflation or deflation. Moreover, a remark was made that financial market participants were not responsible for setting relevant prices in the real economy, and that there was not a full understanding of how actual price-setting behaviour at the firm level would be affected by expectations of general aggregate price developments, as opposed to microeconomic determinants. It was suggested that a deeper analysis of inflation expectations be undertaken, amid increased concerns about the risk of an unanchoring of inflation expectations. Regarding the monetary analysis, members widely shared the assessment provided by Mr Lane in his introduction. Sustained rates of broad money growth reflected ongoing bank credit creation for the private sector and low opportunity costs of holding M3. The narrow monetary aggregate M1 continued to be the main contributor to broad money growth on the components side. Members also agreed that the ECB’s monetary policy measures continued to support loan growth and, ultimately, activity and inflation. Overall, loan growth was still benefiting from historically low bank lending rates. Bank lending conditions for firms and households continued to be very favourable. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. Since the Governing Council’s monetary policy meeting in July, risk-free interest rates had declined, partly in anticipation of additional monetary policy stimulus but also in response to a worsening macroeconomic outlook. It was noted that substantial anticipation effects of future policy measures seemed to be embodied in market expectations of the path of interest rates and thus, to some extent, were already reflected in the projections. However, despite the fact that financial conditions embedded in the projections already reflected substantial expectations of further policy easing, projected inflation was moving further away from levels deemed consistent with the Governing Council’s inflation aim. At the same time, it was also cautioned that the Governing Council should not try to accommodate market expectations but should base its decisions on its own assessment. In addition, an argument was put forward that, in an environment of high uncertainty, to exceed market expectations might be counterproductive, as this might be viewed as signalling a worse outlook than embedded in the forecasts. All members agreed that a further easing of the monetary policy stance was warranted to support the return to sustained convergence to the Governing Council’s inflation aim. The September staff projections had further revised down the real GDP growth outlook for 2019 and 2020, mainly owing to the weaker global environment, and inflationary pressures had remained muted. At the same time, the point was made that the monetary policy response should be proportional to the contingency faced. In this respect, it was noted that, despite the downward revision in the projections, some of the fundamental driving forces for a pick-up as foreseen in the baseline scenario were still in place and deflation risks were absent at the current juncture. Monetary transmission was functioning well, with long-term yields at historical lows both for the euro area and across countries. Members expressed broad agreement with most of the monetary policy proposals made by Mr Lane in his introduction as part of a comprehensive package. Most members saw a package, i.e. a combination of instruments with significant complementarities and synergies, on the whole as the appropriate approach in a situation where individual policy measures were facing some limitations and the impact of each measure on its own was uncertain and difficult to assess. In the light of the continued shortfall of realised and projected inflation from the Governing Council’s medium-term aim and the risk of an unanchoring of inflation expectations, it was seen as important for the Governing Council to demonstrate its determination and capacity to act, in line with its reaction function, by adjusting all of its instruments, as appropriate, to achieve its inflation aim. In this context, all measures – including restarting net asset purchases and introducing a two-tier system for the remuneration of reserves – were seen as having important signalling effects that would be further enhanced by the proposed changes to the Governing Council’s forward guidance. At the same time, a number of reservations were expressed about individual elements of the proposed policy package. Although the rationale for a comprehensive package was widely shared, members assessed the case for specific elements differently, with some measures seen as substitutes rather than complements, giving rise to trade-offs between elements of the package, for instance between the liquidity-providing measures and the proposed two-tier system. A large majority of members agreed to change the modalities of the new series of quarterly TLTROs (TLTRO III), as proposed by Mr Lane and Mr Cœuré. Removing the spread of 10 basis points vis-à-vis the key ECB interest rates and extending the maturity from two to three years was seen as effective to preserve favourable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy. In this context, the Governing Council also took note of the proposed extension of the additional credit claims framework until the end of March 2024 and agreed to fix the interest rate in the three-month LTROs at the average rate of the main refinancing operations over the life of the respective LTRO, at least until the end of the reserve maintenance period starting in March 2021. Regarding forward guidance on APP reinvestment, all members concurred with Mr Lane’s proposal to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when the Governing Council started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Members generally agreed with the proposal to enhance the state-based component of the Governing Council’s forward guidance on interest rates, although a few members saw value in keeping the date-based element of forward guidance and shifting it further out into the future. The enhanced state-contingent forward guidance was considered a core element of the package, conveying the Governing Council’s intention with respect to its main policy instrument – the key policy rates – to which its other measures were tied, such as the proposed guidance on the net asset purchases and the reinvestments of principal payments. The proposed forward guidance was seen as crucial to providing adequate monetary accommodation, by anchoring inflation expectations at the ECB’s medium-term inflation aim, to making the “lift-off” date for interest rates state-dependent and to anchoring expectations sufficiently far out in the future, as warranted in the present circumstances. It was widely felt that the forward guidance needed to be formulated carefully so as to be sufficiently stringent, while not being unduly precise or complex, in order to be credible and to avoid introducing uncertainty into the expectations of markets and the general public. Accordingly, it was seen as natural to build on, and remain broadly consistent with, previous communication on a sustained adjustment in the path of inflation, namely related to convergence, confidence and resilience in attaining the Governing Council’s aim of inflation below, but close to, 2% over the medium term. Merit was seen in underlining the symmetry of the Governing Council’s inflation aim in qualitative terms, without pre-empting a future review of the ECB’s strategy. Some initial support was expressed for basing the forward guidance on a quantitative benchmark of both projected and realised inflation in order to provide greater clarity on the inflation aim. On the other hand, it was questioned whether more clarity in numerical terms would actually enhance the effectiveness of the forward guidance, in view of the subdued inflation record in recent years. Linking the Governing Council’s forward guidance to the ECB staff projections was seen as prone to circularity, although the point was also made that inflation-targeting central banks typically conditioned their policy on their own projections. All in all, a reference to robust convergence and a broad qualitative formulation in terms of the overall inflation outlook were considered preferable. Making forward guidance conditional on inflation convergence being reflected consistently in the observed underlying inflation dynamics, as well as in the inflation outlook, was seen as helping to clarify that some momentum should be visible and verifiable in the data on actual inflation, while not implying a departure from the forward-looking nature and medium-term orientation of the ECB’s monetary policy strategy. In addition, the notion of robust convergence was seen to underline the message that the Governing Council’s inflation aim should not be regarded as a cap for inflation, thereby confirming the symmetry of the inflation aim. In this context, it was argued that the proposed formulation could move market expectations of the “lift-off” date too far into the future. All in all, the adopted formulation on state-dependent forward guidance was viewed as remaining consistent with the ECB’s current monetary policy strategy, as it neither redefined the policy aim nor pre-empted a strategy review that might take place later. A clear majority of members agreed with Mr Lane’s proposal to restart net purchases under the APP at a monthly pace of €20 billion as from 1 November, to continue them for as long as necessary to reinforce the accommodative impact of policy rates and to end them shortly before the key ECB interest rates were to be raised. The APP was seen as a necessary component of the policy package, as it had been shown by ECB staff analysis to be effective in supporting activity and inflation. The mere reinvestment of principal payments from maturing securities was seen as insufficient to prevent a loss of duration on the ECB’s balance sheet or to underpin the low yields currently observed, or even to engender a further compression of term premia. Concern was expressed that not delivering sufficient stimulus, including through the APP, might trigger a reversal of the current favourable financial conditions. By contrast, restarting net purchases would provide a strong signal of the Governing Council’s determination and willingness to act in the light of the current subdued inflation outlook and the potential risk of an unanchoring of inflation expectations. Moreover, an argument was made that the room for further compression of term premia had not necessarily been completely used up. In this context, forceful and pre-emptive monetary policy action was considered important, which called for a comprehensive package that included a resumption of net asset purchases. A number of members assessed the case for renewed net asset purchases as not sufficiently strong, either because they deemed them to be a less efficient instrument, given the prevailing compression of term premia, or because they deemed them to be an instrument of last resort which should only be deployed in the event of more severe contingencies and which was not warranted in the light of the current outlook, where a package not including net purchases could be considered adequate. Current financial conditions were seen as already being very favourable, in particular with bonds of very long maturities trading at negative yields. The point was also made that the Governing Council’s decisions should be based on the effectiveness of the measures rather than on signalling effects vis-à-vis markets. Some concerns were voiced about a potential decline in the efficiency of the portfolio rebalancing channel and potential adverse side effects on financial intermediation – including by banks and by insurance companies and pension funds – related to a flattening at the long end of the yield curve and heightened financial stability risks. A remark was made that an open-ended announcement of renewed net asset purchases could give rise to demands by market participants for higher monthly purchase amounts, at least in the absence of convincing evidence of an improving inflation outlook. This would exhaust the purchasable universe and call into question the programme limits, which were considered important to ensure that the boundary between monetary policy and fiscal policy was not blurred. Effects from any potential limit changes on market functioning and bond scarcity would also need to be considered. However, it was noted that, at €20 billion per month, the pace of purchases was far less than in earlier phases of the programme, while the current expansionary stance of fiscal policy would allow the Governing Council to continue purchases under the current limits for a significant period of time. Hence, it was felt that a discussion of the limits could wait until the issue became more pressing. A very large majority of members agreed with Mr Lane’s proposal to lower the rate on the deposit facility by 10 basis points to -0.50%, which – together with the reinforced forward guidance – would act on the whole yield curve, especially in the short to medium-term segments, complementing the effects of net asset purchases on the long end of the curve. In this way, the measure would address the high level of short-term uncertainties that currently prevailed and help preserve very favourable financial conditions. While a few members expressed a readiness to consider lowering the rate on the deposit facility by 20 basis points at the current meeting, in particular as part of a package that would exclude net asset purchases, other members felt unable to support a cut of 10 basis points, as they were concerned about the possibility of increasingly adverse side effects from additional rate cuts. A majority of members went along with the proposed introduction of a two-tier system for reserve remuneration as part of the overall policy package. With an exempt tier of six times the level of the minimum reserve requirements of institutions subject to such requirements, a two-tier system would help to preserve the positive effects of the negative rate policy on the economy by mitigating the direct cost for banks of holding excess reserves, thereby contributing to the safeguarding of the bank-based transmission mechanism of the Governing Council’s monetary policy. The two-tier system would support the ability of banks to extend loans to their customers on favourable terms and help to preserve the incentives for banks to pass through the stimulus provided by negative rates on their reserves. Furthermore, it would corroborate the Governing Council’s forward guidance that interest rates could be lower than the current levels. A number of reservations were expressed about the monetary policy justification for a two-tier system. It was argued that, at the current juncture, monetary policy transmission channels seemed to be functioning well. In addition, banks would benefit from TLTRO III, which offered them very favourable lending conditions, and from a significant decline in bank bond yields. A remark was made that providing partial relief only to banks for the costs of negative rates raised potential distributional and communication challenges. Moreover, if a two-tier system were not calibrated properly, it could give rise to side effects and put upward pressure on market rates. It was argued, however, that other jurisdictions with negative interest rates had long since introduced exemption schemes. With regard to the design of the two-tier system, the proposed value of six times the minimum reserve requirements was generally supported, although a case was also made for having a smaller or a larger multiplier. In this context, it was argued that tying the exemption amount more directly to minimum reserve requirements by increasing the remuneration rate on these reserve holdings would be better targeted at transmission channels that were more fragile, would better alleviate potential upward pressure on market rates and would create less interaction with TLTRO III. Deviating from the established frameworks of other central banks would, however, be more challenging to communicate, particularly since such remuneration on minimum reserves would be akin to the introduction of another policy rate. In summary, the President concluded that all members agreed on the need to act in response to the continued shortfall of inflation with respect to the Governing Council’s aim and that a clear majority of members supported the proposed measures, which complemented and reinforced one another, as a powerful package to provide substantial monetary stimulus, ensuring very favourable financial conditions and supporting the euro area economic expansion, the ongoing build-up of domestic price pressures and the sustained convergence of inflation to the Governing Council’s medium-term inflation aim. Accordingly, the Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time and that it continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. Finally, all members agreed that, in view of the weakening economic outlook and the continued prominence of downside risks, governments with fiscal space should act in an effective and timely manner. In response to the significant risks related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, policies other than monetary policy would be more effective and were better suited to address country-specific shocks. In this context, the Governing Council should communicate carefully so as not to create unrealistic expectations about the contingencies that monetary policy was able to address. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council took the following monetary policy decisions: The interest rate on the deposit facility would be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility would remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expected the key ECB interest rates to remain at their present or lower levels until it saw the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence was consistently reflected in underlying inflation dynamics. Net purchases would be restarted under the Governing Council’s APP at a monthly pace of €20 billion as from 1 November. The Governing Council expected them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. Reinvestments of the principal payments from maturing securities purchased under the APP would continue, in full, for an extended period of time past the date when the Governing Council started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III) would be changed to preserve favourable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy. The interest rate in each operation would now be set at the level of the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending exceeded a benchmark, the rate applied in TLTRO III operations would be lower, and could be as low as the average interest rate on the deposit facility prevailing over the life of the operation. The maturity of the operations would be extended from two to three years. In order to support the bank-based transmission of monetary policy, a two-tier system for reserve remuneration would be introduced, in which part of banks’ holdings of excess liquidity would be exempt from the negative deposit facility rate. Separate press releases with further details of the measures taken by the Governing Council would be published after the press conference. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190912~658eb51d68.en.html Press releases https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912_1~b17f699a88.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912~19ac2682ff.en.html https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.pr190912_2~a0b47cd62a.en.html Meeting of the ECB’s Governing Council, 11-12 September 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kažimír Mr Knot Mr Lane Ms Lautenschläger Mr Makhlouf* Mr Mersch Mr Müller* Mr Rehn Mr Reinesch Mr Rimšēvičs Mr Stournaras* Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau* Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in September 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Smets, Secretary for monetary policy, Director General Economics Mr Stone, Deputy Secretary, DG Secretariat Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Mr Garnier Mr Haber Mr Kaasik Mr Kazāks Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Pattipeilohy Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Klöckers, Director General International & European Relations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 21 November 2019. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 23-24 October 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the latest financial market developments. Since the Governing Council’s last monetary policy meeting on 11-12 September 2019, the prospect of a breakthrough in the trade negotiations between the United States and China, as well as declining fears of a “no-deal” Brexit, had helped to underpin global market sentiment. In the euro area, the overnight index swap forward curve had shifted upwards at both the short and the long end, and it had also become notably steeper in 2021 compared with the situation in September 2019. In the United States, the effect of receding uncertainty surrounding Brexit and trade had been partially offset by changes in near-term monetary policy expectations in response to weaker economic data. The market-implied probability of a rate cut at the US Federal Reserve System’s meeting on 29-30 October 2019 had increased notably over the course of October. Overall, however, bond yields on both sides of the Atlantic remained at very low levels compared with earlier in 2019. Three developments in money markets were noteworthy. First, on 2 October 2019 the ECB had successfully started the daily publication of the new euro short-term rate (€STR), which was based on a broad set of granular data on money market transactions. The second development related to the Governing Council’s decision on 11-12 September 2019 to introduce a two-tier remuneration system for excess reserves. Some very tentative evidence of higher trading volumes in the euro money market had been observed as banks prepared for the introduction of the two-tier system in the next reserve maintenance period. The third development related to the recent volatility in short-term money market rates in the United States. The Federal Reserve System had conducted repurchase agreement operations to ease funding stress in this market segment. It had also resumed purchases of US Treasury bills at a pace of approximately USD 60 billion per month, initially until the second quarter of 2020. These liquidity-providing measures had proven successful in easing tensions in the US repurchase agreement market. Turning to stock market developments, the EURO STOXX 50 index had risen by about 2% since mid-September 2019 and by more than 10% relative to the mid-August lows. Unlike in the spring and summer of 2019, a fall in the equity risk premium on the back of receding uncertainty related to Brexit and trade had contributed to a rise in stock prices. Bank shares had seen a strong recovery in recent weeks and had outperformed the broader market. Finally, in foreign exchange markets, the euro had depreciated against the US dollar, falling to its lowest level in more than two years in the wake of the Governing Council’s September monetary policy meeting, but it had subsequently appreciated on the back of Brexit-related news as risk premia reversed. The pound sterling had meanwhile appreciated strongly against the euro, rising by 3.4% since the last Governing Council meeting, with a notable rise in trading volumes and option-implied volatility. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, the pace of global activity and trade growth remained weak. There were tentative signs of some stabilisation of global growth, both in global manufacturing and in some emerging market economies, in the third quarter of 2019. For that quarter as a whole, the global composite output Purchasing Managers’ Index (PMI) excluding the euro area had stood at 51.4, broadly unchanged from its second quarter average. Global trade had rebounded in the second quarter of 2019, when excluding the effects of UK-specific factors. Overall, however, global trade remained subdued, dampened by a high level of trade tensions and weak Asian demand. Since the Governing Council’s September monetary policy meeting, oil prices had dropped by almost 7% and the euro had appreciated in bilateral terms against the US dollar, while it had marginally depreciated in nominal effective terms. Turning to the euro area, real GDP growth in the second quarter of 2019 had been confirmed at 0.2% in Eurostat’s third release. As regards developments in the third quarter, business indicators suggested a further slowdown in output growth. The flash composite output PMI had stood at 50.2 in October, up from 50.1 in September but down from 51.9 in August. The European Commission’s Economic Sentiment Indicator had also declined in the third quarter. Regarding the components of domestic demand, private consumption had continued to be supported by higher labour income. A decomposition of real disposable income growth suggested that labour income remained the main driver. In addition, the decline in oil prices in the first half of 2019 was supporting real disposable income. Short-term indicators also pointed to resilient private consumption demand in the third quarter of 2019. Growth in business investment had been slowing down since early 2019. The latest sectoral indicators suggested a continuation of subdued business investment in the short term. Capital goods production in July had remained below the quarterly average recorded in the second quarter. Capacity utilisation in manufacturing had seen a continuous gradual decline since the first quarter of 2018, and currently stood close to its historical average. As regards the labour market, sectoral indicators showed a moderation in labour market conditions, driven by the manufacturing sector. According to national accounts data for the second quarter, employment growth in the manufacturing sector had declined from 0.4%, in quarter-on-quarter terms, in the first quarter of 2019, to 0.2% in the second quarter, whereas employment growth in market services had remained broadly unchanged at 0.3%. The resilience of the labour market in the face of the growth slowdown was also reflected in weak hourly productivity growth, which had stood at 0%, in quarter-on-quarter terms, in the second quarter. Hourly productivity growth had, however, remained in positive territory in the market services sector, while the manufacturing sector had seen a persistent reduction in hourly productivity since the first quarter of 2018. Euro area goods exports had contracted in the second quarter as the stockbuilding in the United Kingdom, which had lifted euro area goods exports in the first quarter, had reversed. Turning to price developments, according to Eurostat, annual headline HICP inflation had decreased from 1.0% in August to 0.8% in September and remained considerably below the Governing Council’s inflation aim. The decline had reflected lower energy and food price inflation, which had more than offset a slight increase in HICP inflation excluding energy and food from 0.9% in August to 1.0% in September. Measures of underlying inflation had remained generally muted and continued to move sideways. Low inflation had continued to be broad-based. The share of items with low inflation rates in HICP inflation excluding energy and food had remained elevated. At the same time, the share of items with negative inflation rates had shown a downward trend from 2014-15 levels and stood in September only very slightly above its long-term average. Wages had continued to grow at a robust pace, with compensation per employee increasing by 2.2% in the second quarter of 2019 – slightly above the long-run average of 2.1%. Higher wage pressures had so far been largely absorbed by profit margins. According to the ECB’s Survey of Professional Forecasters (SPF) for the fourth quarter of 2019, HICP inflation expectations stood at 1.2%, 1.2% and 1.4% for 2019, 2020 and 2021 respectively. This represented a downward revision of approximately 0.1 percentage points for each year. Expectations for inflation excluding energy, food, alcohol and tobacco were also revised down by around 0.1 percentage points for each of these years. Euro area market-based indicators of medium to longer-term inflation expectations remained at low levels, with the five-year forward five years ahead measure standing slightly above 1.2% – broadly unchanged compared with the level at the time of the September monetary policy meeting. As regards euro area financial conditions, risk-free bond rates had increased across all maturities since the September meeting. The EONIA forward curve had overall shifted upwards and was no longer pricing in a further 10 basis point rate cut. Euro area equity prices of both non-financial corporations and financial corporations had overall slightly increased since the September meeting, but had been quite volatile. The slight overall increase in equity prices was mainly driven by declines in the equity risk premium, which compensated for the dampening pressures from lower longer-term earnings expectations and higher discount rates. Financing conditions for euro area non-financial corporations remained very favourable and were broadly unchanged since the September meeting. Turning to money and credit developments, the annual growth rate of broad money (M3) had increased to 5.7% in August, from 5.1% in July. M3 growth continued to be almost entirely driven by annual M1 growth, which had also increased. From a counterpart perspective, credit to the private sector continued to be the main source of broad money creation, while the contribution of MFI net external assets to annual M3 growth remained broadly unchanged. According to the October 2019 euro area bank lending survey, net demand for loans to enterprises had remained broadly stable in the third quarter of 2019, while banks had expected a slight increase in the previous survey round. Reflecting the weakness in economic growth developments, the positive contribution of fixed investment had been smaller in the third quarter. Credit standards for loans to euro area enterprises had eased slightly in the third quarter following a tightening in the second quarter. As in previous quarters, competitive pressure had been the main factor contributing to the easing of credit standards for loans to enterprises. The euro area fiscal stance in 2020 was expected to be mildly expansionary in 2019-21, which would provide some support to demand conditions. Draft budgetary plans for 2020 envisaged a change of 0.4 percentage points in the euro area structural primary balance-to-GDP ratio, amounting to further loosening. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the September policy package had delivered a large part of the easing in financial conditions that had occurred over the previous months in anticipation of a substantial policy easing. Bank lending conditions for firms and households continued to be favourable and easier market funding conditions exhibited an ongoing pass-through. The incoming data confirmed the Governing Council’s previous assessment that the weakness of the euro area economy was protracted. The PMI manufacturing output index was now at its lowest level since December 2012 and the services index had also deteriorated. Private consumption remained resilient overall amid rising wages and job growth, which, however, showed signs of moderation. The balance of risks surrounding the growth outlook remained tilted to the downside owing to geopolitical factors, rising protectionism and continued vulnerabilities in emerging markets. HICP inflation and measures of underlying inflation remained subdued despite rising wages. Both market and survey-based measures of inflation expectations had stagnated at historical lows. Looking ahead, the Governing Council needed to monitor the pass-through of its monetary policy measures and incoming information on the economy. In any case, forward guidance on interest rates acted as an automatic stabiliser, as monetary policy expectations – and hence the entire spectrum of financial conditions – adjusted to changes in the inflation outlook. On the basis of this assessment, Mr Lane proposed keeping the monetary policy stance unchanged at the current meeting. It was suggested that the Governing Council, in its communication, first highlight that the monetary policy measures taken at the September meeting were providing substantial monetary stimulus, which would contribute to a further easing in borrowing conditions for firms and households. This would support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, the sustained convergence of inflation to the Governing Council’s medium-term inflation aim. Second, it should stress that its forward guidance would ensure that financial conditions would adjust in accordance with changes in the inflation outlook. In any event, the Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. Third, it should recall that, all else being equal, the more that fiscal policy contributed to boosting long-term growth potential and providing cyclical stabilisation, the sooner the effects of monetary policy interventions on inflation and the economy would be seen. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally shared the assessment of the outlook for economic activity in the euro area provided by Mr Lane in his introduction. Incoming information since the Governing Council’s September monetary policy meeting broadly confirmed the previous assessment of a protracted weakness in euro area growth dynamics, the persistence of prominent downside risks and muted inflationary pressures. At the same time, ongoing employment growth and increasing wages continued to underpin the resilience of the euro area economy. Regarding the outlook and risks for the external environment, it was noted that the pace of global activity and trade growth remained weak and that global trade could turn out to be weaker than had been anticipated in the September 2019 ECB staff projections. In the context of disentangling the sources of this weakness, the question was raised as to what extent the downturn in the tech cycle constituted a separate factor, independent of the weakness related to trade tensions. Members assessed the risks to global activity and trade to have remained on the downside. These risks pertained to the prolonged presence of uncertainties, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets. Reference was made in particular to continued uncertainties related to the withdrawal of the United Kingdom from the EU. At the global level, trade tensions might have become less acute overall since the September monetary policy meeting, but doubts were expressed that they would be resolved soon. Turning to euro area activity, members generally concurred that recent data had confirmed the more protracted weakness anticipated at the Governing Council’s September monetary policy meeting. Real GDP was confirmed to have increased by 0.2%, quarter on quarter, in the second quarter of 2019, following growth of 0.4% in the first quarter, and incoming economic data and survey information continued to point to moderate, but positive, growth in the second half of the year. The slowdown in growth mainly reflected the ongoing weakness of international trade in an environment of persistent global uncertainties, which continued to weigh on the euro area manufacturing sector and were dampening investment growth. During the discussion on the protracted weakness and persistent downside risks to activity, it was pointed out that some key indicators, such as industrial production and the PMI manufacturing output index, had continued to deteriorate. It was observed that the PMI not only stood at its lowest level since 2012 but its overall decline was also the longest seen since the recession triggered by the financial crisis. Incoming data suggested that the weakness was likely to persist and raised the question as to whether it would continue for longer than had been anticipated in the September 2019 ECB staff projections. There were no signs as yet of the acceleration in growth anticipated in the projections. In this context, it was also remarked that little additional hard data had become available since the September monetary policy meeting and that more information was needed to reassess the economic outlook. It was recalled that euro area economic activity continued to be supported by a number of factors. The services and construction sectors had remained resilient, despite some moderation. Financing conditions were favourable, the labour market had posted further employment gains in conjunction with rising wages, the euro area fiscal stance was mildly expansionary and growth in global activity was ongoing, albeit at a somewhat slower pace. However, concerns were expressed that the recent deterioration in survey data for the services sector could reflect spillovers from the persistently negative developments in exports and manufacturing. There were initial signs of some contagion from manufacturing to services, although it was too early to speak of more generalised spillovers. At the same time, some comfort could be drawn from the resilience of domestically-oriented sectors and consumption, with consumer confidence also holding up. The economic downturn had thus far had only limited effects on labour markets, even in countries where the downturn had been sharpest. However, reference was made to signs that the labour market could worsen if the economic weakness were to persist, and to the latest survey data signalling a somewhat weaker employment outlook. All in all, the risks surrounding the euro area growth outlook were generally assessed by members to be still tilted to the downside, on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. Regarding the outlook for fiscal policy, members noted that the mildly expansionary euro area fiscal stance was providing some support to economic activity. However, in view of the weaker economic outlook and the continued prominence of downside risks, it was reiterated that governments with fiscal space should act in an effective and timely manner. In countries where public debt was high, governments needed to pursue prudent policies and meet structural balance targets, which would create the conditions for automatic stabilisers to operate freely. All countries should reinforce their efforts to achieve a more growth-friendly composition of public finances. It was stressed that compliance with the Stability and Growth Pact for some countries implied an increase in the structural balance and a tightening of fiscal policy that could offset an expansionary stance in countries with fiscal space. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Euro area annual HICP inflation had decreased from 1.0% in August 2019 to 0.8% in September, reflecting lower food and energy price inflation. Measures of underlying inflation had remained generally muted and indicators of inflation expectations stood at low levels. While labour cost pressures had strengthened amid tighter labour markets, the weaker growth momentum was delaying their pass-through to inflation. Over the medium term inflation was expected to increase, supported by the ECB’s monetary policy measures, the ongoing economic expansion and robust wage growth. It was emphasised that headline inflation was currently being dampened by low energy price inflation. The latest inflation data had confirmed the expectations embedded in the September 2019 projections, and the absence of major forecast errors for core inflation in recent months supported the projection of an upward movement in underlying inflation dynamics. One element that had dampened core inflation, but was now starting to fade out, was a statistical downward impact on the annual rate of change of package holiday prices associated with a change in consumer expenditure weights in the largest euro area economy. Looking ahead, it was argued that an increase in underlying inflation might not readily materialise given the current weaker macroeconomic outlook. Members agreed with the assessment that wage growth continued to be solid and underlined its crucial role in the expected upward adjustment of inflation. In this context, it was remarked that the most recent SPF indicated a downward-sloping path for wage growth. At the same time, it was suggested that, while there might be a slight slowdown in wage dynamics, the expected inflation adjustment currently hinged more on the delayed pass-through of wage growth into prices and a recovery in profit mark-ups. It was pointed out that profit margins had not increased in previous years, despite a positive economic outlook, which raised doubts as to whether they would increase now in the context of a worsened outlook. As regards longer-term inflation expectations, members noted the further decline in survey-based measures. Concern was expressed, in particular, with respect to the consecutive downward revisions to longer-term inflation expectations in the ECB’s SPF. It was argued that survey and market-based indicators – when adjusted for estimates of liquidity and risk premia – showed a similar picture of a downward shift in longer-term expectations. With regard to the monetary analysis, members widely shared the assessment provided by Mr Lane in his introduction. Overall, the signals provided by money and credit developments remained positive, as broad money (M3) growth and credit to the private sector were at their highest levels since 2009. Sustained rates of broad money growth reflected ongoing bank credit creation for the private sector and low opportunity costs of holding M3. The growth of loans to firms and households had remained robust, benefiting from the continued pass-through of the accommodative monetary policy stance to bank lending rates, which remained at historical lows. Favourable bank lending conditions were also evidenced by the euro area bank lending survey for the third quarter of 2019. It was noted, however, that the financial stability implications needed to be monitored closely as declining bank lending rates could squeeze banks’ margins beyond adequate risk coverage. Moreover, the point was made that more attention needed to be paid to the non-bank financial sectors, where looser market-based financing conditions and the search for yield also posed risks. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. The package of measures decided at the Governing Council’s September monetary policy meeting had to a large extent preserved the highly favourable financial conditions prevailing in the period before that meeting, in part owing to the anticipation of further monetary policy easing. This was seen as demonstrating that markets had well understood the “reaction function” of the Governing Council. Despite some upward movement at the front end of the yield curve since the September monetary policy meeting, taking a somewhat longer perspective, financial conditions had eased significantly since the Sintra conference in June this year. It was underlined that the incoming information since the September monetary policy meeting had confirmed the pronounced slowdown in euro area economic growth and a continued shortfall of inflation with respect to the inflation aim, thus vindicating the monetary policy decisions taken by the Governing Council at that meeting. There was wide agreement that more information would be needed to reassess the inflation outlook and the impact of the monetary policy measures, particularly given that some of the measures had yet to be implemented – notably the resumption of net asset purchases and the introduction of a two-tier system for reserve remuneration. Therefore, the measures should be allowed more time to fully unfold their effects on the euro area economy and ultimately on inflation outcomes, taking into account the usual transmission lags of monetary policy. Confidence was expressed that the comprehensive package of policy measures decided at the September meeting provided substantial monetary stimulus, which would contribute to a further easing in borrowing conditions for firms and households. This would support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, the sustained convergence of inflation to the Governing Council’s medium-term inflation aim. Against this background, the members agreed with the proposal made by Mr Lane in his introduction to keep the monetary policy stance unchanged at the current meeting. This entailed confirming the resumption of net asset purchases under the Governing Council’s asset purchase programme at a monthly pace of €20 billion as from 1 November 2019 and reiterating the forward guidance on policy interest rates, net asset purchases and reinvestments. There was broad agreement that monetary policy had to remain highly accommodative for an extended period of time in the face of a protracted weakness in the economy and subdued inflation developments. Accordingly, it was important to fully implement the September monetary policy decisions. In this context, it was highlighted that the Governing Council’s forward guidance provided an important stabilisation function, as Mr Lane had pointed out in his introduction. The strengthened state-based forward guidance decided at the September monetary policy meeting, which had more clearly tied the likely path of policy interest rates to inflation prospects, ensured that financial conditions would adjust in accordance with changes in the inflation outlook, thereby reinforcing the Governing Council’s commitment to achieving its inflation aim. It was argued that the state-based nature of the forward guidance, which depended on a forward-looking component, whereby the inflation outlook had to be seen to converge robustly to a level sufficiently close to, but below, 2% within the projection horizon, as well as on a backward-looking component, whereby the convergence of inflation had to be consistently reflected in the observed dynamics of underlying inflation, provided a clear guide to the Governing Council’s “reaction function”. Strong commitment by the Governing Council to providing the necessary policy stimulus was seen as important to ensure the sustained convergence of inflation to the Governing Council’s aim. Accordingly, it was vital for the Governing Council to remain prepared to act by using its full set of instruments if the inflation outlook so required. It was, however, cautioned that due account also had to be taken of the assessment of the possible side effects of monetary policy measures. At the same time, a plea was made for patience to allow the measures taken in September to work through the economy, supporting a “wait and see” posture at the current juncture. As regards communication, members widely agreed with the proposals made by Mr Lane in his introduction. It needed to be stressed that the September monetary policy package supported the sustained convergence of inflation towards the Governing Council’s aim, while noting that the transmission of the individual measures would take time to work its way through to growth and inflation dynamics. At the same time, the Governing Council needed to forcefully reiterate its unwavering commitment to achieving its inflation aim and the need for a highly accommodative stance of monetary policy for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. In the light of the persistence of prominent downside risks surrounding the euro area outlook, it also needed to be emphasised that the Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. Looking ahead, a strong call was made for unity of the Governing Council. While it was underlined that open and frank discussions in the Governing Council were absolutely necessary and legitimate, it was regarded as important to form a consensus and to unite behind the Governing Council’s commitment to pursuing its inflation aim. Furthermore, the call on other policymakers was reiterated, emphasising that they needed to contribute more decisively to supporting the euro area economy. In particular, fiscal policy, notably of governments with fiscal space, had to play a more prominent role to stabilise economic conditions in view of the weakening economic outlook and the continued prominence of downside risks. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it saw the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence was consistently reflected in underlying inflation dynamics. As decided at the Governing Council’s meeting on 11-12 September 2019, net purchases would be restarted under the Governing Council’s asset purchase programme at a monthly pace of €20 billion as from 1 November 2019. The Governing Council expected them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is191024~78a5550bc1.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp191024~438769bd4f.en.html Meeting of the ECB’s Governing Council, 23-24 October 2019 Members Mr Draghi, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kažimír Mr Knot Mr Lane Ms Lautenschläger Mr Makhlouf* Mr Mersch Mr Müller Mr Rehn Mr Reinesch Mr Rimšēvičs Mr Stournaras* Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco* Mr Weidmann Mr Wunsch * Members not holding a voting right in October 2019 under Article 10.2 of the ESCB Statute. Other attendees Ms Lagarde, President designate Mr Dombrovskis, Commission Vice-President** Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Mr Garnier Mr Haber Mr Kuodis Mr Kyriacou Mr Luikmel Mr Lünnemann Mr Odór Mr Pattipeilohy Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Bindseil, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Ms Valla, Deputy Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 16 January 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 11-12 December 2019 1. Review of financial, economic and monetary developments and policy options Financial market developments Mr Cœuré reviewed the latest financial market developments. Since the Governing Council’s previous monetary policy meeting on 23-24 October 2019, there had been signs of increased optimism among market participants. Global bond yields had remained at some distance above the very low levels that had been observed towards the end of summer 2019. Global stock prices were at, or close to, historical highs. All in all, financial market participants were less pessimistic and were pricing in less additional accommodation by central banks than earlier in the year. Global sovereign bond markets had been much quieter over the previous few weeks than they had been prior to the 23-24 October monetary policy meeting, when prospects of a breakthrough in the trade negotiations between the United States and China had pushed up ten-year US Treasury and German government bond yields. Since then, yields had moved broadly sideways, with German ten-year sovereign bond yields oscillating at around -30 basis points. There were likely two main reasons why yields had not continued on an upward trajectory. First, the outlook remained less favourable than at the start of 2019 and there was still no breakthrough in the resolution of the two major risk factors currently facing the global economy, i.e. the imposition of tariffs and Brexit. Second, monetary policy easing by major central banks, including the ECB, had put persistent downward pressure on yields. Since September 2019 expectations of a further easing of monetary policy in the euro area had undergone a reversal, which had affected the entire forward interest rate curve. There were currently only limited expectations of a further cut in the ECB’s deposit facility rate over the following 12 months. At the same time, the prospect of a tightening had also remained far out in the future, with a first full 10 basis point hike not priced in until the end of 2022. Mr Cœuré also provided an update on the progress and impact of the two-tier system of reserve remuneration. The share of banks’ unused allowances had dropped sharply after the implementation of the Governing Council’s decision on the two-tier system. Many banks had been fast to make full use of their allowances, in part through cross-border borrowing in money markets, which was also reflected in trading volumes. The impact on unsecured short-term money market rates, such as the €STR, had been very limited. The occasional spikes in €STR volatility were attributed to other factors unrelated to the two-tier system. At the same time, there had been a notable initial increase in repurchase agreement market rates in some jurisdictions in response to the launch of the tiering system, but it had not been persistent. Global equity prices had increased measurably as the prospects of a breakthrough in trade negotiations had improved. The EURO STOXX50 index had gone up by 2% since the Governing Council’s monetary policy meeting on 23-24 October 2019 and the S&P 500 by almost 5%, hitting a new all-time high. At first sight, stock and bond market developments seemed to be somewhat out of sync. However, stock markets were currently being driven by short-term factors, including the recent drop in risk aversion, while earnings expectations suggested that both stock and bond market investors remained very cautious about the medium-term growth and inflation outlook. The near-term global outlook had possibly been supported by the substantial easing of financial conditions in some emerging markets on the back of a reversal in portfolio flows. Since the start of 2019, investors had resumed channelling funds into emerging bond markets despite the ongoing trade tensions and broader uncertainty in financial markets. The effective exchange rate of the euro had also continued to move broadly sideways, reflecting, among other things, very limited movements against the US dollar. The notable exception to these broadly stable exchange rate developments was the pound sterling, which had risen by 9% since mid-August 2019, when the risk of a no-deal Brexit had peaked. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, the pace of global activity had remained subdued. The projected annual growth rate of global activity excluding the euro area stood at 2.9% in 2019, its lowest level since 2008-09. Nonetheless there were signs of a stabilisation in the outlook for global GDP. Compared with the September 2019 ECB staff projections, growth in global activity had been revised down though, reflecting less dynamic activity in some emerging markets. News regarding trade growth had been mixed, while uncertainty remained elevated. In some emerging economies there were tentative signs that growth was stabilising, thanks in part to fiscal support. However, this reflected domestic activity in particular and did not necessarily imply an upward revision to imports. Risks to global trade hence also remained on the downside. Global financial conditions had eased moderately since the Governing Council’s previous monetary policy meeting in October. In particular, global equity prices had continued to rise on account of improved risk sentiment, amid a retrenchment of safe-haven flows. Oil prices had increased by 10.7% since the October meeting on the back of tighter oil supply following the OPEC+ extension of production cuts. The euro had depreciated somewhat both against the US dollar and in nominal effective terms. Turning to the euro area, in the December 2019 Eurosystem staff projections, real GDP growth was almost unrevised compared with the September 2019 ECB staff projections: real GDP was expected to increase by 1.1% in 2020, 1.4% in 2021 and 1.4% in 2022. The risks surrounding the euro area growth outlook remained tilted to the downside but had become somewhat less pronounced. While the growth outlook remained muted in the near term, a moderate recovery was expected later on, reflecting the assumption of some dissipation of global headwinds, which would allow the fundamentals supporting growth to regain traction. Since the last Governing Council meeting, economic news, as perceived by market participants, had become less negative. Overall, business surveys since mid-September suggested a stabilisation in output growth at moderate rates. The weakness in the manufacturing sector continued, although the Purchasing Managers’ Index (PMI) on euro area manufacturing output, which had been in contraction territory since February 2019, recorded a slight rebound to 47.4 in November 2019. At the same time, spillovers to the rest of the economy remained contained. Economic sentiment in the services sector, albeit declining, remained slightly above its long-run average, while construction, retail trade and consumer confidence continued to stand clearly above their 1999-2019 averages. Private consumption continued to be supported by higher labour income, which remained the main driver of real disposable income. Looking ahead, real disposable income and private consumption growth were expected to remain solid, albeit declining somewhat on account of weakening employment dynamics. At the same time, some near-term moderation in housing investment was suggested by a range of indicators, including residential investment, construction confidence and building construction production. Business investment growth was expected to weaken further in the near term, given the fall in industrial production and the rise in uncertainty about manufacturing activity, which was contributing to investment being postponed. As regards developments in euro area labour markets, sectoral indicators pointed to a further moderation in labour market conditions, largely driven by the manufacturing sector. National accounts data for the third quarter showed that employment growth had declined to 0.1% (in quarter-on-quarter terms), from 0.2% in the second quarter of 2019 and from 0.3% in the first. The PMI on employment had edged up in November to 51.8, remaining in contractionary territory for manufacturing and in expansionary territory for services and construction. National accounts statistics confirmed persistent weakness in euro area exports of goods and services in the third quarter of 2019. Extra-euro area exports of goods had been stable as the negative contribution from Asia was offset by the positive contribution from the United States, while intra-euro area trade had proved weaker, especially in intermediate goods. Turning to price developments, according to Eurostat’s flash estimate, annual HICP inflation had increased from 0.7% in October to 1.0% in November, mainly reflecting higher services and food price inflation. HICP inflation excluding energy and food had increased from 1.1% in October to 1.3% in November. Measures of underlying inflation remained generally subdued, although there were some indications of a mild increase, which was in line with previous projections. In the December 2019 Eurosystem staff projections, HICP inflation was projected to be 1.1% in 2020, 1.4% in 2021 and 1.6% in 2022, reaching 1.7% at the end of the projection horizon. Projections for headline inflation as well as for HICP inflation excluding food and energy were broadly unrevised. This reflected the interplay between, on the one hand, upward pressures from a weaker exchange rate and higher oil prices, and, on the other hand, weaker global prices and staff taking a cautious view on domestic price dynamics. In addition, certain indicators of underlying inflation had also been heavily affected by statistical effects in package holiday prices in the euro area’s largest economy. Some indicators that excluded this component suggested a very gradual but notable upward slope in the path of underlying inflation over recent years. At the same time, other measures showed a less convincing upward trajectory. Moreover, as HICP inflation only partially reflected changes in housing-related costs inflation measures would likely be higher currently if the cost of owner-occupied housing was accounted for. Wage growth remained resilient but stronger labour cost pressures had been largely absorbed by profit margins. Annual growth in compensation per employee declined to 2.1% in the third quarter of 2019, down from 2.2% in the second quarter and 2.3% in the first, although it remained close to its long-term average (2.1%) and substantially above its low of 1.1% in the second quarter of 2016. At the same time, profit margin growth, following its significant weakening in 2018 on account of the slowdown in economic activity, had started to recover tentatively but remained negative in the third quarter of 2019. The recent slowdown in foreign and domestic demand had particularly affected activity in the industrial sector, where unit profit growth was highly correlated with the business cycle, and less so services activity, for which the correlation tended to be somewhat lower. Average point estimates for longer-term inflation expectations in the Survey of Professional Forecasters had declined in each quarter of 2019 and stood at 1.67% in the fourth quarter of the year, down from 1.88% in the final quarter of 2018. Euro area market-based indicators of medium to longer-term inflation expectations had remained at low levels. Like other indicators, the five-year forward inflation-linked swap rate five years ahead, currently at 1.24%, continued to hover somewhat above the all-time low (of 1.12%) reached in early October 2019. Turning to euro area financial conditions, the EONIA forward curve had shifted up further since the Governing Council’s October monetary policy meeting, reflecting generally favourable risk sentiment owing to promising trade talks between the United States and China and a tentative stabilisation of the macroeconomic outlook. The forward curve now showed only a slight inversion, with its trough slightly above -0.5%. As term premia were now estimated to be close to zero – up from previously negative levels – “genuine” policy expectations had shifted by less than the forward curve suggested. At the same time, the estimated impact of the asset purchase programme (APP) on the compression of term premia in ten-year sovereign bonds remained sizeable. Euro area equity prices had increased further for non-financial corporations since the October monetary policy meeting, while they remained largely unchanged for financial corporations. According to a dividend discount model, the increase in euro area non-financial equity prices was mainly driven by declines in the equity risk premium on the back of a perceived improvement in global risk sentiment. This was dampened by the ongoing decline in longer-term earnings expectations, which, however, showed some signs of stabilisation. Turning to money and credit developments, the annual growth rate of broad money (M3) stood at 5.6% in October. This was almost entirely driven by annual M1 growth, with the decreasing opportunity cost of holding monetary assets being the main factor supporting robust broad money growth. From a counterpart perspective, credit to the private sector accounted for only about half of broad money creation, while net external monetary flows accounted for the other half. Lending volumes continued to grow at a solid pace. The annual growth of bank loans to non-financial corporations was slightly below 4% in October, while that in credit to households reached 3.5% in October, with some differences across countries. The ECB’s monetary policy measures continued to be passed through to bank lending rates. At the euro area level, the composite lending rate for non-financial corporations stabilised at 1.56% in October, while the cost of borrowing for households for house purchase stood at the historical low of 1.44%. While a large part of banks’ deposit funding, in particular retail deposits, remained floored at zero, the distribution of deposit rates to non-financial corporations continued to shift into negative territory in October 2019. At the same time, margin pressure was offset by the favourable developments in bank bond yields, despite recent increases. Moreover, while the net interest income earned by banks for each unit of their assets had been compressed, robust growth in intermediation volumes meant that the base for income generation was expanding. In addition, the two-tier reserve system was expected to reduce the cost for banks of holding excess liquidity. The euro area fiscal stance was assessed as being expansionary over 2019-21, which would provide some support to demand conditions, and broadly neutral in 2022. The composition of fiscal expansion was tilted towards direct tax cuts and higher transfers. At the euro area level, the reduction in interest payments was estimated to offset around half of the budget effect of fiscal loosening. Monetary policy considerations and policy options Summing up, Mr Lane remarked that incoming data since the last monetary policy meeting pointed to continued weak but stabilising euro area growth dynamics. The ongoing weakness of international trade in an environment of persistent global uncertainties in combination with sector-specific domestic factors continued to weigh on the euro area manufacturing sector and was dampening investment. Private consumption remained resilient amid rising wages and favourable – albeit moderating – labour market developments. The December staff projections foresaw an increase in real GDP growth from 1.1% in 2020 (which was a slight downward revision) to 1.4% in both 2021 and 2022. Although risks to the growth outlook remained tilted to the downside due to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, these risks had become somewhat less pronounced. Bank lending conditions for firms and households had continued to improve, in a sign of continuing strong pass-through of monetary policy. In addition, equity prices had increased in line with improved market sentiment and the euro exchange rate had depreciated somewhat. Measures of underlying inflation remained generally subdued, although there were some indications of a mild increase, which was in line with previous projections. Indicators of both market-based and survey-based inflation expectations had remained at or near historical lows. Solid and broad-based wage growth was expected to continue, and the profile of a gradual pick-up in inflation remained largely unchanged compared with the September 2019 ECB staff projections. The December 2019 Eurosystem staff projections foresaw inflation increasing from an average of 1.2% in 2019 to an average of 1.6% in 2022, reaching 1.7% at the end of the projection horizon. Overall, the Governing Council was still faced with an inflation outlook that was below its medium-term aim, and inflation expectations continued to stand at low levels. Significant action had been taken to support the rise of inflation towards the medium-term aim. The Governing Council would, therefore, closely monitor inflation developments and the impact of the unfolding monetary policy measures on the economy. Its strengthened forward guidance would ensure that financial conditions adjusted in line with changes to the inflation outlook. Against this background, Mr Lane proposed to keep the monetary policy stance unchanged at today’s meeting. This would entail reiterating the forward guidance on policy interest rates, net asset purchases and reinvestments. At the same time, in its communication the Governing Council needed to stress that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards the aim in a sustained manner, in line with its commitment to symmetry. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, Governing Council members broadly agreed with the assessment of the outlook for economic activity in the euro area provided by Mr Lane in his introduction. Incoming information since the Governing Council’s monetary policy meeting in October pointed to continued weak euro area growth dynamics, although there were some signs of stabilisation. The ongoing weakness of international trade amid persistent global uncertainties continued to weigh on the euro area manufacturing sector and was dampening investment growth. At the same time, the services and construction sectors had remained resilient, despite some recent moderation, with employment growth and increasing wages continuing to underpin the euro area economy. This outlook was broadly reflected in the December 2019 Eurosystem staff projections. The outlook for real GDP growth had been revised down slightly for 2020 compared with the September 2019 ECB staff projections. Regarding the outlook for the external environment, it was noted that the global outlook remained weak, with a further downward revision to the outlook for both global growth and trade in the December 2019 Eurosystem staff projections. This was illustrated by the fact that the latest projections now foresaw growth in global trade excluding the euro area of below 1% in 2020, compared with an increase of over 2% in the September 2019 ECB staff projections. Members assessed the risks to the external environment as having remained on the downside overall, due to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, with reference being made to the persistence of uncertainties related to trade tensions and to the withdrawal of the United Kingdom from the EU. At the same time, it was suggested that sentiment in the United States seemed to have become more upbeat recently following indications that trade tensions between the United States and China were diminishing. Positive developments in financial markets perhaps reflected the view that an escalation of trade disputes in the coming year had become less likely. However, it was also argued that the global geopolitical situation was not conducive to lowering uncertainty, at least in the short term, with reference also being made to developments at the World Trade Organisation that could impair its functioning for some time. Concern about the risks to trade was also linked to the very complex nature of global supply chains. It was emphasised that policies to rebuild confidence and reduce uncertainty were needed in relation to geopolitical tensions and trade conflicts. Turning to euro area activity, members broadly agreed that recent economic data and survey information, while remaining weak overall, had also contained some more positive signs, pointing to a stabilisation in euro area growth. Real GDP growth had been confirmed to have increased by 0.2%, quarter on quarter, in the third quarter of 2019 – unchanged from the previous quarter. In the euro area’s largest economy and in the euro area as a whole, real activity had been stronger than expected in the third quarter. In addition to some positive developments in recent survey data, the Citigroup surprise index was trending upwards and had been close to achieving positive values in recent weeks, while according to various models estimates of the probability of recession had declined significantly. With regard to the risk of adverse spillovers from the ongoing weakness in manufacturing to sentiment and activity in other sectors of the economy, there appeared to be tentative indications that industrial production might bottom out before these spillovers became more generalised. At the same time, even though services sector activity had so far been resilient, it was argued that there was a need to remain cautious given the risk of spillovers across countries. In discussing the December 2019 Eurosystem staff projections, it was highlighted that this was the first projection exercise for some time in which there had not been a significant downward revision to the euro area growth outlook. These projections could be interpreted as confirming the narrative contained in the previous projection exercise and increasing the Governing Council’s confidence in the baseline. At the same time, it was acknowledged that the downward revision to foreign demand over the projection horizon had been offset by the prospect of stronger domestic demand, which had benefited from the additional monetary policy accommodation introduced in September as well as some extra fiscal stimulus. It was emphasised that the comprehensive package of policy measures that the Governing Council had decided in September was supporting the euro area expansion, the ongoing build-up of domestic price pressures and thus the robust convergence of inflation to its medium-term aim. However, it was also stressed that in order to reap the full benefits from the ECB’s monetary policy measures, other policy areas needed to contribute decisively to raising the longer-term growth potential, supporting aggregate demand at the current juncture and reducing vulnerabilities. The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, were assessed as remaining tilted to the downside, but having become somewhat less pronounced. Regarding fiscal policy, the mildly expansionary euro area fiscal stance in 2020 was seen as providing some support to economic activity. However, in view of the weak economic outlook, members welcomed the Eurogroup’s call for differentiated fiscal responses and its readiness to coordinate. It was emphasised that governments with fiscal space should be ready to act in an effective and timely manner, while governments in countries where public debt was high needed to pursue prudent policies and meet structural balance targets. This would create the conditions for automatic stabilisers to operate freely. Also all countries should redouble their efforts to achieve a more growth-friendly composition of public finances. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation had been 1.0% in November 2019, compared with 0.7% in October, mainly reflecting higher services and food price inflation. On the basis of current futures prices for oil, headline inflation was likely to rise somewhat in the coming months. Although measures of underlying inflation had generally remained muted, there were indications of a mild increase in line with previous expectations. While labour cost pressures had strengthened due to tighter labour markets, the weaker growth momentum was delaying their pass-through to inflation. Over the medium term inflation was expected to increase, supported by the ECB’s monetary policy measures, the ongoing economic expansion and solid wage growth. This assessment was also broadly reflected in the December 2019 Eurosystem staff projections. Compared with the September 2019 ECB staff projections, the outlook for HICP inflation had been revised up slightly for 2020 and down slightly for 2021, mainly driven by the expected future path of energy prices. In discussing the inflation outlook in the December 2019 Eurosystem staff projections, members acknowledged the absence of major revisions and considered that the latest projections provided broad confirmation of the path for inflation in the previous projections exercise. It was noted that, excluding volatile package holiday prices in the euro area’s largest economy, there had been a solid upward movement in underlying inflation, supported by high capacity utilisation levels, rising energy commodity prices and tight labour markets. It was also observed that staff had adopted a more cautious approach to developments in profit margins over the projection horizon, which were now assumed to recover more gradually, while the impact of the ECB’s monetary policy measures on growth and inflation contained in the December 2019 staff projections was seen as being rather conservative compared with a range of estimates from different models. Members also noted, however, that even though the latest inflation projections had not been revised down further, there had previously been substantial downward revisions to the inflation outlook over the past year. HICP inflation in 2021 was expected to be only 1.4% in the current projection exercise compared with 1.8% in the December 2018 staff projections. Moreover, the comment was made that previous forecast errors for inflation were not fully explained by domestic and international factors and it was suggested that further efforts should be made to try to better understand the reasons behind the unexplained weakness in inflation. Regarding the impact of the cost of owner-occupied housing on inflation measures it was pointed out that while the effect of including this factor was generally procyclical and increased the volatility of inflation, it could also help to explain the perception of higher inflation in some countries where housing market developments had been relatively strong. There was also some discussion about how climate-related policies, including the European Commission’s Green Deal package, should be taken into account in the projection exercises, with members contending that there was a need to step up efforts to understand the economic consequences of climate change. It was highlighted that while policies designed to mitigate the impact of climate change could be expected to have an impact on growth and inflation in the coming years, the implications for the projections would need to be analysed carefully. In particular, it was argued that while such policies could be considered a negative supply shock, the response to climate change could also lead to significantly higher investment, while the impact on oil and energy prices was uncertain. As regards longer-term inflation expectations, members noted that while market-based measures of longer-term expectations had stabilised, the ECB’s September monetary policy measures had not yet had any visible positive effect, with longer-term inflation expectations continuing to stand at historically low levels and clearly below the ECB’s inflation aim. In terms of market-based measures of longer-term inflation expectations, the five-year forward inflation-linked swap rate five years ahead currently stood at 1.24%, while in terms of survey-based measures, longer-term inflation expectations stood at 1.7% for the fourth quarter of 2019 in the Survey of Professional Forecasters (SPF). However, it was pointed out that most of the gap between survey-based and market-based measures of longer-term inflation expectations disappeared when adjusting for estimates of liquidity and risk premia, and that the risk of deflation was low. Moreover, a remark was made that the point estimates provided by SPF participants were still at levels consistent with the Governing Council’s inflation aim and that, according to most available indicators, the degree to which longer-term inflation expectations were anchored had remained unchanged recently. At the same time, the previous declines in many of the indicators suggested close monitoring was warranted. With regard to the monetary analysis, members broadly shared the assessment provided by Mr Lane in his introduction that money and credit developments remained robust overall. The sustained rates of broad money growth reflected ongoing bank credit creation for the private sector and low opportunity costs of holding M3. Continued robust growth of money was also seen as evidence for the ongoing transmission of monetary policy, given that the monetary aggregates had continued to expand despite the pause in net asset purchases between the beginning of the year and their resumption on 1 November. The solid growth of loans to firms and households had benefited from the continued improvement in bank lending conditions, which was seen as a sign of the ongoing pass-through of the accommodative monetary policy stance to the borrowing conditions for the real economy. The accommodative monetary policy stance was seen as safeguarding very favourable bank lending conditions and as continuing to support access to financing across all economic sectors. The bank lending channel of monetary policy was seen to be functioning well, as also evidenced by the euro area bank lending survey and the continued translation of favourable market funding conditions into easier borrowing conditions for firms and households. At the same time, some cross-country heterogeneity in the pass-through to lending rates was visible, as competitive pressures in the banking industry differed across countries. Similarly, it was noted that the extent to which banks were passing on the ECB’s monetary policy to bank deposit rates varied considerably. This was seen to be due to differences in legal frameworks, market practices, funding needs and competitive pressures across the banking systems of euro area countries. Moreover, the potential financial stability implications of the current monetary policy environment were seen to merit close monitoring. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. The incoming data since the last Governing Council meeting in late October pointed to continued weakness in euro area growth dynamics, although there were some initial signs of stabilisation in the growth slowdown. Inflation developments had remained subdued overall, although there were some indications of a slight increase in measures of underlying inflation in line with previous expectations. Members expressed confidence that the monetary policy measures would provide the necessary monetary stimulus to support the stabilisation of economic growth – compensating to a large degree for the negative impulse from global factors – and the recovery of inflation towards the Governing Council’s aim. The September monetary policy measures had contributed to an overall substantial easing in financial conditions, preserving much of the easing that had occurred via anticipation effects since the summer. Perceptions of receding uncertainties, mainly related to the trade dispute between the United States and China, had led to some upward movement in risk-free interest rates and yields in the corporate and sovereign bond markets since the October monetary policy meeting. The more positive market sentiment had also supported equity prices and the euro had depreciated somewhat. The point was made that the upward adjustment in the yield curve observed since September showed that markets were responding to changes in the data, outlook and risks, in line with the Governing Council’s state-dependent forward guidance. This ran counter to perceptions of circularity between market expectations and the ECB's policy decisions. At the same time, it was highlighted that real interest rates remained at very low levels across the entire maturity spectrum, which was seen as confirmation of the effectiveness of the ECB’s policy measures in underpinning very favourable financing conditions. The continued pass-through of the monetary accommodation to improving loan dynamics and lower bank lending rates was also underlined. This was providing support to firms and households for financing consumption and investment. It was remarked that the introduction of the two-tier system for reserve remuneration had proceeded very smoothly and had worked as intended. It had relieved banks from part of their costs of holding excess liquidity, while at the same time preserving money market rates at low levels. It had also encouraged additional borrowing and lending activity in the money market, including cross-border trades, which had led to a more homogenous distribution of liquidity across countries, as also evidenced in the decline in TARGET2 balances. At the same time, it was pointed out that the tiering-induced cross-border trading had been almost entirely based on secured money market transactions, while unsecured transactions had remained largely domestic. This suggested that the euro area money market continued to display some degree of fragmentation. While it appeared that the take-up in the operation under way as part of the new series of targeted longer-term refinancing operations (TLTRO III) would turn out to be somewhat lower than expected, it was seen as contributing to preserving favourable bank lending conditions. This lower take-up was attributed to banks’ desire to minimise exposures towards the year-end and the better distribution of liquidity through money markets as a result of the tiering system for reserve remuneration. It was cautioned that the take-up in the present operation should not be over-interpreted, but be assessed together with the take-up in future operations, and that the overall success of TLTRO III should only be judged at the end of the programme. Against this background, members widely agreed with the proposal by Mr Lane to keep the monetary policy stance unchanged, with a steady hand being warranted for monetary policy. This would entail reiterating the Governing Council’s forward guidance on policy interest rates, net asset purchases and reinvestments of principal payments. The present monetary policy stimulus appeared fully appropriate, lending substantial support to growth and inflation developments. While vigilance on the efficacy of the policy measures and the appropriateness of the monetary policy stance was called for, it was highlighted that the measures should be given time to exert their full impact on the euro area economy. Faced with a subdued inflation outlook, which was largely unchanged from September, members reiterated the need for a highly accommodative monetary policy stance for a prolonged period of time. Projected inflation was generally seen to remain some distance from the Governing Council’s inflation aim, while market-based measures of inflation expectations had stagnated at historically low levels and downside risks to the growth outlook continued to prevail, despite having become somewhat less pronounced. In this environment, monetary policy needed to remain highly expansionary. Members highlighted the crucial role of the Governing Council’s forward guidance in providing monetary accommodation, with the strengthened state-based forward guidance decided at the September monetary policy meeting being seen as providing a degree of “automatic stabilisation” in response to changes in macroeconomic conditions. Tying the likely path of policy interest rates more clearly to inflation prospects ensured that financial conditions would adjust in accordance with the evolving state of the economy and the outlook for inflation. Looking ahead, there was broad agreement on the need to carefully monitor the incoming data and the evolution of risks, while continuing to evaluate the pass-through of the September policy measures. In any case, it remained vital for the Governing Council to be prepared to act by adjusting all of its instruments, as appropriate, to ensure that inflation moved towards the aim in a sustained manner, in line with the Governing Council’s commitment to symmetry. At the same time, some members highlighted the need to be attentive to the possible side effects of the present monetary policy measures, which merited close monitoring in the period ahead. It was suggested that the liquidity created by the Eurosystem needed to be tracked carefully regarding its impact on bank intermediation and asset markets – namely equities, housing and real estate – as well as capital outflows outside Europe in a search for yield. Some concern was also voiced with regard to the potential impact of negative interest rates on euro area households, with savings and consumption dynamics also requiring close monitoring. Nonetheless, confidence was expressed that policy rates had not yet reached the so-called reversal rate. Thus far there was ample evidence that credit conditions in the euro area had continued to improve, with rising credit volumes and declining borrowing rates for firms and households providing support to their consumption and investment plans. Moreover, while the negative interest rate environment was dampening banks’ net interest income, the overall effects on bank profitability had remained positive. This related in particular to capital gains from banks’ sales of securities to the Eurosystem and lower provisions for loan impairment, with the overall macroeconomic environment having improved in part as a consequence of the accommodative monetary policy stance. In this context, it was recalled that macroprudential policies were the first line of defence for addressing risks and side effects, as they could be tailored to the issues identified. To some extent, the implementation of monetary policy could also be adjusted to reduce unwanted side effects, with the introduction of the two-tier system for excess reserve remuneration being seen as a case in point. On communication, members broadly agreed with the proposals put forward by Mr Lane in his introduction. It needed to be emphasised that overall the incoming data remained weak, but had signalled some stabilisation of the euro area economy. It had to be pointed out that risks remained tilted to the downside, although they had become somewhat less pronounced. With regard to monetary policy, the need for patience and perseverance needed to be stressed. On the one hand, it needed to be highlighted that the measures decided in September had been effective and were reaching the economy, although more time was needed for their full effects on economic outcomes to unfold. On the other hand, it needed to be emphasised that the baseline scenario for growth and inflation continued to be predicated on a highly accommodative monetary policy stance for a prolonged period of time. Therefore, steady handed communication was needed in order to preserve the very favourable financial conditions to support a robust convergence of inflation towards the Governing Council’s inflation aim. Likewise, it was felt that the Governing Council needed to reiterate its commitment to achieving its inflation aim. In this regard, the important role of the Governing Council’s state-dependent forward guidance needed to be highlighted, as it might not have been fully appreciated by market participants and ECB observers. It needed to be stressed that the forward guidance formulation – by tightly linking the likely future path of policy rates to an inflation outlook that was sufficiently close to, but below, 2%, as well as a consistent rise in observed underlying inflation – ensured that financial conditions would adjust in accordance with changes to the inflation outlook. At the same time, it was seen as important to stress that the Governing Council was attentive to potential side effects of its monetary policy measures. While the present monetary policy configuration was fully appropriate, it needed to be emphasised that the analysis and monitoring of side effects was part and parcel of the Governing Council’s ongoing monetary policy assessment. Furthermore, it was necessary to reiterate that other policymakers needed to contribute more decisively to supporting the euro area economy, contributing to further stabilisation and building confidence, as well as alleviating uncertainties relating to trade and geopolitical tensions that were holding back a more dynamic expansion of the economy. In particular, fiscal policy, notably that of governments with fiscal space, had to play a more prominent role in stabilising economic conditions in view of the weakened economic outlook. In this context, the Governing Council welcomed the Eurogroup’s recent call for differentiated fiscal responses and its readiness to coordinate. Finally, it was also suggested that some broad guidance be communicated about the forthcoming strategy review, including the likely timeline, although it was generally seen as advisable to refrain from public discussions on the strategy prior to the envisaged launch of the review by the Governing Council early in 2020. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it saw the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. On 1 November net purchases had been restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expected them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is191212~c9e1a6ab3e.en.html Press release https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp191212~06d84240ae.en.html Meeting of the ECB’s Governing Council, 11-12 December 2019 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Cœuré Mr Costa Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Mersch Mr Müller Mr Rehn Mr Reinesch Mr Rimšēvičs * Mr Stournaras Mr Vasiliauskas * Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann* Mr Wunsch * Members not holding a voting right in December 2019 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Pattipeilohy Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Ms Holthausen, Deputy Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 20 February 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 22-23 January 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments. The period since the Governing Council’s monetary policy meeting on 11-12 December 2019 had been marked by three major events: the year-end, the geopolitical tensions in the Middle East, and the signing of the “phase-one” trade agreement between the United States and China. The trade agreement appeared to be the most significant, as it had helped consolidate the general improvement in market sentiment that had gained momentum in early September 2019. Expectations that monetary policy would remain highly accommodative, both in the United States and in the euro area, further supported the improved market sentiment. The year-end, as usual, had been characterised by thin liquidity in money markets due to reporting and regulatory obligations. The turn of this year, however, had been the smoothest since 2016. Repo rates had remained mostly concentrated around levels prevailing before the turn of the year. Use of the Eurosystem’s securities lending facilities had also increased only slightly over the year-end. In the US money market, the Federal Reserve’s injections of additional liquidity had mitigated any potential year-end tensions. The new year had started with geopolitical tensions escalating in the Middle East. However, financial markets had proved rather resilient, which could be explained by a number of factors. One had been the attempt by the authorities to quickly de-escalate the situation through their rhetoric. A second factor had been the prevailing high level of oil inventories in OECD countries. Combined with a global economy much less reliant on oil than in the past, this cushioned the expected impact of supply-side disruptions on the oil price. A third factor might have been the general underlying improvement in market sentiment. This improved sentiment had been visible in global bond markets since early September 2019, following indications that a phase-one trade deal between the United States and China was within reach. Since September 2019, yields on 10-year German benchmark government bonds had increased by around 50 basis points. In addition, the spread vis-à-vis the 10-year US Treasury benchmark had narrowed by some 30 basis points. Some insight into the reversal in the US-euro area interest rate differential could be derived from the breakdown of bond yields into the short-term rate expectations component and the term premia component. In both the United States and the euro area, yields were currently well below their end-2018 levels, but for different reasons. In the euro area, the expected interest rate path during 2019 had been adjusted downwards much less than in the United States, and had also partly reversed as sentiment had brightened in recent months. However, the decline in term premia had proven much more persistent in the euro area. This might partly be linked to the resumption of net asset purchases by the ECB, which had removed additional duration risk from the market. In addition, the decline in term premia might be related to the reduced uncertainty around the outlook for short-term interest rates. The overnight index swap forward curve suggested that the markets currently expected the ECB to stay on hold for at least the next two years. These expectations were broadly consistent with the subdued inflation outlook priced in by markets. Turning to corporate and government bond issuances, the combination of improved market sentiment and continued monetary accommodation had likely fostered investor demand. In the private sector, strong issuance of corporate bonds had been observed for the year to date. For public issuers, investor demand for long-maturity government bond issuances, such as those of Italy or Spain, had been exceptionally high in January. Prospects for continued monetary policy accommodation and improved market sentiment likely also supported equity valuations. The S&P 500 and the EURO STOXX 600 were up by around 5% and 4%, respectively, since 12 December 2019. Many equity indices were at, or close to, their historical highs. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, global activity and trade had remained subdued. There were some signs of a stabilisation, and even a slight pick-up, in the Purchasing Managers’ Index (PMI) data, with the turnaround being most visible in the manufacturing PMI. Overall, the PMIs had signalled a stabilisation in global activity at modest growth rates in the fourth quarter of the year, with signs of improvement within the last quarter. Global trade had recovered in the third quarter of 2019 and, more recently, trade uncertainty had declined based on the trade deal between the United States and China. On the whole however, global trade had remained subdued, dampened by a still high level of trade tensions and weak Asian demand. Turning to global financial conditions, market sentiment towards risky assets had remained positive. Global equity prices had continued to increase, especially in the United States. Since the Governing Council’s December monetary policy meeting, oil prices had decreased by around 1% and the euro had remained broadly stable against the US dollar, although it had depreciated slightly in nominal effective terms. Turning to the euro area, GDP growth had stood at 0.3%, quarter on quarter, in the third quarter of 2019, according to Eurostat’s third estimate. In the fourth quarter, business indicators had provided some signs of a stabilisation, with the composite output PMI and the Commission’s Economic Sentiment Indicator starting to increase. In particular, the results of forward-looking manufacturing surveys appeared to have stabilised. Incoming data since the last Governing Council meeting pointed to continued positive but modest GDP growth. The demand components of private consumption had continued to be supported by robust income developments. This had reflected the overall resilience of the labour market. Most importantly, solid growth in compensation of employees had continued. Moreover, fiscal policies – mainly in the form of lower taxes or higher transfers – had also started to contribute positively to developments in disposable income. In addition, terms of trade developments – driven by energy prices in particular – had supported annual growth in disposable income over the course of 2019. However, business investment dynamics remained weak and had been slowing since early 2019. The latest sectoral indicators suggested business investment would remain subdued in the short term. Extra-euro area exports of goods had increased in the last four months, although displaying some Brexit-related volatility. Looking at developments in euro area labour markets, euro area employment had continued to rise in the third quarter but had increased only slightly, consistent with the slowdown in economic growth. The euro area unemployment rate had stood at 7.5% in November, essentially unchanged since August. Euro area annual HICP inflation had increased to 1.3% in December, reflecting mainly higher energy inflation, but it remained considerably below the Governing Council’s inflation aim. HICP inflation excluding energy and food was unchanged at 1.3%, with services inflation continuing to be substantially stronger than non-energy industrial goods inflation. Measures of underlying inflation had remained generally muted, although there were further signs of a gradual increase in line with previous expectations. HICP sub-components with a relatively high domestic content had become more prominent drivers of underlying inflation over recent years. Wage growth continued to be solid. Annual growth in compensation per employee was 2.2% in the third quarter of 2019, unchanged from the second quarter of 2019, and broadly in line with its long - term average of 2.1%. Furthermore, wage growth had remained broad-based across sectors. According to the latest Survey of Professional Forecasters (SPF), HICP inflation expectations were 1.2%, 1.4% and 1.5% for 2020, 2021 and 2022 respectively. Following four successive rounds of downward revisions, SPF respondents had kept their inflation forecasts essentially unchanged, with longer-term inflation expectations standing at 1.7%. Market-based indicators of longer-term inflation expectations in the euro area had recovered somewhat since the Governing Council’s last monetary policy meeting, but remained at subdued levels, with the five-year forward inflation-linked swap rate five years ahead standing at just above 1.3%. Turning to euro area financial conditions, long-term risk-free rates had changed little since the December Governing Council meeting, as was the case for the EONIA forward curve, with the short end of the curve remaining almost flat. Euro area equity prices for both financial and non-financial corporations had continued to increase since the December meeting. Lower discount rates, on the back of accommodative monetary policy, had played an important role in supporting euro area equity prices in 2019, counteracting the drag from a decline in longer-term earnings expectations. Financing conditions for euro area non-financial corporations remained very favourable and had remained broadly unchanged since the December meeting. Turning to money and credit developments, the annual growth rate of M3 had remained robust in November, at 5.6%, almost entirely driven by annual M1 growth. Portfolio considerations linked to low opportunity costs of holding M3 were the main economic factor supporting robust broad money growth. From a counterpart perspective, credit to the private sector was contributing about half of broad money creation, while net external monetary flows accounted for the other half. The pass-through of monetary accommodation to euro area bank lending rates had been continuing, although lending rates had stabilised in November, standing slightly above historical lows. This likely reflected earlier movements in market rates. Since February 2019 interest rates on loans to the private sector had been on a declining trend. Growth in loans to households and firms remained solid. While the annual growth rate of loans to households had remained unchanged from October to November, at 3.5%, the annual growth rate of loans to non-financial corporations had moderated to 3.4%, from 3.8%, likely reflecting some lagged reaction to the past weakening in the economy. According to the January 2020 bank lending survey, credit standards for loans to enterprises remained broadly unchanged in the fourth quarter of 2019. A continued tightening contribution from risk perceptions consistent with subdued economic activity in the euro area was counterbalanced by an easing impact from competitive pressures. The survey had also indicated a weakening in demand for loans to firms, in line with the slowdown in economic activity observed since 2018. Turning to fiscal policies, the euro area fiscal stance was assessed to be mildly expansionary for 2019-21. The fiscal stimulus consisted mainly of direct tax cuts and increases in transfers and was expected to contribute positively to disposable income growth in 2019-21. This provided a tailwind for private consumption for the first time since 2010. Monetary policy considerations and policy options Summing up, Mr Lane remarked that financial conditions had remained accommodative, supported by receding trade tensions and the unfolding effects of the September policy package. Bank lending conditions for firms and households continued to be favourable, indicating an ongoing pass-through of favourable market funding conditions. Incoming economic data confirmed the Governing Council’s previous assessment of ongoing but moderate growth, with slightly more positive signals from forward-looking indicators. Some of the uncertainty surrounding international trade was receding but the risks surrounding the euro area growth outlook – relating to geopolitical factors, protectionism and vulnerabilities in emerging markets – remained skewed to the downside. HICP inflation dynamics and developments in underlying inflation remained subdued overall. Market and survey-based indicators of inflation expectations continued to signal the risk of a prolonged period of low inflation. However, wage growth was resilient and broad-based, even though the pass-through to inflation continued to be slow. In addition, there were tentative signs of a gradual pick-up in underlying inflation. Overall, despite some positive signals for future growth and inflation, the outlook for price developments remained below the Governing Council’s medium-term aim and risks to the outlook were still elevated. However, financial conditions remained favourable and could rely on the automatic stabilisation function embedded in the forward guidance to accommodate any short-term volatility in the outlook. Considering the tentative signals of a stabilisation in the euro area economy, the Governing Council would await further data to see if there were firmer grounds for optimism. On the basis of this assessment, Mr Lane proposed keeping the monetary policy stance unchanged at the current meeting. This would entail reiterating the forward guidance on policy rates, net asset purchases and reinvestments of principal payments. In addition, in its public communication, the Governing Council should continue to highlight that it remained ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards the aim in a sustained manner, in line with its commitment to symmetry. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses On the economic analysis, the members of the Governing Council generally shared the assessment of the outlook and risks for economic activity in the euro area provided by Mr Lane in his introduction. Incoming information since the Governing Council’s December monetary policy meeting was considered to be in line with the baseline scenario of ongoing, but moderate, growth in the euro area economy in the December 2019 Eurosystem staff macroeconomic projections. In particular, the weakness in the manufacturing sector remained a drag on euro area growth momentum. However, ongoing, albeit decelerating, employment growth and robust wage growth continued to support the resilience of the euro area economy. In considering the outlook and risks for the external environment, members noted that although global activity and trade were still subdued, there were some indications, as also reflected in recent survey data, of a stabilisation and even a possible pick-up in activity. Attention was drawn to the January 2020 update of the IMF’s World Economic Outlook, which foresaw growth in global activity slightly above the December 2019 staff projections and stronger growth in 2020 compared with 2019. Moreover, reference was made to the IMF’s assessment that temporary factors behind the slowdown in global manufacturing, such as the adjustment in the automobile sector to new emission standards and the lull in the launch of new tech products, had appeared to fade. Members also agreed that some of the uncertainty surrounding international trade was receding, although the risks to the external environment relating to geopolitical factors, rising protectionism and vulnerabilities in emerging markets continued to be tilted to the downside. In discussing the risks to the external environment, members took note of the recent phase-one trade deal between the United States and China, which appeared to have increased confidence and had been received positively by financial markets. This, together with greater clarity on the United Kingdom’s withdrawal from the EU following the UK general election in December, had contributed to a decline in international risks – although there was still substantial uncertainty. At the same time, it was noted that the tariffs imposed by both China and the United States had largely been left in place and that the trade deal could have adverse consequences for euro area exports as a result of trade diversion. In addition, unresolved issues remained between the United States and the EU as regards trade and there was evidence that firms were affected by uncertainty, including about the impact of potential tariffs on the automobile sector. Moreover, although it was now clear that the United Kingdom would be leaving the EU at the end of January 2020, their future trade relationship still had to be agreed and there could be more divergence in this relationship than previously expected. Turning to euro area activity, members broadly agreed that incoming economic data and survey information pointed to some stabilisation in euro area growth dynamics. Near-term growth was expected to be similar to rates observed in the previous quarters, thus broadly in line with the December 2019 Eurosystem staff projections. Real GDP had increased by 0.3%, quarter on quarter, in the third quarter of 2019, following growth of 0.2% in the previous quarter. This pattern of moderate growth reflected the ongoing weakness of international trade in an environment of continued global uncertainties, which had particularly affected the euro area manufacturing sector and had also dampened investment growth. At the same time, the services and construction sectors remained more resilient, despite some moderation in the second half of 2019. Nowcasting models, which took recent data releases into account, pointed to a stabilisation in growth at low rates, below estimates of potential growth. The EuroCOIN indicator had remained unchanged in December, as the impact of the positive stock market performance had been offset by persistent pessimism among firms in the manufacturing sector. It was remarked that the increase in the stock market did not seem to be related to an improvement in earnings expectations. As also appeared to be the case in the United States, this pointed to a possible disconnect between buoyant financial markets and the continued subdued outlook for the real economy. The risk of adverse spillovers from the continued weakness in the manufacturing sector to other sectors of the economy still needed to be monitored closely. It was noted that so far activity in the services sector had been quite resilient – supported by domestic demand, and underpinned by favourable financial conditions related to the ECB’s September 2019 monetary policy package as well as expansionary fiscal policy. However, while there might have been a bottoming-out in manufacturing, it was too soon to conclude that the slowdown in growth in the services sector had stopped, as spillovers to services could emerge with a lag and the sector’s current resilience might not last. The point was made that the stabilisation in euro area growth was mainly driven by household consumption, while external demand and corporate investment remained subdued. Weak investment suggested that there was little prospect of a sustained increase in growth potential and productivity. The slowdown in employment growth was highlighted. In the euro area’s largest economy this slower employment growth could be considered a normal feature of a maturing business cycle amid emerging supply bottlenecks, but other countries were not in a situation of full employment. While euro area unemployment, at 7.5%, was around pre-crisis levels, it had been flat for some time and there was considerable heterogeneity in the level of unemployment across countries. More positively, reference was made to developments in a number of euro area indicators, including the improvement in forward-looking expectations components of business surveys and the rise in the Citigroup surprise indicator. It was felt to be important to acknowledge these positive signs and care should be taken to avoid being too slow to change the risk assessment. It was noted that the automobile sector remained a concern and that there were also deeper structural factors affecting this industry that needed to be monitored closely. However, some caution was also expressed about becoming too optimistic. It was noted that although the manufacturing PMI had improved, it was still at a level which signalled a contraction in activity. In particular, the automobile sector and industrial production were still declining in the euro area’s largest economy, which would affect other countries, in part via value chain linkages. Moreover, the improvement in the Citigroup surprise indicator was mainly related to confidence indicators, while the real economy remained weak and the improvement in hard data had been negligible. The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remained tilted to the downside, but had become less pronounced as some of the uncertainty surrounding international trade had receded. The euro area fiscal stance was expected to provide some support to economic activity. In view of the weak economic outlook, the Governing Council welcomed the Eurogroup’s call in December for differentiated fiscal responses and its readiness to coordinate. Governments with fiscal space should stand ready to act in an effective and timely manner, while in countries where public debt was high governments needed to pursue prudent policies and meet structural balance targets, which would create the conditions for automatic stabilisers to operate freely. All countries should intensify their efforts to achieve a more growth-friendly composition of public finances. On price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat, euro area annual HICP inflation was 1.3% in December 2019, after 1.0% in November, mainly reflecting higher energy price inflation. On the basis of current futures prices for oil, headline inflation was likely to hover around current levels in the coming months. Measures of underlying inflation had remained generally muted, although there were further indications of a moderate increase in line with previous expectations. While indicators of inflation expectations remained at low levels, recently they had either stabilised or ticked up slightly. Labour cost pressures had strengthened amid tighter labour markets, but the weaker growth momentum was delaying their pass-through to inflation. Over the medium term inflation was expected to increase, supported by the ECB’s monetary policy measures, the ongoing economic expansion and solid wage growth. In discussing recent inflation developments, members were encouraged by the fact that headline and underlying inflation had recently evolved in line with the December staff projections and by the evidence of a continued gradual upward trend in some indicators of underlying inflation. HICP inflation excluding food and energy was at its highest level for four years, although it was still slightly below its pre-crisis average. It was remarked that this level had been reached even without housing costs fully represented in the inflation measures. While goods prices were being dampened by global factors and weak demand, services prices were gradually increasing, linked to the ECB’s monetary policy measures. On developments in other inflation measures, it was noted that the GDP deflator was also increasing. At the same time, it was argued that the level of underlying inflation remained muted, even though the likelihood of a general upward trend in inflation dynamics had increased. Members agreed with the assessment presented by Mr Lane in his introduction that wage growth remained resilient and was broad-based, against the background of solid labour market developments. The observed upward movement in inflation had increased confidence that, with wages and salaries having grown by over 2.5% in the third quarter of 2019 and above their long-term average, recent wage dynamics would pass through to inflation over time. However, it was felt that there was a need to continue to investigate the pass-through of wages to inflation, and developments in profit margins. On longer-term inflation expectations, members noted that although the indicators had either stabilised or ticked up recently, they continued to stand at low levels. Market-based inflation expectations, as measured by the five-year forward inflation-linked swap rate five years ahead, currently stood at 1.3%. Meanwhile, in terms of survey-based measures, in the SPF for the first quarter of 2020 longer-term inflation expectations were unchanged at 1.7%. It was recalled that there were important issues related to the measurement of inflation expectations and that most of the gap between survey-based and market-based measures of longer-term inflation expectations could be accounted for by estimates of risk and liquidity premia. It was also pointed out that the risk of deflation had declined further. However, it was suggested that the low level of inflation expectations indicated that most investors expected inflation to remain below the ECB’s aim for some time to come. Reference was made to survey evidence from the European Commission highlighting a strong correlation between households’ inflation perceptions and measured HICP inflation. Mention was also made of some analysis showing that short-term inflation expectations were heavily influenced by actual inflation and, in turn, affected longer-term inflation expectations. The concern was also expressed that the recent slight increase in market-based measures of inflation expectations might be related to higher oil prices and might therefore not be sustained. On the monetary analysis, members broadly shared the assessment provided by Mr Lane in his introduction, that overall money and credit developments remained robust. The annual rate of M3 growth stood at 5.6% in November 2019, broadly unchanged since August. The growth of loans to firms and households remained solid, benefiting from very low bank lending rates and the ongoing support provided by a highly accommodative monetary policy stance. In November although the annual growth rate of loans to households had remained unchanged, the annual growth rate of loans to non-financial corporations had moderated, likely reflecting some lagged reaction to the past weakening in the economy. These developments were also visible in the results of the euro area bank lending survey for the first quarter of 2020. Demand for loans to firms had weakened for the first time since 2013 and rejection rates were increasing, which could indicate a further decline in credit growth in the months ahead. It was cautioned, however, that the bank lending survey reported banks’ estimates of demand, not actual credit growth, which had remained buoyant in some countries. Moreover, credit standards for both loans to firms and loans to households for house purchase had remained broadly unchanged, pointing to still favourable credit supply conditions. Monetary policy stance and policy considerations On the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. Financial conditions had remained very accommodative overall. All components of financial conditions indices had loosened over the course of 2019, namely short-term and long-term interest rates, exchange rates and equity prices. The monetary policy measures decided at the Governing Council’s September meeting were seen to have lowered term premia and contributed to the overall substantial easing in financial conditions. Market sentiment had turned positive and risk appetite among market participants seemed strong. Uncertainties were perceived as receding, mainly due to reduced US-China trade tensions and the recent stabilisation in the economic outlook. This had led to some upward movement in risk-free interest rates, with no further cuts currently being priced into the forward curve. The accommodative monetary policy stance continued to safeguard very favourable bank lending conditions, supporting household investment demand, consumers’ expectations about their financial situation, and consumer confidence. Members saw indications that the Governing Council’s September package was being gradually transmitted to the economy. They expressed confidence in the capacity of the monetary policy measures to provide the necessary monetary stimulus to support the euro area expansion and the gradual build-up of domestic price pressures. On the two-tier system for reserve remuneration, it was remarked that the implementation of the tiering had worked well. Banks’ access to the targeted longer-term refinancing operations (TLTRO III) was highlighted as an additional measure that was helping preserve favourable bank lending conditions. The accommodative monetary policy stance had benefited the economy by contributing to the resilience of domestic demand, in particular in the services sector, whereas manufacturing continued to suffer from weak global demand. Notably, investment was being held back by international uncertainty despite the low cost of borrowing. It was also recalled, however, that the interest rate elasticity of investment had always been low and that a lack of correlation between borrowing costs and investment demand did not mean that monetary policy was ineffective. Members agreed that monetary policy had to remain highly accommodative for a prolonged period of time. Inflation was still far away from the Governing Council’s objective and a robust convergence of inflation towards the Governing Council’s aim was not yet assured, notwithstanding a slight uptick in underlying inflation. The current monetary policy configuration was seen as appropriate and sufficient to support underlying inflation pressures and developments in headline inflation over the medium term. The point was made that the recent absence of any large projection errors for core inflation should support the Governing Council’s confidence in the robust convergence of inflation to its medium-term aim. While market-based measures of inflation expectations had increased slightly, also on the back of the accommodative monetary policy stance, it was argued that risks of an unanchoring of longer-term inflation expectations remained. Against this background, all members agreed with the proposal by Mr Lane to keep the monetary policy stance unchanged. This entailed reiterating the Governing Council’s forward guidance on policy interest rates, net asset purchases and reinvestments of principal payments. A highly accommodative monetary policy stance for a prolonged period of time was seen as necessary to sustain the euro area expansion, the build-up of domestic price pressures and, thus, the robust convergence of inflation to the Governing Council’s medium-term aim. It was pointed out that the measures taken in September should be given time to exert their full impact on the euro area economy. In this context, members highlighted the essential role of the Governing Council’s state-dependent forward guidance in providing monetary accommodation. It needed to be stressed that the forward guidance formulation – by tightly linking the expected future path of policy rates to an inflation outlook that was sufficiently close to, but below, 2% as well as a consistent rise in observed underlying inflation – ensured that financial conditions adjusted in accordance with changes in the inflation outlook. In addition, tying the likely path of policy interest rates to inflation prospects ensured that financial conditions would not tighten prematurely purely on the back of an improving growth outlook. At the same time, the need to continue evaluating the pass-through of the September policy decisions was highlighted, also in the light of the potential side effects of the present monetary policy stimulus. Financial stability-related risks needed to be monitored closely, as potential side effects might become more pronounced in an environment with low rates and a flat yield curve persisting for a long time. In this context, it was noted that a shift from bank-based to market-based finance, in combination with investors’ search for yield, could lead to increased risk-taking. Reference was made to equity markets, where the continued rise in valuations was difficult to square with a weaker earnings outlook on both sides of the Atlantic, subdued profit margins and pervasive uncertainty. A remark was also made that higher housing prices could lead to fragilities in the financial system which might be insufficiently addressed by macroprudential policies. On communication, members broadly agreed with the proposals put forward by Mr Lane in his introduction. It needed to be emphasised that a prolonged accommodative monetary policy stance was required, that monetary policy transmission was effective and that the Governing Council was confident that the substantial monetary policy stimulus would pass through to inflation. It was pointed out that risks remained tilted to the downside, although they had become less pronounced as some of the uncertainty surrounding international trade was receding. Although a more positive assessment of risks could foster confidence in the upswing and further support positive economic developments, it was cautioned that a more optimistic outlook for the economy needed to be communicated carefully in order not to give rise to a premature tightening of financial conditions. As regards the Governing Council’s forward guidance, it needed to be emphasised that it was tied to the inflation outlook and therefore an accommodative stance would be maintained until the Governing Council had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within the projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. At the same time, it was felt that the Governing Council needed to reiterate its commitment to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. Following members’ preliminary considerations at the December 2019 meeting, the Governing Council decided to launch a review of the ECB’s monetary policy strategy. Since the last strategy review in 2003 the euro area and global economies had been undergoing profound structural changes. Declining trend growth, on the back of slowing productivity and an ageing population, as well as the legacy of the financial crisis, had driven interest rates down. This had reduced the scope for the ECB and other central banks to ease monetary policy using conventional instruments in the face of adverse cyclical developments. In addition, addressing low inflation was different from the historical challenge of addressing high inflation. The threat to environmental sustainability, rapid digitalisation, globalisation and evolving financial structures had further transformed the environment in which monetary policy operated, including the dynamics of inflation. It was emphasised that the discussion on the strategy was to be kept separate from the ongoing monetary policy deliberations and should not be perceived as constraining the Governing Council in its readiness to act by adjusting all of its instruments, as appropriate. Monetary policy decisions and communication Taking into account the foregoing discussion, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expected them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The Governing Council furthermore decided to launch a review of the ECB’s monetary policy strategy, approving the related press release. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200123~0bc778277b.en.html Press releases https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200123~ae33d37f6e.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200123~3b8d9fc08d.en.html Meeting of the ECB’s Governing Council, 22-23 January 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Costa Mr Hernández de Cos * Mr Herodotou Mr Holzmann Mr Kazāks * Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Mersch Mr Müller Mr Panetta Mr Rehn Mr Reinesch * Ms Schnabel Mr Stournaras Mr Vasiliauskas * Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in January 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Teixeira, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Antunes Mr Arce Mr Aucremanne Mr Bonello Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Pattipeilohy Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Mr Silvonen, Deputy Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 9 April 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 11-12 March 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 11-12 March 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments, focusing on the implications of the coronavirus (COVID-19) pandemic from three different perspectives: a contextual perspective, a policy perspective and a stability perspective. First, from a contextual perspective, stock markets had corrected sharply and equity market volatility had spiked. The S&P 500 volatility index (VIX) had risen above the levels seen during the height of the sovereign debt crisis. On Monday, 9 March 2020 equity markets had experienced the sharpest one-day sell-off since the global financial crisis. However, the severity of the sell-off needed to be assessed in the broader market context in which it had taken place. Specifically, over the course of the second half of 2019, equity market valuations had risen notably and, in some places, had been pricing in an outlook for the global economy that had become increasingly more optimistic than leading indicators of economic activity suggested. This risk-on mood in financial markets had, in turn, implied a higher risk of a more pronounced correction should sentiment change. Such a scenario was currently materialising. Second, from a policy perspective, the severity of the anticipated economic consequences of the coronavirus pandemic had already led to wide-ranging policy actions by several central banks, including the Federal Reserve System. In other jurisdictions, including the euro area, expectations of policy easing had risen markedly. In particular, there had been a notable downward shift and an inversion of the EONIA forward curve. Survey data, however, signalled more limited expectations of further interest rate cuts. The changes in policy rates, as well as expectations of further easing, had amplified price movements seen in global sovereign bond markets. The ten-year US Treasury yield had, for the first time in history, fallen below the 1% level. The yield of the ten-year German government benchmark bond, at currently -75 basis points, was also very close to its historical trough recorded in late summer 2019. Third, from a stability perspective, implied volatility had increased sharply across asset classes, and market liquidity in both private and public credit markets had tightened since the coronavirus started to spread more quickly beyond China. Some first signs of tighter funding conditions for banks had been observed both in the euro area and the United States. The Libor-OIS spread and the foreign exchange swap basis had both widened. Moreover, euro area banks had underperformed the broader euro area equity market since the outbreak of the coronavirus, with bank stocks down by over 30% since 20 February 2020. The price-to-book ratios of euro area banks had fallen to new historical lows. Stressed market conditions, rising risk aversion and flight-to-safety dynamics had also left a notable footprint in euro area sovereign bond markets, where spreads had widened by between 40 basis points and 130 basis points. In credit markets, spreads for financial institutions were up by some 30 basis points, with a more limited widening for investment grade non-financial corporation bonds of around 20 basis points, which likely also reflected the mitigating effect of the corporate sector purchase programme (CSPP). High-yield bond spreads had widened by 200 basis points, both in the euro area and in the United States. Sovereign spreads in emerging markets had also increased measurably over the past few weeks, by around 160 basis points. This widening had offset the previous marked easing in financial conditions observed in 2019. In commodity markets, the recent oil price movements had reflected two largely separate events. Until last week, the broader repercussions of heightened uncertainty, related to the economic and financial impact of the coronavirus, had led to a drop of around 20% in oil prices. This fall had later been exacerbated by the breakdown of the talks between the Organization of the Petroleum Exporting Countries (OPEC) and Russia on the coordination of oil production targets. Taken together, oil prices were down by 38% since 20 February 2020. Long-term market-based inflation expectations had fallen alongside oil prices. Finally, in foreign exchange markets, with the outbreak of the coronavirus in China in mid-January 2020, the US dollar had begun a period of marked appreciation against all currencies, including the euro. In mid-February 2020 the euro had briefly fallen to its lowest level against the US dollar in nearly three years. Since late February 2020 the US dollar had been volatile against major currencies, which likely also reflected the impact of changes in monetary policy expectations. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and economic and monetary developments in the euro area since the Governing Council’s January monetary policy meeting. The review was based on the limited data available to date. It was clear that the coronavirus pandemic was a major shock to the economy, whose impact was challenging to assess based on the available information. Thus incoming data needed to be carefully monitored on a continuous basis in the period ahead. Regarding the external environment, global indicators at the turn of the year had been pointing to a stabilisation in activity. Trade indicators had even shown some improvement, as trade-related uncertainty had declined following the trade deal between the United States and China. These developments had then been reversed by the outbreak of the coronavirus, with manufacturing output in China plunging in February and negative spillovers from China to the rest of the Asia-Pacific region. Turning to global financial conditions, market sentiment towards risky assets had declined strongly, amid a flight to safety. Accordingly, global equity prices had fallen strongly across advanced and emerging market economies, leading to a tightening in financial conditions. Since the January Governing Council meeting oil prices had fallen strongly by 43%, on account of uncertainty surrounding the spread of the coronavirus and discord among OPEC+ countries. The euro had, overall, strengthened somewhat both against the US dollar and in nominal effective terms. Turning to the euro area, the latest indicators suggested a considerable worsening of the near-term growth outlook. The disruption of supply chains was impeding production plans in the manufacturing sector, while necessary containment measures against the further spread of the coronavirus were adversely affecting economic activity. This was only partly reflected in the March 2020 ECB staff macroeconomic projections for the euro area, as their data cut-off date predated the rapid spread of the coronavirus to the euro area. Before the outbreak of the coronavirus, euro area real GDP growth had moderated to 0.1%, quarter on quarter, in the fourth quarter of 2019, following growth of 0.3% in the third quarter. This easing mainly reflected the ongoing weakness in the euro area manufacturing sector and reduced investment growth. The March ECB staff projections foresaw annual real GDP increasing by 0.8% in 2020, 1.3% in 2021 and 1.4% in 2022. In particular, the projections foresaw very muted growth in the first half of 2020, followed by an improvement in the second half of the year. Compared with the December 2019 Eurosystem staff projections, the outlook for real GDP growth had been revised down notably for 2020 and slightly for 2021, on account of the potential economic impact of the coronavirus outbreak. Overall, the projections needed to be treated with caution in the light of the substantial uncertainty related to the spread of the coronavirus and the necessity, duration and impact of the measures that had been adopted to counter it. The risks surrounding the euro area growth outlook were clearly on the downside. In addition to the previously identified risks related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, the spread of the coronavirus added a new and substantial source of downside risk to the growth outlook. Turning to inflation, euro area annual HICP inflation had decreased to 1.2% in February 2020, from 1.4% in January, according to Eurostat’s flash estimate. On the basis of the sharp decline in current and futures prices for oil, headline inflation was likely to decline considerably over the months ahead. Indicators of inflation expectations had fallen and measures of underlying inflation remained generally muted. While labour cost pressures had remained resilient amid tighter labour markets, the weaker growth momentum was delaying their pass-through to inflation. Over the medium term, the increase in inflation would be supported by the Governing Council’s monetary policy measures and – looking through the coronavirus shock in the nearer term – the anticipated recovery in euro area growth dynamics. The March ECB staff projections foresaw annual HICP inflation at 1.1% in 2020, 1.4% in 2021 and 1.6% in 2022. Compared with the December 2019 Eurosystem staff projections, the outlook for HICP inflation was broadly unrevised over the projection horizon. The implications of the coronavirus for inflation were surrounded by high uncertainty, given that downward pressures linked to weaker demand might be offset by upward pressures related to supply disruptions. However, the sharp decline in oil prices presented significant downside risks to the short-term inflation outlook. Market-based indicators of longer-term inflation expectations had fallen to a new all-time low, with the euro area five-year forward inflation-linked swap rate five years ahead standing at 0.92% on 10 March 2020. With respect to euro area financial conditions, the EONIA forward curve, which had been flat over short to medium-term maturities at the time of the January meeting, had inverted significantly, hinting at market expectations of imminent rate cuts. In addition, both the euro area ten-year overnight index swap (OIS) rate and the ten-year US Treasury yield had fallen strongly. Equity prices of financial and non-financial companies had also undergone a sharp correction. Taken together, euro area financial conditions had tightened since the January 2020 monetary policy meeting and stood close to the levels observed in early 2019, as the accommodative effects of lower risk-free rates only partially offset the decline in euro area stock prices and the euro’s appreciation. Turning to money and credit developments, the annual growth rate of M3 had stood at 5.2% in January 2020, having moderated somewhat from its recent peak. Money growth continued to reflect ongoing bank credit creation for the private sector and low opportunity costs of holding M3 relative to other financial instruments. The narrow monetary aggregate M1 continued to be the main contributor to broad money growth. Loans to the private sector had continued to expand. The annual growth rate of loans to households had picked up slightly to 3.7% in January 2020, from 3.6% in December 2019. The annual growth rate of loans to non-financial corporations remained unchanged at 3.2% in January, confirming the moderation seen since autumn 2019 and likely reflecting the typically lagged reaction to the past weakening in the economy. Turning to fiscal policies, the euro area fiscal stance was foreseen in the March ECB staff projections as being mildly expansionary in 2020-21 and broadly neutral in 2022. This, however, did not include the planned fiscal measures for cushioning the economic impact of the coronavirus. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the spread of the coronavirus was a major shock to the world and the euro area economies, with severe near-term implications for aggregate expenditure levels and supply chains. The disruption of supply chains was impeding production plans in the manufacturing sector, while the necessary containment measures against the further spread of the coronavirus were adversely affecting activity in the services sector, notably related to transport, travel and recreational services. The March ECB staff projection baseline scenario already reflected a 0.3-percentage point decline in projected GDP growth in 2020 owing to the coronavirus. However, this was unlikely to capture the full impact on the euro area. In a risk scenario, the projections suggested that the negative impact on euro area output could become substantially larger, ranging from 0.6 to 0.9 percentage points depending on the models used. If lockdown measures were implemented more broadly and for a longer time period, a substantial recession could be envisaged. The ramifications on the economy had already been amplified by a tightening in financial conditions, especially through declining stock prices and rising yields in some asset classes. Even if limited so far, the appreciation of the euro added to the tightening of financial conditions and, if it proved to be more persistent, could be a further drag on the economy and inflation dynamics. The overall magnitude and duration of the shock remained highly uncertain. While the baseline scenario was that the main economic impact was temporary, with a recovery in activity later this year, the spread of the coronavirus represented a substantial downside risk to the euro area growth outlook. Inflation remained subdued and was set to decline considerably in the near term, following the recent sharp decline in oil prices. Measures of underlying inflation had moved sideways and market-based measures of inflation expectations had reached new historical lows. Staff projected the HICP to rise gradually, but the same uncertainty that applied to the growth outlook also applied to the inflation outlook. A monetary policy response was required, both to preserve the monetary stance and to underpin the transmission mechanism of monetary policy. The response needed to have three elements: first, to safeguard liquidity conditions in the banking system; second, to protect the continued flow of credit to the real economy; and third, to prevent financing conditions for the economy from tightening in a pro-cyclical way. The effectiveness of monetary policy would be enhanced and reinforced by fiscal measures that supported those businesses and employees at risk and cushioned the impact of the shock on aggregate expenditure levels. In the light of the significant risks of the economic repercussions of the coronavirus, Mr Lane proposed that the following decisions be taken at the current meeting: First, to offer additional longer-term refinancing operations (LTROs) to provide immediate liquidity support to the euro area banking system at an interest rate equal to the average deposit facility rate over the life of the respective operation. While no signs of strains in money markets or liquidity shortages in the banking system were currently seen, the operations would provide an effective backstop in case of need. The additional LTROs would temporarily ease funding conditions for banks, in order to provide an effective bridge to the TLTRO III operation in June 2020. Second, to apply considerably more favourable terms to all TLTRO III operations during the period from June 2020 to June 2021. In particular, the rate applied in these operations, over the period ending in June 2021, could be as low as 25 basis points below the average interest rate on the deposit facility over the same period, with the entry rate also lowered to 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations (MROs). Furthermore, lending allowances would be temporarily raised from 30% to 50% of stocks of eligible loans. The operations would support bank lending to those sectors most affected by the coronavirus outbreak, especially small and medium-sized enterprises (SMEs). In addition, the Governing Council should ask the Eurosystem Committees to look into options to temporarily ease the collateral eligibility rules to ensure that counterparties would be able to make full use of the operations. Third, to add a temporary envelope of additional net asset purchases amounting to €120 billion until the end of the year. During this period, the Governing Council would make full use of the flexibility embedded in the programme. In combination with the existing asset purchase programme (APP), the temporary envelope would support financing conditions more broadly and thereby also ease the interest rates that matter for the real economy. Moreover, the higher purchase pace would ensure that the Eurosystem showed a more robust presence in the market during times of heightened volatility, not least in the market for corporate bonds. By contributing to stability in the corporate bond market, the increase in net asset purchases would also reinforce the effectiveness of the TLTRO III programme in supporting SMEs. Increasing the volume of net asset purchases was also important in maintaining the consistency of the Governing Council’s policy reaction function by showing its agility in responding to major shifts in euro area financial conditions and to heightened risks to the economic and inflation outlook. Together with the substantial monetary policy stimulus already in place, these measures would support liquidity and funding conditions and help preserve the smooth provision of credit to the real economy. In view of the expected temporary nature of the shock, the easing of the monetary stance provided by the additional asset purchases and the considerable support for credit supply through the revised TLTRO III programme, the Governing Council should not reduce the deposit facility rate on this occasion. In particular, through the expectations component of bond yields, cuts in the short-term policy rate were more suited to setting the medium-term orientation of monetary policy than navigating a path through a temporary period of elevated uncertainty. At the same time, it was essential to maintain the option of future cuts in the policy rate in case warranted by a tightening in financial conditions or a threat to the ECB’s medium-term inflation aim. In its communication, the Governing Council needed to: (a) note that the latest indicators suggested a considerable worsening of the near-term growth outlook; (b) acknowledge that the economic consequences of the coronavirus were only partly reflected in the March staff macroeconomic projections, as their cut-off date predated the rapid spread of the coronavirus in the euro area; (c) highlight that there were substantial downside risks to the euro area outlook, since the spread of the coronavirus had added a new and substantial source of risk; (d) stress that, in view of current developments, the Governing Council would continue to monitor closely the consequences of the spreading coronavirus for the economy, for medium-term inflation and for the transmission of its monetary policy, and that it would stand ready to adjust all of its measures, as appropriate, to ensure that inflation moved towards its aim in a sustained manner; (e) welcome the commitment and readiness of euro area governments and European institutions to take joint policy action in the current situation, but reiterate the need for a more supportive and targeted fiscal stance in view of the weakened outlook and to safeguard against the further materialisation of downside risks. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly shared the assessment of the outlook and risks for economic activity in the euro area provided by Mr Lane in his introduction. Euro area real GDP growth had moderated to 0.1% quarter on quarter in the fourth quarter of 2019, following growth of 0.3% in the previous quarter, reflecting mainly the ongoing weakness in the euro area manufacturing sector and slowing investment growth. However, this depicted the situation before the global outbreak of the coronavirus. While most indicators had remained robust or stronger than expected into February 2020, the latest information suggested a considerable worsening of the near-term growth outlook. The disruption of supply chains was impeding production plans in the manufacturing sector, while necessary measures to contain the further spread of the coronavirus were adversely affecting economic activity. As regards the external environment, members noted that there were clear downside risks to the ECB staff projections for global activity, given that these had been finalised in February, prior to the spread of the coronavirus beyond China and the subsequent reaction of the financial markets. It was highlighted that, in the March 2020 staff projections, the decline in activity in China incorporated in the baseline for the external environment was concentrated in the first quarter of the year and was followed by a rebound in the second quarter. However, a U-shaped recovery was now considered more likely than such a V-shaped recovery. Oil prices, which had fallen sharply, were seen as reflecting a fall in global demand for raw materials, as well as the failure of Saudi Arabia and Russia to agree on cuts in production. More generally, in view of the global reach of the coronavirus pandemic in conjunction with remaining uncertainties regarding geopolitical factors, rising protectionism and vulnerabilities in emerging markets, members agreed that the risks to the external environment were clearly on the downside. In an environment of considerable uncertainty, the risk of adverse global spillovers was significant because of disruptions in global supply chains, a broader retrenchment in demand and heightened financial market volatility. In this context, international coordination was seen as particularly important. Reference was also made to the uncertainty about the outcome of the negotiations between the United Kingdom and the European Union on a future trade relationship, and to the ongoing refugee crisis and tensions on the EU border in Greece. The risk of an unwinding of globalisation and of global supply chains was highlighted as a possible consequence of the coronavirus pandemic. Turning to euro area activity, members agreed that the spread of the coronavirus was a major shock to growth prospects and that the impact on the euro area economy could be severe, even if it was, in principle, temporary. The size of the impact would be determined, in particular, by the further spread of the coronavirus and the extent of the containment measures implemented. These containment measures, including the lockdown already in place in Italy, would adversely affect activity in the short run. Members expressed their solidarity with the Italian people. It was considered more than likely that the recent developments seen in Italy would soon be repeated in many other countries. It was recalled that the outbreak had had relatively little impact on euro area data for January and February 2020, which supported the assessment that the impact would be seen more in the second quarter than in the first. However, it was also possible that the impact might extend beyond one or two quarters and it was important that governments did not mistake the relatively good data for the first few months of the year as a reason not to react strongly to the current situation. With governments prioritising public health issues over short-term economic concerns in order to contain the pandemic, it was argued that containment measures not only reduced economic activity sharply in the short run, but could also be expected to spread out the impact on the economy over time. It was observed that the impact of the coronavirus pandemic was being felt particularly sharply in services sector activities, such as travel and tourism. Some doubt was expressed about the likelihood of lost output being recovered once growth picked up again in these sectors. It was felt that those forgoing travel or visits to the cinema or gym were unlikely to expand these activities after the crisis. It was also recalled that these services sector activities tended to be fairly labour-intensive, which suggested a more persistent impact, going beyond one or two quarters, on employment, wages and disposable income. In this context, the challenges faced by euro area SMEs, which could face cash-flow problems and liquidity constraints, were highlighted – notably with regard to financing and preserving working capital. Against the background of the pandemic, it was emphasised that the outlook for the euro area was subject to an exceptionally high level of uncertainty and that the March ECB staff projections already appeared rather outdated, as they predated the rapid spread of the coronavirus in Europe. Given the extent of developments since the finalisation of the ECB staff projections, members viewed the scenarios prepared by ECB staff as especially relevant when considering a potential intensification of the coronavirus crisis beyond what was contained in the March 2020 baseline projection. The “mild” scenario considered the implications of a more persistent outbreak of the coronavirus for China and the euro area. Building on this, a more “severe” scenario had also been considered by staff, which incorporated some additional shocks to financial markets and oil prices. In both of these scenarios, the epidemic in China extended into the second quarter of 2020 and the spread of the coronavirus to the euro area was assumed to accelerate significantly. The negative impact on euro area GDP under the mild scenario was estimated to be between 0.6 and 0.9 percentage points, compared with the ECB staff’s baseline projection, while in the severe scenario the negative impact was between 0.8 and 1.4 percentage points below the March 2020 projections. Neither of these scenarios incorporated either a monetary policy or a fiscal policy reaction. It was underlined that including such policy reactions could significantly mitigate the effects in both scenarios, notably in the event of timely and targeted fiscal measures. Reference was also made to the OECD’s interim Economic Outlook, in which the euro area growth outlook for 2020 had similarly been revised down to 0.8% and which had also included several more adverse scenarios. Private sector forecasters were also in the process of revising down significantly their growth outlook for 2020. Against this background, members discussed the possibility of a recession in the euro area, acknowledging that the risk had increased significantly. On the one hand, it was argued that recent forecasts did not take into account the very rapid deterioration in economic conditions in Europe and that it would be difficult, if not impossible, to avoid a recession. Accordingly, perhaps the question was rather how deep the recession would be and whether the recovery would be only moderate for a prolonged period. On the other hand, it was emphasised that the outlook depended critically on the strength of the policy response. In this context it was underlined that the situation called for joint action and close coordination in the euro area, between monetary and fiscal policy as well as macroprudential policy and supervision, and that cooperation was needed both at the national level and with European institutions. While the magnitude of the downward revision to growth in the short term was very uncertain, the direction was very clear. However, the need for revisions to the growth and inflation outlook in the medium term was considered more of an open question, depending not only on the future course of the coronavirus pandemic itself and the policy responses, but also on the persistence of the effects on demand and supply conditions. In terms of the consequences for the supply side, it was noted that there were serious risks of a large-scale destruction of productive capacity and a partial dismantling of global supply chains more generally. Whereas monetary policy was primarily concerned with the weakness of aggregate demand, there was now also an acute risk to the supply side in the medium to longer term. It was important to ensure that a temporary demand and supply shock did not lead to a fully fledged macroeconomic and financial crisis if disruptions in production and cash flows, compounded by liquidity and financing constraints, triggered balance sheet problems in the corporate and banking sectors. Such a scenario could lead to long-run damage to the supply side of the economy and to substantial hysteresis effects. The situation therefore had to be monitored closely and everything possible should be done in all policy domains to ensure that permanent damage was contained. Members concluded that the risks surrounding the euro area growth outlook were clearly on the downside. In addition to the previously identified risks related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, the spread of the coronavirus had added a new and substantial source of downside risk to the growth outlook. Regarding fiscal policies, an ambitious and coordinated fiscal stance was now needed in view of the weakened outlook and to safeguard against the materialisation of downside risks. It was emphasised that the Governing Council welcomed the measures already taken by several governments to ensure sufficient health sector resources and to provide support to affected companies and employees. In particular, measures such as providing credit guarantees were needed to complement and reinforce the ECB’s monetary policy measures. It was also underlined that the Governing Council welcomed the commitment of the euro area governments and European institutions to act without delay, strongly and collectively, in response to the repercussions of the further spread of the coronavirus. There was broad agreement that fiscal policy had to play a leading role, with temporary, timely and targeted measures. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat, euro area annual HICP inflation was 1.2% in February 2020, compared with 1.4% in January. On the basis of the sharp decline in spot and futures prices for oil, headline inflation was likely to decline considerably over the coming months. Indicators of inflation expectations had fallen and measures of underlying inflation remained generally muted. While labour cost pressures had so far remained steady amid tighter labour markets, the weaker growth momentum was delaying their pass-through to inflation. In the exchange of views about the implications of the coronavirus outbreak for the outlook for inflation, a number of factors were stressed. In particular, a clear distinction had to be made between the short-term and the medium-term impact. There was also a need to distinguish between the relative importance of shocks to demand and shocks to supply, as they could be expected to have different implications for price developments. It was observed that the pandemic, which had initially been viewed as primarily a global supply-side shock, was being propagated to demand and was intensifying in Europe, reducing activity across most sectors of the economy. Demand would be negatively affected as a result of job losses and any reduction in household income growth, as well as the impact of increased uncertainty on confidence and investment. It was argued that, in the short term, the shortfall in demand could be expected to outweigh any supply-side effects. In the mild scenario produced by ECB staff, the downward impact on inflation in 2020 was assumed to be around 0.2 percentage points, while the impact in a severe scenario was expected to be between 0.4 and 0.8 percentage points. There was uncertainty about the need to revise the outlook for inflation in the medium term, which was the policy-relevant horizon for the ECB’s price stability objective. On the one hand, the temporary nature of the downturn suggested that there might be limited need for revisions to the medium-term outlook for inflation, although the assessment was subject to unusually high uncertainty. On the other hand, the picture of broadly unrevised inflation in the medium term could be questioned, in view of the recent sharp decline in oil prices and the possibility that a more persistent effect on demand would materialise. It was also to be hoped that the coronavirus crisis would not have a lasting adverse effect on attitudes to consumer expenditure, although this was possible in the case of large shocks. The point was made that the ultimate medium-term implications were not independent of short-term events and that the magnitude and duration of the shock’s impact would in turn depend on the course of the pandemic and the policy reaction to it. Regarding longer-term inflation expectations, members noted that market-based inflation expectations in both the euro area and the United States had fallen. For the euro area, the five-year forward inflation-linked swap rate five years ahead had declined to a record low of 0.95%. At the same time, it was suggested that the importance of market-based measures should not be over-emphasised, as recent developments reflected market tensions and a flight to safety. Such measures should thus be regarded as an imperfect indicator of future inflation developments. On the monetary analysis, members broadly concurred with the assessment provided by Mr Lane in his introduction that monetary dynamics had moderated, due in part to decelerating bank lending to firms. The annual rate of M3 growth had stood at 5.2% in January 2020, having decreased somewhat from its recent peak. Money growth was reflecting ongoing bank credit creation for the private sector and low opportunity costs of holding M3 relative to other financial instruments. Loans to the private sector had continued to expand overall, while the annual growth rate of loans to non-financial corporations had remained unchanged at 3.2% in January, confirming the moderation seen since autumn 2019. It was noted that credit standards for SMEs had tightened somewhat and that their loan rejection rate had increased over the last four rounds of the survey on access to finance for enterprises. Monetary policy stance and policy considerations With regard to the monetary policy stance, members widely shared the assessment provided by Mr Lane in his introduction. Financial conditions and bank funding conditions in the euro area had tightened since the Governing Council’s previous monetary policy meeting. Equity market valuations had dropped significantly in recent weeks, as also shown in the presentation by Ms Schnabel, although it was mentioned that part of the fall in asset prices could be seen as a correction of earlier overvaluation. While limited so far, the euro’s recent appreciation added to the tightening of financial conditions, which ‒ if it proved to be more persistent ‒ could move inflation expectations further away from the Governing Council’s aim. While the implications of the coronavirus pandemic pointed to a considerable worsening of the euro area growth outlook and increased downside risks in the near term, the implications for inflation were surrounded by high uncertainty in the light of supply disruptions and weaker demand. Members agreed that a decisive monetary policy response was required in the present circumstances, both to preserve the monetary stance and to underpin the monetary transmission mechanism. Although the source of the shock was outside the realm of monetary policy and was to be primarily addressed by timely and targeted fiscal policies, a forceful package of monetary policy measures was seen as necessary. First, such a package would mitigate the threat of a liquidity and credit crunch further aggravating the situation in the real economy. Second, it would help counter self-fulfilling fear dynamics and renewed fragmentation in financial markets. In order to maximise the effectiveness of the monetary policy response, coordination with fiscal and supervisory policies was deemed essential. As outlined by Mr Lane in his introduction, members agreed that a first element of the policy response was to safeguard ample liquidity in the banking system by ensuring banks’ continued access to funding at attractive conditions as a necessary element to guard against a potential credit crunch. However, it was also argued that this was not sufficient to ensure that the liquidity made available to banks would be passed on to the end-users. It was pointed out that, whereas during the financial crisis of 2008 banks were at the heart of the problem, the current situation differed in the sense that problems would materialise first in the real economy and would subsequently be reflected in banks’ balance sheets. Members also agreed that the second element of the proposed policy response, namely to protect the continued flow of credit to the real economy, was of paramount importance. Under the current conditions, however, it was seen as more difficult to ensure that the liquidity provided via monetary policy operations reached those that were most in need, such as SMEs, as problems in the real economy risked impairing credit flows to businesses. Banks needed to be incentivised to provide credit to viable firms that were suffering from a reduction in cash flow because of the coronavirus pandemic. In this regard, it was underlined that commensurate action by governments and supervisors could support effective monetary transmission, for example via credit guarantees. Agreement also prevailed with regard to the third element of the required monetary policy response, namely safeguarding the monetary policy stance by averting a procyclical tightening of financing conditions in the economy. However, it was cautioned that instruments affecting the monetary policy stance would only become fully effective once the spread of the coronavirus had been contained by other policies. At the same time, it was recalled that the ECB’s monetary policy had been highly accommodative since the financial crisis. It was emphasised that, in order to maintain accommodative monetary conditions, the Governing Council needed to consider using all the tools at its disposal in a flexible way. Against this background, all members agreed with the package of monetary policy measures proposed by Mr Lane in his introduction, namely: first, offering additional LTROs to provide immediate liquidity support to the euro area banking system at an interest rate equal to the deposit facility rate; second, applying more favourable terms to all TLTRO III operations during the period from June 2020 to June 2021; and, third, adding a temporary envelope of €120 billion to the volume of net asset purchases. Overall, the package was seen as appropriate to address the three elements of the proposed policy response, though some nuances were expressed with regard to individual components. Together with the substantial monetary policy stimulus already in place, these measures would support liquidity and funding conditions and help to preserve the smooth provision of credit to the real economy. Members welcomed the proposed additional LTROs, which would immediately ease funding conditions for banks, thus providing an effective bridge to the TLTRO III operation in June 2020 that would be conducted at the proposed, more favourable terms. The first LTRO operation would be announced on 16 March 2020, allotted on 17 March 2020 and settled on 18 March 2020, with subsequent operations taking place weekly until 10 June 2020. All operations would mature on 24 June 2020, on which date they could be rolled over into the June TLTRO III operation. By offering funding at the deposit facility rate, the LTROs would allow banks to benefit from very favourable borrowing conditions immediately and, at the same time, offer them a high degree of flexibility at a low operational cost. This would provide a simple and effective backstop, in particular in combination with the full allotment of the operations, and ensure that banks were supplied with liquidity until the June TLTRO III operation, which required a longer lead time because of its operational complexity. Members widely shared the view that the proposed changes to the TLTRO III operations would support bank lending to the firms affected most by the spread of the coronavirus, in particular SMEs. For the period from 24 June 2020 to 23 June 2021, the interest rate on all TLTRO III operations outstanding during that time would be 25 basis points below the average rate applied in the Eurosystem’s MROs over the same period. For counterparties whose eligible net lending met the benchmark, the interest rate applied would be 25 basis points below the average interest rate on the deposit facility prevailing over the same period, and in any case not higher than -0.75%. The lending performance threshold for attaining the minimum interest rate would be lowered to 0%, from 2.5%. The maximum total amount that counterparties would be entitled to borrow would be raised from 30% to 50% of their stock of eligible loans. The limit on the amount of funds that could be borrowed in each operation would be removed. The proposed amendments to the TLTRO III parameters were considered to be well suited to temporarily ease funding conditions for banks, supporting credit flows to affected sectors and avoiding a tightening in credit supply. These amendments effectively lowered interest rates in a ring-fenced way for eligible counterparties and provided a strong incentive to banks not to cut lending. Linking the favourable terms to banks’ credit portfolios would incentivise banks not to cut credit at a time when the economy was in need. It was cautioned, however, that the reduction in the lending performance threshold to 0% might turn out to be insufficiently supportive if banks were forced to reduce their credit exposure because of supervisory concerns or market pressures, possibly resulting in a contraction of credit. Members widely agreed that it was important to further investigate options for better incentivising banks to expand their lending to SMEs. In order to allow banks to make full use of the ECB’s lending facilities, members widely welcomed Mr Lane’s proposal to task the Eurosystem committees with studying ways to further broaden the collateral framework. Expanding the eligible collateral and reviewing the additional credit claims framework were seen as particularly important with regard to improving bank lending flows to SMEs. Members generally agreed that the additional envelope for net asset purchases as part of the proposed policy package was essential to influence the level of the risk-free yield curve. In combination with the existing APP, an additional temporary envelope of €120 billion until the end of the year, with a strong contribution from the private sector purchase programmes, would support favourable financing conditions for the real economy in times of heightened uncertainty. Limiting the additional envelope to the current calendar year was deemed an appropriate response to a shock that was assessed as being temporary at this stage. The private sector purchases would provide a strong signal of support for favourable funding conditions in the corporate sector. A flexible expansion of APP net purchases was also seen as partially compensating for not cutting the deposit facility rate, with the public sector purchases helping to preserve a risk-free rate that served as a benchmark for pricing many other financial products. A remark was made that although the envelope of €120 billion seemed large, in the face of the disruptions that had been witnessed a larger volume would be justified. It was also remarked that an increase in the envelope of the APP could be seen as an appropriate way to support a coordinated policy response, as the Governing Council was urging policymakers to take decisive fiscal measures. Overall, it was felt that adding more volume to the APP was preferable to another reduction in the deposit facility rate. Additional net purchases would support policy transmission to the long end of the risk-free yield curve and provide some form of backstop for public and private bond markets. However, some reservations were also expressed regarding the case for expanding the public sector purchase programme as a means of preserving or lowering the risk-free yield curve at a time when higher-rated government bond yields had fallen to record low levels in an environment of heightened risk aversion. It was also pointed out that, in normal circumstances, the relationship between the ECB’s capital key and the risk-free yield curve was stable, whereas under the current conditions this relationship was distorted by a shift into safe assets, calling for temporary and tactical flexibility in the APP purchases to address liquidity issues arising from this flight to safety. It was argued that the provision of the additional envelope until the year-end would allow enough flexibility in the implementation of the purchases to temporarily target markets where conditions were particularly tight. While it was confirmed that the parameters guiding the APP remained in place, the timeline for the convergence of the ECB’s sovereign bond holdings towards the capital key would allow some flexibility for purchases within the existing parameters. The rationale for using additional asset purchases, in particular public sector purchases, as an instrument to ease the monetary policy stance was recalled, in line with the purpose of the expanded APP as conceived in 2015. In this context, it was remarked, however, that it was difficult to distinguish whether observed spreads were driven by an increase in credit risk or a lack of liquidity. The view was widely shared that the present, very challenging circumstances called for a maximum degree of cohesion, consensus and unity in the Governing Council, notwithstanding different preferences with regard to the various monetary policy instruments under consideration. In view of the expected temporary nature of the shock and the proposed measures, members agreed that it did not seem appropriate to lower the deposit facility rate on this occasion. While a few members expressed their willingness to consider a cut in the deposit facility rate at the current meeting, most members were of the view that increasing the APP would be more effective in lowering risk-free rates. At the same time, it was seen as important for the Governing Council to stress, in line with its current forward guidance, that rates could be lowered further if the Governing Council considered this to be appropriate. Monetary policy decisions and communication On communication, it was stressed that, in view of the current developments, the Governing Council would continue to monitor closely the consequences of the spread of the coronavirus for the economy, for medium-term inflation and for the transmission of monetary policy, and it would stand ready to adjust all of its measures, as appropriate, to ensure that inflation moved towards its aim in a sustained manner in line with its commitment to symmetry. Although the proposed measures were considered to be adequate for the time being, the view was held that, as the spread of the coronavirus continued to unfold, the Governing Council might be confronted with continued market pressures and expectations of further policy actions at its meetings for some time to come. The commitment to joint policy action by euro area governments and the European institutions in the current situation was welcomed, and the need for a more supportive and targeted fiscal stance was reiterated in view of the weakened outlook and to safeguard against the further materialisation of downside risks. While monetary policy could effectively address liquidity constraints on financial markets, the limits to what monetary policy could do to address the immediate consequences of the coronavirus pandemic had to be acknowledged. The substantial downside risks to the euro area outlook had to be highlighted, since the spread of the coronavirus had added a new and substantial source of risk. As regards forward guidance, it was emphasised that the Governing Council expected the key ECB interest rates to remain at their present or lower levels until the Governing Council had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within the projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council also confirmed that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. Taking into account the foregoing discussion among the members, on a proposal from the President, the Governing Council decided on the following comprehensive package of monetary policy measures: Additional LTROs would be conducted, temporarily, to provide immediate liquidity support to the euro area financial system. Although the Governing Council did not see material signs of strains in money markets or liquidity shortages in the banking system, these operations would provide an effective backstop in case of need. They would be carried out through a fixed rate tender procedure with full allotment, with an interest rate that was equal to the average rate on the deposit facility. The LTROs would provide liquidity at favourable terms to bridge the period until the TLTRO III operation in June 2020. In TLTRO III, considerably more favourable terms would be applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that same time. These operations would support bank lending to those affected most by the spread of the coronavirus, in particular SMEs. Throughout this period, the interest rate on these TLTRO III operations would be 25 basis points below the average rate applied in the Eurosystem’s MROs. For counterparties that maintained their levels of credit provision, the rate applied in these operations would be lower, and, over the period ending in June 2021, could be as low as 25 basis points below the average interest rate on the deposit facility. Moreover, the maximum total amount that counterparties would henceforth be entitled to borrow in TLTRO III operations would be raised to 50% of their stock of eligible loans as at 28 February 2019. In this context, the Governing Council would mandate the Eurosystem committees to investigate collateral easing measures to ensure that counterparties continued to be able to make full use of the funding support. A temporary envelope of additional net asset purchases of €120 billion would be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes. In combination with the existing APP, this would support favourable financing conditions for the real economy in times of heightened uncertainty. The Governing Council continued to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The interest rate on the MROs and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Reinvestments of the principal payments from maturing securities purchased under the APP would continue, in full, for an extended period of time past the date when the Governing Council started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Further details on the precise terms of the new operations would be published in dedicated press releases at the end of the ECB’s press conference. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312~f857a21b6c.en.html Press releases https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200312_2~06c32dabd1.en.html https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200312_1~39db50b717.en.html Meeting of the ECB’s Governing Council, 11-12 March 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Costa, via teleconference Mr Hernández de Cos Mr Herodotou, via teleconference Mr Holzmann * Mr Kazāks, via teleconference Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Mersch Mr Müller, via teleconference Mr Panetta, via teleconference Mr Rehn Mr Reinesch * Ms Schnabel Mr Stournaras Mr Vasiliauskas, via teleconference Mr Vasle, via teleconference Mr Vella *, via teleconference Mr Villeroy de Galhau Mr Visco *, via teleconference Mr Weidmann Mr Wunsch * Members not holding a voting right in March 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President ** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško, via teleconference Ms Buch Ms Cleanthous, via teleconference Mr Demarco, via teleconference Ms Donnery, via teleconference Mr Filipozzi, via teleconference Mr Gaiotti, via teleconference Mr Kuodis, via teleconference Mr Lünnemann Mr Odór Mr Pattipeilohy Ms Ritzberger-Grünwald Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 21 May 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 29-30 April 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 29-30 April 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous regular monetary policy meeting on 11-12 March 2020. Although the general risk-off mood had subsided and market liquidity was progressively improving, financial markets continued to show signs of fragility, mainly along four key dimensions. First, most euro area sovereign bond spreads had widened relative to German benchmark bonds, irrespective of their credit rating. In some jurisdictions, bond spreads had temporarily returned to, or even risen above, the levels observed before the announcement of the pandemic emergency purchase programme (PEPP), compounded by expectations of increased issuance needs and the high prevailing uncertainty surrounding the economic and financial fallout from the crisis. There were also signs that liquidity premia had likely exacerbated the upward pressure on term premia resulting from increased issuance needs. Bid-ask spreads remained well above normal levels in many jurisdictions. In this environment, there was evidence that the PEPP had established itself as an important anchor of stability for euro area bond markets beyond the initial effects of the announcement. High investor demand had been observed for sovereign bond auctions with, at times, historic bid-to-cover ratios. Even though the yield premium for some issuances had been considerable, the Eurosystem purchases were helping to preserve the smooth transmission of monetary policy across all parts of the euro area. Second, although the PEPP had contributed to easing financial conditions and to stimulating issuance, concerns over the outlook for corporate profitability implied that financial conditions for firms and banks remained tighter than before the outbreak of the coronavirus (COVID-19) pandemic. Investment-grade issuers currently faced spreads which were around twice as high as before the crisis, in part reflecting expectations of a notable increase in credit rating downgrades. The number of “fallen angel” bonds was increasing, while downgrades of high-yield issuers were already much more prominent. Corporate default rates could increase measurably over the next twelve months. Third, although global stock markets had partly recovered the losses seen in late February and early March 2020 – the Euro Stoxx 50 index had risen by more than 20% since the PEPP announcement – there were signs that the significant remaining uncertainty surrounding the economic outlook continued to pose risks to current valuations. While expectations regarding short-term earnings growth over the next 12 months had declined substantially, longer-term earnings expectations had remained surprisingly resilient so far. Either investors were sanguine about the long-term repercussions of the crisis and expected a V-shaped recovery with no protracted effects on growth, or they were finding it difficult to price in the impact on growth and earnings from the COVID-19 pandemic. The amount of tail risk priced into the market, as reflected in option prices, suggested that the latter hypothesis could not be ruled out. At the same time, investors were less sanguine about the earnings prospects of banks. The total Euro Stoxx Banks index had fallen by around 50%, with the extent of losses on euro area bank shares not very different from that on US banks. Fourth, market-based funding conditions for banks were tightening in unsecured money markets, as could be observed from the increase over the past few weeks in the spread between the three-month EURIBOR and OIS rates, which had recently reached the widest level seen since 2012. These developments were likely to reflect, at least in part, remaining strains in the commercial paper market. New commercial paper issuance had remained limited to the shortest maturities owing to the withdrawal of some traditional buyers, most notably money market funds and corporations, in response to the deteriorating liquidity situation. However, current and future Eurosystem liquidity-providing operations, in combination with the collateral easing package, offered immediate relief from higher market-based funding costs, thereby safeguarding monetary policy transmission and keeping the bank lending channel open. In this environment, the new series of targeted longer-term refinancing operations (TLTRO III) was highly attractive for a large part of the euro area banking sector, and market participants had doubled their expectations regarding take-up over recent weeks, to around €1.1 trillion in total. At the same time, expectations of further adjustments in the ECB’s key policy rates had subsided in recent weeks as the OIS forward curve had shifted up notably. Market-based measures of interest rate expectations were consistent with survey evidence, signalling no significant expectations of further cuts in the deposit facility rate. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, survey data signalled a sharp and deep economic downturn. The Purchasing Managers’ Index (PMI) pointed to a sharp contraction in global activity in the first half of 2020, which was likely to be more pronounced than the trough observed during the great financial crisis. The global composite output PMI excluding the euro area had declined sharply from 52 in January to 45 in February, and further to 41 in March – with services being affected more strongly than manufacturing. Driven by supply chain disruptions and a massive demand shock, global trade was estimated to have fallen sharply as signalled, for example, by the substantial drop in the PMI for new manufacturing orders. Production disruptions had spread and were likely to weigh on global trade for some time to come. Amid considerable volatility, global financial conditions had remained broadly unchanged in advanced economies since the Governing Council’s monetary policy meeting on 11-12 March, but had tightened significantly compared with mid-February when the coronavirus had started to spread globally. Since that meeting oil prices had fallen by approximately 50% to below USD 20 per barrel, primarily due to the sudden collapse in demand owing to the coronavirus pandemic. The euro had weakened considerably against the US dollar but had depreciated only marginally in nominal effective terms since the 11-12 March monetary policy meeting. Turning to the euro area, the latest economic indicators and survey results covering the period since the coronavirus spread to the euro area showed an unprecedented decline, pointing to a significant contraction in economic activity and to rapidly deteriorating labour markets. The coronavirus pandemic and the associated containment measures had severely affected the manufacturing and services sectors, taking a toll on the productive capacity of the euro area economy and on domestic demand. In the first quarter of 2020, which was only partially affected by the spread of the coronavirus, euro area real GDP had decreased by 3.8%, quarter on quarter, reflecting the impact of the lockdown measures in the final weeks of the quarter. The sharp downturn in economic activity in April suggested that the impact was likely to be more severe in the second quarter. Looking beyond the immediate disruption stemming from the coronavirus pandemic, euro area growth was expected to resume as the containment measures were gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption of global activity. Given the high level of uncertainty regarding the evolution of the pandemic, it was difficult to predict the likely extent and duration of the imminent recession and the subsequent recovery. However, without pre-empting the forthcoming Eurosystem staff macroeconomic projections for the euro area, which would be published in June, growth scenarios produced by ECB staff suggested that euro area GDP could fall by between 5% and 12% this year, followed by a recovery and normalisation of growth in subsequent years. The extent of the contraction and the recovery would depend crucially on the duration and the success of the containment measures, the extent to which supply capacity and domestic demand were permanently affected and the success of policies in mitigating the adverse impact on incomes and employment. Turning to euro area price developments, annual HICP inflation had decreased from 0.7% in March to 0.4% in April, largely driven by lower energy price inflation, but also by slightly lower HICP inflation excluding energy and food. On the basis of the sharp decline in current and futures prices for oil, headline inflation was likely to decline considerably further over the coming months and was expected to bottom out around June. The sharp downturn in economic activity was expected to have a downward impact on underlying inflation. However, the medium-term implications of the coronavirus pandemic for inflation were surrounded by high uncertainty, given that downward pressures linked to weaker demand could be partially offset by upward pressures related to more lasting damage to the supply side. Market-based indicators of longer-term inflation expectations had remained at depressed levels. While survey-based indicators of inflation expectations had declined for the short and medium term, indicators of longer-term expectations had been less affected. Regarding euro area financial conditions, the short end of the EONIA forward curve had remained broadly unchanged since 21 February, when international financial market turmoil had begun on the back of the global spread of the coronavirus. Overall, therefore, euro area long-term risk-free rates had remained broadly unchanged over this period. Stock prices had decreased substantially following the global spread of the coronavirus, despite some recent improvement in sentiment. With respect to financing conditions for non-financial corporations, there had been some limited tightening of financing costs and concerns over the availability of external financing. Turning to money and credit developments, broad money (M3) growth had increased to 7.5% in March 2020, from 5.5% in February. Money growth reflected bank credit creation for the private sector, which was being driven to a large extent by drawing on credit lines, and low opportunity costs of holding M3 relative to other financial instruments, while heightened economic uncertainty appeared to have triggered a shift towards monetary holdings, likely for precautionary reasons. In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth. Developments in loans to the private sector had also been shaped by the impact of the coronavirus crisis. The annual growth rate of loans to households had stood at 3.4% in March 2020, after 3.7% in February, while the annual growth rate of loans to non-financial corporations had stood at 5.4% in March, after 3.0% in February. These developments were also clearly visible in the results of the euro area bank lending survey for the first quarter of 2020, which indicated a surge in firms’ demand for loans and for drawing on credit lines to meet liquidity needs for working capital, while financing needs for fixed investment had declined. Demand for loans to households for house purchase had increased less than in the previous quarter. Credit standards for loans to firms had tightened slightly, while credit standards for loans to households had tightened more strongly. In both cases, this was related to the deterioration in the economic outlook and a decline in the creditworthiness of firms and households. At the same time, banks expected an easing of credit standards for loans to firms in the second quarter of 2020. The euro area fiscal stance was assessed to have become strongly expansionary as euro area countries had announced significant fiscal measures to cushion the economic effects of the coronavirus pandemic. Transfers to firms and households constituted the largest part of the packages of measures. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the European and world economies were currently experiencing an extraordinary and severe economic contraction. Public healthcare measures to contain the spread of the coronavirus had halted many economic activities across the globe. The assessment of the most likely economic developments had been rendered more difficult than usual by the exceptionally high level of uncertainty. Scenario analysis was the best approach and the work of the ECB’s staff indicated that even a deep recession of around 5% in 2020 now appeared to be a benign outcome, with more severe scenarios projecting a contraction of up to 12% in GDP. At the same time, as the containment measures were gradually lifted, the Governing Council could expect a significant recovery in economic activity, although its speed and scale remained highly uncertain. The uncertainty about the duration of the pandemic and the economic consequences of the containment measures had resulted in turbulent financial market developments. There had been a sharp repricing of risk across asset categories and a generalised tightening of financial conditions. At the same time, the results of the latest euro area bank lending survey showed only a very mild net tightening of credit standards for firms. This tightening was significantly less pronounced than the tightening seen at the time of the financial and sovereign debt crises between 2008 and 2012, which was a sign that the ECB’s measures (together with the announcement in many countries of public credit guarantees and other support for firms and households) had so far largely protected bank-based credit flows. Inflation had declined as a result of the sharp fall in oil prices and the drop in services sector inflation. Market-based measures of longer-term inflation expectations had remained at very depressed levels, after recording new historical lows. Even though survey-based indicators of inflation expectations had also declined for the short and medium term, they had remained stable for the longer term. While monetary policy could not anticipate the point at which the economy would reopen, it could make sure that all the necessary conditions for a rebound were in place, in line with the easing of the containment measures. In particular, monetary policy measures had helped to sustain the flow of credit to households and firms (especially small and medium-sized enterprises – SMEs) and to maintain favourable financing conditions that benefited all sectors and jurisdictions. In addition to the Governing Council’s credit easing measures, the successful implementation of the PEPP – including its flexibility across jurisdictions throughout the duration of the programme – was critical in delivering the favourable financial conditions that were necessary to support the economy, in view of the severe risks both to the monetary policy transmission mechanism and to the outlook for the euro area posed by the coronavirus pandemic. The rapidly evolving situation needed to be reflected in an adjustment to the Governing Council’s monetary policy stance. Both the tail risks associated with the present macro-financial crisis and its scale were assessed to have deteriorated substantially since the monetary policy meetings on 11-12 March and on 18 March. The TLTRO III programme complemented the accommodative impact of the ECB’s other monetary policy measures, notably the asset purchase programmes. TLTRO III maintained the bank-based monetary transmission mechanism, funnelling the monetary easing associated with negative interest rates to those sectors that relied on access to bank credit. Accordingly, in finalising the revised design of the TLTRO III programme, Mr Lane proposed recalibrating the TLTRO III pricing. In particular, the interest rate on TLTRO III operations during the period from June 2020 to June 2021 would be reduced to 50 basis points below the average interest rate on the main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reached the lending performance threshold, the interest rate over the period from June 2020 to June 2021 would be lowered to 50 basis points below the average deposit facility rate prevailing over the same period. Mr Lane also proposed offering a new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) to support the liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. The PELTROs would consist of seven additional refinancing operations commencing in May 2020 and maturing in a staggered sequence between July 2021 and September 2021 in line with the duration of the collateral easing measures. The operations would be carried out as fixed rate tender procedures with full allotment, with an interest rate that was 25 basis points below the average rate on the Eurosystem’s main refinancing operations prevailing over the life of each PELTRO. Together with the substantial monetary policy stimulus already in place, these measures would support liquidity and funding conditions and would help to preserve the smooth provision of credit to the real economy. At the same time, the Governing Council needed to continuously evaluate each of its measures, both individually and as a package, to assess whether they were still adequately calibrated and appropriately sized to provide the necessary degree of accommodation in this uncertain economic environment. At the June meeting, more information would be available, including new Eurosystem staff macroeconomic projections. At that point, the Governing Council would have to stand ready to adjust the PEPP and potentially other instruments if it saw that the scale of the stimulus was falling short of what was needed. Regarding communication, it was proposed that the Governing Council should acknowledge that the available indicators suggested a very substantial contraction in economy activity in 2020, depending on the duration of the containment measures and the extent to which supply capacity and domestic demand were affected more permanently, and also on the combined success of fiscal, monetary and supervisory policies in mitigating the adverse impact on incomes and employment. It should be stressed that the decisive policy actions taken in mid-March had been effective in providing crucial support to the euro area economy and that, in view of the current rapidly evolving economic environment, the Governing Council would do everything necessary within its mandate to support all citizens of the euro area through this extremely challenging time. It was fully prepared to adjust all of its measures, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in particular signalling that it was fully prepared to increase the size of the PEPP and adjust its composition as much as necessary and for as long as needed. Finally, the measures taken by euro area governments and the European institutions to ensure sufficient healthcare sector resources and to provide support to affected companies, workers and households were to be welcomed, while reiterating the need for continued and ambitious efforts, notably through joint and coordinated policy action, to guard against downside risks and in support of the recovery. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members broadly agreed with the assessment, provided by Mr Lane in his introduction, of the current economic situation in the euro area and of the risks to activity. Members agreed that the incoming data since the Governing Council’s monetary policy meetings on 11-12 March and on 18 March allowed for a better assessment of the impact of the crisis on the euro area economy. In particular, reference was made in the discussion to the GDP releases for the first quarter of 2020 in a number of countries, which had just been published together with the euro area data. Moreover, survey-based indicators for the euro area, covering both businesses and consumers, had fallen very sharply in March and April to stand at very low levels. It was now clear that the euro area economy was heading towards a decline in activity that was unprecedented in recent history. This could be demonstrated by comparing the scenarios for growth in the event of an intensification of the crisis presented in the March 2020 ECB staff projections with the various scenarios by ECB staff presented at the current meeting. It was clear that the June 2020 Eurosystem staff projections would be revised down significantly compared with the March 2020 ECB staff projections, and that the current situation could prove to be more disruptive than the global financial crisis. The point was made that the present situation was characterised by Knightian or “radical” uncertainty, implying unquantifiable risks. Against this background, drawing on a range of scenarios was considered warranted in circumstances where the outlook for the euro area was subject to exceptional uncertainty. Members expressed appreciation for the scenario analysis conducted by ECB staff, while registering some reservations on the prospect of the scenarios becoming rapidly outdated in the light of evolving conditions. Although different views were expressed about these scenarios, it was generally considered that, of the three scenarios presented, the “mild” scenario was probably already too optimistic. While it was agreed that in the ongoing projection round the economic outlook would have to be revised down drastically compared with the March ECB staff projections, it also had to be acknowledged that the extent and duration of the coronavirus pandemic could not be foreseen and the current crisis, which emanated from outside the economy, was very different from previous crises. The longer the lockdown measures were in place, the more serious the impact on activity and prices would be. At the same time, it was stressed that the economic effects of the pandemic would continue for a considerable period after the coronavirus was contained, as the decline in demand owing to precautionary motives or to income losses could be expected to weigh on economic activity, leading to a slow recovery. Attention was drawn to the fact that precautionary saving was already increasing and, if consumers did not regain confidence quickly after containment measures were lifted, there was a risk that demand would remain depressed. It was also to be expected that containment measures would stay in place for some time, at least until a vaccine was available. Uncertainty could also adversely affect investment behaviour. As demand was considered likely to recover only gradually, a swift V-shaped recovery could probably already be ruled out at this stage. At the same time, the comment was made that it was too early to conclude that the “severe” scenario presented by ECB staff was the most likely. It was emphasised that the outlook and the strength of the recovery would depend critically on the actions of EU Member States and the European Union, and the strength of the overall policy response. It was also difficult to predict the extent to which entrepreneurial spirit and innovative thinking about how to conduct business in this new environment might emerge. In this context, it was also recalled that the largest shock to activity in the euro area would likely have been in April, and that in May there should be some improvement owing to a relaxation of some of the containment measures. Looking beyond the immediate disruption stemming from the coronavirus pandemic, euro area growth could be expected to resume as the containment measures were gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption of global activity. It was considered that even more attention than usual should be paid to differences across sectors, as some sectors were particularly exposed to the impact of social distancing measures. Moreover, although the coronavirus was a common shock that had severely affected all euro area jurisdictions, further discussion was needed about the impact on individual countries, which was likely to be heterogeneous (e.g. in the case of euro area countries with greater reliance on tourism). Members expressed concern about the possibility of non-linear effects amplifying the effects of the coronavirus pandemic on activity, although these were difficult to quantify. In the discussion, reference was made in particular to the impact of the economic downturn on the liquidity and solvency situation of firms, the prospect of higher levels of non-performing loans and the consequences for the banking sector. The development of fiscal positions and concerns about rising public debt were also mentioned in this context, as well as the nexus between banks and sovereigns. However, it was suggested that the probability of such risks occurring would depend on the strength of the recovery in 2021, which would in turn depend on the policy responses. In particular, it was argued that the likelihood of a self-reinforcing downward spiral was contained owing to the stabilising effect of the far-reaching fiscal and monetary policy support measures that had been adopted by euro area governments and the ECB, as well as globally. In addition, it was remarked that, to the extent that timely, targeted and temporary measures were effective in addressing acute liquidity shortfalls, they should limit adverse longer-term implications for public and private debt sustainability. Members also emphasised the possible impact of the pandemic on foreign trade, including the effect of changes in the future structure of global production, and the risks surrounding the speed and strength of the recovery in emerging market economies given their reliance on raw materials. There was a risk of being too optimistic about the recovery in these economies, and it was considered that they could be the source of a number of downside risks to the outlook to the real economy that should be closely monitored. Regarding fiscal policies, members welcomed the measures taken by euro area governments and the European institutions to ensure sufficient healthcare resources and to provide support to affected companies, workers and households. At the same time, continuous and ambitious efforts were needed, notably through joint and coordinated policy action, to guard against downside risks and to underpin the recovery. An ambitious and coordinated fiscal stance was critical in view of the sharp correction in the euro area economy. Measures taken should, as much as possible, be targeted and temporary in nature in response to the pandemic emergency. The endorsement by the European Council of the Eurogroup agreement on the three safety nets for workers, businesses and sovereigns, amounting to a package worth €540 billion, was welcomed. At the same time, it was felt that further strong and timely efforts were urgently needed to prepare and support the recovery. In this regard, members welcomed the European Council agreement to work towards a recovery fund dedicated to dealing with the unprecedented crisis. It was noted that euro area governments had implemented ambitious policy packages and that these packages were needed in the current circumstances to reduce the risk of what should be a temporary shock becoming a more permanent one. However, this would lead to a very significant increase in the financing needs of all euro area countries, which should, in principle, imply only a one-off increase in the debt-to-GDP ratio, but could also lead to higher financing needs for several years. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Members agreed that the outlook for headline inflation in the short term had to be revised down, reflecting not only the reduction in oil prices but also the expectation of lower underlying inflation. It was argued that in 2020 the downward impact on prices of weaker demand would clearly be stronger than supply-side effects. However, in an exchange of views about the likely impact of the pandemic on the outlook for price developments in the medium to long term, it was emphasised that this would depend on a number of factors and could be considered more ambiguous, with the overall net effect depending on the balance between increasing slack and lower aggregate demand, and the possible long-term adverse impact on aggregate supply capacity. At the same time, it was possible that the pandemic could have a prolonged negative effect on demand, in which case the output gap might remain large, putting downward pressure on prices for some time to come. A remark was made that the negative effect of the pandemic on the supply side of the economy, and on potential growth, might even not lead to upward price pressures but to further negative demand effects, such as those associated with debt deflation. However, it was also noted that inflation had in the past shown a high degree of persistence and there could be upward pressure on prices from the costs of containment measures and supply disruptions, as well as from a number of structural effects following the pandemic. These were seen to include the exit of firms from the market and associated changes in the degree of competition, lasting changes in supply chains and the location of production, and increasing emphasis on resilience, leading to higher buffers and inventories. There could also be tighter limits to production as the spatial distribution of global production changed. Reference was also made in the discussion to the problem of measuring inflation accurately in the current circumstances, taking into account changes in the composition of purchases of goods, as well as the impaired ability to collect price data and uncertainty about how prices would be imputed in the absence of actual price data. All of this would make it more difficult to assess, with any precision, the situation with respect to inflation. In discussing recent developments in inflation expectations, members noted that short-term inflation expectations according to the ECB’s Survey of Professional Forecasters (SPF) had been revised down sharply, to stand at 0.4% for 2020. At the same time, SPF inflation expectations for 2021 and 2022 had been revised down by much less, and survey-based longer-term inflation expectations had so far not been affected by the coronavirus crisis, remaining at 1.7% for headline inflation. Market-based indicators of inflation expectations remained at very low levels and had fallen further in the euro area, with the five-year forward inflation-linked swap rate five years ahead posting a new record low of 0.72%. The point was made that inflation expectations appeared to be reacting more to developments in actual inflation, which could be taken as an indicator that inflation expectations were becoming less well anchored. Moreover, inflation had remained below the ECB’s inflation aim for an extended period. It was highlighted that, since the start of the coronavirus pandemic, the likelihood of inflation being below zero, or below 1%, according to option-implied probabilities, had increased substantially, pointing to a significant risk of deflation or very low inflation in the coming years. With regard to the monetary analysis, members broadly concurred with the assessment, provided by Mr Lane in his introduction, that the increase in broad money growth mostly reflected a rise in loans to non-financial corporations that was driven to a large extent by drawing on credit lines. These developments were also clearly visible in the results of the euro area bank lending survey for the first quarter of 2020, which indicated a surge in firms’ demand for loans and for drawing on credit lines to meet liquidity needs for working capital, while financing needs for fixed investment had declined. The latest results of the bank lending survey also showed only a very mild net tightening of credit standards for firms, whereas interim results from the survey on the access to finance of enterprises (SAFE) suggested that SMEs had registered a significant deterioration in their access to external finance owing to the unfavourable evolution of their own financial prospects. It was stressed that, while increased lending was a welcome development, it raised the level of risk-weighted assets on banks’ balance sheets and lowered capital ratios, which could induce banks to restrict lending eventually. In that context, public loan guarantees were seen as a crucial element in maintaining credit flows to firms and households. Monetary policy stance and policy considerations With regard to the monetary policy stance, members shared the view that financial market developments had been volatile since the Governing Council’s previous regular monetary policy meeting in March, with a sharp repricing of risk across asset categories, especially around mid-March, which had been partly reversed subsequently as described by Ms Schnabel in her introduction. Financial conditions had tightened overall since the outbreak of the pandemic despite the measures taken by the Governing Council, whereas it was felt that, in the light of the darkened outlook, an easing would have been appropriate. Liquidity premia had remained elevated across jurisdictions and term funding markets for banks had still not fully reopened. Concerns were also voiced about the increasing spread between the EURIBOR and OIS rates, as the EURIBOR represented an important benchmark for pricing loans. Although equity prices had recovered recently, it was remarked that this improvement was not grounded in improved fundamentals. Attention was also drawn to the risk of higher real interest rates if expected inflation continued to decline. The view was widely shared that the Governing Council’s monetary policy measures taken in March, and reinforced by decisions taken on the collateral framework in April, had provided forceful monetary accommodation in a rapidly evolving environment and succeeded in safeguarding the ECB’s monetary policy stance and effective monetary policy transmission across the euro area, which included countering unwarranted increases in risk premia. At the same time, it was cautioned that undue risks of fragmentation could re-emerge with a further worsening of the economic outlook. It was underlined that past experience showed that a loss of confidence in financial markets had to be avoided and pre-emptive action was preferable. Financial amplification mechanisms, such as those triggered by illiquid corporations or banks, could affect the real economy in a non-linear way and increase deflationary risks. At the same time, it was cautioned that monetary policy was not able to address these problems on its own and that fiscal policy also needed to play an essential role. Overall, it was felt that the longer the crisis endured, the more the risk of financial amplification effects would increase. Members agreed that the rapidly evolving situation had to be reflected in a further adjustment to the Governing Council’s monetary policy stance as both the scale and the associated tail risks of the macro-financial crisis had grown substantially since the March monetary policy meetings. Against this background, members broadly supported the monetary policy measures proposed by Mr Lane in his introduction, namely, first, to recalibrate the TLTRO III pricing by reducing the interest rate on TLTRO III operations during the period from June 2020 to June 2021, and second, to offer a new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. The proposed amendments to the TLTRO III parameters were considered to be well suited to enhancing the accommodative stance of monetary policy. It was widely felt that the attractive pricing of TLTRO III operations – in conjunction with government guarantees to banks – helped to provide incentives to maintain lending at a time when banks were facing challenges to reach their lending benchmarks and also counteracted pressures on bank lending rates resulting from recent increases in the EURIBOR. At the same time, a concern was expressed that lowering the minimum rate in the TLTRO III operations to 50 basis points below the deposit facility rate could open up the possibility for banks to obtain funds in the TLTRO III operations and then deposit them at the deposit facility rate instead of increasing their lending to the private sector. Members welcomed the proposal to conduct a new series of non-targeted longer-term refinancing operations to address the pandemic emergency. These PELTROs would consist of seven additional refinancing operations commencing in May 2020 and maturing in a staggered sequence between July 2021 and September 2021, in line with the duration of the Governing Council’s collateral easing measures. The provision of term funding without the operational complexity associated with TLTRO III was seen as important in providing funding for banks at attractive conditions and in helping to preserve the smooth functioning of money markets. Overall, with a broad range of measures already in place, the Governing Council’s monetary policy response was considered to have been suitable and forceful so far and, including the additional measures under consideration, was providing ample liquidity to banks and appropriate monetary stimulus to all sectors of the euro area economy. Looking ahead, and in the light of the high uncertainty surrounding the economic and inflation outlook as shown in the scenarios prepared by ECB staff, it was stressed that the ECB needed to stand ready to adjust its monetary policy stance as appropriate and also to ensure the functioning of transmission across the euro area. This was widely seen to include ensuring favourable financing conditions and addressing downside risks to price stability in the euro area as a whole, including those resulting from negative real-financial feedback loops, as well as preventing fragmentation. The policy measures taken in response to the crisis, most notably the PEPP, had been essential and had limited the likelihood of a self-reinforcing downward spiral. Although the announcement of the PEPP had been followed by a decrease in sovereign bond yields, it was observed that a reversal had taken place subsequently and some yields were currently higher than before the start of the crisis. National governments had announced ambitious fiscal packages that would entail a significant increase in financing needs for all euro area countries for several years. Members widely agreed that, to make the most effective use of the PEPP and to support financing conditions that were consistent with the Governing Council’s policy aim, purchases under the PEPP should use all the flexibility that was built into the programme to ward off severe risks to the smooth functioning of monetary transmission. The concern was voiced that large-scale interventions in sovereign bond markets could give rise to the risk of “fiscal dominance” and that the programme had to be executed carefully in order not to encourage irresponsible behaviour on the part of governments. However, it was also underlined that this was by no means a justification for the Governing Council not to fulfil its price stability mandate and support monetary policy transmission. This included addressing self-fulfilling redenomination risk and fragmentation in the event that these risks were to rise. In this context, it was remarked that the PEPP, like the asset purchase programme (APP), worked by extracting duration risk from asset markets, with the objective of preserving financing conditions that were consistent with a return of inflation towards levels in line with the ECB’s medium-term inflation aim. To ensure compatibility with the ECB’s mandate, it was underlined that price stability always needed to be kept to the fore, while government debt issuance and the evolution of structural deficits had to be monitored closely. With respect to communication, members broadly agreed with the elements put forward by Mr Lane in his introduction. It was stressed that the decisive policy actions taken in mid-March had been effective in providing crucial support to the euro area economy. Moreover, the Governing Council stood ready to adjust all of its measures, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. It was fully prepared to increase the size of the PEPP and adjust its composition, and potentially its other instruments, if, in the light of information that became available before its June meeting, it judged that the scale of the stimulus was falling short of what was needed. The Governing Council highlighted its willingness to adapt its tools and to implement them forcefully as needed and continued to stand ready to take bold, innovative action to safeguard the smooth functioning of the transmission mechanism and the integrity of Monetary Union, aiming to support the economic recovery and delivering on the ECB’s medium-term price stability objective. In this context it was deemed important to stress the flexibility of PEPP implementation. Monetary policy decisions and communication Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council took the following monetary policy decisions: The conditions on the targeted longer-term refinancing operations (TLTRO III) would be further eased. Specifically, the Governing Council decided to reduce the interest rate on TLTRO III operations during the period from June 2020 to June 2021 to 50 basis points below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reached the lending performance threshold, the interest rate over the period from June 2020 to June 2021 would now be 50 basis points below the average deposit facility rate prevailing over the same period. A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) would be conducted to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. The PELTROs would consist of seven additional refinancing operations commencing in May 2020 and maturing in a staggered sequence between July and September 2021 in line with the duration of the collateral easing measures. They would be carried out as fixed rate tender procedures with full allotment, with an interest rate that was 25 basis points below the average rate on the main refinancing operations prevailing over the life of each PELTRO. Since the end of March, purchases had been conducted under the Governing Council’s new pandemic emergency purchase programme (PEPP), which had an overall envelope of €750 billion, to ease the overall monetary policy stance and to counter the severe risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus pandemic. These purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. The Governing Council would conduct net asset purchases under the PEPP until it judged that the coronavirus crisis phase was over, but in any case until the end of the year. Moreover, net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. Reinvestments of the principal payments from maturing securities purchased under the APP would continue, in full, for an extended period of time past the date when the Governing Council started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council was fully prepared to increase the size of the PEPP and adjust its composition, by as much as necessary and for as long as needed. In any case, it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. Finally, the Governing Council took note that further details on the amendments made to the terms of TLTRO III and on the new PELTROs would be published in dedicated press releases at the end of the press conference. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 30 April 2020 Press releases ECB recalibrates targeted lending operations to further support real economy ECB announces new pandemic emergency longer-term refinancing operations Meeting of the ECB’s Governing Council, 29-30 April 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Costa* Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Mersch Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella* Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in April 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 25 June 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 3-4 June 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 3-4 June 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s monetary policy meeting on 29-30 April 2020. Three key conclusions could be drawn on the basis of recent market developments. First, the ECB’s monetary policy measures, together with the Franco-German recovery fund proposal which was subsequently broadly taken up in the package proposed by the European Commission, had reduced downside tail risks for the euro area. A drop in coronavirus (COVID-19) infection numbers and further large fiscal stimulus measures in other advanced economies had added to the improved sentiment. Second, the broad-based decline in risk premia on the back of these developments had offset the tightening impact of a deterioration in macroeconomic fundamentals. While developments in euro area financial markets had, until recently, been broadly consistent with the prospect of a swift economic recovery, expectations were gradually being revised downwards. Third, and as a consequence, the latest easing of financial conditions in the euro area in part hinged on the contribution of fiscal and monetary policy to mitigating fragmentation risks across markets and jurisdictions. The ECB’s composite indicator of systemic stress was consistent with these broad conclusions. It showed that systemic stress across a range of financial markets had continued to steadily recede, although it remained at an elevated level compared with the period before the coronavirus pandemic in both the euro area and the United States. Global volatility too had abated across various market segments, in part owing to the effective liquidity backstop provided by central banks worldwide. In this environment, overall funding conditions in euro area sovereign bond markets had eased further, as reflected in a downward shift of the euro area GDP-weighted sovereign yield curve, which remained, however, above its pre-crisis level. Empirical evidence suggested that monetary policy had contributed significantly to the fall in bond yields since the announcement of the pandemic emergency purchase programme (PEPP). The PEPP was offsetting upward pressure on bond yields that resulted from the crisis-induced increase in the free float ratio, i.e. the share of bonds held by price-sensitive investors relative to total bond supply. Prevailing market segmentation implied that monetary policy needed to act in a more targeted and flexible way to preserve policy transmission across the entire euro area. Fiscal developments, and in particular the news relating to a more ambitious European fiscal response to the crisis, had reinforced the effectiveness of the ECB’s measures. As a result, fiscal and monetary policy in the euro area were starting to act as complements, thereby effectively containing tail risks. Downward pressure on sovereign bond yields had also contributed to easing funding conditions in euro area corporate bond markets, although they too remained relatively tight compared with the pre-pandemic period. The exceptionally high pace of gross issuance in the investment grade corporate bond market had not decelerated, highlighting the continued high financing needs of companies, even as lockdown measures were gradually being eased. The ECB’s monetary policy was providing considerable support to corporate credit markets, including the commercial paper market, helping firms manage their cash flow needs. Financial investment grade commercial paper rates had come down notably in recent weeks from their peaks, while non-financial commercial paper rates had stabilised. The ECB’s presence in the commercial paper market had helped firms reduce rollover risks, which in turn had also contributed to an increase in the issuance of longer-dated paper. Improvements on the debt funding side for firms had been accompanied by improvements in equity markets. All the major global indices had posted substantial gains since the Governing Council’s previous monetary policy meeting, further offsetting a large part of the losses recorded at the start of the coronavirus pandemic. The decline since the beginning of 2020 was still highest in the euro area, but the Euro Stoxx index had more recently been outperforming other markets following the Franco-German recovery fund proposal. Since its announcement on 18 May 2020, the Euro Stoxx index had risen by 13%, compared with 8% for the S&P 500 index, mainly reflecting a further decline in the equity risk premium. This easing had, however, been partially offset by deteriorating medium to long-term earnings growth expectations, consistent with a shift in expectations towards a more protracted impact of the crisis. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. The external environment was characterised by a sharp downturn in global activity and trade, which implied a reduction in foreign demand for the euro area. Incoming data confirmed that the global economy had fallen into an unprecedented recession in the first half of the year. The global (excluding the euro area) composite output Purchasing Managers’ Index (PMI) had extended the losses registered in the first quarter, declining to a historical low in April before recovering somewhat in May. The downturn in global trade was expected to be even more severe than the contraction in output as a result of closed borders and disruptions to logistics. Moreover, trade developments tended to be procyclical, especially in downturns. Data on new export orders pointed to a sharp fall of global trade in the second quarter of the year. Financial conditions had continued to ease in advanced and emerging market economies since the April monetary policy meeting, but remained substantially tighter than before the pandemic shock. Brent crude oil prices had increased by 62% since the April meeting, but continued to stand at low levels. The euro had appreciated somewhat against the US dollar even if it remained broadly unchanged in nominal effective terms. In the euro area, the pandemic and the associated containment measures were taking a toll on productive capacity and domestic demand. In the first quarter of 2020, euro area real GDP had decreased by 3.8%, quarter on quarter, although strict containment measures were only in place from mid-March in most countries. At a sectoral level, both the manufacturing and services sectors had been severely hit by the pandemic. This had been reflected by PMI business expectations in the manufacturing and services sectors reaching record lows in March and April, before bouncing back somewhat in May. The pandemic shock had also led to a sharp increase in household savings, as consumption had decreased more strongly than income. The exceptional degree of uncertainty had led to the postponement of consumption and investment with strongly negative effects on growth. Labour market conditions were rapidly deteriorating and a sizeable decline in euro area trade was expected for the second quarter of 2020. Overall, the incoming data pointed to a further significant contraction of real GDP in the second quarter. While euro area activity was expected to rebound in the third quarter as the containment measures were eased further, the overall speed and scale of the rebound remained highly uncertain. This assessment was broadly reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area. The June projections signalled that output would decline steeply (by 13.0%) in the second quarter of 2020, after having already declined by 3.8% in the first quarter. This was expected to be only partly reversed in the second half of the year, with quarterly growth rates of 8.3% and 3.2% projected for the third and fourth quarters respectively. Under this baseline, annual output was projected to shrink by 8.7% in 2020, followed by positive growth rates of 5.2% in 2021 and 3.3% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for real GDP growth had been revised substantially downwards by 9.5 percentage points in 2020 and revised upwards by 3.9 percentage points in 2021 and 1.9 percentage points in 2022. In general, the extent of the contraction and the recovery was seen to depend crucially on the duration and the effectiveness of the containment measures, the success of policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity and domestic demand would be permanently affected. The euro area fiscal stance provided a strong contribution to stabilising GDP growth, based on a combination of discretionary policy measures and the working of automatic stabilisers. However, this was resulting in large increases in deficit and debt. For 2020, the anticipated strong increase in the euro area government debt-to-GDP ratio was expected to be pushed higher by an unfavourable interest-growth differential. Turning to price developments, headline inflation had dropped further from 0.3% in April to 0.1% in May (according to Eurostat’s flash estimate). Energy inflation continued to push down headline inflation, while inflation for (especially unprocessed) food remained elevated and could affect consumers’ inflation perceptions. The HICP excluding energy and food had remained at 0.9% in May, unchanged from April. Overall measures of underlying inflation had fallen somewhat since February, partly reversing the earlier gradual increases. Pipeline price pressures had weakened and wage negotiations remained on hold. On the basis of current and futures prices for oil, headline inflation was likely to decline somewhat further over the coming months and to remain subdued until the end of the year. Over the medium term, weaker demand was expected to put downward pressure on inflation, which was expected to be only partially offset by upward pressures related to supply constraints. For the long term, survey-based measures of inflation expectations had mostly remained at historical lows, but stood considerably higher than market-based measures. This assessment was also reflected in the June 2020 Eurosystem staff projections, which entailed a substantial downward revision of the inflation outlook in the baseline scenario, with headline inflation expected to average 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022. The revisions to the outlook for core inflation indicated an even larger deterioration, with core inflation projected to reach only 0.9% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for HICP inflation had been revised downwards by 0.8 percentage points in 2020, 0.6 percentage points in 2021 and 0.3 percentage points in 2022. While to some extent related to the lower path of energy prices, the revisions also reflected lower price pressures on account of the sharp decline in real GDP and the associated significant increase in economic slack. As regards euro area financial conditions, risk-free rates had changed little since the Governing Council’s April monetary policy meeting. The latest EONIA forward curve had also remained largely unchanged, indicating no expectations of a rate cut in 2020. Sovereign bond market fragmentation had declined but spreads remained elevated. A partial recovery in risk asset prices was attributable to an improvement in risk sentiment. Meanwhile, corporate fundamentals continued to deteriorate. Overall, financial conditions had been broadly stable since the Governing Council’s April meeting, but remained significantly tighter than before the pandemic crisis. Turning to money and credit developments, broad money (M3) growth had increased to 8.3% in April 2020, from 7.5% in March. Strong money growth reflected bank credit creation, which was driven to a large extent by the acute liquidity needs in the economy. Moreover, high economic uncertainty was triggering a shift towards money holdings for precautionary reasons. In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth. The annual growth rate of loans to non-financial corporations rose further to 6.6% in April 2020, up from 5.5% in March, reflecting firms’ need to finance their ongoing expenditures and working capital in a context of rapidly declining revenues. At the same time, the annual growth rate of loans to households decreased to 3.0% in April, from 3.4% in March, amid containment measures, declining confidence and a deteriorating labour market. Monetary policy considerations and policy options Summing up, Mr Lane observed that the incoming information confirmed that the euro area economy was experiencing an unprecedented contraction. Survey data and real-time indicators for economic activity had shown some positive signs as the containment measures were gradually eased. Nonetheless, these readings indicated only a minor improvement compared with the speed at which the indicators had plummeted in the preceding two months. The steep decline of output in the second quarter that followed the decline in the first quarter was projected to be only partly reversed in the second half of the year. Under the baseline, which had been revised substantially downwards relative to the March projections, annual output was projected to shrink by 8.7% in 2020, followed by positive growth rates of 5.2% in 2021 and 3.3% in 2022. The baseline was surrounded by an exceptional degree of uncertainty. The June 2020 staff projections also entailed a substantial downward revision of the inflation outlook in the baseline scenario, with headline inflation expected to average 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022. It was important to note that without the vigorous policy response (including an estimated 2.5 percentage point contribution to 2020 output from fiscal policy), the projected paths for output and inflation would be even lower. The announcement of the PEPP on 18 March had arrested a sharp sell-off in bond and equity markets that was threatening to undermine the ECB’s monetary policy stance and its effective transmission. Both the highly accommodative pricing of the targeted longer-term refinancing operations (TLTRO III) and the collateral easing measures were providing strong incentives for banks to maintain credit flows to the real economy. In addition, the unconditional refinancing operations together with the establishment of international swap lines were ensuring that liquidity in the banking system was protected. These measures had acted as a stabilising force during this exceptional period. Nevertheless, financial conditions had tightened sharply since the escalation of the pandemic, as the downward shift in risk-free rates had not been fully transmitted to the broader set of asset prices and yields that set the financial conditions for the real economy. In particular, the upward pressure on average sovereign yields had contributed to higher corporate and bank bond yields and a decline in equity valuations, especially for bank stocks. Against this background, Mr Lane emphasised that two main factors called for further policy action at the current meeting. First, the medium-term outlook for price stability was threatened by the fallout from the coronavirus crisis: in particular, the baseline in the new projections saw 0.3 and 0.6 percentage point downward revisions in the 2022 headline and core inflation rates respectively, with substantially larger revisions in the severe scenario. Second, financial conditions for the euro area as a whole were significantly tighter compared with the period before the pandemic, whereas the growth and inflation outlook called for easier financial conditions. In order to counter these pandemic-related negative revisions to the inflation outlook, the appropriate policy response was to increase the size of the PEPP envelope. In March, the Governing Council had decided to launch the PEPP “to counter the serious risks to the transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus”. As expressed in the preamble to the PEPP legal act: “It is also clear that this situation hampers the transmission of the monetary policy impulses and adds severe downside risks to the relevant inflation outlook. Against this background, the PEPP was a measure which was proportionate to counter the serious risks to price stability, the monetary policy transmission mechanism and the economic outlook in the euro area, which are posed by the outbreak and escalating diffusion of COVID-19.” Accordingly, the downward revision to the inflation outlook, together with the further downside risks captured in the severe scenario, called for a temporary phase of additional asset purchases, in order to deliver the monetary conditions that could support a return to the pre-crisis inflation trajectory within the projection horizon. In terms of timing, the lags in the transmission of monetary policy to inflation dynamics meant that it was important to take a significant step in addressing the increase in the inflation shortfall. Furthermore, the value of a timely response was compounded by the importance of avoiding a sustained unanchoring of inflation expectations, in view of the downside risks faced and the near-term prospect of a sustained phase of very low inflation outcomes. In terms of the overall monetary stance, the PEPP provided a temporary additional source of accommodation, which operated alongside the more standard suite of policy instruments (the level of the ECB policy rates; the APP; forward guidance; and the TLTRO III programme). Before the pandemic shock, this set of measures had been configured to lift inflation towards the Governing Council’s policy aim over the medium term. Given the scale and unique nature of the shock, it was better to tackle the substantial downward shift in the inflation outlook through a targeted and temporary programme (the PEPP), rather than a recalibration of the existing policy package. Moreover, an increase in the size of the PEPP envelope would also provide additional protection against the risks of fragmentation across market segments, which could potentially obstruct the smooth transmission of monetary policy. At the same time, the envelope should be understood as a ceiling, which implied that in the event of significant upside surprises to the outlook, the full envelope would not need to be used. Looking ahead, incoming economic and financial data and subsequent projection rounds would provide essential guidance as to whether the pandemic-related negative shock to inflation dynamics had been sufficiently contained. Ongoing monetary accommodation would likely prove necessary in order to support the macro-financial conditions conducive to making further progress towards the Governing Council’s inflation aim. Once the pandemic shock to the inflation path had subsided, the monetary stance could again be controlled by calibrating the Governing Council’s pre-crisis suite of policy instruments. In terms of the overall monetary policy strategy, purchases of government bonds under the PEPP and the APP were an effective tool for delivering on the Treaty-assigned price stability objective in the current environment. This was especially the case given the already low levels of the ECB’s policy rates and the crucial role of sovereign yields in determining the financing conditions of firms and households. These measures were also efficient, especially in combination with other policy measures, since other instruments would require extraordinary adjustment to generate the same impact on inflation dynamics. The easing of credit conditions would help viable businesses continue to operate and retain as many workers as possible. In turn, preserving jobs was the most important factor in determining incomes and the financial security of individuals and families in the euro area. The Governing Council’s measures played a key role in supporting credit intermediation through banks, not least since the business prospects of the banking system depended first and foremost on the macroeconomic outlook. Accordingly, the PEPP and the APP were proportionate measures under the current conditions for pursuing the price stability objective, with sufficient safeguards having been built into the design of these programmes to limit potential adverse side effects, including risks of fiscal dominance, and to address the monetary financing prohibition. On the basis of this assessment, Mr Lane proposed that the Governing Council take the following decisions: First, to increase the size of the PEPP by €600 billion. The size of the proposed envelope was calculated to make a significant contribution to offsetting the pandemic-related downward shift in the projected inflation path. Second, to extend the net purchase horizon of the PEPP to at least the end of June 2021. This would align the Governing Council’s minimum purchase horizon with the phase of the most severe pandemic-related restrictions on economic activity and the weakest inflation pressures. It was also broadly aligned with the horizons of the other monetary policy measures taken by the Governing Council in response to the pandemic. In any case, net asset purchases under the PEPP would be conducted until the Governing Council judged that the coronavirus crisis phase was over. Third, to announce that maturing principal payments from securities purchased under the PEPP would be reinvested until at least the end of 2022 and that, in any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the desired monetary stance. This reinvestment strategy for the PEPP would avoid the risk of an unwarranted tightening of financial conditions at a time when the recovery from the pandemic shock was likely to remain incomplete. At the same time, a separate reinvestment strategy (distinct from the APP) was appropriate in view of the temporary and emergency nature of the PEPP. Fourth, to continue net purchases under the APP at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council would continue to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. Fifth, to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Sixth, to keep the key ECB interest rates unchanged and to expect them to remain at their present or lower levels until the Governing Council had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. In the current stressed market conditions, asset purchases (together with the TLTRO III programme) were the most effective and efficient tools for adding monetary accommodation. High uncertainty and heightened risk aversion would weaken the transmission of policy rate cuts to the market reference rates that mattered for the pricing of credit to households and firms, especially in the context of a temporary shock. In this environment, asset purchases were more efficient at easing funding conditions and thereby the lending rates that mattered for the real economy. In its public communication, the Governing Council needed to confirm that the incoming information indicated an unprecedented contraction of the euro area economy; highlight that the projections entailed a substantial downward revision to both the level of economic activity and the inflation outlook over the whole projection horizon, while the baseline was surrounded by an exceptional degree of uncertainty; emphasise that additional monetary policy action had become necessary to ensure the necessary degree of monetary accommodation and a smooth transmission of monetary policy across sectors and jurisdictions, in order to safeguard medium-term price stability; explain that its decision to recalibrate the PEPP was in response to the pandemic-related negative revision to the projected inflation path and would further ease the general monetary policy stance, supporting the funding costs of the real economy; stress that the PEPP also allowed the Governing Council to counter risks to the smooth transmission of monetary policy through the flexible implementation of the purchases over time, across asset classes and among jurisdictions; and reiterate that the Governing Council would do everything necessary within its mandate and continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the outlook provided by Mr Lane in his introduction. Incoming information confirmed that the euro area economy was experiencing an unprecedented contraction. In the first quarter of 2020, euro area real GDP had decreased by 3.8% quarter on quarter as a result of the coronavirus pandemic and the measures to contain it. Both the manufacturing and services sectors were severely affected, and the pandemic had taken a toll on the productive capacity of the euro area economy as well as on domestic demand. Information from surveys, high-frequency indicators and incoming hard data all pointed to a further significant contraction of real GDP in the second quarter. Most recent indicators suggested some bottoming-out of the downturn in May as parts of the economy gradually reopened. Accordingly, euro area activity was expected to rebound in the third quarter as the containment measures were eased further, supported by favourable financing conditions, an expansionary fiscal stance and a resumption of global activity. However, the overall speed and scale of the rebound remained highly uncertain. This assessment was also broadly reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area. As regards the external environment, the outlook for global activity had been revised downwards significantly compared with the March 2020 ECB staff macroeconomic projections. The pandemic crisis was affecting not only activity in individual countries but also international trade, and downward revisions to foreign demand for the euro area were larger than those to global activity. Looking at this from a different perspective, it implied that at the current juncture the euro area could not rely on exports to offset weakness in domestic demand. On euro area activity, members stressed the exceptional uncertainty surrounding the outlook for the euro area in the present circumstances. It was underlined that much of the uncertainty lay outside the economic sphere and related to the future course of the pandemic and its medical solution. The extent of the contraction and the recovery would depend crucially on the duration and the effectiveness of the containment measures, the success of policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity and domestic demand were affected more permanently. The point was also made that economic outcomes were highly dependent on the success of policy interventions, for instance in preventing acute liquidity shortages among firms from turning into widespread insolvencies. More broadly, there was a link between the quality of the policy responses and the degree to which the supply side of the economy could be damaged more permanently. Against this background, members widely acknowledged the difficulties of preparing projections in view of the high degree of uncertainty that presently surrounded economic developments and clouded the outlook. Overall, there was broad agreement that publishing a “mild” and a “severe” scenario alongside a most likely baseline projection was a reasonable way of reflecting the elevated risk and uncertainty. Some concern was expressed that the mild scenario might already be outdated. At the same time, it was argued that keeping a mild scenario was warranted, as the unlocking of the economy could give rise to more positive outcomes in the short term than envisaged in the baseline. Reference was also made to some positive signs from countries outside the euro area that were further ahead in the unlocking process. In the exchange of views on the scenarios in the June 2020 Eurosystem staff projections, it was remarked that these broadly confirmed the range of outcomes in the scenarios that had been prepared by ECB staff in April and released on 1 May. At the same time, it was recalled that all scenarios assumed that an effective medical solution would become available by mid-2021. This implied that all scenarios might turn out to be too optimistic for the latter part of the projection horizon if that was not the case. Similarly, it was recalled that the baseline projection assumed that there would be no adverse real-financial feedback loops. Historical experience suggested that such loops would draw out the recovery and imply a worse outlook than that entailed in the baseline. In this context, it was observed that to date financial markets had remained fairly resilient and rebounded rather rapidly, also reflecting the swift and forceful monetary policy response so far. At the same time, it was stressed that, in view of the cut-off date, neither the positive impact of the European Commission’s proposed recovery fund nor that of the additional fiscal stimulus announced in the largest euro area economy had been taken into account in the staff projections. Overall, the balance of risks around the baseline projection for growth was seen as to the downside. Members underlined that the shape of the recovery would depend crucially on how consumption and investment evolved under the present uncertainties and whether the pandemic led to longer-lasting changes in the behaviour of economic agents. In particular, the expected pattern of the saving ratio was seen as a key issue, as was the extent to which a sharp spike owing to the lockdown would subsequently unwind as the economy gradually reopened. Some concern was expressed that expecting a full unwinding of higher savings might be too optimistic, as protracted uncertainty might keep the ratio higher for longer. In the services sector, in particular, workers and consumers might review not only their current but also their long-term income prospects, leaving consumption subdued for quite some time. Moreover, a rise in real interest rates and attempts to restore net wealth could be further factors encouraging saving. At the same time, it was argued that the unwinding could lead to a saving rate below the pre-crisis rate if the involuntary savings made during the lockdown and containment periods were spent to meet pent-up demand. Regarding fiscal policies, an ambitious and coordinated fiscal stance remained critical, in view of the sharp contraction in the euro area economy. Members therefore strongly welcomed the European Commission’s proposal for a recovery plan dedicated to supporting the regions and sectors most severely hit by the pandemic, to strengthening the Single Market and to building a lasting and prosperous recovery. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation had decreased to 0.1% in May, down from 0.3% in April, mainly on account of lower energy price inflation. On the basis of spot and futures prices for oil, headline inflation was likely to decline somewhat further over the coming months and to remain subdued until the end of the year. Over the medium term, weaker demand would put downward pressure on inflation, which would only be partially offset by upward pressures related to supply constraints. This assessment was also reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area, which foresaw annual HICP inflation in the baseline scenario at 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022. Some concern was expressed that that model-based estimates of deflation risks surrounding the baseline scenario in the June 2020 projections had reached their highest levels since the December 2008 projections. The point was made that while deflation was not a likely outcome for now, it was also no longer a low probability event and warranted careful monitoring. In their exchange of views on the inflation outlook, members recalled the considerable uncertainty about the net effect of rising slack and lower demand on the one side, and the possible longer-term adverse impact on aggregate supply capacity on the other side. It was argued that the pandemic could influence potential output in either direction. For instance, notwithstanding increased production and distribution costs associated with public health and safety measures, total factor productivity could increase, for example due to the improvements in digitalisation prompted by the crisis. It was acknowledged that the uncertainty about the impact of the pandemic crisis on potential output made real-time estimates of output gaps even more uncertain than in normal times. In this context, it was stressed that while the output gap might overstate the amount of slack, the unemployment gap would understate it, as statistically recorded unemployment was being kept artificially low by temporary employment schemes. The concern was raised that the lagged nature of the labour market response would eventually lead to a period of higher unemployment. This would put downward pressure on wage growth that would come on top of the deceleration that had already started before the pandemic crisis. Overall these arguments pointed to protracted weakness in the inflation outlook. However, the point was also made that, while the balance of demand and supply effects was disinflationary in the shorter term, the medium term might see rising inflationary pressures. These could stem from factors including disruptions in supply chains, de-globalisation tendencies and regulatory restrictions in the context of containing the pandemic. It was argued that there remained considerable uncertainty about how the negative supply effects would affect pricing, but that some goods and services would have to become more expensive, if only to keep businesses viable. It was also recalled that price measurement issues could be an additional source of uncertainty in the current environment. This related to difficulties with collecting price data and increased recourse to imputations. In addition, the goods and services actually purchased during the lockdown and containment periods likely deviated from the expenditure weights assumed in the consumption baskets used in the HICP compilation. It was argued that, as a result, consumers’ perceptions could deviate substantially from what was recorded in the official statistics. Reference was made to the strong increase in food prices, which suggested that perceived inflation could currently be higher than measured inflation, possibly feeding through to expectations. In discussing recent developments in inflation expectations, members broadly shared the assessment provided by Mr Lane in his introduction that market-based indicators of longer-term inflation expectations had remained at depressed levels. While survey-based indicators of inflation expectations had declined somewhat over the short and medium term, longer-term expectations had been less affected (despite remaining near historical lows). It was argued that the elevated probability of inflation remaining below 1% according to market-based indicators suggested that market participants’ inflation expectations might have become less well anchored. With regard to the monetary analysis, members widely agreed with the assessment provided by Mr Lane in his introduction that strong growth in broad money (M3) reflected a shift towards money holdings for precautionary reasons in the context of elevated uncertainty. Strong money growth also reflected bank credit creation, which was driven to a large extent by acute liquidity needs in the economy. At the same time, a question was raised on the impact of the ongoing, large-scale accumulation of monetary liquidity on risks to price stability over the medium term. It was remarked that the bank lending channel continued to perform well, which was important for monetary policy transmission given that the bulk of financial intermediation in the euro area operated through banks. The annual growth in loans to non-financial corporations had picked up further in April, reflecting firms’ need to finance their ongoing expenditures and working capital in the context of rapidly declining revenues. The upcoming TLTRO allotments at very favourable conditions should further encourage banks to continue extending loans to all private sector entities. Moreover, attention was drawn to complementary support provided on the prudential side aimed at easing conditions in the banking system. However, it was still uncertain whether the funds provided by the ECB’s lending operations would reach those sectors of the euro area economy where liquidity was most urgently needed, such as small and medium-sized enterprises. Monetary policy stance and policy considerations With regard to financial conditions and the monetary policy stance, members shared the assessment provided by Ms Schnabel and Mr Lane in their introductions. While sentiment in financial markets had improved since the previous monetary policy meeting in late April, financial conditions had tightened overall since the escalation of the pandemic. More recently, euro area bond spreads had declined and equity prices, which were one driver of overall financial conditions, had rebounded. The easing in financial conditions and improvement in sentiment since the previous monetary policy meeting were attributed to a number of factors: the gradual relaxation of containment measures; the support provided by the ECB’s monetary policy decisions; national fiscal policy measures; and the Franco-German recovery fund proposal, as broadly taken up in the comprehensive recovery package subsequently proposed by the European Commission. At the same time, it was emphasised that improved sentiment in financial markets should not lead to complacency. While the ECB’s set of monetary policy measures, most notably the PEPP, had contributed to calming financial markets, real interest rates in the euro area had increased, thereby contributing to a tightening in the stance of monetary policy in the context of a subdued outlook for inflation. With regard to the monetary policy transmission mechanism, it was noted that the decline in risk-free rates had not been transmitted in full to the broader set of asset prices and yields affecting the financial conditions faced by the real economy. In particular, the upward pressure on average sovereign bond yields, which was in part related to the increased issuance of government debt, had contributed to higher corporate and bank bond yields and a decline in equity valuations, especially for banks. Looking ahead, this could trigger an increase in the price of credit to households and businesses. The tighter financial conditions compared with pre-coronavirus levels, the unprecedented magnitude of the economic contraction, and the notable downward revisions to the outlook for growth and inflation entailed in the June projections were highlighted. In addition, there were downside risks to the outlook, as well as rising risks of disinflation and even deflation. Against this background, all members agreed that further monetary policy action was needed, in accordance with the Governing Council’s price stability objective. At the same time, some reservations were expressed about the precise timing and proposed scale of the expansion of the PEPP envelope to further boost monetary policy accommodation at the current meeting. Prevailing uncertainties and some indications of a bottoming-out of economic and financial conditions were seen to argue for a more cautious approach. However, it was generally felt that not acting at the present meeting could trigger a further tightening of financial conditions, to the detriment of the economic recovery. Continued exceptionally high levels of uncertainty were not seen as a valid reason to postpone a response that was required by the ECB’s price stability objective, but rather as calling all the more for decisive action. It was seen as particularly important in the current environment that monetary policy and fiscal action should act as complements in combating the economic fallout from the pandemic crisis. Members broadly agreed with the arguments put forward by Mr Lane in his introduction that the PEPP was the most effective and efficient tool for providing additional monetary accommodation in the current environment, reflecting its dual role in supporting both the monetary policy stance and the transmission of the stance to all parts of the euro area economy in the current stressed market conditions. In terms of the overall stance and given the scale and unique nature of the pandemic shock, the substantial downward shift in the inflation outlook would be better tackled through a targeted and temporary programme rather than a recalibration of the more standard policy tools. It was argued that the PEPP was the best available instrument for lowering the medium and long-term interest rates which mattered most for the real economy. Expanding the PEPP would help to bring the sovereign bond yield curve more closely into line with the risk-free curve. This in turn would support the transmission of monetary policy to the interest rates applicable to households and businesses, to the extent that sovereign bond yields acted as a benchmark for the pricing of loans and market-based credit instruments. It was also remarked that increasing the size and duration of asset purchases would contribute to containing overall uncertainty, thereby supporting the recovery of the euro area economy. In this vein, the PEPP could provide additional protection against the risks of fragmentation across market segments that might obstruct the smooth transmission of monetary policy. It was recalled that the PEPP had been rather successful in containing spread volatility in the European government bond markets and in averting risks of self-fulfilling adverse market dynamics. In this context, the importance of the flexible implementation of the PEPP was emphasised as a means to ensure the transmission of monetary policy across time, asset classes and jurisdictions. Such flexibility was seen as most effective and efficient during periods of market stress. At the same time, it was reiterated that, in line with the design features of the PEPP, the capital key remained the relevant benchmark for the allocation of purchases across jurisdictions. On this basis, members broadly agreed with the proposal by Mr Lane to increase the size of the PEPP by €600 billion, to extend the horizon for net purchases under the PEPP to at least the end of June 2021, and to announce that principal payments from maturing securities purchased under the PEPP would be reinvested until at least the end of 2022 and that, in any case, the future roll-off of the PEPP portfolio would be managed so as to avoid interference with the desired monetary policy stance. With regard to the calibration of the PEPP expansion, a range of preferences were expressed in favour of either a larger or smaller envelope. The case for a larger envelope was based on the significant downside risks to the June projections amid the exceptionally high degree of uncertainty surrounding the economic outlook, together with the subdued inflation outlook, with heightened risks of protracted disinflation or even deflation. In addition, the point was made that the June projections did not cover the possibility that the crisis could spill over to the financial sector: if this were to happen, it would trigger a further deterioration in financial conditions and necessitate an even stronger monetary policy response. At the same time, a number of arguments were made in favour of a smaller expansion of the PEPP, which would allow more time to assess the evolution of the economic situation and the medium-term outlook for price stability. The point was also made that the June projections did not take into account the Commission’s recovery fund proposal or recently announced national fiscal measures, which could entail an upside risk to the economic outlook contained in the staff projections. In the end, a broad consensus emerged among members around the proposal put forward by Mr Lane to expand the PEPP envelope by €600 billion in order to deliver the monetary conditions that could support a return to the pre-crisis inflation trajectory within the projection horizon. An expansion of this amount was seen as providing a clear signal that the Governing Council was not satisfied with the medium-term inflation outlook of 1.3%. It was also noted that expanding the size of the PEPP by €600 billion would help support the smooth transmission across all jurisdictions of the euro area. With regard to the envisaged horizon of net purchases under the PEPP, members broadly concurred with the proposal put forward by Mr Lane to extend it until at least the end of June 2021, thus aligning it with the phase of the most severe impact of the pandemic-related restrictions on economic activity and the weakest inflation pressures in the period ahead. The purchase horizon would also be broadly aligned with the horizons of the other monetary policy measures taken by the ECB in response to the pandemic. It was underlined that the proposed extension of the PEPP was consistent with the Governing Council’s communication that net asset purchases would continue until the coronavirus crisis phase was over. The more prolonged economic slowdown than previously anticipated thus warranted such an extension. With regard to the reinvestment of principal payments, members broadly agreed with the proposal made by Mr Lane to announce a PEPP reinvestment horizon of until at least the end of 2022. This was seen to avoid the risk of an unwarranted tightening of financial conditions at a time when the recovery from the pandemic shock was likely to remain incomplete. These reinvestments were seen to enhance the effectiveness of the PEPP by reducing the amount of duration risk that investors needed to absorb in the future, thereby helping to limit upward pressure on longer-term interest rates. Announcing a minimum duration for the reinvestment horizon of until at least the end of 2022 was viewed as appropriate, given the temporary and emergency nature of the PEPP. It was argued that this would also allow time, in a manner that would not interfere with the broader monetary policy stance, to reduce possible deviations from the capital key that might arise during the net purchase phase. Members also put forward some broader considerations with regard to the effectiveness and efficiency of using asset purchases as a monetary policy tool in the pursuit of the ECB’s price stability objective, including in the light of the upcoming review of the monetary policy strategy and with a view to explaining the Governing Council’s monetary policy deliberations in a more comprehensive way to the public. It was argued that the proportionality assessment of any monetary policy measure had to consider, among other things, the degree to which the measure contributed to achieving the monetary policy objective, on the one hand, and possible unintended side effects, on the other hand. It required a judgement as to whether other policy measures were available that were as effective and efficient while offering a better balance between intended and unintended effects. It was highlighted that asset purchases were an essential tool with which monetary policy could affect macroeconomic developments and, ultimately, inflation outcomes, via a number of transmission channels. From the outset, purchases under the public sector purchase programme (PSPP) of securities with maturities of between two and thirty years had been aimed at lowering market interest rates that are relevant for the real economy and inflation developments. There was now ample evidence from an exhaustive literature showing that asset purchase programmes in general and the PSPP in particular had proven effective in achieving their intended effects on the euro area economy and thereby in maintaining price stability. Asset purchases had lowered relevant market interest rates throughout the euro area, which translated into lower bank lending rates and higher lending volumes and, ultimately, into higher growth and inflation outcomes. Although the quantitative estimates varied to some extent and were subject to the usual model uncertainty, the overall evidence underpinned the view that the PSPP had had a positive impact on macroeconomic outcomes, confirming the assessment that it was a policy measure that was effective in putting upward pressure on inflation and inflation expectations as intended. It was recalled that the decision to implement a large-scale asset purchase programme in January 2015 had been taken in response to two major challenges, namely strong disinflationary headwinds in the aftermath of the financial and sovereign debt crises in the euro area and the global phenomenon of declining equilibrium (or “natural”) interest rates that ultimately determined the degree of accommodation that a given level of policy rates would deliver. There was vast empirical evidence documenting the decline in the level of equilibrium interest rates over the past three decades which was broadly related to a decrease in potential output growth in many industrial countries, reflecting factors such as demographic trends or low productivity growth. Therefore, with policy interest rates close to their effective lower bound, unconventional instruments were needed to provide the degree of monetary accommodation that was consistent with the ECB’s inflation aim. At the same time, it was noted that the low interest rate environment in which central banks had to navigate was associated with a number of challenges. First, low interest rates might incentivise market participants to adopt excessive risk-taking behaviour, ultimately triggering risks to financial stability. Second, low interest rates prevailing over an extended period of time could strain the profitability, and hence the capitalisation, of banks. Third, the low interest environment might give rise to scenarios in which banks financed inefficient firms, which implied a misallocation of resources and could ultimately lead to a decrease in overall productivity in the economy. Moreover, low interest rates were also challenging for earnings on the savings of households and insurance companies that aimed for certain nominal yields. It had to be acknowledged, however, that the asset purchases under the PSPP had contributed to these potential issues, but only to the extent that they lowered interest rates below the natural interest rate. Hence, the challenges of a low interest rate environment mainly arose from the structural factors driving the decline of interest rates, while monetary policy had only contributed to these effects and was clearly not the main factor behind them. In assessing the benefits and costs of asset purchases, the relevant benchmark was not the status quo, but a counterfactual situation in which policy accommodation through asset purchases had not been provided. There was ample evidence that the euro area economy would have fared much worse without the policy stimulus from asset purchases. The Eurosystem’s asset purchases had created financial conditions that countered disinflationary forces and helped to avert deflationary risks in the euro area. In overall macroeconomic terms, asset purchases had made a very significant positive contribution to both economic growth and inflation in the euro area. With respect to the earnings situation of banks, the low interest rate environment had reduced their interest rate margins, but the positive impact of asset purchases on the broader economy had in turn supported banks’ balance sheets. In this context, it was also highlighted that so far there was no convincing evidence that the low interest rates had contributed to so-called zombie lending. The empirical evidence on the effects of the low interest rate environment on retirement provisions was also unclear. In this context, it was not only the nominal return on an individual asset that was relevant for overall retirement provisions, but also the overall real return on all assets that people held in their portfolios over their lifetime. As regards the impact of the ECB’s monetary policy measures on households, there was ample evidence from numerous studies on the impact of low interest rates and asset purchases on household income. Evidence derived from the European Household Finance and Consumption Survey showed that net borrowers had benefited from lower interest rates, whereas net savers had seen a decline in their interest income. It was also noted that the effects of lower interest rates arising from asset purchases were similar to the effects of using conventional monetary policy instruments. Moreover, to judge the overall effects of low interest rates on household income, all transmission channels, not just savings income, had to be taken into account. The significant macroeconomic effects of asset purchases contributed to higher wages and higher employment, and thereby positively affected households’ disposable income and consumption. With regard to the potential interactions between monetary policy and fiscal policy, a clear focus on the primary objective of maintaining price stability, combined with safeguards which ensure the respect of the prohibition of monetary financing, was viewed as essential to the lasting success and credibility of monetary policy, and ultimately to acceptance and trust in the euro as a common currency. In order to ensure sustainable public finances, the countries participating in the monetary union had adopted common budgetary rules and a budgetary surveillance procedure. Moreover, the institutional set-up also relied on market discipline for sound fiscal policies, while monetary policy needed to observe the prohibition of monetary financing. It was also recalled that the Treaty on the Functioning of the European Union had not only granted the ECB independence, assigned it the primary objective of price stability and prohibited monetary financing, it also required the ECB to adhere to the principle of an open market economy with free competition. Against this background, it was underlined that allocating the Eurosystem’s purchases of public sector securities across jurisdictions using the ECB’s capital key as the benchmark was one of the safeguards helping to maintain incentives for sound fiscal policies. Moreover, it was also regarded as important to set issue and issuer limits ensuring that Member States continued to finance themselves primarily through the bond market. In this environment, markets played an important disciplining role, as bonds purchased in the primary market could not simply be passed on to the Eurosystem. However, the view was also expressed that, if the Eurosystem became the main holder of euro area government bonds, this could weaken the disciplining role of markets and their incentives to assess the fiscal soundness of euro area sovereigns. These aforementioned safeguards were supplemented by further operational constraints on the conduct of purchases, criteria on the eligibility of sovereign issuers and a risk-sharing mechanism, whereby the risks of the PSPP holdings of national debt securities were borne by the respective national central banks. The point was also made that the combination of a very expansionary monetary policy with potentially unsound or unsustainable fiscal policies could undermine the foundation of a credible monetary policy. Risks of fiscal dominance could arise, in which monetary policy might be pressured to refrain from raising interest rates even if this was required to fulfil the monetary policy mandate. Likewise, with an increasing portfolio of public securities on the Eurosystem’s balance sheet, financial risks could increase, which might – in adverse scenarios – hamper the effectiveness of monetary policy in the future. Therefore, it was viewed as essential to embed safeguards in the design of the Eurosystem’s asset purchases, including a limits framework and the capital key as a benchmark, so as to mitigate the risk of monetary policy becoming dependent on countries’ fiscal policies. Accordingly, these should constitute guiding principles. A remark was also made that in some situations in which misguided fiscal and structural policies threatened the transmission of monetary policy and the achievement of the ECB’s price stability objective, the Governing Council also had other tools that could be activated in conjunction with an adjustment programme by the European Stability Mechanism. Overall, there was broad agreement among members that while different weights might be attached to the benefits and side effects of asset purchases, the negative side effects had so far been clearly outweighed by the positive effects of asset purchases on the economy in the pursuit of price stability. However, it was also noted that it could not be ruled out that unintended effects could increase over time and eventually outweigh the overall positive effects. It was thus seen as important to continuously assess the effectiveness and efficiency of the monetary policy measures, their transmission channels and their benefits and costs. In this context, it was remarked that all expansionary monetary policy instruments contributed to a low interest rate environment. Therefore, the associated side effects of low rates were not a distinguishing feature of asset purchases, such as under the PSPP or the PEPP, but were a factor pertaining to all policy instruments that contributed to a low interest rate environment. Monetary policy decisions and communication With respect to communication on the outcome of the current Governing Council meeting, members broadly agreed with the proposals put forward by Mr Lane in his introduction. Members also agreed to emphasise in the communication that two main factors called for further policy action: first, the pandemic-related downward revision to the inflation outlook on the back of lower energy prices and a significant increase in economic slack, which posed a threat to the Governing Council’s medium-term price stability objective; and, second, the unwarranted tightening of financial conditions in an economic environment that instead required easier financial conditions. Accordingly, it had to be stressed that additional monetary policy action was needed to ensure the necessary degree of monetary accommodation and a smooth transmission of monetary policy across sectors and jurisdictions, in order to support the swift recovery of economic activity to pre-coronavirus levels and to safeguard medium-term price stability. In this regard, recalibrating the PEPP was the most appropriate course of action, as expanding the PEPP and extending its horizon would be most effective for further easing the general monetary policy stance, maintaining favourable funding costs for the real economy and providing temporary support in response to the pandemic-related shock to the euro area economy and the path of inflation. In addition, it had to be stressed that conducting purchases in a flexible manner over time, across asset classes and among jurisdictions allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. There was broad agreement among members to reiterate that the Governing Council would do everything necessary within its mandate and that it continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards the Governing Council’s aim in a sustained manner. While this included the possibility of further adjusting the size and composition of the PEPP, it needed to be highlighted that the Governing Council was ready to adjust the full range of its instruments, including the TLTROs, policy interest rates and forward guidance. Finally, it needed to be highlighted that monetary and fiscal policies were increasingly complementing each other in the current situation, where the additional monetary policy stimulus went hand in hand with the measures taken by euro area governments and European institutions to ensure sufficient healthcare resources and to provide support to affected companies, workers and households. At the same time, a call was made for further strong and timely efforts to prepare and support the recovery. The Governing Council, therefore, strongly welcomed the European Commission’s proposal for a recovery plan dedicated to supporting the regions and sectors most severely hit by the pandemic, to strengthening the Single Market and to building a lasting and prosperous recovery. Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council took the following monetary policy decisions: The envelope for the pandemic emergency purchase programme (PEPP) would be increased by €600 billion to a total of €1,350 billion. In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion would further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The horizon for net purchases under the PEPP would be extended to at least the end of June 2021. In any case, the Governing Council would conduct net asset purchases under the PEPP until it judged that the coronavirus crisis phase was over. The principal payments from maturing securities purchased under the PEPP would be reinvested until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary stance. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. Reinvestments of the principal payments from maturing securities purchased under the APP would continue, in full, for an extended period of time past the date when the Governing Council started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 4 June 2020 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 3-4 June 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Costa* Mr Hernández de Cos* Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Mersch Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Stournaras Mr Vasiliauskas Mr Vasle* Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in June 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President ** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Ms Graeff, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 20 August 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 15-16 July 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 15-16 July 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 3-4 June 2020. In both advanced and emerging market economies, financial conditions were approaching pre-pandemic levels at a slowing but steady pace, as also reflected in the strong recovery in global stock markets. In the euro area sovereign bond markets, pre-pandemic funding conditions had by and large been restored. Market-based measures of inflation expectations had also recovered further, albeit from very low levels, and risk premia on short-term funding for both banks and corporates had continued to decline. Optimism in financial markets had, however, gone hand in hand with surging coronavirus (COVID-19) cases in the United States and many emerging market economies, raising fears of a broader relapse in containing the spread of the virus. This divergence between the evolution of the pandemic and developments in financial markets, together with high uncertainty about the ultimate shape and pace of the economic recovery and the resurgence of global trade tensions, raised questions regarding the robustness and resilience of current investor sentiment. So far, market intelligence pointed to three main stabilising factors. The first related to changes in the expected policy response to contain the spread of COVID-19. Many market participants now expected the policy response to a further spreading of the virus to rely more heavily on less invasive and geographically more targeted restrictions on economic activity. The second factor related to investor positioning. Although stock prices had rallied since about mid-March 2020, assets under management in equity funds domiciled in the euro area remained below their pre-pandemic values. Continued inflows into money market funds suggested that many investors still preferred to keep liquid and cash-like positions. Monetary policy was the third factor that had likely contributed to preventing an increase in risk premia. By expanding and extending the pandemic emergency purchase programme (PEPP) at its meeting on 3-4 June, and by clarifying the horizon of the reinvestment period, the Governing Council had signalled that monetary policy would remain a supporting factor throughout the crisis. The announcement of the PEPP and its extension also seemed to have arrested the fall in market-based measures of medium-term inflation expectations. At the same time, current financial conditions still critically hinged on EU leaders delivering on the high expectations that had built up regarding the European recovery fund. Consequently, the signals coming out of the European Council meeting on 17-18 July 2020 would be very important for investors. The stabilising effects of the PEPP were being complemented by the significant take-up in the fourth operation of the third series of targeted longer-term refinancing operations (TLTRO III). Excess liquidity was projected to rise to new record levels over the next two years, which had likely contributed to the further easing in short-term unsecured funding conditions for banks and firms. The three-month EURIBOR, a critical benchmark for lending to firms, had returned to pre-pandemic levels and commercial paper rates, both for financial and non-financial firms, had fallen further. Traditional commercial paper investors, such as money market funds, were coming back to the market, especially at shorter maturities, which had contributed to restoring orderly market conditions. At the same time, rising excess liquidity would not necessarily increase the burden on banks overall, relative to the situation prevailing at the end of last year, owing to the offsetting effects of the generous conditions of the TLTROs. The significant take-up of liquidity in the latest TLTRO III operation, together with the impact of the PEPP expansion and extension on forward premia and future overnight interest rates, had also affected the EONIA forward curve, which had shifted downwards since the Governing Council’s previous monetary policy meeting. Expectations of further adjustments to the key ECB interest rates seemed limited, however, as also confirmed by survey evidence. Overall, the evidence was increasing that the policy response in the euro area, with monetary policy and fiscal policy complementing each other, had succeeded in easing financial conditions and restoring confidence in a recovery of the euro area economy. This positive development was also increasingly reflected in the external value of the euro. Since about mid-May 2020 when the recovery fund proposal had taken shape, the euro had appreciated broadly against a wide basket of both advanced and emerging economy currencies, likely reflecting the removal of tail risks and the comparatively successful containment of the coronavirus in Europe. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, developments in the global economy continued to be dominated by the COVID-19 pandemic. The global economy was showing signs of a recovery after a sharp downturn in the second quarter of 2020. As containment measures continued to ease across the world, the global composite output Purchasing Managers’ Index (PMI) (excluding the euro area) had increased further in June and stood substantially higher than at the trough in April. The increase in June across almost all major advanced and emerging economies had been driven by a strong month-on-month improvement in services and, to a lesser extent, manufacturing. At the same time, the level of the global composite output PMI still pointed to a contraction in activity in June. Global trade was expected to recover after a steep fall in the second quarter. Since the Governing Council’s June monetary policy meeting, oil prices had increased by around 11%, to just over USD 42 per barrel, supported by a stronger than expected pick-up in demand for oil on the back of the easing of lockdown measures. Reductions in supply were also supporting a rebalancing in oil markets. The euro had appreciated somewhat against the US dollar and in nominal effective terms since the June monetary policy meeting. Turning to the euro area, real GDP had decreased by 3.6%, quarter on quarter, in the first quarter of 2020 and was expected to have contracted even further overall in the second quarter – broadly in line with the baseline scenario of the June 2020 Eurosystem staff macroeconomic projections. Incoming data and survey results suggested that economic activity had improved significantly in May and June from its trough in April, alongside the ongoing containment of the virus and the associated easing of the lockdown measures. At the same time, economic indicators remained well below the levels recorded before the pandemic, and the recovery was in its early stages and remained uneven across sectors and jurisdictions. Euro area activity was expected to rebound in the third quarter as the containment measures were eased further, supported by favourable financing conditions, an expansionary fiscal stance and a resumption in global activity, although uncertainty about the overall speed and scale of the rebound remained high. The COVID-19 pandemic and the resulting lockdown measures taken by governments had caused a collapse of consumption growth in the first quarter of 2020. At the same time, government transfers, which had counteracted the fall in the growth rate of firms’ operating surplus and compensation of employees, had stabilised income growth in the first quarter of 2020, compared with the fourth quarter of 2019. This had led to a rise in savings, which were expected to have recorded a very strong further increase in the second quarter of 2020. Clear signs of a recovery in consumption had emerged since May, but spending remained far below pre-lockdown levels. Retail trade and new passenger car registrations had risen in May. Consumer confidence indicators available up to June suggested that consumption in May and June had increased strongly compared with April. Turning to investment, euro area business investment was expected to have declined sharply in the second quarter. At the same time, recent survey data, such as production expectations and business confidence, signalled the start of a recovery in the third quarter of 2020, as projected in the June 2020 projections exercise. Euro area real residential investment was expected to have declined sharply in the second quarter of 2020 as a result of the lockdown measures, and was expected to recover only gradually. Trade data, available up to March, showed that with respect to intra-euro area trade, intermediate goods had recorded the strongest impact as value chains within the euro area had become disrupted, but trade in capital goods, cars and fuels, as well as consumer goods, had also suffered. Partial data available for April highlighted that exports to all major economies had suffered severely. As regards the labour market, government support schemes such as short-time work had helped to protect jobs, as reflected in the limited decrease in total employment and the limited increase in the unemployment rate. These schemes were also an important driver of the pronounced fall in average hours worked. Looking ahead, the effects of the pandemic on euro area labour markets could increase further. In this context, unemployment rate expectations had been revised in the ECB Survey of Professional Forecasters (SPF) in the direction of a later impact of the pandemic on the labour market and the unemployment rate was now expected to peak in 2021, rather than 2020. High-frequency indicators of job postings and hiring rates also pointed to a more severe impact of the COVID-19 pandemic on the euro area labour market. Turning to euro area price developments, euro area HICP inflation had increased slightly to 0.3% in June, from 0.1% in May, according to Eurostat’s flash estimate, reflecting mainly less negative energy price inflation. This had more than offset the decline in food price inflation and in HICP inflation excluding energy and food, which had declined from 0.9% in May to 0.8% in June. On the basis of current and futures prices for oil and taking into account the temporary reduction in the German VAT rate, headline inflation was likely to decline again in the coming months before picking up in early 2021. Over the medium term, weaker demand was expected to put downward pressure on inflation, which would be only partially offset by upward pressures related to supply constraints. Measures of underlying inflation, which were largely only available up to May, had been weakening since February, with HICP inflation excluding energy and food showing the most pronounced decrease. That said, it needed to be kept in mind that these measures were still surrounded by high uncertainty as the share of imputed prices in the data was still considerable, especially for services. Turning to wages, compensation per employee (CPE) growth had declined sharply in the first quarter of 2020 and was being heavily affected by wage supplementation policies. Annual CPE growth had decreased from 1.6% in the fourth quarter of 2019 to 0.3% in the first quarter of 2020, reflecting the initial impact of short-time work and temporary lay-off schemes towards the end of the first quarter, which had allowed workers to keep their employee status but had only partially offset remuneration losses. The impact of such schemes was also visible in annual growth in compensation per hour, which had increased to 3.1% in the first quarter of 2020, from 1.8% in the fourth quarter of 2019, owing to the sharp decline in actual hours worked per employee. Looking ahead, survey-based measures of inflation expectations had declined. In the latest ECB SPF for the third quarter of 2020, HICP inflation expectations stood at 0.4% for 2020, 1.0% for 2021 and 1.3% for 2022. Longer-term HICP inflation expectations averaged 1.6% for 2025, compared with 1.7% for 2024 in the previous round. At the same time, market-based indicators of inflation expectations in the euro area had continued to recover since the June Governing Council meeting, but remained at subdued levels. As regards fiscal policy, the euro area fiscal stance (net of the effect of automatic stabilisers) was assessed to be strongly expansionary in 2020. The national fiscal responses to the pandemic included state guarantees and equity injections, which were very heterogeneous across euro area countries. Most countries planned to withdraw the bulk of the expansionary discretionary measures in 2021, although automatic stabilisers would continue to operate. Additional sizeable national fiscal packages had recently been announced and the EU recovery instrument could also provide meaningful fiscal support in the period ahead. Financial conditions in the euro area had overall remained largely unchanged since the Governing Council’s June monetary policy meeting, but were tighter than before the crisis. The EONIA forward curve had become more inverted, implying that financial markets were pricing in low short-term rates for the time being. Overall, expectations were for no rate change for a considerable period. Longer-term risk-free rates had decreased in both the euro area and the United States since the June monetary policy meeting. While nominal long-term rates had edged down to a similar extent in both economies, the decrease in the real rate through an increase in the inflation component was significantly more pronounced in the United States. As a consequence, the long-standing gap between US and euro area real rates had essentially closed. Turning to money and credit, broad money (M3) growth had increased to 8.9% in May 2020, from 8.2% in April. Strong money growth reflected bank credit creation, which continued to be driven to a large extent by the acute liquidity needs in the economy. Moreover, high economic uncertainty was triggering a shift towards money holdings for precautionary reasons. In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth. The dynamics of loans to firms had remained strong in May, driven by firms’ operational financing needs, in an environment of compressed cash flows – but with substantial variation across countries. The annual growth rate of loans to non-financial corporations had risen further to 7.3% in May 2020, from 6.6% in April, reflecting firms’ need to finance their ongoing expenditures and working capital. State guarantees played an important role in meeting the demand for loans by firms. However, the size, design and take-up of loans under state guarantee schemes differed significantly across countries. At the same time, the annual growth rate of loans to households had remained unchanged at 3.0% in May, after declining for two consecutive months, amid ongoing constraints on consumption. Despite the severe decline in economic activity in the second quarter of 2020, credit standards on loans to firms remained broadly unchanged according to the results of the latest euro area bank lending survey. Monetary and fiscal policy measures played a major role in keeping credit standards favourable for loans to firms. For the third quarter of 2020, however, euro area banks expected a net tightening of credit standards on loans to firms, reflecting concerns about borrowers’ creditworthiness and, in some countries, concerns about a foreseen end of state guarantee schemes. For loans to households for house purchase, credit standards had tightened in net terms in the second quarter of 2020, reflecting in particular a deterioration in households’ income and employment prospects in the context of the pandemic. Monetary policy considerations and policy options Summing up, Mr Lane pointed out that, after a steep fall in the first weeks of the second quarter, the incoming data signalled an increase in the level of euro area economic activity, which was broadly in line with the baseline scenario of the June Eurosystem staff projections. However, the breadth and scale of the recovery remained uneven and partial. Both high-frequency and survey indicators suggested that activity had bottomed out in April. In tandem with the ongoing containment of the virus and the easing of the lockdown measures, there were signs of an initial recovery in consumption, while there had been a significant rebound in industrial output in some countries. However, a number of factors were holding back a more complete recovery. First, a resurgence in COVID-19 transmission rates in a number of major economies had led authorities to halt or reverse reopening plans, with a measurable impact on external demand for euro area exports. Second, surveys suggested that employment was lagging output, with actual and expected declines in employment and income, amid precautionary household saving, weighing on consumer spending. Third, exceptionally elevated uncertainty about the evolution of the pandemic and the economic outlook continued to dampen business investment. HICP inflation had increased marginally in June but remained close to zero, while measures of underlying inflation had weakened somewhat, driven by lower price pressures in services and non-energy industrial goods. Since the June monetary policy meeting, market-based indicators of longer-term inflation expectations had continued to increase from their mid-March historical lows, but they remained at very depressed levels. Although survey-based indicators of longer-term inflation expectations remained well above market-based measures, the longer-term inflation expectations reported in the latest SPF had edged lower to 1.6%, from 1.7% in the previous round. Euro area financial conditions had remained broadly stable since the June meeting, although significantly tighter than before the escalation of the pandemic. Moreover, while bank lending conditions remained favourable overall, the latest round of the bank lending survey signalled that banks expected a considerable net tightening of credit standards on loans to firms, in part related to the expected end of the state guarantee schemes. The ECB’s monetary policy measures were gradually making their way through to the economy, providing crucial support to underpin the recovery of the euro area economy and helping to offset the pandemic-related downward shift in the projected path of inflation. At the same time, the outlook was surrounded by high uncertainty and subject to downside risks, related in particular to the prospects of the global economy and the emergence of potential real-financial feedback loops. In this environment, the Governing Council had to await further data to better assess the future path of the economy and the extent to which inflation was returning to its pre-crisis trajectory within the projection horizon. Mr Lane therefore proposed leaving the overall monetary policy stance unchanged and reconfirming the full set of existing monetary policy measures. In addition, it was important to emphasise that, although economic activity was gaining momentum, there was no room for complacency. The extent of economic slack was extremely high, uncertainty remained elevated and market sentiment was exceptionally fragile. In this context, the outlook for economic activity and inflation embedded in the June staff projections was conditional on substantial monetary policy support, while any premature tightening of financial conditions could put the ongoing recovery at risk. In its communication, the Governing Council needed to: (i) stress that the incoming information signalled a resumption of euro area economic activity, although the level of activity remained well below the level prevailing just before the onset of the pandemic and the outlook remained highly uncertain; (ii) emphasise that inflation pressures were expected to remain very subdued on account of the sharp decline in real GDP and the associated significant increase in economic slack; (iii) highlight that, in the current environment of elevated uncertainty and significant economic slack, ample monetary policy stimulus would remain necessary to support the economic recovery and to bring inflation back to its pre-crisis trajectory within the projection horizon; and (iv) reiterate that it would do everything necessary within its mandate and continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the outlook provided by Mr Lane in his introduction. Incoming data and survey results suggested that economic activity had improved significantly in May and June from its trough in April, alongside the ongoing containment of the virus and the associated easing of the lockdown measures. At the same time, economic indicators remained well below the levels recorded before the pandemic, and the recovery was in its early stages and remained uneven across sectors and jurisdictions. After decreasing by 3.6%, quarter on quarter, in the first quarter of 2020, euro area real GDP was expected to have contracted even further in the second quarter taken as a whole, broadly in line with the baseline scenario in the June Eurosystem staff projections. Euro area activity was expected to rebound in the third quarter as containment measures were eased further, supported by favourable financing conditions, an expansionary fiscal stance and a resumption in global activity, although uncertainty about the overall speed and scale of the rebound remained high. In general, the extent of the contraction and the subsequent recovery would depend crucially on the duration and effectiveness of the containment measures, the success of policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity and domestic demand were permanently affected. It was widely felt that, while uncertainty remained elevated, confidence in the baseline scenario of the June staff projections had increased on the whole. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction. Global activity had rebounded towards the end of the second quarter, while global trade had remained very weak. It was emphasised that developments in world trade were a critical factor in the recovery of the euro area economy and that evidence of trade improving from depressed levels had yet to become stronger. The subdued trade dynamics were seen to affect both intra- and extra-euro area exports, and while the contribution of trade had thus far been broadly proportional to the overall decline in euro area real GDP, the export sector remained exposed to developments elsewhere in terms of the evolution of the COVID-19 pandemic and the policies adopted by trading partners. As the pandemic was affecting economies sequentially and to different degrees, this implied uneven recoveries and, at the global level, greater reliance on internal rather than external demand to support the recovery, and on domestic rather than global value chains. On euro area activity, members widely acknowledged that the latest data were more positive and that in some cases the improvement had been stronger than previously expected. Based on recent data and survey information, mechanical estimates for euro area real GDP now pointed to somewhat less negative quarter-on-quarter growth in the second quarter of this year than suggested in the June staff projections, but also to lower than expected growth in the third quarter. When considering these mechanical estimates, it was cautioned that a “technical” rebound was to be expected after a period of substantial containment measures and that this did not answer the question of how steady the recovery would be in the period ahead. It was also observed that most of the upward surprises in the incoming data had come from surveys and that more forward-looking indicators, such as new orders and business expectations, had remained well below their average levels. At the same time, it was argued that the mechanical estimates for the second quarter were based on observed data, while little information was available as yet for the third quarter. Hence, it could not be ruled out that more favourable dynamics in the second quarter might carry over into the third quarter. It was generally underlined that, by the time of the September ECB staff projections, more information would be available for a reassessment of this profile and any implications for the medium-term outlook for activity. Members reiterated that high uncertainty continued to surround the outlook for the euro area and that much of this uncertainty still related to the future course of the pandemic and the finding of a medical solution – both in the euro area and globally. The higher uncertainty after the outbreak of the pandemic remained visible in the flatter shape and fatter tails of probability distributions. At the same time, it was acknowledged that, on the whole, increased confidence could be placed in the baseline scenario of the June Eurosystem staff projections. The “severe scenario” described in the projections was now considered less likely, while more benign developments could also not be ruled out. It was underlined that, while the baseline scenario had become more plausible, it remained surrounded by elevated risks. Upside risks related to the possibility that households would unwind the “forced savings” accumulated during the lockdown period, leading to some “catch-up effects” in consumption. Upside risks also related to the impact of the EU recovery fund and of the fiscal package launched in the largest euro area economy, to the extent that these had not been taken into account in the June staff projections. At the same time, members referred to various downside risks to the growth outlook, especially when looking beyond the short term. In addition to risks emanating from the external economy, reference was made to possible “cliff effects” occurring when various policy support measures expired, especially with respect to the labour market. This could lead to increases in outright unemployment instead of the decreases in hours worked per person seen thus far, and concerns were expressed that protracted periods of unemployment could lead to “hysteresis” effects. A second set of risks was considered to be associated with the business sector, where weak business prospects and high uncertainty were dampening investment. While policy measures had mitigated acute liquidity shortages to some extent, there was now an increasing risk of solvency problems in the period ahead, which could impede a strong economic recovery. In this context, references were made to the risk of negative real-financial feedback loops. All in all, members assessed the balance of risks to the euro area growth outlook to remain on the downside. Regarding fiscal policies, it was underlined that an ambitious and coordinated fiscal stance remained critical in view of the sharp contraction in the euro area economy. Measures taken in response to the pandemic emergency should, as far as possible, be targeted and temporary in nature. The three safety nets for workers, businesses and sovereigns, endorsed in April by the European Council and amounting to a package worth €540 billion, should – once fully operational – provide important funding support to EU Member States wishing to draw on it. However, looking ahead, further strong and timely efforts to support the recovery were needed. Members therefore strongly welcomed the European Commission’s “Next Generation EU” proposal, designed to support the regions and sectors hardest hit by the pandemic, to strengthen the Single Market and to build a lasting and prosperous recovery. It was considered paramount that European leaders quickly agreed on an ambitious package. Members noted that the quantitative impact that could be expected from the “Next Generation EU” proposal depended on the time it would take to activate the funds and on how the funds would be spent. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation had increased slightly to 0.3% in June, from 0.1% in May, mainly reflecting less negative energy price inflation. On the basis of current and futures prices for oil and taking into account the temporary reduction in the German VAT rate, headline inflation was likely to decline again in the coming months before picking up in early 2021. Over the medium term, weaker demand would put downward pressure on inflation, which would be only partially offset by upward pressures related to supply constraints. In their exchange of views, members highlighted a number of factors in the short-term inflation outlook. While oil price developments had led to a rebound in headline inflation, it was still close to zero and almost 30% of the items in the HICP basket had posted negative inflation rates. Moreover, underlying inflation was weak and would likely be well below 1% in the second half of 2020. It was warned that dynamics in underlying inflation, like those in economic activity, would only become clear once the temporary policy measures had expired. Current inflation developments also continued to be surrounded by uncertainty because the prices of some items in the HICP basket still needed to be imputed rather than collected. Attention was also drawn to the possibility that the reduction in the German VAT rate could temporarily push euro area headline inflation into negative territory and that such one-off effects would require appropriate communication. As regards inflation expectations, market-based indicators of longer-term expectations had continued to increase from the historical lows recorded in mid-March but, overall, remained at subdued levels. While survey-based indicators of inflation expectations had declined since the start of the pandemic, longer-term expectations had been less affected than short and medium-term expectations. With respect to market indicators, it was observed that, while the risk-neutral probability of very low or negative inflation rates derived from five-year zero-coupon inflation options had decreased, it remained relatively high. With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction that strong money growth reflected bank credit creation, which continued to be driven to a large extent by acute liquidity needs in the economy. The annual growth rate of loans to non-financial corporations had risen further in May 2020, reflecting the needs of firms to finance their ongoing expenditures and working capital. Against this background, bank credit was seen as particularly important for small and medium-sized enterprises, which lacked access to market-based funding. It was remarked that monetary transmission through the banking sector had been effective, partly because the balance sheets of banks had been stronger at the start of the pandemic than before the financial crisis of 2008. The role of government guarantee schemes for loans was also highlighted as underpinning loan growth, with some concern expressed about possible future “cliff effects” as such programmes expired. The results of the euro area bank lending survey indicated that banks expected a net tightening of credit standards on loans to firms in the third quarter of 2020, which signalled risks that the recent strong credit growth would not be sustained. Concerns were voiced about the emergence of real-financial feedback loops, in particular in the interaction between non-financial corporations and banks, notably if government guarantee schemes were withdrawn too early. It was also noted that credit standards for loans to households had tightened in the second quarter, reflecting primarily a deterioration in households’ income and employment prospects in the context of the pandemic. At the same time, it was argued that the expected net tightening of credit standards should not be over-interpreted against the background of the earlier considerable easing that had resulted from supportive policy measures. It was seen as necessary to monitor the transmission of monetary policy carefully, as the availability and cost of financing, notably through the banking channel, might become strained, which could adversely affect household consumption and business investment. The point was made that the effects of the pandemic on corporate balance sheets would only become evident over time since the pandemic was not yet under control globally and its full effects had still to materialise. An increase in non-performing loans and corporate insolvencies as a result of the pandemic could affect bank balance sheets and impair monetary transmission through the banking sector, which could also give rise to financial stability risks. In this context it was stressed that, while monetary policy was able to provide liquidity and support favourable lending conditions, it was up to fiscal policy to deal with solvency problems that could emerge in the financial and corporate sectors in the wake of the coronavirus shock. Monetary policy stance and policy considerations With regard to the monetary policy stance, members shared the assessments provided by Ms Schnabel and Mr Lane in their introductions. While financial market conditions had continued to normalise since the June monetary policy meeting, they remained tighter and more fragile than before the pandemic, with some fragmentation in financial markets still evident. There had been further gains in equity markets and narrower bond spreads had been partly offset by an appreciation of the euro. It was underlined that monetary and fiscal policy measures, as well as the Governing Council’s stated willingness to stand ready to do more, had brought about a considerable improvement in financial conditions since the height of the coronavirus crisis. This improvement was considered to be especially noteworthy, as it had taken place against the backdrop of a significant increase in fiscal deficits and rising public and private debt levels. At the same time, the calmness of financial markets was considered to rest on the expected continuation of the supportive policy measures. It was also cautioned that the recent positive market developments were not fully backed by economic data and might be based on overly optimistic expectations about the European Council’s recovery package and about progress on developing a vaccine. Members agreed that a highly accommodative monetary policy stance continued to be appropriate on account of the subdued medium-term outlook for price stability, characterised by inflation expectations standing near historical lows and significant economic slack. It was emphasised that the Governing Council’s monetary policy had been effective in easing financial conditions from the tighter levels seen following the coronavirus shock and that part of the stimulus was still to be transmitted to the real economy over the coming months. Careful monitoring was warranted. At the same time, uncertainty about the economic outlook remained elevated. Against this background, the current monetary policy stance was seen as adequate and a recalibration was not deemed necessary at the current juncture. Accordingly, members agreed with the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the current configuration of existing monetary policy instruments. While financial markets were calmer than at the peak of the pandemic crisis and incoming data signalled short-term activity that was broadly in line with the baseline scenario in the June macroeconomic projections, the situation remained fragile and risks were still on the downside. In particular, the risk of a persistent increase in the unemployment rate and uncertainty about the extent to which the corporate sector could face solvency issues were highlighted. Uncertainty continued to be elevated and the outlook for inflation remained subdued, underscoring the view that there was no room for complacency. While the prevailing uncertainty called for the present configuration of the monetary policy instruments to be kept in place at the current meeting, it was underlined that more information would be available in the autumn. A number of temporary fiscal measures were likely to expire then, and businesses would be more directly exposed to the impact of the pandemic shock. With regard to the PEPP, the flexibility of the programme was highlighted as a key element of its effectiveness and efficiency in supporting the transmission of monetary policy over time and across asset classes and jurisdictions. It was also recalled that, while flexibility in the implementation of the PEPP was essential to successfully ease market conditions in times of stress, the capital key provided the benchmark for the allocation of purchases. The argument was also made that the flexibility of the PEPP suggested that the net purchase envelope should be considered a ceiling rather than a target. The point was made that incoming data had surprised on the upside and some of the downside risks surrounding the outlook prevailing at the time of the Governing Council’s June monetary policy meeting had receded, increasing the possibility that the envelope might not have to be deployed fully. At the same time, it was recalled that the PEPP had been designed to achieve the dual objective of addressing risks to the smooth transmission of monetary policy across the euro area and risks to medium-term price stability owing to the pandemic crisis. More specifically, it aimed to offset the pandemic-related downward shift in the projected path of inflation. Accordingly, under the baseline scenario in the June Eurosystem staff macroeconomic projections, and in the absence of any significant upside surprises to the medium-term inflation outlook, the current presumption was that the PEPP envelope would have to be used in full. With regard to the TLTRO III programme, the point was made that the very strong take-up in the June 2020 operation was evidence of the programme’s effectiveness in providing very favourable funding conditions for the banking sector, while the pass-through to lending to the real economy was seen as calling for close monitoring. Caution was seen as warranted given that government guarantee schemes appeared to be playing a key role in supporting bank lending at present, as evidenced by the latest bank lending survey. Against this background, further analysis was viewed as necessary to get a better picture of the use made of TLTRO III funds, including the extent to which the liquidity provided translated into lending to firms and households. Looking ahead, additional information, including more hard data releases, new staff projections and news on fiscal measures, would become available by September. This would provide more clarity regarding the medium-term inflation outlook. At the same time, it was cautioned that in terms of the flow of information over the summer, it would be unusually difficult to extract signals about the medium-term prospects for the economy and the inflation path, as the scale of the initial bounceback in activity was not necessarily a good guide to the speed and robustness of the recovery. In any case, at its September meeting the Governing Council would be in a better position to reassess the monetary policy stance and its policy tools. Monetary policy decisions and communication Members agreed that, although the monetary policy stance was being left unchanged, communication was of particular importance at present. Arguments were made in support of a steady hand regarding communication, as market expectations appeared to be well aligned with the Governing Council’s intentions. In this context, it was argued that some of the uncertainties prevailing at the time of the Governing Council’s June monetary policy meeting had receded, while the balance of risks still remained on the downside. At the same time, it was generally felt that communication should aim to strike a balance between acknowledging the improvements in incoming data and stressing the remaining risks. In this regard, there was broad agreement to retain the present communication. Attention was also drawn to the need for clear communication on the impact of the reduction in the German VAT rate, which would temporarily weigh on euro area headline inflation. Against the background of prevailing uncertainty, it was seen as important to reaffirm that the PEPP’s flexibility would be used as needed, depending on market conditions, and that the Governing Council stood ready to act, with all of its instruments, as appropriate, to ensure the necessary degree of monetary accommodation. It was stressed that the Governing Council should make clear that the full PEPP envelope remained available. While it was underlined that the Governing Council should avoid creating new expectations of further monetary policy action, it should also emphasise that it had the tools and policy space to take further action if needed. Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council took the following monetary policy decisions: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases would contribute to easing the overall monetary policy stance, thereby helping to offset the pandemic-related downward shift in the projected path of inflation. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The Governing Council would also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) had registered a very high take-up of funds, supporting bank lending to firms and households. The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 16 July 2020 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 15-16 July 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Costa Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Mersch Mr Müller Mr Panetta Mr Rehn* Mr Reinesch Ms Schnabel Mr Stournaras Mr Vasiliauskas Mr Vasle* Mr Vella Mr Villeroy de Galhau* Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in July 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Mr Garnier Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Bracke, Deputy Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, 8 October 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 9-10 September 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 15-16 July 2020. The functioning of euro area financial markets had, by and large, been restored. Stress symptoms had largely dissipated and liquidity had returned to the market. The Composite Indicator of Systemic Stress (CISS) remained only marginally higher than before the coronavirus (COVID-19) period, with the difference primarily being driven by still elevated volatility, particularly in stock markets. Financial conditions had also improved broadly in the euro area. The GDP-weighted government bond curve had shifted further down and had returned to its pre-crisis level. Large parts of the curve were again in negative territory and very close to the lowest level ever recorded. Government bond spreads too had reached, or were close to, their pre-crisis levels and investment-grade corporate bond spreads had fallen by nearly 20 basis points since the Governing Council’s previous monetary policy meeting. High-yield bond spreads had even fallen by nearly 50 basis points. One factor that might explain the general resilience of financial markets was the growing divergence between the number of COVID-19 fatalities, which remained stable at low levels, and the number of new infections, which had more than tripled since the beginning of August 2020. Many market participants believed that this divergence – if it were to persist – would lower the risk of widespread lockdowns, resulting in less of a downside risk to economic activity. It was notable that there was a growing dispersion in the extent of easing of financial conditions across advanced economies, with the euro area lagging behind. The dispersion could largely be explained by two factors, namely developments in global stock markets and shifts in exchange rates. Even after the developments of the past few days, the Standard & Poor’s 500 stock market index was still up by around 50% from its mid-March 2020 trough and remained above pre-crisis levels. Chinese stocks were also trading well above pre-pandemic levels. In the euro area, by contrast, stock prices had increased by only around 32% since mid-March 2020 and remained well below pre-crisis levels. Idiosyncratic factors could partially explain these divergences. One factor was the sectoral composition of stock markets as, despite the recent correction, the technology sector continued to benefit most from the pandemic. Technology stocks had a larger weight in the United States than in the euro area. A second factor was the fall in equity risk premia that had contributed substantially to the rise in valuations in the United States. In the euro area, the reversal in risk premia had been slower. Differences in portfolio rebalancing might have contributed to the divergence in risk premia. Over the summer real interest rates had declined notably faster in the United States than in the euro area. Real ten-year US Treasury yields were currently close to historical lows and, for the first time since 2013, were lower than equivalent yields in the euro area. Empirical evidence suggested that a marginal increase in inflation expectations tended to raise stock valuations, and this effect was considerably greater when real rates were in negative territory. Negative real yields also reduced the opportunity cost of holding a zero-coupon asset such as gold, which helped explain in part why gold prices had increased so strongly over the course of this year. Furthermore, declining real rates were also likely to have accelerated the depreciation of the US dollar. The euro nominal effective exchange rate had been on an upward trend since the crisis had struck, driven to a large extent by the euro’s appreciation against the US dollar. Thus far the euro had appreciated by some 7% against the US dollar from its pre-pandemic level. Investors tended to reduce their holdings of US dollar-denominated debt securities when break-even inflation rates increased, and this effect was also stronger when real rates were in negative territory. More specifically, model-based analysis identified two main drivers behind the recent shifts in exchange rates. The first and most important one was the substantial improvement in global risk sentiment, i.e. the reversal of previous safe-haven flows into the United States. The decisive policy actions taken by euro area governments to fight the crisis had likely contributed to the improvement in risk sentiment. A second driver was likely related to monetary policies implemented in the United States and the euro area, in part reflecting differences in conventional policy space before the pandemic. Looking ahead, market positioning remained tilted towards further euro appreciation, with net speculative US dollar positions against advanced economy currencies, including the euro, remaining sizeable. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, the widespread collapse of activity in the second quarter had been followed by a significant rebound – but not yet a full recovery of the economy, as gaps remained. Such a pattern of developments was seen around the world. Global trade had posted a double-digit decline in the second quarter. In line with global activity, trade had also been recovering recently. While, by and large, risks to global activity and trade remained on the downside, there were also some upside risks. Financial conditions had continued to ease in advanced and emerging economies since the Governing Council’s July monetary policy meeting. One important factor behind the rally in global risk assets was related to positive global macroeconomic surprises – as reflected in the Citigroup Economic Surprise Index for advanced economies, which stood at an all-time high. In addition, risk sentiment had improved. In particular, investors and forecasters had become more optimistic about the prospects for the early availability of a vaccine. Since the July monetary policy meeting the recovery in oil prices seemed to have stalled, with prices declining by 9.0% – driven by a combination of decelerating demand growth and higher supply. The euro had continued to appreciate against the US dollar (+3.8%) and in nominal effective terms (+1.7%) against a trade-weighted basket of 42 currencies. The appreciation of the euro resulted, in part, from the broad weakness of the US dollar. Turning to the euro area economy, real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020. Incoming data and survey results pointed to a strong rebound in GDP growth in the third quarter – in line with short-term forecasts that included high-frequency data. Recently, momentum had slowed in the services sector compared with the manufacturing sector, which was also visible in survey results for August. Looking at the components of GDP in more detail, consumer spending had increased strongly since April, but its recovery remained far from complete. Survey data indicated that the perceived lack of demand was increasingly becoming a drag on investment – in particular business investment – in the second and third quarters of 2020. In the labour market, the adjustment in employment and unemployment had been relatively sluggish. In part this reflected an increase in inactivity, which was likely linked to the suddenness of the loss of employment in March and April. Most of the adjustment in the labour market had stemmed from a decline in average hours worked, which mainly reflected the impact of job retention schemes. Looking ahead, although surveys and high-frequency indicators had improved recently, they still pointed to employment losses in the third quarter, despite the effect of the labour market policies in place. Turning to euro area price developments, euro area annual HICP inflation had decreased from 0.4% in July to −0.2% in August (according to Eurostat’s flash estimate). Overall, the latest readings of measures of underlying inflation pointed to a moderate weakening. Looking at inflation developments in recent months in more detail, energy inflation had continued to be a drag on euro area inflation, as oil prices were still at low levels, implying very negative year-on-year rates of energy inflation. However, it was notable that services inflation – which was much more closely linked to domestic developments and had a high wage content – had also declined further, falling from 1.2% in June to 0.9% in July and 0.7% in August. On the basis of current and futures prices for oil and taking into account the temporary reduction in the German VAT rate, euro area headline inflation was likely to remain negative over the coming months before turning positive again in early 2021. Moreover, in the near term price pressures were expected to remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints. Turning to wage developments, the large take-up of the short-time work and temporary lay-off schemes had led to a strong divergence between growth in compensation per employee and growth in compensation per hour in the first and second quarters of 2020. Negotiated wage growth, allowing for one-off effects, had declined only moderately thus far but stood clearly below the levels reached in 2018 and 2019. Market-based indicators of longer-term inflation expectations had returned to their pre-pandemic levels, but the increase had been much smaller than in the United States and they still remained at very subdued levels. Survey-based measures generally remained at low levels. Turning to financial conditions in the euro area, the EONIA forward curve remained slightly inverted, but there were no firm expectations of a cut in the deposit facility rate. Longer-term risk-free rates remained at low levels amid a further decline in real rates. In sovereign debt markets, fragmentation had receded, which had led to a further narrowing of sovereign spreads. Markets for risky assets had remained broadly stable overall, while the easing trend in financial conditions had been halted by the appreciation of the euro. Regarding money and credit, broad money (M3) growth had continued to rise, reaching 10.2% in July 2020, after 9.2% in June. Strong money growth reflected domestic credit creation and the ongoing asset purchases by the Eurosystem, as well as a heightened preference for liquidity in the money-holding sector. In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth. Following strong increases during the early months of the pandemic, the annual growth rate of loans to non-financial corporations had remained broadly stable in July, standing at 7.0%. The annual growth rate of loans to households, which had stood at 3.0% in July, had remained stable since April 2020. Turning to fiscal policies, the euro area fiscal stance was expected to be strongly expansionary in 2020, with most of the additional spending comprising transfers to firms and households. Additional expansionary fiscal measures could be expected over the coming months – by Member States but also in the context of the Next Generation EU (NGEU) programme. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the incoming data indicated a strong rebound in activity, following the record decline in output of 11.8%, quarter on quarter, in the second quarter of 2020 and the cumulative decline of 15.1% in the first half of 2020. The speed of the rebound was broadly in line with the expected pace set out in the June 2020 projections. However, the recovery was asymmetric, being further advanced in the manufacturing sector than in the services sector. Moreover, momentum in the services sector had slowed somewhat recently. Consumer spending had increased, but accumulated savings remained high and households were likely to remain cautious, especially in the context of the expected deterioration in labour market conditions. The data suggested a partial recovery in euro area business investment, even though firms were likely to cancel or postpone investment plans in an environment of heightened uncertainty, spare capacity and weaker balance sheets. The September ECB staff macroeconomic projections signalled that output would rebound in the third and fourth quarters by 8.4% and 3.1% respectively. Growth was foreseen to average −8.0%, 5.0% and 3.2% in 2020, 2021 and 2022 respectively. Only towards the end of the projection horizon was output projected to return to its pre-pandemic level. Euro area HICP inflation had fallen to −0.2% in August, from 0.4% in July, according to Eurostat’s flash estimate. Underlying this sharp decline was a fall in inflation excluding food and energy, which had declined from 1.2% to an all-time low of 0.4%. While temporary factors had distorted the August figure, underlying price pressures had likely weakened owing to subdued demand and significant labour market slack. Near-term price pressures were expected to remain subdued, in part owing to the recent appreciation of the euro exchange rate. Since the July monetary policy meeting, market-based measures of longer-term inflation expectations had continued to recover from the historical lows reached in mid-March, but remained at very depressed levels. Survey-based measures remained well above market-based measures, but were still at historical lows. Close monitoring of inflation expectations remained warranted, since there was a clear risk that the negative shock to the path of inflation as a result of the pandemic could give rise to a renewed downward trend in inflation expectations. In the near term the earlier collapse in oil prices and the temporary reduction in the VAT rate in Germany implied negative rates of euro area headline inflation for the rest of 2020. However, base effects in the energy component and, to a lesser extent, the reversal of the VAT rate cut in Germany, would generate a mechanical rebound in 2021. Inflation was expected to remain persistently low over the medium term, notwithstanding a gradual pick-up over the projection horizon. The September ECB staff projections foresaw an increase in headline inflation from 0.3% in 2020 to 1.0% in 2021 and 1.3% in 2022. The unchanged projection for inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policy measures). However, the scale of the upward revision to core inflation was muted by the appreciation of the euro. Headline inflation in 2022 did not increase, as the upward revision to core inflation was offset by the changed profile of the path of energy price inflation. Valuations of risky assets had continued to recover across the globe, driven by a combination of positive data surprises and strong policy actions. In the euro area, the stock market had been resilient and bond spreads had declined. The composite financing costs for non-financial firms (including the cost of bank borrowing) had continued to decrease. There had been a marked appreciation of the euro exchange rate since July. While the appreciation to some extent reflected improvements in global risk sentiment, as well as euro area factors such as the NGEU recovery plan, it also reflected developments in monetary conditions in the euro area relative to the rest of the world. The ECB’s monetary policy measures were providing crucial support to the recovery of the euro area economy. The paths of both output and inflation would have been lower than foreseen in the September projections, had the ECB not recalibrated the pandemic emergency purchase programme (PEPP) in June. In addition, the third series of targeted longer-term refinancing operations (TLTRO III) had been a major force behind the declining path of bank lending rates. The outlook remained surrounded by high uncertainty and the balance of risks continued to be tilted to the downside. While the NGEU recovery plan was a positive development, uncertainty about the evolution of the ongoing COVID-19 pandemic and the potential materialisation of adverse real-financial feedback loops called for vigilance. Over the coming months additional information would help to inform the direction of policy. This included tracking the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangements and decisions on fiscal plans. Against this background, at the present meeting Mr Lane proposed to leave the overall monetary policy stance unchanged and to reconfirm the full set of existing monetary policy measures. At the same time, there was no room for complacency. Inflation had been persistently below levels consistent with the Governing Council’s inflation aim and inflation expectations remained close to their historical lows, amplifying risks to the anchoring of medium-term inflation expectations. It followed that the Governing Council should monitor the incoming data very carefully with regard to their implications for the economy and the medium-term inflation outlook. It was important to stand ready to adjust all of the instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with the commitment to symmetry. In its public communication the Governing Council needed to: stress that the incoming information continued to signal a strong resumption of euro area economic activity, broadly in line with previous expectations, although the recovery remained incomplete, uneven and subject to considerable uncertainty; emphasise that inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the appreciation of the euro exchange rate; note that the unchanged projection for headline inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policies, albeit muted by the appreciation of the euro) that was offset by the revised path of energy price inflation; reiterate that ample monetary policy stimulus would remain necessary to support the economic recovery and to offset the negative impact of the pandemic shock on the projected path of inflation; highlight that, in the current environment of elevated uncertainty, significant economic slack and increased exchange rate volatility, the Governing Council would monitor incoming information very carefully and continue to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic outlook for the euro area and the risks to activity provided by Mr Lane in his introduction. Incoming data and survey results indicated a continued recovery of the euro area economy and pointed to a strong rebound in GDP growth in the third quarter. At the same time, the level of activity remained well below the levels prevailing before the pandemic. Uncertainty related to the evolution of the pandemic would likely dampen the strength of the recovery in the labour market and in consumption and investment, but the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a strengthening in global activity and demand. This assessment was also broadly reflected in the September 2020 ECB staff macroeconomic projections for the euro area. Annual real GDP growth was projected to fall by 8% in 2020 and to increase by 5% in 2021 and 3.2% in 2022. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction. It was noted that while there had been an upward revision to global activity and foreign demand for 2020 in the September projections, there had not been an upward revision to euro area trade, which could point to a small upside risk. However, there were also a number of downside risks – including the probability of a no-deal Brexit, which seemed to be increasing. With respect to the recent volatility in the euro exchange rate, it was noted that developments in the nominal effective exchange rate were to some extent being driven by a broad-based improvement in risk sentiment and a reduction in “flight-to-safety” flows, in part reflecting more favourable developments in the euro area as well as weakness in the US dollar. Relative changes in the monetary policy in the United States and the euro area were also seen as an important driver. While it was noted that the nominal effective exchange rate of the euro was above the level recorded in 2018, it was suggested that it was the pace of the euro’s appreciation, rather than the level of the exchange rate, that could become a concern. At the current stage, however, it was not clear how persistent recent movements in the exchange rate would be, with volatility being high and the potential for movements in both directions. Members agreed that the incoming data for the euro area since the finalisation of the June 2020 Eurosystem staff projections had been broadly in line with previous expectations. The slump in activity in the second quarter had actually been somewhat less pronounced than feared and real GDP growth in the third quarter was likely to turn out higher than expected. There were indications that, in the absence of lockdowns, activity – and especially domestic consumption – would improve markedly in the third quarter, but the extent to which the pace of the recovery would be sustained throughout the rest of the year was less clear. Recently, momentum had slowed in the services sector compared with the manufacturing sector, which was also visible in the survey results for August. High-frequency indicators, such as data on labour mobility patterns, as well as the Purchasing Managers’ Index for the services sector, were signalling more subdued activity and retail sales had lost some momentum. Weaker demand for services was also seen in lower services inflation. While the pandemic was a common shock across euro area countries, references were made to the heterogeneity of developments in activity across countries, which could be attributed to differences in the evolution of the virus, to the containment measures and fiscal policy responses implemented in each country, and to the structure of each economy. These factors were considered likely to continue to cause divergence in the period ahead. In this context, NGEU funds were seen as important in helping to create a more level playing field, as the scope for national fiscal measures differed across countries. In discussing the outlook for growth embedded in the September ECB staff projections, it was considered important to avoid being either unduly optimistic or unduly pessimistic. The June Eurosystem staff projections had been produced near the trough of the crisis. Since then there had been a noticeable improvement, with growth revised upwards for the second quarter of this year and for 2020 as a whole. The risk of the severe scenario outlined in June had receded. At the same time, it was emphasised that the September projections were broadly in line with the June projections only as a result of the policy measures that had been taken and without these measures the outlook for growth and inflation would have been much worse. It was also noted that real GDP and potential output were both foreseen to be lower at the end of the projection horizon than had been anticipated a year earlier, pointing to the prospect of permanent losses arising from the pandemic. Members stressed that the degree of uncertainty remained exceptionally high. High economic uncertainty was seen to weigh on consumption, with the level of precautionary savings in particular being dependent on developments in household confidence. Lingering uncertainty surrounding the fallout from the pandemic could have the effect of keeping household savings elevated for some time. Given the uncertainty surrounding the outlook, the latest projections again included two alternative scenarios. The remark was made that the degree of uncertainty reflected in the gap at the end of the horizon between the level of GDP in the mild scenario and the level in the severe scenario was higher than in the June 2020 Eurosystem staff projections. However, the view was also expressed that confidence in the baseline scenario had increased notably compared with June and there was also increased confidence that governments would do what was needed to stabilise the economy in the event of future adverse shocks. It was noted that while the baseline scenario assumed that the virus was largely under control, there was considerable uncertainty surrounding the future evolution of the pandemic and the development of a vaccine. It was argued that the severe scenario could not be entirely ruled out as there had been a new wave of infections, even if it had not so far been as lethal as the first wave. Many countries were now experiencing new outbreaks of the virus. In some parts of the euro area, the resurgence of the virus was assessed to be affecting the recovery and the probability that other countries would have further outbreaks was seen as very high. Alongside a resurgence of the virus, the winter months could be expected to be more challenging from a medical perspective. It was also underlined that it would take some time for a vaccine to become widely available and until that point concerns over the economy would remain. A more positive assessment regarding the future pattern of private consumption was based on the view that people would learn to live with the virus. There was now also greater confidence that governments could prevent their health systems being overwhelmed and that they could contain the spread of the virus without a full lockdown and the ensuing severe harm to the economy. Reference was also made to the large stock of accumulated household savings, which could be drawn down more quickly than foreseen in the staff projections and underpin a rebound in consumption growth in the coming years. An upside risk to growth and to the labour market was seen as emanating from fiscal policy, as several governments had decided on, or were currently discussing, additional measures that were not incorporated in the current projections. It was noted that the labour market had been shielded from the slump in activity through the use of labour market support schemes and governments had shown their willingness to extend these schemes where necessary. There was also a more determined approach to the crisis at the European level and the September baseline did not include the additional expenditure that could be expected from the NGEU programme. Generally, it was felt that more time was needed to better understand the possible impact, including the timing, of fiscal stimulus at the domestic and European levels. It was widely underlined that fiscal support was critical, should arrive as early as possible and should not be withdrawn too soon. At the same time, debt sustainability considerations meant that it was important for fiscal expansion to be temporary and well targeted, in particular aimed at improving productivity and sustainable economic growth. Reference was also made to the risk of debt deflation in the period ahead, given the increase in private and public sector indebtedness, and concern was expressed about possible “cliff effects” as fiscal and supervisory measures came to an end, with the risk of financial amplification associated with increasing insolvencies and higher non-performing loans, notably in the non-financial corporate sector. While adverse financial amplification effects had to some extent been included in the September staff projections with regard to bank lending rates, the swift rebound in business investment foreseen in the baseline might appear optimistic, in part in view of the strong preference of firms for liquidity. However, it was also noted that the emerging risk of insolvencies could be addressed by governments, with shortfalls in liquidity and capital being dealt with through existing government programmes. Overall, the balance of risks to the euro area growth outlook was seen to remain on the downside. This assessment largely reflected the still uncertain economic and financial implications of the pandemic. Regarding fiscal policies, there was wide agreement that an ambitious and coordinated fiscal stance remained critical in view of the sharp contraction in the euro area economy. Fiscal measures taken in response to the pandemic emergency should as much as possible be targeted and temporary in nature. The three safety nets endorsed by the European Council for workers, businesses and sovereigns, amounting to €540 billion, provided important funding support in this context. The members of the Governing Council also strongly welcomed the NGEU package of €750 billion, which had the potential to significantly support the regions and sectors hardest hit by the pandemic, strengthen the Single Market and build a lasting and prosperous recovery. Members emphasised that in order for the NGEU package to fully achieve its potential, it would need to be firmly rooted in sound structural policies conceived and implemented at the national level in order to ensure strong ownership. Well-designed structural policies could contribute to a faster, stronger and more uniform recovery from the crisis, thereby supporting the effectiveness of monetary policy in the euro area. Targeted structural policies were particularly important to revitalise euro area economies, with a focus on boosting investment in priority areas such as the green and digital transitions. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual HICP inflation had decreased to −0.2% in August 2020, after 0.4% in July, reflecting lower contributions from the food, non-energy industrial goods and services components. On the basis of current and futures prices for oil, and taking into account the temporary reduction in the German VAT rate, headline inflation was likely to remain negative over the coming months before turning positive again in early 2021. Moreover, in the near term price pressures would remain subdued owing to weak demand, lower wage pressures and the appreciation of the euro exchange rate, despite some upward price pressures related to supply constraints. Over the medium term a recovery in demand, supported by accommodative monetary and fiscal policies, would put upward pressure on inflation. This assessment was broadly reflected in the September 2020 ECB staff macroeconomic projections for the euro area. Annual HICP inflation was projected to be 0.3% in 2020, 1.0% in 2021 and 1.3% in 2022. The unchanged projection for inflation in 2022 masked an upward revision to inflation excluding energy and food – in part reflecting the positive impact of the monetary and fiscal policy measures – which was largely offset by the revised path of energy prices. Members noted that although the inflation outlook was largely unchanged relative to the baseline in the June projections, this was in large part due to the policy measures taken, which were responsible for an upward revision to underlying inflation, and the outlook would have been weaker in the absence of these measures. Moreover, it was underlined that inflation remained below the Governing Council’s aim over the projection horizon, notwithstanding ample policy support. The argument was made that the inflation outlook in the September staff projections appeared too optimistic. The situation in the labour market could be expected to lead to weaker wage pressures over time. Moreover, Phillips curve estimates, in particular those incorporating the output gap or using total hours worked rather than the unemployment gap, tended to show lower inflation compared with the September baseline. Inflation pressures were very low in some services sectors, and certain services sectors, such as hospitality, would probably experience a more gradual recovery than previously thought. The pick-up in inflation to 1.3% in 2022 could also be considered optimistic against the background of the sharp decline in activity and high uncertainty. The projected inflation profile also reflected an increase in oil prices as embodied in futures markets, which depended on adherence to the recent agreement by OPEC to cut production. At the same time, it was noted that the upward impact on growth of further fiscal measures, which were not yet incorporated in the projections, would imply a smaller output gap, which would normally translate into a better inflation outlook. It was underlined that uncertainty surrounding inflation was exceptionally high at present. The relationship between slack and inflation was being heavily distorted by the lockdowns and specific factors that were at play during the pandemic, including uncertainty about the pandemic’s impact on the supply side and on potential growth. It was suggested that the relative impact of negative shocks to demand and supply could be investigated in more depth by analysing sectoral developments. While activity in sectors such as hospitality and tourism was not likely to recover soon, in other sectors, such as IT or online commerce, there had even been a positive demand shock. Given the openness of the euro area economy, members considered that a further appreciation of the exchange rate constituted a risk to both growth and inflation. It was recalled that a significant impact of the exchange rate appreciation on euro area inflation had been included in the September 2020 ECB staff projections. The argument was made that ultimately the impact of a one-off adjustment of the exchange rate would be seen in the level of prices rather than in the rate of inflation. Moreover, the economic impact would also depend on the underlying causes of the exchange rate movement, which were difficult to reliably disentangle. In discussing recent developments in inflation expectations, members noted that longer-term inflation expectations, as reported in the ECB’s Survey of Professional Forecasters, had fallen to 1.6%, the lowest level since the start of Economic and Monetary Union. At the same time, market-based indicators of inflation expectations had continued to recover, with the five-year forward inflation-linked swap rate five years ahead presently standing at 1.19%. The comment was made that inflation expectations appeared to have stabilised overall and, although uncertainty about the inflation outlook remained high, markets were beginning to price out the risk of deflation. At the same time, it was highlighted that inflation expectations were still too low and that even though the risk of deflation was decreasing, it remained non-negligible. It was argued that the moderate improvement in inflation expectations was mostly due to the monetary policy decisions taken in June and that the prospect of a further appreciation of the exchange rate implied downside risks to inflation. With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction. Broad money (M3) growth had continued to rise, reflecting domestic credit creation and the ongoing asset purchases by the Eurosystem, as well as precautionary motives which fostered a heightened preference for liquidity in the money-holding sector. Bank lending to the private sector continued to be supported by the measures taken by the supervisory, fiscal and monetary policy authorities, including the latest TLTRO III operation. Bank lending conditions remained very favourable, with lending rates continuing to stand at historical lows. High rates of corporate loan growth continued to mirror elevated liquidity needs of firms to finance their ongoing expenditures, such as wage payments and working capital, and to further build liquidity buffers. While the rebound in economic activity had resulted in some recovery in firms’ revenues and a shift in loan demand towards longer-term loans, the uncertainty over the economic outlook was likely to cast a shadow over future loan demand. In fact, it was pointed out that banks also expected some slowing of firms’ future loan demand, as highlighted in the most recent bank lending survey for the euro area. The uncertainty surrounding the economic outlook was seen to pose a potential challenge to the transmission of monetary policy through the banking sector, which had to be monitored carefully. In this context, the crucial role of government guarantee schemes in underpinning bank loan provision to the real economy was stressed, as was the need to avoid “cliff effects”. The point was made that the full effects of the pandemic had yet to become evident in corporate balance sheets. Possible financial vulnerabilities in the corporate sector could, in turn, have adverse repercussions for bank balance sheets and thereby had the potential to impair monetary policy transmission and give rise to financial stability risks. In particular, in the absence of further regulatory relief regarding the classification of loans as non-performing, a surge in corporate insolvencies resulting from the pandemic could lead to an increase in non-performing loans on bank balance sheets, especially as governments were likely to start withdrawing some of the support provided, such as debt moratoria or loan guarantees. Weakened bank balance sheets associated with rising firm indebtedness and defaults could, in turn, lead banks to charge higher lending rates to their customers and to cut back on new loans even though bank lending rates were currently still at historically low levels. In this context, it was remarked that bank stock prices had been continuously declining, with low bank valuations being evident in very low price-to-book ratios. While banks had increased their provisions in view of higher expected losses, the point was made that low bank valuations could reflect a weak profitability outlook as well as doubts among investors about the quality of bank balance sheets and the adequacy of the level of provisions given expected increases in firm defaults and bankruptcies. It was also cautioned that sovereign exposures of banks had risen again since the start of the crisis, giving rise to renewed concerns about the tight nexus between banks and sovereigns. Overall, it was important to monitor the transmission of monetary policy carefully, to ensure that the liquidity injected was directed towards funding the real economy and to avoid unduly fuelling financial asset prices and reinforcing the bank-sovereign nexus. Monetary policy stance and policy considerations With regard to financial conditions and the monetary policy stance, members broadly shared the assessments provided by Ms Schnabel and Mr Lane in their introductions. While financial market conditions had continued to normalise since the July monetary policy meeting, with valuations of risky assets across the globe continuing to recover, the easing trend in financial conditions had been partly counteracted by the appreciation of the euro. Euro area sovereign and corporate bond yield spreads had narrowed further, while equity prices, notwithstanding some weakening in bank stocks, had remained resilient overall on the back of favourable global risk sentiment and supportive monetary and fiscal policies. It was, however, cautioned that although low equity valuations in some sectors reflected investor expectations of an extended impact of the pandemic, overall stock prices still appeared to be highly valued, for example when looking at measures such as cyclically adjusted price-to-earnings ratios. This pointed to the possibility of volatility or corrections in stock markets in the period ahead, as seen in US stock markets in the days preceding the September Governing Council meeting. At the same time, since the July Governing Council meeting the euro exchange rate had appreciated significantly against almost all advanced and emerging market currencies, reflecting in part positive risk sentiment towards the euro area, which was also supported by the agreement on the NGEU plan as well as relative monetary policy configurations in major jurisdictions. In this context, the risk of a further euro appreciation was seen as partly linked to market perceptions of the scope for further changes in monetary policy in different jurisdictions. Against this background, it was considered important to avoid complacency and the perception among investors that the direction of exchange rate movements was a one-way bet. Members widely agreed with the assessment presented by Mr Lane that ample stimulus remained necessary to support the economic recovery and to safeguard medium-term price stability. While the incoming data since the last Governing Council meeting had been positive overall, suggesting a strong resumption of euro area activity broadly in line with previous expectations, risks continued to be tilted to the downside and the strength of the recovery remained surrounded by significant uncertainty. In this environment, inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the recent appreciation of the euro exchange rate. Against that background, members agreed with the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the current configuration of existing monetary policy instruments. In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate. At the same time, the case was made for keeping a “free hand” in view of the elevated uncertainty, underpinning the need to carefully assess all incoming information, including the euro exchange rate, and to maintain flexibility in taking appropriate policy action if and when needed. Over the coming weeks more data would become available, which would provide improved visibility about how the various forces at play would influence the medium-term inflation outlook. In this regard, the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangement, the outcome of the US presidential election and decisions on fiscal plans at the individual country level as well as at the euro area level had to be closely monitored. Members widely agreed that the ECB’s monetary policy measures were providing crucial support for the recovery of the euro area economy and underlying inflation pressures. It was underlined that the inflation and growth outlook would have been significantly worse had the Governing Council not taken its decisive action since the outbreak of the coronavirus crisis. The configuration of monetary policy was supporting the flow of credit to households and businesses and contributing to accommodative funding conditions in all parts of the economy. In this regard, the TLTROs continued to underpin the declining path of bank lending rates and were supporting bank credit provision to households and businesses. With regard to the two objectives of the PEPP, it was underlined that the PEPP had been successful in stabilising financial market conditions in the euro area. In the light of normalising market conditions and subsiding risks of fragmentation, it was highlighted that the role of the PEPP in easing the monetary policy stance had taken centre stage. In conjunction with the ongoing asset purchases under the asset purchase programme (APP), the PEPP purchases were providing significant monetary stimulus, helping to re-anchor inflation to the path that had been projected before the outbreak of the pandemic. In this context, it was nonetheless stressed that, notwithstanding the positive contribution of monetary policy to underlying inflation dynamics, the baseline scenario in the September projections still foresaw inflation remaining well below the pre-crisis path over the projection horizon. On the basis of the current information, the PEPP envelope would likely have to be used in full to provide the necessary accommodation to offset the downward impact of the pandemic on the path of inflation, which was also in line with prevailing market expectations. It was seen as important to remain firm on previous announcements regarding the overall PEPP envelope, which underpinned the Governing Council’s commitment to bring inflation back to levels in line with its aim. At the same time, the point was made that the pace of monthly purchases could be reduced as tensions in financial markets subsided. This would allow buffers to be built up in case market turbulence and fragmentation were to re-emerge. There was broad agreement among members that there was no room for complacency, as emphasised by Mr Lane in his introduction. There were key downside risks to the medium-term outlook for price stability, mainly related to the as yet uncertain economic and financial implications of the pandemic. Moreover, inflation had been persistently below levels consistent with the inflation aim and inflation expectations remained at subdued levels, which posed a risk to the perceived ability and determination of the ECB to deliver on its mandate. While there was an upward revision to inflation excluding energy and food in the latest staff projections, headline inflation was projected to be 1.3% in the final year of the projection horizon, thereby remaining below the projected pre-crisis path and some distance from levels in line with the Governing Council’s inflation aim. In this environment, it was important for the Governing Council to underline its readiness to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. While the PEPP was currently seen as the primary instrument for providing additional monetary policy accommodation, it was noted that further cuts in policy rates and changes to the conditions of the TLTROs were also part of the toolkit for providing additional monetary policy accommodation, if necessary. As regards communication, there was wide agreement among members with the communication proposed by Mr Lane in his introduction. It needed to be highlighted that the current environment was surrounded by elevated uncertainty, which required the Governing Council to carefully assess all incoming information, including developments in the exchange rate, with regard to the implications for the medium-term inflation outlook. In this context, it needed to be emphasised that while the euro exchange rate was not a policy target for the ECB, the external value of the euro was an important determinant of inflation developments in the euro area. In this regard, the recent appreciation of the euro exchange rate had had a material impact on the inflation outlook in the September ECB staff projections. There was broad agreement among members that in the current environment of elevated uncertainty the recent volatility in the exchange rate of the euro required careful monitoring with regard to its possible implications for the medium-term outlook for price stability. Reference was made to the language that had been used by the Governing Council on exchange rate volatility in 2017-18 and it was generally felt that the proposed communication was similar and appropriate at the current juncture. It was stressed that the Governing Council had to be ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner. This also included reiterating the continued determination of the Governing Council to use the PEPP in a flexible manner in order to address the possible threat of market fragmentation and to preserve the smooth transmission of monetary policy. In addition, it needed to be emphasised that the monetary policy stance would remain accommodative and that the Governing Council would not tolerate an unwarranted tightening in financial conditions that would put the ECB’s price stability mandate at risk. In the context of the announcement by the US Federal Reserve System of a revised Statement on Longer-Run Goals and Monetary Policy Strategy, it was important to highlight that the ECB’s strategy review had been delayed because of the COVID-19 pandemic and that it would resume shortly and would be an important focus of the Governing Council’s work over the next year. It was also viewed as important to highlight that, without pre-empting the ongoing strategy review deliberations, the Governing Council was not constrained in taking the necessary policy action in the pursuit of the ECB’s price stability mandate. In this context, it was also emphasised that the ECB’s inflation aim was symmetrical and that the Governing Council would respond with the same determination to sustained downside deviations as to sustained upside deviations from the inflation aim. Finally, it needed to be highlighted that fiscal policy continued to be critical to support the recovery of the euro area economy and to provide important funding support to those hardest hit by the pandemic. It was urged that fiscal support should not be withdrawn prematurely, but should be channelled towards enhancing productivity growth, fostering sustainable economic growth, bolstering innovation and strengthening the long-term growth potential of the euro area economy. Monetary policy decisions and communication Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council took the following monetary policy decisions: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and −0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases would contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The Governing Council would also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) had registered a very high take-up of funds, supporting bank lending to firms and households. The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 10 September 2020 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 9-10 September 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Mersch Mr Müller* Mr Panetta Mr Rehn* Mr Reinesch Ms Schnabel Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch* * Members not holding a voting right in September 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Alves Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Mr Garnier Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Odór Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Bracke, Deputy Director General Communications Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 26 November 2020. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 28-29 October 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 28-29 October 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 9-10 September 2020. Financial markets had been driven by two opposing forces. On one side, reduced risks of a contested presidential election in the United States and expectations of a large fiscal stimulus programme under a potential Biden presidency had boosted risk sentiment and revived the reflation trade. On the other side, renewed lockdown measures in different countries on the back of a surge in new coronavirus (COVID-19) cases, especially in the euro area, were increasingly reflected in asset price valuations. Unlike in spring, however, so far there had been no widespread flight into safe-haven assets. Instead, euro area sovereign bond spreads had compressed further and corporate bond spreads had remained stable. Equity markets, where policy support was least direct, had experienced a marked correction. Risk premia in euro area equity markets had increased and were estimated to have pulled euro area stock prices down by nearly 10% since the Governing Council’s previous monetary policy meeting, although this decline had been partly mitigated by a rise in short-term earnings growth expectations. In the United States, stock markets had increased by 5% since opinion polls started to point to a victory for the Democratic Party in the presidential election on 3 November 2020. Improved risk sentiment had also put renewed downward pressure on the US dollar, with positioning data pointing to risks of further US dollar depreciation. In bond markets, heightened expectations of fiscal stimulus in the United States had led to a notable steepening of the US Treasury curve, also reflecting rising inflation expectations. In the euro area, by contrast, inflation expectations had trended lower since the Governing Council’s previous monetary policy meeting, thereby also putting downward pressure on yields. The euro area risk-free curve was close to its flattest ever level, while the euro area GDP-weighted sovereign yield curve had shifted down further since the September monetary policy meeting. The curve was now measurably below the pre-pandemic level and firmly in negative territory up to the ten-year maturity. There was not a single euro area country that was not benefiting from negative yields, in most cases extending out to the three-year maturity. The degree of accommodation currently embedded in euro area sovereign bond markets was practically unprecedented since the global financial crisis, both in its scale and its breadth across countries. The dispersion across euro area ten-year sovereign yields was at its pre-pandemic level, which itself had been far below the levels observed in previous years due to the substantial convergence in bond spreads in those countries that had been hit hardest by the sovereign debt crisis. Market participants had pointed to three main reasons to explain why the spreads had fallen further. The first reason related to risk sentiment. There had been a strong negative correlation between euro area sovereign spreads and US stock price developments in the weeks before the current meeting. The second reason related to expectations of further monetary policy support by the ECB. The third reason related to the first successful bond issuance under the European Commission’s temporary programme of Support to mitigate Unemployment Risk in an Emergency (SURE), which had met with unprecedented demand. This provided tangible evidence of how the common European response to the crisis had helped to alleviate pressure on euro area sovereign funding and hence financing conditions. Therefore, contrary to the early phase of the crisis, the joint fiscal and monetary policy responses in the euro area had succeeded in providing firm protection against the risks of fragmentation and of an unwarranted tightening of financial conditions. This was also clearly visible in corporate bond markets. In recent weeks, corporate credit spreads had largely resisted upward pressures despite a deteriorating growth outlook. The resilience in corporate bond markets likely also reflected the fact that firms had built up significant liquidity buffers over the past several months, limiting the extent to which they would have to rely on external credit in the event of a renewed collapse in business activity. At present, euro area firms’ cash coverage was nearly four times higher than at the height of the global financial crisis. Finally, growing excess liquidity was increasingly putting downward pressure on the term money market and commercial paper rates. Since early October 2020, the three-month EURIBOR had traded below the deposit facility rate, and corporates could issue three-month commercial paper at rates close to the deposit facility rate, providing an important liquidity backstop for corporates, with rates falling even faster at longer tenors. All in all, financial market conditions remained very favourable across market segments, but vulnerabilities remained in the face of the exceptionally high uncertainty surrounding the future evolution of the pandemic-related crisis. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. Regarding the external environment, the global economy had come back rapidly early in the third quarter, after the end of the lockdowns. Developments in the global composite output Purchasing Managers’ Index (PMI), excluding the euro area, indicated that the recovery in activity was quite strong up to July but had flat-lined in September. Retail sales had recovered strongly around the world, while global consumer confidence had risen from its lowest level but still remained very weak. Turning to trade, high-frequency data pointed to a strong rebound in the third quarter of 2020 and early indications for the fourth quarter were also positive. Global financial conditions were broadly unchanged in both advanced and emerging economies. Oil prices had increased slightly, by 1.8%, since the Governing Council’s September monetary policy meeting, to stand at USD 39.8 per barrel on 26 October 2020, after trading in a narrow range. The euro had remained broadly stable against the US dollar (+0.4%), which continued to have a unique role in global trade, and in nominal effective terms (+0.2%) since the September meeting. Turning to the euro area, output had rebounded strongly in the third quarter of 2020. At the same time, clear risks to GDP growth had emerged for the fourth quarter of 2020, linked primarily to the latest news about the plans for more severe lockdowns from November onwards. The latest data supported the view that the recovery had been losing steam in the euro area. Industrial output had bounced back vigorously until August, when growth had decelerated to only 0.7% month on month. Retail sales had also softened in the summer months, and manufacturing and services PMIs for September and October suggested that the pace of recovery across the euro area had slowed. Looking ahead, the outlook for services was gloomy, while industry appeared more resilient. Household savings were expected to remain high, but income support remained important for consumer confidence over the coming months in order to protect the economy. The outlook for business investment was depressed by weak demand, low revenues and low profitability. Turning to euro area trade, exports and imports of goods had continued their recovery. Looking ahead, PMI new export orders signalled a continuation of the recovery in euro area goods exports, whereas the rebound in euro area services exports seemed to be fading, particularly in countries which relied heavily on tourism. With respect to euro area labour markets, employment was expected to contract further and a large share of jobs were at risk. The PMI composite employment index had recovered strongly since spring, but remained below 50 in October. Since the start of the pandemic, the weakening in employment conditions had been particularly marked in labour-intensive sectors such as accommodation, food, transportation and warehousing. The euro area unemployment rate, which had increased from 7.2% in February to 8.1% in August, likely underestimated the ongoing adjustment in the euro area labour market. Turning to nominal developments, HICP inflation fell to -0.3% in September, while HICP inflation excluding energy and food declined to a new low of 0.2% in September. The decrease in headline inflation, from -0.2% in August to -0.3% in September, reflected lower inflation not only for energy but also for non-energy industrial goods and services. Measures of underlying inflation were also weakening. Regarding wage growth, euro area compensation per employee growth and compensation per hour growth had diverged strongly due to large changes in hours worked. Negotiated wage growth, which was not directly affected by changes in hours worked, had declined only gradually, with the few wage agreements that had been concluded over recent months pointing to lower wage increases. Looking at survey-based longer-term inflation expectations, as reported in the latest ECB Survey of Professional Forecasters (SPF), inflation expectations five years ahead had remained broadly stable at around 1.6%-1.7%. Since the September monetary policy meeting, market-based indicators of longer-term inflation expectations had halted their recovery and remained broadly stable around their pre-pandemic levels. The five-year forward inflation-linked swap rate five years ahead stood at 1.16% on 26 October 2020. As regards financial conditions in the euro area, the EONIA forward curve remained slightly inverted, but there were no firm expectations of an imminent rate cut. Longer-term risk-free rates remained broadly unchanged at low levels despite upward movements in US rates. Sovereign spreads had declined further amid expectations of additional monetary and fiscal support. Risk asset markets were largely unchanged despite significant intra-period fluctuations and, overall, euro area financial conditions remained broadly stable. Turning to money and credit, broad money (M3) growth remained buoyant, accelerating in September to 10.4% in annual terms. The strengthening of monetary dynamics since the start of the crisis had largely reflected precautionary motives. Domestic credit remained the main source of money creation. The pandemic had triggered a major increase in non-financial corporate debt ratios in relation to gross operating surplus, both in gross terms and net of liquid assets. The increase in the gross debt ratio reflected both an increase in debt levels and the steep fall in activity, while net debt in absolute terms had declined slightly as firms accumulated large amounts of liquid assets that offset the increase in gross debt. External finance had recorded steep increases since the onset of the crisis, driven by both bank lending and corporate bond issuance. Bank lending rates remained very favourable, close to their historical lows. Direct market finance had been hit by the acute market turmoil in the initial phase of the crisis but had subsequently benefited from the pandemic emergency purchase programme (PEPP). Policy support remained decisive for favourable credit conditions. A significant fraction of bank lending had been concentrated in those parts of the loan market that were benefiting from government guarantees, and the large and broad-based participation in the targeted longer-term refinancing operations (TLTROs), including the latest operation, had provided banks with significant funding cost relief. The October bank lending survey signalled a tightening of credit standards, primarily related to a deterioration in banks’ perceptions of the risks underlying the macroeconomic environment and borrowers’ creditworthiness. Regarding fiscal policies, the fiscal stance was expansionary in 2020 and the latest fiscal plans for 2021 foresaw larger support than previously expected. Fiscal plans for 2022 remained very uncertain, but the Next Generation EU (NGEU) programme could provide additional fiscal support for the economy. Monetary policy considerations and policy options Summing up, Mr Lane pointed out that, after a strong (albeit partial and uneven) rebound in economic activity over the summer months, the incoming data signalled that the euro area economic recovery was losing momentum relative to the previously projected recovery path. The rise in COVID-19 cases and the associated intensification of containment measures would restrict activity levels (especially in high-contact sectors), constituting a clear deterioration in the near-term outlook. High-frequency mobility indicators for transport, retail and recreation had started to weaken. Activity in the services sector was being hit the hardest, since it was most affected by the renewed restrictions on mobility and social interaction. Household consumption was expected to stay subdued, with the precautionary saving motive reinforced by the resurgence of the pandemic and its impact on employment and incomes. Weaker balance sheets and increased uncertainty about the economic outlook were weighing on business investment. Headline inflation had declined from -0.2% in August to -0.3% in September, with inflation excluding energy and food decreasing from 0.4% to an all-time low of 0.2%. In terms of categories, the decline was being driven by the extension of seasonal summer sales to non-summer items, a fall in travel-related prices and more negative energy inflation. While some of the factors weighing on inflation were likely to be transitory in nature, the persistence of weak demand implied more prolonged weakness in non-energy industrial goods inflation. Moreover, services inflation was expected to remain low, since the services sector was the most exposed to the ongoing intensification of containment measures. Accordingly, measures of underlying inflation were likely to remain subdued in the context of weak demand and significant slack in labour and product markets. Market-based indicators and survey-based measures of longer-term inflation expectations remained broadly unchanged at low levels. On the basis of the downside inflation surprise and the current expected trajectory of energy prices, headline inflation would likely run below previous expectations and was currently expected to remain negative through early 2021, longer than in the September baseline projection. After a long period of relatively benign conditions, in the most recent data financial markets were pricing a more pessimistic pandemic outlook. The pace of monthly loan flows to firms had recently moderated and the results from the bank lending survey pointed to deteriorating credit conditions. In particular, after muted reactions in the earlier stages of the pandemic, credit standards on loans to firms had tightened in the third quarter of 2020. While banks indicated that their funding and balance sheet conditions remained supportive, higher risk perceptions were weighing on loan creation. The surveyed banks also reported a fall in loan demand from firms in the third quarter, reflecting a decline in emergency liquidity needs and weakening corporate investment. Accordingly, the amplification of adverse real-financial feedback loops remained a material risk and needed to be closely monitored. The monetary policy measures taken in response to the pandemic had been effective and efficient in stabilising financial markets and supporting financing conditions for households and businesses. However, the incoming data pointed to a more severe slowdown in growth momentum and a weakening of underlying inflation dynamics compared with the previously expected recovery path. Furthermore, other near-term risk events were looming, including geopolitical risks. In the current environment, the risks surrounding the euro area growth outlook were clearly tilted to the downside. In the weeks to come, key information would be received. This included a new round of macroeconomic projections, which would allow a reassessment of the economic outlook and the balance of risks. Pending that information, Mr Lane proposed leaving the overall monetary policy stance unchanged and reconfirming the full set of existing monetary policy measures. At the same time, the Governing Council should clearly signal that on the basis of its updated assessment in December, it would recalibrate all of its instruments, as appropriate, to ensure that financing conditions remained favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path, thereby fostering the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry. In its communication, the Governing Council needed to: (a) stress that the incoming information signalled that the euro area economic recovery was losing momentum and that the rise in COVID-19 infections and the associated intensification of containment measures was weighing on economic activity, constituting a clear deterioration in the near-term outlook; (b) emphasise that measures of underlying inflation were declining and that inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the past appreciation of the euro; (c) underline that in the current environment of risks clearly tilted to the downside, the Governing Council would carefully assess the incoming information, including the dynamics of the pandemic and developments in the euro exchange rate, and that the new round of Eurosystem staff macroeconomic projections in December would allow a thorough reassessment of the economic outlook and the balance of risks; (d) highlight that on the basis of this updated assessment, the Governing Council would recalibrate its instruments, as appropriate, to ensure that financing conditions remained favourable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path, thereby fostering the convergence of inflation towards its aim in a sustained manner, in line with its commitment to symmetry; and (e) emphasise that an ambitious and coordinated fiscal stance remained critical in view of the sharp contraction in the euro area economy and the reduction in private demand. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks for activity provided by Mr Lane in his introduction. Incoming data and survey results signalled that the euro area economic recovery was losing momentum more rapidly than expected. Following a strong, but partial and uneven, rebound in the third quarter, the rise in COVID-19 cases and the associated intensification of containment measures was weighing on activity and constituted a clear deterioration in the near-term outlook. While activity in the manufacturing sector had continued to recover, activity in the services sector, which was most affected by the new restrictions on social activities and mobility, had been slowing visibly. Although fiscal policy measures were supporting households and firms, consumers were cautious in the light of the pandemic and its ramifications for employment and earnings. Moreover, weaker balance sheets and increased uncertainty about the economic outlook were weighing on business investment. Looking ahead, while the uncertainty related to the evolution of the pandemic was likely to dampen the strength of the recovery in the labour market and in consumption and investment, the euro area economy should continue to be supported by favourable financing conditions and an expansionary fiscal stance. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction. Global activity had rebounded swiftly early in the third quarter and more strongly than expected. However, the momentum had slowed more recently and downside risks were related to increasing COVID-19 infection rates globally and to geopolitical factors. Since the Governing Council’s September monetary policy meeting, the exchange rate of the euro had remained broadly stable both against the US dollar and in nominal effective terms. Turning to euro area developments, members underlined that there had been both positive and negative news since the last monetary policy meeting. Euro area real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020. However, following the trough in April 2020, the euro area economy had rebounded strongly in the third quarter, likely more than had been expected in the September ECB staff projections, making up a large part of the contraction in the first half of the year. However, the strength of the rebound might also have reflected that countries had eased containment measures too much too soon. Rising COVID-19 infection rates were seen as undermining confidence again and leading to additional containment measures, generating a loss in growth momentum in the fourth quarter earlier and at a faster pace than had been foreseen. Reference was made to the level of the composite output PMI, which had fallen below 50, and to the fact that the PMI for new business had fallen back even more strongly. No data released so far had incorporated the recent announcements of further containment measures. As in March, the economic situation was once again changing rapidly. It could not be excluded that the euro area, or at least some countries, would experience a double-dip recession. The euro area economic outlook was seen to depend crucially on the effectiveness of administrative measures and the infection dynamics of the pandemic, with the magnitude and duration of a further downturn being very uncertain. It was noted that the restrictions being implemented now tended to be more targeted than in the spring, either at regions or at sectors, and could therefore have a more limited effect on activity than earlier in the year. It was also remarked that the rate of infections appeared to be more relevant for economic activity than the stringency of containment measures, which varied considerably. Nevertheless, it was clear that while some sectors – such as manufacturing and construction – would be less affected in the euro area than had been the case in the more general lockdowns earlier in the year, others – such as entertainment and leisure or tourism – would be heavily affected by the new restrictions. Members were of the view that in the period ahead containment measures could be expected to become more stringent and to last longer than previously anticipated. The winter months would be challenging in terms of limiting the spread of the virus and a sequence of temporary “circuit breaker” lockdowns might prove to be necessary. As a result, the growth trajectory could be bumpier than previously projected. At the same time, it was recalled that the economy had rebounded very strongly after the lockdowns in the first wave of the pandemic and that a similar dynamic recovery might be expected in the future. However, it was unclear whether the liquidity buffers that firms and households had built up in recent months would prove to be sufficient to withstand a renewed deterioration in the economy in the period ahead. The emergence of the second wave of the pandemic could lead to more widespread business closures in a number of sectors, for example retail trade. Moreover, the point was made that governments might be more prudent in easing containment measures after the experience of the summer months. As a result, growth figures for 2021 as a whole could be adversely affected. Against this background, members argued that, looking ahead, it would be important to consider the possibility that the pandemic might have longer-lasting effects both on the demand side and on the supply side, reducing potential growth. Concerns were also expressed about the possibility of non-linear effects arising from financial amplification channels and about the impact of the pandemic on balance sheet positions of firms, households, banks and governments, particularly given the persistence of the crisis. Overall, it was emphasised that there was no clear trade-off between containment measures required to reduce the spread of the virus and the impact on the economy and it was recognised that, ultimately, concerns about the economy would remain until a vaccine or effective treatment became widely available, which could take some time. In this context, members emphasised the role of both national and European fiscal policy in cushioning the impact on the economy of necessary containment measures. In particular, it was regarded as positive news that additional fiscal stimulus was being announced at the same time as new measures to contain the spread of the virus. These new fiscal measures clearly went beyond those assumed in the September staff projections. Members exchanged views on the extent to which the latest developments were still broadly consistent with the baseline scenario in the September ECB staff projections, or whether revisions in the upcoming December Eurosystem staff projections were likely to result in the baseline being closer to the severe scenario included in the September projections. While the September baseline scenario had assumed some resurgence of the virus and the need for ongoing containment measures, recent developments were seen as constituting a clear downside risk to the projections. It was highlighted that uncertainty remained very high, as it had been throughout the year. However, by the time of the December monetary policy meeting, information would be available on major geopolitical developments – such as the result of the US presidential election and Brexit – as well as the initial evidence on the effectiveness of the new restrictions in containing the spread of the virus and their impact on the economy. Moreover, by that time, draft national budgetary plans and their assessment by the European Commission should also have become available, together with further indications on the prospective use of NGEU funds. Overall, members considered the risks surrounding the growth outlook to be clearly tilted to the downside. This assessment largely reflected the recent resurgence in COVID-19 infections, the associated intensification of containment measures and the high uncertainty surrounding the timeline of the pandemic and the implications for economic and financial conditions. Regarding fiscal policies, an ambitious and coordinated fiscal stance remained critical in view of the sharp contraction in the euro area economy. While fiscal measures taken in response to the pandemic emergency should, as much as possible, be targeted and temporary in nature, weak demand from firms and households and the heightened risk of a delayed recovery warranted continued support from national fiscal policies. The three safety nets endorsed by the European Council for workers, businesses and sovereigns provided important funding support in this context. The key role of the NGEU package was stressed, as well as the importance of it becoming operational without delay. Provided that the funds were deployed for productive public spending and accompanied by productivity-enhancing structural reforms, the NGEU programme would contribute to a faster, stronger and more uniform recovery and would thereby enhance resilience and the growth potential of EU Member States’ economies, supporting the effectiveness of monetary policy in the euro area. Such structural policies were particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Euro area annual HICP inflation had decreased to -0.3% in September 2020, from -0.2% in August, reflecting developments in the prices of energy, non-energy industrial goods and services. On the basis of oil price dynamics and taking into account the temporary reduction in German VAT, headline inflation was likely to remain negative until early 2021. Moreover, near-term price pressures would remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to lower wage pressures and the appreciation of the euro. Once the impact of the pandemic faded, a recovery in demand, supported by accommodative monetary and fiscal policies, would put upward pressure on inflation over the medium term. Market-based indicators and survey-based measures of longer-term inflation expectations had remained broadly unchanged at low levels. It was observed that headline inflation was now expected to be in negative territory for longer than had been foreseen in the September ECB staff projections. Moreover, it was highlighted that HICP inflation excluding energy and food had fallen to a new low of 0.2% in September, owing to lower non-energy industrial goods and services inflation. At the same time, there had also been a reduction in inflation in other items in the price index, which was considered a cause for concern. It was pointed out that 35% of all items were currently posting negative growth rates and underlying price pressures were also weak, raising concerns over a lasting impact. At the same time, it was underlined in this context that it was important to stress the temporary nature of the current inflation dynamics, partly owing to special factors such as exceptional patterns in seasonal sales and temporary tax reductions. Moreover, account should also be taken of changes in the consumption basket, which implied that inflation might actually be slightly higher than reported. The impact of the latest developments in growth and inflation on the medium-term outlook for inflation would have to be carefully evaluated in the December projections. However, the view was expressed that the probability that inflation rates would be closer to the severe scenario included in the September staff projections was increasing, even if no additional negative surprises were to materialise. Regarding recent developments in inflation expectations, members noted that longer-term inflation expectations reported in the ECB’s SPF were stable at 1.7%, while market-based indicators of inflation expectations had declined slightly, with the five-year forward inflation-linked swap rate five years ahead standing at 1.16%. It was pointed out that the SPF survey round for the fourth quarter of 2020 had been conducted at the beginning of October, before the resurgence of the pandemic and the widespread re-introduction of containment measures, and the results therefore needed to be treated with caution. It was considered important to ensure that the protracted period of lower inflation in the short run did not lead to lower medium and long-term inflation expectations. With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction that broad money (M3) growth continued to reflect domestic credit creation and the ongoing asset purchases by the Eurosystem. While monthly flows in loans to non-financial corporations had moderated in recent months amid a decline in emergency liquidity needs and subdued investment, bank lending to the private sector continued to be supported by government guarantees and monetary policy, particularly TLTRO III, which provided banks with sizeable funding cost relief. Bank lending rates continued to stand near historical lows. TLTRO III was seen to provide continuous support to bank lending, as evidenced by the higher than expected take-up in the latest operation. The results of the euro area bank lending survey signalled a tightening of credit standards in the third quarter of 2020, mainly on account of the deterioration in banks’ perceptions of the risks to the macroeconomic environment and borrowers’ creditworthiness. According to the survey, banks’ cost of funds and balance sheet situation had not contributed to the tightening, underscoring the positive impact of monetary policy support on bank funding conditions. Looking ahead, banks reported that they expected a considerable net tightening of credit standards also in the fourth quarter of 2020. It was remarked, however, that the results of the bank lending survey should not be over-interpreted or overstated in view of the very substantial credit easing observed in the second quarter, underpinned by state-guaranteed lending. Moreover, further fiscal and supervisory policy support might be forthcoming in the fourth quarter. The point was made that heightened uncertainty surrounding the second wave of the pandemic and the associated containment measures could pose renewed risks to the transmission of monetary policy through the banking sector, which required close monitoring. Financial vulnerabilities in the corporate sector, in particular, could have negative ramifications for banks’ balance sheets and give rise to adverse real-financial feedback loops. Against this backdrop, concerns were expressed about a likely increase in non-performing loans and a heterogeneous impact of the pandemic on the banking sector across countries. It was noted that recent equity price developments suggested that markets might have started pricing in the adverse impact on the banking system of the resurgence in COVID-19 infections, as evidenced by the underperformance of financial sector share prices. In this context, it was recalled that low profitability in the banking sector and the erosion of net interest margins presented ongoing challenges for euro area banks. The view was expressed that fiscal initiatives to address non-performing loans and ensure an adequately capitalised banking sector should be encouraged, while monetary policy was playing its part in supporting favourable financing conditions and ample liquidity in the banking sector. Monetary policy stance and policy considerations With regard to financial conditions, members widely shared the assessments provided by Ms Schnabel and Mr Lane in their introductions. It was noted that euro area financial markets had been relatively calm, with financial conditions – including exchange rate developments – being broadly stable and financing conditions for banks, households and firms remaining very favourable. The relatively muted reaction of markets to the second wave of the pandemic was seen as evidence of the effectiveness of the ECB’s monetary policy measures in containing tail risks, including the risk of market fragmentation. At the same time, markets were seen to remain fragile and could face a correction in pricing – for example in the event of a no-deal Brexit, a further worsening of the pandemic or if an agreement on the disbursement of funds under the NGEU plan was delayed. At the current juncture, members viewed the monetary policy stance as highly accommodative and appropriate. It was stressed that monetary policy had to aim to preserve favourable financing conditions in the future in order to support economic activity. Against this backdrop, members supported the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the full set of existing monetary policy instruments. Furthermore, members widely agreed that, given the sharper slowdown in growth momentum and the weakening of underlying inflation dynamics compared with what had previously been expected, as well as the deterioration in the balance of risks, it would be warranted to recalibrate the monetary policy instruments in December. It was noted that taking monetary policy decisions in December would be consistent with prevailing market expectations. However, it was also stressed that the Governing Council was in a position to act at any time, if needed. At the same time, it was underlined that more than half of the PEPP envelope was still available to conduct ongoing purchases in a flexible manner in case of renewed market turbulence. By the time of the December meeting, updated staff projections would be available and a clearer picture of the dynamics of the pandemic and prospects of a vaccine might have emerged, together with more information on the fiscal policy responses in the euro area. With regard to the monetary policy measures taken since early March, members widely agreed that they were helping to preserve favourable financing conditions for all sectors and jurisdictions across the euro area, thereby providing crucial support to underpin economic activity and to safeguard medium-term price stability. The TLTROs were seen to be providing funding to banks at favourable rates and contributing to low interest rates for bank lending, and had so far successfully averted a credit crunch. The PEPP was proving successful in stabilising market conditions and reducing fragmentation, as well as easing the monetary policy stance. It was remarked that the flexibility embedded in the PEPP was essential to its continued success. While the existing monetary policy instruments were viewed as effective, questions were raised about possible non-linearities, side effects and “diminishing returns” in an environment of high uncertainty and very favourable financial conditions. With markets having stabilised since the introduction of the pandemic-related monetary policy measures in March, it was noted that additional asset purchases might not have the same impact on financial conditions and real economic activity as they had had earlier in the year. It was emphasised that, in the present environment, monetary policy in part operated by facilitating fiscal expansion through keeping financing costs affordable, and both policy domains were working “hand in hand”. It also had to be acknowledged, however, that an accommodative monetary policy stance could create the temptation for governments to enter into commitments that were difficult to undo and thereby increase expenditure beyond what was necessary to deal with the pandemic, exacerbating structural deficits and damaging the long-term sustainability of public finances. As regards communication, members widely agreed with the proposals made by Mr Lane in his introduction. The Governing Council needed to signal that it stood ready to act with all the flexibility that was embodied in its pandemic emergency monetary policy tools, while also stressing its determination to act and signalling its willingness to adjust all instruments, if needed. It was stressed that any sign of complacency – even inadvertent – could be detrimental in the present circumstances. While there was wide agreement on the need to signal the necessity of recalibrating the ECB’s monetary policy instruments at the December monetary policy meeting, it was cautioned that the Governing Council should not pre-commit itself to specific policy actions. In its communication the Governing Council needed to highlight that the downside risks to the baseline scenario of the September projections had clearly increased, shifting the balance of risks further downwards, and that the Governing Council was carefully evaluating the worsening of the pandemic and the associated intensification of government containment measures with regard to their implications for the near-term outlook. Therefore, there was broad agreement that the Governing Council should communicate that, on the basis of this updated assessment, it would recalibrate its instruments, as appropriate, to ensure that financing conditions remained favourable to support the economic recovery, counteracting the negative impact of the pandemic on the projected inflation path and thereby fostering the convergence of inflation towards the Governing Council’s aim in a sustained manner, in line with its commitment to symmetry. Finally, there was broad agreement among members to emphasise that an ambitious and coordinated fiscal stance remained critical and was the most effective policy in the current situation to deal with the effects of the pandemic and the associated containment measures. In its communication the Governing Council should strongly welcome the NGEU package and encourage the EU institutions to approve this package swiftly in order to activate it in a timely manner to support the regions and sectors hardest hit by the pandemic. In this context, it could be emphasised that monetary policy was removing obstacles to the expansion of fiscal policy by supporting favourable financing conditions and the proper functioning of financial markets. In this way fiscal and monetary policy reinforced each other in the current circumstances, with monetary policy increasing its own effectiveness by empowering fiscal policy and fostering confidence. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, who ascertained that the decisions and proposed communication were supported by all members, the Governing Council took the following monetary policy decisions: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contributed to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The Governing Council would also continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remained an attractive source of funding for banks, supporting bank lending to firms and households. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 29 October 2020 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 28-29 October 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Mersch Mr Müller* Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Stournaras Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau Mr Visco Mr Weidmann* Mr Wunsch* * Members not holding a voting right in October 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Odór Mr Pattipeilohy Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Mr Bracke, Deputy Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 14 January 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 9-10 December 2020 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 December 2020 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 28-29 October 2020. Developments in global financial markets had been driven by a strong improvement in risk sentiment. The main catalyst had been the news on the effectiveness and imminent roll-out of multiple coronavirus (COVID-19) vaccines. Two additional factors had reinforced and amplified the improvement in risk sentiment. First, there were growing signs of a forthcoming bipartisan fiscal stimulus programme in the United States in the wake of the formal commencement of the presidential transition process. Second, the communication by the ECB’s Governing Council that it would recalibrate its instruments at its December meeting had strengthened confidence in the ECB’s commitment to monetary policy remaining a reliable source of support. This commitment had supported a broad-based easing of financial conditions. In stock markets, those sectors and countries that had been hit hardest by the pandemic had benefited the most from hopes that a vaccine would restore economic and social activity more rapidly. This group included many large euro area countries. However, despite the recent strong rally, stock valuations of firms in many crisis-hit sectors in the euro area remained well below their pre-pandemic levels. In euro area government bond markets, improving risk sentiment had supported a further decline in spreads of lower-rated sovereigns in recent weeks. All euro area countries could now fund long-term borrowing at, or below, rates equivalent to the GDP-weighted average of the rates on bonds of non-euro area advanced economies. This highlighted the extent of the monetary stimulus that the ECB was currently providing, and was expected to provide in the future, to mitigate the social and economic costs of the pandemic. Monetary policy had likely also been a key factor mitigating the increase in euro area risk-free yields in response to positive macroeconomic shocks. Real long-term rates and inflation expectations had moved in opposite directions in recent weeks. Ten-year inflation swaps had increased by more than 25 basis points since the Governing Council’s meeting on hopes of a faster recovery than previously expected, while real rates had steadily moved lower. In addition, the spread of the ten-year German Bund over the corresponding overnight index swap (OIS) rate had started trending lower from mid-September 2020 as German Bund yields had fallen more sharply than the equivalent OIS rates. Such developments typically reflected expectations of a change in the net supply of bonds, which was consistent with investors anticipating a recalibration of the pandemic emergency purchase programme (PEPP). As a result, the degree of monetary policy accommodation currently embedded in euro area sovereign bond markets was practically unprecedented in the period since the global financial crisis, both in its scale and in its breadth across countries. The entire euro area GDP-weighted sovereign yield curve was significantly below its pre-pandemic level and firmly in negative territory. The dispersion across euro area ten-year sovereign yields had reached a new post-2008 low. Benign conditions in sovereign bond markets and increased risk appetite had also left their mark on euro credit markets. Spreads of financial and non-financial issuers had fallen further and were now approaching their pre-COVID-19-crisis levels. As regards exchange rate developments, with the year-end approaching, risks of a no-deal Brexit had increased considerably over the past few days. While market participants both in the United Kingdom and in the euro area seemed to be prepared for a no-deal Brexit scenario, the implied volatility of the GBP/EUR exchange rate had increased sharply in recent days, especially for short-term maturities. In addition, optimism about medical breakthroughs and a faster global recovery had fuelled further US dollar weakness. The nominal effective US dollar exchange rate had depreciated by more than 3.5% over the course of November 2020. There was model-based evidence that the improvement in risk sentiment, reflecting prospects of a faster global recovery, had been the major factor driving the recent appreciation of the euro. A comparison of the stock market performance of export-oriented euro area firms with the performance of firms whose business models depended more on domestic demand suggested that there was no clear evidence, so far at least, that negative competitiveness effects were perceived by investors to significantly counteract the positive global demand effects implied by a weaker US dollar. Overall, financial conditions at the global level and in the euro area were highly accommodative. ECB staff analysis suggested that monetary policy had played an important part in restoring and easing financial conditions at the global level. It had added substantially to the positive effects stemming from receding risk aversion among market participants. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. As regards the global economy, growth momentum had weakened amid rising cases of infection and stricter containment policies, while the vaccine news had lifted prospects for the future. Global GDP and global trade had suffered a massive blow in 2020 and the deep contraction in world demand had had major effects on exports of euro area firms. Large fiscal support packages had preserved jobs and boosted disposable incomes, especially in advanced economies, and private consumption had recovered robustly in the third quarter. However, the outlook for the fourth quarter had weakened substantially owing to the resurgence of COVID-19 infections, coupled with the assumption of a no-deal Brexit and a faltering fiscal stimulus in many countries. The Purchasing Managers’ Index (PMI) had deteriorated markedly in November across major advanced economies with the exception of the United States. There had been a significant recovery in world trade in the third quarter. Based on forward-looking PMI data on new export orders, world trade was expected to continue to grow in the fourth quarter. Global financial conditions had loosened further, driven by higher equity prices and declining spreads. Brent crude oil prices had climbed above USD 48 per barrel on the back of the improving global risk sentiment, implying an increase of 20% since the October monetary policy meeting of the Governing Council. The euro had appreciated markedly against the US dollar (3.2%) but had remained broadly stable in nominal effective terms (0.3%). Turning to the euro area, the December 2020 Eurosystem staff macroeconomic projections entailed a deterioration in the short-term outlook, followed by a robust rebound with real GDP expected to return to its pre-crisis level by mid-2022 in the baseline scenario, which was broadly within the range of forecasts by other institutions and the private sector. Regarding the latest developments, real GDP had expanded by 12.5%, quarter on quarter, in the third quarter of 2020, according to Eurostat. Manufacturing production had been broadly unchanged between July and September. Meanwhile, the recovery in services was lagging that in manufacturing, but was also slowing, and there was considerable divergence in activity levels across the services sector. The short-term outlook was dominated by the effect of the new containment measures introduced to stem the resurgence of coronavirus infections. Focusing on demand components, private consumption had rebounded strongly in the third quarter but remained well below its pre-pandemic level. A contributing factor to the rebound had been strong demand for durable goods, including some consumption that had been postponed from the second quarter, although it remained uncertain to what extent “lockdown-induced pent-up demand” had been satisfied. Regarding the fourth quarter, retail sales had been resilient in October, while data on credit card payments, by contrast, pointed to a notable drop in spending in the last week of October and during November, although this was much smaller than the reduction in footfall in retail outlets and recreational establishments. With spending in decline and incomes still supported by government short-term work schemes, the saving ratio was expected to rise again in the fourth quarter. Business investment, which was closely related to developments in output, had also rebounded in the third quarter. But the outlook for business investment remained subdued in the light of reduced revenues, low rates of capacity utilisation and fragile corporate balance sheets. Euro area trade had rebounded strongly in the third quarter of 2020 (driven by trade in goods) and had provided a positive contribution to GDP growth. However, renewed lockdown restrictions were likely to interrupt the pattern of the recovery in trade. Looking at the euro area labour market, the unemployment rate had increased by only around 1.2 percentage points since February 2020 and stood at 8.4% in October 2020, as a result of special government support measures, especially in the form of job retention schemes including short-time work schemes. In the third quarter labour force growth had been recovering after the sharp declines recorded during the first few months of the pandemic. At the same time, high-frequency indicators suggested that job creation was being particularly hard hit during the pandemic. Turning to nominal developments, the December 2020 Eurosystem staff projections included downward revisions to HICP inflation and HICP inflation excluding energy and food (HICPX). These projections, which foresaw HICP inflation rebounding from 0.2% in 2020 to 1.0% in 2021 and gradually increasing further, to stand at 1.4% in 2023, were at broadly similar levels to forecasts by other international institutions and the private sector over the medium-term horizon. Headline inflation had remained at -0.3% in November according to Eurostat’s flash estimate – unchanged for the third month in a row. HICPX inflation had also been broadly unchanged, at 0.2%, while energy and food inflation had declined marginally. Much of the observed decline in services inflation was related to travel and hence a lot of this decline could be expected to be reversed in the future. Headline inflation was likely to remain negative in December 2020, but was expected to return to positive rates at the beginning of 2021. Special factors, including temporary changes in indirect taxes, had continued to play an important role in recent developments in headline inflation and in the short-term inflation outlook. Negotiated wage growth had decreased to 1.6%, year on year, in the third quarter of 2020, continuing a slight downward trend from the level of 2.0% recorded in the first quarter of 2020. Nonetheless, the persistence in wage developments had given some support to inflation over the course of 2020. The growth rate of the GDP deflator had declined to 1.0% in the third quarter of 2020, from 2.4% in the second quarter, narrowing the gap vis-à-vis HICPX inflation. As activity had rebounded in the third quarter, profit margins had also improved, but remained below the pre-crisis level. An important stabilising factor for profit margins in the current crisis seemed to have been the more widespread use of public support schemes. As regards inflation expectations, market and survey-based indicators of longer-term inflation expectations remained subdued. Participants in the ECB’s Survey of Professional Forecasters (SPF) also continued to see higher risks of low inflation in the longer term. For example, the probability of HICP inflation of less than 1% had doubled from around 10% in 2013 to about 20% recently. In terms of financial conditions in the euro area, the inversion of the EONIA forward curve had receded and there were no expectations of a cut in the deposit facility rate. Monetary policy expectations had contributed to keeping long-term risk-free rates low. Equity prices had increased since the last Governing Council meeting, largely driven by positive sentiment, but were not yet underpinned by strengthening earnings growth expectations. Corporate bond spreads had declined. The easing in financial conditions reflected higher pricing of risky assets after vaccine news as well as expectations of additional policy support. As regards monetary developments, money growth was buoyant, as ample credit had been provided to non-financial firms since the start of 2020. There was evidence that bank credit had reached those parts of the economy where it was needed most. Following the introduction of the various policy support measures, bank lending to small and medium-sized enterprises (SMEs) had been much stronger than lending to other firms in the second quarter of 2020, in terms of both annual growth rates and the absolute size of loan flows. While nominal lending rates were favourable, real bank lending rates stood significantly higher than their pre-pandemic levels, owing to the lower level of near-term inflation expectations. So far banks had maintained the robust capital position prevailing at the start of the crisis and the regulatory and government support measures had supported both the average risk weights and the size of banks’ capital base. The increase in banks’ provisioning costs for expected loan losses had thus far been absorbed by banks through lower profits. This suggested that there might be mounting pressure on banks to bring about a recovery in their margins by increasing lending rates and tightening financing conditions for firms and households. Turning to fiscal policies, the euro area fiscal stance had been strongly expansionary in 2020 and the December 2020 Eurosystem staff projections included a significantly larger stimulus over the period 2021-22 than assumed previously. The Next Generation EU (NGEU) programme was projected to provide substantial support for growth, although uncertainty with respect to the actual use of the fund and its impact remained high. Monetary policy considerations and policy options Summing up, Mr Lane remarked that while the prospects for the roll-out of vaccines were encouraging, the pandemic continued to pose serious risks to public health and to the euro area and global economies. The December Eurosystem staff macroeconomic projections indicated a more pronounced impact of the pandemic on the economy in the short term. Headline inflation had remained unchanged at -0.3% in November and measures of underlying inflation had generally stabilised after the downward trend seen previously, but they continued to point to a broad-based weakness in price pressures and wage dynamics, while the euro’s appreciation also constituted a headwind to inflation. Market-based measures of longer-term inflation expectations remained at very subdued levels, after a slight improvement in response to the positive vaccine news. The December projections pointed to a more protracted weakness in inflation than previously envisaged. The economic disruptions associated with the second wave of the pandemic implied a further delay in the convergence of inflation towards the Governing Council’s inflation aim, as reflected by the 0.2 percentage point downward revision to the headline inflation projection for 2022. Sentiment in financial markets had benefited from optimism about the prospect of vaccine roll-outs. However, the level of financial conditions was also predicated on expectations of further monetary policy easing. With respect to financing conditions for firms and households, the latest surveys pointed to potential fragility in the transmission of monetary policy via banks. According to the Survey on the Access to Finance of Enterprises, the net percentage of firms reporting a positive assessment of their access to credit had declined over the past six months and a sharp deterioration in access to both bank loans and credit lines was expected over the next six months. Together with the October 2020 round of the bank lending survey, which had indicated a tightening of credit standards and terms and conditions, the incoming information confirmed that the potential amplification of adverse real-financial feedback loops remained a material risk and needed to be closely monitored. Overall, the incoming data and the Eurosystem staff projections suggested a more pronounced near-term impact of the pandemic on economic activity and inflation than previously envisaged. In turn, the protracted nature of the pandemic shock entailed another delay in the convergence of inflation to the Governing Council’s aim, while further risks of an unanchoring of inflation expectations were salient. In response to the economic fallout from the resurgence of the pandemic, Mr Lane proposed to take additional monetary policy measures. These were aimed at preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability. Preserving favourable financing conditions for an extended period of time helped to support inflation developments via multiple channels. First, it reduced financing uncertainty for banks, corporations, households and governments alike, and bolstered confidence, thereby encouraging spending and investment, and ultimately underpinning the economic recovery and inflation. Second, the assurance that favourable financing conditions would be maintained helped to prevent an undue tightening of financing conditions in an improving macroeconomic landscape. Keeping favourable financing conditions in such an environment could even accelerate the dynamics of the recovery, since better economic prospects combined with attractive financing conditions could fast-track consumption and investment. Finally, an extended period of favourable financing conditions would underpin confidence in the recovery and in the eventual pick-up in inflation, which would support inflation expectations and thereby provide additional monetary stimulus through lower real rates. Overall, preserving favourable financing conditions helped to counter the negative pandemic shock to the inflation path and thereby supported the achievement of the price stability objective via a reduction in uncertainty (notably about funding costs in the economy), but also through stronger forward guidance about how the central bank might respond to a future tightening of financing conditions. With these aims in mind, Mr Lane proposed to take the following decisions: First, to expand the PEPP envelope by €500 billion to a total envelope of €1,850 billion and lengthen the net purchase horizon at least until the end of March 2022. The expansion and extension of PEPP purchases was the most suitable tool for helping to ensure that the level of financing conditions remained favourable to absorb the current shock and it could provide greater certainty about the duration of favourable financing conditions. This would help to reduce uncertainty and bolster confidence, thereby encouraging higher spending and investment, ultimately underpinning the economic recovery and helping to offset the downward impact of the pandemic on the projected path of inflation. This implied conducting purchases flexibly according to market conditions, with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the commitment under the PEPP to purchase flexibly over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. The recalibration of the PEPP was proportionate to the risks facing the fulfilment of the Governing Council’s mandate. It continued to be more efficient than a rate cut in the current pandemic conditions characterised by high uncertainty. And the previous assessment that, on balance, the benefits of PEPP purchases outweighed the potential costs also continued to hold. The extension of the horizon to March 2022 would take into account the expected timeline for the roll-out of vaccines and the updated macroeconomic projections that saw the return to 2019 GDP levels only during the course of 2022. Second, to extend the reinvestment of the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Third, to recalibrate the conditions on operations under the third series of targeted longer-term refinancing operations (TLTRO III) by extending the lower interest rate period by 12 months to June 2022, adding three additional operations and increasing the borrowing allowance to 60% of the eligible loan stock. In order to create an incentive for banks to sustain the current level of bank lending, the recalibrated TLTRO III borrowing conditions could be made available only to banks that achieved a new lending performance target. The extension of the pandemic-related low interest rate period, the addition of more operations and the increase in the amount that could potentially be borrowed under TLTRO III would preserve the very attractive funding conditions that in the past few months had supported the flow of credit to the real economy, even at a time of high stress. This would help banks to secure the liquidity required to extend loans to households and firms on very favourable terms. Fourth, to extend to June 2022 the duration of the set of collateral easing measures adopted by the Governing Council on 7 and 22 April 2020, in order to provide assurance that banks could make full use of the Eurosystem’s liquidity operations, most notably the recalibrated TLTROs. Fifth, to offer four additional pandemic emergency longer-term refinancing operations (PELTROs) in 2021, which would continue to provide an effective liquidity backstop. Sixth, as concerns the asset purchase programme (APP), to continue to conduct purchases at a monthly pace of €20 billion. The Governing Council needed to reiterate that it continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started to raise the key ECB interest rates. In addition, the Governing Council needed to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Seventh, to extend the Eurosystem repo facility for central banks (EUREP) and all temporary swap and repo lines with non-euro area central banks until March 2022. Finally, to continue conducting regular lending operations as fixed rate tender procedures with full allotment at the prevailing conditions for as long as necessary. As regards external communication, the Governing Council needed to: (a) confirm that, while acknowledging the good news about the roll-out of vaccines, the resurgence in COVID-19 infections and the associated containment measures implied a more pronounced near-term impact of the pandemic on the economy and a more protracted weakness in inflation than previously envisaged; (b) emphasise that a recalibration of monetary policy instruments was needed to ensure that financing conditions remained favourable to underpin the economic recovery and to counteract the negative impact of the pandemic on the projected path of inflation; (c) stress that the recalibrated PEPP would be deployed to preserve favourable financing conditions over the pandemic period across all sectors; (d) underline that purchases would be conducted flexibly according to market conditions and with a view to preventing a tightening of financing conditions that would be inconsistent with countering the downward impact of the pandemic on the projected path of inflation; in particular, if favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope would not need to be used in full; equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation; (e) explain that the recalibrated TLTROs would preserve the very attractive funding conditions for banks, which would help to ensure that they could continue to offer favourable lending conditions and had sufficient liquidity to extend loans to households and firms; and (f) reiterate that it would continue to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the overall assessment of the current economic situation in the euro area and the risks for activity provided by Mr Lane in his introduction. While the rebound of economic activity in the third quarter had been stronger than expected and the prospects for the roll-out of vaccines were encouraging, the pandemic continued to pose serious risks to public health and to the euro area and global economies. The resurgence in COVID-19 cases and the associated containment measures were significantly restricting euro area economic activity, which was expected to contract in the fourth quarter of 2020. Inflation remained very low in the context of weak demand and significant slack in labour and product markets. Overall, the incoming data and the Eurosystem staff projections suggested a more pronounced near-term impact of the pandemic on the economy and a more protracted weakness in inflation than previously envisaged. The baseline scenario of the December 2020 Eurosystem staff macroeconomic projections for the euro area saw real GDP growth at -7.3% in 2020, 3.9% in 2021, 4.2% in 2022 and 2.1% in 2023. Compared with the September 2020 ECB staff macroeconomic projections, the outlook for economic activity had been revised down in the short term, but was seen to broadly recover to the level projected in the September baseline scenario over the medium term. Compared with the September 2020 ECB staff macroeconomic projections, the outlook for inflation had been revised down for 2020 and 2022. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction. In the third quarter of 2020 global activity had rebounded more strongly than previously expected, but weakening growth momentum was foreseen in the fourth quarter amid rising COVID-19 cases and stricter containment policies. The resurgence of COVID-19 infections, coupled with the assumption made in the December 2020 Eurosystem staff projections of a no-deal Brexit and a faltering fiscal stimulus in many countries, had led to a weaker outlook at the turn of the year 2020/2021. The projections implied a marginal downward revision to growth in global activity and trade for 2021. Members expressed the view that an EU-UK agreement avoiding a no-deal Brexit and an agreement in the United States on a renewal of the fiscal stimulus constituted upside risks to these projections, while downside risks remained, related to the further evolution of the pandemic and the possibility of more protracted scarring effects. Turning to euro area developments, members acknowledged that, following a sharp contraction in the first half of 2020, euro area real GDP had rebounded strongly in the third quarter. It was noted that this rebound had been stronger than expected in the September 2020 ECB staff projections and, together with a less pronounced decline in the second quarter than previously anticipated, constituted upside surprises for two consecutive quarters. Looking ahead, this experience suggested that rebounds could again be fairly dynamic once restrictions were lifted. Economic agents had apparently learned to adapt to such restrictions, for instance by adjusting their consumption patterns, and the economy had demonstrated a strong capacity to bounce back rather quickly. At the same time, the role of policy support, which remained critical in cushioning the impact of the pandemic, was underlined. Members widely agreed that the second wave of the pandemic and the associated intensification of containment measures observed since mid-October could be expected to result in a renewed significant decline in activity in the fourth quarter of 2020, although to a much lesser extent than observed in the second quarter of the year. It was highlighted that the carry-over effect from the decline in the fourth quarter was the main factor behind the downward revision to expected real GDP growth in 2021 in the staff projections. In their discussion of the outlook for economic activity, members welcomed the positive news about the prospective roll-out of vaccines and thus a gradual resolution of the health crisis. This represented a major difference compared with the situation at the time of the Governing Council’s last monetary policy meeting in October, as could be seen from the clear improvement in financial market sentiment. It was argued that the prospect of more effective and more quickly disseminated vaccines implied a more benign pandemic scenario than previously anticipated in the September ECB staff projections and thus had a substantial bearing on the medium-term economic outlook, which was predicated on the expected evolution of the pandemic. Members considered that the impact of positive news regarding the availability of vaccines on the medium-term outlook needed to be weighed against the impact of the more negative latest news on infection rates and containment measures in the short term. In this respect, a key question was how temporary the effects of the renewed downward shock would be and how long it would take the economy to recover from a double-dip of activity into negative territory. In this context, it was recalled that the expected shape of the recovery now looked very different from the V- and U-shapes expected earlier in the year. It was possible that given the more positive starting point, the second wave of the pandemic would not make the crisis deeper as a whole, but would make it more drawn out than previously anticipated. It was felt that a protracted curtailment of activity might inflict more lasting damage on a number of sectors, with heightened risks of rising insolvencies and unemployment affecting the medium-term outlook and more protracted scarring effects owing to the delay in the recovery. Against this background, there was broad agreement among members that pronounced uncertainty remained a key theme in the economic outlook and it was observed that this uncertainty could ultimately be resolved in different ways. Although fiscal policy measures were supporting households and firms, the uncertainty about the economic outlook was weighing on business investment and causing consumers to remain cautious. If health concerns rather than containment measures were behind this caution, consumer spending would only recover more fully once the pandemic faded away. The evolution of the elevated household saving ratio thus remained a critical element in the staff projections, as its expected renewed spike and subsequent gradual unwinding was an important factor determining the profile of consumption. As long as jobs were preserved, the experience of the third quarter of 2020 suggested that the significant amount of accumulated savings could lead to a stronger rebound in growth. However, it was also recalled that while there might be pent-up demand for durable goods, demand for services would possibly stay depressed for longer. Overall, the risks surrounding the euro area growth outlook were seen to remain tilted to the downside, although they were less pronounced. While the news about vaccine roll-outs in the near future was encouraging, downside risks remained, related to the implications of the pandemic for economic and financial conditions. Regarding fiscal policies, an ambitious and coordinated fiscal stance remained critical in view of the sharp contraction in the euro area economy. Fiscal measures in response to the pandemic emergency should, as far as possible, be targeted and temporary. At the same time, weak demand from firms and households and the heightened risk of a delayed recovery warranted continued support from fiscal policy at the national and European levels. The key role of the NGEU package and the importance of it becoming operational without delay were reiterated. Some comfort was drawn from recent signals that the package was now closer to being adopted. It was underlined that provided that the funds were deployed for productive public spending and accompanied by productivity-enhancing structural reforms, the NGEU would contribute to a faster, stronger and more uniform recovery. It would thereby enhance resilience and the growth potential of Member States’ economies, supporting the effectiveness of monetary policy in the euro area. Such structural policies were particularly important for addressing long-standing structural and institutional weaknesses and accelerating the green and digital transitions. With regard to price developments, there was also broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash estimate, euro area annual inflation had remained unchanged at -0.3% in November. On the basis of oil price dynamics and taking into account the temporary reduction in the German VAT rate, headline inflation was likely to remain negative until early 2021. It was then expected to increase owing to the end of the temporary VAT reduction in Germany and upward base effects in energy price inflation. At the same time, underlying price pressures were expected to remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to low wage pressures and the appreciation of the euro. Once the impact of the pandemic faded, a recovery in demand, supported by accommodative fiscal and monetary policies, would put upward pressure on inflation over the medium term. Market-based indicators and survey-based measures of longer-term inflation expectations had remained at low levels. In their discussion of the outlook for inflation in the December Eurosystem staff projections, members noted that because of the pandemic there was exceptionally high uncertainty at present regarding the measurement of economic slack and of inflation, as well as the relationship between them over time. This was probably also affecting the range of plausible inflation projections and, in the light of past projection errors for inflation, suggested the need to include a degree of caution in the projection baseline. The expected inflation profile in the December Eurosystem staff projections was low when compared with past projections, and it remained well below the Governing Council’s inflation aim even at the end of the current projection horizon in 2023. The staff projections implied that by the end of the projection horizon, with the exception of the year 2018, euro area inflation would have remained below the inflation aim for around a decade. Given the repeated experience of subdued inflation outturns and protracted errors in inflation projections, the question was raised as to whether persistently subdued inflation could in part be ascribed to structural factors, such as digitalisation. A question was also raised about the extent to which recent projection errors could be due to developments in certain specific items, such as those related to travel, which likely had a very low actual weight in current consumption during the pandemic. Members also paid close attention to the role of the exchange rate in the inflation outlook. It was pointed out that the nominal effective exchange rate currently stood at an all-time high and that the recent appreciation could contribute significantly to the subdued inflation outlook. At the same time, it was recalled that the impact of the exchange rate on inflation depended on the nature and persistence of the shock driving the exchange rate movement. As regards inflation expectations, members noted that since the end of 2019 longer-term inflation expectations in the SPF had remained relatively resilient and stood close to the longer-term downward trend in actual HICP inflation. The December 2020 Eurosystem staff projections did not imply a major reversal of this trend. Market-based measures of longer-term inflation expectations had increased to pre-pandemic levels on the news about the prospective roll-out of vaccines. However, they remained at very low levels. On the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction that strong broad money (M3) growth had been supported by the Eurosystem’s ongoing asset purchases, which had become the largest source of money creation. The narrow monetary aggregate M1 continued to be the main contributor to broad money growth, reflecting a still heightened preference for liquidity in the money-holding sector and a low opportunity cost. The annual growth of bank loans to the private sector had plateaued, although at higher rates than prior to the COVID-19 pandemic. Meanwhile, monthly lending volumes had receded, which indicated diminishing emergency liquidity needs, weak investment and tighter conditions on loans to firms, as signalled by the ECB’s bank lending survey for the third quarter of 2020. The TLTRO III operations were seen to be providing continuous support to bank lending. Together with the liquidity buffers that firms had accumulated, the improved resilience of bank balance sheets at the beginning of the crisis and the recent extension of fiscal and macroprudential policy measures, TLTRO III was considered to be mitigating the risks of adverse real-financial feedback loops. At the same time, it was cautioned that credit risks and the probability of default of non-financial corporations were increasing as the crisis endured. Views were exchanged on the role of loan supply versus loan demand factors, with reference being made to elevated corporate savings and a possible satiation of precautionary liquidity needs among companies. Monetary policy stance and policy considerations With regard to financial conditions, members widely shared the assessments provided by Ms Schnabel and Mr Lane in their introductions. Namely, market sentiment had improved notably following the news of the successful development of vaccines and on account of expected monetary policy measures. Interest rate spreads of euro area sovereigns had fallen below their pre-crisis levels. It was cautioned, however, that uncertainty remained high and positive sentiment could erode quickly in the event of negative news. Concerns were voiced over risks related to developments in the exchange rate that might have negative consequences for the inflation outlook. All members agreed that, in view of the economic fallout from the resurgence of the pandemic, the downward revision to the projected inflation path, and the resulting risks of an unanchoring of inflation expectations, additional monetary policy measures were necessary to preserve favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy and underpinning the economic recovery. It was observed that the December Eurosystem staff inflation projections were far below the Governing Council’s inflation aim. Against this background, decisive action to ensure that financing conditions remained favourable was deemed necessary. It was recalled, however, that, although the medium-term inflation outlook was not in line with the Governing Council’s aim, the current circumstances differed in some respects from the emergency situation during which the PEPP had initially been decided upon. The current environment warranted a recalibration of policy instruments to safeguard favourable financing conditions, rather than the adoption of additional measures to combat the crisis. The remark was made that the Governing Council’s medium-term orientation called for patience and persistence on reaching its aim over time and that the PEPP horizon was therefore an important parameter. At the same time, the argument was made that a further lowering of yields from their already highly accommodative levels could be expected to have only marginal effects on growth and inflation, while increasing the risks of unintended side effects, in particular for financial stability. Overall, the Governing Council would need to monitor changes in the outlook for price stability carefully over the coming months. Members expressed broad agreement with the monetary policy package proposed by Mr Lane in his introduction. It aimed at maintaining favourable financing conditions for an extended period during the pandemic and ensuring that the flow of credit to all sectors of the economy continued to be supported, thereby underpinning economic activity and safeguarding medium-term price stability. The expansion and extension of PEPP purchases and the recalibration of the TLTRO III conditions were widely seen as the most suitable tools to ensure that financing conditions remained favourable throughout the pandemic. Given that the return to the Governing Council’s inflation aim was delayed by the pandemic, it was widely considered an appropriate and proportional response to the prevailing type of shock to increase the horizon of net purchases under the PEPP until March 2022, extend the reinvestments of the principal payments from maturing securities purchased under the PEPP until the end of 2023, and to add more TLTRO III operations, extending the pandemic-related low interest rate period to June 2022. Overall, it was agreed that the proposed longer horizon of the PEPP and TLTRO III was broadly in line with the expected duration of the pandemic crisis, the continued uncertainty about the roll-out of the vaccines, and the expected return of economic activity to its pre-pandemic level. It was also agreed that the assessment by Mr Lane that, on balance, the benefits of PEPP purchases and the TLTRO III outweighed the potential costs continued to hold. The PEPP was seen as the cornerstone of the Governing Council’s monetary policy package, as thanks to its flexibility it had proven particularly effective in ensuring the Eurosystem maintained a stabilising presence in the markets, providing a backstop against a disorderly repricing of risk. The PEPP also contributed to easing the monetary policy stance in response to the downward impact of the pandemic on the path of inflation. An expansion of the PEPP envelope by €500 billion, in addition to the €20 billion of monthly purchases under the APP, was generally seen as appropriate to underpin the Governing Council’s commitment to maintaining favourable financing conditions over the extended pandemic period. A more moderate increase in the PEPP envelope was advocated by a number of members based on the argument that significant space for purchases was still available from past decisions and that in an environment of high uncertainty it was worth “keeping some powder dry” by maintaining the option to further adjust the envelope in the future. However, some arguments were also made in favour of a larger envelope. While the already accommodative level of current financing conditions was acknowledged, it was argued that the proposed increase in the PEPP envelope was insufficient to ease financing conditions further and bring inflation closer to the Governing Council’s aim, also in the light of the fact that the additional envelope of €120 billion for the APP would run out by the end of 2020. Members highlighted the flexibility embodied in the PEPP. It was argued that the focus on preserving favourable financing conditions implied a move away from a constant monthly pace of purchases towards adjusting the pace according to market conditions, with a view to preventing a tightening of financing conditions inconsistent with countering the downward impact of the pandemic on the projected path of inflation. This approach, combined with forceful communication, could allow the Governing Council to reduce the pace of purchases while having an equivalent effect on financing conditions. This could result in greater efficiency and in using less than the entire envelope over the duration of the programme. The flexibility in the allocation of the PEPP purchases over time was seen as being well aligned with the principle of proportionality and the Governing Council’s monetary policy stance. At the same time, it was seen as essential for the Governing Council to state that it stood ready to increase the envelope further if needed. Attention was drawn to possible constraints on and side effects of additional purchases, such as the risks of moral hazard, fiscal dominance and distorted market functioning. Safeguards to guarantee a sufficient distance from monetary financing concerns – such as the guidance for the allocation of the stock of asset purchases according to the capital key – were seen as important to maintain legitimacy and independence. It was emphasised that in the present environment fiscal policy remained the most appropriate response to the pandemic-driven crisis and monetary policy should play a secondary role. Members also exchanged views on how to assess favourable financing conditions and felt that financing conditions should be considered in a holistic way, with their appropriate level also depending on the inflation outlook. It was deemed important to explain that maintaining favourable financing conditions allowed for some flexibility if the fundamentals changed or if conditions tightened endogenously in response to economic developments. In addition, the relevant financing conditions were seen to pertain to all private and public sectors of the economy, comprising interest rates as well as credit volumes and conditions. With regard to the recalibration of the TLTRO III conditions, the three proposed changes – the extension of the pandemic-related low interest rate period, the addition of more operations and the increase in the amount that could potentially be borrowed – were seen as appropriate ways to preserve attractive funding conditions and to help banks to secure the liquidity required to keep extending loans to households and firms on favourable lending terms. The new lending performance target was considered an important element -giving banks an incentive to provide additional credit, whereas the current attractive pricing of TLTRO III seemed sufficient to provide ongoing backing for bank-based monetary policy transmission. The proposed increase in the amount that could potentially be borrowed under TLTRO III was seen as supporting the flow of credit to the real economy, allowing banks to secure liquidity on very favourable terms. It was recalled that this amount was defined in relation to euro area banks’ stock of eligible loans, which amounted to just over half of their total loan book. A number of reservations were expressed with regard to the proposed increase in the borrowing allowance to 60%, related, in particular, to concerns that it would make banks increasingly dependent on the Eurosystem as their funding source and could induce banks to invest more in sovereign debt. Against this background, broad agreement was reached to raise the borrowing allowance to 55% of the stock of eligible loans. As regards communication, members widely agreed with the elements proposed by Mr Lane in his introduction. Although uncertainty continued to be pronounced, it was deemed important to acknowledge the positive news that had emerged since the last meeting and its impact on the balance of risk. At the same time, it was felt that the Governing Council needed to stress that the medium-term inflation outlook was far from an inflation rate of below, but close to, 2%. The view was expressed that the Governing Council could not afford to be perceived as complacent about the inflation path embodied in the projections. In addition, it needed to be stressed that the recalibration of the Governing Council’s policy measures provided sizable and flexible support in order to maintain favourable financing conditions over the extended pandemic period. An important shift in implementing the PEPP was to be highlighted and it should be underlined that if favourable financing conditions could be maintained with asset purchase flows that did not exhaust the full amount available under the PEPP, the envelope need not be used in full. At the same time, the Governing Council should also indicate its willingness to recalibrate the PEPP in the future, as needed, to ensure that overall financing conditions were sufficiently favourable to counteract the impact of the pandemic on the medium-term inflation outlook. In this context, it was noted that the important role that the reinvestment of principal payments played for the monetary policy stance had to be underlined as well. Furthermore, the Governing Council needed to announce that it would carefully monitor whether its measures were sufficient to guarantee a return of inflation to its aim, and to reiterate that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. This could also include possibly cutting the deposit facility rate. The Governing Council would also continue to monitor the effects of the exchange rate on the inflation outlook. Finally, the need for an ambitious and coordinated fiscal stance in view of the sharp contraction in the euro area economy was to be emphasised, underlining the key role of the NGEU package and the importance of it becoming operational without delay. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council decided to recalibrate its monetary policy instruments as follows: First, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Second, the Governing Council decided to increase the envelope of the pandemic emergency purchase programme (PEPP) by €500 billion to a total of €1,850 billion. It also extended the horizon for net purchases under the PEPP to at least the end of March 2022. In any case, the Governing Council would conduct net purchases until it judged that the coronavirus crisis phase was over. The Governing Council also decided to extend the reinvestment of principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Third, the Governing Council decided to further recalibrate the conditions of the third series of targeted longer-term refinancing operations (TLTRO III). Specifically, it decided to extend the period over which considerably more favourable terms would apply by twelve months, to June 2022. Three additional operations would also be conducted between June and December 2021. Moreover, the Governing Council decided to raise the total amount that counterparties would be entitled to borrow in TLTRO III operations from 50% to 55% of their stock of eligible loans. In order to provide an incentive for banks to sustain the current level of bank lending, the recalibrated TLTRO III borrowing conditions would be made available only to banks that achieved a new lending performance target. Fourth, the Governing Council decided to extend to June 2022 the duration of the set of collateral easing measures adopted by the Governing Council on 7 and 22 April 2020. The extension of these measures would continue to ensure that banks could make full use of the Eurosystem’s liquidity operations, most notably the recalibrated TLTROs. The Governing Council would reassess the collateral easing measures before June 2022, ensuring that Eurosystem counterparties’ participation in TLTRO III operations was not adversely affected. Fifth, the Governing Council also decided to offer four additional pandemic emergency longer-term refinancing operations (PELTROs) in 2021, which would continue to provide an effective liquidity backstop. Sixth, net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council also intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Seventh, the Eurosystem repo facility for central banks (EUREP) and all temporary swap and repo lines with non-euro area central banks would be extended until March 2022. Finally, the Governing Council decided to continue conducting its regular lending operations as fixed rate tender procedures with full allotment at the prevailing conditions for as long as necessary. The monetary policy measures taken today would contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability. At the same time, uncertainty remained high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs. The Governing Council would also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook. The Council therefore continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 10 December 2020 Press releases Monetary policy decisions ECB extends pandemic emergency longer-term refinancing operations ECB prolongs support via targeted lending operations for banks that lend to the real economy Meeting of the ECB’s Governing Council, 9-10 December 2020 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Mersch Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Stournaras* Mr Vasiliauskas Mr Vasle Mr Vella Mr Villeroy de Galhau* Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in December 2020 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Bracke, Deputy Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 18 February 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 20-21 January 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 20-21 January 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 9-10 December 2020. New global coronavirus (COVID-19) infections had reached a record high in the previous week and the risk of more protracted containment measures was rising amid the emergence of more infectious mutations of the virus and a pace of vaccination that was proceeding more slowly than expected. Sentiment in financial markets, however, had improved noticeably at the start of the year, mainly reflecting expectations of additional fiscal stimulus in the United States, sparking reflation trades. The US Treasury yield curve had steepened significantly, led by the long end, reflecting an increase in both inflation expectations and real rates. The euro area overnight index swap (OIS) curve, by contrast, remained close to its flattest historical level and had steepened only marginally over the past two weeks. The euro area GDP-weighted yield curve had also remained very close to the level observed at the time of the Governing Council’s 9-10 December 2020 monetary policy meeting. However, stable nominal yields in the euro area masked opposing underlying developments. While medium to long-term inflation expectations had increased at the same pace as in the United States, real yields in the euro area had resisted upward pressure and had in fact declined to record low levels. There had also been a repricing at the short end of the curve. Both in the United States and in the euro area, OIS forward curves had continued to shift upwards since the start of 2021, broadly reflecting higher interest rate expectations. Cross-asset price correlations were consistent with the view that the market was becoming more sanguine about the economic outlook despite the risk of strict lockdowns being extended further in the near future. Price and flow data on global equity markets suggested that a further improvement in risk sentiment and a recovery in long-term earnings expectations had so far outweighed any impact from the rise in risk-free rates. Global stock markets had posted further gains and the EURO STOXX 50 index was now close to reaching pre-COVID-19 pandemic levels. The recent price gains had also been backed by continued inflows into global equities. Assets under management in investment funds had increased by more than 10% since early November 2020. At the same time, stock prices could eventually become vulnerable to a rise in real yields globally. The “excess CAPE yield”, i.e. the inverse of the cyclically adjusted price/earnings ratio minus the real ten-year bond yield, continued to be high at present, meaning that investors had not necessarily lowered the premium they demanded for holding riskier assets. Nonetheless, a more sustained rise in real rates could rapidly lower the relative attractiveness of equities and thereby pose the risk of a more broad-based repricing. Such risks of price corrections were not evenly distributed across the equity universe. The distribution of the price/earnings ratio across firms in the EURO STOXX 50 index was currently much wider than it had been on average over the past 20 years, also reflecting that the recovery remained highly uneven. Credit markets had shown a similar resilience to the risk of higher rates. Corporate credit spreads in the euro area had continued to narrow marginally over the past few weeks. The arrival of vaccines and the recalibration of measures decided upon by the Governing Council in December 2020 had fostered a further compression of risk premia in this market segment to levels close to those prevailing before the COVID-19 pandemic. In foreign exchange markets, rising US government bond yields had interrupted the depreciation trend in the US dollar that had gained further momentum after the Governing Council’s previous monetary policy meeting. Since the Georgia run-off elections, the euro exchange rate versus the US dollar had dropped and had temporarily even fallen below the levels that had prevailed at the time of that monetary policy meeting. US real rates had been a key factor boosting global portfolio rebalancing and risk-taking. So to the extent that investors saw the risks surrounding these rates as increasingly skewed to the upside, an important driver behind recent exchange rate developments could lose steam. Taken together, the recent financial market developments had left a broad-based positive mark on financial conditions in the euro area. Sovereign real yields had dropped, spreads had remained resilient, stock prices and inflation expectations had risen, and the euro exchange rate versus the US dollar had reversed its appreciation trend. This was a strong vote of confidence in the Governing Council’s decision to focus on the duration of its policy support and on the preservation of favourable financing conditions to protect the current highly accommodative stance in an environment of continued high uncertainty. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area. As regards the external environment, the global recovery continued towards the end of the year, although the slight fall in the global composite output Purchasing Managers’ Index (PMI) to 53.5 in December signalled weakening momentum. Despite a surge in new COVID-19 infections, recent data and forecasts indicated an overall more optimistic outlook for global activity than previously expected, based on stronger economic growth in the United States, but also on strong economic data from China and the EU-UK trade deal. While the medium-term outlook was improving, rising COVID-19 cases and the resulting containment measures posed near-term headwinds to growth until vaccinations contained the pandemic, which was expected towards mid-2021. Compared with the first wave of COVID-19 infections and containment measures in the spring of 2020, services had been affected less in November and December. Trade developments had also been more resilient during the new wave of the pandemic. Oil prices had continued the recovery that started in spring 2020 and had increased by 15% since the Governing Council’s December monetary policy meeting to above USD 55 per barrel, driven by higher demand as well as some factors limiting supply. At the same time, the euro had appreciated slightly, amid some volatility, against the US dollar (0.2%), but had depreciated slightly in effective terms (-0.2%), while commodity prices for metals and food had risen sharply, supported by a strong rebound in commodity demand in the second half of 2020. Turning to the euro area, the more restrictive and extended lockdowns were weighing on the short-term growth outlook. The economic impact of the pandemic continued to affect services in particular, while manufacturing had remained resilient. According to the latest PMI data for December, activity in the services sector had continued to shrink, while manufacturing activity had continued to increase on the back of robust developments in global trade. The economic impact of the lockdowns seemed to have moderated compared with the first wave of the pandemic in spring 2020. According to the European Commission survey, confidence in the services sector was less subdued in most countries in the recent wave, likely reflecting the fact that the economy had adapted better to the restrictions. Fiscal transfers had continued to buffer euro area households’ disposable income in the second half of 2020, compensating for weak labour income. With many services unavailable during the lockdowns, consumers were forced to save, pushing up the household savings rate. In terms of the distribution, younger households were drawing more on their savings as their financial situation deteriorated, while older households were more able to save. Whether and when these savings would be used for consumption in the future was likely to affect the outlook for the euro area economy over the coming quarters. With regard to labour market developments, the euro area unemployment rate had stood at 8.3% in November 2020, 0.1 percentage points lower than in October. Labour demand remained weak overall and the job market was providing only limited opportunities for those looking for new jobs. At the same time, job retention schemes (especially short-time work schemes) had contained unemployment and helped to stabilise household incomes. Turning to nominal developments, HICP inflation and HICP inflation excluding food and energy (HICPX) remained at -0.3% and 0.2% respectively in December 2020. Euro area inflation had fallen from pre-pandemic levels of above 1% and had remained persistently negative since August 2020, owing to developments not only in energy prices, but also in goods and services prices. A broad range of measures of underlying inflation had moved sideways, with measures excluding volatile items and indirect tax changes declining less since the beginning of the pandemic. Most of the decline in non-energy industrial goods inflation could be attributed to the weakness in clothing and footwear inflation, which could be expected to be corrected to some extent after the pandemic. Negotiated wages had continued their broad sideways movement despite the large amounts of slack in the economy and the labour market, as many wage agreements had been concluded before the pandemic. Looking ahead, headline inflation was likely to turn positive again in January 2021, and to increase further over the course of the year, with the phasing-out of the temporary cut in the German value-added tax (VAT) rate from January 2021 being one factor. HICP weights were expected to change substantially in 2021 as a result of the changes in consumption patterns during the pandemic, adding to the already elevated uncertainty surrounding the inflation outlook. According to the Survey of Professional Forecasters (SPF) for the first quarter of 2021, inflation expectations were broadly unchanged. HICP inflation was expected to stand at 0.9% in 2021, 1.3% in 2022 and 1.5% in 2023. Looking further ahead, the SPF continued to expect headline inflation five years ahead to reach 1.7%. Market-based measures of longer-term inflation expectations had increased and the odds of very low inflation had declined. Reviewing the latest developments in euro area financial conditions, the path of risk-free rates suggested that rate cut expectations were largely absent and long-term risk-free rates had increased. Risk assets had been stable and stood close to their pre-crisis levels. Turning to money and credit developments, money growth had been buoyant, with the annual growth of M3 increasing from 10.5% in October 2020 to 11.0% in November. Eurosystem asset purchases remained the main source of money creation, while the contribution of bank credit to the private sector had continued to moderate. The annual growth of loans to euro area non-financial corporations was still affected by the strong expansion of loans in the spring of 2020 and was broadly unchanged at 6.9% in November, while short-term loan dynamics had continued to weaken, driven by both demand factors and supply factors. The annual growth of loans to euro area households had remained broadly unchanged at 3.1% in November. Based on the January 2021 bank lending survey (BLS) for the euro area, credit standards for loans to firms had tightened in the fourth quarter of 2020, driven by banks’ heightened risk perceptions and concerns about borrowers’ creditworthiness. Banks expected a further tightening of credit standards for firms in the first quarter of 2021, reflecting continued uncertainty about the development of the pandemic and its effects on the credit risk of borrowers. Credit standards for loans to households for house purchase had continued to tighten in the fourth quarter of 2020, but less so than in the previous two quarters. Nominal costs of debt financing for non-financial corporations had been broadly unchanged in December, at historically low levels. Turning to fiscal policies, the fiscal support planned for 2021 was sizeable, but would possibly be extended depending on the development of the pandemic against the background of strengthened and extended COVID-19-related restrictions. From 2021 the Next Generation EU (NGEU) package was expected to provide a strong contribution, particularly to public investment, if ambitious government plans were fulfilled. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the launch of vaccination campaigns across the euro area was an important milestone in the resolution of the ongoing health crisis. However, the near-term outlook was challenging on account of the renewed surge in infections, the emergence of virus mutations and the more restrictive containment measures imposed in many euro area countries over the past few months. The high-frequency data and incoming survey indicators for the fourth quarter of 2020 and the initial weeks of 2021 signalled a significant weakening in the services sector, albeit to a lesser degree than during the first wave of the pandemic in spring 2020. Activity in the manufacturing sector had continued its recovery, supported by foreign demand. Output was likely to have contracted in the fourth quarter of 2020 and the intensification of the pandemic posed some downside risks to output in the first quarter of 2021. Looking beyond the first quarter, there were reasons for cautious optimism about the prospect of a recovery in the course of 2021. In addition to the roll-out of vaccination campaigns, there were signs of an improvement in the global economic outlook. Furthermore, the EU-UK trade deal was a positive development compared with the December 2020 Eurosystem staff macroeconomic projections. At the same time, uncertainty remained high, especially relating to the dynamics of the pandemic and the timely implementation of vaccination campaigns. Inflation remained subdued amid weak demand and significant slack in labour and product markets, with HICP and HICPX inflation unchanged in December at -0.3% and 0.2% respectively. Although headline inflation was likely to increase in the coming months on the basis of current energy price dynamics and supported in part by the end of the temporary VAT reduction in Germany, underlying price pressures were expected to remain muted owing to weak demand – notably in the tourism and travel-related sectors – as well as to low wage pressures and the appreciation of the euro. Survey-based measures and market-based indicators of longer-term inflation expectations remained at low levels, although there had been a slight pick-up in market-based indicators of inflation expectations. Financial market sentiment had remained positive, underpinned by ample fiscal and monetary policy support and amid global reflation hopes that had been fuelled by expectations of substantial US fiscal stimulus. In currency markets, developments in the euro exchange rate should continue to be monitored with regard to their possible implications for the medium-term inflation outlook. In broad terms, financing conditions in the euro area were generally supportive for both the bond market and bank lending. Nonetheless, it was important to monitor the recent increase in nominal risk-free rates, which could be attributed to the spillover from the more substantial increase in US yields. Looking ahead, assessing the impact of upward pressure on nominal yields on the favourability of financing conditions would be an important task in the context of future updates to the inflation outlook. In assessing the favourability of financing conditions, it would also be important to bear in mind the continued net tightening of credit standards that had been reported in the January BLS. Ample monetary policy support remained essential. The comprehensive policy package announced in December would contribute to preserving favourable financing conditions over the pandemic period. This would help to reduce uncertainty and bolster confidence, encouraging consumer spending and business investment, underpinning economic activity and safeguarding medium-term price stability. Overall, the risks surrounding the euro area growth outlook remained tilted to the downside but had become less pronounced. The news about the global economy, the agreement on future EU-UK relations and the launch of vaccination campaigns was encouraging. However, the ongoing pandemic and its implications for economic and financial conditions continued to be sources of downside risk. Against this background, Mr Lane proposed that the Governing Council should reconfirm its existing monetary policy measures. In its communication, the Governing Council needed to: (i) highlight that the incoming data confirmed the December baseline assessment of a pronounced near-term impact of the pandemic on the economy and a protracted weakness in inflation; (ii) emphasise that ample monetary stimulus remained essential to preserve favourable financing conditions over the pandemic period for all sectors of the economy; (iii) stress that this would help to reduce uncertainty and bolster confidence, which would encourage consumer spending and business investment, underpin economic activity and safeguard medium-term price stability; (iv) reiterate that it would purchase flexibly under the PEPP, according to market conditions and with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation; and (v) reiterate that it continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with the commitment to symmetry. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks to activity provided by Mr Lane in his introduction. Overall, the incoming data confirmed the previous baseline assessment of a pronounced near-term impact of the pandemic on the economy and a protracted weakness in inflation. As regards the external environment, members also broadly shared the assessment provided by Mr Lane in his introduction, that there were signs of an improvement in the global economic outlook. In particular, attention was drawn to positive news on the evolution of trade and growth in China and other Asian economies; to the additional US fiscal stimulus package and the final results of the US elections, which could lead to substantial further fiscal stimulus; and to the successful conclusion of an EU-UK trade agreement. On the geopolitical front, it appeared that there was less uncertainty on the whole. At the same time, the pandemic and the ongoing public health crisis continued to pose serious risks to the global economy. Turning to euro area developments, following a sharp contraction in the first half of 2020 euro area real GDP had rebounded strongly, rising by 12.4%, quarter on quarter, in the third quarter, although remaining well below pre-pandemic levels. Members considered that incoming economic data, surveys and high-frequency indicators suggested that the resurgence of the pandemic and the associated intensification of containment measures had likely led to a decline in activity in the fourth quarter of 2020, although this was less pronounced than had been envisaged in the December 2020 Eurosystem staff macroeconomic projections. Conversely, the recent intensification of the pandemic was expected to weigh more heavily on activity in the first quarter of 2021 than had been foreseen earlier. However, taking the two quarters together, developments remained broadly in line with the December baseline projection overall. It was also recalled that an extension of the containment measures beyond the fourth quarter of 2020 had been incorporated into the December staff projections. However, it was highlighted that in response to the increase in cases of infection further measures had been taken, or had been announced, in many euro area countries, which had led to tighter restrictions than had been anticipated in the December projections. Moreover, it was argued that the fast rebound in growth foreseen in the December staff projections might be too optimistic, with growth in the second quarter of 2021 possibly at risk from extended lockdowns. In addition, vaccination roll-outs were proving to be slow and concern was also expressed about the possible impact of the spread of new, more virulent, mutations of the virus, which had proliferated following the December holiday period. At the same time, it was noted that the economic costs of containment measures were now lower than in spring 2020, as the measures were more targeted and firms had learned to better adjust to the restrictions. In addition, it was emphasised that although containment measures were stricter, governments were also providing more fiscal support, which would cushion the short-term impact of tighter restrictions. While the delay in the vaccination roll-outs relative to earlier expectations was likely to contribute to longer-lasting restrictions, this could be attributed mainly to logistics and was seen as affecting the time frame, rather than changing the picture substantially. It was underlined that economic developments continued to be uneven across sectors, with the services sector being more adversely affected by the new restrictions on social interaction and mobility than the industrial sector. There was also heterogeneity across euro area countries. Although fiscal policy measures were continuing to support households and firms, consumers were seen as remaining cautious in the light of the pandemic and its impact on employment and earnings. However, reference was also made to the high level of accumulated household savings and the potential pent-up demand, which would contribute to a swift rebound in consumption once containment measures were eased. At the same time, weaker corporate balance sheets and uncertainty about the economic outlook were seen to be still weighing on business investment. Members highlighted the dichotomy between risks to the short-term outlook and more positive developments in the medium term. The roll-out of vaccines, which had started in late December, allowed for greater confidence in the resolution of the health crisis. However, it would take time until widespread immunity was achieved, and further setbacks related to the pandemic could not be ruled out. So far the improvement in the macroeconomic outlook appeared to be driven more by external factors than by domestic factors, which was beneficial for the euro area as an open economy, particularly for the manufacturing sector. Looking ahead, the recovery of the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures were lifted and uncertainty receded. However, reference was also made in the discussion to the continued risk of a cliff-edge effect from a premature removal of fiscal stimulus as well as from weaker corporate and banking sector balance sheets, given the risk of a surge in corporate insolvencies and non-performing loans. Overall, members assessed that the risks surrounding the euro area growth outlook remained tilted to the downside but had become less pronounced compared with the situation in the autumn prior to the news on vaccines. Improved prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns were encouraging, but the ongoing pandemic and its implications for economic and financial conditions continued to be sources of downside risk. Regarding fiscal policies, an ambitious and coordinated fiscal stance was seen as remaining critical, in view of the sharp contraction in the euro area economy. To this end, continued support from national fiscal policies was warranted, given weak demand from firms and households related to the worsening of the pandemic and the intensification of containment measures. At the same time, it was emphasised that fiscal measures taken in response to the pandemic emergency should, as much as possible, remain targeted and temporary in nature. There was also concern that although European leaders had agreed to deliver the largest support package ever financed by the EU budget, progress on implementation was slow and challenging. The key role of the Next Generation EU package was underlined, as was the importance of it becoming operational without delay. Member States were called upon to accelerate the ratification process, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby also supporting the effectiveness of monetary policy in the euro area. Such structural policies were particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Euro area annual inflation had remained unchanged at -0.3% in December. On the basis of current energy price dynamics, headline inflation was likely to increase in the coming months, in part supported by the end of the temporary VAT reduction in Germany. However, underlying price pressures were expected to remain subdued owing to weak demand, notably in the tourism and travel-related sectors, as well as to low wage pressures and the appreciation of the euro. Once the impact of the pandemic had faded, a recovery in demand, supported by accommodative fiscal and monetary policies, would put upward pressure on inflation over the medium term. Survey-based measures and market-based indicators of longer-term inflation expectations remained at low levels, although market-based indicators of inflation expectations had increased slightly. In discussing recent inflation developments, members agreed that, while broadly in line with the December 2020 staff projections, headline inflation was at a very low level and in December underlying inflation had reached a historical low. Although stronger global demand and higher commodity prices would help to push up inflation, price pressures generally remained subdued so that achieving a robust convergence to the ECB’s medium-term inflation aim remained a challenge, with favourable developments for the economy and inflation all being contingent on progress in curbing the spread of the pandemic. It was emphasised that the medium-term outlook for inflation was surrounded by a high level of uncertainty, given the unprecedented pandemic situation and long-standing questions about changes in the underlying determinants of inflation. This elevated uncertainty was related not only to the strength of the post-pandemic economic recovery, but also to the relative importance of demand versus supply factors in different sectors of the economy and to questions about the strength of pass-through from financing conditions to inflation. In addition, there continued to be acute measurement issues related to the relevant weights in the price indices during the pandemic period. The projected gradual recovery in inflation in the baseline scenario was seen to remain broadly valid, but it was highlighted that inflation was only projected to be 1.4% in 2023. At the same time, there appeared to be little risk of deflation at this juncture, with inflation expected to rise in the short term owing to higher energy prices and the reversal of a temporary tax reduction in one jurisdiction, together with the rapid recovery in activity expected after restrictions were lifted. It could also not be ruled out that in the course of 2021 inflation dynamics might be stronger than foreseen in the projections, at least temporarily, in the light of global developments and especially if there was a stronger than expected rebound in activity in the second half of the year. The point was made, however, that such a temporary boost to inflation should not be mistaken for a sustained increase, which was still likely to emerge only slowly. Members reviewed the latest exchange rate developments, noting that the recent persistent trend appreciation of the euro had reversed since the start of 2021. Possible adverse implications of a further appreciation of the euro for the inflation outlook were reiterated. It was noted that the nominal effective exchange rate was at a historically high level and had already had a negative impact on inflation, although it was also highlighted that the impact of exchange rate movements on inflation might be overestimated in standard models. Regarding recent developments in inflation expectations members noted that, according to the ECB’s latest SPF, longer-term inflation expectations were unchanged, at 1.7%, while market-based indicators of inflation expectations had increased. The five-year forward inflation-linked swap rate five years ahead now stood at 1.32%, i.e. back at pre-pandemic levels. It was regarded as positive that the pandemic had barely affected longer-term inflation expectations and, given the adaptive nature of inflation expectations, it was argued that an increase in inflation could have a positive impact on inflation expectations in the future. It was also noted, however, that the increase in market-based measures in the euro area was mainly due to global factors. Turning to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction. The annual growth rates of broad money (M3) and narrow money (M1) had been high in November, at 11.0% and 14.5%, respectively. It was highlighted that recent money growth had been mainly due to the Eurosystem’s ongoing asset purchases, with monetary dynamics therefore driven more by developments on the asset side than on the liability side of the Eurosystem balance sheet. Attention was drawn to the recent developments in loans to the private sector, which had been characterised by moderate lending to non-financial corporations and resilient lending to households. It was noted that, at 6.9%, the annual growth rate of lending to non-financial corporations appeared robust. However, this was mainly reflecting the very strong increase in lending in the first half of the year while the monthly lending flows had moderated since the end of the summer, which could translate into weak investment dynamics over time. However, it was also argued that firms had built up sizeable precautionary buffers and the recent slowdown in credit should not be interpreted as the start of a financial amplification cycle. At the same time, concerns were expressed about a possible deterioration in firms’ financial positions looking ahead, as and when public support measures were phased out. Views were exchanged on the interpretation of the results of the bank lending survey (BLS) for the fourth quarter of 2020, which reported a continued net tightening of credit standards on loans to firms. This tightening was mainly driven by heightened risk perceptions among banks, in a context of continued uncertainty about the economic recovery and concerns about borrower creditworthiness. It was underlined that in the perception of banks the recession seemed to be harming the creditworthiness of non-financial companies, as crisis-related bankruptcies could trigger a surge in non-performing loans (NPLs) when payment holidays and moratoria expired. On the one hand, it was argued that the results of the BLS warranted careful monitoring as they could signal a further tightening ahead with corresponding negative consequences for credit flows and economic activity. In addition, the results highlighted the role of structural weaknesses in the euro area banking sector, such as overcapacity, high NPLs, low profitability and slow progress on digitalisation. On the other hand, it was recalled that reported credit standards had tightened much less than in previous crisis episodes, while state-guaranteed loans had led to a significant relaxation of credit standards in the second quarter and the recent tightening thus could be interpreted as a return to more normal conditions. Monetary policy stance and policy considerations Members took note of the assessments of financial and financing conditions provided by Ms Schnabel and Mr Lane in their introductions, which had remained favourable since the Governing Council’s meeting in December, also on account of the ECB’s recalibrated monetary policy package, which had been well received by financial markets. Financial markets had remained calm, with several standard indicators of financial conditions signalling a degree of accommodation comparable to, or higher than, that prevailing at the start of the pandemic. Although euro area risk-free rates had risen slightly since the December meeting, sovereign and credit spreads had been resilient, bond market conditions had remained favourable – also for corporate bonds – and bank lending rates were close to their historical lows for both households and firms. When taking the increase in market-based inflation expectations into account, real yields were at historical lows. It was observed that expectations of substantial US fiscal support had led to a steepening of the US Treasury yield curve, which had only affected yields in the euro area to a limited extent, as a significant “decoupling” of yields could be observed. Moreover, euro area stock prices had increased further since the December meeting, while the euro exchange rate was broadly stable amid some volatility. It was noted that staff analysis suggested that recent exchange rate developments had been driven less by policy shocks and more by global risk sentiment. Concerns were voiced, however, over developments in the exchange rate that might have negative implications for euro area financial conditions and, ultimately, consequences for the inflation outlook. Members agreed that ample monetary stimulus remained essential to preserve favourable financing conditions over the pandemic period. Overall, the monetary policy stance was assessed to have remained very accommodative and to have helped preserve the favourable financing conditions that were necessary to counter the downward impact of the pandemic on the projected path of inflation. Recent financial market developments confirmed that the Governing Council’s decision to focus on the extended duration of the pandemic emergency measures, the preservation of favourable financing conditions and the flexibility of the PEPP had so far proven effective. The view was held that favourable financing conditions needed to prevail for some time in order to provide continued support to the flow of credit to all sectors of the economy and to counter possible macro-financial amplification effects. Against this background it was recalled that the projected path of inflation in the December Eurosystem staff macroeconomic projections continued to be distant from the Governing Council’s medium-term inflation aim. While the December package had been calibrated with the objective to counter the downward impact of the pandemic on the projected path of inflation, the view was held that the Governing Council should allow real interest rates to decline if financing conditions eased on account of an increase in inflation expectations. As the inflation outlook was falling significantly short of the Governing Council’s aim, lower real yields would provide additional support for a faster return to price stability. At the same time, it was maintained that not every increase in nominal yields should be interpreted as an unwarranted tightening of financing conditions and trigger a corresponding policy response. It was noted that nominal yields were not an appropriate benchmark for assessing whether financing conditions remained favourable, as they could rise because of a better economic outlook and higher inflation expectations. What mattered from a monetary policy perspective was the evolution of real rates, which had declined to record low levels in recent weeks. Overall, it was widely felt that the recalibration of instruments decided on in December remained appropriate and well-balanced, while all instruments needed to remain on the table, with due consideration of benefits and possible unintended side effects. It was also emphasised that a holistic approach was needed when defining the relevant range of financing conditions to be targeted in a broad and flexible manner, for all sectors of the economy, private and public. It should also comprise bank lending rates, as well as credit volumes and conditions for households and firms, take into account economic and market developments, and ultimately be anchored in the medium-term outlook for price stability. All members agreed with Mr Lane’s proposal to reconfirm the existing monetary policy measures. It was argued that monetary policy should keep a steady hand and that the measures that were put in place in December should be given time to take full effect. Moreover, the economic outlook was judged to be evolving broadly in line with the December Eurosystem staff projections, and the present configuration of monetary policy tools was deemed supportive and flexible enough to address the current situation. Overall, members also widely agreed that there was no room for complacency and that the Governing Council had to continue to stand ready and use all of its instruments, as appropriate, to ensure a robust convergence of inflation towards its aim. Members agreed that the monetary measures in place, including those adopted since the onset of the pandemic, were effective and proportionate in supporting growth and inflation, and that the balance of the benefits and costs remained positive. The purchases under the PEPP contributed to preserving favourable financing conditions for all sectors, while the third series of targeted longer-term refinancing operations (TLTRO III) remained an attractive source of funding for banks, supporting bank lending to firms and households. The continued reinvestments of principal payments from maturing securities purchased under the PEPP and the asset purchase programme (APP) were enhancing favourable financing conditions by signalling a continued presence of the Eurosystem in the markets over the pandemic period and beyond. The purchases under the PEPP would continue to be conducted flexibly according to market conditions to preserve favourable financing conditions over the pandemic period with a view to countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. In this regard, the dual role of the PEPP was stressed. As regards communication, members broadly agreed with the elements proposed by Mr Lane in his introduction. On the one hand, it was deemed important to stress that the current inflation outlook remained disappointing with an inflation rate well below 2% in the baseline scenario. On the other hand, a balanced presentation of the outlook was called for, as some uncertainties regarding the international developments had been resolved in a more positive way than expected. In this context, it had to be emphasised that the measures put in place were appropriate in view of the current outlook but were also designed to react flexibly and equally to either potentially less favourable developments or upside surprises. It was seen as essential to convey that the Governing Council was committed to maintaining a steady presence in the markets to ensure favourable financing conditions. Moreover, the point was made that the Governing Council needed to stress that there was no room for complacency. It was also felt that the Governing Council should reiterate its vigilance with regard to developments in the exchange rate and their implications for the inflation outlook. In addition, the Governing Council needed to state that it continued to stand ready to adjust all of its instruments, including the deposit facility rate (DFR), as appropriate, to ensure that inflation moved toward its aim in a sustained manner. Finally, in view of the sharp contraction of the euro area economy it was deemed important for the Governing Council to emphasise the need for continued and ambitious fiscal policies to support the recovery. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council decided to reconfirm its very accommodative monetary policy stance. First, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Second, the Governing Council would continue the purchases under the PEPP with a total envelope of €1,850 billion. The Governing Council would conduct net asset purchases under the PEPP until at least the end of March 2022 and, in any case, until it judged that the coronavirus crisis phase was over. The purchases under the PEPP would be conducted to preserve favourable financing conditions over the pandemic period. If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. The Governing Council would continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Third, net purchases under the APP would continue at a monthly pace of €20 billion. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council also intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Finally, the Governing Council would continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remained an attractive source of funding for banks, supporting bank lending to firms and households. The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 21 January 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 20-21 January 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou * Mr Holzmann Mr Kazāks * Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Stournaras * Mr Vasiliauskas Mr Vasle Mr Villeroy de Galhau Mr Visco * Mr Weidmann Mr Wunsch * Members not holding a voting right in January 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Ódor Mr Pattipeilohy Ms Phelan Mr Rutkaste Mr Tavlas Mr Välimäki Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Sousa, Deputy Director General Economics Mr Rostagno, Director General Monetary Policy Release of the next monetary policy account foreseen on Thursday, Thursday, 8 April 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 10-11 March 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 10-11 March 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 20-21 January 2021. Sovereign yield curves across advanced economies had steepened, while new coronavirus (COVID-19) cases had fallen, the pace of vaccination had accelerated and a large fiscal stimulus programme in the United States was expected to be soon put into law. The measurable rise in commodity prices had added to upward pressure on long-term nominal bond yields. The increase in long-term bond yields had been more muted in the euro area than in other advanced economies. The euro area GDP-weighted yield curve remained considerably flatter than throughout most of the years preceding the COVID-19 pandemic and it had largely the same shape and location as observed just before the outbreak of the pandemic. Moreover, sovereign spreads had remained resilient, even narrowing in some jurisdictions. Accordingly, the increase in yields reflected primarily a rise in the euro area risk-free rate. A decomposition of the ten-year overnight index swap rate indicated that investors had hardly changed their views on the expected future path of short-term rates. Recent yield increases had instead reflected, by and large, rising term premia. As the increase in term premia coincided with a notable rise in inflation swap rates, it was likely that the inflation risk premium had become larger as investors had started reappraising the balance of risk around the inflation outlook. An increase in the inflation risk premium at the current juncture suggested that investors no longer only saw downside risks around the future inflation outlook as they had done for most of 2020. Real ten-year risk-free interest rates had fluctuated over time but had fallen back close to the levels prevailing around the 9-10 December 2020 Governing Council meeting. They were currently some 120 basis points below their average since 2008. Real short and medium-term rates had been insulated from the recent bond market sell-off and had continued to hit new historical lows in recent weeks. Credit markets had remained resilient to the increase in bond market volatility and in risk-free rates, which suggested that investors remained fundamentally positioned for higher growth. Credit spreads across all rating classes, and in particular for high-yield bonds, had continued to narrow over the past few weeks supported by a visible recovery in realised earnings. Changes in the corporate default outlook mirrored expectations of a significantly improved growth outlook, contributing to favourable valuations in credit markets. In stock markets, the EURO STOXX 50 index had further extended its gains, gradually approaching pre-pandemic levels. ECB staff analysis suggested that the rise in risk-free rates and the deterioration in the short-term earnings outlook due to the prolongation of containment measures had pulled stock prices lower in recent weeks. However, the combination of better long-term earnings expectations on the back of vaccination roll-outs and the associated improvement in risk sentiment had more than offset this drag on stock prices. Yet, in some economies, the rise in risk-free rates had increased risks to asset valuations, which remained predicated on expectations of an extended period of low interest rates. Developments in emerging markets provided further evidence of investors so far having been able and willing to absorb the rise in risk-free rates. In February, portfolio inflows into emerging markets had continued at a robust pace, although they had started to reverse during the week ahead of the current meeting. Finally, in foreign exchange markets, expectations of higher US growth and a less accommodative US monetary policy had put upward pressure on the nominal effective exchange rate of the US dollar and also on the US dollar exchange rate against the euro. At the same time, risk sentiment continued to put some downward pressure on the US dollar on the back of hopes that a resolution of the pandemic and spillover effects from US fiscal policy would kick start and nurture a strong global cyclical upswing. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. As regards the external environment, there was an upgrade of the outlook as a result of a combination of ongoing vaccinations, learning effects on how to live with the pandemic and the additional fiscal stimulus in the United States. In the March 2021 ECB staff macroeconomic projections for the euro area, global activity and trade had been revised up over the projection horizon after the global economy bounced back during the second half of 2020 at a faster pace than envisaged. Based on the latest Purchasing Managers’ Index (PMI), output in services had particularly improved of late. Global trade was not yet back to pre-crisis levels and the pace of trade expansion had stalled at the turn of the year, with trade in services continuing to be a drag on overall trade owing to limitations on travel and tourism. Since the Governing Council’s January monetary policy meeting, oil prices had risen by 23% and had climbed to USD 67.8 per barrel, close to pre-pandemic levels. In terms of the exchange rate, the euro had depreciated against the US dollar (-2.0%) but remained broadly stable in nominal effective terms (-0.3%). Turning to the euro area economy, growth in the last quarter of 2020 had been stronger than expected, but the ongoing restrictions would have a negative impact on growth in the first quarter – and perhaps also the second quarter – of 2021. Based on the March 2021 staff projections, real GDP would recover to exceed its pre-crisis level (of the fourth quarter of 2019) in the second quarter of 2022 and continue to increase at a robust rate thereafter. However, the recovery was expected to vary across the different GDP components and to rely quite heavily on fiscal support over the next two years. Zooming in on the latest economic developments, containment measures had had to remain stricter in the first quarter of 2021 than previously expected, holding back the near-term recovery but not really changing the overall path. Based on the latest PMIs for February, the divergence in manufacturing and services growth dynamics was expected to continue. Household savings continued to mirror pandemic-driven consumption dynamics. Savings seemed to have been accumulated mostly by older households, who typically had a lower propensity to consume out of income and wealth. They were therefore less likely to spend their savings as soon as lockdown measures were relaxed. By contrast, the younger population had seen a bigger deterioration in their financial situation, with low-skilled services and jobs particularly hit by the pandemic. Linked to recent delays in vaccination campaigns, households expected normal activities to resume with some delay. Investment remained quite resilient overall. Data for the production of capital goods gave encouraging signals about ongoing business investment. The resilience in capital goods production was also supported by foreign demand. Housing investment was expected to remain subdued in the near term. Trade had weakened at the turn of the year, driven mainly by weak intra-euro area exports, notwithstanding continued growth in extra-euro area exports. Leading indicators for manufacturing exports had continued to rise based on improvements in both shipping and survey indicators available for February. Labour markets remained resilient on the back of strong fiscal support but some indicators pointed to vulnerabilities further ahead. Overall, survey indicators of employment perceptions had risen somewhat, indicating an expansion for the first time since the onset of the pandemic, but developments remained uneven across countries and sectors. The low-tech services sectors were those most adversely affected by the second and third waves of the pandemic. With the tightened restrictions, the importance of job retention schemes had increased again in recent months. Turning to nominal developments, the short-term inflation outlook for 2021 had been revised up in the March 2021 ECB staff projections, while the inflation path embedded in the December 2020 Eurosystem staff projections was broadly confirmed for the outer years of the projection horizon. The projected profile of inflation in the Harmonised Index of Consumer Prices (HICP) was quite volatile, mainly as a result of energy prices. HICP inflation was expected to jump from 0.3% in 2020 to 1.5% in 2021, before falling back to 1.2% in 2022, and to increase again to 1.4% in 2023. The profile for HICP inflation excluding energy and food (HICPX) had shifted up somewhat, showing a gradual increase from 0.7% in 2020 to 1.3% in 2023. Zooming in on recent developments, headline inflation had increased sharply to stand at 0.9% in January and February, after four consecutive months at -0.3%. The unchanged rate in February 2021 was the result of less negative energy inflation being offset by a decline in HICPX inflation to 1.1% in February (from 1.4% in January), which was substantially higher than the 0.2% recorded in the last four months of 2020. The recent upswing in headline inflation reflected a number of factors, including less negative energy inflation, the end of the temporary VAT rate reduction in Germany, changes in sales patterns (timing and volumes) in some countries and the stronger than usual changes in HICP weights for 2021. Linked to the tightening of containment measures, the share of price imputations in the HICP increased further in January. The overall impact of price imputations on the change in HICP inflation remained unclear, adding to the high uncertainty as to whether the recent pick-up in inflation signalled genuinely increasing price pressures. Key wage measures, based on national accounts data such as compensation per employee or compensation per hour, continued to be strongly affected by the effects of job retention schemes. Relatively strong growth in unit labour costs had continued to contribute positively to developments in the GDP deflator, counterbalancing the effects of lower contributions from profit margins. As a result, the GDP deflator had risen slightly from 1.0% in the third quarter to 1.1% in the fourth quarter of 2020. As regards inflation expectations, the ECB’s Survey of Professional Forecasters (SPF) for the first quarter of 2021 had recorded an upward revision of short and medium-term inflation expectations, while longer-term inflation expectations had increased only very slightly. Market-based measures of inflation expectations stood somewhat above the levels observed around the Governing Council’s January monetary policy meeting, with the five-year forward inflation-linked swap rate five years ahead standing at 1.42% on 8 March 2021, compared with 1.32% on 19 January. Turning to financial conditions in the euro area, there had been an increase in nominal government bond yields at the long end of the curve, an improvement in risk attitude, an increase in inflation-linked swap rates, a decline in sovereign bond risk premia and a slight depreciation of the euro. The sell-off in bond markets had been synchronised and broad-based across major advanced economies, pointing to an important global factor. Looking at corporate bond markets, default rates of high-yield issuers remained much lower than in past crisis episodes. Short-term earnings expectations had deteriorated across almost all sectors since the January monetary policy meeting. Indices of financial conditions assign different weights to developments in financial markets and their respective signals could therefore differ somewhat. While increases in long-term yields signalled some tightening in conditions, the strong stock market and the slight depreciation of the euro pointed to a loosening. Regarding monetary developments, money growth continued to be strong − with broad money (M3) growing at an annual rate of 12.5% to January 2021 − amid a large footprint of Eurosystem asset purchases, which remained the largest source of money creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth. Short-term monetary dynamics also remained strong. The monthly flow of January was weaker and largely driven by more volatile components. Growth in bank loans to non-financial corporations continued to moderate across countries, as reflected in monthly flows. The slowdown in the growth of lending reflected firms’ substantial liquidity buffers but also the continued postponement of fixed investment and a perceived tightening of credit standards. Bank lending rates to firms remained close to historical lows, reflecting the continued pass-through of recent monetary policy accommodation. However, the decline in nominal rates in the euro area throughout 2020 had been counterbalanced by lower inflation expectations for much of this period, keeping real rates above pre-pandemic levels. Turning to fiscal policies, according to the March 2021 projections, the 2020 budget deficit was expected to be smaller than foreseen in the December 2020 projections due to better economic developments and less need for support than previously expected. As partly anticipated, a sizeable additional stimulus was foreseen for 2021 in response to new lockdown measures. Nonetheless, the budget balance was projected to improve over the forecast horizon – from a deficit of 7.2% in 2020 to a deficit of 2.4% in 2023. This reflected not only a fiscal pull-back stemming from the winding-down of pandemic-related measures but also the reaction of automatic stabilisers and improvements linked to low interest rates. Monetary policy considerations and policy options Summing up, Mr Lane noted that, while the overall economic situation would improve throughout 2021, uncertainty in the euro area remained high, owing in particular to the persistently high rates of COVID-19 infection, the spread of virus mutations and the speed of vaccination campaigns. While the rebound in global demand and additional fiscal support measures were supporting global and domestic activity, the near-term economic outlook remained challenging. Looking beyond the short-term weakness, euro area economic activity was expected to gain momentum in the course of the year. Over the medium term the recovery in the euro area economy should be supported by favourable financing conditions, an expansionary fiscal stance and a recovery in demand as containment measures were gradually lifted. Accordingly, the March 2021 staff projections foresaw growth rebounding to 4.0% in 2021 and to 4.1% in 2022, before stabilising at 2.1% in 2023. The risks surrounding the euro area growth outlook over the medium term had become more balanced, although downside risks remained in the near term. On the one hand, better prospects for the global economy, which had been bolstered by the sizeable fiscal stimulus, and progress in vaccination campaigns were encouraging. On the other hand, the ongoing pandemic – including the spread of virus mutations – and its implications for economic and financial conditions continued to be sources of downside risk. According to Eurostat’s flash estimate, headline inflation had risen sharply to 0.9% in January and February 2021 (from -0.3% in December 2020), mainly owing to an increase in energy price inflation and several idiosyncratic factors. At the same time, underlying price pressures remained subdued in the context of weak demand and significant slack in labour and product markets. Survey-based measures and market-based indicators of longer-term inflation expectations remained at low levels (compared with the Governing Council’s inflation aim), although the market-based indicators had continued to rise gradually. Looking ahead, inflation was expected to increase temporarily, reaching 2.0% towards the end of the year. The March 2021 staff projections foresaw HICP inflation averaging 1.5% in 2021, 1.2% in 2022 and 1.4% in 2023. The overriding theme in euro area and global financial markets had been the continued rise in longer-term risk-free interest rates and sovereign bond yields. In the overall context of a holistic and multifaceted approach to evaluating financing conditions (spanning the entire transmission chain of monetary policy), developments in risk-free interest rates and sovereign yields were particularly relevant. First, these market interest rates could be more directly influenced by the Governing Council’s monetary policy measures, notably its asset purchases. Second, risk-free rates and sovereign yields were leading indicators for financing conditions at the later stages of transmission. These were the key benchmark rates used in the pricing of other capital market instruments – such as corporate and bank bonds – as well as the pricing of bank loans to households and firms. It followed that shocks originating in the risk-free and sovereign bond markets tended to trickle down the transmission chain and influence downstream indicators of financing conditions with a lag. Accordingly, developments in risk-free interest rates and sovereign bond yields, which were measurable in real time, could give warnings about potential developments in the later stages of the transmission chain with a lag. In December, the Governing Council had pledged to preserve favourable financing conditions over the pandemic period and to prevent any tightening that was inconsistent with countering the negative pandemic shock to the projected inflation path. A sizeable and persistent rise in market interest rates that would prematurely tighten financing conditions for all sectors of the economy could challenge that commitment, especially in the context of a largely unchanged inflation outlook, as indicated by the March staff projections. Based on a joint assessment of the favourability of current financing conditions and the inflation outlook, Mr Lane proposed that net purchases under the pandemic emergency purchase programme (PEPP) over the next quarter be conducted at a significantly higher pace than during the first few months of the year. This fulfilled the Governing Council’s pledge to calibrate PEPP purchases, as appropriate, in order to preserve favourable financing conditions to help counter the negative pandemic shock to the projected path of inflation. The monthly purchase pace would continue to be implemented flexibly according to market conditions. The Governing Council should review the purchase pace on a quarterly basis at its monetary policy meetings, based on joint assessments of financing conditions and the inflation outlook. If conditions were such that favourable financing conditions (in the context of the inflation outlook) could be preserved with a slower pace of purchases, the Governing Council could scale down the pace. Likewise, the Governing Council could always scale up the pace of purchases if that was required to preserve favourable financing conditions. Furthermore, the flexibility of purchases over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. The proposed significant increase in the purchase pace under the PEPP constituted a proportionate response to the risks that rising market interest rates posed to broader financing conditions and, thus, ultimately to the price stability mandate. Sizeable and persistent shifts in market interest rates, if left unchecked, were likely to withdraw monetary stimulus prematurely at a time when preserving favourable financing conditions remained necessary to underpin economic activity and safeguard medium-term price stability. Flexibly implemented asset purchases were a suitable monetary policy instrument that remained more efficient than alternative tools for preserving favourable financing conditions in the current pandemic environment characterised by high uncertainty. Their benefits for achieving the ECB’s price stability mandate also clearly outweighed any potential negative effects on other economic policy domains. The Governing Council also needed to reiterate that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. This needed to be underlined in public communication, alongside restating the established forward guidance on the ECB’s key interest rates and asset purchase programmes. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks to economic activity provided by Mr Lane in his introduction. While the overall economic situation was seen to improve during 2021, uncertainty surrounding the near-term economic outlook remained, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns. The rebound in global demand and additional fiscal measures were supporting global and euro area activity, but persistently high COVID-19 infection rates, the spread of virus mutations and the associated extension and tightening of containment measures were weighing on euro area economic activity in the short term. Looking ahead, the ongoing vaccination campaigns, together with the envisaged gradual relaxation of containment measures, underpinned the expectation of a firm rebound in economic activity in the course of 2021. Inflation had picked up over recent months, mainly on account of some transitory factors and an increase in energy price inflation, but underlying price pressures remained subdued in the context of weak demand and significant slack in labour and product markets. As regards the external environment, members broadly shared Mr Lane’s assessment that the global economic recovery in 2020 had been faster than expected and that the outlook had improved in the context of ongoing vaccinations and learning effects on how to live with the pandemic. Attention was drawn to the fact that the additional US fiscal stimulus package (part of the Biden Administration’s American Rescue Plan – the so-called “Biden plan”) had not been factored into the March 2021 ECB staff projections, as the stimulus package had not been passed into legislation at the time the projections were finalised. This was seen to constitute an upside risk to the global and, consequently, euro area economic outlook as embedded in the staff projections. At the same time, the point was made that the impact of the Biden plan and the implications for the EUR/USD exchange rate depended on the type of open economy macro-model one had in mind and that spillovers were hard to quantify. Turning to euro area developments, real GDP had declined by 0.7% in the fourth quarter of 2020 following the strong rebound observed in the third quarter. Incoming economic data, surveys and high-frequency indicators pointed to continued economic weakness in the first quarter of 2021 driven by the persistence of the pandemic and the associated containment measures. As a result, real GDP was likely to contract again in the first quarter, but was then expected to rebound firmly in the course of the year. Overall, members generally agreed with the baseline view for economic growth in the March 2021 staff projections and noted that it was broadly unchanged from the December 2020 Eurosystem staff projections. However, some nuances were expressed. On the one hand, it was stressed that real GDP growth had been repeatedly underestimated in successive quarters over the past year, pointing to the economy being more resilient than expected. It was argued that, beyond the short term, there could be grounds for a more optimistic view than had been taken by ECB staff on the medium-term outlook if, for example, assumptions regarding the evolution of the saving ratio turned out to be too conservative. Other reasons for being more optimistic were the passing by the US Congress of the Biden plan, whose fiscal impulse would exert a positive effect on euro area economic growth, as shown in staff analysis, and stronger global trade and activity more broadly, together with greater confidence about the path beyond the pandemic emergency, compared with the situation in December. On the other hand, it was noted that, compared with the December projections, the higher level of activity going forward was essentially reflecting a carry-over effect from past outturns. It was also noted that the projection for the first quarter of 2021 had been revised down and largely offset the better than expected outcome for the fourth quarter of 2020. Some caution was expressed that real GDP growth in the first quarter could be weaker than foreseen in the March projections, even though this might then be offset by a correspondingly stronger rebound in subsequent quarters. Members underlined the uncertainty surrounding the near-term growth outlook. The baseline continued to depend on the evolution of the pandemic and while uncertainty had decreased, it still remained high. Reference was made to the slow pace of vaccination compared with other parts of the world. Questions were raised as to how realistic it was to assume that containment measures would be reduced as early as the second quarter and it was pointed out that, depending on the further evolution of the pandemic, weakness in activity might continue well into the second quarter and beyond. Some concern was expressed that the true situation of the business and household sectors would only become apparent once the government support and guarantee schemes in response to the pandemic were phased out. This related, in particular, to the risk of insolvencies and their impact on bank balance sheets. The potential emergence of financial amplification loops would then also affect the medium-term economic outlook. It was also recalled that economic developments continued to be uneven across economic sectors, as the containment measures affected the services sector more adversely than the manufacturing sector. With respect to the euro area household sector, reference was made to the assumption in the baseline of the staff projections that the saving ratio would gradually return to pre-crisis levels, but that there would be no substantial unwinding of the excess savings accumulated during the pandemic period. The point was made that this assumption might be too conservative and implied upside risks to growth if precautionary motives had played no significant role and the high amount of accumulated savings simply reflected a lack of spending opportunities. This pointed to considerable potential for pent-up demand being unleashed once containment measures were eased. At the same time, it was stressed that euro area countries were rather heterogeneous and that debt vulnerabilities, which to some extent predated the pandemic, had been exacerbated. Hence, it was conceivable that the saving ratio would remain higher than before, reflecting heightened caution and future deleveraging needs. Moreover, it was pointed out that there was still some risk that the unemployment rate would turn out to be higher than expected if jobs could not be preserved once the current job retention schemes expired. In their assessment of the balance of risks, members re-emphasised the dichotomy between continued elevated risks to the outlook in the short term and more positive developments in the medium term. While the degree of uncertainty was still high, it was seen to have lessened compared with at the time of the December projections. It was noted that financial market dynamics suggested a rather positive outlook. It was pointed out that some downside risks seen as prevailing in December had meanwhile been taken into account in a downward revision to growth in the first quarter of 2021 and that others had become smaller as the vaccination process had got under way. In addition, there were factors such as the Biden plan fiscal package which implied clear upside risks to the staff projections. Hence, while the pandemic continued to imply downside risks, the balance of risk was now shifting and becoming more balanced, or possibly even starting to shift to the upside, having been on the downside at the time of the Governing Council’s December monetary policy meeting and seen some improvement at the time of the 20-21 January meeting. Overall, members judged that the risks surrounding the euro area growth outlook over the medium term had become more balanced, although downside risks remained in the near term. On the one hand, better prospects for global demand, which had been bolstered by the sizeable fiscal stimulus, and the progress in vaccination campaigns were encouraging. On the other hand, the ongoing pandemic – including the spread of virus mutations – and its implications for economic and financial conditions continued to be sources of downside risk. Regarding fiscal policies, an ambitious and coordinated fiscal stance was still seen as critical in view of the sharp contraction in the euro area economy. To this end, continued support from national fiscal policies remained warranted given weak demand from firms and households due to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery. The key role of the Next Generation EU package and the importance of it becoming operational without delay were underlined. Member States were called upon to ensure a timely ratification of the Own Resources Decision, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. Such structural policies were particularly important in addressing long-standing structural and institutional weaknesses and in accelerating the green and digital transitions. Against this background, it was argued that in considering the fiscal stimulus in the United States, one should not overlook that more fiscal stimulus was in the pipeline also in euro area countries and that the disbursements of the Next Generation EU recovery fund were still to come. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Euro area annual HICP inflation had increased sharply, standing at 0.9% in January and February 2021 after -0.3% in December 2020. The upswing in headline inflation reflected a number of idiosyncratic factors, such as the end of the temporary VAT rate reduction in Germany, delayed sales periods in some euro area countries and the impact of the stronger than usual changes in HICP weights for 2021, as well as higher energy price inflation. On the basis of current oil futures prices, headline inflation was likely to increase further in the coming months, but some volatility was to be expected. These factors could be expected to fade out of annual inflation rates early next year. Underlying price pressures were expected to increase somewhat this year due to current supply constraints and the recovery in domestic demand, although pressures were expected to remain subdued overall, also reflecting low wage pressures and the past appreciation of the euro. Once the impact of the pandemic was fading, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, would contribute to a gradual increase in inflation over the medium term. According to the March 2021 ECB staff projections, the outlook for inflation had been revised up for 2021 and 2022, largely due to temporary factors and higher energy price inflation, while it was unchanged for 2023. While the projections foresaw a gradual increase in underlying inflation pressures, they confirmed that the medium-term inflation outlook remained broadly unchanged from the Eurosystem staff projections in December 2020 and below the Governing Council’s inflation aim. In discussing the inflation outlook, members generally agreed that the large upward surprise in the latest HICP data and the upward revision to headline inflation for 2021 in the March 2021 ECB staff projections were mainly due to temporary factors which could be expected to fade away. At the same time, it was observed that there had been a small upward surprise in the latest HICP data also after accounting for the temporary factors. It was highlighted that the medium-term outlook for headline inflation in the March 2021 ECB staff projections was broadly unchanged from the December 2020 Eurosystem staff projections and thus remained well below the Governing Council’s inflation aim and below the projections prevailing just before the onset of the pandemic. At the same time, it was recalled that spillovers from the Biden plan fiscal package to the euro area had not been taken into account in the current inflation projections, but would lead to an upward impact when doing so in subsequent projections. As regards inflation expectations, survey-based measures and market-based indicators of longer-term inflation expectations had remained at subdued levels, although the market-based indicators were continuing to rise gradually. It was noted that part of this upward trend might reflect “imported” inflation expectations from outside the euro area, but also that long-term inflation expectations had risen more strongly in the euro area than in the United States since the beginning of the year. Members also considered the implications that the expected temporary increase in headline inflation to around 2% later in 2021 could have on inflation expectations. On the one hand, it was suggested that there could be an upward impact if inflation expectations were backward looking. On the other hand, it was pointed out that economic agents would likely look through the temporary rise in inflation. However, it was also reported that contacts with businesses pointed to a perception of higher inflation in a context of spikes in commodity prices, supply bottlenecks and rising production costs. This warranted a close monitoring of producer price developments going forward. Turning to the monetary analysis, members concurred with the assessment provided by Mr Lane in his introduction. Strong money growth had continued to be supported by the ongoing asset purchases of the Eurosystem, which remained the largest source of money creation. Developments in loans to the private sector had been characterised by somewhat weaker lending to non-financial corporations and resilient lending to households. A question was raised regarding the information content of money growth for medium-term inflation at a time when secular forces still seemed to be holding down the natural rate of interest and the Phillips curve relationship appeared to have weakened. Attention was drawn to the potential consequences of the prolonged pandemic crisis for the liquidity and solvency of non-financial corporations, which could eventually result in higher defaults, especially when public support and moratoria expired. Reference was also made to the tightening of credit conditions expected by banks, according to the latest bank lending survey. The prospect of increasing non-performing loans in the banking sector bore a risk of creating financial amplification loops, which ultimately could also cloud the medium-term economic outlook and give rise to financial stability risks. Monetary policy stance and policy considerations With regard to the assessment of financial and financing conditions, there was broad agreement among members that financing conditions were to be assessed on the basis of a holistic and multifaceted set of indicators covering the entire chain of monetary policy transmission. Longer-term risk-free interest rates and sovereign bond yields in the euro area had increased since the Governing Council’s early December meeting. This reflected, in part, spillovers from US bond yield increases on the back of the expected US fiscal stimulus, as well as rising commodity prices and improved growth prospects globally, as new global COVID-19 infections had declined and vaccination campaigns were proceeding. Although a better economic outlook in the United States also entailed positive demand effects for the euro area, it was observed that the optimism prevailing on financial markets, reflected in “reflation trades”, seemed not to be shared by businesses and households, which had generally maintained a cautious stance. At the same time, the view was held that the increase observed in sovereign yields had remained contained and to some extent decoupled from developments in the United States. Moreover, financing conditions for the non-financial private sector had remained very favourable overall, also on account of ample monetary policy support. In this context, the important role of both the PEPP and the supportive communication by the President and Governing Council members were underlined, which had helped to dampen the increase in euro area yields and contributed to the partial decoupling in the face of the global bond market sell-off. It was also noted that these increases had taken place from very low levels and that other indicators of financing conditions, such as lending rates for non-financial companies and households, as well as sovereign spreads and credit spreads, remained highly accommodative. However, it was also argued that, while a holistic and multifaceted approach to assessing the favourability of financing conditions along the entire transmission chain of monetary policy was deemed appropriate, special attention needed to be paid to sovereign yields and risk-free interest rates, which played a key role for financing conditions at the later stages of the transmission chain. In this context, it was remarked that a rise in risk-free interest rates and GDP-weighted sovereign yields needed to be pronounced and persistent in order to exert a material impact on broader financing conditions. The role of the targeted longer-term refinancing operations, which could shield banks somewhat from possible increases in market-based funding costs, was also underlined. Members concurred with Mr Lane that ample monetary stimulus remained necessary to preserve favourable financing conditions over the pandemic period in order to ensure a sustained convergence of inflation towards the Governing Council’s aim. It was emphasised that the assessment of financing conditions and the inflation outlook had to be undertaken jointly and that the assessment of favourable financing conditions would have to evolve over time. The focus of the Governing Council’s December decisions had been on countering an unwarranted and premature tightening of financing conditions, rather than preserving any particular level. A possible misperception that the Governing Council was engaging in a form of implicit yield curve control had to be avoided. However, the view was also expressed that, as long as the medium-term inflation outlook remained unsatisfactory, the Governing Council needed to preserve financing conditions close to the favourable levels observed in December to bring inflation back to the projected pre-pandemic path. Any material tightening in financing conditions, irrespective of the underlying driver and origin, would delay the convergence of inflation to the Governing Council’s aim of below, but close to, 2% in the medium term. In this context, the view was held that the Governing Council had to look through the recent spike in inflation and focus instead on the continued shortfall of inflation from the Governing Council’s aim. However, the point was also made that the financing conditions that had prevailed in December 2020, as well as the pre-pandemic staff projections for inflation, could become less relevant over time in the light of other shocks that had occurred in the intervening period. Against this background, although the risks to the economic outlook for the euro area were becoming more balanced over the medium term, the recent tightening of financing conditions was generally seen as premature for the euro area, which was still in a weaker cyclical position than the United States. On the basis of the March staff projections, the euro area inflation and growth outlook had remained largely unchanged since the Governing Council’s December meeting. This was widely seen to call for a continuing high degree of accommodation. At the same time, it was underlined that, to assess the favourability of financing conditions, it was necessary to understand the underlying drivers of the rise in risk-free rates. Real yields in the euro area had not increased materially since December and had even declined at short maturities, indicating that the pick-up in nominal yields reflected almost entirely markets’ reappraisal of the inflation outlook. Moreover, it was argued that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia. In this context, a remark was made that assessing developments in real interest rates was subject to uncertainty as regards the measurement of the relevant inflation expectations. In view of the Governing Council’s commitment to maintaining favourable financing conditions, adopted at its early December meeting, there was broad consensus among members that the recent rises in risk-free rates and GDP-weighted sovereign yields required a scaling-up of the pace of purchases under the PEPP. Since longer-term sovereign yields figured prominently among the key variables used to evaluate financing conditions and were indicative of future changes in other components of financing conditions, a significant increase in the pace of PEPP purchases for the next three months was widely seen as warranted. All in all, members expressed broad support for Mr Lane’s proposal to conduct purchases under the PEPP over the next quarter at a significantly higher pace than during the first few months of the year. A significant increase in the purchase pace for the next three months was seen as warranted by the observed tightening of financing conditions and the lack of a material improvement in the growth and inflation outlook. The proposal was also deemed proportionate in the light of the ECB’s mandate, balancing increased optimism about the medium-term outlook against the considerable uncertainty that still prevailed in the shorter term. Consideration was given to the appropriate size of the increase in the pace of purchases. It was highlighted that, to give a clear message to markets on the Governing Council’s “reaction function”, the purchase volume needed to be increased significantly, as proposed by Mr Lane. This would send a strong signal that the Governing Council wanted to lean against the tightening of financing conditions. However, it was also argued that a more moderate increase in the pace would better reflect the assessment of more balanced risks to the outlook, also in the light of previous decisions when a similar pace had been chosen but economic conditions had been worse. Although risk-free rates and GDP-weighted sovereign bond yields had increased, it was observed that this had occurred mostly on account of higher expected inflation and a better outlook for the global economy. In this context, it was remarked that the Governing Council needed to avoid giving the impression of being overly focused on sovereign yields or reacting mechanically to a set of indicators of financing conditions. Moreover, the view was put forward that the tightening might not be sizeable and persistent enough to affect broader financing conditions materially. Overall, there was wide agreement that the purchase pace needed to take into account a joint assessment of the favourability of current financing conditions and the inflation outlook. Against this background, all members joined a broad consensus around the proposal put forward by Mr Lane, on the understanding that the total PEPP envelope was not being called into question in the current conditions and that the pace of purchases could be reduced in the future. In this context, the flexibility of purchases over time was seen as essential for reacting to changes in financing conditions as needed over time. The decision to accelerate the purchase pace significantly would show that the Governing Council was willing to use the flexibility of the programme, without changing the overall envelope or duration of the programme. The envelope could, however, be recalibrated if required in order to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. Equally, if favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. It was underlined that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions. Looking ahead, members agreed that the Governing Council would undertake a quarterly joint assessment of financing conditions and the inflation outlook in order to determine the pace of purchases needed to keep financing conditions favourable. At the same time, it was also deemed important that in the intervening period flexibility in the pace of purchases continued to be applied according to market conditions. As regards communication, it was seen as essential that the Governing Council reiterated its commitment to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. It was important to provide reassurance that the Governing Council would maintain an accommodative monetary policy for as long as necessary and saw no risk of overheating in the euro area in the present environment. Finally, in view of the sharp contraction of the euro area economy and the uneven recovery across sectors, it was deemed important to emphasise the need for continued support from fiscal policies to sustain the recovery. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the following monetary policy decisions. First, the Governing Council would continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judged that the coronavirus crisis phase was over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expected purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of the year. The Governing Council would purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. The Governing Council would continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Second, net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council also intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Third, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. Finally, the Governing Council would continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remained an attractive source of funding for banks, supporting bank lending to firms and households. The Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 11 March 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 10-11 March 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks * Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn Mr Reinesch * Ms Schnabel Mr Scicluna Mr Stournaras Mr Vasiliauskas * Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Weidmann * Mr Wunsch * Members not holding a voting right in March 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President ** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Friday, 14 May 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 21-22 April 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 21-22 April 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 10-11 March 2021. Euro area government bond yields had decoupled from US Treasury yields – which had continued to increase in the course of March 2021 before retreating somewhat in April – and had remained broadly unchanged since late February 2021. In part, this reflected the renewed rise in coronavirus (COVID-19) infections and the tightening of lockdowns in the euro area, which had affected near-term growth expectations. However, it also reflected the impact of the Governing Council’s monetary policy decisions in March and the preceding communication, convincing markets of the ECB’s determination to maintain favourable financing conditions. The ECB’s recent measures had been effective in shielding euro area long-term rates from spillovers, with regard to both the risk-free yield curve and sovereign spreads. A decomposition of the euro area ten-year overnight index swap rate into inflation and real components showed that nominal rates and their underlying components had remained broadly unchanged since the Governing Council’s previous monetary policy meeting. Since the start of 2021, the observed synchronised pick-up in market-based measures of longer-term inflation compensation across advanced economies likely reflected optimism regarding global growth. Model estimates suggested that the bulk of the increase in the inflation component was driven by inflation risk premia, and hence did not yet reflect a significant increase in investors’ genuine inflation expectations. In contrast to the inflation component, long-term real rates in the euro area had remained broadly unchanged since the start of 2021. This was also the case for medium-term real rates, which were particularly relevant for borrowing conditions for firms and which had remained at or close to historical lows throughout the recent global bond market sell-off. This suggested that the ECB’s measures had been effective in insulating not only longer-term sovereign bond yields but equally – or even more so – the short to medium end of the yield curve. In a similar vein, interest rate expectations over the next two years had remained unchanged since the Governing Council’s monetary policy meeting in January 2021. Markets were not pricing in any changes in the deposit facility rate until the first quarter of 2024. Rate expectations remained well anchored by the ECB’s forward guidance. Other asset prices served as a cross-check of the recent drivers of financing and financial conditions. Credit spreads across rating classes had remained stable, and had even decreased for high-yield bonds. The growth-driven nature of the bond market sell-off and the ECB’s accommodative monetary policy had thus kept a lid on corporate spreads. The optimism regarding global growth had also been the key driver of stock markets. Supported by the accelerating roll-out of vaccines, strong global economic data and the further improvement in longer-term earnings growth expectations, stock prices had rallied beyond pre-pandemic levels in the euro area. However, this development masked significant cross-country heterogeneity. An important driver of this was the sectoral composition of countries’ stock markets. Those with a large share of sectors that had benefited from the crisis had tended to outperform their peers during most of 2020, a trend that had reversed after the positive news on vaccines in November 2020. However, the surge in the prices of risky assets also created risks, with high equity price valuations being seen as dependent on continuing highly accommodative interest rates. One indicator was the equity duration, the inverse of the dividend yield, which stood at the highest level since the dot-com bubble in both the United States and the euro area. Overall, recent financial market developments had had a positive effect on financing and financial conditions in the euro area. Sovereign yields and spreads had remained compressed and stock prices had risen, while the euro exchange rate had appreciated only slightly. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. A new wave of infections had hit economies around the globe. At the same time, the world had been learning to live with the pandemic, so the impact on output was more limited than in the first wave in spring last year. Overall, there were positive signals for the global recovery, which remained investment-led, while consumption was lagging. The incoming data also pointed to a continued recovery in global trade, with goods trade surprising on the upside in January. Oil prices had remained essentially flat since the March monetary policy meeting. At the same time, the euro exchange rate, too, was basically flat, with the euro appreciating slightly both against the US dollar (1.2%) and in nominal effective terms (0.6%). In the euro area economy, headwinds resulted from lockdowns, especially for services, while investment dynamics were supportive. Short-term indicators pointed to a recovery starting in the second quarter of 2021. Focusing on the latest developments, large asymmetries between industry and services prevailed. Manufacturing Purchasing Managers’ Indices (PMIs) had been increasing for some time and showed very strong readings. There was also a strong recovery in services PMIs even though not quite into expansionary territory yet. Retail sales remained weak owing to new restrictions introduced to limit the spread of COVID-19. The high level of containment measures had continued to delay the recovery in consumption, as consumers, surveyed for example by the European Commission, remained cautious. Indicators for major purchases expected in the coming 12 months, business retail sales expectations and orders for consumer goods had all improved but remained below pre-pandemic levels. Meanwhile, private investment continued to recover. While growth in construction investment had remained muted in the final quarter of 2020, the forward-looking indicators were positive, with business expectations and construction confidence all ticking upwards. Growth in both extra- and intra-euro area goods exports had steadily recovered from the lows recorded in the second quarter of 2020. Tourism, which owing to the pandemic was the sector most affected in services trade, showed early signs of picking up. Labour market indicators continued to be heavily affected by government support programmes, which complicated the assessment of underlying developments. Unlike previous crises, the pandemic had disproportionately affected employment and average hours worked in “high-contact” market services sectors. Overall, the main labour market indicators were relatively stable, with the unemployment rate standing at 8.3% in February – broadly unchanged since November – despite the new wave of the pandemic and the associated lockdowns. However, high numbers of discouraged workers and people in job retention schemes pointed to continued vulnerabilities. Turning to nominal developments, headline inflation had increased to 1.3% in March, driven primarily by a strong further increase in energy price inflation, reflecting predominantly base effects but also recent oil price dynamics. Temporary and technical factors had continued to play an important role for inflation, although the impact from changes in expenditure weights had diminished. Focusing on the more persistent components of inflation, measures of underlying inflation continued to hover around levels seen in spring 2020 and did not provide a broad-based signal of a sustained pick-up. Furthermore, statistical issues linked to the effects of weights, tax changes and imputations continued to imply some uncertainty about the direction of underlying inflation. According to the latest ECB Survey of Professsional Forecasters for the second quarter of 2021, headline inflation expectations had been revised up for 2021, while medium and longer-term expectations were by and large stable. Meanwhile, market-based measures of long-term inflation expectations continued to increase, with the five-year forward inflation-linked swap rate five years ahead standing at 1.53% on 19 April 2021, which was 8 basis points higher than at the time of the March monetary policy meeting. Turning to financial conditions, long-term risk-free rates were broadly unchanged from the level prevailing at the time of the March meeting. Yield increases observed since the end of 2020 had been driven mainly by term premia and not by the expectations component. Equity and corporate bond markets were driven by expectations of an improving growth outlook. Overall, financial conditions remained broadly unchanged. Looking at policy rate expectations, the EONIA forward curve remained stable at the short end. With respect to monetary developments, annual M3 growth had declined marginally in February but remained at a high level (12.3%). Firms and households had continued to accumulate deposits at a pace similar to previous quarters. Looking at the sources of money creation, Eurosystem asset purchases and bank loans to the non-financial private sector in February had remained at levels comparable to those seen in the second half of 2020. While volumes of lending to firms had increased marginally in February, the annual growth rate of bank loans to firms remained high (at 7.1% in February) only because it was still affected by the very large flows observed between March and May 2020. Bank lending rates for firms remained close to their historical lows.. According to the latest euro area bank lending survey, banks saw a further decline in demand for loans to firms, which was mainly explained by weakness in demand for the financing of investment and the fading of financing needs for working capital, reflecting the availability of liquidity buffers and direct government support. A moderate net percentage of banks had indicated a further tightening of credit standards in the first quarter of 2021, following two quarters of significantly more pronounced tightening. However, the tightening by banks was less than had been expected in the previous quarter. Credit standards for loans to households for house purchase had eased slightly in the first quarter of 2021 after four quarters of continued tightening, supported by competition among lenders. With respect to fiscal policy, some countries had recently scaled up fiscal support in response to lockdown extensions. Across euro area countries, fiscal support was, on average, stronger in the more severely hit countries but with quite some heterogeneity across countries. Following a strong fiscal impulse in 2020, fiscal support was expected to remain sizeable in the euro area in 2021. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the recovery in global demand and additional fiscal measures were supporting global and euro area activity. At the same time, setbacks in vaccination campaigns, together with persistently high rates of new coronavirus infections in several countries and the associated tightening of containment measures, were restricting economic activity in the short term. Overall, incoming information, including high-frequency indicators, indicated that economic activity was likely to have contracted again in the first quarter, but pointed to a resumption of growth in the second quarter. Progress with vaccination campaigns and the envisaged gradual relaxation of containment measures underpinned the expectation of a firm rebound in economic activity, especially in the second half of 2021. Risks to the euro area growth outlook continued to be on the downside in the near term, but remained more balanced over the medium term. Upside risks stemmed from: better prospects for global demand, supported by sizeable fiscal stimulus; more rapid progress in vaccination campaigns; and a faster than expected reduction in household savings once social and travel restrictions were lifted. However, the new wave of the pandemic, including the spread of virus mutations, and a slower vaccine roll-out represented downside risks for the growth outlook over the coming quarters. Headline inflation had risen to 1.3% in March from the 0.9% recorded in January and February, owing mainly to strong increases in energy price inflation. At the same time, underlying price pressures were subdued in the context of weak demand and significant slack in labour and product markets, but were expected to increase somewhat in 2021 owing to short-term supply constraints and the recovery in domestic demand. Inflation would exhibit some volatility for the remainder of the year. Survey-based measures and market-based indicators of longer-term inflation expectations remained at low levels compared with the ECB’s inflation aim, although market-based indicators had continued to increase, mainly driven by higher inflation risk premia. Amid continued robust risk sentiment in global financial markets, euro area financing conditions had remained broadly stable of late. In particular, risk-free rates and sovereign bond yields had moved sideways and appeared to have decoupled from the repricing in US interest rates. At the same time, the rise recorded earlier in the year in these key indicators in the upstream segment of the transmission chain still posed a risk to the wider set of financing conditions, which in turn warranted close monitoring. Against this background, Mr Lane proposed that the Governing Council leave its prevailing monetary policy configuration unchanged and confirm its very accommodative monetary policy stance. Since the incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the March monetary policy meeting, the Governing Council should continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) in the current quarter at a significantly higher pace than during the first few months of the year. As regards external communication, two aspects were important. First, the Governing Council needed to reaffirm its current practice of conducting a comprehensive joint evaluation of the prevailing state of financing conditions against the inflation outlook at monetary policy meetings in which policy deliberations were informed by a new round of staff projections. In line with this practice, a new comprehensive joint assessment should be conducted at the next monetary policy meeting in June. Second, it was important to highlight that calibrating purchases under the PEPP so as to counter the adverse effects of the pandemic on the medium-term inflation outlook was only one element in achieving the aim of stabilising medium-term inflation around levels below, but close to, 2%. Ample monetary policy support remained crucial beyond the pandemic period in order to support inflation and return it to the inflation aim. The Governing Council therefore needed to continue to stand ready to adjust all of its instruments, as necessary, to fulfil its mandate. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks for activity provided by Mr Lane in his introduction. While the recovery in global demand and the sizeable fiscal stimulus were supporting global and euro area activity, the near-term economic outlook remained clouded by uncertainty about the resurgence of the pandemic and the roll-out of vaccination campaigns. Looking ahead, progress with vaccination campaigns and the envisaged gradual relaxation of containment measures underpinned the expectation of a firm rebound in economic activity in the course of 2021. Inflation had picked up over recent months on account of some idiosyncratic and temporary factors and an increase in energy price inflation. At the same time, underlying price pressures remained subdued in the context of significant economic slack and still weak demand. As regards the external environment, members broadly shared the assessment by Mr Lane that the global economic outlook continued to improve despite the new wave of infections occurring worldwide. Reference was made to recent forecasts from international institutions. Notably, in its April 2021 World Economic Outlook, for 2021 the IMF had revised its expectations for global growth up to 6% and had projected world trade to rise by over 8%. Attention was drawn, in particular, to positive news regarding economic developments in the United States and to the further growth recorded in China at the beginning of the year, reflecting an exceptional recovery since the start of the pandemic a year earlier. With respect to the latest exchange rate developments, it was noted that the euro had appreciated slightly since the Governing Council’s last monetary policy meeting. It was underlined that a further appreciation of the exchange rate could have adverse implications for the inflation outlook. Turning to euro area developments, real GDP had declined by 0.7% in the fourth quarter of 2020, remaining well below its pre-pandemic level. Incoming economic data, surveys and high-frequency indicators suggested that the resurgence of the pandemic and the associated intensification of containment measures might have led to a decline in activity in the first quarter of 2021, but they also pointed to a resumption of growth in the second quarter. In discussing the economic outlook for the euro area, members judged that, although the current situation remained fragile and subject to a high degree of uncertainty, recent data could overall be seen as confirming that GDP growth was broadly in line with the March 2021 ECB staff macroeconomic projections for the euro area. This assessment was also supported by the latest IMF and OECD forecasts. There had been a rise in infection rates, particularly among young people, a delay in the roll-out of vaccination campaigns and some concerns about the safety of vaccines. A prolongation of containment measures had acted as a drag on growth in the first quarter of the year, but there was also good news in that vaccination campaigns were now gaining momentum in the euro area, which could be expected to lead to a gradual easing of lockdown measures. This would, in particular, support the recovery in the services sector, which had been the sector most affected by the crisis. It was also encouraging that evidence of the efficiency of the vaccination campaigns was becoming stronger and that the share of the population that had received a first or even second dose was increasing more rapidly. The learning behaviour of households and firms in response to restrictions during the pandemic was considered to be another positive factor supporting growth. However, it was also underlined that the outlook continued to depend on how quickly the vaccination campaigns proceeded, as well as on the spread and transmission of different variants of the COVID-19 virus. Uncertainty about both the timing and the strength of the recovery in the euro area remained, with some grounds for caution as evidenced by the sequence of downward revisions to the growth rate expected for the first quarter of the year. It was also stressed that the outlook for both growth and inflation remained dependent on the support of fiscal policy measures and the very accommodative monetary policy stance. Moreover, it was pointed out that the impact of the pandemic differed across countries in the euro area. While in some countries activity was expected to return to pre-pandemic levels by the end of 2021, in others – especially those in which the services sector had been most affected – it was expected still to be below the pre-pandemic level at the end of 2022. Members generally expected a stronger recovery to take place in the second half of 2021 but emphasised that uncertainty surrounding the near-term growth outlook remained high. A key question was how consumers would respond to an easing of lockdown measures. It was recalled that the March 2021 ECB staff projections exercise had been based on the assumption that the household saving ratio would gradually return to its pre-crisis level and that there would not be any substantial unwinding of the excess savings that had been accumulated during the pandemic. In assessing the risks to growth, a range of views was advanced concerning the likely behaviour of consumers. It was suggested that forced savings might unwind more dynamically than expected. A one-off boost to consumption later in the year was considered a possibility, based on previous observations, when higher consumption had followed lower infection rates and an easing of restrictions last summer. Still, it was also possible that the boost to consumption from pent-up demand might unfold more gradually. At the same time, it was argued that consumers might prove to be more cautious in their spending this year. Against this background, it was generally felt that risks to activity had become more balanced over the medium-term horizon, with a view also being expressed that they were now marginally tilted to the upside. However, there was broad agreement to retain the risk assessment as expressed at the March monetary policy meeting, which could be revisited more fully in the context of the June staff macroeconomic projection exercise. Accordingly, members considered that the risks surrounding the euro area growth outlook over the near term continued to be on the downside, while medium-term risks remained more balanced. On the one hand, better prospects for global demand – bolstered by the sizeable fiscal stimulus – and the progress with vaccination campaigns were encouraging. On the other hand, the ongoing pandemic – including the spread of virus mutations – and its implications for economic and financial conditions continued to be sources of downside risk. Regarding fiscal policies, an ambitious and coordinated fiscal stance was still seen as crucial, since a premature withdrawal of fiscal support would risk delaying the recovery and amplifying longer-term scarring effects. National fiscal policies should thus continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated containment measures. At the same time, fiscal measures taken in response to the pandemic emergency should, as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery of the euro area economy. Members expected that fiscal support would likely be increased in most European countries this year and the risk of “cliff-edge effects” was seen to be receding. Members also reiterated the key role of the Next Generation EU package and the urgency of it becoming operational without delay, calling on EU Member States to ensure a timely ratification of the Own Resources Decision, to finalise their recovery and resilience plans promptly and to deploy the funds for productive public spending, accompanied by productivity-enhancing structural policies. Governments should be encouraged to accelerate the pace of implementation, which was considered to be more important than the size of the fiscal support. This would allow the Next Generation EU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience and the growth potential of Member States’ economies, thereby supporting the effectiveness of monetary policy in the euro area. The link with reforms, to ensure sustainable growth, was also highlighted, as was the importance of fiscal measures in tackling economic fragmentation. Turning to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Euro area annual inflation had increased to 1.3% in March 2021, from 0.9% in February. Members generally agreed on the importance of looking through the increase in inflation in the short term – which was expected to be temporary – as well as the heightened volatility expected over the coming 12 months. At the same time it was noted that, since the cut-off date for the March 2021 ECB staff projections, there had been a further upward revision to the inflation outlook for 2021 and 2022. In addition to the impact of energy price developments, it was argued that there could also be some upward pressures on inflation in the short run resulting from supply chain disruptions, coinciding with a recovery in demand. However, it was also underlined that underlying inflation and price pressures generally remained subdued. There was still a significant degree of slack in the labour market and no evidence that wage-setting was picking up significantly. It was recalled that, according to the March 2021 ECB staff projections, inflation was projected to be only 1.4% in 2023. Against this background, a view was expressed that while the policy-relevant medium-term inflation outlook was broadly unchanged from the March meeting, risks to this outlook could be assessed as tilted to the upside. With regard to recent developments in inflation expectations, members noted that longer-term inflation expectations reported in the ECB Survey of Professional Forecasters were unchanged, at 1.7%, while market-based indicators of inflation expectations had increased. Although this increase mainly reflected an increase in risk premia, there was also a genuine, albeit small, increase in inflation expectations. It was underlined that households’ inflation expectations differed from those of financial market participants and professional forecasters, but it would be welcome if this translated into higher inflation expectations more broadly. There was no risk seen, at present, that inflation expectations would become unanchored to the upside. However, the implications of higher headline inflation during 2021 for inflation expectations and possible second-round effects would need to be monitored. Turning to the monetary analysis, members concurred with the assessment provided by Mr Lane in his introduction. Strong money growth had continued to be driven by the ongoing asset purchases of the Eurosystem, which remained the largest source of money creation. Lending to the private sector had remained broadly unchanged. At the same time, it was noted that loan rejection rates for firms had increased and that credit standards for loans to firms had tightened for the third consecutive quarter, which might hamper the transmission of the ECB’s monetary policy measures to the real economy. However, it was also underlined that the latest bank lending survey for the first quarter of 2021 showed a more moderate tightening than had previously been expected. In this context, it was highlighted that the targeted longer-term refinancing operations (TLTROs) continued to play a crucial role in supporting bank lending to firms and households, alleviating “cliff effects”, with the most recent operation registering a significant take-up of funds. Moreover, it appeared that the increase in market interest rates observed earlier in the year had not been passed through to loan supply and bank lending rates in the first quarter of the year. Monetary policy stance and policy considerations With respect to the assessment of financial and financing conditions, there was broad agreement among members that euro area financing conditions had remained broadly stable since the last monetary policy meeting in March. This was visible across the whole monetary transmission chain ranging from upstream indicators, such as market interest rates, to downstream indicators, such as bank lending conditions. Risk-free interest rates and sovereign bond yields, which had increased earlier in the year, had largely moved sideways since the March meeting and had decoupled from developments in US markets since late February, as reported by Ms Schnabel in her introduction. In addition, broader lending conditions were seen to have remained favourable, although bank credit standards for loans to firms had tightened somewhat further according to the latest bank lending survey, as presented by Mr Lane. This was widely seen as validating the Governing Council’s March decision to significantly increase the pace of net asset purchases under the PEPP, effectively insulating euro area financing conditions from global spillovers and preventing a premature tightening. However, some caution was voiced, given that risks to wider financing conditions remained. Market interest rates still stood at higher levels than those prevailing in December and had increased again slightly in the most recent period, which could in part be attributed to market perceptions about the future course of monetary policy in the United States and to more encouraging news on the vaccination campaigns in the euro area. At the same time, financial conditions across a broader range of markets had eased further based on most indicators, even though the euro exchange rate had appreciated slightly, to stand 0.5% above the level prevailing at the data cut-off point for the March staff projections. It was reiterated that developments in the exchange rate had to be monitored closely with regard to their possible implications for the inflation outlook. Members expressed broad agreement with the proposal made by Mr Lane to leave the ECB’s monetary policy configuration unchanged and to reconfirm the very accommodative stance. The monetary policy decisions taken in December and March were seen as effective and adequate to preserve favourable financing conditions and to provide the necessary support for the euro area economy. While the incoming information had largely confirmed the assessment made at the March monetary policy meeting, uncertainty remained high and the outlook for the economy and for inflation continued to be dependent on the very accommodative monetary policy stance and the fiscal policy stimulus. In this environment, monetary policy had to remain on a steady course, helping to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. Based on the evidence that the incoming data and market developments had largely confirmed the joint assessment of financing conditions and the inflation outlook carried out at the March monetary policy meeting, the Governing Council’s decision in March to undertake significantly higher PEPP purchases than during the first few months of the year remained appropriate. Looking ahead, it was underlined that the Governing Council’s “reaction function” with respect to purchases under the PEPP would continue to be driven by the Governing Council’s determination to preserve favourable financing conditions on the basis of a joint assessment of financing conditions and the inflation outlook and taking into account a holistic and multifaceted set of indicators. In this context, it was also reiterated that flexibility in the conduct of purchases was a cornerstone of the PEPP’s purchase strategy. PEPP purchases would continue to be conducted in a flexible manner according to market conditions and with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. This implied that if favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. With respect to recent developments, it was stressed that net purchases in March had increased to the highest monthly purchase volume since July 2020, representing a significant increase compared with average purchases during the first two months of this year, even though the decision to increase the pace of purchases was only taken in mid-March. Members recalled that the monetary policy meeting in June would provide the next opportunity to conduct a thorough assessment of financing conditions and the inflation outlook, at which time the assessment would be informed by the new Eurosystem staff macroeconomic projections. While such a comprehensive assessment, based inter alia on the staff projections, would normally be undertaken on a quarterly basis, it was underlined that the PEPP continued to operate in a flexible manner, allowing the pace of purchases to be adapted according to market conditions and supporting the smooth transmission of monetary policy in a timely manner. Regarding communication, members broadly concurred with the communication outlined by Mr Lane in his introduction. It needed to be stressed that the March monetary policy decisions had been timely and adequate, having successfully contributed to stabilising financing conditions after the increase in market interest rates earlier in the year, although risks to wider financing conditions remained. The Governing Council’s commitment to preserving favourable financing conditions for all sectors of the economy over the pandemic period remained essential to reduce uncertainty and bolster confidence. It was also widely agreed that it should be highlighted that the future pace of purchases under the PEPP was data-dependent and would continue to be based on the joint assessment of financing conditions and the inflation outlook. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council decided to reconfirm its very accommodative monetary policy stance: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judged that the coronavirus crisis phase was over. Since the incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the March monetary policy meeting, the Governing Council expected purchases under the PEPP over the current quarter to continue to be conducted at a significantly higher pace than during the first few months of the year. The Governing Council would purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. The Governing Council would continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council also intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Finally, the Governing Council would continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) had registered a high take-up of funds. The funding obtained through TLTRO III played a crucial role in supporting bank lending to firms and households. The Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 22 April 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 21-22 April 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Stournaras Mr Šimkus* Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in April 2021 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Arce Mr Aucremanne Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 8 July 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. 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9 July 2021 Meeting of 9-10 June 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 June 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 21-22 April 2021. The nominal euro area ten-year GDP-weighted sovereign bond yield had increased by around 5 basis points, while short to medium-term yields had remained broadly unchanged. Taking into account also broader developments since the Governing Council’s 10-11 March meeting, a mild steepening of the yield curve could be observed – a typical phenomenon of an economy on the verge of recovery. Long-term US Treasury yields, meanwhile, had remained largely unchanged over the same period. Market intelligence pointed to two key drivers behind the diverging yield developments in the euro area and the United States. The first factor related to the pace of vaccination, which had been accelerating in all major euro area countries. As a result, the euro area was now expected to close most of the vaccination gap with the United States by the start of the summer. A high proportion of vaccinations had also strengthened investor confidence in the resilience of the euro area recovery. The second, and related, factor concerned the dynamics of the reopening, which had been considerably faster and economically stronger than most analysts had expected. The data for the euro area in recent weeks had persistently surprised market analysts to the upside. Model-based evidence confirmed that positive macroeconomic shocks had been a key factor driving euro area risk-free yields since the Governing Council’s 10-11 March meeting. This stood in sharp contrast to the period before the March meeting, when spillovers from outside the euro area had been the main driving force. Firming expectations about a strong euro area recovery had led investors to materially upgrade their required inflation compensation across the entire maturity spectrum. Markets now expected annual inflation in two years’ time – once adjusted for the still negative inflation risk premium – to be at almost 1.7%, well above the level seen before the pandemic. Option prices suggested that markets were pricing almost a one-in-four chance that euro area inflation over the next five years would average more than 2%. Consequently, changes in inflation compensation had remained the sole driver of developments in nominal risk-free rates in recent weeks. Real long-term overnight index swap (OIS) rates, by contrast, had remained below the levels that prevailed when, in December 2020, the Governing Council had pledged to preserve favourable financing conditions. At the same time, there had been a notable and persistent increase in the spread of the ten-year GDP-weighted sovereign bond yield over the risk-free OIS rate. What distinguished the recent widening of the spread from many previous episodes was the fact that it had occurred across all euro area sovereigns, including the safest ones. Corporate bond spreads, by contrast, had remained resilient. It was likely that significant liquidity buffers, an improving growth and credit outlook, as well as expectations of continued fiscal policy support had jointly contributed to keeping spreads stable at, or close to, pre-pandemic levels. Recent developments had been accompanied by a marginal upward shift in the euro overnight index average (EONIA) forward OIS curve, which now indicated a slightly earlier time for policy rate lift-off. However, both the limited size of the shift and survey evidence suggested that genuine lift-off expectations had not changed significantly in recent months. The nominal effective exchange rate of the euro had also remained broadly unchanged in recent months, masking diverging bilateral exchange rate developments that mirrored, by and large, the different pace with which the recovery from the crisis was proceeding around the globe. Finally, recent stock market developments suggested that the renewed rise in long-term rates continued to be seen by investors as a harbinger of a robust and resilient expansion. The EURO STOXX 50 Index had risen by 8% since the Governing Council’s meeting on 10-11 March. Upward revisions to long-term earnings expectations had pushed equity valuations in the euro area higher. Countries that were expected to benefit more from the reopening of the economy and a faster pace of vaccination had recently outperformed others. At the sectoral level, euro area banking had been the best-performing sector for the year to date, benefiting from an improving domestic economy, rising bond yields and cheap funding costs through the targeted longer-term refinancing operations (TLTROs). However, despite improved market sentiment, euro area bank valuations remained depressed in historical and international comparison. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. As regards the external environment, progress in overcoming the pandemic, especially in advanced economies, was reflected in developments in Purchasing Managers’ Indices (PMIs) as leading indicators of economic activity. Manufacturing PMIs had recovered quickly but had also stabilised more recently, partly on account of bottlenecks in production. At the same time, there had been a very significant and sharp increase in the global services output PMI. The recovery in global trade had so far been very strong, which reflected a close link between trade and manufacturing. Oil prices had risen since the Governing Council’s April monetary policy meeting (+7.7%) and also relative to the assumptions embedded in the June Eurosystem staff macroeconomic projections for the euro area at the cut-off date (+3.9%). In US dollar terms, oil prices were now broadly back at their pre-pandemic levels. Also since the April meeting, the euro had appreciated slightly against the US dollar but was broadly unchanged in nominal effective terms – although it was quite elevated when compared with its spring 2020 level. Turning to the euro area, in the first quarter of 2021 the economy had experienced a consumption-led drop in GDP growth. Looser restrictions were expected to enable a rebound in activity as of the second quarter. At the sectoral level, manufacturing had been held back by supply-side constraints related to semiconductors and shipping, which in turn had weighed on first quarter output. In addition, the services sector had continued to be adversely affected by distancing measures and by a lack of demand. The hardest hit high-contact services, such as travel, accommodation and food, were still lagging, though clearly improving. The improving pandemic situation was reflected in strongly rising levels of confidence, as seen, for instance, in the Economic Sentiment Indicator and PMI data to May. Regarding the components of GDP, consumer spending had decreased by 2.3% quarter on quarter in real terms in the first quarter of 2021. With households having gradually become more optimistic, consumption was expected to increase strongly in the second and third quarters of the year before levelling off. While the saving ratio was expected to fall, it was important to keep in mind that growth in household disposable income had been sustained by substantial public income support over recent quarters. As the economy recovered, labour income should again contribute more to growth in household income. Investment had continued to support the economic recovery. Housing investment in the first quarter of the year had continued to grow, by 0.5% quarter on quarter, while firms had also flagged significant shortages of labour and materials, as well as a near-record lengthening of supplier delivery times. For business investment, recent data indicated a rebound also in the second quarter of 2021, after a 0.4% quarter-on-quarter contraction in the first quarter. Turning to euro area trade, order-based indicators signalled strong momentum, while the recovery in extra-euro area goods exports had slowed during the first months of the year. Euro area manufacturers had struggled to source semiconductors as a consequence of input shortages and were affected by disruptions in shipping. Assessing labour market developments, hard indicators had continued to show weakness while soft indicators were signalling improvements. Employment was still about 2.2% below pre-pandemic levels and the latest employment figure for the first quarter of 2021 was -0.3% (quarter on quarter), on account of the contraction in real GDP in the fourth quarter of 2020 and the first quarter of 2021. While the unemployment rate reflected a slight improvement, broader measures of labour underutilisation had remained high. In line with the recovery in the economy, forward-looking employment indicators had turned positive. The June staff projections included upward revisions to the level of economic activity. Real GDP was projected to grow by 4.6% in 2021 and 4.7% in 2022 (revised up by 0.6 percentage points for both years), and by 2.1% in 2023 (unchanged). Overall, the faster pace of the recovery was broad-based across demand components. To address the continued uncertainty surrounding the pandemic and its influence on economic developments, alternative mild and severe scenarios had been prepared once again, as part of the June projection exercise. Turning to nominal developments, inflation in the Harmonised Index of Consumer Prices (HICP) had increased from 1.3% in March to 1.6% in April and 2.0% in May 2021, according to Eurostat’s flash release. Positive energy-related base effects – linked to the strong fall in energy inflation in 2020 – had been dominating developments in headline inflation since February 2021. Meanwhile, the role of some temporary factors, such as seasonal sales or changes in HICP weights, had been waning in recent months. HICP inflation excluding energy and food had broadly moved sideways between March and May 2021, at 0.9%, which was still somewhat below the level observed before the pandemic. Negotiated wage growth had decreased substantially to 1.4% in the first quarter of 2021, well below the 1.8% recorded, on average, in 2020. Compensation per employee and compensation per hour had continued to be strongly affected by job retention schemes. At the same time, the GDP deflator had increased from 1.3% in the fourth quarter of 2020 to 1.5% in the first quarter of 2021. Pronounced rises in input costs (linked to surging commodity price inflation, substantial increases in shipping costs and supply shortages of some raw materials) had led to upward pressures at the early stages of the pricing chain. However, so far, higher pipeline pressures for intermediate goods had fed through to later stages of the pricing chain only to a very limited extent. Euro area producer price inflation for non-food consumer goods – a key measure of pipeline pressures for non-energy industrial goods – had stood at 1.0% in April, up from 0.9% in March and 0.6% in February. In the June staff projections, headline inflation was projected to average 1.9% in 2021 and to decline to 1.5% and 1.4% in 2022 and 2023 respectively. Compared with the March staff projections, the projection for HICP inflation had been revised up for 2021 and 2022 and was unchanged for 2023. HICP inflation excluding energy and food was projected to increase from 1.1% in 2021 to 1.3% in 2022 and 1.4% in 2023, revised up throughout the projection horizon due to upward effects from rising global inflationary pressures and more positive developments in slack. Turning to market-based measures of inflation compensation, inflation-linked swap (ILS) rates had continued to recover, especially in shorter maturities. The one-year forward ILS rate one year ahead had increased by 23 basis points to 1.27% since the Governing Council’s April monetary policy meeting, while the five-year forward ILS rate five years ahead had risen by 7 basis points to stand at 1.60%. As regards financial conditions in the euro area, asset prices across financial markets had mirrored improvements in the economic outlook. Equity and corporate bond markets were reflecting an improving outlook for growth and near-term credit risk. Long-term risk-free rates and GDP-weighted sovereign bond yields had increased somewhat further since the March Governing Council monetary policy meeting and stood above their pre-pandemic levels. Turning to monetary developments, annual M3 growth had declined to 9.2% in April from 10% in March. While the first four months of 2021 had seen a moderation in broad money growth, it had been driven by special factors. M3 growth had continued to be driven by Eurosystem purchases and, up to March, resilient lending to the private sector, which had supported the liquidity buffers of firms and the deposits of households. Bank lending to firms had seen net redemptions in April after the large positive inflow in March, which reflected the decision by some banks to frontload their lending to March to meet the lending benchmark for the TLTRO. The outflow in April might have also reflected decreased liquidity needs, as the sectors most affected by the pandemic showed signs of recovery. Bank lending rates to firms had increased in April, more than offsetting the decline observed in March. Fiscal support had been scaled up further, especially for 2021, with a substantial additional stimulus since the March staff projections. A higher stimulus funded by the Next Generation EU (NGEU) programme was projected to provide significant growth support over the forecast horizon. According to the June fiscal projection, after the massive fiscal response to the pandemic crisis in 2020, the euro area budget deficit was projected to remain around 7% in 2021 and to decline to levels around 3% as of 2022. Monetary policy considerations and policy options Summing up, Mr Lane remarked that, while output had declined in the first quarter of 2021, forward-looking survey data indicated the start of a significant rebound in the second quarter. In particular, the services sector had started to reopen. The manufacturing sector remained strong, even if supply constraints and the uncertain prospects for some large emerging market economies were likely to pose headwinds. The pick-up in economic activity should accelerate in the third quarter, as a result of further progress in containing the pandemic and the associated easing of social distancing restrictions. Overall, based on the June staff projections, real GDP was expected to exceed its pre-pandemic level in the first quarter of 2022, one quarter earlier than envisaged in the March staff projections. Risks surrounding the growth outlook were balanced. An even stronger recovery could be predicated on better developments in the epidemiological situation, a more vigorous rebound in consumption and a stronger than projected rebound in foreign demand. In contrast, downside risks still mainly related to a renewed deterioration in the pandemic, for instance due to the spread of more infectious coronavirus (COVID-19) variants, as well as to financial disruptions that could result from a surge in corporate insolvencies. The increase in headline inflation, from 1.3% in March to 1.6% in April and 2.0% in May, was predominantly due to sizeable base effects in energy inflation. To a lesser extent, non-energy industrial goods inflation had also played a role. Pipeline pressures at the earlier stages of the pricing chain were intensifying, although there was no evidence so far that these were seeping through to inflation developments. Underlying inflationary pressures remained muted, especially as wage inflation was still weak. Owing to the reversal of last year’s temporary VAT reduction in Germany, headline inflation was projected to pick up after the summer and to peak towards the end of the year, averaging 1.9% in 2021, before returning to more moderate rates of 1.5% in 2022 and 1.4% in 2023. The projected increase in core inflation, from 1.1% in 2021 to 1.3% in 2022 and 1.4% in 2023, reflected an upgrade on the March staff projections. Long-term benchmark market interest rates had continued to increase, exerting some upward pressure on euro area sovereign bond yields. “Downstream” financing indicators, which capture the credit conditions facing households and firms, remained accommodative. Nonetheless, these could tighten in the months to come should the upward movement in long-term risk-free rates and sovereign bond yields prove sustained. The risk of tighter financing conditions needed to be seen against the still subdued outlook for inflation beyond the near term. At its meeting on 10-11 March, when confronted with a similar tightening in market interest rates against a backdrop of limited progress in the inflation outlook, the Governing Council had decided to significantly step up purchases under the pandemic emergency purchase programme (PEPP). The macroeconomic situation at the time of this meeting was more benign: economic prospects were brightening, risks were receding and the projected pick-up in core inflation improved the robustness of the medium-term inflation outlook. At the same time, the negative pandemic shock to the projected inflation path had not been fully reversed. Also, if sustained, the rise in market rates could dampen the ongoing recovery and delay further progress in boosting inflation dynamics. Against this background, Mr Lane proposed that the Governing Council should continue to conduct net asset purchases under the PEPP over the coming quarter at a significantly higher pace than during the first months of the year. A significantly higher pace of purchases under the PEPP remained necessary to help preserve the favourable financing conditions that were needed to offset the negative impact of the pandemic on inflation. This meant that asset purchases under the PEPP remained a proportionate monetary policy response to the risks to the ECB’s inflation aim. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and of the risks to activity provided by Mr Lane in his introduction. After the contraction in the first quarter of 2021, the latest data signalled a bounce-back in services activity and ongoing dynamism in manufacturing production. Economic activity was expected to accelerate in the second half of the year as further containment measures were lifted. At the same time, uncertainties remained, as the near-term economic outlook continued to depend on the course of the pandemic and on how the economy responded after reopening. Inflation had picked up over recent months, largely on account of base effects in energy inflation and other transitory factors. It was expected to rise further in the second half of the year, before declining as temporary factors faded out. As regards the external environment, members largely shared the assessment provided by Mr Lane in his introduction that the global economic outlook was broadly unchanged. This concealed an upgrade to the outlook for advanced economies relative to that for emerging market economies, given the more rapid progress with vaccination programmes in the former and some new concerns about the pandemic in the latter. The stronger trade relationships between the euro area and other advanced economies implied that an unchanged global growth outlook was consistent with stronger euro area foreign demand. It was observed that, compared with progress in other major economies around the world, the economic recovery in the euro area was as yet lacking in robustness. At the same time, it was suggested that the inflationary pressures being experienced in some of these cyclically more advanced economies, notably the United States, could be a harbinger of developments in the euro area further down the road. Turning to euro area developments, in the first quarter of the year euro area real GDP had declined further, by 0.3%, to stand 5.1% below its pre-pandemic level of the fourth quarter of 2019. Business and consumer surveys and high-frequency indicators pointed to a sizeable improvement in activity as of the second quarter. Over the medium term, the recovery in the euro area economy was expected to be buoyed by stronger global and domestic demand, with continued support from both monetary policy and fiscal policy. Members generally agreed with both the baseline view for economic growth in the June staff projections and the upward revision as compared with the March staff projections. It was widely acknowledged that incoming information and data had been favourable and bolstered confidence in the expected economic recovery. It was underlined that there had been a string of positive surprises in the euro area since the March monetary policy meeting. Significant progress had been made on vaccination and the containment of the pandemic, with many restrictions in euro area countries being lifted. The point was made that the upward revisions to growth in the June staff projections looked modest compared with the recent improvements in some indicators. Moreover, activity in the first quarter of this year had turned out less negative than anticipated in the June projections. It was argued that this would still need to be factored into the outlook and would imply a faster closing of the output gap. However, it was remarked that projection errors for the first quarter were very heterogeneous across countries and that the outcome had been better than expected only in parts of the euro area. At the same time, there were a number of reasons for caution. The recovery was still fragile and remained heavily dependent on the evolution of the pandemic and the assumption that the health crisis would be over after the summer. Reference was made to the uncertainty surrounding the emergence of new COVID-19 variants and the containment measures that these might necessitate. Moreover, it was suggested that positive surprises in incoming information had related more to soft data than to hard data, and it was noted that the June staff projections for growth in the second and third quarters of the year were above those of mechanical short-term forecasting tools. It was also stressed that the recovery remained heavily dependent on the support of fiscal policy measures and the very accommodative monetary policy stance. In assessing the risks to growth, it was underlined that there had been a number of consecutive upward revisions to the growth outlook across recent projection rounds, despite the earlier assessment of downside risks. It was observed that the June baseline staff projections had turned out somewhere between the baseline and mild scenarios of the March staff projections. Also, it was noted that the GDP projections had been moving successively closer to the pre-pandemic trajectory and it was argued that, from that perspective, scarring effects seemed to be turning out less pronounced than had been initially feared. At the same time it was cautioned that, if the pandemic continued and restrictions remained in place, the outlook might be just as prone to downward revisions as it had previously been to upward revisions. Moreover, in the June staff projections a number of previous upside risk factors were fully incorporated into the baseline, notably the impact associated with the US fiscal plans. The behaviour of consumers in response to an easing of lockdown measures continued to be surrounded by uncertainty. On the one hand, it was argued that the assumption included in the June staff projections concerning the unwinding of accumulated forced savings might be too conservative. Even small additional releases of these savings could have large effects on consumption because of the amounts involved. Regarding possible additional upward risks to consumption, a question was raised on the role of wealth effects associated with the recent increases in house prices and equity prices. On the other hand, it was observed that, while the staff projections assumed only a small proportion of excess savings would be unwound by the end of the projection horizon, the projections were still predicated on the assumption of a very rapid normalisation of the saving ratio in the short term. It was recalled that excess savings had been accumulated mainly in richer households with lower propensities to consume and that there was large heterogeneity in such excess savings across euro area countries. A general question remained on the scale of pent-up demand and the extent to which excess savings could also be used for consumption rather than housing or other purposes, such as repaying debt. It was observed that there had been no change to the staff projection for real GDP growth in 2023 and that the upward revision for 2022 was essentially due to carry-over effects from 2021, both of which suggested further upside risks beyond the short term. The point was also made that downside risks from financial amplification mechanisms, owing to corporate bankruptcies and associated pressures on banks, had diminished. However, it was noted that the economic recovery remained uneven across sectors and that an increase in insolvencies might yet come, especially among small and medium-sized enterprises (SMEs) and in the services sectors. It was suggested that uncertainties and risks remained in the final stretch of the recovery, related to the necessary resource reallocation typically associated with very deep recessions. Overall, the risks surrounding the euro area growth outlook were seen as broadly balanced. On the one hand, an even stronger recovery could ensue if global demand picked up faster and household savings were reduced more quickly, once social and travel restrictions were lifted. On the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continued to be sources of downside risk. Regarding fiscal policies, an ambitious and coordinated fiscal stance was considered to remain crucial, as a premature withdrawal of fiscal support would risk weakening the recovery and amplifying longer-term scarring effects. National fiscal policies should thus continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated containment measures. At the same time, governments should ensure fiscal measures remained temporary and countercyclical, as well as sufficiently targeted in nature, to address vulnerabilities effectively and to support a swift recovery in the euro area economy. The key role of the NGEU package was reiterated, with Member States called upon to deploy the funds productively and accompany these by productivity-enhancing structural policies. This would allow the NGEU programme to contribute to a faster, stronger and more uniform recovery and would increase economic resilience as well as the growth potential of Member States’ economies. Such structural policies were particularly important in improving economic structures and institutions and in accelerating the green and digital transitions. Members noted that the June staff projections contained substantial further fiscal loosening compared with the March staff projections. As a result, at present the fiscal stance in 2021 was expected to be similar to that in 2020, and the risk of “cliff-edge effects” was seen to be receding. While the continued importance of fiscal measures in supporting the economic recovery and tackling economic fragmentation was reiterated, concerns were expressed that fiscal consolidation might come too late rather than too early and that there was a risk of a substantial structural deterioration in fiscal deficits. Caution needed to be exercised in the interpretation of fiscal balances in the period ahead, as the crisis measures had been statistically recorded as structural spending. For the time being, it was generally considered that heterogeneity across countries in the timing and speed of economic recovery implied differentiated needs for targeted and temporary fiscal support. This suggested that calls for fiscal consolidation would need to be country-specific. Turning to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. According to Eurostat’s flash release, euro area annual inflation had increased from 1.3% in March to 1.6% in April and 2.0% in May 2021. Headline inflation was likely to increase further towards the autumn, reflecting mainly the base effects of the reversal of the temporary VAT reduction in Germany. Inflation was expected to decline again at the start of next year as temporary factors faded out. Underlying price pressures were expected to increase somewhat this year owing to temporary supply constraints and the recovery in domestic demand. Nevertheless, price pressures were likely to remain subdued overall. This in part reflected low wage pressures, in the context of still significant economic slack, and the appreciation of the euro. Once the impact of the pandemic had begun to fade, the reduction in slack, supported by accommodative monetary and fiscal policies, would contribute to a gradual increase in underlying inflation over the medium term. Members widely agreed on the importance of looking through the temporary increase in inflation in 2021. It was underlined that the increase in inflation to 2.0% in May had been larger than expected, but also that this had followed a long period of subdued price increases, and that this development had to be assessed from a medium-term perspective. The question was raised as to the extent to which the recent rise in input costs and the temporary supply constraints, such as for semiconductors, could be expected to feed through to consumer prices over time. Pipeline pressures emerging at the intermediate goods stage typically showed only a limited and sluggish pass-through to producer prices for final consumer goods and from there to retail prices. At the same time, it was suggested that the current situation could be different from the past since companies had less scope for absorbing pipeline pressures in their margins, after a long period of subdued profits, while the marked pick-up in demand might offer an opportunity to adjust prices. A greater than usual pass-through to the final consumer stages might also be possible if households were prepared to pay higher prices in the light of ample savings accumulated involuntarily during the pandemic. Against this background, it was argued that there could be upside risks not only over the shorter term but also over the medium term. It was suggested that a perception among the public that prices could rise more persistently could have an impact on the behaviour of households and companies in the period ahead. It had to be acknowledged that household purchasing power would suffer more than anticipated this year, and it was difficult to say how that would interact with wage negotiations. If second-round effects from higher oil prices and headline inflation fed into higher wages, it would help convergence with the Governing Council’s inflation aim. However, it was argued that currently there was little evidence of mounting wage pressures. There was evidence of a labour scarcity in some sectors and the situation differed from country to country, but there was, overall, still a significant degree of slack in the labour market, and a large number of employees in job retention schemes still needed to be brought back into work. Moreover, it was recalled that, following labour market reforms, wage indexation had become much less prevalent than some years before. In their discussion of the June staff projections, members noted that the projection of 1.4% for headline inflation in 2023 implied a medium-term figure that remained well below the Governing Council’s inflation aim. The same held even for the mild scenario in the staff projections and for forecasts of other institutions. It was observed that the inflation forecasts of other institutions were broadly similar to those of the June projections, although their forecasts for economic growth were lower. It was pointed out that the inflation outlook would have been even lower without the substantial fiscal and monetary support in place. It was also mentioned that, in the June projections, the upward revision of underlying inflation to a rate above its longer-term average had been offset by a lower rate of change in energy prices. The staff projections, like several other forecasts and projections, were based on the assumption that oil prices would evolve along the path of their futures prices, implying a mechanical downward impact on energy price dynamics over the projection horizon, which in the context of the current projections implied a questionable decline in headline inflation between 2022 and 2023. It was also argued that, in a situation where governments were striving to meet climate change targets, it was likely that new measures would be required that might bring additional upside risks to price developments over a medium to longer-term horizon. For these reasons, projected inflation of only 1.4% in 2023 was widely seen as subject to upward risks. With regard to recent developments in inflation expectations, members noted that survey-based measures of longer-term inflation expectations remained at subdued levels, while comparable market-based indicators of inflation compensation had continued to increase and now stood above pre-pandemic levels. The increase in inflation expectations was seen as a welcome development. It was argued that inflation expectations on the part of firms and households tended to be closely linked to the latest actual inflation readings, and this was helping boost inflation expectations given that realised inflation was likely to exceed 2% for some months. However, it was also pointed out that the higher levels of market-based indicators of inflation compensation mainly reflected an increase in risk premia rather than an upward shift in the anticipated path of inflation. Nonetheless, a reduction in hitherto negative risk premia was a first step towards normalisation, with economic agents starting to hedge against inflation risks rather than deflation risks. With respect to the monetary analysis, members concurred with the assessment provided by Mr Lane in his introduction. The annual rate of growth in broad money (M3) had declined in March and April, partly owing to strong negative base effects and weaker developments in deposits that reflected reduced liquidity needs as the pandemic situation improved. At the same time, the Eurosystem’s ongoing asset purchases remained the largest source of money creation. The annual growth rate of bank loans to the private sector had fallen in April, with volatility in loans to non-financial corporations reflecting some frontloading in loan creation in March relative to April, and loans to households recording solid monthly flows. On aggregate, credit conditions were judged to have remained supportive. The risk of a premature tightening of bank lending conditions was seen as being mitigated by a continued sizeable degree of policy support. Bank profitability was improving, allowing banks to prepare for credit defaults and to use their balance sheet capacity in terms of capital and liquidity buffers for new lending. It was noted that some tightening in bank lending rates, as included in the baseline projection, was to be expected when support measures were phased out, and credit risk was likely to increase. An increase in bankruptcies in the corporate sector could be expected later this year, and cliff-edge effects could not be ruled out, notably for SMEs. However, it was underlined that an increase in insolvencies would come from artificially subdued levels. A view was expressed that, overall, risks of financial amplification effects or credit supply constraints affecting firms and banks were diminishing. At the same time, credit demand could slow as firms and households ran down precautionary liquidity buffers that they had built up during the pandemic, which might moderate a tightening of bank lending rates. Monetary policy stance and policy considerations Turning to the assessment of euro area financing and financial conditions, members generally agreed that, despite the increase in nominal risk-free rates, euro area financing conditions had remained accommodative and continued to support the recovery. The recent rise in nominal yields was seen as having been partly driven by the improving economic outlook, which was accompanied by an increase in inflation compensation, whereas real rates, which were considered to matter most for financing conditions, had fallen to new record lows or remained at very favourable levels. Downstream indicators of nominal financing conditions were assessed as favourable, too, with bank lending rates still near historical lows despite a recent rebound. Attention was drawn to the role of global factors in driving yield increases, with yields having stabilised in the United States since the Governing Council’s April monetary policy meeting. The concern was voiced that a sustained rise in market rates could translate into a tightening of broader financing conditions that were relevant for the wider economy, thereby reinforcing vulnerabilities in the sectors most affected by the crisis. At the same time, it was noted that stock and residential property prices had become even more buoyant than in December 2020, when the PEPP was last expanded substantially. It was reiterated that preserving favourable financing conditions over the pandemic period remained essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. Members expressed broad agreement with Mr Lane’s proposal to reconfirm the very accommodative monetary policy stance and to leave the ECB’s monetary policy configuration unchanged, including the proposal to continue net purchases under the PEPP over the next quarter at a significantly higher pace than during the first months of the year. Although the medium-term outlook had improved, the June staff projections still saw inflation falling short of the pre-pandemic projected path at the policy-relevant horizon and did not show a robust convergence towards a level below, but close to, 2%. In this environment, monetary policy had to look through temporary short-term developments in inflation and focus on the medium-term outlook. While it seemed appropriate that the improved outlook should be reflected in the Governing Council’s policy stance, financing conditions were assessed as too fragile to allow a meaningful reduction in the pace of purchases without risking a disorderly rise in yields. It was stressed that the recovery was at an early stage and lacked robustness, as it depended heavily on policy support. Moreover, the projected path for the economy was subject to significant uncertainties and risks. An undue tightening of financing conditions at the current juncture could jeopardise the ongoing economic recovery and the outlook for inflation. A noticeable slowing of the pace of purchases for the next quarter was therefore seen as inappropriate at the current juncture. Concern was expressed that any change in net purchases not based on a clear improvement in the medium-term inflation outlook would lead to an unwarranted tightening of financing and financial conditions and cast doubt on the Governing Council’s resolve to bring inflation back to its aim. In this context, a remark was made that, in view of the persistent inflation shortfall projected in the June staff projections, even an increase in asset purchases as the main monetary policy instrument could be justified at present. It had also to be considered that the lower bound on interest rates was still constraining the available monetary policy space, which meant caution was required in relation to a tightening of the policy stance. A steady course was therefore warranted to maintain the monetary accommodation needed to underpin the economic recovery and to contribute to the sustained convergence of inflation towards the Governing Council’s aim in the medium term. In view of the better outlook for growth and inflation and the associated upside risks, it was, however, also argued that, to provide the same degree of accommodation, asset purchases should be scaled back somewhat. It was stressed that, as a matter of symmetry and consistency in decision-making, the improved outlook should be reflected in the pace of purchases. Financing conditions in the euro area were seen to be more favourable in June than they had been in March or December, implying an increasing degree of accommodation if the current purchase pace was maintained. Moreover, the improved outlook would also raise the natural interest rate, thereby effectively providing further accommodation. Reference was made to the Governing Council’s established communication that, if economic developments were better than expected and favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. In this context, it was recalled that the PEPP was an emergency programme with a limited time span. Concerns were also expressed about potential side effects if the highly accommodative monetary policy stance was maintained much longer because it might hinder structural change in the corporate sector and resource reallocation in the labour market. In addition, property price dynamics were accelerating. Overall, most members expressed their readiness to join a broad consensus behind the proposal by Mr Lane. Hence, the Governing Council confirmed that it expected net asset purchases under the PEPP over the next quarter to continue to be conducted at a significantly higher pace than during the first months of the year. The Governing Council’s commitment to preserve favourable financing conditions over the pandemic period and to prevent a tightening that was inconsistent with countering the downward impact of the pandemic on the projected inflation path was reiterated. Moreover, it was deemed essential that the Governing Council reaffirm its commitment to achieve its stated inflation aim. It was underlined that the Governing Council’s “reaction function” with respect to purchases under the PEPP would continue to rely on a joint assessment of financing conditions and the outlook for inflation over the medium term. It was reiterated that flexibility in the conduct of purchases was a cornerstone of the PEPP’s purchase strategy. The broad parameters for PEPP purchases would continue to be decided by the Governing Council on the basis of a quarterly joint assessment of financing conditions and the inflation outlook. They would then be implemented by the Executive Board in a flexible manner according to market conditions, including seasonality, with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. Monetary policy decisions and communication Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council decided to confirm its very accommodative monetary policy stance: The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics. The Governing Council would continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judged that the coronavirus crisis phase was over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expected net purchases under the PEPP over the next quarter to continue to be conducted at a significantly higher pace than during the first months of the year. The Governing Council would purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that was inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions would continue to support the smooth transmission of monetary policy. If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. The Governing Council would continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Net purchases under the APP would continue at a monthly pace of €20 billion. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council also intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. Finally, the Governing Council would continue to provide ample liquidity through its refinancing operations. The funding obtained through the third series of targeted longer-term refinancing operations (TLTRO III) played a crucial role in supporting bank lending to firms and households. The Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Introductory statement Introductory statement to the press conference of 10 June 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 9-10 June 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna* Mr Stournaras Mr Šimkus Mr Vasle Mr Villeroy de Galhau Mr Visco* Mr Weidmann Mr Wunsch * Members not holding a voting right in June 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Aucremanne Mr Bradeško Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Ms Mauderer Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 26 August 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

26 August 2021 Meeting of 21-22 July 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 21-22 July 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 9-10 June 2021. Long-term government bond yields had declined notably across advanced economies, including in the euro area, despite the ongoing strong recovery from the shock of the coronavirus (COVID-19) pandemic. Model-based evidence on the drivers of euro area yields suggested that a very large share of the recent decline in euro area risk-free rates reflected foreign spillovers, mainly in the form of an increase in global risk aversion. The fast spread of the Delta variant of the coronavirus and rising infection rates across many countries had likely been the main reason behind the increase in global risk aversion, as also reflected in the ratio of value to growth stocks having fallen markedly in recent weeks. Although the experience of the United Kingdom suggested that, so far at least, progress in vaccination campaigns had succeeded in weakening the link between the number of infections and hospitalisation rates, the Delta variant had instilled new uncertainties about the path to economic normalisation, thereby weighing on yields in recent weeks. Long-term sovereign yields had declined more markedly in the United States, where investors had continued to reverse a large part of the rise in long-term real interest rates seen earlier this year, a move possibly linked to changes in market expectations about monetary policy. A model-based decomposition of the ten-year US Treasury yield suggested that term premia had declined considerably in recent weeks, while revisions to the expected future path of short-term rates had been more limited. This suggested that the sharp rise in US real rates earlier this year may have largely reflected increased uncertainty around the outlook for monetary policy, and that this uncertainty may have diminished in recent weeks. By comparison, in the euro area, real risk-free rates had been much more stable than in the United States, although they had also started to grind lower in recent weeks. Real ten-year risk-free rates in the euro area were currently almost 20 basis points below the level prevailing at the Governing Council meeting on 9-10 December 2020. In addition, market-based measures of inflation compensation had resisted broad downward pressure in the euro area, suggesting that investors remained fundamentally positioned for a sustained recovery from the pandemic crisis. As government bond spreads had remained resilient, the nominal euro area ten-year GDP-weighted sovereign bond yield had declined further since the Governing Council’s previous monetary policy meeting on 9-10 June 2021 and was currently again in negative territory. Yields had fallen by more than 30 basis points since mid-May when changes in market expectations about the likely future path of asset purchases had put upward pressure on yields. The EONIA forward curve had also flattened considerably in recent weeks, although this likely mirrored the decline in term premia related to the increased risk from the spreading of the Delta variant and did not necessarily reflect a genuine change in interest rate expectations. This was consistent with the unchanged expectations for a lift-off reported in the latest ECB Survey of Monetary Analysts (SMA). At the same time, the flattening of the forward curve could also in part reflect an adjustment in policy rate expectations in response to the outcome of the ECB’s strategy review, though immediate market reactions had been muted. As markets now expected an earlier lift-off of interest rates in the United States, the euro had depreciated markedly against the US dollar, reinforced by a flight to safety. Indeed, since the start of the year there had been a close correlation between the EUR/USD exchange rate and the short-term interest rate differential, implying that movements at the long end of the curve did not seem to have mattered much for foreign exchange markets, which had instead focused on the timing of the interest rate lift-off. Despite the notable increase in global risk aversion, so far there had been little adjustment of credit risk premia in euro area fixed income markets. Corporate bond spreads had weathered the recent flight to safety well. Investment-grade credit spreads had declined further, while high-yield bond spreads had increased somewhat, but remained below their pre-pandemic levels despite the strong issuance of high-yield bonds in the year to date. ECB data showed that the strong issuance by high-yield issuers had been to a large extent absorbed by investment funds, thereby further raising the risk profile of non-banks. The increase in global risk aversion had, however, weighed on equity prices. The EuroStoxx had declined, with larger losses in countries that were more heavily exposed to potential and actual travel restrictions imposed in the wake of the fast spread of the Delta variant. The events of recent days had also illustrated how current elevated stock market valuations could be prone to sudden corrections as cyclically adjusted price-earnings ratios were at, or close to, record highs. Price corrections, if sudden and sizeable, could have tangible effects on investors’ balance sheets, as inflows into equity funds had continued to increase since the Governing Council’s previous monetary policy meeting on 9-10 June 2021 and were several times higher than inflows seen in previous years. Overall, financial conditions in the euro area had remained broadly stable at highly accommodative levels. Taking a snapshot across indicators, those that put a large weight on the exchange rate showed an easing of financial conditions and those that stressed stock markets showed a tightening. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. As regards the external environment, incoming data had confirmed that the general recovery was proceeding, but with increasing evidence of supply constraints. At the same time, the spread of new COVID-19 variants continued to be a major concern for the global and euro area economic recovery. The Purchasing Managers’ Index (PMI) data for June gave historically high readings for the second quarter of 2021 as a whole – but this was before the Delta variant had led to a sharp increase in cases of infection. Trade in goods remained on the strong upward trend observed since the middle of last year – even though it had flattened slightly according to the most recent data. Since the June monetary policy meeting of the Governing Council, the euro had depreciated markedly against the US dollar (-3.6%) and less so in nominal effective terms (-0.9%). Oil prices had decreased by 3.9% in the same period (remaining broadly in line with the technical assumptions for the June projections), amid heightened volatility in the oil market. The upward trend in non-oil commodity prices had stopped and, overall, prices of metals and food had remained broadly unchanged since the June Governing Council meeting. Turning to the euro area, GDP had decreased by 0.3%, quarter on quarter, in the first quarter of 2021, especially owing to the implications of the lockdowns in many euro area countries for private consumption. Supply-side bottlenecks continued to dampen manufacturing activity, with supplier delivery times remaining close to the record high recorded in June, both globally and in the euro area, and the ratio of new orders to stocks of finished goods reaching a record high. The intensification of supply constraints was weighing on manufacturing and investment and had led to a fall in industrial production in May. In the latest ECB Corporate Telephone Survey, firms had reported that it was probably going to take until somtime next year before these supply constraints would no longer be an issue. Recent survey indicators, such as the PMIs for manufacturing output and services business activity, had suggested a strong rebound in activity in the second quarter, particularly in services, with continued growth in manufacturing. Retail sales volumes up to May, together with the increased availability of certain services, were consistent with robust consumption growth in the second quarter. Business confidence indicators pointed to a big recovery, with industrial confidence at very high levels in June – well above its pre-pandemic level – while other indicators were just about returning to pre-pandemic levels. Consumer confidence had increased, mainly reflecting a marked improvement in the assessment of the general economic situation over the next 12 months, while confidence in consumers’ personal financial situation, which tended be the main factor in purchasing decisions, had improved far less strongly. For business investment, survey indicators up to June suggested a strengthening in the second quarter of 2021, although the decline in capital goods production in May reflected the constraints posed by supply-side bottlenecks. Construction firms had also flagged shortages of materials and labour close to historical highs in June, amid strong demand conditions and confidence indicators. Turning to trade, the April data reflected continuing momentum, especially in goods exports to the United States and Asia, but the local contribution had weakened. In particular, exports of vehicles and electronics had been affected by supply constraints, while the delivery delays had also extended to machinery. Forward-looking indicators for tourism pointed to a recovery but were still very far from levels consistent with a complete normalisation. Looking at the labour market, the unemployment rate had declined in May to stand at 7.9%, which was 0.2 percentage points lower than in April 2021 but 0.6 percentage points higher than in February 2020. The number of workers in job retention schemes had been reduced but still amounted to around 5% of the labour force. Overall, the labour market continued to be substantially affected by the pandemic, but high-frequency indicators and survey data pointed to robust employment growth in the period ahead. Turning to nominal developments, inflation in the Harmonised Index of Consumer Prices (HICP) had decreased slightly from 2.0% in May to 1.9% in June. HICP energy inflation had remained high (12.6%), contributing the lion’s share (1.1 percentage points) to headline inflation in June. HICP inflation excluding energy and food had decreased slightly from 1.0% in May to 0.9% in June, driven by a decrease in services price inflation. While non-energy industrial goods (NEIG) price inflation had increased further from 0.6% in May to 1.2% in June, services price inflation, which historically had been an important driver of overall inflation, remained below 1%. In particular, prices in the tourism and hospitality sectors had not yet fully recovered. The change in HICP weights for 2021 had started to become a drag again on HICP inflation in June, a factor which was expected to increase over the summer. Developments in measures of underlying inflation remained subdued overall, with special factors playing an important role for many measures. The Persistent and Common Component of Inflation index had increased because the common component in this measure also captured the persistent part of energy price developments. For measures of core inflation, developments depended on whether volatile items such as travel-related services or clothing and footwear were included and also whether the effects of changes in value added taxes were netted out. In general, it continued to be important to assess developments in underlying inflation on the basis of a broad range of indicators. Pipeline pressures for NEIG inflation had increased further over recent months, mainly at the earlier stages of the pricing chain, and additional upward pressure on NEIG inflation from recent input cost developments was likely over the coming months. Wage developments had been subdued overall. Many wage settlements had been low, which reflected the difficulty entailed in negogiating higher wages amid the current level of economic slack and high uncertainty. The latest data gave no indication that rising inflation rates were leading to higher wage agreements. Increases in input costs continued to put profit margins under pressure. Looking ahead, it was important to assess whether the pass-through of higher input costs would strengthen. In the latest ECB Survey of Professional Forecasters, longer-term expectations for headline inflation had been revised up to 1.8% (for 2026) from 1.7% (for 2025) in the previous round. The distribution of longer-term inflation expectations had moved to the right as many more respondents had revised their longer-term inflation expectations upwards than downwards. At the same time, market-based measures of inflation compensation and option-implied risk-neutral inflation probabilities had remained broadly unchanged since the June monetary policy meeting. Turning to financial and monetary developments, nominal risk-free rates and sovereign yields had declined since the June policy meeting. Looking at the downstream indicators, interest rates for households and firms remained low and financial and financing conditions were broadly unchanged overall. Long-term GDP-weighted sovereign yields had fallen in parallel with risk-free rates since the June monetary policy meeting of the Governing Council, but they were still far above the levels recorded last December. The annual growth of M3 had declined further in May, suggesting a normalisation of monetary flows compared with the peak of the crisis, with households and firms returning to accumulating deposits at a pace similar to the rate prevailing before the pandemic. The annual growth rate of loans to firms had declined in May as a result of the improvement in economic activity and confidence indicators. The real cost of bank financing had moved back towards pre-pandemic levels, supported by the recent rebound in inflation expectations. In the July bank lending survey, euro area banks had reported a moderate net increase in demand for loans to firms in the second quarter of 2021, after two quarters of significant declines. Financing needs of firms for fixed investment were seen as making a positive contribution to loan demand for the first time since the third quarter of 2019. The reported change in the composition of lending hence reflected a normalisation. It was also reassuring that banks had reported broadly unchanged credit standards for loans to enterprises in the second quarter of 2021, following a significant net tightening in the second half of 2020 and a moderate tightening in the first quarter of 2021. Some companies seemed to have replaced bank loans with market-based financing, taking advantage of the attractive bond yields. The annual growth rate of loans to households had edged up in May and continued to be driven by lending for house purchase. Credit standards for housing loans had remained broadly unchanged in the second quarter of 2021. Turning to fiscal policies, strong fiscal support was expected for 2021, including from the Next Generation EU (NGEU) programme. Since the June staff projections were prepared, additional fiscal measures of around 0.25% of GDP had been announced for the current year. Monetary policy considerations and policy options Summing up, Mr Lane noted that, in implementing the new monetary policy strategy, it was important to update the Governing Council’s forward guidance on the key ECB interest rates. A commitment to maintain monetary accommodation on a persistent basis was essential in view of the effective lower bound constraint and the shortfall in the medium-term inflation outlook relative to the two per cent target. The new strategy incorporated two key innovations which should be reflected in the ECB’s forward guidance on interest rates: first, the redefinition of the ECB’s price stability objective as a two per cent inflation target over the medium term; and, second, a conditional commitment to take into account the implications of the effective lower bound when conducting monetary policy in an environment of structurally low nominal interest rates. Under the current conditions, forward guidance would reinforce the commitment to attaining the inflation target by clarifying that the policy rates would be raised only if the evidence was sufficiently robust to allow the Governing Council to expect with a high degree of confidence that the inflation rate would reach two per cent on a durable basis. In practice, the proposed new forward guidance would serve two distinct purposes: first, it would provide a concrete operationalisation of the concept of robust convergence of inflation to the new target; and, second, it would reflect the clear need for the ECB’s policy reaction to be especially persistent in conditions, such as at present, in which nominal interest rates had been close to their lower bound for some time and the outlook for inflation was still well below the target. A recalibrated forward guidance should contain three key conditions that should be met before interest rates were raised: first, inflation should reach the target well in advance of the end of the projection horizon, in order to ensure that the lift-off decision was based on firm foundations and not exposed to the volatility of longer-horizon projection errors; second, the Governing Council should be confident that the target would be reached on a durable basis; and, third, the Governing Council should not consider raising rates unless underlying inflation was also judged to have made satisfactory progress towards two per cent. This was an extra safeguard against a policy tightening in the face of cost-push shocks that might elevate headline inflation temporarily but fade quickly. Finally, a preamble should make clear that the new guidance was in the service of ensuring robust convergence to the target over the medium term. In line with these principles, Mr Lane proposed the following reformulation: “In order to ensure robust convergence to the two per cent inflation target over the medium term, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and on a durable basis and we judge that realised progress in underlying inflation towards two per cent is sufficiently advanced”. First, by stipulating that inflation should be expected to reach the target “well ahead of the end of our projection horizon”, the new forward guidance would give reassurance that the rise in inflation to two per cent at the time of a rate lift-off should not be expected to occur only at the end point of the horizon. This earlier convergence to the target also helped to hedge monetary policy against the risk of reacting to forecast errors, which tended to be larger at longer horizons. Second, by stating that the inflation target should be reached on a durable basis, the Governing Council would signal that the target would be attained on a lasting basis, rather than as the result of short-lived forces that led to one-off price increases but were unlikely to lead to persistently higher year-on-year inflation. For that purpose, the Governing Council needed to look beyond the initial threshold of “well ahead of the end of the projection horizon” to see whether the inflation target was expected to be reached on a durable basis. In both dimensions, the forward guidance was formulated as an expectation of the Governing Council, rather than being mechanically linked to staff projections. This formulation would also keep an element of the focus on current developments by retaining the reference to underlying inflation. Specifically, the third condition would imply that the “realised progress in underlying inflation towards two per cent is sufficiently advanced” at the time of a rate hike. This additional condition would provide added insurance against a premature policy reaction to transitory, and possibly contractionary, price shocks. It was important to keep in mind that “underlying inflation” was a broad concept – it was the persistent component of inflation that provided the best guide to future inflation developments and was not proxied by any single indicator, in view of the state-contingent nature of the forces shaping underlying inflation trends. Some other elements of the new forward guidance were important to note. First, the forward guidance remained state-contingent and would continue to provide a powerful automatic stabilisation mechanism. In one direction, if the inflation outlook were to improve by more than anticipated as the recovery proceeded, the time horizon to the first increase in interest rates would automatically shorten and financing conditions tighten. In the other direction, if there were setbacks to the inflation outlook, the time to lift-off would automatically lengthen, leading to easier financing conditions that would help support the economy and the inflation outlook. Second, specifying a condition in terms of a relatively earlier convergence within the projection horizon did not mean altering the Governing Council’s concept of the medium term. The condition was meant to act as a signpost to orientate monetary policy at a time when acting too pre-emptively would risk exposing policy to “false signals” and when longer-term inflation expectations remained well below the Governing Council’s inflation target. The orientation, as stated in the preamble to the new forward guidance, remained resolutely focused on “ensuring robust convergence to the two per cent inflation target over the medium term”. Third, the formulation provided ex ante guideposts, rather than requirements that needed to be met ex post. In particular, the preamble limited the validity and scope of the new forward guidance to a situation in which robust convergence was not yet assured. Once robust convergence to the two per cent target had been achieved, revised forward guidance would be necessary. Given that the reformulation of forward guidance constituted a revision to the policy stance that might prolong the horizon over which the key interest rates were expected to remain at their present or lower levels, a proportionality assessment was warranted. The proposed revision to the forward guidance was indeed judged a proportionate response to the risks to the ECB’s price stability mandate. Since the Governing Council had first introduced forward guidance on interest rates in 2013, it had gained substantial experience with this instrument: there was little doubt that it was an effective tool to steer interest rate expectations. There was abundant evidence that it had contributed to bringing inflation closer to the Governing Council’s objective, and the proposed new guidance was expected to be similarly effective. The proposed reformulation was also efficient compared with alternative policy options. Other tools, while also effective, would be less efficient in the medium-term segment of the term structure: in order to provide the same additional inflation impulse with different instruments, the Governing Council would need to either lower policy rates substantially deeper into negative territory or significantly scale up its asset purchase programmes. Moreover, any unintended consequences of the current low level of interest rates for financial intermediation and the wider economy were unlikely to be strongly amplified by the limited delay in the lift-off date to which this reformulation could give rise, and in any case would be outweighed by the benefits of low interest rates for employment and economic activity. Of course, the Governing Council would continue monitoring the potential side effects – positive or negative – if it extended the period over which negative or low interest rates were applied. In this respect it was also important to note that the support which the new strategy and the proposed forward guidance provided for the re-anchoring of inflation expectations reduced the risk of possible side effects, since it should help to shorten the time spent at very low interest rates and, all else being equal, lower the required volume of asset purchases. Turning to the assessment of the economic outlook, the recovery of the euro area economy was gaining momentum. While the Delta variant was a source of concern, the advance of the vaccination campaigns over recent weeks had allowed containment measures to be rolled back in most euro area countries. The improvement in the economic outlook was reflected in forward-looking activity and sentiment data for all sectors of the economy and was also starting to show through in indicators of realised economic activity. The composite manufacturing PMI had hit a new record in June, retail sales had improved significantly in May, and trade was showing robust momentum. However, the increasing spread of the Delta variant could dampen the recovery, especially in services such as tourism and hospitality. Moreover, supply constraints continued to restrain production in some sectors. The intensification of global supply chain disruptions that was becoming evident, for example in longer delivery times or shortages of computer chips, had led to a decline in industrial production in the three largest euro area economies in May. Risks to the outlook remained broadly balanced. Downside risks were primarily related to the possibility of a renewed intensification of the pandemic owing to the spread of more aggressive virus variants or more persistent supply bottlenecks. The strong incoming forward-looking data and the possibility of a faster than anticipated draw-down of savings represented some upside risks to the outlook. HICP inflation had decreased slightly, from 2.0% in May to 1.9% in June. While, the latest data implied some upward revision to the short-term profile for headline and core inflation on account of stronger than envisaged inflation for the NEIG and energy components, the profile envisaged in the June staff projections was broadly confirmed. Survey-based measures of inflation now also indicated a small rise in longer-term inflation expectations, although to levels that were still some distance below the inflation target. Although long-term benchmark interest rates remained above the levels observed in the first months of the year, these had fallen since the June monetary policy meeting, influenced by movements in US bond yields and renewed uncertainty about the future evolution of the pandemic. The market reaction to the Federal Open Market Committee’s meeting in June had been a key driver of international financial markets, but interest rate expectations in the euro area had remained mostly unaffected. Since the incoming information was broadly in line with the joint assessment of financing conditions and the inflation outlook carried out at the June monetary policy meeting, Mr Lane proposed to continue to conduct net asset purchases under the pandemic emergency purchase programme in the third quarter at a significantly higher pace than during the first months of the year. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The recovery in the euro area economy was widely seen as on track. More and more people were being vaccinated, and lockdown restrictions had been eased in most euro area countries. But the pandemic continued to cast a shadow, especially as the Delta variant constituted a source of growing uncertainty. Inflation had picked up, although the increase was expected to be mostly temporary. The outlook for inflation over the medium term remained subdued. With respect to the external environment, members broadly shared the assessment provided by Mr Lane in his introduction that global economic activity and trade had continued to improve, despite the fourth wave of the coronavirus spreading across the world. It was generally believed that less stringent measures would be adopted by authorities and that the link between widely used lockdown indices and economic activity should be substantially weaker than in earlier waves. At the same time, concern was expressed about the situation in emerging economies, where vaccination campaigns were much less advanced. Moreover, trade continued to be heavily affected by supply bottlenecks and rising shipping costs, and was still dependent on the future evolution of the pandemic. In this environment, the outlook for global trade was seen as highly uncertain. The outlook for economic activity and inflation in the United States was regarded as difficult to interpret in the light of recent financial market developments, with US bond yields having declined considerably at a time when inflation in the United States had clearly risen. While market participants might have become more pessimistic about the growth outlook in view of the recent spread of the Delta variant, they had also become more receptive to the Federal Reserve System’s argument that the ongoing bout of inflation would be temporary. However, it was also argued that a number of indicators pointed to risks of a more protracted rise in inflation in the United States, not least against the background of substantial fiscal policy support. In discussing the euro area’s economic outlook, members generally concurred that the June baseline staff projections remained broadly valid, despite some changes in the likely quarterly pattern. It was underlined that the euro area economy was rebounding strongly and economic sentiment had improved notably. If anything, recent indicators seemed to have become more favourable than previously expected and were confirming that the recovery was gaining ground. Generally, they now pointed to a somewhat stronger outcome for economic activity in the second quarter, while growth in the third quarter might fall short of the ambitious figure contained in the June projections. Taking both quarters together, growth seemed to be well on track overall. Manufacturing was expected to perform strongly, even though supply bottlenecks were holding back production in the near term. The reopening of large parts of the economy was supporting a vigorous bounce-back in the services sector. However, the Delta variant of the coronavirus could dampen the recovery in services, especially in tourism and hospitality. As people returned to shops and restaurants and resumed travelling, consumer spending was rising. Better job prospects, increasing confidence and continued government support were reinforcing spending. The ongoing recovery in domestic and global demand was boosting optimism among businesses. While the spread of the Delta variant had led to renewed uncertainty, as also reflected in financial markets, the economy was holding up. Households and firms continued to adapt rapidly to living with the presence of the coronavirus. The assessment was broadly shared that a fourth wave of the coronavirus would have a more limited health impact owing to rising vaccination rates, for example in terms of hospitalisation and pressure on intensive care units. Hence a fourth wave was also likely to result in less stringent containment measures and have a more limited economic impact overall. In this context, it was pointed out that the correlation between containment measures and the economic cost of the pandemic was changing over time. Overall, economic activity could be expected to return to its pre-crisis level in the first quarter of next year. However, there was still a long way to go before the damage to the economy caused by the pandemic was overcome. For example, the number of people in job retention schemes had been declining but remained high. Members assessed the risks to the economic outlook as broadly balanced. On the upside, economic activity could outperform expectations if consumers spent more than currently expected and drew more rapidly on the savings they had built up during the pandemic. Attention was drawn to the fact that the recovery was gaining momentum, with a strong rebound in consumption and qualitative indicators pointing to a fall in the household saving rate. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. In addition, the approval of the NGEU programmes for the individual countries was moving in a favourable direction, even if implementation risks remained. Previously identified risks of a wave of bankruptcies in the corporate sector appeared to be receding. Regarding possible downside risks, growth could underperform expectations if the pandemic intensified or if supply shortages turned out to be more persistent and held back production more than previously anticipated. Concerns were expressed that much about the virus was still poorly understood and a sequence of further mutations was not unlikely, with consequences that were hard to predict despite progress with vaccination campaigns. It was also argued that tail risks in the non-financial corporate sector, and notably for small and medium-sized enterprises, were still accumulating in a recovery that was very asymmetric and uneven from a sectoral perspective. Moreover, it was underlined that the benign evidence of limited bankruptcies so far had to be ascribed to the massive and timely responses of fiscal and monetary policy. Finally, rising oil and commodity prices could weigh on consumption, while economic slack remained substantial in a fragile recovery. Looking at a comparison with the June staff projections, it was pointed out that the risk of the Delta variant spreading had clearly materialised but with less immediate economic impact than might have been feared. Overall, the balance of risks for economic activity as expressed in the June projections was judged to be still valid. Against this background, members agreed that ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy in supporting the recovery. In this context, the NGEU programme had a key role to play. It would contribute to a stronger and uniform recovery across euro area countries. It would also accelerate the green and digital transitions and support necessary structural reforms that lifted long-term growth. Turning to price developments, headline HICP inflation had stood at 1.9 per cent in June. Inflation was expected to rise over the coming months and to decline again in 2022. The current increase was largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and from the impact of the temporary VAT reduction in Germany last year. By early 2022 these factors would fade as they dropped out of the year-on-year inflation calculation. Members highlighted that recent inflation numbers had clearly been higher than previously expected, for both headline inflation and core inflation excluding food and energy, continuing a persistent string of upside surprises. They were driven, in particular, by unexpectedly strong developments in NEIG prices. However, the picture of a mostly transitory increase in inflation was still widely seen to hold true. While the increases in inflation were expected to continue in the near term, in part owing to temporary cost pressures in supply chains, most measures of underlying price pressures had remained subdued. Significant slack in the economy, weak wage growth and the past appreciation of the euro meant that underlying price pressures would likely remain subdued for some time. Attention was drawn to indications that profit margins were falling rapidly, implying that cost increases were being absorbed by businesses rather than being passed through to prices. Moreover, available data on wage agreements for the first few months of the current year pointed to growth in negotiated wages that remained relatively low in an environment in which inflation was relatively high. Subtracting reasonable estimates of trend productivity growth from wage growth showed subdued unit labour costs. It was argued that, taken together, this evidence suggested a subdued medium-term outlook for inflation. It was also argued that, so far, evidence of second-round or indirect effects of higher inflation was limited, with a contained pass-through from non-energy input costs to consumer prices. However, it was also stressed that profit margins had already been squeezed for some time during the pandemic and, based on past experience, such a continuous decline in margins was not sustainable and would likely reverse. This suggested that cost increases would increasingly be passed through to consumers in the future. This was all the more likely in the current environment, since households appeared ready to spend part of their accumulated savings. Reference was also made in this context to upward revisions to earnings expectations for listed companies. In addition, supply bottlenecks now seemed to be more severe and persisting for longer than previously expected, although they were clearly expected to remain transitory. Moreover, labour market developments had been getting stronger in recent months, with reduced recourse to government support schemes. The new package of climate policies recently proposed by the European Commission was seen as likely to lead to sustained upward pressures on energy prices and some other price components in the period ahead. However, it was also argued that such cost and price pressures linked to the climate transition might be offset by efficiency gains from technological change, by the replacement of fossil fuels with renewables in the energy mix and by an intended downward impact on energy consumption. The point was made, however, that the direct effect of climate policies on energy prices should dominate initially and that any substitution effect was likely to kick in only later. With respect to public investment and the impact on aggregate demand, and hence on economic slack, the net effect of the climate package would clearly be to stimulate the economy for the next decade. In line with the conclusions of the ECB’s strategy review, a discussion of the costs of owner-occupied housing was welcomed. Residential property prices in the euro area were increasing at their fastest pace since 2007, and experience at the country level suggested that the underlying trends were rather persistent. The available experimental owner-occupied housing cost data related to the first quarter of 2021, and the contribution they would have made to headline inflation for the euro area as a whole had been estimated at around 0.2-0.3 percentage points. In this context, it was underlined that the existing HICP remained the relevant measure of inflation for the ECB, with owner-occupied housing an auxiliary consideration and the available experimental indicator lagging the HICP. In the past there had also been earlier periods, such as between 2011 and 2014 – i.e. during the sovereign debt crisis – when the contribution from owner-occupied housing would have been significantly negative, at around 30 basis points. Mapping the property price index to the owner-occupied housing component in consumer prices remained experimental and required further work. So far, a distinction had not been made between the consumption and the investment element. Considering recent developments in inflation expectations, members noted that longer-term inflation expectations had edged up to 1.8 per cent, from 1.7 per cent, according to the ECB’s Survey of Professional Forecasters, while market-based indicators of inflation expectations had remained broadly stable. The survey had been carried out before the ECB’s announcement of its revised strategy but possibly reflected some anticipation of the Governing Council’s new framework. While no significant market impact had been observed around the day on which the new strategy was announced, it might take some time until the markets and the public had fully digested the changes. Confidence was expressed that inflation expectations were starting to move in the right direction. However, it was also cautioned that inflation expectations for the coming five years as reflected in option market prices continued to show a much higher probability of euro area inflation falling short of two per cent than exceeding it. Members broadly concurred that, while the inflation outlook had improved, it remained some distance from the ECB’s target level. The Governing Council would consider the outlook again in more detail at its September meeting, once the new staff projections were available. At the same time, risks to the inflation outlook, as embodied in the June Eurosystem staff projections, were widely regarded as increasingly tilted to the upside. This was clearly seen to be the case over the short term. It was also seen to be the case to a lesser extent in the assessment of the medium-term outlook, although this was more uncertain. Turning to the monetary and financial analysis, members broadly concurred that incoming data suggested monetary flows were normalising as the pandemic situation improved. The annual rate of growth in broad money (M3) had declined further in May, reflecting a strong negative base effect. Deposit flows of households and firms had returned to pre-pandemic levels as liquidity needs subsided. The annual growth rate of bank loans to the private sector had declined in May, reflecting a negative base effect and net loan redemptions. At the same time, it was noted that in the July bank lending survey euro area banks had reported a moderate net increase in firms’ demand for loans in the second quarter of 2021. Credit conditions were judged to have remained supportive against the backdrop of a generally improving economic situation and continued policy support from monetary, fiscal and supervisory authorities. Interest rates on bank loans had so far been insulated from the upward trend in risk-free interest rates since the end of 2020 and remained near historical lows. Members agreed that, overall, financial and financing conditions had remained broadly unchanged at highly favourable levels. Euro area risk-free interest rates and sovereign yields had fallen in both nominal and real terms since the June monetary policy meeting, with the euro area GDP-weighted ten-year bond yield falling back into negative territory. It was remarked that real interest rates stood at historical lows. The decline in euro area market interest rates was seen to largely reflect renewed risk aversion, owing to the rapid spread of the Delta variant of the coronavirus, as well as spillovers from the decline in US yields. Further downstream, bank lending rates for firms and households had remained near historical lows. It was reiterated that preserving favourable financing conditions for all sectors of the economy throughout the pandemic crisis period remained essential for the current economic rebound to turn into a lasting expansion and to offset the negative impact of the pandemic on inflation. Monetary policy stance and policy considerations With regard to the proposed policy measures, members agreed that it was necessary to align the forward guidance on interest rates with the revised formulation of the price stability objective in the ECB’s new monetary policy strategy. Given that the conclusion of the strategy review had been announced only two weeks prior to the current monetary policy meeting, it was highlighted that changes in the forward guidance would shape market participants’ understanding of the new strategy and could be seen as a first test of the revised strategy itself. It was underlined that the new strategy had been agreed unanimously and provided the Governing Council with a shared framework. The strategy incorporated two key innovations, which needed to be reflected in the forward guidance. First, it provided a numerical clarification of the price stability objective by specifying an explicit two per cent symmetric inflation target. Second, it included a “conditional commitment” to take into account the implications of the effective lower bound when setting monetary policy in an environment of structurally low nominal interest rates, including through the adoption of more forceful or persistent policy measures. The need to revise the forward guidance on interest rates was emphasised, in order to provide a credible commitment to bringing inflation up to the new target. It was also seen as essential to provide safeguards against a premature tightening of monetary policy in the current environment. It was also recalled that forward guidance was a state-contingent instrument that expressed monetary policy intentions, rather than being a fixed commitment to a pre-determined policy path. The forward guidance was always based on the Governing Council’s current assessment of the outlook for price stability. Hence, the Governing Council retained discretion and judgement, and the guidance could change as circumstances evolved. Moreover, as the forward guidance was not mechanically linked to the staff projections, the Governing Council retained flexibility to exercise its own judgement regarding the inflation outlook. The reformulated forward guidance was best understood as a set of conditions that would help guide the ECB’s actions in pursuit of its inflation target, as defined in the new strategy. It did not necessarily imply “lower for longer” interest rates if it ultimately succeeded in anchoring inflation expectations at the target, as intended. Accordingly, it was remarked that forward guidance on interest rates, if credible, should reduce the extent to which other instruments needed to be deployed. Against this background, the new formulation of the forward guidance proposed by Mr Lane was widely seen as finely balanced. It reflected the new symmetric inflation target of two per cent and the conditional commitment to take into account the implications of the effective lower bound when conducting policy in an environment of structurally low nominal interest rates. In particular, by stipulating more specific outlook-based and outcome-based conditions to be met before interest rates were raised, it underlined the need for persistence in the accommodative policy stance. This would help avoid a premature tightening of the stance and ensure a robust convergence of inflation to the target in the medium term. In this regard, it was noted that the forward guidance language should clearly dispel the notion that two per cent was a ceiling for inflation, given that the new strategy explicitly allowed for a moderate and transitory overshooting. In the discussion, members put forward a number of considerations. On the one hand, the case was made for strengthening the forward guidance on interest rates even further. First, policy rates remained constrained by the lower bound. Second, medium-term inflation expectations continued to stand below the inflation target. Third, markets were pricing in a lift-off of the key ECB policy rates at a time when inflation over the medium term was still expected to be well below two per cent. This could be interpreted as a sign that the current forward guidance was insufficient to guide market expectations. From this perspective, it was felt that the forward guidance could be strengthened by formulating the lift-off conditions in terms of realised inflation rather than expected inflation. The point was made that stepping up the forward guidance now and scaling it back later, when necessary, would be better for credibility than having to scale up the guidance later. On the other hand, it was cautioned that requiring inflation to durably reach two per cent at an earlier point in time would risk undermining the medium-term orientation of monetary policy. In addition, given the significant lags with which monetary policy was transmitted to the real economy, it would amount to intentionally overshooting the inflation target. In this regard, it was recalled that other instruments were continuing to provide strong monetary policy support at the lower bound. The point was made that some loosening of the monetary policy stance would occur automatically, without substantial changes to the forward guidance, because the somewhat higher inflation target in the new strategy would in any case likely imply a postponement of the lift-off date. The credibility of the Governing Council’s forward guidance was seen as key to its success. It was noted that the further into the future forward guidance extended, the less credible the commitment was likely to be. Under the forward guidance in place at the time of the meeting, markets were not expecting the lift-off until 2024 and were pricing in negative policy rates until 2028. Moreover, the argument was made that the proposed formulation could prove too ambitious and hence jeopardise credibility by risking a break with the stipulated conditions later on. A suggestion was made to include “knock-out” clauses in the forward guidance as a possible means to enhance credibility, mitigate financial stability risks and underscore that the Governing Council was just as concerned about inflation being too high as it was about inflation being too low. At the same time, it was underlined that the strategy itself provided a safeguard by stipulating that only temporary and moderate overshoots of inflation would be consistent with price stability over the medium term. Against this background, members exchanged views on how to formulate the three conditions in the recalibrated forward guidance set out in the proposal by Mr Lane. With regard to the first condition, it was remarked that the phrase “well ahead” was essential in order to avoid referring only to the end of the projection horizon, which was seen as subject to greater uncertainty than shorter-term forecasts. Given projection errors, preferences were expressed to formulate the first condition in terms of realised inflation rather than projected inflation. This might help avoid a premature tightening of the monetary policy stance, strengthen the credibility of the guidance and provide greater clarity to markets. At the same time, concerns were raised that the phrase “well ahead” could be perceived as deviating from the medium-term orientation of the monetary policy strategy. However, it was clarified that specifying a condition in terms of a relatively earlier convergence within the projection horizon did not mean altering the concept of the medium term. With regard to the second condition outlined by Mr Lane, the phrase “on a durable basis” was seen to provide flexibility by allowing for small oscillations around the target level. However, concerns were raised that the phrase was too vague to sufficiently anchor expectations, as suggested by experience with the current formulation of forward guidance. It was argued that the notion of durability could be reinforced by referring explicitly to the level of inflation over the remainder of the projection horizon. In this regard, and in view of the symmetric nature of the inflation target, it was suggested that reference could be made, for example, to inflation not falling below or staying above two per cent over the forecast horizon. It was acknowledged that such a reformulation of interest rate forward guidance would imply an almost certain overshoot of the two per cent inflation target. Such overshooting, if temporary and moderate, could however be seen as fully in line with the new strategy. At the same time, it was argued that requiring inflation not to fall below the target would effectively amount to intentionally overshooting, which was viewed as inconsistent with the strategy. It was also remarked that, because there was no explicit safeguard ensuring that any potential overshoot would be moderate, maintaining price stability could give rise to the need for a rapid increase in policy rates once the conditions of the interest rate forward guidance had been met. Such a swift tightening of policy rates at a later stage might then not prove easy to pursue or might give rise to financial stability risks, exacerbating the initial overshoot. This needed to be taken into account in the proportionality analysis. Against this background, there was broad support for including an explicit reference to the ECB’s agreed monetary policy strategy statement on overshooting in the communication on forward guidance, in order to address potential misunderstandings. With regard to the third condition, referring to underlying inflation was seen as an effective means to safeguard against a premature tightening of monetary policy in response to forecast errors or to supply-side shocks that might affect headline inflation only temporarily. However, a concern was expressed that the phrase “realised progress in underlying inflation towards two per cent is sufficiently advanced” could be misinterpreted as suggesting that the Governing Council had a separate two per cent target for underlying inflation. Moreover, the point was made that such a perceived target for underlying inflation would effectively render the guidance rather ambitious because standard measures of underlying inflation, in particular core inflation excluding food and energy, had typically been well below headline inflation in the euro area historically. It was also remarked that there were multiple measures of underlying inflation and therefore the reference might be viewed as ambiguous and leaving ample room for discretion. Reflecting the balance of the arguments, overwhelming support emerged around an amended version of the forward guidance proposal by Mr Lane. The notion of “robust” convergence was further clarified by the inclusion of the phrase “durably for the rest of the projection horizon” with reference to inflation reaching two per cent. The inclusion of language from the new strategy statement – namely a reference to the target being symmetric and the possibility of a transitory period in which inflation could be moderately above target – would place the forward guidance firmly within the strategy framework. It would also act as a safeguard against persistent or pronounced overshooting. The phrase “underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent” made it clear that the target was headline inflation, not underlying inflation. Turning to proportionality considerations, the proposed revisions to the forward guidance on interest rates were generally assessed to be a proportionate response to the risks to the Governing Council’s price stability mandate. Experience with forward guidance suggested that it had been an effective tool for steering market expectations regarding interest rates, thereby helping to bring inflation closer to the Governing Council’s target. The proposed reformulation was also viewed as efficient compared with alternative policy options. While forward guidance could, in part, substitute for the use of other instruments that might have more pronounced side effects, it was remarked that a recalibration of the interest rate forward guidance could be erroneously perceived by market participants as necessarily implying a longer period of net asset purchases owing to the link between rate guidance and forward guidance on the asset purchase programme (APP). There was general agreement to defer the discussion on the APP forward guidance to a future meeting. The Governing Council continued to assess the benefits of negative policy rates as outweighing their costs, although the longer negative rates remained in place the greater the likelihood of the balance of risks shifting to the downside. Against this background, a large majority of members indicated that they could support the revised forward guidance proposal. The proposal was widely seen as providing a fine balance between greater emphasis on outcome-based elements in the forward guidance and a more flexible, forward-looking perspective. After the unanimous agreement on the new strategy, broad consensus on forward guidance was generally regarded as of great importance. At the same time, a few members upheld their reservations, as the amended formulation did not sufficiently address their concerns. These related in particular to the implied likelihood and persistence of overshooting, and being seen as promising to keep interest rates at their present or lower levels for a very long time period without an explicit escape clause. Turning to other elements of the stance assessment, members concurred with Mr Lane that incoming information had broadly confirmed the joint assessment of financing conditions and the inflation outlook carried out at the June monetary policy meeting. Accordingly, it was agreed to continue to conduct net asset purchases under the pandemic emergency purchase programme in the third quarter at a significantly higher pace than during the first months of the year. Monetary policy decisions and communication On communication, it was regarded as important to explain that the forward guidance on interest rates reflected the new strategy and the need for persistent monetary policy measures in the face of the lower bound. The forward guidance underscored the Governing Council’s commitment to achieving its new inflation target and indicated that it would wait until it was confident about the path of inflation before raising the key policy rates. The guidance was not a rule but rather provided an indication to financial markets and the broader public so they could better align their inflation expectations with the Governing Council’s target. It was essential to emphasise that the forward guidance remained consistent with the medium-term orientation of monetary policy, which remained distinct from the projection horizon. In this regard, it was nonetheless seen as helpful to clarify the notion of “well ahead”, which could be specified as referring to the mid-point of the projection horizon for practical purposes. It was noted that only the forward guidance on interest rates had been adjusted, and that the forward guidance on asset purchases remained unchanged for the time being. The point was made that the Governing Council had already been reacting forcefully for some time to the challenges posed by the effective lower bound, using a range of instruments. Highlighting this could help to dispel any notions that the reformulation of the forward guidance was a novel or delayed reaction to the lower bound problem calling for imminent deployment of further policy measures. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the press release that would be published after the conclusion of the meeting. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would deliver at the press conference following the end of the current Governing Council meeting. Monetary policy statement Monetary policy statement Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 21-22 July 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Stournaras Mr Šimkus Mr Vasle* Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in July 2021 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Arce Mr Bradeško Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Ms Lacerda Mr Lünnemann Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Vanackere Mr Välimäki Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 7 October 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. 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7 October 2021 Meeting of 8-9 September 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 8-9 September 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 21-22 July 2021. The pronounced decline in ten-year US Treasury yields and euro area GDP-weighted sovereign yields observed just before the previous Governing Council meeting had proven persistent despite the ongoing recovery from the pandemic crisis. More recently, yields had been trending somewhat higher but, overall, they had not risen back to the levels seen during the last recovery in 2017-18, or even to the levels seen earlier in 2021. Very low interest rates also continued to prevail across the currency union. Sovereign bond spreads over German Bunds had remained resilient at levels below or close to post-2008 lows. The decomposition of nominal ten-year euro area overnight index swap (OIS) rates into their inflation and real rate components showed that market-based measures of inflation compensation had continued to increase over the summer. This had been putting upward pressure on nominal rates as was to be expected at this stage of the economic cycle. Based on the developments in inflation expectations alone, the nominal ten-year OIS yields would be 65 basis points above the level prevailing at the time of the monetary policy meeting on 9-10 December 2020, at which the Governing Council had pledged to preserve favourable financing conditions. But a significant parallel decline in real interest rates had offset a large part of the rise in nominal yields. The real ten-year risk-free rate in the euro area had reached yet another record low over the summer. At below -1.8 per cent, it currently stood at an exceptional distance from its average level since the outbreak of the global financial crisis. The factors that might help explain the current low real yields remained the subject of intense market speculation. Two factors were mentioned most frequently by analysts. The first related to the spread of the Delta virus variant, which had started to affect mobility in some regions. However, to the extent that lower real yields reflected concerns about growth, this pointed to a decoupling between bond markets on the one hand and stock markets on the other hand. Despite rising infection numbers, stock markets had continued their rally over the summer as earnings expectations continued to increase. The EURO STOXX was up by another 5.5 per cent since the Governing Council’s previous monetary policy meeting. Indices across the euro area had made broad gains. Euro area corporate bond spreads, too, had remained resilient throughout the past few months, with spreads remaining close to the lows observed over the past decade, despite higher leverage. Corporate bond spreads had recently also been supported by favourable rating actions. Credit rating upgrades had outpaced downgrades by a substantial margin in the third quarter of 2021. The second factor that could help explain current low real yields related to the possibility that the market may have recently reappraised the way central banks would adjust policy rates. There were some indications that the relationship between expected inflation and expected future interest rates might have changed since the outbreak of the coronavirus (COVID-19) pandemic, especially in the euro area. This suggested that the market may have started internalising a more patient reaction function of the ECB with respect to the conditions that the Governing Council needed to see in order to start raising policy rates. There was also evidence that, after the announcement of the ECB’s new forward guidance, the top of the risk distribution around the future evolution of the three-month EURIBOR had been truncated, meaning that investors had effectively priced out contingencies that foreshadowed a very steep increase in policy rates. The compression of the risk distribution in response to the ECB’s new strategy and the revised forward guidance had initially also further flattened the forward curve. The forward curve had shifted outwards visibly after the strategy announcement, but had retraced its path more recently. The most recent Survey of Monetary Analysts (SMA) suggested that the ECB’s new forward guidance was likely to have contributed to the initial outward shift. Model-based evidence corroborated the view that monetary policy had been putting downward pressure on yields in recent months. In particular, the model results suggested that since the announcement of the ECB’s new strategy, and again after the announcement of the ECB’s new forward guidance, monetary policy had consistently been putting downward pressure on long-term risk-free rates. However, this contribution had softened in recent weeks. The resistance of global sovereign bond yields to moving higher had occurred in an environment of investors pricing in risks of higher inflation in the future. Option prices suggested that, in the United States, the market currently attached a probability of around 80 per cent to inflation over the next five years being, on average, above the Federal Reserve System’s 2 per cent target. In the euro area, the market-implied probabilities were considerably smaller, but had also increased notably to above 30 per cent. In euro area bond markets, model-based analysis also suggested that the inflation risk premium had increased significantly since the start of the year, albeit from very depressed levels, implying that the compensation that investors currently required for this risk still remained small by historical standards. Finally, prospects of higher interest rates in the United States had caused sizeable shifts in foreign exchange markets, with investors having increased their US dollar net long positions since about June 2021 to levels similar in magnitude to those seen at the heights of the COVID-19 pandemic in 2020. In August the euro had temporarily reached the lowest level against the US dollar in almost a year, as expected short-term interest rate differentials between the United States and the euro area had widened. The euro had moderately appreciated since then. Overall, financial conditions had eased since the Governing Council’s previous monetary policy meeting in July and also since the last comprehensive joint assessment of the inflation outlook and financing conditions in June, as indicated by a range of financial condition indices. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. As regards the external environment, the persistence of supply bottlenecks and the spread of the Delta variant remained concerns. With respect to global activity, the global Purchasing Managers’ Indices (PMIs) were retreating after a period of strong increases, indicating a degree of normalisation, while remaining overall above the threshold of 50, indicating continued expansion. Looking at developments in PMIs for activity by region, a gap between developments in advanced and emerging economies was opening up. As regards developments in global trade, world merchandise imports were broadly stable in June after declining in the previous two months. Bottlenecks, which were also reflected by increases in suppliers’ delivery times, could be linked to losses in exports. Since the July Governing Council monetary policy meeting, the euro exchange rate had declined by 0.4 per cent in nominal effective terms, while increasing by 0.6 per cent against the US dollar. Oil prices were broadly unchanged (up by 0.7 per cent) amid still heightened uncertainty about the outlook for global oil demand and supply. Turning to the euro area, the rebound in demand was continuing, while supply bottlenecks were constraining the production of goods. GDP growth in the second quarter of 2021 was 2.2 per cent, which was substantially stronger than the 1.4 per cent foreseen in the June Eurosystem staff projections, showing that the European economy had already recovered far more than previously expected. This rebound was driven by an increase in domestic demand, which was in turn linked to the rapid reopening of high-contact services. Moreover, containment measures had had a less negative impact on economic growth than had been anticipated, which indicated stronger learning effects. The September 2021 ECB staff projections foresaw the swift economic rebound persisting during the second half of 2021, driven by a reopening of the economy, continued strong policy support and a global recovery. Growth was projected to remain very strong in 2022 before slowing down in 2023. Compared with the June 2021 Eurosystem staff projections, real GDP growth had been revised up for 2021 and was broadly unchanged for 2022 and 2023. The date by which real GDP was projected to reach pre-crisis levels again had been brought forward by one quarter to the end of 2021. The latest quarterly business survey from the European Commission confirmed that developments in activity in the industrial sector were heavily affected by shortages of materials, space and equipment, which were less important factors for services. A lack of demand was no longer seen to be an issue in both manufacturing and services. While labour shortages had not played an important role earlier in the pandemic, in manufacturing they had started to emerge and labour had also become scarcer in services. Consumer confidence had improved, but it remained unclear how this would map into consumer spending as households were not reporting an improvement in their personal economic situation to the same degree. Developments in household bank deposits as an up-to-date, high-frequency proxy for savings showed that households continued to save less than during the height of the pandemic. Looking at investment, strong demand was supported by a rapid recovery in spending on housing and on business investment, which had also led to an increase in demand for external financing for investment. On the trade front, growth in extra-euro area goods exports had flattened in the second quarter of 2021, partly owing to supply bottlenecks which had dampened trade dynamics. At the same time, indicators for services exports had signalled a further improvement driven by a steady recovery in tourism, which was an important component of cross-border trade for many countries. Overall, tourism was not yet back to pre-pandemic levels. Intra-EU flights had recovered significantly but extra-EU flights were still far below pre-pandemic levels, in part reflecting continued restrictions on extra-EU travel. Regarding the labour market, the rebound was continuing and some labour shortages had been emerging. The unemployment rate had declined in July to 7.6 per cent, which was 0.2 percentage points lower than in June and 0.2 percentage points higher than in February 2020 before the pandemic started. The importance of job retention schemes had continued to decrease in recent months, but they still provided a substantial degree of support to the labour market, covering around 3 per cent of the labour force in July. Employment surveys signalled a robust recovery in the labour market. The PMI composite employment index remained well above the threshold of 50. Many firms reported in the European Commission’s business survey for the third quarter of 2021 that they were finding it increasingly difficult to meet their demand for labour. Turning to nominal developments, headline inflation had increased to 3.0 per cent in August, from 2.2 per cent in July. The increase reflected higher inflation in all the components, in particular non-energy industrial goods (NEIG), while services inflation had remained more subdued. High NEIG inflation partly reflected pipeline pressures. However, the unusually high rates of inflation were assessed to be largely temporary. In the September ECB staff projections, headline inflation was projected to rise further until the end of this year and then to fall back in the first half of 2022 before gradually strengthening from mid-2022. Compared with the June 2021 Eurosystem staff projections, the September projections for inflation in the Harmonised Index of Consumer Prices (HICP) had been revised up, mainly driven by higher energy inflation in the first half of the horizon. HICP inflation excluding energy and food had also been revised up owing to pressures along the pricing chain amid mismatches in demand and supply, less slack and the weaker euro. Comparing the September ECB staff projections with forecasts from other international institutions and the private sector indicated that the ECB staff projections for both growth and inflation were above other forecasts for the early part of the horizon, but broadly in line with other forecasts for 2023. Temporary and special effects had continued to have a substantial impact on inflation dynamics in recent months, complicating the assessment of the inflation figures. These effects included shifts in seasonal sales, base effects and also the effects of the change in HICP weights at the beginning of 2021, which varied over time. Measures of underlying inflation, comprising a broad range of indicators, were by and large moving gradually upwards, which gave grounds for confidence that the negative pandemic shock of last year was being reversed and hope that upward pressure would continue. But underlying inflation remained at subdued levels and quite far away from 2 per cent. Services inflation had increased, driven mainly (according to data available up to July) by the reopening of the high-contact sector. Regarding wage developments, compensation per employee had increased in the second quarter of 2021, rising by 8 per cent in year-on-year terms, largely as a result of base effects owing to the extreme developments in the second quarter of last year, reflecting a normalisation of work patterns rather than an increase in negotiated wages. Overall, wage pressures remained low and quite heterogenous across countries. Growth in the GDP deflator for the euro area had moderated in the second quarter to 0.55 per cent, after reaching 1.57 per cent in the first quarter of 2021. Overall, the reduction in the growth rate of the GDP deflator reflected developments in the terms of trade and more precisely a sharp increase in import prices. PMI survey data on input and output price developments indicated that profit margins continued to be under pressure, mainly driven by increases in input costs. Market-based measures of inflation compensation in the euro area had increased since the July Governing Council meeting, but remained below 2 per cent. Regarding financial and monetary developments, market interest rates were somewhat higher than at the time of the July monetary policy meeting of the Governing Council. Risk asset markets had been largely resilient, with equity prices reaching record highs. Overall, financial conditions had eased and broad financing conditions for firms, households and the public sector remained favourable. With respect to monetary developments, firms’ borrowing costs continued to be accommodative, while balance sheet conditions remained fragile and heterogeneous. Euro area bank lending rates stood on average close to their early 2020 values, while they had decreased more in countries more affected by the pandemic. The annual growth of lending to firms had remained moderate in July, at broadly the same pace as in June, reflecting benign factors such as a recovery in earnings. Bank profitability had recovered partially compared with last year, which was in part linked to some reductions in risk provisions thanks to the better than expected macroeconomic outlook. In parallel, bank funding costs had decreased, reflecting low bank bond yields, substantial participation in the third series of targeted longer-term refinancing operations (TLTRO III), and continuing downward pressure from ample deposits. Looking at sectoral deposit flows and broad money (M3), in recent months households’ and firms’ monthly flows into deposits had returned to their long-term averages for the first time since the outbreak of the COVID-19 crisis, thus leading to a further moderation in overall monetary dynamics. This could be seen as a further sign of normalisation. Turning to fiscal policies, it was important to recall that in the September ECB staff projections the fiscal stimulus for 2021 was expected to be around double the size of the stimulus included in the December 2020 Eurosystem staff projections. After the record fiscal response to the COVID-19 crisis, the September baseline projections continued to show a strong improvement in the fiscal outlook over the projection horizon, especially over 2022-23 – reversing the fiscal impulse. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the rebound phase in the recovery of the euro area economy was increasingly advanced. Output had risen in the second quarter by more than expected, and it was likely to exceed its pre-pandemic level by the end of the year. With more than 70 per cent of European adults fully vaccinated, there had been an extensive reopening of the economy and the services sector was recovering (if still unevenly). Manufacturing continued to perform solidly, even though materials shortages and supplier bottlenecks were holding back production. The pick-up in activity was fostering a rapid improvement in the labour market. While further normalisation of economic activity could be expected in the coming months, the global spread of the Delta virus variant and concerns about the longer-term effectiveness of vaccinations could yet delay the full restoration of global economic activity and the full reopening of the euro area economy. In line with this assessment, the September 2021 ECB staff projections foresaw growth of 5.0 per cent in 2021 (which was higher than previously anticipated) and broadly unchanged growth of 4.6 per cent in 2022 and 2.1 per cent in 2023. HICP inflation had increased to 3.0 per cent in August from 2.2 per cent in July. The increase reflected higher prices in all components but was especially strong in the NEIG category. This notable upswing in inflation was assessed as largely temporary. Higher energy inflation reflected a higher than usual month-on-month increase in energy prices in August and the strong rise in oil prices since around the middle of last year. The reversal of the temporary VAT reduction in Germany would affect year-on-year inflation rates until the end of this year. The increase in NEIG inflation had been partly due to a base effect caused by the postponement of seasonal sales last year from July to August in some countries. The higher cost pressures stemming from temporary shortages of materials and equipment could be expected to ease. As a result, while headline inflation was likely to rise further this year, these factors should ease or would fall out of the year-on-year inflation calculation by early 2022. The September projections foresaw HICP inflation at an average of 2.2 per cent in 2021, before returning to 1.7 per cent in 2022 and 1.5 per cent in 2023. Compared with the June 2021 projections, headline inflation had been revised up throughout the projection horizon. Inflation excluding food and energy prices was projected to average 1.3 per cent in 2021, 1.4 per cent in 2022 and 1.5 per cent in 2023, having also been revised up from the June 2021 projections. While the negative impact of the pandemic on the projected inflation path had still not been fully reversed and inflation was still foreseen to remain far below the two per cent target over the projection horizon, the upward shift in the revised inflation projections reflected the better growth outlook and a faster reduction in the degree of slack in the economy. Risks to the economic outlook remained broadly balanced. A larger than expected decrease in the savings rate and a faster improvement in the pandemic situation could lead to a stronger expansion than currently envisaged. Inflation could be slightly higher than currently expected if supply bottlenecks were to last longer and feed through into higher than anticipated wage rises. At the same time, the economic outlook could deteriorate if the pandemic worsened, which could delay the further reopening of the economy, or if supply shortages turned out to be more persistent than currently expected. According to a broad spectrum of indicators, financing conditions had remained favourable since the Governing Council’s previous quarterly assessment in June. While there had been a decline over the summer, the recent repricing of debt securities meant that long-term market interest rates were now at similar levels to those prevailing at the time of the previous quarterly assessment in June. Preserving favourable financing conditions remained necessary to support the economy on its recovery path. A sustained pace of net purchases under the pandemic emergency purchase programme (PEPP), along with the other instruments and the recalibrated forward guidance, was an essential condition for preserving a monetary policy stance that would offset the negative impact of the pandemic on inflation and thereby support the re-anchoring of inflation solidly around the new target over the medium term. At the same time, in line with the PEPP framework adopted in December and the Governing Council’s commitment to pursuing a monetary policy stance that was always proportionate to its objective, persistently favourable financing conditions in a context of a somewhat improved medium-term outlook for inflation and increasing inflation expectations made it possible to scale down moderately the pace of purchases under the PEPP in the last few months of the year. While a substantially lower pace of purchases under the PEPP than had been implemented in recent months could risk an unwarranted tightening in market interest rates (with associated currency appreciation) that would be inconsistent with countering the downward impact of the pandemic on the projected path of inflation, a pace of net purchases that was moderately lower was the proportionate measure that, at the current juncture, could “lock in” the amount of monetary accommodation that was still necessary. Based on the above, Mr Lane proposed for the fourth quarter that net purchases under the PEPP be calibrated at a moderately lower pace than in the previous two quarters. The monthly purchase pace would continue to be implemented flexibly according to market conditions, to react to short-term shocks exerting upward pressure on benchmark interest rates or, likewise, to allow the rate of purchases to be reduced if favourable conditions could be maintained with an even lower pace. Furthermore, Mr Lane emphasised that the Governing Council also needed to confirm all of its other monetary policy measures, namely the level of the key ECB interest rates, its forward guidance on their likely future evolution, its purchases under the asset purchase programme (APP), its reinvestment policies and its longer-term refinancing operations. 2. Governing Council’s discussion and monetary policy decisions Economic and monetary analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The rebound phase in the recovery of the euro area economy was increasingly advanced. Output was expected to exceed its pre-pandemic level by the end of the year. With more than 70 per cent of European adults fully vaccinated, the economy had largely reopened, allowing consumers to spend more and companies to increase production. While rising immunity to the coronavirus meant that the impact of the pandemic was now less severe, the global spread of the Delta variant could yet delay the full reopening of the economy. The current increase in inflation was expected to be largely temporary and underlying price pressures were building up only slowly. The inflation outlook in the new staff projections had been revised slightly upwards, but in the medium term inflation was foreseen to remain well below the ECB’s two per cent target. As regards the external environment, members broadly shared the assessment provided by Mr Lane in his introduction that the recovery in global economic activity and trade remained solid but was moderating, owing to the further spread of the Delta variant and to supply bottlenecks. Attention was drawn to the risks to the outlook arising from comparatively lower vaccination rates and the worsening of the pandemic in emerging market economies in recent months relative to advanced economies, which could lead to more persistent or more widespread disruptions to supply chains. Turning to euro area developments, real GDP had rebounded by 2.2 per cent in the second quarter of the year, which was more than had been expected, and was on track for strong growth in the third quarter. The recovery built on the success of the vaccination campaigns in Europe, which had allowed a significant reopening of the economy. Members broadly agreed with the improvement in the euro area growth outlook included in the new projections and expressed a greater degree of confidence in the baseline scenario, while acknowledging that uncertainty remained elevated. With the lifting of restrictions, the services sector was benefiting from people returning to shops and restaurants and from the rebound in travel and tourism. Manufacturing was performing strongly, even though production continued to be held back by shortages of materials and equipment. Overall, recent developments indicated that economic activity could be expected to return to its pre-crisis level in the fourth quarter of the year – a quarter earlier than had been expected in the June 2021 Eurosystem staff projections. The output gap was also expected to close sooner than previously expected. However, there remained some way to go before the damage to the economy caused by the pandemic was overcome. There were still more than two million fewer people employed than before the pandemic, especially among the younger and lower skilled, and the number of workers in job retention schemes also remained substantial. Members assessed the risks to the economic outlook as broadly balanced. On the upside, economic activity could outperform expectations if consumers became more confident and saved less than currently expected. It was noted that consumer spending was increasing and savings appeared to be returning to normal more quickly than had been expected, although consumers remained somewhat cautious in the light of the pandemic developments. Households were benefiting not only from accumulated savings, but possibly also from positive wealth effects given the significant rise in prices for financial assets and real estate. The labour market was also improving rapidly, holding out the prospect of higher incomes and greater spending. Unemployment was declining and the number of people in job retention schemes had fallen significantly from the peak in 2020. The recovery in domestic and global demand was further boosting optimism among firms, which was supporting business investment. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. Regarding possible downside risks, it was underlined that the economic outlook could deteriorate if the pandemic worsened, which could delay the further reopening of the economy, or if supply shortages turned out to be more persistent than currently expected and held back production. It could not be excluded that the shortages and bottlenecks observed so far would not only last longer but might also affect more economies and further sectors. However, the point was made that some moderation in growth was naturally to be expected, in line with the experience of other reopening economies. The spread of the Delta variant had so far not required lockdown measures to be reimposed. Nevertheless, it could slow the recovery in global trade and the full reopening of the economy. Although the economy had shown more resilience to new waves of the virus in recent quarters, the recovery remained dependent on the evolution of the pandemic and on the progress made with vaccination campaigns. The assumed timing of a relaxation of containment measures had been pushed back in almost every projection round. Regarding fiscal policies, members stressed that, to support the recovery, ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy. In particular, the Next Generation EU programme would help ensure a stronger and uniform recovery across euro area countries. It would also accelerate the green and digital transitions, support structural reforms and lift long-term growth. While fiscal policy was expected to be expansionary in 2021 and 2022, members considered that the prospects for 2023 were more uncertain. With regard to price developments, there was broad agreement with the assessment presented by Mr Lane in his introduction. Inflation had increased to 3.0 per cent in August. It was expected to rise further during the autumn but to decline in 2022. This temporary upswing in inflation mainly reflected the strong increase in oil prices since the middle of 2020, the reversal of the temporary VAT reduction in Germany, delayed summer sales in 2020 and cost pressures that stemmed from temporary shortages of materials and equipment. In the course of 2022 these factors should ease or would fall out of the year-on-year inflation calculation. Underlying inflation pressures had edged up. As the economy recovered further, underlying inflation was expected to rise over the medium term. This increase was expected to be only gradual since it would take time for the economy to return to operating at full capacity. Wages were therefore expected to grow only moderately. However, if supply bottlenecks lasted longer and fed through into higher than anticipated wage rises, price pressures could be more persistent. Members agreed with the hump-shaped pattern of inflation in the September ECB staff projections and generally concurred that higher short-term inflation was largely temporary. At the same time, they considered that the degree of persistence of the inflation shock and, especially, the outlook for inflation in 2023 were more uncertain, with the risk that inflation in 2023 might turn out to be higher than projected. In this context, the view was also expressed that the baseline projection for inflation in 2023 was too low. Attention was drawn to the fact that both headline and core inflation had surprised to the upside relative to recent projections, with inflation being underestimated for some time. This raised doubts about how well the models relied on in the projections were able to capture what was currently happening in the economy, the structural changes implied by the pandemic and the impact of the ECB’s new monetary policy strategy. Closer attention needed to be paid to direct and granular evidence, such as data collected from businesses, unions and households. This was seen as essential around turning points and in periods of possible “regime shifts”. With respect to the September staff projections, it was argued that inflation could be higher if a different path materialised for oil prices, if the supply bottlenecks were more persistent or if the Phillips curve became steeper. Moreover, taking owner-occupied housing into account would lead to a higher expected path for inflation. It was also noted that, even if the current inflation shock was largely temporary, it would only require a relatively small percentage of the current shock to become permanent for inflation to be close to 2 per cent at the end of the projection horizon. The importance of taking climate change policies and the future development of carbon prices into account was emphasised. Their impact was likely to lead to sustained upward price pressures for a number of years. Carbon prices would inevitably have to increase substantially to ensure that the objectives of the Paris Agreement were reached, with the direct effects of climate policies on energy prices likely to affect price developments in the later years of the projection horizon. At the same time, there was little evidence so far of second-round effects on wage negotiations. Wage developments and unit labour costs, which were necessary components of durable underlying inflation, remained quite subdued, and wage negotiations so far had taken expectations of only rather moderate future price movements into account. However, it was also argued that “this time might be different” in the sense that the length and magnitude of the shock to inflation, combined with supply bottlenecks and excess savings, might lead to higher second-round effects than in the past. Hence, it was important to monitor closely current wage negotiations. Nevertheless, it was noted that the best-performing Phillips curves maintained by ECB staff indicated lower inflation at the end of the projection horizon than was foreseen in the ECB’s projections. Considering recent developments in inflation expectations, members noted that measures of longer-term inflation expectations had continued to increase but remained some distance from the ECB’s inflation target. Market-based indicators of inflation expectations had risen to their highest level in many years, with the five-year forward inflation-linked swap rate five years ahead now exceeding 1.7 per cent, which was some 50 basis points higher than before the pandemic. While it was positive news that market expectations of deflation were very low, inflation options markets continued to signal that investors did not see a risk of recent high euro area inflation rates extending into the medium term. However, it was recalled that the inflation expectations of households and businesses, which were different from those of financial market participants, also needed to be considered. Members thus broadly concurred that, despite further improvement, the inflation outlook remained some way from the ECB’s target level. At the same time, risks to the inflation outlook, as embodied in the September 2021 ECB staff projections, were widely regarded as being tilted to the upside. However, it was also cautioned that the recent underestimation of inflation had to be interpreted in the context of the previous prolonged period of overestimation and the continued shortfall of longer-term inflation expectations from the target. Turning to the monetary and financial analysis, members broadly concurred with the assessment provided by Mr Lane in his introduction. Bank lending rates for firms and households were at historically low levels while lending to households was holding up, especially for house purchases. A remark was made about the extent to which the sharp rise in housing investment, house prices and mortgage volumes might have been fuelled by the ECB’s monetary policy in the wake of the pandemic and in view of ample forced savings, much of which was probably invested in real estate. At the same time, it was recalled that lower equilibrium interest rates implied higher housing values, while leverage would not necessarily increase with real estate purchases if households drew on the savings they had accumulated during the pandemic. The growth of lending to firms had slowed, mainly because firms were still well funded after borrowing heavily in the first wave of the pandemic. It was noted that government support had transferred risks to the public sector and helped firms through the crisis, thereby avoiding a spike in non-performing loans and bankruptcies, which should mitigate the risk of financial amplification. As the economy opened up, firms were benefiting from the recovery. Large cash holdings and increasing retained earnings reduced firms’ need for external funding. Solid bank balance sheets continued to ensure that sufficient credit was available, while for larger firms bond issuance was an attractive alternative to bank loans. It had to be acknowledged, however, that many firms and households had taken on more debt during the pandemic, which made their financial health potentially vulnerable to a deterioration in the economic outlook and could worsen the quality of banks’ balance sheets. Even so, overall, risks of financial amplification were considered to be small. Monetary policy stance and policy considerations Members concurred with Mr Lane’s assessment that an accommodative monetary policy stance remained necessary to offset the negative impact of the pandemic on inflation and to support the re-anchoring of inflation expectations solidly around the Governing Council’s new target over the medium term. Hence, policy support from a sustained pace of net purchases under the PEPP, along with the other instruments and the recalibrated forward guidance, was deemed essential for preserving the necessary monetary policy accommodation and for reaffirming the Governing Council’s commitment to its new monetary policy strategy. At the same time, under the PEPP framework which the Governing Council had agreed upon at its December 2020 meeting, a calibration of the pace of purchases was required based on a joint assessment of financing condition and the inflation outlook. Regarding the assessment of financing conditions, it was noted that, overall, conditions had remained favourable or had loosened further since the Governing Council’s previous quarterly assessment in June. Moreover, they had improved notably since the Governing Council’s decision, earlier in the year, to significantly increase the pace of purchases under the PEPP. This improvement was visible across a broad spectrum of indicators. A rise in inflation expectations had brought euro area real short and long-term interest rates to historically low levels. Regarding financial conditions, stock prices had risen while the euro had depreciated broadly. Bank lending rates for firms and households, as well as corporate bond spreads, had remained near historical lows. At the same time, it was observed that the recent repricing had led to some volatility in long-term market interest rates. As for the assessment of the inflation outlook, a significant improvement over the course of the year was acknowledged. It was also observed that the staff inflation projection had been revised up in the previous projection rounds, thereby breaking the trend of the earlier successive downward revisions and pointing to the emergence of upside risks. However, it was noted that the near-term increase in inflation was largely driven by temporary factors that would fade in the medium term and not call for policy tightening. According to the September ECB staff projections, inflation was not expected to persistently reach levels that fully offset the pandemic impact on the inflation path at the relevant medium-term horizon, and it remained well below the ECB’s new inflation target. Based on the joint assessment, and in line with the PEPP framework adopted in December 2020, members agreed that persistently favourable financing conditions along with a somewhat improved medium-term outlook for inflation would allow the Governing Council to moderately scale down the pace of purchases under the PEPP while confirming all other monetary policy measures, namely the level of the key ECB interest rates, the Governing Council’s forward guidance on their likely future evolution, the purchases under the APP, the reinvestment policies and the longer-term refinancing operations. A number of comments were made in both directions on the recalibration of the pace of purchases under the PEPP, proposed by Mr Lane. On the one hand, it was argued that a symmetric application of the PEPP framework would call for a more substantial reduction in the pace of purchases, also in the light of potential side effects of an elevated level of purchases. From this perspective, a pace of purchases similar to the level prevailing at the beginning of the year would be appropriate. Such a pace would still provide a greater degree of monetary accommodation than at the start of the year, as both financing conditions and the economic outlook had improved in the meantime. In addition, the embedded flexibility would allow for a meaningful increase in purchases to address market tensions, if needed. On the other hand, reference was made to the recent repricing in nominal bond yields, which called for a prudent reduction in the pace of purchases. A concern was expressed that a slower pace might induce market perceptions of a tighter than expected monetary policy, which could result in a tightening of financing conditions. In particular, there was a risk that a reduction in PEPP purchases in the next few months would be interpreted as tapering, which could affect other components of the monetary policy stance. This might drive euro area interest rates higher and thwart an incipient increase in inflation expectations. At the same time, the argument was made that markets were already expecting an end to net asset purchases under the PEPP by March 2022. This expectation was not showing a significant impact on financing conditions, which should generate confidence that the recalibration of the PEPP purchase pace to reflect the improvement in financing conditions and the inflation outlook would not lead to an unwarranted tightening in market interest rates. Attention was drawn to the substantial stock of assets that the Eurosystem had acquired since the beginning of the year, which would provide significant accommodation over the coming years by compressing the term premium, even if the pace of purchases was reduced. It was reiterated that the PEPP was designed as an emergency programme that had a clearly defined objective of countering the impact of the pandemic on the path of inflation and should be distinguished from the general monetary policy stance, for which other instruments were available. The point was made that, even without the PEPP, the overall monetary policy stance remained highly accommodative. The calibration of the PEPP purchase pace in line with the PEPP framework needed to be judged against the prevailing financial conditions and the inflation outlook. A view was expressed, however, that the perception of a premature removal of accommodation could raise questions on the Governing Council’s determination to deliver on its inflation target and its commitment to persistent and forceful policy action in the vicinity of the effective lower bound in order to avoid negative deviations from the inflation target becoming entrenched. Overall, balancing the various arguments, all members agreed that, in line with the framework adopted in December 2020, persistently favourable financing conditions along with a somewhat improved medium-term outlook for inflation would allow the Governing Council to moderately scale down the pace of purchases under the PEPP, in line with Mr Lane’s proposal. With regard to implementation, it was stressed that flexibility according to market conditions remained a key feature of the PEPP, allowing for a flexibility margin to react to short-term shocks exerting upward pressure on benchmark interest rates or, likewise, allowing the pace of purchases to be reduced if favourable conditions could be maintained with an even lower pace. Attention was also drawn to the Governing Council’s efforts to be more transparent and to communicate better with the general public, thereby fostering trust, as highlighted in the monetary policy strategy review. In particular, it was suggested that more information be provided in official communication about the reasoning behind the APP, the PEPP and related policy decisions. Monetary policy decisions and communication Regarding communication, members underlined that the improvement in the outlook had to be acknowledged and that the Governing Council’s policy measures were producing the intended effects. Although the temporary nature of the near-term rise in inflation had to be stressed, it was felt that upside risks to the longer-term outlook for inflation had to be monitored and communicated carefully. At the same time, it was deemed important to avoid creating the impression that the Governing Council was satisfied with the current outlook for inflation. With respect to the moderate reduction in the pace of net asset purchases under the PEPP, this was seen as proportionate, gradual and in line with the joint assessment of the improvement in financing conditions and the inflation outlook. It had to be made clear that the decision constituted a recalibration of the programme in response to current conditions and did not imply tapering or an end to asset purchases under the PEPP. Moreover, with a moderately lower pace of purchases, the ECB’s monetary policy remained highly accommodative overall. The Governing Council stressed its determination to act forcefully and persistently, in line with its revised monetary policy strategy, to anchor inflation expectations solidly at its two per cent target. Finally, it was underlined that the Governing Council would continue to purchase flexibly according to market conditions. If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of the PEPP, the envelope would not need to be used in full and, equally, the envelope could be recalibrated if required to maintain favourable financing conditions. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the following monetary policy decisions: Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judged that favourable financing conditions could be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters. The monthly purchase pace would continue to be implemented flexibly according to market conditions. The Governing Council also confirmed its other measures, namely the level of the key ECB interest rates, its forward guidance on their likely future evolution, its purchases under the APP, its reinvestment policies and its longer-term refinancing operations, as set out in the press release to be published after the meeting. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 9 September 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 8-9 September 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn* Mr Reinesch Ms Schnabel Mr Scicluna Mr Stournaras Mr Šimkus Mr Vasle* Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch * Members not holding a voting right in September 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Bitans Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Novo Mr Ódor Mr Sleijpen Mr Tavlas Mr Vanackere Mr Välimäki Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 25 November 2021. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

25 November 2021 Meeting of 27-28 October 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 27-28 October 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 8-9 September 2021. Market-based measures of inflation compensation in the euro area had surged to their highest levels in over seven years, pushing long-term nominal sovereign bond yields back to levels seen earlier in the year. In the euro area, ten-year inflation swap rates were more than 30 basis points higher than in September 2021 and a full percentage point higher than in December 2020, when the Governing Council had pledged to preserve favourable financing conditions. The five-year forward inflation-linked swap rate five years ahead had, for the first time in more than seven years, risen above the ECB’s target of 2%. By contrast, ten-year real rates had fallen further. They were now almost 50 basis points below their December 2020 levels. This pattern of yield changes suggested that rising long-term rates were not primarily the result of adverse spillovers, which would typically have manifested themselves in rising real rates. Rather they were seen as a reappraisal of the global inflation outlook, mainly reflecting the repercussions of the global energy shock and growing evidence of more persistent supply-side bottlenecks. While at short to medium-term horizons most of the increase in inflation compensation reflected higher genuine inflation expectations, at longer horizons the increase mostly reflected higher inflation risk premia. The fact that long-term inflation risk premia had increased so strongly in previous weeks suggested that market participants were increasingly worried about inflation outcomes above – rather than below – expected inflation, even once the prevailing shocks were expected to fade. Exceptionally high uncertainty surrounding the nature and structure of the post-pandemic global economy was likely to have contributed to rising risk premia. Although markets had significantly repriced both the baseline inflation outlook and the risks around it, there was no evidence that changes in expectations about asset purchases – either in the euro area or globally – had affected euro area sovereign bond yields. Contrary to developments in the spring, the spread between the ten-year German Bund and overnight index swaps (OIS) had remained highly resilient over recent weeks. Spreads between euro area sovereign bonds and the Bund had also remained resilient and, since the September monetary policy meeting, had even continued to fall to new post-2008 lows in most countries. Developments in euro area credit and stock markets suggested that higher nominal long-term yields and the prevailing supply shocks were not expected to derail the recovery. Investment grade corporate bond spreads remained close to record low levels. Even though higher yields had weighed on euro area equity markets in previous weeks, the downward pressure had been fully offset by further upgrades of firms’ longer-term earnings expectations and a diminishing equity risk premium. Short-term and money market rates had risen in the euro area but by significantly less than in other major economies. The time of a rate lift-off had been brought forward from mid-2024 to late 2022. Since a non-negligible part of the recent rise in short and long-term rates reflected term premia, the actual time of lift-off priced by investors was likely to be later. This was consistent with the reading of survey-based expectations. Although the latest survey of monetary analysts also pointed to respondents anticipating an earlier lift-off, a first rate hike was only expected in the second quarter of 2024. Option-implied probabilities for the expected path of short-term interest rates pointed to a significant widening of the distribution of possible future outcomes, which was now clearly skewed to the upside. Such an increase in uncertainty was to be expected when the market attached an increasing probability to expected inflation meeting the conditions for lift-off. Medium-term inflation expectations, as proxied by the one-year swap rate three years ahead, had stood at 1.99% the day before the Governing Council meeting – their highest level since early 2013. Over the next five years, inflation was expected to be visibly above the Governing Council’s target of 2% on average. The rise in measures of inflation compensation had been consistent with a marked shift in the distribution of expected inflation outcomes, as priced in by inflation options markets. The market was now putting the lowest weight on inflation being below 1% over the next five years within the available data sample, which started in 2010, and the highest weight on inflation being above 2% in more than a decade, i.e. a weight of more than 50%. Conditional on the future path of inflation as embedded at present in inflation swap rates, current market pricing could therefore be consistent with the ECB’s state-contingent forward guidance. That the forward guidance remained credible was also supported by the behaviour of forward OIS rates. These continued to react less sensitively to expected inflation than before the pandemic, even if the sensitivity had increased somewhat in previous weeks owing to the strong acceleration in measures of inflation compensation. With short-term nominal rates less sensitive to inflation, the real yield curve in the euro area had fallen to unprecedented levels, while the euro continued to depreciate against the US dollar as expected policy rate differentials widened further. For the first time since the start of the pandemic, investors were no longer holding net euro long positions, implying that they did not expect the euro to reverse recent losses in the near term. Thus, continued policy divergence remained the central scenario for investors, even as markets had brought forward lift-off expectations in response to growing expectations that prevailing inflationary pressures would ultimately prove more persistent than previously anticipated. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. Regarding the external environment, global activity was still in a solid expansionary phase, with the global composite output Purchasing Managers’ Index (PMI) remaining above 50 in September. However, there was some natural deceleration compared with the most intense reopening phase a few months earlier. World trade had initially shown a strong recovery to well above pre-pandemic levels but had flatlined since March. The impact of bottlenecks – visible in suppliers’ delivery times and the ratio of new orders to inventories – on global exports and industrial production was estimated to have increased lately. Since the Governing Council’s September monetary policy meeting, the euro had declined significantly in both nominal effective terms (-1%) and against the US dollar (-1.9%). Oil prices had increased sharply (+17% in US dollar terms), reflecting both demand and supply effects. The oil price futures curve stood at levels that were much higher than foreseen in the September ECB staff macroeconomic projections, also for 2022 and 2023. Gas prices had increased even more strongly than oil prices over previous months, reflecting both strong global demand related to the economic recovery and supply-side effects. As at the global level, the euro area outlook was clouded by supply bottlenecks and input price pressures. Industrial production had been fluctuating around the level of pre-pandemic activity, declining again to some extent in August. PMI indicators for manufacturing and services were standing firmly above 50. In particular, PMI data for accommodation and for food and beverages pointed to a significant recovery throughout the third quarter. Nevertheless, there was some variation across industrial sectors. The automotive sector, in particular, was severely affected by semiconductor shortages, also in the context of adjustments in production processes towards electric vehicles. Looking more closely at manufacturing, supply bottlenecks, together with the rapid recovery in demand, had led to a significant decline in inventories. At the same time, deliveries had slowed. The ECB’s Corporate Telephone Survey indicated that well over half the respondents expected supply constraints and high input price pressures to last for at least six more months. A large number of respondents expected the supply constraints and elevated input prices to last even for another full year or longer. As regards investment, housing investment growth likely moderated in the third quarter of 2021 owing mainly to tightening supply constraints, such as labour and material shortages, in an environment of strong demand. Business investment growth was expected to have remained in positive territory in the third quarter but not to have performed as strongly as previously envisaged on account of supply-side disruptions. Lately, also the PMI for new orders of capital goods, which was still at quite a high level, had been declining. Turning to trade, the recovery continued at two speeds, with goods exports subdued and services trade rebounding somewhat. The historically large discrepancy between buoyant export orders and weak export volumes illustrated the impact of supply bottlenecks on exports. This shortfall was higher for the euro area than for the rest of the world, as euro area exports required relatively complex supply chains. Services exports had started to recover in the summer and indicators continued to signal a slight rebound. Regarding labour market developments, the unemployment rate stood at 7.5% in August, similar to the pre-pandemic period. Nevertheless, a significant number of people were still in job retention schemes and the labour participation rate remained well below the pre-pandemic level. Thus, overall, the labour market continued to be weaker than before the pandemic. The PMI composite indicator for employment suggested further strong growth in the third quarter of 2021, with signs of stabilisation in September and October. The job vacancy rate for the total economy had risen in the second quarter of 2021 to the same level as in the corresponding quarter of 2019. Turning to nominal developments, headline inflation in the Harmonised Index of Consumer Prices (HICP) had increased from 2.2% in July to 3.0% in August and to 3.4% in September. A longer-term perspective revealed that inflation was currently extraordinarily high, with large contributions from energy and goods inflation. Goods inflation was currently much higher than its long-term average of 0.6%, while services inflation could be seen as normalising. Oil price developments and their direct impact on fuel prices had been the main factor in the energy price surge. However, more recently, energy inflation had been driven also by strong upward movements in gas and electricity prices. Services inflation had increased to 1.7% in September with the reopening of the economy, while non-energy industrial goods inflation had eased to 2.1%. Most indicators of underlying inflation had increased. Prices in contact-intensive sectors continued to drive the current pick-up in the HICP excluding food and energy (HICPX), as demand was returning to those sectors most hit by the pandemic with an upward short-term effect on prices. The model-based Persistent and Common Component of Inflation (PCCI), which was less affected by temporary factors, stood at 1.6% in September, while Supercore, which included only the cyclically sensitive components of the HICPX, had increased from 1.3% in August to 1.6% in September. Turning to pipeline pressures, producer prices had continued to rise very dynamically. Increases in producer prices were expected to lead to continuing upward pressure on consumer prices for non-energy industrial goods. Growth in negotiated wages had remained low of late, and it remained uncertain whether the upward impact of recent increases in consumer price inflation would pass through to wages. Evidence from the latest Corporate Telephone Survey indicated that a majority of the respondent firms expected wages to rise somewhat more strongly in 2022 than they did in 2021. That wage growth had so far remained muted was a very important element of the overall inflation dynamics for the medium term. PMI input and output price developments indicated that profit margins continued to be under pressure, and increasingly so in services. Input prices were currently outpacing output prices, not only in intermediate goods industries but also in consumer goods industries and services. Turning to housing costs, the ECB’s residential property price index had increased strongly, by 7.3%, year on year, while the experimental owner-occupied housing price index had also increased strongly, by 4.5%, year on year in the second quarter of 2021. Overall, the costs of owning a house were growing considerably more strongly than the costs of renting a house, which had increased by around 1.3% in the second quarter of 2021. Longer-term survey-based indicators of inflation expectations and market-based measures of inflation compensation had ticked up, moving closer to 2%. In the latest ECB Survey of Professional Forecasters, five-year ahead inflation expectations had been revised up from 1.8% to 1.9%. Fewer respondents were expecting very low inflation and more respondents were expecting rates of between 1.8% and 2.0%. Turning to financial and monetary developments, nominal risk-free rates stood markedly higher than at the time of the September monetary policy meeting. Sovereign bond spreads were slightly narrower. Corporate bond spreads had narrowed in view of a positive credit outlook. With risk-free interest rates going up and spreads stable or slightly narrower, there was evidence of an overall tightening of nominal financing conditions. After some volatility, equity prices were at a level similar to at the time of the September meeting. With respect to monetary developments, lending to firms had remained moderate but had seen an uptick in September. This was consistent with the slight net increase in loan demand reported by banks in the October round of the bank lending survey. Fixed investment had made a positive contribution to loan demand for the second consecutive quarter, which was a positive sign for the economic recovery. Firms’ borrowing costs remained below the levels seen at the start of the pandemic and were still insulated from the upward trend in risk-free rates. Lending to households remained strong, with annual growth in loans much higher than in the period after the 2007-08 Great Financial Crisis, supported by dynamic lending for house purchase. The borrowing costs of households for house purchase remained substantially below their level at the start of the pandemic, as did borrowing costs for consumer lending. Following sharper net tightening earlier in the pandemic, the latest round of the bank lending survey showed that credit standards for loans to firms remained broadly unchanged in the third quarter of 2021, for the second consecutive quarter. Despite the supply bottlenecks, banks maintained a balanced view of their credit risks, in line with the economic recovery and continued support from the authorities. Focusing on developments in money creation, the annual growth rate of M3 had stood at 7.4% in September, after 7.9% in August. Monthly household deposit flows had returned to their pre-pandemic average, reflecting the recovery in consumer confidence and spending. By contrast, corporate deposit flows remained strong and above the pre-pandemic average, pointing to a further strengthening of liquidity buffers. On fiscal policies there was only limited news. The fiscal tightening in 2022 was likely to be less pronounced than had been assumed in the September ECB staff projections, as some new fiscal measures had already been announced and the latest draft budgetary plans indicated a more expansionary fiscal stance. Looking further ahead, budget balances in 2023 were expected to still be more negative than prior to the pandemic in most countries. Monetary policy considerations and policy options Summing up, Mr Lane remarked that the euro area economy continued to recover, although momentum had moderated to some extent. The impact of the pandemic on economic activity had declined, with the gradual lifting of restrictions supporting consumer spending, especially on those services most affected by lockdowns – such as tourism and hospitality. The manufacturing sector continued to expand, but at a slower pace owing to ongoing supply chain disruptions. This could be seen in the hard data: industrial production had fallen by 1.6% in August and was 1.2% lower than at the start of the pandemic. It was also visible in the PMI manufacturing output index, which had declined from 55.6 in September to 53.2 in October – a 16-month low. Shortages in the supply of labour, materials and equipment were clouding the outlook for the coming quarters. After the rapid rebound in the earlier stages of reopening, the rate of expansion in the PMI services component had moderated. Accordingly, while the composite PMI for the euro area remained firmly in expansionary territory it had slowed markedly, falling from 59.0 in August to 56.2 in September and subsequently to 54.3 in October – a six-month low. HICP inflation had increased from 3.0% in August to 3.4% in September. In September energy inflation accounted for about half of overall inflation. Inflation had continued to surprise to the upside, driven by three broad – and intertwined – factors associated with the current energy price shock and the reopening of the economy. First, the surge in energy prices reflected both supply-side and demand-side developments. Part of the increase in gas and electricity prices reflected spillovers from global developments. However, the rise in European gas prices had outpaced global price movements on account of Europe-specific factors, such as the substitution of gas for other fuels, low inventories and higher carbon prices. Second, the recovery in demand linked to the reopening of the economy, combined with pandemic-related factors and global supply-side impediments, was putting upward pressure on prices. These dynamics were especially visible in relation to consumer services and those goods most affected by global supply shortages. Higher demand for services and supply frictions were pushing up HICPX inflation, which had risen from 1.6% in August to 1.9% in September. Similarly, pipeline price pressures continued to build up for a wide range of goods and had become more visible at later stages of the pricing chain. Accordingly, non-energy industrial goods inflation had stood at 2.1% in September, well above its long-term average. Third, special factors associated with the pandemic – namely base effects related to the drop in oil prices last year and the end of the temporary VAT cut in Germany – were still contributing to higher inflation. Headline inflation appeared likely to rise further during the year and to peak in the fourth quarter. Although inflation would take longer to decline than previously expected, it was foreseen to diminish in the course of 2022 as the influence of these three factors driving near-term inflation developments eased or fell out of the year-on-year inflation calculation. Looking further ahead, a tightening in the labour market should push up wages, supporting a gradual increase in underlying inflation pressures. However, Mr Lane mentioned that inflation was still expected to fall below the ECB’s target in the medium term. That said, the duration of the supply shortages and higher energy prices remained uncertain, constituting a source of upside risk to the near-term inflation outlook. Measures of longer-term inflation expectations had moved closer to 2%, although these generally remained below the target, especially on a risk-adjusted basis. The recovery continued to depend on the course of the pandemic and further progress with vaccination campaigns. The risks to the economic outlook were still seen as broadly balanced. A faster than anticipated drawdown of accumulated savings for investment and consumption still constituted an upside risk. However, a prolongation of supply chain disruptions could slow down the recovery, while persistently high energy prices could hamper economic activity and dent disposable income, thereby weighing on consumption and investment. In particular, if these factors persisted for longer than expected, the upward shift in the price level could feed through into higher than anticipated wage increases. The latest data still pointed to extensive labour market slack, and wage dynamics remained subdued. Moreover, the negative terms-of-trade shock generated by the surge in energy prices was also denting profitability, reducing the scope for granting wage increases. In monitoring wage developments, it would be essential to differentiate between, on the one hand, wage adjustments that were simply a response to the unexpectedly high current inflation rate or a shift in the expected level of inflation towards the target and, on the other hand, a self-reinforcing process whereby employers accommodated demands for higher pay in expectation of persistent excess inflation in the future. While financing conditions for firms, households and the public sector remained supportive in broad terms, market interest rates had increased markedly since the September meeting. The increase in longer-term yields had outstripped the improvement in longer-term inflation expectations, as captured by the surveys of professional forecasters and monetary analysts, as well as by risk-adjusted market-based measures of inflation compensation. Similarly, the significant increase in term premia could be related to a shift in inflation risk premia. Over time, a persistent increase in market interest rates would feed into a tightening of financing conditions. Euro area sovereign spreads remained stable, with no indication of a weakening in the transmission from risk-free to sovereign debt markets. Market-based and bank-based financing conditions for firms and households currently remained at supportive levels, despite a slight increase in bank and corporate bond yields. The euro had depreciated noticeably against the US dollar, reflecting expectations of relatively tighter monetary policy in the United States. Overall, the latest developments broadly confirmed the previous assessment made at the September meeting, suggesting no change to the pace of purchases under the pandemic emergency purchase programme (PEPP). Accordingly, Mr Lane proposed continuing to conduct net asset purchases under the PEPP at a moderately lower pace during the final quarter of the year than the previous two quarters. Some indicators of market expectations for the future path of the short-term money market interest rate were difficult to reconcile with the ECB’s forward guidance on its policy rates. The increase in near-term rates likely reflected higher compensation for bearing a perceived increase in inflation risk, while some market participants might also put more weight on the likelihood of the lift-off conditions being met earlier than envisaged in the ECB staff’s assessment. However, current market pricing may have also reflected, in part, an incomplete understanding of the three conditions laid out in the Governing Council’s forward guidance that had to be satisfied before lifting the policy rates, especially in view of the ECB staff’s assessment that inflation would decline over the course of next year and that inflation was foreseen to settle below the target over the projection horizon. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members generally agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The euro area economy continued to recover strongly, although momentum had moderated to some extent. Consumers continued to be confident and their spending remained strong. But shortages of materials, equipment and labour were holding back production in some sectors. Inflation was rising, primarily because of the surge in energy prices but also as the recovery in demand was outpacing constrained supply. Inflation was expected to rise further in the near term but to decline in the course of next year. As regards the external environment, members shared the assessment provided by Mr Lane in his introduction: the bigger picture was still that of a solid global recovery although with some slowing of momentum. While some deceleration was natural, some was connected to the persistence of bottlenecks and supply constraints. Reference was made to increased congestion in ports. The outlook for global oil and gas markets remained surrounded by uncertainty. It was underlined that rising prices were reflecting a confluence of factors related to demand, supply and inventories. It was argued that capacity bottlenecks in energy supply might be longer lasting if the green energy agenda reduced incentives for exploring and maintaining oil extraction. Some concern was also expressed more generally about uncertainties related to the global economic outlook and the implications this would have for euro area foreign demand. Turning to euro area developments, the economy had continued to grow strongly in the third quarter of 2021. While momentum had moderated to some extent, output was still expected to exceed its pre-pandemic level by the end of the year. The lifting of pandemic restrictions was supporting consumer spending, although higher energy prices might reduce purchasing power in the months to come. At the same time, the labour market continued to improve, supporting the prospect of higher incomes and increased spending. The recovery in domestic and global demand was supporting production and business investment, although various shortages and cost pressures were clouding the outlook for the coming quarters. It was argued that the December 2021 Eurosystem staff projections were likely to see a downward revision to real GDP growth for 2021, given the latest evidence for some euro area countries. Yet this might just be part of a change in the profile over time, with lower growth in the second half of 2021 but higher growth in 2022. It was suggested that, looking beyond certain temporary setbacks, the losses caused by the pandemic had largely been reversed. Accordingly, the focus should shift towards more normal business cycle dynamics and a longer-term perspective. Members widely acknowledged that supply bottlenecks were lasting longer than initially thought. This was also the view emerging from contacts with firms in the ECB’s Corporate Telephone Survey. At the same time, it appeared that there were differences between countries concerning the degree to which bottlenecks were affecting the economy. Firms operating in integrated value chains were likely to be more affected than others. It was observed that this went hand in hand with a strong reliance on “just-in-time” delivery systems, raising the question of whether future systems would return to relying more on inventories and buffers. It was also suggested that, as a result of current experiences, there could be some reversal of the past globalisation of manufacturing. The point was made that the bottlenecks not only reflected the reopening of the economy but also structural forces, with the shift to electric vehicles in car manufacturing being an example. Overall, however, it was stressed that supply bottlenecks would gradually fade away as supply reconnected with demand, even though this was taking longer than expected. Members assessed the risks to the economic outlook as broadly balanced. Supply bottlenecks and rising energy prices were considered the main near-term risks to the pace of the recovery and the outlook for inflation. If supply shortages and higher energy prices lasted longer, these could slow down the recovery. At the same time, if persistent bottlenecks were to feed through into higher than anticipated wage rises, or if the economy returned more quickly to full capacity, price pressures could become stronger. However, economic activity could outperform expectations if consumers became more confident and saved less than currently expected. More generally, the recovery continued to depend on the course of the pandemic and further progress with vaccination campaigns. In their exchange of views, members discussed the notion of “stagflation” in relation to risks to the economic outlook. It was recalled that a terms-of-trade shock – as implied by the rise in energy prices – normally came with upward impacts on inflation but downward impacts on economic growth, via lower real disposable income and higher costs. With the economy just coming out of the pandemic crisis, the negative terms-of-trade shock was also seen as increasing the likelihood of “scarring effects” that could hamper future growth. At the same time, it was cautioned that temporary movements in prices and output in different directions should not be labelled as stagflation. It was quite normal for the latter stages of a recovery to be accompanied by lower growth, and most of the recent upward pressure on prices was coming from base effects. It was stressed that the current outlook clearly lacked the stagnation element. Growth momentum was declining, but within a still strong recovery and with robust rates of growth in activity – well above potential growth. Reference was made to the unprecedented wedge between industrial orders and industrial production, which suggested significant potential for a rebound once the supply problems receded, limiting the likelihood of stagflation. Stock markets pricing in higher and rising earnings was also seen as a factor that did not square with stagflation. The same held with regard to the support from fiscal and monetary policy and anchored inflation expectations. In this context, it was recalled that stagflation experiences in the 1970s occurred in a different environment, in which indexation allowed wages to react to energy prices and thus sustained both stagnation and inflation. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation had increased to 3.4% in September and was expected to rise further in 2021. While the current phase of higher inflation would last longer than originally anticipated, inflation was expected to decline in the course of 2022. The upswing in inflation largely reflected a combination of three factors: the sharp rise in energy prices, a reopening-driven recovery in demand outpacing supply and base effects related to the end of the VAT cut in Germany. The influence of all three factors was expected to ease or fall out of the year-on-year inflation calculation in the course of 2022. As the recovery continued, the gradual return of the economy to full capacity was expected to underpin a rise in wages over time. Market-based measures and survey-based indicators of longer-term inflation expectations had moved closer to 2%. In addition, options markets had, by and large, priced out low inflation outcomes over the following five years. These factors were expected to support underlying inflation and the return of inflation to target over the medium term. Members widely agreed on the expected hump-shaped pattern in the shorter-term inflation outlook. Confidence was expressed that the effects of higher energy prices and of supply bottlenecks would be temporary, although the decline in inflation in 2022 would now take longer than previously expected. Reference was made to the recurrent underestimation of the latest outcomes for both headline and underlying inflation, corroborating earlier conjectures that the risks around the September 2021 ECB staff projections had been tilted to the upside. Against this background, it was seen as likely that in the December 2021 Eurosystem staff projections the shorter-term inflation outlook for the euro area would once again be revised upwards. There was broad agreement among members that the key question at the current juncture was what the latest developments implied for the medium-term inflation outlook. It was pointed out that the medium-term inflation outlook remained surrounded by elevated uncertainty and it was suggested that this warranted an open mind with respect to different scenarios that might unfold. It was recalled that, while mechanical updates of projections pointed to upward revision for 2022, for 2023 these updates also implied a significant effect from downward-sloping oil price assumptions. At the same time, it was suggested that the current surge in market prices for gas would only be reflected in consumer price inflation with some delay, owing largely to administered price-setting. Looking beyond mechanical updates, it was stressed that more persistent bottlenecks and the increases in energy costs could have repercussions that would ultimately have a dampening effect on underlying inflation and therefore on the medium-term inflation outlook. This would be the case if, for instance, bottlenecks slowed the economic recovery. Similarly, the effect of higher energy prices on the terms of trade implied a “tax” that would need to be absorbed by workers and firms in the domestic economy. This could delay the return of economic activity to pre-pandemic levels, which was consistent with conjunctural indicators that suggested that economic momentum was weakening. It was argued that supply-side shocks would only lead to a self-sustained inflationary process if they hit when the resources in the economy were fully utilised, which was not yet the case in the euro area. Both the number of people in the labour force and the hours worked in the economy remained below their pre-pandemic levels, and those levels had led only to modest inflationary pressures before the pandemic. In addition, the unemployment rate was still being compressed by the impact of job retention schemes. At the same time, the point was made that the strong pent-up demand, together with a greater readiness to pay implied by the very high accumulated savings of households, could allow for a greater pass-through of the current supply-side shocks to inflation. Members considered that an increase in inflation in the medium term required higher wage growth and inflation expectations. It was argued that such wage growth needed to reflect a persistent shift in the growth rate rather than a one-off shift in the level. The view was widely shared that negotiated wage growth had remained subdued and there were no signs as yet of second-round effects on wages stemming from the higher energy prices. At the same time, it was cautioned that one could not take much reassurance from the few wage negotiations seen in the most recent past, as these had not taken place against the background of the prevailing very high inflation rates. Second-round effects might thus still be observed after some delay and it would only be possible to identify them once the next round of wage negotiations had been completed. The more protracted high inflation proved to be, the more pressure trade unions would face to push through higher wage demands. Reference was also made to the indications of potential second-round effects in the results of the Corporate Telephone Survey. At the same time, caution was counselled in the current situation so as not to associate any observed increases in wage growth with unwelcome second-round effects. Some catching-up was to be expected and, coming after a long period of low inflation, a pick-up in wage growth driven by tightening labour markets – even if sustained – should be considered a healthy development. Moreover, in terms of the consequences for labour costs, any rise in wage growth would have to be weighed against productivity growth. Generally, the materialisation of second-round effects in response to a terms-of-trade shock depended on the competitive situation and the relative bargaining power of workers and employers. It was argued that the mechanism whereby prices were raised to restore profitability in response to higher wage demands was unlikely to be in operation at this time, owing to the risk of losing market share. Moreover, in comparison with the 1970s and 1980s, there had been a shift in the relative importance of pay and job security in wage bargaining. In this respect, the labour market was seen still to contain a substantial amount of hidden slack, which was related to employees in job retention schemes and to restraints on mobility and migration. While the possibility of second-round effects was considered to be limited in the presence of labour market slack, it was argued that price effects could be greater than currently estimated if labour force participation did not return to pre-crisis levels. Moreover, with infection rates still high and subsidies still generous under job retention schemes, workers’ reservation wages might have increased, although this effect was likely to vanish as the labour market normalised after the pandemic. While there was agreement that the bargaining power of trade unions and the scope for wage indexation had decreased over time, it was pointed out that wage negotiations were now taking place against the background of high inflation rates well above the ECB’s target. In their discussion, members also recalled other factors that were relevant for the medium-term inflation outlook. It was argued that, thus far, the projections did not include the rise in carbon prices that would be needed to reach the objectives set in the Paris Agreement. It was acknowledged that energy prices needed to rise in order to affect the behaviour of consumers and enterprises through relative price changes (vis-à-vis non-energy components), but the question was raised as to whether the ultimate effects of higher energy prices on economic activity and inflation would be positive or negative. Related to this, doubts were expressed about the use of typically downward-sloping oil price futures curves as projection assumptions, when fossil fuel prices were bound to remain elevated or rise further. Additionally, growth of owner-occupied housing costs, which at present were not included in the HICP, had accelerated to a rate of 4.5%, year on year, in the second quarter of 2021. This was a source of concern at a time when the latest estimates suggested that owner-occupied housing would have contributed 0.4-0.5 percentage points to inflation in the second quarter of the year according to an experimental HICP (while the difference between such an experimentally augmented HICP and the official HICP would have amounted to 0.2-0.3 percentage points). At the same time, it was cautioned that this supplementary cost indicator should not always be expected to make a positive contribution to inflation, as it partly reflected developments in house prices that could be subject to strong mean reversion over time. Finally, it was recalled that some of the models used in the macroeconomic projections might not adequately capture prevailing inflation dynamics, as these were based on mean reversion to the low historical trend seen over the past few years. As regards inflation expectations, members took note of the further increase in longer-term survey-based indicators and market-based measures of inflation expectations that Ms Schnabel and Mr Lane had reported in their introductions. Expectations were now seen as being close to or having already reached the 2% target. It was pointed out that this was only a gradual move towards levels more in line with the new inflation target and that such re-anchoring should not be confused with an unanchoring on the upside. It was acknowledged that the individual expectations measures all had some methodological shortcomings, such as a risk premium component or outliers, but that it was useful to have a wide range of information, which qualitatively all pointed in the same direction. The view was expressed that the longer the inflation spike lasted, the more it would become entrenched in longer-term inflation expectations. It was also suggested that, as indicated by the results of household surveys, the way households and firms experienced inflation was quite different from the reading of macro data by market analysts and central banks. Turning to the monetary and financial analysis, members widely concurred with the assessment provided by Mr Lane in his introduction. Bank lending rates for firms and households remained at historically low levels. The growth of loans to non-financial corporations remained moderate, despite picking up in September. The most recent bank lending survey showed that credit conditions for firms had stabilised and were supported – for the first time since 2018 – by a reduction in banks’ risk perceptions. It was remarked that the growth rate of lending to households for house purchase stood above 5% – the highest level since 2008. At the same time, bank balance sheets continued to be supported by favourable funding conditions and remained solid. Monetary policy stance and policy considerations Members widely concurred with the view that, at the current juncture, the accommodative monetary policy stance had to be reconfirmed and remained appropriate to support the convergence of inflation to the Governing Council’s symmetric 2% target over the medium term. In line with the Governing Council’s new strategy, monetary policy had to be patient in the light of the elevated uncertainty, in order to support a self-sustained re-anchoring of inflation expectations at the target. Since the monetary policy space was constrained by the effective lower bound on interest rates, the increase in the inflation rate was seen as an opportunity to re-anchor inflation expectations solidly at the Governing Council’s 2% target over the medium term. A continued accommodative monetary policy stance would also be in line with the Governing Council’s new monetary policy strategy, which called for policy to be persistent when interest rates were at the lower bound and explicitly allowed for inflation to moderately exceed the target for a transitory period. Moreover, it was conjectured that there had been no fundamental changes in the underlying causes of the low growth and low inflation environment prevailing prior to the pandemic. However, it was also noted that, despite the increase in nominal rates, short-term real interest rates had decreased. The remark was made that, at some point in the future, the very generous monetary policy support to the economy would need to be reassessed in view of the improved inflation outlook and be brought towards a more neutral configuration over time. Contrary to the situation in the past decade, the Governing Council was now increasingly facing a macroeconomic backdrop of deficient supply rather than deficient demand, in an environment of rising inflation expectations and a fast improving labour market. At the same time, it was recalled that the current macroeconomic outlook depended heavily on the monetary policy support that was in place. With regard to financing conditions, it was noted that, overall, financial and financing conditions had remained favourable, although market interest rates such as the ten-year OIS rate and euro area sovereign bond yields had increased markedly since the Governing Council’s previous quarterly assessment in September. The increase in the ten-year OIS rate reflected exclusively an increase in measures of inflation compensation. A substantial part of the increase in inflation compensation, in turn, was attributed to an increase in the term premium related to spillovers from abroad. At the same time, real interest rates had fallen and government and corporate bond spreads had remained contained. Market-based and bank-based financing conditions for firms and households remained at, or close to, historically supportive levels, despite an increase in bank and corporate bond yields. Concerns were voiced that expectations regarding the future path of short-term money market interest rates were difficult to reconcile with the Governing Council’s forward guidance on interest rates, with market participants anticipating a much earlier date for the first rate increase than at the time of the Governing Council’s September meeting. The question was raised as to whether market participants might misunderstand the three conditions laid out in the Governing Council’s forward guidance that had to be satisfied before the first increase in policy rates. These conditions were that the Governing Council should see inflation reaching 2% (i) well ahead of the end of its projection horizon and (ii) durably for the rest of the projection horizon, and that (iii) in the Governing Council’s judgement realised progress in underlying inflation was sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. It was recalled that – in contrast to survey-based indicators – market-based measures of inflation compensation and future interest rates contained term premia, which had to be disentangled from the pure expectations component. The increase in term premia on account of the elevated uncertainty could potentially offer one explanation for the discrepancy between market-based measures and survey-based indicators, although both metrics had shifted significantly since the September meeting. Two main reasons for this shift were discussed. On the one hand, the significant increase in market-based measures of inflation compensation across the maturity spectrum, including over the medium term, suggested that market participants judged that the interest rate lift-off conditions would be met earlier than the Governing Council anticipated. Consistent with the automatic stabiliser function inherent in the Governing Council’s forward guidance, it was reasonable to expect changes in the expected time to lift-off as inflation expectations rose. This suggested that the forward guidance remained credible and that it had contributed to a further easing of financing conditions by lowering real short and medium-term interest rates. In this context, it was noted that there was now a gap between the future path of inflation implied by inflation swap markets and the September 2021 ECB staff projections, and attention was drawn to the recent persistent underestimation of inflation in recent staff macroeconomic projections. On the other hand, market participants were possibly questioning the credibility of the Governing Council’s forward guidance. In this context, it was stressed that the Governing Council had to reaffirm all three conditions of its forward guidance and its determination to act forcefully and persistently, in line with its revised monetary policy strategy, in order to anchor inflation expectations solidly at its 2% target. Equally, the Governing Council had to reaffirm its assessment that inflation would decline in the course of next year and could still be expected to settle below the ECB’s 2% target over the projection horizon. It was underlined that, by explicitly stressing the need for durability of the underlying inflation developments, the Governing Council’s forward guidance was particularly well suited to looking through “cost-push” shocks such as the ones being experienced. Members concurred that the current and near-term increase in inflation was driven largely by temporary factors that would fade in the medium term. At the same time, members agreed that price pressures were more persistent than had been foreseen in the September ECB staff projections. Although it was judged that second-round effects were not visible so far, medium-term price pressures needed to be monitored closely. In this context, it was noted that medium-term inflation expectations – not just those of market participants but also those of economic agents in general – remained well anchored and generally below the 2% target. Overall, it was acknowledged that the medium-term inflation outlook had improved. Although the Governing Council’s focus on the medium-term inflation outlook suggested looking through the projected hump-shaped path for inflation that resulted from the temporary nature of the current factors affecting the inflation outlook, the uncertainty around the medium-term prospects was seen as elevated. While an increase in the upside risks to inflation had to be acknowledged, it was deemed important for the Governing Council to avoid an overreaction as well as unwarranted inaction, and to keep sufficient optionality in calibrating its monetary policy measures to address all inflation scenarios that might unfold. Based on the joint assessment of financing conditions and the inflation outlook, all members agreed with Mr Lane’s proposal to continue conducting net asset purchases under the PEPP at a moderately lower pace during the final quarter of the year compared with the previous two quarters, while confirming all other monetary policy measures, namely the level of the key ECB interest rates, the Governing Council’s forward guidance on their likely future evolution, the purchases under the asset purchase programme (APP), the reinvestment policies and the longer-term refinancing operations. With regard to the upcoming Governing Council meeting in December, the view was held that, judging on the basis of the current developments, net purchases under the PEPP could be expected to come to an end by March 2022, in line with the date that the Governing Council had announced in its previous communication. At the same time, it was highlighted that monetary policy decisions needed to be data-driven and all incoming data during the coming months needed to be taken into account. While the Governing Council would benefit from new staff macroeconomic projections at its December meeting, it was cautioned that the data available in December would not resolve all the uncertainties around the medium-term inflation outlook. It was seen as important that the Governing Council should keep sufficient optionality to allow for future monetary policy actions, including beyond its December meeting. Monetary policy decisions and communication Regarding communication, it was stressed that, in view of the significant shift in the path of short-term money market rates, the Governing Council had to reaffirm its forward guidance and its assessment that, while inflation would take longer to decline than previously expected, in the medium term it was foreseen as remaining below the 2% target. In this context, it was necessary to stress the medium-term inflation outlook and the Governing Council’s determination to act forcefully and persistently, in line with its revised monetary policy strategy, to anchor inflation expectations solidly at its 2% target. At the same time, it had to be acknowledged that some of the upside risks to the September 2021 staff projections had materialised and that the recent uptick in inflation was expected to be more persistent than previously anticipated. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the following monetary policy decisions, which are set out in more detail in the corresponding ECB press release. The Governing Council continued to judge that favourable financing conditions could be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of the year. The Governing Council also confirmed its other measures, namely the level of the key ECB interest rates, its forward guidance on their likely future evolution, its purchases under the asset purchase programme (APP), its reinvestment policies and its longer-term refinancing operations. The Governing Council reiterated that it stood ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilised at its 2% target over the medium term. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 28 October 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 27-28 October 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Panetta Mr Rehn* Mr Reinesch Ms Schnabel Mr Scicluna Mr Stournaras Mr Šimkus Mr Vasle Mr Villeroy de Galhau* Mr Visco Mr Weidmann Mr Wunsch* * Members not holding a voting right in October 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Mr Bitans Ms Buch Mr Demarco Ms Donnery Mr Gaiotti Ms Goulard Mr Haber Mr Kuodis Mr Kyriacou Mr Luikmel Mr Lünnemann Mr Novo Mr Ódor Mr Sleijpen Mr Tavlas Mr Vanackere Mr Välimäki Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 20 January 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

20 January 2022 Meeting of 15-16 December 2021 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 15-16 December 2021 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the financial market developments since the Governing Council’s previous monetary policy meeting on 27-28 October 2021 and put these developments into the context of the broader financial stability landscape, in line with the outcome of the ECB’s strategy review. In response to the discovery of Omicron, stock markets worldwide had suffered marked losses. The volume of put options on the EURO STOXX 50 had hit its highest level since the outbreak of the coronavirus (COVID-19) pandemic in March 2020, as investors looked for protection against further losses. At the same time, the ten-year US Treasury and euro area GDP-weighted sovereign yields had almost fallen back to the lows seen over the summer. They stood well below the levels observed at the Governing Council’s October meeting. These financial market developments could be interpreted in two ways. The first was that the market expected Omicron to have a materially larger impact on economic activity than previous mutations. However, model-based evidence showing a shock-decomposition of the recent decline in ten-year euro area OIS yields assigned only a fraction of the decline in yields to a deterioration in the economic outlook. Similarly, less than a third of the recent marked decline in oil prices was likely to reflect a reappraisal of the global growth outlook. The second interpretation of recent financial market developments related to the fragile market conditions that prevailed when the news about Omicron broke. Since mid-October 2021, volatility in bond markets had been rising sharply and liquidity conditions in derivative markets had deteriorated measurably, amplifying the market reaction to the news of Omicron. Two factors had contributed to this fragile market environment. One was the growing conviction among investors that the period of low inflation was over and that globally monetary policy would have to be tightened sooner than had been anticipated earlier in 2021. The second was the sensitivity of financial markets to such changes in the policy outlook after years of significant monetary policy accommodation. In the United States, markets now assessed the chance of a rate hike at the Federal Reserve’s meeting in May 2022 as well over one in two. A one-in-three chance of a rise was seen as early as March 2022. In the euro area, by contrast, expectations of “lift-off” – a first rate hike – had been pushed back compared with the Governing Council’s previous meeting on 27-28 October 2021. Nevertheless, lift-off expectations remained far closer than they had been at the Governing Council meeting on 8-9 September 2021, and they had also become less volatile. Moreover, the gap that had opened in the autumn between the lift-off expectations priced in by markets and those indicated by the participants in the Survey of Monetary Analysts (SMA) was closing. In the SMA, the median expectation for lift-off had been brought forward by another two quarters, from the second quarter of 2024 to the fourth quarter of 2023 – only three quarters later than priced in by markets compared with six quarters in October 2021. The divergence in expected policy cycles had continued to put significant downward pressure on the euro-US dollar exchange rate. The euro had depreciated by nearly another 3% against the US dollar since the Governing Council’s previous monetary policy meeting and was currently down by 8% from its peak in late May 2021. The ECB’s forward guidance remained a key factor behind the divergence in expected policy cycles. Although the relationship between expected inflation and expected policy rates had strengthened somewhat since the Governing Council meeting on 8-9 September 2021, it remained significantly weaker than before the COVID-19 pandemic. Also, looking at the relationship between expected policy rates and inflation surprises across advanced economies, the euro area stood out as a clear exception, with significant cumulative upside surprises to inflation having a limited impact on policy rate expectations. Nevertheless, uncertainty around the future path of policy rates had increased, also in the euro area, which had contributed to the rise in market volatility. The risk distribution around the three-month EURIBOR had narrowed somewhat compared with the Governing Council’s previous meeting on 27-28 October 2021. However, it remained significantly larger than in July and clearly skewed to the upside. This risk distribution suggested investors were concerned that the high uncertainty about the inflation outlook could mean the conditions of the ECB’s forward guidance might be met earlier than currently expected. This view was corroborated when looking at inflation swap rates. Although these had come down from their multi-year highs in recent weeks, the current euro area forward inflation swap curve remained close to the 2% target. It stood well above the level that had been expected before the COVID-19 pandemic. Option markets, too, continued to price in a significant probability of inflation exceeding the ECB’s target. They suggested around a 10% probability that inflation over the next five years would, on average, be above 3%, and about a 40% probability that inflation would be above 2%. To understand how sensitive the market was to a shock like Omicron, it was important to look at the risk exposure that investors had previously built up in expectation that short-term rates and volatility would stay low for a long time. In equity markets, global equity funds had taken in more funds in 2021 than in the previous two decades combined, which had contributed to pushing equity valuation metrics to the tails of, or beyond, the 75th percentile of the historical distribution, in particular in the United States but also in the euro area. Vulnerabilities had risen substantially in the non-bank sector. For example, the liquidity, credit and duration risk of euro area investment funds had all increased notably since the start of the COVID-19 pandemic. Similarly, in euro area sovereign and corporate bond markets, credit risk premia had been severely compressed over the past months despite much higher leverage. Prospects of higher risk-free rates had led to a decompression, albeit to varying degrees, with spreads generally remaining well below the levels observed before the pandemic. Moreover, with volatility elevated and safe assets in high demand, bond yields had actually fallen in almost all euro area Member States since the Governing Council’s October meeting and had otherwise remained close to their October levels. Spreads had only increased due to a strong decline in German Bund yields, which themselves had fallen much more sharply than the OIS rate. The spread of the ten-year Bund yield over the equivalent OIS rate had declined below the extraordinary levels seen at the height of the pandemic in March 2020. These developments highlighted the exceptional demand for safe assets as uncertainty about the policy outlook had increased. On the supply side, the available “free float” of bonds in the euro area had declined to very low levels. As a result, there had been a gradual and persistent deterioration in bond market liquidity across most euro area jurisdictions. Recently the Governing Council had decided to double the aggregate limit on the cash that counterparties could pledge under the Eurosystem securities lending programme. This had supported liquidity in the repo markets at a time when the demand for collateral had been rising and supply had been limited. The global environment and economic and monetary developments in the euro area Mr Lane reviewed the global environment and the recent economic and monetary developments in the euro area. Regarding the external environment, Purchasing Managers’ Index (PMI) data had signalled some slowing down of the world economy in the third quarter of 2021, owing to COVID-19-related restrictions and supply chain disruptions. The latest PMI data signalled a renewed improvement for the fourth quarter – especially in services but less so for manufacturing. Supply bottlenecks continued to restrain global activity and trade. Since the October monetary policy meeting of the Governing Council oil prices had decreased sharply (-12%), reflecting demand and supply effects. The euro exchange rate had declined only modestly in nominal effective terms (-0.4%), but had fallen visibly against the US dollar (-3%). Gas prices had increased amid heightened volatility, while metal prices had continued their downward trend. Turning to developments in activity in the euro area, during the lockdown in the first quarter of 2021 there had still been a substantial gap between GDP and its pre-crisis level. However, much of this gap – though not all – had been closed by the third quarter of 2021. A lot of the recovery during 2021 had been driven by private consumption, linked to the recovery in household spending on services that had followed the earlier recovery in manufacturing. The nature of supply constraints had been shifting over time and these continued to weigh on activity. Manufacturing firms had been suffering from shortages of materials and equipment. According to the Industry Survey of the European Commission, these shortages had worsened in the fourth quarter of 2021. The lack of skilled labour had become a concern in parts of both the manufacturing and the services sectors. Growth in disposable income had increased between the first and third quarters – reflecting a large recovery in real income. But in the fourth quarter real income was expected to drop, linked to the recent rise in energy prices. This implied a notable reduction in household real disposable income through a terms-of-trade effect, which was expected to dampen consumer spending in the short term. As regards housing investment, confidence continued to be strong but constraints from the supply side were playing an increasing role. Investment in other machinery and equipment had exceeded pre-pandemic levels since the first quarter of 2021, while in the third quarter investment in transport equipment had still been substantially below pre-pandemic levels. According to the Survey on the Access to Finance of Enterprises (SAFE), the share of firms saying that they had obtained financing for fixed investment over the latest six-month period had continued to improve and had reached a level above the pre-pandemic average. The recovery in the labour market continued to be strong. Although the unemployment rate had decreased further to the pre-crisis level of 7.3% in October, job retention schemes continued to support the labour market. Staff calculations indicated that the unemployment rate would be around 9% if workers in job retention schemes were added to the unemployed. In addition, the labour force continued to increase slightly but remained below pre-crisis levels. Employment and hours worked had been increasing in the third quarter but remained below pre-crisis levels, with some variation across countries. This signalled that the labour market was nowhere near back to normal. The job vacancy rate for the total economy had reached 2.6% in the third quarter, its highest level since the start of the data series. This increase was broad-based across sectors and reflected strong labour demand. The December 2021 staff projections foresaw a strong recovery in economic activity despite some near-term downward revisions owing to supply bottlenecks and the new pandemic wave. Economic growth in 2021 was seen to equal 5.1%, compared with 3.9% in the December 2020 projections. Inflation was expected to remain higher for longer, owing to high energy prices as well as mismatches between supply and demand. But the narrative remained that bottleneck effects were expected to fade over time. Headline inflation was foreseen to fall below 2% as of the fourth quarter of 2022 and be equal to 1.8% in 2024. This reflected low energy inflation but robust core inflation, supported by the absorption of slack, increased labour costs and higher inflation expectations. Looking at different forecasts over time, the June 2020 Eurosystem staff projections had foreseen only a partial recovery of the economy – whereas now in the December 2021 forecast the real GDP projection had returned to the pre-pandemic path. It was also very important to look at the labour market, where the December projections were returning to the pre-pandemic path. At 6.6% at the end of the projection horizon in 2024, the unemployment rate was forecast to be at a level not seen since the early 1980s. However, this was partly attributable to adverse demographic developments leading to a lack of workers and therefore stronger labour market pressures. To address the high uncertainty surrounding the economic outlook, the December 2021 Eurosystem staff projections continued to include alternative pandemic scenarios. Turning to developments in prices and costs, Harmonised Index of Consumer Prices (HICP) inflation had increased further from 3.4% in September to 4.1% in October and 4.9% in November (flash release), pushed up by another increase in energy inflation. Energy inflation had reached an all-time high in November – predominantly driven by oil and fuel prices – while gas and electricity had also played an important role. But there had also been a substantial rise in HICPX inflation, i.e. HICP inflation excluding energy and food, based on higher inflation for goods and services. Price pressures had spread to more of the goods and services included in the HICP. The range of inflation rates across HICP items was currently very wide. Most indicators of underlying inflation had picked up quite a bit recently, but it remained difficult to disentangle how much of this increase reflected pandemic effects. These included base effects, bottlenecks – which were expected to fade eventually – and the indirect effects of imported energy. Because of the many special factors at work it was unclear to what extent these indicators were, at present, good indicators of underlying inflation. Wage pressures also remained relatively limited, which was an essential aspect for assessing underlying inflationary pressures. Pipeline price pressures continued to build up. Owing to their lagged impact, this implied stronger upward pressure on non-energy industrial goods (NEIG) inflation in the future. At the same time, it was important to remember that goods represented only a relatively small fraction of the overall consumption basket underlying the HICP. Turning to wage developments, growth in negotiated wages had remained low, at 1.3% in the third quarter of 2021. So far there was no evidence of substantial second-round effects. Allowing for productivity increases, this was not yet generating much domestic inflation pressure. Minimum wages in several euro area countries were expected to grow quite strongly, in part because of inflation indexation, which could have knock-on effects. The latest developments in indicators of actual wage growth continued to be strongly affected by measures taken in 2020 to cushion the effect of the pandemic, such as job retention schemes. These also affected the GDP deflator, which was usually seen as a measure for domestic price pressures. The contribution of unit labour costs to the GDP deflator had so far remained limited. Measures of longer-term inflation expectations had increased significantly over the course of 2021 but had remained broadly stable in recent weeks – and were still below the 2% target. Surveys such as the ECB Survey of Professional Forecasters (SPF) or Consensus Economics supported the view that inflation would be high in 2021 and 2022 but fall afterwards and remain below the 2% target from 2023 onwards. Market-based measures of longer-term inflation compensation continued to signal inflation below 2%. As regards monetary developments, Eurosystem asset purchases remained the largest contributor to money creation. But bank credit to the private sector had also strengthened in the third quarter of 2021 and in October. External monetary outflows were weighing negatively on money creation. Such outflows were consistent with Eurosystem purchases being larger than bond issuance in the euro area and the workings of portfolio rebalancing. Credit dynamics had remained relatively moderate since the September meeting of the Governing Council. This reflected contained demand for bank loans to firms, in the light of firms’ high liquidity holdings, the recovery in revenues, and increased use of alternative external financing sources. Conversely, the footprint left by supply bottlenecks was growing, pushing up short-term lending to firms to finance working capital and inventories. Turning to fiscal policies, the December 2021 Eurosystem staff projections foresaw a less pronounced fiscal tightening for 2022 than the September ECB staff projections. Some additional fiscal stimulus measures could still be expected, resulting in a looser stance. But after 2022, and once the general escape clause of the Stability and Growth Pact ceased to apply, some fiscal normalisation was to be expected. This would see fiscal policy becoming less supportive for growth in 2023-24 than during 2020-21. Monetary policy considerations and policy options Summing up, Mr Lane stressed that the euro area economy continued to recover and the labour market was improving, underpinned by ample policy support. Both the services and manufacturing sectors continued to expand. However, the pace of the expansion was moderating, and the pandemic situation had deteriorated. A sharp increase in cases of infection had resulted in the reimposition of tighter restrictions in some countries. These containment measures could, to some extent, delay the recovery in the most contact-intensive services. At the same time, manufacturing activity continued to be constrained by supply bottlenecks which were expected to persist throughout 2022, although gradually dissipating. Economic activity was being restrained by factors that were headwinds for the near-term outlook: the deterioration in the pandemic situation; ongoing shortages of labour, materials and equipment in some sectors; and the rise in energy costs. While the public health crisis was still ongoing, high levels of immunity and robust labour markets were mitigating the economic impact of the pandemic. In line with this assessment, activity was expected to pick up again strongly in the course of 2022. GDP was projected to grow by 5.1% in 2021, 4.2% in 2022, 2.9% in 2023 and 1.6% in 2024. Compared with the September staff projections, growth had been marked up for 2021 on account of upward revisions to the first two quarters of the year, which outweighed the downward revisions to the final two quarters of the year. The projection for 2022 had been revised down owing to persistent supply-side disruptions and the resurgence of the pandemic. For 2023, growth had been revised up, reflecting the expected fading of supply bottlenecks, the continued global recovery and an unwinding of accumulated savings. According to Eurostat’s flash estimate, HICP inflation had increased from 4.1% in October to 4.9% in November. Inflation had increased sharply, primarily on account of the surge in energy prices but also because the recovery in demand was outpacing constrained supply in some sectors. Inflation was expected to remain elevated over the next few months but to decline sharply in the course of 2022, as energy prices stabilised, consumption patterns returned to normal, and the bottlenecks in global supply petered out. Base effects – including the reversal of the temporary German VAT cut – would also fall out of the year-on-year inflation calculation. HICPX inflation had risen from 2.0% in October to 2.6% in November. The increase reflected higher services inflation, mirroring the strengthening of price dynamics for high-contact services. NEIG inflation had also increased as producer prices had risen amid ongoing global supply dislocations. Stronger pipeline price pressures were also evident at both the earlier and later stages of the pricing chain. The December staff projections foresaw a significant upward revision to the path of inflation. Headline inflation was projected to average 2.6% in 2021, 3.2% in 2022, and 1.8% in both 2023 and 2024, with upward revisions of 0.4 percentage points for 2021, 1.5 percentage points for 2022 and 0.3 percentage points for 2023. The upward revisions were due to a significantly higher path of energy prices, as well as price pressures related to supply bottlenecks and to the reopening of the economy. Since these factors were expected to ease in the course of 2022, inflation was expected to fall back below the target in 2023 and 2024. At the same time, not only had the negative pandemic shock to the projected inflation path been eliminated, but also the projected gap vis-à-vis the medium-term inflation target had narrowed owing to the reabsorption of slack, stronger wage dynamics over the projection horizon and the increase in inflation expectations. The risks to the economic outlook were broadly balanced. Economic activity could outperform expectations if consumers became more confident and saved less than expected. By contrast, the recent worsening of the pandemic, including the spread of new virus variants, could be a more persistent drag on growth. The future path of energy prices and the pace of the dissipation of supply bottlenecks were risks to the recovery and to the outlook for inflation. If such price pressures fed through into higher than anticipated wage rises, or if the economy returned more quickly to full capacity, inflation could turn out to be higher. Financing conditions remained at favourable levels despite a pronounced deterioration in global risk sentiment and the associated fall in prices of risk assets. Compared with the last quarterly comprehensive assessment in September, risk-free and GDP-weighted sovereign yields had remained broadly stable. Bank and non-financial corporation (NFC) bond yields were above the levels that had prevailed in September, but the cost of equity was lower, and bank lending rates to both firms and households remained near historical lows. Overall, progress on economic recovery and towards the Governing Council’s medium-term inflation target permitted a step-by-step reduction in the pace of asset purchases over the coming quarters. The pandemic emergency purchase programme (PEPP) had been launched with the dual objectives of offsetting the negative impact of the pandemic on the outlook for inflation and of staving off unwarranted market fragmentation caused by the pandemic that threatened the smooth transmission of monetary policy across the entire euro area. The PEPP had delivered on this dual-purpose mission. First, inflation at the end of the projection horizon was expected to exceed the end-horizon rate that had been projected prior to the pandemic. Second, the fragmentation in monetary policy transmission that had occurred in the initial phase of the pandemic had been successfully countered. As a result, financing conditions for firms and households had been favourable throughout the euro area. Looking at the big picture, vaccination campaigns and the observed capacity of the economy to adapt to the pandemic supported the conclusion that terminating net purchases at the end of March 2022 met the criterion of the pandemic crisis phase being over. At the same time, monetary accommodation was still needed for inflation to stabilise at the 2% inflation target over the medium term. In view of the current uncertainty, Mr Lane stressed that there was a need to maintain flexibility and optionality in the conduct of monetary policy. Against this background, Mr Lane proposed the following: to conduct net asset purchases under the PEPP at a lower pace than in the previous quarter and to communicate the expectation that the Eurosystem would discontinue net purchases under the PEPP at the end of March; to communicate that the pandemic had shown that, under stressed conditions, flexibility in the design and conduct of asset purchases had helped to counter the impaired transmission of monetary policy and had made the efforts to achieve the Governing Council’s goal more effective. In the future flexibility should remain an integral element of monetary policy whenever threats to monetary policy transmission and to the attainment of price stability became apparent. In the event of renewed market fragmentation related to the pandemic, PEPP reinvestments could be adjusted flexibly across time, asset classes and jurisdictions at any time. This could include purchasing bonds issued by the Hellenic Republic over and above rollovers of redemptions in order to avoid an interruption of purchases in that jurisdiction, which could impair the transmission of the stance to the Greek economy while it was still recovering from the fallout of the pandemic. In addition, Mr Lane stressed the need to state that net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic; to extend the reinvestment horizon for the PEPP to until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. The extension of the calendar guidance for PEPP reinvestments both contributed to the monetary policy stance and underpinned the role of PEPP reinvestment in countering market fragmentation risk; in line with the step-by-step reduction in asset purchases and to ensure that the monetary policy stance remained consistent with inflation stabilising at the target over the medium term, the appropriate calibration for the asset purchase programme (APP) was to set the pace of monthly net asset purchases under the APP at €40 billion in the second quarter; €30 billion in the third quarter; and, from October 2022 onwards, to maintain net asset purchases under the APP at a monthly pace of €20 billion for as long as necessary to reinforce the accommodative impact of the policy rates; and to continue to anticipate that net asset purchases would end shortly before key ECB interest rates started to be raised; to confirm the level of the key ECB interest rates and the forward guidance on the future path of policy rates. This was crucial for maintaining the degree of accommodation that was necessary to stabilise inflation at the 2% inflation target over the medium term; to signal that the Governing Council would continue to monitor bank funding conditions and ensure that the maturing of funds provided in the third series of targeted longer-term refinancing operations (TLTRO III) did not hamper the smooth transmission of monetary policy, and to signal that the Governing Council would also regularly assess the contribution of targeted lending operations to the monetary policy stance. Moreover, Mr Lane stated that the Governing Council should indicate that the special conditions applicable under TLTRO III were expected to end in June 2022, as announced. In addition, there was a need to assess the appropriate calibration of the two-tier system for reserve remuneration so that the negative interest rate policy did not limit the intermediation capacity of the banking system in an environment of ample excess liquidity; to express readiness to adjust all the available instruments, as appropriate and in either direction, to ensure that inflation stabilised at 2% over the medium term. Mr Lane stressed that the Governing Council should clarify the outlook for its policies so that financing conditions remained sufficiently supportive for inflation to be maintained on its path of convergence to the target. At the same time, necessary optionality would be retained so as to be able to respond adequately to any new inflation surprise leading to an upside unanchoring of expectations regarding inflation in the medium term. The recalibration of the monetary policy instruments was a proportionate course of action in the pursuit of the price stability mandate. Inflation was still projected to be below the ECB’s target over the medium term. Therefore ensuring that the level of long-term interest rates provided sufficient support for economic activity was necessary in order to foster the convergence of inflation to the Governing Council’s target over the medium term. In the current environment of low interest rates, appropriately calibrated asset purchases were also a relatively more efficient measure than turning to alternative monetary policy tools to provide the necessary degree of monetary accommodation. Moreover, the potential side effects of the proposed recalibration did not outweigh the expected benefits in terms of price stability. In line with the new monetary policy strategy, Mr Lane stated that the Governing Council should also assess the interrelation between monetary policy and financial stability twice a year. On the one hand, accommodative monetary policy supported growth and thereby corporate balance sheets in both the non-financial and financial sectors. On the other hand, the impact of accommodative monetary policy on property and financial markets warranted close monitoring, especially since some medium-term vulnerabilities had intensified. However, macroprudential policy was the first line of defence in preserving financial stability and addressing medium-term vulnerabilities. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The euro area economy continued to recover and the labour market was improving. The near-term outlook faced headwinds from the latest pandemic wave, the significant increase in energy prices and the shortages of materials, equipment and labour in some sectors. However, overall, society had become better at coping with the pandemic waves and resulting constraints, which was reducing the impact on the economy. While growth was moderating, activity was expected to pick up again strongly in the course of 2022. Inflation had risen sharply owing to the surge in energy prices, and also because demand was outpacing constrained supply in some sectors. Inflation was expected to remain elevated in the near term, but to ease in the course of 2022. The inflation projections had been revised up, but inflation was still projected to settle below the 2% target over the projection horizon. As regards the external environment, members took note that 2021 had seen an early recovery in manufacturing and, more recently, a significant recovery in services too. The momentum in manufacturing was slowing, however, as supply bottlenecks in conjunction with strong increases in global demand had become more pervasive. Turning to euro area developments, economic activity had been moderating over the final quarter of 2021 and this slower growth was likely to extend into the early part of 2022. Shortages of equipment, materials and labour in some sectors were hampering production of manufactured goods, causing delays in construction and slowing down the recovery in some parts of the services sector. These bottlenecks would prevail for some time but were likely to ease during 2022. The tighter containment measures reintroduced in some euro area countries to cope with the current pandemic wave could delay the recovery. The pandemic was weighing on consumer and business confidence, and the spread of new virus variants was creating additional uncertainty. Moreover, increased energy costs – and price increases more broadly – were headwinds for consumption. Nonetheless, the economic recovery was continuing and the labour market was improving, with more people in jobs and fewer in job retention schemes. This supported the prospect of rising household income and consumption as well as investment. Members broadly agreed with the baseline view of economic growth in the December Eurosystem staff macroeconomic projections and the revisions compared with the September ECB staff projections. Expected growth rates for real GDP of 5.1% in 2021 and 4.2% in 2022 showed confidence in a solid recovery and suggested that the sensitivity of activity to the pandemic and the damage caused by the pandemic were seen as limited at this stage. Vaccination campaigns and the adaptation of households and businesses to life during the pandemic had probably been more effective than expected. As a result, the link between the strength of the pandemic and the economic outlook had been weakening over time. The downward revision to growth in the near term as a result of the evolution of the pandemic, and its subsequent rebalancing with higher growth later in 2022, were seen to be in line with what had been experienced in previous waves of the pandemic. At the same time, it was cautioned that while economic performance had been better than expected, the economy was not yet “out of the woods”. Reference was made to the increased uncertainty implied by the emergence of the Omicron variant. Its emergence would be a setback for services, which had just been starting to recover. It was argued that the impact on inflation might be upward rather than downward in a context of more persistent supply-side constraints. However, the fall in oil prices that had followed the news about Omicron could be seen as a signal that the effect would be anti-inflationary. Regarding fiscal policies, it was reiterated that targeted and growth-friendly fiscal measures should continue to complement monetary policy. This support would also help the economy adjust to the structural changes that were under way. An effective implementation of the Next Generation EU programme and the “Fit for 55” package would contribute to a stronger, greener and more even recovery across euro area countries. Against this background, members assessed the risks to the economic outlook as broadly balanced. Economic activity could outperform the staff expectations if consumers became more confident and saved less than expected. By contrast, the recent worsening of the pandemic, including the spread of new variants of the coronavirus, could be a more persistent drag on growth. The future path of energy prices and the pace at which supply bottlenecks were resolved presented risks to the recovery and to the outlook for inflation in both directions. If price pressures fed through into higher than anticipated wage rises, or the economy returned more quickly to full capacity, inflation could turn out to be higher. With regard to price developments, members largely concurred with the assessment presented by Mr Lane in his introduction. Inflation had increased further to 4.9% in November 2021 and – according to the Eurosystem staff projections – would remain well above 2% for most of 2022. Headline inflation was expected to remain elevated in the near term but to decline in the course of 2022. The upswing in headline inflation primarily reflected a sharp rise in energy prices, which in November had accounted for more than half of headline inflation. In addition, demand continued to outpace constrained supply in certain sectors. Base effects related to the end of the VAT cut in Germany were still contributing to higher inflation, but would only do so until the end of 2021. It was expected that in the course of 2022 energy prices would stabilise and price pressures stemming from global supply bottlenecks would subside. Over time, the gradual return of the economy to full capacity and further improvements in the labour market were expected to support faster growth in wages. Market and survey-based measures of longer-term inflation expectations had moved closer to 2% in recent months. These factors would tend to drive underlying inflation up further and were likely to contribute to stabilising headline inflation at the target over the medium term. In their discussion of the baseline scenario for inflation in the December staff projections, members noted that the December projections had contained the largest cumulative upward revision to the inflation projections in the history of the exercise. The point was made that in the public perception repeated underestimations of inflation were likely to be more problematic than overestimations, as the general public was typically less concerned if actual inflation turned out lower than expected. At the same time, it was observed that the Eurosystem staff inflation projection for 2022 was much higher than other recent forecasts, such as those from Consensus Economics. It was stressed that almost two-thirds of the upward revision to inflation for 2022 was due to developments in volatile energy prices. These prices reflected a number of economic and geopolitical factors affecting the balance of demand and supply, as well as types of shock that could not have been foreseen. However, it was pointed out that core inflation had increased strongly over recent months, and inflation had become more broad-based, with barely any of the items in the HICP still exhibiting the low rates of change in prices prevailing in the pre-pandemic period. This cautioned against portraying the current high level of inflation as being the result of just energy price developments and temporary factors. Members were of the view that there was elevated uncertainty as to where inflation would settle in the medium term after the current hump. The baseline scenario of the December staff projections saw HICP inflation at 1.8% in both 2023 and 2024, and it was pointed out that rates below 2% were in line with the expectations of many other professional forecasters. At the same time, it was remarked that, in any case, this outlook did not imply a return to the low inflation regime of the pre-pandemic period but pointed to a regime more similar to that prevailing before the great financial crisis when inflation had averaged around 2%. This was to be seen as a welcome development. However, it was also felt that such an outcome could not be taken for granted and high inflation could persist for longer than anticipated. It was reiterated that models calibrated on pre-pandemic data might not be well suited to capturing major structural changes or a potential switch from a lower to a higher inflation regime. Faced with a potential turning point in the inflation outlook, it was seen as paramount to pay close attention to timely signals emerging from the real economy, notably those from firms and wage-setters, rather than relying mostly on models and past patterns. In this context, it was also reiterated that higher inflation in the medium term was unlikely to come about without dynamic wage growth. In this respect, the baseline scenario of the December staff projections was seen to be predicated on wage growth above the average of the past two decades. It was argued that high wage growth outcomes could only materialise in the presence of a structural change in the wage-setting process or strong second-round effects. However, the longer inflation remained substantially above the target, the more it could become entrenched in longer-term inflation expectations, which could then spill over into wage growth and actual inflation. It was noted that the latest available data for euro area negotiated wages suggested annual growth of around 1.5%, and did not point to second-round effects so far. At the same time, it was recalled that developments in wage growth lagged those in other economic variables, and such effects should hence not be expected in the data at this stage. It was also argued that the staff projections of relatively high nominal wage growth needed to be put into perspective, as the numbers were still affected by the impact of job retention schemes. Moreover, if developments in productivity were taken into account, the projected growth in unit labour costs appeared much less striking, although measures of productivity were also uncertain and were affected by special factors related to the pandemic, including the impact on the number of hours worked. Members discussed different upside and downside factors that could affect the baseline inflation outlook in the staff projections. Reference was made to the disinflationary impact of Omicron through lower global commodity prices. It was suggested that the fall in oil prices since the cut-off date for the projections would mechanically lower inflation in 2022. At the same time, the point was made that the balance between the disinflationary and inflationary consequences of Omicron was uncertain. In particular, it was argued that it would likely also affect supply adversely and, in line with previous experiences during the pandemic, could then also entail significant upside risks to inflation. It was recalled that the baseline projections assumed that energy commodity prices would evolve according to current backward-bending futures prices. These implied a marked decline in energy prices over the projection horizon and contributions of energy prices to headline inflation in 2023 and 2024 well below historical average levels. It was also reiterated that increases in carbon prices towards levels needed to reach the objectives of the Paris Agreement would push inflation upwards in the coming years, both within and beyond the projection horizon. Finally, it was recalled that the inflation projections did not yet include developments in owner-occupied housing costs. Reference was made to estimates indicating that HICP inflation in the second quarter of 2021 would have been 0.2-0.3 percentage points higher if these costs had been included. At the same time, it was suggested that models and the pricing of inflation compensation derived from financial markets continued to point to a higher likelihood of inflation undershooting the medium-term target than of a lasting overshoot. As regards inflation expectations, members took note of the assessment given by Ms Schnabel and Mr Lane that survey and market-based measures of longer-term inflation expectations had generally remained below but near to the ECB’s inflation target. This was also the case taking into account estimates of risk premia, which varied over time and affected the interpretation of inflation expectations derived from the pricing of inflation compensation in financial markets. There were so far no signs that longer-term inflation expectations had moved away – or even become unanchored – from the target following the repeatedly higher than expected inflation figures in recent months, although they had increased significantly since the beginning of 2021. However, if inflation exceeded the target in both 2021 and 2022, this risked being perceived less and less as a temporary phenomenon and might drive up longer-term inflation expectations. If, by contrast, inflation declined sharply throughout 2022 from its current high rates, this would provide reassurance on the inflation outlook. Members widely concurred with the assessment of financial and monetary conditions provided by Mr Lane in his introduction. Market interest rates had fallen since the Governing Council’s October meeting but were little changed compared with the September meeting, when the previous quarterly assessment of the inflation outlook and financing conditions had been carried out. Financing conditions for the economy remained favourable. Bank lending to NFCs was being driven partly by short-term funding needs stemming from supply bottlenecks that increased expenses for inventory and working capital. However, NFCs’ demand for loans remained moderate overall because of strong retained earnings and ample cash holdings, as well as high debt. By contrast, lending to households continued to be robust, driven by the demand for mortgages. Euro area banks had further strengthened their balance sheets thanks to higher capital ratios and fewer non-performing loans. Banks’ profits had recovered to levels seen before the pandemic, despite continued pressure on net interest margins. Bank funding conditions remained favourable overall. Monetary policy stance and policy considerations With respect to the assessment of financing conditions it was noted that, overall, financial and financing conditions had remained favourable despite a pronounced deterioration in global risk sentiment and the associated fall in the prices of risky assets. Compared with the Governing Council’s quarterly assessment of financing conditions in September, risk-free and GDP-weighted sovereign yields had remained broadly stable in nominal terms, and near or at historical lows in real terms. Bank and corporate bond yields were above the levels that had prevailed in September, but were counterbalanced by a lower cost of equity. Bank lending rates for firms and households remained around their historical lows. Reference was made to the euro having depreciated markedly, both against the US dollar and in nominal effective terms, as a factor loosening financial conditions. This was also seen as likely to exacerbate losses in the terms of trade and to contribute to upward pressures on the euro area inflation outlook. Regarding the inflation outlook, members concurred that the recent and projected near-term increase in inflation was driven largely by temporary factors that were expected to ease in the course of 2022. Although the medium-term inflation outlook had been revised up in the staff projections, inflation was still projected to settle below the Governing Council’s 2% target in the baseline scenario. It was stressed that the projected convergence of inflation expectations towards 2% was to be welcomed although the outlook was surrounded by exceptionally high uncertainty. At the same time, it was cautioned that a “higher for longer” inflation scenario could not be ruled out. For 2023 and 2024, inflation in the baseline projection was already relatively close to 2% and, considering the upside risk to the projection, could easily turn out above 2%. It was seen as important to preserve the flexibility to act decisively to keep inflation expectations anchored in both directions, and thus also preserve the credibility of the Governing Council. The Governing Council should therefore communicate clearly that it was ready to act if price pressures proved to be more persistent and inflation failed to fall below the target as quickly as the baseline projections foresaw. However, concerns were also expressed about any premature scaling back of monetary stimulus and asset purchases. It was argued that market participants seemed to question the credibility of the Governing Council’s forward guidance, as they expected a first interest rate increase at a date that was difficult to reconcile with the conditions set by the Governing Council for such an increase. Overall, members broadly agreed that progress on economic recovery and towards the Governing Council’s 2% medium-term inflation target permitted a gradual normalisation of the monetary policy stance. There was general agreement that the downward impact of the pandemic on the projected path of inflation had dissipated or been offset, and that net purchases under the PEPP could accordingly be scaled down and discontinued at the end of March, in line with previous communication. At the same time, members widely agreed that substantial monetary policy support was still needed for inflation to stabilise at the Governing Council’s inflation target over the medium term. It was argued that the Governing Council should look through the current supply disruptions and keep a steady hand, while carefully monitoring any developments pointing to an unanchoring of inflation expectations. A continued high degree of monetary policy support was also deemed necessary to prevent inflation falling below the target once the effects of the pandemic, which was still affecting large parts of the euro area economy, had subsided. However, it was argued that a significant degree of policy stimulus was already in place through the Governing Council’s forward guidance on interest rates, the large stock of acquired assets, together with the reinvestment policy, and the TLTROs. Therefore, given the measurable progress made in the convergence of medium-term inflation towards the target, there was no need for a further loosening of the stance through additional asset purchases. At the same time, it was cautioned that the discontinuation of net purchases under the PEPP at the end of the first quarter of 2022 and the expiry of the favourable interest rate conditions in the TLTRO III operations would imply a monetary tightening in 2022. Moreover, a divergence from the monetary policy stance in other jurisdictions, which could be perceived as less accommodative than in the euro area, was seen as warranted by different economic conditions. In the subsequent discussion, members widely agreed that the recalibration of the monetary policy instruments proposed by Mr Lane in his introduction was a proportionate course of action in the pursuit of the Governing Council’s price stability mandate. Given the exceptionally high uncertainty surrounding the current economic environment, a gradual, data-driven and flexible approach was deemed proportionate to balance the higher near-term inflation outlook against increasing medium-term vulnerabilities, which required maintaining sufficient optionality to adjust policy as new information became available. At the same time, the argument was made that the benefits of additional asset purchases were diminishing and their costs and side effects were increasing. This was evidenced, for example, by a structural deterioration in liquidity conditions and the increasing impairment of market functioning as a result of the low free float of bonds in many jurisdictions. There were also growing risks to financial stability, especially in the housing market, as well as rising distributional effects as asset purchases disproportionally benefited those owning assets. The proposed policy package was considered to be consistent with the economic outlook and was widely seen as appropriately calibrated to preserve the accommodative monetary policy stance needed to allow inflation to stabilise at the Governing Council’s symmetric 2% inflation target over the medium term. Against the background of continued favourable financing conditions and the improved inflation outlook, there was broad agreement that net asset purchases under the PEPP should be conducted at a lower pace in the first quarter of 2022 than in the previous quarter. There was also agreement that net purchases under the PEPP should be discontinued at the end of March. The PEPP was assessed to have achieved its dual objectives of offsetting the negative impact of the pandemic on the outlook for inflation and staving off unwarranted market fragmentation caused by the pandemic that threatened the smooth transmission of monetary policy across the entire euro area. The point was made that declaring an end to the emergency might be considered premature given the current deterioration in the pandemic situation. At the same time, it was widely felt that the “crisis phase” in economic terms could be considered to be coming to an end, in part since economic activity was expected to have returned to its pre-pandemic level by early 2022 and the pandemic shock to the inflation path was considered to have been offset. Moreover, it was recalled that net purchases under the PEPP could be resumed if the economic consequences of the pandemic endangered the attainment of the Governing Council’s price stability objective in the future. The extension of the guidance for reinvestments under the PEPP to until at least the end of 2024 was seen as assuring market participants that the Eurosystem would continue to be present in financial markets, thereby underpinning the ability of the PEPP reinvestments to counter market fragmentation risk. On the one hand, flexibility in operational parameters was seen as important to address potential disorderly market developments and therefore needed to remain in place over a longer period than previously announced. On the other hand, it was questioned whether lengthening the reinvestment horizon could be interpreted as adding more monetary stimulus, which seemed to contradict the direction of other elements of the policy package that were geared towards a scaling down of net asset purchases. In addition, a concern was voiced that continued asset purchases could lead to an unwelcome flattening of the yield curve if short-term interest rates needed to be raised before the end of the reinvestment horizon. However, the extension was also seen as important to ensure the effectiveness of PEPP reinvestments in protecting the monetary policy transmission mechanism. Members broadly agreed that the experience with the PEPP during the pandemic had shown that, under stressed conditions, flexibility in the design and implementation of asset purchases helped to counter the impaired transmission of monetary policy and made it more effective. Maintaining this flexibility by adjusting the PEPP reinvestments across time, asset classes and jurisdictions in the event of renewed market fragmentation related to the pandemic was considered important to support the smooth transmission of monetary policy during a period in which net asset purchases were being reduced. A number of considerations were put forward regarding a commitment to flexibility in the design and conduct of asset purchases more generally, i.e. beyond the crisis situation. On the one hand, it was seen as an important lesson of the PEPP that such flexibility should remain an element of monetary policy whenever threats to monetary policy transmission and to the attainment of price stability became apparent. The flexibility embedded in the PEPP was judged to have helped to provide the required monetary policy support and to reduce fragmentation in financial markets during the crisis. It was suggested that the Governing Council should therefore stress the importance of flexibility in its communication. On the other hand, it was argued that the PEPP’s flexibility was targeted at the specific pandemic shock and might not be proportionate if risks to the transmission of monetary policy and market fragmentation arose in other contexts. It was recalled that the PEPP had been designed to address a symmetric shock that could give rise to asymmetric consequences. Members agreed that flexibility in relation to the PEPP reinvestments would include the ability to purchase bonds issued by the Hellenic Republic over and above rollovers of redemptions in order to avoid an interruption of purchases in that jurisdiction, which could impair the transmission of the monetary policy stance to the Greek economy while it was still recovering from the fallout of the pandemic. These purchases would provide assurance to market participants and help avoid market fragmentation. The proposed pace of net purchases under the APP of €40 billion per month in the second quarter, €30 billion per month in third quarter and €20 billion per month from October 2022 onwards was widely seen as striking a reasonable balance between elevated inflation in the short term and high uncertainty about the medium-term outlook. The point was also made that the proposed pace of purchases was appropriate to ensure a sufficient level of monetary policy support following the discontinuation of net asset purchases under the PEPP while avoiding unwanted cliff effects. Overall, members agreed that the legal framework of the APP was well established and would remain unchanged. While it was widely acknowledged that discontinuing net asset purchases under the PEPP would warrant a temporary step-up in net asset purchases under the APP, it was recalled that the two programmes had different objectives. The APP net purchases were intended to maintain a sufficiently accommodative stance to allow inflation to stabilise at the Governing Council’s 2% target over the medium term. It was argued that on this basis the change in the inflation outlook called for lower purchase volumes or an earlier phasing-out of purchases under the APP. The argument was also made that, in the present context of high uncertainty, the Governing Council should keep the APP open-ended but avoid any perception of a commitment to continuing net purchases under the APP beyond 2022. Given the high uncertainty surrounding the economic outlook, a sufficient degree of optionality to respond adequately to any new inflation surprises was seen as important for stabilising inflation at the symmetric 2% target. As incoming data over time would allow the impact of the evolving pandemic to be better understood, the Governing Council should retain the ability to calibrate and recalibrate the monetary policy stance in a data-driven manner in either direction. It was also emphasised that the Governing Council should reaffirm its forward guidance on interest rates, including the link to the end of the net asset purchases under the APP. The state-contingent nature of the Governing Council’s forward guidance was seen as well suited to addressing the current uncertain economic environment as it embedded both flexibility and optionality and ensured that short-term yields remained consistent with the inflation outlook. It was argued that, if risks to growth did not materialise and if the outlook for medium-term inflation moved above the Governing Council’s symmetric 2% inflation target, the forward guidance would allow for a gradual normalisation of the monetary policy stance. In relation to the targeted lending programme, members agreed that the Governing Council should confirm that it expected the special conditions applicable under TLTRO III to end in June 2022 as announced in 2020, and communicate that it would assess the appropriate calibration of the two-tier system for reserve remuneration so that the negative interest rate policy did not limit banks’ intermediation capacity in an environment of growing excess liquidity. In line with its new monetary policy strategy, the Governing Council for the first time considered the link between monetary policy and financial stability in a structured manner. It was argued that monetary policy was not well suited to dealing with financial stability risks as these tended to be concentrated in particular jurisdictions and were therefore better addressed with country-specific macroprudential measures. At the same time, it was noted that, as stressed in the monetary policy strategy review, existing limitations of macroprudential policy implied that there was a clear case for the ECB to take financial stability considerations into account in its monetary policy deliberations. It was pointed out that medium-term vulnerabilities had increased and required close monitoring. Concerns related in particular to credit, asset and housing markets as well as to higher debt levels in the corporate and public sectors as a legacy of the pandemic. It was also observed that the risk of a disorderly market reaction following a withdrawal of monetary policy support might lead to financial market fragmentation affecting monetary transmission across jurisdictions. However, this should not be used as an argument against modifying the monetary policy stance if that was required to achieve the ECB’s primary objective of price stability in the euro area as a whole. From this perspective it was advised that the dual objectives of asset purchases, i.e. in relation to the monetary policy stance and to transmission, be kept distinct. Overall, members concurred with the view that an accommodative monetary policy supported the balance sheets of companies and financial institutions, as well as countering risks of market fragmentation in the near term. To prevent the build-up of medium-term vulnerabilities, however, the impact of an accommodative monetary policy on property markets and financial markets should be closely monitored. Macroprudential policy was seen as the first line of defence in preserving financial stability and addressing medium-term vulnerabilities. Monetary policy decisions and communication In sum, a large majority of members agreed with the policy package proposed by Mr Lane, namely to conduct net asset purchases under the PEPP at a lower pace in the first quarter of 2022 than in the previous quarter; to adjust PEPP reinvestments flexibly across time, asset classes and jurisdictions if needed; to extend the PEPP reinvestment horizon until at least the end of 2024; to increase net asset purchases under the APP temporarily to ensure that the monetary policy stance remained consistent with inflation stabilising at 2% over the medium term; and to reconfirm the other elements of the current monetary policy configuration. Some members retained reservations about some elements of the proposed package such that they could not support the overall package. These reservations pertained, in particular, to the recalibration of APP purchases and the extension of the minimum PEPP reinvestment period, as well as the statement about flexibility in future asset purchases beyond the confines of the specific circumstances of the present pandemic. Regarding communication, it was emphasised that the Governing Council should stress its willingness to adjust all of its instruments as appropriate, in either direction, in order to stabilise inflation at 2% over the medium term. In addition, the Governing Council should reassure markets by stressing its determination to act flexibly and quickly to counter risks of fragmentation. The Governing Council judged that the progress on economic recovery and towards its medium-term inflation target permitted a step-by-step reduction in the pace of its asset purchases over the coming quarters. But monetary accommodation was still needed for inflation to stabilise at the 2% inflation target over the medium term. In view of the existing uncertainty, the Governing Council needed to maintain flexibility and optionality in the conduct of monetary policy. With this in mind, taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the corresponding ECB press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 16 December 2021 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 15-16 December 2021 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf* Mr Müller* Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Stournaras Mr Šimkus Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Weidmann Mr Wunsch* * Members not holding a voting right in December 2021 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Smets, Secretary for monetary policy, Director General Economics Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arce Ms Buch Mr Demarco Ms Donnery Mr Garnier Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Rostagno, Director General Monetary Policy Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 3 March 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

3 March 2022 Meeting of 2-3 February 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 2-3 February 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed financial market developments since the Governing Council’s previous monetary policy meeting on 15-16 December 2021. Markets had digested well the Governing Council’s decisions in December 2021 to discontinue net asset purchases under the pandemic emergency purchase programme (PEPP) in March 2022 and to adjust the future path of purchases under the asset purchase programme (APP). The day after that meeting, ten-year overnight index swap (OIS) rates and euro area GDP-weighted sovereign yields had been lower than before the meeting. Nevertheless, long-term real and nominal interest rates had increased globally from the exceptionally low levels that had prevailed after the discovery of the Omicron variant of the coronavirus (COVID-19) in late November last year. A model-based breakdown of the recent increase in ten-year euro area risk-free rates suggested that it had been mainly driven by two factors. The first was a change in investors’ assessment of the economic impact of the Omicron variant. Developments over the past few weeks had reinforced the impression that the Omicron wave might be sharp but short-lived, and the drag it exerted on economic growth weaker than initially feared. The second factor pushing interest rates higher in recent weeks had been a reappraisal of the global monetary policy outlook. In the United States, investors had brought forward the expected time of “lift-off”, with the first hike currently expected in March. They had also priced in more tightening over the next two years, and were now expecting balance sheet runoff to start sooner. In the euro area, rising inflation compensation had added to the upward pressure from higher real rates, as markets had revised up their expectations of the future path of inflation in response to the renewed upside surprises to inflation in December and January. Recent energy price developments had added to perceptions in the market that inflation risks were rising. Brent crude oil prices had increased to about USD 90 per barrel, the highest level since 2014 and about 25% higher compared with mid-December. According to futures curves, oil prices were expected to remain high over the medium term. Gas spot and futures prices, too, were higher than before the Governing Council’s previous monetary policy meeting, reflecting the growing tensions between Russia and Ukraine as well as low inventories. These developments had contributed to a continued reappraisal of the medium-term inflation outlook for the euro area. First, respondents to the Survey of Monetary Analysts (SMA) saw upside risks to inflation over the entire horizon covered by the SMA. Second, survey-based indicators of long-run inflation expectations had been revised up. In the SMA, in particular, they had risen to 2% from 1.8% in December. This was the highest they had ever been since the start of the SMA. Likewise, in January long-term inflation expectations from Consensus Economics had reached 2% for the first time since 2015. Market-based measures of longer-term inflation compensation had remained at around 2%. Furthermore, in the inflation options market, investors were pricing in a probability of around 30% that inflation over the next five years would, on average, be above 2.5% and a probability of around 50% that it would be above 2%. In this environment, markets had significantly revised their expectations about the monetary policy outlook in the euro area. Compared with December, the OIS forward curve had steepened visibly for short-term maturities. Markets were pricing in a cumulative 50 basis point hike in the deposit facility rate (DFR) by mid-2023, which would raise the DFR to 0%. As usual, these dates had to be treated with caution because the market rates included term premia. Allowing for such premia, market pricing implied that the DFR would actually rise above zero somewhat later. SMA participants, too, were now expecting the first DFR increase to be one quarter earlier, in the third quarter of 2023, with a much steeper path after lift-off than they had anticipated in December. Developments in options markets suggested that investors had revised not only their expectations about the central future path of short-term interest rates, but also their expectations about the distribution of risks around this path. This distribution had become more skewed to the upside. Nevertheless, monetary policy in the euro area was still expected to normalise at a measurably slower pace than in many other economies, as could be seen from the developments in foreign exchange markets. The euro had temporarily fallen against the US dollar to the lowest level since June 2020. At the time of the meeting, the euro was still down against the US dollar by more than 6% compared with a year ago and was trading close to its 2019 average. In nominal effective terms, the euro was down by around 3% compared with a year ago. With investors preparing for faster policy normalisation globally, risk assets that had benefited from the long period of very low interest rates might have been expected to come under pressure. However, risk assets had in fact remained resilient overall, in particular in the euro area. According to market intelligence, real interest rates currently remained at levels that were supportive for growth and risk assets. In euro area sovereign bond markets, yield spreads over German ten-year Bunds had remained around their December levels with few exceptions. The resilience of these spreads was noteworthy in the current environment. The change in the expected future policy path – by the logic of the ECB’s sequencing – implied a significant reduction in the amount of assets expected to be bought under the APP. The picture was very similar in the euro area corporate bond markets, where spreads had only increased marginally. Thus, financing conditions for euro area firms had remained highly favourable. As regards developments in global equity markets, stocks had first declined visibly in the United States, but had then recovered a good part of their losses. In the euro area, stock markets had suffered only very moderate losses compared with December 2021. Here the impact of higher discount rates had been offset by continued upward revisions to longer-term earnings expectations and improved risk sentiment. All in all, therefore, the rise in real and nominal interest rates had so far been absorbed well by financial markets, as real financing conditions remained favourable amid high inflation and expectations of continued buoyant global growth in the coming years. The global environment and economic and monetary developments in the euro area In his review of global developments Mr Lane noted that the Omicron variant had led to a sharp rise in global coronavirus cases in January. Although these cases appeared milder than in previous waves, many parts of the world had strengthened their containment measures. Whereas previous waves had seen a rotation between advanced economies and emerging markets, in the recent wave a lot of countries across the globe had found themselves in a similar situation. This could imply a stronger, more synchronised rebound compared with earlier waves. The most recent loosening of containment measures in some countries was confirming the expectation that Omicron case numbers could fall quickly once a sufficient level of immunity had been reached. The Purchasing Managers’ Index (PMI) for both manufacturing and services at the global level continued to point to an ongoing recovery at the turn of the year. But there were signals of a slowdown in the near term, especially in manufacturing. Supply bottlenecks continued to restrain global activity. While these bottlenecks seemed to be levelling off according to various indicators, they remained substantial. The euro exchange rate had depreciated since the December meeting of the Governing Council, both against the US dollar (-0.9%) and in nominal effective terms (-1.2%). Taking a longer-term perspective, the exchange rate appreciation observed in 2020 had largely been reversed, bringing the exchange rate closer to its pre-pandemic level. Oil prices had increased sharply (+28%) since the December meeting, with the oil futures curve shifting upward until the end of 2024. Most of the oil price increase since the December meeting could be attributed to supply factors and the recent failure of some OPEC+ members to step up production. In contrast to oil prices, gas prices had declined by 33% since the December 2021 Governing Council meeting. This was due to the relatively mild winter in Europe and the redirection of imports of liquified natural gas from Asia to Europe, which had more than offset the large drop in gas imports from Russia. Concerning the outlook for gas prices, it was important to recognise that supply shocks tended to have a more persistent effect on gas prices when inventories were low, which was currently the case. Global food prices had increased by 6% since the December meeting following poor harvests, rises in shipping costs and higher fertiliser prices as a result of rising energy costs. Turning to developments in activity in the euro area, Mr Lane noted that after a strong performance in the middle of last year there had been a significant slowdown at the end of the year. Real GDP had grown by 0.3%, quarter on quarter, in the fourth quarter of 2021 (according to Eurostat’s flash estimate) following a growth rate of 2.3%, quarter on quarter, in the third quarter. In the fourth quarter of 2021 euro area GDP had reached its pre-pandemic level. The slowdown in GDP growth reflected the intensification of the pandemic, persisting bottlenecks and still high energy prices. In Europe, COVID-19 cases had risen more than tenfold since mid-November, but with the emergence of the Omicron variant the number of intensive care admissions was no longer rising in line with the number of infections. Nevertheless, health concerns among consumers had increased. The European Commission survey of December 2021 showed that households had become less optimistic about their near-term spending, especially in sectors providing contact-intensive consumer services. Turning to production, pressures exerted by supply bottlenecks had levelled off, but there was no evidence so far of a significant decline in those bottlenecks. Production of transport equipment continued to be dampened by shortages of semiconductors and by logistical problems. As a result, capacity utilisation had fallen and stocks of almost finished and finished goods had risen in the sector. Production of other capital goods remained robust. Turning to trade in goods and services, the accumulated level of export orders remained higher than before the pandemic, but the flow of new orders was diminishing, most likely owing to the still acute bottlenecks. The recovery in the labour market continued to be strong. Unemployment had declined to 7.0% in December, which was the lowest unemployment rate since the creation of the euro area. The December 2021 Eurosystem staff macroeconomic projections foresaw a significant improvement in labour market conditions and the latest data were in line with that prediction. The number of people employed, which included workers in job retention schemes, was basically back to its pre-pandemic level in the third quarter of 2021. However, total hours worked were still below the pre-pandemic level, with the gap between the two measures mainly being explained by job retention schemes. Across sectors, the recovery in hours worked in services had accelerated more in the second and third quarters of 2021 than in the manufacturing sector. To assess how tight the labour market was, it was useful to look at the ratio between the vacancy rate and the unemployment rate and to compare this ratio across the euro area and the United States. In the United States, even before the pandemic there had been more jobs available than people unemployed, i.e. the ratio had been above one. While the ratio had fallen to below 0.5 in mid-2020, it had climbed back up to 1.5 at the end of 2021. By contrast, in the euro area although a pick-up could be observed in this ratio at the end of 2021, the number of vacancies posted was only around 30% of the number of people unemployed. Thus, the situation in the euro area was very different from that in the United States. Still, the outlook for employment in the euro area continued to be positive and to improve, with all euro area PMI employment indicators standing above the expansion threshold of 50. Turning to inflation, Eurostat’s HICP flash estimate for January had been released on the first day of the Governing Council meeting and had only been reflected in the analysis to a limited extent. The latest inflation data would be integrated more fully in the analysis for the March meeting. In recent months around half of the headline inflation rate had resulted directly from energy inflation, but the contribution of food prices had increased. According to Eurostat’s flash release, headline inflation had increased slightly further to 5.1% in January 2021 – from 5.0% in December and 4.9% in November. This was substantially higher than foreseen in the December projections. Energy inflation had been very high in January, at 28.6%, with fuel prices accounting for the largest share of this figure. The rise in energy inflation could increasingly be explained both by higher electricity prices, which had been affected by various policies, and by higher gas prices. Prices for unprocessed food had exceeded their projected price increase by more than than prices for processed food. The latter mainly reflected increases in prices within the EU’s internal market amid global rises in both energy costs and prices for international commodities. With respect to non-energy industrial goods (NEIG) inflation, the contribution of durable goods had continued to increase, which could be attributed to supply bottlenecks as well as to the energy price rise. However, price dynamics for the other components of NEIG indicated that the increase in NEIG inflation was broad-based across items. The indirect contribution of energy to non-energy inflation items was relevant in this context, since all non-energy sectors used energy as an input. Typically, the energy input was less than 10% of overall costs, but energy price increases as high as 28.6% were going to affect many individual categories of goods. Further up the pricing chain, pipeline pressures for NEIG inflation continued to build up, partly reflecting the rise in energy production costs. Import prices for intermediate goods remained at unusually high levels and domestic producer price inflation for non-food consumer goods had increased further to stand at a new historical high. The annual rate of change in import prices for final non-food consumer goods, which had been negative for most of 2020 and had a dampening effect on NEIG inflation, had increased further and added to pipeline pressures for NEIG. This reflected both the higher goods prices that euro area importers had to pay but also the effect of the depreciation of the euro. A range of indicators of underlying inflation had moved up to levels above 2%. However, there were important temporary factors behind this, in particular the effects of bottlenecks and high energy prices. A rise in the price of energy increased the price level for other goods in the input-output matrix across the board. However, this did not necessarily imply that high inflation was going to persist. Historically, measures of underlying inflation were good predictors of future inflation, as they were to some extent designed to reflect persisting developments. But temporary factors were clearly also playing a role in the present situation. Comparing recent headline inflation developments in the euro area and the United States, many issues were similar in qualitative terms. However, in quantitative terms HICP inflation excluding food and energy (HICPX) stood at 2.6% in December in the euro area, while in the United States the CPI less food and energy was 5.5%. While part of the higher inflation in the United States could be explained by the higher increases in rents and their larger weight in the CPI, the biggest difference related to the effects on core inflation of supply disruptions, bottlenecks and the reopening of the economy. These effects had so far been much more evident in the US data. Turning to indicators of wage developments in the euro area, growth in negotiated wages had remained low in recent months, although the labour market was “hotter” in some countries than in others. Overall, however, there was no evidence of any big structural change in the behaviour of negotiated wages. Nor did expectations of labour costs point to any evidence so far of significant second-round effects from the current high level of inflation. Regarding sources of domestic inflation, it was noteworthy that in the euro area most energy was imported and import prices for energy had increased by almost 50% in the second half of 2021. This had led to a big drop in the terms of trade. This drop was essentially a tax on Europe paid to the rest of the world. The income effect of the deterioration in the terms of trade was estimated at around 2.5% of GDP. According to another calculation, the most recent balance of payments data showed that payments by EU countries for energy imports had risen from €200 billion in the first 11 months of 2020 to €335 billion in the first 11 months of 2021. This was a 66% increase. Thus the high energy price increases constituted a collective negative wealth effect on the European economy. Although the negative effect could be alleviated via taxes and subsidies, it would certainly affect macroeconomic dynamics. While the euro area was cushioned by the accumulated household savings, forecasters needed to take this negative wealth effect into account in the analysis of future spending and production decisions. Turning to longer-term inflation expectations, available survey indicators of longer-term inflation expectations had recently become re-anchored at 2% after they had dipped at the start of 2020. This was a success story and the strategy review had helped to achieve this. Anchoring inflation expectations at 2% was the foundation stone for meeting the ECB’s inflation target. Looking at the ECB Survey of Professional Forecasters, the distribution of expectations for the first quarter of 2022 compared with the results of the survey a year ago showed that the mode (the most frequent answer) had increased to 2%, reflecting the centre of the distribution. Furthermore, of the forecasters who were still not expecting 2% inflation, most expected a figure below 2%. The share of forecasters expecting inflation above 2% remained relatively small, indicating that the risk of an upside unanchoring was hard to see. Thus there had been a convergence of longer-term inflation expectations to the ECB’s target. In the SMA the fraction of respondents expecting longer-term inflation to be below 2% was still sizeable, but had come down measurably over the last few survey rounds. Meanwhile, the proportion of participants expecting longer-term inflation to equal 2% had risen significantly, and there had been little movement in terms of the share who thought that inflation would be above 2% in the longer term. Market-based measures of medium to longer-term inflation compensation had been broadly stable at just below 2%, with the measures adjusted for risk premia being somewhat lower. With regard to financing conditions, these had overall remained favourable for all sectors. Although bank bond yields were rising in line with the wider bond market movement, there was little impact from this on overall bank funding costs. One reason was the continued application of negative interest rates to corporate and household deposits, while the targeted longer-term refinancing operations (TLTROs) also played a role. Overall, the borrowing rates facing firms and households remained low. The recovery in the volume of loans had continued, with the growth rate of loans to euro area firms increasing to 4.2% in December. Euro area banks had a generally benign view of the credit risk related to lending to firms. Credit standards remained largely unchanged (with the bank lending survey for the fourth quarter of 2021 indicating a slight tightening for loans to firms). The growth of loans to households continued to be supported by dynamic lending for house purchase, and credit standards for housing loans had remained unchanged in the fourth quarter of 2021. As regards monetary developments, the annual growth rate of M3 had slowed to 6.9% in December, which was partly related to base effects. Nonetheless, the short-term dynamics of money growth remained broadly stable. Household deposit inflows had moderated since April 2021, in the context of recovering consumption, lower real returns and the possible use of deposits to fund the purchase of property. Turning to fiscal policy, additional fiscal support had been agreed in response to the Omicron variant and energy price increases, leading to slightly weaker fiscal tightening in 2022 than expected in the December staff projections. The additional euro area sovereign financing needs were estimated to be less in 2022 than in 2021 and 2020, and less pressure was expected on the supply of bonds this year. Monetary policy considerations and policy options Summing up, Mr Lane stressed that the euro area economy continued to recover, although it was likely to remain subdued in the first quarter of 2022. While the current pandemic wave was weighing on economic activity, especially contact-intensive consumer services, it appeared less damaging to economic activity than previous waves. Although shortages of equipment, materials and labour in some sectors continued to hamper production of manufactured goods, delay construction and hold back the recovery in parts of the services sector, there were early signs, including in the January flash PMI release, that supply bottlenecks might be starting to ease. However, the substantial negative terms-of-trade shock generated by higher energy prices was reducing the purchasing power of households and the earnings of businesses, which restrained consumption and investment. At the same time, the labour market was improving further with unemployment coming down, which should support incomes. In overall terms, a strong pick-up in activity later in the year was still expected. The risks to the growth outlook remained broadly balanced over the medium term. Uncertainties related to the pandemic had abated, in view of the milder impact of the Omicron variant than had been feared. Growth could be stronger than expected if households became more confident and saved less than foreseen in the December projections. However, geopolitical tensions had increased, and a prolonged phase of high energy costs constituted a material downside risk to consumer spending and investment, while also increasing cost pressures in energy-intensive sectors and elevating the risk of second-round inflation effects through higher nominal wage settlements. Moreover, if supply bottlenecks failed to resolve at the pace envisaged in the December staff projections, growth could be negatively affected. A sharper than expected tightening in global financial conditions and a sharp slowdown in China related to property market developments constituted external risk factors that warranted monitoring. Inflation had surprised to the upside in both December and January, increasing to 5.0% and 5.1% respectively. Energy prices remained by far the most important factor for HICP inflation, with the direct impact accounting for over half of headline inflation in January and energy costs also pushing up prices across many sectors. Moreover, the indicators based on futures markets signalled a more prolonged phase of elevated energy prices during most of 2022. Food prices had also increased, reflecting unfavourable weather and harvest conditions, but also high transportation costs and the rising costs of fertilisers, which were both associated with the surge in the prices of commodities. The HICPX stood at 2.3% in January, down from 2.6% in December. The lower rate was mainly due to weaker dynamics in the NEIG component, as services price inflation remained unchanged. Overall, price gains had become more widespread, with the prices of a large number of goods and services having increased markedly. In this context, most measures of underlying inflation had risen, although the role of temporary pandemic factors and energy input costs meant that the persistence of these increases remained uncertain. According to a purely mechanical update of the latest short-term inflation projections, in the near term inflation was expected to be higher than projected in December and would likely remain above 2% for the rest of the year. At the same time, it was still expected that energy price dynamics would slow and the price pressures stemming from global supply bottlenecks would recede in the course of 2022. In addition, while labour market conditions were improving further, wage growth remained muted overall. Market and survey-based measures of inflation expections saw a sharp decline in inflation in 2023 and 2024 relative to 2022, while measures of longer-term inflation expectations had continued to converge to the 2% target. Importantly, these indicators did not suggest that there were signs of inflation expectations becoming unanchored to the upside. Compared with the December staff projections, risks to the inflation outlook were tilted to the upside, particularly in the near term. Inflation could be higher than anticipated over the next few months if the surge in energy prices intensified, especially if geopolitical tensions were to escalate further, if oil supply remained persistently sluggish, or if the bottlenecks in production and international commerce were to extend through the end of the year. Looking beyond the near term, inflation could be higher than foreseen if current price pressures fed through into higher than anticipated wage rises, or if the economy returned more quickly to full capacity than considered likely at present. But inflation could be lower than expected if the higher prices of energy and food were to exert a stronger than expected drag on consumption and investment, and thus suppress underlying inflation, or if downside risks to the world economic outlook materialised. Market interest rates had increased since the Governing Council’s December meeting, reflecting mainly firming expectations of monetary policy tightening at a global level. As a result, the date for a first interest rate hike implied in the forward curve had been brought forward, and markets were now pricing in a faster pace of interest rate normalisation after lift-off. Notwithstanding, bank lending rates for firms and households continued to stand at historically low levels, reflecting contained bank funding costs, helped by the terms of TLTRO funding. Overall, financing conditions for the economy remained supportive. Pending the March staff projection round, which would help in reassessing the implications for medium-term inflation of the new data accrued since December, Mr Lane proposed to maintain a steady course and reconfirm the December monetary policy stance. This would mean that, in view of the economic recovery and the reduction in downside risks to the medium-term inflation target, the Governing Council would discontinue net purchases under the PEPP at the end of March and would continue reducing the pace of asset purchases step by step over the coming quarters. But monetary support was still needed for the economy to advance further and for inflation to stabilise durably at the 2% target. In view of the many uncertainties that clouded the outlook, there was a need to maintain flexibility and optionality in the conduct of monetary policy. The Governing Council should therefore stand ready to adjust all of its instruments as appropriate to ensure that inflation stabilised at the 2% target over the medium term. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members expressed broad agreement with the assessment of the economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. As regards the external environment, the recovery of the world economy was continuing but faced a slowdown in the near term. This was especially the case in manufacturing, where suppliers’ delivery times had not shortened substantially. The main news since the Governing Council’s previous monetary policy meeting was considered to be the significant movement in energy commodity prices, which was, to a large extent, due to supply factors. These were associated in turn with the impact of geopolitical tensions. Given Europe’s dependence on energy imports and the need to replenish relatively low storage levels, it was argued that, looking ahead, a rise in geopolitical uncertainty might bring with it even higher and more persistent inflation. More generally, it was underlined that inflation was to a large extent a global phenomenon. At the same time, it was recalled that there were important differences between the inflation developments in the United States and those in the euro area. The notion was put forward that in the euro area inflation essentially reflected a more persistent external supply shock, while in the United States it largely reflected domestic demand that had been fuelled by the more substantial fiscal stimulus, which was already feeding into higher wage growth. Turning to euro area developments, output had reached its pre-pandemic level at the end of 2021 despite a weakening of quarter-on-quarter growth to 0.3% in the final quarter of the year. Economic activity and demand were likely to remain muted in the early part of 2022 as pandemic containment measures were affecting activity in consumer services, and high energy costs were constraining consumption and investment. Supply bottlenecks continued to hamper production and were holding back the recovery in some sectors, and while there were signs that these might be starting to ease, they would nonetheless persist for some time. Looking beyond the near term, growth was likely to rebound strongly over the course of 2022, driven by robust domestic demand, the global recovery and the ongoing fiscal and monetary policy support. Members agreed that the economic recovery was continuing despite the bumpiness induced by the COVID-19 waves. It was argued that the spread of the Omicron variant did not constitute a major risk to economic developments, and it was observed that some countries were lifting protective measures, as hospitalisation and death rates were falling despite elevated infection rates. This allowed for more sustained growth dynamics and more normal business cycle dynamics in the period ahead. At the same time, it was pointed out that businesses saw supply chain bottlenecks lasting into 2023, which was longer than previously expected, despite some recent signs of attenuation. Looking through short-term volatility, it was argued that pent-up consumer demand was materialising, with the saving ratio receding from the high levels reached during the pandemic. However, it was pointed out that according to the latest available data, which were for the third quarter of 2021, the euro area saving ratio remained well above pre-pandemic levels and it might well have risen again since then, given the renewed pandemic restrictions in the winter. It was suggested that the decline was not necessarily being driven by a lower propensity to save income but by a drawdown of net financial assets and hence a temporarily higher propensity to consume out of wealth. In this respect, the savings that households and firms had accumulated were seen to be buffering consumption and investment against the impact of the adverse energy and terms-of-trade shock. Reference was made in particular to the strong rebound in corporate profits, which might allow firms to absorb part of the shocks via compression of margins. At the same time, pent-up demand pressures allowed some cost increases to be passed through more easily into consumer prices. However, it was also underlined that the terms-of-trade shock induced by the rise in energy prices was equivalent to a tax and a loss of disposable income which had to be borne by euro area households and firms. While many countries had introduced compensatory measures, it was pointed out that this loss was offset to only a very limited extent by fiscal measures, and, looking ahead, was likely to weigh on consumption and investment. It was widely noted that the labour market recovery had been robust and that unemployment had fallen to a historically low rate more quickly than expected. At the same time, job retention schemes were still being used. Shortages of skilled labour were becoming increasingly acute and less and less tied to specific sectors, although there were differences across euro area countries. Employment had recovered to pre-pandemic levels in terms of headcount, and survey data pointed to further strong employment growth ahead. In terms of total hours worked, however, the recovery was less advanced. This was seen as partly a consequence of the widely used government support measures aimed at retaining employment in the euro area. More generally, it was suggested that some aspects of labour market adjustments in the euro area, such as those associated with immigration and the rate at which workers change jobs, remained incomplete and uncertain. On the one hand, it was argued that there was no evidence of a significant reduction in labour supply. On the other hand, it was cautioned that some of the acute labour shortages could prove more lasting and in some segments it was not clear whether and when workers who had withdrawn from the labour force would return. Regarding economic policies, it was reiterated that targeted and productivity-enhancing fiscal measures and structural reforms, attuned to the conditions in different euro area countries, were essential to complement monetary policy effectively. The pandemic crisis had demonstrated that monetary and fiscal policy working in concert could be very efficient. With regard to the fiscal side, reference was made to the compensatory measures that governments had recently introduced to buffer the impact of high energy costs on the purchasing power and real incomes of households. This was a clear manifestation of the important role of fiscal policy at this stage, as had been highlighted in Mr Lane’s introduction. It was widely remarked that further fiscal measures could be expected to be adopted, and that in some jurisdictions the fiscal measures were having a direct downward effect on measured headline inflation. A concern was expressed that a change in the monetary policy stance in this context could be seen to run counter to the additional accommodation provided by fiscal policy and hence weaken the “policy mix” at a time when fiscal policy was providing the targeted support to demand that was needed in the short term. Against this background, members assessed the risks to the economic outlook as broadly balanced over the medium term. The economy could perform more strongly than expected if households became more confident and saved less than expected. Although uncertainties related to the pandemic had abated somewhat, geopolitical tensions had increased. Furthermore, persistently high energy costs could exert a stronger than expected drag on consumption and investment. The pace at which supply bottlenecks were resolved was a further risk to the outlook for growth and inflation. With regard to price developments, members largely concurred with the assessment presented by Mr Lane in his introduction, while underlining that the inflation picture had changed considerably since the Governing Council’s December assessment. Inflation had continued to be higher than projected and had increased both in December and in January, when it had reached 5.1%. In the near term inflation was likely to remain higher than previously anticipated. Energy prices continued to be the main reason for the elevated rate of inflation, with energy costs also pushing up prices of goods and services across many sectors. At the same time, price rises had become more widespread and most measures of underlying inflation had risen over recent months, although the role of temporary factors related to the pandemic meant that the persistence of these increases was uncertain. The December and January inflation releases were assessed in terms of magnitude, direction and surprise component. It was highlighted that for the euro area as a whole and for many countries, the January figure was the highest level reached since the introduction of the euro. Reference was made to double-digit or close to double-digit rates in some smaller economies. In one large euro area economy, a much lower inflation figure relative to that of the euro area as a whole was partly explained by government measures to contain energy price increases. In another case, a substantial increase in tariffs for electricity had caused a much higher outturn than expected. It was also noted that in a number of countries inflation had actually declined compared with December. Regardless of the magnitude and direction of the change, it was acknowledged that the January figures were significantly higher than had been expected for the euro area as well as for all countries across the forecasting community. This could be gauged from the reaction of markets to the release. It was stressed that a large part of the upward surprise was explained by energy inflation and it was argued that it thus stemmed from factors that did not reflect developments in the euro area domestic economy. However, it was noted that for the euro area as a whole all of the main HICP components had surprised on the upside, thus indicating broader price pressures than just those stemming from the energy component. It was observed that the surprise for January was the latest in a succession of underestimated outcomes and that it had occurred in spite of a large upward revision to the inflation outlook in the December staff projections. On the one hand, the exceptional size of the recent projection errors was seen to be a testament to the uncertainty that forecasters were currently facing. On the other hand, it was acknowledged that inflation could now be expected to be higher in the short run and that it would take longer for the inflation hump to recede. Reference was made to the mechanical update of the short-term projections incorporating the January figures, which suggested that inflation could remain well above 2% for the entire year. This implied inflation above 2% for an extended period of time and raised the question of whether the deviations from the inflation target could still be described as “moderate” and “transitory”. Such persistent deviations raised the risk that inflation could become entrenched in inflation expectations. Looking further ahead, it was suggested that increases in energy costs and other production costs had yet to pass fully through to consumer prices in large parts of the euro area and that the effect would then only show in the data for 2023. Doubts were expressed as to whether inflation in 2023 would be below 2% as anticipated in the December staff projections. It was argued that it had become increasingly likely that inflation would converge to 2% in the medium term, but from above the target rather than from below. Reference was made to the average error in the staff projections for projected inflation two years ahead, which was around three-quarters of a percentage point, and the fact that the recent downward bias in the projections followed a period of upward bias. This raised the questions of whether the underlying models were performing sufficiently well and whether the historical relationships underpinning the models and projections still held. Moreover, it was argued that the projected decline in inflation over the medium term was at odds with the fast absorption of labour market slack and strong demand in the coming years embedded in the December staff projections. This argued for putting more weight on other sources of information, such as surveys, expert judgement and incoming data, in assessing the medium-term outlook. It was recalled that a major element in the expected decline of inflation to below 2% over the medium term was the assumption included in the staff projections that energy commodity prices would evolve along their downward-sloping futures curves. Alternative technical assumptions, such as those derived from a “random walk” forecast, would result in inflation above 2% in 2023 and 2024. It was also remarked that the projections might underestimate the structural upward pressure on energy prices stemming from the green transition. In addition, it was argued that, although not yet part of the official HICP, the unprecedented rise in the costs of owner-occupied housing warranted consideration in the medium-term outlook. In the third quarter of 2021 these costs would have added 0.3 percentage points to HICP inflation and 0.6 percentage points to HICP inflation excluding energy and food. All members expressed concern over the latest upside surprises in the inflation figures, which were also apparent when looking at seasonally adjusted month-on-month price developments. It was remarked that the most vulnerable segments of the population were being hit hardest by high energy costs and inflation. At the same time, the point was made that what mattered for monetary policy was the nature of the underlying economic forces and the implications of those forces for the medium-term outlook. In addition, monetary policy needed to be forward-looking and not react mechanically to data releases related to past periods, such as the recent inflation figures. It was argued that a distinction between supply and demand, as well as between global and domestic influences, was more meaningful than simple dichotomies contrasting temporary and persistent shocks. In this respect, it was important to assess to what extent the latest inflation increases reflected the pass-through of past increases in global energy prices or instead pointed to changes in the domestic inflation process. It was observed that almost all of the upward revisions to euro area headline and core inflation between the September and December projection rounds could be explained by the energy price shock, when both direct and indirect effects were taken into account. This amounted to a large terms-of-trade shock to the euro area economy that implied substantial declines in real household incomes and corporate earnings which could translate into lower consumption and investment in the period ahead, in turn suggesting a downward impact on the medium-term inflation outlook. In this context, it was reiterated that there were no incipient signs of sustained domestically generated inflation, as that would require higher wage growth and further upward moves in inflation expectations. In this respect, the lack of evidence of stronger contractual wage growth and the fact that inflation expectations remained well anchored were seen as the key missing elements in the inflation picture. Data on past wage growth, however, were a lagging indicator and did not provide timely signals about future inflation. This was especially true at present, when the available data related to a period in which the pandemic was still raging. More prominence should therefore be given to forward-looking indicators, such as those based on surveys. Reference was made to the results of the ECB’s Corporate Telephone Survey, which pointed to expectations of significantly higher wage growth compared with last year, as well as significant labour shortages and a strong pass-through of input prices to final consumer prices, possibly pointing to a steepening of the Phillips curve. At the same time, it was recalled that the December staff projections had already anticipated wage growth of around 3% for all the years of the projection horizon and that this had been judged to be compatible with inflation projections of around 2%. The latest available data saw negotiated wages in the euro area growing by substantially less than 2%. While it was pointed out that there was no evidence so far of second-round effects associated with the current high inflation rates, members widely referred to an increased risk should inflation remain higher for longer. Inflation was outpacing wage growth in many countries. This eroded households’ purchasing power and was likely to trigger stronger wage increases over time. The view was expressed that for such second-round effects to emerge it did not matter whether the underlying drivers of inflation were supply or demand factors. Given the lagged nature of wage data, it would take some time before second-round effects could be observed in actual wage growth. At the same time, it was pointed out that the backward-looking inflation component in the wage-setting process was a “stylised fact” and thus part of forecasting models predicated on historical relationships. Therefore, the prevailing high inflation rates would be incorporated into the upcoming March staff projections, although this would not imply per se an upward revision to the medium-term inflation outlook, given that the impact of the energy price shock and the terms-of-trade shock would likely influence projected inflation in the opposite direction. Against this background, compared with the expectations at the time of the December 2021 Governing Council meeting, risks to the inflation outlook were tilted to the upside, particularly in the near term. If price pressures fed through into higher than anticipated wage rises or the economy returned more quickly to full capacity, inflation could turn out to be higher. Overall, it was seen as important to await the outcome of the March staff projections for a more integrated and holistic assessment of the outlook, rather than jumping to conclusions based on partial analysis. As regards inflation expectations, members took note that market-based measures of longer-term inflation compensation had remained just below 2% and survey-based indicators had increased to 2% in the latest rounds of the Survey of Professional Forecasters and Consensus Economics. This was seen as a welcome development and suggested that longer-term inflation expectations were well anchored at the 2% target, while there were no signs of unanchoring on the upside. At the same time, the rise in longer-term expectations and their surrounding probability distributions also indicated that there was no longer a risk of a downward unanchoring. The anchoring of inflation expectations was seen as a key element in the inflation outlook. It was reiterated that, in very uncertain times, more focus should be on the expectations of firms and households so as to assess whether high actual inflation implied a risk of unanchoring. Turning to the monetary and financial analysis, members widely concurred with the assessment provided by Mr Lane in his introduction that, overall, financing conditions for the euro area economy had remained favourable. While market interest rates had increased since the Governing Council’s December meeting, bank lending rates for firms and households had remained at historically low levels. Lending to firms had picked up across all maturities and robust demand for mortgages was sustaining lending to households. It was underlined that credit appeared to be flowing freely in the economy with no signs that firms and households with sound balance sheets were facing restrictions on their access to finance. Bank profitability had recovered and bank balance sheets remained solid. It was noted in this respect that ECB Banking Supervision had recently completed the 2021 Supervisory Review and Evaluation Process (SREP) cycle, confirming the overall resilience of the euro area banking sector, with significant institutions having maintained solid capital and liquidity positions in 2021 well in excess of regulatory requirements. Banks were thus well placed to cope with the gradual removal of remaining supervisory support measures. Monetary policy stance and policy considerations Regarding the monetary policy stance, members underlined that financing conditions remained favourable for all sectors of the economy. However, it was remarked that there had been considerable interest rate spillovers from developments in the United States to market rates in the euro area. It was noted that the combination of expectations of monetary tightening at the global level, improved growth prospects, tightening labour markets, renewed upside surprises in inflation figures and rising inflation expectations had led markets to bring forward the expected date for a first ECB rate hike and to price in a faster normalisation after lift-off. This implied an endogenous tightening of financing conditions, although real interest rates remained deeply in negative territory. With respect to the implications for the monetary policy stance stemming from the inflation outlook, members concurred that the latest figures suggested that inflation was likely to remain elevated for longer than had been expected in December, with risks to the outlook remaining tilted to the upside, particularly in the near term. Accordingly, there was broad agreement that the situation had changed and that the inflation narrative needed to be adjusted, putting emphasis on optionality in the use of all instruments in the period ahead. The view was widely shared that convergence to the ECB’s medium-term inflation target was no longer a distant prospect, thus making the fulfilment of the forward guidance criteria more likely within a shorter time span. Some members argued that the likelihood that inflation would settle at around 2% over the medium term had already increased significantly, with the outlook coming close to satisfying the conditions established in the forward guidance on interest rates. This was seen as requiring a timely adjustment of the still highly accommodative monetary policy stance. Net asset purchases and negative policy rates were no longer seen as consistent with the incoming data, as it was regarded as unlikely that inflation would drop below the target in the medium term. In this context it was underlined that any conclusion on whether the conditions in the forward guidance on interest rates had been met was not predicated on the staff projections but was up to the judgement of the Governing Council based on its assessment of all relevant information, with the staff macroeconomic projections being only one element. The remark was made that the performance of the projections models might be challenged by the prevailing high uncertainty, which was seen as a further reason for putting less weight on the projections relative to other sources of information. It was recalled that the current formulation of the Governing Council’s forward guidance on interest rates had been derived from the monetary policy strategy, which called for forceful and persistent monetary policy action in the presence of the effective lower bound on interest rates. However, it was remarked that the inflation outlook had evolved in the meantime and, at the present stage, the Governing Council should be careful not to introduce additional policy inertia (i.e. a slower pace of adjustment) when assessing the fulfilment of the forward guidance criteria. A scaling-back of monetary accommodation should commence, in line with the established forward guidance on sequencing (i.e. the order in which the different policy instruments operated). It was recalled that the Eurosystem was currently on track to buy a significant share of new issuances of euro area sovereign bonds, and this implied adding further policy accommodation at a time when inflation could be expected to be higher for longer than previously anticipated. It was also stressed that monetary policy needed to be forward-looking and that the longer the period of elevated inflation lasted, the higher the risk of material second-round effects would become. It was argued that the task of monetary policy in this environment was to ensure that inflation expectations remained firmly anchored and to avoid the risk of the prevailing high inflation becoming entrenched. Caution was expressed about basing the Governing Council’s assessment on wage data which were only available with a lag. In this environment, the main risk was no longer of tightening monetary policy too early but too late. An earlier monetary policy normalisation would reduce the risk of abrupt tightening later on, which could potentially be associated with high economic and social costs. Against this background, a number of these members were of the view that the forward guidance conditions were already broadly satisfied and expressed a preference for adjusting the forward guidance on the phasing-out of the APP at the present meeting. Other members, however, stressed that there were no signs of an upside unanchoring of inflation expectations in the euro area. The increase in inflation expectations towards 2% observed since the previous summer had to be considered a welcome development. While downside risks to price stability had clearly receded, it was regarded as premature to draw conclusions as to whether the conditions in the forward guidance on interest rates had already been met without a full assessment of the implications of the energy price shock for the medium-term inflation outlook that would only become available with the March ECB staff macroeconomic projections. It was also stressed that it remained an open question whether the outcome of the March projections would show inflation reaching the ECB’s target durably within the projection horizon, which was a key condition for considering a rate increase under the forward guidance. Moreover, it was underlined that such a scenario was conditional on financing conditions remaining favourable. With respect to the staff projections, it was emphasised that the exceptional uncertainty around the duration of the inflation spike needed to be explained, including the role of the energy price assumptions in determining the inflation outlook. It was recalled that the Governing Council’s credibility was above all founded on its ability to maintain price stability, which contributed to the well-being of the European people. Against this background, it was maintained that the Governing Council should avoid an overreaction to inflation developments that were assessed as being short-lived. Changing the stance and the related communication at the current meeting was seen as premature and could jeopardise the recovery, as the December Eurosystem staff projections still showed inflation remaining below the Governing Council’s target in the medium term without any visible signs of an unanchoring of inflation expectations or any sound evidence of emerging second-round effects on wages. All in all, members widely agreed that the March ECB staff macroeconomic projections would allow the Governing Council to assess in greater depth the implications for the medium-term inflation outlook of the new data accrued since December. It was noted that in view of the limited time until the Governing Council’s March meeting, incoming information was unlikely to lead to a substantially different or more benign inflation assessment but might instead imply another upward revision to the inflation outlook for the coming quarters. It was also cautioned, however, that, despite the latest higher than expected inflation outcomes, the extent of possible revisions in the March projections, in particular for the medium-term outlook, remained an open issue. A structured and quantitative evaluation of all relevant factors forming the basis of the projection exercise would provide the Governing Council with important information that would help to put the evolution of the monetary policy stance on more solid ground. Monetary policy decisions and communication Overall, there was broad agreement that a gradual normalisation of the monetary policy stance continued to be appropriate. It was recalled that at the December meeting the Governing Council had already started this normalisation process by announcing the discontinuation of net asset purchases under the PEPP and the step-by-step reduction of its asset purchases, as well as its expectation that the special interest rate period of the third series of targeted longer-term refinancing operations (TLTRO III) would end in June. In this context, it was recalled that a clear distinction needed to be made between the interest rate forward guidance and the guidance for APP net purchases, which was based on a different criterion, namely the need to reinforce the accommodative impact of the ECB’s policy rates. A gradual and flexible conduct of monetary policy was seen as critical. To this end, there was a need to maintain sufficient optionality with respect to the time horizon for adjusting the Governing Council’s policy instruments in a data-driven manner. In addition, heightened geopolitical risks were seen as calling for a very prudent approach to normalisation. In this context, the Governing Council needed to recognise that the elevated inflation figures were partly a result of global shocks and were neither caused by monetary policy nor could they be addressed by monetary policy without causing a sharp fall in domestic demand at a time when the economy was still recovering from the pandemic shock. It was generally deemed important for the Governing Council to emphasise that it would maintain a clear and predictable path for its policy actions, based on its careful and regular assessment of the outlook for the economy and for inflation. Against this background, members widely agreed that the Governing Council should confirm its forward guidance on the sequence of its different policy measures, which would entail ending net asset purchases under the APP before raising the key ECB policy rates and finally phasing out reinvestments. It needed to be recalled that the Governing Council’s forward guidance and forward-looking communication was always data-dependant, reflecting an expectation or a probability assessment that was conditional on the medium-term inflation outlook. Overall, the Governing Council should use optionality to fine-tune the timing of the different milestones of its forward guidance in such a way that the medium-term inflation outlook converged to the ECB’s target of 2%. In this context it was recalled that the Governing Council had a wide range of instruments at its disposal to ensure sufficient flexibility in gradually normalising the monetary policy stance in line with the evolving situation. Members also widely agreed with Mr Lane’s proposal to confirm the decisions taken at the Governing Council’s December meeting, namely to discontinue net asset purchases under the PEPP at the end of March and to continue reducing the pace of net purchases step by step over the coming quarters. In adapting the inflation narrative and communication, it had to be acknowledged that inflation had continued to turn out higher than anticipated and was expected to remain elevated for some time, which could augment risks of second-round effects in the period ahead. Compared with the assessment in December, upside risks to the inflation outlook had increased, particularly in the near term. Regarding communication, it was emphasised that the inflation narrative and communication needed to be adapted in order to retain or increase optionality in the period ahead. As the increase in inflation was becoming longer-lasting than initially expected, it was remarked that the Governing Council should avoid characterising inflation developments as temporary or transitory and instead stress its assessment that inflation was expected to decline in the course of the year. Compared with December the outlook had changed and the likelihood of seeing inflation rates below 2% in 2023 had decreased significantly. At the same time, communication had to highlight the gradual, data-driven approach to monetary policy normalisation to ensure that inflation stabilised at the 2% target over the medium term. In the light of the increased uncertainty and the heightened upside risks to the inflation outlook, the general view prevailed that the Governing Council should convey its increased alertness and should monitor incoming information carefully, in particular regarding second-round effects. Communicating the possibility of faster progress on the path of policy normalisation – should such a decision be warranted by an updated medium-term outlook for inflation – was seen as a means to ensure that the Governing Council had at its disposal sufficient policy flexibility at its upcoming meetings on the basis of data that would become available. It was underlined that the Governing Council had to reaffirm its determination to adjust all of its instruments, maintaining more than ever flexibility and optionality in a situation of exceptionally high uncertainty. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council confirmed the decisions taken at its monetary policy meeting last December and as set out in the dedicated press release published after the meeting. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 3 February 2022 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 2-3 February 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou* Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Wunsch * Members not holding a voting right in February 2022 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Buch Mr Demarco Ms Donnery Mr Goulard Mr Haber Mr Jurkšas Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 7 April 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 9-10 March 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 March 2022 7 April 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments since the Governing Council’s monetary policy meeting on 2-3 February 2022. Before Russia’s invasion of Ukraine, the shift in the ECB’s communication agreed at the February meeting had contributed to the orderly adjustment in financial markets towards less accommodative financial conditions that were more consistent with a changing medium-term inflation outlook. The uncertainty triggered by the war had temporarily halted and partly reversed the repricing of monetary policy expectations globally, leading to heightened volatility across market segments. However, so far, market stress and dislocations appeared less severe than at the peak of the coronavirus (COVID-19) pandemic shock. The largest market impact of the Russian invasion of Ukraine to date had been on commodity prices, with oil and gas registering new multi-year highs and futures curves shifting up significantly from already elevated levels. The resulting energy price rise had contributed to a substantial reappraisal by markets of the euro area inflation outlook. First, the entire inflation-linked swap-based forward curve had shifted significantly upwards and was now above 2% up to the ten-year horizon. As these measures contained inflation risk premia, genuine inflation expectations were likely to be somewhat lower. Moreover, longer-term indicators of market-based inflation expectations had also moved materially higher, going above 2%. Most of this uptick had come at the beginning of the previous week when markets had started to price in a shallower path for the anticipated tightening of euro area monetary policy. With inflation continuing to surprise on the upside, a discernible repricing of euro area monetary policy expectations had been observed at the start of the year. Most of the upward shift in the forward curve for the overnight index swap (OIS) rate observed prior to the war had happened before the Governing Council’s 2-3 February meeting. The Russian invasion of Ukraine had halted and partly reversed the repricing of ECB policy rate expectations, as markets had priced in around a two-month postponement of a first interest rate hike relative to pre-war expectations. Investors expected one 25-basis point increase around the turn of the year, while the expected speed of the tightening cycle after “lift-off” remained broadly unchanged. Uncertainty around policy rate expectations based on information from option prices had also increased. Since February, the distribution of risks around the expected path of the three-month EURIBOR had widened substantially, reflecting the heightened uncertainty surrounding both the economic and the inflation outlook. The more pronounced skewness of the distribution suggested that markets had become even more concerned about upside risks to inflation. Risk-free long-term yields on both sides of the Atlantic had continued to move in close step, even though the drop in German Bund yields had been somewhat more pronounced than for US Treasury yields. This signalled that investors seemed to see the war driving only a small wedge between the growth outlook in the United States and in the euro area. The sharp and unprecedented widening of the Bund-OIS spread following the Russian attack suggested that flight to safety had been a more relevant factor than the repricing in monetary policy expectations, which affected Bund and OIS yields to the same extent. Developments in real interest rates could similarly be characterised as having gone through two phases since the Governing Council’s February monetary policy meeting. In the first phase, before the Russian invasion, real yields had increased strongly at the short and the long end of the curve in line with a gradual normalisation of financial conditions following the reappraisal of monetary policy expectations globally. After the Russian attack, real yields had fallen sharply across global risk-free sovereign yield curves driven by safe haven flows, with the decline being more pronounced at the short end, also reflecting a sharp increase in expected inflation. Spreads of euro area sovereign bond yields over German Bund yields had initially widened after the Governing Council’s February monetary policy meeting, but the speed and magnitude of the adjustment had remained contained. The relative resilience reflected three factors: first, the continued strong ECB monetary stimulus, including from the substantial stock of acquired assets and the ECB’s announced re-investment policies; second, the combination of a long period of low interest rates and the increase in the weighted average maturity of public debt, which reduced the sensitivity of the cost of debt servicing to rising risk-free rates; and third, the easing of pandemic restrictions as well as sound growth expectations, also in view of structural reforms and investments related to the Next Generation EU programme. The same factors had played a role in the resilience of spreads in response to the latest geopolitical risk shock. Developments in equity markets signalled that the uncertainty about the direct implications of the invasion was expected to be greater for the euro area than for other major currency areas. Most of the recent decline in equity prices likely reflected a rise in the equity risk premium, consistent with the flight to safety in bond markets. Looking at exchange rates, until the start of the war the EUR/USD exchange rate had co-moved very closely with changes in policy rate expectations. With the onset of the war, the US dollar had appreciated as investors moved into classic safe-haven currencies, despite broadly unchanged relative monetary policy expectations. The global environment and economic and monetary developments in the euro area Mr Lane went through the latest economic, monetary and financial developments in the global economy and the euro area. He started by noting that the economic shock from the Russian invasion of Ukraine came in the context of otherwise solid foundations for a strong recovery in the euro area this year. It was therefore useful to recall the point at which the economy had been before the start of the war. The global economy was recovering from the pandemic. The Omicron wave had had a short-lived negative impact, mainly on services. This was shown by the change in output Purchasing Managers’ Indices (PMIs) by industry – particularly for tourism and recreation – from November 2021 to February 2022. However, with the Omicron wave fading and economies reopening, it was natural to expect a catch-up. The latest data also suggested that there had been a slight improvement in supply bottlenecks, especially in the United States and the United Kingdom. Once supply bottlenecks eased, more production could be expected to take place to satisfy demand. Trade in goods was already above pre-pandemic levels, but there was still ample scope for catching up in tourism during 2022 and this could be a strong engine of growth for European countries. Looking at developments in commodities and exchange rates, the picture for oil prices was changing by the day, with the oil price on 7 March clearly above the level assumed in the March 2022 ECB staff projection exercise. Regarding the exchange rate, a distinction needed to be drawn between what was happening in bilateral movements of the euro exchange rate and the evolution of the euro’s effective (trade-weighted) exchange rate. The heightened uncertainty from the Russian invasion had led investors to move into safe-haven currencies. The euro had appreciated strongly against the currencies of central and eastern European countries and had depreciated notably against the US dollar. When weighting the different developments, in nominal effective terms, the fall in the euro had not been very pronounced. Turning to the euro area, some improvements had been observed in supply bottlenecks, although they remained acute. However, there was a risk that the Russia-Ukraine war could lead to further bottlenecks. Reviewing the demand components of GDP, the recovery in private consumption had been very strong until the third quarter of 2021, i.e. before the Omicron wave. The strength of the recovery had reflected higher incomes and a running down of savings. This had led to more robust consumption even though fiscal support had been reduced from the levels at the height of the pandemic. This positive trend had been reversed in the fourth quarter of 2021, when private consumption fell, largely on account of higher energy and consumer prices, which translated into a decline in real disposable income. This mechanism was expected to operate also in the first quarter, despite the expectation that a reduction in savings could partly buffer a decline in consumption. The energy price shock had been negatively affecting private consumption, as people had experienced an increase in their cost of living and a reduction in purchasing power. Investment had recovered in the fourth quarter of 2021. This was largely due to a sharp rebound in the automotive industry, which had been a drag on investment in the previous quarters. Housing investment continued to be affected by large demand but also supply bottlenecks in production. Demand for houses or house renovation remained elevated, even though the most recent data showed a slight dip in expectations. On the production side, although recent surveys indicated some easing in the shortages of materials, equipment and labour, these were still close to their historical peaks. To appreciate the impact of the energy price shock on real income, it was useful to look at the deterioration in the trade balance and in the terms of trade. The euro area goods trade balance had progressively worsened, resulting in a deficit at the end of 2021. The deterioration had been largely driven by an increasing deficit in the energy balance. A similar deterioration was visible in the terms of trade. In the final quarter of 2021, the contribution of energy to the deterioration in the terms of trade had been 4 percentage points of GDP. When accounting for gains from companies charging higher export prices to their global customers, the net loss of income vis-à-vis the previous year due to the energy price shock had amounted to 2 percentage points at the end of 2021. With regard to labour market developments, the evidence continued to point to a recovery story, with the PMI employment index remaining in expansionary territory (above 50) in all sectors in February. The unemployment rate had continued to fall and was 6.8% in January. The job vacancy rate showed that more and more sectors were recording a greater number of vacancies. The euro area vacancy rate had not reached the level seen in the United States, but it was consistent with strengthening labour demand. Turning to the March 2022 ECB staff projection exercise, Mr Lane noted that the variables used in the technical assumptions had already changed significantly since the 28 February projection cut-off date, which had already been moved back from 24 February on account of the Russian invasion of Ukraine. The projection exercise foresaw real GDP growing by 3.7% in 2022. This represented a downward revision of 0.5 percentage points for 2022, which was mainly due to the impact of the Ukraine crisis on energy prices, confidence and trade. GDP growth in 2023 and 2024 was broadly unrevised from the December 2021 Eurosystem staff projections. On the nominal side, following a series of unprecedented energy price shocks, headline inflation was now expected to average 5.1% and core inflation 2.6% in 2022. Headline inflation in the Harmonised Index of Consumer Prices (HICP) was expected to remain slightly above 2.0% in 2023 and to fall to 1.9% in 2024. Since the December 2021 projections, headline inflation had been revised up by 1.9 percentage points and core inflation by 0.7 percentage points for 2022. As regards the saving ratio, some decline was foreseen over the projection horizon, with households expected to reduce savings to cushion the energy price shock in the short term and to boost their consumption spending later in the horizon as the economy reopened. Owing to the high uncertainty surrounding the consequences of the military conflict for the euro area, the ECB staff had prepared two scenarios: an “adverse” scenario and a “severe” scenario. Both scenarios entailed a permanent loss of income, with the level of GDP projected to be significantly lower than in the baseline. The adverse scenario assumed additional sanctions against Russia, with euro area energy market disruptions as well as rising uncertainty and financial repercussions. On top of these features, the severe scenario included a higher price sensitivity of energy markets to supply cuts, additional financial tightening and stronger second-round effects from higher wages on inflation. In both scenarios inflation would be significantly higher in the short term, but it would fall back to slightly below target in 2024. Moving to a model-based analysis of risks to the inflation outlook, two alternative approaches were used in the assessment. The first approach relied on model simulations, which estimated the probability that annual HICP inflation would be higher than 2% in 2024. This indicated that risks were broadly balanced, with most model simulations showing that the probability of inflation being above target in 2024 was less than 50%. The second approach was that of calculating the forecast probability for HICP inflation one year and three years ahead, based on financial and monetary indicators. With this approach, too, the forecast probability of inflation being above 2% in 2024 was less than 50%. Overall, the two approaches suggested that there were risks in both directions, but the risks looked broadly balanced. These analyses therefore confirmed the view that end-point inflation in 2024 would be around the 2% target. Similarly, according to the March Survey of Monetary Analysts (SMA), the median of the distribution of longer-term inflation expectations remained around 2%, meaning there was no significant difference from the February round. Given the relative stability of the inflation expectations component, it could also be argued that movements in the real rate were being driven by developments in the risk premium. As regards the balance of risks, SMA respondents saw risks to inflation in 2024 to be balanced around the inflation target. This fairly even distribution between levels above and below 2% implied that there were both upside and downside risks to inflation. Turning to the latest inflation developments, HICP headline inflation had been increasing strongly since summer 2021, reaching 5.8% in February 2022. The most important contribution to the rise in inflation was from energy, which in February accounted for 3.1 percentage points of the 5.8% inflation rate increase, as energy prices rose by 31.7%. Among the energy components, not only fuel but also gas and electricity had contributed significantly to the increase in energy inflation. The prices of other HICP components, such as food, goods and services, had also been rising. Since energy was an input in every sector, whenever there was a very large and persistent energy price shock the pass-through to other components would become stronger. Indicators of underlying inflation, which traditionally sought to identify the persistent elements of inflation, had been increasing. Taken at face value, they signalled that headline and core inflation would be higher in the future. However, while these indicators captured medium-term inflation developments well in normal times, they were currently affected by two shocks: the pandemic shock and the massive energy price shock. This called for careful analysis of what was behind inflation dynamics in the present environment and behind the developments in the different components of core inflation, i.e. inflation excluding food and energy. Starting with goods inflation (non-energy industrial goods), in recent times about 1 percentage point of goods inflation could be attributed to a combination of supply bottlenecks – as captured by PMI supply delivery times – and oil prices. Historically, goods inflation had been hovering around 0.5%. Then, more recently, it had risen to around 1.5%, before increasing further to above 2% in the latest data. However, 1 percentage point of the increase was estimated to be due to factors that were not persistent, namely supply bottlenecks and the energy price shock. Mr Lane went on to explain that the March HICP staff projection was built around the assumption that the energy price shock was a level effect and would not last. The same assumption applied to the bottlenecks, which also generated a level effect that would nonetheless not be a permanent source of inflation. Therefore, for goods inflation, there were temporary reasons why inflation was high. Once these shocks vanished, inflation was expected to fall. The second component of core inflation, services inflation, included similar temporary elements. One key temporary element was the reopening of the economy, which also needed to be interpreted as a level rather than permanent effect on inflation. When looking at the whole projection horizon and cumulating the impact of the energy price shock on core inflation from the last quarter of 2021, ECB staff analysis showed that around 3 percentage points of the cumulative increase in core inflation had been driven by the indirect effects of energy. In the short term (until early 2023), the indirect impact was estimated to account for the bulk of the increase in core inflation. But over time, with the disappearance of slack and the levelling-off of the energy effect, core inflation would return to being mostly determined by the traditional factors and a Phillips curve-type effect would start kicking in. In short, these analyses showed the very large effect that energy prices, supply bottlenecks and the reopening were having on core inflation. Turning to wages, the March staff projection was built on the observation that, so far, there had been no signs of strong wage pressures, which was in line with the assessment that the labour market was not very tight. The projection suggested a gradual pick-up in wages in 2022, on the basis of the evidence collected on new wage settlements. Since collective bargaining agreements frequently covered one to two years, examining agreements that had already been concluded was informative about increases in negotiated wages in the coming months. For the euro area as a whole, growth in compensation per employee in 2023 was projected to be 3.4%, with the impact of the minimum wage increase in Germany estimated to be around 0.5 percentage points. With regard to fiscal policies, the March ECB staff projections showed continued improvement in the euro area fiscal outlook. The expected path of fiscal correction was gradual and largely due to the improved cyclical component. Overall, the euro area fiscal deficit was projected to still remain higher than in the pre-pandemic period. The debt-to-GDP ratio was also expected to improve – by about 10 percentage points between 2020 and 2024 – largely thanks to the strong projected path of growth, which was foreseen to return to its pre-pandemic trajectory. While fiscal balances were expected to improve, interest payments had been revised upwards since the December projections. However, it was important to remember with regard to interest payments that a lot of expiring ten-year bonds were still paying rates of interest that were higher than current rates. Looking at the measures that governments had implemented or announced to cushion the impact of the energy price shock, for the euro area aggregate the baseline incorporated an associated impact of about 0.2% of GDP in 2022. Additional measures – not yet included in the baseline – had recently been approved in several countries. Monetary policy considerations and policy options Summing up, Mr Lane stressed that the Russian invasion of Ukraine would have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The prospects for the economy would depend on how the conflict evolved, on the impact of economic and financial sanctions and on possible further measures. In any event, the degree of uncertainty would remain extraordinarily high. At the same time, the underlying conditions in the euro area remained solid, helped by ample policy support. The labour market continued to improve, with unemployment falling to 6.8% in January. Previous headwinds to growth were gradually waning. Measures to contain the spread of the Omicron coronavirus variant had had a milder impact than during previous waves and were being lifted, and supply bottlenecks showed some signs of easing. The impact of the massive energy price shock on people and businesses might be partly cushioned by drawing on savings accumulated during the pandemic and by compensatory fiscal measures. Barring a materialisation of worse scenarios, in the baseline scenario it was expected that the economy would rebound in the course of 2022. The March staff projections for output had been revised downwards for the near term owing to the Russia-Ukraine war. But the baseline projections still foresaw that the economy would grow at a robust pace over the remainder of 2022. Later in the projection horizon, energy prices were expected to moderate and the foreseen normalisation of the saving ratio, alongside the strong conditions in the labour market, should support household consumption. Output was expected to rise by 3.7% in 2022, 2.8% in 2023 and 1.6% in 2024. The risks to the economic outlook had increased substantially with the Russian invasion of Ukraine and were tilted to the downside. While risks relating to the pandemic had declined, the war might weaken economic sentiment and could generate new supply-side constraints. Persistently high energy costs, together with a loss of confidence, could drag down demand more than expected and constrain consumption and investment. Alternative scenarios for the economic and financial impact of the war, which would be published together with the projections, foresaw that economic activity could be dampened significantly by a steeper rise in energy and commodity prices and a more severe drag on trade and sentiment. Inflation had increased sharply in recent months. HICP inflation had surprised to the upside in February, rising to 5.8% from 5.1% in January. Energy prices, which had increased by 31.7% in February, continued to be the dominant force behind the rise in inflation. Food prices had also increased on account of seasonal factors, elevated transportation costs and the higher price of fertilisers. Price pressures had become more widespread, with the prices of many goods and services having increased markedly as energy prices percolated across cost structures in many sectors, and bottlenecks were sustaining pipeline pressures. Inflation was expected to increase further in the near term as a consequence of the risk related to energy costs. There would also be further pressure on some food and commodity prices owing to the war in Ukraine. Most measures of underlying inflation had risen over recent months, but the persistence of the rise in these indicators remained uncertain owing to the indirect effects of higher energy prices and the role of temporary pandemic factors. Even though labour shortages were affecting more and more sectors, wage growth remained muted overall. The March staff projections foresaw HICP inflation at 5.1% in 2022, 2.1% in 2023 and 1.9% in 2024. The substantial upward revision to inflation in 2022 reflected mainly the effect of the upward surprises in January and February and the impact of the war on the path of energy and commodity prices. HICP inflation excluding food and energy was projected to follow a similar profile, reaching 2.6% this year before declining to 1.8% in 2023 and 1.9% in 2024. Projected wage growth in 2022 was higher, partly as a result of some catching-up in wages and the indirect impact of minimum wage increases further up the wage scale. Looking ahead, a further improvement in labour market conditions and the return of the economy to full capacity should support faster growth in wages over the projection horizon. Longer-term inflation expectations across a range of measures were re-anchoring at the 2% inflation target. Taken together, the improvement in the labour market and the re-anchoring of inflation expectations made it increasingly likely that inflation would stabilise around the 2% target over the medium term. The war in Ukraine constituted a substantial upside risk to energy prices. If price pressures fed through into higher than anticipated wage rises, inflation could also turn out to be higher over the medium term. However, if economic growth were to weaken over the medium term, this could lead to lower pressure on prices. In the alternative scenarios for the economic and financial impact of the war, inflation could be considerably higher in the near term. However, inflation was still expected to fade progressively and settle at levels around the 2% inflation target in 2024. The Russian invasion of Ukraine had caused substantial volatility in financial markets. Following the outbreak of the war, risk-free market interest rates had partially reversed the increase observed since the February meeting. Sovereign yields had also partly retraced the significant increases that had accompanied the steepening of the risk-free curve in early February. Euro area equities had recorded hefty declines, especially in the banking sector. The euro had depreciated against the US dollar, as investors were evaluating the consequences of the war for the euro area economy. The spillovers from the financial market turmoil to unsecured and secured money market rates had been contained so far, while bank lending rates on loans to firms, despite some upward correction, remained favourable overall. More than ever there was a need to maintain optionality in the conduct of monetary policy. In the current conditions, it was especially important for monetary policy to remain data-dependent and for optionality to be two-sided. On the one hand, policy should not be restricted in its timely response to the risk of excess inflation, should the observed price pressures extend into the medium term. On the other, the possibility to take all the measures necessary if the current crisis continued to escalate should not be ruled out, as further escalation might stifle the economic rebound in the euro area and jeopardise the stability of the financial system. The new inflation landscape and the skew of risks around the inflation baseline suggested that the mission of the net asset purchases – to “reinforce the accommodative impact of our policy rates” – could be considered as coming close to being accomplished. This argued for scaling back the profile of purchases under the asset purchase programme (APP) relative to the path decided on in December. At the same time, the war had generated uncertainty about the euro area economic outlook. There was a need to ensure smooth liquidity conditions and take whatever action was needed to safeguard financial stability and to fulfil the mandate to pursue price stability. With these considerations in mind, Mr Lane proposed announcing a path for net purchases of €40 billion in April, €30 billion in May and €20 billion in June. The calibration of net purchases for the third quarter would be data-dependent and reflect the evolving assessment of the outlook. If incoming data supported the expectation that the medium-term inflation outlook could be maintained even after the end of the net asset purchases, then net purchases would be ended in the third quarter of 2022. However, if the outlook deteriorated, or if financing conditions became inconsistent with further progress towards the 2% target, the Governing Council would stand ready to revise the schedule for net asset purchases in terms of size and/or duration. Finally, Mr Lane proposed three adjustments to the rate forward guidance. First, in the current conditions, the “easing bias” – the expectation that, looking ahead and until the three conditions were judged to have been met, policy rates would be kept at their present “or lower” levels – was no longer necessary. In particular, if further easing were warranted in response to a significant deterioration in the outlook, asset purchases could be the appropriate tool to adjust. Second, there was a need to signal that any adjustments to the key ECB interest rates would take place ”some time after the end of the Governing Council’s net purchases under the APP”. As the indicated time limit for net asset purchases would be tentative and data-dependent, the calendar for any rate hikes should be disentangled from the end date for net purchases. This would give the Governing Council some extra space to test conditions after ending purchases of bonds and before taking the next step towards normalisation. Therefore, communication about the sequencing of and spacing between policy actions should be factored directly into the rate forward guidance in a way that reiterated the sequencing of the policy instruments. The reference to “some time” conveyed the notion that the time interval between the end of net asset purchases and lift-off was not predetermined. This was especially important in an uncertain environment. Rather, it would depend on the timeline for the fulfilment of the rate forward guidance criteria and the appropriate incorporation of prevailing economic, financial and market conditions into the interest rate decisions. All in all, this new formulation clearly enhanced flexibility and optionality. It would help manage – in a more agile manner – the specific steps towards implementing the sequence of normalisation decisions, allowing such steps to be better attuned to incoming data. The proposed third innovation concerning the rate forward guidance consisted of two elements. The Governing Council should reconfirm that the path for the policy rates would continue to be determined by the forward guidance and by the strategic commitment to stabilise inflation at 2% over the medium term. Additionally, it should signal that any adjustments to the interest rates would be “gradual”, which was especially important in times of uncertainty. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The economy had grown by 5.3% in 2021, with GDP returning to its pre-pandemic level at the end of the year. However, growth had slowed to 0.3% in the final quarter of 2021 and was expected to remain weak during the first quarter of 2022. The prospects for the economy would depend on the course of the Russia-Ukraine war and the impact of economic and financial sanctions, as well as possible retaliatory measures. The Russia-Ukraine war would have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects would depend on how the conflict evolved, on the impact of current sanctions and on possible further measures. At the same time, the impact of the war had to be assessed in the context of solid underlying conditions for the euro area economy, with the waning of a number of headwinds to growth. Measures to contain the spread of the Omicron coronavirus variant had had a milder impact than during previous coronavirus waves and were now being lifted. The supply disruptions caused by the pandemic also showed some signs of easing. Furthermore, the impact of the massive energy price shock on people and businesses might be partly cushioned by drawing on savings accumulated during the pandemic and by compensatory fiscal measures. Members welcomed the fact that, in recognition of the highly uncertain environment, the March staff projections considered alternative scenarios. In these alternative scenarios for the economic and financial impact of the Russia-Ukraine war, economic activity was seen to be dampened significantly by a steeper rise in energy and commodity prices and a more severe drag on trade and sentiment. Inflation would be considerably higher in the near term. However, inflation was still expected to decrease progressively and settle at levels around the 2% inflation target in 2024. In their discussion, members highlighted the exceptional uncertainty that the war in Ukraine and its ramifications implied for the economic outlook. This held not only for the short term but also for the medium term. It was suggested that, in these conditions, the ECB was grappling with “Knightian uncertainty”, i.e. a type of uncertainty that was not quantifiable. Fears and concerns associated with the war could not easily be captured by standard models. There was broad agreement on the direction of the initial effects of the war on the euro area economy, namely upwards on inflation and downwards on economic growth, which was best characterised as yet another negative supply shock. This could have inflationary or disinflationary impacts in the longer term. The most prominent and imminent economic risk emerging from the war was that the prices of energy and raw materials would continue to increase. With the prices of energy and food likely to see further upward pressure and the prominence of these items in consumption baskets, there was a risk of strong impacts on household inflation perceptions and expectations. The reaction of household savings was considered a key element in the macroeconomic transmission of the war shock. On the one hand, savings could be expected to rise. The drop in asset prices and the rise in uncertainty since the start of the war might lead to more precautionary behaviour and portfolio adjustments by households and businesses. The situation was seen as probably more comparable to the financial crisis than to the pandemic crisis, in which restrictions had led to forced savings. If combined with a complete cut-off of Russian oil and gas supplies to the euro area, heightened uncertainty and risk aversion could lead to a much more pessimistic assessment of the economic outlook than the one presented in the staff baseline projections and the scenarios. On the other hand, it was argued that households were faced with higher energy bills, which left little room to build up savings. Uncertainty effects could be even stronger for the countries bordering Russia. Finally, it was underlined that the high stock of savings accumulated by households during the pandemic might provide a partial cushion against the rise in energy prices. As regards the external environment, members took note of the assessment provided by Mr Lane that the Omicron variant had slowed global growth momentum at the turn of the year, especially in services, but that its impact had been diminishing. Moreover, global supply bottlenecks had seemingly passed their peak, although delivery times remained very long. The Russia-Ukraine war had led to a downward revision to euro area foreign demand, which was mostly visible in 2023 since, for 2022, the effect was dampened by positive carry-over effects from 2021. Following Russia’s invasion of Ukraine commodity prices had surged, the euro had depreciated – particularly against the US dollar – and prices for risky assets had dropped. Regarding the characteristics of this new shock to the euro area economy, it was mentioned that it would have large economic, military and political implications for Europe, which would unfold gradually over time. It was mentioned that, in addition to oil and gas, Russia and Ukraine were also major exporters of several other important commodities (wheat, fertilisers and rare metals). This was likely to lead to more severe worldwide bottlenecks for a number of products. Finally, it was recalled that the recent weakening of the euro was amplifying the adverse terms-of-trade shock that the euro area was currently experiencing owing to the surge in commodity prices. Members broadly agreed with Mr Lane that the Russia-Ukraine war had started in the context of otherwise solid foundations for a strong recovery in the euro area this year. With governments now ending most pandemic-related restrictions, the euro area economy had been set for a strong recovery before the escalation of the conflict. Hence, the euro area economy was entering this new crisis with better fundamentals than in March 2020. Even the severe scenario presented by staff was less damaging to growth than the comparable scenario that the Governing Council had considered two years ago in response to the emergence of the coronavirus. In this context, it was also recalled that at the global level, the Russia-Ukraine war, together with the economic and financial sanctions, could not be compared with the shutdown of the global economy in March 2020. Comfort was widely drawn from the continuously improving labour market conditions, with unemployment falling to 6.8% in January. With more or less all labour market indicators at historically high levels, household income should continue to grow. At the same time, it was argued that a pessimistic assessment of the economic consequences of the Russia-Ukraine war would imply that the very strong labour market might have become a thing of the past. An economic contraction owing to the Russia-Ukraine war could lead to a weaker labour market, as observed in the 1980s. The resulting fall in incomes could lead to further economic weakness, including downward pressure on inflation. Regarding the fiscal policy response to the Russia-Ukraine war, members agreed that further measures were likely and desirable at the national and European levels. At present, however, there was still a lot of uncertainty about such initiatives. While it was clear that economic activity would suffer in the short term, over the next few years consumption and investment might receive a boost through three types of fiscal spending. First, there would be additional investments in the energy sector to reduce the dependency on Russian gas and oil, including investment in the green energy transition. Second, there would be increased defence spending in Europe. Third, there would be more public spending to support Ukraine and the refugees. Overall, such increased government spending would tend to increase pressures on resources and prices. All in all, members assessed the risks to the economic outlook as having increased substantially with the Russian invasion of Ukraine and as being tilted to the downside. While risks relating to the pandemic had declined, the war in Ukraine might have a stronger effect on economic sentiment and could worsen supply-side constraints again. Persistently high energy costs, together with a loss of confidence, could drag down demand more than expected and constrain consumption and investment. Against this background, it was argued that the war constituted a stagflationary shock, which entailed weaker activity and higher inflation in the near term. However, given the extremely strong starting point and the anchoring of medium-term inflation expectations, it was difficult to see how this shock could push the euro area economy into stagflation. In this context, the fiscal response would also be very important to achieve a favourable outcome. At the same time, weaker activity in the second and third quarters of this year could nonetheless result in a technical recession in terms of quarter-on-quarter growth rates. Finally, even if the impact of the war was clearly inflationary in the short run, given the significant increase in uncertainty and the rise in financial stability risks, it could become either inflationary or disinflationary in the longer run. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction. Inflation had continued to surprise strongly to the upside in February, when it had increased to 5.8%, even before the effects of the war had become visible. Moreover, it was expected to rise further in the near term. Energy prices continued to be the main reason for this high rate of inflation and were also pushing up prices across many other sectors. Food prices had also increased, and there would be further pressure on some food and commodity prices owing to the war in Ukraine. Finally, price rises had become more widespread and most measures of underlying inflation had risen to levels well above 2%. However, there were different views on how persistent these rises would be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices. Market-based indicators suggested that energy prices would stay high for longer than previously expected but would moderate over the course of the projection horizon. Price pressures stemming from global supply bottlenecks should eventually subside. Wage growth had remained muted overall, but, over time, the return of the economy to full capacity should support faster growth in wages. Various measures of longer-term inflation expectations derived from financial markets and from surveys stood at around 2%. These factors would help headline inflation to settle durably at the 2% target. In their discussion of the March 2022 staff projections, members noted the substantial upward revision to the short-term inflation outlook since the December 2021 projections. February’s inflation data release was the latest in a string of consecutive upside surprises. This had led to the largest revisions to inflation projections in many years, both in December and again in March. The high levels of inflation had thus turned out to be less transitory than previously expected, while the latest ECB staff projections nonetheless still foresaw a rapid decline in inflation, nearly to target, over the projection horizon. Sizeable and persistent projection errors for core inflation were also seen as a reminder that the models were underestimating the impact of the recovery and the pass-through of input prices to final consumer prices. In particular, doubts were expressed about the convergence of inflation to 1.9% as expected in the baseline staff projection for 2024, the last year of the projection horizon. The question was raised as to how one could expect such a fast mean reversion in inflation, faster than in the previous projection round, after the current huge shocks to inflation. It appeared puzzling that inflation projections would still fall somewhat short of the 2% target in 2024 despite consecutive upside surprises in inflation outcomes, a persistently positive output gap for most of the projection horizon and the latest increases in longer-term inflation expectations. In this context, it was acknowledged that models estimated on historical data naturally had their limits in the face of unusual shocks and possible turning points or regime shifts. It was again stressed that the medium-term projection for headline inflation was based on the assumption of a declining path of energy futures prices. Such a path was seen as open to challenge in the light of various factors in energy markets pointing to more lasting upward pressures. These included the sanctions on Russia, Europe’s plan to reduce Russian gas imports and climate change initiatives. Sensitivity analyses using alternative technical assumptions for energy commodity prices could imply inflation projections of well above 2% for 2023 and 2024. At the same time, it was cautioned that all mechanical assumptions for oil prices had their caveats and that for interpreting the projections it was more important to understand whether oil prices were driven by demand or supply shocks. With respect to the medium-term outlook, it was considered that the projection for food price inflation might be on the low side towards the end of the horizon and the question was raised whether it could be higher for longer. Reference was also made to the likely upward impact on medium-term inflation projections of developments in the costs of owner-occupied housing, which were not yet part of the official HICP index. In view of these different considerations, it was argued that there should be no pretence of knowing what the exact number for inflation would be in 2024, while more attention could be given to uncertainty and risk distributions around point estimates for inflation. Members highlighted that core inflation and various other measures of underlying inflation had also moved well above 2%. This included a strong upward movement in those prices that were changed less frequently, which were a good indicator of medium-term inflation developments. This was seen to argue against attributing inflation only to the energy component and supported the assessment that inflation was becoming more broad-based and more persistent. With such a trend becoming more entrenched, it was increasingly doubtful whether measures of underlying inflation could be expected to decline again significantly in the short term. Over the medium term, long and variable lags in the pass-through of producer prices meant that considerable upside pressure was still in the pipeline. By contrast, in the staff projections recent increases in core inflation were foreseen to partly reverse over the projection horizon. However, it was stressed that core inflation was currently being driven by external factors, including energy prices and bottlenecks, rather than domestic factors such as wages. Moreover, these factors were argued to constitute price level effects that would fade from inflation rates over time. Reference was also made to an analysis of the historical pattern of producer price inflation in the energy sector, which showed that energy inflation had typically been oscillating between positive and negative rates of change. Notwithstanding the recent upward spike, it should thus not be ruled out that energy inflation might again turn negative at some point in the future. It was recalled that one-off energy price rises would not result in lastingly higher inflation, which ultimately required higher inflation expectations and higher wage growth to become self-sustaining. In this context, it was noted that growth in negotiated wages at the end of 2021 was lower than the average for 2020 and did not point to evident wage pressures. It was also noted that growth in unit labour costs, which combined wage growth with productivity developments, was expected to increase over the projection horizon but to stay below 2%. A comparison of wage growth with inflation suggested a cumulative decline in real wages over the projection horizon. The question was raised whether this implied that the terms-of-trade shock associated with energy price increases was being absorbed by workers alone, and how likely that would be in a situation of tight labour markets. At the same time, the point was made that lower real wages did not necessarily imply a lower labour share in income if there was also positive employment growth. In any case, inflation, which was stubbornly high and higher than expected, was widely seen as increasing the likelihood that there would be second-round effects, which in turn would make higher inflation more persistent. It was argued that, if second-round effects in wages were to emerge, these could last longer than a year, as wage contracts tended to be concluded for longer periods. Concerns were expressed that second-round effects might well be of a non-linear nature, taking some time to emerge but then becoming very strong and difficult to stop. Labour market dynamics and indications of increasing labour market tightness were seen to point clearly to rising wage pressures in the period ahead. It was argued that in the past the impact of energy price increases had been short-lived and had therefore been more naturally absorbed by wages or profit margins. This time the situation appeared to be different, however, given the large energy shock in conjunction with far-reaching structural changes, post-pandemic pent-up demand and supply shortages. This called into question the seemingly very muted reaction of wages to inflation in the staff projections. At the same time, it was recalled that in the staff projections second-round effects had been assumed to play out in line with historical regularities. There was also a risk that the projected effects might turn out to be too strong given that so far wage growth, at least in some countries, had come in lower than previously expected. Moreover, it was cautioned that the current strength in labour markets could quickly vanish. Reference was made to the 1980s, when second-round effects had induced “third-round” effects in terms of lower output and weaker labour markets. It was also possible that unions and firms might again prioritise job security over wage gains in the light of the heightened uncertainty owing to the war. Moreover, wage-price spirals were unlikely as long as – by contrast with the 1970s and 1980s – the central bank’s commitment to price stability was seen as credible. Against this background, factors that constituted risks to the economic outlook also affected the risks to the outlook for inflation, which were seen to be on the upside in the near term. The war in Ukraine was a substantial upside risk, especially to energy prices. If price pressures fed through into higher than anticipated wage rises or if there were persistent adverse supply-side implications, inflation could also turn out to be higher over the medium term. However, if demand were to weaken over the medium term, this could also lower pressures on prices. It was observed that risks to the projections had already materialised, as oil prices had risen further between the cut-off date for the assumptions in the projections and the Governing Council meeting. In addition, the point was made that the fiscal spending on defence and energy that was likely to take place over the coming years would imply additional inflationary pressures. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. Most indicators were at around 2%, which was seen as good news. It was pointed out that some market-based measures were significantly above 2%. On the one hand, it was suggested that this could be seen as the first sign that long-term inflation expectations were becoming unanchored and needed to be closely monitored, as this could give rise to a wage-price spiral. On the other hand, it was recalled that these measures included risk premia and that correcting for these would still leave genuinely expected inflation at around 2%. In this respect, attention was drawn to the correlation between movements in oil prices and market-based measures of inflation compensation. For instance, a rise in the five-year implied forward inflation-linked swap rate five years ahead might inter alia reflect that investors were looking for hedges in the face of an oil price-driven inflation surge. Longer-term inflation expectations at around 2% could be interpreted as reflecting perceptions that the current supply shock was having direct upward effects on inflation in the near term but would have downward effects through disposable income over longer horizons. At the same time, reference was made to national surveys, which showed that the medium-term inflation expectations of businesses and households had moved to well above 2%. Turning to the monetary and financial analysis, members widely concurred with the assessments, provided by Ms Schnabel and Mr Lane in their introductions, that the Russian invasion of Ukraine had caused substantial volatility in financial markets owing to heightened uncertainty. Stock markets in the euro area had been affected much more than in the United States, reflecting the fact that the euro area was more exposed than other regions of the world to the fallout from the war. In this regard, the extent of the fall in equity prices since the invasion of Ukraine, including for banks with minor exposures to the Russian or Ukrainian economies, suggested that the transmission of the economic shock in the euro area economy could be much more adverse than was implied by the – relatively small – direct financial and trade exposures. At the same time, it was underlined that so far financial market tensions appeared significantly less severe than at the start of the pandemic. There had not been a similar “dash for cash” and liquidity was holding up well in most market segments, even though there had been an interruption of primary market issuance in corporate bond markets for a few days From a financial stability perspective, the main channel of transmission from higher energy and commodity prices related to the macroeconomic impact through inflation and growth. Following the outbreak of the war, risk-free market rates had partially reversed the increase observed in the wake of the 2-3 February meeting, the euro had depreciated against the US dollar and euro area equity prices had recorded hefty declines, especially for banks. The financial sanctions against Russia had so far not caused persistent strains in money markets or liquidity shortages in the euro area banking system. Bank balance sheets remained healthy overall, owing to robust capital positions and a reduction in non-performing loans, in turn reflecting sound household finances and corporate balance sheets. The growth of lending to firms had declined after increasing strongly in the last quarter of 2021, whereas lending to households was holding up, especially loans for house purchase. Monetary policy stance and policy considerations With regard to the monetary policy stance, financing and financial conditions in the euro area were assessed to remain favourable overall, notwithstanding the increase in market interest rates observed since the monetary policy meeting in February. While nominal euro area government bond yields had increased significantly since the 15-16 December 2021 meeting, this had been driven largely by an increase in market-based inflation compensation. The significant further fall in real interest rates to record low levels and the depreciation of the euro suggested that the monetary policy stance remained very accommodative. This raised the question of whether the configuration of monetary policy instruments, including the negative interest rate policy, was still consistent with inflation returning to target over the medium term. However, it was noted that the recent fall in risk-free interest rates had been driven by deteriorating risk sentiment in the wake of the Russian invasion of Ukraine and a clouding of the macroeconomic outlook. Bank lending rates for firms had increased somewhat but remained favourable overall, while the cost of market-based debt had risen more markedly. Rates on loans to households for house purchase had remained steady at historically low levels. A large number of members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalisation. Inflation was projected to be far above target in 2022, with unprecedented upward revisions over the latest two projection rounds. It was projected to remain above target in 2023, with significant upside risks, as also evidenced by the alternative scenarios. Moreover, it was argued that the baseline inflation projection for 2024 could be assessed to be already effectively on target, when the heightened uncertainty surrounding the outlook and the fragility of the assumptions underlying the projections were taken into account. In addition, available measures of underlying inflation had moved above 2%, suggesting that the staff projections may be underestimating the persistence of above-target inflation. On this basis it was argued that, for all practical purposes, the three forward guidance conditions for an upward adjustment of the key ECB interest rates had either already been met or were very close to being met. At the same time, it was argued that it remained uncertain how persistent the rise in the indicators of underlying inflation would be, given the role of temporary, pandemic-related factors and the indirect effects of higher energy prices. It was also remarked that, even if the forward guidance criteria could be assessed as being met, uncertainty was high at the current juncture and fulfilment of the criteria was a necessary but not sufficient condition for a first hike in policy rates. The most appropriate timing of a first upward adjustment of the ECB’s key interest rates should be determined by the Governing Council in the light of all available data and other considerations such as prevailing financial market conditions. While the Russian invasion of Ukraine had increased uncertainty surrounding the macroeconomic outlook, related risks to the inflation outlook were seen as largely one-sided, with experience suggesting that wars tended to be inflationary, often fuelled by increased fiscal spending in conjunction with a loose monetary policy stance. While the war would likely dent economic growth in the short term, annual growth was projected to remain positive even in the severe scenario, pointing to “slowflation” rather than stagflation. The greater persistence of inflation increased the probability of second-round effects via strengthening wage dynamics. While wage growth had remained moderate so far, it usually reacted with a lag and possibly in a non-linear way, with the heightened risk of a wage-price spiral if monetary policy did not act in a timely manner. Moreover, a longer period of above-target inflation would lead to an increased risk of an upward unanchoring of longer-term inflation expectations. The latest measures of market-based inflation compensation had moved above 2% along the entire maturity structure for the first time in many years. In such circumstances, the Governing Council could no longer afford to look through higher inflation, even if it was driven by an adverse supply shock. The evolution in the inflation landscape since December, as outlined by Mr Lane, thus called for acting with confidence and without undue hesitation. This was viewed as essential to underline the primacy of the price stability objective but also to provide guidance to markets and thereby avoid adding to uncertainty in a volatile environment. In particular, it was considered essential to take action at the present meeting on scaling back the scheduled APP purchases over the following quarters to “unlock” optionality for future decisions on policy rates. The view was taken that APP purchases had by now fulfilled the stated objective of reinforcing the monetary policy accommodation provided by the ECB’s negative interest rates. Given the development of the inflation outlook since the Governing Council’s December 2021 meeting, and the favourable financing conditions, it was no longer evident that the pace of net purchases previously agreed continued to be proportionate, i.e. suitable, necessary and with no less onerous alternatives available to achieve the declared objective. Continuing to provide monetary policy accommodation through net asset purchases to the extent that had been envisaged in December was no longer seen as consistent with the primary objective at a time when inflation was moving further away from the Governing Council’s target. Maintaining net asset purchases under the APP in spite of impending risks to price stability could call into question the Governing Council’s determination to pursue its primary objective, particularly when inflation risks were skewed to the upside. The present assessment thus called for a prudent and conditional phasing-out of the use of this non-standard instrument, which would in any case remain available for future use, in a proportionate manner, as part of the ECB’s toolbox. Taking action at the present meeting was also seen as consistent with the principles of gradualism, prudence and caution. A delayed response could increase the risk that a more abrupt adjustment in the monetary policy stance would prove necessary further down the road, which could prove more costly for growth and financial stability. In this respect, it was more important than ever for the Governing Council to follow a data-dependent and step-by-step approach, with emphasis on optionality and flexibility. The war had reinforced this need for optionality, owing to the increased upside risks for inflation. In the light of heightened uncertainty, it was nonetheless seen as wise to keep some two-sided optionality and a data-dependent approach, as it was too early to tell how events would unfold in the following months. Against this background, cautious action at the present meeting was seen as warranted, in particular scaling back the schedule for net asset purchases under the APP while de-linking the date of an initial rate rise from the duration of asset purchases. This would increase the Governing Council’s optionality and flexibility without implying that lift-off would automatically follow shortly after the end of net purchases. Among those calling for action at the present meeting, some members preferred to set a firm end date for APP net purchases during the summer and not to make that date conditional on unfolding events. This could clear the way for a possible rate rise in the third quarter of this year in the light of the deterioration in the inflation outlook. Preserving optionality on asset purchases was not without cost, especially considering the risk of “falling behind the curve”. Other members expressed a preference for adopting a wait-and-see approach at the present meeting in view of the exceptionally high uncertainty created by the Russia-Ukraine war. While the pre-war situation might have called for some removal of monetary policy support to accompany the recovery, in the form of a cautious adjustment in addition to the normalisation decisions taken in December 2021, it did not call for a tightening cycle to be initiated. In the new environment resulting from the war, bold steps were even less justified and could further dent confidence. The war implied a considerable change in the macroeconomic picture since the February meeting, and the alternative scenarios suggested that the euro area could fall into technical recession in the summer quarters. The point was made that, in the absence of the currently high level of inflation, the appropriate monetary policy response would likely have been a loosening of the stance. While the war and the associated amplified energy supply shock created an acute dilemma for monetary policy, there was value in keeping a steady hand and waiting before deciding on further adjustments to the monetary policy stance. This would allow a better understanding of the planned fiscal policy response and of the implications of the war for the economic and inflation outlook. Acting at the present meeting raised the question of whether the Governing Council was focused more on short-term inflation developments than on the medium-term inflation outlook. In the view of these members, the forward guidance conditions had not yet been met and it was also not obvious whether they would be met soon. The baseline staff projections and the two alternative scenarios all suggested that inflation would fall below 2% in 2024, as the impact of high energy prices on the level of headline inflation would have faded by then. It was argued that the war constituted a supply and not a demand shock, and it was thus appropriate for monetary policy to look through this shock rather than overreact to current inflation readings. It was argued that the Governing Council could afford to be patient, with measures of longer-term inflation expectations standing at around 2% and no sign of second-round effects, as wage growth had remained moderate so far and had lately even been slower than expected in recent projection exercises. Monetary policy decisions and communication All in all, members agreed that the recalibration of the monetary policy instruments proposed by Mr Lane in his introduction was a balanced compromise and a proportionate course of action in the pursuit of the Governing Council’s price stability mandate. On the one hand, by taking this course of action, the Governing Council continued a step-by-step normalisation of monetary policy, consistent with its assessment that it was increasingly likely that inflation would stabilise around its 2% target over the medium term. On the other hand, the proposed recalibration maintained the Governing Council’s flexibility in terms of the schedule for net asset purchases under the APP by emphasising conditionality linked to the medium-term inflation outlook and by increasing optionality with respect to the key policy interest rates by de-linking lift-off from the expected end date of net asset purchases. On the basis of the Governing Council’s updated assessment and taking into account the uncertain environment, there was agreement to revise the net asset purchases under the APP for the second quarter as proposed by Mr Lane in his introduction, namely for monthly net purchases under the APP to amount to €40 billion in April, €30 billion in May and €20 billion in June. There was also agreement that the calibration of net purchases for the third quarter would be data-dependent and reflect the Governing Council’s evolving assessment of the outlook. There was wide support for the conditional expectation that the Governing Council would conclude net asset purchases under the APP in the third quarter if the incoming data supported the expectation that the medium-term inflation outlook would not weaken after the end of net purchases. This gave the Governing Council the necessary flexibility and optionality, as well as the time needed, to reassess the situation in coming meetings. Regarding the formulation of the Governing Council’s forward guidance on interest rates, members agreed to remove the “easing bias”, i.e. the Governing Council had previously expressed an expectation that the key policy rates would remain at their present “or lower” levels until the three forward guidance conditions were judged to have been fulfilled, which was viewed as no longer warranted. Members also agreed to separate the timing of a rate hike from the end date for net asset purchases, replacing the previous formulation that net asset purchases would end “shortly before” the Governing Council started raising the key policy rates. While net asset purchases under the APP could be viewed as having fulfilled their purpose of reinforcing the accommodative impact of policy rates, further evidence was needed before it could be concluded that the conditions for a rate hike had been met. Therefore, there should be no automaticity in decisions on rate hikes, and it was prudent to retain flexibility and optionality in this respect until there was more clarity on the impact of the Russia-Ukraine war on the medium-term inflation outlook. Against this background, it was judged as neither necessary nor advisable to reach a firm conclusion at the present stage on whether the three forward guidance conditions had already been met. Members generally supported the proposed formulation that any adjustments to the key ECB interest rates would take place “some time after” the end of net asset purchases under the APP. While it was viewed as appropriate to convey the notion that the Governing Council intended to gain extra space to assess the conditions for a rate hike after net purchases had ended, it was also stressed that maximum optionality and flexibility needed to be maintained. In particular, it was important to avoid any misinterpretation of the new formulation as necessarily suggesting a long gap between the end of net purchases and an initial rate rise. Members broadly agreed that the path for the key ECB interest rates would continue to be determined by the forward guidance in a data-dependent manner and by the strategic commitment to stabilise inflation at 2% over the medium term. There was broad support for the notion of gradualism, which was regarded as a well-established principle of sound monetary policy and consistent with prudence in an environment of heightened uncertainty. With respect to a possible resurgence of fragmentation in euro area financial conditions, it was recalled that, in December, the Governing Council had included a general reference to flexibility in its communication, which had since been included in the regular monetary policy press releases. Regarding communication, members highlighted the need to convey a data-dependent approach to monetary policy normalisation, and that the Governing Council was very attentive to the prevailing uncertainties and stood ready to adjust all of its instruments to ensure that inflation stabilised at the 2% target over the medium term. It was stressed that, amid the uncertainties created by the Russian invasion of Ukraine, the Governing Council would ensure smooth liquidity conditions and take whatever action needed to fulfil the ECB’s mandate to pursue price stability and to safeguard financial stability. Reference was also made in this context to the Governing Council’s decision to extend the Eurosystem repo facility for central banks (EUREP) until 15 January 2023, which would be communicated via the ECB’s monetary policy press release. Prevailing uncertainties called for the Governing Council to maintain maximum optionality and flexibility with respect to the future course of monetary policy normalisation. A data-dependent approach was essential for keeping confidence and trust in the ECB’s commitment to deliver on its mandate. It also had to be acknowledged that the ECB was already doing a lot in terms of gradual monetary policy normalisation, with net asset purchases under the PEPP to be discontinued at the end of March in line with the decision taken in December 2021. It was also highlighted that fiscal measures, including at the European level, had an important role to play in shielding the economy from the negative impact of the Russian invasion of Ukraine. Taking into account the foregoing discussion among the members, the President ascertained that all members accepted the policy package proposed by Mr Lane as set out in the ECB’s monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 10 March 2022 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 9-10 March 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kazāks* Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau* Mr Visco Mr Wunsch * Members not holding a voting right in March 2022 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Bitans Ms Buch Mr Demarco Mr Gavilán Ms Donnery Mr Goulard Mr Haber Mr Kaasik Mr Kuodis Mr Kyriacou Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 19 May 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 13-14 April 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 13-14 April 2022 19 May 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments, noting that since the Governing Council’s previous monetary policy meeting on 9-10 March 2022 investor risk sentiment had improved considerably. Euro area equity prices had moved close to the levels recorded prior to the war in Ukraine, sovereign spreads had narrowed, and risk-free yields had increased markedly. At the same time, market-based measures of inflation compensation had continued to creep higher and stood well above the Governing Council’s 2% target over the entire horizon. Developments in sovereign yields in the euro area since the previous monetary policy meeting highlighted three facts. First, the GDP-weighted sovereign yield curve in the euro area had shifted upwards since the March meeting and currently stood considerably above the levels recorded prior to the war across the entire maturity spectrum. Second, the euro area yield curve had become steeper. Third, despite the recent rise, both short and long-term euro area nominal bond yields remained low from a historical perspective. A model-based breakdown of the recent increase in ten-year euro area risk-free rates pointed to two main factors driving the upward shift in sovereign yields since the previous meeting. First, the improvement in the global and euro area macroeconomic outlook and risk sentiment suggested that investors did not see the war’s effect on growth as being sufficiently strong and long-lasting to derail the recovery. The second, and related, factor reflected the anticipated monetary policy response. Consistent with expectations of continued growth and the sharp repricing of the inflation outlook, markets expected a faster pace of monetary policy normalisation in the euro area to bring real yields out of negative territory. Breaking down long-term yields into real rates and the inflation component showed that the rise in nominal long-term interest rates in the euro area since the Russian invasion of Ukraine mainly reflected a marked reappraisal of the inflation outlook by investors, while real interest rates had fallen slightly since March, despite the recent increase in nominal yields. The rising inflationary pressures were also evident from the inflation-linked swap forward curve, which had shifted markedly higher from the already elevated levels prevailing at the time of the Governing Council’s previous monetary policy meeting. This increase in inflation compensation had stemmed from higher inflation risk premia. Genuine inflation expectations had increased only moderately. The sharp rise in inflation risk premia signalled that investors demanded higher compensation for holding inflation risks in their portfolio. The five-year forward inflation-linked swap rate five years ahead, which was a market-based measure of longer-term inflation expectations, stood at around 2.4%. This suggested that even over the longer term investors attached a higher probability to inflation turning out to be higher than expected, rather than lower than expected. Compared with March, the shift in market-based indicators of monetary policy expectations had been substantial. The overnight index swap (OIS) forward curve had become markedly steeper, with market participants pricing in just under a full 25 basis point rate hike in July this year and almost three 25 basis point rate hikes by the end of the year. Thereafter, markets expected the hiking cycle to continue, with six 25 basis point interest rate hikes expected in 2023. This suggested that markets saw the need for substantial policy action to secure medium-term price stability, reflecting the current, very negative, real short and long-term yields. The median participant response to the Survey of Monetary Analysts (SMA) showed that the first interest rate hike was still expected to take place in the fourth quarter of 2022, but the share of SMA participants expecting an earlier lift-off had now increased to around 40%. The expected path after lift-off, however, was substantially shallower compared with the path suggested by market pricing. This possibly indicated that rising term premia, on the back of high remaining uncertainty about the pace of policy normalisation, had contributed to the steeper forward curve, with markets’ genuine expectations probably being somewhat lower than indicated by the forward curve. Higher uncertainty about expected euro short-term money market rates, as priced in by the market, was in line with the premise of the ECB’s “reaction function” becoming more data-dependent. Markets were preparing for a substantially more pronounced US hiking cycle, compared with expectations in March, and now expected the Federal Open Market Committee (FOMC) to hike rates by about 250 basis points over the next 12 months, with the federal funds rate expected to level off at a level above 3%. Moreover, the FOMC had hinted at a rapid reduction in its USD 9 trillion balance sheet, beginning as soon as at its next policy meeting in May. Limited movements in the exchange rate of the euro against the US dollar since the March monetary policy meeting suggested that the recent reappraisal by markets of the euro area monetary policy outlook was offsetting, at least in part, the downward pressure on the euro from the pronounced reappraisal of US monetary policy expectations. At the same time, the depreciation of the euro since the beginning of the year in response to the change in relative monetary policy expectations vis-à-vis the United States had been larger than was suggested by cross-country regularities. Developments in euro area sovereign bond markets were consistent with limited risks of stagnation or recession. Sovereign spreads had been on a sustained downward trend since the Governing Council’s previous monetary policy meeting. Furthermore, the recent strong recovery in equity prices reflected, first and foremost, a reversal of the earlier increase in the equity risk premium, mirroring the improving risk sentiment. A more fundamental factor explaining the resilience of equity prices, and of risk assets more generally, was that the earnings outlook for euro area firms had remained relatively robust, despite the war. Earnings expectations over the next 12 months had, so far, not been lowered. Longer-term earnings expectations had decreased substantially, but had stabilised at very elevated levels. Analysts continued to expect annual earnings growth of about 20% over the next three to five years, compared with a long-run average of around 8%. The cautious optimism displayed by market participants did not mean that investors were dismissing downside risks. As geopolitical risks remained elevated, markets continued to price in heightened tail risks. For instance, downside risks to equity markets remained elevated in the euro area. Another risk emanated from high margin calls in commodity futures markets, which had caused a large increase in the liquidity demand of non-financial corporations that were hedging their energy price exposures. The global environment and economic and monetary developments in the euro area Mr Lane went through the latest economic, monetary and financial developments in the global economy and the euro area. For global developments, the Spring 2022 World Economic Outlook (WEO) projections from the International Monetary Fund (IMF) had significantly downgraded the forecast of world GDP growth for 2022 and also for 2023. The downward revision was very large for Russia but also significant for countries close to the war zone and reliant on Russia for their imports of energy and metals. Global supply chain bottlenecks had started to ease after the turn of the year. However, as a consequence of the war and the new lockdowns in China, that easing was stalling, or even reversing, and forward-looking indicators had started to point to a deterioration in global trade dynamics. The oil price had declined notably from the peaks observed after the Russian invasion of Ukraine. Compared with the day of the March Governing Council meeting, the shorter-run futures path of oil prices was lower, but it was still higher compared with the cut-off date (28 February) for the March ECB staff projections. There had been relatively minor movements in the euro effective exchange rate since the March Governing Council meeting. Taking a longer-term perspective, the euro exchange rate had largely returned to pre-pandemic levels both in effective terms and against the US dollar. Turning to euro area activity, the Russian invasion of Ukraine had led to a spike in uncertainty, as indicated for example by the European Commission’s uncertainty measure. The recent evolution of confidence indicators suggested a deterioration in the short-term outlook, owing to the rise in energy prices, the increased uncertainty and the new wave of supply disruptions generated by the war and the lockdowns in China. However, the outlook for the third quarter was still relatively positive, as a boost from tourism could be expected in the summer. Similarly, the assessment for the fourth quarter remained positive. So far, the assessment was that the war would lead to a temporary slowdown in growth, but not a persistent downgrade. Looking at the components of domestic demand, private consumption was likely to have contracted in the first quarter, with a negative carry-over from the drop in retail sales in December 2021 and the further rise in energy prices hitting incomes. Pandemic restrictions had been lifted, but households had shown a strong negative reaction to the outbreak of the war, with consumer expectations plunging in March. In particular, household expectations regarding their own future financial situation – which generally were a good predictor of consumer spending – had deteriorated sharply. With regard to business investment, the uncertainty shock was expected to be more harmful to investment than consumption. While investment spending plans would certainly be affected by heightened uncertainty, these plans could also be affected by the rise in energy costs. Historically, the data showed a negative relationship between production costs and the profit rate, so it should not be expected that higher costs would be fully passed through to consumer prices. While trade data capturing the outbreak of the war were not yet available, the deficit on the energy and food trade balance had continued to deteriorate since the beginning of the year, as import prices for energy and goods continued to increase. This deterioration was partly compensated for by an improvement in the non-energy and non-food trade balance. The Purchasing Managers’ Index for manufacturing export orders had fallen into contractionary territory in March owing to the war in Ukraine and lockdowns in China. Looking at labour market developments, the unemployment rate continued to decline and the labour market participation rate continued to improve. Across sectors, employment in market services, including tourism, had not yet returned to its pre-pandemic level, while the public sector had been a key driver of job creation, with public sector employment standing about 3% above the pre-pandemic level at the end of 2021. However, in March 2022 household expectations regarding unemployment had increased visibly, albeit much less than at the start of the coronavirus (COVID-19) pandemic. One important factor cushioning the impact of the shock was fiscal policies. The bulk of the euro area measures addressed the hike in energy prices, but part of the new package of measures also increased spending on defence and refugees. Turning to the latest inflation developments, headline inflation in the Harmonised Index of Consumer Prices (HICP) had hit a new high of 7.5% in March, up from 5.9% in February. By far the biggest contribution came from the energy component, with over 4 percentage points. The recent increase in energy inflation was very large and the reaction of the economy could be subject to non-linearities, as the response of the economy – in terms of both inflation and output dynamics – might not be proportional to its response to the usually much smaller fluctuations in energy prices. Breaking down energy inflation, the fuel component, which historically accounted for the largest contribution, had been relatively stable. The recent big increases in energy inflation had instead been due to electricity and gas prices. Food inflation had also been on an upward trend since last summer and had reached 5.0% in March. Goods inflation in March had stood about 2.5 percentage points above its longer-term mean. A significant contribution of about 1 percentage point of this increase was from the pass-through of higher energy costs and from supply bottlenecks. But there was also a significant part that could not simply be attributed to the broadening of the energy shock and the impact of ongoing bottlenecks. Indicators of pipeline pressures signalled that goods inflation, which had historically been very low, would remain high not just in 2022 but also well into 2023. Services inflation had been going up, and a lot of this seemed to be in areas that were reopening. With the normalisation of travel and tourism, entertainment, restaurants and so on, services that had either cut prices or kept them low during the pandemic were now normalising prices or even increasing them by a larger margin. A lot of the indicators of underlying inflation in the euro area – both exclusion-based and model-based – had stood well above 2% in February, and HICP inflation excluding energy and food had risen to 3% in March. However, it remained uncertain how persistent the rise in these indicators would be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices. Regarding the wage outlook, growth in negotiated wages in the euro area had been gradually increasing but had remained moderate in recent months at less than 2%. Forward-looking information from wage agreements, which often spanned more than one year, supported the view that wage pressures would increase only gradually. Nominal wages were usually expected to be equal to the sum of productivity and consumer prices but could be well below that level in 2022, reflecting a decline in the labour share of income and the negative effects of high import prices on consumer prices. Looking at inflation expectations, the April 2022 Survey of Professional Forecasters (SPF) showed that the distribution of individual responses had continued to shift to the right. The mode of the distribution was still at 2%, after averaging well below 2% in the 2019-21 SPF rounds. Overall, longer-term inflation expectations (for 2026) reported in the SPF averaged 2.1%, which amounted to an upward revision from 2.0% in the previous round. In both the SPF and the SMA, inflation was expected to be above 2% in 2022 and was seen as very likely to be above 2% in 2023. But for 2024 there was basically an even chance that inflation would be above or below target. This overall scenario reflected a widespread view of inflation dynamics held by experts at a variety of institutions. Regarding market-based indicators of inflation compensation, these had increased further in the euro area and the increases were particularly large at shorter horizons. For longer horizons, once these indicators were adjusted for risk premia, expectations were by and large around 2%. Turning to financial and monetary developments, financial conditions were broadly unchanged. However, since the March Governing Council meeting the €STR forward curve had shifted up markedly over short and medium-term tenors, with a steep increase seen even when adjusting for risk premia. Comparing the current forward curve with the situation at the time of the December 2021 Governing Council meeting revealed that there had been a remarkable tightening of market rates that were relevant for pricing bank loans and for sovereign bonds. Bank funding costs were increasing, driven by the rise in bank bond yields. However, the upward pressure on overall bank funding costs was limited because banks were relying on other funding sources. Interest rates on customer deposits, which accounted for almost half of bank liabilities, still hovered at historic lows, and the outstanding central bank funding continued to be at very favourable rates. Bank lending rates remained low and had so far been overall broadly shielded from the rise in market rates. According to the latest bank lending survey for the euro area, banks had reported a continued net increase in loan demand from firms in the first quarter of 2022. Banks also reported a net tightening of credit standards on loans to firms in the same quarter, mainly owing to increased risk perceptions and decreased risk tolerance. Moreover, banks expected a considerably stronger net tightening in the second quarter. Banks had reported a net increase in households’ loan demand in the first quarter of 2022. Monetary policy considerations and policy options Summing up, Mr Lane stressed that the adverse economic impact of the Russian invasion of Ukraine combined several mechanisms. It was evident that the war and the associated uncertainty were weighing heavily on business and consumer confidence. In addition, just as the supply disruptions from the acute phase of the pandemic were easing, the war had created new bottlenecks, while a new set of pandemic measures in Asia was also contributing to supply chain problems. Some sectors faced growing difficulties in sourcing inputs, which was disrupting production. The further sharp rises in energy and commodity prices were increasing the production costs of firms and reducing the purchasing power of households. How the economy would develop was crucially dependent on the evolution of the conflict, on the impact of sanctions and on possible further measures. However, there were also offsetting factors, such as compensatory fiscal measures and the possibility for households to draw on savings accumulated during the pandemic. Moreover, the reopening of the sectors most affected by the pandemic and a strong labour market would continue to support incomes and spending. Furthermore, over time, the euro area would find alternative energy suppliers and adapt production technologies to become less dependent on fossil fuels. Overall, the war in Ukraine had substantially increased the risks to the growth outlook, which were clearly skewed to the downside. While risks relating to the pandemic had declined, the war might have an even stronger effect on economic sentiment and could further worsen supply-side constraints. Persistently high energy costs, together with a loss of confidence, could drag down demand and restrain consumption and investment more than expected. Inflation had increased to 7.5% in March, from an already revised 5.9% in February. Energy prices, which had been driven higher after the outbreak of the war and stood 45% above their level one year before, continued to be the main reason for the high rate of inflation. Market-based indicators suggested that energy prices would stay high in the near term but would moderate thereafter. Food prices had also increased sharply owing to elevated transportation and production costs, notably the higher price of fertilisers, which was also related to the war in Ukraine. Core inflation, as measured by the HICP excluding energy and food, had risen from 2.7% in February to 3.0% in March, with an increase in the sectoral inflation rate for both the non-energy industrial goods sector and the services sector. Overall, the recent developments suggested that inflation rates would remain very high in the short term. The war had aggravated the uncertainty about future energy price developments and would influence the pace at which price pressures from global supply bottlenecks would subside. Measures of underlying inflation had increased to levels above 2% in recent months. It was uncertain how persistent the rise in these indicators would be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices. Long-lasting impairments to supply potential were also possible if energy prices persisted at elevated levels. While various measures of longer-term inflation expectations derived from financial markets and from expert surveys were largely around 2%, initial signs of above-target revisions in a number of indicators of inflation expectations warranted close monitoring. Upside risks surrounding the inflation outlook had intensified, especially in the near term. If price pressures fed through into higher inflation expectations and higher than anticipated wage rises, or if supply-side conditions worsened more durably, inflation could turn out to be higher over the medium term. However, if demand were to weaken over the medium term amid a persistent erosion of real incomes by high energy prices and the high cost of other goods and services, this could also ease pressures on prices. Financial markets had been highly volatile since Russia invaded Ukraine. The upward shift in the risk-free curve had so far not triggered a wider repricing of credit risk. Neither had there been severe strains in money markets or liquidity shortages in the euro area banking system. However, since the Governing Council’s March meeting market interest rates and bank funding costs had continued to increase. Bank lending rates for firms and households had so far remained broadly insulated from the increases in market rates, thanks to ample liquidity support, low deposit rates and the overall health of bank balance sheets. Lending to households was holding up, especially for house purchases, while the flow of loans to firms had stabilised. The most recent ECB bank lending survey reported that credit standards on loans to firms and on housing loans had tightened in the first quarter of the year, as lenders became more concerned about the risks facing their customers in an uncertain environment. Participants in the survey expected credit standards to tighten further in the coming months, as banks weighed the adverse economic impact of the war and higher energy prices. Mr Lane stressed that the Governing Council should be very attentive to the current uncertainties and closely monitor the incoming data in relation to their implications for the medium-term inflation outlook. By the June monetary policy meeting there would be more information about the course of the war and its wider ramifications. This would allow the Governing council to assess more extensively the net impact on the economy and inflation dynamics. At the same time, Mr Lane highlighted that the Governing Council could conclude that the data available since the 9-10 March meeting supported the expectation that net asset purchases under the asset purchase programme (APP) should be concluded in the third quarter. Looking ahead, monetary policy would depend on incoming data and on the evolving assessment of the outlook. In the current conditions of high uncertainty, there was a need to maintain optionality, gradualism and flexibility in the conduct of monetary policy. In particular, Mr Lane stressed that the Governing Council should state its readiness to adjust all of the instruments within its mandate, incorporating flexibility if warranted, to ensure that inflation stabilised at 2% over the medium term. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. Russia’s aggression towards Ukraine was affecting the economy, both in Europe and beyond. The conflict and the associated uncertainty were weighing heavily on the confidence of businesses and consumers. Trade disruptions were leading to new shortages of materials and inputs. Surging energy and commodity prices were reducing demand and holding back production. At the same time, economic activity was still being supported by the reopening of the economy after the crisis phase of the pandemic. Looking ahead, how the economy performed was crucially dependent on the evolution of the conflict, on the impact of sanctions and on possible further measures. Inflation had increased significantly and would remain high over the coming months, mainly because of the sharp rise in energy costs. Moreover, inflation pressures had intensified across many sectors. As regards the external environment, members took note of the assessment provided by Mr Lane that Russia’s war in Ukraine and a surge in COVID-19 infections in Asia – with the strict lockdown measures taken by the Chinese government to contain the virus – were clouding the global outlook, amid signs that strains in supply chains had started to increase again. Concern was also expressed about shortages of inputs produced in Russia and Ukraine leading to further strains. The impact of the war in Ukraine would depend on economic sanctions against Russia, which might be extended to oil and gas. This was likely to dampen global growth and raise energy prices further. Turning to euro area developments, the economy had grown by 0.3% in the final quarter of 2021. It was estimated that growth had remained weak during the first quarter of 2022, owing largely to pandemic-related restrictions. Several factors pointed to slow growth also in the period ahead. The war was already weighing on the confidence of businesses and consumers, including through the uncertainty it brought. With energy and commodity prices rising sharply and the war creating new bottlenecks, households were facing a higher cost of living and firms were confronted with higher production costs. Some sectors faced growing difficulties in sourcing their inputs, which was disrupting production. However, there were also offsetting factors underpinning the ongoing recovery, such as compensatory fiscal measures and the possibility for households to draw on savings they had accumulated during the pandemic. Moreover, the reopening of those sectors most affected by the pandemic and a strong labour market with more people in jobs would continue to support incomes and spending. Fiscal and monetary policy support remained critical, especially in the present difficult geopolitical situation. In addition, the successful implementation of the investment and reform plans under the Next Generation EU programme would accelerate the energy and green transitions. Members agreed with Mr Lane that heightened uncertainty was affecting the euro area outlook, along with the negative supply shock driven by the surge in energy and other commodity prices. Uncertainty had reached levels that made any assessment of the future course of the economy subject to very wide confidence bands. The energy shock was eroding real incomes severely. The terms-of-trade “tax” from higher energy prices had now risen to 3.5% of euro area GDP. This was expected to squeeze domestic demand, with fiscal measures mitigating the shock but unlikely to fully offset it. Forward-looking business confidence indicators had weakened substantially, in part owing to an intensification of supply chain disruptions. It was therefore argued that a technical recession in the coming quarters could not be ruled out. At the same time, it was underlined that, overall, the incoming data suggested that the war would slow the recovery but not derail it, unless a less likely “tail” scenario materialised. This was also consistent with financial market developments since the previous Governing Council meeting. In the ECB’s Corporate Telephone Survey (CTS), for example, many firms reported that the impact of the war was being felt primarily in terms of prices and costs, but not in terms of orders and production. While there were significant concerns about future activity, reflecting the high uncertainty, surveys suggested that the immediate impact of the war was more moderate. Recent private sector forecasts continued to predict real GDP growth of around 3% in 2022, with predictions for growth in 2023 largely unchanged from before the war. At this pace of growth, the economy would continue to absorb remaining slack. Finally, it was pointed out that high energy prices were already resulting in a drop in energy consumption, suggesting that the price elasticity of energy might be higher than assumed. The reaction of household spending and saving propensity was considered a key element in the macroeconomic transmission of the Russia-Ukraine war shock. Indicators related to consumer behaviour were deteriorating and consumer confidence had fallen sharply in March. The expectation of weaker demand was spilling over into production and investment plans, with the result that business expectations had also declined sharply in March. The confidence shock to investment could be very substantial and fuelled by an accelerator mechanism, although uncertainty about the ultimate impact on growth remained exceptionally high at this stage. This effect could be aggravated by the impact of the high degree of uncertainty on household saving rates. Possibly renewed higher saving by households and reduced business investment could, in turn, weaken demand. This came at a time when household spending capacity was directly affected by the drop in real incomes owing to higher inflation. In this context, it was remarked that the perceived drop in purchasing power, in addition to the actual drop owing to higher inflation, was also important in and of itself as a determinant of consumption decisions. This applied particularly to households in the lowest quintile of the income distribution. At the same time, it was recalled that the hit to real incomes owing to the rise in energy prices was being cushioned to some degree by fiscal measures at the national level, as well as by accumulated savings that still amounted to more than 12% of annual disposable income. Regarding the fiscal policy response to the Russia-Ukraine war, it was highlighted that government measures could soften the domestic impact of the war on the most affected segments of the population. Positive news was seen to come from a fast-improving labour market, with unemployment falling to a historical low of 6.8% in February. The labour market continued to be very strong – even stronger than had been expected earlier – and the unemployment rate and the ratio of unemployed workers to job vacancies had fallen to record lows. Surveys suggested that firms’ hiring plans remained unaffected by the war. It was pointed out, however, that while public sector employment stood clearly above its pre-pandemic level, employment in the private sector remained somewhat below, in particular when looking at hours worked. Together with workers’ concerns about job security, this was likely contributing to moderate wage growth. Against this background, members assessed the risks to the economic outlook as tilted to the downside. While risks relating to the pandemic had declined, the war in Ukraine might have a stronger effect on economic sentiment and could worsen supply-side constraints again. Persistently high energy costs, together with a loss of confidence, could drag down demand more than expected and constrain consumption and investment. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction. Inflation had increased to a new record high of 7.5% in March, from 5.9% in February. The rise in energy prices after the start of the war had reached an annual rate of 45%. Energy prices continued to be the main contributor to the high rate of inflation, with market-based measures suggesting that energy prices would remain high in the near term but then fall slightly. Nevertheless, price rises had become more widespread. Food prices had increased sharply. This was due to rising transportation and production costs, notably the higher price of fertilisers, which were in part related to the war in Ukraine. Supply bottlenecks, energy costs and the normalisation of demand as the economy reopened after the crisis phase of the pandemic continued to put upward pressure on prices. Measures of underlying inflation had risen to levels well above 2% in recent months. It was uncertain how persistent the rise in these indicators would be, given the role of temporary pandemic-related factors and the indirect effects of higher energy prices, but expected faster growth in wages should support underlying inflation as the economy returned to full capacity over time. While various measures of longer-term inflation expectations derived from financial markets and from expert surveys largely stood at around 2%, initial signs of above-target revisions to those measures warranted close monitoring. Members noted that higher energy prices driven by the war in Ukraine had been the main, but not the only, reason why inflation in March had once again been higher than projected. The war was also putting a lot of upward pressure on global food prices, which was likely to push euro area consumer food prices up further in the future. In addition, high energy prices were now creeping into all sectors of the economy – affecting both manufacturing and services – and making inflation an increasingly widespread and persistent phenomenon. As a result, measures of underlying inflation had risen to levels significantly above 2% and it was now considered unlikely that inflation would return to the ECB’s target in the near term. It was also judged to be relatively unlikely that the drag on private demand from the war would be severe enough to reduce inflation substantially over the medium term. Even if the economic consequences of the war were greater than currently expected, there were a number of factors that would make inflation more persistent than projected at present. One was related to pipeline pressures. Euro area producer prices had increased by more than 30% in January – an all-time high. The war in Ukraine and the pandemic measures in China suggested that pipeline pressures and bottlenecks were likely to intensify further, affecting consumer prices over a relatively long period of time. Moreover, given the size of the energy shock, the pass-through to consumer prices was likely to be greater than in the past and, in an environment of higher inflation overall, consumers could be more willing to accept a stronger pass-through from costs to prices. A second factor related to wages. So far, only a small number of wage contracts had been renegotiated since inflation started to surge. But there could be little doubt that workers would eventually ask for compensation for the loss in real income. And a third factor related to structural upward pressures on inflation. The war had increased the prospects of a further acceleration in the green transition. This could exacerbate supply and demand imbalances in many commodity markets where the prices of many metals were already at record highs. In addition, European governments were trying to actively limit their dependency on global value chains in areas of strategic importance. This could be expected to accelerate “reshoring” efforts, loosening the brake of globalisation on wages and inflation. At the same time, it was argued that given the further rise in energy costs owing to the war in Ukraine it was unsurprising that the March inflation figures had been higher than earlier projections. However, stronger energy price pressures in the short term were not inconsistent with lower inflation in the medium term if the lagged effects of weaker demand outweighed the supply effect of the shock. The issue was rather how fast inflation, which was still rising, would decline towards 2%. In addition, it was pointed out that the current increase in inflation was due to global factors: oil and commodity prices, supply bottlenecks and the war in Ukraine. Unlike in the United States, domestic demand in the euro area was still below its potential. This meant that drivers of domestic price pressures, such as wages, employment and medium-term inflation expectations, were not inconsistent overall with the ECB’s price stability objective. With respect to pipeline price pressures, it was argued that these were mostly affecting annual inflation rates one year ahead and were to some extent distorted by the impact of the pandemic and supply chain disruptions, which should in principle be transitory. What was not clear was the extent to which pipeline pressures could fuel a phase of higher inflation lasting into the medium term. It was also pointed out that energy prices appeared to be already below their peaks of this year and inflation in the coming months could already reflect substantial negative base effects. Members pointed out that it was hard to imagine sustained higher inflation without an increase in wage pressures. While developments in negotiated wages at the euro area level were expected to remain moderate this year, with wage agreements somewhere between 1.5% and 2.5%, evidence from different countries pointed to some heterogeneity. Furthermore, moderate wage demands were to be expected in the current uncertain environment, with workers increasingly concerned about job security. However, the usefulness of hard data on wages for gauging future inflation pressures was called into question, given that wages reacted with a substantial lag to price increases. It was therefore suggested that it was just a matter of time before wage growth caught up, in view of the large and persistent overshoot of the inflation target. The CTS also suggested that pressures for larger wage increases were building up. Moreover, the picture for the wage outlook could change very quickly, as unemployment was at record low levels, strengthening the bargaining position of employees. While only a few euro area countries had formal wage indexation clauses, as one factor explaining higher wage growth than the euro area average, the situation could change over time and there were other mechanisms for restoring lost purchasing power. Overall, there was broad consensus that stubbornly high, and higher than expected, inflation increased the risk of second-round effects arising through wage costs. However, views differed on the extent to which such risks were likely to materialise. On the one hand, it was argued that, given the usual time lags, second-round effects would not necessarily result in higher wage growth in the current year. They were more likely to push wage growth up later in 2023. Waiting for wage growth to accelerate before forming a view on future inflation developments would therefore be misguided, as the upside risk to inflation would then already be materialising and the resulting wage-price spiral would be hard to stop. On the other hand, it was argued that second-round effects on wages would require a structural change in the labour market, and specifically in the structural parameters of the wage Phillips curve, which represented the relationship between wage growth and unemployment. The currently estimated parameters suggested only a very low pass-through from price changes to wages. As there was so far little evidence of structural changes taking place in the labour market, second-round effects through wages were unlikely at the current juncture. As regards longer-term inflation expectations, members took note of the assessments provided by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. It was argued that there were increasing signs that the current high inflation was becoming entrenched in expectations, with a number of indicators of longer-term inflation expectations at least starting to become unanchored from the ECB’s inflation target. In the financial markets, medium and long-term inflation-linked swap rates were now above 2%, even though this was partly due to the risk premia reflected in the rates. Moreover, rising premia implied that investors were demanding insurance against the risk of inflation being above 2%. Private sector forecasts, such as those covered by the SPF, were also moving above 2%. Preliminary evidence from the Survey on the Access to Finance of Enterprises (SAFE) suggested that inflation expectations had become an important factor in determining companies’ future selling prices. Early results from the Consumer Expectations Survey (CES) showed that households’ inflation expectations three years ahead had increased significantly. It was consequently argued that there were some indications of longer-term inflation expectations starting to move away from the target. However, it was also underlined that, in general, financial market indicators of longer-term inflation expectations were around 2%, which was broadly consistent with the ECB’s 2% medium-term target, given that risk premia had to be subtracted from the market swap rates. This did not suggest signs of inflation expectations becoming unanchored. Moreover, against the backdrop of the current large inflation shock, it was regarded as normal that the inflation expectations of households and firms should temporarily rise somewhat. The fact that inflation expectations had increased so little in response to very high inflation rates, despite the fact that households and firms typically adapt their expectations to recent developments, could actually be seen as a sign of the credibility of the ECB’s policy. This muted reaction of inflation expectations was very different from what had happened following the oil shock in the 1970s. Overall, there was wide agreement that while various measures of longer-term inflation expectations derived from financial markets and from expert surveys largely stood at around 2%, initial signs of above-target revisions to those measures warranted close monitoring. Against this background, members assessed the upside risks surrounding the inflation outlook to have intensified, especially in the near term. The risks to the medium-term inflation outlook included above-target moves in inflation expectations, higher than anticipated wage rises and a durable worsening of supply-side conditions. However, if demand were to weaken over the medium term, it would lower pressure on prices. Turning to the monetary and financial analysis, members widely concurred with the assessments provided by Ms Schnabel and Mr Lane in their introductions. Nominal long-term interest rates had been gradually rising, mainly owing to higher inflation compensation, while real long-term interest rates had remained below the levels observed before Russia’s invasion of Ukraine. Short-term nominal interest rates had been rising on expectations of a normalisation of the Governing Council’s monetary policy stance, but also reflected to some extent a tighter monetary policy in the United States. The question was therefore raised as to whether the anticipation of further rate increases would lead to a shift in the timing of consumption and investment by households and firms. It was noted that, in view of the Governing Council’s recent decisions, the dynamics observed in financial markets so far had to be considered benign. The pace of policy normalisation as expected by market participants appeared gradual from a historical perspective, while interest rate spreads between sovereign and risk-free rates had remained contained. This was in part seen as testimony to the efforts to strengthen the euro area banking and financial system, which was much more robust than it had been a decade ago. Overall, financing conditions were assessed as favourable, with real rates remaining in negative territory and at historical lows. It was remarked that the euro exchange rate had stabilised, although its future dynamics would depend on the relative monetary policy stances in the euro area and the United States. The argument was made that smaller interest rate differentials would strengthen the euro, directly lowering the import cost of commodities priced in US dollars. This would counter inflationary pressures, while it could also exert a negative effect on economic activity. According to the most recent euro area bank lending survey, a further tightening of credit standards on loans to firms and on housing loans had to be expected in the coming months. This was likely to dampen lending growth and could give rise to tensions in credit supply. It was highlighted that banks’ funding costs were increasing. If banks also tightened their lending standards as the survey suggested, this could translate into a higher cost of bank borrowing for the private sector. Indeed, mortgage rates offered by non-bank lenders had risen noticeably in a few jurisdictions, leading to a tightening of financing conditions even before any change in the ECB policy rates. However, it was also pointed out that bank lending rates for firms and households had so far remained broadly insulated from the increases in market rates, and credit conditions did not currently signal lending constraints for the non-financial sector. Furthermore, it was cautioned that the more restrictive stance reported in the bank lending survey might in part represent a normalisation after a period of very favourable conditions. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members widely expressed concern over the high inflation numbers, which had become a major issue for households and businesses. Both headline and underlying inflation were at historically high levels, with price pressures extending well beyond energy. If owner-occupied housing costs had been included in the HICP, underlying inflation would have been even higher, by 0.7 percentage points, in the fourth quarter of 2021. It was noted that various indicators of longer-term inflation expectations had been creeping up, with an increased risk of inflation expectations becoming unanchored from the target. At the same time, it was also argued that developments in market-based indicators of longer-term inflation expectations could still generally be interpreted as positive, suggesting it was more likely than a few months earlier that the Governing Council’s 2% inflation target would be met on a sustained basis. Against this background some members viewed it as important to act without undue delay in order to demonstrate the Governing Council’s determination to achieve price stability in the medium term. Such action was deemed necessary to prevent the temporary bout of higher inflation from becoming entrenched and to prevent inflation expectations from rising further from the Governing Council’s target, which would make it significantly more costly to bring inflation back to the target. These members judged that the highly accommodative monetary policy stance, which had been appropriate when inflation expectations risked becoming unanchored to the downside, was no longer consistent with the inflation outlook, which was characterised by high inflation levels and increasing inflation expectations. At present monetary policy was still contributing to stimulating the economy as real interest rates remained in deep negative territory. Past projection errors, for both headline and underlying inflation, were contributing to these concerns. Many of the upside risks to the inflation outlook that the Governing Council had already discussed last summer had materialised even before the war started. These included more persistent supply and demand imbalances, and the fact that the futures curve on which the energy price assumptions were based might not be a good predictor of future energy price pressures. Other members argued, however, that adjusting the monetary policy stance too aggressively could prove counterproductive, as it would lower growth while inflation remained elevated because monetary policy was unable to address the immediate causes of high inflation. The sequence of measures decided by the Governing Council at previous meetings to normalise the monetary policy stance were recalled. These measures included the decrease in net asset purchases; the phasing-out of the pandemic emergency purchase programme (PEPP), of the pandemic emergency longer-term refinancing operations (PELTROs) and of the special interest rate on the targeted longer-term refinancing operations (TLTROs); and the communication of the expected end of the APP in the third quarter of 2022. It was highlighted that the ongoing normalisation was visible in market interest rates and could be expected to weigh on the economy in the coming quarters. However, the view was also expressed that real rates remained exceptionally low and the dampening of aggregate demand as a result of higher nominal rates would be insufficient to bring inflation back to 2% in the medium term without a further adjustment of the monetary policy stance. Monetary policy decisions and communication All in all, members widely shared the view that the gradual normalisation of the monetary policy stance, which the Governing Council had started at its December meeting, should be continued and had to be adjusted to the medium-term inflation outlook, which had changed since that time. Given the Governing Council’s current assessment of the medium-term inflation outlook and the highly accommodative monetary policy stance, there was broad agreement that the Governing Council should express its judgement that the data received since the last meeting reinforced its expectation that net asset purchases under the APP should be concluded in the third quarter. The view that net asset purchases should end sooner rather than later in the third quarter was widely expressed. Looking ahead, members voiced some nuances related to the appropriate pace of the gradual normalisation. On the one hand, some members viewed the higher than expected inflation figure in March and inflation expectations moving above the 2% target as requiring an adjustment of the monetary policy stance towards a neutral position sooner rather than later and a modification of the Governing Council’s inflation narrative in line with the stated data-dependency of its monetary policy. This implied that net asset purchases should be ended as soon as possible, opening the possibility for a first interest rate hike shortly after. It was noted that if the upside risks to the inflation outlook were confirmed in the June Eurosystem staff macroeconomic projections, the Governing Council would face the question of whether continuing net purchases beyond June could still be seen as proportionate. A risk was also seen that, if the Governing Council did not signal a faster policy normalisation process, inflation expectations would continue to rise further from a level which was already above the Governing Council’s target. It was stressed that the assessment of the outlook had evolved substantially since March and that, if these changes to the outlook were confirmed in June, concrete steps to accelerate the pace of policy normalisation would be required to ensure that inflation stabilised at 2% over the medium term. Such a path was seen as safeguarding optionality while remaining within the boundaries of the Governing Council’s policy guidance and thereby avoiding an increase in perceived policy uncertainty. It would also help to demonstrate the Governing Council’s readiness to adjust its tools as appropriate, thereby strengthening its credibility to deliver on its mandate. In this context, it was also recalled that acting too late could lead to a materialisation of second-round effects and might have high economic, financial stability and credibility costs if the Governing Council were forced to tighten more aggressively at a later stage in order to re-anchor inflation expectations. It was argued that, while it typically took some time for higher expected inflation to be reflected in wage-setting, the opposite process was also lengthy; if higher inflation expectations became entrenched in wage agreements, lowering inflation would become harder. In this context, experience from the 1970s was referred to as having demonstrated how essential a commitment to price stability was for the ability of monetary policy to contain inflationary effects of adverse supply shocks. Other members, however, maintained that the gradual normalisation process embodied in financial market expectations was consistent with longer-term inflation expectations remaining anchored at 2% and did not require a reappraisal of the monetary policy path. This would not support accelerating the timing of any restrictive measures, including in relation to the end of net asset purchases. In view of the stability of the longer-term inflation outlook, embodied both in market-based indicators and the March baseline ECB staff projections, a shift in the monetary policy guidance from a gradual normalisation to a more aggressive and accelerated tightening did not seem justified. Considering the high uncertainty surrounding the medium-term outlook for price stability, it seemed advisable to proceed with further actions very carefully. It was also noted that being too proactive in the normalisation of the stance could prove costly if it resulted in financial market turbulence or had to be reversed later. A gradual normalisation was also deemed consistent with the estimated low level of the natural interest rate in the euro area, which implied that even relatively small steps might be sufficient to turn the current accommodative monetary policy stance into a restrictive stance. Model-based estimates suggested that the natural real interest rate was still negative, although it had to be acknowledged that uncertainty surrounding the estimated values was high. Moreover, there was a gap between estimates for the US and euro area natural real interest rates, which might be explained partly by differences in productivity, labour supply and demographics as well as the level of excess liquidity. Notwithstanding the low level of the natural rate, it was recalled that the expected path of the nominal key ECB interest rates would approach a neutral level only at a very late stage of the policy normalisation process. Overall, the view prevailed that, in the light of the heightened uncertainty resulting from the still ongoing effects of the pandemic and the war in Ukraine, optionality, gradualism, and flexibility remained important features of the Governing Council’s monetary policy conduct. In particular, it was seen as advisable to maintain optionality and defer a decision regarding the precise timing of the end of net asset purchases until the Governing Council’s June meeting, which would allow the Governing Council to benefit from additional data and the new Eurosystem staff projections. As uncertainty was exceptionally high, different scenarios for future developments in the inflation outlook could be envisaged. It was also highlighted that Mr Lane’s proposal left all options open for decisions to be taken at the June meeting. In particular, the proposal was seen as consistent with the possibility of deciding to end net asset purchases already at the end of the second quarter or early in the third quarter. All in all, members agreed that the monetary policy proposal by Mr Lane in his introduction was in line with keeping all optionality, in the light of the current high uncertainty, and would allow the Governing Council to reassess the inflation outlook on the basis of the incoming information at its June meeting. This approach implied, on the one hand, that the Governing Council remained on its course of a gradual normalisation of monetary policy, consistent with its forward guidance that interest rates would be raised some time after the end of net asset purchases. On the other hand, considering that “some time” had been defined as a period between one week and several months at the March press conference, the approach did not prevent a timely rate rise if conditions so warranted. As regards the forward guidance on interest rates, the view was expressed that the criteria for interest rate hikes were already clearly met. In this context, it was stressed that the Governing Council should pay the same attention to longer-term inflation expectations moving above target as it had when inflation expectations had fallen below target in the past, in line with the Governing Council’s commitment to “symmetry”. Otherwise there was a risk of “falling behind the curve”. Overall, however, it was judged that the forward guidance conditions for an upward adjustment of the key ECB interest rates would become crucial for the policy discussion at the Governing Council’s June meeting. This pertained both to the two criteria applicable to the projected path of inflation and to the third condition, i.e. that the realised progress in underlying inflation be sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. Although spreads between sovereign bond yields and risk-free rates had remained broadly stable since the last Governing Council meeting, it was deemed important to address a possible resurgence of fragmentation in euro area financial conditions, if necessary, in order to ensure a continuous transmission of monetary policy throughout the euro area. Reference was made to the “separation principle”, i.e. the idea that the appropriate monetary policy stance could be set independently of the deployment of instruments designed to avoid a sudden disruption of financial markets that could be triggered by a tightening of the stance. The argument was made that flexibility should be a permanent feature of the Governing Council’s toolbox, and all of the ECB’s instruments could be adjusted within the mandate, incorporating flexibility if warranted, to ensure that inflation stabilised at the Governing Council’s 2% target over the medium term. In addition, it was recalled that the reinvestment of assets purchased under the PEPP could be used to address possible episodes of financial market tensions related to the pandemic, if needed. Regarding communication, members broadly agreed that the policy guidance that had been provided in March should be confirmed and the consistency of future action with that guidance should be emphasised, while asserting that the Governing Council would continue to act according to the established principles of flexibility, optionality and gradualism. Although communication had to acknowledge the increase in inflation and its detrimental effects on households’ cost of living, as well as real wealth and disposable income, the view was expressed that the Governing Council needed to be careful to not create the impression that monetary policy was able to address high energy inflation, which was driving a significant part of current inflation figures. Instead, the ECB’s communication had to underline the need for monetary policy to address the persistence of inflation that could result from second-round effects, and avoid creating the perception of inaction in the presence of high inflation figures. Finally, the Governing Council had to emphasise that it was willing to take whatever action was needed to fulfil the ECB’s mandate to pursue price stability and to bring inflation back to 2% over the medium term. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the ECB’s press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 14 April 2022 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 13-14 April 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Elderson Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kazāks* Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus* Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Visco* Mr Wunsch * Members not holding a voting right in April 2022 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Bitans Ms Buch Mr Cassidy Mr Demarco Ms Donnery Mr Gavilán Mr Gilbert Mr Goulard Mr Haber Mr Kaasik Mr Koukoularides Mr Kuodis Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rosalino Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 7 July 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 8-9 June 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Amsterdam on Wednesday and Thursday, 8-9 June 2022 7 July 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments. Since the Governing Council’s previous monetary policy meeting on 13-14 April 2022, there had been a major shift in monetary policy expectations and actions around the world as inflation had continued to surprise to the upside. The main developments in financial markets revolved around four main themes. First, volatility in financial markets was high by historical standards, reflecting the longer than expected persistence of high inflation and the associated uncertainty about the extent and pace of monetary policy adjustment required to restore price stability over the medium term. Second, monetary policy normalisation in the euro area was expected to proceed at a significantly faster pace than at the time of the Governing Council’s 13-14 April meeting, with a rate lift-off expected in July. Third, expectations of a steeper policy path contributed to halting and partly reversing both the rise in inflation risk premia and the marked depreciation of the euro, thereby offsetting part of the renewed rise in oil prices. Fourth, changes in monetary policy expectations had brought the valuations of riskier assets closer to their long-term averages, in both fixed income and stock markets. The increase in volatility witnessed globally over the previous few months had been reflected in higher implied volatility across virtually all main asset classes: bonds, equities and foreign exchange. The higher volatility went hand in hand with a deterioration in market liquidity. While such volatility was not surprising at turning points in monetary policy, its magnitude had been amplified by the combination of shocks hitting the world economy: the war in Ukraine, the energy transition, global excess demand and China’s zero-COVID policy. Three sources of policy uncertainty were behind the current volatility: (i) the extent of the required policy adjustment, (ii) the pace of the policy adjustment, and (iii) the transmission of changes in policy rates to market interest rates and bank lending rates. Regarding the first source of uncertainty, related to the extent of the required policy adjustment in the euro area and other major currency areas, investors had significantly repriced expected terminal rates – the peak interest rates expected by markets at the end of the normalisation or tightening cycle not corrected for term premia. This strong repricing of terminal rates had been a major factor in the recent increase in nominal long-term bond yields. While, in 2021, the rise in nominal ten-year overnight index swap (OIS) rates had been driven by rising inflation compensation, the real ten-year rate had increased markedly in 2022. Market feedback suggested that the uncertainty about the extent of policy normalisation was driven by two main factors: uncertainty about the level of the neutral rate, and hence the level of the equilibrium real rate of interest, and uncertainty about the need to take policy rates above the neutral rate. The second source of uncertainty, which related to the pace of policy adjustment, meant markets had not only repriced the terminal rate but were also expecting a significantly swifter policy normalisation than at the time of the Governing Council’s 13-14 April meeting. Surveys continued to lag market prices. The pace of policy adjustment expected by investors was dependent on the perceived degree of anchoring of longer-term inflation expectations. Survey-based measures of inflation expectations gave different indications regarding the risks of unanchoring, depending on the underlying sample. Market-based measures of long-term inflation compensation had declined from their decade-high level recorded in April but had started to rise again lately and remained above 2%. These developments reflected markets’ changing views on the likelihood of a recession, in particular market expectations of a resilient growth outlook, as well as the ECB’s communication pointing towards a rate lift-off in July. The ECB’s communication had been an important factor behind the decline in inflation risk premia at longer horizons, as it emphasised the commitment to protect price stability. The third source of uncertainty in financial markets related to the expected strength of the transmission of changes in the key ECB interest rates to money market and bank lending rates. The weaker the expected transmission, the stronger and swifter the required policy adjustment in the eyes of investors. The strength of policy transmission also depended on the extent and expected pace of a decline in excess liquidity. Excess liquidity was now expected to decline more slowly than previously assumed. This was because higher expectations of a prospective rise in the key ECB interest rates would lead banks to postpone repayment of the funds from targeted longer-term refinancing operations (TLTROs). Changes in policy rate expectations had been transmitted to broader financial markets. Equities had sold off as expected, coming down from the elevated levels that had been underpinned by historically low real interest rates. At the same time, since the 13-14 April monetary policy meeting, euro area stock markets had outperformed other indices despite expectations of a steeper policy path. In euro area fixed income markets, spreads had continued to widen as markets repriced the future path of policy. Despite challenging liquidity conditions and elevated volatility, neither sovereign bond markets nor corporate bond markets had seen excessive moves. However, there had been a marked differentiation across issuers. Spreads had increased the most in Italy and Greece, where debt-to-GDP ratios were highest, and for corporate high-yield issuers, for whom credit risk was the largest. Spreads had increased less in Spain and Portugal and for corporate investment grade issuers. Although expectations of monetary policy tightening had firmed almost everywhere, the euro had appreciated visibly against the currencies of many advanced economies since the Governing Council’s meeting on 13-14 April. The US dollar was the most notable exception. The marked and persistent depreciation of the euro against the US dollar, the currency in which oil imports were predominately invoiced, had tangible and immediate effects on inflation, and therefore on inflation expectations. Since May 2021, oil prices had increased by 88% in US dollar terms but by 111% in euro terms. At the same time, the ECB’s communication since the start of the year had provided a counterweight to the downward pressure on the euro that had resulted primarily from the forceful action of the Federal Reserve System. All in all, the outlook for inflation and hence for monetary policy would remain a key driver of asset prices for the foreseeable future. In this context, higher volatility was a natural reflection of price discovery in an environment in which central banks found it harder to provide clear forward guidance given the uncertainty around the policy outlook. The global environment and economic and monetary developments in the euro area Mr Lane went through the latest economic, monetary and financial developments in the global economy and the euro area. Starting with the international environment, there had been a noticeable slowdown in the global trade of goods in the first quarter of 2022. The most recent data for March pointed to the contraction being largely driven by developments in China. As lockdown measures there had continued into the second quarter, it was likely that the loss of global trade momentum would persist. The war in Ukraine and the lockdown in China had interrupted the easing in global supply pressures in March. In the euro area, Purchasing Managers’ Index (PMI) delivery times had deteriorated in March, but in May there was some improvement. Looking at exchange rates, the euro was marginally weaker against the US dollar, while it had appreciated slightly in nominal effective terms since the Governing Council’s 13-14 April meeting. Oil prices had increased notably since the April meeting. The June Eurosystem staff macroeconomic projections for the euro area were therefore based on higher oil prices, but the slope of the futures curve remained negative. Other commodity prices had moderated since the meeting, with gas, metals and food prices declining. The June staff projections had seen a significant downward revision of world growth, with the projection for 2022 down from 4.1% to 3.0%. The lower projected growth implied a downward revision of euro area foreign demand, especially in 2023. Turning to the euro area, real GDP had grown by 0.6% in the first quarter of 2022 according to Eurostat’s latest estimate. However, excluding Ireland, euro area GDP was up by only 0.3%. The contribution of domestic demand to euro area growth had been negative, amid the lockdowns at the start of the quarter and the outbreak of the war in Ukraine. The June staff projections had revised the quarterly GDP profile down but still embodied a significant recovery over the summer and into the fourth quarter. Short-term estimates were subject to high uncertainty for the rest of the year. The projections had generally been within the range of the available short-term forecasting tools, but the range of these estimates was wide on account of the high uncertainty. Indicators of uncertainty had risen sharply following the outbreak of the war, especially for manufacturing and, to a lesser extent, services. The PMI composite indicator was still above 50, but the PMI for manufacturing output had fallen as the indicator of services business activity had risen. With regard to private consumption, households were increasingly feeling the squeeze on their real incomes from rising energy and food prices. The Consumer Expectations Survey showed that households did not expect to be able to maintain consumption in real terms. The survey also pointed to a reduction in saving flows. Housing investment was affected by a jump in input costs. Construction used materials that relied on imported commodities. As a result, shortages of materials and equipment continued to accumulate in the construction sector. Rising construction costs were expected to put a break on growth in housing investment. The Consumer Expectations Survey indicated that the perceived attractiveness of housing as an investment was decreasing. The elevated uncertainty was expected to weigh on housing investment over the course of the year. Data on capital goods production had shown a significant recovery at the end of 2021 with the rebound in car production. Following the outbreak of the war, however, production in the sector had seen little progress. The euro area goods trade balance had deteriorated owing to the rising cost of imported energy and food. The overall trade balance had deteriorated by about 4 percentage points since the start of 2021, of which about 2.5 percentage points was due to the energy and food balance. This captured the real income cost of having to pay more money to the rest of the world. A key reason for the good third-quarter prospects was tourism, by far the sector hit hardest by the pandemic. All available indicators were pointing to a very strong recovery, with expectations for demand in the summer months well above their pre-pandemic levels. For the labour market, the evidence suggested that the very good recovery had continued in the first quarter of 2022. Growth in employment was overall consistent with a return to the pre-pandemic relationship between GDP and employment, after the break caused by the pandemic and the support measures put in place. This also meant that the recovery in economic activity currently explained most of the recovery in employment. The unemployment rate had declined again in April, in particular in countries such as Spain, where the recovery in tourism had helped to create jobs. Survey data continued to signal favourable labour market developments. Turning to fiscal policies, the June staff projections had incorporated a significant amount of new support measures related to the war and compensation for energy price increases. These new measures amounted to roughly 1% of GDP for the euro area as a whole, with the figure varying across countries. GDP growth was expected to be supported mainly in 2022, as some of the measures were likely to be withdrawn later in the forecast horizon. Their impact on inflation was expected to be on the downside in 2022 and to largely reverse in 2023, owing to the temporary nature of the energy compensation measures. In terms of euro area fiscal balances, a gradual rolling back of the deficit continued to be expected, although the new projections signalled slower progress than foreseen in March. Nonetheless, thanks to the higher nominal GDP, the debt-to-GDP ratio was still expected to decline despite higher interest payments. Moving on to the latest inflation developments, headline inflation had increased further in May, with the largest contribution again from energy. All categories of energy inflation, not only fuel, were important factors behind the evolution of energy inflation. However, the contributions of all categories of the Harmonised Index of Consumer Prices (HICP) had increased. The May outcomes for both headline HICP inflation and HICP inflation excluding energy and food were above the June staff projections. While forecast errors were made in all components, the largest was in food inflation. The intensification of pipeline pressures was one reason for the upward revision of the inflation projections for 2023 and, to some extent, for 2024. Pipeline pressures could take a long time to be transmitted to headline inflation, but one of the key uncertainties was that there could currently be a faster pass-through because of the scale of the increases in pipeline pressures. At the same time, a faster pass-through could also mean a shorter adjustment period afterwards, so that the pass-through could lead to a stronger effect on inflation in the near term, but a weaker effect once the price level had adjusted. Core inflation had clearly risen. Continued analysis was needed of those components of core inflation that were moving up. It was often the case that all components of core inflation rose together, which could be described as a general inflation impulse. By contrast, current core inflation was essentially characterised by a lot of relative price movements as a result of the reopening of certain sectors. For goods inflation, staff analysis showed that energy prices and bottlenecks accounted for about 0.8 percentage points and 1 percentage point of the increase respectively. However, goods inflation might also have been affected by the green transition. The recovery in domestic demand was also playing a role. Services inflation was not developing in the same way across all sectors. Contact-intensive sectors were contributing the most to the increase in services inflation. The oil-sensitive services sectors were also seeing a large increase in their contributions to services inflation, suggesting that energy was also having significant indirect effects on services inflation. Overall, the reopening of the economy and energy price increases explained much of the dynamics in services inflation. Moving to wages, growth in negotiated wages had seen a considerable increase in the first quarter, largely owing to one-off payments. When excluding these, the increase was considerably more moderate. The forward-looking wage tracker for the euro area, which was an aggregation of data for four of the euro area’s five largest economies, indicated that wage growth obtained on the basis of what had been negotiated this year and covering also next year was around 3% in 2022 and 2.6% in 2023. This represented an increase from the current figure for negotiated wages, but the increase was well below what Eurosystem staff were projecting in terms of aggregate wage dynamics. Wage expectations remained contained according to the Consumer Expectations Survey. Looking at how firms were coping with the spike in costs, unit profits had weakened significantly in the first quarter of 2022, after increasing steadily during 2021. This seemed to suggest that rising input costs meant that unit profits had to absorb them. The latest Survey on the Access to Finance of Enterprises indicated – based on qualitative replies – that firms in most industries expected to increase their selling prices over the next 12 months. This applied, in particular, to those sectors that had seen the highest cost increases, namely construction, industry and trade, while the share of respondents expecting higher increases in services was smaller. Turning to the assumptions in the June staff projections, Mr Lane noted that, compared with the December 2021 staff projections, the oil price was almost 40% higher. At the same time, the trade-weighted exchange rate of the euro for 2022 was currently 1.4% weaker, while the exchange rate against the US dollar was four times weaker than the trade-weighted exchange rate. Long-term yields were also 116 basis points higher for 2022 than expected last December, and short-term yields were 44 basis points higher. Developments in oil and exchange rates had played a major role in inflation forecast errors, but the inflation rate would have been even higher without the tightening of assumptions that had taken place in 2022. The June staff projections also contained a wealth of sensitivity analyses and a downside scenario. This was a way to capture non-linearities. Regarding financial developments, since the 13-14 April Governing Council meeting euro area risk-free rates had increased further as market participants revised their expectations of an earlier tightening of monetary policy. However, correcting the forward curve for risk premia gave indications similar to those in the latest Survey of Monetary Analysis. It was important to note that, in the course of 2022, a significant increase and steepening of real interest rates could be observed. Since the Governing Council meeting on 15-16 December, looking at the term structure of real forward rates, there had been a 1.5-percentage point increase in real forward rates at the very long end for the one-year forward rate nine years ahead contract. From the two-year forward rate contract onwards, there had been an increase in real rates of around 1 percentage point or more. With regard to inflation expectations, those reflected in the Survey of Monetary Analysts had previously fallen to below 2% for 2024 but were now expected to be at 2% from 2024 onwards and to stay there durably. So this survey was closely aligned with the view that inflation would come down to close to target in 2024 and stay there. Market-based measures of inflation compensation still saw inflation peaking in the very near term and declining across maturities thereafter. Price-level effects were permanent, but it remained the case that market participants envisaged a sizeable reduction in inflation dynamics. Masked by the recent slight decline, longer-term measures of inflation compensation, such as the five-year forward inflation-linked swap rate five years ahead, had temporarily increased well above target since the last meeting. Estimates of genuine inflation expectations at the five-year horizon five years ahead – obtained by purging plain market data of inflation risk premia – had also increased recently. These estimates, including those from new models with a shifting endpoint, now stood closer to – but still below – 2%, amid high model uncertainty. Allowing for the treatment of risk premia, the expectation that inflation would come back to the target remained the narrative. However, the inflation risk premium was capturing the upside risks. For consumer inflation expectations three years ahead, the Consumer Expectations Survey for April pointed to a slight decline since March, with the median down from 2.9% to 2.7%. In May, there was a further slight decrease to 2.5%. At the same time, the results indicated heightened uncertainty. Moving to lending to firms and households, flows remained positive. Credit growth to firms had remained positive, but that was partly a rotation away from bond issuance, which had become more expensive than bank borrowing. The picture for households was mixed, as there had been some recovery in credit for consumption but still not to the pre-pandemic level. It remained the case that, in aggregate, households still had a lot of savings. On financing costs, so far bank lending rates and credit conditions had, by and large, been insulated from the increase in market rates. This was explained by the fact that deposit rates remained low and deposit funding remained readily available, as people were still holding a lot of money in deposits. Mortgage rates were picking up more in some countries than in others, displaying some correlation with sovereign yields and with bank deposit rates, although there had not yet been a significant pass-through. There were so far no strong signs of a big slowdown in mortgage lending, but this picture might change rapidly, as in some countries mortgage rates had already moved significantly. Monetary policy considerations and policy options In summary, Mr Lane stressed that there had been a further significant increase of 8.1% in HICP inflation in May, up from 7.4% in April. HICP inflation excluding energy and food had increased to 3.8%, from 3.5% in April. The higher rate reflected a rise in both non-energy industrial goods inflation, from 3.8% to 4.2%, and services inflation, from 3.3% to 3.5%. So far, negotiated wage growth in the euro area had remained moderate, especially when excluding one-off payments. The forward-looking wage tracker that incorporated the latest wage settlements showed an uptick in nominal wage increases but still at a moderate pace. Nevertheless, wage formation warranted careful monitoring, particularly in a context in which the labour market had become tighter and some countries were implementing increases in minimum wages. The future path of headline inflation had been revised up significantly in the June staff projections, especially for the near term. These projections indicated that inflation would remain undesirably elevated for still some time. Over the projection horizon, wage growth was now expected to rise to levels well above the historical average. HICP inflation was projected to stand at 6.8% in 2022 (1.7 percentage points higher than in the March staff projections), before declining to 3.5% in 2023 (1.4 percentage points higher) and further to 2.1% in 2024 (0.2 percentage points higher). This meant that headline inflation in the final year of the projection horizon was projected to be slightly above target. The decline over the projection horizon reflected the moderation in energy and food commodity prices that was embedded in current futures prices, the fading of pandemic effects, a gradual easing of supply bottlenecks and the normalisation of monetary policy. HICP inflation excluding energy and food had also been revised up over the entire projection horizon. It was now expected to be 3.3% in 2022 (0.7 percentage points higher than in the March staff projections), 2.8% in 2023 (1.0 percentage point higher) and 2.3% in 2024 (0.4 percentage points higher). The upward revision reflected the ongoing reopening of the economy, especially in some services, the re-emergence of some supply disruptions, tightening labour markets and a pick-up in wage increases. At the same time, core inflation was expected to decline over the projection horizon owing to the fading impact of the pandemic, the easing of bottlenecks and the indirect contribution of the current surge in energy prices falling away. The assumption that longer-term inflation expectations remained well anchored and the rising level of market interest rates throughout the projection horizon also contributed to a sustained decline in headline inflation towards the ECB’s target by the end of 2024. Most measures of longer-term inflation expectations derived from financial markets and from expert surveys stood at around 2%. At the same time, initial signs of above-target revisions in those measures warranted close monitoring. Risks to inflation projections were primarily on the upside, especially in relation to 2022 and 2023. The risks to the medium-term inflation outlook included a durable worsening of the production capacity of the economy, higher energy and food prices, longer-term inflation expectations rising above the ECB’s target and higher than anticipated wage rises. However, if demand were to weaken over the medium term, it would lower pressures on prices. Turning to the growth forecast in the June staff projections, countervailing forces had resulted in a marked downward revision to real GDP growth for 2022 and 2023. Real GDP growth was now expected to be 2.8% in 2022 (0.9 percentage points lower than in the March staff projections) and 2.1% in 2023 (0.7 percentage points lower). However, stronger growth, at 2.1%, was expected in 2024 owing to catch-up effects (0.5 percentage points higher than in the March staff projections). Taken together, the revisions implied a lower level of GDP throughout the projection horizon. Risks relating to the pandemic had declined but the war continued to be a significant downside risk to growth. In particular, a major risk would be a further disruption in the energy supply to the euro area, as reflected in the downside scenario included in the staff projections. Furthermore, if the war were to escalate, economic sentiment could worsen, supply-side constraints could increase, and energy and food costs could remain persistently higher than expected. Markets had priced in a sequence of ECB rate hikes. Increases in risk-free rates had been amplified in euro area sovereign bond yields and corporate bond yields, while bank lending rates were also starting to rise. Lower equity prices had also contributed to a tightening in financial conditions. On the basis of this updated assessment, it was appropriate to take further steps in normalising monetary policy: First, the Governing Council should announce that net asset purchases under the asset purchase programme (APP) would end as of 1 July. This would be consistent with communication after the March and April meetings and in line with the stated sequencing, i.e. the prior action opening the door to a first rate hike at the July meeting. Furthermore, the Governing Council should reiterate and update its forward guidance on the length of the horizon for full reinvestment under the APP. Rather than referring to the need to maintain “favourable liquidity conditions and an ample degree of monetary accommodation”, which up to now had been the Governing Council’s language on the reinvestment period, it should state the need to ensure “ample liquidity conditions and an appropriate monetary policy stance”. Second, the Governing Council should communicate that it saw the conditions of its forward guidance on raising the ECB’s policy rates as satisfied. The first condition of the forward guidance stated that inflation should be seen reaching the target of 2% well ahead of the end of the projection horizon. The second condition required inflation to be stabilising at that level durably for the rest of the projection horizon. In fact, the June staff projections saw inflation exceeding the target by a wide margin in 2023 and, more moderately, for a substantial part of 2024. The third condition stipulated that the realised progress in underlying inflation needed to be judged as sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. The most recent data confirmed that underlying inflation dynamics were strengthening and broadening. First, core inflation was expected to stand above target over the entire projection horizon – albeit on a declining path. Second, a wide range of statistical filters, used to extract the underlying common factor and time trend explaining price changes cross-sectionally and over time, suggested that inflation dynamics were not likely to return to the pre-pandemic below-target configuration. Third, the latest wage settlements were also in line with a stronger trend consistent with inflation stabilising at the target in the medium term. Accordingly, and in line with the ECB’s policy sequencing, the Governing Council should express its intention to increase the key ECB interest rates by 25 basis points at its monetary policy meeting in July. The Governing Council should also state that it expected to raise the key ECB interest rates again in September and signal that the scale of the rate increase in September would depend on the updated medium-term inflation outlook. There were several factors justifying the signal that the intended first increment in July should be 25 basis points. First, a moderate initial increase was most likely to foster a continuing orderly market adjustment amid high uncertainty. Second, longer-term inflation expectations remained anchored at the ECB’s target. Third, based on a yield curve that reflected underlying expectations of a gradual but sustained sequence of rate increases over 2022 and 2023, inflation was projected to return close to target in 2024. Fourth, the most effective way to manage the upside risks to medium-term inflation was to be clear about the ECB’s reaction function. This meant communicating that larger increments or a faster sequence of moderate rate increases would be appropriate if such risks intensified or materialised. Given the current projections and the high degree of uncertainty, a larger, pre-emptive initial increment ran the risk of triggering excessive adjustments in market interest rates. That could be counterproductive, especially if the upside risks failed to materialise. Moreover, in terms of inflation dynamics, which in any event would only be affected with a considerable lag, deferring a larger increment to a subsequent meeting would not make a material difference. These considerations suggested that a 25-basis point increment was a proportionate first step. In addition, opening the door to a larger increment in September would also allow the Governing Council to benefit from an updated set of projections and from observing the impact of the first rate hike on financial conditions over the summer. This step-by-step approach to interest rate adjustment during the third quarter would signal determination to exit the negative rate policy expeditiously, while also reasserting the value of optionality in a context fraught with multiple sources of risk. More generally, the Governing Council should be clear that the future path of policy interest rates would be data-dependent and determined by its commitment to stabilise inflation at 2% over the medium term. Looking beyond the third quarter, the Governing Council should signal that, based on its current assessment, it anticipated that a gradual but sustained path of further increases in interest rates would be appropriate. The pace at which the Governing Council adjusted its monetary policy would depend on the incoming data and how the Governing Council assessed inflation to develop in the medium term. If the medium-term inflation outlook were to deteriorate, the pace of rate increases would accelerate. Likewise, if the medium-term inflation outlook were to moderate, the pace would be slower. Throughout this process, gradualism, flexibility, optionality and data-dependence would be important considerations in setting out the path for interest rates. The likelihoods of the different scenarios would depend – among other factors – on how quickly current price pressures abated, the evolution of excess capacity and the degree to which inflation expectations continued to remain anchored at the ECB’s target. Finally, the Governing Council should confirm that, as announced previously, the special conditions applicable under TLTRO III would end on 23 June 2022. The sequential plan had several attractive elements. First, ending net asset purchases before raising rates would avoid the ECB’s monetary policy instruments working in opposite directions, thereby mitigating volatility and minimising financial stability risks. Moving sequentially would allow the Governing Council to observe how the market adjusted to the end of the net asset purchases and to this pivot in the process of policy normalisation. Second, what mattered most for the monetary policy stance was not so much the level of the overnight interest rate at present but the path that the rate was expected to follow over the coming months and years. A moderate hike at lift-off had the additional benefit that it would foster an orderly adjustment in financing conditions, reducing volatility. Finally, flexibility would help the Governing Council to ensure the smooth and even transmission of the ECB’s monetary policy across the entire euro area during the process of policy normalisation. In line with its monetary policy strategy, the Governing Council should also use the present meeting to consider its biannual assessment of the interrelation between monetary policy and financial stability. On the evidence available, from a financial stability perspective, the environment had worsened since December 2021 – the most recent review period – especially in the short term. In particular, lower growth and increasing cost pressures, as well as rising risk-free rates and sovereign bond yields, could lead to a further deterioration in the financing conditions faced by borrowers, especially in some countries. At the same time, tighter financing conditions could reduce some existing financial stability vulnerabilities over the medium term. Banks, which had started the year with solid capital positions and improving asset quality, were now facing greater credit risk. The Governing Council would watch these factors closely. In any case, macroprudential policy remained the first line of defence in preserving financial stability and addressing medium-term vulnerabilities. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that global trade had seen an important loss of momentum in the first quarter of 2022, mainly as a result of developments in China. The war in Ukraine and the lockdown in China had halted the gradual easing of global supply pressures that had started at the end of 2021. In this respect, it was important to monitor the latest data for signs that easing could have resumed. At the same time, concern was expressed that surges in inflation were being observed across many economic areas. Members saw important differences, however, with price pressures in the United States more related to overheating domestic demand and those in the euro area reflecting, to a larger extent, imported inflation. Turning to euro area developments, activity was expected to be dampened by high energy costs, the deterioration in the terms of trade, greater uncertainty and the adverse impact of high inflation on disposable income. Firms faced higher costs and renewed disruptions in their supply chains, and their outlook for future output had deteriorated. However, there were also factors supporting economic activity and these were expected to strengthen over the months to come. The reopening of those sectors most affected by the pandemic and a strong labour market, with more people in jobs, would continue to support incomes and consumption. Unemployment remained at its historical low of 6.8% in April and job vacancies across many sectors showed that there was robust demand for labour. In addition, savings accumulated during the pandemic were a buffer. Members noted that economic growth and employment had remained surprisingly robust given the size of the supply shocks. It was cautioned that the stronger than expected quarter-on-quarter growth in euro area real GDP in the first quarter of the year had been driven, to a large extent, by a higher contribution from inventory changes that was likely to unwind. Domestic demand excluding inventory changes had contracted in the first quarter. Looking at the June staff projections, the question was raised whether the assumptions behind the baseline were too benign in terms of the impact of the sanctions and the war. Doubts were also expressed concerning the assumption, in these same projections, that the saving ratio would unwind less and no longer implied a reduction in previously accumulated savings. The question was also raised whether consumers would start tapping their savings more heavily to cope with the loss of purchasing power or they would reallocate their savings into real assets. Members widely acknowledged the resilience of the labour market. This implied that the unemployment gap would close much earlier than the output gap, which was puzzling given that the labour market was typically a lagging indicator. It was observed that the size of the output gap had been revised down significantly, while there had been hardly any revision to potential output despite the additional supply shocks, and it was thus suspected that the output gap could also be smaller and close faster. At the same time, it was argued that the current resilience of the labour market reflected a number of factors that made it unlikely to be permanent, such as public employment, temporary jobs and job retention schemes. This implied the risk that there would eventually be a deterioration in employment. Members broadly agreed with the downside risks to economic activity that the staff projections anticipated in the near term. Risks relating to the pandemic had declined but the war continued to be a significant downside risk to growth. In particular, a further disruption in the energy supply to the euro area would be a major risk, as reflected in the downside scenario included in the staff projections. Furthermore, if the war were to escalate, economic sentiment could worsen, supply-side constraints could increase, and energy and food costs could remain persistently higher than expected. In this context, it was emphasised that the downside risks were not only related to the negative cost shocks but also to the impact of uncertainty on demand. Moreover, there was still a risk that the pandemic could restart. While the medium-term outlook for growth looked balanced in terms of risks, the next few quarters would be weak and the risk of a technical recession needed to be borne in mind. However, it was generally considered that stagflation was an unlikely outcome. Members agreed that fiscal policies were helping to cushion the impact of the war. Targeted and temporary budgetary measures protected those people bearing the brunt of higher energy prices while limiting the risk of adding to inflationary pressures. The swift implementation of the investment and structural reform plans under the Next Generation EU programme, the “Fit for 55” package and the REPowerEU plan would also help the euro area economy to grow faster in a sustainable manner and become more resilient to global shocks. It was suggested that fiscal measures compensating for high energy prices would likely continue if energy prices remained high. At the same time, further fiscal support would, in any case, have negative implications for public debt. In this respect, it was warned that not all fiscal measures were well targeted and temporary. On price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation had risen further to 8.1% in May. Although governments had intervened and had helped to slow energy inflation, energy prices stood 39.2% above their 2021 levels. Market-based indicators suggested that global energy prices would stay high in the near term but then moderate to some extent. Year-on-year food prices had risen by 7.5% in May, in part reflecting the importance of Ukraine and Russia among the main global producers of agricultural goods. Prices had generally also gone up more strongly because of renewed supply bottlenecks and a recovery in domestic demand as the economy reopened, especially in the services sector. Price rises were becoming more widespread across sectors and, accordingly, measures of underlying inflation had been rising further. Wage growth, including in forward-looking indicators, had started to pick up. Over time, the strengthening of the economy and some catch-up effects should lead to faster growth in wages. It was noted that May was the tenth month in a row in which the inflation figure had been underestimated. Reference was made to the fact that a mechanical update of the June staff projections with the May numbers would imply a level of inflation 0.3 percentage points higher for 2022 as a whole. At the same time, it was observed that most of the recent inflation projection errors could be explained by the direct and indirect effects of under-predictions of energy and food price rises, rather than by an underlying change in agents’ behaviour. Such errors could be explained by the difficulty in forecasting supply shocks. At the same time, it was argued that energy and food shocks appeared to be more persistent than previously thought and that this was not just a consequence of the war in Ukraine, because inflation had gained momentum before the outbreak of conflict. Moreover, it was pointed out that the inflation rates for services and non-energy industrial goods had also surprised on the upside and that none of the increases in core inflation every month so far this year had been anticipated. Inflationary pressures from re-opening in the tourism sector, which had been prominent in the May figures, were likely to continue in the coming months as tourism opened up more widely. Core inflation had reached almost 4% in May and indicators of underlying inflation continued to increase markedly, standing between 3% and 6%. This indicated that price pressures were broadening and becoming more persistent. In terms of absolute deviations, currently the upside deviation of core inflation from the inflation target was much larger than it had been on the downside at any time during the period when monetary policy had focused on deflation risks. It was also emphasised that core inflation was projected to remain above 2% over the entire horizon in the June staff projections. At the same time, it was argued that measures of underlying inflation had to be interpreted carefully, as they were also affected by unusual transitory forces such as the indirect effects of the energy shocks, the re-opening and supply bottlenecks. For example, taking the indirect effects of energy prices out of the core inflation projection would result in a 2.0% projection for core inflation in 2024. Members broadly agreed that wage developments played a central role in the current inflation outlook. Reference was made to the usefulness of the so-called wage tracker, which afforded a more forward-looking perspective on negotiated wage growth. That measure confirmed that negotiated wages were increasing by around 3-4%. However, it was argued that one-off payments, which had been behind the latest pick-up in negotiated wages, should not be seen as a sign of second-round effects and incipient wage-price spirals. At the same time, the wage tracker was suggesting that increasingly tight labour markets were starting to translate into higher wage demands. Mention was also made of greater recourse to wage indexation in some countries, also in the context of European legislation for a minimum wage. This was seen as a particular concern for the potential emergence of wage-price spirals. It was also noted that the wage tracker did not account for those negotiations that would only take place at the end of the year and could then change the forward-looking picture. The point was made that, ultimately, it was necessary to look beyond negotiated wage growth and consider all elements affecting actual wage growth. Caution was also expressed about looking only at nominal wage growth, as growth in unit labour costs was ultimately the more relevant indicator for inflation trends and showed only modest dynamics. In this regard, it was remarked that wage growth, while currently contained, was projected to run slightly higher than the sum of productivity growth and the inflation target over the coming years. It was also stressed that the current reduction in real wages could lead to upward pressures on nominal wages going forward. In their discussion of the June staff projections members highlighted the further large upward revisions to the inflation outlook, particularly in 2022 and 2023, and raised a number of questions about the future path of inflation. It was observed that the inflation path in the current baseline resembled that of the adverse scenario in the March staff projections. It was also underlined that the last time headline inflation had been above 2% in the final year of the projection horizon was 2007, while core inflation had never been above 2% at that horizon. Reference was made to the latest OECD forecast, which showed a higher level of core inflation in the euro area that persisted for longer and stood at 4%, on average, for both 2022 and 2023. Given the steeply downward-sloping future path of both headline and core inflation, the view was once again expressed that this was likely the result of the assumption that shocks were transitory combined with model dynamics being mean-reverting. Such “built-in” convergence neglected the issue of successive adverse shocks and the possibility of greater persistence and/or non-linear behaviour, which were currently the main challenges to the inflation outlook. With the tendency of the projections to strongly converge to target in the last year of the horizon, the projection for that year was seen as having limited information content. Moreover, as core inflation was also higher than headline inflation in 2024, this was seen as a signal of upside risks to headline inflation for 2024 and beyond, as core inflation typically captured more persistent components of inflation relevant for medium-term trends. It was also recalled that, if owner-occupied housing was fully taken into account, core inflation would likely be even higher. Moreover, the remark was made that a normalisation of monetary policy according to the rate path currently priced by markets, which was already included in the technical assumptions, would not be sufficient to bring inflation back to 2% over the medium term according to the baseline projection. At the same time, it was argued that a succession of supply shocks suggested a lengthening, rather than a shortening of the relevant policy horizon, when aiming to maintain price stability over the medium term. It was also recalled that the ECB’s strategy review in 2021 had confirmed that it targeted headline, rather than core inflation, as the relevant yardstick for monetary policy. It was underlined that the future path of inflation in the June staff projections was not so different from that foreseen by many other forecasters in the private sector and by international institutions. Overall, it was widely acknowledged that uncertainty was high and that the transmission of the current inflation shock and its potential persistence into 2023 and 2024 needed to be better understood. The baseline in the staff projections was seen as potentially too benign, despite substantial upward revisions to the inflation outlook. The historically high level of core inflation pointed to increasing risks of higher inflation becoming more entrenched and persistent. Pipeline pressures were also seen to be continuing to build up, with the odds of a stronger and quicker pass-through to consumer prices increasing. At the same time, it was stressed that risks existed in both directions and, in any case, when considering the inflation outlook, the Governing Council would take both the baseline and the configuration of risks into account. Regarding the assumptions underlying the projections, it was noted that energy and commodity prices themselves might be seen as likely to rise further, or at least stay higher for longer, in contrast to the downward-sloping path of the futures curve embedded in the projections. This technical assumption had been one of the main reasons for forecast errors in the past. Moreover, structural shifts such as climate change might exert more lasting upward pressure on energy and food prices. This could lead to headline inflation exceeding core inflation by a much larger margin than observed historically, casting further doubt on the plausibility of headline inflation falling below core inflation in 2024, as embedded in the projections. On the fiscal side, it was argued that government support measures could reinforce inflation pressures if they turned out to be less targeted and less temporary than envisaged, at a time of generally high pressures on resources and mismatches between supply and demand. Additionally, supply bottlenecks might prove more protracted than assumed in the baseline scenario. Attention was drawn to the ongoing rotation between bottlenecks in goods, which were expected to ease, and those in services, which had just been emerging and would gain more prominence as households rebalanced their consumption from goods to services. Medium-term inflation pressures could also be higher than assumed in the projections if potential economic growth suffered more lasting damage from successive supply shocks and the war in Ukraine. Questions were raised as to the reliability and stability of the Phillips curve relationship since behavioural economics indicated that collective psychology might change rapidly when there were threshold effects and possible non-linearities. It was remarked that the longer inflation stayed elevated, the greater the risk of second-round effects via higher wages and/or higher profit margins. According to the projections, 2024 would be the fourth consecutive year of inflation above 2%, which suggested rising risks of second-round effects and of higher inflation becoming entrenched over time. The spending power of households might also turn out to be higher than assumed in the projections, where the saving ratio had been revised up on the expectation of higher precautionary saving. The projections foresaw no drawing down of savings in nominal terms – notwithstanding ”forced dissaving” in real terms – to maintain consumption in the face of higher and unanticipated inflation. Accordingly, firms’ pricing power could be higher than projected and they could use the current reopening of the economy to restore profit margins and increase the pass-through of costs to consumer prices, instead of absorbing higher costs by accepting lower margins. Reference was also made to the period following the financial crisis, during which profit margins had increased even in a downturn in a number of euro area economies with weak corporate balance sheets. At the same time it was underlined that, at present, no second-round effects or wage-price spirals could be observed and that there were indications that unions would be cautious with wage claims to preserve employment at a time of renewed uncertainty. This caution would help avoid derailing a strong labour market, which had been a source of income stability in Europe throughout the pandemic. While there was wide agreement that market-derived indicators of inflation expectations were broadly anchored at around the target level, it was widely felt that there was no room for complacency given the high costs of re-anchoring expectations. The risk of an unanchoring of inflation expectations was seen as particularly high when inflation expectations adapted to recent developments. Such a risk was considered as increasingly likely to materialise since HICP inflation was projected to stand above, and mostly far above, 2% for more than three years. Emphasis was placed on the importance of households’ and firms’ inflation expectations, which were more directly relevant for wage and pricing decisions. More generally, it was underlined that concerns over a loss of purchasing power were very pronounced among the general public all over Europe. Against this background members assessed the risks surrounding inflation as primarily on the upside. The risk to the medium-term inflation outlook included a durable reduction in the production capacity of the economy, persistently high energy and food prices, inflation expectations rising above target and higher than anticipated wage rises. However, if demand were to weaken over the medium term, it would lower pressures on prices. Turning to the monetary and financial analysis, members largely concurred with the assessments provided by Ms Schnabel and Mr Lane in their introductions. Market interest rates had increased further in nominal terms since the Governing Council’s 13-14 April meeting in response to the changing outlook for inflation and monetary policy. Near-term real rates largely remained in negative territory close to historical lows, but the real forward curve had, overall, risen substantially over recent months. With benchmark interest rates rising, bank funding costs had increased, and this had fed into higher lending rates, in particular for households. Nevertheless, bank lending to firms had picked up in March, reflecting the continued need to finance investment and working capital, against the backdrop of increasing production costs, persistent supply bottlenecks and lower reliance on market funding. Lending to households had also increased, reflecting continued robust demand for mortgages. Euro area banks had started the year with solid capital positions and improving asset quality. So far, bank-based financing conditions for households and firms had, on the whole, remained relatively resilient to increases in market rates, notwithstanding growing signs of a turning point having been reached in bank borrowing costs for firms, after the historical lows seen in December. Broader financial conditions had tightened considerably owing to rising bond yields and lower equity valuations, while the euro exchange rate had stabilised. At the same time, risk aversion was rising and investors were becoming more selective, as evidenced by rising risk premia in yields on lower-rated corporate and sovereign bonds. It was remarked that the scale and speed of recent yield spread increases for some countries, without major changes in country economic fundamentals, suggested that other factors might be at play, including non-linearities, multiple equilibria and factors of a political nature. In line with the monetary policy strategy adopted in July 2021, the Governing Council held its regular biannual structured exchange on the interrelation between monetary policy and financial stability. Members concurred that the environment for financial stability had worsened since the last review in December 2021, especially over the short term. In particular, lower economic growth and increasing cost pressures, as well as rising risk-free rates and sovereign bond yields, could lead to a deterioration in the financing conditions faced by borrowers. In this context, there was agreement that monetary policy normalisation might affect financial stability at different horizons in opposite ways. Tighter financing conditions could reduce some financial stability vulnerabilities over the medium term, for example in residential real estate. At the same time, when interest rates were exiting a prolonged period in negative territory, monetary policy normalisation could be accompanied by short-term financial stress and increased fragmentation of financial conditions. Moreover, banks were facing greater credit risk in an environment of lower growth and heightened uncertainty. Looking ahead, these factors would need to be watched closely. In any case, macroprudential policy remained the first line of defence in preserving financial stability and addressing medium-term vulnerabilities. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members agreed that the revised medium-term inflation outlook required further steps to be taken in normalising monetary policy. The latest Eurosystem staff projections saw headline and core inflation in the baseline scenario standing above 2% in 2024, and in the staff assessment risks to the inflation projections were tilted to the upside over the entire horizon, especially for 2022 and 2023. In this respect, it also had to be taken into account that the baseline projections were based on the assumption that monetary policy would be adjusted in line with market expectations at the cut-off date for the projections, with those expectations having shifted markedly upwards in recent months. It was underlined that the appropriate monetary policy response for the Governing Council to take depended on its assessment of the inflation outlook, which comprised both the baseline and the risk assessment. In view of the baseline inflation projection exceeding the ECB’s target at the relevant horizon, together with the large and persistent upside risks, it was suggested that the ECB needed to respond more strongly than implied by the market expectations for interest rates embedded in the staff projections. Members agreed that it was imperative for the ECB to preserve its credibility by showing its resolve to make sure that inflation returned to its 2% inflation target over the medium term. On the one hand, credibility was perceived to have been called into question recently in the light of very high inflation, repeated projection errors and a narrative that had insisted on the temporary nature of inflation shocks for too long. Determined action was judged to be needed to protect the anchoring of inflation expectations and to avoid sizeable second-round effects, with inflation and wages feeding into one another. It was also argued that, if the monetary policy stance were normalised too slowly, monetary policy risked adding to demand pressures at a time when the economy was recovering from the pandemic and pressures on resources were already high. On the other hand, it was stressed that the ECB’s credibility was not in doubt as long as inflation expectations remained anchored and as long as no evidence of second-round effects could be seen. Moreover, the ECB should take confidence from the reputation it had earned in successfully combatting the risk of deflation in the past. Reference was made to survey evidence from the general public confirming that the ECB was not currently being blamed for the present episode of high energy inflation, given that the shock was seen as mainly related to rising food and energy costs and that the euro area was not experiencing excessive demand. At the same time, however, it was clear that the general public expected the ECB to take action and to live up to its mandate to maintain price stability over the medium term. Members concurred overall that most measures of longer-term inflation expectations derived from financial markets and expert surveys appeared to be still broadly anchored at the ECB’s target, notwithstanding initial signs of above-target revisions. While risks of an unanchoring had been increasing for some time, it was argued that, since April, there had been some reassuring developments in a number of the indicators, including a stabilisation in the euro exchange rate. On the whole, the evidence so far was seen to remain consistent with a successful re-anchoring of inflation expectations around the ECB’s target, in line with the new monetary policy strategy announced in 2021. This provided the Governing Council with grounds for a reasonable degree of self-confidence. At the same time, it was cautioned that there was no room for complacency because, looking ahead, the anchoring of inflation expectations could not be taken for granted. Some measures of longer-term inflation expectations stood at levels above the Governing Council’s inflation target. Moreover, the view was held that it would be much more costly to address a broad-based unanchoring of inflation expectations once it had materialised, as opposed to responding pre-emptively. On the one hand, it was argued that the experience gained in the 1970s, when different inflation outcomes across jurisdictions could be traced back to different central bank reaction functions, suggested that central banks that acted earlier achieved better inflation outcomes. On the other hand, it was maintained that the current environment differed from the 1970s in important respects, such as improved central bank transparency, weaker aggregate demand conditions, a lower degree of unionisation and a lower prevalence of wage-indexation clauses. Monetary policy decisions and communication Members broadly agreed that the monetary policy normalisation process should continue to be guided by the four principles of optionality, data-dependence, gradualism and flexibility. Different views, however, were expressed on the need for and the interpretation of gradualism, as well as on how in practice to reconcile gradualism with the need for data-dependence and optionality in an uncertain environment. The view was put forward that the notion of gradualism could be misleading if it was interpreted as implying too slow or too rigid a pace of adjustment in the monetary policy stance. Such an interpretation would be inconsistent with the need for optionality and data-dependence. In particular, it was necessary to avoid gradualism being seen as precluding interest rate steps in excess of 25 basis points. Ensuring price stability over the medium term might, depending on changes in the inflation outlook and prevailing risks and circumstances, require more forceful and front-loaded responses to signal the determination to protect price stability. Moreover, it was argued that the principle of gradualism suggested responding early and in a forward-looking manner, which would then reduce the need for larger and more disruptive adjustments later. A remark was made that the merits of gradualism depended on the nature of uncertainty and shocks. In the light of a long sequence of persistent upward inflation surprises and an increasing risk of an unanchoring of inflation expectations, the “Brainard principle”, i.e. that policymakers should act cautiously if there is uncertainty about the effects of monetary policy measures, no longer applied. There was agreement that gradualism should not necessarily be interpreted as slow action in small steps. Therefore, members felt that the sustained succession of rate increases over the coming quarters – as reflected in the rate path embedded in market expectations and the staff projections – could be characterised as gradual. It was cautioned that dropping the notion of gradualism could be seen as a signal that the ECB intended to take abrupt action, which could undermine predictability and risked triggering disorderly market movements. Gradualism also was considered consistent with the medium-term orientation of the ECB’s monetary policy strategy and with the prevailing uncertainty on the growth outlook. This was deemed especially important in the face of supply shocks such as those faced by the euro area, and also since the euro area was more exposed to movements in energy prices than other currency areas. Overall, members agreed to retain gradualism as one of the four guiding principles for the monetary policy normalisation process, on the understanding that this did not rule out interest rate steps in increments larger than 25 basis points if and when needed to protect price stability over the medium term. The point was also made that the principles of optionality and data-dependence seemed to be essentially equivalent and were especially important in the present circumstances. In any case it was emphasised that the notion of gradualism should not interfere with the Governing Council’s duty to do – at all times –what was needed to maintain price stability over the medium term. A number of members recalled that in their view, the three forward guidance criteria for interest rates established in July 2021 had been satisfied for some time. At the same time, the need to safeguard the coherence and predictability of ECB policy was acknowledged, which suggested sticking to the sequence previously communicated. However, it was suggested that the implied “delay” in raising interest rates should, in principle, be offset by implementing a larger rate hike in July or by indicating more explicitly the possibility of a larger interest rate move later in the third quarter of 2022. At the same time, it was cautioned that in communicating policy intentions for future meetings, the Governing Council should avoid unduly constraining its optionality and data-dependence. In any case, all members agreed that, at this point, on the basis of the latest staff projections and developments in measures of underlying inflation, the three forward guidance criteria were satisfied. The revised medium-term inflation outlook called for further, decisive steps towards monetary policy normalisation. In line with the agreed sequencing, the present meeting would be the appropriate moment to announce that net asset purchases under the APP would end as of 1 July 2022. This was the action opening the door to a first rate hike at the July meeting. Looking ahead, members also agreed, overall, that it was appropriate to provide guidance on the Governing Council’s expectations regarding the path for the key policy rates to be decided at the July and September 2022 meetings. However, some reservations were expressed about appearing to “lock in” any decisions still to be taken by the Governing Council beyond the very short term. It was underlined that forward guidance always needed to remain conditional on the outlook and prevailing circumstances. However, it was also recalled that the signalling of policy intentions one or two meetings ahead had been a feature of ECB communication in the past, such as through the references to “vigilance” or “strong vigilance”, or “(very) close monitoring” of inflation risks. Most members expressed support for the proposal to signal the Governing Council’s intention to increase the key ECB interest rates by 25 basis points at the July meeting. Starting the rate-hiking cycle with a step of this magnitude was seen as a “proportionate first step”, as indicated by Mr Lane in his introduction. In this respect, different arguments were brought forward. First, this would be the first rate hike in 11 years, a step that needed to be prepared and explained carefully. Second, the start of the rate-hiking cycle had to be orderly, avoiding unnecessarily surprising the markets and inducing unwarranted volatility. Third, adverse economic surprises in the near term could not be excluded, and it was thus prudent not to start more forcefully. A number of members expressed an initial preference for keeping the door open for a larger hike at the July meeting. They remarked that the current signal should not be seen as an unconditional commitment, since the Governing Council needed to retain the discretion to adjust the size of the interest rate move in case new information available for the July meeting materially affected the medium-term inflation outlook. Against this background, it was broadly agreed that the Governing Council should at this point be more specific about its expectations for the September meeting and, in particular, open the door to an increase in the key ECB interest rates by more than 25 basis points. A larger increment would be appropriate at the September meeting if the outlook for medium-term inflation had not improved by that time. A rate hike by a larger increment would signal the Governing Council’s intention to move the deposit facility rate into positive territory, ending an eight-year period of negative rates. At the same time, it was generally deemed important to maintain optionality and data-dependence, as it could not be excluded that incoming data in the period to September would materially affect the medium-term inflation outlook in either direction. The point was also made that an acceleration of the monetary policy normalisation process was conditional on market conditions remaining orderly. Looking beyond September, members widely agreed that, on the basis of the current assessment, a gradual but sustained path of further interest rate increases would be appropriate, with the pace of adjustment depending on incoming data and developments in the medium-term inflation outlook. A comment was made that the neutral rate was unobservable and too vague a concept to guide actual policy measures. It was maintained that the achievement of a neutral stance would be revealed only over time as the Governing Council observed how the economy and the inflation outlook reacted to new shocks and to monetary policy normalisation. It was noted, in this respect, that it might be helpful for the ECB to communicate at some point on the rate path beyond September to avoid markets overshooting. It was remarked there were good reasons to move all three key ECB interest rates in parallel, at least for the initial step in July. On the basis of the shared assessment and the above considerations, all members accepted the monetary policy proposal presented by Mr Lane in his introduction, subject to more explicit guidance being provided for the September meeting, as appropriate for taking further steps in normalising monetary policy. It was confirmed that the conduct of monetary policy would continue to be guided by optionality, data-dependence, gradualism and flexibility. All members agreed that the decision on ending net purchases under the APP would pave the way for interest rate increases at the next two meetings, in line with the sequencing of monetary policy action enshrined in the ECB’s forward guidance. It was also seen as appropriate at this point in time to confirm that maturing holdings under the APP would continue to be reinvested for an extended period of time past the date when the Governing Council started raising the key ECB interest rates. Reinvestment was considered important for as long as necessary to maintain ample liquidity, thereby ensuring orderly money market conditions, and an appropriate monetary policy stance. It was also agreed to confirm that the special interest rate period under TLTRO III would end on 23 June 2022, as announced previously. With regard to the path of the key ECB interest rates, members agreed that following the current meeting the Governing Council should communicate that the forward guidance conditions had been satisfied and announce, in line with its policy sequencing, its intention to raise the key ECB interest rates by 25 basis points at the July monetary policy meeting. Looking ahead, it was agreed that the Governing Council should announce that it expected to raise the key ECB interest rates again in September, with the calibration of this rate increase depending on the updated medium-term inflation outlook, indicating that if the medium-term outlook were to persist or deteriorate, a larger increment would be appropriate at the September meeting. Regarding other elements of communication, members agreed that the Governing Council needed to reiterate its readiness to adjust all of its instruments within its mandate, incorporating flexibility if warranted, to ensure that inflation stabilised at the 2% target over the medium term. Within the ECB’s mandate, under stressed conditions, flexibility would remain an element of monetary policy whenever threats to monetary policy transmission jeopardised the attainment of price stability. Attention was drawn to the widening of sovereign spreads over recent months. In this context, the point was made that the establishment of an anti-fragmentation tool was not at odds with the need to contain inflation pressures. Indeed, addressing fragmentation could be regarded as necessary for putting the Governing Council in a better position to accelerate monetary policy normalisation if warranted by the inflation outlook. Reference was made to the “separation principle”, which had been introduced by the ECB in the wake of the financial crisis to distinguish between non-standard measures aimed at safeguarding monetary policy transmission and instruments aimed at setting the appropriate policy stance for the euro area as a whole. A call was made for work on a possible new anti-fragmentation tool to be accelerated and completed rapidly since the risk of fragmentation could intensify as the ECB advanced with its monetary policy normalisation. Members agreed that communication had to emphasise that high inflation was a major challenge and that the Governing Council would make sure that inflation returned to its 2% target over the medium term. The Governing Council would maintain optionality, data-dependence, gradualism and flexibility in the conduct of monetary policy, without hierarchy among these guiding principles. Taking into account the foregoing discussion among the members, the President ascertained that all members were able to support the policy proposals put forward by Mr Lane, subject to including more explicit guidance with respect to the Governing Council’s September monetary policy meeting. Upon a proposal by the President, the Governing Council accordingly decided, on the basis of its updated assessment, to take further steps in normalising its monetary policy, while confirming that earlier decisions would remain in place, as set out in the ECB’s monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 8-9 June 2022 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 8-9 June 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel* Mr Panetta Mr Rehn Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Šimkus* Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Wunsch * Members not holding a voting right in June 2022 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Ms Buch Mr Dabušinskas Mr Demarco Ms Donnery Mr Gavilán Mr Gilbert Ms Goulard Mr Haber Mr Horváth Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on Thursday, 25 August 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 20-21 July 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 20-21 July 2022 25 August 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel reviewed the latest financial market developments, noting that the narrative had shifted since the Governing Council’s previous monetary policy meeting in early June 2022. Weaker than expected incoming data on the global economy and concerns about disruptions to gas supplies, in combination with further higher than expected inflation outcomes, had turned investors’ focus towards a possible “stagflationary” scenario. In this environment, the volatility of short-term interest rate expectations stood at a historical high. The EUR/USD exchange rate remained under pressure. The sell-off of risk assets had continued as investors were still not attracted by cheaper valuations. Ms Schnabel then turned to the key drivers of the shift in investor sentiment from concerns about inflation to concerns about stagflation. Surprises in economic data releases had recently been negative across the global economy. In the United States, fears of a recession had, at least temporarily, weighed on natural gas prices, and on commodity prices more generally. By contrast, despite the waning growth momentum, gas prices had continued to increase in Europe owing to the domestic gas supply shock. Daily movements in expectations about short-term interest rates had been at historical highs lately, reflecting the uncertainty that investors were facing regarding the monetary policy implications of incoming information. Looking through this volatility, investors expected the ECB to speed up policy normalisation over the near term, relative to expectations at the time of the June 2022 Governing Council meeting, despite increasing risks of slowing growth momentum. Compared with June 2022, the overnight index swap (OIS) forward curve had steepened at the front end. Survey participants had now, by and large, converged to the market’s view regarding a swift tightening of the key ECB policy rates. Measures of inflation compensation led to three key observations. First, the very front end of the inflation-linked swap forward curve had increased notably since the June monetary policy meeting, reflecting in particular the supply-side-driven sharp increase in European gas prices. Second, medium-term inflation expectations had peaked around the Governing Council’s April meeting and had since gradually shifted lower, partly owing to a reappraisal of expectations about the Governing Council’s monetary policy intentions. Forward inflation swap rates were now converging towards 2% from above that level in 2024 and fluctuated around 2% over the following years. Third, despite the decline in inflation compensation, tail risks to inflation and the risk of an unanchoring of longer-term compensation had not moderated. The probability that markets assigned to high inflation outcomes of above 4% over a five-year horizon five years ahead had risen steadily since the start of the year. The probability currently stood at 15%, the highest level since 2013. According to the latest Survey of Professional Forecasters, longer-term inflation expectations had been revised upwards to stand on average at 2.2%. This was consistent with stickier long-term inflation compensation in markets. The repricing of inflation compensation had been the key factor driving the recent decline in nominal long-term sovereign bond yields. The ten-year real rate – i.e. adjusted for inflation – had increased further since the June monetary policy meeting. However, from a historical perspective, both short and long-term euro area real sovereign bond yields remained low. Against the background of the ECB’s monetary policy normalisation path embedded in market expectations, Ms Schnabel noted that a substantial tightening of financial conditions was ongoing in the euro area. However, unlike in some other major currency areas, the rate expectations embedded in financial market prices had yet to be validated by the ECB through actual decisions. The asset price affected most by the divergence between monetary policies across major currency areas was the euro exchange rate. Around half of the 10% depreciation of the euro vis-à-vis the US dollar since the start of the year could be attributed to the divergence in monetary policies. The ad hoc Governing Council meeting on 15 June 2022 might have contributed to mitigating further downward pressures on the euro exchange rate. As regards sovereign bond spreads, the initial orderly increase since the beginning of the year had accelerated after the June 2022 Governing Council meeting, as concerns about the extent of monetary policy tightening that would be required to restore price stability had intensified. The ECB’s announcement after the ad hoc Governing Council meeting that it would accelerate the completion of the design of a new anti-fragmentation instrument had halted or reversed adverse dynamics in some euro area sovereign bond markets. Market-based funding costs for banks had increased notably since the start of the year on the back of the rise in the risk-free rate and the broad-based increase in risk premia. Yet, in contrast to previous episodes of heightened volatility in sovereign bond markets, there had so far been no visible differentiation between banks across euro area jurisdictions. The same observation could be made for the market-based financing costs of non-financial corporations: in tandem with rates on other risk assets, corporate bond yields had surged over the past few months on the back of rising real yields and, lately, the deterioration in investor sentiment. Ms Schnabel then noted that the rise in real rates and the weakening in investor sentiment had also had an impact on equity prices. Since the Governing Council’s meeting in early June 2022, euro area stock markets had declined further, falling by around 7%, driven by an increase in the equity risk premium, higher discount rates and weakening longer-term earnings growth expectations, while near-term earnings forecasts had remained resilient. The global environment and economic and monetary developments in the euro area Mr Lane then went through the latest economic, monetary and financial developments in the global economy and the euro area. Starting with the global picture, compared with the level in December 2019, global trade was well above its pre-pandemic level, but there had been a decline in the first few months of this year and high-frequency data on global trade, available until mid-July, showed that this decline was accelerating. Purchasing Managers’ Index (PMI) data for the manufacturing sector in the second quarter showed a sharp drop in output across advanced economies. The PMI for services showed a levelling-off in May and June, after the strong reading for April. Comparing the current level of the EUR/USD exchange rate with the level at the end of 2020, when it had reached a peak, there had been a sustained but fairly gentle depreciation of the euro. More recently the bilateral exchange rate had seen a more pronounced drop. Oil prices had declined since the June Governing Council meeting and the futures curve extended this decline until 2024, while the gas price had increased markedly. Other commodity prices had moderated. Turning to the euro area economy, various indicators for the manufacturing sector showed a sharp slowdown, with the PMI new export orders index falling below the 50 threshold in June. By contrast, services remained on an upward trend thanks to the reopening of the economy, although the latest data pointed to some moderation. Supply bottlenecks, as measured by the PMI indicator of suppliers’ delivery times, had seen a visible improvement, having halved compared with their worst level observed last autumn. However, this was largely due to a significant moderation in demand rather than a genuine improvement in supply. Alongside the deterioration in the short-term GDP outlook, the terms of trade shock continued to severely hit the real income and purchasing power of households. The goods trade balance had stabilised in May compared with April, which was partly due to the fact that energy consumption was moderating in Europe. However, compared with spending about 1% of GDP on energy imports at the start of 2021, the euro area was now spending about 4% of GDP. Turning to domestic demand, private consumption had moderated significantly since the end of last year. Consumers were buying fewer retail goods and were expecting to make fewer major purchases. At the same time, consumers were increasing their spending on services. For housing investment, concerns related to shortages of materials and labour had declined somewhat in recent months, reflecting lower than expected construction activity. However, concerns related to financing conditions had become more prominent and, overall, the outlook for the housing sector was for a cooling-down. Regarding business investment, capital goods production pointed to continued weakness. With regard to the labour market, the unemployment rate had declined in May to a record low of 6.6%. As labour force participation was recovering in the euro area, the improvement in the unemployment figure reflected job creation. However, the latest PMI data were indicating a loss of momentum. Changes in the sectoral composition of employment could help explain why the labour market remained strong, driven by the reopening of the recreation sector and other labour-intensive activities, which had seen a big drop during the pandemic. Turning to the latest inflation developments, inflation in the Harmonised Index of Consumer Prices (HICP) had increased further in June, to stand at 8.6%. Energy inflation, which accounted for about 10% of the HICP basket, had contributed about half of the overall increase and had remained exceptionally high in June at around 42%. This reflected continued high increases in gas, oil and electricity commodity and wholesale prices. A second big contributor continued to be food, which accounted for about 20% of the HICP basket. Non-energy industrial goods prices had also continued to increase in June, with durable goods being strongly affected by supply bottlenecks and most recently by pipeline pressures – i.e. the pass-through of earlier increases in prices in the production chain. Services inflation had seen a small decline in June, which was due to the reduction in public transportation prices in Germany from 1 June to 31 August. Indicators of underlying inflation continued to rise. A new index constructed by ECB staff provided a measure of domestic inflation, by including prices of all items with a low import content. This measure was currently above 3%, at the bottom of the range of indicators for underlying inflation. The expectation that all the indicators of underlying inflation would revert to 2% was based on the assumption that the energy shock and supply bottlenecks would gradually disappear. The momentum in terms of the month-on-month change in underlying inflation indicators had been roughly stable. However, it was stable at a rate well above levels consistent with 2% inflation. The question remained as to whether this would be a temporary adjustment or more persistent. Turning to wages, negotiated wages had continued to grow at a modest rate over the last few months. The experimental ECB wage tracker, which included some of the largest euro area countries, indicated that the wage increases agreed in the first quarter of 2022 implied annual wage growth of around 3% this year, before falling back to around 2.5% next year. The most recent wage agreements signed in the second quarter showed a pick-up in wage growth to around 3.5% both this year and next year. This implied that new agreements were consistent with inflation remaining significantly higher for longer, but also that the wage adjustment was far from catching up 100% with inflation. Regarding profit margins, the latest ECB Corporate Telephone Survey gave a mixed picture between those firms able to increase margins and those with decreasing margins, reflecting differences in their capacity to pass on the large increases in input costs. The pass-through potential was higher for intermediate firms selling to other businesses than for those selling directly to consumers. With respect to inflation expectations, the latest Survey of Professional Forecasters indicated that the mean longer-term inflation forecast had risen slightly, while the mode, i.e. the most frequent answer given by participants, remained at 2%. There was still a part of the distribution of responses that was below 2%, but in the course of this year there had been an increase in the share of participants who thought inflation would remain above 2.5%, which now amounted to nearly 20% of the respondents. Market-based measures of inflation compensation were consistent with an acute episode of high inflation but implied a return to 2% around mid-2024. Turning to financial and monetary developments, Mr Lane first noted that the respondents in the July Survey of Monetary Analysts had shifted up and steepened the path for the expected deposit facility rate, relative to the survey round in June, and had changed their assessment of the stance at the end of the interest rate hiking cycle. Mr Lane also reported that banks had seen a big increase in the cost of market funding since the start of the year and their composite funding costs had been creeping up even without any increase in interest rates paid on bank deposits. Firms too had seen a marked increase in the cost of market-based financing and the costs of borrowing from banks had also edged up. Real borrowing rates, while remaining in negative territory, had also crept up in the period to May. The cost of bank borrowing for households for house purchase had continued to increase strongly, reflecting rising long-term market interest rates. When adjusting for inflation, real rates had also started to increase, while remaining in negative territory. The July 2022 bank lending survey showed that banks had considerably tightened their credit standards for both firms and households in the second quarter of 2022. Behind this tightening was a reduction in risk tolerance and an increase in risk perception, related to the deteriorating economic outlook. Bank lending to firms remained robust. Since the end of 2021 firms had been tapping the bond market to a lesser extent and instead had mainly been using bank financing. The July bank lending survey indicated that firms’ demand for bank loans was being driven by the need to finance working capital and inventories rather than new investment. Lending flows to households remained strong. However, the July bank lending survey indicated a drop in demand for housing loans in the second quarter and in the following months. Money growth had moderated significantly from its peak and its short-term dynamics were now below the long-term average. This reflected the fact that the ECB had stopped its net asset purchases, as well as lower firm deposits with banks. Regarding the role of the monetary policy transmission mechanism in a currency union, Mr Lane recalled that the smooth transmission of the single monetary policy across all euro area jurisdictions was a prerequisite to deliver on the ECB’s price stability mandate. He explained that in a decentralised currency union the smooth transmission of monetary policy did not mean that the level of borrowing costs had to be the same across all jurisdictions in the union. Differences in local financing conditions could legitimately arise owing to, among other things, country-specific economic factors. However, the monetary policy impulses that the Governing Council sent should be transmitted smoothly and not give rise to disproportionate reactions in some jurisdictions that were divorced from fundamental factors in those regions. A fundamentally unjustified reaction of local financing conditions to expected or actual changes in the monetary policy stance would induce distortions that would ultimately undermine the singleness of the ECB’s monetary policy and its ability to deliver on its Treaty mandate. In particular, a breakdown in the relation between sovereign yields and fundamentals, with bond markets becoming fragmented along national borders, might lead to excessive divergences in financing conditions across the euro area which, if left unchecked, could result in persistent impairments in the transmission mechanism. Episodes of acute and unwarranted divergences in financing conditions across countries could arise in response to a wide range of different shocks and in the face of inflation that was too low or too high. Mr Lane stressed that the ongoing normalisation of the ECB’s monetary policy stance could be a trigger for fragmentation in bond markets, with adverse consequences for all euro area countries. Volatility and upward shifts in the risk-free yield curve meant that the duration risk for private investors increased, which tested their capacity to hold different types of risk and put upward pressure on sovereign spreads in vulnerable jurisdictions. This could lead to a tightening of financing conditions in these countries – possibly over and above what was appropriate to address excess inflation. A symmetric distortion in the opposite direction could emerge in less vulnerable countries, where capital inflows originating from the vulnerable countries could compress yields below the levels necessary to stabilise inflation at the target over the medium term. In all these cases, a currency union was particularly susceptible to the risk that fragmentation events might degenerate into self-fulfilling debt crises. While there was typically a maximum level of interest rates at or below which national government debt was sustainable, the interest rates at which euro area countries could refinance debt could spiral upwards in a self-fulfilling manner to levels where debt dynamics became unstable and ultimately unsustainable. Such self-perpetuating mechanisms gave rise to multiple equilibria. In particular, even a fundamentally sound sovereign could be brought to the brink of default owing to a self-fulfilling dynamic involving market participants demanding higher risk premia based on a fear that the market might become illiquid. Announcing that the Governing Council was prepared to intervene in the bond market to lean against market movements not justified by fundamentals could therefore coordinate creditors’ expectations at a stable equilibrium in which a crisis was avoided. Monetary policy considerations and policy options Mr Lane therefore proposed that the Governing Council should at the present meeting approve a new Transmission Protection Instrument (TPI), as put forward by the Executive Board, to safeguard monetary policy transmission throughout the euro area and the singleness of monetary policy – a precondition for the ECB to be able to deliver on its mandate. The TPI would be an addition to the ECB’s toolkit and could be activated to counter unwarranted, disorderly market dynamics that posed a serious threat to the smooth transmission of monetary policy across the euro area. By safeguarding the transmission mechanism, the TPI would allow the Governing Council to more effectively deliver on its price stability mandate. Subject to fulfilling established criteria, the Eurosystem would be able to make secondary market purchases of securities issued in jurisdictions experiencing a deterioration in financing conditions not warranted by country-specific fundamentals. This would enable the Eurosystem to counter risks to the transmission mechanism to the extent necessary. The scale of TPI purchases would depend on the severity of the risks facing policy transmission. Purchases would not be restricted ex ante. The TPI was a monetary policy tool to address a wide variety of shocks that could lead to fragmentation and ultimately to transmission impairments. The TPI’s specific design features, as well as the safeguards for complying with the monetary financing prohibition and the principle of proportionality, would be decided on by the Governing Council in the light of the specific shocks that needed to be addressed in any given situation. At present the TPI was necessary – and specifically designed – to minimise threats to transmission arising from the normalisation of interest rates that was appropriate in the current environment of high inflation and significant upside risks, to ensure that inflation stabilised at the ECB’s target over the medium term. There were two elements to the effectiveness of the TPI. First, its announcement should act as a stabilising force. Second, if considered necessary by the Governing Council, its activation at any point in time would allow an active response to an emerging threat to the transmission mechanism. To assess whether announcing the TPI at the present meeting was proportionate, three conditions should be met: first, the new tool needed to be effective in pursuing the intermediate objective of protecting the transmission mechanism as a precondition for attaining the ECB’s primary objective; second, it should be efficient in the sense that its intermediate objective could not be achieved with an alternative measure having less intrusive effects on other areas of economic life; and, third, the new tool should be cost-efficient, that is, its benefits in achieving the protection of the transmission mechanism should outweigh its potentially adverse side effects, including any conflict with the maintenance of the monetary policy stance appropriate to achieving the primary objective and any risks that the new tool might unduly interfere with economic policy. In making this assessment, the Governing Council relied on a thorough exercise that had been carried out by Eurosystem committees and ECB staff over the past few months. The outcome of that exercise demonstrated that, first, in its current design, the TPI was an effective instrument particularly suited to accompanying the announcement of further normalisation steps, as it could prevent impairments in transmission. Second, the announcement of the TPI, which did not imply its immediate activation, was an efficient way to preserve the smooth transmission of the ECB’s monetary policy stance to an extent that could not be achieved with other instruments available to the Eurosystem, given their specific design features and purpose. Third, potential side effects as a result of a TPI announcement did not outweigh the benefits of announcing the instrument to mitigate the risk of fragmentation during the normalisation and tightening of monetary policy in the current highly uncertain economic and geopolitical environment. This was particularly true in view of the specific design features and safeguards of the TPI, which also ensured that any potential interference with the monetary policy stance and other policies would be avoided. This included the fact that, being designed to enable a normalisation of the policy rates in view of the current high level of inflation, the TPI would also mitigate the risk of a weakening of the impetus for sound fiscal policies in the euro area. In accordance with the governance of the TPI, the Governing Council would only activate it after assessing that tangible risks to policy transmission existed at the time of activation; that adequate safeguards were in place at that time to ensure that the obligations and principles contained in EU law were respected; and after conducting a comprehensive proportionality assessment to establish that activation was proportionate to the price stability mandate of the ECB. TPI purchases would be terminated either to reflect a durable improvement in transmission or based on an assessment that persistent tensions were due to country fundamentals. Summing up the assessment of the economy and the outlook for price stability, Mr Lane remarked that economic activity was slowing but was still benefiting from the reopening of the economy. Risks to the growth outlook remained tilted to the downside. Russia’s war in Ukraine remained a source of significant downside risk, especially if energy supplies from Russia were to be disrupted to such an extent that it led to rationing for euro area firms and households. The war could also further dampen confidence and aggravate supply-side constraints, while energy and food prices could remain persistently higher than expected. A faster deceleration in global growth would also pose a risk to the euro area outlook. Purely mechanical updates of the June projections saw high downside risks to GDP growth in the third quarter. Inflation had increased further, from 8.1% in May to 8.6% in June. Overall, inflationary pressures had broadened and intensified, as signalled by an increase in a range of indicators of underlying inflation. Inflation was expected to remain undesirably high for some time, owing to continued pressures from energy and food prices and pipeline pressures in the pricing chain. The depreciation of the euro was also a source of higher inflation. Looking further ahead, in the absence of new disruptions, energy costs were expected to stabilise and supply bottlenecks to ease. Together with the ongoing policy normalisation, this should support the return of inflation to the ECB’s target. Developments in measures of inflation expectations were mixed. While there had been limited upward revisions in survey-based measures of longer-term inflation expectations, these remained close to 2%. By contrast, market-based measures of inflation compensation had eased appreciably of late: forward inflation-linked swap rates had already priced in a return of inflation to 2% from above that level over the course of 2024. Overall, most measures of longer-term inflation expectations stood at around 2%, although recent above-target revisions to some indicators warranted continued monitoring. The risks to the inflation outlook continued to be on the upside and had intensified, particularly in the short term. The risks to the medium-term inflation outlook included a durable worsening of the production capacity of the euro area economy, persistently high energy and food prices, inflation expectations rising above target and higher than anticipated wage rises. However, if demand were to weaken over the medium term, it would ease pressures on prices. Market interest rates had been exceptionally volatile as a result of the pronounced economic and geopolitical uncertainty. In addition, the dispersion across sovereign bond yields had remained elevated and global risk asset markets had recorded further declines. Bank funding costs had risen in the past few months, which had increasingly fed into higher bank lending rates, in particular for households. While the volume of bank lending to households remained strong, it was expected to decline in view of lower demand. Lending to firms had also been robust as high production costs, inventory building and lower reliance on market funding created a continued need for credit from banks. At the same time, the demand for loans to finance investment had declined. On balance, financial conditions in the euro area had tightened. Against this backdrop, Mr Lane proposed to progress further along the path of policy normalisation to make sure that inflation returned to the 2% target over the medium term. In addition to the approval of the TPI, he proposed raising the key ECB interest rates by 50 basis points. While this increment was larger than the step that had been signalled at the June meeting, a bigger first step in the ECB’s policy rate normalisation path was appropriate. This was based on the updated assessment of inflation risks and taking into account the reinforced support that would be provided by the TPI for the effective transmission of monetary policy. An increment of this magnitude would support the return of inflation to the ECB’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjusted to deliver the ECB’s inflation target in the medium term. Mr Lane remarked that further normalisation of interest rates would be appropriate at forthcoming meetings. The frontloading of the exit from negative interest rates at the current meeting would allow the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The future policy path would be data-dependent and guided by the Governing Council’s medium-term inflation target of 2%. In the context of the policy normalisation, the Governing Council should evaluate options for remunerating excess liquidity holdings at one of its forthcoming meetings. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. Inflation continued to be undesirably high and was expected to remain above target for some time. The latest data indicated a slowdown in economic growth, clouding the outlook for the second half of 2022 and beyond. At the same time, while risks to growth were on the downside – related in particular to the uncertainty about the consequences of the Russian invasion of Ukraine – the slowdown was being cushioned by a number of supportive factors. Risks to the inflation outlook were on the upside and had intensified, especially for the short term. They were also spreading more broadly. As regards the external environment, the slowdown in global trade observed in the first quarter of 2022 was worsening, reflecting developments in both advanced and emerging market economies. Concerns were expressed about a deteriorating outlook for the United States and the United Kingdom. It was also observed that China would probably not be able to play its past role as the engine of global growth, as its economy was slowing down. Members widely noted that the depreciation of the euro constituted an important change in the external environment and implied greater inflationary pressures for the euro area, in particular through higher costs of energy imports invoiced in US dollars. The point was made that the improvements in competitiveness and support for growth that would normally be associated with a depreciation were being impeded by the prevailing global supply constraints and logistics restrictions. At the same time, it was suggested that most of the depreciation against the US dollar was due to divergent monetary policies, which partly reflected the differences in the outlook for the two economies. It was argued that, if the present risks of recession in the US economy were to materialise, the euro would be expected to appreciate. However, a countervailing – and probably dominant – effect could result from worsening global risk sentiment, which typically implied a strengthening of the US dollar. Turning to euro area developments, economic activity was slowing and Russia’s war in Ukraine was an ongoing drag on growth. The adverse impact of high inflation on purchasing power and demand, continuous supply constraints and higher uncertainty were having a dampening effect on the economy. Firms continued to face higher costs and disruptions in their supply chains, although there were tentative signs that some of the supply bottlenecks were easing. Taken together, these factors were significantly clouding the outlook for the second half of 2022 and beyond. At the same time, economic activity continued to benefit from the reopening of the economy, a strong labour market and fiscal policy support. For instance, as people started to travel again, tourism was expected to help the economy in the coming months. Consumption was being supported by the savings that households had built up during the pandemic and by a strong labour market, where unemployment had fallen to a historical low of 6.6% in May and job vacancies across many sectors showed that there was robust demand for labour. In their discussion, members noted that there were increasing signs of a downturn in euro area economic activity that could extend into 2023. PMI survey data for output in manufacturing and services pointed to a loss of momentum. In the case of manufacturing, the indicator had dropped to contractionary territory for the first time since mid-2020. Survey data on new orders and business expectations suggested that this weakening would continue in the coming months. Moreover, consumer confidence had declined to an all-time low. Inflation was eroding real wealth and savings, as well as real incomes, and the decline in equity prices pointed to negative effects on capital expenditure. Against this background, caution was warranted regarding the prospects for consumption and investment demand. At the same time, it was reiterated that the euro area economy had demonstrated considerable strength and resilience in the face of multiple crises, notably with regard to the pandemic and the war in Ukraine. Additionally, there were no indications of a major recession in the euro area so far. In this context, a good understanding of the current resilience of labour market dynamics was needed. Members broadly agreed that the risks to economic activity were on the downside. A prolongation of the war in Ukraine remained a source of significant downside risk to growth, especially if energy supplies from Russia were disrupted to such an extent that it led to rationing for firms and households. Indeed, the possibility of Russian gas supply shortages increased the probability of a recession. More generally, the war might further dampen confidence and aggravate supply-side constraints, while a faster deceleration in global growth would also pose a risk to the euro area outlook. The risk of a renewed pandemic wave was seen as still looming, with infection rates remaining high despite favourable weather conditions. Overall, it was acknowledged that developments in energy markets warranted close attention, but it was also stressed that the baseline scenarios of the June staff projections and the European Commission forecasts just published did not foresee a recession. Members agreed that fiscal policy was helping to cushion the impact of the war in Ukraine for those bearing the brunt of higher energy prices. Temporary and targeted measures should be tailored so as to limit the risk of fuelling inflationary pressures. Fiscal policies in all countries should aim at preserving debt sustainability, as well as raising the growth potential in a sustainable manner to enhance the recovery. It was noted that the dispersion of inflation rates across euro area countries and the role played in this by energy and gas prices required a response that could not be provided by monetary policy alone but needed to be addressed by other policy areas. However, a warning was given that such calls should not be interpreted as recommending continued and untargeted fiscal stimulus. On price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation had increased further to 8.6% in June, and surging energy prices had again been the most important component of overall inflation. Price pressures were spreading across more and more sectors, in part owing to the indirect impact of high energy costs across the whole economy. Accordingly, most measures of underlying inflation had risen further. Inflation was expected to remain undesirably high for some time, owing to continued pressures from energy and food prices and pipeline pressures in the pricing chain. Higher inflationary pressures also stemmed from the depreciation of the euro exchange rate. Looking further ahead, in the absence of new disruptions, energy costs should stabilise and supply bottlenecks should ease, which, together with the ongoing policy normalisation, should support the return of inflation to the Governing Council’s target. It was underlined that the latest inflation developments implied a clear materialisation of upside risks since the previous meeting of the Governing Council. Once more, June had seen an inflation surprise, confirming the underestimation bias observed in the recent past when outturns were compared with earlier projections. Not only had the inflation rate recorded in June increased to well above the projections, but also seasonally adjusted month-on-month rates pointed to continued strong momentum in almost all inflation components. It was also observed that the upward movement of inflation had taken place despite the dampening effect of temporary measures introduced to cope with high energy prices. Actual inflationary pressures were thus even greater than suggested by official readings and, to some extent, reflected government measures. Against this background, it was argued that upside risks were clearly dominant in the short term. These upside risks were evident when updating the short-term projections by taking explicit account of the recent stronger month-on-month dynamics, the elevated level of oil refining margins, the stronger link between electricity prices and oil and gas futures, and the apparent faster pass-through of energy and producer prices to consumer prices. However, it was noted that such an updated short-term outlook could not easily be converted into an updated medium-term outlook. A key issue in the outlook for 2023 was the extent to which further inflation pressures were still to be observed, as, in the absence of further shocks, the large contribution of energy and food to the rise in inflation should otherwise diminish mechanically. Moreover, it remained to be seen by how much indirect effects would contribute to a further rise in core inflation over time. In considering the possible persistence of inflationary pressures in the medium term, it was recalled that HICP projections did not as yet fully include costs for owner-occupied housing, while the latest data pointed to quite persistent upward pressures on housing costs despite recent increases in mortgage interest rates. It was also argued that upward shifts in medium-term inflation could emerge from structural changes to the economy. Examples were a possible partial reversal of globalisation and the green transition. Over the usual projection horizon, it was seen as important to assess whether potential second-round effects or a weak anchoring of expectations would imply higher inflation over the medium term or whether current price pressures were simply one-off inflation bursts owing to the war and would stop once the adjustment was complete. The expected retreat of inflation from its anticipated peak later this year was seen to be predicated on two main factors: first, base effects, and second, a process of convergence with the target in line with Phillips curve predictions. However, it was cautioned that this type of prediction had disappointed more than once in the past. It was thus seen as questionable to keep shifting the short-term outlook upwards while keeping the end point unchanged, as the short-run situation would have an impact on persistence and thus propagate inflation tendencies into the medium term. In this respect, there might be more persistence in the inflation process than embedded in models where parameters were maintained at the values that had been estimated in a low-inflation environment, even though such values were likely to be changing as inflation moved higher. In addition, more persistent price pressures could emerge if the strong supply constraints implied that potential output was lower than initially thought. Such negative effects were all the more likely if there should be a failure to bring more people into the labour market. Members agreed that the persistence of inflation depended, to a large extent, on the behaviour of wages. Wage growth, also according to forward-looking indicators, had continued to increase gradually over the last few months but still remained contained overall. Over time, the strengthening of the economy and some catch-up effects were likely to support faster growth in wages. It was recalled that steady-state inflation of 2% was consistent with wages growing at 3% per year given typical productivity growth. Reference was made to indications from the ECB’s Corporate Telephone Survey, in which three-quarters of the respondents expected higher wage growth in 2023 than in 2022, pointing to an elevated risk of second-round effects. Reference was also made to the forward-looking wage tracker, which suggested a pick-up in wage growth and thus pointed to possible greater persistence of inflation. Overall, it was maintained that there was no evidence of significant second-round effects as yet, but the repeated upward surprises as regards inflation and indications that inflation had become more persistent had increased the probability of such effects. In this context, reference was made to the Annual Economic Report 2022 from the Bank for International Settlements, which had concluded that transitions from low to high inflation regimes tended to be self-reinforcing, mainly owing to the occurrence of wage-price spirals. While members pointed out that wage formation in the euro area was built on overlapping multi-year wage agreements, this was also seen as implying that there could be long delays in higher inflation being reflected in the negotiation process. The catch-up of nominal wages in response to the current erosion of real wages might thus still take place. The risk was that, once wages started moving, they would keep increasing over the medium term, particularly in view of the higher persistence of inflation than observed in other major currency areas. It was argued that, thus far, the costs of the terms of trade shock had been borne essentially by workers. A rebalancing of the distribution of the implied “tax” between workers and employers would take some time, in part depending on productivity developments, bargaining power and the ability of firms to maintain profit margins. It was argued that there was a need to closely monitor wage developments, as these could transform price-level effects into presistent inflation. However, it was also remarked that a rebalancing between profits and wages would not necessarily represent the start of a wage-price spiral. At the same time, the point was made that the current high rates of inflation could trigger increased wage indexation and then change the structural features of wage formation. This could reverse the earlier wage growth trend that had taken hold in a low-inflation environment. The current situation raised the question of why the apparent tightness of the labour market had not led to higher wage growth thus far. One explanation put forward was that workers were still hesitant to ask for higher wages, even though stronger pricing power for firms should have increased the scope for granting higher wages. This was corroborated by evidence from the Corporate Telephone Survey, with firms reporting both labour shortages and an easier pass-through of costs into higher selling prices. In this context, it was also pointed out that there was evidence of a higher frequency of repricing in the face of the current significant cost-push shocks. With regard to longer-term inflation expectations, most measures were currently standing at around 2% and were thus still in line with the medium-term target. However, recent above-target revisions to some indicators warranted continued monitoring. Survey-based measures had edged up. In the case of the Survey of Professional Forecasters, longer-term expectations had risen to a new historical high of 2.2%. The median stood at 2%, but the increasing number of survey respondents at the upper end of the distribution of expectations was seen as an early warning sign of further shifts in the mean. The point was made that expectations had proven relatively slow to adjust upwards after many years of below-target inflation. If the same was now true in the opposite direction, it would be very difficult to re-anchor expectations once these had moved away from the target. Reference was also made to the ECB’s Consumer Expectations Survey and the renewed upshift in inflation expectations three years ahead, after a temporary drop following the outbreak of the war in Ukraine. Such upward shifts might reflect “experience effects”, which could be very long-lived and hard to reverse. The view was expressed that the latest survey data suggested a greater threat to anchoring than was apparent from financial market-based measures of inflation expectations. It was remarked that market-based measures of inflation compensation mattered for monetary policy because financial markets transmitted interest rate changes. So far no extreme movements had been observed in these measures, despite heightened volatility. The measures had actually declined since mid-June, with market participants expecting higher interest rates and lower economic growth. On the one hand, it was argued that their return to just above 2% – a level last seen in January – suggested that expectations were well anchored. This was seen to corroborate the notion that the current high inflation was being driven mainly by supply factors and not by expectations. On the other hand, the question was raised as to whether this could be seen as a stable anchoring when these expectations had first risen substantially to almost 2.5% and then fallen again by the same amount. This cautioned against drawing too much comfort from market-based measures and models that used them as inputs. Against this background, members assessed that the risks to the inflation outlook continued to be on the upside and had intensified, particularly in the short term. The risks to the medium-term inflation outlook included a durable worsening of the production capacity of the euro area economy, persistently high energy and food prices, inflation expectations rising above the Governing Council’s target and higher than anticipated wage rises. However, if demand were to weaken over the medium term in the wake of an economic slowdown, it would lower pressures on prices. Risks to the medium-term inflation outlook were seen to be clearly tilted to the upside. It was argued that even a recession would not necessarily diminish upside risks, especially if it was related to a gas cut-off or another supply shock implying a further increase in inflation. At the same time, the point was made that this scenario of low growth but high and persistent inflation owing to supply shocks could be contrasted with a scenario where low growth would itself take care of high inflation. This appeared to be the current view of the markets, which were reflecting a combination of lower growth expectations and lower inflation expectations. In this respect the behaviour of the unions in response to a recession was seen as crucial. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. Bank funding costs had risen in recent months, which had increasingly fed into higher bank lending rates, in particular for households. It was remarked, however, that the increase in bank funding costs had remained contained – probably owing to the fact that banks were generally not yet paying interest on customer deposits and continued to have access to favourable Eurosystem funding, including from the targeted longer-term refinancing operations (TLTROs). Moreover, the transmission of higher funding costs to lending rates was incomplete in some countries – perhaps owing to strong competition among banks or typical lags in the transmission. However, bank lending rates might start to increase more strongly in the coming quarters. While the volume of bank lending to households remained strong, it could be expected to decline in view of lower demand for loans. Lending to firms had been robust as high production costs, inventory building and lower reliance on market funding had created a continued need for credit from banks. At the same time, demand for loans to finance investment had declined. Money growth had continued to moderate owing to lower liquid savings and lower Eurosystem asset purchases. The most recent bank lending survey had reported that credit standards had tightened for all loan categories in the second quarter of the year, as banks were becoming more concerned about the risks faced by their customers in the current uncertain environment. Overall, despite the increase in the cost of borrowing and a decline in equity prices, monetary and financial conditions were assessed as having remained favourable, also taking into account the contribution from the exchange rate. Real interest rates for short maturities had declined since the June Governing Council meeting, as expected inflation had been revised upwards, while for longer maturities real rates had increased somewhat. Market interest rates had been volatile as a result of the pronounced economic and geopolitical uncertainty. It was remarked that market expectations for the terminal rate in the interest rate hiking cycle had also displayed significant volatility, increasing until mid-June on the back of higher interest rate expectations and decreasing thereafter when perceived recession risks rose. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members agreed that it was appropriate to take further steps on the path of monetary policy normalisation. In recent months inflation had repeatedly been higher than expected, and some of the upside risks that the Governing Council had anticipated in June had materialised, while further increases in energy prices were dampening the economic growth outlook. Medium-term risks had also increased. It was recalled that monetary policy was not able to provide effective support when the economy was hit by a series of supply shocks. As witnessed during the pandemic, governments were better able to provide support to households and firms, leaving monetary policy to focus on inflation developments and take the necessary action in line with the ECB’s mandate. Inflationary pressures were judged to have intensified since the Governing Council’s June meeting, especially in the short term. It was highlighted that persistently high inflation posed an increasing risk of longer-term inflation expectations becoming unanchored, even though both market-based measures of inflation compensation and survey-based longer-term inflation expectations were still broadly in line with the Governing Council’s medium-term inflation target. It was cautioned that a continued anchoring of inflation expectations was dependent on the Governing Council acting decisively on the worsening inflation outlook. Against this background it was seen as appropriate to reaffirm the Governing Council’s determination to bring inflation back to its 2% target over the medium term, particularly in view of the fact that an instrument was being established to prevent unwarranted, disorderly reactions in financial markets to the ongoing normalisation of monetary policy and to safeguard a smooth monetary policy transmission throughout the euro area. Members first discussed Mr Lane’s proposal to approve the TPI, as put forward by the Executive Board. Members highlighted the importance of the measure, which was seen as a decisive step to ensure the smooth transmission of the monetary policy stance and enable the Governing Council to more effectively deliver on its price stability mandate. The TPI would strengthen the Governing Council’s toolkit when fragmentation threatened the transmission of monetary policy, and would complement reinvestment flexibility under the pandemic emergency purchase programme (PEPP) and the Outright Monetary Transactions (OMT) programme. Confidence was expressed that the TPI, with clear eligibility criteria, a well-structured process for its activation and conditions for an exit from its use, would support the stabilising potential of the toolkit and allow an effective response in the event of unwarranted, disorderly market dynamics. In this vein, the TPI would complement the other instruments available to address fragmentation by helping to support a smooth transmission of monetary policy across all the euro area countries while the stance was being normalised. It was argued that a detailed monetary policy case for the TPI and a clear framework for its activation were essential. The TPI was deemed an important way to increase the resilience of Economic and Monetary Union, which – due to decentralised fiscal policy and the lack of a fully-fledged capital markets and banking union – was still incomplete and exposed to asymmetric shocks. This incompleteness would only disappear with fundamental changes to the euro area’s architecture. In this context, monetary policy had to play its role, within the ECB’s mandate, in addressing fragmentation to the extent that it impeded a smooth transmission of the monetary policy stance, a precondition for the ECB to be able to deliver on its price stability mandate. Fragmentation risks were considered to be more likely in the current environment, in which monetary policy was being normalised at a time of large supply-side shocks and increasing risks to economic growth. While the ECB was taking action to preserve the efficiency of monetary policy, it was suggested that European governments should, within their own domain of responsibility, advance institutional reforms in order to better address the underlying sources of fragmentation in the euro area. The design of the TPI was considered to be proportionate and to contain sufficient safeguards and conditions to ensure that the Governing Council acted within its mandate. It was recalled that the European Court of Justice had confirmed in its case law that, in exercising its competence in monetary policy in the pursuit of price stability, the Governing Council had broad discretion but had to carry out a thorough proportionality assessment of any new initiative. The comprehensive work on the TPI carried out over the past three months by the Eurosystem committees and ECB staff clearly documented the fact that the Governing Council was basing its decisions on a thorough analysis along the three dimensions of the proportionality assessment: effectiveness, efficiency and limited side effects. That analysis led to the conclusion that the instrument incorporated sufficient eligibility criteria and activation conditions, and a number of additional safeguards. This made the new instrument a proportionate response to the challenge posed by fragmentation to an effective and efficient conduct of monetary policy. It was also highlighted that the TPI was designed in such a way as to avoid weakening incentives for governments to pursue sound economic policies, particularly in the fiscal domain. While it was remarked that the success of the TPI ultimately required sufficient commitment by governments to maintain the impetus for sound fiscal and economic policies, it was viewed as essential that the Governing Council underlined its readiness to use the TPI to the extent necessary to address risks to transmission and as appropriate under the stated conditions. Moreover, it was recalled that more persistent and fundamental problems were to be addressed by the OMT programme and that, while monetary policy was able to react to self-fulfilling liquidity crises, solvency problems had to be tackled by other actors. In this respect it was pointed out that, when assessing the sustainability of public debt, the Governing Council would take into account, where available, the debt sustainability analyses by the European Commission, the European Stability Mechanism, the IMF and other institutions, together with the ECB’s internal analysis, without establishing a hierarchy between the analyses of the different institutions. Importantly, however, it was stressed that the Governing Council would undertake this assessment with full discretion. In the light of the foregoing discussion, members unanimously supported the TPI as proposed by Mr Lane in his introduction. The unity and the team spirit in the discussion among the members of the Governing Council were widely praised, and the Eurosystem committees and staff at the ECB and national central banks were thanked for their efficient collaboration during the preparatory phase. A unanimous decision by the Governing Council with forceful and convincing communication was seen to lend strong credibility to the TPI. Turning to the consideration of the current monetary policy stance, a very large number of members agreed that it was appropriate to raise the ECB’s key interest rates by 50 basis points as proposed by Mr Lane. A 50 basis point hike was seen as warranted in view of the worsening of the inflation outlook since the Governing Council’s June meeting. The Governing Council thereby took a larger first step on its policy rate normalisation path than signalled at its previous meeting, applying the stated principles of data-dependence and optionality. This was seen as providing a clear signal of its determination to act and to fulfil its mandate. Some members argued in favour of raising the ECB key interest rates by 25 basis points as this was the intended move communicated at the Governing Council’s June meeting and would preserve consistency with the Governing Council’s earlier communication. With recession risks looming, an increase of 25 basis points was seen as more in line with a gradual monetary policy normalisation. It was also perceived as compatible with inflation returning to the Governing Council’s 2% target over the medium term once transitory shocks had faded. Moreover, the concern was raised that, if the Governing Council deviated from its earlier guidance and surprised markets with a larger than expected increase, this would add to the prevailing market uncertainties. These considerations notwithstanding, it was maintained that the Governing Council had to demonstrate that it was willing and able to respond if the outlook changed. It was also argued that, despite constituting a larger than expected increase, a 50 basis point interest rate hike provided more clarity for market participants in a highly uncertain environment. Moreover, it was judged that the monetary policy stance remained accommodative even after a 50 basis point rise. Members widely held the view that the TPI provided reinforced support for the effective transmission of monetary policy, thereby helping the Governing Council to proceed more decisively with the normalisation of monetary policy than envisaged at the June meeting. While the TPI was judged as allowing the Governing Council to address unwarranted, disorderly financial market developments more effectively, it was also perceived as necessary to enable the Governing Council to act more decisively to maintain price stability. It was underlined that a decision to raise interest rates by 50 basis points at the present meeting should be regarded as frontloading the exit from negative rates and as part of the interest rate adjustment necessary to normalise monetary policy, rather than indicating a change in the rate to be expected as the end-point of the normalisation cycle. Indeed, the Governing Council was not changing its assessment regarding the terminal rate in the hiking cycle, which could only be determined more precisely when interest rates were approaching it more closely. A 50 basis point hike would take the deposit facility rate to zero, ending the period of negative interest rates, which were clearly no longer warranted in view of longer-term inflation expectations standing at or above 2% and the current high inflation numbers. Furthermore, it was argued that frontloading a 50 basis point increase in July would allow the Governing Council more flexibility in reacting to incoming data and proceeding with monetary policy normalisation at its future meetings. Looking at the September meeting and further ahead, broad support was expressed for Mr Lane’s proposal to transition to a meeting-by-meeting approach to interest rate decisions. While providing forward guidance on interest rates was a powerful instrument in times when interest rates were close to the effective lower bound, its usefulness was judged as being significantly diminished in the normalisation phase. In the current circumstances with exceptionally high uncertainty, specific forward guidance on the future interest rate path was seen as excessively constraining the Governing Council’s optionality, flexibility and data-dependence, with the risk that the Governing Council would tie itself to decisions that it needed to reverse later when circumstances changed. In this context, attention was drawn to the continued forward guidance on the evolution of the Eurosystem balance sheet. Different views were expressed as to the need for and the interpretation of the notion of gradualism and how to reconcile it with the need for data-dependence and optionality. On the one hand, it was stressed that in an uncertain environment in which incoming data pointed to increasing risks to price stability, optionality should take precedence over gradualism. On the other hand, it was maintained that gradualism should be interpreted as proceeding step by step with the policy normalisation and not jumping immediately to an end-point rate that was highly uncertain under current conditions. In that sense, a 50 basis point increase was regarded as gradual and compatible with the principles of flexibility, optionality and data-dependence, which would continue to govern the normalisation path. Members agreed that flexibility in reinvestments of redemptions coming due in the PEPP portfolio remained the first line of defence to counter risks to the transmission mechanism related to the pandemic. In the discussion it was questioned whether the narrowing of spreads observed since mid-June could be attributed to the activation of flexible PEPP reinvestments or whether it was linked to other factors, such as the expectation that the Governing Council would create a new tool to fight fragmentation and whether the activation of PEPP flexibility in June had been necessary. Monetary policy decisions and communication Against this background, members expressed readiness to join a consensus on raising the ECB’s three key interest rates by 50 basis points. Communication had to acknowledge that upside risks to the inflation outlook had intensified, especially in the short term. It was also emphasised that the Governing Council’s decision was based on an updated assessment of the risks to the medium-term inflation outlook. The decision had to be seen as a further step in an ongoing normalisation process that had started in December last year with the phasing-out of the unconventional monetary policy measures. It was seen as important to stress that the 50 basis point hike did not consitute an upward shift in the interest rate path but rather a frontloading of the policy normalisation. Taking into account the foregoing discussion among the members, and after having ascertained that there were no further comments, on a proposal by the President, the Governing Council approved the TPI with the broad conditions and safeguards set out in the dedicated press release. The Governing Council also decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022. At the Governing Council’s upcoming meetings, further normalisation of interest rates would be appropriate. The frontloading of the exit from negative interest rates allowed the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions. The Governing Council’s future policy rate path would continue to be data-dependent and would help to deliver on its 2% inflation target over the medium term. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme (APP) for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance. As concerns the PEPP, the Governing Council intended to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance. Redemptions coming due in the PEPP portfolio were being reinvested flexibly, with a view to countering risks to the transmission mechanism related to the pandemic. The Governing Council would continue to monitor bank funding conditions and ensure that the maturing of operations under the third series of targeted longer-term refinancing operations (TLTRO III) did not hamper the smooth transmission of its monetary policy. The Governing Council would also regularly assess how targeted lending operations were contributing to its monetary policy stance. The Governing Council stood ready to adjust all of its instruments within its mandate to ensure that inflation stabilised at its 2% target over the medium term. The Governing Council’s new TPI would safeguard the smooth transmission of its monetary policy stance throughout the euro area. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 21 July 2022 Press releases Monetary policy decisions The Transmission Protection Instrument Meeting of the ECB’s Governing Council, 20-21 July 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Šimkus Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Wunsch * Members not holding a voting right in July 2022 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Buch Mr Demarco Ms Donnery Mr Gavilán Ms Goulard Mr Haber Mr Kaasik Mr Koukoularides Mr Kuodis Mr Lünnemann Mr Nicoletti Altimari Mr Rosalino, Alternate to Mr Centeno Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 6 October 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 7-8 September 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 7-8 September 2022 6 October 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel started by noting that the narrative in financial markets had shifted since the Governing Council’s previous monetary policy meeting in July. Initially, fears of a recession had dominated global asset prices and financial conditions had eased on the expectation that the pace of interest rate increases by central banks around the world would slow down, as a recession was perceived to do part of the job of bringing inflation back to the target level. However, more recently the focus of investors had gradually shifted back towards a tighter monetary policy stance as inflation outcomes had continued to be higher than expected. In this environment, there had been four key observations. First, volatility in interest rate markets remained at historically high levels, reflecting very high uncertainty regarding inflation, as well as heightened data dependence of monetary policy. Second, monetary policy normalisation in the euro area was now expected to proceed at a significantly faster pace than had been expected at the time of the Governing Council’s previous monetary policy meeting. Third, the summer rally in risk assets had been halted and partly reversed by investors’ reappraisal of the future path of monetary policy. Finally, the sensitivity of euro area sovereign bond yield spreads to policy rate expectations remained notably weaker than before the Governing Council’s ad hoc meeting on 15 June 2022. Volatility in global interest rate markets and currency markets remained elevated. The heightened volatility in interest rate markets had primarily been driven by the uncertainty around the future course of inflation and the shift of monetary policy to a meeting-by-meeting approach, which had increased data dependency. Regarding the change in policy rate expectations, markets had reassessed both the extent and the pace of policy normalisation. After reaching a trough in late July, the “terminal rate” (the level at which market participants expected the policy interest rate to peak) had rebounded markedly and currently stood close to the peak seen in mid-June. The expected speed of progress towards this terminal rate had also increased, as investors expected a less gradual tightening cycle. The steeper expected policy path partly reflected the fact that investors attached an increasing probability to a scenario of inflation being higher for longer. Investors now expected inflation to peak in December, instead of September, as had been expected at the time of the July meeting. Options markets also pointed to rising upside risks to inflation, with investors currently pricing in a probability of around 15% that inflation would, on average, be above 4% over the next five years. Moreover, some measures of longer-term inflation compensation had started to creep higher again. In the euro area, with the latest increase in front-end inflation swap rates, real short-term rates were expected to remain highly accommodative for some time to come. This contrasted markedly with developments in the United States, where, according to market-based estimates, comparable rates were expected to be in restrictive territory in 2023. Ms Schnabel then explained how the reappraisal of monetary policy expectations had been transmitted to broader financial markets. Equity prices had increased notably during the summer, in spite of the weaker growth outlook, but had started to decline in the second half of August owing to increased concern about inflation – and the associated increase in discount rates – and weaker corporate earnings growth expectations. Yet, the decline in risk asset prices had been partly offset by an improvement in investor sentiment, as investors now required less compensation for holding risky assets instead of risk-free bonds. Overall, US stock markets were slightly down, while euro area markets were notably below the levels prevailing at the time of the Governing Council’s July meeting. A key factor in this divergence had been the sharp rise in European energy prices, which weighed on households’ real disposable income and firms’ earnings expectations. High energy prices in Europe and rising downside risks to growth in the euro area relative to the United States were also weighing on the euro exchange rate, as was the divergence of the expected path of the policy rate differential between the two economies. In euro area fixed income markets, in tandem with the repricing of other risk assets, corporate bond spreads had temporarily narrowed during the early summer, in line with a recovery in investors’ risk appetite, before reversing some of the narrowing in August. Euro area sovereign spreads had gradually widened, reflecting the shift in policy rate expectations. Yet, the link between spreads and interest rate expectations seemed to have become weaker since the Governing Council’s ad hoc meeting on 15 June 2022. In money markets, the pass-through of the 50 basis point rate hike in July had been smooth, with some exceptions in the repo and Treasury bill markets. Specifically, there had been only a partial pass-through to German non-general collateral rates following the July hike, mainly reflecting the scarcity of German Bund collateral. The global environment and economic and monetary developments in the euro area Mr Lane then went through the latest economic, monetary and financial developments in the global economy and the euro area. After the unusually high economic growth rates recorded at the start of the year as sectors reopened, global activity had slowed to the average growth rates observed before the pandemic. The deceleration in trade, coupled with a fall in new export orders, pointed to a continued loss of momentum. Despite a reduction in the Purchasing Managers’ Index (PMI) for suppliers’ delivery times, resulting from weakening demand and the partial resolution of supply bottlenecks, the overall level of supply bottlenecks remained elevated. The euro had been depreciating since the start of 2021, driven in part by monetary policy expectations and the worsening terms of trade. Turning to euro area activity, there had been a significant moderation in the manufacturing sector since the start of 2022, with the PMI for manufacturing output falling below the threshold of 50 – indicating a contraction – in the second quarter. The level of the PMI for services activity had been higher but was also weakening – even in the accommodation and food sectors, which had benefited most from the reopening of the economy. After the euro area economy had grown by 0.8% in the second quarter of 2022, mechanical short-term forecasting tools pointed to a substantial slowdown in activity in the third and fourth quarters. Focusing on demand components, private consumption had recovered significantly in the second quarter thanks to a strong contribution from the consumption of services, while the consumption of durable goods had continued to be weak over the period. The European Commission survey pointed to a significant weakening of demand for contact-intensive services in the future, together with a weakening of demand for goods from already low levels. The European Commission’s uncertainty indicator pointed to a big increase in household uncertainty and in the perceived need for precautionary savings. Moving on to investment, after a first quarter that had still been affected by supply bottlenecks and lockdowns, non-construction investment had recorded a strong growth rate in the second quarter of 2022. By contrast, the contribution of construction investment had been limited, with housing investment declining. Survey indicators suggested a moderation in non-construction investment in the second half of the year. The euro area goods trade balance had stabilised at around 3% of GDP in June, with the energy balance resulting in a deficit of around 5% of GDP in the second quarter. The effect on income of the terms-of-trade loss amounted to about 5 percentage points, which constituted the income transfer to energy-exporting countries outside the euro area and implied 5 percentage points less available income for domestic spending. The labour market had remained robust in the second quarter, but the PMI for employment signalled a moderation in the third quarter across all sectors. An analysis of the relationship between unemployment and the job vacancy rate – the Beveridge curve – helped to better understand the dynamics in the labour market. In the euro area there was currently a historically low unemployment rate and a historically high vacancy rate. By comparison, in the United States the ratio of vacancies to unemployment was a lot higher. Turning to fiscal policies, euro area governments had provided even more support in 2022, in response to the war in Ukraine, notwithstanding the scaling-back of pandemic-related measures. According to Eurosystem models, fiscal support had raised euro area growth by around 0.4 percentage points and lowered inflation in the Harmonised Index of Consumer Prices (HICP) by around 0.6 percentage points this year. Since the support measures were designed to be temporary, their unwinding was estimated to push inflation higher in both 2023 and 2024. Despite the higher fiscal support, the euro area deficit continued to be estimated to fall to 3.8% of GDP in 2022. Moving on to the latest inflation developments, HICP inflation had increased to 9.1% in August. Energy continued to contribute about half of total headline inflation, but all other components also played significant roles. The September 2022 ECB staff macroeconomic projections featured a significant upward revision to inflation in the period to the third quarter of 2023. This was mostly due to higher energy and food commodity prices, but core inflation also accounted for an upward revision of about 1 percentage point. This revision, in turn, was related to the assumption of a speedier pass-through of energy and food inflation to core inflation. From the last quarter of 2023 onwards, the upward revisions were smaller. The overall picture of broadening inflationary pressures remained in place. Many indicators of underlying inflation had shifted further upwards. However, in terms of momentum, as reflected in monthly changes, some indicators had started to flatten or had even turned slightly negative. This was likely due to the fact that these indicators were more sensitive to changes in oil prices, which had fallen. Looking at pipeline pressures for goods price inflation, some measures remained robust. However, import prices for intermediate goods, i.e. goods in the early stages of the production chain, had moderated to some extent. Services price inflation had increased from a pre-pandemic rate of 1.5% in 2019 to above 3% in July 2022. A decomposition into supply and demand factors showed that demand factors were making an increasing contribution to services price inflation in 2022. So, it was not only supply shocks that were important, but the recovery of demand also played a role. That said, it was important to distinguish between a recovery in demand and a situation of excess demand. This distinction also mattered for the comparison of inflation in the euro area and in the United States. In the United States, the pick-up in core inflation was closely matched by a pick-up in wage growth. This was not the case in the euro area, where there was a clear disconnect between the evolution of core inflation and that of negotiated wages. In the euro area, inflation in items in the HICP basket with a relatively high share of wages in direct input costs had broadly followed the dynamics of negotiated wages and had thus remained quite contained overall. The large movements in euro area core inflation were instead due to other components, such as manufacturing goods and other items with a relatively low share of wages in direct input costs. It followed that the factors behind the increase in core inflation in the two economies were different, with wages playing a central role in the United States but not in the euro area. Turning to the latest wage developments, in the second quarter euro area negotiated wages had grown by 2.4%. The experimental ECB wage tracker pointed to a gradual acceleration in wage growth over the coming quarters. Recently concluded wage agreements included increases of around 3%, on average, in the euro area for both 2022 and 2023. However, in the agreements concluded in the third quarter, wage increases for 2023 were slightly lower than in the agreements concluded in the second quarter. So far there had not been an accelerating trend in the data. With regard to inflation expectations, the Survey of Monetary Analysts (SMA) showed that analysts had been continuously re-estimating the inflation rate for this year and next year. However, for 2023, the projected inflation rate was 4%, which was significantly below the 5.5% inflation rate included in the September staff projections. The SMA also pointed to a stable 2% inflation rate for 2024. Three-year ahead inflation expectations, as measured by responses to the ECB’s Consumer Expectations Survey, had jumped in March this year and since then had continued to fluctuate around the March level. Market-based measures of inflation compensation had increased strongly for the near term. This increase largely reflected expectations of higher near-term inflation, but the energy shock and the uncertainty related to the supply of Russian gas had also caused inflation risk premia to increase. Looking further ahead, however, inflation compensation measures embedded a very steep decline, to around 2%, by mid-2024. Mr Lane then recalled the key assumptions featured in the September staff projections. Compared with the June projections, oil prices had been revised down moderately, while gas and electricity prices had been revised up sharply. Short-term interest rates had also been revised up significantly for 2023 and 2024, with three-month interest rates now seen as being close to 2% for 2023 and remaining around that level for 2024. So a significant tightening of financing conditions was embedded in the projections, which reflected the ECB’s monetary policy tightening. Moving on to the main features of the September staff projections, it was useful to look at some key figures expressed as changes in the fourth quarter relative to the previous year’s fourth quarter. This better captured the developments in the interim, cleaned of carry-over effects that were influencing annual averages. Inflation was expected to average 9.2% in the fourth quarter of 2022, relative to the fourth quarter of 2021. Inflation was then seen to fall to 3.3% in the fourth quarter of 2023 and to 2.2% in the fourth quarter of 2024. When looking at annual averages, inflation was expected to be 5.5% next year. The difference with respect to the 3.3% expected in the fourth quarter of 2023 was due to the fact that the annual figure for 2023 embedded a large carry-over effect, given the high starting point of the projection. Thus, the annual figures shown in the ECB staff projections featured a significant drop in momentum when looking at the quarterly inflation developments. At the same time, the decline in core inflation was expected to be less pronounced. While the energy and supply bottleneck shocks were expected to have less of an impact, some catch-up in wages to recover the loss in real wages, on the back of a strong labour market, implied that core inflation would remain above 2% over the projection horizon. Turning to financial and monetary developments, Mr Lane noted that the tightening of financing conditions had continued and its impact was spreading across the economy. Banks’ bond funding costs had seen a strong increase for both covered bonds and senior unsecured bonds. In addition, deposit rates for firms and households had started to increase. Both the nominal cost of firms’ debt financing and household borrowing costs were expected to increase further later in the year. The volume of loans to firms remained strong, as firms preferred to borrow now rather than later, while the net issuance of debt securities was negative, as firms continued to substitute bond issuance with bank loans, given the relatively lower rates on loans. Loan flows to households remained solid, but lending for house purchase was showing the first signs of a slowdown. Forward-looking indicators pointed to a slowdown in private sector borrowing in the second half of the year. Turning to developments in M3, there had been a significant moderation in money growth rates over the past year. After the end of the Eurosystem’s net asset purchases, money creation had been supported by bank lending, but as the growth of credit to the private sector was expected to slow, money creation was expected to decelerate further. Corporate and household deposit accumulation had normalised in recent months, with annual deposit growth rates standing close to their pre-pandemic averages. Summing up, Mr Lane stressed that price pressures were extraordinarily high and likely to persist for an extended period. At 38.3% in August, energy price inflation had remained at extremely elevated levels and had again been the largest contributor to overall inflation, which had stood at 9.1% in August. Food price inflation had also risen in August, to 10.6%, from 9.8% in July, partly reflecting higher input costs related to energy, disruptions to trade in food commodities and adverse weather conditions. Market-based indicators suggested that, in the near term, oil prices would moderate, but wholesale gas prices would stay extraordinarily high. While supply bottlenecks had been easing, these continued to gradually feed through to consumer prices. Recovering demand in the services sector had also contributed to the rise in inflation, and the recent depreciation of the euro had added to the build-up of inflationary pressures. Price pressures had continued to strengthen and broaden across the economy, in part owing to the impact of high energy costs across the whole economy. Accordingly, most measures of underlying inflation remained at elevated levels. Inflation could rise further in the near term. As the current supply-side drivers of inflation faded over time and the normalisation of monetary policy worked its way through to the economy and price-setting, inflation would come down. Resilient labour markets and some catch-up to compensate for higher inflation were likely to support growth in wages. At the same time, incoming data and recent wage agreements indicated that wage dynamics remained contained overall. Most measures of longer-term inflation expectations stood at around 2%, although recent above-target revisions to some indicators warranted continued monitoring. The staff projections for inflation had been revised up, especially for the near term. Headline HICP inflation was expected to remain at very high levels for the rest of 2022 as a result of extremely elevated energy and food commodity prices, as well as the reopening of the economy and supply bottlenecks. Compared with the June projections, headline inflation had been revised up by 1.3 percentage points for 2022, 2.0 percentage points for 2023 and 0.2 percentage points for 2024. The upward revisions reflected recent data surprises, exceptional increases in the assumptions for wholesale gas and electricity prices, stronger wage growth and the depreciation of the euro. HICP inflation was projected to average 8.1% in 2022, before subsequently decreasing to 5.5% in 2023 and 2.3% in 2024. The projected decline was largely attributable to expectations of falling energy and food commodity prices over the projection horizon. HICP inflation excluding energy and food was also likely to remain at elevated levels until the middle of 2023, but was expected to decline thereafter as the effects of the reopening of the economy subsided and supply bottlenecks and energy input cost pressures eased. The latest staff projections saw inflation excluding energy and food reaching 3.9% in 2022, 3.4% in 2023 and 2.3% in 2024. After a rebound in activity in the first half of 2022, the latest data pointed to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in 2022 and in the first quarter of 2023. Very high energy prices were reducing the purchasing power of people’s incomes and, while easing, supply bottlenecks were still constraining economic activity. Although employment had risen by 0.4% in the second quarter and survey indicators of employment perceptions still suggested further growth in the third quarter of 2022, high-frequency indicators signalled that job vacancies had started to plateau in July, possibly leading to a peak in the second half of the year. The weaker outlook was also reflected in the new staff projections, notwithstanding upward revisions in the back data. Compared with the June projections, GDP growth had been revised up by 0.3 percentage points for 2022, with growth in the first half of the year higher than expected. In contrast, growth had been revised down by 1.2 percentage points for 2023 and by 0.2 percentage points for 2024, owing mainly to the impact of energy supply disruptions, higher inflation and declining confidence. The new projections saw real GDP growing by 3.1% in 2022 and slowing markedly to 0.9% in 2023. As the energy market rebalanced, uncertainty declined, supply bottlenecks were resolved and real incomes recovered over the medium term, growth was expected to rebound and to stand at 1.9% in 2024. In the context of the slowing global economy, downside risks to the growth outlook had intensified, in particular in the near term. As reflected in the downside scenario in the staff projections, a long-lasting war in Ukraine remained a significant risk to growth, especially if firms and households faced rationing of energy supplies. In such a situation, confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A further deterioration in the global economic outlook could be an additional drag on euro area external demand. The risks to the inflation outlook were primarily on the upside. A further disruption of energy supplies was a major risk in the short term. Over the medium term, inflation could turn out to be higher than expected because of a persistent worsening of the production capacity of the euro area economy, further increases in energy and food prices, inflation expectations rising above the ECB’s inflation target and higher than anticipated wage rises. However, if energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices. Market interest rates had increased in anticipation of further monetary policy normalisation in response to the inflation outlook. Credit to firms had become more expensive over recent months and bank lending rates for households stood at their highest levels in more than five years. The volume of bank lending to firms had remained strong, however, in part reflecting the need to finance high production costs and inventory building. Mortgage lending to households was moderating because of tightening credit standards, rising borrowing costs and weak consumer confidence. Sovereign yields had moved broadly in line with risk-free rates, against the backdrop of the ongoing application of flexibility in reinvestments under the pandemic emergency purchase programme (PEPP) and reflecting the unanimous approval of the Transmission Protection Instrument at the 20-21 July Governing Council meeting. Corporate bonds and equities had rallied for most of the period since that meeting, on the back of improving risk sentiment, but had lately fallen back as discount rates increased. Monetary policy considerations and policy options Mr Lane proposed that the three key ECB interest rates be raised by 75 basis points at the present meeting. This major step would frontload the transition from the prevailing highly accommodative level of policy rates towards levels that would ensure a timely return of inflation to the ECB’s 2% medium-term target. He furthermore proposed to communicate that, based on the current assessment, over the next several meetings interest rates were expected to be raised further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. Mr Lane recalled that the monetary policy strategy stipulated that the appropriate monetary policy response to a deviation of inflation from the target was context-specific and depended on the origin, magnitude and persistence of the deviation. With inflation expected to be well above target for a long period, in view of the net upside risks to inflation and taking into account the fact that the key policy rates were still highly accommodative, it was appropriate to take this major step. The communication of this decision should make it clear that the appropriate monetary policy for the euro area would continue to take into account the fact that the energy shock remained a dominant driving force behind inflation dynamics and the general economic outlook, including through the impact of the very significant terms-of-trade deterioration. In particular, the inflation dynamics associated with the energy shock component – to which the euro area was particularly exposed – were of a different nature to that of demand-driven overheating dynamics. In line with a meeting-by-meeting approach to setting interest rates, the Governing Council should also underline that its policy would continue to be data-dependent and was not on a pre-set path, and that future interest rate decisions would reflect the evolving inflation outlook and the incoming data. In addition, Mr Lane proposed that the Governing Council continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio. Finally, Mr Lane proposed that the two-tier system for the remuneration of excess reserves be suspended by setting the multiplier to zero. With a positive deposit facility rate, the two-tier system was no longer necessary, as its role was to support the bank-based transmission of monetary policy when the deposit facility rate was negative. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. After a rebound in activity in the first half of 2022, the latest data pointed to a substantial slowdown in euro area economic growth, with the economy expected to stagnate later in 2022 and in the first quarter of 2023. Very high energy prices were reducing the purchasing power of people’s incomes and, while easing, supply bottlenecks were still constraining economic activity. In addition, the adverse geopolitical situation – especially Russia’s war in Ukraine – was weighing on the confidence of businesses and consumers. This outlook was reflected in the September staff projections for economic growth, which had been revised down markedly for the remainder of the current year and well into 2023. Inflation remained far too high and was likely to stay above target for an extended period. Soaring energy and food prices, demand pressures in some sectors as a result of the reopening of the economy and supply bottlenecks were still driving up inflation. Price pressures had continued to strengthen and broaden across the economy, and inflation could rise further in the near term. However, as the current drivers of inflation faded over time and the normalisation of monetary policy worked its way through to the economy and price-setting, inflation would come down. Global economic activity had decelerated in the first half of 2022, on the back of supply-side disruptions and other headwinds, and growth momentum had weakened significantly over recent months. Looking ahead, weakening global activity would also weigh on global trade and euro area foreign demand, despite easing pressures on global supply chains, with global growth expected to remain moderate in the second half of the year as high inflation eroded real incomes. In the context of a global monetary policy tightening cycle, members saw differences between the economic situation in the United States and in the euro area. In the United States, price pressures were more related to overheating domestic demand, while in the euro area they reflected, to a greater extent, imported inflation and a sequence of supply shocks. More visible wage pressures in the United States were seen to reflect the fact that the labour market had adjusted through an increase in redundancies rather than a reduction in hours worked per person employed. This implied that, at present, with a strong recovery in activity and employment, the United States was seeing a sharp rise in the number of job vacancies, which had led to a shift in the cyclical relationship between job vacancies and unemployment (as represented by the Beveridge curve). In the euro area, the relationship had remained stable overall. This suggested that the current higher wage pressures in the United States reflected a more pronounced labour market tightness than in the euro area. Moreover, the euro area had been more exposed to the surge in energy prices – particularly gas prices – since the start of the war in Ukraine, as the main driver of high inflation. It was also noted that the trend depreciation of the euro over the past year, notably vis-à-vis the US dollar, could add to inflationary pressures for the euro area in the period ahead. The weakening of the euro against the US dollar could be explained by a number of factors. These included the different implications of the energy shock for the economies’ respective terms of trade, diverging cyclical conditions and different risks associated with the war and the energy crisis. At the same time, the faster tightening of US monetary policy was also seen to have played an important role. Turning to developments in the euro area, the economy had grown by 0.8% in the second quarter of 2022, owing mainly to strong consumer spending on contact-intensive services, as a result of the end of pandemic-related restrictions. Over the summer, as people travelled more, countries with large tourism sectors had benefited especially. At the same time, businesses had suffered from high energy costs and continued supply bottlenecks, although the latter had been easing gradually. While buoyant tourism had been supporting economic growth during the third quarter, the economy was expected to slow down substantially over the remainder of the year. There were four main reasons behind this. First, high inflation was dampening spending and production throughout the economy, and these headwinds were being reinforced by gas supply disruptions. Second, the strong rebound in demand for services that had come with the reopening of the economy would run out of steam in the following months. Third, weakening global demand, also in the context of tighter monetary policy in many major economies, and worsening terms of trade would mean less support for the euro area economy. Fourth, uncertainty remained high and confidence was falling sharply. At the same time, the labour market had remained robust, supporting economic activity. More than 600,000 people had entered employment in the second quarter of 2022 and the unemployment rate had stood at a historical low of 6.6% in July. Total hours worked had increased further, by 0.6%, in the second quarter of 2022 and had surpassed pre-pandemic levels. With regard to economic activity, members concurred with Mr Lane that there were increasing signs of a downturn in the euro area that could extend into 2023. However, it was also highlighted that the economy had demonstrated considerable strength in the second quarter of 2022, with a quarter-on-quarter growth rate of 0.8%. Looking ahead, it was highlighted that the baseline in the September staff projections did not suggest a recession, although it did foresee a period of stagnation around the turn of the year. However, it was mentioned that a range of models and indicators suggested that a recession was likely next year. If there were to be a complete shutdown of gas supplies from Russia, this could turn into an outright recession. The reaction of domestic demand was considered a key element in the further transmission of high energy prices, as well as the less accommodative monetary policy. It was recalled that an important feature of the latest projections was that high energy prices would inevitably weigh on consumption as real incomes declined. In addition, business investment was expected to be worse than previously anticipated, especially as energy-intensive firms and firms operating in the energy sector might be exposed to financial stress generated by higher energy prices. Members noted that, in addition to the negative impact from the surge in energy and other commodity prices, there was uncertainty about the distribution of the associated terms-of-trade loss among workers and firms. In this context, the view was expressed that it would take time before the income losses due to the terms-of-trade shock were fully absorbed, as firms and workers would seek to recoup lost profits and real incomes. Regarding the fiscal policy response to higher energy prices, members agreed that measures should be temporary and targeted at the most vulnerable households and firms in order to limit the risk of fuelling inflationary pressures. However, the concern was expressed that governments would find it difficult to keep measures targeted and to reverse them in a timely manner. The view was taken that, in the context of an adverse supply shock, governments were well advised to reduce their deficits and to put their finances on a structural consolidation path, especially in those countries where public debt sustainability might be called into question. At the same time, the point was made that addressing the energy crisis as a supply shock required, first and foremost, action on the side of governments. It was argued that monetary policy primarily controlled inflation via a dampening effect on economic activity, with long and variable lags. It could not therefore control short-term inflation developments on which initiatives by governments and the European Commission could have a stronger impact. With regard to potential output, it was commented that the impact of the war and the pandemic on the productive capacity of the economy was turning out to be bigger and longer-lasting than expected, so that demand might need to be reduced commensurately if inflation were to be curbed. If the supply side was hit harder than the demand side, this could fuel inflationary pressures even if real incomes declined. According to survey evidence, companies’ production constraints were mainly related to shortages of labour and equipment rather than insufficient demand. Hence the question was raised as to whether the output gap might have already closed, in line with indications coming from the unemployment gap that pointed to a potential underestimation of the role of capacity constraints in driving inflation. However, the view was also expressed that aggregate demand was still clearly below potential. All in all, it was clear that both demand and supply factors were playing an important role in determining the current degree of economic slack in the euro area. Against this background, members assessed that, in the context of the slowing global economy, risks to growth were primarily on the downside, particularly in the near term. As reflected in the downside scenario in the staff projections, a long-lasting war in Ukraine remained a significant risk to growth, especially if firms and households faced rationing of energy supplies. In such a situation, confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A further deterioration in the global economic outlook could be an additional drag on euro area external demand. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation had risen further to 9.1% in August. Energy price inflation had remained extremely elevated, at 38.3%, and it was again the dominant component of overall inflation. Market-based indicators suggested that, in the near term, oil prices would moderate, while wholesale gas prices would stay extraordinarily high. Food price inflation had also risen in August, to 10.6%, partly reflecting higher input costs related to energy, disruptions of trade in food commodities and adverse weather conditions. While supply bottlenecks had been easing, these continued to gradually feed through to consumer prices and were putting upward pressure on inflation, as was recovering demand in the services sector. The depreciation of the euro had also added to the build-up of inflationary pressures. Price pressures were spreading across more and more sectors, owing in part to the impact of high energy costs across the whole economy. Accordingly, measures of underlying inflation remained at elevated levels. Resilient labour markets and some catch-up to compensate for higher inflation were likely to support growth in wages. At the same time, the latest data and wage agreements indicated that wage dynamics remained contained overall. Most measures of longer-term inflation expectations currently stood at around 2%, although recent above-target revisions to some indicators warranted continued monitoring. It was widely underlined that recent high inflation outcomes had largely been driven by higher energy prices. Recent developments in energy markets also suggested that headline inflation would not reach a turning point before the end of the year. Month-on-month inflation rates continued to indicate strong momentum. The argument was made that the nature of the inflation process was changing. Inflation had started to become self-reinforcing, to the point that even a projected marked weakening in growth was not sufficient to bring inflation back to target. This was also the message from the downside scenario prepared by ECB staff, which pointed to a significant recession with inflation standing even higher at the end of the horizon, well above the ECB’s target. Moreover, demand-side factors had become an important driver of underlying inflation, which also stood well above target in the baseline projection for 2024. Inflation had continued to broaden to more sectors and spending categories. Moreover, producer price inflation for core consumer goods continued to rise and the unprecedented size of pipeline pressures implied that firms would very likely continue to pass a substantial amount of these cost increases on to consumers. However, it was also argued that inflation was still largely driven by the pass-through of supply shocks in the goods market, which appeared to be unwinding, with the exception of volatile gas prices. A recession was becoming increasingly likely and would mitigate inflationary pressures. With expectations still anchored and wage growth contained, there were no convincing signs that second-round effects were already materialising. Members recalled that wage pressures were key to understanding the risk of higher energy prices having second-round effects on inflation. While wage developments in the euro area appeared moderate overall, there was evidence of differences between countries. In some euro area countries, labour markets were clearly overheated, which should ultimately lead to higher wages. However, while wages were a lagging indicator of the business cycle in general, and although a number of important wage negotiations would only take place in the autumn, it was generally observed that there were so far no convincing signs of second-round effects through wages. In this context, it was commented that the usefulness of ongoing wage developments as an indicator of future inflation pressures was questionable given that wages reacted gradually and with a substantial lag to labour market conditions in the euro area. As regards longer-term inflation expectations, most measures of market and survey-based inflation expectations were considered to be broadly anchored and in line with price stability in the medium term. At the same time, it was argued that a number of indicators pointed to an increasing risk of longer-term inflation expectations becoming unanchored. Consumers’ medium-term inflation expectations, as reported in the Consumer Expectations Survey, had gradually increased, and in July the median expectations for inflation three years ahead had stood at 3%. The mean of the longer-term inflation expectations reported in the ECB Survey of Professional Forecasters had increased to 2.2%, which was also a historical high. It was highlighted that a prolonged period of very high inflation had in itself increased the risk of inflation expectations becoming unanchored, in particular if they were being affected by recent experience, as suggested by empirical evidence. Higher than expected inflation figures exacerbated the risk of second-round effects via wages, creating upside risks to the inflation outlook. Projection models might be unable to fully capture the persistence and scale of the current inflationary episode. The expected decline in inflation towards the end of the projection horizon was therefore seen to be surrounded by a higher than usual degree of uncertainty. Against this background, members assessed that the risks to the inflation outlook were primarily on the upside. In the same way as for growth, the major risk in the short term was a further disruption of energy supplies. Over the medium term, inflation might turn out to be higher than expected because of a persistent worsening of the production capacity of the euro area economy, further increases in energy and food prices, a rise in inflation expectations above the target, or higher than anticipated wage rises. The point was made that an expansion of unfunded or partially funded government support could also constitute an upside risk to inflation. However, if energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices. Reference was made to the very useful large set of sensitivity analyses carried out by ECB staff in the context of the latest projections. It was also widely felt that, at times of extraordinary statistical uncertainty around the baseline projections, the precise numbers foreseen for inflation at the end of the projection horizon mattered less than the assessment of risks, which were seen to be on the upside throughout the horizon, including over the policy-relevant medium-term horizon. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. Credit to firms had become more expensive over recent months, and bank lending rates for households stood at their highest levels in more than five years. In terms of volumes, bank lending to firms had so far remained strong, in part reflecting the need to finance high production costs and inventory building. Mortgage lending to households was moderating because of tightening credit standards, rising borrowing costs and weak consumer confidence. However, it was noted that, despite an increase in the cost of mortgages, credit growth had remained resilient. In parallel with the apparent resilience of the real economy, the banking sector was so far still holding up well, with bank profitability benefiting from higher operating income, lower operating expenses, lower loan loss provisions and better asset quality. This could be expected to mitigate the risk of negative feedback loops between the financial sector and the rest of the economy once economic growth slowed, even if pockets of vulnerability could still appear. Although market interest rates had increased in anticipation of further monetary policy rate increases in response to the inflation outlook, it was maintained that market conditions did not show signs of destabilisation. It was also noted that financial market fragmentation had not reappeared since the Governing Council’s last monetary policy meeting, and sovereign yields had moved broadly in line with risk-free rates. Corporate bond spreads had also narrowed since the previous monetary policy meeting, while equity markets, except for the financial sector, had been broadly weaker. It was underlined that the euro had depreciated by nearly 20% against the US dollar since June 2021, amplifying the energy price shock and adding to import price pressures for an extended period. Overall, financial conditions had tightened somewhat in the euro area since the last monetary policy meeting, while remaining relatively loose, particularly in real terms and when the exchange rate was taken into account. At the same time, higher market interest rates were starting to feed through to bank lending rates and financing conditions for the real economy, with further increases to be expected. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members agreed that it was appropriate to take a further step on the path of monetary policy normalisation. Overall, the current level of the ECB’s key policy rates was judged to be still highly accommodative; with inflation at 9.1% in August 2022 and the deposit facility rate at 0%, short-term real rates were deeply negative. Inflation was far too high and likely to stay above the Governing Council’s target for an extended period. It was therefore essential that it be brought back to 2% in a timely manner. Inflation had repeatedly been higher than expected in recent months and inflationary pressures were seen as unlikely to abate on their own. The inflation projections had been revised upwards for the current year and for next year, while the projection for 2024 had drifted upwards over the past few quarters and now clearly exceeded the Governing Council’s target of 2%. Risks surrounding the projected inflation path remained tilted to the upside over the entire projection horizon. Moreover, month-on-month figures for headline and core inflation were rising strongly. While it was underlined that supply shocks, in particular those affecting energy prices, were the main driver of the current high level of inflation and the worsening outlook, demand-side factors also played a role. While monetary policy was not equipped to address supply shocks, it clearly affected the balance of supply and demand. Hence it was argued that putting too much emphasis on supply-side problems could risk neglecting the fact that aggregate demand had to adjust to curb inflation. In this regard, it was maintained that the expected weakening in economic activity would not be sufficient to reduce inflation to a significant extent and would not in itself bring projected inflation back to target. This was seen to present the Governing Council with the difficult challenge of ensuring that inflation returned to target in a timely manner without unnecessarily exacerbating an economic downturn. However, it was also argued that growth concerns should, in any case, not prevent a needed forceful increase in interest rates. Moreover, it was remarked that, without a timely reduction in monetary policy accommodation, inflationary pressures resulting from a depreciation of the euro might increase further, while lower exchange rates provided limited support to economic activity in an environment of continued global supply bottlenecks and shortages. While monetary policy could not prevent first-round effects from higher energy prices and the impact of supply shocks, its primary responsibility was to counter risks of second-round effects and prevent an unanchoring of inflation expectations. Such risks were increasing, with inflation becoming more persistent than initially expected. Against this background, the Governing Council’s response to upside deviations from the ECB’s target ought to be as forceful as it had been when inflation had been too low. It was recalled that the Governing Council regarded deviations of inflation from target in either direction as equally undesirable. The ECB’s monetary policy strategy prescribed that price stability had to be maintained with a medium-term orientation, and the magnitude and persistence of the deviation from the Governing Council’s inflation target, as well as the context and origin of inflation pressures, had to be taken into account. At the same time, it was argued that acting forcefully now could avoid the need to increase interest rates more sharply later in the economic cycle when the economy was slowing down. Moreover, it was maintained that the longer high inflation persisted, the higher the risk that inflation expectations could become unanchored and the costlier it would be to bring them back to target. Turning to the size of the interest rate increase, a very large number of members, in line with Mr Lane’s proposal, expressed a preference for raising the key ECB interest rates by 75 basis points. A 75 basis point increase was judged to be a proportionate response to the further upward revisions to the inflation outlook and an important signal that the Governing Council was determined to bring inflation back to its 2% target in a timely manner. The fact that inflation had repeatedly been higher than expected and the upward revision to the medium-term inflation projections were seen as calling for a faster pace of monetary policy normalisation to keep inflation expectations anchored at the target level in the medium term. Market participants had priced in a larger interest rate increase than in July in response to the latest inflation data. Since the deposit facility rate was, at 0%, far from a level that could be considered neutral in terms of monetary policy accommodation, and in view of the worse inflation outlook, progress towards a level that supported a return of inflation to 2% had to be frontloaded. While the Governing Council’s decision in July to raise the ECB’s key policy rates by 50 basis points had been an important first step in normalising the interest rate level, it was argued that policy would remain expansionary after a 75 basis point rate hike. Some members expressed a preference for increasing the key ECB interest rates by 50 basis points. While a 25 basis point increase was seen as clearly insufficient to address the current inflation outlook, it was argued that a 50 basis point hike would be large enough to signal determination in proceeding with the interest rate normalisation that the Governing Council had begun at its July meeting. With the looming risk of a recession, which would mitigate inflationary pressures, an increase of 50 basis points, if part of a sustained path towards more neutral rate levels, might prove sufficient to return inflation to the Governing Council’s 2% target over the medium term once transitory shocks had faded. What needed to be addressed was the risk of the sharp rise in inflation, exacerbated by the war, destabilising inflation expectations. A response that was too aggressive could also exacerbate a recession, with few benefits for inflation in the short term. So far, inflation expectations were still anchored and wage growth remained moderate, with little evidence of second-round effects. Moreover, the size of the upward revision in the staff inflation projection for 2024 was not seen as sufficiently large as to require a more aggressive response, since it was uncertain how much inflation was likely to dampen domestic demand and high uncertainty surrounded the projections, particularly towards the end of the projection horizon. It was noted that the euro area was less affected by excess demand than the United States. Supply-side factors such as energy played a much larger role in the euro area, wage inflation was more moderate and medium-term inflation expectations were better anchored. Monetary policy decisions and communication At the end of the discussion, all members joined a consensus to raise the three key ECB interest rates by 75 basis points, while reaffirming that the Governing Council’s decision remained data-dependent and that a 75 basis point increase should not signal that the Governing Council intended to agree on interest rate increases of a similar magnitude at its future meetings. It was seen as essential to communicate prudently on the way forward and to counter the risk of increased volatility in the bond market by referring to a frontloading of interest rate normalisation. Members widely concurred with Mr Lane that monetary policy should continue to be data-dependent and not follow a pre-set path, and that interest rates should be set on a meeting-by-meeting basis. At the same time, it was considered important to indicate that interest rates would be raised further over subsequent meetings as part of the normalisation process. Regarding the interest rate level ultimately required to stabilise inflation at 2% over the medium term and the time at which that level was to be reached, it was stressed that these were subject to uncertainty, model-dependent and context-specific, and changed over time. In addition, the “neutral rate of interest” depended on long-term trends in factors such as productivity and demographics, as well as the interplay between savings and investment behaviour. Hence, the concept was debatable, unobservable and difficult to measure in real time. Despite these difficulties, there was broad consensus that, even after the current decision, the key policy rates would remain significantly below the neutral rate. Looking beyond the configuration of the key ECB interest rates, it was underlined that the Eurosystem’s large balance sheet was continuing to provide significant monetary policy accommodation by compressing term premia. It was seen as appropriate to reiterate that the Governing Council stood ready to adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target of 2%. Members also agreed with Mr Lane’s proposal to continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio. Containing unwarranted volatility in sovereign bond markets was generally seen as an essential complement to a 75 basis point interest rate increase and signalled the ECB’s commitment to ensure a smooth transmission of monetary policy throughout the euro area. Finally, members agreed with Mr Lane’s proposal to suspend the two-tier system for the remuneration of excess reserves by setting the multiplier to zero, since the two-tier system was no longer considered necessary in view of the positive value that the deposit facility rate would reach as a consequence of the decision to raise the three policy rates by 75 basis points. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 8 September 2022 Press releases Monetary policy decisions Meeting of the ECB’s Governing Council, 7-8 September 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau Mr Visco* Mr Vujčić** Mr Wunsch * Members not holding a voting right in September 2022 under Article 10.2 of the ESCB Statute. ** As observer. Other attendees Mr Dombrovskis, Commission Executive Vice-President*** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics *** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Buch Mr Cassidy Mr Demarco Mr Garnier, Alternate to Mr Villeroy de Galhau on Thursday Mr Gavilán Mr Gilbert Mr Haber Mr Kaasik Mr Koukoularides Mr Kuodis Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 24 November 2022. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 26-27 October 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 26-27 October 2022 24 November 2022 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that uncertainty had increased in financial markets since the Governing Council’s previous monetary policy meeting on 7-8 September 2022. This had occurred amid persistently high inflation and elevated fears of a recession, with increased attention on potential financial instability. Inflation concerns had remained the dominant driver of financial market developments, as inflation outcomes had continued to surprise to the upside, leading to a renewed adjustment of market expectations for monetary policy globally. Against the background of persistent inflation surprises, investors had sharply revised up their expectations regarding central banks’ “terminal policy rate” (the level at which market participants expected the current interest rate cycle to peak) as embedded in risk-free rates, for all major advanced economies, albeit to different degrees. In the euro area, compared with expectations at the time of the Governing Council’s previous monetary policy meeting, market pricing and survey evidence now pointed to expectations of a faster pace of policy rate hikes and a markedly higher terminal rate. Forceful policy action was bringing about a tightening of financial conditions, with medium to longer-term real interest rates moving notably higher and risk assets continuing to be sold off. However, there was still a high degree of uncertainty about the extent of the policy adjustment needed to rein in inflation. At the same time, investors had gradually shifted their attention towards the side effects of the sharp global rate hiking cycle, amid tighter funding conditions for lower-rated entities, low market liquidity and heightened volatility in repo markets. The heightened concerns about inflation had resulted in euro area risk-free yields being much more sensitive to news about inflation in 2022 than had been the case in 2021. In contrast, the relationship between risk-free yields and news about growth had remained rather weak, suggesting that market participants expected central banks to focus primarily on inflation. In the United States, the adjustment of near-term rate expectations in financial market prices had been even more pronounced. Unlike in the euro area, the forward rate curve in the United States showed a marked inversion, signalling expectations of a reversal of rate hikes in the course of 2023. In the euro area, real interest rates had increased across the entire maturity spectrum since the Governing Council’s previous monetary policy meeting. However, they were still deeply negative at short maturities and remained below the levels prevailing in previous tightening cycles, such as in December 2006, when inflationary pressures had been far less intense. On the back of repeated upward inflation surprises and heightened uncertainty about the path of monetary policy required to tame inflation, market-based measures of longer-term inflation compensation in the euro area had trended upwards in recent weeks. They now stood above the levels observed at the time of the Governing Council’s previous monetary policy meeting, despite the sharp reappraisal of monetary policy expectations. Additional inflationary pressure could emanate from the ongoing depreciation of the euro. So far this year the euro had weakened by 13% vis-à-vis the US dollar. Considering that the bulk of commodities were denominated in US dollars, such currency developments had exacerbated the energy price shock. The reappraisal of monetary policy expectations had led to a broad-based tightening of financial conditions beyond risk-free rates. The global sell-off in equity markets had continued also in the euro area, even though analysts had lately made only limited downward revisions to euro area firms’ longer-term earnings prospects and earnings expectations remained at a high level overall. Cyclically adjusted price-earnings ratios had come down markedly from the elevated levels prevailing during the extended period of accommodative monetary policy. They were now much closer to, albeit still above, their long-run averages since 2005. In the euro area corporate bond market, the spreads of both high-yielding and investment-grade bonds had increased. Moreover, bond issuance by euro area non-financial corporations had declined markedly, especially in the high-yield segment. Developments in sovereign bond markets had so far been benign. Despite the sharp rise in risk-free yields, sovereign spreads vis-à-vis the overnight index swap (OIS) rate had remained broadly unchanged and had become less sensitive to changes in risk-free yields than before the announcement of the Transmission Protection Instrument. While the direct spillovers from the financial market turmoil in the United Kingdom had been limited, euro area financial markets had not been entirely immune. However, two mitigating factors were present. First, the euro area pension fund sector was comparatively small and concentrated, reducing the risk to euro area-wide financial stability. Second, interest rate derivatives were commonly based on the euro interbank offered rate (EURIBOR), limiting the impact of country-specific shocks on margin calls. Regarding the transmission of policy rate adjustments to money markets, after the September rate hike the functioning of euro area repo markets had been impaired, though only temporarily. This had been triggered predominantly by concerns about additional cash flows into the repo market from the non-monetary policy deposits held with the Eurosystem. The tensions in the repo market also reflected the general scarcity of collateral and the abundance of cash to be deposited in the repo market in an environment of high uncertainty. At the same time, cash bond markets had continued to function smoothly. The global environment and economic and monetary developments in the euro area Mr Lane highlighted that global economic activity had continued to slow in October. Global economic growth had seen a sharp reversal from a strong performance at the beginning of the year to a below-trend performance more recently. While data on goods trade had shown relatively stable growth rates until July, the Purchasing Managers’ Index (PMI) for new export orders had in October been significantly below the threshold of 50, indicating a contraction. The filling of the backlog of orders still supported activity, while new orders were declining. However, the latest data showed that manufacturing firms had largely worked through the backlogs accumulated over the last year, suggesting that this channel would provide less support to the economy in the future. Turning to exchange rate developments, in the past couple of years the euro effective exchange rate and the bilateral exchange rate vis-à-vis the US dollar had recorded a trend depreciation. However, since the Governing Council’s last monetary policy meeting little movement had been seen in the effective exchange rate, owing to the fact that the Japanese yen had depreciated. In fact, the trade-weighted exchange rate had appreciated slightly since the September meeting. Looking at the determinants of the euro’s depreciation versus the US dollar in 2022, the differences in the expected paths of policy rates had played a big role. However, the deterioration in the euro area terms of trade, as the prices paid for imports rose faster than those received for exports, had also been increasingly important. Regarding commodities, compared with the situation at the time of the September meeting, the prices of oil, metals and foods had not changed significantly. In contrast, there had been a huge decline in the spot price of gas, although the latest gas futures curve signalled a reversal of some of the drop in early 2023 and a stabilisation afterwards. Turning to the euro area, GDP growth in the second quarter of 2022 had been boosted by a strong increase in private consumption as a result of the reopening of contact-intensive services. In this period the contribution to inflation in the Harmonised Index of Consumer Prices (HICP) from demand factors had also increased. In particular, the very large increase in private consumption had made a larger contribution to inflation. The most recent indicators suggested that GDP growth had broadly stagnated in the third quarter of the year. For the next two quarters, the current assessment pointed to a drop in economic activity. However, this was very different from a scenario in which the euro area entered a prolonged period of negative growth. It was also very different from the downside scenario described in the September 2022 ECB staff macroeconomic projections, as energy prices were currently much lower than had been assumed in the downside scenario. Moreover, the assumption of energy rationing leading to sizeable production cuts had not materialised, nor had there been a major increase in financial stress. Survey-based sectoral indicators confirmed a continuing downward trend in manufacturing activity, despite the fact that industrial production had been supported by the filling of order backlogs and by the easing of supply bottlenecks. This support was not expected to continue in the future. PMI indicators showed that there had also been a significant slowdown in the services sector in recent months, while retail sales volumes had been on a declining path since June. Both manufacturing and services were experiencing a further increase in uncertainty, which affected the expected dynamics of demand. Focusing on private consumption, consumer confidence had continued to decline in the period to September, before rising marginally in October. The European Commission’s consumer survey showed that households were increasingly postponing major purchases and reducing their savings in order to maintain their consumption of basic necessities. The investment outlook had darkened significantly. Indicators of housing investment, such as building constructions and the PMI for residential output, had started to signal a contraction in the second quarter of this year and had continued to decline in the third quarter. Indicators of non-construction investment had also moved into contractionary territory in the third quarter. The goods trade balance had continued to deteriorate, reaching a deficit of around 4% in August. This new record had been driven mainly by the rapidly rising import bill for energy. High energy prices were not only increasing import costs, but were also affecting chemical exports. The production of chemicals, which had a high energy content, had become very expensive in Europe, reducing the competitiveness of these products and their exports. On the services sector side, there had been a strong recovery in tourism indicators. However, the latest data had started to signal a return towards more normal levels. Turning to the labour market, the unemployment rate had remained at a historical low of 6.6% in August. Employment and total hours worked had increased in the second quarter, by 0.4% and 0.6% respectively. That said, recent indicators were starting to suggest some weakening in the labour market. While the ECB’s latest Corporate Telephone Survey showed that employment growth remained in positive territory, firms had become more pessimistic about employment, which was in line with their sentiment about economic activity. A slowdown was also visible in the PMI data, although employment indices remained on the whole above the threshold indicating growth. While the PMI indicators for services and manufacturing were still above the threshold value, the indicator for construction had moved below it. Looking at the tightness of the labour market, the ratio of job vacancies to unemployed persons had increased significantly in the past two years, which was evident both from Eurostat data and from data obtained from the private digital job search platform Indeed. While both sets of data had suggested an increase in tightness in the period to the second quarter of 2022, the most recent indications from Indeed suggested a stabilisation of the ratio in the third quarter. Turning to fiscal policies, structural balances were not expected to improve in 2022, as the reduction in pandemic-related spending was being compensated by new energy-related spending measures. These large energy spending programmes had in part been financed by the large revenue windfalls in 2022. As a result, while the overall euro area fiscal deficit was still expected to improve this year, it was unlikely to improve next year. Governments had announced further large packages of fiscal measures in their budgetary plans for 2023, which were likely to prevent any further improvement in their deficit-to-GDP ratios. While so far it appeared that spending on the newly announced measures would be reduced in 2024, it was still too early to assess how temporary and targeted the measures would be. The increase in interest rates was expected to lead to higher financing costs for governments. Moving to the latest inflation developments, HICP inflation had increased further to 9.9% in September. The forecast error in the September projections amounted to 0.5 percentage points and was primarily related to the energy and food components. The projection for non-energy industrial goods inflation had been slightly higher than the actual outcome, while the projection for services inflation had been lower. Most countries had contributed to the September forecast error. Since the weight of food prices in the total HICP was double that of energy prices, understanding their dynamics was very important. Consumer prices for food had seen a sharp increase and food producer price indices were rising. At the same time, growth in “upstream” prices at the start of the production chain – such as fertiliser prices and international food commodity prices – had started to decelerate. The fact that food producer prices were still on a rising path implied that more pipeline pressures should be expected for food consumer prices. For goods prices, the most recent data showed that pipeline pressures on intermediate goods prices had started to ease, although these remained very elevated. However, pressures on consumer goods prices continued to increase, reflecting transmission lags. Focusing on core inflation, i.e. inflation excluding energy and food, the decomposition into supply and demand factors showed that until July 2022 supply factors had continued to make a significant contribution, suggesting that the core inflation rate would come down significantly if supply factors eased. However, the decomposition also showed a steady increase in the contribution from demand factors. Mr Lane recalled that core inflation was also affected by indirect effects of high energy prices, which were causing many energy-intensive sectors to raise their prices. ECB staff analysis, which divided goods and services into either energy-intensive or non-energy-intensive items, showed that a disproportionate share of inflation stemmed from the energy-intensive sectors. A stabilisation of energy prices would thus have important implications for core inflation. Turning to domestic wage pressures, negotiated wages had continued to increase gradually over the last few months, even when the impact of one-off wage payments was excluded. The forward-looking information compiled in the experimental ECB wage tracker for the euro area showed wage agreements concluded in the third quarter of 2022 implying wage growth of 3.7% in 2023. This represented an acceleration compared with 2022 but was still a relatively moderate pace of growth. Headline inflation in the euro area had exceeded headline inflation in the United States owing to much higher energy and food inflation. In the United States, however, core inflation was stronger than in the euro area, and it was very closely correlated with wage inflation. In the euro area, core inflation remained well ahead of wage inflation because the sectors with the highest price increases were not particularly labour-intensive but were relatively energy-intensive. Inflation in wage-sensitive HICP items had continued to increase in line with negotiated wage growth, which, however, remained relatively contained overall. These sectors had generally seen less inflation pressure than sectors more exposed to supply-chain problems. Moving to price pressures related to housing, rental price growth had remained below 2% in September. It was thus exerting a dampening effect on services prices and on the overall inflation rate. However, other prices related to housing had increased strongly. The growth of owner-occupied housing costs had reached 10.1% in the second quarter of 2022. Looking ahead, the September projections suggested a significant deceleration in residential property price growth. Longer-term inflation expectations (for 2027) reported in the October ECB Survey of Professional Forecasters had remained basically constant at 2.2% for headline inflation and had decreased from 2.2% to 2.1% for core inflation. However, respondents had significantly revised up their inflation expectations for 2024 to 2.4%. Most of the responses continued to lie between 2% and 2.4%. But the average was affected by movements in the tails of the distribution, with an increase in the number of respondents who expected inflation to exceed 3% in 2024 and a marked decline in the numbers who expected inflation to be below 2%. The September data from the ECB’s Consumer Expectations Survey showed that there had been no significant change since the increase in expected inflation that had occurred in March 2022. Market-based measures of inflation compensation continued to point to a sharp decline in inflation rates next year, from very high levels to significantly lower rates. Turning to monetary and financial developments, bank funding costs had been gradually increasing, which reflected the changes in risk-free rates. Since early 2022 bank bond yields had risen by more than 300 basis points. Deposit rates for households and firms had also seen a significant increase and were expected to rise further in the coming months in the context of monetary policy normalisation. Rates on lending to firms and households had also increased and credit standards had tightened markedly. The latest monetary data for September showed large shifts from overnight to time deposits, mainly on the part of firms and other financial intermediaries (OFIs). Households had also recorded their largest inflow into time deposits for ten years, but still continued to increase their holdings of overnight deposits. This deposit reconfiguration was in line with the increase in opportunity costs of holding overnight deposits since the beginning of monetary policy normalisation. The September monetary data also confirmed a drop in loan flows to non-financial corporations and, in particular, to households, providing further evidence that the tightening of financial conditions was being transmitted to the real economy. Finally, Mr Lane reported the results of the October ECB Survey of Monetary Analysts. Compared with the September survey, respondents now expected the path of the key ECB interest rates to steepen and shift upwards by about 100 basis points. Summing up, Mr Lane stressed that inflation remained far too high and would stay above the ECB’s target of 2% for an extended period. Inflation had increased again in September, to 9.9%. Energy price inflation had exceeded 40%, which was due to one-off effects but also reflected the ongoing pass-through of wholesale prices to retail prices. Food price inflation had also risen further, to 11.8%, owing to developments in both the unprocessed and processed food components. Measures of underlying inflation were at elevated levels. Among those measures, inflation excluding energy and food had risen to 4.8% in September, from 4.3% in August, reflecting the impact of high utility prices on the cost structures of many sectors, the ongoing impact of supply bottlenecks and the post-pandemic recovery in demand. Wage growth had continued to increase gradually. At the same time, there were no clear signs of widespread second-round effects, and longer-term inflation expectations remained broadly aligned with the 2% target. Still, the increases in wage growth signalled by the ECB wage tracker were moderately above the levels embedded in the September staff projections, and wage pressures in the public sector could add a further impulse. Overall, risks to the inflation outlook were primarily on the upside. The major risk in the short term was a further rise in retail energy prices. Over the medium term inflation could turn out to be higher than expected if there were increases in the prices of energy and food commodities and a stronger pass-through to consumer prices; a persistent worsening of the production capacity of the euro area economy; a persistent rise in inflation expectations above the ECB’s target; or higher than anticipated wage rises. By contrast, a decline in energy costs and a further weakening of demand would lower price pressures. Economic activity was likely to have slowed significantly in the third quarter of the year and was expected to weaken further in the remainder of 2022 and the beginning of 2023. Higher inflation, lingering uncertainty and further cuts in the supply of gas from Russia had dampened consumer and business confidence and were expected to curb aggregate demand in the second half of 2022. The effects of the reopening of the economy that had boosted services over the spring and summer were expected to fade in the autumn and winter months. Households were concerned about inflation eroding real disposable incomes, with those on low incomes being especially affected. While supply-chain bottlenecks were gradually easing, the energy supply shock would continue to weigh on manufacturing activity and trade. In addition, global economic prospects remained clouded. In line with these developments, available indicators and short-term estimates pointed to marginal downside risks for the third quarter of 2022 and to clear downside risks for both the fourth quarter of the year and the first quarter of 2023, compared with the September 2022 projections. A long-lasting war in Ukraine was still a significant risk. Confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A weakening world economy could be an additional drag on growth in the euro area. So far, the labour market had continued to be a source of resilience for the economy but, since it generally reacted with a delay to economic activity, it was likely to lose momentum. Accordingly, the weakening of the economy could lead to somewhat higher unemployment in the future. Market interest rates had risen and broader financial conditions had tightened significantly amid expectations of faster and more substantial monetary policy tightening, both in the euro area and globally. Government bond yields had risen in tandem with risk-free interest rates, with spreads narrowing slightly, probably continuing to reflect support from the Transmission Protection Instrument and communication on flexible reinvestments under the pandemic emergency purchase programme (PEPP). Bank funding costs were increasing in response to rising market interest rates. This was making borrowing more expensive for firms and households. While bank lending to firms had remained robust, as they needed to finance high production costs and build up inventories, demand for loans to finance investment had continued to decline. Household borrowing for house purchase had reached a turning point in the summer. The latest bank lending survey indicated that credit standards had tightened, with banks becoming more concerned about the deteriorating outlook for the economy and the risks faced by their customers in the current environment. Banks expected to continue tightening their credit standards in the fourth quarter. Monetary policy considerations and policy options In view of the protracted period of excessively high inflation and the risk that this may add to medium-term price pressures, Mr Lane proposed that the three key ECB interest rates be raised again by 75 basis points at the present meeting. With this third major policy rate increase in a row, substantial progress would be made in withdrawing monetary policy accommodation. Since the ECB’s policy rates were still accommodative, a large increase would underscore the Governing Council’s commitment to taming inflation by reducing support for demand and ensuring inflation expectations remained anchored at the medium-term target. As a further tangible sign of this commitment, it should be communicated that the Governing Council expected to raise rates further. The future rate path should be based on the evolving outlook for inflation and the economy, following a meeting-by-meeting approach. In addition to further rate normalisation, Mr Lane proposed changing the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III). During the acute phase of the pandemic, the TLTROs had played a key role in countering downside risks to price stability. In that period the ECB had granted exceptionally favourable conditions to credit institutions that borrowed via these operations, with the aim of sustaining the supply of bank loans to the real economy at a time when banks were likely to pull back and disengage from credit intermediation. At present, in view of the unexpected and extraordinary rise in inflation, the instrument needed to be recalibrated to ensure that it was consistent with the broader monetary policy normalisation process and to reinforce the transmission of policy rate increases to bank lending conditions. It was therefore necessary to adjust the interest rates applicable to TLTRO III from 23 November 2022 and to offer banks additional voluntary early repayment dates. The proposed recalibration was proportionate. First, it would contribute to the normalisation of bank funding costs. The ensuing normalisation of financing conditions would, in turn, exert downward pressure on inflation over the medium term. Moreover, the recalibration removed disincentives for voluntary early repayment of outstanding TLTRO III funds, which would reduce the Eurosystem’s balance sheet. It was also expected to facilitate the release of securities currently being used as collateral with the Eurosystem, thereby alleviating collateral scarcity and improving the money market intermediation capacity of banks by reducing their balance sheets. This, in turn, supported a smoother and more efficient pass-through of the Governing Council’s policy rate increases to secured money market rates. Second, the proposed recalibration was more efficient than seeking to achieve the same objective through a shorter full-reinvestment period for the Eurosystem’s bond holdings or through more aggressive interest rate hikes. While amending the TLTRO III conditions might have side effects, the abrupt and unforeseeable change in circumstances justified a change in the policy stance if this was in the service of the ECB’s primary objective. Moreover, Mr Lane proposed adjusting the remuneration of the minimum reserves held by credit institutions with the Eurosystem, to align it more closely with money market conditions. Given the high levels of excess liquidity, the marginal cost of reserves was currently anchored at the interest rate on the deposit facility, not the rate on the main refinancing operations. Changing the remuneration from the main refinancing operations rate to the deposit facility rate would thus restore the neutrality of the minimum reserves system. Finally, Mr Lane proposed continuing to apply flexibility in reinvesting redemptions falling due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses Regarding the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. Inflation remained far too high and would stay above target for an extended period. In September euro area inflation had reached 9.9%, with soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand having led to a broadening of price pressures and an increase in inflation in recent months. As regards the external environment, the latest data confirmed signals of slowing economic growth across countries and sectors and implied a substantial reversal of the pick-up in global activity recorded earlier in the year. It was observed that an increasing number of economies were expected to enter a recession. The concern was expressed that the cumulative impact of the slowdown, also including spillovers from synchronised monetary policy tightening, could even result in a “technical recession” at the global level. At the same time, reference was also made to easing global supply bottlenecks. Uncertainty surrounded China and the United States, with global activity being negatively affected by China’s closure of its economy and by the global fallout from restrictive monetary policy in the United States. At the same time, it was argued that lockdowns in China had led to declines in the country’s imports of liquified natural gas, with dampening effects on gas prices. In this regard, it was noted that spot prices for natural gas had seen an unexpected sharp fall in recent days and that the recent movements in global commodity markets had almost reversed the price increases posted since the beginning of the year. Some further alleviation of global energy price pressures was anticipated for 2023. However, it was argued that futures prices suggested some reversal of this trend and that, even after their recent decline, gas prices had been very volatile and were still many times higher than in the past. Turning to euro area developments, economic activity in the euro area was likely to have slowed significantly in the third quarter of 2022, with the weakening expected to continue during the remainder of the year and into early 2023. By reducing real incomes and pushing up costs for firms, high inflation continued to dampen spending and production. Severe disruptions in the supply of gas had further worsened the situation, and consumer and business confidence had fallen rapidly, also weighing on the economy. Demand for services was slowing after performing strongly in previous quarters, when those sectors most affected by the pandemic-related restrictions had reopened, and survey-based indicators for new orders in the manufacturing sector were lower. Moreover, global economic activity was growing more slowly, in a context of persistent geopolitical uncertainty – especially owing to Russia’s unjustified war against Ukraine – and tighter financing conditions. Worsening terms of trade were weighing on incomes in the euro area. At the same time, the labour market had continued to perform well in the third quarter, with the unemployment rate remaining at the historically low level of 6.6% in August. While short-term indicators suggested that jobs were still being created in the third quarter of the year, the weakening of the economy could lead to somewhat higher unemployment in the future. Members widely agreed that the outlook for euro area economic activity had deteriorated since the September monetary policy meeting. It was noted that all components of demand, including consumption, investment and exports, showed signs of weakening. Reference was made to the latest forward-looking survey indicators for economic activity, which had posted strong declines and were signalling a contraction. It was argued that a technical recession was becoming the baseline scenario and the most likely outcome. The view was expressed that, while real GDP for the quarter ahead had repeatedly been underestimated in previous staff projections, it was currently likely that the projection error would have the opposite sign. At the same time, it was cautioned that, so far, the hard evidence was consistent with a mild recession rather than suggesting a hard landing for the economy or a protracted downturn. This distinction was widely seen as a key issue for the current economic picture and for the medium-term inflation outlook. A question was raised on the propagation mechanisms that could turn a shallow and short-lived recession into a deep and prolonged slump. Weakness in the banking sector had been a factor in past episodes but was likely not a key factor now, while the housing market – at least in some countries – might play a role. Another issue was what a recession would imply for the resilience of the labour market. In this regard, it was noted that the latest data for the forward-looking PMI survey indicators for manufacturing were down for activity but up for employment. At the same time, it was observed that the ratio of job vacancies to unemployed persons had remained much lower in the euro area than in the United States, pointing to a lesser degree of labour market tightness in the euro area. It was argued that uncertainty and losses in purchasing power were the main factors behind the deterioration in the outlook, reflecting lower real wages but also lower real financial wealth, given that many households held their savings in low-remunerated deposits and debt securities. In this context, reference was made to analysis that pointed to substantially higher inflation rates for lower income households, since energy and food items made up a greater proportion of their consumption. This was seen as a reminder that inflation had substantial distributional consequences. It was argued that consumer confidence was likely to stay weak as long as inflation stayed high, as consumers had now lost a large part of previous gains in purchasing power. At the same time, it was recalled that there were still substantial excess savings accumulated during the pandemic crisis that could – together with fiscal support and a strong labour market – bolster consumption. In this context, it was noted that the findings of the Consumer Expectations Survey suggested that some households were keeping up their spending either by saving less or by liquidating part of their stock of savings. Regarding fiscal policy, it was reiterated that fiscal support measures to shield the economy from the impact of high energy prices should be temporary and targeted at the most vulnerable, in order to limit the risk of fuelling inflation. Policy measures should provide incentives to lower energy consumption and bolster energy supply. At the same time, governments should pursue fiscal policies that showed they were committed to gradually bringing down high public debt ratios. Structural policies should be designed to increase the euro area’s growth potential and supply capacity and to boost its resilience, thereby contributing to a reduction in medium-term price pressures. The swift implementation of the investment and structural reform plans under the Next Generation EU programme would make an important contribution to these objectives. The solution to the energy problem was seen as mainly of a structural nature. The point was made that the planned fiscal support appeared to differ across countries. Concern was expressed that, in the face of high energy costs, there was growing pressure on governments to support demand via transfers, which would then fuel inflation, instead of fostering potential growth through targeted public investment. While there was a risk that fiscal compensation packages would turn out to be bigger than warranted, also from a price stability perspective, it was also argued that the planned and expected additional fiscal measures were needed in view of the expected recession. When assessing the fiscal stance, it was considered important to include the EU funds. It was recalled that a recession would activate automatic stabilisers, which would increase spending at the same time as tax revenues declined. Moreover, as tax revenues had been bolstered by the “inflation tax”, the expected decline in inflation would have a dampening impact on revenues at a time when funding costs were rising as a result of higher interest rates, leading to a deterioration in nominal deficits. Against this background, the incoming data confirmed that risks to the economic growth outlook were clearly on the downside, especially in the near term. A long-lasting war in Ukraine remained a significant risk. Confidence could deteriorate further and supply-side constraints could worsen again. Energy and food costs could also remain persistently higher than expected. A weakening world economy could be an additional drag on growth in the euro area. The concern was expressed that, with the changes in the economic outlook, the economy was now closer to the downside scenario than to the baseline scenario depicted in the September ECB staff projections. However, a note of caution was voiced against equating the current outlook to the downside scenario. This was because the mechanisms were different, as regards both gas price developments and potential gas-supply rationing affecting production. It was argued that, in many respects, the outlook was more benign than the September downside scenario. However, in the meantime, other downside risks had materialised. With regard to price developments, members generally agreed with the assessment presented by Mr Lane in his introduction. Inflation had risen to 9.9% in September, reflecting further increases in all components. Energy price inflation had remained the main driver of overall inflation, with an increasing contribution from gas and electricity prices. Food price inflation had also risen further, as high input costs had made food production more expensive. Supply bottlenecks were gradually easing, although their lagged impact was still contributing to inflation. The impact of pent-up demand, while weakening, was still driving up prices in the services sector. The depreciation of the euro had added to the build-up of inflationary pressures. Price pressures were evident in an increasing number of sectors, in part owing to the impact of high energy costs feeding through to the whole economy. Measures of underlying inflation had thus remained at elevated levels. Among those measures, inflation excluding energy and food had risen further to 4.8% in September. Members underlined that the latest inflation outcomes were not at all reassuring. Data continued to come in above expectations. Concerns were expressed especially with regard to core inflation and the broader array of measures of underlying inflation, which appeared to be gradually increasing further and – with few exceptions – did not point to the stabilisation that had been hoped for and that had been embedded in the September staff projections. The continued strong short-run momentum was also confirmed by the upward trend in month-on-month increases in core inflation. At the same time, it was pointed out that prices for natural gas had fallen. There were doubts as to whether, in view of the high volatility in the market, these lower gas prices would be sustained and should form the basis of a revised outlook. But it was also noted that the latest developments cautioned against simply extrapolating the very large impact that had been included in the September projections. The point was made that a correction in wholesale energy prices did not automatically imply a corresponding pass-through to HICP inflation. The earlier surges in energy prices had led to ever-faster impacts on inflation, and it remained to be seen how this would evolve when the commodity price surges were reversed. Changes and non-linearities in the speed and strength of the pass-through, depending on the size and persistence of the energy price shock, were typically not embedded in the models used for forecasting. It was recalled that what ultimately mattered was not wholesale but consumer energy prices, and that it was thus important to understand the pass-through mechanisms between the two and the corresponding time lags. The observation was made that long-term contracts could imply long delays, with significant upward pipeline pressures still working their way through. References were made to various decompositions of inflation into underlying factors. First, it was noted that the rise in both headline and core inflation had come with an increase in demand-driven factors. Inflation could thus decline as a result of both supply and demand factors. Doubts were expressed as to whether, at the current juncture, relaxations on the supply side would be sufficient, and it was argued that a reduction in inflation would need to be driven mostly by a lower contribution from the demand component. Second, the decomposition of non-energy industrial goods inflation and services inflation showed that the non-energy-intensive components of inflation were also increasing. It was thus cautioned that any alleviation of inflationary pressures on the energy side could be offset by countervailing forces. One such force was exchange rate depreciation, which was negatively affecting the inflation outlook on a broad basis. More generally, the pass-through from producer to consumer prices was taking time and was still accounting for further upward pressure in the pipeline. It was recalled that the pass-through had recently been faster and stronger than expected and embedded in standard models. However, it was also argued that the quicker and stronger the pass-through, the faster the overall price adjustment would be completed and the earlier inflation rates could normalise. In this context it was seen as useful to also look at quarter-on-quarter inflation rates to get a better picture of inflation dynamics, given that annual rates were affected by base effects and carry-over. With regard to wages, continued strong labour markets were likely to support higher wages, and some catch-up in wages to compensate for higher inflation was likely. Incoming wage data and recent wage agreements indicated that wage growth might be picking up. This could also be inferred from the statements of union representatives, employers and politicians. The tight labour market and the prolonged period of high inflation were seen as beginning to have an impact on wage growth. In the Corporate Telephone Survey, a large majority of respondents had expected wage increases to be above 4% in 2023. At the same time, it was argued that, even though growth in negotiated wages and in compensation per employee might be more dynamic, their levels were still moderate compared with inflation and there were no clear signs of a wage-price spiral. However, it was recalled that wages were a lagging indicator, and some doubts were expressed as to whether the still comforting picture provided by the experimental ECB wage tracker would hold up. It was considered unwise to assume that workers would simply accept the hit to real wages without a stronger response of nominal wages. There was a risk that future wage growth was being underestimated, as also suggested by more timely information on wages from job postings on private digital platforms, which were increasing faster than data on negotiated wages. While it was argued that the euro area labour market was clearly a source of strength and resilience, it was cautioned that labour markets were still undergoing normalisation in the wake of the pandemic-related crisis, also with respect to the associated swings in productivity and sectoral reallocations. Hence, concern was expressed that this strength could be undermined if wages were overstretched in such a delicate adjustment period. Attention was also drawn to the unusual resilience of profits and profit margins in the light of deteriorating cyclical conditions, which was as important as wage developments when it came to factors driving inflation and inflation persistence. As regards longer-term inflation expectations, most measures were currently standing at around 2%, although further above-target revisions to some indicators warranted continued monitoring. It was argued that survey-based measures had been trending upwards for some time and that market-based measures were pointing in the same direction, with no sign of a turning point. At the same time, it was recalled that market-based inflation measures contained an inflation risk premium, which had turned positive. A note of caution was added, to not only look at the upper tail of the distribution when assessing risks to longer-term inflation expectations but to include the lower tail. In the Survey of Monetary Analysts, the distribution appeared to have become more symmetric. Moreover, survey expectations had likely been measured at a cut-off date prior to the recent fall in gas prices and, if this fall were to persist, these expectations might see some downward adjustment. It was argued that, with actual HICP inflation standing at around 10%, longer-term inflation expectations had remained relatively well anchored. At the same time, it was warned that the formation of inflation expectations was becoming more and more backward-looking. If actual inflation was not brought down in a timely manner, expectations would increasingly react to actual inflation and would, in turn, push it higher. In this context, reference was made to the substantial upward shifts in the expectations for headline and core inflation in 2024 as reflected in the Survey of Professional Forecasters, which pointed to an increased risk of unanchoring. An upward shift in medium-term inflation expectations had also been seen in the Consumer Expectations Survey. Against this background, members agreed that the risks to the inflation outlook were primarily on the upside. The major risk in the short term was a further rise in retail energy prices. Over the medium term, inflation could turn out to be higher than expected if there were increases in the prices of energy and food commodities and a stronger pass-through to consumer prices; a persistent worsening of the production capacity of the euro area economy; a persistent rise in inflation expectations above the ECB’s target; or higher than anticipated wage rises. By contrast, a decline in energy costs and a further weakening of demand would lower price pressures. It was pointed out that risks and their direction needed to be reassessed in the December Eurosystem staff projections. One key issue was the extent to which a possible recession would limit upside risks to inflation in the medium term. It was argued that a shallow or technical recession was unlikely to keep inflation in check given its recent momentum and the risk that price increases would be difficult to reverse. However, reference was made to the downside scenario in the September projections, in which there would be a deeper recession in 2023 than in the baseline scenario and a higher inflation rate in 2024. It was commented that any dampening effect from a recession could be counterbalanced by an increased likelihood of second-round effects as a result of higher inflation in the short term, leading to greater inflation persistence and constituting an upside risk to the medium-term inflation outlook. It was argued that there was an increasing risk of a vicious circle in which higher inflation expectations would feed into both higher prices and higher wages, and the concern was raised that such effects could be highly non-linear given the size of the shock. It was also argued that potential economic output might be lower than currently estimated. Lower potential output would imply higher inflationary pressures and could reconcile the difference between estimates of the unemployment and output gaps. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. Bank funding costs were increasing in response to the rise in market interest rates, translating into higher borrowing costs for firms and households. Bank lending to firms had remained robust, whereas household borrowing for house purchase had reached a turning point in the summer. The latest bank lending survey indicated that banks had tightened their credit standards in the third quarter of the year and expected to continue tightening them in the fourth quarter. It was pointed out that the transmission of the increase in bank lending rates to households was highly dependent on the fixation period for interest rates in mortgage contracts, which differed significantly across euro area economies. Members agreed that financial conditions across markets and financing conditions for different types of borrowers had tightened significantly in anticipation of a faster and more substantial monetary policy tightening, both in the euro area and globally. Euro area government bond yields had risen in lockstep with risk-free interest rates, with their spreads relative to the OIS rate having remained broadly unchanged since the Governing Council’s September monetary policy meeting. The spreads had been relatively insensitive to shifts in monetary policy expectations, which probably reflected support from the Transmission Protection Instrument and communication on flexible reinvestments under the PEPP. In this context, it was highlighted that the Governing Council’s interest rate hike in September had not been transmitted smoothly to all segments of the repo markets. Use of the Eurosystem facility for securities lending against cash had reached its second highest level ever after the September interest rate decision took effect. Tensions in the repo market had also been reflected in the behaviour of the swap spread, i.e. the spread between OIS rates and sovereign bond yields of the same maturity, which had widened in some jurisdictions, partly owing to the scarcity of collateral. It was remarked that financial market volatility had increased since the September Governing Council meeting, as evidenced by the bond market turbulence that was triggered by the announcement of the initial UK budget plans for 2023. The view was expressed that, for a long period, central bank policy measures had suppressed volatility to a significant extent and that some reversal of this situation could be considered a healthy return to more normal market conditions. It was considered noteworthy that volatility had been especially pronounced in markets that were traditionally considered low-risk, such as the money markets and the sovereign bond markets, with higher volatility in these markets since the beginning of the year than in the equity market. However, measures such as liquidity or bid-ask spreads indicated that euro area markets had continued to function well. Monetary policy stance and policy considerations Turning to the monetary policy proposals, the view was widely shared that the inflation outlook continued to worsen, with inflation far too high and repeatedly above the projected figures. In addition, price pressures had become more broad-based, with a rising trend in core inflation and other measures of underlying inflation. These developments indicated an increasing risk that inflation might become entrenched and that second-round effects and a wage-price spiral could emerge. A return of inflation to the ECB’s 2% target was deemed unlikely without further decisive monetary policy action. Such action would also underscore the Governing Council’s commitment to bringing inflation under control and keeping inflation expectations anchored. At the same time, it was underlined that, although wage growth was accelerating, it could still be considered moderate and there were no indications of a wage-price spiral at present. Moreover, price pressures originating from international commodity markets had weakened recently, and the expected economic downturn, together with higher interest rates and tighter financial conditions, would dampen inflation in the medium term. Although the economic outlook had deteriorated considerably, it was widely judged that the expected weakening in economic activity would not suffice to curb inflation to a significant extent and would not in itself bring projected inflation back to the target. It was argued that, in the event of a shallow recession, the Governing Council should continue normalising and tightening monetary policy, whereas it might want to pause if there was a prolonged and deep recession, which would be likely to curb inflation to a larger extent. In this context, attention was also drawn to the divergence between monetary policy, which was removing accommodation, and fiscal policy, which was becoming more expansionary. It was reiterated that the Governing Council had to focus squarely on its primary objective and on bringing inflation back to target in a timely manner. Reference was made to the outcome of the ECB’s strategy review, which had underscored its commitment to act forcefully, using all available instruments, to address prolonged downward deviations from the target. The ECB now needed to show equal determination when inflation was above the target, countering far too high inflation and preventing it from becoming entrenched, irrespective of a deteriorating outlook for economic activity. Monetary policy decisions and communication Against this background, all members agreed that, in view of the current inflation outlook, it was appropriate to continue normalising monetary policy by withdrawing accommodation to ensure that demand was no longer sustained. While the Governing Council’s monetary policy actions were having the desired effect on financial and financing conditions, the current setting of the ECB’s key policy rates was judged to be still accommodative, which implied that they should be increased further. The view was widely shared that monetary policy normalisation had to continue in order to counter the risk of long-term inflation expectations becoming unanchored and of a possible wage-price spiral. Successive inflation figures above the projections, heightened uncertainty and the prevailing upside risks to the inflation outlook were seen as warranting further action. Turning to the size of the rate increase, Mr Lane’s proposal to raise the key ECB interest rates by 75 basis points was supported by a very large majority of members. A 75 basis point increase was judged to be an appropriate response in view of the protracted period of excessively high inflation and the risk that this might add to medium-term price pressures. It was recalled that the monetary policy stance was still accommodative and argued that a 75 basis point increase constituted a necessary step toward a more neutral level. It would also amount to a further frontloading of interest rate increases, allowing a neutral level to be reached swiftly. Moreover, it was noted that market participants were pricing in an increase of this size. It was argued that falling short of these market expectations would imply an unwelcome loosening impulse, potentially undermining confidence in the Governing Council’s commitment to price stability. The view was held that feeding uncertainty as regards the way the Governing Council would react to the inflation outlook could further increase the volatility of risk-free interest rates in the present environment. It was also argued that, when the persistence of high inflation was uncertain, optimal policy called for a forceful response to reduce the risk of inflation remaining high for too long. A few members expressed a preference for increasing the key ECB interest rates by 50 basis points, taking into account that the rate hike would be accompanied by a signal on the need for further future rate hikes, by a change in the remuneration of minimum reserves, and by the adjustment of the terms and conditions of TLTRO III, all of which would imply some additional monetary policy tightening. While the direction of monetary policy was clear, prudence was necessary as regards the pace of the adjustment. A 50 basis point hike was deemed sufficient to adjust the monetary policy stance in a gradual and measured way given that market sentiment was fragile, the risk of a significant slowdown in economic activity was increasing and financing conditions had already tightened significantly since the start of the normalisation process. Moreover, it was argued that an overly aggressive pace of tightening could have repercussions for financial stability, economic activity and ultimately inflation. While it was widely felt that, with a 75 basis point increase, the Governing Council would make substantial progress in withdrawing monetary policy accommodation, it was also clear that rates would need to be raised further to reach a level that would deliver on the ECB’s 2% medium-term target, although decisions would need to be based on incoming data and the evolving outlook for inflation and the economy. Overall, in the light of prevailing uncertainties, there was broad support for a meeting-by-meeting, data-dependent approach to taking monetary policy decisions. A discussion took place on the use of concepts such as the “neutral rate” or the “terminal rate” consistent with inflation returning to target over the medium term, with different views expressed on the link between these measures and projection scenarios or on their steady state properties. At the same time, while the difficulty of relying on precise values of these rates was acknowledged, there was agreement that, looking ahead, the Governing Council needed to continue removing accommodation with further interest rate hikes. Moreover, the view was expressed that monetary tightening would probably need to continue after the monetary policy stance had been normalised and moved into broadly neutral territory. With respect to the December monetary policy meeting, it was noted that the Governing Council would have more information available, which was seen as especially valuable in the light of the high market volatility and uncertainty that characterised the current environment. Moreover, the December staff projections would provide more information over a horizon extending up to 2025, including an assessment of how the increased recession risks, the development of commodity prices and the tightening of financial conditions since the September meeting would affect the medium-term inflation outlook. Turning to the ECB’s outstanding lending operations, members unanimously agreed with Mr Lane’s proposal to change the terms and conditions of TLTRO III. The adjustment was seen as an essential part of the ongoing monetary policy normalisation process and the recalibration of the Governing Council’s toolkit to ensure consistency across all monetary policy instruments. Moreover, it was in line with the Governing Council’s communication that it stood ready to adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target. Since the last recalibration of TLTRO III in December 2020 the inflation outlook had changed fundamentally, in part owing to the war against Ukraine, which had led to an energy crisis that could not have been foreseen at the time. Accordingly, the Governing Council had to recalibrate its monetary policy stance, including the terms and conditions of TLTRO III, in order to pursue its price stability mandate. In the light of the worsening inflation outlook and the still negative short-term real interest rates, monetary policy transmission had to be accelerated. The view was widely held that a change in the TLTRO III conditions would reinforce the transmission of changes in the policy rates to bank funding costs and bank lending conditions for households and firms, which to date did not fully reflect the intended monetary policy tightening. Moreover, it was argued that maintaining the average TLTRO III rate for the remaining lifetime of the operations at a rate below the deposit facility rate risked blurring the intended policy signal, which could call into question the Governing Council’s determination to bring inflation back to its medium-term target of 2% in a timely manner. It was noted that with the adjustment of the TLTRO III conditions banks would have the incentive and the opportunity for early repayment of their borrowing, which would also contribute to the normalisation of the Eurosystem’s balance sheet. Such a decrease in the size of the balance sheet was judged to be necessary and a helpful first step before considering a reduction of the asset purchase programme (APP) portfolio. Finally, it was noted that a repayment of TLTRO III funds would reduce banks’ need for collateral, which could flow back to the market and thereby help to alleviate the collateral scarcity that had led to repo market tensions. Overall, members agreed that the monetary policy case for adjusting the TLTRO III conditions was strong and that the resulting effects could not be achieved through other measures, as indicated by Mr Lane in his proposal. Although side effects were acknowledged, these were seen not to outweigh the benefits from the TLTRO III adjustment, which was required in order to maintain the effectiveness of monetary policy and thereby the Governing Council’s ability to attain its medium-term inflation target in a timely manner. In consideration of all these arguments, the adjustment was therefore judged to be proportionate in the service of the Governing Council’s mandate. Members further agreed with Mr Lane’s proposal to lower the remuneration of the minimum reserves held by euro area credit institutions with the Eurosystem, from the rate on the main refinancing operations to the deposit facility rate, in order to align it more closely with money market conditions. Members also agreed with the proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Retaining the existing flexibility in PEPP reinvestments was seen as a prudent approach to countering risks to the monetary policy transmission mechanism related to the pandemic, which still persisted in the current market environment. Looking beyond the configuration of the key ECB interest rates, it was underlined that the Eurosystem’s large bond portfolios were continuing to provide further significant monetary policy accommodation by compressing term premia. Allowing the downward pressure on term premia to decline would facilitate more efficient setting of monetary policy, thereby helping to contain inflation. In this respect, it was seen as necessary, following an assessment of the repayments resulting from the adjustment of TLTRO III and their impact on financial conditions, to discuss the reinvestment strategy for the APP portfolio at the Governing Council’s December monetary policy meeting. Members widely concurred with Mr Lane that monetary policy should continue to be data-dependent and not follow a pre-set path, in accordance with a meeting-by-meeting approach to setting interest rates. To stress the Governing Council’s commitment to achieving its medium-term inflation target, it was seen as important to indicate that interest rates were expected to be raised further in order to guard against the risk of inflation expectations becoming unanchored. Forward guidance on interest rates was widely seen as being of little value in view of the high uncertainty currently prevailing. In the same vein, indicating the size of future interest rate adjustments was seen as implying renewed forward guidance on interest rates, which the Governing Council had deemed no longer warranted. The Governing Council stressed the importance of authorities addressing supply-side issues with appropriate structural and macroprudential policies, which would support monetary policy in ensuring price stability. Finally, it was seen as appropriate to reiterate that the Governing Council stood ready to adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target of 2%. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 27 October 2022 Press releases Monetary policy decisions ECB recalibrates targeted lending operations to help restore price stability over the medium term ECB adjusts remuneration of minimum reserves Meeting of the ECB’s Governing Council, 26-27 October 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot* Mr Lane Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau Mr Visco Mr Vujčić** Mr Wunsch * Members not holding a voting right in October 2022 under Article 10.2 of the ESCB Statute. ** As observer. Other attendees Mr Dombrovskis, Commission Executive Vice-President*** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy *** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Cassidy, Alternate to Mr Makhlouf Mr Demarco Mr Gavilán Ms Goulard Mr Haber Mr Kelly Mr Koukoularides Mr Kuodis Mr Luikmel Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Ulbrich Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Mr Arce, Director General Economics Ms Rahmouni-Rousseau, Director General Market Operations Release of the next monetary policy account foreseen on 19 January 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 14-15 December 2022 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 14-15 December 2022 19 January 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 26-27 October 2022 the narrative in financial markets had shifted from inflation concerns to expectations that central banks worldwide would slow down, halt and ultimately reverse interest rate hikes. The data on the US consumer price index (CPI) for October, interpreted as an early sign of an easing of inflation pressures, had prompted a market repricing of policy rate expectations for the United States. This had been further reinforced by the US CPI inflation figures for November, which had again surprised on the downside. The resulting rebound in investor risk appetite had led to a broad-based easing of global financial conditions, showing up in lower nominal and real yields, tighter credit spreads and buoyant equity markets in the euro area – all of which worked against the ECB’s intention to withdraw monetary policy accommodation. These developments had occurred in an environment in which news about the euro area economy had turned more positive. At the same time, there had been a notable upward repricing by markets of the near-term inflation outlook, and the risk of longer-term inflation expectations becoming unanchored remained elevated. Market conditions remained challenging as uncertainty about monetary policy and volatility in market interest rates continued to be high, amid low liquidity and collateral scarcity. Market hopes of a turning point in inflation developments and a change in direction, or “pivot”, of global monetary policy appeared to have spilled over into euro area interest rate expectations. The euro area overnight index swap (OIS) forward curve had become inverted, signalling expectations of moderate cuts in the ECB’s key policy rates over the next two to three years. By contrast, near-term market pricing remained broadly unchanged. The expected “terminal rate” at the peak of the present hiking cycle continued to stand at around 2.8% and market participants expected the key ECB interest rates to increase by 50 basis points both at the present meeting and at the meeting in February 2023, with a final 25 basis point increment expected in March 2023. Spillovers from the United States had been the predominant driver of recent movements in euro area risk-free yields, as reflected in their sensitivity to macroeconomic news from the United States. The reappraisal of rate expectations in the euro area beyond the near term seemed to be at odds with domestic developments, such as incoming data on the macroeconomy, energy prices and the market-based inflation outlook. In particular, economic data releases in the euro area had recently turned positive after a period of weaker than expected outcomes, pointing to waning risks of a deep and protracted recession, which market participants had previously considered a key factor putting downward pressure on euro area inflation. At the same time, natural gas prices had rebounded sharply from the lows recorded in late October owing to mild weather conditions and full storage facilities, and they were now at levels comparable to those seen in early summer, pointing to renewed tightness in the European gas market. On the back of receding downside tail risks to economic growth and higher energy prices, there had been a notable upward repricing of market-based expectations for inflation in the near term. Looking at the evolution of longer-term inflation expectations in the euro area, signals of upside risks were observed both in market-based indicators and in surveys. In the ECB Survey of Professional Forecasters and the ECB Survey of Monetary Analysts (SMA) the distribution of responses had shifted markedly over the course of the past few months, with a significant and rising share of respondents expecting a sustained period of inflation above the ECB’s 2% target. Despite higher near-term inflation expectations and upside risks to the longer-term inflation outlook, the global repricing of monetary policy rate expectations had led to an easing of broader financial conditions in the euro area. Market participants’ expectations that central banks would cut policy rates soon after reaching the terminal rate had led to a decline in longer-term yields relative to short-term yields. The recent repricing of policy rate expectations had led to a decrease in euro area real GDP-weighted sovereign bond yields across the maturity spectrum since the peak reached in mid-October. Real rates were again in negative territory across all maturities up to ten years. Moreover, yield spreads had continued to narrow in euro area sovereign and corporate bond markets. Market expectations of a global monetary policy pivot had had the most pronounced effect on equity markets, which had seen a renewed “relief” rally. The downward trend in cyclically adjusted price-earnings ratios had been reversed just when they had been approaching their long-run averages. Developments in exchange rates had closely reflected the drivers of recent broader market developments. The sustained rally of the US dollar appeared to have come to an end, in line with an unwinding of long positions in US dollars. The change in the monetary policy outlook for the United States, the return to a “risk-on” environment and a comparatively better economic outlook for the euro area had been the main drivers of the appreciation of the euro since the Governing Council’s previous monetary policy meeting. Conditions remained challenging in euro area money and repo markets, although there had been significant improvements lately. Year-end tensions arising from collateral scarcity in jurisdictions with high credit ratings had decreased, as illustrated by the significant increase in the respective repo rates for the turn of the year. These positive dynamics had to be seen in the light of the decisions taken by authorities, including the Eurosystem and national debt management offices, over the last few weeks to alleviate collateral scarcity. Overall, however, pricing in the repo market remained expensive, as various factors such as market positioning, interest rate volatility and valuation effects continued to exacerbate the structural factors behind collateral scarcity in the secured money market. Looking ahead, the repayment of funds under the ECB’s targeted longer-term refinancing operations (TLTROs) and the prospective future reduction of the Eurosystem’s portfolios of securities held for monetary policy purposes, together with the expected significant new issuance activity, were expected to support the availability of collateral in 2023. In the unsecured money market segment, the observed downward pressure on bank borrowing rates reflected the availability of excess cash to be invested at a time when policy rates were rising quickly. This had led to EURIBOR rates being persistently lower than the equivalent OIS rates for maturities of up to three months since the start of the policy rate hiking cycle last summer. The global environment and economic and monetary developments in the euro area Starting with the international environment, Mr Lane highlighted that global trade momentum had softened significantly towards the end of 2022. Looking ahead, the global Purchasing Managers’ Index (PMI) indicator for new export orders was well below the threshold of 50, pointing to continued weakness in global trade. The weakening in trade had reduced the pressures on supply chains. Indeed, the PMI indicator for suppliers’ delivery times had continued to improve up to November. This suggested that this factor that had been holding back production and pushing up prices for a long time was diminishing and could be expected to disappear next year. The euro had appreciated in nominal effective terms since the Governing Council’s monetary policy meeting in October, after depreciating for almost two years. Regarding commodity prices, the oil futures curve had declined since the October meeting. By contrast, gas spot prices had rebounded strongly, while futures prices had remained broadly unchanged at elevated levels since October. Turning to the euro area, real GDP growth had slowed to 0.3% in the third quarter of 2022. This reflected a record increase in investment in Ireland, which, on an annualised basis, had grown by 850% compared with the previous quarter. Excluding Ireland, real GDP in the euro area had grown by 0.2%. With regard to the demand components of GDP, private consumption had grown strongly in the second and third quarters of 2022, particularly in Germany, Spain and Italy, as the growth of nominal consumer income and the use of accumulated savings had compensated for the high rate of inflation. In the final quarter of 2022, however, private consumption was projected to have stagnated on account of declining real incomes, while households were expected to have become more reluctant to dip into savings. After continuously declining since the start of Russia’s war in Ukraine, consumer confidence had improved somewhat in October and November, but remained low from a historical perspective. Moving to investment, residential investment growth had been in negative territory since the spring, while the growth of non-construction investment (excluding the contribution from intellectual property products in Ireland) had decelerated in the third quarter of 2022 and was expected to contract in the final quarter. Turning to trade, the significant decline in the goods trade balance that had started in mid-2021 had been interrupted in September owing to a small improvement in energy import prices and European firms being able to charge higher prices and sell more non-energy goods to the rest of the world. These developments had helped to partially offset the higher energy bill. Short-term economic activity indicators and mechanical short-term GDP forecasting continued to suggest a contraction in economic activity in the fourth quarter of 2022. At the sectoral level, PMI indicators for the manufacturing sector continued to point to weak output but had improved somewhat owing to the continued easing of supply bottlenecks, which had allowed firms to work through their order backlogs. In the services sector, forward-looking indicators of economic activity were declining, in line with a normalisation following the boost from the reopening of the economy in the first part of the year. Labour markets had seen a significant recovery in employment in the wake of the coronavirus (COVID-19) pandemic. However, total hours worked per person employed had recovered to a much more limited extent. Looking ahead, PMI indicators were pointing to a deceleration in employment growth across sectors. Regarding measures of labour market tightness, countries with low unemployment also had a high vacancy rate, while countries with high unemployment had a low vacancy rate. Looking ahead, according to the December 2022 Eurosystem staff macroeconomic projections for the euro area, annual average real GDP growth was projected to slow down markedly from 3.4% in 2022 to 0.5% in 2023, and then to rebound to 1.9% in 2024 and 1.8% in 2025. Compared with the September 2022 ECB staff projections, the outlook for growth had been revised up by 0.3 percentage points for 2022, owing to positive surprises over the summer, and down by 0.4 percentage points for 2023. The GDP growth outlook had remained unchanged for 2024. Risks to the growth outlook were on the downside, especially in the near term. Russia’s war in Ukraine remained a significant downside risk to the economy. Energy and food costs could also remain persistently higher than expected. There could be an additional drag on growth in the euro area if the world economy were to weaken more sharply than expected. In the downside scenario in the December projections – which assumed a complete cut-off of Russian gas – real GDP would contract by 0.6% in 2023 before recovering to grow by 0.2% in 2024 and 2.0% in 2025. Turning to fiscal policies, in 2022 the size of fiscal measures to compensate for the energy crisis had increased from 1.2% of GDP, as embedded in the September ECB staff projections, to 1.9% of GDP according to the December Eurosystem staff projections. The December projections also implied a strong upward revision to the fiscal support measures for 2023, which were now estimated at 1.9% of GDP, with some of these measures expected to remain in place in 2024 (0.5% of GDP) and in 2025 (0.2% of GDP). The cyclically adjusted primary balance, which had deteriorated to -3.4% of GDP in 2020, was seen reaching -1.3% in 2022, as pandemic-related measures were progressively withdrawn. It was projected to deteriorate again in 2023, to -1.6% of GDP, before improving by almost 1 percentage point in 2024 to -0.7% of GDP. Moving to the latest inflation developments, according to Eurostat’s flash estimate, headline inflation had declined to 10.0% in November, from 10.6% in October, owing to lower energy inflation, which was partly offset by an increase in food inflation. The decline in energy inflation in November mainly reflected lower crude oil and gas price inflation. Energy inflation was expected to drop further in December as a result of the fiscal measures taken in some euro area countries. However, in January and February 2023 it was expected to increase again, as many utility companies adjusted their prices in January or February. Subsequently the December staff projections foresaw a decline in energy inflation. However, this was much more gradual than had been projected earlier, reflecting a delayed pass-through of wholesale gas and electricity prices to customers with long-term contracts. Food inflation had increased to 13.6% in November and was projected to continue its upward trend into early 2023 before declining from mid-year. The expected increase until early 2023 was due to the fact that the large increases seen in international food commodity prices had not yet fully passed through to retail prices. For goods inflation, there had been a slowdown in price rises at the early stages of the production chain, which had not yet passed through to retail prices. The observed significant slowdown in intermediate goods inflation should start to be visible in retail goods inflation in the course of 2023. Indicators of underlying inflation had remained at high levels in October, with most measures still increasing but some stabilising – notably those affected by the lower month-on-month energy inflation. The momentum in domestic inflation had been slowing down since mid-2022, which could be related to the easing of the indirect effects of energy prices and supply bottlenecks. At the same time, inflation in wage-intensive components of the Harmonised Index of Consumer Prices (HICP) had been picking up over the past few months. Negotiated wage growth had continued to increase in the third quarter and the experimental ECB wage tracker pointed to a substantial further rise in the growth of negotiated wages in the next few quarters. In the seven countries covered by the wage tracker, agreements signed so far in the fourth quarter of 2022 implied wage increases of around 5%, both in 2022 and in 2023, which was broadly in line with the December staff projections. The November round of the ECB’s Consumer Expectations Survey reported that perceptions of current inflation had stabilised at 10%, clearly showing that consumers were paying attention to the level of inflation. One-year ahead inflation expectations showed the first signs of a reversal, declining from 5.4% in October to 5.0% in November, while three-year ahead inflation expectations remained stable at around 3%. Turning to the key features of the December 2022 projections, inflation had been revised up significantly to an average of 8.4% for 2022, 6.3% for 2023 and 3.4% for 2024. Inflation was projected to average 2.3% in 2025. The upward revisions had been driven by a combination of repeated inflation surprises in recent months (with the exception of November), more persistent pipeline price pressures and faster wage growth. The annual averages masked the strong downward base effects in energy inflation, which were projected to bring headline inflation down from 10.0% in the fourth quarter of 2022 to 3.6% in the last quarter of 2023. Inflation was then projected to ease further to 3.3% in the last quarter 2024 and 2.0% from the third quarter of 2025 onwards. The somewhat unusual time profile of inflation over 2023 and 2024 was due to the fact that the fiscal measures designed to tackle the energy price crisis were expected to dampen inflation in 2023, but push it up in 2024, when many of these measures were scheduled to be unwound. Core inflation (i.e. HICP inflation excluding energy and food) was projected to average 3.9% in 2022 and 4.2% in 2023, before falling to 2.8% in 2024 and 2.4% in 2025. Strong wage growth amid robust labour market dynamics was a primary contributor to the persistence of core inflation, but the indirect effects of higher energy and food costs on core inflation remained substantial in 2023 and in 2024, and also played a role in explaining core inflation in 2025. The past depreciation of the euro would also push up core inflation in 2023 and 2024. The projected core inflation rates in 2024 and 2025 would have been significantly lower without the estimated indirect effects of energy inflation and the effect of the exchange rate. Risks to the inflation outlook were primarily on the upside. In the near term existing pipeline pressures could lead to stronger than expected rises in retail prices for energy and food. Over the medium term risks stemmed primarily from domestic factors, such as a persistent rise in inflation expectations above the ECB’s target or higher than anticipated wage rises. By contrast, a decline in energy costs or a further weakening of demand would lower price pressures. The updated downside scenario in the December projections that reflected these risks pointed to higher inflation than in the baseline in 2023 and 2024 (at 7.4% and 3.6% respectively) as energy prices spiked, whereas in 2025 inflation was seen dropping below the baseline, to 2.0%, as the downward impact from the demand channel started to dominate. Uncertainty about the impact of monetary policy tightening also constituted a risk to the inflation projections, with a wide range of estimates across different modelling approaches. To reflect the high uncertainty surrounding the economic outlook, the December baseline projection had been accompanied by sensitivity analysis as well as a downside scenario. The mechanical impact of the technical assumptions used in the baseline would have implied slightly lower GDP growth for 2023 and significantly lower GDP growth for 2024 than in the September projections. The technical assumptions would also have implied significantly lower inflation for 2023 and a higher inflation rate for 2024 than projected in September. At the same time, an extension of the current fiscal measures into 2024, which was not an unrealistic assumption in view of governments’ attempts to buffer the energy price shock, could lift inflation measurably in 2025. The downside scenario, which assumed a complete halt of Russian gas and oil supplies leading to disruptions in production and trade, resulted in higher inflation than in the baseline for 2023 and 2024 – indicating the prevalence of upside risks to inflation – while pointing to lower inflation for 2025. Turning to monetary and financial developments, Mr Lane recalled that in the December SMA respondents had expected the path of the key ECB interest rates to have a more pronounced hump shape than had been expected in the October round of the survey. The deposit facility rate had been expected to peak in March 2023 at 2.75%, which was 25 basis points higher than expected in the previous survey round. In the long run the deposit facility rate was still expected to be 2.0%, unchanged from the October SMA. SMA respondents had expected the run-off of the asset purchase programme (APP) to start after March 2023. Nevertheless, Mr Lane noted that long-term risk-free interest rates and sovereign yields had declined on the back of lower term premia and revised policy expectations, thereby supporting risk assets. Real interest rates had also declined since the Governing Council’s October monetary policy meeting, although, compared with a year ago, there had been a big upward shift in the term structure of real forward rates. Indeed, while current real spot rates continued to be negative across maturities, reflecting the very high rate of inflation compared with late 2021, real forward rates had risen by at least 150 basis points across horizons. Therefore, beyond the very short term, the continued increase in interest rates implied that a firm needing to refinance itself over time would face a much higher real rate. Indices of financial conditions in the euro area had been sending mixed signals since the Governing Council’s October monetary policy meeting, as the shift resulting from higher equity prices and lower risk-free rates was counterbalanced by a stronger euro. That said, financial conditions remained tighter than assumed in the September 2022 staff projections. Looking at financing conditions for firms, in the latest round of the Survey on the access to finance of small and medium-sized enterprises (SAFE), firms had reported a widening “financing gap” – the difference between the change in demand for external financing and the (perceived) change in its supply – in a deteriorating economic environment. This was accompanied by an increasing share of firms being considered “vulnerable”, defined as firms simultaneously reporting lower turnover, declining profits, higher interest expenditure and a non-decreasing debt-to-asset ratio. The reported larger financing gap and increase in firms’ vulnerability had both typically been associated with a subsequent fall in GDP in the euro area. Mr Lane reported that the transmission of the tightening of monetary policy was affecting money and credit developments in line with what had happened in the past. He noted that, in previous tightening cycles, the rate on time deposits had closely followed the policy rate, while the rate on overnight deposits had been systematically well below the policy rate. With the return of positive policy rates, banks were currently restoring the past pricing structure by more strongly increasing those rates that were furthest from their “normal” distance vis-à-­­­­vis the policy rate, with rates on overnight deposits recording only minor increases so far. Lending rates on household mortgages had increased markedly, contributing to a moderation in new lending to households driven mainly by lower mortgage lending growth. Rates on loans to firms had also increased substantially. However, this increase had not yet translated into a significant moderation in bank lending to firms, as firms had significantly reduced bond issuance when faced with an increase in the cost of issuing debt securities that outpaced more sluggish bank lending rates. Moreover, firms were facing higher borrowing needs in nominal terms, as inflation had increased operating costs and investment financing needs. Summing up, Mr Lane highlighted that, amid exceptional uncertainty, the substantial upward revision to the inflation profile over the entire projection horizon called for a monetary policy response that significantly reduced the inflation rate within the projection horizon. The stronger inflation dynamic in the revised projections meant that the estimated range for the terminal rate that would ensure a return of inflation to target in a timely manner had risen markedly. Raising policy rates to sufficiently restrictive levels and keeping them there would, over time, reduce inflation by dampening demand and would also guard against the risk of a persistent upward shift in inflation expectations. Monetary policy considerations and policy options Against this backdrop, Mr Lane proposed that the three key ECB interest rates should be raised by 50 basis points at the present meeting. He also proposed that it should be made clear that interest rates would still have to rise significantly at a steady pace to reach levels that were sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. At the current juncture, taking into account the cumulative 200 basis point increase in the key ECB interest rates since July, a 50 basis point increment should be viewed as a sustainable pace at which monetary policy could be tightened in an expeditious manner. An increase of this magnitude would acknowledge the uncertainties surrounding the state of the economy and the inflation outlook, the lags with which the Governing Council’s past policy actions were being transmitted and the overall tightening impulse being delivered across its portfolio of instruments, including the reimbursement of TLTROs. Under conditions of significant uncertainty, a steady pace would allow the Governing Council to learn more about the impact of its decisions on financial conditions and the broader economy thus far and to reassess, on a meeting-by-meeting basis, the level of interest rates that would be sufficiently restrictive to ensure a timely return of inflation to its target. The key ECB interest rates were the primary tool for setting the monetary policy stance. The Governing Council should reinforce the impact of its rate hikes throughout the yield curve by announcing principles for normalising the Eurosystem’s monetary policy securities holdings. Mr Lane therefore proposed communicating that, from March 2023 onwards, the APP portfolio would decline at a measured and predictable pace, as the Eurosystem would not reinvest all of the principal payments from maturing securities. Mr Lane proposed announcing that the decline would average €15 billion per month until the end of the third quarter of 2023 and that the Governing Council would determine its subsequent pace over time. In addition, the Governing Council should signal that the review of its operational framework for steering short-term interest rates, which was to be concluded by the end of 2023, would provide information regarding the endpoint of the balance sheet normalisation process. In line with the ECB’s monetary policy strategy, the Governing Council should also use the present meeting to assess in depth the interrelation between monetary policy and financial stability. The financial stability environment had deteriorated since the Governing Council’s last review in June 2022, owing to a weaker economy and rising credit risk. In addition, sovereign vulnerabilities had risen amid the weaker economic outlook and weaker fiscal positions. Tighter financing conditions would mitigate the build-up of financial vulnerabilities and reduce tail risks to inflation over the medium term, at the cost of a higher risk of systemic stress and greater downside risks to growth in the short term. In addition, the liquidity needs of non-bank financial institutions could amplify market volatility. At the same time, euro area banks had comfortable levels of capital, which helped to reduce the side effects of tighter monetary policy on financial stability. Macroprudential policy remained the first line of defence in preserving financial stability and addressing medium-term vulnerabilities. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly agreed with the assessment of the current economic situation in the euro area and the risks to the outlook provided by Mr Lane in his introduction. The euro area economy was expected to contract in the current quarter and the first quarter of next year, owing to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions. According to the latest Eurosystem staff projections, however, a recession would be relatively short-lived and shallow. Growth was nonetheless expected to be subdued in 2023 and had been revised down significantly since the September ECB staff projections. Beyond the near term, growth was projected to recover as the current headwinds faded. As regards the external environment, members generally shared the assessment provided by Mr Lane that the world economy was slowing, in a context of continued geopolitical uncertainty, especially owing to Russia’s unjustified war against Ukraine and its people, and tighter financing conditions worldwide. Weakening global activity would also weigh on global trade and euro area foreign demand, despite improvements in global supply chain pressures. Attention was drawn to the risks surrounding the Chinese economy, which could lead to renewed bottlenecks in global supply chains. It was underlined that the euro area continued to be confronted by an exceptional degree of global uncertainty, of both an economic and a geopolitical nature, the impact of which still had to be fully understood. Turning to euro area developments, members concurred with Mr Lane that the euro area was likely to experience a mild recession in the last quarter of 2022 and the first quarter of 2023. Economic growth in the euro area had slowed to 0.3% in the third quarter of 2022. High inflation and tighter financing conditions were dampening spending and production by reducing real household incomes and pushing up costs for firms. The past deterioration in the terms of trade, reflecting a faster rise in import prices than in export prices, continued to weigh on purchasing power in the euro area. On the positive side, employment had increased by 0.3% in the third quarter and unemployment had fallen to a new historical low of 6.5% in October. Rising wages were set to restore some of the lost purchasing power, supporting consumption. As the economy weakened, however, job creation was likely to slow, and unemployment could rise over the coming quarters. Looking ahead, it was noted that Eurosystem staff had revised down their economic growth projection for 2023. At the same time, members highlighted the so far stronger than expected resilience of economic activity. Domestic demand had clearly remained more robust in response to higher energy prices than previously feared, reflecting the strong rebound in the demand for consumer services following the lifting of pandemic-related restrictions. The labour market, in particular, remained robust, in turn supporting domestic demand, with the result that employment had barely been revised at all in the new projections. While this outcome was seen as good news, it would also contribute to higher inflation in the medium term. It was acknowledged that growth was expected to be very close to zero in the coming year, so the euro area was facing a very significant economic slowdown compared with 2022. While domestic demand had so far been resilient in the face of higher energy prices, there was considerable uncertainty about the dampening impact of tighter monetary policy. Reference was made to structural models with forward-looking or rational expectations that suggested a significantly stronger impact of monetary policy on aggregate demand than was embedded in the staff projections. Those models also implied more balanced risks to the medium-term outlook for inflation. At the same time, it was remarked that the underlying empirical evidence did not appear to point to a high interest rate sensitivity of aggregate demand and inflation in large parts of the euro area, notwithstanding significant heterogeneity in the transmission of monetary policy. In any case, the forceful fiscal response to the energy crisis was an important factor behind the resilience of aggregate demand and the labour market, even as measures adopted during the pandemic were being phased out. Concern was therefore expressed as to how domestic demand would hold up in the face of an expected eventual withdrawal of fiscal support. Given the performance of economic activity and labour markets, it was noted that there was currently less need to revise down estimates of potential output growth, at least to the extent that the resilience of the euro area economy was not just driven by fiscal support. However, it was possible that the impact of the war­­ – in particular the energy price shock – and the pandemic on the productive capacity of the economy would turn out to be greater and last longer than expected, with the result that demand would have to be reduced more strongly to curb inflation. A smaller output gap would be more consistent with the observed strong dynamics of core inflation. Regarding the fiscal policy response to higher energy prices, members reiterated that measures should be temporary and designed to help the most vulnerable households and firms, so as to limit the risk of fuelling additional inflationary pressures. Fiscal support measures should be temporary, targeted and tailored to preserving incentives to consume less energy. Fiscal measures falling short of these principles were likely to exacerbate inflationary pressures, which would necessitate a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework, fiscal policies should be oriented towards making the economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, could help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly. Targeted income measures were generally perceived by members as more effective than price measures, as the latter hampered the necessary long-term adjustment of energy production and consumption. It was widely highlighted that the current fiscal response was not sufficiently targeted, which was creating challenges regarding the outlook for sound public finances and for monetary policy. With a continued relaxation of fiscal rules in 2023, fiscal deficits were seen as likely to be larger than currently projected on the basis of the standard assumptions. However, it was also stressed that energy prices remained very volatile and that fiscal policy was currently trying to smooth the effects on households and firms. As long as fiscal policy was mainly aiming to smooth the impact of higher energy prices over time, it would not necessarily be regarded as expansionary. Against this background, members assessed risks to the economic growth outlook as being on the downside, especially in the near term. Russia’s war in Ukraine continued to be a significant downside risk to the economy. Energy and food costs might also remain persistently higher than expected. There could be an additional drag on growth in the euro area if the world economy were to weaken more sharply than expected. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation had declined to 10.0% in November, according to Eurostat’s flash estimate, mainly on the back of lower energy price inflation, while services inflation had also edged down. Food price inflation had risen further to 13.6%, however, as high input costs in food production were passed through to consumer prices. Price pressures remained strong across sectors, partly as a result of the impact of high energy costs throughout the economy. Inflation excluding energy and food had been unchanged in November at 5.0%, and other measures of underlying inflation were also high. Fiscal measures to compensate households for high energy prices and inflation were set to dampen inflation in 2023, but inflation would rise again once the measures were withdrawn. Supply bottlenecks were gradually easing, although their effects were still contributing to inflation, pushing up goods prices in particular. The same was true for the lifting of pandemic-related restrictions: while weakening, the effect of pent-up demand was still driving up prices, especially in the services sector. The depreciation of the euro in 2022 was also continuing to feed through to consumer prices. Wage growth was strengthening, supported by robust labour markets and some catch-up in wages to compensate workers for high inflation. Members underlined that, while headline inflation had slowed down in November, inflation was still far too high. Delays in the pass-through of energy price increases to consumer prices and the recent rebound in gas prices also implied that there was uncertainty as to whether headline inflation had already reached its peak. The latest data suggested that inflation was becoming much more broad-based and persistent. While the decline in headline inflation in November had been unexpected, inflation was still higher than projected in September. As higher inflation was projected to extend into 2024 and 2025, it was no longer driven solely by negative supply shocks, the pandemic and energy prices. Above-target inflation had now clearly reached the policy-relevant horizon for which the ECB was to be held accountable. Indeed, even if headline inflation numbers came down sharply in the course of 2023, largely owing to base effects, this was not likely to be the case for underlying inflation. Measures of underlying inflation continued to display very strong month-on-month dynamics. This was also reflected in the projections, which saw core inflation higher in 2023 than in 2022, more persistent and clearly above target in 2025. This implied an increased risk of inflation becoming entrenched in the euro area economy. At the same time, it was underlined that the December staff projections for inflation had been revised up significantly, especially for the outer years of the projections, with an unprecedented revision of projected headline inflation in 2024. It was noted that the upward revision over that horizon reflected, to a large extent, revised judgement and the time profile of fiscal measures, as all relevant technical assumptions (e.g. oil prices, gas prices, the exchange rate and interest rates) had been revised since the September exercise in a direction that should have led to lower inflation. Consequently, the upward revision of the inflation projections largely reflected an upward revision to domestic cost pressures and an updated judgement on the speed and extent of the pass-through of costs to prices. The recent strengthening of the euro constituted a noteworthy change in the external environment and would likely imply somewhat lower inflationary pressures for the euro area in the period ahead, even though the lagged effects of the euro’s pronounced past depreciation would still be working their way through the economy. Finally, it was highlighted that the speed at which inflation was projected to come down had not been revised much from the September projections. In particular, the profile of a steep decline in core inflation when the current quarter was compared with the fourth quarter of 2024 had remained practically unchanged once the higher starting level was taken into account. Members recalled that wage pressures were key to understanding the risk of second-round effects on inflation. As wage developments in the euro area were accelerating, second-round effects through higher wages appeared to be starting to materialise. Labour markets continued to be historically tight and there were increasing pressures on wages. Compensation per employee, which had previously grown at a rate similar to that of negotiated wages, was now growing significantly faster. The growth in unit labour costs had picked up substantially and was expected, at the end of the projection horizon, to stand at levels that were not consistent with the ECB’s inflation target. This was also driven by a decline in labour productivity, which might be partly due to workers not having been reallocated since the pandemic. These factors could be considered to point to second-round effects becoming a reality. However, the view was also expressed that unit labour costs were still relatively contained over the projection horizon, even though they had to be monitored closely. Fiscal policies were also widely seen as playing a crucial role in determining the degree of persistence of medium-term inflation. In the sensitivity analysis carried out in the context of the projections, upside inflation risks stemming from fiscal policy were substantial. Fiscal policies were already more expansionary than previously expected, and they were likely to become even more expansionary. However, the view was also expressed that the fiscal measures would largely expire or reverse naturally, and therefore these could be “looked through” in the design of monetary policy. The higher inflation rates projected for the latter years of the projection period were, instead, a direct consequence of the assumptions made concerning fiscal plans, which might well turn out to overestimate the overall inflationary impact of the fiscal policy stance at that horizon. For example, longer-term price pressures might diminish if the energy-related fiscal measures were not implemented in full in 2023, or if the recession reduced the pass-through of costs to prices of goods and services. Against this background it was remarked that the inflation projections were surrounded by an unusual degree of uncertainty, particularly over the medium term. The confidence bands surrounding the inflation projections were vast and grew over the projection horizon. The precision of the inflation projections two to three years ahead was assessed as extremely low. According to this view, the current projection for 2025 could therefore be seen as not significantly different from 2%. This uncertainty had to be underlined in communication so as to avoid conveying a false sense of precision. In this context, it was also felt that the risks to the baseline inflation projections could be assessed as more balanced in the medium run and as representing less of an increase compared with the September exercise because in the current projections some of the earlier upside risks had been incorporated into the baseline. Looking at longer-term inflation expectations, members took note of the assessments, by Ms Schnabel and Mr Lane, of the latest developments in market-based measures of inflation compensation and survey-based indicators. Most measures of longer-term inflation expectations currently stood at around 2%, although further above-target revisions to some indicators warranted continued monitoring. Longer-term market and survey-based inflation expectations were generally judged as remaining well anchored. At the same time, it was argued that some indicators of longer-term inflation expectations were at risk of becoming unanchored. The point was made that this risk was elevated and was likely to rise non-linearly if inflation remained too high over an extended period of time, as suggested in the projections. The risks of unanchoring remained considerable given the very long time for which above-target inflation was projected and the importance of experience in shaping inflation perceptions, those of households in particular. In addition, the anchoring of longer-term inflation expectations was conditional on the Governing Council’s credibility in bringing inflation back to target in a timely manner. However, it was also noted that, in some of the latest indicators, there were signs of longer-term inflation expectations gradually retrenching. Households still had relatively high inflation expectations, which was not surprising given that these were backward-looking and gave more weight to inflation perceptions, or to the prices of goods that were increasing more in relative terms (e.g. energy and food). In the ECB’s latest Consumer Expectations Survey, the median inflation expectations for three years ahead had remained fairly stable at 3%. But in the European Commission’s surveys, which admittedly were qualitative, there was already a clear downward trend. Against this background members, overall, assessed that the risks to the inflation outlook were primarily on the upside. In the near term existing pipeline pressures might lead to stronger than expected rises in retail prices for energy and food. With respect to the medium term views differed, with risks, however, generally seen as remaining to the upside. Risks stemmed primarily from domestic factors such as a persistent rise in inflation expectations above the Governing Council’s target or higher than anticipated wage rises. In this regard, it was reiterated that the sensitivity analysis conducted in the context of the projection exercise pointed mostly to upside risks to inflation, notably from energy and food prices. By contrast, a decline in energy costs, a further weakening of demand and tighter financing conditions would lower price pressures. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. In line with the ongoing normalisation of monetary policy, borrowing costs were rising for firms and households. Bank lending to firms had remained robust, as firms were replacing bonds with bank loans and using credit to finance the higher costs of production and investment. Meanwhile, the increase in the cost of borrowing and the weakening prospects for the housing market had translated into a lower growth rate of loans to households. Members agreed that, overall, the transmission of monetary policy normalisation to financing conditions was proceeding smoothly and broadly in line with what had happened in the past. However, the point was made that there were important differences across countries and that understanding them was relevant for transmission. For example, the transmission of market rates to time deposits and bank lending rates had been relatively limited and weaker than in the past in the fourth largest euro area economy, but more rapid than usual for lending rates in the largest economy. It was noted that two earlier concerns had diminished: first, banks had adjusted relatively smoothly to the change in the TLTRO conditions, which had also resulted in significant early repayments; second, tensions and the widening of spreads in the repo market had eased somewhat. At the same time, concerns were expressed that, since the Governing Council’s October monetary policy meeting, long-term risk-free rates and sovereign bond yields had declined on the back of lower term premia and revised policy expectations, resulting in lower real interest rates. These were now again in negative territory for maturities of up to ten years. Much of this decline could be linked to spillovers from the United States, reflecting the typically high correlation in yield changes across the two currency areas. In addition, markets seemed to transpose developments in the United States – where inflation was already coming down – to the euro area, notwithstanding differences in the outlook. Moreover, the argument was made that the financial markets’ reaction to the Governing Council’s October decision and communication had contributed to a loosening of financial conditions, which had reversed some of the tightening that had occurred in the wake of the September meeting. The decline in the euro area yield curve had also supported risk assets and contributed to a loosening of financial conditions overall. The loosening was seen as an unwelcome development and was judged inconsistent with the significantly more adverse euro area inflation outlook embedded in the staff projections. Against this background, a reversal of this downward shift in market pricing was called for, in particular by fostering a reassessment of the view embedded in financial markets as regards the ECB’s future interest rate path, including its peak or terminal rate. The Governing Council also held its regular biannual exchange on the interrelation between monetary policy and financial stability. Members concurred that financial stability conditions had deteriorated since the last review in June 2022, amid a weaker economy, rising credit risk and higher sovereign vulnerabilities in an environment of lower growth and weaker fiscal positions. They took note that sudden liquidity needs of non-bank financial institutions might amplify market volatility. At the same time, the comfortable levels of capital maintained by euro area banks would help to reduce possible negative side effects of tighter monetary policy on financial stability. The point was made that an insufficient or delayed monetary policy response might simply lead to deferred, and likely greater, repercussions on financial stability. Members also discussed potentially disorderly financial market reactions to various shocks, including different scenarios of quantitative tightening and adverse changes in fiscal policy. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members noted that, in the December Eurosystem staff projections, the inflation outlook had been further revised up and inflation was clearly above the Governing Council’s target in the medium as well as the near term. As inflation was becoming more persistent and inflation pressures more broadly based, the risk of inflation expectations becoming unanchored was also seen as increasing. In addition, pipeline pressures remained elevated and core inflation, which was less volatile and seen as more responsive to monetary policy over time, was projected to remain persistently high, with underlying inflationary pressure strengthening further. The point was made that, with inflation seen as staying well above target for at least four consecutive years, it was becoming increasingly difficult to argue that high inflation could be attributed primarily to external shocks outside the control of monetary policy. In this context, wage developments were seen as adding to the risk of second-round effects, while expansionary fiscal policies were intensifying inflationary pressures, thereby interfering with the intended effect of ongoing monetary policy tightening. It was, however, also remarked that fiscal policy had a role to play in smoothing the inflation impact of the energy shock, which was within its domain of responsibility. It was underlined that the projected slowdown in economic growth, which in principle should lower inflation pressures, was shallow and could not be expected to dampen them to a significant extent. It was recalled that the quarterly macroeconomic projections exercises conducted by ECB and Eurosystem staff – comprising model-based analysis and considered judgement – constituted a key input into the Governing Council’s decision-making. It was underlined that the projections exercises were used by the markets and the broader public to judge the coherence of the Governing Council’s actions. Failing to react decisively to a worsening inflation outlook embodied in the current projections was argued to undermine their role, on the one hand, and as likely to lead to doubts about the Governing Council’s determination in pursuing and delivering on its price stability objective, on the other. It was reiterated that, in line with the outcome of the ECB’s strategy review, the Governing Council should react symmetrically and equally forcefully to inflation being below and above its medium-term target. Although monetary policy was unable to influence the inflation outlook in the short term, the projections now showed above-target inflation rates for 2024 and well into 2025, a prolonged period over which monetary policy did affect the inflation outlook. At the same time, it was cautioned that the inflation projections for the latter years of the projection period were subject to very high uncertainty and might underestimate the effect of a swift monetary policy tightening following a very long period of highly accommodative monetary policy. From this perspective, it was noted that the staff projections for inflation converged to target by mid-2025, and that the profile for core inflation continued to show a very pronounced deceleration, with risks around the baseline going in both directions. The elevated uncertainty was seen as suggesting a gradual approach and keeping a medium-term orientation, rather than unduly shortening the policy-relevant horizon. Moreover, in view of the significant increase in interest rates stemming from past monetary policy decisions, some of the effects had yet to feed through to the real economy. The Governing Council had to be careful not to dampen demand excessively as rates moved into restrictive territory, thereby exacerbating the projected recession. All in all, it was argued that the significant upward revision to the inflation projections, notably in the latter years of the projection period, would likely come as a surprise to market participants and would be perceived as inconsistent with market expectations for the interest rate path, on which the projections were based. The view was widely shared that the monetary policy stance had to be tightened decisively, as the current configuration of interest rates and expectations embodied in market pricing was not sufficiently restrictive to bring inflation back to target in a timely manner. Consequently, it was maintained that interest rates had to rise above the levels that market participants were currently expecting and had to remain at sufficiently restrictive levels for longer to reduce inflation and guard against the risk of a persistent upward shift in inflation expectations. Such an adjustment of the monetary policy stance was deemed to be also in line with the Governing Council’s communication of a data-dependent, meeting-by-meeting approach to its monetary policy decisions. Monetary policy decisions and communication On the basis of these considerations, members agreed that tightening the monetary policy stance steadily and sustainably by both increasing interest rates and reducing the size of the Eurosystem’s balance sheet was warranted. A large number of members initially expressed a preference for increasing the key ECB interest rates by 75 basis points, as inflation was clearly expected to be too high for too long and prevailing market expectations and financial conditions were plainly inconsistent with a timely return to the ECB’s 2% inflation target. Hence, the worsened inflation outlook required an interest rate hike larger than that priced in by markets. Failing to exceed market expectations could be regarded as confirming market views on the future policy path, which could result in the yield curve not shifting upwards to the extent required to bring inflation back to target. It was argued that, given the unfavourable data and inflation outlook that had become available with the December projections, the Governing Council’s data-dependent, meeting-by-meeting approach required an interest rate increase of the same size as in October to counter an unwarranted loosening of financial conditions and the monetary policy stance. It was maintained that a 75 basis point increase would speak for itself and was preferable to relying on the alternative approach of a 50 basis point move accompanied by strengthened communication on the way forward. A risk management approach to addressing persistent inflation pressures was also seen as calling for decisions that erred on the side of determined action to prevent an unanchoring of inflation expectations. Raising interest rates by less than 75 basis points would send the wrong message and risked being perceived as inconsistent with the 2% inflation target in the medium term, thereby reinforcing the perception of an asymmetry in the Governing Council’s reaction function. Some of these members, nonetheless, expressed their willingness to agree on a 50 basis point rate rise if a majority were to support the proposal put forward by Mr Lane, taking into account the strengthened communication on the Governing Council’s policy intentions and the enhanced message that the Governing Council would continue raising rates significantly at a sustained pace, which were also part of the proposal. This was in some ways seen as broadly equivalent to raising rates by 75 basis points at the present meeting, because a less frontloaded but steadier approach to bringing interest rates to restrictive levels could be seen as consistent with the more persistent nature of the inflation process and continued elevated uncertainty. Taking all into account, a broad majority of members supported Mr Lane’s proposal to raise the key ECB interest rates by 50 basis points and to communicate that interest rates would still have to rise significantly at a steady pace to reach levels that were sufficiently restrictive to ensure a timely return of inflation to the ECB’s 2% medium-term target. A 50 basis point increase was judged to constitute an appropriate pace at which monetary policy could be tightened in a manner that was still expeditious, while recognising the uncertainties surrounding the state of the economy and the inflation outlook. It was noted that as interest rates were approaching estimates of a neutral level, the frontloading of interest rate increases and the speed of monetary tightening were becoming less relevant. Instead, the steadiness of rate hikes and the time over which interest rates remained in restrictive territory mattered more. The view was held that an increase of 50 basis points at the current meeting would allow the Governing Council to tighten monetary policy over a longer period, which was important given the increased persistence of high inflation. At the same time, it was argued that, by means of sustained 50 basis point increments, interest rates could reach sufficiently restrictive levels quickly over the course of a few meetings while allowing the Governing Council to evaluate the impact of its policies along the way. In this context, it was recalled that a 50 basis point interest rate hike was a significant increase by historical standards. Nevertheless, it was stressed that, in order to produce an upward shift in market expectations as regards the future path of interest rates, strong communication was required that highlighted three elements, namely that interest rates would still have to increase significantly, that they would be raised into restrictive territory, and that they would remain there for longer than the market currently expected. Communicating the prospect of a more sustained and higher interest rate path was judged as likely to have a material tightening impact on financial conditions. It was recalled that by increasing rates by 200 basis points since the summer the Governing Council had made a great deal of progress in removing monetary policy accommodation, with significant effects on the economy and the inflation outlook – some of which would become visible only with a lag. It was also stressed that the Governing Council would simultaneously announce the start of a reduction in reinvestments of maturing securities in the APP portfolio and that the ongoing TLTRO repayments were also contributing to an accelerated reduction in the size of the overall Eurosystem balance sheet. While such a move was broadly in line with market expectations, the implications for financial markets were uncertain. This was seen as calling for a cautious approach to raising interest rates. The concern was voiced that a larger interest rate rise could heighten the risks to financial stability and – together with the announcement of a reduction in APP reinvestments and the large early repayment of TLTRO borrowing – trigger financial market volatility. Finally, a 50 basis point interest rate increase was also seen as appropriate in view of the projected decline in inflation over the coming months, due in part to base effects and fiscal measures. Other members maintained their position in favour of a rate increase of 75 basis points, regarding it as the most straightforward response to financial conditions becoming inconsistent with the expectation of inflation remaining higher for longer, as embodied in the staff projections, with risks remaining tilted to the upside. Strengthening communication was deemed important in this environment but did not constitute a substitute for a larger rate increase or a remedy for an insufficiently large increase. The view was held that the proposed adjustment of the monetary policy stance was insufficient – even taking into account the combination of a 50 basis point interest rate hike with the announcement of a reduction in APP reinvestments. Turning to the policies affecting the size and composition of the Eurosystem’s balance sheet, members widely agreed with Mr Lane’s proposal to communicate the key principles for reducing the APP portfolio. From March 2023 the portfolio would decline at a measured and predictable pace of €15 billion per month on average, as the Eurosystem would not reinvest all of the principal payments from maturing securities. This was seen as a welcome further step in the normalisation of the ECB’s monetary policy stance, in keeping with the Governing Council’s long-standing communication that it stood ready to flexibly adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target. It was recalled that interest rates were the Governing Council’s primary tool for setting the monetary policy stance. While all elements of the monetary policy stance needed to be considered together, it was cautioned that interest rates and balance sheet adjustments should not be regarded as substitutes that could be traded off against each other within the proposed policy package. A normalisation of the Eurosystem’s monetary policy securities holdings was seen as a necessary complement to the ongoing tightening of interest rate policy, signalling the Governing Council’s willingness to align all of its instruments so that they worked in the same direction. In the light of the current high inflation rates, with interest rates having moved away from their lower bound, accommodative liquidity conditions were no longer seen as required. Moreover, a timely announcement would reassure market participants that the reduction of the APP portfolio would take place in a measured and predictable way. Some members expressed a preference for reducing the APP portfolio at a faster pace or for terminating reinvestments altogether. It was recalled that the decision affected only part of the Eurosystem’s monetary policy portfolios, as it applied to the APP but not to the pandemic emergency purchase programme (PEPP). Moreover, a more rapid pace of portfolio reduction had to be seen in the context of the very fast monthly pace of net purchases when the portfolio was built up. The view was held that investors were able to absorb new issuances even without the Eurosystem’s presence in the market. Starting passive balance sheet reductions as part of the normalisation process was regarded as overdue, with markets having already expected the ECB to make announcements in this respect at the time of the October monetary policy meeting. An earlier or more significant reduction in the APP portfolio would also help policy space to be regained for the future. The view was also expressed that, while staff estimates of the impact of balance sheet reductions on economic output and inflation assumed symmetry – i.e. they assumed that the policy would work through the same channels as had been observed in the balance sheet expansion phase – there were reasons to believe that the effects of quantitative tightening would be asymmetric and weaker. It would therefore be better to regard the portfolio reduction as an element of normalisation operating in the background, with interest rates being the ECB’s primary tool for setting the monetary policy stance. It was cautioned, however, that too fast a pace of reduction could lead to the re-emergence of bond market fragmentation, which could make further interest rate increases more difficult to pursue. From that perspective, a moderate pace was seen as more appropriate, in particular as a reduction of the balance sheet was estimated as likely to have only a limited impact on the inflation outlook. On the basis of the foregoing discussion, it was agreed to announce an average pace for the reduction of the APP portfolio that would apply from the beginning of March 2023 and in the second quarter only, leaving the pace in subsequent periods to be decided on and communicated at a later point in time. This would allow the Governing Council to evaluate investors’ reactions in the coming months and to recalibrate the pace as necessary. A remark was made that the principles and modalities guiding the normalisation of the Eurosystem’s monetary policy securities holdings would always be consistent with the outcome of the Governing Council’s monetary policy strategy review, including with regard to the ECB’s obligation to support the general economic policies in the European Union without prejudice to the attainment of the primary objective of price stability. Members also agreed with the proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Maintaining the existing flexibility in PEPP reinvestments was seen as an efficient pre-emptive approach to countering a potential re-emergence of risks to the monetary policy transmission mechanism related to the pandemic and could be justified on the grounds of prudence. Members broadly agreed to communicate that inflation remained far too high and was projected to stay above the Governing Council’s 2% medium-term target for too long. It was emphasised that signalling an intention to move policy rates sufficiently into restrictive territory at a steady, sustained pace to bring inflation back to target in a timely manner was a necessary and powerful message in view of the revised inflation outlook. The view was held that, against the backdrop of the upward revision to the inflation outlook, explaining the reasoning behind the Governing Council’s decision was particularly important in the absence of more forceful policy action. Consistency and coherence in the Governing Council’s communication was called for, as this was seen as strengthening its impact on market expectations. At the same time, concern was expressed that communicating an expectation that interest rates would still have to rise significantly at a steady pace to reach levels that were sufficiently restrictive to ensure a timely return of inflation to the Governing Council’s target could be perceived as a departure from the Governing Council’s data-dependent, meeting-by-meeting approach and as reintroducing a form of interest rate forward guidance. This could focus attention on future meetings and might give rise to problems of time inconsistency, as the appropriate path might, in the light of new information, turn out to be different from that currently envisaged. Instead, it was suggested that communication should acknowledge that, in view of the current inflation outlook, interest rates needed to be raised for longer to higher levels than were currently priced in by markets and taken into account in the Eurosystem staff inflation projections. It was also suggested that the Governing Council should strengthen its calls for fiscal policies to avoid exacerbating inflationary pressures by keeping measures temporary, targeted and tailored to preserving incentives to consume less energy. In this context, fiscal vulnerabilities and the need to conclude the reform of the EU’s economic governance framework could also be addressed. Finally, it was seen as appropriate to reiterate that the Governing Council stood ready to flexibly adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target of 2%. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement to the press conference of 15 December 2022 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 14-15 December 2022 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn* Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Vujčić** Mr Wunsch* * Members not holding a voting right in December 2022 under Article 10.2 of the ESCB Statute. ** As observer. Other attendees Mr Dombrovskis, Commission Executive Vice-President*** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics *** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Buch Mr Demarco Mr Garnier Mr Gavilán Mr Gilbert Mr Haber Mr Kaasik Mr Koukoularides Mr Kuodis Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 2 March 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 1-2 February 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 1-2 February 2023 2 March 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that the Governing Council’s previous monetary policy meeting on 14-15 December 2022 had left a visible footprint in euro area financial markets, with a welcome increase in real interest rates to levels that were more consistent with a timely return of inflation to the 2% target. However, while the “terminal rate” priced in the euro area real overnight index swap (OIS) forward curve had edged up initially, a sharp decline in expected inflation, on the back of lower gas prices and inflation surprises to the downside, had later contributed to market participants revising down their rate expectations. Expectations of rapid disinflation had also induced markets to price in material rate cuts as of 2024, suggesting that they judged the period of restrictive monetary policy needed to rein in high inflation to be relatively short. These developments, alongside further signs of a more resilient euro area economy and the reopening of China’s economy, had boosted risk sentiment. Risk premia had declined measurably across market segments, compressing bond spreads and boosting equity prices, while the euro had appreciated further across the board as sentiment towards the euro area improved. However, the compression in risk premia was predicated on the markets’ firm conviction that inflation dynamics were on a steep and sustained downward trajectory towards 2%. A stronger persistence of underlying price pressures could lead to a reappraisal of the monetary policy outlook and a correction in asset prices, as suggested by the strong market reaction, during the week, to some higher than expected inflation prints. Documenting the substantial changes in real interest rates that had occurred since the Governing Council’s previous monetary policy meeting, it was noted that the euro area real OIS forward curve had shifted upwards, with the real two-year OIS rate having turned positive for the first time since the 2008-09 global financial crisis. The upward shift reflected the impact of the ECB’s December communication, as well as a decline in expected inflation that had been most pronounced over the near term. While the rise in real rates did not necessarily imply that rates were now restrictive, especially considering the uncertainty about the level of the neutral rate, it could, if persistent, mark the end of a long era of negative real interest rates. Model-based analysis suggested that the decline in the market-based inflation outlook had two broad origins. First, after a long phase of upside surprises to inflation, some misses to the downside relative to expectations for euro area headline inflation had been observed since November. Second, there had been a substantial decline in gas prices, which had, at present, a much larger impact on inflation swap rates than in the past, at both the short and the long end of the inflation swap curve. This increased sensitivity to changes in gas prices may have contributed to an increasing disconnect between the market-implied inflation path and that of professional forecasters. Two factors raised doubt about the markets’ benign view of inflation. First, the growing signs that a technical recession in the euro area had become less likely. And second, the reopening of China’s economy. As markets were seemingly discounting these risks to the inflation outlook, they also questioned whether the ECB would keep rates in restrictive territory for a sustained period. While the market-implied path for future short-term interest rates foresaw a further tightening over the short run, in line with the ECB’s December communication, it also envisaged a reversal as of 2024. The expected terminal rate in the euro area had initially shifted notably upwards in response to the Governing Council’s previous monetary policy meeting. However, it had gradually fallen back as investors reappraised the inflation outlook. Furthermore, markets currently expected a significant number of rate cuts over the course of 2024. In other words, given that investors expected a fast and sustained return of inflation to 2%, they expected policy rates to remain at a restrictive level for only a short period of time. Investors had also become more certain about the revised expected interest rate path. Implied volatility over a horizon of up to one year was now at its lowest since spring 2022, although it remained high from a historical perspective. The decline in interest rate volatility, however, masked important differences in the drivers of uncertainty, with model-based analysis suggesting that uncertainty about the ECB’s “reaction function” had increased, while inflation uncertainty had declined. These developments were not confined to the euro area. Investors, globally, expected major central banks to cut their key policy rates this year or next, as headline inflation was expected to ease rapidly from high spot levels. In response to some first signs of a turning point in headline inflation, investors were signalling that they believed rate cuts would soon be needed. This was despite warnings from central bank officials around the world that interest rates would probably stay higher for longer than markets expected, since core inflation – as measured by excluding energy and food from the overall index – remained elevated. Overall, therefore, markets had taken a view that the global economy, including the euro area, was at an inflection point, with stronger growth and lower inflation than previously expected. Such positioning was putting market pricing at a considerable risk of correction should inflation prove more persistent. This was also visible when looking at the significant impact of the global reappraisal of the inflation and interest rate outlook on broader financial markets. In fixed income markets, there had been a broad-based compression of risk premia. In euro area sovereign bond markets, spreads had fallen across jurisdictions, despite the ECB’s December announcement that the asset purchase programme (APP) portfolio would start to decline as of March 2023 and expectations of a faster run-off as of the third quarter. In euro area corporate bond markets, spreads for non-financial corporate bonds were around 25% lower than late-October levels. The rally in financial markets, spurred by the prevailing disinflation narrative, had been especially pronounced in stock markets, with euro area equities, in particular, having made significant gains. Fading risks of recession, amid lower gas prices, had also been a key driver behind the euro’s continued appreciation since the 14-15 December meeting. This appreciation had been broad-based against most major currencies, with the Japanese yen being a notable exception. In this environment of a more positive risk sentiment, market functioning had also improved notably, as reflected in lower volatility and improved liquidity in euro area sovereign bond markets. This made a further positive contribution to investors’ risk absorption capacity. At the same time, the increase in public sector issuance had contributed to reducing collateral scarcity. German repo rates for non-general collateral had moved closer to the euro short-term rate (€STR) again, reducing the collateral premium. The global environment and economic and monetary developments in the euro area Mr Lane observed that the world economy had further decelerated in the fourth quarter of 2022, with the global Purchasing Managers’ Index (PMI) for both manufacturing and services output falling below the threshold of 50 at the end of 2022. Consistent with low activity, international trade had also slowed in the final quarter of 2022. Despite the deceleration, global growth projections had improved for 2023, owing partly to the relaxation of pandemic restrictions in China. The euro had continued to appreciate since the 14-15 December Governing Council meeting. In trade-weighted terms, the exchange rate had returned to the level observed at the beginning of 2022. The slowdown in global demand, together with the unusually warm winter and effective gas saving measures, had led to a sharp decline in energy prices. European gas prices had fallen by around 50% since the December monetary policy meeting. According to the futures curve, they were expected to remain around present levels, easing concerns about storage levels for next winter. Oil prices had ticked up since the December meeting but remained significantly below mid-2022 levels. The sharply lower energy prices and easing of supply bottlenecks could be interpreted as a partial reversal of the large negative supply shock that had been observed since 2021. The euro area economy had slowed further in the fourth quarter of 2022 but had proved more resilient than expected in December. The PMI composite output indicator had risen above the threshold of 50 in January 2023, after falling well into contractionary territory last autumn. However, unlike services, manufacturing output was still below the threshold. Manufacturing was once again the principal drag on overall output, despite the continued easing in supply bottlenecks that had particularly benefited car production and sales. Strong demand for leisure activities, tourism and hospitality were cushioning the slowdown in services activity. The latest round of the Commission’s household survey suggested that euro area households had revised their expectations on consumer prices 12-months ahead sharply downwards and their expectations on the economic situation upwards. The less pessimistic view on the economic situation also supported the improvement in their expectations on the financial situation and would help private consumption in the period ahead. These survey results supported the interpretation of a reversal of the negative supply shock. Housing and business investment were clearly weakening, owing partly to tighter financing conditions. The Commission’s business survey had shown that supply constraints, rather than demand constraints, had so far been the strongest factor limiting production. In particular, shortages of material and equipment were constraining production in the capital goods sector. While output in this sector had been supported by the easing of supply bottlenecks and firms working through backlogs of orders, especially in the car industry, new orders remained weak. For the construction sector, the PMI for both output and new orders had been on a downward trend since early 2022. Nonetheless, Mr Lane continued to expect that the economy would recover over the course of the year, on the back of a robust labour market, rising wages and fiscal support measures, as well as current headwinds fading away. If the favourable supply-side developments persisted, these would provide further support to the recovery in activity. The decline in energy inflation had meant an improvement in the terms of trade. A significant drop in import price inflation had been followed by a less pronounced decline in export price inflation. This asymmetry in the price adjustment had led to a significant improvement in the euro area current account at the end of 2022. The labour market continued to be resilient. The unemployment rate had stabilised at 6.6% in December, far below the pre-COVID level. The PMI for employment, which had declined from its very high mid-2021 level, was still firmly positive. This suggested that firms were continuing to increase their labour force. In terms of vacancies, the latest Indeed data (from online job matching portals in the five largest euro area countries and Ireland) indicated that there had been a slight decline, but the level remained very high. Compared with December expectations, risks to the growth outlook had become more balanced. Russia’s war against Ukraine continued to be a significant downside risk to the economy and could again push up energy and food costs. There could also be an additional drag on euro area growth if the world economy were to weaken more sharply than expected at present. Moreover, the recovery would face obstacles if the pandemic were to re-intensify and cause renewed supply disruptions. However, the adverse energy shock could fade away faster than anticipated and, while the security of European gas supplies remained vulnerable to global supply risks, higher than usual gas inventories had reduced supply risks for next winter. Moreover, euro area companies could adapt more quickly to the challenging international environment. This would support higher growth than currently expected. HICP inflation had declined sharply from 10.6% in October to 9.2% in December, and further to 8.5% in January, according to Eurostat’s flash estimate. The lower figures largely reflected the sizeable drop in energy price inflation. By contrast, food price inflation had increased to 14.1% (from 13.8% in December). As in December, HICP inflation excluding energy and food stood at 5.2% in January. However, there was some variation across the sub-categories, with the inflation rate for non-energy industrial goods rising to 6.9% (from 6.4%) and services inflation declining to 4.2% (from 4.4%). When measured in terms of “momentum”, defined as the annualised three-month-on-three-month percentage change in prices, the deceleration of inflation dynamics between December and January was notably stronger than suggested by the annual rates in these components. The uncertainty surrounding Eurostat’s January flash HICP estimate was greater than usual, as it contained an estimate of the figure for Germany. In January there had also been the usual change in the HICP weights, reflecting changes in expenditures over the previous year. Across items, one of the most important changes was the increased weight of services, as households had returned to a more normal consumption profile. Measures of underlying inflation continued to stand at high levels. However, those indicators that included an energy component saw a turnaround. In addition, the recent dynamics of core inflation showed that there had been a levelling-off of momentum. Looking at the determinants of goods inflation, energy-sensitive items had continued to provide a strong contribution until December 2022. Looking ahead, the contribution of energy-sensitive items could be expected to decline. However, it was uncertain whether the pace of the reduction was likely to be symmetric to that of the increase. But the contribution of non-energy-sensitive items was increasing. To reconcile the still increasing contribution of energy-sensitive items with the fall in energy costs, it was useful to look at pipeline pressures. Those pressures had declined for food inflation, in particular for international food commodity prices and for European farm gate prices. But the producer price index for processed food was still increasing, owing to long transmission lags. Similarly, for goods inflation, there had already been a significant decline in pipeline pressures for intermediate goods, but the producer price index for non-food consumer goods was still increasing. Still, the fast decline observed in pressures upstream in the production chain were expected to lead to lower retail prices, as had been the case in the United States. Mr Lane reported that, in the latest round of the ECB’s Corporate Telephone Survey, firms had stated that input cost pressures had been easing, reflecting declines in energy costs as well as other input costs, and they were expecting input costs to continue to decline. Moving to the inflationary pressures stemming from the housing sector, rent inflation had been picking up very gradually in the euro area during 2022. Housing-related expenses had increased strongly during 2022 but the pace had started to decelerate at the end of the year. Moreover, inflation in owner-occupied housing costs had started to ease in the third quarter of 2022, reflecting the acquisition component. Residential property price inflation in the euro area had eased substantially in the third quarter of 2022, falling to 6.8%, from 9.2% in the second quarter. Measured wage growth was strengthening, as compensation for past high inflation was becoming the main theme in wage negotiations, but wage developments so far were broadly in line with the December 2022 Eurosystem staff macroeconomic projections for the euro area. The ECB wage tracker, which had improved its representativeness with the inclusion of data for France, indicated that new contracts signed during 2022 and coming into effect in 2023 implied ongoing wage increases of around 5%. Similarly, according to the January wage expectations from the Corporate Telephone Survey, firms expected average wage growth of around 5% for 2023, which was similar to the rate expected in the October survey round. The Indeed wage tracker had shown some signs of a turnaround in the last two months of 2022. Longer-term inflation expectations stood at around 2%. Market-based measures of inflation compensation had edged down, with a more marked correction for 2023 and 2024. In the other direction, the 2023 and 2024 inflation projections from the ECB Survey of Professional Forecasters had increased. However, longer-term expectations had been revised marginally down to 2.1%, whereas those from the ECB Survey of Monetary Analysts were unchanged at 2%. Finally, the ECB’s Consumer Expectations Survey for December 2022 indicated a levelling-off of median inflation perceptions and one-year ahead inflation expectations, but continued to point to three-year ahead inflation remaining at around 3%. Overall, the favourable supply-side developments, if these persisted, should help dampen inflation, including through the impact of lower energy prices on the cost structures of energy-intensive sectors in the goods and services categories and on the real wage gap. At the same time, the improvement in the terms of trade constituted a positive income and wealth shock that would also support demand. The inflation outlook remained highly uncertain, although compared with the Governing Council’s expectations in December, the risks to the inflation outlook had become more balanced, especially in the near term. On the upside, existing pipeline pressures could still send retail prices higher in the near term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. Domestic factors, such as inflation expectations persistently above the ECB’s target or higher than anticipated wage rises, could drive inflation higher, also over the medium term. On the downside, the recent fall in energy prices, if it persisted, might slow inflation more rapidly than expected. This downward pressure in the energy component could then also translate into weaker dynamics for underlying inflation. A further weakening of demand would also contribute to lower price pressures than currently anticipated, especially over the medium term. The net impact of the reopening of China’s economy on euro area inflation dynamics over the coming months was uncertain. While a strong rebound in Chinese production could further ease supply bottlenecks and increase competition in the global goods market, thus constituting a disinflationary impulse for the world economy, a recovery in Chinese demand could also add to inflationary pressures, especially through higher demand for commodities. Turning to financial and monetary developments, bank funding costs continued to reflect the transmission of monetary policy. Euro area bank bond yields had increased somewhat further since the December Governing Council meeting, reflecting the movements in the key ECB interest rates and in market rates. Deposit rates had also increased further, rising more strongly for firms than for households since May 2022. The spread between M3 savings deposits and overnight deposits had continued to widen, broadly in line with past rate hiking periods. Over time, this would likely lead to a considerable downward adjustment to the currently still high share of overnight deposit holdings, as currently there was an incentive to minimise deposit holdings in current accounts. Moreover, as the ECB’s targeted longer-term refinancing operations (TLTROs) were being repaid, banks needed some longer-term deposits to meet various regulatory ratios. Thus, there was an expectation that this portfolio switch would continue. The increase in policy rates continued to be passed through to firms. The cost of debt financing had risen substantially since September 2022 and the strong increase in bank lending rates had led to a considerably narrower spread between the cost of market-based debt financing and the cost of bank borrowing at the end of 2022, compared with its September level. The current pace of monetary policy tightening was faster than in previous rate hiking cycles, reflecting the greater frequency and size of policy rate hikes. However, as this represented a reversal of previous loosening and was a necessary normalisation to address high inflation, it was not viewed as a severe squeeze by the banks or their customers. The transmission of monetary policy was also reflected in developments in bank lending conditions, as reported by banks in the latest bank lending survey. Banks continued to report a substantial net tightening of their credit standards on loans to firms and on loans to households for house purchase in the fourth quarter of 2022. Mr Lane noted that, since the survey was meant to assess the change in credit standards and not their level, it was legitimate to ask whether banks were tightening or just reversing a very accommodative set of credit standards. Still, as the tightening continued, at some point the trend would move beyond normalisation. Demand for bank loans to non-financial corporations had also declined in the final quarter of 2022. This was driven mainly by rising interest rates, in line with the increase in bank lending rates for firms. The bank lending survey revealed that the decline in demand for loans stemmed, in particular, from the commercial real estate, residential real estate and construction sectors, the most interest rate-sensitive sectors. In addition, loan demand was being dampened by lower financing needs for fixed investment and a moderation in firms’ financing needs for working capital. The bank lending survey reported a steep drop in demand for housing loans, which was unprecedented in the history of the survey. The main drivers of this fall were rising interest rates, deteriorating prospects for housing markets and low consumer confidence. Debt financing flows for firms had declined in November and December, owing to net redemptions in bank borrowing. There was therefore evidence of some deleveraging by firms at the end of 2022. Household borrowing dynamics had also weakened, driven mainly by developments in housing loans. The moderating trend in mortgage borrowing reflected tighter credit standards, rising lending rates and decreasing loan demand. Finally, on monetary developments, Mr Lane reported that the deceleration in loan creation was reflected in a decline in money growth. The moderation in broad money (M3) growth was driven mainly by outflows from narrow money (M1), the growth of which had fallen markedly. Persistently low remuneration of overnight deposits meant that the opportunity costs of holding M1 instruments had risen significantly. Deposit flows continued to reflect the shifts towards time deposits and to M3 instruments offering a remuneration closely linked to market rates. Monetary policy considerations and policy options Against this background, Mr Lane proposed raising the three key ECB interest rates by 50 basis points and communicating that the Governing Council expected to raise them further. The Governing Council should stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that were sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. Accordingly, in view of the underlying inflation pressures, Mr Lane proposed communicating the intention to raise interest rates by another 50 basis points at the next monetary policy meeting in March and to then evaluate the subsequent path of monetary policy. Signalling a 50 basis point step for the March meeting acknowledged that, in a very wide range of scenarios, the Governing Council saw that a further step of this size remained necessary to bring the key ECB interest rates to levels that would ensure a return of inflation to target in a timely manner. That said, looking beyond the immediate term, the monetary policy meeting in March would provide a waypoint at which to evaluate the subsequent path of monetary policy, including on the basis of a new set of staff macroeconomic projections that would then be available. The Governing Council would in this way ensure that its future policy rate decisions continued to be data-dependent and followed a meeting-by-meeting approach. Regarding the parameters that would govern the measured and predictable reduction of the asset purchase programme (APP) portfolio that had been decided in December, it was important that the process remained transparent, simple to understand and as neutral as possible vis-à-vis the pricing of the classes of securities held in the portfolio. To this end, Mr Lane proposed that the partial reinvestments be conducted broadly in line with current practice. Without prejudice to the objective of price stability, the Governing Council should also support the gradual decarbonisation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris Agreement. As regards the pandemic emergency purchase programme (PEPP), the signalling power of the framework for PEPP reinvestment flexibility was still supporting the monetary policy transmission mechanism. It was therefore proposed, in the spirit of prudence, to continue to allow flexibility in PEPP reinvestments as an effective first line of defence against remaining fragmentation risks. Ms Schnabel then detailed the proposal for the modalities to be followed in reducing the APP holdings, following the Governing Council’s decision at its December monetary policy meeting to reduce the APP portfolio by €15 billion per month on average from the beginning of March until the end of the second quarter of 2023. During the partial reinvestment phase, reinvestment amounts were expected to be relatively small. Any changes to the modalities would therefore have a very limited impact on the composition of the APP portfolio. This argued for keeping the modalities for the period of partial reinvestments simple, reflecting as much as possible the practice applied for full reinvestment. This approach would also preserve consistency with the overall monetary policy stance and market functioning, and should facilitate the Eurosystem’s public communication. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that subdued global economic activity and high levels of geopolitical uncertainty, especially owing to Russia’s unjustified war against Ukraine and its people, continued to act as headwinds to euro area growth. Subdued global activity would weigh on global trade and euro area foreign demand, despite improvements in global supply chains. In their discussion, members argued that, on the one hand, the reopening of the Chinese economy should lead to fewer bottlenecks in global supply chains and thus support global activity. This would also imply stronger foreign demand for the euro area. On the other hand, the reopening of its economy would increase China’s appetite for commodities, including natural gas, and would make China a strong competitor of Europe for supplies of liquified natural gas. This would put upward pressure on European gas prices and act as a headwind to Europe’s recovery. Pressure on prices of other raw materials, such as metals, owing to increased demand from China, was already visible. Which of the various forces at play would eventually prevail was not clear, creating considerable uncertainty for the euro area outlook. Members highlighted that energy commodity prices had come down significantly, in some cases returning to levels prevailing before the start of Russia’s war in Ukraine. This implied that the euro area’s import bill for fossil fuels would be reduced considerably. At the same time, it was mentioned that there was still considerable scepticism in energy markets about whether the current lower energy prices would persist. Part of the decline in prices seemed to be driven by the current mild winter weather, which would not necessarily be repeated next winter. It was widely stressed that the euro area continued to be confronted by an exceptionally high degree of global uncertainty, owing to both economic and geopolitical factors. With regard to economic activity, despite the challenging external environment, members concurred with Mr Lane that the euro area was likely to avoid a recession. Together with high inflation and tighter financing conditions, global headwinds were dampening spending and production, especially in the manufacturing sector. However, in addition to easing supply bottlenecks and more secure gas supplies, firms were still working through large order backlogs and confidence was improving. Moreover, output in the services sector had been holding up, supported by the continuing effects of the reopening of the economy and stronger demand for leisure activities. Rising wages and the recent decline in energy price inflation were also set to ease the loss of purchasing power that many people had experienced owing to high inflation. This, in turn, would support consumption. Overall, the economy had proved more resilient than expected and should recover over the coming quarters. The unemployment rate had remained at a historical low of 6.6% in December 2022. However, the rate at which jobs were being created was seen as potentially slowing, with unemployment rising over the coming quarters. Members commented on the surprising resilience of economic activity to date. The release of Eurostat’s preliminary flash estimate for GDP growth in the fourth quarter of 2022 had surprised on the upside, which was regarded as good news, even if the figure had most likely been pushed up by volatile transactions in Irish intellectual property products. In combination with recent levels of inflation, which had been lower than expected, this stronger activity was seen as indicative of a partial reversal of the negative supply shocks that had shaped developments in the euro area economy over the past year. As a result, the euro area economy was now in a better situation than expected in December, and it was argued that recent developments were in line with a “soft landing” (with the economy slowing but avoiding a recession). In such circumstances, the Governing Council might be able to bring down inflation without overly large sacrifices in terms of economic activity. However, it was also maintained that, despite the better than expected economic news, the underlying economic situation had not fundamentally changed since the December meeting. Members concurred that government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. In particular, as the energy crisis became less acute, it was important to start rolling these measures back promptly in line with the fall in energy prices and in a concerted manner. Any such measures falling short of these principles were likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework, fiscal policies should be oriented towards making the economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, could help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly. Against this background, members assessed risks to the economic growth outlook as having become more balanced. Russia’s war in Ukraine continued to be a significant downside risk to the economy and could again push up the costs of energy and food. There could also be an additional drag on euro area growth if the world economy weakened more sharply than expected. Moreover, the recovery would face obstacles if the pandemic were to re-intensify and cause renewed supply disruptions. However, the energy shock could fade away faster than anticipated and euro area companies could adapt more quickly to the challenging international environment. This would support higher growth than currently expected. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction. Price pressures remained strong, partly because high energy costs were spreading throughout the economy. HICP inflation excluding energy and food, as a measure of core inflation, remained at 5.2% in January. Other indicators of underlying inflation were also still high. Although supply bottlenecks were gradually easing, their delayed effects were still pushing up goods price inflation. The same was true for the lifting of pandemic-related restrictions: while weakening, the effect of pent-up demand was still driving up prices, especially in the services sector. Government measures to compensate households for high energy prices were, by contrast, dampening inflation in 2023. However, the scale of some of these measures depended on the evolution of energy prices and therefore their overall contribution to inflation was particularly uncertain, since they were expected to raise inflation once they expired. Market-based indicators suggested that energy prices were seen as being significantly lower over the current and coming years than had been expected at the time of the Governing Council’s December meeting. At the same time, wages were growing faster, supported by robust labour markets. However, recent data on wage dynamics had been in line with the December Eurosystem staff projections. Most measures of longer-term inflation expectations stood at around 2% but warranted continued monitoring. Members concurred with the view that, although the rate of headline inflation had slowed since October, inflation was still far too high. While the good news ought to be welcome, it was argued that the December assessment of the inflation outlook had not fundamentally changed. Core inflation was still at levels foreseen in December. Therefore, it was much too early to declare victory. Attention was drawn to the fact that the inflation figures for the euro area’s largest economy had not been available in time to be included in Eurostat’s flash release for January. It was suggested that, in all likelihood, the final release would turn out to be somewhat higher for the euro area. In this context, it was underlined that core inflation had surprised slightly on the upside and remained unchanged from December, which was seen as the reason for the very muted market reaction to the lower than expected headline inflation figure for January. Since core inflation was often regarded as the “attractor” to which headline inflation would revert over the medium term, the latest inflation figures were not necessarily a welcome development overall. However, caution was expressed against focusing too much on measures of core inflation. Indeed, some elements of core inflation could move quite quickly, as seen from the experience in the United States and in line with the latest developments in euro area pipeline pressures. However, that would not necessarily imply that the more persistent elements of inflation, such as those related to wages, would turn around. It was recalled that the ECB monitored a wide array of measures of underlying inflation and undertook a detailed analysis of all components of headline inflation, rather than looking exclusively at particular measures of core inflation excluding several volatile items. Finally, it was mentioned that January inflation developments in Croatia, which had just joined the euro area, had been quite stable overall, compared with December. This suggested that the upward impact on prices from the cash changeover had been rather limited so far, contrary to the expectations of some people. As regards developments in core inflation, it was stressed that the pass-through of lower energy prices to this measure was a key factor in the assessment of the lag with which the rate of core inflation would show convincing signs of a deceleration. In this context, members debated the extent to which lower energy prices would lead to a moderation in underlying price pressures. This would depend on whether the pass-through from declining energy prices to other components of inflation was symmetric to that observed when energy prices increased. On the one hand, there were a number of reasons to believe that offsetting factors might lead to a slower pass-through of the disinflationary impulse than had been observed over the recent inflationary phase. In particular, the pass-through of earlier higher wholesale energy prices to retail prices took time and was still ongoing. Demand pressures had increased and wage pressures were rising on the back of wage negotiations that were being increasingly influenced by the high rates of current or past inflation and continued labour scarcity. In addition, the longer duration of wage contracts, rising minimum wages and staggered wage-setting could lead to a longer persistence of wage growth. In this respect, it was underlined that inflation pressures had been broadening for some time, so the driving force behind the inflation process was no longer a pure supply-side inflation shock. While the rise in inflation had started with a supply shock, it had turned into more of a demand-side type of inflation, making inflation more persistent. Moreover, there was evidence that the effect of an increase in energy prices on both GDP and inflation was very different from the effect of a decrease in energy prices, partly owing to downward price and wage rigidities. Recent evidence for the euro area showed that there was significant asymmetry, so the strong and fast pass-through observed as energy prices rose could not be expected to simply reverse swiftly as prices declined. On the other hand, it was argued that the decline in energy prices could well be transmitted more quickly to items of core inflation, in line with how the inflationary shocks had filtered through to this measure in recent quarters as prices rose. This suggested that core inflation might over time decline faster than envisaged in the December projections. In any case, it was noted that it was too early to observe such a rapid pass-through, as non-energy industrial goods inflation was still increasing, suggesting that the upside pressures from past higher energy prices were still present. Staggered price adjustment implied that households and firms might face higher energy prices only after some time had elapsed, so while energy commodity prices were falling, households and firms would still see some of the pass-through from the previous increase in energy prices. At the same time, it had to be acknowledged that the rate of industrial producer price inflation, excluding energy, had significantly decelerated, which was an important indication that lower energy prices would at some point translate into lower core inflation. In this context, it was also argued that in the three-month-on-three-month changes in the HICP excluding energy and food – the core “momentum” – there were already initial signs that underlying inflation would start to decline in annual growth rates, despite the fact that core inflation naturally responded with a lag to changes in energy prices. Members considered the implications of the reopening of China’s economy for inflation developments in the euro area. In this context, the remark was made that the reopening of a major global net-exporting economy, such as China, should on balance be expected to have a dampening impact on global price pressures, even if Chinese aggregate demand increased. Moreover, Chinese exporters could also be expected to lower their prices so as to regain some of the market share they had lost during the periods of lockdown, thus spurring price competition worldwide. However, upward pressures on inflation could be expected from an increase in Chinese demand, especially for commodities. There was still considerable uncertainty about the dampening impact of tighter monetary policy on inflation. The current inflation dynamics most likely did not yet reflect recent monetary policy tightening. In fact, it was argued on the basis of recent survey evidence that current financing conditions were hardly restrictive enough to dampen demand sufficiently to bring inflation back to the ECB’s target in a timely manner. This suggested that the contribution of monetary policy to disinflation had been limited so far, except indirectly through the appreciation of the euro and through the housing market channel in a number of euro area economies. With regard to exchange rates, it was noted that the recent appreciation of the euro implied lower inflationary pressures for the euro area in the period ahead. Members recalled that wage pressures were key in understanding the risks of second-round effects on inflation and in determining more persistent developments in underlying price pressures. Until a few months ago wage growth had remained moderate, but now there was a clear acceleration, which had to be taken into account in the outlook for core inflation. It was also highlighted that, despite the slowdown in economic activity, the labour market remained exceptionally tight. This meant that price pressures acting on labour-intensive services were unlikely to abate soon. The wage trackers were showing very strong wage increases under newly concluded contracts, which, in a context of the long durations of wage contracts and centralised wage bargaining, might lead to more persistent wage growth. However, it was also noted that wage growth for the pool of job movers should naturally be expected to be much higher than wage growth for job stayers, as the former were expected to account for the bulk of productivity growth. Following the pandemic, the economy was going through a period of intensified job churning, so it was natural that labour productivity and wage growth were accelerating. But this would not necessarily imply an increase in price pressures. At the same time, it was highlighted that the observed strong increase in minimum wages would add to existing wage pressures. There was evidence that, over time, increases in minimum wages could feed into wage increases further up the wage scale. Therefore, while there was wide agreement that there were no signs of a wage-price spiral, it was argued that current wage growth was clearly not consistent with a 2% inflation target, even when taking into account trend improvements in productivity. In this context, it was reiterated that wages were a lagging indicator, so only the most recent phase of wage growth should be seen as fully reflecting past price increases. In some sectors and some countries, wages were expected to rise by more than 10%. However, it was also observed that there was a lot of heterogeneity across sectors and countries. Moreover, while wage negotiations were still ongoing, wage claims were hardly reliable early indicators for the final wage agreements, which more often than not tended to be more moderate. It was observed that some catch-up effect from the loss of purchasing power accumulated over the past few years would unavoidably exert upward pressure on wage growth, in line with the December staff projections. At the same time, as energy prices had started to decline again, the loss in real income was now lower than previously expected. This could imply that the push to recover purchasing power via higher wages would also diminish, while leading to stronger than expected aggregate demand. It was underlined that, so far, the association of fast-rising prices with lagging wages had implied a large shift in income from labour to capital. Developments in unit profit growth remained very strong, which suggested that the pass-through of higher costs to higher selling prices remained robust. It was therefore widely stressed that developments in profits and mark-up warranted constant monitoring and further analysis on an equal footing with developments in wages. Members agreed that fiscal policies continued to play a crucial role in determining the degree of persistence of medium-term inflation. Several members were of the view that fiscal policy was working against monetary policy efforts to restore price stability. At the same time, some upward effects on inflation could be expected from the positive demand impact of fiscal policy – especially through the component of fiscal policy aimed at protecting consumers from a loss of purchasing power. Moreover, governments could be expected to refrain from providing additional support if there was a diminished need for it, because this was costly in budgetary terms. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and in survey-based indicators, concurring that they were broadly in line with longer-term inflation expectations being well anchored. Financial markets continued to see the Governing Council as credible in bringing inflation back to target. At the same time, it was argued that some indicators suggested longer-term inflation expectations remained at risk of becoming unanchored. Market-based expectations for near-term inflation had come down substantially, whereas medium and long-term inflation expectations remained broadly unchanged. Moreover, some survey-based measures had even increased. Median three-year ahead inflation expectations in the Consumer Expectations Survey for December had reversed their previous decline and again stood at 3%. The Survey of Professional Forecasters had reported upward revisions for 2023 and 2024, for both headline and core inflation, while long-term inflation expectations had declined slightly. Against this background, members assessed that the risks to the inflation outlook had become more balanced, especially in the near term. On the upside, existing pipeline pressures could push retail prices higher in the near term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. Domestic factors, such as a persistent rise in inflation expectations above the ECB’s target or higher than anticipated wage rises, could drive inflation higher, including over the medium term. On the downside, the recent fall in energy prices, if it persisted, might slow inflation more rapidly than expected. This downward pressure in the energy component could then translate into weaker dynamics in underlying inflation. A further weakening of demand would also contribute to lower price pressures than currently anticipated, especially over the medium term. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. As monetary policy was tightened, bank lending rates for firms and households were rising. The growth of bank lending to firms had decelerated sharply over recent months. This partly stemmed from lower financing needs for inventories. But it also reflected weakening demand for loans to finance business investment, in the context of a steep upward move in bank lending rates and a considerable tightening in credit standards, as reported in the most recent euro area bank lending survey. Household borrowing had continued to weaken as well, reflecting rising lending rates, tighter credit standards and a sharp fall in the demand for mortgages. As the pace of loan creation was decelerating, money growth was also slowing rapidly, with a marked decline in the growth of its most liquid components, including overnight deposits, which was only partially compensated for by a shift to term deposits. It was highlighted that the weakening in credit dynamics, with the growth of loans to firms in the euro area coming to a virtual standstill in November and December, was in large part a natural and desired consequence of the ongoing normalisation of the monetary policy stance. However, the size and speed of the recent decline had to be monitored, since it might act as a drag on the recovery. A question was raised as to the extent to which the weakening in lending dynamics was due to lower demand, which could be traced back to monetary policy tightening, or to supply factors. Reference was made in this respect to the results of the latest round of the bank lending survey. This pointed to reduced loan demand being driven mainly by a higher general level of interest rates and lower demand for fixed investment, while the tightening of lending standards was driven mainly by banks’ risk perception and risk tolerance, and less by the cost of funds. At the same time, it was remarked that euro area banks’ capital positions remained solid amid improving asset quality, despite challenging and quickly evolving macroeconomic and financial circumstances. Moreover, at the current stage of policy normalisation, banks saw their profitability boosted by increasing interest rate margins. Rising bank lending rates and lower lending volumes did not therefore necessarily reflect a reduction in banks’ intermediation capacity. Looking beyond bank-based financing costs, members noted that broader financial conditions had tightened overall after the December meeting, reflecting the Governing Council’s policy decisions and communication. Market expectations for the terminal rate had risen to levels that were regarded as more comfortable and more consistent with a timely return of inflation to target. Notwithstanding the uncertainty about the precise level of the terminal rate, these expectations had been remarkably stable since December. Moreover, members welcomed the fact that real forward rates were now positive along the entire yield curve. It was underlined that debt financing conditions had tightened amid a benign situation in the bond market, in conjunction with receding uncertainty. In particular, bond spreads remained generally contained and risk assets, including equities, were performing strongly. In addition, the ECB’s announcement in December regarding the plans to reduce the APP portfolio from March 2023 had not resulted in a substantial increase in term premia or government bond spreads. Overall, despite some volatility, it was felt that the market response to the Governing Council’s communication following its December meeting could thus be deemed a success. In view of recent monetary and financial developments, members noted that the transmission of monetary policy to financing conditions seemed to be working as intended and, so far, was broadly in line with previous hiking cycles. Given that transmission lags were long and variable – typically estimated to be around two years – it was argued that only a limited impact could be expected to be visible in demand and inflation at this point, at least if policy normalisation was assumed to have started in July 2022. However, it was suggested that December 2021, when the winding-down of asset purchases had been announced, could be a better starting point. This was when financing conditions had begun to tighten and mortgage rates had started to rise, well ahead of the time when policy rates were first raised. Accordingly, there had already been evidence for some time of a transmission of monetary policy to the housing market – which was welcome in view of the long-standing signs of overheating. Consumer loans and loans to non-financial corporations, by contrast, had seen little impact before the sharp deceleration in lending to firms observed in more recent months. As regards the extent to which financing conditions were constraining demand, reference was made to the ECB’s Corporate Telephone Survey. This suggested that larger firms continued to see financing conditions as favourable, with very few considering them a reason for reducing investment. Similarly, in the recent European Commission survey, financial constraints were not seen by firms as a significant factor limiting production. This was somewhat at odds with the results of the ECB’s bank lending survey, in which banks pointed to a significant negative contribution of interest rates to demand for loans. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members stressed that inflation remained far too high. However, the latest data implied that risks had become more balanced, with both downside risks to growth and upside risks to inflation having diminished relative to the Governing Council’s December assessment. Energy prices had declined rapidly, suggesting a partial reversal of the earlier adverse supply shock. If this development persisted, it should lead to a more rapid fall in headline inflation. It was also reiterated that, given the typically long transmission lags, the decline in headline inflation observed to date was unlikely to be the result of monetary policy tightening. At the same time, it was underlined that core inflation and other measures of underlying inflation were likely to be stickier, with only limited evidence of a stabilisation so far. Overall, it was widely argued that the latest data and the change in the balance of risks did not fundamentally alter the assessment made by the Governing Council in December, and there was a need to stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that were sufficiently restrictive to ensure a timely return of inflation to the ECB’s 2% medium-term target. While members agreed that there were no signs of a wage-price spiral taking hold, wage pressures were broadening, in line with the December 2022 projections. On the whole, although there were already signs of a stabilisation and turning point in headline inflation, the pass-through to persistent components of inflation was highly uncertain. Underlying price pressures remained strong, inflation in non-energy components of the price index was rising and a tight labour market would continue to exert pressure on core inflation. Moreover, a better than expected growth outlook would contribute to continued inflationary pressures, which were unlikely to abate by themselves without further significant policy tightening. In any case, it was argued on the basis of standard model elasticities that expected inflation for 2025 would now be closer to 2% than envisaged in the December 2022 projections, when taking into account the most recent data as well as changes in the external assumptions. These included higher market rates, a stronger euro in nominal effective terms and markedly lower energy prices. Beyond the impact of new data, members underlined the role of the change in market interest rate expectations, which had moved higher since the cut-off date for the December projections. At the same time, it was acknowledged that this was a partial analysis, and the strength and persistence of the various factors driving inflation required a full new round of projections to assess the implications for both the baseline outlook and the balance of risks. Uncertainty remained very high in any case, and it was unclear whether low energy prices would persist. Uncertainty surrounding the inflation outlook stemmed particularly from the impact of China’s reopening, fiscal measures and the exchange rate on inflation. The next ECB staff projections would help shed more light on these questions and provide a more complete picture. It was remarked that basing the new staff projections on a yield curve that was more in line with members’ views should offer a better benchmark than the one provided by the projections available at the Governing Council’s December monetary policy meeting. Attention was drawn to the gap between the inflation trajectory embedded in the December projections and that implied by financial markets. Market participants appeared to be more optimistic and had substantially reassessed their inflation outlook, with inflation-linked swap rates having come down significantly at short horizons. This raised the question of whether markets were giving too much weight to the decline in energy prices. In this context, it was seen as somewhat surprising that markets had hardly reacted to the flash estimate for euro area January headline inflation being lower than projected. At the same time, they had reacted strongly to the upside surprise in January headline inflation in the euro area’s fourth largest economy, which had also seen an acceleration in core inflation. This could indicate that markets were now paying more attention to core inflation than to headline inflation to gauge underlying inflationary pressures. It was underlined that both survey and market-based indicators of inflation expectations at longer-term horizons remained broadly anchored, suggesting that the ECB was expected to be successful in bringing inflation down to 2% over the medium term. However, it was also pointed out that some survey-based measures of inflation expectations had been revised upwards, and that the risk of inflation expectations becoming unanchored had not disappeared. Monetary policy decisions and communication Against this background, broad support was expressed for Mr Lane’s proposal to raise the key ECB interest rates by 50 basis points and to communicate that the Governing Council expected to raise them further, indicating specifically that it intended to raise rates by another 50 basis points at the next monetary policy meeting in March and would then evaluate the subsequent policy path. Indeed, further increases were required for the Governing Council’s policy rates to enter restrictive territory, and it was necessary to keep them at levels that were sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. Any assessment of what level of rates could be seen as excessively restrictive was complex and uncertain, although it was generally felt that concerns of “overtightening” were premature at the present high levels of inflation and in view of the likely persistence of underlying price pressures. It was emphasised that policy rates were, at present, barely consistent with the range of estimates for the neutral rate and that the large bond portfolio held by the Eurosystem was also still providing substantial policy accommodation. Moreover, even the benign inflation scenario expected by financial markets was conditional on the significant further rate increases priced into the forward curve. Overall, it was seen as imperative to stay the course and to show determination in the intention to tighten further. This would reduce unwarranted policy uncertainty and would be fully consistent with the decisions and communication adopted by the Governing Council in December. The view was expressed that, given the still substantial distance to the prospective terminal rate, there continued to be value – from a risk management perspective – in frontloading rate hikes at the present stage. In particular, showing determination now to raise rates significantly further could help to avoid being forced into further rate hikes later on. In this context, it was remarked that the risk-free forward curve suggested markets were expecting rate cuts not long after the terminal rate had been reached. This was seen to be somewhat at odds with the Governing Council’s communication in December that interest rates would need to stay at restrictive levels for inflation to return to the medium-term target. At the same time, this could be interpreted as markets having confidence that the ECB would be successful in stabilising inflation. In other words, once inflation had returned to target, interest rates could come down to a level consistent with the long-run “steady state”. While there was broad agreement that tightening needed to continue, reservations were expressed on the proposed communication of an intention for the March meeting. The point was made that policy rates were coming closer to a level where caution was needed to ensure that monetary policy was not tightened excessively. In view of the high uncertainty, the inflation outlook could change rapidly in either direction. This required a careful assessment of new data and of the effect of previous rate hikes on price dynamics. Not least in view of the ECB’s symmetric inflation target, the risk of doing too much deserved as much consideration as the risk of doing too little. It was noted that the short-term momentum in core inflation had also started to decline somewhat and, allowing for transmission lags, core inflation should come down further over time. Moreover, at the start of policy normalisation, large buffers of savings accumulated by households and firms, together with substantial pent-up demand, had ensured that monetary policy could be tightened without causing much harm to the real economy. Although these buffers remained at high levels, they had diminished. This implied that more caution was required as regards further tightening steps. The point was made that the proposed communication did not prevent adapting the intended change in the policy stance in March should it be required on the basis of substantial new information: expressing an “intention” was different from giving a “commitment”. It merely reflected the fact that, on the basis of the information available, the probability of a change occurring was seen as insignificant. It conveyed the view that, in the absence of abrupt changes in circumstances, a further 50 basis point interest rate hike at the March meeting was consistent with a very wide range of possible scenarios for the way inflation would develop. An advance indication of such a move would therefore provide clarity about the near-term direction of monetary policy. This reconciled communicating the intention to raise rates in March with a data-dependent approach. All in all, it was seen as important to provide a firm signal of policy intentions for the March meeting, while stating that the path of monetary policy following that meeting would be evaluated with an open mind, in line with the data-dependent approach. Turning to the policies affecting the size and composition of the Eurosystem’s balance sheet, members widely agreed with Mr Lane’s proposal on the key parameters for the reduction of the APP portfolio and with the detailed operational modalities as described by Ms Schnabel and as set out in a dedicated ECB press release. In particular, given the relatively small reinvestment amounts expected, broad support was expressed among the members for a simple and neutral approach. This meant that the partial reinvestments over the period between March and the end of June would be conducted broadly in line with current practice. The remaining reinvestment amounts would be allocated proportionally to the share of redemptions across each constituent programme of the APP and, under the public sector purchase programme, proportionally to the share of redemptions of each jurisdiction and across national and supranational issuers. Just as the APP had supported the monetary policy stance when it was introduced, the reduction of the APP portfolio had to be carried out in a way that would support smooth policy normalisation and transmission, keeping the decline in the portfolio measured and predictable. It was highlighted that tilting reinvestments in the corporate sector purchase programme portfolio more strongly towards issuers with a better climate performance would signal the ECB’s continued commitment – without prejudice to the objective of price stability – to supporting the EU’s policies for achieving the climate goals of the Paris Agreement via a gradual decarbonisation of the Eurosystem’s corporate bond holdings. Members also agreed with the proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Maintaining this existing flexibility was seen as an efficient, pre-emptive approach to countering a potential re-emergence of risks to the monetary policy transmission mechanism related to the pandemic. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the relevant press releases. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 2 February 2023 Press releases Monetary policy decisions Detailed modalities for reducing asset purchase programme holdings Meeting of the ECB’s Governing Council, 1-2 February 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller* Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau Mr Visco* Mr Vujčić* Mr Wunsch * Members not holding a voting right in February 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Donohoe, President of the Eurogroup*** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics *** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Buch Mr Demarco Mr Garnier Mr Gavilán Mr Gilbert Mr Haber Mr Kaasik Mr Koukoularides Mr Kuodis Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Šošić Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 20 April 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 15-16 March 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 15-16 March 2023 20 April 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel distinguished two periods when reporting on financial market developments since the Governing Council’s previous monetary policy meeting on 1-2 February 2023. In the first period, stretching until the collapse of Silicon Valley Bank (SVB) in the United States, mounting signs of more persistent pressures on core inflation in the euro area – i.e. inflation in the Harmonised Index of Consumer Prices (HICP) excluding the food and energy components – had led investors to reassess their views on the likely future path of inflation and interest rates, and they were pricing in a higher-for-longer inflation and rate environment. Expectations regarding the level of the “terminal rate” (the peak rate) in the ECB’s ongoing rate hiking cycle had reached a level of 4.2% in the week prior to the Governing Council’s meeting on 15-16 March, while the expected date of the first rate cut had been pushed out to the third quarter of 2024. Yet, despite this sharp upward revision to the expected policy rate path, market-based indicators of longer-term inflation expectations had continued to point to elevated concerns that inflation would remain above the ECB’s target of 2%. The second period had started when these market developments had been abruptly halted by the collapse of SVB. Interest rate expectations had been revised downwards sharply, but they had partially reversed this decline on 14 March 2023 before dropping again on the morning of 15 March. Financial market indicators at the close of the markets on 14 March 2023 had not shown signs that the US banking sector turbulence would cause a systemic crisis in the United States or the euro area. However, the moves in these indicators had reversed again on the morning of 15 March, in turbulent market conditions. It would not be possible to get a clearer picture of the most recent change in market perceptions until the dust from the market turbulence had settled. Amid this market volatility, three observations stood out. First, broad stock indices had remained much more resilient than bank stocks, as the share prices of non-financial corporations had been affected only moderately. Second, spillovers from the United States to the euro area had been contained. Third, bank share prices in the euro area remained well in positive territory relative to their lows in mid-2022, owing to the strong and sustained rally since then on the back of improving earnings expectations. While stock prices of major global banks had fallen sharply across Europe and the United States, spreads on credit default swaps had increased only moderately for euro area banks. Liquidity conditions also remained solid. The FRA-OIS spread – i.e. the difference between the rate charged on interbank unsecured deposits and the overnight index swap (OIS) rate – had increased significantly in the euro area but had remained near its long-term average level. Moreover, the cost of offshore US dollar funding had increased substantially, although this increase had been partially reversed subsequently. As regards volatility, fixed income markets had reacted much more strongly to the SVB event than equity markets. Overall, these developments suggested that, if there was no intensification of the stress in the banking sector, the inflation outlook would soon come to the fore again in the minds of market participants. Before the banking sector turbulence had started in the United States, global macroeconomic upside surprises had dominated financial market developments across major economies. Positive data on economic activity had been accompanied by upward surprises for headline inflation and, especially, core inflation in the euro area. This growth and inflation mix had led to a repricing by markets of the inflation outlook for the euro area over the medium term, as market participants perceived the factors driving inflation pressures to have shifted from external supply to internal demand or, put differently, from headline to core inflation. Investors were now pricing in a substantially more sluggish return of inflation to 2%, despite lower natural gas prices. Expectations of more persistent core inflation had led to a significant reappraisal of policy rate expectations in the euro area. The United States had seen a similarly strong repricing of the forward curve, underlining the perceived close synchronicity in the global economic activity and inflation cycle. These developments had been reversed after the unfolding of the events related to SVB. But developments in market-based indicators of longer-term inflation expectations in the euro area were a vivid reminder that investors saw elevated risks of inflation remaining above target in the medium term. Evidence from option prices also pointed to elevated upside risks to inflation. Three factors had fuelled market concerns about inflation becoming more persistent in the euro area. The first related to the prevailing uncertainty about the ECB’s “reaction function”. The second factor was related to uncertainty about the extent of policy tightening needed to bring real interest rates into sufficiently restrictive territory to curb inflation. The third factor related to broader financial conditions, which might be insufficiently restrictive, as they had remained broadly unchanged since the Governing Council’s October monetary policy meeting despite a notable tightening of monetary policy in this period. Regarding developments in bond markets, sovereign bond spreads had remained broadly unchanged until the collapse of SVB, when they had started to increase somewhat. Yet this increase in spreads had been moderate and entirely driven by the sharper decline in German Bund yields. Developments in corporate bond markets had also been benign until the onset of the banking sector stress. Since then, there had been a sharp increase in corporate bond spreads of investment-grade financial corporations compared with those of non-financial corporations. Spreads of high-yield non-financial corporate bonds had also increased, but they remained at relatively compressed levels from a historical perspective. Regarding market functioning, collateral availability concerns had been fading. Since the announcement of the new ceiling for remuneration of non-monetary policy deposits, the spread between short-term government bills and the respective risk-free rates (OIS) had been narrowing. Looking ahead, further progress on the roll-off of the ECB’s monetary policy bond portfolios would support the availability of collateral. The global environment and economic and monetary developments in the euro area Mr Lane noted that the ongoing exceptional tensions in the financial markets were a source of significant uncertainty for the economic outlook. These could lead to an undue tightening of credit conditions or significantly dampen confidence, and therefore implied additional uncertainty for the baseline assessments of growth and inflation. The Governing Council needed to closely monitor current market tensions and stand ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector was resilient, with strong capital and liquidity positions. This reflected effective supervision and a rigorous implementation of the global regulatory reform agenda. In any case, the ECB’s policy toolkit was fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy. Turning to economic developments in the euro area, a series of favourable supply shocks and increasing evidence of the ECB’s monetary policy tightening working its way through the economy had been the dominant developments since the start of the year. The fall in energy prices and the clearing of supply chain bottlenecks were lowering price pressures, while at the same time boosting confidence and supporting real incomes and business activity, especially in the short run. Indeed, most survey indicators pointed to improving business and consumer sentiment, although still at low levels, with the brighter prospects for economic activity reflecting a broad-based improvement in supply conditions. Delivery times for inputs for factories were shortening to a degree not seen since the recovery from the global financial crisis in 2009. However, international markets were becoming a drag on the euro area economy, as evidenced by the substantial fall in order book volumes in February. Overall, the world economy showed signs of a stabilisation in the first few months of the year and the reopening in China was expected to provide support later on. Nevertheless, the outlook for global activity remained subdued in the near term, reflecting weak domestic demand in key trading partners of the euro area. In addition, the rapid tightening of the ECB’s monetary policy stance was increasing the cost of credit for the euro area economy and slowing the provision of bank loans. This sharp tightening of financing conditions was starting to affect the real economy measurably. Euro area economic activity had stagnated in the last quarter of 2022. Industrial production was virtually flat in the final quarter of 2002 and had recovered only marginally in January 2023. Notable contractions in the production of energy, intermediate goods and durable consumer goods had been offset by still expanding production of non-durable and capital goods, especially motor vehicles, as production in these sectors was recovering with the easing of supply disruptions. At the same time, market services had contracted in the fourth quarter of 2022, mainly because of sharp declines in retail trade, transport, and accommodation and food services in December. While the previously expected economic contraction had been avoided, all private domestic demand components had contracted. Whereas private consumption had been very strong in the second and third quarters of 2022 as a result of the reopening of the euro area economy, the significant drop in the fourth quarter of 2022 reflected low confidence and the earlier terms-of-trade shock adversely affecting spending decisions. Looking ahead, households had started to be more optimistic in their expectations for their own financial situation, thanks to the decline in inflation. However, this had not yet translated into stronger optimism in their spending plans. In relation to demand for housing, where monetary policy was expected to have a stronger impact, the results of the ECB’s Consumer Expectations Survey showed that households’ perceptions of housing as a good investment continued to deteriorate. Turning to investment, investment in residential construction had started to fall in the second quarter of 2022 and this decline had accelerated in the third and fourth quarters of 2022. Survey indicators, such as the Purchasing Managers’ Index (PMI) for output and business expectations in the construction sector, had recovered slightly in recent months but still clearly pointed to contracting activity both currently and in the near future. Business investment had seen a small contraction in the last quarter of 2022 if Irish intellectual property products were excluded. Survey indicators showed some improvement in the capital goods sector in recent months, as the output PMI for the sector had moved into slightly positive territory, in line with the expected better outlook for GDP in the short term. But steeply rising financing costs were expected to weigh on business investment in the quarters ahead. For trade, recent data confirmed a significant drop in imports of goods, while exports had recovered somewhat. Thanks to falling energy prices, the terms of trade had started to improve at the end of last year and this had led to an improvement in the goods trade balance. On the services side, forward-looking indicators for tourism pointed to the expectation of a strong rebound in the first half of 2023, to which the reopening of China might also contribute. Regarding the labour market, all indicators pointed to resilience. The unemployment rate had stood at 6.6% in January, broadly stable since April 2022. The vacancy rate had also remained stable. Employment growth was expected to remain positive in early 2023, according to the PMI. The labour force had recovered from the impact of the pandemic and remained well above its longer-term trend. This dynamism reflected increased participation rates – in particular for older workers – and an increase in migrant workers. This was an important element to take into account in relation to future wage growth dynamics. These macroeconomic developments were reflected in the March 2023 ECB staff macroeconomic projections. Provided that the current financial market tensions did not feed into an undue tightening of credit conditions or significantly dampen confidence, the economy looked set to recover over the coming quarters as the adverse supply shocks that had occurred over the past few years had been partly reversed. Industrial production was expected to pick up as supply conditions improved further, confidence continued to recover, and firms worked off large order backlogs. Rising wages and falling energy prices would partly offset the loss of purchasing power that many households were experiencing as a result of high inflation. This, in turn, was projected to support consumer spending. Accordingly, projected growth for 2023 had been revised up by 0.5 percentage points, to 1.0%, in the March staff projections. At the same time, the expected further pick-up in growth to 1.6% in both 2024 and 2025 was weaker than projected in December, as the headwinds from tighter financing conditions and the appreciation of the euro were seen to outweigh the positive effects on real income and confidence of somewhat lower inflation. This combination of factors, together with the gradual withdrawal of fiscal support and lingering concerns about energy supply risks for the winter of 2023-24, was expected to weigh on economic growth in the medium term. Risks to the outlook for economic growth were tilted to the downside. Persistently elevated financial market tensions could tighten broader credit conditions more strongly than expected and dampen confidence. Russia’s unjustified war against Ukraine and its people continued to be a significant downside risk to the economy and could again push up the costs of energy and food. There could also be an additional drag on euro area growth if the world economy weakened more sharply than expected. However, companies could adapt more quickly to the challenging international environment and, together with the fading-out of the energy shock, this could support higher growth than currently expected. Inflation had edged down from 8.6% in January to 8.5% in February, while underlying price pressures remained strong. The decline in the overall inflation index had resulted from a renewed sharp drop in energy prices. Conversely, food price inflation had increased further, to 15.0% in February, with the past surge in the cost of energy and of other inputs for food production still feeding through to consumer prices. Inflation excluding energy and food had increased markedly to 5.6% in February, from 5.3% in January, driven by the delayed pass-through of the past surge in energy prices, as well as continued, albeit declining, pipeline pressures and strengthening wage growth pressures. At the sectoral level, inflation in the non-energy industrial goods sector had risen to 6.8% in February, mainly reflecting the delayed effects of past supply bottlenecks and high energy prices. Services inflation – which had risen to 4.8% in February – was also still being driven by the gradual pass-through of past energy cost increases, residual pent-up demand from the reopening of the economy and rising wages. Other indicators of underlying inflation had also stayed high. As these indicators aimed to capture the most persistent part of inflation, it was interesting to compare them with the surveys of expectations about the persistence of inflation. Survey data on expectations of headline inflation in the near term were aligned with the information coming from the indicators of underlying inflation. In other words, the surveys predicted that inflation would fall but remain high, at above 4%, over the next few months. However, for 2024-25 there was a disconnect, as both survey data and market-based inflation compensation measures indicated that inflation would be well below 4% from the beginning of 2024. This showed that it was not straightforward to extrapolate a signal for medium-term headline inflation from indicators of underlying inflation. Indeed, it was likely that these indicators reflected, to varying degrees, cumulated distortions as a result of extraordinary developments following the pandemic – namely the war in Ukraine and the energy shock. Focusing on core inflation, there had been a large gap between the inflation developments in energy-sensitive sectors and those in non-energy-sensitive sectors. Those sectors with a high energy dependency had seen a disproportionate increase in the inflation rate compared with non-energy-sensitive sectors. This implied that, as the effect of the energy shock faded, the contribution of this component of core inflation would start to decline. Mr Lane also noted that, while downward pressures could be expected from inflation developments in energy-sensitive sectors, inflation in wage-intensive sectors had started to increase their contribution to core inflation. Changes in HICP weights in January were expected to have a significant impact on the profile of inflation in 2023. For headline inflation the change implied a negative impact throughout 2023, while for core inflation (and especially services) the impact was estimated to be negative in the first quarter of 2023 and positive in the third quarter of the year, mostly owing to a higher weight of recreational services in 2023. Mr Lane remarked that it was important to look also at the inflation momentum in order to capture turning points. One indicator for momentum was the three-month-on-three-month annualised inflation rate based on seasonally adjusted data. For headline inflation this measure had fallen from close to 11% in November 2022 to close to 3% in February 2023. This sharp fall in momentum was entirely due to a sharp decline in energy inflation. For other components of the HICP, changes in inflation momentum were much more limited. Although pipeline pressures were weakening, they remained substantial. Wage pressures had strengthened, supported by robust labour markets and employees aiming to recoup some of the purchasing power lost owing to high inflation. Moreover, many firms had been able to raise their profit margins in sectors faced with constrained supply and resurgent demand. The evolution of profits compared with that of wages suggested that wages had had only a limited influence on inflation over the past two years and that the increase in profits had been significantly more dynamic than that in wages. An important question for the forecasting of inflation was whether firms would continue with the same pricing strategy or would accept lower profit margins in the period ahead. Market-based measures of inflation compensation had increased substantially across maturities since the Governing Council’s 1-2 February meeting, although they had eased again more recently. More reassuringly, expectations captured in the ECB Survey of Monetary Analysts and the ECB Survey of Professional Forecasters showed that an increasing share of respondents expected inflation to be at target over the long run. Household expectations for inflation three years ahead, as expressed in the ECB’s Consumer Expectations Survey, had declined by 0.5 percentage points in January 2023 compared with the previous month’s survey. In the March ECB staff projections, the path for inflation had been revised down throughout the projection horizon, owing mainly to a smaller contribution from energy prices than previously expected. This, in turn, implied a smaller role for compensatory fiscal measures and a somewhat stronger impact of monetary policy tightening. Inflation was now projected to average 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025, implying downward revisions of 1.0, 0.5 and 0.2 percentage points respectively. In contrast, inflation excluding energy and food had been revised up by 0.4 percentage points to 4.6% for 2023, largely on account of recent data surprises and the lagged pass-through of indirect effects from past energy price increases. Overall, these indirect effects would still contribute to inflation until the end of the projection horizon despite the sharp downward corrections in energy prices. Similarly, the past depreciation of the euro had continued to put upward pressure on core inflation, although to a lesser extent than previously assumed owing to the recent appreciation of the euro. So, while most of the projected core inflation was essentially coming from profits and labour costs, the contribution of indirect effects from the past energy shock and depreciation of the euro was still sizeable. However, the fall in energy prices, combined with the recent appreciation of the euro and continued tightening of credit conditions, was expected to gradually dampen core inflation compared with the December projections. This was reflected in the downward revisions to core inflation of 0.3 and 0.2 percentage points for 2024 and 2025 respectively. Over those later years of the projection horizon, core inflation was projected to ease slowly towards 2% by 2025. Upside risks to inflation included existing pipeline pressures that could still send retail prices even higher in the near term. Domestic factors, such as a persistent rise in inflation expectations above the Governing Council’s target or higher than anticipated increases in wages and profit margins, could drive inflation higher, including over the medium term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. On the downside, persistently elevated financial market tensions could accelerate disinflation. In addition, falling energy prices could translate into reduced pressure from underlying inflation and wages. A weakening of demand, including owing to a stronger than expected transmission of monetary policy, would also contribute to lower price pressures than currently anticipated, especially over the medium term. Financing conditions reflected a strong transmission of tighter monetary policy but had recently been subject to significant volatility. Market interest rates had risen considerably in the weeks following the Governing Council’s February monetary policy meeting. But this increase had reversed sharply in the days before the March meeting in the context of severe financial market tensions. Turning to real rates, Mr Lane commented on two measures of the real rate. The first was the short-term version, computed as the policy rate minus the expected inflation rate one quarter ahead. This short-term real rate remained negative, but it was increasing strongly – into positive territory – as expected inflation was declining and the policy rate implied by the yield curve was increasing. The second version was a medium-term cost of finance concept, computed as the expected average policy rate over the next year minus the expected inflation rate over the same period. This second version was solidly positive throughout the horizon. Mr Lane emphasised that bank credit to firms had become more expensive and, in January, banks’ cost of borrowing had risen to levels last seen in late 2011. The biggest increase was in bank bond yields, but deposit rates were also starting to rise noticeably. There was also a composition effect because more people were moving away from overnight deposits to better remunerated types of deposits. Moreover, the move away from targeted longer-term refinancing operations (TLTROs) to market funding was also pushing up the cost of finance for banks. Following a sharp slowdown since mid-2022, credit flows to non-financial firms had lately declined to close to zero as a result of lower demand and considerably tighter credit supply conditions. The cost of borrowing for households had increased as well, especially owing to higher mortgage rates, which were currently at their highest level since early 2013. This rise in borrowing costs and the resultant decline in demand, along with tighter credit standards, had led to a further slowdown in the growth of loans to households. Amid these weaker loan dynamics, money growth had again slowed sharply, driven by its most liquid components. The decline in the annual growth rate of narrow money (M1) had been accelerated by a pronounced reshuffling between instruments within broad money (M3), with shifts from overnight deposits into other less liquid but better remunerated instruments, such as time deposits. Monetary policy considerations and policy options Since inflation was set to remain above the target for too long, Mr Lane proposed raising the three key ECB interest rates by 50 basis points, in line with the intention communicated after the February Governing Council meeting. The Governing Council should also state that future policy rate decisions would be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. Following up on the announcement in February that the Governing Council would evaluate the subsequent path of its monetary policy at the March meeting, this clear statement of the ECB’s policy reaction function would help orient market expectations towards the key factors underlying its decisions. In particular, this would clarify that a careful analysis of underlying price pressures and the state of monetary policy transmission at each point in time would act as a cross-check of the staff projections in times of heightened uncertainty and potential structural change. It also reflected the fact that monetary policy considered financial developments to the extent that these affected price stability, in line with the ECB’s monetary policy strategy statement. As regards the pandemic emergency purchase programme (PEPP), the signalling power of the PEPP’s reinvestment flexibility framework still contributed to supporting the transmission mechanism. It was therefore proposed that, in the spirit of prudence, the Governing Council should continue to allow flexibility in PEPP reinvestments as an effective first line of defence against remaining fragmentation risks, but that it would only exercise this flexibility in the event market conditions deteriorated. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses With regard to the economic analysis, members broadly shared the assessment of the economic situation and outlook of the euro area provided by Mr Lane in his introduction. The March ECB staff projections had a cut-off date in mid-February for the technical assumptions and had been finalised in early March. This was before the release of the flash estimate of euro area inflation for February and the emergence of financial market tensions. There was broad agreement that these tensions implied additional uncertainty around the baseline assessments of economic growth and inflation. The view was expressed that, given the emergence of the tensions and heightened uncertainty, observers might see the economy as being in a different place compared with that pictured in the projections. At the same time, the point was made that despite the uncertainty implied by the tensions, and unless the situation deteriorated drastically in the new situation, inflation would still not simply disappear on its own and underlying inflation, in particular, remained far too high. As regards the external environment, members took note of the assessment provided by Mr Lane that the upward impact on trade from the unwinding of supply bottlenecks had been fading in the second half of 2022. In the March ECB staff projections, both world real GDP growth and trade growth had been revised upwards for 2023, reflecting higher growth projections for China and the United States. In the exchange of views, it was reiterated that the reopening of the Chinese economy would increase China’s appetite for commodities. While currently this applied mostly to China’s demand for coal, it was suggested that the prospect of the country restocking gas supplies should be closely monitored, as increased demand for gas might not yet be fully reflected in current gas futures prices and could still have an impact on euro area energy prices. It was pointed out that even slower than expected growth in China would still imply an enormous increase in its energy demand. Turning to economic activity in the euro area, members took note of Mr Lane’s assessment that the dominant developments since the start of the year represented a partial reversal of earlier adverse supply shocks and there was increasing evidence that monetary policy tightening was starting to work its way through the economy. The euro area economy had stagnated in the fourth quarter of 2022, thus avoiding the previously expected contraction. However, private domestic demand had fallen sharply as high inflation, prevailing uncertainties and tighter financing conditions had dented private consumption and investment. These had fallen by 0.9% and 3.6% respectively. According to the March ECB staff projections, the economy looked set to recover over the coming quarters. Industrial production should pick up as supply conditions improved further, confidence continued to recover and firms worked off large order backlogs. Rising wages and falling energy prices would attenuate the loss of purchasing power that many households were experiencing as a result of high inflation. This, in turn, would support consumer spending. Looking ahead, the ECB staff’s baseline projections for economic growth in 2023 had been revised up to an average of 1.0%. This was the result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. The projections then expected growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 was seen to be weaker than projected in December, owing to the tightening of monetary policy. Some comfort was drawn from the fact that there had been no contraction at the end of last year, which had previously been expected, but it was cautioned that the observed stagnation still implied a fragile growth outlook for this year. It was noted that the upward revision to economic growth in 2023 reflected a better than expected outcome for the fourth quarter of 2022 and lower energy prices. At the same time, financing conditions were now substantially tighter compared with the corresponding assumptions underpinning the December 2022 Eurosystem staff projections. It was well understood that the impact of interest rate increases on growth usually came with a lag, but there was still a question as to whether forecasting models sufficiently captured the cumulative impact on growth and inflation of the sequence of rate increases seen so far. It was also argued that the decline in the credit-to-GDP ratio foreseen over the projection horizon could not be driven only by a fall in demand for credit but had to reflect also significant supply-side effects. These were likely to have a strong impact on consumption and investment, which appeared at odds with the only limited credit supply effects on GDP incorporated into the staff projections. At the same time, it was questioned whether, in the absence of hard evidence, quantity restrictions on lending should have come into play at all, at least before the recent turbulence, since the economy had improved and macro risks had receded, while bank profitability had been growing and capital and liquidity positions were solid. Members widely underlined the continued resilience of the labour market, which had remained strong despite the weakening of economic activity. Employment had grown by 0.3% in the fourth quarter of 2022 and the unemployment rate had stayed at its historical low of 6.6% in January 2023. It was noted that the increase in the unemployment rate that had been expected for the last six months had not materialised and that the projections implied continued labour market tightness over the projection horizon. Strong growth in employment was seen as reflecting the elastic response of the labour force to job opportunities, which differed from the situation in the United Kingdom and the United States, where labour force participation rates had not fully recovered since the pandemic. At the same time, it was cautioned that the upward revisions to real GDP growth and highly resilient labour markets likely reflected the impact of some tailwinds, including accumulated savings and liquidity buffers held by households and firms, as well as generous government support measures, all of which could not be expected to last indefinitely. In this context, it was recalled that labour markets were usually a lagging indicator that sooner or later might reflect the uncertainties in the real economy. However, it was also argued that the tight labour market might reflect potentially persistent matching problems between vacancies and the unemployed, which would also have implications for wages. The point was made that the resilience of the labour market and labour scarcity likely meant that, on the basis of historical regularities, the monetary policy transmission to the economy could well be weaker than was expected. As regards fiscal policies, members reiterated that government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. As energy prices were falling and risks around the energy supply were receding, it was important to start rolling back these measures promptly and in a concerted manner. Measures falling short of these principles were likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU’s economic governance framework and as stated in the European Commission’s guidance of 8 March 2023, fiscal policies should be oriented towards making the euro area economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, could help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU’s economic governance framework should be concluded rapidly. Risks on the fiscal side were seen as stemming from governments’ energy-related support measures remaining in place for longer than currently expected or budgetary space being redirected towards other expenditures, with uncertainty prevailing about the reform of the EU’s fiscal governance framework and the outlook for medium-term national consolidation paths. Against this background, members overall assessed risks to the economic growth outlook as tilted to the downside. Persistently elevated financial market tensions could tighten broader credit conditions more strongly than expected and dampen confidence. It was pointed out in this regard that the recent financial market tensions could put the current expectation of a soft landing of the economy at risk. Russia’s war against Ukraine continued to be a significant downside risk to the economy and could again push up the costs of energy and food. There could be an additional drag on euro area growth if the world economy weakened more sharply than expected. However, companies could adapt more quickly to the challenging international environment and, together with the fading-out of the energy shock, this could support higher growth than currently expected. For the medium term, the question was raised as to whether the assessment that the balance of risks was tilted to the downside was justified, given that the baseline projections had already seen a substantial downward adjustment. With regard to price developments, looking ahead, members noted that the path for headline inflation had been revised down in the March ECB staff projections, mainly owing to a smaller contribution from energy prices than previously expected and a somewhat stronger downward impact from monetary policy tightening. At the same time, underlying price pressures remained strong and ECB staff expected HICP inflation excluding energy and food to average 4.6% in 2023, which was higher than foreseen in the December projections. In the discussion of the inflation outlook and the projections, the point was made that HICP data for February had surprised on the upside compared with the starting point for the projections. Mechanically incorporating the latest information would imply higher headline and core inflation in 2023. Moreover, even disregarding this upside surprise, the projected outcome of 4.6% for core inflation in 2023 suggested that the projections incorporated an overly optimistic belief in the unwinding of underlying inflation. While core inflation might be close to a turning point, this had not yet been seen in hard data. Reference was made to the calculations of the momentum of core inflation in the short term, based on annualising the rate of price increases over the last three months, which had rebounded for the euro area according to the February inflation data release. Some comfort was drawn, however, from the observation that the March projection had embodied the first downward revision to the inflation outlook after eight consecutive rounds of upward revisions. It was acknowledged that this was mainly due to lower current and future energy commodity prices and implied that the supply shock that had caused inflation to surge initially was now partly unwinding. Questions were raised as to how strongly and quickly the new situation of energy prices would be reflected in underlying inflation. While it was welcomed that the projections incorporated some staggered effects in the pass-through of past increases in energy prices to core inflation, this begged the question of whether the pass-through would play out symmetrically with respect to the recent declines in energy prices. As evidence for an asymmetric pass-through, it was observed that PMI survey data pointed to a much slower decline in output prices than in input prices, which was in line with recent academic research. It was remarked that the decomposition of HICP inflation excluding energy and food into energy-sensitive and wage-sensitive items suggested that, while the energy factor was becoming less important, wages were becoming more important. According to this decomposition, wage growth was becoming the main driver of underlying inflation and lately its contribution had been roughly twice as large as in 2019-20. The apparent stickiness of core inflation thus reflected a rotation of the main drivers. It was also argued that the extent to which the adjustment of core inflation to energy price developments was symmetric over the disinflationary phase would depend on the behaviour of profit margins. It was recalled that profit margins had remained rather resilient and had even expanded during 2022, in the face of the large adverse energy and cost-push shocks. This behaviour might potentially differ when energy prices fell, but it remained to be seen if the widening of profit margins would reverse in 2023. As regards wage and price-setting, members agreed that wage pressures had strengthened on the back of robust labour markets and employees aiming to recoup some of the purchasing power lost owing to high inflation. Moreover, many firms had been able to raise their profit margins in sectors faced with constrained supply and resurgent demand. Reference was made to the strong growth in compensation per employee and unit labour costs in the fourth quarter of 2022, which was well above levels considered consistent with the 2% inflation target in the medium term. Given the tight labour markets and the ongoing high inflationary pressures, in particular for everyday purchases such as food, wage growth was not expected to ease soon. It was observed that the average for wage agreements in the euro area concealed considerable variation across countries. There were doubts about whether the projected lower wage growth towards the end of the horizon in the March projections was justified. At the same time, it was argued that it was consistent to revise down nominal wage growth if inflation decelerated at a faster pace than previously expected over the medium term. Nominal wage growth was a little lower because of the fall in the cost of living. In real terms, however, the projections implied an upward revision of wages, and it was noted that this now implied that the terms-of-trade shock would not result in any decline in real wages by the end of the projection horizon compared with early 2022. Members widely reiterated that developments in profits and mark-ups warranted constant monitoring and further analysis on an equal footing with developments in wages. Frequent references to wages in public communication did not imply that there was no consideration of profit margin developments. It was stressed that the terms-of-trade shock had been operating like a tax and that its absorption in the domestic economy should proceed with some burden-sharing between labour and capital. From a monetary policy perspective, what mattered was that burden-sharing would contribute to preventing second-round effects and wage-price spirals. The question was also raised as to whether the strong profit margin developments implied that the sizeable cost pressures had not immediately affected the competitiveness of European exporters. It was observed that corporate balance sheets and profitability had been very strong, which suggested that pricing power had been significant until the economy had started to soften. In a period of increasing cost pressures, this pricing power and an increased frequency of price changes had kept upward pressure on underlying inflation. However, the point was also made that competitiveness concerns would ultimately kick in and help reduce inflation. As regards longer-term inflation expectations, members took note that most measures currently stood at around 2%, although they warranted continued monitoring, especially in light of recent volatility in market-based inflation expectations. It was underlined that market-derived inflation expectations had increased substantially across maturities in the period between the Governing Council’s last two monetary policy meetings, although they had eased again more recently. While these measures seemed to include significant inflation risk premia, a rise in these premia could be interpreted as reflecting market uncertainty about the ECB’s ability to achieve its inflation target on a lasting basis. The fact that the five-year forward inflation-linked swap rate five years ahead had moved up to almost 2.6% was seen as an indication that a fast reduction in underlying inflation was unlikely. Furthermore, market-based inflation expectations had hardly moved down in response to the latest financial market tensions, suggesting that the events were not seen as having a large disinflationary impact. However, it was also recalled that swap rates did not reflect genuine inflation expectations, as they included significant inflation risk premia. Reference was also made to the recent increase in option price-implied probabilities of longer-term inflation being above 3%. With respect to surveys, it was recalled that medium-term inflation expectations in the ECB’s Consumer Expectations Survey had, reassuringly, been coming down. Against this background, members assessed that there were both upside and downside risks to the inflation outlook and that, in view of the considerable uncertainty associated with the recent financial market tensions, there was no need for the Governing Council to express its own collective balance of risks to price stability from the range of risk factors. The upside risks to inflation included existing pipeline pressures that could still send retail prices even higher than expected in the near term. Domestic factors, such as inflation expectations persistently above target or higher than anticipated increases in wages and profit margins, could drive inflation higher, including over the medium term. Moreover, a stronger than expected economic rebound in China could give a fresh boost to commodity prices and foreign demand. The downside risks to inflation included persistently elevated financial market tensions that could accelerate disinflation. In addition, falling energy prices could translate into reduced pressure from underlying inflation and wages. A weakening of demand, including owing to a sharper deceleration of bank credit or a stronger than projected transmission of monetary policy, would also contribute to lower price pressures than currently anticipated, especially over the medium term. Listing these risk factors did not imply that the risks were balanced but instead highlighted the significant uncertainty that prevailed in the current environment, which called for a data-dependent approach to monetary policymaking. In their discussion, members expressed a range of views on the risks with respect to the baseline of the staff inflation projections, with a number of members seeing risks as tilted to the upside over the entire horizon. Some members argued that there was only a small probability that inflation would fall back to low levels as quickly as suggested in the March ECB staff projections, which gave the impression of an “immaculate disinflation” (i.e. a return of inflation to target with very low cost in terms of lost output). It was also underlined that the baseline and the balance of risks were not independent of one another: if the downward revision to the baseline reflected greater optimism, this should lead to an upward tilting of the risk balance. It was remarked that such an interpretation appeared to be corroborated by the latest inflation data, which had been higher than expected and challenged the downward revision of the baseline. In addition, it was suggested that the latest strengthening of wage growth was consistent with second-round effects having already started. It was also suggested that the output gap was now narrower than before and that, in any case, it gave different indications compared with the unemployment gap, as had been discussed on previous occasions. The point was made that there was a potential for different risk factors to reinforce rather than neutralise each other, and this would then imply greater persistence, especially of core inflation, than was embedded in the projections. More expansionary fiscal policy was considered to be a further important upside risk factor, although it was surrounded by uncertainty, related not least to adherence to fiscal rules. At the same time, it was argued that the downward impacts incorporated in the baseline from monetary policy tightening and credit constraints were too small, which implied a downside risk. Turning to the monetary and financial analysis, members widely concurred with the assessment provided by Mr Lane in his introduction. It was noted that bank credit to euro area firms had become more expensive, among other things because collateral values were declining. This was also contributing to a sharp contraction in demand for loans. At the same time, credit supply was also playing a role, with the recent tensions in financial markets likely to reinforce the tightening of credit conditions and banks becoming more sensitive to the risk of deposit outflows and therefore less willing to lend. However, against the background of an economy projected to pick up over the coming quarters and profitable lending opportunities for banks, the existence of credit supply restrictions was called into question. Moreover, the argument was made that credit developments, and specifically bank lending to firms, responded to monetary policy with a time lag. Hence the recent weakening in loan growth could reflect lower credit demand owing to the energy price shock and high investment uncertainty rather than quantitative restrictions on the supply of credit. Reference was also made to the downward trend in lending to non-financial corporations reversing some of the exceptionally strong loan growth seen during the pandemic period. It was cautioned, however, that such a benign assessment might have to be revised if risk premia increased and the tensions in financial markets proved to be longer-lasting. It was noted that household borrowing had also become more expensive, owing to higher mortgage rates. These had resulted in a decline in loan demand and, along with tighter credit standards, had led to a further slowdown in the growth of loans to households. Concerns were voiced that the sharp slowdown in money growth, which was driven by its most liquid components, could foreshadow further risks to the economic outlook. At the same time, members expressed confidence that the euro area banking sector was resilient, with strong capital and liquidity positions. The Governing Council’s expression of confidence in the euro area banking sector, together with the measures that were being discussed at the international level to ease conditions for banks’ foreign currency funding, were expected to alleviate the current market tensions. The view was held that, should it be faced with spillovers to euro area banks, the Governing Council was equipped with a policy toolkit that allowed it to provide sufficient liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy. With these instruments, the Governing Council was seen as being able to calm markets if and when necessary. The point was made that, in the context of tighter monetary policy, pockets of financial vulnerability had to be expected. It was also to be expected that market participants would scrutinise the soundness of banks, so elevated market volatility was likely to persist. It was argued that, in assessing financial stability risks, it had to be considered that the transmission of monetary policy impulses was likely to be stronger at times of market stress than in calmer times. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members widely agreed that bank credit had become more expensive since the previous monetary policy meeting, reflecting an ongoing transmission of tighter monetary policy. However, bond markets and broader financial conditions had more recently been subject to significant volatility, with increasing risk premia but lower risk-free yields, as market participants had considerably lowered their expectations for the policy rate peak in the current hiking cycle. This was exerting countervailing effects and was likely to mean that more time was needed to fully assess the overall effect of the monetary policy stance on financial conditions. Against this background, reference was made to the separation principle, which called for the monetary policy stance to be assessed independently of risks related to financial stability. It was recalled that the Governing Council had liquidity instruments at hand to address potential liquidity strains in the banking sector and spillovers from international developments, which allowed it to look through the recent volatility in financial market variables to set interest rates in accordance with its price stability objective. Further analysis on the strength of monetary policy transmission was seen as warranted, so as to better understand the effect of tighter financial conditions on the economic outlook and on trends in underlying inflation. On the one hand, the view was held that in the past the effect of monetary policy had been continually overestimated, which might happen again. On the other hand, it was pointed out that, because of long transmission lags, the effects of the interest rate increases since July 2022 had not yet fully materialised, leading to a risk that the impact of monetary policy tightening was being underestimated. Turning to the policy proposal for the present meeting, members emphasised that inflation remained far too high and was projected to remain too high for too long. While inflation expectations appeared to remain broadly anchored, developments in market-based measures of inflation compensation had been moving in the wrong direction for much of the period since the February monetary policy meeting, and there was a risk that high inflation could become more persistent, with core inflation still increasing. In this context, monetary policy still had some way to go to bring inflation down, including in the case that the baseline of the March ECB staff projections materialised. The point was made that, in light of the risk of persistent inflation dynamics, the ECB’s monetary policy had to be persistent as well. At the same time, the ongoing exceptional financial market tensions were seen as a source of significant uncertainty for the economic and inflation outlook, as the magnitude, persistence and scope of the shock were not known. Sustained financial stress had the potential to move the economy from the baseline scenario to a different regime, with such a regime shift being difficult to ascertain in real time. All in all, it was felt that the two objectives of price stability and financial stability were complementary and there was no fundamental trade-off, as safeguarding financial stability supported an orderly transmission of monetary policy and the achievement of price stability over the medium term. Moreover, it was judged that, unless the situation deteriorated significantly, the financial market tensions were unlikely to fundamentally change the Governing Council’s assessment of the inflation outlook. Monetary policy decisions and communication Against this background, a very large majority agreed with Mr Lane’s proposal to raise the ECB’s key interest rates by 50 basis points, in line with the intention the Governing Council had communicated at its last monetary policy meeting. It was acknowledged that in the current situation of heightened uncertainty a decision had to be taken with imperfect information. In this situation, risks were seen on both sides. However, following the announced intended interest rate path was seen as important to instil confidence and avoid creating further uncertainty in financial markets. In any case, it was highlighted that inflation was far above the Governing Council’s target and inflation dynamics were still too strong, which justified a 50 basis point increase in the ECB’s key interest rates. Overall, delivering a 50 basis point increase was considered to be proportionate, taking into account possible side effects. Some members would have preferred not to increase the key rates until the financial market tensions had subsided and to conduct a comprehensive re-evaluation of the stance at the Governing Council’s next monetary policy meeting, in May. It was stressed that markets were volatile and the positive opening of the financial markets on the second day of the current meeting could not be taken as evidence that financial stability risks had receded. Moreover, a risk-management approach was seen as calling for the interest rate hike to be put on hold, as the risks from not raising rates, if the tensions turned out to be short-lived, were assessed to be much less severe than the risks associated with raising rates into a persistent crisis. Moreover, a 50 basis point increase would exert a much stronger tightening effect if the economy was already suffering from the fallout of financial stress. Past episodes were recalled in which the Governing Council had increased interest rates and then had to reverse the hike shortly afterwards. It was felt that the Governing Council’s data-dependent approach would in the current situation suggest postponing the interest rate hike and waiting until uncertainty had declined. Looking ahead, members concurred with Mr Lane that the elevated level of uncertainty reinforced the importance of a data-dependent approach to the Governing Council’s future policy rate decisions. It was argued that this approach would acknowledge the Governing Council’s limited information as to how the ongoing market turbulence was likely to develop. At the same time, it was maintained that the Governing Council’s communication would confirm its determination to deliver on its primary objective, underpinned with a sizeable interest rate increase at the present meeting. Against this background, it was underlined that if the inflation outlook embedded in the March ECB staff projections were confirmed, the Governing Council would have further ground to cover in adjusting the monetary policy stance to ensure a timely return of inflation to target. At the same time, it was also seen as important for the Governing Council to clarify its reaction function for future monetary policy decisions. In this context, spelling out the main “reaction variables” was critical. In particular, these comprised the implications of the incoming economic and financial data for the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. By listing the main variables that would be given particular weight in upcoming policy decisions, the Governing Council would provide an anchor that the public could use to form expectations in conditions of heightened uncertainty. A clearer statement of the policy reaction function would allow the public to form their own assessment of the strength of monetary policy transmission, on the basis of newly available information such as from the bank lending survey. In any case, the Governing Council would have time in the period until its monetary policy meeting in May to reassess the effect of the tightening in financing conditions on inflation dynamics. At the same time, it would stand ready to provide liquidity support if needed to ensure a smooth monetary policy transmission. With these considerations in mind, members generally agreed that the Governing Council should refrain from communicating unconditional expectations for the future interest rate path. However, the concern was voiced that the absence of any such guidance could be interpreted as indicating that the hiking cycle was coming to an end. For this reason, it was suggested to convey the message that, had the recent market turmoil not occurred, the Governing Council would have expressed the expectation that it would increase rates further, given the baseline scenario. All in all, members widely concurred on the resilience of the euro area banking system and on the importance of reassuring market participants that banks’ capital and liquidity positions were strong. The view was held that, while it should be indicated that the Governing Council would monitor financial stability risks, it had to be reiterated that price stability was the primary objective and that the Governing Council remained committed to bringing inflation back to its medium-term target in a timely manner. Finally, it was seen as important to reiterate that the Governing Council stood ready to adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target and – in view of the elevated uncertainty – to also highlight the smooth functioning of the monetary policy transmission mechanism. Members also agreed with the proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Maintaining the existing flexibility in PEPP reinvestments was considered an efficient, pre-emptive approach to responding to a potential re-emergence of risks to the transmission mechanism related to the pandemic. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 16 March 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 15-16 March 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou* Mr Holzmann Mr Kazāks* Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Vujčić* Mr Wunsch * Members not holding a voting right in March 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Ms Buch Mr Demarco Mr Gavilán Mr Haber Mr Koukoularides Mr Kuodis Mr Luikmel Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Mr Ódor Mr Rutkaste Mr Sleijpen Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 1 June 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 3-4 May 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 3-4 May 2023 1 June 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting, the market narrative had shifted back from financial stability concerns to inflation concerns and to potential effects on the economy from the turbulence in the banking sector. Markets seemed so far to have digested the bank failures well, especially in the euro area. Measures of systemic stress, volatility and market liquidity had returned to close to their levels before the failure of Silicon Valley Bank (SVB). Risk assets in the euro area had not only largely recovered the losses experienced following the SVB failure, but in some cases had even rallied to new multi-year highs. Sovereign bond spreads had also shown remarkable resilience. Yet investors had significantly scaled back expectations of ECB monetary policy tightening. While the sharp downward shift in expectations for monetary policy rates at the height of the banking tensions had been partially reversed, the peak rate expected for the deposit facility remained around 50 basis points below levels priced in before the failure of SVB. Three potential factors could explain this repricing: receding inflation risks, heightened recession fears in the face of tighter financial conditions, or financial stability concerns. However, none of these explanations was fully borne out by financial market data. On the basis of market pricing, current risks of systemic stress seemed contained. Implied volatility in US bond markets had retreated to its 2022 average from very high levels in mid-March, while stock market implied volatility in the United States had recently fallen to its lowest level since November 2021. Similarly, liquidity conditions in euro area sovereign bond markets had normalised. The turbulence had left a lasting mark on bank stock indices, which remained below the levels observed before SVB’s failure. However, euro area bank stocks currently stood above their level at the start of 2023, and spillovers from the financial sector to the non-financial corporate sector had been limited. Prices for risk assets had generally been less adversely affected in the euro area than in the United States. The general resilience of financial markets also extended to sovereign bonds. Sovereign spreads had widened only slightly after the SVB failure, had normalised quickly after the banking tensions had subsided and had since remained close to their pre-SVB levels. This resilience had not been challenged by evolving market expectations for the reduction of the asset purchase programme (APP) portfolio. Both the start of quantitative tightening and expectations of a full roll-off had been absorbed smoothly by the market. Despite fading concerns about market turbulence, investors had, in response to the banking tensions, significantly scaled back expectations for future ECB interest rate hikes. A first possible explanation for the pronounced repricing of expectations for ECB interest rates could be receding concerns about inflation risks in the euro area. The decline in inflation-linked swap (ILS) forward rates, which had started at the beginning of March, had continued with the onset of the banking turbulence, in line with an initially disinflationary effect from the turbulence. At the same time, market participants did not seem to see the risks to the longer-term inflation outlook as having been alleviated by the banking tensions. The five-year forward ILS rate five years ahead had remained stubbornly above 2.4% since the Governing Council’s March monetary policy meeting. Investors continued to consider a scenario where inflation remained above target over the longer term significantly more probable than a scenario where it dropped below 2%. An alternative explanation for the repricing of monetary policy expectations was the perception that tighter financial conditions made a recession more likely, implying less need for further rate hikes. However, most common financial conditions indices for the euro area had remained broadly unchanged since the collapse of SVB, even though bank lending rates had been increasing. There was also little indication in financial markets that the banking sector stress had affected economic growth. Investors were currently pricing in only marginally higher tail risks to the economic outlook for the euro area compared with the pre-SVB period. The evolution of the exchange rate provided further insights into the expected impact of the banking sector turbulence on the economy. Since the start of the banking tensions the euro had appreciated discernibly against the US dollar, in line with the narrowing of the two-year interest rate differential between the euro area and the United States. Monetary policy convergence between the ECB and the Federal Reserve System seemed to have been a key driver of the euro’s appreciation. The scaling back of rate hike expectations had been greater in the United States than in the euro area. Positive economic data surprises in the euro area had also supported the euro, whereas rising downside risks to the US growth outlook had put pressure on the dollar. All in all, euro-dollar exchange rate developments were consistent with a more muted impact of the banking tensions on the economic outlook in the euro area than in the United States. A third possible explanation for the repricing of interest rate expectations was related to financial stability concerns. With net outflows of deposits from euro area banks, market-based funding was becoming more important. However, short-term funding conditions in the interbank market had returned to pre-SVB conditions. The increase in credit and liquidity risk premia in money markets in mid-March had proved to be only temporary. Similarly, the effect on longer-term market funding conditions had been limited, and asset swap spreads of bank bonds had also almost returned to pre-SVB levels. At the same time, banks’ increasing use of longer-term bond market funding as an alternative to deposit funding tended to increase their average funding costs. Finally, the vulnerability of banks to rising interest rates depended not only on funding considerations but also on the assets side of their balance sheets. Overall, short-run risks to euro area banks from higher interest rates appeared to be contained. The global environment and economic and monetary developments in the euro area Mr Lane went through the latest economic, monetary and financial developments in the global economy and the euro area since the Governing Council’s last monetary policy meeting. Global economic activity had been stronger than expected in early 2023. The global composite output Purchasing Managers’ Index (PMI) had risen further in March and reached 51.8 in the first quarter, up from 48.4 in the last quarter of 2022. At the same time, PMI data signalled a divergence between services, which continued to expand, and manufacturing, which had weakened further into contractionary territory. Since the services sector was less trade-intensive, world trade had remained weak. The euro had appreciated both against the US dollar and in nominal effective terms. Compared with the March ECB staff macroeconomic projections, non-energy commodity prices had remained broadly unchanged, while the current oil futures curve was lower and slightly more steeply downward-sloping. The gas futures curve was also lower, although slightly more upward-sloping at the end of the year than embedded in the ECB projections. Euro area GDP growth in the first quarter of the year – at 0.1% according to Eurostat’s preliminary flash estimate – had been broadly in line with the March staff projections. Excluding the strong negative growth rate for Ireland, it was slightly higher, at 0.2%. The available country data pointed to a positive contribution from net trade owing to buoyant exports, which was offset by a negative contribution from domestic demand. At the same time, developments differed significantly across countries, depending on the relative importance of services versus manufacturing. Lower energy prices, the easing of supply bottlenecks and fiscal policy support for firms and households had continued to shore up the economy. Manufacturing activity was still benefiting from a backlog of orders but its prospects were worsening, as was visible in the manufacturing output PMI for April. The services sector was growing more strongly, owing to the reopening of the economy. Private domestic demand, especially consumption, was likely to have remained weak. Households were less inclined to purchase “big ticket” items, as the impulse from the additional savings accumulated over the pandemic had progressively waned and financing conditions were tightening. For instance, in the first two months of the year, retail sales and car registrations had declined from their levels at the end of 2022 by 0.4% and 3.7% respectively. The asset allocation of savings flows showed that households had accumulated money in bank accounts during 2020. However, the deposits were subsequently used by and large not to consume more but to invest in other financial assets or in capital formation, chiefly housing. Since 2022 they had also been used to repay debt, contributing to an increase in the saving ratio at the end of 2022. Turning to investment, housing investment had been contracting since mid-2022. At the beginning of 2023, building construction had rebounded, thanks to good weather and the buffer from accumulated order backlogs, suggesting a temporary recovery in housing investment. However, the PMI for construction remained in negative territory, pointing to a subdued outlook. Affordability and profitability indicators had both declined sharply at the end of 2022. By contrast, non-housing investment and net exports were expected to have contributed positively to GDP growth in the first quarter of 2023. A recovery in capital goods had been helped by easing supply bottlenecks. However, the new orders PMI for capital goods remained in negative territory. As regards prospects for exports, the PMI for manufacturing orders had remained below the 50 threshold in April, while the PMI for services had returned to expansionary territory. Looking ahead, model estimates and survey data pointed to a further moderate expansion of GDP in the second and third quarters of 2023, broadly in line with the March projection exercise. The labour market had remained strong in the first few months of 2023. The unemployment rate had been relatively stable since April of the previous year and fallen to a new historical low of 6.5% in March 2023. Employment had grown steadily through higher labour force participation and higher immigration, with older and highly skilled workers behind the expansion. By contrast, average hours worked had been more sluggish. The employment outlook remained positive, according to the April PMI indicators, but with sectoral differences. The employment PMI for services had increased strongly, while the index for manufacturing had declined marginally, although it remained in expansionary territory. In the construction sector, the employment PMI had been in contractionary territory for a year. Negotiated wage growth had increased strongly, to slightly above 5% in both January and February, from around 3% in December. But wage growth was more moderate if one-off payments were excluded, with rates of 3.1% in December, 3.7% in January and 3.8% in February. The latest settlements monitored in the ECB wage tracker implied comparable signals for wage growth over the coming 12 months, albeit with significant variation across countries. At the same time, the Indeed high-frequency job postings indicator of wage pressures had moderated since last October. The ECB’s Corporate Telephone Survey showed that large companies expected margins to deteriorate in 2023 from elevated 2021-22 levels. The same firms indicated that they continued to expect wages to rise by 5% in 2023. The fall in energy prices and easing supply bottlenecks, together with strong labour markets and rising wages, were expected to continue to support the economy in the coming months. Later in the year, however, less scope for catch-up dynamics and progressively tighter financing conditions were likely to act as a drag on economic growth. According to Eurostat’s flash estimate, the annual inflation rate had been 7.0% in April, having dropped from 8.5% in February to 6.9% in March. The uptick in April was due to a positive base effect for energy inflation. Services inflation had also increased slightly. The inflation rates for all other components of the Harmonised Index of Consumer Prices (HICP) had declined. Inflation excluding energy and food (core inflation) had been 5.6% in April, back to its February level after edging slightly higher in March. Food price inflation had remained elevated at 13.6% in April, after 15.5% in March and 15.0% in February. Overall, price pressures remained strong. The inflation momentum, measured as the annualised three-month over three-month price change, had showed a headline inflation rate of around 4% in April, with energy inflation deeply negative. Momentum had not yet declined for either food or services price inflation. It had decelerated slightly for goods inflation, but was still very high. Indicators of underlying inflation were elevated and, for now, sent mixed signals. While exclusion-based and model-based measures were already declining, other indicators were only levelling off or still creeping up. Among those measures, the model-based Persistent and Common Component of Inflation (PCCI) was declining more strongly than others since it was more quickly affected by the impact of declining energy prices. At the same time, domestic inflation was still increasing and was more indicative of pressures coming from wages. When information was taken from both indicators, the message was therefore mixed. So it was important to acknowledge that measures of underlying inflation would not be sending the same signal for a while, as there was a large relative price adjustment going on. On the one hand, there was a big decline in energy prices and, on the other hand, a big increase in the price of labour. Measures of underlying inflation that still included past energy shocks and the pressures from wages remained high. These measures were not a good predictor of where inflation would be one or two years from now, however, given the reversal of the energy shock, the easing of bottlenecks and the expectation that the catch-up in low real wage growth would fade over time. Longer-term inflation expectations reported in the ECB Survey of Professional Forecasters, the Consensus Economics survey and the ECB Survey of Monetary Analysts had remained in the range of 2.0-2.1%. Financial market-based measures of inflation compensation had increased, but excluding higher inflation risk premia they had remained broadly unchanged and close to 2%. The upward movement in inflation expectations reflected in the ECB Consumer Expectations Survey also warranted ongoing monitoring. Short-term euro area forward rates had increased since the beginning of April, partly reversing their earlier declines in the acute phase of the banking tensions. At present, the forward curve peaked at a rate of around 3.75%, to be reached in the third quarter of this year. Further out, the pricing indicated that increasing probability was attached to cuts in the key ECB interest rates starting in the second quarter of 2024. Reflecting the rise in the risk-free yield curve, interest rates on bank loans had increased further, while overall credit flows remained low. Widening spreads between bank bonds and risk-free rates in the wake of the banking tensions were likely to affect bank lending behaviour. The latest bank lending survey showed a further strong net tightening in the standards applied by banks to corporate and housing loans, and banks cited higher risk perceptions and lower risk tolerance as the main drivers of their loan decisions. The share of rejected applicants had also increased for all loan categories. In parallel, banks reported declining demand for bank credit, owing to the general level of interest rates, weaker fixed investments for firms and worsening housing market prospects for households. Overall, this constituted a tightening impulse that was likely to add to the factors that were expected to weigh on economic growth and dampen inflation over the next two years. Monetary policy considerations and policy options Following its March monetary policy meeting, the Governing Council had announced that policy rate decisions would be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. Overall, the incoming information broadly supported the assessment of the medium-term inflation outlook formed at the March meeting. Headline inflation had declined significantly over recent months, but underlying price pressures remained strong. At the same time, the past rate hikes were being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remained uncertain. The incoming information was sending a range of signals. Some developments were expected to dampen medium-term inflation dynamics: lower energy prices, the further easing of bottlenecks, the appreciation of the euro, the decline in global prospects for manufacturing and further global monetary tightening. In the other direction, the current strength of core and food price inflation, together with the level of recent wage agreements, posed upside risks to the March projections, especially in terms of the duration of the inflation adjustment process. Regarding underlying inflation, the signals were mixed: while exclusion-based and model-based measures had started to decline, the domestic and wage-intensive components of inflation were still rising. In addition, the momentum in some of these indicators continued to be substantial. In relation to monetary policy transmission, financing conditions continued to tighten. The latest bank lending survey indicated that the extent of credit tightening was stronger than previously expected by the banks, while the recent tensions in the global banking system might also add to risk aversion, curbing credit supply. With these considerations in mind, the Governing Council needed to strike the right balance between advancing further towards interest rate levels that were sufficiently restrictive to ensure inflation returned to the 2% target in a timely manner and taking into account the elevated uncertainty regarding the speed and strength of the transmission of the cumulative tightening in the policy stance, including through the credit channel. This argued in favour of raising rates by an increment of 25 basis points at the present meeting. The Governing Council’s emphasis on data-dependence and on articulating the main criteria informing the rate decisions had been very effective in steadying policy expectations. The APP portfolio was set to decline by €15 billion per month until the end of June 2023. The realised and expected balance sheet normalisation had so far complemented the tightening of policy interest rates in a smooth manner. Looking ahead, the latest Survey of Monetary Analysts had indicated that, beyond June, investors expected to see an acceleration in the pace of reduction of the APP portfolio to a rate that was consistent with a full run-off. To the extent this expectation was priced in by the market, the yield impact of discontinuing APP reinvestments as of July was expected to be small. Against this background, and in line with the Governing Council principle of data-dependence as well as its commitment to reduce the APP portfolio at a measured and predictable pace, Mr Lane proposed that the Governing Council communicate the expectation that reinvestments would be discontinued as of July. Expressing the decision as an expectation would preserve some flexibility in case adverse tail risks were to materialise, in particular with regard to financial market conditions. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that global growth excluding the euro area had been higher than expected since the start of the year. The upside surprises had been broad-based, in both advanced and emerging economies. In contrast to economic activity, global trade had been relatively weak over the last few months, as demand had rotated towards domestic services. The euro exchange rate had appreciated since the Governing Council’s last monetary policy meeting, which, looking ahead, would contribute to lower inflationary pressures for the euro area. Non-energy commodity prices were broadly unchanged. Oil prices had increased while gas prices had declined, extending their previous large decreases. High inventories had contributed to the improved gas price outlook. In the United States, economic activity was moderating, reflecting weakening domestic demand. In China, real GDP growth had rebounded strongly in the first quarter from its pandemic-induced slump. The reopening of the Chinese economy, with higher than expected growth in China, was mentioned as an external factor that could contribute to lower core inflation in the euro area, as cheap Chinese imports had dampened inflation in Europe and the United States in the past. At the same time, higher demand from China could put upward pressure on global commodity prices, including energy. With regard to economic activity in the euro area, members concurred with Mr Lane’s assessment that lower energy prices, the easing of supply bottlenecks and fiscal policy support for firms and households had contributed to the resilience of the economy. At the same time, private domestic demand, especially consumption, was likely to have remained weak. Business and consumer confidence had recovered steadily in recent months but remained weaker than before Russia’s unjustified war against Ukraine and its people. There was also a divergence across sectors of the economy. The manufacturing sector was working through a backlog of orders, but its prospects were worsening. The services sector, on the other hand, was growing more strongly, especially owing to the reopening of the economy. Household incomes were benefiting from the strength of the labour market. Members highlighted the resilience of economic activity so far. The preliminary flash estimate for GDP growth in the first quarter of 2023 had been better than anticipated earlier, especially when taking into account that the aggregate number was most likely to have been pushed down by volatile transactions in Irish intellectual property products, while broadly in line with the March ECB staff projections. Moreover, incoming data suggested that growth could pick up further in the second and third quarters, in line with the March projections. This implied that the euro area economy would manage to escape a recession and that the exit from accommodative monetary policy had so far been smooth. While the resilience of economic activity was seen as good news, it was nevertheless argued that strengthening activity would contribute to more persistent upward inflation pressures, making a timely return of inflation to target more difficult. However, it was also pointed out that the better than expected GDP growth had mainly been driven by a reversal in the terms-of-trade shock associated with lower energy prices, together with the easing of bottlenecks and an increase in labour supply, which was one factor supporting potential output. These favourable supply forces could allow an increase in GDP while at the same time also favouring disinflation. The impact of tighter monetary policy was starting to become more visible in financing conditions in the early stages of transmission. At the same time, this raised the question of how much of the impact of tighter monetary policy was already in the pipeline and had yet to materialise, given the remaining uncertainty about long and variable lags in the transmission of monetary policy to output and inflation. In this context, it was mentioned that the impact of tighter monetary policy was becoming visible in non-financial companies’ perceptions of a weaker demand outlook, as flagged in the ECB’s latest Corporate Telephone Survey, as monetary policy was working through slowing aggregate demand. With respect to demand components, as financing conditions were tightening, investment was expected to weaken, partly as a result of the fair amount of uncertainty still clouding the outlook. As to private consumption, consumer services and tourism were still strengthening now that the pandemic had been overcome. Moreover, stronger tourism would also contribute to higher exports as non-euro area tourists returned to the euro area, a development that was not related to labour income growth due to domestic demand. Members concurred that, as the energy crisis faded, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. In this context, it was argued that the current fiscal stance was out of line with the cyclical position of the economy. Moreover, if there were any fiscal tightening in the future it would likely be “too little too late” to be helpful in bringing inflation back to target. Especially as interest rates were rising, the question was whether governments would manage to tighten their fiscal stance at a time when higher inflation would increasingly weigh on public deficits, owing among other things to higher public wages and pension outlays. At the same time, it was mentioned that the size of the energy-related fiscal measures in 2023 and, as a consequence, the impact on inflation of their removal in 2024, would likely be revised down, in line with lower than expected energy prices. Fiscal policies should be oriented towards making the economy more productive and gradually bringing down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, could also help reduce price pressures in the medium term. The reform of the EU’s economic governance framework should be concluded soon. Against this background, the view was expressed that it was no longer evident that the balance of risks to economic activity was skewed to the downside, as had been judged at the preceding monetary policy meeting. Members nonetheless assessed that – even though recent market tensions related to stress in the banking system had largely subsided – renewed financial market tensions, if persistent, would pose a downside risk to the outlook for growth as they could tighten broader credit conditions more strongly than expected and dampen confidence. Russia’s war against Ukraine also continued to be a significant downside risk to the economy. However, the recent reversal of past adverse supply shocks, if sustained, could spur confidence and support higher growth than currently expected. The continued resilience of the labour market, by bolstering household confidence and spending, could also lead to higher growth than anticipated. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. Inflation was still being pushed up by the gradual pass-through of past energy cost increases and supply bottlenecks. In services, especially, it was still being pushed higher also by pent-up demand from the reopening of the economy and by rising wages. The information available up to March suggested that underlying inflation remained high. Wage pressures had strengthened further as employees, in a context of a robust labour market, recouped some of the purchasing power they had lost as a result of high inflation. Moreover, in some sectors firms had been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and volatile inflation. Although most measures of longer-term inflation expectations currently stood at around 2%, some indicators had edged up and warranted continued monitoring. Members underlined that, while headline inflation had declined substantially from its earlier peak, the inflation outlook was still too high for too long. Inflation data had continued to surprise on the upside, for both headline and core inflation. All inflation components other than energy prices were significantly higher than had been expected in the March ECB staff projections. According to the mechanical update, headline and core inflation for 2023 would be higher than projected in March. Underlying inflation was proving more persistent, which was argued to point to clear upside risks to the latest projections. While it was felt that the outlook for headline inflation in the medium term remained similar to that in the March projections, developments in underlying inflation had become more worrisome and pointed to increased persistence. Momentum in all components except for energy remained very high or had even increased, especially for services. Against this background, the inflation outlook in the March projections was judged to be too optimistic, as there was still no robust evidence of a turning point in underlying inflation, with a rising risk of inflation becoming more entrenched owing to higher wage growth and of inflation expectations becoming unanchored. However, it was also argued that the Governing Council should not focus too much on monthly inflation data being 0.1 percentage point higher or lower. What mattered was whether a downward trend in inflation could be expected over the medium term, in line with the projections. Moreover, with respect to changes in the projection assumptions since the March cut-off date, the latest developments in oil prices, food commodity prices and the exchange rate would together mechanically imply a downward impact on inflation, looking ahead. While there were forces, such as wages, that would push inflation up, there were also several factors going in the other direction, including rising interest rates, a stronger exchange rate, lower energy prices, easing supply bottlenecks, an increasing labour supply and lower fiscal subsidies, all of which would be disinflationary. Food price inflation was widely seen as another important factor behind the still elevated level of headline inflation. Pipeline pressures suggested that the pass-through of past cost shocks to consumer food prices remained incomplete, posing significant upside risks to food inflation in 2023. This also represented an upside risk to prices in related areas such as restaurants and hotel services, and thus to underlying inflation. While commodity prices were falling steeply, consumer prices remained very sticky, suggesting that expanding profit margins were preventing inflation from falling. At the same time, it was argued that a large part of the currently elevated food price inflation could still be explained by higher energy prices. Moreover, there was a big transportation component in food prices, which was labour and energy-intensive. As regards developments in core inflation, the latest developments were broadly seen as worrisome. The level and momentum of inflation excluding energy and food continued to be very high, so that small improvements in core inflation or other measures of underlying inflation should not be interpreted as an indication of a turning point. Reference was made to the United States, where the policy-relevant measures of core inflation had already started to decline some time ago, albeit at a slow pace. It was argued that underlying inflation in the euro area appeared to be more stubborn and was likely to be stickier than in the United States, since wage and price-setting were typically less flexible in Europe. The observed strength and persistence of core inflation were seen to call into question the earlier hypothesis that euro area inflation was to a larger extent supply-driven and due to external shocks than a result of domestic demand. It was also pointed out that the momentum of services inflation was clearly on the rise, indicating that wages – a key component of services inflation – would become increasingly important in explaining underlying inflation, especially given the resilience in the labour market. Moreover, the demand for hospitality services was expected to strengthen further over the coming months, which should give an additional boost to services and core inflation. In this context reference was made to the recent developments in wage negotiations in the public sector of the largest euro area country, and to evidence of non-linearities and greater persistence in the reaction to pipeline pressures, all of which were worrying for the outlook for underlying inflation. At the same time, the point was made that, given the earlier large increases in energy prices, it was natural that core inflation would only start to decline with a considerable lag, as also suggested by historical regularities. In this context, it was recalled that there was no stable predictive relationship between core or other indicators of underlying inflation and headline inflation one to two years ahead. If anything, the causality between core and headline inflation went in the opposite direction. Against this background, the view was expressed that too much attention was paid to core inflation, first because core inflation was not representative of the household consumption basket, and second because core inflation had no clear leading indicator properties for future headline inflation. It would therefore be beneficial to explain that the analysis of underlying inflation pressures took a wide range of indicators into account and went well beyond core inflation. Members recalled that the trend in wages was key to understanding medium-term inflation pressures. Even if it were the case that wage developments had so far remained broadly in line with the March ECB staff projections, this did not necessarily provide reassurance that the trend in wage increases would prove consistent with the ECB’s inflation target. Moreover, some of the latest wage increases, notably in the public sector, were widely seen as worrisome and had not been included in the March projections. There were clear signs that unions had regained bargaining power, which was unlikely to recede. Reference was also made to empirical evidence that the public sector played a leading role in private sector wage-setting in a number of euro area countries. More generally, as high inflation became more protracted, this exacerbated the underlying social conflict between workers and employers. Moreover, while wage claims had for a long time been in line with domestic inflation and productivity growth, recent wage claims were clearly higher than levels that would be consistent with this regularity in future if inflation declined as anticipated. Wage growth was increasing, with further risks to the upside. In the euro area such developments typically started late and slowly, but they might be hard to stop. Negotiated wages (including one-off payments) had grown by more than 5% year on year in January and February 2023. There had been a significant increase in the growth rate of compensation per employee, which, together with the weakening of labour productivity growth, had implied a sharp increase in unit labour costs. At the same time, there was already substantial evidence that the longer inflation remained high, the stronger demands for higher wages would become, with second-round effects on other prices. The social dialogue was seen as coming under increasing strain in a number of countries, suggesting that the argument about wages versus profit was becoming more intense. It was therefore contended that signs of a wage-profit-price spiral were emerging. In addition, a remark was made that higher mortgage rates might also induce workers to demand higher wages, giving rise to another channel through which inflation could perpetuate itself. However, it was also recalled that there were considerable differences in wage developments, so all 20 euro area countries had to be taken together to see what the implications for monetary policy for the whole of the euro area would be. In this context, it was mentioned that there was no uniform message from recent wage indicators. Developments in negotiated wages and the ECB’s wage tracker pointed to a continued acceleration, but the signal from the latter indicator was affected by compositional and methodological issues. By contrast, information from the Indeed online job-matching platform, which covered new hiring, was showing a deceleration in wage dynamics. In addition, it was pointed out that the observed reduction in the unemployment rate reflected both an increase in new hires and a remarkable reduction in unemployment duration, suggesting that European labour markets had become much more fluid than they used to be. This should be positive for productivity and could indeed justify some wage increases if they were related to more robust productivity growth. However, it was also observed that no increase in productivity had been seen in the available macro data so far. Finally, it was pointed out that the cumulative increase in prices between 2021 and 2024 would be around 20%. This meant that nominal wage increases observed over the past year would need to be put into the context of a “catching-up” process, by which employees were trying to compensate for the lower real wages received for much of the period. The March ECB staff projections had therefore expected significant wage increases, recognising that real wages were likely to recover over the projection horizon. Nonetheless, it was noted that the March projections did foresee inflation eventually coming back to target even with very substantial nominal wage increases. However, it was also argued that the cost of an adverse terms-of-trade shock could not be compensated but had to be shared between workers and employers. Moreover, the benign inflation outcome depicted in the baseline scenario of the staff projections was subject to large upside risks, as higher wages were likely to have a protracted impact and would increase inflation persistence, especially if not absorbed by lower profit margins. Together with increasing wage pressures, recent elevated profits were seen as warranting closer monitoring. In some countries and sectors profit margins had grown very strongly at the end of last year. Unit profits in the euro area had contributed more than half of the domestic price pressures in the last quarter of 2022. As wage inflation had been much lower than price inflation, profits were plainly on the rise, with prices often clearly outpacing increases in input costs and wages. If wages were chasing prices and profits were chasing wages, this could be an explanation for the increased persistence of high inflation. To fully understand the implications for inflation, it was therefore important to see how profits would develop in the future. In this context, the Corporate Telephone Survey was sending a clear message, suggesting that companies had indeed been able to attain ample mark-ups in 2022, but they did not think that this would persist during the current year. As companies were passing on the higher input costs, it was likely that a reversal of this process would be seen in 2023, with wages contributing more and profits less, in line with past regularities. As regards longer-term inflation expectations, members recalled that inflation expectations mattered a lot in wage negotiations. In particular, higher inflation expectations today could give rise to higher inflation over a prolonged period because of the long duration of wage agreements. Inflation expectations also mattered a lot in firms’ price-setting. Repeated upside surprises and target overshoots over a long period of time could erode trust in the ECB’s ability and willingness to bring inflation back to the 2% target. Maintaining the credibility of the ECB’s commitment to price stability was especially challenging in light of substantial lags in policy transmission. Attention was drawn to the increase in consumer inflation expectations in March. The question was raised as to whether this could be related to persistently high food inflation, with energy prices having declined significantly. Against this background, a large number of members assessed the risks to price stability as being clearly tilted to the upside over the policy-relevant horizon, while other members judged that the risks were more symmetric, especially beyond the near term. Overall, the Governing Council assessed that there were still significant upside risks to the inflation outlook. These included existing pipeline pressures that could send retail prices higher than expected in the near term. Moreover, Russia’s war against Ukraine could again push up the costs of energy and food. A lasting rise in inflation expectations above target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recently negotiated wage agreements had added to the upside risks to inflation, especially if profit margins remained high. The downside risks included renewed financial market tensions, which could bring inflation down faster than projected. Weaker demand, due, for example, to a more marked slowing of bank lending or a stronger transmission of monetary policy, would also lead to lower price pressures than currently anticipated, especially over the medium term. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. Policy rate increases were being transmitted strongly to risk-free interest rates and to financing conditions for firms, households and banks. Growth in loans to firms and households had weakened owing to higher borrowing rates, tighter credit supply conditions and lower demand. The tightening of overall credit standards reported in the latest round of the bank lending survey was stronger than banks had expected in the previous survey round, which suggested that lending might weaken further. The observed weakness in lending meant that money growth had also continued to decline. It was argued that some of the stronger tightening of credit standards reported in the survey, beyond the level that had been expected by banks in the previous survey round, was likely to be attributable to the recent tensions in the global banking system. At the same time, it was argued that there was no indication of a credit crunch and bank lending seemed to reflect mainly weaker loan demand rather than any quantitative constraints. The view was also expressed that it was surprising that the recent stress and uncertainty in the banking sector had had such a limited impact on the results of the bank lending survey, which had reported unchanged net tightening for loans to firms compared with the previous quarter and an expected deceleration in the pace of tightening in the period ahead. Moreover, it was recalled that the tightening of credit standards had come after a long period of very favourable credit developments, so, to some extent, it reflected a normalisation. In addition, it was felt that the observed tightening of bank lending standards and declining loan demand were welcome evidence that monetary policy transmission was working. Furthermore, access to financing was not seen as a major problem for firms, as was reflected in responses to the European Commission’s business survey regarding obstacles to production. However, credit developments were weakening. When measured in real terms, the contraction in loans to firms as a proportion of GDP was particularly pronounced and similar to the contractions observed in 2008 and in 2011. Overall, members assessed financing conditions to have tightened since the March monetary policy meeting, while the picture of market-based financial conditions was mixed across markets. The acute strains that arose in financial markets in early March had diminished, as reflected in measures of systemic stress and volatility which had returned to levels seen prior to the emergence of the financial market tensions. Nevertheless, bank stock prices remained notably lower than before the tensions, although they were still higher than at the beginning of the year, while bank bond spreads over risk-free rates had widened somewhat. Banks’ funding costs had risen from low levels, as banks had to compensate for outflows from overnight deposits with more expensive time deposits and market-based debt. This would increase the supply pressure in the market for bank bonds, which was already elevated as banks took steps to pre-fund the large reimbursement due on the targeted longer-term refinancing operation (TLTRO) expiring in June. Yet short-term funding conditions in the interbank market had returned to levels seen prior to the onset of the banking sector tensions. In this context, it was argued that the financial market tensions had led to both a faster increase in funding costs for banks and a faster transmission of monetary policy to financing conditions than previously expected. Members expressed confidence in the resilience of European banks. Banks were increasingly reporting profits linked to rising net interest income. In this context, it was underlined that financial stress or instability was far from a level that might jeopardise the transmission of monetary policy. Nevertheless, financial fragilities might still surface, with the unprecedented policy rate tightening cycle exposing financial imbalances that had built up during the period of low interest rates. Against this background, the remark was made that it was, in any case, important to uphold the separation principle, which called for the monetary policy stance to be assessed independently of risks related to financial stability, with these being addressed, if needed, by dedicated means. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members evaluated the data obtained since the previous monetary policy meeting against the three criteria specified at the March meeting as being important in driving the Governing Council’s reaction to the unfolding circumstances. These criteria comprised (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Starting with the inflation outlook, members broadly concurred with the assessment that, with inflation outturns having again surprised on the upside, the outlook continued to be for too high inflation for too long. The risk of a severe economic downturn and the risk of an impact on financial stability had both eased, and hence some of the factors exerting downward pressure on inflation had receded. These considerations tended to support the inference that inflation risks had moved further to the upside since the March monetary policy meeting. At the same time, commodity prices had fallen, financing conditions had tightened and the effective exchange rate of the euro had appreciated. On balance, weighing up the different factors, it could be concluded that the medium-term inflation outlook was still broadly consistent with the March staff projections. Members assessed the evidence regarding measures of underlying inflation as being a source of concern. While core inflation had edged down slightly, indicators of underlying inflation ranged overall between 4% and 7%, giving a mixed picture. The momentum of services inflation was clearly on the rise, with wages expected to become increasingly important in explaining underlying inflation. HICP inflation excluding energy and food was still very high and its momentum was rising, while strong wage growth was expected to prevail, with the risk of more persistent inflation as well as the possibility of second-round effects. Turning to the assessment of monetary policy transmission, members noted that there was now more solid evidence that monetary policy was being transmitted to financing and credit conditions. This was generally seen as a positive development, suggesting that the first stages of transmission were working. The still strong dynamics of underlying inflation could be a reflection of a slower than expected transmission of monetary policy to inflation. On the other hand, it was also argued that, with a very strong labour market and longer interest rate fixation periods for bank loans, transmission could be weaker than usual. However, it was noted that a further tightening of bank credit conditions was still in the pipeline, as the full extent of policy rate increases had not yet been reflected in bank lending rates and credit growth. Furthermore, uncertainty about the transmission channels was currently higher than usual. This was because the extra tightening impulse that, according to the bank lending survey, would result from banks’ more cautious lending decisions following the recent banking sector tensions, was hard to quantify precisely and warranted continuous monitoring. Overall, it was felt that the conditions were not in place to “declare victory” or to be complacent about the inflation outlook. Instead, members concurred that further tightening was needed to bring inflation back to target over the medium term. High inflation was seen to be hurting the most vulnerable parts of society and weakening the euro area’s economic performance. Emphasis was placed on the evidence that various measures of longer-term inflation expectations had edged up above 2%, indicating risks of an unanchoring of inflation expectations. In particular, market-based measures of longer-term expectations remained stubbornly high, which could partly be attributed to the level of risk premia, suggesting that investors saw upside risks to longer-term inflation prevailing over downside risks. Over shorter horizons, market-based measures of inflation expectations stood below staff inflation projections. Monitoring the inflation expectations of households and firms was also seen as important because they mattered in wage negotiations and firms’ price-setting. Monetary policy decisions and communication Against this background, members agreed that a tightening of the monetary policy stance by increasing interest rates further was warranted. A number of members initially expressed a preference for increasing the key ECB interest rates by 50 basis points in view of the risks to the inflation outlook posed by continued upside inflation surprises and inflation projected to be above target over at least four years, as well as by the elevated risk of an unanchoring of inflation expectations. Such a step would more clearly demonstrate the Governing Council’s determination to achieve price stability in the face of elevated and more persistent inflation. More decisive action was warranted to move rates into sufficiently restrictive territory to ensure a timely return of inflation to target. These members saw the risk of tightening rates too much as being less than the risk of tightening them too little. Moreover, the view was expressed that the financial market turbulence had been short-lived and had not exerted a meaningful additional tightening impulse. Furthermore, the resilience of the euro area economy and receding recession risks, together with broadening price and wage pressures, suggested that underlying inflation was unlikely to decelerate sufficiently soon, which gave rise to increased risks of an unanchoring of expectations. At the same time, most of these members indicated that they could accept the proposed rate increase of 25 basis points. The ECB’s communication should, however, convey a clear “directional bias” to underline that, on the basis of the present outlook, further interest rate increases would be warranted in order to return inflation to target and to avoid a smaller rate increase being misinterpreted as signalling the prospect of a pause in the current hiking cycle. Against this background, almost all members supported the 25 basis point rate rise as proposed by Mr Lane, in combination with clear communication that, on the basis of the current data, monetary policy still had more ground to cover. This decision was seen as striking the right balance between meeting the need for further rate increases and accounting for elevated uncertainty about the speed and strength of monetary policy transmission. Since interest rates were already in restrictive territory, raising rates by 25 basis points was seen as preferable, including from a risk management perspective. This magnitude was viewed as prudent, with the possible costs of larger increments outweighing the benefits, given the still elevated uncertainty and the perception that the transmission of much of the impact of previous rate increases was still pending. In addition, the point was made that a smaller increment than those decided since July 2022 would allow the Governing Council to keep raising rates for longer, if underlying inflation pressures persisted or even strengthened through the summer, until there was sufficiently strong evidence that a turning point had been reached and inflation was retreating at an adequate pace. Emphasis was put on the merit of keeping to a data-dependent, meeting-by-meeting approach in an uncertain environment and with rates moving closer to a possible “landing zone”. A return to a more standard size of rate increment was also justified in view of the fact that the various monetary policy instruments were reinforcing each other in the transmission of the monetary policy stance. On this basis it was concluded that reducing the size of the increment from 50 to 25 basis points could be justified for two main reasons. First, substantial ground had been covered thus far, with the Governing Council having raised rates by 350 basis points over nine months, which implied that rates were getting closer to their destination, though they were not there yet. Second, the smaller rate increase also reflected uncertainty about the impact of past decisions, with a great deal of this impact still being in the pipeline. Slowing the pace of rate hikes was also seen as helping the right conclusions to be drawn about the destination. At the same time, it was underlined that reducing the size of the rate increment should not be interpreted as signalling that the Governing Council had opened the door to a pause in its monetary policy tightening cycle. Members generally agreed that the data-dependent approach, combined with the communication about the ECB’s reaction function issued following the March meeting, had served the Governing Council well. Financial markets were assessing progress in terms of the inflation outlook, underlying inflation and the transmission of monetary policy, and were pricing in interest rates accordingly. It was argued that communication should emphasise the importance of being persistent and tenacious, and should make it clear that once the peak rate was reached rates would stay at that level for some time and the increases would not be reversed immediately. As regards communication of the Governing Council’s directional bias, members agreed that it was appropriate to affirm that the Governing Council’s future decisions would ensure that the policy rates would be brought to levels that were sufficiently restrictive to achieve a timely return of inflation to the ECB’s 2% medium-term target, and would be kept at those levels for as long as necessary. At the same time, there was a strong preference against returning to outright forward guidance on policy rates, which was not regarded as a suitable instrument when rates were well above their lower bound and was seen as inconsistent with the meeting-by-meeting approach to decision-making that remained warranted in a volatile environment. Turning to the policies affecting the size and composition of the Eurosystem’s balance sheet, members widely agreed with Mr Lane’s proposal to announce the Governing Council’s expectation of discontinuing, as of July 2023, the reinvestment of maturing securities in the APP portfolio. Members recalled the reasons why the balance sheet needed to be normalised. First, ending reinvestments in July was seen as being consistent with the current monetary policy stance and with the need to support the reduction in excess liquidity, complementing the expiry of the large TLTRO operation in June. In addition, progress with balance sheet normalisation was needed to regain policy space for possible future situations in which policy rates again came close to the lower bound and in order to adhere to the principle of proportionality. In this regard, while the APP had been introduced to provide additional monetary accommodation and to compress term premia when rates were at the lower bound, in the current conditions of ample excess liquidity and upside price pressures, the proportionality of continuing the partial reinvestment policy was questionable. Moreover, the current level of excess liquidity was not necessary to implement the desired monetary policy stance. Furthermore, normalisation was needed to reduce the side effects of a large balance sheet, including the risk of fiscal dominance, the exposure to credit and duration risk, and the impact on financial stability risks and on market functioning. Finally, from a longer-term perspective, a steeper yield curve would support banks’ intermediation capacity via maturity transformation. By contrast, keeping down term premia via the APP securities holdings for longer than necessary could negatively affect bank balance sheets and therefore the provision of credit to the private sector. Members widely viewed financial markets as being able to digest a full portfolio run-off, having calmed after the turbulent weeks in mid-March. Market absorption had been very smooth even in times of market turbulence and despite relatively front-loaded government bond issuance this year. Overall, financial markets were seen as having largely priced in a full run-off by the summer, implying that the impact on long-term yields was likely to be limited. It was recalled, however, that the reduction in the stock of securities held in the APP portfolio would be accompanied by a considerable decline in excess liquidity linked to the upcoming sizeable TLTRO repayments, with the largest coming due in June. Moreover, the fact that the June repayments were fully expected and priced in by markets did not preclude any impact if liquidity was withdrawn, because a fast contraction of the Eurosystem balance sheet could have wider implications for the financial sector. Over time there was likely to be some pressure on yields, a rise in interest rates on bank deposits, a rotation in household savings from investment funds back into term deposits as the rates on them increased, and a rise in demand for bonds from investment funds. Reference was made to the need to monitor the composition of the APP portfolio in order to assess whether the composition across and within asset classes remained compatible both with the intended monetary policy stance and with the ECB’s Treaty requirement to support the general economic policies in the EU, as also reflected in the ECB’s monetary policy strategy. In particular, a request was made to assess whether the overall composition of the portfolio remained aligned with climate goals of the Paris Agreement. Caution was also expressed against too fast a contraction in the Eurosystem balance sheet. Owing to the TLTRO repayments, the expected pace of the reduction in the balance sheet was already quite fast, while the impact of the APP run-off on the lowering of inflation was seen as small. Moreover, the remark was made that the optimal size of the balance sheet in the long run was uncertain. Some members saw benefits in leaving an announcement about adjustments to APP reinvestments until June or in providing only a directional communication following the present meeting, while deciding on the exact calibration of reinvestments after the second quarter of 2023, at the June monetary policy meeting. This would allow a more complete assessment of the impact of TLTRO reimbursements in June amid lower liquidity during the summer months and was seen as beneficial in view of the high uncertainty and market volatility. Overall, the process of reducing reinvestments under the APP, including the Governing Council’s communication of this process, was seen as a success. The expected and realised balance sheet normalisation had already delivered a tightening of longer-term yields, thus supporting the policy stance, while at the same time not measurably increasing volatility. Against this background, members were ready to join the consensus in support of Mr Lane’s proposal, subject to reiterating the principles of gradualism and predictability when announcing the expectation that reinvestment under the APP would be discontinued as of July. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 4 May 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 3-4 May 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Šimkus* Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Vujčić Mr Wunsch * Members not holding a voting right in May 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Ms Buch Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Horváth Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Sleijpen Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 13 July 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 14-15 June 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 14-15 June 2023 13 July 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 3-4 May 2023, the narrative in financial markets had shifted from global tail risks – emanating from the banking sector tensions and the US debt ceiling debate – towards concerns about a deterioration in the euro area macroeconomic outlook and more persistent core inflation pressures globally. Global market conditions had further normalised as tail risks to the economy had subsided. Volatility in financial markets had decreased notably across market segments and countries, suggesting that risks of systemic stress were currently contained. Stock market implied volatility in the United States, as measured by the VIX volatility index, had declined to its lowest level since the beginning of 2020. Market conditions had also normalised across market segments in the euro area. Banks had restarted primary market issuance activity not only for covered bonds and senior bonds, but more recently also for subordinated bonds. Moreover, banks’ asset swap spreads of subordinated and senior bonds had decreased substantially, but remained slightly above the levels seen before the collapse of Silicon Valley Bank (SVB). Spreads of non-financial corporate bonds had remained broadly stable and stood below the average levels recorded in 2022. Developments in sovereign bond markets had been even more benign. Sovereign spreads relative to overnight index swap (OIS) rates had decreased during the market turmoil in March and had continued to narrow since then. Both the start of partial reinvestments and the expected end of reinvestments under the asset purchase programme (APP) had been absorbed smoothly by the market. Nevertheless, sovereign spreads had remained sensitive to fundamentals, as illustrated by the response to recent shifts in rating outlooks. Negative macroeconomic data surprises had sparked investor concerns about a deterioration in the economic outlook. However, developments in equity markets argued against the hypothesis that markets were pricing in a severe economic downturn. Equity indices for euro area banks and non-financial corporations had seen only small changes. Moreover, defensive equity sectors, i.e. stocks which tend to be more stable during periods of expected economic weakness, had underperformed sectors more sensitive to the business cycle. Developments in long-term risk-free bond yields had also provided little indication that negative data surprises had left a significant mark on the economic growth outlook. A decomposition of long-term yields into real rates and the inflation component in the euro area showed that real rates were slightly up since the Governing Council’s previous monetary policy meeting on 3-4 May 2023, and only marginally down since the collapse of SVB. In the United States, real interest rates had continued to recover strongly from the banking sector turmoil. Markets were no longer pricing in the banking sector stress driving a significant wedge between the growth outlook in the euro area and the United States. This was also evident in the gap between ten-year real rates, which had widened again and was now as large as in early March. The divergence in risk-free rates in the euro area vis-à-vis the United States had also been reflected in the EUR/USD exchange rate. The euro had depreciated by around 3% since the previous monetary policy meeting, closely tracking movements in interest rate differentials. Regarding the evolution of interest rate expectations, the front end of the euro short-term rate (€STR) forward curve had remained broadly unchanged. The forward curve was pricing in two more 25 basis point rate hikes – one at the present meeting and another in July – and a 20% probability of an additional 25 basis point hike afterwards, implying a peak deposit facility rate slightly above the level that had been expected at the time of the previous monetary policy meeting. The inversion of the forward curve had moderated. By contrast, the US federal funds futures curve had shifted upwards markedly since the previous monetary policy meeting. Uncertainty about the future path of monetary policy in the euro area had declined substantially since the collapse of SVB. Volatility in expected euro area short-term interest rates had reached its lowest level since May 2022, before the start of the ECB’s rate hiking cycle, reflecting the increasing convergence of monetary policy expectations among market participants. The reduction in uncertainty about the ECB’s medium-term policy rate path seemed somewhat at odds with market participants’ inflation expectations. Inflation-linked swap forward rates had continued to gradually increase from their mid-March lows. Remarkably, this repricing had come despite the weaker macroeconomic data as well as softer than expected inflation data releases and falling commodity prices. The increase in inflation-linked swap rates could partly be attributed to rising inflation risk premia, also reflecting the fact that many commodity prices appeared to be subject to pronounced upside risks for which investors demanded compensation. Such risks also related to food prices, which were exposed to upside risks posed by Russia’s war in Ukraine as well as to a rising probability of more frequent extreme weather events occurring this year as a result of El Niño. The second factor driving up inflation compensation was the increase in expected core inflation rates. Market-based measures of longer-term inflation compensation in the euro area had trended upwards since the summer of 2022, amid some volatility. The persistent upward trend of these measures was unique among major currency areas. Option prices also pointed to rising upside risks to inflation. Such elevated and rising market-based inflation expectations over the medium and long run indicated that investors may have some doubts as to whether the currently priced-in ECB policy rate path was sufficient to rein in inflation in a timely manner. Real one-year OIS rates one year ahead were currently 45 basis points below their level before the SVB collapse and were expected to remain at around 0.25% or lower over the coming years. Ms Schnabel then turned to the market impact of some of the ECB’s recent policy decisions. As announced in February, the ceiling for the remuneration of government deposits held with the Eurosystem and for the rate on deposits of non-euro area residents held under the Eurosystem reserve management services framework had been set at a spread of 20 basis points below the euro short-term rate (€STR) from 1 May 2023. Overall, the new level of remuneration for these deposits had achieved the desired effects. Nevertheless, developments would be closely monitored to assess whether the pricing had been adequately calibrated. Turning to the implications of the upcoming large repayments due under the targeted longer-term refinancing operation (TLTRO) in June, banks were expected to predominantly draw on their excess liquidity holdings as well as on market funding. Recourse to the ECB’s regular refinancing operations – the main refinancing operations and three-month longer-term refinancing operations – would be a natural choice for banks that required other funding sources. The global environment and economic and monetary developments in the euro area Starting with the outlook for the global economy, Mr Lane recalled that, after a rebound in the first quarter of the year, global economic growth had decelerated, especially in advanced economies, and was heavily skewed towards the services sector. The gap between the global output Purchasing Managers’ Indices for the services and manufacturing sectors had reached a historical high. The euro had depreciated both against the US dollar and in effective terms since the last monetary policy meeting. Oil futures had remained broadly stable and natural gas futures prices were lower than at the time of the May Governing Council meeting. Non-energy commodity prices had declined, with both food and metal prices falling compared with the last meeting. The euro area economy had stagnated in recent months: contracting public and private consumption and a negative contribution from inventories had only partly been offset by expanding net trade and investment. Business investment had held up in the first quarter of 2023, thanks to the easing of supply bottlenecks, as car production in particular had resumed. At the same time, survey data pointed to only a modest recovery in the second quarter of the year. Developments had diverged sharply across sectors also in the euro area. Hard data and surveys indicated very weak activity in the manufacturing sector amid feeble demand and the running down of order backlogs. By contrast, the services sector remained resilient, still benefiting from the stimulus provided to contact-intensive services by the reopening of the economy. However, historical patterns suggested that the weakness in manufacturing could spill over to the services sector in the months ahead. One possible reason for expecting a lagged slowdown in services related to the fact that monetary policy had been shown to have a more powerful and faster effect on manufacturing than on services. The contractionary impact of monetary policy was gradually reaching the components of aggregate demand that were typically more sensitive to interest rate changes, namely housing and business investment, as well as durable goods consumption. Expectations of higher mortgage rates weighed heavily on the perceived attractiveness of housing as an investment, while short-term indicators suggested a weakening in business investment owing to tighter financing conditions and falling orders. Consumers were also less inclined to purchase big-ticket items, and survey-based evidence suggested that a rising share of households with variable rate mortgages expected to have difficulties in making their mortgage payments on time. At the same time, private consumption was still expected to pick up, driven by remaining pent-up demand for contact-intensive services following the pandemic and by rising incomes as a result of nominal wage increases and rising employment. Looking ahead, a modest increase in exports was also expected. The June Eurosystem staff macroeconomic projections for the euro area had revised the outlook for GDP growth downwards slightly for 2023 and 2024, while leaving it unchanged for 2025. Average annual real GDP growth was expected to slow to 0.9% in 2023 (from 3.5% in 2022), before rebounding to 1.5% in 2024 and 1.6% in 2025. Output was expected to increase over the projection horizon. On the supply side, favourable developments included the ongoing expansion in productive capacity after the pandemic, the easing of supply bottlenecks and the expansion in labour supply (including through immigration). Demand was expected to increase owing to rising domestic incomes, underpinned by a robust labour market; the improvement in the terms of trade and the associated decline in uncertainty; and the recovery in foreign demand. At the same time, the scale of the recovery in demand would be constrained by the ECB’s policy tightening. Together with a gradual withdrawal of fiscal support, tighter financing conditions would restrict economic activity in the medium term. Downside risks to economic growth included Russia’s war against Ukraine and an increase in broader geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the ECB’s monetary policy was transmitted more forcefully than expected. Renewed financial market tensions could lead to even tighter financing conditions than anticipated and could weaken confidence. Moreover, weaker growth in the world economy could further dampen economic activity in the euro area. However, growth could be higher than expected if the strong labour market and receding uncertainty meant that people and businesses became more confident and spent more. The labour market remained strong. The unemployment rate had stood at its historical low of 6.5% in April. Employment continued to benefit from a strong increase in the labour force, while demand for labour remained at high levels, including as a result of labour hoarding. At the same time, average hours worked per person employed was still somewhat below pre-pandemic levels. Wage pressures continued to strengthen, adding to underlying inflation pressures. Nevertheless, recent wage increases were broadly in line with the March staff projections and therefore had not led to a reassessment of the wage pressures for 2023 in the June projections. At the same time, in some sectors profit levels placed employers in a favourable position to absorb wage increases even as the scope for price increases declined. There had been large increases in unit profits between the first quarter of 2022 and the fourth quarter of 2022 across all sectors, ranging from around 15% in contact-intensive services to around 23% in agriculture. In the first quarter of 2023, by contrast, some divergence had started to emerge across sectors. While the energy, utility and construction sectors had seen another strong increase in unit profits, the manufacturing sector and contact-intensive services sectors had seen declining unit profits. This implied that the sizeable wage increases had not been passed on to customers in the first quarter. This early evidence of lower unit profits in both manufacturing and contact-intensive services was consistent with the baseline assumption of declining unit profits in the June projections. Headline inflation as measured by the Harmonised Index of Consumer Prices (HICP) had declined to 6.1% in May, from 7.0% in April. Following an uptick in April, energy inflation had resumed the downward trend seen since last autumn. Food inflation was likely to have peaked in March and stood at 12.5% in May. HICP inflation excluding energy and food (HICPX, or core inflation) had also declined for a second consecutive month, reaching 5.3% in May. In terms of pipeline pressures for food and goods inflation, there was an ongoing improvement at earlier stages of the production process. This improvement was expected to translate into a reduction in pressures from input costs over the rest of the year. A number of indicators of underlying inflation – notably trimmed measures, exclusion-based measures and model-based indicators, such as the Persistent and Common Component of Inflation (PCCI) – showed signs of softening. The “Supercore” indicator and wage-sensitive components of the HICPX were levelling off, while domestic inflation was still continuing to increase, reflecting continued strong wage growth and demand for contact-intensive services. This configuration suggested that the external drivers of underlying inflation (rising energy costs and supply bottlenecks) were easing, but rising wages and ongoing effects from the reopening of the economy were still putting upward pressure on the domestic component of underlying inflation. The different dynamics of goods inflation compared with services inflation, which were related to differences in the tradability and labour content of the different inflation components, implied that it was important to look separately at underlying measures of these two components of the HICP. For goods inflation, the Supercore and PCCI measures had both been declining, with the PCCI having been on a downward path since the end of 2022. The significant downward adjustment of the PCCI indicator largely reflected the decline in energy prices, since a large share of goods production was energy-intensive. Momentum in goods inflation was also on a downward path. By contrast, for services inflation the underlying measures and the momentum did not yet point to any visible decline. While the PCCI indicator for services had stabilised, the Supercore measure was still on an upward trend. Services inflation had declined marginally in May; however, these data were in part affected by a new, cheaper monthly ticket for public transport in Germany. Turning to inflation expectations, respondents in the Survey of Monetary Analysts had kept their expectations for 2025 and 2026 unchanged. The Consumer Expectations Survey showed that consumer inflation perceptions and expectations had both decreased significantly in April and May after the temporary increase in March. The June staff projections saw headline HICP inflation slightly above the path envisaged in previous exercises. Headline inflation was expected to decrease from 8.4% in 2022 to an average of 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. The downward impact from lower energy price assumptions was more than offset by upward revisions in food inflation and core inflation. Underlying price pressures remained strong. Staff had revised up their projections for core inflation, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. The staff projections now saw core inflation averaging 5.1% in 2023, before declining to averages of 3.0% in 2024 and 2.3% in 2025. Russia’s war against Ukraine remained a significant upside risk to the inflation outlook, as it could push energy and food costs up again. A lasting rise in inflation expectations above the ECB’s inflation target of 2%, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recent wage agreements in a number of countries had added to the upside risks to inflation. By contrast, renewed financial market tensions could bring inflation down faster than projected. Weaker demand, for example owing to a stronger transmission of monetary policy, would also lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to the prices of other goods and services more quickly than was currently anticipated. Tighter monetary policy continued to be transmitted to bank funding costs. Together with increases in spreads on subordinated bank bonds and on hybrid instruments, and the increased cost of equity for banks, the impact of monetary policy tightening on the risk-free yield curve continued to drive up lending rates for firms and households. The cost of borrowing for firms had increased to 4.4% in April and mortgage rates had risen to 3.4%. Average monthly flows of lending to firms had been negative since November last year, and lending had also contracted slightly in April. Small and newer firms, which tended to be more dependent on bank credit, faced particularly steep increases in their borrowing rates and weak loan flows. Overall, the recent contraction in credit had exceeded the scale indicated by historical patterns. The short-term dynamics of monetary aggregates had weakened further since the start of the year. The three-month annualised growth rate of M3 had been negative since the start of the year, despite the cushioning effect generated by the shift from overnight to term deposits. This development was connected with the monetary policy tightening in several ways: amid weak lending, loan flows were not supporting money growth; reducing the size of the Eurosystem balance sheet mechanically drained money from the system; banks had increased their long-term funding, mainly via bond issuance, to replace maturing TLTRO funds; and, finally, the additional issuance of government bonds was not being fully absorbed by banks, with some being absorbed by other sectors, in particular households, which had further reduced M3. Monetary policy considerations and policy options On the basis of an assessment of the three elements of the ECB’s reaction function – the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission – Mr Lane proposed raising the three key ECB interest rates by 25 basis points at the present meeting. The profiles of headline inflation and core inflation had shifted upward in the June staff projections compared with the previous exercise, albeit only slightly for 2025. Indicators of underlying price pressures remained strong, although some showed tentative signs of softening. At the same time, the accumulated policy tightening was increasingly taking hold in the economy, as the tighter monetary policy stance seemed to be gradually felt in real activity. Mr Lane also proposed confirming the end of reinvestments under the APP as of July. In view of the benign developments in euro area bond markets, market participants expected that reinvestments would stop. Moreover, private investors had been able to smoothly absorb the large-scale public sector issuance since the beginning of the partial APP run-off. At the same time, preserving the option to apply flexibility to reinvestments under the pandemic emergency purchase programme as a first line of defence against fragmentation risks continued to be warranted, also in view of the proposed end of APP reinvestments in July. The current constellation of data and projections argued for continuity in communicating the Governing Council’s orientation for its next monetary policy meetings. As in May, the Governing Council needed to convey the message that future decisions would ensure that policy rates would be brought to levels sufficiently restrictive to achieve a timely return of inflation to the target and would be kept at those levels for as long as necessary. Emphasis on data-dependence would allow the Governing Council to adjust the course, as appropriate, in what was still a highly uncertain environment. By the July meeting, in addition to another monthly inflation data release, the Governing Council would also be able to observe the impact of the repayment of the large TLTRO III operation coming due later in June and any market effects of the end of APP reinvestments in July. In addition, there would be other evidence on the impact of the Governing Council’s measures, including new vintages of the ECB euro area bank lending survey and the Corporate Telephone Survey. The emphasis on data-dependence and a clear reaction function provided a suitable framework for reflecting this information in future policy rate decisions. In line with its monetary policy strategy, the Governing Council needed to assess, in depth, the interrelation between monetary policy and financial stability at the present meeting. The financial stability outlook had remained challenging since the Governing Council’s last review in December 2022. Tighter financing conditions had raised the funding costs of banks and the credit risk of outstanding loans. Together with the recent tensions in the US banking system, these factors could give rise to systemic stress and depress economic growth in the short term. Another factor that weighed on the resilience of the financial sector was a downturn in the real estate markets, which could be amplified by higher borrowing costs and a rise in unemployment. At the same time, euro area banks had strong capital and liquidity positions, which mitigated these financial stability risks. Macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that the downward revision of expectations for foreign demand – despite the reopening of China – and for the dynamics of competitors’ import prices were two important elements in the Eurosystem staff projections. Slower increases in prices in the rest of the world would help contain pricing power and eventually dampen core inflation in the euro area. The question was raised as to whether the possible effects of the weakness of the Chinese economy had been fully taken into account in the staff projections’ outlook for euro area foreign demand and whether China might become a source of global disinflation. At the same time, it was argued that economic surprise indices for both China and the United States had been on the upside, which cautioned against assuming that world growth was set to slow. In this context, it was recalled that the growth performance of the Chinese economy would likely have repercussions for global commodity prices and thus was a key risk factor for the euro area inflation outlook. Attention was also drawn to continued high geopolitical risks, which injected uncertainty and volatility into the outlook for global activity and inflation, notably with respect to energy and food. Reference was made in this context to the recent sizeable rebound in gas prices from earlier declines. With regard to economic activity in the euro area, members concurred with Mr Lane that the economy had stagnated in recent months. As in the fourth quarter of 2022, real GDP had shrunk by 0.1% in the first quarter of 2023, on the back of a drop in private and public consumption. Economic growth was likely to remain weak in the short run but to strengthen in the course of the year as inflation came down and supply disruptions continued to ease. Conditions in different sectors of the economy were uneven: manufacturing continued to weaken, partly owing to lower global demand and tighter euro area financing conditions, while services remained resilient. It was noted that the outcome for real GDP in the first quarter of 2023 implied a technical recession and was weaker than the figure embedded in the June staff projections, while not implying that the economy was facing a material contraction. In addition, the mechanical estimates presented by Mr Lane pointed to weaker than expected growth also in the current and subsequent quarters. From that perspective, the staff projections for real GDP growth of around 1% this year and 1½% in subsequent years could be on the optimistic side. The question was raised as to whether the current divergence between manufacturing and services was atypically strong, given that the performance of the services sector was still driven by a post-pandemic rebalancing of the economy. Attention was drawn to the decline in domestic demand in the first quarter of the year, which could be seen as a sign that the tightening of monetary policy was reaching the real economy. It was suggested that transmission had been working as expected but had thus far been concealed by tailwinds for growth, owing to the financial buffers and accumulated savings available to firms and consumers, as well as to the staggered recovery from supply bottlenecks. Although still present, the support from some of these tailwinds was now fading. Looking ahead, it was argued that the baseline growth scenario in the staff projections entailed a possibly too modest, “conservative” impact from monetary policy tightening. This was because the effects of credit supply constraints and the role of quantity and non-price effects in the credit channel of transmission more broadly were typically not explicitly reflected in traditional macro models. However, it was also noted that there was little evidence of quantity restrictions in credit provision as banks were well-capitalised and profitable. Members discussed different elements in the growth outlook and the staff projections. Supply-side bottlenecks were seen to have eased as expected, and it was noted that capacity utilisation in manufacturing was close to historical highs. This might indicate a need for additional investment over the projection horizon. In this context, reference was also made to the extra investment required to meet the EU’s 2030 climate objectives, especially in the household sector, which was estimated to amount to 2% of GDP annually in net terms. While it was possible that there would be a crowding out of investment owing to higher interest rates, it was more likely that climate-related investment was being driven by subsidies and hence would be relatively resilient to the interest rate cycle. This suggested upside risks to investment. An upside risk was also seen with regard to consumption, given the substantial accumulated savings that remained in place and the higher extra savings associated with the household saving ratio embedded in the June projections. Members widely agreed that the labour market remained a source of strength. Almost a million new jobs had been added in the first quarter of 2023 and the unemployment rate had stood at its historical low of 6.5% in April. The average number of hours worked had also increased, although it was still somewhat below its pre-pandemic level. In this context, it was emphasised that the labour market expansion was sustained through the extensive margin, i.e. by people joining the labour force, and argued that this implied a better adjustment process than was usually the case in Europe. “Marginally attached” workers were seeking work and there was a significant reduction in the number of underemployed people. However, it was warned that strong inflows into the labour market implied some fragility, as entrants needed time to learn new jobs and therefore obtain some employment stability, which could only be ensured if the economy was not stalled by excessive tightening. The point was made that, while demographic trends were typically slow-moving, in the current post-pandemic environment of labour scarcity and rapid structural changes, the impacts of such trends on labour market developments and on wages could become visible even within a conventional projection horizon. The role of a high level of employment in supporting aggregate demand and stronger wage pressures due to an increase in the bargaining power of workers was emphasised. As high employment was currently a manifestation of improvements on the supply side, this was consistent with expectations that there would be no material recession and that price pressures would fall over time. However, it was argued that a situation combining full employment with economic stagnation was difficult to rationalise in standard models. Accordingly, the question was raised as to whether one should not expect Okun’s law to eventually enforce some consistency between the labour market and economic activity. The same relationship could also be at work in bringing the unemployment gap into better alignment with the output gap – two measures of slack that had been misaligned in more recent times. It was argued that the potentially persistent rise in sick leave, fall in productivity and decline in average hours worked may negatively affect potential output. In this context, it was emphasised that there was a need for supply-side reforms and improvements, so that the strong labour market would be accompanied by higher productivity growth. Members concurred that, as the energy crisis receded, governments should roll back the related support measures promptly and in a concerted manner. In doing so, they would avoid driving up medium-term inflationary pressures, which would otherwise call for a stronger monetary policy response. Fiscal policies should be designed to make the euro area economy more productive and gradually bring down high public debt. Policies to enhance the euro area’s supply capacity, especially in the energy sector, could also help reduce price pressures in the medium term. The reform of the EU’s economic governance framework should be concluded soon. It was felt that risks in the fiscal domain were skewed towards a later and insufficient withdrawal of stimulus in a number of jurisdictions and for the euro area as a whole. Against this background, members concurred that the economic outlook remained highly uncertain. It was recalled that the latest GDP numbers and results from “nowcasting” models used to estimate very recent or current figures already implied a downside risk to growth relative to the June staff projections. Beyond that, downside risks to growth included Russia’s unjustified war against Ukraine and an increase in broader geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the effects of monetary policy were more forceful than projected. Renewed financial market tensions could lead to even tighter financing conditions than anticipated and weaken confidence. Additionally, weaker growth in the world economy could further dampen economic activity in the euro area. However, growth could be higher than projected if the strong labour market and receding uncertainty meant people and businesses became more confident and spent more. At the same time, it was argued that some of the risk factors mentioned could also go in the opposite direction. Monetary policy could be transmitted less strongly than projected, and the world economy could grow faster than anticipated. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. While members considered that the second consecutive decline in core inflation was a positive signal, it was widely felt that there was as yet no sufficient or convincing evidence to confirm a turning point. It was emphasised that the momentum in price dynamics had remained strong for all components of inflation, with the exception of energy. Moreover, the outcomes for core inflation had proved stubborn and continued to be higher than projected, thus pointing to greater persistence. However, looking ahead, the degree of persistence was likely to differ across sectors – it was lower in non-energy industrial goods inflation and higher in services inflation. Clearly, the role of external shocks had already diminished and the main drivers of inflation were domestic, including a strong contribution from wages and profits. In particular, strong growth in hospitality services prices could be expected during the summer and the impact of labour costs was increasing. It was observed that, while food inflation had started to come down somewhat, it remained elevated overall, and geopolitical risks and weather and climate-related factors, including El Niño, pointed to upside risks. However, doubts were expressed about whether a particular emphasis on core inflation was justified, as it was not seen to be a leading indicator of future headline inflation. In fact, at the current juncture, the role of unwinding energy and food inflation implied that core inflation was lagging behind headline inflation. In this context, it was recalled that, beyond core inflation, all components of headline inflation needed to be analysed and the ECB monitored a wide range of measures of underlying inflation. Moreover, it was recalled that, while some measures of underlying inflation had started to decline, others had continued to grow strongly, and that a decline in underlying inflation would not be sufficient to ensure that inflation returned to the 2% target. With respect to the June staff projections, there was broad agreement that the stubbornness of inflation and higher unit labour costs were key factors in the upward revision of core inflation, especially for 2023 and 2024. At the same time, the extent of the upward revisions to inflation was also questioned, in the light of the latest, more encouraging data and with respect to changes in the assumptions underpinning the June projections compared with the March projections, in particular the assumptions of higher interest rates, lower energy prices and an appreciation of the euro. Regarding the projected speed of the decline in inflation, it was argued that there were clear disinflationary factors operating in the early stages of the disinflationary process. However, it was important to ask which factors would be operating towards the end of the projection horizon, and whether further disinflation would be harder to achieve the closer inflation came to 2%, since higher wage or inflation expectations could have become entrenched by then. On this point, it was recalled that the expected decline in inflation towards 2% was predicated on wage pressures abating; that, by 2025, real wages would have only barely made up their losses since 2019; and that profit margin and unit profit dynamics would reverse and act as a buffer against higher unit labour costs. This was seen as pointing to a very “narrow path” for getting close to the ECB’s target in 2025. It was mentioned that, in the United States, core Personal Consumption Expenditures inflation, despite reaching a turning point much earlier, was also proving to be more persistent and had repeatedly failed to come down in line with earlier Federal Open Market Committee projections. Members widely agreed with the assessment of Mr Lane in his introduction that wage pressures, while partly reflecting one-off payments, were becoming an increasingly important source of inflation. Compensation per employee had risen by 5.2% in the first quarter of 2023 and negotiated wages had risen by 4.3%. Moreover, firms in some sectors had been able to keep profits relatively high, especially where demand had outstripped supply. It was noted that the main problem companies were facing continued to be their capacity to hire skilled labour. As long as this remained the case, employment creation would come with wage pressures. Moreover, the wage drift between actual and negotiated wages was high, which was a reflection of the tight labour markets. Concern was expressed that protracted wage pressures would, in turn, contribute to greater persistence in domestic price pressures, notably as unit labour costs were increasing amid subdued growth in productivity and the continued pricing power of firms. However, it was pointed out that tightness in the labour market had emerged against the backdrop of an increasing labour force, the fast creation of short-term contracts and migration, all of which were factors that tended to reduce wage pressures. New entrants tended to take jobs paying lower wages, while job movers typically took higher-quality jobs with significant wage increases. Members assessed the outlook for wages from different angles. It was acknowledged that the baseline in the June staff projections contained substantial nominal wage growth. Recent information had pointed to strong wage growth in several countries, but it was argued that outcomes were in line with the baseline projections and did not imply an upside risk. However, it was also recalled that the projections were predicated on the assumption that pressures from wage negotiations would gradually abate. Therefore, as long as this assumption was not visible in the actual data and until there was confirmation that wage pressures had run their full course, an upside risk to wage growth remained. Moreover, given staggered wage-setting and long-term contracts in Europe, the impact of higher wages would be spread over many years to come. Likewise, there was a risk that, in some countries and sectors, union bargaining might go beyond a one-off “catch-up” of real wages with respect to pre-pandemic levels and try to make up for the trend decline in the wage share incurred during past decades. Nominal wage growth was expected to remain well above its historical average according to the June staff projections. However, it was suggested that, for the time being, this growth could still be considered moderate when viewed against the expectation that real wages would only make up their losses and return to pre-pandemic levels by 2025. While there was currently no evidence of significant second-round effects or a wage-price spiral, a note of warning was given not to underestimate the risk. After all, price levels would remain high even as inflation came down. Whether a wage-price spiral were to unfold would ultimately depend on the ability and willingness of firms to absorb higher unit labour costs in their profit margins. This, in turn, would depend on the economic environment in which firms operated, and hence on monetary policy. In this context, it was reiterated that the high levels of inflation should not lead to tit-for-tat strategies where workers and businesses sought full compensation for price and cost increases respectively. It was recalled that the euro area had been hit by a terms-of-trade shock and policymakers should communicate that, under such conditions, it would be self-defeating for social partners to aim for full compensation. In a number of smaller countries, high wage growth and high inflation had started raising concerns about a revaluation of the real exchange rate and a loss of competitiveness relative to peers. It was suspected that, in the future, this could also become an issue at the euro area level. Profits had played an important role in recent developments in output prices, and it was noted that, in the staff projections, the decline in inflation rested on the assumption that margins would shrink. This assumption was considered to be in line with past cyclical behaviour of margins in relation to labour cost developments. However, there was no evidence yet to provide reassurance that profits would revert to earlier patterns in the post-pandemic environment, and profit dynamics had already been strong for some time, notwithstanding variations in activity. It was argued that, ultimately, the behaviour of margins depended on the evolution of pricing power. The more resilient the economy remained, the bigger the risk that firms would pass the higher unit labour costs on in their prices rather than absorb them through lower profit margins. As regards inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. Although most measures currently stood at around 2%, some indicators remained elevated and needed to be monitored closely. It was pointed out that market-based measures stood clearly above 2%, but were close to 2% when corrected for risk premia. However, the argument was made that the measures, while likely still broadly anchored, were standing at levels that would previously have been considered worrying and that the trend was pointing upwards. Comfort was drawn from the better news coming from the declining medium-term inflation expectations in the ECB’s Consumer Expectations Survey. At the same time, reference was made to the qualitative data in the European Commission’s consumer survey, which showed an unusual gap between inflation perceptions and actual inflation. This suggested that there continued to be a risk of an upward shift in inflation expectations, also in view of the long period of above-target inflation, despite the recent sharp decline in inflation. It was argued in this respect that, ultimately, inflation expectations mattered to the extent that they changed actual behaviour and then showed up in wage or price-setting in the real economy. Against this background, members considered that there were both upside and downside risks to the inflation outlook. Upside risks to inflation included potential renewed upward pressures on the costs of energy and food, also related to Russia’s war against Ukraine. A lasting rise in inflation expectations above the ECB’s target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. Recent wage agreements in a number of countries had added to the upside risks to inflation. By contrast, renewed financial market tensions could bring inflation down faster than projected. Weaker demand, for example due to a stronger transmission of monetary policy, would also lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to other goods and services more quickly than currently anticipated. A range of views were expressed on the risk assessment with respect to the path for inflation. Significant upside risks to headline and core inflation were seen as stemming from greater persistence and strong wage dynamics over the entire projection horizon. Specific upside risks were associated with food commodity price assumptions, possibly lasting damage to supply capacity from hysteresis effects, not sufficiently restrictive fiscal policy and weaker than projected monetary policy transmission. It was acknowledged that past forecast errors and their implications for increased inflation persistence had partly been incorporated into the baseline, but it was considered that the typical correlation of forecast errors over time still implied an upward risk in the period ahead. At the same time, it was argued that the latest evidence on strong wages and high labour costs had already been largely incorporated into the baseline projections and could therefore no longer be considered an upside risk. Turning to the monetary and financial analysis, members generally concurred with the assessment provided by Mr Lane in his introduction. The impact of monetary policy tightening on credit and monetary dynamics was judged to be sizeable. Weak bank lending and the reduction in the Eurosystem balance sheet had led to a continued decline in annual broad money growth. Credit dynamics had weakened further, owing to higher borrowing rates, tighter credit supply conditions and lower loan demand. It was maintained that the speed and extent of the contraction in lending could not be fully explained by the increase in policy rates alone or by fundamentals such as economic activity. A view was expressed that credit weakness pointed to increasing risks of an unwarranted intensification of the transmission of the monetary policy stance through the banking sector. The view was, however, also expressed that credit had remained relatively resilient in the face of sharp rate increases, and the contraction could be explained largely by weaker loan demand rather than by credit supply constraints. It was maintained, moreover, that the credit weakness had been driven mostly by a decrease in short-term loans that firms had used to finance increased working capital needs related to the earlier energy price shock. Doubts were expressed as to whether the weakness in credit exceeded the scale indicated by historical patterns, as such a comparison depended on the period considered as well as on other parameters included in the analysis. Due account needed to be taken of stocks and flows in credit, as well as the associated accumulated liquidity. The view was held that, in response to high inflation, the loan gap, i.e. the deviation of bank credit from a path that would be consistent with past cyclical patterns, tended to first decrease and only later to increase; therefore, it did not provide a reliable measure of credit supply restrictions in an inflationary environment. Furthermore, it was underlined that the euro area banking sector had weathered the turmoil in March relatively well and was profitable. It was noted that, according to ECB Banking Supervision, bank profitability had developed in a benign way since monetary policy tightening had started, which should support bank lending capacity. Moreover, according to the survey on the access to finance of enterprises, firms still had ample cash owing to the pandemic support measures, which should attenuate concerns that credit demand was not being met. Attention was drawn to the forthcoming releases of the bank lending survey and the Corporate Telephone Survey, which would shed light on these developments. At the same time, it was widely acknowledged that funding conditions had tightened for banks and credit was becoming more expensive for firms and households. Borrowing costs and non-price conditions for firms appeared to have adjusted faster than in previous tightening episodes. Regarding bank lending rates, the concern was expressed that possible bank funding tensions and increasing credit risk perceptions might translate into tighter financing conditions than those reflected in the staff macroeconomic projections. In this context it was underlined that credit conditions had been affected not only by the increase in the ECB’s policy rates, but also by the reduction in the Eurosystem balance sheet, particularly against the backdrop of the coming TLTRO III repayments in June. It was noted that the rapid pace of policy rate hikes was reducing borrower creditworthiness and increasing banks’ risk perceptions, as signalled in the bank lending survey, which could be expected to dampen lending significantly. The concern was voiced that the credit tightening – in particular the consequences of the reduction in households’ net disposable income caused by higher debt servicing costs for variable rate mortgage loans – had not yet fully filtered through to the real economy. In jurisdictions with a prevalence of fixed rate mortgages, the impact of higher rates was more muted and was materialising mainly via the flow of new lending, rather than the stock of outstanding mortgages. It was argued that long rate fixation periods for mortgage debt, the slow rise in deposit rates and still high levels of excess savings were mitigating or slowing the transmission of tighter lending conditions to households. It was recalled that the share of fixed rate mortgages had increased across a number of jurisdictions during the period of low interest rates, likely dampening monetary policy transmission compared with historical precedents. The Governing Council held its biannual structured exchange on the interrelation between monetary policy and financial stability. Members concurred that the financial stability outlook had remained challenging since the last review in December 2022, as tighter financing conditions were raising the funding costs of banks and the credit risk of outstanding loans. In this context, there was seen to be a risk that excessive monetary policy tightening could hamper the smooth transmission of monetary policy and increase fragmentation risks. Another factor weighing on the resilience of the financial sector was a downturn in the real estate markets, which could be amplified by higher borrowing costs and a rise in unemployment. At the same time, confidence was expressed that euro area banks had strong capital and liquidity positions, and that macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members overall assessed financing conditions to have tightened since the May monetary policy meeting, with past policy rate increases being transmitted forcefully to financial and financing conditions. It was noted, however, that long-term real bond yields were back to the levels that had prevailed at the beginning of the year. Market expectations regarding the policy rate path, as embedded in forward curves and revealed in surveys, had also remained relatively stable since the previous meeting, broadly pricing in two rate increases of 25 basis points for the Governing Council’s June and July meetings. Against this background, it was argued that market participants would be surprised by the upward revision of inflation, and particularly core inflation, in the June staff projections. This could trigger a repricing of the forward curve. The view was held that the level of the peak deposit facility interest rate, as well as its duration, as embodied in the forward curve and reflected in the staff projections, could be judged as insufficient to bring inflation back to the 2% medium-term target, as the projections showed inflation still lying above 2% in 2025. However, it was also underlined that the forward curve embedded in the staff projections foresaw interest rate cuts by the ECB in the first half of 2024, in line with the Survey of Monetary Analysts. As policy rates were approaching the peak of the interest rate cycle, the trade-off perceived by market participants between the level of the peak rate and its duration was seen as becoming more important. However, it was also argued that as long as the prospects for higher and more persistent policy rates were not priced into the term structure of market interest rates, that policy path would not be reflected in financing conditions. In accordance with the three main elements of its reaction function that the Governing Council had communicated earlier in the year, members evaluated developments since the previous monetary policy meeting related to the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Starting with the inflation outlook, members broadly concurred with the assessment that, with the upward revision of the inflation path in the June staff projections, inflation was still projected to remain too high for too long, calling into question whether it was returning to target in a timely manner. With upside revisions to both headline and core inflation, the return to target had again been pushed out further into the future. Moreover, upside risks to the inflation outlook were judged to still prevail, mainly owing to more persistent wage-price dynamics than those incorporated into the projections. In addition, it was recalled that, for the inflation projections to materialise, the Governing Council had still, as a minimum, to deliver two successive interest rate increases in June and July, which were embodied in the assumptions on which the projections were based. It was also argued that bringing inflation down from very high numbers to more moderate levels was easier than achieving a full return to the 2% medium-term target. In this context, it was remarked that an envisaged return of inflation to 2% towards the end of 2025 could be considered too late, because risks could materialise in the meantime that might keep inflation above the 2% target. It was seen as important for the Governing Council to stress the symmetry of its inflation objective, i.e. that upward and downward deviations from 2% were regarded as equally undesirable. Moreover, a scenario with high inflation and high interest rates was seen as possible if interest rates did not become and stay sufficiently restrictive. In contrast, it was also maintained that the staff projections, as well as the latest inflation data, showed that the initial supply-side drivers of inflation were gradually waning, although demand-side factors were gaining importance. Headline inflation had been on a declining path since October 2022 and was projected to fall further throughout the projection horizon. Moreover, the most recent incoming data had been in line with the Governing Council’s expectations, strengthening confidence that monetary policy was on the right track. At the same time, the prevailing high level of uncertainty was underlined. It was seen as important that the Governing Council’s response to the upward revision of the inflation outlook should not be perceived as a change in its reaction function, but rather as an appropriate response within the parameters of the reaction function. Emphasis was placed on the evidence that market-based measures of inflation compensation had edged up to above 2% and required close monitoring. In particular, longer-term market-based measures remained stubbornly high, which could partly be attributed to risk premia, suggesting that investors saw upside risks to the longer-term inflation outlook prevailing over downside risks. By contrast, several survey-based indicators of inflation expectations had stabilised or even decreased. Weighing up the different elements, inflation expectations were assessed to be still broadly anchored, as evidence was emerging that wage and price-setting behaviour in several euro area countries had started to moderate. In this context, the weight that was attached to the staff macroeconomic projections, as opposed to actual data, when assessing the monetary policy stance was discussed. On the one hand, it was argued that the Governing Council should focus more on data than on the projections when assessing the inflation outlook. It was argued that attaching more weight to observable data would improve policy decisions, in particular when uncertainty was high. On the other hand, it was maintained that the projections were an important and useful input into the Governing Council’s decision-making. They provided discipline and a crucial benchmark for the deliberations and could be scrutinised but should not be disregarded. Members also assessed the level and persistence of underlying inflation as being a source of concern. Core inflation had again been revised up significantly in the June staff projections. It was cautioned that strong wage growth was becoming a key driver of inflation, and convincing evidence that underlying inflation had peaked was still lacking, as had been underlined by the President during her recent appearance at the European Parliament. It was highlighted, however, that according to recent data releases core inflation had stabilised and might have reached a turning point, although it was likely to be some time before underlying inflation measures embarked on a steady path of decline. In this context, it was argued that the Governing Council should not put too much emphasis on the behaviour of core inflation, as its mandate related to headline inflation. Moreover, core inflation did not represent the household consumption basket and had historically not been a good leading indicator of future headline inflation in the euro area. Finally, turning to the assessment of monetary policy transmission, members generally concurred that interest rates had reached restrictive territory, while it remained unclear at what point the stance would become sufficiently restrictive. There was evidence that the tighter policy stance was being transmitted to financing conditions, credit volumes and the real economy, while the strength of transmission and the ultimate lags in transmission to inflation remained variable and uncertain. Higher borrowing rates were seen to be contributing to a softening in demand, which was required to dampen the underlying inflation dynamics. Moreover, the point was made that the tightening impact of interest rate increases was subject to uncertainty regarding the “neutral rate”, which might be pushed up by structural changes in the labour markets and could itself be affected by monetary policy. In this context it was argued that adjustments towards a better functioning labour market needed time to unfold and would benefit from a gradual and cautious conduct of monetary policy. The transmission of monetary policy was observed to vary across euro area countries, as institutional arrangements as well as fiscal and other national policies differed. Hence, inflation was reacting to the tightening of the monetary policy stance with different lags across countries. It was also cautioned that, as the increase in policy rates had been unprecedentedly fast, the effects of past rate hikes could still be expected to materialise and exert a downward impact on growth and inflation. The argument was made, however, that if inflation expectations started to shift upwards in response to the prolonged period of high inflation, monetary policy would be transmitted less forcefully. Moreover, a higher share of services in HICP implied that changes in interest rates were slower to affect aggregate inflation. All in all, the uncertainty about the transmission of monetary policy was very high, as shown by the substantial differences in estimated effects across models. Monetary policy decisions and communication Against the background of these considerations around the Governing Council’s reaction function, members agreed that tightening the monetary policy stance by increasing interest rates further was warranted. While past rate increases were being transmitted forcefully to financing conditions and were gradually having an impact across the economy – tighter financing conditions being a key reason why inflation was projected to decline further towards the 2% medium-term target – inflation was still projected to remain too high for too long. The argument was made that in view of the worsened inflation outlook a strong signal was needed, also considering that past decisions had not been decisive enough to bring inflation back to the 2% target more quickly. Looking ahead, however, it was also maintained that continuing on a gradual tightening path would allow the Governing Council to monitor and assess the impact of past monetary policy decisions and ensure that financial conditions were adjusting in a way that was consistent with inflation moving back to the 2% medium-term target. Emphasis was put on the need to be sufficiently restrictive and persistent in the monetary policy tightening. It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner. The view was held that the Governing Council could consider increasing interest rates beyond July, if necessary. A very broad consensus supported the 25 basis point rate increase proposed by Mr Lane, while a preference was also initially expressed for raising the key ECB interest rates by 50 basis points in view of the risk of high inflation becoming more persistent. Emphasis was put on the merit of sticking to a data-dependent, meeting-by-meeting approach in an uncertain environment, particularly as rates were moving closer to a possible peak level. A very broad consensus also prevailed in favour of confirming the end of reinvestments under the APP as of July, as proposed by Mr Lane, although a preference was also expressed for deferring the decision to a later date, after the effects of the June TLTRO III repayments on banks’ liquidity had been assessed. Overall, euro area bond markets were considered to have functioned smoothly since the beginning of the partial APP run-off. Moreover, the end of reinvestments, as signalled at the Governing Council’s previous meeting, was expected by market participants. It was noted, however, that the end of reinvestments would coincide with the June TLTRO III repayments, which would remove large amounts of excess liquidity from the system. It was noted that, in view of the discontinuation of reinvestments under the APP, the Governing Council should discuss whether further climate-related measures should be considered to ensure that the measures were fit for purpose and aligned with the objectives of the Paris Agreement and the EU’s climate neutrality objectives. Members generally agreed that the data-dependent approach to monetary policymaking, combined with the communication on the ECB’s reaction function, had served the Governing Council well and should be reconfirmed. At the same time, it was remarked that, while the Governing Council might need to continue with additional interest rate steps, it would also have to be prepared to stop raising rates if required to do so by data and judgement. By July, and even more so by September, new information would become available that would allow the Governing Council to update its assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary transmission. In this context, a data-dependent approach and meeting-by-meeting optionality were seen as essential. It was also felt that the Governing Council should stress that fiscal policy needed to be tightened in order to dampen demand and support the disinflation process. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 15 June 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 14-15 June 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna* Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau* Mr Visco Mr Vujčić Mr Wunsch * Members not holding a voting right in June 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Assouan Ms Buch Mr Dabušinskas Mr Demarco Mr Gavilán Mr Gilbert Mr Haber Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 31 August 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 26-27 July 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 26-27 July 2023 31 August 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 14-15 June 2023, the narrative in global financial markets had shifted from a “higher-for-longer” scenario for inflation to growing optimism on a disinflation scenario. The increasing divergence of economic data between the euro area and the United States and the elevated sensitivity of euro area asset prices, especially to US data surprises, made the interpretation of market data challenging and could cause rapid shifts in market narratives. Following the previous monetary policy meeting, central bank communication, high UK inflation releases and strong US economic data had initially driven the euro short-term rate (€STR) forward curve higher. This upward shift had then been partly reversed in the euro area in response to the release of the US Consumer Price Index (CPI) on 12 July as well as lower than expected Purchasing Managers’ Indices (PMIs) for the euro area. Looking through this volatility, the latest €STR forward curve still stood above the levels observed before the Governing Council’s previous monetary policy meeting. The market was pricing in one more 25 basis point rate hike at the present meeting, a 56% probability of an additional 25 basis point hike in September 2023 and a peak deposit facility rate of 3.94% by the end of the year. Market pricing was broadly in line with the results of the ECB Survey of Monetary Analysts as well as the Reuters and Bloomberg surveys, with the latter polls – conducted after the US CPI release – showing a slight majority foreseeing another rate hike in September 2023 and a peak deposit facility rate of 4%. Looking at how the recent upward shift in market expectations for the ECB’s peak rate had been related to expectations of subsequent rate cuts, no clear correlation was observed between the expected peak rate and cumulative rate cuts priced in by the end of 2024. Spillovers from the United States and the reappraisal of euro area monetary policy had been key drivers of euro area risk-free yields. With policy being more data-driven than in the period before the current global tightening cycle, the sensitivity of asset prices to macroeconomic news had generally increased strongly. Moreover, given the large common component in global inflation dynamics and the leading role of the United States in the inflation cycle, euro area risk-free yields, and asset prices more generally, appeared to show heightened sensitivity to US data surprises. A model-based decomposition of the risk-free ten-year overnight index swap (OIS) rate suggested that euro area OIS rates had initially been supported by expectations of further monetary policy tightening. Looking at developments since the US CPI release, the reversal of euro area longer-term yields had been driven by spillovers from the United States, reinforced by easing monetary policy expectations and disappointing data releases in the euro area. The shift in the market narrative had also been mirrored in EUR/USD exchange rate developments. The euro had first appreciated on the back of expectations that monetary policy would be tightened further in the euro area relative to the United States and improved risk sentiment, but it had then lost some of the gains over the past week owing to the deteriorating economic outlook for the euro area. Overall, the euro had continued to appreciate and currently stood, in nominal effective terms, around 15% above the trough recorded in September 2022, reducing inflationary pressures by means of lower import prices. A repricing of near-term inflationary pressures had been observed in financial markets following the June monetary policy meeting, which in part reflected the upward revision to the inflation projections in the June 2023 Eurosystem staff macroeconomic projections for the euro area as well as the expected persistence of inflation and the rotation of its underlying drivers. A decomposition of one-year forward inflation compensation one year ahead in the euro area showed that upward pressure stemming from demand-side factors more than counterbalanced the fading of negative supply shocks. Market perceptions of stronger inflation persistence in the euro area were consistent with continued upside risks to the longer-term inflation outlook. Market-based measures of longer-term headline inflation compensation in the euro area had continued to trend upwards. Empirical analysis suggested that inflation-linked swap (ILS) rates remained a reliable indicator of inflation compensation for the euro area and were not significantly affected by supply-demand imbalances in the market underlying euro area break-even inflation rates (BEIRs). Higher short-term rate expectations in tandem with overall stable long-term rates had deepened the inversion of the euro area yield curve. Together with negative euro area data surprises, the inversion had reignited recession concerns among market participants on the back of the empirical evidence that such deep yield curve inversions had a strong track record of predicting recessions. However, owing to the stock effect of the central banks’ bond holdings, the term premium remained compressed, which could reduce the predictive content of the slope of the yield curve for economic growth. At the same time, euro area equity and credit markets had remained resilient. Both rising equity prices and benign developments in credit markets were consistent with expectations of a “soft landing” for the economy. They also pointed to a limited transmission of monetary policy to risk asset prices, which could again be related to the compressed term premia, which implied looser financing conditions in the medium and longer-term segment. Sovereign spreads were close to the levels observed ahead of the monetary policy tightening cycle in late 2021, as the upward pressure that could have stemmed from the sharp rise in policy rates had been largely offset by solid nominal economic growth, with the launch of the Transmission Protection Instrument an additional compensating factor. The increase in corporate bond spreads in response to tightening expectations had been notably pronounced in 2022. Yet in the year to date corporate spreads had actually narrowed, and, with the exception of high-yielding bonds, they were below the levels prevailing at the time of the Governing Council’s previous monetary policy meeting. This seemed at odds with rising default risks owing to expectations of a protracted economic downturn. The stable conditions in credit markets also needed to be seen in the context of a sharp decline in excess liquidity amid large repayments under the third series of targeted longer-term refinancing operations (TLTRO III) and the start of the full run-off of the asset purchase programme (APP), all of which pointed to good absorption capacity in the markets. The historically large decline in excess liquidity at the end of June owing to the maturing of a TLTRO III operation had not resulted in any upward pressure on money market rates. During the period of rising excess liquidity the negative spread between the €STR and the deposit facility rate had steadily widened. Since the reintroduction of positive rates and the reduction in excess liquidity, the spread had been around 10 basis points, irrespective of the level of excess liquidity. In particular, this spread had remained unchanged after the decline in excess liquidity following the sizeable TLTRO III repayments in June 2023. This finding was consistent with still ample liquidity conditions prevailing and no evidence of local reserve scarcity, in part reflecting the fact that the repayments had been widely anticipated by banks. The recourse to the standard refinancing operations – the main refinancing operations (MROs) and the three-month longer-term refinancing operations (LTROs) – had increased mildly. However, the increase had been smaller than expected, and usage had lately declined notably. Looking ahead, excess liquidity was expected to decline at a steady pace as the remaining TLTRO III operations matured and the APP portfolios were gradually unwound. The global environment and economic and monetary developments in the euro area Regarding the external environment, Mr Lane noted that global economic activity had been resilient in the first half of the year but had visibly lost momentum in recent weeks. The global PMI for manufacturing output had fallen into contractionary territory in June, driven by the sharp slowdown in advanced economies, with adverse consequences for global trade. The services PMI remained in expansionary territory but seemed to have reached a turning point. The euro had appreciated, both against the US dollar and in nominal effective terms, since the Governing Council’s previous monetary policy meeting on 14-15 June, although with a slight reversal in the most recent period. As regards commodities, oil prices had increased while gas prices had declined. While metal prices had remained relatively stable, food commodity prices had increased since the Governing Council’s previous monetary policy meeting, partly reflecting Russia’s unilateral withdrawal from the Black Sea Grain Initiative. Turning to the euro area, recent indicators pointed to a weak growth outlook. The composite output PMI had been declining since April 2023 and in July it had fallen below the 50 threshold. The dynamics were consistent with a weak GDP performance for the second and third quarters of the year. Manufacturing production had likely contracted again in the second quarter, and both housing investment and business investment were estimated to have declined. This was consistent with tighter financing conditions making housing less affordable and the increase in the cost of capital reducing investment. Services had remained more resilient, especially in contact-intensive sectors such as tourism, although the July PMI pointed to a marked deceleration in activity, while new order inflows suggested a broad-based deceleration in the months to come. Zooming in on the demand components of GDP, private consumption had declined in both the fourth quarter of 2022 and the first quarter of 2023. In the first quarter of 2023, while labour and non-labour income had been supporting factors, the decline had been driven by a reversal of fiscal measures and an increase in household savings despite the progress that had been made in correcting the terms-of-trade shock. Housing investment growth had turned negative in the third quarter of 2022, and even more so in the fourth quarter, but had been positive in the first quarter of 2023, with construction supported by the mild winter and the easing of bottlenecks. After this positive “blip”, the prospects for the second and third quarters had turned negative again, as building construction declined and survey indicators were in contractionary territory. Moreover, residential building permits, a leading indicator for the housing market, had fallen considerably in recent quarters. A similar drop was observed for housing sales. Business investment had also been resilient in the first quarter of 2023, supported by the easing of bottlenecks. However, the most recent survey indicators, such as the PMIs for capital goods, outstanding business and new orders, pointed to a contraction in the following quarters. The ECB’s July Corporate Telephone Survey suggested that firms were still busy fulfilling backlogs in their order books, while new orders were declining. On trade, the export order book level for manufacturing goods was back to historical averages, so exporting firms were no longer able to rely on a large backlog of orders. Meanwhile, the PMI for new export orders was deep in contractionary territory. On the services side, the PMI for new orders had moved below the 50 threshold, while tourism new orders were still expanding but at a declining pace. On the import side, the most visible decline was in intermediate goods, which was linked to the weak investment prospects. The labour market remained robust. The unemployment rate had stayed at its historical low of 6.5% in May and recent data indicated that the expansion in employment had continued in the second quarter, especially in the services sector. Mr Lane recalled that an expanding labour force had been a key factor contributing to employment creation during the past two years, and it had also likely contributed positively to potential output. Forward-looking survey indicators suggested that job creation might slow in the coming months and turn negative for the manufacturing sector. Overall, wage negotiations appeared to be broadly in line with the path embedded in the June macroeconomic projections, although there were some risks to this projection. On the one hand, the forward-looking ECB wage tracker and the latest Corporate Telephone Survey pointed to some modest upside risks to the June wage growth projection. On the other hand, the most recent monthly data available for some countries indicated that growth in negotiated wages had decreased (excluding one-off payments). Moving to profits, in the first quarter of 2023 unit profits had contributed significantly to the increase in the GDP deflator, as had unit labour costs. Meanwhile, the latest Corporate Telephone Survey suggested a picture of declining profits at the start of the year and lower profits expected for the following quarters. Inflation as measured by the Harmonised Index of Consumer Prices (HICP) had come down further in June, as expected, falling to 5.5% from 6.1% in May. The drivers underlying the recent downward trend in inflation dynamics were changing. External sources of inflation were easing while domestic price pressures, including from rising wages and still robust profits, were becoming an increasingly important driver of inflation. Energy prices had fallen again, dropping by 5.6% year on year. Food price inflation had continued to slow but remained high, at 11.6%, pointing to a lagged pass-through of past input cost shocks and to weather-related factors. HICP inflation excluding energy and food had edged up to 5.5% in June, in line with the June projections, amid some upside base effects on services inflation. Non-energy industrial goods inflation had decreased further, to 5.5% from 5.8% in May, reflecting easing supply bottlenecks, weaker demand and stronger global competition. Conversely, services inflation had risen to 5.4%, from 5.0% in May, owing to robust spending on holidays and travel and also reflecting upward base effects. Given the relevance of base effects, to assess short-term dynamics it was important to continue monitoring indicators of the momentum of HICP inflation and its components, which continued to decline, albeit to different degrees. Headline inflation on an annualised three-month over three-month basis was about 2% in June, reflecting the strong negative momentum in energy inflation. For food inflation the momentum had fallen to 6%, which was still very high, while among the core inflation items it had declined significantly for goods but not for services. Taking a longer-term perspective, while inflation momentum had decreased overall, it remained above pre-pandemic averages, driven by the dynamics in both food and services inflation. Most indicators of underlying inflation had shown some softening but had remained at elevated levels. Staff analysis suggested that the PCCI – the persistent and common component of inflation – was the best predictor for two years ahead. But there was also value in the other indicators of underlying inflation, so they should all continued to be monitored. The staff analysis also showed that the fading-out of past energy price increases and supply bottlenecks would put downward pressure on these indicators over time. An additional transitory element that continued to affect all measures was the effect of the post-pandemic reopening on services. Despite this being correlated to some extent with the bottlenecks shock, it seemed fair to assume that the inflation generated by high profits in tourism and hospitality was also a transitory factor boosting underlying inflation. Focusing on pipeline pressures, incoming data on prices in the early stage of the production chain showed significant downward movements for both food and goods. In the case of food, however, the hot summer and the risks associated with El Niño and with other climate events represented clear upside risks to food inflation, which standard tools were not able to capture. For goods inflation, pipeline pressures were unequivocally pointing to a significant deceleration in the rest of the year. The analysis of services inflation, meanwhile, did not show a significant downward adjustment overall. Zooming in on contact-intensive services, Mr Lane noted that the reset of prices for accommodation had been very pronounced during the reopening in spring 2022, while the intensity of price increases this year had been lower than a year ago. In the case of restaurants, the price increases had been much smoother than for accommodation, and inflation in that particular sector had just started to stabilise. This was a highly wage-intensive sector, and it was likely that rising wage costs in this sector would put upward pressures on services inflation overall. However, the PMI for output prices in tourism and recreation, which was a good leading indicator for contact-intensive services, was suggesting a decline in inflation in the period ahead. The annual growth rate in residential property prices had declined to 0.4% in the first quarter of 2023. At the same time, the cost of renting was going up very slowly and had reached an annual increase of 2.7% in June. Inflation in owner-occupied housing prices had continued to decline only mildly, to 8.0% in the first quarter of 2023. So, while price pressures had eased for purchasing a house, maintenance and other costs related to housing remained high. Most measures of longer-term inflation expectations currently stood at around 2%, but some indicators remained elevated and needed to be monitored closely. Mr Lane noted that there had been no significant news on the fiscal front since the Governing Council’s previous monetary policy meeting on 14-15 June. The incoming information was confirming that there would be some fiscal tightening in 2024. It was expected that national budgets would reduce the support measures related to energy bills compared with 2023, and that smaller amounts would be available for spending under the Next Generation EU (NGEU) programme next year. The Governing Council’s monetary policy tightening continued to be transmitted strongly to broader financing conditions. Risk-free interest rates over short to medium-term maturities had increased since the previous monetary policy meeting and funding had become more expensive for banks, in part owing to the ongoing phasing-out of TLTRO III. The large June TLTRO III repayments had proceeded smoothly, as banks had been well prepared. Average lending rates for business loans and mortgages had risen again in May, to 4.6% and 3.6% respectively. The latest bank lending survey pointed to a further tightening of credit standards and another sharp drop in loan demand in the second quarter for both firms and households, since banks were becoming more concerned about the risks faced by their customers and less willing to bear these risks. Reported demand for loans among corporations had fallen to an all-time low since the start of the survey in 2003 and, for the first time, was lower than at the height of the global financial crisis. The decline in demand was substantially greater than expected by banks in the previous quarter, reflecting mainly the impact of rising interest rates on loan demand and less willingness to undertake fixed investment. In terms of overall funding for firms, both monthly flows of bank loans and the net issuance of corporate debt securities continued to be flat. In relation to nominal business income or nominal GDP, this pointed to a significant shrinking of credit volumes. Tighter financing conditions were also making housing less affordable and less attractive as an investment. Accordingly, the demand for mortgages had dropped for the fifth quarter in a row. According to bank lending survey responses, credit standards for consumer credit and other lending had tightened more than in the previous quarter and beyond banks’ expectations. The terms and conditions for consumer credit had also tightened and loan demand had continued to fall. This meant that the consumption of durable goods would likely be affected in the near term. Monetary policy considerations and policy options On the basis of the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, Mr Lane proposed that the Governing Council raise the three key ECB interest rates by 25 basis points. The incoming data releases had largely validated the inflation outlook in the June projections. While most measures of underlying inflation were showing signs of cooling, they remained elevated, and the strong transmission of the monetary policy stance to broader financing conditions remained an important factor in bringing inflation back to target. Given the incoming information, the Governing Council should underscore continuity in its general policy orientation. By the time of the September meeting, a new round of staff projections would be available to the Governing Council. Among incoming data, inflation releases for July and August would be available, as well as further evidence of the speed and strength of monetary transmission. Taken together, the September projections, the evolution of underlying inflation and incoming information on monetary transmission would help the Governing Council update its assessment of the appropriate monetary policy stance. Mr Lane therefore proposed communicating that future decisions would ensure that the key ECB interest rates would “be set at sufficiently restrictive levels for as long as necessary” to achieve a timely return of inflation to the Governing Council’s 2% medium-term target. This formulation made it clear that the Governing Council had an open mind on the appropriate policy action at the September meeting. The Governing Council should also continue to signal that the appropriate level and duration of restriction would be data-dependent. Preserving the option to apply flexibility to reinvestments under the pandemic emergency purchase programme as a first line of defence against fragmentation risks continued to be warranted, also in view of the end of APP reinvestments. Finally, Mr Lane proposed setting the remuneration of minimum reserves at 0%. This step would reduce the overall amount of interest that needed to be paid on reserves to implement the appropriate monetary policy stance, while ensuring the same degree of control over this stance. As such, it would preserve the effectiveness of the Governing Council’s monetary policy while improving the efficiency of policy implementation. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that the latest survey data pointed to a visible loss of momentum in global activity, after hard data had suggested a bottoming-out of the decline at the end of 2022 and resilience in the first half of 2023. Reference was made to the Chinese economy, where activity in the second quarter had been below market expectations. At the same time, the Chinese authorities had announced a set of policy measures, including some aimed at a more business-friendly environment supporting investment. The question was raised as to what this implied for the euro area outlook given the strong trade links with China. It was also argued that China was not the only source of weakness in global demand, with financial markets appearing to be pricing in a relatively high probability of a recession in the United States, the euro area’s largest trading partner. Members also took note of the recent appreciation of the euro compared with the technical assumptions made at the time of the June Eurosystem staff projections. This was the case both vis-à-vis the US dollar and in nominal effective terms, which would affect the real economy and, ultimately, prices in the euro area. With regard to economic activity in the euro area, members concurred with Mr Lane that the near-term economic outlook for the euro area had deteriorated, owing largely to weaker domestic demand. High inflation and tighter financing conditions were dampening spending. This was weighing especially on manufacturing output, which was also being held down by weak external demand. Housing and business investment were showing signs of weakness as well. Services remained more resilient, especially in contact-intensive subsectors such as tourism, but momentum was slowing in the sector overall. The economy was expected to remain weak in the short run. Over time, falling inflation, rising incomes and improving supply conditions should support the recovery. There was broad agreement on the assessment that signs of a possible downward surprise in economic activity compared with the June projections constituted important news. Reference was made to the results from “nowcasting” models that mechanically synthesised hard and soft data and were pointing to stagnation, while the projections had still seen clearly positive quarter-on-quarter growth. However, it was cautioned that the link between soft indicators and hard data had weakened and GDP data had become more prone to revisions. Hence, it was prudent to await Eurostat’s GDP release in the coming week before drawing any firm conclusions. In any case, more data and a more comprehensive update would be embedded in the September ECB staff projections. A question was raised about the extent to which the deterioration in the short-term growth outlook was related to the ECB’s monetary policy tightening, as opposed to this deterioration still reflecting the repercussions of the pandemic and energy shocks – as well as possibly more structural factors affecting the euro area economy, such as lower competitiveness in a context of higher energy and climate-related costs. On the one hand, it was argued that the deterioration in the outlook showed that monetary transmission was working and that the interest rate increases were doing their intended job. On the other hand, it was recalled that typical transmission lags and ECB staff estimates suggested that the impact on GDP of most of the past tightening was still in the pipeline and would only materialise over the coming year. In this context, it was felt that it was important to look for further evidence on whether the latest deterioration in the growth outlook reflected the impact of monetary policy measures or could also be due to residual effects of the pass-through of earlier shocks or longer-lasting structural issues weighing on the supply side. It was widely regarded as unsurprising that there was less investment in housing and weaker prospects for investment more generally, in particular in capital-intensive and interest-sensitive sectors. Comfort was drawn in this context from the observation that the bank lending survey suggested that green investment might be less affected by the general pull-back of lending, as public and private green investment was vital for mitigating the occurrence and impact of climate shocks. At the same time, it was argued that the bad news concerning the growth outlook was concentrated on housing investment and now also on the prospects for business investment, which were more dependent on financing than demand in other sectors. This raised the question of whether the elasticities embedded in the staff projections to capture the impact of monetary policy measures had been too low. Members extensively discussed the contrasting signals coming from the industrial and services sectors. While the latest survey data for industry pointed to a downturn in activity, those for services were still in line with positive growth. Moreover, consumer sentiment had continued to improve, despite the ECB’s monetary tightening and still high inflation. The point was made that the relative resilience of services was, to a large extent, due to seasonal activity in the recreational travel and accommodation businesses and could thus change during the remainder of the year. In this context, it was suggested that demand for tourism-related services partly came from outside Europe, and that pent-up demand from within the euro area likely relied on previously accumulated savings, which could be expected to diminish over time. In addition, it was argued that the deceleration of industrial production growth had started to extend to services, and the expectation was expressed that this reconnection between the two sectors could accelerate after the summer. However, it was also argued that a spillover of the weakness in manufacturing to the services sector was not inevitable given the considerable heterogeneity within services. It was recalled that the dichotomy between manufacturing and services was in line with historical patterns whereby monetary policy affected services with a longer lag. In aggregate activity, this lagged response and longer recovery time had become more pervasive as the euro area economy had become more services-based than in earlier decades. However, this dichotomy was still seen as raising the question of whether the slowdown in economic activity was predominantly due to demand and the impact of monetary policy because, if that was the case, stronger effects would also have been observed for services. In a similar vein, it was seen as puzzling that the interest rate elasticity of the manufacturing sector appeared to be much higher for the euro area than the United States. The fact that sentiment in the US manufacturing sector was holding up well compared with the euro area was seen as casting doubt on whether the slowdown in the euro area could be attributed to monetary policy. To explain the asymmetry between the two economies, structural factors weighing specifically on manufacturing in the euro area could also be mentioned as having played a role. One notable example was the car industry, which was not merely a victim of lower demand but was also facing competitiveness issues. Another example was the energy price shock, which had led to large structural changes in industrial competitiveness. Members widely agreed that the labour market remained robust. The unemployment rate had stayed at its historical low of 6.5% in May and many new jobs were being created, especially in the services sector. At the same time, forward-looking indicators suggested that this trend might slow down in the coming months and could turn negative for manufacturing. It was noted that labour market developments remained puzzling, given that their response was unusually muted compared with previous episodes of weakening growth. The labour market remained a strong element in the overall economic outlook and suggested that a soft landing was still possible for the economy. This strength was seen as reflecting the increased flexibility of many European labour markets, especially in the case of services. At the same time, the greater flexibility also implied that employment in the services sector was more fragile, as it would also affect employment more negatively once firms stopped hiring workers or started firing them. Unemployment could then also jump more abruptly later on. This risk was exacerbated by the services sector employing a large share of temporary and part-time workers. It was observed that there were already the first glimpses of a softening in labour market conditions, namely in manufacturing, and it was suspected that more such signs could follow across sectors. With regard to fiscal policies, members concurred that, as the energy crisis faded, governments should roll back the related support measures promptly and in a concerted manner. This was essential to avoid driving up medium-term inflationary pressures, which would otherwise call for a stronger monetary policy response. The recent Eurogroup statement on the euro area fiscal stance was consistent with this assessment. Fiscal policies should be designed to make the euro area economy more productive and to gradually bring down high public debt. Policies to enhance the euro area’s supply capacity could help reduce price pressures in the medium term while supporting the green transition, which was also being furthered by the NGEU programme. It was reiterated that the reform of the EU’s economic governance framework should be concluded before the end of this year. With respect to the fiscal tightening implied by national budget plans for 2024, it was acknowledged that significant tightening could be expected in the future. This would also support the disinflation process. The European Commission had started to ask for additional adjustment of the budgets and there were signs that governments were becoming more serious about fiscal tightening. However, caution was advised given that the greater control of public expenditure and improvement in deficits announced in the past had often failed to materialise. In this context, it remained to be seen whether, for instance, energy subsidies would be phased out speedily and deficits would be reduced in tandem. The point was made that the reduction in government debt-to-GDP ratios observed thus far largely reflected the impact of inflation rather than structural reform efforts. Moreover, while changes in the primary balance indicated some tightening, it was argued that fiscal policy in many European countries had remained procyclical and was therefore still adding to inflationary pressures. The pressure for higher primary balances in view of higher interest rates was emerging only very gradually, as long as budgets were still supported by higher than expected tax revenues as a result of high inflation. Against this background, members concurred that the outlook for economic growth remained highly uncertain. Downside risks to growth included Russia’s unjustified war against Ukraine and an increase in broader geopolitical tensions, which could fragment global trade and thus weigh on the euro area economy. Growth could also be slower if the effects of monetary policy were more forceful than expected, or if the world economy weakened and thereby dampened demand for euro area exports. Conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty meant that people and businesses became more confident and spent more. It was argued that, while for the time being the central scenario remained that of the June projections, the latest information implied clearer downside risks to growth. However, in view of the elevated uncertainty in nowcasts, the imminent release of GDP data for the second quarter would provide further information. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. The drivers of inflation were changing. External sources of inflation were easing, but domestic price pressures, including from rising wages and still robust profit margins, were becoming an increasingly important driver of inflation. While some measures were moving lower, underlying inflation remained high overall, including owing to the persistent impact of past energy price increases on economy-wide prices. Members underlined that there had been no material surprise in the latest inflation outcomes compared with the June projections. This was seen as good news given the earlier streak of upward surprises. The observed decline in headline inflation was mainly due to energy and food prices, which was seen as confirmation that the shocks that had initially caused inflation to rise steeply were now also unwinding quickly. This was visible in the major role of base effects in the decline in inflation. The point was made that this could lead to a boom-bust pattern in inflation in countries where energy and food accounted for a larger share of the household consumption basket. More generally, it pointed to the relevance of the “last mile” problem as inflation pressures rotated from external sources to domestic price pressures. It was suggested that core inflation might also have passed its peak, but it was cautioned that it would remain elevated over the summer months. However, a slight decline could be seen when looking through the upward base effect associated with the temporary transport price subsidy in the euro area’s largest economy in the summer of 2022. This base effect would only drop out of the data in October, at which point the data would hopefully confirm that a peak had been reached in core inflation, which for the time being remained stubbornly high. In this context, some comfort was drawn from survey data for firms, which pointed to a substantial decline in the frequency and share of price increases compared with price reductions in some euro area economies. Similarly, short-term inflation expectations of households and selling price expectations of firms had consistently declined in recent months in the euro area. References were made to the ECB staff analysis of underlying inflation measures referred to by Mr Lane in his introduction. It was observed that these measures had, on balance, remained rather stable in recent months, although at high levels. It was also noted that the three measures identified by staff as performing best as indicators of medium-term inflation were currently pointing in different directions, with the PCCI declining swiftly, while HICP inflation excluding energy, food, travel-related items, clothing and footwear and the measure of domestic price pressures still pointed to the upside. Adjusting the different measures for the impact of the energy and bottleneck shocks pointed to lower levels, but they all still remained well above 2%. Hence, it seemed that the fading of shocks alone could not be expected to bring inflation back to target, which would point to more entrenched inflationary pressures. Food price developments were identified as a major source of uncertainty as they were influenced by factors and potential shocks that were hard to predict. In this context, the consequences of Russia’s unilateral withdrawal from the Black Sea Grain Initiative were a big question mark. Another significant risk factor for food prices was the impact of climate change and weather shocks such as those related to El Niño, which were likely to be non-linear. It needed to be established whether these shocks were related to demand or supply and whether they implied mainly short-term volatility or might affect the medium-term outlook. While short-term volatility did not necessarily warrant a monetary policy response, in the context of high inflation it could affect wage negotiations and then have a more material impact. Members noted that wage growth in the first quarter of 2023 had been somewhat higher than expected, but that the overall information appeared in line with a turnaround and lower wage growth in 2024, as anticipated in the June projections. From that perspective there was no material surprise regarding wage growth, which was still expected to peak in the summer of 2023 and decelerate thereafter. However, some concerns were expressed that this outlook was surrounded by upside risks. Reference was made to wage agreements with longer durations, which implied wage pressures being lower in the near term but lingering for longer in the pipeline and materialising only later once the current agreements expired. Moreover, anecdotal information for some euro area economies suggested that workers’ claims in wage negotiations were becoming more oriented towards recent actual inflation, rather than being forward-looking and anchored by the prospect of inflation coming back to the 2% target. In addition, the point was made that higher wage growth was likely to outpace the lower productivity growth implied by the latest economic activity and labour market developments, which would then lead to less of a softening of unit labour cost pressures than foreseen in the June projections. This pointed to upside risks to inflation, with recent trends in nominal wage increases incompatible with the ECB’s 2% medium-term target when adjusting for subdued productivity developments. Moreover, with respect to the pass-through of higher wages, it was recalled that one of the central assumptions in the June projections had been that rising labour costs would be buffered by a compression of unit profits. Some doubts were raised as to whether this would be the case following the strong profit growth seen in 2022 and into 2023. However, it was also argued that the chances of this buffering occurring in the future were seen to have become more realistic in view of the disappointing growth performance and negative demand developments, as the probability of firms lowering their mark-ups would increase. It was also recalled that labour hoarding was not cost-free and that the costs would sooner or later show up not only in lower productivity, but also in lower profits for firms and lower wages. All in all, it was concluded that the evolution of wage and profit growth remained an important factor of uncertainty. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. Although most measures currently stood at around 2%, some indicators remained elevated and needed to be monitored closely. The broad stability of survey-based long-run inflation expectations was considered important, as it meant that large wage increases would be less likely in the future. It was emphasised that the continued increases in market-based inflation compensation measures, including the measure for five years forward five years ahead standing at above 2.5%, were mainly due to risk premia. While this did not call into question that inflation expectations remained anchored, it suggested that market participants were seeing rising upside risks to longer-term inflation. In addition, this evidence continued to raise the question of why the receding inflation uncertainty was not showing up in a reduction of risk premia. Against this background, members considered that the outlook for inflation remained highly uncertain and was subject to both upside and downside risks. The upside risks included potential renewed upward pressures on the costs of energy and food, also related to Russia’s unilateral withdrawal from the Black Sea Grain Initiative. Adverse weather conditions, in light of the unfolding climate crisis, could push up food prices by more than projected. And a lasting rise in inflation expectations above the ECB’s target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy – would lead to lower price pressures, especially over the medium term. Moreover, inflation would come down faster if declining energy prices and lower food price increases were to pass through to the prices of other goods and services more quickly than currently anticipated. Members referred to different risks to inflation. One set of risks pertained to the possibility of higher wage growth or profit margins remaining elevated for longer. It was suggested that the process of disinflation would become more challenging once the direct effects of the previous external supply-side shocks on inflation had reversed and the more persistent domestic price pressures and second-round effects started to dominate. At the same time, looking at how wages, profit margins and inflation expectations were evolving, there were currently no discernible indications of strengthening second-round effects. It was also recalled that the inflation projections were predicated on the assumption that no new shocks would occur. By contrast, the example of the climate and food crises, likely exacerbated by El Niño effects this year and next, suggested that new shocks could occur well within the projection horizon, with associated upside risks to inflation over that timescale. Already today, the consequences of climate change could be seen in more frequent extreme weather events, droughts, wildfires and floods, threatening harvests and tourism. In view of this, risks to food prices were seen as strongly tilted to the upside. In addition, some of these shocks and adverse structural developments might reduce the euro area’s supply capacity and increase upside risks to inflation over the medium and longer term. The view was expressed that the combination of no surprises in inflation and lower than expected growth prospects implied that the risks to inflation had become more balanced, if they had not already started to move to the downside. At the same time, it was pointed out that, in the presence of adverse supply shocks, the outcome could also be one of “stagflation”. Here, even a recession would not necessarily be accompanied by a clear reduction in inflation for some time to come, unlike in the more standard case where demand shocks were the driving force. It was argued that, compared with the assessment made on the basis of the June projections, a downshift in the risks to the inflation outlook was warranted merely when taking into account the mechanical impact that the updated technical assumptions for financing conditions and the exchange rate had on the inflation numbers when applying conventional elasticities. Yet it was also suggested that a picture of inflation being in line with expectations and growth being lower could also be interpreted in a way that pointed to greater inflation persistence than expected for a given growth rate, or less pass-through of policy tightening to the final objective. Turning to the monetary and financial analysis, members generally concurred with the assessment provided by Mr Lane in his introduction. Average lending rates for business loans and mortgages were rising and credit standards were tightening. According to the bank lending survey, credit demand from firms and households was falling, leading to muted loan growth rates, and monthly loan flows to firms had been hovering around zero since November 2022. It was also underlined that evidence from the bank lending survey showed that credit demand from firms for business investment had declined and could be expected to decline further. However, the point was also made that – following the large swings observed during the pandemic period and when confronting the energy shock in 2022 – from a medium-term perspective outstanding credit might now be returning to its longer-term trend. Attention was drawn to developments in money and credit aggregates, with growth rates declining at a fast pace and in negative territory in real terms. In particular, it was recalled that developments in narrow money had typically been a good leading indicator of turning points in economic activity. While weak development of credit aggregates could reflect both supply and demand effects, it was argued that the bank lending survey was not showing evidence of credit supply restrictions and that incoming data were not signalling financial amplification effects stemming from the banking sector. However, the existence of a credit supply channel was seen as relevant not only in the event of crisis-like developments in the financial sector. It could also reinforce the tightening impact of monetary policy impulses via credit demand more broadly. This channel had to be taken into account when calibrating the monetary policy stance. In this context, it was maintained that banks’ liquidity conditions had to be monitored carefully, as financial stability risks were particularly high when the balance sheets of financial intermediaries contracted amid weaker macroeconomic conditions. With respect to the transmission of tighter financing conditions to loans for housing, a remark was made that, in some parts of the euro area, the housing market was recovering despite the ongoing tightening of monetary policy. A possible reason for this was seen in the muted response of longer-term interest rates that were still compressed by the large stock of assets on the Eurosystem’s balance sheet, with long-term rates broadly stable in 2023 after the sizeable initial increases observed in 2022. Reference was made to indications that tighter financing conditions were starting to affect economic decisions elsewhere, notably with regard to investment choices. Overall, the risk-free forward rate curve remained somewhat above the levels observed prior to the Governing Council’s previous monetary policy meeting. The downward shift observed in the last few weeks could be explained by market participants expecting lower growth rates to feed into lower inflation rates, requiring less-pronounced interest rate increases. However, it was remarked that this narrative appeared at odds with the continued upward drift in market-based measures of inflation compensation, although when correcting the inflation compensation measures extracted from forward ILS rates for inflation risk premia, the five-year forward ILS rate five years ahead was at virtually the same level as at the time of the 14-15 June meeting. The fact that risk premia were still increasing or remained elevated was seen as pointing to upside risks to inflation. A concern was voiced that the inversion of the yield curve could be interpreted as an indicator of an upcoming slowdown in economic activity. The fact that the yield curve was even more inverted for the United States, the euro area’s main trading partner, was seen as adding to the recession risks for the euro area. In this context, it was argued that euro area monetary policy was facing a challenge, as market participants expected directionally a similar interest rate path for both currency areas whereas, in light of the past negative data surprises, economic activity in the euro area had decoupled from the more positive developments in the United States. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members assessed financing conditions as having tightened overall since the Governing Council’s 14-15 June meeting, with past policy rate increases continuing to be transmitted strongly to financing conditions across sectors. Risk-free interest rates over short to medium-term maturities had increased over this period. It was pointed out that the appreciation of the euro had contributed to a tightening of financial conditions, while risk assets, including equity, had been resilient overall to monetary tightening and a deteriorating outlook, as had corporate and sovereign bond spreads. The observation was made that borrowing costs for banks, firms and households had risen substantially and would continue increasing for some time, even without further rate hikes, in view of transmission lags. Moreover, other monetary policy measures, such as the maturing TLTRO III operations and the rundown of the APP portfolio, were seen as reinforcing the monetary policy tightening resulting from the increase in the key ECB interest rates. It was noted, however, that, having repriced quickly at the start of the tightening cycle, longer-term interest rates had been moving sideways for some time, although real interest rates had risen significantly over the past year and would continue to rise even without further interest rate hikes, as inflation could be expected to continue to fall. It was underlined that the current restrictiveness of monetary policy and the degree of monetary policy restriction that might ultimately be required remained uncertain. In accordance with the three main elements of its “reaction function” that the Governing Council had communicated earlier in the year, members evaluated developments since the Governing Council’s 14-15 June meeting related to the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Starting with the inflation outlook, members generally concurred that developments had been broadly in line with the June Eurosystem staff projections. By contrast, indicators for the real economy were signalling weaker GDP growth than projected. It was noted that headline inflation had come down quickly, albeit from high levels. Inflation expectations remained broadly anchored, partly owing to the strong monetary policy response and to the observed decline in inflation. Moreover, the risk of second-round effects leading to wage-price spirals seemed to be contained, raising confidence that monetary policy was starting to take effect. Nevertheless, caution was expressed that further inflation data for the coming months were required for the Governing Council to be able to confirm the downward trend in HICP inflation. It was highlighted that inflation had been above 2% for quite some time and could not be expected to return to target quickly without further action. A more comprehensive picture would emerge with the new ECB staff projections in September. At the same time, it was maintained that the weakening of economic activity could be expected to help generate the conditions necessary to restore price stability. Although upside risks to the inflation outlook were still seen as prevailing, related mainly to an underestimation of wage pressures and to renewed supply shocks, it was argued that a weakening of the economy would contribute to dampening inflation pressures. This would bring the inflation outlook more into line with the Governing Council’s 2% medium-term target. At the same time, it was argued that overtightening would not help bring inflation sustainably to the 2% target if it later led to inflation undershooting. It was recalled that the effects of past rate hikes had not yet been fully transmitted to the real economy. Moreover, the Governing Council needed to take into account the “secondary objectives” assigned to it in the Treaty on European Union and contain unnecessary side effects on output and employment when pursuing its price stability mandate over the medium term. A concern was voiced that, with the current slowdown in economic activity, the ongoing transmission of past monetary policy actions could lead to a more pronounced deceleration in economic activity than was necessary to achieve price stability. However, in view of the still elevated inflation outlook, together with the weaker growth outlook, the concern was also raised that the economy might be entering a phase of stagflation, in contrast to a more benign scenario of a soft landing. It was underlined that the Governing Council’s mandate was price stability and that institutional independence had been granted to allow central banks to focus squarely on price stability. In view of the prevailing uncertainties and the large costs of bringing inflation down once it had become entrenched, it was argued that it was preferable to tighten monetary policy further than to not tighten it enough. Before deciding to stop the tightening cycle, the Governing Council needed clearer signs of whether inflation would converge to target once the effects of recent shocks had faded. Finally, inflation risks from fiscal developments were seen as persisting. Members also assessed the level and persistence of underlying inflation as being a source of concern, although it was acknowledged that indicators of underlying inflation had been broadly stable in recent months. This stability suggested that the momentum was reversing and that inflation might have passed its peak. The view was taken that little comfort could be drawn from ECB staff analysis suggesting that the fading of supply-side shocks alone would be insufficient to bring core inflation back to values around 2%. Overall, despite the recent improvements, underlying inflation could be expected to remain high for an extended period, even if growth was slowing, unless further action was taken. By contrast, it was argued that tighter monetary policy still working its way through the pipeline, together with moderate wage increases and a buffer from profit margins, should help bring core inflation down. Finally, turning to the assessment of monetary policy transmission, members concurred that there was ample evidence that policy tightening was being transmitted strongly to broader financing conditions, including bank lending rates and money and credit flows. Moreover, the transmission of monetary policy was increasingly dampening demand, which was judged an important factor in bringing inflation back to target. It was felt, however, that, on the one hand, the decline in economic activity was less significant than could have been expected in reaction to the substantial monetary policy tightening over the past few months. On the other hand, risks of stronger transmission than expected were elevated, particularly in view of the sharp increase in bank lending rates and weak credit growth. It was noted that the monetary policy tightening seemed to be strongly affecting sectors that depended heavily on financing, such as housing, construction, the automotive industry and capital goods. In this context, it was discussed whether the disconnect between manufacturing and services could be attributed to monetary policy having a different impact on the two sectors, as manufacturing could be expected to react more strongly and quickly than services to monetary policy tightening. It could therefore be expected that part of the response from the services sector would still materialise with a delay. However, it was deemed difficult to determine to what extent the slowdown in growth was due to the monetary policy tightening or to the residual effects of past supply shocks. This was because current economic developments were judged to be still influenced by the aftermath of the pandemic and the energy price shock. Moreover, it was noted that, if part of the economic weakness was still being driven by supply shocks and not by demand, the impact of the slowdown in growth on inflation would be less pronounced. While there was little doubt that the “first leg” of monetary policy transmission to financial conditions was working well, a better understanding of the “second leg” of the transmission process from financial conditions to the real economy was seen as crucial. Having discussed the Governing Council’s reaction function, members agreed that tightening the monetary policy stance by further increasing interest rates was warranted. In light of the inflation outlook, which was basically unchanged since the June monetary policy meeting, an additional interest rate step into restrictive territory was seen as necessary to bring inflation back to target in a timely manner. In this context, it was recalled that the Governing Council had been communicating since September 2022 that it sought to achieve its inflation target in a timely manner and, in view of the severity of the supply shocks, the time by which the Governing Council expected to see inflation returning to target had shifted from the last quarter of 2024 to 2025. While bringing this timing forward could require depressing economic activity to an unnecessary extent, it was seen as important not to extend the time horizon by which the target was to be met beyond 2025. At the same time, it was cautioned that further shocks to inflation could occur – resulting for instance from weather-related effects on food prices – driving inflation further away from target. Monetary policy decisions and communication Against this background, all members supported the 25 basis point rate increase proposed by Mr Lane, while a preference was also initially expressed for not raising the key ECB interest rates in view of risks of stronger than anticipated transmission. Emphasis was put on the merit of sticking to a data-dependent, meeting-by-meeting approach in an uncertain environment, as market participants would pay special attention to the Governing Council’s guidance for the future interest rate path. In particular, broad agreement prevailed that, ahead of its September meeting, the Governing Council should neither hint at further rate increases nor signal that it would pause in hiking rates or that it had reached the peak rate. It was emphasised that any further tightening had to be assessed meeting by meeting, on the basis of the incoming data and a “risk management approach” that carefully weighed up the relevant risks. On the one hand, it was argued that interest rates had to cover more ground to bring inflation back to target, in particular if inflation did not decline as quickly as expected. A further rate hike in September would be necessary if there was no convincing evidence that the effect of the cumulative tightening was strong enough to bring underlying inflation down in a manner consistent with a timely return of headline inflation to the 2% target. In this context, it was maintained that bringing inflation fully back to target from moderate but persistently elevated levels could turn out to be difficult. Specifically, it was argued that the process of disinflation would become more challenging once the direct effects of previous external supply shocks on inflation had reversed and the more persistent domestic price pressures started to dominate. This was argued to point to the need for further action to show that the Governing Council would be at least as stubborn and persistent as inflation pressures turned out to be. On the other hand, it was argued that it was quite probable that the September ECB staff projections would revise the inflation path sufficiently downwards towards 2%, without the need for another interest rate hike in September. However, caution was also expressed about assigning too much importance to the September meeting and the projections, with a strong case for adopting a risk management approach for the coming meetings in light of prevailing uncertainties. Broad agreement was expressed with Mr Lane’s proposal to set the remuneration of minimum reserves at 0%, while leaving the minimum reserve ratio at 1%. Members widely agreed that this decision would improve the efficiency of monetary policy by reducing the overall amount of interest that needed to be paid on reserves in order to implement the appropriate stance. It would also maintain the current degree of control over the monetary policy stance and ensure the full pass-through of the interest rate decisions to money markets. Setting the remuneration of minimum reserves to zero was deemed a proportional response to some of the side effects that were arising from the rapid monetary policy tightening in an environment of high excess liquidity. It was recalled that, when interest rates were at the lower bound, the Governing Council had introduced a two-tier system for reserve remuneration to counter negative side effects on banks’ transmission capacity. A reduction in the remuneration of minimum reserves could thus be seen as a reversal of the tiering system. It was argued that such a reduction was also necessary because, after a period of asset purchases, monetary policy tightening proceeded by first raising interest rates and then reducing the balance sheet only gradually over time. This also took into account financial market risks that could arise with too fast a disposal of assets. It was also recalled that, in October 2022, the Governing Council had decided to reduce the remuneration of minimum reserves from the rate on the MROs to the deposit facility rate. That change had aligned minimum reserve remuneration more closely with short-term money market rates. Since then, however, the efficiency aspect had gained in relevance, in line with the higher level of the key ECB interest rates. It was also clarified that this decision did not prejudge the outcome of the ongoing review of the ECB’s operational framework. At the same time, some members expressed reservations against a change in the remuneration of minimum reserves. It was argued that remunerating minimum reserves at 0%, below relevant market rates, might add to the tightening effect of the monetary policy measures. It was also cautioned that changes in the remuneration of minimum reserves could raise questions about the objectives in the Eurosystem’s reaction function related to central bank profits and losses, together with concerns over financial independence. Other members, by contrast, saw the minimum reserve requirement as a monetary policy tool that could be used to support or complement the intended restrictive monetary policy stance. These members preferred to increase the minimum reserve ratio to 2%, also noting that, before 2011, a minimum reserve ratio of 2% had been the rule. It was argued that the Governing Council had a good case for taking another step in the normalisation of its policy instruments. This it could do by reversing the previous reduction to 1%, decided in December 2011 as part of a package of non-standard measures to support the bank lending channel and free up liquidity and collateral when monetary transmission had clearly been under stress. It was also recalled that banks had benefited from extraordinarily favourable refinancing terms and conditions, not least under the TLTROs, for an extended period of time. However, it was also recalled that, before 2011, minimum reserves were remunerated at the MRO rate. Moreover, it was mentioned that the very rationale for minimum reserve requirements was now less clear, in view of the prudential liquidity regulations for banks that had been introduced in response to the global financial crisis. Overall, caution was expressed against using the minimum reserve ratio as an active instrument for adjusting the monetary policy stance. With all these considerations in mind, members expressed a willingness to join a broad consensus supporting the measure as proposed by Mr Lane. With respect to communication, it was felt that the ECB’s reaction function seemed to have been well understood by market participants. In line with the Governing Council’s data-dependent approach, communication had to avoid signalling complacency to financial market participants and the public on the back of declining headline inflation and slowing growth, as this would ease financial and financing conditions and thereby counteract the Governing Council’s intention to bring inflation back to target in a timely manner. There was broad agreement that the Governing Council would ensure that the key ECB interest rates would “ be set at sufficiently restrictive levels for as long as necessary ” to achieve a timely return of inflation to its 2% medium-term target. It was felt that the word “ set ” was consistent with preserving optionality, which, however, did not include the possibility of a rate cut at the September meeting. Finally, the Governing Council reiterated its call for fiscal policy to be designed in such a way as to make the economy more productive and to gradually bring down high public debt. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press releases. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 27 July 2023 Press releases Monetary policy decisions ECB adjusts remuneration of minimum reserves Meeting of the ECB’s Governing Council, 26-27 July 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Välimäki, temporarily replacing Mr Rehn* Mr Vasle* Mr Villeroy de Galhau Mr Visco* Mr Vujčić Mr Wunsch * Members not holding a voting right in July 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Mr Bitans Ms Buch Mr Demarco Mr Gavilán Mr Gilbert Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Mr Nicoletti Altimari Mr Novo Mr Pösö Mr Rutkaste, Alternate to Mr Kazāks Mr Šiaudinis Mr Šošić Mr Steiner Mr Tavlas Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 12 October 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 13-14 September 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 13-14 September 2023 12 October 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 26-27 July 2023, investors’ growth outlook for the euro area and for the United States had continued to diverge, widening the gap in both nominal and real yields between the two economies and driving the euro lower against the dollar. Despite the expected deceleration in the euro area’s growth momentum, market expectations for inflation in the medium and longer term had edged up further. Torn between the perception of a weakening euro area economy and stubborn inflation, expectations for the peak deposit facility rate and the shape of the forward rate curve had remained broadly unchanged. Long-term sovereign yields had risen across major advanced economies, but the increase had been more muted in economies where there had been negative macroeconomic surprises, such as in the euro area. Regarding the impact of these developments on exchange rate markets, the euro had depreciated markedly against the US dollar but only slightly in nominal effective terms, on account of the widespread weakness of other currencies. A decomposition of nominal one-year yields in the euro area and the United States into real rates and the inflation component showed that the difference in the macroeconomic outlook had been reflected in a stark divergence of real rates across the two economies. Investors priced future one-year euro area real rates lower over the next four years, while the strength of the US economy had pushed investor expectations of future one-year US real rates significantly higher. At the same time, despite the weakening cyclical outlook, euro investors had increased the inflation compensation they demanded over the near and medium-term horizons. Rising inflation-linked swap (ILS) rates partly reflected an upward revision of investors’ core inflation expectations. Market-implied pricing of euro area genuine synthetic core inflation expectations – that is synthetic core expectations adjusted for risk premia – suggested that market participants had revised up their core inflation expectations from May 2023. Market-based measures of longer-term headline inflation compensation in the euro area had also continued to edge higher. While the continued rise in inflation risk premia accounted for most of the increase in inflation compensation, genuine long-term inflation expectations had also shown a small uptick. With weakening domestic economic activity and sticky inflation, monetary policy rate expectations in the euro area had remained by and large unchanged since the Governing Council’s previous monetary policy meeting. Respondents to the ECB Survey of Monetary Analysts continued to expect a peak deposit facility rate of 4%, to be reached only in October 2023. For September 2023, respondents were almost evenly split, with a slight majority of 53% expecting a pause and 47% expecting another interest rate hike. The overall amount of rate-cutting priced in from the peak over the course of 2024 was only slightly higher than that expected at the Governing Council’s previous monetary policy meeting. The weakening economic developments had hence not prompted investors to expect a quicker reversal of monetary policy. Instead, investors remained positioned for policy rates to stay at peak levels for an extended period of time. In other words, the shape of the forward curve suggested market participants did not seem to expect a severe recession, which was consistent with the resilience of most risk assets during the current tightening cycle. Sovereign bond spreads had largely withstood the downward revision of the near-term growth momentum and had widened only slightly since the previous meeting. Greek sovereign bonds had outperformed on the back of expected and materialising rating upgrades. Corporate bond spreads had also ticked up but remained below 2022 levels. In contrast, euro area equity prices had generally declined since the Governing Council’s July meeting, driven, to a significant degree, by a decompression of risk premia over recent weeks. Still, stock prices had been very resilient since the beginning of the tightening cycle, with diverging drivers for non-financial and financial firms. While the shares of non-financial corporations had benefited mostly from a compression of risk premia consistent with improving investor risk sentiment, as well as from dividend pay-outs and share buybacks, their longer-term earnings expectations and higher interest rates had had a dampening effect. For financial firms, stock prices had benefited from higher earnings expectations, as well as from strong dividend pay-outs and share buybacks. The general resilience of risk assets had been supported by the gradual decline in volatility, on the back of perceptions that the global tightening cycle might be nearing its end. A second explanation for the resilience of risk assets could be that markets were pricing in an increasing probability that the pass-through from tighter financial conditions to growth could be nearing its peak. Financial conditions had tightened sharply in 2022 but had since tightened only moderately. Considering standard lags in the transmission of financial conditions to economic activity, this would suggest that the drag on growth from the tighter conditions was currently likely to be large but could start receding relatively soon. A third explanation of the resilience in risk assets was related to the less pronounced tightening of long-term rates. Nominal longer-term yields had hovered around 3% since October 2022, suggesting that there had been hardly any tightening impulse from the longer end of the curve for almost a year, with term premia remaining compressed. Euro area real rates had also remained by and large unchanged since December 2022 and stood visibly below the peak reached in October 2022. Developments in commodity markets since the Governing Council’s previous monetary policy meeting illustrated the upside risks to inflation. Oil prices, at USD 91 per barrel, had reached their highest level in ten months after OPEC+ producers agreed to extend their supply cuts for the rest of the year. European gas prices had also increased markedly since the July meeting and had shown increased sensitivity to supply outages. Finally, upside risks to inflation could also emanate from food prices, which could react with a lag to this year’s extreme weather events caused by climate change and amplified by El Niño. In money markets, non-monetary policy deposits had continued to decline since the 26-27 July meeting. Secured money market rates had been broadly unchanged amid limited volatility, suggesting that there was no downward pressure in repo markets from scarcity concerns. Three-month asset swap spreads had narrowed notably since May 2023, as collateral scarcity concerns had receded amid increasing sovereign debt issuance and more balanced positioning. The unsecured money market had also been broadly stable after the change to the remuneration of minimum reserves. The global environment and economic and monetary developments in the euro area Mr Lane then went through the latest economic, monetary and financial developments in the global economy and the euro area. The present meeting offered the opportunity to take stock of what had been learnt over the summer. Starting with the international environment, global growth had been supported by services during spring 2023. Its momentum had then started to soften in the second quarter, owing to a growth slowdown in both China, which had slipped back after its post-pandemic reopening, and Japan. Global economic activity had slowed further in the third quarter, but this did not result in a huge slump. It had rather fallen back towards its long-term average. However, the importance of global activity for the euro area was primarily through trade, and global trade in goods had seen a protracted period of decline owing to the ongoing rotation from goods to services, which were less trade-intensive. Turning to the euro area economic outlook, Mr Lane recalled that in August the flash estimate for annual Harmonised Index of Consumer Prices (HICP) inflation had remained unchanged at its July level of 5.3%. The decline in inflation had been interrupted owing to the recent jump in energy prices, as the annual inflation rate for energy had risen to -3.3% in August from -6.1% in July. The upward shift in energy price expectations would affect the dynamics of headline inflation in the coming months. Food price inflation had come down from its peak of 15.5% in March but had still been almost 10% in August. Annual inflation excluding energy and food had fallen to 5.3% in August from 5.5% in July. The non-energy industrial goods inflation rate had declined to 4.8%, since past energy price surges were receding and supply bottlenecks were being resolved. Services inflation had edged down to 5.5% but remained elevated in August, owing to still strong dynamics in tourist-related services and wage pressures. Overall, the moderation in core inflation was in line with a continued softening in underlying inflation, which reflected the fading impact of previous supply side shocks, a fall in demand-supply mismatches and the gradual pass-through of energy price disinflation. In the coming months, the sharp price increases recorded in the autumn of 2022 would drop out of the yearly rates, thus pulling inflation down. The momentum of HICP inflation, measured as the annualised rate of the three-month-over-three-month change in the HICP, had been around 3% in August 2023. In other words, the 5.3% outcome was largely the legacy of carry-over effects. This 3% momentum had been helped by still negative momentum for energy inflation. For food inflation, the momentum had been 4%, significantly lower than the annual rate of inflation of around 10%. For the core components, it was possible to observe a significant drop in the momentum of goods inflation during 2023 but a much smaller decline in the momentum of services inflation. Most indicators of underlying inflation continued to fall, reflecting the fading impact of previous shocks and supply bottlenecks. “Decontaminated” measures, i.e. measures of underlying inflation corrected for past supply shocks, also showed a further, small decline in recent months. While, overall, not all the measures of underlying inflation showed a further, substantial downward adjustment, those that were the best predictors of future inflation were at the lower range of all the measures and continued to decline considerably, with the exception of domestic inflation. The analysis of pipeline pressures showed a continued downward adjustment upstream in the production chain for both food and goods inflation. It remained the case that the reduction in consumer food inflation had been minor compared with the evolution of the producer price index. The downward pressures from producer prices were expected to start kicking in more substantially as of autumn. However, climate change events and the succession of natural disasters were increasing the risks of price increases in food commodities, feeding into risks of higher food inflation. For goods, the significant downward correction in pipeline pressures, in particular in import prices for intermediate and non-food consumer goods, was also expected to exert further downward pressure on HICP goods inflation in the coming months. Services inflation had remained persistently high, largely reflecting the effects of past energy shocks and the post-pandemic reopening. Inflation in the contact-intensive and energy-sensitive categories was still making the largest contribution to total services inflation and had not yet shown signs of a turnaround, with annual price changes remaining around 8%. By contrast, inflation in the non-contact-intensive services categories was significantly lower. In line with projections from previous rounds, wage pressures had remained elevated in the second quarter of the year. With some decline in the accumulated real wage loss and lower inflation, wage growth should decelerate over time. Mr Lane noted that there was a seasonal pattern in wages, as most contracts were renewed at the start of the year. In other words, the compensation per employee data for the first quarter of 2024 would give an important signal as to whether or not the euro area was on a disinflationary wage path. Until then, it was likely that any additional data would provide little information on the expected path of wages, with uncertainty expected to remain large for some time. The contribution of unit profits to annual inflation, as defined by the GDP deflator, in the first half of 2023, had moderated relative to its contribution in 2022, suggesting that the rising wage pressures were starting to be absorbed by firms. Most measures of longer-term inflation expectations currently stood at around 2%, although some indicators had increased and needed to be monitored closely. The September ECB staff macroeconomic projections for the euro area saw headline inflation higher than previously expected for 2023 and 2024, driven by higher energy prices, but lower for 2025 owing to the appreciation of the euro, tighter financing conditions and greater economic slack. Headline inflation was expected to decrease from 8.4% in 2022 to an average of 5.6% for 2023, 3.2% for 2024 and 2.1% for 2025. At the same time, staff had revised down their projections for inflation excluding energy and food for 2024 and 2025, in line with the weaker growth prospects and the appreciation of the euro over the last year. They now saw it reaching 5.1% in 2023, before falling to 2.9% in 2024 and 2.2% in 2025. After the cut-off date, part of the appreciation of the euro embedded in the September projections had reversed. However, the past appreciation was still feeding through into the euro area economy owing to its lagged impact. Focusing on the fourth-quarter-over-fourth-quarter percentage changes, which allowed the impact of carry-over effects to be cleaned from the data, it was possible to see that the HICP was only revised upwards in the fourth quarter of 2023. HICP inflation was projected to be 0.4 percentage points higher in the fourth quarter of 2023 than in the fourth quarter of 2024, and no extra inflation momentum was expected in 2024. Upside risks to inflation included potential renewed upward pressures on the costs of energy and food. Adverse weather conditions, and the unfolding climate crisis more broadly, could push food prices up by more than expected. A lasting rise in inflation expectations above the 2% target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy or a worsening of the economic environment outside the euro area – would lead to lower price pressures, especially over the medium term. Euro area economic growth had broadly stagnated over the first half of 2023, while the composite output Purchasing Managers’ Index (PMI) had fallen in August – at the fastest rate in nearly three years – to a level of 46.7. Manufacturing output was set to remain weak in view of the further moderation in export demand and tight financing conditions, while the past support from order backlogs was declining. Services had so far contributed positively to growth owing to higher demand in contact-intensive categories, but there had been clear signs of a slowdown since June. The worsening of survey indicators had led to a reassessment of the GDP outlook for the second half of 2023. According to the September staff projections, real GDP was expected to stagnate in the third quarter of 2023 and to increase by 0.1% in the fourth quarter. As regards domestic demand, private consumption had stagnated, while housing investment had contracted in the second quarter, having been on a declining path for most of the past year. Residential building permits, a leading indicator of housing investment, had also fallen in the second quarter and firms’ assessment of their order books had become more downbeat for the third quarter, pointing to a further contraction in housing investment in the period ahead. Higher interest rates had already had a visible impact on this demand component. Business investment growth excluding volatile Irish intellectual property products had moderated significantly in the second quarter, and survey indicators from the European Commission and the PMI for capital goods output were indicating a decline in the second half of the year. In the near term, private consumption was expected to remain weak, while housing investment and business investment were expected to decline, driven in part by the monetary policy tightening. Over time, economic momentum was expected to pick up, as real incomes were expected to rise, supported by falling inflation, rising wages and a strong labour market, and this would underpin consumer spending. However, activity levels would be dampened as the monetary policy tightening and adverse credit supply conditions increasingly fed through to the real economy. The expected gradual withdrawal of fiscal support was also likely to weigh on economic growth in the coming quarters. The labour market had so far remained resilient in the face of the slowing economy but showed signs of losing momentum. The unemployment rate had stayed at its historical low of 6.4% in July. While employment had grown by 0.2% in the second quarter, the latest survey data suggested that it had come close to stalling. The strong demand for labour had also started to moderate, with indicators of job vacancy rates edging down over recent months. The growth of the labour force, which had been the main source of employment growth, had slowed in the past few months. Owing to the weaker economic activity, the September projections embedded a lower increase in employment and an increase in unemployment over the projection horizon, which had still been expected to decline further in the June projections. Recent PMI indicators confirmed the slowing of momentum in employment growth, which was particularly notable in the services sectors. Turning to the fiscal outlook, the September projections incorporated relatively limited changes, with fiscal projections highly uncertain as governments had yet to decide on budgets for next year. Still, on the basis of governments’ intentions, the fiscal projections implied a significant improvement from 2023 to 2024 in the cyclically adjusted primary balance. In the September staff projections annual average real GDP growth was projected at 0.7% for 2023 (down from 3.4% in 2022), 1.0% for 2024 and 1.5% for 2025. In particular, the September staff projections embedded a significant downward revision in both housing and business investment for 2024 and 2025, in view of the tighter financing conditions and credit supply effects. Economic growth could be slower if the effects of monetary policy were more forceful than expected, or if the world economy weakened, for instance owing to a further slowdown in China. Conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty meant that people and businesses became more confident and spent more. Turning to the monetary and financial analysis, euro area banks had remained well capitalised over the second quarter of 2023 and had recorded good net interest income and moderate provisioning costs. The improvement in capital/asset ratios was on account of lower total assets, the latter driven by weakening loan dynamics and shrinking liquidity. Bank funding costs continued to increase, mainly on account of higher deposit and money market rates. The gradual shift of funds away from overnight deposits and towards time deposits was exerting further upward pressure on funding costs. The ECB’s interest rate hikes had increased the attractiveness of longer-term deposits relative to overnight deposits. At the same time, the reduction in central bank funding was leading banks to increasingly rely on debt security issuance. The monetary policy tightening continued to be transmitted strongly to financing conditions and was increasingly affecting the broader economy. For new business, lending rates had increased and credit volumes had contracted further. For firms, the cost of bank borrowing had continued to increase steeply, reaching 4.9% in July, the highest level since 2008. For households, the composite mortgage rate remained on an upward trajectory and had exceeded 3.7% in July, the highest level since early 2012. The credit supply channel remained active. The latest bank lending survey pointed to differences in transmission across corporate sectors, with real estate and construction firms experiencing a more substantial tightening of credit standards and weakening of demand than manufacturing and services firms. Lending to firms and households had remained weak in June and July amid a further tightening of credit standards and higher bank funding costs. July had seen a negative flow of €7 billion in loans to households, which was the lowest on record. Substantial monetary policy tightening was still expected to be passed through to bank rates in the coming months, as more fixed rate loans would expire and banks would face rising funding costs as more savers migrated to term deposits and higher-yielding bank bonds. In line with the decrease in credit creation, the annual growth rate of M3 had turned negative in July (-0.4%) for the first time since 2010 and was expected to decline further in the coming months. Monetary policy considerations and policy options On the basis of the assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission, Mr Lane proposed that the Governing Council raise the three key ECB interest rates by 25 basis points, in order to reinforce progress towards the 2% medium-term inflation target. The incoming data had largely validated the Governing Council’s previous assessment of the inflation outlook, while most measures of underlying inflation had started to ease. Furthermore, the evidence indicated that the transmission of monetary policy to broader financing conditions and the real economy was firmly taking hold. The economic slowdown since mid-2022 was set to continue in the near term, and the level of GDP at the end of the projection horizon would be considerably lower than previously expected. The resulting additional economic slack would further contribute to the disinflation process, while a significant portion of the tightening from past rate hikes was still in the pipeline. A range of model-based simulations suggested that a deposit facility rate in the region of 3.75% to 4.00%, so long as it was understood as being maintained for a sufficiently long duration, should be consistent with a return of inflation to target within the projection horizon. The views of external experts were also clustered in this interval, which also matched market pricing. In view of the uncertainty surrounding model-based simulations, expert surveys and market indicators, the choice between holding the deposit facility rate at 3.75% and moving to 4.00% was finely balanced. However, at the margin, it was safer to decide on an additional hike, given the highly uncertain environment and the significant disinflation that was still required to return to the inflation target in a timely manner. An additional hike would reinforce progress towards the target for two basic reasons. First, if the economy evolved in line with the staff baseline case, the decision to hike would bolster confidence that inflation would return to target within the projection horizon. Second, a higher interest rate would more strongly limit the amplification of any upside shocks to the inflation path. In consequence, a more secure pace of disinflation and greater insurance against upside risks would also reinforce the anchoring of inflation expectations, which remained a precondition for the disinflation process to keep up its pace. With this decision, the key policy rates would have been raised by a cumulative 450 basis points over the last ten meetings. On the basis of the current assessment, the Governing Council should consider that the key policy rates were in a range of levels that, maintained for a sufficiently long duration, would make a substantial contribution to the timely return of inflation to the target. The Governing Council’s future decisions would ensure that the key ECB interest rates would be set at sufficiently restrictive levels for as long as necessary. At the same time, the high level of two-sided uncertainty around the baseline meant that the Governing Council should remain data-dependent in determining the appropriate level and duration of restrictiveness in its monetary stance. Finally, preserving the option to apply flexibility to pandemic emergency purchase programme (PEPP) reinvestments as a first line of defence against fragmentation risks continued to be warranted. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the downward revision of the ECB staff projection for euro area foreign demand, with negative economic surprises for China partly offset by positive surprises in the United States. In this context, it was recalled that the growth performance of the Chinese economy would likely have repercussions for global commodity prices and was thus a risk factor for the euro area inflation outlook. Attention was also drawn to continued high geopolitical risks, which implied an exceptional degree of uncertainty around the outlook for global economic activity and inflation, notably with respect to energy and food. Turning to commodity markets, oil prices had increased significantly following Saudi Arabia’s and Russia’s extension of their production cuts for the rest of the year. At the same time, different views were expressed as to how persistent the impact of these shocks would be. On the one hand, it was argued that a real transformation was taking place in energy markets, as suppliers were trying to maximise their revenues through production cuts, in view of the global energy transition. This could put persistent upward pressure on energy prices for years to come. Moreover, it was pointed out that climate change could bring with it a series of new adverse supply-side shocks, with a much greater frequency of extreme weather events resulting in the destruction of harvests and agricultural land. This would likely affect mostly energy and food prices, which tended to be particularly salient for consumers, implying an outsized effect on households’ inflation expectations and, hence, wage negotiations. On the other hand, the view was expressed that the increase in oil prices, or at least part of the increase, might turn out to be temporary, for three reasons. First, the increase was due to a supply cut by Russia and Saudi Arabia, in an attempt to avoid a fall in revenues due to a possible weakening of global oil demand. Second, global trade in goods was decelerating, and the production of goods was more energy-intensive than the provision of services. Third, demand for oil was likely to weaken significantly in light of the deceleration of the Chinese economy. Moreover, the latest energy shock could also be seen as an aftershock following a larger disruption. It was clearly much smaller than the energy shock in 2021-22, which had very much been a reflection of two main issues: the coronavirus (COVID-19) pandemic and Russia’s unjustified war against Ukraine. In this context, caution was expressed about developments in the European gas markets, where volatility had increased and price levels were higher and more vulnerable to upside moves than in other major economies. It was also recalled that in a context in which energy and food supply shocks were dominating, irrespective of their persistence, differentiating between price-level and inflation shocks was important. With regard to economic activity in the euro area, members concurred with Mr Lane that growth was likely to remain subdued in the coming months. It had broadly stagnated over the first half of the year, and recent indicators suggested it had also been weak or even contracted in the third quarter. Lower demand for the euro area’s exports and the impact of tight financing conditions were dampening activity, including through lower investment. The services sector, which had so far been resilient, was now also weakening. Over time, economic momentum should pick up, as real incomes were expected to rise – supported by falling inflation, rising wages and a strong labour market – and this would underpin consumer spending. The labour market had so far remained resilient despite the slowing economy. However, the services sector, which had been a major driver of employment growth since mid-2022, was now creating fewer jobs. Members widely acknowledged the weaker than expected growth prospects in the short term. Business sentiment indicators, namely the PMIs, were signalling a fragile economic outlook, with the slowdown in China and higher energy prices likely to exert downward pressure on economic activity. The weakening in activity implied that the economy was flirting with a recession. While soft indicators had become less reliable than in the past, the sheer size of their deterioration was such that the information content about the outlook was still significant. Hard data had also clearly been disappointing, even if they were assessed as being more resilient than the early estimates for the third quarter. Since the fourth quarter of 2022 quarterly GDP growth had essentially been flat. The preliminary indications for the third quarter of 2023 were that GDP growth would again be much lower than foreseen. Financial market expectations for growth were also deteriorating, as indicated by the negative slope of the yield curve. Weak incoming data were also the main reason why the ECB staff projections had been revised downwards. The size of the revision in the growth projections was seen as very significant, with a cumulative downward revision of close to 1% in the level of GDP at the end of the projection horizon. This was nearly as large as the downward revision in June 2022, when the estimated effect of Russia’s unjustified war against Ukraine (-1.2%) was first incorporated into the projections. The latest revisions were mainly concentrated in the third and fourth quarters of 2023, as the projections for quarterly growth in 2024 and 2025 were basically the same as in the June Eurosystem staff projections. Taking into account Eurostat’s downward revision, to 0.1%, of growth in the second quarter of 2023 – compared with the initial estimate of 0.3% included in the September ECB staff projections – would mechanically lead to lower growth for the current year. In addition, nowcasting models were suggesting a lower growth rate than contained in the baseline for the third quarter of the year, so the risks to growth in 2023 were seen as being on the downside. It was widely felt that, with hindsight, the June projections had been too optimistic about the strength of the economic recovery in 2023. Notably, it was maintained that the projections for consumption and investment seemed too optimistic at a time when the contribution of net trade to economic growth was close to zero. According to the PMIs, the contraction in manufacturing had spread to the services sector. This was noteworthy, as during the summer the services sector had appeared to be very buoyant as far as tourism was concerned, but it suggested that other parts of the services sector might now experience weaker activity. In addition, it was argued that stronger than expected monetary transmission could explain part of the downward revision to growth, as it seemed that the sectors that could be expected to be more affected by monetary policy were those that were indeed growing less. Looking ahead, optimism about a rebound in private consumption embodied in the baseline beyond 2023 might be questioned, given a prolonged deceleration in annual credit growth. The credit channel was seen as especially relevant for housing and business investment, where activity had been decelerating significantly over the past quarters and had indeed been revised down sharply over the projection horizon. The weakening outlook for investment incorporated into the projections was seen as worrying, given the need for public and private investment in Europe related to the green transition and digitalisation. However, it was also argued that the projected weakening in investment was largely explained by staff judgement on the effects of tighter credit supply conditions, the importance of which could be questioned. The adverse effects on investment from ever tighter monetary policy could also weigh on productivity growth and ultimately push up unit labour costs in a vicious circle. In addition, there was evidence that a large share of monetary tightening was still in the pipeline, and it was argued that this could compress demand more than was currently projected. At the same time, the point was made that most of the financial tightening had already happened in 2022, which could imply that the tightening impact could soon reach its peak. Overall, it was nevertheless felt that it remained reasonable to expect a gradual economic recovery to take hold, thanks to a recovery in people’s real incomes from rising wages and a strong labour market, and this would underpin consumer spending. In this context, it was recalled that the projected economic recovery was not inconsistent with a growing impact of monetary tightening next year, as this was still a recovery from essentially five quarters of near-zero growth. The question was also raised as to what extent the current economic slowdown was purely of a cyclical nature. There were signs that the trend in productivity had shifted downwards, which could, at least in part, be permanent. It was also conceivable that the higher level and volatility of energy prices might be permanently scarring parts of the economy. Distinguishing between energy-intensive and non-energy-intensive industries, the weakening in growth was mostly coming from the energy-intensive parts of the economy, which could point to underlying structural drivers. A structural slowdown of this nature would affect potential output and the assessment of economic slack, and ultimately have an upward impact on inflation. In this context, it was mentioned that, while the latest revisions to the outlook for activity and inflation could be labelled as stagflationary, labour market conditions were much more favourable than in the 1970s, when the term had been coined. Turning to the labour market, it was noted that the September projections now entailed a limited increase in the unemployment rate, in contrast to the continued decline that had still been embedded in the June projections, with labour markets nonetheless remaining relatively tight throughout the horizon. Looking at the sacrifice ratio, which measures the cost of reducing inflation in terms of output and employment, implicit in the projections, the cost of bringing down a significant inflation surge in the form of an increase in unemployment looked remarkably favourable. Overall, it seemed fair to say that the projections were still in line with a soft landing. At the same time, it was pointed out that current indicators and a benign outlook of a (nearly) “immaculate disinflation” should not lead to complacency about the strength of the labour market. The point was made that, during recessions, the decline in employment was typically achieved through a reduction in hiring, not through increased firing. The current slowdown in new hires should thus be seen as a negative signal, requiring further attention. Moreover, it was remarked that, while employment had remained strong so far, this was in part due to the continued presence of job retention schemes. These schemes made it convenient for firms to hold on to cheap and less productive labour. However, this would not last if economic activity failed to pick up, in which case firms would shift from labour hoarding to labour shedding. For the time being, the labour market was, overall, still seen as tight from a cyclical perspective. However, it was arguably also being affected by structural changes, such as a reduction in the average number of hours worked. As for the real estate market, it was highlighted that, following the tightening of monetary policy, the number of transactions had fallen significantly, while the adjustment in real estate prices had so far remained fairly muted. In this context it was pointed out that, in some countries, real estate transactions had already started to pick up again, presumably owing to reduced uncertainty about the future interest rate path. Indeed, while there had been a massive adjustment of mortgage rates earlier on, they had remained more or less stable at this higher level for quite some time, so households again felt confident in entering the housing market. Against this background, members assessed that the risks to economic growth were tilted to the downside. Growth could be slower if the effects of monetary policy were more forceful than expected or if the world economy weakened, for instance owing to a further slowdown in China. Conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty meant that people and businesses became more confident and spent more. With regard to price developments, members broadly concurred with the assessment presented by Mr Lane and underlined that, while headline inflation had declined, inflation was still expected to be too high for too long, with headline inflation for 2023 and 2024 in the September staff projections being revised upwards from the June projections. The first time inflation was foreseen to fall below 2% was only at the end of 2025, which was regarded as very late and appeared to be driven by a base effect for energy inflation. Moreover, the gradual disinflation path entailed in the September projections was seen as still being fragile and conditional on a number of benign assumptions, namely a turnaround in wage pressures, a compression of unit profits and a declining path for energy prices. It was also observed that a mechanical update to the projections to include the higher oil prices and weaker euro observed since the cut-off date suggested that headline inflation would no longer fall below the ECB’s target by the end of the horizon. In a context of recurrent underestimations of inflation over the past year, and despite a more clouded outlook for the real economy, there still appeared to be significant upward pressures on inflation. Especially in view of recent developments in the energy market, it was too early to consider the projected disinflation process as being entrenched. According to Eurostat’s flash estimate, headline inflation had surprised to the upside in August, remaining at a still very high level. This had contributed to an upward revision in the September staff inflation projections, together with other factors such as less favourable energy price assumptions. Despite the weakening of the economy, the inflation data did not yet give sufficient comfort that inflation would return to target in a timely manner, with the “last kilometre” expected to be particularly challenging. At the same time, indicators of inflation momentum were much lower than annual inflation rates, for both headline and core inflation. However, it was pointed out that momentum for several inflation components had rebounded somewhat recently and remained well above the medium-term inflation target. It was argued that core inflation continued to be sticky and that the previous quick progress on headline inflation was increasingly fading as energy base effects vanished or even reversed. Turning to pipeline pressures, as reflected in the evolution of producer prices and input costs, including world food commodity prices, the picture of receding “upstream” price pressures remained broadly intact. However, it was pointed out that there was evidence of an asymmetry in the pass-through of rising and falling input costs to consumer prices. Reference was made to evidence from some countries which indicated that the share of firms that had lowered prices was increasing now that input costs were falling and this share – for the first time in the current inflation cycle – had exceeded the share of firms that were raising prices, indicating that the disinflation process was progressing. However, it was remarked that the share of firms lowering prices was – while growing – still falling far short of the share of firms that had increased prices when input costs had been going up. This asymmetry in the pass-through also had implications for the sacrifice ratio, i.e. that the Phillips curve would be flatter when inflation fell than when inflation was rising. The fact that prices were changing less frequently slowed down the pass-through of falling input costs. With regard to the impact of the latest energy price increase on inflation, it was generally felt that this was becoming harder to assess. On the one hand, the rebound in oil prices, in particular, could be a more permanent shock, and therefore could affect wages and prices more persistently. On the other hand, since demand was weak and monetary policy in restrictive territory, the overall effects of the energy shock on headline inflation would likely differ from recent experience and be transitory or less persistent. In a context of volatile inflation due to frequent food and energy supply shocks, the key question was to what extent those shocks would feed into the medium-term inflation outlook. In the short term, they would clearly raise inflation. However, as they weighed on real incomes they would also lead to more subdued demand and lower capacity utilisation, implying a disinflationary impact in the medium term. It was thus seen as crucial to distinguish between one-off shocks to the price level and the effect of such shocks translating into inflation dynamics with relevance for the medium term. It was also noted that there was particular uncertainty about the outlook for the fiscal stance in the coming year due to the uncertainties surrounding the European fiscal governance framework. Evidence from some countries suggested that fiscal deficits could well be larger than expected in the projection baseline, which would have implications for the inflation outlook. The latest developments in core inflation were described as encouraging. In the last few months core inflation had largely developed as projected. More broadly, most indicators of underlying inflation appeared to have peaked or were stabilising. However, this was not the case for the indicator of domestic inflation, which remained strong and was likely to reflect more persistent pressures on services prices, which had a high wage content. Members recalled that wage pressures were key in understanding medium-term inflation pressures. It was generally acknowledged that recent wage developments had remained in line with recent staff projections and that there were tentative signs of an imminent peak in wage pressures. At the same time, it was stressed that there was no firm evidence of a turnaround in wage dynamics yet, and sufficient hard data on wage agreements and employee compensation would only emerge in the course of spring 2024. In this context, it was recalled that labour markets, and wage-setting in particular, very much relied on national institutional frameworks. In some countries, wage-setting had a very strong backward-looking component, for example through wage indexation or cost of living allowances. In other countries, the backward-looking component was much weaker, which would inevitably lead to wage differentials across countries. In the last two quarters there had been no significant projection errors for wages, which was very important because one of the main risks to inflation was that wage growth might be even higher or more persistent than incorporated in the projections. So far, wage data had broadly confirmed the indications obtained from forward-looking indicators such as the ECB wage trackers. It was also remarked that most recently unit profits appeared to have been lower than predicted. This was important because one of the main assumptions in the projection of a downward trajectory for inflation was that, over time, a lower contribution from unit profits to the GDP deflator would compensate for a recovery in real wages and robust growth in unit labour costs. At the same time, it was underlined that recent increases in unit labour costs had been driven not only by higher wages but also by lower than expected labour productivity growth. On the one hand, the view was expressed that low labour productivity growth should largely be of a temporary nature, owing to labour hoarding. It was not surprising that labour productivity growth was low, given the ongoing economic slowdown and the procyclicality of labour productivity. But labour hoarding was necessarily a temporary phenomenon. If the economy remained weak, firms would start to shed jobs, which would lead to higher productivity, lower unit labour costs and lower inflationary pressures. If GDP growth were instead to accelerate, a cyclical improvement in labour productivity could be expected. All in all, it would be plausible to expect productivity growth to rebound in the near future, which would contain unit labour costs and inflation. On the other hand, structural changes in the labour market, such as the fall in average hours worked, should also be acknowledged as potentially having a permanent impact on labour productivity, unit labour costs and, ultimately, prices. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. It was widely acknowledged that, on the basis of ILS rates adjusted for inflation risk premia, long-term market-based genuine inflation expectations had remained broadly stable since the middle of 2022, which was seen as a great achievement of the Governing Council’s monetary policy decisions. This estimated measure of genuine inflation expectations had hardly increased despite the high inflation numbers, although there was no room for complacency. With the renewed commodity price shocks, it was clear that monetary policy was now in a completely different situation from when the initial energy shocks had hit in 2021-22. At the same time, there were some warning signs, both in surveys and in financial markets, with certain indicators – such as the measure of expectations for inflation five years forward five years ahead – edging up in spite of the weakening economy. This suggested that lower economic growth may not be sufficient to tame underlying price pressures, which could be seen as a warning sign that risks of an unanchoring of inflation expectations remained elevated. The rise in market-based inflation compensation could be due to the risk of supply shocks becoming more prevalent in the future. It mostly reflected risk premia, thus signalling investor concern that inflation would turn out to be higher than the ECB’s target. Moreover, in the Survey of Professional Forecasters, the balance of risk indicator was still clearly tilted to the upside. So even if average expected headline inflation remained flat, there were still upside risks in the inflation expectations surveys. This asymmetric distribution of expected inflation, together with elevated inflation risk premia, suggested that a continued anchoring of inflation expectations should not be taken for granted. If people expected repeated shocks pushing inflation above 2%, it was likely that this would eventually become embedded in inflation expectations, which would in turn affect wages, pushing inflation away from the target. Against this background, members assessed that there were still upside risks to inflation due to potential renewed upward pressures on the costs of energy and food. Adverse weather conditions, and the unfolding climate crisis more broadly, could push food prices up by more than expected. A lasting rise in inflation expectations above the 2% target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example due to a stronger transmission of monetary policy or a worsening of the economic environment outside the euro area – would lead to lower price pressures, especially over the medium term. At the same time, the view was also expressed that inflation risks had become balanced, as most analyses suggested that inflation was broadly evolving as projected, or that they had even moved to the downside. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. Monetary policy tightening continued to be transmitted strongly to broader financing conditions. Funding had again become more expensive for banks, as savers were replacing overnight deposits with time deposits that paid more interest and the ECB’s targeted longer-term refinancing operations (TLTROs) were being phased out. Average lending rates for business loans and mortgages continued to increase. Attention was drawn to the fact that credit dynamics had weakened further, with the annual growth rate of loans to both firms and households declining. Amid weak lending and the reduction in the Eurosystem balance sheet, money growth was falling sharply. In particular measures of momentum (i.e. annualised growth rates over the past three months) showed monetary and credit aggregates to be decelerating very fast, in a manner that had only previously been seen during the global financial crisis and the sovereign debt crisis. The decline in lending likely reflected a combination of weaker loan demand and banks tightening the credit supply, with the respective contributions of the two factors hard to disentangle. The view was expressed that credit developments primarily reflected weak loan demand and remained broadly in line with historical patterns of monetary policy transmission, while there was little evidence of credit supply constraints playing a role. In addition to the past effects of monetary policy and a deteriorating macroeconomic outlook, lower demand could also reflect the fact that firms still had large cash buffers that they had accumulated in periods of heightened uncertainty related, first, to the pandemic and, more recently, to the energy crisis. This could suggest they had less need for external financing. It was stressed that banks were in a strong position to lend more if loan demand rose. In particular, banks with a duration mismatch on their balance sheet – which had locked in low rates on their loan books before funding costs increased – also had strong incentives to satisfy an eventual increase in demand from creditworthy borrowers to support future profitability. Moreover, it was emphasised that banks’ balance sheets were solid, as reflected in their elevated capital ratios, low levels of non-performing loans and resilient profitability. From a microprudential perspective, banks’ net interest income had adjusted favourably to higher rates, thus mitigating concerns that rate increases were detrimental to banks. This raised the question of why banks were tightening credit standards, as was emerging from the bank lending survey. On the basis of anecdotal evidence, it was suggested that, despite strong fundamentals, banks had become cautious about extending credit owing to worries about liquidity, especially in view of the turmoil that had occurred in the banking sector in March 2023. While banks were not liquidity-constrained, expectations for overall levels of excess liquidity had declined throughout the year. Banks were faced with the movement from overnight to term deposits, which required higher remuneration, as well as with the run-off of the TLTROs. These developments could have been making banks more careful. Moreover, it was argued that, even if a large part of the credit slowdown could thus far be attributed to demand factors, there was a risk that credit conditions could tighten further once supply restrictions came into play more forcefully. Against this background, it was argued that the transmission of monetary policy tightening via prices (loan rates) and quantities (credit volumes) since the first rate hike in July 2022 was both much stronger and faster than expected, and much stronger and faster than typically taken into account by macroeconomic models. It was remarked that the pass-through of past interest rate decisions differed greatly across countries. Countries with a large share of floating rate mortgages and a sizeable construction sector had experienced a very rapid pass-through and a sustained weakening of economic activity. Elsewhere, where fixed rate mortgages were prevalent or home ownership more limited, transmission was likely to be more sluggish. This suggested that a large part of the pass-through of past interest rate increases was still in the pipeline. However, it was argued that the tightening cycle had started long before interest rates were increased, and taking this and the end of net asset purchases into account suggested a transmission that was more in line with historical averages. It was also maintained that, while the impact on loan rates and volumes indeed appeared exceptionally strong, this simply reflected the regular transmission of exceptionally large and rapid interest rate changes, rather than a change in historical regularities in relation to each unit of rate increment. Attention was also drawn to the fact that the pass-through to bank deposit rates was currently still sluggish. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members assessed overall financing conditions as having tightened further since the Governing Council’s previous monetary policy meeting on 26-27 July, with the transmission of monetary policy to broader financing conditions and the real economy firmly taking hold. The risk-free forward curve had remained broadly unchanged relative to the levels prior to the previous monetary policy meeting. This could reflect market participants’ assessment that growth was weakening amid still elevated inflation. Real long-term rates had also remained broadly stable in the euro area. It was underlined that uncertainty about the outlook remained exceptionally high. Against this background, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements of the “reaction function” that the Governing Council had communicated earlier in the year. These comprised the implications of the incoming economic and financial data for the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. Starting with the inflation outlook, members broadly concurred with the assessment presented by Mr Lane in his introduction. Overall, the process of disinflation seemed to be proceeding largely as expected. Headline inflation had declined in July but stalled in August on the back of higher energy prices. At the same time, comfort was drawn from the fact that core inflation figures had no longer surprised to the upside over the past few months. Although the staff projections for inflation had been revised upwards in September for 2023 and 2024, there was a downward revision for 2025, albeit with inflation expected to reach the target only in the last quarter of that year. However, it was recalled that the Governing Council’s focus was on medium-term inflation, so that the small upward revision of the inflation projections in the shorter term should not be a large concern, as long as the deviation from the target did not spill over into inflation expectations and second-round effects on wages and profits. In a similar vein, base effects on inflation in the coming months were likely to temporarily push inflation down, without implications for the medium-term inflation outlook, although this profile might raise some communication challenges. Overall, the risks to inflation had become more balanced, as demand had weakened significantly and monetary policy was clearly in restrictive territory. This notwithstanding, a further increase in energy prices and the possibility of upward energy price shocks occurring more often in the future could push inflation up. Moreover, the risk of underestimating the persistence of inflation and of second-round effects from wages remained present. Members saw most indicators of underlying inflation now more clearly on a moderately declining path and closer together. An exception was domestic inflation, which was still rising. As regards wage growth, there were limited signs that this was starting to turn, although hard evidence of an inflection point still needed to emerge. At the same time, unit profits had been lower than implied by earlier projections, suggesting that rising wage pressures could in part be absorbed by firms over time, which was an important assumption underlying the moderation in the GDP deflator projected by staff, despite an upward revision for 2023 owing to higher unit labour costs. Turning to the assessment of monetary policy transmission, members noted that ample evidence could now be found that this was proceeding strongly, more so than expected. While this could in part reflect the exceptionally strong increase in the key ECB interest rates, staff analysis suggested that the impact went beyond the usual pattern of transmission. Moreover, a significant part of the interest rate pass-through was still pending and likely to restrain economic activity and inflation over the projection horizon. On the one hand, it was remarked that the effects of the monetary policy tightening could still increase over time and extend well beyond 2025. On the other hand, since the tightening cycle had started a long time previously (before the raising of policy rates in July 2022), its impact could also be expected to recede over time, on the basis of typical transmission lags. It was underlined that an important channel of monetary transmission was via inflation expectations. Having been able to keep inflation expectations anchored, despite the long period in which inflation had been above target, was seen as a major achievement. At the same time, it was recalled that market-based measures of inflation compensation were still elevated, so this achievement was fragile. There was still a risk of inflation staying above target for too long, which called for humility and caution. Overall, members concurred that inflation was still expected to remain too high for too long. At the same time, the monetary policy cycle had reached a stage where the risks of tightening too much and the risks of tightening too little had become more balanced. In particular, the key ECB interest rates were in a range of levels that, maintained for a sufficiently long duration, would make a substantial contribution to the timely return of inflation to the ECB’s target. This assessment was supported by model-based simulations, expert surveys and market pricing, which suggested that constellations with a deposit facility rate in the region of 3.75% to 4.00%, as long as it was understood as being maintained for a sufficiently long duration, should be consistent with a return of inflation to target within the projection horizon. In view of the considerable uncertainty, members highlighted that the decision between raising rates and pausing was a close call, and that tactical considerations also played a role. This situation was also reflected in the forward rate curve, which suggested that the probability of a rate increase versus a pause at the September meeting had been relatively evenly split for some time, as had been the case with analysts’ expectations, such as those reported in the Survey of Monetary Analysts. Monetary policy decisions and communication Against this background, while the decision was generally seen as a close call, a solid majority of members expressed support for the 25 basis point rate increase proposed by Mr Lane. These members emphasised the still high levels of inflation and the fact that a rate increase would signal a strong determination on the part of the Governing Council to bring inflation back to the target in a timely manner. The horizon over which inflation would be brought back to 2% should not extend beyond 2025. According to the latest ECB staff projections this was expected to be the case, although by that time inflation would have exceeded the target for more than four years in a row. Hence erring on the side of pausing the first time the decision was a close call could risk being interpreted as a weakening of the ECB’s determination, especially at a time when headline and core inflation were above 5%. Emphasis was also placed on the upward revisions to the headline inflation projections for the first two years of the projection horizon and the fact that the projections were conditioned on market interest rates, which embodied a further rate increase by the end of the year. Moreover, although there was tentative evidence suggesting that wage growth was close to a peak, further evidence was required to be sure it was turning. An additional consideration was the risk that the inflation path embedded in the projections was fragile and additional supply shocks could push inflation further above the target for longer, which could feed into inflation expectations. Further climate-related events also risked pushing up food prices. Hence, raising rates further also contained an element of insurance, against the continued elevated risk of inflation remaining above target for too long. It was seen as safer to confront such a situation with interest rates at 4.00% than at 3.75%, since higher rates could reduce the amplification of further shocks and thus lessen the probability of having to raise rates again in the future. In this context, it was argued that when monetary policy had been close to the effective lower bound and inflation low, there had had been a strong case for looking through supply shocks, whereas at present the situation was very different. These members also argued that a pause could give rise to speculation that the tightening cycle was over, which increased the risk of a rebound in inflation. This situation would require another wave of monetary tightening later on, which could have adverse consequences for real estate markets and financial stability more generally. Not hiking could also send a signal of the Governing Council being more concerned about the economy and a potential recession than too high inflation. Some members expressed a preference for maintaining rates at their current levels. These members underlined the fact that the Governing Council had made clear its decisions were data-dependent. They viewed the data that had become available since July as, on balance, not supporting a further rate hike: the economy had weakened substantially and inflation was projected to return to around 2% by the end of the projection horizon, while the risks to the inflation outlook were now balanced. Although oil prices had increased, this could turn out to be temporary. The 425 basis point increase in rates that had already taken place since the start of the tightening cycle was seen as sufficiently demonstrating the Governing Council’s commitment to deliver on its mandate of price stability. These members also maintained that a lot of the pass-through of past rate hikes was still pending, and not all of this was likely to be included in the central scenario, implying that downside risks to economic growth could be significant. They saw little room for upside risks to the growth outlook. Pausing at this meeting would also have the advantage of providing time to assess the impact of previous decisions on the economy and to evaluate whether the slowdown was deeper than expected and whether inflation was actually coming down as projected without requiring a further increase in interest rates. Another consideration was that a further rate hike risked repeating the situation that had occurred in 2011, when interest rate increases had had to be reversed quickly in the face of the economic consequences of the sovereign debt crisis. Against this background, it was recalled that the ECB also had secondary objectives. If the inflation target could be reached at the end of 2025 via a lower interest rate path, thereby increasing the likelihood of a soft landing, this would be preferable. The Governing Council also needed to take into account the economic and social costs of a possible hard landing. From a risk management perspective, the point was made that the risks of hiking at the present time, and later having to reverse course should the economy weaken by more than expected, were larger than those of introducing a pause in the tightening cycle and having to increase rates at one of the coming meetings. Members also agreed with the Executive Board proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 14 September 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 13-14 September 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller* Mr Nagel* Mr Panetta Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Välimäki, temporarily replacing Mr Rehn Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Vujčić Mr Wunsch* * Members not holding a voting right in September 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Ms Buch Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Mr Nicoletti Altimari Mr Novo Mr Pösö Mr Rutkaste Mr Sleijpen Mr Šošić Mr Tavlas Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 23 November 2023. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 25-26 October 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Athens on Wednesday and Thursday, 25-26 October 2023 23 November 2023 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel started her presentation by noting that the market’s immediate response to the dramatic geopolitical upheaval in the Middle East, following the terrorist attacks on Israel on 7 October 2023, had so far been contained. Bolstered by continued robust economic growth in the United States, the surge in global long-term bond yields that started over the summer had continued in recent weeks, as investors were increasingly internalising the prospect of interest rates staying high for longer. At the same time, expectations for the future path of short-term interest rates had remained broadly unchanged. Long-term sovereign bond yields had risen globally. Yields on both sides of the Atlantic were now approaching levels seen from 2005 to 2007 during the last monetary policy tightening cycle. The differential between US and euro area ten-year interest rates had fallen back to the levels observed when the ECB started increasing its key policy rates in July 2022. On aggregate, the recent rise in sovereign bond yields in the euro area had been predominantly driven by an increase in the risk-free rates. However, the rise in yields had not been uniform across euro area countries. Idiosyncratic factors had likely contributed to these developments, and there had been no signs of market fragmentation. The question arose as to why long-term risk-free rates had risen so sharply at a time when most central banks were nearing the end of the tightening cycle. A decomposition of the increase into real rates and the inflation component showed that the higher ten-year overnight index swap (OIS) rate since the beginning of September 2023 had entirely reflected a rise in the real interest rate. Furthermore, a substantial change could be seen in the term premium, which had increased by around 25 basis points since early September. ECB staff analysis suggested that the repricing of term premia was likely to have largely emanated from the United States as a result of policy and macro spillovers. Looking at the evolution of the ten-year term premia for the United States and the euro area since the last tightening cycle that started in 2005, the US term premium had remained exceptionally compressed. From a historical perspective, this was exceptional for periods in which interest rates were above the effective lower bound. In the euro area, the term premium had been rising continuously and persistently for over a year. This rise in risk compensation had been broadly expected, as uncertainty about the inflation and policy outlook had increased. However, in the euro area too, the term premium remained visibly below the levels observed during the previous tightening cycle. The timing of the rise in the global term premium could be explained by the coincidence of three broad factors. The first factor was that many investors had become convinced earlier this year that a global recession was imminent and that central banks worldwide would have to cut interest rates substantially in 2024. Policy expectations had changed substantially since then, however. Investors currently expected cumulative rate cuts of around 60 to 70 basis points in 2024 in the euro area, down from 100 basis points in May. In the latest ECB Survey of Monetary Analysts, median expectations regarding the timing of the first 25 basis point cut had been pushed out to September 2024, from June 2024 previously. At present, investors appeared less certain that the fight against inflation could be rapidly won. This was a global phenomenon extending to many advanced economies. It raised uncertainty about the entire future path of short-term interest rates, resulting in a higher term premium. The second factor that had likely contributed to the sudden rise in the term premium was related to changes in the supply of, and demand for, US Treasuries. By comparison, net issuance in the euro area was generally expected to be lower in 2024 than in 2023. This was happening as the odds of a policy pivot in Japan were increasing. The market was currently pricing in the Bank of Japan exiting negative rates by April 2024, with the potential for another adjustment in its Yield Curve Control framework as early as October 2023. The third factor that had likely reinforced the increase in the global term premium had been investors’ positioning in the US Treasury market. In the euro area, market-based measures of longer-term inflation expectations illustrated by the five-year forward index-linked swap rates five years ahead had finally started to come down from their cyclical highs, although they remained volatile and well above 2%. Measures of inflation compensation had declined across the curve, with most of the change at longer tenors reflecting a decline in the inflation risk premium. The decline in inflation compensation was particularly notable in the current environment, as the conflict in the Middle East implied that risks to energy prices were skewed to the upside. On aggregate, gas futures prices and oil prices were appreciably higher than they had been a few months ago. The fact that measures of inflation compensation had declined in this environment suggested that the tightening stemming from the ECB’s interest rate hike in September 2023, in combination with higher real rates as a result of global spillovers, had fostered the market’s confidence in the Governing Council’s commitment to bring inflation back to its 2% target in a timely manner. The speed and magnitude of the rise in real rates, together with the conflict in the Middle East, were also affecting risk assets by weighing on risk sentiment. Stock market volatility had increased visibly, although it remained well below the levels seen after Russia’s invasion of Ukraine. Global stock market valuations had declined considerably in recent weeks. That said, valuations in the euro area remained above the levels observed before the start of the monetary policy tightening cycle. One reason was the resilience of the equity risk premium. Although economic sentiment had deteriorated measurably, the risk premium had been constant. A similar phenomenon was observed in the corporate bond market. These marked deviations from past regularities suggested that, when interest rates went up, the risk-taking channel of policy transmission might work differently from when rates went down. Nevertheless, there were differences across rating categories. Credit spreads for higher-rated issuers had been largely insensitive to the rise in yields. In contrast, the spreads of riskier, high-yield issuers had widened more measurably in recent weeks, although even these were nearer the lows recorded during the current cycle than the highs. The speed of the bond market rout had also left a significant mark on foreign exchange markets. Since mid-July the euro had fallen by nearly 6% against the US dollar. This constituted a headwind to the Eurosystem’s efforts to reduce inflation in a timely manner. The appreciation of the US dollar during this time had been broad-based. So, from a foreign exchange perspective, real yields in the United States were likely seen as a sign of strength by investors, as growth was holding up better than expected. The global environment and economic and monetary developments in the euro area Mr Lane then went through the latest economic, monetary and financial developments in the global economy and the euro area. Starting with the global economy, Mr Lane pointed to global growth momentum continuing to slow. The global composite output Purchasing Managers’ Index (PMI) had fallen for the fourth consecutive month in September, as the deterioration in the services sector converged towards the contractionary readings for manufacturing. In China, the real estate sector continued to be a drag on growth, but the GDP figure for the third quarter of the year suggested that the economy may be finding its footing again. In contrast, while the US economy had remained robust in the third quarter, it was now showing clearer signs of deceleration. Since the Governing Council’s previous monetary policy meeting on 13-14 September, the euro had depreciated both against the US dollar and in nominal effective terms. Its previous appreciation was still adversely affecting euro area trade. The escalating conflict between Israel and Hamas was increasing uncertainty and posed upside risks to oil and gas prices over the near term. So far, however, the impact on futures prices further ahead had been limited. Oil prices were higher than both at the time of the September meeting and at the cut-off date for the September ECB staff macroeconomic projections for the euro area. However, the negative slope of the current oil futures curve was steeper than in the projections. Mr Lane also recalled that, after a period of elevated levels, crack spreads (the difference between crude oil prices and prices for refined products such as petrol and diesel) had fallen by 36% since the September meeting, while gasoline crack spreads had even fallen by 90%. For the overall energy prices for consumers it was important to monitor the prices of both refined and crude oil. For its part, the gas market still faced a number of supply risks. Gas prices remained lower than at the cut-off date for the September staff projections but were higher than at the time of the previous monetary policy meeting. As regards other commodities, the overall pattern remained one of declining prices for metals and food, which could be linked to the weaker global economy. The euro area economy had remained weak in the third quarter. The European Commission’s composite economic sentiment indicator and the PMI pointed to declining consumer confidence and business activity. Manufacturing output continued to fall in October, according to the flash release, owing to lower inventories, declining orders and tighter financing conditions. Housing and business investment contracted, as demand weakened in response to higher borrowing costs. The decline in housing investment had in fact already started in the second quarter of 2022, with a rebound at the start of 2023 driven by the positive impact of the mild winter. The PMI and the forward-looking indicators of the European Commission pointed to a further decline in housing investment in the fourth quarter of 2023. It was evident that the construction sector accounted for a large part of the weakness in overall activity. In contrast to housing investment, business investment had held up for a sustained period of time, helped by backlogs being worked through. In the second quarter of 2023, business investment had increased only marginally and new orders were pointing to a contraction in the second half of the year. The outlook for investment would have been significantly worse without the support of the Next Generation EU programme. Although demand in contact-intensive services sectors still exceeded pre-pandemic levels and activity in tourism remained supportive, the services sector was losing steam. This was due to the fact that weaker industrial activity had started to spill over to business-oriented services, the impetus from reopening effects was fading and the impact of higher interest rates was broadening across sectors. The services PMI had continued its decline in October, according to the flash release, and had been in contractionary territory since August. Private consumption was expected to have remained weak in the third quarter. Looking ahead, while the European Commission’s consumer confidence indicator had been improving until spring 2023, it had started to deteriorate again in the summer months and remained well below its historical average. Turning to trade, the outlook for exports was weakening. Survey data for September 2023 showed that new export orders for both goods and services remained in contractionary territory, indicating that the global weakness continued to weigh on euro area exports. Furthermore, firms had worked through their backlogs, suggesting that the support coming from this factor was fading. Another key factor dampening the demand for euro area goods was the loss of competitiveness as a result of persistently high energy prices and the past appreciation of the euro. The labour market was still resilient, with the unemployment rate at a historical low of 6.4% in August. Momentum was starting to soften, however, as the economy remained weak. Employment expectations had declined further in October for both services and manufacturing, according to the PMI flash release, with manufacturing employment expectations falling to their lowest level since August 2020. The labour force had expanded further in the second quarter of the year and was now 2.3% larger than before the pandemic, but fewer new jobs were currently being created. Turning to fiscal policy, the draft budgetary plans for 2024 indicated a significant decline in support measures, which would imply a restrictive fiscal stance. However, this restrictive stance was not reflecting austerity measures but the winding-down of energy subsidies. The risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy would also weigh on growth. Russia’s unjustified war against Ukraine and the tragic conflict sparked by the terrorist attacks in Israel were key sources of geopolitical risk. This could result in firms and households becoming less confident about the resilience of the world economy and more uncertain about the future, and dampen growth further. Conversely, growth could be higher than expected if the still resilient labour market and rising real incomes meant that people and businesses became more confident and spent more, or the world economy grew more strongly than expected. Headline inflation had dropped markedly in September to 4.3%, in line with the September staff projections. It was also expected to come down further in the near term, before a temporary mechanical uptick around the turn of the year. The decline in September was visible across all the main components, confirming the general disinflationary process that was under way. Energy prices had fallen by 4.6% on account of negative base effects, and food inflation, while still high, had decreased to 8.8%. Inflation excluding energy and food, as measured by the Harmonised Index of Consumer Prices (HICPX), had also dropped sharply in September, to 4.5%. This was 0.2 percentage points lower than expected in the September staff projections. The fall had been supported by improving supply conditions, the pass-through of previous declines in energy prices, the impact of tighter monetary policy on demand and corporate pricing power. Non-energy industrial goods inflation had fallen to 4.1% in September, with the monthly dynamics now reverting to historical averages. Services inflation had declined for the second consecutive month in September, to 4.7%. This had been driven in part by the discontinuation of the €9 public transport ticket in Germany last year and the reduction in the impact of changes in HICP weights. However, it might also have reflected some softening of activity in the travel and tourism sectors with the fading out of post-pandemic reopening effects. Most measures of underlying inflation continued to decline. Measures that adjusted for past energy and supply shocks had largely confirmed their downward trajectory in August. The adjusted Persistent and Common Component of Inflation measure – a good predictor of inflation developments in the past – was now close to 2%. At the same time, domestic inflation remained persistent and had hovered around 5.5% until August, before edging down to 5.2% in September. The still high level of this indicator underscored the significance of continuing wage pressures for underlying inflation. Moving to the latest wage developments, negotiated wage growth had remained robust in the third quarter. However, the Indeed wage tracker, which captured wage growth for new hires, showed continued evidence of an easing of wage pressures. Contacts in the corporate sector had reported ongoing strong wage growth, although Corporate Telephone Survey respondents expected some moderation next year. Overall, the available indicators continued to suggest that the wage forecast included in the September staff projections was broadly on track. Wage developments would need continuous monitoring in the months ahead, as most wage negotiations would only take place at the start of 2024. The Corporate Telephone Survey also suggested that profit margins had been squeezed during 2023 and would contract further in 2024. This evidence was in line with the expected decline in profit margins over the coming quarters, embedded in the September staff projections. Inflation expectations reported in the ECB Survey of Professional Forecasters had remained broadly unchanged in October. Most of the distribution had remained concentrated around 2%. The ECB Consumer Expectations Survey showed that consumers had not yet adjusted downwards their perception of past inflation. This could suggest that willingness to revise perceived inflation downwards was not as sensitive to actual developments in inflation as willingness to revise it upwards. Consumer inflation expectations had moved up in September, particularly for the one-year ahead horizon. While these developments were in line with those in countries outside the euro area, such as the United States, Sweden and the United Kingdom, and appeared to be linked to the recent increase in energy prices, they needed close monitoring. The risks to inflation remained twofold. On the one hand, upside risks to inflation could come from higher energy and food costs. The heightened geopolitical tensions could drive up energy prices in the near term while making the medium-term outlook more uncertain. Extreme weather, and the unfolding climate crisis more broadly, could push food prices up by more than expected. Additionally, a lasting rise in inflation expectations above the inflation target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. On the other hand, weaker demand – for example owing to a stronger transmission of monetary policy or a worsening of the economic environment in the rest of the world amid greater geopolitical risks – would ease price pressures, especially over the medium term. Turning to monetary and financial developments, short-term risk-free rates had been stable since the September monetary policy meeting. Long-term rates had risen markedly, however, resulting in some additional tightening of financing conditions. The transmission of the ECB’s past monetary policy actions to financing conditions continued to be exceptionally strong and was increasingly affecting the broader economy and dampening demand, thereby helping push down inflation. The rise in bank lending rates for firms and for households for house purchase – to 5.0% and 3.9% respectively in August – had continued to outpace previous hiking cycles, and these costs had reached their highest levels in over a decade. According to the latest euro area bank lending survey, credit standards for loans to firms and households had tightened further in the third quarter, as banks were becoming more concerned about the risks faced by their customers and were less willing to take on risks themselves. Credit dynamics had weakened further. The annual growth rate of loans to firms had dropped sharply, from 2.2% in July to 0.7% in August and 0.2% in September, when a positive monthly net flow only partially compensated for the large outflow registered in August. Loans to households remained subdued, with the growth rate slowing from 1.3% in July to 1.0% in August and 0.8% in September. The annual growth rate of M3 – the broad monetary aggregate – had remained negative in September, despite a considerable monthly inflow both from the rest of the world and from a partial reversal of the large net redemptions in loans to firms in August. With positive nominal GDP growth in 2023, the currently slightly negative growth in M3 on an annual basis implied that real money growth was strongly negative. Growth in M1 – currency in circulation and overnight deposits – had increased slightly but remained highly negative. Firms and households continued to shift funds from overnight deposits to term deposits – although this had moderated somewhat in recent months – reflecting attractive rates on the latter. This continued to explain the unprecedented rates of contraction in M1. Overall, the transmission of the policy tightening to lending rates and lending volumes was strong by historical standards, even taking into account the steep path of the ECB’s policy rates in the recent past. Monetary policy considerations and policy options On the basis of the three elements of the Governing Council’s reaction function, Mr Lane proposed maintaining the three key ECB interest rates at their current levels. The incoming information had broadly confirmed the Governing Council’s previous assessment of the medium-term inflation outlook. Inflation was still expected to stay too high for too long, and domestic price pressures remained strong. At the same time, inflation had dropped markedly in September and most measures of underlying inflation had continued to ease. The Governing Council’s past interest rate increases continued to be transmitted forcefully into financing conditions. This was increasingly dampening demand and thereby helped push down inflation. Holding the key ECB interest rates at their current levels would confirm the Governing Council’s assessment in September that the rates were at levels that, maintained for a sufficiently long duration, would make a substantial contribution to a timely return of inflation to target. This was supported by a range of model-based simulations suggesting that, while the tightening cycle had so far had a substantial downward impact on inflation and GDP growth, the further tightening in the pipeline from the current policy stance would press down further on inflation over time. By its December monetary policy meeting the Governing Council would have new data on GDP growth for the third quarter, the October and November inflation figures, fresh monetary data and a new round of projections. The Governing Council’s future decisions should ensure that the key ECB interest rates would be set at sufficiently restrictive levels for as long as necessary. The Governing Council should continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions should remain based on its assessment of the inflation outlook in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. Finally, preserving the option to apply flexibility in pandemic emergency purchase programme (PEPP) reinvestments with a view to countering risks to the monetary policy transmission mechanism related to the pandemic continued to be warranted. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that, while the latest trade data had been better than expected, the near-term outlook for trade had deteriorated compared with the September ECB staff projections. The question was raised as to what extent this was still compatible with expectations that euro area export demand would pick up and be a driver of a strengthening economy in the period ahead. However, it was also stressed that growth in both China and the United States had been better than expected, which pointed to improvements in the international environment. Turning to commodity markets, it was argued that the 1970s were not a good benchmark for assessing the impact of the latest spikes in oil prices, as energy substitution was easier now than it had been then. Moreover, wholesale gas prices, which had been the main source of recent high levels of energy inflation, had remained well below previous peaks. At the same time, concerns were expressed that the developments in the Middle East could lead to energy-related supply shocks, which, as in the 1970s, would have negative consequences for both growth and inflation worldwide. With regard to economic activity in the euro area, members generally concurred with Mr Lane that the economy remained weak and the outlook was deteriorating. Subdued foreign demand and tighter financing conditions were increasingly weighing on investment and consumer spending. Recent information suggested that manufacturing output had continued to fall and that the services sector was also weakening. Several factors were at play here: subdued industrial activity was spilling over to other sectors, the impetus from the post-pandemic reopening effects was fading and the impact of higher interest rates was broadening across sectors. The economy was likely to remain weak for the remainder of 2023. However, as inflation fell further, household real incomes recovered and the demand for euro area exports picked up, the economy should strengthen over the coming years. It was widely underlined that the outlook for the global economy and for the euro area was surrounded by elevated uncertainty. In this context, members noted that the weaker outlook for economic growth since the September monetary policy meeting implied a materialisation of the downside risks that had already been identified at the time of that meeting. Nowcasting tools indicated lower growth in the third and fourth quarters of 2023 than had been expected in the September ECB staff projections, and even implied that there would be a technical recession. It was suggested that continuing weakness in the fourth quarter would increase concern about whether activity would really pick up gradually in that quarter, as had previously been expected, or whether weakness could persist well into 2024. At the same time, it was argued that, while PMI indicators still pointed towards a deeper downturn, they might have lost some predictive power. Furthermore, the latest information pointed to stagnating activity rather than a deep recession. There were therefore concerns that the weaker short-term outlook, combined with a slight worsening of external demand and a further tightening of financing conditions, could also imply weaker than expected growth in 2024 and 2025. More fundamentally, the question was raised as to where the improvement in economic activity projected by staff in September would come from if growth was currently slowing in all components of demand – namely consumption, investment and exports – and while fiscal and monetary conditions were tightening. At the same time, it was argued that even a somewhat weaker growth outlook was still compatible with a “soft landing” narrative, as entailed in the September ECB staff projections, if inflation continued to decline and real incomes recovered. The observed weaker growth also partly reflected the successful transmission of tighter monetary policy. This transmission was well advanced and its impact now appeared to be close to peaking. The bleaker short-term outlook thus did not stand in the way of the gradual recovery in 2024 and 2025 expected in the staff projections. A soft landing scenario was seen to be supported by sound household balance sheets. Available data suggested that higher savings in the second quarter of this year reflected, to a large extent, repayments of loans rather than increased cash holdings. While this suggested that households were not imminently about to start consuming more, the improvement in balance sheets was positive for financial stability and made household positions safer in the longer term. Turning to employment, it was noted that the strength of the labour market had so far been supporting economic activity. Members emphasised different aspects of the latest data. On the one hand, they noted that the labour market was still tight and had once again performed better than expected, with a historically low unemployment rate. Firms holding on to their employees was an essential part of the narrative that growth would resume owing to higher spending. Moreover, even a limited increase in unemployment would still be compatible with a soft landing scenario. On the other hand, the point was made that signs of labour market weakening constituted an important change from earlier assessments. The concern was expressed that the strong performance of the labour market was in part due to labour hoarding and thus was fragile. It was argued that labour markets in Europe today were much more exposed to the vagaries of external shocks and that adjustments, when they occurred, would be stronger than before. If the weakness in foreign demand were to continue, this could be transmitted to the labour market in a more abrupt manner and therefore implied downside risks to growth. In this context, it was also noted that both productivity and average hours worked per person employed had not yet fully recovered from the pandemic, and that it was uncertain whether the economy could find itself in a new normal where these two indicators were simply lower on a structural basis. This also had implications for the inflation outlook in the medium term. With regard to fiscal policies, members reiterated that, as the energy crisis faded, governments should continue to roll back the related support measures. This was essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy. Fiscal policies should be designed to make the economy more productive and to gradually bring down high public debt. Structural reforms and investments to enhance the euro area’s supply capacity – supported by the full implementation of the Next Generation EU programme – should help reduce price pressures in the medium term, while supporting the green and digital transitions. To that end, the reform of the EU’s economic governance framework should be concluded before the end of the year and progress towards a capital markets union and the completion of the banking union should be accelerated. Members noted that countries’ draft budgetary plans remained broadly in line with the assumption of a slightly more restrictive fiscal stance in 2024 than in 2023 for the euro area as a whole, as incorporated in the September ECB staff projections. However, further analysis of the impact of the economic cycle and the current economic slowdown on the overall budget balance and the cyclically adjusted balance was seen as warranted. Another issue was the sustainability of recent and future debt developments. In particular, it was pointed out that recent reductions in debt-to-GDP ratios reflected, to a large extent, the impact of high inflation and should not be interpreted as policy-driven consolidation efforts. With inflation receding, these windfall gains could not be counted on any longer, and the impact of higher interest rates on government funding costs was also yet to have its full effect. Concerns were expressed that ongoing discussions on the fiscal rules in the context of the deliberations about the EU’s economic governance framework could imply a vacuum for 2024, as the Stability and Growth Pact had not yet been replaced by new regulations. Disciplined fiscal policies were considered paramount for achieving price stability. However, it was argued that the current fiscal stance risked pushing in the opposite direction, including via measures that altered borrowing costs and could hence be seen as directly interfering with monetary policy transmission. At the same time, the point was made that fiscal tightening without structural reforms would be of limited help and that the economy needed support from the supply side. Members assessed that the risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy would also weigh on growth. Russia’s unjustified war against Ukraine and the tragic conflict sparked by the terrorist attacks in Israel were key sources of geopolitical risk. This might result in firms and households becoming less confident about the future, and could dampen growth further. Conversely, growth could be higher than expected if the still resilient labour market and rising real incomes meant people and businesses became more confident and spent more, or if the world economy grew more strongly than expected. It was noted that while downside risks identified earlier had materialised, additional risks and uncertainty had arisen since the Governing Council’s September monetary policy meeting. This related mainly to the impact of the conflict in the Middle East, particularly if it were to escalate further. As this had come on top of the war in Ukraine, the resulting uncertainty could make firms more apprehensive, leading to less demand for investment. Given that developments in China also remained a source of fragility, it was suggested that downside risks mainly stemmed from the external environment. These also included the possibility of spillovers from the United States, owing to euro area long-term yields moving higher in tandem with those in the United States. At the same time, recent positive surprises suggested that developments in the United States and China could also turn out better than expected. Overall, while growth continued to be weak, the Eurosystem staff projections in December would provide a more comprehensive picture. Turning to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. The incoming information had largely confirmed the previous assessment of the medium-term inflation outlook. Inflation had dropped to 4.3% in September, which was due partly to strong base effects, with the decline broad-based. In the near term, inflation was likely to come down further, as the sharp increases in energy and food prices recorded in autumn 2022 would drop out of the yearly rates. However, energy prices had risen again recently and had become less predictable in view of the new geopolitical tensions. Regarding headline inflation, members observed that the latest developments had been broadly in line with the September ECB staff projections. Furthermore, it was remarked that the indicators of underlying inflation had been moving in the right direction over recent months and that most had passed their peak and were continuing to decline. Costs, notably for industrial raw materials, had fallen and, overall, pipeline price pressures continued to decline and were being passed through to consumer prices. At the same time, it was noted that domestic price pressures remained strong, reflecting the persistence of services inflation and the impact of continuing wage pressures on underlying inflation. There had been increases in momentum across most components of headline inflation, with the exception of services inflation. Members noted that the latest information on wages also appeared to be broadly in line with the expectations entailed in the September ECB staff projections. It was highlighted that the increase in the wage drift component had been stronger than growth in negotiated wages. Wage drift being more sensitive to cyclical developments could, however, also imply a more pronounced weakening of wage growth dynamics if demand were to weaken and employment to stagnate. It was remarked that there had been limited signs of second-round effects and no evidence of wage-price spirals thus far. In cumulative terms, real wages in the euro area remained subdued compared with at the beginning of the inflationary process. Information from the ECB wage trackers on recently signed wage agreements pointed to continued strong wage growth. While this was expected to moderate over time, the decline had yet to materialise and was subject to high uncertainty. Rising energy prices might delay or dampen the expected decline in wage growth, as they might be used to justify higher wage demands. Measures of longer-term inflation expectations were mostly around 2%, but some indicators remained elevated and needed to be monitored closely. The recent decline in market-based inflation compensation was seen as a welcome development and in line with a reinforced credibility for bringing inflation back to target. However, it was also the case that markets were more forward-looking in their expectations, while the expectations of households and parts of the business sector had strong backward-looking elements. This difference needed to be borne in mind in case there were new surprises in inflation. In this context, inflation expectations were seen as fragile, as was visible in the renewed uptick in consumer expectations, possibly in response to the higher energy prices. Moreover, in the latest ECB Survey of Professional Forecasters, respondents had seen an upshift in the balance of risks for inflation expectations at the two-year horizon and a one-third probability that inflation would be above 2.5% in the longer term. Members also considered that the increased uncertainty surrounding the outlook for economic growth translated into additional uncertainty for the outlook for inflation, particularly beyond the short term. It was noted that headline inflation would likely continue to decline in the near term, largely owing to base effects. At the turn of the year, a temporary rebound in headline inflation could be expected because of energy-related base effects. Members underlined that the outlook for wage growth continued to be highly uncertain. The picture for wage developments would only gradually crystallise during the course of next year, in view of the long lags between hard data releases. It was argued that the strong decline observed in headline inflation and the increased confidence in inflation returning to the ECB’s target should help contain upward pressure on wages in coming negotiations. The high levels of uncertainty surrounding the outlook for wages, as well as the outlook for productivity and average hours worked per person employed, implied a highly uncertain outlook for unit labour costs and, in turn, for inflation. Moreover, unit profits also played a crucial role in determining the future path of inflation. It was noted that the previous upward shift of profit margins could prove temporary if cyclical conditions weakened. At the same time, an easing in other cost factors might help mitigate any upward pressures on margins. Against this background, members assessed that there were both upside and downside risks to inflation. Upside risks could come from higher energy and food costs. The heightened geopolitical tensions could drive up energy prices in the near term and make the medium-term outlook more uncertain. Extreme weather, and the unfolding climate crisis more broadly, could push food prices up by more than expected. Higher than anticipated increases in wages or profit margins, or a lasting rise in inflation expectations above target, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy or a worsening of the economic environment in the rest of the world amid greater geopolitical risks – would ease price pressures, especially over the medium term. There were differing views on the overall balance of risks for inflation. Some members viewed the overall balance as tilted to the upside, owing to upside risks to wage growth and energy prices. Upside risks could also stem from the impact of the recent depreciation of the euro, primarily against the US dollar. Other members saw inflation risks as balanced, with inflation broadly seen evolving as projected and converging back to the 2% target over the medium term, possibly even with a risk of undershooting. Some downside risks to core inflation were seen, owing to economic activity being weaker than expected and recent data for core inflation being slightly lower than expected. Regarding the consequences of further negative supply shocks, specifically related to energy, the view was expressed that such a scenario was unlikely to play out in the same way as the large commodity price shocks of 2021-22, which had coincided, amid persistent supply bottlenecks, with the release of pent-up demand and the post-pandemic reopening. The increases in oil prices stemming from the conflict in the Middle East had so far been limited, and the market had seen the recent increase as a spike rather than a very persistent shift. The weaker aggregate demand due to tighter monetary policy should, in principle, induce firms to either resist large increases in unit labour costs or absorb them into profit margins rather than pass them on to consumers. It was argued that the large increases in profit margins in 2022 suggested that in future there would be scope to absorb higher energy costs into margins. Still, the upside risks from higher energy prices – coming after a long period of inflation substantially above target – were not seen as insignificant, even if the current macroeconomic environment was quite different. In this context, any persistence in higher energy prices could trigger further second-round effects, especially with a large number of wage agreements being negotiated at the start of the coming year. This could imply a delay or a reduction in the expected decline in wage growth. Overall, the risks posed by the geopolitical environment, including direct or indirect effects of higher commodity prices or its impact on economic sentiment among firms and households, warranted close monitoring. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. The most significant development since the Governing Council’s previous monetary policy meeting was the marked rise in longer-term interest rates, reflecting large increases in other major economies, notably the United States. The decline in the five-year forward inflation-linked swap rate five years ahead was also noted. This had contributed to a more pronounced increase in real interest rates and was seen as a welcome sign of the credibility of the Governing Council’s recent monetary policy actions. Overall, the rise in long-term rates and the correction of risk asset prices were judged as further tightening financial conditions, while the depreciation of the euro had the opposite effect. Members discussed a range of explanations for the rise in US longer-term interest rates, which could also have different implications for expected spillovers to the euro area. These explanations included better than expected US macroeconomic developments supporting narratives of rates remaining high for longer, and a rise in the term premium. An increase in potential output in the United States or rising concerns about the financing requirements associated with persistently high US budget deficits could both have pushed up the natural interest rate. It was noted that technical factors were playing a role. It was also argued that an environment of quantitative tightening – lacking stable demand for bonds from central banks – would naturally increase the term premium, as the market clearing rate for long-term bonds was higher than before, especially in the face of spikes in volatility as seen recently. There was broad agreement that spillovers from the United States were a major driver of the increase in euro area longer-term interest rates, contributing to a rise in euro area OIS rates of just over 20 basis points since the Governing Council’s previous monetary policy meeting. It was noted that the developments were not related to the underlying economic fundamentals and the inflation outlook in the euro area, and that they were driven by the term premium component rather than the expectations component of long-term interest rates. In this regard, it was also argued that euro area fiscal policy may have played a role in driving term premia higher. An additional possibility was that financial markets had started to price in a higher natural interest rate for the euro area. Members generally agreed that the rise in longer-term interest rates in the euro area had tightened financing conditions by more than anticipated. It was argued that this made it more likely that the Governing Council’s monetary policy stance was restrictive enough, although there were still uncertainties around this assessment. There were different views on the desirability of higher long-term rates for the euro area. On the one hand, they could be seen as undesirable in that they were not linked to euro area developments but contributed to additional tightening. This could unnecessarily weaken economic activity by more than intended and might cause inflation to undershoot. Moreover, higher long-term rates could render fiscal sustainability more challenging for some euro area countries. On the other hand, higher long-term rates could be welcomed after a long period in which term premia had been substantially compressed. They would strengthen monetary policy transmission to activities based on longer-term credit and signal to governments that longer-term borrowing would be more costly in the future. In addition, such tightening would enhance the credibility of inflation returning to target in a timely manner and be consistent with maintaining the policy rates at sufficiently restrictive levels for an extended period. From an economic growth perspective, the impact on the euro area depended on whether the rise in US long-term interest rates was being driven by better growth prospects for the US economy, which would imply positive spillover effects via stronger euro area external demand. Members agreed that monetary policy continued to be transmitted strongly into broader financing conditions. Funding had become more expensive for banks, and average interest rates for business loans and mortgages had risen again in August, although rates on longer-term loans to non-financial corporations had declined. The latest bank lending survey indicated a further sharp drop in credit demand in the third quarter, driven by higher borrowing rates and cuts in investment plans and house purchases. Credit standards for loans to firms and households had also tightened further. At the same time, it was noted that the resilience of the banking sector was not seen as a concern, that the latest Survey on the Access to Finance of Enterprises suggested financial constraints remained contained in a historical comparison, and that the latest Corporate Telephone Survey suggested banks were still willing to lend to firms in most sectors of the economy. Against this background, monetary and credit aggregates continued to decline rapidly. Amid weak lending and the reduction in the Eurosystem balance sheet, M3 continued to contract sharply. In August it had fallen, in annual terms, at the fastest rate recorded since the introduction of the euro and in September had remained negative. Credit dynamics had weakened further, with the annual growth rate of loans to firms dropping sharply and that of loans to households remaining subdued. At the same time, it was noted that there were no indications of financial amplification, i.e. weaknesses in the banking sector reinforcing negative macroeconomic developments. Moreover, the earlier large negative flows in credit to non-financial companies were seen as driven mainly by a decline in short-term lending, typically associated with the financing of working capital needs and inventories. Moreover, loan momentum was not falling as quickly as previously, with the large negative net flows recorded in August partly reversed in September. Still, monetary transmission via the bank lending channel was generally seen to have been stronger than previously anticipated, including by banks themselves, and to have led to a significant tightening of financing conditions. It was also noted that transmission could have been even stronger if it had not been for structural labour shortages and resilient risk sentiment in the financial markets, as reflected in robust equity markets and relatively compressed risk premia. At the same time, it was mentioned that the services sector, which was accounting for most of the persistence of inflation, appeared not to be very sensitive to the tightening of financing conditions according to the Corporate Telephone Survey. Three out of four services firms had not seen an impact from tighter financing conditions on their business activity over the past 12 months and the ratio was even higher looking ahead over the next 12 months. Financial conditions still had indirect effects on the services sector through the slowdown in the growth of aggregate demand. Nevertheless, until recently, this had been compensated for by strong reopening effects. It was highlighted that for some countries the reduction in mortgage lending was a particular concern. Reference was made to a few countries that had introduced measures to support the mortgage market, which were counteracting the effect of monetary policy measures to bring down inflation. However, it was observed that this was not a general situation across the euro area and, overall, it was widely felt that monetary transmission was working well and was strong yet gradual and orderly. Looking ahead, it was argued that further transmission was still to come as fixed rate lending was rolled over, especially in countries with a higher ratio of fixed to variable rate loans. This suggested that transmission was unfolding only very gradually owing to long mortgage fixation periods. Moreover, attention was drawn to large cash buffers in parts of the corporate sector that could reduce the need for new borrowing for some time, in conjunction with the inventory cycle coming to an end. The extent of additional transmission remained uncertain but there was a possibility that it could strengthen further, in part because higher long-term interest rates could dampen growth in long-term credit. At the same time, it was noted that the latest bank lending survey suggested banks were expecting to tighten credit standards to a lesser extent in the coming quarter. Such an outcome would mean that, all else being equal, this subset of financing conditions might soon plateau. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members highlighted that the uncertainty surrounding the economic outlook had increased compared with at the time of the September Governing Council meeting, also affecting the assessment of the appropriate monetary policy stance. At the same time, it was noted that financing conditions had tightened on account of the spillovers from the United States, which increased confidence that – barring significant deviations in inflation from the September ECB staff projections – the monetary policy stance was sufficiently restrictive and would bring inflation back to target in a timely manner. Moreover, the view was held that markets had revised their expected interest rate path to higher levels, which – if maintained for some time – would contribute to a sufficiently restrictive monetary policy stance. It was cautioned, however, that in view of the tight labour market the current level of policy rates might not be as restrictive as generally thought. Moreover, the fact that market participants had also moved back the date at which they expected a first rate cut was seen as evidence that they did not perceive a risk of overtightening. Against this background, members assessed the data that had become available since the September monetary policy meeting in accordance with the three main elements of the “reaction function” that the Governing Council had communicated earlier in the year. These comprised the implications of the incoming economic and financial data for the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Overall, the view was held that all three elements of the reaction function were moving in the right direction, providing clear evidence that monetary policy was working as intended. Starting with the inflation outlook, members broadly concurred with the assessment presented by Mr Lane in his introduction. Overall, the process of disinflation seemed to be proceeding largely as expected, reflecting not only diminishing effects from exogenous factors that had been pushing inflation up, but also the impact of monetary policy. Headline inflation had evolved as projected, although growth had turned out to be weaker than expected, partly owing to a materialisation of downside risks. It was noted that the slowdown in economic activity was also reflecting the dampening effect of past interest rate increases. At the same time, comfort was drawn from the fact that forecast errors for inflation were close to zero and, if anything, the disinflation process was proceeding somewhat faster than expected. Overall, these developments were seen as creating confidence that this process would continue, bringing inflation back to target in a timely manner. It was cautioned, however, that most of the dampening effects from past interest rate increases on inflation had yet to materialise over the coming two years, for which uncertainty – stemming mainly from future wage dynamics, fiscal policy and geopolitical risks – was still high. If upside risks to inflation from these factors materialised, it would likely take some time before their effects on inflation became evident. Moreover, it was recalled that monetary policy faced challenges in addressing the effects of adverse supply shocks on inflation. Overall, it was maintained that, given the current outlook, it could be expected that the Governing Council would be able to bring inflation back to its 2% target by 2025. Although it was generally assumed that the “last mile” in bringing inflation back to target was the most difficult, it was argued that the Governing Council should be careful that its efforts to tame inflation did not eventually lead to an undershooting of the target. Members agreed that most indicators of underlying inflation appeared to have passed their peak and continued to decline, a signal for which the Governing Council had been waiting for months. At the same time, domestic inflation was stubbornly high and longer-run inflation projections still seemed to be above the Governing Council’s target. Turning to the assessment of monetary policy transmission, members generally agreed that transmission was proceeding more strongly than had been anticipated in September. Moreover, a significant part of the interest rate pass-through was still pending and likely to restrain activity and inflation over the projection horizon. It was also pointed out that all successful disinflationary periods had required a prolonged period of rates in restrictive territory and weakening labour markets. At the same time, downside risks were highlighted that could strengthen transmission to economic activity and inflation even further. In any case, it was stressed that there was no room for complacency, as the difficult part of the disinflation process was only starting. Inflation dynamics over the remainder of the year would likely be characterised by various base effects that could be misinterpreted as a reversal in the inflation trend and lead to market volatility, although the inflation uptick would be short-lived and would not change the overall disinflationary outlook. In this context, it was cautioned against declaring victory over inflation at the current stage, when inflation was still more than twice the ECB’s target. Overall, confidence was expressed in the progress made, although it was seen as important to maintain the restrictive stance for a sufficient time. With rates in restrictive territory, patience and persistence were needed to ensure that inflation converged towards the medium-term target in a timely manner. The Governing Council would assess incoming data as they arrived and act if needed. Monetary policy decisions and communication Against this background, all members agreed with the proposal by Mr Lane to maintain the three key ECB interest rates at their current levels. All three elements of the Governing Council’s reaction function were considered to support the case for a “hold” in the hiking cycle, after ten consecutive increases in interest rates. Confidence was expressed that the current monetary policy stance was sufficiently restrictive, which gave the Governing Council the opportunity to keep rates at current levels and take time to assess the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. It was observed that markets were expecting policy rates to stay high for a longer period than predicted ahead of the Governing Council’s September meeting. Expectations were moving from a hump-shaped interest rate path – one that macroeconomic models tended to prescribe as optimal – to a flatter profile with a later first cut in the deposit facility rate. It was deemed important for the Governing Council to avoid an unwarranted loosening of financial conditions. Moreover, members argued in favour of keeping the door open for a possible further rate hike, in keeping with the Governing Council’s emphasis on data-dependence. While the decision at the September meeting had been a close call, the interest rate hike in September had reinforced progress towards the price stability objective. Another important element had been the definition of the 2% inflation target that the Governing Council had introduced following its monetary policy strategy review in 2021. It was noted that throughout this inflation episode, market and survey-based indicators of medium-term inflation expectations had remained anchored at target. Members agreed that the focus of the current meeting was communication rather than action. It was seen as necessary for the Governing Council to adapt its communication to the considerable uncertainty surrounding the evolving economic and inflation outlook during a phase in which the economy was slowing down. At the same time, it was argued that the Governing Council should strive for continuity and consistency and stick to its previous communication as closely as possible to avoid sending a message of complacency. Members agreed that the Governing Council should continue to stress its determination to set policy rates, through its future decisions, at sufficiently restrictive levels for as long as necessary to bring inflation back to target in a timely manner. In view of the high uncertainty and the risk that further supply shocks could materialise, the Governing Council’s data-dependent approach was also reaffirmed. Even if interest rates were left unchanged at the current meeting, the view was held that the Governing Council should be ready, on the basis of an ongoing assessment, for further interest rate hikes if necessary, even if this was not part of the current baseline scenario. In conclusion, it was stressed that the Governing Council had to be both persistent and vigilant. Persistence was seen as essential to bring inflation back to 2% in the medium term. This was also meant to convey perseverance and patience in the face of new shocks that could materialise. Vigilance implied that, while the Governing Council had to assert the effectiveness of its measures and to acknowledge the progress that had been made, overconfidence and complacency had to be avoided in view of possible new challenges that could lie ahead until inflation was brought back to target. Members also agreed with the Executive Board’s proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. There was broad agreement that continuity in PEPP reinvestments would be consistent with a decision to keep interest rates unchanged at the October meeting, while a discussion of an early termination of PEPP reinvestments at the current meeting was seen as premature. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 26 October 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 25-26 October 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Elderson Mr Hernández de Cos* Mr Herodotou* Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller Mr Nagel Mr Panetta Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Välimäki, temporarily replacing Mr Rehn Mr Vasle Mr Villeroy de Galhau Mr Visco Mr Vujčić* Mr Wunsch * Members not holding a voting right in October 2023 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Kaasik Mr Kroes Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Mr Nicoletti Altimari Mr Novo Mr Pösö Mr Rutkaste Mr Šošić Mr Tavlas Mr Ulbrich Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 18 January 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 13-14 December 2023 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 13-14 December 2023 18 January 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 25-26 October 2023 the narrative in financial markets had entirely turned around, proving once again its high sensitivity to incoming data and central bank communication. Markets had turned bullish, driven by expectations of quick and “immaculate” disinflation and an early and sharp monetary policy reversal. This repricing had supported risk asset prices, with equity markets soaring and sovereign and corporate credit spreads narrowing amid continued smooth market absorption. Buoyant risk asset markets and a stronger euro exchange rate were consistent with investors pricing in a bottoming-out rather than a deterioration in the euro area’s economic growth momentum. Looking at the key drivers of financial market developments and monetary policy expectations, the first and dominant factor had been the downward surprise in inflation worldwide. Second, other macroeconomic data, excluding inflation, had also come in better than expected in the euro area, alleviating fears of a “hard landing” of the economy. The third factor supporting investor risk appetite had been diminishing impact of geopolitical tensions, accompanied by lower oil prices. The pronounced swing in market pricing over recent months had resulted in strong movements in financial conditions indices. The tightening in euro area financial conditions seen in September and October on the back of expectations that interest rates would be high for longer, as well as a decompression of term premia, had more than reversed in November and early December when investors had positioned for rapid disinflation. Almost all components of the standard financial conditions indices pointed towards a substantial loosening of financial conditions to levels last seen at the start of the year. Investors had substantially revised their assessment of both the near-term and longer-term inflation outlook since the Governing Council’s previous monetary policy meeting. They now expected inflation to come down much more quickly and to stand close to the ECB’s 2% inflation target thereafter. The inflation-linked swap (ILS) forward curve pointed to three features of markets’ pricing of annual inflation in the Harmonised Index of Consumer Prices (HICP) beyond 2024. First, market-based measures of compensation for headline inflation in the euro area had moved lower over the entire maturity spectrum. Second, investors did not foresee a scenario in which inflation would return to below-target levels. Third, compared with the period before the global financial crisis, the ILS forward curve was currently more upward-sloping, driven by inflation risk premia that were gradually increasing over the horizon. In other words, in the new global economic and geopolitical landscape, upside risks to longer-term inflation were seen as more prominent than before the global financial crisis. The disinflation narrative, which had first emerged in the United States, had found fertile ground in the euro area, spilling over into euro area short-term rate markets, especially after the flash estimate of euro area inflation in November had come in lower than expected. Markets were currently pricing in an earlier first rate cut by the ECB and a swifter rate-cutting cycle than they had at the time of the Governing Council’s previous monetary policy meeting. A 25 basis point cut in April 2024 had been fully priced in by markets as of 13 December, even prior to the release of the policy rate decision by the US Federal Open Market Committee (FOMC). Expected cumulative rate cuts in the euro area by the end of 2024 had increased to nearly 140 basis points, from around 60 basis points at the time of the Governing Council’s previous monetary policy meeting. One important factor behind the sharp downward adjustment in forward rates had been the pricing-out of further rate hikes. At the time of the October Governing Council meeting, option prices had pointed, under the assumption of risk neutrality, to a 25% probability of a further 25 basis point rate hike. As of 13 December, markets attached only an 8% probability to a further rate hike. By contrast, the most likely outcomes reported by survey respondents were less affected by changes in the tails of the distribution of responses. This could partly explain the substantial divergence between survey-based and market-based expectations, with analysts expecting later and fewer rate cuts than market participants. Participants in the Survey of Monetary Analysts expected a cumulative cut of 75 basis points, starting only in July 2024. Another factor that could explain this divergence was that analysts tended to be more sluggish in revising their expectations, waiting for firmer central bank guidance. Similar developments had been seen at the start of the tightening cycle, when survey results had lagged the forward curves in the euro area and the United States for several months. As a result of the inflation and monetary policy repricing, real rates at the very short end of the curve had risen measurably as investors reappraised the near-term inflation outlook, while nominal short-term rates had been more “sticky”, reflecting the ECB’s communication. Looking beyond the short term, however, real forward rates had dropped markedly over the entire maturity spectrum as the decline in nominal interest rates had been greater than the downward revision to the inflation outlook over the medium and longer term. In other words, the previous tightening had been partly reversed. A decomposition of euro area equity price movements showed that the strong rise in share prices since the Governing Council’s previous monetary policy meeting had been driven by the accommodative monetary policy repricing, with a small countervailing effect from earnings expectations. Developments in fixed income markets were consistent with market participants positioning for a bottoming-out rather than a further deterioration in the growth momentum of the euro area economy. The reappraisal of the policy rate outlook, in combination with somewhat better macroeconomic news for the euro area, had reversed the widening of spreads for corporate and sovereign bonds that had been observed in September and October. Regarding possible adjustments to reinvestments in the pandemic emergency purchase programme (PEPP) portfolio, the December results of the Survey of Monetary Analysts suggested that markets were already expecting a partial run-down of PEPP reinvestments from the middle of 2024 and a full run-off after December 2024. Moreover, the sustained demand for bonds in primary and secondary markets amid the ongoing run-down of the asset purchase programme (APP) portfolio was likely to support the smooth market absorption of an earlier end to full PEPP reinvestments. Private investors had stepped in as the Eurosystem had reduced its footprint in sovereign and corporate bond markets. The smooth absorption had also been supported by debt managers tapping into retail demand and reducing somewhat the maturity of newly issued debt. Banks’ funding conditions had also benefited from the monetary policy repricing and improved risk sentiment. Euro area bank bond spreads had narrowed, most notably for riskier bonds. Investor appetite for bank bonds had led to healthy primary market issuance activity, even in the Additional Tier 1 (AT1) bond segment. The increased recourse to market-based funding by banks amid more favourable funding conditions suggested that banks were able to smoothly absorb repayments of targeted longer-term refinancing operations (TLTROs), as also suggested by notable voluntary repayments. Year-end dynamics in funding markets were expected to be calm. The generally smaller Eurosystem footprint in bond markets and lower excess liquidity should help to reduce distortions in the repo markets on reporting dates. Turning to exchange rate developments, the euro had initially appreciated markedly against the US dollar after the Governing Council’s October monetary policy meeting. This appreciation had been stronger than suggested by movements in interest rate differentials and had been partly the result of improved investor sentiment on the back of the global repricing of monetary policy, which had weighed on the US dollar. Since late November the euro had partly reversed its gains. However, speculative positions pointed to a future appreciation of the euro against the dollar, consistent with expectations of a “soft landing” of the euro area economy. The global environment and economic and monetary developments in the euro area Reviewing the global economy, Mr Lane noted that in 2023 world real GDP had been stronger, while global trade had turned out weaker, than had been projected in December 2022. One reason for the drop in the elasticity of trade to global growth was related to the post-pandemic normalisation of the composition of demand from more trade-intensive goods to less trade-intensive services. The most recent data showed that consumption of goods and services was approaching the respective pre-pandemic trends, suggesting that the process of change in the composition of demand was coming to an end. The global inventory cycle was also returning to more normal fluctuations. During the pandemic, trade had been pushed higher by a strong build-up of inventories, much of which were imported inventories, because of global supply chain problems. As the supply chain disruptions unwound and new orders declined, the historically high stock of inventories had been run down. The normalisation of the inventory cycle was expected to contribute to a strengthening in trade growth and a normalisation of trade elasticities in the period ahead. Turning to the euro area, Mr Lane recalled that the November flash estimate for inflation had been substantially lower than expected, with headline inflation falling to 2.4%, from 2.9% in October. All of the main components of the HICP had contributed to the decline. Core inflation (i.e. excluding the energy and food components) had decreased to 3.6% in November, from 4.2% in October. The decline in non-energy industrial goods inflation to 2.9%, from 3.5%, reflected easing supply chain bottlenecks and slowing demand growth. Services inflation had declined to 4.0% in November, from 4.6% in October. All measures of underlying inflation had fallen in October. While the annual rate of domestic inflation had remained elevated at 5%, the momentum in this indicator had declined markedly over the last three months. Compared with one year ago, there had been very strong disinflation. Headline inflation had fallen by around 8 percentage points over the last year owing, in particular, to the massive declines in the energy component. When looking back at the inflation projections of December 2022, staff had been correct in foreseeing the major disinflation process a year ahead. This disinflationary process over the course of 2023 was due not only to base effects from the large energy price increases in 2022 but also to lower energy inflation in 2023. Food prices had also contributed to this disinflation – as had core inflation more recently. Looking ahead, the current assessment was that inflation had reached the end of the strongest phase of the disinflationary cycle. While core inflation and food inflation were expected to continue their gradual decline, upward energy-related base effects and the expiry of the fiscal measures introduced to compensate for the effects of inflation were pushing up headline inflation. In terms of inflation momentum, as measured by the annualised three-month-on-three-month percentage changes in inflation, goods inflation had fallen to below 1% in November. However, momentum in services inflation, while declining, remained strong. Focusing on the measures of underlying inflation, Mr Lane recalled that these measures were supposed to capture the persistent component of inflation, which was the component of inflation that was expected to persist one or two years ahead. During the past two years all measures of underlying inflation had first increased and then fallen significantly, giving only a blurred signal on the underlying inflationary forces. Measures that were adjusted for energy and supply bottleneck shocks had seen a less steep increase and decrease. So, while the decline in underlying inflation was also evident in these adjusted measures, they pointed to a smaller improvement from a lower peak level. The decline in the adjusted measures of underlying inflation could be partly attributed to the effects of monetary policy. In other words, without the action of monetary policy, underlying inflation would have stayed higher. An analysis of price dynamics for individual items in the core inflation basket showed that items accounting for almost half of core inflation were sensitive to monetary policy, and that these were the items that had lately declined more. This helped to explain the decline in underlying inflation and demonstrated that monetary policy was working its way through the economy as envisaged. Short-term selling price expectations of firms, as reported in the European Commission’s latest business survey, pointed to a normalisation in manufacturing, as the share of firms expecting to charge higher prices three months ahead was close to its long-term average. The latest Eurostat release showed that the rate of increase in compensation per employee had declined by 0.3 percentage points to stand at 5.2% in the third quarter, with the contribution of unit profits to the GDP deflator also falling substantially. This suggested that, as expected, moderating growth in profits was beginning to absorb some of the inflationary effects of wage increases. However, wage growth remained strong. Negotiated wage growth including one-off payments had increased to 4.7% in the third quarter, from 4.4% in the second quarter. Forward-looking wage trackers continued to signal high pressures, although there had been some deceleration in the Indeed wage tracker. As regards inflation expectations, the October round of the ECB’s Consumer Expectations Survey showed that consumers had still not adjusted their perception of past inflation downwards, which was a risk factor for upcoming wage negotiations. On the side of professional forecasters, by contrast, the latest Survey of Monetary Analysts showed a sizeable drop in inflation expectations for 2024. Longer-term inflation expectations reported in the survey remained stable at 2%. In the near term, headline inflation was set to pick up again, owing to energy-related base effects and the expiry of fiscal measures aimed at limiting the repercussions of the energy price shock. For 2024, the staff projections saw inflation declining only gradually – as a result of upward base effects and the phasing-out of past compensatory fiscal measures – before approaching the Governing Council’s target in 2025. Nonetheless, the strength of the ongoing disinflation process was reflected in the December projections: staff had revised down their projections for headline inflation by 0.2 percentage points to 5.4% for 2023 and by 0.5 percentage points to 2.7% for 2024. The 2025 projection was unchanged at 2.1%, while for 2026 inflation was projected to be 1.9%. Core inflation was projected to be 5.0% in 2023, 2.7% in 2024, 2.3% in 2025 and 2.1% in 2026. Mr Lane focused on the fourth-quarter-over-fourth-quarter growth rates, as these were free from carry-over effects. Starting with HICP inflation, the December projections showed a growth rate of 2.8% in the fourth quarter of 2023 over the fourth quarter of 2022, which was expected to slow very gradually to 2.6% in the fourth quarter of 2024. Thus the evolution of inflation during 2024 would be fairly flat. However, the slowdown in core inflation, which was less affected by base effects, was projected to be faster – with the rate falling from 3.8% in the fourth quarter of 2023 to 2.7% in the fourth quarter of 2024. Upside risks to inflation included the heightened geopolitical tensions, which could raise energy prices in the near term, and extreme weather events, which could drive up food prices. Inflation could also turn out higher than anticipated if inflation expectations were to move above the target, or if wages or profit margins increased by more than expected. By contrast, inflation could surprise on the downside if monetary policy dampened demand by more than expected or the economic environment in the rest of the world worsened unexpectedly, potentially owing in part to the recent rise in geopolitical risks. Turning to economic activity in the euro area, in the third quarter real GDP had fallen marginally, as rising domestic demand had been offset by the further run-down of inventories. Survey indicators suggested that activity was set to weaken in the services sector and construction would contract again in the fourth quarter, while there were tentative signs that activity in the manufacturing sector was bottoming out. Moving to demand components, private consumption had increased by 0.3% in the third quarter, driven by consumption of services and durable goods. While the consumption of services was still being supported by the remaining effects from the post-pandemic reopening of the economy, durable goods consumption was being boosted by the delivery of previously ordered motor vehicles, as supply bottlenecks were being resolved. Thus the upward movement in durable goods consumption observed in the third quarter was a lagging indicator of overall consumption. As regards near-term expectations, demand for goods that were more sensitive to interest rate changes – chiefly durable goods – was declining, while the consumption of services was still being supported by the remaining reopening effects. The recovery in private consumption embedded in the December Eurosystem staff projections was predicated on falling inflation and rising wages, which were expected to boost real disposable income. Housing and business investment were set to remain weak in view of tight lending conditions. Business investment had been stronger than housing investment during 2023, largely owing to the reduction in the outstanding stock of orders. However, this factor would not support business investment in 2024, which would be increasingly affected by the monetary tightening. Euro area goods export growth had remained negative in September and the growth of import volumes had declined further. Export prospects remained subdued amid increasing competitiveness challenges. According to the European Commission’s business survey, European firms perceived themselves to have become less competitive in the global market, owing to both price factors and, increasingly, non-price factors. Employment had so far been resilient. The unemployment rate had stood at 6.5% in October and employment had increased by 0.2% in the third quarter. However, short-term indicators pointed to a cooling of the labour market and weaker economic activity was dampening the demand for workers, with firms advertising fewer vacancies in recent months. Moreover, the total number of hours worked had edged down by 0.1% in the third quarter. The sequence of subdued growth followed by the expected recovery based on rising real incomes and improving foreign demand was reflected in the new staff projections. Staff expected annual real GDP growth to be 0.6% in 2023, rising to 0.8% in 2024 and 1.5% in both 2025 and 2026. Compared with the September staff projections, real GDP growth had been revised down by 0.1 percentage points for 2023 and 0.2 percentage points for 2024, while it was unchanged for 2025. The risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were key sources of geopolitical risk. This could result in firms and households becoming less confident about the future. Conversely, growth could be higher if rising real incomes led to spending increasing by more than anticipated or the world economy grew more strongly than expected. As regards fiscal policies, the December staff projections entailed relatively small revisions to the main fiscal balances compared with the September projections. For 2024, the budget deficit was expected to decline to 2.8% of GDP and the fiscal stance was expected to tighten. It was important to continue monitoring whether governments would stick to their budgetary plans. Turning to the monetary and financial analysis, market interest rates had fallen markedly since the October Governing Council meeting, more than reversing the significant increases observed earlier in the autumn. Initially, the declines had mainly affected medium to longer maturities, amid spillovers from other major economies. More recently, shorter-term market rates had also declined measurably, mostly in response to inflation falling faster than expected in November. This had resulted in a market forward curve that embedded an earlier and stronger easing of the monetary policy stance than incorporated in the staff projections. Monetary policy transmission remained exceptionally strong. Bank lending to firms and households continued to be weak. The decline in the annual growth rate of bank lending to firms reflected both weaker credit demand and tighter credit standards. The softening of loan demand was mostly due to higher interest rates and slowing nominal fixed investment. For its part, the slowing pace of lending to households was driven by mortgage loans, consistent with the weakness in the housing market and tighter credit conditions. Bank composite funding costs had risen further. The deposit base available to banks continued to contract, with the annual growth rates of M3 (the broad monetary aggregate) and M1 (currency in circulation and overnight deposits) in October standing at -1.0% and -10.0% respectively, close to their recent historical lows. An important question was to what extent pressures from the transmission of monetary policy were still in the pipeline. ECB staff analysis showed that a sizeable increase in policy rates over a short period of time tended to lead to a stronger and faster transmission to credit volumes, and the impact of the tightening cycle on credit growth tended to peak earlier than implied by standard relationships. Such non-linearities seemed to be relevant in the current setting, with a substantial part of the extra interest rate effect attributable to a greater strength of the policy rate adjustments relative to historical regularities. Mr Lane also showed that, from a historical perspective, financing conditions had tightened very strongly over the current hiking cycle. Monetary policy considerations and policy options On the basis of the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, Mr Lane proposed keeping the three key ECB interest rates unchanged. Notwithstanding the recent downside surprises in inflation and the substantial downward revision of projected inflation for 2024, headline inflation was set to return to target only by the second half of 2025. The remaining distance of inflation from the ECB’s target, the waning of disinflationary supply-side tailwinds and, overall, still-high levels of domestic inflation continued to call for maintaining a sufficiently restrictive stance. The Governing Council should therefore maintain its current strategic orientation, namely that its future decisions should ensure that the key ECB interest rates would be set at sufficiently restrictive levels for as long as necessary, and that it would continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions should continue to be based on its assessment of the inflation outlook in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. It was an appropriate time to review the schedule of PEPP reinvestments. With the fading impact of the pandemic and the reduction in fragmentation risks, Mr Lane proposed advancing the normalisation of the Eurosystem’s balance sheet at a measured and predictable pace. In particular, while full reinvestments should be maintained in the first half of 2024, the PEPP portfolio should be allowed to run off by €7.5 billion per month on average in the second half, with reinvestments fully discontinued at the end of the year. This proposal was broadly in line with market expectations, as reflected in the Survey of Monetary Analysts, and would be in line with the Governing Council's guidance that any “future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance”. For the partial reinvestments until the end of 2024, operational modalities similar to those used during the partial reinvestments of the APP could be applied. Furthermore, preserving the option to apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic, continued to be warranted. Finally, in line with the ECB’s monetary policy strategy, it was again time for the Governing Council to thoroughly assess the links between monetary policy and financial stability. Euro area banks had demonstrated their resilience. They had high capital ratios and had become significantly more profitable over the past year. However, the outlook for financial stability remained fragile in the current environment of tightening financing conditions, weak growth and geopolitical tensions. In particular, the situation could worsen if banks’ funding costs were to increase by more than expected and if more borrowers were to struggle to repay loans. At the same time, the overall impact on the economy of such a scenario should be contained if financial markets reacted in an orderly fashion. Macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities, and the measures in place contributed to preserving the resilience of the financial system. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that euro area foreign demand had generally remained weak in 2023, despite an upward revision in the December staff projections compared with September. One important reason for this was the post-pandemic normalisation of demand away from more trade-intensive goods and towards less trade-intensive services. The fallout from the heightened geopolitical risks had so far remained contained and energy prices had come down from their recent elevated levels. The prices of both oil and gas had declined significantly since the Governing Council’s previous monetary policy meeting. With regard to economic activity in the euro area, members concurred with Mr Lane that tighter financing conditions and subdued foreign demand were likely to continue weighing on economic activity in the near term. Members widely acknowledged the weaker than expected growth in the short term. Survey indicators suggested, however, that the economy might have hit its trough, both globally and in the euro area. The Purchasing Managers’ Indices (PMIs) were bottoming out and even showing a small uptick, supporting the prospect of a soft landing. At the same time, it was argued that it would be premature to think that the weakness in activity had run its course. There were several drivers of growth that were unlikely to sustain the euro area economy in the near term. First, there were no clear signals of an upcoming improvement in global trade, while geopolitical risks might be adding to the global weakness, at least in manufacturing. Second, the cash buffers of firms and households had so far delayed the impact of monetary policy on aggregate demand, but as these buffers declined, in tandem with the contraction of the balance sheet of the Eurosystem, the impact of tighter financing conditions was likely to become stronger. As corporate profitability was an important driver of business investment, declining corporate profitability was also seen as a downward risk for investment. Third, a generalised tightening of the fiscal stance was to be expected, possibly in part related to the EU economic governance review, which would put further downward pressure on the economy. Finally, the exceptionally strong monetary policy transmission to lending to firms and households risked having a stronger negative impact on growth and inflation than had been incorporated in the December baseline projection by Eurosystem staff. On this basis, it was argued that the December staff projections for growth in the near term might be too optimistic overall, also considering that mechanical nowcasting tools continued to point to slower economic activity and the possibility of a technical recession. While it was also recalled that there had recently been a disconnect between hard and soft data – such as PMIs – the Consensus Economics forecast for GDP growth was also significantly lower for 2024 than the equivalent staff projection. Most of the expected growth in 2024 hinged on an increase in consumption, which in turn was dependent on the dynamics of labour income. While productivity growth was currently weak, the strong growth in labour income in the staff projections was seen to be simultaneously driven by continued strength in employment and the catching-up of real wages. Moreover, the removal of fiscal measures implemented to support households in response to increases in energy prices would have a distributional effect and be borne more by low-income households, which had the highest propensity to consume. This would further weigh on consumption. Finally, the recent increase in real interest rates for maturities shorter than one year should also have a negative impact on private consumption. At the same time, it was underlined that the evidence that monetary policy transmission was working was to be welcomed and remained consistent with a soft landing. The impact of monetary policy tightening was increasingly visible and was broadly proceeding as intended: financing and credit conditions had tightened, lending had been slowing, aggregate demand had been weakening and underlying inflation had been easing. Since inflation was coming down, the euro area economy was set to recover gradually in 2024 owing to rising real incomes, stronger consumption and higher foreign demand. Investment had remained resilient thus far in 2023 and was now projected to stagnate in 2024. However, it could perform better than projected if financial conditions loosened and business confidence improved. Especially in jurisdictions with a high prevalence of adjustable interest rates, mortgage interest rates had already started to decline, which could soon support housing investment again, as this was one of the demand components that had also been the first to react in response to higher interest rates. More broadly, owing to the variability in the lags and strength of the transmission process, there were several reasons why the transmission of monetary policy remained uncertain and might be less powerful than suggested by historical patterns and models. While the first leg in the transmission of monetary policy, to financing conditions, had been rapid and strong, transmission to the real economy was more uncertain and might be weaker. Several factors played a role here: the strong labour market, the relatively strong balance sheets of firms, households and banks, and the greater weight of less interest-sensitive sectors, such as services, in overall value added. The staff projections therefore remained subject to significant uncertainty with respect to the medium-term outlook for economic activity and prices. This also reflected the lack of clarity about the interplay between cyclical factors and structural changes in the wake of the pandemic and other supply shocks, as well as the possibility of new shocks hitting the economy. Turning to the labour market, it was noted that employment had remained resilient and had even edged up further, while hours worked was more subdued. At the same time, current levels of indicators should not lead to complacency about the strength of the labour market, which could change abruptly and had to be monitored carefully. Reference was made to potential non-linear changes in macroeconomic conditions if firms were to adjust employment in a synchronised way or if the present high degree of labour hoarding should become more costly, particularly at a time when profits were weakening, albeit from high levels. As the labour market was the main mechanism supporting the projected economic recovery in the period ahead, a potential non-linear response of the labour market posed downside risks to the economic outlook. A broader question was raised regarding the extent to which the economic slowdown was cyclical or structural in nature. It was highlighted that, on the basis of the regular annual review of the supply side undertaken by staff, potential output had been revised down in the staff projections, albeit moderately, partly reflecting structurally higher energy prices and weaker capital formation. Many euro area corporations found it hard to compete internationally, owing to the high energy costs in Europe. As investment in renewables was running into capacity problems, the energy transition was not going to provide much relief from high energy prices in the near term. The downward revision to potential output also had implications for the implied output gap and for inflationary dynamics. Overall, the outlook for both productivity growth and potential output growth was seen as weak. Regarding fiscal and structural policies, members reiterated that, as the energy crisis faded, governments should continue to roll back the related support measures. This was essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy. Fiscal policies should be designed to make the economy more productive and to gradually bring down high public debt. Structural reforms and investments to enhance the euro area’s supply capacity could help reduce price pressures in the medium term, while supporting the green and digital transitions. It was argued that the fiscal stance was likely to become tighter overall in the years ahead, which would imply a drag on economic activity. However, automatic stabilisers working in the opposite direction in a context of lower growth and lower inflation were likely to impede any meaningful improvement in the fiscal balance, thus complicating the fiscal outlook. It was stressed that a well-functioning monetary union with a stability-oriented monetary policy required a set of clear and simple fiscal rules. Against this background, members assessed the risks to economic growth as remaining tilted to the downside. Growth could be lower if the effects of monetary policy turned out to be stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were key sources of geopolitical risk. This could result in firms and households becoming less confident about the future. Conversely, growth could be higher if rising real incomes led to spending increasing by more than anticipated or the world economy grew more strongly than expected. With regard to price developments, members broadly agreed with the assessment presented by Mr Lane in his introduction. They underlined that the recent decline in inflation was good news, as it suggested a faster than anticipated disinflationary process. The decline was not just driven by the fading out of the energy shocks but was broad-based and also reflected developments in core components. In the short run, however, inflation was expected to pick up again in the coming months, mainly owing to energy-related base effects. Inflation numbers also remained affected by the unwinding of past shocks to the food and non-energy industrial goods components, as well as by the reversal of fiscal measures, which made it harder to discern an underlying trend. The latest inflation numbers were therefore to be treated with caution, and it was too early to be fully confident that inflation would return to target. More data were needed to confirm the decline, in particular data on wage growth, which were only expected in the spring of next year. In this context, it was also highlighted that market-based measures of inflation expectations had only started to decline significantly after inflation data had come in lower than expected. This underscored the importance of inflation outturns over the coming months as drivers of inflation expectations, particularly given that household expectations had remained sticky. At the same time, measures of inflation momentum – namely seasonally adjusted three-month-on-three-month growth rates – suggested that both headline and core inflation had essentially been back at target in November. While such measures were volatile, it was argued that these were often better predictors of future inflation than annual growth rates. However, it was also pointed out that price adjustments were typically more frequent at the start of the year and therefore at the end of the year the signals from such measures on future inflation had to be interpreted with particular caution, in part owing to statistical difficulties with seasonal adjustments in the present conditions. More broadly, it was pointed out that the envisaged decline in inflation also interacted with the strength of economic activity, which in turn determined the scale and speed at which price-setters were able to pass on their costs to final prices. On the one hand, as the outlook for economic activity in the staff projections seemed too optimistic, it was argued that the strength of disinflation was likely to be underestimated. This concern seemed to be confirmed by recent market expectations, which embodied a notably lower inflation path than the staff projections – for 2024 in particular. On the other hand, scepticism was expressed about whether the recent downward trend in inflation would be confirmed in the coming quarters, particularly as fiscal policy would probably remain loose for some time and a tight labour market would keep pushing up wages and, indirectly, services inflation. Moreover, renewed stronger price increases for energy and food could not be ruled out. Turning to wage developments, members recalled that the wage outlook was key in understanding medium-term inflation pressures. Labour remained scarce and wage growth was still strong, with compensation per employee growing at an elevated rate and only limited signals of stabilisation coming from negotiated wages and the ECB wage trackers. Coupled with falling productivity growth, unit labour costs had been growing at a record pace of 6.6% in the third quarter, which was contributing to persistence in domestic inflation at levels not consistent with medium-term price stability. This called for remaining vigilant. Moreover, the projected strong pick-up in productivity growth might not materialise if part of its decline proved to be structural or if labour hoarding persisted for longer. It would therefore be important to monitor future rounds of wage negotiations. As negotiations on many wage agreements would only be concluded early next year, members did not expect substantial hard evidence corroborating the projected moderation of wage growth to be available before the middle of the year. While stronger wage growth therefore constituted an upward risk to the staff inflation projections, it was also acknowledged that the recently observed – and projected – further drop in inflation should lead to lower wage demands. If inflation continued to be particularly low, this might also make second-round effects less likely. At the same time, it was pointed out that lower inflation was so far not fully reflected in the perceptions of firms and the general public, so it should not be taken for granted that lower inflation figures would immediately translate into lower wage demands. One of the reasons why domestic inflation had started to stabilise recently, in spite of the continued rapid increase in wages, might be that firms were moderating their markups. While already embedded in previous staff projections, an important assumption in the December projections had been a declining contribution from unit profits to the GDP deflator measure of inflation. This underpinned the convergence of medium-term inflation trends back towards the target. The significant downward adjustment in the contribution of unit profits seen in the latest national accounts data for the third quarter had lent support to these expectations. It appeared consistent with the return of unit profits to their previous trend, as assumed in the projections. This return to trend was partly of a cyclical nature, but it could well proceed more or less quickly than currently projected, which underlined the particularly high uncertainty surrounding this component of the ongoing and projected disinflation. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. Market-based inflation expectations remained broadly anchored at 2% and had come down recently, reflecting the market view that inflation would fall rapidly and stabilise at 2%. At the same time, professional forecasters continued to be more cautious. It was also underlined that the inflation expectations of households and firms remained sticky and well above the ECB’s target. More broadly, it was felt that the exceptionally large gap that had formed between the interest rate path derived from financial market prices and the interest rate assumptions embodied in the staff projections pointed to upside risks to the inflation path projected by staff. However, it was hard to establish to what extent the equally substantial fall in the price of energy since the cut-off date for the projections would provide further downward impetus to inflation in the months to come. Against this background, members highlighted a number of risks to the medium-term inflation outlook, going in both directions. Upside risks to inflation included the heightened geopolitical tensions, which could push energy prices higher in the near term, and extreme weather events, which could drive up food prices. Inflation could also turn out higher than anticipated if inflation expectations were to move above the target, or if wages or profit margins increased by more than expected. By contrast, inflation could surprise on the downside if monetary policy dampened demand by more than expected or the economic environment in the rest of the world worsened unexpectedly, potentially owing in part to the recent rise in geopolitical risks. Overall, risks were mostly seen as broadly balanced, with some members assessing risks as pointing to the upside and other members judging them as having shifted to the downside, consistent with prevailing downside risks to economic activity. In this context, members debated the notion of the “last mile” in the disinflation trajectory being the hardest to cover. On the one hand, it was argued that the notion was a useful way to summarise the challenges facing the Governing Council in determining the persistence of inflation pressures and the required duration of monetary policy restriction. From the beginning, it had been understood that bringing inflation all the way down from levels exceeding 10% to 2% would hardly be possible without incurring side effects, such as lower employment and lower output. Surprisingly, so far, progress on the inflation front was advancing at a relatively mild cost in terms of economic activity, with the prospect of a soft landing remaining in place. Therefore, with services inflation still running at 4% and continued strong wage growth, a potentially challenging “last mile” was still looming. In this respect, it was reiterated that the staff projections were predicated on a moderation of wage growth, a buffering of wage growth by lower unit profits and a sustained rebound in productivity growth helping to bring down the growth rate of unit labour costs. Further progress in disinflation thus rested on a number of benign assumptions and on inflation expectations remaining well anchored. In addition, potential rigidities in prices and wages – stemming for example from backward-looking features of wage negotiations – and the impact of structural shocks on the economy and inflation dynamics could well contribute to “last mile”-type delays in disinflation. There was also a risk of new shocks, such as further energy or food price shocks, and effects of climate change on food prices, as well as climate-related measures such as higher carbon taxes, which could render inflation more persistent and more easily unanchor inflation expectations after a long period of above-target inflation. On the other hand, the view was expressed that the notion of a difficult “last mile” might undermine confidence in the ECB’s inflation target being achieved in a timely manner. More fundamentally, it was not clear why the nature of the disinflationary process would change as the target drew closer. Looking at the annual inflation data for the last few years, it appeared that disinflation to date had actually been faster than the previous surge in inflation, questioning the empirical relevance of the “last mile” narrative. It was argued that inflation depended on the state of the economy and on monetary policy. With a weaker economy, tighter monetary policy and the world economy losing momentum, it should not be surprising to see inflation falling rapidly. Finally, it was argued that the main condition that would make inflation more persistent in the proximity of the inflation target was if inflation expectations became unanchored, which ultimately depended on the credibility of monetary policy. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. The most significant development since the Governing Council’s previous monetary policy meeting had been the marked fall in market interest rates, which had intensified following the FOMC’s policy decisions and press conference on 13 December, as evident in the update on market developments provided by Ms Schnabel. Market-based measures of inflation expectations had also declined considerably across horizons, to approach 2%, reflecting the view of market participants that inflation would fall rapidly and stabilise at that level. Nevertheless, real interest rates had fallen significantly beyond the near term because nominal interest rates had dropped by more than the corresponding inflation expectations embedded in market prices. Overall, the decline in market interest rates and the rise in risk asset prices had led to looser financial conditions according to most measures. However, the recent appreciation of the euro was going in the opposite direction. Members generally agreed that this repricing in financial markets could, at least partially, be attributed to recent good news on the broad-based slowdown in inflation in the euro area and other major advanced economies. However, it was widely felt that market expectations reflected significant optimism and were inconsistent with the outlook in the staff projections, with respect to both the inflation outlook and the rate path embodied in the technical assumptions. Reflecting the forward curve at the time of the cut-off date, the projections had incorporated only about 75 basis points of rate cuts for 2024. In addition, it was recalled that analysts, including those participating in the Survey of Monetary Analysts, remained much more cautious. It was also recalled that market expectations were volatile. Market perceptions and narratives had shifted dramatically since the Governing Council’s last monetary policy meeting, more than reversing the earlier move which, between September and October, had pushed rates higher on the back of a high-for-longer narrative. This suggested that there might well be another reversal in sentiment over the coming months. Concern was expressed that the sharp market repricing threatened to loosen financial conditions excessively, which could derail the disinflationary process. Against this background, it was widely regarded as important not to accommodate market expectations in the post-meeting communication. Overall, some humility was advised with respect to judging market expectations given prevailing uncertainties, including the uncertainty surrounding the outlook for growth and inflation. It was also noted that, if and when inflation fell further, the current level of interest rates would become increasingly tight over time. Members agreed that, thus far, monetary policy had continued to be transmitted strongly into broader financing conditions. The average interest rates for business loans and mortgages had risen again in October. Higher borrowing rates, subdued loan demand and tighter loan supply had further weakened credit dynamics. With weaker lending and the reduction in the Eurosystem balance sheet, broad money – as measured by annual growth in M3 – had continued to contract for the fourth consecutive month and M1 growth had remained negative for the tenth consecutive month. At the same time, it was noted that the recent financial market repricing had already started to translate into lower interest rates on new mortgage lending and that, in some jurisdictions with a greater prevalence of floating rate mortgages, the average rate on the outstanding stock of housing loans could start to decline within the coming quarter. The overall transmission of monetary policy to loan growth remained very strong. The annual growth rate of bank loans to non-financial corporations had fallen into negative territory for the first time since July 2015 and growth in loans to households also remained subdued. It was contended that there were signs of “over-tightening” in the banking sector, reflecting the dual effect of higher policy rates and lower deposits amid a declining supply of liquidity, although it was also argued that there was no serious risk in the present environment in which excess liquidity was still abundant. Furthermore, it was recalled that the decline in liquidity in the system had had a limited impact and banks had continued to repay the TLTROs voluntarily. The Governing Council held its biannual structured exchange on the links between monetary policy and financial stability. Members concurred that euro area banks had demonstrated their resilience, had high capital ratios and had become significantly more profitable over the past year. However, the situation could worsen if banks’ funding costs or credit risk were to increase by more than expected, but these risks were assessed to be contained if the market reaction to such scenarios were orderly. It was reiterated that macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities, and that the measures in place contributed to preserving the resilience of the financial system. Monetary policy stance and policy considerations Turning to the assessment of the monetary policy stance, members highlighted that, if maintained for a sufficiently long duration, the current monetary policy stance was sufficiently restrictive to bring inflation back to target in a timely manner. Based on the interest rates embedded in the staff projections – which lay above market interest rates – the projections suggested that the rate path was in line with reaching the inflation target in the second half of 2025. Against this background, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements of the “reaction function” that the Governing Council had communicated earlier in 2023. These comprised the implications of the incoming economic and financial data for the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Overall, the view was held that all three elements of the reaction function were moving in the right direction, providing clear evidence that monetary policy was working as intended. Starting with the inflation outlook, members broadly concurred with the assessment presented by Mr Lane in his introduction. Overall, the process of disinflation seemed to be proceeding well and probably more strongly than had been anticipated, with the November flash estimates coming in significantly lower than expected. The fall in inflation was encouraging and had been broad-based, spanning all main components, including core items. This was indicative of weak demand and reflected the impact of monetary policy as well as diminishing effects from other factors that had been pushing inflation up. It gave grounds for increased confidence that inflation would be brought back to target in a timely manner. But it was highlighted that inflation would likely pick up in the very near term on account of an upward base effect for the cost of energy and would decline only slowly in the course of 2024. Furthermore, projected inflation for 2025 was largely unchanged in the December projections from the September round and remained slightly above target, especially for core inflation. However, it was noted that services inflation had started to ease and that, more generally, inflationary pressures were receding in all components. This was indicative of weak demand, affected in part by monetary policy. It was underlined that future wage dynamics remained highly uncertain, with many new agreements to be negotiated early in 2024. Convincing evidence of a sustained turnaround in wages had yet to emerge, and this was necessary for sufficient confidence to be gained that inflation would continue to fall back to the ECB’s 2% target. At the same time, it was noted that quarter-on-quarter inflation rates had plunged over the past year and the new Eurosystem staff projections contained a large downward revision in inflation for 2024. Moreover, there were some signs of wage growth stabilising or coming down, and it was argued that wages were a lagging indicator. However, it was stressed that the projection for 2025 had been broadly unchanged in the December round, and core inflation remained above 2% at that horizon. Upside risks to inflation from the outlook for fiscal policy, including higher carbon taxes, and for energy and food prices were also seen as elevated, as were the prevailing geopolitical risks. If such upside risks to inflation materialised or clearer adverse structural changes were to emerge, inflation pressures might become more persistent. Members agreed that indicators of underlying inflation appeared to have passed their peak and continued to decline. However, the dynamics of underlying inflation remained strong from a historical perspective, including when looking at the measures adjusted for energy shocks and supply bottlenecks. In particular, domestic inflation remained elevated and was edging lower at a slow pace, with sticky wage growth and services inflation in particular reflecting the still strong labour market. It was also pointed out that base effects and fiscal measures made it more challenging to ascertain the true dynamics of underlying inflation. Turning to the assessment of monetary policy transmission, members generally agreed that transmission was proceeding strongly and helping to dampen inflationary pressures for both goods and services. Moreover, it was argued that a significant part of the interest rate pass-through was still pending, with the overall peak impact on activity seen in early 2024 and the bulk of the impact on inflation still expected over the next two years. The view was expressed that transmission to financing conditions and lending activity was working more strongly than initially expected and non-linearities or financial amplification could be at work. Such effects were typically not included in standard models and the projection baseline and could bolster the strength of transmission to economic activity and prices. Reference was made to the wide range of estimates for the impact of monetary policy normalisation since December 2021, with large differences as to the extent and persistence of the effects depending on the various models used for policy analysis and in the projections as well as on different underlying assumptions. In this context, the argument was made that the observed disinflation did not validate the notion that the surge in inflation had been transitory but rather supported the view that decisive policy action by the ECB had been instrumental in achieving this outcome. Looking ahead, it was also emphasised, however, that further transmission was still in the pipeline and that firms’ cash buffers and households’ excess savings, which had to some extent limited the impact of monetary policy on aggregate demand, could decline alongside the contraction of the Eurosystem balance sheet. This was seen as suggesting that the impact of tight financing conditions might be stronger than expected in the coming quarters. However, it was argued that there was limited evidence of the effects of policy tightening having strengthened, since economic activity was developing broadly according to expectations, the labour market remained tight and downward adjustments in inflation expectations appeared to follow downward inflation surprises more than weakness in the economy. All in all, on the basis of the December Eurosystem staff projections, members expressed increased confidence that inflation would be brought back towards the 2% target in 2025, although there were different views as to whether there were grounds for sufficient confidence that the target would be reached in a timely manner. Hence a need was seen for continued vigilance and patience, and for the maintenance of a restrictive stance for some time. It was stressed that there was no room for complacency and that it was not the time for the Governing Council to lower its guard. Caution was warranted, as inflation would probably pick up in the near term and there were continued uncertainties in relation to wages and underlying inflation dynamics. This suggested that it was still too early to be confident that the task had been accomplished. Monetary policy decisions and communication Against this background, all members agreed with the proposal by Mr Lane to maintain the three key ECB interest rates at their current level. All three elements of the Governing Council’s reaction function were considered to support the case for this decision. Confidence was expressed that the monetary policy stance continued to be sufficiently restrictive, which gave the Governing Council the opportunity to hold rates at current levels and take time to assess the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Restating the Governing Council’s data-dependent approach was seen to be important, with a focus on the three elements of the reaction function, which provided a structured approach to monetary policy decision-making and communication. This also was seen as an integral part of the Governing Council’s meeting-by-meeting orientation and offered the necessary flexibility. Turning to the policies affecting the size and composition of the Eurosystem’s balance sheet, a very large majority of members agreed with Mr Lane’s proposal to advance the normalisation of the balance sheet at a measured and predictable pace. This was viewed as a proportionate response in view of the initial objectives of the PEPP, which was an instrument designed to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the pandemic. As the pandemic, or at least its emergency dimension, was over, maintaining full reinvestments was no longer appropriate. In addition, markets were currently functioning smoothly and fragmentation concerns were limited. This meant that the risks from ending full reinvestments were contained, especially since moving to partial reinvestments still allowed flexible reinvestments if necessary. Hence it was an opportune time to take this decision, which would be another logical step in the normalisation of the Eurosystem balance sheet. The proposal was also broadly in line with market expectations, so it would not surprise market participants. Moreover, the approach would allow a smooth adjustment, in particular since redemptions in the PEPP portfolio were very small relative to other sources of balance sheet shrinkage in 2024. At the same time, it was seen as crucial that any decision to end full reinvestments earlier than originally planned should be fully delinked from monetary policy stance decisions relating to level of the policy interest rates. This meant it was important to stress that interest rate decisions were the main instrument of the Governing Council’s monetary policy. While some members favoured an earlier end to full reinvestments than had been proposed, suggesting that tapering could start earlier and be more gradual, other members argued that full reinvestments should continue until the end of 2024. In this context, it was argued that the difference between starting tapering or ending reinvestments a couple of quarters sooner or later would not affect the proportionality assessment. Members unanimously agreed with Mr Lane’s proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 14 December 2023 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 13-14 December 2023 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Cipollone Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks* Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta* Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Šimkus* Mr Stournaras Mr Välimäki, temporarily replacing Mr Rehn Mr Vasle Mr Villeroy de Galhau Mr Vujčić Mr Wunsch * Members not holding a voting right in December 2023 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Dabušinskas Mr Demarco Mr Garnier Mr Gavilán Mr Gilbert Mr Haber Mr Horváth Mr Kaasik Mr Kelly Mr Koukoularides Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Pösö Mr Rutkaste Mr Šošić Mr Tavlas Mr Ulbrich Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 22 February 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 24-25 January 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 24-25 January 2024 22 February 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 13-14 December 2023, the rapid easing of financial conditions observed after the 25-26 October meeting had levelled off and been pared back slightly. Financial conditions had eased sharply in November and December, as the narrative in financial markets had shifted from “high for longer” to swift disinflation and imminent monetary policy easing. After the Governing Council’s 13-14 December meeting, financial conditions had continued to ease until late December but had tightened slightly thereafter. This followed ECB communication that had countered the aggressive market pricing of a rate-cutting cycle starting as early as March 2024. While the probability of a 25 basis point cut in April still stood at around 60%, a first cut was now fully priced in only for June. Expected cumulative rate cuts by the end of the year had declined slightly since the December meeting, to around 130 basis points. Policy rate expectations in US forward markets had also been scaled back, although to a slightly lesser extent. US interest rate markets were positioned for an initial 25 basis point cut in May, with a 40% probability of a March cut. Moreover, investors expected almost the same magnitude of cumulative cuts as in the euro area in the course of 2024, anticipating a globally synchronised normalisation cycle. However, the uncertainty around this policy path was high, as reflected in the persistent volatility in bond markets. The easing of global financial conditions in November and December 2023 had gone hand-in-hand with lower volatility in risk asset markets. Implied volatility in euro area equity markets had dropped to its lowest level since the onset of the coronavirus pandemic in February 2020, despite significant geopolitical tensions and risks of protracted economic weakness. Yet, lower implied volatility in risk asset markets was not accompanied by meaningfully lower implied volatility in bond markets, which had decoupled from equity market volatility. There were two potential sources of heightened monetary policy uncertainty. The first was the timing and pace of the policy adjustment, while the second was the extent of the required policy adjustment. Respondents to the January 2024 ECB Survey of Monetary Analysts (SMA) had raised their expectations for the pace of rate cuts over the year but remained more cautious than financial market pricing. While markets foresaw a cumulative easing of around 130 basis points, SMA respondents expected total cuts of 100 basis points by the end of the year. Differences in the outlook for inflation could explain the discrepancy between market pricing and analysts’ expectations for the future path of monetary policy. Investors trading in financial markets were discernibly more optimistic about the inflation outlook than the median SMA respondent. Another explanation could be different speeds in adjusting to new information. During the interest rate tightening cycle in 2022 and 2023, rate markets had consistently led survey expectations, often by several months. The second source of uncertainty about the medium-term policy rate path concerned the extent of adjustment required to return to a neutral policy rate and the uncertainty surrounding estimates of such a rate. SMA participants had raised, noticeably, their median longer-run expectations for policy rates compared with levels during the period before the start of the ECB’s hiking path. The expected reversal of the 2023 tightening was also visible in longer tenors of the yield curve. The euro area ten-year real overnight index swap (OIS) rate remained close to early 2023 levels and slightly below its September 2023 level, when the ECB had last hiked interest rates. The corresponding nominal OIS interest rate had even fallen below early 2023 levels. In the United States, the ten-year real OIS interest rate had fallen to a similar degree since late October but remained above early 2023 levels. The reappraisal of the monetary policy outlook had been the dominant driver of the decline in bond yields since the Governing Council’s October monetary policy meeting, along with news on the growth outlook and fiscal developments. The rescaling of the earlier aggressive market pricing had also affected risk asset markets. Yet, euro area equity markets remained broadly unchanged since the December meeting. A longer perspective, since the start of 2023, revealed that developments in equity markets, as in other risk asset markets, had been robust, providing an easing impulse to financial conditions. The somewhat stronger repricing of monetary policy expectations in the euro area than in the United States had been reflected in a slight appreciation of the euro, with the US dollar moving lower against a broad set of currencies. Intra-euro area sovereign bond spreads had declined further, as the announcement regarding the phasing-out of reinvestment under the pandemic emergency purchase programme (PEPP) had been well absorbed by the market and some government bonds had seen record demand. The announcement on the PEPP and the ongoing gradual and predictable unwinding of the Eurosystem’s bond portfolios under the asset purchase programme (APP) had not amplified the sensitivity of spreads to changes in risk-free rates, suggesting that fragmentation risks remained muted. Absorption in euro area government bond markets had been supported by benign liquidity conditions, underpinned by the return of foreign investors and investment funds. The prospects for smooth and healthy market absorption remained largely in place for 2024. Benign market conditions had also been evident in 2023 year-end trading and repo market functioning. Repo rate declines in general collateral and non-general collateral markets had been substantially more contained than at the 2021 and 2022 year-ends. The global environment and economic and monetary developments in the euro area Reviewing the global environment, Mr Lane noted that global economic activity had moderated in the fourth quarter of 2023. At the same time, global trade growth was improving as post-pandemic patterns normalised. However, the recent tensions in the Red Sea and Gulf of Aden were a downside risk to trade, since these could adversely affect delivery times and maritime shipping costs, especially on routes between China and Europe. Since the end of December, there had been a big drop in transit volumes, with some shipping re-routing around Africa. So far, the rental price for container vessels was relatively unaffected, likely owing to spare capacity, while shipping prices had already increased. Oil production was not expected to be affected by the developments in the Red Sea area. The latest projections from the International Energy Agency estimated that oil supply and demand would remain broadly in balance in the first quarter of 2024 and that the market would move into surplus in the remainder of the year. However, there had been notable movements in energy prices. Oil futures prices were significantly above levels at the time of the Governing Council’s December meeting but gas futures prices were significantly lower. Mr Lane noted that, when analysing energy prices, it was also important to look at the EU Emissions Trading System (EU ETS) market. Emissions allowance prices had fallen 22% within the first three weeks of January, reflecting weak demand from the industry and power sectors. In the case of the power sector, this was due to the increased use of renewables. Concerning global commodities, there had been little movement in food and metal prices since the last Governing Council meeting. Also since then, there had been limited change in the euro’s exchange rates, both against the US dollar and in nominal effective terms. Turning to the euro area, Mr Lane recalled that inflation had risen to 2.9% in December, from 2.4% in November, owing to energy-related base effects. However, the increase was less than expected. While services inflation had remained steady at 4.0%, food and non-energy industrial goods inflation had continued to decline. Looking ahead, headline inflation and core inflation – as measured, respectively, by the Harmonised Index of Consumer Prices (HICP) and the HICP excluding energy and food – were expected to continue their downward trajectory. Domestic inflation remained high at 4.5%, owing to the elevated pace of wage increases and falling labour productivity, but it too had started to ease. Indicators of momentum in headline inflation and all of its components had eased further. The annualised three-month-on-three-month growth rate of seasonally adjusted core inflation had fallen below 1.5%, with momentum in goods inflation at zero and momentum in services and food inflation close to 2%. A broad range of underlying inflation measures had also fallen in December. This reflected the fading impact of past shocks, as well as weaker demand that was, in part, the result of the ongoing strong transmission of tighter monetary policy. Among the different measures, the Persistent and Common Component of Inflation, which was the best predictor of inflation one and two years ahead, had eased to 2% in December. Overall, the December inflation data provided further evidence that the disinflationary process was well on track and in fact might be running faster than previously expected. However, several headwinds were expected to increase inflation momentum again, as embedded in the December Eurosystem staff macroeconomic projections. This was largely due to the increasing role of wage pressures in explaining the dynamics of core inflation and also to the fading out of some of the energy price falls and the disinflationary pressures coming from the removal of supply bottlenecks. Historically, the Purchasing Managers’ Indices (PMIs) for prices had not been able to capture developments in goods and services inflation very well. Since 2020, however, the correlation had improved, with the PMIs showing a six-month leading property for goods and a nine-month leading property for services. On this basis, the PMIs suggested that downward pressures on goods and services inflation were likely to continue in the near term. However, the latest readings showed a small reversal, suggesting that these pressures were set to weaken. Looking ahead, the expected slowdown in the disinflationary process was also evident from a decomposition of services inflation into “wage-intensive” and “not wage-intensive” components. So far, the declines in services inflation observed earlier had been driven by the not wage-intensive component, while the contribution from the wage-intensive component had declined only very gradually. The pace of wage growth remained elevated but there were some initial signs of a deceleration. Unit labour costs had grown by 6.7% and compensation per employee by 5.3% in the third quarter of 2023. Negotiated wage growth had decreased from 4.8% in September to 4.6% in October. The forward-looking wage trackers signalled wage dynamics that were broadly in line with the December staff projections. Mr Lane also recalled that the wage tracker contained both old and new contracts, renegotiated at different points in time. New agreements signed at the end of 2023, if one-off payments were included, showed increases still above 5%. Moreover, many negotiations taking place in the first quarter of 2024 were expected to be concluded in February or March. Survey-based measures of wage expectations showed that firms and professional forecasters expected a decline in wage growth in 2024. According to the January Corporate Telephone Survey, wage growth was expected to fall from 5.3% in 2023 to 4.4% in 2024. These expectations were a bit lower than in previous rounds. Similarly, in the latest Survey of Professional Forecasters, expectations for the annual growth in compensation per employee pointed to easing wage growth from 2024 onwards and had been revised down for the longer-term horizon. In particular, as of 2026, expected wage growth was below 3%, which was generally seen as the trend increase consistent with the ECB’s 2% medium-term inflation target. The contribution of unit profits to domestic price pressures had continued to decrease in the third quarter of 2023, suggesting that – as expected – profit margins were absorbing some of the price pressures coming from wage increases. The January Corporate Telephone Survey suggested that firms had adjusted their profit margins during 2023. Although reported profit margins had edged up somewhat at the end of the year, they remained below the long-term average after being above it from early 2021 to mid-2023. This further confirmed that profits had started to mitigate the inflationary effects of wage increases. Looking ahead, inflation was expected to ease further over the course of 2024, as the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy faded and tighter monetary policy constrained demand. Measures of shorter-term inflation expectations had come down markedly, while longer-term inflation expectations mostly stood around 2%. Market-based measures of inflation compensation implied by fixings contracts – measures extracted from swap contracts linked to very near-term euro area inflation releases – indicated that investors were expecting inflation to fall to 2% as early as April and to stay at or below 2% for most of the remainder of 2024. The Consumer Expectations Survey showed that perceptions about inflation had finally declined in recent months. Households’ expectations one year ahead had declined considerably between October and December, whereas three-year ahead expectations had moved sideways since October. As regards professional forecasters, their inflation expectations had shifted down over the entire horizon, with longer-term expectations now standing at 2%. Upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and hamper global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins remained resilient. By contrast, inflation might surprise on the downside if monetary policy dampened demand by more than expected or the economic environment in the rest of the world worsened unexpectedly. Moreover, inflation could decline more quickly in the near term if energy prices evolved in line with the recent downward shift in market expectations for the future path of oil and gas prices. The euro area economy had likely stagnated in the final quarter of 2023, following a mild contraction in real GDP in the third quarter. The latest statistical releases for services and industrial production indicated a drop relative to the third quarter, and survey indicators including the PMIs remained at levels consistent with falling activity. However, in January, forward-looking indicators signalled some pick-up in growth further ahead. Turning to the components of demand, private consumption was estimated to have remained subdued at the end of 2023. Mr Lane recalled that the December staff projections entailed a significant recovery in private consumption during 2024. Indicators were not yet available for the first quarter. However, firms’ expectations had remained contained for retail trade, while they continued to be above historical averages for contact-intensive services. Moving on to housing investment, this was the GDP demand component most visibly affected by monetary policy transmission. Housing investment had been contracting over the past two years and was estimated to have also declined in the final quarter of 2023. The December projections entailed a slower rate of decline. At the same time, the PMI for housing output remained in deeply negative territory but with some signs of bottoming out. Regarding business investment, the picture was mixed. Business investment had still been growing in 2023, but the expectation in the December projections was that it would decline in the fourth quarter. There had been an accumulation of stocks of finished capital goods that might have cushioned the decline in investment in the recent past. Additionally, the existing order books for capital goods were helping to keep investment growth in positive territory. However, new orders were still falling sharply, which suggested a period of weak investment ahead. On the trade side, in spite of the recovery in global trade, euro area exports had remained subdued as 2023 drew to a close. Imports also continued to be weak, owing to an unfavourable composition of demand and to the inventory destocking cycle, both at the global level and in the euro area. The labour market continued to be robust. The unemployment rate had fallen back to 6.4% in November, even as more workers entered the labour force. Labour market conditions had benefited from the 2022 surge in profit margins, which enabled firms to hoard labour despite demand tailing off. At the same time, momentum in demand for labour was decelerating, with fewer vacancies being advertised. Turning to fiscal policies, news on fiscal measures had been limited. The few measures taken were cancelling each other out at the euro area aggregate level, as some countries had implemented new measures and others were rolling back their previous plans. The risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out to be stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were key sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if rising real incomes led to a greater increase in spending than anticipated, or the world economy grew more strongly than expected. Turning to the monetary and financial analysis, market interest rates had moved broadly sideways since the previous Governing Council meeting. Similarly, at the longer end of the yield curve, risk-free rates and sovereign bond yields were little changed overall, despite some fluctuations in the intervening period. Monetary aggregates had continued to decline in annual terms and remained close to historical lows. M3 – the broad monetary aggregate – had declined by 0.9%, year on year, in November 2023. This decline was consistent with the lack of aggregate growth in bank lending and, if measured in real terms, the decline was much larger. M1 – the narrow monetary aggregate of currency in circulation and overnight deposits – had continued to fall very sharply in November, against a background of portfolio shifts. The transmission of the restrictive monetary policy stance to broader financing conditions remained exceptionally strong. Lending rates on business loans had declined slightly to 5.2% in November but remained close to their historical highs. Mortgage rates had increased further to 4.0%. The January bank lending survey suggested that higher borrowing rates, with the associated cutbacks in investment plans and house purchases, had led to a further drop in credit demand in the fourth quarter. Against this background, credit dynamics had improved somewhat but, overall, remained weak in November, despite an increase in short-term loans to firms likely associated with their greater working capital needs. At the same time, the further tightening in credit standards for loans to companies reported in January was quite moderate, in a sign that the trend towards ever more restrictive credit conditions observed over the last two years might be flattening out. Monetary policy considerations and policy options Overall, the incoming information had broadly confirmed the Governing Council’s previous assessment of the medium-term inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Inflation was heading towards the 2% target, possibly at a faster pace than previously expected. The current levels of the policy interest rates would make a substantial contribution to reaching that goal if maintained for a sufficiently long duration. In terms of an overall evaluation of the policy rate trajectory, the disinflationary process needed to be further along for the Governing Council to be sufficiently confident that inflation would hit the target in a timely manner and settle sustainably at that level. Therefore, Mr Lane proposed keeping the three key ECB interest rates unchanged. The three elements of the Governing Council’s reaction function gave a robust framework for assessing the data and guiding decisions over the upcoming policy meetings. The Governing Council should continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions should remain based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. Finally, Mr Lane proposed preserving the option to apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism still related to the pandemic. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane that, while global GDP growth was seen to have decelerated in the fourth quarter of 2023, incoming trade data suggested that goods trade momentum was turning positive again. This was in line with the assessment that a normalisation of the inventory cycle and consumption patterns between goods and services should support trade. Moreover, the impact on global trade from recent developments in the Red Sea area was seen as contained so far. Looking at key global economies, the United States was on course for a soft landing, while in China GDP growth had slowed in the last quarter of 2023. In the context of weaker Chinese domestic demand, it was argued that Chinese exports would put additional negative pressure on international prices. The weakness in China had also been negatively affecting euro area exports, increasing uncertainty around the economic outlook. Turning to energy commodities, oil prices had increased since the December Governing Council meeting, while European gas prices had declined further as demand remained subdued and gas storage facilities were relatively full. The euro area economy was seen as particularly exposed to geopolitical risk, which was likely to remain elevated for years to come. First, the war in Ukraine remained an important risk factor. Second, the conflict in the Middle East had resulted in rising freight costs and a lengthening of delivery times owing to the recent attacks on freight ships in the Red Sea and the Gulf of Aden. So far there had been no major disruption of trade and the main impact had come from ships taking longer routes around Africa, resulting in higher shipping rates and longer delivery times. However, this had, anecdotally, already led to some euro area companies halting production because of a lack of components. In this context of heightened global uncertainty, it was seen as puzzling that international energy price developments had remained overall very benign. With regard to economic activity, members concurred with Mr Lane that the euro area economy was likely to have stagnated in the final quarter of 2023. The incoming data continued to signal weakness in the near term. However, some forward-looking survey indicators pointed to a pick-up in growth further ahead. The labour market had remained robust. The unemployment rate, at 6.4% in November, had fallen back to its lowest level since the start of the euro and more workers had entered the labour force. At the same time, demand for labour was slowing, with fewer job vacancies being advertised. Governments should continue to roll back energy-related support measures to avoid driving up medium-term inflationary pressures. Fiscal and structural policies should be designed to make the euro area economy more productive and competitive, as well as to gradually bring down high public debt ratios. Structural reforms and investments to enhance the euro area’s supply capacity – which would be supported by the full implementation of the Next Generation EU programme – could help reduce price pressures in the medium term, while supporting the green and digital transitions. Following the recent ECOFIN Council agreement on the reform of the EU’s economic governance framework, the legislative process should be concluded swiftly so that the new rules could be implemented without delay. Moreover, it was imperative that progress towards capital markets union and the completion of banking union be accelerated. Members widely acknowledged that growth would likely be weaker than expected in the short term. So far, however, the decline in inflation was coming at a relatively mild cost in terms of economic activity. On the one hand, survey indicators suggested that the economy might have bottomed out. PMI indicators had plateaued and were even showing an uptick, feeding into the view that there would be a soft landing. Looking at the flash PMIs for January, manufacturing activity, although still firmly in negative territory, was on an upward path. The forward-looking PMIs for services had increased notably and employment expectations had also edged up moderately. On the other hand, it was pointed out that the economy was now likely to have stagnated for the fifth quarter in a row and the next staff projections would most likely shift the start of the recovery by one or two quarters again. Consumer confidence remained low and the PMI indicator for services had come in below analysts’ expectations in January. The ECB’s contacts with non-financial corporations showed that the business environment was perceived as not worsening, but also not improving. The Governing Council therefore still needed to see clearer signs that the recovery was on track. Looking ahead, the main factor behind the expected recovery – according to the December 2023 staff projections – was consumption, which was seen picking up as real household income gradually improved. Investment was seen as another potential driver. Housing investment had been quite weak for almost two years, but it might gradually recover with mortgage rates coming off their peak. Reference was made to the bank lending survey, which foresaw an increase in households’ demand for loans for house purchase in the first quarter of 2024. Business investment had held up better than anticipated, and it might continue to do so given the still high stock of orders for capital goods and profits remaining above pre-pandemic trends, especially if financial conditions loosened further. This was seen as posing an upward risk to the economic outlook, notably in the short term, in view of the weak investment trajectory that the December projections anticipated. At the same time, it was stressed that monetary transmission remained very strong, particularly in the housing sector, as reflected in weak developments for housing loans. Turning to the labour market, conditions there were seen as persistently very tight. Unemployment was still at an all-time low, so it could be argued that the “sacrifice ratio” of bringing down inflation had been virtually zero. Given the very tight labour market, it was prudent for the Governing Council to exercise caution on wage prospects and to await evidence that wage growth was actually moderating as projected for 2024. It was argued that the Governing Council would need to see some hard data confirming that wages had turned the corner. At the same time, it was highlighted that the labour market was clearly showing signs of cooling, and that was likely to have a dampening effect on future wage growth. Given significant labour hoarding, either economic activity would have to recover soon or employment and wage growth had to fall. Some softening of labour market conditions was already visible in a decline in job vacancies, which was typically the first variable that started to adjust. Against this background, members assessed that the risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were key sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if rising real incomes meant spending increased by more than anticipated, or if the world economy grew more strongly than expected. In this context, the view was expressed that the risks surrounding growth and inflation in the December staff projections were, overall, increasingly on the downside. It was remarked that a lower figure for activity in the fourth quarter, with the economy stagnating or even contracting, would mechanically imply substantially lower growth for 2024 owing to a carry-over effect. Moreover, the growth rate in both 2023 and 2024 would remain far below potential, mainly as a result of tighter financial conditions, weak sentiment, the withdrawal of fiscal support and the lagged effect of monetary policy tightening. As euro area growth remained disappointing, also from a medium-term perspective, it was regarded as important to stress the need for structural reforms to address low productivity and impediments on the supply side. Low potential growth in Europe highlighted the importance of making progress towards capital markets union, as well as improving the functioning of the Single Market and other factor and product markets. In this context, it was pointed out that national governments were faced with several structural challenges, including an ageing population and the green and digital transitions, all to be tackled against a backdrop of heightened geopolitical risks. Even if activity and sentiment in the manufacturing sector were slowly improving, firms continued to face structural headwinds that were unrelated to the ECB’s monetary policy and needed to be tackled first and foremost by governments via structural reforms. On the reform of the EU’s fiscal governance framework, it was stressed that the European Commission and the European Council should implement the new rules as transparently and as efficiently as possible, and in a way that permitted further progress towards fiscal consolidation and could simultaneously create headroom for investment. It was also recalled that governments needed to bring down high public debt ratios while being ready to contribute to closing the investment gap for the green transition and adaptation to climate change. This implied that they also had to adjust not only the path of “headline” fiscal policies but also the composition of budgets, to be able to pursue truly sustainable levels of economic activity that were resilient to the increasingly plausible scenario that the world would fall short of the objectives of the Paris Agreement. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction. Inflation had risen to 2.9% in December as some of the past fiscal measures to cushion the impact of high energy prices dropped out of the annual inflation rate, although the rebound was weaker than expected. Aside from this base effect, the overall trend of declining inflation had continued. Food price inflation had eased to 6.1% in December. HICP inflation excluding energy and food had also declined again, to 3.4%, owing to goods inflation falling to 2.5%. Services inflation was stable at 4.0%. Inflation was expected to ease further over the course of 2024 as the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy faded, and tighter monetary policy continued to weigh on demand. Almost all measures of underlying inflation had declined further in December. The elevated rate of wage increases and falling labour productivity were keeping domestic price pressures high, although these too had started to ease. At the same time, lower unit profits had started to moderate the inflationary effect of rising unit labour costs. Measures of shorter-term inflation expectations had come down markedly, while measures of longer-term inflation expectations mostly stood around 2%. Members stressed that the recent decline in inflation was good news. Headline and underlying inflation figures had recently been continuously below the predicted levels, suggesting a faster than anticipated disinflationary process. It was therefore likely that in March, with the new projections, there would be a downward revision to inflation for 2024. In this context, it was highlighted that the staff projections tended to underestimate changes in inflation momentum in both directions. Moreover, downside inflation surprises were currently occurring in parallel with downside growth surprises and repeated signs of a stronger than expected transmission of monetary policy. Additionally, market participants were expecting a lower inflation profile, notably for 2024. The view was expressed that this suggested the risks to the inflation projections might be moving to the downside, especially for the short term. However, it was emphasised that the outlook for inflation remained particularly clouded over the short term. Seasonality could play a disproportionate role, with many firms posting new prices at the start of the year. This was likely to complicate the interpretation of incoming inflation numbers. Moreover, it was underlined that extracting a signal from the month-by-month data on how inflation would evolve over the medium term was subject to considerable uncertainty. In this regard, the medium-term component of wage dynamics and the evolution of inflation expectations remained crucial. It also remained an open issue as to how the pandemic-related changes in the prices of services would unwind relative to goods prices. There could be either more protracted deflation in goods prices or an extended period of services inflation above normal levels, with services prices typically stickier and more heavily determined by wages. While headline inflation was generally seen as being on track towards the ECB’s 2% inflation target, this path remained surrounded by considerable uncertainty, especially with respect to the medium term. The prospect of inflation returning to target in a timely and sustained manner therefore remained fragile and depended on a number of benign assumptions materialising. In particular, emphasis was placed on the projected decline of record high unit labour cost growth, which was predicated on a rebound in productivity alongside a moderation in wage growth in 2024. Moreover, it was assumed that higher labour costs would continue to be absorbed by profits, as indicated by a projected smaller contribution from unit profits to domestic inflation. Reference was again made to the “last mile” difficulties, with the final stretch to the inflation target seen as more challenging than earlier phases. This was seen as a risk because the swift disinflation following the reversal of supply shocks and the forceful monetary tightening would soon start to wane, and the domestic components of inflation might prove more persistent or new shocks might derail progress. For example, although the momentum of services inflation had slowed, the annual growth rate had remained high, at 4% in December. Similarly, domestic inflation had come down but remained above other measures of underlying inflation. Moreover, the absorption of higher input costs by lower profit margins was not assured, as was suggested by the increase in selling price expectations over three successive months. Turning to wage developments in more detail, members recalled that wage pressures were key to the medium-term inflation outlook. So far, wage growth had remained strong and, together with negative productivity growth, had led to a historically large increase of 6.7% in unit labour costs in the third quarter of 2023. The distance between current wage growth of around 5% and a trend increase of 3% or 2½% that was compatible with the 2% inflation target, assuming 1% or ½% trend productivity growth, was regarded as quite significant and likely to diminish only gradually over time. It remained to be seen whether unit labour cost growth would decline sharply in 2024 as assumed in the December staff projections, which relied partly on a rather strong recovery in productivity growth combined with a moderation in wage growth. Despite stagnation, it was underlined that the economy continued to add jobs. The unemployment rate was clearly below all available estimates of the non-accelerating inflation rate of unemployment (NAIRU) for the euro area. Hence trade unions would probably still see themselves as being in quite a powerful negotiating position. It should also be kept in mind that the backloading of wage increases in some countries implied more persistent pressure on wage growth, stretching well into 2025. At the same time, the reason why unit labour costs were expected to improve significantly this year was because the economy was expected to recover strongly according to the December projections. So, under the baseline scenario, firms could increase output this year without necessarily adding to employment, and an improvement in productivity ensured that unit labour costs would decline more quickly than wages. If the economy were to grow by less, unit labour costs might not retrench and inflation pressure might persist. However, it was also argued that this was unlikely to happen, as firms would face weaker demand and pricing power and would thus eventually respond with layoffs, which would pre-empt a further decline in labour productivity. Moreover, it was pointed out that nominal wage growth of around 5% – according to the latest available data for compensation per employee (for the third quarter of 2023) – was not necessarily an excessive number during a “catching-up” phase, taking into account that real wages had declined by about 7% since the beginning of the inflation surge. A recovery in real wages, as also embodied in the December projections, could be regarded as necessary for the euro area economy to recover from its current period of stagnation. In a context of weak demand, this should not be expected to put upward pressure on inflation. Conversely, if employment and wages were to weaken too much, there was a risk that the economy could quickly find itself back in a situation of low growth and low inflation. Moreover, in a context of rapid disinflation, it also seemed likely that trade unions would accept lower nominal wage increases to achieve the same real wage increases. Finally, caution was expressed against overinterpreting the signal from current wage growth, as the labour market typically lagged output dynamics and the impact of monetary policy tightening should therefore also become visible in wage growth with a lag. Against this background, it was widely felt that the signal from wage growth in the first quarter of this year would be important, as many wage contracts were scheduled to be settled in the coming months. At the moment it was an open question as to how workers would react to the new environment of falling inflation, with the level of prices still high compared with wage levels. The incoming information from the wage trackers was broadly in line with the baseline in the December staff projections. Hence the question was raised as to whether new wage agreements would corroborate recent first signs of moderation in line with the projections, and whether firms would continue to compress margins. These were two elements which would be consistent with inflation returning to target in the medium term. Finally, it was also recalled that, while negotiated wages were typically a lagging indicator of economic growth, the wage drift – the other component of total wage growth – was more immediately responsive to the overall business cycle. In the context of an economy that had been stagnating for nearly one and a half years, it was thus likely that this component of wage growth would turn out to be weaker than suggested by the information in the wage tracker for negotiated wages. Attention was drawn to another reason why inflation could be falling in spite of increasing wages. Since wages amounted to only around 40% of firms’ total costs and most indicators of intermediate costs were currently falling, when wages and intermediate costs were taken together, pressure on inflation from total costs was declining. As changes in producer prices typically led changes in consumer prices by a few quarters, this decline in cost pressure could be expected to be transmitted to consumer prices in the next couple of quarters. Now that intermediate costs were moving in the opposite direction to wages, wage growth was not a sufficient indicator to capture overall cost pressures in the economy, given that prices were typically set as a mark-up over total costs, not just wage costs. The question was also raised as to whether, in the near future, profit margins would have enough scope to continue absorbing the rise in unit labour costs. If not, businesses might increasingly pass high unit labour costs through to prices. Firms’ profits were far from the exceptional levels of 2022, a time when firms purportedly took advantage of high inflation to increase profit margins. In fact, profit margins had already come down to the point where anecdotal evidence suggested that some firms were now starting to cut back on investment because they felt constrained by a lack of profitability. The performance of the manufacturing sector was weaker and the sector was also exposed to global competition, so profits might continue to buffer unit labour costs. By contrast, the services sector was largely shielded from global competition and demand was still robust. Therefore, the high unit labour costs in this sector were likely to be passed through to prices more easily. In this context, it was also noted that stock returns suggested that corporate profitability was, overall, still high. Moreover, there was significant uncertainty surrounding the link between wages and price-setting, and it was underlined that the Governing Council needed to monitor a broad set of variables to understand how the current state of the labour market would ultimately affect inflation, rather than relying on only a few indicators. As regards longer-term inflation expectations, market-based measures had come down notably and remained broadly anchored at 2%, reflecting the market’s view that inflation would fall rapidly and stabilise around 2%. In this context, reference was made to risks of a downward unanchoring of inflation expectations, as a result of the weakness in economic activity and of a faster and broader disinflation than anticipated. At the same time, the view was expressed that there were no indications that expectations would become unanchored to the downside, with the inflation expectations of households and firms instead being skewed to the upside. Overall, developments were widely seen as going in the right direction. Against this background, upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and hamper global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins proved more resilient. By contrast, inflation could surprise on the downside if monetary policy dampened demand by more than expected, or if the economic environment in the rest of the world worsened unexpectedly. Moreover, inflation could decline more quickly in the near term if energy prices evolved in line with the recent downward shift in market expectations for the future path of oil and gas prices. Turning to the monetary and financial analysis, market interest rates were broadly unchanged compared with the levels at the time of the Governing Council’s previous meeting but had shown substantial volatility. The rapid fall in market interest rates until around the turn of the year had subsequently reversed on the back of communication by Governing Council members that had curbed expectations of imminent policy rate cuts. This had led markets to price in a lower probability of policy rate cuts at the upcoming meetings of the Governing Council. Nevertheless, expected cumulative rate cuts for 2024 were currently nearly double the 75 basis points that had been embedded in the December staff projections. In addition, it was argued that the markets were expecting lower interest rates because they were expecting lower growth and inflation than projected, especially in 2024. In this respect, it was widely felt that the current market pricing of future interest rates was not a sign that markets did not understand the ECB’s reaction function. Instead, it appeared that markets simply expected inflation to be lower than foreseen in the December staff projections, notably for 2024. Given that market expectations for inflation and for the future path of nominal interest rates had moved lower in tandem, the profile of expected real interest rates had remained broadly unchanged. It was important not to dismiss the markets’ assessment, and it was advisable to exercise humility when judging market expectations for inflation and rates. However, this did not mean that the Governing Council had to follow or validate these expectations. Market pricing would likely respond both to incoming data and to the Governing Council’s communication of its own assessment. Euro area equity markets were assessed to have been quite buoyant in 2023 and also to have remained robust into 2024, despite the weaker outlook for economic growth. It was argued that this could, in part, reflect the repricing of the outlook for interest rates by financial markets, which might be underpricing the risk of a shallower monetary policy easing cycle. An alternative interpretation of the strength in equity markets was that financial market participants might be expecting profits to remain resilient, which could justify current stock market valuations, notably of globally active firms. Members also pointed out that euro area financial markets had continued to function well, with sovereign and corporate bond spreads generally contained and mostly narrowing. There was no evidence of market fragmentation amid the normalisation of the Eurosystem balance sheet, which was a welcome development. Overall, there had been a significant loosening of financial conditions since the October monetary policy meeting, when the Governing Council had first paused the hiking cycle after the series of interest rate increases implemented since July 2022. Financial conditions were broadly unchanged from the time of the December meeting and had tightened only slightly since the trough around the end of 2023. Members agreed that the ECB’s restrictive monetary policy had been strongly transmitted to financing conditions for firms and households, while some evidence had recently emerged that borrowing costs might have reached a peak. Bank lending rates for firms had fallen in November 2023 for the first time in a long period and, although mortgage rates had increased further, the bank lending survey suggested some flattening-out in the tightening of credit standards and an easing in the terms and conditions for housing loans. However, it was recalled that, even if rates on new lending might be reaching a turning point, much of the repricing of the existing stock of loans at higher rates remained in the pipeline. Credit dynamics had improved somewhat but remained weak overall. This weakness reflected the impact of past monetary policy tightening, which, as reported in the latest bank lending survey, had also contributed to a further drop in credit demand in the fourth quarter of 2023. On the credit supply side, it was argued that weak incentives for bank lending might also have played a role. Banks had attractive alternative ways of putting their liquidity to work, including by investing in bond markets and placing funds in the ECB’s deposit facility. Anecdotal evidence nevertheless suggested that loan supply was not seen as a major problem by firms, who cited other issues, such as regulation and the lack of qualified labour, as being more important. Overall, it was assessed that the monetary policy transmission to credit volumes had remained strong, especially for mortgages. At the same time, credit dynamics appeared to be in line with the narrative of a soft landing for the economy. Moreover, the fact that monthly lending flows to firms had reached their highest level in more than a year and loans to households had picked up could be an indication that credit dynamics might be close to a turning point, and that the peak of monetary transmission to bank lending volumes might have been reached. Finally, it was remarked that, in response to changes in the monetary policy stance, banks’ funding strategies were gradually normalising in terms of both the configuration of bank interest rates and their recourse to the Eurosystem balance sheet. Banks had benefited from being able to draw on well-functioning funding markets with stable and sustainable spreads. While more diversified funding strategies might imply an increase in aggregate bank funding costs, they contributed to robust bank balance sheets and therefore increased the resilience of banks to shocks in the prevailing uncertain macro-financial environment. This would also support an orderly and smooth transmission of monetary policy if shocks were to materialise. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the incoming data since the last Governing Council meeting in accordance with the three main elements that the Governing Council had communicated in 2023 to be important in shaping its reaction function. These elements were (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Overall, members saw the latest developments in economic activity and inflation as being consistent with the current monetary policy stance. There had been further progress on all three elements of the reaction function, which gave grounds to be confident that monetary policy was working. Starting with the inflation outlook, data releases issued since the previous meeting suggested that disinflation was broadly proceeding as envisaged, or even at a slightly faster pace than previously expected. It was argued that, on the basis of current information and updated assumptions, and in particular lower energy prices, the new staff projections due in March were likely to show a downward revision to inflation for 2024. However, it was underlined that the important question from a policy perspective was the extent to which the news on near-term inflation would be translated into changes in the medium-term inflation outlook. While the incoming information had broadly confirmed the previous assessment of the medium-term inflation outlook, it would be premature to draw any firm conclusions in this regard, as a more complete evaluation was needed when the March projections were available. While inflation had been decreasing faster than expected, this could partly be attributed to one-off factors and energy price developments that might easily reverse. For an assessment of the medium-term inflation outlook, a wide range of variables needed to be considered, in particular the extent to which disinflation would lead to lower wage claims. For the new staff projections, the prevailing market expectations regarding interest rates were also important as conditioning assumptions. Market expectations were currently significantly lower than those underlying the December projections. Since the lower path for interest rates currently expected by markets was in part an endogenous reaction to lower inflation, the extent to which lower nominal rates would translate into higher growth and inflation in the future needed to be carefully assessed. This should include looking at how the expected path of real rates would change in the projections with new assumptions. Members noted that measures of underlying inflation had passed their peak, having fallen since the summer, and HICP inflation excluding energy and food had been weaker than predicted in recent data releases. Momentum had also come down in those measures of underlying inflation that remained relatively high, including services inflation and domestic inflation. Yet, wage growth had remained strong, with only limited indications of a turnaround thus far. Moreover, unit labour costs had risen sharply, in part reflecting weak productivity growth, and it remained to be seen whether they would grow as slowly as foreseen in the projections, which were predicated on a recovery in productivity growth together with moderating wage growth. Further uncertainty pertained to how much the contribution of unit profits to domestic inflation would continue to decline as projected, with firms absorbing higher labour costs rather than passing them on to consumers. Turning to the assessment of monetary policy transmission, members noted that there was solid evidence that monetary policy was being transmitted to financial markets, financing conditions and credit conditions, with the impact most likely having been stronger than expected. However, uncertainty remained about the timing of the peak impact, as well as the ultimate overall effect of monetary policy tightening on the real economy and inflation. All in all, members signalled that continuity, caution and patience were still needed, since the disinflationary process remained fragile and letting up too early could undo some of the progress made. While the initial inflation shock had largely reversed, the task that lay ahead was the reversal of second-round effects, which might prove to be more stubborn. At the same time, members expressed increased confidence that inflation would be brought back towards the 2% inflation target in a timely manner. The point was made that, for the first time in many meetings, the risks to reaching the inflation target were seen as broadly balanced or at least becoming more even. At the same time, the view was also expressed that, after several years of significantly overshooting the inflation target, the costs of another overshooting were likely higher than the costs of undershooting. In this context, members underlined the fact that the ECB’s inflation target was symmetric, implying the need to avoid both an undershooting and an overshooting, unless policy rates were close to the effective lower bound. At the same time, there was likely to be some volatility in inflation on the path to achieving the 2% target, and new shocks could materialise. Even if the projections foresaw a temporary period of inflation below 2%, as long as such a deviation was neither large nor persistent, the policy conclusion, in keeping with the ECB’s medium-term orientation, was that the Governing Council did not necessarily have to act. However, it was recalled that, since the ECB’s monetary policy strategy did not prescribe an average inflation target, the Governing Council should not aim at any such undershooting and all persistent deviations from the inflation target in either direction required a policy response. Monetary policy decisions and communication Against this background, all members agreed with the proposal by Mr Lane to maintain the three key ECB interest rates at their current levels. It was affirmed that further progress needed to be made in the disinflationary process before the Governing Council could be sufficiently confident that inflation was set to hit the ECB’s target in a timely manner and in a sustainable way. At the present juncture it was regarded as important for monetary policy to stay the course and for the Governing Council to proceed with a steady hand. At the same time, members underlined the fact that monetary policy remained data-dependent. It was reiterated that, based on its current assessment, the Governing Council considered the key ECB interest rates to be at levels that, if maintained for a sufficiently long duration, would make a substantial contribution to returning inflation to the medium-term target in a timely manner. Future decisions would ensure that policy rates would be set at sufficiently restrictive levels for as long as necessary. There was broad consensus among members that it was premature to discuss rate cuts at the present meeting and members widely referred to risk management considerations to support this view. The risk of cutting policy rates too early was still seen as outweighing that of cutting rates too late. Having to reverse course, in the event that economic activity picked up more strongly than expected, wage growth accelerated or renewed inflationary pressures emerged, could entail high reputational costs. The point was also made that the risk of an inadvertent overtightening of monetary policy was mitigated by the fact that financial markets were already pricing in a number of rate cuts in 2024, contributing to a loosening of both financial and financing conditions. However, it was also argued that such a loosening might be premature and could possibly derail or delay a timely return of inflation to target. In any case, members agreed that following a data-dependent rather than a calendar-based approach was important, in line with the elements of the reaction function that the Governing Council had communicated in 2023. Members also agreed with the Executive Board proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 25 January 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 24-25 January 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Cipollone Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Reinesch* Ms Schnabel Mr Scicluna* Mr Šimkus Mr Stournaras Mr Välimäki, temporarily replacing Mr Rehn Mr Vasle Mr Villeroy de Galhau Mr Vujčić Mr Wunsch * Members not holding a voting right in January 2024 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Pösö Mr Rutkaste Mr Sleijpen Mr Šošić Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 4 April 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 6-7 March 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 6-7 March 2024 4 April 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 24-25 January 2024, monetary policy expectations had retracted further from the early and large interest rate cuts initially foreseen at the turn of the year. More favourable news on the global economy and less favourable news on inflation had both been key factors in shaping financial market developments. In the case of the first factor, macroeconomic data surprises had moved into positive territory in the euro area, the United States and China for the first time since May 2023. As a result, investors attached a discernibly lower probability to the scenario of a hard landing for the global economy. The second factor related to a reassessment of the medium-term inflation outlook. Higher than expected inflation releases in the euro area and the United States, especially for core inflation, had dented investors’ hopes of rapid and smooth disinflation. Looking at the path of headline and core inflation in the euro area (as measured, respectively, by the Harmonised Index of Consumer Prices – HICP – and the overall index excluding energy and food) over 2024, inflation-linked bond markets were pricing in somewhat higher headline inflation rates throughout the year, compared with expectations at the time of the Governing Council’s monetary policy meeting in January. In response to investors’ expectations of lower downside tail risks to economic activity and a slightly bumpier path of disinflation, rate markets had priced in a substantially shallower easing cycle in the euro area, with expected cumulative interest rate cuts by the end of 2024 having declined notably from around 160 basis points in late December to around 90 basis points at present. After the latest repricing, the gap between expectations in interest rate markets and those reported by market analysts had largely disappeared. In the United States, strong labour market data, higher than expected inflation figures and more cautious communication by the Federal Reserve System had triggered an even greater repricing of policy rate expectations. As a result, overnight index swap (OIS) forward curves were also pricing in a substantially shallower easing cycle in the United States. A key explanatory factor for expectations of a synchronised monetary policy easing cycle across advanced economies was the common component in global inflation. Markets anticipated that the disinflationary momentum would continue unfolding synchronously over the coming year. Spillovers from the United States were another factor explaining the close co-movement of monetary policy expectations across jurisdictions. US data releases continued to exert a significant influence on yields in other advanced economies. A decomposition of euro area and US OIS rates across different maturities into inflation compensation and real rates showed that, in the euro area, inflation compensation had increased notably across the curve. At the same time, real rates had declined, in particular at the longer end, implying a mild loosening of financing conditions through risk-free rates. In the United States, the rise in inflation compensation was slightly less pronounced, with real rates remaining firm across the curve. The widening yield differential had been mirrored by a slight depreciation in the euro’s exchange rate against the US dollar. In nominal effective terms, the euro had remained broadly unchanged, while the US dollar had appreciated. Despite the repricing of the near-term inflation outlook, risks to the longer-term inflation outlook had not materially changed since January 2024, as the five-year forward inflation-linked swap (ILS) rate five years ahead had remained broadly unchanged. Compared with the close-to-peak levels at the September 2023 Governing Council meeting, ILS forward rates had come down materially, driven mostly by a decline in inflation risk premia. The sharp past tightening seemed to have been effective in containing and eventually lowering risks to the longer-term inflation outlook. Nevertheless, the five-year forward ILS rate five years ahead still stood markedly above its historical mean. Consistent with ILS rates, euro area option prices also indicated that risks of high inflation had come down but remained somewhat elevated compared with historical averages. Risk asset markets appeared to have looked through the tightening impulse stemming from expectations of a later and shallower easing cycle, supported by improved risk sentiment. The benchmark stock market indices across all major advanced and emerging economies, including China, had followed a bullish trend since the Governing Council’s January meeting. The buoyant risk sentiment had also been visible in corporate bond markets. The same was true for sovereign bond markets, where spreads over German Bunds had continued to narrow, with the differential between Italian and German ten-year government bond yields at its smallest since March 2022. Investors appeared to remain keen on locking in attractive returns amid expectations that the peak of the tightening cycle had been reached. Bid-to-cover ratios continued their gradual upward trend, pointing to strong demand for bonds despite record high sovereign issuance for the year to date. Despite the benign price developments across risk asset markets, some pockets of risk were emerging, for example related to the commercial real estate market, but these had not had broader repercussions for financial intermediaries and markets. Moreover, the continued rally in riskier market segments – despite the repricing of monetary policy expectations – and stretched valuations of some assets could point to complacency in financial markets. The global environment and economic and monetary developments in the euro area Starting with the global outlook, Mr Lane noted that global economic activity was still subdued but there were some signs of improvement. Trade momentum in goods and services was expected to strengthen in the first quarter of the year. The March ECB staff macroeconomic projections for the euro area foresaw a significant pick-up in euro area foreign demand, in line with previous exercises. Euro area foreign demand was projected to grow by 2.4% in 2024, 3.1% in 2025 and 3.2% in 2026, reflecting expectations of a normalisation in demand for goods, which would benefit European producers. As for commodities, since the last meeting oil prices had increased, while gas prices had declined further. International metal prices had also declined, although food prices had edged up. Turning to the euro area, Mr Lane recalled that, according to the recent Eurostat flash release, euro area headline inflation had declined to 2.6% in February from 2.8% in January. While energy inflation had become less negative, partly owing to the withdrawal of some fiscal support, food inflation had fallen strongly to 4.0% in February from 5.6% in January. This reflected an easing in both processed and unprocessed food inflation. Core inflation had decreased to 3.1% in February from 3.3% in January. Over the same period, the rate of non-energy industrial goods inflation had decelerated to 1.6% from 2.0%. Services inflation had edged down by 0.1 percentage points to 3.9%. Inflation in wage-sensitive services remained higher than in non-wage-sensitive services, supporting the view that high wage growth was playing an important role in elevated services inflation. Most measures of underlying inflation had declined further in January, as the impact of past adverse supply shocks continued to fade, lower energy prices reduced cost pressures and tighter monetary policy weighed on demand. At the lower end of the range, the indicator of the Persistent and Common Component of Inflation had been close to 2% since November. However, the annual growth rate of the indicator of domestic inflation was unchanged at 4.5%. Domestic price pressures as measured by growth in the GDP deflator were still high, although the deflator was projected to continue to decrease gradually. Profit growth offered a first buffer against high labour cost pressures and would recover thereafter. According to the March ECB staff projections, growth in compensation per employee was estimated to have slowed to 4.8% in the fourth quarter of 2023, from 5.3% in the third quarter. Based on already available country data, the forthcoming release of euro area data on 8 March for the growth in compensation per employee in the fourth quarter of 2023 was expected to turn out slightly lower than projected. Negotiated wage growth including one-off payments had declined in the fourth quarter by 0.2 percentage points to 4.5%. The latest signals from the ECB forward-looking wage trackers also indicated a gradual slowing of negotiated wage growth in the euro area. Additionally, the contribution from wage drift – the most cyclically sensitive element of compensation – had declined visibly, having been around 2 percentage points at the start of 2022. Both the Indeed tracker and feedback from firms participating in the ECB’s Corporate Telephone Survey pointed to lower wage growth this year compared with 2023. Moreover, profits seemed to be absorbing part of the rising labour costs, which would reduce their inflationary effects. Inflation was expected to continue its downward path in the coming months. In the near term, there would likely be some volatility in headline inflation owing to base effects in the energy component and to the timing of Easter. Thereafter, headline inflation was expected to decline to the ECB’s target as labour cost dynamics moderated and past energy shocks, supply bottlenecks and pandemic reopening effects dissipated. Headline inflation was projected to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. Relative to the December projections, headline inflation had been revised down by 0.4 percentage points for 2024 and 0.1 percentage points for 2025, while remaining unchanged for 2026. Core inflation projections had been revised down across the projection horizon to 2.6% for this year, 2.1% for 2025 and 2.0% for 2026. This implied downward revisions to core inflation of 0.1 percentage points for this year, 0.2 percentage points for next year and 0.1 percentage points for 2026. Upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins proved more resilient. By contrast, inflation could surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. Economic activity in the euro area had remained weak in the first two months of 2024. Consumers continued to hold back on spending, housing investment had remained subdued and companies had exported less, reflecting a slowdown in external demand and some losses in competitiveness. Business investment had also remained weak, reflecting the impact of restrictive monetary policy, the depletion of order backlogs and subdued demand. Forward-looking indicators such as Purchasing Managers’ Indices (PMIs) were improving but remained at low levels overall. While surveys pointed to a gradual recovery in economic activity over the course of the year, the recovery was expected to proceed at a slower pace than previously anticipated. This reflected the carry-over from the recent weaker data outturns for 2023 and the still-subdued level of survey indicators. As inflation fell and wages kept growing, real incomes would rebound, supporting growth. Further ahead, both housing and business investment should be supported by an easing of financing conditions. Business investment was also expected to pick up as demand strengthened. In addition, demand for euro area exports should improve as global demand rebounded and price competitiveness pressures eased. With respect to domestic demand components, the projections saw a significant pick-up in consumption in 2024. Investment was expected to contract as a result of the ongoing transmission of monetary policy tightening and was hence not expected to contribute to the recovery this year. The recovery would instead be led by consumption and exports, with goods consumption playing a key role. This was, in turn, interconnected with the projection for labour costs. Unit labour costs were seen as decelerating more quickly than compensation per employee over the projection horizon, owing to the expected pick-up in productivity. Manufacturing output, especially, had been depressed, but labour had not yet been shed, which resulted in a higher ratio of employment to output and hence lower labour productivity. The projections suggested that a recovery in output – and especially manufacturing output – would be achieved through a recovery in productivity. Taken together, these factors explained the glide path back to the inflation target. Employment had grown by 0.3% in the final quarter of 2023, again outpacing economic activity. The unemployment rate had edged down to a historical low of 6.4% in January from 6.5% in December, which itself had been revised up. Meanwhile, employers were announcing fewer job vacancies and fewer firms were reporting that their production was being limited by labour shortages. As for the labour market, the construction and manufacturing sectors remained basically in stagnation or even contraction, with the latest employment PMIs remaining well below 50. Looking at services, in the high-tech sector employment PMIs remained at levels slightly above 50, while in the low-tech sector they had recovered strongly and stood above 55. There was also a noticeable decline in the number of firms reporting that labour was limiting their production possibilities – especially in services. The new ECB staff projections indicated subdued growth in the near term, followed by a recovery thanks to rising real incomes, the fading impact of past monetary policy tightening on financing conditions and improving foreign demand. Output growth was expected to average 0.6% in 2024, 1.5% in 2025 and 1.6% in 2026. Relative to the December projections, growth had been revised down by 0.2 percentage points for 2024, while it was unchanged for 2025 and had been revised up by 0.1 percentage points for 2026. The fiscal outlook in the March 2024 projections was little changed from the December 2023 projections. The risks to economic activity remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This could result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation came down more quickly than expected, if rising real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. Turning to the monetary and financial analysis, market interest rates had increased since the last monetary policy meeting. The transmission of past policy rate hikes to broader financing conditions remained strong. Lending rates on business loans had broadly stabilised, while mortgage rates had declined in December and January. Nevertheless, lending rates remained elevated at 5.2% for business loans and 3.9% for mortgages. High bank lending rates, tight credit standards and lower business investment continued to dampen demand for loans with longer maturities. The annual growth rate of bank lending to firms, which had turned positive and stood at 0.5% in December, had edged lower again in January, reaching 0.2% owing to a negative flow in the month. The year-on-year growth in loans to households had continued to weaken, slowing to 0.3% in January. The annual growth rates of M3 – the broad monetary aggregate – and M1 – the narrow monetary aggregate of currency in circulation and overnight deposits – had remained weak in January, standing at 0.1% and -8.6% respectively. After standing in negative territory until November, the annual growth rate of M3 had been marginally positive in December and January. The increase in M3 was mostly explained by the strengthening of net inflows from the rest of the world, driven mainly by the strong trade surplus amid weak imports. Weak deposit creation continued to underpin a shift in bank funding composition towards more expensive funding sources. Monetary policy considerations and policy options Based on the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, at the meeting Mr Lane proposed keeping the three key ECB interest rates unchanged. The three elements of the Governing Council’s reaction function supported an unchanged policy at the meeting. Headline inflation was now projected to be markedly lower in 2024 compared with previous expectations, returning to target by mid-2025 and slightly undershooting 2% in subsequent quarters. Growth was expected to recover only gradually through most of 2024. The overall trend in underlying inflation continued to soften. At the same time, some key measures including domestic inflation remained elevated, while further confirmation was still needed concerning the projected outlook for wage inflation and unit margins. The third criterion, namely the ongoing strong transmission of monetary policy, was confirmed, albeit with some signs of stabilisation owing to the anticipation of future rate cuts. Based on those three criteria, the key ECB interest rates were at levels that, maintained for a sufficiently long duration, would make a substantial contribution to the ECB’s goal of returning inflation to its medium-term target in a timely manner. This warranted continuing to follow a data-dependent approach to determining the appropriate level and duration of restriction, while ensuring that policy rates would be set at sufficiently restrictive levels for as long as necessary. An overall evaluation of the policy trajectory could be obtained from the joint evolution of the inflation outlook (including the new staff projections), underlying inflation and the strength of monetary transmission in recent months. The developments here should increase confidence that the monetary policy decisions already taken would deliver the ECB’s medium-term inflation target, especially in view of the projected narrowing of the distance to the target already in 2024. At the same time, only further along in the disinflation process could the ECB be sufficiently confident that inflation would hit the target in a timely manner and settle at target sustainably. Mr Lane also proposed preserving the option to apply flexibility in reinvesting redemptions coming due in the pandemic emergency purchase programme (PEPP) portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, while global GDP growth remained subdued, there were early signs of improvement. A broad set of early indicators suggested that global growth had declined throughout 2023, reflecting tight monetary policy working its way through the global economy and fading tailwinds for consumption, such as from pandemic-related excess savings. Indicators had improved at the turn of the year, so global growth was expected to pick up in the first quarter of 2024 following a moderation in the last quarter of 2023. Global trade had also showed early signs of improvement at the start of 2024. The post-pandemic factors that had caused a period of weak trade in 2023, for example owing to the rotation of demand from goods to services, should ease in the period ahead. As regards key global economies, growth in the United States had been above expectations in the last quarter of 2023 and the labour market had been robust. At the same time, the Chinese economy continued to struggle with a weakening housing sector. Overall, it was underlined that the global economic outlook was still uncertain. Turning to energy commodities, oil prices were expected to decline because of the supply surplus in the global market, which was expected to persist in 2024 despite OPEC+ producers having announced production cuts. European gas prices had fallen further since the Governing Council’s last monetary policy meeting, as demand remained subdued and gas storage levels were relatively high. Nevertheless, it was highlighted that gas prices were volatile. With respect to the international determinants of consumer price inflation, price pressures were limited – despite the tensions in the Red Sea area – as demand for goods was still weak and inventory levels remained high. With regard to economic activity in the euro area, members concurred with Mr Lane that the economy remained weak. Consumers continued to hold back on their spending, investment had moderated and companies were exporting less, reflecting a slowdown in external demand and some losses in competitiveness. However, surveys pointed to a gradual recovery over the course of the year. As inflation was falling and wages continued to grow, real incomes would rebound, supporting growth. In addition, the dampening impact of past interest rate increases would gradually fade and demand for euro area exports should pick up. The unemployment rate was at its lowest since the start of the euro. Employment had grown by 0.3% in the final quarter of 2023, again outpacing economic activity. As a result, output per person had declined further. Meanwhile, employers were posting fewer job vacancies and fewer firms were reporting that their production was being limited by labour shortages. Members widely acknowledged the weaker than expected growth in the short term. Economic activity had stagnated for five quarters in a row and was expected to remain weak for two more quarters. Moreover, risks were seen to be on the downside, as mechanical nowcasting tools still showed lower numbers than those in the March projections for the first and second quarters of 2024. Consequently, the euro area economy was so far not showing convincing signs of improvement, which would likely imply six quarters of economic stagnation. Across sectors, there was also no indication of a recovery in manufacturing or construction, while private consumption, investment and external demand had remained weak overall throughout 2023. At the same time, it was pointed out that data available since the last Governing Council meeting had confirmed the bottoming-out of the euro area economy, which was being supported by foreign demand recovering and the continued solid growth in the United States, as well as recently some more positive news about China. The most recent PMIs for the euro area had been stronger than expected, with services moving back into expansionary territory, while manufacturing remained weak but stood significantly above the trough of last summer. New orders had also been steadily increasing in the manufacturing and services sectors since November. Members expressed broad agreement with the latest macroeconomic staff projections. It was emphasised that the March projections had seen the fifth consecutive downward revision to growth and the second downward revision to inflation for 2024, with also a downward revision to inflation for 2025. The macroeconomic projections had now broadly converged with the Consensus Economics forecasts, both for 2024 and for 2025. At the same time, it was noted that the projections for growth and inflation, as well as credit developments, were pointing to a benign outlook, in which both a hard landing and a credit crunch would be avoided. The macroeconomic projections overall showed an encouraging picture, with an outlook that was well on track to bring inflation back to target. Revisions were becoming smaller, so there was reason to have more confidence in the baseline projections, although the risks to the growth outlook were still tilted to the downside, at least in the short term. Moreover, the contributions of cyclical and structural factors to growth and longer-term potential were hard to disentangle in real time. The main drivers of the expected recovery were increasing real incomes, higher government consumption, improving terms of trade and monetary policy becoming less restrictive. Private consumption was expected to pick up once real household income started to gradually improve, supporting a concomitant recovery in business investment. In this context, it would be important for investment to resume in line with what was necessary for the digital and green transformations, which would ultimately also reduce medium-term price stability risks and benefit monetary policy by increasing the robustness of the supply side of the economy. In addition, fiscal policy was seen as a key driver of economic growth over the projection horizon, in terms of both government consumption and public investment, in particular through the Next Generation EU (NGEU) programme. The release of the final 2023 deficit figures in the coming weeks should enable a clearer assessment of the fiscal policy stance. Several countries were running excessively high deficits, which might pose challenges further down the road. However, it was mentioned that in some countries the fiscal imbalances stemmed to a large extent from shortfalls in tax receipts, reflecting the weak economy, rather than from spending overruns. It was reiterated that governments should continue to roll back energy-related support measures to allow the disinflation process to proceed sustainably. Fiscal and structural policies should be strengthened to make the euro area economy more productive and competitive, expand supply capacity and gradually bring down high public debt ratios. A speedier implementation of the NGEU programme and more determined efforts to remove national barriers to deeper and more integrated banking and capital markets could help increase investment in the green and digital transitions and reduce price pressures in the medium term. The EU’s revised economic governance framework should be implemented without delay. Turning to the labour market, it was widely stressed that a thorough understanding of the market remained crucial for assessing the outlook for wages and inflation. This applied not just to wage dynamics but also to labour productivity. It was pointed out that the share of firms citing labour shortages as a constraint on output remained high but had been falling, pointing to less labour market tightness. However, firms continued to hoard labour, which could be interpreted as a sign that they were trying to avoid shortages in the future. Labour hoarding would allow them to meet a future resurgence in demand with the workforce already in place, which had positive implications for labour productivity. Additionally, it was remarked that monetary policy transmission remained strong, with a significant portion of recent downward revisions to the growth outlook seeming to stem from monetary policy having a more forceful effect on growth than expected. Looking ahead, the projected improvement in economic activity was also based on rate cuts as embedded in the market rate assumptions underpinning the projections. Against this background, members assessed that the risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This could result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation came down more quickly than expected and rising real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. The point was made that two scenarios could unfold if downside risks to economic activity materialised. In one possible scenario, weak demand would lead to a slowdown in profit and wage growth and inflation would be dampened. In an alternative downside scenario, however, the projected recovery in productivity would not materialise. Given the ongoing strength of wage developments, weaker economic growth could translate into higher unit labour costs, contributing to upside domestic price pressures and slowing down the disinflation process. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction and welcomed the recent decline in inflation, reflecting a faster than anticipated disinflationary process. This was partly due to the unwinding of past supply shocks but was also a sign that monetary policy was working. Over the past year both headline and core inflation had fallen by several percentage points, and even services inflation had declined over the past six months. The latest staff projections suggested that inflation would, at least temporarily, already reach a trough close to target in the second half of 2024, which was much earlier than previously expected. On this basis, the view was expressed that the disinflation process was making good progress. At the same time, it was mentioned that the disinflationary process remained bumpy and fragile, and that a timely and sustainable return to target as foreseen in the projections still relied on a sufficiently restrictive monetary policy stance. Inflation momentum, as measured by the annualised three-month-on-three-month rate, had jumped for all HICP components except food. This was consistent with the latest PMIs showing that the share of services firms indicating rising selling prices had steadily increased since November, which posed upside risks to the inflation outlook, especially for core inflation. One important upside risk was associated with energy prices, which had recently eased significantly. For gas prices, in particular, risks were strongly tilted to the upside, as shown by option-implied distributions. It was important to keep in mind that wrong assumptions on energy prices would eventually feed through to all inflation components, either through input prices or indirectly, via wages. That implied that the benign inflation outlook in the latest projections depended critically on the favourable energy price assumptions. Moreover, the combination of El Niño and La Niña, in conjunction with the impact of global warming and climate change, was creating upside risks for food prices. It was added that month-on-month figures showed that core inflation had again been on the rise for the last couple of months, which called for continued caution on the inflation outlook. Services inflation, with the latest figure at 3.9%, had barely moved from the 4% recorded for November, which lent further support to the picture of “last mile” persistence in that component of inflation. In January, around 90% of the services consumption basket had still been growing at an annual rate above 2%. The turnaround in services inflation had started late, only from July 2023, and services inflation had lost a mere 1.7 percentage points of the 4 percentage point increase observed since the start of the pandemic. Given the large and rising weight of services in euro area value added, this stickiness had significantly restrained the overall disinflation process. At the same time, monetary policy transmission to services inflation might be weaker and slower than in manufacturing, as services tended to be less capital-intensive and hence less exposed to changes in external financing conditions. In the October 2023 Corporate Telephone Survey, services firms had reported hardly any impact of financing conditions on their past or future activity, in part reflecting their large cash buffers. Moreover, less exposure to global competition meant there was less pressure on services firms to absorb rising costs by curtailing their margins. Overall, this evidence was consistent with the notion that monetary policy transmission to services inflation worked mainly indirectly, through the effect of monetary policy on inflation expectations and wages, as well as through a general dampening of aggregate demand. Furthermore, the rotation of consumption from goods back to services and the resilience of the labour market might have weakened even this indirect transmission channel. All this argued for perseverance in keeping monetary policy sufficiently restrictive. While the progress on inflation had indeed been encouraging, the February inflation figure was a warning sign that the last mile was likely to be more uncertain, slower and bumpier. At the same time, it was recalled that services inflation had always been more persistent. Although it had indeed remained stubbornly high for the last four months, that was to be expected and had already been incorporated in the projections. Moreover, owing to weaker productivity growth in the services sector, services inflation had traditionally been higher on average than the overall inflation rate. While the annual growth rate of services inflation in February had still been too high, its momentum had been on a falling trend since April 2023 and had been close to 2% in January 2024, although it had picked up again in February to 3.1%. In this context, it was also mentioned that between November and January services inflation had been pushed up by developments in transport, insurance services and package holidays. These components were not classified as wage-sensitive. More generally, it was argued that wage-sensitive components had not exerted particular upward pressure on services inflation since last June. Services inflation had mainly been higher than goods inflation because of the rotation of demand from goods to services after the pandemic, with the result that it had started to increase later, had peaked later and had started to decrease later. The point was made that services inflation had also been higher than in a normal disinflation episode because wages had responded at a slower pace to the supply shock from energy prices. Given the price level gap between goods and services, it was at present not clear whether services prices would converge to goods prices or the other way round. Turning to wage and profit developments, members recalled that information on the nexus of wages, profits and productivity remained a key element in building confidence around the inflation outlook. There were still several question marks over all three elements of this nexus, so more evidence was needed before it could be concluded that inflation had durably turned the corner. The March 2024 staff projections foresaw a significant decline in the growth of unit labour costs, which had been revised down for 2025 and 2026 compared with the December 2023 projections. But convincing evidence was yet to emerge that nominal wage growth was coming down as expected and, in particular, that firms were absorbing the higher unit labour costs through their profits. Revisions compared with the December staff projections implied significantly stronger contributions from unit profits to domestic inflation than had been expected, and the GDP deflator had so far remained stubbornly above 5%. While the most recent data on profits in 2023 were encouraging, a much stronger absorption of higher labour costs by lower profit margins needed to materialise over 2024. Furthermore, the projections envisaged a steady recovery of productivity growth over the projection horizon. This might not materialise if the observed slowdown in productivity growth was due not only to cyclical factors such as labour hoarding, but also to factors such as a change in the composition of the labour force, structurally higher sick leave or a shift in employment towards the services sector, which could make the productivity slowdown more persistent. More generally, a significant part of the current weakness in manufacturing was likely to be of a structural nature, which would have different implications for the evolution of inflation, particularly as previous downward revisions to potential output growth might prove insufficient. At the same time, it was mentioned that labour productivity was procyclical in the euro area, so that when economic activity was subdued, weak productivity developments could also be interpreted as a sign of excessive monetary policy tightening. Incoming information on wages in many countries suggested that wage developments continued to deserve special attention. While the data for the whole euro area on compensation per employee for the fourth quarter of 2023 were not yet available, information had already been received for 15 euro area countries. That information suggested wage growth had slowed significantly in the fourth quarter of last year. As regards the GDP deflator, the headline figure for the fourth quarter had already been released for some countries and incorporated in the March ECB staff projections. The incoming wage growth figures for the first quarter of 2024 from the Indeed tracker based on job adverts could be seen as a leading indicator for negotiated wages. These figures suggested that negotiated wage increases could slow further. Especially when comparing with the inflation outlook contained in the September 2023 staff projections, the subsequent downside inflation surprises had diminished the need for nominal wages to catch up with past inflation. The question was also raised whether, in the near future, profit margins would be able to keep absorbing the rise in unit labour costs. Otherwise, businesses might increasingly pass on higher unit labour costs by raising prices. In 2022 the level of profits had been atypically high, which suggested that there was sufficient room for margins to compress and that profits would likely be affected by weak demand. As regards longer-term inflation expectations, members took note of the assessments by Ms Schnabel and Mr Lane of the latest developments in market-based measures of inflation compensation and survey-based indicators. Market-based measures of inflation compensation had come down notably and remained broadly anchored at 2%. Upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins proved more resilient. By contrast, inflation could surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. Turning to the monetary and financial analysis, members largely concurred with the assessments provided by Mr Lane and Ms Schnabel in their introductions. Market interest rates had risen since the Governing Council’s previous meeting. These had converged towards the views of analysts and now priced in three fewer interest rate cuts in 2024, with an 85% probability of a first rate cut in June. It was argued that this repricing reflected a recognition that disinflation was going to be slower and less certain than previously expected. In addition, spillovers from higher market interest rates in the United States were also mentioned. Market expectations for future interest rates were seen as broadly in line with macroeconomic fundamentals, including the inflation outlook and interest rate assumptions as embedded in the latest staff projections. Financial markets had continued to function well but might be underpricing risk in some asset categories. Spreads on high-yield corporate bonds in the euro area had narrowed to levels not seen for the past 15 years but could widen if defaults picked up. Sovereign bond spreads had also continued to narrow but could increase as a result of fiscal risks. Equity markets appeared buoyant, especially in the United States. Meanwhile, the euro exchange rate had changed little, both against the US dollar and in nominal effective terms. Members agreed that the ECB’s restrictive monetary policy had been transmitted strongly to broader financing conditions for firms and households and that these conditions remained tight. It was remarked that a reduced supply of liquidity was also contributing to monetary tightening, owing to ongoing and prospective reductions in the asset purchase programme (APP) and PEPP portfolios, as well as maturing targeted longer-term refinancing operations. Interest rates on business loans had broadly stabilised and mortgage rates had declined in December and January. This had contributed to a slight easing in financing conditions, but lending rates remained elevated in historical terms. Furthermore, continued repricing of the outstanding stock of loans was also contributing to a strong transmission of the past rate hikes. Bank funding costs were high, and banks were tightening lending standards and increasingly favouring safer assets as the riskiness of borrowers increased. This had negative implications for credit supply. It was also contended that because new loans were less risky their risk-adjusted cost was actually still rising. There were signs that annual growth in bank loans to firms was stabilising at low levels, notwithstanding some volatility in monthly flows around the turn of the year. Meanwhile the growth in loans to households continued to weaken in annual terms. Broad money, as measured by M3, was growing at a subdued annual rate, with the three-month annualised growth rate momentum rebounding somewhat since mid-2023. It was also argued that the impact of credit tightening had been stronger than expected, especially on mortgage lending. Additionally, the outlook for credit remained moderate, owing to the substantial impact of high interest rates and tight credit standards over the projection horizon. Caution was expressed about assuming that a turning point in lending growth had been reached. Attention was drawn to analysis suggesting that the ratio of corporate bank loans to GDP was projected to fall to historical lows of below 35% in the coming quarters. At the same time, it was argued that the staff projections did not entail a credit crunch. Also, credit dynamics still appeared to suggest a soft landing, given increasing evidence that loan growth had reached a trough. Moreover, declining bank funding costs should also support slightly lower lending rates on new loans. In that context, it was argued that the peak of monetary policy transmission to bank lending volumes might have been reached. Some concerns were expressed that financial stability risks were emerging, given signs of financial distress among low income households. The proportion of mortgage holders struggling to meet payments was rising rapidly to historical highs, which would probably persist for an extended period. The risks facing some non-financial firms and the risks from the commercial real estate sector were also highlighted. Against this background, banks’ non-performing and underperforming loans were increasing, which could make it tougher for non-financial corporates to access bank credit. Narrow spreads on high-yield bonds were currently a mitigating factor, but if spreads were to increase owing to higher default rates, non-financial corporates’ access to debt financing could suffer. At the same time, bank equity prices remained elevated overall, suggesting that asset quality risks remained contained. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data available since the last monetary policy meeting in accordance with the three main elements that the Governing Council had communicated in 2023 as shaping its reaction function. These comprised (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Overall, there had been further progress on all three elements, which warranted increased confidence that inflation was on track to reach the ECB’s target in a timely and sustainable manner. However, more data and evidence were needed for the Governing Council to be sufficiently confident of this. Starting with the inflation outlook, members broadly concurred with the assessment that had been presented by Mr Lane in his introduction. Inflation was continuing to decline towards the 2% target broadly as expected, and this good progress was seen as encouraging. The fact that inflation had been slightly higher than anticipated in February was not seen as changing this general picture. Nevertheless, it was argued that the associated increase in momentum for all HICP components except food, as measured by the annualised three-month-on-three-month rate of inflation, was a warning. A more uncertain, slower and bumpier disinflation process could lie ahead. Still, inflation was expected to continue its downward trend in the coming months – near-term projections having been revised down compared with the December staff projections – and to show continued moderation in 2024. A bumpy profile and a trough were expected after the summer, driven by base effects. Further ahead, inflation was on track to decline to the 2% target as a result of moderating labour costs and the fading effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy. According to the latest staff projections, inflation was expected to be back at target – or even slightly below target – in the medium term, and earlier than had been previously anticipated, especially compared with the September 2023 staff projections. Members agreed that most measures of underlying inflation had declined further since the last monetary policy meeting, owing to the indirect effects of lower energy prices receding, the impact of past supply shocks fading and tight monetary policy weighing on demand. The staff projections for core inflation had also been revised down. It was now expected to fall to 2% in 2026. However, domestic price pressures were still elevated, owing to a combination of robust wage growth, falling labour productivity and sticky services inflation. It remained to be seen whether unit labour costs would decline in line with the projections, which relied on a recovery in productivity growth together with moderating wage growth. Further uncertainty surrounded both the projected continued decline in the contribution of unit profits to the GDP deflator as well as the extent to which firms would absorb higher labour costs, rather than passing them on to consumers. It was also noted that, over the entire horizon, the March ECB staff projections for core inflation were at the lower end of a range of other forecasts. Continuing uncertainty about the effects of the wage-profits-productivity nexus on domestic inflation highlighted the need for caution and for more evidence that core inflation would continue to decline. At the same time, there were signs that wage growth was starting to moderate. In addition, profits were absorbing part of the rising labour costs, reducing their inflationary effects. Moreover, services inflation could be expected to be more persistent and lag behind other components of inflation. Finally, members generally agreed that monetary policy transmission was working well, with less uncertainty about the strength of transmission than when interest rates were still rising. Monetary policy was being transmitted robustly to financial markets, financing conditions, credit conditions and aggregate demand. This had helped to lower inflation but had also weighed on growth – potentially more than had been expected and with measurable effects on small and young enterprises. It was recalled that a significant part of policy transmission remained in the pipeline, as the coming quarters would see the impact of past policy tightening continuing to be transmitted to bank funding conditions, broader financing conditions, credit volumes and the real economy. It was also argued that there would be some tightening in financing conditions in 2024 stemming from the contraction of the Eurosystem balance sheet. At the same time, it was contended that the tightening impulse from monetary policy was gradually fading. The point was made that financial and financing conditions – and thereby the effective monetary policy stance – had already eased and might continue to ease as markets repriced their rate expectations. Moreover, transmission was seen as weaker and slower for services inflation, which tended to be less capital-intensive and therefore less reliant on external financing. Overall, members expressed increased confidence that inflation was on track to decline sustainably to the 2% inflation target in a timely manner. However, patience and caution were still needed, and more evidence and data were required for the Governing Council to be sufficiently confident that the task had been accomplished. It was therefore important not to be complacent, as the disinflationary process remained fragile and conditional on a number of benign assumptions about wages, profits and productivity. Furthermore, a smooth and sustainable return of inflation to target, as implied by the projections, was also contingent on the monetary policy stance remaining restrictive enough for long enough. At the same time, it was widely felt that, while there were clearly risks to the outlook, monetary policy was working and the disinflation process remained solid and robust. The view was taken that the risks of overshooting versus undershooting the ECB’s symmetric inflation target in the medium term were broadly balanced or becoming more balanced. Monetary policy decisions and communication All members agreed with the proposal by Mr Lane to maintain the three key ECB interest rates at their current levels. There was consensus that it would be premature to discuss rate cuts at the present meeting. Instead, it was affirmed that it was important to be further along in the disinflation process and accumulate additional evidence for the Governing Council to be sufficiently confident that inflation was set to return to target in a timely and sustainable manner. It was reiterated that, based on its current assessment, the Governing Council considered the key ECB interest rates to be at levels that, maintained for a sufficiently long duration, would make a substantial contribution to returning inflation to its 2% medium-term target in a timely manner. Future decisions would ensure that policy rates would be set at sufficiently restrictive levels for as long as necessary. Members underlined the need for policy to remain data-dependent and to continue to be based on the elements of the reaction function already communicated. While it was wise to await incoming data and evidence, the case for considering rate cuts was strengthening. This was based on the latest ECB staff projections, the further progress on the three criteria specified by the Governing Council in 2023, more contained projection errors and a more balanced risk assessment, with the date of a first rate cut coming more clearly into view. It was also recalled that the ECB’s focus and mandate were price stability in the euro area, although spillovers from other major policy areas would naturally be taken into account. It was highlighted that, in addition to new staff projections, the Governing Council would have significantly more data and information by the June meeting, especially on wage dynamics. By contrast, the new information available in time for the April meeting would be much more limited, making it harder to be sufficiently confident about the sustainability of the disinflation process by then. Questions remained about the sustainability of the disinflationary process, particularly in services and domestic inflation, on account of the uncertain outlook for wage growth, productivity growth and profit margins. In order to increase confidence that inflation would sustainably return to the ECB’s target, incoming data needed to confirm that important assumptions and predictions about these indicators in the March ECB staff projections would indeed hold true. Members also agreed with Mr Lane’s proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio, in line with the Executive Board proposal presented by Ms Schnabel in her introduction. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 7 March 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 6-7 March 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Cipollone Mr Elderson Mr Hernández de Cos* Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Reinesch Mr Rehn* Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau Mr Vujčić Mr Wunsch* * Members not holding a voting right in March 2024 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Horváth Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Sleijpen Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 10 May 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 10-11 April 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 10-11 April 2024 10 May 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 6-7 March 2024 financial markets had started to price in some divergence between the monetary policy paths expected in the euro area and in the United States. This was reflected in a widening interest rate differential. In the United States, a series of solid economic data releases had signalled the US economy’s resilience to the current levels of interest rates. This had led financial markets to expect the timing of a first interest rate cut to be later and the overall extent of monetary policy easing to be less than previously anticipated. In the euro area, by contrast, expectations regarding the path of the ECB’s monetary policy had changed to a lesser extent. Owing to the Governing Council’s communication and incoming euro area economic data, spillovers of US rate expectations to the short end of the euro area yield curve had remained contained. Investors saw almost no chance of a rate cut at the present meeting, but had fully priced in a rate cut for June, followed by another two rate cuts later in the year. This was in line with evidence from the April round of the Survey of Monetary Analysts (SMA). The increasing divergence between expected developments in euro area and US short-term interest rates had been mirrored in a visible divergence between longer-term interest rates in the two economies. Euro area longer-term overnight index swap (OIS) rates had increased only modestly since the Governing Council’s previous monetary policy meeting on 6-7 March 2024, while OIS rates in the United States had increased notably over the same period. The increase in the United States reflected a rise in both the real interest rate and inflation compensation. This had not spilled over to the euro area, which pointed to a degree of decoupling of the longer end of the yield curve. An unprecedented combination of macroeconomic and monetary policy shocks common to both economies had driven the co-movement of US and euro area interest rates in 2022 and 2023 to the closest level seen since the global financial crisis. Since the start of 2024 the extent of the co-movement had diminished, as both macroeconomic developments and the outlook for monetary policy had become less synchronised across the two economies. The resulting widening of the yield differential since the Governing Council’s monetary policy meeting in March had been accompanied by a slight depreciation of the euro exchange rate vis-à-vis the US dollar. While recent ECB communication had cemented expectations of the timing of the initial cut in policy interest rates, the uncertainty around the subsequent policy path remained elevated. Volatility in euro area interest rate markets remained markedly elevated compared with the period before the ECB began to hike rates. By contrast, the benign macroeconomic developments in the global economy – especially in the United States – and reduced downside tail risks to economic growth had gone hand in hand with very low volatility in risk asset markets. Measures of implied volatility in euro area and US equity markets had returned to pre-pandemic levels. One source of still elevated uncertainty about the path of the ECB’s monetary policy was that, based on options pricing, investors continued to assess risks to the euro area inflation outlook to be tilted to the upside despite the ongoing disinflation process. Among the drivers of these perceived upside risks to the inflation outlook, food prices had increased sharply over recent weeks, in part owing to extreme weather events related to climate change and the El Niño phenomenon. Brent crude oil prices had risen above USD 90 per barrel on fears of rising tensions in the Middle East. Risk asset markets remained resilient to monetary policy uncertainty. The benchmark EURO STOXX index had increased further since the March monetary policy meeting, but the latest equity valuations continued to stand close to the historical median in the euro area. The rally in euro area equity markets since the start of the year had mainly been driven by large, internationally active euro area firms. Small and medium-sized companies, which were likely to be more dependent on domestic markets, had benefited less from the global risk-on environment. Given stretched market valuations in some segments, especially in the United States, the risk of a market correction had increased. The combination of buoyant global risk asset markets with resilient growth and low market volatility had also continued to support euro area sovereign spreads vis-à-vis OIS rates. Despite a recent small uptick, spreads had remained at compressed levels, notwithstanding higher debt servicing costs and a recent deterioration in the fiscal outlook in several euro area economies. As regards bank funding, markets were functioning well and liquidity was being redistributed smoothly in the banking system as excess liquidity declined. The recent repayments in March 2024 of funds borrowed in the seventh operation of the third series of targeted longer-term refinancing operations (TLTROs) had led to a further drop in euro area excess liquidity, which had declined by 31% – falling by €1.5 trillion from its peak of €4.7 trillion in November 2022. The increase in the take-up of funds in standard refinancing operations relative to the size of repayments in March had been very limited and was comparable to levels seen at the time of earlier TLTRO repayments. Banks had adapted to lower central bank funding by increasing their funding from other sources, including repo borrowing, amid significantly increased activity in secured money markets. Another important funding source had been new bank bond issuance. In particular, covered bond issuance had picked up markedly in 2022 and 2023, reversing developments seen over the previous two years. Overall, it was encouraging that bond and money markets were functioning smoothly with signs of reduced fragmentation risks. Developments in bank funding markets would continue to be closely monitored, in line with the Governing Council’s decisions in the context of the operational framework review. The global environment and economic and monetary developments in the euro area Starting with the global economy, Mr Lane reviewed the incoming information, which pointed to a modest pick-up in global activity in the first quarter. Global trade was expected to recover gradually during the year as the economic recovery proceeded, expenditure patterns gradually rebalanced from services back to goods, and the inventory cycle normalised. However, the tensions in the Red Sea area remained a downside risk to trade. The euro exchange rate had remained broadly stable since the March monetary policy meeting, both against the US dollar and in nominal effective terms. There had been a clear jump in oil prices since the March meeting, with Brent crude oil increasing by 4.7%, to USD 92.8 per barrel. The price futures curve implied a partial retracement of the latest increases over the coming months. European natural gas prices had increased by 6.9% since the March meeting, but still stood a lot lower than at the time of the December 2023 meeting. Metal prices had increased somewhat. Food commodity prices had increased substantially since the March meeting, driven mainly by rising cocoa prices. Turning to the euro area, Mr Lane highlighted that headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP), had been improving gradually over the past few months and had declined to 2.4% in March, from 2.6% in February. Energy inflation had risen to -1.8% in March, from -3.7% in the previous month, mainly owing to an upward base effect and the reversal of some fiscal support measures. Food inflation had weakened further to 2.7% in March, from 3.9% in February, with processed food inflation continuing to decline and unprocessed food inflation turning negative. Core inflation (i.e. the HICP excluding energy and food) had decreased to 2.9% in March, from 3.1% in February. The non-energy industrial goods inflation rate had again decelerated, to 1.1% in March, from 1.6% in the previous month. Services inflation had remained unchanged at 4.0% in March, owing in part to the early timing of Easter. Many observers had noticed that the momentum of inflation had picked up again, which was visible across the different components – but it was important to note that this was taken into account in the March 2024 ECB staff macroeconomic projections. Focusing on services, inflation had come down from 5.6% at the peak last summer to 4% in March. A large part of that reduction had been due to the pandemic reopening effects fading away, particularly in “contact-intensive” services such as tourism, accommodation and restaurants. There was a tight correlation between wages and the inflation rate in wage-sensitive sectors, which explained why a material drop in services inflation would not be seen until 2025, in line with the projected deceleration in wages in 2025 compared with 2024. Most measures of underlying inflation had declined further in February, confirming the picture of gradually diminishing price pressures. The impact of past adverse supply shocks was continuing to fade and tight monetary policy still weighed on demand. At the lower end of the range of measures, the indicators based on the Persistent and Common Component of Inflation (PCCI) had edged higher but remained close to 2%. The annual rate of domestic inflation was unchanged at 4.5%. Wage pressures were gradually moderating but remained elevated compared with a steady-state benchmark. Annual growth in compensation per employee had decelerated to 4.6% in the fourth quarter of 2023, from 5.1% in the third quarter. This outcome was 0.2 percentage points below the March ECB staff projections. Growth in compensation per hour had also slowed, falling in annual terms to 4.4% in the fourth quarter of 2023 from 5.0% in the third quarter. The wages and salaries component of the labour cost indicator had decreased to 3.3% in the fourth quarter, from 5.1% in the third quarter. Annual unit labour cost growth had fallen to 5.8% in the fourth quarter, from 6.5% in the previous quarter, but remained high, in part reflecting weak productivity growth. Negotiated wage growth, including one-off payments, had declined from 4.7% in the third quarter of 2023 to 4.5% in the fourth quarter. The ECB’s forward-looking wage trackers had also continued to show signs of easing. The Indeed tracker, based on job adverts, and the feedback from firms participating in the Corporate Telephone Survey (CTS) and the Survey on the Access to Finance of Enterprises (SAFE) pointed to lower wage growth in the course of the year. The ongoing and projected deceleration in wage growth remained the fundamental underpinning of the expected convergence of inflation to the ECB’s 2% target in 2025. But it was important to emphasise that wage growth was not going to be stable for the rest of this year and that the reduction in wage pressures was not going to follow a linear trend. Negotiated wage growth would bounce around – mainly as a result of one-off payments. It was therefore important to keep in mind the overall dynamics, as embedded in the projections, rather than just the latest reading. Profits continued to buffer the pass-through of higher labour costs to inflation. Annual growth in unit profits had decelerated further in the fourth quarter of 2023, falling to 2.8% from 4.7% in the third quarter. The significant decline was the main driver of the reduction in the annual growth rate of the GDP deflator, which had fallen by 0.6 percentage points to stand at 5.3% in the fourth quarter. Turning to inflation expectations, in the Survey of Professional Forecasters (SPF), the centre of the distribution of long-term inflation expectations had remained around 2% since inflation had peaked in the fourth quarter of 2022. But the right tail of the distribution, which reflected a risk measure, implied that far fewer respondents now expected inflation to be noticeably above target in the longer term. This was reassuring in terms of people having a solid understanding of the inflation target. From the perspective of firms, as reflected in the SAFE, median expectations and the interquartile range for inflation one year ahead were lower than in the previous survey round. Selling price expectations of firms were also lower, as reported in the SAFE, as well as in the corresponding European Commission survey that captured near-term selling price expectations. Looking ahead, headline inflation was expected to fluctuate around current levels in the near term, on account of base effects in the energy component and the reversal of the upward effect of the early timing of Easter on services inflation in March. Nevertheless, inflation was expected to decline to the ECB’s target in 2025 as labour cost pressures eased; the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy continued to dissipate; and the disinflationary impact of monetary policy further unfolded. Upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins proved more resilient. By contrast, inflation might surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. The euro area economy had remained weak in the first quarter of 2024. The data available continued to point to a divergence between weak manufacturing sectors and improving services sectors, partly reflecting the persistent adverse impact of past energy price shocks on manufacturing output. Economic activity was expected to pick up modestly in the second quarter and to gain some momentum over the course of the year. The recovery should be supported by rising real incomes, resulting from lower inflation, increased wages and improved terms of trade. In addition, growth in euro area exports should pick up over the coming quarters as the global economy recovered and spending shifted further towards tradables. Finally, monetary policy should exert less of a drag on demand over time. Consumer confidence had picked up to some extent, but it was still subdued compared with the levels prevailing before the war in Ukraine. The latest Consumer Expectations Survey (CES) showed signs of an upward trend in consumers’ plans for major purchases and holidays. Concerning housing investment, survey indicators remained very weak. The most recent property price data for the fourth quarter of 2023 showed that, after dropping, residential property prices were stabilising. For business investment, indications from surveys also remained weak – but with substantial variation across countries. With regard to the labour market, weak GDP growth together with strong employment growth in 2023 had resulted in weak labour productivity. The unemployment rate had remained unchanged at a historical low of 6.5% in February. At the same time, the tightness in the labour market continued to decline gradually, with employers posting fewer job vacancies. Looking at the fiscal stance, the euro area cyclically adjusted primary deficit in 2023 was likely to have been somewhat larger than indicated in the March ECB staff projections, The risks to economic growth remained tilted to the downside. Growth could be lower if the effects of monetary policy turned out stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation came down more quickly than expected and rising real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. Turning to the analysis of monetary and financial developments, risk-free interest rates had been broadly stable since the Governing Council’s previous monetary policy meeting and the transmission of the restrictive monetary policy stance to broader financing conditions remained strong. Lending rates on business loans and mortgages had edged lower in February but remained elevated at 5.1% and 3.8% respectively. The information available continued to signal stagnant loan dynamics against the backdrop of weak aggregate demand, tight credit standards and restrictive monetary policy. The annual growth rate of bank loans to firms had increased slightly to 0.4% in February, but for loans to households it was unchanged at 0.3% in February. Weak credit creation had weighed on M3 growth, which had remained subdued at 0.4% in February, up from 0.1% in January. Bank funding costs remained at historically high levels. The information from the latest bank lending survey (BLS) and the SAFE was consistent with persistently weak credit demand and a stabilisation at tight levels in credit supply conditions for firms. The BLS indicated a further modest net tightening of bank credit standards for loans to firms, mainly on account of banks’ risk perceptions. In parallel, banks cited higher interest rates and cutbacks to investment plans as the main factors behind the further marked decline in net loan demand among firms in the first quarter of 2024. Confirming this profile, in the SAFE, companies had reported a decrease in the availability of bank loans. The SAFE had also registered a marked drop in the share of firms applying for bank loans. For households, the results of the BLS had indicated a moderate decline in net demand for loans for house purchase and broadly stable net demand for consumer credit. Credit standards for household mortgages had eased in the first quarter for the first time in over two years, but standards for consumer credit had tightened further. Monetary policy considerations and policy options Based on the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, Mr Lane proposed keeping the three key ECB interest rates unchanged. The incoming data were in line with the medium-term inflation trajectory embedded in the March ECB staff macroeconomic projections, which foresaw headline inflation returning to target by mid-2025. Headline inflation had declined further in March and, looking beyond some near-term volatility associated with base effects and the reversal of various fiscal measures, it was expected to resume its downward path later in the year. Taken together, the range of underlying inflation measures also indicated further disinflation could be expected. At the same time, year-on-year domestic inflation and services inflation were edging down only slowly. Accordingly, the Governing Council needed further confirmation that wage growth was decelerating as anticipated and that profit margins continued to buffer the pass-through of higher labour costs to inflation. Further progress towards the target in the course of 2025 would be underpinned by the next phase of deceleration in wage growth, the ongoing fading-out of the energy shock and supply bottlenecks, and a smaller contribution from the reversal of fiscal measures. These disinflationary pressures would also be reinforced by the cumulative demand-dampening impact of the restrictive monetary stance, including by limiting the capacity of firms to pass on cost increases. The incoming data confirmed that the transmission of monetary tightening remained strong. There were some signs of stabilisation in credit supply at a tight level and some easing in the pricing of new loans, primarily owing to an anticipation of future policy rate cuts. Based on the three elements of its reaction function, the Governing Council could conclude that the key ECB interest rates were at levels that were making a substantial contribution to the ongoing disinflation process. The Governing Council’s future decisions would ensure that its policy rates would stay sufficiently restrictive for as long as necessary. If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation was converging to target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, the Governing Council would continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and it was not pre-committing to a particular rate path. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, global GDP growth had remained subdued but there were early signs of improvement. Global growth momentum was building up, with a strong increase in the Purchasing Managers' Index (PMI) for manufacturing. Moreover, despite only modest GDP growth, global trade had seen a rebound driven by emerging market economies. Strong economic data in the United States and a rebound of the UK economy were seen as supporting the global recovery. Members noted that industrial activity in China had been better than expected, but also stressed the uncertainties and risks for global growth related to the country’s recovery. Members took note of the release of consumer price index (CPI) data for March in the United States, which had been higher than expected. The data were seen as confirmation that global inflation currently reflected mainly “sticky” services price developments. But it was also pointed out that recent US inflation outcomes reflected idiosyncratic factors. In any case, the depreciation of the euro following the release of the US inflation data pointed to a need for close monitoring of the impact of the exchange rate on euro area inflation. Spillovers from the United States through a sustained exchange rate effect would likely slow the disinflationary process in the euro area. More generally, it was argued that the exchange rate effects would depend on the underlying shocks driving economic activity and inflation. In this respect, inflation developments in the United States and the euro area were seen to be different in nature, with those in the United States being driven more strongly by demand factors and those in the euro area more by supply factors. With regard to the euro area economy, members widely agreed that latest information broadly vindicated the growth and inflation outlooks entailed in the March 2024 staff projections. This indicated that the forecasting ability of the quarterly projection exercises had been restored. On economic activity, members concurred with Mr Lane that the economy had remained weak in the first quarter of 2024. While spending on services was resilient, manufacturing firms were facing weak demand and production was still subdued, especially in energy-intensive sectors. Surveys pointed to a gradual recovery over the course of the year, led by services. The PMI for future activity 12 months ahead had reached its long-term average in March, and some incoming hard data were confirming this picture. This recovery was expected to be supported by rising real incomes, resulting from lower inflation, increased wages and improved terms of trade. In addition, growth in euro area exports was expected to pick up over the coming quarters, as the global economy recovered and spending shifted further towards tradables. Finally, monetary policy should exert less of a drag on demand over time. Members acknowledged the mixed signals in the latest data. While some soft indicators had become more favourable, some hard indicators persistently pointed to weak growth momentum. Mechanical nowcasting tools indicated quarter-on-quarter real GDP growth in the first and second quarters that was broadly in line with the March staff projections, with a slight downward risk for the first quarter. Even though growth in the first quarter was still estimated to have been weak, comfort was drawn from the observation that the latest data were consistent with the March staff projections showing a recovery in activity as of the second quarter. At the same time, it was recalled that achieving the profile of the baseline projection remained quite a challenge. Observed upward movements in incoming data should therefore not be equated with a materialisation of upside risks to the baseline projections. Against this background, it was remarked that there were as yet no signs of a recovery in private consumption, which was expected to be the growth engine in 2024. Similarly, the latest weak indicators of business sentiment did not bode well for investment prospects. Even the relatively sluggish recovery foreseen in the staff projections had yet to unfold. Meanwhile, it was reassuring that a recession had been avoided despite the monetary policy stance contributing to bringing inflation down from double digits to moderate levels. It was also observed that the euro area growth landscape was heterogeneous, both across countries and across sectors. Less energy-intensive sectors were growing faster than energy-intensive ones, which could be seen as pointing to structural rather than cyclical weakness. With respect to fiscal and structural policies, members reiterated that governments should continue to roll back energy-related support measures so that disinflation would stay on track. Implementing the EU’s revised economic governance framework fully and without delay would help governments bring down budget deficits and debt ratios on a sustained basis. National fiscal and structural policies should be aimed at making the economy more productive and competitive, which would help to reduce price pressures in the medium term. At the European level, an effective and speedy implementation of the Next Generation EU programme and a strengthening of the Single Market would help foster innovation and increase investment in the green and digital transitions. More determined and concrete efforts to complete the banking union and the capital markets union would help mobilise the massive private investment necessary to achieve this, as the Governing Council had stressed in its statement of 7 March 2024. It was highlighted that the assumptions for fiscal policies embedded in the March staff projections constituted an element of uncertainty and risk. Concerns were expressed about the sizeable upward revisions to the deficit and debt figures for 2023 in a number of euro area countries. The need for fiscal prudence and consolidation across the euro area had to be clearly spelled out. This was especially important in view of the special situation in 2024, with the transition to a new EU framework for assessing excessive deficits and fiscal trajectories. At the same time, it was widely considered good news from a monetary policy perspective that there would soon be a new framework in place, providing guiding principles and enhancing prospects for more credible implementation. Turning to the labour market, it was recalled that the unemployment rate was at its lowest level since the introduction of the euro. At the same time, the tightness in the labour market continued to diminish gradually, with employers posting fewer job vacancies. Labour market developments could be seen from different perspectives. On the one hand, it was suggested that the state of the labour market had remained broadly unchanged and its tightness remained a concern for the medium-term inflation outlook. The unemployment rate was at a historical low, employment was growing robustly, and indicators of tightness continued to stand well above pre-pandemic levels. On the other hand, it was acknowledged that the direction of developments in the indicators implied some cooling of labour demand. This was particularly visible in decreasing job vacancies. Concerns were expressed that the labour market support to the economy had reached its limit. Labour supply had already increased substantially and firms had limited buffers left for hoarding labour. A turn of the cycle in the labour market could thus imply greater labour shedding and reduced hirings. A deterioration in the employment outlook could prompt lower consumption. On that basis, members assessed the risks to economic growth as remaining tilted to the downside. Growth could be lower if the effects of monetary policy turned out to be stronger than expected. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted. Growth could be higher if inflation came down more quickly than expected and rising real incomes lifted spending more than anticipated, or if the world economy grew faster than expected. The downside risks to economic growth were seen as particularly relevant for the short term and were confirmed by the mechanical nowcasting tools. However, the view was also expressed that near-term risks were now balanced, with reference made to recent rebounds in survey-based indicators and some hard data. Looking ahead, it was stressed that factors that had previously cushioned the economy against potential adverse shocks – including high levels of liquidity, ample household savings, fiscal space, rising labour supply and sizeable business profit margins – had partly diminished. It was also suggested that the geopolitical risk stemming from the conflict in the Middle East had increased in tandem with the escalation of the conflict during past weeks. With regard to price developments, members concurred with the assessment by Mr Lane that the incoming information had broadly confirmed the previous assessment of the medium-term inflation outlook. Inflation had continued to edge down from an annual rate of 2.6% in February to 2.4% in March, led by lower food and goods price inflation. However, services price inflation had remained high in March, at 4.0%. Most measures of underlying inflation had fallen further in February, confirming the picture of gradually diminishing price pressures. While domestic inflation remained high, wages and unit profits had grown less strongly in the last quarter of 2023 than anticipated, and more recent indicators pointed to further moderation in wage growth. Unit labour cost growth had remained high, in part reflecting weak productivity growth, but firms were using profits to absorb part of the rise in labour costs. Inflation was expected to fluctuate around current levels in the coming months and to then decline to the inflation target next year, owing to weaker growth in labour costs, the unfolding effects of restrictive monetary policy, and the fading of the impact of the energy crisis and the post-pandemic reopening. Members saw the latest inflation developments as evidence that the impact of the past extraordinary shocks was waning and economic relationships were normalising. This bolstered confidence in the projections and the expected path towards reaching the ECB’s inflation target in 2025. Outcomes for the first quarter of 2024 were very similar to what had been anticipated in the March staff projections. Members took note of the bumpy profile of headline inflation for 2024 as indicated by the projections and that there would be no downward linear trend for the remainder of the year. Many of the expected “bumps” were related to base effects in energy inflation and were already taken into account in the baseline projections. While headline inflation was naturally a key variable to monitor, it was not the only one that would be particularly volatile. Services inflation, which had recently seen an increase in momentum, as measured by the annualised three-month-on-three-month rate, and developments in wage growth were also affected. In this respect, it was important to identify the underlying direction of developments and to look at the big picture. There was broad agreement that services inflation and the role of wages remained key issues for the inflation outlook. This was also signalled by services inflation having stayed at the high level of 4% over the past five months. Moreover, the indicator of domestic inflation, which reflected inflation in those HICP items with relatively low import intensity, was standing at around 4.5%. Meanwhile, the GDP deflator, a measure of domestic inflation in the national accounts, had remained above 5% in the fourth quarter of 2023. In view of these figures, conclusive evidence of progress on disinflation in the more persistent domestic components had yet to become apparent. At the same time, the greater “stickiness” of services inflation was seen as natural, as it was less affected by the fading of supply-side shocks. In addition, the transmission of monetary policy to the services sector was likely weaker because services were less capital-intensive, while the pass-through from wages was higher owing to the characteristic cost structures in that sector. The capacity for services firms to absorb higher wage costs through profit margin compression remained uncertain, as they had neither experienced the same level of profit margin increases in the wake of the pandemic as other sectors, nor benefited as much from the declines in other input costs. For these reasons, developments in services inflation warranted close monitoring and further confirmation was required of weakening pressures on both wages and profits. However, disaggregated data available up to February suggested that price pressures in services had not come from the more wage-sensitive items. Instead, these pressures had come from items typically affected by repricing at the beginning of the year to include adjustments for past cost increases, for instance insurance policies or goods and services with administered prices. Turning to domestic price pressures more broadly, as measured by the GDP deflator in the national accounts, members saw the wages-profits-productivity triangle as key to assessing the speed and extent of further disinflation. There was still considerable uncertainty about whether assumptions and expectations regarding these variables would play out as projected in March. Having a new data point and new projections for these variables was therefore important but euro area national account data for the first quarter of 2024 would only be released shortly after the Governing Council’s June monetary policy meeting. It was underlined that the inflation outlook remained very sensitive to the behaviour of profit margins. Concern was expressed that margins might not absorb higher costs to the extent assumed in the projections. It was argued that still elevated margins combined with a relatively weak economic environment could be an indication of persistently strong pricing power and relatively weak competition. At least, this could be the case for businesses serving domestic demand – and notably the services sector. This could then lead to further increases in wages and, in turn, might put additional competitive pressure on exporters. It was pointed out that there had been no additional upward pressure on wages from recently signed wage agreements and that wage growth was so far broadly in line with the projections. If anything, wage pressures had even diminished somewhat compared with earlier expectations. It was suggested that, with wage growth having begun to moderate as expected, the focus should shift to productivity developments. These were crucial from the perspective of ultimate labour cost pressures, which would be higher if productivity growth did not recover as quickly and as strongly as foreseen in the baseline of the March staff projections. It was argued that this might be the case if current low and negative productivity growth rates turned out to be not merely cyclical, but also partly structural in nature. The point was made that with the bleak investment outlook embedded in the projections it was difficult to see a more structural improvement in labour productivity. As regards longer-term inflation expectations, market-based measures of inflation compensation and survey-based indicators had remained broadly stable, with most standing around 2%. The fact that inflation expectations had remained well anchored was seen as reassuring, since it indicated that the monetary policy stance was having the desired effect. Upside risks to inflation included the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and disrupt global trade. Inflation could also turn out higher than anticipated if wages increased by more than expected or profit margins proved more resilient. By contrast, inflation could surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. Further upside risks could result from higher growth in unit labour costs, especially if productivity growth did not recover as expected. Upside risks were also seen as prevailing in food and oil prices. The risk of second-round effects was, however, considered to be relatively small in an environment of general disinflation, unlike in 2022-23. Nevertheless, it was noted that oil prices had increased substantially in the year to date and were significantly higher than in the assumptions for the March projections. This pointed to some upside risk for inflation. Moreover, the slowdown in inflation had recently been supported by lower gas and electricity prices, following a relatively warm winter and low demand due to a recession in manufacturing sectors. This implied upside risks as and when typically inelastic energy demand met with a recovery in economic activity or a colder period. The upside risks to food prices were partly related to extreme weather events, including the El Niño and La Niña phenomena, and climate shocks. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane and Ms Schnabel in their introductions. Market interest rates had been broadly stable since the Governing Council’s previous meeting and wider financing conditions had remained restrictive. Financial markets had been calm and steady since the meeting in March, amid a further compression of risk premia. Markets were pricing in a first cut in ECB interest rates in June, with further cuts priced in by the end of the year. It appeared that peak restrictiveness in euro area financing conditions might have passed. Interest rates on new loans to households and firms had started to come down, primarily in anticipation of future policy rate cuts, while average rates on existing loans were still edging up overall. The most recent information had continued to signal weak bank loan dynamics on the back of weak aggregate demand, tight credit standards and restrictive monetary policy. Bank lending to firms, in particular, was seen as persistently weak. In part, this was due to lower demand for loans from firms. The decline had also been reported by banks and firms in the latest BLS and the SAFE, and reflected still elevated borrowing rates and cutbacks in investment plans. As for lending to households, credit standards for mortgages had eased for the first time in over two years but standards for consumer credit had tightened further. The point was made that weaker demand for consumer credit and an increase in rejected bank loan applications could suggest fragile household balance sheets or greater risk aversion by banks. If so, this in turn would signal risks of a more persistent weakness in consumption. Overall, the latest credit developments remained subdued and could point to a pick-up in credit growth later on, with loan creation being held back by higher rates and tighter credit standards. It was highlighted that the ratio of credit to GDP had been falling rapidly, with continued weak credit dynamics seen as posing a risk to the recovery or raising the prospect of a “credit-less recovery” as liquidity buffers diminished. However, signs of stabilisation were visible in loan flows to both households and firms, despite some volatility around the turn of the year. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements that the Governing Council had communicated in 2023 as shaping its reaction function. These comprised (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Overall, each of the three elements suggested that the key ECB interest rates were at levels that were making a substantial contribution to the ongoing disinflation process. Starting with the inflation outlook, members widely agreed that the data were broadly in line with the medium-term inflation trajectory embedded in the March staff projections, which foresaw headline inflation returning to target by mid-2025. While inflation had come in slightly higher than expected in February, the increase had been offset by a weaker than expected outturn in March. Overall, the figures suggested limited news, thus broadly validating the projections. Economic growth was assessed as having been slightly weaker than expected in the first quarter of 2024, but the narrative of an improving growth outlook remained intact. While significant risks remained around the baseline projections for both growth and inflation, members expressed increasing confidence in the projections, since the extraordinary shocks of the recent past were waning and economic relationships were normalising. Moreover, inflation expectations had remained well anchored. At the same time, the view was widely shared that further evidence was required to gain sufficient confidence that inflation was solidly on track to return to the ECB’s target in a timely and sustained manner. Members also generally concurred that further progress had been made regarding underlying inflation. Most measures had continued to decline and were expected to continue on a downward path in the period ahead. Indications from wages and profit margins were broadly in line with the March staff projections or suggested slightly more muted developments than anticipated. At the same time, domestic inflation was still elevated and there had been little progress in services inflation, which was steady at 4%. It was stressed that a return of inflation to target remained conditional on a rebound in productivity growth and a significant compression of unit profits through the absorption of higher costs. The most recent data confirmed that the transmission of monetary tightening continued to be strong. While there had been some signs of stabilisation in credit conditions at a restrictive level, further weak credit data were suggesting that the credit channel of monetary policy transmission was more powerful than previously expected. The decline in the demand for loans, as reported in the BLS, was seen as a downside risk for the growth outlook because it pointed to weak investment. At the same time, it was argued that the tightening impulse from monetary policy had already reached its peak, with the likelihood of a gradual easing of conditions in the near future. Forward-looking indicators were recovering, with firms indicating in their responses to the SAFE that they were expecting an increase in both investment and turnover. Moreover, the transmission of monetary policy was seen as weaker for the services sector than for other parts of the economy because services were less capital-intensive and therefore less interest rate-sensitive. With inflation declining and a delayed pick-up in economic growth, it was regarded as important to assess how restrictive the monetary policy stance was, as a basis for future monetary policy decisions. It was underlined that there was considerable uncertainty about the degree of restrictiveness of the ECB’s monetary policy stance, both measured against unobservable concepts like the neutral rate of interest and judged by the transmission lags to the capital, labour and goods markets in the real economy and ultimately to inflation. One way of assessing the restrictiveness of monetary policy was to evaluate the level of policy rates relative to available model-based estimates of the natural or neutral rate of interest. In this context, it was argued that ongoing structural changes might have led to an increase in such benchmark rates. These changes included the anticipation of the significant global investment needs to address climate change and the green transition, geopolitical shifts and trade fragmentation leading to deglobalisation, and advances in artificial intelligence and digitalisation. In addition, rising public debt burdens worldwide might exert further upward pressure on the natural rate of interest. At the same time, it was recalled that staff estimates for the euro area, published recently in the ECB’s Economic Bulletin, did not suggest a significant increase. In view of the sizeable model and parameter uncertainty attached to such model-based constructs, the natural rate – while providing useful indications – was seen as being of limited use for day-to-day policymaking. For the time being, to assess the restrictiveness of monetary policy, it was preferable to look at incoming data. Monetary policy decisions and communication Against this background, a very large majority of members agreed with Mr Lane’s proposal to maintain the three key ECB interest rates at their current levels. Members concurred that the most recent information had broadly confirmed the March staff projections, thus increasing their confidence that the disinflationary process was continuing. At the same time, important new data – including new staff projections – would be released ahead of the June meeting, allowing the Governing Council to make a more comprehensive assessment. While progress had been seen, monitoring the triangle between wages, productivity growth and profits continued to be key. It was seen as plausible that the Governing Council would be in a position to start easing monetary policy restriction at the June meeting if additional evidence received by then confirmed the medium-term inflation outlook embedded in the March projections. A few members felt sufficiently confident that the three elements of the Governing Council’s reaction function gave grounds for a reduction in the policy rates already at the present meeting. It was recalled that, since the last policy rate increase in September 2023, the decline in expected inflation had implied a further tightening in the policy stance, with real rates currently close to the peak of the cycle. Moreover, policy rates were seen as likely to remain in restrictive territory for some time, while the effects of the present restrictive policy stance would continue to be felt even after the start of the easing phase. It was also remarked that the reduction of the Eurosystem balance sheet was having a contractionary impact on the economy. Moreover, while there were currently no significant risks of inflation expectations becoming unanchored to the downside, such risks could emerge if the current weakness in growth persisted. These members also referred to risk management considerations, seeing the balance of risks as having shifted recently. The risk of undershooting the inflation target and eventually having to pay too high a price in terms of declining activity was now seen as being at least as high as the risk of acting too early and overshooting the target over the medium term. All in all, a broad consensus emerged whereby members agreed it was prudent to wait until the next monetary policy meeting to see further evidence of, and gain sufficient confidence in, a timely and sustained return of inflation to target. Compared with the outlook in March, no major surprise had been observed that would justify action at the present meeting. Conversely, as long as the available data continued to confirm the projections, looking ahead the policy path underlying the projections was seen as broadly consistent with a return of inflation to target in the medium term. Members stressed the value of waiting until June for further evidence confirming, or indicating a change to, the outlook, but also the value of taking into account any existing or new risks materialising by June, including renewed risks to inflation posed by a possible escalation of geopolitical tensions. The next projections in June would allow a more comprehensive analysis of the main risks and their implications for price stability. Members stressed that maintaining a data-dependent approach with full optionality at every meeting was warranted, thus allowing all incoming data to be taken into account while excluding a pre-commitment to any particular rate path. Data dependence meant not overly focusing on one data point, as the path many indicators took was likely to be bumpy. Headline inflation, in particular, was expected to fluctuate around current levels in the near term and to decline again later on, suggesting that some bumpiness in the inflation profile was foreseen and consistent with a return of inflation to target by mid-2025. On the whole, members felt that markets had understood the ECB’s communication and reaction function and were prepared for the possibility of a rate cut at the June meeting, should the data confirm the current outlook. Members also agreed with the Executive Board proposal to continue applying flexibility in reinvesting redemptions falling due in the pandemic emergency purchase programme portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 11 April 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 10-11 April 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Cipollone Mr Elderson Mr Hernández de Cos Mr Herodotou Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller* Mr Nagel Mr Panetta Mr Patsalides Mr Rehn* Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras Mr Vasle Mr Villeroy de Galhau* Mr Vujčić Mr Wunsch* * Members not holding a voting right in March 2024 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr De Backer Mr Gavilán Mr Gilbert Mr Haber Mr Kaasik Mr Kelly Mr Koukoularides Mr Lünnemann Mr Martin Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Šošić Mr Tavlas Mr Välimäki Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 4 July 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 5-6 June 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 5-6 June 2024 4 July 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 10-11 April 2024, the narrative in financial markets had converged across major advanced economies. It had moved towards a more gradual easing cycle and high-for-longer interest rates, owing to a more protracted “last mile” of disinflation. The key drivers of financial market developments had been a stronger euro area economy, signs of a cooling US economy and strong investor risk appetite. Euro area macroeconomic data had continued to turn out better than expected over the past four months, strengthening investors’ view that the economic recovery was on track. By contrast, macroeconomic data surprises in the United States had become less favourable. Tentative signs of the US labour market cooling and inflation in line with expectations had eased investors’ concerns that the Federal Reserve System might have to hike interest rates again. Looking at how the incoming data had affected expectations for ECB monetary policy, the expected timing of the first rate cut had remained unchanged. Markets and survey participants were almost certain there would be a first cut of 25 basis points in June. Yet the overnight index swap (OIS) forward curve had edged higher beyond June. It was cumulatively pricing in around 20 basis points less in rate cuts by the end of 2024 than it had before the Governing Council’s previous monetary policy meeting in April. In the June Survey of Monetary Analysts (SMA) the median participant expected three rate cuts of 25 basis points each by the end of 2024. This was more than the cuts embedded in market pricing, but one cut less than survey participants had expected before the Governing Council’s previous monetary policy meeting. With US inflation having repeatedly surprised on the upside since the Federal Reserve’s pivot in December 2023, market pricing in the United States had also gradually shifted towards fewer and later rate cuts in 2024. Most recently, however, more subdued US economic data and an inflation release broadly in line with expectations had caused market participants to again price in a slightly steeper easing cycle. As a result, the narrative of monetary policy divergence across the Atlantic had not played out strongly so far. By the end of 2024 policy rate cuts were expected to diverge modestly, as the ECB was expected to start its easing cycle ahead of the Federal Reserve, but that divergence was expected to vanish by the end of 2025. Hence, monetary policy was expected to remain relatively synchronised, with markets anticipating a more gradual and cautious easing cycle across both economies. Yet the uncertainty around this gradual easing cycle remained high on both sides of the Atlantic. Market expectations of a more gradual easing cycle and elevated uncertainty around the rate path rested upon anticipation of a more protracted and bumpier disinflation path. At the start of 2024, investors had expected swift and continuous disinflation. At that time markets had priced in euro area headline inflation (excluding tobacco) returning to the 2% target by June 2024 and subsequently staying around that level. Since then, markets had gradually priced in a bumpier inflation profile. While investors still expected inflation to be close to 2% by June 2025, they expected it to hover in a range of 2.3% to 2.5% until at least the end of 2024. At the same time, the medium and longer-term inflation profile had also edged up, suggesting that investors did not anticipate a scenario in which inflation would return to below-target levels, as seen during the “low-for-long” period. The reconvergence in policy rate expectations between the euro area and the United States had also been reflected in longer-term risk-free yields. Since the Governing Council’s previous monetary policy meeting, the spread between US and euro area nominal yields had narrowed from its peak in April. Movements in yield differentials between the euro area and the United States had been mirrored in the euro-US dollar exchange rate, with the euro recently having recovered some of its losses against the US dollar. Euro area financial conditions had been mixed in recent weeks. One important driver of these conditions had been risk asset prices. After the downward correction in equity markets in mid-April 2024, when US rate cuts had been pushed out in time, stock markets had recovered across major economies, temporarily even reaching new all-time highs in the euro area and the United States. The combination of buoyant risk sentiment globally and recovering domestic growth momentum had also continued to contain sovereign bond spreads. At the same time, market absorption in euro area government bond markets had remained smooth, supported by benign liquidity conditions. The smooth market absorption was even more remarkable when considering the further increase in the net issuance of euro area government bonds in 2024. Together with the reduction in the Eurosystem’s market footprint, this had resulted in record levels of net supply in 2024. Strong investor risk appetite had fostered low corporate bond spreads, which had narrowed further for high-yield bonds since the Governing Council’s previous monetary policy meeting in April. Therefore, risks of price corrections continued to be elevated, especially in the high-yield segment. Overall, asset price configurations in equity markets and in the sovereign and corporate bond space pointed to stretched valuations in riskier market segments and to risks of price corrections if the historically buoyant risk sentiment turned. Pricing in risk asset markets continued to be supported by still abundant central bank liquidity. Euro area excess liquidity had continued to decline and stood 33% or €1.6 trillion below its peak of €4.7 trillion in November 2022. The spread between the euro short-term rate (€STR) and the deposit facility rate showed few signs of a lift-off from its floor. At -9.3 basis points, it remained close to the levels seen over the past year. The global environment and economic and monetary developments in the euro area Starting with the global economy, Mr Lane stressed that 2023 had still been part of the post-pandemic normalisation process. The supply side had been a big driver of the strong performance of global growth, while euro area competitors’ export prices had fallen. The carry-over from that was partly responsible for the low levels of goods inflation now observed in the euro area. Developments in global activity were looking favourable up to April, mainly because of the soft data, but the outlook for global trade in the second quarter was mixed. Looking ahead, the June 2024 Eurosystem staff macroeconomic projections were built on a stable external environment. In annual terms, world GDP excluding the euro area was projected to grow at 3.3% in 2024 and 2025. Growth in euro area foreign demand was set to recover this year, rising to 2.1% from 0.8% last year. It was subsequently expected to grow at rates of around 3%. The euro had remained broadly stable both against the US dollar and in nominal effective terms since the last monetary policy meeting of the Governing Council. From a longer-term perspective too, the EUR/USD exchange rate had been broadly stable, though the euro had appreciated since the start of the year in trade-weighted terms. Oil prices had shown sizeable fluctuations over the past year and had decreased by 16% to USD 78 per barrel since the April Governing Council meeting. Looking ahead, they were expected to remain volatile, which was also linked to geopolitical risks. Gas prices meanwhile had gone in the other direction: since the last Governing Council meeting, European gas prices had increased by 32% to €36 per megawatt, although demand remained subdued and gas storage levels were high. Turning to the euro area, headline inflation had been 2.6% in May according to the flash estimate, 0.2 percentage points higher than in April. Energy inflation had increased to 0.3% from -0.6% in April, mainly driven by upward base effects, while food inflation had receded to 2.6% in May from 2.8% in April. Inflation excluding energy and food (core inflation) had risen to 2.9% in May from 2.7% in April. The decline in goods inflation by 0.1 percentage points to 0.8% had been offset by a rebound in services inflation. This had increased to 4.1% in May after having slowed in April – for the first time in five months – to 3.7%. Most measures of underlying inflation had eased further, reflecting the fading impact of past large supply shocks and weaker demand, and were drifting lower towards 2%. At the same time, some underlying inflation indicators remained relatively high, reflecting the lagged unwinding of past inflationary shocks, strong ongoing labour cost increases and/or the one-off repricing in some services items. Wage growth was still elevated, driven by the ongoing adjustment to the past inflation surge. Negotiated wage growth had increased to 4.7% in the first quarter of 2024, 0.2 percentage points higher than in the last quarter of 2023. The stronger growth in the first quarter included very large one-off payments in the public sector of the euro area’s largest economy. More broadly, the design of some multi-year wage settlements in that economy specified large increases in 2024 – to compensate for the lack of earlier adjustments to the inflation surge – but much smaller increases in 2025. Forward-looking wage trackers signalled that wage dynamics would remain strong in 2024 but decelerate in 2025. For this year many wage contracts had already been concluded. The Indeed wage tracker had declined to 3.4% in April. Similarly, firms participating in the Corporate Telephone Survey in April expected wages to grow by 4.3% in 2024, compared with 5.4% in 2023. Therefore wage growth would continue to be a key driver of inflation in 2024, even though the net impact of labour cost increases on prices was being buffered by a lower contribution from profits. The GDP deflator was expected to still come in high for the first quarter of 2024, but to decelerate significantly compared with the fourth quarter of 2023, when it had stood at 5.3%. The deceleration in domestic price pressures was therefore continuing and the projections foresaw a further moderation. This relied on the ongoing compression of profits and a continued decline in unit labour costs, linked to the scale of the procyclical improvement in productivity. Inflation was projected to fluctuate around current levels in the coming months. The headline inflation profile in 2024 was affected by the rolling back of fiscal measures and upward energy base effects. Headline inflation was then expected to decline towards the target over the second half of the following year, owing to weaker growth in labour costs in 2025 than in 2024, the lagged impact of past monetary policy tightening gradually feeding through to consumer prices, and the fading impact of the energy crisis and the pandemic on price and wage dynamics. The June Eurosystem staff projections saw inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Compared with the March ECB staff projections, headline inflation had been revised up by 0.2 percentage points for both 2024 and 2025 and was unchanged for 2026. For core inflation, staff projected an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. This implied an upward revision of 0.2 percentage points in 2024 and 0.1 percentage points in 2025, while the projection for 2026 remained unchanged. A central element in this projection was the gradual easing of nominal wage growth from initially elevated levels. The upward impact of inflation compensation pressures in a tight labour market was seen as fading in the period ahead. A recovery in productivity growth should support the moderation in labour cost pressures. Moreover, profit growth should weaken and partially buffer the pass-through of labour costs to prices. Measures of shorter-term inflation expectations had declined since the previous year, while longer-term inflation expectations had remained broadly stable, with most standing at around 2%. With some uncertainty surrounding the staff projections, it was useful to compare projections for the fourth quarter of each year. The fourth quarter was less affected by carry-over effects. Relative to the outlook in September 2023, the projected timely return of inflation to target had been reconfirmed in the December, March and June staff projections. The stability of projected inflation at the end of 2025 over the last four rounds of projections had been remarkable. In addition, the inflation outlook for 2026 had been reconfirmed over the last two rounds. Turning to economic activity, after five quarters of stagnation, euro area GDP had grown by 0.3% over the first quarter of 2024. Preliminary aggregates for national GDP figures available so far showed that economic growth in the first quarter had mainly been driven by net exports, and domestic demand had only played a fairly limited role. Incoming information suggested continued growth in the short run, driven by a pick-up in consumption growth amid rising real disposable income and improving confidence. Over the medium term the negative impact of the past monetary policy tightening was seen to fade gradually. Growth would also benefit from a resilient labour market, with the unemployment rate declining further from historically low levels. The services sector had been expanding at a solid pace, with accommodation and food services contributing to the dynamism. Manufacturing activity had also improved significantly in May, according to the Purchasing Managers’ Index (PMI) survey, but it remained in contractionary territory. With regard to consumption, surveys signalled strong developments in contact-intensive services, while for goods – both retail and durable goods such as motor cars – surveys pointed to figures well below normal levels. There had clearly been a recovery in consumer confidence in the course of 2023 as the terms of trade improved, but confidence had been fairly flat for several months now. Consumer uncertainty had come down but was still relatively high. Housing investment had increased in the first quarter – helped by temporary factors in the largest euro area economy, such as the mild weather. Business investment was projected to grow over the year. For most of 2023 global imports had grown more strongly than euro area exports, leading to a loss in market share for the euro area. Since the start of 2024 euro area exports had been growing more quickly than global imports, but global imports were decelerating. Forward-looking PMIs remained muted for exports, but an expansion of activity in the tourism sector was expected, although not on the same scale as in the previous two years. The unemployment rate had edged down to 6.4% in April, the lowest level since the start of the euro. Employment had increased in line with economic activity in the first quarter and was expected to grow moderately in the second quarter. Some indicators suggested a marginal softening of labour market conditions. The job vacancy rate had declined by 0.1 percentage points to 2.8% in the first quarter of the year, which was still high but continued the gradual easing from its peak in the second quarter of 2022. The Indeed job postings suggested that this trend would continue in the second quarter. Developments in fiscal policies pointed to an improvement in the budget balance over the next few years. Active fiscal adjustment in 2024 was seen as easier than in the austerity years because a large part related to the reversal of fiscal subsidies, and this was considerably less painful than cutting pay or reducing employment. The fiscal multipliers were also smaller. In terms of dynamics, there was only a limited revision of fiscal plans compared with the March projections. The recovery should strengthen in the coming quarters. The latest staff projections saw economic growth at 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026. Compared with the March projections, the outlook for GDP growth had been revised up by 0.3 percentage points for 2024, owing to the positive surprise at the start of the year and improved forward-looking information. For 2025 it had been revised down marginally by 0.1 percentage points, while it was unrevised for 2026. Risk-free market interest rates had increased for most maturities since the previous monetary policy meeting. The market had priced in higher real rates on the back of higher than anticipated inflation readings and the stronger economy. Financing costs had plateaued at restrictive levels as the past policy rate increases had worked their way through the financial system. The average interest rates on new loans to firms and new mortgages had been unchanged in April, at 5.2% and 3.8% respectively. Credit dynamics remained weak. Bank lending to firms had grown at an annual rate of 0.3% in April, down slightly on the previous month. Growth in loans to households had been unchanged at 0.2% on an annual basis. The annual growth in broad money as measured by M3 had risen to 1.3% in April, from 0.9% in March, as the euro area’s growing current account surplus and non-resident demand for euro-denominated securities gave rise to monetary inflows from outside the euro area. Monetary policy considerations and policy options Overall, the updated joint assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission (the three elements of the ECB’s “reaction function”) supported increased confidence that inflation was converging to target in a timely and sustained manner. In particular, inflation was projected by staff to fall from 5.4% in 2023 to 2.5% in 2024, on average, and to decline towards target over the second half of 2025. Reflecting higher energy and non-energy commodity prices and the recent upside surprises in services inflation, this disinflation was somewhat slower in the updated projections. At the same time, the incoming data suggested that the economic recovery was proceeding only at a moderate pace (which, in turn, pointed to contained risks of demand-driven inflation pressures). A granular analysis of the drivers of domestic inflation, services inflation and wage growth indicated that these should see a marked deceleration in 2025 relative to 2024. The partial data already available for the first quarter of 2024 also showed that the compression of unit profits was helping to absorb wage growth, thus giving grounds for increased confidence about the assumption that profits would be playing an important buffering role. Over time, disinflation would be supported by the restrictive monetary policy stance and the fading impact of past inflation on ongoing price pressures, while the countervailing impact of the reversal of fiscal support measures would fall out of the data. Relative to the start of the holding period in September 2023, when the ECB had brought the policy rates to their current levels, the projected timely return of inflation to target had been reconfirmed in the December, March and June projection rounds. For instance, the inflation rate projected for the end of 2025 had been remarkably stable over the last four projection rounds. In particular, between the September 2023 and the June 2024 rounds, the projected HICP inflation rate for the fourth quarter of 2025 compared with a year earlier had fluctuated within a very narrow interval of 1.9-2.0%. The inflation outlook for 2026 had been confirmed over the last two projection rounds. Moreover, the overall speed of disinflation had been faster than expected. Over this period, inflation had come down by 2.6 percentage points. Whereas, at the start of the holding period, staff had seen inflation averaging 5.6% in 2023 and 3.2% in 2024, inflation had actually averaged 5.4% in 2023 and the inflation rate for 2024 had been marked down to 2.5% in the latest projection exercise. The set of underlying inflation indicators also showed considerable progress compared with the start of the holding period, with most gauges drifting lower towards 2%. This improvement in the inflation profile had reduced the risk that “too high for too long” inflation posed to the stability of inflation expectations, including through its impact on future wage settlements. Measures of shorter-term inflation expectations had declined over recent months, while measures of longer-term inflation expectations had remained broadly stable, with most standing at around 2%. Meanwhile, the transmission side of the reaction function remained strong. Mortgage rates were measurably lower than their autumn peak, but indices of the affordability of mortgage loans still pointed to restrictive conditions. Rates on corporate loans had been moving sideways in nominal terms (and therefore upwards in real terms), dampening demand for external finance. Activity was recovering, although less so in the segments of demand most sensitive to interest rates, such as construction activity – abstracting from temporary factors – and non-construction business investment. Overall, the incoming data on financing conditions signalled that the monetary stance remained restrictive, and this would help maintain the disinflationary process. In particular, compared with the start of the holding period, real lending rates for firms and households had risen markedly. An interest rate decision should be robust across a wide range of scenarios. At a still clearly restrictive level of 3.75% for the deposit facility rate, even large upside shocks to inflation (including more persistent than expected services inflation or weaker than expected monetary transmission) could be addressed by a slower pace of rate cuts than in the baseline rate path embedded in the projections. At the same time, a policy rate level of 3.75% offered greater protection against downside shocks than if it remained at 4.0%. Based on this assessment, it was now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady. Accordingly, Mr Lane proposed that the three key ECB interest rates be lowered by 25 basis points. At the same time, Mr Lane underlined that the high level of uncertainty and the still elevated price pressures evident in the domestic inflation, services inflation and wage growth indicators meant that a restrictive monetary stance would still need to be maintained, following a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. Over time, the incoming data would provide information about the balance between one-off elements and the persistent component in inflation, while the evolution of cost dynamics (including the interplay between compensation and productivity) and domestic pricing power would depend on the strength and composition of the cyclical recovery. In charting the future course of policy, the Governing Council should also maintain its three-part evaluation framework based on the inflation outlook, the dynamics of underlying inflation and the state of monetary policy transmission. The Governing Council should also confirm its previously communicated intention to reduce the PEPP portfolio by €7.5 billion per month, on average, over the second half of the year, and reiterate its intention to discontinue reinvestments under the PEPP at the end of 2024. The operational modalities for partial reinvestments of PEPP redemptions should closely follow the precedent of the APP partial reinvestment phase, which would help ensure that the process remained transparent and as neutral as possible to the pricing in financial markets. Furthermore, Mr Lane proposed that flexibility continue to be allowed in the remaining PEPP reinvestments as an effective first line of defence against fragmentation risks, but to be exercised only if market conditions deteriorated. Finally, in line with the monetary policy strategy, staff had assessed the links between monetary policy and financial stability. The analysis suggested that euro area banks remained resilient. The improving economic outlook had fostered financial stability, but heightened geopolitical risks clouded the horizon. An unexpected tightening of global financing conditions could prompt a repricing of financial and non-financial assets, with negative effects on the wider economy. Macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities. The measures that were currently in place or would soon take effect were helping to keep the financial system resilient. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, the latest data, both soft and hard, pointed to sustained momentum in global activity and a strengthening of global trade in the first half of 2024. Members pointed to uncertainty related to political and economic developments in the world’s two largest economies and their potential spillovers to the euro area. A question was raised regarding growth policies adopted in China and their impact on activity and inflation in the euro area. Strong expansion of manufacturing capacity would boost Chinese exports and likely imply a loss of export market share and lower economic growth for the euro area, associated with stronger disinflationary forces. At the same time, if a large part of European production capacity were to be driven out of the market, it would mean costly write-offs of investment with possibly inflationary consequences. Concern was expressed that the global trading system could see increased fragmentation into separate economic blocs if authorities engaged in reciprocal tariff-raising. While deglobalisation was, as yet, not clearly visible in the data, it was considered an important risk for the future. However, quantifying this risk was difficult and possible outcomes could lie anywhere between limited sector-specific consequences and a wider breakdown of trade links. The view was put forward that deglobalisation, greater protectionism and the rising costs of climate change were global trends affecting the supply side of the economy and giving rise to longer-term inflation pressures. With regard to the euro area economy, members widely noted that the June 2024 Eurosystem staff projections entailed upward revisions to both economic growth and inflation. Inflation was likely to stay above target well into next year. Headline and core inflation had both been revised up for 2024 and 2025 compared with the March projections. On economic activity, the latest data lent support to the recovery that had been anticipated in previous projection rounds. After five quarters of stagnation, the euro area economy had grown by 0.3% over the first quarter of 2024. The upward surprise in first quarter growth was seen as allaying fears of a materialisation of the downside risks that had been identified in previous discussions. Concerns that monetary policy would unduly hold back growth were also diminishing. However, it was argued that the better than expected outcome had relied on a pick-up in construction and net exports, in part reflecting temporary factors. Nonetheless, the surprise had prompted staff to revise up their growth expectations significantly for 2024 as a whole, following a succession of projection rounds with downward revisions. In this context, some doubts were raised about whether the recovery would take place as expected, since this depended on a pick-up in private consumption for which there was no convincing evidence as yet in the data. It was also noted that the staff projections entailed an upward revision to the saving ratio. In addition, the concern was raised that, in the presence of both domestic political and geopolitical uncertainties, the saving ratio could go even higher than expected. If this were to happen, consumption could be curtailed for longer. However, as the upward revision to household savings came at the same time as a more favourable growth outlook – and the revision kept the ratio well above pre-pandemic levels – a higher propensity to consume could also be envisaged, with the associated upside risk to consumption growth in the baseline. Like consumption, investment had also remained weak in the first quarter. It was argued that it likely reflected a fair amount of replacement investment, which could not be expected to provide a strong impulse for the recovery. Business investment was being held back by weak final demand and high borrowing costs. At the same time it was suggested that, from a sectoral perspective, the expected recovery in activity was well on track. The weakness in manufacturing appeared to have bottomed out and the latest survey data supported the notion of a services-led recovery. While the impact of restrictive monetary policy was seen to be gradually fading, the services sector had anyway been affected less strongly. This sector was less capital-intensive and thus less interest rate-sensitive, while still responding to the indirect influence of monetary policy through a general dampening of aggregate demand. Tourism was seen as an important component in the growth of services and was driven to a large extent by domestic real incomes in the euro area and, to a lesser extent, by foreign demand. Turning to the labour market, members considered that, overall, it had remained persistently robust. This was a key element in the soft landing of the economy. It was seen as puzzling that the market indicators of labour hoarding were still relatively unchanged and that there was not more labour shedding and unemployment – at least in industry and construction. Shortages of labour persisted, especially in the services sector. At the same time, the point was made that, coming from historically high employment and low unemployment, the market could realistically only be expected to slacken. Moreover, net employment gains concealed much larger numbers for turnover and new contracts, suggesting that firms were using this churning to foster productivity gains and thus help absorb a rising wage bill. With respect to fiscal and structural policies, members reiterated that national policies should aim at making the economy more productive and competitive. This would help raise potential growth and reduce price pressures in the medium term. An effective, speedy and full implementation of the Next Generation EU (NGEU) programme, progress towards capital markets union and the completion of banking union, and a strengthening of the Single Market would help foster innovation and increase investment in the green and digital transitions. Implementing the EU’s revised economic governance framework fully and without delay would help governments bring down budget deficits and debt ratios on a sustained basis. It was stressed that a speedy and full implementation of NGEU programmes for innovation and green transitioning would also help reduce price pressures in the medium term. Some concern was expressed that, in a period of political uncertainty and multiple elections, fiscal policy might show less consolidation by the end of this year than was factored into the current projections. Against this background, members assessed that the risks to economic growth were balanced in the near term but remained tilted to the downside over the medium term. A weaker world economy or an escalation in trade tensions between major economies would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. Adverse geopolitical developments could result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the effects of monetary policy turned out stronger than expected. Growth could be higher if inflation came down more quickly than expected and rising confidence and real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. It was suggested that risks to growth could also emerge from wage increases if these decoupled from the pace that firms could realistically absorb in productivity increases, implying a loss of competitiveness and market share, and ultimately a fall in investment and activity. Seen from a different angle, a weaker than expected economic recovery would curtail the expected productivity increases and lead to lower profit margins. This would reduce the economy’s capacity to absorb the increases in real wages already embedded in wage contracts and the projection baseline. With regard to price developments, members concurred with the assessment by Mr Lane that the latest data were a reflection of the bumpy profile of headline inflation expected in 2024. On the one hand, the fact that the latest figures for headline and, in particular, services inflation had been higher than in the March 2024 projections was seen to increase the uncertainty surrounding the further disinflation path. On the other hand, it was argued that the upward surprise in the latest data had been incorporated by staff into the June projections without subsequent offsetting, which was a prudent approach. It was underlined that the upward revision of inflation in 2024 and 2025 had pushed the return to target to the end of 2025. While the projection for 2026 was unchanged, it was pointed out that this rested on the assumption that energy and food inflation would move below their longer-term averages. In view of the notoriously volatile nature of these two components and their exposure to the effects of geopolitics as well as climate change and transition policies, these benign assumptions were seen to be highly uncertain. In the shorter term, the projected inflation path was bumpy for the remainder of 2024, which was mainly due to base effects and was thus anticipated. When the inflation path was corrected for base effects, both the recent actual outcomes and the projected trend over the short-term horizon were seen to point clearly downwards. It was widely underlined that, despite the upward inflation surprises in April and May, the bigger picture remained one of ongoing disinflation. Members noted that the May inflation numbers had been released after the cut-off date for the projections. Services inflation, at 4.1% in May, had surprised on the upside, had shown persistence, and was demonstrating strong momentum. However, a lot of persistence was already embedded in the projections and it was therefore argued that recent outcomes should not be viewed unambiguously as an upside risk to the current baseline inflation path. The strength of services inflation in the past few months stemmed, to a large extent, from the resetting of infrequently changed prices in areas such as insurance and healthcare. The wage-sensitive part of services inflation had continued to moderate. It was noted that, for core inflation, the persistence of services inflation had so far been broadly offset by the strong disinflation in the goods sector. This could not be expected to continue, in view of the fading impact of the reversal of past supply side shocks. Moreover, new headwinds could emerge for goods inflation in a world that was more prone to frequent supply chain disruptions, geopolitical fragmentation, protectionism and climate change dynamics. Hence, in the future low goods inflation would not always reliably compensate for an overshooting in services inflation. Turning to domestic price pressures, wages were still rising strongly, making up for the past inflation surge, and were now the main determinant of inflation persistence. Owing to the staggered nature of the wage-adjustment process and the important role of one-off payments, the process of wages catching up with prices would likely feed into inflation for a considerable time, as seen in the pick-up in the growth of negotiated wages in the first quarter. All labour cost indicators, including Eurostat’s new labour cost index, were at very high levels, and the anticipated moderation still had to materialise. At the same time, forward-looking indicators signalled that wage growth would moderate over the course of the year. Profits were absorbing part of the pronounced rise in unit labour costs, which reduced its inflationary effects. It was reiterated that wages were a key element in the assessment of the inflation outlook. This was related in particular to their prominent role in the setting of services prices, but a range of indicators needed to be considered to form a holistic assessment. Growth in negotiated wages had increased to 4.7% in the first quarter of 2024. Moreover, data already available for a number of euro area countries suggested that growth in compensation per employee for the euro area as a whole was likely to remain in the first quarter at the elevated levels recorded in the fourth quarter of 2023. The point was made that most of the latest wage information had already been incorporated in the baseline of the June staff projections and thus did not indicate upside risk. The same data, however, had already contributed to upward revisions of wage growth compared with the March projections, which was a warning not to underestimate the strength of wage dynamics and the scope for further surprises in the course of 2024. At the same time, it was emphasised that, taking into account available country-based estimates, the euro area GDP deflator, unit labour costs and unit profits had probably increased more slowly in the first quarter of 2024 than had been embedded in the June projections. High current wage growth was considered to reflect to a large extent workers seeking compensation for past purchasing power losses. Wage dynamics were therefore likely to slow once this process was complete and inflation was normalising. It was cautioned that the catching up could nonetheless imply a drawn-out process and bumpy wage path, depending on when contracts came up for renewal in the staggered wage-setting process and for which period of inflation they were compensating. Attention was drawn to one-off payments, which played an important role, particularly in light of fiscal incentives that were set to expire. However, there were indications from unions that such one-off payments might not be transitory but in future be factored into regular pay rises. More generally, a view was expressed that the catching up could lead real wages to exceed their pre-war or pre-pandemic levels or trends in an environment of protracted labour scarcity and possible shifts in bargaining power between capital and labour. In addition, it was remarked that the scope for buffering higher wages via a compression of profit margins was more limited in the services sector, which was also less exposed to international competition and was experiencing robust demand. However, there were also risks going in the opposite direction for the wage growth profile. It was argued that some of the recent high wage settlements had taken place in sectors which had made substantial profits over the past three years. This allowed employers to grant generous wage increases and to absorb them without passing them on to final prices. Incoming data on the critical relationship between wages, productivity and profits was seen, overall, as supporting prudent inflation projections and an ongoing disinflation process. However, it was also cautioned that uncertainty surrounding the outlook was very high and that, in the transition to lower inflation after a period of large shocks and possible structural changes, such relationships might start evolving differently from historical patterns. Hence, continued prudence was warranted with respect to relying on standard projection models, and more actual data was needed to provide sufficient confidence that disinflation would continue and not stall on the last mile. At the same time, diminishing projection errors were seen to give grounds for renewing confidence in the projections. As regards longer-term inflation expectations, measures had, overall, remained broadly stable, with most standing at around 2%. Somewhat higher rates for market-based measures essentially reflected higher inflation risk premia, while “genuine” inflation expectations remained anchored at the inflation target. While the anchoring of expectations across indicators could be taken as a sign of the credibility of monetary policy, the literature on “experience effects” warned that extended periods of high inflation could have a lasting impact on the formation of inflation expectations, making them more fragile and anchoring more difficult in the future. In this context, however, comfort was drawn from the gradual lowering of consumer inflation expectations, even if levels in household surveys typically remained above the ECB’s inflation target. This was seen as signalling trust in the disinflation process and would have a self-fulfilling element if it contributed to a moderation in wage claims and firms’ pricing power. Members assessed that inflation could turn out higher than anticipated if wages or profits increased by more than expected. Upside risks to inflation also stemmed from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation could surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. It was suggested that there could be further risk factors for inflation, related for instance to the extent of the expected pick-up in productivity growth or the evolution of the fiscal stance underpinning the inflation outlook. However, these elements could develop in either direction and were therefore not decisive elements in the balance of risks. Against this background, members expressed different views regarding directional changes in the balance of risks. On the one hand, it was argued that, all other things being equal, the staff’s upward revisions to the baseline implied a reduction in remaining upside risks and made the risks more balanced. On the other hand, it was maintained that the downside risk related to a stronger transmission of monetary policy was gradually receding, while continued upside risks such as from higher labour costs shifted the balance to the upside. Turning to the monetary and financial analysis, market interest rates had risen since the Governing Council’s previous meeting and real interest rates had also recently increased. Market participants were fully pricing in a 25 basis point cut in the key ECB interest rates at the June meeting, with between one and two further cuts priced in by the end of the year. A shallower easing cycle was now expected on both sides of the Atlantic amid similarities in recent inflation trends globally. Financial markets were supported by strong risk appetite, which contrasted with the limited risk appetite among euro area consumers and firms. This suggested either that financial market sentiment would weaken at some point or that the real economy would catch up. Market sentiment was also buoyant despite heightened geopolitical risks and uncertainties. The risk of mispricing in financial markets was therefore being monitored, also from a financial stability perspective. Financing costs had plateaued at restrictive levels as the past policy rate increases had worked their way through the financial system. The average interest rates on new loans to firms and on new mortgages had been unchanged in April. But lending rates had increased in real terms since the time of the last rate hike in September 2023. Credit dynamics remained weak. Credit flows to firms had been broadly stable at low levels in both March and April, taking bank lending and debt securities together. Firms’ demand for loans for investment remained very weak, owing to both low aggregate demand and continuing high borrowing costs. Growth in loans for house purchase remained stagnant, while consumer credit growth was more resilient, yet still weak. The annual growth in broad money – as measured by M3 – continued its gradual recovery while remaining relatively subdued. Looking ahead, loan growth was likely to gradually pick up. At the same time, it was highlighted that banks had not reduced their liquid asset holdings as targeted longer-term refinancing operations had matured and appeared to have a strong preference for liquidity. The lower supply of central bank liquidity in the system could therefore reduce the appetite of banks to lend. In this respect, the view was also expressed that as long as banks benefited from ample excess reserves remunerated at the deposit facility rate, they had a limited incentive to expand risky lending to the real economy. In their biannual structured exchange on the links between monetary policy and financial stability, members concurred that euro area banks had remained resilient and continued to have robust capital and liquidity positions. The improving economic outlook had fostered financial stability, as also highlighted in the recently published Financial Stability Review. At the same time, geopolitical factors could increase risks in the period ahead. An unexpected tightening of global financing conditions could prompt a repricing of financial and non-financial assets, with negative effects on the wider economy. Macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities, and the measures currently in place or soon to take effect were helping to keep the financial system resilient. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements that the Governing Council had communicated in 2023 as shaping its reaction function. These comprised the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. Starting with the inflation outlook, members broadly concurred with the assessment that had been presented by Mr Lane in his introduction. The June staff projections for headline inflation had been revised up for 2024 and 2025 compared with the March projections. Inflation was expected to fluctuate around current levels for the rest of the year, including due to energy-related base effects. But it was still expected to decline towards the ECB’s 2% target over the second half of next year, owing to weaker growth in labour costs, the unfolding effects of the ECB’s restrictive monetary policy, and the fading impact of the energy crisis and the pandemic. Subsequently, inflation was expected to remain close to the target in a sustainable manner. Measures of longer-term inflation expectations had also remained broadly stable, with most anchored at around the 2% target, even though market-based expectations had moved up in the most recent period. The inflation expectations of consumers and firms had continued to decline gradually as well. Together, these developments in inflation expectations gave an indication of public trust and confidence in the disinflation process and the return of inflation to the 2% target. Members generally expressed confidence in the inflation outlook confirming an ongoing disinflation process, as also reflected in the staff projections, although recent data suggested inflation could be stickier than had previously been expected and the exact speed at which it would return to target was uncertain. At the same time and from a longer-term perspective, it was highlighted that different vintages of projections made over the past year for inflation in 2025 had fluctuated in a narrow range of between 2% and 2.2%. This renewed stability could give rise to greater confidence in the reliability and robustness of the projections, and showed inflation remaining on track to meet the target in the medium term, notwithstanding the upward revisions in the inflation projections for 2024 and 2025. Smaller projection errors for headline inflation also supported confidence in this inflation outlook. Members also broadly concurred that further progress had been made in terms of the dynamics of underlying inflation. Most measures of underlying inflation had declined further in April, the last month for which data were available, confirming the picture of gradually diminishing price pressures. At the same time, domestic price pressures remained strong, as wage growth was elevated. The staff projections for core inflation had also been revised up for 2024 and 2025 compared with the March projections, and momentum in both services and core inflation remained fairly strong. It would therefore still take time for more clarity to be obtained on the dynamics of important inflation drivers. Moreover, further evidence was required on both the extent to which unit profits would absorb the inflationary pressures from higher wages and whether productivity growth would rebound as expected. Finally, members generally agreed that monetary policy transmission remained strong. Real interest rates stood close to their peak in this cycle. Monetary policy clearly remained in restrictive territory and would continue to do so for some time even if interest rates were cut further. This remained true even allowing for an upward shift in the natural rate of interest. The view was expressed that ongoing quantitative tightening also needed to be taken into account in the assessment of the policy stance. The restrictiveness of policy was reflected in weak credit dynamics and subdued aggregate demand. This had helped to lower inflation but also weighed on growth. Transmission would probably continue to unfold for some time, given that monetary policy affected the economy with long and variable lags. While the peak impact of restrictive monetary policy on financing conditions and GDP had probably already occurred, lags between the effect on output and the effect on prices could imply that the peak impact on inflation was still to come. Within that process, the transmission to services inflation could be weaker and slower than the transmission to goods inflation. Overall, most members expressed continued or increased confidence that inflation was on track to decline sustainably to the 2% inflation target in a timely manner and by the end of 2025 at the latest. Some of the most recent data had been slightly less favourable than anticipated or hoped for in March and April. But it had been expected that the disinflationary path would be bumpy and noisy, with surprises likely in either direction. It was important to recognise that a smooth, linear disinflation process in 2024 was not a prerequisite for confidence in a timely return of inflation to the target. In addition, different indicators were providing contrasting signals on the future disinflation path. More generally, it was important to step back and focus on the bigger picture. An excessive focus on individual observations and the details of developments between meetings ran the risk of not being able to see the wood for the trees. Being data-dependent meant not only looking at the most recent data but also assessing and being driven by all three reaction function elements, which included considering the wider inflation outlook. Recent developments and noise should not detract from the longer-term perspective indicating consistent disinflation and a timely and sustainable return of inflation to the 2% target. Despite recent volatility, the overall disinflation process had been proceeding well, with substantial progress made since the Governing Council last raised interest rates in September 2023. This was evident in the significant and greater than expected decline in both headline and core inflation since 2022 and since the time of the last rate hike. Headline inflation had halved since the time of the last hike, from 5.2% to 2.6%. The inflation outlook, especially for 2024, had also improved in the latest staff projections compared with the September and December 2023 rounds, even if the pace of disinflation was somewhat slower than had been anticipated in March and inflation projections for 2025 were slightly higher than they had been in September 2023. Market participants had remained confident in the medium-term disinflation process, even if volatility in nearer-term rate expectations reflected uncertainty over the pace of disinflation. It was important, therefore, not to overreact to adverse data or inflation numbers for a single month, since these did not necessarily imply a new trend and could reflect one-off factors, in the same way that it had been important not to overreact to positive numbers in previous months. On balance, in the discussion of the inflation outlook and of the assessment of risks increased confidence was expressed that inflation would decline towards the 2% target over the second half of 2025 and subsequently remain sustainably at around that level. At the same time, it was underlined that decisions about the future always had to be taken in the face of uncertainty. So a key question was to assess when there was enough confirmation and confidence that inflation would return to target in a timely manner. At some point, it was necessary to make a judgement call based on the information available, even if that information was less conclusive than might be preferred. Such an approach should not be seen as conflicting with data-dependence, as waiting for full confirmation would almost certainly imply cutting interest rates too late, potentially creating a significant risk of undershooting the target. It was also highlighted that the degree of restrictiveness needed to reduce inflation from 2.6% to 2% was likely to be lower than that in place since September 2023. Moreover, even following a 25 basis point cut, interest rates would remain in restrictive territory in relation to any current estimate of the natural or neutral rate of interest. This meant that stronger demand should not endanger the return of inflation to target and that upside shocks to inflation could be addressed by opting for a slower pace of rate reductions compared with the baseline rate path embedded in the projections. So there appeared to be little risk of needing to reverse policy unless large external shocks occurred, in which case such a policy reversal could be convincingly justified. Moreover, cutting interest rates by 25 basis points offered greater protection against downside shocks than keeping them at their current levels. Cutting interest rates now was thus robust across a wide range of scenarios and still maintained a cautious approach. Some members felt that the data available since the last meeting had not increased their confidence that inflation would converge to the 2% target by 2025 but instead pointed to greater uncertainty in the outlook. For these members, even if the general disinflation trend remained intact in the bigger picture, the relevant point of comparison was with the data at the time of the last monetary policy meeting, or at most with the previous staff projections. At the time of the April meeting, interest rates had been kept on hold because there had not been sufficient confidence that inflation would return sustainably to the 2% target in a timely manner. Since then, however, wage growth had surprised to the upside and inflation seemed to be stickier, mainly on account of services inflation. Services inflation momentum was very high, and the pace of domestic disinflation had been overestimated in the recent period. Wage growth had also strengthened, and it was suggested that further significant wage pressures were in the pipeline. This pointed to greater stickiness ahead, which could increase price pressures for some time, even if wages themselves were a lagging indicator. In addition, the June staff projections for both headline and core inflation in 2024 and 2025 had been revised up compared with the March projections, with the latest projections for core inflation in 2024 barely changed from last September. Moreover, the projected return of headline inflation to the 2% target had been pushed out to the final quarter of 2025, after an already lengthy period of high inflation. Therefore, any further delay in bringing inflation back to target could make it more difficult to continue to anchor inflation expectations in the future. All of this suggested that the last mile, as the final phase of disinflation, was the most difficult. These members also viewed risks to the inflation outlook as being tilted to the upside, partly because downside risks to inflation had diminished since the last meeting owing to the ongoing economic recovery but also owing to heightened geopolitical risks. It was argued that a small undershooting of inflation would be much less costly than a continued overshooting, especially as the anchoring of inflation expectations should not be taken as given. Together, these considerations suggested that cutting interest rates was not fully in line with the principle of data-dependence, and that there was a case for keeping interest rates unchanged at the current meeting. Nevertheless, a willingness to support Mr Lane’s proposal was expressed, notwithstanding the reservations put forward. Monetary policy decisions and communication Against this background, almost all members agreed with the proposal by Mr Lane to lower the three key ECB interest rates by 25 basis points. Based on the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it was seen as appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady. Since the meeting in September 2023 inflation had fallen by more than 2.5 percentage points and the inflation outlook had improved markedly. The inflation projection for the fourth quarter of 2025 had fluctuated in a very narrow range of between 1.9% and 2% over that period, increasing confidence in the reliability, solidity and robustness of the projection showing that inflation would return to the 2% target in a timely manner. Underlying inflation had also eased, reinforcing the signs that price pressures had weakened, and over this period inflation expectations had broadly declined at all horizons. Monetary policy had kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this had made a major contribution to bringing inflation back down. A dissenting view was upheld, maintaining that the incoming data since the last meeting and upside risks to inflation did not support the case for a rate cut. In particular, current inflationary pressures evident in the recent data showed stickiness in inflation. This stickiness could be exacerbated by several different geopolitical risks. In addition, a decoupling from the path of US interest rates would risk adding to inflationary pressures via exchange rate effects. With regard to future meetings, members emphasised that they remained determined to ensure that inflation returned sustainably to the 2% medium-term target in a timely manner and affirmed that they would keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. In view of continuing uncertainty surrounding the disinflationary process and the bumpy path ahead, it was seen as important to maintain a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and there should be no pre-commitment to a particular rate path, so that full optionality could be retained. Members also reiterated that monetary policy should continue to be based on the established elements of the reaction function. Turning to communication, members agreed that it was important to convey the increased confidence in the disinflationary process that had justified the policy decision, while highlighting the need for continued caution and patience regarding the future disinflation path and continued determination to bring inflation back to target in a timely manner. Members agreed with Mr Lane’s proposal to confirm the reduction of the Eurosystem’s holdings of securities under the PEPP by €7.5 billion per month on average over the second half of the year, with the modalities for reducing the PEPP holdings to be broadly in line with those followed under the APP. They also agreed to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. In this context, it was noted that the earlier announcement of the intended PEPP run-off had been absorbed very smoothly by the markets. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 6 June 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 5-6 June 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Cipollone Mr Elderson Mr Hernández de Cos Mr Holzmann Mr Kazāks* Mr Kažimír Mr Knot* Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Patsalides* Mr Rehn Mr Reinesch Ms Schnabel Mr Scicluna Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau Mr Vujčić* Mr Wunsch * Members not holding a voting right in June 2024 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr Gavilán Mr Haber Mr Horváth Mr Kaasik Mr Koukoularides Mr Kroes Mr Lünnemann Mr Madouros Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 22 August 2024. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 17-18 July 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 17-18 July 2024 22 August 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 5-6 June 2024, financial markets had moved in response to political news, which had caused some volatility, and in response to weaker than expected US inflation data. The announcement of snap elections in France had dented investors’ risk appetite and the rally in euro area risk asset markets. However, the resulting rise in volatility in some market segments had remained contained and short-lived, without signs of systemic stress or fragmentation. Risk premia had risen only modestly, and the euro exchange rate had recovered quickly. Macroeconomic news had been muted, with small negative macroeconomic surprises in both the euro area and the United States. Expectations regarding ECB policy rates had remained broadly unchanged amid some volatility following the elections for the European Parliament, but had edged lower after the release of US consumer price index (CPI) data. Euro area financial conditions had also remained broadly unchanged, with continued benign market conditions. The absorption of the net issuance of government bonds had continued to proceed smoothly as investor demand remained strong. Political uncertainty had affected financial markets, as reflected in a spike in implied volatility in the euro area stock market. However, implied volatility had remained contained from a longer-term perspective and had retreated swiftly to previous lows. By contrast, option-implied volatility in euro area bond markets had hardly moved and stood close to the lowest level seen since 2021. Moreover, investor risk appetite in the euro area had recovered quickly after a temporary slump and currently stood well above the levels seen at the start of the year, pointing to continued strong investor risk sentiment. The resilience of financial markets and a high degree of investor differentiation had also been visible in sovereign bond markets. The increase in sovereign spreads over the German Bund had been small from a historical perspective. Spreads had narrowed again after the initial spike in volatility and currently stood below the levels prevailing before the European parliamentary elections, with the exception of French sovereign bond spreads, which stood slightly higher. Investor differentiation had also extended to euro area equity markets and corporate bond markets. Overall, however, the impact on euro area stock market valuations had been muted and short-lived. Developments in euro area corporate bond markets had mirrored those in equity markets, with spreads of investment-grade financial corporate bonds and non-financial corporate bonds in the euro area, excluding France, having narrowed overall. The EUR/USD exchange rate had initially depreciated somewhat, but had quickly recovered its losses, and was broadly unchanged from the levels prevailing at the time of the Governing Council’s previous monetary policy meeting. As regards expectations about US monetary policy, following the June meeting of the Federal Open Market Committee the probability of a cut in US interest rates in September had initially declined slightly. However, this had been counterbalanced subsequently by the somewhat weaker than expected US macroeconomic data and, in particular, the June release of US CPI data, which had pushed the US fed funds futures curve substantially lower than it had been at the time of the June Governing Council meeting. US developments had also spilled over to some extent to expectations regarding ECB interest rates. Rate expectations had remained broadly unaffected by the political uncertainty after the European elections, but had edged lower in July after the weaker than expected US CPI data release. However, the current market pricing of the expected policy rate path remained relatively close to the peak forward curve in late May and substantially above the trough in rate expectations reached at the start of the year. Moreover, as regards the speed and extent of the rate-cutting cycle, participants in the Survey of Monetary Analysts (SMA) had not changed their views since the previous survey round and, on average, continued to expect 25 basis point rate cuts at every quarterly meeting at which new staff projections were available until December 2025. This was broadly in line with expectations in financial markets and with other surveys, with some differences regarding the expected level of the terminal rate. The more moderate downward shift of the euro area forward curve relative to the United States could partly reflect the fact that euro area core inflation – as measured by the Harmonised Index of Consumer Prices (HICP) excluding energy and food – had continued to surprise to the upside, in contrast to the latest US inflation data release. Euro area near-term “inflation fixings” (swap contracts linked to specific monthly releases in euro area year-on-year HICP inflation excluding tobacco) had edged up since the Governing Council’s previous monetary policy meeting, but they remained below the level foreseen in the June 2024 Eurosystem staff macroeconomic projections. Moreover, according to market participants, risks to the longer-term inflation outlook remained tilted to the upside, as evidenced by option-implied probabilities for five-year forward inflation-linked swap rates five years ahead. Under the assumption of risk neutrality – meaning that investors assessed an overshooting of the inflation target to be as costly as an undershooting – investors were pricing in a substantially higher probability of inflation overshooting a level of 2.5% than of it undershooting a level of 1.5%. This could reflect the anticipation of more frequent adverse supply shocks, as signalled by positive inflation risk premia. At the same time, developments in euro area real interest rates had been mixed recently. While ten-year real rates had remained broadly unchanged amid high volatility, two-year and five-year real rates had dropped since the Governing Council’s previous monetary policy meeting. The absorption of government securities had continued to proceed smoothly, including for France. Recent auctions had continued to see strong investor demand, with auction results being in line with past regularities. Over the past year net issuance had found strong demand among foreign investors, with foreign hedge funds emerging as important players in European sovereign bond markets. The global environment and economic and monetary developments in the euro area Starting with inflation in the euro area, Mr Lane noted that headline HICP inflation had declined slightly to 2.5% in June, after rising to 2.6% in May. Energy inflation had edged down to 0.2%, from 0.3% in May, despite upward base effects; food inflation had fallen to 2.4% from 2.6% in May. Goods price inflation and services price inflation had been 0.7% and 4.1% respectively in both May and June. While some measures of underlying inflation had ticked up in May, owing to one-off factors, most measures of underlying inflation had either been stable or edged down in June compared with May. On average over the second quarter of 2024, all measures of underlying inflation had declined compared with the previous quarter. In relation to current wage developments, compensation per employee had increased to 5.0% in the first quarter of 2024, in line with the June staff projections. Negotiated wages remained an important driver of total compensation. After decreasing slightly in the fourth quarter of 2023 to 4.5%, negotiated wage growth including one-off payments had increased to 4.7% in the first quarter of 2024. The forward-looking wage trackers had continued to signal elevated wage pressures this year, largely driven by catch-up dynamics. Wage agreements in the euro area’s largest economy accounted for the bulk of the latest tracker information, as agreements had been reached in the wholesale, retail, chemical and construction sectors, which tended to have long contract durations and therefore a more pronounced catch-up component during this phase. The Indeed tracker, which reflected wages for new hires, had picked up to 3.7% in June, from 3.5% in May. However, beyond the near term the responses from firms participating in the ECB’s Corporate Telephone Survey (CTS) and the Survey on the Access to Finance of Enterprises (SAFE) had pointed to materially lower wage growth in 2025. This picture was also reflected in the year-by-year profile of recently agreed multi-year wage contracts. The participants in the ECB’s Survey of Professional Forecasters (SPF) also expected a marked deceleration in wage growth in 2025. According to the SPF, the expected deceleration in wage growth next year was attributable to the catch-up to past inflation playing a much smaller role and to the decline in expected inflation. For domestic price pressures to moderate in the period ahead, profits also needed to play their part. In the first quarter the annual growth rate of the GDP deflator had declined more than expected, falling to 3.6%, from 5.1% in the fourth quarter of 2023. The largest contribution to this decline had come from unit profits, with the contribution of the annual growth rate of unit profits turning negative in the first quarter of 2024. Headline inflation was expected to fluctuate around current levels for the remainder of 2024. It should then resume its downward path and decline to the ECB’s target of 2% in the second half of 2025 owing to the fading impact of the past inflation surge, weaker growth in labour costs and the unfolding effects of restrictive monetary policy. Medium and longer-term inflation expectations had remained broadly stable, with most standing at around 2%. Turning to the global economy, growth momentum was increasing, with the global composite Purchasing Managers’ Index (PMI) excluding the euro area rising to 53.2 in the second quarter, from 52.6 in the first quarter, and other survey-based indicators also signalling a further improvement in global activity. Global trade continued to strengthen, driven by a frontloading of demand, as firms rebuilt inventories after a long phase of destocking. This was also confirmed by the July 2024 update of the IMF World Economic Outlook (WEO), which projected global real GDP growth to be 3.2% in 2024 and 3.3% in 2025, and global trade growth to be 3.1% in 2024 and 3.4% in 2025. Compared with the April WEO, there was basically no change in the outlook for global growth and trade. The euro exchange rate had remained broadly stable, both against the US dollar and in nominal effective terms, since the last Governing Council meeting, while oil prices had increased by 15% to USD 88 per barrel of Brent crude oil. The increase in the oil price since the last meeting reflected tighter supply conditions and rising geopolitical concerns. European natural gas prices had decreased by 7% since the last Governing Council meeting, to stand at around €31 per megawatt-hour, as demand remained subdued and gas storage levels were high. The incoming information indicated that the euro area economy had continued to expand in the second quarter of 2024. The services sector continued to lead the recovery, although the services component of the PMI had softened somewhat in June. Construction output, which had been boosted by favourable weather in Germany and fiscal incentives in Italy in the first quarter, had fallen in April. Non-construction investment had risen moderately in the first quarter but was likely to remain muted for the rest of the year. Manufacturing activity had shown renewed signs of weakness, with the PMI indicators for output and new orders dropping further into contractionary territory, at 46.1 and 44.4 respectively in June. Goods exports had been weak. The overall narrative remained that of a consumption-led recovery with rising real incomes translating into rising consumption. The latest data for the first quarter supported the view that consumption was growing overall. Consumer confidence had slowly increased in the second quarter, but remained subdued compared with its pre-pandemic average level. Employment had expanded by 0.3% in the first quarter, in line with economic activity and supported by a further expansion of 0.3% in the labour force. The unemployment rate had remained unchanged at 6.4% in May. Survey indicators suggested that positive, but moderating, employment growth would continue. The PMI for employment had averaged 51.7 in the second quarter, suggesting employment growth of around 0.2%, compared with 0.1% in the June staff projections. At the same time, labour demand seemed to be gradually moderating. The ECB’s labour hoarding indicator – which measured the share of firms holding on to workers despite a deteriorating outlook – had declined further in the second quarter, and the Indeed job postings had declined by 1.8% from May to June, following the deceleration in the job vacancy rate in the first quarter of the year. Turning to fiscal policies, the level of fiscal support in the euro area remained sizeable and was likely to be somewhat stronger than assumed in the June Eurosystem staff projections. While concrete fiscal news since the June projections had been relatively limited, the uncertainty surrounding the fiscal outlook had increased. The policy rate cut in June had been transmitted smoothly to money market interest rates, while broader financial conditions had been somewhat volatile. Financing conditions for firms and households remained at restrictive levels, as the effects of past policy rate increases continued to work their way through the transmission chain. The average interest rate on new business loans had declined slightly to 5.1% in May, while interest rates on new mortgage loans had remained constant at 3.8% for the third consecutive month. Growth in loans to firms and households had remained broadly stable at very subdued rates over the past several months. The annual growth in broad money – as measured by M3 – had continued to recover, reaching 1.6% in May, driven by strong net foreign inflows. Taken together, the information from the euro area bank lending survey (BLS) and the SAFE suggested that credit supply conditions for loans to firms were stabilising but still tight, with demand persistently weak. While respondents to the July BLS had reported a slight tightening in credit standards for loans to firms, participants in the SAFE had seen a small net improvement in bank loan availability. According to both surveys, demand for corporate loans had declined further in the second quarter of 2024. On the household side, the BLS had signalled an easing in standards for mortgages but a moderate tightening for consumer credit. Net demand for housing loans and consumer credit had increased for the first time since mid-2022. Monetary policy considerations and policy options In the aggregate, Mr Lane concluded that the incoming information broadly supported the previous assessment of the medium-term inflation outlook. The overall quarterly profile of measures of underlying inflation remained in line with the picture of gradually diminishing price pressures. The weakening in the economic data also helped to contain upside inflation risks. The elevated wage growth was in line with expectations, and firms had seen their profits decline, buffering the inflationary impact of higher labour costs. Monetary policy was keeping financing conditions restrictive. At the same time, domestic price pressures were still high, services inflation was elevated and headline inflation was likely to remain above the target well into next year. Against this background, Mr Lane proposed keeping the three key ECB policy rates unchanged. The information available at the Governing Council’s next monetary policy meeting in September would incorporate a wealth of fresh data and the new staff macroeconomic projections for the euro area. Data for the second quarter would also be available – including GDP growth, compensation per employee, profit margins and productivity – alongside two more HICP releases, as well as monetary indicators and more timely soft indicators for activity and consumer confidence. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses Looking at the external environment, members took note of the outlook for global growth presented by Mr Lane. The July 2024 update of the IMF’s April WEO entailed broadly unchanged expectations for real GDP growth in 2024 and 2025, which were somewhat above those embedded in the June Eurosystem staff projections. This was positive news, as solid growth in global activity and trade was an important element in the anticipated euro area recovery. At the same time, attention was drawn to the latest, softer data on economic activity for both the United States and China. It was argued that the external environment had recently become more clearly disinflationary, mitigating concerns over “higher for longer” inflation. Of late, inflation had declined in the United States, and the issue of a possible divergence of US and euro area monetary policy – much discussed in the spring – was abating. With regard to the euro area economy, members widely noted that the medium-term outlook discussed during the previous Governing Council meeting and entailed in the June 2024 Eurosystem staff projections had not changed overall. The most recent data revealed that inflation was more persistent than previously anticipated, while activity indicators had disappointed on the downside. It was argued that the short-term outlook had thus become somewhat more “stagflationary”. At the same time, it was contended that weaker activity was likely to dampen inflation over time. On economic activity, members concurred with Mr Lane that the incoming information indicated that the euro area economy had grown in the second quarter, but likely at a slower pace than in the first quarter. Services continued to lead the recovery, while industrial production and goods exports had been weak. Indicators pointed to muted investment growth in 2024, amid heightened uncertainty. The recovery was expected to be supported by consumption, driven by stronger real incomes resulting from lower inflation and higher nominal wages. Moreover, exports should pick up with a rise in global demand. Finally, monetary policy should exert less of a drag on demand over time. In their discussion, members acknowledged that the short-term outlook for growth had deteriorated. This was visible in both soft and hard data, most notably in weak PMI indicators for manufacturing. The prospect of somewhat lower short-term growth than embedded in the staff projections was also corroborated by the latest surveys, such as the SPF and the SMA. Concerns were expressed that muted activity might not only be of a temporary or cyclical nature. This inference was supported notably by the fact that there were few signs of a recovery in manufacturing and industrial production, even though the adverse impact of earlier energy and terms-of-trade shocks had largely faded. Reference was made to the share of energy costs in GDP, which had fallen back to close to its longer-term average. It was doubtful that short-term cyclical phenomena could fully explain the weak performance of manufacturing. Rather, this was consistent with the observed subdued developments in exports and might well reflect a more lasting or structural loss of competitiveness, casting doubt on the capacity of the euro area to recover on the back of growth in world trade. It was stressed that the economy remained lopsided, as the recovery continued to be driven, in essence, by activity in services. This was confirmed by positive incoming information on the services PMI and services production. Tourism had been playing an important role in recent services activity, but it was questionable whether this type of spending could support the economy sustainably in the second half of the year. It was also observed that the moderate recovery in consumer confidence was still from low levels and that the saving ratio was increasing. The point was made that the increase in the saving ratio reflected, to a large extent, increases in the non-labour income of high-income households that were likely to save rather than consume out of additional income. Moreover, greater saving was seen as a natural reaction to the higher interest rates on deposits offered in the context of past monetary policy tightening. However, the strong increase in savings observed in the first quarter of the year was raising questions about the consumption-based narrative embedded in the projections. Overall, despite all these layers of uncertainty, it was felt that the euro area economy remained on track for a consumption-led recovery, in line with rising real income growth. Survey results entailed some positive signs for future household spending and, according to the latest BLS, households’ demand for loans had risen. Turning to the labour market, incoming data confirmed continued resilience. The unemployment rate was unchanged at 6.4% in May, its lowest level since the start of the euro. Employment had grown by 0.3% in the first quarter, supported by a further increase in the labour force, which had expanded at the same rate. More jobs were likely to have been created in the second quarter, mainly in the services sector. At the same time, firms were gradually reducing their job postings, albeit from high levels. Members widely pointed to continued tightness in the labour market. It was noted that this tightness had persisted despite immigration and rising labour force participation. Participants in the ECB’s CTS continued to report difficulties in recruiting, which highlighted continued labour shortages. At the same time, the CTS findings suggested that firms were responding to these shortages by investing in labour-saving technology such as automation and digitalisation. It was noted that employment growth continued to be driven mainly by the services sector. However, a note of caution was expressed that the observed state of the labour market had two interpretations. On the one hand, its persistent resilience was reinforcing the prediction that a soft landing of the economy was indeed achievable. On the other, the lack of sustained growth dynamics raised concerns about the durability of what appeared to be the most inclusive and vibrant labour market in the history of the euro area. With respect to national fiscal and structural policies, members reiterated that these policies should aim to make the economy more productive and competitive, which would help raise potential growth and reduce price pressures in the medium term. An effective, speedy and full implementation of the Next Generation EU (NGEU) programme, progress towards capital markets union and the completion of banking union, and a strengthening of the Single Market were key factors that would help foster innovation and increase investment in the green and digital transitions. The European Commission’s recent guidance calling for EU Member States to strengthen fiscal sustainability and the Eurogroup’s statement on the fiscal stance for the euro area in 2025 were welcome. Implementing the EU’s revised economic governance framework fully and without delay would help governments bring down budget deficits and debt ratios on a sustained basis. The course of fiscal policy was seen as posing challenges in the coming months. Concerns were expressed that, in a period of political uncertainty and changing governments, there might be less fiscal consolidation than expected thus far. A combination of fiscal slippage in some countries and fiscal discipline in others was leading to a divergence in fiscal positions and greater vulnerability. In September euro area countries would have to present their multi-year budgetary plans. Markets would then start analysing how compliant these plans were with the fiscal rules, the credibility of which depended on early and serious compliance efforts. Promotion of a sound fiscal regime called for being vocal about the need for structural reforms as well, since weak economic growth implied a higher risk of slippages in complying with the fiscal rules. In this context, it was also suggested that in the implementation of the NGEU programme the emphasis should be more on effectiveness than on speediness, given the risk of inefficiencies associated with limited administrative capacity on the part of the implementation authorities. Members assessed that the risks to economic growth were tilted to the downside. A weaker world economy or an escalation in trade tensions between major economies would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This might result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the effects of monetary policy turned out stronger than expected. Growth could be higher if inflation came down more quickly than expected and rising confidence and real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. The point was made that the continuous presence of macro risks, such as geopolitical fragmentation and a lack of fiscal discipline, might fuel uncertainty and hamper planning, although it appeared that, thus far, the economy had shown resilience to this type of uncertainty. With regard to price developments, members concurred with the assessment provided by Mr Lane that the incoming information broadly confirmed the medium-term inflation outlook. Annual inflation had eased slightly to 2.5% in June, with both goods price inflation and services price inflation unchanged, at 0.7% and 4.1% respectively. While some measures of underlying inflation had ticked up in May owing to one-off factors, most measures had either been stable or edged down in June. Inflation was expected to fluctuate around current levels for the rest of the year, partly owing to energy-related base effects. It was then expected to decline towards target over the second half of next year, owing to weaker growth in labour costs, the effects of restrictive monetary policy and the fading impact of the past inflation surge. Members considered that the short-term inflation outlook had remained broadly in line with the June projections, although pointing to somewhat higher profiles for services inflation and core inflation, partly associated with increases in tourism-related prices. It was also emphasised that the disinflationary process in headline HICP inflation over the shorter-term horizon was more evident when adjusting for the impact of energy-related base effects that were causing some volatility in the latter part of this year. It was noted that surveys and markets were somewhat more optimistic about inflation over the short term than the June projections, while they were somewhat more pessimistic about economic growth. The persistence in services inflation remained the central element shaping the inflation outlook. A remark was made that the risk of seeing high services inflation for a longer period had not been mitigated by the tepid recovery. This was not just an issue for the euro area but seemed to hold true more broadly. For the euro area, in June services inflation had been higher than expected and a string of consecutive upward surprises had been observed. Services inflation had dropped fairly quickly from its peak in mid-2023 to 4% in November 2023, but since then it had hovered around that level. In contrast to goods price inflation, where the decline had proceeded very quickly, progress in reducing services inflation appeared to have stalled. At current levels, services inflation was almost twice as high as its average before the global financial crisis. Moreover, the persistence of services inflation was broad-based across euro area countries and components rather than being driven by individual categories, and momentum remained high despite its recent decline. As disinflation in non-energy industrial goods was flattening out and high freight costs and rising protectionism might put upward pressure on goods price inflation in the future, a further decline in core inflation would need to rely on disinflation in services. At the same time, the point was made that services inflation was a sluggish and lagging element in the inflation process. For some items, in particular, the latest observations may have reflected “laggards” – delayed backward-looking repricing in some specific subsectors – rather than a generalised forward-looking price resetting. Members agreed that the triangular relationship between wages, productivity and profits remained central to assessing domestic price pressures and the inflation outlook more generally. It was argued that the expected disinflationary trend was based on dynamics in these three variables, which were quite aligned with historical patterns. However, it was cautioned that the evolution of these variables remained surrounded by a high level of uncertainty. Developments thus warranted close monitoring and the data for the second quarter would be important inputs for the Governing Council’s next monetary policy meeting in September. Concerning wages specifically, in the first quarter of this year all available measures had pointed to continued elevated growth, but this had been largely anticipated in the June projections. While the latest data showed that wages in the euro area were still rising at an elevated pace, it was maintained that the most recent aggregate developments to a large extent reflected developments in specific sectors and countries rather than a broad-based trend. The profile for wage growth embedded in the latest projections was downward-sloping for 2025 and 2026, and this expectation was supported by results from a number of surveys. While survey indications of lower wage growth were favourable news for the inflation outlook, caution was expressed that this decline still needed to appear in the data, which, so far, had remained exceptionally high by historical standards. In this context, it was considered useful to look at decompositions of wage growth into its main drivers, such as the catch-up component, forward-looking inflation expectations, labour market tightness and compensation for higher productivity. Reference was made to evidence from the CTS, where more than half of respondents had indicated that recruiting had become harder at prevailing wages. In case labour scarcity turned out to be a structural phenomenon caused, for example, by demographic factors or changes in preferences for leisure, it was important to assess how far wage increases reflected the increased negotiation power of workers, whether individual or collective, and how far they merely reflected real wage catch-up in the wake of the inflation surge. The staggered process of collective wage bargaining implied a deferred impact of inflation on real wage catch-up. Real wages of a very large share of workers in some countries still fell short of their pre-pandemic levels. Looking ahead, this provided for some protractedness in wage dynamics. While from an inflation perspective it was desirable for the catch-up to proceed in a contained manner, it was also a healthy element underpinning real income growth and benefiting the euro area economy. At the same time, concerns were expressed that wages might continue to grow more strongly than would be consistent with the inflation target – even after the catch-up process had been completed. However, the more real wages caught up, the lower the incentives for workers to claim higher wage increases and for firms to pass on those wage increases in the current environment of weak demand. As regards longer-term inflation expectations, members took note of the latest developments in market-based measures of inflation compensation and survey-based indicators. Measures of longer-term inflation expectations had remained broadly stable, with most standing at around 2%. Current inflation expectations were well anchored, but suggested that inflation was unlikely to undershoot the target as distributions were still skewed to the upside. This was generally valid for expectations derived from the Consumer Expectations Survey, the SAFE, the SPF and the SMA. The option-implied probabilities for five-year forward inflation-linked swap rates five years ahead were higher for outcomes above 2.5% than for outcomes below 1.5%. However, analysts’ longer-term inflation expectations as reported in the SMA did not show the same asymmetry. It was suggested that, in principle, larger upside than downside risks could be reconciled with expectations of more frequent adverse supply shocks in the future. Regarding risks, members assessed that inflation could turn out higher than anticipated if wages or profits increased by more than expected. Upside risks to inflation also stemmed from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation might surprise on the downside if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. The point was made that downside risks to aggregate demand would come with downside risks to inflation over the medium term. At the same time, it was argued that there were still good reasons to remain watchful of upside risks to inflation. First, incoming data, particularly for services inflation, had been above earlier expectations. Second, key building blocks of the disinflation narrative, such as the expected pick-up in productivity and moderation in wage growth, had yet to appear in the actual data. At present, unit labour costs were still growing fast. Turning to the monetary and financial analysis, members underlined that the policy rate cut in June had been transmitted smoothly to money market interest rates. Market interest rates had edged down since the Governing Council’s previous monetary policy meeting in June, although they had been fluctuating to some extent since then in response to data releases. On average market participants were currently pricing in almost two additional 25 basis point cuts by the end of the year, but had attached almost no probability to a cut at the July monetary policy meeting. Overall, broader financial conditions had changed little since the Governing Council’s previous monetary policy meeting in June, but they had been somewhat volatile in the meantime. Financial markets had been affected by political uncertainty in the euro area, although the overall effects and increase in volatility had remained muted and had largely been reversed. Financing costs had remained broadly stable at restrictive levels, as previous policy rate increases continued to work their way through the transmission chain. The average interest rate on new loans to firms had edged down in May, while mortgage rates had remained unchanged. Lending conditions had remained tight. According to the latest BLS, credit standards for lending to firms had tightened slightly in the second quarter, while standards for mortgages had eased moderately. The BLS also highlighted continued sluggish demand from firms for loans and credit lines, though expected growth in loan demand had turned positive. Moreover, households’ demand for mortgages and consumer loans had risen. The view was expressed that, overall, the BLS results suggested that the transmission of monetary policy restriction was likely to have passed its peak. Credit growth also remained subdued. Growth of bank lending to firms and households had remained at low levels in May and had only marginally increased from the previous month. The annual growth rate of M3 had continued its gradual recovery while remaining relatively subdued. It was largely being driven by inflows of funds from outside the euro area. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements that the Governing Council had communicated in 2023 as shaping its reaction function. Starting with the inflation outlook, members broadly concurred with the assessment that had been presented by Mr Lane in his introduction. The incoming information and forward-looking indicators had generally supported the Governing Council’s previous assessment of the medium-term inflation outlook. Recent developments and the latest data were still broadly consistent with the June staff projections. Headline inflation was expected to fluctuate around current levels for the rest of the year, partly owing to energy-related base effects. But inflation was expected to decline towards the target over the second half of next year and then stabilise around the target in 2026. It was also important to note that inflation expectations had remained firmly anchored, with most measures of longer-term inflation expectations standing at around 2%. At the same time, the current distribution of inflation expectations was still skewed to the upside. In addition, services inflation had continued to be more persistent than expected. With regard to underlying inflation, members noted that while some measures of underlying inflation had ticked up in May owing to one-off factors, most measures had either been stable or edged down in June. Still, the signals from the different measures of underlying inflation remained mixed. Domestic inflation continued to be elevated, at the top of the range of these measures, and appeared to be stickier than expected. Core inflation also remained relatively high. It had been higher than expected, showing some persistence, and was still subject to upside risks given the repeated upside surprises in services inflation. More generally, many measures of underlying inflation were likely to be fairly flat for the remainder of the year. Interpreting these data had become trickier because, as inflation approached the target, these measures would naturally adjust more slowly. It was therefore becoming harder to determine whether or not the slower decline signalled a genuine stalling of the disinflation process. Labour cost dynamics would continue to be a key concern, with the interaction between wages, productivity and profits likely to be particularly important for the evolution of domestic inflation, as captured by the GDP deflator. In this respect, it was comforting to see that domestic cost pressures from high wage growth, including in the services sector, had been increasingly buffered by unit profits. Finally, members generally agreed that monetary policy transmission was unfolding according to expectations. Monetary policy was keeping financing conditions restrictive and the transmission of past policy rate hikes remained strong. Tight financing conditions partly explained the sluggishness in domestic demand and would continue to weigh on activity in the coming months. The view was taken that the ongoing contraction of the Eurosystem balance sheet added to that restrictiveness. At the same time, the continued growth of profits in the services sector, albeit at lower rates, and the strength of services demand suggested a weaker transmission of monetary policy to the part of the economy that was exerting the strongest inflationary pressures. That said, monetary policy would probably take longer to be transmitted to the services sector. And even if transmission to services inflation was relatively weaker, this should not be seen in isolation from the relatively low goods price inflation. Monetary policy decisions and communication Against this background, all members agreed with Mr Lane’s proposal to maintain the three key ECB interest rates at their current levels. Members concurred that the incoming information broadly supported the Governing Council’s previous assessment of the medium-term inflation outlook. While some measures of underlying inflation had ticked up in May owing to one-off factors, most measures had either been stable or edged down in June. In line with expectations, the inflationary impact of high wage growth had been buffered by profits. Monetary policy was keeping financing conditions restrictive. At the same time, domestic price pressures were still high, services inflation was elevated and headline inflation was likely to remain above the target well into 2025. It was remarked that these developments suggested that the last mile of disinflation was more challenging and that the task of bringing inflation down sustainably to the 2% target was not yet assured, despite the significant progress made. With inflation coming down only gradually, it was seen as natural that the Governing Council’s policy response should be cautious. This supported a pause at the current meeting. Such a cautious approach was particularly warranted given the prevailing uncertainties about the evolution of wages, profits, productivity and services inflation. All of these would need further monitoring and assessment as new data arrived in order to gain further confidence in the inflation outlook. By the time of the September meeting extensive new data would be available, such as the July and August inflation data; national account information on the second quarter, including compensation per employee, profits and productivity; an update on monetary data; and a new set of staff projections. In terms of timing, it was argued that the Governing Council could afford to be patient and wait for more data to confirm that disinflation was indeed on track. A cautious approach would also allow the Governing Council to respond by following a more gradual path of reducing policy rates if inflation was more persistent than currently foreseen. The importance of bringing inflation down sustainably to the target in a timely manner was reiterated. It mattered both for credibility and because a further delay could entail high costs, with inflation expectations being more fragile than usual owing to inflation having been above target for so long. At the same time, it was underlined that a gradual attenuation of policy restriction was a balancing act, as it was also important not to unduly harm the economy by keeping rates at a restrictive level for too long. Members emphasised that they remained determined to ensure inflation would return to the 2% medium-term target in a timely manner and that they would keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. It was also seen as important to maintain a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. There should be no pre-commitment to a particular rate path, since the exact pace at which inflation would return to target remained uncertain. It was nonetheless also important to keep an eye on the real economy. The September meeting was widely seen as a good time to re-evaluate the level of monetary policy restriction. That meeting should be approached with an open mind, which also implied that data dependence was not equivalent to being overly focused on specific, single data points. Finally, policy should continue to be based on the established elements of the reaction function. Members also agreed with the Executive Board proposal to continue applying flexibility in the partial reinvestment of redemptions falling due in the pandemic emergency purchase programme portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 18 July 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 17-18 July 2024 Members Ms Lagarde	President Mr de Guindos	Vice-President Mr Centeno Mr Cipollone Ms Delgado Mr Elderson Mr Kazāks* Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel* Mr Panetta Mr Patsalides* Mr Rehn Mr Reinesch* Ms Schnabel Mr Scicluna Mr Šimkus* Mr Stournaras Mr Vasle Mr Villeroy de Galhau Mr Vujčić Mr Wunsch * Members not holding a voting right in July 2024 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Arpa Ms Bénassy-Quéré Mr Dabušinskas Mr Demarco Mr Gavilán Mr Gilbert Mr Haber	Alternate to Mr Holzmann Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Mr Martin Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Rutkaste Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 10 October 2024. Related topics Monetary policy Policies Disclaimer Please note that related topic tags are currently available for selected content only. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 11-12 September 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 11-12 September 2024 10 October 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 17-18 July 2024 there had been repeated periods of elevated market volatility, as growth concerns had become the dominant market theme. The volatility in risk asset markets had left a more persistent imprint on broader financial markets associated with shifting expectations for the policy path of the Federal Reserve System. The reappraisal of expectations for US monetary policy had spilled over into euro area rate expectations, supported by somewhat weaker economic data and a notable decline in headline inflation in the euro area. Overnight index swap (OIS) markets were currently pricing in a steeper and more frontloaded rate-cutting cycle than had been anticipated at the time of the Governing Council’s previous monetary policy meeting. At the same time, survey expectations had hardly changed relative to July. Volatility in US equity markets had shot up to levels last seen in October 2020, following the August US non-farm payroll employment report and the unwinding of yen carry trades. Similarly, both the implied volatility in the euro area stock market and the Composite Indicator of Systemic Stress had spiked. However, the turbulence had proved short-lived, and indicators of volatility and systemic stress had come down quickly. The sharp swings in risk aversion among global investors had been mirrored in equity prices, with the weaker growth outlook having also been reflected in the sectoral performance of global equity markets. In both the euro area and the United States, defensive sectors had recently outperformed cyclical ones, suggesting that equity investors were positioning themselves for weaker economic growth. Two factors could have amplified stock market dynamics. One was that the sensitivity of US equity prices to US macroeconomic shocks can depend on prevailing valuations. Another was the greater role of speculative market instruments, including short volatility equity funds. The pronounced reappraisal of the expected path of US monetary policy had spilled over into rate expectations across major advanced economies, including the euro area. The euro area OIS forward curve had shifted noticeably lower compared with expectations prevailing at the time of the Governing Council’s July meeting. In contrast to market expectations, surveys had proven much more stable. The expectations reported in the most recent Survey of Monetary Analysts (SMA) had been unchanged versus the previous round and pointed towards a more gradual rate path. The dynamics of market-based and survey-based policy rate expectations over the year – as illustrated by the total rate cuts expected by the end of 2024 and the end of 2025 in the markets and in the SMA – showed that the higher volatility in market expectations relative to surveys had been a pervasive feature. Since the start of 2024 market-based expectations had oscillated around stable SMA expectations. The dominant drivers of interest rate markets in the inter-meeting period and for most of 2024 had in fact been US rather than domestic euro area factors, which could partly explain the more muted sensitivity of analysts’ expectations to recent incoming data. At the same time, the expected policy divergence between the euro area and the United States had changed signs, with markets currently expecting a steeper easing cycle for the Federal Reserve. The decline in US nominal rates across maturities since the Governing Council’s last meeting could be explained mainly by a decline in expected real rates, as shown by a breakdown of OIS rates across different maturities into inflation compensation and real rates. By contrast, the decline in euro area nominal rates had largely related to a decline in inflation compensation. The market’s reassessment of the outlook for inflation in the euro area and the United States had led to the one-year inflation-linked swap (ILS) rates one year ahead declining broadly in tandem on both sides of the Atlantic. The global shift in investor focus from inflation to growth concerns may have lowered investors’ required compensation for upside inflation risks. A second driver of inflation compensation had been the marked decline in energy prices since the Governing Council’s July meeting. Over the past few years the market’s near-term inflation outlook had been closely correlated with energy prices. Market-based inflation expectations had again been oscillating around broadly stable survey-based expectations, as shown by a comparison of the year-to-date developments in SMA expectations and market pricing for inflation rates at the 2024 and 2025 year-ends. The dominance of US factors in recent financial market developments and the divergence in policy rate expectations between the euro area and the United States had also been reflected in exchange rate developments. The euro had been pushed higher against the US dollar owing to the repricing of US monetary policy expectations and the deterioration in the US macroeconomic outlook. In nominal effective terms, however, the euro exchange rate had depreciated mildly, as the appreciation against the US dollar and other currencies had been more than offset by a weakening against the Swiss franc and the Japanese yen. Sovereign bond markets had once again proven resilient to the volatility in riskier asset market segments. Ten-year sovereign spreads over German Bunds had widened modestly after the turbulence but had retreated shortly afterwards. As regards corporate borrowing, the costs of rolling over euro area and US corporate debt had eased measurably across rating buckets relative to their peak. Finally, there had been muted take-up in the first three-month lending operation extending into the period of the new pricing for the main refinancing operations. As announced in March, the spread to the deposit facility rate would be reduced from 50 to 15 basis points as of 18 September 2024. Moreover, markets currently expected only a slow increase in take-up and no money market reaction to this adjustment. The global environment and economic and monetary developments in the euro area Mr Lane started by reviewing inflation developments in the euro area. Headline inflation had decreased to 2.2% in August (flash release), which was 0.4 percentage points lower than in July. This mainly reflected a sharp decline in energy inflation, from 1.2% in July to -3.0% in August, on account of downward base effects. Food inflation had been 2.4% in August, marginally up from 2.3% in July. Core inflation – as measured by the Harmonised Index of Consumer Prices (HICP) excluding energy and food – had decreased by 0.1 percentage points to 2.8% in August, as the decline in goods inflation to 0.4% had outweighed the rise in services inflation to 4.2%. Most measures of underlying inflation had been broadly unchanged in July. However, domestic inflation remained high, as wages were still rising at an elevated pace. But labour cost pressures were moderating, and lower profits were partially buffering the impact of higher wages on inflation. Growth in compensation per employee had fallen further, to 4.3%, in the second quarter of 2024. And despite weak productivity unit labour costs had grown less strongly, by 4.6%, after 5.2% in the first quarter. Annual growth in unit profits had continued to fall, coming in at -0.6%, after -0.2% in the first quarter and +2.5% in the last quarter of 2023. Negotiated wage growth would remain high and volatile over the remainder of the year, given the significant role of one-off payments in some countries and the staggered nature of wage adjustments. The forward-looking wage tracker also signalled that wage growth would be strong in the near term but moderate in 2025. Headline inflation was expected to rise again in the latter part of this year, partly because previous falls in energy prices would drop out of the annual rates. According to the latest ECB staff projections, headline inflation was expected to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, notably reaching 2.0% during the second half of next year. Compared with the June projections, the profile for headline inflation was unchanged. Inflation projections including owner-occupied housing costs were a helpful cross-check. However, in the September projections these did not imply any substantial difference, as inflation both in rents and in the owner-occupied housing cost index had shown a very similar profile to the overall HICP inflation projection. For core inflation, the projections for 2024 and 2025 had been revised up slightly, as services inflation had been higher than expected. Staff continued to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026. Owing to a weaker economy and lower wage pressures, the projections now saw faster disinflation in the course of 2025, resulting in the projection for core inflation in the fourth quarter of that year being marked down from 2.2% to 2.1%. Turning to the global economy, Mr Lane stressed that global activity excluding the euro area remained resilient and that global trade had strengthened in the second quarter of 2024, as companies frontloaded their orders in anticipation of shipping delays ahead of the Christmas season. At the same time downside risks were rising, with indicators signalling a slowdown in manufacturing. The frontloading of trade in the first half of the year meant that trade performance in the second half could be weaker. The euro had been appreciating against the US dollar (+1.0%) since the July Governing Council meeting but had been broadly stable in effective terms. As for the energy markets, Brent crude oil prices had decreased by 14%, to around USD 75 per barrel, since the July meeting. European natural gas prices had increased by 16%, to stand at around €37 per megawatt-hour amid ongoing geopolitical concerns. Euro area real GDP had expanded by 0.2% in the second quarter of this year, after being revised down. This followed 0.3% in the first quarter and fell short of the latest staff projections for real GDP. It was important not to exaggerate the slowdown in the second quarter of 2024. This was less pronounced when excluding a small euro area economy with a large and volatile contribution from intangible investment. However, while the euro area economy was continuing to grow, the expansion was being driven not by private domestic demand, but mainly by net exports and government spending. Private domestic demand had weakened, as households were consuming less, firms had cut business investment and housing investment had dropped sharply. The euro area flash composite output Purchasing Managers’ Index (PMI) had risen to 51.2 in August from 50.2 in July. While the services sector continued to expand, the more interest-sensitive manufacturing sector continued to contract, as it had done for most of the past two years. The flash PMI for services business activity for August had risen to 53.3, while the manufacturing output PMI remained deeply in contractionary territory at 45.7. The overall picture raised concerns: as developments were very similar for both activity and new orders, there was no indication that the manufacturing sector would recover anytime soon. Consumer confidence remained subdued and industrial production continued to face strong headwinds, with the highly interconnected industrial sector in the euro area’s largest economy suffering from a prolonged slump. On trade, it was also a concern that the improvements in the PMIs for new export orders for both services and manufacturing had again slipped in the last month or two. After expanding by 3.5% in 2023, global real GDP was expected to grow by 3.4% in 2024 and 2025, and 3.3% in 2026, according to the September ECB staff macroeconomic projections. Compared to the June projections, global real GDP growth had been revised up by 0.1 percentage points in each year of the projection horizon. Even though the outlook for the world economy had been upgraded slightly, there had been a downgrade in terms of the export prices of the euro area’s competitors, which was expected to fuel disinflationary pressures in the euro area, particularly in 2025. The euro area labour market remained resilient. The unemployment rate had been broadly unchanged in July, at 6.4%. Employment had grown by 0.2% in the second quarter. At the same time, the growth in the labour force had slowed. Recent survey indicators pointed to a further moderation in the demand for labour, with the job vacancy rate falling from 2.9% in the first quarter to 2.6% in the second quarter, close to its pre-pandemic peak of 2.4%. Early indicators of labour market dynamics suggested a further deceleration of labour market momentum in the third quarter. The employment PMI had stood at the broadly neutral level of 49.9 in August. In the staff projections output growth was expected to be 0.8% in 2024 and to strengthen to 1.3% in 2025 and 1.5% in 2026. Compared with the June projections, the outlook for growth had been revised down by 0.1 percentage points in each year of the projection horizon. For 2024, the downward revision reflected lower than expected GDP data and subdued short-term activity indicators. For 2025 and 2026 the downward revisions to the average annual growth rates were the result of slightly weaker contributions from net trade and domestic demand. Concerning fiscal policies, the euro area budget balance was projected to improve progressively, though less strongly than in the previous projection round, from -3.6% in 2023 to -3.3% in 2024, -3.2% in 2025 and -3.0% in 2026. Turning to monetary and financial analysis, risk-free market interest rates had decreased markedly since the last monetary policy meeting, mostly owing to a weaker outlook for global growth and reduced concerns about inflation pressures. Tensions in global markets over the summer had led to a temporary tightening of financial conditions in the riskier market segments. But in the euro area and elsewhere forward rates had fallen across maturities. Financing conditions for firms and households remained restrictive, as the past policy rate increases continued to work their way through the transmission chain. The average interest rates on new loans to firms and on new mortgages had stayed high in July, at 5.1% and 3.8% respectively. Monetary dynamics were broadly stable amid marked volatility in monthly flows, with net external assets remaining the main driver of money creation. The annual growth rate of M3 had stood at 2.3% in July, unchanged from June but up from 1.5% in May. Credit growth remained sluggish amid weak demand. Monetary policy considerations and policy options Regarding the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, Mr Lane concluded that confidence in a timely return of inflation to target was supported by both declining uncertainty around the projections, including their stability across projection rounds, and also by inflation expectations across a range of indicators that remained aligned with a timely convergence to target. The incoming data on wages and profits had been in line with expectations. The baseline scenario foresaw a demand-led economic recovery that boosted labour productivity, allowing firms to absorb the expected growth in labour costs without denting their profitability too much. This should buffer the cost pressures stemming from higher wages, dampening price increases. Most measures of underlying inflation, including those with a high predictive content for future inflation, were stable at levels consistent with inflation returning to target in a sufficiently timely manner. While domestic inflation was still being kept elevated by pay rises, the projected slowdown in wage growth next year was expected to make a major contribution to the final phase of disinflation towards the target. Based on this assessment, it was now appropriate to take another step in moderating the degree of monetary policy restriction. Accordingly, Mr Lane proposed lowering the deposit facility rate – the rate through which the Governing Council steered the monetary policy stance – by 25 basis points. This decision was robust across a wide range of scenarios. At a still clearly restrictive level of 3.50% for the deposit facility rate, upside shocks to inflation calling into question the timely return of inflation to target could be addressed with a slower pace of rate reductions in the coming quarters compared with the baseline rate path embedded in the projections. At the same time, compared with holding the deposit facility rate at 3.75%, this level also offered greater protection against downside risks that could lead to an undershooting of the target further out in the projection horizon, including the risks associated with an excessively slow unwinding of the rate tightening cycle. Looking ahead, a gradual approach to dialling back restrictiveness would be appropriate if the incoming data were in line with the baseline projection. At the same time, optionality should be retained as regards the speed of adjustment. In one direction, if the incoming data indicated a sustained acceleration in the speed of disinflation or a material shortfall in the speed of economic recovery (with its implications for medium-term inflation), a faster pace of rate adjustment could be warranted; in the other direction, if the incoming data indicated slower than expected disinflation or a faster pace of economic recovery, a slower pace of rate adjustment could be warranted. These considerations reinforced the value of a meeting-by-meeting and data-dependent approach that maintained two-way optionality and flexibility for future rate decisions. This implied reiterating (i) the commitment to keep policy rates sufficiently restrictive for as long as necessary to achieve a timely return of inflation to target; (ii) the emphasis on a data-dependent and meeting-by-meeting approach in setting policy; and (iii) the retention of the three-pronged reaction function, based on the Governing Council’s assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. As announced in March, some changes to the operational framework for implementing monetary policy were to come into effect at the start of the next maintenance period on 18 September. The spread between the rate on the main refinancing operations and the deposit facility rate would be reduced to 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations would remain unchanged at 25 basis points. These technical adjustments implied that the main refinancing operations and marginal lending facility rates would be reduced by 60 basis points the following week, to 3.65% and 3.90% respectively. In view of these changes, the Governing Council should emphasise in its communication that it steered the monetary policy stance by adjusting the deposit facility rate. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses Looking at the external environment, members took note of the assessment provided by Mr Lane. Incoming data confirmed growth in global activity had been resilient, although recent negative surprises in PMI manufacturing output indicated potential headwinds to the near-term outlook. While the services sector was growing robustly, the manufacturing sector was contracting. Goods inflation was declining sharply, in contrast to persistent services inflation. Global trade had surprised on the upside in the second quarter, likely owing to frontloaded restocking. However, it was set to decelerate again in the third quarter and then projected to recover and grow in line with global activity over the rest of the projection horizon. Euro area foreign demand followed a path similar to global trade and had been revised up for 2024 (owing mainly to strong data). Net exports had been the main demand component supporting euro area activity in the past two quarters. Looking ahead, though, foreign demand was showing signs of weakness, with falling export orders and PMIs. Overall, the September projections had shown a slightly improved growth outlook relative to the June projections, both globally and for the major economies, which suggested that fears of a major global slowdown might be exaggerated. US activity remained robust, despite signs of rebalancing in the labour market. The recent rise in unemployment was due primarily to an increasing labour force, driven by higher participation rates and strong immigration, rather than to weakening labour demand or increased slack. China’s growth had slowed significantly in the second quarter as the persistent downturn in the property market continued to dampen household demand. Exports remained the primary driver of growth. Falling Chinese export prices highlighted the persisting overcapacity in the construction and high-tech manufacturing sectors. Turning to commodities, oil prices had fallen significantly since the Governing Council’s previous monetary policy meeting. The decline reflected positive supply news, dampened risk sentiment and the slowdown in economic activity, especially in China. The futures curve suggested a downward trend for oil prices. In contrast, European gas prices had increased in the wake of geopolitical concerns and localised supply disruptions. International prices for both metal and food commodities had declined slightly. Food prices had fallen owing to favourable wheat crop conditions in Canada and the United States. In this context, it was argued that the decline in commodity prices could be interpreted as a barometer of sentiment on the strength of global activity. With regard to economic activity in the euro area, members concurred with the assessment presented by Mr Lane and acknowledged the weaker than expected growth outcome in the second quarter. While broad agreement was expressed with the latest macroeconomic projections, it was emphasised that incoming data implied a downward revision to the growth outlook relative to the previous projection round. Moreover, the remark was made that the private domestic economy had contributed negatively to GDP growth for the second quarter in a row and had been broadly stagnating since the middle of 2022. It was noted that, since the cut-off for the projections, Eurostat had revised data for the latest quarters, with notable changes to the composition of growth. Moreover, in earlier national account releases, there had already been sizeable revisions to backdata, with upward revisions to the level of activity, which had been broadly taken into account in the September projections. With respect to the latest release, the demand components for the second quarter pointed to an even less favourable contribution from consumption and investment and therefore presented a more pessimistic picture than in the September staff projections. The euro area current account surplus also suggested that domestic demand remained weak. Reference was made to potential adverse non-linear dynamics resulting from the current economic weakness, for example from weaker balance sheets of households and firms, or originating in the labour market, as in some countries large firms had recently moved to lay off staff. It was underlined that the long-anticipated consumption-led recovery in the euro area had so far not materialised. This raised the question of whether the projections relied too much on consumption driving the recovery. The latest data showed that households had continued to be very cautious in their spending. The saving rate was elevated and had rebounded in recent quarters in spite of already high accumulated savings, albeit from a lower level following the national accounts revisions to the backdata. This might suggest that consumers were worried about their economic prospects and had little confidence in a robust recovery, even if this was not fully in line with the observed trend increase in consumer confidence. In this context, several factors that could be behind households’ increased caution were mentioned. These included uncertainty about the geopolitical situation, fiscal policy, the economic impact of climate change and transition policies, demographic developments as well as the outcome of elections. In such an uncertain environment, businesses and households could be more cautious and wait to see how the situation would evolve. At the same time, it was argued that an important factor boosting the saving ratio was the high interest rate environment. While the elasticity of savings to interest rates was typically relatively low in models, the increase in interest rates since early 2022 had been very significant, coming after a long period of low or negative rates. Against this background, even a small elasticity implied a significant impact on consumption and savings. Reference was also made to the European Commission’s consumer sentiment indicators. They had been showing a gradual recovery in consumer confidence for some time (in step with lower inflation), while perceived consumer uncertainty had been retreating. Therefore, the high saving rate was unlikely to be explained by mainly precautionary motives. It rather reflected ongoing monetary policy transmission, which could, however, be expected to gradually weaken over time, with deposit and loan rates starting to fall. Surveys were already pointing to an increase in household spending. In this context, the lags in monetary policy transmission were recalled. For example, households that had not yet seen any increase in their mortgage payments would be confronted with a higher mortgage rate if their rate fixation period expired. This might be an additional factor encouraging a build-up of savings. Reference was also made to the concept of permanent income as an important determinant of consumer spending. If households feared that their permanent income had not increased by as much as their current disposable income, owing to structural developments in the economy, then it was not surprising that they were limiting their spending. Overall, it was generally considered that a recession in the euro area remained unlikely. The projected recovery relied on a pick-up in consumption and investment, which remained plausible and in line with standard economics, as the fundamentals for that dynamic to set in were largely in place. Sluggish spending was reflecting a lagged response to higher real incomes materialising over time. In addition, the rise in household savings implied a buffer that might support higher spending later, as had been the case in the United States, although consumption and savings behaviour clearly differed on opposite sides of the Atlantic. Particular concerns were expressed about the weakness in investment this year and in 2025, given the importance of investment for both the demand and the supply side of the economy. It was observed that the economic recovery was not expected to receive much support from capital accumulation, in part owing to the continued tightness of financial conditions, as well as to high uncertainty and structural weaknesses. Moreover, it was underlined that one of the main economic drivers of investment was profits, which had weakened in recent quarters, with firms’ liquidity buffers dissipating at the same time. In addition, in the staff projections, the investment outlook had been revised down and remained subdued. This was atypical for an economic recovery and contrasted strongly with the very significant investment needs that had been highlighted in Mario Draghi’s report on the future of European competitiveness. Turning to the labour market, its resilience was still remarkable. The unemployment rate remained at a historical low amid continued robust – albeit slowing – employment growth. At the same time, productivity growth had remained low and had surprised to the downside, implying that the increase in labour productivity might not materialise as projected. However, a declining vacancy rate was seen as reflecting weakening labour demand, although it remained above its pre-pandemic peak. It was noted that a decline in vacancies usually coincided with higher job destruction and therefore constituted a downside risk to employment and activity more generally. The decline in vacancies also coincided with a decline in the growth of compensation per employee, which was perceived as a sign that the labour market was cooling. Members underlined that it was still unclear to what extent low productivity was cyclical or might reflect structural changes with an impact on growth potential. If labour productivity was low owing to cyclical factors, it was argued that the projected increase in labour productivity did not require a change in European firms’ assumed rate of innovation or in total factor productivity. The projected increase in labour productivity could simply come from higher capacity utilisation (in the presence of remaining slack) in response to higher demand. From a cyclical perspective, in a scenario where aggregate demand did not pick up, this would sooner or later affect the labour market. Finally, even if demand were eventually to recover, there could still be a structural problem and labour productivity growth could remain subdued over the medium term. On the one hand, it was contended that in such a case potential output growth would be lower, with higher unit labour costs and price pressures. Such structural problems could not be solved by lower interest rates and had to be addressed by other policy domains. On the other hand, the view was taken that structural weakness could be amplified by high interest rates. Such structural challenges could therefore be a concern for monetary policy in the future if they lowered the natural rate of interest, potentially making recourse to unconventional policies more frequent. Reference was also made to the disparities in the growth outlook for different countries, which were perceived as an additional challenge for monetary policy. Since the share of manufacturing in gross value added (as well as trade openness) differed across economies, some countries in the euro area were suffering more than others from the slowdown in industrial activity. Weak growth in the largest euro area economy, in particular, was dragging down euro area growth. While part of the weakness was likely to be cyclical, this economy was facing significant structural challenges. By contrast, many other euro area countries had shown robust growth, including strong contributions from domestic demand. It was also highlighted that the course of national fiscal policies remained very uncertain, as national budgetary plans would have to be negotiated during a transition at the European Commission. In this context, the gradual improvement in the aggregated fiscal position of the euro area embedded in the projections was masking considerable differences across countries. Implementing the EU’s revised economic governance framework fully, transparently and without delay would help governments bring down budget deficits and debt ratios on a sustained basis. The effect of an expansionary fiscal policy on the economy was perceived as particularly uncertain in the current environment, possibly contributing to higher savings rather than higher spending by households (exerting “Ricardian” rather than “Keynesian” effects). Against this background, members called for fiscal and structural policies aimed at making the economy more productive and competitive, which would help to raise potential growth and reduce price pressures in the medium term. Mario Draghi’s report on the future of European competitiveness and Enrico Letta’s report on empowering the Single Market stressed the urgent need for reform and provided concrete proposals on how to make this happen. Governments should now make a strong start in this direction in their medium-term plans for fiscal and structural policies. In particular, it was argued that Mario Draghi’s report had very clearly identified the structural factors explaining Europe’s growth and industrial competitiveness gap with the United States. The report was seen as taking a long-term view on the challenges facing Europe, with the basic underlying question of how Europeans could remain in control of their own destiny. If Europe did not heed the call to invest more, the European economy would increasingly fall behind the United States and China. Against this background, members assessed that the risks to economic growth remained tilted to the downside. Lower demand for euro area exports, owing for instance to a weaker world economy or an escalation in trade tensions between major economies, would weigh on euro area growth. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East were major sources of geopolitical risk. This could result in firms and households becoming less confident about the future and global trade being disrupted. Growth could also be lower if the lagged effects of monetary policy tightening turned out stronger than expected. Growth could be higher if inflation came down more quickly than expected and rising confidence and real incomes meant that spending increased by more than anticipated, or if the world economy grew more strongly than expected. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction and underlined the fact that the recent declines in inflation had delivered good news. The incoming data had bolstered confidence that inflation would return to target by the end of 2025. Falling inflation, slowing wage growth and unit labour costs, as well as higher costs being increasingly absorbed by profits, suggested that the disinflationary process was on track. The unchanged baseline path for headline inflation in the staff projections gave reassurance that inflation would be back to target by the end of 2025. However, it was emphasised that core inflation was very persistent. In particular, services inflation had continued to come in stronger than projected and had moved sideways since November of last year. Recent declines in headline inflation had been strongly influenced by lower energy prices, which were known to be very volatile. Moreover, the baseline path to 2% depended critically on lower wage growth as well as on an acceleration of productivity growth towards rates not seen for many years and above historical averages. Conversely, it was stressed that inflation had recently been declining somewhat faster than expected, and the risk of undershooting the target was now becoming non-negligible. With Eurostat’s August HICP flash release, the projections were already too pessimistic on the pace of disinflation in the near term. Moreover, commodity prices had declined further since the cut-off date, adding downward pressure to inflation. Prices for raw materials, energy costs and competitors’ export prices had all fallen, while the euro had been appreciating against the US dollar. In addition, lower international prices not only had a short-term impact on headline euro area inflation but would ultimately also have an indirect effect on core inflation, through the price of services such as transportation (e.g. airfares). However, in that particular case, the size of the downward effect depended on how persistent the drop in energy prices was expected to be. From a longer perspective, it was underlined that for a number of consecutive rounds the projections had pointed to inflation reaching the 2% target by the end of 2025. At the same time, it was pointed out that the current level of headline inflation understated the challenges that monetary policy was still facing, which called for caution. Given the current high volatility in energy prices, headline inflation numbers were not very informative about medium-term price pressures. Overall, it was felt that core inflation required continued attention. Upward revisions to projected quarterly core inflation until the third quarter of 2025, which for some quarters amounted to as much as 0.3 percentage points, showed that the battle against inflation was not yet won. Moreover, domestic inflation remained high, at 4.4%. It reflected persistent price pressures in the services sector, where progress with disinflation had effectively stalled since last November. Services inflation had risen to 4.2% in August, above the levels of the previous nine months. The outlook for services inflation called for caution, as its stickiness might be driven by several structural factors. First, in some services sectors there was a global shortage of labour, which might be structural. Second, leisure services might also be confronted with a structural change in preferences, which warranted further monitoring. It was remarked that the projection for industrial goods inflation indicated that the sectoral rate would essentially settle at 1%, where it had been during the period of strong globalisation before the pandemic. However, in a world of fragmentation, deglobalisation and negative supply shocks, it was legitimate to expect higher price increases for non-energy industrial goods. Even if inflation was currently low in this category, this was not necessarily set to last. Members stressed that wage pressures were an important driver of the persistence of services inflation. While wage growth appeared to be easing gradually, it remained high and bumpy. The forward-looking wage tracker was still on an upward trajectory, and it was argued that stronger than expected wage pressures remained one of the major upside risks to inflation, in particular through services inflation. This supported the view that focus should be on a risk scenario where wage growth did not slow down as expected, productivity growth remained low and profits absorbed higher costs to a lesser degree than anticipated. Therefore, while incoming data had supported the baseline scenario, there were upside risks to inflation over the medium term, as the path back to price stability hinged on a number of critical assumptions that still needed to materialise. However, it was also pointed out that the trend in overall wage growth was mostly downwards, especially when focusing on growth in compensation per employee. Nominal wage growth for the first half of the year had been below the June projections. While negotiated wage growth might be more volatile, in part owing to one-off payments, the difference between it and compensation per employee – the wage drift – was more sensitive to the currently weak state of the economy. Moreover, despite the ongoing catching-up of real wages, the currently observed faster than expected disinflation could ultimately also be expected to put further downward pressure on wage claims – with second-round effects having remained contained during the latest inflation surge – and no sign of wage-price spirals taking root. As regards longer-term inflation expectations, market-based measures had come down notably and remained broadly anchored at 2%, reflecting the market view that inflation would fall rapidly. A sharp decline in oil prices, driven mainly by benign supply conditions and lower risk sentiment, had pushed down inflation expectations in the United States and the euro area to levels not seen for a long time. In this context it was mentioned that, owing to the weakness in economic activity and faster and broader than anticipated disinflation, risks of a downward unanchoring of inflation expectations had increased. Reference was made, in particular, to the prices of inflation fixings (swap contracts linked to specific monthly releases for euro area year-on-year HICP inflation excluding tobacco), which pointed to inflation well below 2% in the very near term – and falling below 2% much earlier than foreseen in the September projections. The view was expressed that, even if such prices were not entirely comparable with measured HICP inflation and were partly contaminated by negative inflation risk premia, their low readings suggested that the risks surrounding inflation were at least balanced or might even be on the downside, at least in the short term. However, it was pointed out that inflation fixings were highly correlated with oil prices and had limited forecasting power beyond short horizons. Against this background, members assessed that inflation could turn out higher than anticipated if wages or profits increased by more than expected. Upside risks to inflation also stemmed from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation might surprise on the downside if monetary policy dampened demand more than expected or if the economic environment in the rest of the world worsened unexpectedly. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Ms Schnabel and Mr Lane in their introductions. Market interest rates had declined significantly since the Governing Council’s previous monetary policy meeting in July. Market participants were now fully pricing in a 25 basis point cut in the deposit facility rate for the September meeting and attached a 35% probability to a further rate cut in October. In total, between two and three rate cuts were now priced in by the end of the year, up from two cuts immediately after the June meeting. The two-year OIS rate had also decreased by over 40 basis points since the July meeting. More generally it was noted that, because financial markets were anticipating the full easing cycle, this had already implied an additional and immediate easing of the monetary policy stance, which was reflected in looser financial conditions. The decline in market interest rates in the euro area and globally was mostly attributable to a weaker outlook for global growth and the anticipation of monetary policy easing due to reduced concerns about inflation pressures. Spillovers from the United States had played a significant role in the development of euro area market rates, while changes in euro area data – notably the domestic inflation outlook – had been limited, as could be seen from the staff projections. In addition, it was noted that, while a lower interest rate path in the United States reflected the Federal Reserve’s assessment of prospects for inflation and employment under its dual mandate, lower rates would normally be expected to stimulate the world economy, including in the euro area. However, the concurrent major decline in global oil prices suggested that this spillover effect could be counteracted by concerns about a weaker global economy, which would naturally reverberate in the euro area. Tensions in global markets in August had led to a temporary tightening of conditions in some riskier market segments, which had mostly and swiftly been reversed. Compared with earlier in the year, market participants had generally now switched from being concerned about inflation remaining higher for longer in a context of robust growth to being concerned about too little growth, which could be a prelude to a hard landing, amid receding inflation pressures. While there were as yet no indications of a hard landing in either the United States or the euro area, it was argued that the events of early August had shown that financial markets were highly sensitive to disappointing growth readings in major economies. This was seen to represent a source of instability and downside risks, although market developments at that time indicated that investors were still willing to take on risk. However, the view was also expressed that the high volatility and market turbulence in August partly reflected the unwinding of carry trades in wake of Bank of Japan’s policy tightening following an extended period of monetary policy accommodation. Moreover, the correction had been short-lived amid continued high valuations in equity markets and low risk premia across a range of assets. Financing costs in the euro area, measured by the interest rates on market debt instruments and bank loans, had remained restrictive as past policy rate increases continued to work their way through the transmission chain. The average interest rates on new loans to firms and on new mortgages had stayed high in July, at 5.1 and 3.8% respectively. It was suggested that other elements of broader financing conditions were not as tight as the level of the lending rates or broader indicators of financial conditions might suggest. Equity financing, for example, had been abundant during the entire period of disinflation and credit spreads had been very compressed. At the same time, it was argued that this could simply reflect weak investment demand, whereby firms did not need or want to borrow and so were not prepared to issue debt securities at high rates. Against this background, credit growth had remained sluggish amid weak demand. The growth of bank lending to firms and households had remained at levels not far from zero in July, with the former slightly down from June and the latter slightly up. The annual growth in broad money – as measured by M3 – had in July remained relatively subdued at 2.3%, the same rate as in June. It was suggested that the weakness in credit dynamics also reflected the still restrictive financing conditions, which were likely to keep credit growth weak through 2025. It was also argued that banks faced challenges, with their price-to-book ratios, while being higher than in earlier years, remaining generally below one. Moreover, it was argued that higher credit risk, with deteriorating loan books, had the potential to constrain credit supply. At the same time, the June rate cut and the anticipation of future cuts had already slightly lowered bank funding costs. In addition, banks remained highly profitable, with robust valuations. It was also not unusual for price-to-book ratios to be below one and banks had no difficulty raising capital. Credit demand was considered the main factor holding back loan growth, since investment remained especially weak. On the household side, it was suggested that the demand for mortgages was likely to increase with the pick-up in housing markets. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements of the Governing Council’s reaction function. Starting with the inflation outlook, the latest ECB staff projections had confirmed the inflation outlook from the June projections. Inflation was expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices would drop out of the annual rates. It was then expected to decline towards the target over the second half of next year, with the disinflation process supported by receding labour cost pressures and the past monetary policy tightening gradually feeding through to consumer prices. Inflation was subsequently expected to remain close to the target on a sustained basis. Most measures of longer-term inflation expectations stood at around 2%, and the market-based measures had fallen closer to that level since the Governing Council’s previous monetary policy meeting. Members agreed that recent economic developments had broadly confirmed the baseline outlook, as reflected in the unchanged staff projections for headline inflation, and indicated that the disinflationary path was progressing well and becoming more robust. Inflation was on the right trajectory and broadly on track to return to the target of 2% by the end of 2025, even if headline inflation was expected to remain volatile for the remainder of 2024. But this bumpy inflation profile also meant that the final phase of disinflation back to 2% was only expected to start in 2025 and rested on a number of assumptions. It therefore needed to be carefully monitored whether inflation would settle sustainably at the target in a timely manner. The risk of delays in reaching the ECB’s target was seen to warrant some caution to avoid dialling back policy restriction prematurely. At the same time, it was also argued that monetary policy had to remain oriented to the medium term even in the presence of shocks and that the risk of the target being undershot further out in the projection horizon was becoming more significant. Turning to underlying inflation, members noted that most measures had been broadly unchanged in July. Domestic inflation had remained high, with strong price pressures coming especially from wages. Core inflation was still relatively high, had been sticky since the beginning of the year and was continuing to surprise to the upside. Moreover, the projections for core inflation in 2024 and 2025 had been revised up slightly, as services inflation had been higher than expected. Labour cost dynamics would continue to be a central concern, with the projected decline in core and services inflation next year reliant on key assumptions for wages, productivity and profits, for which the actual data remained patchy. In particular, productivity was low and had not yet picked up, while wage growth, despite gradual easing, remained high and bumpy. A disappointment in productivity growth could be a concern, as the capacity of profits to absorb increases in unit labour costs might be reaching its limits. Wage growth would then have to decline even further for inflation to return sustainably to the target. These factors could mean that core inflation and services inflation might be stickier and not decline as much as currently expected. These risks notwithstanding, comfort could be drawn from the gradual decline in the momentum of services inflation, albeit from high levels, and the expectation that it would fall further, partly as a result of significant base effects. The catching-up process for wages was advanced, with wage growth already slowing down by more than had previously been projected and expected to weaken even faster next year, with no signs of a wage-price spiral. If lower energy prices or other factors reduced the cost of living now, this should put downward pressure on wage claims next year. Finally, members generally agreed that monetary policy transmission from the past tightening continued to dampen economic activity, even if it had likely passed its peak. Financing conditions remained restrictive. This was reflected in weak credit dynamics, which had dampened consumption and investment, and thereby economic activity more broadly. The past monetary policy tightening had gradually been feeding through to consumer prices, thereby supporting the disinflation process. There were many other reasons why monetary policy was still working its way through the economy, with research suggesting that there could be years of lagged effects before the full impact dissipated completely. For example, as firms’ and households’ liquidity buffers had diminished, they were now more exposed to higher interest rates than previously, and banks could, in turn, also be facing more credit risk. At the same time, with the last interest rate hike already a year in the past, the transmission of monetary policy was expected to weaken progressively from its peak, also as loan and deposit rates had been falling, albeit very moderately, for almost a year. The gradually fading effects of restrictive monetary policy were thus expected to support consumption and investment in the future. Nonetheless, ongoing uncertainty about the transmission mechanism, in terms of both efficacy and timing, underscored the continuing importance of monitoring the strength of monetary policy transmission. Monetary policy decisions and communication Against this background, members considered the proposal by Mr Lane to lower the deposit facility rate – the rate through which the Governing Council steered the monetary policy stance – by 25 basis points. As had been previously announced on 13 March 2024, some changes to the operational framework for implementing monetary policy would also take effect from 18 September. In particular, the spread between the interest rate on the main refinancing operations and the deposit facility rate would be set at 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations would remain unchanged at 25 basis points. Accordingly, the deposit facility rate would be decreased to 3.50% and the interest rates on the main refinancing operations and the marginal lending facility would be decreased to 3.65% and 3.90% respectively. Based on the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it was now appropriate to take another step in moderating the degree of monetary policy restriction. The recent incoming data and the virtually unchanged staff projections had increased members’ confidence that disinflation was proceeding steadily and inflation was on track to return towards the 2% target in a sustainable and timely manner. Headline inflation had fallen in August to levels previously seen in the summer of 2021 before the inflation surge, and there were signs of easing pressures in the labour market, with wage growth and unit labour costs both slowing. Despite some bumpy data expected in the coming months, the big picture remained one of a continuing disinflationary trend progressing at a firm pace and more or less to plan. In particular, the Governing Council’s expectation that significant wage growth would be buffered by lower profits had been confirmed in the recent data. Both survey and market-based measures of inflation expectations remained well anchored, and longer-term expectations had remained close to 2% for a long period which included times of heightened uncertainty. Confidence in the staff projections had been bolstered by their recent stability and increased accuracy, and the projections had shown inflation to be on track to reach the target by the end of 2025 for at least the last three rounds. It was also noted that the overall economic outlook for the euro area was more concerning and the projected recovery was fragile. Economic activity remained subdued, with risks to economic growth tilted to the downside and near-term risks to growth on the rise. These concerns were also reflected in the lower growth projections for 2024 and 2025 compared with June. A remark was made that, with inflation increasingly close to the target, real economic activity should become more relevant for calibrating monetary policy. Against this background, all members supported the proposal by Mr Lane to reduce the degree of monetary policy restriction through a second 25 basis point rate cut, which was seen as robust across a wide range of scenarios in offering two-sided optionality for the future. Looking ahead, members emphasised that they remained determined to ensure that inflation would return to the 2% medium-term target in a timely manner and that they would keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. They would also continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. There should be no pre-commitment to a particular rate path. Accordingly, it was better to maintain full optionality for the period ahead to be free to respond to all of the incoming data. It was underlined that the speed at which the degree of restrictiveness should be reduced depended on the evolution of incoming data, with the three elements of the stated reaction function as a solid anchor for the monitoring and decision-making process. However, such data-dependence did not amount to data point-dependence, and no mechanical weights could be attached to near-term developments in headline inflation or core inflation or any other single statistic. Rather, it was necessary to assess the implications of the totality of data for the medium-term inflation outlook. For example, it would sometimes be appropriate to ignore volatility in oil prices, but at other times, if oil price moves were likely to create material spillovers across the economy, it would be important to respond. Members broadly concurred that a gradual approach to dialling back restrictiveness would be appropriate if future data were in line with the baseline projections. This was also seen to be consistent with the anticipation that a gradual easing of financial conditions would support economic activity, including much-needed investment to boost labour productivity and total factor productivity. It was mentioned that a gradual and cautious approach currently seemed appropriate because it was not fully certain that the inflation problem was solved. It was therefore too early to declare victory, also given the upward revisions in the quarterly projections for core inflation and the recent upside surprises to services inflation. Although uncertainty had declined, it remained high, and some of the key factors and assumptions underlying the baseline outlook, including those related to wages, productivity, profits and core and services inflation, still needed to materialise and would move only slowly. These factors warranted close monitoring. The real test would come in 2025, when it would become clearer whether wage growth had come down, productivity growth had picked up as projected and the pass-through of higher labour costs had been moderate enough to keep price pressures contained. At the same time, it was argued that continuing uncertainty meant that there were two-sided risks to the baseline outlook. As well as emphasising the value of maintaining a data-dependent approach, this also highlighted important risk management considerations. In particular, it was underlined that there were alternative scenarios on either side. For example, a faster pace of rate cuts would likely be appropriate if the downside risks to domestic demand and the growth outlook materialised or if, for example, lower than expected services inflation increased the risk of the target being undershot. It was therefore important to maintain a meeting-by-meeting approach. Conversely, there were scenarios in which it might be necessary to suspend the cutting cycle for a while, perhaps because of a structural decline in activity or other factors leading to higher than expected core inflation. Turning to communication, members agreed that it was important to convey that recent inflation data had come in broadly as expected, and that the latest ECB staff projections had confirmed the previous inflation outlook. At the same time, to reduce the risk of near-term inflation data being misinterpreted, it should be explained that inflation was expected to rise again in the latter part of this year, partly as a result of base effects, before declining towards the target over the second half of next year. It should be reiterated that the Governing Council would continue to follow a data-dependent and meeting-by-meeting approach, would not pre-commit to a particular rate path and would continue to set policy based on the established elements of the reaction function. In view of the previously announced change to the spread between the interest rate on the main refinancing operations and the deposit facility rate, it was also important to make clear at the beginning of the communication that the Governing Council steered the monetary policy stance through the deposit facility rate. Members also agreed with the Executive Board proposal to continue applying flexibility in the partial reinvestment of redemptions falling due in the pandemic emergency purchase programme portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 12 September 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 11-12 September 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Cipollone Mr Demarco, temporarily replacing Mr Scicluna* Mr Elderson Mr Escrivá Mr Holzmann* Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta Mr Patsalides Mr Rehn Mr Reinesch Ms Schnabel Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau* Mr Vujčić Mr Wunsch * Members not holding a voting right in September 2024 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Ms Bénassy-Quéré Mr Gavilán Mr Haber Mr Horváth Mr Kroes Mr Luikmel Mr Lünnemann Mr Madouros Mr Nicoletti Altimari Mr Novo Ms Papageorghiou Mr Rutkaste Ms Schembri Mr Šiaudinis Mr Šošić Mr Tavlas Mr Ulbrich Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 14 November 2024. Related topics Monetary policy Policies Disclaimer Please note that related topic tags are currently available for selected content only. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 16-17 October 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Ljubljana on Wednesday and Thursday, 16-17 October 2024 14 November 2024 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that since the Governing Council’s previous monetary policy meeting on 11-12 September 2024, policy rate expectations had shifted back and forth. Incoming data had made it challenging for market participants to price in the speed and extent of both disinflation and the monetary policy easing cycle. The key drivers of financial market developments since the September meeting had been a sluggish euro area economy, a robust US economy and rising and volatile commodity prices. The combination of weaker euro area macroeconomic data and higher commodity prices had affected the market’s view of the inflation outlook and the perceived balance of risks to inflation. Inflation fixings (swap contracts linked to monthly releases of the Harmonised Index of Consumer Prices excluding tobacco) had recently shifted upwards significantly, reversing part of the decline seen following the Governing Council’s July meeting, when energy prices had dropped notably. These swings in investors’ view of the inflation outlook illustrated the significant impact of energy prices on inflation expectations. At the same time, market-based indicators of risks to inflation based on option pricing remained tilted to the downside over the near and medium term, although they had become more balanced recently, while risks to the longer-term inflation outlook had become tilted to the upside again. Incoming data for the euro area had also had a significant impact on monetary policy expectations. Market participants currently expected front-loaded rate cuts, with a 25 basis point rate cut at the current meeting and another cut in December 2024 fully priced in. But they also expected a more contained rate-cutting cycle overall, with lower total cuts from March 2025 onward and a higher terminal rate compared with expectations in September 2024. Participants in the Survey of Monetary Analysts (SMA) held broadly similar views on the near-term outlook for interest rates to those of markets, with some deviations as of the second half of 2025. The reappraisal of the expected policy rate path had been much more pronounced in the United States, where market participants had notably revised up their expectations regarding the terminal policy rate. Expectations regarding the ECB’s terminal rate had also been pulled higher, albeit by less than in the United States, reflecting the weaker incoming macroeconomic data for the euro area. This had increased the divergence between the two terminal rates. At the same time, the uncertainty in rate markets, as measured by the dispersion of analysts’ forecasts for three-month forward interest rates one year ahead, had remained higher than the historical average in both the euro area and the United States, indicating that uncertainty around the policy rate path remained material. The decomposition of changes in the risk-free rate curve in the euro area and the United States into inflation compensation and real rates showed that nominal rates had increased for medium and longer-term maturities in both currency areas. However, the rise had been much more pronounced in the United States, on the back of a stronger increase in both inflation compensation and real rates. In the euro area, the repricing of the inflation outlook had put upward pressure on risk-free rates, with inflation compensation rising significantly across maturities. By contrast, euro area real interest rates had declined across maturities, with the most pronounced drop at the short end of the curve, implying a further loosening of financing conditions. Almost the entire euro area real rate curve was currently close to neutral territory. Bond investors at present expected a soft landing in the euro area with the policy rate moving back to a broadly neutral level. This view was supported by recent equity market developments, as major equity market indices had risen significantly in September and October. Developments in corporate bond markets also suggested that investors had shrugged off the weakening of the euro area economy. Corporate bond spreads had declined across the board, with the sharpest decline observed for high-yield non-financial corporate bonds. This was partly supported by a benign outlook for default rates in the corporate sector. Sovereign spreads relative to the German Bund, other than for French bonds, had declined over the inter-meeting period. All in all, there had been a broad-based and pronounced easing of financial conditions since the Governing Council’s previous monetary policy meeting. This was driven by lower short-end real rates, higher equity prices and the weakening of the euro by 1% against the US dollar, in line with developments in the two-year yield differential between the euro area and the United States. Regarding recent dynamics in money market rates, the pass-through of changes in policy rates to money market rates had been effective. At the same time, the gradual upward drift in repo rates relative to the deposit facility rate over the past few months had brought secured rates into the close vicinity of the deposit facility rate, which had not happened since 2020. By contrast, the spread between the unsecured euro short-term rate (€STR) and the deposit facility rate had remained broadly stable. Several factors could explain the counterintuitive situation of borrowing cash being cheaper in the unsecured market than in the secured market. The dominant factor appeared to have been the significant improvement in collateral availability, partly as a consequence of the reduction in the Eurosystem’s market footprint. In contrast, there had been little evidence so far of upward pressure on repo rates stemming from liquidity shortages. In addition, factors related to regulation and market microstructure had limited the ability of cash lenders to arbitrage between secured and unsecured markets, with only a few lenders active across both markets. Since the narrowing of the spread between the rate on the main refinancing operations and the deposit facility rate to 15 basis points as of 18 September 2024 there had been only limited recourse to the Eurosystem’s standard refinancing operations, as market-based funding had remained attractive. The global environment and economic and monetary developments in the euro area Starting with inflation in the euro area, Mr Lane recalled that headline inflation had been 1.8% in September according to the Eurostat flash estimate (subsequently revised down to 1.7% in the final release, which became available on 17 October), substantially lower than in August and below the path foreseen in the September ECB staff macroeconomic projections. The downside surprise largely reflected a drop in energy inflation, but core inflation had also played a role. This, in turn, was due to downside surprises in goods inflation and – to a lesser degree – services inflation. With respect to underlying inflation, the exclusion-based indicators that were already available for September had moved down. Meanwhile, the underlying inflation indicators available up to August had eased or were stable. The Persistent and Common Component of Inflation (PCCI) remained at the bottom of the range, at 2.0%. The higher levels of some of the other measures reflected their more backward-looking nature at a time when the propagation of past shocks was still ongoing. The domestic inflation indicator, in particular, remained high at 4.4%, as it mainly covered services items. However, taken together, the month-on-month seasonally adjusted services inflation rates for August and September were closer to the long-term average, suggesting a moderation in inflation dynamics compared with earlier in the year. Services inflation remained high but was expected to decelerate. This prediction was supported for example by the PCCI for the services component. Services PCCI had stood at around 2.4% since the start of the year – reflecting that a significant part of services inflation, at around 4%, was due to backward-looking elements and one-off factors. For example, large increases in insurance fees at the start of 2024 had continued to push up the annual services inflation rate, but would lead to negative base effects at the start of 2025. Historically, such increases had not been signals for future inflation in the services segment. This implied that services inflation should over time converge to the level of services PCCI, as those one-off factors dropped out of the data. The incoming data and signals for wage growth in 2025 were either in line with or below the September projections. Forward-looking wage trackers were broadly in line with the September projections and pointed to an easing of wage growth in 2025. Survey indicators also suggested a marked deceleration in wage growth in the coming year. After the recent downside surprises to inflation, the December Eurosystem staff projections would allow a comprehensive assessment of the inflation outlook. Headline inflation was expected to rise again later in 2024, before declining to target in the course of 2025, earlier than had been foreseen before. The latest expert surveys indicated inflation rates for 2024 and 2025 that were below the September projections baseline. The inflation expectations of euro area firms and consumers had also declined across all horizons. Turning to the external environment, global growth momentum was broadly steady but also uneven. The global composite Purchasing Managers’ Index (PMI) excluding the euro area had fallen to 52.5 in September, from 53.2 in August. While services had remained resilient, manufacturing output had stagnated. The deceleration appeared to be driven by a fading of the inventory build-up seen earlier in the year. Global import growth was likely to moderate following the frontloading of orders in the second quarter, but an overall environment of robust growth should support trade towards the end of the year. The euro had remained broadly stable in nominal effective terms since the Governing Council’s previous monetary policy meeting. Both oil and gas prices had increased since then, but the futures curve for oil prices continued to be downward-sloping. The latest data from the International Energy Agency suggested a positive supply balance for oil throughout 2025, which supported a decrease in oil prices in 2025. For the euro area, the incoming information suggested that economic activity had been weaker than expected. The euro area composite output PMI had fallen to 49.6 in September from 51.0 in August. The deterioration in the PMI was broad-based across countries and sub-indices. The interest rate-sensitive manufacturing sector had contracted further, with the manufacturing output PMI falling to 44.9 in September from 45.8 in August. The services sector continued to expand but the pace of expansion was slowing, with the PMI for services activity declining to 51.4 in September from 52.9 in August, partly reflecting an unwinding of the Olympic Games-related boost to services in August. These latest readings signalled a weaker near-term outlook than had been foreseen in the September projections. Household incomes had risen in the second quarter, but the available data indicated that household consumption had fallen quarter on quarter in real terms, surprising to the downside. The saving rate had stood at 15.7% in the second quarter, well above the pre-pandemic average of 12.9%. The elevated saving rate likely reflected the higher real returns on savings, efforts to recuperate losses in real net wealth and strong growth in non-labour income, for which the marginal propensity to consume was low. To the extent that consumption only responded to an increase in income with a lag, the high saving rate might also include a temporary component. Indeed, survey evidence pointed to a gradual recovery in household spending. Retail sales had edged up in August, while the European Commission’s consumer confidence indicator had risen in September. Housing investment seemed to be close to a trough and should be supported by lower financing costs and the recovery in house prices, but the outlook for business investment was more uncertain. According to the ECB’s latest contacts with non-financial companies, weak demand, loss of competitiveness and increasing concerns about the uncertain regulatory environment for the green transition were causing firms to delay investment and instead focus on efficiency and cost-cutting. With respect to external trade, euro area exports were decreasing, reflecting a declining market share for the euro area linked to a loss in competitiveness. The recent decline in the PMI for new export orders indicated that the situation was unlikely to improve in the near term. The expert surveys pointed to a growth outlook that was somewhat weaker than the September baseline. The ECB’s SMA reported growth projections for 2024, 2025 and 2026 that were, respectively, 0.1, 0.2 and 0.3 percentage points below the September projections. The growth projections of the ECB’s Survey of Professional Forecasters and Consensus Economics respondents stood 0.1 percentage points below the baseline for each of the three years. With respect to fiscal policies, new draft budgetary plans had just been announced for many but not all euro area countries. The labour market remained resilient and the incoming information was consistent with the near-term outlook in the September projections. The unemployment rate had stayed at its historical low of 6.4% in August. However, surveys pointed to slowing employment growth and a further moderation in the demand for labour. Turning to monetary and financial analysis, shorter-term market interest rates had declined since the Governing Council’s previous monetary policy meeting, owing mainly to weaker news about the euro area economy and the further fall in inflation. While financing conditions remained restrictive, the average interest rates on new loans to firms and on new mortgages had fallen slightly in August, to 5.0% and 3.7% respectively. Growth in lending to households showed early signs of improvement. According to the latest euro area bank lending survey, credit standards for mortgages had eased for the third quarter in a row, owing especially to greater competition among banks. Lower interest rates and better housing market prospects had led to a strong increase in the demand for mortgages. In line with this, mortgage lending had picked up slightly, growing at an annual rate of 0.6% in August. Banks expected similar developments in demand for housing loans in the fourth quarter of the year. Growth in lending to firms and demand for bank loans by firms remained weak. The bank lending survey for the third quarter of 2024 confirmed that credit standards for loans to firms had remained at the restrictive levels reached after more than two years of progressive tightening. While banks had reported zero net tightening in credit standards for business loans for the first time since mid-2021, they had cited risk perceptions related to the general economic and firm-specific outlooks as factors tending towards a tightening of credit conditions. Banks had reported a moderate net increase in the demand for loans to firms for the first time in two years, driven mainly by declining interest rates and a muted contribution from fixed investment. Overall, lending to firms continued to be subdued, growing at an annual rate of 0.8% in August, which had been driven by monthly flows that had been broadly fluctuating around zero since the start of the year. Looking ahead to the fourth quarter of the year, banks expected a renewed but moderate tightening of credit standards and a further net increase in loan demand by firms. Monetary policy considerations and policy options In summary, the incoming information on inflation showed that the disinflationary process was well on track. Indicators of economic activity had surprised somewhat to the downside, further weighing on the inflation outlook. Meanwhile, financing conditions remained restrictive. Inflation was expected to rise in the coming months before declining to target in the course of 2025. Domestic inflation remained high, as wages were still rising at an elevated pace. At the same time, labour cost pressures were set to continue easing gradually, with profits partially buffering their impact on inflation. Overall, the incoming information suggested that the downside risks to the growth outlook in the September baseline, with the associated weakening of inflation pressures, had become more prominent. Based on this assessment, Mr Lane proposed that the Governing Council lower the deposit facility rate – the rate through which it steered the monetary policy stance – by 25 basis points. In line with the operational framework, this meant that the rate on the main refinancing operations and the rate on the marginal lending facility would also be lowered by 25 basis points. This proposal was motivated by prudent risk management. If the slowdown signalled by indicators of economic activity and the downside surprise to inflation proved to be temporary, a decision to cut rates at the October meeting could, ex post, turn out as merely having brought forward a December cut. By contrast, if the data suggested a more persistent weakness, which confirmed a stronger disinflationary process, cutting at the current meeting would, ex post, signal a nimble adjustment of policy to changing macroeconomic conditions. Retaining full optionality was therefore important and acted as a hedge against the materialisation of risks in either direction to the growth and inflation outlooks. In its communication, the Governing Council should therefore continue to refrain from giving guidance about the speed and scale of monetary easing at future meetings. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note that nowcasts pointed to steady growth in global activity in the second half of 2024, which supported the expectation of a pick-up in world trade. Members widely stressed the uncertainty surrounding the external environment. This was suggested by, among other things, the latest survey data, which included a decline in the global PMI for output in both manufacturing and services, albeit still in expansionary territory. The US economy had proven more robust than expected. For China it was noted that growth could be expected to benefit from monetary and fiscal stimulus, but at the same time it was cautioned that the need for such stimulus could point to economic fragilities. This was also significant for commodity price dynamics, since China was an important source of demand. Furthermore, geopolitical conflicts such as the situation in the Middle East remained a major source of uncertainty, not only via direct effects on oil prices and shipping costs but also by dampening confidence. With regard to economic activity in the euro area, members concurred that the incoming information suggested growth had been somewhat weaker than expected. While industrial production had been particularly volatile over the summer months, surveys indicated that manufacturing had continued to contract. For services, surveys showed an uptick in August, likely supported by a strong summer tourism season, but the latest data pointed to more sluggish though continued growth. Businesses were increasing investment only slowly, while housing investment continued to fall. Exports had weakened, especially goods exports. Although household incomes had risen in the second quarter, consumption had remained weak. The saving rate had stood at 15.7% in the second quarter, well above its pre-pandemic average. At the same time, recent survey evidence pointed to a gradual recovery in household spending. The economy was expected to strengthen over time, as rising real incomes allowed households to consume more. The gradually fading effects of restrictive monetary policy were expected to support consumption and investment, and exports were expected to contribute to the recovery as global demand rose. The weaker incoming data were seen to increasingly raise the question of what should drive the projected economic expansion. It was remarked that none of the demand components – consumption, investment or exports – had as yet shown the strengthening that was foreseen in the September staff projections. In particular, questions were raised on the consumption-led growth in economic activity in the projections, with the data pointing to a substantial increase in the saving rate instead. Different explanations were offered for the increase in the saving rate. These included relatively elevated interest rates encouraging a postponement in consumption, savings set aside for refinancing fixed rate loans – taken out in times of very low interest rates – at higher interest rates, as well as the uncertainty related to the outlook for fiscal policies and the possibility of Ricardian effects, i.e. people saving more in anticipation of higher taxes to service higher public debt. Such factors would dampen the positive impact that higher real disposable incomes should have on consumption in the short term. At the same time, it was considered plausible that higher real disposable income would, after a delay, eventually translate into higher consumption. Indicators supporting this narrative were the continued upward trend in consumer confidence, albeit from low levels, the uptick in retail sales and the recent higher demand for consumer credit. Comfort was also drawn from the observation that the interest rate-sensitive housing market appeared to have reached a turning point, with house prices rising again and demand for mortgages increasing measurably. With respect to the weakness in investment, it was underlined that this not only constrained domestic demand but also hampered capital deepening and challenged the narrative of a rapid pick-up in productivity embedded in the projections. It was recalled that investment typically hinged to a large extent on prospects for demand, and demand was seen as remaining particularly subdued at a time when geopolitical and structural factors were increasing uncertainty for exports and the manufacturing sector. Transmission of past monetary policy tightening was therefore only one factor holding back investment. This also meant that monetary policy easing alone would not lead to a decisive turnaround, especially if the root causes were structural, such as overregulation, or related to political uncertainty. However, it was argued that evidence of sluggish consumption and investment did not contradict expectations of a soft landing for the economy, and the available information did not suggest that the euro area was heading for a recession. In this context, it was noted that the negative news came mainly from soft survey data, while new hard data had been limited and had been giving contradictory signals. Reference was made in this respect to the upward surprise in industrial production for August, which contrasted with the weaker PMI survey for September. At this stage, concerns thus related mainly to downside risks to the September projections rather than to a need to revise the baseline. In this context, it was also recalled that growth rates had remained dispersed across euro area countries. In particular, the point was made that the headwinds facing the largest euro area economy reflected mainly structural weaknesses in the manufacturing sector, in conjunction with high energy costs and losses in price competitiveness. The labour market had remained resilient. The unemployment rate had stayed at the historical low of 6.4% in August. However, surveys pointed to slowing employment growth and a further moderation in demand for labour. It therefore remained crucial to monitor labour market developments, including looking at evidence of labour hoarding (which could also affect productivity). Job vacancies were declining, and it was argued that the associated easing of labour market tightness would imply fewer incentives for firms to hoard labour. The concern was raised that, with companies starting to shed labour in some countries, a tipping point could be reached, even though the aggregate euro area unemployment rate had remained stable so far at a historically low rate and had surprised on the downside. Members reiterated their call for fiscal and structural policies to be aimed at making the economy more productive, competitive and resilient. That would help to raise potential growth and reduce price pressures in the medium term. To this end, it was crucial to swiftly follow up, with concrete and ambitious structural policies, on Mario Draghi’s proposals for enhancing European competitiveness and Enrico Letta’s proposals for empowering the Single Market. Implementing the EU’s revised economic governance framework fully, transparently and without delay would help governments bring down budget deficits and debt ratios on a sustained basis. Governments should now make a strong start in this direction in their medium-term plans for fiscal and structural policies. It was noted that the reformed fiscal governance framework allowed an appropriate balance between fiscal consolidation and the necessary investment in growth-enhancing reforms. Draft budgetary plans were currently being submitted to the European Commission and should be closely assessed in time for the Governing Council’s December monetary policy meeting. Concern was expressed that the multi-year nature of the plans and the focus on the years ahead could leave 2024 as a year with still excessive fiscal spending. In this context, it was recalled that the higher fiscal expenditure and deficits induced by the pandemic and the energy price shock following Russia’s invasion of Ukraine had been meant to be transitory and that more fading-out should have been observed already. With limited fiscal space available looking ahead, it was widely felt that even more emphasis needed to be put on structural policies that fostered economic activity by enhancing the growth potential. Against this background, members assessed that the risks to economic growth remained tilted to the downside. Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by sources of geopolitical risk, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which could also disrupt energy supplies and global trade. Lower demand for euro area exports due, for instance, to a weaker world economy or an escalation in trade tensions between major economies would further weigh on euro area growth. Growth could also be lower if the lagged effects of monetary policy tightening turned out stronger than expected. Growth could be higher if the world economy grew more strongly than expected or if easier financing conditions and declining inflation led to a faster rebound in consumption and investment. With regard to price developments, members concurred that the incoming information on inflation showed that the disinflationary process was well on track. Annual inflation had fallen further to its lowest level since April 2021, mainly driven by energy base effects and lower than expected energy prices. There was wide agreement that the incoming data since the September meeting had increased confidence in an ongoing disinflation process and that inflation would converge to the medium-term target. In discussing the latest information, it was noted that the outcome for headline inflation in September 2024 would imply a lower inflation path than had been expected in the September staff projections and therefore signalled a downside risk. This also implied that the 2% target could be reached earlier in 2025, after a temporary bump around the turn of the year, and pointed in the same direction as the latest market and analyst expectations, which saw inflation below target in 2025. At the same time, it was observed that the low September outcome for headline inflation largely reflected energy price developments, which were notoriously volatile. Against this background, it was cautioned against using short-term movements in headline inflation as a guide for the medium-term outlook. Indeed, progress in core inflation had been more limited. The view was expressed that despite downward surprises and outcomes below target it was too early to declare victory in terms of a timely and sustainable return to target. Reference was made to the fact that services inflation was still hovering at rates around 4%. A note of caution was expressed that, although the momentum of services price dynamics had come down, it still remained high. At the same time, services inflation was still being kept high by items that typically adjusted sluggishly or that were indexed to past inflation. This upward impact would, however, naturally fade as inflation converged to 2%. Assessing the outlook for services inflation was seen to warrant close monitoring of wage developments. Overall wage growth had been lower than expected, though negotiated wage growth was expected to be high and volatile for the rest of the year before moderating in 2025. The ECB’s forward-looking wage tracker corroborated expectations in the September projections that wage pressures would ease in 2025. Reference was made to wage tracker scenarios putting wage growth below 3% in the second half of 2025, implying that it would not exert cost pressures. However, it was recalled that most of the moderation in wage growth had yet to materialise. Whether wage growth would fall as expected would also depend on the perception of real wages and the accumulated loss of purchasing power across sectors and countries. As regards longer-term inflation expectations, members took note that most measures of longer-term inflation expectations were standing at around 2%. It was pointed out that a large majority of participants in the Survey of Professional Forecasters believed that inflation would in the longer term be right at the 2% target. In this context, it was argued that recent movements in longer-term market-based measures of inflation compensation needed to be assessed with some caution, as they appeared to have been driven by the high volatility of energy prices. Against this background, members assessed that there were both upside and downside risks to inflation. Inflation could turn out higher than anticipated if wages or profits increased by more than expected. Upside risks to inflation also stemmed from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices. By contrast, inflation might surprise on the downside if low confidence and concerns about geopolitical events prevented consumption and investment from recovering as fast as expected, monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. It was argued that the downside risks to economic growth implied downside risks to the inflation outlook, reflecting a natural correlation of risks, at least in the case of demand shocks. There were still upside and downside risks, but it was felt that the upside risk had become less intense and the downside risk more pronounced. However, it was stressed that geopolitical conflicts remained a significant source of upside risk because of their implications for energy prices, as shown by the way that the volatility of energy prices had affected the inflation outcome in September. It was argued that, excluding geopolitical risk, the risk on the upside had receded substantially. Turning to the monetary and financial analysis, members noted that shorter-term market interest rates had declined since the Governing Council’s September monetary policy meeting, owing mainly to weaker news on the euro area economy and the further fall in inflation, but market participants also expected a less extensive rate-cutting cycle overall. Market participants were now pricing in a 25 basis point rate cut for the October meeting and another 25 basis point cut in December. The change in market expectations and sentiment had been rapid and substantial since the September meeting, when the next rate cut had generally not been expected until December. Expected real interest rates (based on the expectations for inflation and interest rates embodied in market pricing) had declined across maturities since the time of the previous meeting, with the most pronounced drop at the short end of the curve. While still positive, expected real interest rates were now relatively low across the maturities beyond the very short term, with medium and longer-term real interest rates now well within the range of neutral estimates. Broader financial conditions had eased since the previous meeting, driven by stronger equity markets, tighter credit spreads for both corporate and sovereign bonds and a weaker euro exchange rate, in addition to lower short-term market interest rates. The reduction in policy rates in September had been transmitted smoothly to money market interest rates and there had been only a limited increase in the take-up in the main refinancing operations after the narrowing of the spread between the interest rate on the main refinancing operations and the deposit facility rate, which was seen as a successful outcome of the changed operational framework for implementing monetary policy. Repo rates had recently been increasing relative to the deposit facility rate. This was mainly driven by a reduction in collateral scarcity and the smaller Eurosystem footprint in financial markets rather than by the gradual reabsorption of excess liquidity. The Eurosystem’s new operational framework was seen as well prepared to tame a potential increase in money market volatility. In any case, money markets warranted continuous monitoring. Financing conditions remained restrictive, although the average interest rates on new loans to firms and on new mortgages had fallen slightly in August. This suggested that the pass-through of past policy rate increases had gradually started to fade and provided an initial indication that bank lending rates would ease from restrictive levels. In this regard, it was observed that the limited easing of bank lending rates appeared to be a mirror image of the slower tightening in the banking system than in financial markets when interest rates had been increasing. In addition, balance sheet normalisation, including the close to complete repayment of targeted longer-term refinancing operations and the continued gradual roll-off of the asset portfolio, was inducing banks to maintain deposit rates at an elevated level. Still, banks were likely to adjust their funding mix in response to the revised interest rate outlook, which would affect the speed of monetary policy transmission. Overall, bank lending conditions still appeared to be relatively tight, while showing some signs of a softening. According to the latest bank lending survey, credit standards for business loans had been unchanged in the third quarter after more than two years of progressive tightening. In addition, credit standards for mortgages had eased for the third quarter in a row, owing especially to greater competition among banks. The demand for loans by firms had risen for the first time in two years, while lower interest rates and better housing market prospects had led to a particularly strong increase in the demand for mortgages. These developments were seen as a positive signal for a recovery in economic growth and could also indicate that the dampening effects of high interest rates were gradually fading. In addition, the measurable increases in mortgage demand were a first sign that the recent cuts in interest rates and looser financing conditions were starting to be transmitted to the economy, given the high interest rate-sensitivity of the housing sector. It was also suggested that these developments could be the beginning of a more sustained turnaround that might help to stabilise the household saving rate and even start to bring it down, in a context of rising loans for consumption. It was also argued, however, that, while the bank lending survey was less negative than had been expected, it was doubtful that the pick-up in loan demand marked a major turnaround. Credit growth had remained sluggish overall. Mortgage lending had picked up slightly, to grow at an annual rate of 0.6% in August, while consumer credit was growing more robustly at 3.1%. Lending to firms continued to be subdued, growing at an annual rate of 0.8% in August, on the back of two consecutive months of negative net flows. At the same time, while many firms were reliant on banks, enterprises had responded to the easing in broader financial conditions by increasingly tapping bond and equity markets, so it was important to consider their overall external financing beyond bank loans. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the previous monetary policy meeting in accordance with the three main elements that the Governing Council had communicated in 2023 as shaping its reaction function. These comprised (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Starting with the inflation outlook, year-on-year inflation was expected to rise in the coming months, partly because previous sharp falls in energy prices would drop out of the annual rates. Nonetheless, inflation was expected to decline to target in the course of next year. This continuing disinflationary process should be supported by easing labour cost pressures and the past monetary policy tightening gradually feeding through to consumer prices. Most measures of longer-term inflation expectations remained well anchored, standing at around 2%. Members broadly concurred with the assessment of the incoming inflation information, which showed that the disinflationary process was well on track. Headline inflation had turned out lower than expected in September and was close to target. The upside risks to inflation were now also seen as lower, although they were still present and needed careful monitoring. The downside risks were higher and were affected by subdued economic conditions. This was underlined by the recent weaker than expected readings in indicators of economic activity. As a result, inflation would probably now reach the 2% target somewhat earlier. It could thus be lower in 2025 than previously expected. There was therefore broad agreement that the convergence of inflation to the ECB’s medium-term target was well on track and that the configuration of upside and downside risks had become more balanced. A range of views were expressed about the extent to which the baseline outlook for inflation had been affected, but a more comprehensive reassessment would be undertaken alongside the December projections. Members would then see more clearly to what extent weaker growth, if persistent, affected the future path of disinflation. It would then also be seen whether the projected consumption-led recovery was materialising. It was stressed that the incoming information had been limited. It should therefore be seen as broadly confirming the inflation outlook contained in the September projections for 2025 and beyond, with only a slight acceleration in the disinflationary trajectory. At the same time, it was recalled that the staff projection for 2025 inflation had been revised up slightly over the past two projection rounds, so recent developments might imply only a reversal of these upward revisions. A large, persistent undershooting of the 2% inflation target requiring a sustained policy response remained unlikely. This was mainly because structural inflationary trends such as geopolitical fragmentation and climate change were likely to lead to more frequent adverse supply shocks. Such a scenario of undershooting probably required a combination of factors that were not yet present. These included disappointing economic growth that moved into recessionary territory, a weakening in the financial system, wage pressures fading away and a downward shift in inflation expectations. By contrast, it was also suggested that the change in the inflation outlook had been more significant, with recent downside surprises and rapid changes in market expectations pointing to an increasing risk of undershooting the target in the course of 2025, possibly in a sustained manner, especially if wage growth moderated substantially. This could now be seen as a greater risk than overshooting the target. Turning to underlying inflation, members noted that most measures had either declined or were unchanged. Domestic inflation was still elevated, as wage pressures in the euro area remained strong. At the same time, it was important to consider the full range of underlying inflation indicators. Of these, only domestic inflation remained substantially above 2%, while the PCCI was firmly anchored at 2%. There was also a case for placing greater emphasis on more forward-looking indicators of underlying inflation. Core inflation had fallen in September, although it remained relatively high and there was still fairly limited progress in its overall recent trend. The developments in domestic and core inflation were partly linked to persistently high services inflation. Nevertheless, there had recently been some positive signs, which could suggest that the worst had passed. For example, for the first time since the surge in inflation, little or no incremental price inflation had been recorded in services (when base effects were excluded) and services inflation momentum was declining, albeit from high levels. It was argued, however, that more readings would be needed for a clearer picture and that key data confirming a significant decline in domestic and services inflation would only arrive in the first half of 2025. Labour cost dynamics would also continue to be a key concern for domestic inflation, and wage pressures needed to be carefully monitored. Despite slight declines, wage growth was still elevated and was expected to remain high and volatile for the rest of the year, given the significant role of one-off payments and the staggered nature of wage adjustments. At the same time, labour cost pressures were set to continue easing gradually, with wage growth likely to moderate and profits partially buffering their impact on overall inflation. Again, it was stressed that key data confirming a significant deceleration in wage growth and unit labour costs would likely only arrive in 2025, also in view of disappointing productivity growth. Finally, members generally agreed that monetary policy transmission from the past tightening continued to dampen economic activity, even though some signs of easing were already starting to be visible, as restrictiveness was gradually but progressively withdrawn. Financing conditions remained restrictive and continued to weigh overall on consumption and investment, and this exerted downward pressure on growth and inflation. At the same time, with the recent easing in monetary and financial conditions and the recent decline in expected real interest rates across much of the maturity spectrum, the policy stance might be approaching the estimated neutral territory earlier than previously thought. It was underlined that transmission from past monetary tightening was ongoing, owing to various lags, even as the first effects of easing materialised. Many holders of fixed rate mortgages, for example, had not yet seen their interest rates increase. However, mortgage payments were still set to go up, even if interest rates were now falling in aggregate, because the mortgages had been taken out when interest rates were very low. It was suggested that savings might have been more responsive to interest rates than implied by models estimated on the small changes observed in the past, whereas the increases in interest rates had been very large and rapid to counter the recent inflation surge. It was also argued that high interest rates continued to weigh on investment, even with longer-term real interest rates now in neutral territory. In this context, continuing restrictiveness at the short end of the yield curve could be dampening aggregate demand by more than implied by models. Finally, it was emphasised that the strength of monetary policy transmission interacted with the weakness of the economy, for example making banks more reluctant to lend. At the same time, the gradually fading effects of restrictive monetary policy were expected to support consumption and investment in the future. There were also initial signs that the recent easing of monetary policy restriction and the anticipation of more to come were starting to be transmitted to the economy in the interest rate-sensitive housing sector, in line with its quick responsiveness to the start of the hiking cycle in 2022. Looking ahead, other cyclical components such as the construction sector would probably be supported and demand more generally should be boosted by the easing of financial conditions, while manufacturing sectors facing structural challenges were unlikely to benefit as much. Still, the recent easing of restriction would need time to work its way through the economy and the lagged effects from past rate hikes would extend beyond the end of 2024. Monetary policy decisions and communication Against this background, members considered the proposal by Mr Lane to lower the three key ECB interest rates by 25 basis points. In particular, based on the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it was now appropriate to take another step in moderating the degree of monetary policy restriction by lowering the deposit facility rate – the rate through which the Governing Council steered the monetary policy stance. The incoming information on inflation had shown that the disinflationary process was well on track. There was increasing confidence that inflation would converge to the 2% medium-term inflation target in a timely manner. The disinflationary trend was getting stronger, becoming more robust and gaining momentum. Recent inflation figures had been weaker than expected and had now fallen – albeit temporarily – below target. The latest reading was seen as a continuation of a sequence, while it was contended that the fall in September, mainly linked to lower energy prices, was insufficient by itself to justify a rate cut. Wage growth had been evolving broadly in line with the projections. There were also initial signs of improvement in services inflation, as well as indications that services and domestic inflation would decline materially in the coming year. Among measures of underlying inflation, only domestic inflation continued to be substantially above 2%. Comfort could also be drawn from the recent performance and stability of the staff inflation projections, which had improved over the past year. In addition, inflation expectations across a range of measures were well anchored at about 2%. At the same time, it was still too early to declare victory in the fight against inflation, especially since the main decline in services inflation and wage growth had yet to materialise. It was also important to see a configuration of wages, productivity growth and profit margins that was consistent with not only reaching the 2% target but also staying there sustainably. The inflation outlook had been affected by recent downside surprises in indicators of economic activity, and it was regarded as important that monetary policy fulfil its primary objective of price stability without harming the real economy by more than was necessary. In this context, it was maintained that the weaker growth outlook primarily reflected structural rather than cyclical demand factors, outside the realm of monetary policy. Risk management considerations were widely seen as a key element supporting a decision to cut interest rates at the current meeting. In particular, if the slowdown signalled by indicators of economic activity and the downside surprise to inflation proved to be temporary, a decision to cut rates now could, ex post, turn out as merely having brought forward a December cut. As such, there was little risk associated with cutting, especially given that interest rates would remain in restrictive territory and continue to support the disinflationary process. By contrast, if the recent data signalled a more persistent weakness, which confirmed a stronger disinflationary process, cutting today would be justified as a timely adjustment of policy to changing macroeconomic conditions. This reasoning also meant that the risks from cutting at the present meeting and potentially being too early were lower than the risks of waiting and potentially acting too late. As such, it was also contended that acting now could provide insurance against downside risks that could lead to an undershooting of the target further ahead and would support a soft landing. Furthermore, the point was made that a decision to cut interest rates now was a response to the materialisation of the downside risks identified in the past, rather than to prevailing or new risks. Against this background, all members supported the proposal by Mr Lane to reduce the degree of monetary policy restriction through a third 25 basis point rate cut. This was a data-driven decision, justified by a wide range of indicators of the inflation outlook pointing in the same direction. Moreover, it reflected an interpretation of these data trends and continuity with respect to previous cutting decisions, rather than a dependence on any individual data point. It was also consistent with the policy considerations put forward at the previous meeting, which had highlighted that the Governing Council might decide to move more quickly should the data come in weaker than anticipated. A few members initially expressed a view that they would have preferred to accrue more information and to wait until December, when a comprehensive assessment of the medium-term outlook for inflation was available. However, these members could see the precautionary risk management case for cutting now, and thus expressed their readiness to support the proposal. Looking ahead, members emphasised that they remained determined to ensure that inflation would return to the 2% medium-term target in a timely manner and that they would keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. They would also continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. There should be no pre-commitment to a particular rate path – the need for full optionality for the period ahead was reiterated – in order to be free to respond as necessary. It was underlined that the speed at which the degree of restrictiveness should be reduced depended on the evolution of incoming data, which should continue to be evaluated against all three of the established elements of the reaction function. In particular, the materialisation of different risk factors could either accelerate or decelerate the disinflationary process. Such data-dependence did not amount to data point dependence. Moreover, it was argued that the closer rates were to neutral territory, the more cautious one would have to be that monetary policy did not itself become a factor slowing down the pace of disinflation. Members also agreed with the Executive Board proposal to continue applying flexibility in the partial reinvestment of redemptions falling due in the pandemic emergency purchase programme portfolio. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 17 October 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 16-17 October 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno* Mr Cipollone Mr Demarco, temporarily replacing Mr Scicluna Mr Elderson Mr Escrivá Mr Holzmann Mr Kazāks Mr Kažimír* Mr Knot Mr Lane Mr Makhlouf Mr Müller Mr Nagel Mr Panetta* Mr Patsalides Mr Rehn* Mr Reinesch Ms Schnabel Mr Šimkus Mr Stournaras Mr Vasle* Mr Villeroy de Galhau Mr Vujčić Mr Wunsch * Members not holding a voting right in October 2024 under Article 10.2 of the ESCB Statute. Other attendees Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics Accompanying persons Mr Arpa Ms Bénassy-Quéré Mr Gavilán Mr Horváth Mr Kaasik Mr Koukoularides Mr Lünnemann Mr Madouros Ms Mauderer Mr Nicoletti Altimari Mr Novo Mr Rutkaste Ms Schembri Mr Šiaudinis Mr Sleijpen Mr Šošić Mr Tavlas Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 16 January 2025. Related topics Euro area Monetary policy Policies Disclaimer Please note that related topic tags are currently available for selected content only. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Meeting of 11-12 December 2024 Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 11-12 December 2024 16 January 2025 1. Review of financial, economic and monetary developments and policy options Financial market developments Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 16-17 October 2024, the narrative in financial markets had shifted as a result of rising trade and economic policy uncertainty. Investors had increasingly focused on the divergence in growth prospects between the euro area and the United States. This had manifested itself in a divergence of bond yield and equity price developments between the euro area and the United States, as well as a pronounced weakening of the euro against the US dollar. While the euro area near-term inflation outlook embedded in market pricing had shifted upwards, inflation compensation had declined over longer horizons. This had led investors to expect a frontloading of ECB rate cuts and a lower terminal rate. Owing to these expectations regarding the rate-cutting cycle, combined with the weakening of the euro exchange rate against the US dollar and still benign risk asset price constellations, financial conditions had loosened further. Two key factors had shaped euro area financial market developments in the inter-meeting period: the US presidential election and the surge in policy uncertainty in the two largest euro area economies. However, so far the rise in macroeconomic uncertainty had not translated into higher financial market volatility. On the contrary, market volatility had decreased since the Governing Council’s previous monetary policy meeting. But even in an environment of generally benign financial market conditions, higher economic and political uncertainty could have implications for economic sentiment, with knock-on effects on asset prices. A case in point was the weak euro area Purchasing Managers’ Index (PMI) in November 2024. Initially, after the Governing Council’s October monetary policy meeting, macroeconomic data had surprised consistently to the upside, both in the United States and in the euro area. However, the November euro area PMI – produced after the US presidential election in November – had disappointed, pulling the Citigroup Economic Surprise Index back into negative territory. Meanwhile, the equivalent index for the United States had remained firmly in positive territory. Rising uncertainty and diverging macroeconomic data had been reflected in a sharp divergence in monetary policy expectations. In the euro area, the overnight index swap (OIS) forward curve had shifted lower compared with the expectations prevailing at the time of the Governing Council’s previous monetary policy meeting. Markets currently expected a further frontloading of rate cuts and the expected terminal rate had moved lower, to 1.66%, compared with 1.84% at the time of the October meeting. Participants in the December round of the ECB Survey of Monetary Analysts (SMA) also anticipated that rate cuts would be brought forward, but they had not lowered their expectations for the terminal rate relative to the October round of the survey. In contrast, the US fed funds futures curve had moved in the opposite direction, as investors had scaled back expectations of further rate cuts by the Federal Reserve System. Whereas for most of 2024 global investors had been expecting a broadly synchronised easing cycle across economies, the picture had changed markedly, bringing the differential between the expected terminal rates of the ECB and the Federal Reserve System to almost 200 basis points. The divergence in risk-free rates between the euro area and the United States was visible across maturities. A breakdown of euro area and US OIS rates into changes in inflation compensation and real rates showed that the main driver had been a divergence in real rates. The perception of heightened downside risks to economic growth had not exerted downward pressure on near-term inflation expectations as reflected in inflation fixings (swap contracts linked to specific monthly releases in euro area year-on-year HICP inflation excluding tobacco). The latest inflation fixings had shifted upwards significantly, reversing part of the previous decline, and were currently close to 2% – converging with the inflation trajectory implicit in the December Eurosystem staff projections. Over the longer term, five-year forward inflation compensation five years ahead had continued its decline and currently stood at 2%. According to evidence from option prices, the risks to inflation were broadly balanced. Turning to foreign exchange market developments, the main driver of the EUR/USD exchange rate had been the sharp divergence in interest rates. The reappraisal of expectations regarding the ECB’s monetary policy had led to lower risk-free OIS rates, which in turn had been transmitted to euro area sovereign bond markets. Sovereign bond yields had declined across euro area jurisdictions since the Governing Council’s October meeting. At the same time several euro area sovereigns had seen increased spreads between their bond yields and OIS rates. This mainly reflected the reduced scarcity of sovereign bonds, driven by the reduction of the Eurosystem’s monetary policy bond holdings as well as prospects of increased net issuance. The structural factors influencing asset swap spreads had also recently shaped dynamics in the repo market. As the Eurosystem balance sheet was being reduced and excess liquidity was declining, the repo market was shifting towards a regime of collateral abundance: a trend expected to persist into 2025. Rising collateral availability had contributed to the convergence of repo rates toward the deposit facility rate (DFR) across jurisdictions. Market perceptions of diverging growth trajectories had also been reflected in equity markets. While US stocks had rallied to new historical highs, euro area equity prices had temporarily dropped back to near early 2024 levels before gradually recovering from early December onwards. The better performance of US equity markets had been driven, in particular, by those sectors expected to benefit most from the incoming US Administration. Higher risk premia in the euro area, coupled with a further fall in risk premia in the United States, had contributed to a historically large valuation gap between the US and euro area equity markets. Recent financial market developments had had implications for overall financial conditions. Taking a longer-term perspective, financial conditions had eased significantly since the Governing Council’s last interest rate hike in September 2023 and currently stood close to the accommodative levels seen in early 2019. In particular, euro area real risk-free interest rates had declined further markedly across all maturities. Overall, recent developments had accelerated the easing of euro area financial conditions, while inflation expectations had firmed up around the ECB’s inflation target of 2%. The global environment and economic and monetary developments in the euro area Starting with inflation in the euro area, Mr Lane recalled that headline inflation had been 2.3% in November according to Eurostat’s flash estimate, 0.3 percentage points higher than in October. The increase had been expected and primarily reflected developments in energy inflation, which had moved up from -4.6% in October to -1.9% in November, owing mainly to base effects. Food inflation had edged down to 2.8% in November, from 2.9% in October. Core inflation (excluding energy and food) had been unchanged at 2.7%. Indicators of underlying inflation ranged between 2% and 2.8% when excluding the measure of domestic inflation. The indicators of underlying inflation with the highest predictive power for headline inflation were suggesting a sustained return of inflation to target. In particular, the Persistent and Common Component of Inflation (PCCI) remained at around 2.0%. The domestic inflation indicator, which closely tracked services inflation, had again eased somewhat. But at 4.2% in October, it had remained high, reflecting strong wage pressures and the fact that prices of some services had still been adjusting to the past inflation surge. At the same time the incoming information pointed to a moderation in services inflation dynamics, which should support an easing of domestic inflation. The three-month-on-three-month seasonally adjusted services inflation rate had fallen to 2.6% in November, from 3.4% in October, indicating a further softening in momentum. Meanwhile, the sizeable gap between services inflation and its medium-term underlying trend – captured by the PCCI for services, which stood at 2.5% – suggested there should be further downward adjustment in services inflation in the coming months. The gap suggested that idiosyncratic and non-persistent factors were contributing to the current high level of services inflation. The last step towards achieving the inflation target would be a moderation in services inflation, which was projected to decrease noticeably in the first half of 2025. The incoming wage data broadly confirmed the previous assessment of elevated but easing wage pressures. The growth rate of compensation per employee had moderated to 4.4% in the third quarter from 4.7% in the second quarter, 0.1 percentage points below the December projection. The growth rate of unit labour costs had eased to 4.3% from 5.2%. Profit margins continued to buffer the impact of elevated labour costs on inflation: annual growth in unit profits had remained negative in the third quarter. Forward-looking wage trackers continued to point to a material easing of wage growth in 2025. Headline inflation was expected to fluctuate around its current levels in the near term, as previous sharp falls in energy prices continued to drop out of the annual rates. It was then expected to settle sustainably at around the 2% medium-term target in the course of 2025. Easing labour cost pressures and the ongoing impact on consumer prices of the ECB’s past monetary policy tightening should help this process. According to the latest Eurosystem staff projections, headline inflation was expected to average 2.4% in 2024, 2.1% in 2025 and 1.9% in 2026. It was then projected to increase to 2.1% in 2027 as a result of the expansion of the EU Emissions Trading System (ETS). The projections continued to foresee a rapid decline in core inflation, from 2.9% in 2024 to 2.3% in 2025 and then 1.9% in 2026 and 2027. Compared with the September round, the projections had been revised down by 0.1 percentage points for headline inflation in 2024 and 2025, and by the same amount for core inflation in 2026. The latest inflation expectations from the ECB’s Survey of Monetary Analysts (SMA) were broadly in line with the December staff projections for headline inflation. Market-based indicators of inflation compensation were also consistent with a timely return of inflation to target, while also showing a marked reduction in inflation risk premia for medium and longer-term maturities. This could suggest that markets had revised down the risk of future adverse supply shocks and revised up the risk of future adverse demand shocks. Turning to the global environment, global growth momentum remained strong but was vulnerable to trade policy uncertainty. The global composite PMI excluding the euro area had increased further in November, to 53.2 from 52.8 in October, owing to improvements in both the services and the manufacturing sector. Anticipation of higher tariffs could support goods trade in the near term by leading to a further frontloading of imports, but implementation of such policies would ultimately weigh on trade. In the December Eurosystem staff projections global real GDP was expected to grow by 3.4% in 2024 and 3.5% in 2025, slowing to 3.3% in 2026 and 3.2% in 2027, with the outlook being largely unchanged from the September ECB staff projections. Since the October Governing Council meeting, the euro had depreciated by 1.2% in nominal effective terms and by 3.0% against the US dollar. Oil prices had seen considerable volatility, with the forward curve fluctuating. But overall the curve was lower than that embedded in the ECB staff September projections and displayed a slightly negative profile over the coming years. Gas prices had increased quite substantially, although these had been very low at the start of the year and remained well below the peaks of 2022. Furthermore, the gas futures curve was downward sloping – partly due to expanded global supply capacity only becoming available in the future, rather than immediately. Food commodity prices had also been quite volatile, increasing by approximately 40% since the start of the year. The euro area economy had grown by 0.4% in the third quarter, exceeding the September ECB staff projection. Excluding Irish data, the economy had grown by 0.3%. Growth had been driven mainly by an increase in consumption, partly reflecting one-off factors that had boosted tourism over the summer, and by firms building up inventories. These factors had outweighed a negative net contribution from trade. Overall, private domestic demand had remained subdued, as investment had contracted when excluding the contribution of the Irish data to the euro area aggregate. On the production side, growth had been driven by services. The interest-sensitive manufacturing sector had continued to contract, owing to competitiveness losses, still-high energy prices in relative terms, rising uncertainty, high regulatory costs and the lagged effects of previous monetary policy tightening. The incoming information suggested a slowdown in the near term. The euro area composite output PMI had declined from 50.0 in October to 48.3 in November. The deterioration in the PMI continued to be broad-based across countries and sub-indices. The manufacturing PMI output index had fallen  to 45.1 in November from 45.8 in October. The forward-looking PMI for new manufacturing orders had also fallen, pointing to a weak short-term outlook for industry. The PMI for services activity had fallen into contractionary territory for the first time since January, declining to 49.5 in November from 51.6 in October. Business and consumer confidence remained subdued in an environment of high uncertainty, which was leading to strong household savings and to firms holding back investment. Monthly indicators suggested a deceleration in private consumption growth and a continued contraction in both housing and business investment. The export sector also appeared to have weakened further. The labour market remained resilient. Employment had grown by 0.2% in the third quarter, again surprising to the upside, and the unemployment rate had remained at its historical low of 6.3% in October. However, the demand for labour continued to soften. The job vacancy rate had declined to 2.5% in the third quarter, 0.8 percentage points below its peak, and surveys also pointed to fewer jobs being created in the fourth quarter. Regarding fiscal policies, there had already been a significant correction in the euro area budget balance after the pandemic. The further reduction of national deficits, as foreseen in the projections, reflected countries’ fiscal and structural plans under the reformed EU economic governance framework. These plans needed to actually be delivered. Looking ahead, conditions were in place for growth to strengthen over the projection horizon. According to the staff assessment, while structural factors had weighed on the euro area economy and especially the manufacturing sector, the weak productivity growth since 2022 also included a significant cyclical component. This component had largely been driven by the past tightening of monetary policy and weak external demand. Domestic demand should benefit from rising real wages, the gradual fading of the effects of restrictive monetary policy, and the ongoing recovery in the global economy. Although fiscal policies were set to remain on a consolidation path overall, Next Generation EU funds would still support investment in the next two years. On the external side, euro area export growth was expected to benefit from strengthening foreign demand. At the same time trade uncertainty had increased materially, and the effects of a potential increase in tariffs on the euro area economy would depend on the extent, timing and magnitude of tariff and non-tariff measures, as well as on the responses of the EU and other jurisdictions. According to the December Eurosystem staff projections, real GDP growth was expected to average 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027. Compared with the September projections, it had been revised down by 0.1 percentage points for 2024, 0.2 percentage points for 2025 and 0.1 percentage points for 2026. The latest SMA indicated a lower growth profile than the staff projections for 2025, 2026 and 2027. Market interest rates in the euro area had declined further since the Governing Council’s October meeting, reflecting the perceived worsening of the economic outlook. Regarding monetary and financial analysis, a degree of normalisation had been observed in monetary dynamics. The annual growth rate of M3 had risen to 3.4% in October, up from 2.9% in August. Growth in the narrow monetary aggregate M1 had also continued to recover and its annual growth rate had turned positive for the first time since December 2022, standing at 0.2% in October. So far, the current monetary dynamics had to a large extent been driven by sizeable net monetary inflows from the rest of the world. The ECB’s past interest rate cuts were gradually making it less expensive for firms and households to borrow. The average interest rate on new loans to firms had been 4.7% in October, more than half a percentage point below its peak a year earlier. The cost to firms of issuing market-based debt had fallen by more than a percentage point since its peak. The average rate on new mortgages had also come down, to 3.6% in October, around half a percentage point below its peak in 2023. But financing conditions remained restrictive. The cost of new credit for firms was elevated from a historical perspective, particularly in real terms, and the cumulative tightening of credit standards since the beginning of the hiking cycle remained substantial overall. The average rate on the outstanding stock of mortgages was set to rise as fixed-rate loans were repriced at higher levels. Bank lending to firms had only gradually picked up, from low levels, with the annual rate of increase rising to 1.2% in October. The annual growth rate of debt securities issued by firms, net of redemptions, had stood at 3.1% in October, remaining within the narrow range observed over recent months. Mortgage lending had continued to rise gradually, with an annual growth rate of 0.8% in October. Monetary policy considerations and policy options In summary, the incoming information and the latest staff projections indicated that the disinflation process remained well on track. While domestic inflation was still high, it was likely to come down as services inflation dynamics moderated and labour cost pressures eased. Recent cuts in the key ECB interest rates were also gradually being transmitted to funding costs, but financing conditions remained restrictive along the entire transmission chain, from the DFR to the rates that financial intermediaries charged to households and firms. Staff now expected a slower economic recovery than in the September projections, marking another downward adjustment in the growth outlook relative to recent projection rounds. Although growth had picked up in the third quarter of this year, survey indicators suggested it had slowed in the current quarter. Under the December baseline projections, lower policy rates and a further easing of financing conditions were prerequisites for inflation to stabilise sustainably at the 2% target. Mr Lane therefore proposed that the three key ECB interest rates be lowered by 25 basis points. In particular, a decision to lower the DFR – the rate through which the Governing Council steered the monetary policy stance – was justified by the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. In the current environment of high uncertainty, it was prudent to maintain agility by following a meeting-by-meeting approach and not pre-commit to any particular rate path. In terms of risk management, in the event of upside shocks to the inflation outlook and/or to economic momentum, monetary easing would be able to proceed more slowly than the path embedded in the December projections. Equally, in the event of downside shocks to the inflation outlook and/or to economic momentum, it would be able to proceed more quickly. While policy was still restrictive and weighing on demand, the disinflation process was sufficiently advanced for the emphasis in communication to be adjusted, from expressing determination to ensure that inflation would “return to the target” to pledging that it should “stabilise sustainably at the target”. This alternative expression better described the Governing Council’s primary task on an ongoing basis. In connection with this, the intention to keep policy rates sufficiently restrictive should be replaced with a more two-sided pledge to adopt the appropriate stance to stabilise inflation sustainably at target. At the same time, Mr Lane proposed preserving continuity in the other key communication elements – including the commitment to a meeting-by-meeting, data-dependent approach to setting rates, supported by the three-pronged reaction function – and refraining from any pre-commitment on the speed and scale of monetary easing at future meetings. Finally, in line with the Governing Council’s monetary policy strategy, a regular assessment of the links between monetary policy and financial stability had been carried out. It indicated that euro area banks remained resilient and there were few signs of financial market stress or a build-up of financial sector vulnerabilities. Financial stability risks nonetheless remained elevated. Macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses As regards the external environment, members took note of the assessment provided by Mr Lane. Global activity had developed better than expected and the December staff projections saw global growth remaining solid overall. Both the United States and China were projected to grow more strongly than in the September projections, although their growth rates were likely to ease slightly over the projection horizon. Euro area foreign demand was seen to have recovered in 2024 and was expected to grow in line with global activity over the rest of the projection horizon. The dominant risk was related to increased fragmentation and to trade protectionism, notably in the United States. This could dampen trade and economic activity while also pushing up consumer prices in the United States – and globally in the event of retaliation. This risk notwithstanding, global activity was likely to have remained robust in the second half of 2024. Resilient trade growth in the third quarter likely reflected frontloading of goods imports amid uncertainty surrounding the trade policies of the incoming US Administration. Container freight rates for shipments from Asia to Europe and the United States had increased over the summer but had fallen back in the autumn. In the United States, economic activity had been strong in the third quarter and was expected to remain strong. Real GDP growth in 2025 had been revised up in the December projections, while uncertainty around the baseline projection had declined. In China, activity had been strengthening, which was supported by developments in consumption. The housing market had been the main weak spot and was likely to remain a drag on growth for the foreseeable future. The euro had depreciated in nominal effective terms since the last Governing Council meeting. And while oil prices had remained broadly stable and metal prices had declined, gas and food commodity prices had increased. There had been a broad-based appreciation of the US dollar after the US elections, as markets had started to factor in fewer rate cuts by the Federal Reserve in 2025. The divergence between the macroeconomic outlook for the euro area and for the United States had weighed on the euro. Members underlined that geopolitical and economic policy uncertainty had become more pronounced since the last Governing Council meeting, owing to increased uncertainty about US policies on trade, migration and defence, as well as about the future of multilateral cooperation. It was remarked that the inflationary effects of the pre-announced US policies were likely to be bigger in the United States than in the rest of the world. However, it was seen as important to better understand the likely response of China to higher tariffs that would probably be imposed on Chinese products and the extent to which this might cause a diversion of Chinese exports from the United States to the euro area. In the meantime, the uncertainty about US policies had also been compounded by greater policy uncertainty in Europe. France had yet to form a new, stable government, while in Germany a snap election was expected to take place in February. Against this backdrop, members underscored the importance of European institutions – with a new European Commission just being inaugurated – in providing leadership and an anchor of stability. With regard to economic activity in the euro area, members broadly agreed with the assessment presented by Mr Lane. The economy had grown by 0.4% in the third quarter, exceeding expectations and driven mainly by a stronger than expected increase in consumption – partly reflecting one-off factors that had boosted tourism over the summer – and also by firms building up inventories. But the latest information suggested that activity was losing momentum. Surveys indicated that manufacturing was still contracting and growth in services was slowing. Firms were holding back their investment spending in the face of weak demand and a highly uncertain outlook. Exports were also weak, with some European industries finding it challenging to remain competitive. At the same time, the labour market remained resilient. The economy was seen as likely to strengthen over time, although more slowly than previously expected. The rise in real wages should strengthen household spending. More affordable credit should boost consumption and investment. Provided trade tensions did not escalate, exports should support the recovery as global demand rose. Broad agreement was expressed with the latest Eurosystem staff macroeconomic projections. However, the point was made that even after the downward revision to GDP growth over the projection horizon, the baseline probably remained too optimistic. It was based on the assumption that the trade policies of Europe’s key trading partners would remain unchanged and stronger foreign demand would support euro area exports. Although it was fully acknowledged that the projections were reasonable in such uncertain times, trade policies in the United States, above all, could play out in an adverse direction. While the effects on euro area growth would be clearly negative, the impact on inflation was rather uncertain. Since trade policy uncertainty had not been directly taken into account in the projection baseline, its negative impact on the outlook was only partly accounted for by using market prices, such as real interest rates, equity prices and the external value of the euro, as conditioning assumptions. Trade policy uncertainty had likely also influenced the forward-looking component of the most recent PMI. Trade policy uncertainty was therefore incorporated at least indirectly and partially in the baseline. At the same time, it was pointed out that the near-term euro area economic outlook had evolved broadly in line with what had been projected in September, even if significant new challenges and uncertainties had emerged since. While surveys continued to signal lower economic growth, national accounts data for the third quarter had surprised on the upside. In particular, consumption growth had been much stronger than expected and also stronger than embedded in the December projections, in line with the narrative of a consumption-driven recovery. This was further supported by rising confidence in the retail trade sector, as well as higher consumer expectations for major purchases over the next 12 months. Moreover, the resilience of the labour market had once again been surprising, even though there were increasing signs that it was weakening in some countries. There were also first signs of a turnaround in housing markets, with house prices rising in many countries and mortgage demand recovering. Similarly, corporate debt financing was rebounding, to a large extent owing to a pick-up in the issuance of debt securities, encouraged by a decrease in interest rates that had outpaced the decline in rates on bank loans. Moreover, the rise in firms’ inventories might signal an imminent turnaround in the inventory cycle, removing a significant drag on growth. Therefore, there were clear signs that the dialling-back of policy restriction was already starting to be transmitted to financing conditions and to the economy. Furthermore, the significant upward revision of the saving rate in the projections suggested that consumption growth might turn out to be higher than foreseen, as it seemed implausible that the saving rate would remain significantly above its pre-pandemic average on a sustained basis. The weakest spot, however, remained business investment, which was not yet showing any signs of a turnaround. It was argued that, on balance, the euro area economy remained fragile and that the rebound in GDP growth in the third quarter, following a negative surprise in the second quarter, could be temporary. The summer boost to consumption could be short-lived, as also suggested by weaker retail sales in October. In addition, the industrial sector continued to contract, and the headline composite PMI indicator had fallen below 50 in November. In this context, it was also pointed out that growth had so far been supported by public consumption and public investment, which was not sustainable as the fiscal stance was not expected to be expansionary over the projection horizon. The projections for economic growth had once again been revised down, with a cumulative downward revision to growth over 2025 and 2026 of around 0.3 percentage points compared with the September staff projections. Growth had been revised down despite the lower interest rate path priced in by markets, which suggested that monetary policy was seen as only mitigating the effects of a worsening macroeconomic environment. Some incoming information pointed to weaker private domestic demand. Against this background it was argued that not much of the consumption-led recovery in the euro area that had been foreseen for some time had materialised so far – apart from the evidence seen in the third quarter. It remained to be seen whether the expected rebound in consumption was merely delayed – partly reflecting lags in the catching-up of real wages – or whether there were other factors at work. Reference was made to analysis for the largest euro area economy which suggested that the persistently higher saving rate was due to a larger contribution from non-labour income, which had been a significant part of household income in the last two years. This source of income was known to have a weak link with consumption, as it was more likely to be saved. Another driver of the high saving rate was high uncertainty. In the coming three years, the saving rate could therefore be expected to decline again, as financial income was likely to account for a smaller portion of overall income. Furthermore, it was also argued that financial conditions should soon cease to produce headwinds for growth. The argument was put forward that the current level of interest rates was in fact comparable to the level in 2006 and 2007, implying that financial conditions should not be restraining aggregate demand to the same extent as in the past. That being said, the ongoing high degree of uncertainty meant that it might take a while for savings to normalise. In addition, it was highlighted that households were still pessimistic about developments in their real disposable income and more negative about the level of their real disposable income than would be justified on the basis of available data. Such misperceptions might also explain why households continued to save more than before, dampening consumption further. It appeared from survey evidence that the price level, especially for goods purchased frequently, mattered more than the annual inflation rate in households’ inflation perceptions. Looking ahead, consumption might thus continue to be weighed down by low consumer confidence. Similar caution was expressed by members on the outlook for investment, as the economic recovery was not expected to receive much support from capital accumulation – a demand component especially likely to suffer in an uncertain environment. Overall, the projections indicated a period of relatively low growth which would limit investment in physical and human capital and suppress medium-term growth by dragging down potential output – thereby lowering the economy’s “speed limit” for activity. The share of investment in GDP at the end of the forecast horizon would be 2 percentage points lower than in 2023, despite a strong increase in public investment. Turning to the labour market, members acknowledged that it had remained resilient so far. The unemployment rate had stayed at a historical low, with continuing but slowing employment growth. Employment growth had outperformed GDP growth in recent years, and its slowdown should not necessarily be interpreted as a weakening of the labour market, but more as a return to the historical relationship between labour market conditions and GDP growth. Structurally the euro area labour market might be stronger than currently assessed and the robust labour market performance in recent years might be consistent with downward revisions of the non-accelerating inflation rate of unemployment (NAIRU), as low unemployment and relatively moderate wage growth continued to coincide. At the same time, labour market flows had been deteriorating, which was typically an early sign of falling job availability. While flows out of employment were fairly stable overall, this measure masked the fact that job quits and lay-offs typically moved in opposite directions over the business cycle. Questions were raised about the projected increase in labour productivity, which was explained in the projections by higher capacity utilisation in response to higher demand. Some scepticism was expressed about the extent to which low labour productivity was linked to cyclical factors. To the extent that low productivity also reflected the structural challenges faced by the euro area economy, it remained to be seen whether the rebound in productivity growth embedded in the projections would actually materialise. European manufacturing was facing a longer-term deterioration in competitiveness, due to elevated energy costs and other challenges. This once again illustrated the difficulty of distinguishing cyclical from structural factors in real time. While potential output was likely higher in 2024 but potential growth had likely weakened over the longer term, it had to be acknowledged that there was a limit to more substantial reassessments of that variable, as more data were needed which became available only gradually. However, it was also argued that the economy was mainly lacking demand and was not running at its potential – as suggested by, among other things, a growing current account surplus – with possible new trade barriers likely to make the gap between potential and actual growth even larger. In this context, a remark was made that there was reason to question the rationale for having the economy running at below potential when sustained growth at potential would make it easier to address structural problems. More investment was needed to upgrade the capital stock, and having more people in work was the best way to enable the workforce to be retrained and acquire the skills needed for the new digital economy. An economy running at its potential would also make it much easier to implement structural reforms. While a significant part of the growth challenge was undeniably structural, as had been pointed out in the recent report by Mario Draghi, it should not be ignored that part was cyclical. In a context of declining inflation and a high saving rate, it had to be acknowledged that weak aggregate demand was part of the growth challenge, at least in the short term. Against this background, members reiterated that fiscal and structural policies should make the economy more productive, competitive and resilient. It was crucial to swiftly follow up – with concrete and ambitious structural policies – on Mario Draghi’s proposals for enhancing European competitiveness and Enrico Letta’s proposals for empowering the Single Market. Members welcomed the European Commission’s assessment of governments’ medium-term plans for fiscal and structural policies, as part of the EU’s revised economic governance framework. Governments should now focus on implementing their commitments under this framework fully and without delay. This would help bring down budget deficits and debt ratios on a sustained basis, while prioritising growth-enhancing reforms and investment. With respect to fiscal policy, it was argued that the future fiscal stance would likely be looser than currently expected. In the current geopolitical context, it was doubtful whether fiscal plans would be fully implemented, not least because pressure to increase defence spending was mounting. More generally, fiscal policy might remain a lot looser than before the pandemic. At the same time, it was remarked that the euro area fiscal stance was still tighter than that of the United States and that it was unclear whether and to what extent fiscal policy would eventually contribute to economic growth in the euro area. Against this background, members assessed that the risks to economic growth remained tilted to the downside. The risk of greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy. Lower confidence could prevent consumption and investment from recovering as fast as expected. This could be amplified by geopolitical risks, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which could disrupt energy supplies and global trade. Growth could also be lower if the lagged effects of monetary policy tightening lasted longer than expected. It could be higher if easier financing conditions and falling inflation allowed domestic consumption and investment to rebound faster. With regard to price developments, members generally agreed with the assessment presented by Mr Lane in his introduction and concurred that the incoming data had bolstered confidence that inflation would return to target in the course of 2025. Satisfaction was expressed that monetary policy action had been effective in bringing inflation down. Headline inflation was projected to return to 2% in 2025 and was then expected to fluctuate around the target. While it was widely regarded as too early to declare victory, the return to target was within reach. However, it was cautioned that the inflation picture was to some extent flattered by the fact that energy prices had come down by more than expected, and also non-energy industrial goods inflation was much lower than had been expected a couple of months ago. At the same time, higher gas and food prices showed that new shocks could quickly affect the inflation outlook. It was argued that at a time when people remained highly attentive to inflation, it was necessary to pay particular attention to new, potentially inflationary shocks hitting the economy. The projection for 2027 took account of the estimated impact of the expanded EU ETS. If this were not included, inflation would drop below target in 2027, which was seen as surprising and driven mainly by very weak projected energy price inflation in 2027, far below historical averages. Food price inflation was also assumed to be below historical averages in spite of the increased frequency of extreme weather events due to climate change. Therefore, the view was expressed that there were clear upside risks to the 2027 inflation projection. Moreover, attention was drawn to the prospect of substantial supply and demand shocks on the horizon, which, looking ahead, could make it challenging to keep inflation at the target. It had to be considered that geopolitical risk, economic fragmentation and the ongoing climate and nature crises might create bottlenecks – increasing in frequency, intensity and persistence – in the productive capacity of the economy. Specifically, with respect to potential policy shocks from across the Atlantic, inflation could be pushed significantly higher through the exchange rate channel by an appreciation of the US dollar, especially as the pass-through to prices tended to be more rapid in the wake of high inflation, while retaliation could have a direct inflationary effect on import prices. In addition, bottlenecks might again emerge in global supply chains and, operating through a trade supply shock channel, might outweigh the downward impact on inflation from weaker demand. Against this background, it was recalled that some parts of the disinflationary path still had to materialise and “the job was not yet done” even though the “last mile” appeared to have shortened somewhat. In particular, domestic inflation had stood at 4.2% in October, driven mainly by high services inflation, standing at 4.0% in October and 3.9% in November. A remark was made that, while the momentum of services inflation was indicating a slowdown, seasonal adjustment might be distorted by shifts in household consumption patterns. Hence, actual momentum could be higher than the statistics showed. Caution was also expressed on the signal from the fall in core inflation, which tended to be volatile. Instead, more weight had to be placed on the ongoing easing of wage pressures. Especially the cooling of the labour market and new information on negotiated wages seemed to confirm the moderation of wage growth. At the same time, lower productivity growth than projected could put upward pressure on unit labour costs and hence inflation. The projections for inflation for 2025 were close to survey results and to the forecasts from Consensus Economics beyond the short term. Market pricing, on the other hand, was incorporating expectations of lower inflation than in the staff projections, possibly reflecting a somewhat more pessimistic view of euro area growth over the medium term. All in all, risks to inflation appeared to have become more two-sided. At the same time, it was argued that the risks to inflation in the medium term were more to the downside, especially given the higher probability of weaker growth. In this context it was also argued that the expanded ETS was unlikely to have the full projected impact on inflation, as consumers would reallocate their spending towards less polluting sources of energy over time. The point was also made that higher taxation, similarly to tariffs and protectionism, usually gave rise to lower economic activity in the medium term and would ultimately exert downward pressures on inflation. Regarding services inflation, which was a component that deserved further scrutiny, it was underlined that the month-on-month change in November had been among the largest monthly drops in services prices since the pandemic. Services inflation momentum had been declining significantly, especially in the wage-sensitive components, while in the non-wage sensitive components there were some idiosyncratic elements which would disappear. However, a number of services were due to be repriced at the turn of the year, so new surprises should not be excluded. Given that most of the price changes that were still having an impact on current inflation had happened in the first half of the year, the first months of next year would reveal important information about inflation during the remainder of 2025. Wage pressures were an important driver of the persistence of services inflation, and wage growth remained high and bumpy. The decline in wage growth so far anticipated by the projections and the ECB wage tracker still needed to be confirmed by hard data. At the same time, there were a number of indicators suggesting that wage growth was likely to slow from the current high level. Looking at the track record of the wage tracker in projecting future wage growth, increasing confidence appeared warranted that wage growth would be more subdued in the future. This should also help bring down services inflation. Overall, for inflation to be sustainably at 2%, wage inflation would have to settle at the targeted inflation rate plus trend productivity growth. As regards longer-term inflation expectations, members took note of the latest developments in market-based measures of inflation compensation and survey-based indicators. Some market-derived measures of medium-term inflation expectations had now dropped to below 2%, while longer-term inflation expectations stood close to 2%. Consumer inflation expectations had moved up significantly in November, especially over the three-year horizon. Against this background, with respect to risks to the inflation outlook, members assessed that inflation could turn out higher if wages or profits increased by more than expected. Upside risks to inflation also stemmed from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade. Moreover, extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected. By contrast, inflation could surprise on the downside if low confidence and concerns about geopolitical events prevented consumption and investment from recovering as fast as expected, if monetary policy dampened demand more than expected, or if the economic environment in the rest of the world worsened unexpectedly. Greater friction in global trade would make the euro area inflation outlook more uncertain. Turning to the monetary and financial analysis, market interest rates in the euro area had declined further since the October Governing Council meeting, reflecting the perceived worsening of the economic outlook and a repricing of policy rate expectations. Financial markets had repriced particularly strongly after recent PMI releases and were expecting significant further rate cuts between the current time and next autumn. In the context of the considerable uncertainty regarding the implications of changes to US policies, but also the uncertain domestic political outlook, financial markets were translating downside risks into lower real rates, lower equity prices and a weaker euro exchange rate. Past interest rate cuts, together with the anticipation of future cuts, had contributed to an easing of financing conditions. Bank lending to both the non-financial corporate sector and households was recovering slowly, suggesting that the impact of the past monetary policy tightening was waning and the effect on credit growth of the removal of policy restriction was starting to become visible. The net issuance of corporate debt securities, which had already seen a larger decrease in interest rates than bank loans, had picked up. Housing markets were showing the first signs of a turnaround, with house prices rising and mortgage demand recovering in many countries. In their biannual exchange on the links between monetary policy and financial stability, members concurred that euro area banks had remained resilient and continued to have solid capital and liquidity positions. On the whole, euro area banks had navigated the phase of monetary policy restriction well, although concerns persisted with regard to governance, operational resilience and risk management, including in relation to climate and nature-related risks. Nonetheless, financial stability risks remained elevated in view of stretched US stock market valuations and risks of financial deregulation, as well as increased global activity in the realm of cryptocurrency, involving non-bank financial intermediaries and, to a lesser extent, the banking sector. Finally, geopolitical risks were often not fully priced in by financial markets until they materialised, which could lead to an abrupt repricing of risks and jeopardise banks’ capital adequacy. It was recalled that macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities. Monetary policy stance and policy considerations Turning to the monetary policy stance, members assessed the data that had become available since the last monetary policy meeting in accordance with the three main elements that the Governing Council had cited in 2023 as shaping its reaction function. These comprised (i) the implications of the incoming economic and financial data for the inflation outlook, (ii) the dynamics of underlying inflation, and (iii) the strength of monetary policy transmission. Regarding the inflation outlook, members were increasingly confident that inflation would return to target in the first half of 2025, which was earlier than had been foreseen in the previous projections. While the Governing Council’s job was not yet fully done, the return of inflation to target was getting closer according to the staff projections. Moreover, the new projections foresaw inflation rates of around 2% as early as the second quarter of 2025 and notably lower inflation over the near term than had been foreseen in the September 2024 projections. It was also noted that for the past two years the staff inflation projections had been remarkably accurate and that, despite the large inflation shock over the past three years, measures of longer-term inflation expectations remained well anchored. It was clear, however, that the Governing Council should not let its guard down in the final stretch of disinflation, particularly as some assumptions underlying the projections still needed to be corroborated by hard data and were conditional on monetary policy making its contribution and working its way through the economy. There were still many upside and downside risks to the inflation outlook, with key aspects of the projections, such as the recovery in productivity growth, still to be confirmed. Uncertainty surrounded the future policies to be pursued by the incoming US Administration – including the impact of tariffs and potential retaliation, fiscal and trade uncertainty, the evolution of the exchange rate and its pass-through to inflation. This was added to domestic political uncertainties and the outlook for energy and food prices. In this context it was recalled that the Governing Council had a single mandate, namely to maintain price stability, rather than a dual mandate which would pose a trade-off between price stability on the one hand and growth and employment considerations on the other hand – although it had to be recognised that a weaker economy could imply further downward pressure on inflation. It was remarked that, if the economy did not pick up, the likelihood would increase that inflation would undershoot the target further down the road. Comfort could be drawn from the fact that the staff projections for inflation in 2025 were close to both market pricing and survey results. Beyond the short term, markets were pricing in lower inflation than foreseen in the December Eurosystem staff projections, although market-based indicators also incorporated risk premia, which were negative over the medium term. This could mean that markets held a similar view of the inflation outlook as was entailed in the projections, but required higher compensation for downside risks over the medium term. Turning to underlying inflation, members concurred that most measures were consistent with inflation returning to target in a timely manner. The PCCI, which had good forecasting properties for medium-term inflation, had declined substantially. However, domestic inflation was still high, driven mainly by high services inflation, and core inflation had also remained stubbornly high for several quarters. Although key data that could conclusively confirm the projected moderation in wage growth would only become available in the course of 2025, the softening of the labour market and recent information on negotiated wages were in line with a gradual easing of labour cost pressures. As regards monetary policy transmission, the monetary policy stance remained restrictive, even though the DFR had been reduced by a series of cuts from its peak of 4%. As some of the lagged effects of past monetary policy tightening were still feeding through the macroeconomy, financing conditions – including for both market-based and bank-based financing – also continued to be restrictive overall. The cost of new credit for firms was elevated from a historical perspective, particularly in real terms, and the cumulative tightening of credit standards since the beginning of the hiking cycle had remained elevated. In addition, the average interest rate on the outstanding stock of mortgages was set to rise as fixed-rate loans were repriced at higher levels. At the same time, it was remarked that, since financial markets were expecting further rate cuts, the term structure of real risk-free interest rates had already become aligned with neutral levels for maturities of one year and above. The dialling-back of monetary policy restriction over the past few months was also being transmitted to financing conditions, although it had not yet fully passed through, with interest rates on new loans to firms and households having started to come down. The gradual fading of restriction had started to reach the real economy and should provide support to consumption and investment growth in the future. At the same time, it was noted that the sensitivity of credit demand to the level of the interest rate was low, indicating that the monetary policy stance had already become noticeably less restrictive. According to the results of the latest available euro area bank lending survey, referring to the third quarter of 2024, a large share of banks (93%) reported that the general level of interest rates was not currently affecting overall demand for loans and credit lines to enterprises. This was in contrast to the results one year ago, when almost half of the respondent banks had seen an impact, and also reflected the anticipation of further rate cuts to come. A remark was made that the general level of interest rates – including bank funding costs – had been much higher before the global financial crisis than it was now. To assess the restrictiveness of financing conditions it was necessary to take into account the level of the natural or neutral rate of interest. It was argued that several factors might have shifted the rate upwards since the outbreak of the pandemic. These included rising public debt around the world, the need for major investment to tackle the digital and green transitions, and global fragmentation, contributing to a reversal of the global savings glut. Conversely, factors that could drive the natural rate lower were related to demographic and productivity developments, as well as a higher propensity to save. Productivity developments were surrounded by high uncertainty in view of the conflicting influences stemming from the structural decline in traditional manufacturing and from the rise of artificial intelligence. Overall, while the natural or neutral rate of interest was a useful analytical concept, available estimates could only be a rough gauge of the restrictiveness of monetary policy owing to very high model and parameter uncertainty. Therefore, it was argued that a gradual approach was needed to allow an assessment of whether policy rates had reached a broadly neutral level, taking proper account of transmission lags. More generally, it was advisable to draw on a broad range of approaches to estimate or model the natural rate and assess the restrictiveness of policy, and to also look at the interplay of output, inflation and interest rates. Credit dynamics, allowing for transmission lags, were also informative about the level of restrictiveness of monetary policy. In a predominantly bank-based financial system like the euro area, there was also a need to assess average funding costs, taking into account the cost of bank loans, not only the cost of financing through the bond market, given the importance of banks for small and medium-sized enterprises. Finally, it was remarked that the monetary policy stance was not predicated only on interest rates but also on the size of the Eurosystem balance sheet, which would shrink by around €40 billion per month from January 2025. At the same time, it was recalled that the reduction in the Eurosystem balance sheet had been announced well in advance and should already have been priced in to a significant extent at the time of that announcement. Monetary policy decisions and communication Against this background, all members supported the proposal by Mr Lane to lower the three key ECB interest rates by 25 basis points. A cut of this magnitude was in line with a controlled pace of easing and provided a sense of the direction of the path of interest rates. While the projections were conditional on a downward path for policy rates that implied another cut in January, it was reiterated that data dependency precluded any foregone conclusions regarding the future rate path. A measured pace of interest rate cuts was consistent with the general notion that more “check points” had to be passed to ascertain whether disinflation remained on track and kept open the optionality to make adjustments along the way. This cautious approach was still warranted in view of the prevailing uncertainties and the existence of a number of factors that could hamper a rapid decline in inflation to target. Nevertheless, if the baseline projection for inflation was confirmed over the next few months and quarters, a gradual dialling-back of policy restrictiveness was seen as appropriate. Some members noted that a case could be made for a 50 basis point rate cut at the current meeting and would have favoured more consideration being given to the possibility of such a larger cut. These members emphasised the deterioration in the euro area economic outlook over successive projection exercises and stressed that the risks to growth – amid many global and domestic political uncertainties – were tilted to the downside. A larger rate cut would provide insurance against downside risks to growth. Moreover, if the economy did not pick up, the risk that inflation could undershoot the target would increase. This suggested that monetary policy might become too restrictive, with interest rates still some distance from a neutral level. In this context, the need to signal the Governing Council’s commitment to the symmetric target was stressed, as well as the need to remain vigilant to prevent the materialisation of both upside and downside risks to inflation. At the same time, members widely concurred that a 25 basis point cut was appropriate in light of the gradual but not complete progress made towards returning inflation to 2% on a sustained basis and in view of the prevailing risks and uncertainties. In this respect, it was pointed out that if, as reflected in the staff projections, the economy was to expand at a pace around its potential growth in the coming years, inflation should neither overshoot nor undershoot the 2% target materially. It was also underlined that, in any case, the ECB had a single mandate of price stability, not a dual mandate, and since the disinflation process had not yet been concluded it was too early to cut rates by a larger amount. Moreover, it was remarked that a 50 basis point cut could be perceived as the ECB having a more negative view of the state of the economy than was actually the case. This was not desirable unless warranted by additional negative shocks. Furthermore, it had to be kept in mind that with the rate cut decided at the October meeting the Governing Council had already demonstrated its commitment to react to a worsening macroeconomic outlook associated with a weakening of inflationary pressures by increasing the speed of interest rate adjustments. The point was also made that the frequency of price adjustments was likely lower in a situation of weak growth or when facing negative shocks, implying a flatter Phillips curve. This meant that the case for adjusting interest rates by 50 basis points was not the same on the way down as it had been during the rate-hiking cycle. Similarly, any unanchoring of inflation expectations was likely to be less rapid on the way down, although it could be more persistent owing to the lower bound on interest rates. Therefore, a significant worsening of the growth outlook under a flat Phillips curve might not necessarily trigger a steep decline in inflation, implying that the downside risks to inflation were not very large. This reasoning should not rule out more decisive action in adverse scenarios or in the event that the Phillips curve were to become steeper. Members also pointed out that a significant part of the economic slowdown was likely attributable to structural factors that monetary policy could not address and which needed to be addressed by governments. Only part of the economic slowdown was seen as cyclical, and in these conditions accommodative monetary policy would be unable to boost potential growth if for structural reasons firms did not wish to invest. However, it was argued that a faster normalisation of monetary policy, aimed at running the economy at potential, would provide more room for governments to address structural problems. At the same time, monetary policy was ineffective in resolving structural weaknesses. It could not take on responsibility for long-term growth, which was rather the responsibility of governments. The best contribution that monetary policy could make was to provide price stability and thereby remove a major source of uncertainty. Members also argued in favour of maintaining a data-dependent and meeting-by-meeting approach to determining the appropriate level of policy rates, taking into account transmission lags and emphasising that data dependency did not mean only looking backwards at past data but also forwards at the medium-term outlook. It was remarked that data dependency implied taking an analytical approach, using not just hard data and survey indicators but also economic models and judgement to project trends in inflation dynamics and assess the risks surrounding the outlook. Turning to communication aspects, members supported the proposed change in the wording of the monetary policy statement that removed the tightening bias by replacing the intention to “remain sufficiently restrictive” with a more two-sided pledge to adopt the appropriate stance “to ensure that inflation stabilises sustainably at our 2% medium-term target”. This change in the communication was seen as reinforcing the rate cut. Overall, members concluded that the proposed changes to the communication struck a fine balance between removing the reference to maintaining monetary policy restrictiveness while avoiding sending a signal that the path of rate adjustments was preset. In this context, the change in the communication was seen as an adjustment to better reflect the ECB’s reaction function in view of the latest circumstances, rather than being a change in the way monetary policy was conducted. Members also agreed with the proposal by Mr Lane for reinvestments of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) to cease at the end of 2024, in line with the Governing Council’s intention expressed at its meeting in June 2024. Moreover, members highlighted that in December 2024 banks would repay the remaining amounts borrowed under the targeted longer-term refinancing operations, which concluded this part of the balance sheet normalisation process. Taking into account the foregoing discussion among the members, upon a proposal by the President, the Governing Council took the monetary policy decisions as set out in the monetary policy press release. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Monetary policy statement Monetary policy statement for the press conference of 12 December 2024 Press release Monetary policy decisions Meeting of the ECB’s Governing Council, 11-12 December 2024 Members Ms Lagarde, President Mr de Guindos, Vice-President Mr Centeno Mr Cipollone Mr Demarco, temporarily replacing Mr Scicluna Mr Elderson Mr Escrivá Mr Holzmann Mr Kazāks Mr Kažimír Mr Knot Mr Lane Mr Makhlouf* Mr Müller* Mr Nagel* Mr Panetta Mr Patsalides Mr Rehn Mr Reinesch Ms Schnabel Mr Šimkus Mr Stournaras* Mr Vasle Mr Villeroy de Galhau Mr Vujčić Mr Wunsch* * Members not holding a voting right in December 2024 under Article 10.2 of the ESCB Statute. Other attendees Mr Dombrovskis, Commission Executive Vice-President** Ms Senkovic, Secretary, Director General Secretariat Mr Rostagno, Secretary for monetary policy, Director General Monetary Policy Mr Winkler, Deputy Secretary for monetary policy, Senior Adviser, DG Economics ** In accordance with Article 284 of the Treaty on the Functioning of the European Union. Accompanying persons Mr Arpa Mr Garnier Mr Gavilán Mr Gilbert Mr Horváth Mr Kaasik Mr Kelly Mr Koukoularides Mr Lünnemann Mr Nicoletti Altimari Mr Novo Mr Rutkaste Ms Schembri Mr Šiaudinis Mr Šošić Mr Tavlas Mr Ulbrich Mr Välimäki Mr Vanackere Ms Žumer Šujica Other ECB staff Mr Proissl, Director General Communications Mr Straub, Counsellor to the President Ms Rahmouni-Rousseau, Director General Market Operations Mr Arce, Director General Economics Mr Sousa, Deputy Director General Economics Release of the next monetary policy account foreseen on 27 February 2025. Related topics Monetary policy Euro area Policies Disclaimer Please note that related topic tags are currently available for selected content only. CONTACT European Central Bank Directorate General Communications Sonnemannstrasse 20 60314 Frankfurt am Main, Germany +49 69 1344 7455 media@ecb.europa.eu Reproduction is permitted provided that the source is acknowledged. Media contacts

Minutes of the Federal Open Market Committee January 29-30, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, January 29, 2019, at 10:00 a.m. and continued on Wednesday, January 30, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chairman John C. Williams, Vice Chairman Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Thomas A. Connors, Rochelle M. Edge, Beverly Hirtle, Daniel G. Sullivan, Christopher J. Waller, William Wascher, Jonathan L. Willis, and Beth Anne Wilson, Associate Economists Simon Potter, Manager, System Open Market Account Lorie K. Logan, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chairman, Office of Board Members, Board of Governors Antulio N. Bomfim, Special Adviser to the Chairman, Office of Board Members, Board of Governors Brian M. Doyle, Joseph W. Gruber, Ellen E. Meade, and John M. Roberts, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Christopher J. Erceg, Senior Associate Director, Division of International Finance, Board of Governors; David E. Lebow and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors Edward Nelson and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer, 2 Associate Director, Division of Monetary Affairs, Board of Governors Jeffrey D. Walker, Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, and Adviser, Division of Research and Statistics, Board of Governors Glenn Follette and Norman J. Morin, Assistant Directors, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Laura Lipscomb, 2 and Zeynep Senyuz, 2 Assistant Directors, Division of Monetary Affairs, Board of Governors Dana L. Burnett, Michele Cavallo, 2 and Dan Li, Section Chiefs, Division of Monetary Affairs, Board of Governors Sean Savage, Senior Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Kurt F. Lewis, Principal Economist, Division of Monetary Affairs, Board of Governors; Christopher L. Smith, Principal Economist, Division of Research and Statistics, Board of Governors Ayelen Banegas, Senior Economist, Division of Monetary Affairs, Board of Governors Luke Pettit, 2 Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board of Governors Pon Sagnanert, Financial Analyst, Division of Monetary Affairs, Board of Governors Yvette McKnight, 3 Staff Assistant, Office of the Secretary, Board of Governors Meredith Black, First Vice President, Federal Reserve Bank of Dallas David Altig and Sylvain Leduc, Executive Vice Presidents, Federal Reserve Banks of Atlanta and San Francisco, respectively Bruce Fallick, Marc Giannoni, Susan McLaughlin, 2 Anna Nordstrom, 2 Angela O'Connor, 2 Keith Sill, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of Cleveland, Dallas, New York, New York, New York, Philadelphia, and Minneapolis, respectively Roc Armenter, 2 Kathryn B. Chen, 2 Joe Peek, Alexander L. Wolman, and Patricia Zobel, 2 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Boston, Richmond, and New York, respectively Samuel Schulhofer-Wohl, Senior Economist and Research Advisor, Federal Reserve Bank of Chicago Annual Organizational Matters 4 In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 29, 2019, had been received and that these individuals had executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Michael Strine, First Vice President of the Federal Reserve Bank of New York, as alternate Eric Rosengren, President of the Federal Reserve Bank of Boston, with Patrick Harker, President of the Federal Reserve Bank of Philadelphia, as alternate Charles L. Evans, President of the Federal Reserve Bank of Chicago, with Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, as alternate James Bullard, President of the Federal Reserve Bank of St. Louis, with Robert S. Kaplan, President of the Federal Reserve Bank of Dallas, as alternate Esther L. George, President of the Federal Reserve Bank of Kansas City, with Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, as alternate By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2020: Jerome H. Powell Chairman John C. Williams Vice Chairman James A. Clouse Secretary Matthew M. Luecke Deputy Secretary David W. Skidmore Assistant Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Michael Held Deputy General Counsel Richard M. Ashton Assistant General Counsel Steven B. Kamin Economist Thomas Laubach Economist Stacey Tevlin Economist Thomas A. Connors Rochelle M. Edge Eric M. Engen Beverly Hirtle Daniel G. Sullivan Geoffrey Tootell Christopher J. Waller William Wascher Jonathan L. Willis Beth Anne Wilson Associate Economists By unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Simon Potter and Lorie K. Logan to serve at the pleasure of the Committee as manager and deputy manager of the SOMA, respectively, on the understanding that these selections were subject to their being satisfactory to the Federal Reserve Bank of New York. Secretary's note: Advice subsequently was received that the manager and deputy manager selections indicated above were satisfactory to the Federal Reserve Bank of New York. By unanimous vote, the Committee approved the Authorization for Domestic Open Market Operations with a revision that makes clear that small value tests for rollovers and maturities are included in the $5 billion limit of the operational readiness testing program. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended. AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS (As amended effective January 29, 2019) OPEN MARKET TRANSACTIONS 1. The Federal Open Market Committee (the "Committee") authorizes and directs the Federal Reserve Bank selected by the Committee to execute open market transactions (the "Selected Bank"), to the extent necessary to carry out the most recent domestic policy directive adopted by the Committee: A. To buy or sell in the open market securities that are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act ("Eligible Securities") for the System Open Market Account ("SOMA"): i. As an outright operation with securities dealers and foreign and international accounts maintained at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps) at market prices; or ii. As a temporary operation: on a same-day or deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell ("repo transactions") or to sell such Eligible Securities subject to an agreement to repurchase ("reverse repo transactions") for a term of 65 business days or less, at rates that, unless otherwise authorized by the Committee, are determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual counterparties; B. To allow Eligible Securities in the SOMA to mature without replacement; C. To exchange, at market prices, in connection with a Treasury auction, maturing Eligible Securities in the SOMA with the Treasury, in the case of Eligible Securities that are direct obligations of the United States or that are fully guaranteed as to principal and interest by the United States; and D. To exchange, at market prices, maturing Eligible Securities in the SOMA with an agency of the United States, in the case of Eligible Securities that are direct obligations of that agency or that are fully guaranteed as to principal and interest by that agency. SECURITIES LENDING 2. In order to ensure the effective conduct of open market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis (except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions). A. Such securities lending must be: i. At rates determined by competitive bidding; ii. At a minimum lending fee consistent with the objectives of the program; iii. Subject to reasonable limitations on the total amount of a specific issue of Eligible Securities that may be auctioned; and iv. Subject to reasonable limitations on the amount of Eligible Securities that each borrower may borrow. B. The Selected Bank may: i. Reject bids that, as determined in its sole discretion, could facilitate a bidder's ability to control a single issue; ii. Accept Treasury securities or cash as collateral for any loan of securities authorized in this paragraph 2; and iii. Accept agency securities as collateral only for a loan of agency securities authorized in this paragraph 2. OPERATIONAL READINESS TESTING 3. The Committee authorizes the Selected Bank to undertake transactions of the type described in paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations: A. All transactions authorized in this paragraph 3 shall be conducted with prior notice to the Committee; B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i, 1.B, 1.C and 1.D shall not exceed $5 billion per calendar year; and C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed $5 billion at any given time. TRANSACTIONS WITH CUSTOMER ACCOUNTS 4. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts") and accounts maintained at a Federal Reserve Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the Foreign Accounts, the "Customer Accounts"), the Committee authorizes the following when undertaken on terms comparable to those available in the open market: A. The Selected Bank, for the SOMA, to undertake reverse repo transactions in Eligible Securities held in the SOMA with the Customer Accounts for a term of 65 business days or less; and B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account, when appropriate and subject to all other necessary authorization and approvals, to: i. Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo transaction in such Eligible Securities with the Customer Accounts; and ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts. Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a service fee when appropriate. Transactions undertaken with Customer Accounts are also subject to the authorization or approval of other entities, including the Board of Governors of the Federal Reserve System and, when involving accounts maintained at a Federal Reserve Bank as fiscal agent of the United States, the United States Department of the Treasury. ADDITIONAL MATTERS 5. The Committee authorizes the Chairman of the Committee, in fostering the Committee's objectives during any period between meetings of the Committee, to instruct the Selected Bank to act on behalf of the Committee to: A. Adjust somewhat in exceptional circumstances the stance of monetary policy and to take actions that may result in material changes in the composition and size of the assets in the SOMA; or B. Undertake transactions with respect to Eligible Securities in order to appropriately address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. Any such adjustment described in subparagraph A of this paragraph 5 shall be made in the context of the Committee's discussion and decision about the stance of policy at its most recent meeting and the Committee's long-run objectives to foster maximum employment and price stability, and shall be based on economic, financial, and monetary developments since the most recent meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph 5. The Committee voted unanimously to reaffirm without revision the Authorization for Foreign Currency Operations and the Foreign Currency Directive as shown below. AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS (As reaffirmed effective January 29, 2019) IN GENERAL 1. The Federal Open Market Committee (the "Committee") authorizes the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions for the System Open Market Account as provided in this Authorization, to the extent necessary to carry out any foreign currency directive of the Committee: A. To purchase and sell foreign currencies (also known as cable transfers) at home and abroad in the open market, including with the United States Treasury, with foreign monetary authorities, with the Bank for International Settlements, and with other entities in the open market. This authorization to purchase and sell foreign currencies encompasses purchases and sales through standalone spot or forward transactions and through foreign exchange swap transactions. For purposes of this Authorization, foreign exchange swap transactions are: swap transactions with the United States Treasury (also known as warehousing transactions), swap transactions with other central banks under reciprocal currency arrangements, swap transactions with other central banks under standing dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities in the open market. B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies. 2. All transactions in foreign currencies undertaken pursuant to paragraph 1 above shall, unless otherwise authorized by the Committee, be conducted: A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of the Articles of Agreement of the International Monetary Fund (IMF). 1 B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury. C. In consultation, as appropriate, with foreign monetary authorities, foreign central banks, and international monetary institutions. D. At prevailing market rates. STANDALONE SPOT AND FORWARD TRANSACTIONS 3. For any operation that involves standalone spot or forward transactions in foreign currencies: A. Approval of such operation is required as follows: i. The Committee must direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, exceeding $5 billion since the close of the most recent regular meeting of the Committee. The Foreign Currency Subcommittee (the "Subcommittee") must direct the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation with the Committee is not feasible in the time available. ii. The Committee authorizes the Subcommittee to direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close of the most recent regular meeting of the Committee. B. Such an operation also shall be: i. Generally directed at countering disorderly market conditions; or ii. Undertaken to adjust System balances in light of probable future needs for currencies; or iii. Conducted for such other purposes as may be determined by the Committee. C. For purposes of this Authorization, the overall volume of standalone spot and forward transactions in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the transaction. WAREHOUSING 4. The Committee authorizes the Selected Bank, with the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934 under agreements in which the Selected Bank purchases foreign currencies from the Exchange Stabilization Fund and the Exchange Stabilization Fund repurchases the foreign currencies from the Selected Bank at a later date (such purchases and sales also known as warehousing). RECIPROCAL CURRENCY ARRANGEMENTS, AND STANDING DOLLAR AND FOREIGN CURRENCY LIQUIDITY SWAPS 5. The Committee authorizes the Selected Bank to maintain reciprocal currency arrangements established under the North American Framework Agreement, standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary to carry out any foreign currency directive of the Committee. A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). B. For standing dollar liquidity swap arrangements all drawings must be approved in advance by the Chairman. The Chairman may approve a schedule of potential drawings, and may delegate to the manager, System Open Market Account, the authority to approve individual drawings that occur according to the schedule approved by the Chairman. C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). D. Operations involving standing dollar liquidity swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed at countering strains in financial markets in the United States or abroad, or reducing the risk that they could emerge, so as to mitigate their effects on economic and financial conditions in the United States. E. For reciprocal currency arrangements, standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements: i. All arrangements are subject to annual review and approval by the Committee; ii. Any new arrangements must be approved by the Committee; and iii. Any changes in the terms of existing arrangements must be approved in advance by the Chairman. The Chairman shall keep the Committee informed of any changes in terms, and the terms shall be consistent with principles discussed with and guidance provided by the Committee. OTHER OPERATIONS IN FOREIGN CURRENCIES 6. Any other operations in foreign currencies for which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions with privateâsector counterparties) must be authorized and directed in advance by the Committee. FOREIGN CURRENCY HOLDINGS 7. The Committee authorizes the Selected Bank to hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks, the Bank for International Settlements, and such other foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent necessary to carry out any foreign currency directive of the Committee. A. The Selected Bank shall manage all holdings of foreign currencies for the System Open Market Account: i. Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency operations as directed by the Committee; ii. Secondarily, to maintain a high degree of safety; iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and iv. To achieve such other objectives as may be authorized by the Committee. B. The Selected Bank may manage such foreign currency holdings by: i. Purchasing and selling obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof ("Permitted Foreign Securities") through outright purchases and sales; ii. Purchasing Permitted Foreign Securities under agreements for repurchase of such Permitted Foreign Securities and selling such securities under agreements for the resale of such securities; and iii. Managing balances in various time and other deposit accounts at foreign institutions approved by the Board of Governors under Regulation N. C. The Subcommittee, in consultation with the Committee, may provide additional instructions to the Selected Bank regarding holdings of foreign currencies. ADDITIONAL MATTERS 8. The Committee authorizes the Chairman: A. With the prior approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the United States Treasury about the division of responsibility for foreign currency operations between the System and the United States Treasury; B. To advise the Secretary of the United States Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations; C. To designate Federal Reserve System persons authorized to communicate with the United States Treasury concerning System Open Market Account foreign currency operations; and D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies. 9. The Committee authorizes the Selected Bank to undertake transactions of the type described in this Authorization, and foreign exchange and investment transactions that it may be otherwise authorized to undertake, from time to time for the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice to the Committee. 10. All Federal Reserve banks shall participate in the foreign currency operations for System Open Market Account in accordance with paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944. 11. Any authority of the Subcommittee pursuant to this Authorization may be exercised by the Chairman if the Chairman believes that consultation with the Subcommittee is not feasible in the time available. The Chairman shall promptly report to the Subcommittee any action approved by the Chairman pursuant to this paragraph. 12. The Committee authorizes the Chairman, in exceptional circumstances where it would not be feasible to convene the Committee, to foster the Committee's objectives by instructing the Selected Bank to engage in foreign currency operations not otherwise authorized pursuant to this Authorization. Any such action shall be made in the context of the Committee's discussion and decisions regarding foreign currency operations. The Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph. FOREIGN CURRENCY DIRECTIVE (As reaffirmed effective January 29, 2019) 1. The Committee directs the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions, for the System Open Market Account, in accordance with the provisions of the Authorization for Foreign Currency Operations (the "Authorization") and subject to the limits in this Directive. 2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the United States Treasury and if approved by the Foreign Currency Subcommittee (the "Subcommittee"), subject to the limitation that the outstanding balance of United States dollars provided to the United States Treasury as a result of these transactions not at any time exceed $5 billion. 3. The Committee directs the Selected Bank to maintain, for the System Open Market Account: A. Reciprocal currency arrangements with the following foreign central banks: Foreign central bank Maximum amount (millions of dollars or equivalent) Bank of Canada 2,000 Bank of Mexico 3,000 B. Standing dollar liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank C. Standing foreign currency liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank 4. The Committee directs the Selected Bank to hold and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization. 5. The Committee directs the Selected Bank to report to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization. 6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of paragraph 9 of the Authorization. By unanimous vote, the Committee reaffirmed its Program for Security of FOMC Information. In the Committee's annual reconsideration of the Statement on Longer-Run Goals and Monetary Policy Strategy, participants agreed that only a minor revision was required at this meeting, which was to update the reference to the median of FOMC participants' estimates of the longer-run normal rate of unemployment from 4.6 percent to 4.4 percent. All participants supported the statement with the revision, and the Committee voted unanimously to approve the updated statement. STATEMENT ON LONGER-RUN GOALS AND MONETARY POLICY STRATEGY (As amended effective January 29, 2019) The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society. Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals. The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. The Committee would be concerned if inflation were running persistently above or below this objective. Communicating this symmetric inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances. The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, the median of FOMC participants' estimates of the longer-run normal rate of unemployment was 4.4 percent. In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January. Developments in Financial Markets and Open Market Operations The deputy manager of the System Open Market Account (SOMA) provided an overview of developments in U.S. and global financial markets. Financial markets were quite volatile over the intermeeting period. Market participants pointed to a number of factors as contributing to the heightened volatility and sustained declines in risk asset prices and interest rates over recent months including a weaker outlook and greater uncertainties for foreign economies (particularly for Europe and China), perceptions of greater policy risks, and the partial shutdown of the federal government. Against this backdrop, market participants appeared to interpret FOMC communications at the time of the December meeting as not fully appreciating the tightening of financial conditions and the associated downside risks to the U.S. economic outlook that had emerged since the fall. In addition, some market reports suggested that investors perceived the FOMC to be insufficiently flexible in its approach to adjusting the path for the federal funds rate or the process for balance sheet normalization in light of those risks. The deterioration in risk sentiment late in December was reportedly amplified by poor liquidity and thin trading conditions around year-end. Early in the new year, market sentiment improved following communications by Federal Reserve officials emphasizing that the Committee could be "patient" in considering further adjustments to the stance of policy and that it would be flexible in managing the reduction of securities holdings in the SOMA. On balance, stock prices finished the period up almost 5 percent while corporate risk spreads narrowed, reversing a portion of the changes in these variables since the September FOMC meeting. The deputy manager reported results from the Open Market Desk's latest surveys of primary dealers and market participants. Regarding the outlook for policy, the median path for the federal funds rate among respondents had shifted down about 25 basis points relative to the responses from the surveys conducted ahead of the December meeting. Moreover, the average probability that respondents attached to an increase in the target range as the next policy action declined and the corresponding probabilities they attached to the possibility that the target range would be unchanged or lowered at some point this year increased. Concerning expectations for the FOMC statement, many survey respondents anticipated the retention of language pointing to the likelihood of "some further gradual increases" in the target range for the federal funds rate but many also expected the statement to emphasize patience or data dependence in the conduct of policy. Consistent with recent communications that the FOMC would be flexible in its approach to balance sheet normalization, the survey results also suggested that the respondents anticipated that the Committee would slow the balance sheet runoff in scenarios that involved a reduction in the target range for the federal funds rate. In reviewing money market developments, the deputy manager noted that federal funds continued to trade at rates close to the interest on excess reserves rate. Moreover, no signs of reserve scarcity were evident in the behavior of the federal funds rate; the correlation between daily changes in reserve balances and the federal funds rate remained close to zero. In other markets, repurchase agreement (repo) rates spiked at year-end, reportedly reflecting strong demands for financing from dealers associated with large Treasury auction net settlements on that day combined with a cutback in the supply of financing available from banks and others managing the size of their balance sheets over year-end for reporting purposes. The deputy manager noted that the Federal Reserve Bank of New York was planning to release a notice in early February for public comment on plans to include new data on selected deposits in the calculation of the overnight bank funding rate (OBFR). In addition, the staff had begun work aimed at publishing a series of backward-looking average secured overnight financing rates (SOFR) as a further step to support reference rate reform. The staff planned to solicit public feedback on this effort later this year and initiate publication of these averages by the first half of 2020. Following the briefing, participants raised a number of questions about market reports that the Federal Reserve's balance sheet runoff and associated "quantitative tightening" had been an important factor contributing to the selloff in equity markets in the closing months of last year. While respondents assessed that the reduction of securities held in the SOMA would put some modest upward pressure on Treasury yields and agency mortgage-backed securities (MBS) yields over time, they generally placed little weight on balance sheet reduction as a prime factor spurring the deterioration in risk sentiment over that period. However, some other investors reportedly held firmly to the belief that the runoff of the Federal Reserve's securities holdings was a factor putting significant downward pressure on risky asset prices, and the investment decisions of these investors, particularly in thin market conditions around the year-end, might have had an outsized effect on market prices for a time. Participants also discussed the hypothesis that investors may have taken some signal about the future path of the federal funds rate based on perceptions that the Federal Reserve was unwilling to adjust the pace of balance sheet runoff in light of economic and financial developments. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Long-Run Monetary Policy Implementation Frameworks Committee participants resumed their discussion from the December 2018 meeting of the appropriate long-run framework for monetary policy implementation. At the January meeting, the staff provided briefings on the effectiveness and efficiency of the Committee's current operating regime and on options for transitioning to the longer-run size of the balance sheet. The staff noted that the Committee had previously indicated that, in the longer run, it intends to operate with no more securities holdings than necessary to implement monetary policy efficiently and effectively. In considering the effectiveness of the operating regime, the staff observed that over recent years, the Federal Reserve had been able to implement monetary policy in an environment with ample reserves by adjusting administered rates--including the rates on required and excess reserve balances and the offered rate at the overnight reverse repurchase agreement facility--without needing to actively manage the supply of reserves. Over this period, the effective federal funds rate was generally steady at levels well within the Committee's target range despite substantial changes in the level of reserves in the banking system and significant changes in money markets, regulations, and financial institutions' business models. In addition, other money market rates generally moved closely with the federal funds rate. The current regime was therefore effective both in providing control of the policy rate and in ensuring transmission of the policy stance to other rates and broader financial markets. The staff briefing also included a discussion of factors relevant in judging the level of reserves that would support the efficient implementation of monetary policy. The staff suggested that maintaining a buffer of reserves above the minimum quantity that corresponds to the flat portion of the reserve demand curve could reduce the size and frequency of open market operations needed to maintain good control of the policy rate. The aggregate level of reserves had already declined by $1.2 trillion from a peak level of $2.8 trillion reached in October 2014; the decline stemmed from both reductions in asset holdings and increases in nonreserve liabilities such as Federal Reserve notes in circulation. Some recent survey information and other evidence suggested that reserves might begin to approach an efficient level later this year. Against this backdrop, the staff presented options for substantially slowing the decline in reserves by ending the reduction in asset holdings at some point over the latter half of this year and thereafter holding the size of the SOMA portfolio roughly constant for a time so that the average level of reserves would fall at a very gradual pace reflecting the trend growth in other Federal Reserve liabilities. The staff also described options for communicating plans both for the operating regime and for the completion of the normalization of the size of the balance sheet. If the Committee reached a decision to continue using its current operating regime, announcing this decision after the current meeting would help reduce uncertainty about both the long-run implementation framework and the likely evolution of the balance sheet. In addition, the Committee could revise its previous communications to make clear that it was flexible in its approach to normalizing the balance sheet and was prepared to change the details of its balance sheet normalization plans in light of economic and financial developments if necessary to support the FOMC's broader policy goals. The staff noted that, after the end of asset redemptions, the Desk could reinvest principal payments received from holdings of agency MBS in Treasury securities as directed. Participants noted some of the key advantages of the Federal Reserve's current operating regime, including good control of the policy rate in a variety of conditions and good transmission to other money market rates and broader financial markets. They observed that a regime that controlled the policy rate through active management of the supply of reserves likely would have disadvantages. In particular, the level and variability of reserve demand and supply were likely to be much larger than in the period before the crisis, and stabilizing the policy rate in this environment would require large and frequent open market operations. Participants judged that, in light of their extensive previous discussions, it was now appropriate to provide the public with more certainty that the Federal Reserve would continue to use its current operating regime. Choosing an operating regime would also allow the Committee to move forward on related issues, including plans for concluding the normalization of the size of the balance sheet. Participants emphasized the importance of describing their chosen operating regime in clear terms to enhance public understanding. Participants discussed market commentary that suggested that the process of balance sheet normalization might be influencing financial markets. Participants noted that the ongoing reduction in the Federal Reserve's asset holdings had proceeded smoothly for more than a year, with no significant effects on financial markets. The gradual reduction in securities holdings had been announced well in advance and, as intended, was proceeding largely in the background, with the federal funds rate remaining the Committee's primary tool for adjusting the stance of policy. Nonetheless, some investors might have interpreted previous communications as indicating that a very high threshold would have to be met before the Committee would be willing to adjust its balance sheet normalization plans. Participants observed that, although the target range for the federal funds rate was the Committee's primary means of adjusting the stance of policy, the balance sheet normalization process should proceed in a way that supports the achievement of the Federal Reserve's dual-mandate goals of maximum employment and stable prices. Consistent with this principle, participants agreed that it was important to be flexible in managing the process of balance sheet normalization, and that it would be appropriate to adjust the details of balance sheet normalization plans in light of economic and financial developments if necessary to achieve the Committee's macroeconomic objectives. Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve's balance sheet. A substantial majority expected that when asset redemptions ended, the level of reserves would likely be somewhat larger than necessary for efficient and effective implementation of monetary policy; if so, many suggested that some further very gradual decline in the average level of reserves, reflecting the trend growth of other liabilities such as Federal Reserve notes in circulation, could be appropriate. In these participants' view, this process would allow the Federal Reserve to arrive slowly at an efficient level of reserves while maintaining good control of short-term interest rates without needing to engage in more frequent open market operations. A few participants judged that there would be little benefit to allowing reserves to continue to fall after the end of redemptions or that this approach could have costs, such as an undue risk of volatility in short-term interest rates, that would exceed its benefits. These participants thought that upon ending asset redemptions, the Federal Reserve should begin adding to its assets to offset growth in nonreserve liabilities, so as to keep the average level of reserves relatively stable. A couple of participants suggested that a ceiling facility to mitigate temporary unexpected pressures in reserve markets could play a useful role in supporting policy implementation at lower levels of reserves. Participants commented that, in light of the Committee's longstanding plan to hold primarily Treasury securities in the long run, it would be appropriate once asset redemptions end to reinvest most, if not all, principal payments received from agency MBS in Treasury securities. Some thought that continuing to reinvest agency MBS principal payments in excess of $20 billion per month in agency MBS, as under the current balance sheet normalization plan, would simplify communications or provide a helpful backstop against scenarios in which large declines in long-term interest rates caused agency MBS prepayment speeds to increase sharply. However, some others judged that retaining the cap on agency MBS redemptions was unnecessary at this stage in the normalization process. These participants noted considerations in support of this view, including that principal payments were unlikely to reach the $20 billion level after 2019, that the cap could slightly slow the return to a portfolio of primarily Treasury securities, or that the Committee would have the flexibility to adjust the details of its balance sheet normalization plans in light of economic and financial developments. Participants commented that it would be important over time to develop and communicate plans for reinvesting agency MBS principal payments, and they expected to continue their discussion of balance sheet normalization and related issues at upcoming meetings. Following the discussion, the Chairman proposed that the Committee communicate its intentions regarding monetary policy implementation and its willingness to adjust the details of its balance sheet normalization program by publishing a statement at the conclusion of the meeting. All participants agreed with the proposed statement. STATEMENT REGARDING MONETARY POLICY IMPLEMENTATION AND BALANCE SHEET NORMALIZATION (Adopted January 30, 2019) After extensive deliberations and thorough review of experience to date, the Committee judges that it is appropriate at this time to provide additional information regarding its plans to implement monetary policy over the longer run. Additionally, the Committee is revising its earlier guidance regarding the conditions under which it could adjust the details of its balance sheet normalization program. 5 Accordingly, all participants agreed to the following: The Committee intends to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy. The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate. Staff Review of the Economic Situation The information available for the January 29-30 meeting indicated that labor market conditions continued to strengthen and that growth in real gross domestic product (GDP) was solid in the fourth quarter of last year, although the availability of data was more limited than usual because of the partial federal government shutdown that extended from December 22 to January 25. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), was a bit below 2 percent in November, held down in part by recent declines in consumer energy prices. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded strongly in December. The national unemployment rate edged up but was still at a low level of 3.9 percent, while the labor force participation rate also increased somewhat; as a result, the employment-to-population ratio remained steady in December. The unemployment rates for African Americans, Asians, and Hispanics in December were below their levels at the end of the previous economic expansion, although persistent differentials in unemployment rates across groups remained. The share of workers employed part time for economic reasons continued to be close to the lows reached in late 2007. The rates of private-sector job openings and quits edged down in November but were still at high levels; initial claims for unemployment insurance benefits through the middle of January were near historically low levels. Average hourly earnings for all employees rose 3.2 percent over the 12 months ending in December. Industrial production increased solidly in December. Output gains were strong in the manufacturing and mining sectors, while the output of utilities declined, with warmer-than-usual temperatures lowering the demand for heating. Automakers' assembly schedules suggested that the production of light motor vehicles would ease somewhat in the first quarter, although new orders indexes from national and regional manufacturing surveys pointed to moderate gains in overall factory output in the coming months. Household spending looked to have increased strongly in the fourth quarter, as real PCE growth was strong in October and November. The release of the retail sales report for December was delayed, but available indicators--such as credit card and debit card transaction data and light motor vehicle sales--suggested that household spending growth remained strong in December. Key factors that influence consumer spending--including ongoing gains in real disposable personal income and still-elevated measures of households' net worth--continued to be supportive of solid real PCE growth in the near term. Consumer sentiment, as measured by the University of Michigan Surveys of Consumers, was less upbeat in early January than it had been last year but remained at a generally favorable level. Real residential investment appeared to have declined again in the fourth quarter, likely reflecting in part decreases in the affordability of housing arising from both the net increase in mortgage interest rates over the past year and ongoing, though somewhat slower, house price appreciation. Data on starts and permits for new residential construction in December were not available, but building permit issuance for new single-family homes--which tends to be a good indicator of the underlying trend in construction of such homes--had moved down modestly in the previous couple of months. Sales of existing homes decreased, on net, over November and December, while data on new home sales for those two months were delayed. Growth in real private expenditures for business equipment and intellectual property looked to have picked up solidly in the fourth quarter. Nominal shipments of nondefense capital goods excluding aircraft rose, on balance, in October and November, while information on shipments for December was delayed; available indicators of transportation equipment spending in the fourth quarter were strong. Forward-looking indicators of business equipment spending--such as orders for nondefense capital goods excluding aircraft and readings on business sentiment--pointed to somewhat slower spending gains in the near term. Data on nominal business expenditures for nonresidential structures outside of the drilling and mining sector in November were not available. The number of crude oil and natural gas rigs in operation--an indicator of business spending for structures in the drilling and mining sector--was roughly flat in December and through most of January. Total real government purchases appeared to have increased moderately in the fourth quarter. Nominal defense spending in October and November pointed to solid growth in real federal purchases, although spending data for December were delayed. The partial federal government shutdown restrained real federal purchases somewhat in the fourth quarter and likely had a more significant negative effect on federal purchases in the first quarter. Real purchases by state and local governments looked to have risen modestly in the fourth quarter, as the payrolls of those governments expanded a bit over that period. Nominal state and local construction spending had risen solidly in October, but construction data for November were delayed. Data on U.S. international trade for November and December also were delayed. The available data for October suggested that the contribution of the change in net exports to real GDP growth in the fourth quarter would be much less negative than the drag of nearly 2 percentage points in the third quarter. Total U.S. consumer prices, as measured by the PCE price index, increased 1.8 percent over the 12 months ending in November. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.9 percent over that same period. The consumer price index (CPI) rose 1.9 percent over the 12 months ending in December, while core CPI inflation was 2.2 percent. Recent readings on survey-based measures of longer-run inflation expectations--including those from the Michigan survey and the Desk's Survey of Primary Dealers and Survey of Market Participants--were little changed. Recent data suggested that foreign economic growth was subdued in the fourth quarter relative to earlier in the year. In the advanced foreign economies (AFEs), especially the euro area, indicators of economic activity weakened further, though they remained consistent with positive economic growth. In the emerging market economies (EMEs), growth in Mexico and Brazil appeared to have slowed to a modest pace in the fourth quarter after a temporary pickup in the third quarter. The Chinese economy expanded at a slower pace than earlier in the year amid notable weakness in household spending, and Chinese imports from other emerging Asian economies turned down. Foreign inflation fell in the fourth quarter, largely reflecting lower oil prices. Inflation pressures, especially in some AFEs, generally remained muted. Staff Review of the Financial Situation Investor risk sentiment fluctuated materially over the intermeeting period. A variety of factors--including FOMC communications, weaker-than-expected data, trade policy uncertainties, the partial federal government shutdown, and concerns about the outlook for corporate earnings--were cited by market participants as contributing to a deterioration in risk sentiment early in the period. During this time, broad equity indexes declined substantially amid a sharp rise in financial market volatility, and corporate bond spreads widened notably. Subsequently, positive signals regarding trade policy, robust economic data releases, and communications from FOMC participants led to an improvement in risk sentiment. On net, the S&P 500 index rose, option-implied volatility--the VIX--fell, Treasury yields declined, and corporate spreads narrowed over the intermeeting period. Despite the intermeeting moves in financial markets, financial conditions remained notably tighter than in September 2018. Financing conditions for businesses and households tightened a bit further over the intermeeting period but remained generally supportive of spending. December FOMC communications were reportedly perceived by market participants as not fully appreciating the implications of tighter financial conditions and softening global data over recent months for the U.S. economic outlook. Subsequent communications from FOMC participants were interpreted as suggesting that the FOMC would be patient in assessing the implications of recent economic and financial developments. The market-implied path for the federal funds rate in 2019 was little changed, on net, over the intermeeting period and investors continued to expect no change to the target range for the federal funds rate at the January FOMC meeting. The market-implied path for 2020 shifted down somewhat. Nominal Treasury yields fluctuated substantially, with heightened risk aversion contributing to a significant decline in yields early in the intermeeting period. Subsequently, yields rose, though 2-, 5-, and 10-year yields still ended the period somewhat lower, on net. The spread between the yields on nominal 10- and 2-year Treasury securities was little changed over the period, and remained in the lower end of its historical range over recent decades. The near-term forward spread--the difference between the current implied three-month forward rate at a horizon six quarters ahead (derived from the Treasury yield curve) and the current yield on a three-month Treasury bill--narrowed, on net, and also was in the lower end of its historical distribution. The 5-year and 5-to-10-year-forward inflation compensation measures based on Treasury Inflation-Protected Securities (TIPS) edged down a bit over the period; both measures were down significantly from levels prevailing in the fall of last year. In U.S. risky asset markets, the S&P 500 equity index was down as much as 8 percent at one point during the period but ended the period notably higher. On net, the VIX fell substantially while corporate bond spreads narrowed a bit. The federal funds rate and other overnight funding rates rose following the increase in the target range for the federal funds rate at the December FOMC meeting. Year-end pressures in repo markets were reportedly exacerbated by a high volume of settlements of Treasury securities against a backdrop of large dealer inventories and reduced intermediation by global systemically important banks. General collateral repo rates moved up sharply at year-end but subsequently returned to normal levels. Foreign financial markets followed the same general pattern as those in the United States. On balance, foreign equity prices moved up moderately and sovereign credit spreads in EMEs narrowed. Moreover, inflows to dedicated emerging market funds resumed after two quarters of outflows. Longer-term sovereign yields in AFEs edged lower on net. The dollar depreciated broadly amid falling U.S. yields and greater investor optimism about prospects for some EMEs. The dollar depreciated notably against the British pound, on net, as market participants reportedly saw an increased likelihood of a delay in the Brexit process. The dollar also depreciated considerably against the Brazilian real and the Mexican peso following progress on pension reform in Brazil and a fiscal announcement in Mexico that was perceived as prudent. Financing conditions for nonfinancial firms tightened somewhat, on balance. Gross issuance of corporate bonds slowed considerably in December across the credit rating spectrum but rebounded in January. Even so, the volume of high-yield bonds issued by nonfinancial firms remained well below its average over the past few years. Spreads on nonfinancial corporate bonds were volatile but narrowed a bit, on net, and stayed at levels well above those that prevailed a year ago. The credit quality of nonfinancial corporations continued to show signs of deterioration, although actual corporate bond defaults remained low overall. Institutional leveraged loan issuance slowed in December to its lowest level since July 2016, as loan spreads widened substantially. Small business credit market conditions were little changed, and credit conditions in municipal bond markets stayed accommodative on net. Private-sector analysts significantly revised down their projections for corporate earnings for the fourth quarter and for 2019 as a whole. The pace of gross equity issuance through both initial and seasoned offerings was sluggish in December, amid reports that several firms may have pushed back initial equity offerings. Respondents to the January 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported that lending standards for commercial and industrial (C&I) loans remained basically unchanged in the fourth quarter, after having reported easing standards over the past several quarters. Growth of C&I loans on banks' balance sheets picked up in the fourth quarter, reflecting stronger originations as well as reduced paydowns and loan sales. In the commercial real estate (CRE) sector, financing conditions remained accommodative. Although commercial mortgage backed securities (CMBS) spreads were volatile, they were little changed, on net, over the intermeeting period, and issuance of both agency and non-agency CMBS remained strong. CRE loan growth at banks continued to expand at a pace comparable with that seen over the course of 2018. Banks in the January SLOOS reported that demand was unchanged, on net, in the fourth quarter for nonfarm nonresidential loans, the largest CRE loan category, while demand was reportedly weaker for multifamily loans and construction loans. On balance, banks reported tightening their standards for all types of CRE loans in the fourth quarter. Financing conditions in the residential mortgage market also remained accommodative for most borrowers. Purchase mortgage origination activity continued to decline modestly through November, while refinancing activity continued to be muted. In consumer credit markets, financing conditions tightened a bit but, on balance, remained generally supportive of growth in household spending. Banks reported in the SLOOS that they tightened credit card lending standards during the fourth quarter. In the consumer asset-backed securities market, spreads widened somewhat amid broad market volatility. The staff provided an update on its views with respect to potential risks to financial stability. The increase in financial market volatility seen over the fall of last year was characterized as a return to historically more typical levels, following the historically low-volatility environment that persisted through much of 2017 and 2018. However, the increase in volatility in financial markets in December was viewed as substantial and as likely exacerbated by thin year-end liquidity, among other factors. Staff judged asset valuation pressures in equity and corporate debt markets to have abated somewhat in the period since the assessment presented in the November 2018 financial stability report. Staff continued to monitor developments in the leveraged loan market given the sharp rise in spreads and slowdown in issuance late last year. The build-up in overall nonfinancial business debt to levels close to historical highs relative to GDP was viewed as a factor that could amplify adverse shocks to the business sector. Staff continued to judge risks associated with household-sector debt as moderate. Both the risks associated with financial leverage and the vulnerabilities related to maturity transformation were viewed as being low, as they have been for some time. Staff Economic Outlook The U.S. economic forecast prepared by the staff for the January FOMC meeting was revised down a little, on balance, primarily reflecting somewhat lower projected paths for domestic equity prices and foreign economic growth. The staff estimated that U.S. real GDP growth was solid in the fourth quarter of last year, bolstered by consumer spending and business investment, and that the effects of the partial federal government shutdown were quite small in that quarter. Real GDP growth was expected to slow but remain solid in the first half of this year, with the effects of the partial federal government shutdown modestly restraining GDP growth in the first quarter and those effects being reversed in the second quarter. In the medium term, real GDP growth in 2019 was forecast to be at a rate above the staff's estimate of potential output growth, step down to the growth rate of potential output next year and then slow further to a pace below potential output growth in 2021. The unemployment rate was projected to decline somewhat further below the staff's estimate of its longer-run natural rate but to bottom out by the end of this year and begin to edge up in 2021. With labor market conditions judged to already be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate. The staff's forecast for inflation was little revised for the January FOMC meeting. Core PCE price inflation was still expected to step up to 2 percent over this year as a whole and then to run at that level through the medium term. Total PCE price inflation was forecast to be a little below core inflation this year and next, reflecting projected declines in energy prices, and then to run at the same level as core inflation in 2021. The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. The staff also saw the risks to the forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand faster than the staff projected, supported in part by the tax cuts enacted last year. On the downside, trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth. Risks to the inflation projection also were seen as balanced. The upside risk that inflation could increase more than expected in an economy that was projected to move further above its potential was counterbalanced by the downside risk that longer-term inflation expectations may be lower than was assumed in the staff forecast, as well as the possibility that the dollar could appreciate if foreign economic conditions deteriorated. Participants' Views on Current Conditions and the Economic Outlook Participants agreed that over the intermeeting period the labor market had continued to strengthen and that economic activity had been rising at a solid rate. Job gains had been strong, on average, in recent months, and the unemployment rate had remained low. Household spending had continued to grow strongly, while growth of business fixed investment had moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy had remained near 2 percent. Although market-based measures of inflation compensation had moved lower in recent months, survey-based measures of longer-term inflation expectations were little changed. Participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes over the next few years. Participants generally continued to expect the growth rate of real GDP in 2019 to step down somewhat from the pace seen over 2018 to a rate closer to their estimates of longer-run growth, with a few participants commenting that waning fiscal stimulus was expected to contribute to the step-down. Several participants commented that they had nudged down their outlooks for output growth since the December meeting, citing a softening in consumer or business sentiment, a reduction in the outlook for foreign economic growth, or the tightening in financial conditions that had occurred in recent months. In their discussion of the household sector, participants noted that recent data on spending had been strong, supported by a strong job market and rising incomes. A couple of participants commented that contacts in their Districts remained optimistic about consumer spending. However, some participants noted the recent softening in surveys of consumer sentiment. Participants observed that the recent partial federal government shutdown had presented a significant hardship for many families. A few participants also pointed to continued weakness in the housing sector, which was attributed in part to concerns about affordability among potential homebuyers. Participants noted that growth of business fixed investment had moderated from its rapid pace earlier last year. Some participants highlighted that recent surveys of business sentiment or District contacts had indicated some weakening in optimism or confidence about the economic outlook, though available indicators suggested that the level of business sentiment had remained high. Concerns about the economic outlook were variously attributed to uncertainty or worries about slowing global economic growth, including in Europe and China; trade policy; waning fiscal policy stimulus; and the partial government shutdown. Manufacturing contacts in a number of Districts indicated that such factors were causing them to delay or defer capital expenditures. In addition, a few participants noted that recent declines in oil or gasoline prices had damped plans for capital expenditures in the energy sector. A few participants observed that conditions in the agricultural sector remained difficult, citing large inventories of agricultural commodities, uncertainty about international trade policies, and concerns regarding low prices of commodities and farmland. However, a few participants commented that business optimism had increased among contacts in their Districts, or that they were planning new capital expenditures. Participants observed that both overall inflation and inflation for items other than food and energy remained near 2 percent on a 12-month basis. Participants continued to view inflation near the Committee's symmetric 2 percent objective as the most likely outcome. Some participants noted that some factors, such as the decline in oil prices, slower growth and softer inflation abroad, or appreciation of the dollar last year, had held down some recent inflation readings and may continue to do so this year. In addition, many participants commented that upward pressures on inflation appeared to be more muted than they appeared to be last year despite strengthening labor market conditions and rising input costs for some industries. In their discussion of indicators of inflation expectations, participants noted that market-based measures of inflation compensation had moved lower in recent months. Participants expressed a range of views in interpreting the decline in inflation compensation. On the one hand, that decline could stem from a decrease in expected inflation on the part of market participants. In that case, the current low levels of inflation compensation could suggest that inflation expectations are below the Committee's 2 percent inflation objective. On the other hand, the decline in inflation compensation might reflect in large part declines in risk premiums or increased concerns about downside risks to the outlook for inflation. This interpretation was seen as consistent with the behavior of the most recent survey-based measures of expected inflation, which were little changed. In their discussion of labor markets, participants agreed that conditions had continued to strengthen. Estimates of job gains in the December employment report had been strong, the unemployment rate had remained low, and the labor force participation rate had moved up. Several participants noted solid rates of hiring or other indicators of tight labor market conditions in their Districts. Some participants commented on recent indicators at the national or District levels as suggesting a pickup in wage growth. The pickup was attributed to tightening in national or District labor market conditions or to gains in the rate of productivity growth. Continued solid productivity growth was seen as a key factor necessary to support rising real wages over time. Participants commented on a number of risks associated with their outlook for economic activity, the labor market, and inflation over the medium term. Participants noted that some risks to the downside had increased, including the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions. An increase in some foreign and domestic government policy uncertainties, including those associated with Brexit, an escalation in international trade policy tensions, and the potential for additional extended federal government shutdowns were also cited as downside risks. A few participants expressed concern that longer-run inflation expectations may be lower than levels consistent with the Committee's 2 percent inflation objective. Several participants judged that risks that could lead to higher-than-expected inflation had diminished relative to downside risks. The potential that various sources of uncertainty might abate more quickly than expected was mentioned as a potential upside risk for the economic outlook. In their discussion of financial developments, participants noted that although financial market conditions had not changed much, on net, over the intermeeting period, prices had been volatile and financial conditions were materially tighter than they had been several months ago, with lower equity prices and wider corporate risk spreads. Several participants also noted that the slope of the Treasury yield curve was unusually flat by historical standards, which in the past had often been associated with a deterioration in future macroeconomic performance. Participants noted that financial asset prices appeared to be sensitive to information regarding trade policy tensions, domestic fiscal and monetary policy, and global economic growth prospects. A couple of participants noted that the rise in credit spreads over recent months, if it were to persist, could restrain future economic activity. Participants agreed that it was important to continue to monitor financial market developments and assess the implications of these developments for the economic outlook. Among those participants who commented on financial stability, a number expressed concerns about the elevated financial market volatility and the apparent decline in investors' willingness to bear risk that occurred toward the end of last year. Although these conditions had eased somewhat in recent weeks, a couple of participants noted that the strain in financial markets might have persisted or spread if it had occurred during a period of less favorable macroeconomic conditions. A couple of participants highlighted the role that decreased liquidity at the end of the year appeared to play in exacerbating changes in financial market conditions. They emphasized the need to monitor financial market structures or practices that may contribute to strained liquidity conditions. A few participants highlighted the importance of ensuring that financial institutions were able to withstand adverse financial market events--for instance, by maintaining adequate levels of capital. In their consideration of monetary policy at this meeting, participants judged that information received since December indicated that real economic activity had been rising at a solid rate, labor market conditions had continued to strengthen, and inflation had been near the Committee's objective. Participants generally expected economic activity to continue expanding at a solid pace in the period ahead, with strong labor market conditions and inflation near 2 percent. At the time of the December meeting, the Committee had noted that it would continue to monitor global economic and financial developments and assess their implications for the economic outlook. Participants observed that since then, the economic outlook had become more uncertain. Financial market volatility had remained elevated over the intermeeting period, and, despite some easing since the December FOMC meeting, overall financial conditions had tightened since September. In addition, the global economy had continued to record slower growth, and consumer and business sentiment had deteriorated. The government policy environment, including trade negotiations and the recent partial federal government shutdown, was also seen as a factor contributing to uncertainty about the economic outlook. Based on their current assessments, all participants expressed the view that it would be appropriate for the Committee to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. With regard to the Committee's postmeeting statement, participants supported a proposed change in the forward guidance language that would replace the previous guidance referring to "some further gradual increases in the target range for the federal funds rate" with an indication that, in light of "global economic and financial developments and muted inflation pressures," the Committee would "be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate." Participants also supported a proposal to remove from the statement the characterization of risks to the economic outlook as "roughly balanced." Participants pointed to a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook. With regard to the domestic economic picture, additional data would help policymakers gauge the trajectory of business and consumer sentiment, whether the recent softness in core and total inflation and inflation compensation would persist, and the effect of the tightening of financial conditions on aggregate demand. Information arriving in coming months could also shed light on the effects of the recent partial federal government shutdown on the U.S. economy and on the results of the budget negotiations occurring in the wake of the shutdown, including the possible implications for the path of fiscal policy. A patient approach would have the added benefit of giving policymakers an opportunity to judge the response of economic activity and inflation to the recent steps taken to normalize the stance of monetary policy. Furthermore, a patient posture would allow time for a clearer picture of the international trade policy situation and the state of the global economy to emerge and, in particular, could allow policymakers to reach a firmer judgment about the extent and persistence of the economic slowdown in Europe and China. Participants noted that maintaining the current target range for the federal funds rate for a time posed few risks at this point. The current level of the federal funds rate was at the lower end of the range of estimates of the neutral policy rate. Moreover, inflation pressures were muted, and asset valuations were less stretched than they had been a few months earlier. Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year; several of these participants argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook. Several other participants indicated that, if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year. Participants observed that a patient posture in these circumstances was consistent with their general approach to setting the stance of policy, in which they were importantly guided by the implications of incoming data for the economic outlook. Some participants noted that, while global economic and financial developments had been important factors leading to a patient monetary policy posture, those developments mattered because they affected assessments of the policy rate path most consistent with achievement of the Committee's dual-mandate goals of maximum employment and price stability. Many participants observed that if uncertainty abated, the Committee would need to reassess the characterization of monetary policy as "patient" and might then use different statement language. A few participants expressed concerns that in the current environment of increased uncertainty, the policy rate projections prepared as part of the Summary of Economic Projections (SEP) do not accurately convey the Committee's policy outlook. These participants were concerned that, although the individual participants' projections for the federal funds rate in the SEP reflect their individual views of the appropriate path for the policy rate conditional on the evolution of the economic outlook, at times the public had misinterpreted the median or central tendency of those projections as representing the consensus view of the Committee or as suggesting that policy was on a preset course. However, some other participants noted that the policy rate projections in the SEP are a valuable component of the overall information provided about the monetary policy outlook. Committee Policy Action In their discussion of monetary policy for the period ahead, members judged that information received since the Committee met in December indicated that the labor market had continued to strengthen and that economic activity had been rising at a solid rate. Job gains had been strong, on average, in recent months, and the unemployment rate had remained low. Household spending had continued to grow strongly, while growth of business fixed investment had moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remained near 2 percent. Although market-based measures of inflation compensation had moved lower in recent months, survey-based measures of longer-term inflation expectations were little changed. In their consideration of the economic outlook, members noted that financial conditions had tightened, on net, since September, and that global growth had moderated; members also observed that a number of uncertainties, including those pertaining to the evolution of policies of the U.S. and foreign governments, still awaited resolution. However, members continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes for the U.S. economy in the period ahead. In light of global economic and financial developments and muted inflation pressures, the Committee could be patient as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the evolution of the outlook as informed by incoming data. With regard to the postmeeting statement, members agreed to change the characterization of recent growth in economic activity from "strong" to "solid," consistent with incoming information that suggested that the pace of expansion of the U.S. economy had moderated somewhat since late last year. The description of indicators of inflation expectations was revised to recognize that the downward moves in market-based measures of inflation compensation that occurred in recent months had been sustained, while also noting that survey-based measures of longer-term inflation expectations were little changed. Members also agreed to several adjustments in the description of the outlook for the economy and monetary policy. The statement language was revised to indicate that the Committee continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near 2 percent as "the most likely outcomes." Members also agreed to add a sentence indicating that, in light of "global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes." This sentence was intended to convey the Committee's view that a patient and flexible approach was appropriate at this time as a way to manage risks while assessing incoming information bearing on the economic outlook. In light of the range of uncertainties associated with global economic and financial developments, the Committee decided that it was not useful at this time to express a judgment about the balance of risks. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective January 31, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, Esther L. George, Randal K. Quarles, and Eric Rosengren. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 2.40 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent, effective January 31, 2019. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, March 19-20, 2019. The meeting adjourned at 10:30 a.m. on January 30, 2019. Notation Vote By notation vote completed on January 8, 2019, the Committee unanimously approved the minutes of the Committee meeting held on December 18-19, 2018. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of the long-run monetary policy implementation frameworks. Return to text 3. Attended Tuesday session only. Return to text 4. Committee organizational documents are available at https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 5. The Committee's Policy Normalization Principles and Plans were adopted on September 16, 2014, and are available at https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf . On March 18, 2015, the Committee adopted an addendum to the Policy Normalization Principles and Plans, which is available at https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.20150318.pdf . On June 13, 2017, the Committee adopted a second addendum to the Policy Normalization Principles and Plans, which is available at https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.20170613.pdf . Return to text 1. In general, as specified in Article IV, each member of the IMF undertakes to collaborate with the IMF and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. These obligations include seeking to direct the member's economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance of payments adjustment or to give an unfair competitive advantage over other members. Return to text

Minutes of the Federal Open Market Committee March 19-20, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, March 19, 2019, at 10:00 a.m. and continued on Wednesday, March 20, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Thomas A. Connors, Rochelle M. Edge, Eric M. Engen, Christopher J. Waller, William Wascher, and Beth Anne Wilson, Associate Economists Simon Potter, Manager, System Open Market Account Lorie K. Logan, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Antulio N. Bomfim, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber, Ellen E. Meade, and John M. Roberts, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors; Joshua Gallin and David E. Lebow, Senior Associate Directors, Division of Research and Statistics, Board of Governors Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer 2 and David López-Salido, Associate Directors, Division of Monetary Affairs, Board of Governors Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Andrew Figura, Assistant Director, Division of Research and Statistics, Board of Governors; Laura Lipscomb, 2 Zeynep Senyuz, 2 and Rebecca Zarutskie, Assistant Directors, Division of Monetary Affairs, Board of Governors Michele Cavallo, 2 Section Chief, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 3 Assistant to the Secretary, Office of the Secretary, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Martin Bodenstein, Marcel A. Priebsch, and Bernd Schlusche, 2 Principal Economists, Division of Monetary Affairs, Board of Governors Mary-Frances Styczynski, 2 Lead Financial Institution and Policy Analyst, Division of Monetary Affairs, Board of Governors Achilles Sangster II, Information Management Analyst, Division of Monetary Affairs, Board of Governors Gregory L. Stefani, First Vice President, Federal Reserve Bank of Cleveland David Altig, Kartik B. Athreya, Michael Dotsey, Glenn D. Rudebusch, Ellis W. Tallman, and Joseph S. Tracy, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Philadelphia, San Francisco, Cleveland, and Dallas, respectively Antoine Martin, 2 Julie Ann Remache, 2 and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, New York, and Minneapolis, respectively Roc Armenter, 2 Kathryn B. Chen, 2 Hesna Genay, Jonathan P. McCarthy, and Patricia Zobel, 2 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Chicago, New York, and New York, respectively Samuel Schulhofer-Wohl, Senior Economist and Research Advisor, Federal Reserve Bank of Chicago Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Ellen Correia Golay, 2 Markets Officer, Federal Reserve Bank of New York A. Lee Smith, Senior Economist, Federal Reserve Bank of Kansas City Balance Sheet Normalization Committee participants resumed their discussion from the January 2019 meeting on options for transitioning to the longer-run size of the balance sheet. The staff described options for ending the reduction in the Federal Reserve's securities holdings at the end of September 2019 and for potentially reducing the pace of redemptions of Treasury securities before that date. Reducing the pace of redemptions before ending them would be consistent with most previous changes in the Federal Reserve's balance sheet policy and would support a gradual transition to the long-run level of reserves. It could also reinforce the Committee's communications indicating that the FOMC was flexible in its plans for balance sheet normalization and that the process of balance sheet normalization would remain consistent with the attainment of the Federal Reserve's monetary policy objectives. However, continuing redemptions at the current pace through September might be simpler to communicate and would somewhat shorten the transition to the long-run level of reserves. The staff noted that reducing the pace of redemptions before September would leave reserves and the balance sheet slightly larger than continuing redemptions at the current pace through September. However, the longer-run level of reserves and size of the balance sheet would ultimately be determined by long-term demand for Federal Reserve liabilities. Staff projections of term premiums and macroeconomic outcomes did not differ substantially across the two options. The staff also described a possible interim plan for reinvesting principal payments received from agency debt and agency mortgage-backed securities (MBS) after balance sheet runoff ends and until the Committee decides on the longer-run composition of the System Open Market Account (SOMA) portfolio. Consistent with the Committee's long-standing aim to hold primarily Treasury securities in the longer run, any principal payments on agency debt and agency MBS would generally be reinvested in Treasury securities in the secondary market. These reinvestments would be allocated across sectors of the Treasury market roughly in proportion to the maturity composition of Treasury securities outstanding. However, the plan would maintain the existing $20 billion per month cap on MBS redemptions; principal payments on agency debt and agency MBS above $20 billion per month would continue to be reinvested in agency MBS. This cap would limit the pace at which the Federal Reserve's agency MBS holdings could decline if prepayments accelerated; the staff projected that the redemption cap on agency debt and agency MBS was unlikely to be reached after 2019. The staff noted that, once balance sheet runoff ended, the average level of reserves would tend to decline gradually, in line with trend growth in the Federal Reserve's nonreserve liabilities, until the Committee chose to resume growth of the balance sheet in order to maintain a level of reserves consistent with efficient and effective policy implementation. Participants judged that ending the runoff of securities holdings at the end of September would reduce uncertainty about the Federal Reserve's plans for its securities holdings and would be consistent with the Committee's decision at its January 2019 meeting to continue implementing monetary policy in a regime of ample reserves. Participants discussed advantages and disadvantages of slowing balance sheet runoff before the September stopping date. A slowing in the pace of redemptions would accord with the Committee's general practice of adjusting its holdings of securities smoothly and predictably, which might reduce the risk that market volatility would arise in connection with the conclusion of the runoff of securities holdings. However, these advantages needed to be weighed against the additional complexity of a plan that would end balance sheet runoff in steps rather than all at once. Participants reiterated their support for the FOMC's intention to return to holding primarily Treasury securities in the long run. Participants judged that adopting an interim approach for reinvesting agency debt and agency MBS principal payments into Treasury securities across a range of maturities was appropriate while the Committee continued to evaluate potential long-run maturity structures for the Federal Reserve's portfolio of Treasury securities. Many participants offered preliminary views on advantages and disadvantages of alternative compositions for the SOMA portfolio. Participants expected to further discuss the longer-run composition of the portfolio at upcoming meetings. Participants commented on considerations related to allowing the average level of reserves to decline in line with trend growth in nonreserve liabilities for a time after the end of balance sheet runoff. Several participants preferred to stabilize the average level of reserves by resuming purchases of Treasury securities relatively soon after the end of runoff, because they saw little benefit to further declines in reserve balances or because they thought the Committee should minimize the risk of interest rate volatility that could occur if the supply of reserves dropped below a point consistent with efficient and effective implementation of policy. Some others preferred to allow the average level of reserves to continue to decline for a longer time after balance sheet runoff ends because such declines could allow the Committee to learn more about underlying reserve demand, because they judged that such a process was not likely to result in excessive volatility in money market rates, or because they judged that moving to lower levels of reserves was more consistent with the Committee's previous communications indicating that it would hold no more securities than necessary for implementing monetary policy efficiently and effectively. Participants noted that the eventual resumption of purchases of securities to keep pace with growth in demand for the Federal Reserve's liabilities, whenever it occurred, would be a normal part of operations to maintain the ample-reserves monetary policy implementation regime and would not represent a change in the stance of monetary policy. Some participants suggested that, at future meetings, the Committee should discuss the potential benefits and costs of tools that might reduce reserve demand or support interest rate control. Following the discussion, the Chair proposed that the Committee communicate its intentions regarding balance sheet normalization by publishing a statement at the conclusion of the meeting. All participants agreed that it was appropriate to issue the proposed statement. BALANCE SHEET NORMALIZATION PRINCIPLES AND PLANS (Adopted March 20, 2019) In light of its discussions at previous meetings and the progress in normalizing the size of the Federal Reserve's securities holdings and the level of reserves in the banking system, all participants agreed that it is appropriate at this time for the Committee to provide additional information regarding its plans for the size of its securities holdings and the transition to the longer-run operating regime. At its January meeting, the Committee stated that it intends to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates and in which active management of the supply of reserves is not required. The Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization released in January as well as the principles and plans listed below together revise and replace the Committee's earlier Policy Normalization Principles and Plans. To ensure a smooth transition to the longer-run level of reserves consistent with efficient and effective policy implementation, the Committee intends to slow the pace of the decline in reserves over coming quarters provided that the economy and money market conditions evolve about as expected. The Committee intends to slow the reduction of its holdings of Treasury securities by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019. The Committee intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019. The Committee intends to continue to allow its holdings of agency debt and agency mortgage-backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run. Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS. Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio. It continues to be the Committee's view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance. The average level of reserves after the FOMC has concluded the reduction of its aggregate securities holdings at the end of September will likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy. In that case, the Committee currently anticipates that it will likely hold the size of the SOMA portfolio roughly constant for a time. During such a period, persistent gradual increases in currency and other non-reserve liabilities would be accompanied by corresponding gradual declines in reserve balances to a level consistent with efficient and effective implementation of monetary policy. When the Committee judges that reserve balances have declined to this level, the SOMA portfolio will hold no more securities than necessary for efficient and effective policy implementation. Once that point is reached, the Committee will begin increasing its securities holdings to keep pace with trend growth of the Federal Reserve's non-reserve liabilities and maintain an appropriate level of reserves in the system. Developments in Financial Markets and Open Market Operations The manager of the SOMA discussed developments in global financial markets over the intermeeting period. In the United States, equity indexes moved higher and credit spreads tightened. Market participants attributed these moves largely to a perceived shift in the FOMC's approach to policy following communications stressing that the Committee would be patient in assessing the need for future adjustments in the target range for the federal funds rate and would be flexible on balance sheet policy. In Europe, measures announced by the European Central Bank (ECB) in March, including an extension of forward guidance on interest rates and the announcement of another round of targeted long-term refinancing operations, were followed by a decline in euro-area equity markets, particularly bank stocks, as well as declines in euro-area rates. Market contacts attributed the price reaction to a perception that the measures were not as stimulative as might have been expected, given downward revisions in the ECB's growth and inflation forecasts. In China, authorities moved toward an easier fiscal and monetary stance; China's aggregate credit growth had rebounded slightly in recent months relative to the declining trend observed last year. The Shanghai Composite index had risen notably since the turn of the year, driven in part by fiscal and monetary stimulus measures as well as perceived progress on trade negotiations. Developments around Brexit remained a source of market uncertainty. Consistent with ongoing investor uncertainty over the outcome, risk reversals on the pound-dollar currency pair continued to point to higher demand for protection against pound depreciation relative to the dollar. The deputy manager provided an overview of money market developments and policy implementation over the intermeeting period. The effective federal funds rate (EFFR) continued to be very stable at a level equal to the interest rate on excess reserves. Rates in overnight secured markets continued to exhibit some volatility, particularly on month-end dates. Market participants attributed some of the volatility in overnight secured rates to persistently high net dealer inventories of Treasury securities and to Treasury issuance coinciding with the month-end statement dates. Over the upcoming intermeeting period, with the combination of changes in the Treasury's balances at the Federal Reserve and additional asset redemptions, reserves were expected to decline to a new low of around $1.4 trillion by early May, with some notable fluctuations in reserves on days associated with tax flows. The deputy manager also discussed the transition to a long-run regime of ample reserves, following the Committee's January announcement that it intends to continue to implement monetary policy in such a regime. Once the size of the Federal Reserve's balance sheet has normalized, the Open Market Desk will at some point need to conduct open market operations to maintain a level of reserves in the banking system that the Committee deems appropriate. In doing so, the Desk will need to assess banks' demand for reserves as well as forecast other Federal Reserve liabilities and plan operations to maintain a supply of reserves sufficient to ensure that control over short-term interest rates is exercised primarily through the setting of administered rates. The deputy manager described a possible operational approach in an ample-reserves regime based on establishing a minimum operating level that would be a lower bound on the daily level of reserves. The assessment of the minimum operating level of reserves would be based on a range of information, including surveys of banks and market participants, data on banks' reserve holdings, and market monitoring. Under the proposed approach, the Desk would plan open market operations to maintain the daily level of reserves above the minimum operating level. Consistent with the Committee's intention to maintain a regime that does not require active management of the supply of reserves, the Desk could plan these open market operations over a medium-term horizon. The average level of reserves over the medium term would then be above the minimum operating level, providing a buffer of reserves to absorb daily changes in nonreserve liabilities. Following the manager and deputy manager's report, some participants commented on various aspects of the minimum operating level approach. Decisions regarding how far to allow reserves to decline would need to balance important tradeoffs. On the one hand, a lower minimum operating level might increase the risk of excessive interest rate volatility. On the other hand, a lower minimum operating level could provide more opportunities to learn about underlying reserve demand or could be viewed as more consistent with moving to the smallest securities holdings necessary for efficient and effective monetary policy implementation. However, the scope for reducing the level of reserves much further after the end of balance sheet runoff might be fairly limited. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the March 19-20 meeting indicated that labor market conditions remained strong, al­though growth in real gross domestic product (GDP) appeared to have slowed markedly in the first quarter of this year from its solid fourth-quarter pace. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), was somewhat below 2 percent in December, held down in part by recent declines in consumer energy prices, while PCE price inflation for items other than food and energy was close to 2 percent; more recent readings on PCE price inflation were delayed by the earlier federal government shutdown. Survey-based measures of longer-run inflation expectations were little changed on balance. Increases in total nonfarm payroll employment remained solid, on average, in recent months; employment rose only a little in February but had expanded strongly in January. The national unemployment rate edged down, on net, over the past two months to 3.8 percent in February, and both the labor force participation rate and the employment-to-population ratio rose slightly on balance. The unemployment rates for African Americans, Asians, and Hispanics in February were at or below their levels at the end of the previous economic expansion, though persistent differentials in unemployment rates across groups remained. The share of workers employed part time for economic reasons moved down in February and was below the lows reached in late 2007. The rate of private-sector job openings in January was the same as its fourth-quarter average and remained elevated, while the rate of quits edged up in January; the four-week moving average of initial claims for unemployment insurance benefits through early March was still near historically low levels. Average hourly earnings for all employees rose 3.4 percent over the 12 months ending in February, a significantly faster pace than a year earlier. The employment cost index for private-sector workers increased 3 percent over the 12 months ending in December, somewhat faster than a year earlier. Total labor compensation per hour in the business sector increased 2.9 percent over the four quarters of 2018, about the same rate as a year earlier. Industrial production declined in January and rebounded only somewhat in February. Moreover, manufacturing output decreased over both months, as production in the motor vehicle and parts sector contracted notably in January and declines were more broad based in February. Production in the mining and utilities sectors expanded, on net, over the past two months. Automakers' assembly schedules suggested that the production of light motor vehicles would be roughly flat in the near term, and new orders indexes from national and regional manufacturing surveys pointed to only modest gains in overall factory output in the coming months. Household spending looked to be slowing around the turn of the year. Real PCE decreased markedly in December after a solid increase in the previous month, and the components of the nominal retail sales data used by the Bureau of Economic Analysis (BEA) to estimate PCE rebounded only partially in January. Key factors that influence consumer spending--including a low unemployment rate, ongoing gains in real labor compensation, and still elevated measures of households' net worth--were supportive of a pickup in consumer spending to a solid pace in the near term. In addition, consumer sentiment, as measured by the University of Michigan Surveys of Consumers, stepped up in February and early March to an upbeat level. Real residential investment appeared to be softening further in the first quarter, likely reflecting, in part, decreases in the affordability of housing arising from both the net increase in mortgage interest rates over the past year and ongoing house price appreciation. Starts of new single-family homes increased slightly, on net, over December and January, while starts of multifamily units declined. Building permit issuance for new single-family homes--which tends to be a good indicator of the underlying trend in construction of such homes--moved down over those two months. In addition, sales of both new and existing homes decreased in January. Growth in real private expenditures for business equipment and intellectual property looked to be slowing in the first quarter. Nominal shipments of nondefense capital goods excluding aircraft rose in December and January, while available indicators pointed to a decrease in transportation equipment spending in the first quarter after a strong fourth-quarter gain. Forward-looking indicators of business equipment spending--such as orders for nondefense capital goods excluding aircraft and readings on business sentiment--pointed to sluggish increases in the near term. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector increased in December and January. In addition, the number of crude oil and natural gas rigs in operation--an indicator of business spending for structures in the drilling and mining sector--expanded, on balance, in February and through the middle of March. Total real government purchases appeared to be moving sideways in the first quarter. Relatively strong increases in real federal defense purchases were likely to be roughly offset by an expected decline in real nondefense purchases stemming from the effects of the partial federal government shutdown. Real purchases by state and local governments looked to be rising modestly in the first quarter, as the payrolls of those governments expanded a bit in January and February, and nominal state and local construction spending rose, on net, in December and January. The nominal U.S. international trade deficit narrowed in November before widening in December to the largest deficit since 2008. Exports declined in November and December, as exports of industrial supplies and automotive products fell in both months. Imports decreased in November before partially recovering in December, with imports of consumer goods and industrial supplies driving this swing. The BEA estimated that the change in net exports was a drag of about 1/4 percentage point on the rate of real GDP growth in the fourth quarter. Total U.S. consumer prices, as measured by the PCE price index, increased 1.7 percent over the 12 months ending in December, slightly slower than a year earlier, as consumer energy prices declined a little and consumer food prices rose only modestly. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.9 percent over that same period, somewhat higher than a year earlier. The consumer price index (CPI) rose 1.5 percent over the 12 months ending in February, while core CPI inflation was 2.1 percent. Recent readings on survey-based measures of longer-run inflation expectations--including those from the Michigan survey, the Blue Chip Economic Indicators, and the Desk's Survey of Primary Dealers and Survey of Market Participants--were little changed on balance. Economic growth in foreign economies slowed further in the fourth quarter. This development reflected slowing in the Canadian economy and some emerging market economies (EMEs), including Brazil and Mexico, along with continued economic weakness in the euro area and China. In the advanced foreign economies (AFEs), recent data suggested that economic activity, especially in the manufacturing sector, remained subdued in the first quarter of this year. Economic activity also remained weak in many EMEs, particularly in Mexico and emerging Asia excluding China, al­though some data pointed to a modest pickup in China. Inflation in foreign economies slowed further early this year, partly reflecting lower retail energy prices across both AFEs and EMEs. Staff Review of the Financial Situation Investor sentiment toward risky assets continued to improve over the intermeeting period. Market participants cited accommodative monetary policy communications and optimism for a trade deal between the United States and China as factors that contributed to the improvement. Broad equity price indexes increased notably, corporate bond spreads narrowed, and measures of equity market volatility declined. Meanwhile, financing conditions for businesses and households improved slightly and generally remained supportive of economic activity. FOMC communications issued following the January meeting were generally viewed by market participants as more accommodative than expected. Subsequent communications--including the minutes of the January FOMC meeting, the Chair's semiannual testimony to the Congress, and speeches by FOMC participantsâwere interpreted as reflecting a patient approach to monetary policy in the near term and a likely conclusion to the Federal Reserve's balance sheet reduction by the end of this year. The market-implied path for the federal funds rate in 2019 declined slightly over the period, while investors continued to expect no change to the target range for the federal funds rate at the March FOMC meeting. The marketâimplied path of the federal funds rate for 2020 and 2021 shifted down a little. Yields on nominal Treasury securities declined a bit across the Treasury yield curve over the intermeeting period. Communications from FOMC participants that were more accommodative than expected amid muted readings on inflation, communications from other major central banks that, on balance, were also regarded as more accommodative than expected, and generally mixed economic data releases reportedly contributed to the decrease in yields and outweighed improved risk sentiment. The spread between the yields on nominal 10- and 2-year Treasury securities was little changed over the period and remained in the lower end of its historical range of recent decades. Measures of inflation compensation derived from Treasury Inflation-Protected Securities increased modestly, on net, al­though they remained below levels seen last fall. Major U.S. equity price indexes increased over the intermeeting period, with broadâbased gains across sectors. Improved prospects for a trade deal between the United States and China and accommodative monetary policy were cited as driving factors that outweighed weaker-than-expected announcements of corporate earnings for the fourth quarter of 2018 and earnings projections for 2019. Consistent with reports about a potential trade deal, stock prices of firms with greater exposure to China generally outperformed the S&P 500 index. Optionâ implied volatility on the S&P 500 index at the one-month horizon--the VIX--declined and reached its lowest point this year. Spreads on investment- and speculative-grade corporate bonds narrowed, consistent with the gains in equity prices, but were still wider than levels observed last fall. Conditions in short-term funding markets generally remained stable over the intermeeting period. The EFFR was consistently equal to the rate of interest on excess reserves, while take-up in the overnight reverse repurchase agreement facility remained low. Yield spreads on commercial paper and negotiable certificates of deposit generally narrowed further from their elevated year-end levels, likely reflecting an increase in investor demand for short-term financial assets. Meanwhile, the statutory federal government debt ceiling was reestablished at $22 trillion on March 1. The prices of foreign risky assets broadly tracked the positive moves in similar U.S. assets over the intermeeting period. Communications by major central banks, which were, on net, more accommodative than expected, along with optimism regarding trade negotiations between the United States and China, contributed to the upward price moves and more than offset the effects of continued concerns about foreign economic growth. In particular, global equity prices generally ended the period higher, and dedicated emerging market funds continued to see inflows. At the same time, long-term AFE yields declined somewhat, on net, on communications from major foreign central banks and investors' concerns about foreign economic growth. The broad dollar index appreciated slightly as the extension of accommodative policies and revised guidance by major foreign central banks weighed on AFE currencies. An exception was the British pound, which strengthened a bit against the dollar, as market participants viewed recent Parliamentary votes as reducing the likelihood of a no-deal Brexit. Financing conditions for nonfinancial businesses continued to be accommodative overall. Gross issuance of both investment-grade and high-yield corporate bonds was strong in January and February, recovering from the low levels observed late last year. Issuance in the institutional syndicated leveraged loan market also recovered in the first two months of the year, as new issuance in February was in line with average monthly new issuance in 2018, and spreads narrowed somewhat from their December levels. The credit quality of nonfinancial corporations continued to show signs of deterioration, al­though actual defaults remained low overall. Commercial and industrial lending showed continued strength in January and February. Small business credit market conditions were little changed, and credit conditions in municipal bond markets stayed accommodative on net. Private-sector analysts revised down their projections for 2019 and year-ahead corporate earnings a bit. The pace of gross equity issuance was sluggish in January but ticked up in February, consistent with the uptick in the stock market. In the commercial real estate (CRE) sector, financing conditions continued to be generally accommodative. Commercial mortgage-backed securities (CMBS) spreads declined over the intermeeting period, with triple-B spreads moving down to near their late-November levels. Issuance of non-agency CMBS remained strong through February, and CRE lending by banks grew at a strong pace in February following relatively sluggish growth in January. Residential mortgage financing conditions remained accommodative on balance. Purchase mortgage origination activity was flat in December but edged up in January, as mortgage rates remained lower than the peak reached last November. Financing conditions in consumer credit markets were little changed in recent months and remained generally supportive of household spending. Credit card loan growth remained strong through December, though the pace slowed during 2018 amid tighter lending standards by commercial banks. Auto loan growth remained steady through the end of 2018. Staff Economic Outlook The U.S. economic projection prepared by the staff for the March FOMC meeting was revised down a little on balance. This revision reflected the effects of weaker-than-expected incoming data on both aggregate domestic spending and foreign economic growth that were only partially offset by a somewhat higher projected path for domestic equity prices and a lower projected trajectory for interest rates. The staff forecast that U.S. real GDP growth would slow markedly in the first quarter, reflecting a softening in growth of both consumer spending and business investment. But the staff judged that the first-quarter slowdown would be transitory and that real GDP growth would bounce back solidly in the second quarter. In the medium-term projection, real GDP growth was forecast to run at a rate similar to the staff's estimate of potential output growth in 2019 and 2020--a somewhat lower trajectory, on net, for real GDP than in the previous projection--and then slow to a pace below potential output growth in 2021. The staff revised up slightly its assumed underlying trend in the labor force participation rate, raising the level of potential output a bit, which contributed--along with the lower projected path for real GDP--to an assessment that resource utilization was a little less tight than in the previous forecast. The unemployment rate was projected to decline a little further below the staff's estimate of its longer-run natural rate but to bottom out by the end of this year and begin to edge up in 2021. With labor market conditions judged to still be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate. The staff's forecast for inflation was revised down slightly for the March FOMC meeting, reflecting some recent softer-than-expected readings on consumer prices. Core PCE price inflation was expected to remain at 1.9 percent over this year as a whole and then to edge up to 2 percent for the remainder of the medium term. Total PCE price inflation was forecast to run a bit below core inflation over the next three years, reflecting projected declines in energy prices. The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. The staff also saw the risks to the forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand faster than the staff projected, supported by the tax cuts enacted at the end of 2017, still strong overall labor market conditions, and upbeat consumer sentiment. In addition, financial conditions might not tighten as much as assumed in the staff forecast. On the downside, the recent softening in a number of economic indicators could be the harbinger of a substantial deterioration in economic activity. Moreover, trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth. Risks to the inflation projection also were seen as balanced. The upside risk that inflation could increase more than expected in an economy that is still projected to be operating notably above potential for an extended period was counterbalanced by the downside risk that longerâterm inflation expectations may be lower than was assumed in the staff forecast, as well as the possibility that the dollar could appreciate if foreign economic conditions deteriorated. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2019 through 2021 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections and policy assessments are described in the Summary of Economic Projections (SEP), which is an addendum to these minutes. Participants agreed that information received since the January meeting indicated that the labor market had remained strong but that growth of economic activity had slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Recent indicators pointed to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation had declined, largely as a result of lower energy prices; inflation for items other than food and energy remained near 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflation expectations were little changed. Participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes over the next few years. Underlying economic fundamentals continued to support sustained expansion, and most participants indicated that they did not expect the recent weakness in spending to persist beyond the first quarter. Nevertheless, participants generally expected the growth rate of real GDP this year to step down from the pace seen over 2018 to a rate at or modestly above their estimates of longer-run growth. Participants cited various factors as likely to contribute to the step-down, including slower foreign growth and waning effects of fiscal stimulus. A number of participants judged that economic growth in the remaining quarters of 2019 and in the subsequent couple of years would likely be a little lower, on balance, than they had previously forecast. Reasons cited for these downward revisions included disappointing news on global growth and less of a boost from fiscal policy than had previously been anticipated. In their discussion of the household sector, participants noted that softness in consumer spending had contributed importantly to the projected slowing in economic growth in the current quarter. Many participants pointed to the weakness in retail sales in December as notable, although they recognized that the data for January had shown a partial recovery in retail sales. Participants also observed that much of the recent softness likely reflected temporary factors, such as the partial federal government shutdown and December's volatility in financial markets, and that consumer sentiment had recovered after these factors had receded. Consequently, many participants expected consumer spending to proceed at a stronger pace in coming months, supported by favorable underlying factors, including a strong labor market, solid growth in household incomes, improvements in financial conditions and in households' balance sheet positions, and upbeat consumer sentiment. Participants noted, however, that the continued softness in the housing sector was a concern. Participants also commented on the apparent slowing of growth in business fixed investment in the first quarter. Factors cited as consistent with the recent softness in investment growth included downward revisions in forecasts of corporate earnings; relatively low energy prices that provided less incentive for new drilling and exploration; flattening capital goods orders; reports from contacts of softer export sales and of weaker economic activity abroad; elevated levels of uncertainty about government policies, including trade policies; and the likely effect of recent financial market volatility on business sentiment. However, many participants pointed to signs that the weakness in investment would likely abate. Some contacts in manufacturing and other sectors reported that business conditions were favorable, with strong demand for labor, business sentiment had recovered from its recent decline, and recent reductions in mortgage interest rates would provide some support for construction activity. Agricultural activity remained weak in various areas of the country, with the weakness in part reflecting adverse effects of trade policy on commodity prices. Recent widespread severe flooding had also adversely affected the agricultural sector. Participants noted that the latest readings on overall inflation had been somewhat softer than expected. However, participants observed that these readings largely reflected the effects of earlier declines in crude oil prices and that core inflation remained near 2 percent. Most participants, while seeing inflation pressures as muted, expected the overall rate of inflation to firm somewhat and to be at or near the Committee's longer-run objective of 2 percent over the next few years. Many participants indicated that, while inflation had been close to 2 percent last year, it was noteworthy that it had not shown greater signs of firming in response to strong labor market conditions and rising nominal wage growth, as well as to the short-term upward pressure on prices arising from tariff increases. Low rates of price increases in sectors of the economy that were not cyclically sensitive were cited by a couple of participants as one reason for the recent easing in inflation. A few participants observed that the pickup in productivity growth last year was a welcome development helping to bolster potential output and damp inflationary pressures. In their discussion of indicators of inflation expectations, participants noted that market-based measures of inflation compensation had risen modestly over the intermeeting period, although they remained low. A couple of participants stressed that recent readings on survey measures of inflation expectations were also still at low levels. Several participants suggested that longer-term inflation expectations could be at levels somewhat below those consistent with the Committee's 2 percent inflation objective and that this might make it more difficult to achieve that objective on a sustained basis. In their discussion of the labor market, participants cited evidence that conditions remained strong, including the very low unemployment rate, a further increase in the labor force participation rate, a low number of layoffs, near-record levels of job openings and help-wanted postings, and solid job gains, on average, in recent months. Participants observed that, following strong job gains in January, there had been little growth in payrolls in February, although a few participants pointed out that the February reading had likely been affected by adverse weather conditions. A couple of participants noted that, over the medium term, some easing in payroll growth was to be expected as economic growth slowed to its longer-run trend rate. Reports from business contacts predominantly pointed to continued strong labor demand, with firms offering both higher wages and more nonwage benefits to attract workers. Economy-wide wage growth was seen as being broadly consistent with recent rates of labor productivity growth and with inflation of 2 percent. A few participants cited the combination of muted inflation pressures and expanding employment as a possible indication that some slack remained in the labor market. Participants commented on a number of risks associated with their outlook for economic activity. A few participants noted that there remained a high level of uncertainty associated with international developments, including ongoing trade talks and Brexit deliberations, al­though a couple of participants remarked that the risks of adverse outcomes were somewhat lower than in January. Other downside risks included the possibility of sizable spillovers from a greater-than-expected economic slowdown in Europe and China, persistence of the softness in spending, or a sharp falloff in fiscal stimulus. A few participants observed that an economic deterioration in the United States, if it occurred, might be amplified by significant debt service burdens for many firms. Participants also mentioned a number of upside risks regarding the outlook for economic activity, including outcomes in which various sources of uncertainty were resolved favorably, consumer and business sentiment rebounded sharply, or the recent strengthening in labor productivity growth signaled a pickup in the underlying trend. Upside risks to the outlook for inflation included the possibility that wage pressures could rise unexpectedly and lead to greater-than-expected price increases. In their discussion of financial developments, participants observed that a good deal of the tightening over the latter part of last year in financial conditions had since been reversed; Federal Reserve communications since the beginning of this year were seen as an important contributor to the recent improvements in financial conditions. Participants noted that asset valuations had recovered strongly and also discussed the decline that had occurred in recent months in yields on longer-term Treasury securities. Several participants expressed concern that the yield curve for Treasury securities was now quite flat and noted that historical evidence suggested that an inverted yield curve could portend economic weakness; however, their discussion also noted that the unusually low level of term premiums in longer-term interest rates made historical relationships a less reliable basis for assessing the implications of the recent behavior of the yield curve. Several participants pointed to the increased debt issuance and higher leverage of nonfinancial corporations as a development that warranted continued monitoring. In their discussion of monetary policy decisions at the current meeting, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, but that information received over the intermeeting period, including recent readings on household spending and business fixed investment, pointed to slower economic growth in the early part of this year than in the fourth quarter of 2018. Despite these indications of softer first-quarter growth, participants generally expected economic activity to continue to expand, labor markets to remain strong, and inflation to remain near 2 percent. Participants also noted significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments. In light of these uncertainties as well as continued evidence of muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Several participants observed that the characterization of the Committee's approach to monetary policy as "patient" would need to be reviewed regularly as the economic outlook and uncertainties surrounding the outlook evolve. A couple of participants noted that the "patient" characterization should not be seen as limiting the Committee's options for making policy adjustments when they are deemed appropriate. With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year. Several of these participants noted that the current target range for the federal funds rate was close to their estimates of its longer-run neutral level and foresaw economic growth continuing near its longer-run trend rate over the forecast period. Participants continued to emphasize that their decisions about the appropriate target range for the federal funds rate at coming meetings would depend on their ongoing assessments of the economic outlook, as informed by a wide range of data, as well as on how the risks to the outlook evolved. Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments. Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year. Several participants expressed concerns that the public had, at times, misinterpreted the medians of participants' assessments of the appropriate level for the federal funds rate presented in the SEP as representing the consensus view of the Committee or as suggesting that policy was on a preset course. Such misinterpretations could complicate the Committee's communications regarding its view of appropriate monetary policy, particularly in circumstances when the future course of policy is unusually uncertain. Nonetheless, several participants noted that the policy rate projections in the SEP are a valuable component of the overall information provided about the monetary policy outlook. The Chair noted that he had asked the subcommittee on communications to consider ways to improve the information contained in the SEP and to improve communications regarding the role of the federal funds rate projections in the SEP as part of the policy process. Participants also discussed alternative interpretations of subdued inflation pressures in current economic circumstances and the associated policy implications. Several participants observed that limited inflationary pressures during a period of historically low unemployment could be a sign that low inflation expectations were exerting downward pressure on inflation relative to the Committee's 2 percent inflation target; in addition, subdued inflation pressures could indicate a less tight labor market than suggested by common measures of resource utilization. Consistent with these observations, several participants noted that various indicators of inflation expectations had remained at the lower end of their historical range, and a few participants commented that they had recently revised down their estimates of the longer-run unemployment rate consistent with 2 percent inflation. In light of these considerations, some participants noted that the appropriate response of the federal funds rate to signs of labor market tightening could be modest provided that signs of inflation pressures continued to be limited. Some participants regarded their judgments that the federal funds rate was likely to remain on a very flat trajectory as reflecting other factors, such as low estimates of the longer-run neutral real interest rate or risk-management considerations. A few participants observed that the appropriate path for policy, insofar as it implied lower interest rates for longer periods of time, could lead to greater financial stability risks. However, a couple of these participants noted that such financial stability risks could be addressed through appropriate use of countercyclical macroprudential policy tools or other supervisory or regulatory tools. Committee Policy Action In their discussion of monetary policy for the period ahead, members judged that the information received since the Committee met in January indicated that the labor market remained strong but that growth of economic activity had slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Recent indicators pointed to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation had declined, largely as a result of lower energy prices; inflation for items other than food and energy remained near 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflations expectations were little changed. In their consideration of the economic outlook, members noted that financial conditions had improved since the beginning of year, but that some time would be needed to assess whether indications of weak economic growth in the first quarter would persist in subsequent quarters. Members also noted that inflationary pressures remained muted and that a number of uncertainties bearing on the U.S. and global economic outlook still awaited resolution. However, members continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes for the U.S. economy in the period ahead. In light of global economic and financial developments and muted inflation pressures, members concurred that the Committee could be patient as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes. After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the evolution of the outlook as informed by incoming data. With regard to the postmeeting statement, members agreed to characterize the labor market as remaining strong. While payroll employment had been little changed in February, job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Members also agreed to note that growth in economic activity appeared to have slowed from its solid rate in the fourth quarter, consistent with recent indicators of household spending and business fixed investment. The description of overall inflation was revised to recognize that inflation had declined, largely as a result of lower energy prices, while still noting that inflation for items other than food and energy remained near 2 percent. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective March 21, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a perâcounterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, Esther L. George, Randal K. Quarles, and Eric Rosengren. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 2.40 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent, effective March 21, 2019. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, April 30-May 1, 2019. The meeting adjourned at 10:00 a.m. on March 20, 2019. Notation Vote By notation vote completed on February 19, 2019, the Committee unanimously approved the minutes of the Committee meeting held on January 29-30, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, April 30, 2019, at 10:00 a.m. and continued on Wednesday, May 1, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Eric M. Engen, Anna Paulson, Geoffrey Tootell, William Wascher, Jonathan L. Willis, and Beth Anne Wilson, Associate Economists Simon Potter, Manager, System Open Market Account Lorie K. Logan, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Antulio N. Bomfim, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, 3 Wendy E. Dunn, Ellen E. Meade, and John M. Roberts, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed and Christopher J. Erceg, 4 Senior Associate Directors, Division of International Finance, Board of Governors; William F. Bassett, Senior Associate Director, Division of Financial Stability, Board of Governors; Joshua Gallin and David E. Lebow, Senior Associate Directors, Division of Research and Statistics, Board of Governors Robert J. Tetlow, Senior Adviser, Division of Monetary Affairs, Board of Governors Marnie Gillis DeBoer, Associate Director, Division of Monetary Affairs, Board of Governors; John J. Stevens, Associate Director, Division of Research and Statistics, Board of Governors Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, and Adviser, Division of Research and Statistics, Board of Governors Glenn Follette, Assistant Director, Division of Research and Statistics, Board of Governors; Laura Lipscomb 2 and Zeynep Senyuz, 2 Assistant Directors, Division of Monetary Affairs, Board of Governors Dana L. Burnett, Michele Cavallo, and Matthew Malloy, 2 Section Chiefs, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 5 Assistant to the Secretary, Office of the Secretary, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Juan M. Londono, Principal Economist, Division of International Finance, Board of Governors; Camelia Minoiu and Bernd Schlusche, Principal Economists, Division of Monetary Affairs, Board of Governors Brian J. Bonis, 2 Lead Financial Institution and Policy Analyst, Division of Monetary Affairs, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors James M. Trevino, 2 Senior Technology Analyst, Division of Monetary Affairs, Board of Governors Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis Kartik B. Athreya, Michael Dotsey, Sylvain Leduc, and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Richmond, Philadelphia, San Francisco, and Cleveland, respectively Evan F. Koenig, Antoine Martin, 2 Samuel Schulhofer-Wohl, Mark L.J. Wright, and Nathaniel Wuerffel, 2 Senior Vice Presidents, Federal Reserve Banks of Dallas, New York, Chicago, Minneapolis, and New York, respectively David C. Wheelock, Group Vice President, Federal Reserve Bank of St. Louis Patricia Zobel, 2 Vice President, Federal Reserve Bank of New York Mary Amiti and William E. Riordan, 2 Assistant Vice Presidents, Federal Reserve Banks of New York and New York, respectively John Robertson, Research Economist and Senior Advisor, Federal Reserve Bank of Atlanta Justin Meyer, 2 Markets Manager, Federal Reserve Bank of New York Selection of Committee Officer By unanimous vote, the Committee selected Anna Paulson to serve as Associate Economist, effective April 30, 2019, until the selection of her successor at the first regularly scheduled meeting of the Committee in 2020. Balance Sheet Normalization Participants resumed their discussion of issues related to balance sheet normalization with a focus on the long-run maturity composition of the System Open Market Account (SOMA) portfolio. The staff presented two illustrative scenarios as a way of highlighting a range of implications of different long-run target portfolio compositions. In the first scenario, the maturity composition of the U.S. Treasury securities in the target portfolio was similar to that of the universe of currently outstanding U.S. Treasury securities (a "proportional" portfolio). In the second, the target portfolio contained only shorter-term securities with maturities of three years or less (a "shorter maturity" portfolio). The staff provided estimates of the capacity that the Committee would have under each scenario to provide economic stimulus through a maturity extension program (MEP). The staff also provided estimates of the extent to which term premiums embedded in longer-term Treasury yields might be affected under the two different scenarios. Based on the staff's standard modeling framework, all else equal, a move to the illustrative shorter maturity portfolio would put significant upward pressure on term premiums and imply that the path of the federal funds rate would need to be correspondingly lower to achieve the same macroeconomic outcomes as in the baseline outlook. However, the staff noted the uncertainties inherent in the analysis, including the difficulties in estimating the effects of changes in SOMA holdings on longer-term interest rates and the economy more generally. The staff presentation also considered illustrative gradual and accelerated transition paths to each long-run target portfolio. Under the illustrative "gradual" transition, reinvestments of maturing Treasury holdings, principal payments on agency mortgage-backed securities (MBS), and purchases to accommodate growth in Federal Reserve liabilities would be directed to Treasury securities with maturities in the long-run target portfolio. Under the illustrative "accelerated" transition, the reinvestment of principal payments on agency MBS and purchases to accommodate growth in Federal Reserve liabilities would be directed to Treasury bills until the weighted average maturity (WAM) of the SOMA portfolio reached the WAM associated with the target portfolio. Depending on the combination of long-run target composition and the transition plan for arriving at that composition, the staff reported that, in the illustrative scenarios, it could take from 5 years to more than 15 years for the WAM of the SOMA portfolio to reach its long-run level. In its Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, the Committee noted that it is prepared to adjust the size and composition of the balance sheet to achieve its macroeconomic objectives in a scenario in which the federal funds rate is constrained by the effective lower bound. Against this backdrop, participants discussed the benefits and costs of alternative long-run target portfolio compositions in supporting the use of balance sheet policies in such scenarios. In their discussion of a shorter maturity portfolio, many participants noted the advantage of increased capacity for the Federal Reserve to conduct an MEP, which could be helpful in providing policy accommodation in a future economic downturn given the secular decline in neutral real interest rates and the associated reduced scope for lowering the federal funds rate in response to negative economic shocks. Several participants viewed an MEP as a useful initial option to address a future downturn in which the Committee judged that it needed to employ balance sheet actions to provide appropriate policy accommodation. Participants acknowledged the staff analysis suggesting that creating space to conduct an MEP by moving to a shorter maturity portfolio composition could boost term premiums and result in a lower path for the federal funds rate, reducing the capacity to ease financial conditions with adjustments in short-term rates. A number of participants noted, however, that the estimates of the effect of a move to a shorter-maturity portfolio composition on the long-run neutral federal funds rate are subject to substantial uncertainty and are based on a number of strong modeling assumptions. For example, estimates of term premium effects based on experience during the crisis could overstate the effects that would be associated with a gradual evolution of the composition of the SOMA portfolio. In addition, a shift in the composition of the SOMA portfolio could result in changes in the supply of securities that would tend to offset upward pressure on term premiums. Nonetheless, other participants expressed concern about the potential that a shorter maturity portfolio composition could result in a lower long-run neutral federal funds rate. Moreover, while a shorter maturity portfolio would provide substantial capacity to conduct an MEP, some participants raised questions about the effectiveness of MEPs as a policy tool relative to that of the federal funds rate or other unconventional policy tools. These participants noted that, in a situation in which it would be appropriate to employ unconventional policy tools, they likely would prefer to employ forward guidance or large-scale purchases of assets ahead of an MEP. In the view of these participants, the potential benefit of transitioning to a shorter maturity SOMA composition in terms of increased ability to conduct an MEP might not be worth the potential costs. In their discussion of a proportional portfolio composition, participants observed that moving to this target SOMA composition would not be expected to have much effect on current staff estimates of term premiums and thus would likely not reduce the scope for lowering the target range for the federal funds rate target in response to adverse economic shocks. As a result, several participants judged the proportional target composition to be well aligned with the Committee's previous statements that changes in the target range for the federal funds rate are the primary means by which the Committee adjusts the stance of monetary policy. In addition, several participants noted that while the staff analysis suggested a proportional portfolio would not contain as much capacity to conduct an MEP as a shorter maturity portfolio, it still would contain meaningful capacity along these lines. Some participants noted that a proportional portfolio would also help maintain the traditional separation between the Federal Reserve's decisions regarding the composition of the SOMA portfolio and the maturity composition of Treasury debt held by the private sector. However, a number of participants judged that it would be desirable to structure the SOMA portfolio in a way that would provide more capacity to conduct an MEP than in the proportional portfolio. In addition, a couple of participants noted that a shorter maturity portfolio would maintain a narrow gap between the average maturity of the assets in the SOMA portfolio and the short average maturity of the Federal Reserve's primary liabilities. Participants also discussed the financial stability implications that could be associated with alternative long-run target portfolio compositions. A couple of participants noted that a proportional portfolio could imply a relatively flat yield curve, which could result in greater incentives for "reach for yield" behavior in the financial system. That said, a few participants noted that a shorter maturity portfolio could affect financial stability risks by increasing the incentives for the private sector to issue short-term debt. A couple of participants judged that financial market functioning might be adversely affected if the holdings in the shorter maturity portfolio accounted for too large a share of total shorter maturity Treasury securities outstanding. In discussing the transition to the desired long-run SOMA portfolio composition, several participants noted that a gradual pace of transition could help avoid unwanted effects on financial conditions. However, participants observed that the gradual transition paths described in the staff presentation would take many years to complete. Against this backdrop, a few participants discussed the possibility of following some type of accelerated transition, perhaps including sales of the SOMA's residual holdings of agency MBS. In addition, several participants suggested that the Committee could communicate its plans about the SOMA portfolio composition in terms of a desired change over an intermediate horizon rather than a specific long-run target. Several participants expressed the view that a decision regarding the long-run composition of the portfolio would not need to be made for some time, and a couple of participants highlighted the importance of making such a decision in the context of the ongoing review of the Federal Reserve's monetary policy strategies, tools, and communications practices. Some participants noted the importance of developing an effective communication plan to describe the Committee's decisions regarding the long-run target composition for the SOMA portfolio and the transition to that target composition. Developments in Financial Markets and Open Market Operations The manager of the SOMA reviewed developments in financial markets over the intermeeting period. In the United States, prices for equities and other risk assets reportedly were buoyed by perceptions of an accommodative stance of monetary policy, incoming economic data pointing to continued solid economic expansion, and some signs of receding downside risks to the global outlook. Treasury yields declined over the period, adding to their substantial drop since September, and the expected path of the federal funds rate as implied by futures prices shifted down as well. Market participants attributed these moves in part to FOMC communications indicating that the Committee would continue to be patient in evaluating the need for any further adjustments of the target range for the federal funds rate. Softer incoming data on inflation may also have contributed to the downward revision in the expected path of policy. Nearly all respondents on the Open Market Desk's latest surveys of primary dealers and market participants anticipated that the federal funds target range would be unchanged for the remainder of the year. In reviewing global developments, the manager noted that market prices appeared to reflect perceptions of improved economic prospects in China. However, investors reportedly remained concerned about the economic outlook for Europe and the United Kingdom. The manager also reported on developments related to open market operations. In light of the declines in interest rates since November last year, principal payments on the Federal Reserve's holdings of agency MBS were projected to exceed the $20 billion redemption cap by a modest amount sometime this summer. As directed by the Committee, any principal payments received on agency MBS in excess of the cap would be reinvested in agency MBS. The Desk planned to conduct any such operations by purchasing uniform MBS rather than Fannie Mae and Freddie Mac securities. Consistent with the Balance Sheet Normalization Principles and Plans released following the March meeting, reinvestments of maturing Treasury securities beginning on May 2 would be based on a cap on monthly Treasury redemptions of $15 billionâdown from the $30 billion monthly redemption cap that had been in place since October of last year. The deputy manager reviewed developments in domestic money markets. Reserve balances declined by $150 billion over the intermeeting period and reached a low point of just below $1.5 trillion on April 23. The decline in reserves stemmed from a reduction in the SOMA's agency MBS and Treasury holdings of $46 billion, reducing the SOMA portfolio to $3.92 trillion, and from a shift in the composition of liabilities, predominantly related to the increase in the Treasury General Account (TGA). The TGA was volatile during the intermeeting period. In early April, the Treasury reduced bill issuance and allowed the TGA balance to fall in anticipation of individual tax receipts. As tax receipts arrived after the tax date, the TGA rose to more than $400 billion, resulting in a sharp decline in reserves over the last two weeks of April. Against this backdrop, the distribution of rates on traded volumes in overnight unsecured markets shifted higher. The effective federal funds rate (EFFR) moved up to 2.45 percent by the end of the intermeeting period, 5 basis points above the interest on excess reserves (IOER) rate. Several factors appeared to spur this upward pressure. Tax-related runoffs in deposits at banks reportedly led banks to increase short-term borrowing, particularly through Federal Home Loan Bank (FHLB) advances and in the federal funds market. Although some banks continued to hold large quantities of reserves, other banks were operating with reserve balances closer to their lowest comfortable levels as reported in the most recent Senior Financial Officer Survey. This distribution of reserves may have contributed to somewhat more sustained upward pressure on the federal funds rate than had been experienced in recent years around tax-payment dates. In addition, rates on Treasury repurchase agreements (repo), were, in part, pushed higher by tax-related outflows from government-only money market mutual funds and a corresponding decline in repo lending by those funds. Elevated repo rates contributed to upward pressure on the federal funds rate, as FHLBs reportedly shifted some of their liquidity investments out of federal funds and into the repo market. In addition, some market participants pointed to heightened demand for federal funds at month end by some banks in connection with their efforts to meet liquidity coverage ratio requirements as contributing to upward pressure on the federal funds rate. The deputy manager also discussed a staff proposal in which the Board would implement a 5 basis point technical adjustment to the Interest on Required Reserves (IORR) and IOER rates. The proposed action would bring these rates to 15 basis points below the top of the target range for the federal funds rate and 10 basis points above the bottom of the range and the overnight reverse repurchase agreement (ON RRP) offer rate. As with the previous technical adjustments in June and December 2018, the proposed adjustment was intended to foster trading in the federal funds market well within the target range established by the FOMC. A technical adjustment would reduce the spread between the IOER rate and the ON RRP offering rate to 10 basis points, the smallest since the introduction of the ON RRP facility. The staff judged that the narrower spread did not pose a significant risk of increased take-up at the ON RRP facility because repo rates had been trading well above the ON RRP offer rate for some time. However, if it became appropriate in the future to further lower the IOER rate, the staff noted that the Committee might wish to first consider where to set the ON RRP offer rate relative to the target range for the federal funds rate to mitigate this risk. The manager concluded the briefing on financial market developments and open market operations with a review of the role of standing swap lines in supporting financial stability. He recommended that the Committee vote to renew these swap lines at this meeting following the usual annual schedule. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the April 30âMay 1 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) increased at a solid rate in the first quarter even as household spending and business fixed investment rose more slowly in the first quarter than in the fourth quarter of last year. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), declined, on net, in recent months and was somewhat below 2 percent in March. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment recorded a strong gain in March, and the unemployment rate held steady at 3.8 percent. The labor force participation rate declined a little in March after having risen, on balance, in the previous few months, and the employment-to-population ratio edged down. The unemployment rates for African Americans, Asians, and Hispanics in March were at or below their levels at the end of the previous economic expansion, though persistent differentials in unemployment rates across groups remained. The share of workers employed part time for economic reasons edged up in March but was still below the lows reached in late 2007. The rate of private-sector job openings in February declined slightly from the elevated level that prevailed for much of the past year, while the rate of quits was unchanged at a high level; the four-week moving average of initial claims for unemployment insurance benefits through mid-April was near historically low levels. Average hourly earnings for all employees rose 3.2 percent over the 12 months ending in March, a somewhat faster pace than a year earlier. The employment cost index for private-sector workers increased 2.8 percent over the 12 months ending in March, the same as a year earlier. Industrial production edged down in March and for the first quarter overall. Manufacturing output declined moderately in the first quarter, primarily reflecting a decrease in the output of motor vehicles and parts; outside of motor vehicles and parts, manufacturing production was little changed. Mining output declined, on net, over the three months ending in March. Automakers' assembly schedules suggested that the production of light motor vehicles would move up in the near term, and new orders indexes from national and regional manufacturing surveys pointed to modest gains in overall factory output in the coming months. However, industry news indicated that aircraft production would slow in the second quarter. Consumer expenditures slowed in the first quarter, but monthly data suggested some improvement toward the end of the quarter. Real PCE increased at a robust pace in March after having been unchanged in February, perhaps partly reflecting a delay in tax refunds from February into March that was due, in part, to the partial government shutdown. Similarly, sales of light motor vehicles rose sharply in March, although the average pace of sales in the first quarter was slower than in the fourth quarter. Key factors that influence consumer spendingâincluding a low unemployment rate, ongoing gains in real labor compensation, and still elevated measures of households' net worthâwere supportive of solid near-term gains in consumer expenditures. In addition, consumer sentiment, as measured by the University of Michigan Surveys of Consumers, edged down in April but was still upbeat. The staff reported preliminary analysis of the levels of and trends in average household wealth by racial and ethnic groups as measured by the Federal Reserve Board's Distributional Financial Accounts initiative. Real residential investment declined at a slower rate in the first quarter than it did over the course of 2018. After an appreciable uptick in January, starts of new single-family homes fell in February and were little changed in March. Meanwhile, starts of multifamily units rose in February and stayed at that level in March. Building permit issuance for new single-family homesâwhich tends to be a good indicator of the underlying trend in construction of such homesâdeclined a little in February and March. Sales of both new and existing homes increased, on net, over the February-and-March period. Growth in real private expenditures for business equipment and intellectual property slowed in the first quarter, reflecting both a slower increase in transportation equipment spending after a strong fourth-quarter gain and a decline in spending on other types of equipment outside of high tech. Nominal shipments of nondefense capital goods excluding aircraft were little changed, on net, in February and March, but they rose for the quarter as a whole. Forward-looking indicators of business equipment spending pointed to sluggish increases in the near term. Orders for nondefense capital goods excluding aircraft increased noticeably in March but were only a little above the level of shipments, and readings on business sentiment improved a bit but were still softer than last year. Real business expenditures for nonresidential structures outside of the drilling and mining sector increased somewhat in the first quarter after having declined for several quarters. Investment in drilling and mining structures moved down in the first quarter, and the number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâdeclined, on net, from mid-March through late April. Total real government purchases increased in the first quarter. Real purchases by the federal government were unchanged, as a relatively strong increase in defense purchases was offset by a decline in nondefense purchases stemming from the effects of the partial federal government shutdown. Real purchases by state and local governments increased briskly; payrolls of those governments expanded solidly in the first quarter, and nominal state and local construction spending rose markedly. The nominal U.S. international trade deficit narrowed significantly in January and a touch more in February. After declining in December, the value of U.S. exports rose in January and February. However, the average dollar value of exports in the first two months of the year was only slightly above its fourth-quarter value. Imports fell in January before edging a touch higher in February, with the average of the two months declining relative to the fourth quarter. The Bureau of Economic Analysis estimated that the contribution of net exports to real GDP growth in the first quarter was about 1 percentage point. Total U.S. consumer prices, as measured by the PCE price index, increased 1.5 percent over the 12 months ending in March. This increase was somewhat slower than a year earlier, as core PCE price inflation (which excludes changes in consumer food and energy prices) slowed to 1.6 percent, consumer food price inflation was a bit below core inflation, and consumer energy prices were little changed. The trimmed-mean measure of PCE price inflation constructed by the Federal Reserve Bank of Dallas was 2.0 percent over that 12âmonth period. The consumer price index (CPI) rose 1.9 percent over the 12 months ending in March, while core CPI inflation was 2.0 percent. Recent readings on survey-based measures of longer-run inflation expectationsâincluding those from the Michigan survey, the Survey of Professional Forecasters, and the Desk's Survey of Primary Dealers and Survey of Market Participantsâwere little changed. Foreign economic growth in the first quarter was mixed. Among the emerging market economies (EMEs), real GDP contracted in South Korea and Mexico, but activity in China strengthened, supported by tax cuts and the easing of credit conditions. In the advanced foreign economies, economic indicators were downbeat in Japan but elsewhere pointed to some improvement from a weak fourth quarter; GDP growth rebounded in the euro area and also appeared to pick up in Canada and the United Kingdom. Foreign inflation slowed further early this year, partly reflecting lower retail energy prices. Staff Review of the Financial Situation Investor sentiment continued to improve over the intermeeting period. Broad equity price indexes rose notably and corporate bond spreads narrowed amid a decline in market volatility, and financing conditions for businesses and households also eased. Market participants cited more accommodative than expected monetary policy communications coupled with strong U.S. and Chinese data releases and positive sentiment about trade negotiations between the United States and China as factors that contributed to these developments. Communications following the March FOMC meeting were generally viewed by investors as having a more accommodative tone than expected. The market-implied path for the federal funds rate shifted downward modestly, on net, resulting in a flat to slightly downward sloping expected path of the policy rate over the next few FOMC meetings. Market participants assigned greater probability to a lower target range of the federal funds rate than to a higher one beyond the next few meetings. Yields on nominal Treasury securities declined modestly, on net, during the intermeeting period. Investors cited larger-than-expected downward revisions in FOMC participants' assessments of the future path of the policy rate in the Summary of Economic Projections, recent communications suggesting a patient approach to monetary policy, and weaker-than-expected euro-area data releases early in the period among factors that contributed to this decrease. These factors reportedly outweighed stronger-than-expected economic data releases for the United States and China and optimism related to trade negotiations between the two countries later in the period. Measures of inflation compensation based on Treasury Inflation Protected Securities were changed little, on net, and remained below their early fall 2018 levels. Major U.S. equity price indexes increased over the intermeeting period, with the S&P 500 equity index returning to the levels it reached before its decline in the last quarter of 2018. Following the March FOMC meeting, bank stock prices declined, reportedly on concerns about the potential effects of a flat or inverted yield curve on bank profits; bank stocks subsequently retraced this decline partly in response to strong first-quarter earnings at some of the largest U.S. banks, ending the period a bit higher, on net. Option-implied volatility on the S&P 500âthe VIXâdecreased to a low level last seen in September 2018. Yields on corporate bonds continued to decline and spreads over yields of comparable-maturity Treasury securities narrowed. Conditions in short-term funding markets remained stable during the intermeeting period. The EFFR rose to 5 basis points above the IOER rate after the federal income tax deadline on April 15. While a similar dynamic occurred around previous tax dates, the magnitude of the change was larger than in previous years. Spreads on commercial paper and negotiable certificates of deposits changed little across the maturity spectrum. Global sovereign yields declined along with U.S. Treasury yields following the March FOMC meeting. Foreign equity prices increased, on balance, amid optimism around trade negotiations between the United States and China, stronger-than-expected Chinese data, and accommodative communications from some foreign central banks. Pronounced political and policy uncertainties led to a significant tightening of financial conditions in Turkey, Argentina, and, to a lesser extent, Brazil, but spillovers to other EMEs were limited, and EME credit spreads were generally little changed on net. The broad dollar index increased modestly, supported by the strength of U.S. economic data relative to foreign data and the accommodative tone from foreign central banks. The British pound declined over the intermeeting period amid protracted discussions ahead of the original Brexit deadline, which was extended to October 31. Financing conditions for nonfinancial businesses remained generally accommodative during the intermeeting period. Gross issuance of corporate bonds was strong against a backdrop of narrower corporate spreads and improved risk sentiment. Issuance of institutional leveraged loans increased, but refinancing volumes were low and loans spreads remained somewhat elevated. Respondents to the April 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported easing some key terms for commercial and industrial (C&I) loans to large and middle-market firms. For instance, banks reported narrowing loan rate spreads, easing loan covenants, and increasing the maximum size and reducing the costs of credit lines to these firms. C&I loans on banks' balance sheets grew at a robust pace in the first quarter of 2019. Gross equity issuance edged up later in the period and the volume of corporate bond upgrades slightly outpaced that of downgrades, suggesting that credit quality of nonfinancial corporations, on balance, improved. Financing conditions for the commercial real estate (CRE) sector remained accommodative, and issuance of agency and non-agency commercial mortgage backed securities grew steadily. CRE loans on banks' balance sheets continued to grow in the first quarter, albeit at a slower pace than in previous quarters. Banks in the April SLOOS reported weaker demand across all major types of CRE loans. However, they also reported tightening lending standards for these loans. Financing conditions in the residential mortgage market also remained supportive over the intermeeting period. Home mortgage rates decreased about 5 basis points, to levels comparable with 2017. Consistent with lower mortgage rates, home-purchase mortgage originations increased, reversing a yearlong decline. Consumer credit conditions remained broadly supportive of growth in household spending, with all categories of consumer loans recording steady growth in the first quarter. According to the April SLOOS, commercial banks left lending standards for auto loans and other consumer loans unchanged in the first quarter. However, credit card interest rates rose and standards reportedly tightened for some borrowers. The staff provided an update on its assessments of potential risks to financial stability. The staff judged asset valuation pressures in equity and corporate debt markets to have increased significantly this year, though not quite to the elevated levels that prevailed for much of last year. The staff also reported that in the leveraged loan market risk spreads had narrowed and nonprice terms had loosened further. The build-up in overall nonfinancial business debt to levels close to historical highs relative to GDP was viewed as a factor that could amplify adverse shocks to the business sector and the economy more broadly. The staff continued to judge risks associated with household-sector debt as moderate. Both the risks associated with financial leverage and the vulnerabilities related to maturity transformation were viewed as being low, as they have been for some time. The staff also noted that the sustained growth of lending by banks to nonbank financial firms represented an increase in financial interconnectedness. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the AprilâMay FOMC meeting was revised up on net. Real GDP growth was forecast to slow in the near term from its solid first-quarter pace, as sizable contributions from inventory investment and net exports were not expected to persist. The projection for real GDP growth over the medium term was revised up, primarily reflecting a lower assumed path for interest rates, a slightly higher trajectory for equity prices, and somewhat less appreciation of the broad real dollar. The staff's lower path for interest rates reflected a methodological change in how the staff sets its assumptions about the future path for the federal funds rate in its forecast. Real GDP was forecast to expand at a rate above the staff's estimate of potential output growth in 2019 and 2020 and then slow to a pace below potential output growth in 2021. The unemployment rate was projected to decline a little further below the staff's estimate of its longer-run natural rate and to bottom out in late 2020. With labor market conditions still judged to be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate. The staff's forecast for inflation was revised down slightly, reflecting some recent softer-than-expected readings on consumer price inflation that were not expected to persist along with the staff's assessment that the level to which inflation would tend to move in the absence of resource slack or supply shocks was a bit lower in the medium term than previously assumed. As a result, core PCE price inflation was expected to move up in the near term but nevertheless to run just below 2 percent over the medium term. Total PCE price inflation was forecast to run a bit below core inflation in 2020 and 2021, reflecting projected declines in energy prices. The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. The staff also saw the risks to the forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand faster than the staff projected, supported by the tax cuts enacted at the end of 2017, still strong overall labor market conditions, favorable financial conditions, and upbeat consumer sentiment. On the downside, the softening in some economic indicators since late last year could be the leading edge of a significant slowing in the pace of economic growth. Moreover, trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth. Risks to the inflation projection also were seen as balanced. The upside risk that inflation could increase more than expected in an economy that was still projected to be operating notably above potential for an extended period was counterbalanced by the downside risks that recent soft data on consumer prices could persist and that longer-term inflation expectations may be lower than was assumed in the staff forecast, as well as the possibility that the dollar could appreciate if foreign economic conditions deteriorated. Participants' Views on Current Conditions and the Economic Outlook Participants agreed that labor markets had remained strong over the intermeeting period and that economic activity had risen at a solid rate. Job gains had been solid, on average, in recent months, and the unemployment rate had stayed low. Participants also observed that growth in household spending and business fixed investment had slowed in the first quarter. Overall inflation and inflation for items other than food and energy, both measured on a 12-month basis, had declined and were running below 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflation expectations were little changed. Participants continued to view sustained expansion of economic activity, with strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. Participants noted the unexpected strength in first-quarter GDP growth, but some observed that the composition of growth, with large contributions from inventories and net exports and more modest contributions from consumption and investment, suggested that GDP growth in the near term would likely moderate from its strong pace of last year. For this year as a whole, a number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading. Participants cited continuing strength in labor market conditions, improvements in consumer confidence and in financial conditions, or diminished downside risks both domestically and abroad, as factors likely to support solid growth over the remainder of the year. Some participants observed that, in part because of the waning impetus from fiscal policy and past removal of monetary policy accommodation, they expected real GDP growth to slow over the medium term, moving back toward their estimates of trend output growth. In their discussion of the household sector, participants discussed recent indicators, including retail sales and light motor vehicle sales for March, which rose from relatively weak readings in some previous months. Taken together, these developments suggested that the first-quarter softness in household spending was likely to prove temporary. With the strong jobs market, rising incomes, and upbeat consumer sentiment, growth in PCE in coming months was expected to be solid. Several participants also noted that while the housing sector had been a drag on GDP growth for some time, recent data pointed to some signs of stabilization. With mortgage rates at their lowest levels in more than a year, a few participants thought that residential construction could begin to make positive contributions to GDP growth in the near term; a few others were less optimistic. Participants noted that growth of business fixed investment had moderated in the first quarter relative to the average pace recorded last year and discussed whether this more moderate growth was likely to persist. A number of participants expressed optimism that there would be continued growth in capital expenditures this year, albeit probably at a slower pace than in 2018. Several participants observed that financial conditions and business sentiment had continued to improve, consistent with reports from business contacts in a number of Districts; however, a few others reported less buoyant business sentiment Many participants suggested that their own concerns from earlier in the year about downside risks from slowing global economic growth and the deterioration in financial conditions or similar concerns expressed by their business contacts had abated to some extent . However, a few participants noted that ongoing challenges in the agricultural sector, including those associated with trade uncertainty and low prices, had been exacerbated by severe flooding in recent weeks. Participants observed that inflation pressures remained muted and that the most recent data on overall inflation, and inflation for items other than food and energy, had come in lower than expected. At least part of the recent softness in inflation could be attributed to idiosyncratic factors that seemed likely to have only transitory effects on inflation, including unusually sharp declines in the prices of apparel and of portfolio management services. Some research suggests that idiosyncratic factors that largely affected acylical sectors in the economy had accounted for a substantial portion of the fluctuations in inflation over the past couple of years. Consistent with the view that recent lower inflation readings could be temporary, a number of participants mentioned the trimmed mean measure of PCE price inflation, produced by the Federal Reserve Bank of Dallas, which removes the influence of unusually large changes in the prices of individual items in either direction; these participants observed that the trimmed mean measure had been stable at or close to 2 percent over recent months. Participants continued to view inflation near the Committee's symmetric 2 percent objective as the most likely outcome, but, in light of recent, softer inflation readings, some viewed the downside risks to inflation as having increased. Some participants also expressed concerns that long-term inflation expectations could be below levels consistent with the Committee's 2 percent target or at risk of falling below that level. Participants agreed that labor market conditions remained strong. Job gains in the March employment report were solid, the unemployment rate remained low, and, while the labor force participation rate moved down a touch, it remained high relative to estimates of its underlying demographically driven, downward trend. Contacts in a number of Districts continued to report shortages of qualified workers, in some cases inducing businesses to find novel ways to attract new workers. A few participants commented that labor market conditions in their Districts were putting upward pressure on compensation levels for lower-wage jobs, although there were few reports of a broad-based pickup in wage growth. Several participants noted that business contacts expressed optimism that despite tight labor markets they would be able to find workers or would find technological solutions for labor shortage problems. Participants commented on risks associated with their outlook for economic activity over the medium term. Some participants viewed risks to the downside for real GDP growth as having decreased, partly because prospects for a sharp slowdown in global economic growth, particularly in China and Europe, had diminished. These improvements notwithstanding, most participants observed that downside risks to the outlook for growth remain. In discussing developments in financial markets, a number of participants noted that financial market conditions had improved following the period of stress observed over the fourth quarter of last year and that the volatility in prices and financial conditions had subsided. These factors were thought to have helped buoy consumer and business confidence or to have mitigated short-term downside risks to the real economy. More generally, the improvement in financial conditions was regarded by many participants as providing support for the outlook for economic growth and employment. Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board's semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system. In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee's 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures. Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee's balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee's symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objectiveâa development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data. Committee Policy Action In their discussion of monetary policy for the period ahead, members judged that the information received since the Committee met in March indicated that the labor market remained strong and that economic activity had risen at a solid rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Growth of household spending and business fixed investment had slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy had declined and were running below 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflation expectations were little changed. In their consideration of the economic outlook, members noted that financial conditions had improved since the turn of the year, and many uncertainties affecting the U.S. and global economic outlooks had receded, though some risks remained. Despite solid economic growth and a strong labor market, inflation pressures remained muted. Members continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes for the U.S. economy. In light of global economic and financial developments and muted inflation pressures, members concurred that the Committee could be patient as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes. After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the evolution of the outlook as informed by incoming data. With regard to the postmeeting statement, members agreed to remove references to a slowing in the pace of economic growth and little-changed payroll employment, consistent with stronger incoming information on these indicators. The description of growth in household spending and business fixed investment in the first quarter was revised to recognize that incoming data had confirmed earlier information that suggested these aspects of economic activity had slowed at that time. Members also agreed to revise the description of inflation to note that inflation for items other than food and energy had declined and was now running below 2 percent. Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time, especially in an environment of moderate economic growth and muted inflation pressures, even if global economic and financial conditions continued to improve. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective May 2, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. Effective May 2, 2019, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceedsâ¯$15 billion. The Committee directs the Desk to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, Esther L. George, Randal K. Quarles, and Eric Rosengren. Voting against this action: None. Consistent with the Committee's decision to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, the Board of Governors voted unanimously to lower the interest rates on required and excess reserve balances to 2.35 percent, effective May 2, 2019. Setting the interest rate paid on required and excess reserve balances 15 basis points below the top of the target range for the federal funds rate was intended to foster trading in the federal funds market at rates well within the FOMC's target range. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent, effective May 2, 2019. Update from Subcommittee on Communications Governor Clarida reported on the progress of the review of the Federal Reserve's strategic framework for monetary policy. Fed Listens events to hear stakeholders' views on the strategy, tools, and communications that would best enable the Federal Reserve to meet its statutory objectives of maximum employment and price stability had already taken place in two Federal Reserve Districts. Numerous additional events were planned, including a research conference scheduled for June at the Federal Reserve Bank of Chicago. Following these public activities, the Committee was on course to begin its deliberations about the strategic framework at meetings in the second half of 2019. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 18â19, 2019. The meeting adjourned at 9:50 a.m. on May 1, 2019. Notation Vote By notation vote completed on April 9, 2019, the Committee unanimously approved the minutes of the Committee meeting held on March 19â20, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Wednesday session only. Return to text 4. Attended opening remarks for Tuesday session only. Return to text 5. Attended Tuesday session only. Return to text

Minutes of the Federal Open Market Committee June 18-19, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, June 18, 2019, at 10:30 a.m. and continued on Wednesday, June 19, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Eric M. Engen, Anna Paulson, Christopher J. Waller, William Wascher, and Beth Anne Wilson, 2 Associate Economists Lorie K. Logan, Manager pro tem, 3 System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, Wendy E. Dunn, 2 Joseph W. Gruber, Ellen E. Meade, and John M. Roberts, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors Jane E. Ihrig and Don H. Kim, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors Christopher J. Gust, 4 Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Matteo Iacoviello and Paul R. Wood, 2 Deputy Associate Directors, Division of International Finance, Board of Governors; Jeffrey D. Walker, 4 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Burcu Duygan-Bump, Andrew Figura, Glenn Follette, Patrick E. McCabe, and Paul A. Smith, Assistant Directors, Division of Research and Statistics, Board of Governors; Laura Lipscomb, 4 Zeynep Senyuz, 4 and Rebecca Zarutskie, Assistant Directors, Division of Monetary Affairs, Board of Governors; Steve Spurry, 4 Assistant Director, Division of Supervision and Regulation, Board of Governors Matthew Malloy, 4 Section Chief, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 2 Assistant to the Secretary, Office of the Secretary, Board of Governors Mark A. Carlson, 4 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors Sean Savage, Senior Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Heather A. Wiggins, 4 Group Manager, Division of Monetary Affairs, Board of Governors Maria Otoo, Principal Economist, Division of Research and Statistics, Board of Governors; Lubomir Petrasek, Marcelo Rezende, and Francisco Vazquez-Grande, Principal Economists, Division of Monetary Affairs, Board of Governors; Patrice Robitaille, 2 Principal Economist, Division of International Finance, Board of Governors Donielle A. Winford, Information Management Analyst, Division of Monetary Affairs, Board of Governors Andre Anderson, First Vice President, Federal Reserve Bank of Atlanta David Altig and Kartik B. Athreya, Executive Vice Presidents, Federal Reserve Banks of Atlanta and Richmond, respectively Edward S. Knotek II, Paolo A. Pesenti, Mark L.J. Wright, and Nathaniel Wuerffel, 4 Senior Vice Presidents, Federal Reserve Banks of Cleveland, New York, Minneapolis, and New York, respectively Roc Armenter, Patrick Dwyer, 4 George A. Kahn, Giovanni Olivei, Rania Perry, 4 Benedict Wensley, 4 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Kansas City, Boston, New York, New York, and New York, respectively Gara Afonso 4 and Scott Sherman, 4 Assistant Vice Presidents, Federal Reserve Bank of New York Nicolas Petrosky-Nadeau, Senior Research Advisor, Federal Reserve Bank of San Francisco Jim Dolmas, Senior Research Economist, Federal Reserve Bank of Dallas Standing Repurchase Facility The staff briefed the Committee on the possible role of a standing fixed-rate repurchase agreement (repo) facility as part of the monetary policy implementation framework; a facility of this type would allow counterparties to obtain temporary liquidity at a fixed rate of interest through repurchase transactions with the Federal Reserve involving their holdings of select securities eligible for open market operations. The staff presentation noted how such a facility could provide a backstop against unusual spikes in the federal funds rate and other money market rates and might also provide incentives for banks to shift the composition of their portfolios of liquid assets away from reserves and toward high-quality securities. Key design features for such a facility, including the fixed rate offered to counterparties, the set of eligible counterparties, and the range of securities eligible to be placed at the facility, would influence the effectiveness of a facility in achieving either of these objectives. The staff noted a number of considerations that could arise in setting these design parameters, including potential repercussions in unsecured and secured funding markets, the eligibility of counterparties in weak financial condition, the potential that turning to such a facility could become stigmatized, and issues of a level playing field across different classes of counterparties. Participants commented on a number of issues in connection with key design parameters for a repo facility. In terms of the setting of the facility's fixed rate, many participants acknowledged a tradeoff in determining the level of the rate relative to other money market rates. On the one hand, establishing the rate at a narrow spread above money market rates would likely provide better interest rate control and could also be helpful in avoiding stigma that can be associated with the use of standing lending facilities with fixed rates set well above the level of money market rates. On the other hand, setting the rate close to the level of money market rates could result in very sizable Federal Reserve operations on a daily basis that could be viewed as disintermediating the activity of private entities in money markets. In considering the eligible set of counterparties for a repo facility, a number of participants noted that making the facility available only to primary dealers would likely imply that the effects of the facility would be most direct on repo markets, while the influence on the federal funds market would be only indirect. A couple of participants noted that, particularly if banks were eligible counterparties, it would be important for counterparties of all sizes to have access to funding through the facility on the same terms. A few participants noted that a facility could enhance financial stability by providing a means by which nonbank counterparties can readily obtain liquidity against their high-quality assets. A couple of other participants noted ways that a repo facility could have unintended effects on financial stability; for example, if reserves help support overall financial stability, a facility that significantly reduced the demand for reserves might not be beneficial. Many participants commented on issues associated with the availability of such a facility to firms in different states of financial condition. Several thought there should not be a guarantee of access to such a facility regardless of a firm's financial condition, while a number of others were willing to consider how such a facility could be structured to work effectively in a stressed environment where high-quality liquid assets were used as collateral. A few participants noted that the availability of the facility to banks during periods of stress, particularly when they might be in weak financial condition, could be an important factor determining whether a facility would significantly reduce banks' demand for reserves in normal times. In their discussion of key objectives for establishing a repo facility, some participants raised questions about whether such a facility is needed in an ample-reserves framework, noting that the current ample-reserves regime has provided good interest rate control. Other participants commented on the potential benefits of such a facility as a way to enhance interest rate control in the current implementation regime or as a means to operate in the current implementation framework but with a significantly smaller quantity of reserves than at present. A couple of participants noted that a facility could damp volatility in repo rates. Several participants noted that a facility could possibly aid with multiple policy objectives. A number of participants noted that the policy objectives for a fixed-rate standing repo facility would have implications for the appropriate design for the facility. Several participants recognized the need to carefully evaluate possible parameter settings to guard against unintended consequences, including the potential for moral hazard or a more volatile Federal Reserve balance sheet. In addition, several participants highlighted the importance of evaluating whether other tools or initiatives could better achieve the desired goals. Overall, no decisions were reached at this meeting; participants stated that additional work would be necessary to clearly define the objectives of such a facility and to evaluate its potential net benefits. Developments in Financial Markets and Open Market Operations The manager pro tem discussed developments in global financial markets over the intermeeting period. Trade-related developments reportedly led many market participants to take a more pessimistic view of the U.S. economic outlook. Equity prices and interest rates fell noticeably after the announcement of higher tariffs on Chinese imports in early May and then again after news that tariffs might be imposed on Mexican imports. In response to these developments, markets appeared to become more sensitive to incoming news about the outlook for global growth and inflation, including data that pointed to a continued subdued inflation environment and to slower economic growth in the United States and abroad. Treasury yields fell sharply and far-forward measures of inflation compensation dropped significantly in the United States and abroad. Against this backdrop, market participants reportedly viewed communications by Federal Reserve officials as signaling a greater likelihood of a cut in the target range for the federal funds rate later in the year. The expected path of the federal funds rate embedded in futures prices shifted down significantly over the period. In the euro area, far-forward measures of inflation compensation fell noticeably, and market participants reportedly increasingly came to believe that further monetary policy accommodation would be needed. Late in the intermeeting period, remarks by European Central Bank (ECB) President Draghi were interpreted as suggesting increased odds of further asset purchases by the ECB. Euro-area peripheral spreads to German equivalents moved sharply lower, and far-forward inflation compensation recovered modestly. The manager pro tem turned next to a review of money market developments and Open Market Desk operations. Money market rates generally stabilized at modestly lower levels over the intermeeting period, likely reflecting both the technical adjustment in the interest on excess reserves (IOER) rate following the May FOMC meeting and a sizable increase in reserve balances associated with a decline in balances held by the Treasury in its account at the Federal Reserve. Market participants reported seeing slightly more pass-through from repo rates to the federal funds rate on days with heightened firmness in repo rates. Market participants attributed recent increases in repo rates on month-end and mid-month Treasury auction settlement dates in part to elevated net dealer inventories of Treasury securities, which dealers finance in the repo market. Regarding open market operations over the period, given the substantial decline in mortgage rates over recent months and an associated increase in refinancing activity, principal payments on the Federal Reserve's holdings of agency mortgage-backed securities (MBS) had recently moved somewhat above the $20 billion monthly redemption cap. As a result, the Desk began in May to reinvest agency MBS principal payments in excess of the cap. Based on current market rates and prepayment forecasts, the Desk expected to reinvest modest amounts of agency MBS over the coming months and possibly again in 2020, particularly during the summer months. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the June 18â19 meeting indicated that labor market conditions remained strong. Real gross domestic product (GDP) appeared to be rising at a moderate rate in the second quarter, as household spending growth picked up from the weak first quarter while business fixed investment was soft. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), was below 2 percent in April. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded solidly, on average, in April and May; however, job gains slowed sharply in May after a strong increase in April. The unemployment rate declined to 3.6 percent in April and remained there in May, its lowest level in 50 years. The labor force participation rate moved down somewhat in April and held steady in May, remaining close to its average over the previous few years; the employment-to-population ratio stayed flat in April and May. The unemployment rates for African Americans, Asians, and Hispanics decreased, on net, over April and May and were below their levels at the end of the previous economic expansion, though persistent differentials in unemployment rates across groups remained. The average share of workers employed part time for economic reasons over April and May continued to be below the lows reached in late 2007. The rate of private-sector job openings moved up in March and held steady in April, while the rate of quits was unchanged at a high level; the four-week moving average of initial claims for unemployment insurance benefits through early June was near historically low levels. Average hourly earnings for all employees rose 3.1 percent over the 12 months ending in May, slightly lower than in April but somewhat faster than a year earlier. Total labor compensation per hour in the business sector increased 1.6 percent over the four quarters ending in the first quarter, slower than a year earlier. Total consumer prices, as measured by the PCE price index, increased 1.5 percent over the 12 months ending in April. This increase was slower than a year earlier, as core PCE price inflation (which excludes changes in consumer food and energy prices) moved down to 1.6 percent, consumer food price inflation remained well below core inflation, and consumer energy price inflation slowed considerably to about the same rate as core inflation. The trimmed mean measure of PCE price inflation constructed by the Federal Reserve Bank of Dallas was 2.0 percent over that 12âmonth period. The consumer price index (CPI) rose 1.8 percent over the 12 months ending in May, while core CPI inflation was 2.0 percent. The monthly change in core PCE prices in April and the staff's estimate of the change in Mayâbased on the CPI data and the relevant prices from the producer price indexâwere higher in both of these months than the very low readings seen in January through March. Recent survey-based measures of longer-run inflation expectations were little changed on balance. While measures from the Desk's Survey of Primary Dealers and Survey of Market Participants were little changed, the preliminary June reading from the University of Michigan Surveys of Consumers dropped significantly to below its range in recent years. Growth in real consumer expenditures appeared to pick up to a solid rate in the second quarter from its weak first-quarter pace. The components of the nominal retail sales data used by the Bureau of Economic Analysis to estimate PCE increased in May, and the retail sales data for the previous two months were revised up notably. Sales of light motor vehicles rose sharply in May after stepping down in April. Key factors that influence consumer spendingâincluding a low unemployment rate, further gains in real disposable income, and still elevated measures of households' net worthâwere supportive of solid real PCE growth in the near term. In addition, the Michigan survey measure of consumer sentiment edged down in the preliminary June reading but was still at an upbeat level. Real residential investment in the second quarter looked to be continuing the decline seen earlier in the year, albeit at a slower rate. Starts of new single-family homes rose in April but fell back in May, while starts of multifamily units increased over both months. Building permit issuance for new single-family homesâwhich tends to be a good indicator of the underlying trend in construction of such homesâwas at roughly the same level in May as its first-quarter average. Sales of new homes fell notably in April after a marked gain in March, and existing home sales edged down in April. Real nonresidential private fixed investment appeared soft in the second quarter. Real private expenditures for business equipment and intellectual property looked to be roughly flat, as nominal shipments of nondefense capital goods excluding aircraft moved sideways in April. Forward-looking indicators of business equipment spending pointed to possible decreases in the near term. Orders for nondefense capital goods excluding aircraft declined notably in April and continued to be below the level of shipments, readings on business sentiment deteriorated further, and analysts' expectations of firms' longer-term profit growth moved down sharply. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector decreased in April, and the number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâcontinued to decline through midâJune. Industrial production moved down in April and picked up in May, leaving output about flat over those two months, but production was lower than at the beginning of the year. Manufacturing output declined, on net, over April and May, although mining output expanded. Automakers' assembly schedules suggested that the production of light motor vehicles would move up in the near term, but new orders indexes from national and regional manufacturing surveys pointed to continued soft total factory output in the coming months. Moreover, industry news indicated that aircraft production would continue to be slow in the near term. Total real government purchases appeared to be rising solidly in the second quarter. Federal government purchases were being boosted by strong increases in defense spending through May and the return of nondefense purchases to more typical levels after the partial federal government shutdown in the first quarter. Real purchases by state and local governments seemed to be rising modestly; total payrolls of these governments edged down over April and May, but nominal state and local construction spending expanded notably in April. Net exports added substantially to real GDP growth in the first quarter, as exports increased robustly and imports fell. After widening in March, the nominal trade deficit narrowed in April; even though exports declined, imports declined by more. The available data suggested that net exports would be a small drag on real GDP growth in the second quarter. Growth in the foreign economies remained subdued in the first quarter, as soft growth in the Canadian economy and weakness in several emerging market economies (EMEs) offset somewhat stronger growth in other advanced foreign economies (AFEs) and in China's economy. Recent indicators suggested that the pace of economic activity picked up in Canada in the second quarter but slowed in some other AFEs. Economic growth also appeared to have slowed in China. Foreign inflation remained subdued but rose a bit from lows earlier in the year, in part reflecting higher retail energy prices in many economies. Staff Review of the Financial Situation Investors' concerns about downside risks to the economic outlook weighed on financial markets over the intermeeting period. Market participants cited negative news about international trade tensions and, to a lesser extent, soft U.S. and foreign economic data as factors that contributed to these developments. Nominal Treasury yields posted notable declines and the expected path of policy shifted down considerably over the period. Equity prices declined, on net, and corporate bond spreads widened. However, financing conditions for businesses and households generally remained supportive of economic growth. FOMC communications following the May meeting had little net effect on yields, though they rose modestly following the Chair's press conference. Later in the period, the expected path of policy moved down, partly in response to incoming information pointing to a weaker economic outlook. The market-implied probability for a 25 basis point cut in the target range for the federal funds rate by the July FOMC meeting rose to about 85 percent. The market-implied path for the federal funds rate for 2019 and 2020 shifted down markedly. Based on overnight index swap rates, investors expected the federal funds rate to decline about 60 basis points by the end of this yearâa downward revision of 40 basis points over the intermeeting period. Longer-term Treasury yields fell considerably over the period, with the declines driven primarily by negative headlines about trade tensions between the United States and two major trading partners, China and Mexico. Softer-than-expected domestic economic news, such as the weaker-than-expected employment data, also contributed to the declines. The spread between 10-year and 3-month Treasury yields fell to the bottom decile of its distribution since 1971. Measures of inflation compensation derived from Treasury Inflation-Protected Securities also decreased notably over the period along with declines in oil prices. Major U.S. equity price indexes declined, on net, over the intermeeting period. Equity prices fell notably over the first few weeks of the period, primarily in response to the escalation of trade tensions with China and Mexico. Firms with high China exposure and those in cyclical sectorsâsuch as energy, information technology, industrials, communication services, and banksâposted particularly large losses. However, later in the period, stock prices regained a significant portion of their losses amid an easing of trade tensions with Mexico and expectations of a more accommodative stance of policy. One-month option-implied volatility on the S&P 500 indexâthe VIXâincreased over the period, and corporate credit spreads widened. Conditions in short-term funding markets remained stable over the intermeeting period. Overnight interest rates in short-term funding markets declined in response to the technical adjustment that reduced the IOER rate 5 basis points to 2.35 percent after the May FOMC meeting. The average of the effective federal funds rate over the period was about 6 basis points below the level just before the May FOMC meeting, well within the FOMC's target range. Rates on commercial paper and negotiable certificates of deposit also declined somewhat. Escalation of trade tensions and soft economic data also weighed on foreign financial markets. Most major global equity price indexes declined, on net, and EME sovereign spreads widened modestly. In the AFEs, policy expectations and sovereign yields declined notably, in part reflecting more-accommodative monetary policy communications by major central banks. The broad dollar index rose a bit over the intermeeting period. The Japanese yen and Swiss franc, which are viewed as safe-haven currencies, appreciated against the dollar. The British pound depreciated amid increased uncertainty around Brexit. Increased trade tensions contributed to some depreciation of the Chinese renminbi. The value of the Mexican peso against the dollar fluctuated in response to announcements related to potential tariffs on imports from Mexico but ended the period only slightly lower. Financing conditions for nonfinancial businesses continued to be accommodative overall. Gross issuance of corporate bonds was strong in May following a spell of seasonal weakness in April. The credit quality of nonfinancial corporations remained solid, as the volume of nonfinancial corporate bond upgrades outpaced that of downgrades in May. Issuance in the institutional syndicated leveraged loan market was subdued in April but rebounded in May, reflecting strong issuance beyond that associated with refinancing of maturing leveraged loans. Meanwhile, commercial and industrial lending slowed somewhat in April and May after a period of stronger growth in the first quarter. Small business credit market conditions were little changed, and credit conditions in municipal bond markets stayed accommodative on net. In the commercial real estate (CRE) sector, financing conditions continued to be generally accommodative. Commercial mortgage-backed securities (CMBS) spreads widened slightly over the intermeeting period but remained near the low end of their post-crisis range. Issuance of agency and non-agency CMBS was solid in May, and CRE lending by banks expanded in April and May at a slower rate than in the first quarter. Financing conditions in the residential mortgage market also remained supportive over the intermeeting period. Home mortgage rates decreased about 40 basis points. Since last November, mortgage rates had declined more than 1 percentage point, contributing to an increase in home-purchase mortgage originations to the solid levels seen in 2017. Financing conditions in consumer credit markets were little changed in recent months and remained generally supportive of household spending, although the supply of credit to consumers with subprime credit scores continued to be tight. Consumer credit expanded at a moderate pace in the first quarter, with bank credit data pointing to a pickup in April and May. Conditions in the consumer asset-backed securities market remained stable over the intermeeting period, with robust issuance and spreads that were little changed at low levels. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the June FOMC meeting was revised down somewhat on balance. Real GDP growth was forecast to slow to a moderate rate in the second quarter and move down to a more modest pace in the second half of the year, primarily reflecting a more downbeat near-term outlook for business fixed investment. The projection for real GDP growth over the medium term was little changed, as the effects of a higher projected path for the broad real dollar and lower trajectory for foreign economic growth were largely counterbalanced by a lower projected path for interest rates. Real GDP was forecast to expand at a rate a little above the staff's estimate of potential output growth in 2019 and 2020 and then slow to a pace slightly below potential output growth in 2021. The unemployment rate was projected to be roughly flat through 2021 and remain below the staff's estimate of its longer-run natural rate. With labor market conditions judged to be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate. The staff's forecast for inflation was little changed on balance. The forecast for total PCE price inflation this year was revised down somewhat, reflecting a lower near-term projection for energy prices. The core inflation forecast for this year was unchanged at a level below 2 percent. Both total and core inflation were projected to move up slightly next year, as the low readings early this year were expected to be transitory, but nevertheless to continue to run below 2 percent. The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years, although uncertainty was seen to have increased since the previous forecast. Moreover, the staff also judged that the risks to the forecast for real GDP growth had tilted to the downside, with a skew to the upside for the unemployment rate. The increased uncertainty and shift to downside risks around the projection reflected the staff's assessment that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. With the risks to the forecast for economic activity tilted to the downside, the risks to the inflation projection were also viewed as having a downward skew. Participants' Views on Current Conditions and the Economic Outlook Participants judged that uncertainties and downside risks surrounding the economic outlook had increased significantly over recent weeks. While they continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, many participants attached significant odds to scenarios with less favorable outcomes. 5 Moreover, nearly all participants in their submissions to the Summary of Economic Projections (SEP), had revised down their assessment of the appropriate path of the federal funds rate over the projection period that would be consistent with their modal economic outlook. Many participants noted that, since the Committee's previous meeting, the economy appeared to have lost some momentum and pointed to a number of factors supporting that view including recent weak indicators for business confidence, business spending and manufacturing activity; trade developments; and signs of slowing global economic growth. Many participants noted that they viewed the risks to their growth and inflation projections, such as those emanating from greater uncertainty about trade, as shifting notably over recent weeks and that risks were now weighted to the downside. Participants discussed at some length the softness in various indicators of business fixed investment in the second quarter. Incoming data on shipments and orders of new capital goods looked weak and recent readings from some manufacturing surveys had dropped sharply. Private sector analysts had marked down their forecasts for longer-term corporate profit growth. Manufacturing production had posted declines so far this year. In addition, contacts reported that softer export sales, weaker economic activity abroad, and elevated levels of uncertainty regarding the global outlook were weighing on business sentiment and leading firms to reassess plans for investment spending. Several participants noted comments from business contacts reporting that their base case now assumed that uncertainties about the global outlook would remain prominent over the medium term and would continue to act as a drag on investment. Several participants also noted reports from some business contacts in the manufacturing sector suggesting that they were putting capital expenditures or hiring plans on hold and were reevaluating their global supply chains in light of trade uncertainties. A couple of participants, however, pointed to signs that investment might pick up, including reports from some contacts that their orders and shipments remained strong and that some contacts planned to hire more workers. A few participants also noted ongoing challenges in the agricultural sector, including those associated with increased trade uncertainty, weak export markets, wet weather, and severe flooding. A few participants remarked on the decline in energy prices and the associated reduction in activity in the energy sector. In their discussion of the household sector, participants noted that available data on consumer spending had been solid, supported by a strong labor market and rising incomes. Several participants also noted that measures of consumer sentiment remained upbeat, and a couple noted that their business contacts confirmed the view that consumer spending had rebounded from the weak patch earlier in the year. Several participants, however, noted that tariffs could eventually become a drag on consumer durables spending, especially if additional tariffs on consumer goods were imposed, and that they would be monitoring incoming data for signs of this effect. A couple of participants noted that the continued softness in the housing sector was a concern, even though the decline in mortgage rates since last fall was expected to provide stronger impetus for activity; a couple of participants were somewhat optimistic that residential investment would pick up. In their discussion of the labor market, participants cited evidence that conditions remained strong, including the very low unemployment rate and the fact that job gains had been solid, on average, in recent months. That said, job gains in May were weaker than expected and, in light of other developments, participants judged that it would be important to closely monitor incoming data for any signs of softening in labor market conditions. Reports from business contacts pointed to continued strong labor demand, with many firms planning to hire more workers. Economy-wide wage growth was seen as being broadly consistent with modest average rates of labor productivity growth in recent years. However, a few participants noted that there were limited signs of upward pressure on wage inflation. A few participants cited the combination of muted inflation pressures, moderate wage growth, and expanding employment as a possible indication that some slack remained in the labor market. Partly reflecting that combination of developments, several participants had revised down their SEP estimates of the longer-run normal rate of unemployment. Participants noted that readings on overall inflation and inflation for items other than food and energy had come in lower than expected over recent months. In light of recent softer inflation readings, perceptions of downside risks to growth, and global disinflationary pressures, many participants viewed the risks to the outlook for inflation as weighted to the downside. Several participants indicated that, while headline inflation had been close to 2 percent last year, it was noteworthy that inflation had softened this year despite continued strong labor market conditions. Participants generally noted that they revised down their SEP projections of inflation for the current year in light of recent data. They still anticipated that the overall rate of inflation would firm somewhat and move up to the Committee's longer-run symmetric objective of 2 percent over the next few years. Consistent with that view, several participants commented that alternative measures of inflation that removed the influence of unusually large changes in the prices of individual items in either direction were running around 2 percent. However, a number of participants anticipated that the return to 2 percent would take longer than previously projected even with an assumed path for the federal funds rate that was lower than in their previous projections. In their discussion of indicators of inflation expectations, participants generally observed that market-based measures of inflation compensation had declined and were at low levels. Some participants also noted that recent readings on some survey measures of consumers' inflation expectations had declined or stood at historically low levels. Many participants further noted that longer-term inflation expectations could be somewhat below levels consistent with the Committee's 2 percent inflation objective, or that the continued weakness in inflation could prompt expectations to slip further. These developments might make it more difficult to achieve their inflation objective on a sustained basis. However, several participants remarked that inflation expectations appeared to be at levels consistent with the Committee's 2 percent inflation objective. Participants generally agreed that downside risks to the outlook for economic activity had risen materially since their May meeting, particularly those associated with ongoing trade negotiations and slowing economic growth abroad. Other downside risks cited by several participants included the possibility that federal budget negotiations could result in a sharp reduction in government spending or that negotiations to raise the federal debt limit could be prolonged. A couple of participants observed that an economic deterioration in the United States, if it occurred, might be amplified by significant debt burdens for many firms. A few participants remarked that an upside risk to the outlook for economic activity and inflation included a scenario in which trade negotiations were resolved favorably and business sentiment rebounded sharply. In their discussion of financial developments, participants observed that the increase in uncertainty surrounding the global outlook had affected risk sentiment in financial markets. While overall financial conditions remained supportive of growth, those conditions appeared to be premised importantly on expectations that the Federal Reserve would ease policy in the near term to help offset the drag on economic growth stemming from uncertainties about the global outlook and other downside risks. Participants also discussed the decline in yields on longer-term Treasury securities in recent months. Many participants noted that the spread between the 10-year and 3-month Treasury yields was now negative, and several noted that their assessment of the risk of a slowing in the economic expansion had increased based on either the shape of the yield curve or other financial and economic indicators. A few participants pointed to the growth in debt issuance by nonfinancial corporations and still generally high asset valuations as developments that warranted continued monitoring. In their discussion of monetary policy decisions at this meeting, participants noted that, under their baseline outlook, the labor market was likely to remain strong with economic activity growing at a moderate pace. However, they judged that the risks and uncertainties surrounding their outlooks, particularly those related to the global economic outlook, had intensified in recent weeks. Moreover, inflation continued to run below the Committee's 2 percent objective; similarly, inflation for items other than food and energy had remained below 2 percent as well. In addition, some readings on inflation expectations had been low. The increase in risks and uncertainties surrounding the outlook was quite recent and nearly all participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent at this meeting. However, they noted that it would be important to monitor the implications of incoming information and global economic developments for the U.S. economic outlook. A couple of participants favored a cut in the target range at this meeting, judging that a prolonged period with inflation running below 2 percent warranted a more accommodative policy response to firmly center inflation and inflation expectations around the Committee's symmetric 2 percent objective. With regard to the outlook for monetary policy beyond this meeting, nearly all participants had revised down their assessment of the appropriate path for the federal funds rate over the projection period in their SEP submissions, and some had marked down their estimates of the longer-run normal level of the funds rate as well. Many participants indicated that the case for somewhat more accommodative policy had strengthened. Participants widely noted that the global developments that led to the heightened uncertainties about the economic outlook were quite recent. Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook. Several others noted that additional monetary policy accommodation could well be appropriate if incoming information showed further deterioration in the outlook. Participants stated a variety of reasons that would call for a lower path of the federal funds rate. Several participants noted that a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy and, hence, was appropriate policy from a risk-management perspective. Some participants also noted that the continued shortfall in inflation risked a softening of inflation expectations that could slow the sustained return of inflation to the Committee's 2 percent objective. Several participants pointed out that they had revised down their estimates of the longer-run normal rate of unemployment and, as a result, saw a smaller upward contribution to inflation pressures from tight resource utilization than they had earlier. A few participants were concerned that inflation expectations had already moved below levels consistent with the Committee's symmetric 2 percent objective and that it was important to provide additional accommodation in the near term to bolster inflation expectations. A few participants judged that allowing inflation to run above 2 percent for some time could help strengthen the credibility of the Committee's commitment to its symmetric 2 percent inflation objective. Some participants suggested that although they now judged that the appropriate path of the federal funds rate would follow a flatter trajectory than they had previously assumed, there was not yet a strong case for a rate cut from current levels. They preferred to gather more information on the trajectory of the economy before concluding that a change in policy stance is warranted. A few participants expressed the view that with the economy still in a favorable position in terms of the dual mandate, an easing of policy in an attempt to increase inflation a few tenths of a percentage point risked overheating the labor markets and fueling financial imbalances. Several participants observed that the trimmed mean measure of PCE price inflation constructed by the Federal Reserve Bank of Dallas had stayed near 2 percent recently, underscoring the view that the recent low readings on inflation will prove transitory. Committee Policy Action In their discussion of monetary policy for the period ahead, members noted the significant increase in risks and uncertainties attending the economic outlook. There were signs of weakness in U.S. business spending, and foreign economic data were generally disappointing, raising concerns about the strength of global economic growth. While strong labor markets and rising incomes continued to support the outlook for consumer spending, uncertainties and risks regarding the global outlook appeared to be contributing to a deterioration in risk sentiment in financial markets and a decline in business confidence that pointed to a weaker outlook for business investment in the United States. Inflation pressures remained muted and some readings on inflation expectations were at low levels. Although nearly all members agreed to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent at this meeting, they generally agreed that risks and uncertainties surrounding the economic outlook had intensified and many judged that additional policy accommodation would be warranted if they continued to weigh on the economic outlook. One member preferred to lower the target range for the federal funds rate by 25 basis points at this meeting, stating that the Committee should ease policy at this meeting to re-center inflation and inflation expectations at the Committee's symmetric 2 percent objective. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the implications of incoming information for the economic outlook. With regard to the postmeeting statement, members agreed to several adjustments in the description of the economic situation, including a revision in the description of market-based measures of inflation compensation to recognize the recent fall in inflation compensation. The Committee retained the characterization of the most likely outcomes as "sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective" but added a clause to emphasize that uncertainties about this outlook had increased. In describing the monetary policy outlook, members agreed to remove the "patient" language and to emphasize instead that, in light of these uncertainties and muted inflation pressures, the Committee would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective June 20, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing during each calendar month that exceeds $15 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $20 billion. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in May indicates that the labor market remains strong and that economic activity is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Charles L. Evans, Esther L. George, Randal K. Quarles, and Eric Rosengren. Voting against this action: James Bullard. Mr. Bullard dissented because he believed that the current stance of monetary policy could be better positioned to foster progress toward the Committee's statutory objectives of maximum employment and stable prices. Particularly in light of persistent low readings on inflation and from indicators of inflation expectations along with the risks to the U.S. outlook associated with global economic developments, he noted that a policy rate reduction at the current meeting would help re-center inflation and inflation expectations at levels consistent with the Committee's symmetric 2 percent inflation objective and simultaneously provide some insurance against unexpected developments that could slow U.S. economic growth. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 2.35 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent, effective June 20, 2019. Update from Subcommittee on Communications Governor Clarida provided a brief update on the work of the subcommittee on communications. The Fed Listens conferences conducted to date were viewed as successful in identifying many important issues for the strategic review of monetary policy strategy, tools, and communications. Additional Fed Listens events were planned over the remainder of the year. The Committee was likely to begin internal deliberations on aspects of the strategic review over coming FOMC meetings. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 30â31, 2019. The meeting adjourned at 10:05 a.m. on June 19, 2019. Notation Vote By notation vote completed on May 21, 2019, the Committee unanimously approved the minutes of the Committee meeting held on April 30âMay 1, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended Tuesday session only. Return to text 3. In the absence of the manager, the Committee's Rules of Organization provide that the deputy manager acts as manager pro tem. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2019 through 2021 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections and policy assessments are described in the Summary of Economic Projections, which is an addendum to these minutes. Return to text

Minutes of the Federal Open Market Committee July 30â31, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, July 30, 2019, at 10:00 a.m. and continued on Wednesday, July 31, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Beverly Hirtle, Christopher J. Waller, William Wascher, and Beth Anne Wilson, Associate Economists Lorie K. Logan, Manager pro tem, System Open Market Account Ann E. Misback, 2 Secretary, Office of the Secretary, Board of Governors Eric Belsky, 3 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Margie Shanks, 5 Deputy Secretary, Office of the Secretary, Board of Governors Arthur Lindo, Deputy Director, Division of Supervision and Regulation, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, 6 Wendy E. Dunn, Joseph W. Gruber, Ellen E. Meade, and John M. Roberts, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors; David E. Lebow and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors Don Kim, Edward Nelson, and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors; S. Wayne Passmore, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Elizabeth Klee, Associate Director, Division of Financial Stability, Board of Governors; John J. Stevens, Associate Director, Division of Research and Statistics, Board of Governors Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Andrea Raffo, Deputy Associate Director, Division of International Finance, Board of Governors; Jeffrey D. Walker, 4 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Etienne Gagnon, Section Chief, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 3 Assistant to the Secretary, Office of the Secretary, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Alyssa G. Anderson, Principal Economist, Division of Monetary Affairs, Board of Governors; Dario Caldara 3 and Albert Queralto, 3 Principal Economists, Division of International Finance, Board of Governors Isabel Cairó, 3 Senior Economist, Division of Research and Statistics, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago David Altig, Michael Dotsey, and Jeffrey Fuhrer, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Philadelphia, and Boston, respectively Marc Giannoni, 3 Spencer Krane, and Paula Tkac, 3 Senior Vice Presidents, Federal Reserve Banks of Dallas, Chicago, and Atlanta, respectively Robert G. Valletta, Group Vice President, Federal Reserve Bank of San Francisco Terry Fitzgerald, Christopher J. Neely, 3 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Minneapolis, St. Louis, and New York, respectively Andreas L. Hornstein, Senior Advisor, Federal Reserve Bank of Richmond Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Joseph G. Haubrich, Senior Economic and Policy Advisor, Federal Reserve Bank of Cleveland Brent Bundick, Research and Policy Advisor, Federal Reserve Bank of Kansas City Vasco Curdia, 3 Research Advisor, Federal Reserve Bank of San Francisco Review of Monetary Policy Strategy, Tools, and Communication Practices Committee participants began their discussions related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. Staff briefings provided a retrospective on the Federal Reserve's monetary policy actions since the financial crisis, together with background and analysis regarding some key issues. In its policy response during the recession and the subsequent economic recovery, the Committee lowered the federal funds rate to its effective lower bound (ELB) and provided additional monetary policy accommodation through both forward guidance about the expected path of the policy rate and balance sheet policy. These actions eased financial conditions and provided substantial support to economic activity; they therefore figured importantly in helping promote the recovery in the labor market and in preventing inflation from falling substantially below the Committee's objective. The presentation noted, however, that over the past several years, inflation had tended to run modestly below the Committee's longer-run goal of 2 percent, while some indicators of longer-run inflation expectations currently stood at low levels. The staff also provided results from model simulations that illustrated possible challenges to the achievement of the Committee's dual-mandate goals over the medium term. These challenges included the proximity of the policy rate to the ELB, imprecise knowledge about the neutral value of the policy rate and the longer-run normal level of the unemployment rate, the diminished response of inflation to resource utilization, and uncertainty about the relationship between inflation expectations and inflation outcomes. In their discussion, participants welcomed the review of the monetary policy framework. They noted that the inclusion of feedback from the public as part of the review, via the Fed Listens events, had improved the transparency of the review process, enhanced the Federal Reserve's public accountability, and provided insights into the positive implications of strong labor markets and high rates of employment for various communities. Furthermore, participants agreed that the review was timely and warranted, in light of the use over the past decade of new policy tools and the emergence of changes in the structure and operation of the U.S. economy. These changes included the long period during which the federal funds rate was at the ELB, the probable recurrence of ELB episodes if the neutral level of the policy rate remains at historically low levels, and the challenges that policymakers face in influencing inflation and inflation expectations when the response of inflation to resource utilization has diminished. Participants generally agreed that the Committee's consideration of possible modifications to its policy strategy, tools, and communication practices would take some time and that the process would be careful, deliberate, and patient. With regard to the current monetary policy framework, participants agreed that this framework had served the Committee and the U.S. economy well over the past decade. They judged that forward guidance and balance sheet actions had provided policy accommodation during the ELB period and had supported economic activity and a return to strong labor market conditions while also bringing inflation closer to the Committee's longer-run goal of 2 percent than would otherwise have been the case. In addition, participants noted that the Committee's balanced approach to promoting its dual mandate of maximum employment and price stability had facilitated Committee policy actions aimed at supporting the labor market and economic activity even during times when the provision of accommodation was potentially associated with the risk of inflation running persistently above 2 percent. Participants further observed that such inflation risksâalong with several of the other perceived risks of providing substantial accommodation through nontraditional policy tools, including possible adverse implications for financial stabilityâhad not been realized. In particular, a number of participants commented that, as many of the potential costs of the Committee's asset purchases had failed to materialize, the Federal Reserve might have been able to make use of balance sheet tools even more aggressively over the past decade in providing appropriate levels of accommodation. However, several participants remarked that considerable uncertainties remained about the costs and efficacy of asset purchases, and a couple of participants suggested that, taking account of the uncertainties and the perceived constraints facing policymakers in the years following the recession, the Committee's decisions on the amount of policy accommodation to provide through asset purchases had been appropriate. In their discussion of policy tools, participants noted that the experience acquired by the Committee with the use of forward guidance and asset purchases has led to an improved understanding of how these tools operate; as a result, the Committee could proceed more confidently and preemptively in using these tools in the future if economic circumstances warranted. Participants discussed the extent to which forward guidance and balance sheet actions could substitute for reductions in the policy rate when the policy rate is constrained by the ELB. Overall, participants judged that the Federal Reserve's ability to provide monetary policy accommodation at the ELB through the use of forward guidance and balance sheet tools, while helpful in mitigating the effects of the constraint on monetary policy arising from the lower bound, did not eliminate the risk of protracted periods in which the ELB hinders the conduct of policy. If policymakers are not able to provide sufficient accommodation at the ELB through the use of forward guidance or balance sheet actions, the constraints posed by the ELB could be an impediment to the attainment of the Federal Reserve's dual-mandate objectives over time and put at risk the anchoring of inflation expectations at the Committee's longer-run inflation objective. Participants looked forward to a detailed discussion over coming meetings of alternative strategies for monetary policy. Some participants offered remarks on general features of some of the monetary policy strategies that they would be discussing and on the relationship between those strategies and the current framework. A few of the options mentioned were "makeup strategies," in which the realization of inflation below the 2 percent objective would give rise to policy actions designed to deliver inflation above the objective for a time. In principle, such makeup strategies could be designed to promote a 2 percent inflation rate, on average, over some period. In such circumstances, market expectations that the central bank would seek to "make up" inflation shortfalls following periods during which the ELB was binding could help ease overall financial conditions and thus help support economic activity during ELB episodes. However, many participants noted that the benefits of makeup strategies in supporting economic activity and stabilizing inflation depended heavily on the private sector's understanding of those strategies and confidence that future policymakers would take actions consistent with those strategies. A few participants suggested that an alternative means of delivering average inflation equal to the Committee's longer-run objective might involve aiming for inflation somewhat in excess of 2 percent when the policy rate was away from the ELB, recognizing that inflation would tend to move lower when the policy rate was constrained by the ELB. Another possibility might be for the Committee to express the inflation goal as a range centered on 2 percent and aim to achieve inflation outcomes in the upper end of the range in periods when resource utilization was high. A couple of participants noted that an adoption of a target range would be consistent with the practice of some other central banks. A few other participants suggested that the adoption of a range could convey a message that small deviations of inflation from 2 percent were unlikely to give rise to sizable policy responses. A couple of participants expressed concern that if policymakers regularly failed to respond appropriately to persistent, relatively small shortfalls of inflation below the 2 percent longer-run objective, inflation expectations and average observed inflation could drift below that objective. Participants also discussed the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy. Participants noted that this statement had been helpful in articulating and clarifying the Federal Reserve's approach to monetary policy. The Committee first released this document in January 2012 and had renewed it, with a few modifications, every year since then. On the basis of the monetary policy and economic experience of the past decade, participants cited a number of topics that they would likely discuss in detail in their deliberations during the review and that might motivate possible modifications to the statement. These topics included the conduct of monetary policy in the presence of the ELB constraint, the role of inflation expectations in monetary policy, the best means of conveying the Committee's balanced approach to monetary policy and the symmetry of its inflation goal, the relationship between the Committee's strategy and its decisions about the settings of its policy tools, the implications of the low value of the neutral policy rate and of uncertainty about the values of the neutral policy rate and the longer-run normal rate of unemployment, the potential benefits and costs of unemployment running below its longer-run normal rate in conditions of muted inflation pressures, and the time frame over which policymakers aimed to achieve their dual-mandate goals. A couple of participants emphasized the availability to policymakers of other communication tools through which the Committee could elaborate on its policy strategy and the challenges that monetary policy faced in the current environment, while also indicating that the Committee retains flexibility and optionality to achieve its objectives. Participants highlighted the importance of the Summary of Economic Projections (SEP) in conveying participants' modal outlooks, with several participants suggesting that modifications to the SEP's format might enhance policy communications. Participants also commented on the importance of considering the connections between monetary policy and financial stability. Participants expected that, at upcoming meetings, they would continue their deliberations on the review of the Federal Reserve's monetary policy strategy, tools, and communication practices. These additional discussions would consider various topics, such as alternative policy strategies, options for enhanced use of existing monetary policy tools, possible additions to the policy toolkit, potential changes to communication practices, the relationship between monetary policy and financial stability, and the distributional effects of monetary policy. Developments in Financial Markets and Open Market Operations The manager pro tem discussed developments in financial markets over the intermeeting period. Regarding market participants' views about the July FOMC meeting, nearly all respondents from the July Open Market Desk surveys of dealers and market participants expected a 25 basis point cut in the target range for the federal funds rate, a substantial shift from the June surveys when a significant majority had a modal forecast for no change. Survey responses also suggested that expectations had coalesced around a modal forecast for a total of two 25 basis point cuts in the target range in 2019 and no change thereafter through year-end 2021. Regarding balance sheet policy, survey respondents that expected a rate cut at this meeting were almost evenly split on whether the Committee would also choose to end balance runoff immediately after the meeting or to maintain the existing plan to halt runoff at the end of September. Market participants generally judged that a two-month change in the timing of the end of the balance sheet runoff would have only a small effect on the path of the balance sheet and thus very little, if any, economic effect. Expectations for near-term domestic policy easing had occurred against the backdrop of a global shift toward more accommodative monetary policy. Several central banks had eased policy over the past month and a number of others shifted to an easing bias. Market participants were particularly attentive to a statement after the European Central Bank's Governing Council meeting that was perceived as affirming expectations for further easing and additional asset purchases. These changes to the policy outlook in the United States and across a number of countries appeared to play an important role in supporting financial conditions and offsetting some of the drag on growth from trade tensions and other risks. Somewhat reduced concern among market participants about important risks to the global outlook also appeared to support risk asset prices. Following the G-20 (Group of Twenty) meeting in late June, fewer Desk contacts and respondents to the Desk surveys expected a significant escalation of U.S.-China trade tensions. In addition, investor sentiment was bolstered by news that the Administration and Congress had reached a budget and debt ceiling agreement that, if passed, would remove another source of risk later this year. That said, contacts recognized that some potentially sizeable downside risks remained. Many survey respondents still viewed U.S.-China trade risks as skewed to the downside, and many Desk contacts judged that the risks of a "no-deal" Brexit had increased. The manager pro tem next discussed developments in money markets and open market operations. The spreads of the effective federal funds rate (EFFR) and the median Eurodollar rate relative to the interest on excess reserves (IOER) rate had increased some and become more variable over recent months, with a notable pickup in daily changes in these spreads since late March. Moreover, the range of rates in unsecured markets each day had widened. Market participants pointed to pressures in repurchase agreement (repo) markets as one factor contributing to the uptick in volatility in unsecured rates. These pressures, in turn, seemed to stem partly from elevated dealer inventories of Treasury securities and dealers' associated financing needs. Market participants also pointed to lower reserve balances as a factor affecting rates in unsecured money market rates. Over the intermeeting period, the level of reserves was little changed on net; however, some market participants noted the association between the gradual increase in unsecured rates relative to the IOER rate over recent months and the declining level of reserves since System Open Market Account (SOMA) redemptions began. The level of reserves was expected to decline appreciably over coming months, partly reflecting an anticipated sizable increase in the Treasury's balance at the Federal Reserve following the agreement on the federal budget and debt ceiling. The manager pro tem updated the Committee on Desk plans to resume CUSIP (Committee on Uniform Securities Identification Procedures) aggregation of SOMA holdings of Fannie Mae and Freddie Mac agency mortgage-backed securities (MBS) to reduce administrative costs and operational complexity, and the Desk expects to release a statement in August with details on the aggregation strategy. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the July 30â31 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) increased at a moderate rate in the second quarter. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), was below 2 percent in June. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded at a solid rate, on average, in recent months, supported by a brisk gain in June. The unemployment rate edged up to 3.7 percent in June but was still at a historically low level. The labor force participation rate also moved up somewhat but was close to its average over the previous few years, and the employment-to-population ratio stayed flat. The unemployment rates for African Americans and Asians declined in June, the rate for whites was unchanged, and the rate for Hispanics edged up; the unemployment rate for each group was below its level at the end of the previous economic expansion, though persistent differentials between these rates remained. The share of workers employed part time for economic reasons in June continued to be below the lows reached in late 2007. The rate of private-sector job openings held steady in May, while the rate of quits edged down but was still at a high level; the four-week moving average of initial claims for unemployment insurance benefits through mid-July was near historically low levels. Average hourly earnings for all employees rose 3.1 percent over the 12 months ending in June, somewhat faster than a year earlier. The employment cost index for private-sector workers increased 2.6 percent over the 12 months ending in June, the same as a year earlier. (Data on compensation per hour that reflected the recent annual update of the national income and product accounts by the Bureau of Economic Analysis (BEA) were not available at the time of the meeting.) Total consumer prices, as measured by the PCE price index, increased 1.4 percent over the 12 months ending in June. This increase was slower than a year earlier, as core PCE price inflation (which excludes changes in consumer food and energy prices) moved down to 1.6 percent, consumer food price inflation remained below core inflation, and consumer energy prices declined. The average monthly change in the core PCE price index during the second quarter was faster than in the first quarter, suggesting that some of the soft inflation readings early in the year were transitory. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at or near 2 percent in recent months. The consumer price index (CPI) rose 1.6 percent over the 12 months ending in June, while core CPI inflation was 2.1 percent. Recent survey-based measures of longer-run inflation expectations were little changed on balance. The preliminary July reading from the University of Michigan Surveys of Consumers moved back up after dipping in June but was still at a relatively low level; the measures from the Desk's Survey of Primary Dealers and Survey of Market Participants were little changed. Real consumer expenditures rose briskly in the second quarter after a sluggish gain in the first quarter, supported in part by a robust pace of light motor vehicle sales in May and June. However, real PCE rose more slowly in June than in the first five months of the year, suggesting some deceleration in consumer spending going into the third quarter. Key factors that influence consumer spendingâincluding a low unemployment rate, further gains in real disposable income, and elevated measures of households' net worthâwere supportive of solid real PCE growth in the near term. In addition, the preliminary July reading on the Michigan survey measure of consumer sentiment remained at an upbeat level. Real residential investment declined again in the second quarter. Al­though starts of new single-family homes rose in June, the average in the second quarter was lower than in the first quarter; starts of multifamily units fell back in June but rose for the second quarter as a whole. Building permit issuance for new single-family homesâwhich tends to be a good indicator of the underlying trend in construction of such homesâwas at roughly the same level in June as its first-quarter average. On net in May and June, sales of new homes declined, while sales of existing homes rose. Real nonresidential private fixed investment edged down in the second quarter, as a decline in expenditures on nonresidential structures more than offset an increase in expenditures for business equipment and intellectual property. Forward-looking indicators of fixed investment were mixed. Orders for nondefense capital goods excluding aircraft increased in June, and some measures of business sentiment improved. However, analysts' expectations of firms' longer-term profit growth remained soft, trade policy concerns appeared to be weighing on investment, and the number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâcontinued to decrease in recent weeks. Industrial production (IP) was unchanged in June, as a decrease in the output of utilities offset increases in the output of manufacturers and mines. For the second quarter as a whole, both total IP and manufacturing output declined, while mining output rose notably, supported by a strong gain in crude oil extraction. Automakers' assembly schedules suggested that production of light motor vehicles would move up somewhat in the third quarter. However, new orders indexes from national and regional manufacturing surveys pointed toward continued softness in manufacturing production in coming months. Total real government purchases rose solidly in the second quarter. Federal defense spending increased, and nondefense purchases returned to more typical levels after the partial federal government shutdown in the first quarter. Real purchases by state and local governments rose moderately, boosted by a strong gain in spending on structures and an increase in the payrolls of those governments. The nominal U.S. international trade deficit widened in May relative to April, as imports increased more than exports. In June, preliminary data indicated declining nominal goods exports and imports. Within exports, declines were particularly notable for exports of consumer goods and capital goods, the latter of which had already been depressed by the suspension of Boeing 737 MAX exports. All told, the BEA estimates that net exports, after adding moderately to first-quarter GDP growth, subtracted a similar amount from GDP growth in the second quarter on declining exports and flat imports. Incoming data suggested that growth in the foreign economies remained subdued in the second quarter. In several key advanced foreign economies, including the euro area, recent indicators pointed to slowing economic growth amid continued weakness in manufacturing and persistent policy-related uncertainty. Similarly, in China, real GDP growth slowed notably in the second quarter after a first-quarter jump. In contrast, growth in Canada and, to a lesser extent, Latin America appeared to pick up from a weak first-quarter pace. Foreign inflation remained muted but rose a bit from lows earlier in the year, largely reflecting higher energy prices. Staff Review of the Financial Situation Over the intermeeting period, financial market developments reflected noticeable shifts in expectations for monetary policy in response to Federal Reserve communications, economic data releases, and trade policy developments. Federal Reserve communications were generally regarded as more accommodative than had been anticipated, exerting downward pressure on measures of the expected path for the federal funds rate. However, some better-than-expected economic data releases and a slight improvement in the outlook regarding trade partially offset these declines. Yields on nominal Treasury securities were little changed on net. Equity prices increased, corporate bond spreads narrowed, and inflation compensation rose modestly. Financing conditions for businesses and households were little changed over the intermeeting period and remained generally supportive of spending. Measures of expectations for near-term domestic monetary policy exhibited notable shifts and reversals over the intermeeting period and ended the period little changed, on net, with market participants still attaching high odds to a 25 basis point reduction in the target range for the federal funds rate at the July FOMC meeting. Consistent with significant variation in near-term expectations for monetary policy, market-based indicators of interest rate uncertainty for shorter maturities over the near term remained somewhat elevated. Over the intermeeting period, market-based expectations for the federal funds rate for the end of this year and beyond moved down slightly on net. A straight read of OIS (overnight index swap) forward rates implied that the federal funds rate would decline about 60 basis points in 2019 and about 35 basis points in 2020. The nominal U.S. Treasury yield curve was little changed, on net, over the intermeeting period. Both the near-term forward spread and the spread between 10âyear and 3-month Treasury yields are still in the bottom decile of their respective distributions since 1971. On net, in the weeks following the June FOMC meeting, 5âyear and 5-to-10-year inflation compensation based on Treasury Inflation-Protected Securities (TIPS) moved up modestly. More-accommodative-than-expected Federal Reserve communications, stronger-than-expected inflation data releases, and rising oil pricesâamid increased geopolitical tensions with Iranâcontributed to the upward pressure on inflation compensation. Broad stock price indexes increased, on net, over the intermeeting period, with notable increases following the June FOMC communications, the Chair's July Monetary Policy Report testimony, and announcements regarding trade negotiations following the G-20 meeting. Additionally, there was a slight positive reaction to news of an agreement on the federal budget and debt limit. Equity price increases were broad based across major sectors, with technology, financial, and communication services firms outperforming broad indexes. One-month option-implied volatility on the S&P 500 indexâthe VIXâdecreased slightly, on net, and corporate credit spreads narrowed. Conditions in domestic short-term funding markets remained fairly stable. Overnight interest rates in both unsecured and secured markets were somewhat elevated over the period. In particular, repo rates were elevated on and after the June quarter-end, with the SOFR (Secured Overnight Financing Rate) averaging 8 basis points above the IOER rate over the intermeeting period. However, the EFFR remained well within the target range, averaging 5 basis points above the IOER rate. Rates on commercial paper and negotiable certificates of deposit declined somewhat. Accommodative central bank communications, both in the United States and abroad, and some easing of trade tensions generally supported foreign risky assets over the intermeeting period. Global equity indexes increased modestly, while emerging market sovereign spreads narrowed. On balance, the broad dollar index ended the period modestly lower. Notably, the British pound depreciated significantly against the U.S. dollar, reportedly as developments led investors to raise the probability they attached to a no-deal Brexit. Most sovereign long-term bond yields edged lower, on net, reflecting firming expectations for further policy accommodation amid growing concerns about the global economic outlook. Italian yields declined notably, in part as the government passed some fiscal consolidation measures. The European Central Bank left its policy rate unchanged at its July meeting but signaled possible rate cuts at coming meetings and said it will explore options for additional asset purchases. Several emerging market central banks, including South Korea, Turkey, and Indonesia, lowered policy rates over the period. Financing conditions for nonfinancial businesses remained accommodative. Gross issuance of corporate bonds remained robust in June, followed by a typical seasonal decline in July. Issuance of institutional leveraged loans increased notably in May but in June, it returned to the more moderate pace observed earlier this year. Respondents to the July 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported that, on net, banks continued to ease standards and terms on commercial and industrial loans to large and middle-market firms in the second quarter, with many citing aggressive competition as the reason for doing so. Gross equity issuance has been strong in recent months. The credit quality of nonfinancial corporations continued to show signs of stabilization in June following some deterioration earlier in the year. Credit conditions for both small businesses and municipalities remained accommodative on balance. In the commercial real estate (CRE) sector, financing conditions remained generally accommodative despite a modest deceleration in bank loan growth. Banks in the July SLOOS reported that standards were about unchanged, on net, in the second quarter for most CRE loan categories. Agency and non-agency commercial MBS issuance was strong in the second quarter, as yield spreads ticked down. Financing conditions in the residential mortgage market remained accommodative over the intermeeting period. Mortgage rates were little changed since the June FOMC meeting but remained about 1 percentage point below their late-2018 level. These conditions have supported a modest increase in home-purchase origination volume in recent months. Refinance originations have risen as well but remain near historical lows. In consumer credit markets, financing conditions were little changed in recent months and remained generally supportive of consumer spending. Growth in consumer credit in April and May was up a bit from earlier in the year due to a pickup in credit card balances. Banks in the July SLOOS continued to report tightened standards for credit cards over the second quarter. The staff provided an update on its assessments of potential risks to financial stability. On balance, the staff continued to view vulnerabilities as moderate. The staff judged asset valuation pressures to be notable in a number of markets, supported in part by the low level of Treasury yields. In assessing vulnerabilities stemming from leverage in the household and business sectors, the staff noted that business leverage was high while household leverage was moderate. The staff viewed the buildup in nonfinancial business-sector debt as a factor that could amplify adverse shocks to the business sector and the economy more generally. Within business debt, the staff also reported that in the leveraged loan market, the share of new loans to risky borrowers was at a record high, and credit extended by private equity firms had continued to grow. At the same time, financial institutions were viewed as resilient, as the risks associated with financial leverage and funding risk were still viewed as low despite some signs of rising leverage and continued inflows into run-prone funds. Separately, the staff noted that market liquidity was, overall, in good shape, al­though sudden price drops had become more frequent in some markets. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the July FOMC meeting was revised up somewhat in the near term, as an upward revision to households' real disposable income in the first half of the year led to a slightly higher second-half forecast for consumer spending. Even so, real GDP growth was still forecast to rise more slowly in the second half of the year than in the first half, primarily reflecting continued soft business investment and a slower increase in government spending. The projection for real GDP growth over the medium term was a little stronger, supported by the effects of a higher projected path for equity prices and a lower trajectory for interest rates. Real GDP was forecast to expand at a rate a little above the staff's estimate of potential output growth in 2019 and 2020 and then slow to a pace slightly below potential output growth in 2021. The unemployment rate was projected to be roughly flat through 2021 and to remain below the staff's estimate of its longer-run natural rate. With labor market conditions judged to be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate. The staff's forecast of total PCE price inflation this year was revised up a touch, reflecting a slightly higher projected path for consumer energy prices, while the forecast for core PCE price inflation was unrevised at a level below 2 percent. Both total and core inflation were projected to move up slightly next year, as the low readings early this year were expected to be transitory, but nevertheless to continue to run below 2 percent. The staff continued to view the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. Moreover, the staff still judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors in that assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. In addition, softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. With the risks to the forecast for economic activity tilted to the downside, the risks to the inflation projection were also viewed as having a downward skew. Participants' Views on Current Conditions and the Economic Outlook Participants agreed that the labor market had remained strong over the intermeeting period and that economic activity had risen at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though growth of household spending had picked up from earlier in the year, growth of business fixed investment had been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. This outlook was predicated on financial conditions that were more accommodative than earlier this year. More accommodative financial conditions, in turn, partly reflected market reaction to the downward adjustment through the course of the year in the Committee's assessment of the appropriate path for the target range of the federal funds rate in light of weak global economic growth, trade policy uncertainty, and muted inflation pressures. Participants generally noted that incoming data over the intermeeting period had been largely positive and that the economy had been resilient in the face of ongoing global developments. The economy continued to expand at a moderate pace, and participants generally expected GDP growth to slow a bit to around its estimated potential rate in the second half of the year. However, participants also observed that global economic growth had been disappointing, especially in China and the euro area, and that trade policy uncertainty, al­though waning some over the intermeeting period, remained elevated and looked likely to persist. Furthermore, inflation pressures continued to be muted, notwithstanding the firming in the overall and core PCE price indexes in the three months ending in June relative to earlier in the year. In their discussion of the business sector, participants generally saw uncertainty surrounding trade policy and concerns about global growth as continuing to weigh on business confidence and firms' capital expenditure plans. Participants generally judged that the risks associated with trade uncertainty would remain a persistent headwind for the outlook, with a number of participants reporting that their business contacts were making decisions based on their view that uncertainties around trade were not likely to dissipate anytime soon. Some participants observed that trade uncertainties had receded somewhat, especially with the easing of trade tensions with Mexico and China. Several participants noted that, over the intermeeting period, business sentiment seemed to improve a bit and commented that the data for new capital goods orders had improved. Some participants expressed the view that the effects of trade uncertainty had so far been modest and referenced reports from business contacts in their Districts that investment plans were continuing, though with a more cautious posture. Participants also discussed developments across the manufacturing, agriculture, and energy sectors of the U.S. economy. Manufacturing production had declined so far this year, dragged down in part by weak real exports, the ongoing global slowdown, and trade uncertainties. Several participants noted ongoing challenges in the agricultural sector, including those associated with increased trade uncertainty, weak export demand, and the effects of wet weather and severe flooding. A couple of participants commented on the decline in energy prices since last fall and the associated reduction in economic activity in the energy sector. Participants commented on the robust pace of consumer spending. Noting the important role that household spending was currently playing in supporting the expansion, participants judged that household spending would likely continue to be supported by strong labor market conditions, rising incomes, and upbeat consumer sentiment. A few participants noted that the continued softness in residential investment was a concern, and that the expected boost to housing activity from the decline in mortgage rates since last fall had not yet materialized. In contrast, a couple of participants reported that some recent indicators of housing activity in their Districts had been somewhat more positive of late. In their discussion of the labor market, participants judged that conditions remained strong, with the unemployment rate near historical lows and continued solid job gains, on average, in recent months. Job gains in June were stronger than expected, following a weak reading in May. Looking ahead, participants expected the labor market to remain strong, with the pace of job gains slower than last year but above what is estimated to be necessary to hold labor utilization steady. Reports from business contacts pointed to continued strong labor demand, with many firms reporting difficulty finding workers to meet current demand. Several participants reported seeing notable wage pressures for lower-wage workers. However, participants viewed overall wage growth as broadly consistent with the modest average rates of labor productivity growth in recent years and, consequently, as not exerting much upward pressure on inflation. Several participants remarked that there seemed to be little sign of overheating in labor markets, citing the combination of muted inflation pressures and moderate wage growth. Regarding inflation developments, some participants stressed that, even with the firming of readings for consumer prices in recent months, both overall and core PCE price inflation rates continued to run below the Committee's symmetric 2 percent objective; the latest reading on the 12-month change in the core PCE price index was 1.6 percent. Furthermore, continued weakness in global economic growth and ongoing trade tensions had the potential to slow U.S. economic activity and thus further delay a sustained return of inflation to the 2 percent objective. Many other participants, however, saw the recent inflation data as consistent with the view that the lower readings earlier this year were largely transitory, and noted that the trimmed mean measure of PCE price inflation constructed by the Federal Reserve Bank of Dallas was running around 2 percent. A few participants noted differences in the behavior of measures of cyclical and acyclical components of inflation. By some estimates, the cyclical component of inflation continued to firm; the acyclical component, which appeared to be influenced by sectoral and technological changes, was largely responsible for the low level of inflation and not likely to respond much to monetary policy actions. In their discussion of the outlook for inflation, participants generally anticipated that with appropriate policy, inflation would move up to the Committee's 2 percent objective over the medium term. However, market-based measures of inflation compensation and some survey measures of consumers' inflation expectations remained low, al­though they had moved up some of late. A few participants remarked that inflation expectations appeared to be reasonably well anchored at levels consistent with the Committee's 2 percent inflation objective. However, some participants stressed that the prolonged shortfall in inflation from the long-run goal could cause inflation expectations to drift downâa development that might make it more difficult to achieve the Committee's mandated goals on a sustained basis, especially in the current environment of global disinflationary pressures. A couple of participants observed that, al­though some indicators of longer-term inflation expectations, like TIPS-based inflation compensation and the Michigan survey measure, had not changed substantially this year, on net, they were notably lower than their levels several years ago. Participants generally judged that downside risks to the outlook for economic activity had diminished somewhat since their June meeting. The strong June employment report suggested that the weak May payroll figures were not a precursor to a more material slowdown in job growth. The agreement between the United States and China to resume negotiations appeared to ease trade tensions somewhat. In addition, many participants noted that the recent agreement on the federal debt ceiling and budget appropriations substantially reduced near-term fiscal policy uncertainty. Moreover, the possibility of favorable outcomes of trade negotiations could be a factor that would provide a boost to economic activity in the future. Still, important downside risks persisted. In particular, participants were mindful that trade tensions were far from settled and that trade uncertainties could intensify again. Continued weakness in global economic growth remained a significant downside risk, and some participants noted that the likelihood of a no-deal Brexit had increased. In their discussion of financial market developments, participants observed that financial conditions remained supportive of economic growth, with borrowing rates low and stock prices near all-time highs. Participants observed that current financial conditions appeared to be premised importantly on expectations that the Federal Reserve would ease policy to help offset the drag on economic growth stemming from the weaker global outlook and uncertainties associated with international trade as well as to provide some insurance to address various downside risks. Participants also discussed the decline in yields on longer-term nominal Treasury securities in recent months. A few participants expressed the concern that the inversion of the Treasury yield curve, as evidenced by the 10-year yield falling below the 3-month yield, had persisted for about two months, which could indicate that market participants anticipated weaker economic conditions in the future and that the Federal Reserve would soon need to lower the federal funds rate substantially in response. The longer-horizon real forward rate implied by TIPS had also declined, suggesting that the longer-run normal level of the real federal funds rate implicit in market prices was lower. Among those participants who commented on financial stability, most highlighted recent credit market developments, the elevated valuations in some asset markets, and the high level of nonfinancial corporate indebtedness. Several participants noted that high levels of corporate debt and leveraged lending posed some risks to the outlook. A few participants discussed the fast growth of private credit marketsâa sector not subject to the same degree of regulatory scrutiny and requirements that applies in the banking sectorâand commented that it was important to monitor this market. Several participants observed that valuations in equity and corporate bond markets were near all-time highs and that CRE valuations were also elevated. A couple of participants noted that the low level of Treasury yieldsâa factor seen as supporting asset prices across a range of marketsâwas a potential source of risk if yields moved sharply higher. However, these participants judged that in the near term, such risks were small in light of the monetary policy outlooks in the United States and abroad and generally subdued inflation. A few participants expressed the concern that capital ratios at the largest banks had continued to fall at a time when they should ideally be rising and that capital ratios were expected to decline further. Another view was that financial stability risks at present are moderate and that the largest banks would continue to maintain very substantial capital cushions in light of a range of regulatory requirements, including rigorous stress tests. In their discussion of monetary policy decisions at this meeting, those participants who favored a reduction in the target range for the federal funds rate pointed to three broad categories of reasons for supporting that action. First, while the overall outlook remained favorable, there had been signs of deceleration in economic activity in recent quarters, particularly in business fixed investment and manufacturing. A pronounced slowing in economic growth in overseas economiesâperhaps related in part to developments in, and uncertainties surrounding, international tradeâappeared to be an important factor in this deceleration. More generally, such developments were among those that had led most participants over recent quarters to revise down their estimates of the policy rate path that would be appropriate to promote maximum employment and stable prices. Second, a policy easing at this meeting would be a prudent step from a risk-management perspective. Despite some encouraging signs over the intermeeting period, many of the risks and uncertainties surrounding the economic outlook that had been a source of concern in June had remained elevated, particularly those associated with the global economic outlook and international trade. On this point, a number of participants observed that policy authorities in many foreign countries had only limited policy space to support aggregate demand should the downside risks to global economic growth be realized. Third, there were concerns about the outlook for inflation. A number of participants observed that overall inflation had continued to run below the Committee's 2 percent objective, as had inflation for items other than food and energy. Several of these participants commented that the fact that wage pressures had remained only moderate despite the low unemployment rate could be a sign that the longer-run normal level of the unemployment rate is appreciably lower than often assumed. Participants discussed indicators for longer-term inflation expectations and inflation compensation. A number of them concluded that the modest increase in market-based measures of inflation compensation over the intermeeting period likely reflected market participants' expectation of more accommodative monetary policy in the near future; others observed that, while survey measures of inflation expectations were little changed from June, the level of expectations by at least some measures was low. Most participants judged that long-term inflation expectations either were already below the Committee's 2 percent goal or could decline below the level consistent with that goal should there be a continuation of the pattern of inflation coming in persistently below 2 percent. A couple of participants indicated that they would have preferred a 50 basis point cut in the federal funds rate at this meeting rather than a 25 basis point reduction. They favored a stronger action to better address the stubbornly low inflation rates of the past several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization meant that a notably stronger real economy might be required to speed the return of inflation to the Committee's inflation objective. Several participants favored maintaining the same target range at this meeting, judging that the real economy continued to be in a good place, bolstered by confident consumers, a strong job market, and a low rate of unemployment. These participants acknowledged that there were lingering risks and uncertainties about the global economy in general, and about international trade in particular, but they viewed those risks as having diminished over the intermeeting period. In addition, they viewed the news on inflation over the intermeeting period as consistent with their forecasts that inflation would move up to the Committee's 2 percent objective at an acceptable pace without an adjustment in policy at this meeting. Finally, a few participants expressed concerns that further monetary accommodation presented a risk to financial stability in certain sectors of the economy or that a reduction in the target range for the federal funds rate at this meeting could be misinterpreted as a negative signal about the state of the economy. Participants also discussed the timing of ending the reduction in the Committee's aggregate securities holdings in the SOMA. Ending the reduction of securities holdings in August had the advantage of avoiding the appearance of inconsistency in continuing to allow the balance sheet to run off while simultaneously lowering the target range for the federal funds rate. But ending balance sheet reduction earlier than under its previous plan posed some risk of fostering the erroneous impression that the Committee viewed the balance sheet as an active tool of policy. Because the proposed change would end the reduction of its aggregate securities holdings only two months earlier than previously indicated, policymakers concluded that there were only small differences between the two options in their implications for the balance sheet and thus also in their economic effects. In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a preset course. Most participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment, in response to the evolution of the economic outlook over recent months. A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that while there had been some improvement in economic conditions over the intermeeting period and the overall outlook remained favorable, significant risks and uncertainties attending the outlook remained. In particular, sluggish U.S. business fixed investment spending and manufacturing output had lingered, suggesting that risks and uncertainties associated with weak global economic growth and in international trade were weighing on the domestic economy. Strong labor markets and rising incomes continued to support the outlook for consumer spending, but modest growth in prices and wages suggested that inflation pressures remained muted. Inflation had continued to run below the Committee's 2 percent symmetric objective. Market-based measures of inflation compensation moved up modestly from the low levels recorded in June, but a portion of this change likely reflected the expectation by market participants of additional near-term monetary accommodation. Survey-based measures of longer-term inflation expectations were little changed. On this basis, all but two members agreed to lower the target range for the federal funds rate to 2 to 2-1/4 percent at this meeting. With this adjustment to policy, those members who voted for the policy action sought to better position the overall stance of policy to help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation to the Committee's symmetric 2 percent objective than would otherwise be the case. Those members noted that the action taken at this meeting should be viewed as part of an ongoing reassessment of the appropriate path of the federal funds rate that began in late 2018. Two members preferred to maintain the current target range for the federal funds rate. In explaining their policy views, those members noted that economic data collected over the intermeeting period had been largely positive and that they anticipated continued strong labor markets and solid growth in activity, with inflation gradually moving up to the Committee's 2 percent target. One member also noted that a further easing in policy at a time when the economy is very strong and asset prices are elevated could have adverse implications for financial stability. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Members generally agreed that it was important to maintain optionality in setting the future target range for the federal funds rate and, more generally, that near-term adjustments of the stance of monetary policy would appropriately remain dependent on the implications of incoming information for the economic outlook. With regard to the postmeeting statement, the Committee implemented several adjustments in the description of the economic situation, including a revision to recognize that market-based measures of inflation compensation "remain low." The Committee stated that the reduction in the target range for the federal funds rate supported its view that "sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective" remained the most likely outcomes, but "uncertainties about this outlook remain." The phrase "as the Committee contemplates the future path" of the target range for the federal funds rate was added to underscore the Committee's intention to carefully assess incoming information before deciding on future policy adjustments. The statement noted that the Committee would "continue to monitor the implications of incoming information for the economic outlook" and would "act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective." Finally, the Committee announced the conclusion of the reduction of securities holdings in the SOMA. Ending the runoff of securities holdings two months earlier than initially planned was seen as having only very small effects on the balance sheet, with negligible implications for the economic outlook, and was helpful in simplifying communications regarding the usage of the Committee's policy tools. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective August 1, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2 to 2-1/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. Effective August 1, 2019, the Committee directs the Desk to roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Al­though growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, Randal K. Quarles. Voting against this action: Esther L. George and Eric Rosengren. President George dissented because she believed that an unchanged setting of policy was appropriate based on the incoming data and the outlook for economic activity over the medium term. Recognizing risks to the outlook from the crosscurrents emanating from trade policy uncertainty and weaker global activity, President George would be prepared to adjust policy should incoming data point to a materially weaker outlook for the economy. President Rosengren dissented because he did not see a clear and compelling case for additional accommodation at this time given that the unemployment rate stood near 50-year lows, inflation seemed likely to rise toward the Committee's 2 percent target, and financial stability concerns were elevated, as indicated by near-record equity prices and corporate leverage. Consistent with the Committee's decision to lower the target range for the federal funds rate to 2 to 2-1/4 percent, the Board of Governors voted unanimously to lower the interest rate paid on required and excess reserve balances to 2.10 percent and voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 2.75 percent, effective August 1, 2019. 7 Reinvestment Plans The manager pro tem described the Desk's plans for reinvestments in light of the Committee's decision to conclude the reduction of aggregate securities holdings in the SOMA portfolio effective August 1. In accordance with the directive to the Desk, beginning on August 1, all principal payments from Treasury securities, agency debt, and agency MBS will be reinvested. Principal payments from Treasury securities held in the SOMA portfolio will be reinvested through rollovers in Treasury auctions. The Desk also will reinvest principal payments from agency debt and agency MBS securities of up to $20 billion per month in Treasury securities in a manner that roughly matches the maturity composition of Treasury securities outstanding. The Desk plans to purchase these Treasury securities in the secondary market across 11 sectors of different maturities and security types approximately in proportion to the 12-month average of the amount outstanding in each sector relative to the total amount outstanding across sectors, as measured at the end of July. The Desk will continue to reinvest agency debt and agency MBS principal payments in excess of $20 billion per month in agency MBS. Given the Committee's decision to bring forward the timing of these purchases to August, the Desk planned to release an operational statement to provide more details on the plans for reinvestment operations. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 17â18, 2019. The meeting adjourned at 11:15 a.m. on July 31, 2019. Notation Vote By notation vote completed on July 9, 2019, the Committee unanimously approved the minutes of the Committee meeting held on June 18â19, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of economic developments and outlook. Return to text 3. Attended the discussion of the review of monetary policy framework. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended the discussion of economic developments and outlook through discussion of monetary policy. Return to text 6. Attended Tuesday session only. Return to text 7. In taking this action, the Board approved requests to establish that rate submitted by the boards of directors of the Federal Reserve Banks of Philadelphia, Chicago, St. Louis, Dallas, and San Francisco. This vote also encompassed approval by the Board of Governors of the establishment of a 2.75 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of August 1, 2019, and the date such Reserve Banks informed the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of Boston, New York, Cleveland, Richmond, Atlanta, Minneapolis, and Kansas City were informed of the Secretary of the Board's approval of their establishment of a primary credit rate of 2.75 percent, effective August 1, 2019.) A second vote of the Board encompassed approval of the establishment of the interest rates for secondary and seasonal credit under the existing formulas for computing such rates. Return to text

Minutes of the Federal Open Market Committee September 17â18, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, September 17, 2019, at 10:15 a.m. and continued on Wednesday, September 18, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Eric M. Engen, William Wascher, Jonathan L. Willis, and Beth Anne Wilson, Associate Economists Lorie K. Logan, Manager pro tem, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Eric Belsky, 2 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 3 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber, Ellen E. Meade, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors Antulio Bomfim, Jane E. Ihrig, and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors David López-Salido, Associate Director, Division of Monetary Affairs, Board of Governors; John J. Stevens, Associate Director, Division of Research and Statistics, Board of Governors Andrew Figura and John M. Roberts, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Matteo Iacoviello and Andrea Raffo, 2 Deputy Associate Directors, Division of International Finance, Board of Governors; Jeffrey D. Walker, 3 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Zeynep Senyuz, 4 Assistant Director, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 5 Assistant to the Secretary, Office of the Secretary, Board of Governors Martin Bodenstein, 2 Section Chief, Division of International Finance, Board of Governors David H. Small, 6 Project Manager, Division of Monetary Affairs, Board of Governors Hess T. Chung, 2 Group Manager, Division of Research and Statistics, Board of Governors Jonathan E. Goldberg, Edward Herbst, 2 and Benjamin K. Johannsen, Principal Economists, Division of Monetary Affairs, Board of Governors Fabian Winkler, 2 Senior Economist, Division of Monetary Affairs, Board of Governors Randall A. Williams, 2 Senior Information Manager, Division of Monetary Affairs, Board of Governors James Hebden, 2 Senior Technology Analyst, Division of Monetary Affairs, Board of Governors Achilles Sangster II, Information Management Analyst, Division of Monetary Affairs, Board of Governors Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston David Altig, 2 Kartik B. Athreya, Michael Dotsey, Jeffrey Fuhrer, 2 Sylvain Leduc, Simon Potter, 7 and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Philadelphia, Boston, San Francisco, New York, and Cleveland, respectively David Andolfatto, Marc Giannoni, Evan F. Koenig, 2 Paula Tkac, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of St. Louis, Dallas, Dallas, Atlanta, and Minneapolis, respectively Jonas Fisher, Giovanni Olivei, Giorgio Topa, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Chicago, Boston, New York, and New York, respectively Jonas Arias, 2 Thorsten Drautzburg, 2 and Leonardo Melosi, 2 Senior Economists, Federal Reserve Banks of Philadelphia, Philadelphia, and Chicago, respectively Fernando Duarte, 2 Financial Economist, Federal Reserve Bank of New York Review of Monetary Policy Strategy, Tools, and Communication Practices Committee participants continued their discussions related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. Staff briefings provided an assessment of the risk that the federal funds rate could, in some future downturn, be constrained by the effective lower bound (ELB) and discussed options for mitigating the costs associated with this constraint. The staff's analysis suggested that the ELB would likely bind in most future recessions, which could make it more difficult for the FOMC to achieve its longer-run objectives of maximum employment and symmetric 2 percent inflation. The staff discussed several options for mitigating ELB risks, including using forward guidance and balance sheet policies earlier and more aggressively than in the past. The staff also illustrated the properties of "makeup" strategies using model simulations. Under such strategies, policymakers would promise to make up for past inflation shortfalls with a sustained accommodative stance of policy that is intended to generate higher future inflation. These strategies are designed to provide accommodation at the ELB by keeping the policy rate low for an extended period in order to support an economic recovery. Because of their properties both at and away from the ELB, makeup strategies may also more firmly anchor inflation expectations at 2 percent than a policy strategy that does not compensate for past inflation misses. The staff analysis emphasized, however, that the benefits of makeup strategies depend importantly on the private sector's understanding of these strategies and their confidence that future policymakers would follow through on promises to keep policy accommodative. Participants generally agreed with the staff's analysis that the risk of future ELB episodes had likely increased over time, and that future ELB episodes and the reduced effect of resource utilization on inflation could inhibit the Committee's ability to achieve its employment and inflation objectives. The increased ELB risk was attributed in part to structural changes in the U.S. economy that had lowered the longer-run real short-term interest rate and thus the neutral level of the policy rate. In this context, a couple of participants noted that uncertainty about the neutral rate made it especially challenging to determine any appropriate changes to the current framework. In light of a low neutral rate and shortfalls of inflation below the 2 percent objective for several years, some participants raised the concern that the policy space to reduce the federal funds rate in response to future recessions could be compressed further if inflation shortfalls continued and led to a decline in inflation expectations, a risk that was also discussed in the staff analysis. These participants pointed to long, ongoing ELB spells in other major foreign economies and suggested that, to avoid similar circumstances in the United States, it was important to be aggressive when confronted with forces holding inflation below objective. A couple of participants judged that the lack of monetary policy space abroad and the possibility that fiscal space in the United States might be limited reinforced the case for strengthening the FOMC's monetary policy framework as a matter of prudent planning. With regard to the current monetary policy framework, participants agreed that this framework served the Committee well in the aftermath of the financial crisis. A number of participants noted that the Committee's experience with forward guidance and balance sheet policies would likely allow the Committee to deploy these tools earlier and more aggressively in the event that they were needed. A few indicated that the uncertainty about the effectiveness of these policies was smaller than the uncertainty surrounding the effectiveness of a makeup strategy. Participants generally agreed that the current framework also served the Committee well by providing a strong commitment to achieving the Committee's maximum-employment and symmetric inflation objectives. Such a commitment was seen as flexible enough to allow the Committee to choose policy actions that best support its objectives in a wide array of economic circumstances. Because of the downside risk to inflation and employment associated with the ELB, most participants were open to the possibility that the dual-mandate objectives of maximum employment and stable prices could be best served by strategies that deliver inflation rates that over time are, on average, equal to the Committee's longer-run objective of 2 percent. Promoting such outcomes may require aiming for inflation somewhat above 2 percent when the policy rate was away from the ELB, recognizing that inflation would tend to be lower than 2 percent when the policy rate was constrained by the ELB. Participants suggested several alternatives for doing so, including strategies that make up for past inflation shortfalls and those that respond more aggressively to below-target inflation than to above-target inflation. In this context, several participants suggested that the adoption of a target range for inflation could be helpful in achieving the Committee's objective of 2 percent inflation, on average, as it could help communicate to the public that periods in which the Committee judged inflation to be moderately away from its 2 percent objective were appropriate. A couple of participants suggested analyzing policies in which there was a target range for inflation whose midpoint was modestly higher than 2 percent or in which 2 percent was an inflation floor; these policies might enhance policymakers' scope to provide accommodation as appropriate when the neutral real interest rate was low. Although ensuring inflation outcomes averaging 2 percent over time was seen as important, many participants noted that the illustrated makeup strategies delivered only modest benefits in the staff's model simulations. These modest benefits in part reflected that the responsiveness of inflation to resource slack had diminished, making it more difficult to provide sufficient accommodation to push inflation back to the Committee's objective in a timely manner. Some participants suggested that the modest effects were particularly pronounced using the FRB/US model and indicated the need for more robustness analysis of simulation results along several dimensions and for further comparison to other alternative strategies. In addition, several participants noted that the implementation of the makeup strategies in the form of either average inflation targeting or price-level targeting in the simulations was tied too rigidly to the details of particular rules. An advantage of the current framework over such alternative approaches is that it has provided the Committee with the flexibility to assess a broad range of factors and information in choosing its policy actions, and these actions can vary depending on economic circumstances in order to best achieve the Committee's dual mandate. Similarly, makeup strategies could be implemented more flexibly in order to deliver more accommodation during a future downturn and through the subsequent recovery than what could be achieved with a mechanical makeup rule. Participants also discussed a number of challenges associated with makeup strategies. Many participants expressed reservations with the makeup strategies analyzed by the staff. Some participants raised the concern that the effective use of the makeup strategies in the form of the average inflation targeting and price-level targeting rules that the staff presented depended on future policymakers following through on commitments to keep policy accommodative for a long time. Such commitments might be difficult for future policymakers to follow through on, especially in situations in which the labor market was strong and inflation was above target. A few participants acknowledged that credibly committing to makeup strategies posed challenges. However, they pointed to the commitments that central banks around the world made to inflation targeting as examples in which similar challenges had been overcome. A couple of participants raised the concern that keeping policy rates low for a long time could lead to excessive risk-taking in financial markets and threaten financial stability. However, a couple of other participants judged that macroprudential tools could be used to help ensure that any overleveraging of households and firms did not threaten the financial system, while monetary policy needed to be focused on achieving maximum employment and symmetric 2 percent inflation. A few participants viewed the communication challenges associated with average-inflation targeting strategies, including the difficulty of conveying the dangers of low inflation to the public, as greater than for some other strategies that use threshold-based forward guidance. Several participants noted that makeup strategies could unduly limit the policy response in situations in which inflation had been running above 2 percent amid signs of an impending economic downturn. Accordingly, these participants favored makeup strategies that only reversed past inflation shortfalls relative to makeup strategies that reversed both past inflation shortfalls and past overruns. Participants continued to discuss the benefits of the Committee's review of the monetary policy framework as well as the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy, which articulates the Committee's approach to monetary policy. As they did at their meeting in July, participants mentioned several issues that this statement might possibly address. These issues included the conduct of monetary policy in the presence of the ELB constraint, the role of inflation expectations in the Committee's pursuit of its inflation goal, the best means of conveying the Committee's balanced approach to monetary policy, the symmetry of its inflation goal, and the time frame over which the Committee aimed to achieve it. Participants expected that they would continue their deliberations on these and other topics pertinent to the review at upcoming meetings. They also generally agreed that the Committee's consideration of possible modifications to its policy strategy, tools, and communication practices would take some time, and that the process would be careful, deliberate, and patient. Developments in Financial Markets and Open Market Operations The manager pro tem first discussed developments in global financial markets over the intermeeting period. Global financial markets were volatile over the intermeeting period, with market participants reacting to incoming information about U.S.âChina trade tensions and the global growth outlook. In the weeks following the July FOMC meeting, U.S. yields declined sharply and risk asset prices fell amid a spate of largely negative news about risks to the global economic outlook. These price moves reversed to some degree in September as developments on trade and economic data turned more positive. On net, Treasury yields remained substantially lower, while the S&P 500 and corporate credit spreads reversed most or all of their earlier losses to end the period little changed. Even after the partial rebound in September, market- and survey-based indicators of policy rate expectations suggested that investors viewed it as very likely that the Committee would ease policy further at this meeting. All respondents from the Desk's Survey of Primary Dealers and Survey of Market Participants viewed a 25 basis point decrease in the target range as the most likely outcome at this meeting. Looking beyond September, most survey respondents expected another 25 basis point cut by year-end. Further out, while the median of respondents' modal forecasts for the end of 2020 pointed to no rate cuts next year, individual forecasts were much more dispersed, with nearly half of respondents expecting at least one additional 25 basis point cut in 2020, and about one-fourth expecting two or more cuts. Market participants remained attentive to a range of global risk factors that could affect the policy rate path, including trade tensions between the United States and China, developments in Europe, political tensions in Hong Kong, uncertainties related to Brexit, and escalating geopolitical tension in the Middle East following attacks on Saudi oil facilities. The manager pro tem turned next to a discussion of money market conditions. Money markets were stable over most of the period, and the reduction in the interest on excess reserves (IOER) rate following the July FOMC meeting fully passed through to money market rates. However, money markets became highly volatile just before the September meeting, apparently spurred partly by large corporate tax payments and Treasury settlements, and remained so through the time of the meeting. In an environment of greater perceived uncertainty about potential outflows related to the corporate tax payment date, typical lenders in money markets were less willing to accommodate increased dealer demand for funding. Moreover, some banks maintained reserve levels significantly above those reported in the Senior Financial Officer Survey about their lowest comfortable level of reserves rather than lend in repo markets. Money market mutual funds reportedly also held back some liquidity in order to cushion against potential outflows. Rates on overnight Treasury repurchase agreements rose to over 5 percent on September 16 and above 8 percent on September 17. Highly elevated repo rates passed through to rates in unsecured markets. Federal Home Loan Banks reportedly scaled back their lending in the federal funds market in order to maintain some liquidity in anticipation of higher demand for advances from their members and to shift more of their overnight funding into repo. In this environment, the effective federal funds rate (EFFR) rose to the top of the target range on September 16. The following morning, in accordance with the FOMC's directive to the Desk to foster conditions to maintain the EFFR in the target range, the Desk conducted overnight repurchase operations for up to $75 billion. After the operation, rates in secured and unsecured markets declined sharply. Rates in secured markets were trading around 2.5 percent after the operation. Market participants reportedly expected that additional temporary open market operations would be necessary both over subsequent days and around the end of the quarter. Many also reportedly expected another 5 basis point technical adjustment of the IOER rate. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the September 17â18 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) appeared to be increasing at a moderate rate in the third quarter. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), was below 2 percent in July. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded at a solid pace in July and August, al­though at a slower rate than in the first half of the year. (Separately, the Bureau of Labor Statistics' preliminary estimate of the upcoming benchmark revision to payroll employment, which will be incorporated in the published data in February 2020, indicated that the revised pace of average monthly job gains from April 2018 to March 2019 would be notably slower than in the current published data.) The unemployment rate remained at 3.7 percent through August, and both the labor force participation rate and the employment-to-population ratio moved up. The unemployment rates for African Americans and Hispanics declined over July and August, while the rates for whites and Asians increased; the unemployment rate for each group was below its level at the end of the previous economic expansion, though persistent differentials between these rates remained. The average share of workers employed part time for economic reasons in July and August continued to be below its level in late 2007. Both the rate of private-sector job openings and the rate of quits moved roughly sideways in June and July and were still at relatively high levels; the four-week moving average of initial claims for unemployment insurance benefits through early September was near historically low levels. Total labor compensation per hour in the business sector increased 4.4 percent over the four quarters ending in the second quarter, a faster rate than a year earlier. Average hourly earnings for all employees rose 3.2 percent over the 12 months ending in August, the same pace as a year earlier. Total consumer prices, as measured by the PCE price index, increased 1.4 percent over the 12 months ending in July. This increase was slower than a year earlier, as core PCE price inflation (which excludes changes in consumer food and energy prices) moved down to 1.6 percent, consumer food price inflation remained below core inflation, and consumer energy prices declined. The average monthly change in core PCE prices in recent months was faster than earlier this year, suggesting that the soft inflation readings during the earlier period were transitory. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at 2 percent in July. The consumer price index (CPI) rose 1.7 percent over the 12 months ending in August, while core CPI inflation was 2.4 percent. Recent survey-based measures of longer-run inflation expectations were little changed on balance. The preliminary September reading from the University of Michigan Surveys of Consumers dipped after edging up in August, but it remained within its recent range; the measures of longer-run inflation expectations from the Desk's Survey of Primary Dealers and Survey of Market Participants were little changed. Real consumer expenditures appeared to be rising solidly in the third quarter after expanding strongly in the second quarter. Real PCE rose briskly in July, while the components of the nominal retail sales data used by the Bureau of Economic Analysis (BEA) to estimate PCE were flat in August and the rate of sales of light motor vehicles only edged up, suggesting some slowing in consumer spending growth in the third quarter from its strong second-quarter pace. Key factors that influence consumer spendingâincluding a low unemployment rate, further gains in real disposable income, high levels of households' net worth, and generally low borrowing ratesâwere supportive of solid real PCE growth in the near term. The preliminary September reading on the Michigan survey measure of consumer sentiment picked up a little after weakening notably in August, al­though the Conference Board survey measure of consumer confidence did not show a similar decline in August. Real residential investment seemed to be picking up a little in the third quarter after declining over the previous year and a half. Starts of new single-family homes were higher in July and August than the second-quarter average, and starts of multifamily units rose in August after falling back in July. Building permit issuance for new single-family homesâwhich tends to be a good indicator of the underlying trend in construction of such homesâwas higher in July and August than its second-quarter average. Sales of existing homes rose modestly in July, while new home sales declined following an outsized increase in June. Real nonresidential private fixed investment looked to be declining further in the third quarter. Nominal shipments of nondefense capital goods excluding aircraft decreased in July, and forward-looking indicators generally pointed to continued softness in business equipment spending. Orders for nondefense capital goods excluding aircraft increased in June but were still below the level of shipments, most measures of business sentiment deteriorated, analysts' expectations of firms' longer-term profit growth declined further, and trade policy concerns continued to weigh on firms' investment decisions. Nominal business expenditures for nonresidential structures outside the drilling and mining sector decreased in July, and the number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâcontinued to decline through mid-September. Industrial production increased modestly, on net, over July and August, but production remained notably lower than at the beginning of the year. Automakers' assembly schedules indicated that the production of light motor vehicles would be roughly flat in the near term (al­though the labor strike at General Motors was expected to temporarily disrupt vehicle production), while new orders indexes from national and regional manufacturing surveys and a persistent drag from trade tariffs pointed toward continued softness in factory output in coming months. Total real government purchases appeared to be rising at a slower pace in the third quarter than in the second quarter. Federal defense spending over July and August decelerated, and federal hiring of temporary workers for next year's decennial census was modest in August. State and local government payrolls rose moderately over July and August, and nominal spending by these governments on structures in July was below its second-quarter average. The nominal U.S. international trade deficit remained about unchanged in June before narrowing in July. Exports, which had been soft over most of the past year, declined sharply in June but partially rebounded in July. This pattern was particularly notable in exports of non-aircraft capital goods and consumer goods. Imports also declined sharply in June and then declined a little further in July. Imports of oil and consumer goods fell in June, while imports of capital goods dropped significantly in July. The BEA estimated that the change in net exports was a drag of about 3/4 percentage point on real GDP growth in the second quarter. Foreign economic growth remained subdued in the second quarter. Growth picked up in Canada as oil production rebounded, but growth slowed sharply in Europe amid a downturn in manufacturing activity and persistent policy-related uncertainty. Growth also slowed in China and India. Recent indicators suggested widespread weakness in manufacturing abroad even as services activity appeared to be holding up relatively well. Foreign inflation rose in the second quarter, pushed up by earlier increases in oil prices as well as by rising food prices in some emerging economies. However, data on foreign core consumer prices showed little sign of underlying inflationary pressures abroad. Late in the intermeeting period, an attack on a key oil facility in Saudi Arabia disrupted Saudi oil production and caused an initial spike in prices on near-dated oil futures contracts. Staff Review of the Financial Situation Financial market developments over the intermeeting period were driven by an escalation in international trade tensions, growing concerns about the global economic growth outlook, and the prospect of more policy accommodation by central banks. Nominal Treasury yields posted very large declines in August as investors reacted to the U.S. Administration's announcement of additional tariffs on Chinese goods, along with the depreciation of the Chinese renminbi through the perceived threshold of 7 renminbi per U.S. dollar and the associated implications of these actions for the global economic outlook. Treasury yields partially rebounded following better-than-expected incoming economic data in the United States and abroad, a perceived reduction in the probability of a noâdeal Brexit, and some positive headlines about trade policy. The market-implied path of the federal funds rate shifted down on net. Broad equity price indexes were down as much as 6 percent in early August but almost fully recovered by the end of the intermeeting period. Spreads on investment-grade corporate bonds widened modestly, while those on speculative-grade corporate bonds were little changed on net. Financing conditions for businesses and households were largely unaffected by the intermeeting turbulence in financial markets and remained generally supportive of spending and economic activity. Measures of expectations of the near- and medium-term path for the federal funds rate were particularly sensitive to news about U.S.âChina trade tensions, while FOMC communications had only modest effects on market-based measures of policy rate expectations. A straight read of the option-implied probability distribution of the federal funds rate suggested that the odds investors attached to a 25 basis point reduction in the target range of the federal funds rate at the September FOMC meeting increased from about 50 percent at the time of the July FOMC meeting to 90 percent by the end of the intermeeting period. Respondents to the Desk's Survey of Primary Dealers and Survey of Market Participants assigned, on average, similarly high odds to a rate decrease at the September FOMC meeting. In addition, market-implied expectations for the federal funds rate at year-end and beyond moved down. A straight read of OIS (overnight index swap) forward rates suggested that investors expected the federal funds rate to decline about 45 basis points by year-end, to a level nearly 10 basis points lower than was expected at the time of the July FOMC meeting, and to decrease an additional roughly 45 basis points by the end of 2020. Nominal Treasury yields decreased, on net, over the intermeeting period, with longer-term yields falling the most. The spread between 10âyear and 3-month Treasury yields became a bit more negative, while the spread between 10-year and 2-year Treasury yields turned negative for the first time since 2007 and fluctuated around zero until the September FOMC meeting. Measures of inflation compensation derived from Treasury Inflation-Protected Securities declined on net. Broad stock price indexes decreased slightly, on net, over the intermeeting period amid heightened volatility. The escalation of trade tensions between China and the United States weighed on equity prices, but investors' expectations that major central banks would shift toward more accommodative monetary policies provided some support. Equity prices were also boosted by better-than-anticipated corporate earnings and retail-sector data. Stock prices of firms with high exposure to China underperformed the broader market somewhat, as did bank stocks amid downward revisions to banks' earnings forecasts. Conversely, the stock prices of utilities and real estate firms increased noticeably, reportedly benefiting from demand by investors reaching for less cyclical and higher-yielding assets. One-month option-implied volatility on the S&P 500 indexâthe VIXâwas little changed, on net, over the intermeeting period and remained at the lower end of its historical distribution after retracing a sharp increase in early August. Despite the volatility in many domestic and global financial markets over the intermeeting period, conditions in domestic short-term funding markets remained stable until the Monday before the September FOMC meeting, when flows associated with a combination of corporate tax payments and Treasury coupon securities settlements led to significant tightening of conditions, particularly for overnight funding. The EFFR rose to the top of the target range on September 16 and exceeded it by 5 basis points on September 17, after which funding pressures eased somewhat following the Desk's open market operations. On net, the EFFR averaged 2.14 percent over the current intermeeting period, with the spread to the IOER rate down a bit relative to the previous intermeeting period. Early in the intermeeting period, bond yields in the advanced foreign economies (AFEs) plunged and foreign equities declined notably following an increase in U.S.âChina trade tensions. Some weakness in foreign economic data, growing concerns about global growth, and the prospect of more monetary policy accommodation abroad contributed to further declines in yields. Later in the period, AFE yields partially rebounded and foreign equity prices fully recovered on some easing of U.S.­âChina trade tensions, as well as perceptions of reduced political uncertainty in the United Kingdom and Italy. Financial market reactions were mixed after the European Central Bank (ECB) announced a package of policy easing measures, including a rate cut on deposits at the ECB, resumption of its asset purchase program, and more favorable terms for longer-term lending to banks. The dollar appreciated against emerging market currencies but was little changed, on balance, against AFE currencies, leaving the broad dollar index slightly higher. Emerging market sovereign bond spreads widened notably. The Argentine peso depreciated sharply and Argentine sovereign yields soared following the defeat of the current pro-market president in the primary election and the subsequent announcement of plans for debt restructuring and the imposition of capital controls. Financing conditions for nonfinancial businesses remained accommodative. Overall issuance of corporate bonds was solid in August, driven by resilient investment-grade issuance. While speculative-grade corporate bond issuance was somewhat subdued in August, it was comparable to that seen over the same period in 2018. Growth of commercial and industrial loans at banks ticked up, driven by faster growth at large domestic banks. There were no initial public equity offerings by domestic firms in August amid increased market volatility, but several deals were expected to be completed in the coming months. On balance, the credit quality of nonfinancial corporations weakened slightly, with the volume of nonfinancial corporate bond downgrades modestly outpacing that of upgrades in recent months. Credit conditions for both small businesses and municipalities remained accommodative on balance. In the commercial real estate (CRE) sector, financing conditions remained generally accommodative. Bank CRE loan growth slowed moderately since the second quarter, driven by slower growth in loans secured by nonfarm nonresidential properties. The volume of agency and non-agency commercial mortgage-backed securities issuance was slightly weaker in July and August than in the same period last year, though industry analysts reportedly anticipated that issuance would soon pick up in response to recent declines in interest rates. Financing conditions in the residential mortgage market eased over the intermeeting period. Residential mortgage rates declined less than long-term Treasury yields, as the increase in prepayment risk and the rise in implied interest rate volatility reportedly reduced the demand for mortgage-backed securities. Home-purchase originations and refinancing originations both rose. Financing conditions in consumer credit markets remained generally supportive of growth in consumer spending, al­though supply conditions continued to be tight for subprime credit card borrowers. Consumer credit expanded at a moderate pace in the second quarter overall, with bank credit data pointing to continued growth through July and August. In consumer asset-backed securities markets, issuance was solid, and spreads remained at relatively low levels, though somewhat above their post-crisis averages. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the September FOMC meeting was little changed in the near term; real GDP growth was still forecast to be slower in the second half of the year than in the first half, mostly attributable to continued soft business investment and a slower increase in government spending. The projection for real GDP growth over the medium term was a bit weaker than the previous forecast, primarily reflecting the effects of a higher projected path for the foreign exchange value of the dollar and a lower trajectory for economic growth abroad, which were partially offset by a lower assumed path for interest rates. Real GDP was forecast to expand at a rate a little above the staff's estimate of potential output growth in 2019 and 2020 and then slow to a pace slightly below potential output growth in 2021 and 2022. The unemployment rate was projected to be roughly flat through 2022 and to remain below the staff's estimate of its longer-run natural rate, which was revised down a little. In addition, the staff revised up its estimate of the level of trend productivity in recent years after incorporating the BEA's recent annual revisions to the national income and product accounts. Both of these supply-side adjustments led to a somewhat higher projected path for potential output, implying that estimates of current and projected resource utilization were less tight than the staff previously assumed. The staff's forecast of total PCE price inflation for this year was revised down somewhat, reflecting slightly lower projected paths for consumer food and energy prices, along with a little lower forecast for core PCE prices. The core PCE price inflation forecast for this year was revised down to reflect recent data as well as downward-revised data for earlier in the year from the BEA's annual revision. Both total and core inflation were projected to move up slightly next year, as the low readings early this year were expected to be transitory; nevertheless, both inflation measures were forecast to continue to run below 2 percent through 2022. The staff continued to view the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. Moreover, the staff still judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors in that assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. In addition, softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2019 through 2022 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections are described in the Summary of Economic Projections, which is an addendum to these minutes. Participants agreed that the labor market had remained strong over the intermeeting period and that economic activity had risen at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though household spending had risen at a strong pace, business fixed investment and exports had weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Participants generally viewed the baseline economic outlook as positive and indicated that their views of the most likely outcomes for economic activity and inflation had changed little since the July meeting. However, for most participants, that economic outlook was premised on a somewhat more accommodative path for policy than in July. Participants generally had become more concerned about risks associated with trade tensions and adverse developments in the geopolitical and global economic spheres. In addition, inflation pressures continued to be muted. Many participants expected that real GDP growth would moderate to around its potential rate in the second half of the year. Participants agreed that consumer spending was increasing at a strong pace. They also expected that, in the period ahead, household spending would likely remain on a firm footing, supported by strong labor market conditions, rising incomes, and accommodative financial conditions. Several participants indicated that the housing sector was starting to rebound, stimulated by a significant decline in mortgage rates. With regard to the contrast between robust consumption growth and weak investment growth, several participants mentioned that uncertainties in the business outlook and sustained weak investment could eventually lead to slower hiring, which, in turn, could damp the growth of income and consumption. In their discussion of the business sector, participants saw trade tensions and concerns about the global outlook as the main factors weighing on business investment, exports, and manufacturing production. Participants judged that trade uncertainty and global developments would continue to affect firms' investment spending, and that this uncertainty was discouraging them from investing in their businesses. A couple of participants noted that businesses had the capacity to adjust to ongoing uncertainty concerning trade, and some firms were reconfiguring supply chains and making logistical arrangements as part of contingency planning to mitigate the effects of trade tensions on their businesses. Participants discussed developments in the manufacturing and the agricultural sectors of the U.S. economy. Manufacturing production remained lower than at the beginning of the year, and recent indicators suggested that conditions were unlikely to improve materially over the near term. Participants saw the ongoing global slowdown and trade uncertainty as contributing importantly to these declines. A few participants noted ongoing challenges in the agricultural sector, including those associated with tariffs, weak export demand, and more intense financial burdens arising from the increase in carryover debt in preceding years. Participants commented on the potential disruption to global oil production arising from the attack on Saudi Arabia's facilities. Participants judged that conditions in the labor market remained strong, with the unemployment rate near historical lows and continued solid job gains, on average, in recent months. The labor force participation rate of prime-age individuals, especially of prime-age women, moved up in August, continuing its upward trajectory, and the unemployment rate of African Americans fell to its lowest rate on record. However, a number of participants noted that, although the labor market was clearly in a strong position, the preliminary benchmark revision by the Bureau of Labor Statistics indicated that payroll employment gains would likely show less momentum coming into this year when the revisions are incorporated in published data early next year. A few participants observed that it would be important to be vigilant in monitoring incoming data for any sign of softening in labor market conditions. That said, reports from business contacts in many Districts pointed to continued strong labor demand, with some firms still reporting difficulties finding qualified workers and others broadening their recruiting to include traditionally marginalized groups. In some Districts, employers were also expanding training and provision of nonwage benefits, which could help sustain their expansion of hiring against a background of a very tight national labor market without spurring above-trend aggregate wage growth. Some firms were also reluctant to raise wages because of their limited pricing power, while others thought the wages they were offering were in line with the skill sets of the workers available to fill new positions. Participants generally viewed overall wage growth as broadly consistent with modest average rates of labor productivity growth in recent years and as exerting little upward pressure on inflation. A couple of participants noted that, with inflationary pressures remaining muted and wage growth moderate even as employment and spending expanded further, they had again adjusted downward their estimates of the longer-run normal unemployment rate. In their discussion of inflation developments, participants noted that, despite a recent firming in the incoming data, readings on overall and core PCE inflation had continued to run below the Committee's symmetric 2 percent objective. Furthermore, in light of weakness in the global economy, perceptions of downside risks to growth, and subdued inflation pressures, some participants continued to view the risks to the outlook for inflation as weighted to the downside. Some participants, however, saw the recent inflation data as consistent with their previous assessment that much of the weakness seen early in the year was transitory. In this connection, several participants noted that recent monthly readings, notably for CPI inflation, seemed broadly consistent with the Committee's longer-run inflation objective of 2 percent, while the trimmed mean measure of PCE inflation, constructed by the Federal Reserve Bank of Dallas, remained at 2 percent in July. In their discussion of the outlook for inflation, participants generally agreed that, under appropriate policy, inflation would move up to the Committee's 2 percent objective over the medium term. Participants saw inflation expectations as reasonably well anchored, but many participants observed that market-based measures of inflation compensation and some survey measures of consumers' inflation expectations were at historically low levels. Some of these participants further noted that longer-term inflation expectations could be somewhat below levels consistent with the Committee's 2 percent inflation objective, or that continued weakness in inflation could prompt expectations to drift lower. Participants generally judged that downside risks to the outlook for economic activity had increased somewhat since their July meeting, particularly those stemming from trade policy uncertainty and conditions abroad. In addition, al­though readings on the labor market and the overall economy continued to be strong, a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged. Participants also noted that there continued to be a significant probability of a no-deal Brexit, and that geopolitical tensions had increased in Hong Kong and the Middle East. Several participants commented that, in the wake of this increase in downside risk, the weakness in business spending, manufacturing, and exports could give rise to slower hiring, a development that would likely weigh on consumption and the overall economic outlook. Several participants noted that statistical models designed to gauge the probability of recession, including those based on information from the yield curve, suggested that the likelihood of a recession occurring over the medium term had increased notably in recent months. However, a couple of these participants stressed the difficulty of extracting the right signal from these probability models, especially in the current period of unusually low levels of term premiums. With regard to developments in financial markets, participants noted that longer-term U.S. Treasury rates had been volatile over the intermeeting period but, on net, had registered a sizable decline. Participants observed that a key source of downward pressure on Treasury rates arose from flight-to-safety flows, driven by downside risks to global growth, escalating trade tensions, and disappointing global data. Low interest rates abroad were also considered an important influence on U.S. longer-term rates. Participants expressed a range of views about the implications of low longer-term Treasury rates. Some participants judged that a prolonged inversion of the yield curve could be a matter of concern. Participants also noted that equity prices had exhibited volatility but had been largely flat, on balance, over the intermeeting period. Several participants cited considerations that led them to be concerned about financial stability, including low risk spreads and a buildup of corporate debt, corporate stock buybacks financed through low-cost leverage, and the pace of lending in the CRE market. However, several others pointed to signs that the financial system remained resilient. In their consideration of the monetary policy options at this meeting, most participants believed that a reduction of 25 basis points in the target range for the federal funds rate would be appropriate. In discussing the reasons for such a decision, these participants pointed to considerations related to the economic outlook, risk management, and the need to center inflation and inflation expectations on the Committee's longer-run objective of 2 percent. Participants noted that there had been little change in their economic outlook since the July meeting and that incoming data had continued to suggest that the pace of economic expansion was consistent with the maintenance of strong labor market conditions. However, a couple of participants pointed out that data revisions announced in recent months implied that the economy had likely entered the year with somewhat less momentum than previously thought. In addition, data received since July had confirmed the weakening in business fixed investment and exports. One risk that the economy faced was that the softness recorded of late in firms' capital formation, manufacturing, and exporting activities might spread to their hiring decisions, with adverse implications for household income and spending. Participants observed that such an eventuality was not embedded in their baseline outlook; however, a couple of them indicated that this was partly because they assumed that an appropriate adjustment to the policy rate path would help forestall that eventuality. Several also noted that, because monetary policy actions affected economic activity with a lag, it was appropriate to provide the requisite policy accommodation now to support economic activity over coming quarters. Participants favoring a modest adjustment to the stance of monetary policy at this juncture cited other risks to the economic outlook that further underscored the case for such a move. As their discussion of risks had highlighted, downside risks had become more pronounced since July: Trade uncertainty had increased, prospects for global growth had become more fragile, and various intermeeting developments had intensified geopolitical risks. Against this background, risk-management considerations implied that it would be prudent for the Committee to adopt a somewhat more accommodative stance of policy. In addition, a number of participants suggested that a reduction at this meeting in the target range for the federal funds rate would likely better align the target range with a variety of indicators of the appropriate policy stance, including those based on estimates of the neutral interest rate. A few participants observed that the considerations favoring easing were reinforced by the proximity of the federal funds rate to the ELB. If policymakers provided adequate accommodation while still away from the ELB, this course of action would help forestall the possibility of a prolonged ELB episode. Many participants also cited the level of inflation or inflation expectations as justifying a reduction of 25 basis points in the federal funds rate at this meeting. Inflation had generally fallen short of the Committee's objective for several years and, notwithstanding some stronger recent monthly readings on inflation, the 12-month rate was still below 2 percent. Some estimates of trend inflation were also below 2 percent. Several participants additionally stressed that survey measures of longer-term inflation expectations and market-based measures of inflation compensation were near historical lows and that these values pointed to the possibility that inflation expectations were below levels consistent with the 2 percent objective or could soon fall below such levels. Against this backdrop, participants suggested that a policy easing would help underline policymakers' commitment to the symmetric 2 percent longer-run objective. With inflation pressures muted and U.S. inflation likely being weighed down by global disinflationary forces, policymakers saw little chance of an outsized increase in inflation in response to additional policy accommodation and argued that such an increase, should it occur, could be addressed in a straightforward manner using conventional monetary policy tools. Several participants favored maintaining the existing target range for the federal funds rate at this meeting. These participants suggested that the baseline projection for the economy had changed very little since the Committee's previous meeting and that the state of the economy and the economic outlook did not justify a shift away from the current policy stance, which they felt was already adequately accommodative. They acknowledged the uncertainties that currently figured importantly in evaluations of the economic outlook, but they contended that the key uncertainties were unlikely to be resolved soon. Furthermore, as they did not believe that these uncertainties would derail the expansion, they did not see further policy accommodation as needed at this time. Changes in the stance of policy, they believed, should instead occur only when the macroeconomic data readily justified those moves. In this connection, a couple of participants suggested that, if it decided to provide more policy accommodation at the present juncture, the Committee might be taking out too much insurance against possible future shocks, leaving monetary policy with less scope to boost aggregate demand in the event that such shocks materialized. A few of the participants favoring an unchanged target range for the federal funds rate also expressed concern that an easing of monetary policy at this meeting could exacerbate financial imbalances. A couple of participants indicated their preference for a 50 basis point cut in the federal funds rate at this meeting. These participants suggested that a larger policy move would help reduce the risk of an economic downturn and would more appropriately recognize important recent developments, such as slowing job gains, weakening investment, and continued low values of market-based measures of inflation compensation. In addition, these participants stressed the need for a policy stanceâpossibly one using enhanced forward guidanceâthat was sufficiently accommodative to make it unlikely that the United States would experience a protracted period of the kind seen abroad in which the economy became mired in a combination of undesirably low inflation, weak economic activity, and near-zero policy rates. They also argued that it was desirable for the Committee to seek and maintain a level of accommodation sufficient to deliver inflation at 2 percent on a sustained basis and that such a policy would be consistent with inflation exceeding 2 percent for a time. With regard to monetary policy beyond this meeting, participants agreed that policy was not on a preset course and would depend on the implications of incoming information for the evolution of the economic outlook. A few participants judged that the expectations regarding the path of the federal funds rate implied by prices in financial markets were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate and that it might become necessary for the Committee to seek a better alignment of market expectations regarding the policy rate path with policymakers' own expectations for that path. Several participants suggested that the Committee's postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end. Participants' Discussion of Recent Money Market Developments The manager pro tem provided a summary of the most recent developments in money markets. Open market operations conducted on the previous day had helped to ease strains in money markets, but the EFFR had nonetheless printed 5 basis points above the top of the target range. With significant pressures still evident in repo markets and the federal funds market, and in accordance with the FOMC's directive to maintain the federal funds rate within the target range, the Desk conducted another repo operation on the morning of the second day of the meeting. The staff presented a proposal to lower the IOER rate and the overnight reverse repurchase agreement rate by 5 basis points, relative to the target range for the federal funds rate, in order to foster trading of federal funds within the target range. Participants agreed that developments in money markets over recent days implied that the Committee should soon discuss the appropriate level of reserve balances sufficient to support efficient and effective implementation of monetary policy in the context of the ample-reserves regime that the Committee had chosen. A few participants noted the possibility of resuming trend growth of the balance sheet to help stabilize the level of reserves in the banking system. Participants agreed that any Committee decision regarding the trend pace of balance sheet expansion necessary to maintain a level of reserve balances appropriate to facilitate policy implementation should be clearly distinguished from past large-scale asset purchase programs that were aimed at altering the size and composition of the Federal Reserve's asset holdings in order to provide monetary policy accommodation and ease overall financial conditions. Several participants suggested that such a discussion could benefit from also considering the merits of introducing a standing repurchase agreement facility as part of the framework for implementing monetary policy. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that information received since the July meeting indicated that the labor market remained strong and that economic activity had been rising at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Household spending had been rising at a strong pace. However, business fixed investment and exports had weakened, and this outcome suggested that risks and uncertainty associated with international trade developments and with ongoing weakness in global economic growth were continuing to weigh on the domestic economy. On a 12-month basis, both the overall inflation rate and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low. Survey-based measures of longer-term inflation expectations were little changed. In light of these developments, most members agreed to lower the target range for the federal funds rate to 1-3/4 to 2 percent at this meeting. With this adjustment to policy, those members who supported the policy action sought to make the overall stance of monetary policy most consistent with helping to offset the effects on aggregate demand of weak global growth and trade policy uncertainty, insure against further downside risks arising from those sources and from geopolitical developments, and promote a more rapid return of inflation to the Committee's symmetric 2 percent objective than would otherwise occur. A couple of these members observed that, because monetary policy actions affected aggregate spending with a lag, the present meeting was an appropriate occasion for providing accommodation that would support economic activity in the period ahead. Two members preferred to maintain the current target range for the federal funds rate at this meeting. These members noted that economic data received over the intermeeting period had been largely positive and that they anticipated, under an unchanged policy stance, continued strong labor markets and solid growth in activity, with inflation gradually moving up to the Committee's 2 percent objective. These members also suggested that providing further accommodation during a period of high economic activity and elevated asset prices could have adverse consequences for financial stability. One member preferred a reduction in the target range of 50 basis points in the federal funds rate at this meeting. This member suggested that such a larger rate adjustment would be more consistent with the achievement of the Committee's objectives over time and, in particular, with helping preclude the possibility of a protracted period in which inflation and employment were below the Committee's objectives. Members agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its maximum-employment objective and its symmetric 2 percent inflation objective. They also agreed that those assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. With regard to the postmeeting statement, members agreed to update the language of the Committee's description of incoming data to acknowledge the weakening in investment spending and in U.S. exports, as well as the recent strong rate of increase of household spending. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective September 19, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Al­though household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Charles L. Evans, and Randal K. Quarles. Voting against this action: James Bullard, Esther L. George, and Eric Rosengren. President Bullard dissented because he believed that lowering the target range for the federal funds rate by 50 basis points at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks. In addition, a 50 basis point cut at this time would help promote a more rapid return of inflation and inflation expectations to target. President George dissented because she believed that an unchanged setting of policy was appropriate based on incoming data and the outlook for economic activity over the medium term. Recognizing the risks to the outlook from the effects of trade policy and weaker global activity, President George would be prepared to adjust policy should incoming data point to a materially weaker outlook for the economy. President Rosengren dissented because he judged that monetary policy was already accommodative. In his view, additional accommodation was not needed for an economy in which labor markets are already tight and could pose risks of further inflating the prices of risky assets and encouraging households and firms to take on too much leverage. Consistent with the Committee's decision to lower the target range for the federal funds rate to 1-3/4 to 2 percent, the Board of Governors voted unanimously to lower the interest rate paid on required and excess reserve balances to 1.80 percent and voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 2.50 percent, effective September 19, 2019. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, October 29â30, 2019. The meeting adjourned at 10:40 a.m. on September 18, 2019. Notation Vote By notation vote completed on August 20, 2019, the Committee unanimously approved the minutes of the Committee meeting held on July 30â31, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of the review of the monetary policy framework. Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended the discussion of developments in financial markets and open market operations. Return to text 5. Attended Tuesday's session only. Return to text 6. Attended the discussion of the review of the monetary policy framework through the end of the meeting. Return to text 7. Attended opening remarks for Tuesday session only. Return to text

Minutes of the Federal Open Market Committee October 29-30, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, October 29, 2019, at 9:00 a.m. and continued on Wednesday, October 30, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Eric M. Engen, Anna Paulson, Christopher J. Waller, William Wascher, and Beth Anne Wilson, Associate Economists Lorie K. Logan, Manager pro tem, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Eric Belsky, 2 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 3 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board of Governors; Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors; Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber, Ellen E. Meade, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors; David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board of Governors Antulio N. Bomfim, Senior Adviser, Division of Monetary Affairs, Board of Governors Michael Hsu, 4 Associate Director, Division of Supervision and Regulation, Board of Governors; David López-Salido and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors Glenn Follette, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker, 3 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Paul R. Wood, 2 Deputy Associate Director, Division of International Finance, Board of Governors Eric C. Engstrom, Senior Adviser, Division of Research and Statistics, and Deputy Associate Director, Division of Monetary Affairs, Board of Governors Stephanie E. Curcuru, Assistant Director, Division of International Finance, Board of Governors; Giovanni Favara, Laura Lipscomb, 4 Zeynep Senyuz, 4 and Rebecca Zarutskie, 2 Assistant Directors, Division of Monetary Affairs, Board of Governors; Shane M. Sherlund, Assistant Director, Division of Research and Statistics, Board of Governors Penelope A. Beattie, 5 Section Chief, Office of the Secretary, Board of Governors; Matthew Malloy, 4 Section Chief, Division of Monetary Affairs, Board of Governors Mark A. Carlson, 3 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Alyssa G. Anderson, 4 Anna Orlik, and Bernd Schlusche, 2 Principal Economists, Division of Monetary Affairs, Board of Governors; Cristina Fuentes-Albero 2 and Christopher J. Nekarda, 6 Principal Economists, Division of Research and Statistics, Board of Governors Valerie Hinojosa, Senior Information Manager, Division of Monetary Affairs, Board of Governors Kelly J. Dubbert, First Vice President, Federal Reserve Bank of Kansas City David Altig, Kartik B. Athreya, Jeffrey Fuhrer, and Glenn D. Rudebusch, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Boston, and San Francisco, respectively Angela O'Connor, 4 Marc Giannoni, 2 Paolo A. Pesenti, Samuel Schulhofer-Wohl, 4 Raymond Testa, 4 and Nathaniel Wuerffel, 4 Senior Vice Presidents, Federal Reserve Banks of New York, Dallas, New York, Chicago, New York, and New York, respectively Satyajit Chatterjee, Richard K. Crump, 6 George A. Kahn, Rebecca McCaughrin, 4 and Patricia Zobel, 7 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Kansas City, New York, and New York, respectively Larry Wall, 2 Executive Director, Federal Reserve Bank of Atlanta Edward S. Prescott, Senior Economic and Policy Advisor, Federal Reserve Bank of Cleveland Nicolas Petrosky-Nadeau, 6 Senior Research Advisor, Federal Reserve Bank of San Francisco Stefania D'Amico 2 and Thomas B. King, 2 Senior Economists and Research Advisors, Federal Reserve Bank of Chicago Alex Richter, Senior Research Economist and Advisor, Federal Reserve Bank of Dallas Benjamin Malin, Senior Research Economist, Federal Reserve Bank of Minneapolis Review of Monetary Policy Strategy, Tools, and Communication Practices Committee participants continued their discussions related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. Staff briefings provided an assessment of a range of monetary policy tools that the Committee could employ to provide additional economic stimulus and bolster inflation outcomes, particularly in future episodes in which the policy rate would be constrained by the effective lower bound (ELB). The staff first discussed policy rate tools, focusing on three forms of forward guidanceâqualitative, which provides a nonspecific indication of the expected duration of accommodation; date-based, which specifies a date beyond which accommodation could start to be reduced; and outcome-based, which ties the possible start of a reduction of accommodation to the achievement of certain macroeconomic outcomes. The briefing addressed communications challenges associated with each form of forward guidance, including the need to avoid conveying a more negative economic outlook than the FOMC expects. Nonetheless, the staff suggested that forward guidance generally had been effective in easing financial conditions and stimulating economic activity in circumstances when the policy rate was above the ELB and when it was at the ELB. The briefing also discussed negative interest rates, a policy option implemented by several foreign central banks. The staff noted that al­though the evidence so far suggested that this tool had provided accommodation in jurisdictions where it had been employed, there were also indications of possible adverse side effects. Moreover, differences between the U.S. financial system and the financial systems of those jurisdictions suggested that the foreign experience may not provide a useful guide in assessing whether negative rates would be effective in the United States. The second part of the staff briefing focused on balance sheet policy tools. The staff discussed the benefits and costs associated with the large-scale asset purchase programs implemented by the Federal Reserve after the financial crisis. In general, the staff's review of the historical experience suggested that the benefits of large-scale asset purchase programs were significant and that many of the potential costs of such programs identified at the time either did not materialize or materialized to a smaller degree than initially feared. In addition, the staff presentation noted thatâtaking account of investor expectations ahead of the announcement of each new programâthe effects of asset purchases did not appear to have diminished materially across consecutive programs. However, going forward, such policies might not be as effective because longer-term interest rates would likely be much lower at the onset of a future asset purchase program than they were before the financial crisis. The staff also compared the benefits and costs associated with asset purchase programs that are of a fixed cumulative size and those that are flow-basedâwhere purchases continue at a specific pace until certain macroeconomic outcomes are achievedâand examined the potential effectiveness of using asset purchases to place ceilings on interest rates. The briefing also discussed lending programs that could facilitate the flow of credit to households or businesses. Participants discussed the relative merits of qualitative, date-based, and outcome-based forward guidance. A number of participants noted that each of these three forms of forward guidance could be effective in providing accommodation, depending on circumstances both at and away from the ELB. They also suggested that different types of forward guidance would likely be needed to address varying economic conditions, and that the communications regarding forward guidance needed to be tailored to explain the Committee's evaluation of the economic outlook. In particular, several participants emphasized that to guard against the possibility of adverse feedback loops in which forward guidance is interpreted by the public as a sign of a sharply deteriorating economic outlook, thus leading households and businesses to become even more cautious in their spending decisions, the Committee would need to clearly communicate how its announced policy could help promote better economic outcomes. Participants saw both benefits and costs associated with outcome-based forward guidance relative to other forms of forward guidance. On the one hand, relative to qualitative or date-based forward guidance, outcome-based forward guidance has the advantage of creating an explicit link between future monetary policy actions and macroeconomic conditions, thereby helping to support economic stabilization efforts and foster transparency and accountability. On the other hand, outcome-based forward guidance could be complex and difficult to explain and, hence, could potentially be less effective than qualitative or date-based forward guidance if those hurdles could not be overcome. A few participants commented that outcome-based forward guidance, tied to inflation outcomes, could be a useful tool to reinforce the Committee's commitment to its symmetric 2 percent objective. Participants also discussed the benefits and costs of using different types of balance sheet policy. Participants generally agreed that the balance sheet policies implemented by the Federal Reserve after the crisis had eased financial conditions and had contributed to the economic recovery, and that those tools had become an important part of the Committee's current toolkit. However, some participants pointed out that research had produced a sizable range of estimates of the magnitude of the economic effects of balance sheet actions. In addition, some participants noted that the effectiveness of these tools might be diminished in the future, as longer-term interest rates have declined to very low levels and would likely be even lower following an adverse shock that could lead to the resumption of large-scale asset purchases; as a result, there might be limited scope for balance sheet tools to provide accommodation. Several participants commented on the advantages and disadvantages of flow-based asset purchase programs tied to the achievement of economic outcomes. On the one hand, such programs adjusted automatically in response to the performance of the economy and, hence, were more straightforward to implement and communicate. On the other hand, flow-based asset purchase programs may result in the balance sheet rising to undesirable levels. A few participants also commented that, barring significant dislocations to particular segments of the markets, they would restrict asset purchases to Treasury securities to avoid perceptions that the Federal Reserve was engaging in credit allocation across sectors of the economy. In considering policy tools that the Federal Reserve had not used in the recent past, participants discussed the benefits and costs of using balance sheet tools to cap rates on short- or long-maturity Treasury securities through open market operations as necessary. A few participants saw benefits to capping longer-term interest rates that more directly influence household and business spending. In addition, capping longer-maturity interest rates using balance sheet tools, if judged as credible by market participants, might require a smaller amount of asset purchases to provide a similar amount of accommodation as a quantity-based program purchasing longer-maturity securities. However, many participants raised concerns about capping long-term rates. Some of those participants noted that uncertainty regarding the neutral federal funds rate and regarding the effects of rate ceiling policies on future interest rates and inflation made it difficult to determine the appropriate level of the rate ceiling or when that ceiling should be removed; that maintaining a rate ceiling could result in an elevated level of the Federal Reserve's balance sheet or significant volatility in its size or maturity composition; or that managing longer-term interest rates might be seen as interacting with the federal debt management process. By contrast, a majority of participants saw greater benefits in using balance sheet tools to cap shorter-term interest rates and reinforce forward guidance about the near-term path of the policy rate. All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States. Participants commented that there was limited scope to bring the policy rate into negative territory, that the evidence on the beneficial effects of negative interest rates abroad was mixed, and that it was unclear what effects negative rates might have on the willingness of financial intermediaries to lend and on the spending plans of households and businesses. Participants noted that negative interest rates would entail risks of introducing significant complexity or distortions to the financial system. In particular, some participants cautioned that the financial system in the United States is considerably different from those in countries that implemented negative interest rate policies, and that negative rates could have more significant adverse effects on market functioning and financial stability here than abroad. Notwithstanding these considerations, participants did not rule out the possibility that circumstances could arise in which it might be appropriate to reassess the potential role of negative interest rates as a policy tool. Overall, participants generally agreed that the forward guidance and balance sheet policies followed by the Federal Reserve after the financial crisis had been effective in providing stimulus at the ELB. With estimates of equilibrium real interest rates having declined notably over recent decades, policymakers saw less room to reduce the federal funds rate to support the economy in the event of a downturn. In addition, against a background of inflation undershooting the symmetric 2 percent objective for several years, some participants raised the concern that the scope to reduce the federal funds rate to provide support to economic activity in future recessions could be reduced further if inflation shortfalls continued and led to a decline in inflation expectations. Therefore, participants generally agreed it was important for the Committee to keep a wide range of tools available and employ them as appropriate to support the economy. Doing so would help ensure the anchoring of inflation expectations at a level consistent with the Committee's symmetric 2 percent inflation objective. Some participants noted that the form of the policy response would depend critically on the circumstances the Committee faced at the time. Several participants suggested that communicating to the public clearly and convincingly in advance about how the Committee intended to provide accommodation at the ELB would enhance public confidence and support the effectiveness of whichever tool the Committee selected. Some participants thought it would be helpful for the Committee to evaluate how its tools could be utilized in different economic scenarios, such as when longer-term interest rates were significantly below current levels, and discuss which actions would best address the challenges posed by each scenario. Several participants noted that, particularly if monetary policy became severely constrained at the ELB, expansionary fiscal policy would be especially important in addressing an economic downturn. Participants expected that, at upcoming meetings, they would continue their deliberations on the Committee's review of the monetary policy framework as well as the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy. They also generally agreed that the Committee's consideration of possible modifications to its policy strategy, tools, and communication practices would take some time and that the process would be careful, deliberate, and patient. A number of participants judged that the review could be completed around the middle of 2020. Developments in Financial Markets and Open Market Operations The manager pro tem first reviewed developments in financial markets over the intermeeting period. Early in the period, market participants focused on signs of weakness in U.S. economic data with some soft data from business surveys viewed as substantiating concerns that global headwinds were spilling over to the U.S. economy. Later in the period, markets responded to news suggesting favorable developments around Brexit and a partial U.S.-China trade deal. On balance, U.S. financial conditions ended the period little changed. Regarding the outlook for U.S. monetary policy, the Open Market Desk's surveys and market-based indicators pointed to a high likelihood of a 25 basis point cut in the target range at the October meeting. The probability that survey respondents placed on this outcome was broadly similar to the probability of a 25 basis point cut ahead of the July and September meetings. Further ahead, the path implied by the medians of survey respondents' modal forecasts for the federal funds rate remained essentially flat after this meeting. Meanwhile, the market-implied path suggested that investors expected around 25 basis points of additional easing by the end of 2020, after the anticipated easing at this meeting. The manager pro tem next turned to a review of money market developments since early October. On October 11, the Committee announced its decision to maintain reserves at or above the level that prevailed in early September through a program of Treasury bill purchases and repurchase agreement (repo) operations. After the announcement, the Desk conducted regular operations that offered at least $75 billion in overnight repo funding and between $135 and $170 billion in term funding. These operations fostered conditions that helped maintain the federal funds rate within the target range through two channels. First, they provided funding in repo markets that dampened repo market pressure that would otherwise have passed through to the federal funds market, and second, they increased the supply of reserves in the banking system. In anticipation of another projected sharp decline in reserves and expected rate pressures around October 31, the Desk announced an increase in the size of overnight repos to $120 billion, and an increase in the size of the two term repo operations that crossed the October month-end to $45 billion. With respect to purchases of Treasury bills for reserve management purposes, the Desk had purchased more than half of the initial $60 billion monthly amount for October, and propositions at the five operations conducted to date had been strong. Respondents to the Desk surveys expected reserve management purchases of Treasury bills to continue at the same pace for some time. The combination of repo operations and bill purchases lifted reserve levels above those observed in early September. The manager pro tem noted that diminished willingness of some dealers to intermediate across money markets ahead of the year-end could result in upward pressure on short-term money market rates. Forward measures of market pricing continued to indicate expectations for such pressures around the year-end. The Desk planned to continue its close monitoring of reserves and money market conditions, as well as dealer participation in repo operations, particularly given balance sheet constraints heading into year-end. The Desk discussed its intentions to further adjust operations around year-end as needed to mitigate the risk of money market pressures that could adversely affect policy implementation, and to maintain over time a level of reserve balances at or above those that prevailed in early September. The manager pro tem finished by noting that the Federal Reserve Bank of New York would soon release a request for public comment on a plan to publish a series of backward looking Secured Overnight Financing Rate (SOFR) averages and a daily SOFR index to support the transition away from instruments based on LIBOR (London interbank offered rate). Publication of these series was expected to begin in the first half of 2020. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Review of Options for Repo Operations to Support Control of the Federal Funds Rate The staff briefed participants on the recent experience with using repo operations to support control of the federal funds rate and on possibly maintaining a role for repo operations in the monetary policy implementation framework over the longer run. Ongoing capacity for repo operations could be viewed as useful in an ample-reserves regime as a way of providing insurance against unexpected stresses in money markets that could drive the federal funds rate outside the Committee's target range over a sustained period. The staff presented two potential approaches for conducting repo operations if the Committee decided to maintain an ongoing role for such operations. Under the first approach, the Desk would conduct modestly sized, relatively frequent repo operations designed to provide a high degree of readiness should the need for larger operations arise; under the second approach, the FOMC would establish a standing fixed-rate facility that could serve as an automatic money market stabilizer. 8 Assessing these two approaches involved several considerations, including the degree of assurance of control over the federal funds rate, the likelihood that participation in the Federal Reserve's repo operations could become stigmatized, the possibility that the operations could encourage the Federal Reserve's counterparties to take on excessive liquidity risks in their portfolios, and the potential disintermediation of financial transactions currently undertaken by private counterparties. Regular, modestly sized repo operations likely would pose relatively little risk of stigma or moral hazard, but they may provide less assurance of control over the federal funds rate because it might be difficult for the Federal Reserve to anticipate money market pressures and scale up its repo operations accordingly. A standing fixed-rate repo facility would likely provide substantial assurance of control over the federal funds rate, but use of the facility could become stigmatized, particularly if the rate was set at a relatively high level. Conversely, a standing facility with a rate set at a relatively low level could result in larger and more frequent repo operations than would be appropriate. And by effectively standing ready to provide a form of liquidity on an as-needed basis, such a facility could increase the risk that some institutions may take on an undesirably high amount of liquidity risk. In their comments following the staff presentation, participants emphasized the importance of maintaining reserves at a level consistent with the Committee's choice of an ample-reserves monetary policy implementation framework, in which control over the level of the federal funds rate is exercised primarily through the setting of the Federal Reserve's administered rates and in which active management of the supply of reserves is not required. Some participants indicated that, in such an environment, they would have some tolerance for allowing the federal funds rate to vary from day to day and to move occasionally outside its target range, especially in those instances associated with easily identifiable technical events; a couple of participants expressed discomfort with such misses. Participants expressed a range of views on the relative merits of the two approaches described by the staff for conducting repo operations. Many participants noted that, once an ample supply of reserves is firmly established, there might be little need for a standing repo facility or for frequent repo operations. Some of these participants indicated that a basic principle in implementing an ample-reserves framework is to maintain reserves on an ongoing basis at levels that would obviate the need for open market operations to address pressures in funding markets in all but exceptional circumstances. Many participants remarked, however, that even in an environment with ample reserves, a standing facility could serve as a useful backstop to support control of the federal funds rate in the event of outsized shocks to the system. Several of these participants also suggested that, if a standing facility were created that allowed banks to monetize a portion of their securities holdings at times of market stress, banks could possibly reduce their demand for reserves in normal times, which could make it feasible for the monetary policy implementation framework to operate with a significantly smaller quantity of reserves than would otherwise be needed. A couple of participants pointed out that establishing a standing facility would be similar to the practice of some other major central banks. A number of participants noted that, before deciding whether to implement a standing repo facility, additional work would be necessary to assess the likely implications of different design choices for a standing repo facility, such as pricing, eligible counterparties, and the set of acceptable collateral. Echoing issues raised at the Committee's June 2019 meeting, various participants commented on the need to carefully evaluate these design choices to guard against the potential for moral hazard, stigma, disintermediation risk, or excessive volatility in the Federal Reserve's balance sheet. A couple of other participants suggested that an approach based on modestly sized, frequent repo operations that could be quickly and substantially ramped up in response to emerging market pressures would mitigate the moral hazard, disintermediation, and stigmatization risks associated with a standing repo facility. Participants made no decisions at this meeting on the longer-run role of repo operations in the ample-reserves regime or on an approach for conducting repo operations over the longer run. They generally agreed that they should continue to monitor the market effects of the Federal Reserve's ongoing repo operations and Treasury bill purchases and that additional analysis of the recent period of money market dislocations or of fluctuations in the Federal Reserve's non-reserve liabilities was warranted. Some participants called for further research on the role that the financial regulatory environment or other factors may have played in the recent dislocations. Staff Review of the Economic Situation The information available for the October 29â30 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) increased at a moderate rate in the third quarter. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in August. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded at a slower pace in September than in the previous two months, but the average pace for the third quarter was similar to that for the first half of the year. However, the pace of job gains so far this year was slower than last year, even after accounting for the anticipated effects of the Bureau of Labor Statistics' benchmark revision to payroll employment, which will be incorporated in the published data in February 2020. The unemployment rate moved down to a 50-year low of 3.5 percent in September, while the labor force participation rate held steady and the employment-to-population ratio moved up. The unemployment rates for Asians, Hispanics, and whites each moved lower in September, but the rate for African Americans was unchanged; the unemployment rate for each group was below its level at the end of the previous economic expansion, though persistent differentials between these rates remained. The average share of workers employed part time for economic reasons in September continued to be below its level in late 2007. The rate of private-sector job openings declined in August, and the rate of quits also edged down, but both readings were still at relatively elevated levels. The four-week moving average of initial claims for unemployment insurance benefits through mid-October remained near historically low levels. Average hourly earnings for all employees rose 2.9 percent over the 12 months ending in September, roughly similar to the pace a year earlier. Total consumer prices, as measured by the PCE price index, increased 1.4 percent over the 12 months ending in August. Core PCE price inflation (which excludes changes in consumer food and energy prices) was 1.8 percent over that same 12-month period, while consumer food price inflation was well below core inflation, and consumer energy prices declined. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at 2 percent in August. The consumer price index (CPI) rose 1.7 percent over the 12 months ending in September, while core CPI inflation was 2.4 percent. Recent readings on survey-based measures of longer-run inflation expectationsâincluding those from the University of Michigan Surveys of Consumers, the Blue Chip Economic Indicators, and the Desk's Survey of Primary Dealers and Survey of Market Participantsâwere little changed, on balance, al­though the Michigan survey measure ticked down to the low end of its recent range. Real PCE rose solidly in the third quarter following a stronger gain in the second quarter. Overall consumer spending rose steadily in recent months, and sales of light motor vehicles through September maintained their robust second-quarter pace. Key factors that influence consumer spendingâincluding the low unemployment rate, further gains in real disposable income, high levels of households' net worth, and generally low borrowing ratesâwere supportive of solid real PCE growth in the near term. The Michigan survey measure of consumer sentiment rose again in October and had mostly recovered from its August slump, while the Conference Board survey measure of consumer confidence remained at a favorable level. Real residential investment turned up solidly in the third quarter following six consecutive quarters of contraction. This upturn was consistent with the rise in single-family starts in the third quarter, and building permits for such unitsâwhich tend to be a good indicator for the underlying trend in the construction of such homesâalso increased. Both new and existing home sales increased, on net, in August and September. Taken together, the data on construction and sales suggested that the decline in mortgage rates since late 2018 was starting to show through to housing activity. Real nonresidential private fixed investment declined further in the third quarter. Nominal shipments of nondefense capital goods excluding aircraft decreased over August and September, and forward-looking indicators generally pointed to continued softness in business equipment spending. Orders for nondefense capital goods excluding aircraft decreased over those two months and were still below the level of shipments, most measures of business sentiment deteriorated, analysts' expectations of firms' longer-term profit growth declined somewhat further, and concerns about trade developments continued to weigh on firms' investment decisions. Business expenditures for nonresidential structures decreased markedly further in the third quarter, and the number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâcontinued to decline through mid-October. Industrial production declined in September and was notably lower than at the beginning of the year. Production in September was held down by the strike at General Motors, and automakers' schedules indicated that assemblies of light motor vehicles would remain low in October before rebounding in November. Overall manufacturing production appeared likely to remain soft in coming months, reflecting generally weak readings on new orders from national and regional manufacturing surveys, declining domestic business investment, weak GDP growth abroad, and a persistent drag from trade developments. Total real government purchases rose at a slower pace in the third quarter than in the second quarter. Real federal purchases decelerated, reflecting smaller increases in both defense and nondefense spending. Federal hiring of temporary workers for next year's decennial census was quite modest during the quarter. Real purchases by state and local governments also rose at a slower pace, as the boost from a faster expansion in state and local payrolls was partially offset by a decrease in real construction spending by these governments. The nominal U.S. international trade deficit widened in August, reflecting a subdued pace of export growth and a moderate pace of import growth. Export growth was subdued due to lackluster exports of services and capital goods. Advance estimates for September suggested that goods imports fell more than exports, pointing to a narrowing of the monthly trade deficit. The Bureau of Economic Analysis estimated that net exports made a slight negative contribution to real GDP growth in the third quarter. Incoming data suggested that growth in the foreign economies remained subpar in the third quarter. In several advanced foreign economies (AFEs), indicators showed continued weakness in the manufacturing sector, especially in the euro area and the United Kingdom. Similarly, GDP growth remained subdued in China and several other emerging economies in Asia, and indicators suggested that growth in Latin America also remained weak. Foreign inflation appeared to have moderated a bit in the third quarter, reflecting declines in energy prices. Inflation remained relatively low in most foreign economies. Staff Review of the Financial Situation Investor sentiment weakened over the early part of the intermeeting period, reflecting a few weaker-than-expected domestic data releases, but later strengthened on increased optimism regarding ongoing trade negotiations between the United States and China and positive Brexit news. On net, equity prices and corporate bond spreads were little changed, and the Treasury yield curve steepened a bit. Financing conditions for businesses and households remained generally supportive of spending and economic activity. September FOMC communications were viewed as slightly less accommodative than expected, with investors reportedly surprised by the Summary of Economic Projections showing that a majority of FOMC participants anticipated no further easing this year. Incoming data early in the intermeeting periodâparticularly the disappointing readings on business activityâprompted a decline in the market-implied path for the policy rate, but that decline was later partly reversed as market participants apparently grew more optimistic on the prospects for a U.S.âChina trade deal and Brexit negotiations. Late in the period, quotes on federal funds futures options contracts indicated that market participants assigned a very high probability to a 25 basis point reduction in the target range of the federal funds rate at the October FOMC meeting. In addition, market-implied expectations for the federal funds rate at year-end and next year moved down. Yields on nominal U.S. Treasury securities moved down in the early part of the intermeeting period but later retraced their declines. On net, the Treasury yield curve steepened a bit, mostly reflecting a modest decline in short-term yields. Measures of inflation compensation over the next 5 years and 5 to 10 years ahead based on Treasury Inflation-Protected Securities inched down and remained near multiyear low levels. Broad stock price indexes fell by as much as 4 percent during the first half of the intermeeting period but recovered afterward, ending the period roughly unchanged. Option-implied volatility on the S&P 500 index declined slightly and ended the period below the middle of its historical distribution. On net, corporate credit spreads were little changed. Domestic short-term funding markets were volatile in mid-September and exhibited additional, albeit modest, pressures around the September quarter-end and the mid-October Treasury settlement date. These pressures were alleviated in part by the Desk's overnight and term repo operations that began on September 17. After smoothing through rate volatility over the period, interest rates for overnight unsecured and secured funding declined roughly in line with the reduction in the target range for the federal funds rate at the September FOMC meeting and the associated 30 basis point decrease in the interest on excess reserves (IOER) rate. The effective federal funds rate (EFFR) was more volatile than usual over the intermeeting period, with the EFFRâIOER spread ranging between 2 basis points and 10 basis points. Rates on overnight commercial paper (CP) and short-term negotiable certificates of deposit declined fairly quickly following the announcement of Desk operations on September 17, al­though some CP rates remained elevated into October. The FOMC's October 11 announcement of Treasury bill purchases and repo operations to maintain reserves at or above their early-September level appeared to improve expectations about funding market conditions through the remainder of the year. These communications reportedly did not materially affect yields on longer-term Treasury securities. Financial markets in the AFEs followed a pattern similar to that seen in the United States. AFE financial conditions tightened early in the intermeeting period on disappointing activity data, both in the United States and abroad, and subsequently recovered on perceived better prospects for trade and Brexit negotiations. Movements in the exchange value of the dollar against most currencies were relatively modest, and the broad dollar index declined slightly. Relative to the dollar, the British pound appreciated on Brexit developments, and the Argentinian peso continued to depreciate amid the country's political developments. The mid-September increases in U.S. Treasury repo rates spilled over to borrowing rates in the international dollar funding market. However, the measures taken by the Federal Reserve to keep the federal funds rate in the target range also calmed dollar funding conditions in the foreign exchange swap market. Financing conditions for nonfinancial businesses remained generally accommodative during the intermeeting period. Gross issuance of corporate bonds, which was strong in September, experienced a typical seasonal decline in October. Gross issuance of institutional leveraged loans remained solid but slightly below 2019 monthly averages. Meanwhile, growth of commercial and industrial (C&I) loans at banks was modest in the third quarter as a whole. Respondents to the October 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported that borrower demand weakened for C&I loans over the third quarter, while lending standards on such loans were about unchanged. Gross equity issuance through both initial and seasoned offerings picked up to a strong pace in September but moderated in October. The credit quality of nonfinancial corporations deteriorated slightly in recent months but remained solid on balance. Credit conditions for both small businesses and municipalities stayed accommodative on net. In the commercial real estate (CRE) sector, financing conditions also remained generally accommodative. The volume of agency and non-agency commercial mortgage-backed securities issuance was strong in September, in part supported by recent declines in interest rates. Growth of CRE loans on banks' books was little changed in the third quarter. Banks in the October SLOOS reported tighter lending standards for all types of CRE loans; they also reported weaker demand for construction lending and stronger demand for the other CRE lending categories. Financing conditions in the residential mortgage market remained accommodative on balance. Mortgage rates were little changed since the September FOMC meeting and stayed near their lowest level since mid-2016. In September, home-purchase originations remained around the relatively high level seen during the previous two months, while refinancing originations jumped to their highest level since late 2012. In the October SLOOS, banks left their lending standards basically unchanged for most residential real estate loan categories over the third quarter. However, for subprime loans, a moderate net percentage of banks reported tightening standards. Financing conditions in consumer credit markets remained generally supportive of household spending, al­though conditions continued to be tight for credit card borrowers with nonprime credit scores. Interest rates on auto loans fell, on net, since the beginning of the year, and interest rates on credit card accounts leveled off through August. According to the October SLOOS, commercial banks tightened their standards on credit cards and other consumer loans over the third quarter. Additionally, banks reported that their standards on auto loans and their willingness to make consumer installment loans were about unchanged on balance. The staff provided an update on its assessments of potential risks to financial stability. On balance, the staff characterized the financial vulnerabilities of the U.S. financial system as moderate. The staff judged that, for many asset classes, valuation pressures eased over the past year. Appetite for risk in the leveraged loan market remained elevated, but less so than last year, especially for lower-rated loans. In addition, CRE prices remained high relative to rental income. In assessing vulnerabilities stemming from borrowing in the household and business sectors, the staff noted that, while household borrowing continued to decline relative to nominal GDP, business leverage remained at or near record-high levels. The risks associated with leverage at financial institutions were viewed as being low, as they have been for some time, largely because of high capital ratios at large banks. Nonetheless, the staff noted that the resilience of financial institutions could be undermined by low interest rates and banks' announced plans to increase payouts to shareholders. The staff assessed vulnerabilities stemming from funding risk as modest. In addition, the staff discussed the potential for liquidity transformation by open-ended mutual funds investing in bank loans to lead to market dislocations under stress scenarios, while noting that outflows from such funds have not often been associated with such dislocations. Staff Economic Outlook The projection for U.S. real GDP growth prepared by the staff for the October FOMC meeting was revised down a little for the second half of this year relative to the previous projection. This revision reflected the estimated effects of the strike at General Motors along with some other small factors. Even without this downward revision, real GDP was forecast to rise more slowly in the second half of the year than in the first half, mostly because of continued soft business investment and slower increases in government spending. The medium-term projection for real GDP growth was essentially unchanged, as revisions to the staff's assumptions about factors on which the forecast was conditioned, such as financial market variables, were small and offsetting. Real GDP was expected to decelerate modestly over the medium term, mostly because of a waning boost from fiscal policy. Output was forecast to expand at a rate a little above the staff's estimate of its potential rate of growth in 2019 and 2020 and then to slow to a pace slightly below potential output growth in 2021 and 2022. The unemployment rate was projected to be roughly flat through 2022 and to remain below the staff's estimate of its longer-run natural rate. The staff's forecast for core PCE price inflation this year was revised down a little in response to recent data. Beyond this year, the projection for core inflation was unrevised, and the forecast for total inflation was a little lower in 2020 because of a downward revision in projected consumer energy prices. Both total inflation and core inflation were forecast to move up slightly next year, as the low inflation readings early this year were viewed as transitory; nevertheless, both inflation measures were forecast to continue to run somewhat below 2 percent through 2022. The staff continued to view the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. Moreover, the staff still judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors in that assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. In addition, softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity. Participants' Views on Current Conditions and the Economic Outlook Participants agreed that the labor market had remained strong over the intermeeting period and that economic activity had risen at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though household spending had risen at a strong pace, business fixed investment and exports had remained weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Participants generally viewed the economic outlook as positive. Participants judged that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective were the most likely outcomes, and they indicated that their views on these outcomes had changed little since the September meeting. Uncertainties associated with trade tensions as well as geopolitical risks had eased somewhat, though they remained elevated. In addition, inflation pressures remained muted. The risk that a global growth slowdown would further weigh on the domestic economy remained prominent. In their discussion of the household sector, participants agreed that consumer spending was increasing at a strong pace. They also generally expected that, in the period ahead, household spending would likely remain on a firm footing, supported by strong labor market conditions, rising incomes, and favorable financial conditions. In addition, survey measures of consumer confidence remained high, and a couple of participants commented that business contacts in consumer-facing industries reported strong demand. Many participants noted that components of household spending that are thought to be particularly sensitive to interest rates had improved, including purchases of consumer durables. In addition, residential investment had turned up. Most participants who reported on spending by households in their Districts also cited favorable conditions for consumer spending, al­though several participants reported mixed data on spending or an increase in precautionary savings in their Districts. In their discussions of the business sector, participants saw trade tensions and concerns about the global growth outlook as the main factors contributing to weak business investment and exports and the associated restraint on domestic economic growth. Moreover, participants generally expected that trade uncertainty and sluggish global growth would continue to damp investment spending and exports. A number of participants judged that tight labor market conditions were also causing firms to forego investment expenditures, or invest in automation systems to reduce the need for additional hiring. However, business sentiment appeared to remain strong for some industries, particularly those most closely connected with consumer goods. Participants discussed developments in the manufacturing, energy, and agricultural sectors of the U.S. economy. Manufacturing production remained weak, and continuing concerns about global growth and trade uncertainty suggested that conditions were unlikely to improve materially over the near term. In addition, the labor strike at General Motors had disrupted motor vehicle output, and ongoing issues at Boeing were slowing manufacturing in the commercial aircraft industry. A couple of participants noted that activity was particularly weak for the energy industry, in part because of low petroleum prices. In addition, a few participants noted ongoing challenges in the agricultural sector, including those associated with lower crop yields, tariffs, weak export demand, and difficult financial positions for many farmers. One bright spot for the agricultural sector was that some commodity prices had firmed recently. Participants judged that conditions in the labor market remained strong, with the unemployment rate near historical lows and continued solid job gains, on average. In addition, some participants commented on the strength or improvement in labor force participation nationally or in their Districts. However, the pace of increases in employment had slowed some, on net, in recent months. On the one hand, the slowing could be interpreted as a natural consequence of the economy being near full employment. On the other hand, slowing job gains might also be indicative of some cooling in labor demand, which may be consistent with an observed decline in the rate of job openings and decreases in other measures of labor market tightness. Several participants commented that the preliminary benchmark revision released in August by the Bureau of Labor Statistics had indicated that payroll employment gains would likely show less momentum coming into this year once those revisions are incorporated in published data early next year. Growth of wages had also slowed this year by some measures. Consistent with strong national data on the labor market, business contacts in many Districts indicated continued strong labor demand, with firms still reporting difficulties finding qualified workers, or broadening their recruiting to include traditionally marginalized groups. In their discussion of inflation developments, participants noted that readings on overall and core PCE inflation, measured on a 12-month change basis, had continued to run below the Committee's symmetric 2 percent objective. While survey-based measures of longer-term inflation expectations were generally little changed, some measures of households' inflation expectations had moved down to historically low levels. Market-based measures of inflation compensation remained low, with some longer-term measures being at or near multi-year lows. Weakness in the global economy, perceptions of downside risks to growth, and subdued global inflation pressures were cited as factors tilting inflation risk to the downside, and a few participants commented that they expected inflation to run below 2 percent for some time. Some other participants, however, saw the recent inflation data as consistent with their previous assessment that much of the weakness seen early in the year would be transitory, or that some recent monthly readings seemed broadly consistent with the Committee's longer-run inflation objective of 2 percent. A couple of participants noted that some measures of inflation could temporarily move above 2 percent early next year because of the transitory effects of tariffs. Participants also discussed risks regarding the outlook for economic activity, which remained tilted to the downside. Some risks were seen to have eased a bit, although they remained elevated. There were some tentative signs that trade tensions were easing, the probability of a no-deal Brexit was judged to have lessened, and some other geopolitical tensions had diminished. Several participants noted that statistical models designed to gauge the probability of recession, including those based on information from the yield curve, suggested that the likelihood of a recession occurring over the medium term had fallen somewhat over the intermeeting period. However, other downside risks had not diminished. In particular, some further signs of a global slowdown in economic growth emerged; weakening in the global economy could further restrain the domestic economy, and the risk that the weakness in domestic business spending, manufacturing, and exports could give rise to slower hiring and weigh on household spending remained prominent. Among those participants who commented on financial stability, most highlighted the risks associated with high levels of corporate indebtedness and elevated valuation pressures for a variety of risky assets. Al­though financial stability risks overall were seen as moderate, several participants indicated that imbalances in the corporate debt market had grown over the economic expansion and raised the concern that deteriorating credit quality could lead to sharp increases in risk spreads in corporate bond markets; these developments could amplify the effects of an adverse shock to the economy. Several participants were concerned that some banks had reduced the sizes of their capital buffers at a time when they should be rising. A few participants observed that valuations in equity and bond markets were high by historical standards and that CRE valuations were also elevated. A couple of participants indicated that market participants may be overly optimistic in the pricing of risk for corporate debt. A couple of participants judged that the monitoring of financial stability vulnerabilities should also encompass risks related to climate change. In their consideration of the monetary policy options at this meeting, most participants believed that a reduction of 25 basis points in the target range for the federal funds rate would be appropriate. In discussing the reasons for such a decision, these participants continued to point to global developments weighing on the economic outlook, the need to provide insurance against potential downside risks to the economic outlook, and the importance of returning inflation to the Committee's symmetric 2 percent objective on a sustained basis. A couple of participants who were supportive of a rate cut at this meeting indicated that the decision to reduce the federal funds rate by 25 basis points was a close call relative to the option of leaving the federal funds rate unchanged at this meeting. Many participants judged that an additional modest easing at this meeting was appropriate in light of persistent weakness in global growth and elevated uncertainty regarding trade developments. Nonetheless, these participants noted that incoming data had continued to suggest that the economy had proven resilient in the face of continued headwinds from global developments and that previous adjustments to monetary policy would continue to help sustain economic growth. In addition, several participants suggested that a modest easing of policy at this meeting would likely better align the target range for the federal funds rate with a variety of indicators used to assess the appropriate policy stance, including estimates of the neutral interest rate and the slope of the yield curve. A couple of participants judged that there was more room for the labor market to improve. Accordingly, they saw further accommodation as best supporting both of the Committee's dual-mandate objectives. Many participants continued to view the downside risks surrounding the economic outlook as elevated, further underscoring the case for a rate cut at this meeting. In particular, risks to the outlook associated with global economic growth and international trade were still seen as significant despite some encouraging geopolitical and trade-related developments over the intermeeting period. In light of these risks, a number of participants were concerned that weakness in business spending, manufacturing, and exports could spill over to labor markets and consumer spending and threaten the economic expansion. A few participants observed that the considerations favoring easing at this meeting were reinforced by the proximity of the federal funds rate to the ELB. In their view, providing adequate accommodation while still away from the ELB would best mitigate the possibility of a costly return to the ELB. Many participants also cited the level of inflation or inflation expectations as justifying a reduction of 25 basis points in the federal funds rate at this meeting. Inflation continued to run below the Committee's symmetric 2 percent objective, and inflationary pressures remained muted. Several participants raised concerns that measures of inflation expectations remained low and could decline further without a more accommodative policy stance. A couple of these participants, pointing to experiences in Japan and the euro area, were concerned that persistent inflation shortfalls could lead to a decline in longer-run inflation expectations and less room to reduce the federal funds rate in the event of a future recession. In general, the participants who justified further easing at this meeting based on considerations related to inflation viewed this action as helping to move inflation up to the Committee's 2 percent objective on a sustained basis and to anchor inflation expectations at levels consistent with that objective. Some participants favored maintaining the existing target range for the federal funds rate at this meeting. These participants suggested that the baseline projection for the economy remained favorable, with inflation expected to move up and stay near the Committee's 2 percent objective. They also judged that policy accommodation was already adequate and, in light of lags in the transmission of monetary policy, preferred to take some time to assess the economic effects of the Committee's previous policy actions before easing policy further. Several participants noted that downside risks had diminished over the intermeeting period and saw little indication that weakness in business sentiment was spilling over into labor markets and consumer spending. A few participants raised the concern that a further easing of monetary policy at this meeting could encourage excessive risk-taking and exacerbate imbalances in the financial sector. With regard to monetary policy beyond this meeting, most participants judged that the stance of policy, after a 25 basis point reduction at this meeting, would be well calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the Committee's symmetric 2 percent objective and likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook. However, participants noted that policy was not on a preset course and that they would be monitoring the effects of the Committee's recent policy actions, as well as other information bearing on the economic outlook, in assessing the appropriate path of the target range for the federal funds rate. A couple of participants expressed the view that the Committee should reinforce its postmeeting statement with additional communications indicating that another reduction in the federal funds rate was unlikely in the near term unless incoming information was consistent with a significant slowdown in the pace of economic activity. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that information received since the September meeting indicated that the labor market remained strong and that economic activity had been rising at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Household spending had been rising at a strong pace. However, business fixed investment and exports remained weak, as softness in global growth and international trade developments continued to weigh on those sectors. On a 12-month basis, both the overall inflation rate and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low. Survey-based measures of longer-term inflation expectations were little changed. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, most members agreed to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent at this meeting. The members who supported this action viewed it as consistent with helping offset the effects on aggregate demand of weak global growth and trade developments, insuring against downside risks arising from those sources, and promoting a more rapid return of inflation to the Committee's symmetric 2 percent objective. Two members preferred to maintain the current target range for the federal funds rate at this meeting. These members indicated that the economic outlook remained positive and that they anticipated, under an unchanged policy stance, continued strong labor market conditions and solid growth in activity, with inflation gradually moving up to the Committee's 2 percent objective. Members agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its maximum-employment objective and its symmetric 2 percent inflation objective. They also agreed that those assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. With regard to the postmeeting statement, members agreed to update the language of the Committee's description of incoming data to acknowledge that investment spending and U.S. exports had remained weak. In describing the monetary policy outlook, they also agreed to remove the "act as appropriate" language and emphasize that the Committee would continue to monitor the implications of incoming information for the economic outlook as it assessed the appropriate path of the target range for the federal funds rate. This change was seen as consistent with the view that the current stance of monetary policy was likely to remain appropriate as long as the economy performed broadly in line with the Committee's expectations and that policy was not on a preset course and could change if developments emerged that led to a material reassessment of the economic outlook. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective October 31, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-1/2 to 1-3/4 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to purchase Treasury bills at least into the second quarter of next year to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.45 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, and Randal K. Quarles. Voting against this action: Esther L. George and Eric Rosengren. President George dissented at this meeting because she believed that an unchanged setting of monetary policy was appropriate based on incoming data and the outlook for economic activity over the medium term. Recognizing risks to the outlook from the effects of trade developments and weaker global activity, President George would be prepared to adjust policy should incoming data point to a materially weaker outlook for the economy. President Rosengren dissented because he judged that monetary policy was already accommodative and that additional accommodation was not needed for an economy in which labor markets are very tight. He judged that providing additional accommodation posed risks of further inflating the prices of risky assets and encouraging households and firms to take on too much leverage. Consistent with the Committee's decision to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent, the Board of Governors voted unanimously to lower the interest rate paid on required and excess reserve balances to 1.55 percent and voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 2.25 percent, effective October 31, 2019. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 10â11, 2019. The meeting adjourned at 9:50 a.m. on October 30, 2019. Notation Vote By notation vote completed on October 8, 2019, the Committee unanimously approved the minutes of the Committee meeting held on September 17â18, 2019. Videoconference meeting of October 4, 2019 The Committee met by videoconference on October 4, 2019, to review developments in money markets and to discuss steps the Committee could take to facilitate efficient and effective implementation of monetary policy. The staff reviewed recent developments in money markets and the effect of the Desk's continued offering of overnight and term repo operations. Staff analysis and market commentary suggested that many factors contributed to the funding stresses that emerged in mid-September. In particular, financial institutions' internal risk limits and balance sheet costs may have slowed the distribution of liquidity across the system at a time when reserves had dropped sharply and Treasury issuance was elevated. Al­though money market conditions had since improved, market participants expressed uncertainty about how funding market conditions may evolve over coming months, especially around year-end. Further out, the April 2020 tax season, with associated reductions in reserves around that time, was viewed as another point at which money market pressures could emerge. The manager pro tem reviewed options that the Committee could consider to boost the level of reserves in the banking system and to address temporary money market pressures that could adversely affect monetary policy implementation. These options included a program of Treasury bill purchases coupled with overnight and term repo operations to maintain reserves at or above their early September level. During their discussion, all FOMC participants agreed that control over the federal funds rate was a priority and that recent money market developments suggested it was appropriate to consider steps at this time to maintain a level of reserves consistent with the Committee's chosen ample-reserves regime. Given the projected decline in reserves around year-end and in the spring of 2020, they judged that it was important to reach consensus soon on a near-term plan and associated communications. All participants expressed support for a plan to purchase Treasury bills into the second quarter of 2020 and to continue conducting overnight and term repo operations at least through January of next year. Many participants supported conducting operations to maintain reserve balances around the level that prevailed in early September. Some others suggested moving to an even higher level of reserves to provide an extra buffer and greater assurance of control over the federal funds rate. In discussing the pace of Treasury bill purchases, many participants supported a relatively rapid pace to boost reserve levels quickly, while others supported a more moderate pace of purchases. Participants generally judged that Treasury bill purchases and the associated increase in reserves would, over time, result in a gradual reduction in the need for repo operations. A few participants indicated that purchasing Treasury notes and bonds with limited remaining maturities could also be considered as a way to boost reserves, particularly if the Federal Reserve faced constraints on the pace at which it could purchase Treasury bills. Participants generally acknowledged some uncertainty over the efficient and effective level of reserves and noted it would be prudent to continue to monitor money market developments and stand ready to adjust the plan as necessary. Overall, participants agreed that the pace of purchases as well as the parameters of the repo operations were technical details of monetary policy implementation not intended to affect the stance of monetary policy and should be communicated as such. Most participants preferred not to wait until the October 29â30 FOMC meeting to issue a public statement regarding the planned Treasury bill purchases and repo operations. They noted that releasing a statement before the October 29â30 FOMC meeting would help reinforce the point that these actions were technical and not intended to affect the stance of policy. In addition, a few participants remarked that an earlier release would allow the Desk to begin boosting the level of reserves sooner. A couple of participants, however, wanted to wait until the October 29â30 FOMC meeting to announce the plan so as not to surprise market participants or lead them to infer that the Committee regarded the situation as dire and thus requiring immediate action. The Chair proposed having the staff produce a draft statement that the Committee could comment on early in the following week. Formal approval could occur by notation vote with an anticipated release of a statement to the public on October 11, 2019. Participants discussed longer-term issues that the Committee might want to study once the near-term plan was in place. In particular, many participants mentioned that the Committee may want to continue its previous discussion of a standing repo facility as a part of the long-run implementation framework. Almost all of these participants noted that such a facility was an option to provide a backstop to buffer shocks that could adversely affect policy implementation, and several of these participants mentioned the potential for the facility to support banks' liquidity risk management while reducing the demand for reserves. Other participants, instead, highlighted that policy implementation had worked well with larger quantities of reserves and focused their discussion on actions to firmly establish an ample supply of reserves over the longer run. A number of participants noted that a discussion of a broader range of factors that affect the level and volatility of reserves may be appropriate at a future meeting. On October 11, 2019, the Committee approved by notation vote the following statement that outlines steps to ensure that the supply of reserves remains ample so that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. STATEMENT REGARDING MONETARY POLICY IMPLEMENTATION (Adopted October 11, 2019) Consistent with its January 2019 Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, the Committee reaffirms its intention to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. To ensure that the supply of reserves remains ample, the Committee approved by notation vote completed on October 11, 2019, the following steps: In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Federal Reserve will purchase Treasury bills at least into the second quarter of next year in order to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. In addition, the Federal Reserve will conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. These actions are purely technical measures to support the effective implementation of the FOMC's monetary policy, and do not represent a change in the stance of monetary policy. The Committee will continue to monitor money market developments as it assesses the level of reserves most consistent with efficient and effective policy implementation. The Committee stands ready to adjust the details of these plans as necessary to foster efficient and effective implementation of monetary policy. In connection with these plans, the Federal Open Market Committee voted unanimously to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: "Effective October 15, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-3/4 to 2 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to purchase Treasury bills at least into the second quarter of next year to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended the discussion of the review of monetary policy strategy, tools, and communication practices. Return to text 3. Attended through the discussion of the review of options for repo operations to support control of the federal funds rate. Return to text 4. Attended the discussion of developments in financial markets and open market operations through the discussion of the review of options for repo operations to support control of the federal funds rate. Return to text 5. Attended through the discussion of developments in financial markets and open market operations. Return to text 6. Attended the discussion of economic developments and the outlook. Return to text 7. Attended the discussion of developments in financial markets and open market operations through the end of the meeting. Return to text 8. The staff briefed the Committee in June 2019 on the possible role of a standing repo facility in the monetary policy implementation framework. Return to text

Minutes of the Federal Open Market Committee December 10â11, 2019 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, December 10, 2019, at 10:00 a.m. and continued on Wednesday, December 11, 2019, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Richard H. Clarida Charles L. Evans Esther L. George Randal K. Quarles Eric Rosengren Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Michael Strine, Alternate Members of the Federal Open Market Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Steven B. Kamin, Economist Thomas Laubach, Economist Stacey Tevlin, Economist Rochelle M. Edge, Eric M. Engen, Christopher J. Waller, William Wascher, Jonathan L. Willis, and Beth Anne Wilson, Associate Economists Lorie K. Logan, Manager, System Open Market Account 2 Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Eric Belsky, 3 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Trevor A. Reeve, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber, Ellen E. Meade, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Shaghil Ahmed, Senior Associate Director, Division of International Finance, Board of Governors; Diana Hancock, Senior Associate Director, Division of Research and Statistics, Board of Governors Antulio N. Bomfim and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors Eric C. Engstrom, Senior Adviser, Division of Research and Statistics, and Deputy Associate Director, Division of Monetary Affairs, Board of Governors Elizabeth K. Kiser, Associate Director, Division of Research and Statistics, Board of Governors; Elizabeth Klee, Associate Director, Division of Financial Stability, Board of Governors; David López-Salido, Associate Director, Division of Monetary Affairs, Board of Governors Glenn Follette, Patrick E. McCabe, 5 and John M. Roberts, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Matteo Iacoviello and Andrea Raffo, 6 Deputy Associate Directors, Division of International Finance, Board of Governors; Jeffrey D. Walker, 3 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Etienne Gagnon, Assistant Director, Division of Monetary Affairs, Board of Governors; Paul Lengermann, Assistant Director, Division of Research and Statistics, Board of Governors Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board of Governors; Seung J. Lee, 7 Section Chief, Division of International Finance, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo and Kurt F. Lewis, Principal Economists, Division of Monetary Affairs, Board of Governors; Laura J. Feiveson, 3 Principal Economist, Division of Research and Statistics, Board of Governors Nils Goernemann, 3 Senior Economist, Division of International Finance, Board of Governors Donielle A. Winford, Information Management Analyst, Division of Monetary Affairs, Board of Governors Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond David Altig, Michael Dotsey, Jeffrey Fuhrer, 3 and Sylvain Leduc, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Philadelphia, Boston, and San Francisco, respectively Todd E. Clark, Marc Giannoni, 3 and Spencer Krane, Senior Vice Presidents, Federal Reserve Banks of Cleveland, Dallas, and Chicago, respectively Jonathan P. McCarthy, Alexander L. Wolman, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of New York, Richmond, and New York, respectively Thomas D. Tallarini, Jr., Assistant Vice President, Federal Reserve Bank of Minneapolis Karel Mertens, 3 Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Scott Davis, Senior Research Economist and Advisor, Federal Reserve Bank of Dallas Julie Hotchkiss, 3 Research Economist and Senior Advisor, Federal Reserve Bank of Atlanta Review of Monetary Policy Strategy, Tools, and Communication Practices Participants continued to discuss issues related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. The staff summarized the feedback received through the Fed Listens initiative, a series of 14 public-facing events conducted around the country with a broad range of individuals and groups. These events engaged with the public directly on issues pertaining to the dual-mandate objectives of maximum employment and stable prices. Representatives from underserved communities who participated in the Fed Listens events generally saw the current strong labor market as providing significant benefits to their communities, most notably by creating greater opportunities for individuals who have experienced difficulty finding jobs in the past. Nevertheless, these representatives noted that the benefits from current labor market conditions flowing to people in their communities were less than those implied by national statistics, and they expressed concerns that the recent gains might not be sustained in the event of an economic downturn. Business representatives reported experiencing challenges finding qualified workers and described several initiatives to attract and retain workers, including training programs and a willingness to employ individuals who are unlikely to have been considered in less favorable labor market conditions. Inflation developments elicited fewer comments at these events and were generally seen as posing less of a challenge than labor market conditions. Representatives of retirees mentioned difficulties associated with the rising costs of health care and prescription drugs, whereas those representing low- and middle-income communities pointed to the rising costs of basic necessities such as housing, utilities, and food. Business representatives emphasized the importance of low and stable inflation for planning and decisionmaking. Event participants were concerned about rising costs of living and generally perceived low inflation as desirable from that perspective. Event participants were asked about monetary policymakers' concerns regarding overall inflation running persistently below 2 percent; they noted that the Federal Reserve could better communicate its reasons for these concerns. When asked about the effects of changes in interest rates, representatives of underserved communities said that such changes had little effect on many members of their communities who have limited or no access to credit. Representatives of retirees conveyed a more negative view of low interest rates, given the greater reliance of wealthier retirees on interest income. Business representatives generally found the low interest rate environment beneficial. The staff briefing also included an analysis of distributional considerations for monetary policy. Consistent with the feedback received at the Fed Listens events, the evidence reviewed by the staff showed that workers who are young, less educated, African American, or Hispanic tend to face a greater-than-average risk of losing their jobs during recessions. The staff used simulations from a specific macroeconomic model to explore how heterogeneity of households might affect the transmission of economic shocks and changes in monetary policy to the economy. The staff's simulations embedded the assumption that households have limited ability to borrow, which makes some households' consumption spending more sensitive to changes in income. As a result, in these simulations, downturns lead to larger contractions in aggregate demand than would be the case if all households could borrow to support their consumption spending in response to a loss in income. The amplification of recessionary shocks was especially large when the monetary policy response was constrained by the effective lower bound (ELB) on the policy interest rate. Overall, the analysis suggested that the costs of recessions, as well as the benefits of economic stabilization, might be larger than suggested by models that did not account for differences across households regarding their access to credit. Participants agreed that the Fed Listens outreach efforts had informed their understanding of the goals and tradeoffs associated with monetary policy and had provided highly useful input into their deliberations. Several participants voiced their desire to continue the conversations initiated at the Fed Listens events. Participants also shared their appreciation of the feedback they receive on a regular basis from members of the public, including through the Federal Reserve System's extensive networks of contacts and community outreach efforts. A few participants emphasized that policymakers' engagement with the public helps build trust, fosters transparency, and reinforces the credibility of the Federal Reserve. Participants generally saw the feedback from Fed Listens events as reinforcing the importance of sustaining the economic expansion so that the effects of a persistently strong job market reach more of those who, in the past, had experienced difficulty finding employment. Several participants mentioned that sustaining strong labor market conditions helps workers build skills and cement their attachment to the labor force in a manner that might reduce the scarring effects of future downturns and might increase the maximum sustainable level of employment over the longer run. A number of participants also emphasized that sustaining strong labor market conditions is helpful for meeting the Committee's symmetric 2 percent inflation goal. Some participants spoke to some of the challenges associated with assessing the maximum level of employment. A few participants noted that aggregate statistics mask significant heterogeneity in labor market outcomes. A few others pointed to the continued absence of significant wage and price pressureâtraditionally seen as a symptom of a tight labor marketâeven as the unemployment rate had moved below most estimates of its longer-run level. A few participants raised the possibility that the maximum sustainable level of employment had increased as the expansion continued to draw workers who would otherwise not be in the labor force. Regarding inflation, participants recognized that segments of the public generally do not regard the fact that aggregate inflation is running modestly below the Committee's 2 percent goal as a problem. A few participants noted that the public's view on this issue was understandable from the perspective of households and businesses going about their daily lives in an economy with low and stable inflation. That said, a couple of participants cautioned that inflation could emerge as a concern among members of the public if it became more volatile or ran at levels substantially away from the Committee's goal. Many participants also warned about the macroeconomic consequences of not achieving 2 percent on a sustained basis. In particular, if inflation ran persistently below the Committee's objective, longer-term inflation expectations could drift down, resulting in lower actual inflation. With lower inflation, nominal interest rates would be lower as well and therefore closer to the ELB. As a result, the scope for monetary policy to support the economy in a future downturn through interest rate cuts would be reduced, a situation that would likely worsen economic outcomes for households and businesses. In light of these considerations, participants generally agreed that they need to communicate more clearly to the public their rationale for, and commitment to, achieving 2 percent inflation on a sustained basis and of ensuring that longer-run inflation expectations are anchored at levels consistent with this objective. To ensure the effectiveness of these and other communications, several participants stressed that the Federal Reserve needs to adapt its communications to various audiences. A few participants emphasized that communications about the Committee's resolve to return inflation to 2 percent need to be backed with actions and results to ensure that the public sees these communications as credible. With respect to the role of distributional considerations in the pursuit of the dual-mandate objectives, several participants noted that it was important for policymakers to be cognizant of how monetary policy affects different segments of the population. Most participants commented on the large costs that recessions and high unemployment impose on communities, notably on their most vulnerable constituents, and stressed the need for monetary policy to seek to avoid recessions in the first place or reduce their severity when they occur. A number of these participants emphasized that, while monetary policy actions can have different effects across groups, monetary policy actions that are driven by the pursuit of maximum employment and stable prices ultimately benefit all groups. Participants viewed the role of monetary policy as supporting a strong, stable economy that benefits all Americans. Various participants noted that monetary policy is a blunt instrument whose effects cannot be targeted to specific communities. Several participants remarked that while monetary policy actions can improve the conditions of vulnerable communities, notably by supporting a strong job market, these actions may not reduce inequality in wealth and income. For these and other reasons, many participants emphasized that policies other than monetary policy are appropriate to directly address inequality. In addition, a couple of participants cautioned that maintaining accommodative financial conditions could be counterproductive if doing so fueled financial imbalances and exacerbated the next economic downturn. Participants agreed that their review of monetary policy strategy, tools, and communication practices would continue at future meetings and, as a result, that the Committee would not reaffirm its existing Statement on Longer-Run Goals and Monetary Policy Strategy at the January 2020 meeting. The Committee plans to revisit this statement closer to the conclusion of the review, likely around the middle of 2020. Developments in Financial Markets and Open Market Operations The System Open Market Account manager first reviewed developments in financial markets over the intermeeting period. Market prices appeared to respond mainly to signs of stabilization in the U.S. and global economies and to developments associated with trade policy. Market participants noted some risks to the outlook including Brexit and geopolitical factors. Regarding expectations for U.S. monetary policy, the Open Market Trading Desk's surveys and market-based indicators pointed to a very high perceived likelihood of no change in the target range for the federal funds rate at this meeting. The expected path of the federal funds rate implied by the medians of survey respondents' modal forecasts remained essentially flat through 2020. Survey- and market-implied uncertainty about the near-term outlook for monetary policy declined, with market commentary attributing the decrease in part to the Committee's October communications. Survey respondents placed a higher probability on a reduction in the target range over 2020 than an increase. The manager turned next to a review of money market developments since the October meeting, starting with an update on the implementation of the Committee's strategy to ensure ample reserves. Reserve management purchases of Treasury bills continued at a pace of $60 billion per month, with propositions remaining strong and little discernible effect on market functioning. While these purchases accumulated, the Desk continued to conduct regular repurchase agreement (repo) operations in order to maintain reserves at or above the level that prevailed in early September. Repos outstanding from these Desk operations totaled roughly $215 billion per day, consisting of both overnight and term operations. As reserve levels increased, the distribution of reserves across bank types became comparable with where it was in early September. The federal funds rate and other overnight money market rates fell modestly and were close to the interest on excess reserves (IOER) rate for most of the period. The intraday dispersion of rates was also lower than when reserves were at similar levels before September. In addition to helping keep reserves ample, repo operations likely have reduced pressures in money markets and the dispersion in money market rates. With respect to conditions around year-end, the manager noted that forward measures of market pricing continued to indicate expectations of temporary upward pressures on some secured rates. Money market rates are often volatile around year-end, and Federal Reserve operations are not intended to eliminate all year-end pressures but rather to ensure that reserve supply remains ample and to mitigate the risk that such pressures could adversely affect the implementation of monetary policy. The Desk had already conducted three longer-term repo operations spanning year-endâfor a total of $75 billionâand planned to announce an additional longer-term operation, as well as increase the amount of overnight repo offered around the year-end date. The manager reported that the Desk is closely monitoring reserves and money market conditions and that it is prepared to adjust plans as needed. The manager discussed two operational considerations around policy implementation. The first involved the risk that future Treasury bill purchases could have a larger effect on liquidity in the Treasury bill market in light of expected seasonal declines in bill issuance and the Federal Reserve's growing ownership share of outstanding bills. If this risk were to materialize, the Federal Reserve could consider expanding the universe of securities purchased for reserve management purposes to include coupon-bearing Treasury securities with a short time to maturity. Purchases of these short-dated securities would not affect broader financial conditions or the stance of monetary policy. The manager also discussed expectations to gradually transition away from active repo operations next year as Treasury bill purchases supply a larger base of reserves. The calendar of repo operations starting in mid-January could reflect a gradual reduction in active repo operations. The manager indicated that some repos might be needed at least through April, when tax payments will sharply reduce reserve levels. As reserves remain ample, the manager noted that it may become appropriate at some point to implement a technical adjustment to the IOER rate and the offered rate on overnight reverse repurchase (ON RRP) agreements. Should conditions warrant this adjustment, the IOER rate could move closer to the middle of the target range for the federal funds rate, and the ON RRP rate could be realigned with the bottom of the target range. The manager also noted that the Federal Reserve Bank of New York communicated to its customers that the remuneration rate on the foreign repo pool will be revised to be generally equivalent to the overnight reverse repo rate. This action may reduce activity in the pool to some extent and increase the level of reserves. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the December 10â11 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) was increasing at a moderate rate in the second half of 2019. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in October. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment surged in November, boosted in part by the return of auto workers who had previously been on strike in October. The average pace of job gains over the three months ending in November, which is unaffected by the strike, was stronger than earlier in 2019. However, the rate of increase in payrolls so far this year was slower than last year, even accounting for the anticipated effects of the Bureau of Labor Statistics' benchmark revision to payroll employment, which will be incorporated in the published data in February 2020. The unemployment rate ticked up in October but then moved back down to its 50-year low of 3.5 percent in November; the labor force participation rate and the employment-to-population ratio held steady, on balance, over those two months. The unemployment rates for African Americans, Asians, Hispanics, and whites were little changed, on net, over the past two months; the unemployment rate for each group was below its level at the end of the previous economic expansion, though persistent differentials between these rates remained. The average share of workers employed part time for economic reasons in November stayed below its level in late 2007. Both the rate of private-sector job openings and the rate of quits edged down in September, but these readings were still at fairly elevated levels. The four-week moving average of initial claims for unemployment insurance benefits through late November remained near historically low levels. In general, recent measures of nominal wage growth continued to be moderate. Total labor compensation per hour in the business sector increased 3.7 percent over the four quarters ending in the third quarter. The employment cost index for private-sector workers rose 2.7 percent over the 12 months ending in September, while average hourly earnings for all employees increased 3.1 percent over the 12 months ending in November. Total consumer prices, as measured by the PCE price index, increased 1.3 percent over the 12 months ending in October. Core PCE price inflation (which excludes changes in consumer food and energy prices) was 1.6 percent over that same 12-month period, while consumer food price inflation was lower than core inflation and consumer energy prices declined. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at 2 percent in October. The consumer price index (CPI) rose 2.1 percent over the 12 months ending in November, while core CPI inflation was 2.3 percent. Recent readings on survey-based measures of longer-run inflation expectationsâincluding those from the University of Michigan Surveys of Consumers, the Survey of Professional Forecasters, the Survey of Consumer Expectations from the Federal Reserve Bank of New York, and the Desk's Survey of Primary Dealers and Survey of Market Participantsâwere little changed, on balance; the Michigan survey measure ticked back down in early December to the bottom of its recent range after ticking up in November. Real PCE continued to expand in October following a strong gain in the third quarter. Sales of light motor vehicles rose markedly in November. Key factors that influence consumer spendingâincluding the low unemployment rate, the upward trend in real disposable income, high levels of households' net worth, and generally low interest ratesâwere supportive of solid real PCE growth in the near term. The Michigan survey measure of consumer sentiment rose again in early December to an upbeat level and had more than recovered from its drop in August; the Conference Board survey measure of consumer confidence remained at a favorable level in November. Real residential investment appeared to be increasing further after rising solidly in the third quarter. Both starts and building permit issuance for single-family homes increased in October, and starts of multifamily units also rose. Existing home sales continued to increase in October, al­though new home sales edged down following a solid gain in the third quarter. All told, the data on construction and sales continued to suggest that the decline in mortgage rates since late 2018 has been boosting housing activity. Real nonresidential private fixed investment remained weak overall after declining in the second and third quarters. Nominal shipments and new orders of nondefense capital goods excluding aircraft increased solidly in October following a string of decreases, al­though many forward-looking indicators pointed to continued softness in business equipment spending. Most measures of business sentiment were still downbeat, analysts' expectations of firms' longer-term profit growth edged down further, and concerns about trade developments continued to weigh on firms' investment decisions. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector continued to decline in October, and the total number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâfell further through early December. Industrial production decreased in October and remained notably lower than at the beginning of the year. Production in October continued to be held down by the strike at General Motors, al­though the end of the strike and automakers' schedules suggested that assemblies of light motor vehicles would rebound in November. Overall manufacturing production appeared likely to remain soft in coming months, reflecting generally weak readings on new orders from national and regional manufacturing surveys, declining domestic business investment, slow economic growth abroad, and a persistent drag from trade developments. Total real government purchases were increasing slowly in the fourth quarter. Nominal defense spending in October pointed to only a modest rise in real federal government purchases. Real purchases by state and local governments looked to be moving roughly sideways; state and local payrolls expanded modestly, on net, over October and November, and nominal construction spending by these governments was about flat in October. The nominal U.S. international trade deficit narrowed in October. Exports fell a little, with declines in all export categories except for services and industrial supplies. Imports fell much more, and the declines were broad based, with the largest contributions coming from imports of consumer goods and automotive products. Available trade data suggested that the contribution of net exports to real GDP growth, which was slightly negative in the third quarter, would turn somewhat positive in the fourth quarter. Foreign economic growth slowed further in the third quarter amid continued weakness in the global manufacturing sector. Recent monthly indicators pointed to a stabilization in the pace of economic growth in China and several advanced foreign economies. However, other indicators suggested that social unrest weighed heavily on economic activity in several countries, most notably in Hong Kong, and that weakness persisted in parts of Latin America. Foreign inflation picked up somewhat as energy prices stabilized, al­though inflation remained relatively low in most foreign economies. Staff Review of the Financial Situation Investor sentiment fluctuated over the intermeeting period largely in response to ongoing trade negotiations between the United States and China. On net, equity prices increased moderately while corporate bond spreads narrowed slightly. Yields on nominal Treasury securities were little changed. Financing conditions for businesses and households remained supportive of spending and economic activity. Federal Reserve communications over the intermeeting period were viewed as suggesting that additional near-term changes to the target range for the federal funds rate were less likely than had previously been expected. A straight read of the probability distribution for the federal funds rate implied by options prices suggested that investors assigned a high probability to the target range remaining unchanged at the December FOMC meeting. Forward rates implied by overnight index swap quotes declined slightly, on net, and implied about a 25 basis point decline in the federal funds rate by the end of 2020. Nominal Treasury yields fluctuated over the intermeeting period but, on net, the Treasury curve was little changed. Measures of inflation compensation over the next 5 years and 5 to 10 years ahead based on Treasury Inflation-Protected Securities increased slightly from near multiyear low levels. Broad stock price indexes increased moderately over the intermeeting period amid movements largely attributed to trade-related developments and stronger-than-expected U.S. employment reports. Option-implied volatility on the S&P 500 index increased modestly but remained near the low end of its historical distribution. On net, corporate credit spreads narrowed slightly. Conditions in short-term funding markets were stable over the intermeeting period. Interest rates for overnight secured and unsecured loans fell in line with the 25 basis point decrease in the target range for the federal funds rate at the October FOMC meeting. Trading in money markets was orderly, with volumes in normal ranges and spreads narrower relative to the IOER rate. Pressures on rates at October month-end and November mid-monthâboth days with sizable settlements of Treasury auctionsâwere muted compared with other recent Treasury issuance days. The Desk's open market operations aimed at maintaining ample reserves proceeded smoothly. As in U.S. markets, sentiment in foreign financial markets fluctuated in response to news on U.S.âChina trade negotiations. Most foreign equity price indexes and long-term sovereign yields in Germany, the United Kingdom, and Japan increased modestly on net. The broad dollar index ended the period little changed. Political unrest in Hong Kong and Latin America garnered some financial market attention and led to a weakening of some Latin American currencies, notably the Chilean peso, but the imprint on broader financial markets was limited. Financing conditions for nonfinancial businesses remained accommodative. Gross issuance of corporate bonds was robust, on average, in October and November. Gross issuance of institutional leveraged loans remained near recent monthly averages. Meanwhile, commercial and industrial loans held by banks contracted in October but increased modestly in November. The credit quality of nonfinancial corporations deteriorated slightly in recent months but remained solid overall. After particularly strong gross equity issuance in September, initial public offerings declined and seasoned offerings remained solid in October and November. Credit conditions for both small businesses and municipalities stayed accommodative. In the commercial real estate (CRE) sector, financing conditions also remained generally accommodative. Commercial mortgage-backed securities (CMBS) spreads widened slightly over the intermeeting period but remained near the low end of their post-crisis range. Agency and non-agency CMBS issuance increased in October to a post-crisis high. CRE loan growth at banks also increased in October relative to recent quarters. Financing conditions in the residential mortgage market remained accommodative over the intermeeting period. Mortgage rates were little changed since the October FOMC meeting. Consistent with this year's decline in mortgage rates, home-purchase originations and refinancing originations both rose. Mortgage credit standards were little changed. Financing conditions in consumer credit markets remained generally supportive of growth in consumer spending, al­though conditions continued to be tight for nonprime borrowers. Auto loans increased, consistent with significant declines in auto loan interest rates this year. Credit card debt grew at a solid pace, and interest rates on credit card debt began to fall. Consumer assetâbacked securities issuance was strong through October as spreads stabilized at levels that were somewhat above their post-crisis averages. Staff Economic Outlook The projection for U.S. real GDP growth prepared by the staff for the December FOMC meeting was revised up a little for the second half of 2019 relative to the previous projection. This revision primarily reflected incoming data for household spending and business investment that were somewhat stronger than expected. Even with this upward revision, real GDP was forecast to rise more slowly in the second half of the year than in the first half, mostly because of continued soft business investment and slower increases in government spending. The forecast for real GDP growth over the medium term was also revised up a bit, on balance, primarily in response to a somewhat higher projected path for equity prices. Nevertheless, real GDP growth was still expected to slow modestly in the coming years, largely because of a fading boost from fiscal policy. Output was forecast to expand at a rate a little above the staff's estimate of its potential rate of growth in 2019 through 2021 and then to slow to a pace slightly below potential output growth in 2022. The unemployment rate was projected to be roughly flat at around its current level through 2022 and to remain below the staff's estimate of its longer-run natural rate. The staff's forecast for total PCE price inflation in 2019 was revised down a bit, as a downward revision to core PCE prices in response to recent data was partly offset by an upward revision to consumer energy prices. Beyond 2019, core inflation was expected to be above its pace this year, and this projection was revised up a touch because of the slightly tighter resource utilization in the current forecast. The projection for total inflation in 2020 was a little lower than for core inflation due to a projected decline in consumer energy prices. Over the remainder of the medium-term projection, total inflation was expected to be about the same as core inflation, al­though both inflation measures were forecast to continue to run a bit below 2 percent through 2022. The staff continued to view the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. The staff viewed the downside risks to economic activity as having eased a bit since the previous forecast but still judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors influencing this assessment were that international trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. In addition, softness in business investment and manufacturing production so far this year were seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2019 through 2022 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections are described in the Summary of Economic Projections (SEP), which is an addendum to these minutes. Participants agreed that the labor market had remained strong over the intermeeting period and that economic activity had risen at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though household spending had risen at a strong pace, business fixed investment and exports had remained weak. On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Participants generally expected sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. This outlook reflected, at least in part, the support provided by the current stance of monetary policy. Nevertheless, global developments, related to both persistent uncertainty regarding international trade and weakness in economic growth abroad, continued to pose some risks to the outlook, and inflation pressures remained muted. In their discussion of the household sector, participants agreed that spending had increased at a strong pace. They generally expected that consumption spending would likely remain on a firm footing, supported by strong labor market conditions, rising incomes, and solid consumer confidence. In addition, residential investment had continued to pick up, reflecting, in part, the effects of lower mortgage rates. Many participants commented that business contacts in consumer-related industries reported strong demand or that contacts were optimistic about the holiday retail spending season. However, some participants observed that recent data on retail sales or motor vehicle spending had decelerated slightly. With respect to the business sector, participants saw trade developments and concerns about the global economic growth outlook as the main factors contributing to weak business investment and exports. Participants generally expected these factors to continue to damp business investment and exports. They expressed similar concerns about activity in manufacturing industries. A few participants noted that the current weakness in capital expenditures could lead to a slower pace of productivity growth in future years. A few others observed that businesses were diversifying their supply chains or investing in technology to adapt to persistent uncertainty regarding international trade, which might mitigate the effects of such uncertainty on future business spending. A number of participants commented on challenges facing the energy and agriculture sectors. A few participants remarked that activity in the energy sector was especially weak, reflecting low petroleum prices, low profitability, and tight financing conditions for energy-producing firms. Several participants noted that the agricultural sector also faced a number of difficulties, including those associated with trade developments, weak export demand, and challenging financial positions for many farmers. A couple of participants noted that farm subsidies from the federal government were offsetting a portion of the financial strain on farmers. Participants judged that conditions in the labor market remained strong, with the unemployment rate at a 50-year low, job gains remaining solid, and some measures of labor force participation increasing further. The unemployment rate was likely to remain low going forward, and various participants remarked that there were some indications that further strengthening in overall labor market conditions was possible without creating undesirable pressures on resources. In particular, a number of participants noted that the labor force participation rate could rise further still. Moreover, measures of wage growth had generally remained moderate. However, a few participants commented that increases in the labor force would likely moderate as slack in the labor market diminished. In addition, a couple of participants remarked that the preliminary benchmark revision released in August by the Bureau of Labor Statistics had indicated that payroll employment gains would likely show less momentum coming into this year once those revisions are incorporated in published data early next year. A couple of other participants thought it was important to better understand the quality of jobs being created. Business contacts in many Districts indicated continued strong labor demand, with firms reporting difficulties in finding qualified workers or broadening their recruiting to include traditionally marginalized groups. A number of participants noted that wage pressures were evident for some industries in their Districts, and a couple of participants commented that firms were responding to those pressures in a variety of ways, including investing in technology that could serve as a substitute for labor. In their discussion of inflation developments, participants noted that recent readings on overall and core PCE inflation, measured on a 12-month change basis, had continued to run below 2 percent. Survey-based measures of longer-term inflation expectations were little changed, and market-based measures of inflation compensation remained low. A few participants commented on factors that may temporarily exert upward pressure on some measures of inflation in the coming months. Assessing all these factors, participants generally expected that inflation would return to the 2 percent objective as the economic expansion continued and resource utilization remained high. However, weakness abroad and subdued global inflation pressures were cited as sources of risk to this assessment. Participants who expressed less confidence that inflation would return promptly to the 2 percent objective commented that inflation had averaged less than 2 percent over the past several years even as resource utilization had increased or that global or technology-related factors were exerting downward pressure on inflation that could be difficult to overcome. Participants also discussed risks regarding the outlook for economic activity. While many saw the risks as tilted somewhat to the downside, some risks were seen to have eased over recent months. In particular, there were some tentative signs that trade tensions with China were easing, and the probability of a no-deal Brexit was judged to have lessened further. In addition, there were indications that the prospects for global economic growth may be stabilizing. A number of participants observed that the domestic economy was showing resilience in the face of headwinds from global developments. Moreover, statistical models designed to gauge the probability of recession using financial market data, including those based on information from the Treasury yield curve, suggested that the likelihood of a recession occurring over the medium term had fallen noticeably in recent months. However, new uncertainties had emerged regarding trade policy with Argentina, Brazil, and France, and political tensions in Hong Kong persisted. In their consideration of monetary policy at this meeting, participants judged that it would be appropriate to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. As reflected in their SEP projections, participants regarded the current stance of monetary policy as likely to remain appropriate for a time as long as incoming information about the economy remained broadly consistent with the economic outlook. Of course, if developments emerged that led to a material reassessment of the outlook, the stance of policy would need to adjust in a way that fostered the Committee's dual-mandate objectives. A number of participants agreed that maintaining the current stance of monetary policy would give the Committee some time to assess the full effects on the economy of its policy decisions and communications over the course of this year along with other information bearing on the economic outlook. Participants also discussed how maintaining the current stance of policy for a time could be helpful for cushioning the economy from the global developments that have been weighing on economic activity and for returning inflation to the Committee's symmetric objective of 2 percent. Participants generally expressed concerns regarding inflation continuing to fall short of 2 percent. Al­though a number of participants noted that some of the factors currently holding down inflation were likely to prove transitory, various participants were concerned that indicators were suggesting that the level of longer-term inflation expectations was too low. A few participants raised the concern that keeping interest rates low over a long period might encourage excessive risk-taking, which could exacerbate imbalances in the financial sector. These participants offered various perspectives on the relationship between financial stability and policies that keep interest rates persistently low. They remarked that such policies could be inconsistent with sustaining maximum employment, could make the next recession more severe than otherwise, or could strengthen the case for the active use of macroprudential tools to guard against emerging imbalances. Various participants remarked on issues related to the implementation of monetary policy, highlighting topics for further discussion at future meetings. Among the topics mentioned were the potential role of a standing repo facility in an ample-reserves regime, the setting of administered rates, and the composition of the Federal Reserve's holdings of Treasury securities over the longer run. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that information received since the FOMC met in October indicated that the labor market remained strong and that economic activity had been rising at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though household spending had been rising at a strong pace, business fixed investment and exports remained weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Members agreed to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. Members judged that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Members also agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. And they concurred that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. With regard to the postmeeting statement, members agreed to state that they judged that "the current stance of monetary policy is appropriate" to support the achievement of the Committee's policy objectives. Members discussed their options regarding references to global developments and muted inflation pressures in the statement. In their judgment, these factors, cited in previous postmeeting statements as part of the rationale for adjusting the stance of policy, remained salient features of the outlook. Accordingly, they agreed to cite them in the sentence indicating that "the Committee will continue to monitor the implications of incoming information for the economic outlook." With the retention of these references to global developments and muted inflation pressures, members agreed that the text on uncertainties about the outlook could be removed. A few members suggested that the language stating that monetary policy would support inflation "near" 2 percent could be misinterpreted as suggesting that policymakers were comfortable with inflation running below that level; they preferred language that referred to returning inflation to the Committee's symmetric 2 percent objective. Other members thought that the reference to "near" 2 percent was intended to encompass modest deviations of inflation above and below 2 percent. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, to be released at 2:00 p.m.: "Effective December 12, 2019, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-1/2 to 1-3/4 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to continue purchasing Treasury bills at least into the second quarter of 2020 to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to continue conducting term and overnight repurchase agreement operations at least through January 2020 to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.45 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below to be released at 2:00 p.m.: "Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Al­though household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Richard H. Clarida, Charles L. Evans, Esther L. George, Randal K. Quarles, and Eric S. Rosengren. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 1.55 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 2.25 percent, effective December 12, 2019. Organizational Matters By unanimous vote, Lorie K. Logan was selected to serve at the pleasure of the Committee as manager, System Open Market Account, on the understanding that her selection was subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: Advice subsequently was received that the selection of Ms. Logan as manager was satisfactory to the Federal Reserve Bank of New York. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 28â29, 2020. The meeting adjourned at 10:00 a.m. on December 11, 2019. Notation Vote By notation vote completed on November 19, 2019, the Committee unanimously approved the minutes of the Committee meeting held on October 29â30, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. The Committee appointed Lorie K. Logan to serve as the manager of the System Open Market Account at the conclusion of the meeting. Return to text 3. Attended through the discussion of the review of the monetary policy framework. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended Tuesday's session only. Return to text 6. Attended through the discussion of developments in financial markets and open market operations, and from the discussion of current monetary policy through the end of the meeting. Return to text 7. Attended the discussion of economic developments and the outlook. Return to text

Minutes of the Federal Open Market Committee January 28-29, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, January 28, 2020, at 10:00 a.m. and continued on Wednesday, January 29, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chairman John C. Williams, Vice Chairman Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, 2 Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Thomas Laubach, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Marc Giannoni, Joseph W. Gruber, David E. Lebow, Trevor A. Reeve, Ellis W. Tallman, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Eric Belsky, 3 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Steven B. Kamin, Director, Division of International Finance, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Antulio N. Bomfim, Brian M. Doyle, Wendy E. Dunn, Ellen E. Meade, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson and David W. Skidmore, Assistants to the Board, Office of Board Members, Board of Governors David Bowman, 5 Senior Associate Director, Division of Monetary Affairs, Board of Governors; Eric M. Engen and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors; John W. Schindler, Senior Associate Director, Division of Financial Stability, Board of Governors Don H. Kim and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board of Governors Eric C. Engstrom, Senior Adviser, Division of Research and Statistics, and Deputy Associate Director, Division of Monetary Affairs, Board of Governors Elizabeth Klee, 3 Associate Director, Division of Financial Stability, Board of Governors Christopher J. Gust, 5 Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Norman J. Morin and Steven A. Sharpe, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 4 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Paul R. Wood, 3 Deputy Associate Director, Division of International Finance, Board of Governors Ricardo Correa and Stephanie E. Curcuru, 6 Assistant Directors, Division of International Finance, Board of Governors; Giovanni Favara and Zeynep Senyuz, 5 Assistant Directors, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board of Governors; Dana L. Burnett, Section Chief, Division of Monetary Affairs, Board of Governors Hess T. Chung, 3 Group Manager, Division of Research and Statistics, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Jonathan E. Goldberg, Judit Temesvary, and Francisco Vazquez-Grande, Principal Economists, Division of Monetary Affairs, Board of Governors; Daniel J. Vine, Principal Economist, Division of Research and Statistics, Board of Governors Francesco Ferrante, Senior Economist, Division of International Finance, Board of Governors; Michael Siemer, 3 Senior Economist, Division of Research and Statistics, Board of Governors; Manjola Tase, Senior Economist, Division of Monetary Affairs, Board of Governors James Hebden, 3 Senior Technology Analyst, Division of Monetary Affairs, Board of Governors Mark A. Gould, First Vice President, Federal Reserve Bank of San Francisco David Altig, 3 Kartik B. Athreya, Jeffrey Fuhrer, Anna Paulson, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Boston, Chicago, and St. Louis, respectively Julie Ann Remache, 5 Samuel Schulhofer-Wohl, 5 and Keith Sill, Senior Vice Presidents, Federal Reserve Banks of New York, Chicago, and Philadelphia, respectively Jonathan P. McCarthy, Ed Nosal, Matthew D. Raskin, 5 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of New York, Atlanta, New York, and New York, respectively Larry Wall, 3 Executive Director, Federal Reserve Bank of Atlanta Òscar Jordà, Senior Policy Advisor, Federal Reserve Bank of San Francisco Edward S. Prescott, 3 Senior Economist and Policy Advisor, Federal Reserve Bank of Cleveland Brent Bundick, Research and Policy Advisor, Federal Reserve Bank of Kansas City Annual Organizational Matters 7 The agenda for this meeting reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 28, 2020, were received and that these individuals executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Michael Strine, First Vice President of the Federal Reserve Bank of New York, as alternate Patrick Harker, President of the Federal Reserve Bank of Philadelphia, with Thomas I. Barkin, President of the Federal Reserve Bank of Richmond, as alternate Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, with Charles L. Evans, President of the Federal Reserve Bank of Chicago, as alternate Robert S. Kaplan, President of the Federal Reserve Bank of Dallas, with Raphael W. Bostic, President of the Federal Reserve Bank of Atlanta, as alternate Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, with Mary C. Daly, President of the Federal Reserve Bank of San Francisco, as alternate By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2021: Jerome H. Powell Chairman John C. Williams Vice Chairman James A. Clouse Secretary Matthew M. Luecke Deputy Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Michael Held Deputy General Counsel Richard M. Ashton Assistant General Counsel Thomas Laubach Economist Stacey Tevlin Economist Beth Anne Wilson Economist Shaghil Ahmed Michael Dotsey Marc Giannoni Joseph W. Gruber Beverly Hirtle David E. Lebow Trevor A. Reeve Ellis W. Tallman William Wascher Mark L.J. Wright Associate Economists By unanimous vote, the Committee selected the Federal Reserve Bank of New York to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Lorie K. Logan to serve at the pleasure of the Committee as manager of the SOMA, on the understanding that her selection was subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: The Federal Reserve Bank of New York subsequently sent advice that the manager selection indicated previously was satisfactory. By unanimous vote, the Committee voted to reaffirm without revision the Authorization for Domestic Open Market Operations as shown below. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended. AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS (As reaffirmed effective January 28, 2020) OPEN MARKET TRANSACTIONS 1. The Federal Open Market Committee (the "Committee") authorizes and directs the Federal Reserve Bank selected by the Committee to execute open market transactions (the "Selected Bank"), to the extent necessary to carry out the most recent domestic policy directive adopted by the Committee: A. To buy or sell in the open market securities that are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act ("Eligible Securities") for the System Open Market Account ("SOMA"): i. As an outright operation with securities dealers and foreign and international accounts maintained at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps) at market prices; or ii. As a temporary operation: on a same-day or deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell ("repo transactions") or to sell such Eligible Securities subject to an agreement to repurchase ("reverse repo transactions") for a term of 65 business days or less, at rates that, unless otherwise authorized by the Committee, are determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual counterparties; B. To allow Eligible Securities in the SOMA to mature without replacement; C. To exchange, at market prices, in connection with a Treasury auction, maturing Eligible Securities in the SOMA with the Treasury, in the case of Eligible Securities that are direct obligations of the United States or that are fully guaranteed as to principal and interest by the United States; and D. To exchange, at market prices, maturing Eligible Securities in the SOMA with an agency of the United States, in the case of Eligible Securities that are direct obligations of that agency or that are fully guaranteed as to principal and interest by that agency. SECURITIES LENDING 2. In order to ensure the effective conduct of open market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis (except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions). A. Such securities lending must be: i. At rates determined by competitive bidding; ii. At a minimum lending fee consistent with the objectives of the program; iii. Subject to reasonable limitations on the total amount of a specific issue of Eligible Securities that may be auctioned; and iv. Subject to reasonable limitations on the amount of Eligible Securities that each borrower may borrow. B. The Selected Bank may: i. Reject bids that, as determined in its sole discretion, could facilitate a bidder's ability to control a single issue; ii. Accept Treasury securities or cash as collateral for any loan of securities authorized in this paragraph 2; and iii. Accept agency securities as collateral only for a loan of agency securities authorized in this paragraph 2. OPERATIONAL READINESS TESTING 3. The Committee authorizes the Selected Bank to undertake transactions of the type described in paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations: A. All transactions authorized in this paragraph 3 shall be conducted with prior notice to the Committee; B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i, 1.B, 1.C and 1.D shall not exceed $5 billion per calendar year; and C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed $5 billion at any given time. TRANSACTIONS WITH CUSTOMER ACCOUNTS 4. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts") and accounts maintained at a Federal Reserve Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the Foreign Accounts, the "Customer Accounts"), the Committee authorizes the following when undertaken on terms comparable to those available in the open market: A. The Selected Bank, for the SOMA, to undertake reverse repo transactions in Eligible Securities held in the SOMA with the Customer Accounts for a term of 65 business days or less; and B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account, when appropriate and subject to all other necessary authorization and approvals, to: i. Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo transaction in such Eligible Securities with the Customer Accounts; and ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts. Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a service fee when appropriate. Transactions undertaken with Customer Accounts are also subject to the authorization or approval of other entities, including the Board of Governors of the Federal Reserve System and, when involving accounts maintained at a Federal Reserve Bank as fiscal agent of the United States, the United States Department of the Treasury. ADDITIONAL MATTERS 5. The Committee authorizes the Chairman of the Committee, in fostering the Committee's objectives during any period between meetings of the Committee, to instruct the Selected Bank to act on behalf of the Committee to: A. Adjust somewhat in exceptional circumstances the stance of monetary policy and to take actions that may result in material changes in the composition and size of the assets in the SOMA; or B. Undertake transactions with respect to Eligible Securities in order to appropriately address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. Any such adjustment described in subparagraph A of this paragraph 5 shall be made in the context of the Committee's discussion and decision about the stance of policy at its most recent meeting and the Committee's long-run objectives to foster maximum employment and price stability, and shall be based on economic, financial, and monetary developments since the most recent meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph 5. The Committee voted unanimously to reaffirm without revision the Authorization for Foreign Currency Operations and the Foreign Currency Directive as shown below. AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS (As reaffirmed effective January 28, 2020) IN GENERAL 1. The Federal Open Market Committee (the "Committee") authorizes the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions for the System Open Market Account as provided in this Authorization, to the extent necessary to carry out any foreign currency directive of the Committee: A. To purchase and sell foreign currencies (also known as cable transfers) at home and abroad in the open market, including with the United States Treasury, with foreign monetary authorities, with the Bank for International Settlements, and with other entities in the open market. This authorization to purchase and sell foreign currencies encompasses purchases and sales through standalone spot or forward transactions and through foreign exchange swap transactions. For purposes of this Authorization, foreign exchange swap transactions are: swap transactions with the United States Treasury (also known as warehousing transactions), swap transactions with other central banks under reciprocal currency arrangements, swap transactions with other central banks under standing dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities in the open market. B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies. 2. All transactions in foreign currencies undertaken pursuant to paragraph 1 above shall, unless otherwise authorized by the Committee, be conducted: A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of the Articles of Agreement of the International Monetary Fund (IMF). 1 B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury. C. In consultation, as appropriate, with foreign monetary authorities, foreign central banks, and international monetary institutions. D. At prevailing market rates. STANDALONE SPOT AND FORWARD TRANSACTIONS 3. For any operation that involves standalone spot or forward transactions in foreign currencies: A. Approval of such operation is required as follows: i. The Committee must direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, exceeding $5 billion since the close of the most recent regular meeting of the Committee. The Foreign Currency Subcommittee (the "Subcommittee") must direct the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation with the Committee is not feasible in the time available. ii. The Committee authorizes the Subcommittee to direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close of the most recent regular meeting of the Committee. B. Such an operation also shall be: i. Generally directed at countering disorderly market conditions; or ii. Undertaken to adjust System balances in light of probable future needs for currencies; or iii. Conducted for such other purposes as may be determined by the Committee. C. For purposes of this Authorization, the overall volume of standalone spot and forward transactions in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the transaction. WAREHOUSING 4. The Committee authorizes the Selected Bank, with the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934 under agreements in which the Selected Bank purchases foreign currencies from the Exchange Stabilization Fund and the Exchange Stabilization Fund repurchases the foreign currencies from the Selected Bank at a later date (such purchases and sales also known as warehousing). RECIPROCAL CURRENCY ARRANGEMENTS, AND STANDING DOLLAR AND FOREIGN CURRENCY LIQUIDITY SWAPS 5. The Committee authorizes the Selected Bank to maintain reciprocal currency arrangements established under the North American Framework Agreement, standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary to carry out any foreign currency directive of the Committee. A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). B. For standing dollar liquidity swap arrangements all drawings must be approved in advance by the Chairman. The Chairman may approve a schedule of potential drawings, and may delegate to the manager, System Open Market Account, the authority to approve individual drawings that occur according to the schedule approved by the Chairman. C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). D. Operations involving standing dollar liquidity swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed at countering strains in financial markets in the United States or abroad, or reducing the risk that they could emerge, so as to mitigate their effects on economic and financial conditions in the United States. E. For reciprocal currency arrangements, standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements: i. All arrangements are subject to annual review and approval by the Committee; ii. Any new arrangements must be approved by the Committee; and iii. Any changes in the terms of existing arrangements must be approved in advance by the Chairman. The Chairman shall keep the Committee informed of any changes in terms, and the terms shall be consistent with principles discussed with and guidance provided by the Committee. OTHER OPERATIONS IN FOREIGN CURRENCIES 6. Any other operations in foreign currencies for which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions with privateâsector counterparties) must be authorized and directed in advance by the Committee. FOREIGN CURRENCY HOLDINGS 7. The Committee authorizes the Selected Bank to hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks, the Bank for International Settlements, and such other foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent necessary to carry out any foreign currency directive of the Committee. A. The Selected Bank shall manage all holdings of foreign currencies for the System Open Market Account: i. Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency operations as directed by the Committee; ii. Secondarily, to maintain a high degree of safety; iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and iv. To achieve such other objectives as may be authorized by the Committee. B. The Selected Bank may manage such foreign currency holdings by: i. Purchasing and selling obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof ("Permitted Foreign Securities") through outright purchases and sales; ii. Purchasing Permitted Foreign Securities under agreements for repurchase of such Permitted Foreign Securities and selling such securities under agreements for the resale of such securities; and iii. Managing balances in various time and other deposit accounts at foreign institutions approved by the Board of Governors under Regulation N. C. The Subcommittee, in consultation with the Committee, may provide additional instructions to the Selected Bank regarding holdings of foreign currencies. ADDITIONAL MATTERS 8. The Committee authorizes the Chairman: A. With the prior approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the United States Treasury about the division of responsibility for foreign currency operations between the System and the United States Treasury; B. To advise the Secretary of the United States Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations; C. To designate Federal Reserve System persons authorized to communicate with the United States Treasury concerning System Open Market Account foreign currency operations; and D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies. 9. The Committee authorizes the Selected Bank to undertake transactions of the type described in this Authorization, and foreign exchange and investment transactions that it may be otherwise authorized to undertake, from time to time for the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice to the Committee. 10. All Federal Reserve banks shall participate in the foreign currency operations for System Open Market Account in accordance with paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944. 11. Any authority of the Subcommittee pursuant to this Authorization may be exercised by the Chairman if the Chairman believes that consultation with the Subcommittee is not feasible in the time available. The Chairman shall promptly report to the Subcommittee any action approved by the Chairman pursuant to this paragraph. 12. The Committee authorizes the Chairman, in exceptional circumstances where it would not be feasible to convene the Committee, to foster the Committee's objectives by instructing the Selected Bank to engage in foreign currency operations not otherwise authorized pursuant to this Authorization. Any such action shall be made in the context of the Committee's discussion and decisions regarding foreign currency operations. The Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph. FOREIGN CURRENCY DIRECTIVE (As reaffirmed effective January 28, 2020) 1. The Committee directs the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions, for the System Open Market Account, in accordance with the provisions of the Authorization for Foreign Currency Operations (the "Authorization") and subject to the limits in this Directive. 2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the United States Treasury and if approved by the Foreign Currency Subcommittee (the "Subcommittee"), subject to the limitation that the outstanding balance of United States dollars provided to the United States Treasury as a result of these transactions not at any time exceed $5 billion. 3. The Committee directs the Selected Bank to maintain, for the System Open Market Account: A. Reciprocal currency arrangements with the following foreign central banks: Foreign central bank Maximum amount (millions of dollars or equivalent) Bank of Canada 2,000 Bank of Mexico 3,000 B. Standing dollar liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank C. Standing foreign currency liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank 4. The Committee directs the Selected Bank to hold and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization. 5. The Committee directs the Selected Bank to report to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization. 6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of paragraph 9 of the Authorization. By unanimous vote, the Committee amended its Program for Security of FOMC Information (Program) with three sets of changes, effective February 1, 2020. These changes consisted of (1) an update to the rules for eligibility for access to FOMC information to reflect two new policies approved by the Board; (2) the addition of references to existing Federal Reserve polices that help safeguard FOMC information; and (3) organizational and technical changes to improve the consistency and accuracy of Program language. By unanimous vote, the Committee provided approval for the publication of a Federal Register notice of proposed rulemaking that seeks public comment on minor and technical updates to the FOMC Rules Regarding Availability of Information, which are the Committee's Freedom of Information Act rules. Review of Monetary Policy Strategy, Tools, and Communication Practices Participants continued their discussion related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. At this meeting, the discussion focused on two topics: the potential interactions between monetary policy and financial stability and the potential use of inflation ranges around the Committee's 2 percent inflation objective. The staff briefing on the first topic noted that in the current environment of low neutral rates, achieving the Committee's dual-mandate goals of maximum employment and price stability would require low policy rates frequently, regardless of the monetary policy strategy and tools chosen. Consequently, policy strategies and tools that help support a stronger economy and anchor inflation expectations at a level consistent with the Committee's objective in a low-neutral-rate environment can help promote financial stability. In addition, the staff reported that the available empirical evidence suggests that the effects of changes in policy rates on asset prices and risk premiums tend to be modest relative to the historical fluctuations in those measures. However, there may be circumstances in which a persistently accommodative policy stance that is otherwise consistent with the dual-mandate goals may contribute to an increase in financial system vulnerabilities, including through increased borrowing, financial leverage, and valuation pressures. The staff noted that clear communications of the Committee's ongoing assessments of the interactions between monetary policy and financial stability could help avoid large interest rate surprises that could otherwise contribute to financial vulnerabilities. The briefing concluded with a short review of how other central banks have approached this issue, including the use of financial instability escape clauses to provide leeway for the central bank to deviate from its usual monetary policy strategy if financial vulnerabilities become significant. In their discussion of the effects that alternative monetary policy strategies and tools might have on financial stability, participants noted that macroeconomic stability and the achievement of the Committee's dual mandate depended on a stable financial system. An unstable financial system may amplify shocks to the economy and exacerbate increases in unemployment or drive inflation further away from the Committee's goal. With respect to the relationship between monetary policy and financial stability, some participants noted that evidence regarding the link between the policy stance and elevated financial vulnerabilities was limited, with a couple of participants further observing that there were not many episodes of persistently low interest rates. In addition, some past episodes of heightened financial vulnerabilities were associated with excessive risk-taking behavior that did not seem to be very responsive to typical changes in interest rates. A number of participants judged that, under some circumstances, low policy rates might help foster financial stability provided they are needed to support strong economic conditions and price stability. Some participants remarked, however, that keeping policy rates low to achieve both of the Committee's dual-mandate objectives may contribute to a buildup of financial vulnerabilities, especially at times when the economy is at or above full employment, a development that could pose future risks to the economy and to the ability of the Committee to achieve its dual mandate. Participants discussed how financial stability considerations should be incorporated in the conduct of monetary policy. They generally agreed that supervisory, regulatory, and macroprudential tools should be the primary means to address financial stability risks. A few participants commented that this is especially the case when addressing risks associated with structural features such as the current low level of neutral interest rates. A number of participants noted that countercyclical macroprudential tools, such as the countercyclical capital buffer, could be used to address cyclical financial stability risks. However, various participants noted that while these tools could be deployed proactively to lean against the buildup of financial vulnerabilities, they have some limitations in the context of the U.S. financial system, where the few available tools are, for the most part, not designed to address vulnerabilities outside the banking sector. In addition, these tools are not within the authority of the Committee, and their use requires coordination with other prudential regulators. Recognizing these limitations, many participants remarked that the Committee should not rule out the possibility of adjusting the stance of monetary policy to mitigate financial stability risks, particularly when those risks have important implications for the economic outlook and when macroprudential tools had been or were likely to be ineffective at mitigating those risks. Nevertheless, many participants noted that the current knowledge of the interactions between the stance of monetary policy and financial vulnerabilities is too imprecise to warrant systematically adjusting monetary policy in response to the evolution of financial stability risks. As a result, monetary policy should be guided primarily by the outlook for employment and inflation, and it should respond to financial stability risks only insofar as such risks significantly threaten the achievement of the Committee's mandate. Several participants observed that the monetary policy measures needed to curb financial stability risks could be quite large, and the resulting effects on employment and inflation could place a high hurdle for such measures. Some participants remarked that, because financial stability risks are a consideration for achieving the Committee's dual mandate, a clear communications strategy would be needed to convey the Committee's assessments of financial vulnerabilities and their potential implications for the monetary policy outlook. Several participants noted that a communications strategy could include the possible use of financial instability escape clauses to help explain the rationale for policy actions when a buildup of financial vulnerabilities poses risks to the achievement of the Committee's goals. The staff's briefing on considerations regarding the use of an inflation range focused on three different concepts of an inflation range. First, an uncertainty range could communicate the magnitude of the inherent variability of inflation that would still be consistent with achieving the Committee's symmetric inflation objective. Second, an operational range could signal that, under some conditions, the Committee would prefer inflation to be away from its longer-run objective for a time; such a range could potentially be used as part of a makeup policy strategy, including one based on average inflation targeting, or in other strategies aimed at offsetting the adverse effects of a binding effective lower bound on policy rates. Third, an indifference range could communicate that monetary policy would not respond to deviations of inflation within that range. The briefing also summarized the experiences of foreign central banks that use inflation ranges; these ranges were typically put in place many years ago, often in conjunction with adopting an inflation target. The staff highlighted the communications challenges that could arise if an inflation range were introduced at a time when inflation had been running below the central bank's objective for a number of years. In this environment, the introduction of a symmetric range around the point objective could be misinterpreted as a sign that the central bank was not concerned about inflation remaining below its stated goal, a situation that could lead to inflation expectations drifting down to the lower end of the range. Participants expressed a range of views on the potential benefits and costs of different types of inflation ranges. Most participants expressed concern that introducing a symmetric inflation range around the 2 percent objective following an extended period of inflation mostly running somewhat below 2 percent could be misperceived as a signal that the Committee was comfortable with continued misses below its symmetric inflation objective. Many participants agreed that an uncertainty range could be misinterpreted as an indifference range and hence as a lack of commitment by the Committee to its symmetric 2 percent inflation objective. Some participants suggested that it was not clear that introducing a range would help much in achieving the Committee's inflation objective; they noted that introducing a range could make that objective less clear to the public. Instead of establishing a range, the Committee could continue to communicate that its inflation objective was symmetric around 2 percent. While inflation is inherently variable, the Committee then could emphasize its intention for inflation to be centered on the 2 percent objective. Nevertheless, in view of the inherent variability of inflation, several participants judged that there could be some benefit in communicating the inflation objective with a symmetric range around the point target. In addition, a few participants suggested that an inflation range could convey the uncertainty associated with the available array of inflation measures or that the Committee's communications could more explicitly reference other measures of inflation. Several participants also stated that employing an asymmetric operational range for a timeâwith 2 percent being at or near the lower end of that rangeâwhile still maintaining the longer-run target of 2 percent could help communicate that the Committee intended inflation to average 2 percent over time, which in turn could help keep longer-run inflation expectations at levels consistent with its objective. Participants expected that, at upcoming meetings, they would continue their deliberations on the Committee's review of monetary policy strategy, tools, and communication practices. Participants continued to anticipate that the review will likely be completed around the middle of this year. Developments in Financial Markets and Open Market Operations The SOMA manager reviewed developments in financial markets over the intermeeting period. For most of the period, risk asset prices rose as market participants focused on a perceived reduction in downside risks to the economic outlook, favorable data on foreign economic activity, and expectations of continued monetary policy accommodation in the United States and other major economies. Some market participants suggested that the Federal Reserve's actions in the fourth quarter to maintain ample reserve levels might have contributed to some degree to the rise in equity and other risk asset prices. Over the final few days of the intermeeting period, financial markets responded to news of the spread of the coronavirus that started in China, which reportedly contributed to downward moves in Treasury yields and, to a lesser extent, U.S. equity prices. On balance, U.S. financial conditions became more accommodative over the intermeeting period, with equity prices rising notably. Despite signs of reduced risks to the outlook and of some stabilization in economic activity abroad, financial market participants' views on the likely course of U.S. monetary policy appeared to have changed little over the intermeeting period. Market-based indicators continued to point to expectations that the target range for the federal funds rate will be lowered by roughly 30 basis points this year. This was consistent with responses to the Open Market Desk's survey, which continued to indicate that, while market participants viewed no change this year in the target range as the most likely outcome, they placed a higher probability on a reduction in the target range over the year than on an increase. Market commentary attributed the stability in federal funds rate expectations despite the perceived reduction in downside risks partly to the Committee's communications; some market participants reportedly regarded those communications as signaling a relatively high bar for changes to the target range. In addition, results from the Desk's surveys suggested that, notwithstanding the abatement in some risks over recent months, many market participants continued to see risks to the economic outlook as skewed to the downside. The manager turned next to a review of money market developments and Desk operations. The federal funds rate was stable over the year-end date and remained close to the interest on excess reserves (IOER) rate. Ongoing reserve management purchases of Treasury bills and the Desk's repurchase agreement (repo) operations kept aggregate reserves above the level that prevailed in early September, contributing to relatively calm money market conditions around year-end. Market participants cited funding from the additional longer-term repo operations spanning year-end and increased capacity in daily operations as helping to maintain stable conditions in short-term funding markets. In addition, market participants prepared earlier than usual for year-end, with borrowers increasing their term borrowing from private lenders and lenders apparently expanding their lending capacity. Since year-end, money market rates remained stable, with the Desk's longer-term repos maturing with no discernible effect on market conditions and reserve management purchases of Treasury bills proceeding smoothly. At the current pace of $60 billion per month, the staff's estimates suggested that after April of this year, the Desk's reserve management purchases will restore the permanent base of reserves to levels above those prevailing in early September 2019. Al­though reserves are projected to be above $1.5 trillion before April, a surge in the Treasury General Account balance during the April tax season is expected to briefly reduce reserve levels and, in the absence of repo operations, bring reserves down temporarily to around $1.5 trillion. The manager discussed a potential plan for gradually transitioning to an operational approach designed to maintain ample reserve levels without the active use of repo operations to supply reserves. Under this plan, repo operations would be maintained at least through April to ensure ample reserve conditions. However, the Desk would continue the gradual reduction and consolidation of its repo offerings ahead of April, with the plan of phasing out term repo operations after April. As part of this transition, the minimum bid rate on repo operations could be gradually lifted, and the Committee could consider whether there is a role for repo operations in the implementation framework. In the second quarter, the manager expected reserve conditions to support slowing the pace of Treasury bill purchases, with the goal of eventually aligning growth of the Federal Reserve's Treasury holdings with trend growth in its liabilities. As that time approaches, the Committee might wish to consider the appropriate maturity composition of reserve management purchases of Treasury securities. The manager noted that, al­though the pace of Treasury purchases would likely continue into the second quarter, the rate of expansion in the Federal Reserve's balance sheet would moderate during the first half of 2020 as repo outstanding was gradually reduced. The manager's briefing addressed the possibility of a small technical adjustment to the Federal Reserve's administered rates in light of the stability in money market conditions over recent months. With this adjustment, the Board would lift the interest rates on required and excess reserves by 5 basis points, and the FOMC would implement an equal-sized upward adjustment to the overnight reverse repurchase agreement offer rate. This technical adjustment would reverse the small downward adjustment to administered rates made in September, when money markets were volatile. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available for the January 28â29 meeting indicated that labor market conditions remained strong and that real gross domestic product (GDP) increased at a moderate rate in the fourth quarter of 2019. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in November. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment rose in December, and the solid pace of job gains over the second half of 2019 was somewhat above that for the first half. However, the rate of increase in payrolls in 2019 was slower than in 2018, whether or not one accounted for the anticipated effects of the Bureau of Labor Statistics' benchmark revision to payroll employment, which was scheduled for early February. The unemployment rate held steady at its 50âyear low of 3.5 percent in December, and the labor force participation rate and the employment-to-population ratio were unchanged as well. The unemployment rates for African Americans, Asians, Hispanics, and whites were below their levels at the end of the previous economic expansion. Although persistent differentials between these rates remained, they have generally narrowed during the expansion. The average share of workers employed part time for economic reasons in November stayed below its level in late 2007. The rate of private-sector job openings declined, on net, in October and November but was still at a fairly high level; the rate of quits, which was also at a high level, edged up. The four-week moving average of initial claims for unemployment insurance benefits through mid-January remained near historically low levels. Nominal wage growth was moderate, with average hourly earnings for all employees increasing 2.9 percent over the 12 months ending in December. Total consumer prices, as measured by the PCE price index, increased 1.5 percent over the 12 months ending in November. Core PCE price inflation (which excludes changes in consumer food and energy prices) was 1.6 percent over that same 12-month period. Consumer food price inflation was lower than core inflation, and consumer energy prices declined. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at 2 percent in November. The consumer price index (CPI) and the core CPI both rose 2.3 percent over the 12 months ending in December. Recent readings on survey-based measures of longer-run inflation expectations were little changed, on balance, in recent months. The University of Michigan Surveys of Consumers' measure for the next 5 to 10 years moved back up in early January after having fallen to its lowest value on record in December. Meanwhile, the 3-year-ahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations remained near its historical low in December. Real PCE appeared to have risen more slowly in the fourth quarter than in the third quarter. Retail sales were soft during the fourth quarter, and sales of light motor vehicles declined in December after a strong gain in November. However, key factors that influence consumer spendingâincluding the low unemployment rate, the upward trend in real disposable income, high levels of households' net worth, and generally low interest ratesâremained supportive of solid real PCE growth in the near term. In addition, recent readings on consumer confidence from both the University of Michigan and the Conference Board surveys were strong. Real residential investment appeared to have increased solidly again in the fourth quarter. Starts for single-family homes increased sharply over the November and December period, building permit issuance for such homes rose on net, and starts of multifamily units also moved up. Existing home sales increased, on balance, in November and December, while new home sales declined. All told, the data on residential construction and sales continued to suggest that the decline in mortgage rates since late 2018 had been boosting housing activity. The available data pointed to another decline in real nonresidential private fixed investment in the fourth quarter, with a further contraction in structures investment more than offsetting a modest rise in investment in equipment and intangibles. Nominal shipments and new orders of nondefense capital goods excluding aircraft were little changed in the fourth quarter. Although some measures of business sentiment improved, analysts' expectations of firms' longer-term profit growth edged down further, concerns about trade developments continued to weigh on firms' investment decisions, and reduced deliveries of the Boeing 737 Max were likely restraining investment. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector continued to decline in November. The total number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâwas little changed, on net, through mid-January, though still below levels seen over the latter part of 2019. Industrial production (IP) increased, on net, in November and December, partly because of a pickup in motor vehicle production following the strike at General Motors. Even so, IP was lower than a year earlier, with declines in manufacturing production and the output of utilities only partly offset by an increase in mining output. Automakers' schedules suggested that assemblies of light motor vehicles would increase in the first quarter, but that gain appeared likely to be offset by Boeing's curtailed production of the 737 Max aircraft and, more generally, by mixed readings on new orders from national and regional manufacturing surveys. Total real government purchases appeared to have increased moderately in the fourth quarter. Nominal defense spending in November and December pointed to only a moderate rise in real federal government purchases. Real purchases by state and local governments looked to have risen a little faster than in the third quarter; nominal construction spending by these governments increased solidly in November, and state and local payrolls expanded modestly in December. Real net exports were estimated to have provided a substantial boost to real GDP growth in the fourth quarter. Available monthly data suggested that imports fell significantly, led by declines in consumer goods and automobiles, while exports were about flat. Incoming data suggested that foreign economic growth slowed further in the fourth quarter to a very subdued pace. In the advanced foreign economies (AFEs), growth appeared to have remained weak as the manufacturing slump continued and a consumption tax hike in Japan led to a sharp contraction in household spending. In the emerging economies, social unrest weighed heavily on economic activity in Hong Kong and Chile, while the labor strike at General Motors was a further drag on Mexico's already weak economy. In contrast, early GDP releases showed a pickup in growth in China and some other Asian economies, though news of the coronavirus outbreak raised questions about the sustainability of that pickup. Foreign inflation rose in the wake of temporary factors in India and China, while it remained soft in most AFEs, in part reflecting previous declines in energy prices and muted core inflation pressures. Staff Review of the Financial Situation Investor sentiment improved, on balance, over the intermeeting period, mostly reflecting progress related to the phase-one trade deal between the United States and China and its subsequent signing, the perception that the probability of a disorderly Brexit had declined, signs of stabilization in the global economic outlook, and, reportedly, continued confidence that monetary policy in the United States and other major economies would remain accommodative in the near term. Late in the period, concerns about the spread of the coronavirus and uncertainty about its potential economic effect weighed negatively on investor sentiment and led to moderate declines in the prices of risky assets. On net, equity prices increased notably over the intermeeting period, while corporate bond spreads were little changed and yields on nominal Treasury securities declined. Financing conditions for businesses and households eased a bit further and generally remained supportive of spending and economic activity. Federal Reserve communications over the intermeeting period reportedly reinforced investors' beliefs that a near-term change to the target range for the federal funds rate was unlikely. Consistent with those reports, a straight read of the probability distributions for the federal funds rate implied by options prices suggested that investors assigned a high probability to the target range remaining unchanged over the next few months. Expectations for the federal funds rate at the end of 2020, as implied by overnight index swap quotes, moved down slightly, on net, and implied about a 30 basis point decline in the federal funds rate from its current level. Yields on nominal Treasury securities declined, on net, across the maturity spectrum over the intermeeting period, while the spread between the yields on nominal 10â and 2-year Treasury securities was little changed. Measures of inflation compensation over the next 5 years and 5 to 10 years ahead based on Treasury Inflation-Protected Securities decreased, on net, but remained above their October 2019 lows. Broad stock price indexes increased notably, on balance, over the intermeeting period, with gains largely attributed to improved market sentiment about trade negotiations and a perceived lower probability of a disorderly Brexit. Late in the period, equity prices retraced some of their gains, as concerns about the spread of the coronavirus weighed negatively on risk sentiment. Overall movements in stock prices varied widely across economic sectors, with stocks of firms in the information technology and utilities sectors significantly outperforming aggregate indexes, while stock prices of firms in the energy sector declined markedly. Option-implied volatility on the S&P 500 index increased a bit, on balance, while corporate credit spreads were little changed. Conditions in domestic short-term funding markets, including in secured financing, were stable over the intermeeting period, even over year-end. Rates declined slightly, likely reflecting increased liquidity and a higher level of reserves provided by the Desk's open market operations. The effective federal funds rate remained close to the IOER rate, and spreads for term unsecured commercial paper and negotiable certificates of deposit narrowed substantially, particularly after year-end. The Desk's open market operations proceeded smoothly. For most of the intermeeting period, foreign equity prices rose amid progress on U.S.âChina trade negotiations, generally favorable data on global economic activity, and the reduced risk of a disorderly Brexit following the U.K. general election. Late in the period, however, concerns about the coronavirus outbreak in China weighed on risk sentiment. On balance, most major foreign equity indexes increased modestly, and AFE long-term sovereign yields ended the period somewhat lower. U.K. and Canadian yields declined more than elsewhere against the backdrop of central bank communications that were interpreted as increasing the likelihood of policy easing in those countries. The broad dollar index weakened slightly over the period, predominantly against emerging market currencies. The Chinese renminbi appreciated notably against the dollar on positive trade policy developments, but this gain was more than undone late in the period by concerns about the coronavirus. The Mexican peso strengthened against the dollar, supported by progress on the U.S.-Mexico-Canada Agreement (USMCA) and Bank of Mexico communications that were perceived as less accommodative than expected. Financing conditions for nonfinancial firms remained accommodative, on balance, with corporate borrowing costs staying near historical lows during the intermeeting period. Gross issuance of investment-grade corporate bonds was subdued in January and December after surging in November. Issuance of speculative-grade bonds over the intermeeting period remained about in line with the average pace over December and January in recent years. Institutional leveraged loan issuance continued to be robust in December, reflecting solid refinancing activity and moderate new money issuance. Meanwhile, commercial and industrial (C&I) loans on banks' balance sheets contracted in the fourth quarter. Respondents to the January 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported that borrower demand weakened for C&I loans over the fourth quarter, and lending standards on such loans were little changed. Gross equity issuance through seasoned offerings remained robust in December, while initial public offerings continued to be quite light. The credit quality of nonfinancial corporations and the earnings outlook remained generally stable in recent months. Credit conditions for both small businesses and municipalities remained accommodative on net. In the commercial real estate (CRE) sector, financing conditions also remained generally accommodative. The volume of agency and non-agency commercial mortgage-backed securities issuance grew notably in the fourth quarter, buoyed by lower interest rates, and the growth of CRE loans on banks' books picked up over this period. Responses to the January 2020 SLOOS suggested that lending standards and demand for most CRE loan categories were unchanged in the fourth quarter. Financing conditions in the residential mortgage market remained accommodative on balance. Mortgage rates decreased notably during the intermeeting period, reaching recent-year lows. Home-purchase originations remained around post-crisis highs, and mortgage refinancing activity continued at a strong pace through December. Financing conditions in consumer credit markets remained supportive of growth in consumer spending, although the supply of credit remained relatively tight for nonprime borrowers. The growth of credit card balances slowed in the fourth quarter, and, according to the January SLOOS, commercial banks tightened their standards on credit card loans over this period. Auto loan growth maintained a solid pace in recent months amid declining interest rates through year-end. The staff provided an update on its assessments of potential risks to financial stability. On balance, the financial vulnerabilities of the U.S. financial system were characterized as moderate. The staff judged that asset valuation pressures had increased in recent months to an elevated level. Asset valuation pressures were characterized as fairly widespread across a number of markets, similar to the situation in much of 2017 and 2018. In assessing vulnerabilities stemming from borrowing in the household and business sectors, the staff noted that, while the ratio of household debt to nominal GDP was fairly low, the ratio of business debt to nominal GDP was high by historical standards. At the same time, major financial institutions were viewed as resilient, in part because of high levels of capital at banks. Nonetheless, the staff noted that banks had announced that they intend to allow their capital ratios to decline closer to regulatory requirements over the medium term. Vulnerabilities stemming from funding risk were characterized as moderate. While the money market strains in September raised some questions about vulnerabilities in funding markets, the staff assessed that the core of the financial system remains resilient to vulnerabilities from maturity and liquidity transformation. Staff Economic Outlook The projection for U.S. real GDP growth prepared by the staff for the January FOMC meeting was stronger than in the previous forecast. Data pertaining to the fourth quarter of 2019, particularly on imports, suggested output rose faster at the end of the year than was previously projected, and this faster pace seemed consistent with the solid employment gains in the fourth quarter. In addition, more supportive financial conditions and the anticipated effects of the phase-one trade deal between the United States and China pushed up the staff's GDP forecast for this year and next. All told, real GDP growth was projected to be about the same in 2020 as in 2019 and then to slow modestly in the coming years, partly because of a fading boost from fiscal policy. Output was forecast to expand at a rate a little above the staff's estimate of its potential rate of growth in 2020 and 2021 and then to slow to a pace slightly below potential output growth in 2022. The unemployment rate was projected to decline a little further this year and to remain at that lower level through 2022; the unemployment rate was anticipated to be below the staff's estimate of its longer-run natural rate throughout the forecast period. The staff's forecasts for both total and core PCE price inflation over the 2020â22 period were essentially unrevised. Core inflation was still projected to step up a little in 2020 but to run a bit below 2 percent both this year and over the next two years. Total PCE price inflation was projected to be a little lower than core inflation in 2020 because of a projected decline in consumer energy prices and to be the same as core inflation in 2021 and 2022. The staff continued to view the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. The staff viewed the downside risks to economic activity as having diminished a bit further since the previous forecast but still judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors influencing this assessment were that foreign economic and geopolitical developments still seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed. In addition, softness in business investment and manufacturing production last year, as well as the recent weakness in imports, was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also viewed as having a downward skew, in part because of the downside risks to the forecast for economic activity. Participants' Views on Current Conditions and the Economic Outlook Participants agreed that the labor market had remained strong over the intermeeting period and that economic activity had risen at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Al­though household spending had risen at a moderate pace, business fixed investment and exports had remained weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Participants generally judged that the current stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. They expected economic growth to continue at a moderate pace, supported by accommodative monetary and financial conditions. In addition, some trade uncertainties had diminished recently, and there were some signs of stabilization in global growth. Nonetheless, uncertainties about the outlook remained, including those posed by the outbreak of the coronavirus. In their discussion of the household sector, participants noted that spending growth had moderated in the fourth quarter. However, they generally expected that, in the period ahead, consumption spending would likely remain on a firm footing, supported by strong labor market conditions, rising incomes, and healthy household balance sheets. Some participants noted the upbeat tone of consumer surveys, and a few commented that their District contacts had reported solid retail sales during the holiday shopping season. In addition, many participants were encouraged by the significant pickup since last summer in residential investment, a development that reflected, in part, the effects of lower mortgage rates. With respect to the business sector, participants observed that business investment and exports remained weak and that manufacturing output had declined over the past year. Looking ahead, participants were generally cautiously optimistic about the effects on the business sector of the recent favorable trade developments and the signs of stabilization in global growth. Many participants expressed the view that these developments might boost business confidence or raise export demand, which would help strengthen or at least stabilize business investment. A few participants remarked that contacts in their Districts had noted that business sentiment was brighter or that companies were intending to expand their capital expenditures this year. Several other participants, however, judged that the effect of the recent trade agreement with China would be relatively limited, as trade uncertainty would likely remain elevated, with the possibility remaining of the emergence of new tensions as well as the reescalation of existing tensions. They noted that the agreement would still leave a large portion of tariffs in place and that many firms had already been making production and supply chain adjustments in response to trade tensions. Participants also commented on ongoing challenges facing the energy and agriculture sectors. A couple of participants remarked that activity in the energy sector continued to be weak, and a few noted that financial conditions in the agricultural sector would likely remain challenging for many despite farm subsidies from the federal government and recent optimism surrounding trade prospects. Participants judged that conditions in the labor market remained strong, with the unemployment rate at a 50âyear low and continued solid job gains, on average. Al­though the upcoming annual benchmark revision was expected to reduce estimates of recent payroll growth, participants expected payroll employment to expand at a healthy pace this year. Business contacts in many Districts indicated continued strong labor demand, with several participants mentioning that contacts reported difficulties in finding qualified workers or that observed wage growth might currently understate the degree of tightness in the labor market. However, a number of participants indicated that aggregate measures of nominal wages continued to rise at a moderate pace broadly in line with productivity growth and the rate of inflation. Several participants commented on potential reasons for the absence of stronger broad-based wage pressures, including technological changes that could substitute for labor, increased willingness of employees to forgo wage gains for greater job stability, adjustments in nonwage portions of compensation packages, and the possibility that the labor market was not as tight as the historically low unemployment rate would suggest. Many participants pointed to the strong performance of labor force participation despite the downward pressures associated with an aging population, and several raised the possibility that there was some room for labor force participation to rise further. In their discussion of inflation developments, participants noted that recent readings on overall and core PCE price inflation, measured on a 12-month basis, had continued to run below 2 percent. Overall, participants described their inflation outlook as having changed little since December. Participants generally expected inflation to move closer to 2 percent in the coming months as the unusually low readings in early 2019 drop out of the 12-month calculation. Participants also expected that, as the economic expansion continues and resource utilization remains high, inflation would return to the 2 percent objective on a sustainable basis. A few participants expressed less confidence in this outlook for inflation and commented that inflation had averaged less than 2 percent over the past several years even as resource utilization had increased, or pointed to downward pressures from global or technology-related factors that could continue to suppress inflation. A couple of participants, however, noted that some alternative inflation indicators, including trimmed mean measures, suggested that there had been a modest step-up in underlying inflation during 2019 or that underlying inflation could already be at a level consistent with the Committee's goal. Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting, al­though a number of downside risks remained prominent. The easing of trade tensions resulting from the recent agreement with China and the passage of the USMCA as well as tentative signs of stabilization in global economic growth helped reduce downside risks and appeared to buoy business sentiment. The risk of a "hard" Brexit had appeared to recede further. In addition, statistical models designed to estimate the probability of recession using financial market data suggested that the likelihood of a recession occurring over the next year had fallen notably in recent months. Still, participants generally expected trade-related uncertainty to remain somewhat elevated, and they were mindful of the possibility that the tentative signs of stabilization in global growth could fade. Geopolitical risks, especially in connection with the Middle East, remained. The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching. In their discussion of financial stability, participants acknowledged the staff report suggesting that overall financial vulnerabilities remained moderate and that the financial system remained resilient. Nonetheless, several participants observed that equity, corporate debt, and CRE valuations were elevated and drew attention to high levels of corporate indebtedness and weak underwriting standards in leveraged loan markets. Some participants expressed the concern that financial imbalancesâincluding overvaluation and excessive indebtednessâcould amplify an adverse shock to the economy, that the current conditions of low interest rates and labor market tightness could increase risks to financial stability, or that cyber attacks could affect the U.S. financial system. Several participants noted that planned increases in dividend payouts by large banks and the associated decline in capital buffers might leave those banks with less capacity to weather adverse shocksâwhich could have negative implications for the economyâor that lower bank capital ratios could be associated with greater tail risks to GDP growth. On the other hand, capital levels at U.S. banks were quite high relative to other sectors of the financial system, raising questions about the potential migration of lending activities away from the U.S. banking sector to areas outside the oversight of federal banking supervisors. In their consideration of monetary policy at this meeting, participants judged that it would be appropriate to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. With regard to monetary policy beyond this meeting, participants viewed the current stance of policy as likely to remain appropriate for a time, provided that incoming information about the economy remained broadly consistent with this economic outlook. Of course, if developments emerged that led to a material reassessment of the outlook, an adjustment to the stance of monetary policy would be appropriate, in order to foster achievement of the Committee's dual-mandate objectives. In commenting on the monetary policy outlook, participants concurred that maintaining the current stance of policy would give the Committee time for a fuller assessment of the ongoing effects on economic activity of last year's shift to a more accommodative policy stance and would also allow policymakers to accumulate further information bearing on the economic outlook. Participants discussed how maintaining the current policy stance for a time could be helpful in supporting U.S. economic activity and employment in the face of global developments that have been weighing on spending decisions. With regard to the Committee's price-stability objective, participants observed that the current degree of monetary policy accommodation would be useful in facilitating a return of inflation to 2 percent. Several participants noted that inflation returning to 2 percent would help ensure that longer-term inflation expectations remained consistent with the Committee's longer-run inflation objective. A few participants stressed that the Committee should be more explicit about the need to achieve its inflation goal on a sustained basis. Several participants suggested that inflation modestly exceeding 2 percent for a period would be consistent with the achievement of the Committee's longer-run inflation objective and that such mild overshooting might underscore the symmetry of that objective. With regard to the Committee's maximum employment objective, a few participants observed that the actual level of employment might still be below maximum employment and that maintaining the present monetary policy stance would allow the economy to achieve that maximum level. A couple of other participants expressed concern that tight labor markets have in the past been associated with economic and financial imbalances and that the emergence of such imbalances might jeopardize the longer-run attainment of the Committee's dual-mandate goals. Participants discussed the open market operations that the Federal Reserve had undertaken since September to implement monetary policy, as well as forthcoming operational measures. Participants agreed that the operations undertaken by the Desk since mid-September had been effective in helping to stabilize conditions in money markets and that implementation of the plan that the Committee announced in October to purchase Treasury bills and conduct repo operations had proceeded smoothly. Participants observed that enactment of this plan had succeeded in replenishing reserve balances to levels at or above those prevailing in early September 2019 and in ensuring continued control of the federal funds rate. Many participants stressed that, as reserves approached durably ample levels, the need for sizable Treasury bill purchases and repo operations would diminish and that such operations could be gradually scaled back or phased out. Beyond that point, regular open market operations would be required over time in order to accommodate the trend growth in the Federal Reserve's liabilities and maintain an ample level of reserves. Participants who commented on the Desk's proposal for the transition to the ample-reserves regime indicated that they were comfortable with that proposal. They remarked that the details of the Committee's plans would be adjusted as appropriate to support effective implementation of monetary policy. Participants noted that it would be important to continue to communicate to the public that open market operations now and in the period ahead were technical operations aimed at achieving and maintaining ample reserves and that any adjustments to those operations were not intended to represent a change in the stance of monetary policy. Several participants suggested that the Committee should resume before long its discussion of the role that repo operations might play in an ample-reserves regime, including the possible creation of a standing repo facility. A couple of these participants cited the potential for such a facility to reduce the banking system's demand for reserves over the longer term. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that information received since the FOMC met in December indicated that the labor market remained strong and that economic activity had been rising at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Although household spending had been rising at a moderate pace, business fixed investment and exports remained weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed. Members agreed to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. Members judged that the current stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. Members also agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. And they concurred that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. With regard to the postmeeting statement, members agreed that incoming data warranted a change in the statement's description of recent rises in household spending from "strong" to "moderate." They also agreed to describe the current monetary policy stance as consistent with inflation "returning to," rather than being "near," their symmetric 2 percent longer-run objective. In commenting on this change in wording, a few members noted that the new language would make the postmeeting statement more consistent with the Committee's outlook or might usefully affirm the symmetry of the Committee's inflation goal and indicate that policymakers were not satisfied with inflation outcomes that were persistently below 2 percent. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective January 30, 2020, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-1/2 to 1-3/4 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to continue purchasing Treasury bills at least into the second quarter of 2020 to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to continue conducting term and overnight repurchase agreement operations at least through April 2020 to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.50 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Information received since the Federal Open Market Committee met in December indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a moderate pace, business fixed investment and exports remain weak. On a 12âmonth basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to raise the interest rates on required and excess reserve balances to 1.60 percent. Setting the interest rate paid on required and excess reserve balances 10 basis points above the bottom of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC's target range. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 2.25 percent, effective January 30, 2020. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, March 17-18, 2020. The meeting adjourned at 9:50 a.m. on January 29, 2020. Notation Vote By notation vote completed on January 2, 2020, the Committee unanimously approved the minutes of the Committee meeting held on December 10-11, 2019. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended Tuesday's session only. Return to text 3. Attended through the discussion of the review of the monetary policy framework. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended the discussion of developments in financial markets and open market operations. Return to text 6. Attended the discussion of economic developments and the outlook. Return to text 7. Committee organizational documents are available at https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 1. In general, as specified in Article IV, each member of the IMF undertakes to collaborate with the IMF and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. These obligations include seeking to direct the member's economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance of payments adjustment or to give an unfair competitive advantage over other members. Return to text

Minutes of the Federal Open Market Committee March 15, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Sunday, March 15, 2020, at 10:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Charles L. Evans, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Thomas Laubach, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Michael Dotsey, Joseph W. Gruber, Beverly Hirtle, David E. Lebow, Trevor A. Reeve, and Ellis W. Tallman, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Antulio N. Bomfim, Brian M. Doyle, Wendy E. Dunn, and Ellen E. Meade, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board of Governors Andrew Figura and John M. Roberts, Deputy Associate Directors, Division of Research and Statistics, Board of Governors Rebecca Zarutskie, Assistant Director, Division of Monetary Affairs, Board of Governors Brett Berger, Adviser, Division of International Finance, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board of Governors Ellen J. Bromagen and Ron Feldman, First Vice Presidents, Federal Reserve Banks of Chicago and Minneapolis, respectively Kartik B. Athreya, Anna Paulson, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Richmond, Chicago, New York, and St. Louis, respectively Paula Tkac, Robert G. Valletta, and Nathaniel Wuerffel, Senior Vice Presidents, Federal Reserve Banks of Atlanta, San Francisco, and New York, respectively George A. Kahn, Matthew D. Raskin, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Kansas City, New York, and New York, respectively Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first reviewed developments in domestic and global financial markets. Financial markets remained exceptionally volatile amid the global spread of the coronavirus and uncertainty regarding its effects. Since the meeting of the FOMC in late January, the S&P 500 index declined 18 percent, nominal U.S. Treasury yields moved 60 to 100 basis points lower, and market-based measures of inflation compensation fell 75 to 100 basis points. Investment-grade and high-yield credit spreads widened about 120 basis points and 360 basis points, respectively. The U.S. dollar appreciated notably against most currencies, with the exception of other safe-haven currencies, and crude oil prices dropped 40 percent. Against this backdrop, expectations for the path of the federal funds rate adjusted sharply. Implied rates on federal funds futures contracts suggested the Committee was expected to reduce the target range 1 full percentage point at its upcoming scheduled meeting following the 50 basis point reduction in the target range in early March. In addition, market participants reportedly anticipated that the Committee would announce additional purchases of Treasury securities and agency mortgage-backed securities (MBS). Trading conditions across a range of markets were severely strained. In corporate bond markets, trading activity and liquidity were at very low levels, although not back to the low point reached in 2008. Market participants expected that actions taken to slow the spread of the virus could have significant effects on the credit worthiness of certain borrowers, particularly those at the lower end of the credit spectrum. Market participants also increasingly pointed to concerns in other segments of the debt market. In securitized markets, including those for asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), primary market issuance slowed, and secondary market trading had become less orderly, with money managers selling short-dated liquid products to meet investor redemptions. In the Treasury market, following several consecutive days of deteriorating conditions, market participants reported an acute decline in market liquidity. A number of primary dealers found it especially difficult to make markets in off-the-run Treasury securities and reported that this segment of the market had ceased to function effectively. This disruption in intermediation was attributed, in part, to sales of off-the-run Treasury securities and flight-to-quality flows into the most liquid, on-the-run Treasury securities. Conditions in short-term funding markets also deteriorated sharply amid a decline in market liquidity and challenges in dealer intermediation. Over recent days, the premium paid to obtain dollars through the foreign exchange swap market increased sharply, and the volumes in term repurchase agreement (repo) markets dropped significantly. Issuance of commercial paper (CP) maturing beyond one week reportedly almost dried up at the end of the week before the meeting, and primary- and secondary-market liquidity for financial and nonfinancial CP was described as nearly nonexistent at a time when investor concern about issuer credit risk was rising. The manager then summarized actions taken by the Desk to address some of the strains in financial markets. Repo lending operations were greatly expanded to address the acute worsening in term funding markets; these operations included the addition of large-scale one- and three-month term repo operations. Despite the sizable offering of additional term repo, take-up was well below the offered amounts, and there was little improvement in Treasury market functioning. As a result, the Chair, in consultation with the FOMC, instructed the Desk to conduct purchases of Treasury securities across a range of maturities. The Desk also revised the schedule of Treasury purchases, announcing that $37 billion of the monthly scheduled purchases would be completed on Friday, March 13. These purchases were conducted across the curve. Market participants suggested that the operations had been helpful in addressing some funding pressures, but trading conditions in Treasury, mortgage, and credit markets remained severely strained. The SOMA manager noted that, if the FOMC directed the Desk to conduct additional purchases of MBS and Treasury securities, the Desk could initially conduct such purchases at a more rapid pace to more quickly address liquidity strains. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The coronavirus outbreak was disrupting economic activity in many countries, including the United States, by the time of the March 15 meeting. There were limited available U.S. economic data, however, that covered the period since the intensification of concerns about the domestic effects of the outbreak. Information that predated that period indicated that labor market conditions had remained strong through February and that real gross domestic product (GDP) appeared to have been increasing at a moderate pace in the first two months of the year. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in January. Survey-based measures of longer-run inflation expectations were little changed. Total nonfarm payroll employment expanded strongly in January and February, and the unemployment rate was at its 50âyear low of 3.5 percent in February. Meanwhile, the labor force participation rate and the employment-to-population ratio edged up on net. Initial claims for unemployment insurance benefitsâa timely indicator of a deterioration in labor market conditionsâremained near historically low levels through early March, which was still before economic shutdowns started to take place in the United States. Nominal wage growth was moderate on balance. Average hourly earnings for all employees increased 3 percent over the 12 months ending in February. The employment cost index for private-sector workers increased 2.7 percent over the 12 months ending in December, while total labor compensation per hour in the business sectorâa highly volatile measure of wage gainsârose 3.6 percent over the four quarters of last year. Total consumer prices, as measured by the PCE price index, increased 1.7 percent over the 12 months ending in January. Core PCE price inflation (which excludes changes in consumer food and energy prices) was 1.6 percent over that same 12-month period. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 2.1 percent in January. The consumer price index (CPI) rose 2.3 percent over the 12 months ending in February, and the core CPI increased 2.4 percent over that same period. Recent readings on survey-based measures of longer-run inflation expectations were little changed, on balance, in recent months. The Survey of Professional Forecasters measure for the next 10 years was unchanged in the first quarter, as was the longer-run measure from the Blue Chip survey in March. The University of Michigan Surveys of Consumers measure for the next 5 to 10 years edged down in February and remained in the lower part of its prevailing range in early March. The three-year-ahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations edged up in February and remained in its recent range. Real PCE growth was moderate in January. The components of the nominal retail sales data used to estimate PCE edged down in February, and the pace of sales of light motor vehicles in January and February was above its fourth-quarter average. However, the consumer sentiment measure from the Michigan survey started to decline notably in early March, and other daily and weekly sentiment measuresâsuch as the Bloomberg Consumer Comfort Index, the Morning Consult confidence index, and the Rasmussen Consumer Indexâwere also deteriorating. Both starts and building permit issuance for single-family homes increased in January over their fourth-quarter averages, and starts of multifamily units also moved up. New and existing home sales in January were both above their average fourth-quarter levels. Nominal shipments and new orders of nondefense capital goods excluding aircraft increased solidly in January, although the anticipated resumption of deliveries of the Boeing 737 Max was delayed until later in the year. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector increased in January. The total number of crude oil and natural gas rigs in operationâan indicator of business spending for structures in the drilling and mining sectorâwas edging up through mid-March and was not yet showing any of the expected falloff from the recent sharp declines in crude oil prices. The available data suggested that manufacturing production moved up in February after edging down in January, leaving the level of factory output little changed, on net, over the past 12 months. Although output in the mining sectorâwhich includes crude oil extractionâhad increased in January, available data indicated that output in this sector would decrease in February; the recent sharp declines in crude oil prices pointed to a reduction in mining-sector production over at least the near term. Total real government purchases appeared to be increasing moderately. Federal defense spending rose in January and February, and federal employment was boosted by hiring for the 2020 census. State and local government payrolls expanded strongly in January and February, and nominal construction spending by these governments increased solidly in January. The nominal U.S. international trade deficit narrowed in January, as a steep fall in imports more than offset a decline in exports. The fall in imports, which followed a sizable fourth-quarter decline, was led by lower imports of industrial supplies, automotive products, and capital goods. The decline in exports was driven by lower exports of capital goods and industrial supplies. Available indicators suggested that both exports and imports likely declined in February, in part reflecting disruptions related to the coronavirus outbreak. The pace of economic growth abroad was already subdued before the outbreak. In the advanced foreign economies (AFEs), real GDP growth had slowed sharply at the end of 2019, and indicators pointed to only a modest pickup in economic growth early this year. In the emerging market economies (EMEs), incoming data had been more positive, as indicators for high-tech and manufacturing production in Asian economies outside of China were upbeat, and the effects of social protests in Chile and Hong Kong, along with the effects of the General Motors strike on Mexican economic activity, had faded. By early February, however, the coronavirus outbreak in China brought economic activity in many parts of the country to a standstill. Hubei province, the epicenter of the outbreak and a manufacturing hub, was put under quarantine, and factories across the country were shut down. Foreign economic indicators for the more recent period, following the spread of the virus to the rest of the world, were generally not yet available. However, widespread shutdowns together with lower commodity prices and tighter financial conditions suggested that activity was weakening sharply in most foreign economies. Staff Review of the Financial Situation Concerns about the coronavirus outbreak dominated financial market developments at home and abroad over the intermeeting period. Equity prices, sovereign yields, and the market-implied expected trajectory of the federal funds rate all plummeted, and the volatility of asset prices soared. Late in the intermeeting period, short-term funding markets showed signs of stress, with elevated demand for repo funding and increased short-term spreads. Trading conditions for Treasury securities and MBS were impaired. Moreover, primary issuance of investment-grade corporate bonds was sporadic, and that of speculative-grade corporate bonds and leveraged loans virtually stopped after late February. Data from before the escalation of coronavirus concerns in late February suggested that financial conditions for nonfinancial businesses and for households had generally remained supportive of economic activity and spending, but developments late in the intermeeting period pointed to tightening credit conditions. Expectations for the path of the federal funds rate declined sharply over the intermeeting period. Toward the end of the period, a straight read of overnight index swap (OIS) quotes suggested that the federal funds rate would remain below 25 basis points at least until the middle of 2021. After the 50 basis point decrease in the target range on March 3, prices of federal funds futures options suggested that investors assigned a significant probability to the target range decreasing to 0 to 25 basis points at or before the scheduled March meeting. Yields on nominal Treasury securities plummeted across the maturity spectrum, with the 10- and 30-year yields reaching all-time lows at some point. A staff term structure model largely attributed the decline in the 10-year yield to lower expected future short-term rates. Measures of inflation compensation based on Treasury Inflation-Protected Securities fell sharply and reached a historical low at the 5-to-10-year horizon late in the intermeeting period. Uncertainty regarding future interest rates increased sharply over the intermeeting period. At one point, the one-month-ahead swaption-implied volatility of the 10-year swap rate surpassed its highest level seen during the "taper tantrum" episode in mid-2013. Treasury market functioning was severely impaired late in the intermeeting period, with some dealers reportedly unwilling to make markets for clients and the normal linkage between cash and futures markets broken. Market depth was extremely thin, and bid-ask spreads widened sharply. Broad stock price indexes plummeted because of a flight to safety amid escalating concerns about global economic activity. Although the declines were broad based, the airline, energy, and bank sectors were among the worst performers. Stock price indexes were extremely volatile, and the one-month option-implied volatility on the S&P 500 index soared, sometimes reaching levels not seen since the fall of 2008. Corporate bond spreads over comparable-maturity Treasury yields widened significantly, and spreads on speculative-grade energy bonds widened especially sharply amid plunging oil prices. The 50 basis point decrease in the target range for the federal funds rate announced on March 3 passed through fully to overnight unsecured and secured rates. Conditions in domestic short-term funding markets showed signs of funding strains late in the intermeeting period. The rates on unsecured CP and negotiable certificates of deposit with maturities exceeding one month increased sharply relative to OIS rates, with pronounced effects for issuers in the energy and transportation sectors. Overnight and term repo rates were elevated late in the intermeeting period, and the take-up of the Federal Reserve's repo operations increased substantially for both overnight and term operations. Over the intermeeting period, foreign risk asset prices plummeted amid a rapid deterioration of investor sentiment due to the global spread of the coronavirus. Major foreign equity indexes dropped sharply over the intermeeting period, while option-implied volatility measures climbed to their highest levels since the Global Financial Crisis. EME fund outflows accelerated late in the period as emerging market bond spreads widened notably. Most AFE long-term sovereign yields ended the period notably lower. Inflation compensation in the euro area reached new lows. In response to the economic effect of the virus, several central banks cut policy rates and injected liquidity. The broad dollar index strengthened notably over the period, boosted by safe-haven demand, predominantly against EME currencies, and despite a significant decline in U.S. yields. Safe-haven demand also bolstered the Japanese yen and Swiss franc. Policy actions by Chinese authorities supported the Chinese renminbi, which depreciated about 1.5 percent against the dollar on net. Other EME currencies, such as the Brazilian real and Mexican peso, depreciated sharply, as market participants viewed them as particularly vulnerable to a global economic slowdown and declining commodity prices. Oil prices declined over 40 percent on expectations of lower demand due to the virus outbreak and an unexpected price cut by Saudi Arabia amid a breakdown of negotiations between OPEC and Russia to reduce production levels. Financing conditions for nonfinancial firms were strained over the late part of the intermeeting period. After robust issuance earlier in the first quarter, corporate bond issuance came to a near standstill around late February in the midst of elevated volatility following the escalation of concerns about the coronavirus outbreak. Later in the intermeeting period, investment-grade bond issuance resumed intermittently, but speculative-grade issuance and leveraged loan issuance virtually stopped. In addition, some firms reportedly postponed plans to go public. Commercial and industrial loan growth was modest. Credit quality indicators for nonfinancial corporations had been solid earlier in the quarter but deteriorated following the escalation of the coronavirus outbreak, particularly for the speculative-grade and energy segments of the market. Measures of the year-ahead expected default rate increased in March to levels slightly under those observed during the oil price plunge in early 2016, reflecting higher expected default rates among speculative-grade firms as well as energy firms. In addition, the outlook for corporate earnings deteriorated somewhat, as equity analysts revised down their earnings per share estimates a notch, and several firms warned that the coronavirus outbreak could hurt their earnings and make them difficult to predict. The supply of credit to small businesses over the fourth quarter of last year had remained relatively accommodative, but loan originations ticked down in January, consistent with ongoing reports of weak loan demand. Market turmoil spilled into municipal bond markets late in the intermeeting period, as spreads widened substantially and some borrowers became hesitant to come to the market. Credit conditions in the municipal market had been accommodative over the early part of the intermeeting period, and issuance volumes in late February were reportedly boosted by strong investor demand for low-risk assets. Financing conditions in the commercial real estate (CRE) sector worsened late in the intermeeting period, as issuance of CMBS slowed and spreads widened notably to around levels seen in 2016. Data from before the escalation of concerns over the coronavirus outbreak pointed to accommodative financing conditions. CRE loan growth at banks remained solid through February and CRE debt outstanding increased modestly through mid-February, according to available data. The primary mortgage rate increased sharply toward the end of the period as MBS market liquidity deteriorated, after falling substantially in February and early March. Capacity constraints at mortgage originators reportedly intensified, while borrower interest in refinancing increased significantly from already elevated levels. Moreover, additional constraints emerged as it became more difficult to conduct operations that usually happen face-to-face. Financing conditions in consumer credit markets worsened late in the intermeeting period. Strains began appearing in consumer ABS markets, although less so than in other fixed-income markets. In March, consumer ABS spreads widened sharply, liquidity deteriorated, and new issuance became sporadic. Lenders in consumer credit markets began developing programs to assist borrowers whose finances were affected by the outbreak. Earlier in the intermeeting period, financing conditions had been generally supportive of growth. Credit card balances and auto loan balances both appeared to grow solidly through February, according to banks' data, continuing their growth in the fourth quarter. Conditions for subprime credit card borrowers remained relatively tight but showed some signs of easing. Staff Economic Outlook The projection for the U.S. economy prepared by the staff for the March FOMC meeting was downgraded significantly from the January meeting forecast in response to news on the spread of the coronavirus at home and abroad and in response to a related substantial markdown of the staff's foreign economic outlook, along with recent financial market movements. Real GDP was forecast to decline and the unemployment rate to rise, on net, in the first half of this year. Given the downside risks and the elevated uncertainty about how much the economy would weaken and how long it would take to recover, the staff provided two plausible economic scenarios that spanned a range of possibilities. Importantly, the future performance of the economy would depend on the evolution of the virus outbreak and the measures undertaken to contain it. In one scenario, economic activity started to rebound in the second half of this year. In a more adverse scenario, the economy entered recession this year, with a recovery much slower to take hold and not materially under way until next year. In both scenarios, inflation was projected to weaken, reflecting both the deterioration in resource utilization and sizable expected declines in consumer energy prices. Participants' Views on Current Conditions and the Economic Outlook Participants noted that the coronavirus outbreak was harming communities and disrupting economic activity in many countries, including the United States, and that global financial conditions had also been significantly affected. Participants expressed their deep concern for those whose health had been harmed and observed that the matter was, above all, a public health emergency. They commented that the measuresâsuch as social distancingâtaken in response to the pandemic, while needed to contain the outbreak, would nevertheless take a toll on U.S. economic activity in the near term. Participants noted that available economic data showed that the U.S. economy came into this challenging period on a strong footing. Information received since the Committee met in January indicated that the labor market remained strong through February and that economic activity rose at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had remained low. Although household spending had risen at a moderate pace, business fixed investment and exports had remained weak; furthermore, in recent weeks the energy sector had come under stress due to the sharp drop in oil prices. On a 12-month basis, overall inflation and inflation for items other than food and energy had been running below 2 percent. Survey-based measures of longer-term inflation expectations had been little changed. However, market-based measures of inflation compensation had declined. All participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain. Many participants had repeatedly downgraded their outlook of late in response to the rapidly evolving situation. All saw U.S. economic activity as likely to decline in the coming quarter and viewed downside risks to the economic outlook as having increased significantly. Participants noted that the timing of the resumption of growth in the U.S. economy depended on the containment measures put in place, as well as the success of those measures, and on the responses of other policies, including fiscal policy. With regard to households' behavior, participants noted that, although consumption spending had been a key driver of growth in economic activity through the first two months of this year, the pandemic was starting to impair consumer confidence and to exert an adverse effect on household balance sheets. Participants reported that wide-ranging social-distancing measures were in operation or in prospect in their Districts. These measuresâwhich included temporary closures of some physical locations, such as stores and restaurants, in which consumers purchased goods and servicesâwould have the effect of reducing in-person transactions by households. Online shopping could substitute for some of this activity but was unlikely to replace it fully. The housing market was likely to be disrupted by social distancing, by financial uncertaintyâincluding difficulties that households and businesses would face in meeting mortgage or rental paymentsâand by volatility in the market for MBS. Participants stressed the major downside risk that the spread of the virus might intensify in those areas of the country currently less affected, thereby sidelining many more U.S. workers and further damping purchases by consumers. Participants expressed concern that households with low incomes had less of a savings buffer with which to meet expenses during the interruption to economic activity. This situation made those households more vulnerable to a downturn in the economy and tended to magnify the reduction in aggregate demand associated with the nation's response to the pandemic. Participants relayed reports on business sectors already badly hit by the response to the coronavirus outbreak. These sectors included those affected by the cancellation of many events, decisions by firms and households to reduce travel, government-mandated reductions in entry from abroad, and cutbacks on economic activity that required in-person interaction. Firms directly affected included those connected to air travel, cruise lines, hotels, tourism services, sports and recreation, entertainment, hospitality, and restaurants. In the past week, pullbacks in purchases at retail stores, except for emergency buying, had reportedly intensified significantly. In addition, the energy sector had come under stress because of recent large declines in oil prices. Many U.S. businesses had moved to telework arrangements; other businesses, however, could not readily shift to telework status or had limited telework technology. Participants observed that the coronavirus outbreak had inevitably hurt business confidence and that the expected length and severity of the restrictions on economic activity that involved in-person interaction would importantly affect the size of the response of investment spending to the situation. Participants expressed concern about the financial strain that many U.S. firms were under because of the loss of business and the extraordinary turbulence in financial markets. With regard to supply chains, many contacts had reported that some linkages in China had been restored and that they were able to draw on inventory supplies and on alternative supply chains; however, in some areas of the country, the construction industry had reported continuing disruptions to supply chains from China. Participants indicated that disruptions in the European economy and recent restrictions on travel from Europe to the United States would adversely affect the U.S. economy's supply chains; so too, if it eventuated, would a large increase in U.S. worker unavailability because of health reasons. Several participants emphasized concern about the capacity of the health care system in the current situation and welcomed measures taken to prevent the system's overall capacity from being exceeded. Participants noted that foreign economic growth for the first half of this year would be badly hit by the severe disruptions to economic activity abroad associated with the response to the coronavirus outbreak, including the recent measures taken in major European countries. However, some encouraging signs had come from China in recent weeks in the form of indications of increasing production and of more purchases of U.S. goods. With regard to the labor market, participants noted that some firms would likely need to cut employment immediately. Other firms, however, were looking for ways to retain employees during the period of reduced economic activity, in order to maintain capacity and be able to ramp up production once the public health crisis abated and demand rebounded. Measures that reportedly helped partially substitute for layoffs included the encouragement by employers of voluntary leaves of absence, non-replacement of departing workers, and increased reliance on the delivery of goods to customers in place of on-site purchases. Participants observed that businesses would be more likely to lay off workers on a major scale if the downturn in economic activity came to be perceived as likely to be protracted. Participants commented that workers most severely affected in the current situation were those who were ill, those with low incomes, those connected to the most hard-hit sectors, and those with irregular or contingent employment. They also noted that many workers had jobs that did not permit working from home. With regard to inflation, participants noted that it had been running below the Committee's 2 percent longer-run objective before the coronavirus outbreak. They remarked that a stronger dollar, weaker demand, and lower oil prices were factors likely to put downward pressure on inflation in the period ahead and observed that this meant that the return of inflation to the Committee's 2 percent longer-run objective would likely be further delayed. Participants indicated, however, that implementing a more accommodative stance of monetary policy at this meeting could be useful in helping offset these factors over time and in achieving the 2 percent inflation objective over the longer run, by helping prevent circumstances of persistent resource slack or a lasting decline in inflation expectations. Participants all agreed that the effects of the pandemic would weigh on economic activity in the near term and that the duration of this period of weakness was uncertain. They further concurred that the unpredictable effects of the coronavirus outbreak were a source of major downside risks to the economic outlook. Participants raised several alternative scenarios with regard to the likely behavior of economic activity in the second half of this year. These scenarios differed from one another in the assumed length and severity of disruptions to economic activity. Several participants emphasized that the temporary nature of the shock to economic activity, the fact that the shock arose in the nonfinancial sector, and the healthy state of the U.S. banking system all implied that the current situation was not directly comparable with the previous decade's financial crisis and it need not be followed by negative effects on economic activity as long-lasting as those associated with that crisis. Participants stressed that measures taken in the areas of health care policy and fiscal policy, together with actions by the private sector, would be important in shaping the timing and speed of the U.S. economy's return to normal conditions. Participants agreed that the Federal Reserve's efforts to relieve stress in financial markets would help limit downside near-term outcomes by supporting credit flows to households and businesses, and that a more accommodative monetary policy stance would provide support to economic activity beyond the near term. Among the downside risks to this year's U.S. economic outlook, participants prominently cited the possibility of the virus outbreak becoming more widespread than expected. Such an event could lead to more wide-ranging temporary shutdowns, with adverse implications for the production of goods and services and for aggregate demand. With regard to financial developments over the intermeeting period, participants noted that financial markets had exhibited extraordinary turbulence and stresses. Participants commented on the conditions of high volatility and illiquidity characterizing the markets for U.S. Treasury securities, especially off-the-run longer-term securities, and for agency MBS. Participants expressed concern about the disruptions to the functioning of these markets, especially in view of their status as cornerstones for the operation of the U.S. and global financial systems and for the transmission of monetary policy. Participants observed that Federal Reserve operations in recent days had provided some relief with regard to the liquidity problems, but they noted that severe illiquidity continued to prevail in key securities markets. Many participants pointed to other dislocations in funding markets that could impede financial intermediation to households and businesses. They highlighted the acute problems that many firms were facing in issuing CP and corporate bonds. Participants further noted that many businesses were tapping their backup credit lines with commercial banks. Participants also discussed the implications of recent financial market turbulence for money market funds and government bond funds and for debt issuance by state and local governments. In their consideration of monetary policy at this meeting, most participants judged that it would be appropriate to lower the target range for the federal funds rate by 100 basis points, to 0 to 1/4 percent. In discussing the reasons for such a decision, these participants pointed to a likely decline in economic activity in the near term related to the effects of the coronavirus outbreak and the extremely large degree of uncertainty regarding how long and severe such a decline in activity would be. In light of the sharply increased downside risks to the economic outlook posed by the global coronavirus outbreak, these participants noted that risk-management considerations pointed toward a forceful monetary policy response, with the majority favoring a 100 basis point cut that would bring the target range to its effective lower bound (ELB). With regard to monetary policy beyond this meeting, these participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. A few participants preferred a 50 basis point cut at this meeting and noted that such a decision would provide support to economic activity in the face of the anticipated effects of the coronavirus. These participants preferred to wait until there was greater assurance that the transmission mechanism of monetary policy via financial markets and the supply of credit to households and businesses was working effectively. This would allow fiscal and public health policy responses to the coronavirus outbreak to take hold and preserve the ability of the Committee to lower the target range, which was close to the ELB, in the event of a further deterioration in the economic outlook. In addition, these participants noted that a lowering of the target range by 100 basis points, coming so soon after the reduction of 50 basis points less than two weeks earlier, ran the risk of sending an overly negative signal about the economic outlook. Participants also considered open market operations to purchase Treasury securities and agency MBS to support the smooth functioning of these securities markets, which in turn would help support the supply of credit to households and businesses. Participants generally agreed that, over the coming months, it would be appropriate to increase the Federal Reserve's holdings of Treasury securities by at least $500 billion and its holdings of agency MBS by at least $200 billion. Additionally, all principal payments from the Federal Reserve's holdings of agency debt and agency MBS would be reinvested in agency MBS. Those Treasury and agency MBS purchases would be in addition to the recently expanded overnight and term repo operations conducted by the Desk. Participants stressed that it was important to communicate that the Committee would be prepared to increase the size of the securities purchases, as needed, on the basis of its close monitoring of market conditions. Some participants noted that it was important to stress in communications that the primary purpose of these asset purchases was to support the smooth functioning of Treasury and agency MBS markets rather than to provide further monetary policy accommodation by pushing down longer-term yields. A couple of participants noted that because some of the purchases would be at longer maturities, the purchases could provide some accommodation by lowering longer-term yields. Participants discussed some of the possible communications challenges associated with the Committee's policy decisions at this meeting. Several participants noted that it would be important to communicate clearly and consistently about the rationale for the policy decisions taken at this meeting. Some participants remarked that the Committee's policy actions regarding the target range and balance sheet could be interpreted as conveying negative news about the economic outlook. A few participants also remarked that lowering the target range to the ELB could increase the likelihood that some market interest rates would turn negative, or foster investor expectations of negative policy rates. Such expectations would run counter to participants' previously expressed views that they would prefer to use other monetary policy tools to provide further accommodation at the ELB. Additionally, several participants remarked that the public might view the ability of the Committee to provide further monetary policy accommodation as being limited. However, some participants noted that the Committee would still be able to provide monetary policy accommodation even after lowering the target range for the federal funds rate to the ELB. In particular, new forward guidance or balance sheet measures could be introduced. Participants also indicated strong support for related actions taken by the Board of Governors to support the credit needs of households and businesses: to lower the primary credit rate by 150 basis points to 1/4 percent and to allow depository institutions to borrow from the discount window for periods as long as 90 days in order to encourage more active use of the discount window on the part of depository institutions to meet unexpected funding needs to encourage depository institutions to utilize intraday credit to support the provision of liquidity to households and businesses and the smooth functioning of payment systems to encourage banks to use their capital and liquidity buffers as they provide loans to households and businesses affected by the coronavirus and undertake other supportive actions in a safe and sound manner to reduce reserve requirements to 0 percent in light of the shift to an ample-reserves regime and to support lending to households and businesses by depository institutions Participants also indicated support for enhancing, in coordination with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank, the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements. The pricing on the standing U.S. dollar swap arrangements would be lowered by 25 basis points so that the new rate would be the U.S. dollar OIS rate plus 25 basis points, and U.S. dollars would be offered by foreign central banks with an 84-day maturity, in addition to the 1-week maturity operations. Following this discussion, the Chair indicated that these changes to the standing U.S. dollar liquidity swap line arrangements would be implemented consistent with the procedures described in the Authorization for Foreign Currency Operations. Participants generally commented that these additional measures would be helpful in supporting the flow of credit to households and businesses. A few participants commented that stigma associated with the discount window may still be present or that further action, such as a relaunch of the Term Auction Facility, might be needed to encourage banks to take up additional funding. A few other participants noted that discount window stigma should be less of a concern than it was previously. In particular, these participants cited the lowering of the primary credit rate to the top of the target range for the federal funds rate, offering term funding for up to 90 days, and regulators encouraging banks to use the discount window to continue prudently lending to households and businesses. Several participants commented that banks should be discouraged from repurchasing shares from, or paying dividends to, their equity holders in the wake of the proposed measures. Participants generally noted that other measures to support the flow of credit to households and businesses, including those that relied on section 13(3) of the Federal Reserve Act, might be needed in such an uncertain and rapidly evolving environment and that it would be prudent for the Federal Reserve to develop and remain prepared to implement such measures. Committee Policy Action In their discussion of monetary policy for this meeting, members noted that the coronavirus outbreak had harmed communities and disrupted economic activity in many countries, including the United States, and that global financial conditions had also been significantly affected. Available economic data showed that the U.S. economy came into this challenging period on a strong footing, with a strong labor market, a low unemployment rate, and moderate growth in household spending, although business fixed investment and exports had remained weak. More recently, the energy sector had come under stress. On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent. Market-based measures of inflation compensation had declined, and survey-based measures of longer-term inflation expectations were little changed. Members judged that the effects of the coronavirus would weigh on economic activity in the near term and would pose risks to the economic outlook. In light of these developments, almost all members agreed to lower the target range for the federal funds rate to 0 to 1/4 percent. These members expected that the target range would be maintained at this level until they were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. One member preferred to lower the target range by 50 basis points, to 1/2 to 3/4 percent, at this meeting, in support of the actions taken to promote smooth market functioning and the flow of credit to households and businesses and in light of the anticipated effects of the coronavirus on economic activity and the economic outlook. In this participant's view, a 50 basis point cut would preserve space for further cuts in the target range that could be implemented when market conditions had improved enough to ensure that the monetary policy transmission mechanism was functioning. Members noted that they would continue to monitor the implications of incoming information for the economic outlook, including information related to public health as well as global developments and muted inflation pressures, and that the Committee would use its tools and act as appropriate to support the economy. Members observed that, in determining the timing and size of future adjustments to the stance of monetary policy, the Committee would assess realized and expected economic conditions relative to its maximum-employment objective and its symmetric 2 percent inflation objective. They also agreed that those assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Members emphasized that the Federal Reserve was prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum-employment and price-stability goals. To support the smooth functioning of markets for Treasury securities and agency MBS that are central to the flow of credit to households and businesses, over coming months the Committee agreed to increase its holdings of Treasury securities by at least $500 billion and its holdings of agency MBS by at least $200 billion. The Committee also agreed to reinvest all principal payments from the Federal Reserve's holdings of agency debt and MBS in agency MBS. In addition, members noted that the Desk had recently expanded its overnight and term repo operations. Members indicated that they would continue to closely monitor market conditions and that the Committee was prepared to adjust its plans as appropriate. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive: "Effective March 16, 2020, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. The Committee directs the Desk to increase over coming months the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities (MBS) by at least $500 billion and by at least $200 billion, respectively. The Committee instructs the Desk to conduct these purchases at a pace appropriate to support the smooth functioning of markets for Treasury securities and agency MBS. The Committee also directs the Desk to continue conducting term and overnight repurchase agreement operations to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below for release at 5:00 p.m.: "The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12âmonth basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, and Randal K. Quarles. Voting against this action: Loretta J. Mester President Mester was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but voted against the FOMC action because she preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting. Consistent with the Committee's decision to lower the target range for the federal funds rate to 0 to 1/4 percent, the Board of Governors voted unanimously to lower the interest rate paid on required and excess reserve balances to 0.10 percent and voted unanimously to approve a 1-1/2 percentage point decrease in the primary credit rate to 0.25 percent, effective March 16, 2020. The Board also approved changes to allow Reserve Banks to extend primary credit loans for as long as 90 days and that could be prepaid or renewed on request. In addition, the Board approved a reduction in reserve requirement ratios applicable to net transaction deposits above the exemption threshold to 0 percent effective with the reserve maintenance period beginning on March 26, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, April 28â29, 2020. The meeting adjourned at 2:40 p.m. on March 15, 2020. Notation Vote By notation vote completed on February 18, 2020, the Committee unanimously approved the minutes of the Committee meeting held on January 28â29, 2020. Videoconference meeting of March 2 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on March 2, 2020, at 7:30 p.m. to review developments related to the outbreak of the coronavirus and discuss steps that could be taken to provide support to the economy. As background for the Committee's discussion, the staff reviewed recent developments in financial markets and provided an assessment of the evolving risks to the economic outlook. The SOMA manager noted that since mid-February when concerns about the spread of the coronavirus beyond China had begun to intensify, global risk asset prices and sovereign yields had declined sharply. U.S. and global equity indexes were lower than at the time of the Committee's meeting in January and implied equity market volatility had risen to levels not seen since 2015. The deterioration in risk sentiment had also been reflected in a significant widening in U.S. and European corporate credit spreads and in peripheral European spreads. Amid the ongoing market volatility, issuance of investment-grade and high-yield corporate bonds and of leveraged loans had generally dried up. Money markets had been resilient during the broader financial market volatility; pricing and trading conditions in offshore U.S. dollar funding markets had also been stable. Market functioning had remained orderly despite deterioration in liquidity conditions in Treasury, equity, and credit markets. Financial market participants' views on the likely course of U.S. monetary policy had changed since the Committee's January meeting. The expected path of the federal funds rate embedded in futures prices had shifted down significantly over the period. Market commentary had interpreted Chair Powell's February 28 statement as indicating the FOMC was prepared to lower the target range for the federal funds rate at or before the March meeting to support the achievement of the Committee's maximum employment and price stability goals. Expectations for global monetary and fiscal easing had increased, with some market commentary noting the possibility of a coordinated effort across central banks or fiscal authorities. The SOMA manager noted that the situation remained highly fluid with key risks, including those associated with funding for corporate borrowers, operational vulnerabilities associated with the transition to alternative work arrangements, and the potential for impaired market functioning. The staff then provided an update on current conditions and changes to the economic outlook since the FOMC's January meeting. Available indicators for China suggested that the spread of the coronavirus had been associated with a collapse in economic activity during the first quarter, with spillovers to the global economy from the drop in Chinese demand and disruption of supply chains. Although there were some tentative signs that the coronavirus in China was being contained and production was beginning to resume, the outbreak of the virus in other foreign economies was weighing on consumer and business sentiment and depressing consumption in those countries. All told, foreign economic activity was expected to be significantly weaker during the first half of 2020 than the staff had anticipated at the time of the January FOMC meeting. The staff noted that the spread of the virus was at an earlier stage in the United States and its effects were not yet visible in monthly economic indicators, although there had been some softening in daily sentiment indexes and travel-related transactions. The outlook for real economic activity over the remainder of the year was highly uncertain and depended on the spread of the virus and the measures taken to contain it. Scenarios involving a greater spread of the coronavirus and more severe social-distancing actions would be associated with a greater shutdown of production and disruption of supply chains, larger negative effects on consumer and business sentiment, more significant increases in unemployment, and worsening financial conditions. Reductions in demand, coupled with a stronger U.S. dollar and weaker commodity prices, were expected to put downward pressure on inflation, with the magnitude of the softening in core inflation depending on the severity of the situation. FOMC participants discussed the significant outbreaks of the coronavirus that had emerged recently in a few countries outside China and the likelihood that the virus would spread widely around the world, including in the United States. While the economic outlook at the time of the Committee's January meeting had been favorable, the potential spread of the virus and the measures needed to protect communities from it represented a material downside risk to the U.S. economy. A forceful monetary policy action could provide a clear signal to the public that policymakers recognized the potential economic significance of the situation and were willing to move decisively to support the achievement of the Committee's dual mandate goals and counter the recent tightening of financial conditions. Although a reduction in the policy rate would not slow the spread of infection or remedy broken supply chains, it could help shore up the confidence of households, businesses, and financial markets; ease financial strains of consumers and firms; and provide meaningful support to the economy in the face of a large shock to demand. Accordingly, participants supported a reduction of 50 basis points in the target range for the federal funds rate. On March 3, 2020, the Committee completed the vote to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive: "Effective March 4, 2020, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1 to 1-1/4 percent. In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Committee directs the Desk to continue purchasing Treasury bills at least into the second quarter of 2020 to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directs the Desk to continue conducting term and overnight repurchase agreement operations at least through April 2020 to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." The vote also encompassed approval of the statement below for release at 10:00 a.m. on March 3, 2020: "The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1-1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Consistent with the Committee's decision to lower the target range for the federal funds rate to 1 to 1-1/4 percent, the Board of Governors completed on March 3, 2020, unanimous votes to lower the interest rate paid on required and excess reserve balances to 1.10 percent and to approve a 1/2 percentage point decrease in the primary credit rate to 1.75 percent, effective March 4, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text

Minutes of the Federal Open Market Committee April 28â29, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by conference call on Tuesday, April 28, 2020, at 1:00 p.m. and continued on Wednesday, April 29, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Thomas Laubach, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Michael Dotsey, Joseph W. Gruber, David E. Lebow, Trevor A. Reeve, Ellis W. Tallman, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, 2 Deputy Director, Division of Research and Statistics, Board of Governors; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors Antulio N. Bomfim, Wendy E. Dunn, Ellen E. Meade, Chiara Scotti, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Brian M. Doyle, Senior Associate Director, Division of International Finance, Board of Governors; John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board of Governors Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board of Governors Marnie Gillis DeBoer and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Patrick E. McCabe and John M. Roberts, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Andrea Raffo, Deputy Associate Director, Division of International Finance, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Brian J. Bonis and Rebecca Zarutskie, Assistant Directors, Division of Monetary Affairs, Board of Governors; Ricardo Correa, Assistant Director, Division of International Finance, Board of Governors Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Edward Herbst, and Ander Perez-Orive, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis David Altig, Kartik B. Athreya, Sylvain Leduc, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, San Francisco, New York, and St. Louis, respectively Spencer Krane, Senior Vice President, Federal Reserve Bank of Chicago Scott Frame, Anna Kovner, Giovanni Olivei, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Dallas, New York, Boston, and New York, respectively A. Lee Smith, Research and Policy Advisor, Federal Reserve Bank of Kansas City Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets. Financial conditions had shown notable improvement over recent weeks. Equity price indexes were up substantially from the lows of late March, safe-haven demands for the dollar had receded, and measures of realized and implied volatility across markets had diminished. Market participants pointed to swift and forceful actions taken by the Federal Reserve, coupled with strong fiscal measures, and some indications of a slowing in the spread of the coronavirus (COVID-19) in major economies as factors contributing to these developments. That said, market participants remained very uncertain about the economic outlook, and contacts highlighted an array of remaining risks, including those in corporate credit markets, emerging markets, and mortgage markets. In corporate credit markets, concerns about potential defaults were rising, and ratings agencies had put on negative watch or downgraded many issuers. In emerging markets, the steep decline in commodity prices was exacerbating financial pressures for some emerging market economies (EMEs), which were also facing strains arising from capital outflows and a reduction in trade activity. And in mortgage markets, the likely increase in mortgage delinquencies associated with forbearance polices and an eventual rise in defaults were sources of concern for bank and nonbank lenders. Open Market Desk surveys suggested that market participants anticipated a sharp near-term decline in economic activity, followed by some recovery later this year. Against this backdrop, market participants generally expected the target range for the federal funds rate to remain at the effective lower bound for the next couple of years. Respondents to Desk surveys attached almost no probability to the FOMC implementing negative policy rates. Some survey respondents indicated that they expected modifications to the Committee's forward guidance, but not at the current meeting. The manager then reviewed recent open market operations. Since mid-March, at the direction of the FOMC, the Desk had purchased very large quantities of Treasury and agency mortgage-backed securities (MBS) in order to support the smooth functioning of these critical markets. The Desk evaluated a broad array of indicators to assess market functioning. These indicators suggested considerable improvement in market functioning, and the Desk gradually scaled back the pace of purchases accordingly. Market participants anticipated that the pace of purchases would slow after the June meeting, but they expected that outright securities holdings in the SOMA portfolio would continue to expand at least through the end of the year. The SOMA manager expected that, if conditions continued to improve, the pace of purchases could be reduced somewhat further; however, consistent with the directive, the Desk was prepared to increase purchases as needed should market functioning worsen. Conditions in money markets had improved over recent weeks. The intense strains across a range of short-term funding markets that emerged in March had subsided. The expansion of Federal Reserve repurchase agreement (repo) operations, the enhancement and expansion of funding available through the discount window and swap lines, and the funding provided through the Primary Dealer Credit Facility (PDCF), the Money Market Mutual Fund Liquidity Facility (MMLF), and the Commercial Paper Funding Facility (CPFF) were likely important in relieving pressures across a range of short-term funding markets. The manager noted that, despite these improvements, rates in some term funding markets remained elevated, although forward measures suggested the upward pressure on these rates might ease in coming weeks. With conditions in short-term funding markets having improved substantially and with repo operations no longer needed to maintain ample reserve levels, the manager noted that it might be appropriate to position the Federal Reserve's repurchase operations in a backstop role. For example, the minimum bid rate in repo operations could be increased somewhat relative to the level of the interest rate on excess reserves (the IOER rate). Later in the intermeeting period, short-term interest rates drifted lower and settled at near-zero levels. Although rates appeared stable, the manager suggested that circumstances could arise in which temporarily raising the per-counterparty limit on the overnight reverse repo operation would support policy implementation. The manager also noted that some market participants anticipated that the Federal Reserve might increase the IOER rate in order to move the federal funds rate closer to the middle of the target range and to address market functioning issues that could arise over time with overnight rates at very low levels. However, there appeared to be limited risk that the federal funds rate would move below the target range, as the Federal Home Loan Banksâthe dominant lenders in the federal funds marketâcan earn a zero rate on balances maintained in their account at the Federal Reserve. Moreover, there were few signs to date that the low level of overnight funding rates had adversely affected market functioning, and trading volumes remained robust. The SOMA manager noted that the staff would continue to monitor developments. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The coronavirus outbreak and the measures taken to protect public health were severely disrupting economic activity in the United States and abroad. The available information for the April 28â29 meeting indicated that U.S. labor market conditions deteriorated substantially in March and April, and real gross domestic product (GDP) declined sharply in the first quarter of the year. In addition, a variety of economic indicators were already pointing toward an extraordinary contraction in GDP in the second quarter. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in February. Job losses surged in March, even though the drop in total nonfarm payroll employment reflected only those changes that had occurred through the mid-month reference period of the establishment survey. In addition, the unemployment rate jumped to 4.4 percent in March, and the labor force participation rate decreased notably. After economic shutdowns started to occur on a widespread basis, initial claims for unemployment insurance benefits skyrocketed in the second half of March through the first half of April, a development that pointed to substantial job losses in April. Nominal wage growth remained moderate, as average hourly earnings for all employees increased 3.1 percent over the 12 months ending in March. Total PCE price inflation and core PCE price inflation, which excludes consumer food and energy prices, both increased 1.8 percent over the 12 months ending in February. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 2.0 percent in February. The consumer price index (CPI) rose 1.5 percent over the 12 months ending in March, and the core CPI increased 2.1 percent over the same period. The total CPI rose less than the core CPI mostly because of substantial declines in consumer energy prices, which were reflecting significantly lower crude oil prices. Recent readings on survey-based measures of longer-run inflation expectations were little changed on balance. The University of Michigan Surveys of Consumers measure for the next 5 to 10 years edged up in April, and the 3âyearâahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations edged down in March; both measures remained in their recent ranges. Real PCE declined steeply in the first quarter of the year. The components of the nominal retail sales data used to estimate PCE, along with the sales of light motor vehicles, fell substantially in March, reflecting the effects of the widespread economic shutdowns. Moreover, the consumer sentiment measures from both the Michigan and the Conference Board surveys deteriorated substantially over March and April. Real disposable personal income was about flat in the first quarter, so the personal saving rate moved up notably with the decline in spending. In contrast to other sectors of the economy, real residential investment expanded strongly in the first quarter as a whole, al­though housing-sector activity had started to slow dramatically late in the quarter. Starts and building permit issuance for single-family homes, along with starts of multifamily units, tumbled in March. In addition, sales of both new and existing homes contracted sharply in March, and survey measures of builders' sentiment plunged in April. Real business fixed investment slumped in the first quarter following moderate declines over the previous three quarters. Spending for business equipment fell considerably in the first quarter, led by a sharp decrease in purchases of transportation equipment. Business investment in nonresidential structures also dropped notably. The coronavirus outbreak and the effects on economic activity of measures to contain it, together with the associated elevated level of uncertainty, were likely reflected in recent downbeat readings on business sentiment in national and regional surveys and appeared to weigh heavily on business investment. In addition, the effects of substantial further declines in crude oil prices were being seen in the falling number of crude oil and natural gas rigs in operation through late April, an indicator of business spending on structures in the drilling and mining sector. Total industrial production fell precipitously in March, as the coronavirus outbreak led many factories to close late in the month. The decline in manufacturing output was led by a pullback in the production of motor vehicles and related parts. Output in the mining sectorâwhich includes crude oil extractionâalso decreased significantly in the wake of the recent declines in crude oil prices. Total real government purchases only edged up in the first quarter, led by a modest increase in federal purchases. State and local purchases were about flat, reflecting the effects of public school closures beginning in mid-March. Real exports declined sharply in the first quarter. However, imports declined at a much faster rate so that net exports made a sizable positive contribution to GDP growth. Much of the quarterly decline in trade volumes reflected a sharp drop in March due to weak demand globally and disruptions related to the coronavirus outbreak. The fall in exports was concentrated in services, particularly those parts of the sector held down by travel restrictions. Foreign economic activity fell sharply in the first quarter of the year amid widespread mandatory business shutdowns and strict social-distancing measures to contain the spread of the coronavirus outbreak. In China, where lockdowns were first implemented, real GDP contracted sharply in the first quarter, and Canada, Korea, and Singapore also saw substantial declines. Monthly indicators suggested that activity also plummeted in March and April in many other economies, particularly in the euro area and the United Kingdom, which both saw purchasing managers indexes fall to record-low levels. Many foreign governments announced large fiscal packages to address the sudden loss of income by firms and households. Many foreign central banks cut policy rates, initiated or enhanced credit facilities, relaxed capital requirements for financial institutions, and ramped up asset purchase programs to alleviate liquidity concerns in foreign capital markets. Foreign inflation fell steeply, reflecting large drops in energy prices related to plunging oil prices, while core inflation pressures generally remained muted. Staff Review of the Financial Situation In the middle part of March, financial markets experienced record declines in the prices of risky assets, widespread illiquidity, and elevated volatility, as uncertainty regarding the effects of the coronavirus outbreak on the global economy jumped. However, following the announcement and subsequent launching of a number of Federal Reserve emergency liquidity programs, the passage of the Cares Act (Coronavirus Aid, Relief, and Economic Security Act), and early signs of a decline in outbreak intensity in the United States and many major foreign economies, the extreme volatility and illiquidity subsided and prices of most risky assets increased notably. Over the intermeeting period, on net, the S&P 500 index rose, option-implied volatility fell, and Treasury yields declined, while corporate bond spreads widened somewhat. Financing conditions for businesses, households, and state and local governments were strained over the intermeeting period. However, the Federal Reserve's announcements and start-ups of emergency liquidity facilities appeared to improve conditions in many of these markets. These facilities were established with the approval of the Secretary of the Treasury under the authority of section 13(3) of the Federal Reserve Act and were designed to support the flow of credit to businesses, households, and state and local governments. Treasury markets experienced extreme volatility in mid-March, and market liquidity became substantially impaired as investors sold large volumes of medium- and long-term Treasury securities. Following a period of extraordinarily rapid purchases of Treasury securities and agency MBS by the Federal Reserve, Treasury market liquidity gradually improved through the remainder of the intermeeting period, and Treasury yields became less volatile. Although market depth remained exceptionally low and bid-ask spreads for off-the-run securities and long-term on-the-run securities remained elevated, bid-ask spreads for short-term on-the-run securities fell close to levels seen earlier in the year. Yields on nominal Treasury securities declined across the maturity spectrum, with the 10- and 30-year yields ending the period near all-time lows. A straight read of market quotes suggested that the expected federal funds rate would remain under 25 basis points through 2022. Measures of inflation compensation based on Treasury Inflation-Protected Securities (TIPS) ended the period higher, on net, but were still low by historical standards. Inflation compensation fell sharply in the first half of March but subsequently recovered, as overall financial conditions and TIPS liquidity improved. The market for agency MBS also experienced substantial stresses in mid-March, and agency MBS spreads to Treasury yields widened and were volatile. However, market conditions for agency MBS improved significantly in the second half of March, supported by the Federal Reserve's additional purchases of these securities. Stock price indexes were exceptionally volatile early in the intermeeting period, and one-month option-implied volatility on the S&P 500 index reached a record high. Equity market volatility moved down substantially over the remainder of the intermeeting period but remained elevated, and equity prices more than retraced their earlier declines to end the intermeeting period notably higher. Broad stock price index increases over the intermeeting period were led by the energy, consumer discretionary, basic materials, and health-care sectors. Broad equity price indexes remained, however, markedly below peaks registered earlier this year. Corporate bond spreads over comparable-maturity Treasury yields widened sharply in the beginning of the intermeeting period, and they subsequently retraced most of their increases to end up only somewhat higher on net. Corporate bond spreads at the end of the intermeeting period still stood significantly above their levels in January. In short-term funding markets, strains intensified in mid-March. Spreads of yields of term money market instruments over comparable-maturity overnight index swap rates increased sharply, and issuance of unsecured commercial paper, negotiable certificates of deposit, and short-term municipal debt declined substantially and shifted to very short maturities. Institutional prime money market funds (MMFs) experienced heavy redemptions and reportedly faced difficulties selling assets amid impaired secondary-market liquidity. The announcements and start-ups of several Federal Reserve emergency liquidity facilities in the second half of March helped stabilize short-term funding markets, and, by the end of the intermeeting period, spreads had narrowed across the board. Repo rates were elevated in mid-March but normalized following the very large inflows of funds into government MMFs, the expansion of the Federal Reserve's repo operations, and the announcement of the PDCF. The effective federal funds rate was at the top of the target range for a few days following the March FOMC meeting and, after declining in the second half of March, stayed at around 5 basis points for most of April. Early in the period, cascading shutdowns in many countries weighed heavily on risk sentiment abroad. Many foreign financial markets experienced severe illiquidity and substantial volatility, and foreign equity indexes posted large declines. However, extraordinary monetary and fiscal policy actions in the United States and abroad helped improve market sentiment, and most major foreign equity indexes subsequently rebounded notably. That said, compared with early this year, foreign equity indexes stayed sharply lower, and option-implied equity volatility abroad remained elevated. Advanced-economy sovereign yields were also volatile, but most sovereign yields ended the period somewhat lower. By the end of the intermeeting period, policy rates in most major advanced foreign economies (AFEs) were at or near their effective lower bounds. In mid-March, Emerging Market Bond Index (EMBI) spreads widened sharply, and capital outflows from EMEs reached record levels. As global sentiment improved somewhat, those capital outflows slowed and EMBI spreads partially retraced earlier increases. Strong demand for dollars amid flight to safety globally, together with disruptions in U.S. short-term funding markets, caused severe strains in funding markets for dollars abroad, especially early in the intermeeting period. The premiums paid by investors to borrow dollars using the foreign exchange swap market over the costs of directly borrowing dollars widened sharply as the end of the first quarter approached. FOMC actions, including several changes to the standing central bank liquidity swap lines and a temporary expansion in the number of central bank counterparties, as well as the announcement of the FIMA (Foreign and International Monetary Authorities) Repo Facility, notably improved conditions in the foreign exchange swap market. Nonetheless, conditions in this market remained strained. Over the period, the staff's broad dollar index increased, with the dollar appreciating modestly against AFE currencies and notably against EME currencies. Currencies of vulnerable commodity exporters, such as Mexico and Brazil, depreciated sharply. At the end of the intermeeting period, the broad dollar index remained significantly higher than at the beginning of the year. Financing conditions for nonfinancial businesses were strained in March, particularly for lower-rated firms and small businesses. Federal Reserve announcements of facilities to support the flow of credit to businesses, households, and state and local governments appeared to improve financing conditions in many markets, although conditions had yet to normalize. Issuance of speculative-grade bonds and leveraged loans was extremely low in March but resumed, at a slow pace, in April. Investment-grade issuance, while relatively slow in early March, was robust following the Federal Reserve's announcements in late March of the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility. Conditions in the market for corporate bonds and loans improved further in response to the Federal Reserve's announcement in April that it would expand these facilities to include firms that had been recently downgraded to just below investment-grade status. Commercial and industrial (C&I) lending conditions were somewhat tight. Although C&I loans increased strongly, this increase was largely driven by firms drawing down existing lines of credit; they reportedly did so to shore up liquidity for precautionary motives and to meet funding needs. In the April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported having tightened their C&I lending standards and terms for firms of all sizes. Credit quality and the earnings outlook of nonfinancial corporations deteriorated substantially, and market analysts forecast a large volume of downgrades of nonfinancial corporate bonds, including a substantial volume from triple-B to speculative grade. Credit conditions for small businesses were tight. Concerns about the finances of state and local governments contributed to a marked deterioration in credit conditions in the municipal bond market in March. Although strains lessened amid Federal Reserve announcements on emergency lending facilities to support the flow of credit and liquidity to state and local governmentsâspecifically, expansions to the MMLF and the CPFF and the establishment of the Municipal Liquidity Facilityâspreads remained high and issuance subdued at the end of the intermeeting period. Financing conditions for commercial real estate (CRE) were strained. Non-agency commercial mortgage-backed securities (CMBS) issuance shut down, al­though secondary-market spreads narrowed following the extension of the Term Asset-Backed Securities Loan Facility (TALF) to include non-agency CMBS as eligible collateral. Meanwhile, agency CMBS issuance continued, supported by the Federal Reserve's purchases of these securities. Most April SLOOS respondents reported having tightened lending standards for CRE loans. CRE loans on banks' books increased in the second half of March, in part because banks were unable to securitize some nonresidential loans. Financing conditions in residential mortgage markets were tight for low-rated borrowers and other borrowers who rely on nonconforming mortgages. Many mortgage originators and warehouse lenders announced tighter underwriting standards on new originations. Despite a considerable widening of the spread between the primary mortgage rate and MBS yields, primary mortgage interest rates were low by historical standards, and available indicators suggested that refinancing activity remained elevated. The volume of mortgage rate locks for home-purchase loans dropped materially in early April, reflecting in part declines in homebuyer demand and disruptions in the home search and purchase process. Financing conditions in consumer credit markets tightened somewhat on net. Spreads on consumer asset-backed securities jumped in mid-March, and primary-market issuance came to a halt. However, in response to the announcement of the TALF and to diminished broader financial market uncertainty, spreads retraced most of their increase in the early part of the period, and primary-market issuance resumed. Though banks in the April SLOOS reported tightening standards on new consumer loans, respondents also experienced weaker demand for all consumer loan types. Auto loan interest rates dropped sharply in early April as manufacturers introduced attractive financing programs to boost sales. The staff assessed the stability of the financial system during the coronavirus outbreak. The banking sector, including the large banks, was resilient coming into this period. Banks were able to meet surging demand for draws on credit lines while also building loan loss reserves to absorb higher expected defaults. In other parts of the financial system, however, some notable vulnerabilities that had been identified in previous financial stability assessments exacerbated financial strains. In March, institutional prime MMFs and other institutions relying on unstable funding sources faced significant stress, a situation that put in jeopardy the orderly functioning of some financial markets. Federal Reserve actions to enhance the liquidity and functioning of key markets reduced these stresses notably. Open-end mutual funds that invest in corporate bonds and loansâinstitutions that typically face a timing mismatch between investors' ability to redeem shares and the funds' ability to sell assetsâexperienced heavy outflows and liquidity strains in mid-March. Redemptions later eased, however, amid the general improvement in financial markets. Business debt, which appeared to be high compared with fundamentals before the coronavirus outbreak, seemed poised to rise further as businesses borrowed to maintain their capacity to restart operations. Values of CRE faced the risk of large declines in response to the coronavirus outbreak, al­though updated readings were not yet available. The staff provided a preliminary reading on potential emerging risks to financial stability in the aftermath of the coronavirus outbreak. This reading highlighted possible vulnerabilities in mortgage servicers, insurance companies, and large, highly leveraged financial intermediaries. Staff Economic Outlook The projection for the U.S. economy prepared by the staff for the April FOMC meeting was downgraded notably from the March meeting forecast in response to information on the spread of the coronavirus and the measures undertaken to contain it both at home and abroad. U.S. real GDP was forecast to plummet and the unemployment rate to soar in the second quarter of this year. The substantial fiscal policy measures and monetary policy support that had been put in place were expected to help mitigate the deterioration in economic conditions and help boost the recovery. The staff noted that, importantly, the future performance of the economy would depend on the evolution of the coronavirus outbreak and the measures undertaken to contain it. Under the staff's baseline assumptions that the current restrictions on social interactions and business operations would ease gradually this year, real GDP was forecast to rise appreciably and the unemployment rate to decline considerably in the second half of the year, al­though a complete recovery was not expected by year-end. Inflation was projected to weaken this year, reflecting both the deterioration in resource utilization and sizable expected declines in consumer energy prices. Under the baseline assumptions, economic conditions were projected to continue to improve, and inflation to pick back up, over the next two years. The staff observed that uncertainty regarding the economic effects of the coronavirus outbreak was extremely elevated and that the historical behavior of the U.S. economy in response to past economic shocks provided limited guidance for making judgments about how the economy might evolve over coming quarters. In light of the significant uncertainty and downside risks associated with the evolution of the coronavirus outbreak, how much the economy would weaken, and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast. In this scenario, a second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year. Compared with the baseline, the disruption to economic activity was more severe and protracted in this scenario, with real GDP and inflation lower and the unemployment rate higher by the end of the medium-term projection. Participants' Views on Current Conditions and the Economic Outlook Participants noted that the coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health were inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices were holding down consumer price inflation. The disruptions to economic activity here and abroad had significantly affected financial conditions and had impaired the flow of credit to U.S. households and businesses. Participants judged that the effects of the coronavirus outbreak and the ongoing public health crisis would continue to weigh heavily on economic activity, employment, and inflation in the near term and would pose considerable risks to the economic outlook over the medium term. Participants assessed that the second quarter would likely see overall economic activity decline at an unprecedented rate. Participants relayed information from their Districts that the burdens of the present crisis would fall disproportionately on the most vulnerable and financially constrained households in the economy. Participants agreed that recently enacted fiscal programs were delivering valuable direct financial aid to households, businesses, and communities that would provide some relief during the economic shutdown. In addition, economic activity was being supported by actions taken by the Federal Reserve, including lending facilities created under the authority of section 13(3) of the Federal Reserve Act, some of which included capital allocated by the U.S. Treasury. These programs had helped maintain the flow of credit to households, businesses, and state and local governments, while supporting the smooth functioning of financial markets. Regarding the economic activity of households, participants noted that the pandemic and efforts to mitigate the spread of the disease were having severely adverse effects on aggregate household spending and consumer confidence. Participants reported that consumer spending had plummeted across all parts of the country and in most categories of spending, with especially sharp declines in expenditures for categories that had been most affected by social distancing, such as hotel, fuel, air travel, restaurant, theater, and other retail products and services. Participants noted that even after government-imposed social-distancing restrictions came to an end, consumer spending in these categories likely would not return quickly to more normal levels. Survey-based measures of consumer confidence also plunged, a development that participants and District contacts attributed to households' concerns regarding the risk of job loss or difficulty in meeting financial obligations. Participants noted that some households experiencing job losses may not immediately face lower total income because of the support from recently enacted fiscal programs. Even in such cases, however, participants observed that household spending would likely be held down by a decrease in confidence and an increase in precautionary saving. Participants noted that business activity and investment spending had also fallen dramatically since the previous meeting as a result of efforts to contain the coronavirus outbreak. Manufacturing output declined sharply in March and was expected by participants to drop even more rapidly in April. In all Districts, some businesses had been forced to close temporarily because of social distancing restrictions. Businesses that were able to remain open to some degree were also substantially affected by the pandemic, with many experiencing either substantial drops in new orders and sales or supply chain disruptions. There were widespread reports from District contacts of firms reducing their payrolls and curtailing plans for investment spending. Some industries were especially hard hit, including airlines, cruise ships, restaurants, and tourism. Participants reported that many firms were seeking loans, payment deferrals, or grants to help address critical financial obligations and that the Paycheck Protection Program (PPP) was providing valuable assistance to small businesses in this respect. Participants also noted the disproportionate burdens or particular challenges being faced by small businesses; these challenges included lower cash buffers, fewer financing options, and, more recently, tighter lending standards. Participants expressed concerns that a large number of small businesses may not be able to endure a shock that had long-lasting financial effects. Participants were further concerned that even after social-distancing requirements were eased, some business models may no longer be economically viable, which could occur, for example, if consumers voluntarily continued to avoid participating in particular forms of economic activity. In addition, participants expressed concern that the possibility of secondary outbreaks of the virus may cause businesses for some time to be reluctant to engage in new projects, rehire workers, or make new capital expenditures. Participants observed that conditions in the energy sector had become especially difficult. A sharp reduction in global demand for petroleum had led to unused supply that was overwhelming storage capacity, resulting in a plunge in oil prices. Some participants expressed concern that low energy prices, if they were to persist, had the potential to create a wave of bankruptcies in the energy sector. In addition, the agricultural sector was under severe stress due to falling prices for some farm commodities and pandemic-related disruptions, such as the closing of some food processing plants. With regard to the labor market, participants noted that incoming data confirmed that an extreme decline in employment was under way. Nationally, initial claims for unemployment insurance benefits had totaled more than 25 million from mid-March to the time of the meeting, and participants expected that the unemployment rate would soon reach the highest levels of the postâWorld War II period. District contacts reported that a significant portion of workers had been able to switch to working remotely. Although many employers were trying to keep workers on their payrolls, over time, as conditions persisted, there had begun to be widespread furloughs and layoffs. Participants were concerned that temporary layoffs could become permanent, and that workers who lose employment could face a loss of job-specific skills or may become discouraged and exit the labor force. Participants were additionally concerned that employees who were on low incomes would be the most severely affected by job cuts because they were employed in the industries most affected by the response to the outbreak or because their jobs were not amenable to being carried out remotely. With regard to inflation, participants noted that it had been running below the Committee's 2 percent longer-run objective before the coronavirus outbreak. While the pandemic had created some supply constraints, which had generated upward pressure on the prices of some goods, the pandemic had also reduced demand, which had exerted downward pressure on prices. The overall effect of the outbreak on prices was seen as disinflationary. In addition, a stronger dollar and lower oil prices were factors likely to put downward pressure on inflation, and market-based measures of inflation compensation remained very low. Participants observed that the return of inflation to the Committee's 2 percent longer-run objective would likely be further delayed but that the accommodative stance of monetary policy would be helpful in achieving the 2 percent inflation objective over the longer run. Participants noted that recently enacted fiscal programs were crucial for limiting the severity of the economic downturn. In particular, the Cares Act and other legislation, which represented more than $2 trillion in federal spending in total, had provided direct help to households, businesses, and communities. For example, the PPP was providing a financial lifeline to small businesses, the expansion of unemployment benefits was helping restore lost income for laid-off workers, and the Treasury had provided a necessary financial backstop to many Federal Reserve lending facilities. Participants acknowledged that even greater fiscal support may be necessary if the economic downturn persists. Participants commented that, in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term. Participants discussed several alternative scenarios with regard to the behavior of economic activity in the medium term that all seemed about equally likely. These scenarios differed in the assumed length of the pandemic and the consequent economic disruptions. On the one hand, a number of participants judged that there was a substantial likelihood of additional waves of outbreak in the near or medium term. In such scenarios, it was believed likely that there would be further economic disruptions, including additional periods of mandatory social distancing, greater supply chain dislocations, and a substantial number of business closures and loss of income; in total, such developments could lead to a protracted period of severely reduced economic activity. On the other hand, economic activity could recover more quickly if the pandemic subsided enough for households and businesses to become sufficiently confident to relax or modify social-distancing behaviors over the next several months. Beyond these considerations, participants noted the risk that foreign economies, particularly EMEs, could come under extreme pressure as a result of the pandemic and that this strain could spill over to and hamper U.S. economic activity. Participants stressed that measures taken in the areas of health-care policy and fiscal policy, together with actions by the private sector, would be important in shaping the timing and speed of the U.S. economy's return to more normal conditions. In addition, participants agreed that recent actions taken by the Federal Reserve were essential in helping reduce downside risks to the economic outlook. Participants also noted several risks to long-term economic performance that were posed by the pandemic. One of these risks was that workers who lose employment as a result of the pandemic may experience a loss of skills, lose access to adequate childcare or eldercare, or become discouraged and exit the labor force. The longer-term behavior of firms could be affected as wellâfor instance, if necessary but costly transmission-mitigation strategies lowered firms' productivity; if business investment shifted down permanently; if many firms need to adjust their business models in the aftermath of the pandemic; or if business closures, particularly those of small firms, became widespread. A few participants noted that higher levels of government indebtedness, which would be exacerbated by fiscal expenditures that were necessary to combat the economic effects of the pandemic, could put downward pressure on growth in aggregate potential output. Regarding developments in financial markets, participants agreed that ongoing actions by the Federal Reserve had been instrumental in easing strains in some essential financial markets and supporting the flow of credit. These actions included large-scale purchases of Treasury securities and agency MBS, measures to reduce strains in global U.S. dollar funding markets, and the launch of programs to support the flow of credit in the economy for households, businesses of all sizes, and state and local governments. Banks had entered the crisis well capitalized and had been able to provide necessary credit to businesses and households. A number of participants commented on potential risks to financial stability. Participants were concerned that banks could come under greater stress, particularly if adverse scenarios for the spread of the pandemic and economic activity were realized, and so this sector should be monitored carefully. Participants saw risks to banks and some other financial institutions as exacerbated by high levels of indebtedness among nonfinancial corporations that prevailed before the pandemic; this indebtedness increased these firms' risk of insolvency. The upcoming financial stress tests for banks were seen as important for measuring the ability of large banks to withstand future downside scenarios. A number of participants emphasized that regulators should encourage banks to prepare for possible downside scenarios by further limiting payouts to shareholders, thereby preserving loss-absorbing capital. Indeed, historical loss models might understate losses in this context. A few participants stressed that the activities of some nonbank financial institutions presented vulnerabilities to the financial system that could worsen in the event of a protracted economic downturn and that these institutions and activities should be monitored closely. In their consideration of monetary policy at this meeting, participants noted that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. In light of their assessment that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term, all participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent. Keeping the target range at the effective lower bound, after quickly reducing it by 150 basis points in March, would continue to provide support to the economy and promote the Committee's maximum employment and price stability goals. Participants also judged that it would be appropriate to maintain the target range for the federal funds rate at its present level until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. Participants also assessed that it was appropriate for the Federal Reserve to continue to purchase Treasury securities and agency residential-mortgage-backed securities (RMBS) and CMBS in the amounts needed to support smooth market functioning. These open market purchases would continue to support the flow of credit to households and businesses and thereby foster the effective transmission of monetary policy to broader financial conditions. In addition, the Desk would continue to offer large-scale overnight and term repo operations. Participants noted that it was important to continue to monitor market conditions closely and that the Committee was prepared to adjust its plans as appropriate to support smooth functioning in the markets for these securities. Participants also commented that the multiple lending facilities established by the Federal Reserve under the authority of section 13(3) of the Federal Reserve Act and, in some cases, involving capital allocated by the Treasury were supporting financial market functioning and the flow of credit to households, businesses of all sizes, and state and local governments. In this way, these emergency lending facilities were intended to help support the economy until pandemic-related credit market disruptions had abated. Several participants commented further that it would be important for the Federal Reserve to remain ready to adjust these emergency lending facilities as appropriate based on its monitoring of financial market functioning and credit conditions. While participants agreed that the current stance of monetary policy remained appropriate, they noted that the Committee could, at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions. Some participants commented that the Committee could make its forward guidance for the path for the federal funds rate more explicit. For example, the Committee could adopt outcome-based forward guidance that would specify macroeconomic outcomesâsuch as a certain level of the unemployment rate or of the inflation rateâthat must be achieved before the Committee would consider raising the target range for the federal funds rate. The Committee could also consider date-based forward guidance that would indicate that the target range could be raised only after a specified amount of time had elapsed. These participants noted that such explicit forms of forward guidance could help ensure that the public's expectations regarding the future conduct of monetary policy continued to reflect the Committee's intentions. Several participants observed that the completion, most likely later this year, of the monetary policy framework review, together with the announcement of the conclusions arising from the review, would help further clarify the Committee's intentions with respect to its future monetary policy actions. Several participants also remarked that the Committee may need to provide further clarity regarding its intentions for purchases of Treasury securities and agency MBS; these participants noted that, without further communication on this matter, uncertainty about the evolution of the Federal Reserve's asset purchases could increase over time. Several participants remarked that a program of ongoing Treasury securities purchases could be used in the future to keep longer-term yields low. A few participants also noted that the balance sheet could be used to reinforce the Committee's forward guidance regarding the path of the federal funds rate through Federal Reserve purchases of Treasury securities on a scale necessary to keep Treasury yields at short- to medium-term maturities capped at specified levels for a period of time. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health were inducing sharp declines in economic activity and a surge in job losses. Consumer price inflation was being held down by weaker demand and significantly lower oil prices. The disruptions to global economic activity had significantly affected financial conditions and impaired the flow of credit to U.S. households and businesses. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. Members further concurred that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term, and posed considerable downside risks to the economic outlook over the medium term. In light of these developments, members decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. Members noted that they expected to maintain this target range until they were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. Members agreed that they would continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and would use the Committee's tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, members noted that they would assess realized and expected economic conditions relative to the Committee's maximum employment objective and its symmetric 2 percent inflation objective. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, members agreed that it was appropriate for the Federal Reserve to continue to purchase Treasury securities and agency RMBS and CMBS in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Desk would continue to offer large-scale overnight and term repo operations. Members agreed that they would closely monitor market conditions and be prepared to adjust their plans as appropriate. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective April 30, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) in the amounts needed to support the smooth functioning of markets for these securities. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS and all principal payments from holdings of agency CMBS in agency CMBS. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective April 30, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 9â10, 2020. The meeting adjourned at 10:10 a.m. on April 29, 2020. Notation Votes To address intensifying strains in global financial markets early in the intermeeting period, the Committee unanimously approved the following measures to help maintain the flow of credit to U.S. households and businesses: By notation vote concluded on March 19, the Committee approved amendments to the Authorization for Foreign Currency Operations ("Foreign Authorization") and to the Foreign Currency Directive ("Foreign Directive"). 3 The Foreign Authorization amendments authorized the establishment of temporary U.S. dollar liquidity arrangements (swap lines). The Foreign Directive was amended to direct the Federal Reserve Bank of New York to establish and maintain temporary dollar liquidity arrangements with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank (Norway), the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden). These arrangements will be in place for at least six months. Like the Federal Reserve's standing U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank, these temporary arrangements should help lessen heightened strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to U.S. households and businesses. By notation vote concluded on March 23, the Committee approved a statement indicating that the Federal Reserve will continue to purchase Treasury securities and agency MBS in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and that these purchases will include agency CMBS. In conjunction with approval of the statement, the Committee also authorized and directed the Federal Reserve Bank of New York to execute transactions in the SOMA in accordance with these planned purchases. Previously, the Committee had announced that it would purchase at least $500 billion of Treasury securities and at least $200 billion of agency MBS. By notation vote concluded on March 31, the Committee amended the Authorization for Domestic Open Market Operations to authorize, and adopted a resolution to approve, the establishment of a temporary repo facility for foreign and international monetary authorities (FIMA Repo Facility). 3 The facility will be in place for at least six months and will allow FIMA account holders to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. By providing foreign and international monetary authorities with an alternative temporary source of U.S. dollars other than sales of securities in the open market, the facility should help support the smooth functioning of the U.S. Treasury market. In addition, the FIMA Repo Facility shouldâalong with the U.S. dollar liquidity swap lines the Federal Reserve has established with other central banksâhelp ease strains in global U.S. dollar funding markets. By notation vote completed on April 7, 2020, the Committee unanimously approved the minutes of the Committee meeting held on March 15, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended Tuesday's session only. Return to text 3. Committee organizational documents are available at https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text

Minutes of the Federal Open Market Committee June 9-10, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, June 9, 2020, at 10:00 a.m. and continued on Wednesday, June 10, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Thomas Laubach, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Marc Giannoni, Trevor A. Reeve, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Office of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Office of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Ellen E. Meade, Chiara Scotti, and Ivan Vidangos, Special Advisers to the Board, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors Brian M. Doyle, 3 Senior Associate Director, Division of International Finance, Board of Governors; Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board of Governors Edward Nelson 4 and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Sally Davies, Associate Director, Division of International Finance, Board of Governors; David López-Salido, Associate Director, Division of Monetary Affairs, Board of Governors Burcu Duygan-Bump, Andrew Figura, Shane M. Sherlund, and Paul A. Smith, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Paul R. Wood, 4 Deputy Associate Director, Division of International Finance, Board of Governors Brian J. Bonis, Etienne Gagnon, and Zeynep Senyuz, Assistant Directors, Division of Monetary Affairs, Board of Governors Matthias Paustian, 4 Assistant Director and Chief, Division of Research and Statistics, Board of Governors Penelope A. Beattie, 5 Section Chief, Office of the Secretary, Board of Governors; Dana L. Burnett, Section Chief, Division of Monetary Affairs, Board of Governors; Dario Caldara, 6 Section Chief, Division of International Finance, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors; Canlin Li, 4 Senior Economic Project Manager, Division of International Finance, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Hess T. Chung, 4 Group Manager, Division of Research and Statistics, Board of Governors Michele Cavallo, Bernd Schlusche, 4 and Mary Tian, Principal Economists, Division of Monetary Affairs, Board of Governors; Maria Otoo, Principal Economist, Division of Research and Statistics, Board of Governors Sriya Anbil, 4 Erin E. Ferris, and Fabian Winkler, Senior Economists, Division of Monetary Affairs, Board of Governors; David S. Miller, 4 Senior Economist, Division of Research and Statistics, Board of Governors; Gaston Navarro, Senior Economist, Division of International Finance, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors James Hebden 4 and James M. Trevino, 4 Senior Technology Analysts, Division of Monetary Affairs, Board of Governors Andre Anderson, First Vice President, Federal Reserve Bank of Atlanta David Altig, Joseph W. Gruber, Anna Paulson, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Kansas City, Chicago, New York, and St. Louis, respectively Edward S. Knotek II, Paolo A. Pesenti, Julie Ann Remache, 2 Samuel Schulhofer-Wohl, 2 Robert G. Valletta, and Nathaniel Wuerffel, 2 Senior Vice Presidents, Federal Reserve Banks of Cleveland, New York, New York, Chicago, San Francisco, and New York, respectively Roc Armenter, Matthew D. Raskin, 2 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Philadelphia, New York, and New York, respectively Robert Lerman, 2 Assistant Vice President, Federal Reserve Bank of New York Daniel Cooper and John A. Weinberg, Senior Economists and Policy Advisors, Federal Reserve Banks of Boston and Richmond, respectively The Chair opened the meeting with an acknowledgment of the extraordinary and deeply troubling events of the last two weeks. Injustice, prejudice, and the callous disregard for life had led to social unrest and a sense of despair. The Chair noted that it was incumbent upon the leaders of the Federal Reserve System to continue to communicate with force and clarity about the Federal Reserve's core values, and to reaffirm its unflinching commitment to those values in pursuing the Federal Reserve's mandated goals. In that spirit, the Chair noted that he intended to offer the following remarks at the end of the postmeeting press conference. All participants supported the statement affirming the Federal Reserve's core values and its commitment to do everything it can to foster racial equality as well as diversity and inclusion both within the Federal Reserve System and in society more broadly. I want to acknowledge the tragic events that have again put a spotlight on the pain of racial injustice in this country. The Federal Reserve serves the entire nation. We operate in, and are part of, many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality. I speak for my colleagues throughout the Federal Reserve System when I say that there is no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy. These foundational principles guide us in all we do, from monetary policy to our focus on diversity and inclusion in our workplace, and to our work regulating and supervising banks to ensure fair access to credit around the country. We will take this opportunity to renew our steadfast commitment to these principles, making sure that we are playing our part. We understand that the work of the Federal Reserve touches communities, families, and businesses across the country. Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Discussion of Forward Guidance, Asset Purchases, and Yield Curve Caps or Targets Participants discussed tools for conducting monetary policy when the federal funds rate is at its effective lower bound (ELB). The discussion addressed two topics: (1) the roles of forward guidance and large-scale asset purchase programs in supporting the attainment of the Committee's maximum-employment and price-stability goals and (2) in light of the foreign and historical experience with approaches that cap or target interest rates along the yield curve, whether such approaches could be used to support forward guidance and complement asset purchase programs. The staff briefing on the first topic focused on outcome-based forward guidance for the federal funds rateâwhich ties changes in the target range for the federal funds rate to the achievement of specified macroeconomic outcomes, such as reaching a given level of the unemployment rate or inflationâand asset purchase programs of the kind used during and following the previous recession. The staff presented results from model simulations that suggested that forward guidance and large-scale asset purchases can help support the labor market recovery and the return of inflation to the Committee's symmetric 2 percent inflation goal. The simulations suggested that the Committee would have to maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn. The briefing addressed factors that might alter the potency of forward guidance and asset purchase programs, along with a number of considerations for the design of these actions. The staff cautioned that businesses and households might not be as forward looking as assumed in the model simulations, which could reduce the effectiveness of policies that are predicated on influencing expectations about the path of policy several years into the future. Alternatively, prompt and forceful policy actions by the Committee might help focus the public's expectations around better outcomes or reduce perceived risks of worst-case scenarios, which could generate more immediate macroeconomic benefits than those featured in the staff analysis. The second staff briefing reviewed the yield caps or targets (YCT) policies that the Federal Reserve followed during and after World War II and that the Bank of Japan and the Reserve Bank of Australia are currently employing. These three experiences illustrated different types of YCT policies: During World War II, the Federal Reserve capped yields across the curve to keep Treasury borrowing costs low and stable; since 2016, the Bank of Japan has targeted the 10-year yield to continue to provide accommodation while limiting the potential for an excessive flattening of the yield curve; and, since March 2020, the Reserve Bank of Australia has targeted the three-year yield, a target that is intended to reinforce the bank's forward guidance for its policy rate and to influence funding rates across much of the Australian economy. The staff noted that these three experiences suggested that credible YCT policies can control government bond yields, pass through to private rates, and, in the absence of exit considerations, may not require large central bank purchases of government debt. But the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstancesâa potential that was realized in the U.S. experience in the 1940sâand the possibility that, under YCT policies, monetary policy goals might come in conflict with public debt management goals, which could pose risks to the independence of the central bank. In their discussion of forward guidance and large-scale asset purchases, participants agreed that the Committee has had extensive experience with these tools, that they were effective in the wake of the previous recession, that they have become key parts of the monetary policy toolkit, and that, as a result, they have important roles to play in supporting the attainment of the Committee's maximum-employment and price-stability goals. Various participants noted that the economy is likely to need support from highly accommodative monetary policy for some time and that it will be important in coming months for the Committee to provide greater clarity regarding the likely path of the federal funds rate and asset purchases. Participants generally indicated support for outcome-based forward guidance. A number of participants spoke favorably of forward guidance tied to inflation outcomes that could possibly entail a modest temporary overshooting of the Committee's longer-run inflation goal but where inflation fluctuations would be centered on 2 percent over time. They saw this form of forward guidance as helping reinforce the credibility of the Committee's symmetric 2 percent inflation objective and potentially preventing a premature withdrawal of monetary policy accommodation. A couple of participants signaled a preference for forward guidance tied to the unemployment rate, noting that it would be more credible to focus on labor market outcomes that have been achieved in the recent past or thatâgiven how high the unemployment rate currently isâsuch guidance would clearly signal a high degree of accommodation for an extended period. A few others suggested that calendar-based guidanceâwhich specifies a date beyond which accommodation could start to be reducedâmight be at least as effective as outcome-based guidance. They noted that calendar-based guidance had been very effective when the Committee used it in 2011 and 2012 or that it would be very challenging to provide credible outcome-based guidance in light of the substantial uncertainty surrounding the current economic outlook. Regardless of the specific form of forward guidance, a couple of participants expressed the concern that policies that effectively committed the Committee to maintaining very low interest rates for a long time could ultimately pose significant risks to financial stability. Participants agreed that asset purchase programs can promote accommodative financial conditions by putting downward pressure on term premiums and longer-term yields. Several participants remarked that declines in the neutral rate of interest and in term premiums over the past decade and prevailing low levels of longer-term yields would likely act as constraints on the effectiveness of asset purchases in the current environment and noted that these constraints were not as acute when the Committee implemented such programs in the wake of the Global Financial Crisis. These participants noted, however, that large-scale asset purchases could still be beneficial under current circumstances by offsetting potential upward pressures on longer-term yields or by helping reinforce the Committee's commitment to maintaining highly accommodative financial conditions. A few participants questioned the desirability of large-scale asset purchases following the current purchases to support market functioning, noting that they likely would lead to a further considerable expansion of the Federal Reserve's balance sheet or have potentially adverse implications for financial stability. In their discussion of the foreign and historical experience with YCT policies and the potential role for such policies in the United States, nearly all participants indicated that they had many questions regarding the costs and benefits of such an approach. Among the three episodes discussed in the staff presentation, participants generally saw the Australian experience as most relevant for current circumstances in the United States. Nonetheless, many participants remarked that, as long as the Committee's forward guidance remained credible on its own, it was not clear that there would be a need for the Committee to reinforce its forward guidance with the adoption of a YCT policy. In addition, participants raised a number of concerns related to the implementation of YCT policies, including how to maintain control of the size and composition of the Federal Reserve's balance sheet, particularly as the time to exit from such policies nears; how to combine YCT policiesâwhich at least in the Australian case incorporate aspects of date-based forward guidanceâwith the types of outcome-based forward guidance that many participants favored; how to mitigate the risks that YCT policies pose to central bank independence; and how to assess the effects of these policies on financial market functioning and the size and composition of private-sector balance sheets. A number of participants commented on additional challenges associated with YCT policies focused on the longer portion of the yield curve, including how these policies might interact with large-scale asset purchase programs and the extent of additional accommodation they would provide in the current environment of very low interest rates. Some of these participants also noted that longer-term yields are importantly influenced by factors such as longer-run inflation expectations and the longer-run neutral real interest rate and that changes in these factors or difficulties in estimating them could result in the central bank inadvertently setting yield caps or targets at inappropriate levels. A couple of participants remarked that an appropriately designed YCT policy that focused on the short-to-medium part of the yield curve could serve as a powerful commitment device for the Committee. These participants noted that, even if market participants currently expect the federal funds rate to remain at its ELB through the medium term, the introduction of an effective YCT policy could help prevent those expectations from changing prematurelyâas happened during the previous recoveryâor that the size of a large-scale asset purchase program, which also poses risks to central bank independence, could be reduced by an effective YCT policy. All participants agreed that it would be useful for the staff to conduct further analysis of the design and implementation of YCT policies as well as of their likely economic and financial effects. A number of participants emphasized that, when assessing the potential roles that different monetary policy tools might play to support the attainment of the Committee's goals, it was important to think about how various policy tools could be used in coordination as part of the Committee's overall strategy to achieve its dual-mandate objectives. In addition, various participants noted that clear communications with the public are central to the efficacy of all policy tools and that, therefore, the Committee should complete its monetary policy framework review in the near term, including revising the Statement on Longer-Run Goals and Monetary Policy Strategy. Such a revised statement would communicate to the public how the Committee views its policy goals and provide additional context to the Committee's policy actions. Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets over the intermeeting period. Risk asset prices were buoyed by optimism about the potential for increased economic activity associated with reopenings as parts of the United States and other countries relaxed lockdown restrictions. That optimism was reinforced by high-frequency data suggesting a pickup in economic activity. Market participants also pointed to the suite of U.S. and global policy measures taken since mid-March as laying a foundation for the improvement in risk sentiment. Against this backdrop, staff analysis suggested that equity prices had been supported by expectations for a strong rebound in earnings next year, low risk-free rates and positive risk sentiment. Despite this improvement in risk sentiment, market participants expected weak overall growth in 2020, and elevated uncertainties in the outlook remained. The manager noted that prospects for adverse developments regarding the coronavirus (COVID-19) and the potential for financial strains to amplify recessionary dynamics, and geopolitical developments, including renewed U.S.âChina tensions, presented near term risks to financial markets. Market participants were also attentive to the recent steepening in the Treasury yield curve and noted a range of uncertainties in the outlook for longer-term rates. Regarding expectations for monetary policy, respondents to the Open Market Trading Desk's surveys suggested that most market participants did not anticipate policy changes at the June meeting. The target range for the federal funds rate was expected to remain at the ELB for at least the next couple of years, although many survey respondents attached some probability to the target range increasing in 2022. Although the rates implied by federal funds futures contracts settling next year had fallen to slightly negative levels in May, survey respondents attached very little probability to the possibility of negative policy rates. The manager turned to a discussion of Federal Reserve operations. Credit facilities, some of which became operational over the period, generally experienced modest activity in light of broad improvements in credit market conditions. New usage across many funding operations and facilities had declined over the intermeeting period as conditions in funding markets improved. The manager noted that a significant proportion of amounts outstanding under U.S. dollar liquidity swaps and repurchase agreements (repo) reflected term transactions initiated during the period of funding market strains. In light of the improvement in funding market conditions, the manager noted that it might be appropriate to make a modest adjustment to the minimum bid rates on repo operations in the forthcoming calendar, which would effectively position these operations in a backstop role. These adjustments were not expected to have any significant effects in short-term funding markets. Finally, the manager discussed the near-term plans for purchases of Treasury securities and agency mortgage-backed securities (MBS). Overall, functioning in the markets for these securities had improved substantially. In light of these improvements, the Desk had gradually reduced the pace of purchases over the intermeeting period, to their current levels of $4 billion per day in Treasury securities and $4.5 billion per day in agency MBS. These purchase amounts were significantly lower than the peak pace in mid-March and roughly corresponded to monthly increases in SOMA holdings of approximately $80 billion in Treasury securities and $40 billion in agency MBS. Continuing to increase holdings at this pace would likely help sustain the improvements in market functioning, and seemed to be roughly in line with market expectations for Treasury purchases, and toward the lower end of expectations for agency MBS purchases, net of reinvestments. In addition, principal payments from agency debt and agency MBS held in the SOMA portfolio could continue to be reinvested in agency MBS. Weekly operations in agency commercial mortgage-backed securities (CMBS) would also be conducted. The Desk was prepared to increase the size or adjust the composition of Treasury, agency MBS and agency CMBS purchases as needed to sustain smooth market functioning in the markets for these securities. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The coronavirus outbreak and the measures undertaken to contain its spread were severely disrupting economic activity in the United States and abroad. The available information for the June 9â10 meeting suggested that U.S. real gross domestic product (GDP) would likely post a historically large decline in the second quarter. Labor market conditions improved in May, but these improvements were modest relative to the substantial deterioration seen over the previous two months. Consumer price inflation, as measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE), slowed notably through April, reflecting the effects of both weak aggregate demand and low energy prices. Total nonfarm payroll employment expanded strongly in May, though by much less than the historic job losses recorded in April. The unemployment rate moved down to 13.3 percent in May after soaring to 14.7 percent in April. As was highlighted by the Bureau of Labor Statistics, these figures likely understated the extent of unemployment; accounting for the unusually large number of workers who reported themselves as employed but absent from their jobs would have raised the unemployment rate by 5 percentage points in April and 3 percentage points in May. Both the labor force participation rate and the employment-to-population ratio increased in May. Initial claims for unemployment insurance benefits had declined through the last week of May from their peak in late March, but they still were at a historically elevated level. Average hourly earnings for all employees declined in May after rising sharply in April, but these fluctuations largely reflected the substantial changes in the level and composition of employment, which disproportionately affected lower-wage workers. The employment cost index for total labor compensation in the private sector increased 2.8 percent over the 12 months ending in Marchâa period mostly predating the onset of the pandemicâand was the same as its year-earlier pace. Total PCE price inflation was only 0.5 percent over the 12 months ending in April, reflecting both weak aggregate demand in recent months and a considerable drop in consumer energy prices. Prices fell in March and April in many categories that were affected the most by social-distancing measures, such as the prices for air travel and hotel accommodations. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.0 percent over the 12 months ending in April. In contrast, the trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 1.9 percent in April. The consumer price index (CPI) inched up 0.1 percent over the 12 months ending in May, while core CPI inflation was 1.2 percent over the same period. Recent readings on survey-based measures of longer-run inflation expectations were little changed on balance. The University of Michigan Surveys of Consumers measure for the next 5 to 10 years edged up in May, while the 3-year-ahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations was unchanged. The 10-year measure for PCE price inflation from the Survey of Professional Forecasters ticked down in the second quarter. All of these measures of longer-run inflation expectations continued to be near their recent ranges. Real PCE slumped in April, with declines widespread across most spending categories. In May, however, light motor vehicle sales and some other high-frequency indicators of consumer spending turned up, but the levels of these indicators were mostly still below their levels early in the year. Real disposable personal income increased significantly in April, as a marked decline in wage and salary income was more than offset by a substantial boost from government transfer payments due to recent fiscal policy support; as a result, the personal saving rate soared. The consumer sentiment measures from both the Michigan survey and the Conference Board survey crept up in May but remained below their levels early in the year. Real residential investment appeared to be weakening significantly in the second quarter. Starts and building permit issuance for single-family homes, along with starts of multifamily units, dropped sharply in April. Sales of existing homes contracted markedly in April, al­though new home sales edged up. Real business fixed investment continued to tumble in the second quarter. Nominal new orders and shipments of nondefense capital goods excluding aircraft decreased considerably in April. Nominal business spending for nonresidential structures outside of the drilling and mining sector also fell in April. In addition, the effects of low crude oil prices were evident in further declines in the number of crude oil and natural gas rigs in operation through early June, an indicator of business spending on structures in the drilling and mining sector. Total industrial production plunged in April, as many factories slowed or suspended operation in response to the coronavirus pandemic. The decline in manufacturing production was widespread across all major industries and was led by a collapse in the output of motor vehicles and related parts. Output in the mining sectorâwhich includes crude oil extractionâalso decreased, reflecting the effects of low crude oil prices. Total real government purchases appeared to be rising moderately in the second quarter. Federal defense spending continued to increase in April, and nondefense purchases were likely to be boosted in the second quarter by recent fiscal policy measures related to the coronavirus. In contrast, state and local purchases looked to be declining, as the payrolls of these governments shrank in April and May, and nominal state and local construction expenditures decreased in April. The nominal U.S. international trade deficit widened in both March and April, as exports of goods and services plunged more than imports. The fall in goods exports was broad based, with particularly sharp declines in automotive products, industrial supplies, and capital goods. Goods imports also contracted significantly in most categories through April, and a near halt of international travel drove a steep decline in exports and imports of services. Foreign economic activity contracted in the first quarter, even though most countries abroad introduced strict social-distancing measures to contain the spread of the coronavirus only toward the end of the quarter. In China, where restrictions were largely lifted by the end of the first quarter, data pointed to a relatively quick rebound in economic activity in the second quarter. Outside of China, indicators suggested that foreign economic activity plummeted further in the second quarter, notwithstanding some signs of improvement in May as restrictions started to ease. Inflation rates fell sharply across most foreign economies in April and May. The low level of oil prices relative to a year ago contributed to 12-month inflation rates close to or below zero in many advanced foreign economies (AFEs). Staff Review of the Financial Situation Over the intermeeting period, risk sentiment improved, on net, as optimism over reopening the economy, potential coronavirus treatments, the unexpectedly positive May employment situation report, and other indicators that suggest that economic activity may be rebounding more than offset concerns arising from otherwise dire economic data releases, warnings from health experts that openings may have been premature, and renewed tensions between the United States and China. Equity prices rose, and corporate bond spreads narrowed notably. The Treasury yield curve steepened, and the market-implied expected path of the federal funds rate declined somewhat. Liquidity conditions continued to improve in general, but some stress was still evident in several markets. Financing conditions were still somewhat strained for lower-rated borrowers and small businesses even as announcements and implementation of Federal Reserve facilities during the intermeeting period were supportive of credit flows. The credit quality of businesses and municipal debt weakened. The expected path of the federal funds rate for the next few years, based on a straight read of overnight index swap quotes, declined a bit and remained close to the ELB through late 2023. Market-implied forward rates referring to 2021 and 2022 turned slightly negative for a few days beginning on May 7, though market commentary suggested that this development did not reflect investors expecting the FOMC to lower the federal funds rate target range below zero. This view was supported by Federal Reserve communications that negative interest rates did not appear to be an attractive policy tool. The Treasury yield curve steepened over the intermeeting period, with 2-year yields little changed while 10- and 30-year yields rose. Longer-term yields were likely boosted by expectations of heavy upcoming Treasury security issuance as well as some unwinding of safe-haven demands in connection with improved investor sentiment. The Treasury's first 20-year bond offering since 1986 was met with solid demand. Changes in inflation compensation based on Treasury Inflation-Protected Securities yields were mixed; 5-year inflation compensation rose amid the recent partial rebound in crude oil prices, while the 5-to-10-year measure edged down. At the end of the intermeeting period, both measures stood roughly halfway between their mid-March lows and typical levels seen in recent years. Broad stock price indexes moved higher. One-month implied volatility on the S&P 500 index declined somewhat but still stood at the 85th percentile of its distribution since 1990. Spreads on investment- and speculative-grade corporate bonds over comparable-maturity Treasury yields narrowed considerably but remained at levels similar to those in other periods of notable economic or bond market stress, though well below financial crisis levels. Over the intermeeting period, financial market functioning appeared to improve in general, al­though progress was uneven. Liquidity measures improved in the Treasury market, but off-the-run Treasury securities of all tenors and longer-maturity on-the-run securities remained less liquid than before the onset of the pandemic. Agency MBS market functioning had largely recovered, except for some less liquid parts of the market. Corporate bond market liquidity improved considerably but remained somewhat strained, particularly for speculative-grade bonds. Liquidity in the municipal bond markets was still below pre-pandemic levels. Conditions in unsecured short-term funding markets continued to improve over the intermeeting period, and spreads on most types of commercial paper and negotiable certificates of deposit narrowed to levels that approached pre-pandemic ranges. Amid better market conditions, take-up in the emergency liquidity facilities declined substantially. Heavy demand for Treasury bills from money market funds held down rates despite an unprecedented pace of issuance. The effective federal funds rate was 5 basis points almost every day over the intermeeting period, and the Secured Overnight Financing Rate averaged 4 basis points. Total outstanding Federal Reserve repos averaged about $170 billion. Amid improving market functioning, Federal Reserve purchases of Treasury securities and agency MBS were reduced from around $10 billion and $8 billion per day, respectively, to $4 billion and $4.5 billion per day, respectively, over the intermeeting period. Risk sentiment in foreign financial markets improved over the intermeeting period. Further monetary policy and fiscal policy support in foreign countries, the easing of coronavirus-related restrictions, and a stronger-than-expected U.S. May employment report outweighed concerns about otherwise weak global economic data and the resurgence of U.S.âChina tensions. Liquidity in global dollar funding markets continued to improve, helped in part by the Federal Reserve's liquidity programs, and prices of foreign risky assets increased. In the AFEs, option-implied volatility measures declined and long-term sovereign bond yields rose moderately, while fiscal stimulus in Japan and Europe boosted prices in their respective equity markets. Euro-area peripheral bond spreads narrowed after the European Commission proposed that the European Union be given the authority to borrow €750 billion to assist the recovery and the European Central Bank (ECB) increased the size of its Pandemic Emergency Purchase Programme. In emerging markets, the rise in oil prices since late April and overall improvements in investor sentiment boosted asset prices, even as the coronavirus outbreak worsened in some countries. Outflows from emerging market funds slowed and then turned into small inflows later in the period. The improving risk sentiment also supported several foreign currencies, and the staff's broad dollar index fell. The euro appreciated notably over the period, lifted in part by the European fiscal and monetary policy communications. The recent rebound in oil prices contributed to a strong appreciation of the Canadian dollar, the Brazilian real, and the Mexican peso. Financing conditions for nonfinancial firms eased somewhat over the intermeeting period, though they remained moderately strained for lower-rated borrowers. Investment-grade corporate bond issuance soared to record levels in April and remained robust in May, as issuers took advantage of more favorable market conditions following Federal Reserve announcements of two facilities to support corporate credit markets. Regarding these facilities, the Secondary Market Corporate Credit Facility began in mid-May to purchase exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. corporate bonds. Speculative-grade corporate bond issuance picked up considerably toward the end of April from very low levels, though it slowed somewhat in May. Commercial and industrial loans on banks' books surged again in April, largely driven by lending through the Paycheck Protection Program (PPP), especially at smaller banks. Credit-line drawdowns continued in April and May, though drawdowns by large firms slowed considerably from record levels in March. The credit quality of nonfinancial corporations continued to deteriorate sharply during the intermeeting period. The volume of nonfinancial corporate bond and leveraged loan downgrades remained very high in April and May. Defaults in corporate bonds and leveraged loans increased as well; market analysts projected defaults to increase considerably over the remainder of 2020 and into 2021. Financing conditions for small businesses tightened amid widespread continued pandemic-related closures and reduced operations of small businesses. Lenders indicated that they had tightened loan standards on small business loans or discontinued lending to such borrowers altogether (other than PPP loans). Financing conditions for state and local governments improved moderately following several Federal Reserve announcements to support the municipal debt market, but conditions remained somewhat strained for lower-rated states and municipalities. In the first week of June, the State of Illinois became the first to use the Municipal Liquidity Facility. Commercial real estate (CRE) lending conditions recovered somewhat during the intermeeting period. Spreads on triple-A-rated and triple-B-rated non-agency CMBS declined in May but remained elevated relative to before the pandemic, and issuance showed signs of recovery in late April and early May. Federal Reserve purchases of agency CMBS reportedly helped return spreads on these securities to their pre-pandemic levels, and issuance in that market continued to be strong. However, early signs of credit repayment difficulties emerged in some CRE sectors. The volume of mortgage rate locks for home-purchase loans picked up in mid-May following a material drop in April. Financing conditions remained tight for borrowers with relatively low credit scores and for those seeking nonconforming mortgages. In addition, options for home equity extraction continued to be restricted, as credit for both home equity lines of credit and cash-out refinances was limited. Servicers were able to handle the liquidity strains imposed by forbearance. The sharp decline in economic activity had also curtailed the demand for consumer credit. On balance, consumer credit financing conditions did not appear to be a major drag on household spending. Issuance of consumer asset-backed securities resumed in mid-April and in early May but remained significantly below pre-pandemic levels. Staff Economic Outlook The projection for the U.S. economy prepared by the staff for the June FOMC meeting was downgraded, on balance, as compared with the April meeting forecast in response to information on the spread of the coronavirus and changes in the measures undertaken to contain it both at home and abroad, along with incoming economic data. U.S. real GDP was forecast to show a historically large decline in the second quarter of this year, and the unemployment rate was expected to be sharply higher than in the first quarter. The substantial fiscal policy measures and appreciable support from monetary policy, along with the Federal Reserve's liquidity and lending facilities, were expected to help mitigate the deterioration in current economic conditions and to help boost the recovery. The staff continued to judge that the future performance of the economy would depend importantly on the evolution of the coronavirus outbreak and the measures undertaken to contain it. Under the staff's baseline assumptions that the current restrictions on social interactions and business operations would continue to ease gradually this year, real GDP was forecast to rise appreciably and the unemployment rate to decline considerably in the second half of the year, al­though a complete recovery was not expected by year-end. Inflation was projected to weaken this year, reflecting both the deterioration in resource utilization and sizable expected declines in consumer energy prices. Under the baseline assumptions, economic conditions were projected to continue to improve, and inflation to pick back up, over the next two years. The staff still observed that the uncertainty related to the economic effects of the coronavirus pandemic was extremely elevated and that the historical behavior of the U.S. economy in response to past economic shocks provided limited guidance for making judgments about how the economy might evolve in the future. In light of the significant uncertainty and downside risks associated with the pandemic, including how much the economy would weaken and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast. In this scenario, a second wave of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year. Compared with the baseline, the disruption to economic activity was more severe and protracted in this scenario, with real GDP and inflation lower and the unemployment rate higher by the end of the medium-term projection. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2020 through 2022 and over the longer run, based on their individual assessments of appropriate monetary policyâincluding the path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections are described in the Summary of Economic Projections, which is an addendum to these minutes. Participants noted that the coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices were holding down consumer price inflation. Financial conditions had improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that lowering the federal funds rate to its ELB had established more accommodative financial conditions and that the Federal Reserve's ongoing purchases of sizable quantities of Treasury securities and agency MBS had helped restore smooth market functioning to support the economy and the flow of credit to U.S. households and businesses. The fiscal response to economic developments had been large and timely and was providing much needed support for economic activity. Credit flows and economic activity were also being supported by the lending facilities established under the authority of section 13(3) of the Federal Reserve Act with the approval of the Secretary of the Treasury. Participants judged that the effects of the coronavirus outbreak and the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term and would pose considerable risks to the economic outlook over the medium term. Participants agreed that the data for the second quarter would likely show the largest decline in economic activity in postâWorld War II history. Based in part on information from their Districts, participants observed that the burdens of the present crisis were not falling equally on all Americans and noted that the rise in joblessness was especially severe for lower-wage workers, women, African Americans, and Hispanics. Participants agreed that recently enacted fiscal policy programs had been delivering valuable direct financial aid to households, businesses, and communities, as well as providing relief to disadvantaged groups. Regarding household spending, participants pointed to information from District contacts, to surveys of consumer behavior, and to high-frequency indicatorsâsuch as credit card transactions, automated teller machine visits, and cellphone data trackingâas suggesting that consumer expenditures may be stabilizing or rebounding modestly. Limited available sources of standard economic data, such as retail purchases and motor vehicle sales, also seemed in line with this impression. With supportive monetary policy and payments to households under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), including enhanced unemployment insurance payments, participants expected personal consumption expenditures to grow strongly in the second half of the year, albeit from very low levels. However, the recovery in consumer spending was not expected to be particularly rapid beyond this year, with voluntary social distancing, precautionary saving, and lower levels of employment and income restraining the pace of expansion over the medium term. Participants noted that levels of uncertainty and risks perceived by businesses remained high and that these factors continued to contribute to restraints on capital expenditures, despite easing in financing conditions stemming in part from recent policy measures. Some business contacts pointed to halting improvements in consumer demand, a dearth in public infrastructure projects due to strained state and local government budget conditions, or the decline in energy prices as factors likely to depress business spending. Some participants also noted reports of firms stating that they have had some challenges in rehiring employees, in part related to temporary enhanced unemployment insurance benefits. Participants generally agreed that practices and developments in public health to address the pandemic would be critical for ensuring a strong and lasting reopening of businesses and reducing the likelihood of an outsized wave of closures, but monetary policy and, especially, fiscal policy would play important roles. Nevertheless, participants concluded that voluntary social distancing and structural shifts stemming from the pandemic would likely mean that some proportion of businesses would close permanently. Noting ongoing changes in the composition of production and the processes by which production takes place, participants suggested that some business adaptations were likely to endure long after the coronavirus subsides, resulting in notable dislocation and sectoral reallocation of firms and workers across industries. Participants noted that conditions in the energy sector remained difficult amid still-low oil prices. Several participants anticipated continued low drilling activity, at least until excess inventories were reduced later this year, and expressed concern that a wave of bankruptcies in the energy sector could be forthcoming. In addition, the agricultural sector continued to be under stress due to low prices for some farm commodities, reduced ethanol production, and pandemic-related limitations on production for some food processing plants. With regard to the labor market, participants remarked on the surprisingly positive news from the labor market report for May but emphasized that nearly 20 million jobs had been lost, on net, since February. Participants noted that because of misclassification errors in the Current Population Survey, the official unemployment rate for May likely understated the extent of unemployment; others observed that government reliance on unemployment insurance as a vehicle for income support under the CARES Act complicates the interpretation of the data. Participants also noted that unemployment insurance claims continued to run at a historically elevated level, but the proportion of laid-off workers who expected to be recalled was unusually large. Taken together, the data suggested that April could turn out to be the trough of the recession, but participants agreed that it was too early to draw any firm conclusions. Prospects for further substantial improvement in the labor market were seen as depending on a sustained reopening of the economy, which in turn depended in large part on the efficacy of health measures taken to limit the effects of the coronavirus. On this issue, participants judged there to be a great deal of uncertainty and expressed concerns about the possibility that an early reopening would contribute to a significant increase of infections. Participants also regarded highly accommodative monetary policy and sustained support from fiscal policy as likely to be needed to facilitate a durable recovery in labor market conditions. Overall, participants expected that a full recovery in employment would take some time. With regard to inflation, participants reiterated their view that the negative effect from the pandemic on aggregate demand was likely to more than offset any upward pressure from supply constraints so that the overall effect of the outbreak on prices was seen as disinflationary. Consistent with that interpretation, participants observed the recent negative readings on the monthly CPI and noted that they anticipated that the 12-month PCE inflation measure would likely run well below the Committee's 2 percent objective for some time. Observing that inflation had been running somewhat below the Committee's 2 percent longer-run objective before the coronavirus outbreak, some participants noted a risk that long-term inflation expectations might deteriorate. Participants noted that a highly accommodative stance of monetary policy would likely be needed for some time to achieve the 2 percent inflation objective over the longer run. Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook. Participants shared views on possible outcomes for the reopening of the economy, the prospects for effective voluntary social distancing, and the efficacy of public health initiatives for their implications for economic activity and employment. A number of participants judged that there was a substantial likelihood of additional waves of outbreaks, which, in some scenarios, could result in further economic disruptions and possibly a protracted period of reduced economic activity. Other possibilities included economic activity that might recover more quickly if sizable, widespread outbreaks could be avoided even as households and businesses relax or modify social-distancing behaviors. Among the other sources of risk noted by participants were that fiscal support for households, businesses, and state and local governments might prove to be insufficient and that foreign economies could come under greater pressure than anticipated as a result of the spread of the pandemic abroad. Participants stressed that measures taken in the areas of health-care policy and fiscal policy, together with actions by households and businesses, would shape the prospects for a prompt and timely return of the U.S. economy to more normal conditions. In addition, participants agreed that recent actions taken by the Federal Reserve had helped reduce risks to the economic outlook. As part of their discussions of longer-run risks, participants noted that in some adverse scenarios, more business closures would occur, and workers would experience longer spells of unemployment that could lead to a loss of skills that could impair their employment prospects. In addition, to the extent that transmission-mitigation procedures adopted by firms reduced their productivity, or if the reallocation of industry output resulted in a lasting reduction in business investment, the longer-run level of potential output could be reduced. Regarding developments in financial markets, participants agreed that ongoing actions by the Federal Reserve, including those undertaken in collaboration with the Treasury, had helped ease strains in some financial markets and supported the flow of credit to households, businesses, and communities. Measures of market functioning in the markets for Treasury securities and agency MBS had improved substantially since March. Strains in short-term funding markets had receded as well, and the volume of borrowing at many of the Federal Reserve's liquidity facilities had moved lower as borrowers returned to market sources of funding. Risk spreads across a range of fixed-income markets had narrowed as the intense flight to safety witnessed in financial markets in the spring ebbed further. In their consideration of monetary policy at this meeting, participants reaffirmed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. In light of their assessment that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term, all participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent. Keeping the target range at the ELB would continue to provide support to the economy and promote the Committee's maximum-employment and price-stability goals. Participants also judged that it would be appropriate to maintain the target range for the federal funds rate at its present level until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum-employment and price-stability goals. Participants also agreed that, to support the flow of credit to households and businesses, over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency MBS and agency CMBS at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Desk would continue to offer large-scale overnight and term repo operations. Participants noted that it would be important to continue to monitor developments closely and that the Committee would be prepared to adjust its plans as appropriate. Participants also commented that the lending facilities established by the Federal Reserve under the authority of section 13(3) of the Federal Reserve Act were supporting financial market functioning and the flow of credit to households, businesses of all sizes, and state and local governments. Several participants commented further that it would be important for the Federal Reserve to remain ready to adjust these emergency lending facilities as appropriate based on its monitoring of financial market functioning and credit conditions. Participants agreed that the current stance of monetary policy remained appropriate, but many noted that the Committee could, at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions as the economic outlook becomes clearer. In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency MBS as more information about the trajectory of the economy becomes available. A number of participants judged that it was important for forward guidance and asset purchases to be structured in a way that provides the accommodation necessary to support rapid economic recovery and fosters a durable return of inflation and inflation expectations to levels consistent with the Committee's symmetric 2 percent objective. Many participants remarked that the completion of the monetary policy framework review, together with the announcement of the conclusions arising from the review and the release of a revised Committee statement on its goals and policy strategy, would help clarify further how the Committee intends to conduct monetary policy going forward. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health had induced sharp declines in economic activity and a surge in job losses. Consumer price inflation was being held down by weaker demand and significantly lower oil prices. Financial conditions had improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households, businesses, and communities. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. Members further concurred that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable downside risks to the economic outlook over the medium term. In light of these developments, members decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. Members noted that they expected to maintain this target range until they were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum-employment and price-stability goals. Members agreed that they would continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and would use the Committee's tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, members noted that they would assess realized and expected economic conditions relative to the Committee's maximum-employment objective and its symmetric 2 percent inflation objective. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, members agreed that over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency MBS and agency CMBS at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Desk would continue to offer large-scale overnight and term repo operations. Members agreed that they would closely monitor developments and be prepared to adjust their plans as appropriate. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective June 11, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) at least at the current pace to sustain smooth functioning of markets for these securities, thereby fostering effective transmission of monetary policy to broader financial conditions. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS and all principal payments from holdings of agency CMBS in agency CMBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective June 11, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 28â29, 2020. The meeting adjourned at 10:05 a.m. on June 10, 2020. Notation Vote By notation vote completed on May 19, 2020, the Committee unanimously approved the minutes of the Committee meeting held on April 28â29, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended through the discussion of economic developments and the outlook, and all of Wednesday's session. Return to text 4. Attended through the discussion of forward guidance, asset purchases, and yield caps or targets. Return to text 5. Attended through the discussion of economic developments and the outlook. Return to text 6. Attended from the discussion of economic developments and the outlook through the end of Tuesday's session. Return to text

Minutes of the Federal Open Market Committee July 28-29, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, July 28, 2020, at 10:00 a.m. and continued on Wednesday, July 29, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, 2 Michael Dotsey, Beverly Hirtle, Trevor A. Reeve, Ellis W. Tallman, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Eric Belsky, 3 Director, Division of Consumer and Community Affairs, Board of Governors; Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Brian M. Doyle, Deputy Director, Division of International Finance, Board of Governors; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Ellen E. Meade, Chiara Scotti, and Ivan Vidangos, Special Advisers to the Board, Division of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Division of Board Members, Board of Governors Eric M. Engen and David E. Lebow, Senior Associate Directors, Division of Research and Statistics, Board of Governors; Gretchen C. Weinbach, Senior Associate Director, Division of Monetary Affairs, Board of Governors Edward Nelson and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors David López-Salido, 3 Associate Director, Division of Monetary Affairs, Board of Governors; Paul R. Wood, Associate Director, Division of International Finance, Board of Governors Eric C. Engstrom and Christopher J. Gust, 3 Deputy Associate Directors, Division of Monetary Affairs, Board of Governors; Luca Guerrieri, Deputy Associate Director, Division of Financial Stability, Board of Governors; Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 4 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Brian J. Bonis and Etienne Gagnon, 3 Assistant Directors, Division of Monetary Affairs, Board of Governors; Viktors Stebunovs, 5 Assistant Director, Division of International Finance, Board of Governors Brett Berger, 6 Adviser, Division of International Finance, Board of Governors Penelope A. Beattie, 7 Section Chief, Office of the Secretary, Board of Governors; Dana L. Burnett, Section Chief, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo and Kurt F. Lewis, Principal Economists, Division of Monetary Affairs, Board of Governors Marcelo Ochoa, Senior Economist, Division of Monetary Affairs, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors James Narron, First Vice President, Federal Reserve Bank of Philadelphia David Altig, Kartik B. Athreya, Joseph W. Gruber, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Kansas City, New York, and St. Louis, respectively Michael Schetzel, 6 Senior Vice President, Federal Reserve Bank of New York Eugene Amromin, Kathryn B. Chen, 6 Matthew Nemeth, 6 Joe Peek, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Chicago, New York, New York, Boston, and New York, respectively Robert Lerman, 6 Assistant Vice President, Federal Reserve Bank of New York Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Mark Spiegel, Senior Policy Advisor, Federal Reserve Bank of San Francisco Review of Monetary Policy Strategy, Tools, and Communication Practices Participants continued their discussion related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices. At this meeting, they discussed potential changes to the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy. Participants agreed that, in light of fundamental changes in the economy over the past decadeâincluding generally lower levels of interest rates and persistent disinflationary pressures in the United States and abroadâand given what has been learned during the monetary policy framework review, refining the statement could be helpful in increasing the transparency and accountability of monetary policy. Such refinements could also facilitate well-informed decisionmaking by households and businesses, and, as a result, better position the Committee to meet its maximum-employment and price-stability objectives. Participants noted that the Statement on Longer-Run Goals and Monetary Policy Strategy serves as the foundation for the Committee's policy actions and that it would be important to finalize all changes to the statement in the near future. Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager turned first to a review of U.S. financial market developments. Over the intermeeting period, overall financial conditions eased slightly. Broad equity price indexes were roughly flat even as concerns about the resurgence in the coronavirus (COVID-19) in the United States grew. At the same time, Treasury yields and other sovereign yields declined, and the U.S. dollar weakened. Overall, volatility remained subdued relative to recent periods. While the S&P 500 index was little changed, the effect of renewed outbreaks was evident in the differentiated performance across S&P industry sectors. Virus-sensitive sectors and firms with weaker fundamentals underperformed over the period, as they had over the broader pandemic episode. Airline and hotel share prices declined sharply, and share prices of banksâwhich faced earnings pressures from large loan loss provisions and compressed net interest marginsâcontinued to underperform. As the SOMA manager highlighted, the S&P 500 index has been supported by its significant share of technology firms, many of which have been relatively resilient to virus containment measures. In contrast, smaller firms not well represented in the S&P 500 may be experiencing greater effects on their businesses due to the virusâa possibility consistent with the underperformance of the broader Russell 2000 index over the intermeeting period. The market-implied path of the federal funds rate shifted down modestly over the intermeeting period. The corresponding path implied by responses to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants also fell, as the probabilities placed on rate hikes next year and in 2022 declined. Market pricing suggested that the federal funds rate was expected to first rise above the current target range in 2024. That timing was broadly consistent with survey respondents' expectations regarding the timing of the first increase in the target range, although the range of survey responses was wide. The SOMA manager noted that survey responses suggested that the dispersion in views about the timing of a rate increase might be related to differing views about the economic conditions that would prevail when the FOMC first lifted the target range, as survey respondents' views about those conditions were also dispersed. The SOMA manager reported that market functioning across a number of market segments remained stable at significantly improved levels. In Treasury and agency mortgage-backed securities (MBS) markets, many market functioning indicators had returned to levels prevailing before the pandemic, and, as a result, purchases were conducted at the minimum pace directed by the Committee. Importantly, with conditions in MBS markets continuing to stabilize, primary mortgage rates fell to historically low levels over the intermeeting period. Conditions in short-term dollar funding markets were also stable, with overnight rates close to the interest on excess reserves (IOER) rate. In broader dollar funding markets, term unsecured rates and foreign exchange swap spreads were also steady. Federal Reserve repurchase agreements (repos) outstanding fell from $185 billion to zero over the intermeeting period. With the timing of the overnight operations now having shifted to the afternoon when most trading activity in the repo market is complete and with minimum bid rates above the IOER rate, repo operations had been effectively positioned in a backstop role for the time being. As term U.S. dollar liquidity swaps matured, the amounts outstanding fell to around $120 billion, less than a third of the peak reached in late May. In light of improved conditions across these markets, the Federal Reserve's balance sheet declined over the intermeeting period from $7.2 trillion to $7.0 trillion. The decline was driven by the reductions in repo and U.S. dollar liquidity swaps outstanding. These reductions more than offset ongoing purchases of Treasury securities and agency MBS. The manager discussed a proposal to extend the temporary U.S. dollar liquidity swap arrangements as well as the temporary FIMA (Foreign and International Monetary Authorities) Repo Facility through March of next year. Keeping these arrangements in place would help sustain recent improvements in global dollar funding markets and support smooth functioning of the U.S. Treasury market. Under the proposal, provided that the Committee had no objections, the Chair would approve the extension of the temporary liquidity swap lines following the meeting. The extensions of the swap and FIMA repo arrangements would be announced following this meeting. By unanimous vote, the Committee voted to approve a resolution that extended through March 31, 2021, the expiration of a temporary repo facility for foreign and international monetary authorities (FIMA Repo Facility). 8 Secretary's note: The Chair subsequently provided approval to the Desk, following the procedures in the Authorization for Foreign Currency Operations, to extend the expiration of the temporary U.S. dollar liquidity swap lines through March 31, 2021. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The coronavirus outbreak and the measures undertaken to contain its spread continued to have substantial effects on economic activity in the United States and abroad. The information available at the time of the July 28â29 meeting suggested that U.S. economic activity had picked up in May and June following sharp declines in March and April. Measured on a quarterly basis, however, it appeared that real gross domestic product (GDP) had decreased at a historically rapid rate in the second quarter. Labor market conditions improved considerably in June, but the improvements over May and June were modest relative to the substantial deterioration seen in March and April. Consumer price inflationâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE) through Mayâremained well below the rates that prevailed early in the year. Total nonfarm payroll employment expanded robustly in June, as it did in May, but the gains in those two months offset only about one-third of the jobs lost in March and April. The unemployment rate moved down further to 11.1 percent, but it continued to be far above its level at the beginning of the year. The unemployment rates for African Americans, Asians, and Hispanics declined, on balance, over the past two months but remained well above the national average. Both the labor force participation rate and the employment-to-population ratio increased further in June. Initial claims for unemployment insurance benefits continued to decrease, on net, through the middle of July, but the pace of declines had slowed in recent weeks. In addition, weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP, along with some other high-frequency measuresâsuch as employment at small businesses and job postingsâsuggested that employment gains had slowed since mid-June but likely were still strong. Total PCE price inflation was 0.5 percent over the 12 months ending in May, reflecting both weak aggregate demand and a considerable drop in consumer energy prices. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.0 percent over the same 12-month period. In contrast, the trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 2.0 percent in May. The consumer price index (CPI) increased 0.6 percent over the 12 months ending in June, while core CPI inflation was 1.2 percent over the same period. On a monthly basis, the available data indicated that consumer pricesâas measured by the PCE price index in May and the CPI in Juneâhad turned up after having fallen in March and April; this rebound was evident in many price categories that were most affected by social-distancing measures. Recent readings on survey-based measures of longer-run inflation expectations were little changed on balance. The University of Michigan Surveys of Consumers measure for the next 5 to 10 years was unchanged, on net, from May to early July; the three-year-ahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations edged down in June but remained within its recent range. Real PCE rebounded robustly in May, with particularly strong growth in spending for consumer goods but more moderate gains in expenditures for consumer services. In June, the components of retail sales used by the Bureau of Economic Analysis to estimate PCE, along with light motor vehicle sales, increased further. Overall, however, real consumer spending remained well below the levels that prevailed at the beginning of the year. Moreover, recent high-frequency indicators of spending on many consumer servicesâsuch as restaurant dining, hotel accommodations, and air travelâremained very subdued. Real disposable personal income fell back in May, primarily reflecting the waning of the substantial boost that federal stimulus payments had provided in April. However, wage and salary income increased strongly in May, though to a level still below its February value, and unemployment insurance benefits continued to be substantial, leaving the personal saving rate quite elevated. The consumer sentiment measures from both the Michigan survey and the Conference Board survey improved notably in June but fell back somewhat in July. Housing-sector activity bounced back strongly in recent months, likely boosted in part by the effects of low interest rates. Starts and building permit issuance for single-family homes, along with starts of multifamily units, increased significantly over May and June; however, these construction measures were still below their pre-pandemic levels. Sales of existing homes rose substantially over those two months, and new home sales also moved up on net. Indicators of business fixed investment suggested that investment had generally not begun to recover but that the pace of declines had moderated, on balance, in recent months. Nominal new orders and shipments of nondefense capital goods excluding aircraft increased in May and June, but they remained below their levels at the beginning of the year, while some measures of business sentiment improved. Nominal business spending on nonresidential structures outside of the drilling and mining sector declined further in May, and the number of crude oil and natural gas rigs in operationâan indicator of business spending on structures in the drilling and mining sectorâcontinued to decrease through late July. Industrial production expanded briskly in May and June, as many factories reopened or ramped up production. The surge in manufacturing production was led by appreciable gains in the output of motor vehicles and related parts following extended automaker shutdowns from mid-March through April. In contrast, output in the mining sectorâwhich includes crude oil extractionâdecreased further, reflecting the effects of still-low crude oil prices. Total real government purchases appeared to have increased moderately, on balance, in the second quarter. Federal defense spending continued to rise through June, and nondefense purchases were likely boosted in the second quarter by fiscal policy measures taken in response to the coronavirus. In contrast, state and local purchases looked to have declined markedly, as the payrolls of these governments shrank further in June, and nominal state and local construction expenditures decreased, on net, over April and May. The nominal U.S. international trade deficit widened in May relative to April, as exports decreased more than imports. The fall in exports was broad based across goods categories, while lower imports of automotive products more than offset higher imports of consumer goods and industrial supplies. Following April's historic plunge, exports and imports of services fell a bit further in May, driven by the continued suspension of most international travel. Preliminary data for June showed some recovery in nominal goods exports and imports. Altogether, the available data suggested that net exports were a significant drag on the rate of change in real GDP in the second quarter. Incoming data suggested that foreign economic activity plunged in the second quarter as a result of the coronavirus pandemic and the measures undertaken to contain it. There were also signs that many foreign economies started to recover over the past few months as restrictions were gradually eased. In China, where economic activity had collapsed in the first quarter and restrictions were rolled back earlier than elsewhere, the preliminary GDP release showed that the economy bounced back strongly in the second quarter. In the euro area and other advanced foreign economies, recent data on industrial production and, to a lesser extent, consumer spending showed a partial recovery in May and June. However, continued uncertainty about the course of the virus was underscored by the fact that some emerging market economies were struggling to control the pandemic, while some other countries that previously contained the virus were experiencing flare-ups of new infections. Inflation rates continued to fall in most foreign economies through June because of low energy prices and weak demand, and measures of inflation expectations remained subdued. Staff Review of the Financial Situation Amid sizable fluctuations, changes in asset prices over the intermeeting period were mixed on net. Financial market sentiment was boosted by better-than-expected economic data for the United States, China, and Europe. However, the boost to sentiment appeared to have been offset by concerns about the domestic spread of the coronavirus and its uncertain effects on the future course of the economy. On balance, broad equity price indexes were roughly unchanged, Treasury yields declined and the yield curve flattened, corporate and municipal bond spreads narrowed, and the dollar weakened somewhat. Liquidity conditions continued to normalize but had not returned to their pre-pandemic levels in several markets. Over the intermeeting period, yields on nominal Treasury securities fell and the yield curve flattened on net. Yields declined somewhat at the start of the intermeeting period following the more-accommodative-than-expected June FOMC communications. The further decline in yields that occurred over subsequent weeks likely reflected concerns about the surge in confirmed coronavirus cases across many parts of the United States. Measures of inflation compensation based on Treasury Inflation Protected Securities maturing over the next few years continued to rebound from their sharp drop in mid-March. The rebound was reportedly driven primarily by investors' interpretation of recent economic data, which suggested that the risk of deflation had abated somewhat, as well as by some improvement in market liquidity. Despite the uptick, both the 5-year and 10-year measures of inflation compensation remained below their pre-pandemic levels. The expected path of the federal funds rate based on a straight read of overnight index swap quotes declined modestly and stayed close to the effective lower bound at least through the first half of 2024. Marketâimplied forward rates referring to 2021 and 2022 remained slightly negative; however, market commentary suggested that investors generally did not expect the FOMC to lower the federal funds target range below zero. Broad stock price indexes fluctuated substantially, largely in reaction to news about the pandemic and economic activity, and ended the intermeeting period roughly unchanged. Technology stocks continued to outperform the broader market, whereas equity prices in the bank and energy sectors fell notably over the period. One-month option-implied volatility on the S&P 500 indexâthe VIXârose markedly earlier in the period but subsequently declined and ended the period lower. Equity market volatility remained elevated relative to its normal range over the past several years. Spreads of investment- and speculative-grade corporate bond yields over comparable-maturity Treasury yields narrowed somewhat and had retraced most of their pandemic-related surge. Conditions in short-term funding markets were generally stable over the intermeeting period. Spreads for negotiable certificates of deposit and most types of commercial paper were little changed, on net, and spreads and issuance volumes for both types of instruments reached preâpandemic levels. In light of the stable market conditions, there was little activity in the emergency liquidity facilities. Since the June FOMC meeting, assets under management for prime money market funds (MMFs) were little changed, whereas government MMFs experienced moderate outflows. Amid heavy issuance of securities by the Treasury, government MMFs continued to increase their holdings of Treasury securities while reducing their holdings of repos. The effective federal funds rate (EFFR) and Secured Overnight Financing Rate (SOFR) increased, on average, 4 basis points and 5 basis points, respectively, from the previous intermeeting period. The EFFR fluctuated between 8 and 10 basis points, and the SOFR fluctuated between 7 and 13 basis points, throughout the intermeeting period. The decline in total outstanding Federal Reserve repo operations from $185 billion to zero largely reflected an increase in minimum bid rates at the Federal Reserve's overnight and term repo operations. Over the intermeeting period, the Federal Reserve maintained the purchases of Treasury securities and agency MBS at the pace prevailing at the end of the previous intermeeting period. Risk sentiment abroad fluctuated over the intermeeting period as market participants weighed increasing coronavirus cases in a number of countries against improving economic data releases and ongoing fiscal and monetary policy support. Foreign equity prices generally declined on net. A resurgence of geopolitical tensions between the United States and China weighed on investor sentiment late in the period and prompted a partial retracement of earlier gains for the Shanghai Composite Index. Long-term sovereign yields in most advanced foreign economies (AFEs) ended the period moderately lower. The yield spreads of long-term Italian bonds over their German counterparts narrowed further, reaching the lowest level since March following agreement on the European Union (EU) Recovery Fund. The staff's broad dollar index declined slightly, on net, with moderate depreciation against AFE currencies. The EU Recovery Fund agreement supported the euro, which appreciated about 3 percent against the dollar over the intermeeting period. In contrast, the Brazilian real depreciated about 5 percent against the dollar, amid continued policy rate cuts by the Central Bank of Brazil, escalating coronavirus cases, and political turmoil in Brazil. Capital market financing conditions for nonfinancial firms eased somewhat further over the intermeeting period, with yields on corporate bonds remaining near historical lows. Investment-grade corporate bond issuance was solid in June, and speculative-grade issuance remained robust. Gross institutional leveraged loan issuance picked up in June from its subdued levels in previous months. Gross equity issuance hit a record level in June, as the volume of seasoned equity offerings reached a new record, while initial public offerings rebounded from their very low levels of the previous three months. In the July Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported a notable tightening of lending standards on commercial and industrial (C&I) loans to firms of all sizes in the second quarter. Standards were reported to be at the tighter end of their range since 2005, a marked change from a year ago. C&I loans on banks' balance sheets contracted significantly in June, reflecting paydowns of the record draws on credit lines seen in previous months, as well as low originations. Credit quality of nonfinancial corporations deteriorated further over the intermeeting period , with a sizable volume of speculative-grade debt downgraded in June. Defaults in May reached their highest single-month volume since 2009, and June defaults were high as well. Market indicators of future default expectations also deteriorated somewhat. Municipal market financing conditions remained accommodative, although the credit quality of municipal debt continued to show signs of weakness. Financing conditions for small businesses remained tight. Banks reported in the July SLOOS that the level of standards for small businesses was at the tighter end of the range since 2005. At the same time, the credit needs of small businesses remained high, as the prospect arose of many businesses having to shut down operations again in response to rising coronavirus cases. Small business loan performance deteriorated significantly; short-term delinquencies were comparable with levels seen in early 2008. Amid tighter lending standards and high credit demand, advances via the Paycheck Protection Program Lending Facility continued to grow over the intermeeting period. In early July, the Main Street Lending Program became fully operational. Financing conditions for commercial real estate (CRE), particularly those in capital markets, recovered further over the intermeeting period. Spreads on non-agency commercial mortgage-backed securities (CMBS) continued to decline in June, while issuance of non-agency CMBS continued to show signs of moderate recovery in May and June. Spreads on agency CMBS remained at pre-pandemic levels, and agency CMBS issuance was strong. In contrast, bank lending standards for CRE loans tightened further, according to the July SLOOS, and CRE loan growth at banks slowed. The credit quality of existing CRE loans continued to deteriorate as further signs of repayment difficulties emerged, most notably in the lodging and retail sectors. Financing conditions in the residential mortgage market were generally unchanged over the intermeeting period. The spread between the primary mortgage rate and MBS yields remained wide, reflecting capacity constraints at loan originators, increased origination costs, and decreases in the value of servicing rights. Credit continued to flow to borrowers with higher credit scores seeking mortgages that met standard conforming loan criteria, and low mortgage interest rates supported elevated refinancing activity. Financing conditions remained tight, however, for borrowers with relatively low credit scores and for those seeking nonconforming mortgages. The July SLOOS and other surveys of mortgage market conditions suggested that both bank and nonbank lenders tightened standards in the second quarter. The credit quality of mortgages did not appear to deteriorate further over the period. Financing conditions for consumer credit tightened a bit further during the intermeeting period. In the credit card market, lending standards at commercial banks tightened further according to the July SLOOS. In contrast, conditions in the auto loan market appeared to be little changed, on balance, with those for subprime borrowers remaining tight. Conditions in the consumer asset-backed securities (ABS) markets were stable during the intermeeting period. Yield spreads for certain highly rated credit card and auto loan ABS stabilized at pre-pandemic levels, while student and auto loan ABS issuance recovered to a pre-pandemic pace. Consumer credit quality remained stable, partly due to forbearance programs. The staff provided an update on its assessment of the stability of the financial system, and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable, while noting an unusually high level of uncertainty associated with this assessment. The staff judged that asset valuation pressures were notable. In particular, high-yield and investment-grade corporate bond spreads were within historical norms, and commercial real estate prices were continuing to increase despite rising vacancy rates. The staff assessed vulnerabilities due to nonfinancial leverage to have risen from moderate to notable, reflecting declines in household incomes and business profits; such declines implied less resilient borrowers. The expected sharp decline in second-quarter real GDP would likely result in a rise in the ratio of household debt to nominal GDP. The ratio of business debt to nominal GDP rose in the first quarter from levels that were already historically highâamid declining profits and deteriorating credit qualityâalthough low interest rates had helped ease firms' debt servicing burdens. The staff assessed vulnerabilities arising from financial leverage to have increased from low to moderate, citing uncertainty about losses connected to business loans for banks and a higher weight on vulnerabilities connected to leverage at nonbank financial institutions. Vulnerabilities associated with maturity and liquidity transformation were characterized as moderate, and the staff noted that Federal Reserve facilities reduced these vulnerabilities at nonbanks. Staff Economic Outlook In the U.S. economic projection prepared by the staff for the July FOMC meeting, the estimated level of real GDP in the second quarter was marked up compared with the June meeting forecast, reflecting the better-than-expected data through June. Nevertheless, economic activity still appeared to have declined at a historically rapid rate in the second quarter. The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast. Although the staff assumed that additional fiscal stimulus measures would be enacted beyond those anticipated in the June forecast, the positive effect on the economic outlook was outweighed somewhat by the staff's assessment of the likely effects of several other factors. Those factors included the increasing spread of the coronavirus in the United States since mid-June; the reactions of many states and localities in slowing or scaling back the reopening of their economies, especially for businesses, such as restaurants and bars, providing services that entail personal interactions; and some high-frequency indicators that pointed to a deceleration in economic activity. Substantial fiscal policy measuresâboth enacted and anticipatedâalong with appreciable support from monetary policy and the Federal Reserve's liquidity and lending facilities were expected to continue bolstering the economic recovery, although a complete recovery was not expected by year-end. Inflation was projected to remain subdued this year, reflecting the substantial amount of slack in resource utilization and the sizable declines in consumer energy prices earlier this year. The staff's baseline assumptions were that the current restrictions on social interactions and business operations, along with voluntary social distancing by individuals, would ease gradually through next year. As a result, the rate of real GDP growth was projected to exceed potential output growth, the unemployment rate was expected to decline considerably, and inflation was forecast to pick back up over 2021 and 2022. The staff continued to observe that the uncertainty related to the economic effects of the pandemic was extremely elevated and that the unusual nature of the pandemic-related shock made assessments about how the economy might evolve in the future more challenging than usual. In light of the significant uncertainty and downside risks associated with the course of the pandemic and how long it would take the economy to recover, the staff still judged that a more pessimistic projection was no less plausible than the baseline forecast. In this alternative scenario, an acceleration of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year. Compared with the baseline, the disruption to economic activity was more severe and protracted in this scenario, with real GDP and inflation lower and the unemployment rate higher by the end of the medium-term projection. Participants' Views on Current Conditions and the Economic Outlook Participants noted that the coronavirus pandemic was causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment had picked up somewhat in recent months but remained well below levels at the beginning of the year. Weaker demand and significantly lower oil prices were holding down consumer price inflation. Overall financial conditions had improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path of the economy would depend on the course of the virus, which was seen as highly uncertain. Participants noted that the rebound in consumer spending from its trough in April had been particularly strong. Resumption in economic activity, as well as payments to households under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, had supported household income and consumer expenditures. Participants observed that with this rebound, household spending likely had recovered about half of its previous decline. Consumers' purchases of goodsâincluding motor vehicles, other durables, and especially goods sold onlineâhad bounced back much more than their purchases of services, such as air travel, hotel accommodations, and restaurant meals, which were disrupted significantly by social distancing and other effects of the virus. With regard to the behavior of household spending in recent weeks, participants pointed to information from District contacts and high-frequency indicators (such as credit and debit card transactions and mobility indicators based on cellphone location tracking) as suggesting that increases in some consumer expenditures had likely slowed in reaction to the further spread of the virus. Participants noted that households' spending on discretionary servicesâsuch as leisure, travel, and hospitalityâwould likely be subdued for some time and thus would be a factor restraining the pace of recovery. In contrast to the sizable rebound in consumer spending, participants saw less improvement in the business sector in recent months, and they noted that their District business contacts continued to report extraordinarily high levels of uncertainty and risks. Several participants relayed examples of some operational difficulties their business contacts were reportedly facing in the current environment. These difficulties included managing disruptions in supply chains, challenges associated with closure and reopening, and elevated employee absenteeism in some cases. Furthermore, some participants noted that small businesses were under significant strain. Also, further near-term fiscal support was uncertain. Participants noted that, in light of conditions in the business sector, business investment spending continued to be subdued. Participants generally agreed that actions of consumers and businesses in taking steps to slow the spread of the virus, along with developments in public health, would be critical in ensuring a durable reopening of businesses. In addition, monetary policy and particularly fiscal policy would also play important roles in supporting business activity. Several participants also commented on ongoing challenges facing the energy or farm sector despite recent improvements. In the energy sector, these challenges included still-low oil demand, excess inventories, and low oil prices, while in the farm sector they included low prices of some farm commodities, pandemic-related disruptions in some food processing plants, and a significant decline in demand for ethanol. Regarding the labor market, many participants commented that the pace of employment gains, which was quite strong in May and June, had likely slowed. The increasing number of virus cases in many parts of the country had led to delays in some business reopenings and to some reclosures as well. The pace of declines in initial unemployment insurance claims had slowed in recent weeks, and claims remained at an elevated level. In addition, participants emphasized that the labor market was a long way from a full recovery even after the positive May and June employment reports; these reports indicated that, through June, only about one-third of the roughly 22 million loss in jobs that occurred over March and April had been offset by subsequent gains. Participants generally agreed that prospects for further substantial improvement in the labor market would depend on a broad and sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficacy of health measures taken to limit the spread of the virus. Participants also discussed the nature of the current situation in the labor market. They noted that the downturn in employment was concentrated among lower-wage and service-sector workers, many of whom were employed in industries most adversely affected by social-distancing measures. And with lower-wage and service-sector jobs disproportionately held by African Americans, Hispanics, and women, these portions of the population were bearing a disproportionate share of the economic hardship caused by the pandemic. Participants noted that the fiscal support initiated in the spring through the CARES Act had been very important in granting some financial relief to millions of families. A number of participants observed that, with some provisions of the CARES Act set to expire shortly against the backdrop of a still-weak labor market, additional fiscal aid would likely be important for supporting vulnerable families, and thus the economy more broadly, in the period ahead. In their comments about inflation, participants generally judged that the negative effect of the pandemic on aggregate demand was more than offsetting upward pressures on some prices stemming from supply constraints or from higher demand for certain products, so that the overall effect of the pandemic on prices was seen as disinflationary. Recent low monthly readings of PCE prices suggested that the 12-month change measure of PCE price inflation would likely continue to run well below the Committee's 2 percent objective for some time. Against this backdrop, a few participants noted a risk that longer-term inflation expectations might move below levels consistent with the Committee's symmetric 2 percent objective. Participants also noted that a highly accommodative stance of monetary policy would likely be needed for some time to support aggregate demand and achieve 2 percent inflation over the longer run. Participants observed that many measures of financial market functioning were indicating that improvements achieved since the extreme turbulence in March had been sustained. Actions by the Federal Reserve, including emergency lending facilities established with approval of (and, in many cases, financial support from) the Treasury, had helped ease the strains in some financial markets seen earlier in the year and were supporting the flow of credit to households, businesses, and communities. Participants observed that the volume of borrowing in recent months at many of the Federal Reserve's liquidity facilities had stayed low, reflecting improved availability of funding from market sources. And participants agreed that the Federal Reserve's ongoing provision of backstop credit in various forms continued to be important to sustain the market improvements already achieved. Participants observed that uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector's response to it. Several risks to the outlook were noted, including the possibility that additional waves of virus outbreaks could result in extended economic disruptions and a protracted period of reduced economic activity. In such scenarios, banks and other lenders could tighten conditions in credit markets appreciably and restrain the availability of credit to households and businesses. Other risks cited included the possibility that fiscal support for households, businesses, and state and local governments might not provide sufficient relief of financial strains in these sectors and that some foreign economies could come under greater pressure than anticipated as a result of the spread of the pandemic abroad. Several participants noted potential longer-run effects of the pandemic associated with possible restructuring in some sectors of the economy that could slow the growth of the economy's productive capacity for some time. A number of participants commented on various potential risks to financial stability. Banks and other financial institutions could come under significant stress, particularly if one of the more adverse scenarios regarding the spread of the virus and its effects on economic activity was realized. Nonfinancial corporations had carried high levels of indebtedness into the pandemic, increasing their risk of insolvency. There were also concerns that the anticipated increase in Treasury debt over the next few years could have implications for market functioning. There was general agreement that these institutions, activities, and markets should be monitored closely, and a few participants noted that improved data would be helpful for doing so. Several participants observed that the Federal Reserve had recently taken steps to help ensure that banks remain resilient through the pandemic, including by conducting additional sensitivity analysis in conjunction with the most recent bank stress tests and imposing temporary restrictions on shareholder payouts to preserve banks' capital. A couple of participants noted that they believed that restrictions on shareholder payouts should be extended, while another judged that such a step would be premature. In their consideration of monetary policy at this meeting, participants reaffirmed their commitment to using the Federal Reserve's full range of tools to support the U.S. economy during this challenging time, thereby promoting its maximum employment and price stability goals. They noted that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term. In light of this assessment, all participants considered it appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent. Furthermore, participants continued to judge that it would be appropriate to maintain this target range until they were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. Participants also judged that, in order to continue to support the flow of credit to households and businesses, it would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency residential mortgage-backed securities (RMBS) and CMBS at least at the current pace. These actions would be helpful in sustaining smooth market functioning, thereby fostering the effective transmission of monetary policy to broader financial conditions. In addition, participants noted that it was appropriate that the Desk would continue to offer large-scale overnight and term repo operations. Participants observed that it would be important to continue to monitor developments closely and that the Committee would be prepared to adjust its plans as appropriate. Participants discussed the current stance of monetary policy and the circumstances under which they might increase monetary policy accommodation or clarify their intentions regarding policy. Participants generally judged that the Committee's policy actions over the past several months had provided substantial accommodation; several of them observed that the Committee's asset purchases, which were designed to support financial market functioning and the smooth flow of credit, were likely also providing a degree of policy accommodation. Noting the increase in uncertainty about the economic outlook over the intermeeting period, several participants suggested that additional accommodation could be required to promote economic recovery and return inflation to the Committee's 2 percent objective. Some participants observed that, due to the nature of the shock that the U.S. economy was experiencing, strong fiscal policy support would be necessary to encourage expeditious improvements in labor market conditions. With regard to the outlook for monetary policy beyond this meeting, a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point. Concerning the possible form that revised policy communications might take, these participants commented on outcome-based forward guidanceâunder which the Committee would undertake to maintain the current target range for the federal funds rate at least until one or more specified economic outcomes was achievedâand also touched on calendar-based forward guidanceâunder which the current target range would be maintained at least until a particular calendar date. In the context of outcome-based forward guidance, various participants mentioned using thresholds calibrated to inflation outcomes, unemployment rate outcomes, or combinations of the two, as well as combinations with calendar-based guidance. In addition, many participants commented that it might become appropriate to frame communications regarding the Committee's ongoing asset purchases more in terms of their role in fostering accommodative financial conditions and supporting economic recovery. More broadly, in discussing the policy outlook, a number of participants observed that completing a revised Statement on Longer-Run Goals and Monetary Policy Strategy would be very helpful in providing an overarching framework that would help guide the Committee's future policy actions and communications. A majority of participants commented on yield caps and targetsâapproaches that cap or target interest rates along the yield curveâas a monetary policy tool. Of those participants who discussed this option, most judged that yield caps and targets would likely provide only modest benefits in the current environment, as the Committee's forward guidance regarding the path of the federal funds rate already appeared highly credible and longer-term interest rates were already low. Many of these participants also pointed to potential costs associated with yield caps and targets. Among these costs, participants noted the possibility of an excessively rapid expansion of the balance sheet and difficulties in the design and communication of the conditions under which such a policy would be terminated, especially in conjunction with forward guidance regarding the policy rate. In light of these concerns, many participants judged that yield caps and targets were not warranted in the current environment but should remain an option that the Committee could reassess in the future if circumstances changed markedly. A couple of participants remarked on the value of yield caps and targets as a means of reinforcing forward guidance on asset purchases, thereby providing insurance against adverse movements in market expectations regarding the path of monetary policy, and as a tool that could help limit the amount of asset purchases that the Committee would need to make in pursuing its dual-mandate goals. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the coronavirus outbreak was causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment had picked up somewhat in recent months but remained well below their levels at the beginning of the year. Consumer price inflation was being held down by weaker demand and significantly lower oil prices. Overall financial conditions had improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households, businesses, and communities. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. Members stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term. In light of these developments, members decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. Members stated that they expected to maintain this target range until they were confident that the economy had weathered recent events and was on track to achieve the Committee's maximum employment and price stability goals. Members agreed that they would continue to monitor the implications of incoming information for the economic outlookâincluding information related to public healthâas well as global developments and muted inflation pressures, and that they would use the Committee's tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, members noted that they would assess realized and expected economic conditions relative to the Committee's maximum-employment objective and its symmetric 2 percent inflation objective. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, members agreed that over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency RMBS and CMBS at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, members agreed that the Desk would continue to offer large-scale overnight and term repo operations. Members noted that they would closely monitor developments and be prepared to adjust their plans as appropriate. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective July 30, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) at least at the current pace to sustain smooth functioning of markets for these securities, thereby fostering effective transmission of monetary policy to broader financial conditions. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS and all principal payments from holdings of agency CMBS in agency CMBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective July 30, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 15ââ16, 2020. The meeting adjourned at 10:55 a.m. on July 29, 2020. Notation Vote By notation vote completed on June 30, 2020, the Committee unanimously approved the minutes of the Committee meeting held on June 9-10, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of economic developments and the outlook, and all of Wednesday's session. Return to text 3. Attended through the discussion of the review of monetary policy strategy, tools, and communication practices. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended the discussion of economic developments and the outlook. Return to text 6. Attended the discussion of developments in financial markets and open market operations. Return to text 7. Attended Tuesday's session only. Return to text 8. The approved FIMA Desk Resolution, which updates the March 2020 resolution with a new expiration date, is available with other Committee organizational documents at https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text

Minutes of the Federal Open Market Committee September 15â16, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, September 15, 2020, at 11:00 a.m. and continued on Wednesday, September 16, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Michael Dotsey, Marc Giannoni, Trevor A. Reeve, Ellis W. Tallman, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Sally Davies and Brian M. Doyle, Deputy Directors, Division of International Finance, Board of Governors; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Ellen E. Meade, Chiara Scotti, and Ivan Vidangos, Special Advisers to the Board, Division of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Division of Board Members, Board of Governors David Bowman, Senior Associate Director, Division of Monetary Affairs, Board of Governors; Eric M. Engen, Diana Hancock, and John J. Stevens, Senior Associate Directors, Division of Research and Statistics, Board of Governors Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors; David López-Salido, Associate Director, Division of Monetary Affairs, Board of Governors Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; John M. Roberts, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Brian J. Bonis and Laura Lipscomb, Assistant Directors, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board of Governors; Dana L. Burnett and Felicia Ionescu, Section Chiefs, Division of Monetary Affairs, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Jonathan E. Goldberg, and Kurt F. Lewis, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Senior Information Manager, Division of Monetary Affairs, Board of Governors Meredith Black, First Vice President, Federal Reserve Bank of Dallas David Altig, Kartik B. Athreya, Joseph W. Gruber, Sylvain Leduc, Anna Paulson, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Kansas City, San Francisco, Chicago, New York, and St. Louis, respectively Argia M. Sbordone and Patricia Zobel, Vice Presidents, Federal Reserve Bank of New York Jenny Tang, Senior Economic Policy Advisor, Federal Reserve Bank of Boston Opening Remarks The Chair, Vice Chair Williams, and Governor Clarida opened the meeting with remarks in memory of Thomas Laubach. Chair Powell: "Thomas was unquestionably one of the great economic minds of his generation, and his research has been central to some of our biggest discussions and policy actions over the past several years. He had a rare and underappreciated gift for translating arcane and academic theory into real world practice. That ability made a real difference in the conduct and communication of monetary policy. From his work on r*, to the balance sheet, to leading the steering committee for our monetary policy review, Thomas Laubach's intellectual fingerprints are all over the Committee's decisions that will define this era of the Federal Reserve. Thomas was also an exceptional colleague, leader, and friend. No one here will be surprised to know that as condolences pour in, the admiration for his kindness and equanimity match, if not exceed, the esteem for his intellect. Thomas was a model of leadership who fiercely believed that every member of his team is critical to our collective success, and he made certain they knew it. Even as he battled his own health problems, working through treatment to help fight the economic fallout of a global pandemic, his concern lay with others. Amid a deluge of emergency work to fight a historic downturn and the upending of daily life, Thomas urged people to take care of themselves and their families first. It is a testament to the mutual respect and amity that it was Thomas's team who proposed the Tealbook dedication in his memory. As friends, colleagues, and collaborators, we all grieve his loss. His absence leaves a space that cannot truly be filled. We will miss Thomas Laubach's intellect and his insight. More importantly, we will miss Thomas Laubach." Vice Chair Williams: "Thomas and I started working together 20 years ago. He had just arrived at the Board from the Kansas City Fed, and I had returned from my stint at the Council of Economic Advisers. And it was truly serendipitous. We immediately recognized the shared interest in figuring out how to estimate this thing called the natural rate of interest. And more importantly, Thomas was an expert in Kalman filtering. So we were off to the races on that project. Ironically, given subsequent events, the question of the time was whether the productivity boom had driven r* higher. In fact, if you go back to our December 2000 memo, our first memo to the Board on r*, our original estimates had r* at 4-1/4 percent, and that's real, not nominal. So that's a 6-1/4 percent nominal r*. Those were the days. Jumping ahead 15 years, following his appointment as Director of Monetary Affairs, Thomas would frequently, and very earnestly, ask me how he could be most effective in his role as an adviser to the FOMC. And I'd remind him that the Committee has at times been compared to a herd of cats. But he was always looking for ways to raise his game, and hopefully ours, and help the Committee grapple with issues and decisions before us. Sometimes that effort led to briefings with a labyrinth of charts and figures, where Thomas heroically tried to make sense of our Summary of Economic Projections (SEP) projections and the implicit policy rule that must be embedded in them if you only looked hard enough. Or it goes without saying how everything makes more sense once you factor in r*. His role as trusted adviser was never more on display or important than during the framework review as Chair Powell just commented. Thomas focused on making sure the Committee was prepared with the very best information and analysis. He consistently moved us towards the goal line, even as he engaged in a complex range of issues and dealt with the effects of the pandemic. And he scrupulously played the role of honest broker throughout. Indeed, he perfected the formula for herding cats. It's one part keen intellect, a dollop of understated humor, and a big helping of patience and perseverance." Governor Clarida: "Thomas Laubach was a remarkable human being who just happened to be a world class economist. His passing last week represents of course an incalculable loss for his family, but is also a devastating blow felt by each and every one of us in the Federal Reserve System, and indeed, in major central banks around the world that he frequently visited. Before I arrived at the Board, I knew Thomas primarily through his research. His book on inflation targeting with Ben Bernanke, Rick Mishkin, and Adam Posen is a classic reference on the subject, as is his work with President Williams on r*. I would say Thomas had a talent for picking co-authors. Thomas and I first met when he was a Ph.D. student working on the book and we were both visiting the New York Fed. I remember well our first meeting 25 years ago, and I was struck then by Thomas's enthusiasm that he brought to economics as a graduate student. Thomas of course never lost that spark and joy for the practice of monetary policy, and we are all fortunate that he did not. Iâand I'm sure Chair Powell, and before him, Chair Yellenâtrusted him implicitly. And speaking for myself, I always sought his insight and advice privately in my office and counsel on all of the big policy decisions I've had to consider in my two years as Vice Chair. Thomas made everyone that he worked with better and inspired to put forth their best energy and effort to achieve larger goals. That was most certainly the case in the framework review, and I'll second what Vice Chair Williams and Chair Powell said. Thomas brought peerless leadership, energy, and a commitment to the entire framework review. We simply would not have achieved the evolution of our framework and strategy without Thomas and the insight, inspiration, and good judgment he brought to the project and the ambitious process that he designed and worked with us to implement. I understand that in Thomas's last days, he was able to watch the Chair's speech at Jackson Hole rolling out the new framework, and that he was so proud to have been part of what the Wall Street Journal called a landmark change in U.S. monetary policy. I'm sure I speak for all of us when I conclude by saying that it is we who are proud to have had the privilege of working with Thomas Laubach during his 20 years at the Fed. He is and will be deeply missed, but his spirit and inspiration to us all will endure." Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets. On net, financial conditions eased over the intermeeting period. Equity prices rose and the broad dollar continued to depreciate from its crisis-driven peak in March. Yields on Treasury inflation-protected securities fell, while longer-dated nominal Treasury yields increased modestly. Market participants attributed these developments to a stronger economic outlook, better news on the COVID-19 trajectory, better-than-feared corporate earnings reports, and accommodative policy. Against this backdrop, most respondents to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants perceived downside risks to U.S. gross domestic product (GDP) growth this year as having declined notably since the July survey, and their forecasts for overall growth for 2020 were revised up significantly. While the economic outlook had brightened, market participants continued to see significant risks ahead. Some noted concerns about elevated asset valuations in certain sectors. Many also cited geopolitical events as heightening uncertainty. In addition, most forecasters were assuming that an additional pandemic-related fiscal package would be approved this year, and noted that, absent a new package, growth could decelerate at a faster-than-expected pace in the fourth quarter. In light of these and other risks, as well as the ongoing pandemic, market participants continued to suggest that the supportive policy environment and the backstops to market functioning remained important stabilizers. The release of the revised Statement on Longer-Run Goals and Monetary Policy Strategy (consensus statement) elicited relatively modest immediate reaction across markets. However, market participants generally viewed the completion of the review as an important milestone; many indicated that growing expectations for the Committee to adopt a flexible average-inflation-targeting regime had influenced asset prices over recent months. In particular, these expectations were viewed as contributing to the recent rise in far-forward measures of inflation compensation, though market participants noted that these measures were still somewhat low by historical standards. Market participants continued to anticipate that the Committee would update its forward guidance for the federal funds rate. Most respondents to the Desk's surveys continued to indicate that they expected the FOMC to adopt outcome-based forward guidance linked to inflation; some noted that employment measures could be part of the forward guidance as well. Survey respondents' expectations for the economic conditions that would prevail when the FOMC first lifted the target range had shifted notably since the previous survey, with many respondents projecting somewhat higher inflation and lower unemployment than in July. Expectations for asset purchases this year remained tightly centered around the current pace; however, many survey respondents revised up the amount of asset purchases expected in 2021 and 2022. The manager turned next to a discussion of funding market conditions and open market operations over the period. Conditions in short-term dollar funding markets remained stable over the period. Overnight secured and unsecured rates continued to trade in narrow ranges near the interest on excess reserves rate. Forward measures of funding rates implied that conditions were expected to remain stable in coming months. Markets for Treasury securities and agency mortgage-backed securities (MBS) continued to function smoothly, with bid-ask spreads and a range of other indicators remaining near pre-pandemic levels. Indicators of functioning in the market for agency commercial mortgage-backed securities (CMBS) also remained stable. In light of the improved conditions, the staff proposed that the Desk no longer be required to increase agency CMBS holdings or reinvest principal payments for agency CMBS. For the time being, the Desk would continue to conduct regular agency CMBS operations to maintain backstop capacity. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The COVID-19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the September 15â16 meeting suggested that U.S. real GDP was rebounding at a rapid rate in the third quarter. Labor market conditions continued to improve markedly in July and August, but employment was still below its level at the beginning of the year. Consumer price inflationâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE) through Julyâremained well below the rates that prevailed early in the year. Total nonfarm payroll employment expanded strongly in July and August, al­though payrolls had retraced only about half of the jobs lost at the onset of the pandemic. The unemployment rate moved down further to 8.4 percent in August. The unemployment rates for African Americans, Asians, and Hispanics declined over the past two months but remained well above the national average. The labor force participation rate rose, on net, and the employment-to-population ratio increased further in July and August. Initial claims for unemployment insurance benefits continued to move down, on net, through early September, but the pace of declines had slowed. In addition, weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP suggested that employment gains likely were still solid from mid-August to early September. Total PCE price inflation was 1.0 percent over the 12 months ending in July, reflecting both weak aggregate demand and a considerable drop in consumer energy prices early this year. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.3 percent over the same 12-month period. By comparison, the trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 1.8 percent in July. The consumer price index (CPI) increased 1.3 percent over the 12 months ending in August, while core CPI inflation was 1.7 percent over the same period. On a monthly basis, recent inflation readings were bolstered by increases in durable goods prices, largely reflecting the strong demand for consumer goods as household purchases shifted away from many consumer services. The latest readings on survey-based measures of longer-run inflation expectations moved up a bit but remained within their ranges in recent years. The University of Michigan Surveys of Consumers measure for the next 5 to 10 years edged up in July and August, and the three-year-ahead measure from the Federal Reserve Bank of New York's Survey of Consumer Expectations also crept up over the past two months. Real PCE expanded strongly in July and continued to be bolstered by supportive fiscal and monetary policy actions. In August, the components of retail sales used to estimate PCE, along with sales of light motor vehicles, increased further. However, recent high-frequency indicators of spending on some consumer servicesâsuch as restaurant dining, hotel accommodations, and air travelâwere still subdued. Real disposable personal income was roughly flat in July, primarily reflecting further gains in wage and salary income that were largely offset by the waning of government transfer payments from their peak in the spring. Nevertheless, the personal saving rate remained quite elevated. The consumer sentiment measure from the Michigan survey edged up in August, while the Conference Board survey measure moved down; both measures continued to be below their levels at the beginning of the year. Housing-sector activity continued to expand, likely supported by the effects of low interest rates. Starts and building permit issuance for single-family homes, along with starts of multifamily units, increased further in July. Sales of both new and existing homes also rose substantially further. These measures of construction and sales were generally at or near their pre-pandemic levels. Indicators of business fixed investment suggested that this sector was beginning to recover on balance. Nominal new orders and shipments of nondefense capital goods excluding aircraft increased in July, the third consecutive monthly increase in these indicators of business equipment spending. Many measures of business sentiment also improved somewhat in July and August. In addition, the number of crude oil and natural gas rigs in operation through early Septemberâan indicator of business spending on structures in the drilling and mining sectorâhad flattened out recently following its declines since the spring. In contrast, nominal business spending on nonresidential structures outside of the drilling and mining sector declined over June and July. Industrial production expanded further in July and August, al­though at a less rapid pace than over the preceding two months. The increase in factory output was broad based, but the gains for most manufacturing industries had slowed gradually since June. Production in the mining sectorâwhich includes crude oil and natural gas drilling and extractionâincreased in July but fell in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary decreases in extraction and drilling. Total real government purchases appeared to be increasing modestly, on balance, in the third quarter. Federal defense spending continued to rise through August, and federal employment was boosted markedly by temporary census-related hiring. State and local government payrolls expanded in July and August, al­though nominal state and local construction expenditures decreased in June and July. After declining sharply earlier this year, exports and imports of goods and services increased strongly in June and July. On net, over these two months, the nominal U.S. international trade deficit widened, as imports rose more than exports. Exports and imports of goods rose in June and July in most major product categories, while exports and imports of services rose modestly following previous historic declines. Foreign economic activity plunged in the second quarter as a result of the COVID-19 pandemic and the associated restrictive measures to contain it. With some of these measures having been rolled back in recent months, economic indicators pointed to a large, but partial, rebound in most foreign economies in the third quarter. Recent indicators of household and business spending were strong in several economies (including Canada, the euro area, and Brazil), reflecting in part a boost from substantial government support programs. In China, economic indicators showed a continued moderate expansion after a sharp rebound in the second quarter, though gains in consumption continued to lag those in production and exports. Similarly, in Mexico, a strong rebound in manufacturing production contrasted with weak services activity. Despite the widespread rebound in foreign activity indicators, a resurgence in COVID-19 cases in parts of Europe and Asia added uncertainty to the outlook for those economies. Recent readings of headline and core inflation abroad remained quite low, particularly in the advanced foreign economies (AFEs), amid subdued demand pressures and lower energy prices from earlier this year. Staff Review of the Financial Situation Financial market sentiment improved over the intermeeting period, boosted by declines in the number of new COVID-19 cases in the United States and stronger-than-anticipated corporate earnings reports and domestic economic data releases. Broad stock price indexes rose, on net, despite notable declines late in the intermeeting period. Inflation compensation increased further, reaching pre-pandemic levels. Changes in other asset prices were generally more modest but were consistent with improved sentiment: The Treasury yield curve steepened a little, spreads on speculative-grade corporate bonds narrowed moderately, and the exchange value of the dollar depreciated modestly. Meanwhile, financing conditions for businesses with access to capital markets and households with high credit scores remained broadly accommodative, al­though conditions remained tight for other borrowers. Yields on 2-year nominal Treasury securities were little changed since the July FOMC meeting, while 10- and 30-year yields rose moderately. Market commentary attributed the increases in longer-term yields to improved investor sentiment. This improved sentiment partly reflected the decline in new COVID-19 cases in the United States and stronger-than-expected economic data, al­-though market reactions to economic data releases were limited. The near-dated implied volatility on 10-year Treasury securities was little changed over the intermeeting period and remained near the bottom of its historical range. Measures of inflation compensation based on TIPS maturing over the next few years continued to increase, likely reflecting the general improvement in investor sentiment accompanying the improvement in the economic outlook, some further improvements in TIPS market liquidity, and the higher-than-expected July CPI data release. The 5-year and 5-to-10-year measures of inflation compensation were close to their pre-pandemic levels but were still in the lower end of their historical ranges. The expected path for the federal funds rate over the next few years, as implied by a straight read of overnight index swap quotes, was little changed, on net, since the July FOMC meeting and remained close to the effective lower bound (ELB) through the first half of 2024. Communications about monetary policy over the intermeeting period generally had little effect on Treasury yields or the expected path of the federal funds rate. However, market participants suggested that building expectations that the Committee would move to a form of flexible average inflation targeting under the revised consensus statement had been a factor boosting TIPS inflation compensation over recent months. Broad stock price indexes rose, on net, during the intermeeting period, consistent with generally better-than-expected news on both the economy and second-quarter corporate earnings. One-month option-implied volatility on the S&P 500âthe VIXâwas roughly unchanged, on net, al­though measures of longer-term downside risks in equity markets, such as the option-implied cost of insuring against a 10 percent decline in the S&P 500 index in three months, increased somewhat. Spreads of investment- and speculative-grade corporate bond yields over comparable-maturity Treasury yields narrowed somewhat and remained near their historical medians. Conditions in short-term funding markets were stable over the intermeeting period. Spreads on commercial paper (CP) and negotiable certificates of deposit across different tenors changed little, on net, and remained around levels observed before the pandemic. Total gross CP issuance also remained within pre-pandemic normal ranges, al­though outstanding volumes of nonfinancial CP declined moderately since the July FOMC meeting. Assets under management of prime and government money market funds (MMFs) declined modestly on net. Partly reversing changes observed between April and July, institutional government MMFs, on net, decreased their holdings of Treasury securities and increased their holdings of repurchase agreements (repos) in August. The reversal was driven in part by a tighter spread between Treasury bill yields and repo rates. Amid normalizing market conditions, there was little activity in the Money Market Mutual Fund Liquidity Facility or the Commercial Paper Funding Facility. The effective federal funds rate and the Secured Overnight Financing Rate averaged 9 basis points over the intermeeting period. The amount of Federal Reserve repo outstanding remained at zero over the intermeeting period due to more attractive rates in the private market. Meanwhile, the Federal Reserve increased holdings of Treasury securities and agency MBS at the same pace as during the previous intermeeting period. Foreign asset price movements were generally muted, with market participants likely weighing concerns over rising infection rates in some countries against the prospect of a COVID-19 vaccine. In emerging market economies (EMEs), Asian equity markets significantly outperformed Latin American counterparts, with Chinese equities showing particular strength. In most AFEs, equity indexes rose modestly and long-term sovereign yields edged higher. In line with the modest improvement in risk sentiment, the staff's broad dollar index declined moderately, on net, with the dollar depreciating more against EME currencies. The Chinese renminbi was boosted by better-than-expected Chinese economic data and was the most notable contributor to the decline in the staff's trade-weighted dollar index, along with the Mexican peso. Among AFE currencies, the euro appreciated further and reached its highest level against the dollar since 2018. The pound was little changed, as some of its earlier appreciation against the dollar unwound amid a resurgence of Brexit-related uncertainty. Financing conditions in capital markets remained accommodative over the intermeeting period. Amid historically low corporate bond yields, gross issuance of both investment- and speculative-grade corporate bonds was strong in July and August. Much of this recent issuance was intended to refinance existing debt. Gross institutional leveraged loan issuance picked up slightly in July but remained below the levels observed during the same period last year. Amid notable equity market gains in August, gross equity issuance was robust, as seasoned offerings strengthened to about double their typical pace. Commercial and industrial loans outstanding declined in July and August, but at a slower pace than in June, with declines in large part reflecting continued credit-line repayment. The credit quality of nonfinancial corporations showed tentative signs of stabilization over the intermeeting period. The dollar volume of nonfinancial corporate bond downgrades continued to exceed upgrades, albeit only modestly, representing a sizable reduction in net downgrades since the spring. The pace of nonfinancial corporate bond defaults in July was also notably lower than in April and May but was still elevated relative to pre-pandemic levels. Default volumes fell further in August, reaching a level below the 2019 monthly average. Market indicators of future default expectations also improved somewhat. Financing conditions for small businesses remained tight, al­though some indicators pointed to a slight improvement. Thirty-day delinquency rates fell modestly between May and July but remained comparable with early 2008 levels. The credit needs of small businesses remained high, with significant shares of respondents to the Census Bureau's Small Business Pulse Survey reporting scarce cash availability and anticipating a need for financial assistance in the next six months. Municipal market financing conditions remained accommodative since the July FOMC meeting. However, the credit quality of municipal debt deteriorated somewhat, driven by a relatively large volume of credit rating downgrades of revenue bonds. Financing conditions for commercial real estate (CRE) intermediated through capital markets recovered further over the intermeeting period. Spreads on triple-B non-agency CMBS remained wide, though they continued to narrow through August, while triple-A spreads remained close to pre-pandemic levels. Issuance of non-agency CMBS was steady but subdued relative to pre-pandemic levels. Spreads on agency CMBS were tight and issuance was very strong, setting a new single-month record in July. In contrast, CRE loan growth at banks was weak in July and August, likely partly driven by the recovery of CMBS markets. Delinquency rates on mortgages backing CMBS fell a bit in July but remained high in the hotel and retail sectors. Financing conditions in the residential mortgage market were little changed over the intermeeting period. While mortgage rates hovered near historical lows, the spread between primary mortgage rates and MBS yields remained quite wide. Credit continued to flow to higher-score borrowers who met standard conforming loan criteria, while it remained tight for borrowers with lower credit scores and for nonstandard mortgage products. Nonetheless, low mortgage rates were supporting both home-purchase originations and refinancing. The credit quality of mortgages improved slightly, with the rate of transition into delinquency remaining near pre-pandemic levels and forbearance continuing to slowly decline. Financing conditions in consumer credit markets remained accommodative for borrowers with relatively strong credit scores but continued to be tight for subprime borrowers. Auto loan balances increased solidly overall but declined for borrowers with low credit scores. Credit card balances contracted at a slower rate in June and July than in the spring. However, offered interest rates rose and credit limits edged down for credit cards to nonprime borrowers. Conditions in the asset-backed securities (ABS) market were stable during the intermeeting period. ABS spreads edged down, and auto and student loan issuance was robust. Consumer credit performance remained stable, and the share of auto and credit card balances in forbearance declined. Staff Economic Outlook In the U.S. economic projection prepared by the staff for the September FOMC meeting, the rate of real GDP growth and the pace of declines in the unemployment rate were faster over the second half of this year than in the July forecast, primarily reflecting recent better-than-expected data. In addition, the inflation forecast for the rest of the year was revised up slightly, as some recent consumer goods prices were stronger than expected. Nevertheless, inflation was still projected to be subdued this year, reflecting substantial slack in resource utilization and the sizable declines in consumer energy prices earlier this year. Fiscal policy measures, along with the support from monetary policy and the Federal Reserve's liquidity and lending facilities, were expected to continue supporting the second-half recovery, al­though the recovery was forecast to be far from complete by year-end. The staff's forecast assumed the enactment of some additional fiscal policy support this year; without that additional policy action, the pace of the economic recovery would likely be slower. In the staff's medium-term projection, the baseline assumptions included that the current restrictions on social interactions and business operations, along with voluntary social distancing by individuals and firms, would ease gradually through next year. In addition, the staff projection assumed that monetary policy would be even more accommodative than in the previous forecast in order to more fully reflect the revised consensus statement. Altogether, the rate of real GDP growth was projected to exceed potential output growth, the unemployment rate was expected to decline considerably further, and inflation was forecast to pick back up in 2021 through 2023. With the more-accommodative monetary policy assumed in the current forecast, which reflected the recent consensus statement, inflation was projected to moderately overshoot 2 percent for some time in the years beyond 2023. The staff continued to observe that the uncertainty related to the course of the COVIDâ19 pandemic and its associated economic effects was extremely elevated and that the risks to the outlook were still tilted to the downside. Given the apparent resilience of the U.S. economy to the acceleration in the spread of the pandemic during the summer, the staff judged that a significantly more pessimistic economic outcome, which the staff had previously viewed as no less plausible than the baseline forecast and had featured a renewed downturn in economic activity, was now less likely than the baseline forecast. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2020 through 2023 and over the longer run, based on their individual assessments of appropriate monetary policyâincluding the path for the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections are described in the SEP, which is an addendum to these minutes. Participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment had picked up in recent months but remained well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices were holding down consumer price inflation. Overall financial conditions had improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path of the economy would depend on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economy's medium-term outlook. Participants observed that the incoming data indicated that economic activity was recovering faster than expected from its depressed second-quarter level, when much of the economy was shut down to stem the spread of the virus. In particular, with the reopening of many businesses and fewer people withdrawing from social interactions, consumer spending was rebounding sharply and appeared to have recovered about three-fourths of its earlier decline. Prior fiscal policy actions were seen as having supported the ability and willingness of households to spend, al­though most participants expressed concern about the expiration of the enhanced unemployment insurance benefits from the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and judged that additional fiscal relief would help sustain the recovery in household spending. Indeed, many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated. Participants also viewed accommodative monetary policy as contributing to gains in residential investment as well as consumer purchases of motor vehicles and other durable goods. While participants pointed to strength in consumers' purchases of goods, especially those sold online, they noted that outlays for services had been slower to recover, particularly for items such as air travel, hotel accommodations, and restaurant meals, which had been significantly disrupted by social-distancing measures. Participants generally expected spending on these services to remain subdued for some time and thus to be a restraining factor on the pace of the recovery. A few participants raised the possibility that the unwinding of the large pool of household savings accumulated during the pandemic could provide greater-than-anticipated momentum to consumption going forward. However, a couple of other participants judged that if this savings reflected reduced spending on in-person services by high-income consumers, it was unlikely to provide much momentum to future consumption. Participants noted that business investment, which had plummeted in the second quarter, appeared to have begun to turn around. They pointed to data showing gains in capital goods orders and shipments as well as improved business sentiment. A number of participants judged that low interest rates were supporting business investment. However, the recovery was viewed as unevenly distributed across industries. While many business contacts reported progress on adapting to the pandemic, others noted that industries that relied more on person-to-person interactions continued to struggle. Business contacts with ties to the motor vehicle or housing industries indicated increased activity, while those closer to the aviation, hospitality, and nonresidential construction industries were not seeing much of a recovery. Contacts continued to report ongoing stresses in the energy sector, as well as challenges in the agricultural sector even though some crop prices had risen recently as sales to China increased. Al­though business contacts indicated that overall business activity had been stronger than they expected, it remained well below pre-pandemic levels. Business contacts pointed to several factors that could restrain further recovery, including high levels of uncertainty that were reportedly still holding back hiring and capital spending. Some contacts reported difficulties in managing disruptions in supply chains as well as elevated levels of employee absenteeism because of the pandemic. Additionally, District contacts indicated that fiscal policy had helped support small businesses, while federal aid payments had helped support farm incomes. Participants observed that labor market conditions continued to improve in recent months and that the economy through August had regained roughly half of the 22 million jobs that were lost in March and April. The gains in employment over July and August were generally seen as larger than anticipated. Participants judged, however, that the labor market was a long way from being fully recovered. They generally agreed that prospects for a further substantial improvement in the labor market would depend on a broad and sustained reopening of businesses, which in turn would depend importantly on how safe individuals felt to reengage in a wide range of activities. Some participants noted that the majority of gains in employment so far reflected workers on temporary layoffs returning to work. These participants judged it as less likely for future job gains to continue at their recent pace, because a greater share of the remaining layoffs might become permanent. Workers facing permanent layoffs were seen as more likely to need to find new jobs in different industries, and this process could take time, especially to the extent that these workers needed to be retrained. Participants observed that lower-paid workers had been disproportionally affected by the economic effects of the pandemic. Many of these workers were employed in the service sector or other industries most adversely affected by social-distancing measures. With a disproportionate share of service-sector jobs held by African Americans, Hispanics, and women, these groups were seen as being especially hard hit by the economic hardships caused by the pandemic. Participants viewed fiscal support from the CARES Act as having been very important in bolstering the financial situations of millions of families, and a number of participants judged that the absence of further fiscal support would exacerbate economic hardships in minority and lower-income communities. In addition, several participants observed that the effects of the pandemic were disrupting the supply of labor because of the need to care for children, many of whom were attending school virtually from home. In their comments about inflation, participants noted that consumer prices had increased more quickly than expected in recent months and that market-based measures of inflation compensation had increased moderately over the intermeeting period, al­though they remained low. The upturn in consumer prices was primarily attributed to price increases in sectors such as consumer durables in which demand had risen after experiencing a large decline earlier this spring. Nevertheless, inflation remained subdued, and participants still generally judged that the overall effect of the pandemic on prices was disinflationary. While the outlook for inflation was viewed as highly uncertain, a number of participants projected that inflation would run below the Committee's 2 percent longer-run objective for a significant period before moving moderately above 2 percent for some timeâconsistent with the Committee's revised consensus statement. Participants noted that financial conditions were generally accommodative and that actions by the Federal Reserve, including the establishment of emergency lending facilities in conjunction with the Treasury, were supporting the flow of credit to households, businesses, and communities. While these actions as well as prompt and forceful monetary policy measures in response to the pandemic were viewed as contributing to accommodative financial conditions, participants noted important differences in credit quality and credit availability across borrowers. While the pace of corporate downgrades was seen as having decreased significantly in recent months, the delinquency rates on business loans had risen noticeably. Bank contacts reported ample capacity to lend to creditworthy borrowers; however, surveys of credit availability indicated that bank lending was tight. Furthermore, several participants noted the stress that small- and medium-sized banks could face from defaults on loans to small businesses and CRE properties if people continued to withdraw from travel and shopping activities. Additionally, a couple of participants indicated that highly accommodative financial market conditions could lead to excessive risk-taking and to a buildup of financial imbalances. Participants continued to see the uncertainty surrounding the economic outlook as very elevated, with the path of the economy highly dependent on the course of the virus; on how individuals, businesses, and public officials responded to it; and on the effectiveness of public health measures to address it. Participants cited several downside risks that could threaten the recovery. While the risk of another broad economic shutdown was seen as having receded, participants remained concerned about the possibility of additional virus outbreaks that could undermine the recovery. Such scenarios could result in increases in bankruptcies and defaults, put stress on the financial system, and lead to disruptions in the flow of credit to households and businesses. Most participants raised the concern that fiscal support so far for households, businesses, and state and local governments might not provide sufficient relief to these sectors. A couple of participants saw an upside risk that further fiscal stimulus could be larger than anticipated, though it might come later than had been expected. Several participants raised concerns regarding the longer-run effects of the pandemic, including how it could lead to a restructuring in some sectors of the economy that could slow employment growth or could accelerate technological disruption that was likely limiting the pricing power of firms. In their consideration of monetary policy at this meeting, participants reaffirmed that they were committed to using the Federal Reserve's full range of tools in order to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. They also noted that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term. All participants agreed that the completion of the framework review and the publication of the revised consensus statement provided a strong foundation for monetary policy decisions and communications going forward. Accordingly, participants agreed that it would be appropriate to incorporate some key elements of the revised consensus statement into the FOMC statement to be released following this meeting. In particular, participants reiterated their commitment to achieve maximum employment and an inflation rate of 2 percent over the longer run. With inflation running persistently below its longer-run goal, participants judged that it would be appropriate to aim to achieve inflation moderately above 2 percent for some time so that inflation would average 2 percent over time and longer-term inflation expectations would remain well anchored at 2 percent. Against this backdrop, participants discussed a range of issues associated with providing greater clarity about the likely path of the federal funds rate in the years ahead. Most participants supported providing more explicit outcome-based forward guidance for the federal funds rate that included establishing criteria for lifting the federal funds rate above the ELB in terms of the paths for employment or inflation or both. Among the participants who favored providing more explicit forward guidance at this meeting, all but a couple supported a formulation in which the forward guidance included language indicating that it would likely be appropriate to maintain the current target range until labor market conditions were judged to be consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. These participants noted that communicating that the target range for the federal funds rate would remain at the ELB until these criteria were achieved would provide appropriately clear and strong policy guidance. Doing so at this meeting was viewed as an especially important way of affirming the Committee's commitment to achieving the economic outcomes articulated in the consensus statement. Participants generally noted that outcome-based forward guidance for the federal funds rate of this type was not an unconditional commitment to a particular path. Indeed, outcome-based guidance of this type would allow the public to infer changes in the Committee's assessment of how long the target range for the federal funds rate would remain at its current setting. Information pointing to a weaker outlook for the economy and inflation would tend to lead to public expectations for a longer period at the current setting of the target range while information suggesting a stronger outlook for the economy and inflation would tend to lead to expectations for a shorter period at the current setting. In addition, circumstances could arise in which the Committee judged that it would be appropriate to change its guidance, particularly if risks emerged that could impede the attainment of its economic objectives. A couple of participants preferred even stronger, and less qualified, outcome-based forward guidance that they judged would more clearly convey the Committee's commitment to its objectives and to the strategic approach that was articulated in the revised consensus statement. In particular, these participants preferred forward guidance in which the target range for the federal funds rate remained at the ELB until inflation had moved above 2 percent for some time. Especially in light of the lengthy period in which inflation has run below the Committee's longer-run 2 percent objective, these participants judged that it was critical to demonstrate the Committee's commitment to achieve outcomes in which inflation averages 2 percent over time. Several participants noted that while they agreed it was appropriate to incorporate key elements of the consensus statement into the postmeeting statement, they preferred to retain forward guidance similar to that provided in recent FOMC statements. These participants judged that it would likely be appropriate to maintain an accommodative stance of policy for some time in order to foster outcomes consistent with the Committee's revised consensus statement. However, with longer-term interest rates already very low, there did not appear to be a need for enhanced forward guidance at this juncture or much scope for forward guidance to put additional downward pressure on yields. Moreover, these participants were concerned that forward guidance that involved the target range for the federal funds rate remaining at the ELB until employment and inflation criteria were achieved could limit the Committee's flexibility for years. Furthermore, by influencing expectations for the path of short-term interest rates, such guidance could contribute to a buildup of financial imbalances that would make it more difficult for the Committee to achieve its objectives in the future. Regarding asset purchases, participants judged that it would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace. These actions would continue to help sustain smooth market functioning and would continue to help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Some participants also noted that in future meetings it would be appropriate to further assess and communicate how the Committee's asset purchase program could best support the achievement of the Committee's maximum-employment and price-stability goals. Participants widely echoed the remarks at the opening of the meeting in memory of Thomas Laubach. Participants universally recognized his great leadership and intellectual contributions to the work of the Committee as well as his warm and generous spirit. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that economic activity and employment had picked up in recent months but remained well below their levels at the beginning of the year, and that weaker demand and significantly lower oil prices were holding down consumer price inflation. Overall, financial conditions had improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. Members also stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term. All members agreed to incorporate into the postmeeting statement key elements of the Committee's revised Statement on Longer-Run Goals and Monetary Policy Strategy. Members judged that this action would underscore the Committee's strong commitment to the goals and strategy articulated in the new consensus statement in pursuit of the Committee's statutory objectives. Accordingly, members agreed that the FOMC statement should note that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run and that, with inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members generally expected that it would be appropriate to maintain an accommodative stance of monetary policy until these outcomes were achieved. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent. Almost all members viewed this meeting as the appropriate time to modify forward guidance to provide greater clarity regarding the likely future path of the federal funds rate. To this end, almost all members agreed on a specification for outcome-based forward guidance that indicated that the Committee expects that it will be appropriate to maintain the current setting of the target range for the federal funds rate until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to run moderately in excess of 2 percent for some time. Two members dissented from the policy decision. One of these dissenting members preferred that the Committee retain greater policy rate flexibility by retaining the language in the forward guidance provided in the July postmeeting statement; that language noted that it would be appropriate to maintain the current target range until the Committee was confident that the economy had weathered recent events and was on track to achieve its maximum employment and price stability goals. The other dissenting member preferred a stronger formulation for the forward guidanceâone in which the Committee would indicate that it expected to maintain the current target range until core inflation had reached 2 percent on a sustained basis. In their discussion of monetary policy for the period ahead, members generally agreed that the Committee's policy guidance expressed its assessment about the path for the federal funds rate most likely to be consistent with achievement of the Committee's goals, but that it was not an unconditional commitment. They stated that the appropriate rate path would depend on the evolution of the economic outlook. Accordingly, they agreed that the Committee would be prepared to adjust the stance of policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health , labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members noted that the Committee's asset purchases had helped foster significant improvements in market functioning over recent months. In addition, purchases of securities were contributing to accommodative financial conditions in a way that supported economic recovery. Consistent with these observations, members agreed that it would be appropriate to acknowledge in the postmeeting statement the role of asset purchases in supporting accommodative financial conditions. The Committee's statement thus indicated that over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace to sustain smooth market functioning and to help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members considered the staff proposal to eliminate the requirement in the directive to increase the holdings of agency CMBS in the SOMA portfolio. In light of the substantial improvement in market functioning in the agency CMBS market, the Committee judged that it would be appropriate for the Desk to purchase agency CMBS only as needed to sustain smooth market functioning, rather than seek to steadily increase agency CMBS holdings, and to cease reinvestments of agency CMBS principal payments. Members also concluded that, in light of ongoing low take-up at Desk repo operations, it was not necessary to include a sentence on these operations in the FOMC statement. However, the directive adopted by the Committee continued to direct the Desk to conduct overnight and term repo operations to support effective policy implementation and smooth functioning of short-term U.S. dollar funding markets. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective September 17, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities (MBS) at the current pace. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Loretta J. Mester, and Randal K. Quarles. Voting against this action: Robert S. Kaplan and Neel Kashkari. President Kaplan dissented because he expects that it will be appropriate to maintain the current target range until the Committee is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals as articulated in its new policy strategy statement, but prefers that the Committee retain greater policy rate flexibility beyond that point. President Kashkari dissented because he prefers that the Committee indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective September 17, 2020. It was agreed that the next meeting of the Committee would be held on WednesdayâThursday, November 4â5, 2020. The meeting adjourned at 11:00 a.m. on September 16, 2020. Notation Votes By notation vote completed on August 18, 2020, the Committee unanimously approved the minutes of the Committee meeting held on July 28â29, 2020. By notation vote completed on August 27, 2020, the Committee unanimously approved updates to its Statement on Longer-Run Goals and Monetary Policy Strategy. In conjunction with the notation vote, all non-voting participants also expressed support for the updated statement. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee November 4-5, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Wednesday, November 4, 2020, at 9:00 a.m. and continued on Thursday, November 5, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Michael Strine, Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Rochelle M. Edge, David E. Lebow, Ellis W. Tallman, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Sally Davies and Brian M. Doyle, Deputy Directors, Division of International Finance, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Kurt F. Lewis, Ellen E. Meade, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Division of Board Members, Board of Governors Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer, David López-Salido, and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors; Paul Wood, Associate Director, Division of International Finance, Board of Governors Andrew Figura, Deputy Associate Director, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Brian J. Bonis, Michiel De Pooter, Zeynep Senyuz, 2 and Rebecca Zarutskie, 2 Assistant Directors, Division of Monetary Affairs, Board of Governors; Paul Lengermann, Assistant Director, Division of Research and Statistics, Board of Governors Matthias Paustian, Assistant Director and Chief, Division of Research and Statistics, Board of Governors Alyssa G. Anderson, 2 Benjamin K. Johannsen, 2 and Matthew Malloy, 2 Section Chiefs, Division of Monetary Affairs, Board of Governors; Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Dobrislav Dobrev, Anna Orlik, and Judit Temesvary, 2 Principal Economists, Division of Monetary Affairs, Board of Governors Arsenios Skaperdas, 2 Senior Economist, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Gregory L. Stefani, First Vice President, Federal Reserve Bank of Cleveland Kartik B. Athreya, Joseph W. Gruber, Glenn D. Rudebusch, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Richmond, Kansas City, San Francisco, New York, and St. Louis, respectively Spencer Krane, Antoine Martin, 2 Paolo A. Pesenti, and Nathaniel Wuerffel, 2 Senior Vice Presidents, Federal Reserve Banks of Chicago, New York, New York, and New York, respectively Satyajit Chatterjee, Mark J. Jensen, Dina Marchioni, 2 Matthew D. Raskin, 2 and Patricia Zobel, Vice Presidents, Federal Reserve Banks of Philadelphia, Atlanta, New York, New York, and New York, respectively Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Alex Richter, Senior Economist and Advisor, Federal Reserve Bank of Dallas Ryan Bush, 2 Markets Manager, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets. Financial conditions were little changed, on net, over the intermeeting period and remained accommodative. Market participants suggested that evolving expectations for U.S. fiscal policy as well as stronger-than-expected economic data and corporate earnings reports helped support equity prices. Later in the intermeeting period, however, rising COVID-19 cases in Europe and the United States weighed on the outlook, and equity prices reversed some of their earlier gains. Implied volatility in the equity market moved higher during the intermeeting period, reflecting uncertainties associated with the U.S. election and the future path of fiscal policy as well as concerns about the trajectory of COVID-19 cases. Market participants' expectations for the path of the federal funds rate were little changed over the intermeeting period. In the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants, respondents' views on when the Committee will most likely start raising the target range for the federal funds rate were centered around 2024. Expectations for the economic conditions that will prevail when the FOMC first lifts the target range were little changed since the September surveys. Respondents to the Desk's surveys generally expected the Federal Reserve's purchases of Treasury securities and agency mortgage-backed securities (MBS) to continue at the current pace through the end of 2021 and then to slow in subsequent years, although there was a wide range of views about purchase amounts for 2022 and 2023. Market participants appeared increasingly focused on how the Committee's communications on asset purchases might evolve. They expected those communications to place a greater emphasis on fostering accommodative financial conditions, and many noted the possibility that at some point the Committee might convey additional guidance about the future path of asset purchases. Some market participants expected the Committee to eventually lengthen the weighted average maturity of the Federal Reserve's purchases of Treasury securities. The manager turned next to a discussion of financial market functioning, open market operations, and conditions in short-term funding markets. Markets for Treasury securities and agency MBS continued to function smoothly, with bid-ask spreads and a range of other market functioning indicators remaining near pre-pandemic levels. Weekly operations continued for agency commercial mortgage-backed securities (CMBS), with the Desk purchasing only modest amounts. Short-term dollar funding markets also continued to function smoothly over the period, and forward measures of funding rates were consistent with expectations for calm conditions over year-end. The Federal Reserve's balance sheet increased modestly over the intermeeting period to $7.2 trillion, as growth in securities holdings was partially offset by a decline in U.S. dollar liquidity swaps outstanding. Outstanding balances for credit and liquidity facilities were little changed. The manager noted that market participants continued to view these facilities as important backstops that would support market functioning and the flow of credit should stresses reemerge. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Discussion on Asset Purchases Participants discussed the FOMC's asset purchases, including the role they are playing in supporting the Committee's maximum-employment and price-stability goals. In their discussions, participants focused on the objectives of these purchases; considerations for assessing the appropriate pace and composition of asset purchases over time; communications regarding the future path of asset purchases; and the potential effects of higher levels of reserves, associated with the ongoing expansion in Federal Reserve asset holdings, on banks' balance sheets and money market rates. Participants agreed that this discussion would be helpful for future assessments of the appropriate structure of the Committee's asset purchases. While participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustments. Accordingly, participants saw the ongoing careful consideration of potential next steps for enhancing the Committee's guidance for its asset purchases as appropriate. The participants' discussion was preceded by staff presentations. The staff reviewed some key considerations relevant for conducting asset purchases in the current environment. The staff judged that the Committee's forward guidance on the federal funds rate, the expansion of the Federal Reserve's securities holdings since March, and expectations for a further expansion all had contributed to a very low level of longer-term yields despite substantial Treasury debt issuance. The staff noted that financial market participants generally expected the Committee to continue its net asset purchases at the current pace through next year and at a reduced pace in subsequent years. The staff discussed various changes the Committee could make to the structure of its purchases, including to their pace and composition as well as to the guidance the Committee has been providing to the public about its future asset purchases. The staff discussed the structure of asset purchase programs of several foreign central banks and how they have evolved during the pandemic. Finally, the staff evaluated how higher levels of reserves associated with the ongoing expansion in the Federal Reserve's asset holdings might influence banks' balance sheets and money market rates and discussed the various tools that the Federal Reserve has for managing money market rates in an environment with very high levels of reserves. In their discussion regarding the role of the Committee's asset purchases, participants noted that these purchases have supported and sustained smooth market functioning and helped foster accommodative financial conditions. With market functioning seen as having largely recovered, many participants indicated that the role of asset purchases had shifted more toward fostering accommodative financial conditions for households and businesses to support the Committee's employment and inflation goals. Still, participants generally judged that asset purchases would continue to support smooth market functioning, and many judged that asset purchases helped provide insurance against risks that might reemerge in financial markets in an environment of high uncertainty. A few participants indicated that asset purchases could also help guard against undesirable upward pressure on longer-term rates that could arise, for example, from higher-than-expected Treasury debt issuance. Several participants noted the possibility that there may be limits to the amount of additional accommodation that could be provided through increases in the Federal Reserve's asset holdings in light of the low level of longer-term yields, and they expressed concerns that a significant expansion in asset holdings could have unintended consequences. Participants commented on considerations related to the appropriate pace and composition of asset purchases. Participants generally saw the current pace and composition as effective in fostering accommodative financial conditions. Participants noted that the Committee could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases. Alternatively, the Committee could provide more accommodation, if appropriate, by conducting purchases of the same pace and composition over a longer horizon. Pointing to the recently announced change in the Bank of Canada's asset purchase program, several participants judged that the Committee could maintain its current degree of accommodation by lengthening the maturity of the Committee's Treasury purchases while reducing the pace of purchases somewhat. In their view, such a change in the Committee's purchase structure would have to be carefully communicated to the public to avoid the misperception that the reduced pace of purchases represented a decline in the degree of accommodation. A few participants expressed concern that maintaining the current pace of agency MBS purchases could contribute to potential valuation pressures in housing markets. The September FOMC statement indicated that asset purchases will continue "over coming months," and participants viewed this guidance for asset purchases as having served the Committee well so far. Most participants judged that the Committee should update this guidance at some point and implement qualitative outcome-based guidance that links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions. These participants indicated that updating the Committee's guidance for asset purchases in this manner would help keep the market's expectation for future asset purchases aligned with the Committee's intentions. Some of these participants also saw such updated guidance as reinforcing the Committee's commitment to fostering outcomes consistent with maximum employment and inflation that averages 2 percent over time. A few participants were hesitant to make changes in the near term to the guidance for asset purchases and pointed to considerable uncertainty about the economic outlook and the appropriate use of balance sheet policies given that uncertainty. Participants noted that it would be important for the Committee's guidance for future asset purchases to be consistent with the Committee's forward guidance for the federal funds rate so that the use of these tools would be well coordinated in terms of achieving the Committee's objectives. Most participants judged that the guidance for asset purchases should imply that increases in the Committee's securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate. A number of participants highlighted the view that after net purchases cease there would likely be a period of time in which maturing assets would be reinvested to roughly maintain the size of the Federal Reserve's securities holdings. Participants commented on how a higher level of reserves associated with the expansion in the Federal Reserve's asset holdings might affect the banking sector and money markets. A few participants raised concerns about the possibility that much higher levels of reserves might create pressure on banks' balance sheets, including on regulatory ratios, or could potentially put undue downward pressure on money market rates. Most participants judged that the Federal Reserve had effective tools to address these circumstances. Some participants noted that, if needed, the Federal Reserve could consider various steps to manage the levels of short-term interest rates and the quantity of reserves, such as adjusting administered rates, expanding the overnight reverse repurchase agreement program, or implementing a maturity extension program. Staff Review of the Economic Situation The coronavirus pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the November 4â5 meeting suggested that U.S. real gross domestic product (GDP) had rebounded at a rapid rate in the third quarter but remained well below its level at the start of the year. Labor market conditions improved further in September, although the pace of gains eased and employment continued to be well below its level at the beginning of the year. Consumer price inflationâas measured by the 12â­month percentage change in the price index for personal consumption expenditures (PCE) through Septemberâhad returned to its year-earlier pace but remained noticeably below the rates that were posted in January and February. Total nonfarm payroll employment expanded strongly in September, but the gain was markedly below the even larger increases seen in previous months. Through September, payroll employment had retraced only about half of the decline seen at the onset of the pandemic. The unemployment rate moved down further to 7.9 percent in September. The unemployment rates for African Americans and Asians both decreased, but the unemployment rate for Hispanics was little changed, and each group's rate remained well above the national average. In addition, the overall labor force participation rate declined, and the employment-to-population ratio rose only slightly. Initial claims for unemployment insurance continued to move lower, on net, through late October, and weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP suggested that employment gains from midâSeptember to midâOctober remained solid. The employment cost index (ECI) for total hourly labor compensation in the private sector, which likely had been less influenced than other hourly compensation measures by the concentration of recent job losses among lower-wage workers, rose 2.4 percent over the 12 months ending in September. This gain was a little smaller than the index's yearâearlier 12âmonth change; in addition, the 3âmonth changes in the ECI in June and September were noticeably below the average pace seen over the period from 2017 through 2019. Total PCE price inflation was 1.4 percent over the 12 months ending in September and continued to be held down by relatively weak aggregate demand and the declines in consumer energy prices seen earlier in the year. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 1.5 percent over the same period, while the trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 1.9 percent in September. On a monthly basis, inflation was a little lower in September, largely reflecting slower goods price inflation. The latest readings on survey-based measures of longer-run inflation expectations moved lower, though each remained within the range in which it has fluctuated in recent years; in October, the University of Michigan Surveys of Consumers measure for the next 5 to 10 years fell back to the level that prevailed in early 2020, while in September the 3âyearâahead measure from the Federal Reserve Bank of New York retraced its August increase. Real PCE rose strongly in the third quarter, though the increase was not sufficient to return consumer spending to its pre-pandemic level. Real disposable personal income declined, reflecting a large reduction in government transfer payments. As a result, the personal saving rate moved sharply lower, though it was still elevated relative to its 2019 average. The consumer sentiment measures from the Michigan survey and the Conference Board had moved higher, on net, since August; although both indexes stood above their April troughs, they remained well below their levels at the start of the year. Housing-sector activity advanced in the third quarter, with real residential investment and home sales both moving above their firstâquarter levels. Activity in this sector was likely being supported by low interest rates, the sector's ability to adjust business practices in response to social distancing, and pent-up demand following the widespread shutdowns earlier in the year. Business fixed investment expanded strongly, led by an outsized increase in third-quarter equipment spending. By contrast, spending on nonresidential structures continued to move lower and was likely restrained by firms' hesitation to commit to projects with lengthy times to completion and uncertain future returns as well as by the effect of lower oil prices on drilling investment. Growth in both total industrial production and manufacturing output turned negative in September after having slowed markedly in August. Part of the softness in manufacturing production appeared to be attributable to pandemic-related delays in the motor vehicle industry's model-year changeover, though subdued foreign demand and weaker demand from domestic energy producers were also likely acting to restrain factory output. As of September, manufacturing output had recovered roughly two-thirds of the drop seen earlier in the year. Total real government purchases declined in the third quarter. Federal nondefense purchases fell especially sharply, largely reflecting a stepâdown in lender processing fees associated with the Paycheck Protection Program (PPP). In addition, real purchases by state and local governments declined further. The nominal U.S. international trade deficit narrowed in September after widening in August. Both exports and imports continued to rebound from their collapse in the first half of the year. Goods imports fully recovered to their January level, with broad-based increases in August and September. In contrast, goods exports by September recovered only two-thirds of their decline since January despite brisk growth in exports of agricultural products and industrial supplies. Services trade remained depressed, driven by the continued suspension of most international travel. Altogether, net exports made a substantial negative contribution to real GDP growth in the third quarter. Economic activity abroad rebounded sharply in the third quarter following a rollback of pandemic-related restrictions. GDP levels, however, generally remained well below their pre-pandemic peaks, with China being a notable exception. Domestic demand supported the recovery, and in Asia there was also a strong rebound of exports, especially of electronics and, more recently, autos. Third-quarter growth was particularly rapid in those economies that experienced some of the deepest contractions in the second quarter, including France, Italy, and Spain among the advanced foreign economies (AFEs) and Mexico among the emerging market economies. After falling through the end of the summer in many countries, inflation rates started to rise over the past two months but remained well below rates from early in the year. The rapid increase over recent weeks of new COVIDâ19 cases in several AFEs, especially in Europe, prompted governments to reintroduce restrictions to rein in this renewed wave of infections. In late October, the governments of several European countriesâincluding England, France, and Germanyâannounced new nationwide restrictions (including the closures of bars and restaurants) and, in some cases, restrictions to the mobility of individuals within and across regions. Still, relative to the spring, restrictions were noticeably less severe; factories, most businesses, and schools generally remained open. Staff Review of the Financial Situation Financial market sentiment was little changed over the intermeeting period against the backdrop of evolving U.S. election and fiscal outlooks, as well as rising COVID-19 cases in the United States and Europe. On net, the Treasury yield curve steepened modestly, corporate bond spreads narrowed somewhat, and broad equity price indexes increased. Inflation compensation increased a little further, remaining close to pre-pandemic levels. Financing conditions for businesses with access to capital markets and households with high credit scores remained generally accommodative, although conditions remained tight or tightened somewhat for other borrowers. Yields on two-year nominal Treasury securities were little changed over the intermeeting period, while longer-term yields increased modestly, on net, reportedly reflecting market participants' reassessments of the election outcome and the outlook for fiscal policy. FOMC communications and macroeconomic data releases did not elicit material yield reactions. Measures of inflation compensation based on Treasury Inflation-Protected Securities (TIPS) edged up, on net, remaining close to their pre-pandemic levels. This development reflected in part the recovery of TIPS market liquidity conditions from their stressed levels in the spring. However, both the 5-year and 5-to-10-year measures of inflation compensation remained near the lower ends of their historical ranges. The expected path for the federal funds rate over the next few years, as implied by a straight read of overnight index swap quotes, was little changed, on net, since the September FOMC meeting and remained close to the effective lower bound (ELB) until the end of 2023. Survey-based expectations favored the first increase in the federal funds rate to occur in 2024. Broad stock price indexes increased, on balance, over the intermeeting period amid volatility associated with market participants' reactions to news on the U.S. election, the pandemic's trajectory, and the fiscal policy outlook. One-month option-implied volatility on the S&P 500âthe VIXâincreased some, on net, after briefly rising sharply late in the intermeeting period. Spreads on corporate bond yields over comparable-maturity Treasury yields narrowed across the credit spectrum and stood somewhat below their historical median levels at the end of the intermeeting period. Conditions in short-term funding markets remained stable over the intermeeting period. Spreads on commercial paper (CP) and negotiable certificates of deposit across different tenors were little changed and remained at pre-pandemic levels. The outstanding level of nonfinancial CP continued to move down over the intermeeting period, reportedly driven by issuers' relatively low appetite for CP funding in light of the availability of longer-term financing on attractive terms. September quarter-end effects were muted, and there was no credit outstanding through the Commercial Paper Funding Facility by the end of the intermeeting period. Conditions in money market funds (MMFs) were also generally calm over the intermeeting period, and net yields of MMFs remained stable near historical lows. The effective federal funds rate stood at 9 basis points, unchanged from the average over the previous intermeeting period. The Secured Overnight Financing Rate averaged 8 basis points, edging down from the previous intermeeting period amid a modest net decrease in Treasury bill issuance. The amount of Federal Reserve repurchase agreements outstanding remained at zero over the intermeeting period, as dealers were able to obtain more attractive rates in the private market. The Federal Reserve increased holdings of Treasury securities and agency MBS at the same pace as over the previous intermeeting period. Investor sentiment abroad turned negative over the intermeeting period amid rising COVID-19 case counts, newly adopted restrictions aimed at containing the spread of the virus, and indicators pointing to a slowing recovery in several foreign economies, particularly in the euro area. Uncertainty about additional U.S. fiscal stimulus and the outcome of the U.S. presidential election also caused some asset price volatility abroad. On net, most foreign equity indexes declined, option-implied volatility in the euro area increased a bit, and most AFE long-term sovereign yields fell. Overall, the broad dollar index was little changed over the intermeeting period. The dollar appreciated modestly against most AFE currencies except the Japanese yen and the British pound. Several Asian currencies, including the Chinese renminbi, the South Korean won, and the Taiwanese dollar, appreciated against the U.S. dollar amid improving growth prospects and low COVID-19 case counts. Most Latin American currencies (especially the Brazilian real ) and the Turkish lira depreciated against the U.S. dollar on concerns about fiscal and political prospects in Latin America and Turkey. Financing conditions in capital markets continued to be broadly accommodative over the intermeeting period, supported by low interest rates and high equity valuations. With historically low corporate bond yields, gross issuance of both investment- and speculative-grade corporate bonds remained solid in September, moderating from robust readings in August but staying close to the averages seen in recent years. Most of this issuance was reportedly intended to refinance existing debt. Gross institutional leveraged loan issuance continued to pick up in September but remained below its average pace in 2019. Collateralized loan obligation issuance was strong in September, likely supporting robust investor demand for newly issued leveraged loans in the coming months. The credit quality of nonfinancial corporations continued to show signs of stabilization. The volume of downgrades to corporate bonds and leveraged loans fell to pre-pandemic levels through September. Corporate bond and leveraged loan defaults were low in August and September relative to their elevated readings in July. Market indicators of expected corporate bond and leveraged loan defaults remained somewhat elevated at above pre-pandemic levels, especially for lower-rated leveraged loan issuers. Commercial and industrial (C&I) loans on banks' balance sheets continued to decline through September, reflecting a mix of weak origination activity and the repayment of credit-line draws from earlier in the year. In the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported that standards for C&I loans continued to tighten during the third quarter, although fewer banks reported tightening than in previous quarters. In addition, demand for C&I loans reportedly weakened in the third quarter. Financing conditions for small businesses remained tight as a result of the pandemic. Small business loan originations dropped off sharply in August after a temporary boost from PPP distributions over the summer. At the same time, small businesses' liquidity needs were high and appeared likely to increase further, with the most recent Census Bureau Small Business Pulse Survey pointing to a majority of small businesses having no more than two months of cash on hand and many small businesses anticipating some need for additional financial assistance in the next six months. However, the uncertainty surrounding earning prospects was reportedly making many business owners less willing to take on debt at prevailing terms. Small business loan performance generally deteriorated further over the intermeeting period. For commercial real estate (CRE) financed through capital markets, financing conditions remained accommodative over the intermeeting period. Spreads on agency CMBS were narrow, and issuance was very strong in September. Spreads on triple-A non-agency CMBS, which were already within their pre-pandemic range in August, moved down further in September and early October, while non-agency issuance remained relatively subdued in September. In contrast, CRE loan growth at banks decelerated in the third quarter, while standards for CRE loans tightened further, according to the October SLOOS. Financing conditions in the residential mortgage market were little changed over the intermeeting period. Mortgage rates remained near historical lows, supporting high volumes of both home-purchase and refinancing originations. Credit continued to flow to higher-score borrowers meeting standard conforming loan criteria, while it remained tight for borrowers with lower credit scores and for nonstandard mortgage products. Residential real estate loans on banks' balance sheets declined, and the October SLOOS suggested that lending standards tightened for all mortgage types. Mortgage forbearance rates continued their downward trend, and the rate of new delinquencies remained low. In consumer credit markets, conditions remained accommodative for borrowers with relatively strong credit scores but continued to be tight for borrowers with subprime credit scores. Banks in the October SLOOS indicated that standards tightened and demand was little changed, on balance, across consumer loan types following a sharp contraction in demand in the second quarter. Credit card balances continued to decline through the third quarter, with gains in balances for account holders with prime credit scores offset by declines in those for nonprime accounts. Interest rates on existing accounts were little changed and remained below pre-crisis levels, while interest rates on new accounts to nonprime borrowers remained elevated. Auto loan balances increased solidly for prime and near-prime borrowers but declined for subprime borrowers. Auto loan interest rates increased but stayed below pre-pandemic levels. Conditions in the asset-backed securities market remained stable over the intermeeting period. The staff provided an update on its assessment of the stability of the financial system. The staff judged that, accounting for low interest rates, asset valuations appeared moderate, with measures of compensation for risk generally in the middle of their historical ranges. However, uncertainty regarding the pandemic and economic outlook has been high, and the risk of sizable declines in asset prices, should adverse shocks materialize, has remained significant. CRE prices had started to decline in some sectors, while market conditions, including rising vacancies and declining rents, pointed to a risk of further drops, especially in severely affected sectors. The staff assessed vulnerabilities associated with household and business borrowing as notable. Household finances had weakened with the economic downturn, and some households could find debt levels burdensome going forward. Business debt levels were high before the pandemic, and the ability of some businesses to service these obligations will depend on the course of the economic recovery. The staff assessed vulnerabilities arising from financial leverage as moderate. While the banking sector has been resilient to recent developments, banks' profitability, as well as that of a range of financial institutions, could be affected by future losses, the weakening of the economic outlook relative to pre-pandemic conditions, and low interest rates. With regard to funding risks, the staff highlighted that structural vulnerabilities in markets for short-term funding and corporate bonds remained present. Emergency facilities were viewed as critical in restoring market functioning and continued to serve as important backstops. The staff also summarized near-term risks to financial stability identified in outreach to the public in recent months, including concerns associated with the outlook for the pandemic and business defaults. Staff Economic Outlook In the U.S. economic projection prepared by the staff for the November FOMC meeting, the rate of real GDP growth and the pace of declines in the unemployment rate over the second half of this year were similar to those in the September forecast despite material revisions to several assumptions influencing the outlook along with incoming data that were, on balance, better than expected. In particular, in the absence of clear progress toward an agreement on further fiscal stimulus, the staff removed the assumption that an additional tranche of fiscal policy support would be enacted. Although this lack of additional fiscal support was expected to cause significant hardships for a number of households, the staff now assessed that the savings cushion accumulated by other households would be enough to allow total consumption to be largely maintained through year-end. Hence, as in the September projection, the staff continued to expect a rapid but partial rebound in activity over the second half of the year following the unprecedented contraction in the spring. The inflation forecast for the rest of the year was revised up slightly in response to incoming readings on inflation that were, on balance, higher than expected. Nevertheless, inflation was still projected to finish the year at a relatively subdued level, reflecting substantial margins of slack in labor and product markets and the large declines in consumer energy prices seen earlier in the year. In the staff's medium-term projection, the assumption that significant additional fiscal support would not be enacted pointed to a lower trajectory for aggregate demand going forward. However, recent data on tax receipts also suggested that the fiscal positions of states and localities had deteriorated less than expected, which led the staff to boost the projected path of state and local government purchases. Hence, with monetary policy assumed to remain highly accommodative and socialâdistancing measures expected to ease further, the staff continued to project that real GDP over the medium term would outpace potential, leading to a considerable further decline in the unemployment rate. The resulting take­âup of economic slack was in turn expected to cause inflation to increase gradually, and the inflation rate was projected to moderately overshoot 2 percent for some time in the years beyond 2023 as monetary policy remained accommodative. The staff continued to observe that the uncertainty related to the future course of the pandemic and its consequences for the economy was high. The staff also continued to view the risks to the economic outlook as tilted to the downside, with the latest data suggesting an increased probability of a resurgence in the disease. Participants' Views on Current Conditions and the Economic Outlook Participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment had continued to recover but remained well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path of the economy would depend on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economy's medium-term outlook. Participants observed that the economy had registered a rapid though incomplete rebound, with third-quarter real GDP rising at an annual rate of 33 percent, reflecting gains across consumer spending, housing-sector activity, and business equipment investment. In recent months, however, the pace of improvement had moderated, with slower growth expected for the fourth quarter. Participants noted that economic activity thus far had recovered faster than had been expected earlier in the year. Household spending on goods, especially durable goods, had been strong and had moved above its pre-pandemic level. Participants commented that the rebound in consumer spending was due in part to federal stimulus payments and expanded unemployment benefits, which provided essential support to many households. Participants viewed accommodative monetary policy as also contributing to gains in durable goods and residential investment as well as the surge in home sales. In contrast, participants noted that consumer outlays for services were increasing more slowly than for durable goods, particularly for items such as air travel, hotel accommodations, and restaurant meals, which had been significantly disrupted by voluntary and mandated social-distancing measures. Participants generally expected the strength in household spending to continue, especially for durable goods and residential investment. A few participants noted that households' balance sheets generally appeared healthy and an unwinding of the large pool of household savings accumulated during the pandemic could provide greater-than-anticipated momentum to consumer spending over coming months. However, several participants expressed concern that, in the absence of additional fiscal support, lower- and moderate-income households might need to reduce their spending sharply when their savings were exhausted. A couple of these participants noted reports from their banking contacts that households appeared to be rapidly exhausting funds they received from fiscal relief programs. Participants noted that business equipment investment had also picked up. A few participants expected the momentum in investment to extend into next year as the economic recovery continued, while a couple of other participants noted that many businesses in their Districts were deferring longer-term commitments because of heighted uncertainty about the economic outlook. The recovery was viewed as unevenly distributed across industries. While many business contacts, particularly those in the durable goods or housing industries, reported progress in adapting to the pandemic or improved business conditions, othersâespecially those with ties to small businesses and the hospitality, aviation, and nonresidential construction industriesâwere still seeing very difficult circumstances. Contacts reported improved conditions in the agricultural sector, boosted by strong demand from China as well as domestic ethanol production, higher crop prices, and federal aid payments. Looking ahead, some business contacts expressed concerns that many households and businesses were currently in a weaker position to weather additional economic shocks than they had been at the beginning of the pandemic. Participants observed that labor market conditions had continued to improve in recent months, with roughly half of the 22 million jobs lost over March and April having been regained. The unemployment rate had declined further, and the employment gains since the spring were generally seen as larger than anticipated. Business contacts in a couple of Districtsâparticularly those in the manufacturing, health-care, and technology sectorsâreported having trouble hiring workers for reasons likely related to virus cases or workers' need to provide childcare. Several participants noted that the decline in the unemployment rate in recent months had been accompanied by a fall in the labor force participation rate, particularly among those with a high school education or lower and among women. Although the number of workers on temporary layoff had fallen sharply, the number of permanent job losers had continued to rise. Most participants commented that the pace of labor market improvement was likely to moderate going forward. A couple of them noted that many businesses in industries severely affected by the pandemic were downsizing or that some businesses were focused on cutting costs or increasing productivity, including through automation. Many participants observed that high rates of job losses had been especially prevalent among lower-wage workers, particularly in the services sector, and among women, African Americans, and Hispanics. A few participants noted that these trends, if slow to reverse, could exacerbate racial, gender, and other social-economic disparities. In addition, a slow job market recovery would cause particular hardship for those with less educational attainment, less access to childcare or broadband, or greater need for retraining. In their comments about inflation, participants noted that some consumer prices had increased more quickly than expected in recent months but that broader price trends were still quite soft. The upturn in consumer price inflation was primarily attributed to price increases in sectors where the pandemic had induced stronger demand, such as consumer durables. In contrast, services price inflation remained softer than pre-pandemic rates, as prices for the categories most affected by social distancing, such as accommodations and airfares, continued to be very depressed and housing services inflation moderated. Several participants commented on the unusually large relative price movements caused by the pandemic and the considerable uncertainty as to how long these price changes would persist. Participants noted that financial conditions were generally accommodative and that actions by the Federal Reserve, including the establishment of emergency lending facilities with the approval of and, in some cases, provision of equity investments by the Treasury, were supporting the flow of credit to households, businesses, and communities. While these actions were viewed as contributing to accommodative financial conditions, participants noted important differences in credit availability across borrowers. In particular, financing conditions eased further for residential mortgage borrowers and for large corporations that were able to access capital markets, but surveys of credit availability indicated that bank lending conditions tightened further. A few participants noted that the financing conditions for small businesses were especially worrisome, as the PPP had ended and the prospect for additional fiscal support remained uncertain. They pointed to the most recent Census Bureau Small Business Pulse Survey, in which more than half of the respondents reported having no more than two months of cash on hand. Participants continued to see the uncertainty surrounding the economic outlook as quite elevated, with the path of the economy highly dependent on the course of the virus; on how individuals, businesses, and public officials responded to it; and on the effectiveness of public health measures to address it. Participants cited several downside risks that could threaten the recovery. While another broad economic shutdown was seen as unlikely, participants remained concerned about the possibility of a further resurgence of the virus that could undermine the recovery. The majority of participants also saw the risk that current and expected fiscal support for households, businesses, and state and local governments might not be sufficient to sustain activity levels in those sectors, while a few participants noted that additional fiscal stimulus that was larger than anticipated could be an upside risk. Some participants commented that the recent surge in virus cases in Europe and the reimposition of restrictions there could lead to a slowdown in economic activity in the euro area and have negative spillover effects on the U.S. recovery. Some participants raised concerns regarding the longer-run effects of the pandemic, including sectoral restructurings that could slow employment growth or an acceleration of technological disruptions that could be limiting the pricing power of some firms. A number of participants commented on various potential risks to financial stability. A few participants noted that the banking system showed considerable resilience through the end of the third quarter, and a few observed that this resilience partly reflected stronger-than-expected balance sheets of their customers, with delinquency rates declining or showing only moderate increases. Moreover, capital positions and loan loss reserves for large banks were higher than before the pandemic. Several participants emphasized the need to ensure that banks continue to maintain strong capital levels, as lower levels of capital are typically associated with tighter credit availability from banks. Several participants commented on the vulnerabilities witnessed during the March selloff in the Treasury market. The substantial maturity and liquidity transformations undertaken by some nonbank financial institutionsâsuch as prime MMFs and corporate bond and bank loan mutual fundsâwere also discussed. A couple of participants expressed concerns that a prolonged period of low interest rates and highly accommodative financial market conditions could lead to excessive risk-taking, which in turn could result in elevated firm bankruptcies and significant employment losses in the next economic downturn. A few participants noted that climate change poses important challenges to financial stability and welcomed analysis of climate change as both a source of shocks and an underlying vulnerability. A couple of participants commented that the actions taken by the Federal Reserve to support the economy and achieve its mandated goals also supported financial stability. Relatedly, several participants emphasized the important roles various section 13(3) facilities played in restoring financial market confidence and supporting financial stability; they noted that these facilities were still serving as an important backstop in financial markets. A few participants noted that it was important to extend them beyond year-end. In their consideration of monetary policy at this meeting, participants reaffirmed the Federal Reserve's commitment to using its full range of tools in order to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants agreed that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term. In light of this assessment, all participants judged that maintaining an accommodative stance of monetary policy was essential to foster economic recovery and to achieve the Committee's long-run 2 percent inflation objective. Participants remarked that the Committee's action in September to provide more explicit outcome-based forward guidance for the federal funds rate had been an important step to affirm the Committee's strong commitment to the goals and strategy articulated in its revised Statement on Longer-Run Goals and Monetary Policy Strategy. Several participants noted that they were encouraged by evidence that suggested that market participants' expectations of the economic conditions that would likely prevail at the time of liftoff seemed broadly consistent with the Committee's forward guidance and revised consensus statement. Participants agreed that monetary policy was providing substantial accommodation, and most concurred that, with the federal funds rate at the ELB, much of that accommodation was due to the Committee's forward guidance and increases in securities holdings. They judged that the current stance of monetary policy remained appropriate, as both employment and inflation remained well short of the Committee's goals and the uncertainty about the course of the virus and the outlook for the economy continued to be very elevated. Participants viewed the resurgence of COVID-19 cases in the United States and abroad as a downside risk to the recovery; a few participants noted that diminished odds for further significant fiscal support also increased downside risks and added to uncertainty about the economic outlook. Regarding asset purchases, participants judged that it would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace. These actions would continue to help sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon. Most participants favored moving to qualitative outcome-based guidance for asset purchases that links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions. A few participants were hesitant to make changes in the near term to the guidance for asset purchases and pointed to considerable uncertainty about the economic outlook and the appropriate use of balance sheet policies given that uncertainty. Discussion on Recommended Changes to the Summary of Economic Projections Participants considered two recommendations from the subcommittee on communications for changes to the Summary of Economic Projections (SEP) that would enhance the information provided to the public. These recommendations included accelerating the release of the full set of SEP exhibits from three weeks after the corresponding FOMC meeting, when the minutes of that meeting are released, to the day of the policy decision and adding new charts that display a time series of diffusion indexes for participants' judgments of uncertainty and risks. With these recommendations, the written summary of the projections that has been included as an addendum to the minutes of the corresponding FOMC meeting would be discontinued. Most of the participants who commented noted that releasing all SEP materials at the time of the postmeeting statement would provide greater context for the policy decision, highlight the risk-management factors relevant for the decision, or further emphasize the degree of uncertainty around participants' modal projections. Some who commented noted that the SEP serves a valuable role in illustrating how participants' policy assessments respond to changes in the economic outlook. Most participants who commented suggested that it would be useful to continue thinking about options for refining the SEP. Participants unanimously supported the recommended changes and agreed that they should be implemented beginning in December. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that economic activity and employment had continued to recover but remained well below their levels at the beginning of the year, and that weaker demand and earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. Members also stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective November 6, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities (MBS) at the current pace. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Patrick Harker, Robert S. Kaplan, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Ms. Daly voted as alternate member at this meeting. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective November 6, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 15â16, 2020. The meeting adjourned at 10:05 a.m. on November 5, 2020. Notation Votes By notation vote completed on September 30, 2020, the Committee unanimously approved the selection of Trevor Reeve to serve as economist and Rochelle Edge to serve as associate economist, effective October 1, 2020. By notation vote completed on October 6, 2020, the Committee unanimously approved the minutes of the Committee meeting held on September 15 â 16, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion on asset purchases. Return to text

Minutes of the Federal Open Market Committee December 15-16, 2020 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, December 15, 2020, at 1:00 p.m. and continued on Wednesday, December 16, 2020, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard Richard H. Clarida Patrick Harker Robert S. Kaplan Neel Kashkari Loretta J. Mester Randal K. Quarles Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Charles L. Evans, and Helen E. Mucciolo, 2 Alternate Members of the Federal Open Market Committee James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Michael Dotsey, Rochelle M. Edge, Marc Giannoni, William Wascher, and Mark L.J. Wright, Associate Economists Lorie K. Logan, Manager, System Open Market Account Ann E. Misback, 3 Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Margie Shanks, Deputy Secretary, Office of the Secretary, Board of Governors Sally Davies and Brian M. Doyle, Deputy Directors, Division of International Finance, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Kurt F. Lewis, Ellen E. Meade, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Division of Board Members, Board of Governors Eric M. Engen and John J. Stevens, Senior Associate Directors, Division of Research and Statistics, Board of Governors Jane E. Ihrig, Don H. Kim, and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board of Governors; Brett Berger, 4 Senior Adviser, Division of International Finance, Board of Governors Elizabeth K. Kiser, Associate Director, Division of Research and Statistics, Board of Governors Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Norman J. Morin, Karen M. Pence, and John M. Roberts, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 4 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Brian J. Bonis and Dan Li, Assistant Directors, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board of Governors; Lubomir Petrasek, Section Chief, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Heather A. Wiggins, 4 Group Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo and Erin E. Ferris, Principal Economists, Division of Monetary Affairs, Board of Governors Kyungmin Kim 4 and Arsenios Skaperdas, 4 Senior Economists, Division of Monetary Affairs, Board of Governors Courtney Demartini, 4 Lead Financial Institution and Policy Analyst, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Kartik B. Athreya, Joseph W. Gruber, Sylvain Leduc, Anna Paulson, Daleep Singh, and Christopher J. Waller, Executive Vice Presidents, Federal Reserve Banks of Richmond, Kansas City, San Francisco, Chicago, New York, and St. Louis, respectively Todd E. Clark, Senior Vice President, Federal Reserve Bank of Cleveland Jonathan P. McCarthy, Matthew Nemeth, 4 Giovanni Olivei, Rania Perry, 4 Matthew D. Raskin, 4 Jonathan L. Willis, and Patricia Zobel, Vice Presidents, Federal Reserve Banks of New York, New York, Boston, New York, New York, Atlanta, and New York, respectively Robert Lerman, 4 Assistant Vice President, Federal Reserve Bank of New York Lisa Stowe, 4 Markets Officer, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager of the System Open Market Account (SOMA) turned first to a discussion of financial market developments. Market sentiment improved over the period, as reduced uncertainty related to the U.S. election and positive vaccine news outweighed the anticipated effect of the ongoing surge in the pandemic. U.S. equity price indexes reached all-time highs, with the largest gains registered in sectors that have underperformed during the pandemic. Corporate credit spreads tightened, most notably among lower-rated firms and in sectors most affected by social distancing measures resulting from the pandemic. Longer-term Treasury yields rose modestly, driven by increases in inflation compensation. The positive vaccine news also supported risk sentiment abroad, leading many global equity price indexes to advance and the U.S. dollar to depreciate further. Market participants had highlighted that uncertainty nevertheless remained high and had pointed to several prominent risks to the economic outlook. These risks included the possibility that the vaccine rollout might not proceed as smoothly as anticipated, the potential for adverse developments in negotiations concerning the United Kingdom's withdrawal from the European Union, and the potential for deterioration in already strained sectors, such as those involving small businesses and certain segments of commercial real estate (CRE). With regard to market expectations concerning the policy outlook, responses to the Open Market Desk surveys of dealers and market participants suggested that views on the most likely timing of the next increase in the target range for the federal funds rate coalesced further around the first half of 2024. Survey responses continued to indicate median expectations of headline personal consumption expenditures (PCE) inflation above 2 percent and an unemployment rate of around 4 percent at the time of the first increase in the target range for the federal funds rate. A majority of Desk survey respondents indicated that they expected the Committee to revise its guidance on asset purchases at the current meeting, with many noting that they anticipated the announcement of some form of qualitative, outcome-based guidance tied to inflation, the unemployment rate, or both. Median Desk survey responses continued to suggest expectations that purchases would begin to slow in the first half of 2022 and cease altogether in 2023. The size of the Federal Reserve's balance sheet increased to around $7.3 trillion over the intermeeting period, driven by growth in securities holdings. The Desk conducted purchases to increase holdings of Treasury securities and agency mortgage-backed securities (MBS) at the minimum pace directed by the FOMC, as markets for these securities continued to function smoothly. News that CARES Act (Coronavirus Aid, Relief, and Economic Security Act) funding would not be available to support new activity in section 13(3) facilities after the end of the year had only a modest effect on financial markets. New activity remained limited across most Federal Reserve funding operations and section 13(3) facilities, although the Municipal Liquidity Facility and the Main Street Lending Program saw growing usage over the period, with more take-up expected before their scheduled year-end termination. The manager discussed a proposal to extend the temporary U.S. dollar liquidity swap arrangements as well as the temporary FIMA (Foreign and International Monetary Authorities) Repo Facility through September 2021. The path to a complete economic recovery remained uncertain across the globe, particularly for many emerging market countries, underscoring the need for backstops that could address potential market stresses and prevent spillovers from reemerging. Keeping these arrangements in place would contribute to sustaining improvements in global dollar funding markets and to the continued smooth functioning of the U.S. Treasury securities market. Under the proposal, provided that the Committee had no objections, the Chair would approve the extension of the temporary liquidity swap lines following the meeting. The extensions of the swap and FIMA repurchase agreement (repo) arrangements would be announced following this meeting. Market participants generally anticipated calm money market conditions through year-end, and the premiums paid for dollar funding crossing year-end generally were below those observed in recent years. Money market futures also indicated expectations of short-term rates moving down modestly in coming months, in light of anticipated further increases in aggregate reserve balances and a moderation in Treasury bill supply. The manager anticipated that administered rates and the overnight reverse repo program would be effective tools for maintaining control of overnight money market rates. By unanimous vote, the Committee voted to approve a resolution that extended through September 30, 2021, the expiration of a temporary repo facility for foreign and international monetary authorities (FIMA Repo Facility). 5 Secretary's note: The Chair subsequently provided approval to the Desk, following the procedures in the Authorization for Foreign Currency Operations, to extend the expiration of the temporary U.S. dollar liquidity swap lines through September 30, 2021. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The COVID-19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the December 15â16 meeting suggested that U.S. real gross domestic product (GDP) was continuing to recover in the fourth quarter, but at a more moderate pace than its rapid third-quarter rate, and that the level of real GDP remained well below its level at the start of 2020. Labor market conditions improved further over October and November, although employment continued to be well below its level at the beginning of the year. Consumer price inflation through Octoberâas measured by the 12âmonth percentage change in the PCE price indexâremained notably below the rates seen in early 2020. Total nonfarm payroll employment continued to increase solidly over October and November, though the rate of monthly job gains was more moderate than the substantial thirdâquarter pace. Through November, payroll employment had regained somewhat more than half of the losses seen at the onset of the pandemic. The unemployment rate moved down further and stood at 6.7 percent in November. The unemployment rates for African Americans and Hispanics each declined but remained well above the national average. Both the labor force participation rate and the employment-to-population ratio in November were above their levels of two months earlier. The four-week moving average of initial claims for unemployment insurance was only slightly lower in early December than it had been in late October. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP suggested that the four-week average of private employment gains in early December was lower than it was in mid-November. Both the 12âmonth change in average hourly earnings for all employees through November and the fourâquarter change in total labor compensation per hour in the business sector through the third quarter continued to be dominated by changes in the composition of the workforce. The substantial employment losses over the past year were most significant among lower-wage workersâa situation that had led to outsized increases in these average measures of earnings and compensation that were not indicative of tight labor market conditions. Total PCE price inflation was 1.2 percent over the 12 months ending in October, and it continued to be held down by relatively weak aggregate demand and the declines in consumer energy prices seen earlier in 2020. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 1.4 percent over the same period, while the trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 1.7 percent in October. In November, the 12-month change in the consumer price index (CPI) was 1.2 percent, while core CPI inflation was 1.6 percent over the same period. The latest readings on survey-based measures of longer-run inflation expectations edged up, though each remained within the range in which it has fluctuated in recent years; in November and early December, the University of Michigan Surveys of Consumers measure for the next 5 to 10 years was slightly above its level in October, while the 3âyearâahead measure produced by the Federal Reserve Bank of New York rose a bit in November. Real PCE rose strongly in October, though at a more moderate pace than in the third quarter. Real disposable personal income declined in October, reflecting a large reduction in government transfer payments, even though wage and salary income continued to climb. As a result, the personal saving rate moved lower, though it continued to be notably above its 2019 average. In November, the components of the nominal retail sales data used to estimate PCE, along with the rate of light motor vehicle sales, stepped down, possibly reflecting the effects on consumer spending of renewed social-distancing measures and concerns about the resurgent pandemic. Consumer sentiment, as measured by both the Michigan survey and the Conference Board, moved somewhat lower, on net, since October, although both indexes were still above their April troughs. Housing-sector activity advanced further, on balance, in October, supported in part by low interest rates. Starts and construction permits for single-family homes continued to rise, while starts of multi-family units moved sideways. Sales of existing homes increased solidly, though new home sales were roughly flat. Business fixed investment appeared to be expanding further, on net, in the fourth quarter following an outsized third-quarter increase. Nominal shipments of nondefense capital goods excluding aircraft rose strongly in October, and new orders for these capital goods continued to advance. By contrast, nominal spending on nonresidential structures outside of the drilling and mining sector declined further in October. The number of crude oil and natural gas rigs in operationâan indicator of business spending on structures in the drilling and mining sectorâcontinued to move up somewhat through early December, although the number of rigs in operation was still subdued, reflecting the effect of low oil prices on drilling investment. Industrial production rose strongly over October and November, led by gains in manufacturing output, but production was still below its February pre-pandemic level. The pickup in the production of motor vehicles and related parts was particularly strong in November. Output in the mining sectorâwhich includes crude oil and natural gas drilling and extractionâincreased, on net, over October and November. Total real government purchases appeared to be declining moderately, on balance, in the fourth quarter. Federal defense spending continued to rise in October and November, although federal employment declined with the layoff of temporary census workers. State and local government payrolls decreased in October and November, and nominal state and local construction expenditures in October were somewhat below their third-quarter level. The nominal U.S. international trade deficit widened in October. Both imports and exports continued to rebound from their collapse in the first half of the year. Goods imports in October rose above their January level after several months of strong growth. Goods exports, however, had only recovered three-fourths of their decline since January despite brisk growth in agricultural exports. Services trade remained depressed, driven by the continued suspension of most international travel. After a strong rebound in the third quarter, foreign economic growth appeared to slow sharply in recent months. The resurgence of coronavirus infections in Europe and Canada prompted governments to reintroduce social-distancing restrictions, leading to a fall in measures of mobility and services activity. Even so, with restrictions less severe and more targeted than in the spring, the hit to economic activity looked to be more limited. Economic growth appeared to hold up better in several emerging Asian economies. In these economies, effective virus control was supporting domestic demand, while strong external demand boosted exports. Inflationary pressures remained subdued in most foreign economies amid substantial economic slack. Staff Review of the Financial Situation Financial market sentiment improved over the intermeeting period, boosted by news of forthcoming COVID-19 vaccines and reduced uncertainty following the U.S. election that outweighed concerns regarding the continued rise in COVID-19 cases and the potential effects of ensuing restrictions. Corporate bond spreads narrowed, and major global equity price indexes rose on net. The prospect of additional fiscal stimulus likely contributed to a steeper U.S. Treasury yield curve, increased inflation compensation, and broad dollar depreciation. Financing conditions for businesses able to access capital markets and households possessing high credit scores remained accommodative and eased a bit further in some sectors, but conditions for borrowers dependent on bank financing remained tight. Yields on 2-year nominal Treasury securities were little changed since the November FOMC meeting, while 10- and 30-year yields rose moderately. Market participants attributed the increases in longer-term yields primarily to greater optimism about the economic outlook, due to the forthcoming availability of effective vaccines and renewed fiscal stimulus negotiations. Near-dated option-implied volatility on the 10-year Treasury futures contract declined to historic lows. The rise in longer-term Treasury yields was concentrated in inflation compensation. The 5-year and 5-to-10-year measures of inflation compensation based on Treasury Inflation Protected Securities rose above their pre-pandemic levels. The expected path of the federal funds rate, based on a straight read of overnight index swap rates, remained close to the effective lower bound through mid-2023. Survey-based measures indicated that market expectations regarding the federal funds rate target range did not show a tightening until 2024. Broad stock price indexes increased over the intermeeting period, led by steep stock price gains in cyclical sectors and buoyed by the prospect of successful vaccines and lower postâelection uncertainty. One-month S&P 500 option-implied volatilityâthe VIXâdeclined, reversing a pre-election increase. Consistent with the optimism driving stock prices, spreads of corporate bond yields over comparable-maturity Treasury yields narrowed markedly across the credit spectrum, most notably for debt securities of the lowest credit quality firms. Conditions in short-term funding markets remained stable over the intermeeting period. Spreads on commercial paper (CP) and negotiable certificates of deposit across different tenors were little changed, on net, and remained around pre-pandemic levels despite continued outflows from prime money market funds (MMFs) and the coming year-end. CP issuance was robust over the intermeeting period across the different tenors. With the yields of prime MMFs approaching those of government MMFs, assets under management (AUM) of prime MMFs declined moderately, while AUM of government MMFs were little changed. Net yields of prime and government MMFs both remained near historically low levels. The intermeeting averages of the effective federal funds rate and the Secured Overnight Financing Rate remained unchanged from the previous intermeeting period averages, at 9 basis points and 8 basis points, respectively. Term and forward repo market quotes indicated muted year-end funding pressure amid ample liquidity conditions. The Federal Reserve maintained its pace of purchases of Treasury securities and agency MBS, and Federal Reserve repos outstanding remained at zero over the intermeeting period. Investor sentiment abroad improved over the intermeeting period, as favorable news on COVID-19 vaccines and the resolution of uncertainty regarding the U.S. election apparently outweighed concerns about another surge in COVID-19 cases and the resulting adoption of tighter social-distancing restrictions in many countries. On balance, prices of global risky assets increased notably, implied volatility dropped sharply, and the dollar depreciated against most currencies. Most advanced foreign economy sovereign yields were little changed, on net, as policymakers in several countries announced additional actions aimed at maintaining accommodative financial conditions. Financing conditions in capital markets continued to be broadly accommodative, supported by low interest rates and high equity valuations. With historically low corporate bond yields, gross issuance of both investment- and speculative-grade bonds remained solid in October. Much of the recent issuance was intended to refinance existing debt. Gross institutional leveraged loan issuance increased substantially in October for both new loans and refinancing. Seasoned equity offerings in October and November were similar to the typical volumes observed in previous years, though equity raised through initial public offerings moderated somewhat from the robust rate of issuance in September. Commercial and industrial (C&I) loans outstanding on banks' balance sheets contracted in October and November, reflecting the continued paydown of loan balances and the start of Paycheck Protection Program loan forgiveness activity. The credit quality of nonfinancial corporations continued to show signs of stabilization. Although the volume of nonfinancial corporate bond downgrades outpaced upgrades somewhat in October and November, nonfinancial corporate bond defaults continued to decline. The rate of leveraged loan defaults was largely unchanged in October, albeit at somewhat elevated levels. Market indicators of future default expectations for corporate bonds fell slightly but remained above their pre-pandemic levels. In the municipal bond market, financing conditions remained accommodative. Issuance of state and local government debt moderated in November after all-time high issuance in October, and market-based measures of state credit quality were little changed on net. Financing conditions for small businesses remained tight, although some indicators suggested that they might have improved a bit. Data provided by the Federal Reserve Small Business Lending Survey showed that standards for small businesses tightened, on net, over the third quarter, consistent with the most recent Senior Loan Officer Opinion Survey on Bank Lending Practices. Small business loan originations ticked up in October to a level near that seen in the same period last year. Shortâterm delinquencies and defaults remained relatively elevated but significantly lower than the levels observed following the financial crisis. In light of the uncertain outlook, small business owners' assessments of the risk of permanent closures remained elevated in most sectors, according to the Census Small Business Pulse Survey. In the CRE market, financing conditions remained accommodative, on net, over the intermeeting period. Agency commercial mortgage-backed security (CMBS) spreads remained narrow amid strong issuance in October, while non-agency CMBS spreads ticked down. Triple-B-rated non-agency CMBS spreads came down substantially from their highs in the spring, although they remained elevated relative to pre-pandemic levels. Non-agency issuance picked up in October, nearing pre-pandemic levels. CRE bank loan growth in October and November remained weak, consistent with tightened bank lending standards. In the residential mortgage market, financing conditions remained highly accommodative for borrowers accessing government-backed loans. Mortgage rates remained near historic lows, supporting robust loan originations. Credit continued to flow to higher-score borrowers who met standard conforming loan criteria while remaining tight for lower-score borrowers and for nonstandard mortgage products. The credit quality of mortgages was little changed, as the fraction of mortgages in forbearance held fairly steady, and the rate of transition into mortgage delinquency remained at pre-pandemic levels. Financing conditions in consumer credit markets remained generally accommodative for borrowers with relatively strong credit. Credit card balances and average credit limits on existing accounts contracted, on net, for all types of borrowers. However, auto loan balances continued to increase for higher-quality borrowers, and loan rates remained well below pre-pandemic levels. Conditions in the asset-backed securities market remained stable over the intermeeting period. Staff Economic Outlook In the U.S. economic projection prepared by the staff for the December FOMC meeting, real GDP growth was revised up and the unemployment rate revised down for the fourth quarter relative to the November meeting forecast. These revisions reflected incoming data that were, on balance, better than expected, although the recent resurgence of the pandemic and increased social-distancing restrictions in many states and localities were expected to weigh on economic activity in the coming months. As a result, the staff expected that real GDP growth would temporarily weaken in the first quarter of 2021, and the slowing seen in some of the most recent high-frequency indicators of spending and employment appeared consistent with that forecast. The inflation forecast for the rest of 2020 was revised down slightly in response to incoming data, and inflation was projected to finish the year at a relatively subdued level, reflecting substantial margins of labor- and product-market slack in the economy and the large declines in consumer energy prices seen earlier in 2020. Primarily in response to the recent favorable news on the development of COVID-19 vaccines, the staff revised up its projection of real GDP growth for 2021 as a whole, as social-distancing measures were expected to ease more quickly than previously assumed. With monetary policy assumed to remain highly accommodative, the staff continued to project that real GDP growth over the medium term would be well above the rate of potential output growth, leading to a considerable further decline in the unemployment rate. The resulting takeâup of labor- and product-market slack was expected to lead to gradually increasing inflation, and, for some time in the years beyond 2023, inflation was projected to overshoot 2 percent by a moderate amount, as monetary policy remained accommodative. The staff observed that the uncertainty related to the future course of the pandemic, the measures to control it, and the associated economic effects remained elevated. In addition, the staff continued to judge the risks to the economic outlook as being tilted to the downside. The recent sharp resurgence in the pandemic suggested that the near-term risks had risen, while the recent favorable developments regarding vaccines pointed to some reduction in the downside risks over the medium term. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2020 through 2023 and over the longer run, based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting. Participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment had continued to recover but remained well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path of the economy would depend on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term. Participants observed that the economy continued to show resilience in the face of the pandemic, though it was still far from having attained conditions consistent with the Committee's dual mandate. They noted that the economic recovery thus far had been stronger than anticipatedâsuggesting greater momentum in economic activity than had been previously thoughtâbut viewed the more recent indicators as signaling that the pace of recovery had slowed. With the pandemic worsening across the country, the expansion was expected to slow even further in coming months. Nevertheless, the positive vaccine news received over the intermeeting period was viewed as favorable for the medium-term economic outlook. Participants noted that household spending on goods, especially durables, had been strong. Participants commented that the rebound in consumer spending was due, in part, to fiscal programs such as federal stimulus payments and expanded unemployment benefits. These measures had provided essential support to many households. The support to incomes provided by fiscal programs, combined with reduced spending by households on some services, had contributed to a historically large increase in aggregate household savings. Participants also observed that residential investment and home sales remained robust. Accommodative monetary policy was viewed as having provided support to interest rate sensitive expenditure categories, including residential investment and consumer durables spending. Participants regarded the positive news on vaccine development as further strengthening the medium-term outlook for household spending. However, participants saw increased challenges for the economy in the coming months, as the ongoing surge of COVID-19 cases and the related mandatory and voluntary measures prompted greater social distancing and damped spending, especially on services requiring in-person contact. Several participants pointed out that readings on high-frequency economic indicators, such as individual mobility indexes and online restaurant reservation data, might already be registering the effects of the recent rise in virus cases. Various participants noted that low-income households were particularly hard hit by the effects of the resurgent virus, and thatâwith the looming expiration of the expanded unemployment benefits, eviction moratoria, and loan forbearance programsâtheir situations could deteriorate significantly if additional relief and support did not materialize. With respect to the business sector, participants observed that business equipment investment had picked up further, with strong readings registered on new orders and shipments. A couple of participants remarked that the very low levels of inventories would likely be a factor supporting increases in production as demand continued to recover. Participants noted that the economic recovery had been uneven across firms and industries. Though many business contacts, particularly those in the durable goods or housing sectors, reported progress in adapting to the pandemic and improved business practices, othersâespecially those closely linked to the leisure, travel, and hospitality industriesâwere still struggling, and their problems were intensifying because of the resurgence of the virus. Furthermore, while larger firms were generally seen as recovering reasonably well, conditions remained worrisome for small businesses. A number of participants noted that many small businesses were in especially vulnerable positions and that further fiscal policy support would help such businesses weather the ongoing surge in the pandemic, especially over the coming months. Looking further ahead, participants observed that continuing positive developments on the vaccine front could further support business investment by helping reduce stresses in pandemic-sensitive industries and by boosting confidence. Participants remarked that labor market conditions generally had continued to improve, but they were still a long way from those consistent with the Committee's maximum employment goal. Although the pace of employment gains had moderated in recent months, the overall recovery in employment thus far had been faster than anticipated, with a little more than half of the 22 million jobs lost over March and April having been regained. The unemployment rate had declined further, although several participants underlined the fact that the labor force participation rate remained below its pre-pandemic levelâlikely reflecting, in part, health concerns and additional childcare responsibilities associated with online schooling. Participants assessed that the ongoing surge in COVID-19 infections would be particularly challenging for the labor market in coming months, but they indicated that they expected employment to continue to recover over the medium term. Participants stressed that the burdens of the economic downturn had fallen unequally on different groups; in particular, high rates of job losses had been especially prevalent among lower-wage workers and among African Americans and Hispanics. Some participants expressed the concern that the longer the pandemic continued, the more lasting damage to the labor market there could be. They noted that the number of unemployed workers who had been permanently laid off had increased notably in recent months and that those workers historically often required a longer time to find a new job than those temporarily laid off. In light of these considerations, several participants assessed that improvements in the labor market were lagging that of economic activity, and they indicated that they had not revised their projections of labor market variables to the same extent as their revision of the outlook for economic activity. In their comments about inflation, participants noted that increases in consumer prices had been soft of late, as prices of products in those categories most affected by social distancingâsuch as hotel accommodations and air travelâcontinued to be depressed and increases in rents remained low. These patterns were expected to continue in the near term as pandemic concerns intensified over the winter. However, participants generally saw these downward pressures on inflation starting to abate next year, with widespread distribution of vaccines reducing social-distancing concerns and spurring economic activity. A couple of participants suggested that, as a result of ongoing technology-enabled disruption to business models and practices or lasting pandemic-induced restraint on firms' pricing power, downward pressure on inflation could persist. Several participants noted a pickup in market-based measures of inflation compensation. Participants expected that, with continued monetary policy support, inflation would rise over time. In their SEP submissions, seven participantsâfive more than in the September SEPâexpected overall inflation to be above the Committee's 2 percent longer-run objective in 2023. Participants noted that overall financial conditions were accommodative, in part reflecting policy measures to support the economy and the flow of credit to households and businesses. However, participants underlined important differences in credit availability across borrowers. Financing conditions eased further for large corporations that were able to access capital markets, as equity prices rose and corporate credit spreads continued to narrow, but smaller firms and some households reliant on bank lending continued to face tight lending standards. Participants noted that the financing conditions for small businesses were especially strained, with a few participants pointing out that a sizable fraction of small businesses had permanently closed or were in the process of transitioning to closure. A couple of participants observed that aggregate banking data had not indicated a significant increase in loan delinquencies for C&I loans thus far, though this development could be partly due to the CARES Act provisions that provided relief to many troubled borrowers or to the fact that many small businesses had gone out of business without declaring bankruptcy or defaulting on loans. Some participants noted the important role played by the various section 13(3) facilities implemented in 2020 in serving as temporary backstops to key credit markets and in helping to restore and maintain the flow of credit to households, businesses, and communities. These participants also mentioned the announcement that CARES Act funding to support new activity in many of these facilities would not be available after December 31, and a number noted that they saw downside risks associated with this development. Participants continued to see the uncertainty surrounding the economic outlook as elevated, with the path of the economy highly dependent on the course of the virus. The positive vaccine news was seen as reducing downside risks over the medium term, and a number of participants saw risks to economic activity as more balanced than earlier. Still, participants saw significant uncertainties regarding how quickly the deployment of vaccines would proceed as well as how different members of the public would respond to the availability of vaccines. Participants cited several downside risks that could threaten the economic recovery. These risks included the possibility of significant additional fiscal policy support not materializing in a timely manner, the potential for further adverse pandemic developmentsâwhich could lead to more-stringent restrictions, more-severe business failures, and more permanent job lossesâand the chance that trade negotiations between the United Kingdom and the European Union would not be concluded successfully before the December 31 deadline. As upside risks, participants mentioned the prospect that the release of pent-up demand, spurred by wider-scale vaccinations and easing of social distancing, could boost spending and bring individuals back to the labor force more quickly than currently expected as well as the possibility that fiscal policy developments could see measures that were larger than expected in amount or economic impact. Regarding inflation, participants generally viewed the risks as having become more balanced than they were earlier in the year, though most still viewed the risks as being weighted to the downside. As an upside risk to inflation, a few participants noted the potential for a stronger-than-expected recovery, coupled with the possible emergence of pandemic-related supply constraints, to boost inflation. In their consideration of monetary policy at this meeting, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants agreed that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term. Participants noted that, with the pandemic worsening across the country, the expansion would likely slow in coming months. In contrast, for the medium term, participants commented that positive vaccine news had improved the economic outlook. That said, participants agreed that the path ahead remained highly uncertain and that the economy remained far from the Committee's longer-run goals. In light of this assessment, all participants judged that maintaining an accommodative stance of monetary policy was essential to foster economic recovery and to achieve an average inflation rate of 2 percent over time. All participants supported enhancing the Committee's guidance on asset purchases at this meeting and, in particular, adopting qualitative, outcome-based guidance indicating that increases in asset holdings would continue, with purchases of Treasury securities of at least $80 billion per month and of agency MBS of at least $40 billion per month, until substantial further progress has been made toward reaching the Committee's maximum employment and price stability goals. In their discussions of this change, participants noted that the new guidance regarding balance sheet policy brought the statement's references to purchases into better alignment with the Committee's outcome-based guidance on the federal funds rate, offered more clarity about the role played by the asset purchase program in providing accommodation to meet the Committee's economic goals, and underscored the responsiveness of balance sheet policy to unanticipated economic developments. A few participants stressed that all of the Committee's policy tools were now well positioned to respond to the evolution of the economy. For example, if progress toward the Committee's goals proved slower than anticipated, the new guidance relayed the Committee's intention to respond by increasing monetary policy accommodation through maintaining the current level of the target range of the federal funds rate for longer and raising the expected path of the Federal Reserve's balance sheet. A couple of participants remarked that, against this background, it was important to convey to the public that the federal funds rate remained the Committee's primary policy tool. A number of participants discussed considerations related to determining the eventual attainment of "substantial further progress" toward reaching the Committee's maximum employment and price stability goals. Participants commented that this judgment would be broad, qualitative, and not based on specific numerical criteria or thresholds. Various participants noted the importance of the Committee clearly communicating its assessment of actual and expected progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of purchases. Regarding the decisions on the pace and composition of the Committee's asset purchases, all participants judged that it would be appropriate to continue those purchases at least at the current pace, and nearly all favored maintaining the current composition of purchases, although a couple of participants indicated that they were open to weighting purchases of Treasury securities toward longer maturities. Participants generally judged that the asset purchase program as structured was providing very significant policy accommodation. Some participants noted that the Committee could consider future adjustments to its asset purchasesâsuch as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturitiesâif such adjustments were deemed appropriate to support the attainment of the Committee's objectives. A few participants underlined the importance of continuing to evaluate the balance of costs and risks associated with asset purchases against the benefits arising from purchases. Participants shared their views on the appropriate evolution of asset purchases once substantial further progress had been made toward the Committee's maximum employment and price stability goals. A number of participants noted that, once such progress had been attained, a gradual tapering of purchases could begin and the process thereafter could generally follow a sequence similar to the one implemented during the large-scale purchase program in 2013 and 2014. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that economic activity and employment had continued to recover but remained well below their levels at the beginning of the year and that weaker demand and earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. Members also stated that the path of the economy would depend significantly on the course of the virus. In addition, members agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency MBS by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum employment and price stability goals. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective December 17, 2020, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct term and overnight repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of a statement for release. 6 The following statement was released at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Patrick Harker, Robert S. Kaplan, Neel Kashkari, Loretta J. Mester, and Randal K. Quarles. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective December 17, 2020. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 26â27, 2021. The meeting adjourned at 10:05 a.m. on December 16, 2020. Notation Vote By notation vote completed on November 24, 2020, the Committee unanimously approved the minutes of the Committee meeting held on November 4â5, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Elected as an Alternate by the Federal Reserve Bank of New York, effective November 11, 2020. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. The approved FIMA Desk Resolution, which updates the July 2020 resolution with a new expiration date, is available along with other Committee organizational documents at https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 6. The statement approved at the meeting included a drafting error. By notation vote shortly after the meeting concluded, the Committee unanimously approved a corrected version of the statement for release at 2:00 p.m. Return to text

Minutes of the Federal Open Market Committee January 26-27, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, January 26, 2021, at 1:00 p.m. and continued on Wednesday, January 27, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Loretta J. Mester, Helen E. Mucciolo, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, David Altig, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Eric M. Engen, Beverly Hirtle, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Sally Davies, Deputy Director, Division of International Finance, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board of Governors; Gretchen C. Weinbach, Senior Associate Director, Division of Monetary Affairs, Board of Governors Ellen E. Meade and Robert J. Tetlow, Senior Advisers, Division of Monetary Affairs, Board of Governors; Steven A. Sharpe, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Andrew Figura, Associate Director, Division of Research and Statistics, Board of Governors Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Assistant Director, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, Section Chief, Office of the Secretary, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Olesya Grishchenko, Horacio Sapriza, and Fabian Winkler, Principal Economists, Division of Monetary Affairs, Board of Governors; Pablo Cuba-Borda, Principal Economist, Division of International Finance, Board of Governors; Andrew Paciorek, Principal Economist, Division of Research and Statistics, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Joseph W. Gruber, Daleep Singh, and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Kansas City, New York, and Cleveland, respectively David Andolfatto, Spencer Krane, Keith Sill, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of St. Louis, Chicago, Philadelphia, and Minneapolis, respectively Joe Peek, Vice President, Federal Reserve Bank of Boston James Dolmas, Economic Policy Advisor and Senior Research Economist, Federal Reserve Bank of Dallas Andrew Foerster, Research Advisor, Federal Reserve Bank of San Francisco Annual Organizational Matters 3 The agenda for this meeting reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 26, 2021, were received and that these individuals executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Helen E. Mucciolo, First Vice President of the Federal Reserve Bank of New York, as alternate Thomas I. Barkin, President of the Federal Reserve Bank of Richmond, with Eric Rosengren, President of the Federal Reserve Bank of Boston, as alternate Charles L. Evans, President of the Federal Reserve Bank of Chicago, with Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, as alternate Raphael W. Bostic, President of the Federal Reserve Bank of Atlanta, with James Bullard, President of the Federal Reserve Bank of St. Louis, as alternate Mary C. Daly, President of the Federal Reserve Bank of San Francisco, with Esther L. George, President of the Federal Reserve Bank of Kansas City, as alternate By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2022: Jerome H. Powell Chair John C. Williams Vice Chair James A. Clouse Secretary Matthew M. Luecke Deputy Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Michael Held Deputy General Counsel Richard M. Ashton Assistant General Counsel Trevor Reeve Economist Stacey Tevlin Economist Beth Anne Wilson Economist Shaghil Ahmed David Altig Kartik B. Athreya Brian M. Doyle Rochelle M. Edge Eric M. Engen Beverly Hirtle Sylvain Leduc Anna Paulson William Wascher Associate Economists By unanimous vote, the Committee selected the Federal Reserve Bank of New York to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Lorie K. Logan and Patricia Zobel to serve at the pleasure of the Committee as manager and deputy manager of the SOMA, respectively, on the understanding that these selections were subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: The Federal Reserve Bank of New York subsequently sent advice that the manager and deputy manager selections indicated previously were satisfactory. By unanimous vote, the Committee voted to reaffirm without revision the Authorization for Domestic Open Market Operations, the Authorization for Foreign Currency Operations, and the Foreign Currency Directive, as shown below. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended. AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS (As reaffirmed effective January 26, 2021) OPEN MARKET TRANSACTIONS 1. The Federal Open Market Committee (the "Committee") authorizes and directs the Federal Reserve Bank selected by the Committee to execute open market transactions (the "Selected Bank"), to the extent necessary to carry out the most recent domestic policy directive adopted by the Committee: A. To buy or sell in the open market securities that are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act ("Eligible Securities") for the System Open Market Account ("SOMA"): i. As an outright operation with securities dealers and foreign and international accounts maintained at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps) at market prices; or ii. As a temporary operation: on a same-day or deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell ("repo transactions") or to sell such Eligible Securities subject to an agreement to repurchase ("reverse repo transactions") for a term of 65 business days or less, at rates that, unless otherwise authorized by the Committee, are determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual counterparties; B. To allow Eligible Securities in the SOMA to mature without replacement; C. To exchange, at market prices, in connection with a Treasury auction, maturing Eligible Securities in the SOMA with the Treasury, in the case of Eligible Securities that are direct obligations of the United States or that are fully guaranteed as to principal and interest by the United States; and D. To exchange, at market prices, maturing Eligible Securities in the SOMA with an agency of the United States, in the case of Eligible Securities that are direct obligations of that agency or that are fully guaranteed as to principal and interest by that agency. SECURITIES LENDING 2. In order to ensure the effective conduct of open market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis (except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions). A. Such securities lending must be: i. At rates determined by competitive bidding; ii. At a minimum lending fee consistent with the objectives of the program; iii. Subject to reasonable limitations on the total amount of a specific issue of Eligible Securities that may be auctioned; and iv. Subject to reasonable limitations on the amount of Eligible Securities that each borrower may borrow. B. The Selected Bank may: i. Reject bids that, as determined in its sole discretion, could facilitate a bidder's ability to control a single issue; ii. Accept Treasury securities or cash as collateral for any loan of securities authorized in this paragraph 2; and iii. Accept agency securities as collateral only for a loan of agency securities authorized in this paragraph 2. OPERATIONAL READINESS TESTING 3. The Committee authorizes the Selected Bank to undertake transactions of the type described in paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations: A. All transactions authorized in this paragraph 3 shall be conducted with prior notice to the Committee; B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i, 1.B, 1.C and 1.D shall not exceed $5 billion per calendar year; and C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed $5 billion at any given time. TRANSACTIONS WITH CUSTOMER ACCOUNTS 4. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts") and accounts maintained at a Federal Reserve Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the Foreign Accounts, the "Customer Accounts"), the Committee authorizes the following when undertaken on terms comparable to those available in the open market: A. The Selected Bank, for the SOMA, to: i. Undertake reverse repo transactions in Eligible Securities held in the SOMA with the Customer Accounts for a term of 65 business days or less; and ii. Undertake repo transactions in Eligible Securities with Foreign Accounts; and B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account, when appropriate and subject to all other necessary authorization and approvals, to: i. Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo transaction in such Eligible Securities with the Customer Accounts; and ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts. Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a service fee when appropriate. Transactions undertaken with Customer Accounts are also subject to the authorization or approval of other entities, including the Board of Governors of the Federal Reserve System and, when involving accounts maintained at a Federal Reserve Bank as fiscal agent of the United States, the United States Department of the Treasury. ADDITIONAL MATTERS 5. The Committee authorizes the Chair of the Committee, in fostering the Committee's objectives during any period between meetings of the Committee, to instruct the Selected Bank to act on behalf of the Committee to: A. Adjust somewhat in exceptional circumstances the stance of monetary policy and to take actions that may result in material changes in the composition and size of the assets in the SOMA; or B. Undertake transactions with respect to Eligible Securities in order to appropriately address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. Any such adjustment described in subparagraph A of this paragraph 5 shall be made in the context of the Committee's discussion and decision about the stance of policy at its most recent meeting and the Committee's long-run objectives to foster maximum employment and price stability, and shall be based on economic, financial, and monetary developments since the most recent meeting of the Committee. The Chair, whenever feasible, will consult with the Committee before making any instruction under this paragraph 5. AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS (As reaffirmed effective January 26, 2021) IN GENERAL 1. The Federal Open Market Committee (the "Committee") authorizes the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions for the System Open Market Account as provided in this Authorization, to the extent necessary to carry out any foreign currency directive of the Committee: A. To purchase and sell foreign currencies (also known as cable transfers) at home and abroad in the open market, including with the United States Treasury, with foreign monetary authorities, with the Bank for International Settlements, and with other entities in the open market. This authorization to purchase and sell foreign currencies encompasses purchases and sales through standalone spot or forward transactions and through foreign exchange swap transactions. For purposes of this Authorization, foreign exchange swap transactions are: swap transactions with the United States Treasury (also known as warehousing transactions), swap transactions with other central banks under reciprocal currency arrangements, swap transactions with other central banks under standing dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities in the open market. B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies. 2. All transactions in foreign currencies undertaken pursuant to paragraph 1 above shall, unless otherwise authorized by the Committee, be conducted: A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of the Articles of Agreement of the International Monetary Fund (IMF). 1 B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury. C. In consultation, as appropriate, with foreign monetary authorities, foreign central banks, and international monetary institutions. D. At prevailing market rates. STANDALONE SPOT AND FORWARD TRANSACTIONS 3. For any operation that involves standalone spot or forward transactions in foreign currencies: A. Approval of such operation is required as follows: i. The Committee must direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, exceeding $5 billion since the close of the most recent regular meeting of the Committee. The Foreign Currency Subcommittee (the "Subcommittee") must direct the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation with the Committee is not feasible in the time available. ii. The Committee authorizes the Subcommittee to direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close of the most recent regular meeting of the Committee. B. Such an operation also shall be: i. Generally directed at countering disorderly market conditions; or ii. Undertaken to adjust System balances in light of probable future needs for currencies; or iii. Conducted for such other purposes as may be determined by the Committee. C. For purposes of this Authorization, the overall volume of standalone spot and forward transactions in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the transaction. WAREHOUSING 4. The Committee authorizes the Selected Bank, with the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934 under agreements in which the Selected Bank purchases foreign currencies from the Exchange Stabilization Fund and the Exchange Stabilization Fund repurchases the foreign currencies from the Selected Bank at a later date (such purchases and sales also known as warehousing). RECIPROCAL CURRENCY ARRANGEMENTS, AND STANDING DOLLAR AND FOREIGN CURRENCY LIQUIDITY SWAPS 5. The Committee authorizes the Selected Bank to maintain reciprocal currency arrangements established under the North American Framework Agreement, standing dollar liquidity swap arrangements, temporary dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary to carry out any foreign currency directive of the Committee. A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). B. For standing and temporary dollar liquidity swap arrangements all drawings must be approved in advance by the Chair. The Chair may approve a schedule of potential drawings, and may delegate to the manager, System Open Market Account, the authority to approve individual drawings that occur according to the schedule approved by the Chair. C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). D. Operations involving standing and temporary dollar liquidity swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed at countering strains in financial markets in the United States or abroad, or reducing the risk that they could emerge, so as to mitigate their effects on economic and financial conditions in the United States. E. For reciprocal currency arrangements, standing and temporary dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements: i. All arrangements are subject to annual review and approval by the Committee; ii. Any new arrangements must be approved by the Committee; and iii. Any changes in the terms of existing arrangements must be approved in advance by the Chair. The Chair shall keep the Committee informed of any changes in terms, and the terms shall be consistent with principles discussed with and guidance provided by the Committee. OTHER OPERATIONS IN FOREIGN CURRENCIES 6. Any other operations in foreign currencies for which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions with privateâsector counterparties) must be authorized and directed in advance by the Committee. FOREIGN CURRENCY HOLDINGS 7. The Committee authorizes the Selected Bank to hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks, the Bank for International Settlements, and such other foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent necessary to carry out any foreign currency directive of the Committee. A. The Selected Bank shall manage all holdings of foreign currencies for the System Open Market Account: i. Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency operations as directed by the Committee; ii. Secondarily, to maintain a high degree of safety; iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and iv. To achieve such other objectives as may be authorized by the Committee. B. The Selected Bank may manage such foreign currency holdings by: i. Purchasing and selling obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof ("Permitted Foreign Securities") through outright purchases and sales; ii. Purchasing Permitted Foreign Securities under agreements for repurchase of such Permitted Foreign Securities and selling such securities under agreements for the resale of such securities; and iii. Managing balances in various time and other deposit accounts at foreign institutions approved by the Board of Governors under Regulation N. C. The Subcommittee, in consultation with the Committee, may provide additional instructions to the Selected Bank regarding holdings of foreign currencies. ADDITIONAL MATTERS 8. The Committee authorizes the Chair: A. With the prior approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the United States Treasury about the division of responsibility for foreign currency operations between the System and the United States Treasury; B. To advise the Secretary of the United States Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations; C. To designate Federal Reserve System persons authorized to communicate with the United States Treasury concerning System Open Market Account foreign currency operations; and D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies. 9. The Committee authorizes the Selected Bank to undertake transactions of the type described in this Authorization, and foreign exchange and investment transactions that it may be otherwise authorized to undertake, from time to time for the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice to the Committee. 10. All Federal Reserve banks shall participate in the foreign currency operations for System Open Market Account in accordance with paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944. 11. Any authority of the Subcommittee pursuant to this Authorization may be exercised by the Chair if the Chair believes that consultation with the Subcommittee is not feasible in the time available. The Chair shall promptly report to the Subcommittee any action approved by the Chair pursuant to this paragraph. 12. The Committee authorizes the Chair, in exceptional circumstances where it would not be feasible to convene the Committee, to foster the Committee's objectives by instructing the Selected Bank to engage in foreign currency operations not otherwise authorized pursuant to this Authorization. Any such action shall be made in the context of the Committee's discussion and decisions regarding foreign currency operations. The Chair, whenever feasible, will consult with the Committee before making any instruction under this paragraph. FOREIGN CURRENCY DIRECTIVE (As reaffirmed effective January 26, 2021) 1. The Committee directs the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions, for the System Open Market Account, in accordance with the provisions of the Authorization for Foreign Currency Operations (the "Authorization") and subject to the limits in this Directive. 2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the United States Treasury and if approved by the Foreign Currency Subcommittee (the "Subcommittee"), subject to the limitation that the outstanding balance of United States dollars provided to the United States Treasury as a result of these transactions not at any time exceed $5 billion. 3. The Committee directs the Selected Bank to maintain, for the System Open Market Account: A. Reciprocal currency arrangements with the following foreign central banks: Foreign central bank Maximum amount (millions of dollars or equivalent) Bank of Canada 2,000 Bank of Mexico 3,000 B. Standing dollar liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank C. Temporary dollar liquidity swap arrangements with the following foreign central banks: Reserve Bank of Australia National Bank of Denmark Reserve Bank of New Zealand Bank of Norway Bank of Sweden Central Bank of Brazil Bank of Mexico Bank of Korea Monetary Authority of Singapore D. Standing foreign currency liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank 4. The Committee directs the Selected Bank to hold and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization. 5. The Committee directs the Selected Bank to report to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization. 6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of paragraph 9 of the Authorization. By unanimous vote, the Committee reaffirmed its Program for Security of FOMC Information with minor technical changes. In the Committee's annual reconsideration of the Statement on Longer-Run Goals and Monetary Policy Strategy, all participants supported the statement as written, and the Committee voted unanimously to reaffirm without revision. STATEMENT ON LONGER-RUN GOALS AND MONETARY POLICY STRATEGY (As reaffirmed effective January 26, 2021) The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society. Employment, inflation, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Monetary policy plays an important role in stabilizing the economy in response to these disturbances. The Committee's primary means of adjusting the stance of monetary policy is through changes in the target range for the federal funds rate. The Committee judges that the level of the federal funds rate consistent with maximum employment and price stability over the longer run has declined relative to its historical average. Therefore, the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past. Owing in part to the proximity of interest rates to the effective lower bound, the Committee judges that downward risks to employment and inflation have increased. The Committee is prepared to use its full range of tools to achieve its maximum employment and price stability goals. The maximum level of employment is a broad-based and inclusive goal that is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the shortfalls of employment from its maximum level, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. Monetary policy actions tend to influence economic activity, employment, and prices with a lag. In setting monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee's assessment of its maximum level and deviations of inflation from its longer-run goal. Moreover, sustainably achieving maximum employment and price stability depends on a stable financial system. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals. The Committee's employment and inflation objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it takes into account the employment shortfalls and inflation deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. The Committee intends to review these principles and to make adjustments as appropriate at its annual organizational meeting each January, and to undertake roughly every 5 years a thorough public review of its monetary policy strategy, tools, and communication practices. Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments. The evolving outlooks for the path of the virus and for fiscal policy were the main drivers of financial markets over the intermeeting period. Progress on vaccinations had been slower than expected, and the near-term trajectory of the pandemic worsened, weighing on economic activity. However, even with the appearance of new strains of the virus, market confidence in the ultimate efficacy of the vaccination efforts seemed to remain high. The emergence of a narrow Democratic majority in the Senate bolstered investor expectations for additional fiscal stimulus, prompting upward revisions to forecasts for economic growth this year. In the Open Market Desk Survey of Primary Dealers, the median 2021 gross domestic product (GDP) growth forecast rose about 1 percentage point. Against this backdrop, longer-term Treasury yields rose notably over the period. Longer-dated real yields were lifted by expectations for improved growth and increased Treasury issuance, but remained deeply negative. Measures of inflation compensation increased over the period, with the five-year, five-year-forward measure rising to a level of around 2 percent. Overall financial conditions eased further, on net, as the recent rally in risk assets continued. Gains in U.S. equities again centered on cyclical sectors and smaller-capitalization firms most sensitive to growth. Credit spreads narrowed further, especially for riskier borrowers. Expectations for the path of the target federal funds rate over the next several years, as implied by interest rate futures and by the Desk Survey of Primary Dealers and Survey of Market Participants, were relatively little changed from December. The stability in near-term policy rate expectations amid an improving growth outlook appeared consistent with the Committee's new framework and forward interest rate guidance. Al­though the median Desk survey respondent continued to expect 12âmonth personal consumption expenditure (PCE) inflation of 2.3 percent when the FOMC first lifts the target range, the median expectation for the unemployment rate prevailing at that time was modestly lower than in December. The Desk survey results indicated that a majority of market participants anticipated that the pace of net asset purchases would remain stable for the remainder of the year and slow around the first quarter of 2022. The manager next discussed conditions in funding markets. Over the year-end, overnight secured and unsecured rates were little changed at rates just below the interest on excess reserves (IOER) rate even as financial firms managed their balance sheets for the reporting date. Going forward, reserves were projected to rise rapidly through the summer, reflecting ongoing Federal Reserve asset purchases as well as expected declines in balances held in the Treasury General Account. Market pricing suggested that the effective federal funds rate was expected to decline modestly through the second quarter. Even if more notable downward pressure on money market rates emerged, the manager anticipated that the Federal Reserve's tools, including the IOER rate and overnight reverse repurchase agreement facility, would continue to provide effective control over the federal funds rate and other overnight money market rates. Finally, the manager discussed Desk operations. A range of indicators suggested that both fixed-income and funding markets continued to function smoothly over the period. The manager noted that, in the coming period, the Desk anticipated implementing two adjustments to continue to normalize operations. First, given the sustained stability in term repurchase markets, the Desk proposed discontinuing the weekly one-month term repurchase operations, beginning in mid-February. In addition, the Desk planned to reduce the frequency of agency commercial mortgage-backed securities (CMBS) operations in light of the sustained improvement in market conditions for these securities. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The COVIDâ19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the January 26â27 meeting suggested that U.S. real GDP had continued to advance in the fourth quarter of 2020, albeit at a pace that was markedly slower than the rapid rate seen in the third quarter, while the level of real GDP had not yet returned to the level seen before the onset of the pandemic. Labor market conditions deteriorated, on balance, in December, and employment continued to be well below its level at the start of 2020. Consumer price inflation through Novemberâas measured by the 12âmonth percentage change in the PCE price indexâremained considerably lower than the rates seen in early 2020. Total nonfarm payroll employment fell in December, with especially sharp declines in the leisure and hospitality sector. As of December, payroll employment had retraced a little more than half of the losses seen at the onset of the pandemic. The unemployment rate held steady at 6.7 percent in December. The unemployment rate for African Americans declined and the Hispanic unemployment rate rose; both rates remained well above the national average. However, the Asian unemployment rate moved below the national average in December. Both the labor force participation rate and employment-to-population ratio were unchanged in December. Initial claims for unemployment insurance in mid-January were higher than their early December level. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP indicated that the four-week average change in private employment in mid-January was slightly lower than it had been in early December; however, the most recent week-to-week changes in this measure of payrolls had been highly volatile. Average hourly earnings for all employees rose 5.1 percent over the 12 months ending in December, a gain that was noticeably higher than the measure's yearâearlier 12âmonth change. The 12âmonth change in average hourly earnings continued to be dominated by changes in the composition of the workforce, with the concentration of job losses among lower-wage workers over the pandemic period resulting in outsized increases in this measure of earnings that were not indicative of tight labor market conditions. By contrast, a staff measure of the 12âmonth change in the median wage derived from the ADP dataâa measure likely to have been less affected by changes in workforce compositionâwas 3-1/2 percent in December and remained well below its preâpandemic pace. Total PCE price inflation was 1.1 percent over the 12 months ending in November and continued to be held down by relatively weak aggregate demand and the declines in consumer energy prices seen over the first part of 2020. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 1.4 percent over the 12 months ending in November, while the trimmed mean measure of 12âmonth PCE inflation constructed by the Federal Reserve Bank of Dallas was 1.7 percent in November. In December, the 12âmonth change in the consumer price index (CPI) was 1.4 percent, while core CPI inflation was 1.6 percent over the same period. The latest readings on survey-based measures of longer-run inflation expectations ticked higher. In the first part of January, the University of Michigan Surveys of Consumers measure for the next 5 to 10 years moved back up to its lateâsummer level, while in December, the 3âyearâahead measure of inflation expectations produced by the Federal Reserve Bank of New York moved back up to its August level. Real PCE fell in November, and available indicatorsâincluding the components of the nominal retail sales data used to estimate PCEâpointed to a further decline in December. Housing starts and construction permits moved up in November and December and finished the year well above their preâpandemic levels. Al­though home sales turned down in November, the decline appeared to reflect limited availability of homes for sale rather than weakening demand. Available indicators pointed to a strong increase in investment in equipment and intangibles in the fourth quarter of 2020, as this component of capital spending recovered from its sharp decline over the first half of the year. Likewise, drilling investment appeared to have turned up sharply, albeit from a low level, as oil prices moved higher. By contrast, investment in nonresidential structures outside of the drilling and mining sector appeared to have declined further in the fourth quarter and had likely been restrained by firms' continued hesitation to commit to projects with lengthy times to completion and uncertain future returns. Industrial production advanced further in the fourth quarter, led by a solid gain in manufacturing output, but had not yet overtaken its preâpandemic level. The low level of export demand since the onset of the pandemic had likely continued to restrain the recovery in the manufacturing sector; in addition, production of motor vehicles and parts was a small drag on manufacturing output in the fourth quarter as automotive producers appeared to have had difficulty getting assemblies fully under way for the new model year. Total real government purchases appeared to have fallen further in the fourth quarter, though at a slower pace than in the third quarter. Available data suggested that real federal purchases had posted a modest gain, as an increase in defense purchases offset a reduction in nondefense purchases; however, indicators of real state and local purchases, including state and local government employment, pointed to a fourth-quarter decline similar in size to what had been seen in the third quarter. The nominal U.S. international trade deficit widened further in November. Both imports and exports continued to rebound from their collapse in the first half of the year. Goods imports rose in November to a level well above that of the previous January, with gains in most major categories. Al­though exports also grew in November, they had not yet recovered to their January 2020 level. Services trade continued a gradual rise but remained depressed, driven by the continued suspension of most international travel. Taken together, these data suggested that net exports made a significant negative contribution to real GDP growth in the fourth quarter. Recent data pointed to a sharp slowing in foreign economic growth in the fourth quarter, after a strong rebound in the third quarter. Amid a further intensification of the pandemic, many foreign governments tightened social-distancing restrictions. In a few countries, the emergence of new and more contagious virus strains was accompanied by a surge in COVID-19 cases and deaths. The increased virus spread and restrictions appeared to take a toll on foreign economic activity, particularly in Europe. The global slowdown was most notable for services, with further declines in purchasing managers indexes for this sector through January in many advanced foreign economies. By contrast, manufacturing output in both advanced and emerging foreign economies continued to expand at a solid pace, supported by resilient demand for durable goods, high-tech goods, and medical supplies. Amid the generally weak economic situation, inflationary pressures remained subdued in most foreign economies. Staff Review of the Financial Situation Investor sentiment improved and risk asset prices moved higher over the intermeeting period on greater prospects for additional fiscal stimulus. Domestic and foreign equity prices increased notably, and spreads on corporate and municipal bonds narrowed. The nominal Treasury yield curve steepened, partly reflecting an increase in inflation compensation. Market-based financing conditions remained accommodative, while bank lending conditions continued to be tight. However, a smaller net share of banks tightened lending standards than in previous quarters. A straight read of overnight index swap (OIS) quotes suggested that the expected path of the federal funds rate beyond mid-2023 rose moderately over the intermeeting period, with the increases reportedly associated largely with greater investor optimism regarding the expected speed of the economic recovery. OIS quotes suggested that the expected policy rate would remain below 25 basis points until the third quarter of 2023, little changed from the time of the December meeting. The yield on 2-year nominal Treasury securities was little changed over the intermeeting period, while the 10-year yield rose notably. Most of the steepening of the Treasury yield curve occurred following the outcome of the Georgia runoff elections, which reportedly bolstered market participants' expectations for additional fiscal stimulus. The FOMC's updated guidance around asset purchases was seen as broadly in line with expectations and did not elicit noticeable financial market reaction. Measures of inflation compensation based on Treasury Inflation-Protected Securities increased moderately, on net, continuing the upward trend observed over recent months, with the increase over the intermeeting period reportedly reflecting greater prospects for additional fiscal stimulus and an associated improvement in the longer-run economic outlook. Broad stock price indexes increased, on net, over the intermeeting period, boosted by gains in the share prices of banks and companies in more cyclically sensitive sectors, reportedly reflecting, in part, increased expectations of fiscal stimulus. One-month option-implied volatility on the S&P 500âthe VIXâwas little changed, on net, remaining modestly elevated relative to its range over the past several years. Consistent with the optimism driving stock prices, spreads on corporate bond yields over comparable-maturity Treasury yields narrowed somewhat. Spreads on municipal bond yields narrowed notably in January, reportedly reflecting increased expectations of additional fiscal stimulus and aid to state and local governments. Conditions in short-term funding markets remained stable over the intermeeting period, including over the year-end. Spreads for commercial paper and negotiable certificates of deposit across tenors were largely unchanged at historically low levels. Commercial paper outstanding declined somewhat in late December but quickly rebounded in early January to the levels observed before year-end. Amid stable market conditions, there was no take-up at the Commercial Paper Funding Facility or the Money Market Mutual Fund Liquidity Facility over the intermeeting period. Assets under management (AUM) of government money market funds (MMFs) remained stable over the intermeeting period. AUM of prime MMFs continued to decline, reaching the lowest level since late 2018, likely reflecting the compressed net yield advantage for prime funds relative to yields for government funds. The net yields of both prime and government MMFs remained near historically low levels. The effective federal funds rate and the Secured Overnight Financing Rate were little changed, averaging 9 basis points and 8 basis points, respectively, over the intermeeting period. There continued to be no participation in the Fed's repurchase agreement (repo) operations, and participation in the Fed's reverse repo facility was minimal. In foreign financial markets, the prospect of additional U.S. fiscal stimulus and the passage of key risk events such as the Brexit trade agreement largely outweighed investor concerns around new virus strains and the sluggish global vaccine rollout. On balance, foreign equity prices increased moderately, with notable outperformance in some Asian indexes, and capital inflows into mutual funds dedicated to emerging markets continued at a robust pace. Longer-term sovereign yields in most advanced foreign economies rose slightly on improved investor sentiment even while several major central banks reaffirmed their commitment to continue or possibly expand accommodative policies. The broad dollar index was little changed, on net, over the intermeeting period, while the Chinese renminbi appreciated notably against the dollar as data showed a robust economic recovery in China. Dollar funding conditions were generally stable around year-end. Financing conditions in capital markets remained broadly accommodative, supported by low interest rates and high equity valuations. Gross corporate bond issuance was fairly strong in November and December, and seasoned and initial public offerings in the equity markets were robust. Gross institutional leveraged loan issuance was also strong in December, as issuance volumes excluding refinancing topped their averages for previous months of 2020 and were above those observed during the same period of 2019. Commercial and industrial (C&I) loan balances at banks continued to decline in December, albeit at a slower pace than in the fall. C&I loans declined in the fourth quarter because of weak origination activity, loan forgiveness at the Paycheck Protection Program, and continued repayments of bank debt. In the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks, on net, reported weaker demand and tightened lending standards for C&I loans, with notable differences in reported changes across bank sizes. Large banks reported having eased standards to large and middle-market firms, while, on net, banks of all sizes reported having tightened standards to small firms. However, a smaller net percentage of banks tightened lending standards to firms of all sizes than in previous quarters. The credit quality of nonfinancial corporations remained stable in recent months after deteriorating substantially for several months following the onset of the pandemic. The volume of nonfinancial corporate bond downgrades continued to slightly outpace upgrades in November and December, and the monthly volume of nonfinancial corporate bond defaults remained relatively low. Market indicators of future default expectations moved slightly lower, essentially returning to their pre-pandemic levels. Financing conditions for small businesses remained tight, but small business loan originations in November, the most recent month for which data were available, were at roughly the level seen a year earlier, likely supported by the refinancing of existing loans. Meanwhile, liquidity needs of small businesses remained high as businesses continued to operate at reduced capacity. Small business delinquency and default rates were little changed but remained elevated relative to the levels of recent years. Financing conditions in the municipal bond market remained generally accommodative over the intermeeting period, and the credit quality of municipal debt remained roughly stable. For commercial real estate (CRE) financed through capital markets, financing conditions remained generally accommodative, easing further over the intermeeting period. Spreads on agency CMBS ticked down, on net, and issuance remained elevated through December, al­though below its recent historical high in October. Risk spreads on triple-B non-agency CMBS declined, and spreads on triple-A non-agency CMBS stayed close to their historical lows. Issuance of non-agency CMBS remained somewhat below its pre-pandemic level. CRE bank loan growth remained weak in the fourth quarter amid depressed property transaction volumes. On net, in the January SLOOS, banks reported a further tightening of lending standards and further weakening in demand for CRE loans. Financing conditions in the residential mortgage market were little changed over the intermeeting period. Mortgage rates ticked up slightly but stayed near historically low levels, supporting strong loan origination activity. Credit remained broadly available to higher-score borrowers seeking conforming mortgages but tightened further, from already tight levels, for borrowers with lower credit scores and those seeking nonconforming mortgages. The January SLOOS suggested that for most types of residential mortgages, banks' lending standards remained unchanged, while loan demand was either little changed or somewhat stronger. Mortgage forbearance rates plateaued in December and early January after having gradually declined over the previous six months, and the rate of new delinquencies stayed at low, pre-pandemic levels. Financing conditions in consumer credit markets generally remained accommodative for borrowers with strong credit scores but tight for those with subprime scores. Banks in the January SLOOS reported easing standards for all consumer loan types and experiencing weaker demand for auto loans and little-changed demand for other consumer loans. Conditions in the asset-backed securities market appeared supportive of lending. Credit card balances edged down further for both prime and nonprime borrowers, likely reflecting weak consumer spending. However, the volume of new cards and available credit continued to rise for both prime and nonprime borrowers. Interest rates on new credit card offers for nonprime borrowers stayed elevated, and financing conditions remained tight for those borrowers. Auto loan balances continued to increase solidly for prime and near-prime borrowers but declined further for subprime borrowers. Auto loan interest rates were about flat over the past few months and remained significantly below their pre-pandemic levels. Delinquency rates for nonprime auto and credit card borrowers ticked up, albeit from very low levels. The staff provided an update on its assessments of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable. The staff assessed asset valuation pressures as elevated. In particular, corporate bond spreads had declined to pre-pandemic levels, which were at the lower ends of their historical distributions. In addition, measures of the equity risk premium declined further, returning to pre-pandemic levels. Prices for industrial and multifamily properties continued to grow through 2020 at about the same pace as in the past several years, while prices of office buildings and retail establishments started to fall. The staff assessed vulnerabilities associated with household and business borrowing as notable, reflecting increased leverage and decreased incomes and revenues in 2020. Small businesses were hit particularly hard. The staff judged that vulnerabilities stemming from financial leverage were moderate, noting that capital ratios at the largest bank holding companies rose over the course of last year; leverage among hedge funds was elevated but it did decline last spring for the most highly leveraged funds. The staff characterized vulnerabilities stemming from funding risks as moderate. Banks continued to maintain significant levels of high-quality liquid assets and stable sources of funding. In contrast, money market funds and open-ended mutual funds were characterized by significant vulnerabilities associated with liquidity transformation. Staff Economic Outlook The U.S. economic projection prepared by the staff for the January FOMC meeting implied a considerably stronger outlook for activity in 2021 relative to the December forecast. Although incoming data had been weaker than expected, the staff's January projection incorporated the effects of the stimulus in the recently enacted Consolidated Appropriations Act, 2021 (CAA), together with an assumption that an additional sizable tranche of fiscal support would be put into place in coming months. Taken together, these stimulus measures were expected to partly offset the substantial drag on aggregate demand that would result from the unwinding of the fiscal stimulus enacted in the spring of 2020. The staff's projection continued to anticipate that widespread vaccination would allow for an easing in social distancing in 2021. With the boost to growth from the reduction in social distancing assumed to be largely completed by the end of 2021, GDP growth was expected to step down over the remainder of the medium term. Even so, the staff continued to project that real GDP growth would outpace that of potential over this period, leading to a considerable further decline in the unemployment rate. The 12âmonth changes in total and core PCE prices in coming months were projected to briefly move above 2 percent in the second quarter of 2021 as the unusually low observations from the spring of 2020 drop out of the 12-month calculation. Following these swings, inflation was expected to finish the year at just below 2 percent. Thereafter, inflation was projected to gradually edge up to 2 percent by the end of the medium term as labor and product markets tightened. With monetary policy assumed to remain accommodative, inflation was projected to moderately overshoot 2 percent for some time in the years beyond 2023. The staff viewed the possibility that a larger-than-anticipated fiscal package would be enacted in coming months as a modest upside risk to the baseline economic outlook. However, the further rise in COVIDâ19 cases in the United States, coupled with developments such as the emergence of more-contagious strains of the virus in the United States and elsewhere, led the staff to continue to judge that the risks to the baseline projection were skewed to the downside and that the uncertainty around the forecast was elevated. Participants' Views on Current Conditions and the Economic Outlook Participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. The pace of the recovery in economic activity and employment had moderated in recent months, with weakness concentrated in the sectors of the economy most adversely affected by the resurgence of the virus and by greater social distancing. Weaker demand and earlier declines in oil prices were holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting the Federal Reserve's actions to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations, and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation and posed considerable risks to the economic outlook. Participants observed that the resurgence in COVID-19 infections and associated social-distancing measures were restraining activity in some sectors, particularly in industries such as travel and leisure and hospitality. Most participants expected that the stimulus provided by the passage of the CAA in December, the likelihood of additional fiscal support, and anticipated continued progress in vaccinations would lead to a sizable boost in economic activity. Even so, participants noted that economic activity and employment were currently well below levels consistent with achieving maximum employment. Participants commented on improved prospects for household spending over the course of the year, in part reflecting fiscal support. They saw progress on vaccinations as essential for supporting further gains in aggregate consumer spending and for the economic recovery more generally. In commenting on recent data for household spending, most participants discussed the composition of expenditures, with strong spending on many goods, especially durables, and weakness in spending on some services, especially in travel and in leisure and hospitality. The relative strength in consumer spending on goods was supported by fiscal programs such as federal stimulus payments and expanded unemployment benefits as well as by accommodative monetary policy. The weakness in services spending was largely attributed to the pandemic and associated social-distancing measures, which limited spending on services that depend heavily on in-person contact. Increased government transfers to households, combined with reduced outlays on some services, had contributed to a historically large increase in aggregate household savings last year. Participants also observed that residential investment and home sales remained robust; low interest rates were viewed as an important factor supporting the strength in housing activity. Most participants noted that the economic downturn had not fallen equally on all Americans and that those least able to shoulder the burdenâin particular, lower-income and Black and Hispanic householdsâhad been the hardest hit by the pandemic. Many participants stressed that sustained support from fiscal policy would help address the hardships faced by these groups and that monetary policy could also help by promoting the economy's return to maximum employment and price stability. In their remarks on the business sector, participants commented that business equipment investment had continued to show strength while nonresidential construction remained weak. Participants also discussed the recent strong performance of the manufacturing sector. Many discussed supply chain issues in manufacturing, including those associated with acquiring material inputs and pandemic-related worker shortages and absenteeism. Business contacts reported that firms in goods-producing industries, particularly larger firms and those in the durable goods or housing sectors, were adapting to the pandemic; in contrast, smaller firms and those in industries most adversely affected by the pandemic were finding it more difficult to adapt. Many participants stated that their business contacts were optimistic that continued progress on vaccinations, together with further fiscal support, would result in more improvement in overall business conditions. Several participants noted the increase in agricultural crop prices over 2020 and the associated improvement in farm revenues. As with overall economic activity, the pace of improvement in the labor market had slowed in recent months. Payroll employment fell in December, as continued job gains in many industries were outweighed by significant layoffs in industries where the resurgence of the virus had weighed heavily on activity. While labor market conditions had improved significantly, on balance, since the spring, some participants noted that if the sizable number of workers who reported having left the labor force since the beginning of the pandemic were to be counted as unemployed, the unemployment rate would be substantially higher. Participants judged that the current low level of labor force participation likely reflected a number of factors, including health concerns and additional childcare responsibilities. Over the medium term, participants expected strong growth in employment, driven by continued progress on vaccinations and an associated rebound of economic activity and of consumer and business confidence, as well as accommodative fiscal and monetary policy. However, participants observed that the economy was far from achieving the Committee's broad-based and inclusive goal of maximum employment and that even with a brisk pace of improvement in the labor market, achieving this goal would take some time. In their comments about inflation , participants noted that headline PCE price inflation in December, measured on a 12-month basis, was poised to come in well below the Committee's 2 percent longer-term objective. In the relatively near term, a number of participants suggested that there could be increases in the prices of some goods whose production has been subject to supply chain constraints, or soon could be; others anticipated that a possibly abrupt return to normal levels of activity could result in one-time increases in certain prices. Many participants stressed the importance of distinguishing between such one-time changes in relative prices and changes in the underlying trend for inflation, noting that changes in relative prices could temporarily raise measured inflation but would be unlikely to have a lasting effect. Some participants further observed that 12-month PCE inflation was likely to move somewhat above 2 percent for a brief period in the spring as the unusually low monthly observations from last spring roll out of the 12-month calculation. Outside of such near-term fluctuations, participants generally anticipated that inflation would move up along a trajectory consistent with achieving the Committee's objectives over time, supported by stronger economic activity, widespread vaccinations and the associated reduction in social distancing, and accommodative fiscal and monetary policy. Some participants pointed to the continued increase in market-based measures of inflation compensation from the very low levels recorded in the spring as consistent with the view that inflation was likely to move up gradually over time; others noted that survey-based measures were little changed, on net, over the year as a whole. Participants noted that overall financial conditions remained highly accommodative, in part reflecting investors' optimism about the economic outlook along with the accommodative stance of monetary policy and recent and expected future fiscal policy measures. However, a few participants remarked that credit conditions were relatively tight for borrowers with low credit scores and for some small and medium-sized businesses that rely on bank lending rather than capital markets to meet their financing needs. While generally acknowledging that the medium-term outlook for real GDP growth and employment had improved, participants continued to see the uncertainty surrounding that outlook as elevated. Participants agreed that the path of the economy depended significantly on the course of the virus and progress on vaccinations. Many participants remarked that the pandemic continued to pose considerable risks to the economic outlook, including risks associated with new virus strains, potential public resistance to vaccination, and potential difficulties in the production and distribution of vaccines. With regard to upside risks, some participants pointed to the possibility that fiscal policy could turn out to be more expansionary than anticipated, that households could display greater willingness to spend out of accumulated savings than expected, or that widespread vaccinations and easing of social distancing could result in a more rapid boost to spending and employment than anticipated. Participants generally viewed the risks to the outlook for inflation as having become more balanced than was the case over most of 2020, although most still viewed the risks as weighted to the downside . As an upside risk to inflation, several participants noted the potential for pandemic-related supply constraints to affect price inflation somewhat more than anticipated or for price increases among industries most adversely affected by the pandemic to be more pronounced than projected. A number of participants commented on issues related to financial stability. Several participants noted areas of strength. For example, the banking system had shown considerable resilience since the onset of the pandemic. Banks' capital positions had generally remained solid, and earnings were strong. In addition, results from the most recent stress tests indicated that the largest banks could withstand very stressed economic conditions. That said, a few participants stated that it would be important to stay vigilant to ensure that the banking system remained strong and resilient. In addition, several participants noted that the pandemic had highlighted structural vulnerabilities in other parts of the financial system. These included run-prone investment funds in short-term funding and credit markets as well as fragilities in Treasury market functioning; stresses stemming from these vulnerabilities had required substantial intervention by the Federal Reserve in the turbulent market conditions at the onset of the pandemic. A couple of participants commented that it would be important for the appropriate regulatory bodies to address these financial stability vulnerabilities. Regarding asset valuations, some participants commented that equity valuations had risen further, that initial public offering activity was elevated, or that valuations might have been affected by retail investors trading through electronic platforms. In addition, risk spreads on corporate bonds and loans were generally low, even with corporate indebtedness having risen to high levels. A few participants noted that some CRE in sectors that had been most directly affected by the pandemicâsuch as those involving retail establishments and hotelsâfaced the prospect of falling prices and increased stress. In their consideration of monetary policy at this meeting, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants agreed that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations, and that the ongoing public health crisis had continued to weigh on economic activity, employment, and inflation. Participants noted that as the pandemic had worsened across the country in recent months, the pace of the recovery had moderated, with weakness concentrated in the sectors most adversely affected by the pandemic. In contrast, participants remarked that the prospect of an effective vaccine program, the recently enacted fiscal support, and the potential for additional fiscal actions had led them to judge that the medium-term outlook had improved. That said, participants agreed that the economy remained far from the Committee's longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook. In their discussion of the outlook for monetary policy, participants judged that maintaining a highly accommodative stance of policy was essential to foster further economic recovery and to achieve an average inflation rate of 2 percent over time. Participants noted that economic conditions were currently far from the Committee's longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved. Consequently, all participants supported maintaining the Committee's current settings and outcome-based guidance for the federal funds rate and the pace of asset purchases. Participants noted that the Committee's current guidance was well suited to the current environment because it describes how policy would respond based on the path of the economy. For example, if progress toward the Committee's goals proved slower than anticipated, the outcome-based guidance would convey the Committee's intention to respond by increasing monetary policy accommodation through maintaining the current level of the target range of the federal funds rate for longer and raising the expected path of the Federal Reserve's balance sheet. In addition, participants noted that the Committee's current outcome-based guidance for both the federal funds rate and balance sheet appeared to be well understood by the public. In that context, participants emphasized that it was important to abstract from temporary factors affecting inflationâsuch as low past levels of prices dropping out of measures of annual price changes or relative price increases in some sectors brought about by supply constraints or disruptionsâin judging whether inflation was on track to moderately exceed 2 percent for some time. Participants noted that the increase in the Federal Reserve's balance sheet since last March had materially eased financial conditions and was providing substantial support to the economy. The Committee's guidance for asset purchases indicated that asset purchases would continue at least at the current pace until substantial further progress toward its employment and inflation goals had been achieved. With the economy still far from those goals, participants judged that it was likely to take some time for substantial further progress to be achieved. Various participants noted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of purchases. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that the pace of recovery in economic activity and employment had moderated in recent months, with weakness concentrated in sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also stated that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations. In addition, members agreed that the ongoing public health crisis had continued to weigh on economic activity, employment, and inflation and was posing considerable risks to the economic outlook. Members agreed that the pandemic continued to pose considerable risks to the outlook. Nonetheless, in light of the expected progress on vaccinations and the change in the outlook for fiscal policy, the medium-term prospects for the economy had improved enough that members decided that the reference in previous post-meeting statements to risks to the economic outlook over the medium term was no longer warranted. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective January 28, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $30 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective January 28, 2021. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, March 16â17, 2021. The meeting adjourned at 10:25 a.m. on January 27, 2021. Notation Vote By notation vote completed on January 5, 2021, the Committee unanimously approved the minutes of the Committee meeting held on December 15â16, 2020. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Committee organizational documents are available at www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 1. In general, as specified in Article IV, each member of the IMF undertakes to collaborate with the IMF and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. These obligations include seeking to direct the member's economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance of payments adjustment or to give an unfair competitive advantage over other members. Return to text

Minutes of the Federal Open Market Committee March 16-17, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, March 16, 2021, at 11:00 a.m. and continued on Wednesday, March 17, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Eric M. Engen, Sylvain Leduc, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Margie Shanks, Deputy Secretary, Office of the Secretary, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors; David E. Lebow and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors Don H. Kim and Ellen E. Meade, Senior Advisers, Division of Monetary Affairs, Board of Governors Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors; David López-Salido, Associate Director, Division of Monetary Affairs, Board of Governors Stephanie E. Curcuru, Deputy Associate Director, Division of International Finance, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Norman J. Morin and Paul A. Smith, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Michiel De Pooter, and Zeynep Senyuz, 2 Assistant Directors, Division of Monetary Affairs, Board of Governors Alyssa G. Anderson, 2 Section Chief, Division of Monetary Affairs, Board of Governors; Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Sebastian Infante, and Ander Perez-Orive, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Anthony Sarver, 2 Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Michael Dotsey, Executive Vice President, Federal Reserve Bank of Philadelphia Anne Baum, Edward S. Knotek II, Giovanni Olivei, Paula Tkac, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, Cleveland, Boston, Atlanta, and Minneapolis, respectively Kathryn B. Chen 2 and Jonathan P. McCarthy, Vice Presidents, Federal Reserve Bank of New York Brett Rose, 2 Assistant Vice President, Federal Reserve Bank of New York Anthony Murphy, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Brent Bundick, Research and Policy Advisor, Federal Reserve Bank of Kansas City Michael Koslow, 2 Markets Officer, Federal Reserve Bank of New York Fernando M. Martin, Research Officer, Federal Reserve Bank of St. Louis William G. O'Boyle, 2 Policy and Markets Manager, Federal Reserve Bank of New York Michael Junho Lee, 2 Economist, Federal Reserve Bank of New York Action to Adopt Changes to the Committee's Rules Regarding Availability of Information By unanimous vote, the Committee approved a final rule that revises its Rules Regarding Availability of Information, which are the Committee's Freedom of Information Act (FOIA) rules. The revised FOIA rules, which include a range of minor and technical updates, will become effective 30 days after the forthcoming publication of the final rule in the Federal Register . Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments. In the United States, the trend toward higher longer-term yields observed in recent months accelerated over the intermeeting period, and far-forward real rates based on Treasury Inflation-Protected Securities (TIPS) rose considerably. Market participants highlighted an improving economic outlook, bolstered by passage of the American Rescue Plan (ARP) and progress on vaccinations, as underlying the increase in yields. Model- and survey-based estimates suggested that a significant portion of the increase in yields was associated with an increase in term premiums. Higher term premiums could reflect the outlook for more expansive fiscal policy and an associated upward revision in the expected path for Treasury debt outstanding. Increased uncertainty over the outlook for longer-term interest rates as well as technical factors may also have contributed to the rise in term premiums. The Treasury market functioned well over most of the period, al­though measures of market liquidity deteriorated somewhat toward the end of February. Conditions gradually improved, al­though some measures of market liquidity had not fully returned to earlier levels. Rates implied by interest rate futures maturing over the next several years rose notably over the intermeeting period, reportedly reflecting a reassessment by market participants of the expected path of the target range for the federal funds rate. Since the January meeting, the date of the first increase in the target range for the federal funds rate implied by a straight read of market pricing moved notably earlier to the first quarter of 2023, and the implied target rate at the end of 2023 rose around 50 basis points. However, responses to the Open Market Desk surveys suggested more modest changes to policy rate expectations. The probability-weighted mean survey expectation for the target rate at the end of 2023 rose only around 5 basis points. Expectations for economic conditions at the time of the first increase in the target range, as measured by the Desk surveys, appeared to remain broadly consistent with the Committee's policy framework and forward guidance. Expectations from the Desk surveys for the path of asset purchases were little changed. Contacts noted that these expectations have been held steady by policymaker communications emphasizing both the need to see realized progress toward the Committee's goals and the intent to communicate well in advance of the time when progress could be judged substantial enough to warrant a change in the pace of purchases. Alongside the rise in U.S. yields, broad U.S. equity price indexes increased moderately, with the largest gains in cyclically sensitive sectors. The rise in U.S. yields was also accompanied by increases in sovereign yields in other advanced economies. Some central banks responded to these yield increases with adjustments to operations; others suggested that the rising yields reflected improvements in the outlook. The deputy manager discussed the evolution of the Federal Reserve's balance sheet and related developments in money markets. Reserve balances rose more than $400 billion, on net, over the intermeeting period to $3.7 trillion, while Treasury bills outstanding decreased more than $200 billion. Against this backdrop, the effective federal funds rate softened modestly, while repurchase agreement (repo) rates declined to a greater extent. Moreover, market participants projected that reserves would grow at a historically rapid pace in coming months, reflecting continued expansion of the Federal Reserve's balance sheet along with a projected drawdown in the balances maintained in the Treasury General Account. Market contacts suggested that continued rapid expansion of reserves could put further downward pressure on money market rates. The deputy manager noted that the earliest and most pronounced pressure was likely to be observed in overnight secured financing markets, and there could be increasing usage of the overnight reverse repurchase agreement (ON RRP) facility. In light of the potential for expanded use of the ON RRP facility, the staff had conducted a review to ensure that the terms of the facility and its counterparty base were well positioned to continue to support effective policy implementation. By offering a broad range of money market lenders an outside investment option, the ON RRP facility enhances lenders' bargaining power in negotiating rates on short-term private investments and thus helps establish a floor on overnight money market rates. The facility can also alleviate downward pressure on overnight rates associated with reserve growth by broadening the range of liabilities that support the Federal Reserve's balance sheet expansion. The review recommended raising the ON RRP per-counterparty limit from $30 billion to $80 billion. The $30 billion limit had been established a number of years ago, and the amount of credit intermediated through money markets had grown substantially since then. The increase in the limit to $80 billion would restore the capacity of the facility relative to the aggregate size of money fund counterparties to roughly the level in place when the facility was established. The staff would also monitor money market conditions on an ongoing basis to assess whether any additional adjustments were needed to the ON RRP facility terms. In addition to changes to the ON RRP parameters, the deputy manager also noted that the Federal Reserve could consider adjusting its administered rates if undue downward pressure on overnight rates emerged. Responses to the Desk surveys indicated that many market participants anticipated adjustments to the interest on excess reserves rate and the ON RRP rate at or before the June meeting. Finally, in light of more normal conditions in agency commercial mortgage-backed securities (CMBS) markets, the Desk planned to conduct agency CMBS operations as needed to sustain smooth market functioning but would cease regularly scheduled CMBS operations. In their discussion following the Desk briefings, participants noted that the ON RRP facility had been very effective in establishing a firm floor for the federal funds rate and supporting monetary policy implementation. Participants commented that the facility would continue to be an important part of the monetary policy implementation framework going forward, particularly in coming months with reserve levels projected to rise rapidly. Participants broadly supported the proposed increase in the counterparty limit, and a few participants also noted that they would support removing the limit altogether. A few participants suggested that some type of dynamic or differential limit could be considered in the future to enable the ON RRP facility to adapt more readily to market developments. A few participants noted that the concerns at the time the facility was established about possible adverse effects of the ON RRP facility on financial stability and the structure of money markets had not materialized. Indeed, over the spring of 2020, the facility played an important role in helping stabilize money market conditions. In light of the potential for greater use of the ON RRP facility going forward in connection with the expansion of the Federal Reserve's balance sheet and associated downward pressure on overnight rates, a couple of participants noted that it might be useful to review lessons learned regarding the ON RRP facility since its inception. Following the discussion, the Chair noted the potential for downward pressure on money market rates and suggested that, should undue downward pressure on overnight rates emerge, it might be appropriate to implement adjustments to administered rates at upcoming meetings or even between meetings to support effective policy implementation and ensure that the federal funds rate remains well within the target range. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The COVIDâ19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the March 16â17 meeting suggested that U.S. real gross domestic product (GDP) was expanding in the first quarter of 2021 at a pace that was faster than in the fourth quarter of last year, al­though the level of real GDP had likely not yet returned to the level seen before the onset of the pandemic. Labor market conditions improved in January and February, but employment was still well below its level at the start of 2020. Consumer price inflation through Januaryâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE)âremained well below 2 percent. Total nonfarm payroll employment increased solidly over January and February after softening at the end of last year. As of February, payroll employment had retraced somewhat more than half of the losses seen since the onset of the pandemic. The unemployment rate fell to 6.2 percent in February. The unemployment rates for Hispanics and Asians declined, on balance, over January and February, while the unemployment rate for African Americans was unchanged on net; the rates for both African Americans and Hispanics remained well above the national average. Even though the labor force participation rate edged down, the employment-to-population ratio moved up somewhat over January and February; both measures remained below their pre-pandemic levels. Initial claims for unemployment insurance in early March were at their lowest level since November of last year. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP indicated that the four-week average increase in private employment at the end of February was about the same as it had been in the middle of the month, when the Bureau of Labor Statistics collects payroll employment data. Average hourly earnings for all employees rose 5.3 percent over the 12 months ending in February, and labor compensation per hour in the business sector increased 6.6 percent over the four quarters of 2020. The gains in both these measures, however, continued to be dominated by changes in the composition of the workforce. In particular, the concentration of job losses among lower-wage workers since early last year had resulted in outsized increases in average hourly earnings and compensation per hour that were not indicative of tight labor market conditions. By contrast, the employment cost index of total hourly compensation in the private sector rose 2.6 percent over the 12 months of last year, and a staff estimate of the 12âmonth change in the median wage derived from the ADP data was 3.2 percent in January. These measures are likely to have been less affected by changes in workforce composition, and they were rising more slowly than their pre-pandemic pace. Total PCE price inflation was 1.5 percent over the 12 months ending in January and continued to be held down by slack in resource utilization. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, also was 1.5 percent over the 12 months ending in January, while the trimmed mean measure of 12âmonth PCE inflation constructed by the Federal Reserve Bank of Dallas was 1.7 percent in January. In February, the 12âmonth change in the consumer price index (CPI) was 1.7 percent, while core CPI inflation was 1.3 percent over the same period. The latest readings on survey-based measures of longer-run inflation expectations were little changed on balance. In early March, the University of Michigan Surveys of Consumers preliminary measure for the next 5 to 10 years was the same as in the previous two months, while in February, the 3âyearâahead measure of inflation expectations produced by the Federal Reserve Bank of New York was essentially unchanged from its January level. The Survey of Professional Forecasters measure of PCE price inflation over the next 10 years edged up in the first quarter, returning to its pre-pandemic level. A staff index of common inflation expectations, which summarizes the coâmovement of a wide variety of inflation expectations measures, was at about the same level in the fourth quarter of last year as in the third quarter. Consumer spending appeared to be increasing in the first quarter at a pace considerably faster, on balance, than in the fourth quarter of last year. Real PCE expanded strongly in January after declining over the preceding two months, with spending likely boosted by federal stimulus payments sent out in early January. The components of the nominal retail sales data used by the Bureau of Economic Analysis to estimate PCE pointed to a step-down in spending in February, but revised data for the previous month suggested an even stronger gain in January. Spending in March was expected to be boosted by additional federal stimulus payments from the ARP, which started to be distributed around the middle of the month. In addition, the personal saving rate jumped to an even higher level in January, and ongoing gains in labor earnings along with further fiscal support pointed to additional increases in accumulated household savings. Moreover, the preliminary reading of consumer sentiment from the Michigan survey moved up notably in early March to its highest level over the past year, reportedly reflecting the growing number of vaccinations and the enactment of the ARP, al­though consumer sentiment remained below its levels from just before the onset of the pandemic. Construction of single-family homes and home sales remained well above their pre-pandemic levels. However, the incoming data for this sector were mixed. Starts of single-family homes moved down notably over January and February, in part likely reflecting severe winter weather in February. Starts of multifamily units also fell in February but by less than the strong increase seen in January. Construction permits for single-family homes moved down, on net, over January and February, pointing to some slowing in construction in coming months. Sales of both new and existing homes increased further in January, and home prices continued to rise briskly. Business investment in equipment and intangibles was continuing to increase in the first quarter after rising appreciably in the fourth quarter of last year. Nominal shipments of nondefense capital goods excluding aircraft expanded strongly in January, and rising orders for these goods pointed to further gains in business equipment spending in coming months. Business investment in the drilling and mining sector appeared to be increasing further after turning up sharply in the fourth quarter, as crude oil and natural gas rigs in operationâan indicator of drilling investmentâcontinued to rise through early March with oil prices moving higher. Nominal nonresidential construction spending rose somewhat in January, but investment in nonresidential structures outside of the drilling and mining sector looked to remain weak in the current quarter after declining further in the fourth quarter, reflecting continued hesitation by businesses to commit to building projects with lengthy times to completion and uncertain future returns. Industrial production continued to rise solidly in January but then fell markedly in February, largely reflecting declines in manufacturing and mining sector output caused by severe winter weather in the south central region of the country in the middle of that month. Along with the severe weather, a cutback in the production of motor vehicles and parts also reflected a global shortage of semiconductors. New orders indexes in national and regional manufacturing surveys pointed toward solid increases in factory output in the coming months, al­though reports of shortages in materials and labor, as well as bottlenecks in transportation, signaled some potential restraints on the pace of the manufacturing recovery. Total real government purchases appeared to be rising in the first quarter after edging down in the fourth quarter. Al­though data through February indicated that defense spending was moving down, a likely bounceback in nondefense spending was expected to lift total federal purchases. State and local government purchases looked to be increasing, as the payrolls of these governments expanded, on net, over January and February, and nominal state and local construction spending increased solidly in January. Moreover, additional federal support for state and local governments included in the ARP, along with an improved outlook for state and local tax revenues, pointed to further notable increases in state and local purchases. Data for December and January showed a narrower nominal U.S. international trade deficit than in November. Both imports and exports continued to rebound from their collapse in the first half of last year. Goods imports in January were much higher than a year earlier, with continued gains in most categories. Nominal goods exports in January nearly recovered to their level from a year earlier, with particular strength in exports of capital goods and industrial supplies. Services imports and exports remained depressed, weighed down by the continued suspension of most international travel. Recent data pointed to a slowdown in economic activity across foreign economies around the turn of the year, as tight social-distancing restrictions were imposed to rein in a new wave of COVID-19 infections in various parts of the world, most notably in Europe and Latin America. Even so, economies appeared to be better adapted to operating under restrictions than during previous waves of infections. Manufacturing activity continued to generally outperform activity in the services sector, and manufactured exports from China and some other Asian economies remained strong, especially to the United States. Inflation rebounded in many foreign economies, reflecting rising energy prices and other temporary factors. However, underlying inflationary pressures remained subdued. Staff Review of the Financial Situation Investors appeared to have become more optimistic about the economic outlook over the intermeeting period against the backdrop of progress on COVID-19 vaccinations, signs of stronger domestic spending, and additional fiscal stimulus. The nominal Treasury yield curve steepened markedly, largely because of increases in longer-term real yields, al­though measures of inflation compensation also increased further. Despite the spikes in equity market volatility early in the intermeeting period, spurred by heavy trading concentrated in a few specific stocks and subsequent concerns over the rapid rise in longer-term interest rates, broad equity price indexes rose on net. Consistent with the stronger outlook, spreads on high-yield corporate bonds narrowed. Financing conditions for businesses with access to capital markets and households with high credit scores remained broadly accommodative, but conditions stayed tight for other borrowers. The Treasury yield curve steepened over the intermeeting period, with 5- and 10-year yields rising markedly. Measures of inflation compensation increased moderately, on net, continuing the trend observed over recent months. However, in contrast to recent months, most of the recent increase in longer-term Treasury yields was accounted for by higher TIPS-implied real yields. Market participants attributed the increases in longer-term yields in part to increased investor optimism about the economic outlook and expectations of higher Treasury debt issuance. On February 25, yields rose especially sharply. Market depth became thin, and bid-ask spreads widened, but Treasury market liquidity gradually recovered over the following days. Swaption-implied volatilities of longer-term interest rates rose notably. The expected path for the federal funds rate over the next few years, as implied by a straight read of overnight index swap quotes, rose substantially since the previous FOMC meeting and moved above 25 basis points in the first quarter of 2023, about three quarters sooner than expected at the time of the January meeting. Broad stock price indexes increased, on net, over the intermeeting period, consistent with increased investor optimism about the economic outlook and the enactment of the ARP. Stocks in cyclically sensitive industries such as energy, banking, and small caps recorded sizable gains, while other sectors experienced mixed performance. One-month option-implied volatility on the S&P 500âthe VIXâfluctuated over a wide range during the intermeeting period but moved lower on balance. Spreads of corporate bond yields over comparable-maturity Treasury yields were roughly unchanged on investment-grade corporate bonds but narrowed for speculative-grade bonds. Conditions in short-term funding markets remained stable over the intermeeting period. Spreads on commercial paper and negotiable certificates of deposit across different tenors were little changed and remained near historically low levels. Assets under management (AUM) of government money market funds (MMFs) rose over the intermeeting period, whereas AUM of prime MMFs declined somewhat. The effective federal funds rate and the Secured Overnight Financing Rate averaged 7 basis points and 3 basis points, respectively, over the intermeeting period, decreasing somewhat relative to the previous intermeeting period average amid a net decrease in Treasury bill issuance and rising reserves. There continued to be no participation in the Federal Reserve's repo operations, but participation in the Federal Reserve's ON RRP increased a little. Amid stable market conditions, there was no take-up in the Money Market Mutual Fund Liquidity Facility or the Commercial Paper Funding Facility. Improved U.S. economic growth prospects and optimism about the eventual lifting of social-distancing and related restrictions globally were major drivers of asset prices abroad, spurring sizable increases in sovereign yields in advanced foreign economies. In response to rising yields, the Reserve Bank of Australia increased its bond purchases, and the European Central Bank indicated it would increase the pace of its bond purchases going forward. The broad dollar index rose modestly, with more notable appreciation against currencies of emerging market economies (EMEs). EME sovereign spreads edged up, and flows into EME bond funds fell back later in the period amid the rise in yields in advanced economies. However, flows into dedicated EME equity funds remained strong. Overall, foreign equity indexes increased slightly in most major markets. Financing conditions for nonfinancial businesses in capital markets remained broadly accommodative over the intermeeting period, supported by low interest rates and high equity valuations. Gross and net corporate bond issuances were solid in January and February. Gross issuance of leveraged loans was strong in January, driven mainly by refinancing activity, as primary-market spreads compressed notably since the end of last year in response to strong investor demand for such loans. Equity raised through traditional initial public offerings and seasoned equity offerings continued to be strong in January and February, and initial equity offerings by special purpose acquisition companies remained exceptionally high. Commercial and industrial loans outstanding on banks' balance sheets continued to decline through February as loan paydowns persisted and demand for new bank credit reportedly remained subdued. Corporate earnings continued to recover while the credit quality of nonfinancial corporations improved further. Corporate bond defaults declined in December and January and reached levels substantially below their 2019 average. In addition, the volume of nonfinancial corporate credit rating upgrades modestly outpaced downgrades over the first two months of 2021. Market indicators of future default expectations moved lower. Financing conditions for small businesses remained tight. Demand for loans remained depressedâand loan originations fell in December last year to about the same level seen in Augustâafter the spike in lending associated with the first round of the Paycheck Protection Program. Long-term delinquencies remained elevated relative to recent years but were at levels significantly below those experienced during the Global Financial Crisis. Municipal market financing conditions stayed accommodative over the intermeeting period. For commercial real estate (CRE) financed through capital markets, financing conditions remained accommodative over the intermeeting period. Agency CMBS spreads narrowed further with strong issuance in December and January. Spreads on non-agency CMBS also tightened, although triple-B spreads stayed at elevated levels compared with pre-pandemic levels. Issuance of non-agency CMBS remained weak relative to pre-pandemic levels. CRE loan growth at banks was weak, on net, through February, consistent with tight bank lending standards. Financing conditions in the residential mortgage market tightened somewhat over the intermeeting period but remained accommodative for stronger borrowers. Mortgage rates for most borrowers increased but stayed near historically low levels, supporting elevated refinance and purchase activity through January. Credit was broadly available to higher-score borrowers meeting standard conforming loan criteria but tightened further for borrowers with lower credit scores. The share of mortgages in forbearance was unchanged. Financing conditions in consumer credit markets remained generally accommodative for borrowers with strong credit scores but were still tight for those with nonprime scores. Auto loan balances continued to grow in January, while credit card balances declined. Interest rates on new credit card offers to borrowers with prime credit scores continued to trend down, on net, through December. In contrast, offer rates to nonprime borrowers rose further. Conditions in the asset-backed securities market were stable during the intermeeting period. Staff Economic Outlook The U.S. economic projection prepared by the staff for the March FOMC meeting was considerably stronger than the January forecast. Real GDP growth appeared to be picking up at the beginning of this year by more than the staff had expected, likely reflecting both a faster-than-anticipated easing in social distancing and a more rapid response by households to the fiscal support package enacted in late December. Moreover, the size of the ARP enacted in March was considerably larger than what the staff had assumed in the January projection. All told, real GDP growth was projected to be substantial this year and the unemployment rate was forecast to decline markedly, as the staff's projection also continued to anticipate that widespread vaccination would allow for further easing in social distancing this year. Real GDP growth was expected to step down in 2022 and 2023 but still outpace that of potential over this period, leading to a decline in the unemployment rate to historically low levels, as monetary policy was assumed to remain highly accommodative. Incoming data on inflation were a little above what the staff had expected. The 12âmonth changes in total and core PCE prices were expected to transitorily move above 2 percent in coming months, as the low inflation readings from the spring of last year dropped out of the calculation window. In addition, inflation was forecast to be temporarily boosted this year by the expected emergence of some production bottlenecks and supply constraints. Following the transitory increase this year, inflation was projected to run a bit below 2 percent next year and then to reach 2 percent by 2023, reflecting tight resource utilization in product and labor markets. The staff continued to see the uncertainty surrounding the outlook as elevated. Moreover, the uncertain course of the pandemic, particularly the emergence of more-contagious strains of the coronavirus in the United States and elsewhere, was still viewed as tilting the risks to the economic outlook to the downside. However, given the resilience of the economy in the face of the earlier surge in new COVID-19 cases, hospitalizations, and deaths and the magnitude of fiscal support enacted, the downside risks to the economic outlook were seen as smaller than for the previous projection. The staff viewed the risks of upside inflationary pressures as having increased since the previous forecast and now saw the risks to the inflation projection as balanced. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2021 through 2023 and over the longer run, based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current conditions, participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment had turned up recently, al­though the sectors most adversely affected by the pandemic remained weak. Inflation continued to run below 2 percent. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations, and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation and posed considerable risks to the economic outlook. Participants observed that the pace of the economic recovery had picked up recently and that the economy continued to show resilience in the face of the pandemic. They noted encouraging developments regarding the pandemic, including significant declines in the number of new cases, hospitalizations, and deaths over the intermeeting period as well as a pickup in the pace of vaccinations. In light of these developments as well as the extent of the recent fiscal policy support, participants significantly revised up their projections for real GDP growth this year compared with the projections they submitted last December. They noted, however, that economic activity and employment were currently well below levels consistent with maximum employment. Participants observed that the economic downturn had not fallen equally on all Americans and that lower-income and Black and Hispanic households had been disproportionately affected by the pandemic. A number of participants stressed that recently enacted fiscal support would help address some of the hardships faced by these groups and that monetary policy would also help by promoting the economy's return to the Committee's goals of broad-based and inclusive maximum employment and price stability. Participants observed that household spending had risen notably so far this year and anticipated that further gains in consumer spending would contribute significantly to the economic recovery. While household spending on services that typically require close personal contact remained weak, participants expected spending on these services would improve as vaccinations became more widespread, social-distancing measures were relaxed, and the public became less wary of close personal interactions. Participants anticipated consumer spending would be bolstered by the recently enacted fiscal stimulus packages as well as by accommodative monetary policy. Many participants also pointed to the elevated level of household savings and judged that the release of pent-up demand could boost consumption growth further as social distancing waned. Participants also observed that residential construction continued to be solid and home sales remained robust in part because of low interest rates. Low inventory was viewed as an important factor supporting strong gains in housing prices. With respect to the business sector, participants observed that business equipment investment had continued to increase and that readings on new orders and shipments of capital goods remained strong. While some District contacts continued to report that firms in industries such as CRE or leisure, travel, and hospitality were struggling from pandemic-related social distancing, other District contacts reported that activity in these industries had started to improve. Participants noted that surveys of business activity had picked up recently and that many District contacts were growing increasingly optimistic about business prospects given ongoing progress on vaccinations. Participants also discussed reports of shortages in materials, key intermediate inputs, and labor as well as bottlenecks in shipping. A few participants noted that higher crop prices were continuing to boost income in the agricultural sector. Several participants judged that the support provided by the ARP could improve the financial positions of small firms that had been adversely affected by the pandemic. Participants observed that labor market conditions had improved recently, as payroll employment registered strong gains in February and the unemployment rate fell to 6.2 percent. Even so, payroll employment was about 9.5 million jobs below its pre-pandemic level, and labor market conditions for those in the most disadvantaged communities were viewed as lagging behind those of other households. Moreover, participants noted that employment in the leisure and hospitality sector was still down substantially from its pre-pandemic level despite a sharp rebound in February. Participants generally expected strong job gains to continue over coming months and into the medium term, supported by accommodative fiscal and monetary policies as well as by continued progress on vaccinations, further reopening of sectors most affected by the pandemic, and the associated recovery in economic activity. However, participants noted that the economy was far from achieving the Committee's broad-based and inclusive goal of maximum employment. Some participants commented that labor force participation continued to be held down by workers' health concerns and additional childcare responsibilities associated with virtual schooling and that the pace of recovery in the labor market would depend importantly on how rapidly those affected by these issues could rejoin the labor force. Several participants noted that the speed of the labor market recovery also depended on factors such as the movement of workers across industries and occupations in a restructuring economy or the effects of technological change on the demand for labor. Several participants suggested that the ARP could hasten the recovery, which could help limit longer-term damage in labor markets caused by the pandemic. Participants observed that headline PCE inflation continued to run below 2 percent. In the near term, the 12-month change in PCE prices was expected to move above 2 percent as the low inflation readings from the spring of last year drop out of the calculation. Most participants also pointed to supply constraints that could contribute to price increases for some goods in coming months as the economy continued to reopen. After the transitory effects of these factors fade, however, participants generally anticipated that annual inflation readings would edge down next year. Subsequently, participants expected that inflation would likely move along a trajectory consistent with achieving the Committee's objectives over time, supported by strong aggregate demand, which participants expected would be driven in part by accommodative monetary and fiscal policies. Participants discussed market- and survey-based measures of longer-term inflation expectations and their implications for the inflation outlook. Market-based measures of inflation compensation at the 5- and 10-year horizons had continued to move up over the intermeeting period, while survey-based measures of inflation expectations were little changed on balance. A number of participants indicated that the increases in market-based measures of inflation compensation from the very low levels of last spring were consistent with the view that inflation was likely to move along a path over time consistent with the Committee's goals. Participants noted that overall financial conditions remained highly accommodative, in part reflecting the stance of monetary policy. Participants commented on the notable rise in longer-term Treasury yields that occurred over the intermeeting period and generally viewed it as reflecting the improved economic outlook, some firming in inflation expectations, and expectations for increased Treasury debt issuance. Disorderly conditions in Treasury markets or a persistent rise in yields that could jeopardize progress toward the Committee's goals were seen as cause for concern. While overall financial conditions were still seen as accommodative, a number of participants remarked that financing conditions remained challenging for many small businesses. A couple of participants expressed concern that highly accommodative financial conditions could lead to excessive risk-taking and the buildup of financial imbalances. While generally acknowledging that the medium-term outlook for real GDP growth and employment had improved, participants continued to see the uncertainty surrounding that outlook as elevated. Participants agreed that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations. Most participants indicated that the pandemic continued to pose considerable risks to the economic outlook, including risks associated with new more-contagious virus strains, obstacles in getting sufficient numbers of the public vaccinated, or social-distancing fatigue. A few participants pointed to risks associated with stress in the CRE sector or to risks associated with the unwinding of mortgage forbearance and eviction moratoriums provided to households. With regard to upside risks, some participants pointed to the possibility that fiscal policy could have a more expansionary effect than anticipated, that households could display a greater-than-expected willingness to spend out of accumulated savings, or that widespread vaccinations and easing of social distancing could result in a more rapid boost to spending and employment than anticipated. Most participants noted that they viewed the risks to the outlook for inflation as broadly balanced. Several remarked that supply disruptions and strong demand could push up price inflation more than anticipated. Several participants commented that the factors that had contributed to low inflation during the previous expansion could again exert more downward pressure on inflation than expected. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants noted that indicators of economic activity and employment had turned up recently after a period of moderation, although the sectors most adversely affected by the pandemic remained weak. Despite these positive indicators and an improved public health situation, participants agreed that the economy remained far from the Committee's longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook. Consequently, participants judged that the current stance of policy and policy guidance remained appropriate to foster further economic recovery as well as to achieve inflation that averages 2 percent over time and longer-term inflation expectations that remain well anchored at 2 percent. Participants judged that the Committee's current guidance for the federal funds rate and asset purchases was serving the economy well. They noted that a benefit of the outcome-based guidance was that it did not need to be recalibrated often in response to incoming data or the evolving outlook. Participants also noted the importance of communicating to the public that the existing guidance, together with the new monetary policy framework as delineated in the revised Statement on Longer-Run Goals and Monetary Policy Strategy, meant that the path of the federal funds rate and the balance sheet depend on actual progress toward reaching the Committee's maximum-employment and inflation goals. In particular, various participants noted that changes in the path of policy should be based primarily on observed outcomes rather than forecasts. Participants agreed that overall financial conditions were accommodative. They noted that the Federal Reserve's asset purchases since last March had materially eased financial conditions and were providing substantial support to the economy. Participants noted that it would likely be some time until substantial further progress toward the Committee's maximum-employment and price-stability goals would be realized and that, consistent with the Committee's outcome-based guidance, asset purchases would continue at least at the current pace until then. A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee's goals. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that following a moderation in the pace of the recovery, indicators of economic activity and employment had turned up recently, although the sectors most adversely affected by the pandemic remained weak. Inflation continued to run below 2 percent. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also remarked that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations. In addition, members agreed that the ongoing public health crisis continued to weigh on economic activity, employment, and inflation and was posing considerable risks to the economic outlook. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. With regard to the postmeeting statement, in light of the notably positive tone of recent data, members judged that it was appropriate to incorporate that development in the description of the economic situation with the language that "indicators of economic activity and employment have turned up recently." Members also determined that, with oil prices having essentially retraced their pandemic-related declines, it was appropriate to remove the reference to oil prices as a factor holding down consumer price inflation and to simply state that "inflation continues to run below 2 percent." Regarding the directive to the Desk, members agreed that the directive should incorporate the proposed increase in the per-counterparty limit for the ON RRP facility to $80 billion. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective March 18, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $80 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerâterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgageâbacked securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective March 18, 2021. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, April 27â28, 2021. The meeting adjourned at 10:20 a.m. on March 17, 2021. Notation Vote By notation vote completed on February 16, 2021, the Committee unanimously approved the minutes of the Committee meeting held on January 26â27, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. 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Minutes of the Federal Open Market Committee April 27â28, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, April 27, 2021, at 9:30 a.m. and continued on Wednesday, April 28, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist David Altig, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Eric M. Engen, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors; Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Sally Davies, Deputy Director, Division of International Finance, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Carol C. Bertaut, Senior Associate Director, Division of International Finance, Board of Governors; David Bowman, Senior Associate Director, Division of Monetary Affairs, Board of Governors; Diana Hancock, Senior Associate Director, Division of Research and Statistics, Board of Governors; Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors Brett Berger, 2 Senior Adviser, Division of International Finance, Board of Governors; Ellen E. Meade, Senior Adviser, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Marnie Gillis DeBoer and Min Wei, Associate Directors, Division of Monetary Affairs, Board of Governors; Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors Ricardo Correa 2 and Stephanie E. Curcuru, 2 Deputy Associate Director, Division of International Finance, Board of Governors; Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Michiel De Pooter, 2 Giovanni Favara, Laura Lipscomb, 2 and Zeynep Senyuz, Assistant Directors, Division of Monetary Affairs, Board of Governors; Byron Lutz and Matthias Paustian, Assistant Directors, Division of Research and Statistics, Board of Governors Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board of Governors Mark A. Carlson, 2 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Jonathan E. Goldberg, Edward Herbst, and Krista Schwarz, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Courtney Demartini, 2 Lead Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Anthony Sarver, 2 Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston Michael Dotsey, Joseph W. Gruber, and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, Kansas City, and Cleveland, respectively Anne Baum, Carlos Garriga, Samuel Schulhofer-Wohl, 2 Mark L.J. Wright, and Nathaniel Wuerffel, 2 Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, Chicago, Minneapolis, and New York, respectively Matthew Nemeth, 2 Pia Orrenius, Nicolas Petrosky-Nadeau, and Matthew D. Raskin, 2 Vice Presidents, Federal Reserve Bank of New York, Dallas, San Francisco, and New York, respectively Robert Lerman 2 and William E. Riordan, 2 Assistant Vice Presidents, Federal Reserve Banks of New York and New York, respectively Mark Choi 2 and Ellen Correia-Golay, 2 Markets Officers, Federal Reserve Banks of New York and New York, respectively Fatih Karahan and Jenny Tang, Senior Economists, Federal Reserve Banks of New York and Boston, respectively Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets over the intermeeting period. Financial conditions eased modestly as market participants continued to focus on progress toward economic reopening as well as supportive monetary and fiscal policy. Equity prices rose, with the S&P 500 index reaching a record high, while Treasury yields, the dollar, and credit spreads declined modestly. The equity gains were broad based across sectors, though shares of small caps, as captured by the Russell 2000 index, declined. News regarding losses associated with a highly levered family investment office affected the equity prices of some large financial firms, but the broader financial market effects appeared limited. After rising sharply in recent months, longer-term Treasury yields declined modestly over the intermeeting period, even as market expectations for U.S. growth continued to be revised higher. Contacts reported that the earlier increases in yields drew in a range of investors, including foreign institutions, pension funds, and insurance companies. Against this backdrop, term premiums as measured by term structure models and based on estimates using the Open Market Desk's surveys of primary dealers and market participants moved slightly lower. Nonetheless, market participants were attentive to the potential for rising yields going forward, and, in recent months, Desk survey respondents had increased the probability they attach to higher yields at the end of 2021. Regarding expectations for the policy outlook, the market- and survey-implied paths of the federal funds rate were both relatively little changed over the intermeeting period, and the modal survey path in later years continued to imply that the target range would gradually increase to a level just over 2 percent in 2026. Expectations for the path of asset purchases were also stable, and market participants remained focused on the Committee's communications about progress toward its goals. According to the median survey responses, the Federal Reserve's net purchases of Treasury and agency securities were expected to end three quarters after the first reduction in the pace of asset purchases, and the first increase in the target range for the federal funds rate was expected to occur three quarters after that. Recent financial market developments across advanced economies reflected differing expectations for economic growth and monetary policy. Some countries that were expected to recoup COVID-19-related output losses earlier than others had seen larger yield increases and more appreciation in their currencies in recent months. Over the intermeeting period, the Bank of Canada announced a reduction in the pace of its asset purchases and brought forward its forecast of when conditions would be met for an increase in its policy rate. The manager turned next to money markets and the Federal Reserve's balance sheet. Reserve balances increased further this intermeeting period to a record level of $3.9 trillion. The effective federal funds rate was steady at 7 basis points. However, amid ongoing strong demand for safe short-term investments and reduced Treasury bill supply, the Secured Overnight Financing Rate (SOFR) stood at 1 basis point throughout the period. The overnight reverse repurchase agreement (ON RRP) facility continued to effectively support policy implementation, and take-up peaked at more than $100 billion. A modest amount of trading in overnight repurchase agreement (repo) markets occurred at negative rates, although this development appeared to largely reflect technical factors. The SOMA manager noted that downward pressure on overnight rates in coming months could result in conditions that warrant consideration of a modest adjustment to administered rates and could ultimately lead to a greater share of Federal Reserve balance sheet expansion being channeled into ON RRP and other Federal Reserve liabilities. Although few survey respondents expected an adjustment to administered rates at the current meeting, more than half expected an adjustment by the end of the June FOMC meeting. The manager concluded with an update on three operational issues. Following the review of the ON RRP facility discussed at the previous meeting, the Desk planned to relax counterparty eligibility criteria for money funds and government-sponsored enterprises in order to allow smaller counterparties of these types to participate. The Desk also planned to make modest adjustments to the allocation of Treasury outright purchases across maturity ranges to ensure that purchases remain roughly proportional to the outstanding amounts of Treasury securities. These minor technical adjustments would have no implications for the effects of the Federal Reserve's asset purchases on overall financial conditions. Finally, the manager requested that the Committee vote to maintain the standing U.S. dollar and foreign currency liquidity swap arrangements and to renew the reciprocal currency arrangements with Canada and Mexico under the North American Framework Agreement. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Discussion of Repurchase Agreement Arrangements The staff briefed participants on the Federal Reserve's experience with the daily repo operations with primary dealers that have been in place since September 2019 and the temporary Foreign and International Monetary Authorities (FIMA) Repo Facility established in March last year. The briefing also reviewed considerations that could be relevant for policymakers' judgments regarding whether these arrangements should become permanent standing facilities. The staff noted that repo operations have been a useful tool in controlling the federal funds rate by adding reserves to ensure that they remain ample and by limiting pressures in repo markets that could spill over into unsecured markets. In March 2020, repo operations worked in concert with other measures to manage shocks to financial markets by stabilizing Treasury market conditions. Since June 2020, when the rate on overnight repo operations was raised relative to the rate of interest on excess reserves, repo operations have served as a backstop and there has been no substantive usage. Regarding considerations concerning a permanent standing repo facility, the briefing noted that standing repo operations could be viewed as useful in forestalling funding strains that could spill over into other overnight markets and limit dealers' intermediation activity in financial markets. However, a standing repo facility could be seen as a form of liquidity support for nonbank financial institutions, and one that could create incentives for firms with access to the facility to take on more liquidity risk against eligible securities than would otherwise be the case. In discussing considerations for the establishment of a standing FIMA repo facility, the staff noted that such a facility could limit the propensity for foreign official institutions to execute large sales of U.S. Treasury securities in a stress environment that, in turn, could exacerbate strains in broader U.S. domestic financial markets. The briefing also noted some potential drawbacks of such a facility, including less transparency regarding its operations relative to other Federal Reserve facilities. In their discussion of considerations related to the establishment of a standing repo facility as part of the Committee's overall approach to policy implementations in an ample reserves regime, a substantial majority of participants saw the potential benefits of an appropriately calibrated facility as outweighing the potential costs. Nearly all participants commented that a standing repo facility, by acting as a backstop, could help address pressures in the markets for U.S. Treasury securities and Treasury repo that could spill over to other funding markets and impair the implementation and transmission of monetary policy. In this regard, a number of participants noted the potential for pressures in short-term funding markets to arise from time to time, even with monetary policy operating in an ample-reserves regime. Many participants noted that a standing facility could provide a timely and automatic response to incipient market pressures; they remarked that such pressures can be difficult to anticipate and, as a result, might not be as promptly addressed with discretionary operations. A few participants noted that a standing repo facility could provide counterparties with additional flexibility in managing the composition of their holdings of high-quality liquid assets, potentially reducing the demand for reserves. A few participants cautioned that establishing a standing repo facility should not be viewed as a way of implementing monetary policy without an ample supply of reserves. A couple of participants remarked that most of the benefits of a standing repo facility could be realized by the Federal Reserve maintaining readiness to conduct repo operations on short notice as needed, noting that such an arrangement could avoid some of the costs of a standing facility. A few participants mentioned that a standing repo facility could be perceived as a means of supporting the financing of the U.S. Treasury or as a permanent Federal Reserve liquidity backstop for nondepository institutions; a couple of others called out the risk that such a facility could crowd out private market sources of liquidity provision. Participants noted that it would be important to carefully consider key design elements of a potential standing repo facility, including the pricing structure, counterparties, and range of collateral accepted. A number of participants commented that the counterparties at such a facility should include depository institutions. Several participants noted the facility's design should be targeted specifically to enhance control of the federal funds rate rather than to limit volatility in the repo market. In their discussion of considerations related to the establishment of a permanent FIMA repo facility, a vast majority of participants saw the potential benefits as outweighing the costs. Participants highlighted a number of benefits of a standing FIMA repo facility, with many noting that it could support smoother functioning in U.S. Treasury securities markets and U.S. financial markets more broadly by providing foreign official holders of U.S. Treasury securities with an alternative to outright sales of these securities in times of market stress. A few participants noted that, had a FIMA repo facility been in place in March 2020, it likely would have significantly damped pressures in these markets caused by the abrupt need for dollar funding abroad. Several participants suggested that a standing FIMA repo facility could be viewed as complementing the existing dollar swap lines by extending access to dollar funding for a broader range of central banks and foreign official institutions. Participants also commented on some potential risks of a standing FIMA repo facility, including less transparency in connection with FIMA repo operations relative to other Federal Reserve facilities. Staff Review of the Economic Situation The COVID-19 pandemic and the measures undertaken to contain its spread continued to affect economic activity in the United States and abroad. The information available at the time of the April 27â28 meeting suggested that U.S. real gross domestic product (GDP) had increased in the first quarter of 2021 at a pace that was faster than in the fourth quarter of last year but had not yet returned to its pre-pandemic level. Labor market conditions improved markedly in March, though employment remained well below its level at the start of 2020. Consumer price inflation through Februaryâas measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)âcontinued to run well below 2 percent. Total nonfarm payroll employment surged in March, with a notable gain in the leisure and hospitality sector. As of March, payroll employment had retraced almost two-thirds of the losses seen at the onset of the pandemic. The unemployment rate declined to 6 percent in March, as the number of workers on temporary layoff continued to fall and the number on permanent layoff ticked down. Although the unemployment rates for African Americans and Hispanics fell, both rates remained well above the national average; in addition, the Asian unemployment rate moved up and was equal to the national average in March. The labor force participation rate and employment-to-population ratio increased in March, though both measures remained below their pre-pandemic levels. Initial claims for unemployment insurance had moved down, on net, since mid-March and were at the lowest level since the beginning of the pandemic, though they remained exceptionally high by pre-pandemic standards. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP, which were available through the first half of April, suggested that the rate of increase in private employment had slowed somewhat relative to its earlier robust pace. Average hourly earnings for all employees rose 4.2 percent over the 12 months ending in March. The 12âmonth change in average hourly earnings continued to be influenced by the effect of the pandemic on the composition of the workforce; in particular, the concentration of job losses among lower-wage workers since early last year had resulted in large increases in this measure that were not indicative of tight labor market conditions. By contrast, a staff measure of the 12âmonth change in the median wage derived from the ADP data was 3.1 percent in March and continued to run below its pre-pandemic pace; this measure had likely been less affected by shifts in the composition of the workforce. Total PCE price inflation was 1.6 percent over the 12 months ending in February and continued to be held down by low rates of resource utilization. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 1.4 percent over the 12 months ending in February, while the trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 1.6 percent in February. In March, the 12-month change in the consumer price index (CPI) was 2.6 percent, boosted by increases in consumer energy prices, while core CPI inflation was 1.6 percent over the same period. In the first quarter of 2021, the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had returned to the level that prevailed in 2018. Real PCE declined in February; however, available indicatorsâincluding the components of the nominal retail sales data used to estimate PCEâpointed to a large increase in March and for the first quarter as a whole, with federal stimulus payments having likely supported the March increase. Housing starts bounced back in March following a weather-induced decline in February. Although existing home sales fell in February and March, the declines appeared to reflect continued limited availability of homes for sale rather than weakening demand; in addition, February's drop in new home sales was retraced in March. Available indicators suggested that equipment and intangibles investment had increased in the first quarter of 2021, though at a slower pace than that seen in the fourth quarter of 2020. Likewise, drilling investment appeared to have moved up, boosted in part by higher energy prices. However, investment in nonresidential structures outside of the drilling and mining sector looked as though it had declined further in the first quarter, likely reflecting ongoing uncertainty about the longer-term effects of the pandemic on businesses. Manufacturing output rebounded strongly in March following weather-related disruptions to production in February. The March rise in factory output occurred despite lingering supply constraints; for example, weather-damaged facilities in Texas used to produce petrochemical and plastic materials had not yet been fully repaired, and semiconductor shortages were still weighing on motor vehicle production. Total real government purchases appeared to have moved up in the first quarter after having declined over the second half of 2020. Available data suggested that a jump in federal nondefense purchases had offset a decline in defense purchases; in addition, indicators of real state and local purchases pointed to a small first-quarter increase. Data for February showed a wider nominal U.S. international trade deficit than in January. Both imports and exports fell from their January levels, the first nominal decline in each since last May. Goods imports were held back in February by weakness in imports for automotive products and consumer goods but remained higher than their pre-pandemic level. Nominal goods exports in February were weak in most categories and were still below their pre-pandemic level. Imports and exports of services remained depressed, weighed down by the continued suspension of most international travel. Incoming data were consistent with a sharp slowdown in foreign economic growth in the first quarter, following a tightening of social-distancing restrictions to contain new waves of COVID-19 infections. Nevertheless, the slowdown appeared less severe than observed declines in mobility would have suggested, underscoring that foreign economies continued to adapt to public health restrictions. The most recent indicators showed that economic activity in many advanced foreign economies (AFEs) resumed expanding toward the end of the first quarter amid a partial easing of restrictions. However, a new surge in infections in several countries in Latin America and South Asia, notably India, underscored the fragility of the global recovery. Foreign headline inflation rose considerably, boosted by temporary factors, such as the fading effects of steep price declines seen early last year and the pass-through of price increases for oil and other commodities. However, underlying inflationary pressures appeared to have remained muted. Staff Review of the Financial Situation Investor sentiment improved over the intermeeting period, reflecting a pickup in the pace of vaccinations, prospects for infrastructure spending, and stronger-than-expected labor market and retail sales data. Domestic equity prices increased notably amid declining equity market volatility, and corporate bond spreads narrowed. The nominal Treasury yield curve was little changed, as were measures of inflation compensation. A straight read of overnight index swap quotes suggested that the expected path for the federal funds rate was little changed over the intermeeting period and that the expected policy rate would remain below 25 basis points until the first quarter of 2023. Market-based financing conditions remained accommodative, and bank lending conditions eased markedly. Despite recent improvements, lending standards for commercial and industrial (C&I) and consumer loans remained tighter than pre-pandemic levels. Broad stock price indexes increased over the intermeeting period, with outperformance by technology stocks and stocks sensitive to consumer discretionary spending. One-month option-implied volatility on the S&P 500âthe VIXâdeclined, approaching the median level observed in the decade before the pandemic. Spreads of yields on investment- and speculative-grade corporate bonds over comparable-maturity Treasury yields narrowed moderately. Spreads on municipal bonds were little changed, with yields on such bonds remaining close to their lowest levels in more than 20 years. Domestic short-term funding markets remained stable. Funding rates stayed very low against the backdrop of continued paydowns in Treasury bills and substantial increases in reserve balances stemming from Federal Reserve asset purchases as well as the drawdown in balances maintained in the Treasury General Account associated with stimulus payments and other fiscal outlays. Assets under management increased somewhat for government money market funds (MMFs) but declined slightly for prime MMFs. The weighted average maturity of government and prime MMFs remained elevated. The effective federal funds rate and the SOFR were little changed, averaging 7 basis points and 1 basis point, respectively, over the intermeeting period. There continued to be no participation in the Fed's repo operations. Participation in the Fed's reverse repo facility increased from minimal levels to an average of $47 billion and reached $134 billion on the quarter-end date. Factors that had stressed foreign financial markets earlier this yearârising U.S. interest rates, resurging COVID-19 cases, and renewed lockdowns in a number of countriesâappeared less concerning to global investors over the intermeeting period. Most AFE equity indexes rose modestly, and most AFE sovereign bond yields were little changed. In emerging market economies (EMEs), market optimism was tempered in part by rising COVID-19 cases. The broad EME equity price index was little changed, while credit spreads widened somewhat in the most vulnerable EMEs. After robust inflows earlier this year, flows into EME-dedicated funds continued at a moderate pace. The broad dollar index fell modestly. Financing conditions for nonfinancial businesses in capital markets remained highly accommodative over the intermeeting period, as reflected in low corporate bond yields and high price-to-earnings ratios in equity markets. Gross corporate bond issuance and gross leveraged loan issuance were robust in February and March. Equity raised through traditional initial public offerings (IPOs) and seasoned equity offerings, as well as through special purpose acquisition companies, continued to be substantial in March. C&I loans outstanding at banks expanded in February and March after contracting for more than half a year. In the April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported easing standards, on net, for C&I loans across firms of all sizes over the first quarter. Banks also reported that demand for C&I loans weakened at large and middle-market firms and was basically unchanged at small firms. The credit quality of nonfinancial corporations showed further signs of improvement for lower-rated firms. Following a modest uptick in February, the volume of nonfinancial corporate bond downgrades spiked in March, but the spike reflected the downgrades of a few large and highly rated investment-grade firms. In contrast, for speculative-grade issuers, the volume of upgrades modestly exceeded that of downgrades in February and March. Nonfinancial corporate bond defaults remained at low levels in February and March. Market indicators of future default expectations were little changed and stayed low. Financing conditions in the municipal bond market remained accommodative over the intermeeting period. Issuance of municipal bonds was strong in March, and indicators of the credit quality of municipal debt were little changed in February and March. Financing conditions for small businesses appeared to have improved, with demand for loans remaining subdued. Likely in part because of the Paycheck Protection Program, small business loan originations rose notably in February, the most recent month for which data were available, and were close to pre-pandemic levels. However, even amid improving financing conditions, many small businesses remained under financial stress. For commercial real estate (CRE) financed through capital markets, financing conditions remained accommodative over the intermeeting period. Although overall delinquency rates in agency commercial mortgage-backed securities (CMBS) declined in the past few months, delinquency rates on hotel and retail mortgages in CMBS pools remained high. CRE loans held by banks were little changed in March. In the April SLOOS, changes in lending standards over the first quarter were mixed across CRE loan categories. Financing conditions in the residential mortgage market were little changed over the intermeeting period and remained accommodative for stronger borrowers who met standard conforming loan criteria. Credit remained tight for borrowers with lower credit scores. Mortgage rates for most borrowers were little changed on net. In the April SLOOS, banks reported easing standards on most types of mortgages. The share of mortgages in forbearance declined slightly in March. Financing conditions in consumer credit markets generally remained accommodative for borrowers with strong credit scores but tight for those with subprime scores. Consumer loans grew at a robust pace in February, reflecting the continued expansion of auto loans and a partial rebound in credit card account balances. Banks in the April SLOOS reported easing auto lending standards in the first quarter but generally reported that standards remained tight compared with the end of 2019, especially for nonprime borrowers. Banks also reported that standards on credit cards eased over the first quarter of 2021 but were generally still tighter than before the pandemic. Interest rates offered to nonprime borrowers continued to rise through February, with the fraction of these offers with zero introductory rates continuing to decline. The staff provided an update on its assessments of the stability of the financial system. The staff noted that corporate bond spreads had declined notably since late last year and were at the lower ends of their historical distributions. In addition, measures of the equity risk premium declined further, and nonprice measures, such as high IPO volume, also indicated elevated investor appetite for risk in the equity market. Valuation pressures for CRE remained high, although information related to CRE continued to be noisier than usual due to pandemic-induced declines in transactions. House price growth increased further, with house prices outpacing rents. In contrast, vulnerabilities from both household and business debt had diminished, reflecting continued government support, a slower pace of business borrowing, and improving business earnings, although many households and businesses continued to struggle. Regarding financial leverage, the staff noted that bank capital ratios remained above pre-pandemic levels in the fourth quarter, but risks remained. Leverage among hedge funds was elevated and increased in the third quarter of last year for the most highly leveraged funds. Leverage in hedge funds' prime brokerage accounts rose notably through the fourth quarter of last year, reflecting elevated hedge fund leverage related to their stock market activities. The staff highlighted recent episodes underlining the opacity of risk exposures among some leveraged entities. With regard to funding risks, the staff noted that MMFs and open-end mutual funds faced significant structural vulnerabilities associated with liquidity transformation. Assets under management at MMFs declined during the second half of 2020, while open-end mutual fund holdings of corporate bonds rose during the second half of last year. Staff Economic Outlook The U.S. economic projection prepared by the staff for the April FOMC meeting was slightly stronger than the March forecast. Real GDP growth was projected to post a substantial increase this year, with a correspondingly rapid decline in the unemployment rate, as further reductions in social distancing and favorable financial conditions were expected to support output growth. With the boost to growth from continued reductions in social distancing assumed to fade after 2021, GDP growth was expected to step down in 2022 and 2023. However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over much of this period, leading to a decline in the unemployment rate to historically low levels. The staff's outlook for inflation was broadly unchanged. The 12âmonth changes in total and core PCE prices were expected to move above 2 percent in coming months as the unusually low readings from the spring of 2020 dropped out of the calculation window and as a recent jump in consumer energy prices pushed up the total measure. Core inflation was expected to ease some later in the year but to remain above 2 percent at the end of 2021, boosted by large increases in import prices, a recovery in prices that had been especially affected by the pandemic, and the temporary effects of supply bottlenecks. Inflation was then projected to dip slightly below 2 percent in 2022 as the influence of these transitory factors diminished, before returning to 2 percent by the end of 2023, supported by sustained tight levels of resource utilization in labor and product markets. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the uncertainty around the forecast was elevated. In particular, despite the demonstrated resilience of the economy to surges in the pandemic over the past year, the possibility that COVID-19 variants that were more contagious or more resistant to existing vaccines would spread posed a salient downside risk. The staff continued to view the risks around the inflation projection as balanced. On the upside, bottlenecks, supply disruptions, and historically high rates of resource utilization were seen as potential sources of greater-than-expected inflationary pressures. Alternatively, the possibility that inflation would be held down by low underlying trend inflation and a weaker-than-expected response to resource utilization was seen as an important downside risk. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current conditions, participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Amid progress on vaccinations and strong policy support, indicators of economic activity and employment had strengthened. The sectors most adversely affected by the pandemic remained weak but had shown improvement. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continued to weigh on the economy, and risks to the economic outlook remained. Participants observed that economic activity had picked up sharply this year, with robust gains in consumer spending, housing-sector activity, business equipment investment, and manufacturing production. They noted that the acceleration in economic activity reflected positive developments associated with the rapid pace of vaccinations as well as continued support from fiscal and monetary policies. Nevertheless, participants generally noted that the economy remained far from the Committee's maximum-employment and price-stability goals. In their discussion of the household sector, participants remarked that indicators of consumer spending surged in March and expected that further gains in spending would contribute significantly to the economic recovery. Many participants commented that fiscal stimulus, accommodative financial conditions, the release of pent-up demand, progress on widespread vaccination, and the ongoing reduction of social-distancing measures were important factors supporting spending. Many participants also noted that consumer spending would continue to be bolstered by these factors as well as by the elevated level of accumulated household savings. Several participants observed that housing market activity continued to be strong, supported in part by low interest rates. With respect to the business sector, participants noted that business equipment investment continued to rise at a robust pace and manufacturing activity was expanding at a strong clip. That said, many participants discussed reports of shortages of materials and labor as well as supply chain bottlenecks as likely restraints to the pace of recovery in manufacturing and other business sectors. Many participants also noted that their District contacts had reported a pickup in activity in the leisure, travel, and hospitality sectors. Those contacts had grown increasingly optimistic about overall business conditions, given ongoing progress on vaccinations, easing of restrictions on in-person activities, and substantial fiscal support. A couple of participants reported improved conditions in the agricultural sector, with farmers' income supported by higher crop prices and federal aid payments. Participants commented on the continued improvement in labor market conditions in recent months. Job gains in the March employment report were strong, and the unemployment rate fell to 6.0 percent. Even so, participants judged that the economy was far from achieving the Committee's broad-based and inclusive maximum-employment goal. Payroll employment was 8.4 million jobs below its pre-pandemic level. Some participants noted that the labor market recovery continued to be uneven across demographic and income groups and across sectors. Many participants also remarked that business contacts in their Districts reported having trouble hiring workers, likely reflecting factors such as early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits. Many participants noted as well that these factors were depressing the labor force participation rate, relative to its pre-pandemic level. Some of these factors were seen as likely to remain significant while pandemic-related risks persisted. Based on reports from business contacts, some participants noted that the step-up in demand for labor had started to put some upward pressure on wages. Moreover, over the medium term, participants expected labor market conditions to continue to improve, supported by accommodative fiscal and monetary policies as well as continued progress on vaccinations, unwinding of social distancing, and the associated recovery in economic activity. A couple of participants remarked that businesses in industries severely affected by the pandemic were downsizing or that some businesses were focused on cutting costs or increasing productivity, particularly through automation. In their comments about inflation, participants anticipated that inflation as measured by the 12-month change of the PCE price index would move above 2 percent in the near term as very low readings from early in the pandemic fall out of the calculation. In addition, increases in oil prices were expected to pass through to consumer energy prices. Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease. Looking further ahead, participants expected inflation to be at levels consistent with achieving the Committee's objectives over time. A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year. They noted that in some industries, supply chain disruptions appeared to be more persistent than originally anticipated and reportedly had led to higher input costs. Despite the expected short-run fluctuations in measured inflation, many participants commented that various measures of longer-term inflation expectations remained well anchored at levels broadly consistent with achieving the Committee's longer-run goals. Participants judged that uncertainty was elevated and that the outlook was highly dependent on the course of the virus. Amid considerable progress on vaccinations, the unwinding of social distancing, and strong policy support, participants assessed that risks to the outlook were no longer as elevated as in previous months. Nevertheless, some participants remarked that the pandemic continued to pose downside risks to the economic outlook and noted the potential for an uneven recovery in light of new virus strains and potential hesitancy regarding vaccination. As upside risks, some participants mentioned that the release of pent-up demand, accumulated excess household savings, and rapid progress on vaccinations, amid continued fiscal and monetary support, could boost economic activity and bring individuals back into the labor force more quickly than currently expected. Some participants mentioned upside risks around the inflation outlook that could arise if temporary factors influencing inflation turned out to be more persistent than expected. Participants who commented on financial stability agreed that the financial sector had shown resilience during the pandemic, in large part reflecting strong policy support. Some remarked that the capital positions and loan loss reserves at large banks remained high, and earnings were strong. A few participants noted that vulnerabilities from both business and household debt were at a moderate level. Nevertheless, a couple of participants highlighted that forbearance programs instituted in response to the pandemic could be masking vulnerabilities among households and businesses. Regarding asset valuations, several participants noted that risk appetite in capital markets was elevated, as equity valuations had risen further, IPO activity remained high, and risk spreads on corporate bonds were at the bottom of their historical distribution. A couple of participants remarked that, should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy. A number of participants commented on valuation pressures being somewhat elevated in the housing market. Some participants mentioned the potential risks to the financial system stemming from the activities of hedge funds and other leveraged investors, commenting on the limited visibility into the activities of these entities or on the prudential risk-management practices of dealers' prime-brokerage businesses. Some participants highlighted potential vulnerabilities in other parts of the financial system, including run-prone investment funds in short-term funding and credit markets. Various participants commented on the prolonged period of low interest rates and highly accommodative financial market conditions and the possibility for these conditions to lead to reach-for-yield behavior that could raise financial stability risks. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants agreed that the economy was still far from the Committee's longer-run goals. Moreover, the path ahead continued to depend on the course of the virus, and risks to the economic outlook remained. Consequently, participants judged that the current stance of policy and policy guidance remained appropriate to foster further economic recovery as well as to achieve inflation that averages 2 percent over time and longer-term inflation expectations that continue to be well anchored at 2 percent. Participants judged that the Committee's current guidance for the federal funds rate and asset purchases was serving the economy well. Participants also noted that the existing outcome-based guidance implied that the path of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee's maximum-employment and inflation goals. In particular, some participants emphasized that an important feature of the outcome-based guidance was that policy would be set based on observed progress toward the Committee's goals, not on uncertain economic forecasts. However, a couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction. In their discussion of the Federal Reserve's asset purchases, various participants noted that it would likely be some time until the economy had made substantial further progress toward the Committee's maximum-employment and price-stability goals relative to the conditions prevailing in December 2020 when the Committee first provided its guidance for asset purchases. Consistent with the Committee's outcome-based guidance, purchases would continue at least at the current pace until that time. Many participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee's goals. A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. They noted that amid progress on vaccinations and strong policy support, indicators of economic activity and employment had strengthened. Al­though the sectors most adversely affected by the pandemic remained weak, they had shown improvement. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also remarked that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations. In addition, members agreed that the ongoing public health crisis continued to weigh on the economy and risks to the economic outlook remained. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed that the postmeeting statement should acknowledge that indicators of economic activity and employment had strengthened but that, despite showing improvement, the sectors of the economy most affected by the pandemic remained weak. Members also judged that, while risks to the outlook remained, continued progress on vaccinations and accommodative monetary and fiscal policies most likely would underpin further gains in economic activity and employment and would limit risks to the outlook. As a result, they agreed to remove the characterization of risks as "considerable" in the FOMC statement. With regard to the characterization of inflation, members agreed that the statement should note that inflation had risen but that the increase largely reflected transitory factors. They noted that inflation as measured by the 12-month change of the PCE price index was expected to move above 2 percent as the very low readings from early in the pandemic fell out of the calculation and as past increases in oil prices passed through to consumer energy prices. The expected rebound in spending as the economy continued to reopen was also likely to boost inflation temporarily, particularly if supply bottlenecks limited how quickly production could respond to demand in the near term. However, members also viewed these increases in prices as likely to have only transitory effects on inflation. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective April 29, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.00 percent and with a per-counterparty limit of $80 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerâterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgageâbacked securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances at 0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective April 29, 2021. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 15â16, 2021. The meeting adjourned at 10:20 a.m. on April 28, 2021. Notation Vote By notation vote completed on April 6, 2021, the Committee unanimously approved the minutes of the Committee meeting held on March 16â17, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of repurchase agreement arrangements. Return to text

Minutes of the Federal Open Market Committee A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconference on Tuesday, June 15, 2021, at 9:00 a.m. and continued on Wednesday, June 16, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Kartik B. Athreya, Rochelle M. Edge, Eric M. Engen, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Sally Davies, Deputy Director, Division of International Finance, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board of Governors Carol C. Bertaut, Senior Associate Director, Division of International Finance, Board of Governors; Marnie Gillis DeBoer and David López-Salido, Senior Associate Directors, Division of Monetary Affairs, Board of Governors; Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors; David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board of Governors Brett Berger, 2 Senior Adviser, Division of International Finance, Board of Governors; Ellen E. Meade and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Andrew Figura, Associate Director, Division of Research and Statistics, Board of Governors; Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board of Governors Stephanie E. Curcuru 2 and Andrea Raffo, Deputy Associate Directors, Division of International Finance, Board of Governors; Laura Lipscomb, 2 Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Steve Spurry, 2 Deputy Associate Director, Division of Supervision and Regulation, Board of Governors; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Etienne Gagnon, and Dan Li, Assistant Directors, Division of Monetary Affairs, Board of Governors Charles Fleischman, Adviser, Division of Research and Statistics, Board of Governors Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board of Governors Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board of Governors Sriya Anbil, 2 Group Manager, Division of Monetary Affairs, Board of Governors Mark A. Carlson, 2 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors David M. Byrne, Principal Economist, Division of Research and Statistics, Board of Governors; Michele Cavallo, Bernd Schlusche, Mary Tian, and Francisco Vazquez-Grande, Principal Economists, Division of Monetary Affairs, Board of Governors; Alberto Queralto, Principal Economist, Division of International Finance, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Courtney Demartini, 2 Lead Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Anthony M. Diercks, Senior Economist, Division of Monetary Affairs, Board of Governors Joseph W. Gruber and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Kansas City and Cleveland, respectively Anne Baum, Carlos Garriga, Susan McLaughlin, 2 Anna Nordstrom, 2 Giovanni Olivei, Paolo A. Pesenti, Julie Ann Remache, 2 Robert G. Valletta, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, New York, New York, Boston, New York, New York, San Francisco, and Minneapolis, respectively Roc Armenter, Jennifer S. Crystal, 2 Jonas Fisher, and Matthew Nemeth, 2 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Chicago, and New York, respectively Jason A. Miu, 2 Assistant Vice President, Federal Reserve Bank of New York Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Kristopher Gerardi, Financial Economist and Senior Advisor, Federal Reserve Bank of Atlanta Haitham Jendoubi, 2 Policy and Markets Analysis Manager, Federal Reserve Bank of New York Discussion of Repurchase Agreement Arrangements Participants resumed their discussion from the April 2021 FOMC meeting of considerations related to the establishment of a domestic standing repurchase agreement (repo) facility (SRF) and a standing Foreign International Monetary Authorities (FIMA) repo facility. Building on discussion at previous meetings, the staff presented considerations for how these facilities might be designed. The design considerations were guided by participants' general desire to have these facilities play a backstop role in fostering effective implementation of monetary policy and supporting smooth functioning of markets. In April, participants highlighted the importance of designing these facilities in a way that would leave ample room for private market activity while minimizing the potential for stigma, promote equitable access to an appropriately broad set of counterparties, and be governed by the FOMC. With these principles and goals in mind, the staff presented potential terms for each facility. The staff presentation on the potential design of a domestic SRF included establishing the minimum bid rate at 25 basis pointsâthe top of the target range for the federal funds rate. The staff briefing suggested counterparties for the facility would include primary dealers and would be extended over time to include banks that expressed interest in participation. The staff presentation noted that such a facility could be limited to only U.S. Treasury securities or could accept all securities currently accepted in open market operations (OMOs), which include Treasury securities, agency securities, and agency mortgage-backed securities (MBS). The briefing noted that, on the one hand, restricting eligible collateral for a domestic SRF to U.S. Treasury securities could mitigate concerns that an SRF could encourage counterparties to take on greater liquidity risk. On the other hand, accepting agency securities and agency MBS in an SRF would be consistent with the structure of current repo operations and could help address a greater range of potential repo market pressures from spilling over into the federal funds market. The proposed design for a standing FIMA repo facility was similar in structure to the existing temporary FIMA repo facility. Under the draft terms, the range of eligible counterparties for the FIMA repo facility would continue to include foreign official institutions, largely comprising central banks, subject to individual approval. The eligible collateral would continue to be limited to U.S. Treasury securities. The draft terms envisioned that the rate for the FIMA repo facility would be set equal to the top of the target range for the federal funds rate, a rate equal to the minimum bid rate in the draft terms for the domestic SRF. In their discussion of considerations related to the design of a domestic SRF, a substantial majority restated their view, conveyed at the April 2021 meeting, that the potential benefits of such a facility outweighed the potential costs. Participants broadly supported the terms presented by the staff for such a facility. Several participants noted the importance of setting the minimum bid rate high enough so that the facility was positioned as a backstop, while some pointed out the importance of not setting the rate so high that usage of the facility could be stigmatized or that the facility would not sufficiently contain pressures that could spill over into the federal funds market. Several participants noted that setting an SRF rate at the top of the target range for the federal funds rate would be consistent with addressing pressures that could spill over to the federal funds market. Others remarked that setting the SRF rate at the same level as the primary credit rate for borrowing at the discount window would promote equitable access to Federal Reserve liquidity across banks and counterparties for OMOs. Several participants commented that it may also be appropriate to adjust the SRF rate over time based on accumulated experience and economic or financial developments. Several participants suggested that, in order to ensure an SRF continues to be effective, it may be appropriate to study the costs and benefits of additional adjustments over time, such as moving to a cleared settlement structure. Most participants noted the benefits of allowing banks to be counterparties to a domestic SRF, including more directly addressing liquidity pressures for participants in the federal funds market and promoting equitable access to liquidity across domestic counterparties. Many participants judged that it would be appropriate to accept the same set of securities that is currently accepted for OMOs. Some participants indicated that accepting these securities in the domestic SRF's operations should increase the effectiveness of the facility in limiting upward pressures in repo markets that could spill over into the federal funds market. Some other participants noted that limiting acceptable securities for SRF operations to U.S. Treasury securities could have benefits, including consistency with the regulatory distinction between U.S. Treasury securities and other types of securities, potentially limiting the Federal Reserve's footprint in financial markets, and maintaining consistency with the structure of the proposed FIMA repo facility and the overnight reverse repo (ON RRP) facility. Several participants cautioned that establishing a backstop SRF would not diminish the importance of providing a sufficiently ample supply of reserves on an ongoing basis or the need to improve the structural resiliency of the U.S. Treasury market. A couple of participants reiterated their concerns about converting current ongoing daily repo operations to a standing facility and suggested ways to calibrate the terms of the facility to mitigate these concerns, including setting a relatively high minimum bid rate or limiting securities eligible for SRF operations to only U.S. Treasury securities. In their discussion of considerations related to the design of a standing FIMA repo facility, a substantial majority supported the broad structure discussed in the staff presentation. Many participants generally saw benefits in keeping the rate at the same level as that in the potential domestic SRF in light of the similar nature of the transactions and high quality of the collateral. A number of participants remarked that the rate at the FIMA repo facility could be set at a higher level than at the domestic SRF or could be set at a level comparable to that in the Federal Reserve's dollar liquidity swap lines. A couple of participants commented on the potential reputational risks of establishing a standing FIMA repo facility, including those associated with providing liquidity on a standing basis to a wider set of central banks and finance ministries than through existing swap lines. These participants reiterated the importance of maintaining well-defined criteria for participation in the facility and suggested that the FOMC should receive regular reports on the operations and counterparties approved for a standing FIMA repo facility. Participants agreed that they would continue their discussion of design parameters for both a domestic SRF and a standing FIMA repo facility. The Chair asked the staff to work on a specific proposal that reflected the views expressed by participants at this meeting. Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments over the intermeeting period. On net, U.S. financial conditions eased further, led by a decline in Treasury yields. Lower term premiums appeared to be a significant component of the declines, as reflected by lower implied volatility on longer-term interest rates. Equities rose slightly, the broad dollar weakened, and credit spreads were little changed at historically tight levels. Over the period, market participants focused on data showing lower employment growth and higher inflation readings than had been expected. The median 2021 core personal consumption expenditures (PCE) inflation forecast from the Open Market Desk's Survey of Primary Dealers jumped nearly 1 percentage point from the previous survey. However, median forecasts for 2022 and 2023 each rose less than 0.1 percent, suggesting expectations for inflationary pressures to subside. Inflation compensation as measured by five-year breakeven rates on Treasury Inflation-Protected Securities peaked in mid-May at the highest level in more than a decade, but the increase was driven almost entirely by higher inflation compensation at short horizons. Indeed, one-year-forward inflation compensation at horizons beyond a year was relatively stable. Measures of expectations for Federal Reserve policy were little changed over the period. The median respondent to the Desk's surveys of primary dealers and market participants continued to expect the pace of Federal Reserve asset purchases to begin to decline in the first quarter of 2022, although most respondents also saw a reasonable chance that this decline could occur one quarter earlier or later. The median respondent expected purchases to end in the fourth quarter of 2022. The Desk's survey measures of the expected path of the target federal funds rate were also fairly steady, and the median respondent continued to expect the first target rate increase to occur in the third quarter of 2023. Nearly all Desk survey respondents anticipated that the Summary of Economic Projections would show the median Committee participant projecting either no increase in the target range or one 1/4 percentage point increase by the end of 2023. The manager noted that downward pressure on money market rates continued over the period. Banks continued to limit growth in their balance sheets by allowing wholesale liabilities to mature and encouraging customers to shift some nonoperational deposits to money market funds. Moreover, the supply of Treasury bills, a primary investment for government money market mutual funds, fell further. Against this backdrop, the Secured Overnight Financing Rate (SOFR) printed at 1 basis point each day in the intermeeting period, while the effective federal funds rate (EFFR) decreased 1 basis point, to 6 basis points. Amid heightened demand and reduced supply for short-term investments, the ON RRP continued to maintain a floor on overnight rates. Growth in the ON RRP and other nonreserve liabilities helped expand the base of Federal Reserve liabilities supporting asset purchases, damping the increase in reserves and easing pressure on bank balance sheets. Over the next intermeeting period, the manager anticipated that further increases in reserves and reductions in bill supply could put additional downward pressure on overnight rates. A modest technical adjustment to administered rates could be warranted to maintain the EFFR well within the target range and support smooth functioning of short-term funding markets. Such an adjustment would be expected to raise the federal funds rate and to lift other overnight rates modestly. Most respondents to the Desk's surveys expected an administered rate adjustment this summer. The manager noted that balances at the ON RRP facility would likely continue to grow over coming months. The staff would continue to monitor developments, and the manager noted that, at some point, it could become appropriate to consider raising the counterparty limits for the ON RRP. The manager provided an update on progress toward winding down a number of emergency facilities established under section 13(3) of the Federal Reserve Act. While market participants took note of the Federal Reserve Board's announcement on winding down the Secondary Market Corporate Credit Facility (SMCCF) holdings, it elicited little price response. The commencement of exchange-traded funds sales proceeded smoothly. All of the SMCCF assets are expected to be sold by the end of this year. Finally, the manager noted a proposal to request the Chair's approval for an extension to the temporary U.S. dollar liquidity swap arrangements to December 31, 2021. The extension would benefit the U.S. economy by helping forestall potential pressures in offshore dollar funding markets that could spill over to U.S. financial conditions while much of the global economy remains on an uncertain recovery path from the pandemic. Should the Committee decide to make the FIMA repo facility standing, an extension would also provide sufficient time for those temporary swap line central banks that are not currently enrolled in the FIMA repo facility to do so and to become fully operational. Secretary's note: The Chair subsequently provided approval to the Desk, following the procedures in the Authorization for Foreign Currency Operations, to extend the expiration of the temporary U.S. dollar liquidity swap lines through December 31, 2021. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the June 15â16 meeting suggested that U.S. real gross domestic product (GDP) was expanding in the second quarter at a pace that was faster than in the first quarter of the year. Moreover, labor market conditions had improved further in April and May. Consumer price inflation through Aprilâas measured by the 12-month percentage change in the PCE price indexâhad picked up notably, largely reflecting transitory factors. Total nonfarm payroll employment increased solidly over April and May, though at a slower monthly pace than over February and March. As of May, total payroll employment had retraced twoâthirds of the job losses seen at the onset of the pandemic, although employment in the leisure and hospitality sector and in the education sector (including both public and private education) had bounced back by less. Over April and May, the unemployment rate edged down and stood at 5.8 percent in May. The unemployment rates for African Americans, Asians, and Hispanics also moved down, although the rates for African Americans and Hispanics remained well above the national average. Both the labor force participation rate and the employment-to-population ratio moved up slightly, and both measures had recovered only partially from their lows during the pandemic. Initial claims for regular state unemployment insurance benefits had moved down further since midâApril and were at the lowest level since the beginning of the pandemic, though they remained high relative to their pre-pandemic level. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP, which were available through May, suggested that the pace of private employment gains had stepped up late in that month. The pace of increases in several measures of labor compensation had moved up in recent months. Average hourly earnings for all employees jumped at a sizable monthly rate in April and May, even though the large job gains in the leisure and hospitality sectorâwhere wages tend to be lower than in other sectorsâlikely held down the increases in average hourly earnings in these months. A staff measure of the 12âmonth change in the median wage derived from the ADP data had stepped up significantly in April relative to March. The employment cost index of total hourly compensation in the private sector increased at an annual rate of 4 percent in the three months ending in March, a notably faster pace than over the previous three months. Recent 12-month change measures of inflation, using either PCE prices or the consumer price index (CPI), were boosted significantly by the base effects of the drop in prices from the spring of 2020 rolling out of the calculation. In addition, a surge in demand as the economy reopened further, combined with production bottlenecks and supply constraints, contributed to the large recent monthly price increases. Total PCE price inflation was 3.6 percent over the 12 months ending in April. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 3.1 percent over the 12 months ending in April. In contrast, the trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 1.8 percent in April. In May, the 12-month change in the CPI was 5 percent, while core CPI inflation was 3.8 percent over the same period. In the second quarter, the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had returned to the level that prevailed in 2014, a time when inflation was modest. Real PCE increased substantially in March and then was little changed from that high level in April. The components of the nominal retail sales data that are used to estimate PCE edged down in May, but the sales data for the previous two months were revised up markedly, pointing to stronger real PCE growth than had been initially estimated. Combined with reduced social distancing and more widespread vaccinations, key factors that influence consumer spendingâincluding increasing job gains, the upward trend in real disposable income, high levels of household net worth, and low interest ratesâpointed to strong real PCE growth over the rest of the year. Housing demand continued to be robust, with construction of single-family homes and home sales remaining well above their pre-pandemic levels and house prices rising appreciably further. The incoming data for this sector indicated that residential investment spending was being temporarily held back in the second quarter by materials shortages and limited stocks of homes for sale. Available indicators suggested that equipment and intangibles investmentâparticularly in high-tech categoriesâwas increasing solidly in the second quarter. Rising orders for nondefense capital goods excluding aircraft were running well above the increases in shipments of those goods through April, which pointed to additional gains in business equipment spending in coming months. Moreover, business investment in the drilling and mining sector appeared to be increasing further, as crude oil and natural gas rigs in operationâan indicator of drilling investmentâcontinued to rise through early June, with oil prices moving higher. However, nominal nonresidential construction spending declined further in April, and investment in nonresidential structures outside of the drilling and mining sector looked to remain weak in the current quarter, likely reflecting continued hesitation by businesses to commit to building projects with lengthy times to completion and uncertain future returns. Manufacturing output expanded solidly, on balance, over April and May. Output in the motor vehicle and parts sector rose, on net, although semiconductor shortages were still weighing on vehicle production. Factory output outside of the motor vehicle sector increased solidly, and production in the mining sector, which includes crude oil and natural gas extraction, also increased over April and May. Total real government purchases looked to be about flat, on balance, in the second quarter. Data through May indicated that real federal defense spending was rising only slightly, and nondefense spending was expected to drop following a first-quarter surge in pandemic-related expenditures. State and local government purchases looked to be increasing significantly, as the payrolls of these governments expanded solidly over April and May. Nominal state and local construction spending, however, edged down in April. With the strong economic recovery leading to an improved outlook for state and local tax revenues, and the additional federal support for these governments included in the American Rescue Plan, state and local purchases appeared likely to increase notably over the rest of the year. The nominal U.S. international trade deficit widened to a record size in March and then reversed that widening in April. Real goods exports in March surpassed their January 2020 levels for the first time and then continued to grow in April, with particular strength in exports of capital goods. Real goods imports surged to record-high levels in March and then stepped back modestly in April. Bottlenecks in the global semiconductor industry, which had weighed on exports and imports of automotive products this year, continued to do so through April. Exports and imports of services remained depressed relative to pre-pandemic levels, as international travel increased only slightly from February. Recent data pointed to a pickup in foreign economic activity in the second quarter. Demand improved as social-distancing restrictions were lifted in the United Kingdom and the euro area following the rollout of vaccines. With the economic reopening under way, purchasing managers indexes (PMIs) in both the manufacturing and services sectors were strong in Europe in April and May. In the emerging market economies (EMEs), manufacturing PMIs and exports were generally robust. However, many EMEs continued to struggle to contain the virus amid a slow pace of vaccinations, particularly in South America and parts of Asia. Consumer price inflation continued to rise in many foreign economies, primarily driven by rebounding energy prices and the fading effects of steep price declines seen early last year. Price increases were concentrated in relatively few items, suggesting that underlying inflationary pressures remained subdued amid considerable economic slack. Staff Review of the Financial Situation Overall financial conditions eased during the intermeeting period as market participants appeared to remain confident that the economic recovery was broadly on track, that inflation over the medium term would stay contained, and that monetary policy would remain accommodative. Domestic equity prices edged up, and corporate bond spreads narrowed a little. Yields on nominal Treasury securities declined modestly since the previous FOMC meeting. Measures of inflation compensation at shorter horizons moved down somewhat, on net, while measures of longer-term inflation compensation were little changed. A straight read of overnight index swap (OIS) quotes suggested that the expected path for the federal funds rate moved lower over the intermeeting period and that the expected policy rate would remain below 25 basis points until the first quarter of 2023. Short-term funding markets functioned smoothly amid record participation in the ON RRP facility. Financing conditions for businesses and households remained accommodative, particularly for large firms and households with high credit ratings. The Treasury yield curve flattened a bit, on net, with 2-year yields about unchanged while 5-, 10-, and 30-year yields declined somewhat. Inflation compensation declined a bit at shorter horizons but held steady at longer horizons. Market expectations for the federal funds rate path over the medium term, as implied by OIS quotes unadjusted for term premiums, declined moderately. Broad stock price indexes increased slightly over the intermeeting period, with stocks in cyclically sensitive sectors generally outperforming. One-month option-implied volatility on the S&P 500âthe VIXâreached its lowest level since February 2020 and remained a bit below the middle of its historical distribution. Spreads of yields on corporate bonds over those on comparable-maturity Treasury securities narrowed a little for all credit ratings. Meanwhile, yields on municipal bonds reached historical lows, with spreads roughly unchanged for high-credit-rated bonds and moderately narrower for lower-credit-rated bonds. Short-term funding markets continued to function smoothly over the intermeeting period. Shortâterm and overnight rates remained near historical lows, with overnight rates dipping slightly. The EFFR was nearly constant throughout the period at 6 basis points, while the SOFR remained at 1 basis point. With rates low and net Treasury bill supply contracting, government money market funds, which at the same time were attracting notable inflows, had limited investment options at nonnegative rates. As a result, ON RRP take-up by these funds surged, pushing total ON RRP participation to record levels in late May and June. International financial market participants were focused on news about inflation and monetary policy communications. In Europe, stronger-than-expected readings for both inflation and economic activity, as well as increased optimism about vaccinations, contributed to a rise in market-based measures of inflation expectations. On net, European longer-term government bond yields were little changed even as U.S. yields declined, and the broad dollar index decreased modestly. In emerging markets, credit spreads narrowed a bit, and capital flows into EME funds continued at a moderate pace. Equity indexes increased somewhat in both emerging and advanced foreign economies. Financing conditions for nonfinancial firms through capital markets remained highly accommodative, as reflected in historically low corporate bond and leveraged loan yields as well as high price-to-earnings ratios in the equity markets. Gross issuance of corporate bonds and leveraged loans was solid. Equity raised through traditional initial public offerings was robust in April but softened to more moderate levels in May and through mid-June, while the pace of seasoned equity offerings was modest over the intermeeting period. Meanwhile, equity issuance through special purpose acquisition companies slowed markedly. Commercial and industrial (C&I) loans outstanding at banks fell through mid-May, with forgiveness of Paycheck Protection Program (PPP) loans continuing to drive balances down and more than offsetting volumes of new loan originations. Tepid demand for loans appears to have been a factor in the decline in loans outstanding. For instance, despite healthy growth in C&I commitments at large banks over the first quarter, there was no corresponding change in the utilization rates of credit lines. The credit quality of large nonfinancial corporations remained largely stable over the intermeeting period. The volume of credit rating upgrades for nonfinancial bonds and leveraged loans outpaced downgrades somewhat in the April-to-early-June period. There were no reported corporate defaults in April, and defaults were low in May. Delinquency rates on bank C&I loans also remained low in the first quarter. Market indicators of future default expectations were little changed and remained low relative to their historical range. In the municipal bond market, financing conditions remained accommodative over the intermeeting period. Issuance of municipal bonds was solid in recent months, and indicators of the credit quality of municipal debt showed some signs of improvement, with the volume of bond upgrades outpacing the volume of bond downgrades. Financing conditions for small businesses were little changed, with supply of small business loans remaining tight and demand still subdued outside of the PPP. While small business loan originations rose in April, surpassing pre-pandemic levels, loans made under the PPP likely accounted for a significant portion of that growth. Loan performance and other indicators of the financial health of small businesses improved in recent months. However, in certain sectors, such as accommodation and food services, small businesses remained stressed. For commercial real estate (CRE) financed through capital markets, financing conditions remained mostly accommodative over the intermeeting period. Issuance of commercial mortgage-backed securities (CMBS) was solid in recent months except in the retail and hotel sectors. Spreads of agency CMBS narrowed to below pre-pandemic levels. Meanwhile, spreads on non-agency triple-A CMBS were little changed at accommodative levels, while non-agency triple-B spreads remained elevated. CRE loan growth at banks continued to be weak through mid-May, likely reflecting weak demand as well as tight underwriting standards. In the residential mortgage market, financing conditions were little changed over the intermeeting period and remained accommodative for stronger borrowers who met standard conforming loan criteria. Credit continued to appear tight for borrowers with lower credit scores. Mortgage rates for most borrowers were little changed, on net, and remained near historical lows. Home-purchase and refinance mortgage activity continued at a strong pace through early June. The share of mortgages in forbearance declined in May. Financing conditions for consumer credit remained generally accommodative. Consumer loans grew at a robust pace in April, driven by rapid growth in auto loan balances. Credit card balances on banks' books rose in May, reversing an April decline. For subprime borrowers, conditions in the credit card market appeared to have eased somewhat further from the tight conditions seen after the onset of the pandemic. Conditions in the asset-backed securities market continued to be supportive of lending during the intermeeting period. Staff Economic Outlook The U.S. economic projection prepared by the staff for the June FOMC meeting was stronger than the April forecast. Real GDP growth was projected to increase substantially this year, with a correspondingly rapid decline in the unemployment rate. Further reductions in social distancing and favorable financial conditions were expected to support output growth, even though the effects of fiscal stimulus on economic growth were starting to unwind. With the boost to growth from continued reductions in social distancing assumed to fade after 2021 and the further unwinding of fiscal stimulus, GDP growth was expected to step down in 2022 and 2023. Nevertheless, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over most of this period, leading to a decline in the unemployment rate to historically low levels. The staff's near-term outlook for inflation was revised up markedly, but the staff continued to expect the rise in inflation this year to be transitory. The 12âmonth change in total and core PCE prices had moved well above 2 percent in April, and incoming CPI data suggested that PCE price inflation would remain high in May. The recent 12-month measures of inflation were being boosted significantly by the base effects of the drop in prices from the spring of 2020 rolling out of the calculation. In addition, the surge in demand as the economy reopened further, combined with production bottlenecks and supply constraints, contributed to the large recent monthly price increases. The staff expected the 12-month change in PCE prices to gradually move down in coming months, reflecting, importantly, the fading of base effects along with smaller expected monthly price increases, but PCE price inflation was forecast to still be well above 2 percent at the end of this year. Over the next year, the transitory price increases caused by bottlenecks and supply constraints were expected to largely reverse, and the growth in demand was forecast to ease. As a result, inflation was projected to slow to slightly below 2 percent in 2022 before moving back up to a bit above 2 percent in 2023, supported by high levels of resource utilization. The staff continued to see the uncertainty surrounding the economic outlook as elevated, although increasingly widespread vaccinations, along with ongoing policy support, were viewed as helping to diminish some of these uncertainties. Nevertheless, the staff judged that the risks around their strong baseline projection for economic activity were still tilted somewhat to the downside, as adverse alternative courses of the pandemicâincluding the possibility of the spread of more-contagious, more-vaccine-resistant COVID-19 variantsâseemed more likely than outcomes that would be more favorable than in the baseline forecast. The staff continued to view the risks around the inflation projection as roughly balanced. On the upside, bottlenecks, supply disruptions, and historically high rates of resource utilization were seen as potential sources of greater-than-expected inflationary pressures, particularly if there were a significant rise in inflation expectations that altered inflation dynamics. On the downside, if the effects of supply constraints proved to be transitory, as expected, then the inflation record from the past 25 years suggested the possibility that low underlying trend inflation and a flat Phillips curve could cause inflation to revert to relatively low levels despite a strengthening economy. Participants' Views on Current Economic Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2021 through 2023 and over the longer run, based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current conditions, participants noted that progress on vaccinations had reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment had strengthened. The sectors most adversely affected by the pandemic remained weak but had shown improvement. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants generally noted that the path of the economy would depend significantly on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Participants observed that economic activity was expanding at a historically rapid pace, led by robust gains in consumer spending. A vast majority of participants revised up their projections for real GDP growth this year compared with the projections they had submitted in March, citing stronger consumer demand and improvements in vaccination rates as the primary reasons for these upgrades. That said, participants generally saw supply disruptions and labor shortages as constraining the expansion of economic activity this year. Participants' projections of real GDP growth in 2022 and 2023 were generally little changed. In their discussion of the household sector, participants remarked that indicators of consumer spending had continued to surge and expected that further gains in spending would contribute significantly to the economic recovery. Many participants commented that accommodative financial conditions, the release of pent-up demand, progress on widespread vaccination, the ongoing reduction of social-distancing measures, and fiscal stimulus were important factors supporting spending. Some participants also noted that consumer spending would likely continue to be bolstered by the ongoing effects from these factors as well as by households' elevated level of accumulated savings and generally healthy balance sheets. A majority of participants observed that housing market activity remained strong. With respect to the business sector, most participants noted that activity in the service industries most adversely affected by the pandemic, such as in the leisure and hospitality sector, was rebounding as the economy reopened. A number of participants noted that business equipment investment was rising at a strong pace, but growth in manufacturing activity was being restrained by production bottlenecks and supply constraints. In addition, participants reported hearing from contacts in a broad range of industries that shortages of materials and labor as well as supply chain challenges were limiting the ability of firms to keep up with demand. Some business contacts indicated that they were responding to input shortages and bottlenecks by canceling shifts, raising compensation to attract and retain workers, raising prices, or focusing on cutting costs and increasing productivity, particularly through automation. Participants commented on the continued improvement in labor market conditions in recent months. Job gains in April and May averaged more than 400,000, and the unemployment rate edged down, on net, to 5.8 percent over the period. Many participants pointed to the elevated number of job openings and high rates of job switching as further evidence of the improvement in labor market conditions. Many participants remarked, however, that the economy was still far from achieving the Committee's broad-based and inclusive maximum-employment goal, and some participants indicated that recent job gains, while strong, were weaker than they had expected. A number of participants noted that the labor market recovery continued to be uneven across demographic and income groups and across sectors. Participants noted that their District contacts had reported having trouble hiring workers to meet demand, likely reflecting factors such as early retirements, concerns about the virus, childcare responsibilities, and expanded unemployment insurance benefits. Some participants remarked that these factors were making people either less able or less inclined to work in the current environment. Citing recent wage data and reports from business contacts, many participants judged that labor shortages were putting upward pressure on wages or leading employers to provide additional financial incentives to attract and retain workers, particularly in lower-wage occupations. Participants expected labor market conditions to continue to improve, with labor shortages expected to ease throughout the summer and into the fall as progress on vaccinations continues, social distancing unwinds further, more schools reopen, and expanded unemployment insurance benefits expire. In their discussions on inflation, participants stated that they had expected inflation to move above 2 percent in the near term, in part as the drop in prices from early in the pandemic fell out of the calculation and past increases in oil prices passed through to consumer energy prices. However, participants remarked that the actual rise in inflation was larger than anticipated, with the 12-month change in the PCE price index reaching 3.6 percent in April. Participants attributed the upside surprise to more widespread supply constraints in product and labor markets than they had anticipated and to a larger-than-expected surge in consumer demand as the economy reopened. They noted that many of their District contacts had reported that higher input costs were putting upward pressure on prices. Most participants observed that the largest contributors to the rise in measured inflation were sectors affected by supply bottlenecks or sectors where price levels were rebounding from levels depressed by the pandemic. Looking ahead, participants generally expected inflation to ease as the effect of these transitory factors dissipated, but several participants remarked that they anticipated that supply chain limitations and input shortages would put upward pressure on prices into next year. Several participants noted that, during the early months of the reopening, uncertainty remained too high to accurately assess how long inflation pressures will be sustained. Some participants commented that recent readings of inflation measures that exclude volatile components, such as trimmed mean measures, had been relatively stable at or just below 2 percent. In their comments on longer-term inflation expectations, a number of participants noted that, despite increases earlier this year, measures of longer-term inflation expectations had remained in ranges that were broadly consistent with the Committee's longer-run inflation goal. Others noted that it was this year's increases that had brought these measures to levels that were broadly consistent with the Committee's longer-run inflation goal. Participants noted that overall financial conditions remained highly accommodative, in part reflecting the stance of monetary policy, which continued to deliver appropriate support to the economy. Several participants highlighted, however, that low interest rates were contributing to elevated house prices and that valuation pressures in housing markets might pose financial stability risks. In discussing the uncertainty and risks associated with the economic outlook, participants commented that the process of reopening the economy was unprecedented and likely to be uneven across sectors. Some participants judged that supply chain disruptions and labor shortages complicated the task of assessing progress toward the Committee's goals and that the speed at which these factors would dissipate was uncertain. Accordingly, participants judged that uncertainty around their economic projections was elevated. Although they generally saw the risks to the outlook for economic activity as broadly balanced, a substantial majority of participants judged that the risks to their inflation projections were tilted to the upside because of concerns that supply disruptions and labor shortages might linger for longer and might have larger or more persistent effects on prices and wages than they currently assumed. Several participants expressed concern that longer-term inflation expectations might rise to inappropriate levels if elevated inflation readings persisted. Several other participants cautioned that downside risks to inflation remained because temporary price pressures might unwind faster than currently anticipated and because the forces that held down inflation and inflation expectations during the previous economic expansion had not gone away or might reinforce the effect of the unwinding of temporary price pressures. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants generally agreed that the economic recovery was incomplete and that risks to the economic outlook remained. Although inflation had risen more than anticipated, the increase was seen as largely reflecting temporary factors, and participants expected inflation to decline toward the Committee's 2 percent longer-run objective. Participants judged that the current stance of monetary policy and policy guidance remained appropriate to promote maximum employment as well as to achieve inflation that averages 2 percent over time and longer-term inflation expectations that are well anchored at 2 percent. Participants also reiterated that the existing outcome-based guidance implied that the paths of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee's maximum-employment and inflation goals. In light of the incoming data and the implications for their economic outlooks, a few participants mentioned that they expected the economic conditions set out in the Committee's forward guidance for the federal funds rate to be met somewhat earlier than they had projected in March. Several participants emphasized, however, that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation. In their view, this heightened uncertainty regarding the evolution of the economy also implied significant uncertainty about the appropriate path of the federal funds rate. Some participants noted that communications about the appropriate path of policy would be a focus of market participants in the current environment and commented that it would be important to emphasize that the Committee's reaction function or commitment to its monetary policy framework had not changed. Participants discussed the Federal Reserve's asset purchases and progress toward the Committee's goals since last December when the Committee adopted its guidance for asset purchases. The Committee's standard of "substantial further progress" was generally seen as not having yet been met, though participants expected progress to continue. Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data. Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation. As a result, several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases. Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than-anticipated progress toward the Committee's goals or the emergence of risks that could impede the attainment of the Committee's goals. Various participants offered their views on the Committee's agency MBS purchases. Several participants saw benefits to reducing the pace of these purchases more quickly or earlier than Treasury purchases in light of valuation pressures in housing markets. Several other participants, however, commented that reducing the pace of Treasury and MBS purchases commensurately was preferable because this approach would be well aligned with the Committee's previous communications or because purchases of Treasury securities and MBS both provide accommodation through their influence on broader financial conditions. In coming meetings, participants agreed to continue assessing the economy's progress toward the Committee's goals and to begin to discuss their plans for adjusting the path and composition of asset purchases. In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases. With regard to the implementation of monetary policy, participants had observed downward pressure on money market rates over the intermeeting period and viewed the possibility of further downward pressure on these rates in the near term as likely. Consequently, they noted that an adjustment to the Federal Reserve's administered rates would help keep the federal funds rate well within the target range and support smooth market functioning of short-term funding markets. Participants agreed that this technical adjustment had no bearing on the appropriate path for the federal funds rate or the stance of monetary policy. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that progress on vaccinations had reduced the spread of COVID-19 in the United States. They noted that amid progress and strong policy support, indicators of economic activity and employment had strengthened. Although the sectors most adversely affected by the pandemic remained weak, they had shown improvement. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also agreed that the path of the economy would depend significantly on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation having run persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency MBS by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members judged that the economic outlook had continued to improve and that the most negative effects of the pandemic on the economy most likely had occurred. As a result, they agreed to remove references in the FOMC statement that noted that the virus was "causing tremendous human and economic hardship" and that "the ongoing public health crisis continues to weigh on the economy." Instead, they agreed to say that progress on vaccinations had reduced the spread of COVID-19 and would likely continue to reduce the negative economic effects of the public health crisis. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective June 17, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct repurchase agreement operations to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $80 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerâterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgageâbacked securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors voted unanimously to raise the interest rates on required and excess reserve balances to 0.15 percent. Setting the interest rate paid on required and excess reserve balances 15 basis points above the bottom of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the Federal Open Market Committee's target range and to support the smooth functioning of short-term funding markets. The Board of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective June 17, 2021. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 27â28, 2021. The meeting adjourned at 10:40 a.m. on June 16, 2021. Notation Vote By notation vote completed on May 18, 2021, the Committee unanimously approved the minutes of the Committee meeting held on April 27â28, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended through the discussion of economic developments and the outlook. Return to text

Minutes of the Federal Open Market Committee July 27-28, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held by videoconference on Tuesday, July 27, 2021, at 9:00 a.m. and continued on Wednesday, July 28, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Beverly Hirtle, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Jon Faust 3 and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board William F. Bassett, Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board; David E. Lebow, Michael G. Palumbo, and John J. Stevens, Senior Associate Directors, Division of Research and Statistics, Board; Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Brett Berger, 2 Senior Adviser, Division of International Finance, Board; Ellen E. Meade and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Paul R. Wood, Associate Director, Division of International Finance, Board Stephanie E. Curcuru 2 and Andrea Raffo, Deputy Associate Directors, Division of International Finance, Board; Laura Lipscomb 2 and Zeynep Senyuz, Deputy Associate Directors, Division of Monetary Affairs, Board; Norman J. Morin and Karen M. Pence, Deputy Associate Directors, Division of Research and Statistics, Board; Jeffrey D. Walker, 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board Brian J. Bonis and Etienne Gagnon, 2 Assistant Directors, Division of Monetary Affairs, Board Alyssa G. Anderson 2 and Andrew Meldrum, 2 Section Chiefs, Division of Monetary Affairs, Board; Penelope A. Beattie, 4 Section Chief, Office of the Secretary, Board Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Erin E. Ferris 2 and Andrei Zlate, Principal Economists, Division of Monetary Affairs, Board Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board Isabel Cairó, Senior Economist, Division of Monetary Affairs, Board James M. Trevino, 2 Senior Economic Modeler, Division of Monetary Affairs, Board Isaiah C. Ahn, Senior Staff Assistant, Division of Monetary Affairs, Board Kathleen O. Paese, First Vice President, Federal Reserve Bank of St. Louis Michael Dotsey, Joseph W. Gruber, and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, Kansas City, and Cleveland, respectively Anne Baum, Spencer Krane, David C. Wheelock, Mark L.J. Wright, and Nathaniel Wuerffel, 2 Senior Vice Presidents, Federal Reserve Banks of New York, Chicago, St. Louis, Minneapolis, and New York, respectively Dina Marchioni, 2 Thomas Mertens, Jon Willis, and Mark A. Wynne, Vice Presidents, Federal Reserve Banks of New York, San Francisco, Atlanta, and Dallas, respectively Jeffrey Moore 2 and Brett Rose, 2 Assistant Vice Presidents, Federal Reserve Bank of New York Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Ellen Correia-Golay 2 and Brian Greene, 2 Markets Officers, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of developments in financial markets. Although there were notable moves in some asset prices over the intermeeting period, overall financial conditions ended the period little changed at historically accommodative levels. Market participants seemed to interpret communications associated with the June FOMC meeting as signaling a less accommodative path of monetary policy than had been anticipated. Implied rates on interest rate futures initially rose following the meeting but subsequently retraced, and expectations regarding the path of the target federal funds rate over the next few years ended the period only modestly changed. Longer-term yields fell notably over the period, with the declines concentrated in far-forward rates. A significant portion of these movements seemed to reflect changes in term premiums. Market participants pointed to a number of factors as driving the movement in longer-term yields, most prominently including Federal Reserve policy communications, investor positioning, and changes in expectations regarding the course of the pandemic. With respect to the path of net asset purchases, respondents to the Open Market Desk's surveys of primary dealers and market participants expected communications on asset purchases to evolve gradually, with signals anticipated over coming months regarding both the Committee's assessment of conditions constituting "substantial further progress" and details on tapering plans. Almost 60 percent of respondents anticipated the first reduction in the pace of net asset purchases to come in January, though, on average, respondents placed somewhat more weight than in the June surveys on the possibility of tapering beginning somewhat earlier. With respect to the pace of tapering, respondents continued to anticipate that the Committee would take a gradual approach. While market participants discussed the possibility of an earlier or faster-than-proportional reduction in the pace of net purchases of agency mortgage-backed securities (MBS), most survey respondents appeared to expect the timing and pace of tapering of net purchases of agency MBS and Treasury securities to be similar. The manager turned next to a discussion of developments in operations and money markets over the period. Following the June meeting, overnight rates rose in line with the technical adjustment in administered rates and were relatively stable for the remainder of the period. Overnight reverse repurchase agreement (ON RRP) take-up jumped by over $200 billion after the technical adjustment took effect, as government-sponsored enterprises moved balances held in unremunerated Federal Reserve deposit accounts into the higher-yielding ON RRP investments. Government money market funds also increased their participation in the facility amid a continued decline in Treasury bills outstanding and downward pressure on overnight rates. Overall, market participants reported that the technical adjustment went smoothly and that, with overnight rates having moved further away from zero, concerns about the functioning of short-term funding markets had diminished. Looking ahead, market participants were beginning to focus on the potential effects of changes in the Treasury General Account at the Federal Reserve and Treasury bill issuance over coming months in connection with the debt ceiling. The manager noted that, if a number of counterparties reached the per-counterparty limit on their ON RRP investments and downward pressure on overnight rates emerged, it may become appropriate to lift the limit. Establishment of Standing Repurchase Agreement Facilities Finally, the manager summarized the proposed terms for the standing repurchase agreement (repo) facility (SRF) and the Foreign and International Monetary Authorities (FIMA) Repo Facility. In questions and comments following the manager's briefing, participants expressed broad support for the establishment of the SRF and FIMA Repo Facility. The vast majority of participants supported the proposed terms, al­though a few participants raised questions, including whether the proposed aggregate cap of $500 billion was necessary, whether the collateral eligible in SRF operations should be limited to Treasury securities only, and how the setting of the minimum bid rate in SRF operations would be expected to evolve over time relative to the primary credit rate and the interest on reserve balances rate. In general, participants viewed the SRF and FIMA Repo Facility as important new tools, serving in backstop roles, that would support effective policy implementation and smooth market functioning. Participants anticipated that the Committee would learn more about how these facilities operate over time and noted that it could adjust some parameters of the facilities on the basis of that experience. The Committee voted unanimously to approve the establishment of the SRF. All but one member of the Committee voted to approve the FIMA Repo Facility. Governor Bowman abstained from voting on the FIMA Repo Facility and noted that she would have preferred that the liquidity arrangements accessible to foreign official institutions be maintained only during periods of extraordinary financial market stress rather than through a standing facility. Standing Repurchase Agreement Facility Resolution The Federal Open Market Committee (the "Committee") authorizes and directs the Open Market Desk at the Federal Reserve Bank of New York (the "Selected Bank"), for the System Open Market Account ("SOMA"), to conduct operations in which it offers to purchase securities, subject to an agreement to resell ("repurchase agreement transactions"). The repurchase agreement transactions hereby authorized and directed shall (i) include only U.S. Treasury securities, agency debt securities, and agency mortgage-backed securities; (ii) be conducted as open market operations with primary dealers and depository institutions as participants; (iii) be conducted with a minimum bid rate of 0.25 percent; (iv) be offered on an overnight basis (except that the Open Market Desk at the Selected Bank may extend the term for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions); and (v) be subject to an aggregate operation limit of $500 billion. The aggregate operation limit can be temporarily increased at the discretion of the Chair. These operations shall be conducted by the Open Market Desk at the Selected Bank until otherwise directed by the Committee. Standing FIMA Repurchase Agreement Resolution The Federal Open Market Committee (the "Committee") authorizes and directs the Open Market Desk at the Federal Reserve Bank of New York (the "Selected Bank"), for the System Open Market Account ("SOMA"), to offer to purchase U.S. Treasury securities subject to an agreement to resell ("repurchase agreement transactions") with foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts"). The repurchase agreement transactions hereby authorized and directed shall (i) include only U.S. Treasury securities; (ii) be conducted with Foreign Accounts approved in advance by the Foreign Currency Subcommittee (the "Subcommittee"); (iii) be conducted at an offering rate of 0.25 percent; (iv) be offered on an overnight basis (except that the Open Market Desk at the Selected Bank may extend the term for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions); and (v) be subject to a per-counterparty limit of $60 billion per day. The Subcommittee may approve changes in the offering rate, the maturity of the transactions, eligible Foreign Accounts counterparties (either by approving or removing account access), and the counterparty limit; and the Subcommittee shall keep the Committee informed of any such changes. These transactions shall be undertaken by the Open Market Desk at the Selected Bank until otherwise directed by the Committee. The Open Market Desk at the Selected Bank will also report at least annually to the Committee on facility usage and the list of approved account holders. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Discussion of Asset Purchases Participants discussed aspects of the Federal Reserve's asset purchases, including progress made toward the Committee's maximum-employment and price-stability goals since the adoption of the asset purchase guidance in December 2020. They also considered the question of how asset purchases might be adjusted once economic conditions met the standards of that guidance. Participants agreed that their discussion at this meeting would be helpful background for the Committee's future decisions about modifying asset purchases. No decisions regarding future adjustments to asset purchases were made at this meeting. The participants' discussion was preceded by staff presentations that reviewed the principal channels through which asset purchases exert effects on financial conditions and the economy, with a focus on the implications of these channels for the Committee's deliberations regarding future adjustments to the Federal Reserve's asset purchases. The presentations noted that, in the staff's standard empirical modeling framework, the effect of asset purchases on financial and economic conditions occurred primarily via their influence on the expected path of private-sector holdings of longer-term assets. In that framework, larger Federal Reserve holdings of these assets reduced private-sector holdings, exerting downward pressure on term premiums and, consequently, keeping longer-term interest rates and overall financial conditions more accommodative than they otherwise would be. The staff noted that, because plausible alternative approaches to the tapering of asset purchases would likely not lead to significant differences in the expected path of the Federal Reserve's balance sheet, these approaches would have similar financial and economic effects in the staff's standard framework. The presentations highlighted, however, that alternative tapering approaches could have significant financial and economic effects not fully captured in the staff's standard empirical framework. In particular, changes in asset purchases could be interpreted by the public as signaling a shift in the Committee's view of the economic outlook or in its overall policy strategy, with implications for the expected path of the federal funds rate. Changes in the flow of asset purchases could also influence yields, but this influence would likely be modest outside of periods of stressed financial market conditions. In their discussion of considerations related to asset purchases, various participants noted that these purchases were an important part of the monetary policy toolkit and a critical aspect of the Federal Reserve's response to the economic effects of the pandemic, supporting smooth financial market functioning and accommodative financial conditions, which aided the flow of credit to households and businesses and supported the recovery. Participants discussed a broad range of labor market and inflation indicators. All participants assessed that the economy had made progress toward the Committee's maximum-employment and price-stability goals since the adoption of the guidance on asset purchases in December. Most participants judged that the Committee's standard of "substantial further progress" toward the maximum-employment goal had not yet been met. At the same time, most participants remarked that this standard had been achieved with respect to the price-stability goal. A few participants noted, however, that the transitory nature of this year's rise in inflation, as well as the recent declines in longer-term yields and in market-based measures of inflation compensation, cast doubt on the degree of progress that had been made toward the price-stability goal since December. Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee's "substantial further progress" criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal. Various participants commented that economic and financial conditions would likely warrant a reduction in coming months. Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labor market as not being close to meeting the Committee's "substantial further progress" standard or because of uncertainty about the degree of progress toward the price-stability goal. Participants agreed that the Committee would provide advance notice before making changes to its balance sheet policy. Participants expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the criterion laid out in the Committee's guidance. Many participants saw potential benefits in a pace of tapering that would end net asset purchases before the conditions currently specified in the Committee's forward guidance on the federal funds rate were likely to be met. At the same time, participants indicated that the standards for raising the target range for the federal funds rate were distinct from those associated with tapering asset purchases and remarked that the timing of those actions would depend on the course of the economy. Several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement. Participants exchanged views on what the composition of asset purchases should be during the tapering process. Most participants remarked that they saw benefits in reducing the pace of net purchases of Treasury securities and agency MBS proportionally in order to end both sets of purchases at the same time. These participants observed that such an approach would be consistent with the Committee's understanding that purchases of Treasury securities and agency MBS had similar effects on broader financial conditions and played similar roles in the transmission of monetary policy, or that these purchases were not intended as credit allocation. Some of these participants remarked, however, that they welcomed further discussion of the appropriate composition of asset purchases during the tapering process. Several participants commented on the benefits that they saw in reducing agency MBS purchases more quickly than Treasury securities purchases, noting that the housing sector was exceptionally strong and did not need either actual or perceived support from the Federal Reserve in the form of agency MBS purchases or that such purchases could be interpreted as a type of credit allocation. Participants commented on other factors that were relevant for their consideration of future adjustments to the pace of asset purchases. Many participants noted that, when a reduction in the pace of asset purchases became appropriate, it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate. A few participants suggested that the Committee would need to be mindful of the risk that a tapering announcement that was perceived to be premature could bring into question the Committee's commitment to its new monetary policy framework. With respect to the effects of the pandemic, several participants indicated that they would adjust their views on the appropriate path of asset purchases if the economic effects of new strains of the virus turned out to be notably worse than currently anticipated and significantly hindered progress toward the Committee's goals. Staff Review of the Economic Situation The information available at the time of the July 27â28 meeting suggested that U.S. real gross domestic product (GDP) had increased in the second quarter at a faster pace than in the first quarter of the year. Indicators of labor market conditions were mixed in June, though labor demand remained strong. Consumer price inflation through Mayâas measured by the 12-month percentage change in the personal consumption expenditures (PCE) price indexâhad picked up notably, largely reflecting transitory factors. Total nonfarm payroll employment rose sharply in June, with job gains widespread across industries and especially strong job growth in the leisure and hospitality sector. As of June, total payroll employment had retraced more than two-thirds of the losses seen at the onset of the pandemic. The unemployment rate edged higher and stood at 5.9 percent in June, and the unemployment rates for African Americans and Hispanics remained well above the national average. The labor force participation rate and employment-to-population ratio were unchanged in June. May private-sector job openings, as measured by the Job Openings and Labor Turnover Survey, remained at the highest recorded level since the survey's inception in 2000. Initial claims for regular state unemployment insurance were little changed, on net, since mid-June. Weekly estimates of private-sector payrolls constructed by Federal Reserve Board staff using data provided by the payroll processor ADP that were available through the first part of July suggested that the pace of private employment gains had remained strong. Average hourly earnings for all employees rose further in June. Recent monthly increases in average hourly earnings appeared to reflect a combination of strong labor demand and increased difficulties in hiring that had more than offset the downward pressure on average earnings from disproportionately large employment gains in lower-wage industries. Information from compensation measures that were judged to be less affected by shifts in the composition of the workforce was mixed: A staff measure of the 12-month change in the median wage derived from the ADP data had stepped up noticeably in June relative to earlier in the year; by contrast, the Wage Growth Tracker measure constructed by the Federal Reserve Bank of Atlanta had not shown a similar pickup. Recent 12-month change measures of inflation, using either PCE prices or the consumer price index (CPI), had been boosted by base effects as the extremely low inflation readings from the spring of 2020 rolled out of the calculation. In addition, a surge in demand as the economy reopened further, combined with production bottlenecks and supply constraints, had pushed up recent monthly price increases. Total PCE price inflation was 3.9 percent over the 12 months ending in May, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 3.4 percent over the 12 months ending in May. In contrast, the trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 1.9 percent in May. In June, the 12-month change in the CPI was 5.4 percent, while the core CPI rose 4.5 percent over the same period. In the second quarter of 2021, the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had more than reversed the moderate decline recorded in the middle of last year and had returned to the level that prevailed in 2014, when actual inflation was relatively modest. Real PCE appeared to have risen in the second quarter at a pace similar to that seen in the first quarter, supported by previous rounds of federal stimulus payments and reductions in social distancing. Even so, consumer spending appeared to have been held back some as producers struggled to meet demand. Similarly, despite very strong demand for housing, incoming data suggested that residential investment spending had declined in the second quarter as materials shortages and limited stocks of homes for sale temporarily restrained activity in that sector. Available indicators suggested that growth in business fixed investment had slowed sharply in the second quarter, reflecting disruptions to motor vehicle production and aircraft deliveries and a faster rate of decline in nonresidential structures investment. Growth in manufacturing output had picked up modestly in the second quarter. Although production in the chemicals industry had rebounded from the weather-related disruptions earlier in the year, the supply chain issues faced by a number of other industries, particularly the motor vehicle industry, continued to weigh on overall factory output. Total real government purchases appeared to have moved lower in the second quarter after having risen in the first quarter. Available data suggested that federal nondefense purchases had dropped following a first-quarter surge in pandemic-related expenditures and that defense purchases were little changed. However, indicators of real state and local purchases pointed to a modest second-quarter increase in this component of government spending. The nominal U.S. international trade deficit remained high in May. Real goods imports in May retraced only a bit of their April decline, but they were still at the second-highest level on record. Real goods exports edged down in May and remained below pre-COVID-19 levels. Bottlenecks in the global semiconductor industry continued to weigh on exports and imports of automotive products, and shipping congestion likely continued to restrain trade overall. Although international travel recovered further in May, exports and imports of services remained depressed relative to pre-pandemic levels. Incoming data suggested that, after a weak start to the year, foreign economic activity accelerated in the second quarter. The improvements were concentrated in the advanced foreign economies and China, supported by vaccine rollouts, the unwinding of public health restrictions, economic adaptation to the virus, and the reopening of the services sector. The situation was quite different in some emerging market economies (EMEs) whose low vaccination rates left them vulnerable to new waves of infections. Although new COVID-19 cases fell dramatically in India after the surge in May and June, the situation deteriorated markedly in several Southeast Asian countries, whose cases and deaths rose to all-time highs. In addition, the increased prevalence of new virus variants, particularly the Delta variant, underscored the continued uncertainty about the foreign outlook. Inflation rose further in most foreign economies, reflecting a reversal of price declines seen in the spring of 2020, higher energy and commodity prices, and supply bottlenecks. Staff Review of the Financial Situation Over the intermeeting period, fluctuations in financial markets appeared to be driven by less-accommodative-than-expected June FOMC communications, a reduction in investor perceptions of the risk of persistently high inflation, increased concerns about the rapid spread of the Delta variant, and stronger-than-anticipated inflation data. Longer-dated Treasury yields fell, largely reflecting declines in real yields, while longer-horizon forward measures of inflation compensation also declined. Domestic equity prices rose moderately, and corporate bond spreads remained near the low end of their historical ranges. Short-term funding markets were stable, while participation in the ON RRP facility increased further, to its highest level since the facility was put in place. Market-based financing conditions were accommodative, and bank lending standards eased for most loan categories. The Treasury yield curve flattened, on net, with the 2âyear yield about unchanged, the 5-year yield declining a bit, and the 10- and 30-year yields each decreasing about 30 basis points. The decline in longer-term Treasury yields was associated with a drop in real yields implied by Treasury Inflation-Protected Securities (TIPS), with the 10-year real yield down about 25 basis points. Meanwhile, shorter-horizon measures of inflation compensation ended the period modestly higher, but longer-term forward measures fell notably. On net, the market-implied path of the policy rate was little changed for horizons up to late 2023, while it shifted lower beyond those horizons. Broad stock market prices rose moderately over the intermeeting period, supported in part by some strong second-quarter earnings reports that bolstered investor risk sentiment. However, some prices declined for stocks that historically have moved more closely with economic conditionsâsuch as stocks for smaller companies and for firms in cyclical industriesâas did stock prices for firms in sectors such as airlines and hotels that were negatively affected by the pandemic. Bank stock prices also fell. One-month option-implied volatility on the S&P 500âthe VIXâspiked to reach a two-month high. For the intermeeting period as a whole, however, the VIX was little changed, on net, and remained somewhat above its average pre-pandemic levels. Spreads of yields on corporate bonds over those on comparable-maturity Treasury securities were little changed, and spreads of benchmark municipal bond indexes increased moderately, although both remained below their pre-pandemic levels. Short-term funding markets were stable over the intermeeting period. Following the actions at the June FOMC meeting to increase both the interest rate on excess reserves and the ON RRP rate by 5 basis points, the effective federal funds rate rose 4 basis points, reaching 10 basis points, while the Secured Overnight Financing Rate rose 4 basis points, reaching 5 basis points. These funding rates remained at these levels for most of the period. Participation in the Federal Reserve's ON RRP operations continued to increase to its highest level since the facility was put in place, from an average of $340 billion in the previous intermeeting period to an average of around $800 billion over the current intermeeting period, and reached almost $1 trillion on the June quarter-end. The increase in participation was driven in part by larger investments from money market funds, as ongoing reductions in net Treasury bill issuance contributed to downward pressure on yields of other investment options available to these funds. Concerns about the worldwide spread of the Delta variant weighed somewhat on risk sentiment in global financial markets over the intermeeting period. The dollar broadly appreciated, longer-term yields in major advanced foreign economies decreased notably, and most major foreign equity indexes declined moderately. Equity markets in China and Hong Kong underperformed notably amid increased regulatory uncertainty in China. In addition, EME sovereign credit spreads widened slightly, but capital flows into dedicated EME funds remained modestly positive. Several foreign central banks scaled back their asset purchase programs. The Bank of Canada and the Reserve Bank of Australia reduced the pace of their asset purchases, and the Reserve Bank of New Zealand unexpectedly announced that it would halt its asset purchases in July. In emerging markets, the central banks of Brazil and Mexico raised rates in order to reduce inflationary pressures. In contrast, the People's Bank of China cut the broad reserve requirement ratio for banks to support economic growth. The European Central Bank completed its strategy review, adopting a 2 percent symmetric inflation target, and revised forward guidance on its policy rate. Financing conditions faced by nonfinancial firms in capital markets continued to be broadly accommodative over the intermeeting period, as corporate bond spreads remained near the low end of their historical distributions. Gross issuance of corporate bonds slowed from its brisk pace in May but remained solid, and gross issuance of leveraged loans was also robust. Equity raised through traditional initial public offerings rebounded noticeably, while equity raised through seasoned equity offerings continued to be moderate in June. Meanwhile, equity issuance through special purpose acquisition companies remained subdued. Commercial and industrial (C&I) loans outstanding at banks continued to decline in June, with forgiveness of Paycheck Protection Program loans more than offsetting the volumes of new loan originations. In the July Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported easing standards and nearly all terms, on net, for C&I loans over the second quarter. The July SLOOS also indicated that the level of standards on C&I loans returned to the easier end of the range that had prevailed since 2005. Banks surveyed in the July SLOOS reported that demand for C&I loans had improved over the second quarter; however, market commentary suggested that demand was still generally weak. The credit quality of large nonfinancial corporations remained stable over the intermeeting period. The volume of credit rating upgrades for nonfinancial corporate bonds and leveraged loans moderately outpaced downgrades in June. Corporate bond and leveraged loan defaults also remained low. Financing conditions in the municipal bond market remained accommodative over the intermeeting period, with municipal bond yields edging down to record lows. Issuance of municipal bonds was solid in the case of higher-rated bonds, while it was still below pre-pandemic levels for speculative-grade and unrated securities. The credit quality of municipal debt appeared stable, al­though pandemic-related risks to state and local government finances remained. Financing conditions facing small businesses remained relatively tight, and their loan demand was generally weak. Although the July SLOOS banks reported, on net, easier lending standards for C&I loans to small firms over the second quarter, industry commentary suggested that the lending standards of community banks and of other lenders not included in the SLOOS remained relatively tight. Furthermore, the results of a separate survey suggested that the share of firms that did not want to borrow remained near its all-time high. Meanwhile, loan performance for small businesses continued to improve, with delinquency rates continuing to decline in May. For commercial real estate (CRE) financed through capital markets, financing conditions remained accommodative. Spreads of agency and non-agency commercial mortgage-backed securities (CMBS) were generally at or below pre-pandemic levels. Issuance of agency CMBS remained robust and issuance of non-agency CMBS strengthened notably in June. Delinquency rates on mortgages in CMBS pools were little changed but continued to be elevated on hotel and retail mortgages. Meanwhile, bank-based financing conditions for CRE remained relatively tight. CRE loan growth at banks remained weak in the second quarter in comparison with pre-pandemic levels. In the July SLOOS, banks reported that, despite some easing over the second quarter, the levels of CRE lending standards were still tight relative to the midpoint of the range of standards that had prevailed since 2005. Financing conditions in the residential real estate market remained accommodative. This was particularly true for stronger borrowers who met standard conforming loan criteria. In addition, according to the July SLOOS, bank lending standards for jumbo loans eased over the second quarter to near their pre-pandemic levels. However, although broad financing conditions for lower-score Federal Housing Administration borrowers also continued to ease, their credit standards remained tighter than before the pandemic. Mortgage rates ticked down over the intermeeting period, in line with rates on MBS and 10âyear Treasury securities. Furthermore, the spread of mortgage rates to MBS yields was close to pre-pandemic levels after having widened significantly at the start of the pandemic. Mortgage originations for home purchases and refinancing were fairly robust through June. Financing conditions for consumer credit remained accommodative. Consumer credit jumped in May and remained strong in June, reflecting a rebound in credit card balances and continued robust growth in auto loans. Banks in the July SLOOS reported stronger demand and easier standards for both credit cards and auto loans over the second quarter. The staff provided an update on its assessments of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable. The staff judged that asset valuation pressures were elevated. In particular, the forward price-to-earnings ratio for the S&P 500 index stood at the upper end of its historical distribution; high-yield corporate bond spreads tightened further and were near the low end of their historical range; and house prices continued to increase rapidly, leaving valuation measures stretched. That said, the staff did not see signs of loose mortgage underwriting standards or excessive credit growth that could potentially amplify a shock arising from falling house prices. The staff assessed vulnerabilities associated with nonfinancial leverage as lower than in January but still notable. For households, the mortgage debt-to-income ratio was moderate, and mortgage borrowing was concentrated among prime borrowers, though some uncertainty remained regarding the outlook for mortgages in non-payment status. While measures of corporate-sector leverage fell since January, particularly at the most levered firms, the debt of firms that had relatively low earnings-to-interest payment ratios remained high. The staff judged that vulnerabilities arising from financial leverage were moderate. The aggregate common equity tier 1 capital ratio of the largest banks significantly exceeded regulatory requirements. However, some available measures of hedge fund leverage were elevated, and significant data gaps continued to obscure risks at hedge funds and other nonbank financial institutions. Vulnerabilities associated with funding risks were characterized as moderate. Domestic banks held significant quantities of high-quality liquid assets and had only limited reliance on short-term wholesale funding. Nonetheless, significant structural vulnerabilities remained at entities such as prime money funds, and new financial arrangements such as stablecoins appeared to have the same structural maturity and liquidity transformation vulnerabilities but with less transparency and an underdeveloped regulatory framework. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the July FOMC meeting was little changed, on balance, from the June forecast. In the second half of 2021, an easing of the surge in demand seen over the first part of the year was expected to be largely offset by a reduction in the effects of supply constraints on production, thereby allowing real GDP growth to continue at a rapid pace. For the year as a whole, therefore, real GDP was projected to post a substantial increase, with a correspondingly large decline in the unemployment rate. With the boost to spending growth from continued reductions in social distancing assumed to fade after 2021 and with a further unwinding of the effects of fiscal stimulus, GDP growth was expected to step down in 2022 and 2023. However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace growth in potential output over most of this period, leading to a decline in the unemployment rate to historically low levels. The staff's near-term outlook for inflation was revised up further in response to incoming data, but the staff continued to expect that this year's rise in inflation would prove to be transitory. The 12-month change in total and core PCE prices was well above 2 percent in May, and available data suggested that PCE price inflation would remain high in June. The staff continued to judge that the surge in demand that had resulted as the economy reopened further had combined with production bottlenecks and supply constraints to boost recent monthly inflation rates. The staff expected the 12âmonth change in PCE prices to move down gradually over the second part of 2021, reflecting an anticipated moderation in monthly inflation rates and the waning of base effects; even so, PCE price inflation was projected to be running well above 2 percent at the end of the year. Over the following year, the boost to consumer prices caused by supply issues was expected to partly reverse, and import prices were expected to decelerate sharply; as a result, PCE price inflation was expected to step down to a little below 2 percent in 2022 before additional increases in resource utilization raised it to 2 percent in 2023. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the uncertainty around the forecast was elevated. In particular, the probability that the course of the pandemic would turn out to be more adverse than the staff's baseline assumption was viewed to be higher than the probability that a more favorable outcome would occur. However, the staff judged that the risks around the inflation projection were now tilted to the upside, as recent data pointed to a greater risk that the upward pressure on inflation that had resulted from supply-related issues would unwind more slowly than the staff's baseline projection assumed. Participants' Views on Current Economic Conditions and the Economic Outlook In their discussion of current conditions, participants noted that, with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had shown improvement but had not fully recovered. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy would continue to depend on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Participants observed that economic activity continued to expand at a rapid pace through the middle of the year even though capacity constraints were restraining the increase in output in some sectors. Economic growth was expected to remain strong over the second half of the year, supported by the further reopening of the economy, accommodative financial conditions, and easing of supply constraints. Nevertheless, participants generally saw supply disruptions and labor shortages as likely to persist over the second half of the year. In their discussion of the household sector, participants remarked that consumer spending had continued to increase at a very rapid pace, supported by the ongoing reopening of the economy along with the accommodation provided by fiscal policy and monetary policy. In addition, the accumulated stock of savings and further progress on vaccination were cited as important factors lifting household spending. Some participants noted that they expected consumer spending to continue to be bolstered by these factors. Participants generally expected housing demand to remain strong but noted that construction had been restrained by shortages of materials and other inputs and that home sales had been held back by limited supplies of available homes. With respect to the business sector, participants observed that activity in the service industries most adversely affected by the pandemic, such as in the leisure and hospitality sector, was rebounding as the economy reopened further but had not fully recovered. Participants noted that growth in manufacturing activity continued to be solid but was restrained by production bottlenecks and supply constraints, particularly in the motor vehicle sector. Citing reports received from contacts in a broad range of industries, participants indicated that shortages of materials and labor as well as supply chain challenges remained widespread and continued to limit the ability of firms to keep up with strong demand. Even though their outlook for demand had improved further, many business contacts had expressed uncertainty and pessimism over prospects regarding the easing of supply constraints over the near term. Participants commented on the continued improvement in labor market conditions in recent months driven by strong demand for workers. The monthly pace of job gains had picked up, with employment expanding 850,000 in June and with notable increases in the leisure and hospitality sector. Nevertheless, the household survey showed that the unemployment rate remained elevated at 5.9 percent in June, and the labor force participation rate and employment-to-population ratio were little changed in recent months. Participants indicated that the economy had not yet achieved the Committee's broad-based and inclusive maximum-employment goal. Several participants remarked that the labor market recovery continued to be uneven across demographic and income groups and across sectors. Participants generally noted that supply-side factors related to the pandemicâsuch as caregiving needs, ongoing fears of the virus, increased retirements, and expanded unemployment insurance paymentsâcontinued to weigh on labor force participation and employment growth. A majority of participants anticipated that most of these factors would ease in the coming months. They also noted, however, that the spread of the Delta variant may temporarily delay the full reopening of the economy and restrain hiring and labor supply. Participants observed that recent wage increases had been moderate on average. However, District contacts had continued to report having trouble hiring workers and had indicated that this difficulty was putting upward pressure on wages in some sectors or leading employers to provide additional incentives to attract and retain workers. Several participants noted that their District contacts expected that difficulties finding workers would likely extend into the fall. In their discussion of inflation, participants observed that the inflation rate had increased notably and expected that it would likely remain elevated in coming months before moderating. Participants remarked that inflation had increased generally more than expected this year and attributed this increase to supply constraints in product and labor markets and a surge in consumer demand as the economy reopened. They noted that many of their District contacts had reported that higher input costs were also putting upward pressure on prices. Many participants pointed out that the largest contributors to recent increases in measures of inflation were a handful of sectors most affected by temporary supply bottlenecks or sectors in which price levels were rebounding from depressed levels as the economy continued to reopen. Looking ahead, while participants generally expected inflation pressures to ease as the effect of these transitory factors dissipated, several participants remarked that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices into 2022. In their comments on inflation expectations, some participants noted that measures of longer-term inflation expectations had remained in ranges that were viewed as broadly consistent with the Committee's longer-run inflation goal. Several participants indicated that the recent increases in survey-based measures signaled a risk that longer-term inflation expectations might be moving up above levels consistent with the Committee's goals. Other participants pointed to the substantial decline in TIPS-based longer-term inflation compensation since June as suggesting that investors perceived reduced risks that inflation could run persistently above the Committee's 2 percent goal. A couple of participants noted that recent readings on forward inflation compensation could be read as suggesting investor concern that inflation over the longer term could run persistently below the Committee's 2 percent inflation goal. In discussing the uncertainty and risks associated with the economic outlook, many participants remarked that uncertainty was quite high, with slowing in progress on vaccinations and developments surrounding the Delta variant posing downside risks to the economic outlook. A number of participants judged that the effects of supply chain disruptions and labor shortages would likely complicate the task of interpreting the incoming data and assessing the speed at which these supply-side factors would dissipate. Some participants noted that there were upside risks to inflation associated with concerns that supply disruptions and labor shortages might linger for longer than currently anticipated and might have larger or more persistent effects on prices and wages than they currently assumed. Participants who commented on financial stability emphasized the risks associated with elevated valuations across many asset classes. A few participants highlighted scenarios in which a prolonged period of low interest rates and broadly elevated asset valuations could generate imbalances, which could increase financial stability risks. Some participants commented on the housing market and noted that ongoing rapid house price increases reflected both demand and supply factors. Several participants noted that the lack of evidence of deteriorating mortgage underwriting standards could mitigate risks associated with high housing valuations; a couple of other participants, however, expressed concern that a home price reversal could pose risks to financial stability. Some participants cited various potential risks to financial stability including the risks associated with expanded use of cryptocurrencies or the risks associated with collateral liquidity at central counterparties during episodes of market stress. In connection with the former set of risks, a few of these participants highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants judged that the current stance of monetary policy remained appropriate to promote maximum employment as well as to achieve inflation that averages 2 percent over time and longer-term inflation expectations that are well anchored at 2 percent. Participants also reiterated that the existing outcome-based guidance implied that the paths of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee's maximum-employment and inflation goals. Participants discussed the progress toward the Committee's goals since December 2020, when the Committee adopted its guidance for asset purchases. They generally judged that the Committee's standard of "substantial further progress" toward the maximum-employment and inflation goals had not yet been met, particularly with respect to labor market conditions, and that risks to the economic outlook remained. Most participants anticipated that the economy would continue to make progress toward those goals and, provided that the economy evolved broadly as they anticipated, they judged that the standard set out in the Committee's guidance regarding asset purchases could be reached this year. With regard to the labor market, participants noted that the demand for workers had been strong in recent months, while the level of employment had been constrained by labor supply shortages and hiring difficulties. Several participants emphasized that employment remained well below its pre-pandemic level and that a robust labor market, supported by a continuation of accommodative monetary policy, would allow further progress toward the Committee's broad and inclusive maximum-employment goal and a return over time to labor market conditions as strong as those prevailing before the pandemic. A few other participants judged that monetary policy had limited ability to address the labor supply shortages and hiring difficulties currently constraining the level of employment. Several participants also commented that the pandemic might have caused longer-lasting changes in the labor market and that the pre-pandemic labor market conditions may not be the right benchmark against which the Committee should assess the progress toward its maximum-employment objective. With regard to inflation, participants commented that recent inflation readings had been boosted by the effects of supply bottlenecks and labor shortages and were likely to be transitory. A few participants noted that, while the specific results depended on the period used in the calculation, some measures of average inflation were already moving above, or would soon move above, the Committee's 2 percent goal, supported by strong demand, a tight labor market, and firming inflation expectations. Some other participants emphasized that recent high inflation readings had largely been driven by price increases in a handful of categories. These participants pointed out that there was no evidence of broad-based price pressures or of inappropriately high longer-term inflation expectations. Several participants also commented that price increases concentrated in a small number of categories were unlikely to change underlying inflation dynamics sufficiently to overcome the possibility of a persistent downward bias in inflation, as might be associated with the effective lower bound on the policy rate. Many participants remarked upon risk-management considerations when contemplating how and when to make changes to the Committee's pace of asset purchases. Some participants suggested that it would be prudent for the Committee to prepare for starting to reduce its pace of asset purchases relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated and because an earlier start to reducing asset purchases would most likely enable additions to securities holdings to be concluded before the Committee judged it appropriate to raise the federal funds rate. A few participants expressed concerns that maintaining highly accommodative financial conditions might contribute to a further buildup in risk to the financial system that could impede the attainment of the Committee's dual-mandate goals. In contrast, a few other participants suggested that preparations for reducing the pace of asset purchases should encompass the possibility that the reductions might not occur for some time and highlighted the risks that rising COVID-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school and so damp the economic recovery. Several participants also remained concerned about the medium-term outlook for inflation and the possibility of the reemergence of significant downward pressure on inflation, especially in light of the recent decline in longer-term inflation compensation. In addition, several participants emphasized that there was considerable uncertainty about the likely resolution of the labor market shortages and supply bottlenecks and about the influence of pandemic-related developments on longer-run labor market and inflation dynamics. Those participants stressed that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans on asset purchases. Some participants emphasized that a decision to reduce the Committee's pace of asset purchases once the "substantial further progress" benchmark had been achieved would be fully consistent with the Committee's new monetary policy framework and would help foster the achievement of the Committee's longer-run objectives over time. A couple of participants also noted that a tapering of asset purchases did not amount to a tightening of the stance of monetary policy and instead only implied that additional monetary accommodation would be provided at a slower rate. Several participants emphasized that an announcement of a reduction in the Committee's pace of asset purchases should not be interpreted as the beginning of a predetermined course for raising the federal funds rate from its current level. Those participants stressed that the Committee's assessment regarding the appropriate timing of an increase in the target range for the federal funds rate was separate from its current deliberations on asset purchases and would be subject to the higher standard, as laid out in the Committee's outcome-based guidance on the federal funds rate. Nonetheless, a couple of participants cautioned that it could be challenging for the public to disentangle deliberations about the two tools and that any decisions the Committee made on its asset purchases would likely influence the public's understanding of the Committee's other policy intentions, including with regard to future decisions concerning the target range for the federal funds rate. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had shown improvement but had not fully recovered. Inflation had risen, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum-employment and price-stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation having run persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward its maximum-employment and price-stability goals. The members commented that, since then, the economy had made progress toward these goals, and they agreed to continue to assess progress in coming meetings. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed that the postmeeting statement should acknowledge the economy's continued recovery as well as its progress toward the Committee's maximum-employment and price-stability goals set forth in the Committee's asset purchase guidance in December. In light of these developments, members decided to remove the characterization of sectors most adversely affected by the pandemic as being in a "weak" condition and to replace it with the judgment that those sectors "have not fully recovered." They also agreed to remove the word "significantly" when characterizing the dependence of the path of the economy on the course of the virus. In addition, members agreed to insert the assessment that "the economy has made progress" toward the Committee's longer-run goals since the guidance on asset purchases was first issued in December and to indicate that the assessment of progress would continue in coming meetings. Members agreed that the addition of this language was appropriate to acknowledge the Committee's ongoing deliberations in assessing the economy's progress toward the Committee's goals and the implications for the pace of asset purchases. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective July 29, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $80 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerâterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgageâbacked securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to establish the interest rate paid on reserve balances at 0.15 percent, effective July 29, 2021. 5 The Board also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective July 29, 2021. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 21â22, 2021. The meeting adjourned at 10:35 a.m. on July 28, 2021. Notation Vote By notation vote completed on July 6, 2021, the Committee unanimously approved the minutes of the Committee meeting held on June 15â16, 2021. _______________________ James A. Clouse Secretary 1. In these minutes, the Federal Open Market Committee is referenced as the "FOMC" and the "Committee"; the Board of Governors of the Federal Reserve System is referenced as the "Board." Return to text 2. Attended through the discussion of asset purchases. Return to text 3. Attended Wednesday's session only. Return to text 4. Attended through the discussion of economic developments and the outlook. Return to text 5. As announced on June 2, 2021, the Board approved a final rule, effective July 29, amending Regulation D to eliminate references to an interest on required reserves (IORR) rate and to an interest on excess reserves (IOER) rate and replace them with a single interest on reserve balances (IORB) rate. Therefore, the Board voted on one rate, the IORB rate, at this meeting and will continue to do so going forward. The Federal Register notice, "Regulation D: Reserve Requirements of Depository Institutions," is available at www.federalregister.gov/documents/2021/06/04/2021-11758/regulation-d-reserve-requirements-of-depository-institutions Return to text

Minutes of the Federal Open Market Committee September 21â22, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held by videoconference on Tuesday, September 21, 2021, at 1:00 p.m. and continued on Wednesday, September 22, 2021, at 9:00 a.m. 1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist David Altig, Brian M. Doyle, Rochelle M. Edge, Sylvain Leduc, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Sally Davies, Deputy Director, Division of International Finance, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board William F. Bassett, Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board Marnie Gillis DeBoer, Senior Associate Director, Division of Monetary Affairs, Board; Susan V. Foley, 2 Senior Associate Director, Division of Reserve Bank Operations and Payment Systems, Board; Diana Hancock and David E. Lebow, Senior Associate Directors, Division of Research and Statistics, Board Don H. Kim, Edward Nelson, and Annette Vissing-Jørgensen, Senior Advisers, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Andrew Figura and Elizabeth K. Kiser, Associate Directors, Division of Research and Statistics, Board; Paul R. Wood, Associate Director, Division of International Finance, Board Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board; Patrick E. McCabe, Deputy Associate Director, Division of Research and Statistics, Board; Skander Van den Heuvel, Deputy Associate Director, Division of Financial Stability, Board; Jeffrey D. Walker 2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Brian J. Bonis and Etienne Gagnon, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board; Deepa D. Datta, 4 Section Chief, Division of International Finance, Board Michele Cavallo, Camelia Minoiu, and Anna Orlik, Principal Economists, Division of Monetary Affairs, Board Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board David Na, Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board Meredith Black, First Vice President, Federal Reserve Bank of Dallas Michael Dotsey and Joseph W. Gruber, Executive Vice Presidents, Federal Reserve Banks of Philadelphia and Kansas City, respectively Anne Baum, Carlos Garriga, Edward S. Knotek II, Giovanni Olivei, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, Cleveland, Boston, and Minneapolis, respectively Matthew D. Raskin, 2 Vice President, Federal Reserve Bank of New York Andreas L. Hornstein, Senior Advisor, Federal Reserve Bank of Richmond Alex Richter, Economic Policy Advisor and Senior Economist, Federal Reserve Bank of Dallas Keshav Dogra, Senior Economist, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments over the period. Domestic financial conditions were little changed, on net, and remained highly accommodative. The spread of the Delta variant of the COVID-19 virus weighed on the near-term growth outlook and median respondents to the Open Market Desk's Survey of Primary Dealers marked down projections for gross domestic product (GDP) growth and revised up projections for inflation this year. Nonetheless, expectations for the trajectory of growth beyond 2021 were little changed. Implied forward inflation compensation two to four years ahead based on Treasury Inflation-Protected Securities (TIPS) increased modestly over the intermeeting period. Regarding the outlook for monetary policy, market participants noted policymaker communications suggesting that tapering of asset purchases could begin this year and end by mid-2022. Around half of respondents to the Desk's surveys of primary dealers and market participants viewed December as the most likely timing of the first reduction in the net pace of purchases, al­though respondents also attached significant probability to the first reduction coming in November. Median expectations for the pace of net purchases were consistent with a gradual tapering of net purchases being completed in July of next year, about one to two months earlier than in the previous surveys. Expectations for the target federal funds rate based on survey responses and interest rate futures moved up slightly since the previous meeting. Several central banks announced reductions in the pace of their asset purchase programs or eventual plans for their balance sheets once asset purchases had been completed. These announcements were broadly in line with market participants' expectations and elicited only a modest reaction in financial markets. In Latin America and emerging Europe, some central banks recently tightened policy to address rising inflation pressures. Investors remained focused on other vulnerabilities in emerging markets, and concerns had grown recently about the possible implications of developments in China. The manager turned next to a discussion of money markets and Federal Reserve operations. Domestic funding conditions were stable over the period. The federal funds rate edged lower amid ongoing increases in reserves, but it remained well within the target range; the Secured Overnight Financing Rate (SOFR) was steady at 5 basis points. Participation in the overnight reverse repurchase agreement (ON RRP) facility increased to an average of just over $1 trillion over the period, driven primarily by increased usage by government money market funds. Market participants were attentive over the period to negotiations on the debt limit. Yields on Treasury bills maturing in mid-October to mid-November had become modestly elevated as investors reduced exposures to securities that could be at risk for delayed payments. Market participants noted information in the public domain about measures the Federal Reserve and the Treasury could take around a debt limit event. They pointed, in particular, to the October 2013 FOMC meeting minutes, which highlighted that the Federal Reserve would use normal procedures in its operations, both as the debt limit nears and in the event of a delayed payment. Market participants also focused on a 2013 report by the Treasury Market Practices Group (TMPG), which outlined a process that could be used to delay principal payments on Treasury securities by rolling forward the operational maturity date in order to maintain the ability to transfer such securities over Fedwire®. The TMPG report noted that such a procedure would help support ongoing functioning of markets for securities with delayed payments. This would maintain their eligibility in open market operations under normal procedures. Nevertheless, market participants emphasized that, even with these procedures, a delayed payment would create severe and broad-based market disruption. In light of increased usage of the ON RRP facility and the potential for continued downward pressure on short-term interest rates over the near term, the manager next discussed a staff proposal to increase the per-counterparty limit for the ON RRP facility to $160 billion. Staff analysis suggested that the proposed increase was likely to be sufficient to support effective policy implementation for most foreseeable circumstances. The manager provided a brief update on the new repurchase agreement (repo) facilities that the Committee had announced following its meeting in July. The Desk had been working to onboard depository institutions as additional counterparties for the standing repo facility. In addition, a number of foreign central banks had expressed intent to establish access to the Foreign and International Monetary Authority Repo Facility. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the September 21â22 meeting suggested that U.S. real GDP was increasing in the third quarter at a slower pace than in the second quarter of the year. The pace of improvement in labor market conditions had remained very rapid in July but slowed sharply in August. Consumer price inflation in June and Julyâas measured by the 12âmonth percentage change in the personal consumption expenditures (PCE) price index was elevated. Total nonfarm payroll employment increased sharply in July but rose much less rapidly in August, with job gains in the leisure and hospitality sector slowing to zero. In addition, state and local government employment was reported to have fallen in August, though abnormal seasonal swings had likely distorted recent readings for this sector. As of August, total payroll employment had retraced three-fourths of the losses seen at the onset of the pandemic. The unemployment rate had declined from 5.9 percent in June to 5.2 percent in August; although the unemployment rates for African Americans and Hispanics had also declined, on net, over this period, both rates remained well above the national average. The labor force participation rate edged up, on net, and the employment-to-population (EPOP) ratio rose further in July and August. Private-sector job openings, as measured by the Job Openings and Labor Turnover Survey, increased further in July and continued to suggest that labor demand was extraordinarily high. Initial claims for regular state unemployment insurance remained near the pandemic-period low that had been reached in early September but were still somewhat elevated relative to pre-pandemic levels. Weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP that were available through early September pointed to a modest pickup in the pace of private employment gains relative to August. Average hourly earnings for all employees rose strongly in July and August, with gains that were widespread across industries. Recent monthly increases in average hourly earnings appeared to reflect a combination of continued strong labor demand and increased difficulties in hiring. A staff measure of the 12-month change in the median wage derived from the ADP data had also pointed to strong wage growth, with a pace in August that was well above the growth rates seen before the pandemic. By contrast, the Wage Growth Tracker measure constructed by the Federal Reserve Bank of Atlanta had not shown a similar pickup. The employment cost index of hourly compensation in the private sector, which also includes benefit costs, rose at an annual rate of 3.6 percent over the 6 months ending in June, 1 percentage point faster than the 12âmonth change posted in December 2020. Inflation, as measured by either the PCE price index or the consumer price index (CPI), had been boosted by a surge in demand as the economy reopened further, along with the effects of production bottlenecks and supply constraints. Total PCE price inflation was 4.2 percent over the 12 months ending in July, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 3.6 percent over the 12 months ending in July. In contrast, the trimmed mean measure of 12âmonth PCE inflation constructed by the Federal Reserve Bank of Dallas was 2.0 percent in July. In August, the 12-month change in the CPI was 5.3 percent, while the core CPI rose 4.0 percent over the same period. In the third quarter of 2021, the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, was little changed relative to the second quarter and was near its average over the decade before the pandemic. Although real PCE declined in July, the components of retail sales used to estimate PCE rose strongly in August, returning to levels seen in the spring. However, concerns about the course of the pandemic appeared to be weighing on consumer services spending, as available indicators pointed to a slowing in demand for services sensitive to social distancing. In addition, measures of consumer confidence had moved lower in August. Demand for housing appeared to have remained very strong, but incoming data suggested that materials shortages and a lack of developed lots for construction were restraining residential building activity. Available indicators suggested that growth in business fixed investment was slowing somewhat in the third quarter as supply bottlenecksâparticularly for motor vehiclesâweighed on business equipment spending. Manufacturing output rose strongly in July and ticked up further in August. In August, activity in the oil and gas sector and production of petrochemicals had been held down by shutdowns related to Hurricane Ida. Supply chain issues faced by a number of other industries also continued to be a drag on overall factory output. Total real government purchases appeared to be increasing in the third quarter after having moved lower in the second quarter. Available data suggested that federal nondefense purchases were declining sharply in the third quarter but that robust gains in real state and local purchases were offsetting this decline. The U.S. international trade deficit remained high in July. After rising in June, real goods imports fell back in July, held down by a sizable decline in consumer goods imports, but the levels of consumer and total goods imports remained well above pre-COVID-19 levels. Real goods exports edged up in July and were close to pre-pandemic levels. Bottlenecks in the global semiconductor industry continued to weigh on exports and imports of automotive products, and shipping congestion continued to restrain trade overall. Exports and imports of services rose again in July, but they remained low relative to pre-pandemic levels, largely because international travel was still depressed. In the advanced foreign economies (AFEs), where high vaccination rates had increased resilience to COVID-19 outbreaks, incoming data were consistent with economic growth in the third quarter at a slightly faster pace than in the second quarter. With the economic reopening under way, purchasing managers indexes for both manufacturing and services remained strong in Europe and Canada. Conversely, in emerging market economies (EMEs)âespecially in Southeast Asia, where vaccination rates were lowerâa global resurgence in COVID-19 infections due to the Delta variant led to renewals of public health restrictions. These restrictions weakened retail sales and contributed to labor shortages and transportation congestion, disrupting global supply chains. Inflation abroad was elevated, reflecting reversals of price declines early in the pandemic, past increases in energy and commodity prices, upward pressures from supply bottlenecks, and past exchange rate depreciations in some EMEs. Staff Review of the Financial Situation Financial market prices were little changed over the intermeeting period. Concerns over the period about the effects of COVID-19 developments on economic performance and, late in the period, about a heavily indebted Chinese property developer appeared to have only marginal net effects on financial asset prices. The incoming domestic economic data were generally viewed as mixed. Yields on Treasury securities of intermediate maturities increased modestly, the market-implied path of the federal funds rate steepened, domestic equity prices were unchanged, and speculative-grade corporate bond spreads narrowed modestly. Short-term funding markets were stable. Market-based financing conditions were robust, and credit availability improved for riskier borrowers. Yields on intermediate-maturity Treasury securities increased modestly, on net, amid mixed news on economic activity and the pandemic, and slightly less-accommodative-than-expected July FOMC communications. Measures of inflation compensation declined modestly, on net. The market-implied level of the effective federal funds rate for the ends of 2023 and 2024 rose 12 and 17 basis points, respectively. Broad stock market prices were about unchanged, on net, over the intermeeting period. Early in the period, concerns over the Delta variant were a headwind for stock prices. Prices recovered following the FDA's first full approval of a COVID-19 vaccine and signs that the Delta variant surge was starting to abate. Over the intermeeting period, spreads of yields on speculative-grade corporate bonds over those on comparable-maturity Treasury securities narrowed slightly, on net. Investment-grade corporate bond spreads were little changed, on net, and spreads of municipal bond indexes increased slightly but remained well below pre-pandemic levels. On September 20, stock market prices fell notably and speculative-grade yield spreads widened amid rising concerns about the creditworthiness of a Chinese property developer, but these moves were mostly reversed during the following day, particularly in the stock market. Short-term funding markets were stable over the intermeeting period. The effective federal funds rate declined slightly, from 10 basis points at the beginning of the period to 8 basis points at the end, while the SOFR remained at 5 basis points throughout the period. Assets under management (AUM) of government money market mutual funds increased modestly to near all-time highs. Treasury bill supply continued to decline with the reinstatement of the debt ceiling. Higher AUM together with declining Treasury bill supply led government money market mutual funds to increase their participation at the Federal Reserve's ON RRP facility. Participation in ON RRP operations increased from an average of $808 billion over the previous intermeeting period to $1.08 trillion. Foreign asset prices fluctuated moderately over the intermeeting period as market participants continued to assess the effect of the Delta variant on global growth and inflation. Concerns about a potential default by a heavily indebted Chinese property developer and risks of a downturn in the Chinese real estate sector intensified later in the period, but effects on broader financial markets were limited. On balance, major foreign equity indexes were mixed, the broad dollar appreciated a touch, and sovereign yields in most major AFEs increased moderately. In the euro area and the United Kingdom, higher-than-expected inflation data contributed to the rise in yields and inflation compensation measures. In domestic credit markets, large nonfinancial firms had ample access to market-based financing as market participants appeared confident in the domestic corporate credit outlook. After accounting for the seasonal summer lull in activity, gross corporate bond issuance remained solid in July and August. Leveraged loan issuance was also strong in July and August. Equity funding raised through traditional initial public offerings remained robust over the summer, while equity issuance through special purpose acquisition companies remained at the subdued levels seen in recent months. Commercial and industrial (C&I) loans declined notably through August, amid ongoing forgiveness of Paycheck Protection Program (PPP) loans. Excluding PPP loans, C&I loan balances were estimated to have been largely unchanged between June and July. The credit quality of large nonfinancial corporations remained strong with a positive outlook. The volume of credit rating upgrades for nonfinancial bonds outpaced downgrades noticeably in July and August. Trailing default rates on corporate bonds and leveraged loans remained low, as did market indicators of future default expectations. In the municipal bond market, financing conditions remained accommodative. Issuance of municipal debt was strong in July and August and indicators of credit quality of municipal debt remained healthy, though municipal bond impairmentsâthat is, credit events that are less severe than payment defaultsâremained elevated in August. These impairments were concentrated in the retirement and assisted living sector and represent a very small fraction of the municipal market. Survey-based indicators suggest small business owners, especially from COVID-sensitive sectors that include lodging and food services, arts, entertainment and recreation, and educational services, became more pessimistic about their financial prospects, largely because of a worsening of near-term expectations for sales and general business conditions. Small business loan originations were above pre-pandemic levels in June and July, but increased concerns about the Delta variant depressed loan demand in August. Financing conditions in commercial real estate (CRE) improved over the intermeeting period amid increasing CRE property prices. CRE loan growth at banks strengthened and issuance of commercial mortgage-backed securities (CMBS) remained robust over the summer. Spreads of agency CMBS were generally at or below pre-pandemic levels. Strong investor appetite for CMBS was supported by falling delinquency rates on mortgages, al­though delinquency rates remained elevated for CMBS backed by hotel and retail properties. Financing remained limited for the hard-hit hotel sector. In the residential mortgage market, financing conditions remained accommodative particularly for borrowers who met standard conforming loan criteria. Mortgage rates increased slightly over the intermeeting period but remained very low by historical standards. Credit availability continued to improve, especially for jumbo loans and lower-score Federal Housing Administration borrowers. Indicators of mortgage originations for home-purchases and refinancing were solid through August. The share of mortgages in forbearance declined further in July and August. Financing conditions for consumer credit remained accommodative for most borrowers, especially those with stronger credit scores. Consumer credit and the credit card market expanded at a strong pace in June before stepping down somewhat in July. Conditions for nonprime consumers in the credit card market eased from tight levels. Auto loan growth slowed in June and July from its brisk pace in May. Conditions in the asset-backed securities market were robust over the intermeeting period. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the September FOMC meeting was broadly similar to the July projection. In the second half of 2021, supply constraints were expected to resolve more slowly than previously assumed; in addition, the recent rise in COVIDâ19 cases was viewed as likely to exert a larger amount of restraint on consumer spending, hiring, and labor supply than previously anticipated. Even so, real GDP was expected to post a sizable gain over the second half of 2021 and over the year as a whole, resulting in a correspondingly large decline in the unemployment rate. In 2022, GDP was expected to rise more slowly than in 2021 but at a still-solid pace, supported by the continued reopening of the economy and an easing of supply constraints. With the boost from these factors fading, real GDP growth was projected to step down noticeably in 2023 and to be roughly equal to potential output growth in 2023 and 2024. However, the level of real GDP was expected to remain well above potential throughout the projection period, resulting in a decline in the unemployment rate to historically low levels. The staff's near-term outlook for inflation was revised up further in response to incoming data, but the staff continued to expect that this year's rise in inflation would prove to be transitory. The 12-month change in total and core PCE prices was well above 2 percent in July, and available data suggested that PCE price inflation had remained high in August. The staff interpreted recent inflation data as indicating that supply constraints were putting a larger amount of upward pressure on prices than previously anticipated; relative to the July projection, these supply constraints were also expected to take longer to resolve. As a result, the 12âmonth change in PCE prices was projected to hold roughly steady over the remainder of 2021 and to end the year well above 2 percent. Over the following year, the boost to consumer prices caused by supply issues was expected to partly reverse and import prices were expected to decelerate sharply. PCE price inflation was therefore expected to step down to a little below 2 percent in 2022; thereafter, additional increases in resource utilization were expected to cause it to gradually edge higher and to reach 2 percent in 2024. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside. In particular, the future course of the pandemic was seen as an important source of downside risk. The staff also continued to judge that the risks around the inflation projection were tilted to the upside, with the possibility of more severe and persistent supply issues viewed as especially salient. In addition, the staff pointed to a risk that longer-run inflation expectations would move appreciably higher and lead to persistently elevated inflation. Participants' Views on Current Economic Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2021 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current conditions, participants noted that, with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had improved in recent months, but the rise in COVID-19 cases had slowed their recovery. Inflation was elevated, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy continued to depend on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Participants observed that economic activity had continued to expand in recent months, though at a less rapid pace than in the first half of the year. They marked down their projections of real GDP growth for the year, pointing to a reassessment of the severity and likely duration of supply constraints or of the effects of the spread of the Delta variant on the economy. Still, participants foresaw rapid growth this year, and several highlighted that the economy had shown resilience in the face of the recent wave of infections. In their discussion of the household sector, participants noted that consumer spending had decelerated in recent months after expanding at a very rapid pace in the first half of the year. The spread of the Delta variant was weighing on spending for some consumer services, and low inventories and high prices due to supply constraints were restraining spending on many goods, most notably motor vehicles. Nonetheless, participants expected the accumulated stock of savings, the release of pent-up demand, and progress on vaccinations to continue to support household spending in coming months. Participants noted that residential construction had been restrained by shortages of materials and other inputs and that home sales had been held back by limited supplies of available homes. With respect to the business sector, participants observed that firms in a number of industries were facing challenges keeping up with strong demand due to widespread supply chain bottlenecks as well as labor shortages. Some participants commented that the recent global wave of COVID-19 infections and associated business shutdowns were exacerbating or prolonging these problems. The supply chain bottlenecks were creating challenges for a number of manufacturers; the problems were seen as especially acute for the motor vehicle industry, where the shortages of semiconductor chips had sharply curtailed production. Retail industries were also facing various bottlenecks, including those stemming from port congestion and delays in ground transportation. Participants noted that their District contacts generally did not expect these bottlenecks to be fully resolved until sometime next year or even later. A couple of participants noted that inventories-to-sales ratios were at or near record-low levels in many industries, and the need to rebuild them would boost business investment going forward. Participants also discussed the developments in oil, gasoline, and agricultural sectors. A couple of participants pointed out that Hurricane Ida significantly affected the oil and gas industries, curtailing U.S. offshore production at a time of low inventories. A couple of other participants noted that elevated crop prices were continuing to boost income in the agricultural sector. Participants noted that labor market conditions had continued to improve in recent months. The unemployment rate declined further to 5.2 percent in August, and a few participants noted a further pickup in recent months in the level of activity indicator in the Federal Reserve Bank of Kansas City's Labor Market Conditions Indicators. After a rapid pace of almost 1 million per month in June and July, job gains slowed to 235,000 in August as the resurgence of COVID-19 cases weighed on employment in high-contact service sectors, particularly in the leisure and hospitality sector. Meanwhile, the labor force participation rate was little changed, remaining at a lower level than its pre-pandemic values. Some participants noted that the increase in labor force participation that they had expected had not yet materialized in the wake of the reopening of schools and the expiration of the extended unemployment benefits, and that this likely reflected in part concerns about the resurgence of the virus, childcare challenges, and the uncertainties generated by ongoing disruptions to in-person schooling. Participants expected the labor market to continue to improve in coming months. Several participants indicated that a rise in the labor force participation rate might lag the improvements in other indicators such as the unemployment rateâa pattern consistent with past business cycle recoveries. Participants expressed a range of views regarding the extent to which they expected the labor force participation rate and the EPOP ratio would move back to their pre-pandemic levels. Various participants suggested that a complete return to pre-pandemic conditions was unlikely, as the pandemic had prompted reductions in the workforce that were likely to persist, including a large number of retirements and other departures from the labor force. A number of others, however, assessed that once the COVID-related concerns that were currently weighing on labor force participation passed, the participation rate and the EPOP ratio could return to, or even exceed, the pre-pandemic levels. Some participants remarked that the labor market recovery continued to be uneven across demographic and income groups and across sectors, with the recovery being particularly slow for women with young children and people with lower incomes. Participants noted that their District contacts had broadly reported having difficulty hiring workers. The labor shortages were causing firms to reduce hours and scale back production while also leading employers to provide incentives to attract and retain workers, including wage increases and signing and retention bonuses. The rate of nominal wage growth had been robust in recent data; for example, average hourly earnings were up 4.9 percent at an annualized rate over the past six months. In their discussion of inflation, participants observed that the inflation rate was elevated, and they expected that it would likely remain so in coming months before moderating. Participants marked up their inflation projections, as they assessed that supply constraints in product and labor markets were larger and likely to be longer lasting than previously anticipated. Some participants expressed concerns that elevated rates of inflation could feed through into longer-term inflation expectations of households and businesses or saw recent inflation data as suggestive of broader inflation pressures. Several other participants pointed out that the largest contributors to the recent elevated measures of inflation were a handful of COVID-related, pandemic-sensitive categories in which specific, identifiable bottlenecks were at play. This observation suggested that the upward pressure on prices would abate as the COVID-related demand and supply imbalances subsided. These participants noted that prices in some of those categories showed signs of stabilizing or even turned down of late. Many participants pointed out that the owners' equivalent rent component of price indexes should be monitored carefully, as rising home prices could lead to upward pressure on rents. A few participants noted that there was not yet evidence that robust wage growth was exerting upward pressure on prices to a significant degree, but also that the possibility merited close monitoring. In their comments on inflation expectations, several participants observed that measures of longer-term inflation expectations, including TIPS- and survey-based measures, had remained in ranges that were viewed as broadly consistent with the Committee's longer-run inflation goal, or that the distribution across households of longer-term expected inflation had remained stable over the past two years. Many participants noted the substantial rise in one- and three-year measures of inflation expectations in the Federal Reserve Bank of New York's Survey of Consumer Expectations or in the one-year measure in the University of Michigan Surveys of Consumers. A few participants remarked that these survey measures tended to be sensitive to movements in actual inflation, or that the recent rise was consistent with previous historical relationships between such measures and actual inflation. In discussing the uncertainty and risks associated with the economic outlook, participants noted that uncertainty remained high. A number of participants judged that the uncertain course of the virus, supply chain disruptions, and labor shortages complicated the task of interpreting incoming economic data and assessing progress toward the Committee's goals. Participants generally saw the risks to the outlook for economic activity as broadly balanced. Uncertainty around the course of the virus, the resolution of supply constraints, and fiscal measures were cited as presenting both upside and downside risks. In addition, some participants mentioned the risks associated with high asset valuations in the United States and abroad, and a number of participants commented on the importance of resolving the issues involving the federal government budget and debt ceiling in a timely manner. Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed. A few participants commented that there were also some downside risks for inflation, as the factors that had held inflation down over the previous long expansion were likely still in place. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants judged that the current stance of monetary policy remained appropriate to promote maximum employment as well as to achieve inflation that averages 2 percent over time and longer-term inflation expectations that are well anchored at 2 percent. Participants also reiterated that the existing outcome-based guidance implied that the paths of the federal funds rate and the balance sheet would depend on actual progress toward reaching the Committee's maximum-employment and inflation goals. Participants resumed their discussions on the progress made toward the Committee's goals since December 2020, when the Committee adopted its guidance regarding asset purchases and indicated that purchases would continue at their current pace until substantial further progress had been made toward the Committee's goals of maximum employment and price stability. These purchases had been a critical part of the Federal Reserve's efforts to foster smooth financial market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses as well as the economic recovery. Most participants remarked that the standard of "substantial further progress" had been met with regard to the Committee's price-stability goal or that it was likely to be met soon. With regard to the Committee's maximum-employment goal, participants considered the cumulative degree of improvement in the labor market since December 2020. In doing so, participants cited the progress recorded in a number of individual series, including, among others, the employment-to-population ratio, the unemployment rate, claims for unemployment insurance, job openings, nominal wage growth, and increases in payrolls, as well as in summary measures of the labor situation. Some participants observed that progress on labor force participation was lagging. Many participants noted that although the economic recovery had slowed recently and the August increase in payrolls had fallen short of expectations, the labor market had continued to show improvement since the Committee's previous meeting. A number of participants assessed that the standard of substantial further progress toward the goal of maximum employment had not yet been attained but that, if the economy proceeded roughly as they anticipated, it may soon be reached. On the basis of the cumulative performance of the labor market since December 2020, a number of other participants indicated that they believed that the test of "substantial further progress" toward maximum employment had been met. Some of these participants also suggested that labor supply constraints were the main impediments to further improvement in labor market conditions rather than lack of demand. They noted that adding monetary policy accommodation at this time would not address such constraints or that the costs of continuing asset purchases might be beginning to exceed their benefits. All participants agreed that it would be appropriate for the current meeting's postmeeting statement to relay the Committee's judgment that, if progress continued broadly as expected, a moderation in the pace of asset purchases may soon be warranted. Participants also expressed their views on how slowing in the pace of purchases might proceed. In particular, participants commented on an illustrative path, developed by the staff and reflecting participants' discussions at the Committee's July meeting, that gave the speed and composition associated with a tapering of asset purchases. The illustrative tapering path was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later this year, would lead the Federal Reserve to end purchases around the middle of next year. The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS). Participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases. Participants noted that, in keeping with the outcome-based standard for initiating a tapering of asset purchases, the Committee could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected. Several participants indicated that they preferred to proceed with a more rapid moderation of purchases than described in the illustrative examples. No decision to proceed with a moderation of asset purchases was made at the meeting, but participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate. Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December. Many participants remarked upon risk-management considerations and the way in which these figured into their thinking on asset purchases and the appropriate policy stance. A number of downside risks to the economic outlook were cited, including a potential tightening of financial conditions, the possibility that another rise in COVID-19 cases would slow the economic recovery by more than expected, and the prospect that fiscal policy could become a source of economic headwinds as the effects of previous support measures receded. Upside risks to the economic outlook included the possibility that there would be additional expansionary fiscal actions or that consumer spending would rise by more than expected as households reduced the large volume of savings that they had accumulated during the pandemic. With regard to inflation, upside risks cited included the possibility that elevated levels of inflation would continue for longer than expected, especially if labor and other supply shortages proved more persistent than currently anticipated, or that longer-term inflation expectations might move above levels consistent with the Committee's longer-term inflation objective of 2 percent. Downside risks to inflation included the possibility of a decline in inflation expectations that might occur if the public misconstrued the Federal Reserve's reaction function as less accommodative than it actually was. Several participants expressed concern that the high degree of accommodation being provided by monetary policy, including through continued asset purchases, could increase risks to financial stability. Participants reaffirmed that the Committee's "substantial further progress" standard regarding its asset purchases was distinct from the criteria given in its forward guidance on the federal funds rate and that a policy shift toward a moderation of asset purchases provided no direct signal about its interest rate policy. Rather, the Committee had articulated a different, and more stringent, test concerning the conditions that would need to be met before it started raising the target range for the federal funds rate. Various participants stressed that economic conditions were likely to justify keeping the rate at or near its lower bound over the next couple of years. In addition to noting that the economy was still well below maximum employment, several of these participants suggested that there would likely be sustained downward pressure on inflation in the years ahead. These participants stated that, in such circumstances, a major challenge facing policymakersâespecially in the presence of the effective lower bound on the federal funds rateâwas to maintain a policy stance sufficiently accommodative to keep average inflation at 2 percent and thereby bolster the credibility of the Committee's new policy framework, facilitating the achievement of both maximum employment and price stability. In contrast, a number of participants raised the possibility of beginning to increase the target range by the end of next year because they expected that the labor market and inflation outcomes specified in the Committee's guidance on the federal funds rate might be achieved by that time; some of these participants saw inflation as likely to remain elevated in 2022 with risks to the upside. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had improved in recent months but that the rise in COVID-19 cases had slowed their recovery. Inflation was elevated, largely reflecting transitory factors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations would likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remained. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, and with inflation having run persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. All members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency MBS by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. The members commented that, since then, the economy had made progress toward these goals and that, if progress continued broadly as expected, a moderation in the pace of asset purchases may soon be warranted. They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. Members also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed that the postmeeting statement should acknowledge the slowing of the economic recovery, as indicated in data received since the July meeting, as well as ongoing elevated inflation readings. In light of these developments, they agreed that the Committee should indicate that the sectors of the economy most adversely affected by the pandemic had improved in recent months but that the rise in COVID-19 cases had slowed their recovery, and they also concurred that it would be appropriate to characterize inflation as being "elevated" in place of stating that inflation had "risen." Members further decided to add to the postmeeting statement an indication that if progress toward the maximum-employment and price-stability goals continued broadly as expected, the Committee judged that a moderation in the pace of asset purchases may soon be warranted. Members agreed that the addition of this language was an appropriate means of acknowledging that, in the near future, the Committee would likely assess that the standard for reducing the pace of net asset purchases had been met. With regard to the directive to the Desk, members agreed that the directive should incorporate the proposed increase in the per-counterparty limit for the ON RRP facility to $160 billion. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective September 23, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $160 billion per day; the per- counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerâterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgageâbacked securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 0.15 percent, effective September 23, 2021. The Board also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective September 23, 2021. Following the FOMC policy vote, the Chair emphasized that maintaining the public trust is absolutely essential for the work of the Federal Reserve. In light of recent questions regarding the financial transactions of senior officials, the Chair indicated that the staff would conduct a thorough review of the Federal Reserve's current rules and regulations regarding the financial holdings and practices of Federal Reserve officials. This deliberate and thoughtful review will focus on strengthening Federal Reserve rules and standards in ways that will help guard against even the appearance of conflicts of interest or any other improprieties. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, November 2â3, 2021. The meeting adjourned at 10:45 a.m. on September 22, 2021. Notation Vote By notation vote completed on August 17, 2021, the Committee unanimously approved the minutes of the Committee meeting held on July 27â28, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. (This footnote was corrected on November 26, 2021, to replace an erroneous reference to a "discussion of asset purchases.") Return to text 3. Attended Tuesday's session only. Return to text 4. Attended the discussion of economic developments and the outlook. Return to text

Minutes of the Federal Open Market Committee November 2-3, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, November 2, 2021, at 1:00 p.m. and continued on Wednesday, November 3, 2021, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Kenneth C. Montgomery, Alternate Members of the Committee Patrick Harker and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, and Minneapolis, respectively Meredith Black, Interim President of the Federal Reserve Bank of Dallas James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Rochelle M. Edge, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board William F. Bassett, Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Edward Nelson and Annette Vissing-Jørgensen, Senior Advisers, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board; Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Skander Van den Heuvel, Deputy Associate Director, Division of Financial Stability, Board Gianni Amisano, Byron Lutz, and Raven Molloy, Assistant Directors, Division of Research and Statistics, Board; Brian J. Bonis, Giovanni Favara, and Dan Li, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Callum Jones and Arsenios Skaperdas, Senior Economists, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Isaiah C. Ahn, Senior Staff Assistant, Division of Monetary Affairs, Board Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis Joseph W. Gruber and Geoffrey Tootell, Executive Vice Presidents, Federal Reserve Banks of Kansas City and Boston, respectively Anne Baum, Carlos Garriga, Paolo A. Pesenti, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, New York, and Minneapolis, respectively Satyajit Chatterjee and Alexander L. Wolman, Vice Presidents, Federal Reserve Banks of Philadelphia and Richmond, respectively Edward S. Prescott, Senior Economic and Policy Advisor, Federal Reserve Bank of Cleveland Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Mark Spiegel, Senior Policy Advisor, Federal Reserve Bank of San Francisco Brent Meyer, Policy Advisor and Economist, Federal Reserve Bank of Atlanta Discussion of Financial Markets and Open Market Operations The manager turned first to a discussion of global financial markets. Sovereign yields rose sharply across many advanced economies with much of the increase concentrated in measures of inflation compensation. In the United States, the five-year measure of inflation compensation based on Treasury Inflation Protected Securities (TIPS) rose by around 45 basis points. Far forward measures of inflation compensation also rose, but by modest amounts. In the Open Market Desk's surveys of primary dealers and market participants, the median forecast for headline PCE inflation in 2021 was revised up notably. Median forecasts beyond 2021 move up by less, al­though the average of the probabilities reported by survey respondents placed on higher inflation outcomes at these horizons increased modestly. Policy sensitive rates increased across most advanced economies. The central banks of Norway and New Zealand raised their policy rates early in the period, and policy communications from the Bank of England and the Bank of Canada pointed to the potential for earlier policy firming than had been expected, contributing to the upward movement of global rates. The Reserve Bank of Australia ended its yield target for the April 2024 government bond. That central bank signaled that conditions for raising the policy rate could be met in 2023 but were unlikely to be achieved in the earlier timeframe implied by market pricing. Some European Central Bank communications also suggested that market rates were likely not consistent with the outlook for policy. In the United States, the market-implied path of the federal funds rate rose, implying an earlier date for raising the target range for the federal funds rate and a faster pace of rate hikes than was the case in September. Option-implied volatility on short-dated interest rates increased, reportedly reflecting greater uncertainty over the path of the federal funds rate. Desk survey responses also indicated expectations for an earlier increase in the target range, al­though the median respondent's modal expectation shifted by less than market pricing. The median survey respondent's modal expectation for the federal funds rate at the end of 2025 was little changed suggesting that investors had not revised their expectations for the cumulative extent of policy firming over the next four years. Expectations for a reduction in the pace of net asset purchases coalesced further, and most survey respondents expected the tapering of asset purchases to start with the November purchase schedule with monthly reductions of $10 billion and $5 billion in Treasury securities and agency mortgage-backed securities (MBS), respectively. Over the intermeeting period, U.S. equity indexes rose and the one-month option-implied volatility on the S&P 500âthe VIXâfell to post-pandemic lows. Continued strong earnings underpinned the rise in equity prices, with firms posting profits near historical highs. Despite signs of robust risk appetite, market participants continued to note prominent risks to the outlook, including ongoing challenges in the Chinese property sector. Turning to Desk operations, the manager noted that, should the Committee decide to announce a reduction in the pace of net asset purchases at this meeting, the Desk would issue a monthly purchase schedule on November 12 reflecting this change. The mid-December purchase schedule, to be released just before the next FOMC meeting, would reflect additional reductions of the same size. Treasury securities and agency MBS would continue to be purchased across sectors and coupons consistent with current practice. If similar reductions in the net purchase pace were implemented in subsequent months, the System Open Market Account (SOMA) portfolio would peak around next June at about $8.5 trillion. In terms of composition, Treasury securities and agency MBS would constitute roughly 70 percent and 30 percent of the SOMA portfolio, respectivelyâroughly in line with the shares of Treasury securities and agency MBS in the total stock of these securities outstandingâand the SOMA portfolio would be more heavily weighted toward Treasury securities than after the conclusion of the third large-scale asset purchase program (LSAP 3) following the global financial crisis. The maturity composition of SOMA Treasury coupon holdings would also be fairly close to that of the outstanding universe of Treasury securities, and the weighted average maturity would be shorter than after LSAP 3. Turning to money market developments, the manager noted that the transition away from LIBOR (London Interbank Offered Rate) had gained momentum with a pick-up in the interdealer trading volume of Secured Overnight Financing Rate (SOFR) derivatives; that said, much remained to be done to complete the LIBOR transition. Market participants were attentive to some temporary downward pressure on the SOFR over the period. This softness appeared to be the result of technical factors and was observed primarily in centrally cleared repurchase agreement markets. The Federal Reserve's administered ratesâthe interest on reserve balances rate and the overnight reverse repurchase agreement (ON RRP) rateâcontinued to support effective interest rate control and, outside of month- and quarter-end, the federal funds rate remained stable over the period. Regarding the debt ceiling, the short-term resolution reached in October increased the debt limit by $480 billion. Market participants' estimates of the new date when the Treasury would exhaust its extraordinary measures and cash balance were wide-ranging but some estimates suggested the date might be as early as mid-December. Most market participants anticipated that a resolution to the debt ceiling would again be reached without a delayed payment on maturing Treasury securities al­though uncertainty about the debt ceiling resolution remained a source of concern in financial markets. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the November 2â3 meeting suggested that U.S. real GDP growth had slowed markedly in the third quarter after the first half's rapid pace. Labor market conditions continued to improve in September, though employment growth was slower than in recent months. Consumer price inflation in Septemberâas measured by the 12-month percentage change in the PCE price indexâwas elevated. Growth in total nonfarm payroll employment slowed further in September, held down by a decline in state and local government employment. As of September, total payroll employment had retraced three-fourths of the losses seen at the onset of the pandemic. The unemployment rate declined from 5.2 percent in August to 4.8 percent in September; the unemployment rates for African Americans and Hispanics also declined over this period, but both rates remained well above the national average. The labor force participation rate edged lower in September, and the employment-to-population ratio moved up. Private-sector job openings, as measured by the Job Openings and Labor Turnover Survey, stepped down in August but remained well above pre-pandemic levels. Initial claims for regular state unemployment insurance moved lower through late October and were approaching the levels seen before the pandemic. Recent weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP were especially volatile but, on balance, appeared consistent with a pickup in the pace of private employment gains relative to September. The employment cost index of hourly compensation in the private sector rose 4.1 percent over the 12 months ending in September; this gain was noticeably larger than the index's year-earlier 12-month change and was the fastest 12-month change since 2001. Total PCE price inflation was 4.4 percent over the 12 months ending in September, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 3.6 percent over the same period. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 2.3 percent in September. In the third quarter of 2021, the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, was little changed relative to the second quarter and remained at its highest level since 2014. Real PCE posted a modest increase in the third quarter after having risen sharply over the first half of the year. The third-quarter slowdown appeared to reflect a combination of factors, including the waning effect of previous fiscal stimulus measures, the surge in COVID-19 cases over the summer, and a plunge in motor vehicle purchases as extremely low dealer inventories constrained sales. Residential investment dropped further in the third quarter; al­though demand for housing was strong, shortages of construction supplies as well as tight land and labor markets restrained residential construction activity. Growth in business fixed investment slowed sharply in the third quarter, as supply bottlenecksâparticularly for motor vehiclesâweighed on business equipment spending and a limited availability of construction materials held back spending on nonresidential structures. Manufacturing output declined in September. Motor vehicle output stepped down further as semiconductor shortages continued to restrain production; in addition, Hurricane Ida resulted in prolonged plant outages in the petrochemical, refining, and plastic resins industries. Total real government purchases posted a small increase in the third quarter after having declined in the second quarter. Al­though real state and local purchases increased, the gain was largely offset by declines in both federal defense and nondefense purchases. The U.S. international trade deficit widened in August, reflecting a moderate pace of import growth against a subdued pace of export growth. Real import growth was driven by increases in consumer goods and industrial supplies. Real export growth was held back by declines in capital goods, agricultural products, and automotive products. Bottlenecks in the global semiconductor industry continued to weigh on exports and imports of automotive products, and shipping congestion continued to restrain trade overall. Advance estimates for September suggested that goods imports rose while goods exports fell, pointing to a further widening of the trade deficit. The Bureau of Economic Analysis estimated that a drop in net exports subtracted substantially from real GDP growth in the third quarter. Foreign GDP growth slowed modestly in the third quarter, as supply chain disruptions and the resurgence of COVID-19 weighed on production, particularly in China and other emerging market economies (EMEs). In several EMEs, public health restrictions were reinstated, resulting in factory closures. Moreover, Chinese manufacturing output was curtailed by the rationing of electricity amid a coal shortage resulting in part from policies to lower carbon emissions. In contrast to EMEs, advanced foreign economies (AFEs) generally continued to recover at a solid pace in the third quarter, as the boost from the further reopening of high-contact services activity was only partially offset by the drag from bottlenecks, the spread of the virus, and, in some places, labor shortages. Twelve-month rates of inflation abroad continued to rise, reflecting further increases in energy prices, persistent pressures from supply bottlenecks, and past exchange rate depreciation in some EMEs. Staff Review of the Financial Situation Over the intermeeting period, an increase in perceived inflation risks and an associated upward revision in the market-implied path of the federal funds rate contributed to increases in Treasury yields. Long-term sovereign yields in AFEs also increased notably. Despite these pressures, broad domestic equity indexes increased, on net, supported by strong earnings reports. Spreads of corporate bonds were little changed overall. Short-term funding markets were stable, while participation in the ON RRP facility increased further, to its highest level since the facility was put in place. Market-based financing conditions were accommodative, and bank lending standards eased for most loan categories. Market participants' views on the expected path for the federal funds rate over the next few yearsâimplied by a straight read of overnight index swap quotesârose substantially since the September FOMC meeting, apparently in response to perceived risks of higher inflation. Those risks also contributed to increases in Treasury yields, with 2-, 5-, and 10-year yields rising notably on net. Broad equity indexes increased, on net, over the intermeeting period. Perceptions of increased risks related to inflation were more than offset by a short-term resolution of the debt ceiling, a decrease in perceived risks related to the effect of the pandemic on the pace of the economic recovery, and stronger-than-expected third-quarter earnings. The VIX declined notably to near pre-pandemic levels. Spreads on corporate bonds were little changed, on net, over the intermeeting period and remained at low levels. Spreads of municipal bonds narrowed slightly. Short-term funding markets were stable over the intermeeting period. The effective federal funds rate remained at 8 basis points throughout the period except on month-ends, while the SOFR averaged 5 basis points. Consistent with relatively low Treasury bill supply and abundant liquidity, participation in ON RRP operations increased from an average of $1.1 trillion over the previous intermeeting period to $1.4 trillion, reaching a new high of $1.6 trillion on the September quarter-end. In major foreign markets, sovereign yields rose notably over the intermeeting period, as did inflation compensation and market-implied measures of expected policy rates, amid sharp further increases in energy prices, concerns about higher inflation, and communications by some foreign central banks that were seen as signaling a faster removal of monetary policy accommodation. Market concerns about risks of a downturn in the Chinese real estate sector remained elevated, and inflows into funds investing in China slowed, but the effects on broader financial markets were limited. On balance, major foreign equity indexes increased moderately, and the broad dollar appreciated a touch. In domestic credit markets, financing conditions faced by nonfinancial firms in capital markets remained highly accommodative over the intermeeting period. Gross corporate bond issuance stayed strong in September and October. Gross leveraged loan issuance decreased slightly in September after its strong growth in August. Equity raised through traditional initial public offerings remained robust in September and October, while equity issuance through special purpose acquisition companies remained at the subdued levels seen in recent months. Commercial and industrial (C&I) loans declined notably in the third quarter amid ongoing forgiveness of Paycheck Protection Program loans. In the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported easing standards and terms, on net, for C&I loans over the third quarter. Banks also reported that demand for C&I loans was about unchanged over the third quarter after strengthening for the previous two quarters; on balance, loan demand was still weaker than before the pandemic. The credit quality of large nonfinancial corporations remained strong. The volume of credit rating upgrades for speculative-grade nonfinancial corporate bonds outpaced downgrades in September and October. Trailing default rates on corporate bonds and leveraged loans decreased from already low levels, while market indicators of future expected default rates remained benign. In the municipal bond market, financing conditions remained accommodative despite a modest increase in yields. Issuance of municipal debt was strong in September and October, and indicators of the credit quality of municipal debt remained healthy. Survey-based indicators suggested that small business owners became less pessimistic about their financial prospects, with the exception of owners in the educational services sector, for whom expectations deteriorated slightly. While loan originations to small businesses fell a bit, the results from the October SLOOS suggested that the decline appeared to reflect weak demand, particularly for small and very small firms. Commercial real estate loan balances on banks' books strengthened, and, in the October SLOOS, banks reported an easing of standards on such loans over the third quarter. Issuance of commercial mortgage-backed securities (CMBS) remained robust, supported by spreads of agency CMBS generally at or below pre-pandemic levels. Delinquency rates on mortgages in CMBS pools continued to fall but remained elevated for CMBS backed by hotel and retail properties. In the residential mortgage market, financing conditions remained accommodative, particularly for borrowers who met standard conforming loan criteria. In the October SLOOS, banks reported easing lending standards for almost all major mortgage categories. Mortgage rates increased modestly over the intermeeting period but did not rise as much as the 10-year Treasury yield. Indicators of mortgage originations for home purchases and refinancing remained fairly robust. The share of mortgages in forbearance continued to decline through October, and the rate of new transitions into delinquency stayed low by historical standards. Financing conditions for consumer credit remained accommodative for most borrowers, especially those with stronger credit scores. Lending standards for nonprime consumers in the credit card market continued to ease but remained slightly tighter than pre-pandemic levels. In the October SLOOS, banks reported easier standards for credit cards and auto loans over the third quarter. While demand for credit cards strengthened, auto loan growth slowed in response to low dealer inventories and a weakening of auto sales. The staff provided an update on indicators related to the stability of the financial system. The staff noted that asset valuations remained generally high relative to historical norms. In particular, bond and leveraged loan spreads remained narrow, while equity prices continued to increase, supported by strong earnings expectations, still-low Treasury yields, and high risk appetite. House prices rose rapidly, outpacing rents, but the staff did not see signs of loose mortgage underwriting standards or excessive mortgage credit growth that could potentially amplify a shock arising from falling house prices. For households, the level of consumer debt was largely unchanged on an inflation-adjusted basis, while delinquencies returned to pre-pandemic levels or below. For nonfinancial businesses, measures of leverage in the corporate sector fell over the second quarter and largely returned to pre-pandemic levels; in addition, the level of corporate debt became more sustainable as earnings increased and rates remained low. In the financial sector, the staff noted that banks were strongly capitalized, with high levels of stable funding and high-quality liquid assets. The mean level of gross hedge fund leverage was noteworthy and its distribution was skewed, with particularly high leverage among funds in the top decile. Vulnerabilities associated with funding risks remained at money funds and other mutual funds. In addition, funding risks were an emerging concern at entities issuing stablecoins, because they appeared to have structural maturity and liquidity transformation vulnerabilities similar to those for money funds but with considerably less transparency and an underdeveloped regulatory framework. The staff noted that the President's Working Group on Financial Markets was engaged in interagency work to address these risks. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the November FOMC meeting was slightly weaker than the September projection. Incoming data suggested that the resolution of supply constraints was starting later and would be more gradual than previously assumed; even so, real GDP was expected to post a sizable gain over 2021 as a whole. In 2022, real GDP growth was expected to remain close to its 2021 pace, supported by the continued reopening of the economy and the resolution of supply constraints in most sectors. With the boost from these factors fading, real GDP growth was projected to step down noticeably in 2023 and to be close to potential output growth in 2023 and 2024. However, the level of real GDP was expected to remain well above potential throughout the projection period, and the unemployment rate was expected to decline to historically low levels. The staff's near-term outlook for inflation was revised up, as consumer food and energy prices had risen faster than expected and production bottlenecks and recent wage gains were seen as putting somewhat greater upward pressure on prices than had been anticipated. As a result, the 12-month change in PCE prices was projected to move up further relative to September's pace and to end the year well above 2 percent. Over the following two years, the boost to consumer prices caused by supply issues was expected to partly reverse, and resource utilization was projected to tighten further. PCE price inflation was therefore expected to step down to 2 percent in 2022 and to 1.9 percent in 2023 before edging back up to 2 percent in 2024. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the risks around the inflation projection were skewed to the upside. In particular, the possibility of another sizable wave of COVID-19 cases in the winter was seen as an important source of downside risk to activity, while the possibility of more severe and persistent supply issues was viewed as an additional downside risk to activity and as an upside risk to inflation. Participants' Views on Current Economic Conditions and the Economic Outlook In their discussion of current conditions, participants noted that, with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had improved in recent months, but the summer's rise in COVID-19 cases had slowed their recovery. Inflation was elevated, largely reflecting factors that were expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy had contributed to sizable price increases in some sectors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation, but risks to the economic outlook remained. Participants observed that growth in economic activity had slowed in the third quarter to a rate significantly below the robust pace seen in the first half of the year. The spread of the Delta variant had contributed to the slowdown in growth in the third quarter by damping household and business spending, holding down labor supply, and intensifying supply chain disruptions. Participants noted that the underlying conditions supporting growth in demand remained strong and that, as the number of COVID-19 cases remained well below the summer's levels, growth in economic activity would likely show a pickup in the fourth quarter. They further foresaw robust growth in 2022, supported by progress on vaccinations and an easing of supply constraints. In their discussion of the household sector, participants remarked that demand for most consumer goods had remained strong. They noted that businesses had generally recorded robust sales despite labor shortages and other supply disruptions that had prevented them from fully meeting higher demand for their products. Participants interpreted available data as suggesting that the spread of the Delta variant had slowed the shift of consumer demand toward purchases of services and away from spending on goods, stretching out the full reopening of the economy and intensifying supply and demand imbalances. Participants observed that households had strong balance sheets and that consumer spending would also be supported by accommodative financial conditions. A number of participants noted that there was likely to be a drag on household spending as previous fiscal support faded, or that fiscal policy might provide some support to aggregate demand if the Congress authorized major new federal appropriations. Participants remarked that supply chain challenges and limited labor availability continued to be major constraints on manufacturing activity and the business sector more broadly. Bottleneck pressures faced by businesses were accompanied by global supply chain disruptions associated with major backlogs in shipments and transportation as well as surging demand for a variety of goods, shortages of labor and other inputs, increases in costs of production, and depleted inventory levels in key sectors. Many business contacts had experienced a worsening of supply chain problems, and participants reported that firms had responded to these challenges by taking a variety of actions, including raising prices, turning away customers, restructuring supply chains, and using alternative, but higher-cost, shipping options. Participants judged that supply constraints would likely continue for longer than they had previously expected. Participants noted that data received over the intermeeting period indicated that labor market conditions had continued to improve. Al­though the September increase in payrolls had been moderate compared with recent months, the unemployment rate had declined further and previous months' job growth had been revised up. Participants observed that September's rise in payrolls had been held down by a shortage of workers, in part reflecting the ongoing effect of the virus on labor supply decisions. With COVID-19 cases expected to remain below the summer's levels, participants anticipated better payroll numbers in the months ahead. Participants indicated that District contacts continued to report difficulties in finding and retaining workers and that, in addition to offering higher wages, businesses were turning to increased use of automation. While recognizing that labor market conditions varied significantly across the country, some participants cited a number of signs that the U.S. labor market was very tight: These included data on quits, job availability, and stronger rates of nominal wage growth reflected in the recent rise in the employment cost index, as well as the readings provided by the Federal Reserve Bank of Kansas City's Labor Market Conditions Indicators. A number of participants observed that the labor force participation rate remained well below the level reached before the pandemic. Several participants judged that labor force participation would be structurally lower than in the past, and a few of these participants cited the high level of retirements recorded since the start of the pandemic. Several other participants suggested that labor supply was currently being depressed by pandemic-related factors such as disruptions related to caregiving arrangements and noted that the importance of such factors would likely diminish as economic and public health conditions improved further. Participants generally saw the current elevated level of inflation as largely reflecting factors that were likely to be transitory but judged that inflation pressures could take longer to subside than they had previously assessed. They remarked that the Delta wave had intensified the impediments to supply chains and had helped sustain the high level of goods demand, adding to the upward pressure on prices. Participants also observed that increases in energy prices, stronger rates of nominal wage growth, and higher housing rental costs had been forces adding to inflation. Some participants highlighted the fact that price increases had become more widespread. Although participants expected significant inflation pressures to last for longer than they previously expected, they generally continued to anticipate that the inflation rate would diminish significantly during 2022 as supply and demand imbalances abated. Nonetheless, they indicated that their uncertainty regarding this assessment had increased. Many participants pointed to considerations that might suggest that elevated inflation could prove more persistent. These participants noted that average inflation already exceeded 2 percent when measured on a multiyear basis and cited a number of factorsâsuch as businesses' enhanced scope to pass on higher costs to their customers, the possibility that nominal wage growth had become more sensitive to labor market pressures, or accommodative financial conditionsâthat might result in inflation continuing at elevated levels. Some other participants, however, remarked that al­though inflationary pressures were lasting longer than anticipated, those pressures continued to reflect the same pandemic-related imbalances and would likely abate when supply constraints eased. These participants also noted that the most sizable price increases may have already occurred, that there was as yet little evidence of a change in inflation dynamicsâsuch as the development of a wageâprice spiralâthat would tend to prolong elevated levels of inflation, and that forces already in motion would likely bring inflation down toward 2 percent over the medium term. Participants were attentive to the sizable increase in the cost of living that had taken place this year and the associated burden on U.S. households, particularly those who had limited scope to pay higher prices for essential goods and services. In their comments on inflation expectations, a number of participants discussed the risk that, in light of recent elevated levels of inflation, the public's longer-term expectations of inflation might increase to a level above that consistent with the Committee's longer-run inflation objective; such a development could make it harder for the Committee to achieve 2 percent inflation over the longer run. A couple of participants pointed to increases in survey- and market-based indicators of expected inflationâincluding the notable rise in the five-year TIPS-based measure of inflation compensationâas possible signs that inflation expectations were becoming less well anchored. Several other participants, however, remarked that measures of near- and medium-term inflation expectations typically had been sensitive to movements in realized inflation and that they had not exhibited greater sensitivity recently. They additionally pointed out that indicators of longer-term inflation expectationsâincluding the five-year, five-year-forward measure of inflation compensationâcontinued to display less sensitivity to realized inflation and remained well anchored at levels consistent with the Committee's longer-run 2 percent goal. Participants observed that uncertainty about the economic outlook remained high. They particularly stressed uncertainties associated with the labor market, including the evolution of labor force participation, and with the length of time required to resolve the supply chain situation. Participants cited upside risks to inflation, including those associated with strong demand for goods and a tight labor market. Upside risks to economic activity included a potential near-term boost to aggregate demand that could arise from the drawing down of the substantial savings accumulated by households since the beginning of the pandemic. A few participants mentioned an upsurge in COVID-19 cases during the coming winter or an emergence of new virus strains as possibilities that, if they were realized, would damp economic activity and intensify price pressures. A number of participants commented on issues related to financial stability. A couple of participants noted factors supporting the strength and resilience of the U.S. financial system, including the solid capital and liquidity conditions of banks and the fact that underwriting standards for residential mortgages had not eased substantially in an environment of rising house prices. A few participants emphasized the importance of maintaining strong bank capital positions, particularly at the largest banks. A few participants also cited a number of factors representing potential vulnerabilities to the financial system: These included elevated asset valuations prevailing widely across asset classes, the growing exposure of banks to nonbank financial firms, and the risk of a sudden reduction in the liquidity of collateral used at central counterparty clearing and settlement systems. In the area of cybersecurity, a few participants stressed the importance of greater preparedness against a cyberattack that could disrupt the nation's payments process and financial system. Several participants commented on the financial stability risksâincluding those relating to maturity and liquidity transformationâassociated with stablecoins and on the need for regulators to address these risks. A few participants noted the importance of developing systematic monitoring of the climate-related risks facing the financial system. In their consideration of the stance of monetary policy, participants agreed that the economy had made substantial further progress toward the Committee's goals since December 2020, when the Committee adopted its guidance regarding asset purchases. The unemployment rate had declined to 4.8 percent in Septemberâabout 2 percentage points lower than the level last Decemberâand job openings and other indicators also were pointing to widespread strength in labor demand, consistent with a broad improvement in labor market conditions. Consequently, participants assessed that the criterion of substantial further progress had been met with regard to the Committee's maximum employment goal. In addition, participants generally judged that the Committee's criterion of substantial further progress had clearly been more than met with respect to inflation. Against this backdrop, all participants judged that, consistent with the Committee's previous policy communications, it would be appropriate to announce at this meeting a reduction in the pace of net asset purchases. Participants generally supported the plan to implement reductions in the pace of net purchases of Treasury securities and agency MBS by $10 billion and $5 billion per month, respectively, over the upcoming intermeeting period and judged that similar reductions in the pace would likely be appropriate in each subsequent month. Some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases. Participants noted that beginning to scale back the pace of net asset purchases was not intended to convey any direct signal regarding adjustments to the target range for the federal funds rate. They highlighted the more stringent criteria for raising the target range, compared with the criteria that applied to beginning to reduce the pace of asset purchases. Participants stressed that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment. Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted so that the Committee would be in a better position to make adjustments to the target range for the federal funds rate, particularly in light of inflation pressures. Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee's objectives. At the same time, because of the continuing considerable uncertainty about developments in supply chains, production logistics, and the course of the virus, a number of participants stressed that a patient attitude toward incoming data remained appropriate to allow for careful evaluation of evolving supply chain developments and their implications for the labor market and inflation. That said, participants noted that the Committee would not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had improved in recent months but that the summer's rise in COVID-19 cases had slowed their recovery. Inflation was elevated, largely reflecting factors that were expected to be transitory. They remarked that supply and demand imbalances related to the pandemic and the reopening of the economy had contributed to sizable price increases in some sectors. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation, but risks to the economic outlook remained. Members agreed that the postmeeting statement should acknowledge that the sectors of the economy most adversely affected by the pandemic had improved in recent months, but that the summer's rise in COVID-19 cases had slowed their recovery. They also concurred that it would be appropriate to convey less certainty about the path of inflation by noting that the factors driving elevated inflation "are expected to be transitory." In order to provide additional information about these factors, members further decided that the postmeeting statement would say that "supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors." Members also agreed to include a sentence stating that "progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation." Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. All members reaffirmed that, in accordance with the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, and with inflation having run persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. Members expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. In their discussion of monetary policy in the period ahead, members agreed that, in light of the substantial further progress the economy had made toward the Committee's goals since last December, the Committee should begin to slow the pace of its asset purchases at this meeting. Consistent with this approach, the Committee decided to start reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency MBS. Consequently, the Committee agreed that, beginning with the purchase schedule published in mid-November, it would increase its holdings of Treasury securities by at least $70 billion per month rather than $80 billion per month and would increase its holdings of agency MBS by at least $35 billion per month, rather than $40 billion per month. Because the Open Market Desk would be releasing two monthly purchase schedules between the November and December FOMC meetings, the Committee further decided to add to the postmeeting statement an indication that, beginning in December, the Committee would increase its holdings of Treasury securities by at least $60 billion per month and of agency MBS by at least $30 billion per month. Members decided the postmeeting statement should state that the Committee judged that similar reductions in the pace of net asset purchases would likely be appropriate in subsequent months, implying that increases in securities holdings would cease by the middle of next year under the Committee's outlook. Members also noted that the Committee was prepared to adjust the pace of purchases if warranted by changes in the economic outlook and agreed that the postmeeting statement should say so. Members agreed that the addition of this language would acknowledge the importance of maintaining flexibility to adjust the stance of policy as appropriate in response to changes in the Committee's outlook for the labor market and inflation. Members agreed that the statement should continue to note that the Committee's ongoing asset purchases helped foster smooth market functioning and accommodative financial conditions. Additionally, members decided to introduce into the postmeeting statement a reference to the Federal Reserve's "holdings of securities" in the sentence describing the economic effects of asset purchases. This addition would make clear that, even after net increases in the SOMA portfolio ceased, the Federal Reserve's elevated securities holdings would continue to support accommodative financial conditions. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective November 4, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Complete the increase in System Open Market Account (SOMA) holdings of Treasury securities by $80 billion and of agency mortgage-backed securities (MBS) by $40 billion, as indicated in the monthly purchase plans released in mid-October. Increase the SOMA holdings of Treasury securities by $70 billion and of agency MBS by $35 billion, during the monthly purchase period beginning in mid-November. Increase the SOMA holdings of Treasury securities by $60 billion and of agency MBS by $30 billion, during the monthly purchase period beginning in mid-December. Increase holdings of Treasury securities and agency MBS by additional amounts as needed to sustain smooth functioning of markets for these securities. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer's rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 0.15 percent, effective November 4, 2021. The Board also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective November 4, 2021. Following these actions, the Chair commented on the critical importance of maintaining the public's trust and confidence in the Federal Reserve as an institution. In this regard, the Chair noted the recent announcement of changes in the rules regarding financial investments and transactions for Federal Reserve officials and indicated that efforts were under way to implement these new rules expeditiously. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 14â15, 2021. The meeting adjourned at 10:35 a.m. on November 3, 2021. Notation Vote By notation vote completed on October 12, 2021, the Committee unanimously approved the minutes of the Committee meeting held on September 21â22, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee December 14-15, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held by videoconference on Tuesday, December 14, 2021, at 9:00 a.m. and continued on Wednesday, December 15, 2021, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Kenneth C. Montgomery, Alternate Members of the Committee Patrick Harker and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia and Minneapolis, respectively Meredith Black, Interim President of the Federal Reserve Bank of Dallas James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, David Altig, Kartik B. Athreya, Brian M. Doyle, 2 Rochelle M. Edge, Sylvain Leduc, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 3 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Sally Davies, Deputy Director, Division of International Finance, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board William F. Bassett, Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board David López-Salido and Min Wei, Senior Associate Directors, Division of Monetary Affairs, Board; John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board; Paul R. Wood, 4 Senior Associate Director, Division of International Finance, Board Edward Nelson and Annette Vissing-Jørgensen, Senior Advisers, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Eric C. Engstrom and Elizabeth K. Kiser, Associate Directors, Division of Research and Statistics, Board; Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Jeffrey D. Walker, 3 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board; Zeynep Senyuz 3 and Rebecca Zarutskie, Deputy Associate Directors, Division of Monetary Affairs, Board Brian J. Bonis, Etienne Gagnon, 3 and Dan Li, Assistant Directors, Division of Monetary Affairs, Board; Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Alyssa G. Anderson, Section Chief, Division of Monetary Affairs, Board; Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board Camille Bryan, Senior Project Manager, Division of Monetary Affairs, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Jonathan E. Goldberg, 3 Sebastian Infante, and Francisco Vazquez-Grande, Principal Economists, Division of Monetary Affairs, Board James Hebden 3 and James M. Trevino, 3 Lead Technology Analysts, Division of Monetary Affairs, Board Zina Bushra Saijid, 3 Senior Financial Analyst, Division of International Finance, Board Isaiah C. Ahn, Information Management Analyst, Division of Monetary Affairs, Board Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Joseph W. Gruber and Geoffrey Tootell, Executive Vice Presidents, Federal Reserve Banks of Kansas City and Boston, respectively David Andolfatto, Anne Baum, Todd E. Clark, Marc Giannoni, Mark L.J. Wright, and, Nathaniel Wuerffel, 3 Senior Vice Presidents, Federal Reserve Banks of St. Louis, New York, Cleveland, Dallas, Minneapolis, and New York, respectively Roc Armenter, Kathryn B. Chen, 3 Jonathan P. McCarthy, and Matthew D. Raskin, 3 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, New York, and New York, respectively Robert Lerman 3 and Jamie Pfeifer, 3 Assistant Vice Presidents, Federal Reserve Bank of New York Linsey Molloy 3 Quantitative Policy and Analysis Manager, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments over the period. Financial markets responded to significant new information about the economy and monetary policy, as well as the emergence of the Omicron variant. Overall, domestic financial conditions tightened modestly but remained near historically accommodative levels. Expectations for an earlier reduction in Federal Reserve policy accommodation lifted short-term interest rates and supported the dollar. While prices of equities that are sensitive to COVID-19 risks declined significantly, the S&P 500 index was little changed. Over the period, market participants considered potential drivers of the notable decline in far-forward sovereign yields in the United States and other advanced economies. News of the Omicron variant reportedly drove safe-haven flows into sovereign bonds, pushing term premiums lower. The significant co-movement between far-forward yields and the share prices of firms most affected by social distancing was consistent with this interpretation. In addition to the effects of the pandemic on risk sentiment, some discussed the potential for COVID to become endemic, possibly resulting in modestly lower potential growth over time and a lower long-run neutral level of the federal funds rate. Regarding the outlook for U.S. monetary policy, expectations for a reduction in policy accommodation shifted forward notably. Respondents to the Open Market Desk's surveys of primary dealers and market participants broadly projected that the Committee would quicken the pace of reduction in the Federal Reserve's net purchases of Treasury securities and agency mortgage-backed securities (MBS), and the median respondent projected net asset purchases to end in March 2022. The median respondent's projected timing for the first increase in the target range for the federal funds rate also moved earlier from the first quarter of 2023 to June 2022. Although the Desk surveys and interest rate futures indicated expectations for earlier increases in the target range than at the time of the November meeting, expectations for the federal funds rate at longer horizons did not appear to have risen. In addition, the average of probability distributions for the federal funds rate reported in the Desk surveys suggested considerable uncertainty about the path of the federal funds rate, as survey respondents placed significant odds on a range of outcomes. With the likely timing of the beginning of the removal of policy accommodation considered closer, market participants began to discuss how balance sheet policy might feature in the Committee's plan for reducing accommodation when warranted, although expectations for the timing of the first decline in the balance sheet were diffuse. The manager turned next to a discussion of foreign developments. Foreign policy-sensitive rates were relatively steady over the intermeeting period, as several central banks in advanced foreign economies (AFEs) signaled somewhat cautious approaches to the removal of policy accommodation. Market participants continued to focus on risks related to economic and financial developments in China, though near-term concerns had moderated some following steps by Chinese authorities to ease policy. Turning to Desk operations and money markets, the manager noted that the Desk had reduced net purchases of Treasury securities and agency MBS in accordance with the directive issued at the November meeting. Overall, the transition to a slower pace of purchases had gone smoothly. In money markets, news that a path had emerged to a resolution of the debt ceiling impasse led yields on Treasury bills maturing in December and January to decline. Following the resolution, the Treasury was expected to increase bill issuance to restore the Treasury General Account to more normal levels. Market participants generally were not anticipating significant strains in money market conditions over year end. In discussing recently established backstop facilities, the manager noted continued progress towards expanding access to the standing repurchase agreement (repo) facility (SRF) to depository institutions; a number of institutions were currently in the process of becoming SRF counterparties. The Federal Reserve also continued to onboard new counterparties for the Foreign and International Monetary Authorities Repo Facility, and customers to the facility now represented the majority of foreign and international monetary authorities' custody holdings of Treasury securities at the Federal Reserve Bank of New York. The temporary dollar liquidity swap lines established in March 2020 were set to expire on December 31; the Committee's foreign currency directive would be updated at the January meeting to reflect the expiration of those lines. Finally, the manager provided an update on the transition away from LIBOR (London interbank offered rate). Overall, considerable progress had been made in the transition away from LIBOR to the Secured Overnight Financing Rate (SOFR) in cash and derivatives markets. However, a few key areas of work remained. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Discussion of Policy Normalization Considerations Participants began a discussion of a range of topics associated with the eventual normalization of the stance of monetary policy. The topics included the lessons learned from the Committee's previous experience with policy normalization, alternative approaches for removing policy accommodation, the timing and sequencing of policy normalization actions, and the appropriate size and composition of the Federal Reserve's balance sheet in the longer run. They agreed that their discussion at this meeting would be helpful background for the Committee's future decisions regarding policy normalization. No decisions regarding the Committee's approach were made at the meeting. The participants' discussion was preceded by staff presentations. The staff reviewed the previous normalization episode, including how the Committee commenced normalization by raising the target range for the federal funds rate and then reducing the Federal Reserve's asset holdings in a gradual and predictable manner, as well as the timing of these steps. The staff then discussed some of the channels through which policy rate and balance sheet actions affect financial conditions and alternative ways these tools could be deployed to reduce policy accommodation in support of the Committee's macroeconomic goals. The staff presentation included assessments of the implications for the yield curve of alternative settings of the two tools, the relative uncertainty of the effects of each tool, and the challenges associated with conducting and communicating policy with multiple tools. Finally, the staff reviewed the experience of foreign central banks with policy normalization. Participants judged that several aspects of the previous approach remained applicable in the current environment. In particular, they noted that the principles and plans underlying policy normalization were communicated in advance of any decisions or actions, which enhanced the public's understanding and thus the effectiveness of monetary policy during that period. At the same time, participants remarked that the previous experience highlighted the benefits of maintaining the flexibility to adjust the details of the approach to normalization in response to economic and financial developments. Participants generally emphasized that, as in the previous normalization episode and as expressed in the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy, changes in the target range for the federal funds rate should be the Committee's primary means for adjusting the stance of monetary policy in support of its maximum-employment and price-stability objectives. This preference reflected the view that there is less uncertainty about the effects of changes in the federal funds rate on the economy than about the effects of changes in the Federal Reserve's balance sheet. Moreover, participants stated that the federal funds rate is a more familiar tool to the general public and therefore is advantageous for communication purposes. A few participants also noted that when the federal funds rate is away from the effective lower bound (ELB), the Committee could more nimbly change interest rate policy than balance sheet policy in response to economic conditions. Participants also discussed some key differences between current economic conditions and those that prevailed during the previous episode and remarked that the Committee would have to take these differences into account in removing policy accommodation. Most notably, participants remarked that the current economic outlook was much stronger, with higher inflation and a tighter labor market than at the beginning of the previous normalization episode. They also observed that the Federal Reserve's balance sheet was much larger, both in dollar terms and relative to nominal gross domestic product (GDP), than it was at the end of the third large-scale asset purchase program in late 2014. Participants noted that the current weighted average maturity of the Federal Reserve's Treasury holdings was shorter than at the beginning of the previous normalization episode. Some observed that, as a result, depending on the size of any caps put on the pace of runoff, the balance sheet could potentially shrink faster than last time if the Committee followed its previous approach in phasing out the reinvestment of maturing Treasury securities and principal payments on agency MBS. However, several participants raised concerns about vulnerabilities in the Treasury market and how those vulnerabilities could affect the appropriate pace of balance sheet normalization. A couple of participants noted that the SRF could help to mitigate such concerns. Participants also judged the Federal Reserve to be better positioned for normalization than in the past, as the ample-reserves framework and the Federal Reserve's current interest rate control tools, including interest on reserve balances and the overnight reverse repurchase agreement (ON RRP) facility, are in place and working well. Some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process, especially in light of abundant liquidity in money markets and elevated usage of the ON RRP facility. Participants had an initial discussion about the appropriate conditions and timing for starting balance sheet runoff relative to raising the federal funds rate from the ELB. They also discussed how this relative timing might differ from the previous experience, in which balance sheet runoff commenced almost two years after policy rate liftoff when the normalization of the federal funds rate was judged to be well under way. Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate. However, participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the Committee's previous experience. They noted that current conditions included a stronger economic outlook, higher inflation, and a larger balance sheet and thus could warrant a potentially faster pace of policy rate normalization. They emphasized that the decision to initiate runoff would be data dependent. Some participants commented that removing policy accommodation by relying more on balance sheet reduction and less on increases in the policy rate could help limit yield curve flattening during policy normalization. A few of these participants raised concerns that a relatively flat yield curve could adversely affect interest margins for some financial intermediaries, which may raise financial stability risks. However, a couple of other participants referenced staff analysis and previous experience in noting that many factors can affect longer-dated yields, making it difficult to judge how a different policy mix would affect the shape of the yield curve. Many participants judged that the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode. Many participants also judged that monthly caps on the runoff of securities could help ensure that the pace of runoff would be measured and predictable, particularly given the shorter weighted average maturity of the Federal Reserve's Treasury security holdings. Participants discussed considerations regarding the longer-run size of the balance sheet consistent with the efficient and effective implementation of monetary policy in an ample-reserves regime. Participants noted that the current size of the balance sheet is elevated and would likely remain so for some time after the process of normalizing the balance sheet was under way. Several participants noted that the level of reserves that would ultimately be needed to implement monetary policy effectively is uncertain, because the underlying demand for reserves by banks is time varying. In light of this uncertainty and the Committee's previous experience, a couple of participants expressed a preference to allow for a substantial buffer level of reserves to support interest rate control. Participants noted that it would be important to carefully monitor developments in money markets as the level of reserves fell to help inform the Committee's eventual assessment of the appropriate level for the balance sheet in the longer run. Some participants expressed the view that the SRF would help ensure interest rate control as the size of the balance sheet approached its longer-run level; several participants noted that the SRF could facilitate a faster runoff of the balance sheet than might otherwise be the case; several participants raised the possibility that the establishment of the SRF could reduce the demand for reserves in the longer run, suggesting that the longer-run balance sheet could be smaller than otherwise. Participants also discussed the composition of the Federal Reserve's asset holdings. Consistent with the previous normalization principles, some participants expressed a preference for the Federal Reserve's asset holdings to consist primarily of Treasury securities in the longer run. To achieve such a composition, some participants favored reinvesting principal from agency MBS into Treasury securities relatively soon or letting agency MBS run off the balance sheet faster than Treasury securities. Participants welcomed additional analysis from the staff on issues related to normalization and agreed that continuing their deliberations at upcoming meetings would be useful. Staff Review of the Economic Situation The information available at the time of the December 14â15 meeting suggested that U.S. real GDP growth was picking up in the fourth quarter after having slowed in the third quarter. Labor market conditions continued to improve in October and November, and measures of compensation had risen sharply so far this year. Consumer price inflation through Octoberâas measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. Total nonfarm payroll employment rose solidly, on average, in October and November, but the average gain was below that seen in recent quarters. The unemployment rate declined from 4.8 percent in September to 4.2 percent in November; the unemployment rates for African Americans and Hispanics also declined substantially over this period, but both rates remained well above the national average. The labor force participation rate and the employment-to-population ratio both moved up in November. Private-sector job openings, as measured by the Job Openings and Labor Turnover Survey, remained well above pre-pandemic levels; quits rates also stayed elevated despite edging down in October. The four-week moving average of initial claims for regular state unemployment insurance moved lower through early December and was at a level similar to that seen before the pandemic. Recent weekly estimates of private-sector payrolls constructed by the Board's staff using data provided by the payroll processor ADP pointed to a further increase in private employment through early December. Average hourly earnings rose 4.8 percent over the 12 months ending in November, with sizable wage gains observed across most sectors. Inflation readings remained high, and various indicators suggested that inflationary pressures had broadened in recent months. Total PCE price inflation was 5.0 percent over the 12 months ending in October, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.1 percent over the same period. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 2.6 percent in October, an increase of 0.6 percentage point relative to two months earlier. In November, the 12-month change in the consumer price index (CPI) was 6.8 percent, while core CPI inflation was 4.9 percent over the same period. Survey-based measures of medium- and longer-run inflation expectationsâincluding those from the University of Michigan Surveys of Consumers, the Federal Reserve Bank of New York's Survey of Consumer Expectations, and the Survey of Professional Forecastersâleveled off after having risen over the past year. Real PCE growth appeared to be picking up in the fourth quarter despite an upturn in COVID-19 cases, the waning effect of previous fiscal stimulus measures, lingering supply bottlenecks, and recent increases in consumer prices. In particular, real expenditures on retail goods rose solidly again in October, and outlays for services strengthened. In November, however, the components of the nominal retail sales data used to estimate PCE stepped down, possibly reflecting some holiday sales having been pulled forward to October. Light motor vehicle sales in October and November were below their third-quarter average (though they were up, on net, relative to September), as extremely low dealer inventories continued to constrain sales. Housing demand remained strong, but indicators of housing-sector activity, including housing starts and home sales, were generally little changed in October. Shortages of construction materials appeared to have hampered building completions, and there was limited availability of lots ready for construction. Growth in business fixed investment appeared to be rising at a slow pace again in the fourth quarter, as supply bottlenecks continued to weigh on business equipment spending, and the limited availability of construction materials was still holding back spending on nonresidential structures. Manufacturing output increased in October, and available indicators of production were consistent with another gain in November. Motor vehicle output moved up in October from its low level in September, as most assembly plants previously shuttered by semiconductor chip shortages had reopened. Outside of motor vehicles, manufacturing production also rose in October, partly reflecting the continued recovery from the effects of Hurricane Ida on the output of the petrochemical, refining, and plastic resins industries. Total real government purchases appeared to be rising moderately again in the fourth quarter. Federal defense spending rose, on net, in October and November relative to the third quarter. However, growth in state and local government purchases appeared to be moderating, as payrolls decreased in October and November, and nominal state and local construction expenditures in October were only a little above their third-quarter level. After reaching a record level in September, the U.S. international trade deficit narrowed in October, reflecting a large rebound in exports. The export rebound was broad based, with sizable increases in real exports of industrial supplies, capital goods, agricultural products, and consumer goods. Exports of automotive products also picked up after having been low in recent months. Real imports were little changed in October, with increases in imports of automotive products and consumer goods offset by a decline in industrial supplies. Shipping congestion and other bottlenecks continued to restrain overall trade in goods. Exports and imports of services edged up in October but remained low relative to pre-pandemic levels, largely because international travel was still depressed. Incoming data were consistent with a pickup in foreign economic growth in the current quarter, driven mainly by the reopening of Asian economies following lockdowns earlier in the year to contain a resurgence of COVID-19 cases. Strong gains in intra-Asian trade and solid readings of purchasing managers indexes also provided some early signs that production bottlenecks in the region were easing. In contrast, the introduction of new public health restrictions in Europe in response to a new wave of COVID-19 infections appeared to have restrained economic activity in some European economies. More recently, the detection and rapid spread of the Omicron variant prompted new international travel restrictions in many foreign economies. Inflation abroad continued to rise, mostly driven by further increases in retail energy and food prices. In addition, cost pressures from persistent bottlenecks in supply and transportation were reflected in record-high input and output price components of the purchasing managers indexes. Staff Review of the Financial Situation Over the intermeeting period, rising inflation and FOMC communications appeared to have put substantial upward pressure on shorter-dated Treasury yields. Even so, longer-dated Treasury yields declined, on net, in part reflecting renewed concerns among market participants about the course of the pandemic and associated safe-haven flows. Pandemic-related fears as well as concerns about inflation and tighter monetary policy apparently weighed on risky asset prices despite continued robust economic data. In domestic markets, broad equity price indexes were little changed, equity market volatility increased markedly, and spreads on corporate bonds widened moderately. In AFEs, sovereign yields declined, and major equity indexes edged down. Short-term funding markets were stable, while participation in the ON RRP facility increased further. Overall, financing conditions for businesses and households remained accommodative except for small businesses and nonprime borrowers. Market participants' views on the expected path for the federal funds rateâas implied by a straight read of overnight index swap quotesâsuggested that they had pulled forward expected rate increases more into 2022 and 2023 compared with the timing they anticipated at the time of the previous FOMC meeting. The potential for a less accommodative policy stance over the next few years contributed to a notable rise in two- and five-year Treasury yields. On net, inflation compensation had declined moderately since the November FOMC meeting, as heightened concerns about the inflation outlook appeared to be outweighed by increases in the perceived prospects for tighter monetary policy and by fears about the course of the pandemic. Renewed concerns about the course of the pandemic also contributed to a decline in the 10-year Treasury yield, on net, over the intermeeting period despite stronger-than-anticipated data on economic activity and surprisingly high inflation. Broad equity indexes were little changed, on net, since the previous FOMC meeting, as strong economic data appeared to offset concerns regarding monetary policy, inflation, and the pandemic. Spreads of both investment- and speculative-grade corporate bonds widened moderately, and spreads of municipal bonds were little changed. Short-term funding markets were stable over the intermeeting period. Throughout the period, the effective federal funds rate remained at 8 basis points apart from a brief decrease on the November month-end, and the SOFR remained at 5 basis points. Participation in ON RRP operations increased slightly to an average of $1.5 trillion. Foreign asset prices fluctuated over the intermeeting period in response to central bank communications, headlines regarding COVID-related restrictions in some countries, and the spread of the Omicron variant. On net, AFE sovereign yields declined, major foreign equity indexes generally edged down, and the broad dollar index increased modestly. Emerging market economy (EME) sovereign spreads widened, and capital flows into EME-dedicated funds turned slightly negative in the second half of November, partly in response to concerns about the Omicron variant. A credit agency declared two heavily indebted Chinese property developers to be in "restricted default," hurting asset prices in China's real estate sector, but spillovers to broader financial markets were limited. In domestic credit markets, financing conditions for nonfinancial corporations remained accommodative. Gross corporate bond issuance by both investment- and speculative-grade borrowers was solid, and gross leveraged loan issuance was robust. Equity raised through traditional initial public offerings also was strong, but equity issuance through special purpose acquisition companies remained much weaker than earlier this year. In November, commercial and industrial (C&I) loans on banks' books grew for the first time since the beginning of the year. The share of Paycheck Protection Program loans in C&I loan balances at banks continued to fall in the third quarter amid ongoing forgiveness of those loans. The credit quality of large nonfinancial corporations remained solid amid strong earnings growth. S&P 500 firms' earnings reports for the third quarter again exceeded analyst expectations. In November, the volume of upgrades outpaced that of downgrades for both investment- and speculative-grade nonfinancial corporate bonds. Trailing default rates on corporate bonds and leveraged loans declined to close to historical lows in October and November, and market indicators of future default expectations remained benign. In the municipal bond market, issuance was robust in October and November, and financing conditions remained accommodative, supported by low yields. The credit quality of municipal debt continued to be stable, as the number of bond upgrades outpaced downgrades, and defaults were relatively low. Survey-based indicators suggested that credit supply conditions for small firms remained stable but tighter than before the pandemic. Small business loan originations ticked down in October, likely reflecting weak loan demand as suggested by survey-based and market indicators. Broad measures of small businesses' financial health improved slightly. Short- and long-term delinquency rates on loans to small businesses remained roughly in line with their pre-pandemic levels. Financing conditions in commercial real estate (CRE) markets remained accommodative. CRE loan balances on banks' books continued to expand at a solid pace in October and November. Issuance of commercial mortgage-backed securities (CMBS) continued to be strong, supported by spreads of agency and non-agency CMBS that were generally at or below pre-pandemic levels. Delinquency rates on mortgages in CMBS pools continued to fall but remained elevated for loans backed by hotel and retail properties. In the residential mortgage market, financing conditions stayed accommodative, particularly for borrowers who met standard conforming loan criteria. Conditions continued to ease for lower-score borrowers but remained somewhat tighter than before the pandemic. Mortgage originations for home purchases and refinances were robust through November amid historically low mortgage rates. The fraction of mortgage borrowers missing payments continued to decline through October. Financing conditions for consumer credit remained accommodative for most borrowers, especially those with higher credit scores. Conditions for nonprime consumers in the credit card market continued to ease from the tight levels seen earlier in the pandemic. Growth of credit card balances picked up in September and October, and bank credit data indicated a further increase in November. Growth of auto loans outstanding slowed through October because of tepid auto sales. Use of forbearance programs for credit card and auto loans remained at low levels in September and October. Staff Economic Outlook The projection for U.S. consumer price inflation prepared by the staff for the December FOMC meeting was higher than in the November projection. The near-term outlook was revised up, reflecting faster-than-expected increases both for a broad array of consumer prices and for wages. Supply chain bottlenecks were seen as continuing to put upward pressure on prices. As a result, the 12-month change in PCE prices was projected to move up further relative to October's pace and to end the year around 5 percent. Over the following two years, the boost to consumer prices caused by supply issues was expected to partly reverse, and energy prices were projected to decline. PCE price inflation was therefore expected to step down to 2.1 percent in 2022 and to remain there in 2023 and 2024. Projected inflation over this period was a little higher than in the previous projection, as supply bottlenecks were assumed to resolve more gradually and as the salience of this year's higher inflation readings was assumed to raise the underlying trend in inflation relative to the previous forecast. Longer-run inflation was still assumed to remain anchored at 2 percent. The staff's forecast for economic activity remained strong but was weaker, on net, than in the November projection. Although aggregate demand appeared to be rising sharply in the fourth quarter, the emerging surge in COVID-19 caseloads and hospitalizations was expected to weigh on economic activity in the winter months. In addition, supply bottlenecks were expected to resolve more gradually than previously assumed. All told, real GDP was expected to post a sizable gain over 2021 as a whole and to rise a bit less rapidly in 2022, with the pace of growth supported by the continued reopening of the economy and the resolution of supply constraints in most sectors. With the boost from these factors fading, real GDP growth was projected to step down noticeably in 2023. Given the higher forecast for inflation, the staff assumed monetary policy would be less accommodative in coming years and therefore revised down the medium-term forecast for GDP somewhat. Even so, the level of real GDP was expected to remain well above potential throughout the projection period, and labor market conditions were projected to remain very tight. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the risks around the inflation projection were skewed to the upside. In particular, the possibility that COVID-19 cases could continue to rise steeply, especially if the Omicron variant proves to be vaccine resistant, was seen as an important source of downside risk to activity, while the possibility of more severe and persistent supply issues was viewed as an additional downside risk to activity and as an upside risk to inflation. Participants' Views on Current Economic Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2021 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that, with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had improved in recent months but continued to be affected by COVID-19. Job gains had been solid in recent months, and the unemployment rate had declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants commented that the path of the economy continued to depend on the course of the virus. An easing of supply constraints was expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remained, including from new variants of the virus. Participants observed that growth of economic activity appeared to have been strong in the fourth quarter after having slowed in the third quarter, and they generally expected robust growth to continue in 2022. A few participants cited healthy household balance sheets, the need for businesses to rebuild inventory, and accommodative financial conditions as factors supporting continued robust growth. A couple of participants commented that business conditions appeared to be improving broadly, including in sectors providing in-person services, such as the retail, restaurant, and hotel sectors. Many participants noted that the emergence of the Omicron variant made the economic outlook more uncertain; several remarked that they did not yet see the new variant as fundamentally altering the path of economic recovery in the United States. In their discussion of the household sector, participants generally noted that demand for consumer goods had remained strong, likely supported by accommodative fiscal and monetary policies, increased household income as more people found jobs, increasing net worth of the household sector, and the high level of savings accumulated through the course of the pandemic. Participants noted that supply chain bottlenecks and labor shortages continued to limit businesses' ability to meet strong demand. They judged that these challenges would likely last longer and be more widespread than previously thought. Participants generally expected global supply chain bottlenecks to persist well into next year at least. While several participants pointed to signs of incremental improvement in supply chains, a few others remarked that business contacts were experiencing deteriorating supply conditions that could be exacerbated by the emergence of new variants of the virus. A couple of participants reported that some contacts were implementing permanent changes in their business models to help weather current and future disruptions, including holding larger inventories or building domestic manufacturing capacity. Many business contacts continued to experience difficulty hiring workers across all skill levels, noting the lack of qualified candidates as well. Some participants noted that businesses were offering higher wages, larger bonuses, or more flexible work arrangements to compete for workers. Participants judged that labor markets continued to strengthen, with the unemployment rate falling rapidly and payrolls growing at a solid pace. A few participants noted the recent decline in the unemployment rates of African Americans and Hispanics and the narrowing of the racial and ethnic gap in the prime-age employment-to-population ratio as suggesting a more inclusive labor market recovery. Some participants discussed the modest increase in the labor force participation rate in November. A number of participants judged that a substantial improvement in labor force participation would take longer than previously expected. A few others assessed that any further improvement in labor force participation would be quite modest. Participants cited a number of pandemic and economic factors likely depressing labor force participation, such as increased caregiving needs amid a shortage of workers in the caregiving industry, remaining concerns about the virus, and healthy balance sheets for households, including for those who retired early. A couple of participants cited factors that could support higher labor force participation over the next few years, including waning fiscal stimulus; depleted savings, particularly for lower-income households; and the historical tendency for labor force participation to lag improvement in the labor market. Participants pointed to a number of signs that the U.S. labor market was very tight, including near-record rates of quits and job vacancies, as well as a notable pickup in wage growth. In line with the recent data showing a rise in the employment cost index, many participants reported District business contacts either planning or having implemented larger wage increases to retain current employees or attract new workers. Participants generally noted that they were monitoring the incoming data for signs of inflationary pressures associated with the increasingly tight labor market. Acknowledging that the maximum level of employment consistent with price stability may evolve over time, many participants saw the U.S. economy making rapid progress toward the Committee's maximum-employment goal. Several participants viewed labor market conditions as already largely consistent with maximum employment. Participants remarked that inflation readings had been higher and were more persistent and widespread than previously anticipated. Some participants noted that trimmed mean measures of inflation had reached decade-high levels and that the percentage of product categories with substantial price increases continued to climb. While participants generally continued to anticipate that inflation would decline significantly over the course of 2022 as supply constraints eased, almost all stated that they had revised up their forecasts of inflation for 2022 notably, and many did so for 2023 as well. In discussing their revisions to the inflation outlook, participants pointed to rising housing costs and rents, more widespread wage growth driven by labor shortages, and more prolonged global supply-side frictions, which could be exacerbated by the emergence of the Omicron variant. Moreover, participants widely cited business contacts feeling confident that they would be able to pass on higher costs of labor and material to customers. Participants noted their continuing attention to the public's concern about the sizable increase in the cost of living that had taken place this year and the associated burden on U.S. households, particularly those who had limited scope to pay higher prices for essential goods and services. In their comments on inflation expectations, some participants discussed the risk that recent elevated levels of inflation could increase the public's longer-term expectations for inflation to a level above that consistent with the Committee's longer-run inflation objective. They noted that the realization of such a development could make it harder for the Committee to achieve 2 percent inflation over the longer run. A couple of participants pointed to reports of higher inflation expectations of businesses and of increased use of cost-of-living adjustments in wage negotiations as early developments that could potentially affect the anchoring of inflation expectations. A few participants, however, noted that long-term inflation expectations remained well anchored, citing stable readings of market-based inflation compensation measures or the generally low level of longer-term bond yields. Participants observed that uncertainty about the economic outlook remained high. Most agreed that risks to inflation were weighted to the upside. Several participants pointed to the possibility that structural factors that kept inflation low in the previous decade, such as technological changes, demographics, and the proximity of the ELB in an environment of low equilibrium interest rates, may reemerge when the effects of the pandemic abate. A couple of others noted the risk that persistent real wage growth in excess of productivity growth could trigger inflationary wageâprice dynamics. Participants generally continued to stress uncertainties associated with the labor marketâin particular, the evolution of labor force participationâand with the length of time required to resolve the supply chain situation. Many participants noted that the pandemic, particularly new variants of the virus, continued to pose downside risks to economic activity and upside risks to inflation. In their consideration of the stance of monetary policy, participants reaffirmed the Federal Reserve's commitment to using its full range of tools to support the U.S. economy during this challenging time, thereby promoting the Committee's statutory goals of maximum employment and price stability. Participants discussed the progress the economy had made toward the criteria the Committee had specified in its forward guidance for the federal funds rate. Participants agreed that the Committee's criteria of inflation rising to 2 percent and moderately exceeding 2 percent for some time had been more than met. All participants remarked that inflation had continued to run notably above 2 percent, reflecting supply and demand imbalances related to the pandemic and the reopening of the economy. With respect to the maximum-employment criterion, participants noted that the labor market had been making rapid progress as measured by a variety of indicators, including solid job gains reported in recent months, a substantial further decline in a range of unemployment rates to levels well below those prevailing a year ago, and a labor force participation rate that had recently edged up. Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment. Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment. In support of the Committee's goals of maximum employment and inflation at the rate of 2 percent over the longer run, participants judged that it would be appropriate for the Committee to keep the target range for the federal funds rate at 0 to 1/4 percent until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment, a condition most participants judged could be met relatively soon if the recent pace of labor market improvements continued. A few participants remarked that maximum employment consistent with price stability evolves over time and that further improvements in labor markets were likely over subsequent years as the economy continued to expand. Some participants also remarked that there could be circumstances in which it would be appropriate for the Committee to raise the target range for the federal funds rate before maximum employment had been fully achievedâfor example, if the Committee judged that its employment and price-stability goals were not complementary in light of economic developments and that inflation pressures and inflation expectations were moving materially and persistently higher in a way that could impede the attainment of the Committee's longer-run goals. In light of elevated inflation pressures and the strengthening labor market, participants judged that the increase in policy accommodation provided by the ongoing pace of net asset purchases was no longer necessary. They remarked that a quicker conclusion of net asset purchases would better position the Committee to set policy to address the full range of plausible economic outcomes. Participants judged that it would be appropriate to double the pace of the ongoing reduction in net asset purchases. Such a change would result in reducing the monthly pace of net purchases of Treasury securities by $20 billion and of agency MBS by $10 billion starting in January. Participants also expected that economic conditions would evolve in a manner such that similar reductions in the pace of net asset purchases would be appropriate each subsequent month, resulting in an end to net asset purchases in mid-March, a few months sooner than participants had anticipated at the November FOMC meeting. In addition, participants remarked that the Committee should continue to be prepared to adjust the pace of purchases if warranted by changes in the economic outlook. Participants continued to stress that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment. Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures. These participants noted, however, that a measured approach to tightening policy would help enable the Committee to assess incoming data and be in position to react to the full range of plausible economic outcomes. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that with progress on vaccinations and strong policy support, indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had improved in recent months but continued to be affected by COVID-19. Job gains had been solid in recent months, and the unemployment rate had declined substantially. They remarked that supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation, but risks to the economic outlook remained, including from new variants of the virus. As elevated inflation had persisted for longer than they had previously anticipated, members agreed that it was appropriate to remove the reference to "transitory" factors affecting inflation in the postmeeting statement and instead note that supply and demand imbalances have continued to contribute to elevated inflation. Members also agreed that, with the emergence of the Omicron variant, it was appropriate to note the risk of new variants of the virus in their assessment of risks to the economic outlook. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. All members reaffirmed their commitment to seek to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Members agreed that the postmeeting statement should be updated to reflect the Committee's assessment of the progress the economy had made toward the criteria specified in its forward guidance for the target range for the federal funds rate. They agreed that the inflation criteria in the guidance had been met and that the postmeeting statement should note that with inflation having exceeded 2 percent for some time, the Committee expected that it would be appropriate to maintain the current target range of 0 to 1/4 percent until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment. In light of inflation developments and the further improvement in the labor market, members decided to reduce the monthly pace of the Federal Reserve's net asset purchases by $20 billion for Treasury securities and $10 billion for agency MBS. Specifically, beginning in January, the Committee would increase its holdings of Treasury securities by at least $40 billion per month and of agency MBS by at least $20 billion per month. Members also agreed that similar reductions in the pace of net asset purchases would likely be appropriate in subsequent months, implying that increases in the Federal Reserve's securities holdings would cease by mid-March under the Committee's outlook, a few months sooner than had been anticipated at the previous meeting. Members noted that the Committee was prepared to adjust the pace of purchases if warranted by changes in the economic outlook and that it was important to maintain the flexibility to adjust the stance of policy as appropriate in response to changes in the Committee's outlook for the labor market and inflation. Members also noted that the Federal Reserve's ongoing asset purchases and holdings of securities would continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective December 16, 2021, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Complete the increase in System Open Market Account (SOMA) holdings of Treasury securities by $60 billion and of agency mortgage-backed securities (MBS) by $30 billion, as indicated in the monthly purchase plans released in mid-December. Increase the SOMA holdings of Treasury securities by $40 billion and of agency MBS by $20 billion, during the monthly purchase period beginning in mid-January. Increase holdings of Treasury securities and agency MBS by additional amounts as needed to sustain smooth functioning of markets for these securities. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but continue to be affected by COVID-19. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment. In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. Beginning in January, the Committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgageâbacked securities by at least $20 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action : Jerome H. Powell, John C. Williams, Thomas I. Barkin, Raphael W. Bostic, Michelle W. Bowman, Lael Brainard, Richard H. Clarida, Mary C. Daly, Charles L. Evans, Randal K. Quarles, and Christopher J. Waller. Voting against this action : None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 0.15 percent, effective December 16, 2021. The Board also voted unanimously to approve establishment of the primary credit rate at the existing level of 0.25 percent, effective December 16, 2021. At the end of the meeting, the Chair noted that the Board's staff had made substantial progress in developing formal polices to implement the tough and comprehensive ethics rules for senior officials that were announced in October. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 25â26, 2022. The meeting adjourned at 11:00 a.m. on December 15, 2021. Notation Vote By notation vote completed on November 23, 2021, the Committee unanimously approved the minutes of the Committee meeting held on November 2â3, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended Tuesday's session only. Return to text 3. Attended through the discussion of policy normalization considerations. Return to text 4. Attended through the discussion of policy normalization considerations and all of Wednesday's session. Return to text

Minutes of the Federal Open Market Committee January 25-26, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held by videoconference on Tuesday, January 25, 2022, at 9:00 a.m. and continued on Wednesday, January 26, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Esther L. George Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Naureen Hassan, and Neel Kashkari, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Kenneth C. Montgomery, Interim President of the Federal Reserve Bank of Boston James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Carlos Garriga, Joseph W. Gruber, David E. Lebow, Ellis W. Tallman, Geoffrey Tootell, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Antulio N. Bomfim, Jane E. Ihrig, Kurt F. Lewis, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Stephanie E. Curcuru, 2 Associate Director, Division of International Finance, Board; Eric C. Engstrom and Christopher J. Gust, Associate Directors, Division of Monetary Affairs, Board; Glenn Follette, Associate Director, Division of Research and Statistics, Board Erik A. Heitfield, Deputy Associate Director, Division of Research and Statistics, Board; Laura Lipscomb and Zeynep Senyuz, 2 Deputy Associate Directors, Division of Monetary Affairs, Board Etienne Gagnon 2 and Andrew Meldrum, Assistant Directors, Division of Monetary Affairs, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Alyssa G. Anderson and Valerie S. Hinojosa, Section Chiefs, Division of Monetary Affairs, Board; Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board Alyssa Arute, Manager, Division of Reserve Bank Operations and Payment Systems, Board Camille Bryan, Senior Project Manager, Division of Monetary Affairs, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Damjan Pfajfar, Mary Tian, and Randall A. Williams, Group Managers, Division of Monetary Affairs, Board David B. Cashin, Principal Economist, Division of Research and Statistics, Board; Erin E. Ferris, Kyungmin Kim, and Bernd Schlusche, 2 Principal Economists, Division of Monetary Affairs, Board; Colin J. Hottman, Principal Economist, Division of International Finance, Board David Na, 2 Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Isaiah C. Ahn, Information Management Analyst, Division of Monetary Affairs, Board David Altig, Kartik B. Athreya, and Sylvain Leduc, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, and San Francisco, respectively Anne Baum, John Clark, 2 Spencer Krane, Paolo A. Pesenti, Julie Ann Remache, 2 Keith Sill, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, New York, Chicago, New York, New York, Philadelphia, and Minneapolis, respectively Deborah Leonard 2 and Rania Perry, 2 Vice Presidents, Federal Reserve Bank of New York James Dolmas, Economic Policy Adviser and Senior Economist, Federal Reserve Bank of Dallas Radhika Mithal, 2 Markets Officer, Federal Reserve Bank of New York Annual Organizational Matters 4 The agenda for this meeting reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 25, 2022, were received and that these individuals executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Naureen Hassan, First Vice President of the Federal Reserve Bank of New York, as alternate Patrick Harker, President of the Federal Reserve Bank of Philadelphia, as alternate Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, with Charles L. Evans, President of the Federal Reserve Bank of Chicago, as alternate James Bullard, President of the Federal Reserve Bank of St. Louis, with Meredith Black, Interim President of the Federal Reserve Bank of Dallas, as alternate Esther L. George, President of the Federal Reserve Bank of Kansas City, with Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, as alternate. By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2023: Jerome H. Powell Chair John C. Williams Vice Chair James A. Clouse Secretary Matthew M. Luecke Deputy Secretary Brian J. Bonis Assistant Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Michael Held Deputy General Counsel Richard M. Ashton Assistant General Counsel Trevor Reeve Economist Stacey Tevlin Economist Beth Anne Wilson Economist Shaghil Ahmed Brian M. Doyle Carlos Garriga Joseph W. Gruber Beverly Hirtle David E. Lebow Ellis W. Tallman Geoffrey Tootell William Wascher Associate Economists By unanimous vote, the Committee selected the Federal Reserve Bank of New York to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Lorie K. Logan and Patricia Zobel to serve at the pleasure of the Committee as manager and deputy manager of the SOMA, respectively, on the understanding that these selections were subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: The Federal Reserve Bank of New York subsequently sent advice that the manager and deputy manager selections indicated previously were satisfactory. By unanimous vote, the Committee voted to reaffirm without revision the Authorization for Domestic Open Market Operations, as shown below. By unanimous vote, the Committee voted to reaffirm without revision the Authorization for Foreign Currency Operations and to amend the Foreign Currency Directive to remove references to the temporary dollar liquidity swap arrangements with foreign central banks, as shown below. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended. AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS (As reaffirmed effective January 25, 2022) OPEN MARKET TRANSACTIONS 1. The Federal Open Market Committee (the "Committee") authorizes and directs the Federal Reserve Bank selected by the Committee to execute open market transactions (the "Selected Bank"), to the extent necessary to carry out the most recent domestic policy directive adopted by the Committee: A. To buy or sell in the open market securities that are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act ("Eligible Securities") for the System Open Market Account ("SOMA"): i. As an outright operation with securities dealers and foreign and international accounts maintained at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps) at market prices; or ii. As a temporary operation: on a same-day or deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell ("repo transactions") or to sell such Eligible Securities subject to an agreement to repurchase ("reverse repo transactions") for a term of 65 business days or less, at rates that, unless otherwise authorized by the Committee, are determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual counterparties; B. To allow Eligible Securities in the SOMA to mature without replacement; C. To exchange, at market prices, in connection with a Treasury auction, maturing Eligible Securities in the SOMA with the Treasury, in the case of Eligible Securities that are direct obligations of the United States or that are fully guaranteed as to principal and interest by the United States; and D. To exchange, at market prices, maturing Eligible Securities in the SOMA with an agency of the United States, in the case of Eligible Securities that are direct obligations of that agency or that are fully guaranteed as to principal and interest by that agency. SECURITIES LENDING 2. In order to ensure the effective conduct of open market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis (except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions). A. Such securities lending must be: i. At rates determined by competitive bidding; ii. At a minimum lending fee consistent with the objectives of the program; iii. Subject to reasonable limitations on the total amount of a specific issue of Eligible Securities that may be auctioned; and iv. Subject to reasonable limitations on the amount of Eligible Securities that each borrower may borrow. B. The Selected Bank may: i. Reject bids that, as determined in its sole discretion, could facilitate a bidder's ability to control a single issue; ii. Accept Treasury securities or cash as collateral for any loan of securities authorized in this paragraph 2; and iii. Accept agency securities as collateral only for a loan of agency securities authorized in this paragraph 2. OPERATIONAL READINESS TESTING 3. The Committee authorizes the Selected Bank to undertake transactions of the type described in paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations: A. All transactions authorized in this paragraph 3 shall be conducted with prior notice to the Committee; B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i, 1.B, 1.C and 1.D shall not exceed $5 billion per calendar year; and C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed $5 billion at any given time. TRANSACTIONS WITH CUSTOMER ACCOUNTS 4. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts") and accounts maintained at a Federal Reserve Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the Foreign Accounts, the "Customer Accounts"), the Committee authorizes the following when undertaken on terms comparable to those available in the open market: A. The Selected Bank, for the SOMA, to: i. Undertake reverse repo transactions in Eligible Securities held in the SOMA with the Customer Accounts for a term of 65 business days or less; and ii. Undertake repo transactions in Eligible Securities with Foreign Accounts; and B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account, when appropriate and subject to all other necessary authorization and approvals, to: i. Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo transaction in such Eligible Securities with the Customer Accounts; and ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts. Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a service fee when appropriate. Transactions undertaken with Customer Accounts are also subject to the authorization or approval of other entities, including the Board of Governors of the Federal Reserve System and, when involving accounts maintained at a Federal Reserve Bank as fiscal agent of the United States, the United States Department of the Treasury. ADDITIONAL MATTERS 5. The Committee authorizes the Chair of the Committee, in fostering the Committee's objectives during any period between meetings of the Committee, to instruct the Selected Bank to act on behalf of the Committee to: A. Adjust somewhat in exceptional circumstances the stance of monetary policy and to take actions that may result in material changes in the composition and size of the assets in the SOMA; or B. Undertake transactions with respect to Eligible Securities in order to appropriately address temporary disruptions of an operational or highly unusual nature in U.S. dollar funding markets. Any such adjustment described in subparagraph A of this paragraph 5 shall be made in the context of the Committee's discussion and decision about the stance of policy at its most recent meeting and the Committee's long-run objectives to foster maximum employment and price stability, and shall be based on economic, financial, and monetary developments since the most recent meeting of the Committee. The Chair, whenever feasible, will consult with the Committee before making any instruction under this paragraph 5. AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS (As reaffirmed effective January 25, 2022) IN GENERAL 1. The Federal Open Market Committee (the "Committee") authorizes the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions for the System Open Market Account as provided in this Authorization, to the extent necessary to carry out any foreign currency directive of the Committee: A. To purchase and sell foreign currencies (also known as cable transfers) at home and abroad in the open market, including with the United States Treasury, with foreign monetary authorities, with the Bank for International Settlements, and with other entities in the open market. This authorization to purchase and sell foreign currencies encompasses purchases and sales through standalone spot or forward transactions and through foreign exchange swap transactions. For purposes of this Authorization, foreign exchange swap transactions are: swap transactions with the United States Treasury (also known as warehousing transactions), swap transactions with other central banks under reciprocal currency arrangements, swap transactions with other central banks understanding dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities in the open market. B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies. 2. All transactions in foreign currencies undertaken pursuant to paragraph 1 above shall, unless otherwise authorized by the Committee, be conducted: A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of the Articles of Agreement of the International Monetary Fund (IMF). 1 B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury. C. In consultation, as appropriate, with foreign monetary authorities, foreign central banks, and international monetary institutions. D. At prevailing market rates. STANDALONE SPOT AND FORWARD TRANSACTIONS 3. For any operation that involves standalone spot or forward transactions in foreign currencies: A. Approval of such operation is required as follows: i. The Committee must direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, exceeding $5 billion since the close of the most recent regular meeting of the Committee. The Foreign Currency Subcommittee (the "Subcommittee") must direct the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation with the Committee is not feasible in the time available. ii. The Committee authorizes the Subcommittee to direct the Selected Bank in advance to execute the operation if it would result in the overall volume of standalone spot and forward transactions in foreign currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close of the most recent regular meeting of the Committee. B. Such an operation also shall be: i. Generally directed at countering disorderly market conditions; or ii. Undertaken to adjust System balances in light of probable future needs for currencies; or iii. Conducted for such other purposes as may be determined by the Committee. C. For purposes of this Authorization, the overall volume of standalone spot and forward transactions in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the transaction. WAREHOUSING 4. The Committee authorizes the Selected Bank, with the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934 under agreements in which the Selected Bank purchases foreign currencies from the Exchange Stabilization Fund and the Exchange Stabilization Fund repurchases the foreign currencies from the Selected Bank at a later date (such purchases and sales also known as warehousing). RECIPROCAL CURRENCY ARRANGEMENTS, AND STANDING DOLLAR AND FOREIGN CURRENCY LIQUIDITY SWAPS 5. The Committee authorizes the Selected Bank to maintain reciprocal currency arrangements established under the North American Framework Agreement, standing dollar liquidity swap arrangements, temporary dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary to carry out any foreign currency directive of the Committee. A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). B. For standing and temporary dollar liquidity swap arrangements all drawings must be approved in advance by the Chair. The Chair may approve a schedule of potential drawings, and may delegate to the manager, System Open Market Account, the authority to approve individual drawings that occur according to the schedule approved by the Chair. C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available). D. Operations involving standing and temporary dollar liquidity swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed at countering strains in financial markets in the United States or abroad, or reducing the risk that they could emerge, so as to mitigate their effects on economic and financial conditions in the United States. E. For reciprocal currency arrangements, standing and temporary dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements: i. All arrangements are subject to annual review and approval by the Committee; ii. Any new arrangements must be approved by the Committee; and iii. Any changes in the terms of existing arrangements must be approved in advance by the Chair. The Chair shall keep the Committee informed of any changes in terms, and the terms shall be consistent with principles discussed with and guidance provided by the Committee. OTHER OPERATIONS IN FOREIGN CURRENCIES 6. Any other operations in foreign currencies for which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions with privateâsector counterparties) must be authorized and directed in advance by the Committee. FOREIGN CURRENCY HOLDINGS 7. The Committee authorizes the Selected Bank to hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks, the Bank for International Settlements, and such other foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent necessary to carry out any foreign currency directive of the Committee. A. The Selected Bank shall manage all holdings of foreign currencies for the System Open Market Account: i. Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency operations as directed by the Committee; ii. Secondarily, to maintain a high degree of safety; iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and iv. To achieve such other objectives as may be authorized by the Committee. B. The Selected Bank may manage such foreign currency holdings by: i. Purchasing and selling obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof ("Permitted Foreign Securities") through outright purchases and sales; ii. Purchasing Permitted Foreign Securities under agreements for repurchase of such Permitted Foreign Securities and selling such securities under agreements for the resale of such securities; and iii. Managing balances in various time and other deposit accounts at foreign institutions approved by the Board of Governors under Regulation N. C. The Subcommittee, in consultation with the Committee, may provide additional instructions to the Selected Bank regarding holdings of foreign currencies. ADDITIONAL MATTERS 8. The Committee authorizes the Chair: A. With the prior approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the United States Treasury about the division of responsibility for foreign currency operations between the System and the United States Treasury; B. To advise the Secretary of the United States Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations; C. To designate Federal Reserve System persons authorized to communicate with the United States Treasury concerning System Open Market Account foreign currency operations; and D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies. 9. The Committee authorizes the Selected Bank to undertake transactions of the type described in this Authorization, and foreign exchange and investment transactions that it may be otherwise authorized to undertake, from time to time for the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice to the Committee. 10. All Federal Reserve banks shall participate in the foreign currency operations for System Open Market Account in accordance with paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944. 11. Any authority of the Subcommittee pursuant to this Authorization may be exercised by the Chair if the Chair believes that consultation with the Subcommittee is not feasible in the time available. The Chair shall promptly report to the Subcommittee any action approved by the Chair pursuant to this paragraph. 12. The Committee authorizes the Chair, in exceptional circumstances where it would not be feasible to convene the Committee, to foster the Committee's objectives by instructing the Selected Bank to engage in foreign currency operations not otherwise authorized pursuant to this Authorization. Any such action shall be made in the context of the Committee's discussion and decisions regarding foreign currency operations. The Chair, whenever feasible, will consult with the Committee before making any instruction under this paragraph. FOREIGN CURRENCY DIRECTIVE (As amended effective January 25, 2022) 1. The Committee directs the Federal Reserve Bank selected by the Committee (the "Selected Bank") to execute open market transactions, for the System Open Market Account, in accordance with the provisions of the Authorization for Foreign Currency Operations (the "Authorization") and subject to the limits in this Directive. 2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the United States Treasury and if approved by the Foreign Currency Subcommittee (the "Subcommittee"), subject to the limitation that the outstanding balance of United States dollars provided to the United States Treasury as a result of these transactions not at any time exceed $5 billion. 3. The Committee directs the Selected Bank to maintain, for the System Open Market Account: A. Reciprocal currency arrangements with the following foreign central banks: Foreign central bank Maximum amount (millions of dollars or equivalent) Bank of Canada 2,000 Bank of Mexico 3,000 B. Standing dollar liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank C. Standing foreign currency liquidity swap arrangements with the following foreign central banks: Bank of Canada Bank of England Bank of Japan European Central Bank Swiss National Bank 4. The Committee directs the Selected Bank to hold and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization. 5. The Committee directs the Selected Bank to report to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization. 6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of paragraph 9 of the Authorization. The Committee voted unanimously to approve with minor revisions the Standing Repurchase Agreement Facility Resolution, as shown below. All but one member of the Committee voted to approve with minor revisions the Standing FIMA Repurchase Agreement Resolution. Governor Bowman abstained from the vote on the Standing FIMA Repurchase Agreement Resolution. The resolutions were modified to remove references to a specific facility rate to allow for normal adjustment in the facility rates when the Committee makes changes to the target range for the federal funds rate. STANDING REPURCHASE AGREEMENT FACILITY RESOLUTION (As amended effective January 25, 2022) The Federal Open Market Committee (the "Committee") authorizes and directs the Open Market Desk at the Federal Reserve Bank of New York (the "Selected Bank"), for the System Open Market Account ("SOMA"), to conduct operations in which it offers to purchase securities, subject to an agreement to resell ("repurchase agreement transactions"). The repurchase agreement transactions hereby authorized and directed shall (i) include only U.S. Treasury securities, agency debt securities, and agency mortgage-backed securities; (ii) be conducted as open market operations with primary dealers and depository institutions as participants; (iii) be conducted with a minimum bid rate set at a level directed by the Committee; (iv) be offered on an overnight basis (except that the Open Market Desk at the Selected Bank may extend the term for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions); and (v) be subject to an aggregate operation limit of $500 billion. The aggregate operation limit can be temporarily increased at the discretion of the Chair. These operations shall be conducted by the Open Market Desk at the Selected Bank until otherwise directed by the Committee. STANDING FIMA REPURCHASE AGREEMENT RESOLUTION (As amended effective January 25, 2022) The Federal Open Market Committee (the "Committee") authorizes and directs the Open Market Desk at the Federal Reserve Bank of New York (the "Selected Bank"), for the System Open Market Account ("SOMA"), to offer to purchase U.S. Treasury securities subject to an agreement to resell ("repurchase agreement transactions") with foreign central bank and international accounts maintained at a Federal Reserve Bank (the "Foreign Accounts"). The repurchase agreement transactions hereby authorized and directed shall (i) include only U.S. Treasury securities; (ii) be conducted with Foreign Accounts approved in advance by the Foreign Currency Subcommittee (the "Subcommittee"); (iii) be conducted at an offering rate equal to the minimum bid rate for the standing repurchase agreement facility unless the Subcommittee establishes a different offering rate; (iv) be offered on an overnight basis (except that the Open Market Desk at the Selected Bank may extend the term for longer than an overnight term to accommodate weekend, holiday, and similar trading conventions); and (v) be subject to a per-counterparty limit of $60 billion per day. The Subcommittee may approve changes in the offering rate, the maturity of the transactions, eligible Foreign Accounts counterparties (either by approving or removing account access), and the counterparty limit; and the Subcommittee shall keep the Committee informed of any such changes. These transactions shall be undertaken by the Open Market Desk at the Selected Bank until otherwise directed by the Committee. The Open Market Desk at the Selected Bank will also report at least annually to the Committee on facility usage and the list of approved account holders. Regarding the tough and comprehensive ethics rules for senior officials that were announced in October, the Chair indicated that staff were working through comments received from policymakers and were aiming to circulate a new draft soon. Noting the urgency in bringing the new policy to completion, the Chair proposed that the Committee vote on a final draft as soon in the intermeeting period as possible. In the Committee's annual reconsideration of the Statement on Longer-Run Goals and Monetary Policy Strategy, all participants supported the statement as written, and the Committee voted unanimously to reaffirm without revision. In discussing the statement, the Chair noted that, consistent with previous communications, a formal framework review would commence in 2024 and conclude in 2025. That timing would allow perspectives on recent events to inform considerations of potential revisions to the framework. STATEMENT ON LONGER-RUN GOALS AND MONETARY POLICY STRATEGY (As reaffirmed effective January 25, 2022) The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society. Employment, inflation, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Monetary policy plays an important role in stabilizing the economy in response to these disturbances. The Committee's primary means of adjusting the stance of monetary policy is through changes in the target range for the federal funds rate. The Committee judges that the level of the federal funds rate consistent with maximum employment and price stability over the longer run has declined relative to its historical average. Therefore, the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past. Owing in part to the proximity of interest rates to the effective lower bound, the Committee judges that downward risks to employment and inflation have increased. The Committee is prepared to use its full range of tools to achieve its maximum employment and price stability goals. The maximum level of employment is a broad-based and inclusive goal that is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the shortfalls of employment from its maximum level, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. Monetary policy actions tend to influence economic activity, employment, and prices with a lag. In setting monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee's assessment of its maximum level and deviations of inflation from its longer-run goal. Moreover, sustainably achieving maximum employment and price stability depends on a stable financial system. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals. The Committee's employment and inflation objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it takes into account the employment shortfalls and inflation deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. The Committee intends to review these principles and to make adjustments as appropriate at its annual organizational meeting each January, and to undertake roughly every five years a thorough public review of its monetary policy strategy, tools, and communication practices. Financial Developments and Open Market Operations The manager turned first to a review of domestic financial market developments over the intermeeting period. Treasury yields rose across the curve, led by higher real yields. Expectations for tighter monetary policy ahead, as well as an easing of COVID-related concerns, were cited as contributing to the increase in yields. The S&P 500 index declined around 5 percent, with sharp moves toward the end of the period, reportedly prompted by concerns about the implications of a tighter path of monetary policy and rising geopolitical risks. Regarding the monetary policy outlook, with data showing continuing tightening of labor market conditions and elevated inflationary pressures, policymaker communications were perceived as pointing to an earlier and faster removal of accommodation than market participants had previously expected. Against this backdrop, respondents to the Open Market Desk's surveys of primary dealers and market participants almost uniformly projected that the Federal Reserve's net asset purchases would end by mid-March. The median survey projection for the commencement of balance sheet runoff shifted into the third quarter of this year, roughly a year and a half sooner than in the December surveys. Most survey respondents also expected the portfolio to decline at a significantly faster pace than they did in December. Expectations for the path of the federal funds rate shifted toward earlier rate increases, and interest rate futures priced in an increase in the target range for the federal funds rate at the March FOMC meeting. On average, respondents to the Desk surveys assigned a roughly 70 percent probability to an increase in the target range in March. The expected path of the federal funds rate in the Desk surveys and derived from interest rate futures also steepened over the period. The median survey projection for the most likely level of the target range at the end of 2024 was about 2 percent, similar to December. Nonetheless, survey respondents attached significant probability to outcomes in which the target range moved up more than indicated by the projected modal path. Changing views about the likely path of the Federal Reserve's balance sheet following the release of the December FOMC minutes seemed to affect longer-term yields. Far forward real yields moved higher over the period, with much of the increase following the release of the minutes for the December FOMC meeting. In addition, agency mortgage-backed securities (MBS) spreads widened notably after having been stable at low levels for the past year, reportedly driven by expectations for an earlier and faster runoff of agency MBS than had been expected. The manager turned next to a discussion of international financial market developments. Sovereign yields increased across advanced foreign economies (AFEs), reportedly driven by receding concerns about the Omicron variant, elevated inflation readings, and, relatedly, expectations that central banks would remove policy accommodation sooner than had been expected. Several central banks concluded their net asset purchases late last year, and more were expected to do so this year. On the outlook for policy rates, several central banks had either already increased their policy rates or were expected to do so later this year. The manager provided an update on issues related to monetary policy implementation. Reductions in the pace of the Committee's net asset purchases had proceeded smoothly to date and functioning in Treasury and agency MBS markets remained stable. Regarding the potential for the Committee to reduce System Open Market Account (SOMA) holdings in the future, market participants generally anticipated that SOMA redemptions could proceed smoothly at a somewhat faster pace than during the previous period of balance sheet reduction from 2017 to 2019. However, some also noted that SOMA redemptions would require significant adjustments to private-sector balance sheets, as investors absorb the net increase in Treasury and agency MBS issuance to the private sector and money markets transition to lower levels of liquidity, and that these adjustments could take some time. The manager discussed expectations for the evolution of the Federal Reserve's administered rates in connection with a potential future change in the target range for the federal funds rate. The Desk survey responses suggested expectations for administered rates to be raised by the same increment as the target range for the federal funds rate. The manager noted that the current setting of administered rates relative to the target range had been working well and anticipated that it could continue to support effective policy implementation following any increase in the target range in coming months, al­though adjustments could be warranted over time. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Principles for Reducing the Size of the Balance Sheet Participants continued their discussion of topics associated with potential adjustments in the Committee's policy tools that may be appropriate to support the achievement of sustained strong labor market conditions and a return of inflation to levels consistent with the Committee's longer-run 2 percent objective under a wide range of circumstances. At this meeting, participants discussed high-level principles that could be released to the public to describe the Committee's approach for reducing the size of the Federal Reserve's balance sheet. They agreed that the principles would address, at a high level, the sequence of adjustments in the interest rate and balance sheet tools to reduce policy accommodation, the Committee's approach to balance sheet runoff, and its intentions for the longer-run size and composition of the balance sheet. The participants' discussion was preceded by a staff presentation that reviewed key considerations raised by participants at the December FOMC meeting and examined how the proposed set of principles, which reflected those considerations, compared with the Policy Normalization Principles and Plans issued in 2014. In their discussion, participants reaffirmed that changes in the target range for the federal funds rate are the Committee's primary means for adjusting the stance of monetary policy, as noted in the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy. Participants judged that the timing and pace of balance sheet reduction would be determined so as to promote the Committee's maximum-employment and price-stability goals and that it would be appropriate to begin the process of reducing the size of the balance sheet after the process of increasing the target range for the federal funds rate has begun. While participants agreed that details on the timing and pace of balance sheet runoff would be determined at upcoming meetings, participants generally noted that current economic and financial conditions would likely warrant a faster pace of balance sheet runoff than during the period of balance sheet reduction from 2017 to 2019. Participants observed that, in light of the current high level of the Federal Reserve's securities holdings, a significant reduction in the size of the balance sheet would likely be appropriate. Participants noted that the level of securities holdings consistent with implementing monetary policy efficiently and effectively in an ample reserves regime was uncertain and probably would remain so. Consequently, market conditions would have to be monitored closely to determine the appropriate longer-run level of reserves and the size of the balance sheet. Participants agreed that the Committee should reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the SOMA. They also agreed that the SOMA should hold primarily Treasury securities in the longer run. Regarding these two principles, many participants commented that sales of agency MBS or reinvesting some portion of principal payments received from agency MBS into Treasury securities may be appropriate at some point in the future to enable suitable progress toward a longer-run SOMA portfolio composition consisting primarily of Treasury securities. Participants agreed that it was appropriate at this time for the Committee to publish its high-level principles for reducing the size of the Federal Reserve's balance sheet. They also agreed that it was important for the Committee to retain the flexibility to adjust any of the details of its approach in light of changing economic and financial conditions. Participants noted that the principles would serve as an important guide in future deliberations on balance sheet reduction. While no decisions regarding specific details for reducing the size of the balance sheet were made at this meeting, participants agreed to continue their discussions at upcoming meetings. Following the conclusion of the discussion, all participants supported the proposed principles for reducing the size of the balance sheet. The Committee voted unanimously to adopt the Principles for Reducing the Size of the Federal Reserve's Balance Sheet, as shown below. PRINCIPLES FOR REDUCING THE SIZE OF THE FEDERAL RESERVE'S BALANCE SHEET (As adopted effective January 25, 2022) The Federal Open Market Committee agreed that it is appropriate at this time to provide information regarding its planned approach for significantly reducing the size of the Federal Reserve's balance sheet. All participants agreed on the following elements: The Committee views changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy. The Committee will determine the timing and pace of reducing the size of the Federal Reserve's balance sheet so as to promote its maximum employment and price stability goals. The Committee expects that reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun. The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime. In the longer run, the Committee intends to hold primarily Treasury securities in the SOMA, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy. The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments. Staff Review of the Economic Situation The information available at the time of the January 25â26 meeting suggested that U.S. real gross domestic product (GDP) growth had picked up in the fourth quarter after slowing in the third quarter. Labor market conditions improved further in December, and indicators of labor compensation continued to show robust increases. Consumer price inflation through Novemberâas measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. Total nonfarm payroll employment posted a moderate gain in December. The unemployment rate declined from 4.2 percent in November to 3.9 percent in December. The unemployment rate for African Americans moved higher, and the Hispanic unemployment rate declined; both rates remained well above the national average. The labor force participation rate was unchanged in December, and the employment-to-population ratio moved up. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved down in November but remained well above pre-pandemic levels; the quits rate was also elevated. Weekly estimates of private-sector payrolls, constructed by the Board's staff using data provided by the payroll processor ADP that were available through the first half of January, pointed to a slower pace of private employment gains relative to December. Average hourly earnings rose at an annual rate of 6.2 percent over the last three months of the year; although wage increases were widespread across industries, they were particularly notable in the leisure and hospitality sector as well as the transportation and warehousing sector. Inflation readings remained high, and various indicators suggested that inflationary pressures had broadened over the second half of 2021. Total PCE price inflation was 5.7 percent over the 12 months ending in November, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.7 percent over the same period. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 2.8 percent in November, 1 percentage point higher than its year-earlier rate of increase. In December, the 12-month change in the consumer price index (CPI) was 7.0 percent, while core CPI inflation was 5.5 percent over the same period. The staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had largely leveled off over the fall and was close to its 2014 average. Real PCE was unchanged in November, and available indicatorsâincluding the components of the nominal retail sales data used to estimate PCEâpointed to a decline in December, possibly reflecting the sharp rise in COVID-19 cases in the second half of that month as well as some holiday sales having been pulled forward to earlier months. Housing demand remained strong, and available indicators suggested that residential investment increased in the fourth quarter. However, shortages of construction materials, buildable lots, and other inputs continued to weigh on activity in this sector. Business fixed investment appeared to post only a small gain in the fourth quarter, as investment in transportation equipment was held back by supply bottlenecks and limited supplies of construction materials restrained nonresidential structures investment. Manufacturing output moved down in December after advancing strongly in October and November. Motor vehicle assemblies reversed some of their November increase; in addition, manufacturing production outside of motor vehicles ticked lower. Total real government purchases appeared to have fallen in the fourth quarter. Al­though available data suggested that real federal purchases rose, indicators of real state and local government purchases pointed to a decline in the fourth quarter despite state and local governments' extremely strong budget positions and the widespread return to in-person schooling last fall. The U.S. international trade deficit widened at the end of last year. Imports of goods rose sharply in November and December, led by increases in consumer goods, while exports of goods were little changed over the two months, on net, after surging in October. Shipping congestion and other bottlenecks continued to restrain the level of trade in goods. Meanwhile, services exports jumped in November, reflecting a sizable increase in exports of travel services after the reopening of U.S. borders to vaccinated foreign travelers early in the month. Even so, services trade was very low relative to pre-pandemic norms, largely because the level of international travel remained depressed. Incoming data suggested that foreign economic growth picked up in the fourth quarter of 2021 as economies in emerging Asia bounced back from lockdowns in the third quarter induced by the Delta variant of the COVID-19 virus. Purchasing managers indexes (PMIs) pointed to improved supplier delivery times, and foreign vehicle production rose notably, suggesting that supply bottlenecks continued to ease somewhat. However, the rapid spread of the Omicron variant led to renewed public health restrictions in several countries, particularly in China, and appeared to be weighing on activity at the start of the year. Inflation abroad continued to rise, mostly driven by further increases in retail energy prices, effects from supply bottlenecks, and, in some emerging market economies (EMEs), by rising food prices. That said, input and output price components of PMIs provided some tentative signs that easing supply constraints have started to contribute to some letup in inflationary pressures in several foreign economies. Staff Review of the Financial Situation Over the intermeeting period, easing concerns around the economic effects of the Omicron variant and FOMC communications that were viewed as less accommodative than expected contributed to increases in Treasury yields. Long-term sovereign yields in AFEs also rose notably. Broad domestic equity indexes decreased markedly, and spreads of corporate bonds widened modestly. Short-term funding markets were stable, while participation in the overnight reverse repurchase agreement (ON RRP) facility increased further. Market-based financing conditions remained accommodative, and bank lending standards eased for most loan categories. The expected path for the federal funds rate over the next few yearsâimplied by a straight read of overnight index swap quotesârose notably since the December FOMC meeting, apparently reflecting less-accommodative-than-expected FOMC communications and an easing of concerns around the economic effects of the Omicron variant. Those factors also contributed to notable rises in 2-, 5-, and 10-year nominal Treasury yields. Inflation compensation implied by Treasury Inflation-Protected Securities rose slightly, on net. Broad equity indexes decreased markedly, on net, particularly in the latter part of the intermeeting period, as shifts in expectations about the pace of monetary policy tightening, globalâ¯inflationary pressures, and escalating tensions between Russia and Ukraine weighed on equity prices. The one-month option-implied volatility on the S&P 500âthe VIXâincreased considerably, on net, to above the 90th percentile of its historical distribution. Spreads of investment- and speculative-grade corporate bonds widened modestly. Spreads of municipal bonds were roughly unchanged. Short-term funding markets were stable over the intermeeting period. The effective federal funds rate and the Secured Overnight Financing Rate generally held steady at 8 basis points and 5 basis points, respectively. Participation in ON RRP operations averaged $1.6 trillion, about $150 billion higher than during the previous intermeeting period, and reached an all-time high of $1.9 trillion at year-end. Government money market funds continued to receive investment inflows and accounted for the majority of ON RRP take-up. Over the intermeeting period, movements in foreign asset prices responded to waning concerns about the Omicron variant's potential economic effects and firming views that monetary accommodation in several advanced economies will be removed at a faster pace than previously expected. Some market participants also pointed to rising geopolitical tensions related to Russia as contributing to the moves. On net, AFE sovereign yields increased notably, most major foreign equity indexes declined moderately, and the broad dollar index decreased modestly. EME sovereign spreads widened, and capital flows into EME-dedicated bond funds remained slightly negative, while flows into EME equity funds turned positive. In domestic credit markets, financing conditions for nonfinancial firms remained broadly accommodative. Gross issuance of corporate bonds and leveraged loans remained solid but slowed somewhat in December, reflecting seasonal factors. Equity funding raised through initial public offerings continued at a strong pace in November and December, while equity issuance through special purpose acquisition companies remained muted relative to earlier in 2021. Commercial and industrial (C&I) loans expanded over the fourth quarter following more than a year of declines. In the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported easier standards and stronger demand for C&I loans over the fourth quarter. The credit quality of large nonfinancial corporations remained strong over the intermeeting period. The volumes of nonfinancial corporate bond and leveraged loan upgrades exceeded those of downgrades in November and December. Trailing default rates on nonfinancial bonds edged down further to historical lows, while market indicators of future expected default rates remained benign and historically low. In the municipal bond market, financing conditions remained accommodative, as municipal bond yields stayed near historical lows. Issuance of municipal debt was strong in November and December. The credit quality of municipal debt remained stable, and the volume of defaults stayed low. Financing conditions for small businesses eased a bit over the intermeeting period. In the January SLOOS, small banks reported easing C&I loan standards to small firms over the fourth quarter. Loan originations to small businesses rose in November to near pre-pandemic levels. Banks in the January SLOOS reported stronger loan demand by small firms over the fourth quarter, though loan demand remained weak overall. Commercial real estate (CRE) loan balances on banks' books expanded at a solid pace in the fourth quarter, and, in the January SLOOS, banks reported an easing of standards on such loans amid stronger demand for most CRE loan categories. Issuance of non-agency commercial mortgage-backed securities (CMBS) surged in the fourth quarter, while issuance of agency CMBS slowed. Delinquency rates on mortgages in CMBS pools continued to fall but remained elevated for hotel and retail mortgages. In the residential mortgage market, financing conditions remained accommodative, particularly for borrowers who met standard conforming loan criteria. In the January SLOOS, banks reported easing lending standards for most mortgage categories in the fourth quarter. Mortgage rates increased over the intermeeting period in line with rates on agency MBS and 10-year Treasury securities but remained low by historical standards. The fraction of mortgage borrowers missing payments continued to decline through November. Financing conditions for consumer credit remained accommodative for most borrowers, especially those with higher credit scores. Lending standards for nonprime consumers in the credit card market continued to ease from the tight levels seen earlier in the pandemic. Banks reported in the January SLOOS that demand for credit card loans strengthened over the fourth quarter, while lending standards eased for auto loans amid a weakening in demand. With sales running low because of constrained supply, auto loan growth continued to slow in October and November from the more rapid pace recorded in the first half of the year. The staff provided an update on its assessments of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable. The staff judged that asset valuation pressures remained elevated. In particular, the forward price-to-earnings ratio for the S&P 500 index stood at the upper end of its historical distribution; high-yield corporate bond spreads and the excess loan premium for leveraged loans remained at low levels; and house prices grew strongly, with price-to-rent ratios that were at elevated levels. The staff noted that the market capitalization of crypto-assets had grown significantly over the past decade and had experienced considerable volatility, including sizable declines since late last year. The staff changed its assessment of vulnerabilities associated with nonfinancial leverage from notable to moderate, noting that measures of business leverage had declined to pre-pandemic levels. Household delinquency rates remained relatively low, while household borrowing rose but was concentrated among prime borrowers. Vulnerabilities arising from financial leverage remained moderate. Risk-based capital ratios for banks remained above their pre-pandemic levels even after the resumption of shareholder payouts. In contrast, some available measures of hedge fund leverage continued to increase, and important data gaps continued to limit a full assessment of vulnerabilities posed by many nonbank financial institutions. Vulnerabilities associated with funding risks were characterized as moderate. Prime and tax-exempt money funds continued to have structural vulnerabilities that may lead investors to withdraw funds quickly in a stress situation and were a potential source of spillovers to other short-term funding markets. In response, the Securities and Exchange Commission proposed reforms in December 2021 to make these funds more resilient. Another vulnerability in funding markets was the significant growth in stablecoin arrangements over the past few years, which may increase challenges related to run risk and pose additional risks from their potential role as a means of payment. Staff Economic Outlook The near-term projection for U.S. economic activity prepared by the staff for the January FOMC meeting was weaker than in December, reflecting the sharp rise in COVID-19 infections caused by the rapid spread of the Omicron variant and an assessment that supply constraints would resolve more slowly than previously expected. Although real GDP still appeared to have posted a sizable gain in the fourth quarter of 2021, output growth was expected to slow noticeably in the first quarter of 2022 before picking up again later in the year as COVID-19 cases declined and supply issues continued to be resolved. With most of the boost to growth from the reopening of the economy and easing of supply constraints expected to occur in 2022, real GDP growth was projected to step down in 2023 and to be roughly in line with potential growth in 2023 and 2024. However, the level of real GDP was expected to remain well above potential throughout the projection period, and labor market conditions were expected to remain very tight. The staff's near-term projection for PCE price inflation was revised up relative to December in response to the anticipated slower resolution of supply issues. In particular, the staff continued to expect that monthly inflation rates would move lower as supply constraints eased, but the projected step-down was less pronounced than in the December forecast. Even so, an improvement in supply conditions and a decline in consumer energy prices were expected to slow PCE price inflation to 2.6 percent in 2022. With supply conditions expected to normalize further but with the labor market expected to remain very tight, PCE price inflation was projected to decline to 2 percent in 2023 before edging up to 2.1 percent in 2024. The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside. In particular, the possibility that the economic effects of the virus would turn out to be larger than assumed in the baseline projection was viewed as an important source of downside risk to activity, while the possibility of more severe and more persistent supply issues was viewed as an additional downside risk to activity and as an upside risk to inflation. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had improved in recent months but continued to be affected by the recent sharp rise in COVID-19 cases. Job gains had been solid in recent months, and the unemployment rate had declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions had remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants judged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remained, including from new variants of the virus. With regard to the economic outlook, participants agreed that the Omicron wave of the pandemic would weigh on economic activity in the first quarter of 2022. Indeed, sectors of the economy that are particularly sensitive to pandemic-related disruptions, including travel, leisure, and restaurants, were experiencing sharp reductions in activity as a result of the Omicron wave. Participants commented that, for many afflicted individuals and families, the virus continued to cause great hardship. Participants concurred that if the Omicron wave dissipated quickly, then economic activity would likely strengthen rapidly and economic growth for 2022 as a whole would be robust. Participants cited strong household balance sheets, rising wages, and effective adaptation to the pandemic by the business sector as factors supporting the outlook for strong growth this year. However, a number of participants noted that there was a risk that additional variants could weigh on economic activity this year. Participants noted that supply chain bottlenecks and labor shortages had continued to limit businesses' ability to meet strong demand, with these challenges exacerbated by the emergence and spread of the Omicron variant. In particular, the Omicron wave had led to much more widespread worker absences due to illness, virus exposure, or caregiving needs, which had curtailed activity in many sectors including airlines, trucking, and warehousing. Some participants reported that their business contacts were hopeful that the effects of the Omicron wave would be relatively short lived. Nevertheless, several participants reported that their contacts expected the ongoing labor shortages and other supply constraints to persist well after the acute effects of the Omicron wave had waned. Participants' contacts also reported continued widespread input cost pressures, which, amid generally robust demand, they reported having largely been able to pass on to their customers. A few participants commented that agricultural businesses were experiencing higher input costs, and those higher costs were putting strain on the finances of those firms even as they experienced generally strong demand for their products. In their discussion of the household sector, many participants noted that the onset of the Omicron wave had damped consumer demand, particularly for services, with much of the recent weakness concentrated in high-contact sectors such as travel, dining, and leisure and hospitality. Almost all of those participants anticipated that household demand would recover briskly if the Omicron wave subsided quickly, with spending supported by strong household balance sheets that were bolstered by high rates of saving earlier in the pandemic and ongoing robust gains in labor income. Participants noted that the labor market had made remarkable progress in recovering from the recession associated with the pandemic and, by most measures, was now very strong. Increases in employment had been solid in recent months; the unemployment rate had declined sharply, reaching 3.9 percent in December; job openings and quits were near record high levels; and nominal wages were rising at the fastest pace in decades. Several participants commented that the gains, on balance, over recent months had been broad based, with notable improvements for lower-wage workers as well as African Americans and Hispanics. Against this backdrop of a generally strong and improving labor market, many participants observed that the effects of the Omicron variant likely would only temporarily suppress the rate of labor market gains. The labor force participation rate had edged up further over the past few months, and some participants indicated that they expected it to continue to increase as the pandemic eased. A couple of participants noted that the participation rate remained lower than trend levels that account for changing demographics. Participants noted that their District contacts were reporting that labor demand remained historically strong and that labor supply remained constrained, resulting in a broad shortage of workers across many parts of the economy. As a result, there was widespread evidence that the labor market was very tight, including near-record rates of quits and job vacancies as well as nominal wage growth that was the highest recorded in decades. Several participants reported that District business contacts were either planning to implement or had implemented larger wage increases than those of recent years to retain current employees or attract new workers. A few participants also reported contacts having been forced to reduce operating hours or close businesses temporarily because of labor shortages. Acknowledging that the maximum level of employment consistent with price stability evolves over time, participants expressed a range of views regarding their assessments of current labor market conditions relative to the Committee's goal of maximum employment. Many participants commented that they viewed labor market conditions as already at or very close to those consistent with maximum employment, citing indications of strong labor markets including the low levels of unemployment rates, elevated wage pressures, near-record levels of job openings and quits, and a broad shortage of workers across many parts of the economy. A couple of participants commented that, in their view, the economy likely had not yet reached maximum employment, noting that, even for prime-age workers, labor force participation rates were still lower than those that prevailed before the pandemic or that a reallocation of labor across sectors could lead to higher levels of employment over time. Participants remarked that recent inflation readings had continued to significantly exceed the Committee's longer-run goal and elevated inflation was persisting longer than they had anticipated, reflecting supply and demand imbalances related to the pandemic and the reopening of the economy. However, some participants commented that elevated inflation had broadened beyond sectors most directly affected by those factors, bolstered in part by strong consumer demand. In addition, various participants cited other developments that had the potential to place additional upward pressure on inflation, including real wage growth in excess of productivity growth and increases in prices for housing services. Participants acknowledged that elevated inflation was a burden on U.S. households, particularly those who were least able to pay higher prices for essential goods and services. Some participants reported that their business contacts remained concerned about persistently high inflation and that they were adjusting their business practices to cope with higher input costsâfor instance, by raising output prices or utilizing contracts that were contingent on their costs. Participants generally expected inflation to moderate over the course of the year as supply and demand imbalances ease and monetary policy accommodation is removed. Some participants remarked that longer-term measures of inflation expectations appeared to remain well anchored, which would support a return of inflation over time to levels consistent with the Committee's goals. In their discussion of risks to the outlook, participants agreed that uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside. Participants cited several such risks, including the zero-tolerance COVID-19 policy in China that had the potential to further disrupt supply chains, the possibility of geopolitical turmoil that could cause increases in global energy prices or exacerbate global supply shortages, a worsening of the pandemic, persistent real wage growth in excess of productivity growth that could trigger inflationary wageâprice dynamics, or the possibility that longer-term inflation expectations could become unanchored. A few participants pointed to the possibility that structural factors that had contributed to low inflation in the previous decade, such as technological changes, demographics, and a low real interest rate environment, may reemerge when the effects of the pandemic abate. Uncertainty about real activity was also seen as elevated. Various participants noted downside risks to the outlook, including a possible worsening of the pandemic, the potential for escalating geopolitical tensions, or a substantial tightening in financial conditions. Participants who commented on issues related to financial stability cited a number of factors that could represent potential vulnerabilities to the financial system. A few participants noted that asset valuations were elevated across a range of markets and raised the concern that a major realignment of asset prices could contribute to a future downturn. A couple of these participants judged that prolonged accommodative financial conditions could be contributing to financial imbalances. A couple of other participants cited reasons why elevated asset valuations might prove to be less of a threat to financial stability than in past reversals of asset prices. In particular, they noted the relatively healthy balance sheet positions of households and nonfinancial firms, the well-capitalized and liquid banking sector, and the fact that the rise in housing prices was not being fueled by a large increase in mortgage debt as suggesting that the financial system might prove resilient to shocks. Some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms. A few participants pointed to risks associated with highly leveraged, nonbank financial institutions or the potential vulnerability of prime money market funds to a sudden withdrawal of liquidity. In their consideration of the stance of monetary policy, participants agreed that it would be appropriate for the Committee to keep the target range for the federal funds rate at 0 to 1/4 percent in support of the Committee's objectives of maximum employment and inflation at the rate of 2 percent over the longer run. They also anticipated that it would soon be appropriate to raise the target range. In discussing why beginning to remove policy accommodation could soon be warranted, participants noted that inflation continued to run well above 2 percent and generally judged the risks to the outlook for inflation as tilted to the upside. Participants also assessed that the labor market was strong, having made substantial, broad-based progress over the past year. In light of elevated inflation pressures and the strong labor market, participants continued to judge that the Committee's net asset purchases should be concluded soon. Most participants preferred to continue to reduce the Committee's net asset purchases according to the schedule announced in December, bringing them to an end in early March. A couple of participants stated that they favored ending the Committee's net asset purchases sooner to send an even stronger signal that the Committee was committed to bringing down inflation. Participants discussed the implications of the economic outlook for the likely timing and pace for removing policy accommodation. Compared with conditions in 2015 when the Committee last began a process of removing monetary policy accommodation, participants viewed that there was a much stronger outlook for growth in economic activity, substantially higher inflation, and a notably tighter labor market. Consequently, most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the Committee's expectation. Even so, participants emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook, and they will be updating their assessments of the appropriate setting for the policy stance at each meeting. Participants noted that the removal of policy accommodation in current circumstances depended on the timing and pace of both increases in the target range of the federal funds rate and the reduction in the size of the Federal Reserve's balance sheet. In this context, a number of participants commented that conditions would likely warrant beginning to reduce the size of the balance sheet sometime later this year. In their discussion of the outlook for monetary policy, many participants noted the influence on financial conditions of the Committee's recent communications and viewed these communications as helpful in shifting private-sector expectations regarding the policy outlook into better alignment with the Committee's assessment of appropriate policy. Participants continued to stress that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment. Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate. Some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation. A few participants remarked that this risk could be mitigated through clear and effective communication of the Committee's assessments of the economic outlook, the risks around the outlook, and the appropriate path for monetary policy. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had improved in recent months but were being affected by the recent sharp rise in COVID-19 cases. Job gains had been solid in recent months, and the unemployment rate had declined substantially. Members remarked that supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation, but risks to the economic outlook remained, including from new variants of the virus. In order to support the Committee's maximum-employment and price-stability objectives, members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, members expected that it would soon be appropriate to raise the target range for the federal funds rate. Members agreed to continue to reduce the monthly pace of the Committee's net asset purchases, bringing them to an end in early March. Specifically, beginning in February, the Committee would increase its holdings of Treasury securities by at least $20 billion per month and of agency MBS by at least $10 billion per month. Members noted that the Federal Reserve's ongoing asset purchases and holdings of securities would continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed to remove the opening sentence from previous postmeeting statements regarding using the Federal Reserve's full range of tools to support the U.S. economy. This language was adopted during the height of the financial market turmoil in March 2020, when the Committee began its asset purchase program, and members acknowledged that it was no longer warranted in light of the strong economy as well as the Committee's announcement that net asset purchases would end in early March. Members agreed that the postmeeting statement should be updated to reflect the Committee's expectation that it would soon be appropriate to raise the target range for the federal funds rate in light of elevated inflation pressures and the strong labor market. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective January 27, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. Complete the increase in System Open Market Account (SOMA) holdings of Treasury securities by $40 billion and of agency mortgage-backed securities (MBS) by $20 billion, as indicated in the monthly purchase plans released in mid-January. Increase the SOMA holdings of Treasury securities by $20 billion and of agency MBS by $10 billion, during the monthly purchase period beginning in mid-February. Increase holdings of Treasury securities and agency MBS by additional amounts as needed to sustain smooth functioning of markets for these securities. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS. Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgageâbacked securities by at least $10 billion per month. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Voting against this action : None. Patrick Harker voted as an alternate member at this meeting. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 0.15 percent, effective January 27, 2022. The Board also voted unanimously to approve the establishment of the primary credit rate at the existing level of 0.25 percent. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, March 15â16, 2022. The meeting adjourned at 10:10 a.m. on January 26, 2022. Notation Vote By notation vote completed on January 4, 2022, the Committee unanimously approved the minutes of the Committee meeting held on December 14â15, 2021. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of principles for reducing the size of the balance sheet. Return to text 3. Attended Tuesday's session only. Return to text 4. Committee organizational documents are available at www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 1. In general, as specified in Article IV, each member of the IMF undertakes to collaborate with the IMF and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. These obligations include seeking to direct the member's economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance of payments adjustment or to give an unfair competitive advantage over other members. Return to text

Minutes of the Federal Open Market Committee March 15-16, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, March 15, 2022, at 9:00 a.m. and continued on Wednesday, March 16, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Esther L. George Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Naureen Hassan, and Neel Kashkari, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Kenneth C. Montgomery, Interim President of the Federal Reserve Bank of Boston James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Carlos Garriga, Joseph W. Gruber, David E. Lebow, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Antulio N. Bomfim, Jane E. Ihrig, Kurt F. Lewis, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board David Bowman, David López-Salido, and Min Wei, Senior Associate Directors, Division of Monetary Affairs, Board Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Stephanie E. Curcuru and Matteo Iacoviello, 3 Associate Directors, Division of International Finance, Board; Burcu Duygan-Bump, Associate Director, Division of Research and Statistics, Board; Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Zeynep Senyuz and Rebecca Zarutskie, Deputy Associate Directors, Division of Monetary Affairs, Board Paul Lengermann and Clara Vega, Assistant Directors, Division of Research and Statistics, Board; Dan Li, Assistant Director, Division of Monetary Affairs, Board Alyssa G. Anderson, 2 Valerie S. Hinojosa, and Lubomir Petrasek, 2 Section Chiefs, Division of Monetary Affairs, Board; Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board; Logan T. Lewis, 3 Section Chief, Division of International Finance, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Mary Tian 2 and Randall A. Williams, Group Managers, Division of Monetary Affairs, Board Michele Cavallo and Ander Perez-Orive, Principal Economists, Division of Monetary Affairs, Board Cynthia L. Doniger and David Glancy, 4 Senior Economists, Division of Monetary Affairs, Board David Na, 2 Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Kelly J. Dubbert, First Vice President, Federal Reserve Bank of Kansas City Kartik B. Athreya, Michael Dotsey, and Sylvain Leduc, Executive Vice Presidents, Federal Reserve Banks of Richmond, Philadelphia, and San Francisco, respectively Edward S. Knotek II, Anna Nordstrom, 2 Giovanni Olivei, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of Cleveland, New York, Boston, and Minneapolis, respectively Kathryn B. Chen, Lisa Chung, 2 Jonas Fisher, Mark J. Jensen, Matthew D. Raskin, Andrea Tambalotti, and Benedict Wensley, 2 Vice Presidents, Federal Reserve Banks of New York, New York, Chicago, Atlanta, New York, New York, and New York, respectively Seth Searls, 2 Assistant Vice President, Federal Reserve Bank of New York Karel Mertens, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Justin Meyer, 2 Markets Officer, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a review of global financial market developments. Following the Russian invasion of Ukraine and the subsequent imposition of an array of sanctions, the ruble depreciated roughly 40 percent against the dollar. Prices of dollar-denominated Russian bonds plunged 80 to 90 percent, and local trading of Russian equities was suspended after a precipitous decline in Russian stock price indexes. Global financial conditions tightened, reflecting declines in equity prices, increases in sovereign yields and credit spreads, andâfor the United Statesâan appreciation of the dollar. Prices of commodities that Russia exports, particularly oil and natural gas, soared over the period. While oil prices partially retraced late in the period, options prices suggested considerable probability that oil prices could remain elevated or rise further in the months ahead. Alongside the rise in commodities prices, measures of near-term inflation compensation increased sharply across advanced economies. In Eastern European countries, currencies depreciated notably and equity prices declined, but most emerging market currencies outside of Eastern Europe depreciated only modestly or rose. Sovereign spreads for emerging market economies (EMEs) widened, but the moves outside of Eastern Europe were relatively modest. The developments in Ukraine sparked some liquidity strains across markets. Overnight interest rates were steady throughout the period, but there were some signs of pressures in term funding markets. High levels of reserves in the banking system and the backstop facilities in placeâthe new repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) and the standing repo facility (SRF), as well as the standing central bank liquidity swap lines and the discount windowâlikely supported market confidence regarding the availability of liquidity and helped contain funding pressures. Amid a rise in market volatility, trading liquidity declined across a number of sectors. In the Treasury market, market depth fell and the price impact of trades increased modestly in some sectors. Overall, however, volumes were typical, and markets continued to function in an orderly fashion. Notwithstanding uncertainties associated with geopolitical developments, many central banks continued to signal intentions to move ahead with reducing policy accommodation to address elevated inflation. Market-implied policy rates one year forward rose notably across many advanced foreign economies (AFEs), extending increases seen over recent months. In the United States, incoming economic data and Federal Reserve communications led investors to expect a more rapid removal of policy accommodation than they had previously expected. Market participants almost universally expected a 25 basis point increase in the target range for the federal funds rate at the current meeting. Moreover, futures prices implied that the federal funds rate would increase around 170 basis points through year-end, about 70 basis points more than had been priced in at the time of the January meeting. Similarly, the median projection of the target range for the federal funds rate in the Open Market Desk's most recent surveys of primary dealers and market participants showed an increase of 150 basis points this year. The median projected path for the target range beyond 2022 rose another 100 basis points by the first half of 2024 to a level modestly above the median projected longer-run level before returning closer to the longer-run level in 2025. Consistent with shifting expectations for the path of policy, shorter-dated Treasury yields rose notably over the intermeeting period and the spread between the 10-year Treasury yield and 2-year Treasury yield narrowed. Market participants expected an earlier and somewhat faster reduction in System Open Market Account (SOMA) holdings of securities than they did in January. In the Desk surveys, almost 90 percent of respondents projected balance sheet runoff to begin by July. Overall, survey respondents expected a significant reduction in the balance sheet over coming years, although there was a high degree of uncertainty around the magnitude of the total decline. The manager turned next to a discussion of money markets and policy implementation. Market participants expected the interest on reserve balances rate and overnight reverse repurchase agreement (ON RRP) offering rate to be increased by 25 basis points at the current meeting, in line with their expected increase in the target range, and anticipated that the changes would fully pass through to market overnight interest rates. There was uncertainty around how ON RRP usage might evolve in the near term as money market rates increased. If banks lifted their deposit rates by less than the increase in returns available on alternative investments, depositors could shift funds into these alternatives, leading to downward pressure on rates and increased ON RRP take-up. If instead deposit rates moved up in line with net yields on alternative investments, ON RRP takeup could remain relatively steady. Over the longer term, however, ON RRP balances were expected to decline as the Federal Reserve's balance sheet runoff proceeded and gradually lifted money market rates relative to the ON RRP rate. Turning to Desk operations, the manager noted that the Desk would be maintaining the size of the SOMA portfolio through reinvestments until the Committee directed otherwise. For Treasury securities, the Desk would follow the usual practice of rolling over all principal payments at auctions. In the absence of regular secondary-market purchases of Treasury securities, the Desk planned to maintain operational readiness by conducting small-value purchases and sales of Treasury securities. For agency mortgage-backed securities (MBS), the Desk planned to continue to reinvest principal payments on a monthly basis through secondary-market purchases. The manager discussed a plan to simplify administrative aspects of the SOMA holdings of agency MBS in coming months through a process of CUSIP (Committee on Uniform Securities Identification Procedures) aggregation. The Desk undertook similar programs of CUSIP aggregation following the conclusion of previous large-scale asset purchase programs; these past CUSIP aggregation programs were successful at reducing the cost and complexity of maintaining agency MBS holdings. Finally, the manager provided an update on the SRF. The Desk had onboarded four depository institutions as counterparties and noted that a number of additional banks were currently under review. The Desk planned to adjust the counterparty eligibility requirements in early April to make the SRF accessible to a broader range of banks, in line with the Committee's intention to expand eligibility over time and with efforts to ensure that Desk counterparty policies promote a fair and competitive marketplace. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. No intervention operations occurred in foreign currencies for the System's account during the intermeeting period. Plans for Reducing the Size of the Balance Sheet Participants continued their discussion of topics related to plans for reducing the size of the Federal Reserve's balance sheet in a manner consistent with the approach described in the Principles for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee released following its January meeting. The participants' discussion was preceded by a staff presentation that reviewed the Committee's 2017â19 experience with balance sheet reduction and presented a range of possible options for reducing the Federal Reserve's securities holdings over time in a predictable manner. All of the options featured a more rapid pace of balance sheet runoff than in the 2017â19 episode. The options differed primarily with respect to the size of the monthly caps for securities redemptions in the SOMA portfolio. The presentation addressed the potential implications of each option for the path of the balance sheet during and after runoff. The staff presentation also featured alternative approaches the Committee could consider with respect to SOMA holdings of Treasury bills as well as alternative ways the Committee could eventually slow and then stop balance sheet runoff as the size of the SOMA portfolio approached levels consistent with the Committee's ample-reserves framework for policy implementation. In their discussion, all participants agreed that elevated inflation and tight labor market conditions warranted commencement of balance sheet runoff at a coming meeting, with a faster pace of decline in securities holdings than over the 2017â19 period. Participants reaffirmed that the Federal Reserve's securities holdings should be reduced over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the SOMA. Principal payments received from securities held in the SOMA would be reinvested to the extent they exceeded monthly caps. Several participants remarked that they would be comfortable with relatively high monthly caps or no caps. Some other participants noted that monthly caps for Treasury securities should take into consideration potential risks to market functioning. Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate. Participants also generally agreed that the caps could be phased in over a period of three months or modestly longer if market conditions warrant. Participants discussed the approach toward implementing caps for Treasury securities and the role that the Federal Reserve's holdings of Treasury bills might play in the Committee's plan to reduce the size of the balance sheet. Most participants judged that it would be appropriate to redeem coupon securities up to the cap amount each month and to redeem Treasury bills in months when Treasury coupon principal payments were below the cap. Under this approach, redemption of Treasury bills would typically bring the total amount of Treasury redemptions up to the monthly cap. Several participants remarked that reducing the Federal Reserve's Treasury bill holdings over time would be appropriate because Treasury bills are highly valued as safe and liquid assets by the private sector, and the Treasury could increase bill issuance to the public as SOMA bill holdings decline. In addition, participants generally noted that maintaining large holdings of Treasury bills is not necessary under the Federal Reserve's ample-reserves operating framework; in the previous scarce-reserves regime, Treasury bill holdings were useful as a tool that could be used to drain reserves from the banking system when necessary to control short-term interest rates. A couple of participants commented that holding some Treasury bills could be appropriate if the Federal Reserve wished to keep its Treasury portfolio neutral with respect to the universe of outstanding Treasury securities. With respect to the Federal Reserve's agency MBS redemptions, participants generally noted that MBS principal prepayments would likely run under the proposed monthly cap in a range of plausible interest rate scenarios but that the cap could guard against outsized reductions in the Federal Reserve's agency MBS holdings in scenarios with especially high prepayments. Some participants noted that under the proposed approach to running off Treasury and agency securities primarily through adjustments to reinvestments, agency MBS holdings would still make up a sizable share of the Federal Reserve's asset holdings for many years. Participants generally agreed that after balance sheet runoff was well under way, it will be appropriate to consider sales of agency MBS to enable suitable progress toward a longer-run SOMA portfolio composed primarily of Treasury securities. A Committee decision to implement a program of agency MBS sales would be announced well in advance. Several participants noted the significant uncertainty around the future level of reserves that would be consistent with the Committee's ample-reserves operating framework. Against this backdrop, participants generally agreed that it would be appropriate to first slow and then stop the decline in the size of the balance sheet when reserve balances were above the level the Committee judged to be consistent with ample reserves, thereby allowing reserves to decline more gradually as nonreserve liabilities increased over time. Participants agreed that lessons learned from the previous balance sheet reduction episode should inform the Committee's current approach to reaching ample reserve levels and that close monitoring of money market conditions and indicators of near-ample reserves should help inform adjustments to the pace of runoff. A couple of participants noted that the establishment of the SRF, which did not exist in the previous runoff episode, could address unexpected money market pressures that might emerge if the Committee adopted an approach to balance sheet reduction in which reserves declined relatively rapidly, but several others noted that the facility was not intended as a substitute for ample reserves. Participants generally agreed that it was important for the Committee to be prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments. No decision regarding the Committee's plan to reduce the Federal Reserve's balance sheet was made at this meeting, but participants agreed they had made substantial progress on the plan and that the Committee was well placed to begin the process of reducing the size of the balance sheet as early as after the conclusion of its upcoming meeting in May. Staff Review of the Economic Situation The information available at the time of the March 15â16 meeting suggested that U.S. real gross domestic product (GDP) was increasing in the first quarter at a pace that was slower than the rapid gain posted in the fourth quarter of 2021. Labor market conditions improved further in January and February, and indicators of labor compensation continued to show robust increases. Consumer price inflation through Januaryâas measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. Total nonfarm payroll employment grew strongly in January and February. The unemployment rate edged down, on net, from 3.9 percent in December to 3.8 percent in February. The unemployment rate for African Americans and for Hispanics declined over this period; however, both rates remained noticeably higher than the national average. The labor force participation rate increased in February, as did the employment-to-population ratio. The private-sector job openings rate in January, as measured by the Job Openings and Labor Turnover Survey, was little changed, on net, from its November level and remained well above its pre-pandemic level; the quits rate also remained elevated. Average hourly earnings rose 5.1 percent over the 12 months ending in February, about the same as its year-earlier pace, with widespread increases across industries. Consumer prices continued to rise rapidly. Total PCE price inflation was 6.1 percent over the 12 months ending in January, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 5.2 percent over the same period. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 3.5 percent in January, 1.8 percentage points higher than its year-earlier rate of increase. In February, the 12-month change in the consumer price index (CPI) was 7.9 percent, while core CPI inflation was 6.4 percent over the same period. The staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had largely leveled off over the fall and was close to its 2014 average. Real PCE appeared to be rising at a faster pace in the first quarter of 2022 than in the fourth quarter of 2021 as social distancing unwound further. Housing demand remained strong, though activity in the residential housing sector continued to be restrained by shortages of construction materials, buildable lots, and other inputs. Available indicators suggested that growth in business fixed investment was picking up in the first quarter as growth in nonresidential structures investment turned positive. Available data suggested that motor vehicle production declined sharply in February as ongoing shortages of semiconductors and other supply chain problems continued to restrain output. Outside of the motor vehicle sector, manufacturing production appeared to have moved up over January and February; however, this increase did not appear to reflect a substantial reduction in supply bottlenecks, as many indicators of the state of bottlenecks showed little sign of improvement over this period. In particular, materials inputs such as electronic components and aluminum remained in short supply, while broad measures of industrial input prices remained elevated. Separately, transportation and distribution activity continued to be held back by port congestion and a shortage of truck drivers. Available indicators suggested that real government purchases were little changed in the first quarter after declining in the fourth quarter of 2021. Although real state and local purchases appeared to be rising, federal defense purchases appeared to be contracting further in the first quarter. The U.S. international trade deficit widened at the end of last year to a record high and surpassed that high at the beginning of this year. Imports of goods grew rapidly again in January, led by increases in consumer goods, while exports of goods fell back slightly from elevated fourth-quarter levels. Shipping congestion and other bottlenecks continued to restrain the level of trade in goods. Services exports and imports fell back in January relative to December, reflecting a reduction in travel to and from the United States. Because international travel remained depressed, services trade was still very low relative to pre-pandemic norms. Incoming data suggested that the rapid spread of the Omicron variant had tempered the foreign recovery around the turn of the year. Purchasing managers indexes were consistent with the Omicron wave having a notable effect on services activity but a rather muted effect on manufacturing activity and supplier delivery times. Moreover, with COVID-19 cases having fallen in many regions, authorities had already eased restrictions and social mobility had recovered, except in China, where lockdowns were recently reimposed. The Russian invasion of Ukraine, however, constituted another negative shock to the global economy by pushing up commodity prices further, hurting global risk sentiment, and exacerbating supply bottlenecks. Inflation abroad continued to rise, driven by recovering global demand, rising retail energy and food prices, and ongoing strains on global supply chains; the effects of the Russian invasion contributed to some of these inflationary pressures. Staff Review of the Financial Situation Financial markets were highly volatile over the intermeeting period, with strained liquidity in some markets. The Russian invasion of Ukraine led to periods of particularly elevated volatility and deteriorating investor risk sentiment. Nominal Treasury yields and the expected path of policy rose during the intermeeting period, driven by economic data releases and FOMC communications that were viewed as implying a more rapid removal of monetary policy accommodation than previously expected. Domestic equity indexes declined modestly, while those in Europe fell noticeably. Financing conditions remained accommodative, although borrowing costs increased further. Investors interpreted incoming economic data and Federal Reserve communications as implying a more rapid removal of monetary policy accommodation than they had previously expected. On net, the expected path of the federal funds rate implied by financial market quotesâunadjusted for term premiumsârose significantly, along with the yields on nominal Treasury securities, since the previous FOMC meeting. Near-term inflation compensation implied by Treasury Inflation-Protected Securities rose sharply, reflecting the higher-than-anticipated CPI releases and surging energy prices following the Russian invasion of Ukraine. Spreads of investment- and speculative-grade corporate bonds widened noticeably since the previous FOMC meeting and ended the period close to the medians of their historical distributions. Spreads of municipal bonds also widened significantly across credit categories. Broad equity indexes declined modestly, on net, amid significant fluctuations. Equity prices increased early in the period because of stronger-than-anticipated corporate earnings and economic data releases, but they retraced these gains as investor risk sentiment deteriorated following the Ukraine invasion. The one-month option-implied volatility on the S&P 500âthe VIXâsurged briefly immediately following the invasion but ended the intermeeting period slightly lower on net. Foreign asset prices were highly volatile over the intermeeting period in response to geopolitical developments, central bank communications, and rising inflation concerns. News related to Russia's invasion of Ukraine, in particular, contributed to decreases in major foreign equity indexes, especially in Europe, and a moderate increase in the broad dollar index. Despite downward pressure from the geopolitical events, AFE sovereign yields increased notably, on net, on higher-than-expected inflation readings and central bank communications that were perceived as less accommodative than expected. EME sovereign spreads widened, and EME-dedicated funds experienced moderate portfolio outflows, which increased after the Russian invasion. Even so, financial conditions among EMEsâincluding fund flows and the relative strength of local currencies outside of Europeâwere resilient compared with past episodes of global turbulence, reflecting in part higher commodity prices and monetary policy tightening by EME central banks. Liquidity conditions became strained in some financial markets during the intermeeting period. Market depthâa gauge of the ability to transact in large volumes at quotes posted by market makersâdeteriorated in U.S. Treasury, U.S. equity, and crude oil markets. Trading volumes generally remained within normal ranges in most markets and increased above normal levels in Treasury markets later in the period. Bidâask spreads did not increase notably in most markets. However, investors reported that strained liquidity at times amplified the volatility of price moves and may have contributed to the particularly large swings in Treasury yields and equity prices late in the intermeeting period. Short-term funding markets were mostly stable over the intermeeting period, although spreads in some segments widened. The effective federal funds rate and the Secured Overnight Financing Rate generally held steady at 8 basis points and 5 basis points, respectively. Overnight rates on commercial paper (CP) across most sectors also held steady, although rates and spreads on longer-tenor CP and negotiable certificates of deposit increased amid the escalation of the Ukraine invasion. Spreads between three-month forward rate agreements and overnight index swaps widened as borrowers increased precautionary issuance of longer-tenor debt while money market investors preferred shorter-duration investments. ON RRP take-up was little changed, averaging about $1.6 trillion. In domestic credit markets, credit remained broadly available for most types of borrowers during the intermeeting period. Nonfinancial gross corporate bond issuance slowed noticeably in January and February, reflecting lower demand for credit due to rising borrowing costs and elevated issuance over the past two years. However, issuance rebounded to healthy levels in March for investment-grade firms, with a few high-yield firms also raising funds. Leveraged loan issuance was strong in January and February. Small business loan originations in December roughly matched pre-pandemic levels. The share of small firms that actively sought financing in the past few months and reported that it was more difficult to acquire credit compared with three months earlier remained very low. For households, both nonmortgage and mortgage credit remained accommodative. Credit card balances increased significantly in the fourth quarter, and auto credit outstanding grew at a moderate pace in December. The number of mortgage rate locks for home purchases through February was elevated relative to pre-pandemic levels. Mortgage credit for households with low credit scores continued to ease through February but remained tighter than before the pandemic. The credit quality of large nonfinancial corporations and municipalities remained strong over the intermeeting period. The volumes of credit rating upgrades for corporate and municipal bonds outpaced those of downgrades moderately in January and February. Default rates on corporate bonds, municipal bonds, and leveraged loans remained very low; most market indicators of future expected default rates for corporate bonds and leveraged loans also remained low. Credit quality in the commercial real estate sector continued to show some signs of stress. Delinquency rates for commercial mortgage-backed securities (CMBS) collateralized by hotel and retail properties continued to decline in January but remained well above pre-pandemic levels, while those for CMBS in the office sector increased somewhat in January but remained fairly low by historical standards. For households, credit quality remained fairly healthy. Delinquency rates for mortgages, which include loans in forbearance and other loans behind on payments, continued to trend down through December, while those for prime auto loan and prime credit card borrowers remained flat in December. For nonprime borrowers, delinquency rates rose in December, although they remained subdued by historical standards. Information on borrowing costs through February and early March suggested that the events surrounding Russia's invasion of Ukraine did not have a significant effect on financing conditions during the intermeeting period. Borrowing costs continued to increase in many sectors but remained low relative to their historical distributions. Spreads in the corporate bond, municipal bond, and CMBS markets generally rose to somewhat above their pre-pandemic levels, reflecting heightened geopolitical risks, uncertainty about the outlook for monetary policy, and elevated financial market volatility. Residential mortgage rates increased, mostly as a result of widening MBS spreads, which market participants attributed mainly to the tapering of the Federal Reserve's agency MBS purchases and uncertainty surrounding the market supply of agency MBS that would accompany balance sheet runoff by the Federal Reserve. Interest rates on new credit cards rose to roughly their pre-pandemic levels, while rates on auto loans also rose slightly but remained significantly below pre-pandemic levels. Staff Economic Outlook The near-term projection for U.S. economic activity prepared by the staff for the March FOMC meeting was weaker than in January, reflecting the anticipated economic effects of the conflict in Ukraine and financial conditions that were expected to be less supportive than previously assumed. For 2022 as a whole, real GDP growth was projected to step down markedly from its rapid 2021 pace before picking up slightly in 2023 as the continued resolution of supply constraints provided a small boost to growth. Real GDP growth was expected to slow further in 2024 to a pace that was in line with potential growth. However, the level of real GDP was expected to remain well above potential over the projection period, and labor market conditions were expected to remain very tight. The staff's near-term projection for PCE price inflation was revised up considerably relative to January. The upward revision reflected the staff's reaction to the persistently high and broad-based levels of domestic inflation, import price inflation, and wage growth that had been observed, as well as the staff's expectation that the upward pressure on inflation from supply and demand imbalances would last longer than previously assumed. In addition, total PCE price inflation was further revised up to reflect higher expected paths for consumer energy and food prices. All told, total PCE price inflation was projected to be 4 percent in 2022. PCE price inflation was then expected to slow to 2.3 percent in 2023 and to 2.1 percent in 2024 as food, energy, and import price inflation moved lower and as supply and demand imbalances were resolved. The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside. The COVID-19 pandemic remained a source of downside risk to activity, while the possibility of more severe and more persistent supply issues was viewed as posing an additional downside risk to activity and an upside risk to inflation. The Russian invasion of Ukraine was perceived as adding to the uncertainty around the outlook for economic activity and inflation, as the conflict carried the risk of further exacerbating supply chain disruptions and of putting additional upward pressure on inflation by boosting the prices for energy, food, and other key commodities. Finally, the possibility that continued high inflation would cause longer-term inflation expectations to become unanchored was seen as another upside risk to the inflation projection. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that indicators of economic activity and employment had continued to strengthen. Job gains had been strong in recent months, and the unemployment rate had declined substantially. Inflation remained elevated, reflecting continued supply and demand imbalances, higher energy prices, and broader price pressures. With appropriate firming in the stance of monetary policy, participants expected inflation to return to the Committee's 2 percent objective over time and the labor market to remain strong. Participants recognized that the invasion of Ukraine by Russia was causing tremendous human and economic hardship for the Ukrainian people. They judged that the implications of the war for the U.S. economy were highly uncertain, but in the near term, the invasion and related events were likely to create significant additional upward pressure on inflation and could weigh on economic activity. With regard to the economic outlook, participants noted that real GDP growth had slowed from its rapid pace in the fourth quarter of 2021, largely reflecting weaker inventory investment, but consumption and business investment continued to rise solidly. The Omicron variant left only a mild and brief imprint on economic data, as households and firms appeared resilient to this wave of the virus. Relative to their December forecasts, participants had revised down their projections for real GDP growth this year, reflecting factors such as a slowdown in inventory investment from its strong pace late last year, reduced fiscal and monetary policy accommodation, and the Russian invasion of Ukraine, which had led to higher prices of energy and other commodities, increased uncertainty, and weighed on broader financial conditions and consumer sentiment. Even so, participants judged that economic fundamentals remained solid and that they expected above-trend growth to continue, sustaining a strong labor market. Participants commented that demand for labor continued to substantially exceed available supply across many parts of the economy and that their business contacts continued to report difficulties in hiring and retaining workers. Participants observed that various indicators pointed to a very tight labor market. Employment growth remained strong through the Omicron wave. A couple of participants highlighted that the annual benchmark revision to the establishment survey employment data revealed stronger employment growth in the second half of 2021 than was initially reported. The unemployment rate had fallen to a post-pandemic low, and quits and job openings were at all-time highs. Although payroll employment remained below its pre-pandemic level, the shortfall was concentrated in a few sectors and reflected a shortage of workers rather than insufficient demand for labor. Consistent with a tight labor market, nominal wages were rising at the fastest pace in many years. While wage gains thus far had been the strongest among the lowest quartile of earners and among production and supervisory workers, wage pressures had begun to spread across the income and skill distributions. Many participants commented that they expected the labor market to remain strong and wage pressures to remain elevated. A few participants noted that there were signs that the pandemic-related factors that had held back labor supply might be abating and pointed to the notable increase in the labor force participation rate among prime-age men in February. Participants remarked that recent inflation readings continued to significantly exceed the Committee's longer-run goal and noted that developments associated with Russia's invasion of Ukraine, including the related surge in energy prices, will add to near-term inflation pressures. Some participants noted that elevated inflation had continued to broaden from goods into services, especially rents, and into sectors that had not yet experienced large price increases, such as education, apparel, and health care. A few participants also noted that the number of spending categories experiencing inflation rates above 4 percent had continued to rise, or that the trimmed mean inflation measure from the Federal Reserve Bank of Dallas had risen to its highest level since the early 1980s. Many participants indicated that their business contacts continued to report substantial increases in wages and input prices that were being passed through into higher prices to their customers without any significant decrease in demand. Participants commented on a few factors that might lead the high inflation readings to persist, including strong aggregate demand, significant increases in energy and commodity prices, and supply chain disruptions that were likely to require a lengthy period to resolve. In addition, some participants noted that recent higher inflation could affect future inflation dynamics. For example, a few participants commented that persistently high inflation readings might lead businesses, when setting prices, to be more attentive to aggregate inflation or more willing to raise prices. In addition, a couple of other participants noted that some household survey data suggested that near-term consumer inflation expectations have become more sensitive to actual inflation readings since the beginning of the pandemic. A few participants commented that both survey- and market-based measures of short-term inflation expectations were at historically high levels. Several other participants noted that longer-term measures of inflation expectations from households, professional forecasters, and market participants still appeared to remain well anchored, whichâtogether with appropriate monetary policy and an eventual easing of supply constraintsâwould support a return of inflation over time to levels consistent with the Committee's longer-run goal. Participants agreed that developments surrounding the Russian invasion of Ukraine, including the resulting sanctions, were adding to inflation pressures and posing upside risks to the inflation outlook. Participants noted that Russia and Ukraine were major suppliers of various commodities used in the production of energy, food, and some industrial inputs. A continued cutoff of that supply from the world market would further push up prices for those commodities and, over time, lead to price increases in downstream industries. The invasion had also exacerbated the disruptions of supply chains. Participants commented that, by leading to higher energy and food prices, weighing on consumer sentiment, and contributing to tighter financial conditions, the invasion also negatively affected the growth outlook. A few participants highlighted additional downside risks to growth associated with the war, such as the risk that a more protracted conflict than the public currently expects could lead to much tighter global financial conditions or other disruptions. A couple of participants commented that the increased uncertainty might lead businesses and consumers to reduce spending, though their business contacts currently were not seeing signs of such shifts or expecting a significant pullback in demand. Several participants judged that the upside risk to inflation associated with the war appeared more significant than the downside risk to growth, as inflation was already high, the United States had a relatively low level of financial and trade exposure to Russia, and the U.S. economy was well positioned to absorb additional adverse demand shocks. In their discussion of risks to the outlook, participants agreed that uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside. Participants cited several such risks, including ongoing supply bottlenecks and rising energy and commodity prices, both of which were exacerbated by the Russian invasion; recent COVID-related lockdowns in China that had the potential to further disrupt supply chains; and the possibility that longer-run inflation expectations might become unanchored. Uncertainty about real activity was also seen as elevated. Various participants noted downside risks to the outlook, including risks associated with the Russian invasion, a broad tightening in global financial conditions, and a prolonged rise in energy prices. In their consideration of the appropriate stance of monetary policy, all participants concurred that the U.S. economy was very strong, with an extremely tight labor market, and that inflation was high and well above the Committee's 2 percent inflation objective. Against this backdrop, all participants agreed that it was appropriate to begin a process of removing policy accommodation by raising the target range for the federal funds rate at this meeting. They further judged that ongoing increases in the target range for the federal funds rate would be warranted to achieve the Committee's objectives. Participants also agreed that reducing the size of the Federal Reserve's balance sheet would play an important role in firming the stance of monetary policy and that they expected it would be appropriate to begin this process at a coming meeting, possibly as soon as in May. Participants judged that the firming of monetary policy, alongside an eventual waning of supplyâdemand imbalances, would help to keep longer-term inflation expectations anchored and bring inflation down over time to levels consistent with the Committee's 2 percent longer-run goal while sustaining a strong labor market. Many participants noted thatâwith inflation well above the Committee's objective, inflationary risks to the upside, and the federal funds rate well below participants' estimates of its longer-run levelâthey would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting. A number of these participants indicated, however, that, in light of greater near-term uncertainty associated with Russia's invasion of Ukraine, they judged that a 25 basis point increase would be appropriate at this meeting. Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified. A number of participants noted that the Committee's previous communications had already contributed to a tightening of financial conditions, as evident in the notable increase in longer-term interest rates over recent months. All participants indicated their strong commitment and determination to take the measures necessary to restore price stability. In that context, participants judged that the Committee's approach of commencing increases in the target range for the federal funds rate, and indicating that ongoing increases were likely, was fully warranted. Participants judged that it would be appropriate to move the stance of monetary policy toward a neutral posture expeditiously. They also noted that, depending on economic and financial developments, a move to a tighter policy stance could be warranted. A few participants judged that, at the current juncture, a significant risk facing the Committee was that elevated inflation and inflation expectations could become entrenched if the public began to question the Committee's resolve to adjust the stance of policy as appropriate to achieve the Committee's 2 percent longer-run objective for inflation. These participants suggested that expediting the removal of policy accommodation would reduce this risk while also leaving the Committee well positioned to adjust the stance of policy if geopolitical and other developments led to a more rapid dissipation of demand pressures than expected. Participants agreed that the economic outlook was highly uncertain and that policy decisions must take account of the state of financial markets and the economy. As always, the Committee would need to be prepared to adjust the stance of monetary policy in response to the evolving economic outlook and the risks to the outlook. In this regard, participants noted that developments associated with Russia's invasion of Ukraine posed heightened risks for both the United States and the global economy. Against this backdrop, all participants judged that risk management would be important in deciding upon the appropriate stance of monetary policy, and that policy also would need to be nimble in responding to incoming data and the evolving outlook. In particular, all participants underscored the need to remain attentive to the risks of further upward pressure on inflation and longer-run inflation expectations. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that indicators of economic activity and employment had continued to strengthen. Job gains had been strong in recent months, and the unemployment rate had declined substantially. Members also agreed that inflation remained elevated, reflecting continued supply and demand imbalances, higher energy prices, and broader price pressures. Members agreed that geopolitical developments warranted several changes to the postmeeting statement. They concurred that the invasion of Ukraine by Russia was causing tremendous human and economic hardship, and they agreed to update the statement to recognize this tragic situation. Members agreed that the implications of the war for the U.S. economy were highly uncertain, but they judged that, in the near term, the invasion and related events were likely to create additional upward pressure on inflation and weigh on economic activity. In their assessment of the monetary policy stance necessary for achieving the Committee's maximum-employment and price-stability goals, members agreed that with appropriate firming in the stance of monetary policy, they expected inflation to return to the Committee's 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipated that ongoing increases in the target range would be appropriate. One member preferred to raise the target range for the federal funds rate by 0.5 percentage point to 1/2 to 3/4 percent at this meeting in light of elevated inflation pressures. With regard to reducing the size of the Federal Reserve's balance sheet, all members agreed that they had made substantial progress on arriving at a plan specifying the steps the Committee would take. They expected that, depending on economic and financial conditions, beginning the process of reducing the size of the balance sheet would be appropriate at a coming meeting, possibly as early as at the Committee's May meeting. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective March 17, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 0.5 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.3 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, Esther L. George, Patrick Harker, Loretta J. Mester, and Christopher J. Waller. Voting against this action : James Bullard. Patrick Harker voted as an alternate member at this meeting. President Bullard preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1/2 to 3/4 percent in light of elevated inflation pressures. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 0.40 percent, effective March 17, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 0.50 percent, effective March 17, 2022. 5 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, May 3â4, 2022. 6 The meeting adjourned at 10:30 a.m. on March 16, 2022. Notation Votes By notation vote completed on February 15, 2022, the Committee unanimously approved the minutes of the Committee meeting held on January 25â26, 2022. By notation vote completed on February 17, 2022, the Committee unanimously approved the Investment Trading Policy for FOMC Officials and related revisions to the Program for Security of FOMC information. In conjunction with the notation vote, all non-voting participants also expressed support for the Policy and related revisions to the Program. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of plans for reducing the size of the balance sheet. Return to text 3. Attended through the staff review of the economic and financial situation. Return to text 4. Attended Tuesday's session only. Return to text 5. In taking this action, the Board approved requests to establish the rate submitted by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco. This vote also encompassed approval by the Board of Governors of the establishment of a 0.50 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of March 17, 2022, and the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of New York and Dallas were informed of the Secretary of the Board's approval of their establishment of a primary credit rate of 0.50 percent, effective March 17, 2022.) The second vote of the Board also encompassed approval of the establishment of the interest rates for secondary and seasonal credit under the existing formulas for computing such rates. Return to text 6. An error in this date was corrected on April 6, 2022, shortly after publication. Return to text

Minutes of the Federal Open Market Committee May 3â4, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, May 3, 2022, at 10:00 a.m. and continued on Wednesday, May 4, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Esther L. George Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Naureen Hassan, and Neel Kashkari, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Kenneth C. Montgomery, Interim President of the Federal Reserve Bank of Boston James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Carlos Garriga, Joseph W. Gruber, Beverly Hirtle, David E. Lebow, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board William F. Bassett, Senior Associate Director, Division of Financial Stability, Board; John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board; Min Wei, Senior Associate Director, Division of Monetary Affairs, Board; Paul R. Wood, Senior Associate Director, Division of International Finance, Board Edward Nelson and Annette Vissing-Jørgensen, Senior Advisers, Division of Monetary Affairs, Board Andrew Figura, Glenn Follette, and Elizabeth K. Kiser, Associate Directors, Division of Research and Statistics, Board; Andrea Raffo, Associate Director, Division of International Finance, Board; Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board; Zeynep Senyuz, Deputy Associate Director, Division of Monetary Affairs, Board Etienne Gagnon and Andrew Meldrum, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board; Logan T. Lewis, 4 Section Chief, Division of International Finance, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Isabel Cairó, Michele Cavallo, and Manjola Tase, Principal Economists, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Kartik B. Athreya, Michael Dotsey, Michelle M. Neal, and Anna Paulson, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Philadelphia, New York, and Chicago, respectively Marc Giannoni, Giovanni Olivei, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of Dallas, Boston, and Minneapolis, respectively James P. Bergin, Nicolas Petrosky-Nadeau, and Matthew D. Raskin, 2 Vice Presidents, Federal Reserve Banks of New York, San Francisco, and New York, respectively Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of monetary policy expectations in the United States. Federal Reserve communications since the March FOMC meeting were perceived as signaling a more rapid removal of policy accommodation than had been expected, resulting in significant shifts in expectations regarding the path of the federal funds rate. For the current meeting, federal funds futures implied around 50 basis points of policy rate tightening, and Open Market Desk survey respondents assigned an average probability of 80 percent to that outcome. The median Desk survey respondents also projected 50-basis-point increases in the target range at the two following meetings and another 125 basis points of increases by the middle of next year, bringing the projected midpoint of the target range to a peak of 3.13 percentâsubstantially higher than in previous surveys. Market participants continued to note significant uncertainty regarding the economic outlook and the degree of policy tightening ahead. This uncertainty was reflected in the dispersion in survey respondents' average probability distribution for the target range at the end of 2023. Regarding the outlook for runoff of the Federal Reserve's securities holdings, market participants widely expected the Committee to announce the commencement of balance sheet runoff at the current meeting. Median survey responses suggested that most market participants anticipated maximum redemption caps of $60 billion per month for Treasury securities and $35 billion per month for agency mortgage-backed securities (MBS), with the caps phased in over roughly three months. Survey responses continued to reflect substantial dispersion in views on the level of System Open Market Account (SOMA) holdings at which balance sheet runoff would end. The manager turned next to a discussion of U.S. financial market developments. Financial conditions tightened notably over the period. Treasury yields increased across the curve, with the rise primarily reflecting higher real interest rates. Longer-term private borrowing rates also moved higher, with 30-year fixed-rate mortgage rates rising above 5 percent to the highest levels in over a decade. Equity indexes ended the period substantially lower, on net. These indexes moved up earlier in the period in connection with a perceived reduction in tail risks stemming from the war in Ukraine but then moved lower, reportedly because of increased caution regarding the economic outlook amid the expected tightening in U.S. monetary policy. The dollar appreciated, leaving the broad trade-weighted dollar up around 2 percent over the period. Viewed over a longer time horizon, financial conditions, as measured by many financial conditions indexes, had tightened by historically large amounts since the beginning of the year. Market- and survey-based measures of U.S. inflation expectations continued to project a significant deceleration in inflation in the coming years. Nonetheless, far-forward inflation compensation rose over the period, and market participants remained attentive to the risk that, in bringing inflation back to 2 percent, the Committee would need to tighten by more than currently expected. In global financial developments, many advanced-economy central banks raised policy rates over the period, and investors increasingly came to anticipate tighter monetary policy ahead in most advanced foreign economies. The Bank of Japan was an exception and was widely anticipated to maintain its accommodative policies. The yen depreciated 9 percent against the dollar over the intermeeting period to its weakest level in over two decades. Emerging market (EM) currencies remained relatively resilient. Market participants focused on the spread of COVID-19 in China and the effect of zero-COVID policies, which had resulted in increasingly widespread lockdowns. The renminbi depreciated against the dollar around 4 percent over the intermeeting period. The manager turned next to a discussion of developments in money markets. The effective federal funds rate rose 25 basis points following the increase in the target range at the March FOMC meeting and remained stable throughout the period. Secured overnight rates also rose by 25 basis points following the March meeting, though modest softness emerged in subsequent days. Market participants noted that ongoing uncertainty about the near-term path of Federal Reserve policy had increased demand for very short-dated investments. This demand, combined with declining Treasury bill supply, contributed to the downward pressure on secured rates and to rising overnight reverse repurchase agreement (ON RRP) usage. The manager expected that ON RRP usage could remain elevated in coming months but anticipated that, over the longer term, usage would decline as balance sheet reduction proceeded. The manager indicated that the Desk was prepared to implement the Committee's plan for balance sheet reduction and that, in the event that the Committee announced the plan at the end of the current meeting, the Desk would issue a statement and FAQs providing the public with details regarding the implementation of the plan. The Desk would closely monitor market conditions and update the Committee during the runoff process. The deputy SOMA manager reviewed developments concerning Desk operations. The Desk planned to increase the publication frequency of data on ON RRP usage. This additional information would provide the public with greater transparency about usage of the ON RRP facility. The Desk planned to publish the SOMA annual report soon. In addition to the detailed review of open market operations over 2021, the report would include updated illustrative projections of the size and composition of the Federal Reserve's balance sheet over coming years. With respect to other operational matters, the Desk continued to work on details of plans for agency MBS CUSIP (Committee on Uniform Security Identification Procedures) aggregation and anticipated that this process would begin in coming months. Finally, the deputy manager requested that the Committee vote to maintain the standing U.S. dollar and foreign currency liquidity swap arrangements and to renew the reciprocal currency arrangements with Canada and Mexico under the North American Framework Agreement. In their discussion, participants widely agreed that the standing swap lines are a critical tool allowing the Federal Reserve to address global dollar funding pressures that could otherwise adversely affect the U.S. economy. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the May 3â4 meeting suggested that U.S. real gross domestic product (GDP) declined in the first quarter. However, first-quarter growth in private domestic final demand was faster than in the previous quarter, while labor market conditions tightened further in March. Consumer price inflation through Marchâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. Total nonfarm payroll employment rose in March, and the unemployment rate declined to 3.6 percent. The unemployment rates for African Americans and for Hispanics moved lower, though both rates remained noticeably higher than the national average. The labor force participation rate increased in March, as did the employment-to-population ratio. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, remained elevated. The employment cost index of hourly compensation in the private sector rose 4.8 percent over the 12 months ending in March; this gain was much larger than the corresponding 12âmonth changes posted in each of the preceding four years and was the largest 12âmonth increase since 1990. Consumer prices continued to rise rapidly. Total PCE price inflation was 6.6 percent over the 12 months ending in March, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 5.2 percent over the same period. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 3.7 percent in March, 2 percentage points higher than its year-earlier rate of increase. A new version of the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, moved up in the first quarter and was at the upper end of the range of values seen since 2005. Both real PCE and residential investment increased in the first quarter at rates similar to those seen in the fourth quarter of 2021. Business fixed investment growth picked up sharply in the first quarter, with spending on equipment and intellectual property products posting a large increase. Inventory investment moved lower after surging in the fourth quarter of 2021, and total real government purchases declined further, led by a drop in defense purchases. The U.S. international trade deficit widened further in the first quarter of this year, and net exports made a large negative contribution to real U.S. GDP growth. Goods imports continued the fourth quarter's strong growth, driven by large increases in real imports of consumer goods, capital goods, and automotive products. By contrast, real exports of goods fell back after rising briskly late last year, with broad-based declines in most major categories. Both real exports and imports of services grew at a moderate pace in the first quarter, though both were held back by a tepid recovery in international travel amid ongoing waves of COVID-19. Data suggested that foreign economic growth remained solid in the first quarter, as most economies continued to show adaptability to new COVID-19 waves. Chinese data for March and April, however, showed declines in manufacturing and services activity and worsening supply bottlenecks after Chinese authorities locked down Shanghai and other cities to combat the spread of the Omicron variant. The ongoing Russian invasion of Ukraine also left its imprint on foreign economies, with consumer and business sentiment declining in Europe and global prices of a range of commodities continuing to rise. Foreign inflation increased significantly further, driven by surging energy and food prices as well as some broadening of price pressures to core goods and services. In response, many central banks around the world tightened their monetary policy stances. Staff Review of the Financial Situation U.S. Treasury yields and the market-implied federal funds rate path moved substantially higher over the intermeeting period as Federal Reserve communications and domestic economic data releases were perceived as suggesting that a more aggressive tightening of monetary policy was likely over coming months. Sovereign yields in advanced foreign economies (AFEs) also increased notably. Broad domestic equity price indexes declined on net, and the one-month option-implied volatility on the S&P 500 indexâthe VIXâremained elevated. Short-term funding markets were stable, while participation in the ON RRP facility increased further. Amid the increase in Treasury yields, borrowing costs increased in many sectors and were at or somewhat above pre-pandemic levels. Since the March FOMC meeting, 2-, 5-, and 10-year Treasury yields increased significantly on net. The increases in nominal Treasury yields were primarily accounted for by rising real yields, while inflation compensation implied by Treasury Inflation-Protected Securities was little changed. Alongside moves in shorter-term Treasury yields, the expected federal funds rate pathâimplied by a straight read of overnight index swap quotesârose notably since the March FOMC meeting. Broad equity indexes decreased over the intermeeting period. Early in the period, equity prices increased, supported by the robust pace of economic activity and reduced market concerns about the implications for the global economy of Russia's invasion of Ukraine. The initial sharp gains in stock prices were followed by larger declines later in the period, as longer-term interest rates rose substantially and as some disappointing earnings reports toward the end of the intermeeting period weighed on equity prices. The VIX declined substantially early in the period but ended the period little changed on net, remaining at elevated levels. Similarly, spreads on investment- and speculative-grade corporate bonds narrowed moderately earlier in the intermeeting period and then widened, ending the period only slightly narrower, on net, and below the median of their historical distribution. Spreads on municipal bonds were up modestly and stood at about the 90th percentile of their historical distribution. Conditions in short-term funding markets remained stable over the intermeeting period, with the March increase in the Federal Reserve's administered rates passing through to overnight money market rates. Secured overnight rates softened later in the period, with downward pressure on rates attributed to continuing declines in net Treasury bill issuance, increased activity in certain segments of the repo market that tend to trade at lower rates, and money market funds continuing to shorten portfolio maturities amid uncertainty about the pace of anticipated policy rate increases. Consistent with the downward pressure on repo rates, daily take-up in the ON RRP facility remained elevated. Spreads on most types of longer-tenor commercial paper and negotiable certificates of deposit narrowed, reportedly reflecting reduced market concerns about the effects of Russia's invasion of Ukraine, although some of the spreads remained slightly wider than those seen earlier this year. Over the intermeeting period, sovereign yields in AFEs increased notably because of concerns about further inflationary pressures, some central bank communications that were perceived as less accommodative than expected, and spillovers from rises in U.S. Treasury yields. Prospects of tighter monetary policy and COVID-related lockdowns in China weighed on prices of risky assets, but investor concerns surrounding the economic effects of the war in Ukraine seemed to abate partially. On balance, major foreign equity indexes registered mixed and relatively modest changes. The U.S. dollar generally strengthened, with a more pronounced dollar appreciation against AFE currencies, as U.S. Treasury yields generally rose more than their AFE counterparts. Among EM currencies, the dollar appreciated significantly against the Chinese renminbi. Over the intermeeting period, along with the increase in Treasury yields, borrowing costs increased in many sectors and were at or somewhat above pre-pandemic levels. Credit remained widely available, and borrower credit quality continued to be strong overall. Borrowing costs for residential mortgage loans increased substantially, with the 30-year mortgage offer rates reaching levels not seen since 2010. This increase largely reflected the rise in the 10-year Treasury yield. Corporate bond yields also increased, although the effect of the increase in Treasury yields was partly offset by narrower spreads. Municipal bond yields also increased notably. Bank loan rates for commercial borrowers increased and rates on large syndicated loans were roughly in line with pre-pandemic levels. In consumer credit markets, rates on auto loans and new credit card offers continued to trend upward. Credit, which remained widely available for most types of borrowers, was broadly in line with pre-pandemic levels. Gross nonfinancial corporate bond issuance rebounded sharply in March, mostly reflecting an increase in investment-grade issuance, while gross institutional leveraged loan issuance slowed amid elevated geopolitical uncertainty. Commercial and industrial (C&I) loans and commercial real estate (CRE) loans on bank balance sheets also grew robustly in March. Respondents in the April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported a continued easing of lending terms and strengthening demand for C&I loans as well as easing standards for multifamily CRE loans. For most small businesses, credit appeared to be available, although these businesses' demand for credit reportedly remained weak. In the April SLOOS, large banks reported unchanged standards on C&I loans to small firms, while small banks tightened standards modestly to such firms. In consumer credit markets, credit card balances grew strongly in the first quarter amid easing standards and greater utilization, and auto credit outstanding continued to grow steadily through February despite vehicle production shortfalls and low vehicle inventories. Residential mortgage credit conditions remained accommodative through March, despite the increase in mortgage interest rates, particularly for stronger borrowers who met standard loan criteria. The credit quality of firms, municipalities, and households remained strong overall. The volume of credit rating upgrades for corporate bonds outpaced downgrades moderately in March, continuing a nearly yearlong pattern. The credit quality of C&I loans on banks' books continued to be strong as delinquency and default rates both remained low. Delinquency rates on bank and nonbank loans to small businesses edged down in February, while in the CRE sector, borrower financial health continued to recover. Household credit quality remained strong, and delinquency rates across both prime and nonprime borrowers continued to be subdued by historical standards. The staff provided an update on its assessment of the stability of the financial system. The staff judged that, amid a substantial upward shift in interest rates, Russia's invasion of Ukraine, and ongoing disruptions to supply chains, the financial systemâoutside of commodities marketsâhad been resilient. However, larger or prolonged disruptions in commodities markets could interfere with other markets and real activity more broadly. To date, however, such potential spillovers appeared to be limited. The staff noted that increased uncertainty and ongoing volatility had reduced risk appetite in financial markets and eased price pressures, although valuations of many assets remained elevated. CRE valuations appeared somewhat elevated except for sectors that were affected most by the pandemic. Residential house prices had risen rapidly, although the staff continued to see key differences from the previous debt-fueled housing boom: The mortgage finance reforms enacted after 2008 limited the potential for significant deterioration in underwriting standards, most new mortgage debt had been added by borrowers with prime credit scores, and homeowners' equity positions were healthy. The staff assessed that aggregate household and business leverage was moderate. Households' debt-to-GDP ratio remained relatively low, and there were few signs of increased stress among lower-income households. Business debt remained elevated relative to its pre-pandemic history, but interest coverage ratios were high. The staff assessed that vulnerabilities arising from financial leverage remained moderate on balance. Despite market volatility, the banking sector continued to be well capitalized with strong liquidity. The staff noted that leverage at key nonbank financial institutions (NBFIs) was elevated and that bank lending to NBFIs continued to increase notably. Relatedly, NBFIs' reliance on bank credit lines to meet unexpected liquidity needs could generate moderate liquidity pressures at large banks during times of financial stress. With regard to funding risk, the staff highlighted structural vulnerabilities in some types of mutual funds as a continuing focus. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the May FOMC meeting implied a trajectory for real GDP that was broadly similar to the March projection. The staff noted that the first-quarter decline in real GDP was driven by categories of spending that had often been volatile in the past, and they viewed the continued strength in private domestic final demand, the labor market, and industrial production as providing a more accurate picture of the economy's direction in the first quarter. The staff therefore anticipated that GDP growth would rebound in the second quarter and advance at a solid pace over the remainder of the year. GDP growth was then expected to slow in 2023 and 2024 as monetary policy became less accommodative and financial conditions tightened further; by 2024, real GDP growth was expected to be in line with potential output growth. However, the level of real GDP was expected to remain well above potential over the projection period, and labor market conditions were expected to remain very tight. The staff's projection for PCE price inflation was revised up slightly in the second half of 2022 and in 2023 in response to the slow resolution of supply constraints seen over the first part of 2022, a higher projected path for import prices, and a judgment that wage increases would put more upward pressure on services prices than previously assumed. All told, total PCE price inflation was expected to be 4.3 percent in 2022. PCE price inflation was then expected to step down to 2.5 percent in 2023 and to 2.1 percent in 2024 as supplyâdemand imbalances in the economy were reduced by slowing aggregate demand and an anticipated easing of supply constraints. The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside. The war in Ukraine was seen as a possible source of even greater upward pressure on energy and commodity prices, while the war and adverse developments associated with rising COVID infections in China were both perceived as increasing the risk that supply chain disruptions and production constraints would be further exacerbated in the United States and abroad. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that, although overall economic activity had edged down in the first quarter, household spending and business fixed investment had remained strong. Job gains had been robust in recent months, and the unemployment rate had declined substantially. Inflation remained elevated, reflecting continued supply and demand imbalances, higher energy prices, and broader price pressures. Participants recognized that the invasion of Ukraine by Russia was causing tremendous human and economic hardship for the Ukrainian people. Participants judged that the implications for the U.S. economy were highly uncertain. The invasion and related events were creating additional upward pressure on inflation and were likely to weigh on economic activity. In addition, participants judged that COVID-related lockdowns in China were likely to exacerbate supply chain disruptions. Against this background, participants stated that they were highly attentive to inflation risks. Participants commented that after its rapid growth in the last quarter of 2021, real GDP had declined in the first quarter of this year, with net exports and inventory investment making large negative contributions to growth. They noted, however, that these volatile components tended to contain little signal about subsequent growth and that household spending and business fixed investment had remained strong in the first quarter. These advances and the further tightening of labor market conditions were judged consistent with significant underlying momentum in the domestic economy. In line with this judgment, participants expected that real GDP would grow solidly in the current quarter. In their discussion of the economic outlook beyond the near term, participants indicated that they expected that output would expand more moderately this year than in 2021, with growth this year likely near or above its longer-run rate, and that the imbalance between aggregate demand and aggregate supply would diminish over time. Participants saw an appropriate firming of monetary policy as playing a central role in addressing this imbalance and in supporting the Federal Reserve's goals of maximum employment and price stability. An easing of supply bottlenecks, a further rise in labor force participation, and the waning effects of pandemic-related fiscal policy support were cited as additional factors that could help reduce the supplyâdemand imbalances in the economy and lower inflation over the medium term. That said, the timing and magnitude of these effects were uncertain. Participants recognized the need to adjust the stance of policy depending on how these and other factors played out over time. In their discussion of the household sector, participants indicated that they expected robust growth in consumption spending. They pointed to several elements supporting this outlook, including strong household balance sheets, wide availability of jobs, and the U.S. economy's resilience in the face of new waves of the virus. The considerable increases in Treasury yields across maturities over the intermeeting period were associated with rising interest rates faced by households, particularly rates on home mortgages. A couple of participants reported that their business contacts continued to see robust housing demand and elevated home prices despite higher mortgage interest rates. With respect to the business sector, participants cited robust consumer demand, healthy household balance sheets, and inventory rebuilding as factors supportive of business activity and investment. The ability of firms to meet demand continued to be limited by labor shortages and supply chain bottlenecks. Although some participants noted that their business contacts had reported an easing of supply constraints, participants assessed that supply constraints overall were still significant and would likely take some time to be resolved. In addition, the invasion of Ukraine by Russia and COVID-related lockdowns in China were seen as likely to exacerbate supply chain disruptions. A few participants indicated that some of their business contacts were reportedly hesitant to expand capacity or had postponed construction projects. Participants commented that demand for labor continued to outstrip available supply across many parts of the economy and that their business contacts continued to report difficulties in hiring and retaining workers. They observed that various indicators pointed to a very tight labor market. Employment growth had continued at a strong pace, the unemployment rate had fallen to a near-50-year low, quits and job openings had remained extremely elevated, and nominal wages had continued to rise rapidly. A few participants noted that there were signs that the pandemic-related factors that had held back labor supply might be abating further, especially in the case of prime-age workers. In addition, a few other participants suggested that the unwelcome erosion of real incomes due to high inflation may have contributed to the increase in labor supply. Many participants indicated that they expected the labor market to remain tight and wage pressures to stay elevated for some time. Several participants raised the possibility that, in light of the exceptionally high ratio of vacancies to job searchers, a moderation in labor demand might serve to reduce vacancies and wage pressures without having significant effects on the unemployment rate. Participants observed that inflation continued to run well above the Committee's longer-run goal and that inflation pressures were evident in a broad array of goods and services. Various participants remarked on the hardship caused by elevated inflation and heightened inflation uncertaintyâincluding by eroding American families' real incomes and wealth and by making it more difficult for businesses to make production and investment plans. They also pointed out that high inflation could impede the achievement of maximum employment on a sustained basis. Participants noted that developments associated with Russia's invasion of Ukraine, including surges in energy and commodity prices, were adding to near-term inflation pressures. In addition, COVID-related lockdowns in China were likely to disrupt global supply chains, potentially adding further upward pressure on the prices paid by U.S. businesses and consumers. Most participants indicated that their business contacts had continued to report that substantial increases in wages and input prices were being passed through into higher prices to their customers. A few participants added that some of their contacts were starting to report that higher prices were hurting sales. A number of participants observed that recent monthly data might suggest that overall price pressures may no longer be worsening. These participants also emphasized that price pressures remained elevated and that it was too early to be confident that inflation had peaked. Many participants commented that measures of short-term inflation expectations were elevated or that far-forward measures of inflation compensation were near the upper edge of their historical range. Several participants judged that measures of longer-term inflation expectations derived from surveys of households, professional forecasters, and market participants still appeared to be broadly consistent with the Committee's longer-run inflation objective, likely reflecting respondents' confidence that the Federal Reserve would take the actions necessary to return inflation to 2 percent. They noted that, together with appropriate firming of monetary policy and an eventual easing of supply constraints, well-anchored longer-term inflation expectations would support a return of inflation to levels consistent with the Committee's longer-run goal. In their discussion of risks to the outlook, participants emphasized that they were highly attentive to inflation risks and would continue to monitor closely inflation developments and inflation expectations. They agreed that risks to inflation were skewed to the upside and cited several such risks, including those associated with ongoing supply bottlenecks and rising energy and commodity pricesâboth of which were exacerbated by the Russian invasion of Ukraine and COVID-related lockdowns in China. Also mentioned were the risks associated with nominal wage growth continuing to run above levels consistent with 2 percent inflation over time and the extent to which households' high savings since the onset of the pandemic and healthy balance sheets would support greater-than-expected underlying momentum in consumer spending and contribute to upside inflation pressures. In addition, some participants emphasized that persistently high inflation heightened the risk that longer-term inflation expectations could become unanchored; in that case, the task of returning inflation to 2 percent would be more difficult. Uncertainty about real activity was also seen as elevated. Various participants noted downside risks to the outlook, including risks associated with the Russian invasion and COVID-related lockdowns in China and the likelihood of a prolonged rise in energy and commodity prices. Several participants who commented on issues related to financial stability noted that the tightening of monetary policy could interact with vulnerabilities related to the liquidity of markets for Treasury securities and to the private sector's intermediation capacity. A couple of participants pointed to increased risks in financial markets linked to commodities following Russia's invasion of Ukraine, which had led to higher prices and volatility across a wide range of energy, agricultural, and metal products. These participants observed that the trading and risk-management practices of some key participants in commodities markets were not fully visible to regulatory authorities and noted that central counterparties (CCPs) needed to remain capable of managing risks associated with heightened volatility or that margin requirements at CCPs could give rise to significant liquidity demands for large banks, broker-dealers, and their clients. In their consideration of the appropriate stance of monetary policy, all participants concurred that the U.S. economy was very strong, the labor market was extremely tight, and inflation was very high and well above the Committee's 2 percent inflation objective. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 50 basis points at this meeting. They further anticipated that ongoing increases in the target range for the federal funds rate would be warranted to achieve the Committee's objectives. Participants also agreed that it was appropriate to start reducing the size of the Federal Reserve's balance sheet on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that would be issued in conjunction with the postmeeting statement. Participants judged that an appropriate firming of the stance of monetary policy, along with an eventual waning of supplyâdemand imbalances, would help to keep longer-term inflation expectations anchored and bring inflation down over time to levels consistent with the Committee's 2 percent longer-run goal. All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability. To this end, participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve's balance sheet. Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings. Many participants assessed that the Committee's previous communications had been helpful in shifting market expectations regarding the policy outlook into better alignment with the Committee's assessment and had contributed to the tightening of financial conditions. All participants supported the plans for reducing the size of the balance sheet. This reduction, starting on June 1, would work in parallel with increases in the target range for the policy rate in firming the stance of monetary policy. A number of participants remarked that, after balance sheet runoff was well under way, it would be appropriate for the Committee to consider sales of agency MBS to enable suitable progress toward a longer-run SOMA portfolio composed primarily of Treasury securities. Any program of sales of agency MBS would be announced well in advance. Regarding risks related to the balance sheet reduction, several participants noted the potential for unanticipated effects on financial market conditions. Participants agreed that the economic outlook was highly uncertain and that policy decisions should be data dependent and focused on returning inflation to the Committee's 2 percent goal while sustaining strong labor market conditions. At present, participants judged that it was important to move expeditiously to a more neutral monetary policy stance. They also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook. Participants observed that developments associated with Russia's invasion of Ukraine and the COVID-related lockdowns in China posed heightened risks for both the United States and economies around the world. Several participants commented on the challenges that monetary policy faced in restoring price stability while also maintaining strong labor market conditions. In light of the high degree of uncertainty surrounding the economic outlook, participants judged that risk-management considerations would be important in deliberations over time regarding the appropriate policy stance. Many participants judged that expediting the removal of policy accommodation would leave the Committee well positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that, although overall economic activity had edged down in the first quarter, household spending and business fixed investment had remained strong. Job gains had been robust in recent months, and the unemployment rate had declined substantially. Members also agreed that inflation remained elevated, reflecting continued supply and demand imbalances, higher energy prices, and broader price pressures. Members concurred that the invasion of Ukraine by Russia was causing tremendous human and economic hardship. Members judged that the implications of the war for the U.S. economy were highly uncertain. Members agreed that the invasion and related events were creating additional upward pressure on inflation and were likely to weigh on economic activity. Members also agreed that COVID-related lockdowns in China were likely to exacerbate supply chain disruptions. In light of continuing inflation risks, members judged that it would be appropriate for the postmeeting statement to note that the Committee is highly attentive to the upside risks to inflation. In their assessment of the monetary policy stance necessary for achieving the Committee's maximum-employment and price-stability goals, members agreed that, with appropriate firming in the stance of monetary policy, they expected inflation to return to the Committee's 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipated that ongoing increases in the target range would be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in conjunction with the postmeeting statement. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that their assessments would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Following the monetary policy discussion, which included a consideration of plans for reducing the size of the balance sheet, all participants indicated support for the proposed plans for reducing the size of the balance sheet. The Committee voted unanimously to adopt the Plans for Reducing the Size of the Federal Reserve's Balance Sheet, as shown below. PLANS FOR REDUCING THE SIZE OF THE FEDERAL RESERVE'S BALANCE SHEET (as adopted effective May 4, 2022) Consistent with the Principles for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in January 2022, all Committee participants agreed to the following plans for significantly reducing the Federal Reserve's securities holdings. The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps. For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills. For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month. Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime. To ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves. Once balance sheet runoff has ceased, reserve balances will likely continue to decline for a time, reflecting growth in other Federal Reserve liabilities, until the Committee judges that reserve balances are at an ample level. Thereafter, the Committee will manage securities holdings as needed to maintain ample reserves over time. The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments. After adopting the Plans for Reducing the Size of the Federal Reserve's Balance Sheet, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective May 5, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3/4 to 1 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 1.0 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 0.8 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in the calendar month of June that exceeds a monthly cap of $30 billion. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in the calendar month of June that exceeds a monthly cap of $17.5 billion. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in conjunction with this statement. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Esther L. George, Patrick Harker, Loretta J. Mester, and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 0.90 percent, effective May 5, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/2 percentage point increase in the primary credit rate to 1 percent, effective May 5, 2022. 5 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 14â15, 2022. The meeting adjourned at 10:15 a.m. on May 4, 2022. Notation Vote By notation vote completed on April 5, 2022, the Committee unanimously approved the minutes of the Committee meeting held on March 15â16, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended the discussion of economic developments and outlook. Return to text 5. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Return to text

Minutes of the Federal Open Market Committee June 14â15, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, June 14, 2022, at 11:00 a.m. and continued on Wednesday, June 15, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Naureen Hassan, and Neel Kashkari, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Kenneth C. Montgomery, Interim President of the Federal Reserve Bank of Boston James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Carlos Garriga, Joseph W. Gruber, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Nitish R. Sinha, and Paul R. Wood, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board Marnie Gillis DeBoer 3 and David López-Salido, Senior Associate Directors, Division of Monetary Affairs, Board; Diana Hancock and John J. Stevens, Senior Associate Directors, Division of Research and Statistics, Board Edward Nelson and Robert J. Tetlow, 4 Senior Advisers, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Shane M. Sherlund, Deputy Associate Director, Division of Research and Statistics, Board Giovanni Favara and Etienne Gagnon, 3 Assistant Directors, Division of Monetary Affairs, Board; Paul Lengermann and Byron Lutz, Assistant Directors, Division of Research and Statistics, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Ayelen Banegas and Anna Orlik, 3 Principal Economists, Division of Monetary Affairs, Board; Stephen F. Lin, Principal Economist, Division of Research and Statistics, Board Giovanni Nicolò, Arsenios Skaperdas, and Hiroatsu Tanaka, Senior Economists, Division of Monetary Affairs, Board; Cisil Sarisoy, Senior Economist, Division of International Finance, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board David Na, Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Kathleen O. Paese, First Vice President, Federal Reserve Bank of St. Louis David Altig, Kartik B. Athreya, Michelle M. Neal, and Anna Paulson, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, New York, and Chicago, respectively James P. Bergin, Marc Giannoni, Giovanni Olivei, Paolo A. Pesenti, and Robert G. Valletta, Senior Vice Presidents, Federal Reserve Banks of New York, Dallas, Boston, New York, and San Francisco, respectively Roc Armenter, Vice President, Federal Reserve Bank of Philadelphia Alisdair G. McKay, Senior Research Economist, Federal Reserve Bank of Minneapolis Developments in Financial Markets and Open Market Operations The manager of the System Open Market Account (SOMA) turned first to a discussion of financial developments. Over the intermeeting period, there were significant swings in asset prices, and financial conditions tightened, on net, as market participants assessed incoming information about the economy. In the United States, near-term policy rate expectations shifted markedly toward the end of the period, particularly after the release of the May consumer price index (CPI) report. Ahead of the release of the report, market expectations reflected a broad consensus that there would be 50 basis point rate increases at both the June and July FOMC meetings. After the release of the higher-than-expected inflation data, policy-sensitive rates pointed instead to a considerable probability of 75 basis point moves at both the June and July meetings. The market-implied path of the federal funds rate moved higher at longer horizons as well. Market participants noted elevated uncertainty about the economic and monetary policy outlook. Across the yield curve, rates on nominal Treasury securities ended the period significantly higher, primarily reflecting the revision in the outlook for monetary policy and the associated rise in real yields. Market-based measures of inflation compensation continued to indicate expectations that inflation would decline notably in coming quarters, and measures of medium-term inflation compensation fell over the intermeeting period. Market participants reported that while liquidity conditions in the market for Treasury securities had been affected by the elevated volatility in rates and larger trades were having an increased effect on pricing, overall market functioning had held up. Responding to higher interest rates and some concerns about the growth outlook, equity prices moved substantially lower over the period. The manager turned next to a discussion of developments related to foreign central banks. Most major foreign central banks were proceeding on a path of removing policy accommodation in order to address elevated levels of inflation. Severalâincluding those of Canada, Australia, and New Zealandâhad raised their policy rates 50 basis points over the intermeeting period, and some signaled the potential need for more forceful tightening in order to address inflation risks. The European Central Bank (ECB) announced an end to its asset purchase program and signaled an intention to lift policy rates in July. Meanwhile, the stance of monetary policy in Japan was generally expected to remain highly accommodative, though recent upward pressure on Japanese government bond yields had led the Bank of Japan (BOJ) to step up its efforts to defend its yield curve control target. On balance, market participants were focused on the largely synchronous shift toward monetary policy tightening across most advanced economies. Regarding money market developments, the manager noted that the 50 basis point increase in the target range at the May FOMC meeting passed through to the effective federal funds rate and was also transmitted to other overnight rates. The federal funds rate held steady at 83 basis points throughout the period, while the Secured Overnight Financing Rate softened, on net, falling to the bottom of the federal funds target range later in the period. Contacts attributed the downward pressure on secured rates to high liquidity levels and declining Treasury bill supply, as well as elevated uncertainty about the interest rate path, which had increased demand for short-term investments. In this environment, participation in the overnight reverse repurchase agreement (ON RRP) facility increased, and a greater share of activity in overnight private repurchase agreement (repo) markets was conducted by lenders who lacked access to the facility. The manager noted that, if ON RRP usage continued to rise, it may be appropriate at some point to consider further lifting the per-counterparty limit. Over the longer term, ON RRP usage was expected to fall, with the reduction in the size of the Federal Reserve's balance sheet resulting in a gradual rise in money market rates relative to the ON RRP rate. The deputy manager turned next to a discussion of Federal Reserve operations and related topics. In accordance with the directive to the Open Market Desk, the reduction in SOMA securities holdings began in June, under the initial monthly caps on redemptions of $30 billion for Treasury securities and $17.5 billion for agency debt and agency mortgage-backed securities (MBS). Under current staff projections, the SOMA portfolio was anticipated to decline roughly $400 billion by the end of 2022. As noted in the recent SOMA annual report and reported in the Board's first-quarter financial statements for the Federal Reserve System, the SOMA portfolio had an unrealized loss, reflecting the increase in longer-term interest rates. Unrealized losses had no implications for Federal Reserve income and would eventually fall to zero as securities reached maturity. The staff projected that SOMA net income would decline and potentially turn negative, with increases in the target range lifting the interest expense on some liabilities, and that this eventuality could result in a deferred asset entry on the Federal Reserve's balance sheet. Neither unrealized losses on the Federal Reserve's existing securities portfolio nor negative net income would impair the implementation of monetary policy or the Federal Reserve's ability to achieve its dual-mandate objectives. On other operational matters, the deputy manager noted that, over the intermeeting period, the Desk onboarded three depository institutions as new counterparties for the standing repo facility (SRF), resulting in a total of nine depository institutions approved, to date, as SRF counterparties. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the June 14â15 meeting suggested that U.S. real gross domestic product (GDP) was rebounding to a moderate rate of increase in the second quarter after having declined in the first quarter. The labor market remained very tight, but there were some signs that momentum was slowing. Consumer price inflationâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE)âremained elevated in April, and available information suggested that inflation was still elevated in May. Total nonfarm payroll employment rose solidly in April and May, though the pace of increase was slower than in the first quarter, and the unemployment rate remained unchanged at 3.6 percent. The unemployment rates for African Americans and for Hispanics were little changed, on net, though both rates remained noticeably higher than the national average. On net, the labor force participation rate edged down between March and May, while the employment-to-population ratio was unchanged. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, edged lower in April but remained at a high level. Nominal wage growth remained elevated, with average hourly earnings having risen 5.2 percent over the 12 months ending in May, and the increases were widespread across industries. Consumer price inflation remained elevated. Total PCE price inflation was 6.3 percent over the 12 months ending in April, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.9 percent over the same period. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 3.8 percent in April, nearly 2 percentage points higher than its year-earlier rate of increase. In May, the 12-month change in the CPI was 8.6 percent, while core CPI inflation was 6.0 percent over the same period. Measures of inflation expectations derived from surveys of professional forecasters and of consumers generally suggested that inflation was expected to remain high in the short run but then fall back toward levels consistent with a longer-run rate of 2 percent. Production and spending indicators were mixed but generally remained strong. Consumer spending and industrial production posted sizable gains in April. However, retail sales declined in May, data on home sales and single-family housing starts moved down in April, some indicators of manufacturing activity weakened in May, and the University of Michigan Surveys of Consumers measure of consumer sentiment decreased noticeably in the preliminary June reading. Supply disruptions appeared to have improved in some sectors (such as general merchandise retailers) but to have deteriorated in others (such as materials for home construction). On balance, the available indicators suggested that private domestic final purchases were increasing at a slower pace in the second quarter than in the first quarter. And with the available trade data for April pointing to a rebound in exports and a moderation in import growth in the second quarter, GDP growth appeared to be rebounding after having declined in the first quarter. Regarding trade, real imports of goods stepped back in April from their exceptional strength in March, driven by a decline in consumer goods imports. By contrast, real goods exports grew in both March and April after declining in the previous two months, following some normalization in categories such as soybeans and pharmaceuticals, which can exhibit large and idiosyncratic changes. Exports and imports of services continued to be held back by an incomplete recovery of international travel. The nominal U.S. international trade deficit widened to a record size in March and then reversed that widening in April. Incoming data suggested that the global reverberations from lockdown measures to deal with the spread of the COVID-19 virus in China and the Russian invasion of Ukraine slowed foreign economic growth. In China, activity indicators pointed to a sizable restraint on economic activity. The Russian invasion of Ukraine continued to have an imprint on foreign activity, with persistent stresses in global commodity markets and declining consumer and business confidence, especially in Europe. Inflation abroad moved higher, driven by further increases in consumer energy and food prices as well as some additional broadening of price pressures to core goods and services. Central banks around the world further tightened their monetary policy stances to curb high inflation. Staff Review of the Financial Situation Over the intermeeting period, U.S. Treasury yields and the market-implied federal funds rate path moved substantially higher on net. Broad domestic equity price indexes declined considerably, on balance, amid elevated market volatility. In most advanced foreign economies (AFEs), sovereign yields also increased further, and foreign equity price indexes moved lower. Despite further increases in borrowing costs, financing conditions in domestic credit markets remained generally accommodative. The credit quality of firms, municipalities, and households remained largely stable, although the outlook for credit quality had begun to deteriorate somewhat. Since the previous FOMC meeting, 2-, 5-, and 10-year nominal Treasury yields increased considerably on net. Early in the intermeeting period, Treasury yields moved lower amid rising concerns about a weakening U.S. growth outlook and Federal Reserve communications perceived as lowering the chances of large policy rate hikes at upcoming meetings. However, yields increased late in the period, with economic data releases largely being interpreted as highlighting the possibility of a more aggressive tightening of monetary policy. The expected federal funds rate pathâimplied by a straight read of overnight index swap quotesâalso increased notably on balance. Real yields increased more than their nominal counterparts, while inflation compensation implied by Treasury Inflation-Protected Securities declined. Broad equity price indexes fell sharply over the intermeeting period on net. The stock price declines were largely associated with mixed corporate earnings news early in the period and increasing concerns about the economic outlook amid global policy tightening. One-month option-implied volatility on the S&P 500 indexâthe VIXâincreased moderately, on balance, remaining elevated relative to its historical distribution and significantly above average pre-pandemic levels. Spreads on investment-grade and, to a greater extent, speculative-grade corporate bonds widened notably, on net, reaching levels comparable with those at the end of 2018. This widening of spreads was associated with increased concerns about the outlook for corporate credit amid monetary policy tightening. Since the previous FOMC meeting, spreads on municipal bonds narrowed substantially, on net, moving near levels observed for several years before the pandemic, as investor demand exhibited some recovery over much of the period from earlier weak levels. Conditions in short-term funding markets remained stable over the intermeeting period, with the May increase in the Federal Reserve's administered rates passing through promptly to overnight money market rates. Spreads on longer-tenor commercial paper (CP) and negotiable certificates of deposit narrowed moderately, with no signs of spillovers beyond the stablecoin market following the collapse of a large algorithmic stablecoin. Indeed, CP outstanding increased slightly over the period. Money market fund (MMF) net yields across all fund types rose notably, as increases in administered rates passed through to money market instruments. Secured overnight rates softened significantly relative to the ON RRP offering rate since the May FOMC meeting, with the downward pressure on rates attributed to continuing declines in net Treasury bill issuance, elevated demand for collateral in the form of Treasury securities, and MMFs maintaining very short portfolio maturities amid uncertainty about the pace of anticipated policy rate increases. Consistent with the downward pressure on repo rates, daily take-up in the ON RRP facility increased further. Sovereign yields in most AFEs rose over the intermeeting period amid investors' concerns about further inflationary pressures and major central banks' policy communications suggesting a firmer stance of policy. Interest rate volatility in AFEs increased, consistent with increased uncertainty about the path of policy rates. Concerns about the global growth outlook weighed on equity prices, and the broad dollar edged up. Implied equity price volatility remained at elevated levels. Japanese yields and equity prices, however, ended the period about unchanged, as the BOJ reaffirmed its accommodative monetary policy stance. Sovereign bond spreads over German bund yields for euro-area peripheral countries widened further. These moves were partially retraced following an unscheduled meeting of the ECB on June 15, at which the ECB indicated that it would take action to address potential fragmentation risk in euro-area sovereign bond markets. Outflows from emerging market-dedicated funds intensified in early May, especially from local currency bond funds, and credit spreads in emerging market economies widened moderately. In domestic credit markets, financing conditions for most businesses and households remained generally accommodative over the intermeeting period. Credit remained widely available, particularly to higher-rated firms and consumers with higher credit scores. Gross nonfinancial corporate bond issuance slowed in May, especially among speculative-grade issuers, amid elevated market volatility and high yields. Gross institutional leveraged loan issuance decelerated and initial public offering volumes remained extremely slow in May, while gross issuance of municipal bonds remained robust. Commercial and industrial (C&I) and commercial real estate (CRE) loans on banks' balance sheets expanded at a rapid pace in April and May. Issuance of both agency and non-agency commercial mortgage-backed securities (CMBS) stepped down slightly in May from its strong pace earlier in the year. Small business loan originations through April were in line with pre-pandemic levels and indicated that credit appeared to be available. Residential mortgage credit remained widely available through May for most borrowers. While refinance volumes continued trending lower in April and May amid higher mortgage rates, outstanding balances of home equity lines of credit at commercial banks posted the first significant increase in more than a decade, likely reflecting a substitution by homeowners away from cash-out refinances. In consumer credit markets, auto loans outstanding grew at a robust pace in the first quarter, consistent with a rebound in auto sales, but slowed in April and May. Credit card balances at commercial banks rose in April at the fastest pace seen in recent decades, but growth slowed in May. Borrowing costs had continued to increase in many sectors since the previous FOMC meeting. Yields on nonfinancial corporate bonds remained well above pre-pandemic levels, and new issuance spreads for institutional leveraged loans ticked up in May. Bank interest rates for both C&I and CRE loans also increased. Among small businesses that borrow on a regular basis, the share facing higher borrowing costs rose in both April and May. Borrowing costs for residential mortgage loans increased significantly over the intermeeting period, in line with the increases in MBS and Treasury yields, reaching their highest levels since 2010. In consumer credit markets, rates on auto loans and new credit card offers continued to trend upward. Despite the historically low volumes of defaults on both corporate bonds and leveraged loans in April, in the later weeks of the intermeeting period the volume of credit rating downgrades of leveraged loans exceeded the volume of upgrades. In addition, market indicators of future default expectations of businesses deteriorated to some extent, as investors appeared to mark down their assessment of the macroeconomic outlook. Credit quality of business loans on banks' books remained sound, with C&I and CRE delinquency rates continuing to be low through March. Nonetheless, banks allocated net positive loan loss provisions in the first quarter of this year. This development reversed a pattern of loan loss reserves being released throughout last year and reflected concerns about the credit quality outlook. Delinquency rates on CMBS and small business loans continued to decline, and the credit quality of municipal securities remained strong. Household credit quality remained solid, with the share of consumers with subprime credit scores still near historical lows. In addition, mortgage delinquencies and the share of mortgages in forbearance both continued to trend down in recent months. While nonprime auto loan delinquency rates edged down a touch in the first quarter, credit card delinquency rates for account holders with below-prime credit scores inched up from low levels. The sizable increases in credit card purchase volumes through March were roughly offset by high levels of credit card payments, thus increasing household borrowing only slightly. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the June FOMC meeting implied a trajectory for real GDP that was lower than in the May projection. The staff continued to project that GDP growth would rebound in the second quarter and remain solid over the remainder of the year. However, monetary policy was assumed to be less accommodative than in the previous projection, and the recent and prospective tightening of financial conditions led the staff to reduce its GDP growth forecast for the second half of 2022 and for 2023. The level of real GDP was still expected to remain well above potential over the projection period, though the gap was projected to narrow significantly this year and to narrow a little further next year. Labor market conditions also were expected to remain very tight, albeit somewhat less so than in the previous projection. With regard to PCE price inflation, the staff revised up its projection for the second half of 2022 in response to stronger-than-expected wage growth and the staff's assessment that the boost to inflation from supplyâdemand imbalances in the economy, including in food and energy markets, would be more persistent than previously assumed. All told, total PCE price inflation was expected to be 5.0 percent in 2022, while core inflation was expected to be 4.1 percent. PCE price inflation was then expected to step down to 2.4 percent in 2023 and to 2.0 percent in 2024, as energy prices were forecast to decline and as supplyâdemand imbalances were projected to diminish because of slowing aggregate demand and an easing of supply constraints. Similarly, core inflation was projected to slow to 2.6 percent in 2023 and to 2.2 percent in 2024. The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside. The staff judged that the ongoing war in Ukraine remained a possible source of even greater upward pressure on energy and commodity prices, while the war and adverse developments associated with China's zero-COVID policy were both perceived as increasing the risk that supply chain disruptions and production constraints would be further exacerbated in the United States and abroad. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that overall economic activity appeared to have picked up after edging down in the first quarter. Job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. Participants recognized that the invasion of Ukraine by Russia was causing tremendous human and economic hardship for the Ukrainian people. Participants judged that the invasion and related events were creating additional upward pressure on inflation and were weighing on global economic activity. In addition, participants indicated that COVID-related lockdowns in China were likely to exacerbate supply chain disruptions. Against this background, participants stated that they were highly attentive to inflation risks. With regard to the economic outlook, participants noted that recent indicators suggested that real GDP growth was expanding in the current quarter, with consumption spending remaining strong. Participants generally judged that growth in business fixed investment appeared to be slowing, and activity in the housing sector appeared to be softening, in part as a result of a sharp rise in mortgage rates. Correspondingly, participants indicated that they had revised down their projections of real GDP growth for this year, consistent with ongoing supply chain disruptions and tighter financial conditions. Participants noted that the imbalance between supply and demand across a wide range of product markets was contributing to upward pressure on inflation. They saw an appropriate firming of monetary policy and associated tighter financial conditions as playing a central role in helping address this imbalance and in supporting the Federal Reserve's goals of maximum employment and price stability. An easing of supply bottlenecks, a further rise in labor force participation, and the waning effects of pandemic-related fiscal policy support were cited as additional factors that could help reduce the supplyâdemand imbalances in the economy and therefore lower inflation over the next few years. That said, the timing and magnitude of these effects were uncertain. Participants saw little evidence to date of a substantial improvement in supply constraints, and some of them judged that the economic effects of these constraints were likely to persist longer than they had previously anticipated. Participants stressed the need to adjust the stance of policy in response to incoming information regarding the evolution of these and other factors. In their discussion of the household sector, participants indicated that consumption spending had remained robust, in part reflecting strong balance sheets in the household sector and a tight labor market. Several participants noted that household spending patterns appeared to be shifting away from goods to services. Several participants indicated that some of their contacts reported that the pace of consumer spending, though strong, was beginning to moderate. One reason cited for this moderation was that the purchasing power of households was being reduced by higher prices for food, energy, and other essentials. Participants generally expected higher mortgage interest rates to contribute to further declines in home sales, and a couple of participants noted that housing activity in their Districts had begun to slow noticeably. Against the backdrop of rising borrowing costs and higher gasoline and food prices, a couple of participants commented that consumer sentiment had dropped notably in June, according to the preliminary reading in the Michigan survey. With respect to the business sector, participants observed that their contacts generally reported that sales remained strong, although some contacts indicated that sales had begun to slow and that they had become less optimistic about the outlook. In many industries, the ability of firms to meet demand continued to be limited by labor shortages and supply chain bottlenecks. Firms relying on international sources for their inputs were seen as encountering particularly acute supply chain disruptions. Supply constraints, labor shortages, and rising input costs were also reportedly limiting energy and agricultural producers' ability to take advantage of the higher prices of their products by investing and expanding their production capacity. Similarly, a few participants noted that, in other sectors of the economy, their contacts reported that they were postponing investment or construction projects because of rising input and financing costs. With supply challenges still widespread, contacts continued to assess that supply constraints overall were significant, and many of them judged that these constraints were likely to persist for some time. Participants noted that the demand for labor continued to outstrip available supply across many parts of the economy. They observed that various indicators pointed to a very tight labor market. These indicators included an unemployment rate near a 50-year low, job vacancies at historical highs, and elevated nominal wage growth. Additionally, most business contacts had continued to report persistent wage pressures as well as difficulties in hiring and retaining workers. However, some contacts reported that, because of previous wage hikes, hiring and retention had improved and pressure for additional wage increases appeared to be receding. Employment growth, while moderating somewhat from its pace earlier in the year, had remained robust. Several participants observed that labor force participation remained below its pre-pandemic level because of the unusually large number of retirements during the pandemic and judged that the labor force participation rate was unlikely to move up considerably in the near term. A couple of participants raised the possibility that tight labor markets would spur investment in automation by firms, boosting labor productivity. While labor markets were anticipated to remain tight in the near term, participants expected labor demand and supply to come into better balance over time, helping to ease upward pressure on wages and prices. As in the case of product markets, they anticipated that an appropriate firming of monetary policy would play a central role in helping address imbalances in the labor market. With the tightness in labor markets anticipated to diminish over time, participants generally expected the unemployment rate to increase, as the median projection of the unemployment rate in the June SEP showed a gradual rise over the next few years, reaching 4.1 percent in 2024. In light of the very high level of job vacancies, a number of participants judged that the expected moderation in labor demand relative to supply might primarily affect vacancies and have a less significant effect on the unemployment rate. Participants noted that inflation remained much too high and observed that it continued to run well above the Committee's longer-run 2 percent objective, with total PCE prices having risen 6.3 percent over the 12 months ending in April. They also observed that the 12-month change in the CPI in May came in above expectations. Participants were concerned that the May CPI release indicated that inflation pressures had yet to show signs of abating, and a number of them saw it as solidifying the view that inflation would be more persistent than they had previously anticipated. They commented on the hardship caused by elevated inflation, with low- and moderate-income households especially affected. These households had to spend more of their budgets on essentials such as food, energy, and housing and were less able to bear the rapidly rising costs of these essentials. In that context, some participants noted that their contacts had reported that low- and moderate-income consumers were shifting purchases to lower-cost goods. Participants also stressed that persistently high inflation would impede the achievement of maximum employment on a sustained basis. Participants judged that strong aggregate demand, together with supply constraints that had been larger and longer lasting than expected, continued to contribute to price pressures across a broad array of goods and services. They noted that the surge in prices of oil and other commodities associated with Russia's invasion of Ukraine was boosting gasoline and food prices and putting additional upward pressure on inflation. Participants commented on the global nature of inflation pressures, and a few of them added that many foreign central banks were also firming the stance of monetary policy. Several participants judged that a shift in spending from goods to services was likely to be associated with less upward pressure on prices in the goods sector, but also an intensification of upward pressure on prices in the services sector. Participants had revised up their PCE inflation projections for 2022 in their June SEP submissions, largely in response to higher-than-expected inflation readings and the slower anticipated resolution of supply constraints. They expected that the appropriate firming of monetary policy and an eventual easing of supply and demand imbalances would bring inflation back down to levels roughly consistent with the Committee's longer-run objectives by 2024 and keep longer-term inflation expectations well anchored. Participants observed that some measures of inflation expectations had moved up recently, including the staff index of common inflation expectations and the expectations of inflation over the next 5 to 10 years provided in the Michigan survey. With respect to market-based measures, however, a few participants noted that medium-term measures of inflation compensation fell over the intermeeting period and longer-term measures were unchanged. While measures of longer-term inflation expectations derived from surveys of households, professional forecasters, and market participants were generally judged to be broadly consistent with the Committee's longer-run 2 percent inflation objective, many participants raised the concern that longer-run inflation expectations could be beginning to drift up to levels inconsistent with the 2 percent objective. These participants noted that, if inflation expectations were to become unanchored, it would be more costly to bring inflation back down to the Committee's objective. In their discussion of risks, participants emphasized that they were highly attentive to inflation risks and were closely monitoring developments regarding both inflation and inflation expectations. Most agreed that risks to inflation were skewed to the upside and cited several such risks, including those associated with ongoing supply bottlenecks and rising energy and commodity prices. Participants judged that uncertainty about economic growth over the next couple of years was elevated. In that context, a couple of them noted that GDP and gross domestic income had been giving conflicting signals recently regarding the pace of economic growth, making it challenging to determine the economy's underlying momentum. Most participants assessed that the risks to the outlook for economic growth were skewed to the downside. Downside risks included the possibility that a further tightening in financial conditions would have a larger negative effect on economic activity than anticipated as well as the possibilities that the Russian invasion of Ukraine and the COVID-related lockdowns in China would have larger-than-expected effects on economic growth. In their consideration of the appropriate stance of monetary policy, participants concurred that the labor market was very tight, inflation was well above the Committee's 2 percent inflation objective, and the near-term inflation outlook had deteriorated since the time of the May meeting. Against this backdrop, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 75 basis points at this meeting. One participant favored a 50 basis point increase in the target range at this meeting instead of 75 basis points. All participants judged that it was appropriate to continue the process of reducing the size of the Federal Reserve's balance sheet, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. In light of elevated inflation pressures and signs of deterioration in some measures of inflation expectations, all participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Participants observed that a return of inflation to the 2 percent objective was necessary for creating conditions conducive to a sustainably strong labor market over time. In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting. Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist. Participants noted that, with the federal funds rate expected to be near or above estimates of its longer-run level later this year, the Committee would then be well positioned to determine the appropriate pace of further policy firming and the extent to which economic developments warranted policy adjustments. They also remarked that the pace of rate increases and the extent of future policy tightening would depend on the incoming data and the evolving outlook for the economy. Many participants noted that the Committee's credibility with regard to bringing inflation back to the 2 percent objective, together with previous communications, had been helpful in shifting market expectations of future policy and had already contributed to a notable tightening of financial conditions that would likely help reduce inflation pressures by restraining aggregate demand. Participants recognized that ongoing policy firming would be appropriate if economic conditions evolved as expected. At the current juncture, with inflation remaining well above the Committee's objective, participants remarked that moving to a restrictive stance of policy was required to meet the Committee's legislative mandate to promote maximum employment and price stability. In addition, such a stance would be appropriate from a risk management perspective because it would put the Committee in a better position to implement more restrictive policy if inflation came in higher than expected. Many participants judged that a significant risk now facing the Committee was that elevated inflation could become entrenched if the public began to question the resolve of the Committee to adjust the stance of policy as warranted. On this matter, participants stressed that appropriate firming of monetary policy, together with clear and effective communications, would be essential in restoring price stability. Participants remarked that developments associated with Russia's invasion of Ukraine, the COVID-related lockdowns in China, and other factors restraining supply conditions would affect the inflation outlook and that it would likely take some time for inflation to move down to the Committee's 2 percent objective. Participants also judged that maintaining a strong labor market during the process of bringing inflation down to 2 percent would depend on many factors affecting demand and supply. Participants recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2 percent as critical to achieving maximum employment on a sustained basis. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that overall economic activity appeared to have picked up after edging down in the first quarter. Job gains had been robust in recent months, and the unemployment rate had remained low. Members also agreed that inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. Members concurred that the invasion of Ukraine by Russia was causing tremendous human and economic hardship. Members agreed that the invasion and related events were creating additional upward pressure on inflation and were weighing on global economic activity. With the effects of the invasion of Ukraine by Russia already materializing, members considered it appropriate to omit from the June statement the sentence conveying the high uncertainty associated with the implications of the invasion for the U.S. economy. Members also agreed that COVID-related lockdowns in China were likely to exacerbate supply chain disruptions. In light of these developments, members remarked that they remain highly attentive to the upside risks to inflation and would be nimble in responding to incoming data and the evolving outlook. In their assessment of the monetary policy stance necessary for achieving the Committee's maximum-employment and price-stability goals, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent and anticipated that ongoing increases in the target range would be appropriate. In addition, members agreed that the Committee would continue reducing its holdings of Treasury securities and agency debt and agency MBS, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. One member preferred to raise the target range for the federal funds rate 50 basis points to 1-1/4 to 1-1/2 percent at this meeting. Members judged that, with high and widespread inflation pressures and some measures of longer-term inflation expectations moving up somewhat, it would be appropriate for the postmeeting statement to note that the Committee was strongly committed to returning inflation to its 2 percent objective. As the further firming in the policy stance would likely result in some slowing in economic growth and tempering in labor market conditions, members also agreed to remove the previous statement language that had indicated an expectation that appropriate policy would result in a return of inflation to 2 percent and a strong labor market. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that their assessments would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective June 16, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 1-1/2 to 1-3/4 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 1.75 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 1.55 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in the calendar months of June and July that exceeds a cap of $30 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in the calendar months of June and July that exceeds a cap of $17.5 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michelle W. Bowman, Lael Brainard, James Bullard, Lisa D. Cook, Patrick Harker, Philip N. Jefferson, Loretta J. Mester, and Christopher J. Waller. Voting against this action: Esther L. George. Patrick Harker voted as an alternate member at this meeting. President George dissented because she judged that a large increase in the target range for the federal funds rate would add to uncertainty about policy concurrent with the beginning of balance sheet runoff in ways that could unsettle households and businesses and could also adversely affect the ability of small banks to meet the credit needs of their communities. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 1.65 percent, effective June 16, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 3/4 percentage point increase in the primary credit rate to 1.75 percent, effective June 16, 2022. 5 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 26â27, 2022. The meeting adjourned at 10:45 a.m. on June 15, 2022. Notation Vote By notation vote completed on May 24, 2022, the Committee unanimously approved the minutes of the Committee meeting held on May 3â4, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended from the discussion of the economic and financial situation through the end of Wednesday's session. Return to text 5. In taking this action, the Board approved a request to establish that rate submitted by the Board of Directors of the Federal Reserve Bank of Minneapolis. This vote also encompassed approval by the Board of Governors of the establishment of a 1.75 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of June 16, 2022, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, other Federal Reserve Banks were informed of the Secretary of the Board's approval of their establishment of a primary credit rate of 1.75 percent, effective June 16, 2022, for the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Kansas City, and Dallas, and effective June 17, 2022, for the Federal Reserve Banks of Atlanta and San Francisco.) Return to text

Minutes of the Federal Open Market Committee July 26-27, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, July 26, 2022, at 10:30 a.m. and continued on Wednesday, July 27, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard James Bullard Susan M. Collins Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Neel Kashkari, and Helen E. Mucciolo, 2 Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Joseph W. Gruber, David E. Lebow, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Andreas Lehnert, Director, Division of Financial Stability, Board Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Laura Lipscomb, John W. Schindler, Nitish R. Sinha, Paul R. Wood, and Rebecca Zarutskie, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board William F. Bassett, Senior Associate Director, Division of Financial Stability, Board Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board; Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Jeffrey D. Walker, 3 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Patrick E. McCabe and Norman J. Morin, Deputy Associate Directors, Division of Research and Statistics, Board David Arseneau, Assistant Director, Division of Financial Stability, Board; Giovanni Favara and Etienne Gagnon, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie, 4 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Alyssa Arute, 3 Manager, Division of Reserve Bank Operations and Payment Systems, Board Sriya L. Anbil, 5 Group Manager, Division of Monetary Affairs, Board Fabian Winkler, Principal Economist, Division of Monetary Affairs, Board Peter M. Garavuso, Senior Information Manager, Division of Monetary Affairs, Board David Na and Anthony Sarver, Senior Financial Institution and Policy Analysts, Division of Monetary Affairs, Board Brett Takacs, Senior Communications Analyst, Division of Information Technology, Board Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Kartik B. Athreya, Michael Dotsey, and Michelle M. Neal, Executive Vice Presidents, Federal Reserve Banks of Richmond, Philadelphia, and New York, respectively James P. Bergin, Spencer Krane, and Giovanni Olivei, Senior Vice Presidents, Federal Reserve Banks of New York, Chicago, and Boston, respectively William D. Dupor, Vice President, Federal Reserve Bank of St. Louis Andrew Foerster, Senior Research Advisor, Federal Reserve Bank of San Francisco James F. Dolmas, Economic Policy Advisor and Senior Economist, Federal Reserve Bank of Dallas Nina Boyarchenko, Department Head, Federal Reserve Bank of New York Jonathan Heathcote, Monetary Advisor, Federal Reserve Bank of Minneapolis Federico Mandelman, Research Economist and Advisor, Federal Reserve Bank of Atlanta Developments in Financial Markets and Open Market Operations The deputy manager turned first to a discussion of financial market developments. Financial markets over the intermeeting period reflected elevated uncertainty about the outlook. Most market participants appeared to view a moderation of inflation and slower, but still positive, economic growth ahead as the most likely scenario. However, investors appeared to be increasingly attentive to downside risks to the economy in light of the potential for shocks from abroad and the continued upside surprises to inflation. On net, financial conditions eased modestly over the period but remained substantially tighter than at the start of the year. Treasury yields fell, reflecting expectations of slower growth as well as a decline in inflation compensation. Respondents to the Open Market Desk's surveys of primary dealers and market participants marked down their growth forecasts for 2022 and 2023 and attached higher odds than in the June survey to the possibility that the U.S. economy could enter a recession in coming quarters. Market participants perceived falling commodity pricesâparticularly for oilâand the FOMC's commitment to bringing inflation down as pointing to lower inflation ahead. Market-based measures of near-dated inflation compensation declined and continued to suggest that inflation would ease in coming quarters. In the Desk surveys, respondents also expected inflation to decline substantially in 2023 but assigned meaningful probabilities to a wide range of potential outcomes, including scenarios involving continued elevated rates of inflation. Far-forward market-based measures of inflation compensation fell over the period. These measures continued to suggest that inflation would return over time to the Committee's 2 percent objective. In their assessment of the policy outlook, market participants expected significant policy tightening in coming meetings as the Committee continued to respond to the current elevated level of inflation. Nearly all respondents to the Desk survey anticipated a 75 basis point increase in the target range at the current meeting, and most expected a 50 basis point increase in September to follow. The market-implied path of the federal funds rate indicated a peak policy rate of around 3.4 percent, significantly lower than at the time of the June meeting. The market-implied path suggested expectations that the policy rate would fall thereafter. Most respondents to the Desk survey expected the federal funds rate to remain above the survey's longer-run policy rate of 2.4 percent through the end of 2024, but, on average, respondents placed significant probabilities on lower rate outcomes. Regarding developments abroad, central banks in advanced foreign economies (AFEs) had quickened the pace of policy tightening in order to address above-target inflation. Eight advanced-economy central banks raised their policy rates over the period. Along lines similar to U.S. developments, market-implied policy rates in most AFEs fell at longer horizons and reflected expectations that policy rates would reach peak levels by early 2023. In contrast to central banks in other advanced economies, the Bank of Japan confirmed its commitment to accommodative policy. In this environment, the exchange value of the dollar appreciated further, surpassing its March 2020 peak against advanced-economy currencies. The deputy manager next turned to a discussion of money markets and Desk operations. The 75 basis point increase in the target range at the June meeting passed through fully to the federal funds rate and other overnight rates. Although downward pressure on overnight secured rates had persisted, the pronounced softness observed in the past intermeeting period had abated to some degree. The overnight reverse repurchase agreement (ON RRP) facility continued to support policy implementation, and balances remained elevated. The deputy manager anticipated that, in the near term, the evolution of take-up at the ON RRP facility would continue to depend on changes in the supply of safe, short-term investments, and the demand for such investments by money market mutual funds (MMMFs). ON RRP balances were expected to decline over time as balance sheet runoff proceeded. The deputy manager noted that this process would involve adjustments across a number of markets and that the staff would continue to monitor developments in money markets closely. Regarding expectations for the evolution of the Federal Reserve's balance sheet, market participants expected the Committee to increase the monthly caps on System Open Market Account (SOMA) redemptions beginning in September, as announced in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet issued in May. Treasury coupon principal payments would first fall below the $60 billion cap in September, with the remainder of redemptions met with maturities of Treasury bills. Paydowns of agency mortgage-backed securities (MBS) were projected to fall below the higher September cap of $35 billion beginning in September. The deputy manager ended with an update on SOMA net income. Staff projections suggested that net income would likely turn negative in coming months. That development would be reflected in a temporary deferred asset on Reserve Bank balance sheets. Any deferred asset would not affect the Committee's ability to implement monetary policy, and the deferred asset would be extinguished over time as net income turned positive again in later years. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the July 26â27 meeting suggested that U.S. real gross domestic product (GDP) had declined over the first half of the year. However, the labor market continued to be very tight, and labor demand remained strong. Consumer price inflationâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE)âremained elevated in May, and available information suggested that inflation was still elevated in June. Total nonfarm payroll employment posted a solid gain in June at a pace that was similar to that seen in April and May. The unemployment rate was unchanged in June at 3.6 percent. The unemployment rate for African Americans moved lower in June, while the rate for Hispanics was unchanged; both rates were noticeably higher than the national average. The labor force participation rate and the employment-to-population ratio both ticked down in June. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, declined further in May but remained at a high level. Nominal wage growth continued to be rapid and broad based, with average hourly earnings having risen 5.1 percent over the 12 months ending in June. Real goods exports edged down in May after growing robustly in March and April. Real goods imports continued to step down from the exceptionally strong March readings, driven by declines in imports of consumer goods and capital goods. Exports and imports of services continued to be held back by an incomplete recovery of international travel. The nominal U.S. international trade deficit narrowed for a second consecutive month in May from its record size in March. The available data suggest that net exports contributed positively to GDP growth in the second quarter. Consumer price inflation remained elevated. Total PCE price inflation was 6.3 percent over the 12 months ending in May, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.7 percent over the same period. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.0 percent in May, 2.1 percentage points higher than its year-earlier rate of increase. In June, the 12âmonth change in the consumer price index (CPI) was 9.1 percent, while core CPI inflation was 5.9 percent over the same period. Survey-based measures of short-run inflation expectations remained elevated; by contrast, some measures of longer-term inflation expectations moved lower in recent weeks. Available indicators suggested that real PCE rose at a modest pace in the second quarter, while business investment, residential investment, and government purchases all posted declines. Manufacturing output moved lower in May and June, and forward-looking indicators of manufacturing activity weakened broadly. Foreign economic growth slowed notably in the second quarter, as COVID-19-related lockdowns led to a sharp contraction in China and Russia's war against Ukraine took a toll on foreign activity, especially in Europe. Indicators for June showed the Chinese economy rebounding as the lockdowns were eased. The global economy, however, continued to face headwinds from disruptions to the supply of energy, elevated political uncertainties in Europe, and tighter global monetary and financial conditions. Although most commodity prices moved lower from elevated levels in recent weeks, foreign consumer price inflation continued to rise through June, mostly reflecting past increases in energy and food prices, but also a continued broadening of price pressures to core goods and services. Many foreign central banks tightened monetary policy to address high inflation. Staff Review of the Financial Situation Over the intermeeting period, nominal and real Treasury yields declined significantly, reportedly reflecting increased investor concerns about downside risks to the growth outlook as well as a decline in inflation compensation. Sovereign yields in AFEs declined notably. The market-implied federal funds rate path for the next few meetings rose but moved down noticeably at longer horizons. Broad equity price indexes were higher, on net, while credit spreads widened. Major foreign equity price indexes edged higher, on net, and the exchange value of the dollar continued to appreciate. Amid the decline in Treasury yields, longer-term borrowing costs declined for households and businesses with higher credit ratings, and while credit availability remained generally available, it appeared to tighten for most businesses and some households. Broad equity price indexes were higher over the intermeeting period, amid heightened volatility. Declines in interest rates likely supported stock prices over the period, while some positive earnings releases suggested to investors a less pessimistic corporate outlook. One-month option-implied volatility on the S&P 500 indexâthe VIXâdecreased but remained significantly above its pre-pandemic levels. Yields on corporate bonds declined notably across the credit spectrum, but corporate bond spreads ended the period slightly wider. Spreads on municipal bonds widened slightly as yields declined by less than those of comparable-maturity Treasury securities. Conditions in short-term funding markets were stable since the previous FOMC meeting, with the June increase in the Federal Reserve's administered rates passing through promptly to overnight money markets. Secured overnight rates remained soft relative to the ON RRP offering rate, with the downward pressure on rates attributed to continuing declines in net Treasury bill issuance, elevated demand for collateral in the form of Treasury securities, and MMMFs maintaining very short portfolio maturities amid uncertainty about the near-term outlook for policy rate increases. Consistent with the downward pressure on repo rates, daily take-up in the ON RRP facility increased. Spreads on lower-rated short-term commercial paper (CP) narrowed modestly, on net. Bank core deposit rates moved up very little in response to the Federal Reserve's increase in administered rates following the June FOMC meeting, while MMMFs' net yields rose, reflecting the increases in short-term rates over recent months. Investors' concerns about global economic growth intensified amid weaker-than-expected data on economic activity and uncertainty about the supply of natural gas from Russia to Europe. Sovereign yields and medium-term inflation compensation measures in major AFEs, most notably in the euro area, moved down, with yields largely reversing the sharp increase that occurred just before the June FOMC meeting. In the euro area, peripheral sovereign spreads were little changed following the widely anticipated announcement by the European Central Bank of its Transmission Protection Instrument that could be activated to counter disorderly conditions in euro-area bond markets. Major foreign equity price indexes were volatile but generally edged higher, on net, supported by declines in sovereign yields. The dollar appreciated somewhat further against most currencies and particularly against the euro as yield differentials between the United States and the euro area widened. Most Latin American currencies depreciated against the dollar, in part reflecting the decline in global commodity prices. In domestic credit markets, longer-term borrowing costs for households and businesses with higher credit ratings declined over the intermeeting period but borrowing costs for lower rated firms were higher, on net. The credit quality of businesses, municipalities, and households remained stable. Credit remained generally available, though credit availability appeared to tighten for most businesses and for some households. Borrowing costs linked to shorter-term interest rates generally increased, largely as a result of expectations of tighter monetary policy. Bank interest rates for both commercial and industrial (C&I) and commercial real estate (CRE) loans increased in May and were close to pre-pandemic levels. Yields on institutional leveraged loans and newly issued commercial mortgage-backed securities (CMBS) increased amid financial market volatility and growing concerns about an economic slowdown. Small businesses that borrow on a regular basis faced notably higher borrowing costs in June. Interest rates on most existing credit card accounts and on auto loans continued to trend upward. In contrast to many other borrowing rates, residential mortgage rates fell since the June FOMC meeting, in line with the drop in longer-term yields, but remained near their highest levels since 2010. The credit quality of nonfinancial corporations remained strong with low volumes of defaults on corporate bonds in May and on leveraged loans in June. The volume of rating downgrades on speculative-grade credit in the corporate bond market was similar to that of upgrades in June, while for leveraged loans, the volume of downgrades exceeded the volume of upgrades in May and June. The credit quality for C&I and CRE loans on banks' books remained sound. However, respondents in the July Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) indicated increased concerns about credit quality in the near future as reasons for their expectation of a tightening in lending standards over the second half of 2022. Delinquency rates on CRE loans in CMBS declined in June, delinquency rates on small business loans were little changed, and the credit quality of municipal securities remained strong. The credit quality of households stayed solid. Residential mortgage delinquencies and the share of mortgages in forbearance trended down. Credit card and auto credit delinquency rates rose somewhat over the first quarter but remained subdued by recent historical standards. Business loans at banks expanded at a rapid pace in May and June, despite higher interest rates and a more uncertain economic outlook. C&I loans on banks' books continued to grow robustly, with the July SLOOS citing reasons of increased demand by customers to finance inventory and accounts receivable. However, issuance of both agency and non-agency CMBS slowed significantly in June. Credit appeared to be available to most small businesses, although the share of small firms reporting that it was difficult to obtain loans increased. Credit in the residential mortgage market remained widely available for borrowers with higher credit ratings but tight for households with low credit scores. Volumes of home-purchase mortgage originations declined in May and mortgage refinance volumes continued to fall. Consumer credit remained broadly available to households in April and May but respondents in the Federal Reserve Bank of New York's Survey of Consumer Expectations indicated that it was harder to get credit in recent months. That said, auto loans outstanding continued to grow at a robust pace in April and May but credit card balances moderated somewhat in May and June. The staff provided an update on its assessment of the stability of the financial system and, on balance, characterized the vulnerabilities of the U.S. financial system as moderate, down from notable in January. Equity and corporate debt prices declined significantly since the last assessment, reflecting concerns over slower growth and lower risk appetite in corporate markets. Declining risk appetite has also led to sharp declines in the price of some digital assets. The staff noted that digital assets tended to be volatile. The staff also highlighted the financial stability considerations associated with rapid growth in stablecoins, including their vulnerability to runs and the opacity of many aspects of their operations. Residential real estate prices continued to rise, and the staff noted that although valuations have been elevated, mortgage underwriting standards have been stronger than in previous house-price cycles. CRE prices continued to rise, and valuation pressures appeared to be increasing. The staff assessed that households were in a better position than in the mid-2000s to weather a downturn in house prices, noting that mortgage debt growth has significantly lagged growth in house prices, leaving households with substantial equity cushions. Moreover, for much of the past decade, most new mortgage debt had been added by borrowers with prime credit scores. In addition, the staff assessed that business leverage was high, but businesses maintained ample cash on hand and their credit quality remained strong. Further, the ability of most firms to service their debt was at a historically high level, as measured by the interest coverage ratio. The staff assessed that leverage in the financial sector remained moderate. Recent declines in bank capital ratios were due to higher volatility, interest rate increases, and loan growth, but the recently concluded stress tests suggested that participating banks could absorb losses from a severe recession without breaching regulatory minimums, and some banks were expected to increase their capital ratios later this year. Leverage at hedge funds and life insurance companies remained relatively high. Market liquidity had deteriorated in the oil and equities markets since January, but market functioning continued to be orderly. Yields offered by MMMFs were well above those offered by banks, and the staff noted that this yield differential would attract inflows to MMMFs. Noting the structural vulnerabilities associated with MMMFs, the staff highlighted the need to monitor the size and fragility of this sector and the progress of the Security and Exchange Commission's recently proposed reforms. The staff noted that open-end bond and loan mutual funds, which are also vulnerable to large-scale investor withdrawals, had experienced outflows as interest rates rose. These outflows had proceeded in an orderly manner. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the July FOMC meeting was noticeably weaker than the June forecast, reflecting the economy's reduced momentum and current and prospective financial conditions that were expected to provide less support to aggregate demand growth. As a result, while the projected level of real GDP remained above potential this year, the gap was expected to have closed by the second half of 2023. Similarly, the unemployment rate was projected to start rising in the second half of 2022 and to reach the staff's estimate of its natural rate at the end of next year. Total PCE price inflation was expected to be 4.8 percent in 2022, and core inflation was expected to be 4.0 percent. Core PCE price inflation was expected to step down to 2.6 percent in 2023 and to 2.0 percent in 2024; the projected deceleration in core prices was attributable to the anticipated resolution of supplyâdemand imbalances, a labor market that was expected to become less tight over the projection period, and a projected decline in import price inflation. Total PCE inflation was expected to decline to 2.2 percent in 2023 and to 1.9 percent in 2024, reflecting the anticipated slowing in core inflation and a projected rapid deceleration in consumer food and energy prices in coming quarters. The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside, noting that supply chain bottlenecks, Russia's war against Ukraine, weak incoming data on spending, and the tightening in financial conditions since the start of the year supported this assessment. The staff viewed the risks to the inflation projection as skewed to the upside given the persistent upward surprises seen in the inflation data, the possibility that inflation expectations would become unanchored as a result of the large increase in actual inflation over the past year, and the risk that supply conditions would not improve as much as the baseline projection assumed. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that recent indicators of spending and production had softened. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Participants recognized that Russia's war against Ukraine was causing tremendous human and economic hardship. Participants judged that the war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Against this background, participants stated that they were highly attentive to inflation risks. With regard to current economic activity, participants noted that consumer expenditures, housing activity, business investment, and manufacturing production had all decelerated from the robust rates of growth seen in 2021. The labor market, however, remained strong. Participants observed that indicators of spending and production suggested that the second quarter of this year had seen a broad-based softening in economic activity. Many participants remarked that some of the slowing, particularly in the housing sector, reflected the emerging response of aggregate demand to the tightening of financial conditions associated with the ongoing firming of monetary policy. The unwinding of the large-scale support to consumer spending provided by pandemic-related fiscal policy actions, the inflation-induced reduction in real disposable income, and the move down in the demand for some products from the elevated levels seen in earlier stages of the pandemic had also all led to slower growth in households' expenditures. In addition, a deterioration in the foreign economic outlook and a strong dollar were contributing to a weakening of external demand. Participants anticipated that U.S. real GDP would expand in the second half of the year, but many expected that growth in economic activity would be at a below-trend pace, as the period ahead would likely see the response of aggregate demand to tighter financial conditions become stronger and more broad based. Participants noted that a period of below-trend GDP growth would help reduce inflationary pressures and set the stage for the sustained achievement of the Committee's objectives of maximum employment and price stability. In their discussion of the household sector, participants commented that they were seeing many signs in the data, and hearing reports from business contacts, of slower growth in consumer spending. Although the aggregate balance sheet for the household sector was strong and the unemployment rate was low, consumer sentiment had deteriorated, and households were reportedly becoming more cautious in their expenditure decisions in light of uncertainty about the economic outlook and the reduction in purchasing power induced by price rises, particularly increases in the prices of essentials such as food, housing, and transportation. Participants also observed that housing activity had weakened notably, reflecting the impact of higher mortgage interest rates and house prices on home affordability. Participants anticipated that this slowdown in housing activity would continue and also expected higher borrowing costs to lead to a slowing in other interest-sensitive household expenditures, such as purchases of durable goods. With respect to the business sector, participants noted that investment spending had likely declined in the second quarter. In addition, business survey data and information received from contacts indicated that manufacturing orders and production had fallen in some Districts. Heightened uncertainty, concerns about inflation, tighter financial conditions, and a cutback in consumer spending had led firms to downgrade economic prospects. Some participants noted that their contacts were reporting that businesses were in the process of reevaluating their capital expenditure plans, though a few participants stated that some contacts had reported a degree of short-term momentum in business activity arising from existing orders and from the implementation of expansion plans made before the tightening of financial conditions. A few participants indicated that some business contacts had assessed that demand and supply were beginning to come into better balance. Even so, contacts in many areas continued to report major supply chain disruptions and anticipated that these were likely to continue while also indicating that there were signs of improvement in supply conditions in some areas. Participants observed that the labor market remained strong, with the unemployment rate very low, job vacancies and quits close to historically high levels, and an elevated rate of nominal wage growth. Many participants also noted, however, that there were some tentative signs of a softening outlook for the labor market: These signs included increases in weekly initial unemployment insurance claims, reductions in quit rates and vacancies, slower growth in payrolls than earlier in the year, and reports of cutbacks in hiring in some sectors. In addition, although nominal wage growth remained strong according to a wide range of measures, there were some signs of a leveling off or edging down. In some Districts, contacts had suggested that labor demandâsupply imbalances might be diminishing, with firms being more successful in hiring and retaining workers and under less pressure to raise wages. Some participants noted that the contribution that increases in labor supply could make to reducing labor market imbalances was likely limited, especially as the scope for labor force participation to pick up was constrained by the ongoing movement of the large baby-boom cohort into their retirement years, while others highlighted factors holding down participation that could wane in the future, such as continuing pandemic-related concerns. Participants observed that, in part because of tighter financial conditions and an associated moderation in the growth of aggregate demand, growth in employment would likely slow further in the period ahead. They noted that this development would help bring labor demand and supply into better balance, reducing upward pressures on nominal wage growth and aiding the return of inflation to 2 percent. Several participants observed that the moderation in labor market conditions might well lag the slowdown in economic activity. Participants remarked that a moderation in labor market conditions would likely involve a decline in the number of job openings as well as a moderate increase in unemployment from the current very low rate. A couple of participants indicated that firms were keen to retain workersâa factor that could limit the increase in layoffs associated with a slowing labor market. Participants noted that indicators of spending and production pointed to less underlying strength in economic activity than was suggested by indicators of labor market activity. With employment growth still strong, the weakening in spending data implied unusually large negative readings on labor productivity growth for the year so far. Participants remarked that the strength of the labor market suggested that economic activity may be stronger than implied by the current GDP data, with several participants raising the possibility that the discrepancy might ultimately be resolved by GDP being revised upward. Several participants also observed, however, that the labor market might not be as tight as some indicators suggested, and they noted that data provided by the payroll processor ADP and employment as reported in the household survey both seemed to imply a softer labor market than that suggested by the still-robust growth in payroll employment as reported in the establishment survey. Participants observed that inflation remained unacceptably high and was well above the Committee's longer-run goal of 2 percent. In light of the high CPI reading for June, participants noted that PCE inflation was likely to have increased further in that month. Participants further observed that inflationary pressures were broad based, a pattern reflected in large one-month increases in the trimmed mean CPI and core CPI measures. Participants remarked that, although recent declines in gasoline prices would likely help produce lower headline inflation rates in the short term, declines in the prices of oil and some other commodities could not be relied on as providing a basis for sustained lower inflation, as these prices could quickly rebound. Participants also noted that the high cost of living was an especially great burden on low- and middle-income households. Participants agreed that there was little evidence to date that inflation pressures were subsiding. They judged that inflation would respond to monetary policy tightening and the associated moderation in economic activity with a delay and would likely stay uncomfortably high for some time. Participants also observed that in some product categories, the rate of price increase could well pick up further in the short run, with sizable additional increases in residential rental expenses being especially likely. Participants noted that supply bottlenecks were continuing to contribute to price pressures. There were, however, some signs of gradual improvement in the supply situationâincluding improved availability of certain key materials, less upward pressure on input prices, and a decline in delivery times. Contacts reported that there were nevertheless substantial continuing challenges. Participants judged that it would take considerable time for supply constraints to be resolved, and a few suggested that full resolution of supply difficulties would take longer than they previously assessed. Several participants stressed that improvements in supply would be helpful but by themselves could not be relied on to resolve the supply and demand imbalances in the economy sufficiently rapidly. Participants emphasized that a slowing in aggregate demand would play an important role in reducing inflation pressures. They expected that the appropriate firming of monetary policy and an eventual easing of supply and demand imbalances would bring inflation back down to levels consistent with the Committee's longer-run objective and keep longer-term inflation expectations well anchored. Participants discussed a number of factors likely to be helpful in bringing inflation back down to 2 percent. In addition to the Committee's ongoing policy firming and anchored longer-term inflation expectations, these included competitive pressures restraining price increases, the apparent absence of a wageâprice spiral, the tightening of monetary policy abroad, and the impact of the appreciation of the dollar on import prices. However, they continued to view commodity price developments as a potential source of upward pressure on inflation. Participants noted that expectations of inflation were an important influence on the behavior of actual inflation and stressed that moving to an appropriately restrictive stance of policy was essential for avoiding an unanchoring of inflation expectations. Such an unanchoring would make achieving the Committee's statutory objectives of maximum employment and price stability much more difficult. In assessing the current state of inflation expectations, participants noted that recent readings on market-based measures of inflation compensation were consistent with longer-term inflation expectations remaining anchored near 2 percent. They judged that this behavior of longer-term inflation expectations was likely partly due to the actual and expected firming of monetary policy and also likely reflected downward revisions to the growth of aggregate demand expected in coming years. In addition, several participants assessed that the Committee's ongoing monetary policy tightening was helping alleviate concerns among market participants and wage and price setters that elevated inflation would become entrenched. Several participants observed that recent readings on survey measures of inflation expectations were broadly consistent with the Committee's 2 percent longer-run inflation objective, although a few participants noted that household surveys were indicating increasing divergences in views about the likely longer-run rate of inflation. In their discussion of risks, participants emphasized that they were highly attentive to inflation risks and were closely monitoring developments regarding both inflation and inflation expectations. Uncertainty about the medium-term course of inflation remained high, and the balance of inflation risks remained skewed to the upside, with several participants highlighting the possibility of further supply shocks arising from commodity markets. Participants saw the risks to the outlook for real GDP growth as primarily being to the downside. These downside risks included the possibility that the tightening in financial conditions would have a larger negative effect on economic activity than anticipated, that there would be further pandemic-related economic disruptions, or that geopolitical and global economic developments would lead to additional adverse economic or financial disturbances. Several of the participants who commented on issues related to financial stability noted that, on balance, asset valuations had eased from elevated levels in recent months. High levels of capital and liquidity overall in the banking system, healthy household balance sheets, and the adoption of stronger mortgage underwriting standards following the Global Financial Crisis were also cited among the factors that fostered financial stability in the current environment. Several participants noted that financial market liquidity had been low in some areas but that market functioning had, nonetheless, been orderly. Several participants emphasized the importance of avoiding complacency when assessing financial vulnerabilities amid ever-changing economic and financial landscapes or the need to look at a broad range of possible outcomes, including scenarios involving elevated inflation and rising interest rates, when assessing financial vulnerabilities and stability. Some participants commented on the financial stability challenges posed by digital assets. They noted that these assets, including stablecoins, were subject to vulnerabilitiesâsuch as runs, fire sales, and excessive leverageâsimilar to those associated with more traditional assets. While the recent turmoil in digital asset markets had not spread to other asset classes, these participants saw digital assets' rising importance and growing interconnectedness with other segments of the financial system as underscoring the need to establish a robust supervisory and regulatory framework for this industry that would appropriately limit potential systemic risks. A few participants mentioned the need to strengthen the oversight and regulation of certain types of nonbank financial institutions. Several participants noted that capital at some of the largest banks had declined in recent quarters. These participants emphasized that it was important that the largest banks have strong capital positions and that appropriate settings of regulatory and supervisory tools can help deliver that outcome. A couple of these participants highlighted the potential role that usage of the countercyclical capital buffer could play in this context. In their consideration of the appropriate stance of monetary policy, participants concurred that the labor market was very tight and that inflation was far above the Committee's 2 percent inflation objective. Participants noted that recent indicators of spending and production had softened, while, by contrast, job gains had been robust and the unemployment rate had remained low. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 75 basis points at this meeting and to continue the process of reducing the Federal Reserve's securities holdings, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. Participants observed that, following this meeting's policy rate hike, the nominal federal funds rate would be within the range of their estimates of its longer-run neutral level. Even so, with inflation elevated and expected to remain so over the near term, some participants emphasized that the real federal funds rate would likely still be below shorter-run neutral levels after this meeting's policy rate hike. In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. With inflation remaining well above the Committee's objective, participants judged that moving to a restrictive stance of policy was required to meet the Committee's legislative mandate to promote maximum employment and price stability. Participants concurred that the pace of policy rate increases and the extent of future policy tightening would depend on the implications of incoming information for the economic outlook and risks to the outlook. Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation. Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent. Participants concurred that, in expeditiously raising the policy rate, the Committee was acting with resolve to lower inflation to 2 percent and anchor inflation expectations at levels consistent with that longer-run goal. Participants noted that the Committee's credibility with regard to bringing inflation back to the 2 percent objective, together with its forceful policy actions and communications, had already contributed to a notable tightening of financial conditions that would likely help reduce inflation pressures by restraining aggregate demand. Participants pointed to some evidence suggesting that policy actions and communications about the future path of the federal funds rate were starting to affect the economy, most visibly in interest-sensitive sectors. Participants generally judged that the bulk of the effects on real activity had yet to be felt because of lags associated with the transmission of monetary policy, and that while a moderation in economic growth should support a return of inflation to 2 percent, the effects of policy firming on consumer prices were not yet apparent in the data. A number of participants posited that some of the effects of policy actions and communications were showing up more rapidly than had historically been the case, because the expeditious removal of policy accommodation and supporting communications already had led to a significant tightening of financial conditions. In light of elevated inflation and the upside risks to the outlook for inflation, participants remarked that moving to a restrictive stance of the policy rate in the near term would also be appropriate from a risk-management perspective because it would better position the Committee to raise the policy rate further, to appropriately restrictive levels, if inflation were to run higher than expected. Participants judged that a significant risk facing the Committee was that elevated inflation could become entrenched if the public began to question the Committee's resolve to adjust the stance of policy sufficiently. If this risk materialized, it would complicate the task of returning inflation to 2 percent and could raise substantially the economic costs of doing so. Many participants remarked that, in view of the constantly changing nature of the economic environment and the existence of long and variable lags in monetary policy's effect on the economy, there was also a risk that the Committee could tighten the stance of policy by more than necessary to restore price stability. These participants highlighted this risk as underscoring the importance of the Committee's data-dependent approach to judging the pace and magnitude of policy firming over coming quarters. Participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Participants agreed that a return of inflation to the 2 percent objective was necessary for sustaining a strong labor market. Participants remarked that it would likely take some time for inflation to move down to the Committee's objective. Participants added that the course of inflation would be influenced by various nonmonetary factors, including developments associated with Russia's war against Ukraine and with supply chain disruptions. Participants recognized that policy firming could slow the pace of economic growth, but they saw the return of inflation to 2 percent as critical to achieving maximum employment on a sustained basis. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that recent indicators of spending and production had softened. Members also concurred that, nonetheless, job gains had been robust in recent months and the unemployment rate had remained low. Members agreed that inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. In describing the sources of elevated inflation, members judged it pertinent to add a reference to higher food prices to the statement because of the notable rise in these prices and the importance of food items in households' budgets. Members concurred that Russia's war against Ukraine was causing tremendous human and economic hardship. They also agreed that the war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Members remarked that they remained highly attentive to inflation risks. Amid evidence that COVID-related lockdowns in China had generally been lifted and had affected supply chains only modestly, members generally considered it appropriate to omit from the July statement the sentence that appeared in the June statement indicating that these lockdowns were likely to exacerbate supply chain disruptions. In their assessment of the monetary policy stance necessary for achieving the Committee's maximum-employment and price-stability goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipated that ongoing increases in the target range would be appropriate. In addition, members agreed that the Committee would continue reducing the Federal Reserve's holdings of Treasury securities and agency debt and agency MBS, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that their assessments would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members affirmed that the Committee was strongly committed to returning inflation to its 2 percent objective. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective July 28, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 2-1/4 to 2-1/2 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 2.5 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 2.3 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in the calendar months of July and August that exceeds a cap of $30 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Starting in the calendar month of September, roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in the calendar months of July and August that exceeds a cap of $17.5 billion per month. Starting in the calendar month of September, reinvest into agency MBS the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lael Brainard, James Bullard, Susan M. Collins, Lisa D. Cook, Esther L. George, Philip N. Jefferson, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 2.4 percent, effective July 28, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 3/4 percentage point increase in the primary credit rate to 2.5 percent, effective July 28, 2022. 6 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 20â21, 2022. The meeting adjourned at 10:35 a.m. on July 27, 2022. Notation Vote By notation vote completed on July 5, 2022, the Committee unanimously approved the minutes of the Committee meeting held on June 14â15, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Elected as an Alternate by the Federal Reserve Bank of New York, effective July 15, 2022. Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended Tuesday's session only. Return to text 5. Attended from the discussion of the economic and financial situation through the end of Wednesday's session. Return to text 6. In taking this action, the Board approved requests to establish that rate submitted by the boards of directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Dallas, and San Francisco. This vote also encompassed approval by the Board of Governors of the establishment of a 2.5 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of July 28, 2022, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of St. Louis, Minneapolis, and Kansas City were informed of the Board's approval of their establishment of a primary credit rate of 2.5 percent, effective July 28, 2022.) Return to text

Minutes of the Federal Open Market Committee September 20-21, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, September 20, 2022, at 1:00 p.m. and continued on Wednesday, September 21, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard James Bullard Susan M. Collins Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Charles L. Evans, Patrick Harker, Neel Kashkari, Lorie K. Logan, and Helen E. Mucciolo, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Joseph W. Gruber, Carlos Garriga, and William Wascher, Associate Economists Patricia Zobel, 2 Manager pro tem, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board James P. Bergin, Deputy General Counsel, Federal Reserve Bank of New York Camille Bryan, Senior Project Manager, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Marnie Gillis DeBoer, Senior Associate Director, Division of Monetary Affairs, Board Sarah Devany, First Vice President, Federal Reserve Bank of San Francisco Michael Dotsey, Executive Vice President, Federal Reserve Bank of Philadelphia Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Joshua Gallin, Senior Special Adviser to the Chair, Division of Board Members, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board Luca Guerrieri, Deputy Associate Director, Division of Financial Stability, Board Diana Hancock, Senior Associate Director, Division of Research and Statistics, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Matteo Iacoviello, Senior Associate Director, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Callum Jones, Senior Economist, Division of Monetary Affairs, Board Edward S. Knotek II, Senior Vice President, Federal Reserve Bank of Cleveland Sylvain Leduc, Executive Vice President, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Giovanni Olivei, Senior Vice President, Federal Reserve Bank of Boston Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Karen M. Pence, 5 Deputy Associate Director, Division of Research and Statistics, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Linda Robertson, Assistant to the Board, Division of Board Members, Board Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board John W. Schindler, Special Adviser to the Board, Division of Board Members, Board Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Seth Searls, 4 Associate Director, Federal Reserve Bank of New York Nitish R. Sinha, Special Adviser to the Board, Division of Board Members, Board John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 4 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Nathaniel Wuerffel, Head of Domestic Markets, Federal Reserve Bank of New York Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Affairs, Board Developments in Financial Markets and Open Market Operations The manager pro tem turned first to a discussion of financial market developments over the intermeeting period. U.S. financial conditions tightened over the period, largely reflecting an upward revision in investors' outlook for the path of the policy rate. Treasury yields climbed substantially, with most of the upward move reflected in real yields. Equity prices initially rose amid second-quarter earnings reports that were better than feared but later retraced those gains in response to the shifting policy outlook. Regarding international developments, yields in most advanced foreign economies (AFEs) also rose sharply as a number of other central banks lifted policy rates and indicated in their communications that they would likely continue to tighten monetary policy in order to address inflation pressures. The exchange value of the dollar appreciated notably, reaching multidecade highs in real terms, as market participants perceived mounting economic challenges abroad. The market-implied path of the federal funds rate shifted sharply higher after market participants interpreted Federal Reserve communicationsâparticularly those provided at the Jackson Hole symposiumâalong with incoming data, as indicating a more restrictive path of policy than previously expected. Policy-sensitive rates suggested that a 75 basis point increase in the target range for the federal funds rate was widely expected to be decided on at the Committee's September meeting, with some chance of a 100 basis point move. In addition, the market-implied path suggested reasonable odds of additional 75 basis point and 50 basis point rate increases at the November and December meetings, respectively. Market participants generally anticipated a further slowing in the pace of rate increases after December, with the peak policy rate being reached in the first half of 2023. Beyond that period, the market-implied path of the federal funds rate sloped downward, likely reflecting downside risks to the policy rate path. The median respondent to the Open Market Desk surveys expected the policy rate path to remain flat through 2023 after the peak rate was reached. On average, Desk survey respondents assigned an almost 30 percent probability to a decline in real gross domestic product (GDP) over 2022, nearly double the probability assigned in the July survey. The manager pro tem turned next to a discussion of policy implementation. Balance sheet runoff had continued to proceed smoothly over the intermeeting period. With caps on redemptions of Treasury securities and agency mortgage-backed securities (MBS) doubling in September, the pace of balance sheet runoff was set to increase over coming months. The markets for Treasury securities and agency MBS continued to function in an orderly manner, though liquidity conditions in both markets remained low, reflecting elevated interest rate uncertainty. In money markets, the 75 basis point increase in the target range at the July meeting passed through fully to overnight rates. Amid strong demand for short-term investments, take-up at the overnight reverse repurchase agreement (ON RRP) facility was relatively steady at elevated levels. The staff continued to anticipate that ON RRP take-up would decline in coming quarters from its currently elevated levels as money market participants responded to shifting conditions. Issuance of short-term securities was likely to increase in coming periods, and, as more clarity emerged in the economic and policy outlook, demand for short-term assets could moderate. Both of these developments would ease downward pressure on yields on safe short-term investments. The gradual reduction in ON RRP balances could also be facilitated by rising competition among banks in seeking deposits. The manager pro tem indicated that the staff would continue to monitor money market developments closely in order to assess whether any frictions were emerging in this process. The manager pro tem concluded with an update on operational matters. As expected, Federal Reserve net income turned negative in September. The staff expected that the size of the associated deferred asset would increase over time until net income turned positive, likely in a few years. The Desk planned to begin aggregation of those agency MBS held in the System Open Market Account (SOMA) that are not eligible to be commingled into Uniform MBS and, specifically, the Freddie Mac MBS that were issued before June 2019 and have a 45-day payment delay; decisions about any additional aggregations would be made at a later date. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the September 20â21 meeting suggested that U.S. real GDP was increasing at a modest pace in the third quarter after having declined over the first half of the year. Labor demand remained strong, and the labor market continued to be very tight. Recent monthly readings indicated that consumer price inflationâas measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. Total nonfarm payroll employment posted robust gains in July and August at an average pace that was only slightly below what was seen over the first half of the year. The unemployment rate edged up, on net, from 3.6 percent in June to 3.7 percent in August. The unemployment rate for African Americans increased over this period, while the rate for Hispanics moved up slightly on net; both rates were noticeably higher than the national average. The labor force participation rate and employment-to-population ratio both rose, on net, from June to August. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved slightly lower from May to July but remained at a high level. Nominal wage growth continued to be rapid and broad based: Average hourly earnings rose 5.2 percent over the 12 months ending in August, while the employment cost index of hourly compensation in the private sector, which also includes benefit costs, rose 5.5 percent over the 12 months ending in June, 2.4 percentage points faster than the year-earlier pace. Consumer price inflation remained elevated. Total PCE price inflation was 6.3 percent over the 12 months ending in July, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.6 percent over the same period. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.4 percent in July. In August, the 12âmonth change in the consumer price index (CPI) was 8.3 percent, while core CPI inflation was 6.3 percent over the same period. Survey-based measures of short-run inflation expectations declined in recent weeks, while measures of longer-term inflation expectations remained roughly stable or moved lower. Available spending indicators, including the August retail sales report, suggested that real PCE was on track to post a modest gain in the third quarter. However, the latest housing market data pointed to another sharp contraction in residential investment in the third quarter, and business fixed investment appeared to be rising at a tepid pace. Real goods exports stepped up in June and then rose further in July, led by increases in exports of industrial supplies. By contrast, real goods imports stepped down in June and then fell sharply in July, driven by a large decline in consumer goods imports. Exports and imports of services continued to be held back by an incomplete recovery of international travel. The nominal U.S. international trade deficit continued to narrow in June and July. Altogether, net exports contributed positively to GDP growth in the second quarter and appeared on track to make another positive contribution in the third quarter. Data pointed to weak foreign growth in recent months, weighed down by the global reverberations from Russia's war against Ukraine and a loss of momentum in the Chinese economy. In Europe, further disruptions to the supply of energy exacerbated declines in real disposable incomes and in consumer and business confidence, restraining economic activity. In China, recent indicators suggest only a partial rebound from the effects of earlier severe COVID-19-related lockdowns as well as increasing concerns about the property sector. Weaker growth in China and the broader global economy also weighed on export-oriented emerging market economies in Asia. Consumer price inflation rose further in August in many foreign economies, reflecting past increases in energy and food prices, but also a continued broadening of inflationary pressure to core prices. With inflation persistently high, many central banks continued to tighten monetary policy. Staff Review of the Financial Situation Over the intermeeting period, U.S. Treasury yields and the market-implied federal funds rate path moved higher. Broad domestic equity price indexes decreased slightly, on balance, but market volatility remained elevated. Credit remained widely available to most types of borrowers, but increases in borrowing costs appeared to damp the demand for credit in some markets in recent months. Measures of current loan performance for businesses and most households remained generally stable. However, more recently, expectations of future credit quality for businesses deteriorated slightly, and delinquency rates rose for some types of credit owed by households with low credit scores. The expected path of the federal funds rateâimplied by a straight read of financial market quotesârose in the period since the July FOMC meeting, largely reflecting more-restrictive-than-expected monetary policy communications amid stronger-than-expected economic data and ongoing concerns about high inflation. On net, nominal Treasury yields increased significantly across the maturity spectrum. The increases in nominal Treasury yields were primarily accounted for by rising real yields, while inflation compensation measures declined substantially at short horizons and remained relatively little changed at medium- and longer-term horizons. Broad equity price indexes decreased slightly, on net, as substantial early gains arising from investors' improved perceptions about the inflation outlook and better-than-feared second-quarter earnings were more than offset by later losses arising from expectations that the Committee would follow a more restrictive policy than previously expected. Oneâmonth option-implied volatility on the S&P 500âthe VIXâincreased somewhat, on net, and remained elevated by historical norms, partly reflecting investor uncertainty and risks associated with higher inflation and the expected move to a restrictive policy stance. Corporate bond spreads narrowed slightly, on net, and remained roughly at the midpoints of their historical distributions. Reflecting increases in both policy rates and corporate bond spreads, yields on corporate bonds rose significantly since the start of the year. Municipal bond spreads over comparable-maturity Treasury yields widened a touch. Conditions in short-term funding markets remained stable over the intermeeting period, with the July increase in the Federal Reserve's administered interest rates passing through quickly to other money market rates. Although secured overnight rates firmed slightly later in the intermeeting period, they remained soft relative to the ON RRP offering rateâa configuration that market participants attributed to relatively low Treasury bill supply combined with strong investor demand for short-dated instruments amid uncertainty about the future path of the policy rate. Consistent with continued softness in repurchase agreement rates, daily take-up in the ON RRP facility remained elevated. Spreads on lower-rated short-term commercial paper changed little on net. Bank deposit rates continued to increase modestly in August, following a lagged response to increases in the federal funds rate, while money market mutual funds' net yields rose along with the increases in short-term rates. Sovereign yields in most AFEs rose notably over the intermeeting period as major central banks raised their policy rates and communicated a tighter stance of future policy in the face of persistent inflationary pressures. Yields on Japanese government securities, however, ended the period little changed, as the Bank of Japan reaffirmed its accommodative monetary policy stance. Measures of foreign inflation compensation were volatile amid large swings in European natural gas prices but increased moderately on net. The U.S. dollar appreciated further against most major currencies, reaching multi-decade highs against the euro, the British pound, and the Japanese yen. The dollar's strength largely reflected increasing investor concerns about the global growth outlook as well as widening interest rate differentials between the United States and Japan. Growth concerns also weighed on foreign equity prices, which declined moderately. Outflows from funds dedicated to emerging markets continued at a modest pace, and credit spreads in emerging market economies narrowed somewhat on net. In domestic credit markets, borrowing costs continued to rise over the intermeeting period. Yields on both corporate bonds and institutional leveraged loans increased. Bank interest rates for commercial and industrial (C&I) and commercial real estate (CRE) loans also increased. Among small businesses that borrow on a regular basis, the share of firms facing higher borrowing costs continued to climb through August. Municipal bond yields increased across ratings categories. Borrowing costs for residential mortgage loans increased and reached their highest levels since 2008. Interest rates on most credit card accounts continued to move higher, in line with the rise in the federal funds rate, and auto loan interest rates rose steadily through August. Credit remained generally available to businesses and households, but high borrowing costs appeared to reduce the demand for credit, resulting in lower financing volumes in some markets. Issuance of nonfinancial corporate bonds slowed further in July from the weak levels seen in the second quarter but rebounded somewhat in August and so far in September. Gross institutional leveraged loan issuance increased modestly in July from subdued levels but continued to be weak in August. Equity issuance remained depressed, while issuance of municipal bonds was sluggish over the summer and so far in September. According to the July Senior Loan Officer Opinion Survey on Bank Lending Practices, banks tightened credit standards on C&I lending for the first time in two years, but C&I loans on banks' balance sheets expanded at a strong pace in July and August, reflecting strong demand from nonfinancial businesses. CRE loans on banks' balance sheets also continued to grow robustly, but issuance of commercial mortgage-backed securities (CMBS) slowed in July from its strong pace earlier in the year. Credit availability to small businesses appeared to be tightening somewhat. The share of small firms reporting that it was more difficult to obtain loans continued its upward trend in August but remained lower than its historical average. Credit in the residential mortgage market remained available for high-credit-score borrowers. Credit availability for low-credit-score borrowers continued to ease through July but remained modestly tightâclose to pre-pandemic averages. However, the volumes of both home-purchase and refinance mortgage originations plunged in July amid rising mortgage rates. Consumer credit remained available to most households in June and July, but about half of the respondents in the Federal Reserve Bank of New York's Survey of Consumer Expectations indicated that it was harder to obtain credit than it was a year earlier and that they expected it to become even harder over the next year. The credit quality of nonfinancial corporations remained generally strong, with low default rates for both corporate bonds and leveraged loans. The volume of rating upgrades in the corporate bond market outpaced that of downgrades in July and August, but, so far in September, these relative volumes reversed. The volume of rating downgrades in the leveraged loan market continued to exceed that of upgrades. Credit quality for C&I and CRE loans on banks' balance sheets also remained sound, as delinquency rates remained at low levels through June. However, banks increased loan loss provisions somewhat in the second quarter. Delinquency rates on CRE loans securitized into CMBS remained unchanged in July, delinquency rates on small business loans stayed quite low after edging up, and the credit quality of municipal securities remained strong. Household credit quality stayed broadly solid but continued to worsen for some types of credit owed by borrowers with low credit scores. Mortgage delinquencies trended down in recent months, and the share of mortgages in foreclosure remained low in July. By contrast, credit card and auto credit delinquency rates rose over the second quarter, particularly among subprime borrowers, with subprime auto loan delinquency rates rebounding notably to slightly above their historical averages. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the September FOMC meeting was slightly weaker than the July forecast. However, the staff's estimate of potential output in recent history was revised down significantly in response to continued disappointing productivity growth and the sluggish gains in labor force participation seen so far this year; moreover, this lower trajectory for potential output was expected to persist throughout the forecast period. As a result, the staff's estimate of the output gap was revised up considerably this year, and while the staff projection still had the output gap closing in coming years, the level of output was expected to be slightly above potential at the end of 2025. Likewise, the unemployment rate was expected to rise more slowly than in the July projection and to be slightly below the staff's estimate of its natural rate at the end of 2025. On a 12-month change basis, total PCE price inflation was expected to be 5.1 percent in 2022, and core inflation was expected to be 4.3 percent. Although the staff continued to project that core inflation would step down over the next two yearsâreflecting the anticipated resolution of supplyâdemand imbalances and a labor market that was expected to become less tightâcore inflation was revised up in each year of the projection. In 2025, core inflation was expected to be 2.1 percent. Total PCE price inflation was expected to decline to 2.6 percent in 2023 as core inflation slowed and energy prices declined. Total PCE inflation was expected to move down further in 2024, to 2 percent, and to remain at 2 percent in 2025. The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside. In addition to Russia's war in Ukraine, weakening activity abroad, and ongoing supply chain bottlenecks, the possibility that a persistent reduction in inflation could require a greater-than-assumed amount of tightening in financial conditions was viewed by the staff as a salient downside risk to their forecast for real activity. The staff viewed the risks to the inflation projection as skewed to the upside on the grounds that supply conditions might not improve as much as expected and energy prices might rise sharply again. The staff also pointed to the possibility that wage increases could put a greater-than-expected amount of upward pressure on price inflation and the possibility that inflation expectations could become unanchored given the large rise in inflation seen over the past year as additional upside risks to the inflation forecast. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2025 and over the longer run, based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that recent indicators had pointed to modest growth in spending and production. Job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Participants recognized that Russia's war against Ukraine was causing tremendous human and economic hardship. Participants judged that the war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Against this background, participants remained highly attentive to inflation risks. With regard to the economic outlook, participants noted that recent data pointed to modest growth in economic activity over the second half of this year. Participants observed that recent indicators of consumer spending and business investment suggested modest increases in those spending categories but noted that activity in interest-sensitive sectors weakened appreciably. Participants revised down their projections of real GDP growth for this year from their projections in June. Several participants noted that the continued strength in the labor market, as well as the data on gross domestic income, raised the possibility that the current GDP data could understate the strength in economic activity this year. Participants generally anticipated that the U.S. economy would grow at a below-trend pace in this and the coming few years, with the labor market becoming less tight, as monetary policy assumed a restrictive stance and global headwinds persisted. Participants noted that a period of below-trend real GDP growth would help reduce inflationary pressures and set the stage for the sustained achievement of the Committee's objectives of maximum employment and price stability. In their discussion of the household sector, participants noted that consumer spending grew moderately, reflecting strength in the labor market, the elevated level of household savings accumulated during the pandemic, and a strong aggregate household-sector balance sheet. Several participants noted that spending appeared to have held up relatively well, especially among higher-income households. These participants also noted that the composition of spending by low-to-moderate-income householdsâwho were affected to a greater degree by high food, energy, and shelter pricesâwas changing, with discretionary expenditures being cut and purchases shifting to lower-cost options. Participants observed that the notable slowdown in residential investment and other interest-sensitive spending had continued, reflecting the effect of the Committee's monetary policy actions and tighter financial conditions. With regard to the business sector, participants observed that growth in investment spending appeared modest. Several participants mentioned that manufacturing activity had slowed. A couple of participants noted that businesses were constrained in undertaking new capital projects, as they faced higher financing costs, persistent challenges associated with supply bottlenecks, and hiring difficulties resulting from the continued tightness of the labor market. Participants discussed how they perceived challenging supply conditions to be evolving. Many participants remarked that their business contacts were reporting signs of relief in supply bottlenecks, such as declines in shipping costs and delivery times and rising inventories, while several participants saw little improvement in the supply situation. Participants saw supply bottlenecks as likely continuing for a while longer, and a couple commented that constraints on production were increasingly taking the form of labor shortages rather than parts shortages. Participants observed that the labor market had remained very tight, as evidenced by a historically low unemployment rate, elevated job vacancies and quit rates, a low pace of layoffs, robust employment gains, and high nominal wage growth. A few participants remarked that employers facing particularly acute labor shortages were those associated with professional occupations, service industries, skilled trades, and smaller firms. Some participants noted a number of developments consistent with the labor market moving toward better balance, including a lower rate of job turnover, a moderation in employment growth, and an increase in the labor force participation rate for prime-age workers. However, several participants assessed that the scope for further improvement in labor force participation was likely limited, especially in view of the sizable contribution that retirements had made to the previous decline in the participation rate. Participants anticipated that the supply and demand imbalances in the labor market would gradually diminish and the unemployment rate would likely rise somewhat, importantly reflecting the effects of tighter monetary policy. Participants judged that a softening in the labor market would be needed to ease upward pressures on wages and prices. Participants expected that the transition toward a softer labor market would be accompanied by an increase in the unemployment rate. Several commented that they considered it likely that the transition would occur primarily through reduced job vacancies and slower job creation. A couple of participants remarked that, in light of challenges in hiring, businesses might be less willing to reduce their staffing levels in the event of a weakening in general economic activity. A few participants particularly stressed the high uncertainty associated with the expected future path of the unemployment rate and commented that the unemployment rate could rise by considerably more than in the staff forecast. Participants observed that inflation remained unacceptably high and well above the Committee's longer-run goal of 2 percent. Participants commented that recent inflation data generally had come in above expectations and that, correspondingly, inflation was declining more slowly than they had previously been anticipating. Price pressures had remained elevated and had persisted across a broad array of product categories. Energy prices had declined in recent months but remained considerably higher than in 2021, and upside risks to energy prices remained. Several participants noted the continued elevated rates of increase in core goods prices. These participants considered this development as potentially indicating that the shift of household spending from goods to services might be having a smaller effect on goods prices than they expected or that the supply bottlenecks and labor shortages were taking longer to be resolved. Participants commented that they expected inflation pressures to persist in the near term. Numerous contributing factors were cited as supporting this view, including labor market tightness and the resulting upward pressure on nominal wages, continuing supply chain disruptions, and the persistent nature of increases in services prices, particularly shelter prices. With respect to the medium term, participants judged that inflation pressures would gradually recede in coming years. Various factors were cited as likely to contribute to this outcome, including the Committee's tightening of its policy stance, a gradual easing of supply and demand imbalances in labor and product markets, and the likelihood that weaker consumer demand would result in a reduction of business profit margins from their current elevated levels. A few participants reported that business contacts in certain retail sectorsâsuch as used cars and apparelâwere planning to cut prices in order to help reduce their inventories. Several participants commented that while households across the income distribution were burdened by elevated inflation, those at the lower end of the income distribution were particularly harmed, as a larger share of their income was spent on housing and other necessities. In assessing inflation expectations, participants noted that longer-term expectations appeared to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters as well as measures obtained from financial markets. Participants remarked that the Committee's affirmation of its strong commitment to its price-stability objective, together with its forceful policy actions, had likely helped keep longer-run inflation expectations anchored. Some stressed that a more prolonged period of elevated inflation would increase the risk of inflation expectations becoming unanchored, making it much more costly to bring inflation down. A few participants discussed the increased dispersion of longer-term inflation expectations across respondents in various surveys, with an increase in the number of respondents reporting relatively low expectations of future inflation acknowledged as a key driver of the increased dispersion but with a couple of participants citing higher inflation expectations among some survey respondents as a cause for concern and a reason not to be complacent about longer-term inflation expectations remaining well anchored. Participants agreed that the uncertainty associated with their economic outlooks was high and that risks to their inflation outlook were weighted to the upside. Some participants noted rising labor tensions, a new round of global energy price increases, further disruptions in supply chains, and a larger-than-expected pass-through of wage increases into price increases as potential shocks that, if they materialized, could compound an already challenging inflation problem. A number of participants commented that a wageâprice spiral had not yet developed but cited its possible emergence as a risk. Participants broadly judged the risks to real GDP growth to be weighted to the downside, with various global headwinds most prominently cited as contributing factors. These global headwinds included heightened risk of recession in Europe, a slowdown in economic activity occurring in China, and the ongoing global economic implications of Russia's war against Ukraine. Several participants noted that the monetary policy tightening under way in many other economies would affect global financial markets and foreign real GDP growth, with the potential for spillovers to the U.S. economy. In their consideration of the appropriate stance of monetary policy, participants concurred that the labor market was very tight and that inflation was far above the Committee's 2 percent inflation objective. Participants observed that recent indicators of production and spending had pointed to modest growth, while job gains had been robust and the unemployment rate had remained low. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 75 basis points at this meeting and to continue the process of reducing the Federal Reserve's securities holdings, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. Policymakers observed that the rate hike at this meeting was another step toward making the Committee's monetary policy stance sufficiently restrictive to help ease supply and demand imbalances and to bring inflation back to 2 percent. Participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective, with many stressing the importance of staying on this course even as the labor market slowed. In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. Participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee's legislative mandate to promote maximum employment and price stability. Many participants noted that, with inflation well above the Committee's 2 percent objective and showing little sign so far of abating, and with supply and demand imbalances in the economy continuing, they had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the Committee's goals. Participants judged that the pace and extent of policy rate increases would continue to depend on the implications of incoming information for the outlook for economic activity and inflation and on risks to the outlook. Several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook. Participants observed that, as the stance of monetary policy tightened further, it would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation. Many participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2 percent objective. Participants noted that, in keeping with the Committee's Plans for Reducing the Size of the Federal Reserve's Balance Sheet, balance sheet runoff had moved up to its maximum planned pace in September and would continue at that pace. They further observed that a significant reduction in the Committee's holdings of securities was in progress and that this process was contributing to the move to a restrictive policy stance. A couple of participants remarked that, after the process of balance sheet reduction was well under way, it would be appropriate for the Committee to consider sales of agency MBS in order to enable suitable progress toward a longer-run SOMA portfolio composed primarily of Treasury securities. In their assessment of the effects of policy actions and communications to date, participants concurred that the Committee's actions to raise expeditiously the target range for the federal funds rate demonstrated its resolve to lower inflation to 2 percent and to keep inflation expectations anchored at levels consistent with that longer-run goal. Participants noted that the Committee's commitment to restoring price stability, together with its purposeful policy actions and communications, had contributed to a notable tightening of financial conditions over the past year that would likely help reduce inflation pressures by restraining aggregate demand. Participants observed that this tightening had led to substantial increases in real interest rates across the maturity spectrum. Most participants remarked that, al­though some interest-sensitive categories of spendingâsuch as housing and business fixed investmentâhad already started to respond to the tightening of financial conditions, a sizable portion of economic activity had yet to display much response. They noted also that inflation had not yet responded appreciably to policy tightening and that a significant reduction in inflation would likely lag that of aggregate demand. Participants observed that a period of real GDP growth below its trend rate, very likely accompanied by some softening in labor market conditions, was required. They agreed that, by moving its policy purposefully toward an appropriately restrictive stance, the Committee would help ensure that elevated inflation did not become entrenched and that inflation expectations did not become unanchored. These policy moves would therefore prevent the far greater economic pain associated with entrenched high inflation, including the even tighter policy and more severe restraint on economic activity that would then be needed to restore price stability. In light of the broad-based and unacceptably high level of inflation, the intermeeting news of higher-than-expected inflation, and upside risks to the inflation outlook, participants remarked that purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations. Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation. Several participants observed that as policy moved into restrictive territory, risks would become more two-sided, reflecting the emergence of the downside risk that the cumulative restraint in aggregate demand would exceed what was required to bring inflation back to 2 percent. A few of these participants noted that this possibility was heightened by factors beyond the Committee's actions, including the tightening of monetary policy stances abroad and the weakening global economic outlook, that were also likely to restrain domestic economic activity in the period ahead. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that recent indicators had pointed to modest growth in spending and production. Members also concurred that job gains had been robust in recent months and the unemployment rate had remained low. Members agreed that inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Members observed that Russia's war against Ukraine was causing tremendous human and economic hardship. They also agreed that the war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Members remarked that they remained highly attentive to inflation risks. In their assessment of the monetary policy stance necessary for achieving the Committee's maximum-employment and price-stability goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipated that ongoing increases in the target range would be appropriate. In addition, members agreed that the Committee would continue reducing its holdings of Treasury securities and agency debt and agency MBS, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet issued in May. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. They also noted that their assessments would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members affirmed that the Committee was strongly committed to returning inflation to its 2 percent objective. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective September 22, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3 to 3-1/4 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 3.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 3.05 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lael Brainard, James Bullard, Susan M. Collins, Lisa D. Cook, Esther L. George, Philip N. Jefferson, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 3.15 percent, effective September 22, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 3/4 percentage point increase in the primary credit rate to 3.25 percent, effective September 22, 2022. 6 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, November 1â2, 2022. The meeting adjourned at 10:20 a.m. on September 21, 2022. Notation Vote By notation vote completed on August 16, 2022, the Committee unanimously approved the minutes of the Committee meeting held on July 26â27, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. In the absence of the manager, the Committee's Rules of Organization provide that the deputy manager acts as manager pro tem. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended from the discussion of the economic and financial situation through the end of Wednesday's session. Return to text 6. In taking this action, the Board approved requests to establish that rate submitted by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and Dallas. This vote also encompassed approval by the Board of Governors of the establishment of a 3.25 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of September 22, 2022, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of New York, Minneapolis, and San Francisco were informed of the Board's approval of their establishment of a primary credit rate of 3.25 percent, effective September 22, 2022.) Return to text

Minutes of the Federal Open Market Committee November 1-2, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, November 1, 2022, at 10:30 a.m. and continued on Wednesday, November 2, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard James Bullard Susan M. Collins Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Charles L. Evans, Patrick Harker, Neel Kashkari, Lorie K. Logan, and Helen E. Mucciolo, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Brian M. Doyle, Carlos Garriga, Joseph W. Gruber, David E. Lebow, Ellis W. Tallman, and William Wascher, Associate Economists Patricia Zobel, Manager pro tem, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Gene Amromin, Vice President, Federal Reserve Bank of Chicago Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, Section Chief, Office of the Secretary, Board James P. Bergin, Deputy General Counsel, Federal Reserve Bank of New York David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Isabel Cairó, Principal Economist, Division of Monetary Affairs, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Satyajit Chatterjee, Vice President, Federal Reserve Bank of Philadelphia Daniel Cooper, Vice President, Federal Reserve Bank of Boston Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Sally Davies, 3 Senior Adviser, Division of International Finance, Board Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Etienne Gagnon, Assistant Director, Division of Monetary Affairs, Board Joshua Gallin, Senior Special Adviser to the Chair, Division of Board Members, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board David Glancy, Principal Economist, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Matteo Iacoviello, Senior Associate Director, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Mark Meder, First Vice President, Federal Reserve Bank of Cleveland Ann E. Misback, Secretary, Office of the Secretary, Board Fernanda Nechio, Vice President, Federal Reserve Bank of San Francisco Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Julie Ann Remache, Policy and Market Monitoring Head, Federal Reserve Bank of New York Linda Robertson, Assistant to the Board, Division of Board Members, Board Argia M. Sbordone, Research Department Head, Federal Reserve Bank of New York Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Chiara Scotti, Special Adviser to the Board, Division of Board Members, Board Seth Searls, 2 Associate Director, Federal Reserve Bank of New York Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Paul A. Smith, Deputy Associate Director, Division of Research and Statistics, Board Gustavo A. Suarez, Assistant Director, Division of Research and Statistics, Board Paula Tkac, Senior Vice President, Federal Reserve Bank of Atlanta Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Donielle A. Winford, Information Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Committee Ethics Discussion The Chair began with a discussion of ethical standards and acknowledged the great privilege and heavy responsibility that come with being entrusted to make policy decisions. There was agreement that the Federal Reserve can be effective only when there is a foundation of public trust. Participants reaffirmed the importance of holding themselves and their staffs accountable for knowing and following the high ethical standards that are set in the Committee's policies, including those on financial transactions and disclosure and on external communications. Developments in Financial Markets and Open Market Operations The manager pro tem turned first to a discussion of financial market developments in the United States. Over the period, financial conditions had tightened amid elevated volatility across financial markets. The market-implied path of the policy rate rose, with the median federal funds rate values in the September Summary of Economic Projections and other Federal Reserve communications being viewed by market participants as indicating a commitment to sustaining a restrictive monetary policy stance. With data received over the period also indicating higher-than-expected core inflation, market participants placed high odds on a 75 basis point increase in the target range at the current meeting. Nonetheless, contacts were increasingly focused on the question of when the Committee might slow the pace of future increases in light of the substantial tightening of financial conditions that had occurred over the year. Most respondents to the Open Market Desk's surveys viewed a 50 basis point increase in the target range for the federal funds rate at the December meeting as the most likely outcome. On net, nominal Treasury yields ended the period higher, reflecting both an upward revision in the expected path of the policy rate and higher estimated term premiums. Investment-grade bond yields and mortgage interest rates moved up as well, to the highest levels in many years. The manager pro tem turned next to a discussion of volatility in global financial markets. In September, an expansionary budget announced by the U.K. government resulted in an extraordinary rise in yields on gilts (long-dated U.K. government securities) and reduced gilt market liquidity. Reflecting its financial stability objective, the Bank of England initiated a temporary gilt purchase program designed to address disorderly market conditions. These purchases and a subsequent cancellation of some announced expansionary U.K. budgetary measures resulted in a retracement of much of the earlier increase in gilt yields. Elevated volatility in international financial markets contributed to volatility in U.S. core fixed-income markets. In markets for U.S. Treasury securities, some measures of market-implied volatility approached pandemic-era levels. Spreads of yields on agency mortgage-backed securities (MBS) over yields on Treasury securities widened sharply, reflecting the sensitivity of these spreads to increased volatility. The increased volatility appeared to contribute to a decline in measures of market liquidity in core fixed-income markets, in particular around the period associated with U.K. volatility, but market functioning remained orderly. The foreign exchange value of the dollar appreciated further over the period. Market participants perceived several Asian economies as engaging in foreign exchange market interventions in response to rapid depreciations of local currencies. In the case of advanced economies, whose monetary policy tightening was well under way, market participants focused on communications perceived as signaling a potentially slower pace of policy rate increases in the period ahead. The manager pro tem turned next to developments in money markets and Federal Reserve operations. Usage of the overnight reverse repurchase agreement (ON RRP) facility remained fairly steady other than during the period surrounding quarter-end. In the period ahead, the relative pace of decline in ON RRP facility balances and reserve balances would depend importantly on shifts in money market conditions. Recent developments, including with regard to the relationship between ON RRP facility balances and money market rates, suggested that, over time, conditions could evolve in a manner that would lead to falling usage of the ON RRP facility. However, the manager pro tem noted that money market conditions could change somewhat more quickly in the lead-up to year-end because of normal factors, such as a Treasury tax payment date in December that could increase the Treasury General Account balance, and year-end position adjustments. This prospect could require money market participants to be more responsive to shifting liquidity conditions and to plan ahead for the coming period. Current market quotes suggested expectations of limited upward pressure on domestic money market rates around year-end. In offshore dollar funding markets, the premium associated with borrowing dollars was modestly higher than at similar points in previous years. Regarding Federal Reserve net income, 11 Reserve Banks reported deferred assets totaling $6.3 billion in the latest H.4.1 statistical release, reflecting the negative net income stemming from rising interest expense. Many other central banks also faced negative net income. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the November 1â2 meeting suggested that U.S. real gross domestic product (GDP) had increased at a moderate pace in the third quarter after having declined over the first half of the year. Labor market conditions remained quite tight, and consumer price inflationâas measured by the 12âmonth percentage change in the price index for personal consumption expenditures (PCE)âremained elevated. In September, total nonfarm payroll employment posted a solid gain that was somewhat slower than the pace seen in recent months, and the unemployment rate declined 0.2 percentage point to 3.5 percent. The unemployment rate for African Americans declined in September but was more than 2 percentage points above the national average; the unemployment rate for Hispanics declined to a level that was 0.3 percentage point above the national measure. The labor force participation rate edged down in September, and the employment-to-population ratio was unchanged. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved lower, on net, from July to September but remained high. Nominal wage growth continued to be rapid: Average hourly earnings rose 5.0 percent over the 12 months ending in September, while the employment cost index (ECI) of hourly compensation in the private sector, which also includes benefit costs, rose 5.2 percent over this period. However, the three-month change in the ECI in September was noticeably lower than the average pace seen over the first half of the year. Consumer price inflation remained elevated. Total PCE price inflation was 6.2 percent over the 12 months ending in September, and core PCE inflation, which excludes changes in consumer energy prices and many consumer food prices, was 5.1 percent over the same period. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.7 percent in September. The staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, was little changed in the third quarter but remained above pre-pandemic levels. Real PCE rose modestly in the third quarter. Residential investment dropped further, however, and business fixed investment growth was held back by a decline in nonresidential structures investment. Government purchases rose in the third quarter after having declined over the first half of the year. The nominal U.S. international trade deficit narrowed in the third quarter. Net exports contributed positively to real GDP growth, as real exports stepped up while real imports declined. Data pointed to weakening foreign economic activity in recent months, weighed down by the economic fallout of Russia's war against Ukraine, headwinds in China, and tighter financial conditions. In many advanced foreign economies, high inflation and disruptions to energy supply contributed to a decline in real disposable incomes and depressed consumer and business confidence. In response, fiscal authorities in Europe and Japan announced packages intended to ease the burden of high inflation on consumers and businesses. In China, data indicated weaker momentum in economic activity and a further deterioration in the property market. Weaker global demand has also resulted in a pronounced slowdown in manufacturing, which weighed on activity in export-oriented emerging market economies in Asia. Consumer price inflation rose further in October in many foreign economies, reflecting past increases in energy and food prices, but also a continued broadening of inflationary pressure within core prices. In response to high inflation, many central banks further tightened monetary policy, albeit at a slower pace in some cases. Staff Review of the Financial Situation Over the intermeeting period, U.S. Treasury yields and the market-implied federal funds rate path moved substantially higher. Broad domestic equity prices were little changed, on net, amid high market volatility, while corporate bond yields increased notably. The rise in borrowing costs appeared to have slowed the volume of financing in many credit markets. Credit quality remained sound overall, al­though there are some signs of deterioration for lower-rated borrowers. The expected path of the federal funds rate implied by a straight read of financial market quotes rose notably over the intermeeting period, largely reflecting more-restrictive-than-expected monetary policy communications and data releases that pointed to inflation moving down more slowly than previously expected. On net, nominal Treasury yields increased across the maturity spectrum. The increases in nominal yields at medium- and longer-term horizons were primarily accounted for by higher real yields, though inflation compensation measures rose as well. Broad equity price indexes fell significantly early in the intermeeting period, with inflation news and monetary policy expectations likely being the main drivers of stock price movements. However, equity prices later rebounded and ended the period essentially unchanged on net. One-month option-implied volatility on the S&P 500âthe VIXâdeclined slightly, on net, but remained at the upper end of its range since mid-2020. Conditions in short-term funding markets remained stable over the intermeeting period, with the September increase in the target range for the federal funds rate and the associated increases in the Federal Reserve's administered rates passing through quickly to overnight money market rates. In secured markets, money market rates remained soft relative to the ON RRP offering rate, attributed to subdued Treasury bill supply, elevated demand for Treasury collateral, and investor demand for very short-term assets amid uncertainty over the pace of policy rate increases. Daily take-up in the ON RRP facility remained elevated amid this softness in repurchase agreement rates. Money market fund net yields rose along with the rise in administered rates, while retail bank deposit rates increased modestly on balance. Foreign asset prices were volatile over the intermeeting period as investors grappled with the combination of a deteriorating global growth outlook and synchronous policy tightening undertaken by major central banks in response to high inflation. Fiscal and political developments in the United Kingdom added to market volatility but left little net imprint. On balance, sovereign bond yields in most advanced foreign economies rose modestly and equity prices were mixed. The U.S. dollar appreciated against most major currencies, driven by widening yield differentials between the United States and the rest of the world and further deterioration of the foreign growth outlook. The Japanese yen weakened against the dollar, on net, even though Japanese authorities intervened to support the yen. The Chinese renminbi depreciated significantly against the dollar as continuation of the zero-COVID policy and increased investor concerns about longer-term growth prospects weighed on the currency. Investors continued to withdraw from dedicated emerging market economy and European funds amid further increases in U.S. Treasury yields and concerns over foreign economic growth. In domestic credit markets, borrowing costs continued to rise over the intermeeting period. Yields for corporate bonds and institutional leveraged loans increased. Bank interest rates for commercial and industrial (C&I) loans continued the upward trend observed since the first quarter of 2022, while a rising proportion of small businesses reported facing increased borrowing costs in September. Municipal bond yields increased across ratings categories. Residential mortgage rates rose further in the period following the September FOMC meeting, nearly reaching their highest levels since 2002. Interest rates on existing credit card accounts continued to trend upward, reflecting increases in the federal funds rate that were quickly passed through to prime rates. Credit continued to be generally available to businesses and households despite some signs of tightening lending standards in certain segments, but high borrowing costs reduced the demand for credit in many markets. Issuance of corporate bonds, al­though quite strong in early September, slowed significantly in late September and October. Gross institutional leveraged loan issuance declined in September. Equity issuance and gross issuance of municipal bonds remained weak in September and October. Business loans at banks continued to expand in September but at a slower pace than observed in past months. In the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported having tightened C&I and commercial real estate (CRE) lending standards over the previous three months. Meanwhile, issuance of commercial mortgage-backed securities (CMBS) also slowed amid higher spreads. Credit appeared to remain generally available to most small businesses, though the share of small firms reporting that it was more difficult to obtain loans than three months ago continued its upward trend in September. Credit remained available in the residential mortgage market for borrowers who are able to pay high interest rates. The number of home-purchase and refinance mortgage originations were about flat in August and September but down significantly from late last year. Consumer credit remained available for most borrowers in July and August, with auto credit and credit card credit growing at a robust pace. However, banks in the October SLOOS reported being less likely to approve auto and credit card loans to subprime and near-prime borrowers compared with earlier this year. The credit quality of nonfinancial corporations showed signs of deterioration in some sectors but remained generally solid overall. The volume of corporate bond rating upgrades was roughly on par with that of downgrades in September. However, upgrades were concentrated in the investment-grade segment; in the speculative-grade segment, downgrades outpaced upgrades, and market-implied expectations of defaults over the next year increased markedly. Default rates on corporate bonds and leveraged loans rose slightly from low levels. The credit quality of C&I and CRE loans on banks' balance sheets also remained sound. Delinquency rates for CRE loans in non-agency CMBS pools ticked up in September, as did indicators of future payment stress. Delinquency rates on small business loans remained quite low, and the credit quality of municipal securities remained strong. The credit quality of most households also appeared to remain solid. Delinquencies on residential mortgage loans continued to trend down, and the share of mortgages in foreclosure in August remained close to pre-pandemic levels. Available data through the second quarter indicated that credit card and auto credit delinquency rates continued to rise; however, delinquencies for auto loans were near their pre-pandemic levels, and those for credit cards remained well below pre-pandemic levels. The staff provided an update on its assessment of the stability of the financial system. The staff noted that respondents to the Federal Reserve Bank of New York's survey of near-term risks judged that economic, financial, and geopolitical risks had risen across the globe. Amid this weaker outlook and higher interest rates, prices of risky assets generally fell, though real estate valuations remained elevated. Household borrowing was moderate, and mortgage performance remained strong. Nonfinancial businesses' leverage continued to decline, and interest coverage ratios continued to increase; however, further increases in borrowing costs could pose risks to some borrowers' ability to service their debts. In the financial sector, the results of this year's stress test demonstrated that large banks remain resilient to a substantial economic downturn, but there were indicators of elevated leverage at hedge funds and other nonbank financial institutions. Short-term funding markets continued to have structural vulnerabilities. Funding risks at domestic banks remained low, but prime money market funds, other cash-investment vehicles, open-end mutual funds, and stablecoins all continued to be susceptible to disruptive redemptions. Staff Economic Outlook The projection for U.S. economic activity prepared by the staff for the November FOMC meeting was weaker than the September forecast. Broad financial conditions were expected to be considerably more restrictive over the projection period than in September, reflecting both recent market moves and upward revisions to the staff's assumptions regarding the future course of monetary policy based on recent Federal Reserve communications. As a result, output was expected to move below the staff's estimate of potential early in 2024 and to remain below potential in 2025. Likewise, the unemployment rate was expected to be above the staff's estimate of its natural rate in 2024 and 2025. On a 12âmonth change basis, total PCE price inflation was expected to be 5.3 percent in 2022 and core inflation was expected to be 4.6 percent. The staff raised their projection for core PCE price inflation in coming quarters, reflecting their assessment that the factors that had boosted inflation since the middle of last yearâmost notably, strong wage growth and the effect of supply constraints on pricesâwould persist for longer than previously thought. With the effects of supplyâdemand imbalances in goods markets expected to unwind and labor and product markets expected to become less tight, the staff continued to project that inflation would decline markedly over the next two years; in 2025, both total and core PCE price inflation were expected to be 2 percent. With inflation remaining stubbornly high, the staff continued to view the risks to the inflation projection as skewed to the upside. For real activity, sluggish growth in real private domestic spending, a deteriorating global outlook, and tightening financial conditions were all seen as salient downside risks to the projection for real activity; in addition, the possibility that a persistent reduction in inflation could require a greater-than-assumed amount of tightening in financial conditions was seen as another downside risk. The staff, therefore, continued to judge that the risks to the baseline projection for real activity were skewed to the downside and viewed the possibility that the economy would enter a recession sometime over the next year as almost as likely as the baseline. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that recent indicators pointed to modest growth of spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Participants recognized that Russia's war against Ukraine was causing tremendous human and economic hardship. The war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Against this background, participants continued to be highly attentive to inflation risks. With regard to current economic activity and the near-term outlook, participants observed that al­though real GDP rebounded in the third quarter, recent data suggested that economic activity in the near term appeared likely to expand at a pace below its trend growth rate. Participants noted a softening in consumer and business spending growth, and some participants remarked that there had been a notable slowing in interest rate-sensitive sectors, particularly housing, in response to the tightening of financial conditions associated with the Committee's policy actions. With inflation remaining far too high and showing few signs of moderating, participants observed that a period of below-trend real GDP growth would be helpful in bringing aggregate supply and aggregate demand into better balance, reducing inflationary pressures, and setting the stage for the sustained achievement of the Committee's objectives of maximum employment and price stability. In their discussion of the household sector, participants noted that growth in consumer spending had softened recently. Several participants remarked that there had been a reduction in discretionary expenditures, especially among lower- and middle-income households, whose purchases were shifting toward lower-cost options. Participants observed that, in aggregate, household-sector balance sheets were still strong and that this factor would continue to support consumer spending. A few participants noted that some households had been running down the additional savings they had accumulated during the pandemic and that there were reports of a rise in the number of households experiencing financial strains. Participants commented that higher mortgage interest rates had notably restrained housing activity. With regard to the business sector, participants noted that growth in investment spending was modest. Several participants observed that business investment was being weighed down by tighter financial conditions, although a few participants reported that some business contacts indicated that their investment spending had been resilient. Some participants mentioned reports received from business contacts of easing supply bottlenecks, reflected in declines in shipping costs and delivery times, although the reported extent of these improvements varied across contacts. A few participants remarked that, in instances in which supply constraints had eased, their business contacts found it easier to plan production or had diminished needs to maintain precautionary inventories. A couple of participants noted that drought conditions in the Midwest were making some waterways, notably the Mississippi River System, less navigable. These conditions were creating new supply constraints and putting upward pressures on transportation costs and prices for farm products. Participants observed that, with inflation elevated globally, many central banks were tightening monetary policy simultaneously, contributing to an overall tightening of global financial conditions. Participants further noted that the overall tightening of global financial conditions, along with energy prices and other headwinds, was contributing to a slowdown in the growth rate of global real GDP. Participants remarked that the foreign economic slowdown, in combination with a strong U.S. dollar, was likely to weigh on the U.S. export sector, and several participants commented that there could be wider spillovers to the U.S. economy. Participants observed that the labor market had remained very tight, with the unemployment rate near a historically low level, the number of job vacancies very high, a low pace of layoffs, robust employment gains, and elevated nominal wage growth. Some participants remarked that employers in certain sectors, such as health care, leisure and hospitality, or construction, faced particularly acute labor shortages and that these shortages were contributing to especially strong wage pressures in those sectors. Participants commented on the labor market having remained strong to date, even alongside the slowing in economic activity. A number of participants remarked that some businesses were keen to retain workers after their recent experiences of labor shortages and hiring challenges. These participants noted that this consideration had limited layoffs even as the broader economy had softened or that this behavior could limit layoffs if aggregate economic activity were to soften further. Nevertheless, many participants noted tentative signs that the labor market might be moving slowly toward a better balance of supply and demand; these signs included a lower rate of job turnover and a moderation in nominal wage growth. Participants anticipated that imbalances in the labor market would gradually diminish and that the unemployment rate would likely rise somewhat from its current very low level, while vacancies would likely fall. Participants agreed that inflation was unacceptably high and was well above the Committee's longer-run goal of 2 percent. Some participants noted that the burden of high inflation was falling disproportionally on low-income households, for whom necessities like food, energy, and shelter make up a larger share of expenditures. Many participants observed that price pressures had increased in the services sector and that, historically, price pressures in this sector had been more persistent than those in the goods sector. Some participants noted that the recent high pace of nominal wage growth, taken together with the recent low pace of productivity growth, would, if sustained, be inconsistent with achievement of the 2 percent inflation objective. Several participants, however, commented on signs of a moderation in nominal wage growth. Participants agreed that near-term inflation pressures were high, but some noted that lower commodity prices or the expected reduced pressure on goods prices due to an easing of supply constraints should contribute to lower inflation in the medium term. Several participants remarked that rent increases on new leases had been slowing in recent months, but participants also noted that it would take some time for this development to show up in PCE inflation. Several participants summarized reports provided by business contacts about their firms' ability to pass on higher input costs to their customers. These reports suggested that some firms continued to have solid pricing power, while in other cases cost pass-through had become more difficult. Participants remarked that, overall, measures of medium- and longer-term inflation expectations obtained from surveys of households and businesses as well as from financial markets quotes appeared to have remained well anchored. A couple of participants observed that longer-term inflation expectations were stable even as measures of near-term inflation expectations responded to realized inflation in line with historical patterns. Participants noted that longer-term inflation expectations were an important influence on inflation's behavior and stressed that the Committee's ongoing monetary policy tightening would be essential for ensuring that these expectations remained well anchored. Several participants expressed the concern that the longer inflation remained well above the 2 percent goal, the greater the risk that longer-term inflation expectations could become unanchored. Such a development, if it materialized, would make it much more costly to bring inflation down and to achieve the Committee's statutory objectives of maximum employment and price stability. A couple of participants discussed the high dispersion of longer-term inflation expectations across respondents in various surveys: These participants noted that the higher dispersion may signal increased uncertainty about the inflation outlook and was a reason not to be complacent about longer-term inflation expectations remaining well anchored. Participants discussed the length of the lags in the response of the economy to monetary policy actions, taking into account historical experience and the various estimates of timing relationships provided in economic research, as well as the high degree of uncertainty involved in applying the evidence on lags to the current situation. They noted that monetary policy tightening typically produced rapid effects on financial conditions but that the full effects of changes in financial conditions on aggregate spending and the labor market, and then on inflation, likely took longer to materialize. With regard to current circumstances, many participants remarked that, even though the tightening of monetary policy had clearly influenced financial conditions and had had notable effects in some interest rate-sensitive sectors, the timing of the effects on overall economic activity, the labor market, and inflation was still quite uncertain, with the full extent of the effects yet to be realized. Several participants observed that, because of the difficulties in isolating the effects of monetary policy, changes in economic structure, or increasing transparency over time regarding monetary policy decisions, the historical record did not provide definitive evidence on the length of these lags. In addition, some participants noted that the post-pandemic dynamics of the economy may differ from those prevailing prior to the pandemic. Participants generally noted that the uncertainty associated with their economic outlooks was high and that the risks to the inflation outlook remained tilted to the upside. Participants observed that recent inflation had been higher and more persistent than anticipated. Some participants noted the risk that energy prices could rise sharply again amid geopolitical tensions. A few participants commented that the ongoing tightness in the labor market could lead to an emergence of a wageâprice spiral, even though one had not yet developed. A number of participants judged that the risks regarding the outlook for economic activity were weighted to the downside, with various global headwinds being prominently cited. These global headwinds included a slowdown in economic activity occurring in China and the ongoing international economic implications of Russia's war against Ukraine. Participants observed that, because of high inflation pressures prevailing globally, monetary policy tightening was under way in many other economiesâa development likely to affect foreign economic activity and carrying the potential for spillovers to the U.S. economy. In their discussion of issues related to financial stability, participants noted the importance of orderly functioning of the market for U.S. Treasury securities for the transmission of monetary policy, for meeting the financing needs of the federal government, and for the operation of the global financial system. Participants observed that, despite elevated interest rate volatility and indications of strained liquidity conditions, the functioning of the Treasury securities market had been orderly. Noting that the value of resilience of the market for Treasury securities was underlined by recent gilt market disruptions in the United Kingdom, a number of participants discussed a range of issues that could be considered by the appropriate authorities regarding market resilience, including potential interactions of capital and liquidity regulations with market activity, oversight of key market participants, clearing and settlement practices, and the role and structure of the Federal Reserve's standing facilities. A few participants noted the importance of being prepared to address disruptions in U.S. core market functioning in ways that would not affect the stance of monetary policy, especially during episodes of monetary policy tightening. Several participants noted the risks posed by nonbank financial institutions amid the rapid global tightening of monetary policy and the potential for hidden leverage in these institutions to amplify shocks. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that inflation remained well above the Committee's longer-run goal of 2 percent and the recent data on inflation provided very few signs that inflation pressures were abating. The economic expansion had slowed significantly from last year's rapid pace, and recent indicators pointed to modest growth in spending and production in the current quarter. Despite the slowdown in growth, the labor market remained extremely tight, and nominal wage growth remained elevated. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 75 basis points at this meeting and to continue the process of reducing the Federal Reserve's securities holdings, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. Participants observed that the policy rate hike at this meeting was another step toward making the Committee's monetary policy stance sufficiently restrictive to help ease supply and demand imbalances and to return inflation to 2 percent over time. In their discussion of the effects of monetary policy actions and communications to date, participants concurred that the Committee had taken forceful steps to moderate aggregate demand in order to bring it into better alignment with aggregate supply. Financial conditions had tightened significantly in response to the Committee's policy actions, and their effects were clearly evident in the most interest rate-sensitive sectors of the economy, including residential investment and some components of business investment. Several participants commented that monetary policy actions and communications had helped keep longer-term inflation expectations well anchoredâa situation that would help facilitate the return of inflation to the Committee's longer-run goal of 2 percent. Nevertheless, with realized inflation well above that goal and the labor market still very tight, participants agreed that ongoing increases in the target range for the federal funds rate would be appropriate and would help keep longer-term inflation expectations well anchored. Participants noted that, with regard to both real economic activity and inflation, it would take time for the full effects of monetary restraint to be realized and that these lags complicated an assessment of the effects of monetary policy. In discussing potential policy actions at upcoming meetings, participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective, and they continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate in order to attain a sufficiently restrictive stance of policy to bring inflation down over time. Many participants commented that there was significant uncertainty about the ultimate level of the federal funds rate needed to achieve the Committee's goals and that their assessment of that level would depend, in part, on incoming data. Even so, various participants noted that, with inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting, their assessment of the ultimate level of the federal funds rate that would be necessary to achieve the Committee's goals was somewhat higher than they had previously expected. Participants mentioned a number of considerations that would likely influence the pace of future increases in the target range for the federal funds rate. These considerations included the cumulative tightening of monetary policy to date, the lags between monetary policy actions and the behavior of economic activity and inflation, and economic and financial developments. A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee's goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate. In addition, a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate. A slower pace in these circumstances would better allow the Committee to assess progress toward its goals of maximum employment and price stability. The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important. A few participants commented that slowing the pace of increase could reduce the risk of instability in the financial system. A few other participants noted that, before slowing the pace of policy rate increases, it could be advantageous to wait until the stance of policy was more clearly in restrictive territory and there were more concrete signs that inflation pressures were receding significantly. With monetary policy approaching a sufficiently restrictive stance, participants emphasized that the level to which the Committee ultimately raised the target range for the federal funds rate, and the evolution of the policy stance thereafter, had become more important considerations for achieving the Committee's goals than the pace of further increases in the target range. Participants agreed that communicating this distinction to the public was important in order to reinforce the Committee's strong commitment to returning inflation to the 2 percent objective. Participants discussed a number of risk-management considerations related to the conduct of monetary policy. In light of the continuing broad-based and unacceptably high level of inflation and upside risks to the inflation outlook, participants remarked that purposefully moving to a more restrictive policy stance was consistent with risk-management considerations. Some participants observed that there had been an increase in the risk that the cumulative policy restraint would exceed what was required to bring inflation back to 2 percent. Several participants commented that continued rapid policy tightening increased the risk of instability or dislocations in the financial system. There was wide agreement that heightened uncertainty regarding the outlooks for both inflation and real activity underscored the importance of taking into account the cumulative tightening of monetary policy, the lags with which monetary policy affected economic activity and inflation, and economic and financial developments. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that recent indicators had pointed to modest growth in spending and production. Members also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Members agreed that inflation had remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Members observed that Russia's war against Ukraine was causing tremendous human and economic hardship. They also agreed that the war and related events were creating additional upward pressure on inflation and were weighing on global economic activity. Members concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 3-3/4 to 4 percent. Members anticipated that ongoing increases in the target range would be appropriate in order to attain a stance of monetary policy sufficiently restrictive to return inflation to 2 percent over time. Members agreed to add language to this effect in the postmeeting statement, on the grounds that this would underscore the Committee's view that a sufficiently restrictive stance of monetary policy was needed for achieving its dual-mandate goals. Members agreed that, in determining the pace of future increases in the target range, they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affected economic activity and inflation, and economic and financial developments. Members agreed to add language to this effect in the postmeeting statement in order to convey explicitly the range of factors that they would consider in determining future monetary policy actions. In addition, members agreed that they would continue reducing the Federal Reserve's holdings of Treasury securities, agency debt, and agency MBS, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. All members affirmed that they were strongly committed to returning inflation to its 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members agreed that their assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective November 3, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3-3/4 to 4 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 4 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 3.8 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lael Brainard, James Bullard, Susan M. Collins, Lisa D. Cook, Esther L. George, Philip N. Jefferson, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 3.9 percent, effective November 3, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 3/4 percentage point increase in the primary credit rate to 4 percent, effective November 3, 2022. 4 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 13â14, 2022. The meeting adjourned at 10:30 a.m. on November 2, 2022. Notation Vote By notation vote completed on October 11, 2022, the Committee unanimously approved the minutes of the Committee meeting held on September 20â21, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended opening remarks for Tuesday session only. Return to text 4. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco. This vote also encompassed approval by the Board of Governors of the establishment of a 4 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of November 3, 2022, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of New York, Philadelphia, and Kansas City were informed of the Board's approval of their establishment of a primary credit rate of 4 percent, effective November 3, 2022.) Return to text

Minutes of the Federal Open Market Committee December 13â14, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, December 13, 2022, at 10:00 a.m. and continued on Wednesday, December 14, 2022, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard James Bullard Susan M. Collins Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Charles L. Evans, Patrick Harker, Neel Kashkari, Lorie K. Logan, and Helen E. Mucciolo, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Carlos Garriga, Joseph W. Gruber, and William Wascher, Associate Economists Patricia Zobel, Manager pro tem, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Roc Armenter, Vice President, Federal Reserve Bank of Philadelphia Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, Section Chief, Office of the Secretary, Board Daniel O. Beltran, Deputy Associate Director, Division of International Finance, Board Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Todd E. Clark, Senior Vice President, Federal Reserve Bank of Cleveland Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Navtej S. Dhillon, Special Adviser to the Board, Division of Board Members, Board Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 2 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Joshua Gallin, Senior Special Adviser to the Chair, Division of Board Members, Board Jonathan E. Goldberg, Principal Economist, Division of Monetary Affairs, Board Erik A. Heitfield, Deputy Associate Director, Division of Research and Statistics, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Benjamin K. Johannsen, Section Chief, Division of Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, Senior Adviser, Division of Monetary Affairs, Board Elizabeth K. Kiser, Associate Director, Division of Research and Statistics, Board Sylvain Leduc, Executive Vice President, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Eric LeSueur, 2 Policy and Market Monitoring Advisor, Federal Reserve Bank of New York Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board Raven Molloy, Deputy Associate Director, Division of Research and Statistics, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Giovanni Nicolò, Senior Economist, Division of Monetary Affairs, Board Anna Nordstrom, Capital Markets Trading Head, Federal Reserve Bank of New York Marcelo Ochoa, 3 Principal Economist, Division of Monetary Affairs, Board Giovanni Olivei, Senior Vice President, Federal Reserve Bank of Boston Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Linda Robertson, Assistant to the Board, Division of Board Members, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board Anthony Sarver, Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board John W. Schindler, 4 Senior Associate Director, Division of Financial Stability, Board Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Seth Searls, 2 Policy and Market Monitoring Associate Director, Federal Reserve Bank of New York Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Selection of Committee Officer By unanimous vote, the Committee selected Richard Ostrander to serve as deputy general counsel, effective December 13, 2022, until the first regularly scheduled meeting of the Committee in 2023. Developments in Financial Markets and Open Market Operations The manager pro tem turned first to a discussion of developments in financial markets. Following several months of tightening, financial conditions eased over the period as investor concerns about global risks edged lower and incoming data showed nascent signs of a moderation in inflationary pressures. Central bank communications signaling a slower pace of policy rate increases appeared to contribute to improved sentiment. Measures of implied volatility across financial markets declined somewhat from the elevated levels observed in October. Consistent with the decline in volatility, model-based measures suggested that a drop in term premiums accounted for much of the decline in Treasury yields over the period. Equity markets moved higher. However, equity market contacts noted risks to growth ahead, and earnings expectations for coming quarters had been marked down. In foreign exchange markets, moderating concerns about the potential for highly elevated U.S. interest rates spurred a depreciation in the foreign exchange value of the dollar. In other market developments, the manager pro tem noted the failure of a prominent crypto-asset exchange. While the spillovers from this situation had been significant among other crypto lenders and exchanges, the collapse was not seen as posing broader market risks to the financial system. Regarding the outlook for inflation in the United States, inflation compensation implied by Treasury Inflation Protected Securities declined over the period, responding to lower-than-expected consumer price index (CPI) data and a sizable drop in oil prices. However, the Desk survey-based measures of inflation expectations were little changed from the prior survey, suggesting that falling inflation risk premiums may have contributed to the moves. Both market- and survey-based measures continued to point to expectations for a moderation of inflation over the coming year. Regarding the outlook for monetary policy, both market- and Desk survey-based measures indicated expectations for the Committee to maintain elevated policy rates through 2023. In the December survey, the median respondent's modal expectation for the path of the federal funds rate in 2023 shifted higher by 25 basis points relative to the November survey. The survey-based estimate of the expected policy path in 2024 continued to suggest a decline in the target range for the federal funds rate over 2024, little changed from the path anticipated in the November survey. In contrast, the market-implied path of the federal funds rate in 2024 shifted down by as much as 3/4 percentage point over the period, likely reflecting declining risk premiums. The manager pro tem turned next to a discussion of operations and money markets and assessed that balance sheet runoff was proceeding smoothly. Repurchase agreement (repo) rates firmed modestly relative to the overnight reverse repurchase agreement (ON RRP) facility rate over the period with balance sheet reduction reportedly contributing, in part, to an increase in the demand for financing of Treasury securities. ON RRP balances declined, on net, as money market funds shifted investments out of the ON RRP facility, reportedly in favor of higher rates available in repo markets. In recent months, banks continued to increase their use of wholesale funding. In addition, survey information suggested that banks expected to move deposit rates modestly higher relative to the target range in coming months. Over time, greater competition among banks for funding could contribute to drawdowns in the ON RRP facility. Staff indicated that they would continue to monitor money market conditions closely as balance sheet reduction proceeds. Looking ahead to year end, market participants anticipated limited pressures. The manager pro tem noted that if transitory pressures emerged in money markets, the Federal Reserve's backstop facilities are available to support effective policy implementation and smooth market functioning. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the December 13â14 meeting suggested that U.S. real gross domestic product (GDP) was increasing at a modest pace in the fourth quarter of 2022 after expanding strongly in the third quarter. Labor market conditions eased somewhat over October and November but remained quite tight. Consumer price inflationâas measured by the 12-month percent change in the price index for personal consumption expenditures (PCE)âstepped down in October but continued to be elevated. Total nonfarm payroll employment posted solid gains in October and November that were slower than the average monthly pace seen over the earlier part of the year. The unemployment rate moved up 0.2 percentage point to 3.7 percent in October and remained at that rate in November. On balance, the unemployment rate for African Americans edged down over those two months, while the unemployment rate for Hispanics increased slightly; the unemployment rates for both groups remained above the national measure. Both the labor force participation rate and the employment-to-population ratio declined a little over the past two months. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved back down in October but remained high. Nominal wage growth continued to be elevated and remained above the pace judged to be consistent with the FOMC's 2 percent inflation objective. Average hourly earnings rose 5.1 percent over the 12 months ending in November, close to the pace recorded in the employment cost index of hourly compensation in the private sector over the 12 months ending in September. Compensation per hour (CPH) in the business sector rose 4.0 percent over the four quarters ending in the third quarter, but the reported increase likely understated the true pace of increase in CPH, as the lower second-quarter employment data from the Quarterly Census of Employment and Wages had not yet been incorporated in the CPH measure. Consumer price inflation remained elevated but had eased in recent months. Total PCE price inflation was 6.0 percent over the 12 months ending in October, 0.3 percentage point below the September figure. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 5.0 percent over the 12 months ending in October, down 0.2 percentage point from its September reading. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained at 4.7 percent in October. In November, the 12-month change in the CPI stepped down to 7.1 percent and core CPI inflation dropped to 6.0 percent. The CPI, along with data from the producer price index, pointed to a further slowing in PCE price inflation in November. A preliminary estimate of the staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, edged down in the fourth quarter but continued to be above pre-pandemic levels. After expanding at a moderate pace in the third quarter, real PCE growth appeared to have picked up in the fourth quarter. In contrast, residential investment looked to be contracting sharply further, and growth in business fixed investment seemed to be slowing markedly, with tepid gains in equipment and intangibles spending and continued declines in nonresidential structures investment. Manufacturing production increased only modestly in October, and the available data pointed to a decline in November. A decrease in factory output would be consistent with recent readings from national and regional manufacturing surveys, which showed declining new orders and a drawdown in order backlogs. After narrowing in the third quarter, the nominal U.S. international trade deficit widened in October. Real goods exports fell, led by declines in exports of industrial supplies and consumer goods. Real goods imports rose, driven by increases in imports of industrial supplies, which more than offset declines in imports of capital goods and consumer goods. Exports of services rose, in part as travel exports continued to recover, while imports of services were little changed. Foreign economic activity grew at a moderate pace in the third quarter, but more recent data pointed to weakening growth, weighed down by the economic fallout of Russia's war against Ukraine and a COVID-19-related slowdown in China. High inflation continued to contribute to a decline in real disposable incomes, which, together with disruptions to energy supplies, depressed economic activity, especially in Europe. In China, authorities began to ease social restrictions even as COVID cases surged, raising the prospect of significant disruptions to economic activity in the near term, but also a faster reopening. Weaker global demand and high interest rates also weighed on activity in emerging market economies. Despite tentative signs of easing in foreign headline inflation, core inflationary pressures remained elevated in many countries. In response to high inflation, many central banks further tightened monetary policy, albeit at a slower pace in some cases. Staff Review of the Financial Situation Over the intermeeting period, Treasury yields and measures of inflation compensation declined, on net, and the implied path of the federal funds rate in 2023 ended modestly lower. Stock market indexes rose, on balance, likely reflecting reduced concerns about the inflation outlook, and market volatility declined notably. Borrowing costs declined, on net, over the intermeeting period. Credit flows moderated a bit in recent months, and the credit quality of businesses and most households remained solid. The expected path of the federal funds rate implied by a straight read of financial market quotes ended the intermeeting period lower, largely reflecting data releases that pointed to a larger-than-expected moderation in inflation. Medium-to-longer-term nominal Treasury yields declined substantially over the intermeeting period, driven primarily by lower-than-expected inflation data releases, which appeared to prompt a substantial reduction in investors' concerns about the possibility that inflation would remain high for a long period. In line with those developments, inflation compensation measures based on inflation swaps declined notably, especially for shorter maturities. Broad stock price indexes increased, likely reflecting reduced concerns about the inflation outlook and the associated implications for the future path of policy. On net, the one-month option-implied volatility on the S&P 500âthe VIXâdecreased notably and was around the middle of its range since mid-2020. In line with reduced investor concerns about the inflation outlook, spreads of interest rates on corporate debt, mortgage-backed securities, and municipal bonds to comparable-duration Treasury yields all narrowed over the intermeeting period. Conditions in short-term funding markets remained stable over the intermeeting period, with the November increase in the target range for the federal funds rate and the associated increases in the Federal Reserve's administered rates passing through quickly to overnight money market rates. In secured markets, repo rates were below the ON RRP offering rate less frequently than in the previous intermeeting period. Daily take-up in the ON RRP facility declined modestly, consistent with the recent firming in overnight repo rates. Net yields on money market funds rose further over the intermeeting period, mostly passing through the increase in administered rates, while bank deposit rates increased only slightly in October and November. Foreign financial conditions broadly eased over the intermeeting period, largely driven by lower-than-expected U.S. inflation data. The foreign exchange value of the dollar depreciated against most foreign currencies, particularly against those of advanced foreign economies, in part reflecting a narrowing of near-term yield differentials between the United States and other advanced economies. Investors reacted positively to news of an easing of COVID restrictions in China, which drove risky asset prices significantly higher despite near-term challenges associated with the health policy shift. Emerging market fund outflows moderated and turned to inflows later in the intermeeting period. Option-implied volatility measures for exchange rates and benchmark foreign yields declined but remained elevated by historical norms amid a high degree of uncertainty around global inflation and the prospects for a reopening of the Chinese economy. In domestic credit markets, changes in borrowing costs were mixed during the intermeeting period but remained above levels observed at the end of the previous tightening cycle. Yields for corporate bonds declined, while borrowing costs for leveraged loans remained at an elevated level. Bank interest rates for commercial and industrial (C&I) loans continued to trend up in the third quarter. Municipal bond yields also decreased across rating categories. Residential mortgage rates fell, on net, after the November FOMC meeting. In contrast, interest rates in credit card offers continued to increase, reflecting the higher prime rate that was quickly passed through. Interest rates on auto loans also rose steadily through November. Credit continued to be generally available to businesses and households, but high borrowing costs appeared to weigh on financing volumes in many markets. Issuance of investment-grade corporate bonds rebounded somewhat in late October and November from earlier subdued levels, while speculative-grade issuance remained soft. New launches of leveraged loans picked up in November, particularly for higher-rated firms. Business loan originations continued to expand in October and November but at a slower pace than observed in previous months. C&I loans continued to grow in October and November but decelerated relative to the third-quarter pace, moderating the robust rate of growth observed earlier this year. Nonetheless, the volume of C&I lending remained solid overall. Commercial real estate (CRE) loans outstanding at commercial banks continued to increase in October and November, but the recent pace was somewhat lower than in previous months. In addition, banks increased CRE originations to multifamily and industrial properties relative to office properties, reflecting caution in the context of rising office vacancies. Moreover, commercial mortgage-backed securities (CMBS) issuance softened somewhat in October amid elevated financing costs and tighter underwriting standards. Credit availability to small businesses appeared to have tightened further this fall, with the share of small firms reporting that it was more difficult to obtain credit than three months earlier trending up through November. Credit was readily available in the residential mortgage market for high-credit-score borrowers who met standard conforming loan criteria. Credit availability for households with lower credit scores was considerably tighter at levels comparable with what prevailed before the pandemic. The number of home purchases and refinance mortgage rate locks edged lower at subdued levels despite recent declines in mortgage interest rates. In contrast, home equity lines of credit (HELOCs) grew notably in recent months, on net, potentially reflecting homeowners using HELOCs as a preferred way of extracting home equity in the presence of high mortgage rates. Consumer credit remained available for most consumers through September, with auto loans and credit card debt growing at a robust pace. Bank credit data also indicate that the expansion in credit card balances continued in October before slowing in early November. The credit quality of nonfinancial corporations remained solid. The volume of speculative-grade corporate bond downgrades slightly exceeded upgrades in October and November, while for investment-grade corporate bonds, the volume of upgrades turned positive, on net, in November. Leveraged loans experienced net downgrades in October, but the pace of net downgrades slowed substantially in recent weeks. Default rates on corporate bonds and leveraged loans remained at very low levels. However, measures of expected default probabilities for corporate bonds and leveraged loans had increased from their levels at the beginning of the year in recent months. Overall, the credit quality of municipalities remained robust amid strong revenues at state and local governments. The credit quality of businesses that borrow from banks remained sound on balance. Delinquencies on C&I loans stayed flat, and those on small businesses loans continued to edge up, but delinquencies remained low relative to historical levels. In addition, the credit quality of non-agency CMBS loan borrowers deteriorated slightly, with average delinquency rates ticking up in September and October, driven by the office and retail sectors. The credit quality of most households remained solid overall. Delinquencies on conventional mortgages continued to trend down through October, while those on Federal Housing Administration mortgages ticked up a bit from low levels. In contrast, delinquency rates for credit cards and auto loans continued to rise over the third quarter. While delinquency rates on credit cards remained low relative to their historical range, those on auto loans surpassed their pre-pandemic peak. Staff Economic Outlook The forecast for U.S. economic activity prepared by the staff for the December FOMC meeting was not as weak as the November projection. Recent data suggested that real GDP growth in the second half of 2022 was stronger than previously expected, but economic growth was still forecast to slow markedly in 2023 from its second-half pace. Broad financial conditions were projected to be somewhat less restrictive than previously assumed, as the effects of a higher path for equity values and a lower path for the dollar more than offset a higher medium-term trajectory for interest rates. Nevertheless, the forecast for U.S. real GDP growth through 2025 remained subdued. The staff slightly lowered its outlook for potential output, reflecting a lower expected trend in labor force participation. Moreover, the staff assumed a slower pace of decline in the natural rate of unemployment over the near term in response to recent estimates suggesting that job-matching efficiency was not improving as fast as previously anticipated. With all these changes, output was expected to move below the staff's estimate of potential near the end of 2024âa year later than in the previous forecastâand to remain below potential in 2025. Likewise, the unemployment rate was expected to move above the staff's estimate of its natural rate near the end of 2024 and remain above it in 2025. On a four-quarter change basis, total PCE price inflation was expected to be 5.5 percent in 2022, while core inflation was expected to be 4.7 percent, both lower than in the November projection. With the effects of supplyâdemand imbalances in goods markets expected to unwind further and labor and product markets projected to become less tight, the staff continued to forecast that inflation would decline markedly over the next two years. Core goods inflation was anticipated to slow further, housing services inflation was expected to peak in 2023 and then move down, while core non-housing services inflation was forecast to move down as wage growth eased. In 2025, both total and core PCE price inflation were expected to be near 2 percent. With inflation still elevated, the staff continued to view the risks to the inflation projection as skewed to the upside. Moreover, the sluggish growth in real private domestic spending expected over the next year, a subdued global economic outlook, and persistently tight financial conditions were seen as tilting the risks to the downside around the baseline projection for real economic activity, and the staff still viewed the possibility of a recession sometime over the next year as a plausible alternative to the baseline. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2025 and over the longer run, based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that recent indicators pointed to modest growth of spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Participants recognized that Russia's war against Ukraine was causing tremendous human and economic hardship. The war and related events were contributing to upward pressure on inflation and were weighing on global economic activity. Against this background, participants continued to be highly attentive to inflation risks. Participants observed that the growth of economic activity had slowed significantly in 2022 from the previous year's robust pace, partly in response to the Committee's policy actions. The effects of those actions were especially notable in interest-sensitive sectors, particularly housing. Participants remarked that, although real GDP appeared to have rebounded moderately in the second half of 2022 after declining somewhat in the first half, economic activity appeared likely to expand in 2023 at a pace well below its trend growth rate. With inflation remaining unacceptably high, participants expected that a sustained period of below-trend real GDP growth would be needed to bring aggregate supply and aggregate demand into better balance and thereby reduce inflationary pressures. In their discussion of the household sector, participants noted that growth in consumer spending in September and October had been stronger than they had previously expected, likely supported by a strong labor market and households running down excess savings accumulated during the pandemic. A couple of participants remarked that excess savings likely would continue to support consumption spending for a while. A couple of other participants, however, commented that excess savings, particularly among low-income households, appeared to be lower and declining more rapidly than previously thought or that the savings, the majority of which appeared to be held by higher-income households, might continue to be largely unspent. Several participants remarked that budgets were stretched for low-to-moderate-income households and that many consumers were shifting their spending to less expensive alternatives. They also observed that many households were increasingly using credit to finance spending. Overall, participants assessed that there was considerable uncertainty around the consumer spending outlook. Participants commented that higher mortgage interest rates had notably restrained housing activity and that they expected housing activity to remain weak. A couple of participants remarked on anecdotes or concerns from builder contacts about contract cancellations by purchasers no longer able to qualify for loans at higher interest rates. With regard to the business sector, participants noted that growth in investment spending appeared modest and was being restrained by high borrowing costs and an outlook for slow growth of final demand, although views on investment prospects varied across businesses and Districts. Based on discussions with District contacts as well as a survey of firms' chief financial officers, some participants commented that while businesses were generally optimistic about their own prospects, they expressed increasing concern about the general economic outlook for 2023. Participants noted signs of continued easing in supply bottlenecks, with a couple citing District contacts' reports of declines in shipping costs and delivery times. Even so, participants remarked that the improvements in supply chains had not been uniform and supply shortages remained for some types of goods. Participants also discussed the developments in energy and agricultural sectors. Several participants commented that they saw diminished risks of severe disruption from the European Union's embargo and the Group of Seven's price cap on Russian oil exports. A couple of participants noted that high costs for inputs like diesel, feed, and fertilizer were creating challenges for the agricultural sector. Participants observed that the labor market had remained very tight, with the unemployment rate near a historically low level, robust payroll gains, a high level of job vacancies, and elevated nominal wage growth. Several participants commented that there were tentative signs of labor market imbalances improving, including declines in job openings and quits over the second half of 2022 as well as reports from District contacts that they were seeing more qualified job applicants for open positions than earlier in the year. Some participants pointed out that payroll gains had remained robust even as they slowed in recent months. Nevertheless, they noted that some other measures of employmentâsuch as those based on the Bureau of Labor Statistics' household survey and the Quarterly Census of Employment and Wagesâsuggested that job growth in 2022 may have been weaker than indicated by payroll employment. Participants generally concluded that there remained a large imbalance between labor supply and labor demand, as indicated by the still-large number of job openings and elevated nominal wage growth. Participants commented that labor demand had remained strong to date despite the slowdown in economic growth, with a few remarking that some business contacts reported that they would be keen to retain workers even in the face of slowing demand for output because of their recent experiences of labor shortages and hiring challenges. With the labor force participation rate little changed since the beginning of 2022, some participants commented that labor supply appeared to be constrained by structural factors such as early retirements, reduced availability or increased cost of childcare, more costly transportation, and reduced immigration. Under an appropriately restrictive path of monetary policy, participants expected labor market supply and demand to come into better balance over time, easing upward pressures on nominal wages and prices. In the context of achieving the Committee's broad-based and inclusive maximum-employment goal, a number of participants commented that as the labor market moved into better balance, the unemployment rate for some demographic groupsâparticularly African Americans and Hispanicsâwould likely increase by more than the national average. With inflation still well above the Committee's longer-run goal of 2 percent, participants agreed that inflation was unacceptably high. Participants concurred that the inflation data received for October and November showed welcome reductions in the monthly pace of price increases, but they stressed that it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path. Participants noted that core goods prices declined in the October and November CPI data, consistent with easing supply bottlenecks. Some participants also noted that, by some measures, firms' markups were still elevated and that a continued subdued expansion in aggregate demand would likely be needed to reduce remaining upward pressure on inflation. Regarding housing services inflation, many participants observed that measures of rent based on new leases were indicating a deceleration, which would be reflected in the measures of shelter inflation with some lag. Participants noted that, in the latest inflation data, the pace of increase for prices of core services excluding shelterâwhich represents the largest component of core PCE price inflationâwas high. They also remarked that this component of inflation has tended to be closely linked to nominal wage growth and therefore would likely remain persistently elevated if the labor market remained very tight. Consequently, while there were few signs of adverse wage-price dynamics at present, they assessed that bringing down this component of inflation to mandate-consistent levels would require some softening in the growth of labor demand to bring the labor market back into better balance. Participants observed that measures from surveys of households and businesses as well as from financial markets generally indicated that longer-term inflation expectations remained well anchored, while short-term inflation expectations had come down. However, participants stressed that the Committee's ongoing monetary policy tightening to achieve a stance that will be sufficiently restrictive to return inflation to 2 percent is essential for ensuring that longer-term expectations remain well anchored. Several participants commented that the longer inflation remained well above the 2 percent goal, the greater the risk that longer-term inflation expectations could become unanchored. Such a development, if it materialized, would make it much more costly to bring inflation down to achieve the Committee's statutory objectives of maximum employment and price stability. Participants noted that since the November meeting, financial conditions had eased, with the market-implied path for the federal funds rate beyond 2023 and longer-term yields coming down noticeably. A few participants remarked that the current configuration of nominal yields, with longer-term yields lower than shorter-term yields, had historically preceded recessions and hence bore watching. However, a couple of them also noted that the current inversion of the yield curve could reflect, in part, that investors expect the nominal policy rate to decline because of a fall in inflation over time. Participants generally noted that the uncertainty associated with their economic outlooks was high and that the risks to the inflation outlook remained tilted to the upside. Participants cited the possibility that price pressures could prove to be more persistent than anticipated, due to, for example, the labor market staying tight for longer than anticipated. Participants saw a number of uncertainties surrounding the outlook for inflation stemming from factors abroad, such as China's relaxation of its zero-COVID policies, Russia's continuing war against Ukraine, and effects of synchronous policy firming by major central banks. A number of participants judged that the risks to the outlook for economic activity were weighted to the downside. They noted that sources of such risks included the potential for more persistent inflation inducing more restrictive policy responses, the prospect of unexpected negative shocks tipping the economy into a recession in an environment of subdued growth, and the possibility of households' and businesses' concerns about the outlook restraining their spending sufficiently to reduce aggregate output. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that the Committee had made significant progress over the past year in moving toward a sufficiently restrictive stance of monetary policy. Even so, participants agreed that inflation remained well above the Committee's longer-run goal of 2 percent, while the labor market remained very tight, contributing to upward pressures on wages and prices. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 50 basis points at this meeting and to continue the process of reducing the Federal Reserve's securities holdings, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that the Committee issued in May. Participants observed that a slowing in the pace of rate increases at this meeting would better allow the Committee to assess the economy's progress toward the Committee's goals of maximum employment and price stability, as monetary policy approached a stance that was sufficiently restrictive to achieve these goals. In discussing the policy outlook, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. In determining the pace of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. With inflation staying persistently above the Committee's 2 percent goal and the labor market remaining very tight, all participants had raised their assessment of the appropriate path of the federal funds rate relative to their assessment at the time of the September meeting. No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy. In light of the heightened uncertainty regarding the outlooks for both inflation and real economic activity, most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance. Participants generally noted that the Committee's future decisions regarding policy would continue to be informed by the incoming data and their implications for the outlook for economic activity and inflation, and that the Committee would continue to make decisions meeting by meeting. Participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee's resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path. Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee's reaction function, would complicate the Committee's effort to restore price stability. Several participants commented that the medians of participants' assessments for the appropriate path of the federal funds rate in the Summary of Economic Projections, which tracked notably above market-based measures of policy rate expectations, underscored the Committee's strong commitment to returning inflation to its 2 percent goal. Participants discussed a number of risk-management considerations related to the conduct of monetary policy. Many participants highlighted that the Committee needed to continue to balance two risks. One risk was that an insufficiently restrictive monetary policy could cause inflation to remain above the Committee's target for longer than anticipated, leading to unanchored inflation expectations and eroding the purchasing power of households, especially for those already facing difficulty making ends meet. The other risk was that the lagged cumulative effect of policy tightening could end up being more restrictive than is necessary to bring down inflation to 2 percent and lead to an unnecessary reduction in economic activity, potentially placing the largest burdens on the most vulnerable groups of the population. Participants generally indicated that upside risks to the inflation outlook remained a key factor shaping the outlook for policy. A couple of participants noted that risks to the inflation outlook were becoming more balanced. Participants generally observed that maintaining a restrictive policy stance for a sustained period until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective. Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that recent indicators pointed to modest growth in spending and production. Members also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Members agreed that inflation had remained elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Members observed that Russia's war against Ukraine was causing tremendous human and economic hardship. They also agreed that the war and related events were contributing to upward pressure on inflation and were weighing on global economic activity. Members concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. Members anticipated that ongoing increases in the target range would be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Members agreed that, in determining the pace of future increases in the target range, they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that they would continue reducing the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. All members affirmed that the Committee is strongly committed to returning inflation to its 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members agreed that their assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective December 15, 2022, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/4 to 4-1/2 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 4.5 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 4.3 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lael Brainard, James Bullard, Susan M. Collins, Lisa D. Cook, Esther L. George, Philip N. Jefferson, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 4.4 percent, effective December 15, 2022. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/2 percentage point increase in the primary credit rate to 4.5 percent, effective December 15, 2022. 5 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 31âFebruary 1, 2023. The meeting adjourned at 10:35 a.m. on December 14, 2022. Notation Vote By notation vote completed on November 22, 2022, the Committee unanimously approved the minutes of the Committee meeting held on November 1â2, 2022. _______________________ James A. Clouse Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended opening remarks for Tuesday's session only. Return to text 5. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Return to text

Minutes of the Federal Open Market Committee January 31âFebruary 1, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, January 31, 2023, at 10:00 a.m. and continued on Wednesday, February 1, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, and Helen E. Mucciolo, Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Roc Armenter, James A. Clouse, Brian M. Doyle, Eric M. Engen, Anna Paulson, Andrea Raffo, and William Wascher, Associate Economists Patricia Zobel, Manager pro tem, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Isaiah C. Ahn, Information Management Analyst, Division of Monetary Affairs, Board Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, Section Chief, Office of the Secretary, Board Travis J. Berge, Principal Economist, Division of Research and Statistics, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Isabel Cairó, Principal Economist, Division of Monetary Affairs, Board Prabal Chakrabarti, Executive Vice President, Federal Reserve Bank of Boston Kathryn B. Chen, Director of Cross Portfolio Policy & Analysis, Federal Reserve Bank of New York Laura Choi, Senior Vice President, Federal Reserve Bank of San Francisco Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Marnie Gillis DeBoer, Senior Associate Director, Division of Monetary Affairs, Board Navtej S. Dhillon, Special Adviser to the Board, Division of Board Members, Board Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Charles A. Fleischman, Adviser, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Christine Graham, Deputy Associate Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Anna Kovner, Director of Financial Stability Policy Research, Federal Reserve Bank of New York David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Karen Leone de Nie, Vice President, Reserve Bank of Atlanta Kurt F. Lewis, 2 Special Adviser to the Board, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Francesca Loria, Senior Economist, Division of Monetary Affairs, Board Andrew Meldrum, Assistant Director, Division of Monetary Affairs, Board Ann E. Misback, Secretary, Office of the Secretary, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Giovanni Olivei, Senior Vice President, Federal Reserve Bank of Boston Ander Perez-Orive, Principal Economist, Division of Monetary Affairs, Board Nellisha D. Ramdass, Deputy Director, Division of Monetary Affairs, Board Julie Ann Remache, Head of Cross Market & Portfolio Analysis, Federal Reserve Bank of New York Linda Robertson, Assistant to the Board, Division of Board Members, Board Zina Bushra Saijid, Senior Financial Analyst, Division of International Finance, Board Zack Saravay, Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Chiara Scotti, Deputy Associate Director, Division of Financial Stability, Board Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Ellis W. Tallman, Executive Vice President, Federal Reserve Bank of Cleveland Manjola Tase, Principal Economist, Division of Monetary Affairs, Board Alene G. Tchourumoff, Senior Vice President, Federal Reserve Bank of Minneapolis Robert J. Tetlow, Senior Adviser, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Jonathan Willis, Vice President and Senior Economist, Federal Reserve Bank of Atlanta Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Annual Organizational Matters 3 The agenda for this meeting reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 31, 2023, were received and that these individuals executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Helen E. Mucciolo, Interim First Vice President of the Federal Reserve Bank of New York, as alternate Patrick Harker, President of the Federal Reserve Bank of Philadelphia, with Thomas I. Barkin, President of the Federal Reserve Bank of Richmond, as alternate Austan D. Goolsbee, President of the Federal Reserve Bank of Chicago, with Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, as alternate Lorie K. Logan, President of the Federal Reserve Bank of Dallas, with Raphael W. Bostic, President of the Federal Reserve Bank of Atlanta, as alternate Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, with Mary C. Daly, President of the Federal Reserve Bank of San Francisco, as alternate. By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2024: Jerome H. Powell Chair John C. Williams Vice Chair Joshua Gallin Secretary Matthew M. Luecke Deputy Secretary Brian J. Bonis Assistant Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Richard Ostrander Deputy General Counsel Charles C. Gray Assistant General Counsel Trevor A. Reeve Economist Stacey Tevlin Economist Beth Anne Wilson Economist Shaghil Ahmed Roc Armenter James A. Clouse Brian M. Doyle Eric M. Engen Beverly J. Hirtle Anna Paulson Andrea Raffo Chiara Scotti 4 William Wascher Associate Economists By unanimous vote, the Committee selected the Federal Reserve Bank of New York to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Patricia Zobel to serve at the pleasure of the Committee as deputy manager of the SOMA through February 20, 2023, and Roberto Perli and Julie Ann Remache to serve at the pleasure of the Committee as manager and deputy manager of the SOMA, respectively, effective February 21, 2023, on the understanding that these selections were subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: The Federal Reserve Bank of New York subsequently sent advice that the selections indicated previously were satisfactory. As part of the annual review of the Committee's governance documents for open market operations and foreign currency transactions, the Committee unanimously approved a new governance document titled "FOMC Authorizations and Continuing Directives for Open Market Operations." 3 The new document includes (1) authorizations previously in the Committee's Authorization for Foreign Currency Operations and Authorization for Domestic Open Market Operations; (2) a new "Continuing Directive for Domestic Open Market Operations," which combines direction to the Desk in the Standing Repurchase Agreement Facility and FIMA Repurchase Agreement Facility resolutions with direction to the Desk to continue to carry out other ongoing activities; (3) the Foreign Currency Directive; and (4) two other existing documents related to contingency arrangements. The new unified document improves clarity and transparency in the governance of Desk activities but does not make substantive changes to governance. The domestic policy directive released after each FOMC meeting will have modest conforming changes going forward. Ahead of the vote on policies relating to information security, external communications, and investment and trading, the Chair commented on the critical importance of maintaining the public's trust and confidence in the Federal Reserve as an institution and indicated that these policies were very important in that regard. All participants indicated support for, and agreed to abide by the requirements of, the Program for Security of FOMC Information (Program), the FOMC Policy on External Communications of Committee Participants, the FOMC Policy on External Communications of Federal Reserve System Staff, and the Investment and Trading Policy for FOMC Officials. The Committee voted unanimously to reaffirm all four policies without revision. 3 As part of the Committee's annual organizational review process, all participants indicated support for the Statement on Longer-Run Goals and Monetary Policy Strategy, and the Committee voted unanimously to reaffirm it without revision. 3 Developments in Financial Markets and Open Market Operations The manager pro tem turned first to a review of U.S. financial market developments. Market participants generally expected U.S. economic growth to moderate this year, al­though there was a wide dispersion in views about the extent of a potential slowdown. Market participants interpreted incoming data as pointing to moderating inflation risks. Against this backdrop, market participants judged that the FOMC would likely slow the pace of rate increases further at the current meeting, and respondents to the Desk's Survey of Primary Dealers and Survey of Market Participants widely expected the Committee to implement a 1/4 percentage point increase in the target range for the federal funds rate. Survey respondents assessed that uncertainty around the likely peak level of the policy rate narrowed relative to the comparable results from the December surveys and, on average, placed significant probability on a target federal funds rate range close to 5 percent. A significant share of survey respondents anticipated that the Committee would hold the policy rate stable for much of 2023. Moderating inflation in the United States and improving global growth prospects lifted market sentiment. While most Desk survey respondents expected subdued growth or a mild recession in 2023, market participants continued to see notable uncertainties ahead, including prospects for a deeper downturn or the potential for more persistent inflation. Regarding the international outlook, signs of a faster reopening in China and a less severe downturn in Europe eased concerns about global growth, contributing to a depreciation in the exchange value of the dollar and supporting optimism about emerging market economies. Narrowing interest rate differentials between the United States and other advanced foreign economies also contributed to dollar depreciation, as some foreign central bank communications suggested a need for further monetary policy tightening to address inflation pressures. In addition, the Bank of Japan unexpectedly widened its yield curve control band at its December meeting to address market functioning issues in the market for Japanese government bonds. Over the period, some other central banks communicated that they were at or near a point where it would be appropriate to pause policy rate increases and assess the effects of cumulative policy tightening. The manager pro tem turned next to a discussion of money markets and Federal Reserve operations. Money market rates were stable over the period, with the year-end passing smoothly. As expected, balances in the overnight reverse repurchase agreement (ON RRP) facility increased at year-end but quickly retraced. Market participants generally expected usage of the ON RRP facility to continue a downward trend in 2023, moderating the decline in reserve balances as the Federal Reserve's holdings of securities continue to run off. Should transitory pressures occur in money markets over the course of the year, the manager pro tem noted that the standing repurchase agreement (repo) facility and discount window would be available to help support effective monetary policy implementation. The manager noted that, over coming months, developments affecting the Treasury General Account (TGA) and Treasury financing could influence money market conditions. An increase in TGA balances associated with April individual tax receipts could result in a temporary decline in reserve balances. In subsequent months, uncertainties associated with the debt limit could also be important. In particular, the Treasury could increase bill issuance to rebuild TGA balances once the debt limit is lifted, reducing reserves and potentially lifting money market rates. The manager pro tem noted that in recent months, investors in the ON RRP facility had responded to small increases in money market rates by shifting balances into private investments, and that reductions in ON RRP volumes may help smooth adjustments in money markets. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the January 31­âFebruary 1 meeting indicated that labor market conditions remained tight in December, with the unemployment rate at a historical low. Consumer price inflationâas measured by the 12-month percent change in the price index for personal consumption expenditures (PCE)âcontinued to step down in November and December but was still elevated. Real gross domestic product (GDP) increased at a solid pace in the fourth quarter of last year. Total nonfarm payroll employment increased solidly in December, al­though at a slower pace than in the previous two months. The unemployment rate moved back down to 3.5 percent in December. The unemployment rate for African Americans was unchanged, and the unemployment rate for Hispanics ticked up; the unemployment rates for both groups remained above the aggregate measure. The aggregate measures of both the labor force participation rate and the employment-to-population ratio edged up. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, was flat in November and remained high. Measures of nominal wage growth slowed at the end of last year but continued to be elevated. The three-month change in the employment cost index (ECI) of hourly compensation in the private sector slowed to a 4.0 percent annual rate in December, while the three-month change measure of average hourly earnings (AHE) for all employees eased to an annual rate of 4.1 percent. Over the 12 months ending in December, the ECI increased 5.1 percent, and AHE rose 4.6 percent. Consumer price inflation eased in November and December but remained elevated. Total PCE price inflation was 5.0 percent over the 12 months ending in December, 1.1 percentage points lower than the October figure. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.4 percent over the 12 months ending in December, down 0.7 percentage point from its October reading. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.4 percent in December, 0.3 percentage point lower than in October. The latest survey-based readings on longer-term inflation expectations from the University of Michigan Surveys of Consumers and the Federal Reserve Bank of New York's Survey of Consumer Expectations remained within the range of their values reported in recent months, while near-term measures of inflation expectations from these surveys moved down along with actual inflation. Al­though real GDP expanded at an annual rate of 2.9 percent in the fourth quarter, real private domestic final purchases (PDFP)âwhich includes PCE, residential investment, and business fixed investmentâincreased at a subdued annual rate of 0.2 percent. Real GDP growth was bolstered especially by a large gain in inventory investment and a notable contribution from net exports, as imports fell more than exports. Both inventories and net exports are volatile categories in aggregate spending. Regarding production, U.S. manufacturing output declined sizably in both November and December. Foreign economic growth slowed in the fourth quarter, weighed down by the COVID-19-related slowdown in China and repercussions of Russia's war against Ukraine. Weaker global demand and a rebalancing from goods to services also resulted in a pronounced slowdown in manufacturing, which weighed on activity in emerging Asia. In China, the pivot away from its zero-COVID policy appears to have resulted in a rapid surge in virus cases late in the year, but also in a rebound in activity as restrictions were rapidly removed. In Europe, the slowdown in economic growth was tempered by mild winter weather, which also prompted further declines in energy prices. A decline in retail energy as well as food prices contributed to an easing in headline consumer price inflation in many foreign economies. With core inflation remaining elevated amid tight labor markets, however, many central banks continued to tighten monetary policy. Staff Review of the Financial Situation Over the intermeeting period, the market-implied federal funds rate path was little changed for 2023 but moderately moved down further out. Nominal Treasury yields were little changed, while swaps-based inflation compensation measures fell notably. Stock market indexes were slightly higher, and market volatility declined but remained slightly elevated. Businesses and households continued to face elevated borrowing costs. Credit quality remained strong overall, al­though there were some signs of deterioration for consumer loans. The market-implied federal funds rate path for 2023 was little changed, on net, during the intermeeting period but fell moderately beyond mid-2024. On net, nominal Treasury yields were roughly unchanged, and swaps-market-implied inflation compensation measures fell notably. Broad stock price indexes ended the intermeeting period only slightly higher despite sizable fluctuations. Equity prices fell sharply following the December FOMC statement but recovered over the remainder of the period in response to data releases. The VIXâthe one-month option-implied volatility on the S&P 500âdecreased somewhat but remained slightly above the median range of its historical distribution. Spreads on investment-grade and high-yield corporate bonds narrowed somewhat, on net, over the intermeeting period, while spreads on municipal bonds narrowed substantially. Conditions in short-term funding markets remained stable over the intermeeting period, with the December increase in the target range for the federal funds rate and the associated increases in the Federal Reserve's administered rates passing through quickly to overnight money market rates. In secured markets, repo rates were roughly the same as the ON RRP offering rate but continued to occasionally print slightly higher around days with Treasury bill and coupon settlements. Daily take-up in the ON RRP facility remained elevated, reflecting continued elevated assets under management (AUM) for money market mutual funds (MMFs), ongoing uncertainty around the policy path, and limited supply of alternative investments such as Treasury bills. Net yields on MMFs rose further over the intermeeting period, mostly passing through the increase in administered rates. Bank deposit rates gradually increased but continued to lag cumulative increases in the federal funds rate. Over the intermeeting period, investor perceptions of an improved economic outlook in China and Europe contributed to increases in foreign risky asset prices and weighed on the exchange value of the dollar. Global equity indexes rose, supported in part by lower European natural gas prices and China's decision to abandon its zero-COVID policy. Sovereign yields increased notably in the euro area and Japan, reflecting more-restrictive-than-expected communications from the European Central Bank and the Bank of Japan's decision to widen its yield curve control target band, respectively. In contrast, yields in other major advanced foreign economies were little changed on net. The staff's broad dollar index declined over the intermeeting period, with larger declines against emerging market economy (EME) currencies amid significant inflows into EME-focused investment funds in January on improved investor sentiment. Narrowing yield differentials between the United States and some advanced foreign economies also contributed to the depreciation of the dollar. In domestic credit markets, businesses and households continued to face elevated borrowing costs. Yields for corporate bonds declined, while borrowing costs for leveraged loans were little changed at elevated levels. Bank interest rates for commercial and industrial (C&I) loans continued to trend upward in the fourth quarter. Yields on municipal bonds declined during the intermeeting period but remained above their historical average. Residential mortgage rates were little changed over the intermeeting period and remained well above their levels in the previous tightening cycle, notwithstanding the decline from their peak in early November. Interest rates on existing credit cards continued to increase in recent months, and interest rates on new auto loans also rose through mid-January. Credit remained broadly available for businesses and households with strong credit quality but remained tight for lower-rated borrowers. Lending standards tightened further for bank-dependent borrowers. Issuance of corporate bonds was subdued in December before picking up somewhat in January. New launches of leveraged loans were notably subdued in December and January, likely reflecting soft investor demand and higher reference rates on floating-rate loans. In the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported having tightened C&I and commercial real estate (CRE) lending standards over the previous three months. Al­though C&I loans at banks continued to expand through December, they decelerated relative to earlier in the year, in line with tighter lending standards and weaker demand for C&I loans over the fourth quarter. CRE loan growth on domestic banks' balance sheets remained robust in the fourth quarter. Meanwhile, issuance of commercial mortgage-backed securities remained slow in November and December, amid high base interest rates and spreads. Some tightening in lending conditions was also evident for small businesses, with the share of small firms reporting that it was more difficult to obtain credit compared with three months earlier continuing to trend up through December. Credit was broadly available in the residential mortgage market for high-credit-score borrowers who met standard conforming loan criteria. Credit availability for households with lower credit scores was considerably tighter, though comparable to levels prevailing before the pandemic. Purchase mortgage applications and refinance applications were both little changed over the intermeeting period. Home equity line of credit (HELOC) balances at banks continued to grow through the fourth quarter, on net, potentially reflecting homeowners using HELOCs as a preferred way of extracting home equity in the presence of high current mortgage rates. In the January SLOOS, banks reported tighter standards for all consumer loans. Even so, total credit card balances increased at a solid pace in November, while auto loans grew modestly. Overall, credit quality remained strong, al­though there was some deterioration for credit card and auto loan borrowers and some predictors of future credit quality worsened a bit further. The volume of corporate bond rating downgrades outpaced upgrades in December, al­though the level of downgrades remained moderate. Leveraged loans experienced notable net rating downgrades in December, but the pace moderated in January. Default rates on corporate bonds and leveraged loans remained low. Measures of expected default probabilities for corporate bonds and leveraged loans remained elevated relative to their historical distributions. The credit quality of businesses that borrow from banks remained sound, on balance, al­though, in the January SLOOS, banks reported expecting a deterioration in the quality of business loans in their portfolio over 2023. Delinquencies on small business loans continued to edge up in November but remained low relative to historical levels. The credit quality of households also remained strong, on balance, despite some signs of deterioration. Delinquencies for Federal Housing Administration mortgages increased slightly, but overall mortgage delinquency rates were still near pre-pandemic lows. Delinquency rates for credit cards and auto loans continued to rise during the third quarter. While delinquency rates on credit cards were still relatively low, those on auto loans rose above pre-pandemic levels. In the January SLOOS, banks reported expecting a further deterioration in the quality of household loans in 2023, especially for consumer loans. The staff provided an update on its assessment of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as moderate. The staff judged that asset valuation pressures remained notable. In particular, the staff noted that measures of valuations in both residential and commercial property markets remained high, and that the potential for large declines in property prices remained greater than usual. In addition, the forward price-to-earnings ratio for S&P 500 firms remained above its median value despite the decline in equity prices over the past year. The staff assessed that valuation pressures had eased for corporate bonds and leveraged loans, as spreads in both markets had increased from recent lows. The staff assessed that vulnerabilities associated with household and business leverage remained moderate, noting that al­though measures of business leverage were at or near a historically high level, the ability of firms to service their debt has kept pace with rising debt loads and interest rates. Household borrowing rose for borrowers with prime credit scores but declined for households with lower credit scores. Vulnerabilities associated with financial leverage also remained moderate. In particular, risk-based capital ratios for banks increased slightly, a staff measure of leverage at life insurance companies remained relatively flat in recent quarters, and leverage among private credit funds has remained steady for several years. While measures of hedge fund leverage have decreased since the pandemic shock, the staff noted that leverage among the largest funds was on track to return to 2019 levels. Vulnerabilities associated with funding risks were characterized as moderate. The rising rate environment has prompted inflows into prime retail MMFs, while AUM at prime institutional funds, which have proved more sensitive to turmoil in the past, have grown much less. Assets in open-end mutual funds that invest in less liquid instruments like bank loans or high-yield corporate bonds have declined notably over the past year. In response to vulnerabilities at MMFs and open-end mutual funds, the Securities and Exchange Commission has proposed rules to make these funds more resilient. Staff Economic Outlook The forecast for the U.S. economy prepared by the staff for this FOMC meeting had a somewhat higher path for the level of real GDP and a modestly lower path for the unemployment rate than in the December projection, reflecting both the recent data and a small additional boost to output from a lower projected path for the dollar. Al­though recent data indicated that real GDP growth in the fourth quarter of 2022 was stronger than expected, real PDFP growth was weaker than previously forecast, and the large, unexpected boost to GDP growth from inventory investment was not projected to persist. In part reflecting the lagged effects of previous monetary policy tightening, the staff still projected real GDP growth to slow markedly this year and the labor market to soften. The staff forecast continued to include a pickup in real GDP growth starting next year, al­though projected output growth in 2024 and 2025 remains below the staff's estimate of potential output growth. The level of real output was expected to move down to the staff's estimate of potential near the end of 2025. Likewise, the unemployment rate was projected to gradually move up to the staff's estimate of its natural rate at the end of 2025. On a four-quarter change basis, total PCE price inflation was forecast to be 2.8 percent in 2023, and core inflation was expected to be 3.2 percent, both lower than in the December projection. With the effects of supplyâdemand imbalances in goods markets expected to further unwind and labor and product markets projected to become less tight, the staff continued to forecast that inflation would decline further over 2024 and 2025. On a four-quarter change basis, core goods inflation was projected to move down further this year and then remain subdued, housing services inflation was expected to peak later this year and then move down, and core nonhousing services inflation was forecast to slow as nominal wage growth eased. With steep declines in consumer energy prices and a substantial moderation in food price inflation expected for this year, total inflation was projected to step down markedly this year and then to track core inflation over the following two years. In 2025, both total and core PCE price inflation were expected to be near 2 percent. The sluggish growth in real private domestic spending expected this year and the persistently tight financial conditions were seen as tilting the risks to the downside around the baseline projection for real economic activity, and the staff still viewed the possibility of a recession sometime this year as a plausible alternative to the baseline. Moreover, with core PCE price inflation having slowed in recent months, along with the cumulative upward revisions to the core inflation projection over the past year and the expected softening in economic growth, the staff now viewed the risks around the baseline forecast for inflation this year as balanced. For beyond this year, the staff continued to view the risks around the inflation projection as skewed to the upside, reflecting concerns about the potential persistence of inflation. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that recent indicators pointed to modest growth in spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate remained low. Inflation had eased somewhat but remained elevated. Participants recognized that Russia's war against Ukraine was causing tremendous human and economic hardship and was contributing to elevated global uncertainty. Against this background, participants continued to be highly attentive to inflation risks. Participants agreed that cumulative policy firming to date had reduced demand in the most interest-rate-sensitive sectors of the economy, particularly housing. Participants observed that growth in economic activity in 2022 had been below its longer-run trend and expected that real GDP growth would slow further in 2023. While real GDP growth had rebounded in the second half of 2022, several participants noted that growth in PDFP had nearly stalled in the fourth quarter. With inflation remaining unacceptably high, participants expected that a period of below-trend growth in real GDP would be needed to bring aggregate demand into better balance with aggregate supply and thereby reduce inflationary pressures. Some participants judged that recent economic data signaled a somewhat higher chance of continued subdued economic growth, with inflation falling over time to the Committee's longer-run goal of 2 percent, al­though some participants noted that the probability of the economy entering a recession in 2023 remained elevated. In their discussion of the household sector, participants observed that real consumer spending had declined in November and Decemberâin part reflecting the tightening in financial conditions over the past yearâand anticipated that consumption would likely grow at a subdued rate in 2023. Participants noted that excess savings accumulated during the pandemic had continued to support consumption, al­though several participants remarked that the importance of this factor would likely wane over time as excess savings continued to be drawn down or eroded by inflation. A couple of participants observed that some consumers were shifting their spending to less expensive alternatives. A few participants noted the effects of higher interest costs in restraining consumption or inhibiting the ability of some households to repay their loans, while a couple of participants noted that inflation was eroding households' purchasing power. However, a couple of participants noted that some states could return part of their sizable budget surpluses to households through tax cuts or rebates, which would provide support to consumption. Participants agreed that activity in the housing market had continued to weaken, largely reflecting the increase in mortgage rates over the past year. Regarding the business sector, participants observed that growth in business fixed investment spending had been subdued in the fourth quarter and was being restrained by past interest rate increases. A number of participants commented that supply bottlenecks continued to ease, al­though supply chain issues remained a challenge in some sectors. Several participants remarked that the recent strong growth in inventory investment will likely slow; a couple of those participants noted that businesses appeared more confident that significant supply bottlenecks would not reemerge and might therefore choose to hold smaller inventories. Some participants commented that the easing of COVID-related lockdown restrictions in China or stronger-than-expected growth in economic activity in the euro area could provide support to final demand in the United States. Participants agreed that the labor market remained very tight and assessed that labor demand substantially exceeded the supply of available workers. Participants noted that the unemployment rate had returned to a historically low level in December, job vacancies remained high, and wage growth remained elevated. Several participants noted that recent reductions in the workforces of some large technology businesses followed much larger increases over the previous few years and judged that these reductions did not appear to reflect widespread weakness in the demand for labor. A few participants remarked that some business contacts appeared keen to retain workers even in the face of slowing demand for output because of their recent experiences of labor shortages and hiring challenges. Participants agreed that labor supply remained constrained by structural factors such as the effects from the pandemic, including those on early retirements, and the reduced availability and increased cost of childcare. Nevertheless, participants noted tentative signs that imbalances between demand and supply in the labor market were improving, with job vacancies and payroll gains declining somewhat from high levels, the average number of hours worked falling, and growth in wages and employment costs slowing. Some participants commented on the recent reduction in temporary employment, which previously had often preceded more widespread reductions in labor demand. Under appropriate monetary policy, participants expected labor market demand and supply to come into better balance over time, easing upward pressure on nominal wages and prices. A number of participants commented on the importance of recognizing that, to the extent national unemployment increases, historical evidence indicates that even larger increases in the unemployment rate for some demographic groupsâparticularly African Americans and Hispanicsâwould be likely to occur. With inflation still well above the Committee's longer-run goal of 2 percent, participants agreed that inflation was unacceptably high. A number of participants commented that the costs of elevated inflation are particularly high for lower-income households. Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path. Participants noted that core goods prices had declined notably over the previous few months as supply bottlenecks had eased but anticipated that price declines for this component would dissipate as the downward pressure on goods prices from resolving supply bottlenecks fades. Participants judged that housing services inflation would likely begin to fall later this year, reflecting continued smaller increases, or potentially declines, in rents on new leases. Participants agreed that they had observed less evidence of a slowdown in the rate of increase of prices for core services excluding housing, a category that accounts for more than half of the core PCE price index. Participants judged that as long as the labor market remained very tight, wage growth in excess of 2 percent inflation and trend productivity growth would likely continue to put upward pressure on some prices in this component. A couple of participants observed that changes in wages tend to lag changes in prices, which can complicate the assessment of inflation pressures. A couple of participants remarked that the poor performance of labor productivity growth last year was restraining aggregate supply, which was contributing to imbalances between aggregate demand and aggregate supply and therefore to upward pressure on inflation. Several participants noted the possibility that as consumers become more price sensitive, businesses might accept lower profit margins in an effort to maintain market share, which could reduce inflation temporarily. Participants observed that indicators of short-term inflation expectations from surveys of households and businesses as well as from financial markets had come down and that longer-term inflation expectations remained well anchored. A number of participants noted the importance of longer-term inflation expectations remaining anchored and remarked that the longer inflation remained elevated, the greater the risk of inflation expectations becoming unanchored. In that adverse scenario, it would be more costly to bring inflation down to achieve the Committee's statutory objectives of maximum employment and price stability. Participants observed that financial conditions remained much tighter than in early 2022. However, several participants observed that some measures of financial conditions had eased over the past few months. A few participants noted that increased confidence among market participants that inflation would fall quickly appeared to contribute to declines in market expectations of the federal funds rate path beyond the near term. Participants noted that it was important that overall financial conditions be consistent with the degree of policy restraint that the Committee is putting into place in order to bring inflation back to the 2 percent goal. Participants observed that the uncertainty associated with their outlooks for economic activity, the labor market, and inflation was high. Regarding upside risks to inflation, participants cited a variety of factors, including the possibility that price pressures could prove to be more persistent than anticipated due to, for example, the labor market staying tight for longer than anticipated. Participants also saw a number of upside risks surrounding the outlook for inflation stemming from factors abroad, such as China's relaxation of its zero-COVID policies and Russia's continuing war against Ukraine. However, a few participants remarked that the risks to their inflation outlook had become more balanced. Participants agreed that the risks to the outlook for economic activity were weighted to the downside. Participants noted that sources of such risks included the prospect of unexpected negative shocks tipping the economy into a recession in an environment of subdued growth, the effects of synchronous policy firming by major central banks, and disruptions in the financial system and broader economy associated with concerns that the statutory debt limit might not be raised in a timely manner. In their discussion of issues related to financial stability, several participants discussed vulnerabilities in the financial system associated with higher interest rates, including the elevated valuations for some categories of assets, particularly in the CRE sector; the susceptibility of some nonbank financial institutions to runs; and the effect of large, unrealized losses on some banks' securities portfolios. A few participants commented that international stresses had the potential to transmit to the U.S. financial system. A number of participants noted the importance of orderly functioning of the market for U.S. Treasury securities and stressed the importance of the appropriate authorities continuing to address issues related to the resilience of the market. Al­though several participants noted that the Federal Reserve's standing liquidity facilities could be helpful in addressing significant pressures in funding markets, should they arise, several participants also noted the challenges of addressing potential disruptions in U.S. core market functioning. A few participants remarked that recent failures of companies involved in crypto finance have had a limited effect on the broader financial system. These participants indicated that this limited effect reflected the minimal extent of the crypto market's connections to the banking system thus far, consistent with the risks associated with many of these activities. Several participants discussed the value of the Federal Reserve taking additional steps to understand the potential risks associated with climate change or to assess the materiality of such risks in the context of carrying out its responsibilities to evaluate risks in the banking system and broader financial system. A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that the Committee had made significant progress over the past year in moving toward a sufficiently restrictive stance of monetary policy. Even so, participants agreed that, while there were recent signs that the cumulative effect of the Committee's tightening of the stance of monetary policy had begun to moderate inflationary pressures, inflation remained well above the Committee's longer-run goal of 2 percent and the labor market remained very tight, contributing to continuing upward pressures on wages and prices. Against this backdrop, and in consideration of the lags with which monetary policy affects economic activity and inflation, almost all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points at this meeting. Many of these participants observed that a further slowing in the pace of rate increases would better allow them to assess the economy's progress toward the Committee's goals of maximum employment and price stability as they determine the extent of future policy tightening that will be required to attain a stance that is sufficiently restrictive to achieve these goals. A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. In discussing the policy outlook, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, all participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. Participants affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. In determining the extent of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. Participants discussed the heightened uncertainty regarding the economic outlook and a number of factors that could affect inflation and real economic activity. Participants generally noted that the Committee's future decisions regarding policy would continue to be informed by the incoming data and their implications for the outlook for economic activity and inflation. A number of participants observed that financial conditions had eased in recent months, which some noted could necessitate a tighter stance of monetary policy. Participants also discussed a number of risk-management considerations related to the conduct of monetary policy. Almost all participants observed that slowing the pace of rate increases at the current juncture would allow for appropriate risk management as the Committee assessed the extent of further tightening needed to meet the Committee's goals. Several of those participants observed that risks to the economic outlook were becoming more balanced. With inflation still well above the Committee's longer-run goal, participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective. A number of participants observed that a policy stance that proved to be insufficiently restrictive could halt recent progress in moderating inflationary pressures, leading inflation to remain above the Committee's 2 percent objective for a longer period, and pose a risk of inflation expectations becoming unanchored. Participants noted that the runoff of the balance sheet had been proceeding smoothly. A few participants observed that money markets could experience some temporary pressures as reserves declined if use of the Federal Reserve's ON RRP facility continued to remain high. They noted, however, that such pressures, should they occur, would likely cause an upward re-pricing of private money-market rates that could encourage market participants to reduce their use of the facility. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that recent indicators pointed to modest growth in spending and production. Members also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Members agreed that inflation had eased somewhat but remained elevated. Members concurred that Russia's war against Ukraine was causing tremendous human and economic hardship and was contributing to elevated global uncertainty. Members also concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. Members anticipated that ongoing increases in the target range would be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Members concurred that, in determining the extent of future increases in the target range, they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that they would continue reducing the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee remained strongly committed to returning inflation to its 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective February 2, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/2 to 4-3/4 percent. Conduct overnight repurchase agreement operations with a minimum bid rate of 4.75 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair. Conduct overnight reverse repurchase agreement operations at an offering rate of 4.55 percent and with a per-counterparty limit of $160 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. Russia's war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lael Brainard, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 4.65 percent, effective February 2, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 4.75 percent, effective February 2, 2023. 5 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, March 21â22, 2023. The meeting adjourned at 10:20 a.m. on February 1, 2023. Notation Vote By notation vote completed on January 3, 2023, the Committee unanimously approved the minutes of the Committee meeting held on December 13â14, 2022. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of the economic and financial situation. Return to text 3. Committee organizational documents are available at www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 4. Chiara Scotti's selection was set to be effective upon her employment with the Federal Reserve Bank of Dallas. Return to text 5. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 4.75 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of February 2, 2023, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of Cleveland, St. Louis, and Minneapolis were informed of the Board's approval of their establishment of a primary credit rate of 4.75 percent, effective February 2, 2023.) Return to text

Minutes of the Federal Open Market Committee March 21â22, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, March 21, 2023, at 10:00 a.m. and continued on Wednesday, March 22, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, and Sushmita Shukla, 2 Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, 3 Economist Shaghil Ahmed, 4 Roc Armenter, James A. Clouse, Brian M. Doyle, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, 5 Section Chief, Office of the Secretary, Board Daniel O. Beltran, Deputy Associate Director, Division of International Finance, Board Jennifer J. Burns, 5 Deputy Director, Division of Supervision and Regulation, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Todd E. Clark, Senior Vice President, Federal Reserve Bank of Cleveland Daniel Cooper, Vice President, Federal Reserve Bank of Boston Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Wendy E. Dunn, Adviser, Division of Research and Statistics, Board Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 5 Director, Division of Reserve Bank Operations and Payment Systems, Board Ozge Akinci Emekli, Economic Research Advisor, Federal Reserve Bank of New York Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board Christine Graham, 5 Special Adviser to the Board, Division of Board Members, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, Senior Adviser, Division of Monetary Affairs, Board Spencer Krane, Senior Vice President, Federal Reserve Bank of Chicago Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Francesca Loria, Senior Economist, Division of Monetary Affairs, Board Byron Lutz, Deputy Associate Director, Division of Research and Statistics, Board Fernando M. Martin, Assistant Vice President, Federal Reserve Bank of St. Louis Thomas Mertens, Vice President, Federal Reserve Bank of San Francisco Ann E. Misback, Secretary, Office of the Secretary, Board Giovanni Nicolò, Senior Economist, Division of Monetary Affairs, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Marcel A. Priebsch, Principal Economist, Division of Monetary Affairs, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board Krista Schwarz, Principal Economist, Division of Monetary Affairs, Board Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Yannick Timmer, Senior Economist, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 5 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Recent Developments in the Banking Sector Before turning to other agenda items, the Chair asked the Vice Chair for Supervision to provide an update on recent developments in the banking sector. The Vice Chair for Supervision described the developments, including those at Silicon Valley Bank, Signature Bank, and Credit Suisse. He also described actions taken by the Federal Reserve and other regulatory agencies in response. He noted that the U.S. banking system is sound and resilient. He also noted that he will be leading a review of the supervision and regulation of Silicon Valley Bank, and that the Federal Reserve System will apply what is learned from the review to strengthen its supervisory and regulatory practices as appropriate. Developments in Financial Markets and Open Market Operations The manager turned first to a review of U.S. financial market developments over the intermeeting period. Early in the period, firmer-than-expected data and policy communications pushed interest rates higher and equity prices lower. Developments in the banking sector later in the period were met with sharp reductions in Treasury yields, particularly at shorter tenors. Treasury market liquidity was poor and implied volatility was high, but the market remained functional amid substantial trading activity. Higher Treasury market volatility contributed to wider spreads for household and business borrowing. Financial conditions tightened considerably over the intermeeting period as a whole. Market contacts observed that the recent developments in the banking system will likely result in a pullback in bank lending, which would not be reflected in most common financial conditions indexes. Following the banking-sector developments, equity prices for large U.S. banks underperformed the broad market; equity prices for U.S. regional banks generally underperformed by relatively more. Regarding the outlook for inflation in the United States, market-based measures of inflation compensation over shorter horizons rose over the period, al­though compensation retraced a good portion of its increase later in the period as markets reacted to the developments in the banking sector. Forward inflation compensation measures continued to indicate that longer-term inflation expectations remained well anchored. Measures of inflation expectations from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants moved higher at shorter horizons and were little changed at longer horizons. Regarding the outlook for monetary policy, market-based measures of policy expectations suggested that the federal funds rate would reach a peak in May 2023 and that the target range would then move lower. However, the medians of respondents' modal expectations of the federal funds rate from the Desk surveys did not show any declines in the target range through the end of 2023. Risk and liquidity premiums embedded in market prices may have driven a good part of the difference between survey and market measures. The median respondent expected the Summary of Economic Projections (SEP) projections for the federal funds rate at the end of 2023 and 2024 to shift 25 basis points higher. However, information gathered after the Desk surveys closed suggests that those expectations had declined some, to a level comparable with the December SEP. Survey responses suggested only modest changes in expectations for balance sheet policy. The manager turned next to a discussion of operations and money markets. Federal funds volumes fell sharply for a few days late in the period as Federal Home Loan Banks (FHLBs) sought to maintain liquidity in order to meet increased demand for advances by member banks. Money market rates remained broadly stable, and secured and unsecured money market rates, including the effective fed funds rate, traded well within the target range. Use of U.S. dollar liquidity swap lines with foreign central banks had been minimal, indicating that market participants did not face significant difficulties in obtaining dollar funding from private sources. Borrowing from the new Bank Term Funding Program had been small relative to discount window borrowing, which had increased to record levels. Use of the overnight reverse repurchase agreement (ON RRP) facility fell, especially for money market mutual funds (MMFs), as the supply of short-term securities at attractive rates increased. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the March 21â22 meeting indicated that labor market conditions remained tight in January and February, with robust job gains and the unemployment rate near a historical low. Consumer price inflationâas measured by the 12-month percent change in the price index for personal consumption expenditures (PCE)âwas still elevated in January. Real gross domestic product (GDP) appeared to be expanding at a modest pace in the first quarter. Al­though financial market data had shown reactions to developments in the banking sector late in the intermeeting period, there were essentially no economic data available that covered this period. Total nonfarm payroll employment increased at a faster monthly pace in January and February than in the fourth quarter of last year. The unemployment rate was little changed and stood at 3.6 percent in February. Over the past two months, the unemployment rate for African Americans was unchanged, on net, and the unemployment rate for Hispanics moved up; the unemployment rates for both groups remained above the aggregate measure. The aggregate measures of both the labor force participation rate and the employment-to-population ratio increased slightly. The private-sector job openings rate in Januaryâas measured by the Job Openings and Labor Turnover Surveyâwas little changed, on balance, since November and remained high. Recent indicators of nominal wage growth had slowed but continued to be elevated. In February, the 3-month change in average hourly earnings for all employees was at an annual rate of 3.6 percent, slower than its 12-month pace of 4.6 percent. Over the four quarters of 2022, total labor compensation per hour in the business sectorâas measured by the Productivity and Costs dataâincreased 4.5 percent, below its pace in the previous year. Consumer price inflation remained elevated early in the year. Total PCE price inflation was 5.4 percent over the 12 months ending in January, and core PCE price inflationâwhich excludes changes in consumer energy prices and many consumer food pricesâwas 4.7 percent. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.6 percent in January. In February, the 12-month change in the consumer price index (CPI) was 6.0 percent, and core CPI inflation was 5.5 percent. The CPI, along with data from the producer price index, pointed to some slowing in PCE price inflation in February. The latest survey-based measures of longer-term inflation expectations from the University of Michigan Surveys of Consumers, the Survey of Professional Forecasters, and the Federal Reserve Bank of New York's Survey of Consumer Expectations remained within the range of their values reported in recent months, while near-term measures of inflation expectations from these surveys moved down. Real GDP growth seemed to be expanding at a modest pace in the first quarter. Gains in consumer spending had picked up in recent months, but growth in business fixed investment was slowing and residential investment was continuing to decline. After contracting over the second half of last year, manufacturing output expanded moderately, on average, over January and February, but near-term indicatorsâsuch as national and regional indexes for new ordersâpointed to softening factory output in the coming months. The nominal U.S. international trade deficit registered a record high in 2022. The trade deficit had been narrowing since March of last year but resumed widening in December and January. Real goods imports rose in December and January, led by increases in imports of consumer goods and automotive products. Real goods exports also increased, but by less than imports. Indicators suggested that foreign economic growth rebounded in the first quarter of 2023 as China reopened rapidly from its COVID-19-related shutdowns and Europe's economy proved to be resilient to the energy price shock stemming from Russia's war against Ukraine and benefited from a mild winter that reduced energy demand. Manufacturing activity in emerging Asia showed signs of a turnaround from its pronounced slowdown since mid-2022. The recent developments in the banking sector led to some tightening of financial conditions abroad. Oil prices edged down despite China's rapid reopening and the implementation of the European Union's embargo on Russian refined oil products. Retail energy inflation continued to slow, contributing to an easing of headline consumer price inflation in many advanced foreign economies (AFEs). In contrast, core inflation has shown little sign of easing in most foreign economies amid tight labor markets. In response, many foreign central banks continued their monetary policy tightening, al­though some have either paused or indicated that a pause soon was possible, citing the importance of assessing the cumulative effects of past policy rate increases. Staff Review of the Financial Situation Over the first several weeks of the intermeeting period, incoming economic data and FOMC communications appeared to refocus market participants on upside risks to inflation and policy rates, with the market-implied policy rate path steepening, nominal Treasury yields rising, near-term inflation compensation measures increasing, and broad stock market price indexes declining. Financing conditions for businesses, households, and municipalities had tightened during this period and were moderately restrictive overall, as borrowing costs increased notably with the expected path of policy rates and Treasury yields and as some lenders appeared to tighten nonprice borrowing terms. Nonetheless, lending volumes were generally solid. Credit quality was strong overall, al­though it had worsened a bit for some borrowers. Expectations for future credit quality continued to deteriorate in some markets. Pricing in financial markets changed notably in the latter part of the intermeeting period, amid developments in the banking sector. Treasury yields and policy rate expectations moved down significantly, while broad stock price indexes rose somewhat. The market-implied policy rate path shifted down sizably, with the federal funds rate expected to peak in May before decreasing afterward. Further out, OIS (overnight index swap) quotes at the end of the intermeeting period indicated that the expected federal funds rate at year-end 2024 was 3.28 percent, about 50 basis points lower than before the closures of Silicon Valley Bank and Signature Bank but somewhat higher than at the time of the February FOMC meeting. Treasury yields declined, especially at shorter maturities, reflecting downward revisions in policy rate expectations and the effects of flight to safety. Inflation compensation declined, especially at short maturities, likely reflecting, in part, a relatively larger decline in risk premiums on nominal Treasury securities relative to Treasury Inflation-Protected Securities due to strong safe-haven demands. Late in the intermeeting period, U.S. bank stock prices declined notably. Regional banks with unusually large reliance on uninsured deposits and holdings of securities with significant unrealized mark-to-market losses experienced larger declines in stock prices. Broad equity prices rose somewhat after the closures of Silicon Valley Bank and Signature Bank, reportedly driven by investors' reassessment of the outlook for interest rates, and after the announcement that UBS had agreed to buy Credit Suisse. The VIXâthe one-month option-implied volatility on the S&P 500âincreased to about 26.5 percent following the closures of Silicon Valley Bank and Signature Bank, but it subsequently declined to 21 percentâaround the 70th percentile of its historical distribution. Swaption-implied volatilities of short-term interest rates increased notably during this period, reflecting increased uncertainty about the interest rate outlook. Some of the pricing moves in asset markets may have been amplified by impaired liquidity conditions. Despite deteriorating liquidity conditions in Treasury, bond, and equity markets, market functioning remained orderly. Over the intermeeting period, foreign financial markets were volatile as investors' focus shifted from resilience in economic activity and stubbornly high core inflation across advanced economies earlier in the period to stresses in the global banking sector more recently. Earlier in the period, yields and market-based measures of inflation expectations in the AFEs increased notably, driven by spillovers from U.S. Treasury yields as well as upside surprises in economic and inflation data for AFEs. Later in the period, developments in the banking sector led to large declines in advanced-economy yields, and, on net, AFE yields declined slightly. Additionally, for the intermeeting period overall, the staff's dollar index rose moderately, corporate and emerging market economy sovereign credit spreads widened, and foreign equity indexes generally moved lower, with bank equities falling notably. U.S. unsecured funding markets showed some signs of pressure later in the intermeeting period. Issuance of commercial paper (CP) and negotiable certificates of deposit (NCDs) dropped a touch over the entire period, and the fraction of CP issuance with overnight maturities increased but remained within normal ranges. Spreads of term CP and NCDs widened some, and spreads for issuers with lower credit ratings rose more, but other unsecured spreads remained within normal ranges. Prime MMFs experienced outflows, while government MMFs had inflows. The effective federal funds rate was little changed after the closures of Silicon Valley Bank and Signature Bank. Amid these developments, federal funds volumes initially declined sharply as the FHLBs reduced their activity in the federal funds market in order to meet increased demand for advances by member banks; market volume subsequently rebounded partially. Activity in the repurchase agreement market was robust, and trading volume remained within recent ranges. ON RRP take-up remained within recent ranges as well. Borrowing costs for businesses, households, and municipalities rose notably in the early part of the intermeeting period, mostly in line with increases in the federal funds rate and Treasury yields. Since the closures of Silicon Valley Bank and Signature Bank, spreads on corporate bonds, municipal bonds, and leveraged loans rose, with speculative-grade corporate bond spreads registering the largest moves; spreads remained at moderate levels relative to their historical distributions. Investment-grade corporate yields and municipal yields were down moderately, whereas speculative-grade corporate yields and leveraged loan yields were up modestly. Mortgage rates were unchanged amid an increase in mortgage-backed securities (MBS) spreads. Based on data that do not cover the period following the closures of Silicon Valley Bank and Signature Bank, nonprice terms and standards appeared to tighten somewhat in a number of markets. Nevertheless, generally solid funding flows suggest that most firms and households had remained broadly able to access funding. Data on credit conditions following the developments in the banking sector were limited. After the two bank closures, issuance of municipal bond and leveraged loans was sluggish, and gross issuance of corporate bonds fell to near zero. Mortgage loans to households remained available. The credit quality of businesses and households was largely stable over the intermeeting period. However, measures of credit performance showed some signs of weakening. Leveraged loan credit quality deteriorated somewhat after the closures of Silicon Valley Bank and Signature Bank. Credit quality for residential mortgages remained unchanged. Staff Economic Outlook For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years. Real GDP growth in 2024 was projected to remain below the staff's estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential. Resource utilization in both product and labor markets was forecast to be much less tight than in the January projection. The level of real output was projected to move below the staff's estimate of potential output in early 2024, more than a year sooner than in the previous projection. Likewise, the unemployment rate was projected to rise above the staff's estimate of its natural rate early next year. On a four-quarter change basis, total PCE price inflation was forecast to be 2.8 percent this year, with core inflation at 3.5 percent. Core goods inflation was projected to move down further this year and then remain subdued; housing services inflation was expected to peak later this year and then move down, while core nonhousing services inflation was forecast to slow gradually as nominal wage growth eased further. Reflecting the effects of less projected tightness in product and labor markets, core inflation was forecast to slow sharply next year. With steep declines in consumer energy prices and a substantial moderation in food price inflation expected for this year, total inflation was projected to step down markedly this year and then to track core inflation over the following two years. In 2024 and 2025, both total and core PCE price inflation were expected to be near 2 percent. The staff judged that the uncertainty around the baseline projection was much greater than at the time of the previous forecast. In particular, the staff viewed the risks around the baseline projection as determined importantly by banking conditions and the implications for financial conditions. If the effects of the recent developments in the banking sector on macroeconomic conditions were to abate quickly, then the risks around the baseline would be tilted to the upside for both economic activity and inflation. If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for both economic activity and inflation, particularly because historical recessions related to financial market problems tend to be more severe and persistent than average recessions. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2023 through 2025 and over the longer run. The projections were based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. An SEP was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that recent indicators pointed to modest growth in spending and production. At the same time, though, participants noted that job gains had picked up in recent months and were running at a robust pace; the unemployment rate had remained low. Inflation remained elevated. Participants agreed that the U.S. banking system remained sound and resilient. They commented that recent developments in the banking sector were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. Participants agreed that the extent of these effects was uncertain. Against this background, participants continued to be highly attentive to inflation risks. In assessing the economic outlook, participants noted that since they met in February, data on inflation, employment, and economic activity generally came in stronger than expected. They also noted, however, that the developments in the banking sector that had occurred late in the intermeeting period affected their views of the economic and policy outlook and the uncertainty surrounding that outlook. Based on incoming economic data, participants' assessments of the effects of cumulative policy firming, and their initial views on the likely economic effect of the recent banking-sector developments, participants generally expected real GDP to grow this year at a pace well below its long-run trend rate. With inflation remaining unacceptably high, participants expected that a period of below-trend growth in real GDP would be needed to bring aggregate demand into better balance with aggregate supply and thereby reduce inflationary pressures. Many participants remarked that the incoming data before the onset of the banking-sector stresses had led them to see the appropriate path for the federal funds rate as somewhat higher than their assessment at the time of the December meeting. After incorporating the banking-sector developments, participants indicated that their policy rate projections were now about unchanged from December. Participants agreed that the actions taken so far by the Federal Reserve in coordination with other government agencies, as well as actions taken by foreign authorities to address banking and financial stresses outside the U.S., had helped calm conditions in the banking sector. Even with the actions, participants recognized that there was significant uncertainty as to how those conditions would evolve. Participants assessed that the developments so far would likely lead to some weakening of credit conditions, as some banks were likely to tighten lending standards amid rising funding costs and increased concerns about liquidity. Participants noted that it was too early to assess with confidence the magnitude of the effect of a credit tightening on economic activity and inflation, and that it was important to continue to closely monitor developments and update assessments of the actual and expected effects of credit tightening. Several participants noted that regional and community banks, a small number of which had come under significant stress, were important in small business and middle-market lending and were providing critical and unique financial services to many communities and industries. In their discussion of the household sector, participants noted that incoming data on real consumer expenditures showed a pickup in spending in January and February. They attributed the pickup to strong job gains, rising real disposable income, and households continuing to run down excess savings accumulated during the pandemic. They also noted that an atypically warm start to this year, along with challenges in seasonally adjusting data, likely contributed to the pickup in the reported data. A few participants observed that credit card delinquencies, particularly for lower-income households, had risen in the face of elevated inflation and higher nominal interest rates. Participants noted that recent developments in the banking sector and the associated rise in uncertainty would likely weigh on consumer sentiment and that increased caution on the part of consumers could restrain spending. A couple of participants observed that high-frequency measures of consumer sentiment had not yet shown a significant change following the recent developments in the banking sector, al­though they also acknowledged that the situation was fluid. Regarding the business sector, participants observed that growth in business fixed investment was being restrained by tighter financial conditions that reflected cumulative policy firming to date. Participants expected the likely tightening of credit conditions due to the recent developments in the banking sector to further weigh on investment spending. In addition, the banking-sector developments could damp business confidence and increase firms' caution, reducing their willingness to hire new workers. However, a few participants mentioned that their nonbank business contacts reported that the banking-sector developments so far had not resulted in significant changes in their hiring and capital spending plans or sales expectations, though their contacts also acknowledged increased uncertainties around their outlooks. Participants agreed that the labor market remained very tight. Job gains had picked up to a robust pace in January and February, and the unemployment rate remained low. Participants noted some signs of improvement in the imbalances between demand and supply in the labor market, including further declines in the quits rate as well as an increase in the overall labor force participation rate and the return of the prime-age participation rate to pre-pandemic levels. Furthermore, participants observed that wage growth appeared to be slowing gradually amid this apparent easing in labor demand and increase in labor supply. However, participants assessed that labor demand continued to substantially exceed labor supply, and several participants pointed out that wage growth was still well above the rates that would be consistent over the longer run with the 2 percent inflation objective, given current estimates of trend productivity growth. Participants expected that, under appropriate monetary policy, supply and demand conditions in the labor market will come into better balance over time, easing upward pressures on wages and prices. With inflation still well above the Committee's longer-run goal of 2 percent, participants agreed that inflation was unacceptably high. Participants commented that recent inflation data indicated slower-than-expected progress on disinflation. In particular, they noted that revisions to the price data had indicated less disinflation at the end of last year than had been previously reported and that inflation was still quite elevated. Participants noted that, on a 12-month basis, core goods price inflation declined as supply chains continued to improve, but the pace of the decline had slowed, highlighting the still uncertain nature of the disinflationary process. Participants expected that housing services inflation would likely begin to slow in coming months, reflecting continued smaller increases, or potentially declines, in rents on new leases. Regarding prices for core services excluding housing, participants agreed that there was little evidence pointing to disinflation in this component. Participants generally judged that some more easing in labor market tightness and slowing in nominal wage growth would be necessary for sustained disinflation. Additionally, participants observed that indicators of short-term inflation expectations from surveys of households and businesses had come down further, while longer-term inflation expectations remained well anchored. Participants also discussed the potential effect on inflation of the developments in the banking sector. They noted that a tightening of credit conditions was likely to weigh on aggregate demand, which in turn could help reduce inflationary pressures. However, participants observed that the size of such an effect was highly uncertain. Participants generally observed that the recent developments in the banking sector had further increased the already-high level of uncertainty associated with their outlooks for economic activity, the labor market, and inflation. Participants saw risks to economic activity as weighted to the downside. As a source of downside risk to activity, they noted the possibility that banks would reduce the supply of credit by more than expected, which could restrain economic activity significantly. Participants mentioned potential intensification of Russia's war against Ukraine as an additional source of downside risk to the economic outlook. Participants generally saw risks to inflation as weighted to the upside, though they also recognized some downside risks to inflation. As a source of upside risk to inflation, participants cited the possibility of more-persistent-than-anticipated price pressures, due to, for example, surprisingly resilient labor demand. As a source of downside risk to inflation, participants noted that if banks reduce the supply of credit by more than expected, the likely restraint on economic activity and hiring could put additional downward pressure on inflation. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that inflation remained well above the Committee's longer-run goal of 2 percent and that the recent data on inflation provided few signs that inflation pressures were abating at a pace sufficient to return inflation to 2 percent over time. Participants also noted that recent developments in the banking sector would likely result in tighter credit conditions for households and businesses and weigh on economic activity, hiring, and inflation, though the extent of these effects was highly uncertain. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points to 4-3/4 to 5 percent. All participants also agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. Several participants noted that, in their policy deliberations, they considered whether it would be appropriate to hold the target range steady at this meeting. They noted that doing so would allow more time to assess the financial and economic effects of recent banking-sector developments and of the cumulative tightening of monetary policy. However, these participants also observed that the actions taken by the Federal Reserve in coordination with other government agencies helped calm conditions in the banking sector and lessen the near-term risks to economic activity and inflation. Consequently, these participants judged it appropriate to increase the target range 25 basis points because of elevated inflation, the strength of the recent economic data, and their commitment to bring inflation down to the Committee's 2 percent longer-run goal. Some participants noted that given persistently high inflation and the strength of the recent economic data, they would have considered a 50 basis point increase in the target range to have been appropriate at this meeting in the absence of the recent developments in the banking sector. However, due to the potential for banking-sector developments to tighten financial conditions and to weigh on economic activity and inflation, they judged it prudent to increase the target range by a smaller increment at this meeting. These participants noted that doing so would also allow the Committee time to better assess the effects of banking-sector developments on credit conditions and the economy as the Committee moved toward a sufficiently restrictive stance of monetary policy. Participants observed that the actions taken by the Federal Reserve in coordination with other government agencies in the days preceding the meeting had served to calm conditions in the banking sector. Participants noted that the most significant issues appeared to have been limited to a small number of banks with poor risk-management practices and that the banking system remained sound and resilient. Participants emphasized that the Federal Reserve should use its liquidity and lender-of-last-resort tools, as well as its microprudential and macroprudential regulatory and supervisory tools, to address stress in the banking sector and to mitigate future financial stability risks. Participants agreed that recent banking developments would factor into the Committee's monetary policy decisions to the extent that these developments affect the outlook for employment and inflation and the risks surrounding the outlook. Participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. In discussing the policy outlook, participants observed that inflation remained much too high and that the labor market remained tight; as a result, they anticipated that some additional policy firming may be appropriate to attain a sufficiently restrictive policy stance to return inflation to 2 percent over time. Many participants noted that the likely effects of recent banking-sector developments on economic activity and inflation had led them to lower their assessments of the federal funds rate target range that would be sufficiently restrictive compared with assessments based solely on the recent economic data. In determining the extent of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In light of the highly uncertain economic outlook, participants underscored the importance of closely monitoring incoming information and assessing the implications for future monetary policy decisions. Participants noted that it would be particularly important to review incoming information regarding changes in credit conditions and credit flows as well as broader changes in financial conditions and to assess the implications for economic activity, labor markets, and inflation. Several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook. Participants emphasized a number of risk-management considerations related to the conduct of monetary policy. Some participants observed that downside risks to growth and upside risks to unemployment had increased because of the risk that banking-sector developments could lead to further tightening of credit conditions and weigh on economic activity. Some participants also noted that, with inflation still well above the Committee's longer-run goal and the recent economic data remaining strong, upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a downward path toward 2 percent would be appropriate from a risk-management perspective. Several participants noted the importance of longer-term inflation expectations remaining anchored and remarked that the longer inflation remained elevated, the greater the risk of inflation expectations becoming unanchored. Participants generally agreed on the importance of closely monitoring incoming information and its implications for the economic outlook, and that they were prepared to adjust their views on the appropriate stance of monetary policy in response to the incoming data and emerging risks to the economic outlook. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that recent indicators pointed to modest growth in spending and production. They also concurred that job gains had picked up in recent months and were running at a robust pace, that the unemployment rate had remained low, and that inflation remains elevated. Members concurred that the U.S. banking system is sound and resilient. They also agreed that recent developments were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation, but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 4-3/4 to 5 percent. Members agreed that they would closely monitor incoming information and assess the implications for monetary policy. Given recent developments, members anticipated that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Members concurred that, in determining the extent of future increases in the target range, they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that they would continue reducing the Federal Reserve's holdings of Treasury securities and agency debt and agency MBS, as described in its previously announced plans. All members affirmed that they remained strongly committed to returning inflation to its 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective March 23, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-3/4 to 5 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.8 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 4.9 percent, effective March 23, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 5 percent, effective March 23, 2023. 6 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, May 2â3, 2023. The meeting adjourned at 10:15 a.m. on March 22, 2023. Notation Vote By notation vote completed on February 21, 2023, the Committee unanimously approved the minutes of the Committee meeting held on January 31âFebruary 1, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Elected as an Alternate by the Federal Reserve Bank of New York, effective March 2, 2023. Return to text 3. Attended through the discussion of the economic and financial situation. Return to text 4. Attended from the discussion of the economic and financial situation through the end of Wednesday's session. Return to text 5. Attended through the discussion of developments in financial markets and open market operations. Return to text 6. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Richmond, Atlanta, Kansas City, Dallas, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 5 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of March 23, 2023, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of Cleveland, Chicago, St. Louis, and Minneapolis were informed of the Board's approval of their establishment of a primary credit rate of 5 percent, effective March 23, 2023.) 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Minutes of the Federal Open Market Committee May 2-3, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, May 2, 2023, at 10:00 a.m. and continued on Wednesday, May 3, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, and Sushmita Shukla, Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, 2 Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Andre Anderson, First Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board Daniel O. Beltran, Deputy Associate Director, Division of International Finance, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board Mark A. Carlson, 2 Adviser, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ahmet Degerli, Economist, Division of Monetary Affairs, Board John C. Driscoll, 2 Principal Economist, Division of Research and Statistics, Board Wendy E. Dunn, 2 Adviser, Division of Research and Statistics, Board Burcu Duygan-Bump, Associate Director, Division of Research and Statistics, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 3 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Giovanni Favara, Assistant Director, Division of Monetary Affairs, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Board Members, Board Peter M. Garavuso, Senior Information Manager, Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Christine Graham, 2 Special Adviser to the Board, Division of Board Members, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Ghada M. Ijam, System Chief Information Officer, Federal Reserve Bank of Richmond Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Kyungmin Kim, Senior Economist, Division of Monetary Affairs, Board David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Kurt Lunsford, Senior Research Economist, Federal Reserve Bank of Cleveland Patrick E. McCabe, Deputy Associate Director, Division of Research and Statistics, Board Davide Melcangi, Research Economist, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board David Na, Lead Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Makoto Nakajima, Vice President, Federal Reserve Bank of Philadelphia Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Giovanni Olivei, Senior Vice President, Federal Reserve Bank of Boston Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Marcel A. Priebsch, Principal Economist, Division of Monetary Affairs, Board Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board Paula Tkac, Senior Vice President, Federal Reserve Bank of Atlanta Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 3 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, 2 Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Asset prices were less volatile and financial market conditions eased somewhat over the intermeeting period as investor sentiment around the banking system stabilized. On net, nominal Treasury yields declined, equities appreciated, credit spreads tightened, and the trade-weighted value of the dollar depreciated. Measures of implied volatility declined across markets. Policy-sensitive rates, however, fluctuated a fair amount over the period, particularly in response to economic data but also because of market perceptions of risk and liquidity conditions. Treasury market liquidity improved somewhat over the period but remained challenged. Treasury cash and futures markets continued to function in an orderly manner despite the lower-than-normal liquidity. Regarding developments late in the intermeeting period, the closure and acquisition of First Republic Bank were seen as orderly, though investors remained focused on stresses in the banking sector. In addition, the U.S. Treasury Department announced it may not be able to fully satisfy the federal government's obligations as early as June 1 if the debt limit is not raised or suspended, but that the actual date this event would occur might come a number of weeks later. Yields on Treasury bills and coupon securities maturing in the first half of June increased notably amid significant volatility. Deposit outflows from small and mid-sized banks largely stopped in late March and April. Al­though equity prices for regional banks fell further over the period, for the vast majority of banks these declines appeared primarily to reflect expectations for lower profitability rather than solvency concerns. Market participants remained alert to the possibility of another intensification of banking stress. Responses to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants suggest that investors' macroeconomic outlooks were little changed from March despite ongoing focus on the implications of the expected tightening of credit. Respondents saw upside inflation risks, albeit less than in March. Market participants broadly expected a 25 basis point rate increase at the May meeting and saw the resulting rate as the likely peak for the current tightening cycle. Survey respondents assigned a much higher probability to the peak federal funds rate being between 5 and 5.25 percent than they did in March. However, respondents still assigned a substantial probability that the peak rate may turn out to be above 5.25 percent. Respondents expected the peak rate to be maintained through the January 2024 FOMC meeting. Regarding the balance sheet and money markets, balance sheet runoff continued to proceed smoothly and overnight secured and unsecured rates continued to trade well within the target range for the federal funds rate. Respondents to the Desk's surveys generally expected that overnight reverse repurchase agreement (ON RRP) balances will remain elevated in the near term before declining later this year. The ON RRP facility continued to support effective policy implementation and control over the federal funds rate, providing a strong floor for money market rates. Balances at the ON RRP facility remained within their recent range, indicating that use of the facility was not an important factor driving outflows of deposits from the banking system. Use of the ON RRP facility declined at times over the intermeeting period in response to increases in rates on overnight secured money market instruments and on short-term Federal Home Loan Bank debt. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the May 2âââ3 meeting indicated that real gross domestic product (GDP) had expanded at a modest pace in the first quarter. Labor market conditions remained tight in March, as job gains were robust and the unemployment rate was low. Consumer price inflationâas measured by the 12âmonth percent change in the price index for personal consumption expenditures (PCE)âcontinued to be elevated in March. Limited data were available on economic activity during the period after the onset of banking-sector stress in mid-March, al­though several recent surveysâsuch as the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) in April, the National Federation of Independent Business's survey in March, and the Federal Reserve Bank of New York's Survey of Consumer Expectations in Marchâindicated that bank credit conditions were tightening further. The pace of increases in total nonfarm payroll employment slowed in March but was still robust, and the unemployment rate ticked down to 3.5 percent. The unemployment rate for African Americans fell to 5.0 percent, and the jobless rate for Hispanics dropped to 4.6 percent. The aggregate measures of both the labor force participation rate and the employment-to-population ratio edged up. The private-sector job openings rateâas measured by the Job Openings and Labor Turnover Surveyâmoved down markedly during February and March but remained high. Recent measures of nominal wage growth continued to ease from their peaks recorded last year but were still elevated. Over the 12 months ending in March, average hourly earnings for all employees rose 4.2 percent, well below its peak of 5.9 percent a year earlier. Over the year ending in March, the employment cost index (ECI) for private-sector workers increased 4.8 percent, down from its peak of 5.5 percent over the year ending in June of last year. Consumer price inflation remained elevated in March but continued to slow. Total PCE price inflation was 4.2 percent over the 12 months ending in March, and core PCE price inflationâwhich excludes changes in consumer energy prices and many consumer food pricesâwas 4.6 percent; the total inflation measure was down markedly from its level in January, while the core measure was only slightly lower. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.7 percent in March. The latest survey-based measures of longer-term inflation expectations from the University of Michigan Surveys of Consumers in April and the Federal Reserve Bank of New York's Survey of Consumer Expectations in March remained within the range of their values reported in recent months; near-term measures of inflation expectations from these surveys moved up but were still below their peaks seen last year. Real GDP growth was modest in the first quarter, led by an increase in PCE. Gains in consumer spending picked up for the quarter as a whole, driven by a surge in January that was followed by a small net decline over February and March. Light motor vehicle sales, however, picked up notably in April. Growth in business fixed investment slowed further in the first quarter, and new orders for nondefense capital goods excluding aircraft continued to decline in March, pointing to weakness in capital goods shipments in the near term. Residential investment declined further in the first quarter but at a slower pace than last year. Net exports made a small positive contribution to GDP growth in the first quarter, as exports rebounded more strongly than imports from their fourth-quarter declines. U.S. manufacturing output fell in March, and near-term indicatorsâsuch as national and regional indexes for new ordersâpointed to more softening in factory output in the coming months. Foreign economic activity rebounded in the first quarter, reflecting the reopening of China's economy from its COVID-19-related shutdowns, a pickup in the economies of Canada and Mexico, and the resilience of Europe's economy to the energy price shock from Russia's war on Ukraine; a mild winter also helped reduce energy demand in Europe. In contrast, economic growth elsewhere in emerging Asia was weak in the first quarter mainly due to a pronounced tech-cycle slowdown. Oil prices edged down amid concerns about the global economic outlook. A slowing of retail energy inflation continued to contribute to an easing of headline consumer price inflation in many advanced foreign economies (AFEs). Core inflation showed signs of easing in some foreign economies but remained persistently elevated amid tight labor markets. Accordingly, many foreign central banks continued their monetary policy tightening. That said, some central banks paused their policy rate increases or altered their forward guidance amid uncertainty about the global economic outlook and the recent banking-sector stress. Some also signaled a shift toward a more data-dependent approach in future decisions. Staff Review of the Financial Situation Market sentiment improved over the intermeeting period, with concerns about a sharp near-term deceleration in economic activity appearing to recede as stress in the banking sector declined. The market-implied path for the federal funds rate in 2023 increased modestly over the period. Broad equity price indexes increased, al­though equity prices of some regional banks were lower, and equity market volatility declined. Financing conditions continued to be restrictive, and borrowing costs remained elevated. Over the intermeeting period, the market-implied path for the federal funds rate in 2023 rose modestly, partially unwinding the sharp decline observed in early March due to the banking-sector stress. For 2024 and 2025, the implied policy path based on overnight index swaps fluctuated amid mixed economic data releases, and declined slightly on net. Yields on nominal Treasury securities with maturities greater than one year moved lower, and inflation compensation at medium- and long-term horizons edged down slightly. Measures of uncertainty about the path of interest rates declined modestly but remained substantially elevated by historical standards. Broad stock price indexes increased moderately, and the VIXâthe one-month option-implied volatility on the S&P 500âdecreased notably over the intermeeting period. However, market participants remained attentive to developments at regional banks. Equity prices at such banks broadly declined over the intermeeting period in part because of higher funding costs, as well as concerns about profitability and a possible deterioration in the performance of commercial real estate (CRE) loans. Risk sentiment in foreign financial markets also improved, on net, over the intermeeting period amid reduced investor concerns about the banking sector, leading to moderate increases in broad equity indexes and declines in option-implied measures of equity volatility. That said, equity prices for euro-area banks declined somewhat, on net, and remained significantly lower than their levels before the onset of banking stresses in early March. Market expectations of policy rates and sovereign yields were little changed in most AFEs but rose notably in the U.K., in part because of higher-than-expected wage and inflation data. The dollar continued its earlier depreciation as differentials between U.S. and AFE sovereign yields narrowed and global risk sentiment improved. Outflows from funds dedicated to emerging markets slowed to near zero over the intermeeting period, while sovereign credit spreads for emerging market economies were little changed on net. U.S. markets for commercial paper (CP) and negotiable certificates of deposit (NCDs) stabilized over the intermeeting period. Spreads for lower-rated nonfinancial CP, which spiked following Silicon Valley Bank's closure, narrowed significantly. Outstanding levels of CP and NCDs increased modestly over the intermeeting period, while the share of short-maturity unsecured issuance of CP and NCDs fell to normal levels, reflecting a net easing of stress associated with regional banks. Conditions in overnight bank funding and repurchase agreement markets remained stable over the intermeeting period, and the increase of 25 basis points in the Federal Reserve's administered rates following the March FOMC meeting fully passed through to overnight money market rates. The effective federal funds rate printed at 4.83 percent every day during the period, while the Secured Overnight Financing Rate averaged 4.81 percentâslightly above the offering rate at the ON RRP facility. Daily take-up in the ON RRP facility remained elevated, reflecting continued significant usage by money market mutual funds, ongoing uncertainty around the policy path, and limited supply of alternative investments such as Treasury bills. In domestic credit markets, borrowing costs for businesses and households eased modestly in some markets but remained at elevated levels. Over the intermeeting period, yields on corporate bonds declined moderately, and yields on agency residential mortgage-backed securities and 30-year conforming residential mortgage rates moved a little lower. However, interest rates on short-term small business loans continued to rise through March and reached their highest levels since the Global Financial Crisis. Credit flows for businesses and households slowed moderately, as high borrowing costs and market volatility amid stress in the banking sector appeared to weigh on financing volumes in some markets. While issuance of nonfinancial corporate bonds and leveraged loans slowed notably in mid-March amid stress in the banking sector, issuance normalized over the intermeeting period as that stress abated later in the month and broader market sentiment rebounded. In April, speculative-grade nonfinancial bond issuance was solid, while investment-grade nonfinancial bond issuance was subdued, in part due to seasonal factors. Growth in commercial and industrial (C&I) loans on banks' books was weak in the first quarter of 2023 relative to its pace in 2022. In the April SLOOS, banks reported further tightening of standards for most loan categories over the past three months, following widespread tightening in previous quarters. Banks of all sizes expected their lending standards to tighten further for the rest of 2023. The most cited reason for tightening C&I standards and terms was a less favorable or more uncertain economic outlook. Mid-sized banksâthose that have total consolidated assets in the range of $50 billion to $250 billionâtightened C&I standards more than other banks and additionally reported that a deterioration in their current or expected liquidity position was an important reason for their tightening. Such banks account for a bit over one-fourth of C&I lending. Banks of all sizes expected to tighten C&I standards further over the remainder of the year, with small and mid-sized banks more widely reporting this expectation. Al­though CRE loan growth on banks' balance sheets remained robust in the first quarter, the April SLOOS indicated that loan standards across all CRE loan categories tightened further in the first quarter. The reported tightening in standards over the first quarter was particularly widespread for mid-sized banks. Banks also reported that they expected to tighten CRE standards further over the remainder of the year, with mid-sized banks very broadly reporting this expectation. Meanwhile, commercial mortgage-backed securities (CMBS) issuance was very slow in February and March, amid higher spreads and volatility as well as tighter lending standards. Credit remained broadly available in the residential mortgage market for high-credit-score borrowers who met standard conforming loan criteria, but credit availability for households with lower credit scores remained tight. In the April SLOOS, the net percentages of banks reporting tighter standards for all consumer loan categories during the first quarter were elevated relative to their historical range, and respondents expected that standards would continue to tighten over the remainder of 2023. Even so, consumer loans grew at a robust pace in the first quarter, with a continued strong expansion in revolving credit balances. Overall, the credit quality of most businesses and households remained solid but deteriorated somewhat for businesses with lower credit ratings and for households with lower credit scores. The credit quality of C&I and CRE loans on banks' balance sheets remained sound as of the end of the fourth quarter of last year. However, in the April SLOOS, banks frequently cited concerns about a deterioration in the quality of their loan portfolios as a reason for expecting to tighten standards over the remainder of the year. The staff provided an update on its assessment of the stability of the financial system. The staff judged that the banking system was sound and resilient despite concerns about profitability at some banks. The staff judged that asset valuation pressures remained moderate. In particular, the staff noted that the equity risk premium and corporate bond spreads declined over the past few months but remained near historical medians. Valuations in both residential and commercial property markets remained elevated. Rising borrowing costs had contributed to a moderation of price pressures in housing markets, and year-over-year house price increases had decelerated. The staff noted that the CRE sector remained vulnerable to large price declines. This possibility seemed particularly salient for office and downtown retail properties given the shift toward telework in many industries. The staff also noted analysis that found that while losses to CRE debt holders could be moderate in aggregate, some banks and the CMBS market could experience stress should prices of these properties decline significantly. The staff assessed that vulnerabilities associated with household leverage remained at moderate levels. For nonfinancial businesses, debt relative to nominal GDP declined some but continued to be near a historically high level. The ability of nonfinancial firms to service their debt kept pace with rising debt loads and interest rates. In terms of financial-sector leverage, going into the period of recent bank stress, banks of all sizes appeared strong, with substantial loss-absorbing capacity as measured by regulatory capital ratios well above levels that prevailed before the Great Recession. However, the ratio of tangible common equity to total tangible assets at banksâexcluding global systemically important banksâhad fallen sharply in recent quarters, partly because of a substantial drop in the value of securities held in their portfolios. The majority of the banking system had been able to effectively manage this interest rate risk exposure. However, the failure of three banks resulting from poor interest rate risk and liquidity risk management had put stress on some additional banks. For the nonbank sector, leverage at large hedge funds remained somewhat elevated in the third quarter of 2022, and more recent data from the Senior Credit Officer Opinion Survey on Dealer Financing Terms suggested this fact had not changed. With regard to vulnerabilities associated with funding risks, the staff assessed that al­though funding strains had been notable for some banks, such strains remained low for the banking system as a whole, especially in light of official interventions by the Federal Reserve, the Federal Deposit Insurance Corporation, and the U.S. Department of Treasury to support bank depositors. Outflows of funds from bank deposits in mid-March, which were concentrated at a limited number of banks, had slowed. Staff Economic Outlook The economic forecast prepared by the staff for the May FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery. Real GDP was projected to decelerate over the next two quarters before declining modestly in both the fourth quarter of this year and the first quarter of next year. Real GDP growth over 2024 and 2025 was projected to be below the staff's estimate of potential output growth. The unemployment rate was forecast to increase this year, to peak next year, and then to start declining gradually in 2025. Resource utilization in both product and labor markets was forecast to loosen, with the level of real output moving below the staff's estimate of potential output in early 2024 and the unemployment rate rising above the staff's estimate of its natural rate at that time. The staff's core inflation forecast was revised up a little relative to the previous projection. Recent data for core PCE goods prices and the ECI measure of wage growthâthe latter of which importantly influences the staff's projection of core nonhousing services inflationâcame in above expectations, and the staff judged that supplyâdemand imbalances in both goods markets and labor markets were easing a bit more slowly than anticipated. On a four-quarter change basis, total PCE price inflation was projected to be 3.1 percent this year, with core inflation at 3.8 percent. Core goods inflation was projected to move down further this year and then remain subdued, housing services inflation was expected to have about peaked in the first quarter and to move down over the rest of the year, and core nonhousing services inflation was forecast to slow gradually as nominal wage growth eased further. Reflecting the projected effects of less tightness in resource utilization, core inflation was forecast to slow through next year but remain moderately above 2 percent. With expected declines in consumer energy prices and a substantial moderation in food price inflation, total inflation was projected to run below core inflation this year and next. In 2025, both total and core PCE price inflation were expected to be at about 2 percent. The staff continued to judge that uncertainty around the baseline projection was considerable and still viewed risks as being determined importantly by the implications for macroeconomic conditions of developments in the banking sector. If banking-sector stress were to abate more quickly or have less of an effect on macroeconomic conditions than assumed in the baseline, then the risks would be tilted to the upside for economic activity and inflation, a scenario that the staff viewed as only a little less likely than the baseline. If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for economic activity and inflation. On balance, the staff saw the risks around the baseline inflation forecast as tilted to the upside, as an upside economic scenario with higher inflation appeared more likely than a downside scenario with lower inflation, and because inflation could continue to be more persistent than expected and inflation expectations could become unanchored after a long period of elevated inflation. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that economic activity had expanded at a modest pace in the first quarter. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated. Participants agreed that the U.S. banking system was sound and resilient. They commented that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. However, participants agreed that the extent of these effects remained uncertain. Against this background, participants concurred that they remained highly attentive to inflation risks. In assessing the economic outlook, participants noted that the growth rate of real GDP in the first quarter of this year was modest despite a pickup in consumer spending, as inventory investmentâa volatile categoryâdeclined substantially. Participants generally expected real GDP to grow at a pace below its longer-run trend rate in 2023, reflecting the effects of restrictive financial conditions. Participants assessed that the cumulative tightening of monetary policy over the past year had contributed significantly to more restrictive financial conditions. They also judged that banking-sector stress would likely weigh further on economic activity, but the extent to which that would be the case remained highly uncertain. With inflation well above the Committee's longer-run 2 percent objective, and core inflation showing only some signs of moderation, participants expected that a period of below-trend growth in real GDP and some softening in labor market conditions would be needed to bring aggregate supply and aggregate demand into better balance and reduce inflationary pressures over time. Participants generally noted that the actions taken by the Federal Reserve and other government agencies in response to developments in the banking sector had been effective in largely reducing stress. They noted that conditions in the banking sector had broadly improved since early March, with the initial deposit outflows experienced by some regional and smaller banks moderating substantially over subsequent weeks. Many participants commented that the recent developments in the banking sector had contributed to some tightening of lending standards beyond that which had occurred during previous quarters, especially among small and mid-sized banks. Some participants noted that small businesses tend to rely on small and mid-sized banks as primary sources of credit and therefore may disproportionally bear the effects of tighter lending conditions. Some participants mentioned that access to credit had not yet appeared to have declined significantly since the recent onset of stress in the banking sector. Participants judged that stress in the banking sector would, in coming quarters, likely induce banks to tighten lending standards by more than they would have in response to higher interest rates alone. However, participants generally noted that it was too early to assess with confidence the magnitude and persistence of these effects on economic activity. In their discussion of the household sector, participants noted that consumer spending showed strength in the first quarter, supported by gains in personal disposable income. They also remarked that the quarterly strength was driven mainly by very strong spending growth in January, while real spending fell modestly over February and March. Consistent with that slowing, participants anticipated that consumer spending would likely grow at a subdued rate over the remainder of 2023, reflecting in large part the effects of the tightening in financial conditions over the past year. Participants remarked that higher interest rates would continue to restrain interest-sensitive expenditures by households, such as those on housing and durable goods. Participants also noted that the rise in uncertainty associated with recent developments in the banking sector could weigh on consumer sentiment and spending. However, several participants observed that high-frequency measures of consumer sentiment had not yet shown significant changes following the banking-sector developments. A few participants remarked that there had been some ongoing reduction in consumers' discretionary expenditures in the face of elevated inflation and higher borrowing rates, especially among lower- and middle-income households; some of those declines were reportedly driven by shifts in purchases toward lower-cost options. Regarding the business sector, participants observed that growth in business fixed investment was subdued in the first quarter, reflecting relatively high borrowing costs, weak growth of business-sector output, and businesses' increasing concerns about the general economic outlook. Participants expected the tightening of bank lending standards to weigh further on firms' capital expenditures. Several participants noted that, based on reports from their District contacts, concerns related to banking-sector stress could add more uncertainty to an already soft economic outlook, increasing firms' caution, especially at smaller and mid-sized firms that rely heavily on bank credit to finance their operations. However, some other participants mentioned that developments in the banking sector appeared to have had only a modest effect so far on credit availability for firms. Participants noted that the labor market remained very tight, with robust payroll gains in March and an unemployment rate near historically low levels. Nevertheless, they noted some signs that the imbalance of supply and demand in the labor market was easing, with prime-age labor force participation returning to its pre-pandemic level and further reductions in the rates of job openings and quits. In addition, some participants noted that their District contacts reported less difficulty in hiring, lower turnover rates, and some layoffs. Participants anticipated that employment growth would likely slow further, reflecting a moderation in aggregate demand coming partly from tighter credit conditions. Participants remarked that al­though nominal wage growth appeared to be slowing gradually, it was still running at a pace that, given current estimates of trend productivity growth, was well above what would be consistent over the longer run with the Committee's 2 percent inflation objective. Participants generally anticipated that under appropriate monetary policy, imbalances in the labor market would gradually diminish, easing pressures on wages and prices. Participants agreed that inflation was unacceptably high. They commented that data through March indicated that declines in inflation, particularly for measures of core inflation, had been slower than they had expected. Participants observed that al­though core goods inflation had moderated since the middle of last year, it had decelerated less rapidly than expected in recent months, despite reports from several business contacts of supply chain constraints continuing to ease. Additionally, participants emphasized that core nonhousing services inflation had shown few signs of slowing in the past few months. Some participants remarked that a further easing in labor market conditions would be needed to help bring down inflation in this component. Regarding housing services inflation, participants observed that soft readings on rents for leases signed by new tenants were starting to feed into measured inflation. They expected that this process would continue and would help lead to a decline in housing services inflation over this year. In discussing the likely effects on inflation of recent banking-sector developments, several participants remarked that tighter credit conditions may not put much downward pressure on inflation in part because lower credit availability could restrain aggregate supply as well as aggregate demand. Several participants noted that longer-term measures of inflation expectations from surveys of households and businesses remained well anchored. Participants emphasized that with appropriate firming of monetary policy, well-anchored longer-term inflation expectations would support a return of inflation to the Committee's 2 percent longer-run goal. Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks. Participants judged that risks to the outlook for economic activity were weighted to the downside, al­though a few noted the risks were two sided. In discussing sources of downside risk to economic activity, participants referenced the possibility that the cumulative tightening of monetary policy could affect economic activity more than expected, and that further strains in the banking sector could prove more substantial than anticipated. Some participants also noted concerns that the statutory limit on federal debt might not be raised in a timely manner, threatening significant disruptions to the financial system and tighter financial conditions that weaken the economy. Regarding risks to inflation, participants cited the possibility that price pressures could prove more persistent than anticipated because of, for example, stronger-than-expected consumer spending and a tight labor market, especially if the effect of bank stress on economic activity proved modest. However, a few participants cited the possibility that further tightening of credit conditions could slow household spending and reduce business investment and hiring, all of which would support the ongoing rebalancing of supply and demand in product and labor markets and reduce inflation pressures. In their discussion of financial stability, various participants commented on recent developments in the banking sector. These participants noted that the banking system was sound and resilient, that actions taken by the Federal Reserve in coordination with other government agencies had served to calm conditions in that sector, but that stresses remained. A number of participants noted that the banking sector was well capitalized overall, and that the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities. These vulnerabilities included significant unrealized losses on assets resulting from rising interest rates, heavy reliance on uninsured deposits, or strained profitability amid higher funding costs. Some participants additionally noted that, because of weak fundamentals for CRE such as high vacancy rates in the office segment, high exposure to such assets was a vulnerability for some banks. Participants also commented on the susceptibility of some nonbank financial institutions to runs or instability. These included money market funds, which had recently experienced large cash inflows; hedge funds, which tend to use substantial leverage and may hold concentrated positions in some assets with low or zero margin; thinly capitalized nonbank mortgage servicers; and digital asset entities. Many participants mentioned that it is essential that the debt limit be raised in a timely manner to avoid the risk of severely adverse dislocations in the financial system and the broader economy. A few participants noted the importance of orderly functioning of the market for U.S. Treasury securities or stressed the importance of the appropriate authorities continuing to address issues related to the resilience of the market. A number of participants emphasized that the Federal Reserve should maintain readiness to use its liquidity tools, as well as its microprudential and macroprudential regulatory and supervisory tools, to mitigate future financial stability risks. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that inflation remained substantially elevated relative to the Committee's longer-run goal of 2 percent. Economic activity had expanded at a modest pace in the first quarter. The labor market continued to be tight, with robust job gains in recent months, and the unemployment rate remained low. Participants also noted that recent developments in the banking sector would likely result in tighter credit conditions for households and businesses, which would weigh on economic activity, hiring, and inflation. However, the extent of these effects remained uncertain. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 25 basis points to 5 percent to 5-1/4 percent. All participants agreed that it was also appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. In discussing the policy outlook, participants generally agreed that in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain. Participants agreed that it would be important to closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, various participants noted specific factors that should bear on future decisions on policy actions. One such factor was the degree and timing with which cumulative policy tightening restrained economic activity and reduced inflation, with some participants commenting that they saw evidence that the past years' tightening was beginning to have its intended effect. Another factor was the degree to which tighter credit conditions for households and businesses resulting from events in the banking sector would weigh on activity and reduce inflation, which participants agreed was very uncertain. Additional factors included the progress toward returning inflation to the Committee's longer-run goal of 2 percent, and the pace at which labor market conditions softened and economic growth slowed. Participants also discussed several risk-management considerations that could bear on future policy decisions. A few assessed that there were upside risks to economic growth. However, almost all participants commented that downside risks to growth and upside risks to unemployment had increased because of the possibility that banking-sector developments could lead to further tightening of credit conditions and weigh on economic activity. Almost all participants stated that, with inflation still well above the Committee's longer-run goal and the labor market remaining tight, upside risks to the inflation outlook remained a key factor shaping the policy outlook. A few participants noted that they also saw some downside risks to inflation. Taking into account these various considerations, participants discussed their views on the extent to which further policy firming after the current meeting may be appropriate. Participants generally expressed uncertainty about how much more policy tightening may be appropriate. Many participants focused on the need to retain optionality after this meeting. Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary. In light of the prominent risks to the Committee's objectives with respect to both maximum employment and price stability, participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook. Participants discussed the importance and various aspects of clearly explaining monetary policy actions and strategy. All participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective over time and remained highly attentive to inflation risks. A few participants commented that recent monetary policy actions and communications had helped keep inflation expectations well anchored, which they saw as important for the attainment of the Committee's goals. Participants emphasized the importance of communicating to the public the data-dependent approach of policymakers, and the vast majority of participants commented that the adjusted language in the postmeeting statement was helpful in that respect. Some participants stressed that it was crucial to communicate that the language in the postmeeting statement should not be interpreted as signaling either that decreases in the target range are likely this year or that further increases in the target range had been ruled out. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that economic activity had expanded at a modest pace in the first quarter. They also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Inflation had remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation, but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the members agreed to raise the target range for the federal funds rate to 5 to 5-1/4 percent. Members agreed to closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, members concurred that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that they will continue reducing the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. All members affirmed that they are strongly committed to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective May 4, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5 to 5-1/4 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.25 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.05 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 5.15 percent, effective May 4, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 5.25 percent, effective May 4, 2023. 4 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 13â14, 2023. The meeting adjourned at 10:00 a.m. on May 3, 2023. Notation Vote By notation vote completed on April 11, 2023, the Committee unanimously approved the minutes of the Committee meeting held on March 21â22, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended Tuesday's session only. Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 5.25 percent primary credit rate by the remaining Federal Reserve Bank, effective on the later of May 4, 2023, or the date such Reserve Bank informs the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Bank of New York was informed of the Board's approval of their establishment of a primary credit rate of 5.25 percent, effective May 4, 2023.) Return to text

Minutes of the Federal Open Market Committee June 13â14, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, June 13, 2023, at 10:30 a.m. and continued on Wednesday, June 14, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Roc Armenter, James A. Clouse, Brian M. Doyle, Beverly J. Hirtle, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Gianni Amisano, Assistant Director, Division of Research and Statistics, Board Philippe Andrade, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board Marco Cagetti, Assistant Director, Division of Research and Statistics, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ahmet Degerli, Economist, Division of Monetary Affairs, Board Cynthia L. Doniger, Principal Economist, Division of Monetary Affairs, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Erin E. Ferris, Principal Economist, Division of Monetary Affairs, Board Jonas Fisher, Senior Vice President, Federal Reserve Bank of Chicago Glenn Follette, Associate Director, Division of Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis David Glancy, 4 Principal Economist, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 2 Senior Adviser, Division of Monetary Affairs, Board Edward S. Knotek II, Senior Vice President, Federal Reserve Bank of Cleveland Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Geng Li, Assistant Director, Division of Research and Statistics, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Brent Meyer, Assistant Vice President, Federal Reserve Bank of Atlanta Bernardo C. Morais, Principal Economist, Division of International Finance, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Nicolas Petrosky-Nadeau, Vice President, Federal Reserve Bank of San Francisco Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board Zeynep Senyuz, Deputy Associate Director, Division of Monetary Affairs, Board Margie Shanks, Deputy Secretary, Office of the Secretary, Board Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board A. Lee Smith, Senior Vice President, Federal Reserve Bank of Kansas City Hiroatsu Tanaka, 5 Senior Economist, Division of Monetary Affairs, Board Mary H. Tian, Group Manager, Division of Monetary Affairs, Board Robert L. Triplett III, First Vice President, Federal Reserve Bank of Dallas Clara Vega, Special Adviser to the Board, Division of Board Members, Board Daniel J. Vine, Principal Economist, Division of Research and Statistics, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Fabian Winkler, Principal Economist, Division of Monetary Affairs, Board Alexander L. Wolman, Vice President, Federal Reserve Bank of Richmond Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Policy-sensitive rates increased over the intermeeting period, reflecting indications of continued resilience in the economy, persistently elevated core inflation, and reduced downside tail risks following the resolution of the debt limit. The shift in policy expectations contributed significantly to higher Treasury yields. The increase in nominal yields primarily reflected higher real rates rather than inflation compensation. Broad equity prices rose, al­though the outperformance was concentrated in a handful of companies with a large market capitalization. Cyclical sectors fared better than sectors that tend to appreciate in a downturn, suggesting some reduced investor concern about downside risks to growth. Investor sentiment about the banking sector improved as perceived tail risks regarding regional banks appeared to have receded. Equity prices for regional banks rose over the intermeeting period but were still well below early March levels. Financial conditions indexes were roughly unchanged, as higher rates and a stronger dollar were offset by higher equity prices and narrower credit spreads. The vast majority of respondents to the Open Market Desk's Surveys of Primary Dealers and Market Participants expected no rate change at this meeting. While the median path from the surveys pointed to no rate changes through early 2024, there was significant dispersion across respondents, and respondents saw a clear probability of additional tightening at coming meetings. Respondents' average probability distribution for the level of the peak policy rate shifted higher since the May meeting and respondents on average assigned about 60 percent probability to the peak being above the current target range. The market-implied path for the policy rate continued to show some decline this year but less so than it had in recent months. Measures of uncertainty about the path of the policy rate derived from options remained very elevated, though they came down some over the intermeeting period. Desk survey respondents still saw a recession occurring in the near term as quite likely, but the expected timing was again pushed later, as economic data pointed to the continued resilience of economic activity. Overall, respondents generally continued to expect that any downturn would be neither deep nor prolonged. With regard to inflation expectations, respondents marked up their projections for quarterly core personal consumption expenditures (PCE) inflation in the second and third quarters of this year, while projections for later quarters were little changed. The manager then turned to money market developments and policy implementation. The median respondent to the Desk surveys expected the three-month bill yield to increase slightly relative to the similar-maturity overnight index swap (OIS) rate and to remain above it into the fourth quarter. This expectation likely reflected a combination of rising net supply of bills as part of the Treasury Department's plan to rebuild the Treasury General Account (TGA) following the resolution of the debt limit and expectations for healthy investor demand for bills. The overnight reverse repurchase agreement (ON RRP) facility, which continued to support effective policy implementation and control over the federal funds rate, saw somewhat lower participation since the resolution of the debt limit, consistent with the historical experience that ON RRP participation is typically responsive to changes in money market conditions. The median respondent to the Desk's Survey of Primary Dealers expected ON RRP participation to trend lower over the rest of this year. The staff assessed that the replenishment of the TGA and the ongoing balance sheet runoff, among other factors, were likely to subtract from reserves more than the decline in ON RRP participation would add to them. On net, the staff judged that reserves at the end of the year were likely to remain abundant. Uncertainty surrounding the outlooks for both reserves and ON RRP participation was substantial. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the June 13â14 meeting suggested that real gross domestic product (GDP) was expanding at a modest pace in the second quarter. Labor market conditions remained tight in recent months, as job gains were robust and the unemployment rate was low. Consumer price inflationâas measured by the 12-month percent change in the price index for PCEâcontinued to be elevated in April. Labor market conditions remained tight in April and May. Total nonfarm payroll employment increased at a robust pace during those two months. The unemployment rate edged up, on net, but was still at a low level of 3.7 percent in May. On balance, the unemployment rate for African Americans moved up to 5.6 percent, while the jobless rate for Hispanics moved down to 4.0 percent. In aggregate, the labor force participation rate held steady in April and May, and the employment-to-population ratio ticked down. The private-sector job openings rate in Aprilâas measured by the Job Openings and Labor Turnover Surveyâwas unchanged from its relatively high first-quarter average, though it was lower than a year earlier. Recent measures of nominal wage growth continued to be elevated, al­though lower than their highs last year. Over the 12 months ending in May, average hourly earnings for all employees increased 4.3 percent, below its peak of 5.9 percent early last year. Over the year ending in the first quarter, compensation per hour in the business sector increased 3.2 percent, down from 5.5 percent a year earlier. Consumer price inflation remained elevated. Total PCE price inflation had eased since the middle of last year, reflecting declines in consumer energy prices and softening consumer food price inflation, but recent readings for core PCE price inflationâwhich excludes changes in consumer energy prices and most consumer food prices and usually provides a better signal about future inflation than the more volatile total inflation measureâwere little changed. Total PCE price inflation was 4.4 percent over the 12 months ending in April, and core PCE price inflation was 4.7 percentâthe same as the 12-month percent change recorded in January. In May, the 12-month change in the consumer price index (CPI) was 4.0 percent, and core CPI inflation was 5.3 percentâonly slightly below its January reading. The trimmed mean measure of 12âmonth PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.8 percent in April. Survey-based measures of longer-term inflation expectations in May from the University of Michigan Surveys of Consumers and the Federal Reserve Bank of New York's Survey of Consumer Expectations remained within the range of their values reported in the decade before the pandemic; near-term measures of inflation expectations from these surveys moved down in May and continued to be below their peaks seen last year. Real GDP appeared to be increasing modestly in the second quarter following its stronger first-quarter gain. Private domestic final purchases (PDFP)âwhich includes PCE, residential investment, and business fixed investment and often provides a better signal of underlying economic momentum than GDPâlooked to be expanding more slowly in the second quarter than its robust first-quarter pace. For the first half as a whole, PDFP growth seemed to be more resilient than in the second half of last year. The annual revisions to international trade statistics suggested that net exports contributed positively to U.S. real GDP growth in the first quarter, with real exports rebounding more strongly than real imports following their fourth-quarter declines. In April, however, the nominal trade deficit widened notably, as nominal exports decreased and nominal imports rose further. Foreign economic growth rebounded in the first quarter, reflecting in part the reopening of China's economy from its COVID-19-related shutdowns and strong services-sector activity in other Asian countries, Canada, and Mexico. In the euro area, however, real GDP contracted modestly for a second consecutive quarter amid a pullback in consumer spending. Indicators pointed to a step-down in the pace of foreign economic growth in the second quarter, with the impetus from China's reopening dissipating and global manufacturing activity remaining weak. Global prices for energy and agricultural commodities were little changed, on net, over the intermeeting period, while prices for metals fell further. Declines in retail energy prices since the beginning of the year contributed to a notable easing in headline consumer price inflation in the foreign economies. By contrast, core inflation had yet to materially decline from its recent highs in many economies. In this context, and with tight labor market conditions, foreign central banks underscored the need to raise policy rates further or hold them at sufficiently restrictive levels to bring inflation back to their respective targets and be well positioned in case inflation failed to decline as expected. Staff Review of the Financial Situation Over the intermeeting period, market participants appeared to interpret incoming data as signaling, on balance, more resilience in economic activity than previously assumed and viewed communications from FOMC participants overall as pointing to a tighter path for policy than expected. As a result, Treasury yields and the expected future path for the federal funds rate shifted upward significantly. Meanwhile, broad equity prices also increased notably. Financing conditions remained moderately restrictive, but credit availability generally remained solid. The expected path of the policy rate implied by market quotes moved up notably over the intermeeting period. A straight read of federal funds futures rates suggested that market participants expected that the federal funds rate would be roughly flat over the course of the rest of this year. The year-end expected rate was about 70 basis points higher than the year-end expectation before the May FOMC meeting. Beyond this year, the policy rate path implied by OIS quotes also moved up, to about 3.7 percent by the end of 2024. Similarly, nominal Treasury yields rose significantly. The rise in nominal yields mostly reflected an increase in real yields, as measures of inflation compensation were little changed, on net, amid somewhat mixed news on inflation. Measures of uncertainty about the path of interest rates remained very elevated by historical standards. The S&P 500 stock price index increased sizably, on net, over the intermeeting period, led by technology-related stocks. The VIXâthe one-month option-implied volatility on the S&P 500 indexâedged down, on balance, and ended the period near the 30th percentile of its historical distribution. Bank equity price indexes moved up notably, on net, over the intermeeting period. Stock prices for large banks were only somewhat below their levels before the failure of Silicon Valley Bank (SVB), while those for regional banks remained below their levels in early March. Market-based policy rate expectations rose notably in most advanced foreign economies, as core inflation data surprised to the upside in some countries and central bank communications were perceived as pointing to more restrictive policy than expected. Notwithstanding the rise in global yields, foreign equity prices, credit spreads, and risk sentiment in foreign markets were little changed over the intermeeting period. The staff's trade-weighted broad dollar index was also little changed, on net, but the exchange value of the dollar appreciated significantly against the Chinese renminbi amid increased investor concerns over China's economic growth prospects. Conditions in overnight bank funding and repurchase agreement markets remained generally stable over the intermeeting period. The 25 basis point increase in administered rates at the May FOMC meeting fully passed through to overnight money market rates. Spreads and issuance volumes in unsecured short-term funding markets stayed within their typical ranges. In May, yields of Treasury bills maturing in June and thus potentially affected by the federal debt limit rose sharply before largely retracing those increases after an agreement was reached to suspend the debt limit. In domestic credit markets, borrowing costs for businesses, households, and municipalities increased notably over the intermeeting period. Interest rates on newly originated bank loans to businesses and households in the first quarter rose further above their peaks from the previous tightening cycle, and yields on leveraged loans also rose, reaching levels close to their peak at the onset of the pandemic. Rates also moved up on a broad array of fixed-income securities, including investment- and speculative-grade corporate bonds, municipal bonds, both agency and non-agency commercial mortgage-backed securities (CMBS), and agency residential mortgage-backed securities. The increases in yields on these instruments over the intermeeting period were generally in line with, or less than, the changes in their Treasury benchmarks. Small businesses and households saw continued increases in their borrowing costs. Rates on 30-year conforming residential mortgages stepped up, broadly in line with increases in comparable-duration Treasury yields. Interest rates on credit card offers continued to rise through April, and auto loan interest rates moved sideways during the intermeeting period. Both credit card and auto loan interest rates stood at, or near, their highest levels since the Global Financial Crisis. Banks' ability to fund loans to businesses and consumers appeared to have stabilized in recent weeks but remained somewhat strained relative to before the closure of SVB in March. Al­though banks continued to experience outflows of core deposits, the pace of those outflows moderated substantially relative to March, suggesting some easing of bank funding pressures. Banks also continued to attract inflows of large time deposits, reflecting higher interest rates on new certificates of deposit. Total bank assets were little changed, on net, over the intermeeting period. In capital markets, funding had generally been resilient. Issuance of nonfinancial investment-grade corporate bonds rose at a robust pace in May after slowing in April, partly due to the "earnings blackout" period. Speculative-grade issuance increased in late April and in May but remained subdued by historical standards. Gross issuance of municipal bonds was solid in April and May. Conditions in the leveraged loan and CMBS markets were somewhat more strained. Leveraged loan issuance remained subdued, reflecting weak investor demand amid concerns over the credit worthiness of borrowers. Both agency and non-agency CMBS issuance volumes were low in May relative to pre-pandemic levels. In addition, for small businesses, credit availability continued to show signs of tightening. Credit remained easily available in the residential mortgage market for high credit score borrowers who met standard conforming loan criteria. For borrowers with lower scores, credit availability tightened slightly in April but remained close to pre-pandemic levels. In consumer credit markets, conditions stayed generally accommodative, with credit available for most borrowers. The credit quality of most businesses and households remained solid, although market participants appeared to expect some deterioration in the coming quarters, which could weaken lender balance sheets and possibly weigh on credit availability. A measure of the May CMBS delinquency rate showed about a 50 basis point increase, driven by a sharp rise in the delinquency rate for office buildings. Staff Economic Outlook The economic forecast prepared by the staff for the June FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery. Real GDP was projected to decelerate in the current quarter and the next one before declining modestly in both the fourth quarter of this year and first quarter of next year. Real GDP growth over 2024 and 2025 was projected to be below the staff's estimate of potential output growth. The unemployment rate was forecast to increase this year, peak next year, and remain near that level through 2025. Current tight resource utilization in both product and labor markets was forecast to ease, with the level of real output moving below the staff's estimate of potential output in 2025 and the unemployment rate rising above the staff's estimate of its natural rate at that time. The staff's inflation forecast was little revised relative to the previous projection, and supplyâdemand imbalances in both goods markets and labor markets were still judged to be easing only slowly. On a four-quarter change basis, total PCE price inflation was projected to be 3.0 percent this year, with core inflation at 3.7 percent. Core goods inflation was forecast to move down further this year and then remain subdued. Housing services inflation was considered to have about peaked and was expected to move down over the rest of the year. Core nonhousing services inflation was projected to slow gradually as nominal wage growth eased further. Reflecting the effects of the easing in resource utilization over the projection, core inflation was forecast to slow through next year but remain moderately above 2 percent. With expected declines in consumer energy prices and further moderation in food price inflation, total inflation was projected to run below core inflation this year and the next. In 2025, both total and core PCE price inflation were expected to be close to 2 percent. The staff continued to judge that uncertainty around the baseline projection was considerable and still viewed the risks as being influenced importantly by the potential macroeconomic implications of banking-sector developments, which could end up being more, or less, negative than assumed in the baseline. Given the continued strength in labor market conditions and the resilience of consumer spending, however, the staff saw the possibility of the economy continuing to grow slowly and avoiding a downturn as almost as likely as the mildârecession baseline. On balance, the staff saw the risks around the baseline inflation forecast as tilted to the upside, as economic scenarios with higher inflation appeared more likely than scenarios with lower inflation and because inflation could continue to be more persistent than expected and inflation expectations could become unanchored after a long period of elevated inflation. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2023 through 2025 and over the longer run. The projections were based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants noted that economic activity had continued to expand at a modest pace. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated. Participants agreed that the U.S. banking system was sound and resilient. They commented that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. However, participants agreed that the extent of these effects remained uncertain. Against this background, participants concurred that they remained highly attentive to inflation risks. In assessing the economic outlook, most participants noted that real GDP growth had been resilient in recent quarters. Participants generally judged that growth would be subdued over the remainder of this year. They assessed that the cumulative tightening of monetary policy over the past year had contributed significantly to more restrictive financial conditions and lower demand in the most interest rate sensitive sectors of the economy, especially housing and business investment. Participants also acknowledged uncertainty about the lags with which monetary policy affects the economy and discussed the extent to which the full effects of monetary tightening on the economy had been realized. While total inflation had moderated over the past year, core inflation had not shown a sustained easing since the beginning of the year. With inflation well above the Committee's longer-run 2 percent objective, participants expected that a period of below-trend growth in real GDP and some softening in labor market conditions would be needed to bring aggregate supply and aggregate demand into better balance and reduce inflationary pressures sufficiently to return inflation to 2 percent over time. Participants generally noted that banking stresses had receded and conditions in the banking sector were much improved since early March. Participants generally continued to judge that a tightening in credit conditions spurred by banking-sector stress earlier in the year would likely weigh further on economic activity, but the extent remained uncertain. Several participants mentioned that credit conditions had not appeared to have tightened significantly beyond what would be expected in response to the monetary policy actions taken since early last year. Some participants judged that it was still too early to assess with confidence the eventual effects of tighter bank credit conditions on economic activity and noted that it would be important to monitor closely the potential effects of banking-sector developments on credit conditions and economic activity. In their discussion of the household sector, participants generally noted that consumer spending so far this year had been stronger than expected. Several participants noted that aggregate household wealth remained high, as equity and home prices had not declined much from their recent highs. A few participants mentioned that while, overall, the household sector still retained much of the excess savings it had accumulated during the pandemic, there were signs that consumers were facing increasingly tighter budget constraints, given high inflation and, especially for low-income households, depleted savings. Regarding the business sector, various participants said that reports from their contacts were mixed, with some pointing to softening economic conditions and others indicating greater-than-expected strength. Many participants noted that developments in the banking sector appeared to have had only a modest effect so far on credit availability for firms. Some participants remarked that the effect of high interest rates on the housing sector appeared to be bottoming out, with home sales, builder sentiment, and new construction all having improved a little since the start of the year. In their discussion of economic activity, several participants pointed out that recent GDP readings had been stronger than expected earlier in the year, while gross domestic income (GDI) readings had been weak. Of those who noted the discrepancy between GDP and GDI, most suggested that economic momentum may not be as strong as indicated by the GDP readings. In discussing that possibility, a couple of these participants also cited the recent subdued growth in aggregate hours worked. Participants noted that labor market conditions remained very tight, with robust payroll gains and the unemployment rate still near historically low levels. Nevertheless, they noted some signs that supply and demand in the labor market were coming into better balance, with the prime-age labor force participation rate moving up in recent months and further reductions in rates of job openings and quits, and declines in average weekly hours. A couple of participants conveyed that they heard at a recent Fed Listens event that, in various parts of the country, the lack of affordable housing in the area was preventing some lower-income workers from relocating to accept jobs. Similarly, a few participants noted that their District contacts reported less difficulty in hiring and retaining workers, lower turnover rates, and some layoffs. Some participants pointed out that payroll gains had remained robust but noted that some other measures of employmentâsuch as those based on the Bureau of Labor Statistics' household survey, the Quarterly Census of Employment and Wages, or the Board staff's measure of private employment using data from the payroll processing firm ADPâsuggested that job growth may have been weaker than indicated by payroll employment. Participants anticipated that employment growth would likely slow further, consistent with their projections of below-trend economic growth. Participants noted that nominal wage growth had shown signs of easing but observed that it was still running at a pace that, given current estimates of trend productivity growth, was above what would be consistent over the longer run with the Committee's 2 percent inflation objective. Participants expected supply and demand conditions in the labor market to come into better balance over time, easing pressures on wages and prices. Participants agreed that inflation was unacceptably high and noted that the data, including the CPI for May, indicated that declines in inflation had been slower than they had expected. Participants observed that although core goods inflation had moderated since the middle of last year, it had slowed less rapidly than expected in recent months, despite data and reports from business contacts indicating that supply chain constraints had continued to ease. Some participants noted the recent moderation in housing services inflation and expected this trend to continue. However, a few participants pointed to upside risks to the outlook for housing services inflation associated with near-record low inventories of homes for sale, solid housing demand, and less-than-expected deceleration recently in measures of rents for leases signed by new tenants. Additionally, some participants remarked that core nonhousing services inflation had shown few signs of slowing in the past few months. Several participants noted that longer-term measures of inflation expectations from surveys of households and businesses remained well anchored. Participants emphasized that, with appropriate firming of monetary policy, well-anchored longer-term inflation expectations would support a return of inflation to the Committee's 2 percent longer-run goal over time. Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy from both already-enacted monetary policy tightening and the potential additional tightening in credit conditions stemming from recent banking-sector developments. Participants noted that the full effects of monetary tightening had likely yet to be observed, though several highlighted the possibility that much of the effect of past monetary policy tightening may have already been realized. Regarding downside risks to economic activity, participants noted the possibility that the cumulative and rapid tightening of monetary policy would eventually affect economic activity more than expected, and that the additional effects of the tightening of bank credit conditions could prove more substantial than anticipated. Regarding risks to inflation, with inflation remaining well above the Committee's longer-run goal, some participants mentioned the possibility that longer-term inflation expectations could become unanchored, particularly in light of stronger-than-expected consumer demand and a still-tight labor market. Several participants cited the possibility of delayed effects of tighter credit conditions potentially contributing to a slowdown in economic activity that reduces inflationary pressures. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that while inflation had moderated since the middle of 2022, it remained well above the Committee's longer-run goal of 2 percent. Economic activity had continued to expand at a modest pace. The labor market remained very tight, with robust job gains in recent months and the unemployment rate still low, but there were some signs that supply and demand in the labor market were coming into better balance. The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, al­though the extent of these effect remained uncertain. Against this backdrop, and in consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation, almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5-1/4 percent at this meeting. Most of these participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy's progress toward the Committee's goals of maximum employment and price stability. Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal. The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee's 2 percent objective over time. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. In discussing the policy outlook, all participants continued to anticipate that, with inflation still well above the Committee's 2 percent goal and the labor market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate to achieve the Committee's objectives. Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate. Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy. Many also noted that, after rapidly tightening the stance of monetary policy last year, the Committee had slowed the pace of tightening and that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy. Participants agreed that their policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks. They also emphasized the importance of communicating to the public their data-dependent approach. Most participants observed that postmeeting communications, including the SEP, would help clarify their assessment regarding the stance of monetary policy that is likely to be appropriate to bring inflation down to 2 percent over time. Participants also discussed several risk-management considerations that could bear on future policy decisions. Almost all participants stated that, with inflation still well above the Committee's longer-run goal and the labor market remaining tight, upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored remained key factors shaping the policy outlook. Even though economic activity had been resilient recently and that the labor market remained strong, some participants commented that there continued to be downside risks to economic growth and upside risks to unemployment. Despite the receding of the stresses in the banking sector, some participants commented that it would be important to monitor whether developments in the banking sector lead to further tightening of credit conditions and weigh on economic activity. Some participants noted concerns about the potential risks stemming from weakness in commercial real estate. A number of participants observed that the resolution of the federal government debt limit had removed one source of significant uncertainty for the economic outlook. A few participants noted that there could be some upward pressure on money market rates in the near term as the Treasury issued more bills to meet expenditures and return the balance in the TGA to the Treasury's preferred level. Those participants observed that upward pressure on money market rates relative to the rate offered on the ON RRP facility could lead to a decline in usage of the facility. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that economic activity had continued to expand at a modest pace. They also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Inflation had remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation, but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks. Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the members agreed to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Members agreed that holding the target range steady at this meeting allowed the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that the Committee will continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. All members affirmed that they are strongly committed to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective June 15, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5 to 5-1/4 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.25 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.05 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 5.15 percent, effective June 15, 2023. The Board also voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.25 percent. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 25â26, 2023. The meeting adjourned at 10:20 a.m. on June 14, 2023. Notation Vote By notation vote completed on May 23, 2023, the Committee unanimously approved the minutes of the Committee meeting held on May 2â3, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended through the discussion of the economic and financial situation and all of Wednesday's session. Return to text 4. Attended Tuesday's session only. Return to text 5. Attended from the discussion of the economic and financial situation through the end of Tuesday's session. Return to text

Minutes of the Federal Open Market Committee July 25-26, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, July 25, 2023, at 10:00 a.m. and continued on Wednesday, July 26, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee Susan M. Collins, President of the Federal Reserve Bank of Boston Kelly J. Dubbert and Kathleen O'Neill Paese, Interim Presidents of the Federal Reserve Banks of Kansas City and St. Louis, respectively Joshua Gallin, Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Eric M. Engen, Anna Paulson, Andrea Raffo, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board Brent Bundick, Senior Research and Policy Advisor, Federal Reserve Bank of Kansas City Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, 3 Deputy Director, Division of International Finance, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 4 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs and Division of Research and Statistics, Board Huberto M. Ennis, Group Vice President, Federal Reserve Bank of Richmond Erin E. Ferris, Principal Economist, Division of Monetary Affairs, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Board Members, Board Peter M. Garavuso, Senior Information Manager, Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Christine Graham, 5 Special Adviser to the Board, Division of Board Members, Board Luca Guerrieri, Associate Director, Division of International Finance, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Callum Jones, Senior Economist, Division of Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Ann E. Misback, Secretary, Office of the Secretary, Board Juan M. Morelli, Economist, Division of Monetary Affairs, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Paolo A. Pesenti, Director of Monetary Policy Research, Federal Reserve Bank of New York Damjan Pfajar, Group Manager, Division of Monetary Affairs, Board Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Donald Keith Sill, Senior Vice President, Federal Reserve Bank of Philadelphia Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Dafina Stewart, Special Adviser to the Board, Division of Board Members, Board Gustavo A. Suarez, Assistant Director, Division of Research and Statistics, Board Brett Takacs, Senior Communications Analyst, Division of Information Technology, Board Jenny Tang, Vice President, Federal Reserve Bank of Boston Willem Van Zandweghe, Assistant Vice President, Federal Reserve Bank of Cleveland Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 4 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. Market participants interpreted data releases as generally demonstrating economic resilience and a further easing of inflation pressures. The market-implied peak for the federal funds rate rose in response to data pointing to a robust economy but retraced part of that move after the June consumer price index (CPI) release was interpreted by market participants as softer than anticipated. Even as market prices shifted to indicate a slightly more restrictive expected policy path, broader financial conditions eased a bit, reflecting in large part gains in equity prices and tighter credit spreads. Notably, share prices for bank equity also appreciated over the intermeeting period as concerns about the banking sector continued to dissipate. Spot and forward measures of inflation compensation based on Treasury Inflation-Protected Securities were little changed over the intermeeting period at levels broadly consistent with the Committee's 2 percent longer-run goal, and longer-term survey- and market-based measures continued to point to inflation expectations being firmly anchored. Market-implied peak policy rates in most advanced foreign economies (AFEs) rose further this period, and the dollar depreciated modestly. Respondents to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants in July continued to place significant probability of a recession occurring by the end of 2024. However, the timing of a recession expected by survey respondents was again pushed later, and the probability of avoiding a recession through 2024 grew noticeably. Survey respondents anticipated that both headline and core personal consumption expenditures (PCE) inflation will decline to 2 percent by the end of 2025. There was a strong anticipation, evident in both market-based measures and responses to the Desk's surveys, that the Committee would raise the target range 25 basis points at the July FOMC meeting. Most survey respondents had a modal expectation that a July rate hike would be the last of this tightening cycle, although most respondents also perceived that additional monetary policy tightening after the July FOMC meeting was possible. As inferred from their responses, survey respondents expected real rates to increase through the first half of 2024 and to remain above their expectations for the long-run neutral levels for a few years. The manager then turned to money market developments and policy implementation. The overnight reverse repurchase agreement (ON RRP) facility continued to work as intended over the intermeeting period and had been instrumental in providing an effective floor under the federal funds rate and supporting other money market rates; those rates remained stable over the period. Following the suspension of the debt ceiling in early June, the Treasury Department issued securities, notably Treasury bills, to replenish the Treasury General Account (TGA). The resulting greater availability of Treasury bills, which were priced at rates slightly above the current and expected ON RRP rates, induced a net decline in ON RRP balances for the period. A further decline in ON RRP balances was deemed probable amid sustained projected Treasury bill issuance, further reductions in the size of the Federal Reserve's balance sheet in accordance with the previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet, and a possible further reduction in policy uncertainty that could incentivize money funds to extend the duration of their portfolios. In the July Desk Survey of Primary Dealers, respondents expected lower ON RRP balances and higher bank reserves by the end of the year, compared with the June survey. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the July 25â26 meeting suggested that real gross domestic product (GDP) rose at a moderate pace over the first half of the year. The labor market remained very tight, though the imbalance between demand and supply in the labor market was gradually diminishing. Consumer price inflationâas measured by the 12-month percent change in the price index for PCEâremained elevated in May, and available information suggested that inflation declined but remained elevated in June. In the second quarter, total nonfarm payroll employment posted its slowest average monthly increase since the recovery began in mid-2020, though payroll gains remained robust compared with those seen before the pandemic. Similarly, the private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, fell in May to its lowest level since March 2021 but remained well above pre-pandemic levels. The unemployment rate edged down to 3.6 percent in June, while the labor force participation rate and the employment-to-population ratio were both unchanged. The unemployment rates for African Americans and Hispanics, however, both rose and were well above the national average. Average hourly earnings rose 4.4 percent over the 12 months ending in June, compared with a year­-earlier increase of 5.4 percent. Consumer price inflation continued to show signs of easing but remained elevated. Total PCE price inflation was 3.8 percent over the 12 months ending in May, and core PCE price inflation, which excludes changes in energy prices and many consumer food prices, was 4.6 percent over the same period. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.6 percent in May. In June, the 12âmonth change in the CPI was 3.0 percent, while core CPI inflation was 4.8 percent over the same period. Measures of short-term inflation expectations had moved down alongside actual inflation but remained above pre-pandemic levels. In contrast, measures of medium- to longer-term inflation expectations were in the range seen in the decade before the pandemic. Available indicators suggested that real GDP rose in the second quarter at a pace similar to the one posted in the first quarter. However, private domestic final purchasesâwhich includes PCE, residential investment, and business fixed investment and which often provides a better signal of underlying economic momentum than does GDPâappeared to have decelerated in the second quarter. Manufacturing output rose in the second quarter, supported by a robust increase in motor vehicle production. After falling sharply in April, real exports of goods picked up in May, led by higher exports of industrial supplies and automotive products. Real goods imports fell, as lower imports of consumer goods and industrial supplies more than offset higher imports of capital goods. The nominal U.S. international trade deficit narrowed, as a sharp decline in nominal imports of goods and services outpaced a decline in exports. The available data suggested that net exports subtracted from U.S. GDP growth in the second quarter. Indicators of economic activity, such as purchasing managers indexes (PMIs), pointed to a step-down in the pace of foreign growth in the second quarter, reflecting fading of the impetus from China's reopening, continued anemic growth in Europe, some weakening of activity in Canada and Mexico, as well as weak external demand and the slump in the high-tech industry weighing on many Asian economies. Incoming data also indicated that global manufacturing activity remained weak during the intermeeting period. Foreign headline inflation continued to fall, reflecting, in part, the pass-through of previous declines in commodity prices to retail energy and food prices. Core inflation edged down in many countries but generally remained high. In this context, and amid tight labor market conditions, many AFE central banks raised policy rates and underscored the need to raise rates further, or hold them at sufficiently restrictive levels, to bring inflation in their countries back to their targets. In contrast, central banks of emerging market economies largely remained on hold, and some indicated that a rate cut is possible at their next meeting. Staff Review of the Financial Situation Over the intermeeting period, market participants interpreted domestic economic data releases as indicating continued resilience of economic activity and some easing of inflationary pressures, and they viewed monetary policy communications as pointing to somewhat more restrictive policy than expected. The market-implied path for the federal funds rate rose modestly, and nominal Treasury yields increased somewhat at shorter maturities. Meanwhile, broad equity prices increased, and spreads on investment- and speculative-grade corporate bonds narrowed moderately. Financing conditions continued to be generally restrictive, and borrowing costs remained elevated. Over the intermeeting period, the market-implied path for the federal funds rate rose modestly, while the timing of the path's slightly higher peak moved a little later, to just after the November meeting. Beyond this year, the policy rate path implied by overnight index swap (OIS) quotes ended the period modestly higher. Yields on Treasury securities increased modestly at shorter maturities but only a bit at longer maturities. Measures of inflation compensation rose only slightly for near-term and longer maturities. Measures of uncertainty about the path of the policy rate derived from interest rate options remained very elevated by historical standards. Broad stock price indexes increased and spreads on investment- and speculative-grade corporate bonds narrowed moderately over the intermeeting period. The VIXâthe one-month option-implied volatility on the S&P 500âedged down and ended the period near the 25th percentile of its historical distribution. Bank equity prices increased and outperformed the S&P 500 modestly. Stock prices for the largest banks fully recovered from their declines in the immediate wake of the failure of Silicon Valley Bank, while those for regional banks remained below the levels seen in early March. Short-term interest rates in the AFEs increased modestly, on net, over the intermeeting period as foreign central banks continued to raise policy rates and signal the potential for further tightening. Increases in yields were tempered, however, by downside surprises to both inflation and PMIs from some economies. Risk sentiment in foreign markets improved somewhat, with most foreign equity indexes increasing and foreign corporate and emerging market sovereign bond spreads narrowing. The staff's trade-weighted broad dollar index declined moderately, with the largest moves following releases of weaker-than-expected U.S. labor market data and lower-than-expected U.S. inflation data. Conditions in domestic short-term funding markets remained generally stable over the intermeeting period. Spreads in unsecured markets narrowed modestly amid slight increases in OIS rates. Following the suspension of the debt limit, the Treasury Department partly replenished the TGA via a large net increase in bill issuance. Auctions of Treasury bills were met with robust demand, as shorter-term bill yields increased relative to other money market rates. Money market funds increased their holdings of Treasury bills and reduced their investments with the ON RRP facility. ON RRP take-up declined notablyâabout $390 billionâover the intermeeting period, reflecting more attractive rates on some alternatives to investing in the ON RRP facility. Despite reduced ON RRP take-up, money funds maintained relatively high asset allocations in overnight repurchase agreement investments amid still-elevated uncertainty about the future path of policy. In domestic credit markets, borrowing costs for businesses, households, and municipalities were little changed over the intermeeting period and remained elevated by historical standards. Yields on agency commercial mortgage-backed securities (CMBS) were little changed. The banking sector's ability to fund loans to businesses and consumers was generally stable during the intermeeting period. Core deposit volumes at both large and other domestic banks held steady at the levels that they reached in early May, after having declined sharply in March and April amid the banking-sector turmoil. Banks continued to attract inflows of large time deposits, reflecting higher interest rates offered on new certificates of deposit. Meanwhile, wholesale borrowingâwhich primarily consists of advances from Federal Home Loan Banks, loans from the Bank Term Funding Program, and other credit extended by the Federal Reserveâhad fallen since May by domestic banks of all sizes, partially reversing the surge at the onset of the bank turmoil in March. Credit availability for businesses appeared to tighten somewhat in recent months. Credit from capital markets was somewhat subdued but overall remained accessible for larger corporations. Issuance of leveraged loans remained limited, reflecting low levels of leveraged buyout and merger and acquisition activity as well as weak investor demand. In the municipal bond market, gross issuance was solid in June, as both refundings and new capital issuance picked up from a somewhat subdued May. Commercial and industrial (C&I) loan balances contracted modestly in the second quarter, and commercial real estate (CRE) loan growth on banks' books continued to moderate. In the July Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported having tightened standards and terms on C&I loans to firms of all sizes in the second quarter. The most cited reason for tightening C&I standards and terms continued to be concerns about the economic outlook. Banks also reported expecting to tighten C&I standards further over the remainder of the year. The July SLOOS also indicated that standards across all CRE loan categories tightened further in the second quarter and that banks expected to tighten CRE standards further over the second half of the year. Meanwhile, CMBS issuance picked up a bit in May and then ticked down in June after recording low volumes earlier in the year. Credit in the residential mortgage market remained broadly available for high-credit-score borrowers who met standard conforming loan criteria. Only modest net percentages of banks in the July SLOOS reported tightening standards for mortgage loans eligible to be purchased by government-sponsored enterprises, while a moderate net percentage of banks reported expecting to tighten lending standards further for these loans over the second half of the year. Meanwhile, the availability of mortgage credit remained tighter for households with lower credit scores, at levels close to those prevailing before the pandemic. Banks reported in the SLOOS that they had tightened standards for certain categories of residential real estate loans to be held on their balance sheets, such as jumbo loans and home equity lines of credit. In addition, banks reported expecting to tighten standards for jumbo loans during the remainder of 2023. Conditions remained generally accommodative in consumer credit markets, with credit available for most borrowers. Credit card balances increased in the second quarter, though at a somewhat slower pace than in previous months. In the July SLOOS, banks reported expecting to continue tightening lending standards for credit card loans. Overall, the credit quality of most businesses and households remained solid. While there were signs of deterioration in credit quality in some sectors, such as the office segment of CRE, delinquency rates generally remained near their pre-pandemic lows. The credit quality of C&I and CRE loans on banks' balance sheets remained sound as of the end of the first quarter of 2023. However, in the July SLOOS, banks frequently cited concerns about the credit quality of both CRE and other loans as reasons for expecting to tighten their lending standards over the remainder of the year. Aggregate delinquency rates on pools of commercial mortgages backing CMBS increased in May and June. The staff provided an update on its assessment of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable. The staff judged that asset valuation pressures remained notable. In particular, measures of valuations in both residential and commercial property markets remained high relative to fundamentals. House prices, while having cooled earlier this year, started to rise again, and price-to-rent ratios remained at elevated levels and near those seen in the mid-2000s. Al­though commercial property prices moved down, developments in the CRE sector following the pandemic may have produced a permanent shift away from traditional working patterns. If so, fundamentals in the sector could decline notably and contribute to a deterioration in credit quality. The staff assessed that vulnerabilities associated with household and nonfinancial business leverage remained moderate overall. Aggregate household debt growth remained in line with income growth. While nonfinancial businesses remained highly leveraged and thus vulnerable to shocks, firms' debt growth has been relatively subdued recently, and their ability to service that debt has been quite high, even among lower-rated firms. Leverage in the financial sector was characterized as notable. In the banking sector, regulatory risk-based capital ratios showed the system remained well capitalized. However, while the overall banking system retained ample loss-bearing capacity, some banks experienced sizable declines in the fair value of their assets as a consequence of rising interest rates. Vulnerabilities associated with funding risks were also characterized as notable. Al­though a small number of banks saw notable outflows of deposits late in the first quarter and early in the second quarter, deposit flows later stabilized. Staff Economic Outlook The economic forecast prepared by the staff for the July FOMC meeting was stronger than the June projection. Since the emergence of stress in the banking sector in mid-March, indicators of spending and real activity had come in stronger than anticipated; as a result, the staff no longer judged that the economy would enter a mild recession toward the end of the year. However, the staff continued to expect that real GDP growth in 2024 and 2025 would run below their estimate of potential output growth, leading to a small increase in the unemployment rate relative to its current level. The staff continued to project that total and core PCE price inflation would move lower in coming years. Much of the step-down in core inflation was expected to occur over the second half of 2023, with forward-looking indicators pointing to a slowing in the rate of increase of housing services prices and with core nonhousing services prices and core goods prices expected to decelerate over the remainder of 2023. Inflation was anticipated to ease further over 2024 as demandâsupply imbalances continued to resolve; by 2025, total PCE price inflation was expected to be 2.2 percent, and core inflation was expected to be 2.3 percent. The staff continued to judge that the risks to the baseline projection for real activity were tilted to the downside. Risks to the staff's baseline inflation forecast were seen as skewed to the upside, given the possibility that inflation dynamics would prove to be more persistent than expected or that further adverse shocks to supply conditions might occur. Moreover, the additional monetary policy tightening that would be necessitated by higher or more persistent inflation represented a downside risk to the projection for real activity. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that economic activity had been expanding at a moderate pace. Job gains had been robust in recent months, and the unemployment rate remained low. Inflation remained elevated. Participants agreed that the U.S. banking system was sound and resilient. They commented that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation. However, participants agreed that the extent of these effects remained uncertain. Against this background, the Committee remained highly attentive to inflation risks. In assessing the economic outlook, participants noted that real GDP growth had continued to exhibit resilience in the first half of the year and that the economy had been showing considerable momentum. A gradual slowdown in economic activity nevertheless appeared to be in progress, consistent with the restraint placed on demand by the cumulative tightening of monetary policy since early last year and the associated effects on financial conditions. Participants remarked on the uncertainty about the lags in the effects of monetary policy on the economy and discussed the extent to which the effects on the economy stemming from the tightening that the Committee had undertaken had already materialized. Participants commented that monetary policy tightening appeared to be working broadly as intended and that a continued gradual slowing in real GDP growth would help reduce demandâsupply imbalances in the economy. Participants assessed that the ongoing tightening of credit conditions in the banking sector, as evidenced in the most recent surveys of banks, also would likely weigh on economic activity in coming quarters. Participants noted the recent reduction in total and core inflation rates. However, they stressed that inflation remained unacceptably high and that further evidence would be required for them to be confident that inflation was clearly on a path toward the Committee's 2 percent objective. Participants continued to view a period of below-trend growth in real GDP and some softening in labor market conditions as needed to bring aggregate supply and aggregate demand into better balance and reduce inflation pressures sufficiently to return inflation to 2 percent over time. Participants noted that consumer spending had recently exhibited considerable resilience, underpinned by, in aggregate, strong household balance sheets, robust job and income gains, a low unemployment rate, and rising consumer confidence. Nevertheless, tight financial conditions, primarily reflecting the cumulative effect of the Committee's shift to a restrictive policy stance, were expected to contribute to slower growth in consumption in the period ahead. Participants cited other factors that were likely leading to, or appeared consistent with, a slowdown in consumption, including the declining stock of excess savings, softening labor market conditions, and increased price sensitivity on the part of customers. Some participants observed that recent increases in home prices suggested that the housing sector's response to monetary policy restraint may have peaked. In their discussion of the business sector, participants cited various improvements in firms' cost structures. These included better-functioning supply chains, lower input costs, and an increased ability to hire and retain workers. Participants also discussed conditions that could lead to higher economic activityâsuch as leaner inventories and reduced expectations of a sharp economic slowdownâand factors that could lead to lower economic activityâsuch as continuing economic uncertainty, the vulnerabilities of the CRE market, and the ongoing weakness of manufacturing output. Participants judged that, over coming quarters, firms would reduce the pace of their investment spending and hiring in response to tight financial conditions and the slowing of economic activity. Participants remarked that the labor market continued to be very tight but pointed to signs that demand and supply were coming into better balance. They noted evidence that labor demand was easingâincluding declines in job openings, lower quits rates, more part-time work, slower growth in hours worked, higher unemployment insurance claims, and more moderate rates of nominal wage growth. In addition, they remarked on indications of increasing labor supply, including a further rise in the prime-age participation rate to a post-pandemic high. Participants also observed, however, that although growth in payrolls had slowed recently, it continued to exceed values consistent over time with an unchanged unemployment rate, and that nominal wages were still rising at rates above levels assessed to be consistent with the sustained achievement of the Committee's 2 percent inflation objective. Participants judged that further progress toward a balancing of demand and supply in the labor market was needed, and they expected that additional softening in labor market conditions would take place over time. Participants cited a number of tentative signs that inflation pressures could be abating. These signs included some softening in core goods prices, lower online prices, evidence that firms were raising prices by smaller amounts than previously, slower increases in shelter prices, and recent declines in survey estimates of shorter-term inflation expectations and of inflation uncertainty. Various participants discussed the continued stability of longer-term inflation expectations at levels consistent with 2 percent inflation over time and the role that the Committee's policy tightening had played in delivering this outcome. Nonetheless, several participants commented that significant disinflationary pressures had yet to become apparent in the prices of core services excluding housing. Participants observed that, notwithstanding recent favorable developments, inflation remained well above the Committee's 2 percent longer-term objective and that elevated inflation was continuing to harm businesses and householdsâlow-income families in particular. Participants stressed that the Committee would need to see more data on inflation and further signs that aggregate demand and aggregate supply were moving into better balance to be confident that inflation pressures were abating and that inflation was on course to return to 2 percent over time. Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening. Participants cited upside risks to inflation, including those associated with scenarios in which recent supply chain improvements and favorable commodity price trends did not continue or in which aggregate demand failed to slow by an amount sufficient to restore price stability over time, possibly leading to more persistent elevated inflation or an unanchoring of inflation expectations. In discussing downside risks to economic activity and inflation, participants considered the possibility that the cumulative tightening of monetary policy could lead to a sharper slowdown in the economy than expected, as well as the possibility that the effects of the tightening of bank credit conditions could prove more substantial than anticipated. In their discussion of financial stability, participants observed that the banking system was sound and resilient and that banking stress had calmed in recent months. Participants also noted that the most recent stress-test results indicated that large banks appeared to be well positioned to withstand a severe recession. Various participants commented on risks that could affect some banks, including unrealized losses on assets resulting from rising interest rates, significant reliance on uninsured deposits, and increased funding costs. Participants also commented on risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions, such as money market funds or digital asset entities, to runs or instability. In addition, several participants emphasized the need for banks to establish readiness to use Federal Reserve liquidity facilities and for the Federal Reserve to ensure its own readiness to provide liquidity during periods of stress. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that economic activity had been expanding at a moderate pace. The labor market remained very tight, with robust job gains in recent months and the unemployment rate still low, but there were continuing signs that supply and demand in the labor market were coming into better balance. Participants also noted that tighter credit conditions facing households and businesses were a source of headwinds for the economy and would likely weigh on economic activity, hiring, and inflation. However, the extent of these effects remained uncertain. Although inflation had moderated since the middle of last year, it remained well above the Committee's longer-run goal of 2 percent, and participants remained resolute in their commitment to bring inflation down to the Committee's 2 percent objective. Amid these economic conditions, almost all participants judged it appropriate to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent at this meeting. Participants noted that this action would put the stance of monetary policy further into restrictive territory, consistent with reducing demandâsupply imbalances in the economy and helping to restore price stability. A couple of participants indicated that they favored leaving the target range for the federal funds rate unchanged or that they could have supported such a proposal. They judged that maintaining the current degree of restrictiveness at this time would likely result in further progress toward the Committee's goals while allowing the Committee time to further evaluate this progress. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. A number of participants noted that balance sheet runoff need not end when the Committee eventually begins to reduce the target range for the federal funds rate. In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. They noted that uncertainty about the economic outlook remained elevated and agreed that policy decisions at future meetings should depend on the totality of the incoming information and its implications for the economic outlook and inflation as well as for the balance of risks. Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing and product and labor markets were reaching a better balance between demand and supply. This information would be valuable in determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time. Participants also emphasized the importance of communicating as clearly as possible about the Committee's data-dependent approach to policy and its firm commitment to bring inflation down to its 2 percent objective. Participants discussed several risk-management considerations that could bear on future policy decisions. With inflation still well above the Committee's longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy. Some participants commented that even though economic activity had been resilient and the labor market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate; these included the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of last year could prove more substantial than anticipated. A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided, and it was important that the Committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that economic activity had been expanding at a moderate pace. They also concurred that job gains had been robust in recent months, and the unemployment rate had remained low. Inflation had remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks. In support of the Committee's objectives to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. They also agreed that they would continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. All members affirmed that they are strongly committed to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective July 27, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. To support the Committee's decision to raise the target range for the federal funds rate, the Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 5.4 percent, effective July 27, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 5.5 percent, effective July 27, 2023. 6 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 19â20, 2023. The meeting adjourned at 10:05 a.m. on July 26, 2023. Notation Vote By notation vote completed on July 3, 2023, the Committee unanimously approved the minutes of the Committee meeting held on June 13â14, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of the economic and financial situation and all of Wednesday's session. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended through the discussion of the economic and financial situation. Return to text 6. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 5.5 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of July 27, 2023, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of New York and Atlanta were informed of the Board's approval of their establishment of a primary credit rate of 5.5 percent, effective July 27, 2023.) Return to text

Minutes of the Federal Open Market Committee September 19-20, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, September 19, 2023, at 10:30 a.m. and continued on Wednesday, September 20, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Adriana D. Kugler Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee Susan M. Collins and Jeffrey R. Schmid, Presidents of the Federal Reserve Banks of Boston and Kansas City, respectively Kathleen O'Neill Paese, Interim President of the Federal Reserve Bank of St. Louis Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, 2 Roc Armenter, James A. Clouse, Brian M. Doyle, Eric M. Engen, 3 Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Andrea Ajello, Section Chief, Division of Monetary Affairs, Board Penelope A. Beattie, 4 Section Chief, Office of the Secretary, Board Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Daniel Cooper, Vice President, Federal Reserve Bank of Boston Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 5 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Charles A. Fleischman, Adviser, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Matteo Iacoviello, 3 Senior Associate Director, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 5 Senior Adviser, Division of Monetary Affairs, Board Edward S. Knotek II, Senior Vice President, Federal Reserve Bank of Cleveland Spencer Krane, Senior Vice President, Federal Reserve Bank of Chicago Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Zheng Liu, Vice President, Federal Reserve Bank of San Francisco David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board Raven Molloy, Deputy Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Anna Orlik, Principal Economist, Division of Monetary Affairs, Board Damjan Pfajfar, Group Manager, Division of Monetary Affairs, Board Pierre-Daniel G. Sarte, Senior Advisor, Federal Reserve Bank of Richmond Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Dafina Stewart, Special Adviser to the Board, Division of Board Members, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Jeffrey D. Walker, 5 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Special Adviser to the Board, Division of Board Members, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Donielle A. Winford, Information Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Affairs, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. U.S. data releases generally pointed to greater economic resilience than previously thought, and the reaction in market pricing implied both a higher expected trajectory for the policy rate at longer horizons and higher term premiums. Policy-sensitive rates rose moderately, and longer-dated forward rates displayed larger increases. Ten-year Treasury yields ended the period more than 40 basis points higher, and broad measures of equity prices fell. Bank equity prices underperformed over the period, but taking a somewhat longer view, investor sentiment toward the banking sector appeared to have largely stabilized, with less differentiation of equity price movements across bank types. The dollar broadly appreciated against advanced-economy currencies over the period, as stronger U.S. data supported moderately increased yield differentials against these economies amid perceptions that policy rates were at or near their peaks. In China, signs of strain in the property sector increased, and optimism about growth diminished further, on net, although broader markets, including global commodity markets, did not appear to show elevated concern about China-related risks. U.S. financial conditions tightened, with higher longer-term rates, lower equity prices, and a stronger dollar contributing roughly equally to the increase in various financial conditions indexes. In addressing the increase in nominal yields on longer-run Treasury securities over the intermeeting period, the manager noted that the rise in real yields exceeded that of nominal yields over the period, implying a small decline in inflation compensation. Inflation expectations appeared to remain very well anchored. Market participants cited various factors for the rise in longer-term nominal yields, including stronger-than-expected economic data, a possible increase in the neutral policy rate, greater economic and policy uncertainty, and larger-than-expected borrowing by the Treasury. Household and corporate borrowing rates increased over the period, generally rising in line with Treasury yields. Still, market participants noted that, with household and corporate borrowers having a limited need to refinance debt in the near term, it could take more time for past monetary policy actions to fully pass through to these sectors. Regarding expectations for the September FOMC meeting, the manager noted that responses to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants and market pricing all pointed to a virtual certainty of no change in the policy rate. In addition, modal expectations for the policy rate from the surveys were that the current target range would be maintained until the May 2024 FOMC meeting, compared with March in the previous survey, with a roughly one-in-three chance of a 25 basis point increase by the November FOMC meeting. For horizons beyond the middle of next year, the modal path from the surveys was notably lower than the market-implied path. The manager turned next to developments in money markets and Desk operations. Usage of the overnight reverse repurchase agreement (ON RRP) facility continued to decline over the intermeeting period, largely reflecting reduced participation by government and prime money market funds even as these funds continued to see inflows. Increased supply of money market instruments, especially Treasury bills, contributed to a slight increase in money market rates, which appeared to induce money funds to shift away from ON RRP toward other instruments. However, the ON RRP facility continued to provide an effective floor for the federal funds rate. With ON RRP balances falling more than Federal Reserve assets, reserve balances grew over the period. At more than $3.3 trillion, reserves remained abundant. In the September Survey of Primary Dealers, respondents generally saw a lower path for ON RRP participation and a higher path for reserves, compared with the July survey. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The data available at the time of the September 19-20 meeting suggested that real gross domestic product (GDP) was rising at a solid pace in the third quarter. The labor market continued to be tight, with the unemployment rate low and job gains slowing but remaining strong. Consumer price inflation was still elevated. The imbalance between labor demand and supply appeared to be easing. Total nonfarm payroll employment increased at a slower pace over July and August than in the second quarter. The private-sector job openings rate and the quits rate, both measured by the Job Openings and Labor Turnover Survey, moved down further through July. Over July and August, the unemployment rate edged up, on net, and stood at 3.8 percent in August, and both the labor force participation rate (LFPR) and the employment-to-population ratio rose slightly. The unemployment rate for African Americans declined, while the jobless rate for Hispanics rose, and both rates were still above the national average. The easing of labor market imbalances was also evident in the recent wage data, with the 12-month changes in average hourly earnings and the employment cost index, and the four-quarter change in business-sector compensation per hour all lower than their year-earlier levels. Consumer price inflation remained elevated but continued to show signs of slowing. The total price index for personal consumption expenditures (PCE) increased 3.3 percent over the 12 months ending in July, and core PCE price inflation, which excludes changes in energy prices and many consumer food prices, was 4.2 percent over the same period; both total and core PCE price inflation were lower than a year earlier. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 4.1 percent in July, down from its level earlier in the year. In August, the 12âmonth change in the consumer price index (CPI) was 3.7 percent, while core CPI inflation was 4.3 percent over the same period, and both total and core CPI inflation were well below their year-earlier levels. Survey measures of consumers' short-term inflation expectations had moved down alongside actual inflation but remained above pre-pandemic levels. In contrast, survey measures of medium- to longer-term inflation expectations remained in the range seen in the decade before the pandemic. Available indicators suggested that real GDP was expanding at a solid pace in the third quarter. Private domestic final purchasesâwhich includes PCE, residential investment, and business fixed investment (BFI) and often provides a better signal of underlying economic momentum than does GDPâalso looked to be rising solidly, led by gains in both PCE and BFI. After falling in the second quarter, real goods exports increased in July, supported by higher exports of automotive products. Real goods imports also rose, as imports of consumer goods and capital goods partially recovered from their declines in recent months. The nominal U.S. international trade deficit widened, as growth in imports of goods and services outpaced that of exports. Foreign economic growth slowed in the second quarter, as troubles in the property sector weighed on economic activity in China and monetary policy restraint contributed to the slowing in economic growth in Europe. Available data for the third quarter, such as purchasing managers indexes and measures of business confidence, pointed to a continued subdued pace of economic activity abroad. Foreign headline inflation continued to fall but remained elevated. In several economies, though, energy prices turned up again. In the context of still-high core inflation, some central banks in advanced foreign economies (AFEs) raised their policy rates, despite a slowdown in economic activity, and indicated their intention to hold these rates at sufficiently restrictive levels to bring inflation back to target rates. In contrast, central banks of emerging market economies largely remained on hold, and some even began to cut rates amid easing inflationary pressures. Staff Review of the Financial Situation Over the intermeeting period, generally robust economic data led to moderate increases in the market- implied path of the federal funds rate and yields on shorter-term Treasury securities. Yields on medium- and longer-term nominal Treasury securities rose more substantially, mainly reflecting higher term premiums and higher real yields. Stock prices declined somewhat, but spreads on investment- and speculative-grade corporate bonds were little changed. Financing conditions tightened somewhat, and borrowing costs increased moderately. Market participants pointed to a range of factors that may have contributed to the increase in longer-term forward rates, including higher term premiums and upward revisions to market views of the likely path of Treasury debt over time. Real yields increased almost as much as or a little more than nominal yields, leaving implied measures of inflation compensation modestly changed. The market-implied path for the federal funds rate in the near term was up slightly since the July FOMC meeting, and the expected path further out, implied by overnight index swap contracts, rose moderately. Broad equity price indexes declined somewhat, and the one-month option-implied volatility on the S&P 500 index edged up slightly, on net, and stood near the 25th percentile of its historical distribution. Conditions in domestic short-term funding markets remained stable over the intermeeting period. Both prime and government money market funds experienced moderate inflows since the July FOMC meeting. Against a backdrop of heavy issuance of Treasury bills and the modest associated upward pressure on Treasury bill yields, take-up in the ON RRP facility continued to decline over the period and fell below $1.5 trillion late in the period. Over the intermeeting period, the dollar appreciated, as U.S. economic data came in stronger than expected, while foreign data suggested slowing economic growth abroad. Long-term yields in AFEs ended the period higher, reflecting spillovers from higher U.S. yields and, to a lesser extent, the increase in Japanese yields following the decision by the Bank of Japan to effectively widen its target range for the 10-year Japanese yield. Global equity prices declined moderately, reflecting higher long-term yields and increased concerns about the foreign economic outlook. Bond and equity funds focused on emerging markets saw moderate outflows. In domestic credit markets, borrowing rates for businesses, households, and municipalities increased moderately over the intermeeting period, mostly reflecting a pass-through of higher yields on longer-maturity Treasury securities to those borrowing rates. Interest rates on newly originated bank loans to businesses and households increased over the second quarter, interest rates on credit card offers increased in July, and interest rates on auto loans increased in July and August. Bank credit conditions appeared to tighten somewhat over the intermeeting period, but credit to businesses and households remained generally accessible. Commercial and industrial loan balances contracted, but outstanding commercial real estate (CRE) loans increased from July through late August, though at a slower pace than earlier in the year. Within the category of CRE loans, nonfarm nonresidential loans contracted over the summer for the first time since March 2022. Bank funding conditions were generally stable. Core deposits declined but were offset by inflows of large time deposits. Credit was available for most consumers. Credit card balances grew in the second quarter through late August. For residential real estate borrowers, credit availability was little changed. Credit conditions for small businesses were also fairly stable. The PayNet Small Business Lending Index indicated that loan originations edged up in July and stood above the median of its pre-pandemic level. Credit was generally accessible through capital markets, although issuance was subdued. Issuance of nonfinancial investment- and speculative-grade bonds was muted in July but picked up modestly in August, and issuance of municipal bonds was weak in July. New issuance of leveraged loans was subdued in July, and issuance of agency and non-agency commercial mortgage-backed securities (CMBS) was soft in July and August. Credit quality deteriorated a little further across many sectors in recent months but remained broadly solid. In the CRE sector, delinquency rates on nonfarm nonresidential CRE bank loans rose over the second quarter, while delinquency rates on construction, land development, and multifamily loans were roughly unchanged. Delinquency rates of loans in CMBS pools increased, driven by the office and retail sectors. The office delinquency rate rose more than 2 percentage points since January but remained below its pre-pandemic average. The delinquency rate for small business loans ticked up in June and July. Delinquency rates for credit cards and auto loans increased further in the second quarter and stood a bit above their average levels in the years leading up to the pandemic. The fraction of potential borrowers with a prime credit score expanded through the second quarter, moving further above its pre-pandemic level. The trailing default rates for investment- and speculative-grade corporate bonds increased in July but remained at historically low levels. The trailing default rate for leveraged loans was little changed, on net, but downgrades of leveraged loans surpassed upgrades in July and August. In contrast to many other types of loans, the payment performance of home mortgages improved. Delinquency rates of Federal Housing Administration and Department of Veterans Affairs loans in July were lower than levels seen earlier this year, and delinquency rates of conventional loans remained at historical lows. Credit quality was also strong for municipal borrowers. Staff Economic Outlook The economic forecast prepared by the staff for the September FOMC meeting was stronger than the July projection, as consumer and business spending appeared to be more resilient to tight financial conditions than previously expected. The staff assumed that GDP growth for the rest of this year would be damped a bit by the autoworkers' strike, with these effects unwound by a small boost to GDP growth next year. The size and timing of these effects were highly uncertain. In all, the staff projected that real GDP growth in 2024 through 2026 would be slower, on average, than this year and would run below the staff's estimate of potential output growth, restrained over the next couple of years by the lagged effects of monetary policy actions. The unemployment rate was projected to remain roughly flat through 2026, as upward pressure from below-potential output growth was offset by downward pressure from further improvements in labor market functioning. Total and core PCE price inflation were forecast to be around 3.5 percent at the end of this year, and inflation was projected to move lower in coming years, as demand and supply in product and labor markets continued to move into better alignment. Total and core PCE price inflation were expected to be close to 2 percent in 2026. The staff continued to view the uncertainty around the baseline projection as considerable. Risks around the inflation forecast were seen as skewed to the upside, given the possibility that inflation could prove to be more persistent than expected or that further adverse shocks to supply conditions might occur. Should these upside inflation risks materialize, the response of monetary policy could, if coupled with an adverse reaction in financial markets, tilt the risks around the forecast for economic activity to the downside. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2023 through 2026 and over the longer run. The projections were based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting. Regarding the economic outlook, participants assessed that real GDP had been expanding at a solid pace and had been more resilient than expected. Nevertheless, participants also noted that they expected that real GDP growth would slow in the near term. Participants judged that the current stance of monetary policy was restrictive and that it broadly appeared to be restraining the economy as intended. Participants stressed that current inflation remained unacceptably high while acknowledging that it had moderated somewhat over the past year. They also noted that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee's 2 percent objective. Participants continued to view a period of below-trend growth in real GDP and some softening in labor market conditions as likely to be needed to bring aggregate demand and aggregate supply into better balance and reduce inflation pressures sufficiently to return inflation to 2 percent over time. In their discussion of the household sector, participants observed that aggregate consumer spending had continued to exhibit considerable strength, supported by the strong labor market and by generally strong household balance sheets. However, many participants remarked that the finances of some households were coming under pressure amid high inflation and declining savings and that there had been an increasing reliance on credit to finance expenditures. In addition, tighter credit conditions, waning fiscal support for families, and a resumption of student loan payments were viewed by several participants as having the potential to weigh on the growth of consumption. While household credit quality was seen as generally strong, a few participants noted rising delinquency rates on some types of consumer credit. A couple of participants also remarked that households were becoming increasingly price sensitive. Some participants noted that housing demand was resilient despite higher interest rates; new home construction was solid, in part reflecting the limited inventory of homes available for sale. Regarding the business sector, participants noted that activity continued to be solid, though several pointed to signs of softening conditions. Many participants noted improved business conditions from an increased ability to hire and retain workers, better-functioning supply chains, or reduced input cost pressures. A few participants commented that their business contacts had reported difficulties passing on cost increases to customers. Several participants judged that, over coming quarters, business activity would be restrained by tighter financial conditions, such as higher interest rates and more constrained access to bank credit. Several participants noted, however, that the tightening of credit conditions resulting from the banking stresses earlier in the year was likely to be less severe than they previously expected. A number of participants expressed concerns about vulnerabilities in the CRE sector. Many participants commented that they expected that the autoworkers' strike would, in the near term, result in a slowdown in production of motor vehicles and parts and possibly put upward pressure on automobile prices, but that these effects would be temporary. With respect to the agricultural sector, a few participants noted that conditions were mixed, as crop prices had declined amid higher production estimates and as supply and demand imbalances pushed up the prices of some types of livestock and held down the prices of others. Participants observed that the labor market was tight but that supply and demand conditions were continuing to come into better balance. Most participants remarked that a range of indicators of labor demand were easingâas could be seen by declines in job openings, a narrowing of the jobs-to-workers gap, lower quits rates, and a reduction in average weekly hours worked to levels at or below those seen before the pandemic. However, several participants noted that labor markets remained very tight in some sectors of the economy, such as health-care services and education. Many participants also observed that measures of labor supply, especially the LFPR, had moved up. Some participants commented that the increase in the LFPR for women had been particularly notable, although they expressed concern that challenges regarding the availability of childcare could affect the sustainability of this increase in participation. Several participants noted that immigration had also been boosting labor supply. Some participants observed that payroll growth remained strong but had slowed in recent months to a pace closer to that consistent with maintaining a constant unemployment rate over time. Most participants commented that the pace of nominal wage increases had moderated, and a few also mentioned that the wage premium for job switchers had come down. They noted, however, that nominal wages were still rising at rates above levels generally assessed to be consistent with the sustained achievement of the Committee's 2 percent inflation objective, given current estimates of trend productivity growth. Participants noted that the data received over the past several months generally suggested that inflation was slowing. Even with these favorable developments, they emphasized that further progress was needed to get inflation sustainably to 2 percent. Participants pointed to the softening of price inflation for goods amid improving supply conditions and to declining housing services inflation. Several participants remarked that, despite the recent rise in energy prices, food and energy prices over the past year had contributed to a decline in overall inflation. However, participants also noted that significant progress in reducing inflation had yet to become apparent in the prices of core services excluding housing. Participants noted that longer-term inflation expectations remained well anchored and that shorter-term inflation expectations had been moving down from elevated levels. Participants observed that, notwithstanding recent favorable developments, inflation remained well above the Committee's 2 percent longer-run objective and that elevated inflation was continuing to harm businesses and householdsâparticularly low-income households. Participants stressed that they would need to see more data indicating that inflation pressures were abating to be more confident that inflation was on course to return to 2 percent over time. Participants generally noted there was still a high degree of uncertainty surrounding the economic outlook. One new source of uncertainty was that associated with the autoworkers' strike, and many participants observed that an intensification of the strike posed both an upside risk to inflation and a downside risk to activity. A majority of participants pointed to upside risks to inflation from rising energy prices that could undo some of the recent disinflation or to the risk that inflation would prove more persistent than expected. Various participants noted downside risks to economic activity, including that credit conditions might tighten more than expected if the domestic banking sector experienced further strains; the possibility that the economic slowdown in China could result in a drag on global economic growth; or that an extended U.S. government shutdown could have negative, albeit temporary, consequences for growth. Some participants remarked that an upside risk to their projections for economic activity was that the unexpected resilience that the economy had demonstrated so far could persist. Several participants commented that a government shutdown might result in the delayed release of some economic data and that this outcome would make it more difficult to assess economic conditions. A few participants observed that there were challenges in assessing the state of the economy because some data continued to be volatile and subject to large revisions. In their consideration of appropriate monetary policy actions at this meeting, participants concurred that economic activity had been expanding at a solid pace and had been resilient. While the labor market remained tight, job gains had slowed, and there were continuing signs that supply and demand in the labor market were coming into better balance. Participants also noted that tighter credit conditions facing households and businesses were a source of headwinds for the economy and would likely weigh on economic activity, hiring, and inflation. However, the extent of these effects remained uncertain. Although inflation had moderated since the middle of last year, it remained well above the Committee's longer-run goal of 2 percent, and participants remained resolute in their commitment to bring inflation down to the Committee's 2 percent objective. Amid these economic conditions, and in consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation, almost all participants judged it appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent at this meeting. Participants judged that maintaining this restrictive stance of policy would support further progress toward the Committee's goals while allowing the Committee time to gather additional data to evaluate this progress. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in its previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks. Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing and labor markets were reaching a better balance between demand and supply. This information would be valuable in determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time. Some participants also emphasized the importance of continuing to communicate clearly to the public about the Committee's data-dependent approach to policy and its firm commitment to bring inflation down to 2 percent. All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective. A few participants noted that the pace at which inflation was returning to the Committee's 2 percent goal would influence their views of the sufficiently restrictive level of the policy rate and how long to keep policy restrictive. Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels. A few participants noted that it would be important to monitor the real federal funds rate in gauging the stance of monetary policy over time. Most participants observed that postmeeting communications, including the SEP, would help clarify to the public how participants assessed the likely evolution of the stance of monetary policy. Participants observed that the continuing process of reducing the size of the Federal Reserve's balance sheet was an important part of the overall approach to achieving their macroeconomic objectives. Several participants noted that the process of balance sheet runoff could continue for some time, even after the Committee begins to reduce the target range for the federal funds rate. A vast majority of participants continued to judge the future path of the economy as highly uncertain. Many noted data volatility and potential data revisions, or the difficulty of estimating the neutral policy rate, as supporting the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate. Participants discussed several risk-management considerations that could bear on future policy decisions. Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided. But with inflation still well above the Committee's longer-run goal and the labor market remaining tight, most participants continued to see upside risks to inflation. These risks included the imbalance of aggregate demand and supply persisting longer than expected, as well as risks emanating from global oil markets, the potential for upside shocks to food prices, the effects of a strong housing market on shelter inflation, and the potential for more limited declines in goods prices. Many participants commented that even though economic activity had been resilient and the labor market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate. Such risks included larger-than-anticipated lagged macroeconomic effects from the tightening in financial conditions, the effect of labor union strikes, slowing global growth, and continued weakness in the CRE sector. Participants generally noted that it was important to balance the risk of overtightening against the risk of insufficient tightening. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that economic activity had been expanding at a solid pace, and, accordingly, that the corresponding language in the postmeeting statement should be changed from "moderate" to "solid." They also concurred that job gains had slowed in recent months but remained strong, and the unemployment rate had remained low. Inflation had remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks. In support of the Committee's objectives to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. They also agreed that they would continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and mortgage-backed securities, as described in its previously announced plans. All members affirmed that they are strongly committed to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective September 21, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective September 21, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective September 21, 2023. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, October 31-November 1, 2023. The meeting adjourned at 10:10 a.m. on September 20, 2023. Notation Vote By notation vote completed on August 15, 2023, the Committee unanimously approved the minutes of the Committee meeting held on July 25-26, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended Wednesday's session only. Return to text 3. Attended Tuesday's session only. Return to text 4. Attended through the discussion of the economic and financial situation. Return to text 5. Attended through the discussion of developments in financial markets and open market operations. Return to text

Minutes of the Federal Open Market Committee October 31âNovember 1, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, October 31, 2023, at 10:00 a.m. and continued on Wednesday, November 1, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Adriana D. Kugler Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, 2 Loretta J. Mester, and Sushmita Shukla, Alternate Members of the Committee Susan M. Collins and Jeffrey R. Schmid, Presidents of the Federal Reserve Banks of Boston and Kansas City, respectively Kathleen O'Neill Paese, Interim President of the Federal Reserve Bank of St. Louis Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Brian M. Doyle, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Alyssa Arute, 3 Manager, Division of Reserve Bank Operations and Payment Systems, Board Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, 4 Section Chief, Office of the Secretary, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Yao-Chin Chao, Deputy Associate Secretary, Office of the Secretary, Board Satyajit Chatterjee, Vice President, Federal Reserve Bank of Philadelphia Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Cynthia L. Doniger, Principal Economist, Division of Monetary Affairs, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner, 3 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board Christine Graham, 4 Special Adviser to the Board, Division of Board Members, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Michael Hendley, 3 Associate Director, Federal Reserve Bank of New York Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Matteo Iacoviello, Senior Associate Director, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, Senior Adviser, Division of Monetary Affairs, Board Christopher Kurz, Assistant Director and Chief, Division of Research and Statistics, Board Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Joshua Louria, Group Manager, Division of Monetary Affairs, Board Andrew Meldrum, Assistant Director, Division of Monetary Affairs, Board Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Fernanda Nechio, Vice President, Federal Reserve Bank of San Francisco Matthias Paustian, Assistant Director, Division of Research and Statistics, Board Argia Sbordone, Research Department Head, Federal Reserve Bank of New York Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Ellis W. Tallman, Executive Vice President, Federal Reserve Bank of Cleveland Robert J. Tetlow, Senior Adviser, Division of Monetary Affairs, Board Skander Van den Heuvel, Associate Director, Division of Financial Stability, Board Francisco Vazquez-Grande, Group Manager, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board David C. Wheelock, Senior Vice President, Federal Reserve Bank of St. Louis Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Affairs, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. Financial conditions continued to tighten, driven by higher yields on Treasury securities as well as by lower equity prices and a stronger dollar, which themselves partly reflected higher interest rates. Because earnings expectations had held up well in recent months, the effect of higher interest rates on equity prices likely took place largely through valuations. The rise since July in yields on longer-dated nominal Treasury securities was mostly attributable to increases in real yields. There were small increases in inflation compensation, but the levels of spot and forward rates were within historical ranges. The manager also noted that survey measures pointed to generally stable inflation expectations, especially at longer horizons, and that inflation expectations remained well anchored. Staff analysis and responses from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants suggested that the bulk of the increase since July in the 10-year nominal Treasury yield could be attributed to a higher term premium, though higher policy expectations at longer horizons could also have played a role. The manager also noted that liquidity conditions in the Treasury market had not changed materially since July, suggesting that Treasury market liquidity had not been an important driver of the increase in yields. The manager turned next to expectations for monetary policy. Both market pricing and responses to the Desk's surveys implied that market participants expected that the federal funds rate was at or near its peak and would be held there at least until the June 2024 FOMC meeting; there was a roughly 30 percent probability of a 25 basis point increase at either the December or January FOMC meeting. Regarding balance sheet policy, the surveys showed that respondents had pushed out the date they expected balance sheet runoff to stop, perhaps partly in response to policymakers' communications that balance sheet runoff could continue even after the Committee begins to reduce the target range for the federal funds rate. The manager then turned to developments in money markets and Desk operations. Balance sheet runoff continued to proceed smoothly over the intermeeting period through reduced holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The continued repayment by the Federal Deposit Insurance Corporation of discount window loans extended to banks that were placed into receivership also contributed to reduced Federal Reserve assets. On the liabilities side of the balance sheet, usage of the overnight reverse repurchase agreement (ON RRP) facility declined further, as money market mutual funds continued to absorb new Treasury bill issuance and appeared to increase investment in the private market for repurchase agreements (repos) as well. Overall, the reduced usage of the ON RRP facility released more reserves than the reduction in Federal Reserve assets and the increase in the Treasury General Account absorbed. On net, reserves expanded over the period, and available indicators pointed to them remaining abundant. Primary dealers indicated that reserves were projected to remain within their recent range for the next several quarters. The manager also noted that 23 banks, in addition to all primary dealers, were already counterparties to the standing repo facility (SRF) and that several more were in the onboarding process. Together, these banks held the vast majority of SRF-eligible securities in the banking system. The SRF, in addition to the discount window, may therefore prove helpful for supplying liquidity to the banking system should funding pressures emerge. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The data available at the time of the October 31âNovember 1 meeting indicated that U.S. real gross domestic product (GDP) had expanded at a strong pace in the third quarter. Labor market conditions remained tight, with continued strong job gains and a low unemployment rate. Consumer price inflation remained elevated. Labor demand and supply were slowly moving into better alignment. Easing labor market imbalances were apparent in the wage data, with the 12âmonth changes in average hourly earnings and the employment cost index each below their year-earlier levels. Al­though total nonfarm payroll employment rose at a faster pace in September than in previous months, the unemployment rate was unchanged at 3.8 percent; the labor force participation rate and the employment-to-population ratio were also unchanged in September. The unemployment rate for African Americans rose, while the jobless rate for Hispanics declined; both rates were higher than the national average. Consumer price inflation remained elevated but continued to show signs of slowing. The price index for total personal consumption expenditures (PCE) increased 3.4 percent over the 12 months ending in September, while core PCE price inflation, which excludes changes in energy prices and many consumer food prices, was 3.7 percent over the same period; both total and core PCE price inflation were well below their year-earlier levels. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 3.8 percent in September, also down from the level posted a year ago. Survey measures of consumers' short-run inflation expectations remained above their pre-pandemic levels. In contrast, survey measures of medium- to longer-term inflation expectations remained in the range seen in the decade before the pandemic. According to the advance estimate, real GDP posted a strong gain in the third quarter. Private domestic final purchases, which includes PCE and private fixed investment and often provides a better signal than GDP of underlying economic momentum, posted a smaller but still-solid increase. Real exports and imports of goods and services grew at a robust pace in the third quarter after falling sharply in the second quarter, reflecting broad-based strength across categories. Net exports made a slightly negative contribution to U.S. GDP growth in the third quarter, while the nominal trade deficit narrowed somewhat. Foreign economic growth remained subdued in the third quarter. Monetary policy restraint weighed on activity abroad, especially in Europe, where euro-area GDP growth registered a small decline and the latest European Central Bank lending survey pointed to a contraction in credit from a year ago. Al­though GDP growth in China improved in the third quarter, supported by an increase in industrial production, Chinese retail sales continued to be held back by low consumer confidence and weakness in the residential property sector. Inflation abroad remained elevated. While core inflation continued to ease amid slowing aggregate demand, energy price inflation increased in many foreign economies. With inflation still high, most major foreign central banks, while keeping their policy rates unchanged, indicated their intentions to hold these rates at sufficiently restrictive levels to bring inflation back to target rates. Staff Review of the Financial Situation Over the intermeeting period, longer-term Treasury yields rose notably, while shorter-term yields were little changed, and the market-implied path for the federal funds rate through 2024 declined slightly. The increase in longer-term Treasury yields appeared to be mostly attributable to higher term premiums, as stronger-than-expected economic data seemed to increase the uncertainty regarding how long policy rates might need to remain high. Meanwhile, equity prices decreased, and spreads on investment- and speculative-grade corporate bonds widened. Financing conditions tightened further, and borrowing costs continued to rise. The market-implied path for the federal funds rate through 2024 declined slightly over the intermeeting period. Beyond 2024, the policy rate path implied by overnight index swap quotes increased, likely reflecting, in part, higher term premiums. The rise in longer-term nominal Treasury yields was driven by real yields. Short-term inflation compensation fluctuated notably over the intermeeting period, largely following the changes in energy prices, but ended the period modestly lower. Broad stock price indexes declined over the intermeeting period. Equity prices in interest rateâsensitive sectors, such as real estate and utilities, underperformed the broader market. Stock prices of banks also declined more than broader equity indexes. The one-month option-implied volatility on the S&P 500 index increased notably over the intermeeting period but remained below the peaks observed in the first quarter of 2023. Over the intermeeting period, foreign asset prices were largely driven by spillovers from the rise in longer-term U.S. Treasury yields. Longer-term sovereign bond yields for advanced foreign economies rose, foreign equity prices declined, foreign credit spreads generally widened, and investors continued to withdraw from emerging market economy funds. Stronger-than-expected U.S. data on economic activity and widening interest rate differentials between the U.S. and the rest of the world contributed to an increase in the staff's broad dollar index. The Bank of Japan increased the flexibility of its yield curve control framework, which contributed to the rise in longer-term Japanese government bond yields. The armed conflict between Israel and Hamas left a limited net imprint on foreign financial markets over this period. Conditions in short-term funding markets remained stable over the intermeeting period. Take-up in the ON RRP facility continued to decline over the period. That decline primarily reflected money market funds reducing their usage of the facility and increasing their holdings of Treasury bills and private market repos in response to slightly more attractive rates on these alternative investments. Banks' total deposit levels were roughly unchanged over the intermeeting period, as outflows of core deposits were about offset by inflows of large time deposits, which tend to be more expensive sources of funding. Wholesale borrowing by large banks increased over the intermeeting period. In domestic credit markets, borrowing costs for businesses, households, and municipalities continued to rise from already elevated levels over the intermeeting period, primarily reflecting increases in longer-term Treasury yields. Interest rates on commercial and industrial (C&I) loans and small business loans increased, as did rates on loans to households, including for 30-year conforming residential mortgages, new auto loans, and credit cards. Rates also moved up on a broad array of fixed-income securities, including residential and commercial mortgage-backed securities, municipal bonds, and corporate bonds. Yields on corporate bonds rose more than Treasury yields, particularly for speculative-grade bonds. Credit continued to be generally available to businesses, households, and municipalities. Total core loans on banks' books continued to increase in the third quarter, al­though at a slower pace than earlier in the year. However, smaller firms were finding it harder to obtain credit, with the share of small firms reporting in September that it was more difficult to obtain credit compared with three months earlier rising from an already elevated level. Capital market financing continued to be available, al­though issuance in most markets was below typical levels. In the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported tightening standards and terms on C&I loans to firms of all sizes in the third quarter. The most frequently cited reasons for tightening C&I standards and terms included concerns about the economic outlook, a less favorable or more uncertain economic outlook, and the effects of potential legislative changes, supervisory actions, or changes in accounting standards. Banks also reported that demand for C&I loans weakened in the third quarter, with the most frequently cited reasons being decreased investment in plant or equipment and decreased inventory financing needs. Similarly, banks indicated that commercial real estate (CRE) loan standards continued to tighten and demand weakened further in the third quarter. Credit in the residential mortgage market remained easily available for high-credit-score borrowers who met standard conforming loan criteria. However, in the October SLOOS, banks reported tighter standards and weaker demand for almost all categories of residential real estate loans in the third quarter. Consumer credit remained readily available for most borrowers, al­though there were signs of tightening standards. Credit card balances grew at a strong pace in August, while auto credit continued to grow at a modest pace. However, respondents to the October SLOOS reported tighter standards for all consumer loan categories in the third quarter. Meanwhile, outstanding student loan balances declined significantly in August, driven by the cancellation of student loan debt for certain borrowers. The credit quality of businesses, households, and municipalities continued to show signs of deterioration in most sectors, as delinquency rates rose. The credit quality of nonfinancial firms borrowing in the corporate bond market remained sound overall, albeit with pockets of deterioration. The credit quality of C&I and CRE loans on banks' balance sheets remained generally stable through August. However, delinquency rates for nonfarm nonresidential CRE loans recently picked up. In the October SLOOS, banks frequently cited concerns about credit quality, including for both C&I and CRE loans, as reasons for tightening standards over the third quarter. The staff provided an update on its assessment of the stability of the financial system and, on balance, judged that the financial vulnerabilities of the U.S. financial system were notable. The staff characterized asset valuation pressures as notable. In particular, the staff noted that valuations in equities, housing, and CRE were high. The forward price-to-earnings ratio for S&P 500 firms increased to the upper quartile of its historical distribution. House prices increased to the upper end of their historical range, relative to fundamentals, despite tight credit conditions in the mortgage market. While CRE prices declined, valuations remained stretched, with capitalization rates remaining near historical lows. Fundamentals in the office sector remained weak given the shift toward telework in many industries, especially for central business districts and coastal cities. Delinquency rates on commercial mortgage-backed securities moved up as office and retail loan performance deteriorated. Vulnerabilities associated with business and household debt were characterized as moderate. Leverage in the financial sector was characterized as notable. In the banking sector, holdings of liquid assets remained high, and regulatory risk-based capital ratios indicated ample loss-bearing capacity in the banking system. However, the fair value of banks' longer-term fixed-rate assets, including loans, decreased in the third quarter as longer-term interest rates rose. Hedge fund leverage remained above historical averages, particularly for the largest funds. Funding risks were also characterized as notable. Reliance on uninsured deposits declined in the aggregate but remained high for some banks, and short-term nondeposit funding had increased. Staff Economic Outlook The economic forecast prepared by the staff for the OctoberâNovember meeting was similar to the September projection. The staff expected fourth-quarter GDP growth to slow markedly from its third-quarter rate. All told, however, average GDP growth over the second half of the year was projected to be a little faster than the first half's pace. The staff also expected output in the fourth quarter to be temporarily restrained by the autoworkers' strike before being boosted in the first quarter as lost production begins to be made up. The size and timing of these effects were highly uncertain, however. With the lagged effects of monetary policy actions expected to restrain activity, real GDP was projected to rise more slowly than the staff's estimate of potential over the next two years before rising in line with potential in 2026. The unemployment rate was expected to be roughly flat through 2026 as the effects of below-potential output growth were offset by the effects of further improvements in labor market functioning. Total PCE price inflation was expected to be close to 3.0 percent by the end of this year, and core PCE inflation was expected to be around 3.5 percent. Inflation was projected to move lower in coming years as demand and supply in product and labor markets moved into better alignment; in 2026, total and core PCE price inflation rates were expected to be close to 2 percent. The staff continued to view the uncertainty around the baseline projection as elevated. Risks around the inflation forecast were seen as skewed to the upside, given the possibility that inflation might prove to be more persistent than expected or that additional adverse shocks to supply conditions might occur. The risks to the forecast for real activity were viewed to be skewed to the downside. Moreover, the additional monetary policy tightening that would be necessitated by higher or more persistent inflation, and the potential for a greater tightening of financial conditions, represented a downside risk to the projection for real activity. Participants' Views on Current Conditions and the Economic Outlook Participants noted that real GDP had expanded at an unexpectedly strong pace in the third quarter, boosted by a surge in consumer spending. Nevertheless, participants judged that aggregate demand and aggregate supply continued to come into better balance, as a result of the current restrictive stance of monetary policy and the continued normalization of aggregate supply conditions. Participants assessed that while labor market conditions remained tight, they had eased since earlier in the year, partly as a result of recent increases in labor supply. Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months. Participants noted that inflation had moderated over the past year but stressed that current inflation remained unacceptably high and well above the Committee's longer-run goal of 2 percent. They also stressed that further evidence would be required for them to be confident that inflation was clearly on a path to the Committee's 2 percent objective. Participants continued to view a period of below-potential growth in real GDP and some further softening in labor market conditions as likely to be needed to reduce inflation pressures sufficiently to return inflation to 2 percent over time. In their discussion of the household sector, participants observed that the incoming data on consumer spending had again surprised to the upside, likely supported by a strong labor market and by generally solid household balance sheets. Nevertheless, some participants remarked that the finances of some householdsâespecially those in the low- and moderate-income categoriesâwere increasingly coming under pressure amid high prices for food and other essentials as well as tight credit conditions. Several participants added that delinquencies on auto loans and credit cards had risen for these households. Some participants commented that their District contacts reported a somewhat weaker picture of consumer demand than indicated by the incoming aggregate data. Several participants, however, noted that repeated upside surprises in the aggregate spending data could indicate that considerable momentum could be sustained. A couple of these participants commented that the aggregate household sector may have more financial resources than previously thought, which could help account for the strength in spending. A few participants observed that activity in the housing sector had flattened out in recent months, likely reflecting the effects of further increases in mortgage rates from already elevated levels. Business fixed investment was flat in the third quarter, and participants observed that conditions reported by their business contacts varied across industries and Districts. Some participants noted that businesses were benefiting from an increased ability to hire and retain workers, better-functioning supply chains, or reduced input cost pressures. A few participants commented that their business contacts had reported that cost increases could not be easily passed on to customers. Several participants commented that the apparent resolution of the United Auto Workers strike would reduce business-sector uncertainty. Several participants noted that an increasing number of District businesses were reporting that higher interest rates were affecting their businesses or that firms were increasingly cutting or delaying their investment plans because of higher borrowing costs and tighter bank lending conditions. A few participants noted that the tighter financial and credit conditions could be particularly challenging for small businesses. A few participants observed that higher interest rates were also affecting the agricultural sector, with their contacts noting that high financing costs were likely weighing on purchases of heavy agricultural equipment. Regarding the energy sector, a few participants observed that energy markets had calmed after significant volatility at the start of the current armed conflict between Israel and Hamas. Participants observed that the labor market remained tight. Payroll growth was unexpectedly strong in September, and the unemployment rate remained low. Nevertheless, participants assessed that labor supply and labor demand were continuing to come into better balance. Measures of labor supply had moved up, with the labor force participation rate for prime-age workers rising this year, especially for women, and immigration also boosting labor supply. A few participants expressed concern that the recent pace of increases in labor supply might not be sustainable in light of challenges regarding the availability of childcare and the uncertainty regarding the extent to which immigration would continue to boost the growth of labor supply. Regarding labor demand, various measures appeared to indicate some easing, including a downward trend in job openings, a lower quits rate, and reduced wage premiums offered to job switchers. Consistent with the gradual rebalancing of labor market conditions, participants commented that the pace of nominal wage increases had continued to moderate. A few participants noted, however, that nominal wages were still rising at rates above levels generally assessed to be consistent with the sustained achievement of the Committee's 2 percent inflation objective, given current estimates of trend productivity growth. Participants observed that inflation had continued to moderate since the middle of last year. Both the 6- and 12-month change measures of core PCE price inflation had come down somewhat in recent months, despite a less favorable monthly reading in September. Participants pointed to the softening of core goods prices in recent months, as well as the continued gradual decline in housing services inflation. However, participants also noted that there had been only limited progress in bringing down inflation in core services excluding housing. Participants noted that longer-term inflation expectations remained well anchored. Participants observed that, notwithstanding the moderation of inflation so far, inflation remained well above the Committee's 2 percent longer-run objective and that elevated inflation was continuing to harm businesses and households, particularly low-income households. Participants stressed that they would need to see more data indicating that inflation pressures were abating to be more confident that inflation was on course to return to 2 percent over time. Participants noted that in recent months, financial conditions had tightened significantly because of a substantial run-up in longer-term Treasury yields, among other factors. Higher Treasury yields contributed to an increase in 30-year mortgage rates to levels not seen in many years and led to higher corporate borrowing rates. Many participants observed that a range of measures suggested that the rise in longer-term yields had been driven primarily or substantially by a rise in the term premiums on Treasury securities. Participants generally viewed factors such as a fiscal outlook that suggested greater future supply of Treasury securities than previously thought and increased uncertainty about the economic and policy outlooks as likely having contributed to the rise in the term premiums. Some participants noted that the rise in longer-term yields may also have been driven by expectations for a higher path of the federal funds rate in light of the surprising resilience of the economy or a possible rise in the neutral policy rate. Participants highlighted that longer-term yields could be volatile and that the factors behind the recent increase, as well as their persistence, were uncertain. However, they also noted that, whatever the source of the rise in longer-term yields, persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely. Participants generally noted a high degree of uncertainty surrounding the economic outlook. As upside risks to economic activity, participants noted that the factors behind the resilience in spending could persist longer than expected. As downside risks, participants cited the possibility that the effects on households and businesses of the cumulative policy tightening and tighter financial conditions could be larger than expected, disruptions from a potential government shutdown, and the possibility that the resumption of student loan repayments could weigh on household spending by more than was expected. As upside risks to inflation, participants cited the possibility that progress on disinflation stalls or inflation reaccelerates because of continued momentum in economic activity. A potential for a broadening of the armed conflict in the Middle East was seen as presenting upside risk to inflation through its potential effect on oil prices as well as downside risk to economic activity. In their discussion of financial stability, participants observed that the banking system was sound and resilient and that banking stresses had subsided. However, many participants commented that unrealized losses on assets resulting from the rise in longer-term interest rates, significant reliance by some banks on uninsured deposits, and increased funding costs at banks warranted monitoring. Many participants also commented on risks associated with a potential sharp decline in CRE valuations, which could adversely affect some banks and other financial institutions. Several participants noted potential cyber risks and emphasized the importance of firms, particularly providers of critical infrastructure, being prepared to recover from such threats. A few participants also discussed the importance of monitoring Treasury market functioning and potential vulnerabilities posed by the amount of leverage being used by hedge funds in this market. In addition, several participants emphasized the need for banks to establish readiness to use Federal Reserve liquidity facilities and for the Federal Reserve to ensure its own readiness to provide liquidity during periods of stress. In their consideration of appropriate monetary policy actions at this meeting, participants noted that economic activity expanded at a strong pace in the third quarter and had been resilient. While the labor market remained tight, job gains had moderated, on balance, since earlier in the year, and there were continuing signs that supply and demand in the labor market were coming into better balance. While inflation had moderated since the middle of last year, it remained well above the Committee's longer-run goal of 2 percent, and participants remained resolute in their commitment to bring inflation down to the Committee's 2 percent objective. Participants also noted that tighter financial and credit conditions facing households and businesses would likely weigh on economic activity, hiring, and inflation, al­though the extent of these effects remained uncertain. Participants commented on the significant tightening in financial conditions in recent months, driven by higher longer-term yields, with many noting that it was uncertain whether this tightening of financial conditions would persist and to what extent it reflected expectations for tighter policy or other factors. Amid these economic conditions, all participants judged it appropriate to maintain the target range for the federal funds rate at 5¼ to 5½ percent at this meeting. Participants judged that maintaining this restrictive stance of policy at this meeting would support further progress toward the Committee's goals while allowing more time to gather additional information to evaluate this progress. All participants agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in the previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee's 2 percent objective over time. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks. Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee's inflation objective was insufficient. Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply. Participants noted the importance of continuing to communicate clearly about the Committee's data-dependent approach and its firm commitment to bring inflation down to 2 percent. All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee's objective. Participants also observed that the continuing process of reducing the size of the Federal Reserve's balance sheet was an important part of the overall approach to achieving their macroeconomic objectives. A few participants noted that the process of balance sheet runoff could continue for some time, even after the Committee begins to reduce the target range for the federal funds rate. Several participants commented on the recent decline in the use of the ON RRP facility, noting that the use of the facility had been responsive to market conditions. Participants discussed several risk-management considerations that could bear on future policy decisions. Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided. But with inflation still well above the Committee's longer-run goal and the labor market remaining tight, most participants continued to see upside risks to inflation. These risks included the possibility that the imbalance of aggregate demand and supply could persist longer than expected and slow the progress on inflation, geopolitical tensions and risks emanating from global oil markets, the effects of a tight housing market on shelter inflation, and the potential for more limited declines in goods prices. Many participants commented that even though economic activity had been resilient and the labor market had continued to be strong, downside risks to economic activity remained. Such risks included potentially larger-than-expected effects of the tightening in financial and credit conditions on aggregate demand and on bank, business, and household balance sheets; continued weakness in the CRE sector; and potential disruptions to global oil markets. Committee Policy Actions In their discussion of monetary policy for this meeting, members agreed that economic activity had expanded at a strong pace in the third quarter, job gains had moderated since earlier in the year but remained strong, and the unemployment rate had remained low. Inflation had remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter financial and credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation but that the extent of these effects was uncertain. Members agreed that they remained highly attentive to inflation risks. In support of the Committee's objectives to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5¼ to 5½ percent. They also agreed that they would continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and mortgage-backed securities, as described in its previously announced plans. All members affirmed that they are strongly committed to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective November 2, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective November 2, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective November 2, 2023. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 12â13, 2023. The meeting adjourned at 10:05 a.m. on November 1, 2023. Notation Vote By notation vote completed on October 10, 2023, the Committee unanimously approved the minutes of the Committee meeting held on September 19â20, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended Wednesday's session only. Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended through the discussion of the economic and financial situation. Return to text

Minutes of the Federal Open Market Committee December 12â13, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, December 12, 2023, at 10:30 a.m. and continued on Wednesday, December 13, 2023, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Adriana D. Kugler Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee Susan M. Collins and Jeffrey R. Schmid, Presidents of the Federal Reserve Banks of Boston and Kansas City, respectively Kathleen O'Neill Paese, Interim President of the Federal Reserve Bank of St. Louis Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, Roc Armenter, James A. Clouse, Eric M. Engen, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior System Administrator II, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Kimberly N. Bayard, Section Chief, Division of Research and Statistics, Board Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board Paola Boel, Vice President, Federal Reserve Bank of Cleveland David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Celso Brunetti, Assistant Director, Division of Research and Statistics, Board Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Edmund S. Crawley, Senior Economist, Division of Monetary Affairs, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Riccardo DiCecio, Economic Policy Advisor, Federal Reserve Bank of St. Louis Cynthia L. Doniger, Principal Economist, Division of Monetary Affairs, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jasper J. Hoek, Deputy Associate Director, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board Andreas Lehnert, Director, Division of Financial Stability, Board Eric LeSueur, 2 Policy and Market Analysis Advisor, Federal Reserve Bank of New York Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Thomas Lubik, Senior Advisor, Federal Reserve Bank of Richmond Byron Lutz, Deputy Associate Director, Division of Research and Statistics, Board Mark Meder, First Vice President, Federal Reserve Bank of Cleveland Ann E. Misback, Secretary, Office of the Secretary, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Lubomir Petrasek, 4 Section Chief, Division of Monetary Affairs, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board Adam H. Shapiro, Vice President, Federal Reserve Bank of San Francisco Shane M. Sherlund, Associate Director, Division of Research and Statistics, Board Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Balint Szoke, Senior Economist, Division of Monetary Affairs, Board Giorgio Topa, Economic Research Advisor, Federal Reserve Bank of New York Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. Financial conditions eased, driven by a decline in interest rates, an increase in equity prices, and a depreciation in the dollar. The rise in equity prices was supported by the decline in Treasury yields and by earnings growth that exceeded consensus expectations. Implied volatility for equities diminished notably. The easing in financial conditions reversed some of the tightening that occurred over the summer and much of the fall. Yields on nominal Treasury securities declined sharply over the intermeeting periodâmore so at longer maturitiesâafter having increased notably during the previous intermeeting period, as investors appeared to interpret incoming data as reducing risks of prolonged inflation pressures. In addition, market participants interpreted communications from FOMC participants as solidifying the view that the Committee's policy rate may be at its peak. Early in the period, the market also reacted to communications from the Treasury Department indicating that issuance of Treasury securities was likely to be more skewed toward shorter-dated maturities than previously expected. Models, on average, suggested that about two-thirds of the decline in longer-term yields on Treasury securities over the period was attributable to a reduction in term premiums and about one-third to a decline in expectations for the policy rate. Pricing of inflation derivatives over the intermeeting period suggested that investors had become more optimistic about the near-term outlook for inflation. The manager turned next to expectations for monetary policy. Respondents to the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants largely converged around the view that the peak level of the federal funds rate for this tightening cycle had been reached. The modal path from the Desk surveys suggested that the first reduction in the policy rate would occur in June, unchanged from the October surveys. The average path for the policy rate implied by market pricing shifted down considerably over the period. Regarding developments in money markets and Desk operations, usage of the overnight reverse repurchase agreement (ON RRP) facility continued to fall over the period; take-up at the facility had dropped about $1.3 trillion since early June. The decline was again driven primarily by lower participation by money market mutual funds, as such funds found it more attractive to invest in Treasury bills and, increasingly, the private market for repurchase agreement (repo) transactions. Overnight repo rates continued to experience some modest upward pressure over the period. As reflected by a rise in the Secured Overnight Financing Rate, there was some tightening of conditions in repo markets in late November and early December in response to typical lending dynamics around month-end, the settlement of a large amount of Treasury issuance, and increased demand for Treasury financing. The market absorbed this episode well. The manager expected that private-market repo rates would likely remain above the rate offered at the ON RRP facility, which should continue to induce a reduction in usage of the facility. Respondents to the Desk surveys again reduced their expectations for the trajectory for ON RRP balances and correspondingly raised their expectations for the trajectory of reserve balances. Aggregate reserves across the banking system remained abundant, and no signs of pressures were evident. As part of their ongoing market surveillance, the staff will continue to monitor a wide range of indicators of money market conditions, including the composition of borrowers in money markets, borrowing demand for various sources of liquidity, the distribution of reserve balances across the financial system, the pricing of money market investments relative to the Federal Reserve's administered rates, and the sensitivity of money market rates to changes in aggregate reserves. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The data available at the time of the December 12â13 meeting suggested that growth in U.S. real gross domestic product (GDP) was slowing from its strong third-quarter pace. Labor market conditions continued to be tight, with moderating but still-strong job gains and a low unemployment rate. Consumer price inflation had eased over the past year but remained elevated. Labor demand and supply continued to move gradually into better alignment. Total nonfarm payroll employment expanded at a slower pace, on balance, over October and November than its average monthly rate in the third quarter. The unemployment rate was little changed, on net, and stood at 3.7 percent in November, the same as its third-quarter average. The labor force participation rate was essentially flat over the past two months, remaining above its level early in the year, while the employment-to-population ratio rose slightly on balance. The unemployment rates for African Americans and for Hispanics were little changed, and both rates were higher than those for Asians and for Whites. The job openings rate continued to trend down, and the quits rate was flat; both rates were below their levels earlier this year. The lessening of labor market imbalances was apparent in recent wage data, as the 12âmonth change in average hourly earnings for all employees was well below its year-earlier level and the Wage Growth Tracker constructed by the Federal Reserve Bank of Atlanta was trending down and lower than a year ago. Consumer price inflation remained elevated but continued to show notable signs of easing. The price index for total personal consumption expenditures (PCE) increased 3.0 percent over the 12 months ending in October, while core PCE inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 3.5 percent over the same period; both total and core PCE inflation were well below their year-earlier levels. The six-month change measures of total and core PCE inflation in October were each 2.5 percent, down from their levels six months earlier. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 3.6 percent in October, also down from its level a year ago. In November, the 12-month change in the consumer price index (CPI) was 3.1 percent, core CPI rose 4.0 percent over the same period, and both measures were well below their year-earlier levels. Recent survey measures of medium- to longer-term inflation expectations were in the range seen in the decade before the pandemic. In contrast, survey measures of consumers' short-run inflation expectations remained above their pre-pandemic levels. Available indicators suggested that real GDP growth was slowing from its strong third-quarter pace, which had been led by a sizable increase in consumer spending. In October, PCE growth slowed from its average monthly rate in the third quarter. As for business investment, nominal shipments of nondefense capital goods excluding aircraft were essentially flat in October, al­though nonresidential construction spending by businesses edged up. Residential housing starts moved mostly sideways, and home sales continued to fall. Manufacturing production declined in October, and factory output was weak, even after excluding the decrease in motor vehicle assemblies caused by the autoworkers' strike. The nominal trade deficit widened in October, as exports declined and imports rose slightly. Foreign economic growth slowed in the third quarter, and available indicators pointed to subdued growth in the fourth quarter. The significant tightening of monetary policy by foreign central banks over the past two years and the repercussions of last year's energy shock in Europe continued to weigh on foreign economic activity. Chinese economic indicators, such as retail sales and industrial production, pointed to economic growth remaining modest. By contrast, economic activity in Asia excluding China stepped up, supported in part by a recovery in industrial production, especially in the high-tech sector. While inflation was still elevated in most major economies, incoming data indicated that it had moved down markedly. These decreases reflected notable step-downs in both energy and core inflation amid slowing aggregate demand and declines in oil prices. Most major foreign central banks kept their policy rates unchanged over the intermeeting period and emphasized the need to maintain a sufficiently restrictive stance of policy to ensure that inflation fell back to their targets. Staff Review of the Financial Situation Over the intermeeting period, some softer-than-expected data releases appeared to lessen the perception among investors that policy may need to tighten further in order to bring inflation down to 2 percent over time. Market participants also viewed monetary policy communications, on balance, as pointing to somewhat less restrictive policy than expected. As a result, nominal Treasury yields declined significantly and the expected market-implied path for the federal funds rate beyond the next few months shifted downward. Meanwhile, broad equity price indexes were boosted by many of the same factors that lowered Treasury yields, and spreads on investment- and speculative-grade corporate bonds narrowed. Financing conditions remained moderately restrictive, as borrowing costs remained elevated despite declining over the intermeeting period. The market-implied path for the federal funds rate beyond the next few months moved down notably over the intermeeting period. A straight read of federal funds futures rates suggested that market participants expected the federal funds rate to be 25 basis points below its current level by the May 2024 FOMC meeting, two meetings earlier than at the time of the OctoberâNovember FOMC meeting. The policy rate path implied by overnight index swap quotes moved down 45 basis points to 4.2 percent by the end of 2024. Similarly, nominal Treasury yields declined significantly. The decline in nominal yields mostly reflected a decrease in real yields, while measures of inflation compensation were moderately lower, on net, amid softer-than-expected data releases. Measures of uncertainty about the path of interest rates decreased notably, consistent with the tempering of concerns about inflation, but remained elevated by historical standards. Broad stock price indexes increased markedly over the intermeeting period, and spreads on investment-grade bonds narrowed moderately, while those on speculative-grade corporate bonds declined more notably. The one-month option-implied volatility on the S&P 500 decreased moderately and reached its lowest level since January 2020. Spillovers from falling U.S. yields, below-expectations readings on global inflation, and oil price drops led to large declines in foreign yields. These declines were accompanied by an improvement in market sentiment, with foreign equity prices increasing, foreign credit spreads narrowing, and outflows from funds investing in emerging market economies slowing notably. The improvement in sentiment and declines in U.S. yields contributed to a broad depreciation of the foreign exchange value of the dollar. Conditions in U.S. short-term funding markets remained largely stable over the intermeeting period. Usage of the ON RRP facility continued to decline over the period. The decline in usage primarily reflected money market mutual funds reallocating their assets to Treasury bills and private-market repo, which offered slightly more attractive market rates relative to the ON RRP rate amid continued increases in net Treasury bill issuance and Federal Reserve balance sheet reduction. Banks' total deposit levels were roughly unchanged over the intermeeting period, as outflows of core deposits were about offset by inflows of large time deposits. In domestic credit markets, borrowing costs for most businesses, households, and municipalities declined over the intermeeting period, reflecting both lower longer-maturity Treasury yields and narrower credit spreads, al­though borrowing costs remained significantly elevated. Rates on loans to households, including those for 30-year conforming residential mortgages and new auto loans, declined over the intermeeting period, while interest rates on commercial and industrial (C&I) loans and small business loans were little changed. Yields on corporate bonds fell more than Treasury yields, particularly for speculative-grade bonds. Bank credit conditions appeared to tighten somewhat over the intermeeting period, but credit to businesses and households generally remained accessible. C&I loan balances contracted through November, on balance, while expansion of commercial real estate (CRE) loans stepped down appreciably across most categories from an already moderating pace in the third quarter. Credit remained available for most consumers, al­though consumer credit flows softened in recent months. Growth of credit card balances moderated significantly through November from the brisk pace seen in the summer. For residential real estate borrowers, credit availability was little changed. Credit conditions for small businesses appeared to have tightened further in recent months. Data from the Federal Reserve's Small Business Lending Survey showed that originations had been roughly flat since mid-2022 before ticking down in the third quarter. Credit continued to be generally accessible through capital markets, al­though issuance was slow in many markets, including those for corporate bonds, leveraged loans, and agency and non-agency commercial mortgage-based securities (CMBS). Credit quality remained broadly solid but deteriorated further for some sectors in recent months. Delinquency rates on nonfarm nonresidential CRE bank loans rose further in the third quarter, and delinquency rates for construction and land development as well as multifamily loans ticked up. After increases over the first three quarters of the year, delinquency rates for loans in CMBS pools edged lower in October, but the large volume of loans scheduled to mature over the next few quarters suggested that delinquencies would likely surge again. The delinquency rate for small business loans continued to tick up in September and was above levels observed just before the pandemic. Credit card delinquency rates also increased further, while delinquency rates on auto loans were little changed in the third quarter. The trailing default rates for investment- and speculative-grade corporate bonds were little changed on net, and the trailing default rate for leveraged loans increased a bit. Staff Economic Outlook The economic forecast prepared by the staff for the December meeting was broadly similar to the projection for the previous meeting. The staff continued to expect that GDP growth would slow markedly in the fourth quarter from its outsized third-quarter rate but that economic growth for 2023 as a whole would still be solid. The lagged effects of earlier monetary policy actions, through their contributions to continued tight financial and credit conditions, were expected to show through more fully in restraining economic activity in the coming years. Real GDP was projected to increase more slowly than the staff's estimate of potential over the next two years before rising in line with potential in 2026. The unemployment rate was expected to be roughly flat through 2026 as the effects of below-potential output growth were offset by the effects of further improvements in labor market functioning. The staff revised down their inflation forecast, reflecting lower-than-expected incoming dataâincluding the November CPI and producer price indexâand their judgment that inflation would be less persistent than in the previous projection. Measured on a four-quarter change basis, total PCE price inflation was expected to be somewhat below 3 percent this year, with core PCE price inflation somewhat above 3 percent. Inflation was projected to move lower in coming years as demand and supply in product and labor markets moved into better alignment; by 2026, total and core PCE price inflation were expected to be close to 2 percent. The staff continued to view uncertainty around the baseline projection as elevated, al­though they observed that the volatility of incoming data and staff forecast errors generally had become less pronounced over the past year. Risks around the inflation forecast were seen as skewed to the upside, given that inflation was still elevated and the possibility that inflation might prove to be more persistent than expected or that adverse shocks to supply conditions might occur. The risks around the forecast for economic activity were viewed to be tilted to the downside. In particular, the additional monetary policy tightening that could be put in place if upside inflation risks were to materialize, with the potential for a greater tightening of financial conditions, represented a downside risk to the projection for economic activity. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2023 through 2026 and over the longer run. The projections were based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting. In their discussion of current economic conditions, participants observed that after stronger than expected growth of real GDP in the third quarter, recent indicators suggested that growth in economic activity had slowed. While still strong, job gains had moderated since earlier this year, and the unemployment rate had remained low. Participants observed that inflation had eased over the past year but remained elevated and above the Committee's longer-run goal of 2 percent. Regarding the economic outlook, participants generally judged that, in 2024, real GDP growth would cool and that rebalancing of the labor market would continue, with the unemployment rate rising somewhat from its current level. Based on better-than-expected data on inflation, participants revised down their inflation projections for 2023 and, to a lesser extent, in subsequent years. Participants judged that the current stance of monetary policy was restrictive and appeared to be restraining economic activity and inflation. In light of the policy restraint in place, along with more favorable data on inflation, participants generally viewed risks to inflation and employment as moving toward greater balance. However, participants remained highly attentive to inflation risks. In their discussion of inflation, all participants observed that clear progress had been made in 2023 toward the Committee's 2 percent inflation objective. They remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices. Participants observed that inflation remained above the Committee's objective and that they would need to see more evidence that inflation pressures were abating to become confident in a sustained return of inflation to 2 percent. In reviewing progress to date in reducing inflation, participants noted the improvement in both headline and core inflation and discussed the developments in components of these aggregate measures. They observed that progress had been uneven across components, with energy and core goods prices falling or changing little recently, but core services prices still increasing at an elevated pace. Several participants observed that the ongoing rebalancing of labor supply and demand would help reduce core services inflation. Several participants assessed that housing services inflation would fall further over time as the earlier deceleration in rents on new leases continued to pass through to broader rent measures. Participants also discussed the role played by various supply and demand factors in the progress on reducing inflation thus far. They assessed that the contribution of improved supply had come from supply chain normalization, boosts to labor supply due to a higher labor force participation rate and immigration, better productivity growth, or increased domestic oil production. They also noted that restrictive monetary policy had helped restrain growth of demand, particularly in interest-sensitive sectors such as business fixed investment, housing, and autos and other durable goods. Several participants assessed that healing in supply chains and labor supply was largely complete, and therefore that continued progress in reducing inflation may need to come mainly from further softening in product and labor demand, with restrictive monetary policy continuing to play a central role. A few others saw potential for further improvements in supply. Several participants noted that longer-term inflation expectations remained well anchored and that near-term inflation expectations of households had declined recently. In their comments about the household sector, participants observed that consumer spending had been strong, supported by the healthy balance sheets of many households, a strong labor market, and robust income growth. Retail sales growth had stepped down noticeably in October, though a few participants remarked that contacts reported strong sales in November, notably related to holiday spending. Participants mentioned several factors that may contribute to softer consumer spending, including slower growth of labor income and diminishing pandemic-related excess savings. Relatedly, many participants noted increased usage of credit by households, including from credit cards, buy-now-pay-later borrowing, and payday loans, as well as increased delinquency rates for many types of consumer loans. Reports from participants' business-sector contacts were mixed, with some contacts remaining relatively optimistic and others expecting slower growth for 2024. Several participants observed that higher interest rates were leading firms to reassess future projects and were contributing to softer business investment and hiring. A couple of participants commented on small businesses, noting that such businesses were experiencing tighter credit conditions and increasing delinquencies. A few participants noted that contacts in manufacturing reported slowing growth, while a couple of participants expected that low prices for some commodities and drought conditions would reduce agricultural incomes this year. Regarding concerns about CRE, several participants noted that a significant share of properties would need to be refinanced in 2024 against a backdrop of higher interest rates, continued weakness in the office sector, and balance sheet pressures faced by some lenders. Participants assessed that while the labor market remained tight, it continued to come into better balance. Many noted that nominal wage growth had continued to slow broadly and that business contacts expected a further reduction in wage growth. A few participants observed that payroll growth had slowed substantially since the beginning of the year. Some participants remarked that their contacts reported larger applicant pools for vacancies, and some participants highlighted that the ratio of vacancies to unemployed workers had declined to a value only modestly above its level just before the pandemic. Participants viewed improvements in labor supply and the easing of labor demand as both having contributed to the labor market coming into better balance. Supply had improved because of higher labor force participation and immigration, with continued solid productivity growth also supporting the productive capacity of the economy. As evidence for the softening of the growth of labor demand during 2023, many participants noted the decline in job openings, and a few remarked on the lower quits rate. Several participants noted the risk that, if labor demand were to weaken substantially further, the labor market could transition quickly from a gradual easing to a more abrupt downshift in conditions. Participants generally perceived a high degree of uncertainty surrounding the economic outlook. As an upside risk to both inflation and economic activity, participants noted that the momentum of economic activity may be stronger than currently assessed, possibly on account of the continued balance sheet strength of many households. Furthermore, participants observed that, after a sharp tightening since the summer, financial conditions had eased over the intermeeting period. Many participants remarked that an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal. Participants also noted other sources of upside risks to inflation, including possible effects on global energy and food prices of geopolitical developments, a potential rebound in core goods prices following the period of supply chain improvements, or the effects of nearshoring and onshoring activities on labor demand and inflation. Downside risks to economic activity noted by participants included the possibility that effects of past policy tightening may be larger than expected, the risk of a marked weakening of household balance sheets, possible negative spillovers from lower growth in some foreign economies, geopolitical risks, and lingering risks of further tightening in bank credit. Relatedly, several participants noted that the weakness in gross domestic income growth relative to GDP growth over the past few quarters may suggest that economic momentum during that period was not as strong as indicated by the GDP readings. In their consideration of appropriate monetary policy actions at this meeting, participants noted that recent indicators suggested that growth of economic activity had slowed from its strong pace in the third quarter. Job gains had moderated since earlier in the year but remained strong, the unemployment rate had remained low, and there were continuing signs that supply and demand in the labor market were coming into better balance. Inflation had eased over the past year but remained elevated. Participants also noted that tighter financial and credit conditions facing households and businesses would likely weigh on economic activity, hiring, and inflation, al­though the extent of these effects remained uncertain. Participants continued to be resolute in their commitment to bring inflation down to the Committee's 2 percent objective. In light of current economic conditions and their implications for the outlook for economic activity and inflation, as well as the balance of risks, all participants judged it appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent at this meeting. All participants also agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in the previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. Participants assessed that maintaining the current policy stance was supported by intermeeting data indicating that inflation had continued to move toward the Committee's 2 percent objective and that the labor market had continued to move into better balance. They judged that maintaining the target range for the federal funds rate at this meeting would promote further progress toward the Committee's goals and allow participants more time to gather additional information to evaluate this progress. In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves. Participants pointed to the decline in inflation seen during 2023, noting the recent shift down in six-month inflation readings in particular, and to growing signs of demand and supply coming into better balance in product and labor markets as informing that view. Several participants remarked that the Committee's past policy actions were having their intended effect of helping to slow the growth of aggregate demand and cool labor market conditions. They judged that, in combination with improvements in the supply situation, these developments were helping to bring inflation back to 2 percent over time. Most participants noted that, as indicated in their submissions to the SEP, they expected the Committee's restrictive policy stance to continue to soften household and business spending, helping to promote further reductions in inflation over the next few years. In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024. Participants also noted, however, that their outlooks were associated with an unusually elevated degree of uncertainty and that it was possible that the economy could evolve in a manner that would make further increases in the target range appropriate. Several also observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated. Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee's objective. Participants discussed several risk-management considerations that could bear on future policy decisions. Participants saw upside risks to inflation as having diminished but noted that inflation was still well above the Committee's longer-run goal and that a risk remained that progress toward price stability would stall. A number of participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained, and pointed to the downside risks to the economy that would be associated with an overly restrictive stance. A few suggested that the Committee potentially could face a tradeoff between its dual-mandate goals in the period ahead. Participants observed that the continuing process of reducing the size of the Federal Reserve's balance sheet was an important part of the Committee's overall approach to achieving its macroeconomic objectives and that balance sheet runoff had so far proceeded smoothly. Several participants noted that, amid the ongoing balance sheet normalization, there had been a further decline over the intermeeting period in use of the ON RRP facility and that this reduced usage largely reflected portfolio shifts by money market mutual funds toward higher-yielding investments, including Treasury bills and private-market repo. Several participants remarked that the Committee's balance sheet plans indicated that it would slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level judged consistent with ample reserves. These participants suggested that it would be appropriate for the Committee to begin to discuss the technical factors that would guide a decision to slow the pace of runoff well before such a decision was reached in order to provide appropriate advance notice to the public. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that recent indicators suggested that growth of economic activity had slowed from its strong pace in the third quarter. Job gains had moderated since earlier in the year but remained strong, and the unemployment rate had remained low. Inflation had eased over the past year but remained elevated. Members concurred that the U.S. banking system was sound and resilient. They also agreed that tighter financial and credit conditions for households and businesses were likely to weigh on economic activity, hiring, and inflation but that the extent of these effects was uncertain. Members agreed that they remained highly attentive to inflation risks. In support of the Committee's objective to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. They also agreed that they would continue to assess additional information and its implications for monetary policy. In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, members concurred that they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. All members affirmed their strong commitment to returning inflation to their 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed that their postmeeting statement should acknowledge the slowing of economic activity from its strong pace in the third quarter as well as the fact that inflation had eased over the past year but remained elevated. Members also agreed to modify the sentence in their postmeeting statement discussing the considerations relevant for future policy actions to indicate that the Committee would determine "the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time." Members generally viewed the addition of the word "any" to this sentence as appropriately relaying their judgment that the target range for the federal funds rate was likely now at or near its peak for this policy tightening cycle while leaving open the possibility of further increases in the target range if these were warranted by the totality of the incoming data, the evolving outlook, and the balance of risks. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective December 14, 2023, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K. Logan, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective December 14, 2023. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective December 14, 2023. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 30â31, 2024. The meeting adjourned at 10:15 a.m. on December 13, 2023. Notation Vote By notation vote completed on November 20, 2023, the Committee unanimously approved the minutes of the Committee meeting held on October 31âNovember 1, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended through the discussion of the economic and financial situation. Return to text 4. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee January 30â31, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, January 30, 2024, at 10:00 a.m. and continued on Wednesday, January 31, 2024, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Philip N. Jefferson Adriana D. Kugler Loretta J. Mester Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Kathleen O'Neill, Jeffrey R. Schmid, and Sushmita Shukla, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Edward S. Knotek II, David E. Lebow, Sylvain Leduc, Paula Tkac, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Isaiah C. Ahn, Information Management Analyst, Division of Monetary Affairs, Board Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Alyssa Arute, Manager, Division of Reserve Bank Operations and Payment Systems, Board Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Celso Brunetti, 3 Assistant Director, Division of Research and Statistics, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Jennifer S. Crystal, Senior Adviser, Division of International Finance, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Sarah Devany, First Vice President, Federal Reserve Bank of San Francisco Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Eric C. Engstrom, Associate Director, Division of Research and Statistics, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Luca Guerrieri, Associate Director, Division of International Finance, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Andrew Haughwout, Acting Director of Research, Federal Reserve Bank of New York Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Kyungmin Kim, Principal Economist, Division of Monetary Affairs, Board Elizabeth K. Kiser, Senior Associate Director, Division of Research and Statistics, Board Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Dan Li, 4 Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Ann E. Misback, Secretary, Office of the Secretary, Board Phillip Monin, Senior Economist, Division of Monetary Affairs, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Christopher J. Nekarda, Principal Economist, Division of Research and Statistics, Board Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Andres Schneider, Principal Economist, Division of Monetary Affairs, Board Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Felipe F. Schwartzman, Senior Economist, Federal Reserve Bank of Richmond Chiara Scotti, 3 Senior Vice President, Federal Reserve Bank of Dallas Zeynep Senyuz, Deputy Associate Director, Division of Monetary Affairs, Board Arsenios Skaperdas, Senior Economist, Division of Monetary Affairs, Board Balint Szoke, Senior Economist, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Fabian Winkler, Principal Economist, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Annual Organizational Matters 5 The agenda for this meeting reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 30, 2024, were received and that these individuals executed their oaths of office. The elected members and alternate members were as follows: John C. Williams, President of the Federal Reserve Bank of New York, with Sushmita Shukla, First Vice President of the Federal Reserve Bank of New York, as alternate; Thomas I. Barkin, President of the Federal Reserve Bank of Richmond, with Susan M. Collins, President of the Federal Reserve Bank of Boston, as alternate; Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, with Austan D. Goolsbee, President of the Federal Reserve Bank of Chicago, as alternate; Raphael W. Bostic, President of the Federal Reserve Bank of Atlanta, with Kathleen O'Neill, Interim President of the Federal Reserve Bank of St. Louis, as alternate; Mary C. Daly, President of the Federal Reserve Bank of San Francisco, with Jeffrey R. Schmid, President of the Federal Reserve Bank of Kansas City, as alternate. By unanimous vote, the following officers of the Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2025: Jerome H. Powell Chair John C. Williams Vice Chair Joshua Gallin Secretary Matthew M. Luecke Deputy Secretary Brian J. Bonis Assistant Secretary Michelle A. Smith Assistant Secretary Mark E. Van Der Weide General Counsel Richard Ostrander Deputy General Counsel Charles C. Gray Assistant General Counsel Trevor A. Reeve Economist Stacey Tevlin Economist Beth Anne Wilson Economist Shaghil Ahmed Kartik B. Athreya 6 James A. Clouse Brian M. Doyle Edward S. Knotek II David E. Lebow Sylvain Leduc Paula Tkac William Wascher Alexander L. Wolman Associate Economists By unanimous vote, the Committee selected the Federal Reserve Bank of New York to execute transactions for the System Open Market Account (SOMA). By unanimous vote, the Committee selected Roberto Perli and Julie Ann Remache to serve at the pleasure of the Committee as manager and deputy manager of the SOMA, respectively, on the understanding that these selections were subject to being satisfactory to the Federal Reserve Bank of New York. Secretary's note: The Federal Reserve Bank of New York subsequently sent advice that the selections indicated previously were satisfactory. By unanimous vote, the Committee approved the FOMC Authorizations and Continuing Directives for Open Market Operations, with a revision to Section II, Continuing Directive for Domestic Open Market Operations, to add a standing seven-day term option to the existing standing Foreign and International Monetary Authorities Repurchase Agreement Operations. Ahead of the vote on policies relating to investment and trading, information security, and external communications, the Chair commented on the critical importance of earning and keeping the public's trust in the impartiality of the Committee's decisionmaking. A revised investment and trading policy was proposed which expanded the scope of employees subject to the Committee's investment and trading rules, and introduced new investment restrictions on all employees with access to FOMC information. All participants indicated support for, and agreed to abide by, the FOMC Policy on Investment and Trading for Committee Participants and Federal Reserve System Staff, the Program for Security of FOMC Information, the FOMC Policy on External Communications of Committee Participants, and the FOMC Policy on External Communications of Federal Reserve System Staff. The Committee voted unanimously to approve those four policies. 5 Ahead of the vote on the Statement on Longer-Run Goals and Monetary Policy Strategy, the Chair indicated the next five-year review of the statement would begin in the latter half of this year, and the results would be announced about a year later. All participants indicated support for the Statement on Longer-Run Goals and Monetary Policy Strategy, and the Committee voted unanimously to reaffirm it without revision. 5 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. Financial conditions eased modestly but remained about as tight as they were last summer and much tighter than when the hiking cycle began. Over the intermeeting period, declines in nominal Treasury yields were concentrated at the front end of the yield curve. Staff models suggested that the declines in shorter-term yields were mostly attributable to a lower expected policy rate path and were concentrated in expected real rates, while expected inflation was little changed. Pricing of inflation derivatives continued to suggest a near-term path of inflation consistent with a return to 2 percent later this year. Broad equity prices reached new highs over the intermeeting period, but they were driven mostly by the strong gains of large-capitalization technology companies; broader measures of equity valuations were more subdued. Still, equities appeared priced for continued economic resilience. The manager turned next to expectations for monetary policy. Market participants broadly viewed recent inflation data and the December Summary of Economic Projections (SEP) as increasing the odds that rate cuts might start sooner than previously thought. The modal path of the federal funds rate from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants was little changed from December but showed an increased likelihood of earlier rate cuts. The modal path implied by options prices declined some over the intermeeting period. Both modal paths were closer to the December median SEP projection than the average path for the policy rate implied by futures prices, which had declined more substantially over the period. The futures-based path likely reflected the effect of investors' perceived probability of more substantial rate cuts rather than their baseline expectations. Communications over the period heightened market attention around a potential slowing of balance sheet runoff. Most Desk survey respondents expected a slowing of the pace to start by July, al­though there was considerable uncertainty about the exact start date. The average expected timing for the end of runoff shifted slightly earlier, and the portfolio size at the end of runoff was slightly higher than in the December surveys. Regarding developments in money markets and Desk operations, the effective federal funds rate was stable over the intermeeting period. While the Secured Overnight Financing Rate experienced temporary and modest upward pressure over the past few month-ends, including the year-end, such a pattern was common before the pandemic. The usage of the overnight reverse repurchase agreement (ON RRP) facility continued to fall over the period, with balances below $600 billion in late January. Since June 2023, when the debt ceiling was suspended, usage of the ON RRP facility had declined at a much faster pace than the Federal Reserve securities portfolio, and reserve balances had increased some. As part of its ongoing market surveillance, the staff continued to monitor a wide range of money market indicators; those gauges suggested that the supply of reserves remained abundant. The staff also noted that once the ON RRP facility is either depleted or stabilized at a low level, reserves will decline at a pace comparable with the runoff of the Federal Reserve's securities portfolio, all else equal. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The data available at the time of the January 30â31 meeting indicated that growth in U.S. real gross domestic product (GDP) was solid in the fourth quarter of 2023 but had stepped down from the third quarter's strong pace. Labor market conditions continued to be tight but showed further signs of easing. Consumer price inflation had declined markedly over the course of the year, though it remained above 2 percent. Labor demand and supply continued to gradually move into better alignment. The average monthly pace of nonfarm payroll employment gains in the fourth quarter was slower than in the third quarter. The unemployment rate remained at 3.7 percent in December, the same as its third-quarter average. However, the labor force participation rate moved down, as did the employment-to-population ratio. The African American unemployment rate declined, and the rate for Hispanics rose; both rates were higher than those for Asians and for whites. The private-sector job openings rate was little changed in November and December, and the quits rate edged down; both rates were below their levels at the start of 2023. Easing labor market imbalances were also apparent in the wage data, with the December 12-month changes in the employment cost index and in average hourly earnings for all employees each below their year-earlier levels. Consumer price inflation continued to slow. The price index for total personal consumption expenditures (PCE) increased 2.6 percent over the 12 months ending in December, while core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.9 percent over the same period. Both total and core PCE price inflation were well below their year-earlier levels. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 3.3 percent in December, also lower than its level a year earlier. Survey measures of consumers' short-run inflation expectations moved lower in December, while survey measures of medium- to longer-term inflation expectations were broadly in line with the levels seen in the decade before the pandemic. According to the advance estimate, real GDP rose at a solid pace in the fourth quarter. Private domestic final purchasesâwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumâalso rose solidly, though at a slower rate. Real exports grew robustly in the fourth quarter of 2023, driven in part by a jump in exports of industrial supplies, which had declined markedly earlier last year. By contrast, real imports grew at a tepid pace, as gains in imports of capital goods and services were partially offset by declines in imports of consumer goods and autos. All told, net exports contributed about 1/2 percentage point to U.S. GDP growth in the fourth quarter after making roughly neutral contributions in the preceding two quarters. Foreign economic growth remained subdued in the fourth quarter. In the advanced foreign economies (AFEs), a significant tightening of monetary policy over the past two years, the erosion of real household incomes from high inflation rates, and the repercussions of last year's energy shock in Europe continued to weigh on economic activity. In China, a property-sector slump and depressed consumer confidence continued to weigh on domestic demand, with the government rolling out a series of policy measures to support growth. Economic activity in Asia excluding China firmed, supported in part by rebounding global demand for high-tech products. Foreign headline inflation continued to fall. However, the pace of decline had varied across countries as well as sectors, with a moderation in goods prices generally having outpaced that in services prices. Most major foreign central banks kept their policy rates unchanged over the intermeeting period and emphasized the need to maintain a stance of policy that is sufficiently restrictive to ensure that inflation falls back to their targets. Staff Review of the Financial Situation Over the intermeeting period, nominal Treasury yields declined, and the expected market-implied path for the federal funds rate through 2024 shifted downward, as market participants viewed monetary policy communications, on balance, as pointing to notably less restrictive policy than expected. Indicators of broad financial conditions eased over the period, but the staff's Financial Conditions Impulse on Growth index remained restrictive. Similarly, financing conditions for households and businesses continued to be moderately restrictive, as borrowing costs remained elevated. The market-implied path for the federal funds rate through 2024 decreased over the intermeeting period. A straight read of federal funds futures rates suggested that market participants were placing higher odds on significant policy easing in 2024 than they did just before the December FOMC meeting. Beyond 2024, the policy rate path implied by overnight index swap quotes declined. Consistent with the decline in the implied policy path, short- and intermediate-term Treasury yields also declined notably. Real yields declined more than nominal yields, implying somewhat higher measures of inflation compensation. Market-based measures of interest rate uncertainty remained highly elevated by historical standards. Broad stock price indexes increased, and spreads on investment- and speculative-grade bonds narrowed modestly over the intermeeting period. The one-month option-implied volatility on the S&P 500 increased somewhat over the period but remained low by historical standards. Movements in foreign markets over the intermeeting period were modest, on net, with most foreign asset prices and the exchange value of the dollar little changed. Market participants generally considered current levels of most AFE policy rates to be at the peaks of their respective tightening cycles. Declines in market-based measures of U.S. policy expectations contributed to a moderate step-down in short-term yields in most AFEs, while longer-term foreign yields were little changed. Major AFE equity indexes increased slightly. Conditions in short-term funding markets remained stable over the intermeeting period, with typical dynamics observed surrounding year-end. Usage of the ON RRP facility continued to decline over the period, primarily reflecting money market funds reallocating their assets to Treasury bills and private-market repurchase agreements, which offered slightly more attractive market rates relative to the ON RRP rate. Banks' total deposit levels were roughly unchanged in the fourth quarter of last year, as outflows of core deposits were about offset by inflows of large time deposits. In domestic credit markets, borrowing costs for most businesses, households, and municipalities decreased moderately over the intermeeting period but remained elevated. Rates on loans to households declined over the intermeeting period but remained relatively high, while interest rates on existing credit card accounts were little changed. Interest rates on commercial and industrial (C&I) loans and small business loans increased over the intermeeting period. Yields declined on a broad array of fixed-income securities, including investment- and speculative-grade corporate bonds, residential and commercial mortgage-backed securities (CMBS), and municipal bonds. The declines were largely driven by decreases in Treasury yields and, to some extent, by narrower spreads. Credit continued to be generally available to businesses, households, and municipalities. However, credit availability for smaller firms continued to tighten. Total core loans at banks increased slightly in the fourth quarter. Financing in capital markets continued to be available, al­though issuance in most markets remained at moderate levels. In the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported tightening standards and terms on C&I loans to firms of all sizes over the fourth quarter. Regarding commercial real estate (CRE), banks reported tightening standards across all loan categories in the fourth quarter. Banks reported that they expected to keep lending standards unchanged for C&I loans and to tighten standards for CRE loans during 2024. Credit in the residential mortgage market remained easily available for high-credit-score borrowers who met standard conforming loan criteria, and consumer credit remained available for most borrowers. Growth in credit card balances was strong in November, though SLOOS respondents indicated that standards for credit cards tightened in the fourth quarter and were expected to tighten further over 2024. Auto loan balances grew modestly in November. A modest share of banks reported in the SLOOS that they tightened standards on auto loans in the fourth quarter and expected to tighten them further over 2024. The credit quality of businesses and households deteriorated slightly but remained broadly solid, as delinquency rates in most sectors were relatively low. Delinquency rates on conventional mortgages remained low, while delinquency rates on credit cards and auto loans rose in the third quarter to levels notably above those just before the pandemic. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained sound overall. Aggregate delinquency rates on CMBS backed by office properties continued to be elevated in November. In the January SLOOS, banks reported that credit quality was expected to deteriorate somewhat across loan categories over 2024. The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, characterized the system's financial vulnerabilities as notable. The staff judged that asset valuation pressures remained notable, as valuations across a range of markets appeared high relative to fundamentals. House prices increased to the upper end of their historical range, relative to rents and Treasury yields, though underwriting standards remained restrictive. CRE prices continued to decline, especially in the multifamily and office sectors, and low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector's weaker fundamentals. Vulnerabilities associated with business and household debt were characterized as moderate. Nonfinancial business debt growth declined, and the ability of firms to service their debt remained high relative to history. Leverage in the financial sector was characterized as notable. In the banking sector, regulatory risk-based capital ratios continued to increase and indicated ample loss-bearing capacity in the banking system. The fair value of banks' longer-term fixed-rate assets, including loans, increased in the fourth quarter as longer-term interest rates decreased, though banks remained vulnerable to significant increases in longer-term interest rates. Insurers had been increasing their investments in risky corporate debt. Funding risks were also characterized as notable. Uninsured deposits declined in the aggregate but remained high for some banks. Assets in prime money market mutual funds and other cash management vehicles continued to increase. Staff Economic Outlook The economic forecast prepared by the staff for the January meeting was slightly stronger than the December projection, as the upward revision to 2023 GDP growth implied by incoming data boosted the level of output throughout the projection period. The lagged effects of earlier monetary policy actions, through their continued contribution to tight financial and credit conditions, were still expected to push output growth in 2024 and 2025 below the staff's estimate of potential growth; in 2026, output was expected to rise in line with potential. The projected path for the unemployment rate was revised down slightly, reflecting the upward revision to the level of output. Total and core PCE price inflation were both projected to step down in 2024 as demand and supply in product and labor markets moved into better alignment. By 2026, total and core PCE price inflation were expected to be close to 2 percent. The staff continued to view the uncertainty around the baseline projection as elevated but noted that this uncertainty had diminished substantially over the past year. Risks around the inflation forecast were seen as tilted slightly to the upside; al­though inflation had come in close to expectations throughout most of 2023, the staff placed some weight on the possibility that further progress in reducing inflation could take longer than expected. The risks around the forecast for real activity were viewed as skewed to the downside, as any substantial setback in reducing inflation might lead to a tightening of financial conditions that would slow the pace of real activity by more than the staff anticipated in their baseline forecast. In addition, the possibility of a larger-than-expected erosion of households' financial positions was seen as a downside risk to the projection for real activity. Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that recent indicators suggested that economic activity had been expanding at a solid pace. Real GDP growth in the fourth quarter of last year came in above 3 percent at an annual rate, below the strong growth posted in the third quarter but still above most forecasters' expectations. Participants observed that the unexpected strength in real GDP growth in the fourth quarter reflected stronger-than-expected net exports and inventory investment, which tend to be volatile and may carry little signal for future growth. Still, consumption continued to grow at a solid pace. In addition to strong demand, many participants attributed the recent expansion in economic activity to favorable supply developments. Participants noted that the pace of job gains had moderated since early last year but remained strong and that the unemployment rate had remained low. Inflation had eased over the past year but remained elevated. Regarding the economic outlook, participants judged that the current stance of monetary policy was restrictive and would continue to put downward pressure on economic activity and inflation. Accordingly, they expected that supply and demand in product and labor markets would continue to move into better balance. In light of the policy restraint in place, along with more favorable inflation data amid ongoing improvements in supply conditions, participants viewed the risks to achieving the Committee's employment and inflation goals as moving into better balance. However, participants noted that the economic outlook was uncertain and that they remained highly attentive to inflation risks. In their discussion of inflation, participants observed that inflation had eased over the past year but remained above the Committee's 2 percent inflation objective. They remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices. While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent. Participants noted improvements in both headline and core inflation and discussed the underlying components of these series. Al­though total PCE inflation in December remained above the Committee's 2 percent objective on a 12-month basis, on a 6-month basis, total PCE inflation was near 2 percent at an annual rate, and core PCE inflation was just below 2 percent. Participants judged that some of the recent improvement in inflation reflected idiosyncratic movements in a few series. Nevertheless, they viewed that there had been significant progress recently on inflation returning to the Committee's longer-run goal. Many participants indicated that they expected core nonhousing services inflation to gradually decline further as the labor market continued to move into better balance and wage growth moderated further. Various participants noted that housing services inflation was likely to fall further as the deceleration in rents on new leases continued to pass through to measures of such inflation. While many participants pointed to disinflationary pressures associated with improvements in aggregate supplyâsuch as increases in the labor force or better productivity growthâa couple of participants judged that the downward pressure on core goods prices from the normalization of supply chains was likely to moderate. Participants observed that longer-term inflation expectations had remained well anchored at a level consistent with the Committee's 2 percent inflation objective. Measures of near-term inflation expectations had also declined recently, in some cases to within their ranges in the years before the pandemic. Some participants pointed to reports from contacts that firms could not as easily pass on price increases to consumers or were making less frequent price adjustments than they had in recent years. In their discussion of the household sector, participants observed that consumer spending had been stronger than expected, supported by low unemployment and solid income growth. A number of participants judged that consumption growth was likely to moderate this year, as growth in labor income was expected to slow and pandemic-related excess savings were expected to diminish. In addition, some participants noted signs that the finances of some householdsâespecially those in the low- and moderate-income categoriesâwere increasingly coming under pressure, which these participants saw as a downside risk to the outlook for consumption. In particular, they pointed to increased usage of credit card revolving balances and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans. The reports of business contacts cited by participants varied across industries and Districts. In a few Districts, contacts reported that the pace of economic activity was steady or solid, while in several others, contacts expressed increased optimism about the economic outlook and prospects for investment. District reports from manufacturers were mixed, as some contacts saw increased activity, whereas others saw subdued or weakening activity. A couple of participants noted that al­though soft commodity prices and elevated borrowing costs had contributed to a decline in farm incomes recently, agricultural land values remained resilient, and delinquencies on farm loans continued to be low. A few participants remarked that financing and credit conditions were particularly challenging for small businesses. Participants noted that the labor market remained tight, but demand and supply in that market had continued to come into better balance. Payroll growth had remained strong in the last few months of 2023 but had slowed from its pace seen a year ago, while the unemployment rate remained low. Participants also observed that the ratio of job openings to unemployed workers had declined over the past year but still remained somewhat above its pre-pandemic level. Consistent with a reduction in labor market tightness, business contacts in several Districts reported an easing in wage pressures or an increased ability to hire and retain workers. Participants mentioned several developments that had boosted labor supply last year, including higher labor force participation, immigration, and an improved job-matching process; however, a few participants judged that further increases in labor supply may be limited, pointing, for instance, to the decline in labor force participation in December. While labor market conditions were generally seen as strong, several participants noted that recent job gains were concentrated in a few sectors, which, in their view, pointed to downside risks to the outlook for employment. Participants discussed the uncertainty surrounding the economic outlook. As an upside risk to both inflation and economic activity, participants noted that momentum in aggregate demand may be stronger than currently assessed, especially in light of surprisingly resilient consumer spending last year. Furthermore, several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause progress on inflation to stall. Participants also noted some other sources of upside risks to inflation, including possible disruptions to supply chains from geopolitical developments, a potential rebound in core goods prices as the effects of supply-side improvements dissipate, or the possibility that wage growth remains elevated. Downside risks to inflation and economic activity noted by participants included geopolitical risks that could result in a material pullback in demand, possible negative spillovers from lower growth in some foreign economies, the risk that financial conditions could remain restrictive for too long, or the possibility that a weakening of household balance sheets could contribute to a greater-than-expected deceleration in consumption. A few participants mentioned the possibility that economic activity could surprise to the upside and inflation to the downside because of more-favorable-than-expected supply-side developments. In the discussion of financial stability, participants observed that risks to the banking system had receded notably since last spring, though they noted vulnerabilities at some banks that they assessed warranted monitoring. These participants noted potential risks for some banks associated with increased funding costs, significant reliance on uninsured deposits, unrealized losses on assets resulting from the rise in longer-term interest rates, or high CRE exposures. Participants judged that liquidity in the financial system remained more than ample and discussed the importance of considering liquidity conditions as the Federal Reserve's balance sheet continues to normalize. While participants noted that they were not seeing any signs of liquidity pressures at banks, several participants noted that, as a matter of prudent contingency planning, banks should continue to improve their readiness to use the Federal Reserve's discount window, and that the Federal Reserve should continue to improve the operational efficiency of the window. In addition, some participants commented on the difficulties associated with banks relying on some forms of private wholesale funding during times of stress. A few participants remarked on the importance of measures aimed at increasing the resilience of the Treasury market. A few participants noted cyber risks and the importance of firms being able to recover from cyber events. A few participants also commented on the financial condition of low- and moderate-income households who have exhausted their savings, as well as the importance of monitoring data on rising delinquencies on credit cards and autos. In their consideration of appropriate monetary policy actions at this meeting, participants noted that recent indicators suggested that economic activity had been expanding at a solid pace. Job gains had moderated since early last year but remained strong, and the unemployment rate had remained low. Inflation had eased over the past year but remained elevated. Participants also noted that the risks to achieving the Committee's employment and inflation goals were moving into better balance and that the Committee remained highly attentive to inflation risks. Participants continued to be resolute in their commitment to bring inflation down to the Committee's 2 percent objective. In light of current economic conditions and their implications for the outlook for economic activity and inflation, as well as the balance of risks, all participants judged it appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent at this meeting. All participants also judged it appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in the previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. Participants viewed maintaining the current stance of policy as appropriate given the incoming data, which indicated that inflation had continued to move toward the Committee's 2 percent objective and that demand and supply in the labor market had continued to move into better balance. Participants commented that maintaining the target range for the federal funds rate at this meeting would promote further progress toward the Committee's goals and allow participants to gather additional information to evaluate this progress. In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle. They pointed to the decline in inflation seen during 2023 and to growing signs of demand and supply coming into better balance in product and labor markets as informing that view. Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent. Many participants remarked that the Committee's past policy actions and ongoing improvements in supply conditions were working together to move supply and demand into better balance. Participants noted that the future path of the policy rate would depend on incoming data, the evolving outlook, and the balance of risks. Several participants emphasized the importance of continuing to communicate clearly about the Committee's data-dependent approach. In discussing risk-management considerations that could bear on the policy outlook, participants remarked that while the risks to achieving the Committee's employment and inflation goals were moving into better balance, they remained highly attentive to inflation risks. In particular, they saw upside risks to inflation as having diminished but noted that inflation was still above the Committee's longer-run goal. Some participants noted the risk that progress toward price stability could stall, particularly if aggregate demand strengthened or supply-side healing slowed more than expected. Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained. Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent. A couple of participants, however, pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long. Participants observed that the continuing process of reducing the size of the Federal Reserve's balance sheet was an important part of the Committee's overall approach to achieving its macroeconomic objectives and that balance sheet runoff had so far proceeded smoothly. In light of ongoing reductions in usage of the ON RRP facility, many participants suggested that it would be appropriate to begin in-depth discussions of balance sheet issues at the Committee's next meeting to guide an eventual decision to slow the pace of runoff. Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer. In addition, a few participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity had been expanding at a solid pace. Job gains had moderated since early last year but remained strong, and the unemployment rate had remained low. Inflation had eased over the past year but remained elevated. Members judged that the risks to achieving the Committee's employment and inflation goals were moving into better balance. Members viewed the economic outlook to be uncertain and agreed that they remained highly attentive to inflation risks. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Given that the stresses that emerged at some banks early last year have subsided, members agreed to remove from the statement the reference to the resilience of the U.S. banking system as well as to tighter financial and credit conditions and their effects on the economic outlook. Members also agreed to note the progress made toward the 2 percent inflation objective and the resilience of economic activity over the past year by stating that the Committee "judges that the risks to achieving its employment and inflation goals are moving into better balance." Regarding considerations relevant for future policy actions, members agreed, given their assessment of the policy rate being likely at its peak for this tightening cycle, to remove the reference to "the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time," as was included in the December statement. In its place, they agreed to adopt phrasing referencing their "considering any adjustments to the target range for the federal funds rate." Members also agreed that the statement should convey that "the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks" and that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective February 1, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective February 1, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective February 1, 2024. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, March 19â20, 2024. The meeting adjourned at 10:25 a.m. on January 31, 2024. Notation Vote By notation vote completed on January 2, 2024, the Committee unanimously approved the minutes of the Committee meeting held on December 12â13, 2023. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of the economic and financial situation. Return to text 3. Attended opening remarks for Tuesday's session only. Return to text 4. Attended Tuesday's session only. Return to text 5. Committee organizational documents are available at www.federalreserve.gov/monetarypolicy/rules_authorizations.htm . Return to text 6. Kartik B. Athreya's selection was effective upon employment at the Federal Reserve Bank of New York. Return to text

Minutes of the Federal Open Market Committee March 19â20, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, March 19, 2024, at 9:00 a.m. and continued on Wednesday, March 20, 2024, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Philip N. Jefferson Adriana D. Kugler Loretta J. Mester Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Kathleen O'Neill, and Jeffrey R. Schmid, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Shaghil Ahmed, Kartik B. Athreya, James A. Clouse, Edward S. Knotek II, Sylvain Leduc, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Oladoyin Ajifowoke, Program Management Analyst, Division of Monetary Affairs, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Andre Anderson, First Vice President, Federal Reserve Bank of Atlanta Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Penelope A. Beattie, 2 Section Chief, Office of the Secretary, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board David Bowman, 2 Senior Associate Director, Division of Monetary Affairs, Board Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Isabel Cairó, Principal Economist, Division of Monetary Affairs, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Giovanni Favara, Assistant Director, Division of Monetary Affairs, Board Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis Erin E. Ferris, 2 Principal Economist, Division of Monetary Affairs, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Charles A. Fleischman, Senior Adviser, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Luca Guerrieri, Associate Director, Division of International Finance, Board Christopher J. Gust, 2 Associate Director, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jasper J. Hoek, Deputy Associate Director, Division of International Finance, Board Andreas L. Hornstein, Senior Advisor, Federal Reserve Bank of Richmond Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Sebastian Infante, Section Chief, Division of Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Kevin L. Kliesen, Research Officer, Federal Reserve Bank of St. Louis Spencer Krane, Senior Vice President, Federal Reserve Bank of Chicago Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Deputy Associate Director, Division of Research and Statistics, Board Deborah L. Leonard, Capital Markets Trading Director, Federal Reserve Bank of New York Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Joshua S. Louria, Group Manager, Division of Monetary Affairs, Board Byron Lutz, Deputy Associate Director, Division of Research and Statistics, Board Karel Mertens, Interim Director of Research, Federal Reserve Bank of Dallas Ann E. Misback, Secretary, Office of the Secretary, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, 2 Senior Adviser, Division of Monetary Affairs, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Odelle Quisumbing, 2 Assistant to the Secretary, Office of the Secretary, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Nellisha D. Ramdass, Deputy Director, Division of Monetary Affairs, Board Jeanne Rentezelas, First Vice President, Federal Reserve Bank of Philadelphia Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board Bernd Schlusche, Principal Economist, Division of Monetary Affairs, Board Andres Schneider, Principal Economist, Division of Monetary Affairs, Board Zeynep Senyuz, 2 Deputy Associate Director, Division of Monetary Affairs, Board Robert J. Tetlow, Senior Adviser, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. U.S. financial conditions had eased modestly since the January FOMC meeting, with higher equity prices more than offsetting increases in interest rates. Nominal Treasury yields had risen over the intermeeting period. At shorter maturities, most of the increase was attributable to a rise in inflation compensation, prompted by indications that the decline in inflation was proceeding somewhat more slowly than markets in recent months had been expecting. In contrast, at longer maturities, much of the increase in Treasury yields was due to a rise in real rates, reflecting solid labor market readings and stronger-than-expected data on economic activity. The manager turned next to policy rate expectations. An estimate of the expected federal funds rate path derived from futures prices shifted up significantly over the intermeeting period. The modal federal funds rate path implied by options prices had also risen, but by substantially less than the futures-implied path. The move up in the futures-implied path reflected in part some shift in expectations toward policy rate cuts beginning later in the year, and cumulating to a smaller rate reduction in 2024, than previously assessed. Investors also appeared to have considerably lowered the perceived probability of more substantial rate cuts than in their baseline expectations. This lowering was evident in significantly more concentrated probability distributions for the federal funds rate over coming quarters. The changes in policy rate expectations over the intermeeting period occurred in the wake of stronger economic data, perceptions that disinflation might be proceeding more slowly than previously thought, and Federal Reserve communications. The median of modal paths of the federal funds rate obtained from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants was also slightly higher. Responses still indicated substantial differences among survey participants in their assessments of the total amount of rate cuts likely to occur this year. The manager then discussed expectations regarding balance sheet policy. Survey responses reflected judgments that the Committee's slowing of balance sheet runoff would begin slightly later than previously expected, with the majority of survey participants now expecting the slowing to start around midyear. Balance sheet runoff was expected to continue for some time thereafter, and survey responses suggested a slightly smaller balance sheet size at the end of runoff than respondents had previously assessed. The manager noted that broad equity prices had reached new highs over the intermeeting period. This growth was again driven primarily by the strong increases in valuations of large-capitalization technology companies, while broader equity price gains were more measured. Recent bank equity price behavior reflected renewed market attention on the challenges faced by the regional banking sector, particularly that sector's exposures to commercial real estate (CRE). In global financial markets, the expected policy rate path in most advanced foreign economies (AFEs) shifted up over the intermeeting period. At the end of the intermeeting period, the Bank of Japan (BOJ) announced that it would discontinue its policies of a negative short-term interest rate and yield curve control; this decision was largely expected by investors, and the BOJ's announcement had a limited effect on global financial markets. Conditions in U.S. money markets had been stable over the intermeeting period, with less upward pressure on repurchase agreement (repo) rates than in recent intermeeting periods. The usage of the overnight reverse repurchase agreement (ON RRP) facility had continued to decline, albeit at a somewhat slower pace than that seen over the second half of 2023. Staff projections suggested that total ON RRP balances might stabilize in coming months at either zero or a low level. This assessment was also supported by information acquired in Desk outreach efforts. The manager provided an update on indicators of reserve conditions. Over the past few years, rate control had been effective, with the effective federal funds rate being firmly within the Committee's target range. The staff assessed that, over the intermeeting period, the federal funds rate continued to be insensitive to day-to-day changes in the supply of reserves. This outcome, together with various other indicators of reserve conditions, supported the conclusion that reserves remained abundant. The manager noted that there was nevertheless significant uncertainty about the demand for reserves and that, under the current pace of runoff of the Federal Reserve's securities portfolio, stabilization in total ON RRP balances would, all else equal, cause reserves to start declining at a rapid rate. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Considerations for Slowing the Pace of Balance Sheet Reduction Participants began a discussion related to slowing the pace of balance sheet runoff consistent with the Committee's Plans for Reducing the Size of the Federal Reserve's Balance Sheet announced in May 2022. Those plans indicated that in order to ensure a smooth transition, the Committee intends to slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves. Since balance sheet runoff began in June 2022, the Federal Reserve's total securities holdings had declined roughly $1.5 trillion. In light of the ongoing sizable decline in the balance sheet, and the prospect of a more rapid decline in reserve balances, participants agreed that their discussions at this meeting would help inform the Committee's future decisions regarding how and when to slow the pace of runoff. No decisions about adjusting the pace of balance sheet runoff were made at the meeting. The participants' discussion was preceded by staff presentations. The staff reviewed the 2017â19 balance sheet runoff episode and the lessons learned from that experience, including the importance of monitoring money market conditions in light of the uncertainty surrounding the level of reserves consistent with operating in an ample-reserves regime. The staff presented a set of simulations in which the current monthly pace of securities runoff was reduced to illustrate how the choice of when to start slowing the pace of runoff could affect the paths for the balance sheet and reserve balances. The simulations showed how various options for when to slow the pace of runoff could affect the duration of each of the expected phases of the transition to an ample level of reserves. Participants observed that balance sheet runoff was proceeding smoothly. Nevertheless, taking into account the experience around the end of the 2017â19 balance sheet runoff episode, participants broadly assessed it would be appropriate to take a cautious approach to further runoff. The vast majority of participants thus judged it would be prudent to begin slowing the pace of runoff fairly soon. Most of these participants noted that, despite significant balance sheet reduction, reserve balances had remained elevated because the decline in usage of the ON RRP facility had shifted Federal Reserve liabilities toward reserves. However, with the extent of future declines in ON RRP take-up becoming more limited, further balance sheet runoff will likely translate more directly into declines in reserve balances, potentially at a rapid pace. In light of the uncertainty regarding the level of reserves consistent with operating in an ample-reserves regime, slowing the pace of balance sheet runoff sooner rather than later would help facilitate a smooth transition from abundant to ample reserve balances. Slower runoff would give the Committee more time to assess market conditions as the balance sheet continues to shrink. It would allow banks, and short-term funding markets more generally, additional time to adjust to the lower level of reserves, thus reducing the probability that money markets experience undue stress that could require an early end to runoff. Therefore, the decision to slow the pace of runoff does not mean that the balance sheet will ultimately shrink by less than it would otherwise. Rather, a slower pace of runoff would facilitate ongoing declines in securities holdings consistent with reaching ample reserves. A few participants, however, indicated that they preferred to continue with the current pace of balance sheet runoff until market indicators begin to show signs that reserves are approaching an ample level. All participants emphasized the importance of communicating that a decision to slow the pace of runoff would have no implications for the stance of monetary policy, as it would mean implementing one of the transitional steps previously announced in the Committee's balance sheet plans. In their discussions regarding how to adjust the pace of runoff, participants generally favored reducing the monthly pace of runoff by roughly half from the recent overall pace. With redemptions of agency debt and agency mortgage-backed securities (MBS) expected to continue to run well below the current monthly cap, participants saw little need to adjust this cap, which also would be consistent with the Committee's intention to hold primarily Treasury securities in the longer run. Accordingly, participants generally preferred to maintain the existing cap on agency MBS and adjust the redemption cap on U.S. Treasury securities to slow the pace of balance sheet runoff. Participants also shared their initial perspectives on longer-term aspects of balance sheet policy beyond the more immediate issues concerning slowing the pace of runoff. Although they saw the current level of reserves as abundant, participants emphasized the underlying uncertainty about the level of reserves consistent with operating in an ample-reserves regime. They noted various price and quantity metrics that they saw as important real-time indicators of conditions in short-term funding markets that could provide signals that reserves are approaching a level somewhat above ample. Some participants also mentioned the importance of both the discount window and the standing repo facility as liquidity backstops as reserves decline. Many participants commented on aspects of the composition of the Federal Reserve's securities holdings, including the appropriate longer-run maturity composition of the System Open Market Account portfolio and options to achieve in the longer run a portfolio that consists primarily of Treasury securities. Staff Review of the Economic Situation The information available at the time of the March 19â20 meeting suggested that U.S. real gross domestic product (GDP) was expanding at a solid rate in the first quarter, although slower than its robust fourth-quarter pace. Labor market conditions remained strong in recent months. Consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âcontinued to trend down, though it remained above 2 percent. Labor demand and supply appeared to continue to move into better balance, although recent indicators were mixed. Total nonfarm payroll employment increased at a faster average monthly pace over January and February than in the fourth quarter. In contrast, the unemployment rate edged up to 3.9 percent in February, while the labor force participation rate and the employment-to-population ratio were essentially unchanged. The unemployment rate for African Americans increased, and the rate for Hispanics was unchanged; both rates were higher than those for Asians and for Whites. The private-sector job openings rate and the quits rate were little changed in January, and both rates were far below their year-earlier levels. The 12-month change in average hourly earnings for all employees was essentially the same in February as it was at the end of last year, and it remained well below its level a year ago. The Wage Growth Tracker constructed by the Federal Reserve Bank of Atlanta was lower over the past two months than readings last year. Consumer price inflation continued to decline, but recent progress was uneven. Total PCE prices increased 2.5 percent over the 12 months ending in January, while core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.9 percent over the same period. Both of those 12-month measures continued to trend down, although the month-over-month readings for January had moved up. The trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas was 3.2 percent in January, lower than its level a year earlier. Over the 12 months ending in February, the consumer price index (CPI) increased 3.2 percent and core CPI rose 3.8 percent; both 12-month measures were below their year-ago levels even though the recent month-over-month CPI readings had firmed a bit. Recent survey measures of consumers' inflation expectations at both shorter- and longer-term horizons were broadly in line with the levels seen in the decade before the pandemic. Recent indicators suggested that real GDP was increasing at a solid pace in the first quarter, although more slowly than its robust fourth-quarter rate. Incoming data pointed to some slowing in PCE growth, as expenditures declined in January and the components of the retail sales data used to estimate PCE were soft in February. January's readings on orders and shipments of nondefense capital goods excluding aircraft and on nonresidential construction spending suggested some deceleration in business fixed investment. In contrast, starts and permits for single-family homes in January and February pointed to a modest pickup in residential investment growth. Real exports of goods stepped down in January relative to December following rapid growth last quarter. By contrast, real goods imports picked up in January, as higher imports of capital goods and automotive products more than offset lower imports of consumer goods. Overall, the nominal U.S. international trade deficit widened in January, as goods and services imports expanded more than exports, which increased only slightly. In contrast to strong U.S. GDP growth in the fourth quarter, economic growth in foreign economies was generally weak amid tight monetary policy, the erosion in real household incomes from high inflation, and the ongoing repercussions of the 2022 energy shock in Europe. More recently, purchasing managers indexes in Europe through February and other indicators provided tentative signs of some firming in the region's economic activity. In China, economic data for January and February were somewhat mixed. Although exports, investment, and industrial production were strong, household demand remained depressed amid China's ongoing property-sector slump. On the other hand, some economies in emerging Asia performed well, in part reflecting strong demand for leading-edge semiconductors. Foreign headline inflation picked up early in the year as the downward pressure from previous energy price declines waned and some emerging market economies (EMEs) experienced renewed food price pressures due to adverse weather. Most major foreign central banks kept their policy rates unchanged over the intermeeting period and emphasized the need for greater confidence that inflation was falling back to target before easing policy. Staff Review of the Financial Situation Over the intermeeting period, the market-implied path for the federal funds rate through 2024 increased markedly, reversing the declines that had occurred since late last year. Consistent with the increase in the implied policy rate path, intermediate- and longer-term Treasury yields moved up over the period, with larger increases concentrated at shorter maturities. Most of the increase in short-term Treasury yields was attributed to a rise in near-term inflation compensation. Market-based measures of near-term interest rate uncertainty for shorter-term yields remained elevated by historical standards, in part reflecting investors' continued uncertainty about the path of policy rates. Despite the rise in interest rates, broad stock price indexes increased notably amid upbeat corporate earnings reports, particularly for the largest firms. Yield spreads on investment-grade corporate bonds were little changed, and those on speculative-grade bonds narrowed slightly. The one-month option-implied volatility on the S&P 500 index increased slightly over the period but remained low by historical standards. Changes in foreign financial asset prices over the intermeeting period were largely driven by spillovers from U.S. financial markets. Risk appetite generally improved, leading to increases in foreign equity indexes and a narrowing of EME credit spreads. Short-term yields in the AFEs were also boosted by less-accommodative-than-expected communications by European Central Bank officials. Longer-term AFE yields and the broad dollar index were little changed on net. At its meeting on March 19, the BOJ exited negative interest rate policy and increased its overnight policy rate from negative 0.1 percent to a range of 0 to 0.1 percent. This policy rate hike was the first by the BOJ in 17 years. The BOJ also ended its yield curve control policy but indicated that it would continue bond purchases. The changes were widely expected, and market reactions were limited. Conditions in U.S. short-term funding markets remained stable over the intermeeting period. Usage of the ON RRP facility continued to decline. However, the decline in average take-up was less than in the two previous periods, suggesting that the rate of decline could be slowing. The continuing decline in ON RRP take-up primarily reflected money market funds' (MMFs) ongoing reallocation of assets to Treasury bills amid continued bill issuance and relatively attractive bill yields. Banks' total deposit levels edged up further in January and February, likely reflecting, in part, rising nominal income and somewhat more competitive deposit rates. MMFs continued to provide relatively attractive yields to investors and experienced modest inflows since the January FOMC meeting. In domestic credit markets, over the intermeeting period, borrowing costs remained elevated. Rates on loans to households generally rose in recent months, including those for 30-year conforming residential mortgages. Interest rates on credit card offers increased through December, while rates on new auto loans remained elevated through late February, near their recent highs. Yields moved higher on a variety of fixed-income securities, including commercial mortgage-backed securities (CMBS), investment- and speculative-grade corporate bonds, and residential MBS. Yields on leveraged loans, which are generally linked to the Secured Overnight Financing Rate, declined somewhat in line with the narrowing of credit spreads. In addition, interest rates on small business loans ticked down in January but remained elevated. Credit continued to be available to most businesses, households, and municipalities. Large nonfinancial corporations continued to find credit generally accessible. Capital market financing was robust during the intermeeting period, while commercial and industrial loan balances expanded modestly. For small firms, loan originations were stable despite the tightening of credit standards. Credit in the residential mortgage market remained generally available, although mortgage originations remained subdued. Consumer credit remained easily available as credit card balances expanded robustly in January and February, and credit card limits continued to increase broadly. Growth in auto lending at finance companies was muted in January following robust growth last year. CRE borrowers continued to find credit readily accessible over the period. CRE loans at banks picked up moderately in January and February, driven by growth in multifamily and residential loans. Non-agency CMBS issuance volume was moderate, on average, in January and February. Credit quality for large firms and home mortgage borrowers remained solid but generally deteriorated further in sectors such as CRE and credit cards. The trailing six-month default rates on corporate borrowers' bonds and loans remained low in February. In contrast, credit rating downgrades outpaced upgrades for leveraged loans and corporate bonds in January and February. Credit quality of small businesses deteriorated further in recent months. Mortgage delinquency rates for conventional and Department of Veterans Affairs loans were largely unchanged in December and January, but delinquency rates on Federal Housing Administration loans picked up slightly. Credit card delinquency rates increased a bit further in the fourth quarter and stood above levels seen just before the pandemic. The upward trend in the auto delinquency rate appeared to have stopped in the second half of last year, with the delinquency rate in the fourth quarter remaining a little above its pre-pandemic average. Delinquency rates for nonfarm nonresidential loans at banks increased at the end of 2023 to a level last seen in late 2014. The delinquency rate for office properties in CMBS pools continued to increase in January and February. Delinquency rates would have been higher had many borrowers with loans maturing last year not received extensions. CMBS delinquency rates for most other property types were stable at normal-to-low levels, partly because many of these borrowers were also able to extend their loans when they reached maturity last year. The deterioration in CRE credit quality sparked investor concerns about the health of a few small U.S. and foreign banks over the intermeeting period. Staff Economic Outlook The economic projection prepared by the staff for the March meeting was stronger than the January forecast. The upward revision in the forecast primarily reflected the staff's incorporation of a higher projected path for population due to a boost from immigration. The lagged effects of earlier monetary policy actions, through their continued contribution to tight financial and credit conditions, were still expected to hold output growth in 2024 below the staff's estimate of potential growth. As those policy effects waned, output was expected to rise in line with potential in 2025 and 2026. The unemployment rate was forecast to remain roughly flat over the next several years. Total and core PCE price inflation were both projected to edge down in 2024, ending the year around 2-1/2 percent, as demand and supply in product and labor markets continued to move into better balance. By 2026, total and core PCE price inflation were expected to be close to 2 percent. The staff viewed uncertainty around the baseline projection as close to the average over the past 20 years, as uncertainty was judged to have diminished substantially over the past year. Risks around the inflation forecast were seen as tilted slightly to the upside, as supply-side disruptionsâfrom developments domestically or abroadâor unexpectedly persistent inflation dynamics could materialize. The risks around the forecast for economic activity were viewed as skewed a little to the downside, as any substantial setback in reducing inflation might lead to a tightening of financial conditions that would slow the pace of economic activity by more than the staff anticipated in their baseline forecast. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2024 through 2026 and over the longer run. The projections were based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections was released to the public following the conclusion of the meeting. In their discussion of inflation, participants observed that significant progress had been made over the past year toward the Committee's 2 percent inflation objective even though the two most recent monthly readings on core and headline inflation had been firmer than expected. Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations. However, a few participants noted that residual seasonality could have affected the inflation readings at the start of the year. Participants generally commented that they remained highly attentive to inflation risks but that they had also anticipated that there would be some unevenness in monthly inflation readings as inflation returned to target. In their outlook for inflation, participants noted that they continued to expect that inflation would return to 2 percent over the medium term. They remained concerned that elevated inflation continued to harm households, especially those least able to meet the higher costs of essentials like food, housing, and transportation. A few participants remarked that they expected core nonhousing services inflation to decline as the labor market continued to move into better balance and wage growth moderated further. Participants discussed the still-elevated rate of housing services inflation and commented on the uncertainty regarding when and by how much lower readings for rent growth on new leases would pass through to this category of inflation. Several participants noted that the disinflationary pressure for core goods that had resulted from the receding of supply chain bottlenecks was likely to moderate. Other factors related to aggregate supply, such as increases in the labor force or better productivity growth, were viewed by several participants as likely to support continued disinflation. Some participants reported that business contacts had indicated that they were less able to pass on price increases or that consumers were becoming more sensitive to price changes. Some participants observed that longer-term inflation expectations appeared to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. Participants expected that economic growth would slow from last year's strong pace. With regard to the household sector, participants noted that consumption spending generally remained solid, although many commented that recent readings on retail sales had been soft. Several participants pointed to the strong labor market, ongoing wage gains, and a generally healthy household-sector balance sheet as likely to continue to support consumption. Participants noted mixed reports about the pace of homebuilding amid still-elevated financing costs for developers, despite strong housing demand and a limited supply of affordable housing. Some participants noted that increased immigration, which had likely been boosting the growth of personal consumption spending, may also have been adding to the demand for housing. Many participants pointed to indicators such as higher credit card balances, greater use of buy-now-pay-later programs, or rising delinquency rates on some types of consumer loans as evidence that the finances of some lower- and moderate-income households might be coming under pressure; these developments were seen by these participants as a downside risk to the outlook for consumption spending. Reports from business contacts in some industries and Districts conveyed increased optimism about the outlook, while contacts in a couple of other Districts reported only a steady or stable pace of economic activity. Restrictive credit conditions were cited by a few participants as restraining sectors such as equipment investment and residential investment. However, several participants noted that their contacts had reported increased investment in technology or in business process improvements that were enhancing productive capacity and helping businesses ameliorate the effects of a tight labor market. Manufacturing activity was characterized as stable. A couple of participants noted that high input costs and lower expected commodity prices were weighing on farm incomes. Participants assessed that demand and supply in the labor market were continuing to come into better balance, although conditions generally remained tight. Participants noted strong recent payroll growth, while the unemployment rate remained low. Participants cited a variety of indicators that suggested some easing in labor market conditions, including declining job vacancies, a lower quits rate, and a reduced ratio of job openings to unemployed workers. Some participants indicated that business contacts had reported less difficulty in hiring or retaining workers. Several participants noted that the better balance between labor supply and demand had contributed to an easing of nominal wage pressures. Nevertheless, some participants observed that portions of the labor market, such as the health-care sector and in less urban areas, remained very tight. Most participants noted that, during the past year, labor supply had been boosted by increased labor force participation as well as by immigration. Participants further commented that recent estimates of greater immigration in the past few years and an overall increase in labor supply could help explain the strength in employment gains even as the unemployment rate had remained roughly flat and wage pressures had eased. Participants discussed the uncertainties around the economic outlook. Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent. Some participants pointed to geopolitical risks that might result in more severe supply bottlenecks or higher shipping costs that could put upward pressure on prices, and observed that those developments could also weigh on economic growth. The possibility that geopolitical events or surges in domestic demand could generate increased energy prices was also seen as an upside risk to inflation. Some participants noted the uncertainties regarding the restrictiveness of financial conditions and the associated risk that conditions were or could become less restrictive than desired, which could add momentum to aggregate demand and put upward pressure on inflation. Several participants commented that increased efficiencies and technological innovations had the potential to raise productivity growth, which might allow the economy to grow faster without raising inflation. Participants also noted downside risks to economic activity, including slowing economic growth in China, a deterioration in conditions in domestic CRE markets, a potential reemergence of stresses in the banking sector, or the possibility that a pickup in layoffs could result in a relatively rapid rise in unemployment. Many participants pointed to the difficulty in assessing how recent immigration trends would influence the evolution of labor supply, aggregate demand, and overall economic activity. In their consideration of monetary policy at this meeting, all participants judged that, in light of current economic conditions, the outlook for economic activity and inflation, and the balance of risks, it was appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Participants also agreed that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings, as described in the previously announced Plans for Reducing the Size of the Federal Reserve's Balance Sheet. Participants commented that maintaining the current target range for the federal funds rate at this meeting would support the Committee's progress to return inflation to the 2 percent objective and keep longer-term inflation expectations well anchored. In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle, and almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected. In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven. They also pointed to the Committee's policy actions together with the ongoing improvements in supply conditions as factors working to move supply and demand into better balance. Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent. Participants remarked that in considering any adjustments to the target range for the federal funds rate at future meetings, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Participants noted the importance of continuing to communicate clearly the Committee's data-dependent approach in formulating monetary policy and the strong commitment to achieve its dual-mandate objectives of maximum employment and price stability. In discussing risk-management considerations that could bear on the policy outlook, participants generally judged that risks to the achievement of the Committee's employment and inflation goals were moving into better balance. They remarked that it was important to weigh the risks of maintaining a restrictive stance for too long, which could unduly weaken economic activity and employment, against the risks of easing policy too quickly, which could stall or even reverse progress in returning inflation to the Committee's 2 percent inflation objective. Regarding the latter risk, participants emphasized the importance of carefully assessing incoming data to judge whether inflation is moving down sustainably to 2 percent. Participants noted various sources of uncertainty associated with their outlooks for economic activity, the labor market, and inflation, with some participants additionally mentioning uncertainty about the extent to which past monetary policy actions or the current stance of policy would weigh further on aggregate demand. Participants agreed, however, that monetary policy remained well positioned to respond to evolving economic conditions and risks to the outlook, including the possibility of maintaining the current restrictive policy stance for longer should the disinflation process slow, or reducing policy restraint in the event of an unexpected weakening in labor market conditions. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity had been expanding at a solid pace. Job gains had remained strong, and the unemployment rate had remained low. Inflation had eased over the past year but remained elevated. Members judged that the risks to achieving the Committee's employment and inflation goals were moving into better balance. Members viewed the economic outlook as uncertain and agreed that they remained highly attentive to inflation risks. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency MBS, as described in its previously announced plans. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective March 21, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective March 21, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective March 21, 2024. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, April 30âMay 1, 2024. The meeting adjourned at 9:55 a.m. on March 20, 2024. Notation Vote By notation vote completed on February 20, 2024, the Committee unanimously approved the minutes of the Committee meeting held on January 30â31, 2024. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of considerations for slowing the pace of balance sheet reduction. Return to text

Minutes of the Federal Open Market Committee April 30-May 1, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, April 30, 2024, at 10:00 a.m. and continued on Wednesday, May 1, 2024, at 9:00 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Philip N. Jefferson Adriana D. Kugler Loretta J. Mester Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, Jeffrey R. Schmid, and Sushmita Shukla, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Brian M. Doyle, William Wascher, and Alexander L. Wolman, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Alyssa Arute, 2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Ayelen Banegas, Principal Economist, Division of Monetary Affairs, Board Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie, 3 Section Chief, Office of the Secretary, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Marco Cipriani, Research Department Head, Federal Reserve Bank of New York Todd E. Clark, Senior Vice President, Federal Reserve Bank of Cleveland Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Wendy E. Dunn, Adviser, Division of Research and Statistics, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Charles A. Fleischman, Senior Adviser, Division of Research and Statistics, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Peter M. Garavuso, Lead Information Manager, Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Benjamin K. Johannsen, Assistant Director, Division of Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 2 Senior Adviser, Division of Monetary Affairs, Board Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Joshua S. Louria, Group Manager, Division of Monetary Affairs, Board Benjamin W. McDonough, Deputy Secretary and Ombudsman, Office of the Secretary, Board Ann E. Misback, Secretary, Office of the Secretary, Board Raven Molloy, Deputy Associate Director, Division of Research and Statistics, Board Norman J. Morin, Associate Director, Division of Research and Statistics, Board Makoto Nakajima, Vice President, Federal Reserve Bank of Philadelphia Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Odelle Quisumbing, 3 Assistant to the Secretary, Office of the Secretary, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Samuel Schulhofer-Wohl, Senior Vice President, Federal Reserve Bank of Dallas Zeynep Senyuz, Deputy Associate Director, Division of Monetary Affairs, Board Mark Spiegel, Senior Policy Advisor, Federal Reserve Bank of San Francisco John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board Balint Szoke, 4 Senior Economist, Division of Monetary Affairs, Board Yannick Timmer, Senior Economist, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy. Policy expectations shifted materially in response. The policy rate path derived from futures prices implied fewer than two 25 basis point rate cuts by year-end. The modal path based on options prices was quite flat, suggesting at most one such rate cut in 2024. The median of the modal paths of the federal funds rate obtained from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants also indicated fewer cuts this year than previously thought. Respondents' baseline expectations for the timing of the first rate cutâwhich had been concentrated around June in the March surveysâshifted out significantly and became more diffuse. Treasury yields rose materially over the intermeeting period. At shorter maturities, the increase appeared to largely reflect higher inflation compensation, while at longer maturities, it was attributable mostly to a higher expected path for the real policy rate and higher real risk premiums. Model estimates suggested that inflation expectations rose some, but mostly at shorter horizons. Longer-term inflation expectations appeared to remain well anchored. Broad equity prices fell over the period, as higher interest rates weighed on valuations, while recent earnings reports, which were generally solid, provided some support. The dollar strengthened as several foreign central banks were expected to start easing policy before the Federal Reserve. Overall, higher yields and lower equity prices, together with the stronger dollar, resulted in a tightening of financial conditions over the period. The manager then discussed expectations regarding balance sheet policy. Respondents to the Desk surveys expected a slowing in the pace of balance sheet reduction to begin soon; the median respondent projected that the slowdown would start in June, one month earlier than in the March surveys. The average probability distribution of the size of the System Open Market Account (SOMA) portfolio at the end of runoff had become a bit more concentrated, and its probability-weighted mean was slightly lower than in the March surveys. Overall, the survey results suggested that respondents' expectations for a slowdown of balance sheet runoff had been decoupled from expectations about the timing and extent of rate cuts, and that respondents understood that a slowdown in the pace of runoff was not likely to translate to a higher terminal size of the portfolio. The manager then turned to money markets and Desk operations. Unsecured overnight rates were stable over the intermeeting period. In secured funding markets, rates on overnight repurchase agreements firmed somewhat over the March quarter-end reporting date, in line with recent history. Market participants generally reported that the return of somewhat higher rates around reporting dates had not been associated with any issues in market functioning. Despite the ongoing balance sheet runoff, take-up at the overnight reverse repurchase agreement (ON RRP) facility was largely steady over the period, likely reflecting fewer attractive private-market alternatives for money market funds (MMFs) amid a recent reduction in Treasury bills outstanding as well as a decrease in MMFs' weighted average maturities. ON RRP usage was also likely supported by typical month-end dynamics. The staff and respondents to the Desk's Survey of Primary Dealers expected ON RRP take-up to decline in coming months. The manager provided an update on reserve conditions. Over the intermeeting period, the federal funds market continued to be insensitive to day-to-day changes in the supply of reserves and suggested that reserves remained abundant. The manager discussed various other indicators that supported the same conclusion. The Committee voted unanimously to renew the reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The votes to renew the Federal Reserve's participation in these standing arrangements occur annually at the April or May FOMC meeting. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the April 30âMay 1 meeting indicated that growth in U.S. real gross domestic product (GDP) stepped down in the first quarter of 2024 from the robust pace seen over the second half of 2023. Labor market conditions remained strong. Consumer price inflationâas measured by the 12âmonth change in the price index for personal consumption expenditures (PCE)âslowed significantly over the past year but had moved up slightly in recent months and remained above 2 percent. Labor demand and supply continued to move into better balance, though the speed of this realignment appeared to have slowed in recent months. Total nonfarm payroll employment increased at a faster average monthly pace in the first quarter of 2024 than in the fourth quarter of 2023. The unemployment rate ticked down to 3.8 percent in March, while the labor force participation rate and the employment-to-population ratio both moved up 0.2 percentage point. The unemployment rate for African Americans increased, and the rate for Hispanics moved down; both rates were higher than those for Asians and for Whites. The 12-month changes in the employment cost index (ECI) and average hourly earnings for all employees both declined in March relative to a year earlier, but the 3âmonth change in the ECI stepped up noticeably from the average pace that prevailed over the second half of 2023. Regarding consumer price inflation, total PCE prices increased 2.7 percent over the 12 months ending in March, while core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.8 percent over the same period. Both inflation measures were considerably lower than their year-earlier levels but had surprised to the upside. Al­though some measures of short-term inflation expectations had moved up, longer-term expectations were little changed and stood at levels consistent with those that prevailed before the pandemic. According to the advance estimate, real GDP rose modestly in the first quarter. However, private domestic final purchases (PDFP)âwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumâposted an increase that was similar to the solid gains seen over the second half of 2023. Real exports of goods and services grew at a tepid pace overall in the first quarter, with gains in exports of foods, consumer goods, and capital goods being mostly offset by declines in exports of industrial supplies. By contrast, real imports rose at a brisk pace, boosted in part by a large increase in imports of capital goods. All told, net exports made a significant negative contribution to U.S. GDP growth in the first quarter. Foreign GDP growth is estimated to have picked up in the first quarter from its subdued pace in the previous quarter. In Europe, economic activity resumed expanding following modest contractions in several economies amid monetary policy restraint and the repercussions of the 2022 energy shock. Growth stepped up in China, led by strong exports, but property-sector indicators remained weak. Elsewhere in emerging Asia, exports rebounded further from last year's lows, lifted by robust global demand for high-tech goods. Headline inflation eased modestly further in the advanced foreign economies (AFEs) in the first quarter, but inched up in the emerging market economies in part because of food price pressure caused by adverse weather in some countries. Most major AFE central banks kept their policy rates unchanged over the intermeeting period, and some reiterated that policy rate cuts could be appropriate at coming meetings. Staff Review of the Financial Situation Over the intermeeting period, the market-implied path for the federal funds rate through 2024 increased markedly, and federal funds futures rates suggested that market participants were placing lower odds on significant policy easing in 2024 than they did just before the March FOMC meeting. Consistent with the rise in the implied policy path, nominal Treasury yields at all maturities also rose substantially as investors appeared to reassess the persistence of inflation and the implications for monetary policy. Market-based measures of interest rate uncertainty remained elevated by historical standards. Broad stock price indexes declined moderately, on net, over the intermeeting period. Yield spreads on investment-grade corporate bonds were about unchanged, and those on speculative-grade corporate bonds increased moderately. The one-month option-implied volatility on the S&P 500 increased significantly over the period, apparently reflecting rising geopolitical tensions, but remained at moderate levels by historical standards. Over the intermeeting period, incoming foreign economic data and central bank communications were largely consistent with market participants' expectations that most AFE central banks will lower policy rates at coming meetings. Nonetheless, AFE sovereign bond yields rose, primarily reflecting spillovers from higher U.S. yields. Wider U.S.âAFE yield differentials and, to a lesser extent, heightened geopolitical tensions in the Middle East contributed to a moderate increase in the broad dollar index. Though geopolitical tensions weighed on risk sentiment at times, prices of foreign risky assets were little changed on balance. Conditions in U.S. short-term funding markets remained stable over the intermeeting period, with typical dynamics observed surrounding quarter-end. Usage of the ON RRP facility leveled off during the first few weeks of the period, primarily reflecting MMFs slowing their re-allocation into Treasury bills. In domestic credit markets, borrowing costs generally rose somewhat over the intermeeting period from already elevated levels. Rates on 30-year conforming residential mortgages increased and remained near recent high levels. In contrast, interest rates on new credit card offers edged down in February. Interest rates on small business loans increased in March and remained at elevated levels. Meanwhile, price terms for commercial and industrial (C&I) loans were little changed, on net, in the first quarter of 2024 after several quarters of tightening. Yields rose on a broad array of fixed-income securities, including commercial mortgage-backed securities (CMBS), investment- and speculative-grade corporate bonds, and residential mortgage-backed securities. Financing through capital markets and nonbank lenders was readily accessible for public corporations and large and middle-market private corporations, and credit availability for leveraged loan borrowers appeared to improve further over the intermeeting period. For small firms, the volume of loan originations ticked up in February despite the tightening of credit standards. Meanwhile, C&I loan balances declined in the first quarter, in line with the cumulative tightening in standards over the past two years. In the April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), large banks kept standards and most lending terms for C&I loans unchanged, on net, while smaller banks continued to tighten standards and terms on net. Banks reported tightening standards further in the April SLOOS for all loan categories of commercial real estate (CRE) loans. The growth of bank CRE loan balances slowed notably over the past year, reflecting the tightening of credit standards over this period, though growth of CRE loan balances picked up modestly in the first quarter. Credit remained available for most consumers, despite some signs of recent tightening. For residential real estate borrowers, conforming and government-backed loans remained generally available. Credit card balances continued to grow at a robust pace, though a significant net share of SLOOS respondents indicated that lending standards for credit cards tightened further in the first quarter. Growth in auto lending moderated in January and February, and a modest net share of banks reported in the SLOOS that they tightened lending standards on auto loans in the first quarter. Al­though credit quality for household loans remained solid, on balance, delinquency rates for credit cards and auto loans in the fourth quarter remained notably above their levels just before the pandemic. For residential mortgages, delinquency rates across loan types were largely unchanged in February. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained stable overall. The average delinquency rate for loans in CMBS pools ticked down in March but remained at elevated levels. Meanwhile, the share of nonperforming CRE loans at banksâdefined as loans past due 90 days or in nonaccrual statusârose further through March, especially for loans secured by office buildings. The staff provided an update on its assessment of the stability of the U.S. financial system. On balance, the staff continued to characterize the system's financial vulnerabilities as notable but raised the assessment of vulnerabilities in asset valuations to elevated, as valuations across a range of markets appeared high relative to risk-adjusted cash flows. House prices remained elevated relative to fundamentals such as rents and Treasury yields, though the fraction of mortgage borrowers with small equity positions remained low. CRE prices continued to decline, especially in the multifamily and office sectors, and vacancy rates in these sectors remained elevated. Vulnerabilities associated with business and household debt were characterized as moderate. Nonfinancial business leverage was high, but the ability of firms to service their debt remained solid, partly due to robust earnings. Leverage in the financial sector was characterized as notable. Regulatory capital ratios in the banking sector remained high. However, the fair value of bank assets was estimated to have fallen further in the first quarter, reflecting the substantial duration risk on bank balance sheets. For the nonbank sector, the prevalence of the basis trade by hedge funds appeared to have declined from its peak but remained elevated by historical standards. Funding risks were also characterized as notable. Assets in prime MMFs and other cash management vehicles continued to grow steadily. The staff assessed that the financial stability risks associated with the fast-growing private credit sector were limited so far because of the modest leverage used by private debt funds and business development companies and the limited maturity mismatch present in their funding vehicles. However, the staff also noted the growing connections between private credit and the banking sector, the growth of some forms of private credit, and the fact that the private credit market has yet to experience a severe credit downturn. Staff Economic Outlook The economic forecast prepared by the staff for the AprilâMay meeting was similar to the March projection. The economy was expected to maintain its high rate of resource utilization over the next few years, with projected output growth roughly similar to the staff's estimate of potential growth. The unemployment rate was expected to edge down slightly over 2024 as labor market functioning improved further, and to remain roughly steady thereafter. Total and core PCE price inflation were both projected to move lower this year relative to last year, though the expected pace of disinflation was slower than in the March projection, as incoming data pointed to more persistence in inflation in coming months. Inflation was expected to decline further beyond this year as demand and supply in product and labor markets continued to move into better balance; by 2026, total and core PCE price inflation were expected to be close to 2 percent. The staff continued to view the uncertainty around the baseline projection as close to the average over the past 20 years. Risks to the inflation forecast were seen as tilted to the upside, reflecting the possibility that supply-side disruptions or unexpectedly persistent inflation dynamics could materialize. The risks around the forecast for economic activity were seen as skewed to the downside on the grounds that more-persistent inflation could result in tighter financial conditions than in the staff's baseline projection; in addition, deteriorating household financial positions, especially for lower-income households, might prove to be a larger drag on activity than the staff anticipated. Participants' Views on Current Conditions and the Economic Outlook Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee's 2 percent objective. The recent monthly data had showed significant increases in components of both goods and services price inflation. In particular, inflation for core services excluding housing had moved up in the first quarter compared with the fourth quarter of last year, and prices of core goods posted their first three-month increase in several months. In addition, housing services inflation had slowed less than had been anticipated based on the smaller increases in measures of market rents over the past year. A few participants remarked that unusually large seasonal patterns could have contributed to January's large increase in PCE inflation, and several participants noted that some components that typically display volatile price changes had boosted recent readings. However, some participants emphasized that the recent increases in inflation had been relatively broad based and therefore should not be overly discounted. Participants generally commented that they remained highly attentive to inflation risks. They also remained concerned that elevated inflation continued to harm the purchasing power of households, especially those least able to meet the higher costs of essentials like food, housing, and transportation. Participants noted that they continued to expect that inflation would return to 2 percent over the medium term. However, recent data had not increased their confidence in progress toward 2 percent and, accordingly, had suggested that the disinflation process would likely take longer than previously thought. Participants discussed several factors that, in conjunction with appropriately restrictive monetary policy, could support the return of inflation to the Committee's goal over time. One was a further reduction in housing services price inflation as lower readings for rent growth on new leases continued to pass through to this category of inflation. However, many participants commented that the pass-through would likely take place only gradually or noted that a reacceleration of market rents could reduce the effect. Several participants stated that core nonhousing services price inflation could resume its decline as wage growth slows further with labor demand and supply moving into better balance, aided by higher labor force participation and strong immigration flows. In addition, many participants commented that ongoing increases in productivity growth would support disinflation if sustained, though the outlook for productivity growth was regarded as uncertain. Several participants said that business contacts in their Districts reported increased difficulty in raising their output prices, while a few participants reported a continued ability of firms in their Districts to pass on higher costs to consumers. Al­though some measures of short-term inflation expectations from surveys of consumers had increased in recent months, medium- and longer-term measures of expected inflation had remained well anchored, which was seen as crucial for meeting the Committee's inflation goal on a sustained basis. While supply chain improvements had supported disinflation for goods prices over the previous year, participants commented that an expected more gradual pace of such improvements could slow progress on inflation. Several participants commented that growth of aggregate demand would likely have to slow from its strong pace in recent quarters for inflation to move sustainably toward the Committee's goal. Participants assessed that demand and supply in the labor market, on net, were continuing to come into better balance, though at a slower rate. Nevertheless, they saw conditions as having generally remained tight amid recent strong payroll growth and a still-low unemployment rate. Participants cited a variety of indicators that suggested some easing in labor market tightness, including declining job vacancies, a lower quits rate, and a reduced ratio of job openings to unemployed workers. Some participants indicated that business contacts had reported less difficulty in hiring or retaining workers, al­though contacts in several Districts continued to report tight labor conditions, especially in the health care and construction sectors. Many participants commented that the better balance between labor demand and supply had contributed to an easing of nominal wage pressures. Even so, a number of participants noted that some measures of labor cost growth, including the ECI, had not eased in recent months, and a couple of participants remarked that negotiated compensation agreements had added to wage pressures in their Districts. Many participants noted that, during the past year, labor supply had been boosted by increased labor force participation rates as well as by immigration. Participants further commented that recent estimates of greater immigration in the past few years and an overall increase in labor supply could help explain the strength in employment gains even as the unemployment rate had remained roughly flat and wage pressures had eased. Participants noted that recent indicators suggested that economic activity had continued to expand at a solid pace. Real GDP growth in the first quarter had moderated relative to the second half of last year, but PDFP growth maintained a strong pace. High interest rates appeared to weigh on consumer durables purchases in the first quarter, and growth of business fixed investment remained modest. Despite the high interest rates, residential investment grew more strongly in the first quarter than its modest pace in the second half of last year. Al­though recent PDFP data suggested continued strong economic momentum, participants generally did not interpret the data as indicating a further acceleration of activity and expected that GDP growth would slow from last year's strong pace. A number of participants commented that high rates of immigration could support economic activity by boosting labor supply and contributing to aggregate demand. Participants noted the important influence of productivity growth for the economic outlook. Some participants suggested that the recent increase in productivity growth might not persist because it reflected one-time adjustments to the level of productivity or reflected continued elevated volatility in the data over the past several years. A few participants commented that higher productivity growth might be sustained by the incorporation of technologies such as artificial intelligence into existing business operations or by high rates of new business formation in the technology sector. In their discussion of the outlook for the household sector, participants observed that consumer spending remained firm in the first quarter, supported by low unemployment and solid income growth. A number of participants judged that consumption growth was likely to moderate this year, as growth in labor income was expected to slow and the financial positions of many households were expected to weaken. Many participants noted signs that the finances of low- and moderate-income households were increasingly coming under pressure, which these participants saw as a downside risk to the outlook for consumption. They pointed to increased usage of credit cards and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans. In addition, elevated housing costs were adding to financial strains for lower-income households. A couple of participants noted that financial conditions appeared favorable for wealthier households, which account for a large portion of aggregate consumption, with hefty wealth gains resulting from recent equity and house price increases. Business contacts in many Districts reported a steady or stable pace of economic activity, while contacts in a couple of Districts conveyed increased optimism about the outlook. A few participants noted that government spending was supporting business expansion in their Districts. Consistent with a solid outlook for businesses, a couple of participants noted that their contacts had reported increased investment in technology or in business process improvements that were enhancing productive capacity. Regarding the agricultural sector, a couple of participants noted that lower commodity prices were weighing on farm incomes. Participants discussed the risks and uncertainties around the economic outlook. They generally noted their uncertainty about the persistence of inflation and agreed that recent data had not increased their confidence that inflation was moving sustainably toward 2 percent. Some participants pointed to geopolitical events or other factors resulting in more severe supply bottlenecks or higher shipping costs, which could put upward pressure on prices and weigh on economic growth. The possibility that geopolitical events could generate commodity price increases was also seen as an upside risk to inflation. A number of participants noted uncertainty regarding the degree of restrictiveness of current financial conditions and the associated risk that such conditions were insufficiently restrictive on aggregate demand and inflation. Several participants commented that increased efficiencies and technological innovations could raise productivity growth on a sustained basis, which might allow the economy to grow faster without raising inflation. Participants also noted downside risks to economic activity, including slowing economic growth in China, a deterioration in conditions in domestic CRE markets, or a sharp tightening in financial conditions. In their discussion of financial stability, participants who commented noted vulnerabilities to the financial system that they assessed warranted monitoring. Participants discussed a range of risks emanating from the banking sector, including unrealized losses on assets resulting from the rise in longer-term yields, high CRE exposure, significant reliance by some banks on uninsured deposits, cyber threats, or increased financial interconnections among banks. Several participants commented on the rapid growth of private credit markets, noting that such developments should be monitored because the sector was becoming more interconnected with other parts of the financial system and that some associated risks may not yet be apparent. A few participants also commented on the importance of measures aimed at increasing resilience in the Treasury market, such as central clearing, or on potential vulnerabilities posed by leveraged investors in the Treasury market. A couple of participants commented that the Federal Reserve should continue to improve the operational efficiency of the discount window. Participants generally noted that high interest rates could contribute to vulnerabilities in the financial system. In that context, a number of participants emphasized that monetary policy should be guided by the outlook for employment and inflation and that other tools should be the primary means to address financial stability risks. In their consideration of monetary policy at this meeting, all participants judged that, in light of current economic conditions and their implications for the outlook for employment and inflation, as well as the balance of risks, it was appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by intermeeting data indicating continued solid economic growth and a lack of further progress toward the Committee's 2 percent inflation objective in recent months. Participants also discussed the process of reducing the Federal Reserve's securities holdings. Participants judged that balance sheet reduction had proceeded smoothly. Almost all participants expressed support for the decision to begin to slow the pace of decline of the Federal Reserve's securities holdings in June by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion, maintaining the monthly redemption cap on agency debt and agency mortgageâbacked securities (MBS) at $35 billion, and reinvesting any principal payments in excess of the $35 billion cap into Treasury securities. A few participants indicated that they could have supported a continuation of the current pace of balance sheet runoff at this time or a slightly higher redemption cap on Treasury securities than was decided upon. Various participants emphasized that the decision to slow the pace of runoff does not have implications for the stance of monetary policy. Several participants also emphasized that slowing the pace of balance sheet runoff did not mean that the balance sheet would ultimately shrink by less than it would otherwise. Some participants commented that slowing the pace of balance sheet runoff would help facilitate a smooth transition from abundant to ample reserve balances by reducing the likelihood that money markets experience undue stress that could require an early end to runoff. Participants generally assessed that it would be important to continue to monitor indicators of reserve conditions as balance sheet runoff continued. In addition, a few participants commented that the existing redemption cap on agency debt and agency MBS was unlikely to bind at any point over the coming years, but the decision to reinvest any principal payments above that cap into Treasury securities was consistent with the Committee's longer-run intention to hold a portfolio that consists primarily of Treasury securities. A couple of participants commented that it would be useful to begin discussions regarding the appropriate longer-run maturity composition of the SOMA portfolio. In discussing the policy outlook, participants remarked that the future path of the policy rate would depend on incoming data, the evolving outlook, and the balance of risks. Many participants commented that the public appeared to have a good understanding of the Committee's data-dependent approach in formulating monetary policy and its commitment to achieving its dual-mandate goals of maximum employment and price stability. Various participants also emphasized the importance of continuing to communicate this message. Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum, and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2 percent. In discussing risk-management considerations that could bear on the policy outlook, participants generally assessed that risks to the achievement of the Committee's employment and inflation goals had moved toward better balance over the past year. Participants remained highly attentive to inflation risks and noted the uncertainty associated with the economic outlook. Al­though monetary policy was seen as restrictive, many participants commented on their uncertainty about the degree of restrictiveness. These participants saw this uncertainty as coming from the possibility that high interest rates may be having smaller effects than in the past, that longer-run equilibrium interest rates may be higher than previously thought, or that the level of potential output may be lower than estimated. Participants assessed, however, that monetary policy remained well positioned to respond to evolving economic conditions and risks to the outlook. Participants discussed maintaining the current restrictive policy stance for longer should inflation not show signs of moving sustainably toward 2 percent or reducing policy restraint in the event of an unexpected weakening in labor market conditions. Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity continued to expand at a solid pace. Job gains remained strong, and the unemployment rate remained low. Inflation eased over the past year but remained elevated. Members also concurred that, in recent months, there was a lack of further progress toward the Committee's 2 percent inflation objective and agreed to acknowledge this development in the postmeeting statement. Members judged that the risks to achieving the Committee's employment and inflation goals had moved toward better balance over the past year. Members viewed the economic outlook as uncertain and agreed that they remained highly attentive to inflation risks. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency MBS. Members decided that, beginning in June, the Committee would slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. In addition, members decided that the Committee would maintain the monthly redemption cap on agency debt and agency MBS at $35 billion and, beginning in June, would reinvest any principal payments in excess of this cap into Treasury securities. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective May 2, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in May that exceeds a cap of $60 billion per month. Beginning on June 1, roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to these monthly caps and Treasury bills to the extent that coupon principal payments are less than the monthly caps. Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in May that exceeds a cap of $35 billion per month. Beginning on June 1, reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgageâbacked securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective May 2, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective May 2, 2024. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, June 11â12, 2024. The meeting adjourned at 10:05 a.m. on May 1, 2024. Notation Vote By notation vote completed on April 9, 2024, the Committee unanimously approved the minutes of the Committee meeting held on March 19â20, 2024. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended through the discussion of the economic and financial situation. Return to text 4. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee June 11â12, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, June 11, 2024, at 10:30 a.m. and continued on Wednesday, June 12, 2024, at 9:15 a.m. 1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Philip N. Jefferson Adriana D. Kugler Loretta J. Mester Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, and Jeffrey R. Schmid, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, 2 Economist Beth Anne Wilson, Economist Shaghil Ahmed, Kartik B. Athreya, James A. Clouse, Brian M. Doyle, Edward S. Knotek II, David E. Lebow, Paula Tkac, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Ayelen Banegas, Principal Economist, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Stefania D'Amico, 3 Senior Economist and Research Advisor, Federal Reserve Bank of Chicago Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Michele Taylor Fennell, 4 Deputy Associate Secretary, Office of the Secretary, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board David Glancy, Principal Economist, Division of Monetary Affairs, Board Francois J. Gourio, Senior Economist and Economic Advisor, Federal Reserve Bank of Chicago Olesya Grishchenko, Principal Economist, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jasper J. Hoek, Deputy Associate Director, Division of International Finance, Board Sara J. Hogan, 3 Senior Financial Institution Policy Analyst I, Division of Reserve Bank Operations and Payment Systems, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 3 Senior Adviser, Division of Monetary Affairs, Board Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Deputy Associate Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Thomas Lubik, Senior Advisor, Federal Reserve Bank of Richmond Benjamin Malin, Vice President, Federal Reserve Bank of Minneapolis Benjamin W. McDonough, Deputy Secretary and Ombudsman, Office of the Secretary, Board Karel Mertens, Senior Vice President, Federal Reserve Bank of Dallas Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Alyssa O'Connor, Special Adviser to the Board, Division of Board Members, Board Matthias Paustian, Assistant Director, Division of Research and Statistics, Board Karen M. Pence, Deputy Associate Director, Division of Research and Statistics, Board Karen A. Pennell, First Vice President, Federal Reserve Bank of Boston Damjan Pfajfar, Group Manager, Division of Monetary Affairs, Board Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Odelle Quisumbing, 5 Assistant to the Secretary, Office of the Secretary, Board Gisela Rua, Principal Economist, Division of Research and Statistics, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board A. Lee Smith, Senior Vice President, Federal Reserve Bank of Kansas City Robert G. Valletta, Senior Vice President, Federal Reserve Bank of San Francisco Francisco Vazquez-Grande, Group Manager, Division of Monetary Affairs, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 3 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Financial conditions eased modestly over the intermeeting period mainly because of higher equity prices. Taking a somewhat longer perspective, the manager noted that financial conditions had changed little since March but eased notably since the fall. The main drivers of that easing were again higher equity prices, which appeared to respond to the reductions in the perceived odds of a recession, and a consensus among market participants that the federal funds rate has reached its peak. Nominal Treasury yields declined moderately across the curve, on net, but continued to be very sensitive to incoming data surprises, especially those pertaining to inflation and the labor market. The net decline in nominal yields over the period was primarily due to lower real yields. Inflation compensation also fell somewhat, especially at shorter horizons. Longer-term inflation expectations remained well anchored. The manager turned next to policy rate expectations. The path of the federal funds rate implied by futures prices shifted a bit lower over the intermeeting period and indicated one and one-half 25 basis point cuts by year-end. This shift appeared to reflect mostly changes in perceived risks rather than base-case expectations because the modal path implied by options was virtually unchanged and remained consistent with, at most, one cut this year. The median of modal paths of the federal funds rate obtained from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participantsâtaken before the May employment reportâwas also little changed. The manager then discussed expectations regarding balance sheet policy. Responses to the Desk surveys showed a median expected timing for the end of balance sheet runoff of April 2025, one month later than in the previous surveys, though individual respondents' views of the exact timing remained dispersed. Respondents' expectations about the size of the portfolio at the end of runoff had changed little in recent surveys. In international developments, the European Central Bank (ECB) and the Bank of Canada (BOC) initiated rate-cutting cycles this period, as generally expected. Market participants reportedly had not expected easing cycles to begin at the same time across economies but appeared to expect that most advanced-economy central banks will have started easing policy within the next several months. The manager then turned to money markets and Desk operations. Unsecured overnight rates were stable over the intermeeting period. In secured funding markets, repurchase agreement (repo) rates remained steady for most of the period but firmed close to the end of May because of month-end pressures and the effect of large settlements of Treasury coupon securities. Rate firmness around reporting and settlement dates was consistent with historical patterns. Use of the overnight reverse repurchase agreement (ON RRP) facility remained sensitive to market rates and the availability of alternative investments. Usage was little changed over much of the period but dipped late in the period, coincident with the month-end firming in private repo rates. The staff projected ON RRP usage to decline in coming months, as net Treasury bill issuance was expected to turn positive and private repo rates were expected to continue to move higher relative to administered rates amid large issuance of Treasury coupon securities. The staff also projected that reserves will not change much in the near term, with the exception of quarter-end dates, and then will decline about in line with the shrinking of the Federal Reserve's portfolio after ON RRP balances are nearly fully drained. The uncertainty surrounding both projections, however, was considerable. The manager also discussed the responses to a Desk survey question about the most likely spread between the effective federal funds rate and the interest rate on reserve balances at different levels of the sum of reserves and ON RRP balances. The responses indicated considerable uncertainty and dispersion of views about when and how the spread would move as the sum declines. The manager observed that indicators based on market prices and activity were likely the best gauges of how quickly reserves are transitioning from abundant to ample. Over the intermeeting period, the federal funds market continued to be insensitive to day-to-day changes in the supply of reserves; various other indicators suggested that reserves remained abundant and that the risk of money market strains in the near term was low. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting suggested that U.S. economic activity had expanded at a solid pace so far this year. Labor market conditions remained solid. Job gains continued to be strong, while the unemployment rate had edged up but was still low. Consumer price inflation was running well below where it was a year earlier, but further progress toward the Committee's 2 percent inflation objective had been modest in recent months. Consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âwas about the same in April as at the end of last year, although recent month-over-month readings of PCE prices were lower than earlier this year. Total PCE price inflation was 2.7 percent in April, and core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.8 percent. The consumer price index (CPI) in May showed that the 12-month change measure of total CPI inflation was 3.3 percent and core CPI inflation was 3.4 percent, and recent monthly CPI readings were lower than earlier this year. Al­though some survey-based measures of short-term inflation expectations had moved up, longer-term expectations were little changed and stood at levels consistent with those that prevailed just before the pandemic. Labor demand and supply continued to move into better balance. Total nonfarm payroll employment increased at only a somewhat slower average monthly pace over April and May than the strong rate recorded in the first quarter. The recently released fourth-quarter data from the Quarterly Census of Employment and Wages suggested that while the strong reported rate of payroll increases last year may have been overstated, job gains were still solid. In May, the unemployment rate ticked up further to 4.0 percent, while the labor force participation rate and the employment-to-population ratio both moved down a little. The unemployment rates for African Americans and for Hispanics were somewhat higher in May than in the first quarter; both rates were above those for Asians and for Whites. The ratio of job vacancies to unemployment declined further to 1.2 in May, about the same as its pre-pandemic level. Most measures of the increase in nominal wages from a year earlier continued to trend down, including the 12-month change in average hourly earnings for all employees, which was 4.1 percent in May, 0.2 percentage point lower than at the end of last year. Real gross domestic product (GDP) rose modestly in the first quarter, held down by significant negative contributions from inventory investment and net exports, which tend to be volatile components. In contrast, private domestic final purchases (PDFP)âwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumâincreased at a solid pace, similar to last year. Recent spending indicators suggested that GDP and PDFP were increasing at solid rates in the second quarter. Real exports of goods edged up in April relative to March, following tepid growth in the first quarter. Real imports of goods jumped in April, driven by higher imports of autos and capital goods. Overall, the nominal U.S. international trade deficit widened in April, as imports of goods and services rose more than exports. Foreign GDP growth firmed in the first quarter. A buoyant service sector helped Europe recover from a modest contraction in the second half of last year. In emerging market economies (EMEs), including China, growth was supported by strong external demand. The first-quarter surge in economic activity in China was also boosted by policy support, especially from fiscal policy. More recent Chinese data, however, especially a steep drop in lending to households and businesses in April, pointed to a considerable slowdown in China's economic activity in this quarter. Headline inflation continued to ease in the advanced foreign economies (AFEs) through May, albeit at a slower pace than last year. While core inflation had slowed significantly, the core nonhousing services component remained elevated in several regions, partly reflecting strong nominal wage growth. Inflation inched up in EMEs, in part because of weather-related increases in food prices in some countries. The Riksbank, the BOC, and the ECB cut their policy rates as market participants expected, amid easing inflation. Communications about future policy decisions varied and were focused on domestic economic conditions. Staff Review of the Financial Situation Over the intermeeting period, the market-implied path for the federal funds rate beyond the next few months edged down. Options on interest rate futures suggested that market participants were placing higher odds on policy easing by early 2025 than they did just before the April FOMC meeting. Consistent with the slight downward shift in the implied policy path, nominal Treasury yields at all maturities also moved down moderately, driven primarily by declines in real Treasury yields. Inflation compensation also fell some, with larger declines at nearer horizons. Market-based measures of interest rate uncertainty ticked down but remained elevated by historical standards. Broad stock price indexes increased substantially, on net, amid a positive investor outlook on corporate profits and economic activity. Yield spreads on investment- and speculative-grade corporate bonds were little changed, remaining at about the lowest decile of their respective historical distributions. The one-month option-implied volatility on the S&P 500 index remained low by historical standards, suggesting that investors perceived only modest near-term risks to the economic outlook. Changes in AFE yields were mixed, as spillovers from declines in U.S. yields were partly offset by upside surprises in economic data releases in Europe and by somewhat more restrictive-than-expected communications by the ECB. The dollar depreciated against most AFE currencies as differentials between U.S. and AFE yields narrowed. Nonetheless, the broad dollar index slightly increased as the dollar appreciated sharply against the Mexican peso amid heightened policy uncertainty following Mexico's presidential election results. On balance, moves in foreign risky asset prices were mixed and modest, and EME funds saw small inflows. Conditions in U.S. short-term funding markets remained stable over the intermeeting period. Average usage of the ON RRP facility was little changed, primarily reflecting the portfolio decisions of money market funds amid lower net Treasury bill supply. Banks' total deposit levels were roughly unchanged over the intermeeting period, as outflows of core deposits were about offset by inflows of large time deposits. In domestic credit markets, borrowing costs remained elevated despite declining modestly over the intermeeting period. Rates on 30-year conforming residential mortgages edged down, on net, over the intermeeting period but remained near recent high levels. Interest rates on new credit card offers were little changed in April at high levels, as were rates on new auto loans. Interest rates on commercial and industrial (C&I) loans and small business loans also remained elevated. Yields on an array of fixed-income securities, including commercial mortgage-backed securities (CMBS), investment- and speculative-grade corporate bonds, and residential mortgage-backed securities, moved lower to still-elevated levels relative to recent history. Financing was readily accessible for public corporations and large and middle-market private corporations through capital markets and nonbank lenders. Credit availability for leveraged loan borrowers remained solid over the intermeeting period, while in private credit markets, loan issuance through direct lending was strong. Bank C&I loan balances picked up in April and May. For small firms, the volume of loan originations ticked down in April, and credit availability remained tight. Credit remained largely available to commercial real estate (CRE) borrowers outside of construction and land development loans. CRE loans at banks continued to increase in April and May, driven by growth in multifamily and nonfarm nonresidential loans. Agency and non-agency CMBS issuance rose in April and May, as falling yields extended the recent wave of refinancing. Consumer credit remained generally available over the intermeeting period despite some signs of tightening. In the residential mortgage market, access to credit was little changed and continued to depend on borrowers' credit risk attributes. Although credit card limits continued to rise through March, credit card balances at banks leveled off in April and May. Auto lending at finance companies continued to grow at a moderate pace through April, more than offsetting the decline in auto loan balances at banks and credit unions on net. Credit quality continued to be solid for large and midsize firms, home mortgage borrowers, and municipalities but deteriorated further for other sectors in recent months. While delinquency rates on residential mortgages remained near pre-pandemic lows, credit card and auto loan delinquency rates continued to rise in the first quarter, signaling a further deterioration of balance sheets of some households. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained stable overall. Available indicators suggested that delinquency rates for the private credit market and for bank C&I loans remained comparable to the levels just before the pandemic despite ticking up further in the first quarter. For small business loans, delinquency rates stayed slightly above pre-pandemic levels. In the CRE market, credit quality deteriorated further, as the average CMBS delinquency rate rose in April and May to the highest levels since 2021, driven by the office, hotel, and retail sectors, and the credit quality of CRE borrowers at banks weakened slightly further in the first quarter. Staff Economic Outlook The economic forecast prepared by the staff for the June meeting was similar to the projection at the time of the previous meeting. The economy was expected to maintain a high rate of resource utilization over the next few years, with real GDP growth projected to be roughly similar to the staff's estimate of potential output growth. The unemployment rate was expected to edge down slightly over the remainder of this year and the next and then to remain roughly flat in 2026. Total and core PCE price inflation were both projected to be lower at the end of this year than they were at the end of last year. The staff's inflation projections for this yearâwhich included a preliminary reaction to the May CPI dataâwere little changed, on balance, from the inflation forecast at the time of the previous meeting. The inflation forecast was higher, however, than at the time of the March meeting and the March Summary of Economic Projections (SEP) submissions. Inflation was still expected to decline further in 2025 and 2026, as demand and supply in product and labor markets continued to move into better balance; by 2026, total and core PCE price inflation were expected to be close to 2 percent. The staff continued to view the uncertainty around the baseline projection as close to the average over the past 20 years. Risks to the inflation forecast were seen as tilted to the upside, reflecting the possibility that more persistent inflation dynamics or supply-side disruptions could unexpectedly materialize. The risks around the forecast for economic activity were seen as skewed to the downside on the grounds that more-persistent inflation could result in tighter financial conditions than in the staff's baseline projection; in addition, deteriorating household financial positions, especially for lower-income households, might prove to have a larger negative effect on economic activity than the staff anticipated. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2024 through 2026 and over the longer run. These projections were based on their individual assessments of appropriate monetary policy, including their projections of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would tend to converge under appropriate monetary policy and in the absence of further shocks to the economy. The SEP was released to the public after the meeting. In their discussion of inflation developments, participants noted that after a significant decline in inflation during the second half of 2023, the early part of this year had seen a lack of further progress toward the Committee's 2 percent objective. Participants judged that although inflation remained elevated, there had been modest further progress toward the 2 percent goal in recent months. Participants observed that some of this progress was evident in the smaller monthly change in the core PCE price index and a lower trimmed mean inflation rate for April, with the May CPI reading providing additional evidence. Recent data had also indicated improvements across a range of price categories, including market-based services. Some participants commented that sustained achievement of the 2 percent inflation objective would be aided by lower overall services price inflation, and some noted that shelter price inflation had so far been slow to come down. A few participants also highlighted the strong increases recorded this year in core import prices. Nevertheless, participants suggested that a number of developments in the product and labor markets supported their judgment that price pressures were diminishing. In particular, a few participants emphasized that nominal wage growth, though still above rates consistent with price stability, had declined, notably in labor-intensive sectors. A few participants also noted reports that various retailers had cut prices and offered discounts. Participants further indicated that business contacts reported that their pricing power had declined. Participants suggested that evidence of firms' reduced pricing power reflected increased customer resistance to price increases, slower growth in economic activity, and a reassessment by businesses of prospective economic conditions. With regard to the outlook for inflation, participants emphasized that they were strongly committed to their 2 percent objective and that they remained concerned that elevated inflation continued to harm the purchasing power of households, especially those least able to meet the higher costs of essentials like food, housing, and transportation. Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead. The factors included continued easing of demandâsupply pressures in product and labor markets, lagged effects on wages and prices of past monetary policy tightening, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements. The latter prospect included the possibility of a boost to productivity associated with businesses' deployment of artificial intelligenceârelated technology. Participants observed that longer-term inflation expectations had remained well anchored and viewed this anchoring as underpinning the disinflation process. Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent. Participants remarked that demand and supply in the labor market had continued to come into better balance. Participants observed that many labor market indicators pointed to a reduced degree of tightness in labor market conditions. These included a declining job openings rate, a lower quits rate, increases in part-time employment for economic reasons, a lower hiring rate, a further step-down in the ratio of job vacancies to unemployed workers, and a gradual uptick in the unemployment rate. In addition, a few participants indicated that business contacts were reporting less difficulty in hiring and retaining workers, although contacts in several Districts continued to report tight labor market conditions in certain sectors, such as health care, construction, or specialty manufacturing. Many participants noted that labor supply had been boosted by increased labor force participation rates as well as by immigration. A few participants noted that it was unlikely that immigration would continue at the pace seen in recent years. However, several participants judged that, with recent immigrants gradually becoming part of the workforce, past immigration likely would continue to add to labor supply. A few participants observed that increases in labor force participation would likely now be limited and so would not be a major source of additional labor supply. In considering recent payrolls data, some participants observed that, although increases in payrolls had continued to be strong, the monthly increase in employment consistent with labor market equilibrium might now be higher than in the past because of immigration. Several participants also suggested that the establishment survey may have overstated actual job gains. Several participants remarked that a variety of indicators, including wage gains for job switchers, suggested that nominal wage growth was slowing, consistent with easing labor market pressures. A number of participants noted that, although the labor market remained strong, the ratio of vacancies to unemployment had returned to pre-pandemic levels and there was some risk that further cooling in labor market conditions could be associated with an increased pace of layoffs. Some participants observed that, with the risks to the Committee's dual-mandate goals having now come into better balance, labor market conditions would need careful monitoring. Participants generally observed that continued labor market strength could be consistent with the Committee achieving both its employment and inflation goals, though they noted that some further gradual cooling in the labor market may be required. Participants noted that recent indicators suggested that economic activity had continued to expand at a solid pace. Participants expected that real GDP growth this year would be below the strong pace recorded in 2023, and they remarked that recent data on economic activity were largely consistent with the anticipated slowing. Participants observed that a lower rate of output growth this year could aid the disinflation process while also being consistent with a strong labor market. Participants generally viewed the Committee's restrictive monetary policy stance as having a restraining effect on growth in consumption and investment spending and as contributing to a gradual slowing in the pace of economic activity. A couple of participants particularly stressed that the Committee's past policy tightening had contributed to higher rates for home mortgage loans and other longer-term borrowing, which were moderating spending and production, including households' discretionary purchases and residential construction activity. A few participants remarked that spending by some higher-income households was likely being bolstered by increasing asset prices. Many participants observed that, in contrast, lower- and moderate-income households were encountering increasing strains as they attempted to meet higher living costs after having largely run down savings accumulated during the pandemic. These participants noted that such strains, which were evident in rising credit card utilization and delinquency rates as well as motor vehicle loan delinquencies, were a significant concern. Participants continued to assess that the risks to achieving their employment and inflation goals had moved toward better balance over the past year. Participants cited a number of downside risks to economic activity, including those associated with a sharper-than-anticipated slowing in aggregate demand alongside a marked deterioration in labor market conditions, or with strains on lower- and moderate-income households' budgets leading to an abrupt curtailment of consumer spending. A few participants pointed to downside risks to economic activity associated with the fragility of some parts of the CRE sector or the vulnerable balance sheet positions of some banks. Some participants highlighted reasons why inflation could remain above 2 percent for longer than expected. These participants pointed to risks that inflation could stay elevated as a result of worsening geopolitical developments, heightened trade tensions, more persistent shelter price inflation, financial conditions that might be or could become insufficiently restrictive, or U.S. fiscal policy becoming more expansionary than expected; the latter two scenarios were also seen as implying upside risks to economic activity. Several participants also cited the risk of an unanchoring of longer-term inflation expectations. In their consideration of monetary policy at this meeting, participants observed that incoming data indicated continued solid growth in economic activity and a strong labor market while also pointing to modest further progress toward the Committee's 2 percent inflation objective in recent months. Participants remained highly attentive to inflation risks. All participants judged that, in light of current economic conditions and their implications for the outlook for employment and inflation, as well as the balance of risks, it was appropriate to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Participants furthermore judged that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings. In discussing the outlook for monetary policy, participants noted that progress in reducing inflation had been slower this year than they had expected last December. They emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective. In discussing their individual outlooks for the target range for the federal funds rate, participants emphasized the importance of conditioning future policy decisions on incoming data, the evolving economic outlook, and the balance of risks. Several participants noted that financial market reactions to data and feedback received from contacts suggested that the Committee's policy approach was generally well understood. Some participants suggested that further clarity about the FOMC's reaction function might be provided by communications that emphasized the Committee's data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path. A couple of participants remarked that providing more information about the Committee's views on the economic outlook and the risks around the outlook would improve the public's understanding of the Committee's decisions. In discussing risk-management considerations that could bear on the outlook for monetary policy, participants assessed that, with labor market tightness having eased and inflation having declined over the past year, the risks to achieving the Committee's employment and inflation goals had moved toward better balance, leaving monetary policy well positioned to deal with the risks and uncertainties faced in pursuing both sides of the Committee's dual mandate. The vast majority of participants assessed that growth in economic activity appeared to be gradually cooling, and most participants remarked that they viewed the current policy stance as restrictive. Some participants noted that there was uncertainty about the degree of restrictiveness of current policy. Some remarked that the continued strength of the economy, as well as other factors, could mean that the longer-run equilibrium interest rate was higher than previously assessed, in which case both the stance of monetary policy and overall financial conditions may be less restrictive than they might appear. A couple of participants noted that the longer-run equilibrium interest rate was a better guide for determining where the federal funds rate may need to move over the longer run than for assessing the restrictiveness of current policy. Participants noted the uncertainty associated with the economic outlook and with how long it would be appropriate to maintain a restrictive policy stance. Some participants emphasized the need for patience in allowing the Committee's restrictive policy stance to restrain aggregate demand and further moderate inflation pressures. Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised. A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness. Several participants specifically emphasized that with the labor market normalizing, a further weakening of demand may now generate a larger unemployment response than in the recent past when lower demand for labor was felt relatively more through fewer job openings. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity continued to expand at a solid pace. Job gains remained strong, and the unemployment rate remained low. Inflation eased over the past year but remained elevated. Members concurred that, in recent months, there was modest further progress toward the Committee's 2 percent inflation objective and agreed to acknowledge this development in the postmeeting statement. Members judged that the risks to achieving the Committee's employment and inflation goals had moved toward better balance over the past year. Members viewed the economic outlook as uncertain and agreed that they remained highly attentive to inflation risks. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective June 13, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, Loretta J. Mester, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective June 13, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective June 13, 2024. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, July 30â31, 2024. The meeting adjourned at 10:55 a.m. on June 12, 2024. Notation Vote By notation vote completed on May 21, 2024, the Committee unanimously approved the minutes of the Committee meeting held on April 30âMay 1, 2024. _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended Tuesday's session only. Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended the discussion of the economic and financial situation only. Return to text 5. Attended through the discussion of the economic and financial situation. Return to text

Minutes of the Federal Open Market Committee July 30â31, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, July 30, 2024, at 10:00 a.m. and continued on Wednesday, July 31, 2024, at 9:00 a.m. 1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Financial conditions eased modestly over the intermeeting period, reflecting lower long-term interest rates and higher equity prices. The manager noted that current financial conditions appeared to be providing neither a headwind nor tailwind to growth. Nominal Treasury yields declined over the period, with shorter-term yields having decreased by more than longer-term yields, leading to a steepening of the yield curve. Treasury yields remained sensitive to surprises in economic data, particularly consumer price index releases and employment reports. While near-term inflation compensation fell over the intermeeting period, longer-term forward measures were little changed. Measures of inflation expectations obtained from term structure models were modestly lower. The policy rate path derived from futures prices and the modal path derived from options prices both declined over the intermeeting period and had come into closer alignment with the median of the modal responses from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants. Policy expectations, however measured, pointed to a first rate cut at the September FOMC meeting, at least one more cut later in the year, and further policy easing next year. In the equity markets, the high perceived likelihood of a September cut in the target range for the policy rate induced a notable appreciation in the stocks of firms with small and medium capitalization, which tend to be more sensitive to interest rates. Stocks of larger companies, especially those in the technology sector, underperformed. Second-quarter earnings reports received before the meeting had been slightly above analysts' expectations, although some companies noted a softening in consumer spending. Expectations for policy rates in most advanced foreign economies (AFEs) declined, as recent data generally pointed to continued progress on inflation. Although most AFE central banks had cut their policy rates or were expected to do so soon, the manager noted that market participants continued to expect the Bank of Japan to tighten policy this year. The sudden announcement of a French election contributed to some short-term market volatility early in the intermeeting period, including a widening between yields of French and German 10-year sovereign bonds and a widening in spreads for off-the-run U.S. Treasury securities, but the effects on U.S. Treasury markets were short lived. The effective federal funds rate remained unchanged over the intermeeting period, but the manager noted that rates on repurchase agreements (repo) had edged higher, reflecting increased demand for financing Treasury securities as well as the expected effects of gradual balance sheet normalization. Use of the overnight reverse repo (ON RRP) facility declined slightly over the intermeeting period. The staff projected that ON RRP usage would decline more noticeably over the remainder of the year, particularly as issuance of Treasury bills increases. However, the manager noted that it was possible that idiosyncratic factors specific to some ON RRP participants might support ON RRP balances in the months ahead. Looking at a range of money market indicators, the manager concluded that reserves remained abundant but indicated that the staff would continue to closely monitor developments in money markets. Finally, the manager described a set of technical adjustments to the production of the Secured Overnight Financing Rate that the Federal Reserve Bank of New York had proposed in a recent public consultation. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting indicated that U.S. economic activity had advanced solidly so far this year, but at a markedly slower pace than in the second half of 2023. Labor market conditions continued to ease: Job gains moderated, and the unemployment rate moved up further but remained low. Consumer price inflation was well below its year-earlier pace but remained somewhat elevated. Consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âwas about the same in June as it was at the start of the year, though the month-over-month changes in May and June were smaller than those seen earlier in the year. Total PCE price inflation was 2.5 percent in June, and core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.6 percent. Recent data suggested that labor market conditions had eased further. Average monthly nonfarm payroll gains in the second quarter were smaller than the average pace seen in the first quarter and over the previous year. The unemployment rate moved up further in June to 4.1 percent; the labor force participation rate ticked up as well, and the employment-to-population ratio was unchanged. The unemployment rate for African Americans rose in June, while the rate for Hispanics declined slightly; both rates were above that for Whites. The ratio of job vacancies to unemployment remained at 1.2 in June, about the same as its pre-pandemic level. Measures of nominal wages continued to decelerate: Average hourly earnings for all employees rose 3.9 percent over the 12 months ending in June, down 0.8 percentage point relative to a year earlier, and the 12-month change in the employment cost index of hourly compensation of private industry workers was 3.9 percent in June, down 0.6 percentage point from its year-earlier pace. According to the advance release, real gross domestic product (GDP) rose solidly in the second quarter after a modest gain in the first quarter. Over the first half of the year, GDP growth was noticeably slower than its average pace in 2023. However, real private domestic final purchases (PDFP)âwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumâposted a solid second-quarter increase that was in line with its first-quarter pace and only moderately slower than its average rate of increase in 2023. As in the first quarter, net exports subtracted from U.S. GDP growth in the second quarter. Growth in real exports of goods and services remained tepid overall, as gains in exports of capital goods and consumer goods were partly offset by declines in exports of foods and industrial supplies. By contrast, real imports continued to rise at a brisk pace, driven by further increases in imports of capital goods. Foreign economic growth was estimated to have been subdued in the second quarter, held down by a sharp deceleration in economic activity in China amid ongoing property-sector woes. In Europe and Latin America, output likely expanded below its trend pace, as restrictive monetary policy continued to be a drag on activity. Recent global inflation developments were mixed. In the AFEs, headline inflation edged down in the second quarter but generally remained above target levels. In emerging market economies, headline inflation rose a touch overall, reflecting, in part, run-ups in food prices in some countries. The Bank of Canada and the Swiss National Bank cut their policy rates further, in part citing easing inflation pressures. The People's Bank of China also lowered some key policy rates amid ongoing property-sector woes and weak consumer sentiment. Staff Review of the Financial Situation The market-implied path for the federal funds rate moved down over the intermeeting period. Options on interest rate futures suggested that market participants were placing higher odds on a larger policy easing by early 2025 than they did just before the June meeting. Consistent with the downward shift in the implied policy path, nominal Treasury yields moved down, on net, with the most pronounced declines at shorter horizons driven largely by decreases in inflation compensation. Broad stock price indexes rose slightly on net. Yield spreads on investment- and speculative-grade corporate bonds were little changed and remained at about the lowest decile of their respective historical distributions. The one-month option-implied volatility on the S&P 500 index rose moderately and was somewhat elevated by historical standards, suggesting that investors perceived some, but not outsized, risks to the economic outlook. Market-based measures of the expected paths of policy rates and sovereign bond yields in most AFEs fell notably, largely in response to declines in U.S. rates. Following the surprise announcement of parliamentary elections in France, the spread between yields of French and German 10-year sovereign bonds widened to its highest level since 2012 but then partially retraced on the outcome of no clear parliamentary majority. The broad dollar index was little changed over the intermeeting period. On balance, moves in foreign risky asset prices were mixed and modest. Overnight secured rates edged up over the intermeeting period, but conditions in U.S. short-term funding markets remained stable, with typical dynamics observed surrounding quarter-end. Average usage of the ON RRP facility declined slightly. Banks' total deposit levels increased modestly, as large time deposits displayed moderate inflows. In domestic credit markets, borrowing costs remained elevated over the intermeeting period despite modest declines in some markets. Rates on 30-year conforming residential mortgages declined, on net, over the intermeeting period but stayed near recent high levels. Interest rates on new credit card offers increased slightly, while rates on new auto loans were little changed. Interest rates on small business loans remained elevated. Yields on an array of fixed-income securitiesâincluding commercial mortgage-backed securities (CMBS), investment- and speculative-grade corporate bonds, and residential mortgage-backed securitiesâmoved lower to still-elevated levels relative to recent history. The declines were largely driven by decreases in Treasury yields. Financing through capital markets and nonbank lenders was readily accessible for public corporations and large and middle-market private corporations, and credit availability for leveraged loan borrowers remained solid over the intermeeting period. For smaller firms, however, credit availability remained moderately tight. In the July Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported modestly tighter standards and lending terms for commercial and industrial (C&I) loans, on net, while reported demand for C&I loans remained about unchanged. Meanwhile, C&I loan balances increased in the second quarter. Regarding commercial real estate (CRE) loans, banks in the July SLOOS reported tightening standards for all loan categories. Nonetheless, bank CRE loan balances increased over the second quarter, albeit at a diminished pace relative to the previous quarter. Credit remained available for most consumers over the intermeeting period, though credit growth showed signs of moderating. Credit card balances slowed in June, and SLOOS respondents indicated that standards for credit cards tightened moderately in the second quarter. Although banks reported in the SLOOS that lending standards on auto loans were unchanged in the second quarter, growth in auto lending at both banks and nonbanks contracted further. In the residential mortgage market, access to credit was little changed overall and continued to depend on borrowers' credit risk attributes. Credit quality remained solid for large and midsize firms, home mortgage borrowers, and municipalities but continued to deteriorate in other sectors. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained stable. Delinquency rates on loans to small businesses remained slightly above pre-pandemic levels. Credit quality in the CRE market deteriorated further, with the average delinquency rate for loans in CMBS and the share of nonperforming CRE loans at banks both rising further. Regarding household balance sheets, delinquency rates on most residential mortgages remained near pre-pandemic lows. Though consumer delinquency rates had increased, particularly among nonprime borrowers, the rise in delinquency rates for both credit cards and auto loans slowed in the second quarter. The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, continued to characterize the system's financial vulnerabilities as notable. The staff judged that asset valuation pressures remained elevated, with estimates of risk premiums across key markets low compared with historical standards. House prices remained elevated relative to fundamentals. CRE prices continued to decline, especially in the multifamily and office sectors, and vacancy rates in these sectors continued to increase. Vulnerabilities associated with business and household debt were characterized as moderate. Nonfinancial business leverage was high, but the ability of public firms to service their debt remained solid, in large part due to strong earnings. The fraction of private firms with low debt-servicing ability continued to move up and remained at high levels compared with the past decade. Household balance sheets remained strong overall, as aggregate home equity stayed quite high and delinquencies on mortgage loans remained low. Leverage in the financial sector was characterized as notable. Regulatory capital ratios in the banking sector remained high. The fair value of bank assets, however, remained low. For the nonbank sector, leverage at hedge funds was at its highest recorded level based on data since 2013, partly due to the prevalence of the cashâfutures basis trade. Leverage at life insurers was somewhat elevated, and their holdings of risky and illiquid securities continued to grow. Funding risks were also characterized as notable. Assets in prime money market funds and other runnable cash-management vehicles remained near historical highs. Life insurers' greater reliance on nontraditional liabilities, coupled with their increasing holdings of risky corporate debt, suggested that adverse shocks to the industry could trigger substantial funding pressures at these firms. Staff Economic Outlook The economic forecast prepared by the staff for the July meeting implied a lower rate of resource utilization over the projection period relative to the forecast prepared for the previous meeting. The staff's outlook for growth in the second half of 2024 had been marked down largely in response to weaker-than-expected labor market indicators. As a result, the output gap at the start of 2025 was somewhat narrower than had been previously projected, although still not fully closed. Over 2025 and 2026, real GDP growth was expected to rise about in line with potential, leaving the output gap roughly flat in those years. The unemployment rate was expected to edge up slightly over the remainder of 2024 and then to remain roughly unchanged in 2025 and 2026. The staff's inflation forecast was slightly lower than the one prepared for the previous meeting, reflecting incoming data and the lower projected level of resource utilization. Both total and core PCE price inflation were expected to decline further as demand and supply in product and labor markets continued to move into better balance; by 2026, total and core inflation were expected to be around 2 percent. The staff continued to view the uncertainty around the baseline projection as close to the average over the past 20 years. Risks to the inflation forecast were still seen as tilted to the upside, albeit to a smaller degree than at the time of the previous meeting. The risks around the forecast for real activity were viewed as skewed to the downside, both because more-persistent inflation could result in tighter financial conditions than in the baseline and because the recent softening in some indicators of labor market conditions might be pointing to a larger-than-anticipated slowdown in aggregate demand growth. Participants' Views on Current Conditions and the Economic Outlook Participants observed that inflation had eased over the past year but remained elevated and that, in recent months, there had been some further progress toward the Committee's 2 percent inflation objective. Participants noted that the recent progress on disinflation was broad based across the major subcomponents of core inflation. Core goods prices were about flat from March through June after having risen during the first three months of the year. Price inflation in June for housing services showed a notable slowing, which participants had been anticipating for some time. In addition, core nonhousing services prices had decelerated in recent months. Some participants noted that the recent data corroborated reports from their business contacts that firms' pricing power was waning, as consumers appeared to be more sensitive to price increases. Various contacts had also reported that they had cut prices or were offering discounts to stay competitive, or that declines in input costs had helped reduce pressure on retail prices. With regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent. Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months. These factors included a continued waning of pricing power, moderating economic growth, and the runoff in excess household savings accumulated during the pandemic. Many participants noted that the moderation of growth in labor costs as labor market conditions rebalanced would continue to contribute to disinflation, particularly in core nonhousing services prices. Some participants noted that the lags in the time it takes for housing rental conditions for new tenants to show through to aggregate price data for housing services meant that the disinflationary trend in this component would likely continue. Participants also observed that longer-term inflation expectations had remained well anchored and viewed this anchoring as underpinning the disinflation process. A couple of participants noted that inflation pressures might persist for some time, as they assessed that the economy had considerable momentum, and that, even with some easing of the demand for labor, the labor market remained strong. Participants assessed that supply and demand conditions in the labor market had continued to come into better balance. The unemployment rate had moved up but remained low, having risen 0.7 percentage point since its trough in April 2023 to 4.1 percent in June. The monthly pace of payroll job gains had moderated from the first quarter but had been solid in recent months. However, many participants noted that reported payroll gains might be overstated, and several assessed that payroll gains may be lower than those needed to keep the unemployment rate constant with a flat labor force participation rate. Participants observed that other indicators also pointed to easing in labor market conditions, including a lower hiring rate and a downtrend in job vacancies since the beginning of the year. Participants noted that the rebalancing of labor market conditions over the past year was also aided by an expansion of the supply of workers, reflecting increases in the labor force participation rate among individuals aged 25 to 54 and a strong pace of immigration. Participants noted that, with continued rebalancing of labor market conditions, nominal wage growth had continued to moderate. Many participants cited reports from District contacts that supported the view that labor market conditions had been easing. In particular, contacts reported that they had been experiencing less difficulty in hiring and retaining workers and that they saw limited wage pressures. Participants generally assessed that, overall, conditions in the labor market had returned to about where they stood on the eve of the pandemicâstrong but not overheated. Regarding the outlook for the labor market, participants discussed various indicators of layoffs, including initial claims for unemployment benefits and measures of job separations. Some participants commented that these indicators had remained at levels consistent with a strong labor market. Participants agreed that these and other indicators of labor market conditions merited close monitoring. Several participants said that their District contacts reported that they were actively managing head counts through selective hiring and attrition. Participants noted that real GDP growth was solid in the first half of the year, though slower than the robust pace seen in the second half of last year. PDFP growth, which usually gives a better signal than GDP growth of economic momentum, also moderated in the first half, but by less than GDP growth. PDFP expanded at a solid pace, supported by growth in consumer spending and business fixed investment. Participants viewed the moderation in the growth of economic activity to be largely in line with what they had anticipated. Regarding the household sector, participants observed that consumer spending had slowed from last year's robust pace, consistent with restrictive monetary policy, easing of labor market conditions, and slowing income growth. They noted, however, that consumer spending had still grown at a solid pace in the first half of the year, supported by the still-strong labor market and aggregate household balance sheets. Some participants observed that lower- and moderate-income households were encountering increasing strains as they attempted to meet higher living costs after having largely run down savings accumulated during the pandemic. These participants noted that such strains were evident in indicators such as rising credit card delinquency rates and an increased share of households paying the minimum due on balances, and warranted continued close monitoring. Several participants cited reports that consumers, especially those in lower-income households, were shifting away from discretionary spending and switching to lower-cost food items and brands. A couple of participants remarked that spending by some higher-income households was likely being bolstered by wealth effects from equity and housing price appreciation. Participants noted that residential investment was weak in the second quarter, likely reflecting the pickup in mortgage rates from earlier in the year. Regarding the business sector, participants noted that conditions varied by firm size, sector, and region. A couple of participants noted that their District contacts had reported larger firms as having a generally stable outlook, while the outlook for smaller firms appeared more uncertain. A few participants said that their contacts reported that conditions in the manufacturing sector were somewhat weaker, while the professional and business services sector and technology-related sectors remained strong. A few participants noted that the agricultural sector continued to face strains stemming from low food commodity prices and high input costs. Participants discussed the risks and uncertainties around the economic outlook. Upside risks to the inflation outlook were seen as having diminished, while downside risks to employment were seen as having increased. Participants saw risks to achieving the inflation and employment objectives as continuing to move into better balance, with a couple noting that they viewed these risks as more or less balanced. Some participants noted that as conditions in the labor market have eased, the risk had increased that continued easing could transition to a more serious deterioration. As sources of upside risks to inflation, some participants cited the potential for disruptions to supply chains and a further deterioration in geopolitical conditions. A few participants noted that an easing of financial conditions could boost economic activity and present an upside risk to economic growth and inflation. In their discussion of financial stability, participants who commented noted vulnerabilities to the financial system that they assessed warranted monitoring. Some participants observed that the banking system was sound but noted risks associated with unrealized losses on securities, reliance on uninsured deposits, and interconnections with nonbank financial intermediaries. In their discussion of bank funding, several participants commented that, because the discount window is an important liquidity backstop, the Federal Reserve should continue to improve the window's operational efficiency and to communicate effectively about the window's value. Participants generally noted that some banks and nonbank financial institutions likely have vulnerabilities associated with high CRE exposures through loan portfolios and holdings of CMBS. Most of these participants remarked that risks related to CRE exposures depend importantly on the property type and the local market conditions of the properties involved. A couple of participants noted concerns about asset valuation pressures in other markets as well. Many participants commented on cyber risks that could impair the operation of financial institutions, financial infrastructure, and, potentially, the overall economy. Many participants remarked that because a few firms play a substantial role in the provision of information technology services to the financial sector and because of the highly interconnected nature of some firms in the financial industry itself, there was an increased risk that significant cyber disruptions at a small number of key firms could have widespread effects. Several participants noted that leverage in the Treasury market remained a risk, that it would be important to monitor developments regarding Treasury market resilience amid the move to central clearing, or that it is valuable to communicate about the Federal Reserve's standing repo facility as a liquidity backstop. A couple of participants commented on the financial condition of low- and moderate-income households that have exhausted their savings and the importance of monitoring rising delinquency rates on credit cards and auto loans. In their consideration of monetary policy at this meeting, participants observed that recent indicators suggested that economic activity had continued to expand at a solid pace, job gains had moderated, and the unemployment rate had moved up but remained low. While inflation remained somewhat above the Committee's longer-run goal of 2 percent, participants noted that inflation had eased over the past year and that recent incoming data indicated some further progress toward the Committee's objective. All participants supported maintaining the target range for the federal funds rate at 5-1/4 to 5-1/2 percent, although several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision. Participants furthermore judged that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings. In discussing the outlook for monetary policy, participants noted that growth in economic activity had been solid, there had been some further progress on inflation, and conditions in the labor market had eased. Almost all participants remarked that while the incoming data regarding inflation were encouraging, additional information was needed to provide greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective before it would be appropriate to lower the target range for the federal funds rate. Nevertheless, participants viewed the incoming data as enhancing their confidence that inflation was moving toward the Committee's objective. The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting. Many participants commented that monetary policy continued to be restrictive, although they expressed a range of views about the degree of restrictiveness, and a few participants noted that ongoing disinflation, with no change in the nominal target range for the policy rate, by itself results in a tightening in monetary policy. Most participants remarked on the importance of communicating the Committee's data-dependent approach and emphasized, in particular, that monetary policy decisions are conditional on the evolution of the economy rather than being on a preset path or that those decisions depend on the totality of the incoming data rather than on any particular data point. Several participants stressed the need to monitor conditions in money markets and factors affecting the demand for reserves amid the ongoing reduction in the Federal Reserve's balance sheet. In discussing risk-management considerations that could bear on the outlook for monetary policy, participants highlighted uncertainties affecting the outlook, such as those regarding the amount of restraint currently provided by monetary policy, the lags with which past and current restraint have affected and will affect economic activity, and the degree of normalization of the economy following disruptions associated with the pandemic. A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased. Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration. Many participants noted that reducing policy restraint too late or too little could risk unduly weakening economic activity or employment. A couple participants highlighted in particular the costs and challenges of addressing such a weakening once it is fully under way. Several participants remarked that reducing policy restraint too soon or too much could risk a resurgence in aggregate demand and a reversal of the progress on inflation. These participants pointed to risks related to potential shocks that could put upward pressure on inflation or the possibility that inflation could prove more persistent than currently expected. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity had continued to expand at a solid pace. Job gains had moderated, and the unemployment rate had moved up but remained low. Inflation eased over the past year but remained somewhat elevated. Members concurred that, in recent months, there had been some further progress toward the Committee's 2 percent inflation objective. Members judged that the risks to achieving the Committee's employment and inflation goals had continued to move into better balance. Members viewed the economic outlook as uncertain and agreed that they were attentive to the risks to both sides of the Committee's dual mandate. In support of the Committee's goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run, members agreed to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. Members concurred that, in considering any adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed that they did not expect that it would be appropriate to reduce the target range until they had gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgageâbacked securities. All members affirmed their strong commitment to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. Members agreed that to appropriately reflect developments since the previous meeting related to their maximum-employment objective, they should note in the statement that "job gains have moderated, and the unemployment rate has moved up but remains low." Similarly, to appropriately reflect developments related to their price-stability objective, they agreed to note that "there has been some further progress toward the Committee's 2 percent inflation objective." Members also agreed to reflect the shifting balance of risks by stating that "the Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance" and that "the Committee is attentive to the risks to both sides of its dual mandate." At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective August 1, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 5-1/4 to 5-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee's 2 percent inflation objective. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Austan D. Goolsbee, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Voting against this action: None. Austan D. Goolsbee voted as an alternate member at this meeting. Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 5.4 percent, effective August 1, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 5.5 percent, effective August 1, 2024. It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, September 17â18, 2024. The meeting adjourned at 10:10 a.m. on July 31, 2024. Notation Vote By notation vote completed on July 2, 2024, the Committee unanimously approved the minutes of the Committee meeting held on June 11â12, 2024. Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Philip N. Jefferson Adriana D. Kugler Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, Jeffrey R. Schmid, and Sushmita Shukla, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Mark Meder, Interim President of the Federal Reserve Bank of Cleveland Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Edward S. Knotek II, David E. Lebow, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Alyssa G. Anderson, Principal Economist, Division of Monetary Affairs, Board Alessandro Barbarino, Special Adviser to the Board, Division of Board Members, Board David Bowman, 2 Senior Associate Director, Division of Monetary Affairs, Board Fang Cai, Assistant Director, Division of Financial Stability, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Jonas Fisher, Senior Vice President, Federal Reserve Bank of Chicago Glenn Follette, Associate Director, Division of Research and Statistics, Board Etienne Gagnon, Associate Director, Division of International Finance, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board David Glancy, Principal Economist, Division of Monetary Affairs, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Diana Hancock, Senior Associate Director, Division of Research and Statistics, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Colin J. Hottman, Principal Economist, Division of International Finance, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Mark J. Jensen, Vice President, Federal Reserve Bank of Atlanta Benjamin K. Johannsen, Assistant Director, Division of Monetary Affairs, Board Faten Khoury, 2 Senior Financial Institution Policy Analyst, Division of Reserve Bank Operations and Payment Systems, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, Senior Adviser, Division of Monetary Affairs, Board Anna R. Kovner, Executive Vice President, Federal Reserve Bank of Richmond Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Rebecca D. McCaughrin, 2 Policy and Market Analysis Director, Federal Reserve Bank of New York Benjamin W. McDonough, 3 Deputy Secretary and Ombudsman, Office of the Secretary, Board Yvette McKnight, 4 Senior Agenda Assistant, Office of Secretary, Board Andrew Meldrum, Assistant Director, Division of Monetary Affairs, Board Karel Mertens, Senior Vice President, Federal Reserve Bank of Dallas Thomas Mertens, Vice President, Federal Reserve Bank of San Francisco Ann E. Misback, 5 Secretary, Office of the Secretary, Board Norman J. Morin, Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Alyssa O'Connor, Special Adviser to the Board, Division of Board Members, Board Paolo A. Pesenti, Director of Monetary Policy Research, Federal Reserve Bank of New York Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Odelle Quisumbing, 4 Assistant to the Secretary, Office of the Secretary, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Donald Keith Sill, Senior Vice President, Federal Reserve Bank of Philadelphia Arsenios Skaperdas, Senior Economist, Division of Monetary Affairs, Board Gustavo A. Suarez, Assistant Director, Division of Research and Statistics, Board Manjola Tase, Principal Economist, Division of Monetary Affairs, Board Thiago Teixeira Ferreira, Special Adviser to the Board, Division of Board Members, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Jeffrey D. Walker, 2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. Attended through the discussion of developments in financial markets and open market operations. Return to text 3. Attended Wednesday's session only. Return to text 4. Attended through the discussion of the economic and financial situation. Return to text 5. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee September 17â18, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, September 17, 2024, at 10:30 a.m. and continued on Wednesday, September 18, 2024, at 9:00 a.m. 1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Nominal Treasury yields declined notably over the period, driven by weaker-than-expected data releasesâespecially the July employment report in early Augustâand policy communications that were seen as affirming expectations that a reduction in policy restraint would begin at this meeting. The decline in nominal yields over the period was primarily attributable to lower expected real yields, but measures of inflation compensation declined as well. Broad equity prices finished the period modestly higher, while credit spreads had come off the very tight levels seen earlier this year but were still narrow by historical standards. Overall, risky asset prices were compatible with continued economic expansion. The manager also discussed the brief episode of elevated market volatility in early August. That episode saw some large moves in U.S. and foreign equity indexes, equity-implied volatilities, the dollarâyen exchange rate, and Treasury yields. These sharp moves appeared to be the result of a rapid unwinding of some speculative trading positions induced by unrelated eventsâsuch as the unexpectedly inflation-focused communications from the Bank of Japan (BOJ) in late July and the weaker-than-expected U.S. employment report in early Augustâand amplified by technical and liquidity factors. All told, the unwinding process was contained, and market functioning recovered relatively quickly. Turning to policy expectations, the manager noted that the market-implied policy rate path shifted down materially. At the time of the September meeting, the modal path for the federal funds rate implied by options prices was consistent with about 100 basis points of cuts through year-end, compared with around 50 basis points at the time of the July meeting. The average path for the federal funds rate obtained from futures prices also shifted notably lower and remained below the options-implied modal path, likely reflecting investors' perception that risks were tilted toward more rather than fewer cuts. In the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants, most respondents had a modal expectation of a 25 basis point cut at this meeting, though the manager also noted that, since the time of the surveysâabout a week earlierâthe probability of a 50 basis point cut at the September meeting implied by futures prices had increased and exceeded the implied probability of a 25 basis point cut. The median respondent's modal path for the federal funds rate shifted down notably over the next two years, in line with the options-implied modal path, and was unchanged thereafter. Balance sheet expectations in the surveys were little changed from July. Most survey respondents did not appear to be concerned about an economic downturn in either the near or medium term; the median dealer's most likely path of the unemployment rate for the next few years was only modestly higher than that in the July survey and was roughly stable around current levels. In international developments, many central banks in advanced foreign economies (AFEs) had begun or continued to lower policy rates during the intermeeting period, with the Bank of England (BOE) deciding to initiate its rate-cutting cycle with a 25 basis point reduction and the European Central Bank (ECB) and the Bank of Canada (BOC) delivering their second and third 25 basis point cut, respectively. The market-implied expectations for year-end policy rates fell over the period for most central banks in AFEs, although by a smaller amount than they did for the Federal Reserve, contributing to a modest decline in the trade-weighted U.S. dollar index. The manager then turned to money markets and Desk operations. Unsecured overnight rates remained stable over the intermeeting period. In secured funding markets, rates on overnight repurchase agreements (repo) were higher than a few months earlier amid large issuance of Treasury securities and elevated demand for securities financing but were little changed, on net, over the period. The manager discussed the interconnections between the repo and federal funds markets, underscoring the importance of monitoring a range of indicators to assess reserve conditions and the state of money markets. Looking at a range of such indicators, the manager concluded that reserves appeared to remain abundant. Usage of the overnight reverse repurchase agreement (ON RRP) facility declined about $100 billion over the intermeeting period, helped by an increase in the net supply of Treasury bills. With net bill supply expected to decrease as a result of the September tax date before increasing again, the staff assessed that the decline in ON RRP usage might slow over the coming intermeeting period before resuming later this year. The manager also added that, with the concentration of ON RRP usage in a small number of fund complexes, there was an increased risk that idiosyncratic allocation decisions could have an outsized effect on aggregate ON RRP volumes. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting indicated that real gross domestic product (GDP) had expanded solidly so far this year. The pace of job gains continued to moderate since the beginning of the year, and the unemployment rate had moved up but remained low. Consumer price inflation was well below its year-earlier rate but remained somewhat elevated. Consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âwas lower in July than it had been in March, which had followed some high month-over-month changes in the beginning of the year. Monthly changes in PCE prices since April had been smaller than those seen in the first three months of the year. On a 12-month basis, total PCE price inflation was 2.5 percent in July, and core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.6 percent. In August, the 12-month change in the consumer price index (CPI) was 2.5 percent, and core CPI inflation was 3.2 percent; both measures were well below their rates from a year ago. The staff estimated, given both the CPI and producer price index data, that total PCE price inflation would be 2.2 percent over the 12 months ending in August and that core PCE price inflation would be 2.7 percent. Recent data suggested that labor market conditions had eased further but remained solid. Over July and August, average monthly nonfarm payroll gains were less than their average second-quarter pace, the unemployment rate edged up to 4.2 percent, the labor force participation rate ticked up, and the employment-to-population ratio ticked down. The unemployment rate for African Americans moved down, while the rate for Hispanics rose, and both rates were above those for Asians and for Whites. The ratio of job vacancies to unemployment edged down to 1.1 in August, a bit below its level just before the pandemic. Job layoffs, as measured by initial claims for unemployment insurance benefits, remained low through August. Measures of nominal labor compensation continued to decelerate. Average hourly earnings for all employees rose 3.8 percent over the 12 months ending in August, and the four-quarter change in business-sector compensation per hour was 3.1 percent in the second quarter. Both measures were well below their pace from a year earlier. Real GDP rose solidly, on balance, over the first half of the year. Real private domestic final purchases (PDFP)âwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumâposted a stronger first-half increase than GDP, and PDFP growth over the first half was only moderately slower than last year. Recent indicators for third-quarter GDP and PDFP suggested that economic growth was continuing at a solid pace, particularly for PCE and business investment in equipment and intangibles. After growing at a tepid pace in the second quarter, real exports of goods moved down in July, led by declines in exports of autos and industrial supplies. By contrast, real imports of goods, especially of capital goods, continued to grow at a robust pace in July. Real GDP growth in foreign economies stepped down in the second quarter, and recent economic indicators suggested economic growth abroad remained subdued. Although services activity and high-tech manufacturing had been relatively robust, overall manufacturing activity remained weak, in part due to restrictive monetary policies. Weakness in manufacturing was particularly pronounced in Canada, Germany, and Mexico. In China, indicators of domestic demand remained weak. Inflation in economies abroad continued to abate, on net, though developments were mixed. In the AFEs excluding Japan, 12-month headline inflation ticked down but remained above target levels due to still-high services inflation. In the emerging market economies, inflation moved sideways, with some Latin American economies still experiencing upward inflation pressures from food prices. The BOE cut its policy rate for the first time in the current cycle, while the BOC, the ECB, and the Bank of Mexico eased policy further, in part citing progress toward achieving their inflation targets. By contrast, the BOJ continued to remove monetary accommodation. Staff Review of the Financial Situation The market-implied path for the federal funds rate declined notably over the intermeeting period. Similarly, options on interest rate futures suggested that market participants were placing higher odds on greater policy easing by early 2025 than they had just before the July FOMC meeting. Consistent with the downward shift in the implied policy rate path, nominal Treasury yields declined significantly, on net, with the most pronounced decreases at shorter horizons driven by reductions in both inflation compensation and real Treasury yields. Market-based measures of interest rate uncertainty in the near term rose notably, reportedly reflecting in part increased concerns among investors about downside risks to economic activity. Broad stock price indexes increased, on net, despite a sizable but temporary drop in early August. Yield spreads on investment- and speculative-grade corporate bonds were little changed, on net, and remained in the bottom quintile of their respective historical distributions. The one-month option-implied volatility on the S&P 500 index ended the period roughly unchanged, on net, after a large but temporary spike in early August. Overnight secured rates were largely unchanged, and conditions in U.S. short-term funding markets remained stable. Average usage of the ON RRP facility declined as net Treasury bill issuance increased, providing a more attractive alternative asset for money market funds. Market-based measures of the expected paths of policy rates as well as sovereign bond yields in most AFEs fell notably, largely in response to declines in U.S. interest rates. The broad dollar index declined, with the dollar depreciating significantly against AFE currencies amid a narrowing in interest rate differentials between the U.S. economy and AFEs. Financial markets were volatile early in the intermeeting period following the weaker-than-expected U.S. employment report and the policy rate increase by the BOJ, which led to the unwinding of some speculative trading positions. However, declines in equities mostly retraced over the following weeks, and moves in foreign risky asset prices were mixed over the intermeeting period. In domestic credit markets, borrowing costs remained elevated despite modest declines in most credit segments. Rates on 30-year conforming residential mortgages and yields on agency mortgage-backed securities (MBS) declined, on net, but continued to be elevated. Interest rates on both new credit card offers and new auto loans were little changed and remained at elevated levels. Interest rates for newly originated commercial real estate (CRE) loans on banks' books increased. Yields on an array of fixed-income securities, including investment- and speculative-grade corporate bonds and commercial mortgage-backed securities (CMBS), moved lower, generally following decreases in benchmark Treasury yields. Financing through capital markets and nonbank lenders was readily accessible for public corporations and for large and middle-market private corporations, and credit availability for leveraged loan borrowers remained solid. For smaller firms, however, credit availability remained moderately tight. Commercial and industrial loan balances at banks were little changed on net. Credit remained generally accessible to most CRE borrowers. CRE loans at banks continued to decelerate in July and were unchanged in August. Non-agency CMBS issuance was robust in August, while agency CMBS issuance slipped to a bit below its post-pandemic average. Credit remained available for most consumers, though credit growth showed signs of moderating. Auto lending continued to slow, while balances on credit cards increased moderately in July and August on average. In the residential mortgage market, access to credit was little changed overall and continued to be sensitive to borrowers' credit risk attributes. Credit quality continued to be solid for large and midsize firms, home mortgage borrowers, and municipalities but kept deteriorating in other sectors. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained stable. Delinquency rates on loans to small businesses remained slightly above pre-pandemic levels. Credit quality in the CRE market deteriorated further, with the average delinquency rate for loans in CMBS and the share of nonperforming CRE loans at banks both rising further. Regarding household credit quality, delinquency rates on most residential mortgages remained near pre-pandemic lows. Though consumer loan delinquency rates remained above pre-pandemic levels, the pace of increases had slowed. Delinquency rates for credit cards rose moderately in the second quarter, while they were largely flat for auto loans. Staff Economic Outlook The staff forecast at the September meeting was for the economy to remain solid, with real GDP growth about the same as in the forecast for the July meeting but the unemployment rate a little higher. Although real GDP growth in the second quarter was stronger than the staff had expected, the forecast for economic growth in the second half of this year was marked down, largely in response to recent softer-than-expected labor market indicators. The real GDP growth forecast for 2024 as a whole was little changed, though the unemployment rate was expected to be a little higher at the end of the year than previously forecast. Over 2025 through 2027, real GDP growth was expected to rise about in line with the staff's estimate of potential output growth. The unemployment rate was expected to remain roughly flat from 2025 through 2027. All told, supply and demand in labor and product markets were forecast to be more balanced and resource utilization less tight than they had been in recent years. The staff's inflation forecast was slightly lower than the one prepared for the previous meeting, primarily reflecting incoming data, along with the projection of a less tight economy. Both total and core PCE price inflation were expected to decline further as supply and demand in labor and product markets continued to move into better balance; by 2026, total and core inflation were expected to be 2 percent. The staff judged that the risks around the baseline forecast for economic activity were tilted to the downside, as the recent softening in some indicators of labor market conditions could point to greater slowing in aggregate demand growth than expected. The risks around the inflation forecast were seen as roughly balanced, reflecting both the further progress on disinflation and the effects of downside risks for economic activity on inflation. The staff continued to view the uncertainty around the baseline projection as close to the average over the past 20 years. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2024 through 2027 and over the longer run. These projections were based on participants' individual assessments of appropriate monetary policy, including their projections of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would tend to converge under appropriate monetary policy and in the absence of further shocks to the economy. The Summary of Economic Projections was released to the public after the meeting. In their discussion of inflation developments, participants observed that inflation remained somewhat elevated, but almost all participants judged that recent monthly readings had been consistent with inflation returning sustainably to 2 percent. Some participants commented that, though food and energy prices had played an important part in the decline in the overall inflation rate, slower rates of price increases had become more evident across a broad range of goods and services. Notably, core goods prices had declined in recent months, and the rate of increase in core nonhousing services prices had moved down further. Many participants remarked that the recent inflation data were consistent with reports received from business contacts, who had indicated that their pricing power was limited or diminishing and that consumers were increasingly seeking discounts. Many participants also observed that inflation developments in the second and third quarters of 2024 suggested that the stronger-than-anticipated inflation readings in the first quarter had been only a temporary interruption of progress toward 2 percent. Participants remarked that even though the rate of increase in housing services prices had slowed, these prices were continuing to rise at an elevated rate, in contrast to many other core prices. With regard to the outlook for inflation, almost all participants indicated they had gained greater confidence that inflation was moving sustainably toward 2 percent. Participants cited various factors that were likely to put continuing downward pressure on inflation. These included a further modest slowing in real GDP growth, in part due to the Committee's restrictive monetary policy stance; well-anchored inflation expectations; waning pricing power; increases in productivity; and a softening in world commodity prices. Several participants noted that nominal wage growth was continuing to slow, with a few participants citing signs that it was set to decline further. These signs included lower rates of increases in cyclically sensitive wages and data indicating that job switchers were no longer receiving a wage premium over other employees. A couple of participants remarked that, with wages being a relatively large portion of business costs in the services sector, that sector's disinflation process would be particularly assisted by slower nominal wage growth. In addition, several participants observed that, with supply and demand in the labor market roughly in balance, wage increases were unlikely to be a source of general inflation pressures in the near future. With regard to housing services prices, some participants suggested that a more rapid disinflationary trend might emerge fairly soon, reflecting the slower pace of rent increases faced by new tenants. Participants emphasized that inflation remained somewhat elevated and that they were strongly committed to returning inflation to the Committee's 2 percent objective. Participants noted that labor market conditions had eased further in recent months and that, after being overheated in recent years, the labor market was now less tight than it had been just before the pandemic. As evidence, participants cited the slowdown in payroll employment growth and the uptick in the unemployment rate in the two employment reports received since the Committee's July meeting, lower readings on hiring and job vacancies, reduced quits and job-finding rates, and widespread reports from business contacts of less difficulty in hiring workers. Some participants highlighted the fact that the unemployment rate had risen notably, on net, since April 2023. Participants noted, however, that labor market conditions remained solid, as layoffs had been limited and initial claims for unemployment insurance benefits had stayed low. Some participants stressed that, rather than using layoffs to lower their demand for labor, businesses had instead been taking steps such as posting fewer openings, reducing hours, or making use of attrition. A few participants suggested that firms remained reluctant to lay off workers after having difficulty obtaining employees earlier in the post-pandemic period. Some participants remarked that the recent pace of payroll increases had fallen short of what was required to keep the unemployment rate stable on a sustained basis, assuming a constant labor force participation rate. Many participants observed that the evaluation of labor market developments had been challenging, with increased immigration, revisions to reported payroll data, and possible changes in the underlying growth rate of productivity cited as complicating factors. Several participants emphasized the importance of continuing to use disaggregated data or information provided by business contacts as a check on readings on labor market conditions obtained from aggregate data. Participants agreed that labor market conditions were at, or close to, those consistent with the Committee's longer-run goal of maximum employment. With regard to the outlook for the labor market, participants noted that further cooling did not appear to be needed to help bring inflation back to 2 percent. Participants indicated that in their baseline economic outlooks, which included an appropriate recalibration of the Committee's monetary policy stance, the labor market would remain solid. Participants agreed that labor market indicators merited close monitoring, with some noting that as conditions in the labor market have eased, the risk had increased that continued easing could transition to a more serious deterioration. Participants observed that economic activity had continued to expand at a solid pace and highlighted resilient consumption spending. A couple of participants noted that rising real household incomes had bolstered consumption, though some cited signs of a slowing in expenditures or of strains on household budgets, including increased delinquencies in credit card and automobile loans. A couple of participants suggested that the financial strains being experienced by low- and moderate-income households would likely imply slower consumption growth in coming periods. Various participants reported that their business contacts were optimistic about the economic outlook, though they were exercising caution in their hiring and investment decisions. Participants noted that favorable aggregate supply developments, including increases in productivity, had contributed to the recent solid expansion of economic activity, and a few participants discussed possible implications of the introduction of new technology into the workplace. Many participants emphasized that they expected that real GDP would grow at roughly its trend rate over the next few years. Participants discussed the risks and uncertainties associated with the economic outlook. Almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased. As a result, those participants now assessed the risks to achieving the Committee's dual-mandate goals as being roughly in balance. A couple of participants, however, did not perceive an increased risk of a significant further weakening in labor market conditions. Several participants cited risks of a sharper-than-expected slowing in consumer spending in response to labor market cooling or to continuing strains on the budgets of low- and moderate-income households. Risks to achieving the Committee's price-stability goal had diminished significantly since the target range for the federal funds rate was last raised, and the vast majority of participants saw the risks to inflation as broadly balanced. A couple of participants specifically noted upside inflation risks associated with geopolitical developments. In addition, some participants cited risks that progress toward the Committee's 2 percent inflation objective could be stalled by a larger-than-anticipated easing in financial conditions, stronger-than-expected consumption growth, or continued strong increases in housing services prices. In their consideration of monetary policy at this meeting, participants noted that inflation had made further progress toward the Committee's objective but remained somewhat elevated. Almost all participants expressed greater confidence that inflation was moving sustainably toward 2 percent. Participants also observed that recent indicators suggested that economic activity had continued to expand at a solid pace, job gains had slowed, and the unemployment rate had moved up but remained low. Almost all participants judged that the risks to achieving the Committee's employment and inflation goals were roughly in balance. In light of the progress on inflation and the balance of risks, all participants agreed that it was appropriate to ease the stance of monetary policy. Given the significant progress made since the Committee first set its target range for the federal funds rate at 5-1/4 to 5-1/2 percent, a substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points to 4-3/4 to 5 percent. These participants generally observed that such a recalibration of the stance of monetary policy would begin to bring it into better alignment with recent indicators of inflation and the labor market. They also emphasized that such a move would help sustain the strength in the economy and the labor market while continuing to promote progress on inflation, and would reflect the balance of risks. Some participants noted that there had been a plausible case for a 25 basis point rate cut at the previous meeting and that data over the intermeeting period had provided further evidence that inflation was on a sustainable path toward 2 percent while the labor market continued to cool. However, noting that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low, some participants observed that they would have preferred a 25 basis point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision. Several participants noted that a 25 basis point reduction would be in line with a gradual path of policy normalization that would allow policymakers time to assess the degree of policy restrictiveness as the economy evolved. A few participants also added that a 25 basis point move could signal a more predictable path of policy normalization. A few participants remarked that the overall path of policy normalization, rather than the specific amount of initial easing at this meeting, would be more important in determining the degree of policy restriction. Participants judged that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings. In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation moving down sustainably to 2 percent and the economy near maximum employment, it would likely be appropriate to move toward a more neutral stance of policy over time. Participants emphasized that it was important to communicate that the recalibration of the stance of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants' assessments of the appropriate path. Those who commented on the degree of restrictiveness of monetary policy observed that they believed it to be restrictive, though they expressed a range of views about the degree of restrictiveness. Participants generally remarked on the importance of communicating that the Committee's monetary policy decisions are conditional on the evolution of the economy and the implications for the economic outlook and balance of risks and therefore not on a preset course. Several participants discussed the importance of communicating that the ongoing reduction in the Federal Reserve's balance sheet could continue for some time even as the Committee reduced its target range for the federal funds rate. In discussing risk-management considerations that could bear on the outlook for monetary policy, almost all participants agreed that the upside risks to inflation had diminished, and most remarked that the downside risks to employment had increased. Some participants emphasized that reducing policy restraint too late or too little could risk unduly weakening economic activity and employment. A few participants highlighted in particular the costs and challenges of addressing such a weakening once it is fully under way. Several participants remarked that reducing policy restraint too soon or too much could risk a stalling or a reversal of the progress on inflation. Some participants noted that uncertainties concerning the level of the longer-term neutral rate of interest complicated the assessment of the degree of restrictiveness of policy and, in their view, made it appropriate to reduce policy restraint gradually. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity had continued to expand at a solid pace. Job gains had slowed, and the unemployment rate had moved up but remained low. Members concurred that there had been further progress toward the Committee's 2 percent inflation objective but that inflation remained somewhat elevated. Almost all members agreed that to appropriately reflect cumulative developments related to inflation and the balance of risks, the postmeeting statement should note that they had gained greater confidence that inflation was moving sustainably toward 2 percent and judged that the risks to achieving the Committee's employment and inflation goals were roughly in balance. Members viewed the economic outlook as uncertain and agreed that they were attentive to the risks to both sides of the Committee's dual mandate. In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate to 4-3/4 to 5 percent. One member voted against that decision, preferring to lower the target range for the federal funds rate to 5 to 5-1/4 percent. Members concurred that, in considering additional adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency MBS. All members agreed that the postmeeting statement should affirm their strong commitment both to supporting maximum employment and to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective September 19, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-3/4 to 5 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.8 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgageâbacked securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Lisa D. Cook, Mary C. Daly, Beth M. Hammack, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Voting against this action: Michelle W. Bowman. Governor Bowman preferred at this meeting to lower the target range for the federal funds rate by 25 basis points to 5 to 5-1/4 percent in light of core inflation remaining well above the Committee's objective, a labor market that is near full employment, and solid underlying growth. She also expressed her concern that the Committee's larger policy action could be seen as a premature declaration of victory on the price-stability part of the dual mandate. Consistent with the Committee's decision to lower the target range for the federal funds rate to 4-3/4 to 5 percent, the Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on reserve balances at 4.9 percent, effective September 19, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/2 percentage point decrease in the primary credit rate to 5 percent, effective September 19, 2024. 2 It was agreed that the next meeting of the Committee would be held on WednesdayâThursday, November 6â7, 2024. The meeting adjourned at 10:30 a.m. on September 18, 2024. Notation Vote By notation vote completed on August 20, 2024, the Committee unanimously approved the minutes of the Committee meeting held on July 30â31, 2024. Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Beth M. Hammack Philip N. Jefferson Adriana D. Kugler Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, and Jeffrey R. Schmid, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Brian M. Doyle, Edward S. Knotek II, Sylvain Leduc, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior System Engineer II, Division of Information Technology, Board Gianni Amisano, Assistant Director, Division of Research and Statistics, Board Mary Amiti, Research Department Head, Federal Reserve Bank of New York Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Alyssa Arute, 3 Assistant Director, Division of Reserve Bank Operations and Payment Systems, Board Alessandro Barbarino, Special Adviser to the Board, Division of Board Members, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Brent Bundick, Vice President, Federal Reserve Bank of Kansas City Jennifer J. Burns, Deputy Directory, Division of Supervision and Regulation, Board Isabel Cairó, Principal Economist, Division of Monetary Affairs, Board Michele Cavallo, Special Adviser to the Board, Division of Board Members, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Wendy E. Dunn, Adviser, Division of Research and Statistics, Board Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Erin E. Ferris, Principal Economist, Division of Monetary Affairs, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Etienne Gagnon, Senior Associate Director, Division of International Finance, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Jason A. Hinkle, 3 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 3 Senior Adviser, Division of Monetary Affairs, Board Anna R. Kovner, Executive Vice President, Federal Reserve Bank of Richmond Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Deputy Associate Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Mark Meder, First Vice President, Federal Reserve Bank of Cleveland Ann E. Misback, Secretary, Office of the Secretary, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Alyssa O'Connor, Special Adviser to the Board, Division of Board Members, Board Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Andrea Prestipino, Principal Economist, Division of International Finance, Board Odelle Quisumbing, 4 Assistant to the Secretary, Office of the Secretary, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Manjola Tase, Principal Economist, Division of Monetary Affairs, Board Robert J. Tetlow, Senior Adviser, Division of Monetary Affairs, Board Alex Zhou Thorp, 3 Associate Director, Federal Reserve Bank of New York Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Donielle A. Winford, Senior Information Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Senior Vice President, Federal Reserve Bank of Dallas _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. In taking this action, the Board approved a request to establish that rate submitted by the board of directors of the Federal Reserve Bank of Atlanta. The vote also encompassed approval by the Board of Governors of the establishment of a 5 percent primary credit rate by the remaining Federal Reserve Banks, effective on September 19, 2024, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco were informed of the Board's approval of their establishment of a primary credit rate of 5 percent, effect September 19, 2024.) Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended through the discussion of the economic and financial situation. Return to text

Minutes of the Federal Open Market Committee November 6â7, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Wednesday, November 6, 2024, at 10:00 a.m. and continued on Thursday, November 7, 2024, at 9:00 a.m. 1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Nominal Treasury yields rose notably over the period; factors driving the increases in yields included stronger-than-expected data releases and monetary policy communications that were interpreted as signaling a more gradual pace of policy easing than previously thought. The rise at short maturities reflected increases in both real yields and inflation compensation, while the rise at longer maturities was primarily driven by increases in real yields. Broad equity prices also rose over the period, likely reflecting in part the solid incoming data and consequent lower odds of a weakening in the economic outlook. The VIX, which measures 30-day option-implied volatility of broad equity prices, had moved higher in the period leading up to the November elections and then decreased following Election Day. The manager noted that the federal funds rate path had shifted up notably over the period, as measured by both the options-implied modal path and the futures-implied average path. Although the futures-implied path remained below the options-implied path at longer horizons, the gap between the two paths narrowed, likely reflecting market participants' judgment that risks had become less skewed toward the downside. In the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants, a large majority of respondents had a modal expectation of a 25 basis point cut at this meeting and another 25 basis point cut at the December meeting. Further out, there was considerably more uncertainty. For example, although the mean of the average respondent's probability distribution for the federal funds rate at the trough of this easing cycle was close to the average respondent's expected longer-run level of the federal funds rate, respondents placed substantial weight on a wide range of outcomes. The manager also discussed balance sheet policy expectations. The average of the survey responses indicated that the modal expectation regarding the timing of the end of balance sheet runoff had shifted a bit later, to May 2025. These responses remained dispersed, though roughly two-thirds of respondents expected an end to runoff in either the first or the second quarter of 2025. Survey results indicated that respondents expected balance sheet runoff to continue alongside rate cuts for several more months; the surveys therefore suggested that the Committee's two policy toolsâthe policy rate and the balance sheetâwere not seen as working at cross-purposes. Regarding international developments, the manager noted that policy rate expectations for the year-end declined in most advanced foreign economies (AFEs), with the exception of Australia and the U.K. The widening of differentials with U.S. interest rates had likely contributed to an increase in the trade-weighted dollar index, which reached its highest level this year. The manager then turned to money markets and Desk operations. Unsecured overnight rates remained stable over the intermeeting period. In secured funding markets, rates on overnight repurchase agreements (repo) increased sharply and were volatile around the September quarter-end but, on other dates, generally stayed just above the rate offered at the overnight reverse repurchase agreement (ON RRP) facility. Market contacts attributed the pressures seen around the quarter-end to a combination of typical balance sheet constraints associated with financial reporting dates and a large net settlement of Treasury coupon securities that took place on the same day. Overall, developments in the repo market at the end of September and in early October appeared to conform with the typical quarter-end pattern, although the spike in repo rates observed on those days was the largest in the post-pandemic period. The September quarter-end also saw the first non-test use of the standing repo facility (SRF), with two counterparties borrowing $2.6 billion. The manager noted that the relatively small utilization was not surprising, as repo rates in the noncentrally cleared segment of the triparty repo marketâin which the facility operatesâdid not exceed the SRF rate for the most part. The manager also observed that there was a substantial volume of trades taking place above the SRF rate around quarter-end in other segments of the repo market. The manager indicated that, with dealers typically earning a spread in their intermediation activity, this outcome was not surprising. The manager suggested that considerations related to market structure also helped explain why repo rates were above the SRF rate in those segments at quarter-end. Overall, the manager judged that the SRF performed about in line with the Desk's expectations. Usage of the ON RRP facility declined about $140 billion over the intermeeting period. This decline appeared to be driven primarily by additional net Treasury bill supply in recent weeks, which made Treasury bill yields more attractive. The manager also noted that, of late, the largest ON RRP participants had substantially reduced their participation at the facility, leading to a less concentrated configuration of ON RRP take-up than had been the case for some time. Over the intermeeting period, pricing in the federal funds market continued to be insensitive to day-to-day changes in the supply of reserves. The manager noted that this outcome was consistent with reserves remaining abundant and that various other indicators pointed to the same conclusion. The staff also provided an informational briefing to the Committee on two considerations related to the management of the balance sheet over the near term. The first consideration focused on the possibility of a technical adjustment to the ON RRP offering rate. The staff reviewed developments with respect to the usage of the ON RRP facility. The staff also noted that lowering the ON RRP offering rate 5 basis points would align the ON RRP offering rate with the bottom of the target range for the federal funds rate and would probably put some downward pressure on other money market rates. The second consideration focused on the possible implications for the composition of Federal Reserve liabilities stemming from the federal debt limit potentially being reinstated in 2025. The staff presentation highlighted the fact that, should this event occur, a drawdown in the Treasury General Account (TGA) balances would increase the sum of reserves and ON RRP balances, and that a subsequent rebuilding of TGA balances would have the reverse effect. The staff noted that these substantial shifts could mask the effects of ongoing balance sheet runoff on money market conditions and pose challenges in assessing reserve conditions. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting indicated that real gross domestic product (GDP) had expanded solidly so far this year. The pace of job gains had moderated since the beginning of the year, and the unemployment rate had moved up, on net, but remained low. Consumer price inflation was well below its year-earlier pace. Consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âhad moved lower in August and September. Total PCE price inflation was 2.1 percent in September, and core PCE price inflationâwhich excludes changes in energy prices and many consumer food pricesâwas 2.7â¯percent. Recent data suggested that labor market conditions remained solid. Average monthly nonfarm payroll gains in the third quarter were similar to those seen in the second quarter. October job gains were held down noticeably by the effects of strikes and hurricanes. The unemployment rate had edged down slightly since August and was 4.1 percent in October; the labor force participation rate also ticked down over this period, and the employment-to-population ratio was unchanged on net. The unemployment rates for African Americans and for Hispanics moved down; both rates were above those for Asians and for Whites. The ratio of job vacancies to unemployment was 1.1 in October, slightly lower than its level just before the pandemic. Average hourly earnings for all employees rose 4 percent over the 12 months ending in October, down 0.3 percentage point relative to a year earlier, and the 12-month change in the employment cost index of hourly compensation for private industry workers was 3.6 percent in September, down 0.7 percentage point from its year-earlier pace. According to the advance release, real GDP posted a solid gain in the third quarter that was similar to its second-quarter pace. Real private domestic final purchasesâwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumârose slightly faster than real GDP in the third quarter. Net exports were a drag on third-quarter real GDP growth, as a brisk rise in exports was outpaced by even faster import growth. Real GDP growth in foreign economies picked up somewhat in the third quarter, including in the euro area and, especially, Mexico. In China, growth also firmed in the third quarter, and there were signs that recent fiscal stimulus measures were starting to shore up confidence. That said, more recent indicators, such as purchasing managers indexes (PMIs), continued to suggest ongoing weakness in foreign manufacturing, in part due to monetary policies still being restrictive. Inflation abroad continued to ease. In the advanced AFEs excluding Japan, 12-month headline inflation slowed to near or below target levels, mainly reflecting the rapid pass-through of lower energy prices earlier this year. At the same time, services inflation remained high in these economies. In China, core inflation fell to its lowest level since the Global Financial Crisis. By contrast, in some Latin American countries, notably Brazil, inflation increased, partly because of renewed food price pressures. Many foreign central banks eased policy during the intermeeting period, including the Bank of Canada and the European Central Bank among the AFEs and the central banks of Colombia, Mexico, Korea, the Philippines, and Thailand among the emerging market economies. Staff Review of the Financial Situation The expected path of the federal funds rate implied by financial market quotes increased notably over the intermeeting period amid stronger-than-expected data releases pertaining to economic activity, somewhat higher-than-expected readings on inflation, and comments by some FOMC participants that were interpreted as signaling a more gradual approach to recalibrating the stance of monetary policy. Consistent with a higher expected path of the federal funds rate and a shift in investors' perceptions of the balance of risks, nominal Treasury yields across the maturity spectrum increased significantly. The increase in longer-term yields appeared to be mostly attributable to higher term premiumsâconsistent with investors' perceived shift in the balance of risks away from outcomes characterized by slower real GDP growth and lower inflation. Market-based measures of inflation compensation moved up over the period from relatively low levels, while survey-based measures of longer-term inflation expectations were little changed. These measures continued to suggest an expectation that inflation would return over time to the Committee's 2 percent objective. Despite higher yields, and amid greater confidence about the growth outlook and somewhat better-than-expected corporate earnings reports, broad equity price indexes increased notably, on net, over the intermeeting period, and credit spreads for both corporate and municipal bonds narrowed. The VIX rose appreciably, reportedly reflecting uncertainty about the outcome of the U.S. presidential election and escalating tensions in the Middle East. However, it subsequently more than retraced those increases, ending the period moderately lower and slightly below the median of its historical distribution. Conditions in U.S. short-term funding markets remained generally stable over the intermeeting period, with the lowering of the target range for the federal funds rate in September fully passing through to both secured and unsecured reference rates. Rates in secured markets exhibited significant but temporary upward pressure around the September quarter-end, driven by typical quarter-end dynamics and a large net Treasury coupon settlement. Over the intermeeting period, government money market funds (MMFs) continued to increase allocations to Treasury bills and private repo in light of the generally favorable rates on these instruments; usage of the ON RRP facility declined significantly over the period. Over the intermeeting period, foreign financial markets were driven by greater investor confidence in the U.S. economic outlook, foreign economic data releases, and political developments. Higher U.S. Treasury yields spilled over to foreign yields across the curve, though softer-than-expected inflation and PMI survey data weighed on short-term yields in the euro area. In the U.K., yields increased following the release of the new government's budget as market participants processed the budget's impact on projected inflation and gilt issuance. The broad dollar index increased significantly, as U.S. interest rates rose more than foreign rates. In China, the announcement of new policy stimulus measures boosted domestic risky asset prices, with limited spillovers to other markets; the announcements also drove notable flows into China-focused investment funds. Most European equity price indexes decreased somewhat, while Japanese and Canadian equity markets rose moderately. In domestic credit markets, borrowing costs for households and most businesses rose over the intermeeting period from already elevated levels, primarily reflecting increases in longer-term Treasury yields. Rates on 30-year fixed-rate conforming residential mortgages rose, while interest rates on credit cards remained relatively unchanged at near historical highs. By contrast, interest rates on new auto loans edged down but remained elevated. Meanwhile, interest rates on commercial and industrial (C&I) loans and small business loans continued to be elevated. Yields also rose on an array of fixed-income securities, including commercial mortgage-backed securities (CMBS), investment- and speculative-grade corporate bonds, and residential mortgage-backed securities. Over the intermeeting period, financing through capital markets and nonbank lenders remained broadly available for public corporations and for large and midsize private corporations. For smaller firms, however, credit availability remained relatively tight. In the October Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks, on net, reported maintaining their lending standards and most terms basically unchanged for C&I loans. 2 Meanwhile, net growth in C&I loan balances remained subdued in August and September. With respect to commercial real estate (CRE) loans, banks in the October SLOOS reported, on balance, basically unchanged lending standards for all categories of CRE loans, the first survey since early 2022 in which standards on CRE loans of every category have not tightened. Bank CRE loan balances were flat in the third quarter, partly reflecting lending standards staying on the tighter end of the range prevailing since 2005. Credit remained available for most consumers, although consumer credit availability continued to tighten moderately through September. Credit card balances expanded modestly in the third quarter, while auto credit growth continued to slow through August. In the October SLOOS, respondents, on net, indicated that standards for credit cards tightened, but most of them reported no change in lending standards for auto loans. Access to credit in the residential mortgage market was little changed, on balance, and continued to depend on borrowers' credit risk attributes. In the October SLOOS, banks, on net, moderately eased residential lending standards. Credit quality remained solid in the cases of large and midsize firms, most home mortgage borrowers, and municipalities, but it continued to deteriorate in other sectors. The credit quality of nonfinancial firms borrowing in the corporate bond and leveraged loan markets remained stable. Delinquency rates on loans to small businesses remained modestly above pre-pandemic levels. Credit quality in the CRE market deteriorated further, with the average delinquency rate on loans in CMBS pools rising further in September, driven largely by office loans. Regarding household credit quality, delinquency rates on most residential mortgages were largely unchanged in September at about their historical low. Delinquency rates for credit cards increased a bit further in the third quarter, while delinquency rates on auto loans inched down. The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, continued to characterize the system's financial vulnerabilities as notable. The staff judged that asset valuation pressures were elevated, with estimates of risk premiums across key markets low by historical standards. House prices remained elevated relative to fundamentals such as rents. Although the pace of decline in CRE prices slowed, fundamentals continued to deteriorate across multiple categories. Vulnerabilities associated with business and household debt were characterized as moderate. Nonfinancial business leverage was elevated by historical standards, but the ability of publicly traded firms to service their debt remained strong, supported by robust earnings and the low interest rates that firms continued to enjoy on the portion of fixed-rate debt issued early in the pandemic. That said, the fraction of private firm debt having very low interest coverage ratios continued to increase, pointing to further deterioration in the balance sheets of riskier firms. Household balance sheets remained solid overall, as aggregate home equity remained high and delinquencies on mortgage loans continued to be low. Vulnerabilities associated with leverage in the financial sector were characterized as notable. Regulatory capital ratios in the banking sector remained high; however, banks continued to hold large quantities of long-duration assets, leaving them more exposed than usual to an unexpected rise in longer-term interest rates. In the nonbank sector, leverage at hedge funds remained high, partly on account of the prevalence of the Treasury cashâfutures basis trade. Life insurers' leverage remained somewhat elevated, and they continued to maintain large holdings of risky and illiquid securities. By contrast, broker-dealer leverage remained low, as their capital increased in line with their assets. Vulnerabilities associated with funding risks were also characterized as notable. Assets in prime MMFs and other runnable cash-management vehicles remained near historical highs. Life insurers' greater reliance on nontraditional liabilities suggested that adverse shocks to the industry could trigger substantial funding pressures at these firms. Staff Economic Outlook The staff forecast at the November meeting called for economic conditions to remain solid. Relative to September, the real GDP growth projection for 2024 as a whole was higher, reflecting stronger-than-expected spending and labor market indicators. The staff had revised up their assessment of potential output growth in light of the upward revisions to productivity implied by the recent annual update of the national income and product accounts. From 2025 to 2027, real GDP growth was expected to be slightly slower than potential output growth, resulting in a very small increase in the unemployment rate. The staff's inflation forecast for 2024 was slightly higher than the one prepared for the previous meeting, reflecting incoming data. Thereafter, the outlook was similar to the previous projection: Both total and core PCE price inflation were expected to decline further as supply and demand in labor and product markets continued to move into better balance; by 2026, total and core inflation were expected to be 2â¯percent. The staff continued to view the uncertainty around the baseline projection as close to the average over the past 20â¯years. The staff had reduced its assessment of the downward risks to the baseline forecast for economic activity in light of incoming data. Nevertheless, the staff judged that these risks were somewhat skewed to the downside: Although current labor market conditions remained solid, it was possible that the easing in the labor market seen over the past two years could give way to a more pronounced slowdown in economic activity. The risks around the inflation forecast were seen as roughly balanced. Participants' Views on Current Conditions and the Economic Outlook In their discussion of inflation developments, participants continued to observe that inflation had eased substantially from its peak, although core inflation remained somewhat elevated. Almost all participants judged that, though month-to-month movements would remain volatile, incoming data generally remained consistent with inflation returning sustainably to 2 percent. Participants commented that disinflationary progress had been seen across a broad range of core goods and services prices. Notably, in both the core goods and nonhousing services categories, prices were now increasing at rates close to those seen during earlier periods of price stability. Many participants noted that the slowing in these components of core inflation corroborated reports received from their business contacts that firms were more reluctant to increase prices, as consumers appeared to be more price sensitive and were increasingly seeking discounts. Some participants remarked that although increases in housing services prices remained somewhat elevated, they continued to expect that these increases would slow, as the more subdued pace of rent increases faced by new tenants would eventually be reflected further in housing services prices. With regard to the outlook for inflation, participants indicated that they remained confident that inflation was moving sustainably toward 2 percent, although a couple noted the possibility that the process could take longer than previously expected. A few participants remarked that insofar as recent robust increases in real GDP reflected favorable supply developments, the strength of economic activity was unlikely to be a source of upward inflation pressures. Participants cited various factors likely to put continuing downward pressure on inflation, including waning business pricing power, the Committee's still-restrictive monetary policy stance, and well-anchored longer-term inflation expectations. Several participants noted that nominal wage growth had continued to move down and that the wage premium available to job switchers had diminished. In addition, some participants observed that, with supply and demand in the labor market being roughly in balance and in light of recent productivity gains, wage increases were unlikely to be a source of inflationary pressure in the near future. In discussing labor market developments, participants generally viewed recent readings as consistent with labor market conditions remaining solid, although labor strikes and the devastating hurricanes had been important sources of temporary fluctuations in the employment data. Participants continued to cite declines in job vacancies, the quits rate, and turnover as consistent with a gradual easing in labor demand. Some participants reported that businesses were becoming more selective in hiring as they faced larger pools of more qualified job applicants, and job applicants were more willing to accept less accommodative work arrangements and more moderate wage offers. Participants generally noted, however, that there was no sign of rapid deterioration in labor market conditions, with layoffs remaining low. A few participants cited business contacts who were using attrition, instead of layoffs, to manage the size of their workforce. Some participants observed that the evaluation of underlying trends in labor market developments had continued to be challengingâ with difficulties in measuring the effects of immigration on labor supply, revisions to data, and the effects of natural disasters and labor strikes among the factors cited as complicating this evaluationâand that assessments of the outlook for the labor market were associated with considerable uncertainty. Participants generally judged that current labor market conditions were broadly consistent with the Committee's longer-run goal of maximum employment. With regard to the outlook for the labor market, participants generally anticipated that with an appropriate recalibration of the Committee's monetary policy stance over time, the labor market would remain solid. Participants generally agreed that labor market indicators merited close monitoring. Some participants still saw elevated risks that the labor market could deteriorate, though many participants saw the risk of an excessive cooling in the labor market as having diminished somewhat since the Committee's September meeting. Participants observed that recent data on economic activity and consumer spending were largely stronger than anticipated, and they assessed that economic activity had continued to expand at a solid pace and consumer spending remained strong. Participants remarked that consumption had been supported by a solid labor market, rising real wages, and elevated household wealth. Many participants observed that recent upward revisions in data on household income and the saving rate had made these series' behavior more consistent with the strength in consumer spending. However, several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending. A couple of participants cited recent increases in rates of delinquencies on credit card borrowing and automobile loans as signs of such strains. Regarding the business sector, a few participants noted that favorable aggregate supply developmentsâincluding increases in labor supply, business investment, and productivityâcontinued to support solid expansion of business activity. A couple of participants remarked that there was considerable uncertainty about the durability of recent rates of increase in productivity. Although a few participants attributed some of the productivity gains to potentially transitory factorsâsuch as one-time efficiency gains in response to earlier labor shortagesâor the possible underestimation of labor inputs, some participants highlighted more durable factors, such as new business formation and investment, as well as the integration into the workplace of technological advances. A couple of participants discussed some of these recent trends, noting especially possible implications of the expanded use of artificial intelligence in the workplace. Several participants indicated that their District contacts reported larger corporations and firms in sectors like financial services, construction, professional services, and technology as having a generally more optimistic outlook than smaller businesses or firms in the manufacturing sector. Several participants remarked that the agricultural sector continued to face significant strains due to low crop prices and high input costs. In participants' evaluation of the risks and uncertainties associated with the economic outlook, upside risks to the inflation outlook were seen as little changed, while downside risks to employment and growth were seen as having decreased somewhat. Among the upside risks to inflation cited by participants were the possibility of sudden disruptions in global supply chains due to geopolitical developments, a larger-than-anticipated easing in financial conditions, stronger-than-expected consumption, more-persistent shelter price increases, or sharp rises in insurance charges for health, autos, or homes. Some participants pointed to various downside risks to economic activity and employment, including weaker global growth, sharply worsening financing conditions due to an escalation of geopolitical tensions or a sizable asset price correction, or an unwelcome weakening of the labor market. Almost all participants judged the risks to the attainment of their dual-mandate objectives of maximum employment and price stability to be roughly in balance. In their discussion of financial stability, participants who commented noted vulnerabilities to the financial system that they assessed warranted monitoring. A couple of participants observed that the banking system was sound but that there continued to be potential risks associated with unrealized losses on bank assets. Many participants discussed vulnerabilities associated with CRE exposures, focusing on risks in the office sector. A few of these participants noted signs that the deterioration of conditions in this sector of the CRE market might be lessening. A couple of participants noted concerns about asset valuation pressures in other markets. Some participants commented on cyber risks that could impair the operation of financial institutions, financial infrastructure, and, potentially, the overall economy; these participants noted, in particular, vulnerabilities that could emanate from third-party service providers. A couple of participants also mentioned third-party service providers in the context of risks associated with brokered and reciprocal deposit arrangements. Several participants noted that leverage in the market for Treasury securities remained a risk and commented that it would be important to monitor developments regarding the market's resilience. A few participants discussed vulnerabilities posed by the growth of private credit and potential links to banks and other financial institutions. A couple of participants commented on the financial condition of low- and moderate-income households that have exhausted their savings and the importance of monitoring rising delinquency rates on credit cards and auto loans. A couple of participants remarked on the successful implementation of the Securities and Exchange Commission's money fund rules, noting that it would reduce financial stability risks posed by domestic MMFs. In their consideration of monetary policy at this meeting, participants noted that inflation had made progress toward the Committee's objective but remained somewhat elevated. Participants also observed that recent indicators suggested that economic activity had continued to expand at a solid pace, labor market conditions had generally eased since earlier in the year, and the unemployment rate had moved up but remained low. Almost all participants judged that the risks to achieving the Committee's employment and inflation goals were roughly in balance. In support of the Committee's goals, all participants viewed it as appropriate to lower the target range for the federal funds rate by 25 basis points to 4-1/2 to 4-3/4 percent. Participants observed that such a further recalibration of the monetary policy stance would help maintain the strength in the economy and the labor market while continuing to enable further progress on inflation. Participants judged that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings. In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time. Participants noted that monetary policy decisions were not on a preset course and were conditional on the evolution of the economy and the implications for the economic outlook and the balance of risks; they stressed that it would be important for the Committee to make this clear as it adjusted its policy stance. While emphasizing that monetary policy would be data dependent, many participants noted the volatility of recent economic data and highlighted the importance of focusing on underlying economic trends and the evolution of the outlook when assessing incoming information. Some participants remarked that, at a future meeting, there would be value in the Committee considering a technical adjustment to the rate offered at the ON RRP facility to set the rate equal to the bottom of the target range for the federal funds rate, thereby bringing the rate back into an alignment that had existed when the facility was established as a monetary policy tool. In discussing risk-management considerations that could bear on the outlook for monetary policy, almost all participants agreed that risks to achieving the Committee's employment and inflation goals remained roughly in balance. Some participants judged that downside risks to economic activity or the labor market had diminished. Participants noted that monetary policy would need to balance the risks of easing policy too quickly, thereby possibly hindering further progress on inflation, with the risks of easing policy too slowly, thereby unduly weakening economic activity and employment. In discussing the positioning of monetary policy in response to potential changes in the balance of risks, some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be accelerated if the labor market turned down or economic activity faltered. Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that economic activity had continued to expand at a solid pace. Labor market conditions had generally eased since earlier in the year, and the unemployment rate had moved up but remained low. Members concurred that inflation had made progress toward the Committee's 2 percent inflation objective but that inflation remained somewhat elevated. In discussing the Committee's statement, members agreed that it was appropriate to omit the previous reference to their greater confidence that inflation was moving sustainably toward 2 percent, as this language had been specifically associated with the commencement of policy easing in September and therefore was no longer needed. Almost all members agreed that the risks to achieving the Committee's employment and inflation goals were roughly in balance. Members viewed the economic outlook as uncertain and agreed that they were attentive to the risks to both sides of the Committee's dual mandate. In support of its goals, the Committee decided to lower the target range for the federal funds rate by 25 basis points to 4-1/2 to 4-3/4 percent. Members concurred that, in considering additional adjustments to the target range for the federal funds rate, they would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities. All members agreed that the postmeeting statement should affirm their strong commitment both to supporting maximum employment and to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective November 8, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/2 to 4-3/4 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.75 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.55 percent and with a per-counterparty limit of $160 billion per day. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgageâbacked securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Beth M. Hammack, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Voting against this action: None. Consistent with the Committee's decision to lower the target range for the federal funds rate to 4-1/2 to 4-3/4 percent, the Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on reserve balances to 4.65 percent, effective November 8, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 4.75 percent, effective November 8, 2024. 3 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, December 17â18, 2024. The meeting adjourned at 10:20 a.m. on November 7, 2024. Notation Vote By notation vote completed on October 8, 2024, the Committee unanimously approved the minutes of the Committee meeting held on September 17â18, 2024. Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Beth M. Hammack Philip N. Jefferson Adriana D. Kugler Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, and Jeffrey R. Schmid, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Brian M. Doyle, Edward S. Knotek II, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Engineer II, Division of Information Technology, Board Andrea Ajello, Section Chief, Division of Monetary Affairs, Board Gianni Amisano, Assistant Director, Division of Research and Statistics, Board Sriya Anbil, 4 Group Manager, Division of Monetary Affairs, Board Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Alyssa Arute, 5 Assistant Director, Division of Reserve Bank Operations and Payment Systems, Board Alessandro Barbarino, Special Adviser to the Board, Division of Board Members, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Michele Cavallo, Special Adviser to the Board, Division of Board Members, Board Kevin B. Clark, 4 Capital Markets Trading Principal, Federal Reserve Bank of New York Juan Carlos Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Marco Del Negro, Economic Research Advisor, Federal Reserve Bank of New York Andrew T. Foerster, Senior Research Advisor, Federal Reserve Bank of San Francisco Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Peter M. Garavuso, Lead Information Manager, Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, Board Jonathan E. Goldberg, Principal Economist, Division of Monetary Affairs, Board Brian Gowen, 4 Capital Markets Trading Principal, Federal Reserve Bank of New York Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City James Hebden, Principal Economic Modeler, Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, 4 Senior Adviser, Division of Monetary Affairs, Board Kyungmin Kim, 4 Principal Economist, Division of Monetary Affairs, Board Elizabeth K. Kiser, Senior Associate Director, Division of Research and Statistics, Board Anna R. Kovner, Executive Vice President, Federal Reserve Bank of Richmond Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Joshua S. Louria, 4 Group Manager, Division of Monetary Affairs, Board Byron Lutz, Deputy Associate Director, Division of Research and Statistics, Board Benjamin W. McDonough, Deputy Secretary and Ombudsman, Office of the Secretary, Board Ann E. Misback, Secretary, Office of the Secretary, Board Linsey Molloy, 4 Associate Director, Federal Reserve Bank of New York Kevin B. Moore, Assistant Director, Division of Research and Statistics, Board Kindra I. Morelock, Information Services Senior Analyst, Division of Monetary Affairs, Board, and Federal Reserve Bank of Chicago Norman J. Morin, Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Marcelo Ochoa, Principal Economist, Division of Monetary Affairs, Board Anna Paulson, Executive Vice President, Federal Reserve Bank of Chicago Fabrizio Perri, Monetary Advisor, Federal Reserve Bank of Minneapolis Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Andrea Prestipino, Principal Economist, Division of International Finance, Board Odelle Quisumbing, 4 Assistant to the Secretary, Office of the Secretary, Board Christine Repper, 5 Manager, Division of Reserve Bank Operations and Payment Systems, Board Zeynep Senyuz, 4 Deputy Associate Director, Division of Monetary Affairs, Board Gustavo A. Suarez, Deputy Associate Director, Division of Research and Statistics, Board Manjola Tase, 4 Principal Economist, Division of Monetary Affairs, Board Robert L. Triplett III, First Vice President, Federal Reserve Bank of Dallas Clara Vega, Special Adviser to the Board, Division of Board Members, Board Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker, 5 Senior Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston Rebecca Zarutskie, Senior Vice President, Federal Reserve Bank of Dallas _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. The SLOOS results reported are based on banks' responses, weighted by each bank's outstanding loans in the respective loan category, and might therefore differ from the results reported in the published SLOOS, which are based on banks' unweighted responses. Return to text 3. In taking this action, the Board approved requests to establish that rate submitted by the Board of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 4.75 percent primary credit rate by the remaining Federal Reserve Banks, effective on November 8, 2024, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of St. Louis and Kansas City were informed of the Board's approval of their establishment of a primary credit rate of 4.75 percent, effective November 8, 2024.) Return to text 4. Attended through the discussion of developments in financial markets and open market operations. Return to text 5. Attended Tuesday's session only. Return to text

Minutes of the Federal Open Market Committee December 17â18, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, December 17, 2024, at 10:30 a.m. and continued on Wednesday, December 18, 2024, at 9:00 a.m. 1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Nominal Treasury yields fluctuated over the intermeeting period and were slightly higher, on net, than in early November. Treasury yields had risen notably since their trough in mid-September, with the rise in the 10-year nominal yield driven largely by increases in real yields. Liquidity in Treasury markets deteriorated somewhat following the U.S. election but remained well within the ranges observed over the past three years. With near-term measures of inflation compensation a little higher over the intermeeting period and longer-term measures little changed, the manager noted that there were few signs of concern about persistent inflationary pressures in market prices. Equity prices largely sustained the gains that they had experienced in anticipation of, and immediately following, the U.S. election. The manager noted that market expectations for the path of the federal funds rate were little changed over the intermeeting period. Markets had almost fully priced in a 25 basis point cut in the target range for the federal funds rate at this meeting, and all respondents from the Open Market Desk's Survey of Primary Dealers and Survey of Market Participants expected the same. Survey respondents anticipated that the pace of rate cuts would slow considerably in 2025, with the median respondent expecting 75 basis points of cuts for the full year; options and futures prices suggested a somewhat lower level of expected policy easing in 2025. However, in discussing both survey and market expectations, the manager noted that there was considerable uncertainty among market participants about the path of the federal funds rate in the year ahead. The manager also discussed balance sheet policy expectations. The average estimate of survey respondents for the timing of the end of balance sheet runoff shifted a bit later, to June 2025. This shift mainly reflected revisions to estimates by respondents who had expected balance sheet runoff to end in the last quarter of 2024 or in early 2025. Regarding international developments, the manager noted that market participants expected central banks in nearly all advanced foreign economies (AFEs) to continue to reduce their policy rates in 2025. In contrast to the U.S., market expectations for policy rates at the end of 2025 in most AFEs had shifted lower over the intermeeting period. The manager noted that this widening between U.S. and foreign interest rates appeared to be a major contributor to the increase in the trade-weighted U.S. dollar index observed over the intermeeting period. The manager then turned to money markets and Desk operations. Unsecured overnight rates had remained stable over the intermeeting period, and with the exception of temporary pressures around month-end and Treasury auction settlement dates, rates on overnight repurchase agreements (repo) were little changed. The manager noted that, on average, market participants appeared to be expecting upward pressure in repo markets around year-end comparable with that seen at the September quarter-end. Based on term and forward-settling repo volumes, market participants appeared to have been more proactive than in recent years in preparing for the year-end, which the manager judged could help mitigate somewhat the extent of upward pressure on repo rates during that time. Pricing in the federal funds market continued to be insensitive to day-to-day changes in the supply of reserves over the intermeeting period. The manager noted that this outcome was consistent with reserves remaining abundant and that various other indicators, as well as responses about banks' desired reserve levels from the Federal Reserve's Senior Financial Officer Survey, pointed to the same conclusion. Looking ahead, the manager raised the possibility that the potential reinstatement of the debt limit in 2025 could result in substantial shifts in Federal Reserve liabilities that could pose challenges in assessing reserve conditions. Usage of the overnight reverse repurchase agreement (ON RRP) facility continued its decline over the intermeeting period. The recent decrease in ON RRP usage was attributable in part to increases in net Treasury bill issuance, which made Treasury bill rates more attractive. In the near term, the manager judged that ON RRP volumes were likely to rise because of an expected decline in net Treasury bill issuance and typical year-end dynamics. The manager also noted that the potential reinstatement of the debt limit could keep ON RRP balances elevated for some time in 2025. The manager discussed market expectations regarding a technical adjustment that would lower the ON RRP offering rate to the bottom of the target range for the federal funds rate. Based on the Desk surveys and market outreach, most market participants expected such an adjustment at this meeting. Market participants' views varied on how much downward pressure this adjustment would put on money market rates, but repo rates were generally expected to fall more than the federal funds rate. The manager concluded by noting that the Desk was planning to add a second standing repo facility (SRF) auction on each day of the week spanning year-end. The manager viewed these additional auctions as technical exercises that could improve the Federal Reserve's understanding of how SRF auction times can support effective policy implementation and market functioning during periods of expected money market pressures. By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting indicated that real gross domestic product (GDP) had continued to expand at a solid pace in 2024. Labor market conditions had eased since early 2024, but the unemployment rate remained low. Consumer price inflation was below its year-earlier rate but was still somewhat elevated. Total consumer price inflationâas measured by the 12-month change in the price index for personal consumption expenditures (PCE)âwas 2.3 percent in October, below the 3.0 percent rate seen a year earlier. Core PCE price inflationâwhich excludes changes in consumer energy prices and many consumer food pricesâwas 2.8 percent in October, lower than its 3.4 percent rate a year earlier. In November, the 12-month change in the consumer price index (CPI) was 2.7 percent, and core CPI inflation was 3.3 percent; both were below their year-earlier rates. Given both the CPI and producer price index data, the staff estimated that total PCE price inflation would be reported as 2.5 percent over the 12 months ending in November and that core PCE price inflation would be 2.8 percent. Recent data suggested that labor market conditions had eased slightly further but remained solid. Average monthly nonfarm payroll gains over October and November were a little below their pace in the third quarter. The staff estimated that job gains were held down by the effects of labor strikes and hurricanes in October and were boosted by a similar amount in November after those effects unwound. The unemployment rate ticked up to 4.2 percent in November, and both the labor force participation rate and the employment-to-population ratio moved down a bit further. The unemployment rates for African Americans and for Hispanics also moved up, and both rates were above those for Asians and for Whites. The ratio of job vacancies to unemployment held steady at 1.1 in November, slightly lower than its level just before the pandemic. Average hourly earnings for all employees rose 4 percent over the 12 months ending in Novemberâthe same rate as in the previous month. Real GDP posted a solid gain in the third quarter that was similar to its second-quarter pace. Real private domestic final purchases (PDFP)âwhich comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentumârose faster than real GDP in the third quarter. Exports rose briskly in the third quarter; import growth was even faster. In the fourth quarter, available economic indicators suggested that real GDP growth remained solid, with growth of real PDFP still outpacing that of real GDP. Imports fell more than exports in October, with real imports of capital goods dropping back after brisk growth earlier in the year. Foreign economic growth picked up in the third quarter, notably in the euro area and in Mexico. Recent economic indicators, however, suggested much weaker momentum in foreign economies in the fourth quarter, with lackluster manufacturing activity and subdued private consumption spending. In China, growth in retail sales slowed, suggesting that domestic demand remained weak. Strength in high-tech goods production continued abroad, mainly in Asia excluding China, supported by buoyant U.S. demand. Inflation in foreign economies continued to ease. In most AFEs, headline inflation slowed to near or below target levels, mainly reflecting the pass-through of lower energy prices earlier in the year. Services inflation, however, remained high in some of those economies. In China, inflation remained close to zero, in part due to falling food prices. By contrast, in some Latin American countries, most notably Brazil, inflation continued to increase, partly because of currency depreciation. Staff Review of the Financial Situation The market-implied path of the federal funds rate over the next year edged higher, on net, since the U.S. election, as investors assessed the implications of incoming inflation data and potential economic policy changes for the near-term economic outlook. Communications by Federal Reserve officials contributed to investors' perceptions of a slower timeline for policy rate reductions. Nominal Treasury yields across the maturity spectrum initially increased but then reversed those increases, ending the intermeeting period little changed. Measures of near-term inflation compensation moved up, while those of longer-term inflation compensation were little changed. Broad equity prices rose, with more pronounced increases in stock prices in cyclical sectors amid increased investor optimism for corporate profits, and high-yield bond spreads narrowed. The VIXâa forward-looking measure of near-term equity market volatilityâfell notably and remained well below pre-election levels. Foreign financial market pricing reflected weaker-than-expected foreign data releases, expectations of further policy easing by foreign central banks, and potential changes in U.S. trade policy. Accordingly, foreign bond yields generally declined relative to their U.S. counterparts, contributing to dollar appreciation against most foreign currencies. Foreign equities generally underperformed U.S. equities, in part reflecting investors' expectations of economic growth diverging further between the U.S. and the rest of the world. Many foreign central banks eased their policy rates during the intermeeting period, including the Bank of Canada, the European Central Bank, and the Swiss National Bank, among the AFEs, and the central banks of Hong Kong, India, Korea, and Mexico, among the emerging market economies. An exception was the Central Bank of Brazil, which increased its policy rate 100 basis points and signaled further hikes in the face of inflationary pressures. Conditions in U.S. short-term funding markets remained generally stable over the intermeeting period, with the lowering of the target range for the federal funds rate in November fully passing through to both secured and unsecured reference rates. Money market funds' (MMFs) usage of the ON RRP facility was lower, on average, than in the previous intermeeting period, reflecting increased holdings of Treasury bills amid sizable net bill issuance. Overall, MMF assets under management stayed near record highs. Spreads of unsecured commercial paper maturing over year-end remained within typical ranges, and global offshore dollar funding markets continued to be stable. In domestic markets, borrowing costs for households, businesses, and municipalities remained elevated despite small declines in most credit segments. Rates on 30-year fixed-rate conforming residential mortgages declined but stayed elevated. Interest rates on credit cards and new auto loans continued to be at historical highs, although interest rates on new auto loans decreased further. Borrowing costs for leveraged loan borrowers declined slightly. Interest rates on newly originated commercial and industrial (C&I) loans ticked down in the third quarter, and interest rates on short-term loans to small businesses remained unchanged. Yields on an array of fixed-income securities, including investment- and speculative-grade corporate bonds and commercial mortgage-backed securities (CMBS), decreased slightly but remained elevated. Financing in capital markets continued to be broadly available for large-to-midsize businesses and municipalities. For small businesses, however, credit availability remained relatively tight, and loan originations stayed subdued in October. C&I loans by banks increased moderately in October and were flat through November after modest growth in the third quarter. After stalling in the third quarter, commercial real estate (CRE) loan growth picked up moderately in October and remained subdued through late November. Meanwhile, agency CMBS issuance continued to be weak in October, while non-agency CMBS issuance was strong in October and in the first three weeks of November, reflecting a high volume of refinancing activity. Credit continued to be generally available for most households. Even so, auto loans were little changed in the third quarter, and growth of revolving credit was weak into November. Credit in the residential mortgage market continued to be readily available for high-credit-score borrowers, while credit availability for low-credit-score borrowers improved, on net, over the six months through October. Credit quality remained solid for large-to-midsize firms, municipalities, and most home mortgage borrowers. The credit performance of corporate bonds and leveraged loans was generally stable. At banks, delinquency rates on C&I loans were stable and remained within the range observed over the past decade. Delinquency rates on small business loans continued to increase through October, as did delinquencies on small business credit cards through September. In CRE markets, credit performance deteriorated further as aggregate CMBS delinquency rates rose through October, driven by delinquencies on office loans. At banks, delinquency rates on CRE loans ticked up through September from already elevated levels. Regarding household credit quality, delinquency rates on most residential mortgages were largely unchanged and stood near historical lows. However, the delinquency rate on Federal Housing Administration mortgages, which are disproportionately used by borrowers with lower credit scores and smaller down payments, remained above pre-pandemic levels. Delinquency rates on credit cards continued to increase, albeit at a slower pace than earlier in the year, while delinquency rates on auto loans were unchanged. Staff Economic Outlook The staff projection at the December meeting was for economic conditions to stay solid. Given the elevated uncertainty regarding specifics about the scope and timing of potential changes to trade, immigration, fiscal, and regulatory policies and their potential effects on the economy, the staff highlighted the difficulty of selecting and assessing the importance of such factors for the baseline projection and featured a number of alternative scenarios. After incorporating the recent data and preliminary placeholder assumptions about potential policy changes, real GDP growth was projected to be slightly slower than in the previous baseline forecast, and the unemployment rate was expected to be a bit higher but to remain near the staff's estimate of its natural rate. In the staff's baseline projection, the inflation forecast for 2024 was slightly higher than the one prepared for the previous meeting, reflecting upside surprises in some recent data. Inflation in 2025 was expected to remain at about the same rate as in 2024, as the effects of the staff's placeholder trade policy assumptions held inflation up. Thereafter, inflation was forecast to decline to 2 percent by 2027, the same as in the projection at the November meeting. The staff continued to view the uncertainty around the baseline projection as within the range seen over the past 20 years, a period that encompassed a number of episodes during which uncertainty about the economy and federal policy changes was elevated. The staff judged that the risks around the baseline forecasts for employment and real GDP growth were balanced, as concerns about downside risks from a marked cooling in labor market conditions had eased in recent months. The risks around the inflation forecast were seen as tilted to the upside, as core inflation had not come down as much as expected in 2024 and the effects of trade policy changes could be larger than the staff had assumed. Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2024 through 2027 and over the longer run. These projections were based on participants' individual assessments of appropriate monetary policy, including their projections of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would tend to converge under appropriate monetary policy and in the absence of further shocks to the economy. The Summary of Economic Projections was released to the public after the meeting. In their discussion of inflation developments, participants noted that although inflation had eased substantially from its peak in 2022, it remained somewhat elevated. Participants commented that the overall pace of disinflation had slowed over 2024 and that some recent monthly price readings had been higher than anticipated. Nevertheless, most remarked that disinflationary progress continued to be apparent across a broad range of core goods and services prices. Notably, some participants observed that in the core goods and market-based core services categories, excluding housing, prices were increasing at rates close to those seen during earlier periods of price stability. Many participants noted that the slowing in these components of inflation corroborated reports received from their business contacts that firms were more reluctant to increase prices, as consumers appeared to be more price sensitive and were increasingly seeking discounts. With respect to core services prices, a majority of participants remarked that increases in some components had exceeded expectations over recent months; many noted, however, that the increases were concentrated largely in non-market-based price categories and that price movements in such categories typically have not provided reliable signals about resource pressures or the future trajectory of inflation. Most participants also remarked that increases in housing services prices remained somewhat elevated, though they continued to slow gradually, as the pace of rent increases for new tenants continued to moderate and would eventually be reflected further in housing services prices. With regard to the outlook for inflation, participants expected that inflation would continue to move toward 2 percent, although they noted that recent higher-than-expected readings on inflation, and the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated. Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could. A couple of participants judged that positive sentiment in financial markets and momentum in economic activity could continue to put upward pressure on inflation. All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated. Reflecting that uncertainty, participants took varied approaches in accounting for these effects. A number of participants indicated that they incorporated placeholder assumptions to one degree or another into their projections. Other participants indicated that they did not incorporate such assumptions, and a few participants did not indicate whether they incorporated such assumptions. Several participants remarked that insofar as recent solid increases in real GDP reflected favorable supply developments, the strength of economic activity was unlikely to be a source of upward inflation pressures. Participants cited various factors as being likely to put continuing downward pressure on inflation, including waning business pricing power, the Committee's still-restrictive monetary policy stance, and well-anchored longer-term inflation expectations. Some participants noted that nominal wage growth had continued to move down. Further, several observed that, with supply and demand in the labor market being roughly in balance and in light of recent productivity gains, labor market conditions were unlikely to be a source of inflationary pressure in the near future. However, several remarked that nominal wage growth remained slightly above the pace likely to be consistent over time with 2 percent inflation. In discussing labor market developments, participants viewed recent readings on a range of indicators as consistent with an ongoing gradual easing in labor market conditions even as the unemployment rate remained low. Participants cited declines in job vacancies, the quits rate, the rate at which the unemployed were obtaining jobs, and turnover as consistent with a gradual easing in labor demand. Participants generally noted, however, that there were no signs of rapid deterioration in labor market conditions, as layoffs remained low. Participants generally judged that current labor market conditions were broadly consistent with the Committee's longer-run goal of maximum employment. With regard to the outlook for the labor market, participants anticipated that under appropriate monetary policy, conditions in the labor market would likely remain solid. Participants generally noted that labor market indicators merited close monitoring. Several participants observed that the evaluation of underlying trends in labor market developments had continued to be challenging and that assessments of the outlook for the labor market were associated with considerable uncertainty. Some participants noted that the labor market could soften further, as the recent pace of payroll growth had been below the rate that would likely keep the unemployment rate constant, given a stable labor force participation rate. Participants observed that economic activity had continued to expand at a solid pace and that recent data on economic activity and consumer spending in particular were, on balance, stronger than anticipated. Participants remarked that consumption had been supported by a solid labor market, rising real wages, and elevated household net worth. Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending. A couple of participants cited continued increases in rates of delinquencies on credit card borrowing and automobile loans as signs of such strains. With regard to the business sector, several participants noted that favorable aggregate supply developmentsâincluding increases in labor supply, business investment, and productivityâcontinued to support a solid expansion of business activity. A majority of participants remarked that the behavior of equity markets reflected positive sentiment on the part of investors. Many participants also remarked that District contacts generally reported greater optimism about the economic outlook, stemming in part from an expectation of an easing in government regulations and changes in tax policies. In contrast, some participants noted that contacts reported increased uncertainty regarding potential changes in federal government policies. A couple of participants remarked that the agricultural sector continued to face significant strains stemming from low crop prices and high input costs. In their evaluation of the risks and uncertainties associated with the economic outlook, the vast majority of participants judged the risks to the attainment of the Committee's dual-mandate objectives of maximum employment and price stability to be roughly in balance. In particular, participants saw two-sided risks to achieving those goals. Almost all participants judged that upside risks to the inflation outlook had increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy. Other reasons mentioned included possible disruptions in global supply chains due to geopolitical developments, a larger-than-anticipated easing in financial conditions, stronger-than-expected household spending, and more persistent shelter price increases. A few participants remarked that, in the period ahead, it might be difficult to distinguish more persistent influences on inflation from potentially temporary ones, such as those stemming from changes in trade policy that could lead to shifts in the level of prices. Most participants noted that risks to the achievement of the Committee's maximum-employment goal appeared to be roughly balanced, though some saw risks to the labor market as tilted to the downside. Participants pointed to various risks to economic activity and employment, including downside risks associated with weaker output growth abroad, increased financial vulnerabilities stemming from overvaluation of risky assets, or an unexpected weakening of the labor market, and upside risks associated with increased optimism and continued strength in domestic spending as upside factors. In their consideration of monetary policy at this meeting, participants generally noted that inflation had made progress toward the Committee's objective but remained somewhat elevated. Participants also observed that recent indicators suggested that economic activity had continued to expand at a solid pace, labor market conditions had generally eased since earlier in the year, and the unemployment rate had moved up but remained low. The vast majority of participants viewed it as appropriate to lower the target range for the federal funds rate by 25 basis points to 4¼ to 4½ percent. They assessed that such a further lowering of the target range for the policy rate would help maintain the strength in the economy and the labor market while continuing to enable further progress on inflation. A majority of participants noted that their judgments about this meeting's appropriate policy action had been finely balanced. Some participants stated that there was merit in keeping the target range for the federal funds rate unchanged. These participants suggested that the risk of persistently elevated inflation had increased in recent months, and several of these participants stressed the need for monetary policy to help foster financial conditions that would be consistent with inflation returning sustainably to 2 percent. Participants judged that it was appropriate to continue the process of reducing the Federal Reserve's securities holdings. In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing. They also indicated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would be appropriate to continue to move gradually toward a more neutral stance of policy over time. Some participants observed that, with the target range for the federal funds rate having been lowered a total of 100 basis points with this meeting's decision, the policy rate was now significantly closer to its neutral value than when the Committee commenced policy easing in September. In addition, many participants suggested that a variety of factors underlined the need for a careful approach to monetary policy decisions over coming quarters. These factors included recent elevated inflation readings, the continuing strength of spending, reduced downside risks to the outlook for the labor market and economic activity, and increased upside risks to the outlook for inflation. A substantial majority of participants observed that, at the current juncture, with its policy stance still meaningfully restrictive, the Committee was well positioned to take time to assess the evolving outlook for economic activity and inflation, including the economy's responses to the Committee's earlier policy actions. Participants noted that monetary policy decisions were not on a preset course and were conditional on the evolution of the economy, the economic outlook, and the balance of risks. In discussing risk-management considerations that could bear on the outlook for monetary policy, the vast majority of participants agreed that risks to achieving the Committee's employment and inflation goals remained roughly in balance. Many participants observed that the current high degree of uncertainty made it appropriate for the Committee to take a gradual approach as it moved toward a neutral policy stance. Participants noted that although inflation was on course to return sustainably to 2 percent over the next few years and the Committee was determined to restore and maintain price stability, the likelihood that elevated inflation could be more persistent had increased. Most participants remarked that, with the stance of monetary policy now significantly less restrictive, the Committee could take a careful approach in considering adjustments to the stance of monetary policy. Many participants noted that the Committee could hold the policy rate at a restrictive level, or ease policy more slowly, if inflation remained elevated, and several remarked that policy easing could take place more rapidly if labor market conditions deteriorated, economic activity faltered, or inflation returned to 2 percent more quickly than anticipated. Committee Policy Actions In their discussions of monetary policy for this meeting, members agreed that recent indicators suggested that economic activity had continued to expand at a solid pace. Labor market conditions had generally eased since earlier in the year, and the unemployment rate had moved up but remained low. Members concurred that inflation had made progress toward the Committee's 2 percent objective but remained somewhat elevated. Almost all members agreed that the risks to achieving the Committee's employment and inflation goals were roughly in balance. Members viewed the economic outlook as uncertain and agreed that they were attentive to the risks to both sides of the Committee's dual mandate. In support of its goals, the Committee agreed to lower the target range for the federal funds rate by 25 basis points to 4-1/4 to 4-1/2 percent. One member voted against that decision, preferring to maintain the target range for the federal funds rate at 4-1/2 to 4-3/4 percent. In light of their judgment that, after this meeting, the Committee would likely slow the pace of further adjustments to the stance of monetary policy, members agreed to indicate that, in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee would carefully assess incoming data, the evolving outlook, and the balance of risks. Members agreed to continue to reduce the Federal Reserve's holdings of Treasury securities and agency debt and agency mortgage-backed securities. Members also judged that it was appropriate to make a technical adjustment to the rate offered at the ON RRP facility by setting it equal to the bottom of the target range for the federal funds rate, thereby bringing the rate back into an alignment that had existed when the facility was established as a monetary policy tool. All members agreed that the postmeeting statement should affirm their strong commitment both to supporting maximum employment and to returning inflation to the Committee's 2 percent objective. Members agreed that, in assessing the appropriate stance of monetary policy, the Committee would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals. Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. At the conclusion of the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive, for release at 2:00 p.m.: "Effective December 19, 2024, the Federal Open Market Committee directs the Desk to: Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/4 to 4-1/2 percent. Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.5 percent and with an aggregate operation limit of $500 billion. Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.25 percent and with a per-counterparty limit of $160 billion per day. Setting this rate at the bottom of the target range for the federal funds rate is intended to support effective monetary policy implementation and the smooth functioning of shortâterm funding markets. Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap. Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgageâbacked securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding. Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons. Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions." The vote also encompassed approval of the statement below for release at 2:00 p.m.: "Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgageâbacked securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Voting for this action: Jerome H. Powell, John C. Williams, Thomas I. Barkin, Michael S. Barr, Raphael W. Bostic, Michelle W. Bowman, Lisa D. Cook, Mary C. Daly, Philip N. Jefferson, Adriana D. Kugler, and Christopher J. Waller. Voting against this action: Beth M. Hammack. President Hammack dissented because she preferred to maintain the target range for the federal funds rate at 4-1/2 to 4-3/4 percent, in light of uneven progress in returning inflation to 2 percent, the strength of the economy and the labor market, and the state of financial conditions. In her view, with the current federal funds rate not far from neutral, holding the funds rate at a modestly restrictive stance for a time was appropriate to ensure that inflation returns to 2 percent in a timely fashion. Consistent with the Committee's decision to lower the target range for the federal funds rate to 4-1/4 to 4-1/2 percent, the Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on reserve balances to 4.4 percent, effective December 19, 2024. The Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 4.5 percent, effective December 19, 2024. 2 It was agreed that the next meeting of the Committee would be held on TuesdayâWednesday, January 28â29, 2025. The meeting adjourned at 10:10 a.m. on December 18, 2024. Notation Vote By notation vote completed on November 25, 2024, the Committee unanimously approved the minutes of the Committee meeting held on November 6â7, 2024. Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Michael S. Barr Raphael W. Bostic Michelle W. Bowman Lisa D. Cook Mary C. Daly Beth M. Hammack Philip N. Jefferson Adriana D. Kugler Christopher J. Waller Susan M. Collins, Austan D. Goolsbee, Alberto G. Musalem, Jeffrey R. Schmid, and Sushmita Shukla, Alternate Members of the Committee Patrick Harker, Neel Kashkari, and Lorie K. Logan, Presidents of the Federal Reserve Banks of Philadelphia, Minneapolis, and Dallas, respectively Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Brian M. Doyle, Edward S. Knotek II, David E. Lebow, Sylvain Leduc, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Engineer II, Division of Information Technology, Board Andrea Ajello, Section Chief, Division of Monetary Affairs, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Roc Armenter, Executive Vice President, Federal Reserve Bank of Philadelphia Alyssa Arute, 3 Assistant Director, Division of Reserve Bank Operations and Payment Systems, Board Alessandro Barbarino, Special Adviser to the Board, Division of Board Members, Board Michele Cavallo, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Riccardo DiCecio, Economic Policy Advisor, Federal Reserve Bank of St. Louis Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jenn Gallagher, Assistant to the Board, Division of Board Members, Board Michael S. Gibson, Director, Division of Supervision and Regulation, Board Joseph W. Gruber, Executive Vice President, Federal Reserve Bank of Kansas City Christopher J. Gust, 3 Associate Director, Division of Monetary Affairs, Board James Hebden, Principal Economic Modeler, Division of Monetary Affairs, Board François Henriquez, First Vice President, Federal Reserve Bank of St. Louis Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Bart Hobijn, Senior Economist and Economic Advisor, Federal Reserve Bank of Chicago Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Jordan R. Keitelman, 3 Senior Financial Institution Policy Analyst II, Division of Reserve Bank Operations and Payment Systems, Board Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Don H. Kim, Senior Adviser, Division of Monetary Affairs, Board Anna R. Kovner, Executive Vice President, Federal Reserve Bank of Richmond Andreas Lehnert, Director, Division of Financial Stability, Board Kurt F. Lewis, Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David López-Salido, Senior Associate Director, Division of Monetary Affairs, Board Dina Tavares Marchioni, 3 Director of Money Markets, Federal Reserve Bank of New York Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Benjamin W. McDonough, Deputy Secretary and Ombudsman, Office of the Secretary, Board Karel Mertens, Senior Vice President, Federal Reserve Bank of Dallas Ann E. Misback, Secretary, Office of the Secretary, Board Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board Alyssa O'Connor, Special Adviser to the Board, Division of Board Members, Board Anna Orlik, Principal Economist, Division of Monetary Affairs, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Ander Perez-Orive, Principal Economist, Division of Monetary Affairs, Board Eugenio P. Pinto, Special Adviser to the Board, Division of Board Members, Board Albert Queralto, 4 Section Chief, Division of International Finance, Board Odelle Quisumbing, 5 Assistant to the Secretary, Office of the Secretary, Board Andrea Raffo, Senior Vice President, Federal Reserve Bank of Minneapolis Denise L. Redfearn, 6 Administrative Specialist, Office of the Secretary, Board Achilles Sangster II, Lead Information Manager, Division of Monetary Affairs, Board Shane M. Sherlund, Associate Director, Division of Research and Statistics, Board Clara Vega, Special Adviser to the Board, Division of Board Members, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Ines Xavier, Senior Economist, Division of Monetary Affairs, Board Egon Zakrajsek, Executive Vice President, Federal Reserve Bank of Boston _______________________ Joshua Gallin Secretary 1. The Federal Open Market Committee is referenced as the "FOMC" and the "Committee" in these minutes; the Board of Governors of the Federal Reserve System is referenced as the "Board" in these minutes. Return to text 2. In taking this action, the Board approved requests to establish that rate submitted by the Board of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and San Francisco. The vote also encompassed approval by the Board of Governors of the establishment of a 4.5 percent primary credit rate by the remaining Federal Reserve Banks, effective on December 19, 2024, or the date such Reserve Banks inform the Secretary of the Board of such a request. (Secretary's note: Subsequently, the Federal Reserve Banks of St. Louis, Minneapolis, Kansas City, and Dallas were informed of the Board's approval of their establishment of a primary credit rate of 4.5 percent, effective December 19, 2024.) Return to text 3. Attended through the discussion of developments in financial markets and open market operations. Return to text 4. Attended Tuesday's session only. Return to text 5. Attended through the discussion of the economic and financial situation. Return to text 6. Attended opening remarks for Tuesday session only. Return to text